{"id":9826,"date":"2023-10-29T15:14:25","date_gmt":"2023-10-29T15:14:25","guid":{"rendered":"https:\/\/imsfund.com\/?p=9826"},"modified":"2023-10-29T15:14:25","modified_gmt":"2023-10-29T15:14:25","slug":"cash-flow-wont-ever-make-you-rich","status":"publish","type":"post","link":"https:\/\/imsfund.com\/index.php\/2023\/10\/29\/cash-flow-wont-ever-make-you-rich\/","title":{"rendered":"Cash Flow Won\u2019t Ever Make You Rich"},"content":{"rendered":"


\n<\/p>\n

Kevin Paffrath, AKA \u201c<\/strong>Meet Kevin<\/strong><\/a>,\u201d<\/strong> one of YouTube\u2019s most famous financial influencers and real estate investors, joins us for this week\u2019s Seeing Greene<\/strong> to answer YOUR real estate investing questions. But this time, you\u2019ll hear a bit more about who should be investing, who shouldn\u2019t<\/strong>, and why partnering up on a property is a huge \u201cno-no\u201d in Kevin\u2019s book<\/strong>. Plus, if you\u2019re starved for cash flow in this impossible investing environment, Kevin has some good news for you.<\/p>\n

But that\u2019s not all we get into. David and Kevin talk about why cash flow isn\u2019t as important as you think<\/strong>, why dating the mortgage rate<\/strong><\/a> could be risky, the social media investing scam<\/strong> you could be falling into, and why investing with <\/strong>no money down<\/strong><\/a> is a fool\u2019s game. One investor even submits a potential deal that makes Kevin want to vomit<\/strong> (his words), so if this sounds like something you\u2019re about to buy, run away!<\/p>\n

Want to ask David a question? If so, <\/strong>submit your question here<\/strong><\/a> so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums<\/strong><\/a> and ask other investors their take, or follow David on Instagram<\/strong><\/a> to see when he\u2019s going live so you can jump on a live Q&A and get your question answered on the spot!<\/p>\n

\n

David:
This is the BiggerPockets Podcast, 837.<\/p>\n

Kevin:
My real estate point of view is if I buy a place for 500K and I\u2019m into it for 5 with fix up, I want $100,000 of equity. That\u2019s my goal. Which percentage wise is 20%. So now if I look at investing a million dollars, I want $200,000. I\u2019m actually not the biggest fan of caring about so much what the rent is and the rent cashflow percentages. I want that equity because that\u2019s tax-free money. I hate paying taxes. I paid enough taxes and I\u2019m tired of it.<\/p>\n

David:
What\u2019s going on, everyone? It\u2019s David Greene, you host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the world every week bringing you the how-tos, the stories, and the current events that you need to make good decisions in today\u2019s market. And in today\u2019s show, even though I\u2019m recording this from BiggerPockets\u2019 conference in Orlando, I\u2019m going to be with Meet Kevin of YouTube, Kevin Paffrath. We are in LA at his place, and we\u2019re going to be taking questions from you, our listener base, and we have a great show for you. Kevin and I get into a lot of interesting topics from the greater economy to individual specific deals, a little bit of everything today. And most importantly, we cover a lot of people who should not be buying deals. Not every single situation is something where you should pull the trigger. We have several today where we say, \u201cHey, you should not buy this deal. You should not partner with this person. This is a bad idea.\u201d You\u2019re thinking about it the wrong way, and here\u2019s why.
Very excited to bring this show to you. But before we get into it, today\u2019s quick tip is simple. Get your tickets for BiggerPockets Conference 2024 now. Many people are trying to get into this one in Orlando, but unfortunately tickets were sold out and the best hotel rooms were taken. If you would like to meet me and other BiggerPockets talent as well as a lot of other jazzed up real estate investors, go to biggerpockets.com\/events and get your ticket now. All right, get ready for a great show.
The first question will come from the forums. This is from Don K. in the Woodlands, Texas. Don says, \u201cI target 12% on my passive real estate investments. 20% or more for active real estate investments without taking excessive risks at a maximum leverage of 50%. What is your target for return on investment annual on your passive real estate investments? On your investments, which require a more active participation, how do you calculate that and has it changed as years go by?\u201d<\/p>\n

Kevin:
Wow.<\/p>\n

David:
So Kevin, target ROI, what do you shoot for?<\/p>\n

Kevin:
It\u2019s really interesting. I am not a percentage guy, which is crazy because I\u2019m like Mr. Finance, especially with stocks, and we\u2019ll talk percentages there and growth rates. But when it comes to real estate, I have a really different way of looking at real estate. My real estate point of view is, if I buy a place for 500K and I\u2019m into it for 5 with fix up, I want $100,000 of equity. That\u2019s my goal, which percentage wise is 20%. So now if I look at investing a million dollars, I want $200,000. I\u2019m actually not the biggest fan of caring about so much what the rent is and the rent cashflow percentages. I want that equity because that\u2019s tax-free money. I hate paying taxes. I\u2019ve paid enough taxes and I\u2019m tired of it. So that\u2019s my point of view.
I will say, when I hear these numbers, the question was phrased as this is someone\u2019s target, and then they say, without risk, it doesn\u2019t sound like reasonable. Especially if this is cashflow, it doesn\u2019t sound reasonable. If you got maybe this is a flipper and it\u2019s in an appreciating market, maybe that\u2019s realistic then. But otherwise, I think if we\u2019re talking cashflow here, I think it\u2019s a little loony.<\/p>\n

David:
You\u2019re making a really good point. Also to highlight, when you speak with more experienced investors, successful people like yourselves, it\u2019s not that cashflow doesn\u2019t matter, but the conversation trends away from cashflow.<\/p>\n

Kevin:
Oh, quickly, yes.<\/p>\n

David:
Right?<\/p>\n

Kevin:
Yeah.<\/p>\n

David:
When you\u2019re new, this is all that people talk about. It\u2019s all they think about. I have a book that\u2019s going to be coming out soon about the 10 ways you make money in real estate, and the natural cashflow is one of them. Well, that\u2019s the only one we all hear about. There\u2019s different reasons why that may be. My gut tends to believe it\u2019s because the influencers, the gurus, the people that want you to take their course, they have to sell you on cashflow because cashflow is how you get out of your job, it\u2019s how you get a girlfriend, it\u2019s how you make your dog like you, it\u2019s how you get on the yacht with the hot chicks. All the things that have nothing to do with the reasons you should be pursuing financial independence are related on cashflow, right? So it becomes this magical carrot that everybody wants to chase. Now, what you\u2019re talking about with equity, great point, not taxed. What\u2019s your take on how you buy properties that aren\u2019t going to cashflow without losing them?<\/p>\n

