The Remote Real Estate Investor

In this episode, we welcome House Canary's Director of Research, Brandon Lwowski to look at what has been happening in the real estate market over the last years and where we are headed as an industry. We discuss the health of the real estate market, the residual effects of the response to COVID-19, and the main challenges facing investors today. Brandon Lwowski built his career after studying Computer Science Mathematics at The University of Texas at San Antonio. In his role at HouseCanary as Director of Research, Brandon distills what is happening in the real estate market through data analytics and machine learning to help investors make more informed decisions about their portfolios. Links: https://www.housecanary.com/ https://www.linkedin.com/in/brandon-lwowski/ --- Transcript Before we get into the episode, here's a quick disclaimer about our content. The SFR show is for informational purposes only, and is not intended as investment advice. The views, opinions, and strategies of the hosts and the guests are their own and should not be considered as guidance, from Roofstock. Make sure to run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to an episode of the SFR show, the place where you get all of your up to date SFR investing information. I'm Michael Albaum, and today my guest is Brandon Lwowski, the director of Research over HouseCanary and he's gonna be talking to us about all of the things that have been going on in the market over the last several years and months, and how we can use that information going forward. So let's get into it.   Hey, Brandon, what's going on? Thanks so much for taking the time to come jump in chat with me today. Appreciate it, man.   Brandon: No, of course, it's good to be here to get an opportunity to discuss the real estate market for sure.   Michael: Yeah, I'm super excited. So you're the director of Research at HouseCanary. Give us all just a quick little bit of insight background on who you are and what house canary is and what they do as a company.   Brandon: Yeah, definitely. So HouseCanary, you know, it's basically a national brokerage and so it's really known for its real estate valuation, technology and accuracy. This company has been around since 2013. It was founded by Jeremy Sicklick, our CEO and our Chief of Research, Chris Stroud, kind of off of the 2008 housing crisis, they did decide to form this company to kind of help speed up the transactions and speed up and really gain knowledge and just competence in the real estate market through using analytics machine learning to provide 100 and 14 million valuations on properties as well as 91 million rental valuations. So if you think of how scary it's built around the analytics and valuations of the United States real estate market.   Michael: It was at $114 million valuations that you said since it since inception.   Brandon: No, that's monthly, we produce 114 million property valuations. Of course, the 114 million is a subset of you know, every property in the United States and that repeated monthly, but we train this very complex machine learning model AI model to produce 114 million property valuations.   Michael: That's incredible. Well, I want to come back to HouseCanary as a company here in a minute. But I want to first start by asking you, Brandon, because it is so analytics and data driven, what is it that HouseCanary as a company and you as an as the director of research are seeing in the numbers in the data with regard to just where we are in the market, there's so much chatter about market cycles and ups and downs and bubbles, give us a little bit of insight to what are the numbers and facts supporting where we are right now, as we're recording this brand new into the new year 2023.   Brandon: I think kind of the one of the biggest headlines to kind of drive home right now, especially in the market, we have this unique combination of these elevated interest rates and you know, the slow buying season that we typically see during the winter months, this has really impacted across the board, our new inventory coming into the market, our new listings, listings going under contract, all of these metrics that we typically look at to understand the health of the market and the health of the real estate market, have really had significant declines year on a year over year basis, that's across the board inventory listings under contract, the Feds kind of you know, their fourth straight 75 basis point interest rate increase, you know, as the thing is, the fourth month straight or the fourth, fourth one straight, has really had that negative impact on net inventory. But this is just providing more evidence that you know, supply of homes is still squeezed and it's remaining negative over time, we've kind of seen this trend since August, right where our supply of affordable housing and actually all housing in the market has really continued to drop and this is basically you know, the biggest driving factor here is that interest rates shot really driving down these new listings volumes to like a multiyear low since pre you know, I don't use the word pre pandemic because you know, we're still in the pandemic, but that pre pandemic peaks we'll call them we're seeing you know, all its multi-year lows in terms of new listings, everything going on the real estate market. The biggest picture here is even as these interest rates come up, our supply just remains extremely negative and still going in a downward trajectory.   Michael: And when you say downward trajectory is that From 12 months prior, or is that from the prior month?   Brandon: We're looking at a year a year basis right now. If you think about the month over month basis, we are still seeing declines. But when we're talking about these multi year lows in terms of net new listings, on the purchase side of the market, we've reached those multi year lows. I think, you know, the reason why this supply crisis is also happening right now is, in this current real estate environment, it's really difficult to convert homeowners and current renters and convert them into future homebuyers, right. In this elevated interest, interest rate market, it just doesn't make sense financially for a lot of people to enter the market, you think of this large group of, of homebuyers that purchase homes at record low interest rates, they refinanced during the peak of a call it the peak of the refinance, boom, that happened during the pandemic and for them to reenter the market, it just doesn't make financial sense for them. So in order to move out of their current home and into a new loan, they're going to be paying a higher premium for the same quality of home. So they're available availability to spend money has definitely decreased and I really don't see this inventory shortage, kind of relieving itself or beginning to increase well into, you know, the first quarter, second half or first half of 2023, the supply just remains super squeezed.   Michael: Okay and so that, like the supply aspect is, I'm guessing one ingredient in the recipe, so to speak, what are some of the other things that you're looking at, and that you're seeing, to give you an indicator of where we're headed and where we are currently.   Brandon: Right. So I think so the supply is, has been squeezed, I think since COVID, there's been a really tight squeeze on the flat supply side of the market. But with those low interest rates that were happening, I mean, 1- 2% interest rates, people were getting their home loans that the demand for property shot up, which is why we really saw that two, three years of just record breaking price growth and the real estate market. Now we're looking at the demand side, and we're actually in the seventh consecutive month of double digit declines in on a year over year basis, we're looking at the listings that are coming under contract in the market. So if you look at inventory as a supply of new listings coming in, if we look at listings of those listings, and the existing market, this existing supply, existing supply, listings under contract is still seven consecutive months of double digit declines since November, are all of our data right now, it's kind of up to that first week of December 2, so we kind of think of it as, as of November. This is this kind of is the driving force behind this is, you know, we've never seen this kind of seventh consecutive month of double digit. So it's kind of driving a lot of fear into homebuyers and home owners and the way we kind of know that this is not normal, it's kind of beyond the typical seasonality we'd expect during the cold winter months to have seven consecutive months, this kind of uncertainty in the market around interest rates, economic downturn, the inflation, they just continue to force homeowners and would be buyers, you know, to play the waiting game, they're, they're gonna sit in the sidelines, they're gonna stay away from the market and so they're a little more competent in in where this kind of roller coaster is going.   Michael: As I'm thinking about such a visual thinker. I'm thinking about this as almost like a race to the bottom in a sense of like supply versus demand once because it sounds like they're almost moving in lockstep negatively, we were having a reduction in supply, but we also have a reduction in demand and once right is that is that the right way to think about it?   Brandon: The demand has definitely began to decrease or is decreasing at a faster rate than supply because supply has been squeezed since the pandemic whenever the shutdowns happened. People just stop selling houses. They stopped listing their home so the supply side of the market has been squeezed since the shutdown the pandemic. The demand side due to the interest rate hikes the economic uncertainty, that's where we're really seeing the decrease on the supply side where the decreases are coming from. So even though you know supply is always been net always been tight. We've been tight recently in recent years. A lot of the continued decrease on supply side is actually coming from net new listings so people aren't putting listings on the market right now. For the reason that we discussed earlier. It's hard to get homeowners back into the game. They're actually down around 25% on a year over year basis, in terms of like how many new listings are coming into the market, but even a bigger piece here is on the supply side is our removals of listings are up 65% on a year over year basis. So houses that were listed last month six are being removed from the market further impacting supply, while supply has been remained squeezed like very, very tight supply of properties over the years, there still is a decrease in net new listings, and also an increase in removal. So in that supply is being affected. But when it's so squeezed already, that that impact in the market will not be as significant as the impact of a decreasing demand side of the market.   Michael: Yeah and that makes total sense and so what are you seeing with regard to sale, as opposed to sale of percent of this price and then also days on market?   Brandon: Yeah. So I think some other key indicators, the market, you kind of just discussed, you know, we have days on market, I think price lists ratio is important, I think, the median price, right, the time series of how is price behaving in this environment, all important and understanding kind of the overall health of the market and I kinda like to go with the big one first, in my opinion, which is the median price, right? Where is the market going? I kind of macro at a national scale. The, if you look at the year over year basis, median price of all single family listings, right, so single family dwellings, that those are actually up 10%, on list prices, and actually up 2% in terms of actual close prices. So even though we're seeing the storyline of these prices really starting to decline and kind of freefall, we're still seeing as a year over year basis, because we hit such a huge peak in the middle of 2022. We're still up year over year, by those two percentage I meant mentioned. On a month over month basis that compared to last month, we are slightly down, but it's very, very small. We're down around one and a half percent on listings and down and less than half a percent on close prices. So we see a lot of the storylines and the headlines across the news, that these prices are falling drastically. We're in a deep decline. The roller coaster rails are off and we're down to 2008 again, but just looking at the data alone without any sort of human interjection or opinions. I'm not an economist, I'm a data scientist. But by heart, I'm just looking at the data because we had such a high peak in the middle of 2022, in terms of the median house prices were still up year over year and on a month over month basis, the declines in price are very, very miniscule, to what we're kind of hearing in the media. So that's one thing, right? The median price is definitely a driving factor. Everyone's concerned about like, what am I going to get for my property? Where's the trend of our nationwide real estate market heading and even though we're in a slight downtick month, over month, if you look at long term, we're still up 10% on listings and up, you know, 2% on closed prices.   Michael: It seems like there has been so much resiliency, if we're seeing such a miniscule price reduction month over month and year over year, there seems to be a lot of resiliency to interest rate increases for folks, and that they're still closing transactions, even at this much higher interest rates, and they're not saving a lot or really anything at all, in terms of the price that they're paying out the door.   Brandon: Right, I think what's causing these prices to, I don't wanna say remain elevated, but kind of not declining at the pace that we would expect is that tight supply. Now, we're still a few months probably away from seeing how this kind of mass layoff and technology could affect the real estate market. Because, in my opinion, what's really going to drive these prices down is when we see supply, increase at levels that the demand has decreased and that imbalance in the market is what will really drive those prices down and the reason why kind of refer to that technology, layoff if that same style, that same volume of layoffs, hits other sectors of employment, then we're going to see defaults and people need to give up their homes because they can't afford it anymore. So unless something in outside of the real estate market really drives the demand. I'm sorry the supply side of the market to escalate at a very fast rate, that safety net is there to kind of keep our prices from really crashing, like we saw in 2008. We don't have the same supply that we saw in 2008. So we're kind of have that safety net there. Unless like I said, something really drives that unemployment up and forces people to default and give up their homes or sell their homes because they can't afford the mortgage anymore.   Michael: But it's interesting, because from all the news that I've been hearing, and correct me if I'm wrong, maybe you've been hearing, the unemployment rate is super low. Like there just doesn't seem to be those mass layoffs that we saw in the tech industry, yet anyhow, affecting so much of the so many other industries. So it doesn't feel as imminent.   Brandon: 100% right, I'm hoping I mean, just for the health of our economy, I'm hoping that that mass layoff doesn't reach other sectors and I hope that we're done with majority of it. But we're probably a month or two away from really understanding did that actually have an impact on our median, price per square foot or median close price of a property and then we can track those defaults, and those the supply over the next few months to see if that really impacted the real estate market or not.   Michael: And that makes total sense. We'll talk this Brandon about those other two factors that you mentioned the price to list ratio, and then the days on market.   Brandon: The price to list ratio has actually been on a pretty big decline. I think back in May 2022, it may have been June or May, I think we're at a multiyear high of around 102%. So most properties, were selling 100 or 2% higher than the list price, which means that it's definitely a seller's market, right. If I if I can list my house for X amount of dollars, I know I'm gonna get 102% return, I mean, I happen to present a 2% return on that is definitely a seller's market. We actually for the first time in about mid-August of last year, we're now down below 100. So that's just an indicator that the markets kind of switched right now buyers kind of have that power and that ratio now stands around 98%, which is kind of the levels before COVID emerged, and actually the lowest number since the first half of 2020. So we're not we went from a high of 102 in May to now we're down to about 98 which is definitely a key indicator that buyers now have more power than the seller's because of you know, just multiple aspects that we've been talking about the high interest rates buyers be a little more choosy. Even though the supply is down sewer buyers, there's not enough buyers in the pool to compete with me anymore. So I have a little bit more pool, which is why we're seeing that sale to list price or price to list ratio, starting to decrease. That kind of in parallel, what we see with that is to kind of tell that same story that we're now entering that buyers' market, even though demand is low, if you look at the volume of price drops, right, think about how many times a listing comes on the market for 100k. It sits there for 30 days, they come back and they say hey, you know what, let's list it for 95 maybe we can get more buyers, those price drops in terms of volume are actually up 142% year over year since the last time. It's just more evidence that buyers now because demand is so is so squeezing this high interest rate environment, they get more power listings are staying on the market longer list to or sale to list price ratio is down and then but yet the because supply still squeezed, we're not really seeing a huge impact that we're kind of seeing in the news right now, on the actual median price of all listings.   Michael: Brandon, just out of curiosity, I think I remember if my memory serves me correctly, which it often doesn't, but like in the height of 2022, the max or the highest median home price in the country was like 395k. But do you happen to recall what that number was and maybe what it is now today?   Brandon: Yeah, so if you look at the peak of 2022. So kind of that halfway mark, I think it was right around the ending of H 122. The actual median price is actually higher, at least according to our data, right? The data that we have availability to our actual median price was actually above 400,000. We're sitting right around like 420,000 was kind of that median price for closed listings for active listings was actually even higher than that. So for closed listings were around that for 120,000 range, right now as of the first week of December is kind of our data cut off. Right now in terms of the data that I'm giving you, we're sitting right around $380,000 as the kind of median price per square foot, I'm sorry, median price of closed listings, it sounds dramatic, and we go from, you know, that 420 ish down to three, it's a pretty big drop. But as you look at the entire time series from, we'll call it the pandemic, the start of the closed downs, all the way to today, if you bought a house, during those pandemic years, you're still doing really well in terms of the amount of equity, it's still in your home prices haven't dropped that drastically to where you're now upside on your loan, you're still well above you know, what you bought the house in, during the bottom of the pandemic years, what's really going to cause kind of some worry, and headaches is these people who kind of bought later in the year, kind of towards the end, or middle of 2022. Now, they're beginning to worry the most because they didn't have that same amount of cushion that these homeowners bought when they don't worry about houses a year or two years ago. So that number does seem like a big decrease. But if you look at the longevity of the time series of the pandemic eight pandemic shutdowns to now, you're still up quite a bit in terms of percent and you have a large cushion before you even have to worry about being upside down in a mortgage or, you know, losing a large amount of equity in your property.   Michael: Does the data give us any indicators as to what's coming down the pike because obviously, data is rear looking. But how can we use that to be forward looking or is there a way to be?   Brandon: Yeah, so I think you're talking about forward looking, you know, the next 6,12,18 months. If you look back slightly, we hit this topic quite a bit. It's a big topic right now in real estate is these large interest rate hikes. If you look at the timeline, the time series of the real estate market in terms of medium price terms of you know, list to sale rate of sale to price ratio, you look at, you know, the days on market, it seems that with the large amount of growth that we experienced in two years, you know, record growth, that was actually able to absorb a lot of the impact that people would assume, continuing to month over month raise this interest rate to higher and higher levels, they assumed that it was going to impact the real estate market at much a much quicker, much faster way. So then they can stop, right, the goal of raising interest rates tend to raise them forever. They're just raising them until they kind of see the market growth kind of settled down and adjust and kind of normalize. But it's kind of shocking when you think about how much and how quickly that interest rate rose and until a few months back. I mean, most of 2022 there was very little impact from those rounds of interest rates. So it's one thing that we can we can learn as, as we saw record growth, even that dramatic increase really did not impact the real estate market as we thought it would. Secondly, what's really kind of driving any sort of kind of negative view of the real estate market right now around this interest rate, is you gotta think of like purchase power of our homebuyers, right?   We didn't see salaries raised at the same rate as the real estate market, we didn't see household income raise at the same rate as real estate. So the really big question here and the kind of the, you know, the driving force here is the purchase power of homebuyers. We actually seeing and this is from Freddie Mac, I believe a 32% decrease in purchase power, based on this 30 year, you know, FRM, that's given the same monthly payments for a loan made at the end of 2021. So we're really seeing a decrease in what homebuyers can afford and that combined with hopefully the Fed has definitely signaled smaller rate hikes in the future. We're hoping that housing fundamentals can hopefully come back to a quote unquote normal seasonality cycle and the expected returns, but into early 2023. I think we're still going to see you know, a real estate market that's just characterized by this continued tight squeeze on supply tight squeeze on demand. With the exception of what we discussed earlier, which was a major economic event causing mass layoffs or firings, then I'm thinking early 2023 is going to be characterized the same kind of, of patterns we're seeing now, which is tight supply, shrinking demand, days on market, increasing. median price is slowly decreasing month over month, until we see hopefully towards the second half of 2023, a market that's brought back to its normal seasonality and its normal housing market fundamentals.   Michael: Brandon, I want to be super respectful of your time and get you out of here, man. But before I do if people want to learn more about you and the research team HouseCanary has a whole services that y'all provide. Where's the best place for them to do that or get a hold of someone?   Brandon: Yeah, I would definitely just go to https://www.housecanary.com/ . From there, you can get a list of all the products services, there's probably people on our company that can explain the better business use cases and appear researcher, I'm all about the data. But if you go to https://www.housecanary.com/, there's plenty of people to contact through there and also, I'll attach my email. I'll pass it on to you, Michael after this. So you can share it with the listeners.   Michael: Thank you so much for taking the time. This was super informative and definitely again, curious to see how things all pan out.   Brandon: Yeah, stay up, same tune. I think next week, our new market pulse comes out as well. So if you're interested in different states and how the market is performing, and also at the national level, it's a free report and that report will be valid all the way up into the end of December. So it will have kind of our December numbers added to that report and you can see those trends going on there as well. So usually is dispersed on our website. Also LinkedIn, if you follow HouseCanary on LinkedIn, that report is shared monthly for free and you can see all those metrics that we talked about updated on a monthly cadence. So you can kind of have competence in your decision making process.   Michael: Love it, love it. We'll definitely check that out as well. Well, thanks again, Brandon. Appreciate you and we'll chat soon.   Brandon: Appreciate it, thanks, Michael.   Michael: All right, everyone. That was our show a big thank you to Brandon for coming on and dropping so much knowledge, facts, data and statistics on us to help us guide our investing through these kind of tumultuous times. As always, if you enjoyed the episode, we would love to hear from you all ratings and reviews are always appreciated as are comments with additional topic ideas that you are interested in learning about. We look forward to seeing on the next one. Happy investing…

This episode features the masterminds behind Roofstock OnChain, Geoffrey Thompson, and Sanjay Raghavan. We discuss the revolutionary product of tokenized real estate, how it works, the problems it solves, the incredible scaling power of this new technology, and who it is for.   Geoff Thompson built his career at top-tier law firms practicing in the areas of capital markets, banking and credit, structured finance, private equity, and cross-border transactions. Geoff's prior role at Roofstock was as general counsel where he advised on partnerships, product innovation, fundraising, deal structuring, real estate matters, securities law, international expansion, and all other legal and compliance matters. Sanjay Raghavan is the Head of Web3 Initiatives of Roofstock onChain where he leads the real estate investing platform's blockchain initiative. After being accepted into Cypher Accelerator, Sanjay continues to build connections between real estate investing and blockchain. Sanjay is also an advisor at Pudgy Penguins NFTs. Roofstock onChain is the Web3 subsidiary of Roofstock, the leading digital real estate investing platform for the $4 trillion single-family rental home sector. Relevant links: https://mobile.twitter.com/eth_sanjay https://mobile.twitter.com/_gthomps     Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone, Michael Albaum here from the Remote Real Estate Investor, we're actually in the midst of a pivot and so we're changing the name of our show to be the SFR show. Reason being is we really want to double down on the single family rental industry as a whole and so we wanted to pick a title and a name that's reflective of that. So join us here on the new show, the SFR show where we're gonna be bringing you everything you need to know about SFR investing from what the market is doing at the micro and macro level, to what the factors are influencing and changing the space. So let's kick it off with this first episode. We hope you enjoy.   Hey everyone, welcome to the SFR show. We're going to be talking today with Geoff and Sanjay on Roofstocks web three team about cryptocurrency tokenization, alternative investments, portfolio theory and risk management just to name a few. So with that, let's just jump straight into it.   Geoff and Sanjay, good to see you both. How have you been?   Sanjay: Great. Good to see you again and, Michael, you look really different from the last time we spoke and so much younger and much more refreshed, I think after the holidays.   Michael: Thank you. Yeah, I came back from the holidays ready, you know, cut, put some 10 pounds on and took 10 years off my face. So I'm doing the best I can, so…   Geoff: That's it.   Michael: That's it. So for anyone who didn't catch our prior episode together, I'd love if you could give a really quick intro who you guys are and what is it that you're doing here at Roofstock.   Geoff: So yeah, we are co leading the web three business unit every stock. I'm Geoff Thompson, this is Sanjay Raghavan and we have been at Roofstock for several years and over the last year, we've spent all of our time focusing on how to use blockchain and web three technology to improve the real estate transaction process and to generally make single family rentals more accessible and asset class.   Michael: And for anyone who isn't familiar with what web three is definitely go back and give that prior episode a listen. Sanjay gets into it and kind of what the technology is. So I'm curious gents where we are today, where are you seeing blockchain and tokenization playing a role in the single family space.   Sanjay: So first of all, we had a sale of our Genesis property in mid-October. So for your audience who may have read about it on crypto Twitter or on media publications, that was a very successful launch of this product, we spent about 10 months working on legal and tax analysis of how to structure this product so that it would be compliant and when somebody was purchasing this property in a web three as a web three home, they were in fact getting, you know, ownership of the underlying assets. So that took us about 10 months to engineer and the sale. The first sale that happened in mid-October was a huge success, went viral on crypto Twitter, and was picked up by all the leading crypto and non-crypto publications and the reason for that was because for the first time, what really happened in crypto and blockchain, which, if your followers are looking at the market, in general, this has been a really particularly bad year in the industry for the stock market. Inflation has been at a 40 year high feds have been drastically, like we went to 475 basis point interest rate hike and so, you know, we're going through this very tumultuous time in the industry and crypto has not been an exception, either, they've, you know, Krypto has been having an unprecedented winter, where either like Bitcoin and Aetherium lost 60% of their value since last year to this year and then a bunch of crypto companies went insolvent, because of various either it was just poor risk management or just, you know, for whatever other reasons, you know, they didn't have the capital to withstand the, this bear market. So during these times, you know, this was sort of like a ray of light in this industry, because we had successfully demonstrated that it was actually possible to sell a single family rental property, which normally is a three four week closing process was done instantaneously using battery technologies. But we were also able to find a leverage partner who was able to provide a loan for that property at a 65% LTV and so the combination of all of this really was a very positive thing in the industry, and we got a lot of outreach because of that.   Michael: Hopefully it wasn't FTX, right…   Sanjay: No, the leverage partner was not FTY, it was Dehler finance. But specifically, you know, about your question about, you know, with respect to blockchain tokenization, what does that really mean for real estate is that, you know, we've been able to now demonstrate that it is possible to have a better sale experience, right? When you typically look at the three week closing process on a real estate transaction, there's a bunch of contingencies on an offer, both the buyer and seller are extremely nervous about what happens during the diligence period in those three weeks. You know, like, for example, as you're aware, you know, the inspection results come in, and then you find out something about the property that you were not aware of before and then there's typically some kind of negotiation that goes on the offer price after the fact. There's an appraisal, contingency financing contingency, and, you know, so anything can happen during this three week period, the seller and buyer, even though an offer was accepted, may have a disagreement later on, you know, based on the results of further analysis, and sometimes the offer can be rescinded and then you're back to the drawing board trying to relist the property and sell it. So it's a particularly stressful time, both for the buyer and seller and doing it through this web three mechanism essentially allows us to take a lot of that diligence, which still has to happen, but we're just moving it, you know, upfront in the process, so the buyer and seller have access to the same information about the property, and the buyer is able to perform all of their diligence upfront. The way Geoff talks about his experiences, you may spend a week or two looking at Amazon Prime to figure out what you want to buy for Christmas. But once you've made that decision, you want it to be delivered, you know, on Amazon Prime, same day or next day, you don't want to wait four weeks for it to be then shipped from China to you know, get to Los Angeles, and then from there to be transported to, you know, San Francisco. So, you know, we really want to make this process easy for people, right. So you do all your diligence upfront, but when you decide to make that purchase decision, it happens instantaneously and on top of that, when you add that financing in a way that's asset based and not based on your personal credit underwriting, you're not trying to find a lender and you know, sending them two years of tax returns and bank statements and as you as you're aware, Michael, what happens in this process is you send all this information, you get a pre underwriting approval and then as you're getting ready to close on the property a month or two have elapsed, and all your information is outdated, and you're resending all the information back to the lender. So you know, you want to avoid all of this as well, because that's also incredibly stressful as you're going through a purchase process and here, because it's a rental property, it's cashflow generating, you based on the value of the asset, you can actually underwrite the loan and say, you know, it's a $200,000 property, I'm comfortable giving you $100,000 loan against it and that makes the lending paradigm a lot simpler as well. So overall, it's generally a better experience, both for the seller and the buyer, when you bring in the battery technology into this process.   Michael: This is mind blowing, you guys. So, I'm curious, like, how are you seeing really or rather, are people doing this at scale? I mean, is this we did it once we've, we've proven that it can be done once. But what is the scalability factor look like here? For both buyers and for sellers?   Geoff: It is yeah, I can jump in here. It is scalable. It's scalable in the same way that buying and selling homes today can be done, you know in bulk, or you can assemble your own portfolio over time. It's not you know, there isn't a delayed production process in creating these and preparing them to be sold on the blockchain. We do get that question a lot. Well, how much does it cost to mint a token? You know, is it 10s of 1000s of dollars? No, that's, that's essentially free. How long does it take, it's essentially instantaneous. The work that we do to prepare this to be sold is, is what Sanjay alluded to the diligence and inspection making sure everything photos have been taken, taxes have been paid HOA square all of those things. That's what we do up front, which has to happen in any real estate transaction, we just package that up in a very short timeframe of you know, call it five or 10 days, once the home has been purchased, and rehabbed and you know, it's ready to be listed for sale. So this can be this can be scaled and then once the home has been put on chain, then this is where the seller really is going to feel the scalability and the ease of interaction because imagine that you own five or 10 or you know some number of homes, you want to rebalance your portfolio. Maybe you want to get into one market and get out of another market. Right now you know, you'd have to do that through the traditional process. It might take a few months and involved a number of different intermediaries. In our case, if you if you own those homes as tokenized properties, we can get them ready for sale in five or 10 days, and then they can be listed immediately and once they've been listed on an NFT marketplace, the sale can happen with one click. So you don't as the seller, you don't have to go through a you know, a prolonged and painful back and forth with the buyer countering after they get the inspection and you know, trying to haggle on the price or trying to get a discount here, whatever it might be. That's all taken care of up front. So in that sense, it's it does make this much more scalable and much more liquid than the traditional process.   Michael: Should audience and listeners be thinking about crypto almost like a foreign currency and so just quick anecdote. So I've invested in Portugal, I signed my purchase agreement to purchase the property in Portugal back in 2020, just before the pandemic, then where the dollar was really strong against the euro than the Dollar tanked against the Euro and so I changed money after the fact and just got totally hosed on the exchange rate. How should people be thinking about exchange rate, if you will, between cryptocurrency and whatever currency there?   Sanjay: Yeah, that's a that's a really good question, right and when you think about a cryptocurrency, like Bitcoin or Aetherium, these are the two sort of more commonly discussed cryptocurrencies, in a way it is, you can make the analogy that these are almost as though they are, you know, sovereign currencies of their own and there is an exchange rate between the US dollar and Bitcoin or Aetherium. The only difference here being that, you know, unlike Euro, or the British pound, where they have their own fiscal and monetary policies that, you know, determine what happens to their bank against the dollar, in the case of cryptocurrencies, they are highly volatile and we see that there's, they're very, actually strongly correlated to the stock market today. So, when, for example, the, there was an indication that the feds might slow down the rate at which they're increasing the interest rates and I think the expectation for, I believe this week the Fed is meeting and the expectation is that this week, it will be a 50 basis point taken sort of a 75 basis point high, the stock markets rallied and sorted Bitcoin with that and however, even though they're kind of strongly correlated, they're also highly volatile and so when we talk about people having cryptocurrencies that they can use to buy these properties, we actually suggest that they buy and keep their money in stable coins, which are pegged against the US dollar and there are companies such as circle which have USDC, and Paxos which has its own version of dollar pegged stable coin. And having your money in stable coins means that you're not subject to the same volatility, as Bitcoin or Aetherium might be which can drop or go up in value by 20-30% in a single day and that's, that's how we will really think about it. If people want to, you know, have an allocation, if somebody is really long on Bitcoin or Aetherium, and they want to have an allocation in that asset class, that's fine. As long as they're aware that those are highly volatile and in the short term, they could be, you know, fluctuating quite a bit.   