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Ashley:
This is Real Estate Rookie episode 294.

Ava:
We were making about 10 grand a month with couch flipping. On average, I would say if you’re like consistent and dedicated, you could do anywhere from 2 to 5 a week.

Josh:
You don’t want to drive 10 miles delivering $20 in food, and you make a $2 tip. There’s DoorDashers making $10 an hour, and then there’s other ones making 40 or 50.

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

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And Rookies, we got a great, great episode for y’all today. We’ve been torn around with this concept in the background for a while now, but one of the biggest obstacles or challenges that we hear from aspiring investors is the capital that’s required to get started. While there are certain types of real estate investing or strategies where you can get in for little to no capital, a lot of times you need some cash to get started. And we thought what better way to overcome that obstacle than bring back some previous guests from the Rookie show and from the Real Estate Podcast who used their side hustles to fund their real estate business. So today we’ve got Ava Yuergens and Josh Janus to come back and talk about their side hustles and how they use that to fuel their real estate business.

Ashley:
Then at the end of the episode, we kind of break down three different criterias that we have set as to how to weigh out these two side hustles. And the first one is upfront capital, income potential, and then passiveness, what is the time commitment. And then we kind of threw in a fourth one there too as to, what is the risk? How much money could you lose on this? So make sure you guys listen all the way through and kind of check these out. Maybe one of these side hustles will be great for you, guys. Make sure to leave a review on YouTube or wherever you may be listening and let us know if you like these Side Hustle episodes. I think they’re great for everyone listening, but also if you have kids and you want them to start making money somehow, this may be a great episode to have them listen to.

Tony:
Yeah. And honestly, that was part of how this whole episode came to be, was because my son’s 15 and he’s trying to save up for his car right now and he’s debating on these different side hustle ideas and we thought it’d be cool to hear firsthand from folks. So maybe we’ll get my son Shawn in one of these episodes in the future as well so he can interview some folks firsthand.
But just a few quick housekeeping things before we jump into Josh and Ava’s episode. If you guys can head over to biggerpockets.com/reply, we’ve got a new landing page up where you can submit your questions for the Real Estate Rookie Reply episodes. We’d love to hear from our Rookie audience. It’s one of our favorite types of episodes to do, is to hear from y’all and answer your questions directly.
And second, I got to give a shout-out to someone by the username of Nico and Casey. They left us a really heartfelt five-star review on Apple Podcasts. The title of their review is My Lighthouse in the Storm. It’s a very deep and touching title, but Nico and Casey say, “There is so much advice out there. Most of it’s contradictory for real estate investing that it feels like you’re being tossed about in the ocean during a storm. There seems to be risk and the potential for losing large sums of money no matter where you decided to go. Worst of all, you feel like you were in it alone. BiggerPockets and particularly the Real Estate Rookie Podcast has been my guiding light. Your advice is sound and the guests you interview remind me that anyone can start this journey. I haven’t closed on my first deal yet, but I’ve been making many connections in and out of state, and it’s only a matter of time. Keep up the great work.”
Nico and Casey, probably one of my favorite reviews I’ve read as of late. We appreciate that. For all of our Rookies that are listening, if you haven’t yet, please do leave us an honest rating review on whatever platform it’s you’re listening to. The more reviews we get, the more folks we can reach. And more folks who reach, more folks we can help.

Ashley:
Ava and Josh, welcome to the show. Thank you so much for taking the time today to teach us about your side hustles. I want to start off with you guys telling everyone a little bit about yourself. Ava, we’ve had you before on the Rookie Podcast. Josh, you were on the podcast with David for the BiggerPockets Podcast. So let’s jump in with you. Ava, can you start off with telling us just a little bit about yourself and what side hustle you are going to be teaching us today?

Ava:
Yeah. So hi, my name’s Ava Yuergens. I started a real estate investing company when I was 15 with my now fiance, Ben. We were able to acquire 900K in residential real estate before I graduated high school. And now, basically we were able to acquire a lot of real estate because of this side hustle called couch flipping, which we will talk more about today.

Ashley:
And Josh, what about you?

Josh:
Hey, I’m Josh Janus. I’m 22. I am a real estate agent and investor based in Cleveland, Columbus, Ohio. Basically I was DoorDashing as I’ll talk about later in college, not really knowing what my journey was going to be. I was listening to the BiggerPockets Podcast and listening to all their educational material regarding finances and real estate, and that led into where I am today.

Ashley:
So Ava, you were on episode 271 of the Rookie Podcast and Josh was on episode 749 of the Real Estate Podcast. So thank you guys so much for coming back. We want to break down these side hustles so at the end of this episode, someone listening can go out and replicate what you guys did or maybe something very similar. So Josh, how did you even hear about your side hustle and doing DoorDash?

Josh:
Yeah, I didn’t really want to work a traditional job. I wanted to work a job where I could maybe listen to podcasts or audiobooks or do something while working to try to improve my overall education. So I was just kind of Googling what could you do. I had a car, I had some money saved up, but I didn’t have anything particular. I think some Uber Eats ads popped up. I was like, “Oh, maybe I’ll try that out.”

Tony:
Josh, it’s such a weird world that we live in now. My wife and I, we’re notorious for not cooking. 90% of the food that we eat gets delivered by someone else. So either we’re Instacart-ing from the grocery store or we’re doing DoorDash or all these other things. So it’s cool that there’s side hustles out there that people can use through that kind of stuff. So you hear about DoorDash. I mean, how old were you at the time when you started?

Josh:
18 or 19.

Tony:
I mean, as an 18 or 19 year old, was there any hesitation about driving around your local city delivering food to strangers? I think for a lot of people, that might be part of the hesitation around DoorDash. I might be getting ahead of myself, but just, I don’t know, all the interaction with strangers, was that a concern for you at all?

Josh:
Yeah, I mean a little bit. Just navigating, like figuring out where to go. Some people’s apartment complexes or building arrangements could be complicated to somebody that isn’t experienced to it, I guess. So that might make people nervous.

Tony:
So let me ask this, man. Who do you feel is the ideal person to take up the side hustle? What are some of the skills or traits or tools that someone needs to be successful doing this?

Josh:
I think it’s somebody that’s self-driven because you really only get paid for as much as you work. But at the same time, you can be really flexible with it. You don’t have to do it a set number of hours or set number of days. There’s always those commercials talking about it, but it’s true, you can set your own schedule.

Ashley:
And Josh, what made this a good fit for you? Was it the schedule or was it something else that really enticed you as to this is something you wanted to do?

Josh:
For sure. It was definitely the scheduling because I had classes during the day and I wanted to find something that I could make money with after school or in general, between 5:00 and 9:00. I don’t want to be out too late. And then I also wanted to be able to either listen to books, audiobooks, podcasts, et cetera. And this job allows you to do that almost the entire time.

Ashley:
Josh, can you just explain how it is flexible? How are you setting your own schedule? Is there an app you’re going into and putting in when you’re available to work? Do you have to set it ahead of time? Can you just give us the glimpse as to how exactly you are setting your own schedule?

Josh:
So certain markets, you’ll actually have to set your schedule in advance because it’s competitive. Wherever hours was working, you can just log on and start working and you don’t really have to tell anybody when you’re going to do it. So it’s kind of the ultimate level of freedom.

Tony:
Josh, this isn’t necessarily about the side hustle, but you talked a lot about wanting to have the freedom to listen to podcasts and all this other stuff. Just out of curiosity because you said you were 18, 19 at the time, what sparked that initial interest for you?

Josh:
Yeah, I’ve always been kind of entrepreneurial. I made duct tape wallets, sold shoes, sold virtual currency. I kind of had some money saved up and I didn’t really know where to take that, but I figured if I just kept jamming information in my head, eventually I’d figure something out.

Tony:
I love that, man. We got to have both you and Ava back because I know both of you guys have multiple side houses that you’ve tried. Next question for you, Josh, what was the cost of entry? What were the startup costs for you to get the side hustle rolling?

Josh:
If you have a car that’s within the last 10 years, I believe that’s their guidance. And you have a valid driver’s license and you have enough money to pay for gas in the beginning, that’s really all you need. You can borrow somebody else’s car and rent it, but yeah.

Ashley:
I didn’t realize that you needed to have a car within the past 10 years. Is that just because they want your car to be reliable so that the food is actually getting delivered and there’s less risk of breaking down?

Josh:
Yes.

Ashley:
Okay.

Josh:
Yeah, I had a couple, one or two flat tires they actually would assist in paying for, which is kind of helpful.

Tony:
I was going to ask, because I know I’ve heard Uber, I’ve been in Ubers before where the driver says, “Oh, this isn’t even my car. I’m renting this car from Uber.” And Uber will rent you a car. They take care of all the maintenance and the service. So just for anyone else that’s thinking of… Even if you don’t have a car, some of these gig based things will actually give you a vehicle and then you just have to do the work of actually driving it around.

Ashley:
Yeah. And Josh, you mentioned right there that they helped you with your tires. Did they give you money when you got flat tires? Or how did they assist you with that?

Josh:
I believe they did credit me for a flat tire and they also paid me for what I would’ve made if I completed the delivery. I think it was both. I could be wrong, but…

Ashley:
Oh, that’s interesting. Okay. So Josh, you’ve started your gig. Were there any other kind of startup costs besides having a vehicle and having to spend money on gas?

Josh:
If you buy a magnetic thing to put on your car by your front windshield, that’s very helpful. So you’re not constantly looking down, a good set of headphones, have some snacks, have some water in your car, and just be ready to just live in your car for a couple hours a day.

Tony:
Basically, Josh, it sounds like the startup cost for this are relatively nothing, right? Most people already have a vehicle. Most people already have what they need to get started. So if I wanted to right now, I could probably start making money with this side hustle tonight if I wanted to?

Josh:
Yeah. The actual registration sign up was a couple days.

Ashley:
Okay. And then Josh, once you got going, how long was it? So since that initial day you started the signup process, how long until you actually made your first dollar?

Josh:
I made money on the first delivery. So you make money right away. You get paid out once a week, so you wait a couple days to actually get it. But you need to learn what is a good delivery to take and what isn’t. So making sure people are tipping you and things like that. But really you get paid from day one.

Ashley:
Yeah. How do you tell what is a good delivery or a bad delivery? I didn’t even know that there was actually a difference.

Josh:
Oh, yeah. I mean there’s Door Dashers making $10 an hour and then there’s other ones making 40 or 50 because you have to learn how like… You don’t want to drive 10 miles delivering $20 in food and you make a $2 tip and it takes you an hour round trip. But maybe you drive 10 minutes there, 10 minutes back and you make $9 and you waited five, 10 minutes at the store. That’s a lot better utilization of your time. So I think DoorDash really allows you to learn the value of time as well.

Ashley:
So are you able to see? Like when an order comes in, are you able to see all of that information as to what the tip will be, where the food is that you’re picking up, where you’re dropping off?

Josh:
You’ll see where it is and you’ll see where it’s going. They hide the tips. You can go on Reddit and other forums and figure out how they hide it and learn it. But for the most part, it’s very transparent. And actually, every single delivery is like its own independent contract. So you can either accept it or deny it and get another one presented to you.

Ashley:
Oh, so even after when you accept it, you can see all the information and then you can go back and cancel it and then go and take another one?

Josh:
Yeah.

Ashley:
Oh, okay.

Tony:
Does DoorDash help you optimize your routes as you’re going through this? Because you talked about making sure that you’re getting the best return on your time. Does it have a routing functionality that says, “If you’re picking up multiple deliveries, go here, then here, then drop off in this sequence”? Or do you have to figure that out yourself?

Josh:
It does do that, yeah. If you’re in an area, if you’re in a city or somewhere busy, it works really well. If you’re kind of doing it in the middle of nowhere a little bit I was doing, it’s not as great, but yeah.

Tony:
That’s pretty cool. Ash, I don’t think I’ve ever shared this with you before either, but I have such a colorful history. But when I was in college, me and my friends had a startup and it was called Tumee, T-U-M-E-E. And this was before DoorDash and Uber Eats really blew up. They were just early phase startups and we were trying to essentially be the kayak for deliveries. So if you went to Tumee, you would put in what you wanted and then it would give you the best price between DoorDash, Postmates, and whatever the other apps were at the time. We never really got off the ground. We had a really cool looking app where we couldn’t get funding. But I don’t know, just tidbit for you to know more about Tony’s history.

Ashley:
Yeah, always having you surprise us with all these ventures or jobs or different things you did.

Tony:
All right, Josh, so next question for you here, brother. And this might be a silly question, but how many people are on your team to do this DoorDash thing? Are you always by yourself? Are you tag teaming with a buddy? What does that look like?

Josh:
I had a friend that did it along with me, so we would be on calls sometimes. But the way to that I grew it was I started to use multiple apps at the same time. And then once I got the hang of that, I actually used multiple phones to get different orders. And you try to line everything up. You don’t want to have people wait too long for their food. You got to be strategic with it. But if you do it right, you can do pretty well with it.

Tony:
Wait, so walk me through why you need multiple phones. Why can’t you do it all with one phone?

Josh:
Because you could potentially get two similar delivery requests on two different accounts that maybe one house is two miles away from the other and you wouldn’t necessarily get both of those requests at the same time on the first phone. So you can kind of stack deliveries that way.

Ashley:
So it’s almost like you’re two people then? You’re signed in on under different logins to the app?

