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The Fed’s most recent increase to the federal funds rate has driven mortgage rates to their highest level since 2002. That was the goal—to increase the cost of borrowing to slow down the economy, which is still surging post-pandemic. So why are prices still 8.2% higher than they were last year? 

Pent-up demand and increased national debt are only partially to blame for inflation. Global supply chain issues and rising energy prices, which the Fed can’t control, are also contributing. And other potential factors are up for debate among economists. 

When the Fed began pushing up the federal funds rate, there were worries the central bank had taken too long to act. Some experts say the rate hikes are too aggressive and happening too quickly, as the full impact of the increases haven’t been realized yet. Other experts say the Fed’s actions simply won’t work. Meanwhile, workers are already feeling the pain of higher rents and unaffordable mortgages. But even if experts could agree on the primary driver of inflation, they don’t seem to have any solutions that could actually work.

Are High Corporate Profit Margins Driving Inflation?

Competition in the market typically prevents companies from overcharging consumers. But in recent decades, most U.S. industries have become more concentrated. Corporations can raise prices with little fear that other businesses can offer the same products for less—and it is the corporations with the largest market share and most power that are currently raising prices the most. Many economists are saying that corporations are taking advantage of the current inflationary environment by raising prices above and beyond what they would need to account for the rising costs of materials and wages.  

A report from the Economic Policy Institute revealed that, between April 2020 and December 2021, 54% of price increases in the nonfinancial corporate sector went toward corporate profits, while just 8% went toward increasing wages. That’s a sharp reversal from the period between 1979 and 2019 and seems to dampen the argument that labor costs are to blame for inflation.

One example of what appears to be corporate greed is the profit margins in the meat-processing industry, which is having a major impact on the cost of groceries. The four biggest companies in the industry reported a 120% increase in gross profits at the end of 2021 compared to before the pandemic. The CEO of Hormel Foods announced that the company would continue to increase prices, even though its operating income had increased 19% year-over-year as of the first quarter of 2022, in part because of its pricing power. 

Those who agree that corporate greed is a significant driver, which includes economists from The Brookings Institution and The Roosevelt Institute, contend that policy decisions should attempt to control it, such as increasing taxes on windfall corporate profits. But some argue that it’s boosted profit margins protecting the U.S. economy from a recession. 

There are also a few problems with the argument that fatter margins are driving inflation, according to other experts. The first is that corporations don’t need an excuse to be greedy. They will always charge the highest prices that the market will allow. When demand is high, and supply is low, it allows corporations to charge higher prices. Increased profit margins are, therefore, a result of inflation, not a cause. Corporations aren’t being especially greedy now, just as they weren’t being kind to consumers with their pricing when inflation was low. 

Similarly, monopolies were around before the pandemic, a Wharton professor argues. Oil and gas companies lost billions during the pandemic, revealing how susceptible even consolidated industries are to market conditions. Now, they’re profiting as a result of higher demand.

Furthermore, inflation is higher in certain high-demand industries (like used cars and major appliances). Some economists are wondering why haven’t we seen an equivalent rise in prices across the board if corporate greed is a primary driver, as it’s unlikely companies in certain industries are greedier than others. 

Analysts at the New York Fed also point out there’s nothing historically unusual about the current relationship between corporate profits and inflation and that gross profit margins don’t account for sales, general, and administrative costs. As this debate rages on, many businesses are faced with higher costs that cut into their profits, and net earnings are now falling for the S&P 500 when excluding energy companies. 

If fatter profit margins are contributing to inflation, they likely represent one of many factors affecting prices. In any case, most economists do not support the idea of legislation to control price gouging during a market shock. Historically, price controls have had negative consequences—for example, attempts to cap gas prices in the 1970s led to gas shortages and long lines at the tank.  

Are Trump-Era Tariffs Contributing to Inflation?

Economists tend to agree, based on historical evidence, that taxes on imports and exports decrease economic output and real wages. Though the intent of a tariff is to protect domestic jobs and increase revenue, it typically has the opposite effect. 

If another country can produce goods in a specific industry cheaper than the U.S., it might hurt employment in that industry. But if Americans can buy those goods for less, they have more spending power in general, which increases employment in other industries. Furthermore, when another nation’s profits from exports increase, the response is inevitably to spend more money on goods from the U.S. Free trade without tariffs results in a rise in U.S. revenue, employment, and real wages.

On the other hand, tariffs act as a tax on consumers by raising domestic prices. Plus, trade partners often retaliate with tariffs on exports from the United States. The Tax Foundation estimates that the latest trade war cost American consumers nearly $80 billion. But there’s debate about the size of the impact on inflation. 

U.S. tariffs on Chinese goods raised the consumer price index by 0.26 percentage points, so it seems removing them would have a minimal impact. But there’s also the indirect result of U.S. companies competing to reduce the cost of goods—perhaps reducing corporate profits in order to offer lower prices than foreign competition—which could eventually reduce the CPI by a full percentage point, according to the Peterson Institute for International Economics.

But the Economic Policy Institute contends that the timing is off for the tariffs to be considered a primary driver of inflation and that removing the tariffs could harm key industries during a global supply chain crisis. 

The causes of inflation are many and varied. It remains to be seen whether the Fed’s tools alone can tame the economy. A multi-pronged approach is more likely what’s needed. But often, attempts to manipulate the economy have side effects, and as the disagreement among economists reveals, it’s difficult to know which interventions are justified. 

The Impact of Inflation on the Housing Market and Investors

Whatever the primary cause of inflation may be, it has created an affordability crisis for prospective homebuyers. It’s not just that mortgage rates continue to creep up as the Fed raises the federal funds rate. Wages have also not increased enough to keep pace with inflation, and rising rents, groceries, and gas prices make it more difficult to save. And the volatile stock market has made American retirement and investment accounts less viable resources for purchasing real estate.

Yet most economists don’t expect a housing crash, even as prices cool in many markets. Prices are still higher than they were a year ago. There hasn’t been an increase in the supply of available homes or new housing starts. At the same time, Gen Z is approaching the typical age to pursue homeownership more financially prepared than millennials, so experts think demand will stay elevated or even increase. And current borrowers are much less likely to default than their peers who were approved prior to the 2008 crisis. 

It may be possible for corrections in housing prices to offset the higher mortgage rates. But current home prices, along with steep rates at a 20-year high, are making it difficult for new investors who count on financing to break into real estate. If the right deal comes along and the numbers work, most experts think you shouldn’t be deterred by worries of an impending housing market crash. But in the meantime, bolster your savings and consider passive cash investments in real estate. Ultimately, having a diverse portfolio of real estate and other investments will offer you the best protection going into a recession. 

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

David:
This is the Bigger Podcasts Podcast, show 677.

Taylor:
For me, communication, trust is everything, and honor is a big character trait that I like to stress on is building something that’s based on honor and trust. Being able to meet people face to face, I think builds that kind of relationship. We’re not just an email address or a voice over the phone, but they know who I am and I know who they are, and it helps, and I think it kind of helps build that rapport with each other.

David:
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast, here today with another fantastic episode, and I am joined by my co-host Jamil Damji. Jamil, how’s it going?

Jamil:
Fantastic. I’m really, really stoked about today’s show. Taylor is an incredible guy, not only served our country and continues to just blow my mind with what he’s been doing, not only in real estate, but just as a dude in general. Love the guy.

David:
Yeah, this is a great example of a go-getter who’s doing a phenomenal job with simple techniques that he learned on the podcast that anybody can replicate. He’s in a strong rental market, he’s creative, he hustles, he looks for deals while walking his dog, I love that, doing two things at one time, time management, and there’s a lot of other stuff that you guys will get out of the show if you listen. I think it’s one of the more inspirational stories because, frankly, what Taylor’s doing anybody can do. But before we bring in Taylor, today’s quick tip is brought to you by Jamil Damji.

Jamil:
Thank you, David. One of the things that I really love about Taylor is really making sure that you’re doing business with honor and he epitomizes that in everything that he’s doing. Not only is he getting belly to belly with sellers, but he’s looking at how he can solve the problem, and not enough people are looking at how they can solve somebody’s problem in order to get them the best situation and the seller the best situation, and then on top of that, he’s sticking to markets that he really knows. This isn’t just throwing spaghetti at the wall and seeing what sticks. He’s going in with intention, he’s going in with honor, and he’s making it happen.

David:
Great point. Especially if you’re investing in a market where you live, that’s even more important because reputations get around. All right, let’s bring in Taylor. Let’s get these things started. Let me ask you, what is your story? How did you get into investing in real estate? Take me back to a young Taylor and what was going through your mind when you decided you want to get into the industry?

Taylor:
Yeah, of course. I don’t come from a entrepreneurial background at all. My dad did 30 years of government service. I went straight to West Point after high school, and I just went straight, got spit onto the army. My whole background has just been government service. It’s just been military time. Really, I had to find my way on my own. I just did a lot of podcast listening, a lot of education, just a lot of soul-searching to figure out what I was going to do after the army and then kind of real estate felt on my lap after doing all that research, and I just started buying property really.
It was super fun. It’s been an exciting journey. I’ve only been in real estate for a couple years now, but in those couple years we’re able to buy about 30, 31 doors, and my goal was I created an action plan for having three years, three years before my contract was up at the army, I wanted to get my financial freedom and be able to leave the army. Luckily we’ve been able to do that, and we’ve been able to meet our financial freedom number.

David:
Were you listening to podcasts at a certain point? Where did the seed get planted that you could hit financial freedom through real estate, especially while still in the service?

Taylor:
Yeah. What happened was is that back then, I met my now wife, we just got married this month, and we were thinking about leaving the army for, thank you, for a little while, just because active duty life is a little tough on family life. For those that kind of don’t know how it goes is you’re moving every couple, three years, you’re deploying a lot, you’re doing a lot of training rotations. And so, I was looking for a way out, but I didn’t know exactly what that looked like because like I said, all I knew was really the army. Once I got into podcasts, BiggerPockets was a big one I was listening to, it seemed like the way I can build cash flow, build wealth. All science kind of pointed towards real estate. Even though I had never financed anything at that point, I kind of knew that that’s the way I wanted to go.

David:
How did you find the first deal? Were you sitting in the barracks looking at Zillow when everybody else was goofing around? What was that moment like?

Taylor:
I was actually deployed, and so, I had some time on my hands, and that’s when I really started digging into some of that education. By the time I got back I knew I wanted to buy my first property, and so, I started off pretty easy. I used a VA loan when I got back and the VA loan is a powerful tool. I highly recommended for a lot of vets. There’s no other tool I can think of in the world where you can leverage a hundred percent of an asset. And so, I just bought a regular single family house, moved into it, and I did my first house hack, moved in another soldier in one of the bedrooms, and I actually lived for free that way because that rent offset the mortgage. I bought a pretty inexpensive house and I was able to pocket all of my BAH. It’s like a basic allowance for housing that the army gives me. That is what really kind of hit that light bulb was when I started pocketing all that BAH and offsetting my living expense.

David:
The first property that you bought, Taylor, what did it look like? Did you house hack? Did it cash flow, or did you just have to pay the mortgage?

Taylor:
Back then the market wasn’t too crazy. I think this was in 2020, so it wasn’t too, too crazy back then. I was actually able to negotiate the seller to cover all my closing costs. I bought this house with zero down. All my closing costs were paid for. I think I even got a check for 200 bucks and the property was just under 100k, so maybe $98,000 was when I paid for it. The mortgage is under $600, and then that room rented, rooms are renting for about $600 in that area. That one room I was renting out offset that entire living expense for me, and I was able to pocket my BAH that the army was giving me as well.

Jamil:
Taylor, it’s really interesting the launch pad for you to get into this, right? Because you’re one of those people that I think is uncommon listener to podcasts and consuming education or consuming content because you took what you were learning and found a way to take action, right? And for the people that are listening to this right now, I think this is one of the most important pieces of inspiration, right? How do you get yourself out of the content consumption portion of this and then take action to actually buy your first house? Because that decision is difficult for people to make. They’re constantly evaluating, they’re analyzing, they want to make sure I’m not making a mistake. They’ve got to feel like they’ve got it all right. You probably didn’t feel like you had it all right. How did you make that choice and what pushed you over the edge? Because I feel like if we can nail that down, there’s going to be a lot of people listening in right now who are looking for that moment, that moment that makes them feel like I think I’m ready to do this. When did you find yours?

Taylor:
Yeah, that was the toughest thing. I mean, I was a sponge absorbing all that education, but the application, taking action, it was really scary for me, especially being a government employee. In the army, if you want to know how to do something, there’s a manual that shows you how to do everything. Even there’s a career progression. You know exactly in five years, I’m going to be a captain, and I’m going to know exactly how much money I’m going to be making. It was a big mental pivot for me going from that mindset to an entrepreneurial mindset where I kind of have to figure out everything on my own. There wasn’t anybody to handhold me. It was that big mental pivot and I had to just believe in myself. I had to be able to take that risk. And so, after I did buy, that VA loan, I kind of saw some that power there, I decided to go ahead and believe in myself, and I bought my first BRRRR property.
I put pretty much every dollar I had saved into that first BRRRR. It was a big mindset pivot. I had to overcome a lot of self-doubt, those fears. I even liquidated what I had in my IRA because I didn’t have any money, just a couple months of paychecks to do this deal. Luckily, I believed in the numbers, and everything worked out, and so, with that one BRRRR and pretty much every dollar I had, I was able to recycle those funds, do more and more deals and have a nice cash flow on rental.

David:
Tell us, I understand you had a different type of loan that you got, like an SBA type that helped you get into these deals. Can you share what that was?

Taylor:
Yeah. For the house hack, it was just a VA conventional loan. When I did my first BRRRR, I went out and I found a hard money lender to get me into that deal. I’d maybe saved somewhere between 30 and $40,000 to do the down payment. I think they funded up to 80 or 85% of that loan to value and then they funded a hundred percent of the rehab. I just had to get into that deal with the down payment with those funds I had saved.

David:
Okay, so you’re got this first property, you’re renting out the rooms, it probably had to feel like this is too good to be true, like, I’m getting my whole thing covered just by renting out a room. You’re renting out to people that you know, so you don’t have this weird stranger danger thing going on. You guys are in the same culture. Everything’s just lined up for you. I’m sure you thought, “I’m just going to scale this. How hard could it be?” What was your thought process and then how did you get into the next deal?

Taylor:
Yeah, once I finished, once I did that house hack and that first BRRRR, that’s when everything clicked, and I was like, “oh I got this. This is not bad at all.” Again, I had all my funds back and then I started doing a lot more creative financing, and then after that I started doing a lot more direct to seller marketing as well to find these deals because for me, creative finance, I didn’t choose creative finance. Creative finance kind of chose me just because of in that financial position I was in.

Jamil:
Wow.

Taylor:
And so, I had to figure out how was I going to get into these houses because I didn’t have the funds to just put 20% down or go to the MLS or anything like that. I just knew I needed to find good deals and sellers that were willing to work with me and sell them on my story to help me get into these deals.

Jamil:
Creative finance chooses you. I absolutely adore that you said that because it can be a little confusing for people if they’re just getting into real estate investing to wrap their heads around, “Wait, I can get financing from a seller, or I can take over somebody’s property and leave the existing loan in place?” How did creative finance find you, and second, how did you wrap your head around all of the nuance and the intricacies that are necessary in getting one of these deals accomplished? Because in truth, they’re not that complicated, but they feel complicated, and I’m really interested to hear how you bridged that gap and were able to accomplish your first deal. I mean, for me, it took me a long time to get comfortable enough to do creative finance, and it sounds to me like it was your second at bat. How does that happen?

