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With tech layoffs making the news, it’s fairly likely that 2023 wouldn’t be a year in which it is easy to find a comfy tech job. While this would undoubtedly be a time of hardship, it would also be a time of opportunity. Here are the major threats and opportunities for new startups during a market downturn:

1. Capital:

Availability of capital is usually a problem during market downturns. Most startup funds become more conservative and generally speaking invest less in new projects. Even worse for early-stage startups – the risk tolerance of investors might also fall, which means that the available capital for new projects will naturally concentrate on a few “safe” bets.

That said, during economic downturns the usual government policy is to increase spending in order to battle the recession. This means that business loans along with other forms of fiscal stimulus (subsidies, etc.) could become more easily accessible.

2. Costs:

While capital might be a bit more difficult to find, you might need less of it in order to survive. During a recession, the cost of hiring employees, renting office space, and other operational expenses may be lower due to increased availability and reduced demand. This can allow a startup to stretch its funding further and become profitable more quickly.

3. Talent:

By far the biggest reason why a recession is a good time to start a new project is that great tech talent becomes available.

In periods of economic boom, it’s very hard to compete with established tech giants for top talent because of the level of pay and other benefits established corporations can offer. However, due to the layoffs, attracting and keeping high-quality people suddenly becomes easier.

However, in a time of cost-cutting and layoffs in the giants, experienced people suddenly become available on the market. This doesn’t just mean you can find and hire people more easily – you can possibly find co-founders of a very high caliber.

It’s not unheard of in layoff periods for ex-colleagues to become partners and start their own projects related to the industry they were previously working in. A recession is a great period to apply the lessons you learned while working for your previous employer during the economic boom periods, in which big businesses tend to grow more inefficient.

This leads us to our last point:

4. Markets:

The favorable market conditions and availability of capital during periods of economic boom make inefficiency less fatal for large corporations. A recession, however, puts a quick end to this. Consumers become much more cost-conscious and quickly cut their spending for what they consider non-essential products and services. Combined with the fact that capital becomes harder to access, this quickly drives inefficient and rigid businesses into bankruptcy.

This is both a threat and an opportunity for young startups. The agility of such projects gives them the opportunity to adopt innovative practices and business models – in other words, to apply the lessons we mentioned. Moreover, the failure of old businesses opens up space in the market for new companies that are able to provide better products and services.

Nonetheless, the cost-consciousness and conservativeness of consumers make it harder for unestablished brands to attract new customers, which means that in order to be successful, being the new shiny thing isn’t enough. You need to provide something of real value that people are actively searching for.

In conclusion, there are pros and cons of starting businesses during an economic downturn. All things considered, however, the higher likelihood to attract high-quality tech talent to your project makes it a great idea to try something new.

Ashley:
This is Real Estate Rookie, Episode 256.

Isaac:
The biggest thing for me when I was in college, I read Rich Dad Poor Dad and it really changed my mindset in terms of money, in terms of building assets and build a passive income. My parents make pretty good money, but they never really had any type of assets or passive income, and they were always doing the rat race where they constantly have to work to make money and just seeing there’s another side to it and having that idea where I don’t have to actually wake up and work to make money is just a beautiful thing. So I’m just trying to chase that. It’s my big motivation.

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 today I want to shout out someone by the username Keon DGO. Keon left a five-star review on Apple podcast that says, “Invaluable. Love hearing different ways to succeed in real estate. My eyes are now open to the possibilities and have used some of the strategies to get a few slam dunk deals. I hope young people are listening. Great job.”
Keon, we appreciate you. And if you haven’t yet left us an honest rating review on whatever podcast platform it is you’re listening to, take the time and do us that favor because the more reviews we get, the more folks we reach, the more folks we reach, the more folks we help. That’s the goal here.

Ashley:
And we’re back again, live in person. So we have Isaac joining us this time here in Phoenix and he’s going to tell you guys a little bit about himself. And then we are going to do some rookie reply questions. We talk a lot about being a landlord, property management, and also lock systems and how to actually handle locks.

Tony:
And people break into your units, so make sure you stick around for that piece.

Ashley:
Yeah, there’s a good story at the end.

Tony:
But overall, Isaac’s got a really cool story. He’s in a couple of markets, so you’ll learn about how he got into that. And he started pretty young too, which I think is cool. Most of our guests started a little bit later in life, but Isaac’s one of the few that got started early, so cool. All right, so first we want to bring up Isaac Lane. Guys, clap for Isaac Lane.

Ashley:
Woo. Isaac, welcome onto the stage.

Isaac:
Thank you for having-

Ashley:
Yes. So why don’t you tell everyone a little bit about yourself and how you got started in real estate.

Isaac:
Yes, so I’m Isaac Lane. I’m 26 years old and live out here in Phoenix, Arizona. Just recently moved out here in March of this year, started investing in 2021 and in my first year bought three properties consisting of five units altogether. I invest primarily out of state in Columbus, Ohio, mainly single family homes or in small multi-family.

Ashley:
So Isaac, why are you going to meetups? What are you looking for and what value can you bring to other investors?

Isaac:
Yeah, so in terms of value, just the knowledge of investing out-of-state and what’s the best system of doing that. Majority of the properties I’ve bought have been sight unseen and I feel… I mean, fairly comfortable with it, buying them without seeing the properties. And then in terms of what I’m looking at, again, I’m pretty new in the Phoenix area, so just want to learn a little bit more about the area and where are the good places to buy. Looking to get a house hack pretty soon.

Tony:
And can you tell everyone what you do for your day job? Because I think it’s a unique thing that some people here might actually find some value in.

Ashley:
Oh my gosh, I think it’s super valuable.

Isaac:
Yeah, so my degree is in mechanical engineering. I currently do project management for a commercial real estate firm where we help commercial companies looking to renovate their space or move into a new space.

Tony:
So essentially say that I maybe want to open a dentist office and I need a space to… I want to find a space and convert it, that’s an empty shell into a dentist office. Your company could help us do that?

Isaac:
I’m your guy.

Tony:
So just really quickly man, I want to talk a little bit about the motivation for you, right? Because you went to school. Isaac also has his MBA, so he’s a well-educated guy and a lot of folks who go down that path, they just want to focus on climbing that corporate ladder, but you’ve made the decision to build this other path parallel to what you’re doing in your W-2 world. Just lean in… Help me understand why.

Isaac:
Yeah, I think the biggest thing for me, when I was in college I read the Rich Dad Poor Dad and it really changed my mindset in terms of money, in terms of building assets and building a passive income. My parents make pretty good money, but they never really had any type of assets or passive income. And they were always doing the rat race where they constantly have to work to make money. And just seeing there’s another side to it and having that idea where I don’t have to actually wake up and work to make money is just a beautiful thing, so I’m just trying to chase that. It’s my big motivation.

Ashley:
And where are you headed next with your real estate investing?

Isaac:
Yeah, so I want to continue scaling up in Columbus, Ohio. I want to move up to more medium sized multifamily properties and then also working to get a house hack in the Phoenix area.

Tony:
All right. But Isaac, we appreciate you brother. You got any last questions for Isaac?

Ashley:
Actually, I do. One thing is… I got two, actually. One is, what is your best piece of advice for a rookie investor getting started? Maybe it’s something that you learned as a rookie or something you wish you would’ve done.

Isaac:
Yeah, so my biggest piece of advice would be to find a mentor, somebody that’s been through it, that’s tried and true and can really tell… You can really learn from their mistakes and learn from their successes, I think. I try to just learn everything by myself, read as many books as possible, learn from the forums and… It was helpful, but a lot of the mistakes I could have avoided by finding somebody, so…

Ashley:
One of the questions that we’re going to address to you, Isaac, is what are the best first moves decisions to make when buying property out-of-state?

Isaac:
I would say trying to build a team. So I would say the biggest things would be finding a real estate agent and then also a property manager. They’re really going to have the expertise in terms of the market, in terms of which would be the best places to buy, depending on what your strategy is. And then also you got to trust them in terms of managing the property, in terms of the property manager, because, I mean, I vary… A lot of my properties I haven’t actually ever seen in person, so I’m really relying on them to manage it correctly and pretty much receive the income every month. So I would say real estate agent and a PM.

Tony:
Just one follow-up question. If you’re going into a new market out-of-state, how do you find that agent? What steps did you take to find that agent that you trust?

Isaac:
Bigger pockets. Just going on the forums.

Tony:
Say that one more time.

Isaac:
Bigger pockets. That’s the place to go. No, just going on the forums and asking people and they send recommendations, so very helpful.

Ashley:
Okay, and now we’re going to take it to this week’s rookie replies. Our first question is from Brian Parker.
Good evening all. I’m new to the group and to real estate investing in general. I’ve been getting as much education as my time allows. I have a question about property management. How do property management companies handle maintenance? Do they fix the issue and submit invoices to the owner, or withhold the amount from monthly payments to the owner? Just not sure how this part works. I have really been enjoying the amount of comments and great ideas that are shared in this group. So first of all, if you haven’t already joined the Real Estate Rookie Facebook group, do. You get to view some of these great comments and responses for us. Anyone. And if you guys have a question, you can post it into the group. We have over 54,000 people. We’re just like…

Tony:
Which is crazy.

Ashley:
… In the group that can help you with your real estate questions and we may pick it to be a reply on the show. So Isaac, how do property management companies handle maintenance? How have you seen that handled?

Isaac:
Yeah, it depends on the company. So I’ve had three different companies that I’ve worked with and some have a minimum deposit that you have to hold within that account, maybe $500. Some you don’t have a minimum in there. And usually there’s an issue that they call in… The tenant calls in with. They go out, they fix it. Since I’m out-of-state, I need some type of picture or video of what’s being fixed. I’m not paying them unless I have a photo of what’s getting done. And then either they’ll take that amount away from the rent that’s collected that month, before they distribute it out to me, or they’ll just have a running balance within the account. If it goes negative at the end of the month, I just have to pay them that overage that’s owed.

Tony:
You said that you had three different, or you’ve used three different property management companies. Can you really quickly… Just why? What was the impetus to firing one and moving on to that next one?

Isaac:
Yeah, so initially I had a property manager in Illinois, because I had a property in Illinois and then I had another property in Ohio at the same time. So I had those two and then I 10:30 to one out of the property I had in Illinois to go to Columbus. And I had two different experiences with the property managers from Illinois and Ohio and just wanted to try out other PMs to see…
I didn’t have a bad, I guess, experience with the one in Columbus, but I just wanted see if there was somebody better. So I went with somebody else and usually you have to sign a certain contract, maybe a year or two years with them before you come back out or you owe them some type of money. So I went with somebody else just to get the experience to see which one works better for me in terms of… My biggest thing was communication. It would take a while for me to hear back from the guy in Columbus. And especially being out-of-state, I want to hear a response right away, within 24 hours to know what’s going on with the property. So just to, I guess, spread out and figure out who is the best fit for me in terms of a PM company.

Tony:
And do you feel like you found that with that second company in Ohio? Or was it more or less the same between both companies?

Isaac:
I think I found it with the second company.

Tony:
Okay.

Isaac:
They were definitely… I guess the difference was they managed a lot. So they managed right around 300 properties within the area. And the other company, the first company was a bigger company. They managed maybe a thousand. So they were good at what they did, but since I only had a certain amount of units with them, I wasn’t their first priority. So weren’t going to hear back from compared to the smaller company I was with. They didn’t have as many people and they could reach back out.

Tony:
What are your thoughts on that? Going with the mega PM versus going with the smaller mom-and-pop? Because I think there’s pros and cons to both, right?

Ashley:
Yeah, I think one thing too is finding out… When you do find a property management company, are they trying to become that mega company? Because I think that’s where I ran into trouble with mine is that they were somewhat smaller, but they were trying to grow and scale, and they scaled way too fast where they didn’t have the staff, they didn’t have the systems in place. And we had so many issues because they were smaller and they have just exploded in growth over the last couple years. So I would think that would be something to be very cautious of is when you’re interviewing the company, ask what their growth plans are. If you prefer a smaller company, are they actually going to stay smaller and not grow and scale into this bigger company?

Tony:
And I think that just also leads into an important point about building your own real estate business is that sometimes you can scale too fast and the systems and processes that work when you have five properties, five units, may not work when you have 20 and which what works at 20 may not work at 30 and 40. So even as you’re scaling your own business, it’s really important for you to constantly be checking for those different… I don’t know, breaking points in your business.
We want to launch a co-hosting, like a short-term rental property management company. We’re holding off on it for the exact point of we want to make sure that our systems and our processes can support that growth before we turn it on. So just an important point for all of our rookies to understand is that growth just for the sake of growth isn’t always a good thing.

Ashley:
Okay. Let’s take our next question from Scott Forney. What are you doing when buying property that is occupied by tenants? Do you keep the current tenants there? Or do you make them apply again with you? Or are you stuck with the lease they had with the previous owner? What if they aren’t paying rent? Can you get them out now that ownership has changed even if there was a moratorium? This question comes up as it sounds like inherited tenants don’t work out most of the time. So Isaac, what are your thoughts on that?

Isaac:
Yeah, I guess from previous experiences, all the properties I’ve had have had inherited tenants. I would have preferred it to be vacant, preferably, but my first I guess, deal that I received was inherited and I didn’t think to ask if the tenants were up-to-date with rent and found out afterwards, and the seller said [they 00:12:12] hadn’t paid for six month.

Ashley:
They’re not going to willingly give up that information.

Isaac:
They didn’t tell me, “I know you’re thinking about buying this property, but just so you know, the tenants have not paid.” So I got in and found out they were six months late on the rent and hadn’t paid. And at that time the COVID moratorium and they’re trying to get, I guess, some rental assistance through the city. So that was, I guess, the reason why they were still in there. And it just depends what state you’re in. At that time I was in Illinois and they’re not as much of a landlord friendly state. So the eviction would’ve took about three months.
And then, especially for that city itself, they don’t really evict during the wintertime because they don’t want people to be outside when it’s super cold. So I was pretty much just stuck waiting until that rental assistance came in, which took about two months. And it was two months of worrying because I didn’t… Wasn’t sure if I was going to get it or not kind of thing. So usually, yeah, I keep the tenants until their leases is up, or leases are up before I switch them out, but yeah, it’s definitely a lot easier if it’s vacant when you get it.

Ashley:
Yeah. And that is one question that Scott had was are you stuck with the lease they had with the previous owner? Yes. If their lease term says they have another six months on that lease, you are stuck with them for six months, unless you do an eviction and have probable cause for the eviction, like non-payment. One thing that I have done when purchasing a property with inherited tenants is doing an estoppel agreement.

Tony:
Can you spell estoppel?

Ashley:
Actually, I can. E-S-T-O-P-P-E-L.

Tony:
Yeah. And that wasn’t me trying to put you on the spot. I remember the first time I heard it, I was like, “What word is that?”

Ashley:
There might even be two l’s at the end of it, but I think it’s just one.

Tony:
Yeah, yeah.

Ashley:
So estoppel agreement. You can Google samples of these, but basically you ask the seller for permission to give this to the tenant and then they will mail it back to you or get it back to you. And it’s a contact form that shows the… Asks the tenants to supply their contact information. So you can go ahead and put into your property management software for when you’re ready to close, ask them the terms of their lease. So when does it expire? How much is their rent? Do they pay any pet fees? Are utilities included? What utilities do they pay? Do they have any pets? Do they own the appliances, or does the landlord own the appliances? And this is stuff that you can help verify with what the owner said and compare it to what the tenant is saying to you.
And also the terms of the lease, that they both are on the same page, because I’ve bought properties where it’s a verbal agreement. There’s not even a contract, a lease agreement. So this estoppel agreement, then I have the tenant sign it and give it back to me. And then I just use that to gauge more information on the property than ask if they are aware of any repairs or maintenance that needs to be done on the property too.

