\n<\/p>\n
Real estate investing<\/strong><\/a> has changed a LOT <\/strong>over the past few years. For most people getting into rental property investing in the mid-2010s, profitable properties were plentiful, cash flow was almost automatic<\/strong>, and equity was flowing in the tens (if not hundreds) of thousands every year. Unfortunately, this real estate market is long gone<\/strong>. Now, there\u2019s blood in the streets<\/strong> as new investors try to salvage sickly-looking deals that don\u2019t cash flow and come with pathetic-looking profits. And maybe, just maybe, that\u2019s why now is the best time to buy<\/strong>.<\/p>\n Make no mistake, real estate investing isn\u2019t easy, and just buying any house WON\u2019T make you rich. But, the 2023 housing market has far more opportunity than most people think<\/strong>, and David Greene<\/strong>, Henry Washington<\/strong>, and Rob Abasolo<\/strong> are here to explain how. These three investors have been gobbling up rental properties as quickly as possible. And even with lower margins, slim cash flow<\/a>, and limited equity, there is some method to their madness.<\/p>\n If NOTHING you\u2019re looking at is cash flowing<\/strong> and almost every home seems overpriced (especially with today\u2019s mortgage rates), this is THE episode to tune into<\/strong>. In it, David, Henry, and Rob will detail how you can \u201ccreate\u201d a profitable property <\/strong>while the masses sit on the sidelines, as well as go over real, authentic deals they\u2019re doing today to show you it isn\u2019t impossible to invest in 2023.<\/p>\n David: Henry: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Henry: David: Rob: David: Rob: David: Rob: David: Henry: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Henry: David: Henry: David: Henry: David: Henry: David: Henry: David: Henry: David: Henry: David: Rob: David: Rob: David: Rob: David: Rob: David: Henry: David: Henry: David: Rob: David: Henry: David: Rob: David: Henry: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Henry: David: Rob: Henry: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: Henry: David: Rob: David: Henry: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Rob: David: Henry: David: Henry: David: Rob: Henry: Rob: David: Rob: Henry: Rob: David: Rob: David: Henry: David: Rob: David: \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
This is the BiggerPockets podcast show 772.<\/p>\n
The people buying now are the people who are buying in 2009, right? Those people were pumped that they bought in 2009. This is what it looks like. This is what it looks like to build wealth. It\u2019s not pretty now, but I think it\u2019ll be beautiful in the long run.<\/p>\n
We\u2019re always going to be pumped that we bought now 10 years from now.<\/p>\n
I say that constantly. Tell me a person you know that bought a house 30 years ago that says, \u201cI wish I never would\u2019ve done it.\u201d What\u2019s going on, everyone? This is David Greene, joined by my fellow avengers, Rob Abasolo and Henry Washington with a special episode for you guys today. We are going to be talking about how to analyze deals in 2023 in the challenging market that we\u2019re in. The reason that we are making the show is we actually received a one-star review on Apple podcast. We wanted to share that with everyone so they can understand where we\u2019re coming from. The review was titled, \u201cIt used to be my favorite podcast.\u201d
The reviewer says, \u201cI used to listen to the show religiously, but it feels like it gets more negative with each new episode I listen to, and it makes real estate investing seem unattainable.\u201d Now, that was a bit of a bummer. However, we understand where the person\u2019s coming from, right? The one-star review may not have even been reflective of us. It could have just been frustration with the market, or it might be that we\u2019re shooting straight with everybody. We\u2019re in a position here where we could tell you that everything that glitters is gold, and real estate is easy, and you should quit your job, and spend your whole day listening to us. Replace your active income with passive income.
But for those of you that are living in the real world, you\u2019ve seen how unattainable that can actually feel. The show is a reflection of what we\u2019re seeing in the market, and we value integrity over money. We\u2019re never going to tell you anything that we don\u2019t actually think will work, and it can feel like a bummer. We get it. So in today\u2019s show, we are going to be replying and responding directly to this concept that real estate feels unattainable, and giving you some tips, techniques and tricks that work in today\u2019s market as well as where expectations could be set, and what we are all doing to make deals where other people are missing them.
Before we get to the show, today\u2019s quick tip is brought to you by me, and it is, \u201cChange your expectations when it comes to real estate investing, and stop looking at it only for a cash on cash return.\u201d We are going to talk about the internal rate of return. We\u2019re going to talk about tax savings. We\u2019re going to talk about adding equity, buying equity, converting equity, a lot of more high level stuff when it comes to real estate investing that the savvy investors are using to still get returns on their money outside of just a straight cash on cash return. So, think about real estate a little bit differently, and I think after today\u2019s show, we will have helped you do that. Anything you guys want to add before we get into it?<\/p>\n
Well, we\u2019ll uncover later that I\u2019m not good at free styling, so listen to the very end to understand this reference, but no.<\/p>\n
That is perfect. Let\u2019s get into it. Robuilt, Henry Washington, welcome to the BiggerPockets podcast. First and foremost, how are each of you today?<\/p>\n
Good. Good. Thanks for having me on, man. It\u2019s always been a dream to be on this show.<\/p>\n
I know you actually mean that today because you\u2019re not wearing a black pocket tee. You\u2019re wearing a white shirt.<\/p>\n
That\u2019s right.<\/p>\n
Your camera lighting is brighter than usual. You have a bit of an angelic glow as we\u2019re recording here.<\/p>\n
New year, new me, baby.<\/p>\n
Yes. Wonderful. Henry, back in the purp as always. I see. Still looking cool. How are you today?<\/p>\n
I am fantastic, bud. Happy to be here talking to my buddy Rob and David.<\/p>\n
Yeah, thank you for the also ran mention there. If people don\u2019t understand what I\u2019m talking about, go follow us on YouTube. You will see more than you were just hearing, and all of this will make sense. Now, today\u2019s show is going to be a little different. We are venturing into territory that most podcasts are afraid to, but because I\u2019m hosting this thing, and I fear no evil, we\u2019re going to get right into it, and direct this. We received a review about the show, which I think bears repeating with everybody. So, this came from\u2026 It was a review title that was labeled, \u201cUsed to be my favorite podcast.\u201d
The reviewer said, \u201cI used to listen to the show religiously, but it feels like it gets more negative each new episode I listened to, and it makes real estate investing seem unattainable.\u201d The three of us put our heads together there, and thought like, \u201cThis is probably a common theme a lot of people are feeling,\u201d that they started listening to BiggerPockets podcast. They started listening to real estate investing online, and it was this really shiny, blustery object like, \u201cHey\u2026\u201d I don\u2019t know. Is blustery good? I\u2019m even thinking luster, and I just added bluster, so opposite of bluster, lustery object, very appealing. You\u2019re hearing all these stories of people that quit their job after six months, or became multi-millionaires on the power of real estate investing.
People charge into this thing super excited about real estate investing, and then they either get their clock cleaned, or they can\u2019t find the deal that people explain that they got, and they get discouraged and think it\u2019s something wrong with them, or they buy bad deals, because they\u2019re trying to figure out, \u201cWell, if you just buy real estate, it\u2019s supposed to work.\u201d Then no one talks about it. No one jumps up and screams, \u201cI lost a lot of money making bad decisions.\u201d They just slink into a hole of shame, and sit there. We want to just have an honest response to this that real estate is harder than I think it\u2019s ever been.
So, let\u2019s start off with you, Rob. What is your overall experience with the market now versus when you first started investing, and when was that?<\/p>\n
I\u2019m going to answer that, but before I do, I just want everyone at home to know that we read every single review, and we take them all very seriously. When someone leaves us a five-star review, it makes our day. When someone leaves us a one-star review, which is rare, but that\u2019s what happened here, it bums us out. We want to make sure that the show relates to everybody. So, going back to your question, David, what was it?<\/p>\n
I was talking about how you never listened to me.<\/p>\n
Yeah, that\u2019s on me.<\/p>\n
What was real estate like when you first started investing, and when was that?<\/p>\n
I started investing in 2017, so around six years ago. Back then, for me, it was the Wild West. I think true Wild West for short-term rentals in Airbnb was probably like 2010 to 2014, really probably 2010 to 2017. You could have done anything, and made money on Airbnb. But me getting in, that\u2019s when people started to figure it out and figure out that you could actually make big money on it. At the beginning, it was people just renting out a bed in their house, and they were making extra cash on the side. But 2017 is where people were like, oh man, \u201cWe could rent an apartment, and then put it on Airbnb, and make $2,000 or $3,000 a month.\u201d
At that time, it was really, really, really hard to fail. I will totally never say that me getting into this, and building what I built was because of any particular genius. It wasn\u2019t because I made the right decisions. It\u2019s just because I happened to get started when I got started, not necessarily from a time standpoint, but I just started and figured it out relative to the market that I was in. So, I could really walk into any deal, and have a large margin of error. The returns from 2017 to 2021 were pretty unreal. 2021 was the most money that anyone really ever made in this industry. Then 2022 and 2023, that\u2019s when we started to see the calibration in things hitting what I think is really back to normal.