Michael: Yeah and that makes sense and so when are you seeing people make the change from the stable coin to whatever coin they're going to be using to purchase the properties?   Sanjay: So the stable, you can actually purchase properties with stable coins and because, you know, we have a way to when we received those stable coins, for example, if we are the seller of the property, and, you know, property is purchased using, let's say, serpents, USDC. Once were paid in USD C, we have a way to convert that back into US dollars. So that's, you know, it makes essentially, you can think of the stable coins as programmable money meaning this whole transaction is happening on the blockchain, and it's happening through a piece of computer code, there's no you know, you and I are not sitting across the table signing documents and you know, giving a check and receiving title and in return. So, this is all happening because a piece of computer code is transferring money from you to me and transferring the, the LLC through the NFT giving you the LLC that I own, which has this property and since this is all being executed by computer code, this stable coin is really, you know, we refer to it as programmable money because a piece of computer program is able to move money from you to me, and, and allow this transaction to happen in that one click process that Geoff was talking about earlier.   Geoff: You know, it feels like this is the way things should work, right? If you think about the system that we have right now for closing property transactions. It's basically inherited from England 800 years ago. You know, we've made small advancements, but not really and it shouldn't you know, it all of everyone who is involved in these transactions, and every step that's taken is taken for a reason it's solving a particular problem. But if you stop and rethink how this is done, you realize that by reordering some things, and maybe, you know, using a splash of new technology here, you can actually dramatically change the experience for everyone and it's not necessarily, you know, a zero sum game, I think it's best, it's better for everyone, everyone who's in the industry is going to be better off, there will be more transactions, because it's easier to transact, there'll be more demand because people are interested in getting in, if they know they can get out easily, right? Right now, you know that if you're looking at buying a property, you're probably going to have to hold it at least five years to recover your closing costs and wait for it to appreciate a little bit and you know, it's going to be a headache, when you do have to sell, if you don't have those constraints, you know, transaction fees are less and the time involved is less, you'll be more inclined to get in the market, because you know, you can get out when you need to.   Sanjay: And, you know, I'll also add one more thing to that, right. So Michael, if you think about, you know, back in the day, when there were these kind of all day, buyers, a lot of them were like businessmen that, you know, one year, they might have made half a million dollars, but you know, then another year, it was only 150, or something and so it's very hard to underwrite those types of folks through a traditional underwriting process, because you're looking at two years of, you know, income and tax returns, and all of that, and a lot of them may not can qualify for more conventional financing. However, in an asset based lending type solution, you know, as long as you have the money, and, you know, you're not constrained by, you know, your income for the last two years or three years, as long as you have the money to buy the, you know, to put in as down payment on the product, and the asset itself has the value, you're able to borrow against it much more easily. So, you know, we just talked about the complexity of closing a real estate transaction, in general. But once you add in the financing layer, on top of that, it gets even harder because, you know, there's, again, in a in a, you know, when the market is going up, you just, you just don't know, if you know the max, you want to make the best offer, you can but at that offer, you don't know if you will qualify for the loan, because the also the rate might have moved since the time, you initially got underwritten and suddenly, with the new rate, you don't qualify anymore for that and you have to find that little bit more down payment to offset it or buy some points. You know, you and I have gone through this numerous times in our lives. But you know, you can avoid all of those types of issues because in an asset based lending program, you know, that when you buy this asset, which is worth $200,000, there's a lender, if they're willing to come in at 65%, LTV, you know that based on the value of the asset, you're going to get that loan.   Michael: And if we just decouple the crypto piece of this and blockchain piece of this, I mean, asset based lending, is that available for regular folks?   Sanjay: So in the traditional finance world, it is available, right, but it becomes it becomes harder, because when you're buying an investment property. As you know, Fannie Mae puts limitations on how many investment properties you can get financing for as an individual. Once you get past that limit, then you're looking at pretty much private money, hard money type lending solutions, until you can get up to a scale where you have enough properties where Citibank or Wells Fargo or Goldman Sachs might be interested in working with you. But there's this pocket where after you know, your first 10 properties till you get to a few 100, we are primarily working with, you know, non-bank lenders who are generally, you know, where the rate could be 10 or 12% and then, oftentimes, some of these lenders will also ask for a personal guarantee on top of it. So it's not, you know, while it is possible to get financing on investment properties in the traditional finance world, at some point, it doesn't scale very well and, you know, you're sort of in that desert for until you can somehow figure out a way to get to 200 properties when suddenly the larger lenders are willing to talk to you. So that problem goes away when you're using Blockchain, and specifically decentralized finance or defy as we refer to it, because they're incrementally each property that you're buying is getting financed based on asset value and so you know, you're able to get a much more sort of a pleasurable experience to get through the lending process on the blockchain than on the traditional work.   Michael: Let's pivot just a little bit and talk about risk management and portfolio theory and as folks are starting to scale their portfolio or really as institutions have already a sizable portfolio, where does tokenization fit in to their playbook? When's the appropriate time? When should people be thinking about it in general?   Sanjay: The way I like to answer this question is if you as an individual, if you went to your financial advisor, and said, okay, you know, I have, you know, a million dollars, I want to invest, and I want to make sure there's, you know, come up with a portfolio allocation, that makes sense for me, typically, they're going to, like, in the old days, it was just a sort of a 60,40 rule, there was 60%, in stocks, 40%. In bonds, yeah, but I think people have gotten smarter over the last 10 years and nowadays, when you go to a financial advisor, they're going to say, some allocation in stock, some allocation in fixed income bond products, and then an allocation to alternative investments, because that's where, you know, you can get non correlated yields, because the stock market moving in one direction should not and like, you know, God forbid, if you have an emergency, and you need some cash, like this would be a, you know, if you bought at the height of the market last year, this would be a really bad time to sell, you know, your S&P 500 shares to, to, you know, pay for whatever you had to write, whether it's a wedding, a doctor's thing, education, whatever it is. So, generally speaking, financial advisors these days suggest that you should have an allocation in alternative investments that are non-correlated to the stock and bond markets and, you know, you can access that pool of capital, you know, when you need to, right. So from that, from that perspective, diversification, and then when you talk about alternatives, there's, obviously, there's a wide range of assets there. But real estate is on top of mind, for almost all the, you know, anytime we talk about alternatives, real estate, sort of is one of the top things people talk about. So from that perspective, you know, almost every investor should probably be looking at some allocation, and it will depend on their individual circumstances, whether their age, their income, their marital status, and you know, their need for cash there, this cauldrons and all that, but, you know, advisors might ask you to put five to 10% or, or more into alternative asset classes and so the same financial hygiene should also be applied by corporations and institutions, because you're sort of being asked to manage the treasury of your company, let's say you are a venture funded company, and you just raised $100 million, well, you are going to keep a good portion of that money in cash and cash like instruments, money market, and so on, because you have working capital, you have other things that you need to be spending on. But some allocation of that you might put in US Treasuries, for example, right and in the crypto world, crypto institutions may keep some allocation in Bitcoin and Aetherium and other protocols that they have high conviction and but nevertheless, whether it's a web two institution or a crypto institution, it's just basic financial hygiene to have an allocation in alternative asset classes and specifically, with our product, being a web three product, you know, that money can stay, you know, essentially, the token they're purchasing is a is an NFT and it is part of the blockchain ecosystem, so they can keep their assets within the crypto world without having to continuously off ramp into US dollars and then on ramp it back into crypto when they need to switch back and forth with respect to how they receive rental income, of course, you know, if your properties are managed by a property manager, which they should be because institutions are not in the business of managing properties, you can collect your rent in cash if you have, you know, if you have to, if you have expenses that need to be paid out in US dollars, but also if you want to collect your rent and USDC or DDM, you have the option to do that as well.   So whether you're a two institution or a web three institution, depending on your cash needs and your crypto needs, now you can have a yield generating crypto asset, and the yield can be collected in Fiat or in or in cryptocurrency. So, you know, it is good financial health to do it. We encourage everybody to have some allocation, whether it's through Roofstock, or through any other channel channels that they would like to pursue, but they should have some allocation and alternatives if it just makes sense. Geoff, if you'd like to add something back?   Geoff: No, that's it. I mean, in our case, because we've designed a solution that allows you to transact with crypto natively. This is something that we've heard from a number of crypto or web three institutions that it's potentially very interesting for them, as opposed to maintaining all of their assets in a cryptocurrency or a stable coin, this isn't a way to get access to, you know, a diversified asset that does create yield and it does have a price appreciation component. So there are a lot of, you know, we've heard from the web three community in particular that this is a perfect diversification play.   Michael: And if I'm someone that owns a sizable portfolio, maybe I own it all in cash, because that's been my mantra and I do need that quick capital injection. I mean, could I tokenize these properties and then go get asset based lending and convert that into cash very quickly.   Geoff: Yes, that's your thinking ahead, I like that. Yes, the properties can be tokenized. Basically any point in their lifecycle. If you own them, now, you bought them through a traditional sale and settlement, you can, you know, basically what it means is you have to drop it into an LLC and the LLC has a particular structure that we've worked out, it is very particular. So you know, we'll work with you to set that create that LLC, to help transfer the property into the LLC. In most states, I think the vast majority of states that transfer from an owner to an LLC that's owned by the owner doesn't create transfer tax obligations. So there's, you know, there's a little bit of the traditional closing costs, recreation fee, or whatever that might be part of that. But it is perfectly possible to onboard existing assets that you own into the system and similarly, for if we're talking about other points in the lifecycle for builders, we've had a few builders reach out and say they're close to completing a community and they might want to try to sell some of these as in an NFT form, those can those new assets as new properties that really have never been titled before, those can also be titled directly into an LLC. So it's a very flexible structure, it accommodates property at whatever stage of the lifecycle it's in.   Michael: Anyone who's got conventional financing experience under their belt might be listening to this and saying, Well, you're talking about lending or talking about LLCs. Those two things often don't jive play nice get in the sandbox. So the acid base lender that we're working with, or that we are going to be working with, I would imagine has no issue lending to an LLC. Is that right?   Geoff: Yes, that's exactly right. The lenders that we're working with are the web three lenders, we have talked to numerous traditional lenders, and some of them expressed a lot of interest in digital assets and maybe they've even created a team. But in most cases, the underwriting aspect of it isn't, isn't there yet. They're not ready to take this to credit committee and make a loan on the structure that we're proposing here but that's okay because there are there's a lot of money that's available in the web three space, and it is more flexible in terms of what it requires. They don't necessarily need to have all of the same checks and balances that a traditional lender would be in terms of underwriting against the individual. They can be comfortable underwriting against the asset, because they're comfortable that in the event of default, that asset, it is already in their vaults. So it's in the lenders wallet at the time of default and because we're building this system where you can sell them through an NFT marketplace, there is liquidity that there wouldn't otherwise be if you were holding this you know the traditional way so you to your to your question. Are Trade Fi lenders, the traditional finance space interested? Yes, we've heard some say they're interested we haven't seen anyone actually show up to engage in detail. But there is an entirely separate pool of capital into web three space that's much more flexible and willing to work with Blockchain structure.   Michael: I think my last question, guys before I let you out of here is like I'm sold this sounds obviously like a really great product, like a really cool technology that exists. Who isn't this for who, who listening to this should think about that. It's not a good fit for me because XY and Z.   Sanjay: Yeah, I mean, I can start with a couple of things and then Geoff, you can add to that as well. So if the property already has financing in the Trade Fi world, this structure is hard, because we can't really transfer unencumbered property into an LLC and then tokenize it right because there's a traditional mortgage on the property and there's a whole kind of thing that's a fillip off chain, in terms of financing. So it's not going to work. If primarily you're looking to get off chain financing, then this is not for you. You have to you know, sort of follow the traditional sense. But anybody that's open to purchasing this as a web three property and open to looking at web three financing alternatives. For those people, this absolutely should be something they should consider. The one kind of drawback or question we've heard from a lot of people as they need to become familiar with how to use crypto wallets and how to essentially convert money into USD C or some stable coin, and then use that to go and make a purchase. We're here to help with those types of Q&A, right? The, you know, until you do it for the first time, it's hard, but after you've done it, then it's you know, it's easy, right? Just like when we, the, you know, iPhones first game, and people didn't know, you know, how do you which way do you swipe to do what, but then over time you get used to it and so we're absolutely happy to help anybody that's staying in the sidelines, purely because they don't understand the technology aspects of it, we can help them out. But for people that have financing constraints or other things, and you know, for them, it is until they can, you know, overcome those issues and look at sort of a pure web unencumbered property in the web three world with, then financing added to it on the blockchain. So for those audiences, that might, you know, until they figured out that, it might be a challenge.   Geoff: I'd also add for owner occupants, the financing isn't fully worked out yet. So the financing that we added to the initial home sale a few weeks ago, that was very much geared towards an investment property, and for the immediate future, to the extent that we're building out the different options for defi lending, it looks like most of them will be focused on these as investment properties, as opposed to owner occupant properties and that's for lending law reasons, not wanting to cross over into a mortgage lending licensing requirement and it also just dealing with, you know, the people that are different in the, at that point, the underwriting is different as well, because it's not as easy to necessarily sell that asset if the owner is living in it and so that type of thing. So for at the at the moment, we're thinking of this mostly for investment property, use cases.   Michael: Really, really cool stuff. For people that have questions that want to reach out that want to learn more, what's the best way for them to do so?   Geoff: Reach out on Email or Twitter. We're, we can drop our emails here, but it's: gthompson@roofstock.com or is it sraghavan, right?   Sanjay: Yeah, it's a sraghavan, so: S R A G H A V A N @roofstock.com. I'm also @eth_sanjay, Sanjay, Y on Twitter, so you can also reach out to me there. One thing before we sign off for today, we're super excited to say that we are in the process of closing our second property, that's going to get tokenized. Soon, this one's going to be in Georgia, at CES Atlanta suburb and we'll be going through the process as soon as this is closed in the next few days, we will be going through the process of documenting what the property looks like when we bought it and any Rehab we end up doing on it and you know, they'll be you know, talking about it on social media quite a bit as well as people who are new to real estate investing, maybe this is an opportunity for them to understand, well, you know, what are the kinds of things people should be looking at when they're analyzing a rental property and so as we go through the process of rehabbing this will sort of document that a little bit. But that, you know, once the rehab is completed that that'll get, they'll get tokenized soon, but once the rehab is completed, we'll have it available for sale.   Michael: Awesome, we'll definitely have to keep my eyes peeled for the process and for the property once it's finished. That's super exciting. Well, guys, it's always a pleasure, great seeing you both. Thanks for hanging out with me.   Sanjay: Thanks for having us.   Geoff: Always great to chat.   Sanjay: Bye!   Michael: Take care and talk soon. Hey, everyone. That was a wrap to our show. Thank you so much to Geoff and Sanjay. Super, super, super interesting stuff. Definitely leave us a rating or review wherever it is you get your podcasts and definitely reach out to those guys if you have any questions about web three, about tokenization about cryptocurrency home purchases. Again, really cool stuff. We look forward to seeing you on the next one. Thanks so much for listening. Happy investing…

Being only an employee leaves you vulnerable to the ups and downs of the market. Real estate investing is one powerful defense against job loss and economic downturns. In this episode, Neil Timmons provides insight into the real estate business and shares his experience with overcoming economic adversity to secure a robust financial position. Neil Timmins is the CEO of Legacy Impact Partners, where they invest in real estate opportunities ranging from houses and apartments to industrial and medical offices. In 2021 Neil published his first book, Unicorn Hunting for Real Estate Investment Companies: How to Easily Attract, Screen, and Land a Unicorn. The book is tailored to helping real estate investors find and retain top talent through the strategic systemization of hiring. Neil also hosts his own podcast, “Real Grit” where he pulls back the curtain on real estate investing through interviews with industry titans. “Real Grit” provides listeners with the tools they need to secure their lasting real estate legacy!   Episode Links: https://legacyimpactpartners.com/ https://legacyimpactpartners.com/podcast/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have Neil Timmins, who is an author, a podcast host, entrepreneur, real estate investor and he's gonna be talking to us about going from an agent and employee to building a significant business in the real estate space and what it takes to do so. So let's get into it.   Neil Timmons what is going on, man, welcome to the podcast. Thanks so much for taking the time to come hang out with me today.   Neil: Good. It's so good to see you again. I appreciate the invite. Looking forward to this for some time now.   Michael: No, likewise, the pleasure is mine. I'm super excited. So you and I of course know each other. We were chatting offline just before we hit record. But for anyone who doesn't know Neil Timmins, give us the background quick and dirty. Who you are, where you come from, and what is it you're doing real estate.   Neil: High level out of Des Moines, Iowa, born and raised, started as a residential real estate agent built a built a brokerage there on to REMAX for a number of years was a top REMAX guy with my 20s and then eventually found my way stumbled into investing worked my way through single family investing, we still do a little today but morphed into commercial investing. And that's a primary focus today.   Michael: Love it and I hear this this theme so often with agents start as an agent, got my teeth cut, then went into the investment side. My guess if you're a top performing agent, in your local market, you're making a lot more money on an annual basis than you would if you're investing. So why did you make that transition? Why'd you make that jump?   Neil: Yeah, no good question. Well, the not so fun story is I was probably 31 ish at the time. Maybe 32, I came home one day to my wife of a decade in our three little kids, all about five or younger, and my wife had them all packed up and said she was leaving, leaving for good. I had spent the better part of seven years or so working like a dog every day of the week, I worked. My second year in real estate, it worked 355 days. So that business was built, ultimately, you know, I was able to put his team in place and that business, but it largely was built on my back and my effort and so it was at that point that, you know, I had an ultimatum and I begged and pleaded with her to go, you gotta give me give me an opportunity. I understand. So give me an opportunity. She did thank God. 45 days later, I sold my REMAX and took a whole bunch of time off to decide, well, how am I going to how am I going to do this? How am I going to make a living in contribute because I like doing what I was doing and not the not to the degree in which I did it. But I enjoyed real estate a lot, right? The people, all the fun things around it. So it took some time off to evaluate things and then ultimately plugged back in largely on the investment side.   Michael: And today you own a business around the real estate investing space. Tell us about that.   Neil: Yeah. So I own a couple of things. On the on the investment side of things. We're primarily focused on commercial investing, right, we buy by multiple asset classes, you're on a primary ladder, Des Moines, Iowa, we still do fix and flip in the office. Although I'm not largely involved, we've got a nice little machine that runs that really good. Contractor base in place, literally same contractor. Don't quote me on how many but we've done probably nearly 200 with the same exact crew. So it makes running things and the efficiencies there of all awfully simple. I love talking to people going you know what I don't like flipping because then I gotta go pick the carpet, I gotta pick the paint whatever else I'm like, What do you mean, you have to do that we picked it once. It's the same carpets, the same paint, same countertops, the same appliance, nothing, nothing changes. You're not doing a whole block of these things. It's not like anybody notices. You just pick it once yeah and so then also, I run an education business, which we launched this year, which has been very well received from folks who want to make that bridge want to leap into commercial real estate and, you know, figure it out either how to do their first deal or how to do their next deal.   Michael: And I'm curious, Neil, because I also come from the education space, and the folks that you're working with, are they the DIYers or are they the folks that have heard of commercial and want to get exposure to it in some form or another are a mix of the two?   Neil: Yeah, no, it's really DIYers. Yeah, that's not largely the passive investors, if you will, it's people who are active in real estate like, like using… if you will, you know, in my career was it just laid out you know, as well cradle to grave if you will, coming through I'd like if you were to go, how should someone progress? Although most don't do that, you know, they end up in one thing and often stick there, but I kind of work my way through that. Is this constant evolution of how do we elevate oneself and one skill set to take it to a to a new level and that's where these folks are they know they've done, they've done single family, they've largely been exposed to it, maybe they've been exposed a little commercial, but just haven't gotten to the results. They haven't they haven't been on a foundation, a legacy had been on a foundation of financial freedom and, you know, arguably, in mice that that commercial gets you there faster and easier.   Michael: And within commercial because it is such a diverse asset class and really name where do you see folks going that are having the most success?   Neil: Oh, good question there. You know, we bring people in, and we do a lot of things from a training standpoint, want to be in an asset class exercise to go alright, well, fill this little asset class matrix out, we have my hand if answer a handful of questions to go, you know, do you resonate better? Would you rather work with people or businesses, and we just bring them through a series of questions, and that lines it up to go well, top to bottom ranked, we focus on six level six largest asset classes, there's top to the bottom, here's what here's what it looks like and then my encouragement from there is, Listen, if number two resonates a whole lot better with you than number one on that list, that's what you should do, because it's just easier and you know, this, if we were to go work on something you can get passionate about, it's a whole lot simpler, then put a little more effort into it and something you're just like, huh, maybe?   Michael: Totally, totally and, you know, I'm curious, so many folks, I think can go invest in single family on the side as a project as a test as an experiment, the DIYers that are doing commercial real estate, are they doing it on the side? Are they really jumping in with both feet, kind of like you did, and making this their full time gig?   Neil: Yep, great question most are doing on the side, most are either stacking it on to their single family business or, you know, if they've got a day job and several folks do is they're doing this, you know, in the evenings, nights and weekends, side hustle, if you will and you think about you know, from makeup, a number of you were to go market to single family or markets or commercial just by being in commercial, the number of available prospects has been largely diminished. It's a much more manageable group of makeup, an asset class, let's say self-storage, you're going to go market self-storage is in your county, well, in comparison to houses, it is a mere fraction. So your ability to call text or you know, mail somebody or connect with a broker, perhaps it's very manageable. You don't have to do it full time. In fact, that would not encourage it, because you're gonna sit around, you're gonna get discouraged. Because there's candidly not enough to do versus the single family side, you could always find something to do.   Michael: Interesting. Talk to us about kind of the exits and the thought process around the exit from that business. Because in my mind, and I think in a lot of other investors' minds, a house is a house is a house, you know what it is? I know what it is everybody on the street, you know, that you bump into knows what it is, and knows how to buy it, versus a self-storage unit. I could maybe Name one person that I know that's involved in that business and so if I'm trying to sell it, who's gonna buy it?   Neil: Yep, no, exactly. So that's, you know, what I do on the training side is bring people through, even if you know, largely set some goals, understand why you want to be in this business, and perhaps what you'll do get through the training go, I don't want to be in the business. And that's okay, too. That's okay because what you don't know or what you what you now know, empowers you, right? To make a better decision about what the path you should be going down. So we bring people through that large infusion for retraining to expose them to what this world looks like, and then how to, you know, identify an asset class that really resonates with you how to price something up, how do we get leads, so largely from a marketing standpoint, from a lead standpoint, what do we say then? How do we value it? How do we actually put something a price to it to go alright, this looks like a potential really good deal, then how do we put it under contract and then from there, you know, the exit plans largely are or we get to resell the property. Occasionally, we get a property that comes in our wheelhouse, what I call, it's not our perfect seller, so it's a good deal, just not for us. Now, can we move that along, so to liken that to single family wholesale it double close it novated right, do all the same things in the commercial side or, you know, we decide, hey, this is our perfect seller with the property we want to own. So how do we how do we close it up or we get to raise equity? How do we go get debt and then how do we bring the whole thing together to properly manage it? So that's what we show folks how to do and ultimately starts you know, on the front end of the process to go Alright, how are we buying this because I know what our required returns are and if it doesn't hit that I'm that's gonna lead us down a different path to either go it's either a non-deal or we're gonna get this moved along to another investor and cash up the big check that we can utilize for the next year.   Michael: Yeah, that makes a ton of sense and you use the term that I'm not frankly familiar with novate. What does that mean?   Neil: Novation is that this has become very popular on the single family side. So there's a lot of buzz on the single family side, especially for those in the wholesaling business. Okay, it is to replace one contract with one another with another contract. So essentially, if I was to, you know, say, for example, I was to buy a property from Mr. Jones, I have a contract in place with Mr. Jones, I decided I want to move this property along under innovation process, you would then provide me a contract that would replace mine, there's typically a difference in pricing, right, you're gonna pay more than what I've just paid and that delta ultimately gets paid back to me. As part of the process. I'm high level in here. There's some moving pieces but high level?   Michael: Yeah, okay okay. Great to know. Neil, I'm curious if we can zoom out for a little bit, because you went from realtor agent, which is a kind of a unique profession and that, yes, you are an employee, but also you are kind of the business owner, your own of your own little business, your own little domain, and then you went and put a team in place, and then you ultimately sold that business. But for so many people that are employees in a traditional nine to five w two employee position to make the transition from employee to business owner, I think is a big leap for a lot of people. What was that like for you mentally going from? I'm going to be an agent to now I'm going to start and run and operate a business.   Neil: Yeah, no good question in it. I think that's, it comes in incremental gains, right. So how do you how do you elephant, right, one piece at a time and so the same thing occurred from me mentally and I think that is? It's a terrific question because I think so much of this business, in business in general is mental, right? It's a six inch game in between your ears and so how do you combat that I read a book when I was probably 20 to 23 years old. The Millionaire Mind by Dr. Thomas Stanley. He wrote The Millionaire Next Door, that's probably his most famous book, The Millionaire Mind was incredible and it broke it down to, you know how millionaires think and my thought process, of course, is well, if you just think like a millionaire eventually, and then, therefore, act and operate like a millionaire, I will eventually become one, right. So it's not it's not hard success leaves clues. So there was a lot of things in there that that impacted me at a very deep level and one of them, the biggest takeaway for me was, the largest risk that one has is being an employee. They can let you go any day of the week, this is what I came to believe in, it's still my operating beliefs today are just risky, if you have no control and I, I am well aware that as a business owner, as an operator, as a real estate investor, we take tremendous risk. There's no doubt about it but I still think they pale in comparison to putting all eggs in one basket, men have an employer of someone else.   Michael: Yeah, it makes total sense. So as you started moving things along, and created and formed and founded your business, how did you figure out who the right people were to put on the proverbial bus because I think, again, so many people have either a great idea, and they're really good at maybe doing that one thing. But doing that one thing isn't a business and so how do you scale it and have a proper functioning, running operational business?   Neil: Yeah, no, great question and that's, that's probably, if I was to attribute any of our success over the course of last three ish years, two and a half years, somewhere in that range, we've had significant success in that period of time, it's largely been correlated to my evolution as a leader, knowing that the only way forward is ultimately with and through other people. And so I've had a focus internal so go back to a question you just asked earlier, from a mental attitude of taking that leap. For me, it's how do I develop as a leader how to become a better a better person, somebody that people look up to somebody that people want to be around, so many people want to listen to, and, and be on the same bus with going rowing in the same direction and so that has largely, that's been a big focus over the course the last couple of years. When I was at a spot where he's gone, it's time to grow. You can't hire and retain a player's unicorns as I call them. You can't hire and retain unicorns if you're not one. So how do you how does one improve their personal self to be able to get to that level? That other a players want to be around?   Michael: Yeah, that makes total sense. So what it what did you do? Can you open the vest a little bit, let us peek under the curtain…   Neil: Yes, you know, it's, I wish there was a silver bullet here, but it's largely just been, you know, what do they say what's mentionable is manageable and for me, it's just having that Cognizant thought that okay, well, now, I'm mindful of this and so now I need to give thought to this. How do I say things how do I handle things? How do I handle certain situations? What is the impact when making this isn't with an employee or with a team or with a customer in front of folks, how's this gonna resonate? What does this look like and then having the vision as a leader, as any leader, doesn't any organization, that vision to go, where are we going and this isn't about me, this is about us and so oftentimes you'll hear me say, we did this, I almost, you know, I try very hard to say that 100% of time, I didn't do anything. We did this collectively, all the results are collective right. It is us together and that reading, continuing to stay focused on that, stay ahead of what's transpiring, trying to, you know, hosting a podcast being around other people like yourself, other people in the industry having an understanding what's going on. So been trying to be on that curve from a knowledge base standpoint about what's transpiring that's helpful, too.   Michael: Yeah, yeah. I love that and asking for a friend. I hate people and I don't think I want to interview people and screen people and that sort of thing. Does that mean that I shouldn't start a business with my great idea?   Neil: The first part is I don't like people. So let's just call that the introverted, right? They don't want to interact with other people. My right hand gal is an introvert. She's not very gregarious as it relates to people. She's very good with people. But she wants to she's far more task oriented about how do we execute on what we're doing? I think that's terrific and now, what hadn't you hire her because she's the Yang, right? It's Ying and yang. She complements me in a perfect opposite fashion and I do the same thing. The other way around. Yeah, it's, I think that's terrific. I think it's wonderful, if you can, what you just expressed was, you know who you are, if you know who you are, you can identify a path forward and I would encourage you absolutely. Knowing what your deficiencies are is wonderful. We're all we're all given strengths someplace, just balance this balance your weakness with somebody else. Don't try to what are the what don't master in the weaknesses, right? So anytime we have a weakness here in anybody, you know, largely for me, it's going just don't do it. Don't master in the minors, because at the end of the day, you're still going to be a d minus for you, no matter how good you get at your weakness focus on your A's.   