Tony:
What about the non-payment? How can you, as a prospective buyer, validate whether or not that tenant has been paying rent? What steps would you take?

Ashley:
So if there’s a property management company in place, you can ask to see the detail of their payments on that part. If it is just cash, they give cash to the landlord, that’s definitely a lot harder to track. You could ask for the bank statements showing the deposits. Sometimes in smaller mom-and-pop landlords, they’ll actually give deposit slips to the tenants and they’ll go and deposit their own rent every single month into the bank account, so you can ask for the bank statements to show proof of that. But I think if the landlord tells you one thing and then the tenant tells you one thing, you know that something is off there. So that can be a red flag.

Tony:
And did you ask anything about potential rent payments and the landlord was just untruthful? Or was it just he didn’t say anything, you didn’t say anything and… How did that conversation play out?

Isaac:
So I asked him for the lease to confirm what the rents were, so I knew what the rents were supposed to be according to the lease. But no, I didn’t ask at the time. So a learning lesson for [inaudible 00:16:15].

Ashley:
And I think that is such an easy rookie mistake to make.

Isaac:
Totally.

Ashley:
There’s so many things that you need to ask and to verify and to do, and that’s the Real Estate Rookie Bootcamp. We actually put together an acquisitions’ checklist for the boot campers and where we go through, here’s the things that you should be verifying and asking, because I’ve been ready to close and my realtors say to me, “So you got the utility switch and you got insurance on the place, right? We’re closing tomorrow.” And I’ll be like, “Oh my God, no. I didn’t get insurance on it. I got to do that right now.” And just like there’s so many things that it’s easy to forget one thing.

Tony:
But as the buyer, depending on what the current lease says, you can ask for the property to be delivered vacant. If the lease allows for that current owner to terminate the lease with 30 day notice, you can definitely write, “Hey, I’m not purchasing this property unless the property’s delivered vacant.” And I’ve done that for… Usually our flips will do that, because flips are usually something… There’s stuff like that going on. But if I’m buying a flip, I usually want to deliver it vacant.

Ashley:
So our next question is from James M.
I’ve seen a lot of posts about Keyless Box and other smart devices like smart thermostats being used in rentals. I’m planning out my first rental and I’m wondering how investors are supplying Wi-Fi to these devices with renters in the unit. Are the investors offering free Wi-Fi to the tenants, or do they have a separate secured Wi-Fi network for devices in the unit? Does anyone have any insight into this? That’s a really good question. I never thought about that.

Tony:
That’s a great question. And obviously we’re in the short-term rental space, so all of our units have the smart devices like this, but I’ve never thought about doing it-

Ashley:
But that’s because you’re paying the Wi-Fi all along.

Tony:
Because we’re paying for the wifi, right? If it were… I don’t like… How would you handle that? If you wanted to put a smart lock one of your units, what would you do?

Ashley:
I don’t know. I’m hoping Isaac has the answer to this, because I don’t.

Tony:
Well, I guess, first, do you have any of those smart devices in your long-term rentals?

Isaac:
I do not.

Tony:
If you were to offer one, which route would you take? Would you do the… Or you’re paying for some Wi-Fi or just put it on the guest or the tenant. How would you handle that?

Isaac:
A great question. I would more than likely probably provide my own Wi-Fi for that and then just charge it back to the tenant.

Ashley:
Yeah, increase the rent by however much because the Wi-Fi cost is going to stay the same. It’s not going to be the electric bill where it fluctuates. Most of the time your internet bill is the same every single month.

Tony:
I think that works for a single family residence, but what if you have a small multi, right? Where there’s four units?

Ashley:
Well, then you could do Wi-Fi in each unit and [inaudible 00:18:53]

Tony:
Then just bill it back. Yeah, that’s true. That’s true. Yeah, there you go.

Ashley:
Or you could divide it by all four units, just whatever that is and charge them…

Tony:
Charges all of them. Yeah. Yeah, that’s tricky. I don’t know. I feel like I almost wouldn’t give them the Wi-Fi. I’d say, “Here’s the lock, here instructions on how to set it up when you set up your Wi-Fi.” But just imagine if the Wi-Fi goes down and now they can’t get into their apartment and now they’re calling you.

Ashley:
Yeah, but most of them have Bluetooth capability too, or they have the backup battery.

Tony:
That’s true.

Ashley:
So at the short-term rentals, the encode lock [inaudible 00:19:24].

Tony:
That’s true, even if there’s no Wi-Fi.

Ashley:
Yeah, it still opens it and closes it.

Tony:
That’s a valid point.

Ashley:
But there is RemoteLock, is the company… Do you guys use that at all?

Tony:
We use Encode.

Ashley:
Okay.

Tony:
Yeah.

Ashley:
Yeah, so we started working with RemoteLock to integrate with our short-term rentals to send the code for guests that check in, but they also have a program for apartment complexes.

Tony:
Interesting.

Ashley:
And so yeah, that’d be a good question to ask them as to how they manage that.

Tony:
How does that work?

Ashley:
Yeah.

Tony:
That was a great question.

Ashley:
Yeah.

Tony:
Yeah, got us thinking.

Ashley:
Okay. Our next question is from Michael Rooter. What type of homeowner’s insurance do people like on their rentals?

Tony:
So Isaac, what insurance policies are you putting on your properties?

Isaac:
That is a great question. I mean, it’s through State Farm, but it’s like…

Ashley:
You just tell your insurance agent you’re buying a rental property and they put it on the [inaudible 00:20:21].

Isaac:
Give me the different like… You want the most? This is your deductible, how much do you want? I don’t know. What are the different types?

Ashley:
I don’t know, but I’m saying you would go in… The difference is that you would go and get a landlord policy where you’re covering the building and the structure, and then you have a liability for the property too, where if it was your primary residence you’d be going and you’d be getting insurance on all your furniture, your contents, things like that. So oftentimes it’s actually cheaper for your long-term rental, because as long as there’s not a lot of hazards that are going to create huge liability

Tony:
Like flood insurance in Shreveport, Louisiana.

Ashley:
And then it’s a lot… It’s cheaper because you’re not covering all of the contents within inside the house. And if your finishes aren’t granite and all of these expensive finishes onto the actual property too, then your coverage isn’t going to be as high. So your premium is going to be lower because of that too on an investment property.

Tony:
Isaac, do you or your property management company ask your tenants to get renter’s insurance for your units?

Isaac:
Yeah, that is a requirement that they have to have renter’s insurance just in case there is some type of theft or some type of issue that they’re covered. That it’s not a liability for me.

Tony:
Is it the same for you? You have renter’s insurance?

Ashley:
Yeah, so each tenant is required to do them. What the renter’s insurance covers is their contents within the property. So we had an issue one time at a permit complex where there was ice damming on the roof and it caused… Then the ice started to melt, but where it was damped up, the water started leaking into the roof and it was dripping down into people’s apartments and it damaged some of the people’s contents. And this was still when I was very much brand new at property management, and I just did not like controversy.
And the tenant came to me and was like, “Here’s my bill for my new curtains, my new this.” And I think it was $225 or something and she wanted to be reimbursed for that. And I said, “Well, that’s what your renter’s insurance would cover is your contents for something like that.” And she’s like, “Well, then my premium will go up if I make a claim and this wasn’t my fault.” This was the structure of the building, which was technically weather related that this happened, so it wasn’t our fault either. And I gave in and I caved and I ended up reimbursing her for that, but that really was a lesson to me that really defeated the whole purpose of her even having that policy.

Tony:
It almost goes back to what you say about the lease, right? It’s like, well, what does the lease say?

Ashley:
Right. Yeah.

Tony:
And using the lease to be the bad guy in the situation, but I’ve seen some landlords where they won’t even allow you to move in unless you show proof of your renter’s insurance, just to make sure that that actually is in place.

Ashley:
Yeah, and the property management software, so Rent Ready, Buildium, AppFolio, and all of those ones I’ve seen where there’s a place to upload it where it expires or it’s going to expire, the tenants get a notification, they need to upload their new document, and then it’s all trapped in the property management software. And a lot of times now too, the tenant can actually buy renter’s insurance through the property management software. So when they sign their lease, it gives them the option of buying the insurance policy through them.

Tony:
Do you know how much your tenants are paying for renters insurance?

Ashley:
My one business partner actually lives in the apartment in one of the complexes and it was like $95 for the year. It was nothing.

Tony:
Is it the same in Ohio?

Isaac:
It’s like 10 bucks.

Ashley:
Yeah.

Tony:
Yeah. I think when I was renting, I think I was paying 17 bucks a month for renters insurance. So it’s super inexpensive for those of you guys that are listening, but it can definitely save both the tenant and the landlord, I think, from a lot of headache.

Ashley:
Yeah.

Tony:
All right. So one bonus question, because this one ties into what we were just talking about, but this question comes from Caleb Boyd. And Caleb’s question is, new question here. Do you change the locks after each tenant leaves? So Isaac, how do you guys handle that for your units?

Isaac:
Yeah, typically in terms of security, initially when we first buy the property, we’ll change the locks, put in new locks, and then each turn we’ll put in new locks. And then depending on how long, usually as soon as the property goes vacant, we’ll put in a security system in there. So I use Simply Save just to monitor it, just in case somebody tries to break in while nobody’s there. But yeah, I usually switch out the locks and put it in a security system during the turn.

Tony:
Have you ever not changed the locks at one of your properties and it caused a problem?

Ashley:
No, I have not. But I do have a story about where we thought it was a problem. But before I tell that we do change the locks, and when I was self-managing… I actually just pulled that up, it was landlordlocks.com where you can actually just buy the handle and then it has the lock insert. So instead of changing out the whole door handle, every time you’re just changing out the insert and you set up a master with them. So every time you need to reorder, you’re getting it set on your own master key too. So if you order more locks, it’s integrated into your master system.

Tony:
That’s so cool.

Ashley:
Yeah, so we did that. And then our property management company now, I’m pretty sure they go and buy a new door lock just from Lowe’s every single time. And there’s no rhyme or reason to… Not very efficient. Not how I would do it per se. And then I think how we talked about the lock integration, if you have the key code locks thumb, that’s a lot easier to just change the key code.

Tony:
So somewhat related, but a story of just why you should make sure you’re managing access to your properties. So for our short-term rentals we have two properties that are on adjacent lots, but they’re fenced in together. So if you walked in, you would think it was just one big compound with both properties. And one house is, I don’t know, on the left, one’s on the right, and it’s, I don’t… 50 yards in between the two houses.
So someone books the house on the left, and when they get there, it’s two girls. One girl goes into the house on the left and the other girl’s like, “Oh, there’s another one.” We can see all this on the camera, so we know this is how it happened. They pull up to the house on the left, which is the house they booked, and like, “Oh, there’s another house over here. Let’s walk over here. Oh, let’s see if our door code works.”
And we had left the default codes active on the locks. So each property had its own code, but we never deleted the default codes. So they typed in boom, boom, boom, boom, boom, and the door unlocks. So they get there, at four o’clock they check in, and they’re just… Now they’re in both properties just hanging out in both houses. One girl drags her luggage over to the other house they didn’t book.
And then the family that actually booked that property on the right, they show up and they call us. They’re like, “Hey, somebody’s like in the property.” So we call, we’re like, “What’s going on?” And the girl who was in the wrong house was like, “Oh, I’m, I’m so confused. When we booked, we thought it was both of them.” Which makes no sense, because the listing only had one property in there.
So anyway, long story short, we learned that lesson even for our short-term rentals. We want to make sure that the guest codes activate and deactivate based on when they check in and never use the same code between two different properties, especially if they’re right next door to each other, which in hindsight makes sense. But yeah, it is what it is.

Ashley:
So with the 40 unit apartment complex where we had the master lock set in place, there’s also a lesson in having a master lock. So you have the master key that goes into every door, and then every person gets their own personal key to that door. So we had an issue with a tenant, and she was actually really good friends with the owner of the property. And she came home one day, she had spent the night at a friend’s house, came home, she went and took a shower or something, came back out and there was a set of keys on her bed that weren’t hers.
And she’s going out and clicking the remote on the key because it had a key fob on it for a car. No car is going off. So she is in panic mode that somebody was in her apartment. So she was like, “I’m pretty sure my door was locked and I came in, but I can’t remember. I just don’t know if I did unlock it or not.” And just freaking out that somebody was in her unit. So we’re trying to figure this out. And the thing we can think of first is, oh my, somebody got a hold of a master key or somebody got a hold of her key, but we don’t know for sure.
And so we start integrating this plan to completely change out all of the locks in the building. And the owner’s wife, if she was really good friends with her is, “We need security cameras in this property. This cannot… Something like this shouldn’t be happening.” So we fully integrate. The next day we have an IT guy already coming in, setting up the security cameras. It was probably, maybe… So that happened on a Monday or a Sunday, I think. And that Friday we were set to have the new locks installed the following week, the whole camera system was already put in.
I go out to dinner and I see that tenant with the owner’s wife, and the owner’s wife goes, “Oh my gosh, did she tell you what happened?” And she’s like, “No, don’t tell her. Don’t tell her.” And I was like, “What?” And she goes, “Well, those keys on the bed, when I had left my friend’s house I had accidentally grabbed his keys and put them in my bag and then they fell out of my bag on the bed and when I got to my apartment they ended up being his.”
And the first thing was, “You weren’t going to tell me?” You weren’t going to say, “Oh no, don’t go and spend thousands and thousands of dollars and time switching out the locks.” And they just thought it was so funny that it was just, oh my gosh, it was no big deal. Nothing happened. And here I am sweating and gritting my teeth like, “Are you serious?” But a sigh of relief that the master key was not lost, that nobody had broken into a unit, but yeah, definitely a stressful [inaudible 00:30:23].

Tony:
Good stories, yeah.

Ashley:
So yeah. Well, Isaac, thank you so much for joining us. Can you let everyone know where they can reach out to you and find out some more information about you?

Isaac:
Yeah, most definitely. If you follow me on Instagram, it’s Isaac Lane, so I-S-A-A-C-L-A-N-E-R-E-I. That’s my Instagram. That’s the main way to find… Reach out to me.

Ashley:
Okay, cool. Well, thank you so much. We really appreciate you coming to record with us here, live in Phoenix. I’m Ashley at Wealth from Rentals. He’s Tony @TonyJRobinson, and we’ll be back on Wednesday with a guest.

If you’ve created a product that is selling, congratulations are in order! That’s not easy to do. Now, because of your success, others want to copy, knockoff, and infringe. They want to take advantage of your hard work. This is the reality for inventors of popular products.

Inventors think, all I need is a patent! A patent will solve all of my problems. But that isn’t accurate. A patent gives you the right to sue for patent infringement — an expensive and time-consuming process in which there are no guarantees and the odds do not favor the party with fewer resources. The inventors who are currently protesting the appointment of Congressman Darrell Issa to lead a House Judiciary subcommittee with intellectual property oversight aren’t wrong to think the system isn’t treating them fairly.

But they’re overly focused on the promise of patents — the American dream of being able to own an invention and protect it. Pursuing that dream has become very costly. So costly, in fact, that most inventors can’t afford it. It’s no surprise that litigation funding for patent cases is likely to continue to increase.

