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Ruchir Sharma, Rockefeller International chairman, joins ‘Closing Bell’ to discuss the growth story for Chinese stocks.

David:
This is the BiggerPockets Podcast show 591. CEOs of tech companies don’t necessarily bet on a company, they bet on a market. What they were getting at is in the right market a lot of companies will do well and the actual company itself doesn’t have as much to do as the market that it’s coming up in. And real estate is like that too. When you have a really solid market like this, you can make a lot of mistakes and you can be okay. When you’re in a really tough market, you can do a lot of things right and you’re not going to be okay. And because I realized that I started paying a lot more attention to the bigger factors that affect how our individual properties perform.

David:
What’s going on everyone? It is David Greene, your host of the BiggerPockets real estate podcast here today with a special Seeing Greene episode. Look, if you’re trying to find financial freedom through real estate, if you want a better life, if you want to live life on your own terms, or if you know that you have potential that you are not reaching and you believe real estate is the vehicle that you are going to get to it, you are in the right place. BiggerPockets is a community of over 2 million members, all on the same journey as you and we at BiggerPockets are dedicated to helping you get there. We do this by providing an incredibly powerful forum on the website, BiggerPockets.com, where you can ask any question that comes up to real estate investing. As well as research question that other people have answered. We have a very, very strong list of blog articles where you can read articles other successful investors have written detailing how they did it.

David:
And we have the world’s best podcast where we bring on different guests to describe how they won at real estate, how they made mistakes at real estate or experts in the field such as tax strategy, lending, rehabs, analyzing deals, commercial, triple net, short term rentals, long term rentals, you name it, we got it. That come in and give you a play by play understanding of how they succeed at real estate and more importantly, how you can too. On today’s show we get into some really, really good questions. So what you’re in for now is if you go to BiggerPockets.com/David, you can leave a question and I will answer it right here for all of you to hear. We get into some strategy talk as well as some nitty gritty, some brass tacks, there’s a little bit of everything on this episode, but it’s a lot of fun.

David:
One of the issues that we got to was a really good question no one’s asked me about and the guest said, “Hey, I’ve got a bunch of money in the bank. I’m saving it to go do a BRRRR deal, what do I do with it in the meantime? Should I pay down my loan? Should I not pay down my loan? Should I pay down my loan, get a HELOC, what do you think is the best bet?” One of the people asking a question on our show said, “Hey, I want to get from residential into commercial. What should my criteria be?” We talked about, should you buy one property and pay it off and just live off the cash flow? Or should you buy several properties using a loan as well as how to get a loan when you leave your W2 job and more, we have some incredible questions today so make sure you listen to this entire episode.

David:
Before we get to it. I want hit you with today’s quick tip. Look, we are wrapping up the first quarter of 2022 already. Now, many of you made goals as we all did this together to start the year. Now’s the time to check in and see, where are you at with them? I encourage you to use BiggerPockets to help you achieve those goals. So if you have questions that you need help answering, check out the forums. If there’s a specific topic that you want more information in, go to BiggerPockets.com/store and see if have a book on that topic where we can help you. If you’re looking for a partner, consider going to a meetup and meet other people and find someone you think that you can trust to get into business with. BiggerPockets has so many different ways to help you with your goals.

David:
In one of the shows we interviewed Jonathan Greene, same last name as me who, said he actually time blocks time in his calendar to get on BiggerPockets and interact with the other members, just to bring value to them. Doing something like that can have an incredible impact on your business, so do it. Looking for an agent? Check out our agent finder. There’s all kinds of ways that we can help you and we want to do that. So see where you are with your goals. If you’re behind that’s okay, you got plenty of time to catch up. And if you’re on pace, see how BiggerPockets can help you get ahead. All right. I want to encourage you before we move on to listen to us on our YouTube channel, we take these same podcasts and we do put them on YouTube. When you’re listening on YouTube, you get to see some of the weird hand gestures that I make or funny faces that I make.

David:
But more importantly, you can leave us a comment. And that’s what I’m looking for. If you go to YouTube and leave a comment about what you liked, what you didn’t like, what you want more of, I will know how to answer these questions better. Please be sure to like, share, and subscribe what you see there. And if you’re listening on iTunes, Stitcher, or any of the places you get podcasts, leave us a review there too, they really, really help. We want to stay the number one real estate podcast in the world. All right, enough of that, let’s get to our first question.

Caleb:
Hey David, my name is Caleb. I’m a home builder and a realtor here in north central Texas in Fort worth specifically, I actually got 42 new sets of plans that I have to get started this week. So it’s going to be really busy, but my question is obviously pertaining to investing. So my wife and I, we have our primary residence and we also have an investment property that we just put under contract to sell. And when it’s all said and done, I’m going to walk away with about $80,000 investment for investment purposes. That’s not including our personal savings and all that other personal finance guru, recommendations. That’s strictly just money to use to invest. There’s two schools of thought here, and I’ve kind of been going back and forth between the two once this house closes. One option is to split that money into two 20% down payments on around $200,000 properties.

Caleb:
And so basically I’m doubling down. I’ll be turning that one rental property into two rental properties, just because the amount of equity that I was able to pull out of it by selling it, I didn’t want to refinance it because the rates and the price just wouldn’t have made sense for the amount that I could have pulled out without doing an appraisal. It was kind of a complicated situation.

Caleb:
Anyways, it was better for me to sell it. So option number one is to double down, buy two houses with that. Option number two is the BRRRR strategy to save up enough cash to where I can buy a house cash, remodel it myself, doing all the work and then refinance and just do the traditional BRRRR thing. I think that would take me another six months or so to save up the money that I would need in order to achieve that or find somebody to partner with. What are your thoughts on this scenario? What would be the best course of action in your mind and what are you betting on appreciation wise in 2022, that’s this year. All right, man, I really appreciate it. I love all of BiggerPocket’s content. You’re awesome, thanks.

David:
All righty. Well, thank you, Caleb. That was a very well thought out video with some really good questions in there. And I’m happy to tackle this for you. Now, let me start off by saying to you and to the audience, this is a subjective interpretation of what I think you should do, which is based on what I would do, but you’re in a different circumstance in life than me. So take that into consideration if you’re listening to my advice. Not everybody’s in the same situation and not everybody is seeing the cards being dealt the same way that I’m seeing them, but with you guys understanding that if I was in Caleb’s situation, here’s what I would do. I would go ahead and answer. First off the last question you asked is probably the best place for us to start. It’s what do I see happening in 2022?

David:
And that’s a great question to ask because my advice is going to be geared off what I see happening. The same advice doesn’t work in every single market. You really got to adjust your strategy to what’s being offered to you. So here’s what I see in 2022: more money being printed, money that has already been printed hitting the actual consumer experience. So you’re going to see gas prices go up more groceries go up more. The price of assets go up more. So this wave was started, this tsunami in the middle of the ocean of inflation. It’s now making its way to shore. So we’re going to see more of that. I think you’re going to see more people rushing into real estate because they are recognizing that is a great inflation hedge. We’re also not building enough of it. I think rates might go up a little, they might go down a little.

David:
They’re largely going to stay the same. So I don’t think the rate issue is going to play a very big role in real estate. But I do think that real estate is going to go up in value, both in rent and in how we value it as far as what it would sell for. So overall it’s going to be another really strong market, that’s what I think. And that’s why I’m going to give you the advice I’m giving. So option one was, should I take my $80,000, save up more and then use the BRRRR strategy. So theoretically, you’d get the majority of that 80,000 back to go buy the next house. Now that’s usually where I tell people that they should go. You can preserve more capital, you can scale faster, it forces you to get a better deal because you have to buy below market value.

David:
However, with the competition that we are seeing, my fear Caleb is that in the six months that you try to save that money, especially if something happens and it takes more than six months, prices are going to go up faster than you can keep up with them. So you may end up never getting the amount of money you need to buy a place cash because prices are going up faster than you could save money. Even if you do get to a point where you can pay cash for something and do the BRRRR deal, or you give up and you go the hard money way so you can buy something, how much will prices have gone up while you were waiting? Now maybe in the area that you’re in, I believe you said it was Fort Worth, maybe prices aren’t going up as fast. If you’re in the $200,000 price point, it’s probably not red hot.

David:
So if there’s a lot of fixed upper properties, if you really can do it in six months or even better, if you could find the money from somewhere else, borrow it from somewhere, get a small loan, something to get started sooner, I’d recommend that. If you can’t do that, which is probably going to be harder to do. I would say, take that money and spread it out over several different properties. Get as many of them as you can in the best locations possible. Now here’s my advice to you, I don’t want you to look at how many properties you own. That is a misleading number. It’s why people say I have X amount of units, X amount of doors. It just doesn’t matter. Look, you could have one property in a great area that makes a ton of money, or you could have another property in a terrible area with a ton of headaches, but 50 doors.

David:
Would you rather manage 50 headaches or one great property? It’s why you don’t want to look at how many properties or how many units you have. Instead, what you want to look at is how much cash flow do I have, how much equity do I have, and how much debt have I taken on? Now when interest rates are low and we expect inflation to continue, having debt is actually a good thing if it’s good debt, not consumer debt, we’re talking about real estate debt, debt that pays you because you bought it with an asset that brings in income. So what I would recommend you do is you take on as much debt as you can in the best areas that you can with the most cash flow that you can and the most equity that you can. Now, I realize that’s saying, go do everything. But what I’m saying is the way you use your money should be taken into consideration with that strategy.

David:
So if it was me and I had $80,000, if I could buy four properties and put 20% down, that’s what I would do, but I wouldn’t go and say, I’m going to put the whole 80 or whole 100 into one property, just pay cash for it or something like that. You’re better off in this environment to get more real estate, to take on more debt, because you’re going to be paying it back with cheaper dollars and to get more revenue coming in. Now don’t make the mistake of thinking that the cheaper houses are the better deals or the safer deals. It’s not true. Doesn’t matter the price of the home, it matters the location of the home and the quality of the tenant you’re going to get. Sometimes a more expensive home is much safer than a less expensive home, even though the price point is higher and it feels scarier.

David:
So I would be looking for areas you think you’re going to have more growth, just look at which parts of Texas are growing faster. You’re a home builder. So you obviously have a very good idea where homes are selling right now. I would invest in those areas putting as little money down as I had to to get the loan that I wanted to get and taking on as much healthy debt as possible to get the most expensive real estate in the best area. And then I would let inflation do its job as prices go up, as rents go up and eventually you’ll be able to refinance those properties that they’ve gone up in value, so you don’t have to do the BRRRR method and do it all within a six month period. You can sort of do it over several properties at a longer span of time. Thank you very much for that question.

David:
All right, question number two is from Micah S. in Oregon. “In your recent Q and A podcast, you mentioned placing notes against a commercial investment property versus syndicating. Wondering what terms you’re using on that money while you renovate or turn a property around. With that is there a dollar figure you go after? What’s the interest rate you’re offering the investor and over how long? Lastly, are you putting them on title at all for their peace of mind or strictly a personal note?” Okay there Micah, thank you for asking this. Here’s where I’m going to start. If you’re asking because you’re trying to do the same thing you probably don’t want to copy my model because we’re in a different position. I have a lot of experience investing in real estate. I’ve never lost money investing in real estate. I have a ton of money that I keep aside in reserves.

David:
I have very healthy income streams coming in from things that are both real estate and non real estate related. So someone lending money to me is different than them lending money to I’m presuming you. Now I don’t know you, maybe you’re a billionaire, but you’re probably not going to be submitting a question to BiggerPockets if that’s the case. So here’s what I’ll say. I’ll share with you my terms, I’ll share with you why I give them, I’ll share with you who the right person to invest with me is. And then I’ll give you some advice if you’re trying to do this for yourself. When I’m raising money, I’m not doing it in a syndication and here’s why: when you invest in a syndication, you are not investing in a person, you’re investing in a property. So you have to hope that property performs well and your return is tied to how well that thing goes.

David:
So I’ve invested in syndications before where no fault at all of the general partners, a hurricane hit and destroyed the property, which meant we all did not make money for several years because any money that property made went right back into fixing it up. So the returns were bad. And if you were depending on high returns in that syndication, you would be screwed and there’s nothing that you can do about it. It’s okay because syndications tend to give of a higher return, but that’s because they are associated with more risk. Now, the position that I’m in, I just couldn’t lose someone’s money. I can’t sleep at night. I wouldn’t feel right about everything. Anyone who gives me money when they’re lending to me is not lending in a property they’re lending to David. They are trusting David’s going to pay me back. Not that property’s going to pay me back.

David:
And it may sound like a subtle difference and somewhat nuanced, but it actually makes a difference. So if I start a syndication and I borrow money, I feel like I’m going to have to pay people back even if the property goes terrible. So what happens is I’m taking on extra risk to get the same return as I would get if I didn’t do that, it doesn’t really make sense. So instead, what I do is I guarantee the note personally, they get paid regardless of how the property performs. Now, another part of your question was, do you put a lien on the property to secure them? You said so they can have peace of mind, right? The answer is I do if I can. So I have several properties I’m raising money for right now. If one person comes to me and says, “Hey, I have $500,000 and I want to lend it to you.”

David:
That would be a note on that property in second position, easy enough. If I get 10 people with $50,000, then what would happen is I’d have a second, a third, a fourth, a fifth, or I would have to combine them all together. And now it becomes a syndication. You see what I’m saying? So it depends on the amount of money that someone lets me borrow. If I can put a note on or a lien on the property I should say to secure their financing. Now, most people that lend to me don’t need that because they trust me. They know I’m going to pay them back. They see my track record. They hear me on the podcast all the time or I have a personal relationship with them so that doesn’t become an issue, but I have no problem doing it and I’ve offered to do it without someone even asking in times where they have enough money, that can be tied to one property.

David:
But often it’s not like that. Sometimes I borrow money and I flip a couple different houses with it. Sometimes I borrow money and I put it in different deals. And then I BRRRR the money back out, I refinance it, I put it into the next one. So sometimes I can’t tie it to a property because it’s moving around amongst different things. But for the majority of people, if you’re considering letting someone borrow money that you don’t know is a really good investor or has a really good track record, or you don’t know personally, even if you know them personally, even in that case, you want your money to be secured against that property. You want some kind of lien in case that person can’t pay you back. Now, as far as the terms that I offer, they obviously differ depending on the amount of money that I’m being given and how long they want to let me borrow it for.

David:
Typically, I’m looking for a person that wants an alternative to a bank. I’m not looking for the real estate investor that wants to go out there and tear the world up and just set the earth on fire. That person doesn’t want to lend their money to me. They want to go learn how to invest themselves. I’m looking for the person that doesn’t want to learn how to invest, doesn’t have the time, doesn’t want to take on the risk, is already good at something else that they’re doing and they just want a return on their money without having to go put a lot of work into it. I’m not looking for the person that says, “Hey, I’ll let you borrow my money but tell me everything you’re doing in this deal.” That would just slow me down too much to even be able to use the money. So I’m looking for people that want an alternative to a bank. That’s why I pay 8% interest on the money that I borrow.

David:
And it can go up more depending on what’s going on in the economy or depending on how much they’re letting me borrow. If they let me borrow more, sometimes I offer a higher rate of return than that, but that’s the gist of it. I don’t think most people are going to be able to offer the same terms and rate that I do. That’s just the way it goes. So if you are looking at this Micah and you’re trying to figure out how you should do it, you’re probably going to have to tie their return to the equity in the deal. Unless you’ve got 100s and 100s of 1000s of dollars sitting in reserves where you can actually pay them what we say is debt.

David:
So I pay debt, they get their 8% and it doesn’t matter how the property does, every month they get a deposit just like if it was a bank. If you’re not experienced, if you don’t have as much money, you probably can’t guarantee it the same way that I can. You’re going to have to tie it to the equity in the property. They’re probably not going to get their interest until the very end when you pay them back, you’re going to have to structure it differently than I do. And if you want to invest with me or let me borrow money, stick around on to the end of the show and I’ll tell you where you can go to register to do just that.

Shane:
Hey David, I have a lending question for you. My name is Shane. I’m a college student. I have two properties at the moment, two single family houses and I’m looking to get my third. And my problem is I don’t make a lot of money on paper. I work in real estate sales, closed about two deals a month last year, it was my first year. I made nine bucks an hour as an EMT and obviously college student. So I’m looking to get out of the house I’m in now, which was supposed to be a flip. It’s way too big of a house for me to be living in. I’m going to turn this one into just a larger, higher end rental. But so I’m looking to put a seller finance offer out, get into that and then do a balloon payoff in I don’t know, about five years or less. So I need to qualify without a lot of income for a personal home, which will eventually be a rental, but I just need help refinancing after I get into it. Thank you.

David:
All right. Thank you for that, Shane. Luckily for you, this is not too difficult of a have a problem. So if I hear you correctly, what you’re telling me is that you want to refinance out of this loan that is seller financed with some private money and hard money into just a straight 30 year fixed rate mortgage, but you don’t make a lot of money so your DTI isn’t solid, you’re having a hard time with the refi. What you need to do is to find a broker like me and ask them if they have the debt service coverage ratio loans, or DSCR. Those are loans where the bank is going to take the income that the property itself would be making if you rented it out and use that to qualify you as opposed to money that you are making working nine dollars an hour as an EMT, I believe you said.

David:
So you can try banks, you can try credit unions. They’re probably not going to have products like that. You need to go to a broker like me who goes and finds different lenders and then we find the one that has the product that you need. And then we broker the deal for you. So luckily for you, it’s not too complicated or too hard. You just have to be asking the right people. You could call a hundred credit unions and probably none of them are going to have the product you need. So the right direction for you to go in is a mortgage broker. All right, in this section of the show, we are going to go through the comments that are dropped on YouTube. Now I love when you guys drop me comments on YouTube, because it gives me an idea what type of content you want to see, what type of questions we should be picking.

David:
It also lets other people see what you think of the podcast, what everybody kind of thinks of it. So this is one of my favorite segments where I get to go through and share some of the comments we had. The first one comes from Christa Seals, “#DavidGreeneforpresident.” That’s pretty cool. What do you call the emojis where the hands go up like this? Praise hand emojis, and then a smiley face. “Thanks for dropping all this knowledge. Economics definitely affect real estate so I appreciate you touching on those topics.” Well, thank you Miss Christa. I appreciate that. That is a thing that most real estate influencers or teachers, whatever you want to call us, want to shy away from. It is easier to tell you how to analyze a deal, it is to tell you how to pick a tenant, it’s easier to tell you how to rehab a house than it is to get into the huge, complicated macroeconomics of real estate.

David:
But I heard a very smart person tell me once that CEOs of tech companies don’t necessarily bet on a company, they bet on a market. What they were getting at is in the right market a lot of companies will do well and the actual company itself doesn’t have as much to do as the market that it is coming up in. And real estate is like that too. When you have a really solid market like this, you can make a lot of mistakes and you can be okay. When you’re in a really tough market, you can do a lot of things right and you’re not going to be okay. And because I realized that I started paying a lot more attention to the bigger factors that affect how our individual properties perform. So I appreciate that you noticed that.

David:
Comment number two, “These are my favorite. How can we know if it’s a Q and A episode, search coaching calls in the title?” Okay so [Aberance Art 00:21:58], this is a very good question. How do I know what type of episode I’m going to get, especially because you like this one. Well, one way is that the light behind me is green, you know it’s a Seeing Greene episode. But maybe you want to find out before you actually open and start watching it. So another way would be to look for the title artwork. So if you see just my face, it’s probably just me on a Seeing Greene. If you see me and Rob Abasolo or me and some other co-host, then odds are it’s an interview with someone or a deal deep dive or a topic deep dive into a specific strategy or something that we’re working on or deal we did maybe. But when it’s just me, it’s more likely to be a Seeing Greene episode. Another thing is that you can check out the show description.

David:
So if you check out the little arrow that points down and it drops down the whole show, you’ll see the topics that we talk about when there’s a lot of them with timestamps you’ll know, hey, that’s more likely to be one of these Q and A episodes. When it’s just a paragraph that describes the guest we’re having it’s probably not a Q and A episode. So thank you for asking that. That’s actually a very smart question. And the last one from [Talita N. Runalinho 00:22:57]. “Hi, David. At 54 minutes, you answer on return and equity and the advice you gave him. Can you make a more detailed video on your thought process around equity return doing a cash out verse selling and a 1031 into another, when to do either one. Thank you.” This was from episode 570.