Taylor:
Yeah. I knew everything theoretically just from listening to podcasts like BiggerPockets or just googling things on the web. I knew everything in theory. I’m one of those guys that just needs to do it and just get smacked in the head a couple times to figure things out. And so, just by going into it and kind of starting ugly, just writing my own contracts on a Word document and just going to the title company and saying, “Hey, is this going to work for you?” So, just starting ugly and just trying it. There’s no harm in trying I feel like. The worst I can get is laughed at or a no.

Jamil:
What type of creative deal did you first do? Was it a sub to? What did you do, an owner finance? Walk us through that.

Taylor:
Yep. I’ve done a number of sub tos. That was one of my favorite go-to strategies. I was able to just, basically my favorite thing is walking my dog. I would walk the dog, I would just write down addresses and cold call if somebody’s home. Just, I would feel free to door knock, see what’s going on. But some of these sub tos, I was able to just knock on the door, talk to the seller, kind of build a little rapport there, and pitch a sub to. Even though I have never done a sub to, I knew enough about it to speak intelligently about it and somehow convince them that this was a good idea. I was able to get into those deals that way, otherwise I would not have been able to get into those deals.

Jamil:
For the audience that’s listening right now, if they’re questioning what’s a sub to, that’s essentially when Taylor took over a property with an existing loan in place and he was able to take that property, take title to the property, but leave the financing in place and basically make that his loan. Was that a large entry fee? Was it favorable terms? Did you overpay for the property? How did that all work? And the second thing is I got my first deal walking a dog as well, so you and I are kindred spirits.

Taylor:
Yeah, helps me keep the weight off, me and the dog. I’ll share this one particular deal. Basically the property was worth somewhere around 2, 215, something like that, and when I called this guy, he was really just motivated to get out of the property, and so, I told him our story. He was also a vet, we kind of bonded over that, we built rapport, and really it was kind of not a good situation for him, he just needed to get out of it. I told him, “Hey, the quickest way I can get you out of this deal is if we did a sub to.”
And so, he only owned about $100,000 on this property. I just was able to close on it without any funds. I just closed on it. I paid the title companies some closing fees, and I was able to step into this deal with no money down. Luckily, I had some cash. I did renovate it a little bit. It needed about $15,000 in repairs. But on the back end, I was kind of able to combine the BRRRR strategy and do a refinance on the back end to get my rehab money back, and then I actually profited too, almost like a flip. I got maybe like $25,000 profit after I paid myself and had a cash flank rental locked in a lower interest rate there as well.

David:
Yeah. We just interviewed Ashley Hamilton and she describes it as the reverse flip when you make a profit off a property that you keep. And so, what I like about this is you didn’t ask the question, which strategy should I use. You found an opportunity and you said, “What strategies do I have available to me to use?” You’re like, “I’m going to pursue a BRRRR. I’m going to pursue a subject to.” You found a motivated seller and you said, “I can use creative financing, I can use subject to, I can use my construction knowledge in a rehab, then I can refinance it. Oh, I took more money out this.” We started calling it a pilf because that’s how you spell flip backwards. Then Ashley came up with property I’d like to flip which is very funny when we did that episode. But you’ve got this toolbox of knowledge from listening to BiggerPockets podcasts, studying real estate investing.
The deal comes along and you didn’t have to say, “I need a mentor, I need a mentor, somebody tell me what to do.” Like, “Oh no, I’ve heard about this before. I’ve got these strategies lined up.” What I want to ask is because to me when I hear this, the most important part of this entire deal was finding that person that didn’t want to own an asset, and you did, what had they done wrong? What was going on with the deal? What was their motivation why they wanted to sell it and didn’t necessarily need to get any money out of it?

Taylor:
Yeah. I think the biggest piece was he was just kind of in a sticky situation, and when I talk to these homeowners, really what I’m looking to do is align myself against the problem and provide solutions. I don’t want to sell them on just the house, make it transactional. How I like to word it is it’s more of a relationship base. I’m selling them on who I am and I’m selling them as I’m selling the solution. I’m not just buying the house. And so, the problem was is I think they bought it when he was in a previous marriage and it didn’t end too well. That was the last I think thing they owned together, so it was kind of like the last thing tying them to that ex-marriage.
And so, I told him who I was. “I’m Taylor. Hey, I live a couple houses down from this one. I’m your neighbor. I’m still active duty army. I’m just looking to buy a couple properties to help me and my family out on our financial freedom journey, build a little generation of wealth.” I think other people really resonate with that story. And so, he said, “Hey, I don’t even need a profit. If you can get me out of this situation, I’ll be super grateful.” And so, we were able to create a win-win situation where he walks away happy, he doesn’t have that burden. It was essentially just a money coming out of his pocket every month. I was able to win with a nice cash flowing rental, and then the neighborhood won too because I made the neighborhood nicer as well.

David:
What’s worth acknowledging here is you didn’t find a person and ask the question how do I convince them they should do seller financing. That’s the wrong question, and a lot of people go that road. You found a person who already wanted to get rid of an asset and then you provided the solution of seller financing. There has to be a hunger there before you can provide the food. A lot of the listeners find a deal on Zillow and they’re saying, “Now how do I convince this seller to give it to me for no money down and let me take over their mortgages? How do I get this two-year-old that isn’t hungry and doesn’t want to eat?”How do I shove this down their throat?” and you just end up with a big mess, right? Jamil, have you had experiences like that too?

Jamil:
Absolutely. I love that you brought that up, David, because it’s so important that we approach any seller, whether we’re talking direct to seller or you’re working through a real estate agent. The facts are is that this specific house probably wouldn’t have been able to sell through a traditional real estate agent. There wasn’t enough equity in the deal to even pay commissions. When you think about this, Taylor is looking at the opportunity and he’s talking to this seller and he’s literally coming to them with, “Look, I want to be able to solve your problem and the only method that I can think of that can actually get you out of this house, that’s going to get you out of here without having to come to the closing table with money is if we do a sub to.” And I love the fact, I love the fact that you come in solution-based, relationship-based thinking. See this is how you create real opportunity. This is how you solve problems, and you brought so much value to the circumstance that at the end of the day, you were able to profit from it. I think that’s fantastic.

David:
That brings us to the next question here. The market has clearly shifted. You don’t have to go off market to find deals anymore, and my understanding is you’re still buying off market. So what is it about the off market approach that you like so much that has you going back to that well time and time again?

Taylor:
What I really love about the off market and getting that property under contract yourself is just the flexibility it provides you. I know on MLS you can still find some good deals nowadays, but when you’re able to lock up that property and be the first one to that seller, there’s so much you can do with it. You can wholesale it. You can wholetail it. You can flip it. You can buy and hold, sub to. I mean, the opportunities are endless there. I just love that flexibility of when I can lock up that deal myself and go ahead and kind of see how I want, what exit strategy I want to choose.

Jamil:
Taylor, what primary methods of lead generation are you doing to get in front of these sellers?

Taylor:
I’ve done a little bit of everything but right now what we’ve really been focusing on is SEO, PPC, kind of going into the online realm, and right now I’m in a big transition-

Jamil:
Internet deal.

Taylor:
Yeah, because before it was more a bootstrap. I was just walking the dog, writing down a couple of addresses, but it’s not scalable. Like I said, I’ve met my financial freedom number, so officially I’m getting out of the army next year and I’m going to be a real estate entrepreneur full-time. And so, now I’m trying to build an actual business. I have now a little bit of real estate knowledge, but now it’s another set of education I need to learn of how to build a business systems and a team around me so that we can consistently close deals every month.

Jamil:
Where specifically are you doing business? I understand that you’re in multiple markets. Walk us through those.

Taylor:
Yeah, I really like investing where I am locally. I know a lot of people can’t, don’t have that luxury, but I’m a very hands-on guy. I like to be a member of my community, shake hands, kiss babies, so I like to invest where I am. I’ve invested locally in North Carolina where I was last stationed. Right now I’m investing in Sioux Falls, South Dakota where I’m living currently. And then once we transition out of the army and we go full-time entrepreneur, we’ll be down around the Treasure Coast area of Florida where my wife’s from.

Jamil:
Do you find that when you’re looking at the markets that you specifically know, does it make it easier for you to understand and possibly get boots on the ground and be able to manage these if you get moved to another market or if you have to go to another city for whatever reason? Is that part of the strategy, part of the thinking process that leads you to it? Because North Carolina is great, but personally, I don’t even know anybody investing in South Dakota. So, it’s interesting because it’s not like a buzz market, right? I’m curious to find out some of the… Other than just being there geographically, are there other advantages to why you’re choosing these places?

Taylor:
Yeah. Well, one, I like both markets I invest in, but I just like the fundamentals. The first market, Fayetteville, North Carolina, it’s a military town, but why I really like it is just because it’s essentially in a bubble, a recession-proof bubble because the largest army base that we have is there. And so, anybody that wants to buy property there, if you’re renting to military families, they’re always going to get paid unless something really, really terrible happens to our government, but everyone’s going to keep getting paid and they’re going to be paying their rent.
And then here in Sioux Falls, South Dakota, it’s another great market which I would’ve never expected, but it’s a stable Midwest market that’s been continually going up throughout the years. There’s no crazy dips in the market, and just has a nice economy with healthcare, finance, and agriculture. And so, I like those market indicators, for one, and then two, I think for me it’s way easier to build a team on the ground because I can meet the property managers face to face, I can look at the contractors and see how they’re doing right here on site, and then once I leave I feel comfortable with those relationships I have built. I’m still buying in North Carolina. I’m buying here in South Dakota and still Florida. I still buy in those areas with those teams I set up.

Jamil:
You’re obviously working with people that you have deep relationships with and there’s a level of trust there, right? I think for me, when I am making purchases and I’m investing in specific cities, I remember when I first bought in Phoenix, Arizona, I was investing there because, A, proximity to Los Angeles, I was seeing that there was an opportunity there, I could get in at a good price. But what ended up ultimately happening was I was getting ripped off by my property manager, and I ended up having to move to Phoenix in order to take control of the situation. I was losing money. Literally, my property manager was taking cash rent from my tenants and telling me that the places were vacant, and there was a whole mess that I had to unravel when I got there. I love the fact that you’re working with people that you know and trust. How important do you think that is in building a business?

Taylor:
Yeah. For me, communication, trust is everything, and honor is a big character trait that I like to stress on is building something that’s based on honor and trust. Being able to meet people face to face, I think builds that kind of relationship. We’re not just an email address or a voice over the phone, but they know who I am and I know who they are, and it helps, and I think it kind of helps build that rapport with each other. But that really sucks that you got treated like that with your property manager in Phoenix. I did buy one turnkey property before and that was in a market in Alabama, similar situation to you where I had never seen it before, and I thought it would be easy, it’s just turnkey, and same situation, it was just terrible, terrible time. And so, I was like, “I’m never buying a property that I’ve never built a team out myself and just let it go on autopilot.” I know, I did get burned once with the same situation with a property in Alabama that with a team I had never met.

David:
Yeah, that story happens quite often unfortunately. As you’re looking for properties that you think will work, a lot of the time, those that buy a lot of properties, we just take for granted, we get a feeling like, “Oh that will work, that one won’t work.” And then the newbie who’s listening is like, “How did you know? I’ve analysed 700 deals this week and I don’t know which one’s good.” Can you share what your buy box looks like? What are the things that you’re just like, “Okay, that catches my attention. I don’t even want to look at this one.” And then how do you know which one to pursue?

Taylor:
Yeah. For each market I have a different buy box criteria. Again, for that one in Fayetteville, military town, first of all, I kind of look at the market and I identify who’s my clientele, who do I want to market these properties to. In Fayetteville, I love running to military families. I kind of target properties in not the top neighborhoods but something in the middle where they can get nice cash flow, but they’re still nice homes for military families that they can rent and live in comfortably, they don’t have to worry about getting shot at. I kind of rent in those areas, and I look for houses that are three bedrooms typically for military families, and I usually put nicer, higher level renovation just so that they’re happy as well.
Here in South Dakota, what I look for is we kind of switch strategies over to short-term rentals. That’s something we started last year, mid-term rentals. In Sioux Falls, we have two of the largest hospitals here in South Dakota right there in Central Sioux Falls. We’ve been buying small apartments in close proximity to those hospitals and renting them out mid-term, kind of short-term to those travel nurses. My wife a travel nurse. She kind of gave me the idea, and we outfit them with everything a travel nurse would need. And so, really proximity to those hospitals there for South Dakota here is for my buy box.

Jamil:
Taylor, what’s very interesting to me is that you’re working with primarily folks that you resonate with, people that have lived the same kind of life with you in active duty. I feel like there’s a real opportunity for you here to create a synergy where you can rent to some of these families and then educate them into home ownership themselves, maybe even getting them into a house hack. A community can be built out of this strategy. Have you thought of taking this the next step and bringing in or creating an army of other investors that you might be able to teach what you’ve learned and possibly get them into home ownership themself?

Taylor:
Oh, I would absolutely love that because the vet community is something I have just a big passion for helping. Of course, it’s where I came from. I have a ton of respect for all of my brothers and sisters in uniform service, and that’s what kind of gave me my start is there was some other vets that had their own kind of small course, and I took that course and that’s what helped me get that confidence to go ahead and start closing some deals. That’s something I want to do in the future is be able to help other vets and do something that I’m doing because I didn’t do anything special. It was just a lot of base hits that kind of got me to where I’m at now. But I think anybody can do this and even though with your busy active duty schedule or anybody on a W-2, they can find the time to go ahead and start doing what I’ve been doing.

David:
When you’re looking at an off market deal, what are some red flags that you see that would let you know, walk away from this one, it’s not worth it?

Taylor:
Yeah. Really, I always have my contractor that I trust walk these properties, and I like to stick to light cosmetic rehabs. Anything that’s going to be a complete gut job, usually anything that’s too old, 1960s and earlier, where we’re doing either foundation work or we’re ripping out walls and we’re replacing all the CapEx items, I stay away from those because those budgets can get out of hand very quickly. If I find something that usually is just maybe disgusting on the inside, you just got to clean it out, maybe slap on some new paint, floors, hardware, that is my bread and butter. Anything that’s too crazy, I would stay away from me.

David:
Jamil, what about you? Do you have anything when you’re approaching an opportunity, you got a fish on the line, you’re trying to figure out do I reel this thing all the way to the boat or do I cut bait that you’ve learned over your experiences, like, “Oh man, as soon as I see this I just know it’s not worth it, get out of Dodge”?

Jamil:
Yeah, there’s a few. First, foundation problems for me, they’ve been a nightmare to deal with. I have rarely had a foundation repair come in anywhere near what the original quoted number was. They always escalate. That for me is definitely one of those types of repairs that I won’t want to do. And then the other thing is anything that requires some kind of abatement. I found that when I’m getting into a property that might have a mold issue, that or asbestos, something that I know I’m going to have to have a professional company come in and doing an abatement here and then it’s going to be a situation where I have to disclose this process to a future buyer. For me, I found that that has always, even after you’ve completed the repair and you’ve got the city to come in and make sure that everything has been done to standard and code, there’s still always that piece of uncertainty for a buyer.
I’ve never been able to maximize my return on a deal like that because I’m literally having to go to my buyer and say, “I want you to trust that I fixed it all and this is all the documentation that says that it’s done,” but there’s always that thought in the back of their mind, “What if the mold is still here? What if the biohazard is still here and my family could be affected?” And for me, I think that that’s always created a problem for getting a return on investment. So, I’m staying away from foundation problems and anything that requires severe abatement.