However, even if the laws in Congress do change to make it easier for inventors to defend their intellectual property rights, intellectual property protection won’t be enough to stop the copycats, because patents are full of gray areas. I discovered that firsthand when I sued one of the world’s largest toy companies for patent infringement in 2003. After three long years, “right” and “wrong” didn’t factor into our settlement. We were engaged in a war of words.

Had this company infringed on my patent claims or merely worked around them? Who was to say? It was fair game for this company to try to work around the claims in my patents, it dawned on me, because those claims were always going to be interpreted differently by different people at different times.

There was a word for it, actually. Competition.

If you took emotion out of it, deciding to try to work around me was just business.

Of course, no inventor feels that way when it happens to them. When someone uses your invention without paying you royalties, it is devastating and incomprehensible. You feel violated. Don’t they understand how hard you worked? Don’t they know that theft is just plain wrong?

It’s a slippery slope. You can invent and develop something, but still not own it depending on how the language and drawings in your patent are interpreted. If you sue, you could end up winning… but you could also end up losing.

This is the reality, and it’s very upsetting for inventors.

There is a simple solution. Inventors need to focus on protecting their creativity from a business standpoint.

This isn’t easy, because the odds are stacked against the little guy. But it is possible. When you are small, you can be quick, and speed is a great superpower.

If you want to get paid for your creativity, the mindset you need is, “How am I going to outmaneuver the competition every step of the way?”

That includes filing transaction-ready intellectual property and planning ahead for copycats. If your product sells well, there is going to be competition. Congratulations, you just got ripped off!

Many people find this discouraging. But from a business perspective, this is actually good news. You should be celebrating. Most ideas fail because they’re not marketable, remember?

Instead of complaining about the patent system, which is a waste of time and energy, or threatening to sue, inventors should consider the following business strategies to fend off the competition instead.

Business Strategies For Inventors

How to protect your intellectual property from a business perspective.

1. Refuse to let your emotions get the best of you. Don’t threaten to sue anyone. Don’t give anyone a reason to file an inter-partes review (IPR) against your patent with the Patent Trial and Appeal Board at the USPTO.

2. Avoid licensing agreements that tie the grant of license to intellectual property. It’s much better protection to license a product, not a specific patent. Attorneys want to tie the grant of license to intellectual property, but this is negotiable. Basically, you don’t want to give your licensee the option of canceling your licensing agreement in the event that your intellectual property is challenged.

3. Lower your manufacturing costs. Are you manufacturing your product in the most efficient and cost-effective way? This allows you to compete on price. If possible, try to use a material or a manufacturing process that’s not easily copied.

4. License to a market leader. In today’s world, selling first and selling fast have great value. Make sure your licensee has great distribution.

5. Consider sublicensing. Are there territories that your licensee does not sell in? If so, consider seeking out sublicensing agreements with other companies that do. Try to cover all potential distribution points.

6. Build strong relationships with all of the major retailers. Introduce yourself early and follow up often so they know your product is the first and the original. Be reasonable. This will help you stop major retailers from carrying copycat products.

7. File provisional patent applications that include workarounds and variations to help you establish perceived ownership. Beat others to the punch by trying to “steal your invention from yourself.” Include your discoveries in your patent applications. They will help dissuade others from attempting to work around you.

8. Create market demand. When you bring market demand to the table, licensees are less likely to care about intellectual property. Create market demand by showing your invention to customers of the potential licensees.

9. Continue to innovate to stay ahead of the competition. Look to the future and plans correspondingly so that you stay in the lead.

10. Provide great customer service. Love your customers and treat them well. They will come to your defense when you need it. Like Chris Meade, the Forbes 30 Under 30 cofounder of the game Crossnet, said: “They can steal your trademark, but they cannot steal your brand.” Your brand is how you make people feel.

11. Obtain trademarks, copyrights, and design patents. These are simple tools to help you put a stop to online sellers that don’t require you to go to court.

12. Document your journey using social media. You are the first and the original, which is newsworthy. Use social media to let everyone know that you are the creator of this wonderful new product. You are better off fighting in the court of public opinion.

13. License a well-known brand. Brand licensing is great protection for many reasons. It gives your products a very unique point of difference in the marketplace. You also end up leveraging the power of the brand’s legal team.

If you want to become financially successful as a creative person, you need to look at intellectual property protection from a business standpoint.

Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer. Joined today with Henry Washington, Jamil Damji and Kathy Fettke. Happy New Year, everyone.

Kathy:
Happy New Year.

Jamil:
Happy New Year.

Henry:
Happy New Year, guys.

Dave:
I know this episode doesn’t come out till the middle of January, but it’s the first time we’re seeing each other since the new year. Anyone do anything fun over the break?

Kathy:
We got into this routine. I know this isn’t fun, this is weird, but of the cold plunge thing, we’ve been doing it every day.

Dave:
Oh.

Kathy:
Every day, like right now I’m so cold, but I guess it’s good for you. So I’m going with it.

Jamil:
Cold plunges are fantastic, actually. They feel so good. They feel terrible when you’re in it, but afterwards, it’s like being on cloud nine.

Kathy:
On drugs, well, you do. You get epinephrine or something, so something releases and you actually feel like you’re high and it’s a natural high, so then you get addicted to it. So now we go in the cold plunge every day, every morning.

Dave:
Wow. Do you just go straight in the ocean?

Kathy:
That would be one way to do it, but our pool, we don’t want to heat it. It’s so expensive, so we just go in the pool, it’s 50 degrees.

Dave:
Oh, geez.

Kathy:
Stay in there for seven to 10 minutes and it’s cold.

Henry:
Good night.

Kathy:
Come join.

Henry:
Absolutely.

Dave:
I did ask if you did something fun over break, but I guess that that passes as fun for some people. We’re going to get into our topic today, which is a report I wrote, which is called the 2023 State of Real Estate Investing. I basically summarized all of my thoughts and let’s be honest, I stole a lot of your takes from over the last year and basically summarized what I think is going on in the housing market and pose some questions, some thoughts and some advice for what happened in 2023, and I’m hoping we can talk about it today.

Kathy:
Yeah, Dave, that report is awesome, by the way. So good. It’s like you wrote another book in 2022. That’s amazing.

Jamil:
It’s super insightful. I think it should be recommended reading for anybody that’s wanting to get into real estate investing or current real estate investors that may have questions. If this report could become part of even the media consciousness, I feel like we’d all be better prepared. So Dave, thank you for preparing and creating something that is tempered and true and real. It’s not biased. I feel like a lot of times as real estate investors, we want to push like, hey, real estate, real estate, real estate. But it’s like this was a very tempered look and I really appreciated it.

Kathy:
And on the flip side, the news media’s always looking for something terrifying to report on, so they can always, how do I say, manipulate the data into having things look worse than they are. So your graphs in that report give the clarity that people need.

Henry:
Yeah, exactly. That was going to be my point. I think what makes this great, especially for somebody who is new or is not accustomed to looking at data, real estate data, because we say that a lot, make sure you understand the data of your market. And I think what’s great about this is it’s an abbreviated look at different metrics and an unbiased view of you define them, and then you talk about what they mean and then you talk about how it’s currently affecting.
So I think even if you read this five years from now when the market’s completely different, having an understanding of what those metrics are and how they can affect real estate and the near buying decisions is super powerful. So I think this is great.

Dave:
Oh, well thanks guys. And if anyone listening to this wants to download it, it’s basically a full industry report but at Bigger Pockets, we’re giving it away for free. You can download it at biggerpockets.com/report. It’s completely free. And as they all said, it really is meant to give you not just an understanding of current market conditions, but help you analyze the market going forward by understanding some of the market data.
And I appreciate all your kind words, but we do have to debate this, so you have to be a little bit meaner and a little more critical as we move into the next section.
So everyone, if you want to follow along, go download that right now, biggerpockets.com/report. We’re going to take a quick break and then dive into the report so you can understand some of the high level topics that are in there.
All right, let’s just start by getting your all’s take on the 2023 state of real estate investing because I’ll summarize what I put in the report in just a minute, but if you had to say in like 10, 20 words or less, Jamil, how would you describe the state of real estate investing right now?

Jamil:
In 20 words or less? I’d say exciting, opportunistic, motivating, cash intensive, scary, and do it.

Dave:
I like it.

Jamil:
That’s it.

Dave:
I like that you’re saying both exciting and scary because I think that’s a very good way of describing what’s going on. What about you, Henry? How would you describe the current state of investing?

Henry:
Yeah, I think the current state of investing is exactly what we’ve all asked for and what they say, be careful what you ask for. We’ve all invested in real estate so that we can build wealth. Well, wealth is built when the opportunity is created, when you can buy at a discount. Well, this is what buying at a deep discount looks like. So I agree with Jamil. It is exciting and scary, but you need to do it because this is what you asked for. Buy at the discount and start building that wealth.

Dave:
Absolutely. What about you, Kathy?

Kathy:
I’m going to do this in two words, pleasure and pain. Really, kind of like the coal plunge. There’s going to be a lot of pain, a lot of pain. This is going to be a hard year for a lot of people. There’s also going to be pleasure. There’s going to be a lot of opportunity for people. So I do want to just send this message out that that’s part of real estate. You win some, you lose some. If you lose some, just know the next deal, you’re going to get it a better deal and win some. And the hope is that at the end of the game, you’ve won more than you’ve lost.

Dave:
That’s a perfect way of describing it. I think all of you are providing a really good summary of what’s happening, which is basically a correction, and that is scary, but it’s also provides opportunity for people who can afford higher prices or who have been priced out or is too competitive or too busy. And so that’s what we’re starting to see.
And if you download the 2023 State of Real Estate report, you’ll see that basically the way I’ve summarized it and not as concisely as you just did, it’s a full report there, is that basically for two years we saw every major variable, every major data point that helps us understand and predict the housing market was pointing in one direction and that was up. That goes from everything from inventory, housing supply, demographic demand, affordability, mortgage rates, whatever, inflation, whatever it was, every single major thing that as an analyst or as a economist you look at was saying prices are going up.
And I know that for a lot of people, it’s felt like a bubble full of irrational behavior, but there are real reasons why prices went up and not all of them are irrational. A lot of the macroeconomic conditions supported that. Now basically since halfway through last year, we’ve seen some of those variables. Some of the things that dictate the direction of housing prices flip sides, they were all on one side pushing prices up. Now we’ve seen mostly affordability and demand start to go to the other side, and they’re starting to drag on housing prices.
And so what we’re seeing now is a much more balanced market. And I know in contrast to the last two years, balance feels like a crash to a lot of people because we were just seeing things go up so quickly. Now we’re starting to see prices flat line and a lot of markets and some markets they’re still growing and some markets they’re starting to decline.
But this is basically creating a whole new housing market that we haven’t seen in a long time. And as you’ve said, this is creating both fear and there is going to be some loss and some pain as Kathy said, but there is going to be some opportunity. And so if you want to understand those dynamics and how those different variables I was just talking about, I go into those in a lot of detail in the report. So go check that out.
But I think for the purposes of this podcast, I’d love to just focus on the opportunity and risk areas. What are the main areas of opportunity you all see, and what are the things that you are personally going to be staying away from? In the report there’s 11 recommendations for how to invest in 2023. And Kathy, let’s start with you. Which of these or you could pick your own recommendations for 2023 do you think is most pressing for our audience?

Kathy:
I mean, the opportunity is certainly to be a buyer. And that’s what we’re doing as we started a single family rental fund. And we’re actively buying because we have cash. And that was one of your points is if you have cash, you have power today, and you don’t have to have your own personal cash. I mean, that’s what OPM is, other people’s money, you got to figure out how to do that. And there’s many ways, but the opportunity to acquire real estate is incredible right now, but it has to be the right real estate.
It might be a little earlier for certain commercial investments because that market still hasn’t adjusted quite yet. It hasn’t corrected the way it might and probably will. So personally, I probably won’t be looking at commercial until the end of the year or until things sort of level out. But in single family or one to four unit, we are extremely active because this is a market where we can … there’s very little competition right now and prices are down and yet demand for rentals is so, so strong because it’s so difficult for people to buy today.
So we’re still offering this amazing service for people to have a house, have a roof over their heads at hopefully an affordable price because we’re getting the properties at a cheaper price, which means we can rent them for less.

Dave:
All right, great. I have several questions about this. So one of the recommendations was use cash if you can. Does that mean that you’re in your fund, are you using any debt or are you making all cash purchases?

Kathy:
Well, as a fund, we’re raising investor capital. So our goal is 20 million in cash. So we are raising that cash and acquiring the properties with cash, which is the game. If you don’t have to wait 30 days to get a loan and you can just come in with cash and close in seven days, well you’re going to get a pretty good deal because there’s a lot of distress out there.
But then the idea is once we have 50 properties or even 20 properties, we have local banks ready to refi and in the fives. It’s incredible. And these are again, local banks who understand the market, they understand the properties, they understand their collateral, they know that we’re getting it so cheap that they don’t feel it’s risky. So then the idea is we’ll buy 20 to 30, 40 homes, refi those, use that cash, go get some more. It’s kind of a BRRRR fund, I guess.

Dave:
No, it’s a great idea because basically you’re reducing your holding costs. You’re buying for cash and not paying that six or 7% interest, not getting any bridge debt or anything like that. And then once you have it stabilized and producing solid income, then you’re able to service the debt, which sounds like a pretty good rate you’re getting.

Kathy:
A really good rate in keeping the LTV pretty low. But again, if it’s a say, a 70 LTV, but we’re getting all our money back out because we’re forcing the appreciation on it by buying cheap, buying deep. Again, another one of your points, buying really deep, getting these really good prices and the buy box is not a deep renovation. We’re buying deep, but it’s kind of a light renovation, which is really cool. When do you get to do that? Get discounts on stuff you don’t really have to fix too much. And that is the opportunity.
Like I said, one of our first acquisitions was a $120,000 home, a three bedroom, two bath home right next to where all the massive new jobs are coming in North Texas, we’re putting maybe 20, 30,000 into renovation, and the ARV is 220, so take 70% LTV on that. We’re getting our money back and just going to do it again. And then once you buy, take that … you buy the houses, you take the money out, buy more houses, then you get to do it again because the bank will lend on that next group of houses that we bought.

Dave:
Kathy, you talking about buying deep, which again is one of the other recommendations here, which I’m going to ask Jamil. I know this is your thing, we’ll talk about in just a second, but the concept here is basically buying below market value. Kathy, in a correcting market where there is risk that market values are going to go down, do you have a rule of thumb how much below market you’re looking for in order to mitigate any risk of further value depreciation?

Kathy:
Well, this is a rental fund, so what we’re looking at really is the cash flow on it. And that would be the rule of thumb because we’re planning on holding these for five to seven years and we already know that markets change and we won’t be in the same market a year or two from now. What we do know is there’s still tremendous demand for rentals. So we’re not so much looking at the asset value, it really is, is this property going to cash flow once we put all the renovation money in it? So deep enough that it’s a BRRRR property, that would be the main thing that we can refi at the 70% and get our money back out.

Dave:
Awesome. Well, Jamil, I don’t want to speak for you and pick which recommendation or what your recommendation for 2023 is, but is buying deep one of them?