Michael: Yeah. Oh, that's such a good expression. I can't tell you how many times I've heard people say, oh, I wanted to visit with my best friend. We're so similar that I'm like, that doesn't sound like a good partnership.   Neil: Sounds like sounds like a great bar and I but not a good business decision.   Michael: Yeah, I know. Totally, yeah right.   Neil, if we zoom back into the commercial side of real estate coming from the single family space, what is it that you see is the biggest hurdle of barrier to entry for folks that want to make that leap into commercial but utilize someone such as yourself to help them get there?   Neil: You'll never guess us? Are you ready for this?   Michael: I hope so.   Neil: I know, you're it's a mental barrier. It's all made up in their head. It's they don't think they can't. Yeah, but they don't think that that is it because past that, the ability to go well, okay. Well, if you've ever let me let me liken it to single family. A duplex is like a single family rental house, right? It's just two doors and the numbers change a little bit? Well, a 20 packs is the same thing. There's largely, there's not much difference in these things you're adding some zeros are calculated a little differently, but it's pretty much the same. In fact, management, in my opinion, gets easier. The more doors you have, right, you get professional management, you get it, it becomes simpler. Yeah and then to make a change to go into some other asset class, we just have to make a bridge. What does that look like? They have to go to an industrial buildings on a triple net lease, which is probably the simplest thing to calculate and get one's head around when you're going, well, they just pay a lease rate, and then they fix all the stuff that goes wrong with it, right? That's it your true and your true and why is the rent, we've got multiple properties like that and we're the management company, which means we just get the rent and never hear Yeah.   Michael: Yeah, that's by far the easiest piece of property in my portfolio is triple net.   Neil: Yes, correct. But people are, you know, we're scared about what we don't know and that's true of all of us, right? We're scared about what we don't know, afraid to make mistake, which is totally understandable and so we just help folks, we educate them as we go answer questions as we go and show them the exact path to be able to get from, you know, I want to learn more about commercial real estate, I'd love to be able to buy a deal to actually get to a close.   Michael: That's awesome. And I'm curious, Neil, what's your favorite asset class and why?   Neil: My favorite asset class, although I own I'd have to calculate up four or five different asset classes, but my favorite today is going to be industrial.   Michael: Industrial why is that?   Neil: Yeah, industrial is in demand like crazy. Secondly, in 2021, had the second largest rent increase across all asset classes, only trailing two apartments. But in comparison to apartments, they're far easier to manage, right, I get a triple net deal, or a double no deal, there isn't much to do, there's very few moving pieces you end up with, on average, let's say a five year to 10 year lease is pretty straightforward.   Michael: Okay. So if I'm playing devil's advocate here, and we're looking at this industrial building, this is suited only for a business. This is not for people can't come live here and the type of business you might have to build to suit it out for that particular business 5-10 years down the road, that might be a future Neal problem. But let's drive down that path that tenant leaves goes out of business, what have you economy turns? If businesses aren't doing well, in the area, are you stuck with this vacant building now?   Neil: 100%. If businesses are doing well in the area, meaning they're laying off or not employing people, my thesis is you still have you still have an apartment problem relative to occupancy and or rent rates. This goes back to earlier question is, admittedly, we have to take a risk someplace, right? It's just my comfort level and I like the box, you know, not a somehow engineering building has been added on to or defined for one, one person's exact use, I like a big giant box, just a rectangle, that's it, a business of multiple businesses come into that and fill it out in which way they want to. So like the fact that if I can buy my, my preferred buying is for buying some older not buying brand new stuff, buying some older buying something with a value add or on buying at a discount of some managers, the intent is to buy it correctly. And if I can buy a property, let's call it make up a number right now 70 to $80, a square foot brand new construction is gonna be 120 to 130 a square foot, I think I'm in pretty good shape over the course of coming years, I think that my dollars, and my rent rates get pulled up to the fact that sheer cost of new construction is gonna be 60% higher.   Michael: All right, I dig it, I dig it and for anyone, I'm just realizing now, some of our listeners might not be familiar with the term double net triple net lease, can you give us a quick definition of what it is?   Neil: Yeah, it just defines what people pay for double net, for example, is probably one of the least likely terms that use but let's say triple net triple net means ultimately that the tenant pays for everything, there may be some nuances inside the lease, but taxes, insurance, repairs maintenance, the tenant pays for that. So if your releases 100 grand a year, your net is 100 grand a year before, before your mortgage, any sort of debt payment you have on it. A double net means they don't pay for everything they pay for perhaps taxes and insurance, but not all the repairs and all the maintenance, and therefore your NOI is gonna be a little lighter, depending on what you have to maintain and pay for.   Michael: Okay, perfect and I'm sure some of our listeners are hearing that and thinking like, this is the best thing since sliced bread. I'm gonna go put all of my single family homes and all my apartments on Triple Net leases. Why is it only a thing that's been heard of in the commercial space?   Neil: Yeah, no good question. You know, to liken it to single family, you're like lease with an option or a contract sale, that's probably the closest thing you get to a triple net in the in the single family house side, right? So you kind of contract sale, somebody that mean that contract buyer is now responsible for everything associated with that house, right? That's what it looks like. If you look at the closest thing, there's some differences there. Obviously, a contract sale into a down payment interest rate. That's not the same as a triple net lease on the industrial side but that's probably the easiest way to liken it to single family.   Michael: Yep. Yeah, that makes total sense and for anyone listening, like Neil mentioned, it's just the cap rate is like the easiest thing ever in the Analyze easy thing ever, you got a million dollar building cap rate 6% they're paying 60 grand a year, then bam, boom, end of discussion. You're not paying taxes, you're not paying insurance, you know, capex and maintenance. So you can calculate your true return, and then look to calculate what your debt service payments gonna look like and determine what your return looks like after that, versus the traditional single family rental or apartment or traditional residential space. They pay you a set fixed amount, the rent, and then you have to go figure out the taxes, insurance, repairs, maintenance, capex, that sort of thing.   Neil: So hey, just because I like it or you know, in other investors likes something else doesn't mean it's right. There's only what's right for you.   Michael: Yeah, yeah. I love it. Neil, this has been so much fun, man. I want to be very respectful of your time. Let's get you out of here. But before we go, like where can people reach out to you find out more about you continue the conversation if they're interested?   Neil: Yeah, no, great question. Well, if you want to learn more about commercial real estate getting rich in what I call the 20x niche, why do I call it that? Well, because our target internally is to produce in a monthly return that's 20 times that of us Single Family return so we're scaling up largely is just go to my website give you a free download free report just you can learn more about the industry getting into commercial. So www dot legacy impact partners forward slash gift JF T legacy impact partners Ford slash gift: https://legacyimpactpartners.com/   Michael: Right on thank you so much and before I let you go I mean I'm not gonna let you out of here without mentioning your podcast you're also the host of a podcast was that was a you're kind enough to have me on what is that called and what can people expect to hear on it?   Neil: Real grit is the name of it it's about the trials tribulations anybody from real estate. So we talked about single family talking about commercial talk about everything in between. But really, so that we fully admit that you know, life isn't all about Lambos and big houses on cash and checks and everything on Facebook that or social media wherever you'd see it right? That there's ups and downs there's, there's we have to go through stuff and many times to be able to find our own personal success and so we talk through that and people's personal stories and how they got there because all bunch people, they get their different ways and it's really exciting. It's, we get into some really interesting, very dynamic conversation a lot of fun, love it. You and I had a great conversation.   Michael: I had a ball. I had a ball.   Neil: It was a blast, man.   Michael: Awesome. Well definitely go check out that podcast, real grit, a lot of fun, really cool stuff going on there. Neil, thank you again. Any final words thoughts for our listeners?   Neil: No, you're going to find me you know, like I shared it though the website I'm also on all the all the social media platforms. Facebook's the best place to find me Neil Timmins, or there are many Amin just spell it right you got me   Michael: Right on, many thanks again. Appreciate you, see you soon. Bye.   Neil: Bye, bye.   Michael: All right, well, that was our episode. A big thank you to Neil for coming on the show. Really, really interesting stuff that Neil's been through seen and experienced. As always, if you enjoyed the episode, we'd love to hear from you with a rating or review wherever it is get your podcast, and we look forward to seeing on the next one. Happy investing…

In this final episode with Aaron Chapman, we discuss how adversity can shape your legacy. In this current market environment, many investors will be challenged, but that does not mean they must fail. Your mindset, work ethic, and ability to learn from the external forces that turn your world upside-down will be the deciding factor of your long-term success. Aaron Chapman is a veteran in the finance industry with 25 years of experience helping clients better understand, source, and finance cash-flow positive investment properties. He advises over 100 clients a month in the acquisition and financing of their investment properties and primary residences. Aaron is ranked in the top 1% of mortgage loan processors in the country, in an industry of over 300,000 licensed loan originators, closing in excess of 100 transactions per month. Episode links: https://apps.apple.com/uy/app/qjo-investment-tool/id1533823468 https://www.aaronbchapman.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the remote real estate investor. I'm Michael Albaum and today with me I have for our third and final episode of this series, Aaron Chapman and Aaron's a lender, and he's gonna be talking to us today about how well you take a beating determines your legacy. So let's get right into it.   Aaron, what's going on, man? Welcome back for part three of our conversation. How are you?   Aaron: What's up, brother. Man, it's looking forward to this one.   Michael: Me too our last few conversations. If you didn't catch them, I highly recommend you go back and give them a listen to Aaron drop some amazing wisdom and knowledge. Today we're talking about how well you take a beating determines your legacy as a theme. But for anyone who didn't catch the first two episodes, give us a quick and dirty who you are. And what is it that you do, Aaron?   Aaron: So I am in the Real Estate Investment Finance space. I'm one of the few conventional lenders that focuses on real estate investments. And I do about 1300 transactions a year for investors, I've been doing that since 1997. Got a great big team of 30 plus people, and we're into heavy into the education and helping people build a business while at the same time getting financing done. And it cost them nothing to have all the experience and the the wisdom, we're trying to give them the guidance while it is getting their financing done like they would do anywhere else.   Michael: Yeah, I love it. And so many lenders, especially conventional lenders, I've come across and you might have shared experience are just trying to push the biggest loan that someone qualifies for on them. And they don't really care what that's gonna be used for. They don't really care what how it's gonna affect the end user. But it sounds like you take a little bit of a different approach.   Aaron: It does bother. Well, there's two things about this industry. You know, I think I may have even referenced it, maybe not among the last two episodes is that humans are the apex predator, we fall prey to no other species except other humans. And I found that our industry is just full of predators. They don't care what you do, as long as you close, they will use every sales technique, everything they've ever been taught to try and find a way to get you to close on that transaction.   Myself, I'm of the mindset is I'm gonna do everything I can to ensure that you close and are successful in that transaction. Because if you're unsuccessful and what you end up doing, you're not going to do deal number 2-3-4-5, I don't care about deal number one I care about deal number 10. Why do I care about deal number 10. Because if you made it to deal number 10, you're a badass, you're getting stuff done, you're achieving your goals, if you get to deal with and pretend that I'm a badass, because I'm getting more deals done, right?   But one, if you have that bad experience, man, I'm never gonna see 10. So we don't when people come to us, and they've got questions that they've never had before. They've got decisions they got to make that they've never had to make before. There's a good chance they've never had to really experience what it's like to make that kind of decision. Well, what I do 1300 transactions a year and I've been doing it as long as I have, I don't answer the question with an answer. I give them stories, what I've seen people do in that same scenario, and then give them the outcome of those decisions. So they're making decisions based on practical data, not speculation, in theory.   And then I also if they're questioning a deal, like, I'm not sure if this is right, if it's wrong is like Well, let's take a look at some things I tell them what to look at, and what questions to ask and who to go get the answers from. Take notes and bring them back to me. And we'll evaluate those answers together. And what I'm doing is helping them to determine whether they move forward or they walk away. And they also got to education about it at it. And they also learned about the other people they're working with are these people that are in it for the closing, or they're in it for them and the longevity of their business. And we get to find that out. And you get to talk to people really, really quickly.   And sometimes it takes time you have to investigate things. You have to spend money on appraisals, you have to spend money on on inspections, and things like that. And it could be costly, but you never stay in the deal because you spent money that you spent the money to walk away from it. And we help them understand that they're their CEO, their real estate investment business, and we're here to support it.   Michael: Yeah, no, I love it. Sunk cost was definitely something I got exposure to early on in his business. And it's could be a very tough concept to wrap your head around. If you're not familiar with it, you know, don't throw good money after bad.   Aaron: And that's a heavy duty sales tactic to get people to follow the sunk cost, thought process and process and get really, really caught up a man have already spent this money. If you understand why you're spending the money. There's never a sunk cost. Yeah.   Michael: Yeah, no, it's so true. It's so true. So let's talk about I mean, where we are today is very different than we were six months ago, a year ago, 18 months ago. And I think people might be in for a little bit of a whirlwind. So let's kind of talked through this concept of determining how well someone takes a beating really determines your legacy, which I think is a really great theme. So why do you think it's pertinent to talk about today, Aaron?   Aaron: Well, we're going into what could be a rarity A very big beating. And the fact that, like you just said, we're coming into something we were this different than what we experienced the last little while. It's different. It's something we've ever experienced. When you go back into the market and started researching what's happened in history of these markets that we that we've been following all the way back in the 1800s, we don't have any data to tell us how the economy and how the market or the world is going to react to the last What is it 12 years, 13 years, since 2009, January 1 2009, we started the quantitative easing, and it's continued to keep going $8.9 trillion $8.9 trillion that put into the market. And now we don't know we have no idea how the markets can respond to that as they're, as they're trying to back off of that 40% of the of the world's currency, or I guess the US currency has been produced in the last 18 months. So for people to tell me, Hey, markets go in cycles, and we can get this particular loan, and we'll just refi later, like, Dude, you can't think that way. Because we're not in any cycle we've ever seen.   The last cycle last tilt since 2009, was really the cycle. Sure, there are some little mini cycles in there. But for the most part, we had extremely low interest rates, never seen before we had a housing market has just been on a tear for 13 years. And now you're thinking that some cycle is gonna come along the next five that you can risk getting a five year loan, and do that. No, I think weren't, it was. And I just know, I think Warren Buffett said the 30 year fix is one of the greatest instruments in the world, because it's a one way bet. If you bet on the 30 year fixed and you're wrong. Worst case scenario is you refinance the house. But if you bet on the 30 year fix, and you're right, you're save yourself 1000s and 1000s, if not hundreds of 1000s of dollars, depending upon the size of your portfolio. So don't get suckered into these short term loans on a long term investment.   So now going into what we're going to be experiencing here, one, I don't know what it's going to be. But if we go back to 2008, here's my own personal story in 2008. You know, I shared my story about coming into the industry and the beatings that I took getting into it, right, and now we're getting into what happened in 2008. Everything starts crashing, everything's falling apart. I at that time, was still doing pretty well. I was making a good six figure income. I had decent clients coming in in 2008. And I was doing kind of a night thing for two throughout two months. I had a buddy of mine I I'm a former fabricator, I've worked on vehicles, I built a hot rods, all kinds of stuff, build jeeps, a lot of things and I have that kind of a background. Well, a buddy of mine says hey, we need you in on this deal. I need another fabricator on this and what we were doing was taking a double decker Bristol bus an English bus. We cut the top off of it, turned it into basically a mobile strip club is what we did. And we did this for a guy that wanted to take it to Burning Man, you guys can look it up. It's called shaggileic. Rapping it's this white bus wrapped in for a cruise ship horn on the front. I mean, it's just it's one of the craziest things you've ever seen. What a trip, I was fabricating everything up top building in the DJ booth. There's a bed going up there places for the poles, all that and that's what I was building.   While I was doing this thing where I was sleeping maybe three hours a night I go to the office, keep working on my lending business. And at night I was fabricating all night long for these guys. Because they were doing during the day and I was doing my part at night. Well then August 8 rolls around am I lucky numbers always been eight. And so as a result that this is August 8 of 2008. I was jumping on the bike, heading out of town for a three day ride through New Mexico just to clear my head. So it's a crazy time in my life and mind that my head was not in the right place. I'll guarantee I just tell you that. Cruising down the highway and right next to this guy is in a black truck and I've been by him for a while so I knew he knew I was there. But Donald suddenly flips on his blinker and he starts coming over to me. Well, I quickly looked over to my right, nobody was there. So I hit my throttle, I leaned that bike. What I didn't realize is somebody just then started to pass me and I clipped her front bumper, and I went flipping. So I don't remember the accident self except for my bike kicking sideways. And then I remember waking up in the hospital and we're looking around and this this really bright light and really quiet area and I remember sitting up and I noticed kind of fuzzy there's somebody sitting in a chair and my lapse my vision got clear is my wife. So I asked her where am I at and what seemed like was kind of an exasperated going to tell me for the 40th time you're in the hospital. You had an accident, and she started explaining things.   Well, what what ended up happening is when I went flipping, I used to race mountain bike so I would instinctively talk I realized this because I had such a massive bruise. This is where I initially hit my my my helmet had big ol crack in it. When I hit it just obliterated my collarbone and a bunch of ribs. It collapsed my right lung when I flipped my legs hit and I shattered my legs and ended up skidding to a stop. So if you've ever been to Arizona in August, but the pavements not nice to lay on in August so I had a lot of burns. A lot of road rash And so I was in there for a couple of weeks in the hospital that a bolt me back together my memory at that point because the head injury we had pinwheel would basically flip every three minutes. I could only remember every three minutes and never reset, but little things would would stand out.   So there's some things I do remember, but a lot of it's gone. And then there's actually some stuff in my history that's gotten my I was with my sister and brother in law, and they showed me some pictures from their wedding. I'm like, I don't remember this. And they showed me pictures of me being there. And then they played the video Like, I have no idea about this night. So there's certain things in my history that are gone because of that accident. So kind of the point behind all that is, I wheeled into that hospital I was I was a mountain climber. I was a marathoner. I was in phenomenal shape, best shape of my life at the time, I weighed in at190 pounds, maybe 12% body fat, worse about on paper, because of my investments worth about three ish million dollars. When I wheeled out of that hospital weeks later, I was 156 pounds at six foot one, and I had a negative net worth of 1.5 million everything was taken from me.   So I had to start over from there. So I had to learn how to walk again. I had to train my memory back. And then I had to negotiate with everybody who is foreclosing on all my rental houses, they're coming after me for all the other debts. And because if it wasn't for the fact now, to me, it was a blessing. There's a lot of people that went through the crash. And they lost everything I know of people that ate bullets, they went back to their office and they shot themselves. I know people who did that. But I had the blessing of being able to negotiate with these creditors, and I'd send them my first week's medical bill for $1.7 million, and then immediately back off. And what I have is a certain amount of money left in the bank, that was all I had to my name. And it was about I think it was like five grand or something I don't remember exactly.   Well I called every creditor up that I owed money to that was calling me and I said here, here's how much I have in my account, you look at my credit report and how many people I owe, I will give you that if you agree to that and wipe the credit clean. So I negotiated that with every single person. And what I did then is then I had an underinsured motorist thing finally kick in months later. And I was able to use that to pay off everybody that one negotiated amount. So I got clear of the whole world and they let me do that because the nature of my accident. Not a lot of people had that. So they didn't have the blessing getting their *** kicked, and be able to leverage an *** whoopin to be able to get out of that right.   The other thing that was real tough about this *** whoopin was I came back to an obliterated business. The lending industry was not doing well and I got back on my feet about eight months later. And all the people I was doing business with before the realtors and people like that they were out of business. They were doing something else. There was two left in the industry, my mom and a gal by the name of Carolyn Irby with Coldwell Banker, they at that point, they were still doing business, they're getting deals done. And they call me up say, Hey, I got a client for you need to call this person, they would got to the point that they'd call me back five minutes later say, Hey, did you call that person like what person they said, Get your pad and write this down. So I got to I was carrying a notepad with me all the time, I'd write down what I do all day long. And the calls are supposed to make the outcomes of those calls. And then if it was crossed off, that means I did it. If it wasn't crossed off, then I would have to make this call. I can't tell you how many people I called that weren't crossed office. We just talked on the phone. Right? It's like well, can you can you tell me what we said.   So talk about earning trust, right? That's a real hard way to earn trust with somebody when five minutes before you don't even remember the conversation by explain the scenario. And people were very, very, very kind to me. Now. There were some saying, Hey, I can't do business with that does have a memory. There's a lot of people that were that did. And I rebuilt my business on that. And because of that notepad, I rebuilt my memory and I read, I was able to reconnect those wires in my head by the grace of God. And by just being very, very religious about maintaining my my pad, I wished I had my stack of pads, I throw them away, oh, I don't know why throw them away. But that was how I lived my life at that point. And I recovered back to a business that I built back up from zero to now. I get I start the the real estate investors coming into Arizona, and they're buying these houses that are undervalued. And so I started to do those loans. They were really little loans. There's like 50,000, or loans. Nobody's making a bunch of money on 50,000 our loans by doing a ton of them. And then I went from there to doing more and more they went from from Arizona to Indiana, Indiana, Missouri, Missouri, to Texas, and then over to Tennessee. And so I started doing more and more loans.   Well, then I had one of my biggest competitors, who was also a guy call and he'll give me pointers on how to do some of these loans are a little bit tougher. He decided in 2015 that we should merge our businesses. So when he flipped, they flew me out to Utah, I sat down with him and some of the executives in the company. Let's do that. So I merged the business with him. But you can only do the loans under one person's name. Well, since we're merging into his company, well, the company he worked for as a loan originator was put on to his name. Six months later, he pulled it all apart, took it off himself and left me at zero again. And it took my entire database.   Well, the executives called me up to say, um, we're probably at the fire your staff, and you're just gonna have to start over like, No, give me 90 days. So me and my staff have two or three, we sat down and we said, what are we going to do when the phone rings is going to ring in 10 minutes? What are we going to do with these deals, now, you don't have our big team anymore. And we mapped out a plan. And within six months, I was ranked number nine in the company. And within a year, I taken over the number one spot within the company. And now years later, that guy's out of the business. Because he I mean, that's what happens when you become selfish you and it's all about you, everybody leaves you he ended up all by himself, he end up not having a business anymore. He's completely out. I haven't heard anything from him, he got away from doing investor loans like three, four years ago. And I would venture to say I'm the number one guy in conventional lending for real estate investors. And last I saw by statistical numbers that was just published in a mortgage originator magazine, if you look at how many trends looking at by how many transactions closed per year, I think I'm right, number six or seven, the United States.   Michael: That's wild Aaron. That's so insane.   Aaron: And to me, a lot of people is like, how did you do all that and I'm like, you just every single day you have an objective and you keep moving forward. And it was actually, to me the noise of the world getting turned down around me and I was stuck to my own thoughts. You have to decide whether or not you agree with the person that you were and I would did not like the person I was at that time. I was a really arrogant, cocky prick before that accident. You know, I was dressing the part and acting department being the man. Now it's like, you know, I decided I'm just gonna be me. And if people don't like me, then then that's fine. I don't need to we don't need to do business. It's not about that I would do whatever I need to do to close a deal before. Now. I just want to make sure I get along with a person. And like one guy told me this last week, I thought it was really interesting. He says, Do you you just collect people? Like what do you mean I collect people because you collect relationships, because that's that's your investment, you invest you invest in things, but you spend money to make sure you have more relationships with people. And that's the truth.   And that came up because we talked about flying first class, one guy said he's really really cheap. The other guy said no, I love first class, I got pampered by it. They say you fly first class all the time. So yeah, I'm Executive Platinum with American Airlines, I spend more time in seat 3D and I do at my house. But it's not for the seat, or for the free drinks. It's for the person next to me. Because you'd be amazed at the kind of people you sit with in that environment and the kind of conversation you get to have. And they're all very, very memorable. If you'll just reach out and say hi.   Michael: Yeah, that's such a different way of approaching it. You know, so many people are going for the drinks or going for the big seat. Sounds like you could care less about that. Aaron: No, I mean, it's comfortable being a sibling I hate sitting in the back, because because of how much Americans have the room. Let me I'm not I'm not a fan. I do have to I do fly Allegiant from Arizona to to Missouri. So it's only one one stop to go to my place out in Missouri. So I still do it. I'm not a fan of it. I don't love it. We in fact, my family is dubbed at low rider of the sky. But when we go to kind of fly American, I'm, it's gonna be a long flight. I need to be comfortable. For two reasons. One, I've just gotten used to it. And I like sitting next to people I sit next to number two, I've lived the last What is it now? 12 years, 14 years in pretty heavy pain. And because of that pain, when we hit the sky, and they start pressurizing. I was doing a lot of pain in my shoulders, a lot of pain in my legs, my ankles are just both my feet were snapped off in that in that accident. So the extreme pain I was dealing with that. It's now gotten a lot less because I really took the time to rehab this last year, I went to rehab to physical therapists like crazy and we had loss and I got back to working out I got in a lot better shape than I've been in a long time in 14 years, honestly. And I feel awesome. But now the reasons I sit up there is not for the same reasons. It's for the it's for the relationships and like yourself, right? Well, I'm collecting people right here now. And now wherever I go. I see you as there's my guy. There's Mike.   Michael: Yeah, no, absolutely, absolutely. So Aaron, I mean, you've been like literally to hell and back again and came out on top. So for people that have maybe been never been through a downturn or a market cycle, if that's what we're headed into. And it sounds like that might not even be the case. I mean, what should people be doing to prepare, if they do find themselves with those shorter term loans coming due now?   Aaron: Well, and they're gonna come to at some point, even if it's not now, I think they need to be on the watch for any opportunity to put themselves into a longer term loan and have to bite the bullet or whatever that expense is. Do I believe, I mean, I think interest rates going to keep climbing to an extent they're gonna have to taper off because I can't see us continuing down this path. Interest rates are just, you know, mortgage backed securities are getting slaughtered, but I also can't see why anybody, anybody want to invest money in the mortgage backed security. Honestly, I don't understand why that money is flowing in there. Because if inflation is as high as it is, and you're going to lend somebody money, potential for 30 years risking it for 30 years, you're not getting your money back, you're losing money. But the marketing engine that is the real estate, the mortgage lending world, for the banking world, the marketing engine has convinced people, if you drop it 1%, you should refinance. And so the majority of people will refi, within the first four to five years, you're looking at an amortization, amortization table, the first four to five years, they're taking advantage of you, because you're all you're doing is paying an interest and then you put you back into a heavy interest period, they're gonna continue to keep them just just sucking money from you is what they're doing.   So they're, I believe, there's going to come a point that we're going to taper off, things might get a little bit better. And if it does that, within the next year or two, I'm going to highly encourage you, if you got suckered into a short term loan on a long term hold, get into a long term loan, get yourself comfortable. I always say control what you can control for as long as you can control it. And you can't do that in a short term loan. It's just not going to work that way. Michael: Yeah. No, I love it. And from a mindset perspective, I mean, it, I could see it so easily where you could have given up when you lost everything in a weight when you woke up from when you came out of the hospital, you know, went from a positive network to several millions and negative net worth overnight, seemingly? I mean, how do you get out of that? Because I think, again, it's so easy to go into despair and poor me. What kind of mindset does it take to lift yourself up from that?   Aaron: Yeah, that that was an interesting question to have to answer. Because not only do you have when you stack it all up, and I have to ask myself several times, how did I get where I'm at? Now, when I look back on that particular thing? It it was, like you said, you get your *** whooped that heavily. You're the everything's taken from you, you can't get you can't walk, you can't think you can't pay for anything. And they're giving you free drugs. And it wasn't just, it wasn't just weak drugs. This was good, good stuff. I don't know if you've ever had a lot of bad stuff. Is that amazing?   Michael: It's not Advil.   Aaron: No, it is definitely not Advil, and they were just willingly handing it to whatever you wanted, I had to get off of that. And I had to point myself in the right way. And I was still in a wheelchair, I was still having to deal with all this intense pain, I still had a lot of rods and stuff, multiple surgeries still being done. And I threw the stuff away and like, I don't want it, I gotta get my mind, right, I gotta get focused on where I needed to go. And what it was, as I've never sat still I just never had in my entire existence. So it was the drive to get up and get moving again. It was also that I always had an objective and a goal and where I was heading in life, even if it was just it was never really defined, but it was just kind of floating out there. I decided I was going to go after that I was going to continue after that. But I don't like to do is what was in front of me that day is day after day after day, day after day after day. But I think to the biggest driver at that point was I did not like the person I was before that accident. So I want to do everything I can to be anything but that man. And I am grateful that he was there to show me the way you shouldn't be doing things. But he was the biggest driver to continue to become something different.   And then after that the next big driver was I had a good friend of mine. His name's Joel. He's like a brother of mine. And it's it's a really long story to tell you how we met because we hate each other first. But now he's basically like my brother. And we went out one night with our wives. And at the end of dinner or after the event, we went to walk into our cars we have the opposite direction goes, Hey, by the way, I'm making a big deal happen right now me and my business partner, and it's going to change your life. Like how's it going to change my life? If you're making a deal, he goes, I can't tell you, he goes, but it's going to close here real soon. But it's going to change your life, believe me, I'm gonna change your life.   And as we parted ways, give him a hug. He turns around and walk in his car with both his hands and he goes, I'm going to change your life. And he yells out to me from like, 50 yards away, not knowing what that is. My colon changed my life, dude. Well, let's see what this is. Well, then, short time after that I found out he closed on the second largest. It's now the second largest real estate brokerage in the state of Arizona. And they'd made a deal with another lender to be their premier lender inside. What he wanted me to do is contact that lender and he told them call this guy, I want this guy in your company to work with us. So they called me and we talked about me coming over there. And to go over and meet with them and went through all the back contracts and everything. I'm like, Okay, well see how this goes. And they said we want you to come meet the CEO of the company, but you can't meet the CEO until you do this exercise and they hand me this five year vision that the CEO had for himself, you know, his five year plan and then they told me gave me the elements of the five year plan.   