David:
That’s really smart. And the other problem I think you have with the abatement issues, foundation issues, the stuff that Taylor was saying are non-cosmetic, the seller tends to want to overlook the significance of how much it would cost to fix that. The seller’s like, “Yeah, my kitchen’s old, you’re going to have remodel it.” They understand it. If you got to spend $65,000 to fix a foundation issue, it’s tough to get them to understand you got to take more than 65,000 off, plus the cosmetic issues, plus the profit I have to get in here. Now, it feels like they’re being gouged when they’re not. That’s the actual problem. And when you have a situation where it’s just cosmetic work, there’s usually a discount that they can live with and you can still make work. I think that’s really good.
It’s like when you get into that issue of the foundation issues, mold, what are some, like fire damage can be one of them. Sometimes a roof can end up in that situation, depending on if it’s a house that is not priced very high, the roof becomes a significant portion of it. On a million dollar-house, a roof’s not nearly as big of a deal. I’ve noticed the same thing is you just never see eye to eye. You end up with those irreconcilable differences and you spend all this time and it never goes anywhere. Taylor, I can see that you’re absolutely picking up steam here. Tell us a little bit about who makes up your team, and what is the first hire that you think someone should make if they want to do what you’re doing?

Taylor:
Yeah. For me, it’s almost tied between lender and contractor. Those were the two I would say were absolutely pivotal for me. Contractor really because I’m not the best guy to swing hammers. If you can find an honest guy that’s going to keep prices reasonable, he’s going to let you know exactly what he needs to do, not do anything extra or delay the timeline. To me contractor is going to be the make or break for keeping your projects under budget and within time, even though it almost never happens. And then number two, the lender, because my lender also educated me, and if you can understand the finance and the lending piece, they help me a lot figure out how to finance a lot of different projects. Once I had a good lender in my corner, I wasn’t worried about financing at all. I’ve been able to close deals and work around some things just for having a good lender right there in my corner.

Jamil:
For me, my team is always starting with my sister. She’s the project manager for any of our construction projects. I know that she’s got my best interest at heart because we share companies together, we share resources, and so, I’m positive that she’s going to be taking care of us. But aside from the swinging of the hammers and all of the physical things, right, there’s a massive team that helps me systemize the business, make sure that I’m doing things as efficiently as possible. Taylor, you mentioned that your team, beyond your trades, beyond your contractor, beyond the physical things, you’ve got this team of virtual assistants that are helping you generate your leads and make sure that you’re building a pipeline of opportunity. That is difficult to arrange and it’s difficult to track to make sure that you’re being efficient and that you’re actually getting a decent ROI. Walk us through that process of building your team to help you build your systems out and create a pipeline of deal opportunities for you.

Taylor:
Yeah. Really, it’s been me and a partner. I’ve been kind of figuring out more of the visionary side, he’s been a little bit more of the operations, but what we’re really looking for is what’s going to be our highest return on investments. Finding these VAs that are going to do all these calls because I used to do all the calls but quickly realized that’s not the best use of my time, so if I can get VAs to qualify these leads and then if I can close them, that would be the best use of my time. So, using VAs to supplement my time or I can afford using VAs to handle the back end on the disposition side. There’s lots of things that you can sub out to just really optimize your time and find what’s my highest and best use really.

Jamil:
How do you track everything? Are you using a CRM? Is there a specific methodology? What’s that look like?

Taylor:
To track all of our leads, right now we’re using Follow Up Boss as our CRM, and we’re also using a lot of key performance metrics to track what’s working, what’s not, what should we cut. We’ve cut some things like different Facebook ads, sites that we’ve been using just based on how much we’re paying and what are we getting back.

Jamil:
Are you finding that the direct to seller approach is a little bit… Sellers right now, they may not be aware of how the market has shifted, and it’s interesting to me that you’re very, very forward thinking with respect to, hey, I’m only going direct to seller and that’s my favorite way to build relationships and to create opportunities. Have you tried working through agents and going the on market route? Because personally I’ve been finding a lot of success and finding great opportunities working with realtors who actually know that the market is very frothy right now. I’m interested to hear your answer to this. Have you thought about possibly pivoting into working on market opportunities?

Taylor:
You know, I haven’t yet personally. I know there’s going to be a lot more opportunities coming up. I think we’re just good at what we do, and so, I kind of like to just hyperfocus on what works for us and become really good at it, become experts at that. But if there’s any opportunities that pop up on the market and the market is shifting, it’s something I would definitely look into in the future, but right now, off market’s working for us. We’re closing deals. We’re going to keep the train moving. We’re going to keep chugging.

Jamil:
It’s this what you know? Is this like, hey, this is what I know and I don’t want to fix it, I don’t want to break not broken? Is that a piece of it? I’m sorry, I might be drilling on you a little bit about this, but I feel like you’re missing a major opportunity to get out there and increase your possible deals. I’d be curious to see if you’d open that door, if you might find a wealth of opportunity for you.

Taylor:
Yeah. I actually do have a license and I do plan on using that too once I get down to Florida. But you might be right there. Especially now, there might be getting a lot more opportunities in that area, so I’m open to checking it out, for sure. We just haven’t done pretty much anything yet on market. But I think I might look into that and see if we have some opportunities coming our way.

David:
One thing I can see would be a potential hurdle, and I realize this when Jamil and I were having a conversation the other day specifically about how on market opportunities are now where more opportunity is sometimes, the biggest hurdle is you got to propose your solutions and communicate through usually not only one but two realtors. You got to sell your realtor on how to explain an off market, subject to, creative thing. Then their realtor has to understand it. Then their realtor has to explain it to the client in a way that makes sense, and everybody has to feel confident they’re still going to get a commission because if they think they’re not going to, they’re going to shoot it out of the sky. Jamil, do you have any advice for how you can navigate those waters?

Jamil:
Yeah. Dual agency, I am the huge fan. Here’s the thing. I believe that when I work through a buyer agent, I create friction in this situation because I have to sell my buyer’s agent on what I’m trying to accomplish, then that buyer’s agent has to go and communicate with the listing agent and explain to them what we’re trying to accomplish, and now it’s the telephone game, right? How much of what I’m saying is actually going to be communicated to the listing agent, and then how much of what that listing agent heard is going to actually fall into the seller’s ears.
And so, for me, I think the fastest way to get the appropriate message across is I’ll find the opportunity on the MLS, and I will go directly to the listing agent, and I will explain what I’m looking for, and I’ll have them represent me, and I’ll doubly incentivize them to do business with me because they can represent me as the buyer’s agent. They represent the seller as the selling agent. Now they’ve got an opportunity to either make 6% commission or refer back 3% to their seller. It could be a win-win-win for everybody and I don’t have to create that added layer of communication.
Taylor, I’m very curious about this concept of how you created your financial independence, and I think a lot of our BiggerPockets listeners are here for an understanding of how to do that, right? You’re a young man, and it’s so amazing to hear that you’ve been able to gain your financial independence. Walk us through how you make that decision and what it feels like right now because, look, for any of us that are out there right now, if you’re at a job that you may or may not dislike or you like your job but you think, “Hey, I would really like to spend more time with my family or I’d really like to pursue this other goal in life, but I just don’t have the financial capacity to do that,” Taylor, you’ve accomplished that. So, how did that happen?

Taylor:
Yeah, absolutely, and this is one of my favorite topics to hit on because it’s something I’m really passionate about. Once that real estate light bulb clicked for me, then I really dug in and created an actionable three-year plan because three years is what I still had left on my army commitment. I created an actionable three-year plan to replace my active army paycheck passively with real estate income. And so, now we’re about two years into that plan, and not only were we able to replace my active duty army paycheck, but we were able to double that, and so, we’ve more than exceeded what we needed to. I can confidently say once we get out of the service next year, I feel comfortable leaving without having to sacrifice putting food on the table for my family. But we can get out comfortably and I can focus on starting my real estate business.

Jamil:
Wow. I mean, you could retire, right? You could literally just dial it in if you wanted to at this point, right? I mean, if you’ve replaced your income, that is a life goal for a lot of people. I mean, I don’t know what I would do with myself. For my financial goals, I’ve hit them, but I just, I’d be too bored not to work, right? For me, I would always want to get off and keep doing things, keep growing, keep expanding my business and my life. But how does it feel, man? How does it feel to know that I can wake up tomorrow morning and I could just decide, “Hey, I don’t need to do anything today, it’s great”?

Taylor:
Man, it’s a big weight lifted off my shoulders, not having to worry about the financial piece, just putting food on the table, keeping the lights on. It enables me to pursue what I’m passionate about at that point. It’s not just working to get by. It’s working in something I’m passionate about. That’s doing real estate, and that’s talking to you guys, hopefully providing more content so other people can also move along on their financial journeys as well.

Jamil:
All right, let’s move on over to the deal deep dive. Basically go into a deal that you’ve done and walk through the mechanics, how did you find the deal, and really get into the meat and potatoes of an opportunity that you’ve taken advantage of, and have our listeners be able to follow along and see if they could create something like that.

Taylor:
Yeah, absolutely. I’ll go ahead and share one of my favorite deals. It was my first commercial deal that I just pulled off this year.

Jamil:
Taylor, so a commercial property, that’s different. I mean, gosh, you’re blowing my mind, left, right, and center here because you do things that are so outside of the box. Creative finance finds you, and then you jump into commercial. I mean, commercial again is so much different from residential. It is a completely different beast, valuation, how you add value to it, force appreciation, even exit is a completely different situation than single family. Walk us through that. First, how did you find the deal, how did you underwrite the deal, and then what was your plan with it, and how did you get out of it?

Taylor:
Absolutely. Jumping into this deal kind of had a similar background of me doing residential. I was actually walking my dog again and I wanted to buy-

Jamil:
Yes.

Taylor:
yeah, that dog.

Jamil:
What’s your dog’s name, by the way? It better be Money.

Taylor:
Leo.

Jamil:
Okay.

Taylor:
Yeah, cash money, huh. But yeah, Leo, he’s the key. Leo, get a dog, walk it, that’s going to be the key to your financial freedom journey. I wanted a mom-and-pop-style apartment, something small. I was looking for units in my local area, and I wrote down some addresses again, did some cold calling, trying to find the landlords. Again, I found one, and kind of built rapport with him, told him who I was. This guy, he owns a bunch of property in the area and I just sold him on me, again like I always do. “Hey, I’m a young guy, army guy, and I’m just looking to build financial freedom for my family and get a little extra cash flow coming our way.” He really liked my story, met up a couple times, awesome dude, and he agreed to sell me his commercial deal, and of course, this is my first time doing a million-dollar deal. Before I was doing maybe like $200,000

Jamil:
A million-dollar deal.

Taylor:
Yeah.

Jamil:
What are we talking about in numbers? Well, how much was this and how did you find the funding for it?

Taylor:
Yeah. Pretty much 1 million on the dot, and again I am used doing residential deals, maybe 200k or less. This is a big step out of my comfort zone, but it’s something I’ve always wanted to do and it was one of my goals. Luckily, I was able to make it work so that he carried a note to cover the majority of the down payment, and he also linked me to a local commercial lender. I was able to network with that lender. Through him, he put in a good word for me. He was able to underwrite the loan. I was able to get a seller back note to cover the down payment, and I even got a little bit more creative and collateralize some debt in another property we owned. And so, really I came into this deal with no money down and I just had to-

Jamil:
Again.

Taylor:
Yeah. Creative financing was the fundamental again. And that got me into this deal because there’s no way I would step into a million-dollar deal this early in my real estate career.

Jamil:
Now, for the folks that are listening right now, they might be thinking, “Okay, yeah, so you got into the deal with no money,” and that’s incredible. Creative finance dominates and wins again here, guys. But what kind of debt service are you looking at? Was it scary to get into a situation where you now have this monthly payment due? How did you play with or how did you figure out how to debt service? What was the plan?

Taylor:
Yeah. It was a little terrifying because I never spoke to a commercial lender before. I didn’t want to sound like a complete idiot to him. I was really nervous meeting him, but he was a really cool guy as well, and he also helped me educate myself as well. That’s kind of been a thing with these lenders, built a nice relationship where he not only lended to me, but they also taught me things along the way. And so, I was a little nervous taking on that debt, especially since there’s two mortgages on this property. But my game plan for this thing is why I truly believed in it because this house or this building is about a block away from a large hospital that my wife works at actually. We basically short-termed, STRed this entire building. We dramatically increased the NOI on this building just by converting those units to furnished units and renting to primarily travel nurses. I wasn’t worried about the debt service because I knew I had a nice plan to refinance on the back end before that balloon is due in I think five years or so.

Jamil:
What kind of property was this? Is it small multifamily? How many units are we talking?

Taylor:
Small multi. It was a package. It was eight-unit building with a lot with a single family house that’s next to it. So, a total of nine units.

Jamil:
A nine unit, and your plan was to rent it out to traveling nurses. You already had all that lined up. Was there a moment there where you were negative cash flow or was there any CapEx situation that you had to come out of pocket for? Because I know that you got into this deal with seller carry for the down payment. How much out of pocket did you have to come to improve the property to get it ready for the traveling nurses?

Taylor:
The reason why I really liked this building for the strategy was that it was essentially turnkey. I didn’t have to do any cosmetic updates or anything like that. It was a really nice looking building as is and had everything we needed. What was expensive was the furnishing, because we were furnishing like nine units up front, but they’re all one bedroom units so it’s not too terrible. I think we were able to finish all of them for about a little under five grand a unit. And so, that was where our money went was furnishing all these units up front. It took us maybe a couple months to get them all up and running. But now after that stabilization period, right now we’re sitting really pretty because they’re all on Furnished Finder or on Airbnb, and they’re all cash flowing very well for us.

Jamil:
You still own the property. Any plans to refinance out of it or are you planning to sell the property at any time?

Taylor:
Right now, I plan on keeping it, but I’ve kept everything almost. I haven’t hardly sold anything, and so, I always say, “Oh I might own this one forever.” But who knows? Maybe there’s going to be some awesome deals in Florida that are coming my way. We’ll see what I end up doing with it. But right now the plan is to keep it and refinance it, and we’ll see how the market goes and see if interest rates go down or anything. But right now we’ll plan to keep it and refinance it down the road, if we can improve what we did, improve that net operating income substantially, I think we’re going to have a nice cash out refinance on the back end waiting for us.

Jamil:
Any key lessons that you take away from a deal like this?

Taylor:
I think the key lesson for me here was just to not be afraid of the deal. I know the fundamentals are the same, even though the price tag is a lot higher than what I was used to. Just not let indecision and fear hold me back from doing the deal. And of course, using creative finance to figure out how to get into the deal because if I wasn’t able to talk between the lender and the seller and figure out a way to make it work for everybody, I wouldn’t been able to get into a deal this size.

Jamil:
Suggest or I would say that I think everybody listening right now considers you a hero, and every deal has a hero. Who would you say was the hero of this deal? Would it be the deal finder? Would it be the person on your team who negotiated or had got you in front of the seller? I know you actually were walking your dog to meet the seller, so that’s how that happened. But was the hero creative finance?

Taylor:
It was Leo the dog.

Jamil:
Hey, yes, of course he’s the hero.

Taylor:
He was.

Jamil:
I love it.

Taylor:
Yeah.