David:
All right. So I can make more videos. If you guys check out my YouTube page, I do talk about this, but let me just take a second to give you the summary of it right now. Whenever I have a decision of, I have a lot of equity in a house, should I keep it or should I sell it, or should I refinance it, or should I sell it? You’re you’re trying to figure it out. I turned it into like this flow chart. So the first question is, do I have equity? If the answer is no stop right there. If the answer is yes, move along to do I want to sell, do I want to refinance? If I want to sell the first question I ask myself is, is this a property I want to keep? Now, there are a few metrics I look at when I’m deciding if I want to keep it, the first would be, is it causing me a headache?

David:
Maybe the location’s bad. I would want to sell that one. Maybe the property manager in that area just is terrible and for whatever reason, I can’t make that property work. That’s causing me a headache, I might want to sell it. I would ask myself, are the rents going up consistently? If they’re not going up consistently, I probably don’t want to hold it long term. I would ask myself, is the value likely to continue going? Will it continue to appreciate? If the answer is yes, I might want to keep it and that would lead to maybe I should do a cash out refinance. If the answer is nope, it’s not going up, I probably want to sell it. So those are the questions that I start to ask myself. What benefits would I have by keeping it? Is it going to appreciate? Is the cash flow going to go up? And is it causing me headaches?

David:
If the answer is these are all bad, that’s going to be a sell. If the answer is, these are all good. That becomes the cash out refinance. And then it becomes very simple. I’m going to cash out refi and I’m going to go buy more property. When I go buy the more property I ask myself those same three questions. Is it going to cause me a headache? Is it going to increase in cash flow and cash flow strongly? And is it going to appreciate, and if you just keep real estate that simple, you’ll find that you can scale pretty fast, pretty easily. All right, let’s take another video question.

Andrew Freed:
Hi David, Andrew Freed. Thank you for taking my question. I currently have eight units, one of which I’m house hacking and that kind of brings up my question. What low down payment loan product would you recommend for somebody wanting to house hack a three to four family this year, but has already used his FHA loan? Thank you, appreciate your help. Take care.

David:
Now Priscilla Rodriguez had a very similar question. They’re asking about low down payments and FHA loans. So I’m going to answer both of your questions here at the same time. All right, let’s look at your options here. You’re thinking the right way, you’re house hacking, you want to buy another three or for unit property so you can repeat the process, but you’re trying to put less money down and borrow more. In a high inflation environment that is usually a better strategy. The problem is if you’ve already used your FHA loan, you don’t have a ton of options. Now, when you’re buying a single family residential property with a conventional loan, you’ve got 3% options, 5% options. You’ve got different options depending on the price point of the home and the location of where it’s at. When you’re going after a multi-unit property, those go away. So with a duplex, you can get 15% down on a conventional loan in most areas.

David:
With a three or four unit property, you’re going to be looking at 20 to 25% down, depending on your circumstances. The FHA is the exception. So here’s what I would say. The property that has the FHA loan on it, if it has equity, refinance out of that into a conventional loan that frees up your FHA loan, which you should then use to buy the next property. Now FHA loans are great. 3.5% down is awesome. They also have a lot of flexibility on things like credit scores, but they’re not something you can just keep doing over and over and over again. You can only have one at a time. So what you want to do when you’re using that loan is you still want to look for a really good deal. You still want to get something in a high growing area or as below market value as you can so that you can refinance out of it faster, meaning you have the equity to get in at to 80% loan of value and then use it to buy the next property.

David:
All right, moving on to the next question. We have question five from Maxime. “Hey David, in episode 570, you had mentioned that good new deals are getting harder and harder to find as more investors are coming into the market. Given that technology has made investing easier…” Yes, I did say that. “Do you think that these two trends are indicators of home ownership levels decreasing as investors push up the real estate prices? If so, how hard do you think it will be to break into the market 10 to 15 years from now? I am 15 right now. So not investing just yet. Just interested in real estate and planning ahead. Thanks.” Well, first off Maxime, kudos to you for being 15 and listening to this podcast and thinking ahead, that’s way further than I was when I was 15. Also we just interviewed Dominique Gunderson who got her start at 17 years old.

David:
So you may not be as far behind as what you think. Now, let me clarify a few things. I don’t think it’s just investors that are making the market too hard for people to buy homes. I work in real estate and real estate sales, and I see that a small percentage of the people buying homes are investors. It’s still mostly people who just want a place to live and want to own not rent that are buying the majority of homes. I don’t think the problem we have is because there’s too many investors. I think that the problem we have is because there’s a lack of inventory. So if I was in new your situation, here’s what I would be thinking, monitor the amount of homes that are being built in the area where you want to buy. So it doesn’t matter if you live in Tucson, Arizona, and they’re building a lot of homes in New York.

David:
What you want to know is if you’re going to be buying in Tucson, how many are they building there? Pay attention to that. If they’re not building more homes, it’s going to be harder and harder and hard to get these homes when you become of buying age. If they are buying homes, then that means prices probably won’t be going up as fast in those areas as they are in others. Another thing to think about, and this is going to be hard to swallow, not just for you, but for everyone else. When we had a more consistent money supply, saving up money, made more sense. You knew if I can save up X amount of money, I can go buy a house. I remember a conversation I had with one of my aunts when I was your age, 15. And she said, “Shoot, I think if you go into a bank and you have $30,000 that you say you have as down payment, they’re going to give you a loan.”

David:
And at the time she was actually kind of right. It was very hard to save up money. And $30,000 was a lot more then than what it is now. The problem is if you’re saving up money, I don’t know what that money’s going to be worth when you go to actually buy something. So it might not be enough of a down payment, or it might be actually less than what you started with because the purchasing power has gone away.

David:
So I do want to encourage you to save your money. You shouldn’t be spending it on dumb things, especially if you want to be an investor, I just wouldn’t get completely wrapped up in, hey, I’m just going to save up money and buy a house. A really good strategy for someone at your age would be to find a wholesaler or a flipper or someone like Dominique, who we interviewed on the podcast, who has a business, where they find off market deals and learn how to find your own deals so that you’re not dependent on whatever prices are on the market when it comes time to buy a house, you’re also going to learn a ton about real estate and about life in a business like that. So I think if you could find a good one, that’s a great place to start.

David:
The next question comes from Michael N. in Denver, BP headquarters town. “I have a rental property, two bedroom, two bath with a garage and a town home in Arvada, Colorado.” If I’m saying that wrong and it’s Arvada, please forgive me, Coloradans. “I bought it for 200,000 five years ago. Currently looking to sell it for 350.” Well kudos to you, Michael. “I want to use about a $100,000 to invest in either Detroit, Pittsburgh or Kansas City. Is this a good idea? My question is, should I buy $100,000 of property cash and just cash flow forever? Or should I buy multiple properties in multiple cities and just put 20% down on each and on possibly five properties. Less risk with one property paid off, more risk with multiple properties. Which plan is better? I’m planning on owning long term either way. Thank you.”

David:
Okay, Michael, let’s break down your question. First off, good job buying the property. You’ve now got this $100,000, probably a little bit more to go invest. So the question is what’s the best way for you to invest it? Well, the first thing is I think you have to define your strategy and maybe think through if you want to BRRRR a property, how many properties you want to own over the long term. I don’t know how old you are. I’m assuming you’re on the younger side because you’re you have this rental property that you bought that was smaller. If you’re older, that’s typically when we play more defense. If you’re younger, we typically play more offense, but those strategies are not set in stone. It really depends on your financial situation.

David:
In general in the market we’re in right now, I think we’re going to see a run up in prices. We’ve continued to see a run up in prices. We’re continuing to see the dollar becoming worth less and less. So I would encourage you to buy more properties, putting less down. I wouldn’t go pay cash for something and as you said cash flow forever. I would be looking at how can I put as little money down on as many properties as I can in the best areas that I possibly could. That’s what my preferred strategy would be going forward. Now the second part of your question here has to do with where to invest, Detroit, Pittsburgh, or Kansas City and is this a good idea? Here’s what markets like that tend to have in common. They’re going to be lower price points, they’re going to appear to cash flow higher on paper because they’re all going to meet the 1% rule.

David:
And they’re going to be challenging markets to own in which you might not be thinking about. So the reason that those houses are cheaper is because there’s less demand for them. Why is there less demand for them? Because the tenant base isn’t as desirable, the industry’s not as desirable. There’s not as many companies with really good jobs that are moving into those areas where they’re attracting high talent, where you’re going to be able to increase the rent all the time. You might not see rent increases hardly at all. So there’s always this temptation, like when you watch the old movies and they’re in the middle of the desert and they see this mirage and it’s this beautiful oasis with all this water and they go running and they jump into it and they get a mouth full of sand thinking they’re drinking water. That’s kind of how I see a lot of these properties.

David:
There’s this spreadsheet magic that goes on where like, oh look how amazing that is. I’m going to get a 22% return and you go jump into it and you come out with a mouthful of stand. I’m not saying you cannot invest in these areas. There are people who do very well investing there. If you know the area, that’s a different thing. I’m saying don’t do it because it looks good on a spreadsheet. You’ve got to have some other reason that you like it. You’re getting deals way below market value, you’re in a better part of town than average. Something like that. My advice would be if you have this money and you want to go invest it, go invest it into a market that is going to see big growth. I like south Florida because a lot of New York is going there. I like Arizona, Nevada, Idaho, Colorado, because a lot of Californians are moving there.

David:
Look at where people in Seattle are living and say, where would they want to move to? Ask the agents who are selling houses there, where are the people moving that you have that are clients and go buy in those areas. That’s what I’m doing. And I think that’s a much better strategy than going into the cheapest market that you can find just because the housing prices are low. Now it may be a little more competitive. You may have to work a little bit harder, but in the long term, if you invest in an area that’s growing, you’re going to do much better than invest in that mirage looks really good from the start because you appear to get really good cashflow, but it never really works out like that.

Dylan Bard:
Hey David, my name’s Dylan Bard, I am a investor and realtor in Lincoln, Nebraska. First off, appreciate you answering this question and all the other questions it’s super helpful, but I’ll get right to it. So scenario is we have some money sitting in the bank account for a duplex BRRRR something like that, down payment and rehab in there. And of course we have a safety net that I don’t talk about because we never go below it. But my question is, do I take that money and do I throw it into one of our other rentals, which would allow us to have a higher cashflow and higher return on equity than having it sit in a bank account that’s getting like 0.1% interest or whatever it is. Is it better having the money sitting there and using HELOC and drawing out when we need to, fixing up, burn it and getting that money back into that. Just your thoughts on this. If you’ve ever came across… If you ever heard anyone use that rather than the money just sitting in their bank account doing nothing. So that’s my question. Appreciate it, thank you.

David:
All right. Thank you, Dylan. I think this is a great question and it’s not one I’ve been asked before. So I like these challenging ones. Let’s talk, if I understand your question correctly what you’re saying is I got all this money in the bank that’s earning me nothing. I don’t want to necessarily put it into property yet. I’m going to use it to BRRR, but I’d like to do something with it. Should I pay off a house or pay down principle on one of my existing rentals to save on the interest portion that I’m going to pay off. And then you’re saying, if I do that, I could get that capital back through a HELOC because I created more equity in that property. You are thinking along good lines. I like that you’re taking in that direction. Here’s a few things to think about. Your interest rate is probably very low.

David:
So putting that money and paying off this note is not going to save you as much as you think. You’re probably not even paying it all the way off. You’re just paying it down some. So the couple little bits of percent that you’re making are not really going to move the needle very much. The other thing is yes, you could pull it out of a HELOC because if you could take all of it out on a HELOC, essentially it doesn’t matter you’re not getting a good return. You’re getting better than nothing and you can still get access to the money. The problem is you’re probably going to lose 20 to 30% of it as in access to it because HELOCs don’t let you borrow a 100% of your equity, they only let you borrow usually between 20 and 30% somewhere in that range. So you’re going to lose some access to it.

David:
I’m not thrilled about paying down the mortgage with that money and then getting it out through a HELOC because then you’re also going to have to pay a higher rate on that HELOC, you’re probably going to be in the 6, 7, 8% range of depending on where you are if you want to take that money out of the HELOC. So now you’ve paid off interest of 3 to 4% to borrow it at 6 to 7%. So I don’t love that idea.

David:
I would prefer to see you lend that out to somebody in the private lending space that you would trust and get a higher return on it, to take half of it maybe and invest it into something else and then save up more money for the BRRRR. Or to take all of it, add a hard money loan or a private money loan from someone else to give you what you need to BRRRR that duplex or saving up to and just do that sooner rather than later. The reason I’m telling you that I would rather see you take action quicker is that that money you keep in the bank is losing purchasing power every day.

David:
That’s what’s hard. It really has just increased the sense of urgency that we have to operate in. And none of us like that, because you don’t usually make good decisions when you have to make them quickly. That’s often when people make bad decisions. So the rate at which real estate is increasing and the rate at which the money supply is losing purchasing power is making it harder to make good wise decisions. And I totally recognize that. It’s basically one of the reasons you have to kind of step up your game when it comes to your knowledge of real estate, your knowledge of local markets, your knowledge of how to operate an asset because the stakes are just getting higher. So I like what you’re thinking, trying to maximize that money. What you’re telling me in practical terms is not worth the risk or the loss of what you’re going to give up if you put that money into paying down your note.I’d rather see you keep it aside and get a higher return somewhere else or just wait before you do the BRRR.

David:
Okay, next question comes from John Gutterman in Indiana. “I currently have three single family investment properties I have bought over the last few months that are in the suburbs of Detroit. I’m a dentist and I’m about to leave a job at a corporate practice and go from being a W2 employee to a business owner. Getting financing on my properties has been extremely easy as a W2 employee, but I’m about to buy a private practice where I will make significantly more and become the business owner. As I understand it, it will be significantly more difficult to get financing as a new business owner showing two years of business income and whatnot. Is there anything I can do to make this transition smooth so that way I don’t have to put my investments on hold for the first one to two years of being a business owner?”

David:
All right. I like the question. This is a challenging one, John I’m going to do my best with it, but I do want to say that this is one that we would want to run through a CPA before we put it into play. Happy to introduce you to mine. If you want to send me a message, you or anybody else, I can make the introduction for you. But here’s what I would do if I was you. When you become a business owner, you’re not necessarily giving up W2 income. It depends how you structure that business. So I have corporations that I run my businesses through, but then that corporation can pay me as a person, a salary, a W2 to work in that corporation.

David:
So if you are going to buy a practice, but you’re still going to work in the practice, which it sounds like you are, one thing to run by your CPA would be if I pay myself a salary out of that business, can I do that? And if so, most lenders will let you use that income that you paid yourself as long as there was not a significant break from when you were practicing dentistry from someone else to yourself. So if you buy the business, jump from the person that you’re working for now to working for your own business, because remember that business is a different entity for tax purposes than you, and then pay yourself the income. They probably won’t see it as a break in employment and you can use whatever income you pay yourself out of that business to buy real estate. Now why a lot of people don’t do that is they don’t want to have to pay taxes when they pay themselves.

David:
And this has to do with the type of structure that you set up. If it’s a C-corp, you’re going to get a lower corporate tax rate on the money that the business makes, but then you’re going to get taxed again when you pay yourself out of it. If it’s an S-corp, the money’s going to flow from that corporation to you. Same as if it’s an LLC, you really have to run this through your CPA to find out how to do it because they’re going to be the one that are helping you with taxes. But there’s a lot of opportunity here. And a lot of different ways you can structure it to where you could show the lender I still make money as a dentist. It’s still coming in similar to the W2 and they will use that income to help you buy your next house.

David:
The other option, as I’ve said before, is a debt service loan. You want to find a broker that will set you up for a loan that uses is the income from the property you’re buying, not from you yourself. That’s something that we do a lot of on my team. And that’s what you want to be looking for is you want ask a lender? Do you have a loan that will use the income from the property not the income from me? You’ve got two really good options there. I hope you can keep buying.

Speaker 6:
Hey David, it’s about 5:20 AM right before I clock in to work. First and foremost, I want to thank you for even looking at this video and putting me on the podcast if that is the case. My name’s [Amecca 00:41:44], I’m from Austin, Texas, living in Lawrence, Kansas, investing in Kansas City area. I’ve done three single family deals and I’m shifting all my focus to apartment complexes. I think I got four to five partners who want to go in together and buy an apartment complex. And my question to you is how do I find that crystal clear criteria? Whenever I present this apartment complex, I’m going to make sure everything that I want is a win-win for everyone. And the only thing I know right now is I want to invest in a area that has a population growth. So I listened to episode 571 and that had some great insights and I definitely took notes and going to take that with me home. But what is the steps to finding my own crystal clear criteria that fits me? Thank you.

David:
Great question, Amecca. Let’s get into this thing. I’m guessing that the reason you want to get into apartments is because the single family homes did not work out as good as you thought. And that is often the case when you get into a easy… The market, I believe you said, Kansas City, easy to get in, hard to get out. We had a question earlier in the show where I talked about the mirage and I believe it was even Kansas City is one of the places they were looking at. When you invest in areas like that, the price point’s lower, you don’t need as much money to buy the property. The risk feels lower because you’re not putting as much money in the pot. The problem is the rents don’t go up, the values don’t go up. Stuff breaks when your tenants leave, it’s very hard, have very thin margins you’re trying to operate on to make it work.

David:
And many people that start in those markets get out. Why do they get out? Well, A, they already learned the fundamentals of running property. That’s the benefit of these. I call them markets like training wheels. You’re probably not going to lose everything. You’re not going to fall off the bike and crack your skull open, but you’re never going to go that fast. So it’s a great way to learn the fundamentals of real estate and then from there scale into where you are going to make more money, which it sounds like is what you’re doing here. So I commend you on that. I also commend you on bringing up the fact you need a crystal clear criteria. Here’s how I would go developing it. A lot of things that people don’t think about when they first get started is the financing component.

David:
So if you found a property, you analyzed it, you spent hours digging into this. You did a bunch of due diligence. You decided I want to buy it. You submitted your letter intent, you go through the process. You go to the bank and they go, “Whoa, whoa, whoa, whoa, whoa, what’s your net worth? Oh, you can’t buy a property like this. You need a person with more money backing you. What’s your experience with this? Oh, we can’t lend to you, you’ve never done it before.” And all that work was for nothing. So I would recommend that you start with the lender, find a person or a bank or an institution that will lend you the money for this. And say, if you were to look at this deal right here, what would you need from me? And they will give you a list of the criteria that you’re going to go through.

David:
It’s very different than residential properties. As I bought more and more commercial properties, I’ve seen in some ways it’s easier, but it’s very different. A lot of the times they’ll want a key sponsor. That’s a person who’s got a really big net worth that’s going to be on the hook, kind of like a co-signer and they’re going to want a chunk of the deal because they’re taking on the risk of, hey, if this thing goes bad, it’s my credit that’s on the line. Because the bank wants to know that if you manage this thing poorly, somebody else has a lot of money and they can come them and they can still make that payment. You might not have been thinking about that when you’re considering getting into this different asset class. The reason I like to start with the lender is that the lender’s actually a bigger investor in this deal than you.

David:
So let’s say they want you to put 20% down. In our mind we’re like, that’s way more than 5%. This is ridiculous, I got to put down 20%. In the bank’s mind they’re saying, I’m putting down 80%, 20 is nothing compared to 80. And so, because they’re the bigger investor in this deal, they’re going to have just as much due diligence in some ways, as you. They’re going to have systems in place to limit the chances that this thing could go wrong. So by learning how to meet their criteria, it forces you to analyze a deal from a different perspective and better. So that’s where I think you should start, start with the lender, find out what they need. Now, once they do, they’re going to tell you based on your net worth or the assets you have under control right now and your experience level, they’re probably going to give you a price range.