Josh:
Yeah, you’re essentially two people. Yep.

Tony:
So what’s the most number of phones you’ve been logged into at one time? You got five phones that you’re running around with doing-

Josh:
No, that that’d be pretty chaotic. Just two. I think I’ve had six different deliveries on my car once. I think that was my max.

Ashley:
Well, all I could think about is that song. I got two phones. One for the [inaudible 00:16:10].

Tony:
Yeah.

Ashley:
Okay. Well awesome, Josh. We just want to kind of dive in and get the background information on DoorDash. And now we’re going to turn it over to Ava. So Ava, how did you hear about the side hustle that you chose?

Ava:
We found couch flipping just because we searched up on YouTube, just side hustle ideas and couch flipping just seemed like the most intriguing one.

Tony:
Just, Ava, I think everyone understands what DoorDash and Postmates are, but for folks that maybe haven’t heard of couch flipping before, can you just even define what that means? What does it mean to flip a couch?

Ava:
Yeah, I’ll just go step by step. So the first step is you go on apps like Facebook Marketplace OfferUp. And then you look for couches that people are selling that are just underpriced or maybe need a clean and you could sell it for higher. But then you basically just make your offer. You can low ball it just like real estate. And you get the couch, you can clean it or if it doesn’t need cleaning, you just leave it as it is. But then you take really good pictures and then you upload it back on those apps for just a higher price.

Tony:
So you’re literally almost like flipping a house, but you’re flipping a couch. You’re flipping furniture that people have. That’s wild. So who is this side hustle for? What are some of the skills or traits you need to be successful with couch flipping?

Ava:
I would say kind of like DoorDash, you figure out what couches are going to be the most profitable and what ones just aren’t worth your time. I would say it’s not necessarily a skill, it’s just something you learn over time. But I would say you do need to have some muscle, have some meat on your bones because couches are really heavy, so you definitely need to be able to lift it up. But I will say you can do it with just one person. You can either get the owner of the couch to help you actually get it into your vehicle. Or there’s a side kind of hack. You just put one end up on like if you have a truck, you put it in the truck bed and then you go around on the other side and lift the other end and just push it in. So it’s possible to do it with just one person, but you just got to be strong.

Tony:
So just on the skill side piece, so Josh talked about how with DoorDash you got to be smart about which deliveries you take and which ones you denied and make sure that you’re maximizing your time and maximizing your revenue. How do you get good at analyzing a couch? How do you know like, “Okay, this is how much this couch is going to make when I resell it on the back end”?

Ava:
Yeah. So over time you’ll realize which couches sell the fastest. Where I live personally, everyone loves a good huge gray sectional. I don’t know what it is, but I mean I guess they’re modern and they’re pretty. So we always know if we can find a gray sectional for 200 bucks, we could probably sell it for 1,200 if it’s good quality, if it’s big. So you will learn over time which couches sell the best. It’s different in each market, but for me personally and for a lot of other different places in the US, gray sectionals do really well. And then you can also look at how far away is this couch. Is it in your city? Is it in the city over? So drive time. I mean, also just if you have to clean up the couch, take that into account because to clean up a couch, it could take anywhere from 10 minutes to an hour.

Ashley:
For that you know the fact that the gray sectionals go great, in the very beginning, how did you do your market research as to what kind of couches you wanted to buy? Was it trial and error? Were you going up and seeing what things were selling for on Facebook Marketplace or OfferUp? How did you learn what couches go for and what the true value is?

Ava:
Yeah, so like you mentioned, we saw that, for example, gray sectionals, they were selling really fast where we live. And also we watched a lot of YouTube videos and we knew that this one guy who couch flipped a ton, he just did sectionals because they were so good. So we tried to stick to just sectionals. And then also some of it’s just self-explanatory. Obviously, you don’t want to get a leather sectional that’s ripping all over, so that’s something you can’t fix. So I guess it was a lot of trial and error, but also some strategy that you just kind of learn over time.

Ashley:
And when you were watching these YouTube videos and you found this couch flipping online, what made you decide that this was going to be a good fit for you?

Ava:
Mainly just because my fiancee Ben, he had a truck and he’s strong. So yeah, I mean, I won’t take full credit, he was pretty much the whole driver of it. And also just it was very attractive because it could make a lot of money. I mean, you’re making anywhere from on average 200 to $700 an hour. So it’s a great return on time.

Tony:
And then Ava, what’s the cost of entry? If I wanted to get started couch flipping today, what kind of capital do I need to put up to get started?

Ava:
So you can get couches for free or 100 bucks? What we did for our first one is we got it for free and we already had the truck so it didn’t cost anything. But if you don’t have a truck, this is where it can get pricey just because you need to be able to have a car that’s actually going to fit a couch because couches are huge. You got to have some way of transportation. The only way you can work around not having a truck is borrowing someone, like if your grandparents have it, your relatives, any friends or renting one or maybe having the people deliver the couch to you. But I mean there’s a couple ways around it, but I would say having a truck is pretty important.

Tony:
I didn’t even realize. So you’re saying, Ava, that at times you would find couches that people were giving away for free and then clean them up and turn around and sell. So your initial capital investment would be zero on those couches, is that what you’re saying?

Ava:
Yeah. And some people like that we got them for free, they’d be really upset because sometimes people will message you after and they’re like, “This is my couch.” But yeah, you can actually do it and get them for free.

Ashley:
There probably are people though that just want to get rid of it and they’ll give it for free just to have somebody haul it off of their property so they don’t have to dispose of it. Where I live, there’s like a town dump and they have trash day every once in a while where you can bring appliances, things like that, and you have to load up the trailer of all the stuff and then drive it there and take it to the dump. I could see if people don’t have a truck, they don’t have a trailer, they really don’t have any way of getting it there, plus it’s an inconvenience to have to drive there. So I could definitely see the value of finding those people that just don’t want to get rid of the couch themselves, that they’re willing to give it away, just have somebody haul it.

Tony:
I opened up Facebook Marketplace on my phone while you’re talking Ash, and the very first couch that showed up says free. The very first couch on Facebook Marketplace is free. So there you go. I never even would’ve thought of that.

Ava:
Yeah, sometimes they’re free when either they’re just really bad or they need a good clean or maybe they need same day pickup or something like that. And also we’ve been able to get couches for free by… It’s just like real estate. Like a fast close, you can get a discount. Same with couches. You’re like, “Same day pickup? Oh, that’s like a hundred bucks off.” So yeah, it’s literally just like real estate.

Ashley:
Let’s go into the kind of that negotiating a little bit, because with DoorDash you really can’t negotiate. You’re pretty much told what the cost is. But as far as negotiating couches, what are some of your tactics for that?

Ava:
Yeah, so like I just mentioned, same day pickup is huge. People just usually when they post it, they just want to get rid of it. So same day pickup’s a great one, and you can get a couple hundred off for that if you’re lucky. Usually it’s like 50. Also, you can just maybe bid against other people. In the summer is when you’ll usually get in bidding wars because everyone’s looking for new furniture. And obviously, buying a new couch, you’re paying a couple thousand. And then on Facebook Marketplace you can get it for a couple hundred. So a lot of people buy couches on there. Negotiation, there’s some, but it’s pretty much slim to none. But one way you actually can get more money out of people when they’re buying it is offering delivery because again, everyone has a truck, so how are they going to get it to their property? So if we deliver, we’re able to up the purchase price by 50 to 100.

Ashley:
So along with your startup cost, when you take these couches, it’s usually you’re probably not selling them same day. So do you have a storage unit that you’re paying for? Or where do you store the couches until you’re actually able to sell them again?

Ava:
That’s actually a really good question. So since we started this when we were 16, we were still in my parents’ house, so we would just put all the couches in my parking spot and I just park outside. But then my parents just got, they’re like, “I’m tired of these couches in my garage.” Because they also, sometimes, they just have a stench of someone’s home, even if it’s not bad, it’s just… I don’t know. So they wanted them out. So eventually we did get a storage unit. I believe our storage unit is about a hundred something a month. But you can fit a bunch of couches in ours. It’s like ours isn’t very big, but we just stack couches on top of each other.

Ashley:
And then do you offer delivery or do you have people just come right to the storage unit and pick it up?

Ava:
Yeah, so it just depends on how far away they are. If they’re super far away and they ask for delivery an hour away, we usually won’t do it unless we’re actually getting a good price for it. But if they’re close and they really need delivery in order for it to close, then we’ll go ahead and deliver it for them.

Ashley:
So with all of this couch flipping, what was the reason that you wanted to make this extra money anyways?

Ava:
Yeah. So again, since we were making a couple hundred dollars an hour, it was a great way in order for us to make a lot of money as just young people in order to invest in real estate. I talked about this on my episode a little bit, but for our first investment we did a 50/50 partnership split with my parents. And if you add up the down payment, closing costs and then any repair costs, and then you split that in half, my parents paid half and then we paid the other half and then we paid our half with all our couch flip money.

Tony:
Yeah. So you literally use your couch flipping business to fund your first real estate purchase, which is the whole purpose of this episode is to show our listeners what’s possible when you get a decent side hustle so that can generate some revenue. So let’s go back to that first couch, Ava. You said that you got that first couch for free. How long did it take after you purchased that couch to actually get your money back from selling it?

Ava:
So it did sell same day and then we delivered it the day after. But we got it for free. And again, with the skill over time, you realize what you can actually price it, but we just wanted to make sure we sold it. So we put it up for maybe 200. And so on our first one, we got $200.

Tony:
Just transactionally, what are you using to get the money? You just sell Venmo or are you sending PayPal invoices or something?

Ava:
Usually it’s just Venmo and then sometimes just cash.

Ashley:
So when you did that first transaction, how much time did you actually put into it with picking up that free couch, delivering it? Did you have to clean it at all? How much did you make hourly for that first $200?

Ava:
So on our first couch we did clean it. I would say it was about an hour and a half worth of work because it wasn’t too far away. So we just had to pick it up, clean it, take pictures. And then actually something I do want to mention, again, with the skill is over time you’ll realize how to sell it in the description. It’s just a listing for a house. You got to talk about it in the listing, make sure you clarify things like colors. And then also always include measurements like height, width, and length, because people are always going to ask and it’s just a pain to go remeasure it. So always measure it, put those in the description. But I would say all in all, since it was our first one, it took a little longer, so maybe one and a half to two hours.

Tony:
Out of curiosity, Ava, have you found one platform being better than the others to list your couches? Do you get more interest on Facebook Marketplace or are you on OfferUp? What are all the platforms that you’re on and which one has been the best one for you?

Ava:
Yeah, so I always say you can do it on OfferUp and Craigslist as well, but we have only ever used Facebook Marketplace because it’s the best for selling and buying.

Tony:
All right. So last question here before we kind of switch gears. You mentioned you and your fiance, but is there anyone outside of the two of you? How many people do you need to make the side hustle of couch flipping a realistic goal for people?

Ava:
Just for our end, it is just one or two people. But of course you need people who are actually selling their couches. But just to actually do it, you just need yourself. Obviously it’s going to be easier to lift a couch with two people, so keep that in mind. But yeah, you can do it by yourself.

Ashley:
Awesome, Ava, thank you so much for sharing the start of your side hustle. We have some more questions for you, guys. So Josh, let’s go back to you. Can you recount a crazy moment? Maybe it was an interaction with the customer, a big order you had, or maybe something went wrong. Can you kind of give us that entertainment?

Josh:
Yeah, it was… I don’t know. It was 2:00 PM on a Tuesday or something, like middle of a workday, and I was delivering Taco Bell to this house that had a big gate. So I had the code and I got through the gate and it was a quarter mile driveway in this huge house with like… It had a Lamborghini and a Rolls-Royce in the driveway. It was absurd. I was like, “Why are you guys ordering Taco Bell?” I don’t know. I thought it really funny.

Tony:
You know what you should have did Josh? Have you seen those videos where it’s the people going up to millionaires homes and saying, “Hey, what do you do for a living?” Did you get to ask that question?

Josh:
I wish that was happening when I was doing this because I could have just done that also. And then maybe you had two businesses going.

Tony:
There you go, man. That would’ve been been a really good idea. Oh, I love that. So you never had anyone that was like, I don’t know, belligerent or drunk or just anything crazy like that where you were fearful for where the situation might go?

Josh:
Luckily, the majority of what I was doing was during COVID, so actually I didn’t meet too many people, but I am sure there are some funny stories out there about that.

Tony:
Ava, what about you? Flipping couches, meeting up with people, any crazy stories about either who you sold to, who you bought from, anything in between?

Ava:
Yeah, so there’s the small things where couches have, like we’ve been lifting them and they just fall down the stairs. Or one time, actually a couple weeks ago, we were lifting one and then all of a sudden we were going out the door and their cat just jumped right out of the couch. But there’s this… Yeah, so we almost took their cat. But there was this one time we were going into the city downtown. I don’t know, it was kind of this sketchy area. The neighbor’s house… We were going into the house to get the couch, but then the neighbor, I don’t know what they were doing, but they were on the porch and then all of a sudden we made eye contact and he pulls up his AR, not pointing at me, but he just pulls up and just show it. We just sprinted to the car and left. Honestly, I just couldn’t. But yeah, those are the crazy stories I can think of right off the top of my head.

Tony:
Yeah, I guess getting a gun pulled on you is [inaudible 00:31:27].

Ava:
Yeah.