Jamil:
Absolutely. If I had a moniker, it would be buy deep, that would be my name. It’s always been my philosophy and I actually lived in that philosophy when the market was going crazy. A lot of folks didn’t believe that you could still buy property at tremendous discounts when people were paying over asking on the primary retail market.
So very quickly, let me explain this. Primary retail market is MLS where the majority of people trade real estate, secondary real estate market is where I typically play in which is off market investor distress properties that typically can’t be financed. So I used to buy really great deals over here and wouldn’t even touch houses on the retail market because they’d be overpriced and sellers were crazy. Everything’s flipped right now. So right now I’m not going off market. I’m not going to private homeowners and saying, “Hey, let me buy your house at a discount,” because they still are out to lunch.
They still believe that their houses are worth what the house down the road sold for in March of 2022, which was the top of the market. And so I don’t even want to have that argument right now. What I want to do is I want to cut that friction out. I’m going on market, I’m talking to real estate agents who have active listings that are 30, 60, 90 days On The Market, sitting, collecting dust, finding out the motivation of why this seller wants to sell, asking whether or not this seller is coming to terms with the current state of events, and do they realize that if they’re going to trade, they’re going to take a massive hit and if they are really motivated to sell, I have a number in mind that I can present. And one out of 10 times I’m successful at doing that. And I’m buying stuff right now at 50% of ARV.
And so when I buy it 50% of ARV, I’m following along with exactly what Kathy’s saying. I could go and rent that out and refi it and go and do it again and again and again and have infinite returns on this situation. And so buying deep is absolutely one of them. And then secondly, not to take up too much time. The owner finance, I know we talked about in your report subject two, I’m still wary on subject two, the 900 pound gorilla in my world in subject two is the due on sale clause that I don’t necessarily enjoy having a wording in a document that really essentially unwinds what I’ve done here in a subject two deal.
So I’m going for owner finance stuff that it may be a little bit higher priced, 0% down, 0% interest, 30 year term. And if I can rent that and cash flow it, pay down that debt, have a good life.

Dave:
And I think generally people lump together creative financing into one thing. And as you said, Jamil, it’s two different things. Subject two is when you assume someone’s existing mortgage, and there is this thing in mortgages called the due on sale clause, which is if the mortgage changes hands, the bank can call the balance of the loan due. And that generally doesn’t happen, but there’s a chance. And that’s what you’re saying, that risk is too much for you.

Jamil:
Yeah, when markets change and especially with strategies and people getting loud, my best friend is the loudest in the world when it comes to subject two. And lenders are going to take notice. They’re going to see these things and they’re going to understand and they’re going to say, “Are we into this.” Are we okay with some of this stuff that’s going on here, and should we be tightening up and paying more attention to …” Look, you do your insurance wrong on a subject two, the due on sell clause gets invoked. So if we’ve got to be this tiptoe in a real estate transaction, I’m not into it.

Dave:
I also think that the interesting thing in addition to what you’re saying about the popularity of it is that in this type of rising interest rate mortgage, the bank has less incentive to let you hang on to a 3% mortgage, because they could come in, call that due, and then try and get another mortgage at 5%, which is much better for them.

Jamil:
Absolutely.

Dave:
But to your point, seller financing on the other hand-

Jamil:
Hold it.

Dave:
… that it’s basically whatever terms you can negotiate with the seller, and so there’s a lot more flexibility and if you do that properly with a good contract, it’s a lot less risky.

Jamil:
Correct. And that’s where my two biggest bets right now are buying at 50% of ARV and holding and then going and looking at sellers who may not be interested in selling at a discount, but wanting to offer terms because the market is, they have to have flexibility with demand being where it is right now, the flexibility that I need you to provide me is 0% interest, 0% down. I’ll give you your price, but give it to me over 30 years. I make sure that I can cash flow that, stick in a renter, let that renter pay that thing down and hand that property off to my kids. It’s all good.

Dave:
Awesome. Well, I have one more question for you Jamil, and then I’m going to turn this question to Henry, is about flipping because one of the things I wrote in the report is to flip with caution. And in that I said that experienced flippers, James is not here today, but experienced flippers, Henry’s going … I’m going to ask you this, are probably doing really well in this market, but to me, it seems like a dangerous thing to start trying with. And so I’m curious, you sell a lot of your wholesale deals to flippers. Can you tell us a little bit about just market sentiment with flippers right now?

Jamil:
They’re actually really bullish. And so again, because you’re able to get these really deep discounts if you stay in a price point that’s accessible because look, a 7% mortgage on a 400 or 300, 350,000, $450,000 house can still be affordable in a dual income household. And in that situation, that house will sell On The Market. And if you can offer great value, a great product with great design and you pay attention to the quality of the thing that you’re putting out there, you will dominate in this game.
However, if you’re an inexperienced flipper and you’re using dolphin gray on all of your walls and you are not, I know I … dolphin fin gray will drive me crazy. If you’re not tiling your bathrooms all the way to the ceiling, if you were cutting corners and doing dumb stuff, then you will lose your shirt. And so flipping absolutely be experienced, understand what you’re doing, stay in the right price points, you’ll win. If you fall, break any of those rules, you deserve it. Sorry. You do. You messed up.

Dave:
All right. Well, thank you. Henry, you were nodding along with that and I know you do a bunch of flipping. So what is your feeling about flipping in the next year?

Henry:
I mean, I think you nailed it on the head. It’s, you need to flip with caution. And we have to remember this, real estate is a numbers game. It’s always been a numbers game. It’s just when the market was super hot, you didn’t have to necessarily pay as close attention to all of the details of the numbers. Now, if you want to be successful, you have to understand a lot more metrics in order to make the proper offers. And so for us, it’s a numbers game.
I will absolutely buy a property that I’m going to flip if I can get it at a 50% up to 60% discount because I look at my past three flips, my past three flips sold, one sold for 9% less than we listed it for, one sold for 17% less than we listed it for, one sold for 2% higher than we listed it for.
So if you’re doing the math, that’s about an average of a 12% drop. And so if previously when the market was better, we were buying at a 70% discount and turning great profits when we flip it. So now I just factor that in on the front side. If I can get it at a 50% drop, I’m making the same if not better profits than I was when the market was hotter because the analytics, the data’s telling me where I’m going to be able to typically sell those homes.
So if the ARV is a certain number now, I subtract about 12% and I can back into my offer price that way. So we’re just doing the math more diligently on the front side to understand what we’re going to buy. And then I just have to live by that. I have to be more strict about the offers that I make.
I used to joke, because 2021 and 2022 or 2021 and 2020, the prices were so amazing. I’m like, “Man, I should have bought everything I made an offer on in 2019 and 2018.” I remember passing on deals over $5,000 that in 2022 or 2021, that was silly, but hindsight’s 2020. But those fundamentals are going to save me in this market, those fundamentals where a deal doesn’t hit my numbers, even if it’s just 5,000 off, I’m not jumping on it because the market’s not forgiving right now. So I have to be very strict with my numbers. And if you can do that and understand your market and understand what’s causing people to buy, Jamil’s absolutely right.
If it’s a two income household, it’s much more affordable and just understand what’s actually selling. If I look at my market right now, we’re still selling somewhere around 90, 90% list price to sale price. It’s a 10 to 12% typically drop. So things are selling, they’re selling when they’re priced correctly given the current market. So if you can pay attention to the metrics, that helps you understand where to buy and you buy and you stick to your guns about your offers, I think flipping can be still profitable. But you’re absolutely right, you have to do it with caution and you have to be very, very strict.

Jamil:
I wanted to just quickly add in there, I think that 12% drop that Henry’s talking about, you can even play with that with design, with some really, really good design. And if you pay attention to the quality of the product that you put out there and you pay attention to the trends, you look at the magazines, you see what the HGTV shows are. And again, I’m not just saying this because I’m on an A&E television show, Triple Digit Flip, which is an amazing show. You guys should all watch it, but I don’t just say that because of that. I mean it. Design matters right now and it didn’t before. So if you pay attention, you might not lose that 12%. You might be able to still sell at that list price or close to list price because you nailed the renovation.

Dave:
And Henry, just for clarity, you’re saying 12% off list price, but did you still turn a profit on those deals?

Henry:
Yes, absolutely we turned a profit on those deals. That’s because of the due diligence that we do ahead of time and where we made offers even because these are properties that I bought as the market was coming down, and so we just anticipated that if we have to sell at 10 to 12% at 10, we were actually looking between 10 to 15% drop. Can we still turn a profit? And absolutely. So no, I’m not making the profit that I was anticipating making, but absolutely we’re still turning a profit. I haven’t had to take a loss yet.

Dave:
Good for you. Kathy, did you want to jump in there?

Kathy:
Yeah, I just wanted to make a comment on what Jamil said and say I auditioned several times for HGTV flip shows, and I would tell the producer, we’d get down to the last group and I’d say, “I really don’t love flipping property. It scares me. I’m a buy and hold investor, and I think this would be a great show on buy and hold because we could just, it would be so much easier to film. You just stare at the property for five years,” and they just didn’t go for it, man.

Jamil:
Oh, that’s great.

Kathy:
So, I don’t know.

Dave:
I don’t understand that. That sounds like a great TV show.

Kathy:
Seems like a great show. Every year the rents went up 4% and you could just do a little show on that.

Jamil:
Great pitch. I’ll introduce you to some people, Kathy.

Kathy:
Okay. We could picnic outside the house. I don’t know. That’s why there aren’t any buy and hold shows. It’s so boring.

Dave:
But it’s fun in the long run.

Jamil:
Amen.

Dave:
All right. Well the last one of the recommendations I wanted to talk about, Jamil called me out for stealing this from Henry before we started recording, but basically one more I wanted to get into is investing in hybrid cities. And so as Kathy often reminds us, and we talk about very regularly on the show, every market is going to behave differently. And as we’ve started to see the really sexy pandemic winning cities are really starting to see the biggest corrections.
I’m sure Jamil, you’ve talked about that pretty honestly about what’s going on in Phoenix and in your neighborhood cities like Boise, Las Vegas, Austin. Then on the other side, there are cities that don’t typically appreciate but have strong cash flow. These are cities like Detroit or Milwaukee or a lot of places in the Midwest generally speaking, and that is sort of how things used to go before the pandemic, there was some cities that were really strong cash flow, but they didn’t appreciate as much.
Then there are cities that appreciated like crazy, but they generally don’t offer a lot of cash flow. But there are these hybrid cities, and I do think my prediction is that we’re going to return to regional patterns that were before the pandemic, where some markets are going to continue to offer great cash flow. Some are going to appreciate, but not both like we’ve seen over the last two years. But there are some cities that do a little bit of both well, and those are the hybrid cities that I recommend. Henry, I’m guessing you would consider Northwest Arkansas one of those regions?

Henry:
Yeah, man. Absolutely. It’s a great hybrid city. You know me, it’s the unsexy markets.

Jamil:
Let’s use Dave’s term of boring. Boring.

Henry:
Yeah, that’s very true. It’s very true. It’s the boring markets, the places where people typically don’t think of when they’re thinking of investing out of state. This is a large country. There’s a lot of places that can offer you great cash flow and/or great appreciation. Again, what’s cool about is it’s a data game and instead of looking at real estate metrics, you’re looking at more economic indicators.
And if you can find the economic indicators of what’s driving people to live there as far as the economy’s concerned, and then so if you look at certain types of jobs and then look at the job growth across those industries within that area, and then compare that to the average price of a single family homes or small multi-family homes in the area, you can find some pretty sweet areas that offer job growth, growing in industries that are growing and rent prices that are either growing or flat.
But if you know that people are moving there and they have to for these jobs, it gives you a great indicator of places that potentially can give you phenomenal cash flow at reasonable entry prices. Because affordability, it’s subjective. So for people who currently live in a city, they may feel like it’s not affordable for them to afford to live there, but if those people are in Cleveland and then someone from California is trying to invest and they looked that same price, that price point in a place like Cleveland or some other city like that, it seems much more affordable because their dollar goes a lot further.
And so just paying attention to the economic indicators in jobs or industries that you feel are going to be around for a while and then comparing that to what it’s going to cost you versus what the rents are. It’s not hard math. You can find some great unsexy markets or great boring markets that are going to return you phenomenal cash flow.

Dave:
Absolutely. And a couple of the ones I listed in the report were Birmingham, Alabama, Philadelphia, and Madison, Wisconsin, but there are plenty of them out there. Kathy, what are your thoughts on this? I know you always talk about looking at these large macroeconomic indicators. Do you think we’re going to head back to some of the more, the sort of the traditional divergence in regional markets that is normal in the housing market that sort of went away through the pandemic?

Kathy:
I think it just depends on your objective, really. If you are at a stage in life where you’re really just looking for cash flow, you don’t really need growth, you just want to travel the world or raise your kids, whatever it is you want to do and have cash flow that supports your lifestyle, then you want to be in those cash flow markets. And those are usually markets that haven’t gone up so much in price.
And so the price rent ratio is in balance, and Birmingham has always been on our list for that, for cash flow markets. We love Birmingham. It’s a great city. At Real Wealth, that’s been on our list. Indianapolis fits that, Kansas City. These are markets that just chug along. There’s enough growth and job growth that you can get a little appreciation and cash flow kind of in any market.
However, if you are really trying to build a portfolio and grow your wealth into millionaire status, that’s not necessarily where that’s going to happen. Although the last few years it has, those areas have gone up quite a lot. And we were buying in those areas in 2012 and 2010. I mean, I think we were paying 30, $40,000 for properties that are worth four or five times that today. So depending on when you buy and if prices have gone down enough, you could see upside really in those markets as well.
But again, if you’re trying to grow a net worth, then I personally still want to be in those growth markets, and right now you can get a deal. It’s better than last year, especially if you’re able to negotiate with the seller to have them buy down points on your loan. And this is what we’re seeing.
I mean, people are talking about things really slowing down, but we’re not seeing that at Real Wealth. We do one webinar and everything sells in that one webinar because the seller, we’ve negotiated with the seller to pay two points to buy down the rate. So they’re getting a better deal on purchase and they’re getting a darn good interest rate and it cash flows in a growth market.
So to me, that’s where I want to be. Now, granted, with our fund in Dallas, we’re still getting kind of both. It does feel hybrid, but I know what’s happening there. There’s new airport coming in, which I didn’t really want to say because now everybody knows it, but I just said it. And so many huge employers building factories, building their headquarters, they’re not going away anytime soon. So to me, it’s like a supercharged hybrid market in North Dallas and South Dallas, kind of all around Texas, honestly. So yes, since it’s a debate, I’m going to debate you and say for me, I still want to be in hyper-growth markets, that cash flow.

Dave:
Nice. I like it.

Jamil:
She likes cake and eating cake.

Kathy:
I like cake and cake and more cake, and then I have to go in the cold plunge to burn it all off.

Henry:
Dave, I want to ask you a question. So if you’re looking at these hybrid markets, for me it’s a matter of looking at what are the economic indicators as far as job growth, because that is an indication also that people are going to have money to be able to buy these things. But what are some of the other metrics that you’re looking at that are going to ensure that you’re going to get appreciation as well as cash flow?

Dave:
Yeah, I think it’s not rocket science. It’s like population growth and economic growth are the two things. And we talk a lot about job growth, but I think one thing people overlook is another really easy one is wage growth and net income in these markets. Because if you’re expecting rent to grow and prices to grow, not only do you need quantity of jobs, but you need them to be higher paying.
So I think those are some easy ones that people can look at is population growth, wage growth, the unemployment rate I think is going to be particularly important over the next couple of years. And if you want to be conservative, which I recommend in this market, I would look at historical unemployment rates pre pandemic, because what happened in the pandemic is crazy. We saw an unprecedented thing. But look back to markets, what happened in different markets in the last recession or the last economic downturn and see which markets performed well, which ones were more resilient relative to other ones in terms of job growth, wage growth, and population growth because those are likely the most diversified economies and they’re probably going to continue to do pretty well into the future.