So, a lot of people right now are\u2026 They\u2019re a little nervous because they\u2019re like, \u201cOh my gosh, you\u2019re making way less money.\u201d Overall, I would say most hosts are making between 15% to 30% less year over year on their properties, and that\u2019s a big hit. I can totally understand why anybody would be scared at that metric, but I think that that\u2019s a lot closer to what it was before 2020 and 2021. So when you evaluate everything, it does seem scary, but I just think that we\u2019re calibrating to more realistic and normal returns. Does that make sense?<\/p>\n
Yeah. 2021 was the era of steroids in baseball. There is an asterisk that year. It was the best you\u2019re ever going to see. Now that more people are getting into this, like you were saying, there\u2019s maybe 15% to 30% less returns per property, but that\u2019s because there\u2019s probably 15% to 30% more people that are getting in this, that that money is getting spread around four, which is how equilibrium works. We have the option to tell you the truth, which is what we at BiggerPockets believe is the right approach, and all three of us that are on this show is integrity is more valuable than money. I was just telling someone that earlier today, or try to put some lipstick on that pig, and sell you on a dream, get you all hyped up, get your advertising dollars, and then watch you get destroyed when you realize, \u201cOh, it\u2019s a lot harder to hit that baseball when you\u2019re not on steroids.\u201d
I mean, I think that\u2019s one of the reasons 2021 was so good, and a lot of people do use that as their baseline, which would be a mistake. Henry, what about you? How long have you been investing, and what was it like when you started?<\/p>\n
Man, every time I do a show with Rob where we talk about our history in investing, it\u2019s so aligned. I also started in 2017, so I\u2019ve been doing this for just about six years. When I look at what I was buying back then, we were buying single families, small multi-families, we were buying them at about a 30% to 40% discount. We were either renting, mostly renting them, and then I would do the occasional flip. I was getting at about\u2026 At that time, I was getting between 5% and 7% interest, and so when you hear Rob talk about he feels like this is getting back to normal, that is exactly how I feel. I mean, now we\u2019ve gotten a little past normal on the interest rate side now, because we\u2019re up above that 6% and 7% for investors anyway getting loans, but it has felt more like a reset than a crash or what some people are saying.
So, yeah, it\u2019s been a reset. I think there\u2019s a caveat to my strategy versus Rob\u2019s short-term rental strategy. It\u2019s that I\u2019ve always been trained to look off market. So, I\u2019ve been building systems and processes to help me find off market deals before I even knew that that\u2019s what I had to do. That\u2019s just how I learned this business, and so if my deal flow hasn\u2019t changed from then to now, I get the same amount of deals for the same amount of effort, because looking off market, you\u2019re more buying situations than you\u2019re buying houses, and there\u2019s always going to be a situation where people are willing or need to sell at a discount.
That hasn\u2019t changed, but what has changed is the disposition strategy, because the market is going to reward you in some way, shape or form. It\u2019s either going to reward you through appreciation cash flow or equity. So when I first got started, I was holding a lot, because it was fairly easy to cash flow. I could get deep discounts. I have\u2026 I\u2019m in a market where I can get fairly decent rents, and I\u2019m in a market where the entry price, the purchase prices aren\u2019t through the roof. I\u2019m not in a California or a Florida, Texas New York realm, and so being in Arkansas, I can get good entry prices. So, almost every deal would make sense from a rental perspective, so we kept a lot.
But then 2021 hit, and I started doing the math on, \u201cWell, yeah, I could rent this, and make a few hundred dollars a month net cash flow, or I could sell it, and make $90,000. I just bought it six months ago.\u201d It was really hard to hold those, and so we were capitalizing on what the market\u2026 In sports, David, we say you take what the defense gives you, right? The defense was saying, \u201cI\u2019m going to give you a big bag of cash for this property, and it\u2019s going to take you 15 to 20 years of cash flow to even get close to the amount of money you\u2019re going to make if you sell it.\u201d So, we pivoted by selling a lot in 2021, and I used that as a time to trim the fat in my portfolio. I had properties that were cashed on a little bit that I didn\u2019t love. We would sell them.
If I had properties that were more maintenance intensive than I had hoped, we would sell them, because we could get paid for selling them in that market. So, now, I would say that the defense is telling us, \u201cWell, you\u2019re not going to make a ton if you sell it, and your cash flow is going to be a little difficult.\u201d Now, we have to really pay attention to how we\u2019re analyzing the deals, and then make a call. Mostly, that call right now is, \u201cAm I willing to make a little bit of cash flow, or break even in hopes that when interest rates come down that we get a bump in the market, and appreciation goes up, or do I flip it and make 20,000, 30,000?\u201d So, it\u2019s the same game, but the disposition gets a little different.<\/p>\n
That\u2019s a great way of looking at today\u2019s episode. We are talking about in today\u2019s market against today\u2019s defense, what is it giving you, and how do you take advantage of it? There are times when, if we\u2019re going to stick with a basketball analogy here, where you\u2019re playing a scene with a terrible defense, and your goal is to score as much points as you can, and get your starters out of the game. This was the Golden State Warriors for years. Stephen Curry didn\u2019t even play the fourth quarter, and it gave them a better opportunity to have a better longer season, because they could rest their stars. They could score a lot of points. Teams didn\u2019t know how to guard him.
Then there\u2019s times where the market\u2019s going to give you a very difficult defense like now where you feel like sometimes, it almost might feel like it\u2019s impossible to score. Can you run the defense ragged for the whole shot clock, and make them tired so that later in the game, you have an opportunity? Can you get fouled and start to just try to get into the bonus? There\u2019s something that can be done, but if your expectation was, \u201cWe\u2019re going to make three passes, and get a wide open three pointer by one of the best shooters in the world,\u201d and if that doesn\u2019t work within basketball isn\u2019t working, you\u2019re not adapting well.
Real estate is cyclical. Economic cycles are by definition cyclical. There are times where it\u2019s hard to buy real estate. There are times where it\u2019s easy. There are times where we are printing a lot of money. There\u2019s times that we\u2019re in a recession or a depression. There\u2019s going to be different defenses that we\u2019re going against. I think your example there is really, really good. So, let\u2019s use that as a jumping off point. Rob, what is your preferred method of investing?<\/p>\n
In terms of which asset class?<\/p>\n
Yes. Yes.<\/p>\n
Short-term rentals, I don\u2019t think\u2026 Not much of a secret there, but it is starting to move a little bit into\u2026 I\u2019m doing a lot more stuff this year I think, and this will still feed into short-term rentals for sure, but I\u2019m definitely really heavying up in the Sub2 creative finance space, because for me, that\u2019s the solution to all the problems that we\u2019re seeing right now with interest rates and everything.<\/p>\n
All right, so let\u2019s talk about expectations. What were they when you started, and what are your expectations right now that you\u2019re investing in a tougher market?<\/p>\n
Okay, cool. So, here\u2019s\u2026 One other thing that I wanted to say about all this is that\u2026 I hate to even say this. Maybe we\u2019ll cut it out, but I feel like the last five years, real estate was a get rich quick scheme like, \u201cEveryone was making money.\u201d<\/p>\n
I would say in the short-term rental space specifically, your experience, yes.<\/p>\n
But legitimately, you could make a lot of money, but most veterans, I think, know and understand that all real estate is not get rich quick. It\u2019s get wealthy over time, and then there will be pockets within the timeline that you can make a lot of money. So, for short-term rentals, that\u2019s what it was, and now, you can still make really good money, personally, I think. I\u2019ll walk you through a deal in a second. I just think it\u2019s not like\u2026 I don\u2019t think you\u2019re going to retire off of one property. I\u2019ve personally anecdotally have never paid myself really for my short-term rental properties. So whether my portfolio makes 10K or 7K, it doesn\u2019t affect me too much, because it all just goes back into all the properties that I\u2019m buying.