Ashley:
And that’s the one thing we didn’t talk about with either of them is pulling up to strangers houses. And especially Eva, if you’re going into the houses to get couches, what are some ways to kind of protect yourself? I know at this one property that I’m at right now where I’ve been working a lot, we’ll order groceries here because we have a full kitchen and everything. It’s just this very random dirt road that Josh says goes back a quarter of a mile, but this is all dirt and the property’s overgrown. There’s like a haunted house looking things at the end. You know could tell they’re not sure if they’re in the right place. So how do both of you navigate as to like are there certain areas you won’t deliver to Josh, or Ava you won’t pick up couches from?

Ava:
For me personally, Ben’s… Well, he always says this, Ben’s a really good wrestler, so he is like, “I’ll be fine. I’ll beat him up. Don’t worry.” So I’m always with Ben when I do it. But he went to state every year. He’s good, so I’m okay.

Ashley:
And Josh, what about you?

Tony:
Yeah, is there ever a DoorDash you’re like, “No, I’m not picking that one up. I’m not going there.”

Josh:
I would utilize the tips as a way of judging the area. So if I’m delivering $60 in food and you’re giving me $2, it’s like I’m probably not going to go over there.

Tony:
That’s interesting. I don’t even think I ever noticed what the tip is because DoorDash just has a default tip amount. I don’t think I’ve ever changed that. But now hearing from a DoorDasher, I might need to pay more attention to that to make sure that I’m getting my fruit delivered quickly, right? Because can you change your tip amount on DoorDash after you’ve submitted your order?

Josh:
You can change it after. I’ve had both sometimes like I can’t open up the food, I don’t know actually what’s in there. And people would be like, “Oh, they put onions” or something on the food and then they’d take half their tip away and it’s like, “Dude, I had nothing to do with that.”

Tony:
Wow, I didn’t know that. I didn’t know that. All right. Let’s go to our next question here. What about longevity, just in terms of how sustainable the side hustle is? So Josh, let’s start with you, man. I mean how sustainable or how… I don’t know, I guess how long do you feel you could keep up doing DoorDash as a side hustle?

Josh:
I think it pairs really well with a W2 job or something where you can work at night or maybe you’ll work on a Tuesday or a Saturday morning. I think it’s sustainable as long as you want to do it.

Ashley:
And Eva, what about you for couch flipping? I would think that maybe lifting couches may take a toll on your back eventually, but what would you say the longevity is for doing couch flipping?

Ava:
Yeah, I would say you can hurt your back, so you got to be careful. But as long as you’re fit enough and you can lift heavy objects. And also, I guess if we’re talking about if you have a job while doing this, a lot of the times the only downside about couch flipping really is it’s not really on your own time. It’s whenever a good couch pops up because they’re not on there 24/7 all the time, because obviously if it’s good, it’s going to go fast. So you have to be constantly looking at your phone, refreshing the page in orders to text the person right away like, “Oh, I want this couch.” So pairing with the W2 job, I mean you can only take so many bathroom breaks, so I don’t know. But I would say it’s good for the weekends and stuff. But yeah, longevity wise, as long as you’re good with lifting heavy objects, you can do it as long as you want.

Ashley:
And Ava, if I remember correctly, you have a bunch of virtual assistants for your other business. But for a side hustle, do you think you could hire a virtual assistant to basically just comb through listings every day or have them set alerts and where you’re not even having to worry about logging in and checking for all these listings?

Ava:
Definitely. I definitely think you can because if you just plug in the location, anyone can do it from anywhere. So for sure.

Tony:
Man, now my head’s spinning. Could I build a couch flipping empire where I have VAs across every single-

Ava:
People do. People have huge warehouses and buy them at wholesale. It’s crazy. You should just look it up on YouTube.

Tony:
Well, I guess that leads into my next question. And Ava, I’ll start with you on this one in terms of consistency of income, because you said people aren’t posting couches all day every day. So I guess how many couches could you flip in a month? What’s the average number that someone could expect to do? Am I flipping a couch every day? Is it once a week? What does that look like?

Ava:
I would say it depends on… Obviously in spring and summer, people are moving, so it’s more common. But on average, I would say if you’re consistent and dedicated, you could do anywhere from two to five a week. So just from a income perspective also you could do less couches, but just raise the price higher, just all that kind of stuff. But we were making about 10 grand a month with couch flipping, especially during the summer when we didn’t have school.

Tony:
Yeah. And gosh, so 10 grand a month, how many couches is that, like ballpark?

Ava:
I’m thinking like 10 to 20. 10 to 20, okay. I’m going to say 10 to 20.

Tony:
Yeah. Wow, that’s a lot of couches in a month. 15 couches a month, that’s like a couch every other day. That’s a lot of volume. I didn’t realize there were that many couches out there. I wonder if it’s somewhat market dependent.

Ava:
It is.

Tony:
Like you probably have to be in a bigger kind of city to get that kind of volume. Whereas if you’re in a more rural or remote area, the volume of couches might be smaller. Like every house in your neighborhood is on acres and acres. So the density just isn’t the same as mine where I can see my neighbor’s house out my window right now. So I wonder what that looks like.

Ava:
Yeah, I agree. It is really market specific because we live right outside Milwaukee, so there’s a lot of couches for sale all the time.

Ashley:
Josh, what does your income look like on a bad month, a good month, and how long are you actually spending time driving and how many deliveries on average would you say?

Josh:
Yeah, when you start out, you need to learn what orders are good to take and what aren’t. So you can probably be around $15 an hour, maybe 20 in the beginning. But as you kind of pick up the pace, you learn when to go. The hotter hour’s during lunch and dinner, especially more on the weekends versus weekdays. I mean, you can push 40 to $50 an hour pretty consistently. Of course it is market dependent. I kind of did it in an area where there were three main shopping centers with five to 10 restaurants at each, and I kind of just cycled through those. But it’s kind of probably averages around 30.

Tony:
So Josh, you said you would cycle through the same restaurants. So were you friends with the people at the local Johnny Carino’s because they saw Josh coming in every other day? Or was it multiple deliveries from the same restaurant on a daily basis? What’s the frequency at one location?

Josh:
Yeah, I mean, you could probably do 10 to 15 at one restaurant and almost just be their delivery person during the entire day. And bonus, you actually, if you start to make friends, they will give you the food that nobody picks up and you can get a bunch of free lunch and dinner. I mean, I had almost every single major meal covered for free.

Ashley:
That’s another cost saving tip there to save money not having to pay for food for your meals. Well, that’s awesome guys. I want to bring you guys both in to do a group discussion here and maybe you guys have questions for each other too on your side hustles. But looking back, is there something you would’ve done differently to make your side hustle maybe more profitable, maybe more passive or efficient? Ava, let’s start with you.

Ava:
Yeah, so I would probably say that now we go… We set a certain profitability goal. For example now, if a couch isn’t going to make us 500 within the hour, we’ll probably not get it just because we have our other businesses now. So yeah, we have a goal. But now on average our couches make anywhere from 500 to 1,000 for every one to two hours because that’s how long it takes to flip a couch.
But I would say I wish sooner I would’ve just gone for the bigger fish because at first when a couch was priced at $400, it would kind of be scary to buy. But now knowing what I know, I wish I would’ve bought some of those couches because if it’s a gray sectional and it’s priced for 400, well you could sell that for over 1,000. So you’re still making a huge chunk of money. But I was just scared because it was just a lot of money when I was used to getting couches for free. So I say something I wish I knew sooner or now I know is just you don’t have to be scared of the bigger price couches just because they’re higher priced. It’s the same as flipping a million-dollar house and selling it for a couple more million.

Tony:
Ava, did you ever lose money on a couch?

Ava:
Yes, we have. We have broken even before. A lot of the times it’s because we were 16 and really nervous. So when the pictures looked really good and we would go to the house, we’d be scared to say, “Oh, nevermind, I won’t want it anymore.” So we would just take it, which eventually we learned to be like, “No.” But yeah, so we have. Those obviously are majority of the times, that’s when we’ve broken even or even lost a hundred dollars or something. But losing money on a couch flip, it’s very rare, but it does happen.

Tony:
Josh, I wonder for you, have you ever lost money on doing DoorDash? If you looked up your week and maybe what you spent on gas, it didn’t equate to what you actually made during the deliveries. Has that ever happened?

Josh:
No, I wouldn’t lose money that way, but sometimes you would be expecting a cash tip. Like this one delivery, I drove almost an hour away from the store and it was catering. It was $350 in food. I went in their house and I put it all… I set it all up for their family, and I didn’t get a single dollar tip and I was really annoyed. So there goes two hours of time for 10 bucks.

Ashley:
Yeah, I guess that’s like how you lose money is that your hourly rate goes down significantly. So it becomes to the point where it’s not worth your time, even though you’re not physically losing money, but you’re losing your time and it’s not worth the value. Okay, so do you guys have any questions for each other before we kind of close this out?

Ava:
I do. Do you have a DoorDash hacker secret that no one else knows that you think it would be interesting to share?

Josh:
They do catering now, so I’m not sure how to sign up. But if you could just deliver catering orders. And I know one guy that does it and he was doing really well. Multiple apps. People don’t really do that very often. And then go on Reddit and try to learn the tips like how they hide their tips. I’m not going to explain it here, but basically you can figure out like, “Ooh, this one’s going to be over $12′ or something like that.

Tony:
Josh, I feel like the two phone thing and being able to be in two phones on multiple apps… Because what? There’s Postmates, there’s DoorDash, there’s Uber Eats, I guess, do you have a favorite between those? Do you prefer DoorDash or have you tried Uber Eats or Postmates?

Josh:
I probably prefer Uber Eats to be honest. It’s so market dependent in the hours if you really get in the weeds on it.

Tony:
Dude, I wonder if you could be an Uber driver who does Uber Eats and Uber at the same time. So you’re picking up people, but then you’re like, ‘Hey, I got to stop by McDonald’s,” pick up this meal and then you drop off the food in and the person. Awesome. Josh, what about you Have any questions for Ava on the couch flipping side?

Josh:
Definitely, yeah. This is like a follow up question after this. How often do you see the same couch or one really similar?

Ava:
When I’m buying them, just how often do I see a repeat couch that I’ve seen before?

Josh:
Yeah, I’m asking because maybe you could take blank or template photos and then almost pre-sell them.

Ava:
We have done that.

Josh:
Nice.

Ava:
We have done that. Oh, we got in trouble though. So one time this one couch, it went up on Facebook Marketplace and it was going crazy. Everyone wanted it, but we got it first and we got it for a couple hundred bucks. We made a thousand dollars on this couch. But before we even got it, we just uploaded the pictures because it looked gray in the pictures, which people like, but it was green in person. This kind of weird soft, green gray. But we put in the description it’s green. Don’t worry, I wouldn’t do that. But the pictures that she took just looked so much better. So we just uploaded them. Everyone, since it was so popular, people were trying to get it, everyone’s coming like, “Someone already tried to post this for hundreds of dollars less.” And then other people were commenting, “Appreciate the hustle kid.” Yeah, but we have reposted the same pictures, but we haven’t ever used stock photos because usually people think those are scams most of the time.

Tony:
Yeah, I wouldn’t take stock photos either. But yeah, I like the idea of like, “Hey, maybe before you even get it, if it’s the same couch… If there’s an IKEA couch that’s always selling in your neighborhood, then just having those photos might work.”
Well, Josh, Ava, both of you I think have given so much value to the Rookie audience in terms of ways that you can generate some additional capital to fund your real estate business. And like we said at the top of the show, both of you were guests on BiggerPockets Podcast. Ava, you were episode 271. Josh, you were 749 on the Real Estate show. So if anyone listening wants to go back and get their full backstory, check out those episodes.
But one final question before we let y’all go. Josh, we’ll start with you and then Ava, we’ll go to you. But if someone wants to start your side hustle today, give me the 30-second step-by-step game plan of how to get started if I want to do it this afternoon.

Josh:
Make sure you have a car that’s reliable. Good tires. Good brakes. Once you got that, sign up for as many apps as you can. Use an actual address. Use all the real information and map out where you’re going to try to focus on. If you don’t know your local area very well, try to see where all the stores are and hit those areas up. And then maybe even take a day and kind of drive and walk through some of the restaurants and figure out which ones seem to be running efficiently and which ones aren’t. And try to focus on the ones that are quicker and just get going.

Tony:
Ava, how about you?

Ava:
Download Facebook Marketplace. Make sure you have a truck or a truck you can borrow. Start making offers on couches, get an offer accepted, go get the couch and then take pretty pictures and upload it.

Ashley:
Awesome. Thank you, guys. One last question. How has this helped you guys with your real estate investing careers? Have you used money from the side hustle to purchase properties? Have you learned the actual valuable skills that have kind of translated into your real estate business? Ava?

Ava:
Yeah. So I obviously have used couch flipping to not only get my first rental property, but our second property was a short term rental and there’s like 10 grand worth of just mattresses, decorations, just housing supplies that you’d need in an Airbnb. So we saved up 10 grand from couch flipping in order to buy all that stuff. And then also just skills wise, this was our first time ever doing sales and making money and negotiating. I say we learned lot of that. And also me and Ben are both kind of more introverted, so this definitely helped us crack out of our shells and talk to people who we didn’t know, so yeah.

Ashley:
And Josh, what about you?