Kevin:
Right. Well, so this is very risky, and I want to finish off also on just one of the last things you said. I think that\u2019s so interesting because you\u2019re right. It\u2019s this idea of selling this goal of financial freedom. I think as soon as people start getting dividends, like in stocks, which I think are a complete ripoff, you shouldn\u2019t touch dividends unless you\u2019re retired, and then cashflow and real estate, the problem is people then take that cashflow but then they spend it on going to the mall or going on a vacation or whatever. And so now you\u2019re paying taxes and you\u2019re not even building your wealth because you\u2019re just blowing it. It\u2019s so stupid. So I wanted to add that part.<\/p>\n

David:
That\u2019s a good point.<\/p>\n

Kevin:
So-<\/p>\n

David:
When you don\u2019t spend equity, it\u2019s hard.<\/p>\n

Kevin:
It\u2019s hard. That\u2019s the point. The harder it is to spend your investments, the less likely you are to do it. Harvard did a study. They said if you have cash in a savings account, you are nearly 100% likely to spend it. If you have cash in an investment account, a brokerage account, you are nearly 100% likely not to spend it because it\u2019s psychologically punishing, \u201cOh, I\u2019m going to rob from my investment to go spend money.\u201d Whereas if there\u2019s a dividend or a rental income coming and it\u2019s going right into your checking account, you spend it. Now, I\u2019m going to have to ask you to repeat your question.<\/p>\n

David:
No, no. The question would be, let\u2019s say that we have someone here in this, they\u2019re like, \u201cThat makes sense. My take is equity is easier to build in cashflow. It\u2019s very hard to control cashflow itself.\u201d You are dependent on what market rents are and expenses are going to be what they are. You can\u2019t just eliminate expenses. But equity, you do have some control over. You can improve a property, you decide what you pay for it, you pick the market you buy in. You have an easier ability to build wealth when it\u2019s through equity. The downside is, how do you make these payments? So what\u2019s your advice for someone who says, \u201cYeah, I can understand the wisdom of this, but I don\u2019t want to lose the property\u201d?<\/p>\n

Kevin:
Right. So when I bought my first house, we realize the payment was going to be about $1,950, PITI, plus we figured there\u2019ll probably be some things that break or whatever. So add another couple hundred bucks. That was around 2,150 bucks, and we went into that barely making 2,100 bucks. We did not make enough money to comfortably make that, but we\u2019re like, \u201cBut it\u2019s a great deal.\u201d
So we were in a situation where I was just starting my real estate career so I wasn\u2019t making money. It took me 11 months to close my first real estate deal. That\u2019s 11 months of no income when you\u2019re making these payments. So it\u2019s really scary, and I would never recommend that to anyone. The reason I did it with my wife is we looked and we said, \u201cLook, worst case scenario, we could rent this place out for $2,500. Next worst case scenario, we could move roommates in. It was a three bedroom, two bath. We\u2019ll be in one. We\u2019ll rent out the two other rooms for 600, 700 bucks a piece. That\u2019ll help offset a lot of the payment, the traditional house hacking.\u201d
So we created these little hedges, we\u2019ll rent it all out if we need to. We\u2019ll rent out the rooms if we need to. We\u2019ll go move back in with mom and dad if we need to, whatever. And I realize not everybody\u2019s as lucky to be able to say, \u201cOh, we get to be able to have a fallback of moving back in with mom and dad.\u201d But I also realized when you have nothing, it\u2019s really hard to lose. So I was willing to take that risk with my wife. We\u2019re like, \u201cWell, worst case scenario, we\u2019re going back to zero.\u201d We\u2019re like, \u201cWe already are at zero.\u201d<\/p>\n

David:
Good point.<\/p>\n

Kevin:
So now, if somebody has already\u2026 If they\u2019re looking at interest rates today and they\u2019re 7, 8%, unfortunately I see people doing this, and this really scares me, as people are saying, \u201cWell, I\u2019m betting that rates are going to come down.\u201d So somebody sent me a message, they\u2019re like, \u201cHey, I want to buy this duplex and the payments going to be $4,500 was the payment in Florida.\u201d I\u2019m like, \u201cOkay, well what\u2019s the rental income?\u201d
\u201cOh, 2,500.\u201d I\u2019m like, \u201cThis is a terrible idea.\u201d It\u2019s a negative 2,000 guaranteed. With it, 100% rented out, and you have to pay for yourself to live somewhere else. So then the next question is, \u201cWell, what is your capacity to float basically a negative almost\u2026\u201d It\u2019s 24,000, but add in maintenance and other stuff. \u201cWhat\u2019s your capacity of float?\u201d $30,000 of additional investment every year? \u201cHow much money are you making?\u201d Well, so this is where we have to consider individual suitability. If you\u2019re making 5 million a year, who cares, right? Sure, okay. Maybe you think you got a great deal, you really wanted that property, whatever. But if you\u2019re making an average income 50, 60, 70, 100K, hell no. That\u2019s stupid. So I think that\u2019s number one, is what\u2019s your income. And your goal, I\u2019m pretty sure you talk about pretty regularly in your book, which is increase your income, right?<\/p>\n

David:
That\u2019s exactly right.<\/p>\n

Kevin:
Yeah. So if your income\u2019s low, increase your income first. Focus on that. How could you provide more value to society? Realistically, you\u2019ll probably make more money focusing first on making more money. Anyway, different topic. So for most people, I think big negative cash flows are a very bad idea. If you\u2019re negative 100 bucks or 200 bucks, you ask yourself, \u201cWell, can I float another 1,200 bucks a year or 2,400 bucks a year?\u201d Well, most people can.<\/p>\n

David:
Right.<\/p>\n

Kevin:
So that\u2019s my line, is what\u2019s your ability to float that as an additional investment? And is that an investment worth throwing more money at? If it is, maybe 100 bucks a month makes sense.<\/p>\n

David:
Would you give up $100,000 of equity so you don\u2019t lose 100 bucks a month? Does that sound smart?<\/p>\n

Kevin:
No. No, no, no, no. So my thing is I would rather lose 100 bucks a month and have 100K of equity because it\u2019s going to take me 10 years. Or no, it\u2019ll take me like 80 years, you know?<\/p>\n

David:
Yes. That\u2019s exactly right. The cashflow method takes a lot longer to build up that wealth, but the downside is you can lose it. So what I hear you saying is focus on ways to manage finances outside of that individual asset.<\/p>\n

Kevin:
100%.<\/p>\n

David:
The stronger of a financial position you\u2019re in, the less you have to worry about the return on the cashflow and the more you can get into the spaces where big wealth is made and you\u2019re not taxed.<\/p>\n