Henry:
I think one of the other benefits of the boring or unsexy markets is that they’re typically somewhere in the middle of the country and a lot of these places that kind of had tremendous growth over the past couple of years were coastal cities or places closer to the coastlines, and even during the last downturn here, we weren’t as heavily affected, but we saw it coming. We saw the ripple effect of what happened on the coastlines coming.
And so all that to say is if you’re going to invest in some of these markets, not only can you find your cash flow and your appreciation, but what’s coming won’t be as much of a surprise to you. You’re able to plan for how you get into these assets knowing what’s coming down the road. So you have some foresight when you’re buying in these markets.

Jamil:
Last thing to add, pay attention, especially in these, again, the boring market, the unsexy market, whatever you want to call it, they have pockets that are very sexy within them. There’s areas in Birmingham where I would absolutely kick it, hang out, buy a house. There’s lots of entertainment, food, great things to do. So be mindful of that. If you’re going to be conservative, be conservative in those markets, but go find the popping spots in those boring, unsexy markets and you can’t lose.

Dave:
All right. Well, I think we covered five of the 10 recommendations for 2023. So if you want to check out the other ones, again, biggerpockets.com/report. The last part of the report are just five questions I have. I don’t really have an opinion about any of them. It’s just five things that are going to probably impact the housing market for next year and the year to come, but there’s a lot of uncertainty about them. And you can read all about them, but there’s one in particular I wanted to ask you guys as we wind down the show here.
And that is about the commercial real estate market. Generally speaking, what we’ve been talking about today is mostly residential, four units and below, but the commercial real estate market is very different. It is dictated by a lot of different principles and variables. Particularly of interest to me is how loans are created in the commercial real estate space. So let’s just talk about that a little bit. Kathy, you alluded to this earlier when you were saying that you think … you’re avoiding it for at least the first half of 2023. Can you tell us why?

Kathy:
Because of Brian Burke, if you haven’t listened to that On The Market interview, definitely listen. I’ve said it before, whenever I run into him, which is often at different events, I’ll pull him aside and say, “What are you doing?” Because he’s just so knowledgeable and he’s been so successful.
The commercial market just hasn’t landed yet. It’s in a bit of a free fall in my opinion, but it doesn’t even know it yet. It doesn’t know. It’s kind of like it drove off the cliff and it’s just one of those cartoons, doesn’t know it’s falling. And so a lot of sellers are still blind to what’s happening and a lot of buyers as well. But the big story is money. Real estate doesn’t work without leverage in most cases, and certainly not in commercial, most people don’t have 150 million to put down on a building or 30 million or whatever it is. So it’s just dependent on leverage.
And right now, leverage is really in question right now besides just higher rates, which completely affects the value of the property and that somehow people don’t see that is confusing to me. It’s like when your costs go up, the value goes down of that property unless you can increase income and you can’t because rents are kind of stabilizing. So how are you going to make these numbers work?
But the bigger issue, again, was in another podcast that was so fantastic on a market on liquidity market, what bank is going to lend and even has the money to lend on commercial property given the scenario and the situation? So with so many resets coming where pretty good assets, decent assets have loans coming due and they’re going to have to refine, the money might not be there, and if they can find the money, it’s going to be more expensive. I’m concerned, honestly. I’m a bit concerned about what’s coming in the commercial markets and maybe it’ll get fixed and turned around. Maybe the Fed will come in and save all their buddies in real estate, in commercial real estate. I don’t know, that happened. Let’s not forget that the big banks kind of bail each other out. They don’t want to go down either. That could be a solution there. I don’t know. I’m staying out of it until it stabilizes.

Dave:
Just for the record, we had Brian Burke on last week. It’s a fantastic show if you wanted to check it out. It was just a week ago. I think it was show like 69 or 70. And also Kathy is referencing a conversation we had with the CEO of Fundrise, Ben Miller, to talk about leverage in commercial real estate, which is episode 65 if you want to check that out.

Kathy:
Those were so good.

Dave:
Yeah, great, great shows if you want to listen to that. Jamil, what are your thoughts on the commercial spot?

Jamil:
I got a really interesting insight having a conversation with Grant Cardone just recently, and he’s forecasting a catastrophic situation in the multi-family space coming around the corner. And this is what is his prediction, that a lot of people bought some fantastic assets on some very short-term bridge financing because the market was so overheated and it was so exciting and people were getting in and there were so many syndications and so many purchases made, and a lot of that debt is going to be coming due and none of it is going to be able to be refinanced.
And so there’s going to be an incredible implosion, he calls it the big bridge collapse is going to take place and there’s going to be a huge opportunity in multi-family investing, but it’s not now. And so I’m a fan of Grants. I watch what he does in multi-family investing.
I personally, you guys know my story with multi-family. Every time I touch the burner, I get burnt. And so luckily I didn’t buy that 12 and a half million dollar asset that I was going to purchase because I would be here right now crying my eyes out because I would’ve literally been losing millions of dollars. Instead, I walked away from a half a million dollar earnest deposit to live another day. And so I was going to be one of those people. I was going to be one of those folks on the bridge where it was about to collapse. And I think there’s going to be a lot of investors out there who were going to be caught up in it.

Dave:
Yeah, there’s so much to that. First of all, your story with that property has been a rollercoaster. Just as a reminder, Jamil is going to buy a deal. He had to walk away from it due to financing issues and lost a good deal on earnest money. But now you’re saying that you’re happy about that even though I’m sure it hurt at the time, but it could have been worse if you actually went through with the deal.

Jamil:
Oh, I would’ve been out millions and millions and millions of dollars. There’s no way I would’ve gotten out of that thing because we were, again, overpaying for the current situation, and we would’ve been sinking money into capital improvements. We would’ve been doing a lot of renovations in there. We would’ve been trying to push rents, and we may not have been able to do it. And then when it came time to refinance, we’ve going to have all these lenders looking at us and saying, “Sorry, this just doesn’t pencil out any longer.” And so we would’ve had to come to the table with more liquidity, which we may not have had. And so we probably would’ve ended up giving the asset back and losing our down payment, losing our renovation expenses, and letting some other investor come in and take the opportunity.
And so that’s exactly what would’ve happened, and I think that there’s going to be a ton of opportunities and a ton of situations exactly like that are going to come to you in the next 12 to 18 months that people are going to be able to take advantage of. And like Kathy said, pain or pleasure, someone’s pain is going to be somebody’s pleasure in that situation. I’m just glad it ain’t me.

Dave:
Yeah, I mean, it’s such a good point. Regardless of commercial real estate, just good lesson on recognizing the sunk cost and walking away from it and damage control. I’m sure it hurt to walk away from that, but it’s limiting your downside risk and actually clearly was the right move at this point. Henry, what about you? What are you thinking about the commercial market?

Henry:
Yeah, man, I’m obviously cautious with it. I don’t do large commercial deals, not that I wouldn’t do the right commercial deal, but I have always been in the same boat, and this is just my investment philosophy in general. If I am going to do something outside of my normal bread and butter, my bread and butter is singles, small multis, buy and hold and single family flips. If I’m going to do something outside of that, it’s got to be a home run, no-brainer deal. And I have not seen a ton of those opportunities. I actually see the opposite.
I’ve seen people coming in and paying tremendous amounts of money for these large scale multi-family deals, and even in more specifically in my local market, there’s a ton of new construction, large scale, A class, multi-family properties being built. I mean, literally, you can drive five miles and see five different places being built, and they’re all A class, they’re all competing with each other.
And so as these things are coming into completion, I drive through, and the parking lot just aren’t full. So I know there’s been a ton of money raised and dumped into these properties, and so I think there will be opportunity, just like Jamil and Kathy said down the road of people who can’t get financed for these when the loans come due. But also I see an opportunity in the C class apartment space because I think they’re just not being looked at as much, because just what I see is people when they want to buy the multifamily, they want to buy the A class, they want to dump all their money in the A class, but there’s phenomenal opportunity in the B and C class, especially in the hybrid markets you’re talking about, because not everybody in these hybrid markets is buying. And so I would buy the right B, C class opportunity. I would stay away from A class in my market.

Dave:
All right, well, great. I tend to agree with you guys. I am going against one of my rules or rules of thumb about real estate to not try and time the market, but with the commercial market, I think I’m trying to time the market a little bit, I think. When Kathy and I spoke to Brian, he’s put it well. He said that there’s like a pricing exercise going on, or I forget exactly how he said it, Kathy, but he’s basically said, “People don’t know how to price multi-family assets right now, and that’s not a game I want to be a part of. I’m going to wait until the buyers and sellers figure that out, and as a passive investor, I’ll wait to see where they land before jumping back into that.”
I also recommend, listen, check out, show 721 on the Real Estate podcast. I just finished recording that with the CEO of Bigger Pocket, Scott Trench, who shares his thoughts about the commercial real estate market. Really interesting insights there. So if you want to learn a little bit more about that, check out 721 on the Real Estate Show.
All right, well, thank you all so much. This was a lot of fun. If you want to read the full report again, it’s biggerpockets.com/report. It’s full of all sorts of more information, background, context, recommendations, thoughts for next year. If you want to invest in 2023 and take advantage of some of the opportunities and avoid some of the risks that we’ve been talking about on this show, hopefully that will be a good place for you to get started.
And of course, keep listening to this podcast over the course of the year where we’ll keep you updated on market conditions and help you adjust your real estate investing strategy to meet those market conditions.
Henry, Kathy Jamil, thank you all so much for being here. Thank you all for listening and we’ll see you next time for 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 Genal, and a big thanks to the entire Bigger Pockets team.
The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Guest authored by Thomas Scott, Chief Financial Officer at Wrike. Scott has exceptional strategic financial experience with more than 20 years as a top finance executive at startups and publicly traded companies, including Zebra Technologies, Fetch Robotics, Corning Optical Communications, and Spidercloud. Scott is well-versed in building and leading dispersed teams to help support rapidly growing businesses. He is also an avid reader and sports fan.

Do more with less. Attract high potential talent. Exceed expectations. Maximize efficiency. As a long time financial executive in technology businesses these topics are never very far from my mind. I recognize that most of us are constantly competing with larger, better funded organizations in competitive markets so we have to find an edge to deliver value.

The Michael Lewis book “Moneyball” best described this phenomenon in the sports world. The Oakland A’s from Major League Baseball are featured in this story because they used data to identify undervalued players to level the playing field with larger clubs like the New York Yankees. I’ve used this as a metaphor with my own teams to remind them that WE are like the Oakland A’s and always have to identify ways to maintain an edge because we certainly are not going to beat market leaders at their own game.

This year, the sports world has highlighted another interesting lesson in market and talent inefficiencies from the San Francisco 49ers.

3 quarterbacks in 1 year and have not lost since October

You don’t need to be an avid football fan to appreciate that the quarterback position is an integral part of any football team. Teams are willing to mortgage their futures to trade for higher positioned draft picks in the hopes of drafting the next generational star that will deliver playoff success and multiple “big game” titles. Other teams have signed expensive multi-year deals with established quarterbacks to lead them to success with mixed results. The 49ers are no different, but their experience this year potentially highlights an alternative path.

The 49ers are on their third quarterback of the season and will play in the Conference Championship. Their season opening starter, Trey Lance, a recent first round draft pick, was injured in the second game of the season without establishing his long-term value to the team. Enter Jimmy Garoppolo. Garoppolo was the starter for the 49ers for the last few seasons and returned to that role in September before suffering a broken foot in early December that ended his season. This pattern would likely have ended an otherwise successful season for most teams that had to move on to their third string quarterback.

Most fans almost certainly took a deep breath when the ball went to Brock Purdy. Until this moment, Purdy was mostly known for being Mr. Irrelevant 2022. This is the title given to the last pick in the NFL draft each year, and it is a dubious title since most late picks do not even make the team. Instead of disaster, Purdy has stepped into a starting role on a deep and talented team and has played a key role in delivering eight straight wins including two playoff wins.

I would like to see his success continue, but even if he is unable to lead his team to the big game, he has already demonstrated enormous value that was almost completely overlooked by all 32 NFL teams (including the 49ers in earlier rounds). The big question is, what came together to help deliver this result over the course of two months?

Several observations are worth highlighting:

• Absence of significant mistakes
• Poise under pressure
• Not asked to be a hero but to play his role
• Friendly play calling system that features multiple talented players without undue reliance on just one

I kept looking at these observations and thought they were directly applicable to how I think about finding high potential talent in competitive markets.

What lessons can leaders draw from this?

1. Question conventional wisdom and look for other leading indicators: Brock Purdy did not fit the central casting view of what an NFL quarterback should look like. He was not tall enough. His arm was not strong enough. He did not come out of the right school. He did receive four years of experience playing as a starter against elite competition that provided the ability to stay calm under pressure and avoid costly mistakes.

2. Surround key new “hires” with a strong network: Even the highest potential talents benefit from strong role players around them. The best way to drive a quick, efficient ramp is to quickly integrate with your strongest existing team members. This network cuts down on mistakes and more quickly builds effectiveness and confidence within a new organization.

3. Design and then trust the system: It is tempting to look for that strong unicorn talent who can do anything, but they often are just unicorns. Build a repeatable work system that you can use to identify and quickly integrate talent that gives them and your team the best recipe to become productive as quickly as possible.

My own executive team has challenged the company to help our employees and customers do the best work of their lives in 2023. Win or lose, this example from the 49ers delivers a few lessons worth remembering as we seek to deliver this challenge.

David:
This is the BiggerPockets podcast, show 719. Your goal is to get a counter offer, not to get this offer accepted.

Philip:
Yeah.

David:
All right? If they haven’t responded right away, they didn’t love your offer, that’s okay. You want to go tell their agent, “Hey, I want you to get me a counter offer.” Okay? That tells you, you’re moving in the right direction. Okay? If they come off their million, you’re looking to see how far did they come off that million? Did they come down to 900? Did they get into 850? Are they at like 995? Right? That’s going to tell you if this is worth pursuing. If they counter you at five grand off a list, just move on.
What’s going on everyone? This is David Greene, your host of the BiggerPockets podcast. Here today with our follow-up episode from our first interview with our mentees. This is the 90-Day mentor check-in number two. If you didn’t know what was going on, we found three people that reached out to us after BP Con in San Diego who said, “I want to buy real estate and I want to be directly mentored by David and Rob.” And in today’s episode, we are following up with the advice we gave them from the first time we talked and getting an update on how it’s going in their journey. Rob, what were some of your favorite parts of today’s show?

Rob:
I think we gave some very actionable steps to our mentees. One of my favorite things about them is they did what most people don’t do, is they actually took action on goals and homework assignments that we gave them, right? We gave them all actionable things. Last episode, they did everything, and thus most of them had progress towards the end goal that they’re going for. They’re all going through something a little bit different, some actual tactical real estate struggles, all the way to getting out of your comfort zone. If you’re an introvert, how can you overcome that? And you gave some really good advice, I think. I think I actually gave decent advice as an extrovert, and I think we were able to help them out and we gave them some good actionable steps for when they check in. Again, I’m excited because I think they’re starting to turn the corner a little bit.

David:
Yeah. Something to keep in mind as you listen. A common thread in every epic story ever told is that something has to go wrong. There needs to be a challenge, an obstacle. The world at one point was a good place and something has changed and now it’s hard, and the hero has to step up and overcome that obstacle. And it almost always requires the hero finding something in themselves that they did not have.
I challenge you to find any popular story. Star Wars, The Lion King, The Matrix, all of them. They all follow this exact same trend. And in today’s episode, we are following along with our mentees in their hero’s journey as they have to overcome individual obstacles. Now, the deeper that we dive into their journey, the more of these obstacles that start to surface and the better advice we can give them on how to overcome it.
So today’s quick dip is, as you’re listening to today’s show, ask yourself, “Am I struggling with something similar to this person?” And even if you’re not, does this advice apply anywhere else in your life or in your business? You, the listener right now, are on a hero’s journey as well, and we want to tap into that and help you make some progress. I’m just waiting to see how long I’ll wait before Rob will say something.