Josh:
It’s a pretty good way of maybe being eligible for your first house hack if you do it for two years because you can establish two years of tight income and then you can also actually… I’m not a tax advisor, but you rack up a lot of miles and you can write it off and actually not pay that much in tax on the income. But I basically used it to fund a few of my first deals and I was able to listen to a ton of podcasts and books and set myself up a lot better for when I was ready to start making some investments.

Ashley:
Awesome. Thank you guys so much. Josh, can you tell everyone where they can reach out to you and find out some more information?

Josh:
Definitely, yeah. Josh Janus on BiggerPockets. And then Josh Janus on Instagram.

Ashley:
And Ava?

Ava:
Hi, I’m just Ava Yuergens on Instagram, TikTok, YouTube, and you could just reach out through DMs and then also Ava Yuergens on BiggerPockets.

Tony:
Just really quick, if each of you can spell your last name, just so people know how to find you. Ava, you go first.

Ava:
All right. So it’s Y-U-E-R-G-E-N-S.

Tony:
Cool. And then, Josh?

Josh:
J-A-N-U-S.

Ashley:
You guys can reach out to them to talk about side hustles or even real estate investing. Make sure you go back and listen to their episodes. We had Josh on Real Estate Podcast episode number 749, and Ava on the Rookie Podcast episode number 271. Thank you guys so much for joining us, Ava and Josh, and provided a ton of value today with the side hustles.

Josh:
Thank you.

Ava:
Thanks.

Ashley:
Well, that was really interesting, Tony, learning about those two side hustles. You and I have the worst shiny object syndrome because we both are already thinking, “How can we make these work?”

Tony:
I’m going to have the biggest couch flipping business in America by the end of the year. Yeah, it was really cool. I mean, Ava and Josh, I think both gave different perspectives. I think what’s so cool, Ashley, is that there’s so many different ways you can fund your first deal. So there are literally no excuses around why you can’t get started in real estate investing, because both Josh and Ava approved no matter what your age, no matter where you’re at in your life, with very little resources, you can start generating additional revenue to put towards your first real estate deal.

Ashley:
Yeah. So we thought for this segment we would kind of weigh these side hustles with three different elements. So the first one is, what is the upfront capital? How much money do you need to start the side hustle? What is the income potential? How much can you actually make? And then is it passive or is it going to take up a lot of your time? What does that commitment look like? So as far as the upfront capital, I feel like these were actually very similar, the two side hustles. What I could see is that you needed a vehicle or access to a vehicle being kind of the main priority of these two side hustles.

Tony:
Yeah. And I’d say the majority of folks listening to this podcast already have access to a vehicle. Only caveat is that I guess with DoorDash it can be more than 10 years old. And then with the couch flipping, you probably need a truck or at least maybe like a minivan where you could pop out the seats or something. But neither one required a significant amount of money to get started. So let me just quickly break down how the scoring’s going to work. So 1 would be poor, 2 would be average, and then 3 would be great, okay? So if we give something a 1, it means we’re not super stoked about. If we give something a 3, it means we’re really stoked about it.

Ashley:
So I think for the upfront capital, Tony’s at a 3, I’m at a 2 just because you do need to have that vehicle expense. And with a vehicle comes paying for gas, it has maintenance on the vehicle that you have to maintain.
So our next category is the income potential. So as far as these two different hustles, I honestly think couch flipping has a way greater potential at making money than DoorDash because I feel like DoorDash, you’re kind of limited as to how much you can actually drive. And as Josh talked about, you can get really good at logistics and have two phones and different apps on them and try to coordinate as best as possible, but it’s still you physically having to go around and make these deliveries, where couch flipping, I see it as there’s a part of it where you’re monitoring, you’re negotiating online where it’s not physically having to drive yet to work this business and then you’re going to pick up. And yes, there is a max as to how many couches you can actually pick up in a month. But with the couch flipping, it seemed that per a couch, there was a greater span or greater hourly rate that they were getting compared to doing DoorDash.

Tony:
Yeah, I’d agree with that completely. I think that the upward income potential for the couch flipping… Like Ava says she was making 10 grand a month flipping couches. Not to say that you couldn’t potentially do that with DoorDash and Uber Eats and Postmates, but the time commitment will probably be significantly higher to try and get to that level of income. So yeah, I think I’m going to give couch flipping a 3 when it comes to the income potential. And I’d probably give Uber Eats a 2.

Ashley:
Yeah, I agree with that. I think there’s something else that we could put into this category too as to your risk also. As to DoorDash, there’s not a lot of risk. You’re not really putting up money up front, where with couch flipping, you could be spending $400 to buy this used couch and then you sell it at a loss for 200 and now you’re out $200. Where with DoorDash you may be out a little bit on gas money, but Josh said that’s really never happened where he hasn’t at least made back his gas money. But as far as his time, he might have driven somewhere and ended up being $5 per hour he ended up getting paid and making. So I think that it’s important to weigh that difference too.

Tony:
That’s a great point, Ashley. Yeah, there’s no risk really to DoorDash because again, all you got to do is jump in your car and maybe you spend a little bit of gas, but that’s it.

Ashley:
And also I would say you’re more guaranteed to actually have business where couch flipping it depends on what’s being listed in your market, how well are you at negotiating, how well you know what a couch sells for and what it’s actually worth. So a lot of research and a lot of learning. Where DoorDash, you’re given the business, it’s there and you can take it above and beyond like Josh said and really figure out the tip system. But at least you know you’re going to get paid to something for the standard rate from DoorDash.

Tony:
All right, I guess our last category then is passiveness. This is passiveness/ time commitment. I think both of them kind of have some pluses and minuses to each. Josh with DoorDashing, I think the benefit from a time perspective is that you control when you work and when you don’t. If you just want to do this around your day job and say, “Hey, I’m at work from 9:00 to 5:00 and I’m going to DoorDash every day from 5:00 to 8:00,” then you can commit to that time window and more likely than not, you’re going to be able to generate some revenue. Whereas with the couch flipping, like Ava said, you’ve got to kind of be monitoring that throughout the day because if you’re late on the trigger, you could miss what is a really good deal. So I think from a flexibility standpoint, I do like DoorDashing a little bit more than the couch flipping.

Ashley:
Yeah. I think as far as the research, the analysis, DoorDash is I think a lot easier to like, “Let’s just go and do it” and you’re making money day one. Where couch flipping, you do have to actually learn and do some research on your market onto the value of a couch. And so I think the time commitment of researching couch flipping and really understanding your market definitely can take up a lot of time, especially with just getting experience of buying and selling to get good at it and also negotiating.
So as far as passiveness, I think mentally DoorDash may be more passive. If you have one app, you get the alert. Okay, this is where you have to go pick up the food, then you’re delivering it. Where with couch flipping, you have to really think, “Is this couch worth it? Is it going to be a deal? How far is it going to take me to pick it up?” And all these different things that are kind of aligned with that. So I guess as far as passiveness, as far as time commitment, what do you say your ratings are for that?

Tony:
Yeah, I guess just one last thing to add on to that. I do also like, and we just barely scratched the surface with this, but there is the ability with couch flipping to hire virtual assistants that can kind of reduce that time commitment yourself. So if you have a VA that’s oversees and their whole job is to go through all of the Facebook Marketplace listings, all of the OfferUp listings, whatever the little platform you can think of and they’re just monitoring that, looking for couches that fit your criteria, and then once they find something, it’s all through the messaging apps anyway, so if they’re just in that app and they’re messaging for you and then when they lock something in, then you’re just going out there and picking it up and validating all that stuff.
So obviously that’s a little bit more involved. But I would say if we exclude the virtual assistant thing, I would probably give the couch flipping a 1 just because I think that there’s a little bit more friction there. And I would give DoorDashing a 2 only because it is always tied to your own time. So I give couch flipping a 1, DoorDashing a 2.

Ashley:
And with the couch flipping too, cleaning. That is your time cleaning. First of all, lifting the couches is physical labor, cleaning the couches is the actual labor you’re having to physically do yourself. I mean, with couch flipping, I think you could hire everything out and still make a little bit of profit at the end of it, but I think the people that are probably working for you are probably going to catch on like, “Why am I going and picking up these couches for somebody else? I can do this myself.”

Tony:
“I can do it myself.” Yeah.

Ashley:
Yeah. But so thankful to have these two guests on today to talk about side hustles. Before we close out today, I do want to give a shout-out to a real estate Rookie, gfrproperties19 on Instagram. He used the hashtag #realestaterookiepodcast and I saw his post where he actually used the BiggerPockets calculator reports on biggerpockets.com and he showed us a sample of an analysis he did on a property recently. And he said, “As the market has been evolving, we have had to evolve our approach to find our next property. We are now looking for a small multifamily property to house hack as our loan terms will be more favorable as interest rates continue to go up.” Then he asked for other people to comment as to different ways they’re having to evolve or pivot their strategy and how they are analyzing deals. So go follow @gfrproperties19.
And if you guys want to submit a question, make sure you guys go to biggerpockets.com/reply and submit your question or submit your side hustle so we can have you as a guest on the show. As always, thank you for listening. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson, and we will be back on Wednesday with a guest.

Hessam Nadji, president and CEO of Marcus & Millichap, and Tim Seymour, Seymour Asset Management CIO, join ‘Power Lunch’ to discuss a pullback in commercial real estate for offices, concerns about older property loans reaching maturity, and individual bank issues around lending.

Emotional resonance is all but mandatory in today’s marketing landscape. You can’t just make a stellar product and count on buyers to come to you—you have to lure them in. And with inflation prompting customers to prioritize savings, you can’t count on brand loyalty to keep them coming back.

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3. Segment and Curate

Besides tweaking your overall brand story, you need to curate emotion-based content for different types of customers and interactions. To do this, segment your marketing based on the motivating emotions of different customers. Maybe you have one demographic that’s moved by fears about toxic chemicals in their food. Another is driven by extreme jealousy of their fitter, slimmer friends. Those two groups should get very different ads for your vegan meat substitute.

When developing your marketing strategy, you can also think about how you want customers to act in response. You can curate your content around different business goals, like establishing more online presence or earning customer loyalty.

Research shows that anger and awe tend to go viral the fastest. If you want to reach more people quickly with a new product, target your ads around those emotions. If your goal is to build brand loyalty, on the other hand, research shows your marketing should evoke fear.

4. Use Testimonials and Word of Mouth

One of the best ways to connect with customers is by making them feel closer to the product. Social media marketing, testimonials and other word-of-mouth strategies can be some of the best emotional marketing tools. In fact, 81% of customers said social media posts from influencers or personal connections made them consider buying something.

Hiring trusted influencers to promote your product to their social media followers is one way to do it. Another is creating viral content that people will share voluntarily on their social media. A link from a friend makes a customer feel much closer and more connected to a product.

Getting more customers to review your offering can also go a long way toward fostering that sense of connection. Research shows people trust online product reviews almost as much as personal recommendations and more than they trust brands.

5. Give the Right Cues

There are other, more subtle ways digital marketers can play into customers’ emotions. Certain colors and word choices, for instance, evoke particular emotional responses in customers.

Blue can signify trust and dependability, increasing customer confidence in hospitals or health insurance companies, for example. Green signifies nature and is great for selling environmentally friendly products and fresh food. Red can evoke urgency or make a customer feel hungry, so it’s a good choice for clearance sales or fast food.

If all else fails, you can go the old school route of making customers insecure about their looks. But in this day and age, inclusivity and positive marketing will get you a lot more bang for your buck.

Know Thyself

The core of an emotionally resonant marketing strategy is, first and foremost, knowing and catering to your customer. Before making big changes, audit your current marketing strategies to see what’s already resonating. Get as clear as you can on what your brand has to offer and expand on what’s working.

Bear in mind that you can always tailor, segment and recraft your emotional marketing—to a point. But be wary of ever straying too far from your brand’s core message and values. The most important core emotion you need from your customers is trust. To earn it, you need to keep your story straight.

Dave:
Hey, everyone, it’s Dave. Welcome to On the Market, and I’m going to completely lose my credibility here and just tell you all that we have one of our best shows ever. I know I just keep saying this, but we have had so many good guests and so many good episodes recently that I genuinely think this is true today. I am here by myself, as you can probably tell, but I am having a great conversation with Mark Fleming, who is the chief economist for First American. If you’ve never heard of First American, he explains it a little bit, but it’s one of the major title companies in the country.
Mark, who is a professional economist, and his team have built some incredible models that help us understand what is going on with home sales volume in a way I’ve honestly never heard before. People, I think headlines when you read the newspaper, listen to the media, always concentrate on home prices. That’s like the sexy thing to talk about. But the more you learn about the housing market, I think the more you see that one of the, if not the more important measure of the housing market health is actually the number of home sales that are going on. Because this doesn’t just affect investors, it affects real estate agents, loan officers, property managers, title companies.
The whole industry is really dependent on how many times a year homes are changing hands. Mark has built a really fascinating model to predict how many homes should be changing hands based on things like demographics, household formation, inventory, affordability. It’s really fascinating. I really had a great time having this conversation with Mark, and he tells it in such an engaging and easy to understand way. I think you guys are going to absolutely love this episode. If you do like this episode as much as I think you’re going to and as much as I did, please make sure to leave us review on either Apple or Spotify.
It takes just a couple of seconds and it means a whole lot to us. We are going to take a really quick break, and then we’re going to bring on Mark Fleming from First American. Mark Fleming, welcome to On the Market. Thanks for being here.