But all to say these days, here\u2019s the cash on cash that I\u2019m looking for. Traditionally, over the last five years, I was looking for a 30% to 50% cash on cash return, which I don\u2019t even like putting that out there. This is not really something I would ever tell anybody listening to this like, \u201cGo get a 50%.\u201d It\u2019s ridiculous. It\u2019s just how it was.<\/p>\n
Well, let me jump in there. That\u2019s what you were getting because when you compared all the deals that you were looking at, the top, top, top deals could provide a 30% to 50% return. Because you had a really good deal funnel, you had a really good analysis system, you were good at what you do. You were only buying the best deals, which provided that. That does not mean the person who\u2019s brand new is going to step in, and, to use the basketball analogy, get the same wide open look that you\u2019re getting.<\/p>\n
Correct. Yes. Thank you for that. That\u2019s why I\u2019m like, \u201cI don\u2019t even want to put it out there,\u201d but we bought a chalet in the Smoky Mountains. I think all in, we paid 50K for furnishings, down payment, everything. We grossed 83,000 the first year, profited like 58. I don\u2019t know. It was something like that, right? So, that one was a perfect deal, but these days, it is just not like that anymore. I think a lot of people want to achieve that, but nowadays, I\u2019ve really\u2026 I\u2019ve tampered it more and more over the last year. At the beginning of last year, I was cool with a 20% to 25%. I was settling for a 20. Right now, a 15% cash on cash return is what I\u2019m looking for when I very conservatively underwrite all my short-term rental deals.
That\u2019s a really big change from when I started. That\u2019s nowhere near the same return profile, but I am also really just padding my underwriting to just allow\u2026 I\u2019m trying to make it\u2026 Even if it is, let\u2019s say, a 25% or a 30%, I\u2019m purposely adding so much stuff in my underwriting to try to get it to a 15% just so I\u2019m like, \u201cAll right, doomsday scenario, can I get a 15%?\u201d If the answer is yes, I\u2019ll move forward with it. If it\u2019s less than that, I won\u2019t do it.<\/p>\n
All right, so you are still taking a cash flow heavy perspective where you want a cash on cash return at 15%. That\u2019s still the most important metric that you\u2019re looking at when you\u2019re analyzing deals.<\/p>\n
Well, there\u2019s more to it than that, David. I mean, look, I think when you\u2019re analyzing a property, it\u2019s not just the cash flow. You have to look at the overall ROI of the property, and that ROI is going to be calculated between cash flow, debt pay down, tax deductions and appreciation. So when you factor all those things in, it usually doubles roughly your cash on cash, I believe. I\u2019d have to look at my calculator. Am I okay with\u2026 Me personally, do as I say, not as I do. I\u2019m fine with a 10% really at the end of the day.<\/p>\n
If it\u2019s the right property, right location, right value add.<\/p>\n
Yeah, because the ROI is going to be much higher than that if I ever sold it in five to 10 years. But baseline, if I were just looking at it from a cash-on-cash perspective, which I think nowadays, I\u2019m not, but for someone getting into it, I think a 15% is a pretty good metric with the way interest rates are.<\/p>\n
There\u2019s a good point in there. When you first start learning about real estate, we use ROI, return on investment as the metric that we teach people to look at, which is in our world, really, what we\u2019re saying is cash-on-cash return. That\u2019s the technical term for what we\u2019re describing. We say ROI, but the I in ROI is investment, and we\u2019re talking about the return on the cash we put in the deal, not the overall investment, because it makes you money in other ways too. The more accurate way of measuring your ROI is actually called the internal rate of return, IRR. That\u2019s something worth Googling. It\u2019s something to go onto BiggerPockets, and take a look at.
This is a metric that syndicators use, because they\u2019re looking at the return on a property if you own it for five years, seven years, 10 years. They\u2019re including the cash on cash return that we just described, the loan pay down, the equity that you may have created by buying an undermarket value as well as the equity that you may have created by value add to the property. Increasing the rent amounts makes it worth more money when you go to exit. There\u2019s lots of ways real estate makes money, tax advantages. IRR really takes all of those into consideration. So when you hear someone like me say it\u2019s not all about cash flow, that doesn\u2019t mean cash flow doesn\u2019t matter. It means it is a piece of\u2026
It\u2019d be like saying, \u201cWell, it\u2019s not all about how well you can score.\u201d That doesn\u2019t mean scoring doesn\u2019t matter in sports. There\u2019s more to it. That\u2019s obviously a part of it. So when it comes, Rob, to the deals you\u2019re looking at, where are you starting financially? How do you tend to fund most of the deals you\u2019re buying?<\/p>\n
Over the last couple of years, we have been doing OPM, other people\u2019s money, and working with individual investors. We have since switched to that, and now we\u2019re doing fundraising with Robuilt Capital. We haven\u2019t really launched it yet, but we\u2019re going to be doing a fund, and working on more value ads, because I think that that\u2019s where the real equity and appreciation will come into play for 2023. It\u2019s taking a dilapidated RV park, making it\u2026 sprucing it up, making it a lot nicer, doubling the income, getting a lot of value, and basically forcing appreciation that way. That\u2019s where I\u2019m moving is out of single family acquisitions into much bigger developments and projects.<\/p>\n
All right, Henry, moving on to you here. When it comes to your expectations, what is your approach right now to real estate investing in this tougher market?<\/p>\n
When we first started out back in 2017, I remember I was a big BiggerPockets Brandon Turner guy.<\/p>\n
Nice subtle dig there. Let\u2019s hear more about your ex. How is she compares to me?<\/p>\n
Brandon was the $100 a door after all expenses, right? That\u2019s how I evaluated and determined if the rental property was going to make sense. I wanted a 7% to 10% cash-on-cash return, and I wanted a $100 a door net cash flow.<\/p>\n
You\u2019re talking after expenses, after vacancy, after CapEx.<\/p>\n
All the expenses, guys, not just the mortgage, taxes, insurance. I\u2019m uber conservative on my expenses numbers. I over budget for my expenses, because then when I know I see $100 net cash flow, I\u2019m probably going to make more than that. That\u2019s how we were analyzing deals back then. Now, things are a little different, but not much because back then, I didn\u2019t have the consistent deal flow that I have now. I was building those processes. No, as the processes are well established, and I have great deal flow, I understand my market better, and have some\u2026 There\u2019s some predictability with what I see coming in the door.
I\u2019m a little more\u2026 Greedy is not the right word, but I want my numbers to be better. I\u2019m a little more picky. So for me, we are looking at, \u201cIf I\u2019m going to buy a single, and hold it as a rental, I want my singles to pay me a multi.\u201d So, I want $200 to $300 net cash flow per door on a single. On a multi, I\u2019ll take 100 to 200 net cash flow per door. I would like a 10% cash-on-cash return, but if it\u2019s a multi, it doesn\u2019t have to give me a 10% cash-on-cash return, because the multis are just so much more beneficial both from a cash flow perspective, also from a tax perspective. Then from a value perspective, the value of those goes up faster.<\/p>\n
Well, the fronts are are going up by $100 a year, and you\u2019ve got three doors versus one door that exponentially starts to become more valuable over time. Is that what you\u2019re getting at?<\/p>\n
Absolutely, yes. The analysis as far as how I do it hasn\u2019t changed, but what I\u2019m looking for or what I\u2019m willing to take on a property has changed. I would say that that\u2019s what everything was up until 2023, and the interest rates going the way they are, because those high interest rates are eating up that cash flow. So, it is a whole lot more difficult to find those properties where I\u2019m going to get $200, $300, $400, $500 net cash flow per door, because I\u2019m paying so much more for the money to buy that property. So, the game\u2019s a little different right now. I am willing to take less cash flow if the property is in a neighborhood that I feel like is going to appreciate, especially if that property is a multi-family, again, for those same reasons, because the golden days\u2026
Rob\u2019s golden days, we had ours too before these interest rates, the golden days where you could buy something. As long as you were getting it at a 30% discount, if you stuck a tenant in it, you were going to cash flow, and it just doesn\u2019t work like that anymore. So, we do find ourselves making decisions on, \u201cDo I keep this property, and essentially break even, or do I sell this and make a smaller profit than I would typically like to?\u201d Those are deals I wouldn\u2019t even have considered.<\/p>\n
Because the defense didn\u2019t make you back when you started, it was the 15% to 30% cash-on-cash return that Rob\u2019s talking about, the $200 or $300 per door that Henry\u2019s talking about. Those were\u2026 If you probably took a super nerdy approach, and you looked at the statistical\u2026 What\u2019s the word? The standard deviation, and you looked at every deal, and you compared, these were in the upper echelon of deals, and so that\u2019s what you\u2019d go for. You\u2019re comparing the deal. You can get to the deal you\u2019ve seen before, and you\u2019re looking for the one you\u2019ve seen before. In today\u2019s market, there aren\u2019t those amazing cash flow numbers that we\u2019re seeing, because there\u2019s so much competition for these assets.