Cool. So I wrote this out like this is all bullcrap. Nobody does this. None of this crap works as goal setting stuff is stupid. But Fine, I'll do it. Just so I can meet the CEO, Joel opened up the door on going to do a jewel asked me to do like sat down. I wrote out this audacious freaking plan, right? The best month I've had before that was 18 Maybe 18 transaction that due in a month. And I think I closed maybe 20 Some million a year or 25 million, maybe 30 million year my best year. Well, I wrote this thing I was going to do 100 million a year and my staff is gonna grow by this and that in that net over the five year window, no ideas, I set it up as a story. I'm sitting on along Rubicon Trail in my chair with a fire gun. My wife's next to me, we got the Jeep parked there were searing steaks on the on the trail grill, and I'm thinking back on my life or last five years, and I'm writing a letter to myself of everything that happened.   So then I went forward, I met the CEO, he's like, this is the most unique five year plan I've ever seen written, we would love to have you come work for us. Now, incidentally, I didn't go work for those guys. It didn't work out. But I stuck with that five year plan. And I continue to follow that five year plan to go back and look at it look at it. I blew through everything on there and doubled it. Because I wrote it down. And then I discovered a few write things down things happen. So one of the next things that I'm doing, I have a book out there shows people I'm working on another book with Robert Allen, if you know who Robert Allen is, but we're working together on a book. So he wrote the book, no money down in the 80s. The guy was basically   Michael: Oh, yeah. Okay.   Aaron: So he's an absolute bad***. I mean, Robert is awesome. And we're writing this book as if me sitting there talking to an eight year old about how life or 18 year old about how life works. And it's taking a beating. So it's how to take a beating. And that beating is actually how you learn. And explain why believe that. And so on and on be teaching people within the first chapter, then all the way through the book on how to write this out, and then help people come to me will sit you down, I'll take it in an environment. And there's more stories about how that got done. And other ways I've used writing it down to become successful, and show people you write this stuff down. It's amazing how the universe starts to line up to get things done for you.   Now, when it comes to a beating, right, the one thing is that we have noticed that we as humans learn better by getting our butts kicked. And I believe that there's this Bigfoot that wakes up at about 7:30 Every day, this big, ominous invisible foot to kick your *** all day long if you let it. If you so think about this, I wake up at 4:30 in the morning, I get up way before the foot does and I do what I want to do, right I sit down, I send a message to my team, every single morning, I read, I write, I do the stuff that I need to do I have prayer before I get started all that and then I go and I work out every single day. So but if you're a person who wakes up at 7:45, and you got to be the office by eight, the foots already up, right, it's already kicking your *** the second you put your foot on the ground from from the from your bed to try and get to the bathroom, you stumble into this, you stumble into that your day is just wrong from the very beginning.   Get up before the foot does, you got to figure out where your personal foot wakes up. That's out there to kick your butt. And you got to get up before the foot doesn't plan your day and start executing on that. The other things that I've noticed with people, you know, how we learn, we do have to take a beating learn so you need to dissect every beat you've got so what am I learning from this? And how do I need to take from that, and let me illustrate how I know that. That's how that's true. I was six years old. And my parents put me in a Pentecostal school for my first grade year. I didn't go to kindergarten straight to first grade. And it was this Pentecostal church in this small town. And they had everything from first to high school senior all in one church and everybody had their own little thing and you had different teachers for all of it. And I segmented us first graders off for the first three months and we're meeting in the little room and they were teaching us the alphabet and numbers. And as they're going through the alphabet every letter was had a nursery rhyme style Limerick to it and a filmstrip. Now you may be a little too young to remember filmstrips. But it's up…   Michael: No I got it, I got it.   Aaron: Okay, so you got the film strips got the little thing. You'll play the music and here's the beep and you flip it to the next next slide, right? It's basically slides. Well, it was a it was the we got to the letter M. And the letter M was about this mule named Milton. And the way the nursery rhyme when it says Milton the mule he made a mistake as you read a map, you walked in a lake. And as it's going through those filmstrips, you've got this cartoon mule walking down the road, in a suit holding this map, and then you see him falling in this lake. Well me being me, even at six years old, I redid the limerick, and I said it out loud. So instead of having Milton falling out falling in a lake, I had him ******* in a bucket. I know it's stupid. Right? The six year old stuff. The little girl sitting next to me did what you just did, she laughed about it. That didn't go over well with the teacher. Now the teacher happened to be the wife of Noah, who was also the pastor. She heard all this so she grabbed both of your ear lobes. Walk the straight to the principal's office and sat us down in these chairs.   This guy was not a small guy. He was a big man. So he's the pastor. He's the principal. He made me repeat exactly what I said. When I was done. He turns around he picks up this old aircraft aluminum style briefcase, sets it on his desk, puts in the code opens it and very ceremoniously turns it so I can see the contents had a padded interior cut out to houses pattern. So then he pulls the paddle out makes us both stand up and turn around and put our hands on the on the chairs. She got one swap I got two because I'm the one that came up with the limerick. Now it wasn't that hard. My dad's Irish my mom was Spanish Believe me I that way harder buttons for a lot less than what that guy gave me. But it was The gravity of the situation that caused the tears to flow. And then I also knew I had to face my dad that night. He always told me if you go to the principal's office, you're getting an *** whoppin. Well, I did. I got a pretty good one. But ultimately, the main reason I bring that story up is there's how many letters in the English language?   Michael: There's 24   Aaron It's 26?   Michael: That's so embarrassing.   Aaron: I know. I googled that I thought it was 24 as well very recently, and I go, so yeah, there's 26. So 26 letters, which we just established. How many guy remember the limerick for?   Michael: How many did you remember the limerick for? You probably remembered him for all of them. But for sure M.   Aaron; Just one. That's the only one I remember. I remember the letter M. I don't know anything about the other ones. That was 42 years ago, I can only recite the one for letter M I don't remember what the other ones were about. I can't remember you even articulate what the letter A would have said for it be what it stood for. But remember what M step four? Why do I remember it because I got my *** beat. That's why.   So we as humans learn very well through a beating. So what I tell people don't take, don't take a beating is something that's bad, learn whatever you got to do, just don't take the same beating. There's nothing wrong with making mistakes, just make new mistakes. Because you're making new mistakes, you're still advancing. There's nobody, that people who fail to get ahead in life make the same mistake over again. The other there's another thing that they say is there's two types of people never amount to anything. A person that can't do it, they're told, and a person that can do nothing but. I would say take the time, and analyze that to people that will never amount to anything, a person that can't do what they're told, and a person that could do nothing but.   Those are some very, very powerful words to sit and think about. And you have to figure out who am I? What am I getting done? What kind of *** whopping am I taken on a daily basis? And I said the same one over and over again. What do I got to do to make adjustments so I could advance myself and get away from this beating I keep taking.   Michael: Man Mike drop exit stage left Aaron Chapman, everybody. This was so much fun, man. How do people get in touch with you if they need you?   Aaron: Best way is Aaron chapman.com Or just go to Google and type in Aaron chat and you see a bald bearded redneck lender you got the guy.   Michael: That's you awesome, man. This was so much fun. Aaron thank you again for coming on for the third time. This was definitely the one that did it. We'll do it. We'll be in touch man.   Aaron: Thanks, brother. Appreciate you man.   Michael: Likewise, you got it.   Okay, everyone that was our episode A big thank you to Aaron for coming on today and the other two episodes as well. If you didn't catch those, I highly recommend you give those listened to Aaron dropped some really fantastic wisdom, knowledge and thought perspective on where we're headed in the next couple of months and yours with the market.   As always, if you enjoyed the episode, we'd love to hear from you with a rating or review wherever it is get your podcasts and we look forward to seeing on the next one. Happy investing

Today, we welcome Billy Keels back on the show to discuss how he went from living the corporate life to running his own business. We discuss his motivations, the mindset shift, the challenges, and finally, the rewards of his decision. Before becoming a real estate entrepreneur, KeePon Cashflow's founder Billy Keels worked in the corporate world. In fact, he was one of the best “corporate soldiers” you'd ever want to meet. Billy says that he was happy enough in his J.O.B., but something was missing. An emptiness and longing for a different life chewed on him, pulling him to what he knew he wanted to do more than anything else. Billy wanted to be an entrepreneur who brought two worlds together. So he took steps and kept on the path to his goals. Today, Billy is an international real estate entrepreneur, problem-solver, author, coach and mentor. He sees opportunities where others often don't in real estate. --- Episode Links: https://www.firstgencp.com/ https://www.firstgencp.com/paylesstax https://www.linkedin.com/in/billykeels/?originalSubdomain=es --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today with me I have Billy Keels back on for another episode. For anyone who missed it Billy is an entrepreneur business owner ex former tech sales guy, and he's gonna be sharing with us today about how he started his business, why he started his business, and really the mindset shift around going from employee to entrepreneur. So let's get into it. Billy Keels, welcome back for round two, man. How are you? It's so good to see you. Billy: Michael, what's up man? I, um, super excited to be back. This is nice.   Michael: I'm super excited to have you here. So for those listeners that did not catch our first episode together, give us the quick and dirty who you are, where you come from, and what is it you're doing in real estate.   Billy: Very cool. But you know what? You know what I have to do first man, because you're very kind to welcome me back and I just wanna say everybody, by the way, if you haven't already, Leave Michael a nice, wonderful, honest written review as well as rating. It helps to… Michael: Oh my gosh…   Billy: Bring guests to you, which is phenomenal. No, I mean seriously. I mean.... The energy, you all bring the organization, you bring the structure. Uh, and also I know a lot of the things that you are doing are making positive impact cause you're helping to educate people and also inspiring them to take action. So it's the least I could do also as a fellow podcaster, um, to go out. Uh, and, and, and ask of that. So, um, but yeah, Billy Keels, I'm still the, the same guy from the Midwest, uh, of, uh, of Ohio, who has spent the last 26 years of his life, uh, in corporate up until recently, uh, no longer, uh, in the corporate world. I've also been spending the last 21 years, uh, living in Europe. I know Michael, that's close to your heart as well? Michael: Very much so. Billy: And specifically, yeah, specifically between, uh, France. Italy and most recently Spain. I am someone who really, really had a great corporate experience. I really enjoyed it. It was fantastic. Some personal things happened in life that helped give me some clarity that was time to do some other things. Uh, and now I am very, very fortunate to be living, uh, you know, I'm living my, my best life and, uh, was able to make my nine to five optional and doing that in a point in time where I'm still in my forties and, uh, living between, uh, the US and, and Europe and that was part of my life goal. Uh, very, very fortunate and super excited to be back here and share another conversation with you, man. Michael: Oh my God, I love it, I love it. Billy, before we jump into it, I'm just curious, do you remember the best compliment you've ever received? Just outta curiosity. Billy: The best compliment. So you've kind of putting me, putting me on the spot, man. Um, I don't know. I think that's when you have to ask my parents. I don't know because they're , you know? I don't know. I just, I don't know. I, I, I can't remember. But usually it's, it's probably something that's not related to me, but something that I would've learned from my parents. More than likely. Um, but I don't remember specifically why, Why do you ask? Michael: I love it. I'm just curious, man. I'm curious to know if people remember, like human psychology, if people remember the compliments more, or do they remember the insults more? Billy: I spent 26 years of my life, uh, 20, one of the 26 years in sales and sales leadership roles. So the, the bad stuff I've learned to just kind of let it go. , the good stuff. I try to. Um, but if it, like, one of, part of the process that's happened with me is I try not to internalize too much of this stuff because then I kind of keep that and there's a tendency to say, Well, I've heard this so many times, therefore I am, um, I always try to work and be in the best version of myself, so even if I get a compliment, it's kinda like cool. I appreciate that. I probably learned that from my mom, from my dad. It's something I've seen from my brothers or something that my, my wife is helping me to be better in. Michael: I love that man, I love that. Can we turn back the clock a little bit, Billy, and talk about. Your corporate career, because I think that you have a, a similar story to a lot of folks, especially listening, have an amazing corporate job, are killing it in whatever it is they're doing. Um, and they can see themselves doing that maybe forever you had kind of a life change. I'm just curious, like why did you decide to go into business for yourself? Billy: So, you know what, Michael, this is actually super, um, such a wonderful question and I can tell you, I think the last time I told you that there was something that happened to me when my, um, it didn't actually happen to me. It happened for me when my son turned three, I missed his birthday right and I, because I chose to go to a business meeting that was in Germany because I was chasing the corporate dream. I was, you know, that was the thing that I was supposed to do, I was a really young father in that day. It was, I felt an incongruency in my, like, in my being right. I was, I woke my wife and son up to, you know, wake them up and our one year old just to give a hug to our three year old and kiss and then I was out the door. So that was the thing that made me realize like, hey, look, I've gotta kind of take action. I really like my, my corporate career, but I got lost somewhere along the way and my priorities got outta whack and so that helped me to take, start taking action, stop reading a lot of books. Cause I'd been reading books for probably three or four years, right? I knew all the numbers, all the theory, all the stuff, but I didn't take any action and I'm very, very proud to say that I've just celebrated a decade later, right? A decade later, I was able to accomplish the goal, which was being able to make my nine to five optional and even though I went in probably for the last three years and I didn't actually financially need to, I chose to go because, um, the life balance that I had was much better than it had been the previous years. Um, I was still enjoying the things that I was doing in my role. I was really well recognized. I was, you know, making way more money than I thought I ever should be, Uh, making and a decade later, like I literally just came back from, uh, Ohio, uh, where I was, uh, over visiting some friends, got to go to a, a sporting event, which was fantastic. Saw family members and then was able to be back here. Uh, for my son's 13th birthday. So a decade later, I recognized that the action that I took for a decade while I was working my day job, having this side hustle, like it really, it's paid off and it hasn't been perfect. Michael, Um, not even close to perfect, but the fact of the matter is I got outta my own head. I started taking action. I started seeing results, and then I started multiplying on that action and. Even though I left the corporate, because something also non-financial, and I think we talked about this last time, happened with my dad, and it helped me to realize like, okay, I really like what I'm doing, but there's some other things that I can do now less than a year later and my son's, you know, 10 year, 10 years later, his 13th birthday, I'm at a point where I'm like, wow, you know, all these things that I dreamt and wrote about on my dream board. They actually came to fruition. Um, not perfectly, like I said, but you know, being able to be in this point now is, I, I, you know, I'm glad that I started taking the action and I'm glad that I started that side hustle and I know that I worked through a lot of, you know, a lot of crazy hours during some of that time, but it wasn't all for nothing. Michael: Yeah. That's amazing, man. Well, first off, congratulations. That is super, super exciting to hear and I'm sure your family is super thankful as well. Let's talk about like, I think so many folks get it in their head that they can't have a side hustle, or they can't go build a business of their own either because they don't feel creative enough, they don't feel inspired enough, they don't feel called to do something, or they just feel like they don't have enough time. So talk to us about the mindset around. I'm working my nine to five scraping by or doing really well, not even scraping by just doing really well, but I'm exhausted at the end of the day. How does someone like that even think about doing something else? Billy: Yeah, so, and you know, I, I guess I kind of put it in a, there's a couple different things inside of me. I kind of always knew that I wanted to do something else as well, because I think one of the best things about working in a corporate role is in specifically like I was in the IT sector, right and not only in it, I was in software. So this is like super cutting edge, massive profits, and so it was great place to be every single day and so there are so many, like I realize like for a while, I just wanted to continue to work and be an employee and, and things were great and I was really, really fortunate because I had great salary. Um, you know, I was given opportunities to learn to grow leadership opportunities, great training and so for that period of my life that I didn't really wanna do anything. This was like, this was the most amazing thing ever. But then also as I started getting into the other phases of my life, I realized like, hey, listen, there are other things that are really important to me. I want to be able to be here or be there, or just be nowhere when I want to do it and not have to worry about somebody else telling me when and so when those things started happening for me once again, I started realizing like, okay, well, number one, the things that, because I didn't grow up with money at all, but I got into a point where I actually was not just saving money, but investing money, but then I realized that it was outside of my control. Like the stock market couldn't control that, but that was the only thing that I'd been taught to do, which was buy low, sell high, not really a winning strategy, and I didn't take enough time to get educated on that. That happened in 2000 when the DOT combo will happen, and the same thing happened again in 2008 I lost 33% of my portfolio, so I knew that even though I was in a really great c. Opportunity and create corporate experience inside of me. I needed something else. I wanted something else. I just didn't know what it was and so it wasn't until I came across that little purple book that so many people have read that that started turning like the idea on in my mind. But even with that, my goal, like I said, it took me like three and a half, four years to go from theory to practice and it took me missing my third, my son's third birthday to actually start to take that action and so, once I started, uh, you know, being able to, to take that action, I realized like, hey, listen, as long as I continue to give the outputs, cause I was in sales and sales leadership, like what are the outcomes that are expected In my role, I always performed at a high level. Like I was in the top talent program. I was going to Hawaii every other couple years for, you know, overachievement against quotas and stuff like that. So I felt like it was always important to be able to give everything that I gave during my corporate time because that was also providing me the income to be able to do the investments in the other stuff, which is actually creating my runway for my own life, like the one that I was building for my family. So it was finding that balance between being, a really good sometimes great. Uh, corporate employee, I think even, well, I don't think for on my, for a while on my, um, on my LinkedIn it said, hey, you know, happy corporate employee like that was my moniker. So that, that was like the thing and people were like, You really a happy corporate employee? Like yeah, I mean it's treated me really, really well. Yeah. Um, but it was something more that was inside of me that said, hey listen, it's time to do something else and I was afraid for a really long time because I was a high paid executive who was visible and people, you can't be doing anything else, man. You like, you need to be client facing all the time. You make a lot of money, you're doing this, you're doing that. But I knew that it was, um, it was something that I, I really wanted to do and there was sacrifice that also went on, right? Cuz you, you, you're in that type of role, you're expected to be on. Almost 24 hours a day. So I was waking up really, really early in the morning and I was staying up really, really late at night and fortunately both my, my, my wife and my kids understood that, um, once I got back on track, um, and, and it was about being able to find that balance. So I know it's maybe a little bit of a, kind of a longwinded answer, but I think it was about, you know, recognizing how fortunate I was in the corporate role that I was in and I did like it. Uh, I liked it a lot and at the same time, at a certain point I knew that I wanted something more. I knew that I wanted. The control. Initially it was of the financial, uh, outcomes of my life and what I realized it was, I really wanted to have more control over my time and it manifests itself just a couple days ago, which was a decade later, which was me being able to fly to my hometown, stay there for a week, hang out, and then be back for my son's 13th birthday. So, um, yeah, so that's. Hopefully that answers your question. Michael: Freaking amazing, man. So let's talk about like the next obvious question because you were an executive in it, tech sales. So what did you end up doing? Like what kind of business did you start?   Billy: Yeah, so, um, so the thing that I started to understand was it was a thing that came across. It was really, this is kind of dumb luck. It happened, it just really happened that I read that low purple book. The proof of concept was really simple. He was like, okay. I was working in this intangible world selling software. You can't touch it. You pay multimillions for it and then there was, hey, you pay a couple hundred thousand, then a couple million, and you get this actual, physical, tangible thing that you can touch. People wanna sleep in it, so they'll pay you for it. So that's the revenue line. By the way you've gotta make sure that this place stays in order. So you've got some operating expenses, you know you gotta pay your insurance taxes, maintenance and operations, maintenance, repairs, things like that. Then afterwards you get to this line, which is net operating. Well cool and if you have some debt service or mortgage, you pay that mortgage and everything else you get to keep. I was like tangible, simple business model and there's a need for it. So I went and started investing in real estate and I think we talked about it last time, but here based in Barcelona, Spain, but investing always back in the United States, exclusively in the US. So I started with the, with the smaller multi-family and then I bought a mobile home park and then I opened my mind to thinking about new things and I was like, okay, cool. Once I understood that, I get the education, start to build a network around people and then start to continue to take action on this imperfect information I started seeing my asset base grow and those assets, you know, the smaller multi-family, the mobile home park, the ATM machines, and then I started investing with other people because that made a lot of sense for me because I was a high paid executive. So I started realizing like, this is really, really cool, but it's taken a lot of time. I need to do something where I can actually leverage the e efforts and expertise of other people and I was somebody who was a credit investor. I figured that out later and so then I started giving, or not giving, but investing my capital with other people and things like the ATM machines and things like, um, larger multi-family buildings and some development projects in the hospitality space and then I kept having this one specific problem, which was, I was investing in all of these, and I don't wanna get too technical, but passive streams of income, like IRS definition of passive income and I kept still paying 40 plus percent in income tax, and I was like, this doesn't work. So then I started realizing that I needed to start asking different questions. I got into a specific area within the energy space, and that energy space helped me do a couple things, which was continue to build my asset base. That was generating income. This time it was active income, but it was also helping me out as a high paid executive. It was really helping me on my income tax because there were some specific, um, tax code rules related to energy production that helped me not just generate, you know, income moving forward, but it also helped me keep more of my income through income taxes and income tax deductions. So it was looking at all of these different things. At a certain point when I left my corporate career, I thought, I really like this building the asset base. I like continuing to do it and I'd build a lot of relationships and the one thing that really made the biggest impact on me as a high paid executive was the, the thing that was helping on the generating active income and, and keeping more of my active income. So today I really focus, uh, my company in that area through syndicating capital with accredited investors, uh, for those people that are very similar to the way that I was when I was in my corporate role. Uh, and that's, my business has continued to evolve, uh, today. So hopefully that answers the question as well. Michael: I love it, I love it. And Billy, can you give us, I mean, because you're in the energy sector and if anyone's been paying attention to the news or the world or living not under a rock, the energy sector has gone a little bit haywire over the last couple months, years. So can you walk us through like, what has your business gone through over the last couple years with Covid and the war in Ukraine and this sort of thing? Billy: Yeah, man. So this is, so this is really, really interesting, right and one of the things that I appreciate us as, uh, as investors in real assets, right, is number one, it's just, and whether we start in real estate or we start in something else that's tangible, it, it starts to open up our mind to way of thinking, right? I remember when I was just doing stocks, I just thought about stocks. But then when I started investing in real estate, it was like real estate. Oh my gosh, this is simple. this makes sense and okay and yeah, and then it opened my mind to other things and so I was then open to, uh, doing other things and it's very similar, right? If I think about now what I'm understanding about energy, like energy has always been super important, right? If you think about it at a very high level, every single output that we have, it has two component. The first component is labor and the other is energy and I thought, wow, okay, well yeah, that kind of makes sense and as I start realizing that, and then I started saying because of some of the incentives that are related to energy and energy production specifically, it made it a place that I really wanted to learn more about right and, and it, I've now started learning about a lot of different types of energy. But to your point, because energy is everything and everything is energy regardless of what's happening at, um, at your house down the street or even across the world. There's always something that is going to impact energy and the need for more energy, and so, It's very similar to what I started thinking about from a, um, basic needs perspective. When you need a place to live or you know, you need or want a place to live, the proof of concept already exists and so being able to explain the need for energy, to your point, I don't, you don't, I don't really need to explain it. It's just a matter of how is the energy being produced. That's where more of the, the explanations come. Um, and because of that, because it's something that most of us understand or understand the need for um, that part has made it relatively, uh, easy to have conversations about. Of course, there's always, um, very specific conversations or if I'm speaking to somebody who's in, uh, for instance the energy or oil and gas space, and they may be an expert, I always learn stuff, uh, as well. So, um, so just recognizing all the different things that have happened, uh, in the energy space and also having now a real focus on it. It's something that I've seen my business expand exponentially. Like what do I mean by that? So remember I was, uh, a high pay professional. I was, you know, very visible and at the same time I was, you know, syndicating capital, bringing people together around common goals and common dreams and just to kind of give you an idea from the first year, more or less that I was doing this, or a little bit year and a bit, Um, while I was still working my corporate role, since I've left my corporate role and have now done focus just specifically on helping accredited investors that are looking for these, uh, types of investment opportunities that generate returns and also help with income tax problems, um, our business has multiplied by seven right and so what that means to me is one, I have more of a focus now. Um, I'm understanding the accredited investor base that we are serving because also it helps that I am one of those people. I understand, uh, what it's like to go every single day, all day from early morning to late night and recognize that you're doing a hundred percent of the work, right? I was doing a hundred percent of the work, and many times I would bring home, you know, 50, 55% of the work at a certain point, I didn't like that, especially because I was open to learning about new investment opportunities because the real estate that helped open my mind is now continued to keep my mind wide open and so, now being able to look at new opportunities, evaluate those new opportunities, understanding the teams behind those opportunities, it's just, it's one of the things that's now an extension, uh, of where my business is and how we're serving, uh, those accredit investors and why and the energy spaces is one that's, I think, gonna be around for quite a while, kind of like real estate. Michael: That's great, man. I'm curious, Billy, for yourself, I mean, you're clearly a super bright individual. You're very open, you're very curious for the person that is just getting involved in the investment space or maybe in the real estate space that's new for them. They're high paid professional, they don't understand that world. They don't have maybe the same curiosity that you do. I mean, what's the mindset shift around hey, I know stocks and bonds. This is what I've always done and it's worked for me. Why should I bother with this alternative asset class this, this, something different? Bolly: Yeah. So I'm gonna probably, um, cheat a little bit here because we're asking the question and you are asking the question of me and the person that's listening that had that question. Here's the good part, You're already here listening, so you know that something inside of you knows that something's wrong, knows that there's something more that's out there. So what I would suggest is that you've already taken the first step, right? You're already here listening to Michael. You're learning from the guests that are here. So, you know, continue to go down that path. The curiosity's already there because you're already here, right? Yeah. Um, and the, and the reality find out, listen, um, you know, talked about it before. I mean, you have an opportunity to even leave an honest review and in your review, say, hey look, I would really like to have this question answered. I guess what, somebody's probably gonna respond to you and it's about being able to take the steps that you feel comfortable with, um, as an investor. The curiosity's already there. You're already here you heard the question asked, so give, you know, I would say I would give. The ability to continue down this track. Listen to more of the podcast. Start to read about the things that you believe will help to, um, move you forward, move you closer to whatever your, your goal is, um, because everyone has a, you know, have as an investing goal and allow yourself to get educated, move towards the things that you really want to be able to do and ultimately that's gonna help you. So, um, I only say that because I know that they're listening. If they're here, they're listening to the question that you ask, and they just need to give themselves the, uh, ability to keep going down that path. Michael: I love it, I love it. I'm curious, Billy, for most of the clients that you work with, the credit investors you work with, are you having to sell them on this idea of, of your business model and what it is that you're doing or are they already here coming to you saying, hey, I've already done the research. I know who you are, I know what the asset is, like, let me give you money and, and or throwing money at you. What does that look like Billy: Well, so I'm, I'm pretty particular, right? Like, I don't, um, if our relationship started that way, it wouldn't be a relationship that would last very long and, and what I mean by that is, is yeah. What I mean by that is if someone just wants to throw money, uh, at you, I don't want a transactional relationship right I want to build a long lasting relationship. It, that may be the person's intention. Hey, look, I, I eventually want to invest with you, but the type business culture that we're building is we're building an investor family. And so in the same way that we want to get to know one another, you know, I'm very intentional. Hey, let's you know, let's invest 20 minutes in getting to know one another. At least have a 20 minute conversation, 30 minute conversation, understand a bit more about your goals, your dreams, priorities, and also understand about me and my business, what are our business goals and priorities because if there's an alignment, then it makes it really easy for us to take the next step and say, okay, well listen, you can, I know you have an investment, uh, opportunity. You've probably seen something about me somewhere online, or you've listened to this wonderful podcast and you're thinking, okay, well listen. I think because we sound pretty similarly aligned, so what's the harm in investing 30 minutes to get to know one another, right? I'm doing that multiple, multiple, multiple times a day. Um, and so from there that, that's the first part is to, to be able to, to start the relationship on the right foot. Getting to know one another, getting to, to like one um, you know, one another, you like one another, eventually you trust one another. But also, like, one of the things, and this is probably comes from, you know, the 26 years of, of working in, um, you know, really a relationship based type of roles in the last 21 years in, you know, high value type of, of selling, um, and relationship building.   It's really about like, I wanna always help and I want our company to always help those accredited investors that we're serving to make an informed.  because what we do, like the solution that we offer, it's the solution. Like it does what it does. So you have to be comfortable, you have to be informed, you have to ask all of the questions that you feel uncomfortable asking, and my team and I have to be able to give you the information or the data in the way that makes the most sense to you, so that you ultimately can make an informed decision. Because the worst thing that can happen is you look at something, you're like, Wow, this looks absolutely awesome. The numbers are fantastic. You don't spend time getting to know the person or the company that you are going to invest with. You don't know if you're aligned and you're making a decision just based on some numbers that you saw and when as soon as things don't go according to plan and you haven't done the prep work on the front. That's when things get really, really wild and out of, out of control. Like at least that's what I've seen at least in the last 21 years of my experience and so I do have a lot of focus on, you know, being aligned up front, being able to get to know one another, and then also being able to help someone make an informed decision and then after that, you know, if they're informed decision things go. Hey, listen, at least they were informed, they knew about the risks and you know, we will also wanna protect on the downside and, and talk about risks, because that's something that's also very, very important to helping someone make an informed decision. So, um, I don't know if that's a little bit long winded, but hopefully that answers the question. Michael: No, it's, that's great, man. I mean, as you were saying that, I had this, this question you were saying, you know, we're not transactional. We wanna develop this relationship and in my head, I'm, I'm thinking, why, why, why, right? Because from a, from a growth standpoint, from a revenue standpoint, Yeah. I mean, people could look at, at you and say, well, Billy, you're doing it wrong. You're taking too much time with this person. You're spending too much time there. But I think you've explained the why so eloquently and it is because you're protecting the downside when something, if something, probably when something goes side based when something happens, you've got, you've got that foundational relationship to look back on and say, Hey, this, you know, we trust each other. There's not a finger pointing game going on, I would imagine. Billy: Yeah. Well, that's part of it and then also too, you know, I guess this goes back to the company, is that I've worked, been fortunate enough to work for, a lot of this is about business models. It's like I was talking about earlier, Well, let me, let me put it this way, maybe so, I like food. My kids like food and there are things that, like my son, when he's given the opportunity to go somewhere, well, he chooses to go to McDonald's, right and so that's where he likes to go and he likes to eat McDonald's.  Um, I don't so much, but, um, the, well, sometimes when you used to a lot when I was smart, younger, and then there's other places… Michael: There Mc Flurry outta control, right? Billy: All right, I'll go agnostic, I'll go agnostic. Some people like fast food. I probably should have done it that way. Some people like fast food, right? Um, and there was a point in my life where I like fast food as well. I'll change it up a little bit. Um, there's also another point in my life where I like to be able to sit down and I wanted to have more of a, you know, you wanna sit in the booth and you wanna talk and you, um, you just wanna spend a little bit more time and then there's also a.  in my life where I like to take my wife to. Very nice. Sometimes one, two or three Michelin star restaurants, right? The thing is, each one of those business models work. They can all be profitable. But the thing is the business models are very, very different. Do you like fast food? Do you like slow dining or do you like Michelin restaurants? All of them are profitable and it coming back to… Michael: It's got tingles, man, that's such a… Billy: But it's, but, but it's coming back to the question that you ask. , our business is not a high volume business, right. I would rather invest the time to build a deep, valuable relationship and that also means that the, the, the, the investor base that, that my company is serving, I is the investor base that we've decided to do is a, is an accredited investor, is typically a busy high pay professional. That once they have more control over their time and I recognize that for some people that's gonna be a challenge, but it's also for the person that's willing to invest the time. I know that that person has a much higher probability of getting to the goals that they're, that they're really wanting because they're gonna invest that time outside of the stuff that they're, that's keeping them busy and they're gonna be investing the time on the things that's gonna get them closer to their life priorities. That's our business model. There are other models that pretend that will prefer to go to a high number of, right? It's, but there's no wrong business model. That's just the one that I think works the best for me because I'm kind of that person today. Uh, that's the person that I understand the most. Michael: Yeah, man, I love that I love that so much and, and your analogy, the restaurant, different service types just was like, loved it… Billy: Use it whenever you want. Michael: Yes, Yes. I'm gonna, It's, you know, tm Billy Keels. Um, this has been so much fun as always. For everyone who's stung, who stuck with us this far, and there's like on the edge of their seats, what is the name of your company if they're like, I have to invest with this guy. Billy: Yeah, it's first Generation Capital Partners that you can find it at firstgencp.com and actually for people who are the credit investor, having that challenge around, um, being able to find things that where you can find investment opportunities that are gonna get you closer to your life goals, generate income for you, as well as provide tax benefits earned income side of things. We have a guide for you. You can go to firstgencp.com/payless tax. Um, that's a probably the best way to find out exactly, you know, what we're doing. Have a nice little white paper there and if it makes sense for you to continue to move forward, love to be able to get on the phone call and talk. Uh, have a conversation with you, Michael the other thing is, and this is the kind of, people can find out more about me as well, but they should go. Um, the going Long podcast, episode 2 21, where you absolutely crushed it . So going long, podcast episode 2 21 with your buddy Michael. Uh, and then from there, I, I think I'm the only Billy Keels in Barcelona, Spain. So if you wanna look me up on LinkedIn, you can go there. Uh, like I said, Billy Keels, Barcelona, Spain, just let me know that you heard Michael and I, uh, having a conversation here and it's gonna help us to, uh, keep our conversation going. So, uh, with that, I, you know, I love being able to be back here. I, I feel very, very thankful, grateful, uh, for the, uh, for the ability to be back here and share a little bit more of my story. Uh, Michael team really, really appreciate it. Thank you so much. Michael: Oh no. The pleasure is ours, Billy. Thank you and we will definitely be in touch, man. I'm looking forward to doing this again soon. Billy: Thank you. Michael: Take care. All right, everyone. that was our episode. A big thank you to Billy for coming on again, opening his vest a little bit, showing his cards, being a little bit vulnerable, and sharing some of his mindset and what was going on in his life when he made some of those massive transitions. As always, if you enjoyed the episode, we'd love to hear from you with a rating or review wherever it is to get your podcast, and we look forward to seeing you on the. Happy investing…