Rob:
Oh, sorry. Was I supposed to plus that up? It’s just good. It’s not so quick if I jump in, you know what I mean? It then becomes like a… We’re quipping back and forth. It becomes a quip tip at that point. But that was so succinct, so concise. So the brevity was outstanding and I’ve ruined it.

David:
Thank you.

Rob:
And I feel bad now because I didn’t mean to take the thunder away from it.

David:
No, I appreciate that. I wanted your lightning to my thunder. Together, we are a storm that is something to be reckoned with. And if you want to know why my quick tip was faster, it’s because many of you mentioned on YouTube that they’re not so quick tips because we do listen to the YouTube comments that you give. So take a minute to listen to today’s show and give your comments that let us know what you liked, what you didn’t like, what your favorite part of the show was, and give some advice and encouragements to the mentees who show up today and share their journey with everyone. Also, while you’re there, subscribe to BiggerPockets on YouTube. You won’t regret it.
All right, let’s get into today’s show. Okay. We are going to start with Philip. Philip is a high school Spanish teacher from California, where I live, and his goal is to get into multi-family and or a glamp site for a retreat center. If you didn’t catch last episode, Philip is a very creative type, much like Rob Abasolo who looks for an angle of how to make an experience for someone that they’re going to want to keep coming back to, as opposed to a purely analytical person who just says, “I don’t know. What does Excel say?” Which is pretty fun.
So tell us, Phillip, what was the homework that we gave you last time and how did it go?

Philip:
Yeah, thank you so much, David. So my homework was to reach out to land brokers and also to your former guests that started discountlots.com and build out some more resources of agents potentially, or brokers that could help me find land. I reached out to Discount Lots. I had some great conversations with them. One of the challenges was most of the land that they had in a radius of where I live is not really that hospitable for a retreat center. It’s stuff in the desert. It’s stuff that is a great price and I love the business model, but it just doesn’t work for what we’re trying to offer our potential clients.
And then I reached out to several land brokers. And I think one of the challenges I got was they’re really just trying to sell me the land that they had, that I was able to find these brokers on LoopNet, and Crecsi and able to see some of their listings.
And at least for the most part, they really just wanted me to buy the land that they had on, that they had listed, which a lot of times there were access issues or permitting issues or zoning issues that various obvious reasons for me weren’t going to work. So those were challenging. On that end, in a positive note, I spent a lot of my own time sifting through listings and listings that had quite a bit of time on them, and I actually found a piece of land that is in a totally the area that is my target area, and it is in an appreciating area. People are moving. It’s really beautiful and we put an offer on it yesterday. We’ll see if it’s accepted or not. We definitely came in much lower than the listing price, but it’s been on the market for almost a year.
So there’s definitely some things to do there. And then the other homework that you gave me was to don’t just drop some of the shorter term projects that I’m doing with raising money for people and doing some of these more active types of investments like flipping and this kind of stuff. And I met with more potential private money lenders. I met with four potential private money lenders over the last week. Had some really great conversations and just building relationship with those kind of folks. And then also starting to deepen relationship with certain operators and decide like, okay, is this person, do our values align? Do I want to work with them? So that’s where I’m at.

Rob:
Now, when you say potential operators, what exactly do you mean by that?

Philip:
Yeah, so I met with someone that’s doing flips that we are in masterminds together. We are in a couple masterminds together. I visited six of her sites. She’s got sites throughout LA where she’s doing flips and I got to meet her general contractor. I got to see her budget, essentially where did she come in at the start? What she’d been offering her investors and sort of getting an insight into what’s her flow. And that was really actually awesome to be able to just visit her sites and just go in person, see what she’s doing.
Then there’s a team in Florida that I spent some time with virtually that I raised money for a deal for them, and I could see myself doing more stuff with them in the future, but I’m going to take it slow and see how this first one goes out.

Rob:
Now remind me, what is your flipping career thus far?

Philip:
Yeah. So right now, I have five properties in Cleveland and three of them… two of them, I did full rehabs BRRRR style, and then one of them, I got through creative finance. And then I’m in the middle of two rehabs in Cleveland, doing all long distance. Have my general contractors that I’ve developed relationship with out there, and lenders, and essentially a team that I’ve built out there. And it’s been going fine. Things are going fine there, but it’s definitely… I mean, what would I say? It’s less downside but also less upside. And it does feel like I’m doing maybe too many things to do them well. And so I’m trying to hone in on what is the thing that I can really do well and it’s feeling like raising private money is one of them.

Rob:
So for anyone at home, just to catch you up on this, I think our advice to you, Philip, was with the glamp side or with the retreat, whatever you’re building, that’s going to be a project that’s going to take 14 to 18 months, maybe even longer, to actually get up and running. So our recommendation to you was to continue getting your day-to-day projects out the door so that you can make money while you’re trying to basically launch this development. That’s kind of where we left off, right?

Philip:
Yeah, totally. I mean, that’s been in the front of my mind and I’ve, even just thinking about my timeline, I want to be able to build out the retreat center with a long-term vision, not forcing it to make me money in month three or month six or month nine, but something that is built to last. That’s really what I want to do with that, but I also need to eat in the meantime. So I’m trying to find the balance of that.

Rob:
Yeah, yeah. It’s something we all face, right? Because it seems like you’re hungry enough to be good at whatever you do and thus when you have the ability to be good at everything you do, you want to do everything because you’re like, “I can do it.” Right? So as you start to lean into this, you’re good at raising money. I think this is a great niche. I don’t think a lot of people are very good at raising money. It’s a very specific type of skill that it takes to actually pitch an investor and romance them and schmooze them, wine and dine them, and everything like that.
So have you considered jumping into some of these partnerships like you were talking about where your sole purpose is just to provide the money and maybe you get just a piece, maybe a percentage of the profit, or just a piece of equity in that particular project?

Philip:
Yeah, that’s totally what my game plan is right now, and that is what the deal that I worked out with the group that I’m working with in Tampa. And now I’m in the role of, okay, people are really trusting me and they’re trusting my judgment. And I had some of these conversations with Andrew Cushman and Matt Faircloth, but it’s just how do I make sure that I am responsible with how I vet people that I’m potentially raising money for? Which is why the guys in Tampa, they have more deals, but I want to take it slow and see how this first one goes before I do anything else for them. But yeah, I’m definitely starting to lean into that and sort of, okay, I can’t be great at everything, so what are the things that I’m going to sacrifice that they are interesting to me, but maybe I can’t be great in them, especially not in six months or a year.

Rob:
Yeah, that’s okay. Well, like I said, I think leading into the money part of it, the raising money, that’s good. That’s like an important thing. If you’re worried about vetting effectively your other partners, that’s what you’re saying, the people you’re raising money for, have you gone and actually looked at any of their properties or walked to one of their projects?

Philip:
So in the folks in Tampa or the folks in LA?

Rob:
You would be raising money for both, right?

Philip:
Yeah. Yeah. I mean hypothetically, yeah.

Rob:
Okay, so both.

Philip:
Yeah, in LA, yeah, I walked five of her properties, or I walked six of her properties, and then I saw what her purchase price is, what her rehab budget was. Like I said, I got to meet her contractor. And then it was kind of cool. I got to see one of her projects that she hasn’t bought yet, but she’s like… I got to see her sort of idea phase. We met with her agent and some other folks and saw some potentially major issues with a property that she’s thinking of taking on, but then it’s like, okay, what is her game plan for how she would mitigate those?
And yeah, that was awesome, honestly. And then for the folks in Tampa, it was going through, seeing their past projects, a lot of that. And then I interviewed several of the people that have lent money to them in the past. That was a huge part of what I did.

Rob:
Yeah, I see. I see. Well, I think you sort of mentioned it, like walking that project and seeing what they had in the pipeline added a level of legitimacy that was a positive experience for you. I mean, I think that’s what it comes down to. You can vet a bunch of different ways. You can talk to contractors that they’ve worked with before, ask those contractors like, “Hey, did they pay on time?” Talk to different sub vendors or subcontractors, talk to different realtors they’ve worked with, walk those properties, look at the final projects of something that they’ve flipped before. I think those are small steps that you can take.
I think you’re going to have a bunch of check boxes in terms of what different types of things you can do, but the more you can check off, the more you’re going to start feeling better about handing them like a $50,000 check. So it seems like you’ve sort of started to do that with the person in LA. Now you got to go and actually fly out to Florida probably and actually see one of the projects that are currently in construction or in the pipeline.

Philip:
Yeah, totally. That’s definitely my game plan is essentially how being a part of the team of one of these people that our values aligned and am I happy with the way that they’re working in this space?

Rob:
Yeah. Yeah, definitely.

David:
All right, Phillip, so you’ve been drawing out a vision and fundraising for your retreat center, but it sounds like you’re coming up against the hurdle of time scarcity. You’re trying to visit these potential sites on top of your commitments as a teacher. Like you said, you got to eat. So tell me what has been the biggest hurdle that you’re trying to overcome when it comes to having the time that you want to put into this new endeavor?

Philip:
I think for the retreat space, a huge challenge has been… I mean, we talked about last, the time deal flow. I’m still not totally satisfied with my deal flow. I did reach out to one of the groups that the masterminds that I’m a part of to get a broker recommendation for land, had a great conversation with somebody. Now, I am in the position, I do take very seriously the idea of… I don’t want to have five agents doing a bunch of work for me that they’re not compensated for. There is a part of me that’s like, I would really just rather work with one person that’s awesome, than have five people that I’m testing out, like are they okay? Are they good? Just because I do feel like a lot of the agents that are helping me out, they’ll have to go an hour or two hours potentially outside of their normal radius of where they work in order to walk some of these properties for me and to walk some of this land for me.
And yeah, I don’t want to get the reputation as somebody that has an agent do a bunch of work for them for free. I am sort of moving through that as now I have three people essentially looking for properties for me.

David:
So let’s get into your most important next step and what you can do moving forward. So briefly tell me the offer that you wrote on the property. What was it listed forward? What was your offer price?

Philip:
Yeah. So it is listed for a million. It’s been on the market for almost like a 10 months, 11 months. When I went there by myself, I found a listing by myself. And in talking with the listing agent, she was saying that the reason why it hasn’t sold is because the sellers didn’t… potential buyers didn’t have enough to put down, which I don’t think is going to be an issue for me, but… or that they were asking for the seller to carry more paper than they wanted to carry.
So our offer is listed for a million. We put two offers. One of them was 775 and 40% down with a 36-month term, and the other offer was 815 with 40% down, and it’s the same terms. And then yeah, that was our offer. There’s some due diligence things that we really need to assess with the property. The sellers really haven’t done hardly anything as far as seeing does the well function, does the septic in good condition, what’s the status of electrical hookups. There’s a lot of due diligence things that we have to check off before me personally, before I commit a bunch of investors into this project with me. But I could totally see it working.

David:
I hear you. So here’s the homework for you. Your goal is to get a counter offer, not to get this offer accepted.

Philip:
Yeah.

David:
All right. If they haven’t responded right away, they didn’t love your offer, that’s okay. You tell your agent to tell their agent… That reminds me of that Notorious BIG song, tell your friends to tell my friends that we could be friends. You want to go tell their agent, “Hey, I want you to get me a counter offer.” That tells you, you’re moving in the right direction. If they come off their million, you’re looking to see how far did they come off that million? Did they come down to 900? Did they get into 850? Are they at like 995, right? That’s going to tell you this is worth pursuing. If they counter you at five grand off a list, just move on and then check in two weeks and see if anything’s different.
If they counter you significantly lower, you can get into this negotiation going back and forth. And maybe they don’t come all the way down to your 815, maybe they go into 875, you accept it, you start your due diligence, you come back and you ask for that extra 50 to 80 grand off once you have some form of due diligence, but you want to get a counter, you don’t want to get an acceptance. All right?
The next piece of advice I want to give you has to do with working with different realtors. Have a straightforward conversation with each of them and say, “I feel bad wasting your time. What would this relationship need to look like for you to be happy about it? Are you taking hours every week to look for stuff for me? Are you just putting a search together and firing it over? Tell me what you want to see in our relationship differently.” And then I want you, Philip, to gauge that against what feels right to you and look for some congruency. You want to see if you’re clicking with them, but you can’t find that out till everybody lays their cards on the table. So that’s the other piece of advice that I’m going to give you is get everyone to lay those cards on the table. Rob, any last words from you?

Rob:
No, that’s good, man. I think getting a counter offer really is step one and find out if it’s even… You’re spinning your wheels a lot and you don’t even know if the deal is a possibility right now. Let’s find out that it’s even in the wheelhouse before you start calling inspectors, finding out about the septic report and all that kind of stuff. You don’t want to waste too much time spinning your wheels for something that may be just completely not going to happen at all.

David:
Yeah, Phillip, what you’re going to learn is when a seller makes a decision, because we typically speak to the agents. My agent said this, their agent said that. Doesn’t matter. The seller makes a decision on emotions and emotions change quick. So if they say, “No, wait.” In two weeks, their emotional state could be different. If they say, “I don’t want to do 815, but I’ll do 875,” now they’ve already moved in your direction in a couple weeks, they might be like, “You know what, 815 is not sounding so bad.” They hear one piece of bad news on CNN or Fox and all of a sudden they’re like, “Yeah, let’s just sell this thing.” So you’re trying to get some momentum built in the direction you’re going. Sound good?

Philip:
That’s awesome advice. Yeah. Thank you so much. I really appreciate the laying out how to frame some of these conversations with my agents because I really do respect their time a lot and I want to be transparent as possible. If an agent sends me something and it works, I’m going to go with them.

David:
All right.

Speaker X:
Thank you, Philip. We’ll be following up.

Philip:
Thank you so much.

Rob:
Okay. Wendy St. Clair, again, great name, great name. Just to recap, everybody here, you are a high tech marketer from Long Beach. You have nine single family rental properties, you’re ready to branch out of turnkey, and you’re also exploring career opportunities in real estate, other things that you can be doing. Does that all sound about right?

Wendy:
Yes. Very concise.

Rob:
Okay, cool. And so what was your homework from the last time that we spoke with you?

Wendy:
Well, we had three different things and I’m going to go over them really quickly. The first one was you wanted me to look at other opportunities for what I might do in the real estate world. And it really was an important thing for me to do because I kind of soul searched about what I want and what I don’t want and where I am in my life.
One of the great things that really came from it was I realized I don’t want to start from the beginning. I don’t want to build from the start. I have a lot of skills, I have a lot of experience. And so instead of going into something more corporate, I think you’d recommended loan process or that sort of thing, I really am more interested in something more entrepreneurial, not corporate, and eventually moving into more of a retirement mode. So I think I have deemphasized that. I’m going to stick with what I’m doing in high tech marketing for the time being until I work in real estate and do some projects. And as things evolve, maybe something will come around that becomes a bigger priority for me or maybe I find my way into something as I’m doing these other projects.

Rob:
Okay, great. And then did you say that, were there two other pieces of homework?