Jamil:
It’s so good.

Taylor:
Yeah, creative finance, man. It was just knowing how to use those tools to unlock the keys that we needed and using those tools to your advantage. Just like a tool, like a hammer to a construction worker or a M4 to a soldier, creative finance was the tool that it enabled me to get into this deal. This one’s going to help out the family a lot along our financial journey.

Jamil:
I love it. Before we get to the famous four, I’ve got one last question. Because the market has changed and the environment with the interest rates rising the way that they have, are you finding it harder to find deals right now?

Taylor:
You know, a little bit. I think things have kind of almost slowed down or maybe stagnated a little bit. I think people are a little more hesitant to sell their houses, and people maybe are a little bit more hesitant to buy. I think it has slowed down a little bit, but I think there’s still deals to be done, still money to be made.

Jamil:
Are you changing your strategy or outlook at all with respect to what’s been happening, and are you pivoting at all?

Taylor:
For me, it’s much stricter underwriting because now when I’m doing a BRRRR I need to analyze the deal not from a 4 or 5% interest, but I’m running at higher 7, 8% interest so that the underwritings, yeah, underwritings has gotten a lot more strict. I would say I’ve been a little bit pickier about what I’ve been keeping.

Jamil:
I think that’s absolutely a great strategy to have and it’s important to take note of that. So, I don’t know if our listeners are aware, but David Greene actually midway through this podcast decided he was hungry and went to go make a sandwich. But we always ask our listeners these four questions, Taylor, and I’d love to hear your answers to them.
(singing)
What is your favorite real estate book?

Taylor:
Right now, my favorite book that I just finished reading was this Financial Freedom with Real Estate Investing: The Blueprint to Quitting Your Job With Real Estate – Even Without Experience or Cash, which is totally who I was, and that was by Michael Blank. He kind of went into a lot of multifamily. That’s the book I read that kind of broke it down Barney style for me how to do a commercial deal. And after I read that book, a couple months later is when I went out, applied it, and closed that first commercial deal. So I have to give a shout out to that book.

Jamil:
Amazing. You’re an action-taker. The second question is what is your favorite business book?

Taylor:
This one was recommended to me by a good friend of mine who also has a nice wholesaling business, and it was Traction: Get a Grip on Your Business by Gino Wickman, and that was especially important to me right now because before I was just bootstrapping and doing real estate myself, and right now I’m in that pivotal moment where we’re building our business, a legitimate business where we’re trying to get consistent deals and build out those systems and build out that team. This book was our bible figuring out how to build those systems.

Jamil:
The next question is, especially for a guy like you that’s got so much going on, I mean, you are a massive action-taker, you learn something and then you go off and do it, does it leave you any time for special hobbies? I would imagine you must build rocket ships or something on your spare time, right? What do you do?

Taylor:
Yeah, right now, I’m kind of a robot. Between the army, man, and doing the real estate stuff, also trying to hit the gym. I’m kind of a gym guy, just like to lift things up and put them back down. Between those three things, eating and sleeping, it almost takes up like 95% of my time. But with that last 5%, I do love to spend quality time with my wife, Helen. And so, we’ll do anything together, either watching movies or go biking, anything. With that last amount of time, I give to my wife.

Jamil:
I would imagine one of your hobbies is also walking the dog, right? Because that dog, that Leo makes you a lot of money. Leo, that is a money puppy.

Taylor:
Yeah.

Jamil:
Awesome.

Taylor:
Yeah, I need to give him a promotion or something.

Jamil:
I would imagine you got to get him in a bigger house.

Taylor:
No, not yet.

Jamil:
Go buy him a new bed.

Taylor:
Maybe if I can figure out a creative financing strategy for a dog house, then we can get him into a nice one.

Jamil:
Oh my god. That’s great. Lastly, Taylor, what do you think sets successful people apart from those who give up or just don’t even get started?

Taylor:
Yeah. For me, getting started again with my story was the hardest part, making that mental pivot. For me, it was kind of establishing my why, why was I doing it, and for me, that was my family. It was for my wife to get out of the active duty army lifestyle where I was gone a lot, deploying, training, out in the field, and I wanted to get my time back and then be with my family. Once I really established my why and that kind of embodied me and took over in this business, that’s what really set me up for those long days with balancing the army and doing real estate because that why was able to keep me through and keep pushing me even through all the struggles and the long days.

Jamil:
Taylor, you are a phenomenal man and a amazing husband, I can tell, an amazing dog owner, and a genius real estate investor. I mean, you’ve just, you’ve really put it together, brother, and you’re taking action, and the fact that you consume a little bit of information, then you go off and do it, I think that should inspire everybody who listened in and tuned into this podcast today. I’m sure there’s a lot of people that are going to want to meet you and actually connect with you and possibly do deals with you. Tell us, where can people find you?

Taylor:
Yeah. Lately, I’ve really been trying to build up a little bit of a social media presence. I’m trying to be the most active on Instagram, and that’s just my name, taylorwing_, and so, that’s where I try to post what I’m actually doing because we’re doing a lot of cool projects, and people love to see the before and afters, and so, trying to be the most active on that Instagram handle.

Jamil:
Love it. Love it. I think you should also have a YouTube at some point because I truly believe there’s a community that you can build for people that are in active duty and helping them get into real estate investing. When people can find folks that are just like them doing the thing that might be the key to their financial freedom, I think there’s something there, and, Taylor, I’d love to help you do it. Folks, if you’d like to also follow me, you can find me on Instagram, @jdamji, @J-D-A-M-J-I. I also have a YouTube page, it’s just Jamil Damji. And on behalf of David Greene who is still eating a sandwich and the rest of us here at BiggerPockets, Taylor, we just want to thank you. Thank you for your service. Thank you for your time today, and thank you for taking action because I think that you’re going to inspire thousands of people who are going to hear your story and want to do the same. We loved having you on here, Taylor. Have a great day. David, what are you doing? We’re already done, bro.

David:
You guys are done?

Jamil:
Yeah. Yeah.

David:
I thought you were going to wait for me to go get a sandwich and come back. I even, I got you a PB&J, bro.

Jamil:
I mean, we were talking a lot of good stuff and away you went.

David:
Oh geez.

Jamil:
How was the sandwich?

David:
I’ll tell you in a minute.

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After incredible appreciation over the past few years, the residential real estate market has finally started to decline. Many chicken littles are saying this is the beginning of an all-out collapse. While the market will almost certainly go through a correction, a collapse is almost certainly not in the cards. There is a segment of real estate, however, that will go through something close to a collapse. 

Broadly speaking, the outlook for commercial real estate, specifically office buildings, is not great. And large office buildings, in particular, are doing poorly and will have difficulty in the coming years. It will be even worse in large, coastal cities, particularly acute in downtown areas, with San Francisco being the poster child for this coming collapse. 

Indeed, if such a thing as credit default swaps or some sort of short position on downtown San Francisco real estate, I would strongly recommend thinking about buying such (I believe non-existent) investments.

As The San Francisco Standard points out, “Citing data from real estate firm JLL, chief economist Ted Egan tagged future vacancies, in a worst-case scenario, as high as 53% in the Jackson Square area and 43% in the mid-Market area in 2024 as the clock runs out on office leases.

“The current vacancy epidemic cuts across buildings of all sizes and price ranges in San Francisco’s downtown core, from the struggling mid-Market area to the sparkling office towers of the East Cut.”

For some buildings, the collapse has already happened, “For example, 415 Natoma, a 653,900 square foot office tower owned by Brookfield Properties that was the sole ground-up office project to deliver in San Francisco in 2021, currently has just one announced lease: 20,000 square feet taken by ‘remote-first’ startup Thumbtack.”

The reason we can know for certain that this problem is going to get worse is the way commercial leases are structured. Unlike the typical lease on a home or apartment unit, commercial leases are usually 3-5 years long and sometimes more.

Downtown commercial real estate was already declining before 2020, but the pandemic turbocharged that decline. Many of the firms that signed leases in 2017, 2018, and 2019 are stuck in those leases for a few more years. But all signs point toward a large number of them leaving after the end of their lease. 

So, if you think vacancy is high now, I’d recommend you buckle up.

As I noted, San Francisco is only the poster child for this phenomenon. San Francisco came in dead last in the Urban Displacement Project’s ranking of 62 cities’ downtown recoveries from Covid and lockdowns. But the rest didn’t do well either. Only four of 62 cities had fully recovered, with the average being somewhere in the 60% range (San Francisco was at 31%). 

This has, quite understandably, led analysts at the Institute of Taxation and Economic Policy to project huge losses in downtown commercial real estate, with San Francisco coming in first (or, more accurately, last).

High Office Vacancy All-Around

As The Business Journal notes, “Office vacancy is on the rise everywhere, but the rate of increase in downtown office vacancy is outpacing that of suburban office.”  

They quote Ian Anderson, senior director of research and head of Americas office research at CBRE, who points out that,

“Downtowns across the U.S. have gotten clobbered much more through the crisis…People have been much more comfortable driving to work in suburban locations with less density, so that’s favored them more.”

Indeed, downtown Los Angeles office space has hit 25% vacancy. In Manhattan, it’s over 17%, downtown Portland, Oregon, is at 26% vacancy, and in Washington D.C., it stands at 20%.

And all of them have the same problem with pending move-outs once pre-Covid leases expire.

Typically, suburban vacancy rates are substantially higher than downtown rates. But the latest report from CBRE has shown the two rates have not just compressed but actually flipped.

The increase in vacancy rates has tapered off this year (for now) as Covid receded and various restrictions have been lifted. Even still, vacancy rates have leveled off over 50% higher than where they were before the pandemic.

The First Cause: The Pandemic and Downtown Deterioration 

Obviously, the immediate cause of this commercial real estate calamity was Covid-19 and the subsequent lockdowns. 

A report from The Visual Capitalist noted in September 2020, during the first year of the pandemic (but after the most severe lockdowns had been lifted), that small business revenues in 52 American metro areas were down between 13%-49%. (And, of course, San Francisco was the city where they were down 49%). Furthermore, “Small businesses in the leisure and hospitality sector [had] been particularly hard hit, with 37% reporting no transaction data.”

The New York Times also pointed out that as many as 400,000 small businesses closed, and many went under, never to return.

Downtowns were hammered during the height of Covid, with places like Manhattan looking like a ghost town. And while things have gotten better since then, the damage done cannot easily nor quickly be fixed, especially since many downtowns have notably declined in quality since then. 

A lack of proper maintenance and upkeep causes deterioration, making fewer people want to visit or work there, reducing the area’s revenues and funds available for maintenance and upkeep even more so, and the vicious cycle perpetuates itself. 

Other policies have also caused significant issues as well. Unlike some memes you may have seen, California did not actually legalize stealing $950 or less, but it did downgrade and deprioritize such crimes leading to a noteworthy uptick in shoplifting which has led multiple retailers to relocate. Walgreens, for example, has closed 10 stores in the city, including several downtown and cited “organized retail crime” as a leading cause.

In general, crime is on the rise throughout the country, and that tends to be worse in densely populated areas, which makes downtowns less desirable. 

The Martin v. Boise decision also made it difficult to remove homeless encampments from downtown areas unless the city has sufficient homeless shelter beds for its homeless population. Unfortunately, very few cities have enough beds to do so, and California’s “housing first” instead of a “shelter first” policy has resulted in a much larger homeless population sleeping on the streets at night. Thus, tent cities accumulate in high-density areas and often dissuade foot traffic and lower demand.

Unfortunately, as things get worse, they tend to spiral out of control as you reach a point where people don’t see the point in putting in any effort to improve a situation because their effort would make almost no difference. 

Why pick up litter in a garbage dump? In fact, why not litter yourself?

This has gotten so bad in San Francisco that someone even made an interactive “poop map,” and the number of “human feces incidents” on the streets, showing that it had increased by over 500%, even before Covid struck.

And again, while I’m clearly picking on San Francisco, this is a problem in many large coastal cities and really throughout the country as well. 

The Second Cause: Work From Home

A while back, flex work was all the rage, and futurists dreamt of a time where everyone would work from home and live happily ever after. Then Covid hit, and those dreams were, more or less, realized.

And it turns out that working only from home drives a lot of people crazy.

That being said, many (probably most) people love the option of working from home and want to be able to do so 1-2 days per week. And there are some who prefer it and would like to work from home all the time.  

The Census reported that the number of people working from home tripled between 2019 and 2021. Companies like Twitter (but certainly not Tesla) now allow employees to work from home as much as they want.

A survey by McKinsey & Company found that 87% of employees who are given the chance to work from home take it at least sometimes. They further found that 35% of job holders can work from home full-time and 23% part-time.

That seems a bit high to me, but such arrangements are certainly on the rise. Further, some research shows that people who work from home some of the time can be even more effective than those who only work at the office.

What this means for commercial real estate is that we don’t need as much office space as we did before. Sure, companies still need offices (working only from home makes a lot of people feel really “cooped up,” and zoom meetings can’t completely replicate the real thing). But those spaces don’t need to be as big. And we don’t need as many of them.

Furthermore, the ones that will be hit the hardest are the ones that require the longest commutes to get to. I know I would be much more apt to work at home if my commute was two hours of traffic!

And in the spirit of continuing to bash San Francisco, the average commute for San Francisco residents is the third worst in the U.S. at 34.4 minutes each way. The worst is New York at 37 minutes, and the national average is 27.6 minutes.

Lastly, as BiggerPockets’ Ben Leybovich pointed out, “Another major issue is vintage and the functional obsolescence that comes with it. Huge swaths of commercial real estate in old primary markets are aging. Before the pandemic, people were in those units by inertia. Now, nobody wants to go back there.”

It will cost huge sums of money to upgrade these outdated and sometimes obsolescent units.

Risks and Opportunities

Needless to say, right now is not the time to be buying downtown office real estate. Offices, in general, are something investors should be cautious of. But if you are going to buy office space, smaller units and buildings are safer. As far as commercial real estate goes, restaurants, industrial and retail are a better bet (although with retail, large outlets are still at risk of being bled out by Amazon). 

That being said, every bear market has a trough. There will continue to be demand for office space in the future, and there will continue to be demand in downtown areas. We have, after all, seen this story play out once before. Downtowns throughout the country deteriorated drastically in the 1970s before making a major comeback in the 1990s and 2000s.

Right now, there is still an enormous housing shortage in the United States. In 2020, Freddie Mac released a report arguing there was a 3.8-million-unit shortfall in available housing units. And the pandemic and lockdowns slowed new construction to exacerbate that gap.  

The National Association of Realtors even has an interactive housing shortage tracker with a map of where the problem is the most acute.

As you can see, the biggest housing shortages are in many of the same areas that are having and will continue to have severe vacancy issues in commercial real estate.

Despite crime and livability issues, many people love living downtown and being “close to the action.” Once the bottom falls out (probably around 2024), there should be major opportunities to convert old office buildings into swanky condos and apartments.

Sure, it will be very capital intensive, but for those looking for big projects in the relatively near future, this is definitely something to keep an eye on. 

Run Your Numbers Like a Pro!

Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. Real Estate by the Numbers makes real estate math easy, and makes real estate success inevitable.

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

CNBC’s Diana Olick joins ‘Squawk on the Street’ to report homebuilder sentiment dropped eight points in October to 38, according to the National Association of Homebuilders Index.

Rob:
This is the BiggerPockets Podcast show 676. This particular house didn’t have a fridge, so we bought a fridge, and that the wrong fridge was delivered to our house. Not one time, Dave. Not two times, Dave. Not three times, Dave.