In this episode, we welcome Public Adjustor, Andy Gurczak to speak about the role of PAs, and how you can make the most out of the undesirable experience of haggling with your insurance provider -- ensuring the highest possible settlement under the terms and conditions of the policy.  Andy Gurczak started in construction as a laborer and got his in as a public adjustor through a contractor he worked for.  Quickly climbing the ladder, he helped grow the business by attaining new clients and further building relationships with existing clients. Andy started his own company, AllCity Adjusting, where he and his team process over 1000 claims per year. Andy's Contact Info: https://www.allcityadjusting.com/ c: 708 655 4186 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum and today with me I have Andy Gurczak with All City Public Adjusting. And he's gonna be talking to us today about what a public adjuster is, and why anyone who owns property should consider using one if they have an insurance claim. So let's get into it.   Andy, what's going on, man, thanks so much for taking the time to hang out with me today. I really appreciate you coming on.   Andy: Mike, thank you so much for having me on. It's a pleasure. It's always it's fun to do these. So I'm excited.   Michael: No no. It's truly my pleasure. You're the first like we've done I think this is episode 300 and change and you're the first public adjuster we've had on so anyone who knows me knows that I'm a total insurance nerd and insurance buff so but for anyone who's not familiar, like what is a public adjuster and kind of give us a quick and dirty of what you're doing in real estate.   Andy: First of all, Bravo on 300 episodes. Plus, that's awesome. So thanks for you guys. And I'm lucky PA so this is pretty cool. Yeah, so public adjuster is is licensed by the state, he's legally able to represent the insured in their claim process, negotiate and settle the loss for them. Whether it's commercial or residential. It's basically like having an attorney on your side or an accountant doing your books. It's the same exact thing. They're licensed by the state that they work in as well.   Michael: Okay, okay. And I mean, it just seems like kind of counterintuitive. I go and pay an insurance company every single month, every single year to give me insurance. Then when I have a claim, an insurance claim, I go to the insurance company said, Hey, insurance company, here's this claim, pay me for the claim what I'm owed. So why do I need a public adjuster? Like why does your job even exist?   Andy: Yeah, that's a that's a great question. The reason our job exists is because insurance companies don't pay claims and don't pay them fairly. We've talked about this before the show, Mike, you work the insurance side. So you know, that claims, actually two people that work in our office work the insurance side, and they've got they seen how bad a guy and came to our side. Because claims are handled, I mean, horribly every year, it gets worse and worse. And our we just had a meeting with a couple of attorneys just discussing what's going on and what we could do in some situations, because it's getting so bad, that, you know, insurance companies aren't responding for a month or two months, or just I mean, so having a PA on your site, even though it's your claim, and you think you have to remember that insurance adjuster, that staff adjuster and every one that they send out every vendor contractor they sent out, they all get paid by the insurance company. So they're all working for this one entity. And then you're by yourself. And you're thinking, well, they're on my side, no doubt on your side. It's all about profits, margins, all that good stuff. So…   Michael: Yeah, I know it's so the word of news is sick. When you find out kind of what's going on under the hood. It's really what should be a partner relationship. Like you mentioned, everyone on the same team working for the same goal can be come very contentious very quickly. So you said it's like having an attorney or like having a bookkeeper on your side? I mean, it sounds expensive. How much do public adjusters charge? Like, how does that work?   Andy: Easy. Yep, Pa is most of the time charge a contingency fee. So there's no retainer is nothing, it's all contingency on what they recover. And you know what the claim settles for. And standard is 10%. Like our company has adopted just a 10%, nationwide, whatever claim we're handling, whatever the size is now, some situations where we come in, let's just say months after a year after the claim has been paid, and we're just trying to figure out maybe another coverage or paid additional than it might be a higher fee of maybe 20-25 on the money that we recover above that amount that would the only difference,   Michael: Okay, and so just so we get it crystal clear for all of our listeners, because I just went through this on a claim to fire claims I had on a property. If the insurance company comes into my claim, and says, Hey, Michael, we're gonna give you $100,000 For your claim, and I'm like, There's no way it's gotta be worth way more than that. You will come in or a public adjuster comes in, you end up getting me a million dollars, you're gonna take 10% of that additional 900k That you got me above and beyond what I was originally awarded.   Andy: Yeah, exactly. And something in your situation. So when we have claims, and we have large investors and management companies, we have a pay scale that actually the percentage goes down once it reaches a certain amount. So reaches, you know, half a million that 10% may become nine, right for every client, we kind of work with them, just because we kind of know their position. And again, we want to create a relationship that is long term, because then we're getting called when before the claim even starts right because we want to be there. You know, another question is when do you want to hire PA for the day you have a claim, because you want to make sure if that claim is a legit claim, if you should even file that claim, whatever your deductible is, is that even a covered loss?   A PA will, you know, we do this for our clients all the time we do their policies with their claims without making any money or charging any fee. It just part of our relationship with our clients.   Michael: Okay, I'm so glad you brought that up, Andy, because I get this question all the time. Because so many people don't like, insurance, education is not something that's really provided out there. And I'm wondering if that maybe is on purpose by the insurance companies, but like, how should people if they have something happened to their property? And statistically, if you own a property or enough properties long enough, you will probably have a claim?   So what's the process? Like if you could articulate and paint us a picture of as a property owner, whether it's our own property or an investment property? What should that process look like? What should what should owners be doing? Who should they be talking to?   Andy: Yeah, if you don't have a PA, and you're kind of going to try to do this on your own, you want to first stop whatever loss happens, you want to mitigate the loss, right, you want to get first you want to you want to get your copy of your policy to you want to see if your agent because you most likely don't have a copy, because no one knows that they don't have a copy until they have a loss to be like, Oh, I have this page, I'm gonna get your declaration, you need your policy, your booklet, you know, no one gets that usually, until something happens. And then it's hard to get it from the insurance company, it's like, they don't want to give you your own policy, very normal. Then you want to mitigate the loss. So if it's a fire, you want to board it up, protect it, make sure no one can get in there. Or if it's a roof, you want to cover the roof, if it's a roof claim, and then you want to go and take pictures and document as much as you can, and then call the claimant.   And when you call on the claimant and you're trying to set the reserves high enough. So then when they come in, and let's just say you have $100,000 loss, but when you told them the claim, you might have said, well, it's a small fire in the kitchen, small smoke, they might have reset the set the reserves at 25,000. And now the claim is actually 100. So now when we're trying to fight it, we're going to five managers like what's the example at State Farm, for example, once it goes past the reserves, you're going through letters like five managers to approve one payment are one extra additional line item, it's it gets really crazy.   So the most important is mitigating, mitigating the loss, getting your policy, reserving the claim calling the claimant, right? And if you don't know the answer, when you're discussing that claim, when you're calling it in, just say I don't know, because a lot of people get into trouble by trying to say too much to be too honest. And it's not about being honest or not, or, or lying. But people say the wrong words, they might use the word like mold, I see mold. Oh, well, molds not covered. Here's a denial letter. Well, the water, you know, the water happened three days ago, we have there's mold, because you know it's wet, it's humid mold molds catch up, but there's still water damage that's covered.   So different words they use. So you gotta be careful with words you so you want to do your due diligence, or even call your agent to call that claimant for you. If you need help.   Michael: Let's talk about that for a minute. Because in the agent world, you have captive and non captive agents. And so just like you were saying all the vendors are paid by the insurance company. I mean, in a lot of instances, aren't these agents paid by the insurance companies as well?   Andy: 100%. And I have friends that are agents and I know people are agents, and agents have a bonus if their clients don't file claims. So there is a bonus, there's a perk of them if their clients don't have claims or the correct. So everyone's got a benefit if the claim is not filed, and if it's underpaid, everyone gets points on that.   Michael: So can we surmise that if you have a claim, you should just call a public adjuster immediately?   Andy: 100%. Because it's a free review, what's the worst is going to happen? He's going to come in there and say don't file it. You don't have to sign with that PA but at least get that expertise. Now you want to make sure you find the right one. But if you do you have them looked at it and in depth look at the claim inspect the roof, inspect the fire damage inspector water damage and let you know everything you should do.   Michael: Yeah, I am. I had my first big claim to have them back to back couple years ago, I had two fires in a commercial building back to back a week apart, which I used to work as a professional fire protection engineer. And it's like statistically impossible to have that happen. I'm the one exception, right? So I went through the claim process I had the insurance company come out do their inspections like oh, it's small fire just like you said, you know teeny tiny claim payout. And I'm like dude, that doesn't even cover the materials that were sitting on the roof when I had the roof fire. So I brought in a public adjuster and they know about 15Xed that claim. So I can't sing their praises enough. When someone is searching for a public adjuster and you just mentioned this, you want to find the right one, like what does that process look like? What questions should you be asking?   Andy: I've never been on the other side. When I look and talk to our clients how they found us obviously they were looking online Googling and stuff and they were doing a search engine and kind of we came up online we do a lot of blogs and stuff. So we'll come up there with a lot of tips and stuff for people so they'll find our name. Otherwise, so if you're not looking online, you know, you can check websites like patio, which is Texas associations of public insurance adjusters, California has their own, some states have their own. There's the NAPIA National Association of Public Insurance. So there's different associations that you could go on, and find adjusters pas that have been screened and have backgrounds and pay their dues, because they're part of an organization. So that would be your, you know, your best bet. Referrals. Again, if I, if I knew you, I would say, Hey, Mike, you had a couple of fires, you know, did you hire who's a PA, you have someone to recommend. That's, that's your best bet. Someone that they worked for referral.   Michael: That that has had the actual experience with them? Yep. Okay. Are there certain questions that someone should be asking? I mean, what separates the different pas that are out there? Because I'm sure if I google that would get tons of different results. Is one better than the other? Like, is it just based on the fee structure? What should people be be considering? If they're going to hire someone?   Andy: That's an awesome question. So a lot of what you should be asking, and when you go online and look for PAs, a lot of them say, you know, fire water, they do all these things. But 90% of PAs handle just roofing claims, usually residential, some commercial. So it's, you have to make sure that hey, how do you handle fires? And how many fires have you handled? Or what do you specialize in? You might say, Well, we do a lot of roofs. That's not the PA, if you had a fire, you don't want the guy that's handling roofing claims. Right? For us, we do large loss, fires, water, hurricanes, we don't if someone calls for a residential roof. We don't we don't do residential roofs, we would love to, but we don't we don't specialize it. There's other PAs that do a great job, here's a couple of names you can call or, you know, Google and and find the problem just and it's in that it's just a committed, you know, attorney, some attorneys do, you know, personal injury, some do properties. Same thing with PA some PAs are better at some coverage than others.   Micael: Yeah, that makes total sense. Andy, let me ask you a question. Because it happened to me. And I'm curious now with the hindsight, what the proper move is, so I had this fire, and it was on the roof. And it was during a reroof. So they had all the materials up there. So all the materials burned up. And my public adjuster said, Don't touch anything on the roof. He said, We got to come out, we got to photograph everything we need to take care of, you know, we need to document everything. And meanwhile, it's really windy. There's debris blowing onto the neighbor's property into their, into their, into their courtyard and their fence. And so the neighbors called me complaining threatening to sue, they got crap blown everywhere. And I'm like, I can't it's like an active insurance investigation.   So you were talking about you want to mitigate the loss stop the loss from getting any worse. But are there instances where physically mitigating the loss than is like evidence tampering is the wrong word, but you understand how it's changing the scene.   Andy: Double edged sword? Yes, a double edged sword. We walk into properties all the time. And you know, or let's say we go into a hurricane area, or right now in Florida, and we see people outside with all their contents, right? Like all their house stuff, just in a pile. And I'm like, did you guys order material? Everything's gutted? I'm like, did you guys inventory take pictures? Well, no, but the insurance company said to just throw everything up. That's the worst idea ever. That's what they want. You just get rid of all your evidence. So that's a double edged sword. So when I say mitigate, you're supposed to mitigate the loss because they can technically your duties after last say you will mitigate. So if you don't, they can deny it. But what's mitigate right? If I had a pipe burst from the third story water comes as floods my whole house right? The insurance company is going to want to send a vendor out to pull some drywall or spray everything or dry everything and leave it. That's the goal. That's mitigation. But mitigation is you turning off the water. That's already mitigation, because it doesn't specify what technically mitigation is. It just says mitigate. So by me turning off the water, I have mitigated the loss. And I will tell my insurer just leave it because it's already all damaged. Whether you dry it or not, that's just gonna go against your thing. It's already damaged. It can't be its category three water. So it's got to be all replaced. Instead of paying a vendor all this money, this has got to be gutted, all that money should just go to you instead of that vendor.   So yeah, there is instances. So in yours, just because we have insurance, karma saying any Can we start rebuilding? Well, now because we're still fighting with the insurance company, and we're still negotiating, and if you start the repairs, then you you can date that's what they want. They want to keep holding, holding until you actually accept it and start the repairs.   Now, if they don't start the repairs, then they'll go well, why didn't the insured start the repairs? Right? So it's, we're trying to keep our clients in the best situation to make sure it's the best possible outcome. But it's hard sometimes, especially with landlords when they have tenants, right? Hey, my tenant is going to sue me or my tenants gonna go this if I don't do the repairs. Then do the repairs, I guess. And this is the settlement we're getting. So an insurance company knows this. So, in your situation. That's a tough call. What do you say like either the PA say, Hey, we got to do it this way. And he was doing it the right way. Because if you did mitigate or clean up that thing? And they come in? They're like, ah. Even if you document it, I'm telling you, it's like they don't even look at your photos. They don't care. Yeah, so they did the right thing.   Michael: Okay, good. Well, that's good to hear. I'm gonna go, I'm gonna go send them another thank you text after this episode. Yeah. Andy, can you give us like, maybe two scenarios to stories that you've experienced one where things went perfectly well, or as good as they could have gone and what you you're insured what your clients did to get there. And then maybe a scenario at the opposite end of the spectrum where things just like, just like, give us like the worst thing you've ever seen happen? Just so we have a little bit of context that…   Andy: Part of like claim handling or like? Okay, so I'll tell you, we were just like I said, we had the attorney, we were kind of going over claims and we have one, and I won't say the insurance company. This is in Gary, Indiana. This this poor lady that waged her claim has been handled, and it's by an adjuster that we've seen handle bad claims for other people in that area. Whether it's color, race, area, I don't know. But the way this this claim has been handled this lady the under oath and everything she's been through, like we thought we had it all over, they finally after six months, say okay, well pay the claim. And here's the money, we got to argue with them. They started at 30,000. It's $160,000 claim. But then we have contents another 160 that we sent wants to go and now we're asking what's going on with the content. So they come back well, well, which which was the insurance and which was her daughter's. Why does it matter? If you had a fire Mike, and you have your kids and your wife stuff in the house? That's all personal property? They're not on the pile? Are your kids on the policy now? Yeah, no kids are on the policy, but their stuff is covered. Right? So why are they're asking her so now they want to examine her again and her mom. So this is going to drag on for 10 months. So this and this claim is ongoing. So to us that to me, it's like, well, now I'm powerless as a PA. But what can I do?   So the only way is the attorney can help. But again, she's still going to have to do that examination. But it just shows how long they'll drag it and try to find ways of however, to underpay or just deny that claim. So that's bad. Yeah. And we have a bunch of those. So those hurt a lot of them, we win, this one again, we got the structure paid and figured out. Now we thought the contents was going to be a slam dunk, easy. Here's everything, even your vendor said, you can't clean this stuff. Great. Here's the list. Here's the pricing age of items. And now they come back with this. So, another tactic to delay the claim.   On a good note, we had one, it was a it was from another podcast, one of the investors students called us, he got the number to us and he called us he had a 16 unit in Champaign, Illinois, burned down here to ACV policy, you are familiar with actual cash value. Your listeners might not but meaning he would not recover depreciation, he would not get that amount even if he rebuilt. So he was just getting what's what it's worth now. So that building, he had a fit 550 limit that just came in, he wrote like 560. And they depreciated and cut him a check for maybe 300,000, something like that. So when we got hired, we sent our letter representation, and the adjuster called and said, Hey, Andy, you know, I paid this, I paid this to Max, I don't know why he hired you. I'm like, Well, you didn't pay loss of rents. And also you haven't paid demolition expense, and you only paid 300 when it's a 550 policy, you stopped writing, because our estimate is like 900,000. With no like edit, like this is just it.   So then we reconcile and the insured ended up getting 100%. So 550 plus 5%, debris removal, some other endorsements, plus he maxed out everything. So he ended up walking away with another 400, like 300K. So again, when an adjuster says, you know, we don't need you. And that's it again, there's many claims like that, those are the positives, it's the ones that drag on, and that you like, you know, you're close, but they're still like delaying, delaying, delaying. And it's like they want the insurance to just finally say, Okay, well, I'm done.   Michael: I'll just throw in the towel.   Andy: Yeah, it sucks. And, you know, there is statutes in each state, which they have to follow, but it's never followed, because no one ever calls them out on it. Because unless you actually go to court or litigation, that's when they show okay, we didn't do this. They didn't do this. But other than that, they don't really know. They kind of do their own thing.   Michael: Yeah, because they're so big. And you bring up you bring up a really good point ACV versus replacement costs for anyone that's not familiar with the to give us from from like the PA side of things. What is the benefit of one versus the other? Because I'm sure your clients have seen like the reason your client probably had the ACV was because the replacement costs value on that 70 unit 50 unit was just probably astronomical. So it's often a cheaper policy to get like what's the downsides of going with one versus the other and what risks do people run by choosing one versus the other?   Andy: So the riskier is with the actual cash value policy and most most policies are RCV based. And then they have the actual cash value endorsement that says we only pay actual cash value, what happens is why you would do that policy where some people might get that policy and our insured wasn't even aware of it. But the agent sold it to him didn't explain to him the differences. He didn't know that he had that extra cash value policy. So you know, that's another story. He went on his own. But, so what happens is you, it saves you a lot on your premium, especially if you're investing you're trying to make margins and you know, it could save you on a property like that 2-3-4K a year, right? Well, it's great until you actually have a loss, when you have a loss. You know, it's especially on older buildings, it's cutting your payment by half. And you can't recover that money because it's actual cash value. So the replacement cost of you know, your home today is 300,000, but the actual cash value after depreciation, your actual cash value is 150. Well, you're only getting that 150. Even if we got the settlement of 300. With insurance, your policy will only allow for the actual cash value of 150, which will leave you with only half the money to rebuild.   So you're always as an as an insured, you should always have a replacement cost policy. And now they have you know, different like guaranteed replacement costs and all this other openly, openly insurance actually has it. They don't even have its guaranteed replacement, because they don't even have a limit. I think it's up to one like there's no limit on structure a   Michael: Holy smokes.   Andy: So there's some new carriers that are really, really, really good, actually.   Michael: Okay. And that brings me to my next point. And I'm so glad you brought it up. Like Should folks be involved in public adjusters in their insurance carrier decisions as they're looking to go place insurance on properties?   Andy: I would hope so. Because all we do is read policies every day. All I do is read policies interpret policy. So I know when I'm looking at a policy, I'm like, Well, you have a good policy, but you don't have you have a finished basement, you don't have any water backup, you your roof is actual cash value only. Oh, I didn't know that. I didn't know there's a lot of stuff you you should be aware. So yeah, our longer term clients will actually inspect their properties, look at their policies to make sure they don't have any exposed liabilities. Right. Now, it's not our job. It's the agents job. But most of the agents now are just, you know, selling policies instead of actually doing their due diligence and ensuring the claim the right way, they insured.   Michael: Yeah, I just want to echo exactly what you said, for all of our listeners, like now the public adjuster that I worked with on this on these fire claims, I sent him every policy and every quote that I get for properties, and he told me he's like, happy to do it. He's like, Yeah, this is a great carrier. But this is the other thing. And also, he can tell me like, Hey, I've run up against this insurance carrier, we see them all the time, like they don't pay claims, we're going to be working together a lot more if you have a claim if you go with this company, which is super great insight to have.   Andy: That's, that's awesome. And that's the same thing. I would say, I would say this carrier, we have a lot we have, you know, this many claims every year. And you know, maybe it's a lesser policy, and that takes longer, but they'll pay the claims, right? These guys just don't pay or they didn't know, I have a list of insurance companies that I know that are easier to deal with. Now, it's your claim guarantee you're gonna be paid when you file a claim with them. No, it still might be a hard process. But they're much easier than these eight other carriers that they're that are out there.   Michael: Yeah. This has been so great. Andy, my last question for you, man. How many claims do you handle a year just out of curiosity? So I can we give people an idea of…   Andy: Yeah, we do over 1000 claims a year?   Michael: Well, but how many how many public adjusters in your office?   Andy: Oh, right now we have four. Right now we have four and we're just we just keep growing. We do a good job marketing and, and building our social media presence. And yeah, it's, it's, it's good. And I mean, I guess it's bad for the insurance. Maybe these claims are handled. But yes, tactically, we, our business grows and we get more calls.   Michael: That's awesome. And I want you to share with everyone your contact information where people can get a hold of you and like what kind of I know you said you don't do residential roofs, but what kind of claims should people consider reaching out to you for?   Andy: Any fire, you know, water claims, you know, whether it's broken pipes sewer backup, we can inspect those or at least advise sewer backups, usually, or water backup limits, they usually have a limit. So I see your limit is 10,000. I look at the photos and I'm like, Well, you max out the limit. You don't need a PA this one's just a max policy easy. A lot of people that call us if we get to two calls, three calls a day of clients that we just kind of give them advice because there's no need for a PA in some instances, they will but we can give them at least advice and help them out.   But fire claims hurricane even commercial roofs we do commercial roofs a lot. Residential roofs is just the one thing we don't really do. Just because we we don't have the staff to do it. So…   Michael: Yeah, okay, fantastic. And for people that want to reach out learn more about your take advantage of your services, what's the best way for them to do so?   Andy: The easiest way is my cell phone. It's literally for your clients they can for your listeners, they can call me it's 708 655 4186 that's literally my cell phone. They can text me call me I'm really easy to get a hold of while I still can. I'm able to get my phone away so write it down because I might have to switch here I might not be able to give my phone away and my wife gets mad with more calls.   Michael: I hope you're so busy that happens.   Andy: So ya know so far so far. Okay, wife's not getting mad, so…   Michael: Awesome. Andy, thank you so much, man. This was super great anyone watching the video could tell I'm super giddy talking about insurance stuff. It's so great to meet someone that's also as giddy so no, I really appreciate the time.   Andy: No, it's fun to actually have a host that actually knows that that area and yeah, it's fun. You You know you've been through it now yourself. So you kind of know the you know, you know, you know what we do and what a PA can help. So it's, good.   Michael: Big time, big time. Well, thanks again, man. I'm sure we'll be in touch.   Andy: Mike, thank you so much for having me. I appreciate it.   Michael: All right, everyone. That was our episode with Andy, A big thank you to him for coming on and sharing some great information, some great knowledge and wisdom with us. Definitely. If you are someone that is going through an insurance claim or will go through an insurance claim in your lifetime with the property you own, definitely consider hiring a public adjuster they are worth their weight in gold. As always, if you enjoyed the episode, please feel free to leave us a rating or review. We'd love to hear from you all in the comments section and ideas on future episode topics. And we look forward to seeing on the next one. Happy investing