David:
Let’s say they say, okay, three to five million is what you’re going to be able to buy in. Well, that’s the first part of your crystal clear criteria. You know right off the bat, I’m looking in the three to five million price range or below. Once I had that, I would ask myself in the area that I want to invest, what’s the best location that I can be in the three to five million range? Now you’ve got the location down. So you’ve got the price. You’ve got the location. Once you’ve got that, I would say to myself from here, what are the assets that I will need that will support me? The team I’m going to need to build. You’re probably going to want a property manager. You’re probably going to want a handyman. You already know you’re going to need that lender. So start finding the pieces that are going to help you, that work in those areas.

David:
That’s the next thing that I would do. If you can’t find any, maybe that area is not going to work for you, but you are definitely going to need them. You mentioned demographics briefly. That’s the next thing to look at. What type of people are moving here? What type of people live here? What’s the job industry like? Why do people live here? Do they live here because they want to work? Do they live here because they really like the weather? Is it just, these are people that have lived here their whole lives and so they never get out of this city and they just keep continually living here forever. You want to know who is my tenant base because that’s the customer that you’re serving. That’s the person you’re trying to create an environment for, to live in. So you want to know who’s going to be there and are those the kind of people that you want as your customer base?

David:
The last piece is what broker are you going to use to help you find in the deal? Now you may just go on LoopNet or CoStar and look for it yourself and go with the listening broker. That’s what most people do. You may go to a broker and ask them to help represent you. But I think that’s a really good start for you when it comes to the crystal clear criteria that you want. Now there’s a very good chance that when you actually look into this, you realize I don’t like any of these properties or there’s nothing that I want in my price range. If that happens, find a different area or find a different person to partner with you on this deal that does have the experience. But once you’ve got those down, you’ll know very quickly, if this is a strategy that’s going to work in the area that you’re in, or if you’re going to have to look elsewhere.

David:
If you guys want to know more about finding your crystal clear criteria, check out episode 571 that I did with my good friend, Andrew Cushman, where we broke down our system for analyzing properties and screening them before we buy them. And if you want to go even deeper checkout episode 586, where we go through the second set of screening, we pretty much open up our whole playbook and show everybody, this is exactly how we screen for properties. So I think that will probably help you out Amecca, as you watch what we’ve got put in place and you get a little bit more education than you did on the first one. And if that’s not enough, I did another episode with a different partner of mine who’s also the co-host of the regular BiggerPockets podcast with me, Rob of Abasolo where we break down our 10 step system for how we meet regularly to analyze deals and make sure that we keep the ball rolling in our own journey.

David:
So I think you’ve got quite a bit there. If you just look backwards in the catalog of podcast episodes to get you a really good start. Thanks for your question. Really appreciate it and your energy, keep sending more. All right. That is going to wrap up our episode today. So what did you guys get? You got a fast-paced hard-hitting episode where you threw questions at me and I did my very best to break them down. Now, why do we put this on the airwaves for you guys to hear? Well, first off, I think it’s cool if you’re a fan of BiggerPockets, to be able to get featured on the podcast for a question, I would’ve got to kick out of that. So if are one of our guests, thank you very much for submitting your question, please go share this on your social media and let everybody else in your world know that you are awesome, because you are on the best real estate podcast in the world.

David:
But we also do it for the listeners. So many times people have questions that they’re embarrassed to ask or are stopping them from moving forward that really don’t need to. So even if the person on the show today didn’t ask the question that you were thinking, odds are, it was a question in the same vein as the one you were thinking and that hearing how simple the answers can be for some of these commonly encountered problems should give you confidence to get out there, take action, and start doing things. If you enjoyed the episode, please tell me in the comments below, but don’t just tell me you enjoyed it, tell me why you enjoyed it. Tell me what you like about this episode. In this episode, I read some of the previous comments and one person said that they like that I get into the greater economic stuff. That really helps, that lets me know this is what you guys want more of from me.

David:
So tell me what you liked and then say, hey David, I really wish you’d have dove deeper when you briefly touched on this topic, then I know on the next one, that that’s what you want to hear. This is a podcast, we are listening to you, we make it for you, we live to serve you our audience because we know just how much is at stake with helping you find financial freedom through real estate. And I love doing it. Now I mentioned earlier that if you wanted to invest in a deal with me, how you could do it, just go to invest with DavidGreene.com. It’s for credit investors only that’s an SEC regulation, not my rule, but if you register there, I will give you some information about deals that I have coming up and money that I am raising to buy them.

David:
If you wanted to talk to a mortgage broker, you’re also welcome to contact me there. Email me at [email protected] and we can put you in touch with the loan officer who can answer some of the questions that you guys had here. But don’t just do that, I want to hear from you go to BiggerPockets.com/David and ask your questions so that I can answer it on this podcast. Keep the questions coming. There are no dumb questions as you saw from today. It’s really cool when you get to put yourself out there and everyone in the BP community gets to hear it. I want to thank you guys very much for joining me and for giving me your time and attention. I know there are so many options out there and there’s so many things you could be listening to. And I deeply appreciate the fact that you are giving me that time and trusting us at BiggerPockets to help you on your real estate journey.

David:
Please check out the website, check out the forums, check out the blog articles, go to BiggerPockets.com/store and check out all the books that we’ve got there for you to check out, read, gain your knowledge. There is so much out there. I really want to see you improve your position in life. For everyone out there who knows that they were meant for greatness and believes real estate is a way to get there, I believe in you too. Don’t stop, keep learning and I will see you on the next one. Oh, and if you’ve got a second, check out one of our other podcast episodes, because there’s Greene gold everywhere.

“Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” – Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)

I bet it is no surprise that your tax bill is one of the largest expenses you pay, often more significant than your housing and healthcare expenses. If you have spent any measured amount of time on BiggerPockets, you probably have a high-level understanding that investing in real estate could help you offset some of your tax burdens.

For example, depreciation could help you shelter passive income (and possibly your active income) from your rentals. Using a 1031 exchange when you sell a property could help you defer your depreciation recapture and tax on capital gains. You could remove equity from your rentals tax-free through a refinance and invest in more property.

However, most investors who enter the real estate arena know little about strategically reducing their tax bills. If you’re like me, we grew up being trained to pay taxes. Yes, trained.

Do you think I’m kidding?

I know for me, I was raised to go to school, get a great job, buy a house, get married, start a family, and contribute to my 401(k).

With this “plan”, the only chance of reducing my tax burden was to take a standard deduction, deduct my mortgage interest (if I could), get a tax credit for my kid, defer my income to retirement, and hope the tax rate would be low by the time my career came to a close and I had to pull from my retirement fund.

Somehow, with all of this, I still would wind up paying thousands of dollars in taxes.

It turns out that hope is not a strategy.

How the best in real estate approach taxes

I’m not a CPA, accountant, or tax guru. As with any advice, please consult a qualified tax strategist to understand how the information I’m about to share with you can apply to your unique situation.

What I’ve learned working with tax strategists and studying the wealthy is that there are better ways to approach reducing your tax bill. One of my favorite books on the subject is “Tax-Free Wealth“ by Tom Wheelright.

Overall, I have two critical takeaways from studying taxes.

First, there is a clear “order of operations” you must follow to maximize your tax savings. The traditional narrative I grew up with is not the correct strategy if you’re trying to reduce your tax bill significantly.

Second, the U.S. tax code is actually a treasure map that tells us where to invest our dollars. Real estate and business are two spaces where the IRS wants the private sector to solve problems. As a result, investors get the best tax breaks.

Wealthy individuals know how to combine a clear step-by-step strategy with the tax code’s “treasure map” to reduce their tax burden significantly. Why couldn’t you do the same?

Let’s talk about how you can.

Step 1: Take deductions (including depreciation)

Investing in a business (even if you have just one rental) allows you to take more deductions. Ordinary tax-deductible expenses include:

• Interest
• Depreciation
• Taxes
• Insurance
• Repairs and Maintenance
• Property Management Fees
• Utilities (Oil, Gas, Electric, Water, Phone, etc.)
• HOA Fees
• Professional Fees
• Snow Removal/Landscaping
• Travel Expenses
• Supplies
• Leasing Commissions
• Advertising/Marketing
• Business Mileage
• Education
• Bank Fees
• Employees & Independent Contractors
• Home Office Expenses
• Business Meals

The most significant deduction, which is borderline magical, is depreciation. The IRS understands that tangible assets (such as real estate) will break down over time. At some point, the carpet, cabinets, and HVAC will need to be replaced. In their eyes, it would be best if you, as an investor, keep the asset in good working order. Therefore, the gift of depreciation is awarded to help us offset costs and reinvest back into the property. You could also use passive depreciation to shelter passive income and keep it tax-free. 

Dreading tax season?

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

Step 2: Focus on building passive income

There are two types of income: active and passive. If you want to enjoy lower taxes (and financial freedom), then you should focus on building passive income.

The IRS classifies employees or self-employed persons as active income earners, which get taxed at a higher rate. Business and investment income, on the other hand, is generally considered passive income and is usually taxed at a lower rate. It’s important to note that the number of hours you spend on any given activity doesn’t factor into the equation. Instead, it’s purely based on what the IRS determines.

For example, I have real estate notes that I spend no time managing, but it’s considered active income and taxed at ordinary income rates. Yet, my rental properties and partnerships take more time to manage and earn a good share of income but still get taxed at a lower rate because of the way the IRS classifies the income.

The big idea is that those who earn income through their own business or earn from a company they invested in will pay the lowest taxes. For more information on this, I suggest reading “The Cashflow Quadrant“ by Robert Kiyosaki.

Step 3: Lower your tax bracket through creative employment

Now that you have steps one and two, it’s time to partner with your tax strategist to look for ways to shift your income to lower tax brackets. You can do this by employing your dependents if you have any. 

Yes, I really mean to hire your kids if you have extra work that they can cover for you. It’s legal.

If your child is under 18, they can work for you in your real estate business and earn up to their standard deduction (currently $12,950) before they have to pay taxes on income.

Just think, you could have your 16-year-old file paperwork, clean the office, keep the books, and maybe manage your social media. With what you pay them, they can use those funds for their expenses, save for college, start a Roth IRA, or invest alongside you.

The same strategy could apply to other dependents you support.

However, you have to be careful. The IRS is fully aware of this tax loophole and is purposely looking for anyone mischievously taking advantage of it. Ensure that whatever your dependent is hired for, they are actually doing their job. You can’t just place them on the payroll and not have them do anything. Otherwise, the IRS will call it out and disqualify the tax break.

Partner with your tax strategist to craft an accurate job description, pay scale, and maintain proper documentation before hiring any dependents.

Step 4: Reduce income through tax credits

There are a number of different tax credits you may qualify for. Speak with your tax strategist for a personalized look into your situation.

Credits are a dollar-for-dollar reduction of income. Some credits may apply to your personal tax situation, examples being the saver’s credit or child tax credits.

There are also credits that may apply to your business (energy credits, water credits, tax abatements, and more). Credits are another way the IRS incentivizes behavior, so be sure to know what you qualify for.

Step 5: Defer income to lower your tax bracket this year

If you still want to reduce your taxable income after moving through the first four steps, then you should consider deferring income. This means you can push aside part of your income to be reported towards next year’s taxes or later. This is helpful when you need to reduce your reported income just enough to be placed into a lower tax bracket.

It’s worthwhile to note that if you are still working a W-2 job, it may be beneficial for you to fund your retirement accounts to maximize employer matches and pensions.

If you choose to fund your retirement accounts, be sure to explore contributing to self-directed IRA accounts (SDIRAs) or other qualified retirement plans that are in your control. With these types of accounts, you have more options to invest in alternative assets like real estate while maximizing the tax code. For example, through an SDIRA, you can invest in:

• Real estate lending
• Fix and flips
• Buy and hold rentals
• Syndications and funds

Ask your tax strategist to create a model to see if funding these accounts will genuinely help your overall situation.

Closing thoughts

“In this world, nothing is certain but death and taxes.” – Benjamin Franklin

Taxes are among the most significant expenses eroding your wealth, along with investment fees and debt. Just imagine how much you could boost your investing journey by generating an additional $10,000, $20,000, or $50,000 in tax savings to reinvest.

Like most things in life, success leaves clues. Following the examples set by the brightest and most successful in our industry is a great way to achieve your own success. It’s in your best interest to sit down with a qualified tax strategist to see how you can implement the above strategies and start reaping the benefits.

Ashley Care:
This is Real Estate Rookie episode 170. My name is Ashley Care, and I’m here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast, where what we do is we focus on those real estate investors who are at the beginning of their journey. So maybe you’ve got no deals. Maybe you’ve got one or two and you’re looking to scale up. If, so this is the podcast for you because every week, twice a week, we bring you the inspiration information you need to get started. Ashley Care, what’s going on? How are things in your neck of the woods?

Ashley Care:
Good. So today we actually have a question from my DM. So if you want to just jump into it today, we’ll get started. I’m actually excited about this one, because this one, we got to get a little freaky in the spreadsheets as to analyzing numbers, figuring out. So let me pull up the question here. Okay. So this is from Channa Chin, and this is from my DMS on Instagram, at Wealth From Rentals, or you can send a DM to Tony at Tony J Robinson if you guys have a question that you want us to play on the podcast. She said, “Good evening, Ashley. My name is Channa Chin. I am a new real estate investor. About six months ago. I read Rich Dad, Poor Dad, and I listened to your podcast and Bigger Pockets Money podcast. Now I have bought three rental houses, four units total, and the last two houses I bought with cash and now looking for refinance and take my money back. I’ve been talking to the bank around my area. They said they can do two different options.
So option one, they can loan me on all three houses in one loan, but it would have to be a three and a half percent interest rate, a five year ARM with small closing costs. So the five year ARM means that you will have a fixed rate for five years. And that is that 3.5%. And then after five years, you’ll go to a variable rate or you can refinance to get another fixed rate. The second option is to have three separate fixed rate loan. So each property will have their own mortgage. It would be at a 3.875% and a 30 year fixed instead of just a five year fixed. So some of the differences here are the interest rate. The first one is a three and a half percent. If you do one loan, if you do the three separate ones, it’s a 3.875%”, which Tony, in my opinion, I think both of these are still pretty low.

Tony Robinson:
Yeah. Those still pretty solid rates.

Ashley Care:
Yeah. So, and then the second difference is that the first one is only fixed for five years and the second one is fixed for 30 years. Tony, do you want to kind of explain what your thoughts on the difference in having those two fixed rates?

Tony Robinson:
If we can, let’s just break down the pros and cons of each option, right? Because each option has its strengths. Option one, there’s only one loan that you have to deal with, which is nice, right? Or anyone who has multiple properties and multiple loans knows that can be a bit of a headache, so only having one loan to deal with is a good thing. The interest rate is a few basis points lower, right? 3.5 versus 3.875. So you’ll save a little bit of money on interest with the lower interest rate. The cons of the ARM are that it’s not fixed. After five years, who knows where your interest rate could be? So you’ll get a really nice interest rate of 3.5 for the first five years. And then who knows, maybe it’s four and a half, maybe it’s five. Who knows what it’ll be five years from now?
So there’s some uncertainty around what the long term cost of that loan will be. Now, for the fixed rates, the pros are that it’s a fixed rate, right? You know, for the life of that loan, as long as you don’t refinance, you’re going to be paying 3.875% for 30 years, which is good to know. The cons are that you’re paying a little bit more in interest, right? At least for those first five years. And the other con is that you have the additional closing costs, right? There’s closing costs per loan. So you’re going to spend a little bit it more money out of pocket to get those properties or to get those loans set up. So those, at a high level, I think those are the pros and cons of each. Did I miss anything Ash?

Ashley Care:
No, I don’t think so. You hit basically the big ones here is, to what to consider when you are looking at mortgage options. So what Tony and I did was we actually ran the numbers on these mortgage payments to kind of look at what they would be, and we don’t have all the option, or all of the information. We don’t know exactly what the closing costs were on each of these. We do know that the closing costs were less on the first option of only one and more for the second option of if you’re separating all three out, which is, that’s right. That’s just a viable, because you’re doing three different loans. You’re going to have three different mortgages filed. There’s three sets of paperwork for an attorney to do. So having the three separate loans definitely will increase your closing costs. So, that’s not something that’s uncommon.
So we ran an amortization calculator. So that is where you plug in how much your loan amount is for, what is the interest rate, and then also how many years is this amortized over for? So once you were on the amortization period, we did it for both of these. And so we took the first five years for the first option, and the loan payment for the month was $1,347. Then we took option two and ran it for three separate loans. And we just, we didn’t know the values, but we used $300,000, so that each house was $100,000 each, and then if we did the three separate loans at 30 years at the 3.875%, that mortgage payment came to $1,410. So monthly cash flow, that is a difference of $63. We’re doing the three separate loans would be $63 higher every month. So then we looked at the interest rate and how much interest you’d be paying over the years.
So if you did the first option, over a five year period, you’d be paying $50,704 in interest over those five years. In five years for the three separate loans, you’d be paying $56,307. So about a $5,500 difference over that timeframe. So those are the things we looked at. And then, obviously, we don’t know the closing costs. So me personally, I would go with the second option of doing the three individual loans, so that your loan payment is not going affect your cash flow that much. And if that $63 is really going to hurt your cash flow, having three properties, it’s probably not a good deal then anyways, if you’re going to be hurting off of a $63 difference.
The second thing is the interest isn’t a huge amount over five years that you’re paying extra on the loan. The thing I like is that you have that security of knowing what your interest rate is going to be for 30 years and then having it change in five years. I also like having the three different mortgage payments. So if I decided, you know what, I don’t want a $1,400 mortgage payment anymore, I want to pay off a property, I want to own a property free and clear, you can do that without really affecting your mortgage. You can also go and pay down a big lump sum on your mortgage and get a property taken off. But that’s a lot more of a process than just paying off one property and getting that mortgage taken away.

Tony Robinson:
Yeah. Lots of good points there, Ashley. I mean, I agree with you totally. If I were in her position, knowing what I know, I would probably go with that second option, having the three separate mortgages as well. And to me everything you mentioned, but the interest rates, I think are what stand out it to me the most. I actually looked it up right now while you were going through your points here, and I just want to break out what interest rates look like decade by decade, so we all kind of have a better historical context of where rates are today, because I think a lot of people are freaking out. Their rates have gone up in the last 12 months or since the beginning of the year, but historically we still have really, really low interest rates.
So in the 70s, interest rates on average were about the mid sevens, in the early seventies. They ended the seventies. So by ’79, 11.2 was the average interest rate for mortgage. In the 80s, and this is almost unbelievable, in the 80s, it had got as high as 16% people were paying for their mortgage interest rates, which is crazy. Things came down the 90s, they started the 90s off around 10% and got down to just about seven by the end of the decade. And then in the 2000s, you start seeing things fall to the fives and as it progressed in the 2010s, we got into the fours. And now we know in 2020, 2021, 3 below three for a lot of mortgages. So even though we’re higher now than where we were in 2021, we are still, from a historical context experiencing really, really low interest rates.
So for me, if my plan is to hold this property for the long term, I’m going to try and lock up this 3.85% interest rate because 30 years from now that’s going to be like free money. Almost the only reason maybe I would go with the other option, is if my plan is to liquidate all three of those properties within that first five years, right? So if you’re not planning to hold these long term, then yeah, go ahead and maximize your cash flow in the short term, pay the lower interest rate and then sell all the properties when you’re done. But if you want to hold, I would go with the option two, as well.

Ashley Care:
Yeah. That’s a great point, Tony. And you can look at it and say, okay, well, when mortgage rates were that much higher houses decreased because people couldn’t afford them and unless the sales price was cheaper, but you’re purchasing this property today. So if mortgage rates do go up, you’ve already paid that purchase price on the property. So if you’re purchasing three, five years from now and interest rates do go up or skyrocket, housing prices will probably come down or level out. But that may work out for people who are purchasing properties in that three to five year. But you’ve already paid for this property in this really hot market right now that you want to keep a low interest rate for this property to make sure that your numbers are going to work. And I just think the 30 year option would help me personally sleep at night if I’m going to hold onto this property.
Well that is today’s Rookie Reply. Thank you so much to Channa for sending in your question. If you guys want to have a question answered on the Rookie Reply, you can send us a message on Instagram at Wealth From Rentals or at Tony J Robinson, or you can call the rookie request line and be featured on our Wednesday episode is 1-888-5-rookie, and you leave us a voicemail with question. Thank you guys, and we’ll see you on Wednesday.