Mark:
My pleasure. Thank you for having me.

Dave:
Mark, can you just tell us a little bit about your involvement in the real estate world?

Mark:
Sure. I’m Mark Fleming. I’m the chief economist at First American. That’s the easy part. My involvement in the real estate world is… Well, first of all, I’ve been studying it as a real estate economist for my professional career a little over 20 years now. At the moment, in the capacity of chief economist of First American, my job is essentially to monitor the markets and understand what’s going on to help our business make the right decisions, as well as obviously provide lots of content to everybody who wants to listen to our podcast or read our blog posts and disseminate what we think might be of value to people who make decisions in this world.

Dave:
Wow, that’s great. You said for your business. I know First American is a giant title company, right?

Mark:
Yes. The thing that nobody knows or understands until they actually get involved in it. How many cocktail parties do people go to outside the real estate industry? Like title what? Title insurance, insurance that you own your property or insurance that the lender has first lien position rights on the loan that they give to you, critical in the closing of a transaction in most cases, whether it’s with a mortgage lender or a purchase.

Dave:
All right, great. What are some of the things that you’re following most closely in the unique housing market we’re in today?

Mark:
Yeah, very unique. I was talking to a colleague last week and they said, it must be really interesting right now with everything that’s going on. I thought, actually studying the market as an economist, the more bad things or odd things are happening, the more interesting my job gets, right?

Dave:
Oh, totally. Yeah, yeah.

Mark:
It’s not fun when it’s just growing 3% a year, right?

Dave:
I wouldn’t be on this podcast now, would I, if there was going to be nothing to talk about. We just went through a pandemic. I don’t think many real estate economists ever get that opportunity. It’s been a fascinating ride. Honestly, we look back historically at the real estate market. When was the last time it was normal?

Mark:
Yeah, that’s a great point. I don’t know. The ’90s?

Dave:
Yeah, exactly.

Mark:
We think somewhere in probably the late ’90s was about the last time it looked normal. We had a housing bubble in the first decade, the latter part of the first decade of the 2000s, and a very long and steady recovery for the last decade, a pandemic in 2020, cutting rates and inflation now. Yet all of these things are exciting. And because so much of what’s gone on in the last decade in particular has influenced interest rates in general and thereby mortgage and commercial real estate rates by association, we’ve ridden a low rate environment for the last 10 to 12 years. What’s most interesting now is that’s changing.

Dave:
Well, I want to ask you, you brought up something I’ve been wondering about. Are we just in a new normal? Like you said, it’s not normal, but do you think… If you look at the data back to I think like World War II is probably what I can think of in my mind, the housing market was much less volatile than it has been in the last 20 years. You just cited some reasons. Do you have any reason to believe that we are ever going to get back to that less volatile, stable linear growth, or do you think now the way the Fed policy is and things are working that the market is going to be a little bit more unpredictable?

Mark:
Obviously I think the volatility in the market is in large part driven by volatility of interest rates. You’re right, the latter half of the 20th century, most of it was more stable rates, although there are many that suggest that there’s an 18.6 year real estate cycle. Very specific there. Those 0.6 years are important.

Dave:
Okay, I haven’t heard that.

Mark:
That cycle has actually held in some way, shape, or form. Most of our data starts to come to bear in the late ’70s and early ’80s, so I like to start the time series charts in 1981 or 1980 when Paul Volcker was trying to ring inflation out of the economy. Sound familiar? And at that point drove, get this, the 10-year Treasury yield up beyond 10%. 10%.

Dave:
That’s wild.

Mark:
The 30-year fixed rate mortgage peaking in 1981 at 18.1%. Now, what happened? There was an affordability crunch. People lost a bunch of house buying power and the number of sales cut in almost half in the early ’80s because of that attempt by the Fed, successfully, to ultimately ring inflation out of the economy. Since then, I think your point is definitely valid. Once we got through that phase and interest rates basically started from 1981 up until just last year, a long run downward trend. At any point in time in all odds would be you buy your home. Two, three years later, you refinance it.
Why? Because rates are lower. Two, three years after that, you sell. Why? Because rates are lower. We’ve had that very, very long 40 year run essentially of declining rates, most recently hallmarked by a 10-year period over the last 10 years of rates at rock bottom rates. Mortgage is at four and three. I thought I’d never ever see it, but below 3% 30-year fixed rate mortgages last year and the year before.

Dave:
We’ve had some guests on this show who have suggested that given monetary policy, it’s really been swinging back and forth. It used to be, I guess, little less interventionist in the past and now it’s a little bit more maybe leading to continued volatility in interest rates. I know no one knows for sure, but I’m just curious if you have any thoughts on that.

Mark:
The economist in me wants to say, well, first of all, you have to understand that there’s monetary policy and there’s fiscal policy, and both need to be done potentially in concert with each other. I don’t know if that necessarily happens that well, but in lieu of fiscal policy, monetary policy has been used as the tool to try and do more. Of course, it really only operates through the financial markets. That’s how monetary policy works. When you try and do a lot with monetary policy, it doesn’t necessarily work as efficiently as fiscal policy does ultimately if you’re loosening policy economic stimulation.
But what it does do is it changes the behavior around the value of assets. That could be stock market assets, that could be bonds, that could be real estate. To your earlier point about volatility, I think the monetary policy has input volatility particular into our asset class of real estate in the last couple of decades for sure.

Dave:
And just to be clear, and Mark, you’re much smarter than I am, so correct me if I’m wrong here, but just to make sure everyone understands, monetary policy is basically what the Fed does. They control interest rates in a way, and they now do things like quantitative easing or tightening to control monetary supply. This impacts everything from inflation and obviously their goals are dual in controlling inflation and trying to maximize employment. Fiscal policy is basically the power of the purse, like what Congress does, basically how much is spent and on what.
As Mark was saying, both of them have huge impacts on the economy, but I think we’ve seen or at least felt the impact of monetary policy a bit more recently. But obviously fiscal policy, like the stimulus packages, for example during COVID, obviously also have big impacts on the economy.

Mark:
You did an excellent job in describing the two. Honorary degree in economics granted.

Dave:
Oh, thank you.

Mark:
I didn’t know you have that power, but that’s great. You’re absolutely right. The last couple of years have been fascinating because the pandemic was this unique circumstance where we loosened monetary policy, increased the money supply, encouraged consumption with less expensive money, lowering the interest rates, and at the same time, obviously very, very large fiscal policy packet. It was the double whammy to overcome the influences of COVID. The truth is now obviously we are suffering the consequences of all of that stimulus being put into the economy by both methods in the form of higher inflation.

Dave:
Yeah, absolutely. It was perfect storm of stimulus all at once. Great. Well, I diverge, but I enjoyed that. Thank you. But you were talking a little bit about just what you’re seeing in the housing market right now. We talk about a lot on the show, I feel like, the word of the year for the housing market is just inventory right now. We’re always just talking about inventory. But I’m curious what you make of the situation with inventory, given what we’ve already talked about. Is this do you think a trend that’s going to continue or we’re going to have a lot less on the market?
Because when I hear you saying, yeah, for basically 40 years, interest rates were going down and people had an incentive to move and to refinance, no one knows exactly what will happen, but it seems like we’re heading in the other direction. Do you think this could be a structural shift in the supply and demand dynamics in the housing market?

Mark:
Absolutely. I don’t call it inventory, I call it noventory, because that’s fundamentally the problem. You’re absolutely right. The last 40 years of that downward trending long run interest rate stimulated not only refinancing behavior, but most importantly for the housing market, purchase behavior, selling and moving, turnover in real estate parlance. Prior to the early 2000s, typical amount of time spent living in a home between two purchases was anywhere from five to seven years. That’s now almost 11 years.

Dave:
Wow!

Mark:
Yeah, so double, right? If you take a stock of 100 million, make the math easy, so there’s a little bit more of that, but 100 million residential housing units in the United States, if everyone’s turning over once every five years, you get a certain amount of volume of inventory. If they’re only turning over once every 10 years, it’s half as much. You have to go back and look, well, why were people selling so frequently on a five year cycle? That was because of declining interest rates. There was a built built-in incentive to move and buy the next house up and the next house up, and ultimately that new home for your family.
That move up buyer concept worked financially because rates were in the long run coming down. And now that has changed. Something like 80% plus of all mortgaged homes today have a mortgage of under 5%. That means most of those homeowners, if they were to make the move decision, there’s a financial penalty to be paid in. Even if they were to buy the same home back from themselves proverbially, it would cost them more per month because they’d lose that low rate, let alone the people at three and less than 3% mortgage rates. That turn to an upward rise in rates has created what we refer to as the rate locking effect.
We believe that is one of the fundamental reasons why we see a lack of inventory, and in particular, a lack of new homes being listed, because the vast majority of homes brought to market for sale are brought to market by an existing homeowner. That existing homeowner is very likely to have one of those mortgages, and it doesn’t make financial sense for them to move. There’s one other aspect to this, which gets a little trickier. You could call it the chicken and the egg problem. The economist game theory concept is the prisoner’s dilemma. I’m a prisoner. I have a dilemma, which is homes are unique.
I might not feel too strongly about the rate lock in effect. You know what? I’ll pay the penalty. I’ll want to move. The problem is, it’s not like I can just buy any home. Homes are what we refer to as heterogeneous goods. I need to try and find a home to buy that is better than the one that I live in today. Otherwise, why pay the penalty of the rate lock in effect? I’m trying to find something better to move into. Well, because you can’t just buy any home. The fewer homes there are to choose from, the riskier it is to make the sale decision, because the buy decision is being made at the same time, the seller and the buyer is often the same person.
You’re saying, I don’t know that I want to move or participate in the market because I’m worried about being able to find something that I like to buy. Another analogy that might resonate, it’s Match.com for homes. The more people there are on the Match.com site, the more likely it is I’ll be able to find just the right person to match my preferences. Housing is a matching problem as well. I have to find the home that I want to date the most and maybe marry in this analogy.

Dave:
That makes so much sense too though. With matching romantically, it’s not like there’s this time pressure where you have to make the decision to go look for a potential partner, and then you have a limited window to find that partner. But in the housing market, you often make the decision to sell your house before you’ve necessarily bought a new one because you need the money, the down payment for them, your sale to close before you purchase your next one. Is that the chicken and the egg thing? Because people, they have fear that it’s not worth taking that risk of putting their home on the market because there’s just nothing to buy.

Mark:
There’s nothing to buy. You fear not being able to find the home to buy once you make that decision. The prisoner’s dilemma issue here is that everybody’s sitting back and saying, “I’m not going to participate because I’m worried about being able to find somebody to buy because there’s not enough homes to date on the market.” But if everybody made the same decision to enter the market, there would be plenty of supply. The prisoner’s dilemma is it’s risky to be the first one.
Because if I make the decision and everyone else doesn’t, that’s bad. But if I make the decision and everybody else does too, then we’re all okay. The game theory that goes through this basically says everybody sits back and no one takes the chance. You get this housing liquidity problem, like the market seizes up for fear of being the first one and getting burned.

Dave:
We just need to coordinate somehow all these people who are thinking about selling and just get them all to list it on the same day.

Mark:
Exactly.

Dave:
Just have a Black Friday of housing inventory and kickstart the market again.

Mark:
It really is like a kickstart, how do you get the flow going and get people comfortable with the idea. I know if I sell, there’ll be plenty of options for something to buy.

Dave:
It’s so interesting just how much of economics, you obviously know this, but is just psychology and people’s fear. It’s a less than perfect science.

Mark:
Exactly.

Dave:
And at this point also the dismal science, unfortunately.

Mark:
Yes. As they say, the dismal science. Yes.

Dave:
I understand that you and your colleagues at First American, in order to understand this problem have developed a model to predict home sales and what they should be. Can you tell us a little bit more about that?

Mark:
That’s right. I mean, we always have to ask ourselves the question, since there’s been so much volatility in the number of home sales, we start to ask, well, what should it be? And then what should it be usually has us asking, well, what are the fundamental drivers of people wanting to sell homes or the amount of home sales that exist? Obviously a couple things come to mind. One is demographics. The faster the population is growing, the more households are being formed, the more demand there is for housing. The economic situation. People tend not to buy big, expensive purchases like a home if there’s a recession or they fear losing their job in the next 12 months.
The unemployment rate and the health of the economy is very important. And then affordability. Affordability gets a little trickier because affordability is a function of the interest rate, obviously, or the mortgage rate, but it’s also a function of what’s available to be purchased. For example, Jeff Bezos can buy any home. Affordability is high for him. At the other end of the income spectrum, the pickings get much smaller. The question is, how much of what’s available for sale is actually affordable to that potential first time home buyer who we classify as a renter? I don’t worry about demand and affordability for the existing homeowner.
They’ve solved the problem. They’re an existing homeowner. It’s that renter. We put all the information in about what are renter incomes, what are the mortgage rates, what is the trend in household formation, these fundamental drivers to estimate what we expect the underlying support is for the number of home sales. Right now it’s close to five.

Dave:
Close to 5 million annualized. Existing home sales, seasonally adjusted annualized rate, SAAR, million a year. What are we at? We’re at like 4.8 now.

Mark:
4.5 or 4.6. Yes, it’s not that far.

Dave:
4.6. 4.6. Okay.