In this second episode with Aaron Chapman, we discuss how much interest rates actually matter. Over the past couple of years, low interest rates have allowed people to get into a deal and see immediate cashflow. But with interest rates rising, many are concerned that they are not seeing immediate positive cash flow. Is that a deal breaker? Should investors sit on the sidelines and wait for rates to drop once again? Or should investors be thinking about real estate like other business models and be willing to put their capital into a deal and expect to see profits occur over a longer time horizon? Tune in to hear Aaron's unique take on these questions.    Aaron Chapman is a veteran in the finance industry with 25 years of experience helping clients better understand, source, and finance cash-flow positive investment properties. He advises over 100 clients a month in the acquisition and financing of their investment properties and primary residences. Aaron is ranked in the top 1% of mortgage loan processors in the country, in an industry of over 300,000 licensed loan originators, closing in excess of 100 transactions per month. Episode links: https://apps.apple.com/uy/app/qjo-investment-tool/id1533823468 https://www.aaronbchapman.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the remote real estate investor. I'm Michael Albaum and today joining me again, I got Aaron Chapman. And in case you missed, here's prior episodes, definitely go back and give that a listen. But Aaron is a lender in the residential mortgage industry. And he's got a wealth of knowledge and experience under his belt. And today we're talking about how much interest rates actually matter to doing our deals. So let's get into it.   Aaron Chapman, welcome back, man. Good to see you.   Aaron: Good to see you too, man. It's good to be back. In fact, it hasn't been long.   Michael: For those of you that caught our prior episode with Aaron, we are recording this back to back so we figured we just knock it out.   Aaron: I don't I don't have a dozen of these specific shirts for those who are wondering.   Michael: Like, yeah, he bearded his braid exactly the same and wearing the exact same hat and funny, he's in the exact same location. So Aaron, today we're talking about how much rates really matter. And you've been in the mortgage business since 97. For those folks that didn't catch your bio and background go and get that first episode listen to let's talk about like how much rates matter, man, like rates are creeping up, not keeping up but seem to be running up as to where they were previously. And I'm hearing a lot of folks kind of get scared and spooked and want to hang on the sidelines until rates come down. So give us a little bit insight is that right thinking? Is that the wrong thinking help drop some knowledge?   Aaron: Well, it's I like to tell everybody so level of your everything has to do with a level your comfort, right? Your ability to get in there and, and slug it out and make things work? Because it all has to be about interest rate. And are you really a real estate investor, because that's why I work with as a real estate investor, opportunity is only sitting in front of you at the time that it's in front of you. And often people are trying to get the market to line up and I look at that kind of like watching a star football player sitting on the bench on the sidelines, waiting for the perfect time to jump on the field to get on the highlight reel. Well,   Michael: That's such a good analogy.   Aaron: We're on the field at the time the game is being played, right? They're not sitting on the sidelines at all. It's amazing how often people think that they have the capability to time something and most people trying to time it have never time the damn thing in their life. Right. In fact, most of them are fairly new new investors or investors with maybe you've had five or six houses. So you feel like you're a seasoned investor. I've been doing this for 24 years I've been at this since 1997. I'm barely seasoned in what I do. And the reason I feel that I'm barely seasons, because I do over 1300 transactions a year for real estate investors, I get to see where a lot of people are making decisions, or a lot of people are making mistakes and where a lot of people are doing it right where a lot of people failing or a lot of people are succeeding.   What I tell all my all the people I work with is there's this old saying good judgment comes from experience and experience comes from bad judgment, great way to learn on the grade school playground of very, very tough way to learn in real estate. So don't go about trying to figure out things that way yourself. Reach out to me, I got to see for 1000s of people have made decisions. I'll guide you through that telling you stories. I don't answer questions. I tell stories as to what I've seen other people do. So you will have practical data, not speculation in theory, and then hopefully, hopefully, we're able to guide you in a way that makes you successful now is it going to be successful every time you make a decision? No, you're going to hit a brick wall between those brick walls, that just means you got to change your direction and keep moving and keep moving and keep moving.   So then you eventually find success because you become nimble enough become successful, it does not benefit me to close a deal and you fail, because that's only one deal. I need your 100th deal. That's what makes my business work is to do this dozens of time with you not just one time and walk away. That's not the business I built. So when it comes to interest rates, you need to get comfortable with it and understand that you're never the price of money is always going to move. But what we also have is the price of housing is always moving. You know, we talked about in last episode, the average rent is going up by 12%. Year over year. I don't expect that to be sustainable. I think it's probably a go up, you know, maybe seven, but it's going to keep going right? We have we're short how many houses right now in the United States,   Michael: I think like 5.2 million or something of that effect.   Aaron: 5.2 million and what's the building looking like right now people are not there's not a lot of construction going on, compared to what the demand is. We've got a hurricane, they just wiped out on how many houses we don't even know that the full total that devastation and then the ability of the supply chain to be able catch up with that. And then of course there's talk of another pandemic coming which we saw the effects of that one, and how well handled that mess was. You start stacking all these things up rents and quarterly rental increases are here to stay. So when you're on that end of it, and you get to continue to increase your rents effect, let's do the math real quick here. Let's say, let's say you got $100,000. House, you're renting it for $1,000 a month. Right. And now you get to raise the rent by 3%. Well, they're saying you're only getting say 60 bucks a month in cash flow. That's not sexy. You're not getting excited, right?   Michael: That's a couple of Chipotle is with guacamole.   Aaron: Exactly. So 60 bucks right now, not a big deal. So you raise the rents by 3%? What's 3% of 1030 bucks, 30 bucks, nothing. It's actually nobody's excited. Again, what's really cool about is your tenant won't get excited. And I can just up and move and know the night and dump concrete down the toilet. Right? So it went up by 30 bucks. But you're making $60 a month cash flow, you're one now you're making 90. So what percentage did your cashflow go up by?   Michael: 50%.   Aaron: That's a 50% compound growth in your cash flow. So what you start to see here is over time, it's not going to happen right away. You know, it's not, it's not Swift, but it is certain that you will continue to get this compound growth in the double digits a year over year over year. But as we talked about, in the last episode, go back and listen and get my get my my tool, the QJO investment tool, and run these numbers, you're gonna find that you're paying back less and less and less for that set mortgage you have, even if the rates go eight, nine, 10%, you're paying back less, because inflation is eroding the dollar. But yet you're increasing at double digits. As far as your cash flow, there will come a point that one catches the other and you surpass it. It's much like any investment that a person does. It's amazing how we can talk ourselves into getting into other types of investment vehicles, like all but if you stick with it for three, four years, you're gonna see it really grow or 10 years or whatever. But yet you get into a house. And also we think of it as an expense. When it comes to real estate. It's not you're not spending money and going into debt. You're a business owner, that is now the pass through for this capital, you get to increase.   Michael: I love that. I love that. Aaron answer me this because I think it's something that I've been hearing from a lot of people I know for sure, in the Roofstock Academy is folks saying, Michael, five months ago, I could go buy a house for 150 grand and make 100 bucks cash flow at three and a half 4%. Now that same have that same price, the same purchase price is still 150 grand, but now I'm paying seven and a half percent that eroded all my cash flow. Does that mean I should still go buy that deal? And hang on for those first couple of years? Because I'm going to get that double digit compound growth with the rental increase? Or do I just need to go find a new deal? Or potentially a different market?   Aaron: I've got I've got a few answers that I would give right. And I sometimes depends on the individual, right? Because I do ask them Okay, so what do you think right? Now let them tell me, because I want to find out what's going on your head, right? So tell me what your first instinct is. But if they're asked me exactly what I would do, I mean, again, I might get cut out here, guys, when I was gonna have your balls attached or are they there for decoration, right? Nobody has ever made a fortune because they they want out of the gate. Nothing is ever has ever paid what a few things are paid off out of the gate, right. But most times they don't. We had a history of people making this amazing cash on cash return for the last, what 10 years, it was the easiest thing in the world to sell cash on cash return for the real estate sales side of it. I think my personal belief is the real estate sales side of it has actually put themselves in a corner, and they're trying to claw their way out of it. Because we spent so much time talking cash on cash. We never talked about the rest of the ways people made money. It never got discussed.   For the last eight, nine years. I've talked about everything but cash on cash return, if they take that metric and throw it away, take their performance somebody gave you because that's that's Greek for bullcrap. It doesn't mean anything. They made those numbers up. Right? So let's talk about reality. Right? And reality is business is going to cost you something nobody has ever opened up a shoe store was profitable in the first five years, right, you have to have a certain amount of capital to get started, everything needs a certain amount of capital to get started. You're the CEO, the CEO of your startup real estate investment firm, that means you are going to be a lot more discerning about what kind of property you buy, when you're not making $200 a month cash flow out of the gate than you would be when your before making cash no matter what happened because of interest rates are so low, they softened all the blows.   But now, because of things the way they are, you're going to become a better CEO, you're going to sink more, you're going to take more time to understand what you're buying, you're going to buy the right property. And that's what it's all about. What can you keep reasonably rented for the entire time you own it, and what can you raise rents on that's it. If you can get that to line up and that alone, you will continue you will see that compound increase we were talking about. You may have to nurse that that investment along for the first couple of years. But then you're going to get that compound set and forget it kind of growth. And that's where I tell people it's going to teach you to be a real estate investor now. The people that are not real estate investors, they're out we're not gonna have to deal with them anymore. You're not gonna have to fight with the masses of people try To get in on that one deal and bidding at too high, what you're going to have is people gonna be very, very discerning, and you're become a smarter person as a result.   Michael: Yeah, I think it makes a lot of sense. And I was just going to ask you, but I think you kind of beat me to it, do you think we're going to see the investment investor pool thin out, because folks are looking at deals and saying, the numbers don't work, I can't invest in this, or they bought deals two months ago, and are now getting burned by it?   Aaron: Yeah, I think we're going to see people get out of it. And we're gonna have some of the true investors be able to capitalize on it, that people understand what they're getting into, they're gonna jump in there, and they're gonna be able to weather this properly. Because it's about the it's about the real estate itself. It's not about the loan, it never was about the loan, you know, we had the loan was a way of getting a lot of people involved. And probably a lot of people shouldn't have been involved with, they got involved anyway, right. And so they're still going to do well, because what's really cool about that, if you got that in that loan, that 3%, or 4%, or 5%, loan, that is an, that's an asset in itself. That's a massive asset. In fact, any loan for 30 years is a massive asset. But that's even even bigger assets. So now you have a tradable commodity, if you will, because now it's like hey, I can I can hold this house, and I can literally kind of sell this into with a with an owner financing kind of deal or something to that effect.   Now how that will play out, don't say Aaron Chapman said it's okay to do this. You got to check with your lender, make sure you're not putting yourself in a bad spot, talk to an attorney, all that kind of thing. There's instruments to make that happen. I'm not your guy to guide you through that. I'm just saying that that's a valuable thing to lock money up in single digits. Think about that single digits, because if you go back to 1971, all the way till 2009, the average interest rate for somebody living in a house was 9.1%. If you take that 1971 Till now, the average interest rate was 7.76%. For somebody living in the house, that was not real estate investors. The only reason it went down from 9.1 to 7.76. Is because of quantitative easing. When did quantitative easing start, Michael?   Michael: Man, I didn't know I thought it was just gonna be an interview. I didn't know it was gonna be a frickin test. When did it start?   Aaron: I'd love to quiz everybody. Because here's why your mind starts thinking and now you're gonna remember the answer. We're gonna give it to you.   Michael: That's true.   Aaron: Hopefully, because I'm gonna ask you next time. So quantitative easing didn't start till after the crash crash happened in 2008 2008. We'll talk about that in our next time we come together because that right there had to teach resiliency to a lot of people. Well, then the government decided, Okay, we're gonna start this quantitative easing thing, we're gonna take US Treasury capital flowing through the Fed. And we're going to start buying into mortgage backed securities and into treasuries in was a corporate bonds and all of these other things. And as a result to doing that started January 1, 2009, till the end of March 2010, the Fed dumped $1.25 trillion into the market, just in that short window of time to bring interest rates down and start getting the economy going again. But now, they couldn't stop it, and they kept it going and kept going kept going, then you get to the pandemic of 2020. Now, we just talked about 1.25 trillion between March January 2009, to end of March 2010. Now you get to March 20, 2020. From March 20 to march 30. They dumped in another trillion in 10 days to basically bring the market off of where it was because the market crashed. Right. We had a massive meltdown in the in stocks.   What happens? What happens if people have more? Have stocks on margin when stocks dropped that far?   Michael: Oh big problem.   Aaron: Yeah, massive, I've got a margin call, right? Well, banks don't take our money that we deposit and just stick it in the vault, right? They invest it places, they need to make money on that money, they're gonna pay us our little pittance of whatever, right? They're gonna continue to make money on it? Well, a lot of times, they're gonna have that money into the markets and stocks and other equities. And as a result of that, they may have no margin, they did have no margin, they gotta pay a margin call. They can't just go back to the coffers. Because the the vaults empty, they have it all on investment. So they have to sell assets, what assets did they sell, they sold mortgage backed securities. Interest rates spiked during that window of time. It was it was amazing how much they spiked. The fact got to the point, I couldn't lock rates now. Now and again, the rates will be published might have five people on my team all ready to go. And I just kept refreshing the rates all day. As soon as there's ready to go, we could we'd lock 50 loans at a time. And they were ugly rates, but people needed to lock.   And so we had this message that we're going to continue to keep business flowing during that window of time. But then they got that trillion dollars dumped in there, they got seeing semi stable, they're dumping 30 to $40 billion a month in the market, sometimes more hundreds of billions of dollars a month in the market, trying to keep this money flowing. And that's how we got our interest rates down into the threes and fours.   So because of that, all that capital going in there, we had this this run on lower interest rates. So from January 2009. Up until just this last year, we had all this capital dumped into the keep the rate so that's what gave our average that a little bit lower point. But you know, some people are saying well, can we just get an ARM and wait for the rates to go back down? What makes you think they're going back down? The only time they went down from that average of 9.1 was when they dumped eight Point $9 trillion into the markets? Are they doing that again? I think they've learned their lesson not to do that. Michael: Yeah.   Aaron: So if that's the case, and let's just say that's the case, let's say, somebody's actually going to learn from history, and we're not going to erase history, we're not going to call it you know, whatever, whatever make up whatever we want to make up about it and say we're triggered by it, we're actually gonna remember this move was a bad move. I don't see interest rates getting back anything lower than what we have right now, this might be the lowest interest rates that we see in our lifetimes.   Michael: Interesting. Over the last 30-40 years, when we've seen interest rates spike like they have hasn't there been a pretty sharp decline after the fact?   Aaron: We have seen that a lot in our lifetime, just because of what I was just talking about with the Fed manipulating it. But prior to that, we didn't see that very much. We saw interest rates, hovering in fact, I got in the industry in 1997, the interest rates are in the sevens. And then that was for owner occupied. And then when they went down, like 6.875, I got this refi boom going on. In fact, you know, I was working two jobs, I was running heavy equipment in the morning, from 3am till noon, they go to the office from two till 10pm, I sleep four hours a day, for for a full year. But for the until those rates dropped below 7%, I was able to replace my income of 50, whatever, thousand a year at the time, and got full time into this industry. Well, as a result of that, you know, we got this 6% thing going on. And it never really got much lower than that we saw a window where the during the mid 2000s, that I was able to get an adjustable rate loan, like a five year ARM don't like 5.75. But that was it. It wasn't until quantitative easing do we start seeing these enormously low rates.   So we're not seeing these massive swings, like we see now, then the swings happen to be because we have a global market that everybody's tapped in, we get to see everything that's going on in real time, all the time. That's one of the really, really bad things of social media in the way our, our our technology is, what it's done for us has brought us to where we see the slightest thing happened. But on the other side of the world, it kills markets overnight. So that's why I see such massive swings. So some people think, well, if it goes down as we come right back up. We don't know that because there's another black swan waiting right around the corner. Why do we know that because we know what's going to happen in the other country when it happens.   It'd  be one thing we were just a an economy to ourselves. And it was not such a big big market mover. Now we're a global economy. And we have we have crazy people out there running countries, including our own doing stupid things that's causing such a massive swings and so much so much emotion in the market that I can't say it's going to improve. Now it's going to have to I mean, there will be some but to the extent we've seen I don't believe so.   Michael: Yeah. Interesting.   Aaron: Let me just say I pray I'm wrong.   Michael: Yeah. That makes two of us man.   Aaron: You're wrong. We're back in the season. We're good because I'm making another couple million dollars a year.   Michael: I love it. Someone if they didn't have the wisdom of hearing this show five years ago, three years ago, when they got their five, one ARM and now they got two years left on it and they got a 5% They got the ability to lock in a 6% for 30 years say? Or do they roll the dice and let it roll for another two years? See where interest rates land? What are you doing?   Aaron: I think goes back to that are your balls attached situation, just see, see what you're willing to do? Right, you're the ones guy put your head on the pillow at night, you got to be able to understand how you feel about. Me, I love to control things for as long as I can control it. I'll take my lumps. And I'll take that 6% all day long. Because I would much rather allow inflation to erode the dollar over a long period of time. Rather than forcing me in a situation like that. I've had too many people that I've talked to that did the ARM thing in somebody else's request even at my own. I mean, I did the there's something out there right now called the all in one. This is a big deal. Back in the early 2000s. We sold something very, very similar to this. It just wasn't called the all in one.   And when the market freaked out in 2008. And they started freezing these people's credit lines, I got numerous calls saying What did you put me in? Because I didn't know what was going to happen. Now I do know. And everybody says, well, they're not going to do that. What makes you think I'm not going to do that? The banking industry will do whatever the heck they want to do. They'll shut down. They will kill product, they will not honor locks. They'll wipe anything out that makes it work for them on the next day. They don't care about what they committed to today. They care about what it keeps them in existence tomorrow. As a result of that. I know that's what they do. I've seen them do it. I can't in good conscience do anything but tell person Hey, the 30 year fix so far is the only one with a proven track record.   Michael: Yeah, that makes a ton of sense. How did you think about the interest? I know you said it's not all about the interest rate. But let's put that on the shelf for a minute. If someone's got a property that they're not thrilled with its performance, but they've got this outrageously low rate and a 30 year fixed. Do you think time is going to heal that wound or do you think they should maybe look to move into something else at a higher rate, but that they might be a little bit happier with?   Aaron: I think it really, really depends upon the scenario what's making them so unhappy about it, is there a possibility to try to change whatever is making them happy unhappy about that there's something about the property, this specific thing that's creating a difficulty with it, is it just not being rented because of this or because of that, you know, it may be one of those times, we have to spend some time understanding what's happening in the market that's causing that property to be what it is, right? People coming by either I don't want to rent this thing. Because of this, or because of that, it could be a very simple thing. You know, when we own something we don't see with our lens very, very well, we see, hey, this is what the possibility is because we can only see from one angle, but when you get the whole market's angle on a multiple people are willing to come through a look at it, sit them down and ask them, Hey, can you tell me what what about this place? What would have to happen to that make it something so yes, I do want to rent this, or yes, this I can make my home for five years?   Understand that is sometimes you might have to bite the bullet, put a few bucks into it. And next thing, you know, now you have a very low interest rate, which again, that right there is, is is a very, very valuable piece in itself. And then you have whatever changed on this house that now makes it what it needs to be. And its location that might be something's completely, you know, one of these things you can't fix, right? You have to find the one person in the world that wants that and carry a note for them and see if you can swing something like that. But if it's something that's changeable because of aesthetics, or or usability, or it's just whatever that might be, you might have to bite the bullet and fix that one thing.   But investigate it first, before you try and make a very, very big decision. Like leave it as is and suck it up and write it out or dump it and move because I've seen I've got a very good friend of mine, named Joel, he owns a lot of shopping centers. I don't understand shopping centers. This guy's like the walking talking Stephen Hawking of shopping center this guy, just look at it, tell you what's wrong with it, and make it make money overnight. And the guy's amazing at what he's able to do. And because one person can't make it work, you have a guy like Joel come in, he looks at it makes an offer, they sell it cheap. He spends a few bucks. And now that thing's fully rented, and it's worth 10 times what he paid for it. It's just a matter of getting the right perspective. Take the time, understand the market, get the perspective.   Michael: I love that. I love that. Aaron, I want to get you out of here until next time, but in the meantime, where can folks if they didn't catch on the first episode, reach out to learn more about you or get a hold of one of your loans?   Aaron: Just go to aaronchapman.com And if that one doesn't work, go to aaronbchapman.com. Another good place to just Google Aaron Chapman. There's like five of us out there that pop up on Google there's only one bearded redneck lender there is a pastor there's a there's a English soccer player there is a an author and then camera with the other guy is but yeah, there's five and I'm an author as well so you can go to you can look me up on Amazon that kind of stuff. I'm working on another book got a few things cooking.   Michael: Right on man love it. Well hey, this was awesome as always and until next time, looking forward to it be well.   Aaron: Thanks, buddy. Good to see you again.   Michael: Likewise.    Alright everyone that was our episode A big thank you to Aaron for coming on again dropping some fantastic wisdom, insights and knowledge. As always, if you enjoyed the episode, feel free to leave us a rating or review and we look forward to seeing the next one. Happy investing

Aaron Chapman is a veteran in the finance industry with 25 years of experience helping clients better understand, source, and finance cash-flow positive investment properties. He advises over 100 clients a month in the acquisition and financing of their investment properties and primary residences. Aaron is ranked in the top 1% of mortgage loan processors in the country, in an industry of over 300,000 licensed loan originators, closing in excess of 100 transactions per month. In today's episode Aaron gives us his take on the current interest rate and inflationary environment, where he sees things going, and his thoughts on what investors should be doing in a time like this. Episode link: https://www.aaronbchapman.com/ https://apps.apple.com/uy/app/qjo-investment-tool/id1533823468 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor Podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the remote real estate investor. I'm Michael Albaum and today I'm joined by Aaron Chapman, who's a lender, investor, bearded man and entrepreneur as well as an author and he's going to be talking to us about inflation and using long term debt as your battle ax against it. So let's get into it.   Aaron Chapman, what's going on, man? Thanks for taking the time to come hang out with me. I appreciate it.   Aaron: What's happening brother thanks for the invite. I think I kind of pushed my way in a little bit but I just   Michael: Invite, forced invite.   Aaron: Let's put that way.   Michael: Ya, no happy to happy to and it's been a minute since since we saw each other over think Realty in Tampa. How you bee?   Aaron: Been very good man. Think Realty in Tampa seems like so long ago, because I've been to Tampa two times since then. Miami a couple of times. Literally, I don't get to see very much of anything. But seats 3d of American Airlines is what it seems like.   Michael: And that's pretty close up to the front of that first class?   Aaron: It's always first it's what I've discovered in my career, it used to be you know, you got to you got to hang on to your capital is really kind of dumb to spend money unnecessarily. But then I got to thinking. So like I said first a few times, and I sat next to some amazing people. So it's not about the seat. It's about the person next to you. And more often than not, it's often enough, let's put that I sat next to some people, just some amazing conversations that end up doing business with some people when they didn't want to talk to me. And then it wasn't long, they were talking to me. And then they're giving me pointers, one guy who was like one of the executives over at the Business Journal. And I was finally DC next year, he's telling me all the cool places to go in DC. And now I've seen him pop up online. And I'll check in with him to see what's going on just a really cool guy that I recognized him by couldn't place who he was, until I got in talking. And then I found figured out who he was. So it's just, that's the kind of person that I ended up sitting with. And it's more the conversation than anything.   Michael: What a different way of thinking about things like so many people see the price of the ticket. They're like, Oh, I don't want to pay that or like the experience. But you're you're approaching with a whole different lens. I love it, man.   Aaron: Well, it's kind of how I approach going out for an expensive dinner paying a big tip, things like that. It's like, we know what's happening with the dollar right? It's not doing a whole lot sitting in our bank account. And believe me, I agree with holding on to cash, I believe I agree with investing wisely. But I also agree with taking that capital and putting it someplace where you're building relationships and building up somebody else. And so there's times when somebody does a great job, man throwing $100 tip on a on $100 Dinner is not an uncommon thing in my world. And that's not me beating my chest. It's that person earned it and what's that 100 bucks going to do in my world? My wife will ---- it away on somebody Amazon, right? So it's really not going to, it's not going to enhance our lives that much. But you'd be amazed at what it does to that person. And you walk back in there to that place you think that person forgot you? Well, they definitely don't forget me with the braids.   Michael: I was gonna say yeah, with a look like that. Yeah,   Aaron: Yeah, that's remembered. But then they remember that. And then it's there's this, I talked about the economy of gratitude a lot, and that autonomy kicks in. And they will do more and go above and beyond. Of course, now you're kind of stuck to $100   Michael: That's the minimum, yeah, the bar has been set.   Aaron: So you got to be careful of how often you do go back or when you go back, you'd be amazed at the interaction you have with this person. It's a life changing experience. Because our like our lives are changed by the people that we interact with. And not necessarily what what we what we grow in it or what we amass in it is the relationships that we have.   Michael: I love it. I love it. Let's give people the quick and dirty of who you are and where you come from and what is it you're doing in real estate and then we'll jump into kind of the meat what I wanted to cover today.   Aaron: Very cool. So the quick and dirty is not so quick and but it's kind of dirty. So the interesting thing I was sitting in an event happen to be in Tampa, we were just talking about Tampa. This was years ago and one of the main speakers there talked about the lending industry that being a loan officer and he said the reason people become a loan officers because they can't get a job doing anything else. And it rang really, really true to me because that was my story. You go back to you know, I grew up on a cattle ranch in high school and from there to work in the oil fields in Wyoming drove truck ran heavy equipment, found myself in the mines in northern New Mexico in the late 90s. And they started to shut down the project and so I got laid off and I thought no big deal. I'll find a job easy and I had a wife and kid back in Arizona and I was up in northern New Mexico I go back and forth, went back and I couldn't find a job for nothing. I tried like crazy everything I applied for I got this this statement of being overqualified. I kept getting turned down.   And things were getting dire at that point, I needed to make something happen. And as I left to go apply for a $10 an hour truck driving job to me, it was like the worst thing I could possibly do, but it was gonna put, bring money so I can at least feed my family. My wife as I left gave me a coupon for free diapers. So I drove over to this place, I applied the general manager turned me down again said I was overqualified. So I'm 23 years old, I feel broken, and walking down to my truck up coming from the type one of those job site type trailers go down the stairs. Get on my truck, said a quick prayer. I was really just I was trying to hold back the tears started up my truck and I started pointing myself to this grocery store. Well, as I'm headed to the grocery store, my gas light comes on in my truck. I had never ran that thing long enough to find out how long ago on a gas light. So I quickly found a store that had a groat a gas station on the corner. I pulled up that pump, got my debit card out, I said a quick prayer, prayer, I swiped it and I got declined.   So I rifle through my truck looking for a lost dollar, found a few coins, I closed it lock the door, I started walking that grocery store pocket parking lot. And as I'm looking around, you know, I would find something on the ground look, make sure nobody's looking, reach out quickly pick it up, put in my pocket. This went on for what seemed like a couple hours. And then I got enough change that I thought would give me a couple gallons of gas. Luckily, it was 97 were Yeah, 1997 I think gallon, a gallon, a gallon gas, like 89 cents. So I went and exchanged my change, which was a couple hours of my life for two gallons of gas, went into the grocery store with my coupon, found those diapers hurried up and went to the checkout counter. I don't know if you've ever been this position, but nothing feels worse to, in my opinion, to have one item and your coupon for that one item. Right. And now it was just another just another crappy feeling to the day. So I got my stuff put in the bag, and I'm screaming either as fast as I can. And somebody recognized me.   He called me over and I didn't want to talk to anybody. But he asked me how things were. And I told him what I just told you. He goes, Let's go to dinner. I'm like, Dude, I can't afford dinner. And I hated saying that. He was no, no, no, I got a gift certificate to Red Lobster. I'll take you your wife out. So we went to Red Lobster a couple of nights later. And that's where he told me about the mortgage industry. He explained to me what happened in it? And I'm like, Dude, how can I do this? I know nothing about that. I think there's numbers involved, and I cheated my butt off to get that C in high school. If it wasn't for the fact that could pick a lock, I would not have graduated.   So I went in, I cut a foot off of my hair, I shaved. My mom bought me some business likes clothes, and I wouldn't do an interview. And they started me as a telemarketer in 1997. So that's how I got going. So going from a telemarketer to working actually some of my own leads to building this up and going through the crash and all kinds of stuff. And there's a bunch of stories in there. To now, you know, I was just called by an outfit by modex. And they recognize me I think is the number six guy in the United States. For transactions closed. I was number one guy in Arizona, I didn't even realize that I didn't really pay attention to the statistics, there's 1.6 million people in United States that do what I do. And from what I can tell, I'm ranked number six for how many deals I closed last year. So it's kind of an interesting dynamic to consider that swing.   Michael: Yeah, I'll say, Well, you know, congratulations on how you've come clearly a long way. That's really exciting.   Aaron: Well, thank you. And there is campfire story after a campfire story of of the different things we'll probably talk about this in the series of stuff we talking about the beatings that a person takes to become successful. And you don't what's really interesting is people say, How do you get there? How do you how do you achieve success? Mike, I'll let you know when I do. Because you just don't feel like it all the time. It's a consistent grind. You're always trying to be ahead of the head of everybody else. And once you achieve something, it's way harder to keep it.   Michael: Yeah, I think people think it's like this just flat curve, you know, flat line once you've achieved something, but really, it's very sinusoidal. It's up and down and valleys and troughs. And you're like, man, some days suck. And some days are great, but the like, I think it's about the end destination right? Where you're trying to get to   Aaron: 100%. So I look at it like Everest, right? You get up there. And I don't know, if you've ever really paid attention. Maybe you've climbed the same for all I know, but how long a person sits on top of Everest, it's a matter of minutes, and they're getting back down because that sucker will kill you. You know, and so it's it's just like any other achievement, we get the second you sit back and you relax and put your feet up. It's gonna kill you. You need to keep moving, you got to get down, you got to get to the next Everest. And it can be debilitating to think that we're constantly hunting the next goal. The next goal, the next goal, instead of just finding the happiness, you know, and you our viewers know who Larry Yatch is he says, you know, success is a optimized daily experience consistently achievable, right, something to that effect there are and so and it's sustainable over time. Yeah. I gotta find that optimized daily experience. Here's what I got to do. I don't think I've achieved finding that yet.   Michael: I'm right there with you, man. We're in the hunt together.   Aaron: Yes. And we'll keep hunting and maybe we'll keep communicating about one of these days. You're like, Dude, I found it.   Michael: Yes. let me show you. So, let's shift gears here a little bit and talk about a topic that I think is on everyone's mind. And that's inflation. And you're working in the mortgage industry for a long time, you've seen a lot of ups and downs, sideways lifts, REITs give us a little bit of insight into why is inflation being talked about so much? And what do we as investors need to be cognizant of, and either using it or being abused by it.   Aaron: So inflation is definitely an interesting animal. And it's talked about a lot, everybody is talking about this constantly. And what I point a lot of people to just even understand inflation is go to a place called Shadowstats.com. When you go to shadow stats, you're gonna go to, and I always encourage everybody to get log into it get to pay for the 100 bucks for the year, whatever, you're gonna go over to alternate data, you're gonna scroll down to inflation, you're going to find this chart, and what this chart has, it's going to be going to show you from 19, from the early 1980s, up until now, and it's going to have two different lines, a blue line and a red line. And they're going to be, they're going to be diverging at some point, they're gonna stay together at one point, they're gonna go down to when they show inflation started work its way down, and then they start to kind of break apart. And what you're watching there is the federal funds rate itself, or not the federal funds rate, but the CPI that the Fed tends to track, and it's what they have changed the index to contain. Right?   So you're familiar with the Dow and the NYSC. And the and the NASDAQ, right? s&p, right, the s&p, none of them have the exact same value Correct. They're all different because they have things in them. Well, if you didn't get into, if you look at the the CPI, the Consumer Price Index, they will stack certain things in there that they can manipulate with monetary policy. And that's what they'll go off of. And you can see in this chart, that it's going to show that that that red line is skipping across the bottom right around their 2% Mark quite a bit, and then it spikes up to about eight and a half 9%, which is where we've been at recently. But if you look at the real rate of inflation, which is the shadow statline, it's going to be pushing up closer to 17. Why is that?   Well, because back in the 80s, they took everything into account, what is the person really literally spending money on to on their day to day life, and they're going to track it so they can see how much their life is changing year over year as far as their expenses. But then they wait a minute, it's getting out of hand, because what we do to pass the law for will increase their their benefits or their social security and the retirement benefits to the rate of inflation. Well, we need to keep this to 2%. Right. So we don't want to raise that really, really quick. That's where you start seeing this particular manipulation? Well, if we're looking at 17%, people should really, really, really be concerned about what's happening with their dollar, because what's the dollar value doing with inflation?   