David:
This is the BiggerPockets podcast, show 590.

Andre:
The moment that I took action over the way that I was thinking, and the way that I was speaking, probably in 24 to 48 hours, man, I noticed just an immediate change. And just the way that I felt, I just didn’t feel that was a black negative cloud hanging over me, walking around every day anymore, you know what I mean? And it’s all me. It’s nothing anybody else is doing around you. Most times, it’s you, and the way that you’re thinking, your surrounding, all of that. And if you’re able to change those things and identify those things, man, you can really expedite your process to get to the next level.

David:
What’s going on, everyone. It’s David Greene, your host of the BiggerPockets, real estate podcast. The show where we teach you how to build wealth through real estate. If you’re looking to have a better life, if you want more freedom, if you want more financial flexibility, if you don’t want to worry about money, if you want to feel like you’re actually making progress then you are in the right place. BiggerPockets is a community of over two million members that are all on that same journey for themselves, trying to improve their lives and their finances through real estate and doing it together.

David:
We bring lots of ways to help you accomplish that. The website has a forum where you can read about tons of questions that we’re asked, and ask your own questions, amazing blog articles. We have an agent finder system to put you in touch with agents in your area that are familiar with real estate investing, and we have the best freaking podcasts in the world when it comes to real estate.

David:
Today, we are going to be talking with a very special speaker, Andre Hines, as well as an amazing asset to your real estate investing journey, my co-host of the show, Henry Washington. Henry, welcome to the show.

Henry:
Hey man. Thank you for having me again. Glad to be back. You know I always love chit chatting it up with you, Mr. David.

David:
Yeah. And you brought some help with you today. One of your friends is who are going to be interviewing. He has an amazing story. Can you tell us a little bit about Andre?

Henry:
Yeah, man. Andre has a super inspiring story, man. It’s really a genuine rags to richest story, right? He talks a lot about coming from nothing, and had every excuse in the world to not be successful, right? And even when he pursued one path and didn’t find success, didn’t let that stop him from finally achieving financial freedom. And so I’m excited for you guys to hear how this young man literally took everything that was formed against him and used it to prosper.

David:
That is a great summary of what this is like. This is one of those shows where you’re probably not going to be able to multitask. You’re not going to be doing other things while this is playing in the background. You’re going to be sucked into Andre’s story, the adversity that he faced, the way that he handled it. He’s very transparent in sharing how he used to think versus what he went through, and how it changed the way he thought. And now what he’s doing with some of this momentum and synergy to build an empire for himself. So it was an awesome time. And especially if you are a first time investor, so when trying to get your first property, or someone who just feels like you’re sucked into the undertow of this current market, and you’re under the ocean doing circles, trying to get your feet underneath you, and you can’t figure out which way is up, this is a show for you.

David:
And for today’s quick tip, check out biggerpockets.com/podcasts. It’s being revamped. So now if you like a show, you can go there and you can find other shows of the same topic listed on that site as well as more thorough show notes. So if you hear a story like this one and you think, “Man, I’d love to hear more inspirational stories,” You can go there and you can have a list of other podcasts that were similar to that one. We are really ramping things up, so we’d love for you guys to check it out and tell us what you think. All right. That’s all I got. Henry, anything you want to add before we bring in Andre?

Henry:
Yeah, man. Absolutely. I just really encourage people to engage with this show, man. It is one of the realest, most raw, uncut conversations we had. And life isn’t always pretty, David, and we are all faced with choices at some point. And we can let life circumstances knock us off our path and take us out. Or we can take literally those life lemons and make lemonades and choose success. No matter your circumstances, Andre’s a real guy. He had some real situations and he turned it into real wealth. And so I encourage people to just take a list and try to put yourself in his shoes. And if you’re really just getting started, just like David said, man, what an inspirational story to hear. Because truly, if this guy can go from nothing and then turn it into wealth in an expensive market, right, even in these expensive times in real estate, then trust me, y’all you can do it too.

David:
Very well said, Henry, look at you, becoming quite the wordsmiths yourself.

Henry:
I appreciate that Mr. David. I’ve learned from the best.

David:
All right, let’s get to Andre.

Henry:
All right, Mr. Andre Hines. Welcome to the show, man.

Andre:
Hey man. Thank you guys for having me. I appreciate it.

Henry:
Hey, man. No worries. Thank you for being here. So you got your start in real estate through some counseling that somebody pointed you in the right direction. But before we get there, why don’t you tell everybody a little bit about your background, how you came up and how that story shaped who you are, and where you are right now?

Andre:
Again, my name is Andre Hines. I am from the South Side, Chicago, the Ida B. Wells Projects. I come from a non-financially literate background. Everything pretty much was government assistant. You know what I mean? When I was a child, my family was hit hard by the drug epidemic in the late ’80s and early 90s, so my mom and dad were affected by that. I ended up being adopted, blessed enough to be into my own family. My aunt raised me in church, and that molded my character and built me, you know what I mean, gave me my foundation of just the [rituality 00:05:55] and everything that I have now. Yeah, man, just coming from that to be where I am now is like night and day compared to, you know what I mean, some of the people that I grew up with, or grew up around or just, you know what I mean, some of my family members. And I’m extremely blessed, man.

Henry:
That’s cool, man. Because a lot of people didn’t grow up with a silver spoon in their mouth, and had to fight just to get where they are. But what I like about your story is you didn’t let any of that stop you from becoming financially free or even pursuing your goals, right? In your previous life, right, you went into even looking at a music career as a way to try to gain some traction. And so, how did what you learned when you started doing music guide you toward starting to understand that you need to be doing something to build wealth?

Andre:
I learned a lot of stuff in the music industry just about ownership, you know what I mean? And I looked up to a lot of guys like Damon Dash, Master P, Jay-Z, you know what I mean, Sean P. Diddy Combs, and they all had their own labels, and they all had clothing brands. They would start liquor companies, all of these different things that stemmed outside of just them having a rap career. And I always wanted to model just my business after that. I just didn’t want to be just in a single lane. I always wanted to be multi-faceted. And I always just felt, growing up because like I said, there was no financial literacy. Sports and entertainment were my only options for me to really attain wealth and just have success because that’s all I would see, and that’s all I really would, you know what I mean, was around.

Andre:
And just being able to really just maneuver the way that I have maneuvered and just really get to a point where I have just starting in the music industry, that experience really taught me, like I say, how to just operate in an ownership space, knowing that it won’t be easy, knowing that I’m not operating with a big major label behind me, you know what I mean? I was selling CDs out of my backpack and out of my trunk, all of those different things. It just really taught me a grind and a hustle, and I never lost that spirit and that energy when it came to real estate, and business, and entrepreneurship.

Henry:
If I hear you right, Andre, what I’m hearing you say is you had a mindset before. And this is really the mindset part of your story that was, I’m not financially literate. I see two roads to success, entertainment or sports. And if I can’t make it happen, well, then there’s no point of trying. I’m probably oversimplifying, but more or less, that’s the perspective. And then when you started your music career and you were not signed to a big label, if you’re signed to a big label, you’re kind of more of a W2 employee, is do what they tell you, “Hey, you go do this and we will take care of the details.” Right?

Andre:
Yeah.

Henry:
When you do it yourself, you are not entrepreneur, which means you’re a business owner. Even if the business is selling CDs out of a trunk, you still have to make the stuff, market the stuff, manufacture the stuff, price the stuff, keep your own books to know what your profit margin is. And that is what opened your mind up to, whoa, there’s actually a lot more possibilities and routes than just the two that I was seeing before.

Andre:
Absolutely. And I wasn’t necessarily successful in that field as far as on a famous or multi-platinum level or anything like that. But as far as, like you said, the mindset that it taught me and the hustle and the grind that it taught me. And it also, it kept me humble because I wasn’t successful. You know what I mean? Rappers tend to have these big egos and these images, that they’re this famous person, and they got all of this money. And really in all actuality, like you said, they’re really an employee. They owe money to the label. They owe money to the car company. They owe money to the mortgage company. They owe money to the jeweler. They owe money to the clothing company. There’s just like, they’re in a bunch of debt. And I was shaping up my life to be in the same way.

Andre:
I had to realize that it wasn’t working for me after a while because I spent maybe 10, 11 years chasing this dream. And sometimes, you don’t necessarily have to give up or quit, but you have to pivot, you know what I mean? And I didn’t give up on my dream of being wealthy because that’s what I was using music for because that’s all I knew. Because again, you find out you’re not going to make it in sports pretty young, you know what I mean?

Henry:
[crosstalk 00:10:02].

Andre:
Once you get to high school, you realize it’s a wrap. Once you’re not starting on the varsity team and there are no colleges coming to see you, that kind of stuff, it gets to you early, like, yeah, so this may not be my path now that I’m seeing what’s going on here. And yeah, I figured that out early. So I just started to learn how to hustle, man, because I just didn’t have a mindset of stock market, real estate, all of that stuff. So I would do little stuff like, man, sell sneakers, go and get a job here and there, just little stuff to make money. And after a while, like I said, I had children, fell behind on my rent for so long. I mean, eviction notices, you name it, just like all the problems that a person could possibly have and just, it was time for me to just really get my [inaudible 00:10:51] together, man.

David:
Well, that’s why I wanted to ask you that question because, so it’s funny that you mentioned sports. That was really where my journey started off as well. I just wanted to be a basketball player. I wasn’t at the time wanting to be wealthy or famous, but I just loved basketball. And I hit a ceiling, that was my athletic ability, right? I was more athletic than most people, but I was not more athletic than division one college athletes, much less professional athlete. Like you said, it becomes very obvious very quickly. It doesn’t matter what you do, you’re not getting past this point with these limitations. But in the world of real estate or maybe entrepreneurship in general, what I tell people is that your athletic ability is your mindset.

David:
And what’s amazing is that there are no natural limitations on it. It’s only what you put on yourself, right? So I just wanted to draw that out of your story and make the connection for our listeners that you had to have your mind opened, and that came through what you would call a failed endeavor. But what you gained in that failure is what opened up the door. So we’re going to talk about now. So I’m going to throw it back to Henry and let you guys keep going into your story. Thank you for that.

Henry:
It’s a perfect transition because you talked about getting your [inaudible 00:11:51] together, you talked about evaluating your situation, and then using that to guide your next steps. You essentially have documented this process that you’ve used to go from where you were to financial freedom now. So talk a little bit about what that is and how this ties into that step one.

Andre:
Yeah. And like you said, step one is the self-evaluation process, which is typically for most people, and for me as well, it’s the hardest part because that’s when your pride and your ego gets the biggest blow, because you got to take that look in the mirror and say, I ain’t going to the NBA. I’m not going to be a multi-platinum rapper. Or even just, even the level of responsibility just to say like, you know what, I’m just not where I’m supposed to be in my life, or where I want to be in my life right now. A lot of people just, like I said, in certain lifestyles they get caught up like with internet lifestyle, and just what’s going on with other entrepreneurs, what’s going on. Like I say, with rappers and ball players and they want to act like they’re living this lifestyle the entire time, you’re not taking care of your children and you’re behind on your bills.

Andre:
Like I said, you’re behind on your car note. Every dollar that you have is essentially on your body with the clothes that you’re wearing, just… you know what I mean? It’s bad, man. You know what I mean?

David:
I never thought about it like that. That’s funny though.

Andre:
Yeah. And when you’re able to have this conversation with yourself and be like, “Yo, I’m out here bad as hell right now. I’m really down bad. I really need to just sit down, reevaluate my situation and just re-plan.” And a lot of it comes with just unlearning a lot of stuff that we’re taught, you know what I mean? And just like school, church and stuff like that, just real traditional stuff that we’re taught a lot of times. And if we can shake that mindset, and just open up our minds, and think outside the box just a little bit, because nothing is wrong with the stuff that we’re taught in school and church. Just a lot of times it’s very limiting. You know what I mean? Especially the older stuff, because I was raised by, like I said, an older church woman, you know what I mean, who was just very traditional.

Andre:
A lot of times she would choose church over sports, and [inaudible 00:13:54] like that. It was like, “Lady, I had the opportunity to go to college. This could be my full ride scholarship here.” And she’s like, “No, we’re going to Bible study today.” Like, “Are you serious?” I would have coaches coming by the house, knocking on the doors and everything, she’s like, “Nope, we’re going to church.” You know what I mean?

Andre:
So certain stuff, man, like I said, we just really don’t get and understand. But for me, that was the first step in just understanding myself and knowing that I had to make a change. And it was taking that look in the mirror and being like, yo, you’re not the person who you say you are. You’re not the person who you think you are. You’re not the person who you’re front out here acting like you are. Like, dude, get it together. And the first step in doing that is having that conversation with yourself. And that’s a step that most people don’t want to take because it’s tough to say, I’m just not that guy, or I’m just not that woman right now.

Henry:
Absolutely, man. And just so people know, when I say you documented this process, you wrote a book, right? What did you call that book, specifically because of this?

Andre:
Renaissances’ 5 Step Guide on Getting Your Sh*t Together.

Henry:
Right. And so first step, self evaluation. Step two, what was next for you?

Andre:
Understanding the power of your mind and your words because typically that first step is brutal. You’re beating yourself down a little bit, you know what I mean? You’re identifying all your weak points. But after you do that, you have to tell yourself, you know what, but that doesn’t have to be who I am for the rest of my life. Now it’s time to make a change. I’m a confident person. I’m a talented person. I can go out here and do whatever I want. I’m able to build wealth. I deserve to build wealth. I deserve to change my life. And the more that you start speaking like this and thinking like this and just… you know what I mean, having these just positive affirmations and speaking them into the universe, the more you’ll get that stuff in return because the more you put it out there, the more you’ll get it back. And that’s just the law of attraction at its best.

Andre:
And that’s how it works because the moment that I took action over the way that I was thinking and the way that I was speaking, probably in 24 to 48 hours, man, I noticed just an immediate change. And just the way that I felt, I just didn’t feel that was a black negative cloud hanging over me, walking around every day anymore. You know what I mean? And it’s all me. It’s nothing anybody else is doing around you. Most times, it’s you, and the way that you’re thinking, your surroundings, all of that. And if you’re able to change those things and identify those things, man, you can really expedite your process to get to the next level.

Henry:
I like that. And I think that a lot of people gloss over mindset steps like this when they’re trying to think about their business or their real estate career. And I like to try to put some practicality behind it for people so that they can understand that this stuff truly does work. I know it sounds like, oh, okay just think about it, and it’ll be, but it’s not that. It’s like, our minds are powerful. And the things that we tell ourselves, that’s why vision boards are powerful for people, right? Like if you put something in front of your face every single day, you’ll start to realize that the actions that you’re taking are going to be moving you towards those goals in small ways, it’s almost like our subconscious takes over and we start moving ourselves in that direction. Now I’m not saying it’s magic, you write it down and you make it happen. But what I am saying is that when you surround yourself with your goals, either visually or taking the action to write them down, your actions follow suit, and sometimes that’s intentional actions, and sometimes it’s even subconscious actions.

Henry:
But so I challenge anybody, like if you have a goal of getting started with real estate investing and you’re not quite sure exactly how you’re going to get it done, take the first step of just writing down every day, I will be a successful real estate investor. I will be a successful real estate investor. Write it down five times every morning. If you do that consistently, what happens is, and we’ve talked about this on other episodes, David, it’s like the red truck theory, right? You buy a red truck and then now all you see is red trucks. Well, that’s because your mind is open to seeing those red trucks. If you tell yourself I am going to be a successful real estate investor every single day and you’re writing that down, you’ll start to see opportunities that you weren’t focusing, your brain wasn’t focused on before, you weren’t open to before. And then you’ll start to act on those. And that’s how mindset really starts to practically take hold in your life.

Andre:
I agree with that wholeheartedly because I’m a prime example of just what you said. You say, just writing it down because even before I was a real estate investor, before I got my first property, before I really knew about real estate investing, I knew that I wanted to be a real estate investor, I just didn’t have the right information to do it and get into the field. I was in a cubicle when I first got my job, I had to step away from the music industry. And once I started getting my stuff together and we’ll get into that, but I just wanted to just piggyback off of what you just said, I wrote down into my cubicle that I would attain over a million dollars worth of real estate assets by January 25th, 2029, which is my birthday. But I eclipsed that number probably 10 years earlier just by writing it down and having it in my face every single day and just believing and knowing that.

Henry:
Let’s put some parameters around that for people. And so you left music, because you said, this isn’t going to get me where I want to be. And even the people that are where I want to be, when you really look at it on paper, they’re not there. Right? And so-

Andre:
Yep.

Henry:
… you then said, “I got to go back to work.” And you went and you got a job. What kind of job did you get?

Andre:
Oh, man, dude was working at a telemarketing company. And I was calling people, putting them in schools that just weren’t accredited. Schools, like you hear about them in the news, like yeah, they just got shut down for education scams. [inaudible 00:19:43] Maybe I shouldn’t be working here.

Henry:
So you were doing telemarketing. How much were you making?

Andre:
Minimum wage age plus a bonus, sales bonuses. You know whenever you get sales, you get an extra little bonus or whatever the case may be. But the thing is, dude, I was killing them, bro. I was like signing people up for these schools. I look back at it, dude, I probably have 1,000 people who are just uncredited degrees right now.

Henry:
So you got a job at a call center. You were making a minimum wage, living in what city?

Andre:
In Chicago.

Henry:
In an expensive city. And you wrote down, you were going to do what?

Andre:
Obtain a million dollars worth of real estate assets.

Henry:
Right? That’s powerful. People need to see that. You had every reason to believe that you couldn’t do that. And you went and you got a job. And as you’re working at this job, you were trying to do the best you can at the job and you were doing well and you decided you were going to buy a million dollars in real estate assets. And most people who are in that situation, that would be so far out of their mindset. But you spent the first time in those two steps in trying to figure out how you were going to get to your goals, right. You had to self-evaluate, and then you had to look at the power of your words and then that leads you to learning about real estate. And so tell us a little bit about how that came to pass. So how do you go from a call center to buying real estate assets?

Andre:
That would lead into step three. Once I knew what I wanted to do, and once I started reading about it, I knew I needed some damn money. All right. All right. So real estate, I can’t do this bro. I started reading a little bit more. I started saving man, every dime that I had. Because at the time I was reading Rich Dad Poor Dad, MONEY Master the Game by Tony Robbins. This is maybe 2010, 2011. And I’m just picking up everything, just digesting information like it’s food, man. I’m just like, I’m hungry for it. So I’m just taking in everything. And those two books were what sparked the most interest in me and really taught me the most and really lit the fire under my ass. And I’m reading that book by Tony Robbins and just really just had me turned up. So I started, like I said, saving every single dollar from work. I started eating noodles for like a year straight.

Henry:
Which for the record is step three. Right?

Andre:
Yep. Yeah. Yeah. That’s what I’m saying. I was going into step three. And that was me understanding my money. And step three, is, are you frugal or are you fraud? Because again, a lot of times as we spoke about in my particular culture and just background, we tend to want to look like we have money more than we actually have money. And it’s a problem and I was one of those guys. So I had to really evaluate, okay, am I frugal? Am I saving money? Or am I actually doing what I’m supposed to do? I’m out here just really being a fraud and looking like I am and acting like I’m financially responsible and just tricking people. And I was, I was being a fraud, you know what I mean? And I had to really evaluate that. So like I said, I started saving money, making sacrifices, not buying Jordans every weekend all of that kind of stuff that was just really taking big chunks of money out of my pocket.

Andre:
And over time, man, maybe after about a year, year and a half, I had saved about 10, $12,000. And I just knew, oh, okay, I’m on something with this. And I need to do something with all this money because I never had this much money in my life just sitting there.

Henry:
But for reference, what were you making yearly?

Andre:
Ooh, maybe after taxes, about $26,000 or something like that. Barely over the poverty line.

Henry:
Right. And so I say that, because I don’t want people to not get the value of what you just said. You saved $10,000 while only making just under 30 that’s almost half your salary.