Now, it almost becomes, \u201cIs it better to get my 7% return that Henry said or nothing?\u201d Before, it was, \u201cIs it better to get 7%, or wait for a 10% to 12%?\u201d Going back to the basketball analogy here, when you first get the ball, the first thing you look at is, \u201cCan I get all the way to the rim?\u201d There\u2019s nobody in there. I can beat my guy at the dribble. It\u2019s a layup. Of course, that\u2019s a 30% ROI. You\u2019re going to take that every time, but as defenses get better, that\u2019s not an option. They have a seven-foot Rudy Gobert in there who\u2019s waiting for you, and that\u2019s not going to happen anymore. You can\u2019t beat your guy off the dribble.
Now, it starts to, \u201cOkay, can I come off of a screen, and hit a jump shot?\u201d It\u2019s going to be tougher, but it\u2019s better than a shot clock violation and not getting anything off. That\u2019s what we\u2019re describing in these situations. If you take the expectation from five years ago, and you apply it to the market you\u2019re in now, you\u2019re never going to shoot the ball. You\u2019re going to have shot clock violations over and over and over, and you\u2019re going to lose the game by virtue of not taking a shot.<\/p>\n
Or Rudy Gobert is going to throw it back in your face.<\/p>\n
That\u2019s the other thing. That\u2019s the loss, right? You tried to go after that great deal, and you got sucked into buying a $40,000 property in a terrible neighborhood that you never should have bought, because the cash-on-cash return looked great. When it comes to financing, Henry, what\u2019s your financing strategy right now?<\/p>\n
Absolutely. So back in\u2026 I would say from 2017 on until about six months ago, my financing strategy was using commercial loans from small local banks. I built relationships with small local banks, and I could take down deals. If I had to put money in from a down payment perspective, the benefit to the small local banks is I could bring that money from somewhere else. So, I was either taking equity from another property, and using a line of credit to pay those, or sometimes I would borrow the down payments from other investors, and pay them a high interest for doing that. So yeah, I would\u2026 Sometimes, I would get the owner to carry back the down payments, and so we\u2019d owner finance at least the down payment portion.
That\u2019s how we were taking deals down, but as interest rates have gone up, and there\u2019s been tightening amongst banks, and lending and the criteria has been a little more strict for them, and it\u2019s harder to make deals cash flow. Part of the reason small local banks want to invest in our loan to real estate investors is because they can buy great deals that have great cash flow. As we stated, that\u2019s not always the case, and so it\u2019s been tougher to get the local banks to loan on deals if the numbers aren\u2019t fantastic. So now, we\u2019ve shifted, and we\u2019re typically taking down deals with private or hard money at a higher interest rate, and then we\u2019ll refinance them with either a small local bank or a non QM product.
Still, that allows me to take down deals without having to put a ton of my capital in them, but it\u2019s a more expensive route to take because the interest is higher. Plus, you\u2019re basically closing the loan twice, but it\u2019s a way we found to be successful because we\u2019re still very, very strict on our underwriting.<\/p>\n
Now, with, I don\u2019t know the right word to use here, the decreased expectations on mostly the cash-on-cash return from real estate, are each of you buying less real estate now, or are you buying the same amount or more? I\u2019ll start with you, Henry.<\/p>\n
I am buying, I would say, the same to more. Actually, I would say more. We\u2019re doing more flips this year than we\u2019ve done in any year. Last year, I bought more doors in one year than I\u2019d ever purchased, so we\u2019re doing more.<\/p>\n
Rob.<\/p>\n
I am doing more. I want to do more. I\u2019m really addicted to creative finance Sub2 right now. People have been sending me deals, and I\u2019m just like, \u201cYeah, why not?\u201d So, it\u2019s my goal. I mean, I want to take down a lot this year. I want this to be the biggest year that I operate in. The reason that it\u2019s actually been working out relatively well so far is that, I guess, there\u2019s that\u2026 I don\u2019t know. Was it Buffet, Buffet? Is that his name, Warren Buffet? No, I\u2019m just kidding. Warren Buffet, he was talking. He said, \u201cWhen there\u2019s blood in the streets\u2026\u201d Oh gosh, I don\u2019t want to mess this up.<\/p>\n
When the tide goes down, you see who\u2019s been swimming naked? Is that it?<\/p>\n
No. No. I know for sure he said this. He was like, \u201cWhen people are scared by when people are-<\/p>\n
Oh, what you\u2019re describing is when others are fearful, be greedy. When others are greedy, be fearful.<\/p>\n
Oh, you see. That\u2019s why we pay you the big bucks, David. So, with that one specifically, everyone is so scared to get into real estate right now, so I can actually make offers and get them accepted, and it\u2019s a beautiful thing. The property that I\u2019m buying in Denver right now, it\u2019s a triple-dome home. It was on Zillow Gone Wild. That got 25,000 likes on it. Traditionally, I would\u2019ve had to have offered 200K over that a year ago. Today, I mean, I offered a little bit over just because I knew that there was another offer, and I wanted it. I think I offered 25K over, and I got it. I was like, \u201cWow, this feels good. It feels good to actually only be competing with one other person versus 20 other people.\u201d
So, for me, I\u2019m like\u2026 I\u2019m coming in like, \u201cOh yeah, everyone\u2019s scared. Give this one to me, baby.\u201d But on top of that with creative finance and Sub2, yeah, man, I\u2019m just going to be picking up as much as I possibly can, because if you can assume someone else\u2019s mortgage and get a 3% interest rate, I mean, literally, almost any deal works. It\u2019s really quite a magical thing.<\/p>\n
So, useless fact here, you mentioned blood in the streets. Did you know the high heel shoes were originally created for men to wear that were butchers for walking around in the butcher shop so that they would not get blood all over the bottom of their shoes?<\/p>\n
Wow. I had no idea. I did not know that. I was wondering why you kept a pair of high heels in your car.<\/p>\n
It\u2019s a secret to these calf muscles actually. It\u2019s like I\u2019m always walking down a hill at all times. It\u2019s also why we never let the camera go below my waist when we\u2019re recording. I\u2019m not sure if the audience is ready for that.<\/p>\n
I just got an image of strong hairy calves in high heels right now.<\/p>\n
It\u2019s a great way to describe it. On my Instagram story the other day, I put a little meme that had 25-year-old guy that works his calves out seven days a week in the gym, and they\u2019re skinny, and it\u2019s like 42-year-old dad of three kids, and this guy is like, \u201cYes-<\/p>\n
Oh man.<\/p>\n
\u2026 massive thighs for\u2026 It\u2019s so true. I don\u2019t understand. Yes. All right, moving on here. Now Rob, I understand you have a deal in mind that we are going to break down for all the people joining us on this podcast to hear how deals are being analyzed. First off, tell me where is this deal? What is it? Is it your triple dome deal that you just mentioned?<\/p>\n
It is. It is. It\u2019s in Castle Rock, which is about 15, 20 minutes away south of Denver. It\u2019s in between Denver and Colorado Springs, and it\u2019s beside the Iraqi Mountains and Breckenridge. So, it\u2019s in this little spot that\u2019s really cool.<\/p>\n
You should call this the Casterly Rock, right?<\/p>\n
Yes.<\/p>\n
As your Airbnb name, because we always give stupid names to Airbnb properties. Do you know what that is from, Rob?<\/p>\n
Yes. But for everyone at home-<\/p>\n
You don\u2019t know what that is. Henry, would you like to share?<\/p>\n
That is the goat reference, the Game of Thrones.<\/p>\n
Yes. It\u2019s a location in Game of Thrones called Casterly Rock. You would get a lot of\u2026 People would recognize that, and book it. I think you should go with that.<\/p>\n
That\u2019s cool.<\/p>\n
Triple Dome has a good ring to it also, but what do you like about that location?<\/p>\n
Like I said, it\u2019s in between a lot of different areas. So, my buying criteria in general is buying near national parks, state parks, eclectic towns, and vacation destinations. Those are my four buckets. This one is in between all of them, right? So, it\u2019s in between Denver, which is a really big metropolitan area, and the regulations in Denver are pretty strict. So, I already feel like the overall competition is on the lower end, because it\u2019s so hard to get a functional Airbnb in Denver, but it\u2019s also near Breckenridge, and it\u2019s also near the Rocky Mountains, so that\u2019s a state park, sorry, national park, but then there\u2019s also a state park.