Michael: Decreasing.   Aaron: Decreasing, right? It doesn't spend as far. So what I like to do is talk about this in the sense that it's always been that way. And when we're talking about real estate investing, you know, the, in my opinion, where a person does best when it comes to real estate investing is leveraging the property, you know, the way to leverage the properties, get some sort of financing instrument on it, if you're gonna get financing on it, you want to get it for as long as you possibly can. Because at that point, the longer you take a pay, the less you actually pay, because the dollar you're paying it with is worth less and less and less every year.   So I know in today's higher rate environment, we're talking about inflation is pushing interest rates up. And if you look back at the history of inflation, last time, we saw inflation of this, this magnitude, you'll see in some charts that will show the history of inflation, and how it's somewhere right around 20%. But then you can see the history of the interest rates and the interest rates were closer to the same 17-18% for a 30 year fixed. Well, if we're where we are, as far as inflation is concerned, actually inflation was right around this 13 to 15%, where we are today. And then we're talking to interest rates at 19%. Well, the federal funds rate achieved over 20% at that timeframe. We're not there right now. So explain to people is the gap that we have there as a gift.   Right now we're seeing somewhere in the sevens for 30 year fixed interest rates. And that's, you know, we're talking about this in October, the 2022. Do I expect it to get higher that I really do because of all the uncertainty within the market. But if you've locked it in and that interest rate for 30 years, and inflation stays consistently higher than that, you're never even going to pay back what you borrowed. In fact, I have an app to prove that, you know, people want to go to just go to my website, shoot me a message, I'll get you the app. And you can download this thing on your phone. And you can calculate your amortization table and then see what inflation did and how you paid less than what you borrowed over a 30 year window even though you're paying higher interest in what you hoped.   Michael: We have to come back to that point because that's so counterintuitive and the exact opposite of what everyone tells you. When you look at the sum total you paid over a mortgage. But before we get there, I want to ask is it appropriate to look purely at The rate of inflation against interest rates? Or do we also have to take into account just the pure purchase price that we're seeing today? Or is it become irrelevant?   Aaron: I think they're all a factor. Because sometimes when you're let's look back at interest rates go backwards a year, right? Interest rates were in the threes and fours were people buying investment properties. Unbelievable, we'd never actually seen that, and never thought that I would ever see that. But what's happened to the prices of houses, what what you're doing is you're opening up where they were, they say the affordability index had a right how that worked in and more people could afford houses. Well, the more people that could afford houses, the more people bidding on those houses, right, the more of those houses got bid up beyond their real value, price does not equal value in an environment like that people are just willing to pay an enormous amount of money.   Well, because of that, all that affordability, it was so so called built into it because of lower interest rate was getting eroded by the fact that pushing the price so high. So now we're at this really interesting point where the prices are still fairly high compared to, to the, I'd say the real value of real estate because of what people are willing to pay. But our interest rates have increased to not quite to the highest it could and it's really not as high as the national as the average has been since 1971. But it's going to slow that down, I think an equilibrium equilibrium is going to kick in here at some point. And you might see those prices start to decrease a bit. And then of course, it's going to make a little bit more sense. So there's going to be people sitting on the side and waiting and watching. But then again, are they going to increase or decrease that much this begs the other question, were five point I think 5.2 million units short to fulfill the needs of that for housing United States. And then you're we're already short on that. We don't have as many building permits happening. We don't have the supply chain we used to, and now we have how many houses just got wiped out in Florida, you start compounding all this out, man. I'm telling people if you're in a contract, you probably want to stay in that thing. Because if you're backing out of a contract, because you don't like the price, you don't like the rates. Expect, just imagine what you're gonna like and a year from now, I don't think it's gonna get prettier.   Michael: Yeah. Yeah, that's really interesting perspective. Let's come back to what you said before about, when you look at the total amount you've paid. Over time, it actually ends up being less than the original amount you borrowed because of inflation. Walk us through that again,   Aaron: Gladly. And you're probably have to say that a lot to our conversation. Let's go back. You start with a topic. And now I go 100 different ways, because my mind is one, obviously, beautiful mind. There's a dude in here.. just just see it. So you've got. So when you think about our inflation, right, now, let's just take the BS metric that the feds throwing out there eight point, I think we're at 8.63%, if I remember correctly, right. So 8.3%, that means the dollar is losing 8.3% of its value every year. So if you take 8.3%, I'm gonna get my calculator out here on my phone. And we're going to divide that by 12. That means we're losing .691 percent of the value every single month. Is that not alarming .619% of the value every single month. So that's pretty well. So what I have here, and I'm just going to launch my launch my my app here, and anybody can get it is to QJO investment tool, you can go right to the app store and get the QJO investment tool. They may bleep me out here, guys, but it stands for the quit ------- off investment tool, because I think that's all a person does when they're so worried about interest rates.    So if we're doing say, a 20%, down on a $200,000 property, and you're putting, let's say it's a seven half percent interest rate, you're gonna have a payment of a principal and interest of $1,118.74. Not real bad, right? But now you're gonna pay over that period of time on that interest, you're gonna pay $402,747.56, right? 402K. You got a $200,000 house, you put 20% down, that's $160,000 loan. Right? And then you're going to pay $400,000 In principal and interest people like there's no way in hell, I'm going to do that. But when you recalculate, every time you make a payment, that payment is worth what did we say? Point six 9%? Less? So I'll write $6.90 per dollar. Last, is that right? Or is that? No, that's not quite right. It's eight, it'd be eight cents per dollar per year. So it's point 06 cents per mile. Right? Right. But when you per dollar when you recalculate that every time for 360 months, the actual inflation adjusted payment over 360 months is $152,466. That's less than what you borrowed and that's based on 8% inflation, just 8%   Because you think about that the dollar you're borrowing is seven and a half percent. You're paying a Back at an 8% decline, right now it's bigger than it's 8.3 8.4%. In fact, if you want to look at shadow stats, if you look all the way back, when you look how they track it, it's been over 8% since 2012. So in reality, you're never paying back what you borrowed because you're paying less them what they're getting in the form of interest. You're paying, you're literally getting paid to hold their money. And what's really, really cool about this is where it gets awesome. Because of inflation, we get to raise rents, how much are rents going up year over year right now in the United States?   Michael: Like seven to 10%.   Aaron: Last time I saw it was 12. Right? When you average it all out? Dang. Yeah. To a fact,   Michael: I haven't looked for a while. Clearly,   Aaron: Property manager in Kansas City. I had him check it out. They ran their books, they figured they said there was like 14.2, we looked at the last year, Mike, wow, this is crazy. I'm looking at what my kids are paying right there. They're in these apartments, and they're bumping up two to $300 every year. To me, it's kind of immoral. Now I get there's costs go up, taxes go up, upkeep goes up, because you got you got supply chain issues, right? You've got workers, the man ain't fixing anything over there really fast. So it's not like I think that they're, they're hurting themselves. From what I'm hearing, right? They're staying in my house now. And again, because of the darn AC has out for a couple of days.   Those kinds of things. So when you think about that, what's going on in that type of environment, they're raising it like that? Well, let's see what I always tell people, we get to raise rents, even at just 5%. That's every time you raise rents, that's a compound on the previous year's rent, and then you compound it again and compounded again. So as you're compounding the increase in your income, you're compounding the decrease in what the lender makes, because they don't get to raise the payment because of inflation.   So eventually, it may suck for the first 2-3-4 years because of your start rate. And because of all that, and you know, people always like to use cash on cash return is their metric. I think it's a BS metric. Guys, that's not that's not ratio, focus. There's other places to focus, we'll talk about it. But when you start adding that up, and really, really working out the math on it over time, you start killing it at about years 5-6-7 And just compounds huge. Those who don't want to be able to hang for the first three to four years of the ones going to be off on the sidelines. And they're the ones going to say that real estate's not the place to be because of interest rates will they're the they're the the people in the crowd. They're the ones that are the spectators, that people on the field, know where it's supposed to be at and they understand it. And those are the ones going to take opportunity.   Michael: Love it. Aaron, let me ask you this, the Fed has tried to maintain inflation at around two to 3% annually. Right now we're up in that eight plus range. And so we did the math behind if inflation stays there for the duration of the 30 years that you're holding that loan. But if they get things under control, and it drops back down at 3%. I mean, did all of that benefit just get eroded?   Aaron: Well, we also have to look at what they're dropping by 3% They're dropping their index by 3%. And that's dropping the real rate of inflation by India by 3%. So I don't see that as being eroded because you look back at you know, go back to shadow stats, start looking at what they were they calculate real rate of inflation. We've been over 8% Since what since 2012. You have a consistent increase in inflation, it's going consistently up cost of living has not gotten cheaper. Now, I don't know when you were born, but in 19 in the 1980s I could jump on my, it was the late 80s I could jump on my skateboard my mom gave me $1 Literally $1 Bill, I could go down to the corner store, get a gallon of milk, buy some candy for me and bring change to her. how possible is that right now?   Michael: Um no, can't even buy the candy for the dollar right now? No, I just bought a KitKat for a buck. 75 Check it out. That's ridiculous. Dude, it's this dark chocolate and mint. KitKat I'm like such a sucker for dark chocolate. It was amazing. But yeah, Buck 75.   Aaron: Well, it's probably probably an extra 10 cents for the blend, right? But, but again, kefir dollar 75. So that's what I'm saying a gallon of milk and I could get into it. It wasn't like the big jumbo candy bar, nut it was something. And I brought that change. But that was possible in like 1986, I think is when that was okay. It feels like a little while ago, but it shouldn't have changed that much. But it did. So if you look back at that's not a 2% inflation increase. That's common. That's some serious increase, especially the price of milk today. Right. So we started looking at that the Fed has never really kept it under 2% control.   The other thing is, is our inflation today, I don't know if we're really know the full outcome of what's going to happen with what they did with those printed dollars. They have put $8.9 trillion into the markets that they never were in before. If you look at their holdings with respect to mortgage backed securities and treasuries, $8.9 trillion. Then we have they backed off by point zero 2 trillion. And now we have interest rates more than double what happens when they back off by half. Right? So when you start thinking about what they did, and what we're that we're the the amount of money that's in circulation, there's got to be some really massive moves here to get this under control and One of the things that really kind of stands out to me and if you heard this conversation were Powell, the chairman of the Fed was speaking. One of the things he said, I don't remember the exact words. He says one thing we've learned about inflation is we know very little about inflation. That's alarming.   Michael: Yeah, big time.   Aaron: And that was said within the last 45 days, I think 45 to 60 days. So what I am taking by that is inflation. There's this big loaded oil tanker, right, and it's headed towards ground right now. And they didn't get off the throttle early enough with all the stuff they're doing. Now. They're dropping all these anchors, they're hooking up tugboats. They're doing everything think everything they can, but it's too, it's too late. It's going to run aground. And what that happens when it runs aground, I don't know. But it's going to be pretty ugly. And so that's why I tell everybody I'm dealing with, you need to control what you can control for as long as you can control it. And the one thing we can control right now is a 30 year fixed loan. An ARM, Are these things they call, what did they call this thing be all in one loans, it's an adjustable rate, just a single adjustable rate, kind of a credit line? Yeah, great concept. But we have no idea how it's going to react in an environment like this. So for me, it's like whatever you can do to maintain it and keep control of it. And then when you know, we know for a fact that sense right now to close on this 30 year fixed and pay the points and get the rate.   But what I do know is you're not going to pay it back, you're gonna pay less than what you borrowed. When you go with what the bank say, let's go with a five year or seven year, you have to do something with that loan, at some point. What did you just become a new client for the banks, that's what they want. That's what they say in the background, sell the arm because you're insuring your business for the future, the business for who the loan originator, not the person buying houses to rent out and to maintain a business, you are now become somebody's servant, you become a business, somebody else's future, you're a commodity. And I try and tell her but don't become somebody else's commodity control it for as long as you can. Only pull refinances, you can pull the money back out and reinvest into other things. Other than that, let that sucker sit there as long as you can run that out and let somebody else pay the freight.   Michael: Yeah, that makes a ton of sense. Aaron, I know you deal exclusively in residential mortgages. But can you give any insight into why the commercial markets only have 5- 7-10 year options on their mortgages, as opposed to the 30? year fixed? I mean, I have seen a 30 year fixed, but it's not the Colt 45, like it is in the residential space?   Aaron: Yes, you're right. It's it's very, very uncommon. Well, because most your commercial mortgages have to be made up by by investor capital or by banks, right. And so banks are going to take depositor capital, and they're going to create this or they're going to create their own type of security. And they're going to be able to get investors come into most investors don't want to let their money sit for 30 years. Most people don't know that when you're letting your money sit for 30 years in an inflationary environment, you're not getting your money, right, we all expect a certain rate of return on if you do any sort of hard money lending. Or if you've ever done anything to that effect, or fix and flips, you're going to calculate your return on investment annually. And I searched for a 12 plus. Right. And I don't know if you listen to Warren Buffett, Warren Buffett was talking about where, you know, some lady came to him. And, you know, she was trying to figure out how to how to invest her money, and it was a lot of money to her, but not to him. And he said, we have any credit cards? And she goes well, yeah. And he goes, we'll pay that off first. Because why would I do that? I'm not making any money. He goes, What are you paying your interest? 18 20% Because I can't make 18%. So I was I don't know how to do that. So get rid of the debt, you know, then I can show you how to make at least 12 to 13. So that's what we all are wanting is get that 12 13%.   You're not going to make that in a 30 year fixed, you just aren't. So what we've had we've we've created a way to kind of subsidized by the system. And we've got this Fannie Mae or Freddie Mac. And what they did was they created the mortgage backed securities, luminary did that for anybody who watched the The Big Short. And if you haven't actually watch it. I know this is a family family show. So don't let the kids in there when you watch it, but it explains the history of the mortgage back series security, where it came from. And now what you have is now a tradable piece of paper that people keep just trading around. That's where its value is. Its value is in its trade ability in its liquid tradability as well as the fact that it the performance of the note people making the payments on time. That's what makes that's a valuable piece of paper, not to sit and hold it for 30 years. It's not valuable at all, you're losing money on that paper.   So that's why I think in the commercial world because they have not had this initiative from the from the government say we need to create housing or we need to create people's businesses, right. They didn't have that initiative. They had the initiative when you create housing, when you give people opportunity to live in a home when you give them the best opportunity and mortgage financing. So they created a 30 year fixed and a 30 year fixed has caught hold and become kind of the gold standard is now the the the Qualified Mortgage, if you will, when you get into anything else. So those where you're not really a qualified loan, you don't have safe harbor from the government or do anything outside of that. So that's about my best guess is you can't get anybody to want to put money up for that long for so cheap and lose it, and just and not make a return is really what it boils down to. They probably just rather own the building.   Michael: Yep. Yeah, that makes sense. That makes sense. Aaron, one final question before you before I let you out of here 15 year fixed versus 30 year fixed, you'll often see a pretty big spread on the interest rate. Does it ever make sense?   Aaron: We're not seeing as big a spread now as we used to. But here's where I look, it used to be a bigger spread. It's not real big right now, if there is a spread at all. So and one, two reasons we're not seeing as big a spread as we used to, we have a lot of uncertainty in the labor market right now. And as a result, that uncertainty lenders like I don't know, if I want to saddle somebody with a bigger payment, when they may have a an issue with their income in the near future. And if they do have an issue with their income, what is their ability to pay this higher payment versus a 30 year fixed, so we're gonna price it in a way that kind of leads them back to good old fashioned 30 year fixed, because our value in our portfolio is them being able to make their payment. So then when you do compare them side by side, even if it's a lower payment, you can use my, you can't use my calculator, I don't have that feature in this, we will in a future iteration, by run the numbers, when you're paying off a 15 year fixed, even at a three eighths of a percent lower interest rate or even a half, I have found you actually pay more in actual dollars. The reason being you're paying those dollars while they're worth more, rather than stretching out over time when they're worth less, because in 15 years, they're going to be worth a hell of a lot less than they are within the first 15 years.   So those who pay that off quick like that, yeah, feels good. You're getting equity in your house and all that kind of stuff. I'm of the mindset pay the 30 year fixed stretch as far as I can take the extra money I would have paid for 15 and reinvested somewhere else. And as a result of being able to do that multiple different properties and compound it that way I'll generate a lot more wealth. Because when you have when you have a home and I tell people if you're gonna buy real estate investments and get those those single families, duplex, triplex, fourplex, you have two jobs, right, you have to pick the right people to work with on the real estate side. And on the lending side to understand what you're trying to do and will guide you not try and lead you to make them money but lead you to make you money, and then pick the right asset to buy the stays reasonably rent it for the entire time you own it, you can raise rents, if you have that, who pays off the mortgage?   Michael: The tenants,   Aaron: the tenant, so if the tenant pays it off, and it's easy to do the math, guys just take 100,000, let's say it's 100? Well, you have to say it's an 80,000, or only about 100,000, our house with 20%, down, you got an $80,000 loan, you divide that up by 30, which is how many years are taken to pay it off, you'll find that it pays off. They're all they're basically giving you $2,666.67 per year, they're giving that to you, right, and that's what you're paying off the mortgage with? Well, you divide that into your investment, which is the money you invested 20,000 plus a 6000 in closing costs as 26,000 your investments grown by 10.25%, every year, do the math, you figure it out yourself. If they're paying it off, you did your job. And that's all you made was done paying off the loan, you made no more cash flow, you put no more out of your pocket, that's 10.25%, predictable, you still have the tax benefits, you still have the appreciation on the home.   So that's before all, all cash flow. So what I tell everybody is let that drag out, it doesn't matter what you do, if you do it on a 15 year note, you're more than likely have to go to your pocket, you're more than likely have to try and maintain that in other ways. And if you're out of a tenant for a month or two, that's really going to hurt your pocket, stretch that thing out. If you really feel like you want to get it paid off 10 years you can all in 15 years, you can always pay a 30 like a 15 You can never pay a 15 like a 30.   Michael: Yeah, it's very I always tell people to there you have the optionality with 30 year and that you don't have the 15. Arron: Options or everything. You know, that's all people want is to be able to make a decision for themselves. But when you pitch and you back yourself in the corner, and you're not allowed to decide for yourself, that's when you're frustrated, that's when you get angry, leave yourself out. It's a good business move to leave yourself out. The other thing of it is going back to the to the arms these other stuff, man, we're going off of hope. And hope is not a good business strategy. You need to go off of what you know and stick with what you know and control for long as you possibly can.   Michael: Love it. And this is an awesome place to put us pause until our next conversation. Until then, where can people find out more about you reach out to you if they have questions or want to reach out to you for your services?   Aaron: Best Places go to AaronChapman.com If you can't find me there because sometimes there are some some browsers don't like it you have to type in Aaron B chapman.com. Just type in Aaron Chapman a Google if you find a bearded redneck lender you found him.   Michael: Right on. Right on. Well, hey, thanks a lot, man for hanging out with me and walking us through this really kind of tumultuous time appreciate you. And we'll definitely be chatting again soon.   Aaron: It was my pleasure brother. And again, thanks for letting me under to poke some holes in in people's heads out there.   Michael: All right, everyone. That was our episode A big thank you to Aaron for coming on and dropping some really interesting Insights for us on where we're headed in the market. As always, if you enjoyed the episode, feel free to leave us a rating or review and we look forward to seeing the next one. Happy investing

Mr. Fernandez is President and Chief Executive Officer of 1031 Crowdfunding. Before founding the Company, he was Senior Vice President of Healthcare Real Estate Group in Irvine, California. Since January 2001, Mr. Fernandez has been responsible for researching and compiling accurately verifiable documentation across various industries, including assembling compelling content for marketing materials related to the purchase and acquisition of various real estate holdings. He has over 20 years of inside and outside sales experience. He is personally involved in raising over $800 million of equity from individual and institutional investors through private and public real estate offerings. He hired and trained a national internal wholesaler and external wholesaler sales force. In this episode, he shares how he interprets the current state of the economy and the real estate market; and how his company, 1031 Crowdfunding, creates opportunities to take advantage of during times of uncertainty. Episode Link: https://www.1031crowdfunding.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Ed Fernandez, President and CEO of 1031 Crowdfunding and he's going to be talking to us today about the state of the economy, the market, and his company, 1031 Crowdfunding, and how we all can take advantage of crowdfunding 1031 exchanges. So let's get into it.   Ed what's going on, man, thanks so much for coming on and hanging out with me today. I appreciate it.   Ed: No problem. Michael, thank you so much for having me.   Michael: No, it's really, really my pleasure, I am super excited to chat with you, because you've got a really cool company doing some pretty cool things. So I know a little bit about it but for all of our listeners who aren't familiar with 1031 Crowdfunding give us a little bit of background, what is it that you all are doing?   Ed: Sure, so what we're doing is we're taking real estate, packaging it up and selling it to investors in little pieces. For those investors that are either tired of the tenants, the toilets in the trash, or they run out of this 45 day Id period that you have to actually do for the IRS and so if you're looking for institutional real estate, but you really don't want to go running around trying to find your own property in this limited period of time, you can come to 1031 Crowdfunding, where we have a slew of institutional property for those investors who are looking to be passive, and defer their taxes through a 1031 exchange.   Michael: Man, I love it, we are definitely going to come dig deeper into that because I was under the assumption that you couldn't turn 1031 into a passive investment. So we've got a lot to talk about. But before we get there, I would love if you could give us a little bit of insight into where you see us currently in today's housing market with all the stuff we got going on. We're recording this towards the latter half of September and 2022. What's going on man?   Ed: Well, as you know, yesterday, the Feds hiked rates again to another 75 basis points and so what's so what they're trying to do, obviously, and it's currently not working, by the way, they're trying to slow down in the housing market. But with money continuing to flood the economy, real estate prices are still exceeding and going up and people can afford real estate or housing, because interest rates are going up. So we're in a weird market today, I can say we can go back to 1991- 1992 and kind of look at that market, very similar type of events that are occurring today.   Michael: Okay, and for all of our listeners that weren't plugged in to the to the real estate market back then what was going on back then.   Ed: So back then it was the tech boom, right? Remember the tech bubble that blew up?   Michael: Yeah.   Ed: Prior to that event occurring, interest rates on loans were double digits 12-14% and people were still borrowing and buying houses and getting involved in real estate. But then the bubble burst in the tech industry and all that money flooded into real estate and that's where you had all this appreciation on the real estate side. So in today's market, even though we're not in double digit interest rates, interest rates are higher than what real estate is producing. So we're not as bad as we were. But we're actually pretty close to where, and who knows, we might get there. If the fence keep doing that. So those are the similarities where interest rates exceeded yields on real estate, and real estate just kept going up.   Michael: Yeah, that's so interesting. I mean, I remember hearing about those double digit interest rates, but I also have to think back and you could go park your money in a bank CD and make 6,7,8, 9%, which now is unheard of. So it's, again, we have these super high interest rates, but you can't make a yield, letting your money sit in the bank. It's getting eroded by the high inflation. So it's a really unique time   Ed: And I'm glad you brought that up. You know, what's very interesting is that Treasury bills now you could buy a federal backed treasury bill, fully liquid and get 4% where real estate is producing three and three and a half percent. So you're kind of seeing what's going on in this market.   Michael: Yeah, yeah. Where do you think we're headed? I want you to break out your crystal ball, change the batteries out put fresh ones in there. What's going on in the next two, three years?   Ed: You know, it's, it's, it's a weird market, you know, I'm not gonna get into the political frying pan of who's doing what?   Michael: Yeah…   Ed: Right. But if money continues to flood this economy, I don't know how you put on the brakes on inflation, if that continues to happen. So what has to happen and what I hope happens is that money tightens up so that the feds can kind of slow down and we can get real estate to a level where people can still buy a home, the millennials, those are the first time homebuyers and investors can still get a yield. I don't see that happening at least for another two years. That's where I think we're headed but we'll wait and see.   Michael: Okay and are you thinking that the interest rate hike is going to continue along that two year frame or are we kind of plateauing and we just have to wait a little bit longer for the effects to take hold?   Ed: Well, if Feds continue to raise interest rates, then now we're gonna go into a recession and how do we come out of that? So it's a fine line of how much to push and how much not to push. So we just got to wait and see, look, if I had a crystal ball, and I can tell you exactly what is going on, I would not be on this call. I'd be on my 200 foot yacht in Monaco watching F1. So I'm just letting you know.   Michael: Totally. Yeah, that's a great point to make. All right. Well, I am very curious to see how it all shakes out, I think, as are many others, but and let's transition here and talk about temporary 1031 Crowdfunding.   So someone has an asset to sell. They've, they've seen the skyrocketing appreciation and let's just walk through it like some numbers as an example. Because I find that makes the conversation a bit more concrete. someone's property is worth a million bucks. They got 400,000 and debt on it and they want to go 1031. The thing, so they sell it for 1,000,000 1031 rule says they got to buy something for at least a million, if not more. Where does sentry one crowdfunding come into play here? Does someone have to bring additional 400k that was in debt to the table to invest in have a proper 1031, how does that work?   Ed: No, no, absolutely not. So one of the one of the biggest things of a 1031 exchange is what we call closing risk, right and so you have 45 days to try to find something and then that's not, you know, there's holidays, weekends, that all counts, right? So you're out there, pounding the pavement, trying to find a replacement property within that 45 day period, which makes it very difficult. So in using your example, if an investor had a million dollar sale with $400,000 of debt, they can invest as long as they're an accredited investor and let me define that either an annual income of $200,000 a year for an individual 300,000 per couple or a million dollar net worth excluding the home you live in, you can come to our website and at any given time, we have anywhere between 30 to 50 different options to choose from and these investments are called Delaware statutory Trust, the term we use is DST been around since 2004, directly on the IRS website, and really what the DST is, is very similar to a living or family trust, where there's a trustee managing a trust for the beneficiaries, you as an investor, or a beneficial owner of a trust that's on title real property. So it could be a $50 million apartment building $100 million Amazon distribution center and for as little as $25,000, you can own a piece of this big property, right off all your expenses, like you're doing today, on your schedule II get paid cash flow on a monthly basis every 15th of the month, and when the property is sold, all the investors get 100% of the upside, and you're still in another 1031 exchange. So that's what we do. We're looking for those investors that are looking for passive investments, tired of the tenants and toilets in the trash or running out of time? Those are the ones that give us a call.   Michael: Yeah, no, that makes total sense and it sounds awesome. So if we go back to our example, of the million bucks in the in the 400k in debt, how does it work because like, my understanding is if I'm if I'm selling something for a million, I gotta go replace that with a million dollars of property. So if I go invest with you all, do I have to bring the extra 100,000, how does that work?   Ed: No, here's how it works. I'll give you an analogy. So let's say I'm a trustee. I'm going to go out and buy a $20 million apartment building. I'm going to create this broader. As the trustee, I'm going to the bank. They're approving me as the warm body, and they're underwriting the real estate, let's say they lend me $10 million. I'm the one that signs on the bad boy carve outs, and I'm the one that signs on the loan. So now the profit, I have 10 million of debt, I need another 10 million in cash. So I write a check for 10 million, and I close the property inside that trust. So to make the numbers easy, let's just call it 50%. LTV or loan to value and so let's say you sold your property for a million dollars, and you paid off the loan, and you got $500,000 in cash, and you got to buy something for a million dollars or greater. Well, when you invest in the DST, the DST already has a 50% loan on it and what happens is that it applies that debt to your position, along with the $500,000 of cash that you invest it. Now at closing, you own $1 million of this $20 million property, which allows you to satisfy your exchange.   Michael: No way. Everyone watching this video just watched my brain explode. That is why that is super cool. All right. All right, I dig it and can people invest using an entity? So like, if I have an LLC that I own this property in that I'm now selling? I need to keep that same entity, right as my purchasing as my up leg for the new property can folks use their entities to invest with you all?   Ed: Shoot, Michael, send me your resume I should be hiring you here quickly… Absolutely. So, so yeah. So you have to use the same tax ID number, right. So one of the one of the things we do in process in talking to investors is we ask them, are you owning this as an individual, an LLC, a trust and based on whatever tax ID number they're using on the sale of the property that tax ID number is the purchaser of this DST. So yes, you have to invest the way you sold.   Michael: I love it, I love it and are you I know you said you're passing on cash flows and 100% of the upside, which is insane. We're gonna talk about that in a minute but are you also passing along depreciation to the investors?   Ed: Absolutely. So whatever remaining basis they have from the sale will carry forward to this investment and based on the asset type, if it's an apartment building or residential 27 and a half years, or commercial 39 years, yes, depreciation will carry forward, in addition to that some of the opportunities have what's called a Cost Segregation analysis done on it, where you accelerated depreciation on the personal property in the first year, which is a huge help to shelter cash flow from tax.   Michael: Yeah, I love it, I love it. I've done several of those ad it's just been amazing to see what my taxes look like postclassic.   Ed: Yeah, It's good stuff…   Michael: And just getting back just for a minute on the accredited investor designation, because the question I'm realizing I've had for a while, and we always joke in the podcasts are super self-serving, I get to get educated here along with all of our listeners, we talked about the requirement having 200k as a single or 300k as a couple for the last two years. Is that adjusted gross income or is that net?   Ed: Adjusted.   Michael: Okay adjusted…   Ed: That's adjusted and here's the here's why that's required. It's because the investments in a DST are illiquid, right? So the regulatory environment wants to make sure that if you do have a financial emergency, that you have other funds to go after, and it doesn't have drastically affect your life, because you are in an investment that's illiquid. So that's why the requirements there.   Michael: Yeah, that makes sense and the alternative way to qualify as having a million dollar net worth or more, right…   Ed: Correct, or let's say you're in the financial services industry, and your securities license, and you don't have the net worth or the income, because of your professionalism and the designations that you hold that also actually qualifies as an accredited investor.   Michael: Okay, good to know. I was gonna say, yeah, because it could be kind of interesting. Speaking about cost segregation studies. If someone's got great income, but also has a great tax strategist, their AGI is probably going to be zero, if they know what they're doing and so that they could get discredited that way. But the net worth piece probably comes into play more often than the income piece, I'd imagine.   Ed: It does. Yeah, because we deal our client profile is anywhere between 55 to 90 years old and so they're always saying that they don't have the income, but they definitely have the net worth.   Michael: Yeah. Okay. Why is that? Why is your target demo in that age bracket?   