Andre:
Yeah.

Henry:
Right. Just through self realization and then putting yourself in checking on a budget. That’s amazing.

Andre:
It was hard. Oh, it was real hard, man. Just sitting in the house for, really a year and a half straight really only doing… really just not doing nothing. The whole summer long. You know when Kanye was like, man, imagine being locked in your room for three summers, that’s a different world, bro. You looking outside the window, you seeing everybody having fun. You on Instagram, everybody just says at the concert, Drake concert came to Chicago, oh it was lit. But you have goals and you know what I mean? You understand short term sacrifice for long term. You know what I mean? Greatness. And that’s really what I was on. And it worked out for me because after I did all of that stuff, man, and after I made those sacrifices, my life just took off just when I say on a rocket ship. And I never looked back.

Andre:
So it was just more so anything, man, just understanding that those sacrifices weren’t going to be forever. You know what I mean? It was just, somebody told me, man, sometimes you just got to turn down steak on an empty stomach. You know what I mean? At first it didn’t make sense to me, but then it made sense to me when I was able to have surf and turf buffet for the rest of my life. You know what I mean? So it just was the financial part of everything. And just me understanding my money and understanding what was smart to do with my money and what not to do with my money was just a major step for me.

David:
That’s very similar to my story. I did not do fun stuff when everybody my age was doing fun stuff. And this comes up a lot. So I’ve got a young guy on my loan team. He’s 23 years old. He’s my first hire. He’s crushing right now. He probably has 60 loans in submission right now at 23 years old. And he will say the same thing, “Ah, sometimes I feel like I’m missing out not hanging out with my friends.” I relate to it because I was in that same boat. But I’ll tell you, I don’t have any regret about not going out to a fancy restaurant or not going to a concert now where I am in life, knowing that that would’ve stole a house from me, right. If I had to pick, would you rather go back in time and go on a vacation with friends that you don’t even have anymore because nobody stays friends with these people for 20 years, right? Or have a house that’s going to pay you for the rest of your life. It’s pretty easy decision.

David:
So I just want to encourage the other people that are in this situation. You were Andre that you’re not doing this for nothing. It’s worth it. And then the other part I really like is that you mentioned is now you eat a seafood buffet every night. See when you spend your money on a car or on Jordan’s or something, you get the shoes, they get worn out, you don’t get to wear them anymore, you got to buy new shoes. When you get the house, it buys you a new pair of Jordan’s every month for the rest of your life. And it doesn’t matter, right? And you keep the house. That’s the difference. And when you get the asset, first, it buys the car, it buys the dinners, it buys the shoes, all the things you want are taken care of because you sacrifice early to get it. And it doesn’t stay where you’re just depriving yourself all the time.

David:
And the last point I’ll make is many things in life work this way. So if you think about, if you’re out of shape and you first want to go start running, you can’t run very far, you get maybe a quarter mile and you’re done. So you don’t really burn that many calories. You don’t see a result.

Henry:
Were you watching me workout out this morning?

David:
It seemed like you’d be probably in the gym, Henry. I don’t really see you doing a whole lot of running. I see you pushing some weight. But that’s the same thing, when you first go to lift weights, you’re not very strong. You don’t work out very long before you get tired and you don’t burn many calories. You’re not building muscle. You are conditioning yourself to eventually run four miles where you’re going to burn a lot of calories. And so what I’m saying is it does not suck the whole time like it does when you’re starting. When you first start running, every single step is agony and it’s terrible. And you do it for a long enough time, and like, this isn’t that bad. It might actually become fun because you’ve conditioned yourself. So I just want to throw that in there that while this may sound not appealing, when someone’s like, man, I don’t want to be sitting in my room watching everyone else have fun. It changes, right?

David:
Now Andre, I’m sure you’re going to tell us about some of the ways you’re finding deals. Some of the empowered way that you feel where you’re like, I’m walking around, I don’t have pretend I’m wealthy, I am wealthy. And the confidence that comes from that, where now you recognize all the things that at one point were temptations for you were because you wanted to look a certain way. And now that you don’t need to because you are that person, the temptation just goes away and that’s nice.

Andre:
And the crazy thing is just to take it back a little bit. It was extra hard for me because like I said, I had just come from a lifestyle again, while I was rapping, I was sitting next to Jay Z and Beyonce at basketball games, doing shows with Fat Joe and mind you two of my closest friends played NBA basketball. So I was playing video games with LeBron James, and weddings with Kobe Bryant, just wild that you wouldn’t even believe. And to go from that to having to sit down in a cubicle where the mindsets of the people who I’m sitting around every day just aren’t like mine, just the very, very bottom of just the work level. I said, I’m sitting in a cubicle, calling people, putting them in schools that aren’t accredited. So this was a very, very, very humbling and pride killing experience for me.

Andre:
And for a little while, I went through a little bit of a depression with this. But again, I realized that it was just a short term sacrifice for long term greatness. And as you said, man, I live my life on my own terms, now I buy all the Jordans that I want. I’ve learned about cool, art and dope [inaudible 00:29:03] like that. The ways I can use the money that I make from my investments to make other cool investments. So it’s not like I’m just spending the money now. So now let’s say I want to go buy a pair of Jordans, I can buy a two pair of Jordans. I can buy one to wear and I can buy one to put up and they go up in value like stock. Even if you’re watching this YouTube video, these little art pieces behind me, they’re really dope. They’re by this artist named Brian Donnelly Kaws. I collect his pieces, man. I learned about him, I started collecting his pieces. I’m paying two, 300 bucks for a piece just because I think it’s cool.

Andre:
I start looking this stuff up, man. It’s going up in value by 30 and 40% every year. I bought these two things back here, maybe four years ago for 300 bucks each, right now they’re worth 1,500 each and he’s still alive walking around all good and healthy, man. And God forbid something happens to him, but you understand how this goes. When typically something happens to artists or anything like that and you own a piece of their original work, man, that stuff usually skyrockets and values. I’ve learned so much different cool stuff. I and have been able to put my money in other cool stuff that are investments and not just me wasting my money.

Andre:
So just it’ll pay off man. Like David said, don’t think it’s just you just eat [inaudible 00:30:12] just for no reason. And you just got to do this for no reason. No, man. Over time you’ll be able to live a very, very happy life and just do whatever you want do out here, which is the main, that’s happiness. That’s what happiness is. Is time freedom, going to your kids baseball games when you want to, you know what I mean? Taking a family on vacation. Like Henry said, he’s leaving to go to Hawaii for two weeks. Who’s doing that. You know what I mean? You got to understand, but he had to make some sacrifices to get to that point.

Henry:
Yeah, absolutely right, man. I’m glad that you were able to touch on that for people because as soon as you start talking about sacrifice, people tend to tune out. I like that we’re able to put some color around that. So that’s good man. So you saved this money, right?

Andre:
Yep.

Henry:
You made these sacrifices, you built this nest egg and then how did you go from that nest egg to knowing you needed to buy some real estate with it? What led you to the real estate?

Andre:
That was step number four for me, which like I said, was building a solid foundation and maintaining stability. Because after I started saving money, I also started to understand and learn how to keep the money. Because once you start to get these big lump sums of money, like I said again, I’m speaking just from my personal background, from my culture, what I come from. We tend to want to go buy big ass gold chains, big cars with rims that aren’t worth anything. Just spend our money on a lot of… just ain’t worth nothing and depreciates in value, as soon as we get the receipt for it. You know what I mean? And I just wanted to maintain where I was at and have that solid foundation of just financial literacy.

Andre:
So like I said, I kept educating myself on top of me having that cash, I started to build my credit man. I started to learn about credit. I started learning about how to use credit. I started learning about how to leverage credit and all of these different things. After that, man, it was time for me to go into step number five, which was taking my leap of faith and buying that first property. And once I was ready, I reached out to a mentor of mine, a big sister of mine, her name is [inaudible 00:32:04], she’s a broker in Vegas. I’m like, “Hey, I’m ready to buy a house.” And she was like, “Eh, that sounds good. But you should consider getting a multiunit, and you should consider getting a multiunit with this program called NACA.” And I’m like, “NACA?” And she’s like, “Yeah. It’s a program that I feel like would be best for you because of all of the benefits that they offer.”

Andre:
And I’m like, “Hmm, what are the benefits to this program?” And she goes into telling me everything about this program and I’m just like, “Wow, I just read the same thing in Rich Dad Poor Dad.” So just it really clicked to me just about buying assets and buying cash flowing assets over liability, you know what I mean? All of these different things and it’s just like, a real light bulb just went off in my head when she said this. And yeah, so I took the leap of faith man and I went ahead, I started looking into the program, NACA, N-A-C-A, Neighborhood Assistance Corporations of America.

Henry:
Awesome. So what were some of the benefits to you and then how did you leverage that program to buy a property?

Andre:
So the benefits are for first time home buyers. And the NACA program, first out, they offer the lowest interest rate in the country regardless of what your credit score is. They’re mainly concerned about the debt that you have in collections and your debt to income ratio. In addition to that, they also offer to pay for your attorney, your agent, and most of your fees. The only thing you’re liable to pay for is your… but your inspection costs. They pay for your appraisals as well. Also, they give you the option to buy the interest rate down lower than what it already is. In addition to that, you don’t have to necessarily have substantial savings. What they will allow you to do a lot of times is what’s called payment shock. So they’ll say if you can afford rent, you can afford mortgage.

Andre:
So as long as you can show them that you’re paying your rent on time for a certain amount of time, you can qualify for a property. And if you want to qualify for a property, that’s more than what your rent is you would just have to save the difference between what your mortgage would be and your rent would be for six months.

Andre:
It’s just a really, really powerful program when I heard all of these benefits, man. And also you don’t have a down payment, it’s no money down, which is the biggest benefits of the program. And when I heard all of this stuff, I’m just like, “Are you serious? This can’t be real.” She’s like, “I swear, it’s real.” I’m like, “No, it’s not.” She’s like, “I swear it is.” So I went to the meeting man, everything that she said, they confirmed it. And it was just like, wow. So I went ahead, signed up, met with my mortgage counselor. From there, dude, it was just a mind blowing experience because I walked into the office and I wear a lot of dope sneakers. I collect sneakers. So I had on a pair of Jordans that had just came out. They were really hard to get. And my mortgage council was like, “Oh man, I went through hell trying to get my son those shoes, how’d you get them?”

Andre:
It just really started off like a great conversation between me and him, which just built up into a really great relationship. And he just asked me, what I was trying to do, what my goals were. And he was extremely helpful throughout my process. And he was like, you know what? We’re going to get you set up. He’s like, the fact that you’re looking for a multi-unit is amazing because that’s what I suggest that most people do when they come through these kind of programs, FHA, NACA, three and half percent down, no money down, man. Use it to leverage to get ahead, use it to get you a cash flow asset. Don’t go and buy something that’s going to, you know what I mean? Have you in debt or have you, you know what I mean, paying bills, get something that’s going to pay you monthly or at least take care of your mortgage for you.

Andre:
And the market that I’m in here in Chicago, we have a million multiunit. It’s probably 60, 40 houses to multiunit. So it’s not that hard to find multi units here. And I went out into the market, man, and I got my first property, got a brick four unit in a beautiful Chicago suburb, right outside of the city with amazing amenities, Walmart, churches, bus lines, trains, restaurants in the area and great parks, great school system in the area, swimming pools, all of this kind of stuff that you can find. And I knew about the area because I lived in the area for seven years before I purchased in the area. And I’m like, “Yo, I want to buy in Forest Park.” And I was able to get the property for $360,000, which was well below what it was worth at the time. I believe it appraised out for 390 and that was as is. And that deal was really, really good. And I took advantage of every single benefit that they offer in that deal.

Henry:
Awesome, man. So you went from working in the cubicle, saving $10,000, getting ready to make the leap of faith. You make the leap of faith, you learn about NACA and then you go and you find yourself a multifamily and you buy it. And so tell us a little bit more about that deal. So you bought the property and then did you move into it? What were the rents like? How transitional was that for you?

Andre:
So first off, it wasn’t just that easy. It was a lot of searching and I’m sure there are a lot of first time home buyers that are going to listen to this. I just want to mentally prepare you for what you’re going to be dealing with in the process. And this was, I’m speaking seven years ago. So now today’s market is way more hectic. So this is what you want to expect in today’s market because lot of people have these… Like I say, the internet has everybody, for some reason they think you’re just going to go out and just find this just magical, amazing property. It’s just going to appear right in front of you or you’re going to put in an offer and it’s going to get accepted and it’s just going to go so smooth when it just does not work like that.

Andre:
All right. So you’re going to go out, you know what I mean? [inaudible 00:37:36] and you’re going to start looking for stuff and you’re first off, you’re probably going to start looking for stuff that’s really out of your price range just out the gate because you just don’t know… You know what you can afford, but a lot of times your eyes will trick you into saying that you can afford something that you really can’t have. You know what I mean? Just because it’s beautiful. So you’re going to go out, you’re going to look at all these nice properties and you’re going to try to make these deals and people just aren’t going to want to negotiate their prices. You know what I mean? Their prices, their price, because they have 20 other people that are standing in line waiting to offer them more money than what you’re offering even if you’re offering what they’re asking for.

Andre:
So don’t expect your first offer, second offer all of that kind of stuff to be accepted. So you have to be really diligent and just persistent with this stuff. You got to go out here and really put in a ton of offers and kind of work with sellers. And nowadays you want to try to build relationships. Because in my property, that’s what worked, building a relationship, my agent built a relationship with the other agent and we played that card. In addition to that, you want to run the numbers more than anything. Don’t get caught out with how a place looks. Yeah, a place can be beautiful, but you’ll be upside down on your mortgage if you don’t run the numbers the right way, because you want to get a beautiful place. You know what I mean?

Andre:
So make sure the numbers make sense, man, if you’re not cash flowing, at least make sure that you’ll get to live for free. Meaning that the rents coming from the place they’ll cover most of the mortgage and you get to live in their place for free, not paying anything at all. Pretty much essentially keeping all of the money that you work for, that you make doing other stuff. In addition to that, man, you want to make sure you’re finding a property that is cash flowing a lot of times because a lot of times that’s how you’ll get qualified a lot easier and a lot faster by the bank.

Henry:
So it needs to have tenants in it?

Andre:
Yeah, absolutely. That are already in under leases and it shows that what they’re paying and all of that kind of stuff, it shows the rent roll. And that’ll be a great benefit to you because a lot of people don’t know because what I hear a lot of times is, “Oh man, multi-units are 400, $500,000. I can’t afford those.” But it doesn’t just go based on what you can pay. It goes based on how much the building is already generating as well. So they’ll take 75% of what the building is generating and add it to your income, which will make the property more than affordable most times.

Henry:
Man. That’s awesome. How many offers did you put in on properties before you landed the one you got?

Andre:
Probably five. And on that deal we just kept getting out bid. We kept getting just rejected. And on the last one, even we almost lost that one because what happened was, like I said, we put in five offers previously and I was just tired and frustrated. It had been two months I was looking, and I told my agent, “You know what, man, I want to get us a break. We’re out here every day. We’re not finding anything, nobody likes us.” You know what I’m saying? I’m taking everything personally. I’m like, “They don’t like us man.” So I’m on the MLS, realtor.com or Zillow or something like that. It was maybe 11:00, 12 o’clock at night, one night and this property just pops up, man. It is in my desired neighborhood, it’s a four unit. It has an apartment vacant ready for me to live in, the other three units are cash flowing.

Andre:
I’m like, “Oh my God, Jesus, what did you just do?” And so I called my agent, I started calling his phone recklessly. I probably called him 15 times. And the last time he finally picked up the phone was like, “What the hell man? You know I don’t do business this late.” He was really upset, but I’m like, “I hear you, but check your email though. Please just check your email.” So he was like, “Man, give me a second.” So he looked in his email, he was like, “Oh you right.” He was like, “So I’m going to write this up right now.” He wrote up the offer, sent it back to me. I signed everything over. He was like, “I want to get this over to them tonight. So as soon as they come into their office, it’s the first…” People were still sending faxes and stuff at this time. He’s like, “It’s the first I offer on their fax machine.” You know what I mean?

Andre:
It worked, they came into the office, they saw it and they were like, you know what, we accept the offer. But the only thing was the wife was the one that was home and she accepted the offer and I got excited, right. So I had a seminar to go to later that day it was, was a Rich Dad Poor Dad seminar. So I’m like, “Oh man, I’m lit. I just got my offer accepted. I’m going to this seminar.” You know how they pump you up at the seminar. So I’m just like, “Ah, yeah, I’m about to be rich as hell.” So as I’m doing all of this, I’m excited. My phone is just ringing, ringing, ringing, ringing, ringing. And I’m not answering because I’m just gassed up at this seminar. So I go out and I check the voicemail and it’s my agent. He’s like, “Man, give me a call back as soon as you can.”

Andre:
So I give him a call back. He was like, “Man, you know the offer that we put in earlier, it got knocked out.” I’m like, “Knocked out? What you mean? I thought we got accepted.” He’s like, “Man, the husband was at work. And as he was on his way home to sign the contract, another offer came in and it was all cash.” I’m like, “What?” He was like, “Yeah. So that knocks us out. It’s not our property. We don’t have it under contract.” I’m like, “Are you serious?” So my heart drops into my stomach at this point. Mind you, because I just went from here all the way back down to here. I’m on a thousand. So it’s just, oh my God what is going on?

Andre:
At the end of the day, what happened was they came in with a cash offer, the husband didn’t sign the contract. So like you said, it was just that offer was really null and void. But they didn’t just say, “We’re not going to take your offer.” They was like, “Hey guys, this is what we’ll do. We’ll give you everybody till the morning. You are the last two offers that we’re going to look at, come with your highest and best offer first thing in the morning.”

Andre:
So that’s what we did. Luckily for me the cash buyers, they came with the same offer. They’re like, “We’re offering cash, we’re going to stick to our guns. This is what it is.” And I offered an extra 15 or 20,000 I believe it was on top of my agent. Like I say, playing a relationship and the emotional card. He reached out to the agent. He’s like, “My guy’s been living in this neighborhood for the past seven, eight years, his kids love the parks, they love the school systems. They really, really don’t want to leave. And these guys are just investors, they’re probably just going to come over here and knock the building down.” And these people had an emotional attachment to their property. You know what I mean? So they’re like, “Ah man, you’re right. Let us just sell it to a nice family. Who’s going to take care of the place. We’re getting extra money.”

Andre:
And that emotion, you know what I mean, that relationship card, it played out in our favor. We got the offer accepted man, everything was cool. I was able to get the property. Like I say, with no money down, I was able to buy the interest rate down to two and a half percent from three and a half percent because I got a $10,000 sellers concession. And I used that money for that. I was able to keep all of my money. In addition to that, I walked away from the closing table with the $5,000 check because I didn’t need all of the money that they gave me to buy the interest rate down. So I essentially walked away with the building that was paying me cash flow and I didn’t spend anything on it. All I had to do was turn in the proper documents for a few months, let them, you know what I mean, check my info, go through my bank accounts, this typical home buying process. And they were like, “You know what, hey, we trust you enough. Take this building and keep all your money and take $5,000 with it.”

Andre:
On top of that, the day that I closed, I walked into the property, it was the end of the month, I got checks from all three of my tenants because it was like I said, the end of the month, it was time to pay the rent. And you know, when you close that first month, you don’t have a mortgage so that was all my money. So I essentially went from worth nothing to owning this four unit property where I lived for free $22,000 cash. And I got my check from work that same day. It was the most amazing feeling in the whole [inaudible 00:44:57] world.

David:
So now everyone listening to this is saying, “Okay, hear that, honey. I want one of those.” They’re calling their agent and they’re saying, “Hey, find me that deal.” Right? And so what I want to ask you is obviously you would do that over and over and over if you could. It’s hard to do that. It’s worth it, which is why we’re talking about it but it is not easy. It’s just like the workout analogy we gave earlier. And it’s still for me even as much real estate as I’ve bought, there are emotional spikes. You get excited, you get crushed, you get excited, you get crushed. And that happens too many times and most people tap out. They just say, I don’t want to do it anymore, right. I see this as the agent trying to protect the client from that. And then I get it myself when I start to get excited and then, oh, turns out something changes, right?