Kevin:
Well, consider the principal paydown as well. If you\u2019re negative 100 bucks, your principal paydown is probably 400 to 700 bucks a month. Well, that\u2019s literally money you\u2019re putting into that forced savings account you can\u2019t spend. So you\u2019re technically not really negative. You\u2019re technically positive.<\/p>\n

David:
That\u2019s in this book that\u2019s going to come out after Pillars. That\u2019s the argument I make, is that real estate makes you money in so many ways, but when you only focus on cashflow, you stop paying attention to the money you\u2019re saving in taxes through depreciation and the principle pay down that\u2019s happening and the amortization schedule that favors you the longer you own it and the equity and the rents that go up every year if you buy in the right area, that there\u2019s a chess aspect to real estate investing and when you\u2019re just trying to play checkers, you\u2019re just looking at cashflow. So I think that\u2019s a great answer.<\/p>\n

Kevin:
Yeah, it\u2019s incredible because I think that\u2019s the problem though, is people discover us on social media, but the mainstream idea on social media is cashflow. And so then you get the\u2026 Let me put it this way, what tweet\u2019s going to go viral? A tweet where you break down, \u201cHey, if you buy a house, you get these tax benefits principle pay down. You get all these long-term, 10 different ways to make money.\u201d<\/p>\n

David:
[inaudible 00:11:29].<\/p>\n

Kevin:
Right? Is that going to go viral? Of course not. How about, \u201cWhy would you buy stocks or real estate if you could make 5% on a money market fund?\u201d Well, those tweets do a lot better because it\u2019s simple and it appeals to everyone, like, \u201cYeah. Real estate sucks. I\u2019ll get it in a money market.\u201d Well, how long is that money market going to offer you? 5%. What wealth are you going to actually build?<\/p>\n

David:
Great point. So when you\u2019re getting your information from free sources like the internet, expect that you\u2019re not going to be getting the most accurate information. You\u2019re going to be getting the most sensationalized, which is why they\u2019re listening to us because they\u2019re going to get real talk.<\/p>\n

Kevin:
And I\u2019m not anti Elon, but it\u2019s one of the reasons I\u2019m so frustrated with platforms like Twitter, is they incentivize how do you get somebody to stop scrolling and interact with your post. Well, the way you do that is with something sensational. Whereas don\u2019t get me wrong, I feel like the sensational title guy on YouTube, but the point is, when you get in the video, you\u2019re now listening to a 20-minute video or whatever it is on real perspective, which you\u2019re not getting in a ten-second tweet that you\u2019re committing.<\/p>\n

David:
All right, Don K, hope that helped. Our next question comes from Jaron W. in Indianapolis. Jaron says, \u201cEvery one of our single family rentals have trapped capital. They\u2019re all BRRRRs. I believe that\u2019s a fancy way of saying equity. I\u2019ve never heard of trapped capital. That\u2019s interesting.\u201d I think that means he left money in the BRRRR. He didn\u2019t get it 100% of it out. \u201cIt\u2019s nearly impossible to not trap capital if you\u2019re buying and holding rentals right now. It\u2019s a good problem, I suppose, but it\u2019s nearly impossible to grow a portfolio without finding more cash. As an experienced investor, what advice can you give to younger people tackling this issue? Should I leverage more? Should I partner up? Should I stop trying and sit on the sideline?\u201d So Jaron here has the issue of he\u2019s doing some BRRRRs and he didn\u2019t get all of his money out and he\u2019s just run out of capital, but he wants to scale a portfolio. Common problem. What do you say?<\/p>\n

Kevin:
Well, first of all, look, everybody\u2019s got a different strategy. I hear partners and I think, \u201cNo thanks.\u201d I have seen so many partnerships destroy families, friendships, relationships out of stupid things like what color the doorknob should be. It\u2019s absolutely insane. And so if you\u2019re going to ever do partners, you got to have somebody who\u2019s making the decisions and somebody who\u2019s not. If you\u2019re going to have a partnership, please have that relationship established. I have found that I like control. As a result, I have found I don\u2019t work well with partners. I can work myself making decisions with a team of people who are [inaudible 00:13:56]-<\/p>\n

David:
Executing your decisions.<\/p>\n

Kevin:
Yeah, my decisions and my formula. But yeah, anyway, so I hear partners, I shut down. Stop trying, I think, is the wrong answer. I think you should be trying in a different way. Leverage is, I hear risk.
So my thinking is, what can the individual do to increase their other sources of income to make sure that you can keep investing> this idea of trap capital makes it sound like it\u2019s bad. That\u2019s how you build wealth, is you don\u2019t need to be leveraged to the hilt. I remember just over this last decade post the financial crisis, seeing my properties over time, they get to leverage ratios that would start at 75% on refinance and then all of a sudden they\u2019re at 65%, then they\u2019re at 59%, and I\u2019m like, \u201cOh, I can pull money out of this.\u201d But what I always told myself is I\u2019m going to leave those there on purpose as little piggy banks, because one day something\u2019s going to hit the fan in markets and then I\u2019m going to go break those piggy banks. I\u2019m going to take the hammer and I\u2019m going to break the piggy bank and then the cash will be there when I need it, rather than always trying to be perfectly leveraged.
And I suspect Mr. Trap Capital, I think it\u2019s Mr. Trap Capital, is a spreadsheet kind of person, and they\u2019re looking and going, \u201cOh, There\u2019s 20K left in there. I don\u2019t know. Now my ROI is slightly less. If I had that 20K, my ROI would be slightly higher.\u201d Usually, folks who get so in the weeds of spreadsheets don\u2019t succeed long in real estate. I don\u2019t know. That\u2019s just my impression.<\/p>\n

David:
Because the spreadsheets are an idealized version of how you want the world to work. Then you get into the business and it doesn\u2019t work the way you\u2019re thinking.<\/p>\n

Kevin:
Real estate\u2019s a people business, not a spreadsheet business.<\/p>\n

David:
I really like your points there, especially the part about you should be making money outside of real estate. That does not get talked about in our space. It\u2019s one of the reasons that I wrote Pillars of Wealth, is because I was frankly tired of people coming to me and saying, \u201cDavid, I have no money, no credit, no job, no skills, nothing to offer the world, and I really want to invest in real estate. Can you show me how to do it?\u201d And I\u2019m like, \u201cLook, if that\u2019s where you are in life, we need to have a conversation about how you get money, credit, skills, value, not how you go invest in an asset that can hurt you if you don\u2019t have sufficient capital to weather a storm.\u201d<\/p>\n