Mark:
It’s a little under, but it’s not woefully under the expectation given the situation. Well, could it be higher? Yeah, it could be as high as six if we had lower mortgage rates and higher affordability, if we had more household formation. One thing that’s happened in the past 18 months is household formation has slowed down dramatically. That’s because in part, people coming out of college right now are like, wait a second, with all this uncertainty, I might just stay home. And also because we’ve just had a really big boom in household formation, demographically driven by millennials, that’s now fading.
All of these things are contributing to what the right amount is. We right now are attributing the difference between what we expected to be closer to five and where we are at 4.5, 4.6 to that rate lock-in inability to find something to buy problem because that’s really hard for us to model, if you will. We don’t have any data to know otherwise in the last four years.

Dave:
Wow! Super interesting. Okay, great. This is really helpful. It sounds like a really fun project from an economics and analytical standpoint. I respect that. I’d love to just break down some of those variables a little bit if you’re okay with that.

Mark:
Sure.

Dave:
First and foremost, you said household formation, and I just want to clarify with everyone what that is. We’ve talked about it a little bit on this show in the past, but basically a household is a group of people living together. It doesn’t necessarily have to be a group. Actually it could be an individual too, or it could be a family, roommates, that sort of thing. Basically how many independent people are living in unique houses.
That’s a great measurement for the housing market because it measures total demand both for rentals and owner occupied properties. I think you said something, Mark, that is really important that a lot of times I hear people conflate household formation and demographics. Demographics in my mind play a big part in household formation, but it’s also an economic decision, right?

Mark:
Exactly.

Dave:
There’s also this other part to it that is more proactive and conditional upon what’s going on in these people’s lives, right?

Mark:
You’re absolutely right. There is obviously the underpinnings. I mean, we’re in the business of shelter, right? Real estate, whether it’s multifamily or single family owned homes, essentially it’s the service of shelter to households. The more people there are demographics, the more demand there is. But within the longer run, very slow moving trend, which by the way, I love forecasting demographics because I’m pretty sure, Dave, I can forecast you’ll be a year older a year from now, that is about as good as I can get as an economist. Everything else gets worse from there. Within that long run decision, there are all kinds of timing decisions.
Perfect example, we saw a big surge in household formation at the beginning of the pandemic because people who were roommates, 20 something year old millennials living in a two bedroom apartment, I live in Washington, DC, so in Arlington, that’s a fun place to live If you’re in your 20s, was great until you both had to start working from home out of your bedrooms. You got tired of that living situation. And because things were good, you split up and one stays in the apartment and the other one moves out. Well, essentially what does that do? It forms a new household and that new household needs to seek shelter.
We saw a big spike in household formation largely just because basically existing households were breaking up with each other. That has now turned because of this increased uncertainty and weakness in the job market. For example, a young person finishing college with a computer science degree, this may right now as we speak, who had hoped to work at one of the big tech firms, all of a sudden a lot more difficult to get a job. Where do they go? Home. No new household formed. No more maybe getting together with another computer science buddy to form a household. Household formation has now actually come down.
That is one of the prime reasons why we see vacancy rates in multifamily beginning to spike up, rents soften, and multifamily prices come down because basically that fodder, those new households almost always start as renters, has dwindled dramatically in the last year.

Dave:
That makes a lot of sense why that would be a variable in how much sales volume we should expect. And just remember, the reason I’m curious about this, and I’m sure the reason why Mark and his team have spent so much time on this, is home sales volume, I know it’s not as trendy as like home prices whether it’s going up or down, but has huge impacts on prices, but also on the industry in general. If you’re a real estate agent, you obviously know this. If you’re a loan officer, you obviously know that the volume of transaction is going up or down.
That’s why we’re digging into this is because the direction of home sales and where they should be or might be going is obviously going to have an impact on everyone who’s even tangentially related to the real estate industry. The other variable you said that goes into this model is affordability. I would love for you to just, can you tell us a little bit about how your measurement of housing affordability may differ from other ones, because it’s a little bit different than other measurements I’ve heard of?

Mark:
The classic affordability measure is the ratio of income to house price. Arguably say, well, if that ratio gets out of whack, those house prices are growing faster than incomes are, then you’re losing affordability. And that’s only partly true. The other fallacy, if you will, that’s often used is this idea of real prices. You mentioned prices. Often in economics, inflation adjust the price of something. That is a function of the inflation rate. People will say, “Well, house prices have gone up by 10%, but the inflation rate is 2%. In real terms, house prices have only gone up by 8%.” The problem with that analysis is you don’t take into account buying power.
The best way I like to explain it is if you think about real prices with a gallon of milk. If a gallon of milk has gone up by 2% and your income has gone up by 2%, is your purchasing power any worse or better off? Trick question, it’s the same. It’s the same, right? But when it comes to houses, it’s not just your income going up. Turn the gallon of milk into a house. If a house has gone up by 10% and your income’s only gone up by 2%, then you might say, oh, it’s less affordable, because you haven’t been able to keep pace. But what if interest rates have gone down? You buy a home with a mortgage. It’s not just your income, it’s your income and the mortgage yielding how much you can borrow.
Of course, what happened in the last decade was as interest rates came down very dramatically even though incomes were not rising very dramatically, purchasing power grew very dramatically. It almost doubled in the last decade. That meant that people with the same or only modestly higher income could afford to buy much more home. I’m pretty sure we don’t need to explain to your audience what happens when people can afford to buy more and they run into a market lacking supply. Prices get bid up.

Dave:
Bidding wars. Yeah, yeah, exactly.

Mark:
Bidding wars. Prices to me are the result of the supply and demand dynamic. When prices are moving dramatically in one way or the other, that’s a sign of an imbalance between the supply and demand dynamic. What we had over the last few years was a very out of whack market in that demand was being so driven by all this buying power because mortgage rates just kept getting cheaper and cheaper and cheaper, affordability kept going up and up and up, and prices were trying to correct that affordability imbalance. Housing was too affordable if we were to say that, right?

Dave:
Well, it is. I mean, yeah, it’s true. It’s not the dollar price, the how much per month does it cost me to be able to live here. And now we’ve turned it around the other way as very quick change and drop in affordability because of the large spike in interest rates. And now prices saying, well, wait a second. Even with the lack of inventory, we might be out of whack. Prices are, again, beginning to adjust on the downside to that. But to us, affordability is this concept of purchasing power relative to price changes.
For most of the last 10 years, purchasing power has been going up faster than house prices have, meaning it’s becoming more and more affordable. You hear some more simplistic views of affordability. I think by most measures it’s down, but this seems like a much more accurate way to measure just how much it’s been impacted.

Mark:
Have you ever met the median incomed purchaser?

Dave:
No. I have no idea who that is.

Mark:
You get my point, right? The median income, well, that’s like none of us. There’s only one person who meets that bill, technically speaking. Everyone else is not that person.

Dave:
Right, yeah. It’s like this person’s like, I am the median income, and therefore I will buy the median priced home in America. I will get the exact average interest rate that’s available. It doesn’t really exist. I really like that much more nuanced approach to measuring this. You said your model is saying that about five million is where we should be. Can you shed some light historically on home sales volume and where we are today and where your model suggests we should be and how that compares to historical averages?

Mark:
We mentioned at the beginning of the episode, when was the last time it was normal, and we looked back to the late 1990s for that. It turns out that in the late 1990s and early 2000s, the existing home sales were running at a rate of about four million a year, little over four, close to four. And then of course, we ran up to the peak of the housing boom, we hit seven million. We almost doubled the pace of sales. Now, as we all remember, that was sheer turnover. Turnover for the speculative aspect of turnover was a lot of that seven. And then a big correction down again, from which we’ve really made a very, very slow recovery back up to we were at six and a change in the early days of the pandemic.
Over the course of the last 20 years, we’ve basically been bounded somewhere between four and seven. I would argue that we all know that seven was unrealistic. That was a speculative bubble kind of scenario. Between four and six. The underlying demographics over the last 20 years of population growth and the long run push on household formation has pushed us from a should be around four in the early 2000s to should be around five now scenario, maybe a little bit more if you had a better affordability environment. But that gives us our bounding range of what seems normal is we’re not that far from it.
The problem is it’s been so volatile and we all anchor bias to the best year we’ve ever had year after year. I mean, remember 2019, the best year we’ve ever had. 2020, the best year we’ve ever had. At some point, you can’t have the best year you’ve ever had, right?

Dave:
Absolutely. And that turned out to be 2022 and likely 2023. I mean, in that context, five million home sales, and we are below that, just for the record, but your model doesn’t seem that bad. It’s actually almost surprisingly high to me.

Mark:
I mean, this is not an exact science. Let’s be clear about this. It does give us some insight more so into what would be the causes. Understanding the dynamics and the driving forces I think are more interesting than what the number actually is. We also have to remember, you made the point earlier, so much of the ecosystem of real estate is predicated on I call them widgets through the pipe. But it’s not just the purchase widgets, it’s not just the sales widgets, it’s also all the refinance widgets. The housing market was in the old days the… Oh, mortgage market, I should say, in the old days, the typical adage was 70% purchased, 30% refi.
Well, anybody who’s been in the mortgage space for the last few years knows that it was flipped. Not even 70/30 flipped. It was like 90/10 or 20/80. Even with six million home sales, there were so much refi widget business. And that part of the mortgage market has essentially evaporated. You go from not only are home sales down relative to a couple years ago, but the whole refinance side of the mortgage finance market is basically more than cut in half. That’s where I think we get the sense of, oof, this is hard. Well, if you’re in the mortgage world, it’s a lot harder than if you’re just in the purchase space of the housing market.

Dave:
Wow, that’s incredibly helpful to understand here.

Mark:
Dismal scientist here.

Dave:
Yeah, yeah, no, no, I totally understand. I mean, all that being said, I know it’s not exact. It is, I think, more important to understand the variables going into it, especially people who are trying to invest and need to craft a hypothesis about the market. Just having a number is not as useful in my opinion. I mean, it’s tempting to just look at a number and be like, oh, that’s what we should be like, but really understanding the variables that move the market are extremely important.

Mark:
Investing is forward-looking. It’s not what the number is today, it’s where you think that number will be in the future.

Dave:
Well, now you have to tell us where it’s going to be, Mark.

Mark:
Well, first of all, I’ll start with the real basics qualitatively. This is real estate. You can’t outsource it. I mean, I need it here. I don’t need it in China. I need it here, and everybody needs it. You start with these two fundamental, really good principles that don’t go away no matter what the economic cycle is.

Dave:
It’s pretty strong.

Mark:
There’s a good underpinning here. I’ve worked in this industry now for a long time, and I’ve really loved that aspect about it. There are not many goods that everybody literally needs every day. That said, then you have to ride the cycles. And to your point, we think sales are down significantly from where they were, but those were high points. Those were the abnormal years. This is much more looking like normal, and a lot of the evidence is seeming to suggest that we’re troughing in many places.
In other words, the corrections due to rates seem to have sorted a lot of things out. House prices are actually stabilizing. Existing home sales have also stabilized in that mid four range. Mortgage applications have stabilized. The Fed is probably done raising rates if maybe only a quarter point more. That’ll be an interesting thing to see in the next couple of weeks. We don’t like volatility, but a lot of the volatility seems to be passing, and maybe we are getting close to this is looking more like the new normal.
What is the new normal? Four and a half to five million home sales a year with a mortgage interest rate around six to 7%. House prices basically stabilizing, so affordability comes back slowly as people’s incomes grow. Wow, that actually seems like Back to the Future, not so long ago normal. Right?

Dave:
I guess that’s like the ’90s. That’s where interest rates were back then, six, seven, 8%, something like that. That’s super interesting. I mean, in some respects, that sounds pretty good. I mean, I think a lot of people presume that real estate investors want markets to just go up like crazy. Personally, I don’t. I I think a predictable, more stable housing market is what everyone should be hoping for. But obviously that has negative impacts for let’s say loan officers, for example. You see mortgage companies are hiring crazy over the last couple of years.
If we think that not only are purchase transactions going to go down, but refinancing is probably going to go down, especially rate-and-term refinancing. That probably means that there’s going to have to be some realignment in the industry if this is, in fact, the new normal. I’m not going to hold you to these exact numbers, but roughly speaking that we’re not going back to this crazy boom time that we saw over the last few years.

Mark:
Aesop’s Fable, the story of the tortoise and the hare, who wins the race ultimately is the slow and steady tortoise. It’s true. The corrections are difficult and can be painful at times. But when we look at the long run, we’re looking at something that’s more normal. You’re looking at less volatility, and you’re looking at an environment where people can make good investment decisions, good household decisions, good lifestyle decisions in a world where you get more balance.
It’s important to remember that we play a very active role in getting people into homes, and home ownership has been shown to be the single best source of wealth creation for middle class Americans, as well as a variety of other benefits. We do want to keep our collective societal eye on the ball of making sure that this is something that is accessible and affordable for most Americans. It’s also one of the things that uniquely differentiates us from many other countries in terms of our home ownership and how we do things. That’s part of our success as a society. All good reasons to be part of the solution.

Dave:
Well, I was thinking about some other questions, but that’s a great way to wrap this up. You just put a bow on this entire conversation, Mark. That was perfect. But I do want to give you a chance if there’s anything else you think our audience should know or where.

Mark:
Well, can I give you an econ joke? Would that go over well with your audience, an econ joke?