It\u2019s called Roxborough State Park. That\u2019s right next to Castle Rock, and then an eclectic town. I mean, I wouldn\u2019t really classify this one as that. The boulders north of Denver, that\u2019s eclectic. That\u2019s near Castle Rock as well. So, it\u2019s in this booming little spot where I have so many target markets of people that are going to be going through Castle Rock just to get to some of these areas that I told you. So from a location standpoint, it checks the boxes. It\u2019s also a very unique stay. If you\u2019re on YouTube, we\u2019re B rolling all of this for you to see. It\u2019s a beautiful home. What\u2019s really special about it is that it\u2019s got 360-degree views of mountains everywhere.
Everyone has gone crazy about this house on the internet. The Zillow Gone Wild comments were really, really crazy, so I just feel like it\u2019s going to be a really, really amazing portfolio piece for my direct booking website, Nick Sleeps. I think it\u2019s going to be a very Instagramable experience, and so this is one of those, \u201cIf I build it, they\u2019ll come type of things.\u201d It\u2019s already been built, but I\u2019m going to be building the brand and everything like that. I think this one to me has a lot of potential, but I was a little bit\u2026 There are some ways that I underwrote this to make sure that it fit my criteria.<\/p>\n
All right. So, how much are you buying this for, and how is the deal structured?<\/p>\n
It is a conventional loan. It is a 5.99% interest rate actually, which is not bad. I had to pay about $8,000 worth of points to get it down to that rate, so I\u2019m really happy with it. It was a million dollars, and I bid 1,000,025. I would\u2019ve probably gotten it for a million, but someone else made an offer, and we got the intel that it was over asking. So, I just went, I was like, \u201cMan, I don\u2019t know how much over asking was. I\u2019m going to go 1,000,025,\u201d and I beat them. So, I guess I went over 10,000 or something like that. I\u2019m not really sure. I am putting unfortunately 30% down, because I had to do that to get it to not be a jumbo loan so that I could\u2026
Basically, it\u2019s what I could qualify for conventionally. To the banks, I\u2019m a poor man even though I have successful businesses, but I haven\u2019t had successful businesses for two tax years. So, I still have to cobble together finances to get it all approved, but I\u2019ll be putting down 30%. I\u2019m hoping to squeak out a 15% cash-on-cash return on this particular property.<\/p>\n
All right, and then was there a subject to element to it?<\/p>\n
No, not on this one. This was just a straight per\u2026 I saw it. I was like, \u201cI want this house. I\u2019m going to buy it,\u201d and I made the offer, and somehow got it.<\/p>\n
Now, if you had professional property management, 20%, 25%, would this deal still pencil?<\/p>\n
Technically yes. This would be much closer to\u2026 Oh, actually, no. It would still be an 11%. The way that I\u2019ve underwritten it, I think I\u2019m going to make a 20% cash-on-cash return. With a 20% management fee, it would be an 11.7% cash-on-cash return. Now, if this ends up being middle of the road\u2026 So if I get this to a 15% cash-on-cash return like I was thinking in a management company, let\u2019s assume that Blue Gems isn\u2019t doing this free for me. Then it would still be a 7.5% cash-on-cash return. So, it would still work. It would cash flow. I think this deal would still cash flow $2,500 a month.<\/p>\n
What were you adjusting on your calculator there to determine if it would work?<\/p>\n
My management fee. You asked if I had a professional manager in it at 20%, that\u2019s what I\u2019m putting in to see how it changes cash flow, and it would bring me down to a 7%. But if I remove that, then I go up to a 16.2%.<\/p>\n
So from 7% to 16% by eliminating the management, so there\u2019s a point there for everyone listening who is running their deals saying, \u201cI don\u2019t want to be\u2026 I want passive income. I don\u2019t want to be a short=term rental operator.\u201d That could be why you are seeing your competition moving on deals and buying them, and you\u2019re not because that one number made it from a pretty solid deal to most people are passing on a 7% return. It is a little bit more elbow grease. You\u2019re going to have to put into these deals in many cases, and Rob\u2019s one of the best in the business when it comes to these.
So, the odds of somebody else getting a deal this good, and having the vision to feel confident that it\u2019s going to work are going to be lower than it would be with Rob. So, part of what we\u2019re describing here is that with real estate becoming tougher, the passive element of it is passing away. Maybe there\u2019s a play in words. We could get into that like passive has passed.<\/p>\n
Ooh, is that our thumbnail title?<\/p>\n
Yeah.<\/p>\n
Passive is dead<\/p>\n
Because real estate is cyclical, there probably will come a time where it will go back to what it was like before. We don\u2019t know when that\u2019s going to be, but it was much easier to get these returns, and just hand a property manager to manage it than what it is right now.<\/p>\n
I want to say that you\u2019re absolutely right on this. Everyone at home, relisten to that part, because a lot of us are getting into real estate. Let\u2019s say short-term rentals because that\u2019s what we\u2019re talking about for me specifically. You\u2019re going to buy 10 properties and then 20 and then 30. Eventually, like me, I have 35 right now. You will no longer be able to self-manage those properties. You\u2019re going to have to give them up. I started my property management company. I went in to Blue Gems, because I was like, \u201cI need a solution for this,\u201d but the everyday operator, you will have to give that over to a management company, and the moment you do that, it will shrink your returns dramatically.
That\u2019s a really good point, David. I mean, that\u2019s something that people don\u2019t think about. If you\u2019re good at this, you\u2019re going to be very successful. You\u2019re going to scale up like that, and then you\u2019re going to have a management problem, meaning you\u2019re going to have to pay someone to manage everything.<\/p>\n
My advice, not that anyone asks for it, is if you\u2019re going to get into this asset class, expect to manage it yourself for three to five years. Do a very good job. Rents increase over time. Revenue increases over time. Your reviews increase over time. Your systems get better. Then you can\u2026 You\u2019ve earned the right to hand it over to a property manager. Now, they can take over, and it becomes passive. You just can\u2019t have the expectation of starting it for day one. That\u2019s a theme that we\u2019re seeing throughout today\u2019s show, I\u2019m noticing, is you\u2019re just extending your horizon from when you expect that jackpot.
Henry had mentioned several deals like, \u201cRight off the bat, we\u2019re buying them at 70% of what they\u2019re worth. We\u2019re getting this kind of cash flow. I could either get rid of it, make a bunch of money, or keep it and make some money, but I had options.\u201d It\u2019s slowly moving into, \u201cI can still make the same money, but I\u2019m not making it right off the bat. I\u2019m having to extend.\u201d I think that\u2019s a good advice for people to extend their expectations. Now Henry, same question to you. Do you have a deal picked out here?<\/p>\n
Yes, I have a deal. We\u2019re moving from the amazing place of Casterly Rock to Sleepy Hollow, my little town of Bentonville. I\u2019m buying a single family home, and it is\u2026 I\u2019m buying it for I know that what is a discount, but I am in the position of trying to figure out which exit strategy is going to make the most sense given the current market conditions. So, I think it\u2019s a good deal to talk about. I\u2019m paying $170,000 for it. It\u2019s going to need some work in order for it to either be flipped or be long-term rented or be short-term rented. So, I am literally in the decision process right now trying to figure out which one of those exit strategies we\u2019re going to do.