Kevin:
Bingo.<\/p>\n

David:
So let\u2019s say you\u2019ve got a little brother and he comes to you, you love this little brother, and he goes, \u201cKevin, I keep getting fired from my jobs because my boss wants to be there at 9:00 AM and I like to sleep in. I can\u2019t get a girlfriend because I\u2019m 80 lbs. overweight and I don\u2019t make eye contact with people. I have no confidence. Can you help me get a job that I make a lot of money, but I don\u2019t have to wake up early and can you help me find a girlfriend that doesn\u2019t care that I\u2019m 80 lbs. overweight and have no confidence?\u201d Would you tell him, \u201cOh yeah, there\u2019s this crypto thing\u201d? Right? \u201cThere\u2019s this NFT where you can make all this money and you don\u2019t have to change anything.\u201d Or would you say, \u201cLook, I love you little brother. We need to get you on a treadmill. We need to build up your confidence by doing some hard things in life, or you need to get out of bed earlier\u201d?
What is the answer? Do we give them an easier route or do we say that the problem starts with improving what they\u2019re doing?<\/p>\n

Kevin:
I think we have to remember that we\u2019re in a world that rewards capitalism and capitalists. So you have to become a capitalist. And so then we look and say, \u201cOkay, we\u2019ll watch what successful people do and copy them.\u201d What do capitalists do? As much as that word can be negative to people who just want stimulus checks every day, that word comes across as negative when we want to sleep in. But the reality is what do successful people do? Well, they work hard. They work long hours, they wake up early or they have routines, they have systems, they have value that they can provide.
And so sometimes that means if we\u2019re starting at zero, we go, \u201cOkay, well fine. I want to become more like a capitalist. Where do I start?\u201d Well, how many licenses do you have? They\u2019re not that hard to get. Licenses, surprisingly, have very few requisites. Go become a real estate agent, become a lender. Just by going through those tests, you\u2019ll learn so much about\u2026 And look, don\u2019t get me wrong, we forget most of the stuff that we study for these tests anyway, but it gets you in the mindset of thinking, \u201cOh, there\u2019s 10% here that actually really applies to the business of lending or real estate or finance and you learn.\u201d Now when you sit down with somebody at an open house as a realtor and somebody says, \u201cWell, how do I run this amortization or a discounted cashflow or how do I do whatever?\u201d, you know because you\u2019ve actually trained yourself. If you don\u2019t have a skillset and a way to provide value, you won\u2019t make it.
So the beauty though is there are plenty of people who don\u2019t provide value, which as soon as you figure out how to, you can succeed. And there are plenty of ways to do it, whether it\u2019s in finance or real estate. That\u2019s the whole reason the BRRRR method exists, which is buy a place that\u2019s a fixer upper and renovate it. The reason that\u2019s not arbitrage to zero is because it\u2019s hard. You need people skills. You need to be able to work with contractors. You need accounting skills, money management skills. The way you get it is by working in business. And so working really hard and getting underpaid for many years while you build experience will help you in the future be able to work less and be overpaid.<\/p>\n

David:
That\u2019s great. It\u2019s investing in yourself. When you hit the ceiling that you can\u2019t get where you want to go, that\u2019s a good thing because it makes you reanalyze what you\u2019re doing. So Jaron, you\u2019re trying to make money through one pillar, which is investing, and that\u2019s great. This is why you need to incorporate other pillars like other ways to make more money just like what Kevin said. All of a sudden these problems go away when you\u2019re not trying to just do it all through real estate investing.
All right. Our next question comes from Albert Knoe out of Boston. \u201cI need a sanity check here if what I am thinking makes sense.\u201d I like how we started this off. \u201cI own two triplex properties, one of which I\u2019m trying to BRRRR. I\u2019m a buy and hold investor and in this for the long game, which means I have to break even for a few years while I still get appreciation, tax benefits and raising rents, then I\u2019m willing to make that sacrifice. A lot of investors I know are pushing me towards cashflow and leaving the current deal as is until interest rates get better, but this of course cuts me off from the repeat and BRRRR.\u201d Here\u2019s the details. So Albert Knoe has a BRRRR here that\u2019s 100% leveraged and is breaking even. Is this a bad investment or is this a good investment?<\/p>\n

Kevin:
Yeah, it\u2019s incredible. We\u2019re just looking at the details and we\u2019re like, \u201cWow.\u201d At first I\u2019m like, \u201cOh my gosh, he\u2019s 100% leverage because he funded his down payment from a HELOC.\u201d And then we\u2019re looking at it going, \u201cHe\u2019s going to be massively negative cashflow.\u201d And then we\u2019re like, \u201cWait a minute, he\u2019s breaking even, 100% leverage?\u201d Look, we have this rule of thumb, it\u2019s called the buying window. The buying window is deemed to be open when you could borrow 100% and break even or have cashflow. That\u2019s what he has here. I think one of his comments was, \u201cWell, I\u2019m only going to break even for a short period of time and everybody\u2019s pushing me to sell it.\u201d Why? This seems great. It blows my mind. I mean, I think if interest rates go higher, maybe there\u2019ll be some risk, but he\u2019s even got cashflow on top of that. It was like a thousand bucks or whatever. I don\u2019t see an issue here. It looks like he\u2019s got $300,000 of equity. He got a great deal and he\u2019s got extra capacity to be able to make the payments.
The only way I would sell this is if I just got injured in a car accident and I couldn\u2019t work anymore and I was screwed basically. But other than that, if you\u2019re capable of capable of functioning in society, providing value and making money, why? Tell your friends to shut up and go invest in real estate. How much real estate do they own?<\/p>\n

David:
Yeah, presumably it\u2019s in a good appreciating market because he bought it for 815,000. That\u2019s not a cheap market.<\/p>\n

Kevin:
Right. And a price for what? 1.1 or something?<\/p>\n

David:
Yeah.<\/p>\n

Kevin:
Yeah. Well, but to triplex, so 300K a door-ish, a little less. Yeah. I mean, look, it\u2019s a great asset. I don\u2019t know why sell it here. I don\u2019t see this friend\u2019s argument at all.<\/p>\n

David:
There you go. So moral of the story is cashflow is a thing to look at. It\u2019s not the only thing to look at. This guy basically paid 815,000 and appraised at 1.1. He\u2019s walking into close to $300,000 of equity. How much money do you have to make at a job to keep 300,000 after being taxed, right? 400,000, $450,000. That is a good investment and it\u2019s probably going to get better. But you made a great point. It only works if you have income coming in from other sources to float you during the period of time that you\u2019re waiting for the rent to appreciate and cashflow to grow.<\/p>\n