Dave:
It’s going to go well for me. Let’s hear it.

Mark:
Richard Thaler won the Nobel Prize in Economics. He did behavioral economics, which is basically the study of why people don’t act rationally from an economics perspective. A lot of what we’ve talked about here is the rational behavior. Why refinance when you would be paying a higher rate, things like that. He’s famously noted as saying, in many cases, we act more like Homer Simpson from The Simpsons than we do like Spock. I think that’s particularly apt in our world because people make decisions around real estate for a lot more than purely the money reasons.

Dave:
Absolutely.

Mark:
That’s why we’ll be good, we’ll be good in the long run.

Dave:
But I’m sure you, Mark, as an economist, you are perfectly rational, right?

Mark:
I do have a 30-year fixed rate mortgage, which is actually completely irrational. So no.

Dave:
Yeah, exactly. Everyone does it. I mean, even if you understand it, there are things that are not financially driven. You have other things influencing your decision making, for sure.

Mark:
I’m budget shock averse. I don’t want my mortgage to change.

Dave:
Right, right, absolutely. You want the stability, even though you know over the long run you might pay less with a different type of loan.

Mark:
Exactly.

Dave:
All right. Well, Mark, thank you so much. This has been a great conversation. If people want to learn more about what you and your team are doing at First American, where can they do that?

Mark:
Firstam.com is our website, and we also have a podcast that we do as well called REconomy.

Dave:
Oh, cool.

Mark:
You can find it on any one of your favorite platforms.

Dave:
All right. Well, thank you so much again, Mark, for joining us. We really appreciate it, and hopefully we’ll have you on again sometime soon.

Mark:
Thank you very much. My pleasure.

Dave:
Thank you again to Mark for joining us. I really don’t have much more to add here. Mark did such a good job of explaining everything he was talking about. Just popping in to say thank you all for listening, and we will see you next time for the next episode of On the Market.
On the Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett. Editing by Joel Esparza and Onyx Media. Research by Pooja Jindal. Copywriting by Nate Weintraub. A very special thanks to the entire BiggerPockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Mattie Bekink of the Economist Intelligence Corporate Network says the country’s property sector could stabilize in the second half of the year, which could “smooth out” its uneven recovery from the Covid pandemic.

Venture capital (VC) funding is highly sought after by entrepreneurs, but only about 100/ 100,000 ventures actually succeed in securing it, about 80/100 fail with it, and only about 20/100,000 ventures actually succeed after they secure it. Despite the scarcity of VC and the high failure rate, many entrepreneurs seek VC with VC pitches, or seek help from the business-school-and-incubator network to create “winning” pitch decks.

While most pitch decks include standard elements like product/service description, market analysis, management track record, and financial details, the reality is that pitch decks are a very poor predictor of venture potential – and sophisticated entrepreneurs and VCs know that. No one can forecast your potential from a pitch deck. As an example, about 10 of the world’s leading VCs rejected Steve Jobs, and about 12 rejected Google.

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That’s why VCs wait for Aha, i.e., real evidence (proof) of potential, not just words on a page. There are 4 types of Aha based on the real results of billion-dollar entrepreneurs. In this article, we will explore 4 types of pitch decks based on these 4 types of Aha that improves your chances of getting VC if you still want it when you get to the particular type of Aha – 94% of billion-dollar entrepreneurs took off without VC.

The Previous-Unicorn Pitch Deck: If you are an entrepreneur who has already achieved unicorn status with a previous venture, you will find it relatively easy to attract VC for your new venture. This type of pitch deck showcases your track record as a successful entrepreneur. For instance, Elon Musk’s pitch deck might simply state, “Hi, I’m Elon Musk, and I’m considering starting a new venture. I’ll provide more details later. In the meantime, send your checks to the following address.”

The Unicorn-Technology Pitch Deck: Entrepreneurs who have developed a billion-dollar technology that addresses a significant market need have a strong chance of securing VC. This type of pitch deck emphasizes the proven efficacy of the technology and its potential to disrupt the market. For example, a technologist like Herb Boyer might introduce his pitch deck by saying, “Hi, I’m Herb Boyer, and my colleagues and I have successfully pioneered the field of genetic engineering.”

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The Unicorn-Strategy Pitch Deck: Entrepreneurs who have already launched their ventures and demonstrated their unicorn-level strategy have an advantage when seeking venture capital. This type of pitch deck highlights the venture’s successful execution and market traction. An example could be Pierre Omidyar, the founder of eBay, saying, “Hi, I’m Pierre Omidyar. I started an online auction company and had hundreds of thousands of auctions last month and have the potential to grow into millions.”

The Unicorn-Entrepreneur Pitch Deck: Pitch decks from unicorn-entrepreneurs who have successfully launched a unicorn venture and are starting to dominate their emerging industry can generate significant interest from VCs who want to invest in a potential Unicorn-Entrepreneur due to leadership skills. These entrepreneurs have already demonstrated their ability to create a successful business, making it more likely that VCs will want to invest. For instance, Mark Zuckerberg’s pitch deck might include a confident statement like, “Hi, I’m Mark Zuckerberg. I recently launched Facebook and have already captured a substantial user base, starting with Harvard and Stanford students. Now I plan to expand to the rest of America and the world.”

The Best Pitch Deck

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The ultimate pitch deck is one that you don’t need because your venture is already growing rapidly without VC funding. Jan Koum’s experience with WhatsApp exemplifies this approach. Having built the company with angel capital and achieving profitability, Koum only accepted VC funding after eight months of persistence from a VC firm. A pitch deck from him might simply state, “Hi, I’m Jan Koum. I built WhatsApp with $250,000 in angel capital and we’re already profitable. So, actually, I don’t need your investment. Please, buzz off.”

MY TAKE: While pitch decks are all the rage, it’s essential to provide real proof of potential. Empty promises and inflated claims can only go so far. By learning from unicorn-entrepreneurs who have achieved remarkable growth without VC funding, you can gain valuable insights into building a strong business foundation. Remember, VCs are looking for tangible evidence of success. Aim to offer real proof that demonstrates your venture’s potential and your skills, and you’ll increase your chances of securing venture capital investment

MORE FROM FORBESExclusive: The Rags-To-Riches Tale Of How Jan Koum Built WhatsApp Into Facebook’s New $19 Billion BabyBy Parmy Olson

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WikipediaPierre Omidyar – Wikipedia
WikipediaHerbert Boyer – Wikipedia
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Escrow is a key part of real estate transactions and mortgage agreements, but many homebuyers and homeowners aren’t familiar with escrow and how it works. Escrow protects homebuyers, sellers, homeowners, and even lenders with real estate-related financing—it supports those parties throughout the homeownership lifecycle.

Let’s break down what escrow is, its role in real estate, and how it can be beneficial. 

What Escrow Really Is

Escrow is an account where funds are held by a third-party provider, such as a title company or real estate attorney, until both sides have met the contract terms. When the two parties have upheld their end of the agreement, the escrow provider will release the money or assets in the account to the necessary parties. 

Escrow can be used in any transaction and is usually used for larger purchases, such as car purchases. It’s most commonly used in a real estate transaction.

How Escrow Actually Works

In a home-buying transaction, the escrow holds funds until the buyer and seller meet the purchase agreement terms and close the deal. Buyers and their mortgage company must transfer the agreed-upon funds into the account, and the sellers must prove the home is in acceptable condition (via an appraisal, inspection, and/or buyer walk-through) before the deal goes through. Once the escrow provider confirms the contract conditions are met, each party receives its portion of the exchange.

Escrow also protects buyers and sellers throughout the process in case of a dispute. The escrow provider acts as a mediator in the event of an issue, and the money is held in a separate account from the buyer or seller, so it can’t be withheld for reasons not outlined in the agreement. 

Most homeowners also have escrow accounts for insurance and taxes, according to the terms of their mortgage. This type of escrow works by homeowners paying a monthly sum included with the mortgage payment to be set aside in an escrow account. The lender can then use the account to cover tax and insurance payments on the home. 

What Is an Escrow Account?

An escrow account is a bank account where funds are held and managed by a third party until the terms of a contract are upheld. There are two different uses for escrow accounts in real estate—one to hold funds during the home-buying process and the other for homeowners to set aside funds for insurance and property taxes.

Home Buying Escrow Accounts

Homeowners might first become acquainted with escrow accounts during the home-buying process. When putting in an offer, a buyer usually provides an upfront payment, called earnest money, to show the seller their commitment to the deal. This money is held in an escrow account until closing. As the deal progresses, buyers will add their remaining down payment, closing costs, and funds from the lender into that account. When the deal closes, those funds are distributed to the sellers and other parties needed to be paid, such as the title company or a real estate agent. 

Escrow protects both parties during the transaction. For example, if the buyer decides to back out of the deal, the seller will still receive the earnest money held in the escrow account. If the seller backs out or doesn’t meet the purchase agreement terms, the buyers will receive the earnest money back and walk away from the deal. 

Because a third party handles the escrow account, buyers or sellers may also need to pay escrow fees to compensate an agent or company for the paperwork and transaction fees. This cost is usually 1-2% of the home’s purchase price and is included in the closing costs. 

For Taxes and Insurance: When to Use Escrow

If you purchased your property with a mortgage loan, your lender will likely set you up with an escrow account to pay for insurance and taxes. As you pay your monthly mortgage, a portion of the payments will be set aside in the escrow account for the lender to pay for your homeowners insurance and tax bills.

Lenders estimate the total amount for insurance and taxes based on the previous year’s amounts. Since those bills can fluctuate from year to year, you may have over or underpaid those bills in your mortgage payments. 

The mortgage company must monitor the bill costs to ensure it’s charging you the correct amount. If homeowners have overpaid into the escrow account, the lender will issue an escrow refund. If the lender collects too little, it will notify you that you have an escrow shortage. You’ll need to cover the difference with a one-time payment, or the amount will be divided by 12 and added to your monthly payments.

Who Manages an Escrow Account?

Escrow accounts are helpful in real estate because an unbiased third party manages them.

The escrow provider, either an escrow agent, escrow company, or mortgage servicer, can help settle any disputes between contracted parties and keep the process fair according to the terms of the agreement. 

An escrow agent or escrow company typically handles accounts during the home buying process, and a mortgage servicer manages escrow accounts throughout the lifetime of the mortgage loan. 

Differences Between an Escrow Company and Escrow Agent

An escrow agent is an individual, a real estate attorney, or someone affiliated with the title company. An escrow company has the same responsibilities as an agent. Escrow agents and companies support buyers and sellers in the home buying process to ensure paperwork is correct and both parties follow the purchase agreement’s terms. 

What Is a Mortgage Servicer?

A mortgage servicer is a company that manages the tasks and logistics of a mortgage, including sending borrowers monthly mortgage statements. While the mortgage servicer handles mortgage logistics, including managing the homeowner’s escrow account, it may or may not be the same company that provided borrowers with the loan. 

How an Escrow Account Benefits You

Escrow has its benefits for multiple parties. Here are a few reasons you might want to use escrow as a home buyer, homeowner, or mortgage lender.

Home buyers benefits

As a buyer, an escrow account protects you by safeguarding your earnest money until the seller proves they have met all the purchase agreement terms and are leaving the property in acceptable condition. If the sellers don’t hold up their end of the deal, buyers can recoup the earnest money in the escrow account. 

Homeowners benefits

Escrow can be beneficial to homeowners as well. When homeowners pay into escrow with their monthly mortgage payments, they only pay 1/12 of the total property taxes and insurance bills. This spreads out the money a homeowner is responsible for and avoids larger bills due at once. Additionally, homeowners can avoid late payments or late fees since the mortgage company is responsible for using escrow funds to pay the bills on time. 

Lenders benefits

Escrow benefits lenders by ensuring borrowers pay their homeowners insurance and property taxes in full and on time. An escrow account also reduces the risk of a lien against the property. 

Escrow FAQs

It can be confusing to understand how escrow works. Here are quick answers to some of the most common questions people have about escrow accounts:

How long do you pay escrow for?

Homeowners pay escrow as long as they have a mortgage on the property. Homeowners can suspend paying escrow once the principal is paid off, and they can take responsibility for paying their property taxes and insurance payments.

Is escrow a good thing or a bad thing?

Escrow is neither good nor bad for homeowners. It’s all a matter of preference. If homeowners choose not to have an escrow account, they are responsible for paying taxes and insurance bills independently. Many prefer having all the expenses on one bill (mortgage payment) and choose to use an escrow account to hold the funds from the payment needed for taxes and insurance. 

For buyers and sellers, escrow is usually a good thing. It protects the buyers’ money and ensures the sellers have held up their end of the purchase agreement. It also protects the sellers if buyers withdraw from the purchase for reasons not outlined in the agreement. 

What is escrow on your house?

Escrow on the house typically refers to the escrow payments homeowners make to pay for their tax and insurance bills. The escrow payments are a portion of a homeowner’s monthly mortgage, and the funds are held in an escrow account until the mortgage company withdraws the money to pay for those bills in full. Once homeowners pay off the loan, the mortgage escrow account is no longer needed, and homeowners will be responsible for paying for insurance and taxes on their own. 

What is your escrow balance?

The escrow balance is the amount of money homeowners have sitting in the escrow account. This money comes from the escrow amount homeowners pay as part of their monthly mortgage payments. Mortgage companies use the escrow balance to pay the yearly homeowners insurance and property taxes.