Dave:
No. No.

Rob:
Not four times, Dave. Not five times, Dave.

Dave:
Wait.

Rob:
Six times. Six times in a week. What’s up, everybody? You got Rob here. We’re shaking it up today. I’m joined here by my co-host, Dave Meyer, as we go through the triumphs and tribulations and victories and downfalls of my short-term rental portfolio, completely transparent and out there for the world to learn from. How’s it going, Dave?

Dave:
Great. Thanks for having me. I am very excited to be here, because even though I come on and I do bigger news, you and I have never hosted a show together. This is the inaugural journey of Dave and Rob.

Rob:
I know, the beginning of a budding bromance as they say.

Dave:
I can’t wait. Well, it was fun doing this interview.

Rob:
So do you feel like… I know that you have some property management. I know you’re involved with some of your stuff, but after this episode, how do you feel? Do you have the appetite to get into self management on the short-term rental side?

Dave:
I don’t just because it’s not logistically really feasible for me because I live in Europe, but no, honestly, I self-managed my long-term rentals for the first eight years. You just learn so much. I think it would be very difficult for me to have hired a property manager without having self-managed at least for a little bit. You can, but I just feel like you learn what to expect. That way, when a property manager comes to you and they’re like, “This thing’s broken,” you don’t blame the property manager. You know these things just happen.

Rob:
Sure.

Dave:
You get used to it. That’s what I loved about the show is that you really just bear it all, and explain to people how things go wrong, mistakes that you’ve made. Honestly, a lot of them aren’t even mistakes, just things that go wrong that you can’t really control, but it’s super helpful to learn and see that even experienced, successful short-term rental investors like yourself still have these challenges, and normalizes some of the challenges. I think everyone listening to this will learn a lot from what you’ve been through.
Just in the last week, all these things that Rob’s going to talk about are just things that happen in a single week.

Rob:
It’s not always fun, but it’s always awesome. I mean, all the things we’re going to talk about today, 10 things. I actually had to cut out five out of the 10 just for keeping this podcast very nice and concise, but I cut out 10. We’re going to be talking about basically my learning journey in systems and everything that I’ve put in place to fix it. But before we get too far into today’s episode, we’re going to get to today’s quick tip. I think, I’m doing a good David impression on that. I hope he approves.

Dave:
I like that you’re doing an impression of David doing an impression of Christian Bale.

Rob:
Batman. That’s right. That’s right. It’s an impression of an impression. I don’t even know what that is at this point.

Dave:
Oh, you’re nailing it.

Rob:
Impression squared. Today’s quick tip is when you make a mistake, or you have a failure in your business, regardless if it’s short-term rentals, flipping, multi-family, anything like that, take that mistake and figure out how you can avoid ever making it again by creating a system or a process. Today, we talk about 10 different things that happened and all the different systems and processes that that has created for me, my workflow, and all the workflows of my different employees as well.
Also, if you just want to connect with others, and learn from their mistakes and learn how you can create processes through those, be sure to hit up the bigger pockets forums. There are people connecting there every day, networking, learning from each other, and sharing real-life experiences. All right, with that, let’s get into today’s episode. What’s up, man? How’s it going? I’m excited to talk short-term rental tragedies with you today.

Dave:
I am too, man. I mean, I have a little bit of experience with short-term rentals, but I’m sure the depth and drama of your tragedies are like nothing I’ve ever seen.

Rob:
It’s very funny, because I obviously talk a lot on YouTube about my short-term rental journey. If you’ve followed along since the beginning, most people effectively saw my Airbnb journey go from one unit to 15. Then as of last month, I went from 15 to 35. Then if things continue to go the way they are, then I’ll go from 35 to 58 here in the next couple of months, so scaling very quickly on my end of things.

Dave:
You’re going to have 58 times more problems over the next couple of months. I guess it’s good that you’ve had some training to give you the experience to deal with them better.

Rob:
For sure. That’s actually what I wanted to talk about specifically today, because obviously, I really do believe that all real estate is very accessible to the everyday person. For me, I believe that wholeheartedly about short-term rentals. I think they’re very scary to a lot of people, and it’s the vice versa, right? I get a little scared thinking of long-term rentals and thinking of all the things that can go wrong with that. Then most long-term investors that I talk to are like, “Dude, are you kidding me? It’s so easy. I’m scared to go into short-term rental, because I’m scared of all the things that can go wrong there.”
I’m like, “Are you kidding me? It’s so easy.” I think I wanted to give a little bit of context to my journey today, and really just talk about how things do go wrong. This is just true. Things go wrong when you’re self managing. This is going to be a self-management masterclass for anyone that just wants to understand the ebbs and flows, the highs and lows of short-term rentals. I’m just going to talk about today 10 things, 10 things that went wrong in my short-term rental portfolio last week. This is the crazy part.
I actually just recorded a YouTube video on this, and it was actually 15 items. But for the sake of the pod, I decided to cut it down to 10, and just give you my 10 juiciest stories and hopefully some learning experiences that came from each one. Does that work?

Dave:
Yeah, man. I’m excited to hear about them.

Rob:
Well, don’t be too excited. I mean, I’ll have a little bit of a sweat and PTSD throughout this episode, but it’s okay. We’re going to take it item by item here. So let’s start with number one. Number one was a story of guests that locked themselves out of my property. Now typically, when you’re in the short-term rental game, you try to do your best to automate the idea of check-ins. You don’t want to be there checking people in. I mean, obviously, that’s a very nice amenity if that’s what you want to do. But when you have 15, I just can’t hire 15 people to be there at the door.
We have a lot of different processes for this. One process is we take photos of all the different steps that you have, the literal steps that you have to take to get to the home, picture of the door, a picture of the keypad, and then you basically give them the keypad combination. So for me, when I was getting started in short-term rentals, I actually did use to check people in on my very first apartment. Then I figured out the idea of a keypad or a lockbox, and then I figured out that you can do an electric keypad.
I was like, “Man, this is awesome.” Then now, it even goes one step further, Dave, where you can actually do a keypad that syncs up with your property management system, and every single time a guest checks in, it changes the code for every single reservation to the last four digits of that guest’s phone number, so it makes it very, very easy. What kind of self-checking stuff are you doing on your property?

Dave:
That’s actually what I have, but I have a professional management company. I live in Europe, and I have automated as much as physically possible. I pay for it. It definitely costs a lot, but one of the benefits is having that kind of technology. I mean, given that you know about all this stuff, how did they lock themselves out?

Rob:
Right. Right. Right. This is where it gets very interesting. I’ve done this for five years. I’ve never really been in this specific situation. So basically, even though I have an electronic keypad, there is a deadbolt on the handle under it. The guests left, and then they came back, and they said, “Hey, the code isn’t working.” I was like, “Well, that’s probably not true because the code was working the whole stay. It’s been a week.” They’re like, “I don’t know.” Then they’re like, “I hear it, but it’s not actually doing it. We still can’t get in.”
Then they’re like, “It’s possible that we locked the deadbolt.” I was like, “Oh, well, I mean, if you’ve mentioned it, then you probably know that that’s the case, right?” I’m like, “Oh, okay. It’s no big deal. Let’s just make sure it doesn’t move.” They’re like, “No, it doesn’t move.” I was like, “All right, well, good news. I actually have another lock downstairs. There’s a back door entrance where you can get into the home.” She’s like, “Great. Fantastic. Shoot me the codes over to that.” I said, “Great.” All good. I’m… This is a Sunday.
Let me just say, Dave, I really pride myself on managing my places one to two, sometimes three hours a week. It’s very minimal. That was not true for this last week. That’ll probably be obvious as I move through every single one. But basically, it’s a Sunday. I’m trying to have dinner and make lunch and all that type of stuff. Then basically, she calls me, and she says, “Hey, that code is not working either.” Then I was like, “Well…” I mean, I’m looking at my app, and it actually says it’s unlocked. She’s like, “No, we hear it unlocking, but the door isn’t unlocking.”
They’re like, “Come to think of it.” She’s like, “I actually think I left at a different time than the other people in my group.” This was a 13-person group, and I think that they might have locked the deadbolt. I was like, “Well, you’re there with 13 people right now. Do you think… Maybe just confirm.” She’s like, “Yep, that’s what happened. Do you have a key?” I was like, “Well, I don’t, because typically, the other door is the fail safe.” I was like, “How did you leave? How did you lock yourself out?”
She basically was like, “Oh yeah, we left through the garage. We locked both the deadbolts, and we left through the garage. We weren’t really thinking.” She’s like, “I’m so sorry for the inconvenience. This is totally on us.” I was like, “Oh, okay. Well hey, let me get my handyman over. He’s pretty good at getting into my house. He always finds a way.” He comes out there, and he basically says, “Hey, man, confirmed. They did lock both of the deadbolts.” He’s like, “I can try to get into the garage, but it’s probably going to break if I do.”
Then I was like, “All right, well, give it a shot, and let me know.” He calls me back five minutes later. He’s like, “There is no way I can get in without breaking your garage.” I was like, “Oh shoot.” So at this point, it’s been an hour, and these are 13 guests sitting outside of my home. They’re getting a little antsy. I’m like, “I’m so sorry.” Obviously, even though it’s their fault, I’m like, “Let me help you. I’m going to get this taken care of.” I’m just going above and beyond to help them out as much as I can. Basically, I call a locksmith, Dave, and the locksmith, I call four of them, and they’re all going to be 250 to 300 bucks.

Dave:
Oh my God.

Rob:
I was like, Well, that’s the tax, the dummy tax for me.” I was like, “Okay.”

Dave:
Better than breaking your garage.

Rob:
It is better than breaking my garage.

Dave:
It’s cheaper.

Rob:
Here’s where it gets really spicy, the plot that is. Basically, I call one guy, and then he’s like, “Hey, actually, it’s going to be $100. I can be out there in 45 minutes. Everyone else was going to be two hours.” I was like, “Oh, you are the greatest man known to all real estate investors in the world.” He’s like, “No problem, man. I got you.” Well, he says he’s going to be there in 45 minutes. He never shows up. He never shows up. The guests call me, and they say, “Hey, we saw someone come about 25 minutes ago, and then he turned around and left.”

Dave:
What?

Rob:
Then I was like, “Well, that’s not good.” I know. I was so… I was just like, “I can’t believe.” I just want to eat my Chipotle burrito, Dave. That’s all I want in life is just to eat my Chipotle burrito, and so-

Dave:
You and me both, man.

Rob:
Do they have those in Europe?

Dave:
No. Man, the Mexican food is terrible in Amsterdam.

Rob:
I know.

Dave:
But no, I sympathize even if it’s not a burrito. I just want to eat a-

Rob:
Well, they do have a Vapianos over there, which is one of my favorite.

Dave:
What’s that?

Rob:
It’s like European pandera. Sorry, no, sorry, it’s like European Panera. Pandera is… Is that even a thing? I don’t even know.

Dave:
No, I think you made that word up, but I like it.

Rob:
Hey, that’s what we do here at BiggerPockets. Anyways, I call… Listen. I call and I say, “Hey, what the heck? I heard that someone showed up,” and then the lady on the phone was like, “Oh yeah, he drove up to the property, and he didn’t see anybody, so he turned around and left.” I was like, “That was an-hour-and-a-half ago. You didn’t think to call me and tell me that.” She’s like, “Oh yeah, sorry.” I was like, “He didn’t even drive to the house. He just drove to the beginning of the driveway, made the executive decision that 13 people weren’t standing in front of the house, and he left.”
So needless to say, that did not result in a happy guest. They actually ended up breaking into my house. They did the thing that the handyman didn’t want to do, and they broke into the garage. Dude, it was a big headache. That one, to me, that was a big L on my part for several reasons, because it was the guest’s fault, but it was also my fault. I just got to take the L on that one, I think.

Dave:
That’s a tough one. I mean, it’s hard to control for every situation with your tenants, especially people who are in a short-term rental game. You have people who are new to your house by definition. Is there anything you learned from it that you think to help you try and avoid something like this in the future?

Rob:
Yes, I did. It’s also a very obvious one. Let me just be clear with that, but I usually have a backup to a system, right? So the backup to the front door being locked is the back door being locked, and it’s like, “There’s no way that this will ever fail on me,” and it did. The learning is just to have an extra keypad with keys to the specific deadbolt. Now, we’ve done that. My handyman went out. He bought a little keypad, keeps it under the deck. Like I said, I mean, this has never really happened where the guests locked both of the doors, but just because it hasn’t happened before doesn’t mean I shouldn’t have been prepared for it.
I’ve learned to basically just keep just the original, the time tested, physical key on the property. This was not just the only occurrence that happened this week, Dave. I actually had another guest at a different property lock the screen door in front of the front door, and so they were locked out. Luckily on that one, we basically had other doors that they could get into. Took a lot longer to figure out than they realized. It’s the same code. A lot of messages back and forth, but this one really sank me for a solid five or six hours probably.
So on that one, we learned on screen doors, it’s a force of habit for people. They just will lock it if they do that at their own house. So, we’ve just now replaced that lock, or we’re about to replace that lock with a non-locking door doorknob, which, is again, very dead simple. It makes a lot of sense. If guests can lock themselves out, they will. That was the hard lesson for me. Let’s move into the second thing here that happened this week that really… Again, lots of gray hairs that happened this week as a result.
David and I just bought this really awesome 6,000 square foot apartment, sorry, 6,000 square foot Spanish mansion in Scottsdale. The water heater broke in it, and it’s a luxury place. So theoretically, obviously, you need hot water with any luxury place, right?

Dave:
I think you need hot water with any place.

Rob:
Arguably. Arguably, that’s true.

Dave:
I think it’s important.

Rob:
Oh man, so this was a $3,000 setback for me, and I’ll tell you why. So basically, this was a gladiator, or it’s like… I think the brand was Rheem Gladiator, which is the Home Depot brand. Apparently, it’s just a very niche brand that no plumbers would really touch. I don’t really know why. It didn’t make a lot of sense to me. But we called 10 different plumbers, and they were like, “Oh man, sorry, we don’t service that.” So, we were just trying to get someone to fix it, and we were hoping that maybe it was a user error. Sometimes you can just click the on-off button on the water heater, it’ll turn back on.
These guests were just like, “Hey, we get it. It’s not your fault. Water heaters go out. We even looked at the label at the front of it, and it says that it was manufactured in 2019, so it’s a relatively new water heater.” So I was like, “I’m sorry.” I really was just putting on my customer service hat, really trying to accommodate them because they did have kids, and they were talking about they were all having to share basically. We have a little casita at the back of it, so they were all having to share and do all that kind of stuff.
I basically was like, “Look, I will refund you the amount of days that you don’t have hot water, so it basically ends up being a free stay.” She was really… I mean, honestly, she was so nice, because she didn’t have to be. When I called her on the phone, basically, she was like, “What you’ve done for us, and how you’ve treated us, and how over and beyond you’ve gone just really goes to show how great of a host you are. We really appreciate it.” I was like, “Oh my God, that is so… That really moved me.” She’s like, “But as mentioned, do you think you could still refund us for the three nights?” I was like, “Of course. Of course.”

Dave:
I mean, that’s just one of those things. I’ve been there. Either both on short-term rentals and long-term rentals, there are certain things you just can’t make up for. Locking yourself out, there’s some mutual-

Rob:
There’s a system there.

Dave:
… mutual fault there. But man, you need hot water. You need heat.

Rob:
You do.