Kevin:
Exactly.<\/p>\n

David:
All right, we hope you\u2019re enjoying this shared conversation so far. Thank you everyone for submitting the questions that you did. Please make sure that you like, comment, and subscribe to this channel as well as checking out Meet Kevin on YouTube who came in for backup with me today. At this segment of the show, we like to go back and review comments that you have left on previous shows. So let\u2019s see what some of you said. The first from Julian Kovard8345. Oh, I recognize Julian. \u201cIt feels so good to hear this adversity story at the end. I just recently closed on a townhome that was a five and a half month transaction. Sometimes I feel as if I\u2019m the only one going through all the BS. Glad to know that there\u2019s someone else out there who had to struggle as well.\u201d This comes from episode 357, so if you want to know what Julian is referring to, go check out podcast episode 357.
From Donya Salem. \u201cDavid: when you get a deal, you\u2019re literally getting a problem. You\u2019re getting someone else\u2019s problem.\u201d Oh, this is me. She\u2019s quoting me right here. David says, \u201cWhen you get a deal, you\u2019re literally getting a problem. You\u2019re getting someone else\u2019s problem. Damn, that\u2019s a nugget of knowledge.\u201d
And then Fine Art on Fire said, \u201cIsn\u2019t it though? That\u2019s wisdom really.\u201d Well, thank you guys for that. Definitely appreciate it. This comes from people that are trying to find a great real estate deal that cash flows and as equity and is in a great neighborhood and is easy. Those things are never going to exist in the same deal.
Jamal Adams says, \u201cVolume over perfection. Fine leads, run comps, make offers. I had to refocus on this concept when I got in a rut.\u201d Good comment there.
From Technically Human GX, \u201cThis is the real estate version of when Charlamagne Tha God came onto the Joe Rogan experience.\u201d Definitely check out episode 357 if you want to see what Technically Human GX is referring to there.
And from podcast episode 822, Street King says, \u201cI don\u2019t leave comments often, but you and Brandon have helped change my life. I\u2019ve been interested in real estate investing for some time. I read a few books by Brandon and yourself and finally took the leap and purchased a property in February. It was exciting and nerve wracking at the same time, but had been so much fun with a lot of learning on the way. With your words and knowledge I receive from the BiggerPockets podcast, I feel I have the knowledge I need to be successful. I am thankful for this episode and the info on building equity. I can\u2019t wait to purchase my next property and continue to build my portfolio. Thanks for all you guys do.\u201d
And our last comment from Keith Manseneli. \u201cWow, I listened to as many of these as I can, but with so many investors in different situations, they don\u2019t necessarily apply to us at this moment. Almost all of the QAs in this episode were directly relevant to us right now. Thank you for all your answers and breaking each subject down for us to understand. Thank you, David, and to all of you on the BiggerPockets Podcast show.\u201d Thank you for that.
As always, we love and appreciate everyone\u2019s engagement, so please remember to like, comment, and subscribe on our YouTube. And if you would like to be featured on the show, go to biggerpockets.com\/david. We would\u2019ve had this link set up sooner. We just couldn\u2019t think of a name for it, finally got that figured out. You can submit your video or your written question to be answered on the Seeing Greene episode.
All right, jumping back into this, Kevin, our next question comes from Hayden McBride in Asheville, North Carolina. Hayden is new to investing and saves a good portion of their income. In about a year, they will be moving to Wilmington. \u201cI currently work as a housekeeper for a company that manages short-term and midterm rentals. I think this is a different perspective than most people who come into the real estate business and could potentially be beneficial. I see what types of homes are rented out more often and are more desirable depending on size, type, location, amenities and many other aspects. My question is, do you think that a background in the hands-on work of the upkeeping of rental properties gives me any sort of advantage for getting started in the real estate business, either investing in real estate or in being an agent?\u201d<\/p>\n

Kevin:
Oh my gosh, absolutely. I mean, if I had a list of people who were like, \u201cHey, I want to apply to work with your startup house hack,\u201d and they gave me that background of like, \u201cHey, I basically am a property manager and I\u2019m doing all these,\u201d I\u2019d be like, \u201cPlease, apple.\u201d This is great. I think sometimes people don\u2019t even realize the advantages that they have. They need somebody else to tell them like, \u201cGo do it. You\u2019re good. You\u2019re good.\u201d You got to have that self-confidence. This background, amazing. This is what you need for real estate. You got to have real estate property management background, and you\u2019re either going to get it by learning it yourself when you do it and you don\u2019t have it. Or if you go in, so much easier. And I was listening to some of these comments like, that you\u2019re taking someone else\u2019s problem, the five and a half month transaction, yeah, totally normal. That\u2019s why there\u2019s so much money to be made. If you\u2019re able to solve these problems, you can make a lot of money.<\/p>\n

David:
It\u2019s the barrier to entry. People run away from it and they need to be running to it.<\/p>\n

Kevin:
Yep.<\/p>\n

David:
All right. Next question from Boris Slutsky. \u201cI\u2019m currently looking for private money investors who can help me to fund a portion of the entire down payment.\u201d That\u2019s funny, a portion of the entire down payment. \u201cPortion of the down payment for my next property, and I have a few people who said they might be interested in being debt partners in the deal. My question is, how do I provide a proof of funds for the lender or to the listing agent to even get pre-approved for the loan or to get the deal under contract? Is there a way of using my investor\u2019s financial statement, showing the funds available, plus a broad letter of intent stating that they have general interest in investing with me or something like that?\u201d<\/p>\n

Kevin:
I mean, look, as a real estate broker who\u2019s dealt with nonsense offers for 10 years, I wouldn\u2019t touch this with a 10-foot pole. So what they really need to do is cash in the bank, baby. If you\u2019ve got debt partners, then maybe make an agreement that, \u201cHey, there\u2019s no interest for the first month, or we\u2019ll add that to the back or whatever,\u201d but get that money funded. If somebody is interested in providing debt, you got nothing. If somebody provided you capital and it\u2019s in your bank account and they\u2019re now out of the picture, well now you have the capital. Now you can actually put it to work. But my next concern on that is if you\u2019re asking, \u201cHow do I now get pre-approved?\u201d, well now it gets even harder because lenders look for debts if they\u2019re going to count this debt against you, because it sounds like you haven\u2019t gone through the pre-approval process already-<\/p>\n