Do you even need an escrow account?

If buyers purchase their home without a mortgage, an escrow account isn’t needed for taxes and insurance since they don’t have a lender to make the payments on their behalf. For homeowners with a mortgage, the lender may or may not require escrow. 

Typically, lenders require buyers to have an escrow account if they put down a down payment of less than 20% of the home’s purchase price, but some mortgage lenders give homeowners a choice. For example, FHA loans and USDA loans require escrow accounts. VA loans do not require them. 

What does it really mean to be “in escrow?”

The term “in escrow” means an asset (usually money) is being held until the conditions of the agreement have been met by both parties. This period in real estate is often 30-60 days, or however long it takes for the deal to close. 

How does escrow apply to real estate?

Escrow comes up multiple times in real estate when two parties need a neutral location to hold money or other assets until contract conditions (like a purchase agreement) are complete. It is also often used by homeowners with a mortgage to hold funds for tax or insurance bills that the lender pays on their behalf. 

What are the different scenarios where you can use escrow? 

There are two common scenarios where escrow is used in real estate. The first is in the pre-closing period, when buyers submit funds to an escrow account, and the funds are held from the sellers until the property is deemed acceptable and available to the buyers. 

The second use of escrow in real estate is mortgage escrow, where homeowners pay a set amount as part of their monthly mortgage payment into an escrow account for the lender to pay the insurance premiums and property taxes.

In addition to using escrow with real estate, escrow accounts can also be used in the following situations: 

• Rent payments: Renters may be able to pay rent into an escrow account, ensuring renters get their money back if a landlord isn’t maintaining the property according to the lease agreement.
• Large transactions: Escrow accounts can be useful for other large transactions, such as a car, to give you a stronger sense of security. You can contact an escrow agent if you’d like to incorporate escrow into your transaction, or there is sometimes an option to use escrow with online purchases. 
• Stock: For employees who are compensated through stock, those shares are often held in an escrow account until a set waiting period has passed and employees can sell the stock.

What is an escrow waiver, and when should you get one?

An escrow waiver is an exemption that allows a homeowner to forgo an escrow account with their lender and cover the taxes and insurance payments themselves. If your lender requires you to have an escrow account and you would prefer not to have one, you can ask your lender if you can apply for an escrow waiver. 

Some homeowners prefer to handle insurance and tax bills and get an escrow waiver to control the payments. If you obtain an escrow waiver, remember that instead of spreading out property taxes and insurance payments over 12 months, you will be responsible for the total cost of each item as they’re due. Take note of when those bills are due, and be sure to have the total amount ready on the billing date to avoid late fees.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Want to grow your small business? Acquisitions can help you efficiently break into new markets, expand your customer base, and increase your offerings without building them yourself. It helps diversify your portfolio of products or services, which reduces risk and helps your company be more resilient to economic uncertainty.

But there are risks, too. There may not be a cultural fit between the two companies. The due-diligence process may not reveal potential problems, including legal, regulatory compliance, and financial issues. The acquisition may be poorly executed, leading to operational problems and the loss of key personnel. The purchase may be expensive, leaving the acquiring company with excessive debt.

Robyn Streisand, CEO of The Mixx, a strategic creative agency, began growing by acquiring complementary businesses. She reduced her risk by purchasing companies she had worked with for years. Creative Captain Group was her second acquisition.

Version 1.0 Of The Mixx: A Strategic Creative Agency Is Born And Focused On DEI

Back in 1997, long before others realized that a strategic creative agency could build a business by strategically connecting brands with diversity, equity, and inclusion (DEI), Streisand did. Interest in DEI grew, as did The Mixx.

Interestingly, Streisand thought certification as a woman-owned business was for office furniture and IT staffing companies, not creative businesses. “[Back then,] there weren’t a lot of companies that knew what certification was or meant, especially in the marketing media and communication space,” she said. But her client, Greta Davis at Time Warner, for whom she was developing its first-ever supplier-diversity program, asked her to get certified. So she did.

Version 2.0 of The Mixx: Growth Through WBENC And NGLCC Certification

Since then, she’s become a huge proponent of certification. You have to get to the table to be considered for a contract with a large company, and that’s just not happening enough for lesbian, gay, bisexual, transgender, queer or questioning, intersex, asexual, and more (LGBTQIA+)-, minority- and women-owned businesses. Corporate America and government have a significant role to play in helping underrepresented entrepreneurs grow their businesses.

Growth through certification became Streisand’s 2.0 version of The Mixx.

“The Mixx’s core competency is serving underrepresented communities, whether it’s women, LGBTQ, African American, Asian, Hispanic,” said Streisand. Campaigns can be aimed at internal or external audiences. The Mixx builds the bridge from the brand to the target market by diving deep into research to reveal new insights into what and how to communicate. The Mixx then quantifies the return on investment (ROI) on the campaign.

Version 3.0 of The Mixx: Growth Through Strategic Alliances

In 2014, Streisand launched the first-ever collective of certified LGBTQ-, minority-, and women-owned businesses called Titanium Worldwide. Titanium was created as a growth strategy for The Mixx. “We were being asked to compete for RFP opportunities and getting eliminated in the first round because we were too small,” said Streisand. The collective was version 3.0 of The Mixx.

Agencies are certified-diverse with Women’s Business Enterprise National Council (WBENC), National Minority Supplier Development Council (NMSDC), or National Gay & Lesbian Chamber of Commerce (NGLCC), and any spend counts towards a corporation’s supplier-diversity objectives. Capabilities include consulting, strategy, marketing, communications, creative, execution, media, engagement, technology, and analytics. Each agency operates with a shared mindset and a common way of working together.

“For the first three or four years, we were the shiny toy,” said Streisand. “RFPs were coming in left and right.” Brands were focused on multicultural marketing. Before you knew it, Titanium had under its umbrella 23 agencies that are all independently owned and operated. A few years later, Titanium won its first agency of record (AOR).

Now corporations want their agencies to be streamlined, more cost-effective, agile, and nimble. From an operations perspective, doing this with independent companies took much work. Streisand began to understand why creative agencies buy other agencies.

Version 4.0 of The Mixx: Growth Through Acquisition

The Mixx and Captain Creative Group were doing a ton of work together. “We are two agencies that put relationships first,” said Streisand. “For 26 years, The Mixx has been working to help create the world we want to live in–to help brands realize that DEI isn’t just a moment in time, but a movement. Captain Creative’s founder and CEO Lisa Foti and I have been lifelong friends and collaborators in inclusivity and creativity.”

Captain Creative brings industry experience in experiential events, marketing communications, and production design for life sciences, technology, and consumer brands. Both agencies take an audience-centric, human-focused approach to marketing.

Streisand is the visionary. Her talent is seeing what’s down the road. Foti’s core competencies are operations, resourcing, setting up teams, and scaling. “We were doing so much work together, and it just became the natural evolution of our relationship.”

“Robyn came to me at the end of last year and said it just makes sense for us to work more closely together,” said Foti. “I was basically working half-time for my company and half-time for Titanium and The Mixx. It is an opportunity to work together to create something bigger.”

“I love working with the Mixx team and Titanium members,” said Foti. “It is a match made in heaven.” They each get to do what they love doing and are good at. And the icing on the cake is that it is an opportunity to collaborate with like-minded people, people you know and trust. “I trusted bringing my clients and team to The Mixx,” she said.

Integrating the systems and technology of two different companies takes work. But they are not even six months into the merger and are about 85% there.

How are you growing your business?

So, the day has come to finally figure out how much your rental property income will affect your child support payment. You won’t be surprised that many states consider that pretty penny a critical component when calculating these payments.

As with any financial analysis, it’s essential to understand how to break down the numbers, especially regarding child support. In most cases, parental income is calculated in its entirety. You’re going to have to provide proof of all of your finances. For rental property owners, the court will pay particular attention to the total net income of your rental.

So, how is rental income calculated, and how does that play into child support payments? We’ll give you the low-down on figuring out your rental income so that you can prepare yourself somewhat for the road ahead.

What Gets Calculated in Child Support Payments

The main factor that gets calculated in child support payments is parental income—the total amount of any salary or wages. This salary includes both taxable and non-taxable income.

The formula for calculating child support payments can vary depending on your state. When determining gross income, many factors can come into play besides salary. These factors may include:

• Rental income
• Business income
• Work bonuses
• Pensions
• Investments

One thing to note is that many states allow for deductions from gross income for things like:

• Property taxes
• Union dues

Aside from monetary obligations, some states also factor in the following:

• How much time the child spends with each parent
• Costs associated with health insurance
• The age of the child
• Childcare costs

How To Calculate Rental Income For Child Support

If you’re wondering how to calculate total rental income for child support purposes, the payments are based on several factors, but in a nutshell, here are the top three steps that should take place.

Determine gross income

First, how much cash is the rental property bringing in? Let’s use $1,000 in rent for each month as an example. At the end of the year, we have a total of $12,000 in gross rental income. We’ll remember this number as we move on to the next step.

Factor In deductible expenses

Yes, you can factor expenses into the equation. To make things simple, let’s consider the following expenses:

• Rental property taxes: $500
• Repairs and maintenance costs: $1,000
• Utilities: $1,200
• Property management fees: $2,500

In this case, the total allowable expenses are $5,200. However, there are still some expenses associated with the property that you can deduct from your gross income, such as your mortgage’s tax and interest. Let’s hold on to that $5,200 as we move on to the next step.

Calculate net rental income

You want to deduct the total allowable expenses from the gross rental income to determine your net rental income. Based on the examples above, we would use the $12,000 gross rental income minus $5,200 of total allowable expenses, equaling $6,800 in net rental income. So, the $6,800 would be used in the calculation to determine the child support amount.

Remember that the amount of child support will vary based on your state. It’s always a good idea to consult with a family law attorney or child support professional for guidance on accurately calculating rental income and child support payments.

Check Your Local And State Laws

Child support will be calculated differently depending on the state where you live. Often, states will provide child support calculators, which are a great starting tool for those strictly looking for an estimation; these calculators tend not to get into the nitty-gritty of finances, however, as they don’t factor in your specific circumstances. When looking into your local and state laws, here are a few formulas or models that you might see:

The Income Shares Model

Forty-one states use the income shares model. So, think of this model as the financial life a child would receive had the parents stayed together. For this, you’ll use both parents’ incomes.

The Melson Formula

Three states use this model: Delaware, Hawaii, and Montana. Think of this as a more extreme version of the income shares model. This formula incorporates additional factors and expenses, many designed to consider parents’ financial needs.

The Percentage of Income Model

Last but not least, six states (Alaska, Mississippi, Nevada, North Dakota, Texas, and Wisconsin) use the percentage of income model. This is a flat or adjusted percentage of the non-custodial parent’s income.

Rental Income And Child Support Payments FAQs

Here are people’s top questions when calculating rental income and child support payments.

Does child support count as income for renting?

It depends. This is an ongoing debate amongst landlords because there is a risk of the recipient of the child support not being paid at all—it happens quite a bit.

If you are a landlord considering counting child support as income, you want to look at the things like the court order and when payments are received. When it comes down to it, let’s say that the child support income is less reliable than you initially thought, and you decide to evict a tenant and collect the balance due. Will the state allow you to garnish the amount as normal income?

Since the Internal Revenue Service (IRS) doesn’t consider child support taxable income, I would not consider it in the rent calculation unless you have a HUD-specific home.

According to hud.gov, “[rental property] owners must count alimony or child support amounts awarded by the court unless the applicant certifies that payments are not being made and that he or she has taken all reasonable legal actions to collect amounts due, including filing with the appropriate courts or agencies responsible for enforcing payment.”

So, does child support count as income for renting? It depends on the situation and, if not required, the risk the landlord is willing to take.

What income is counted for child support?

The income counted toward child support can exceed just your salary. In some cases, gross income can include recurring capital gains or unrealized income, winnings from a day of gambling, rental income, and sometimes even interest earned on retirement accounts. Typically, any additional income outside of salary is considered.

Sometimes if C-corporations or S-corporations hold your rental properties, the court may even decide that the retained earnings are subject to child support calculations. If, for some reason, you disagree with the court’s order, perhaps you think an income source shouldn’t have been included, you can elect to go to the court of appeals to review the record. The review is to see if a legal mistake was made and if that mistake affected the overall outcome of the trial court case.

Is money from rental properties considered income?

Sure is, but only the net income from a rental property. So, what does that mean? The term “rental income” doesn’t necessarily mean you go off the total amount of rent payments coming in. You can deduct allowable property expenses from that amount, which will help you calculate net rental income.

This is because the “cash flow” is the amount received in rent minus what is being paid out, including the interest part of the mortgage payment, property taxes, insurance, and maintenance costs. Not all things you consider an expense are honored by the court.

For example, in a Colorado Court of Appeals case, “the trial court found that the principal portion of the mortgage payments did not qualify as ordinary and necessary expenses for purposes of calculating child support.”

It’s All In The Numbers

According to the Census Bureau, “Parents who received regular child support payments received a monthly average of $604 and a monthly median of $396 in 2017.” Although there hasn’t been substantial growth in the average year after year, the number does seem to increase continuously.

If you own a rental property and, for whatever reason, are going your separate ways with a spouse, make sure you truly pay attention to all of the numbers, especially your total allowable expenses. Those expenses are crucial in determining your overall rental income and the amount calculated into a child support payment.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.