Wendy:
Yes. So the other part was really, it’s a one other project that had two parts to it and it was, what’s my next move? And so as we talked about, I have some turnkey rentals that are currently in action. And Rob, you were really integral in making me think about this differently, because I had never considered turning one of those existing properties into a mid-term rental or a short-term rental.
So I went back to the board and I looked at the two properties I have vacant right now. One is not closed yet, it’s still being built. The first one is in Baltimore. And I did an analysis of the market there and what it would cost to furnish it and looked at the area and kind of came away with, if I had to do it midterm rental, I could maybe do it, but let’s stick with the long-term rental for that one.
Right now the numbers just didn’t make that much sense. But what did make sense was in the Florida property that I am looking at closing on in March, I’m buying two of these and they’re brand new builds. They’re beautiful, three bedroom, two bath houses. And I think what I’m going to do is I’m going to try to turn one of them into a midterm rental. And I actually had a call this week with Sarah from 30 Day Rental.

Speaker X:
Nice.

Wendy:
And yeah, I talked with them about their services and their design services. They’ve got a great turnkey situation that would be very easy for me to do. It’s fairly affordable to furnish the whole house. And I mean, it’s a learning curve for me. So what’s my time versus money evaluation, how does that go?
So I think for my first one, it might be a great thing to use them for something like this. And when I ran the numbers in that area, there’s not a lot of full houses available for people to rent. And I could probably increase the rent from 1850 a month on the long-term rental to close to 2,700, maybe even 3,000 for a short-term rental. So that kind of makes sense. The only question there is there a market for it? And I’m pretty confident there is, but I got to dig a little deeper.

Rob:
Cool.

Wendy:
Yeah, I thought that was a win. And then the last one was, all right, great. So if we’re going to go down that path with that one, what’s next for Wendy as far as my next investment?
So to recap, I’ve got a W2 job. I’ve got no primary residence, so the time is right for me to use the conventional loan for once and only that I have all my other loans are DSCRs. So I would love to buy a property that I could call my own and maybe house hack it and put multiple people in it, maybe travel nurses. So the question is where do I do that? I’m looking at the Las Vegas market. In the last week. I got a realtor, I’m getting my loans approved and I’ve started looking at properties. There.

Rob:
Awesome.

Wendy:
So that’s what I’m at.

Rob:
Well, let’s get into your struggle the week here. You shared with us that your struggle of the week has been with market analysis. Can you tell us a little bit about what you’re actually getting hung up on in that department?

Wendy:
Sure. Well, I’m an Excel spreadsheet guru. I do use your online tool as well. And I use it especially for the rent analyzer situation. But I then put together my own spreadsheet and I go, “All right, how much could I rent this for, long-term, mid-term? What does this look like?” But I kind of get stuck in my own analysis paralysis. And it’s something about the fear of knowing whether or not the market really will bear this. Do people really want to live together in a house that they don’t know each other? And what, if they are, then what’s important for them? Is it a big room? Is it a lot of open space? Is it a larger place? Is it a pool? What are the parameters that I should work within in order to find the perfect property?

Rob:
So just to recap, it’s like you know that there’s sort of this safety net of long-term rentals and you’re like, that’s something you know… the devil you know, if you will. We’re having a little trouble understanding if there actually is that market for mid-term rentals and short-term rentals. Is that about right?

Wendy:
Yes, and I have a big fear about the short-term rentals that they are getting oversaturated and that there’s just so much complexity with the city thing. So really, I’m kind of interested in the midterm just because of that and it might be easier for me. But yes.

David:
I think first off, I want to commend you for doing, you’re thinking the right way. You’re asking all the right questions. Your brain is operating, I’m going to say just like mine would, but now that sounds like I’m complimenting myself, which is not what I was trying to do there. But I like the way that you’re approaching it here.
I also like your pivot to, “Hey, maybe I’m just going to house hack.” I think that that could be a good way to get into this. I don’t have a word for what you’re doing here, but you’re minimizing risk in several steps. The first is you’re moving to a house hack that minimizes risk. Then you’re thinking, “Well, I want to do medium term rental, but it might not work out.” So another way you could minimize risk would say, “I’m going to try to do a mid-term rental, but I’m going to fall back onto a long-term rental if it doesn’t work. So I’m going to underwrite a property that would break even or make a little bit of money if it was a long-term rental.” I mean, a lot of money is better, but you can’t assume that. And that way, if the city shuts me down or there isn’t the demand that I was hoping for, anything goes wrong, you just boom, throw some tenants in there and what you’ve done is buy yourself time.
It doesn’t mean you can’t do a mid-term rental or short-term rental. It means I don’t have to figure this problem out in the next month or two while I’m bleeding money. You put a long-term tenant in there, you stabilize it, you continue doing market research. Where do I have to advertise this thing? What platform would work? What hospitals are hiring? Can I get in with the HR department to let them know I have properties that are here?
And then when your tenant is going to be out of their lease, you do some research then on like, okay, do I want to convert this into a midterm rental? Now, you’ve got a couple months to buy the furniture, right? What makes real estate hard and stressful is when you compress everything into the short timeframe. But we just assume that’s the way it has to be. I got to buy the property, close in 30 days, then I got to rehab it as quick as I humanly can. Then I got to furnish it as fast as possible. Then I got to eliminate my vacancy and throw a tenant in there. And all of that is a high pressure cooker situation that leads to mistakes happening versus when you can spread this out over time, you can conduct your due diligence and you can get the verification that your subconscious is screaming at you that you need.
Because that’s a very good point, how do I know someone’s going to rent this thing out? I don’t even know where I would look. Well, if you gave yourself a year or even six months to do some research on that and you started slowly, now you figure out what works and then you start slowly converting more units into something like this, then you feel confident about demand. Now you can go balls to the wall. I’m just going to go buy as many of these properties as possible. So I’d like the shifts that you’re making. I think this is very wise. I want to commend you for how you’re looking at it. Rob, what angles are you seeing as she talks?

Rob:
Yeah, totally. So this to me, I think like you said, this is such a great lesson for a lot of people that I think that real estate is about exploration. When we get started, we’re seeing all these opportunities and we’re like, “Oh, we got to try it all.” But I think in this instance, Wendy, my question to you, and I think I know the answer to this, but currently all of your properties, they work as a long-term rental, right?

Wendy:
They do.

Rob:
Okay. That’s sort of what you based just the initial purchase on, right, that they’re going to be long-term rentals?

Wendy:
Yes, they work as long-term rentals, but that’s not… as I got deeper and deeper into it, that does not make a retirement. That is just a little gravy and maybe equity over time. But in most of these markets that the turnkeys I purchased in, they’re questionable as to whether how great their equity is going to grow over time. So it’s not like buying a place in San Diego.

Rob:
Sure. Sure. But I think the point that I’m making here, because this is a good conservative way to get into short-term rentals. If you can make… It’s harder and harder these days with interest rates, but you’ve already bought these purchases with the assumption that they will work as a long-term rental. Now I understand from a retirement standpoint that it may not be as juicy as you want it to be, but you already own the house. So it’s pretty low stakes. It’s a lot lower stakes than if you’re comping out of property that you want it to work as a short-term rental and it barely works as a short-term rental. And some people do that without confirming that it would work as a long-term rental. And those stakes are high for that person because if it doesn’t work, they will lose money. That’s not the case with you.
You might be out your furnishings, worst case scenario, but your stakes here are really low. You can furnish it, try it out as a short-term rental. If that doesn’t work, you can try it out as a mid-term rental. Either way, you tried it two different ways. It’s not like you’re going to lose the house. You can always convert it to a long-term rental.
So I think from my standpoint, I love this strategy because if you can make a deal work for a long-term rental, you can effectively make it work for any other kind of rental out there. Medium, short, medium-short, smedium, whatever you want to do. So I think that it’s honestly not as risky as you think. And probably for you, my action step for you is I think you just need to really educate yourself a lot more, as much as possible on mid-term rentals. Because as we start to learn more about the space, it becomes a lot easier.
That’s my channel. I try to make people feel comfortable about short-term rentals. So I’m going to give you one person that you can go follow right now because you already know about Sarah Weaver, she’s great. But there’s a guy, his name is Jesse Vasquez. He’s got a YouTube channel, he’s got an Instagram channel, and he’s all about mid-term rentals. He talks about how to go and actually give you a contingency plan, like how you actually go and seek out these clients. That’s what you’re scared of, is how am I going to get the people that actually do it?
So his methodology is actually contacting hospital staffing agencies and staffing agencies in general, and then insurance companies and insurance companies that will pay basically for a displaced family to stay in a home. And he kind of teaches the process of getting these contracts and all that kind of stuff. So go look at his content. And just by watching that, it’ll teach you other ways that you can obtain your own clients and leads on the mid-term rental without having to depend on some of the platforms like Airbnb, Furnished Finder, Vrbo.

Wendy:
Awesome.

Rob:
So go get some more education on it. Go follow him. Go find out ways that you can create more deal flow for clients to actually stay as a mid-term tenant, and I think you’ll start feeling a little bit better about this decision. But all in all, I’m going to say low stakes here. You already own the home. It’s going to work no matter what. Small experiment to find out, right? And if it pans out, the upside is actually sounds like it’s going to be pretty good.

Wendy:
Right. Yeah. Cool.

David:
All right, Rob, that was some great advice there as far as a new step for Wendy to take there. Wendy, I’m going to add on this. Take a property you already have, and I want you to do some research on if one of those, or even better, a unit in one of those could be converted into a medium-term rental in that market. If they’re out in the middle of a rural area and you’re renting it out to dairy farmers, maybe that’s not going to be likely. But if you could find something that is in a urban area, I want you to do some research and ask yourself, “If I were to convert this unit into a medium-term rental, what would I do? How would I do the research? What would I do?”
And if it looks promising, look at your leases and see which one’s expiring first, and see if maybe I could try it with one of these. Furnish it. I’d probably go for the least risk one possible, like the cheapest. Something that you could put secondhand furniture. You don’t have to go to, I don’t know, Crate and Barrel or one of those. I don’t know if expensive furniture. I’m not married. I’m assuming Crate and Barrel. I think my assistant said that one time is expensive.

Rob:
CB2, West Elm.

David:
See, I should have asked Rob. He knows all of this. You don’t want to go Saks 5th Avenue on this sucker, okay? You’re looking like, can I get some Goodwill furniture in there to lower my risk and get used to renting it out, seeing what demand is like, experiment with something you’ve already got before you go put a bunch of money into something else if you possibly can.
If you can’t make it work, it’s still going to be a very good exercise to do a stress test, which I think you’re very familiar with working in the corporate world. You guys are always going to be thinking, “What could go wrong? If we put our money in this, if we take this road, how could that work out?” I see the wheels are turning as we’re talking.
So when we come back and have the next talk, I’d like for you to come say, “David, I looked at converting one of my units and I realized I don’t know this, or this could work, or it’s much easier than I thought.” I want to hear the feedback you have when you consider doing it with an existing unit.

Wendy:
Okay.

David:
Also, we’re talking to Wendy, but anybody can do this with their portfolio. If they’re thinking about, “I want to become a short-term rental investor,” you don’t have to buy a short term rental. Definitely don’t have to go to Scottsdale and buy one like Rob and I did. You can just take something you’ve got, convert it to a short term rental and see if it works. And if it doesn’t, maybe you lost a little bit of money, but it’s okay. It’s a paper cut. It’s not an arterial bleed. That’s what we’re trying to avoid in real estate investing.

Rob:
Well, that, and if you already own a home, go sleep at your parents’ house or at your brother’s house or in your car-

David:
Rent your house out.

Rob:
Yeah. Exactly. Rent your house out and go somewhere else. Go camping for the weekend and find out if it works. There are a lot of ways to do an initial stress test.

David:
All right, Ms. St. Clair, thank you very much. We’ll talk to you soon.
All right. Danny is a software engineer by day and a superhero by night, I mean, he owns several multi-family properties in the Sacramento area, which in my opinion makes him a superhero because I’m a California kid, and he’s chasing a life of financial freedom for himself and his daughter, which is very superhero-esque of you, Danny. You’re also wearing flannel. That reminds me of Brandon Turner. So you’re A okay in my book. Your struggle of the week is that you mentioned in your update, you’re having a hard time pushing out of your comfort zone to make new connections. Tell us a little more about that. How’s that been going?

Danny:
Yeah. So I’m a pretty massive introvert, so reaching out to people and meeting new people is a challenge for me. I go through and I’ve reached out on BiggerPockets. I try to work my network, but definitely, I think I’d rather read a whole book than reach out to a couple people. And even though that reach out may just take a few minutes, just mentally, it’s one of those things where I’m super comfortable kind of being introverted more than extroverted.

David:
All right. I’m going to throw it to Rob in a second here, but before I do, I’m not going to give you practical advice. I’m going to give you something coming out of left field. It’s very clear to see that your introversion… I’m super introverted myself, okay? You don’t know it because when I get in the podcast, I flip this little switch behind my ear and I turn into Disneyland David. This is not it. Rob’s been around me in person. He’s like, “What happened to you?” He’s like… It’s completely different when I’m in my natural state. I’m a huge introvert. I’m analytical. I read people. I look at things deeply, and I don’t let you see what the heck is going on between my ears. And it’s very unnerving when people see me in real life. So I can relate to what you’re doing.
It is true that you have to force yourself out of your comfort zone, but rather than saying, “Just go talk to people,” that’s the practical advice everyone always gives, I’m going to encourage you to do something that is outside of your comfort zone that has nothing to do with talking to people. I want you to get comfortable being uncomfortable, but not by… I don’t know. I’m not going to take a claustrophobic and be like, “Get inside a coffin and sit there for four hours, and when you come out, you’ll be fine.” No, you won’t. You’ll come out like a vegetable. I want you to work out in a different way than you used to work it out. Okay? If you’re a weightlifter, I want you to go for a run. If you’re a runner, I want you to go lift weights. I want you to consider signing up for a beginner’s martial arts class that’s just super introductory level. I don’t want you to go into UFC gym and rolling around with some 22-year-old psychopaths, okay?
I want you to read, if you’re used to Audible and listen to Audible, if you’re used to reading. I want you to find something that’s the opposite of how you are normally doing things and start very slow. This is not throw yourself into the deep end and just figure it out. Okay? I want you to get a little bit of exposure to using a different part of your brain or perceiving a situation differently than you normally do, and I want you to do your very best to make a habit out of doing that. If it’s 15 minutes a day of reading, when you don’t normally like to read. As an introvert, you probably don’t mind reading, right?
If it’s one thing that I started forcing myself to do is when I would go to Walmart or Safeway or a fast food restaurant or anything, I would look at the name tag of the person, and I would say, “Thank you, Bob. Thank you, Jennifer.” And when you say someone’s name like that, they’d get, “What?” They catches them off guard, and it almost forces a conversation. I would force myself to be into those types of scenarios that broke me out of my typical, I’m just going to observe you and not show anything of myself. So does that sound like something that you can commit to doing before we get into your actual situation?

Danny:
Yeah, I think I can do that. Even though you said it wasn’t necessarily practical, I think you’ve given some really good tips there and kind of ways that I can do that. So yeah, I can do that. I can commit to that.

David:
Yeah, you probably don’t post on social media what you’re doing or where you’re going. Is that fair to say?

Danny:
Absolutely.

David:
Okay. Can I get you to put a post on Instagram or make an Instagram, if you don’t have one, and not just say, “This is me and my sandwich”? Do something. Put a video of you talking before you go into the gym or anything that you can think of that is not something that you would normally do, just do it in a very small dose.

Danny:
Okay. Makes sense. I’ve been thinking about the online presence, especially as I’m trying to scale and I’ve got these other properties. I have all this collection of photos before and after, and kind of some stuff documented that I really should… I feel like I should be putting out there to kind of build the brand anyway, so that might align well with it.