Dave:
When these things happen, there’s almost nothing you could do, I guess, except try and be a good person, refund their money if they’re not getting the experience that you intended. But man, is there anything else you think you could do to avoid something like that?

Rob:
No, but I think the lesson was really just… This is a tough one, because we have a home warranty, right? Typically, home warranties do cover system faults like this, but the one really big issue with home warranties is that they’re not super fast. Really, the premise of them is to not serve you super fast so that you are forced to go out and pay for this repairs or the replacement without involving the home warranties, especially in the short-term rental world. We have it for the really big systems, but in this instance, because I was trying to…
We thought it was going to be a very easy fix, but again, it was such a niche model that every plumber in town was like, “Even if we could get parts, we still can’t get them for 10, 15 days.” So I just knew relatively early on that we just couldn’t wait to get that fixed. I think the thing that I could have done faster is just knowing that water heaters are not necessarily super expensive, and so I could have just replaced that right from the get go. It’s just not necessarily something you want to do. You don’t want to always go straight to replacing an appliance. It’s not the most financially responsible thing to do.
But effectively, I ended up replacing it anyways. I replaced the $600 heater. It was $1,000 in repairs, so that’s $1,600. Then I had to refund $1,500 in nightly rates, so I ended up spending $3,000 for something that honestly probably would’ve cost $80 to fix if the parts were readily available. So for me, at this level and at this level of my portfolio, I am always just trying to address problems as quickly as possible, because refunds typically cost a lot more than the actual replacement cost of whatever you’re trying to fix.

Dave:
Totally, especially, man, with water heaters too. I don’t usually preemptively replace things. That’s not a great move. But with water heaters, that might be the one exception to the rule. If it’s been… I think, most of them last seven to 10 years. If you’re getting up there, that’s one of those things. You’re going to have to replace it anyway. Rather than trying to squeak out another six months or a year, just bite the bullet, and avoid what you had to do with refunds, but sometimes they flood. They break. That’s one of those things you just want to be a bit ahead of.

Rob:
Oh my gosh. Well, and it’s tough, right? Because I’ve got a business partner on it, right? I got to think of their best interest as well. So in my personal portfolio, I may have just swapped it out. I’m not really sure. I think I would’ve. But usually, it is. You try to fix it if it’s a simple thing, but because once you start having other partners in investors, you really have to start thinking of things a lot bigger than how you would personally handle it. So, that’s something that comes to mind really often in my 15-unit portfolio and now 35-unit portfolio is speed actually does save you a lot of money a lot of the times in this game, especially for something like this, especially on a luxury property where now, we’re charging about…
I mean, peak season coming up, $2,000, 2,500 a night, so one night of a refund could really be quite detrimental to you. Luckily, we were still in the slow season, so it was $500 to $700 a night reservation, but in a couple months from now, it would’ve been a multi-thousand dollars event. Actually, it still was now, but I guess more than $3,000. There’s that. That’s number two. Let’s keep these moving, because the sweat is already beginning to form.

Dave:
You’re just having flashbacks from that last week.

Rob:
Yes, hot flashes if you will. Number three, the AC went out at a different property. This was fun. Again, I’ve never had an AC problem ever up until this moment, but hey, that is why you have a CapEx account, right?

Dave:
Where is it?

Rob:
It’s in Gatlinburg.

Dave:
So it’s hot.

Rob:
It’s hot. It’s hot. Here’s what happened. There’s a misconception out there with most people that if you go to your thermostat, and it’s on 70, and it’s warm, and it’s cooling down, that if you go and you crank it down to 50, that it’s going to make it colder. That’s not how it works. Effectively, the way air conditioners work, from my understanding, not a tech, but basically it just shoots out the cool air until it reaches the temperature that you want it to reach. Just because you put it at 50 doesn’t mean that the actual air is coming out any colder. That’s not how it works.
It just will basically keep running continually until it reaches 50 degrees, which is effectively impossible for any old AC system in a house. I mean, maybe it is, but I doubt it. What do you think happened? The guest goes in. They’re like, “It’s a little warm.” I’m like, “All right, just turn it down.” Basically, they turned it down to 50, and because it was already basically cool, they never turned it back up. So, the AC basically ran for hours and hours and hours, and it froze up. The coil froze up. I was like, “Man,” and so they were basically out of AC for that day until the coil melted and could actually start to function again.
This, again, a very expensive repair for me, because I had to get the AC guy to come out, and both times, he’s like, “Yep, here’s the good news. There’s not much I can do. Here’s the bad news. It’s going to take about 68 hours for this to thaw.” I was like, “Beautiful.” I think that one put me back around total, that AC system that week, I want to say it was about $2,600, man. It was a fatty.

Dave:
Wow. I mean, have you tried Nest or Ecobee or any of these smart thermostats? That’s what I have, and I can control my tenants, what they’re doing with the thermostat. I pretty much let them do it. I mostly use it because I only have one short-term rental, but it’s in the mountains in Colorado. I don’t need it heated in the winter if no one’s at the place, so I can control it and turn it up. I wonder if that same thing would work for an AC.

Rob:
It would. Actually, that was my learning experience.

Dave:
There we go.

Rob:
This is really what it comes down to is that I don’t typically go out and replace things willy-nilly, unless I really have to. So if a house has a functioning thermostat, I’m not really going to go in and spend $200 and then whatever it might cost an AC tech to come out and swap it out, because it works, right? There’s no problem with that. When I actually moved into this house, and I was getting it ready for Airbnb and everything, one of the thermostats was faulty, and so I actually did upgrade that to the Nest. However, Dave, I have three air conditioning units on this property.
The other two thermostats were still the more primitive thermostats, just your typical one, not controlled by wifi. But now knowing the ramifications of that, and the fact, the Nest, like you say, you can set a bottom out of 70 degrees. That way, even if they try, they can’t get it any colder. It shouldn’t really matter, because you’ll never really need it to be colder than 70 degrees. I mean, if you wanted it to be 68, I guess you could still put that at your bottom, but it would at least block the people who try to do the whole hotel thing where they walk in, set it to 50, and leave so that it’s freezing when they come back.

Dave:
All right. I mean, they’re not cheap, but they can’t be worthwhile. Pain in the butt to install too, depending on your wiring, but they are very useful. That’s a good lesson. All right, what’s number four?

Rob:
Oh man, this one was a flub. I will say I’m dumb, but also, I have automations in place for this exact reason. All right, so a guest calls me, all right, and she says, “Hey, I’m coming to your house. I’m really excited. Can you shoot me the address?” I think she texted me that. Now, I have automations in place that the day before you check in, I send you all that information. I say, “Hey, all that information is in the trip details under your reservation. Also, here’s your guest book. It’s a digital guide, and if you use this, it’ll give you all the check-in instructions,” so I rarely have people that call me for this type of thing.
Actually, it’s pretty much, I would say in the last year, maybe two people, maybe. But there is one house, the house that I was just talking about. Sometimes I might get that type of question, because there’s not a lot of service there, and so I figured maybe they weren’t able to get the Airbnb app pulled up. So I was like, you know what, instead of being mini passive aggressive and saying, “As per the message I sent you literally two hours ago, here’s the information.” I was just like, “I’m going to help her out,” so I shoot her the address via text. She calls me, and she says, “Hey, this isn’t the house.”
I was like, “What? Can you clarify? What exactly do you mean by that?” She’s like, “This looks completely different from the photos.” So, sometimes you do have guests that are… They’re like, “Hey, these photos make the place look a lot more spacious than it is, or you used the filter on this, and this is actually…” You might have that every so often. I was really just trying to get to the heart of the frustration or the issue. She’s like, “Well, we booked a chalet, and the photo or, sorry, the house that we’re at is a house. It’s like a cottage.”
So when she texted me, and she said, “I’m on the way to your house.” I thought she meant the house, not my cabin/chalet, so I texted her the wrong address to the wrong house. I was just like, “Man, I should have just done the passive-aggressive thing, and said, “By the way, I sent this information to you yesterday, and this was…” I was like, “Man, I was just so annoyed with myself, because I just didn’t ask.” So luckily, the house was only… I mean, I don’t know. Now, I guess I’m not going to say luckily, but it was 45 minutes away. So luckily, it was within reach. Unluckily, it was pretty far away still.
They weren’t really happy about it. I was like, “Hey, I’m sorry.” I always call. If there’s a really big issue, I call. Text is not a really good place to work something out with a guest. So I call him like, “Hey, I’m so sorry. This has never happened before. I have two houses. Typically, people call me about this one. This is on me. I’m sorry.” She’s like, “No. No, it’s okay.” I mean, her husband, you could hear him in the background, and he was like, “Ask him if he’s sure. Is he sure that this new address is definitely it?” I’m like, “It is. It is. I’m so sorry. I’m the worst.”
The learning experience here is just to double check. She gave me her name. She was like, “My name is Megan.” I was like, “I casually remembered that,” and I didn’t think to check. I was like, “Oh yeah, here it is.” If I had just taken 10 more seconds, I could have saved them 45 minutes, right? Again, that one was a flub on my end. I have the automations in place, but you still can’t automate flubs like that, where you just don’t check, right? I should have double checked. That one’s on me.

Dave:
I mean, being on the receiving end of those passive aggressive host emails recently, I do think they do it for a reason. I’ve asked that question that they’ve definitely sent me the answer to. They’re like, “Just check your housing book.” I’m like, “Oh, yeah, I should do that.” Then when you read, that’s like, “Actually, the host put in a lot of time into this, and I should have probably read it like an adult, instead of just sending the host questions.” But yeah, man, I don’t know how you avoid that one. That’s just it. We’re all human thing. It just happens.

Rob:
Well, yeah. I’m busy too, so I’m living my life, and I automate this for the sole purpose of not having to deal with this kind of stuff. My assistant helps me with all this too. I think she was just busy. Whenever I can… You know what, my phone number’s on the account, so she reached out to me, and I was like, “All right, I’m just going to make this super easy, boom, boom, boom.” Then I get a call. Again, this is a 30-minute conversation, and me checking in and being overbearing with hospitality at that point, and being like, “I’m so sorry.”
Let’s move on to the next one, which is a bit juicier. This one, there was a learning experience that I… Let me just say, for everyone listening at home, I do hate this one the most probably out of all the ones that I’m going to talk about. But I think if you hear me out, you can understand how it would’ve happened. It’s August, and August on the east coast is not the coldest time really. It’s pretty warm, but we do have a cast iron stove in our cabins. We allow people to use that. That’s an amenity that people like.
We had a guest who wanted to light a fire in the cast iron stove in the middle of August when it was 95 degrees, maybe 98 degrees and completely human. So already, that’s just a weird scenario that isn’t going to happen. But effectively, when they opened the cast iron stove, there was a pair of blue jays in there, the birds.

Dave:
Living in there?

Rob:
No. No, they were dead.

Dave:
Dying in there. Oh no.

Rob:
I mean, they looked relatively fresh. They weren’t, I don’t know, rigor mortis or anything like-

Dave:
Wait, how did they get in there?

Rob:
Well, because there’s a flue that goes out to the roof, and so they made a nest.

Dave:
They were nesting in there.

Rob:
Yes, exactly. They made a nest. Basically, I guess the nest fell through, because you could see, and they couldn’t… Poor little things could not make their way out, which is that’s how it works. A little sad, honestly.

Dave:
It is sad.

Rob:
That one is just… We had to apologize. I’m like, “I’m so sorry. Please understand. Well, a, typically, people don’t use this, so we don’t open it.” My guests… Sorry, my cleaners, it is their job to check the cast iron stove literally between every stay whenever it’s being used. But when it’s not being used, it stays empty. I’ve had many cast iron stoves. I’ve had chimneys. This is not something that’s really ever happened, and so learning experience for all of us, and it’s, “Hey, just because the space isn’t being used does not mean that you shouldn’t check it.”
For the most part, it is actually on our cleaning list to check unused spaces like coffee makers, microwaves, cabinets, closets, garages. All that kind of stuff is checked, but a cast iron stove is really more of an aesthetic thing for that part of the year, and so my… Also, like I said, my cleaner, she’s effectively sweating when she’s in there because it’s hot outside, and she doesn’t blast the AC on or anything to be respectful and everything, so she didn’t check.
Now, our learning experience from this is, “Hey, literally, every nook and cranny of the house must be checked very diligently first thing before you ever leave the house.” Now, it is part of our cleaning routine to check for dead blue jays.

Dave:
Wow. I mean, everyone out there, make sure. Check for dead blue jays, very important part of your checklist. Honestly, I have a similar thing, a wood burning stove. I would never even think about that. Especially in the summer, I don’t think anyone’s checking in there. I mean, who’s starting a fire when it’s already so hot? But people want to do it. It’s tough. It’s a learning situation though.

Rob:
Right. Well, and here’s the deal, regardless of whether it was hot or not, there were blue jays in there. So if we had gotten to October, and no one would ever have opened it, there still would’ve been blue Jays in there, right?

Dave:
Sure.

Rob:
At some point, the other shoe was going to drop. But again, maybe at that point, once we start cleaning it out and getting it ready for use, then it would’ve been discovered, but it doesn’t really matter. I take the L on that one too, because I’m like, “Well, it’s such a rare thing that…” That’s what processes and systems are all about, right? Something happens that disrupts your day or your workflow significantly, and so you go back to your team and all of your employees or all of your vendors, and you say, “How can we prevent this from ever happening again?”
All of these things are a form of a system. I now have a manual lockbox outside of my house. I now have a nest thermostat in this house. I have the automations because people always would call me and ask me for directions to my house. I said, “I’m going to put this automation in place.” That one obviously failed on me that one time, but that has stopped this problem from happening. Then now, there were blue jays in my wood burning stove, and so it disrupted my Sunday or my Saturday. I’m like, “This will never happen again, and here’s what I’m going to do to make sure.”
So if you’re listening to this at home, please don’t judge. I mean, this really still happens at a large scale, especially with 35 units, this stuff, this is just another week for us. Stuff like this goes wrong all the time. Then we just say, “All right, this can never happen again. Let’s fix it.” Now, we’ll say typically this week was a little bit worse, probably the worst week I’ve had in a very long time. But all to say, I was never really freaking out because I was like, “Well…” I laugh about these things at this point. I’m like, “All right, that was dumb of me, or that’s a dumb situation. Let’s fix it. Move on. Who’s going to fix it?”
Obviously, it’s not going to be me, because I don’t live in the same place as any of my rentals. So all of this is a learning experience, and just understand this will happen to you at home, sorry, at your short-term rentals all the time. You just have to keep your head cool, and move on because you can’t shut down the business just because you failed one time or 10, like I did this week.

Dave:
Well, it’s not all failure, but I get your point. I mean, you can’t expect perfection. It’s not a personal failure. These things just happen, but your point is well taken.

Rob:
Thanks for the sympathy, man. I’ve been really down on myself.

Dave:
I’m just supporting you, man. I mean, if you counted everything that went wrong, and real estate investing is a personal loss, man, that would be a depressing lifestyle. It just goes wrong.

Rob:
But the good is really good, right? You read the reviews, and you’re like, “I turned this one around. I think I’m always more proud of this kind of stuff happening, and then the guest leaves me a five-star review because of how, out of my way, I went to make it a great experience for them.”

Dave:
Sure.

Rob:
For, I think, 90% of these, I think that worked out. Nine out of 10, I think everyone was relatively happy by the end.

Dave:
Good.