David:
So what advice do you have for the people that are not accustomed to this entrepreneurial bipolarism that the three of us have just embraced from the things that we’ve been through, where we expect these big highs and lows so that they stay in the game and they don’t miss out on this awesome deal when it finally happen.

Andre:
Man, just a simple one liner, man, it gets greater later. As long as you understand that. And as long as you can stick it out and know that the reward later down the line is going to be just way bigger than what you imagined, because I just never imagined that from that point of buying that first property, I’ll be here where I am, where I’m walking around, doing public speaking. I have an apparel line, I have a book, we’re hosting our own seminars. I’m investing in the stock market. I’m teaching people, mentoring people, just all of these different cool things that set me free from the work system and allowed me to start helping people and just pouring into the world on a greater level and on a bigger scale man. I just wouldn’t have thought that, but the fact that I made those sacrifices and I understood that even in the down times that I would be okay, just as long as I stick this out, it always comes out better than what you think it will.

Henry:
Part of that story that I love is, that you made the sacrifices, you saved the money, because your intent was to have to use that money to start building your real estate assets. And you didn’t have to because you found this amazing vehicle, but had you not went through that sacrifice and made those mindset shifts, right? When you come into money like that, you might have spent it differently, right? You might have blown that $10,000 on something else. And so I don’t want people to hear, oh, he saved that money, he didn’t have to. No, the discipline it took for him to save that money set him up to be able to continue to be successful once he was able to acquire that asset, right?

Andre:
Absolutely.

Henry:
That’s just an amazing story.

Andre:
And I did have to save the money. I didn’t have to use it. I had to save it. They want to see that you’re responsible that you’re able to save money, the same process that you would have to go through, through any other lender, whether it be Conventional, FHA, whoever it’s the same thing. They want to see that you’re saving your money. They want bank statements. They want to check stubs every two weeks, they want all of those documents to show that you’re doing what you’re supposed to do. And you’re a responsible human being before they release a 300, 400, $5,000 property into your name with no collateral. You know what I mean. Because essentially that’s what they’re doing. They’re just like, we’re trusting you to take care of your business and do what you say you’re going to do. And we get absolutely nothing for this, so hey, you better do right.

Henry:
And one thing before we move on to the next segment of the show, I want you to share with people is now you’ve found a way to even make more cash flow on the asset that’s already paying you cash flow. And so just give them a little teaser on how you’re additionally monetizing that asset right now.

Andre:
Yeah, man, in addition to like I say, just getting rents and everything, man. They got a lot of cool stuff going on out here with these apps, Airbnb, Vrbo. And I found this thing called Peerspace where I get to rent out my property, man to people who want shoot movies, music videos, photos, and things like that. And for the past six months, man, my house has just been like a movie studio it seems like man, because I got people coming in doing everything and it’s just insane. It pays a pretty penny. I’m really happy that I found it because it’s essentially been like a new ATM for me, man. Anytime I need some extra cash, I just go to Peerspace and I can make three, four, $500, three, four hours easily. And the cool thing about it is, it’s you don’t have to own the property to do it. And on top of that, you don’t have people staying overnight at your home that come in for a few hours and you make money just like you would in the Airbnb without people having to stay.

Andre:
I’m putting out a course on it soon to show people how to do it and how to really maximize it. So you guys check that out when it does come out, turn on your notifications on my Instagram, Facebook and YouTube. And you’ll be able to get that

Henry:
Man. Yeah. I mean it’s super. You put me onto it. I didn’t know it was a thing until you told me about it. And now we’re looking at putting some of our Airbnbs also on Peerspace, because it’s essentially, you can just rent a furnished space to somebody who may just want to use it for a couple of hours to do just like you said, shoot a video. Maybe even just host a quick event where they have a meeting or something like that. And so if you’ve got a furnished space, it could be your space. It could be an Airbnb. I think it’s just a really cool way to continue to monetize.

Andre:
Yeah. Families host Thanksgiving dinner parties at your space. Maybe they don’t have a big kitchen, and they’ll come and rent out the space. It’s just used for a lot of different cool reasons, and it’s a very, very short term rental that like I said, you can maximize the profits on it without having to deal with people for as long as an amount of time.

David:
Can I just say something from a overall perspective of, the thought just went through my head? As technology like Airbnb, Turo, Peerspace starts to become more prevalent where it is easy to go find something to use that you used to have to own if you wanted to use it, owning these assets becomes even more valuable. So if it’s like, if you’re the rapper who can’t afford the Lamborghini and you can go rent the Lamborghini, well, the guy who owns the Lamborghini has a more valuable asset because it’s not just him driving it, it’s the rapper who wants to rent it for the video. But then when Turo comes out and anybody can rent a Lamborghini whenever, right now, having a Lamborghini actually becomes a legit business because it’s so easy for people to find you. Unique properties, really nice spaces. These type of assets will only become more valuable as it becomes easier to market them with these technologies like we’re talking about right now, Andre.

David:
So I just wanted to highlight that’s one of the reason you see the price of certain things that isn’t going down, it keeps going up it’s because technology is making it easier to make it cash flow.

Andre:
Yep. And even just to add to that, like how I was just telling you guys, I used my cashflow to buy these art pieces, and they go up in value. So the art pieces are one of the big attractions that draws people to my Peerspace, so they’re even making me more money than going up in value, you know what I mean? It’s just like, man, it’s just one big circle of just money coming in, you know what I mean? When you do this stuff the right way, man, it’s insane. But again, it all starts with mindset and doing that first deal.

David:
Yeah. I think that’s great. One of the points that you mentioned there, Andre was what I call synergy. So once you start to get momentum, which is another concept. I know everybody always wants to hear, well, how do I just buy the house? Like you said, just what website do I go to, to just get a house and write an offer and have it be easy? And they don’t want to go through the grind, but that’s why these deals are available because people don’t want to put the grind in to get it. And then when you get it, it tends to be where they all play off each other. What you’re describing is, I make money off of art, then I teach people how to buy art, then that brings them to my Peerspace. And then I make money off of renting out my property. Now I have more money coming in, so I have more for the down payment for the next property. Then I get better at buying properties. And then agent said it to me before other people. And then the contractor calls me back first and gives me a better price.

David:
Everything gets better as you build this momentum. And so many people at the beginning of the journey are sensing, well, it I must be nice. Wish I could be Andre and I could have what he has going on, but you built momentum. You were slinging CDs out of the back of your car, right?

Andre:
Yeah.

David:
You were looking at everyone around you that was having the success you wanted and being tortured by that buffet that you felt like, I can’t get a seat in that buffet. I’m all around it, I could smell it, but I can’t eat it. Right? You put in the grind, and now that’s why it’s catching up to you. You look like you want to comment on that.

Andre:
You just see hit the nail directly on the head. Like I said, I was around guys who were in the NBA, winning NBA championships like, “God, when is it going to be my turn? You have me here, you have me around this, what are you trying to show me?” Something has to come from this. Like, what the hell is going on? Because you can’t just be dangling this over my head, and not really letting me have it, you know what I mean? And then, like I say, when I had to divert back and start the whole nine to five process all over again, I’m like, “Oh my God.” Me and God were really into it at that point, it was just like, “Dude, I’m about to come up there and we’re going to fight because you’re really playing with my life.”

Andre:
Like you said, David, there comes a time when you start to just be able to breathe a little bit more and you can see the light, and you get the ball rolling. And then you can just really pick up pace. And it’s just like, aw, man. Yes. And it comes a point where you’re just not in survival mode anymore. Man, for a long time, I was in survival mode, just really trying to figure out how I was going to eat, how I was going to pay my bills. Scraping, trying to figure out how I would get my children the things that they need. And that mind frame doesn’t allow you to think in abundance. It has you thinking in, okay, I need to do this right now in order for me to eat today. It doesn’t allow you to think generational wealth for the future because you’re hungry right now, your kids need stuff right now. You know what I mean? You don’t have the luxury of thinking for the future.

Andre:
I think once you get past that survival mode and that mindset changes and you have the air to breathe, and to be able to save a dollar, to save two dollars. Most people, they aren’t even in a position to save 50 cent, two dollars out of their check. Unfortunately that’s just a lot of people’s circumstance. But when you’re able to start doing that, man, it shows you that, yo, this is possible. And the moment that you see this is possible, growth becomes addictive. It’s the most addictive feeling in the world. Doing better, feeling better, it’s a high that you just never want to come down from it. Once you taste it and once you get it, just a little bit of it, you want to keep going hard or keep going after it, man.

Andre:
And I understand Michael Jordan and Kobe Bryant’s drive, they just never got enough of the success. No matter how many rings they got, no matter how many Olympic gold medals they got, there’s just a high that comes with that, just an amazing feeling when you… you know what I mean, you reach your goals and you start making progress, man. And it’s really almost an indescribable feeling. It’s just your fort.

David:
I love that you shared that because I think the majority of people are trying to figure out, how do I get to that point? Because they’re just eating that frog every day, and they’re not tasting what it can be like on the other side. I have this analogy that I describe what it’s like when you’re trying to have success as a real estate agent, but applies to investing too. Really, probably anything in life. It feels in the beginning, like you’re pushing this huge boulder up a hill. And to just get one inch takes so much effort, your calves are screaming, you’re pouring sweat. Everything’s burning. You’re asking yourself all the time, is it worth it? Should I just let this rock go and let it roll down and give up everything I did because it’s not getting easier? And the boulder blocks your view of where you’re trying to get to. You don’t know when you’re getting to the top of the hill. It could be 10 years from now. It could be 10 minutes, there’s no way to know.

David:
And you just push, and push, and push, and you listen to this stuff and it gives you encouragement to keep going. And you wonder, is God with me? Is the universe with me? It’s like, is it angry at me because it’s not easier? But what’s happening as you’re pushing is your muscles are being built, that is going to prepare you for when you actually get the success. And at certain point you crest that hill, and now it’s a flat plateau. So it’s not as hard to push the rock, but you still got to push. It’s not just happening on its own. It just isn’t miserable like it was. You start building some momentum.

David:
And at a certain point you come to the other side of the hill, the rock starts going down. And then wealth starts coming at you so fast, opportunities start coming at you so fast. The deals start flowing your way that you can’t even keep up with them. So you’re running as fast as you can keep up with that rock that you used to be pushing, and that’s where you get to decide what you really want your life to look like. And the problem is you don’t get to start going downhill. Everyone’s journey starts going uphill and that’s why nobody really follows it. But I really appreciate you sharing some of the details of what your story was like, Andre. For the listeners who are hearing this and they know what they want is to be chasing a rock at some point in their life with an abundance of things they want but right now, they’re just grinding. I think you needed to be in your room, looking outside, everybody else playing for a couple years because that’s when you were being prepared, that was your uphill battle, right?

David:
That’s when you were being prepared to handle what you have right now, instead of immediately getting your first deal, selling it, making $80,000 profit and buying a room full of toys. Right? And now you got to start back over. That rock went all the way down to the bottom, you got to start at the top. I really appreciate that. We’re going to move on to the last segment of our show. It is the world famous.

Speaker 4:
Famous four.

David:
This is the segment of the show where we ask every guest the same four questions and we are going to alternatively throw them back at you. The first question is about a book. What is your favorite real estate book?

Andre:
It would probably be like I say a combination, and I don’t know if they’re necessarily real estate books. They’re just mindset and financial literacy books, but they do cover real estate. Like I said, Rich Dad Poor Dad, and MONEY Master the Game. They really did it for me. They really put a lot into perspective for me. MONEY Master the Game taught me a lot. And I just want to say Rich Dad Poor Dad, just the Rich Dad Poor Dad education because there’s a plethora of books that come with just that education. And I read them all. So I started with Rich Dad Poor Dad, which was the mindset shift. And I started going into the cash flow quadrants, guide to investing that teaches you about all of the different ways to invest in real estate, the tax sales. You know what I mean? The REITs, all of these different things. And the same thing with MONEY Master the Game, I just learned money in general with that book. That book just really opened my mind up to investing. Not just real estate, but just investing in general.

Andre:
And it also just expanding my mind, like I say, to all of the different ways that I can invest in real estate and not just buying, you know what I mean, residential property, just… you know what I mean, learning about commercial properties, learning about investing in real estate through the stock market, learning about investing through real estate through just group economics, just through funds, all of these different things that it would talk about. And it just really, really blew my mind. So those two would probably be two favorites.

Henry:
Well, good, you’re making my job easy because the second question was what is your favorite business book? But sounds like MONEY Master the Game was probably what that was for you. So we’ll jump to question number three, which is what are your hobbies?

Andre:
Man, I like creating content, bro. I love creating content just based around my business and my brand. So I have a series called The Landlord Life, where I essentially bring people in on all of just the jobs and stuff that I do, and the problems that I’m having as a landlord. Because again, I see the internet tend to make being a landlord just being involved in real estate.

Henry:
Passive.

Andre:
Yeah, they make it just so glorified, and so glitzy and glamorous. So with this series, I just really tell people the truth and let people in like, yo, I just had a $30,000 plumbing issue. My roof just caved in, all of these different things. Like, yo, I’m tired of paying a plumber, so I’m going to go to Home Depot today and I’m going to buy me a rodder, and I’m going to rod the toilet and the drains myself. And I’m giving people a real inside look at this stuff, I’m documenting, and I’m videoing it. And at this point, I have about three seasons worth of content with that over 40 episodes. Henry’s actually guest on my series in Landlord Life. So y’all, check him out on season three. I believe it’s episode two or three. He’s on that one.

Andre:
And yeah, man, just really trying to learn and grow, and build my businesses, networking with guys like you, you know what I mean? Now, starting to come to events like the BiggerPockets Conference, things like that. I spend a lot of time where I’m doing a lot of investing in myself. That’s how I like hanging out, and just the things I like to do as far as hobbies now.

David:
Awesome. Okay. This is the money question, in my opinion. What do you think sets apart successful investors from those who give up, fail, or never do get started?

Andre:
I think that’s it, they don’t ever fail, give up and they get started. You know what I mean? I think that’s the answer, and that’s in the question. People like myself, I never let my circumstances stop me. I never let things that I’ve gone through, any of the hurdles, just… you know what I mean, any of the hard times really hinder me from achieving whatever goals that I wanted to achieve. Yeah, they might have slowed me down. Yeah, I might have had to take a break and maybe I had to pivot, reevaluate some things, but the thing is like, we just don’t give up. I think that’s the main thing that separates any winner from anybody that’s not successful. We don’t give up. Keep going, and we push through until we get the results that we want.

Henry:
Awesome. I love it, man. So tell us where people can find out more about you.

Andre:
Across all social media. I’m at Renaissance 125, R-E-N-A-I-S-S-A-N-C-E 125. I’m sure that’s going to be a hard spell for a lot of people, so I have to spell that out sometimes.

Henry:
Dude, that is one of those words for me. Everybody has that word that they can’t. No matter how many times they type it, they can’t spell it right? That’s the one, I got to Google it every time.

Andre:
Yeah. So that’s me across all platforms, Twitter, Instagram, YouTube, Facebook, that’s where. And on a lot of different podcasts, you can find me on a BiggerPockets podcast, and a lot of different podcasts across the country. I’ve been doing a lot of speaking, and I’m just doing a lot of events and stuff like that now. Also, my website is www.therenaissanceu.com. I also have courses. I have a navigating NACA course where I teach the process, and the tools, and all of the stuff that I use to make it through the NACA program successfully. How I evaluated my deals through NACA, all of that stuff.

Andre:
I also have an introduction to real estate course that teaches people all of the different ways to go out and attain real estate. How to evaluate different neighborhoods, how to understand when the market’s going up or down. Just understand when is a good deal or a bad deal, a lot of different things. It’s over 30 video modules, over four hours worth content. Again, I have my merch, mindset matters where I’m just helping spread awareness about just mindset. It’s not about your circumstances, it’s more so about your mindset, man. And also have my book, man, Renaissance is Five Step Guide on Getting Your Sh*t Together, which is like I say, the blueprint to my life and how I really got on this journey and really got my life together. Just looking to do a lot more speaking, and a lot more helping, and a lot more mentoring, man. And I appreciate you guys for having me on, and allowing me to, you know what I mean, tell my story, get my word out there, and just tell people about my brand.

Henry:
Thank you, Mr. Andre.

David:
One of my favorite parts about your story is that if you wouldn’t have had all that pain, and frustration and carrot being dangled in front of you for so long, you literally wouldn’t have a story to put in a book that people would want to read. You wouldn’t have anything to say in a podcast like this. So I’m looking back and it always makes sense, right, when you’re looking back at why God brought you through what he did, you’re like, “Oh, I get it now.” At the time, like you said, you wanted to fight a lot of the time. Like, why are you doing this to me? Why? But it does make sense. So for everybody in that same situation, hang on, keep doing your best, keep pushing that boulder. It’s going to get better.

David:
Thank you, Andre. Henry, where can people find out more about you?

Henry:
You can find me on Instagram. I’m @thehenrywashington on Instagram.

David:
It’s the, and not the… It’s not like The Ohio State University?

Henry:
Yeah. I mean, I just, I try to play it down a little bit, David. I don’t want people… I’m not…

David:
You don’t want to just completely overwhelm people with a splendor of who Henry Washington is. Very humble. All right. Well thank you. This is David Greene. For Henry, never met a boulder he couldn’t push, Washington. Signing off.

David:
This is the BiggerPockets Podcast show 589. What I look for is me. So I think I’m a good realtor because I buy a lot of real estate. So if you come to me and you say, David, I want to buy real estate, I’m not looking it from a perspective of a salesperson, I’m looking at it from the perspective of someone who wants to help build your wealth. I like to work with other realtors who also own real estate and who like real estate. They don’t have to be a realtor, they want to be a realtor.
This is David Greene, your host of the BiggerPockets Real Estate Podcast, here today with my co-host Rob Robuilt Abasolo. How’s it going today, Rob?

Rob:
Oh, it’s going good, man. Just in the throws of putting together offers and negotiations and re-negotiations and triple re-negotiations. But I think we’re getting to some closure here, which I’m really excited to share with the audience at home.

David:
Yes. If I’m going to use a jujutsu analogy, which I do too much of already, we’ve got our joke sunk in and we’re just slowly, slowly tightening it. And this deal is about to submit to our plan. So on today’s show, Rob and I are going to walk you through the 10 steps to make sure that you get a property under contract in 2022.
So we actually have a rhythm, a pattern, a plan, if you will, of what we do to make sure we are moving forward on our plan of getting a property under contract. And it’s only been, what do you think, Rob? Like a month or two? How long do you think we’ve been going at it for?

Rob:
Eight weeks at this point. In six months, it’ll be eight months.

David:
There you go. But only two months of actual focus.

Rob:
Two months or so.

David:
Yeah. Like looking to get a deal. And we’re narrowing in on the one that we wanted the very most, that we think is going to be awesome, that we’re super excited about. We wanted to make a show that shared what we did to get to this point, right? Everyone always says, here’s the deal I got. They hold it up there and they wave it in front of you and they say, look, how cool I am. I got a good deal. And then you listen to you go, oh, I wish I could get a good deal, but I’m just not as good as them. And I kind of suck. So that’s what we’re trying to avoid.
Here’s all the work that went into the after picture, right? No one shows you that. They just show you what the six pack looks like. Well, this is what the actual workout routine looked like to get to have a six pack like Rob. So I’m very excited to be able to bring this to people today. This is a very practical show. If you write down these 10 steps and you and your partner or you yourself start executing them, you will get to a point where your offer is accepted as well.

Rob:
Yeah. I think we talked about this on a previous show. Or, hey, maybe it’s in a show that’s coming after this one. But consistency is the number one most important factor to success, I think. Especially in this game, in this market, so many people that come to me and they’re like, is it too late? Is it oversaturated? Is it so competitive? What do I do?
And I’ve heard you just say it time and time again that you don’t find good deals. You make good deals. And that’s kind of this deal that we’ve been working through. It, really on the surface, wasn’t what we wanted, but we started laying out our terms. We’ve been very consistent about chipping away at the other side. And I think now, after consistency and some tenacity, now we’re finally getting to a part where we’re seeing progress. And it’s by following this system that we’ve just been doing for years now, right?