Now, I\u2019m buying it regardless of\u2026 This is a purchase, regardless of exit strategy, but this is that analysis that we\u2019re talking about trying to figure out what\u2019s the best strategy given the market and your current financial situation? I\u2019m in a position where I can put about 40,000 in it, and I can flip it. I can put maybe 50,000, 55,000 in it, and short term rent it, or I can put about 30,000 in it, and make it a rental. If we rent it out, I could probably get 1,800 a month. So, I would be in the neighborhood of breaking even if I did that. Now, the reason I would consider breaking even for this is because Bentonville is just such a strong market with Walmart headquartered there.
Though even it wouldn\u2019t cash flow right now, I\u2019m going to get a big bump in appreciation because Walmart\u2019s building their brand new home office facility. They\u2019ve got to bring people here. It\u2019s still a tourist destination for mountain bikers right now. There\u2019s not a ton of hotels, and so people need places to stay if I wanted to do a short-term rental. I think once interest rates go down, it\u2019s going to force more people into the market, and it\u2019s going to force the values up, right? So, there are situations where I\u2019m ready to\u2026 where I\u2019m willing to break even because of what my analysis tells me about what could be coming in the future.
That is not something every new investor is going to be able to do. It\u2019s going to involve you being an expert in your market, and understanding what\u2019s coming, and doing the research to make those kinds of decisions. So, right now, I am leaning towards going ahead and selling it. The reason I\u2019m leaning towards going ahead and selling it is because I have a pipeline of deals. There are more deals coming. I\u2019m not\u2026 I don\u2019t have a shortage of deals to buy, and so this one\u2026 I don\u2019t love the long-term rental cash flow numbers, and I\u2019m not confident. I\u2019m not super confident in the short-term rental numbers, because of the specific neighborhood that this home is in.
I don\u2019t know that it would produce the returns that my other short-term rentals in Bentonville will, and so I\u2019m not super comfortable with it. I\u2019m doing some research talking to my Airbnb property manager, seeing what\u2019s his confidence level on what he thinks we could rent it for. I think if we did a short-term rental, we\u2019d push that monthly income up to about anywhere between $2,000 and $3,000 a month. So, it could be great. It could not work out well. So, what I am confident in with 100% certainty is that I can put $40,000 into it, and sell it for $210,000, no sweat, and so that is\u2026 Sorry, not 210. I said 210. It\u2019s not 210. Sell it for $275,000, no sweat, right?
That is the strategy I am absolutely the most confident in, and in this market, you\u2019re getting punished for making mistakes. So, I\u2019m probably going to lean toward the thing I\u2019m the most confident in.<\/p>\n
There\u2019s a couple points I think worth highlighting there as well. Some of this comes from James Dainard. Well, Jimmy made a point on the State of the Market podcast that I thought was really good and worth repeating here. Jimmy had mentioned that the ROI, if you\u2019re looking at cash-on-cash return, is nominal or non-existent in a lot of deals. However, he flips a lot of houses, and the return on his investment when he looks at flipping can be incredible. He could get 20%, 30%, 40%, 50% return on the money that he put in a deal, especially if he\u2019s leveraging other people\u2019s money on a flip. Now, that\u2019s not passive income. That\u2019s active income.
We usually don\u2019t compare these two options, because when you keep real estate, and you get $100 a month, but you bought it with 200,000 inequity, you still made $200,000 at that time. You just didn\u2019t make it in the form of cashflow, which can be misleading. What that had me thinking about is so many people are listening to us. They want our lives, because they don\u2019t like the job they have. Henry, you, at one point, were doing corporate real estate for Walmart. Rob, you were doing professional voice acting and marketing and overall debauchery, but the thing\u2026 I was a cop. I was sleeping three hours a night on a good night just looking for\u2026
Every day, I woke up like, \u201cWhen\u2019s the next time I could sleep?\u201d I was just obsessed with when can I get sleep? We didn\u2019t like the lives we had. Real estate gave us a better life. If you\u2019re in that position, it has been previously spoken to you that the evangelist for real estate would say if you get enough cash flow, you can replace your active income with passive income. You can quit your job. You can move on to something better. That is what is becoming very hard. However, if you quit your job, and got into flipping houses, and you made $75,000 a year flipping two different homes, that could be a job you like more than the one you don\u2019t like, doesn\u2019t involve you sitting in commute traffic.
You can work from home. Your schedule becomes more flexible. Now, there are some downsides to that. You\u2019re taking a little bit more risk. There might be a learning curve in the beginning, but if you\u2019re somebody who\u2019s really good with real estate, you\u2019re a Henry, you\u2019re looking at deals all the time, and you\u2019re like, \u201cThis thing just doesn\u2019t add up right now for cash flow, but I could make 45 grand flipping the contract to somebody else, or fixing and flipping and moving into something different.\u201d You do have an opportunity to get the ROI you would need to replace your job doing this. It\u2019s a different way of looking at these opportunities, and it\u2019s forcing yourself to stop looking at only cash-on-cash return.
It\u2019s looking at many ways that real estate can benefit you that will open up these opportunities. Let\u2019s say each of you to this\u2026 Well, I\u2019m now just deeming the new approach to looking at real estate investing.<\/p>\n
I agree. I think we got to get back into the habit of saying, \u201cHey, real estate is a long game, and sometimes there will be good years. Sometimes there will be more normal years like now.\u201d But at the end of the day, it\u2019s like you\u2019re just pushing the ball forward. I was thinking about this as Henry was saying it earlier, the golden years. \u201cHey, these were the golden years,\u201d but I genuinely think, not to be too Andy from the office, but I do think that 20, 30 years from now, we\u2019re going to look at now, and be like, \u201cThese are the golden years.\u201d This is it, because we\u2019re all good at what we do, and we\u2019re all going to continue to crush it every single year because we love doing this.<\/p>\n
Absolutely. I couldn\u2019t agree more. I tell my students this all the time. I\u2019m like, \u201cLook, investing is about buying something for less than it\u2019s worth, adding value to it, and then capitalizing on its new value.\u201d Even in the stock market, you want to buy when a stock is down, hold it until it goes up, and then you\u2019ve made a return on your investment. This is when the wealth is built, guys. This is what it looks like. You have opportunity to buy, and though you\u2019re not going to make money immediately, I think for the people who are actively buying right now, five years from now even, the people buying now are the people who are buying in 2009, right?
Those people were pumped that they bought in 2009. So, this is what it looks like. This is what it looks like to build wealth. It\u2019s not pretty now, but I think it\u2019ll be beautiful in the long run.<\/p>\n
We\u2019re always going to be pumped that we bought now 10 years from now.<\/p>\n
I say that constantly. Tell me a person you know that bought a house 30 years ago that says, \u201cI wish I never would\u2019ve done it.\u201d<\/p>\n
Well, do you remember we had Janice on a month ago, and she was like, \u201cYeah, I bought my first house in LA for 180,000 or something like that.\u201d We were like, \u201cWhat? In 2004?\u201d We were so perplexed by this.<\/p>\n
Tell me a person who bought a house 30 years ago that remembers what was in the inspection report, and how stressful it was.<\/p>\n
Right? Right. That\u2019s true.<\/p>\n
But also, tell me a person that bought that house 30 years ago that thought that they were getting a great deal, and they were buying it for less than what it\u2019s worth. Most people believe they\u2019re overpaying for real estate at the time they buy it. We always think we could have got the deal better. It\u2019s time that really creates the wealth in real estate, and we sabotage this when we\u2019re like, \u201cI need to get a dunk four seconds into the shot clock before I put some work into breaking down the defense or move the ball around.\u201d Now, Henry, you made a great point. Real estate is about buying something for less than it\u2019s worth, making it worth more, and then capitalizing on that.