Rob:
Moving on to the second half of this list, number six, oh man, see, this one, not my fault, but we’ll let the audience be the judge of it. Number six, the guests that stayed at my cabin lied about how clean this cabin was.

Dave:
When they got there?

Rob:
Yeah. They reached out, and they’re like, “Hey, we’re super unhappy about the cleanliness of this place, and we’re not comfortable staying here, and so we want a refund. We’re going to leave.” My first assumption when this happens all the time is like, “Oh man, my cleaner’s going to have it. Let’s have…” I’m just like, “All right, no. No, let’s just think about it.” So obviously, I don’t ever come at my cleaners like that, but naturally, I’m like, “How could this… How could it be so dirty that they would feel this way?”
We reached out. We’re so confused because we had just hired these cleaners. We interviewed them. They were amazing. They’re like, “Here’s our process. Here’s our list. We take photos of everything beforehand. We’re going to send you timestamped photos of every clean, so you can see it.” They had actually done one clean for us, and it was really great. The guest was like, “An amazingly clean place,” and so we were like, “Okay, they’re great.” So when this guest reaches out and says that it was left dirty, our first thought is that they forgot to basically clean the place.
I mean, this has happened to me before in my career, in my short-term rental journey. We reached out, and we’re like, “Hey, I’m sorry to bring this up, but here’s what the guest just said.” We sent them photos. The photos, mind you, weren’t really… They weren’t… Let me tell you what the photos were. The photos were… There was a string of hair on the sink, and then there was a used towel in the bathtub, which is how we tell people… We always say, “Hey, can you leave the towel in the bathtub, so we know that it’s dirty?”
So, we bring this up to the attention of the cleaners, and the cleaners basically say, “Hey, listen, I don’t want to get into this with your guests, but they are lying. I can guarantee you they’re lying. You’ve talked to us. You know how seriously we take our job. You know that we’re very good.” So we were like, “Maybe they’re right.” Basically, what happens is this guest is like, “Hey, we’re going to leave. I’m sorry. We’re not comfortable.” We’re like, “All right, we’re checking with our cleaner. Let’s just get to the bottom of this, because we want to… Can we just send her back out so that she can clean this, and make this right?”
That’s always my first thing. If someone’s unhappy about something, I try to fix it as soon as possible. They’re like, “No, sorry, we’re not comfortable with that. We’re just going to leave.” I’m just like, “Okay, fine.” We send out the photos to the cleaner, and she says, “Hey, that white towel, you don’t even have white towels. They said that the dishes were all dirty. When you called me earlier today, I was literally unloading the dishwasher. You know that I washed the dishes, and you know that you don’t even have white towels.”
Then she’s like, “Wait a minute, hold on one second.” She sent me a photo of this one towel that they put in the bathtub at the very bottom of a stack of 10 towels in the laundry room that she took a photo of that was timestamped. She’s like, “There you go. This was a photo that I sent you today of the laundry room of that towel that we don’t even put out for guests. That’s our personal cleaning towel. They took that towel, because it’s our cleaning towel, and they put it in the bathtub to make it look like we left it there. We don’t use that towel.”
I was just like, “Oh yeah.” Again, this is a two or three-hour conversation between me, my business partner, my assistant, the cleaners, and the guests. I mean, it really set us back that Sunday night. This all happens on a Sunday, I feel like.

Dave:
I mean, what… That’s just mean. Do you think they just had another place or… What? That’s weird.

Rob:
There’s a couple things here, Dave. Basically, it’s not really that secluded, but it is in the country. It’s not really that creepy. It’s like there are houses in sight, but there’s a highway in front of it. So, there could be a multitude of reasons. They could have found out that it was just farther than they thought, which we advertise all that stuff very specifically. They could have been turned off by the somewhat seclusion of it. They could have been a little creeped out.
Dude, this happens all the time. People get to a property, and it really matches up to what we say it’s going to be from a seclusion standpoint. They get in their head, and they’re like, “Oh my god, I can’t stay here,” and then they try to find a reason to basically leave. That’s what happened to us this round.

Dave:
All right. I mean, this one is weird to me, because I don’t even know what you do about something like this. But is there anything you took away from this?

Rob:
Yes. It’s that you’re going to have the occasional guest that lies that is just trying to get out of things. This is just a part of doing business, right? So me and my partner were talking this out, so does my assistant, and then I’m just like, “Oh, heck no. We’re not… No, I won’t stand for this. I can’t believe that they would throw our cleaners under the bus, because we had verified…” I mean, the cleaners flat out basically proved that they were lying just to get a refund.
So I was like, “Here’s what we’re going to do. We’re going to call our Airbnb. We’re going to get to the bottom of this. We’re going to let them know what happened. We’re going to show them the proof. We’re going to cancel this reservation, and I’m not going to refund this guy, because this is something that… He’s trying to basically pull one over on us.” I was like, “I’m not going to have that in my business.” So my partner and my assistant, they’re like, “We agree. I think you’re handling this very well considering what the circumstance is.” I was like, “Give me some time. Let me put my daughter down, and I’ll let you know.”
You know the phrase cooler heads prevail, right? I think that’s the phrase, anyways. I put my daughter down, and I don’t know. Just my daughter is the joy of my life, so I was just like, “I left…” After I put her down, and I walked out of our room, and I was like, “It’s not that big of a deal. I mean, it’s $500. If this reservation was $2,009, maybe I would’ve been more adamant about it, but it’s $500.” I was like, “It doesn’t matter. It really doesn’t. On the scale of a 15-unit portfolio…” I flip flop from 15 to 35 a lot, because they’re two separate animals, and the cash flow are different, and there’s investors and all that stuff.
But on my personal 15-unit portfolio, $500 is such a tiny, tiny sliver of the monthly income, and so it just was not worth the several hours. When you value your time, and you have an hourly rate assigned to your time, you got to think about it, and you’re like, “Is it worth $500 for me to spend the next two hours dealing with Airbnb, And then the next 10 hours dealing with a disgruntled guest?” If they are disgruntled, and they went to these lengths to basically lie and get a refund, what links would they go to win this?” They have the check-in information. They can come back. They can break in. They can sabotage us in some capacity.
My name is attached to this in some capacity, the Robuilt name. I believe in that, right, from my brand perspective. I’m just like, “It’s not worth the $500,” and so I basically sent a long thing to my partner and my assistant. It was like, “Hey, here’s what I’m thinking. We just let it go. We just refund them, and we just pretend like this didn’t happen, and we rebook it. How do you feel about that?” Because I wanted to give my partner a chance to chime in, and he was like, “You know what? I think you’re right. Every so often, we’re going to have a guest like this, and it doesn’t happen really ever.”
“So because it’s the first time this has ever happened, let’s just take the L, and move on.” I was like, “Great.” You know what, I slept much better that night.

Dave:
Man, I mean, I think that’s such a good lesson, because this happens in so many different things in real estate just when you’re dealing with tenants or just… It’s not even necessarily with tenants. It’s like you get yourself worked up about short-term things, whether it’s how a long-term rental guest leaves your place, or a short-term rental place. Honestly, you got to just take a look at the long view, man. Of course, you don’t want to let people take advantage of you, and you don’t want to be sloppy with the way you handle your expenses.
But at the end of the day, man, you invest in real estate to make your life better. If it’s stressing you out, it’s just not worth it.

Rob:
Right.

Dave:
Luckily, like you said, cooler heads prevail, and you just have to think about long-term view. Think about how you can avoid these situations in the long term, but not get yourself too worked up about any individual problem.

Rob:
Well, I’d be curious on your side of things, because I know you have a lot of rentals, and I know you talked about how you have a property manager on your short-term rental. What’s that like? I mean, that’s got to be pretty relaxing, right? Does everyone manage your properties, or do you do any self-management?

Dave:
Well, for my rentals, I did self-management for eight years. I was doing that for quite a while. But when I moved to Europe, I’ve outsourced most of my management of my long-term rentals. I actually still do a lot of the leasing. I do a lot of the legal stuff like negotiating new leases, setting the prices, that kind of stuff. But, I have someone do maintenance essentially for me, and turning the properties. With the short-term rental, I am pretty hands off. They come to me. There’s certain dollar thresholds where it’s basically like, if the expense is going to be over $200, they need my verbal approval so they’ll call me or email me, and that’s super easy.
But for the most part, I’ve never talked to a short-term rental tenant ever. I’ve had the place for four years. That’s makes it a little bit easier, but you pay a lot for it. It’s definitely not-

Rob:
You do.

Dave:
… efficient from a financial standpoint. But for me just living abroad, I have chosen to-

Rob:
It has to be done.

Dave:
… to sacrifice a bit of cash flow in exchange for peace of mind, sort of like what you’re just saying. Peace of mind’s pretty valuable. I’m willing to pay for it.

Rob:
It is. It is, and let me just be clear with people. I mean, for me, I don’t want to… I don’t know. I don’t want to undermine how much $500 can be for someone at home. If this was your only rental, and that $500 is the difference between making your mortgage or breaking even or making a profit, fight for it. If it’s just your one, and you got the time, stick to your guns. Do it. There’s no problem with that at all.

Dave:
Totally.

Rob:
In this situation, it’s just not worth it for me at this level, right? $500 for the amount of time that… The thing is I already know what was going to happen. We’re going to say no. He’s going to message me for the next 10 days all mad. I’m going to respond, and then he’s going to get heated, and then I’ll probably be heated, and then we never talk to… It is just not worth it. So I think for anyone starting out, stick to your guns. Choose your battles. That’s effectively what this whole list is about. I’m very pro self-management, and sometimes I have to choose all my battles, and sometimes I have to walk away from all of them just because there’s 15 units.
The show must go on regardless of emotion, right? So if you can pull that out of the equation, and basically just focus on the objectivity of this, then you’ll hopefully just look at the final tally at the end of the month versus the profitability every single day. I think that’s the trap that a lot of people fall into. It’s like, “Oh, this is the reservation that makes me profitable or not.” There’s so much more at stake when you look at it that way versus the monthly bird’s eye view and the yearly bird’s eye view.

Dave:
No, that’s a great point. I’m glad you said that, because that’s definitely true. If it is your first property, and it’s $500, and you’re really relying on that, you’re going to treat it differently. But as you scale, you just encounter different problems, and need to prioritize your time a little bit differently.

Rob:
For sure. For sure. All right, well, this next one, I can’t make this up, Dave. I can’t make this up. I really can’t.

Dave:
I’m nervous now.

Rob:
We were setting up a place here in Texas, a new Airbnb, with an investor. Basically, we make this very easy for the investor. Investor comes in. They invest. They finance the property. We set it up. We’re the operations. We furnish it. We do all that kind of stuff, right? Good and bad there. The bad is we do everything, and we have to furnish everything. That in and of itself is an adventure. However, this particular house didn’t have a fridge, so we bought a fridge, and that the wrong fridge was delivered to our house. Not one time, Dave. Not two times, Dave. Not three times, Dave.

Dave:
No. No.

Rob:
Not four times, Dave. Not five times, Dave. Six times in a week.

Dave:
What? Wait. Is it the same fridge they keep trying to deliver, or did you have six different fridges delivered?

Rob:
Six different fridges, they were wrong. We had the right one at first. That one came in. It was broken. They sent it back. They sent another one. That one wasn’t counter depth, so it stuck out like a foot, because they were like, “Hey, this one should fit exactly the same specifications. We’re out of the other one.” Then they didn’t show up, and then they did show up. So six deliveries later, we finally have a fridge.

Dave:
Oh my God. Oh man.

Rob:
I felt so bad, dude. I felt so bad for my business partner. He’s the operations guy. He was there handling it. Man, I mean, we should have been done with this in a week, but it took two weeks. He was there for a whole week.

Dave:
God.

Rob:
Then they would say, “Hey, we’re going to deliver it tomorrow,” and so he would drive an hour and a half the night before to go wait. Then the morning of, they would say, “Hey, just kidding. We’re going to reschedule this to tomorrow.” He’d be like, “Okay, well, I’m just going to stay the night.” Then he would stay the night, and they still wouldn’t come and deliver the fridge. Then they did, and then it was the wrong fridge.

Dave:
Oh my…

Rob:
Dude, this is not an exaggeration. Every day, he would text me. He was like, “All right, we’re on fridge delivery number four now, number five.” Then, man, I felt so bad. No learning experiences here. This is just one of those things.

Dave:
Just a real annoying situation. I guess this is just part of the appliance supply chain issue, right?

Rob:
It is. It is.

Dave:
It’s tough to get anything right now. So if anything goes wrong, I feel like it just cascades and sets off this chain of events where it’s super hard. It’s not like you just drive to Home Depot anymore, and just snag a new fridge. It’s just you could be waiting another couple of weeks.

Rob:
That was… I mean, I can’t say this is a learning experience, because this isn’t logical. It’s just it was the perfect storm of stuff. The only thing that we could have done differently was rent our own truck, go to Home Depot or Lowe’s. Pick out the correct fridge. Hope that it was in stock. Put it in the truck. Hire someone to help us unload it and install it in the house. That’s the only thing that we could’ve possibly done a little bit different, but it doesn’t… Logically, you would’ve expected after the second mishap that the fridge would’ve come, so it’s bad luck. Just bad luck on this, especially since it happened on the same week as all this other stuff.

Dave:
I mean, honestly, I think that’s actually a really interesting point, because it’s like… We’re talking about how to prevent these things and lessons learned, but sometimes you just got to say, “I did the highest probability thing, and it didn’t work out.” That’s okay. You’re going to have to deal with these things, because if you… What you did, what you’re saying you could do as an alternative, it’s just not really practical to do that for everything, so it’s just you got to be like, “This stinks. It’s annoying, but I’m not going to drive my tie myself in knots to try and avoid this one, because it probably won’t happen again.”

Rob:
No. No. Well, hold on, sir.

Dave:
Knock on wood. Actively knock on wood. Oh no.

Rob:
Let’s move on to number eight.

Dave:
No.

Rob:
All right, so this one’s funny. This is a different property in California. My dishwasher went out, and it wasn’t working. Cleaner says, “Hey, it’s not draining the correct way.” I was like, “Oh, well, all right, let me get someone out.” I hire a plumber that… He’s actually… His name is Richard, all right? He works at Home Depot. Him and I have always had a… We’re spirit animals. I go to him. I talk to him about my problems. I’m like, “Hey, man, I need a faucet today.” He’s like, “Yeah, but what else is new with Rob?”
I’m like, “I’m so glad to ask Richard.” He’s my guy. He’s my go-to guy for plumbing stuff. I’m like, “Hey, it’s not draining. I think it’s because the way you install a hose from a dishwasher to a garbage disposal, it has to go up. I don’t really know the details, but basically, it wasn’t like that. So he goes in, and he installs it. He is like, “Hey, you’re good. It should work now.” I was like, “Great.” Basically, cleaner comes the next day to finish the job. She’s like, “Hey, it’s still not draining.” I was like, “Dang it.”
I called him, and he said, “Oh, that’s probably a motherboard thing then.” I was like, “All right, sounds good. Let me get a tech out there.” Tech’s like, “All right, we’ll come out. It’s going to be $150.” I was like, “Fantastic. Come and fix this thing.” He comes out, and he basically says, “Hey, it is the motherboard. We can fix this. It will cost you about $750.” I was like, “That’s more than a dishwasher.” He’s like, Yeah, that’s how it is on these appliances. Sometimes it costs more to fix them than to actually replace them.”

Dave:
Oh, I get that all the time, man.