David:
Tenasistency. The word that Rob created on today’s podcast.

Rob:
Hey, you heard it here first. It’s actually going to be the first book that I write tenasistency.

David:
I like it. Brandon used to make up words. And now Rob is doing the same thing. So we are really excited to bring this show to you, especially if you’re someone who knows that you want to take action, you just don’t know what that should look like. This is what it should look like. For today’s quick tip it’s going to be, check out BiggerPockets agent finder. If you go to the website, you can find their agent finder service, which will help find you a real estate agent that is familiar with the BiggerPockets way through the actual site.
When you are looking for an area that you want to invest in, like Rob and I did, you’re going to need to find an agent. Now we describe on the show how we found ours, but you can also use BiggerPockets to do it even easier. So I highly recommend that you check out their agent finder system and find an agent who understands investing in your needs today.

Rob:
I wish I would’ve heard that quick tip first before all the work that I went through. But duly noted, David.

David:
Yeah. It’s funny how I say that on the podcast, but I didn’t say it to you when I was asking you to go do something.

Rob:
I want people to take out their notepad and I want them to write down, verbatim, everything we say. No. Create your system. Honestly, I think that’s the real important message from today. Go in, have a system, stick to it. the more you can be disciplined about not straying away from your system, I think the more results you’re going to achieve in the long run in your portfolio.

David:
I agree. And make sure that you’re okay with tweaking that system. So whatever you create in the beginning is not going to be what you have in the end. It sort of evolves like everything else in life. So you don’t need to have it perfect to get started, but you do need to have something.

Rob:
Something yeah. That’s right.

David:
All right. Let’s get into the show. Mr. Abu Solo. So nice to have you joining me today. How are you?

Rob:
It’s a Wednesday. I don’t know when this is going to be released, but it’s always a good day here whenever I’m recording a BiggerPockets Podcast.

David:
Yeah. And in addition to it being a good day because of the podcast, we also have some potentially good news where you and I are very close to getting something in contract. You want to share a little bit about the background of where we are on this property we’re trying to buy?

Rob:
We’ve really been working this one. I probably, in most other circumstances, would’ve not necessarily called it quits, but no, I don’t know, maybe I would’ve because it was kind of one of things where a lot of convoluted communication going on and disgruntled sellers with offers and everything like that.
So you and I approached a property that was 3.4 million in Arizona. And we put an offer in, not too much under, but at around 3.25 million, because it been sitting on the market for six months I think. And they effectively told us to kick rocks at first. You came in, you swooped in with an all-star strategy that we’ll get into. It really worked out to the T. And now we’re just kind of waiting to hear back on some of those final details. So we won’t count our chickens yet, but it’s looking pretty good.

David:
Yeah. And what we really want to do in today’s show is we sort of want to share with everyone what the rhythm looks like of how we approached buying a property. Because I think this will work for anybody. Doesn’t have to be with a partner, but it doesn’t involve account ability, predictability structure, and a plan. That’s what we’re trying to give you, is if you look at the whole idea of being a real estate investor as a human body, this is a skeleton, this is what everything else sort of hangs off of.
So we have 10 parts to this plan. And the first is that we have to determine the criteria. So this could include finding an asset class, finding the area, want to invest in, and then picking a price point. Now, in different episodes, we’ve talked about those things. So we don’t want to get into them too deep, but I will share that our plan was that we wanted a short-term rental in a high appreciating market that we thought was going to be friendly towards short-term rentals. And we wanted to get into a price point that we felt would help remove some of the competition.
So we didn’t want to be chasing after $400,000 houses because so many other people are there. We basically wanted to get into a price point where we felt like there’s not a lot of other investors that are in the same arena as us because we frankly didn’t want the competition. Is it anything you want to add to that Rob that you can think of?

Rob:
Well, Yeah. We also wanted to just find a deal that was worth our time.

David:
Yes.

Rob:
And that’s really important because we’ve batted around dozens of properties at this point.

David:
Such a good point.

Rob:
And you’ll shoot something down, I’ll shoot something down because we’re just like, this doesn’t excite me for this reason. So, honestly, the best learning experience here is getting into a partnership with somebody that you haven’t partnered up with before. And what you and I have really done is we’ve explained each other, our respective philosophies in investing in why we do things a certain way. That way, whenever the partner shoots something down, we can respect that decision because we understand where they’re coming from.
So it’s been a really, really fun process. I’ve done partnerships now, Oh, I don’t know, seven, eight times they’ve all worked out. I think if I remember correctly, you’ve typically shied away from partnerships, is that right or-

David:
That’s true.

Rob:
… you haven’t done as many?

David:
Yeah.

Rob:
You want to talk about why, or maybe we can hold off into the very end? We don’t want to spoil all the good stuff yet. Yeah.

David:
I’ll give you the gist and then we can get into at the end. The main reason I haven’t got into partnerships is that most of the time, the assumption is we’re cutting the work in half, but you actually end up doubling the work. Because what happens is everyone ends up doing their job and then they have to explain to everybody else why they did that job and sort of satisfy the curiosity. So it ends up being more time.
And a lot of the times we get into partnerships because we’re afraid of doing it on our own, which is a terrible reason. You actually want to get into a partnership because you know you have a very good skillset in one area, which you wouldn’t have developed if you were afraid. You’ve already, at that point that you’ve developed a skillset, taken action to a certain point and your partner has to.
And the last is that the time element, like what you said, there has to be enough meat on the bone in this deal to justify all the work we’re putting in this partnership, which is why I’ve only done it on multifamily properties that were bigger. I never did it on single family homes. I could get into the more later, but do you have any questions after hearing that?

Rob:
I knew that. I was just throwing you a softball, but I think that makes a lot of sense. Because, honestly, I’ve done so many partnerships now. And one thing is when you partner up with so many people, it’s very tough to kind of go big or go home with every single partner. And so if you’re just going to partner with somebody on just one house, you’re right, man, there’s a lot of education, a lot of handholding if the other person is new to it.
And then if you’ll never actually end up doing any other partnering or any other houses, flipping or anything like that, then it was just a lot of education for one deal. Whereas you and I are trying to cultivate something a little bit bigger. We’re trying to go pretty big here. And so that’s why we’ve sort of been really taken our time with really understanding our viewpoints and everything like so.

David:
Very good point. Now, point number two, out of our 10 steps here, has to do with our viewpoint that we’re forming. So Rob and I look at every deal that we evaluate through a matrix of five different areas. The first is the revenue that it creates or the return on our investments. So that’s usually the first thing we look at is, hey, would this property cash flow? And how much would it cash flow?
The next thing we look at is the equity. And that’s either, are we getting it at a really good price, so there’s equity built in, or is this an area where we can reasonably expect appreciation to be happening and why? That’s where we start.
The third is we look at debt, like how can we use debt on this property? Is debt a benefit to us? Rob and I believe that in this environment borrowing more money, especially if it’s at a rate lower than inflation, is a good strategy. If you’re a Dave Ramsey fan, you. Well, you’re probably not listening to us talk about real estate using debt if you’re a Dave Ramsey fan. So I don’t worry about that, but we look at debt when it’s used wisely and prudently. That’s good thing.
The next thing we look at is time. Like, would this property take all of our time? Even if the revenue looks great, that revenue stops looking great if it’s a 30-hour a week job to manage this property, to get that 60% ROI. And then the last thing is risk. Like how much risk are we taking on in ordered buy this deal?
So every time we have a property that we’re going to analyze, we look at it through these five, I call them prisms, right? Imagine holding glasses up to your face and you’re looking through those glasses at the property, what are you seeing when you put on that different lens? Is there anything you want to add on to that, Rob?

Rob:
I mean, for the most part, I think kind of in the price point that we’re in, risk is sort of the big one, for me personally, because most of actual properties that I’ve purchased I would say cost between, well, $165,000 from my tiny house, all the way up to $624,000 for my house in LA.
So now we’re looking at properties that are at a minimum, two million, three million. And that right there places a whole new level of skepticism and critical thinking and scrutiny for every single deal. But the strategies that we’ve learned are whole career, they still apply the same. You got to be willing to take a risk every so often. And I have my whole experience, I have my whole life here of always being strategic to rely on and really take a bet on myself that I can figure anything out. If I have a little bit of confidence in myself, there’s never been a time where I didn’t succeed at what I do in this space.
And I know you probably feel the same way. And so when you really just kind of walk yourself the back from all that, it’s not as risky as-

David:
It feels that way.

Rob:
It is, obviously, but it does feel that way. It does. Yeah.

David:
Now it’s important to highlight when you’re doing this, as Rob and I do it, when you put on your risk goggles and you look at the deal through the prism of risk, you’re going to see risk. What you’re not doing is just looking at all your deals with risk goggles and saying, oh, I found risk. Don’t do it. Risk is going to be there.
Instead, what you’re doing is you’re looking at where the risk is and determining, do I have a plan that will mitigate if something goes wrong in that area? That’s what’s key about this whole thing. So you can imagine looking at a three and a half million dollar residential property is going to involve some significant areas of risk. We’re going to be renting out for a lot of money per night. That could change. What if we can’t get, whatever, 1500, $2,000 a night for this property?
You’re going to have a lot more expenses associated with an estate this big. You are going to have the fact that if there is a decrease in the market, these properties, they’d be very hard to sell. People still need to buy starter homes even when the market drops. They don’t have to buy luxury homes.
So what we do is we sit here and we say, all right, here’s where we have risk. How are we going to mitigate it? What is our plan? We come up with a contingency for every area that we can see when we put on our risk goggles. And there’s very practical things, right? We’re going to be borrowing some money to buy this place and to fix it up. Well, we’re going to keep at ridiculously large amount of money in reserves so that even something goes wrong, we have like three years of reserve set aside that we can pay somebody back.
That is an example of how we look at risk. We see where it is, but we put a plan in place. We keep moving forward. And you could do that for everything. If you’ve got your ROI goggles on, how can I improve the ROI on this property? Is there a place where I can make it go higher? As far as the appreciation and equity, there’s no appreciation here. Well, that means that I need to get this property with more equity built in. Or, there’s no equity in this deal, we’re going to be paying at the top of the market. Well, is the market continuing to move up? Because that can grow equity, right?
It’s not is it or isn’t it there? It’s, where is it missing and what is our plan for how we’re going to improve it? And so that’s just, what I wanted to highlight is we look at every deal through these lenses, but they’re is no perfect deal. Every deal will have something. Or in every one of these areas will have something that you don’t like. Your job as the investor’s to figure that out. Anything you want to add before move on to number three?

Rob:
Yeah. I just want to talk about a little bit of the discipline here that just between you and I, what actually we do on a weekly basis. Because we are pretty consistent. I don’t think we’ve missed a week yet, but we basically meet every single week. Same time unless there’s something comes up and we have to just move it, move it to the next day or something like that.
But we meet every single week. Most of the time, I would say 80% of the time or maybe 90% of the time, we Zoom, which I think is important to me. Well, first of all, I’m ADHD. So when I’m on the phone, I just know that it’s going to be so much easier for me to walk around and look at the dust on my door frame or on my fan or start making my bed. I always make the bed when I’m on the phone. I’ll remake it. I’ll take the sheets off and make it several times.
So being on zoom really forces me to be there, be in the moment, give my time to… Because our time is valuable. And so you want to respect your partner’s time and everything like that. And we’ve been really consistent about that. And I think that has really, even if we don’t have something to present, we’re still excited to meet, I think.

David:
Yeah. So that for exist to number three, which is that we meet weekly to review what we got going on. And this is incredibly important. I really, really want to just pound this point. If you are an investor and you’re committed to getting your first deal, maybe you got Brandon Turner’s Intention Journal, maybe you attended a webinar where we talked about how to get your first property, or maybe you just heard on this podcast, you said, I want to do this.
My philosophy is, if it is not in my calendar, it does not exist. If I’m going to go have dinner at my mom’s house or I’m going to my niece’s birthday party, it has to be in my calendar. If I don’t put it in my calendar, it doesn’t exist and there’s no way I can guarantee I’m going to be there. And if I do put it in my calendar, I can’t schedule anything else for that time. That’s what I love about it, is I block off the big things first and everything else goes around it.
So you not going to have success finding a property if you’re new and you’re not used to this if you don’t block time off to do the things that you need to do. And Rob and I block a time off every week where we’re going to meet and review the properties that we are considering.
Now, Rob, I just want to thank you for being incredibly gracious because the reason we don’t meet a hundred percent of time on Zoom is a hundred percent David. It’s me every time that say, ah, I’m stuck, I’m not going to make it back to the office. Can we do this on phone? And you’re very cool about that. But it is important that you do the meeting in a structured way, right? So we like ours on Zoom, because we can share our screens, we can go over the properties that we’re reviewing.
Now what’s happening is Rob and his partner are showing me the properties that they’ve looked at throughout the week that they think they have the best chance with and saying, hey David, here’s what we like about them. Here’s what we’re not sure about. Here’s what our thinking is. What’s your opinion? And then I will weigh in with my perspective based on the experience that I have with real estate. And they’ll learn from what I’m thinking and I’ll learn from what they’re thinking.
And what we end up coming up with is a list of questions on every property. Now, some of them we dismiss, right? Maybe during this, we realized they’re an HOA that doesn’t allow for short-term rentals. That’s happened a few times where they only let you do it six months out of the year. Those get thrown out. Other ones, we say, yeah, this would work, but we need to figure out these things.
And in that meeting is when we determine what we would need to know. This is why it’s so important you have the meeting. So we have our list of properties. We then get our list of questions. Now we’ve got our work set out for the next week. And that would lead us to step number four, which is delegating tasks. Rob will say, hey David, here’s what we need from you. Can your lending team solve this problem? Can you tell me what you think? Do you know a realtor in this area that could help us answer this question.
And I’ll do the same thing. I’ll say, Rob, can you look this one up on AirDNA and tell me what you think. Can you look at a comp that would show maybe the rents will be higher than what AirDNA is giving us. We will delegate the task that we have on an individual property. And then that’s what we’ll work at for the following week until we meet again. And anything you want to add there, Rob?

Rob:
No, no. I think we can move into number five because this really sets the tone and the communication for the entire week. And number five here is, communicate throughout the week for follow up. So this would be text messages, emails, voice notes. I actually really like voice notes. We send a lot of those. The only thing I don’t like about them is, when you send them, if you don’t hit, keep, they erase.

David:
Yes.

Rob:
And all of the golden nuggets that you send me, they’re gone. They’re gone after I listen to it one time. But it’s really nice because we may not be in a scenario where we can take a phone call. I’ve got two kids and all that. You might be in meetings and everything like that. But we can relay some pretty nuanced things that are very hard to relay via text message. We send emails. This is where we’re kind of introducing each other. Like if you’re introducing me to a realtor that you’re connected with, or if you’re introducing me to someone on your lending team, this is where I can then pick up the communication and drive that ball forward a bit.

David:
Yeah. That’s important. So if you’re working with a partner like what we just mentioned in step number four, when we’re delegating tasks, okay, Rob, you’re going to work on this and I’m going to work on this. You don’t want to just get and then say, oh, I don’t know what to do. I’ll wait until the end of the week and we’ll discuss it. You just lost five days of possible productivity.
Instead, Rob’s going to say, hey, this is what they’re saying. What do you think? Or I’m going to be like, hey, I’m stuck on it. This is worth it. Can you look this part out for me? I need help accomplishing my part and you can help me with it. And that’s when this communication happens.
The voice notes, they’re powerful. It sounds simple, but there’s times when you’ve received a text that was like three feet long and you just think I’m not even going to read that. That’s something that should have been a voice note.

Rob:
My entire inbox. I’m like, no.

David:
Exactly right. And then there’s other times where you get that phone call and you’re like, I just don’t have time to take this call. So the voice note is the perfect medium between the two. And if you have a partner, this is something that you need to be working on yourself. If you’re meeting every week with yourself to review where you’re at on every property, make sure you’re working throughout the week to get the answers to the questions that you needed so that when the week comes, you actually have information to be able to move forward. This is the structure that’s so important, is we’re treating it sort of like it’s a job. Not just like it’s a hobby.

Rob:
I’d like to squash a bug here. Just something that I’ve really been wondering since the day I met you. And I just want confirmation on if this is an urban legend or if it’s true. When I first met you, when I did the BiggerPockets Podcast like six months ago, I was like, oh yeah, I’ll shoot you a text. And then you’re like, man, I’ve got 1200 unread texts right now. I was curious, do you actually have 1200 texts? Because I think about that every single time I text you.

David:
It’s more now. In fact, what happened is I need a new iPhone because you hit a certain point where it stops displaying the number on little text thing. Like it doesn’t even tell you how many unread text messages you have. I hit that. So that’s one of the things I say to human beings. If you take the same road everybody else has taken, you’re probably not going to get there, right? Like, Rob, text me. And if you don’t hear back, you don’t take it personal. You’re like, all right, I need to email his assistant Krista and get time on David’s calendar. And then boom, you’ve got all my attention.
And I use that hack all the time. If I’m trying to get ahold of somebody who’s over 30 years old and they’re really busy, I send them a message on Facebook Messenger because nobody else uses that other than 30-year-olds or older. Right? So if you look at my Facebook Messenger, I have like two or three unread messages. If you look at my text, I have a million. So that’s just a little a quick tip for everybody there, is find the road most traveled.

Rob:
Quick tip. Okay. It’s good to know. All right. Well, I always send the gentle… Just I write bump anytime I hear back bump. Just a little friendly reminder.

David:
Yeah. Everybody who’s listening. If you’re in my life and you text me, just bump me all the time. I don’t get upset about it. I’m never going to say, why are you bumping me? I’m like, I know I need bumps. I need to get bumped all over the place. It’s really hard to get ahold of me. And I’m aware of that. Thank you, Rob, for your patience there.

Rob:
Go to the day. I need to get bumped everywhere. All right, cool. So moving on to number six. This one is receiving information from your realtor. This is really… Man, this is big, because we get so amped up and step five here, texting, I’ll text you bangers all week and be like, dude, check out this house. It’s going to gross $250,000. And then we get all excited and we’re like, oh, what if we do like a hot tub and oh, a golf card, and a basketball court. And we get all excited. But it’s kind of one of those things where I’m usually better about this, but on some of these luxury properties, one cannot help but get excited at certain properties, because they’re like dream properties. And then you talk to your realtor and your realtor’s like, oh yeah, that isn’t an HOA. And they will not allow short-term rentals. And you’re like, no, I spent three hours counting this out. Happens all the time.

David:
Everyone does this. This is where experience has led me to sort of being able to direct in these situations better than someone who’s not. Experienced by my own properties. And frankly, the thousands of houses that we’ve helped our clients buy, I had to learn how to do the same thing. You don’t want to get too emotionally connected or put too much time into a property that you don’t have a good chance of getting.
So when we first look at them, it’s easy to just want to run as far down the path as you can get, even in your mind of, oh, I can do this and I can do this. And I love it. And I have to have it. And as a realtor, I’ve learned, if that house has been on the market for two days, don’t do that. There’s 30 other people that are doing the same thing. And you know what? It kind of goes down that don’t take the road that everyone else is taking, right? Like if you’re trying to text me, that’s not the best method. You don’t want to look at houses that everybody is looking at, especially if you’re going to put all that time into it.
So what’s important is that you identify, is this a property that would work for what we want? You go through your matrix, which for us is these five prisms that we look at. And then we say, do we have a chance of getting it? So oftentimes, the first step is having our realtor call the listing agent and saying, how many offers do you have and where do we actually have to be? And if the listing agent plays this dumb game of, I don’t know, highest and best, that’s like one of my pet peeves is this little parrot on the shoulder of a pirate that just says highest and best, and they call themselves a realtor. That is not selling a house.
If you’re a listing agent doing that, they are not earning you money. They need to be aggressively trying to get a good offer from the other side. But if we get that and they’re like, oh yeah, they just said highest and best And they just don’t really care, we’re probably not going to go after that property. Okay. Let everybody else have it. That’s why we went after the one we’re talking about now that’d been on market 190 days or whatever it was because they weren’t getting a ton of action and we knew that we had a better chance of putting time into it. So that’s huge.