So from my framework, I would call that buying equity, forcing equity, and then having an extra strategy. Now, the extra strategy could be holding it as a rental. It could be selling it and turning the equity that you created in that deal into cash, putting that cash back into the next deal. There\u2019s lots of ways we can do it, but on the\u2026 From the perspective of how do we make something a good deal if it doesn\u2019t start as a good deal, I\u2019m going to ask each of you, what advice do you have for taking a deal like Rob\u2019s Castle Rock property that other people passed on, and making it a good deal? Then Henry, I\u2019ll ask you the same thing.
You mentioned creative financing. That\u2019s one way, I think right off the bat, that you said, \u201cIf you get something at a 3% interest rate, everything works, right?\u201d<\/p>\n
Yeah. I mean, I think\u2026 Hold on, let me think about that for a second. Go to Henry first. No, I\u2019m just kidding.<\/p>\n
No, we could do that. I don\u2019t mind. Rob is not a freestyle rapper. I will tell you guys that right now.<\/p>\n
No. No, I am.<\/p>\n
No, you\u2019re not.<\/p>\n
Well, I was trying to think of\u2026 I\u2019m trying to\u2026 Yes, listen.<\/p>\n
You have to open your computer, and pull up an analysis. That is the opposite of freestyle.<\/p>\n
He needs 25 takes.<\/p>\n
Well, you were asking me to take you through the numbers. I would.<\/p>\n
Go home. Get to the lab. Grab a pencil. Make it suspenseful, come back and hit us with an earful.<\/p>\n
Did you just hit us with an eight-mile battle wrap scene?<\/p>\n
Yes, because that\u2019s something Rob doesn\u2019t do. Henry on the other hand, he belongs in a cipher, Rob.<\/p>\n
I feel that that deal was already good, so you\u2019re like, \u201cHow do you make it work?\u201d I\u2019m like, \u201cI did.\u201d<\/p>\n
But you bought a deal other people didn\u2019t see, so you saw something in it that made that deal work for you. What do you think that was? You mentioned the experience. You mentioned creating a unique way of marketing the property. There are things you\u2019re doing that other people that just said, \u201cRun the numbers on AirDNA, doesn\u2019t work, past it.\u201d Yes,<\/p>\n
It doesn\u2019t work on AirDNA at all. I think AirDNA has this one at $60,000. I think it\u2019s going to gross between $175,000 and $200,000. So, the way that I made this work for myself is I just did a little bit of prospecting. When you look at the market analysis, there are no unique dome homes. There are no unique homes at all in this area, and so so many people would look at this deal, and pass on it, because it\u2019s scary. There are no numbers to support this. Where I\u2019m coming in, I\u2019m saying, \u201cI\u2019m going to be the pioneer in this space specifically. I will be the comp that people look to copy basically for the rest of time.\u201d<\/p>\n
So, AirDNA is comparing this to a track house that looks like all the other houses around it.<\/p>\n
Exactly, but what I know is that a unique property can basically demand a 300% premium on a typical property. So as a typical property might only get $100 a night, this would get $300 a night on the opposite end of it. Now really, this property will get 700 to $1,000 a night, I think, whereas most people running the numbers think that it would get 250. So, it works for no one else, but it works for me because I know what I have here, but experience is the reason that I know that.<\/p>\n
Now, see, Henry, my job is to bring the greatness out of Rob that\u2019s there that he doesn\u2019t know he has, right? Rob, I\u2019m going to lead you back to some more greatness. What about the hotel that you bought that was being used as a traditional hotel that you are turning into a series of short-term rentals? Did you make something there?<\/p>\n
Same thing. That one was\u2026 Basically, that one was approached to me. Someone approached me that, and they\u2019re like, \u201cHey, do you want to buy my hotel?\u201d He gave us a really good interest rate. I think we got it for 2.75%, 3%, but the entire hotel needed a remodel. I want to say that the owner had already started to remodel, but it just was so much work that he was like, \u201cI\u2019m just going to sell it to someone that can actually finish out the job.\u201d He sold it to us, and so we\u2019re getting to basically capture the opportunity of remodeling an entire hotel. Granted, it\u2019s a lot of work. It\u2019s active just like you said, but the opposite side of it is that this hotel will be worth double or triple what we paid for it.<\/p>\n
So, you\u2019re adding value through a rehab. You\u2019re adding value through putting each of those hotels on Airbnb, VRBO, not just a traditional hotel that someone\u2019s going to have to look up in the yellow pages, and you\u2019re adding value in this case through seller financing.<\/p>\n
Correct.<\/p>\n
That is a great example of you made a deal by those things that other people would\u2019ve just looked at it, saw the cash-on-cash return, and said nope, or saw that it needs too much work and passed on it.<\/p>\n
Yep. Yep. Yep. Wow. Wow. I\u2019m so smart. Thanks.<\/p>\n
I told you, there\u2019s greatness in you, Rob. I just got to pull it out of you.<\/p>\n
I just got to be willing to freestyle a little bit.<\/p>\n
Yeah, and you got to go through mom\u2019s spaghetti to get there, but that\u2019s okay. We\u2019re all going to do that together. Henry, to you, what are some ways that you\u2019ve been able to make deals instead of just looking for deals?<\/p>\n
Yeah, I can totally freestyle. That\u2019s why I wear black, so you can\u2019t see the mom spaghetti on my shirt. Part of the ways that I make deals are through not looking through one exit strategy lens. I have learned the exit strategies of a flicks and flipper. I\u2019ve learned the exit strategies of a buy and hold renter. I\u2019ve learned the exit strategies of a short-term rental, and that allows me to look at a deal from multiple perspectives. So, I\u2019m not just looking like, \u201cHey, this doesn\u2019t meet my cash-on-cash return or my cash flow numbers as a rental,\u201d and pass on it. It allows me to look at a deal from multiple angles, and see how I can monetize that. So, like with the deal we talked about, I know that I can make money on it at least three ways. There could be a fourth.
I could probably assign that contract to somebody as well if I wanted to. I can make deals just by being educated and versed in multiple exit strategies. The other way that I think somebody who\u2019s new who may not feel that that\u2019s something that they can do is you can make deals by being creative with what you\u2019re looking for. You can do this even on the market, and I still do this. I will look at deals, and I am looking specifically for how can I add value? Well, where can I add the most value with spending the least amount of money? So, when I\u2019m looking for a deal, if I\u2019m looking, and I can\u2019t find a duplex anywhere or a multifamily anywhere, then I\u2019m going to start looking at single families that I can easily turn into a duplex or a multifamily either by converting a garage, or by converting an exterior building that already has.
Some of these houses that you\u2019ll find, they\u2019ve got a shed with plumbing and electrical in it. Well, it\u2019s not that hard to convert that into a living space, because you\u2019ve got the foundation, and you got some of the structure. Garages are an easy way. Sometimes you can split up a house, especially if it\u2019s a split wing house, meaning that the master bedroom\u2019s on one side of the house, and the other bedrooms and the bathroom are on another. It\u2019s fairly easy to turn one side of that into a unit, and another side into a unit. Now, it takes some creativity. It\u2019s going to take some money, some of those things, but you can make a deal, and add max value with doing a little bit of work.
What I\u2019ve typically done in the flip space is find houses that have\u2026 We talked about this on a previous episode. It\u2019s find houses that have sunrooms or big rooms that aren\u2019t technically heated and cooled square footage. This works for garages as well. You can take an HVAC return, and pop it into that room, and now that space is heated and cooled. All you\u2019ve got to do is add the flooring, insulate the walls, and now you\u2019ve got an additional room. Rooms are going to add value, and so just because you can look at a deal, and it\u2019s at its current state, and say, \u201cThis deal doesn\u2019t pencil, but will it pencil if you add a bedroom?\u201d Will it pencil if you add a bedroom and a bathroom under the same roof, and how inexpensively can you do that?
I just converted a laundry room for a house into a bathroom, which included the laundry in the bathroom. The house was on a crawlspace. It costs me about $5,000 to do that. But now instead of a three bed, one bath house, I have a three bed, two bath house, which allowed me to take the bathroom that was a hall bath, and close off the doorway to that hall bathroom, and then open a doorway from one of the bedrooms into that hall bathroom. Now, I created a primary suite, because I added a bathroom in the laundry room, because the laundry room was oversized.