David:
And every situation you can in life, do something a little bit different. All right, Rob, what do you think?

Rob:
Well, Dan, I just want to point out to you that you are in good company, man. I mean, it’s like introverts, extroverts. It’s a 5050 breakdown. I don’t know what the actual breakdown is officially. I’m sure that data is recorded somewhere, but we have so many listeners in the BiggerPockets community that also struggle with this, that also struggle with getting in their comfort zones.
So maybe even consider making a post about it. Do we have a BiggerPockets Facebook group? There’s the forums, go make a post that’s like, “Hey guys, I’m naturally introverted. I have a tough time putting myself out there in real estate. Do I have any other introverts in the group? What have you done to overcome this?” I’ll try to give some advice here. It’s tough because I’m more of an extrovert, but I think probably trying to surround yourself with people that understand you is going to maybe have a bigger impact than you think.
I remember when I started my YouTube channel and it started to grow, I had nobody that I could talk to about my struggles or about anything that I was going through. I couldn’t celebrate with certain… I couldn’t talk about struggles or celebrations, really. I mean, no one really understood what I was going through. And I remember when I met other YouTubers, I went to a conference and I remember talking to other YouTubers and I was like, “Man, this thing happened.” And they’re like, “That happens to me all the time.” And I was like, “Oh my gosh.” I felt so heard and so comfortable with people that were facing what I was facing.
And it’s the same thing. I had that, and then a month after that, I went to an entrepreneurial conference. It was Cody Sanchez’s conference, and it was a room full of entrepreneurs. And I started talking to them and talking about my struggles and how it’s tough to balance life and business and being a family man and having kids, and they’re like, “Me too.” And so I felt heard. And so it actually allowed me to grow a lot more in both the entrepreneurial space and the content creation space, meeting other people that struggle with what I struggle with, and celebrate what I celebrate.
So I think it actually might be beneficial to try to meet other introverts that struggle with it, because you could probably swap some war stories on that and be like, “Yeah, I struggle with this too.” So I would try to connect with other people. That would be one. David’s advice to you about going and basically putting yourself in situations like martial arts or whatever, I like that too. I will say that I’m naturally extroverted, but I used to do improv and I hated doing improv in front of my peers. I was always really embarrassed to do that.
And so every Wednesday there was a jam we called it, where you could go and you could basically do improv on stage in front of a whole group of people that you didn’t know. And I didn’t tell my friends about it. I didn’t tell anybody about it. I would just go and show up because no one knew who I was, and that the pressure was off when I knew that no one knew who I was. And so I think this advice of going and trying something new where you’re in a group of people that don’t know who you are will probably relieve you, right? Because if you were trying to be extroverted at work, you got the pressure of your peers “judging you,” quote unquote, right? But when it’s a group of people you don’t know, stakes are a lot lower.
And that’s my advice on that, those two things. Try something new with a group of people that you don’t know. Try to basically surround yourself or connect with people that are also in your boat from a kind of getting out of your comfort zone, introversion standpoint. And I think doing those two things will be very helpful for you.
Oh, yes. I remember, one more thing. Sorry. I have a question actually, from a technicality standpoint, from an introversion thing. If I remember correctly, the way that you sort of recharge is by being alone in a group of people… alone away from people. Isn’t that how your batteries recharge? Is that right?

Danny:
Yeah, largely. It’s like I went to [inaudible 00:44:37] this year and then going out there and speaking to a lot of people and then going back to my hotel room in between breaks and kind of recharging was the way I did it. Yeah.

Rob:
So I was going to suggest that maybe don’t put yourself out of your comfort zone when your battery is drained. So always do these new things like joining martial art, whatever those things are where you’re sort of in a new group of people who don’t know who you are, make sure to do that after you’re fully charged and you’re ready to do that. Because if you go after work, when you’re just mentally drained and then you try to put yourself out of your comfort zone and meet new people, I don’t think that’s going to go well for you. I can’t imagine that it would. So make sure that anytime that you push yourself out of your comfort zone, set yourself up by success, by basically letting your batteries charge up and then go for it.

Danny:
Yeah, that’s good advice there because definitely, especially being a full-time work, I can see myself trying to push it toward the end of the day and do that stuff, but it may not work out well if I just jump right into it.

David:
Yeah, human beings, I’ve noticed, me included, I will just do the same thing that doesn’t work harder over and over and over than try a new thing. It’s very, very hard to get out of doing our normal thing, but we have the life we have right now because of the person we are right now. You’re not going to have a different life unless you become a different person. And part of the journey of real estate is actually becoming a different and better version of you. So now that we’ve shaken up your social life and given you some personal development advice, tell us, what was your homework?

Danny:
So my homework actually had a lot to do with what we just talked about, but Rob, you had assigned me finding some investors, in the Sacramento area, try to get contractor referrals, talk to agents. And you had this really cool tip around finding contractors using construction sites. And Dave, you had talked about… you connected me with Johnny, one of your agents who’s awesome, and just kind of think about Rob’s advice, and how do I apply it at other places.

David:
Yeah, we might be able to take you by one of my properties. Actually, now think about it, there’s several of them that are in construction and you could probably see that might help a little bit too. I’ll have to follow up with Johnny, or if you could tell Johnny to remind me, I’d love you for that. All right. So that was the homework that we had. Give me something that you learned from it and give me something that you feel like maybe was left to be desired.

Danny:
So what did I learn? So I went through and I did do some BiggerPockets reach outs. It was a little hard to find folks, and maybe I just wasn’t really using the search very well. Finding folks in that, that are outside of that small multi-family. It seems like, especially in the Sacramento area, that’s the bulk of the members out there. So that was a little bit of a challenge.
There were some meetups that I had been to over the pandemic virtually that I remember some names from. So I’ve reached out there and I’m going to go connect with them in person in the coming week or so. So I think that worked out well. The construction site, so when I actually did, I went out to Sacramento as part of this, kind of went through, and pulled a list of properties and kind of go visit my properties and see how things are going. And so I happened to pick a really rainy day, so I went around and kind of walked some properties. But in terms of construction sites, I wasn’t able to find anything. Maybe everybody was off that day or staying home from the rain.

David:
All right, Rob, what are you thinking?

Rob:
I just heard Pace Morby say this phrase not too long ago, which is if you haven’t called once, you haven’t called twice. And I think what that means is sometimes you got to just keep trying it because it’s like the method, theoretically a sound. We know people have had success doing this. So sometimes, yeah, you may drive around, not find a construction site. You may try to reach out to people that didn’t give you that recommendation, but doesn’t mean that you can’t try again. I mean, I think all of real estate in general is a numbers game. It’s reps, right? Yeah. Very rarely does stuff work out the first time. It does for some people like David Greene, but for me, I got to keep trying because I fail over and over and over again. But for some people like David, just naturally happens because he’s the king. He’s the gold king over there, the golden Greene.

David:
So gold, it’s green.

Rob:
So gold, it’s green.

David:
Danny, as you’re hearing this, I’m sure that has to feel discouraging and many other people listening are going to be thinking the same thing. I wanted financial freedom. I didn’t want to become a professional networker that has to call a hundred people a day. If I had to do that, it’s not worth it. I’ll just stay in the job I’m at. It’s okay to admit those are things that we think and we feel, all right?
What I want to get at here is that Pace is a human being who is wired to like talking. He is a good talker. It’s why he became a well-known person in our space. Rob is, like he said, extroverted. He enjoys talking. He enjoys meeting people. He can talk to a potted plant, but he’s constantly like, “Dude, why don’t you open up more? Why don’t you talk more? People think you’re rude? They’re intimidated by you.” It’s my personality, right? He’s easier for Rob to do some of this stuff than it would be for me, or for you, or for some other humans.

Rob:
I mean, I didn’t say that. I didn’t say that exactly.

David:
No, he wouldn’t because he’s too nice, right? He’s extroverted, but I understood what he was getting at. That’s where it was going, but he’s right. That’s what I’m trying to say. The point here is that it’s not going to feel this horrible for you forever. As your personality changes and adapts and grows, the weights get lighter. Maybe I shouldn’t say it… The weights don’t get lighter, we get stronger, and they feel lighter. It doesn’t suck forever, and that’s why I’m giving you the advice to start breaking out of your comfort zone in other ways, because this is what it’s going to take to be successful as a real estate investor in our area. And you don’t want it to just suck. You don’t want to be like, “What it takes to be successful is miserable. All I can do is eat kale every single day.”
No, there’s a point where kale doesn’t taste that bad, and you can put salad dressing on it. And then there’s like other things you can introduce into your diet so that it’s not just kale all the time, but when you’re used to donuts every day, the thought of eating healthy is miserable. It doesn’t stay that way. It gets easier. And so I just want to encourage you and everyone who’s in this position where we’re saying, “You got to call twice, not just once,” these calls don’t suck forever. At a certain point, you will adapt, I promise you. And it will even start to, in a crazy way, become fun.

Rob:
Yeah, that’s good, David.

Danny:
Got to get those reps in.

David:
Yeah, but start slow.

Rob:
Sure. Yeah. But just the analogy of, yeah, the weight doesn’t get lighter, you just get stronger. That pretty much is how it is. I mean, I’ve just recently started making cold calls again. And I think another thing for me that I’m learning is like you’re never above anything. I have teams. I have systems. I’ve got… I’m success. I’ve happy with where I’m at in life, but I’m still cold calling.
I actually met with the landlord yesterday. I walked to his apartment complex and I pitched him on a rental arbitrage deal, and that’s not something I would’ve done one or two months ago, but it’s something that I’m doing now because I want to learn that to teach people and stuff like that. So for me, I was able to say, “Okay, I was naturally a little nervous to do it because I’m like, ‘I’m going to suck at this.’ I haven’t really pitched myself in a long time, but I know that by doing it over and over and over again, it gets easier,” and it is. I already feel pretty good at it because it’s like a skill that you can learn pretty quickly if you dedicate time to it.

David:
There we go. Okay, Danny, your most important next step is going to be different than some of the other people, because I don’t think that there’s practical steps that you need to be taking as the same as with Wendy and with Philip. I think yours are going to be more, like I said, at least from my side, I want you to do something out of your comfort zone, but not wild and crazy. Okay? I don’t want you to go walk on hot coals or get in a pit full of poisonous snakes and force yourself to keep your heart rate low. I want you to consistently do small things. So if this was a weight room, don’t get in there and try to bench press 200 pounds, go to the gym and work out every muscle group one time. You’re going to be sore, so don’t blow it out, and don’t look for results right away.
You’re just looking for a habit you’re trying to build, which will lead to momentum, and that momentum that we are creating is going to be what crushes through the obstacles that are in front of you. If you try to go too big, you’re going to get discouraged and you’re going to quit the whole thing, and that’s how anybody would be. If you go to the gym on your first day and you blow it out, you’re so sore the next day, you never want to go back and you don’t, right?
So your homework from my point is I want you to come back and I would love it if you had a list of four or five things that you said, “I hated it. I didn’t want to do it. It’s not what I like to do, but I made myself do it and here’s what I learned.”

Danny:
Sounds good. I will commit to that.

Rob:
Even tinier step here, man, just really just a very easy softball that you can throw here. Just try to start a conversation with your cashier or anyone that you interact with that you typically wouldn’t, right? Go to Trader Joe’s. Everybody that works at the cash register at Trader Joe’s will chat with you about their childhood if you ask them any question. Go put yourself in a situation like that. Ask them how their day is going, what they got going on this weekend, and I promise, they’ll probably honestly pull the conversation out of you.

Danny:
I like it. Dave, you mentioned, you had a switch. I shaved my head and I still haven’t found that switch, but you thinking the reps here will make that grow out of there?

David:
It sort of makes its way to the surface over time. First, you shave, then you wait, and it rises to the surface, and then yes, the reps will absolutely reveal. Sometimes, I had to lose a little bit of head fat to reveal where that button was, but I had to get in there and talk to people to burn those calories.
I’m not exaggerating to you, Danny. I was so bad that when I was holding open houses as a new agent, I had to bring Krista with me and she would go introduce herself to the person and then say, “This is David. He’s the listing agent.” And I would shake their hand, and then I had a little bit of momentum that I could be like, “I’m David, what is your name?” And then I just hope to God the conversation went somewhere because I just couldn’t jumpstart it.
And I was a cop for eight years. I could bust into houses and scream at people or go approach a person out of nowhere. I could make conversation with someone stalling for time, waiting for backup to arrive because it was really dangerous. But something about that salesy environment, I was like, hated it, right? I just closed off and it was very, very, very difficult. So I just made tiny improvements. I brought Krista, and then after the third or fourth open house, she went with me and I shook her hand. This is embarrassing. I sound like… It’s just terrible. But this was the reality.
When I would have to call people from the open house, I wouldn’t know what to say. So I had another agent sit there and whisper in my ear, like Romeo and Juliet, “Ask them if they liked the house,” and I would, “Did you like the house?” And then they would reply and she would whisper it. They would have to wait for me to reply back.
That’s what it took for me to build the momentum. And now like Rob said, I could call somebody up and just start a conversation. And I’m actually, I teach people how to control conversations through psychological tactics because I had to learn all of that. So there’s absolutely hope. It will not suck this way forever. I don’t talk about it very often because most of the podcasts are not about me, but I absolutely relate to where you’re at. And there’s so many people that listen to this and they’re like… It’s like they’re at the gym. They want to go work out, but they’re too scared and nervous, so they’re looking in the window at the people working out like, “Someday, I wish that could be me.” And they’re doing that with real estate investing or real estate sales or networking or the meetup that they want to go to, but they’re too shy.
Just find some way to bring someone with you or just get in the gym and walk around and then leave, even if you don’t ever touch the metaphorical machine. It’s okay to start slow. The goal is build momentum, not just get a tangible result right off the bat. All right?
So thank you very much, Danny. We’re going to be following up with you soon. Stay encouraged about what you’re doing. You made some good progress. Make sure that you tell Johnny that you want to go see one of my properties and maybe I’ll meet you in person when I go out and check on how the progress is going.

Danny:
That’d be great. Thank you both.

David:
All right.

Rob:
You got it.

David:
And that was our last guest. Rob, what’d you think about today’s show?

Rob:
Really good, man. A very large spectrum of SOTWs, struggles of the week. SOTA was what I was calling them. That’s the new term that I brand it, but it’s really nice. Everybody can be going through a very similar journey, but through very different struggles. And I think it’s really nice to kind of work through all that because yeah, man, it’s just new. Real estate is so cool because it creates very unique situations that you haven’t heard about, that everyone’s got a very different story that they’re going through. So yeah, it’s really nice to catch up with everybody.

David:
And I want to give a shout-out to all of the people that were guests today that volunteered to take this very public journey in front of us and the entire BiggerPockets audience. It takes some more courage than people might think.
And it reminds me of one of my favorite poems that’s hanging in my office. It’s Teddy Roosevelt’s, the Man in the Arena. And I’m going to close out by reading that. It is not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood who strives valiantly, who errs, who come short again and again because there is no effort without error and shortcoming, but who does actually strive to do the deeds, who knows great enthusiasms, the great devotions who spends himself in a worthy cause, who at the best knows in the end, the triumph of high achievement, and who at worst, if he fails, at least fails while daring greatly so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.
For each of our guests today, they are the man in the arena. They are taking this public journey and out there trying to do it. And I commend them for not sitting back and just being critical of others or saying, “There is no chance.” And I am proud to be a part of this journey with them. This is David Greene for Rob, my safe space, Abasolo, signing off.