David:
They\u2019re going to source those funds for sure.<\/p>\n

Kevin:
They\u2019re going to source this unless you leave them sitting there without making payments on them. But then really you\u2019re not disclosing this debt to the lenders, which is defrauding the lenders anyway. Really, it sounds like somebody got an idea and they\u2019re way ahead of themselves. How about we go back to step one in real estate, qualify, demonstrate, close. Oh, step one, qualify. Call a lender. \u201cHey, hey, mortgage loan originator.\u201d You literally go to Yelp, type of mortgage loan originator. I used to be an MLO. \u201cHey, here\u2019s my situation. Here\u2019s how much money I make. What can I qualify for? What do you need from me? Oh, okay, tax returns, W-2s. Here we go.\u201d And if their follow-up is, \u201cOh, well, I don\u2019t have a job,\u201d well then that\u2019s really where your first step is, is get a job, right?
People are always like, \u201cOh my gosh, it\u2019s an investing channel, Kevin. How could you say get a job?\u201d That\u2019s like an insult. I\u2019m like, \u201cWell, the easiest way to actually build your investments is have a job.\u201d In fact, there are a lot of people who didn\u2019t like their job and then they got into investing and they realized, \u201cWow\u2026\u201d I used to be a law enforcement explorer. There were cops that were like, \u201cI hate this. I can\u2019t wait to retire.\u201d And then they get into real estate investing and they\u2019re like, \u201cNow I love it because I take my W-2 with overtime.\u201d Some of these officers, staff or whatever who were ranking, they\u2019re making over 100K. They\u2019re like, \u201cI now milk the fact that I have a W-2, I qualify for real estate all day long.\u201d It\u2019s great. You\u2019re self-employed and you have income. It\u2019s a pain in the butt to get qualified.
But anyway, so the structure of this person\u2019s question somewhat implies to me that they don\u2019t have a job, they haven\u2019t been qualified and they don\u2019t know what they\u2019re talking about, which when those three things come together, I also get really nervous about them wanting to take on debt because I think they\u2019re going to mismanage this.<\/p>\n

David:
And it only gets explained in our space as a positive thing. Take on debt, make real estate, make a bunch of money because you only hear about the deals that work. Nobody goes on these podcasts and says that, \u201cI did that and it was a complete disaster.\u201d We did an episode with Luke Carl and he talked about how he worked his W-2, saved his money, invested. That\u2019s the same way that I got started, literally as a cop working crazy over time buying properties. I said we need to rename the W-2, which has a bad connotation and start calling it the down payment generator.<\/p>\n

Kevin:
Oh, that\u2019s a great idea. Absolutely.<\/p>\n

David:
Yeah. How do you get better at your job so you can make more money so that you can buy more real estate? And I know that this sounds different than what people get used to hearing, but really if you showed up at the gym and said, \u201cI want to start lifting weights, I want to get stronger,\u201d you would quickly realize it\u2019s not just about lifting weights. \u201cI\u2019m going to have to eat different. I\u2019m going to have to sleep different. I have to learn the form.\u201d There\u2019s a whole thing that goes into this. You guys were training martial arts, right? The person comes in, they go to training, you realize, \u201cOh, I need to improve my cardio. I need to improve these areas of life.\u201d Anytime you want to be successful at something that you start, you quickly realize where you\u2019re deficient, and that\u2019s okay. You just make improvements in those areas. And I don\u2019t think real estate investing is any different.
So Boris, if you\u2019re having a hard time coming up with the down payment money for the house, what if you just use an FHA loan and you house hack and then in a year you go do it again and you turn what you bought into a rental property. You don\u2019t have to borrow money from people and put this complex Rubik\u2019s cube together of how you can get a house or a lender. Just use a primary residence loan.<\/p>\n

Kevin:
Yeah, it\u2019s funny. I wrote that down and didn\u2019t mention it. So thank you for saying that because you\u2019re so right. It\u2019s like just borrow from the bank. And if you can\u2019t qualify for an FHA loan, maybe you shouldn\u2019t be in the deal anyway. But I mean, that\u2019s how I got my first property, is 3.5% down. And then the bank will even finance the renovation for you. Now, that takes patience and it\u2019s kind of hard. I don\u2019t really recommend it because it\u2019s a pain in the butt.<\/p>\n

David:
The 203(k) [inaudible 00:31:30], yeah.<\/p>\n

Kevin:
The 203(k)s, yeah, that\u2019s exactly what we did. And they gave us 50K, but then we borrowed from a second later because it\u2019s so hard to get the draws on those 203(k)s. So we borrowed from another source, used their money to do the reno-<\/p>\n

David:
And then replenished it with the 203(k) [inaudible 00:31:45].<\/p>\n

Kevin:
Exactly. Yeah, yeah, yeah, because it\u2019s such a pain in the butt, the process otherwise. But anyway, the point is, you only need 3.5%. You know what? On 500K, we\u2019re talking about under 20K.<\/p>\n

David:
There you go. All right. Next question is from Wesley Abercrombie. \u201cHey David, I love your content. I saw you post a video on Instagram about how the BRRRR model doesn\u2019t make sense for every home. Instead, sometimes a flip could make more sense depending on the profits. What would you say that the profit margin is where you decide to flip the house? 50K? 70K? Or do you use a different metric?<\/p>\n

Kevin:
I hate flipping. I think there are so many expenses involved in flipping. Flipping makes great sense in an appreciating market because you have less risk. In fact, the appreciation can sometimes offset your selling fees, but that\u2019s just being in an appreciating market.
In this sort of environment that we\u2019re in, flipping, I think, has a lot of risk. There\u2019s a reason a lot of the institutional flippers, the Open Doors, the Zillow, Zillow got out completely, Redfin got out completely, and Open Doors slowed down dramatically, there\u2019s a reason they\u2019re slowing down with flipping. So is there a metric for when it makes sense to flip? I mean, boy, I think if it makes sense to flip, it probably makes sense to BRRRR, unless it was a very expensive property. For example, you go buy a $1.5 million house, it\u2019s harder to justify buying and holding because the rents often don\u2019t catch up. The rents makes a lot more sense between usually that 300K to 800K range. Start going over a million, at least in most markets I see, the rents\u2026 I mean your cap rates are like 1.9%. It\u2019s like, what\u2019s the point? Again, you have the equity, you could BRRRR it out, but still, I\u2019d rather have a bunch of 600K homes than keep those.
So I suppose if I walked into a smoking hot, I can make 300K by flipping this on one and a half, would I do it? Sure, I\u2019d rather have the smaller rentals anyway. But generally, that wouldn\u2019t be my goal. So hopefully that answers that question.<\/p>\n