Rob:
Well, I’ve actually got a new policy now. Whenever a realtor says highest and best, I actually submit lowest and worst. So I’ll submit an offer for $2 and see if it’s a-

David:
Put that in your pipe and smoke it.

Rob:
Highest and best.

David:
That’s really good. So a lot of what the conversation involves around in the beginning is something that actually should be happening in the due diligence phase. Okay? That’s why you have an inspection period. And it’s just it’s easy to not be disciplined and to do all that up front and call it work. And this is how you get your heart broke, right? Like you try to date too many people that aren’t interested in you, you’re just going to get tired of the rejection and stop dating and become like a cat person. Right?
That’s not what we want to do. We only want to actually put our efforts of pursuing the properties that we have a reasonable chance of getting. So part of this is experience, but the other part of this is just working the system that we have, where we know, all right, realtor, we need you to go find out, can we get the property? What price would realistically get it at? They’ll bring that information back to us. We will then kick in and say, okay, at that price, would this work? How much equity? We look at it through the prism. How much equity be in there? How much risk would be in there? How much revenue would we expect? And if they have nothing, then we go look for a different property.

Rob:
Well, yeah. Let’s talk about that a little bit. Because there’s obviously the communication… Well, not just the communication, but the actual selection of your realtor-

David:
Yes.

Rob:
… is so important. So can we talk about what do we look for in a realtor? What kind of questions do we ask? How do we even choose ours? I would like to tell that story in a second.

David:
Yeah. So I’ll start and then I’ll let you tell our specific story. I’ll start with a general. What I look for is me. So I think I’m a good realtor because I buy a lot of real estate. So if you come to me and you say, David, I want to buy real estate, I’m not looking at a firm perspective of a salesperson. I’m looking at it from the perspective of someone who wants to help build your wealth.
I like to work with other realtors who also own real estate and who like real estate. They don’t have to be a realtor, they want to be a realtor. Now, that means they’re going to be picky about their clients. So you actually have to be on your A game to get them to work with you. And a lot of people don’t like that. They want the realtor that answers their call right away, that they can boss around. I don’t like that. If I can boss around my realtor and I haven’t proven why I should, they’re probably not that great.
So what I tend to look for when I’m going into a market is what is our strategy. That’s why the number one thing that we talked about was determine your criteria, what asset class, what area, and what price point, because you want a realtor who works in that area, owns in that area, sells in that price point, and understands that asset class. That’s actually what you’re going to look for.
We kind of talked about that, Rob. And I connected you with a couple people. And then with this specific issue, we had a bunch of questions and I said, hey, we need to find a person that is an expert in this asset class. Why don’t you call the brokerages in the area and ask who their luxury specialist is, and then find out if has these questions. And I shouldn’t have been surprised. You completely hit it out of the park on your first try. You came back with a rock star. So tell me what you actually did to make that happen.

Rob:
All right, man. So I woke up. I went out to my front door. I took out my yellow pages. I found it. I was like, all right. And I flipped all the way over to the S’s and found Sotheby’s. I mean, we all know that Sotheby’s is obvious one of the more lucks places out there. And so I called him up. And it was like the receptionist of the place. And I was like, listen here, bub, Robuilt and David Greene are looking for a luxury house. I was like, excuse me, do you have anybody that might be able to help us please?
And so they were asking and I was like, look, it’s really important to me that they know short-term rentals because I already know short term rentals. And so if they don’t know, I’m going to know that they don’t know. And so she was like, okay, okay, great. She actually ended up patching me through to two people. They were like partners. I think they partner up on selling houses and everything like that.
And I talked to the guy. He was super nice. I mean, really, really nice. And I started kind of interrogating him a bit and being, well, what does short_term rental mean to you? And we kind of went back and forth. And it was pretty clear that it wasn’t his wheelhouse, but that’s okay. We talked it through and I was like, hey man, honestly, I appreciate your time, but I need someone that can help me accurately estimate how much we’re going to gross on a property like this because it’s $3 million.
And he is like what, you know what? I know a guy. And I was like, you do? He’s like, I know a guy. He doesn’t work here. He actually works at a competing brokerage. And he’s really great. This guy knows everything there is to know about short-term rentals. He owns five luxury short-term rentals. He owns a property management company that manages 70. This is going to be the guy. And I was like, hey, I just want to say, thank you, because you just gave over a $3 million lead to a competitor. And I know he’s your friend, but that’s super nice of you to do.
And that’s what he did. And I called the guy. I talked to this new realtor. And he was schooling me, man. He knew everything there was to know about luxury. And his insight throughout this whole process has been so helpful for us because now I can run my comps and I can go back to him and say, hey, am I off here? I have calculated $47,559 and 49 cents. Is that right? And he’s like, yeah, that’s pretty close. Or, actually in this neighborhood, it’s a off because of this, this, and this, and this.
And so there’s a little bit of a synergy there that I get to work with. And it wasn’t necessarily easy to get to that realtor. There was a little bit of work involved, but now it’s going to dramatically affect us moving forward because now we got the best of the best.

David:
And that perfectly highlights step number six, receive information from your realtor. If you know your asset class, your area, and your price point, you can go to the realtor and say, what do you think we need to do to get these properties? What should be be aware from? And that’s some of the stuff he provided, because he owns these things.
One of the concerns I had was, we’re being told this is the revenue that’s going to get in tonight. That seems really high. How can we verify that? Well, he happens to own properties and he actually said you’re probably going to get more than that. You’re more than okay on this one. Avoid these ones. So we got information from the realtor that helped us to develop the strategy that we use to move forward.
And number seven, the next step would be communicating what we need to that realtor. So that’s where you say, here’s what I want you to look at up. Here’s a question that we’re stuck with. Can you ask someone else in your office if they know what to do in these situations. That is also very important, is that after your weekly meeting and the tasks are delegated, that you go communicate with your agent and say, here’s what I need to know. Is that something you can help me with? Or is that not something you can help me with very clearly?

Rob:
Well, we also want them to go in and sort of suss the situation, if you will. Right? So if this property’s been sitting for 1, 2, 3, 4, 5, 6, 7 months, we kind of want to know why, and we want to know if the sellers are at all motivated. Why hasn’t it sold? Has it fallen in escrow or has it fallen out of escrow?
And go in and do a little bit of recon. Run some recon on the property. Get back to us and let us know why. And usually, they’ll go in and they’ll talk to the listing agent. And that property that’s been on the market for six months, that listing agent might say, oh yeah, you could pay. By the way, the seller’s super motivated. Between you and I, let’s get this done. That’s not exactly how it worked out for us, but that’s really important to have. A realtor that can play the game of bit. I think that’s going to work out in your favor whenever you’re really going back and forth in negotiations.

David:
Yeah. And I’ll probably highlight here before we move on that when you’re telling your realtor here’s what we need, a big piece of it is telling them to call the listing agent and find out if we wrote an offer today at this price, would it be taken? Just don’t waste your time in a hot market if there’s 14 other people that want that house and you’re insistent on having very strict criteria. It’s great to have strict criteria. That’s why the first step, is you should figure it out. But if the property isn’t going to work for that, don’t try to make it work. Just move on from it and find a house or a property where it’s still going to work for you and they’re more motivated.

Rob:
Yeah. It’s been really interesting because we tend to only look at properties that have been listed for a while because I we’re just so tired of competing. Why compete with a hundred people when we can go find the diamond in the rough that’s been listed for a while and see if we can make that one work.
And for the most part, I think most of our options have been things that have been sent for a bit at that higher price point, which is really great for us because we see where we can add value to the property. And we know that we can maybe come in a little bit lower. And if we can’t come in a little bit lower, maybe we can start asking for things like seller credits.

David:
That’s exactly right. Now, I use this a strategy on the David Greene team with all of our clients, because I tell people, stop chasing the house that’s been on the market for two or three days. You’re going to get your heart broke. You’re going to grossly go over asking price. But of course it’s tempting. But it says it’s only $800,000 on Zillow. Why can’t I get it for that price, go work a miracle?
But this is the strategy that I use myself. We’re looking at one here that had been on the market 190 days. I have an offer out on one yesterday that was sitting on the market at 2.4 and sat there until it expired. And we got a hold of the sellers off market. And I’m now trying to put a deal together with them because their motivation level is different after their house sat and expired.
I only go after properties that I think the seller wants to sell it just as much as I want to buy it. If I want to buy it more than they want to sell it, they’re going to get a lot of other buyers and they’re going to sell it for more. So be disciplined in how much time you spend on a property. The first thing you should be looking at after it matches your criteria, which for us are those five things, is do I have a chance of getting it? If the answer is no, don’t put any more time into it. Wait until it falls off the market or it sits there for longer. If the answer is yes, then you can dig in with a little bit more due diligence.

Rob:
Yeah. If you’re excited about a property, just a rule of thumb. If you see a property, you pop up on Zillow and you’re super excited at how beautiful it is, and you’re even more excited at the price point, you’re probably not going to snag it for that price point. It’s pretty rare.

David:
All right. Step number eight is actually writing an offer. So we’re going to do a show in the future with a lot more detail about this, but just let’s focus on this deal that you and I are working on that we’re probably going to have in contract today. Can you share a little bit about the offer that we wrote, what we asked for and why?

Rob:
Yeah. So I alluded to a little bit at the beginning of the show, but this house was on the market for, I think just under six months by a couple days. It was listed at 3.4 and we made an offer with a couple of interesting contingencies. So we came in at 3.25 million, so about $150,000 less than asking. But then we also at asked for a $75,000 credit to be applied toward closing costs and other things like that.
So really when you start mapping it out, the offer is closer to 3.175 million. And then we also ask for all the furnishings to be included as well. They weren’t necessarily all my favorite furnishings, not necessarily things that I would choose, but they were pretty good. They were good enough for this property. And I was like, I’m happy with 90% of this stuff.
And so when you factor that in, that stuff could be anywhere from 35 to $50,000. And that’s really important for us, especially in this short-term game where cash-on-cash is a really important metric in our matrix, right? And so if we can save $75,000 in closing costs and we can save $50,000 on furniture, we’ve just saved over $100,000 dollars in cash. And so our cash-on-cash, our ROI really starts going through the roof.
Was there anything else on offer that… Oh. Yeah. And then we also asked for a 60-day close,

David:
A 60-day close because we wanted more time to be able to raise money. And then we asked for a home warranty that would cover anything that might break in the property. But I want to highlight here, is that price is not the only thing that matters. Most people get stuck on price. They think they won or they lost based on the price.
This property, from what we’ve seen so far, we have to do inspections still, appears to be turnkey. We’re not going to have to spend hardly any money in fixing this thing up. And now that we’ve taken out our closing costs and we’re actually able to buy down our rate with that 75,000 credit and get it to be a cheaper monthly payment, and we don’t have to furnish it, even if we paid more than someone else, our cash-on-cash return would be much higher in theirs.And we would have more capital to buy another house.
That’s the thing, is we structure the deals so that we have minimal money in it while still keeping incredibly big reserves so that it’s not risky. And getting to borrow the majority of the money at a lower interest rate. Now, people get really good deals on properties, but they need a ton of work. And then they dump a bunch of money into it. And then they got to borrow money from somebody else, like a hard money lender at 12%.
And so even though the price was better, what they actually end up spending per month ends up higher. So it’s not only about the price. And that was one of the ways that we’re able to work this deal out to work for us, where the other people who were looking at that property probably just got stuck on the price and couldn’t see past it.

Rob:
Yeah. Literally, you and me, just with the credit and the furniture, you get to keep $60,000 in your pocket, I get to keep $60,000 in my pocket. Not only that buying that rate down, that’s not necessarily a big deal on a $300,000 house, but on a $3.25 million house, buying down a half a percentage point, that’s a pretty significant difference, not just in the monthly, but in the actual interest that we’re paying on that property over time, over the life of that loan.

David:
That’s exactly right. So that’s one strategy that we use on the David Greene team that we brought into this one, was a lot of the time, if you got a deal with a seller and they’re willing to take 500 grand, it might be better to give them 520 with a $20,000 closing cost credit that you can use to cover your closing costs us, to fix the house up, to buy down your rate. Because when money is cheap like this, borrowing more of it is less expensive than when rates are higher.
Another thing moving on to number nine actually offers strategies like our strategy with this deal is when we first submitted that offer, they said, no. They told us to go… You said kick rocks? I think maybe pound sand might be more appropriate because it’s in the desert. Right? Surrounded sand in Scottsdale.
So they told us to go pound sand. And we said, that’s fine. This is normal. Right? My experience as an agent, I understood that the sellers were in an emotional place. They received our offer as kicking the pants. Like this to them was like an insult. That it was lower. And if your house has been on the market for six months and it’s not selling, you have some unrealistic expectations. They should have already dropped the price.
So here’s what we said to the realtor, ignore them for a couple days, then we want you to go back to them. And this is what I would do if I was the buyer’s agent representing us, is I would say, hey, my clients are going to buy this house if I tell them to buy it. They rely on what I’m saying. They don’t really understand whether they should buy this one or another one. They told me to go find them a deal that works for their numbers. And that’s my job.
So if I tell them that this is the one that’s going to work for their numbers, they’re going to do it. But the numbers need to be right here. Listing agent, what do we have to do to make this work? And we are going to put the onus on that agent to go work on her own clients and say, guys, what do you need to feel good about this deal?
That is different than what most agents will do, which is they’ll protect their own ego at the expense of yours. So what they’ll do is they’ll say, I got a lot of clients. I don’t really need this sale. But my clients really want the house, what do we got to do you here? That doesn’t work. You want it to be the opposite. You want your agent to say, I want to put this deal together. Tell me what has to happen in order to do it. My clients will listen to whatever I tell them.
That’s literally what I say to the agent on the other side. And what happens is it now gets the listing agent to go to her clients and be an advocate for us. She’s or he is going to go say, listen, we got an offer here. We haven’t got anything else. I think this is our best shot. What do you guys need to feel good about this deal? And then she’s going to go back to our agent and say, here’s what they said. And he’s going to say, oh, that just the numbers won’t work at that. What can we do to get him to this point instead?And we let the agent sort of whittle down the sellers until they got to the point where they were good with us.
Now, I knew if this house had been on the market for six months, that there’s a very good chance that they’re not going to maintain their resolve to keep going. That was one of the things that Rob really liked about it, is he’s like, dude, this one’s been on the market for a long time. There’s not a lot of houses that are at this price point. There’s not a lot of buyers that are looking at this price point. They can’t move on with their life until they sell it.
And that’s what you want to remember, is when it’s been there for a long time, when that offer comes in, their knee jerk response is no, most of the time. But then what happens is their thoughts start going into, what else could we use this money to buy? If we got rid of this thing, we could go buy that house in the Caribbean, or we could buy that multi-family property that we could use to retire. All that stuff starts moving through their head and it slowly weakens their resolve to hang on at.
And lo and behold, about a week, maybe a week and a half later, a realtor came back to us and said, yeah, they’re willing to accept your terms. They just asked for a few little things to be different.

Rob:
Yeah. I actually want to point out the phrase I that he put out there. And I think he said putting them on ice. He’s like, oh yeah, I call that putting them on ice. And so that’s basically… That’s ignoring them for a little bit. And then coming in strong and saying, hey, I want to put this together. And then that realtor came back and said, oh, highest and best, whatever. And then he was like, okay.
Then he put them on ice for, I don’t know, however long, several days. And then he came back and then he is like, hey, I really want this of my clients. They’re not going to go for it. I’m the decision maker here. I’ve comped it out. The numbers have to be here. And yeah, they accepted most of the terms and were kind of working through what that means.
But all in all, a pretty… I called you the morning he told me that. He sent me a text and he said call me. And I was like, oh, okay. This is always my favorite text from a realtor. And then he was like, all right, hey, they didn’t really counter your counter after they had let it expire. And I was like, man, David’s going to be so happy about this. Because it worked out exactly how you called it, man. It was like pretty funny. Exactly how you called it, hey man, I guess what you’re talking about.

David:
Well, thanks, Rob. This is David Greene team pen. I’m holding up here. That’s why I learned it. Right? So that’s why we wanted to share this, because most of our listeners won’t have the experience that I do being in these situations and they wouldn’t have understood this is a stride that will work. So I wanted to make sure we conveyed that. Because it did worked awesome.
The last thing, step number 10, is have several irons in the fire. And this is what we do so we never get too in love with this deal. While we had it on ice when they rejected our offer and we said, hey, just let them chill for a minute, let them think about it, we didn’t just sit around crossing our fingers and feeling tempted to adjust our standard. We went out and looked for other homes. And it let our realtor tell their realtor, hey, these guys have me looking for other properties. If you guys don’t want to put this together, they’re going to find something else. I’m going to find them something. You be the thing that I find them.
But you got to be willing to keep looking. You cannot fall in love with any one deal. So we sort of set that one off to the side and we kept evaluating other properties. We kept meeting every week. We kept bringing new properties into this perspective that we had so we never fell in love with one property. This will help you in two ways. One is it will stop you from falling in love with the property you should not be in love with. Two is, if that property is really good and you just don’t want to accept it when you see everything else is not as good, it will make it more clear that’s the right property to go for.
This is what we do to make sure that we protect ourselves in those two ways. Anything you want to add there, Rob?

Rob:
No, I think that’s… Obviously, I very much overanalyze every deal and I think your advice to me. Because in this market, it’s crazy. We’re just lucky to get an offer accepted. Period. But your advice was like, hey, stop being a sniper and start throwing grenades. And I was like, all right. All right, I’m going to ease up a little bit on every single criteria. Then I just started. I was like, okay, I’m just going to look at all of the other prisms in the matrix, I guess, if you will. And I’m just going to cash flows there, but I’m just going to really start evaluating deals on all those other points and start looking at dozens of deals. And I’m like, all right, we have all of these to fall back on right now if this one doesn’t work out.

David:
Right. We call that the call of duty strategy, right? You don’t win a call of duty by just hiding in one little spot and waiting. You have to go out there and go crazy. Now, once it’s in contract, we will go into sniper mode. That is when we look down the scope at every little single fine-tuned detail to make sure we like the deal. It’s not appropriate to do that before you even have it in contract. That’s how you’ll just burn yourself out. It’s too hard to look from a scope if you’re trying to see the whole field. So that’s what we’re getting at there. I forgot about that. That’s a really good analogy that you brought into this.

Rob:
Yeah. Well, hey, it was just yours. I’m just throwing it back out there. But yeah, we’ll get into that whole strategy of the actual due diligence of a luxury property in a different episode. But this is pretty good synopsis on everything we’ve been going through for the past what? Eight weeks or so?

David:
Yeah. That’s exactly right. And I really believe this method works. I do it with… When I partner with someone, this is how I do it. And when I was in super buying mode, this was a strategy that I had set up when I was buying three to five deals a month. And I was using the birth strategy is I’d meet with my realtor every week. We would discuss these things. I had a prism that I looked at every property through. I would look at the list and say, here’s what I need to know.
Now, it’s obviously more fun and better to do it with a partner like Rob who understands this asset class because he’s done it a ton. And I don’t really have to teach as much as Rob is bringing value. That’s what you want your partner to feel like. Is their angles that you don’t see. And they know stuff that you don’t know yet. And Rob’s really experienced with this. So that makes it a lot more fun and easy.
But the system’s the same. And that’s what we’re trying to say. These are the 10 things that you need to do if you are serious about wanting to get your property under contract. So thank you for joining me here, Rob. I’m going to let you get going, but I’m going to give you the last word.

Rob:
Ooh, wow. So much pressure. I guess… Hey, the personal note here. I’ll let you know what the realtor says. He’s going to be getting back to be here in like the next hour or so. So the ultimate cliffhanger for everybody listening at home.

David:
So if it works out great, we’ll start our series of due diligence, like we said. And if it doesn’t work out, that’s fine, we have other irons in the fire. We’ll talk about them at our next meeting. We win either way. So, thank you very much. This is David Greene for Rob call of duty Abasolo. Signing off.