Rob:
That happened to me one time with my… The very first experience I had with the home warranty, I hit the jackpot, I thought, because the drum inside my dryer broke, and so they were like, “It’s going to be $1,000 to replace. Here’s $800. Go buy a new one.” This was the first week of living in my house, and I was like, “Home warranties are the greatest.” That’s the only time it’s ever worked out for me. The other 15 claims did not work out for me.

Dave:
Dude, I wonder if they do that on purpose. They service your first claim really well, and they’re like, “We’re going to… Now, Rob’s going to buy a home warranty for every property, and we’re going to screw him over on each.”

Rob:
Let me tell you, it worked, because I am always like, “I need home warranty.” Now, I’m like, “I don’t even use it.” It’s annoying to use a home warranty.

Dave:
I know. They are really-

Rob:
I still pay for it. I’m the dummy here. But basically, so here’s several… There’s several stabs in the heart on this one, but basically, they come out. They say it’s going to cost $750. This is like the Boyz II Men like, “How do I say goodbye?” Because this dishwasher, I got for a-

Dave:
Oh, you have a good voice. Is this a known thing?

Rob:
No, I don’t know. We’re not going to get into my singing voice now. I’ve got nothing prepared. I’ve got nothing prepared.

Dave:
I’m impressed.

Rob:
Basically, I’m real sad to say goodbye to this dishwasher, because I got it for free off of Craigslist five years ago, six years ago. It was a stainless steel one. I was like, “Oh my God. Me and my wife were so broke,” and we’re like, “We got a brand new stainless steel dishwasher.” It really did live its life. It lived it full life. My final talk to this thing, I’m like, “You wash dishes really well, and I’ll always be thankful for the service you provided to this family.” This dishwasher is null and void. I was like, “Man, I should call my home warranty.” I was like, “Oh, I don’t have a home warranty on this. No big deal.”
So fast forward, I buy the dishwasher for this short-term rental, because the guest is like, “Hey, your dishwasher…” I was like, “Hey, it’s broken, but are you cool to handwash your dishes until I get the dishwasher? Is that cool?” He’s like, “Yeah, man. But definitely get it in here, because I’m going use it.” I was like, “All right, cool.” I order it. They deliver the dishwasher, Dave. The dishwasher is broken. It won’t open, so they call me, and they say, “Hey, I’m so sorry it’s broken. We have to send you a new one.” I was like, “Put it on my tab.”
They send it out, and then I’m like, “All right, they’re going to deliver it.” Several days go by, and I’m like, “They still don’t deliver it.” I call back. I’m like, “Hey, you didn’t redeliver it?” They’re like, “Oh yeah, sorry. Just a little life pro tip. We always tell you that we’re going to redeliver it, but you have to call to do that, to initiate it.” I was like, “All right, fantastic.” They send out the new dishwasher. The delivery guy… Basically, I don’t really know what happens, but he gets into a screaming match with his manager.
The guest was like, “I don’t know, man, It was so weird. He was on the phone with his manager, and his manager was like, “Do your job.” He’s like, “No, you do your job.” They were fighting back and forth.” So basically, the guy leaves. He’s like, “I’m not going to install this dishwasher.” I was like, “Great.” I actually don’t know if this dishwasher… I don’t think it’s been delivered yet. All to say, fast forward, I actually looked into it. I do have a home warranty on this that would’ve covered this because the mother board was broken. I would’ve just gotten this all handled.
The one time that the home warranty would’ve worked for me actually was this time, and I didn’t even know. I’ve been on the phone with Home Depot trying to coordinate the delivery with the delivery guy, and then this guy, and then they say that they’re going to schedule it, and then they’re going to reschedule it. Then they call me, and they’re like, “Just kidding. I don’t know why he told you that. He doesn’t even work for us. He’s some random guy that just plays pranks.” I’m just kidding. That didn’t happen, but that’s how it feels.
It really… I mean, I’m just like, “Ugh, appliances, supply chains, deliveries, leaving it in the hands of big box stores.” Dave, it just didn’t work out for me. No lesson to be learned here other than don’t buy new appliances. Get them for free on Craigslist. They last a lot longer.

Dave:
For sure. Wow. I was going to say not likely to happen again, but you proved me wrong in the course of one second. Oh man. All right.

Rob:
Two more, and then I’ll leave us with an encouraging word to inspire people back into self-management. I promise.

Dave:
All right. What do you got?

Rob:
Our pool at our motel was days from ruin.

Dave:
What do you mean?

Rob:
I don’t even know how to… Basically, we bought this motel, an inspector comes out. He’s like, “Hey, the chlorine you’re using is illegal.” We’re like, “Oh, that’s fun. Thank you. Thank you for letting us know.” We have to empty the pool. It wasn’t in use. It was already shut down. It needed maintenance anyways. But basically, we have to empty out the pool, which is a hard thing to do. The filter, the pumps, they’re broken. Like I said, it was already shut down. Basically, we empty out the pool. The previous, not the person who sold us the motel, but the person before that runs into the hotel and is like, “Hey, you can’t have the pool empty.”
We’re like, “Why?” They’re like, “We just installed a new liner. The last time that we did this, the liner tore, and the walls caved in, and it costs us $20,000 to fix. You have to fill it up with water as soon as possible.” We’re like, “Right. Hold on. We’re going to do our best,” and so basically, we tried to fill it up with water. The pumps are broken, so we have to go and get the water hauled in professionally from some random company an hour and a half away to fill up this pool. I think we were too late, and there was already a tear. The tear happened in the liner anyways. The walls didn’t collapse.
It’s all fixable, but it was all just one of those things where it’s like, we’re all trying to call pool companies. No one in the one and a half mile radius from Tupper Lake will do that. They’re like, “Sorry, it’s just we don’t have a company nearby.” That’s it. I mean, that was like, “Oh, okay.” Learning experience there, I don’t know. Pools I’m already finicky on. I don’t like pools. I don’t like hot tubs. Watch my YouTube channel, and you’ll understand why. There’s so much maintenance.

Dave:
Really?

Rob:
Yeah.

Dave:
It’s true. Actually, I have a hot tub, and it’s probably the number one thing I have to pay for, and it makes the electricity bill absolutely insane. But, they do say that you get more bookings because of it. I think-

Rob:
You do.

Dave:
Mine’s in a ski town. People love going in a hot tub after they go skiing.

Rob:
You need it. I mean, hot tubs are they add up to 39, maybe it’s $49 to your ADR, your average daily rate.

Dave:
Wow. Worth it. Worth it.

Rob:
It’s a net positive, but stuff goes wrong all the time, dude, all the time with my hot tubs. Actually, nothing went wrong last week, which is weird to say that, because that’s always the one thing that goes wrong in my whole portfolio.

Dave:
Don’t say that that out loud. Now, you’re going to be cursed.

Rob:
No. Well, this doesn’t come out for a while, so maybe I’ll be okay until it comes out, until it’s out in the ether. That one was… But we were already budgeting a $10,000 repair on that pool. We were over budgeting. We were really padding it. It looks like we’re going to use pretty much every dollar of that now. Not anything that we could have prevented because of the circumstances, but learning experience there is don’t keep a pool empty. Apparently, it’s really bad for a pool if it’s got a liner. New knowledge for everyone at home.

Dave:
All right. Round it out. What’s our last one? Is this going to be positive, or are we going to get some uplifting news here?

Rob:
I think so. This one was definitely a customer service, not mishap, I guess save the day, all right? Guest reaches out, and she says, “Hey, I just got to your cabin. Listen, I’m not confrontational at all. I usually would let this go, but this and this and this was wrong.” Basically, there was a hair on the ground. It’s always just a single hair. I think there was two spots in the house where there was a hair. The string lights were broken. They didn’t turn on. We don’t really know why. The string lights, they just… I don’t know. They were two years old at that point.
Then the French doors in the living room wouldn’t lock. They would just open. So, this is typically not a big deal, because it’s on the second story, and no one can actually break in. I mean, kudos to anyone who breaks in this way, I guess. However, we do have bears all the time on this property, and so I think they were really just scared that a bear could break in. Because actually, they do go up on that second story balcony all the time, so it is a plausible scenario that a bear could just be like and then open the door basically.
I’m like, “Oh my God. I’m so sorry. Let me fix all this for you. I’m the worst. Please forgive me. I’m going to make this up to you. Please, we need this five star.” Anyway, you don’t know what kind of week I’ve had, lady. Basically, my cleaners are amazing, man. They really are. Anytime something like that happens, they’re like, “We’re on it.” I called them. They’re like, “We’ll be right out.” Literally, they show up 15 minutes later, and the lady’s like, “Oh my God. You are fast.” I’m like, “I know. Look, if I have an unhappy guest, I’m going to make them happy.”
I get my handyman out there. He says, “Hey, French doors actually do work, but there’s a lock at the top of it. Let them know.” They’re like, “Oh my God. I’m so dumb. I’m sorry. You’re right. It does lock.” I was like, “No big deal.” Third thing, he comes out and he fixes all the string lights.

Dave:
Nice.

Rob:
He replaces them all within a day. So basically, I will say, dude, I killed it on this one, right? All of these, I try to kill it on, but you never… Depending on how disgruntled a guest is, there’s nothing you can do to make it right, even if you’re going over and beyond. But on this one, because I was able to fix all the problems within basically an hour or two, and there wasn’t a power… Oh man, this is annoying. There wasn’t a power cord on my Amazon Prime, because the previous guests stole it, so the actual TV, Netflix and stuff wasn’t working. I had my handyman go out and buy Ruckus, and replace it.
I’m just like… I’m like, “All right, here’s what’s going to happen, lady. Sit down because you don’t even understand how fast this is about to go.” I just got Russell out there. He’s going to Lowe’s. He’s snapping next and cashing checks. He’s getting new Ruckus. I just ordered 48 linear feet of string lights. They’re LED. They will save me money on electricity, and thus provide you the adequate lighting that you need around this hot tub. My cleaners will be right there.” I’m just putting it all out. She’s like, “Oh my God, thank you so much.”
She ends the… She was like, “This is amazing. I’ve never had service this, five stars.” She leaves me that and her emojis and stuff. I’m like, “Great.”

Dave:
Awesome.

Rob:
Then she checks out, and she just says like, “Hey, I just wanted to reach out one more time. This was so amazing. I got to see a bear with my daughter.”

Dave:
Oh, cool.

Rob:
She took a photo of a note that she basically wrote. It was really nice, dude. I always get emotional when I read this stuff, because I’m almost like, “That’s…” She was so nice. She basically wrote this whole little note that was on a sticky note with lines on it. She filled out every inch of it. She was basically like, “I made new memories here. I got to bond with my daughter. We saw a bear. Your customer service was so great.” That rounds us all out to basically say that, look, there will be bad. There will be good. I just want everyone to know it’s okay, because the good truly, truly, truly outweighs the bad.
If you go down my ratings on Airbnb, I’ve got ratings across the board, man. I’ve got 2,000 ratings, all right? I probably have ten one stars, usually stuff out of my control. I’ve got 20 three stars. I’ve got 50 four stars, but I’ve got 1,800 five stars. So if we choose to live by the negative, you’re going to hate this. You’re not going to want to get into it. If that’s something that you dwell on, it’s just not something that you’re going to be fulfilled in doing. This is something that I’ve had to realize as a content creator on TikTok, on YouTube, on Instagram.
Dude, people are mean all the time.

Dave:
Oh my God. [inaudible 01:04:25].

Rob:
I don’t really care all that much. But dude, the people that reach out and say nice things, that say, “Hey, I quit my nine to five because of short-term rentals because you got me into this,” or, “Dude, I just made $8,000 on my first short-term rental, because of a YouTube video that I saw on the algorithm a year ago that you posted.” That kind of stuff is what makes my life. It’s what makes my career is the satisfaction that comes from that. It’s the same thing on short-term rentals. If I were to focus on the 200 bad ones, I’d be so bummed, dude. I’d be very, very, very depressed about my whole portfolio.
But if you just sat through and read the 1,800 positive reviews, it’s very heartwarming. I tear up all the time. I genuinely do. Not every single one, but there are some that it’s just like when it’s a dad talking about teaching his little daughter how to light a fire in the chimney, and he got to do that with his daughter for the first time ever, and that’s something that was meaningful for them. That kind of stuff, I’m like, “Wow, I help someone create that memory forever.”
They will always talk about that trip where they proposed, where they got married, where they celebrated something together, and that connection, that camaraderie, and that bonding all happened under the roof of my Airbnbs. Boom. How’s that? How’s that work?

Dave:
That’s awesome. I love it. That’s a great way to end it, man. I love the positive message. You’re right, man. Things go wrong, and it happens, but you got to focus on the good things. I definitely identify with what you’re talking about with content creation. It’s like, I probably get 50 to one positive to negative comments, but that negative one, it sticks in your mind, and you’re just thinking about it all day.

Rob:
It can. Sure.

Dave:
It’s like, man, if you just think about all the nice things people say to you, your life’s going to be a lot better. You wrapped it up beautifully. Thank you for sharing this stuff, man.

Rob:
Thank you.

Dave:
It’s always helpful to learn from people’s mistakes, and not always mistakes, just hard times. It’s good to know. I mean-

Rob:
A lot of these were… I’ll be very honest about it. A lot of things were things that I could have implemented sooner and all that stuff, but that is the point of today’s episode. It’s like… I’m not perfect. I’m very successful in this industry. I teach people how to do this. Honestly, I just had something happen today on this list. The lady finally left me the review. She called it an epic failure, all this stuff.

Dave:
Oh no.

Rob:
I posted it to my Host Camp Facebook group. I’m like, “Guys, even Papa Bear fail sometimes. I failed this one, but I learned, and here’s what I learned. Boom. Boom. Boom.” Everyone’s like, “Thank you. I appreciate it.” That’s what I’m here to do. I’m here to learn the hard way so people can learn the easy way. I know that’s something you could probably relate with.

Dave:
Absolutely, man. Well, thank you for sharing, and thanks for having me on to follow your journey a little bit.

Rob:
I know. Awesome. We got to do more of these.

Dave:
I love it.

Rob:
I had a lot of fun.

Dave:
Same. Whenever you need me, I’ll be around.

Rob:
Awesome, man. Well, Dave, if anyone wants to find out more about you, where can they connect with you? Where can they learn more about you?

Dave:
I mean, you could do it in two places. One is I am the host of BiggerPockets podcast called On the Market, where we talk about the data, news, and trends that investors should be following to make informed investing decisions. Also, you can find me on Instagram where I’m @thedatadeli.

Rob:
Awesome. Everyone, you can find me over on YouTube at Robuilt. There’s a lot of misinformation out there. People that think it’s Rowbuilt, but it’s Robuilt, R-O-B-U-I-L-T. You can find me on Instagram at Rowbuilt. Just kidding, Robuilt. If you want to see me dance and get nerdy, follow me on the old TikTok at Robuilto. You just add an O at the end, because someone snapped Robuilt from me, and they wanted $18,000 for it.

Dave:
What a jerk. I mean, I guess people do that all the time, but it’s fine.

Rob:
It was my domain. It was my domain. They were like, “Hey, I see you own robuilt.co. Would you like to buy robuilt.com for $18,000?” I was like, I like .co. It was 8.99. Well, thank you very much.” What’s a good call out for the… This is Rob for… I don’t know. David’s so much better at this.

Dave:
He is good at it, man. I don’t know.

Rob:
All right, how about this? This is Rob for Dave, we’re all missing David Greene wherever he’s at around the world, Meyer signing out. Goodbye.