David:
That does help. I can simplify this for you, Wesley. You created equity through this fixer upper, which was good. At least that\u2019s the goal. The question is, \u201cDo I get the equity out via a cashout refinance and keep the house, or do I get the equity out via selling it to someone else and get their money?\u201d Like Kevin mentioned, if you\u2019re going to sell to somebody else, you\u2019re going to have some inefficiencies where you\u2019re going to pay closing costs, you\u2019re going to pay realtor fees, you may have to make some repairs on the property. It\u2019s not the most efficient way to get that equity out. Then you\u2019re going to go pay a bunch of taxes on the profit. If you refinance, pretty much you just have the closing cost of the loan as those are the only inefficiencies you\u2019re going to have.
When I\u2019m looking at the situation, I ask myself a couple questions. The first is, is this an area that I want to keep the house? If this is a really bad location and it\u2019s going to be nothing but headaches for you, flip it. Let somebody else buy it as their primary residence. They\u2019ll be happy with that location. Don\u2019t try to rent to tenants in a place that\u2019s going to cause you headache or isn\u2019t going to go up in value.
The next is, is their cashflow? If you\u2019re going to be bleeding 3 grand a month on this property and you\u2019re not in a strong enough financial position to take that on, sell it to someone else, take the money, go invest it in real estate where it is going to cashflow. If you are getting cashflow, in most cases, it makes most sense to keep it as a BRRRR. And then you not only benefit from the equity that you created in the process, you benefit from the future equity that you will get as the property appreciates. But it\u2019s not a hard and fast rule. You can\u2019t put this into a calculator. You have to actually look at all of these dynamics holistically and then decide, \u201cIs this an asset I want to hold and how can I keep my inefficiencies lower?\u201d<\/p>\n

Kevin:
That was great added perspective. I think you\u2019re so right. I mean, \u201cIs it even where I want to own real estate?\u201d That is such an underutilized statement or even question, because if you don\u2019t feel comfortable doing a Craigslist transaction there at nine o\u2019clock at night, do you really want to be renting there? Do you really want to be an owner there? I don\u2019t know. Some people do. I mean, there\u2019s a firefighter, he\u2019s a course member of mine. He\u2019s like, \u201cKevin, the cashflows out here are like 7, 8%.\u201d I\u2019m like, \u201cWell, where are you?\u201d And it\u2019s like Atlantic City and it\u2019s like 30% poverty rate. He\u2019s like, \u201cI deal with all this,\u201d but he\u2019s like, \u201cBut the reason I get all the deals is because I know street by street where to buy\u201d because he\u2019s a firefighter so he\u2019s dealing with\u2026 He\u2019s on the streets every day. Well, the days he\u2019s working. So again, competitive advantage.<\/p>\n

David:
Yeah. And what if there\u2019s no tenants in that area?<\/p>\n

Kevin:
Yeah. Well, that\u2019s also true.<\/p>\n

David:
If there\u2019s no one to rent to, then it doesn\u2019t make sense to keep it, right?<\/p>\n

Kevin:
Also true, that liquidity of renting folks forget. See, the two things you want in real estate are liquidity of sale and liquidity of renting. If you need to sell it fast, can you? If you need to rent it fast, can you? And sometimes folks get into rural horse property in the Midwest and it\u2019s 30 minutes away from the next gas station. It\u2019s like, \u201cWell, how long is it going to take you to find a tenant for that?\u201d If it\u2019s going to take six months to find a tenant, I don\u2019t want that. It\u2019s going to take years to sell it.<\/p>\n

David:
Good point. Or maybe in that market, there\u2019s a lot of people that want to buy, but there\u2019s not a lot of tenants that are going to be there. So if you flip it, you can get money out. And if you keep it, it\u2019s going to be sitting vacant for six months. Those are the things you got to look at. It\u2019s not as simple as if I put it in a calculator, the Excel spreadsheet\u2019s going to give me the answer. It can help you with the decision making. It cannot be the thing that makes the decision.<\/p>\n

Kevin:
If you need to analyze a deal on a spreadsheet, you should not buy the deal. That\u2019s generally my rule of thumb. If I can\u2019t napkin math or even mental math the deal out, then A, I don\u2019t know enough about the area because I should know the area enough to instantly see a listing and a list price and go, \u201cThat\u2019s going to be a great deal. I know how much to spend on it. I know what it\u2019s going to run for because you already have that market knowledge.\u201d If you\u2019re sitting on a spreadsheet, maybe you don\u2019t even have that market knowledge yet. And the second question is, is it so tight that you really have to create this idealistic spreadsheet scenario? If that\u2019s what you have to go through, probably not as great of a deal.<\/p>\n

David:
Interesting perspective. So you\u2019re saying sometimes people use spreadsheets to justify a bad deal because the numbers make it look better than it is?<\/p>\n

Kevin:
Of course. Spreadsheets are designed to be complicated. Spreadsheets are designed so that when you present it to somebody, you have a little highlighter over the bottom line that\u2019s like, \u201cThis is the ROI. It\u2019s going to be 10% cash on cash return every year.\u201d But then you get into the realities. And the realities are, \u201cOh, you\u2019re dealing with evictions every three months on different units and you\u2019re dealing\u2026\u201d Spreadsheets don\u2019t account for that. And you change these little variables like, \u201cOh, the market rents are $2,500.\u201d So what do people do in spreadsheets? \u201cWell, I\u2019m going to get $2,700.\u201d And then they realize like, \u201cOh, at $2,700, I\u2019m getting professional tenants,\u201d basically people who you\u2019re going to have to evict all the time, watch Pacific Heights, as opposed to if you ran the math at slightly under market rent. Market rent\u2019s 2,500, you\u2019re at 2,450. Now you\u2019re getting high quality tenants over 700 credit scores. No headache. Now, the numbers don\u2019t make sense on the spreadsheet, right? If you have to go to the spreadsheet and trick yourself into it, you\u2019re probably-<\/p>\n

David:
Yeah, it\u2019s tempting to play that spreadsheet magic, move things around.<\/p>\n

Kevin:
It\u2019s what it is. It\u2019s magic, and then it\u2019s a farce.<\/p>\n

David:
All right. Our last question here comes from Dan Kelly in Charleston, South Carolina. Dan has some relatives and investors that want to partner buying a short-term rental in the Mount Pleasant area of Charleston. And Dan doesn\u2019t have a ton of money himself, so they\u2019re looking at how to put this deal together where Dan would be the boots on the ground and would handle the day-to-day responsibilities for his contribution while his partners would be providing the capital, and he says, \u201cDo you have any recommendations for how the investors in a project like this could organize ourselves in regard to financials, physical contributions to the properties and the management of the rental?\u201d<\/p>\n

Kevin:
Yeah, don\u2019t do it. This sounds literally like cancer, like\u2026 Okay, I shouldn\u2019t make that comparison because that\u2019s insensitive. People have cancer. But this sounds miserable. Literally miserable. First of all, this is not the time, in my opinion, to be getting into the short-term market. I think the short-term rental market, at least what I\u2019ve seen in my experience flying around the country analyzing these markets, is short-term was great during COVID because there was a lack of people providing short-term rentals.
Now, there is a surplus of people providing short-term rentals in a time where we\u2019re going through economic difficulties. And hotels have done a really good job at catching up at providing the amenities that were missing previously. COVID\u2019s not an issue as much anymore. Regulation on short-term rentals has gotten extreme. Just last Sunday, I was in Vegas, went through a property, I\u2019m like, \u201cWhy are they selling this?\u201d They\u2019re like, \u201cOh, it\u2019s short-term rentals. It\u2019s a short-term rental. We should show you 12 month cashflows for 2022,\u201d they wanted to show, and I\u2019m like, \u201cHow about 2023?\u201d They\u2019re like, \u201cWell, the rules changed and the numbers aren\u2019t as good [inaudible 00:39:55]-<\/p>\n