I was able to sell that property for about $30,000, $35,000 more than I would have without that extra bathroom, because there was more demand for it, and because there were two bathrooms and a primary suite. It\u2019s a much more desirable property, and it costs me $5,000 to do that.<\/p>\n
That\u2019s a great, great advice. People should go back and listen to that again. If you\u2019re trying to figure out how to make these things work, you\u2019re hearing it here. The defense is tough, but that doesn\u2019t mean you can\u2019t win. You just got to take a different approach. Last question to each of you, we are what I would call professional investors, professional real estate people. This is what we do full time. We look for deals. Henry, you mentioned that you have a very big funnel that you\u2019ve created that you\u2019re looking at stuff. Rob has an entire network. He\u2019s talking about having Rob Capital that he\u2019s going to be creating.
You each have audiences of people that follow you that can bring you deals. We have this platform that not everyone has. For the person who is not a professional investor that wants to make money through real estate, but they\u2019re not leaving their day job anytime soon, or their skillset would not work in the environment that we operate in, what advice do you have for that person to build wealth through real estate, and what expectations are reasonable for them in this market?<\/p>\n
Here\u2019s two things. I think you need to be the\u2026 Education is vastly important more now than ever so before, and so I talked about educating myself on multiple exit strategies. I think everyone needs to be doing that. You can\u2019t be so laser focused on one strategy, because you\u2019re probably leaving opportunities on the table. Then you have to, for every investor, focus on what\u2019s the lowest common denominator in real estate. It\u2019s always going to be a deal. You\u2019ve got to have a good deal, right? Now, we talked about ways that you can make something that isn\u2019t a good deal at face value, look like a good deal, or become a good deal based on how you can creatively add value to that property, but you\u2019ve got to be able to know what does a good deal look like in your market? Then you\u2019ve got to pick a way to find those good deals.
All three of us, we have a way that we like to find our good deals, and we go all in on whatever that strategy is. So ,I can\u2019t tell every random investor which strategy they should use or what\u2019s the best strategy. It\u2019s really, they all work, but you\u2019ve got to, a, know what a good deal is for you, and then you have to pick a strategy to know how to go find it. I think the better you get at analyzing and underwriting and looking for those deals, the easier it\u2019s going to become to monetize those deals in the future. So, I\u2019m not going to give you the traditional answer of go house hack. That\u2019s a great way to go make money in this market. I think that educate yourself on as many strategies as you can, find a way to find good deals.
I just happen to find my way is looking off market. Rob has his way. David has his way, but you\u2019ve got\u2026 The more you do it, the more deals you analyze, the more deals you underwrite, you\u2019re going to be able to start finding those diamonds in the rough, finding those gems, or creating or making the value. So, I just want people to be able to focus on one to two strategies of finding deals, and then you just go all in. I call it relentless consistency in pursuing that strategy until it yields results.<\/p>\n
Rob, what about you? Average person not quitting their day job wants to make money through real estate, what approach should they take, and what expectations should they have?<\/p>\n
I think that for me, I always say this, you got to throw darts at the wall. I think you got to try a few things. I like the idea of going all in. I did pretty early on. I think you got to try a few things before you go all in though. You know what I mean? I think if you\u2026 Let\u2019s say that you want to try flipping houses, and you try that, and you\u2019re not very good at it. Maybe you don\u2019t go all in, because that may not be the thing that you should be going all in on. But if you try flipping a house, if you try wholesaling, if you try house hacking, maybe a little bit of short-term rentals, I think it\u2019s at that point you can say, \u201cMan, I didn\u2019t realize this, but I\u2019m really good at wholesaling.\u201d
That\u2019s when you go all in, right? I think you have to be willing to try a few things, and not be so locked into the thing that you think you want, because very rarely is that the thing that actually works out. So, that\u2019s my general approach for getting into this is try a little bit of everything. Some of these things are free. You can\u2026 Henry, how much would it cost? If I wanted to get started wholesaling today, how much money would I need to get started?<\/p>\n
To get started wholesaling, you can get started wholesaling for free. You\u2019re just going to spend a lot of time.<\/p>\n
Perfect. Low stakes.<\/p>\n
So, is that what we\u2019re saying, someone who\u2019s working their day job, they don\u2019t want to be in real estate professionally, should start at wholesaling?<\/p>\n
Not necessarily. I\u2019m just giving an example here like, try a few things because everyone thinks that real estate is high stakes, not every aspect of real estate. There are ways that you can try your hand at real estate. That\u2019s not like the riskiest investment of your life. That\u2019s what I\u2019m saying. Then in terms of what expectations should they have, I think the expectations that they should have is that they\u2019re probably going to be working 80 hours a week for a while. The network that you\u2019re talking about that I have the network that Henry has, that is a network that we have built because we were working 80, 90-hour weeks for so many years.
I didn\u2019t quit my job, dude, until two years ago, man. You know what I mean? I\u2019ve only had this magical network for two years, and it\u2019s just because I put in the work. But before that, I was working. I was going taking calls in between meetings. I was leaving work to go do a contractor call, whatever. I was doing so much stuff at work, taking calls at nights, missing dinners, doing all that type of stuff. So, I think the expectation is there\u2019s still a lot of work that you have to do. It will never be an easy route to get started, but dang it, is it worth it.<\/p>\n
I think to add a little bit more color to that, I still believe it. A good deal is the best way to go, and so finding that good deal. But I think part of the reason that people are struggling with figuring out how to be a lucrative investor in this market is more about how much of that work are you willing to put in? Because anybody can do this right now. You can go, and you can get on the MLS in your local market, and you can pull a list of properties that have been listed 30 days longer than the average days in your market, right? You can get a list, and you can go down that list, and say you\u2019ve just only pulled single families. You can go down that list. You can analyze every single one of those properties, and figure out what\u2019s the number that this deal would work for me.
So, if you know you want to buy rentals, you can go analyze each deal, and say, \u201cAll right, for me to get my 7% cash-on-cash return, and $100 a door, then I have to be able to buy this property that\u2019s listed for 350,000 for 125,000.\u201d That\u2019s the number that works, and then you know what you do? You submit that offer, right? If you did that for every single property listed for 30 days longer than the average days on market, and every expired listing in your market, and you did that relentlessly consistently for the next 90 days, you\u2019d probably land a deal, but nobody wants to put in that kind of work. People don\u2019t want to go do that work.
That\u2019s a time-consuming endeavor. You got to analyze a ton of deals. You got to make a ton of uncomfortable offers. You got to convince an agent to make those uncomfortable offers for you, and then convince them why it\u2019s a good idea for them to do it. So, you really have to ask yourself, \u201cAm I willing to put in the kind of work it\u2019s going to take for me to be successful in this kind of a market?\u201d Because you can go find a deal. You just got to be willing to get uncomfortable, and that\u2019s what people don\u2019t like doing.<\/p>\n
Boom, baby, but I will say\u2026 I do want to plug that in one of the previous episodes, Henry talked about buying deeper, and so we\u2019re going to do an episode on how to get off market properties. Henry will take us through his strategy, so respond to the poll if you want to hear how we find off-market deals. Leave a comment on YouTube, and we\u2019re going to work on it for you, guys.<\/p>\n
All right, Rob, where can people find out more about you?<\/p>\n
Robuilt on YouTube and Instagram.<\/p>\n
Henry.<\/p>\n
Instagram, I\u2019m @thehenrywashington on Instagram.<\/p>\n
I am DavidGreene24 with an E at the end of Greene. Do you guys have your blue checks yet?<\/p>\n
Oh yeah, baby. You know I do.<\/p>\n
Make sure it\u2019s got a blue check, because we have a lot of fake people that are mimicking us trying to take your money through scams of a crypto nature, and we don\u2019t want you to fall for that. I\u2019m DavidGreene24 on YouTube and on pretty much all social media. Send us a DM if you have any questions. If you like this show, if you like the straight shooting, if you like the no BS, no fluff, we\u2019re giving it to you like it is, and we\u2019re giving you examples of what we\u2019re doing to make deals work, would you please go leave us a review on Apple Podcast, and let us know what you think about the show.
All right, I\u2019m going to get you guys out of here. Thanks so much for joining me. We went into overtime today, sticking with the basketball analogy, but we hope we gave you guys a great game. This is David Greene for Henry, Relentless Pursuit, Washington, and Rob, the Papa Doc of Freestyles, Abasolo signing off.<\/p>\n