David:
Isn\u2019t that funny? Isn\u2019t that the real estate version of catfishing?<\/p>\n

Kevin:
It\u2019s a scam, man.<\/p>\n

David:
Here\u2019s a picture of me eight years ago when I was at my best.<\/p>\n

Kevin:
Yes. It\u2019s a scam. So first of all, I cringe when he said short-term rental. It sounds like a horrible idea right now. There will be an opportunity again. I wouldn\u2019t be surprised if we go through some kind of little short-term rental reset or little bubble pop or whatever it is. So that made me cringe.
Then I heard partners and then I wanted to vomit, but that\u2019s me personally. We already talked about that earlier. I\u2019m not a big fan of that. Then I heard, \u201cI don\u2019t have a ton of money,\u201d and then I\u2019m like, \u201cOh my gosh. It\u2019s literally checking off a bingo card of what not to do in real estate,\u201d literally. So you\u2019re telling me you want to get into short-term rentals when we\u2019re possibly peak short-term rentals behind us already. You want partners when you\u2019ve never done real estate before. It doesn\u2019t sound like you have experience. You don\u2019t have the money. You\u2019re trying to set up like, \u201cWell, how do I\u2026\u201d What he wants to hear from you, by the way, is, \u201cSo you\u2019re going to set up an LLC and then you\u2019re going to have a contract between all of you and you\u2019re going to do 30% of the work and you\u2019re going to track all your hours, and then you\u2019re going to do 25% of it.\u201d it ain\u2019t going to happen. Don\u2019t do it. This is a terrible idea.<\/p>\n

David:
I got to say I agree with you here. This is risk stacking, okay? Haven\u2019t bought real estate before, haven\u2019t invested in short-term rentals, don\u2019t know the market that good, bringing in partners which we always tend to look at the positive of a partner and we always forget about the negatives because they\u2019re probably not super experienced either if they\u2019re considering letting this person who doesn\u2019t do this pick out the property and manage the whole thing, lack of experience, lack of capital. This is a situation where if it worked out, you would\u2019ve gotten lucky, right?<\/p>\n

Kevin:
Yes. And it\u2019s important to remember too that most of the folks who were really making money with short-term rentals, the net income they were making was basically just their salary. I see this all the time. People are like, \u201cOh, my Airbnb business brings in $3 million\u201d and they\u2019re like, \u201cOkay, well that\u2019s gross.\u201d So now let\u2019s take off principal interest, taxes, insurance, cleaning, all the Airbnb\u2026 Take off everything. And now all of a sudden you\u2019re down to like 200K, which don\u2019t get me wrong, that\u2019s great. But now, oh wait, you\u2019re working 80 hours a week because you\u2019re basically working two jobs, managing the rentals. So when we actually generally look at people\u2019s financial breakdowns of how much they\u2019re really netting, they\u2019re netting enough to pay themselves a salary. It\u2019s a job.<\/p>\n

David:
Yeah. And often a lower paying job than they would get if they took a normal job, right?<\/p>\n

Kevin:
Yes.<\/p>\n

David:
That\u2019s a great thing to highlight because when it gets shown on TikTok or Instagram, what they say is, \u201cMy 25% ROI on this deal.\u201d We go, \u201cI can\u2019t get a 25% ROI anywhere I want to go do it.\u201d And then you say, \u201cWell, we\u2019re assuming that\u2019s with zero work.\u201d If I got 25% in the stock market, I didn\u2019t do anything. That\u2019s 60 hours a week of working that maybe comes out to a $9 an hour wage. This was a terrible idea, unless you got a ton of equity in the deal or something like that. But that is a great point that you highlight. It is very misleading. And I think that Dan here is probably hearing these great stories of short-term rentals and maybe getting sold a bill of goods.<\/p>\n

Kevin:
But you know how I doubled my income between 2010 and 2011? I went from making $5,000 a year to $10,000 a year, okay?<\/p>\n

David:
Yeah. It\u2019s a great TikTok video how I doubled my income. I was doing this, yeah.<\/p>\n

Kevin:
Exactly. I went from working part-time at Hollister to having a full-time job at Jamba Juice, okay? The numbers and these percentages, because you talked about this 25% ROI, it\u2019s so easy to mislead people.<\/p>\n

David:
All right, Dan, our advice is maybe don\u2019t jump into this deal with a bunch of inexperienced partners. If you are really serious about investing in real estate, again, house hack. Look at buying a house in a great neighborhood that you can rent out the rooms or maybe you even short-term rental parts of the house. Get yourself some experience with a 5% down loan where you can gain what you don\u2019t have without using other people\u2019s money and getting yourself in a big, nasty, messy partnership. Earn the right to buy those houses later. And then you might not even need the partners because you might\u2019ve made your own money. So that was the last of our questions, Kevin. Thank you for tag teaming this Seeing Greene with me. Anything you want to say before we get out of here?<\/p>\n

Kevin:
Hey, I\u2019d like to pitch. We\u2019ve got a startup. It\u2019s actually called House Hack. It\u2019s a little different from the traditional form of house hack, but go to househack.com. You can learn all about it. Make sure to read the offering circular. The SEC will get mad at me if I don\u2019t say it. There are risks involved with investing in startups or fundraising. One-to-one valuation, read about it at the website. And read the offering circular. But that\u2019s it. Otherwise, I\u2019ve got a channel, Meet Kevin on YouTube. And thank you. This has been a blast. I love these questions. See, I sit down and I\u2019m like, \u201cWhat kind of videos should I make today?\u201d And I bias towards like, \u201cWhat\u2019s the latest going on with Congress or the Fed?\u201d But these are the real questions where people have these burning desires like some of these scenarios we went through and they need somebody to tell them, \u201cYou have a competitive advantage here. Do it.\u201d
\u201cYou should not do that. Do this instead.\u201d So this is a great format. Thank you.<\/p>\n

David:
Thanks, man. That\u2019s how we do on Seeing Greene. If you would like to be featured on an episode, submit your question at biggerpockets.com\/david. And if you\u2019d like to know more about me, you could follow me @davidgreene24 on Instagram or your favorite social media, or check out davidgreene24.com. All right. If you\u2019ve got a minute, check out another BiggerPockets video. If not, I will see you on the next episode. This is David Greene for Kevin House Hack Paffrath signing off. Thank you.<\/p>\n

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