Ed: It's because if you're younger, you know, I'm a control freak, right? I want to control everything. When you're younger, you want to control your destiny. Though most younger real estate investors go by their own deal, they manage their own deal, and they live or die with their performance. But when you get a little older, and you've already built up your net worth, you get tired of those tenants in those toilets in those trash, right and so you are looking for a passive way to continue to kick that can down the street, i.e. taxes and so normally the demographic is 55 years or older, they're kind of slowing down on their real estate investment portfolios.   Michael: Yeah and that makes total sense and so talk to us a little bit about what the exit looks like on some of your deals, because I was looking at your website, before we hopped on, I noticed you have some triple net stuff. So I'm just curious, you know, how are you exiting those assets?   Ed: Sure. So it's got to be accretive to the to the beneficial owner or the investors, I would say triple net lease stuff. Those are bonds. If you're looking for a Walgreens $1, General and Amazon, you shouldn't expect appreciation on those opportunities, you should just expect that coupon plus getting your money back, right? If you're looking for appreciation, which I would call more like a dividend stock. That would be a multi-tenant asset, apartment senior housing, student housing, self-storage, where you have the ability to mark rents to market which gives you that that appreciation. So the exit really is going to be based on the economics is or are the investors making money. If they're not making money, there's no reason to sell because it's still producing the cash flow, right. So as soon as the property starts appreciation to a point where the sponsor or the trustee feels okay, it's time to sell. That's the exit, you put it on the open market, you got a real estate broker, you get the offers coming in, and then you pick the best offer and you sell the property.   Michael: Love it and are you all targeting value add type of stuff, are you getting stabilized assets? What is the mix look like?   Ed: So the DST cannot use value add assets, meaning it can't move walls, and has to be stabilized assets? Unlike a tenant in common, right. 10 in common, you can do that, right, so the DST is all stabilized assets and when I say stabilized, it's either if it's multi-tenant, that's 90% plus occupancy and if it's single tenant, triple net investment grade tenant corporately guarantee and leases.   Michael: And is that regulated by the DSDM, is that a requirement of the entity structure that you're using?   Ed: That is the structure, yes, sir. That's the structure. Because if you if you disqualify the structure, You disqualify the exchange and now, people pay taxes, because it's not approved by the IRS.   Michael: Interesting. So the IRS is actually dictating what type of asset you can own in order to get this 1031 designation and benefits.   Ed: Yeah, if they're, you know, there's a specific structure and a specific way that needs to be structured. That's why a DST should have a legal tax opinion attached to it, from your securities lawyers to show that the structure is complying with this approved structure, that it should not be challenged if you invest and qualify for the deferral of tax via 1031.   Michael: Interesting, are there other vehicles out there that you could do something similar but have a value add component   Ed: Tenant in common. A tick, we call it a tick, the similarities are very similar to the point where you own a fraction of a piece of property. The differences are huge. Tenant and Commons. The investors make all the investment decisions. A tenant in common can have a capital call, a tenant in common can use non stabilized assets, a tenant in common can leverage the property and so back in 2000, and 4,5,6, and seven, the tenant in common was the most primary way of syndicating 1031 exchanges. But then and so, you know, everyone is going to agree as far as the investors are concerned when real estate goes up but in 2008, great recession, you have savvy investors, not so savvy investors. It's called hurting the cats. They disagreed on everything, right and so about six and a half billion dollars went into receivership by tips and so banks will not lend to a tenant in common structure. So your question and previously of how do I replace the debt would not happen in a tenant in common. That's why more tenant in common deals are all cash and the way they address Sit to investors is, hey, all cash, no foreclosure is owned, by the way, we're going to lever you up, pull the cash out and get it back to you tax free. Well, that's what happened in 2008 and everyone lost their money. So ticks in our business is a four letter word.   Michael: Very interesting. Okay, this is really good to know it. I'm curious and maybe some of our listeners are as well, because the investors are getting the cash flow, the investors are getting 100% of the upside, you're doing all the work, how does 1031 Crowdfunding make money, how do you all get paid?   Ed: So it's aggregating a portfolio. So yeah, we charge an acquisition fee, right anywhere between two to 4%, upfront and then we also get asset management fees, it's anywhere between half a percent to 1% off of the cash flow, but you really don't get rich doing that but the idea as a sponsor is, if you're managing $5 billion worth of assets, and you're charging a 1% asset management fee, you're making $50 million a year just unfortunately, watching paint dry.   Michael: It's not a bad business model.   Ed: It's not a bad business model. But you know, there's a lot of work to it. I'm thinking I'm kind of, you know, dumbing it down, but that's how sponsors make their money.   Michael: Okay, all right. This is great. If someone is considering investing with 1031 Crowdfunding or a different syndication, what are some things that they should be looking for? How do they go and educate themselves about the sponsor and about the deal?   Ed: You know, that's, that's a big deal right there and that's a great question because these deals have an upfront expense, we call it the load, right and even though the load doesn't affect an investor's capital accounts, so if you put a million dollars in, you're getting credit for the whole million in your cash flow is based on that whole million. The problem is, is that you overpay for that property. So let's give you that $20 million example that I used earlier, right? Let's say there's a 10% load on it. Even though I bought it for 20 million, I have to offer it to you for 22 million and even though your capital account is not affected, it's when you sell the real estate when that becomes material and so you need to make sure that the real estate can appreciate above its expenses, before entertaining a sale, right? So that at least you come out at par if you're going to invest in these things, and you're using a financial advisor to advise you to do this, the most important question you should ask is, Mr. Advisor, when does this investment overcome its upfront expenses and if that guy is any good, you should be able to tell you that, that's the most important thing when it comes to investing in these DSPs.   Michael: Yeah, that's super, a super great question to be armed with and so are most folks who are investing with you coming to you all via their advisors or via their team or they individuals. I mean, how do you find most of your clients?   Ed: So I'm, we do a lot of marketing, right. So we do a lot of SEO, a lot of SEM, I do things like this, my PR team is working. So we get anywhere between five to 700 new registrations a month on our website and we currently have about 60,000 registered investors today and so they just Google 1031 exchanges, and we pop up. So we're not, we don't use the financial services industry to distribute these products, even though we are in that service. But people normally just find us on their own or an attorney might say a CPA might say their friends might have used us. We have wonderful Google reviews. They just find us that's how they get to us.   Michael: Yeah. Okay, that makes a lot of sense and I'm wondering if you can shed light on like your worst deal ever, how it went wrong, and what happened?   Ed: That's a great so 2020 on the east coast of Florida, apartment building got hit twice by hurricanes within three weeks. Okay and you probably it's right, that time when Maria was coming and all that stuff. The property got flooded. 50% of the units became uninhabitable. Cash Flow stopped to investors, enough cash flow to pay debt service and then you had to get to the insurance companies and get the catastrophic damage insurance payment and the renter's interruption insurance payment and remember, I told you in a DST you can't do construction, right. So how do you fix the unit, right? So there's a term called a springing LLC. That's an every single DST ppm or private placement memorandum and what that what that means is that you dissolve the DST and now you're a member of an LLC, non-taxable event, your exchange is still good but now in an LLC, you can do construction, you can modify loans, you can do all these things to fix the property, right? So you go and you start fixing the property, you release the property, reinstate cash flow, right. But the issue is, you can't go your separate way anymore. You're in an LLC. So the entire LLC has to do an exchange or not. So they don't want to mess up there at 1031. So the LLC sells the property, does an exchange into another property and then two years later, the terms called Safe Harbor, you can convert it back into a DST and then everyone can go their separate ways when the property sells. That is the worst deal that has happened since I've been doing this.   Michael: And did the insurance proceeds cover all of your expenses enough in your business interruption to kind of make you guys hold in during the process?   Ed: Yeah, absolutely. So even though the timeline was delayed, the investors did very, very well. They just lost cashflow for about a year but then when the property was sold, they did well.   Michael: Yeah, I love it, I love and that's one of the things I really love about real estate investing as a whole is if you understand what you're doing the downside just isn't that scary…   Ed: Yeah, I agree. I mean, dirt is never gonna go to zero, right? It's just not gonna happen.   Michael: Right, right, man twice in three weeks. I mean, the only thing that I've heard of comfortable that I'm doing, I'm in the midst of a develop redevelopment project and I had two fires in the same building a week apart, during the course of construction.   Ed: Wow. Oh, that's not good. It's sucked.   Michael: It sucked, so… Oh, man. This has been super fun, man. If people want to find out more about you, continue the conversation invest with you, or what's the best way for them to do that and get a hold of you.   Ed: So you can go to 1031crowdfunding.com , like a crowd of people not a crown on your head, right or you can dial our number 844-533-1031 and you're absolutely you'll be able to find us.   Michael: Good stuff. Well, hey, thanks again for coming on and sharing and helping educate our folks. We'll definitely chat soon.   Ed: Michael, thank you so much. Looking forward to hearing back from you.   Michael: You got it, take care.   All right, everyone. That was our episode a big thank you to Ed for coming on super interesting stuff. I learned a ton. If you are in the middle of a 1031 or thinking about it definitely an interesting option to take advantage of. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing…

Daria Davydenko is a Securities Sales and Operations Specialist at Roofstock where she supports Roofstock's fractional ownership product, Roofstock One. Prior to that, Daria served as Vice President at Goldman Sachs. Her background in finance provides her with a unique view of financial markets and risk management. In this episode, Daria walks us through the history of public and private REITs, and who might be a good fit for investing in them. Additionally, she covers Roofstock's exciting new investment, Roofstock One, a fractional ownership option for accredited investors. Episode Link: https://www.roofstock.com/one --- Transcript Before we get into the episode, this podcast is intended for general informational purposes only and is not financial, investment, or tax advice. The information provided is not directed toward any investor or category of investors and is provided solely as general information products and services or to provide general investment education. Nothing in this podcast should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have Daria Davydenko, who is our sales and operations lead for Roofstock One and she's going to be talking to us about the history of public and private REITs really what they are, and who might be a good fit for investing in them. So let's get into it.   Daria, what's going on? Welcome back to the podcast. Great to have you back.   Daria: Hey, Michael, good to see you again. Thank you for having me.   Michael: Yeah, my pleasure, my pleasure. Great to see you again. So today, we're talking about a really cool offering Roofstock has Roofstock One. Can you give us a really quick insight into what that is and then I would love if you could help walk us through kind of the history of REITs in this product and how it came to be?   Daria: Yeah, sure. So Roofstock One is a relatively new offering that we have as part of all of the different products use that we have on roofstock.com. Roofstock One is structured as a private REIT. So one of the benefits of investing in Roofstock One is if you invest in real rental properties, you have the benefit of knowing exactly what your own. While it is a nice benefit, generally, it's not available to visit more passive real estate investments like REITs, public or private. However, we made Roofstock One different, even though it is structured as a private REIT. It is a fully transparent and customizable. So you know exactly what your own by buying a share of Roofstock One. So it is the first of its kind single family rental rate that's transparent and somewhat customizable to investors.   Michael: Awesome. All right. Well, we're definitely gonna dig more into that here in a little bit. But I would love if you could give us again, a kind of a background, like what is a REIT? How did we get here public versus private, bring us up to speed.   Daria: Yeah, so actually, what so REITs have a very interesting history, that I don't think a lot of people realize how the first I guess, you know, private equity firms have emerged, and then how can a REIT structure was created. So back in the 1980s, investors were mainly individuals and they were kind of using real estate to kind of harvest losses and shelter profits. So that was kind of the main reason why people were investing in real estate and also in the 80s, there was something that was called S and L. That they were created by the Federal Home Loan Bank act of 1932. They were like Savings and Loan Banks that basically had some caps on interest rates on deposits and loans, and but they were able to basically lend money to those individuals so they can buy real estate. Now, obviously, in the 80s, we all know that there was a recession and so because of the restrictions that were placed, placed on this SML banks, you know, because they had some caps on interest rates on deposits and loans, it greatly limited their ability to compete with other lenders as the economy slowed and inflation took hold and so for instance, as savers spelled money into the newly created money market funds that were yielding, like a much higher interest rates, like SNL just could not compete with those traditional banks due to their kind of lending restrictions and so when you add the recession of what happened is because the recession was sparked by the high interest rates that were set by the Fed in an effort to end the double digit inflation, which is kind of what we are kind of seeing right now, nowadays. So now we're left with little, you know, little more than, you know, kinda like a dwindling portfolio of low interest rate mortgage loans and so obviously, their revenue stream, you know, were severely tightened and so in the 1986, Reagan changed the law and then this indication was, you know, basically it was no longer working and there was no longer like the tax loss harvesting that was allowed in real estate, that can actually cause a real estate values to crater because a lot of people did not see any value of investing, I guess, are holding real estate anymore and so that actually caused SNL crisis and so I think a lot of people don't realize but during the SNL crisis, there were like 8000 banks that have failed. So, because of this, yeah, because of this kind of crisis that happened. I mean, this was like the largest crisis, you know, since the largest collapse of US financial institutions since the Great Depression.   And so like that, that kind of happened in the 1986 and so what happened, right, so once there's no kind of crisis happened, the government had to step in. So while they found that there was a lot of highly levered foreclosed personnel that owned a lot of real estate, and so government inadvertently owned those banks, and so they end up owning hundreds and 1000s of properties. What happened next is they have created something that's called the Resolution Trust Corporation, that basically became a property manager. So there sole purpose was to own and dispose of those distressed assets. So Resolution Trust Corporation or short, RTC was a temporary federal agency. So basically, from the 89, to the 95. You know, they largely were trying to kind of resolve this SNL crisis that happened in the 1980s, they, you know, they were basically like trying to do some property management, cleanup, what kind of what was left behind and another, I guess, purpose or creation, the RTC was to dispose of this assets. Now, the government wants to sell a lot of assets and so they need to have, you know, it's going to be highly inefficient for them to find like a single bar and buy, like, you know, who can just buy like a single property. So what they had to do is they had to figure out how to find a pooled vehicle that can just come in and buy this pooled kind of assets and so that's when the first private equity firms were created, who kind of came in, they were able to kind of pull financing, and then kind of buy like large amounts of this kind of real estate that was left behind after the SNL crisis. So that's where kind of their real estate or you know, kind of private equity investment was created. That's kind of the history of it. Now, the real estate investment trusts were a way for individual investors or intervene institution investors to get exposure to real estate without kind of having to go through, like active management of the underlying real estate. So Real Estate Investment Trust was a way to, for you to get exposure to, you know, real estate as a class. But you don't, you don't have to kind of forego, like, you know, the whole kind of financing closing, you know, property management aspect of it, while still enjoying the benefits of getting dividend distributions from the rental income, you know, the appreciation of the properties, etc. and then, in addition to that kind of REITs were created to encourage investors to get into the real estate market, and also get some kind of tax benefits from it. Now, I know I spoke a lot. So I just want to make sure I, you know, there's any questions that I can answer for you, Michael.   Michael: This is super interesting. I mean, one thing that terrifies me is this idea of government, governmental property management, that just would have been an absolute nightmare, because we all know how that probably worked out. But no, I think that makes a ton of sense and so the so these private equity firms were created to buy all of the hundreds of 1000s of distressed assets that the government ended up owning because of the collapse and the financial crisis. But so maybe, help me understand what a REIT is, like, is a REIT a share of the private equity company that then owns these properties, is that how that works?   Daria: Yeah, so REIT is basically like a pooled vehicle, you can imagine that, you know, let's say, like, just as a simple example, let's say you, Michael, you own kind of 10 different properties and you would like to allow other, you know, investors to kind of participate in ownership of those properties. You know, you can package them basically into a read. Of course, this is more complex than kind of what I'm describing, but in the simple terms, you can package it into the REIT and sell basically shares of the three to other investors who can get economic benefits of kind of owning 10 of those properties. REIT like many companies, they distribute earnings to investors in the form of dividends, unlike many companies have a REIT incomes are not taxed at the corporate level. So kind of that means that REITs are actually they avoid the double taxation of corporate tax and personal income tax. So instead REITs are sheltered from the corporate taxes so their investors are only taxed once and this is a major reason why investors value REITs over you know, other dividend paying kind of structures out there. Another benefit of REITs I guess, that they were created is that they're widely used because they're highly for favorable tax advantages are REITs are required to distribute 90% of their earnings to investors and so that kind of like allows them to avoid the double taxation that I mentioned previously and so this benefit kind of trickles down to all the underlying investors, you know, they're not being double taxed, and they can receive the maximum amount of capital from rate, I guess another advantage, I mean, we all know that investing in real estate, one of the biggest advantages of is the depreciation.   So depreciation can be passed through to individual investors, even in a REIT structure, basically, you because you get to offset your income is a depreciation kind of tax deduction. Let's say you might be earning tax dollars, that $10 per share, but you only will be paying like $7 as an example, paying taxes on the $7 of those earnings and in addition to that, if you're kind of holding your shares, for longer than a year, you will be paying the long term capital gains taxes, which is kind of much lower than your ordinary income tax. There was another kind, I guess, good, good question that you raised Michael, about what is the difference between private and public REITs, the main difference is private REITs are less liquid, you know, compared to public REITs, public REITs are the ones that are being traded on the public stock exchange and so you're basically kind of they're just like stocks, you can buy them and you can sell them and you will also be getting the dividends while private REITs they're not being traded on the public stock market and so hence, they're being sought after as like a less liquid option for you to own real estate. But at the same time, they're less volatile, obviously, because they're not subject to all of the changes that are happening in the public markets. So you just kind of there's just some kind of major differences, right? The liquidity but you know, because you're foregoing the liquidity, you're obviously getting less of like volatility in the stock price of your, you know, under the ownership of the shares of the REIT. So that's kind of the major kind of difference between public and private REITs.   Michael: Okay. Yeah, that makes a ton of sense. Thanks for walking me through that. I guess the question that gets begged next is the Roofstock has been a marketplace for transacting on single family homes for years now. Why, like, why is this product coming about? Who is it designed to serve and who might not be a good fit for?   Daria: No, that's an excellent question. I think we what we have found as we've been speaking with investors who come to the roofstock.com website and who really enjoy owning kind of real estate and single family rental properties, in particular, one of the feedbacks we have been receiving from investors is that they are some of them you know, obviously, if you want to buy properties outright, you are getting, you know, there is like a large deposit, I guess, that you have to put to buy a property, there is a financing, there is like a very long process of kind of closing, the Roofstock does a very good job at making sure that we simplify this process for investors. So we tried to make it as simple and as friendly as possible. But still, there are multiple steps for you to close on a single property. But obviously, you will be kind of subject to that single asset race grade, if you are only owning a single property you will kind of whatever happens with this property, it will kind of great greatly affect your cash flow, now we have created Roofstock One because investors have been basically asking us, hey, I really can enjoy single family rental investing, but I'm still kind of trying to learn the space and understand how it works. I've never owned single family rentals before and so kind of I'd like to dip my toes into this asset class and so I think Roofstock One kind of offers this perfect opportunity for somebody to own this exposure to this asset class, single family rentals, while you know being completely passive, so meaning you don't need to go through the kind of the whole process of closing on the property, finding the financing, you know, finding the property manager, we do all of that for you.   You just kind of buy the share of stock one REIT you get exposure to this particular asset class and then kind of get, you know, potentially get quarterly dividends from the rental income and kind of just learn a little bit about single family rentals, how it works, how you know how you receive the dividends and gonna get accustomed to kind of owning single family rental asset class, where we have seen as there are, you know, some investors who really enjoy kind of being actively involved in the day to day of managing properties because you get this kind of owner exposure means that some people really like and so for those people, maybe Roofstock One might be a little bit too hands off and so they might kind of prefer to do like the direct ownership of the property. But there are also like a certain subset of individuals who just don't have the time to, like, investigate and spend time with property management companies and figure out like, you know, if they should increase the rent, or drop the rent, just kind of just to find tenants for the house, or should they kind of, I don't know, change the roof, or change the water heater in a property or wait for another month or two. So it kind of… Michael: All the operational stuff…   Daria: All the operational stuff, all of this kind of micro decisions that you kind of don't realize, but they do pile up and they do take a little bit of your time. So you know, some, some of those individuals are like, Look, I just want an exposure to this particular asset class, I want it to be passive, I really enjoy it, I think, you know, I believe in single family rental, kind of asset class in particular and so, you know, this is like, a perfect way for me to get a passive exposure, while still kind of feeling like I'm owning some, you know, underlying properties and we try to kind of make it as transparent as possible to investors, so they actually can see, you know, what properties are inside, you know, Roofstock, one reads, so they can understand, you know, what homes, kind of their tracking the economic performance of, and so they're still kind of getting the feeling of like, okay, with this share, I potentially can own 10 to 20 you know, how many properties they would like, still kind of feel like they're owning those properties. But you know, they don't have to spend as much time on the operation or day to day stuff. So yeah, that's kind of the major reason why we have created the Roofstock One is just to serve certain subset of our investors that we have seen come through roofstock.com website and, you know, obviously, there is absolutely still a lot of kind of benefit of owning the properties outright. But there's also like, you know, there's just a time kind of aspect that's involved in it as well.   Michael: Yeah, that makes a ton of sense and you said something about, for those people that are still learning want to dip their toes into the water, Roofstock One might be a good fit. But if I'm thinking about like a traditional REIT, I can go buy it on the stock market, I buy a share of it. I don't hear from anyone, I don't know what's going on in the day, like, I have zero insight into this. Is that different with Roofstock One like can someone truly expect to learn a little bit about what it's like to own single family rentals with roof stock one, or is it going to be just as hands off in passive and kind of, at a distance, like a traditional route would be?   Daria: I'd say it's somewhere in the middle. So I mean, it is just as hands off and passive. But I guess the major benefit is in public creeds, I guess it's a little bit more of like a pooled vehicle. So just by buying a share of like a public REIT, let's say, for example, that there are like 60, and 1000 properties that are public REIT owns. Now they can be in different like various markets, right. So there could be across many different states in the United States and so you kind of get exposure to all of those kind of little, you know, properties a little bit. So Roofstock One allows you to be a little bit more targeted, if you wish to do so, we have something that's kind of cool, called like a tracking stock, which is like a mini portfolio of subset of properties. So let's say if you're interested in a certain region in the US, just as an example, let's say Georgia, because you believe in this region, or maybe you have invested in this region before, you can get exposure only to the properties in Georgia instead of kind of getting the exposure to all of the properties inside the Roofstock One. But at the same time, if you don't have anything, you know, any convictions and you just kind of enjoy single family rental kind of asset class and you just want to have diversification, then you can also just kind of do that and you can just by exposure to all of the properties inside the restock one read. So we kind of just provide like an ultimate flexibility of investors coming in and kind of creating their own journey. Almost like a custom rate, create your own custom read…   Michael: The subway sandwich of REITs…   Daria: Exactly. Yeah, it's like a Subway sandwich. You're correct. Yeah, that just you know, you choose whatever you want, like and you can even choose your own sauce visit.   Michael: Except we use real fish and real meat in our subway sandwich. Don't know if this is the best analogy but people get the point.   Daria: Yeah, like yeah, we're you know, we're the like a guest who's probably accretes you're just kind of getting the you know, whatever the prepackage Subway sandwich that, you know, is not customizable, and you can't even choose your sauce. So that's kind of how I would think about it. I think the benefit of it is like, look, you can still kind of see what are the properties, underlying properties inside the, like those mini portfolios, for example, which is definitely something that you want to get with like a traditional public REITs, I feel like that they're kind of more giving you like, hey, this is our general structure, or a general investment objective, this is what we're doing this is like, let's say, 30% of our portfolios in Georgia, like x percentages in some other state, which is also great for those people who don't really have much conviction, and maybe they just want to get the general kind of diversified exposure. But you can also have to just be mindful of this kind of this still difference, there is still like this difference that exists between private and public REITs, where no public REITs are still subject to the same market volatility as any other stock would be, you know, I wouldn't say that there is like one, right or wrong way, just kind of, it's all about diversification, and what fits your investment goals and investment needs, and what makes sense for you, and for your investment portfolio and, you know, we're just kind of offering a way for real estate investors to create their custom REITs, if they want to get exposure to the whole asset class, if they wish to do so. They can also mix and match they can invest a little bit into public rates a little bit into private REITs and again, you know, there's it's always, diversification has always been a good way for you to kind of diversify your risk, so…   Michael: Yeah, okay, I do get well, Daria I have a question. That's maybe on every buddy's mind who's listening, you talked about the hurdles and barriers to entry of investing directly, and that's usually coming in the form of down payment heavyweight financing and there's steps involved, how much does investing in recycling cost? What's Is there a minimum investment is our maximum investment, like walk us through what that looks like?   Daria: Yeah, so we actually kind of tried to bring it down to minimum investment is $5,000. So anyone who so there is like a limitation that we you do have to be an accredited investor and accredited investor is something that's basically set up by CC, that's kind of their rules and regulations that in order for you to be invested in private REIT, you kind of have to be an accredited investor and I think it's kind of basically done for the benefit of the investors themselves. Since it is a limited liquidity you do want to make sure you have enough liquid cash that kind of set aside you know, that you have access to because you will if you're invested in into like any private vehicle private REIT or anything else, usually you know, you will not be able to like us you know this drill those money for like five years or so and so, I think that accredited investors just kind of really done to make sure that investors understand that this particular funds will not be able they will not be able to access it and they have enough liquidity on hands to you know, meet any some sort of like liquidity needs that they have during their like day to day life. Now accredited investor, someone who, who is an accredited investor, guess accredited investor is someone who has a net worth of a million dollars and that can include their real estate, investment portfolio or retirement, you know, retirement portfolios, or, you know, bank assets, kinda you name it, it can't include their private primary residence, but if they have secondary homes, and, you know, if they can only count equity basically on those properties, so if they have like a mortgage on the secondary home, they will have to figure out like how much of equity they have, and they can count it towards their networks. Another way to understand if you're an accredited investor is if you are making over $200,000 per year, and you've made over $200,000 per year, in the past two years, or you and your spouse or partner are making over $300,000 together this year and in the past two years. So those are kind of some of the limitations that beans set and they just kind of follow those limitations. But as long as you are kind of accredited investor, you can put you know $5,000 into like a Roofstock One REIT and there's $5,000 can be invested across all of our offerings. So we you know, we are not limiting you can only put $5,000 into like a separate a single kind of mini portfolio or a tracking stock. What we call, you can, you know, put $1,000 or $100 into tracking stock and the rest into like a giant, like a bigger font or you know, vice versa. So you can customize this $5,000 as much as you would like. So yeah, that's, that's kind of the limit. Yeah…   Michael: Great. Okay and I would imagine that other private REITs and for sure, public REITs that have been around for a while, have a track record the history of performance does Roofstock One have that yet or is it too new, like, how has it been performing to date?   Daria: Yeah, we do have a track record on Roofstock when you launched Roofstock One in November last year. So we are a little bit close to like a year of existence. So we have been distributing dividends and the dividend yields that we have distributed for the historical or like our past offerings, they are listed on our website. They can be accessed here, the investor reports and we also do have appreciation of the assets that has happened since we acquired them back in, let's say, November. So we just recently started to calculate something that's called nav, which is net asset value of our investments and that's in general, how private REITs figure out what is the value of their shares. So unlike public REITs, where the share price has been determined by the kind of just the normal forces of the markets, private REITs, because they're private, they, you know, they had to kind of figure out a way to value the assets, the underlying assets that they have and so the net asset value is kind of the common term where NAV is kind of a common term that they use to figure out what is the share price of their rate and that's what the Roofstock One does as well. So we are just like any other private three, we calculate NAV, we publish it, and then can investors are able to track estimated value of their shares. Now the reason I say it's estimated is because obviously, until we sell the assets, we wouldn't know the exact value of, of the underlying assets, we can only kind of do like an estimation of where we think it is right now. But it is, you know, a good proxy, I guess, for an investor to think, hey, this is like my estimated value. But you know, until you can actually sell the assets and just kind of the nature of real estate market in general, that it's very illiquid, and you wouldn't know the value of the asset until you actually like listed for sale and you started getting some buyers who are interested giving you offers etc. So very similar, you know, in REITs, because we own underlying assets. There, you know, we're kind of subject to the same market forces as any anyone else who owns real estate. But you know, net asset value is a good measure for someone to use to determine what is the estimated value of their shares.   Michael: Okay, okay super informative from the history to the product offering and why it makes sense. This is awesome. If people want to learn more about private REITs chat with you learn about Roofstock One, where's the best place for them to do that?   Daria: Yeah, we can be found on the roof stock.com website, or someone can just type in www.roofstock.com/O N E -one. That's our website. Now feel free to give us a call there is a button that you can click on and request a phone call and we have very friendly people to chat and they're always happy to talk about real estate, private REITs single family rentals investing. Now we love investors ask us questions and they love talking to them on various subjects. So yeah, you know, feel free to check out our websites style by ask questions and we are always happy to chat.   Michael: Amazing, well thanks again and definitely looking forward to seeing where Roofstock One goes from here. Talk soon.   Daria: Thank you Michael. Thank you for having me today.   Michael: You got it, take care.   Okay, everyone, that was our episode A big thank you to Daria for coming on really interesting stuff with the product offering as well as the history of REITs themselves. So go check out the website at roofstock.com/one. As always, if you enjoyed the episode, definitely love hearing from you. All ratings and reviews are super appreciated and we look forward to seeing the next one. Happy investing…

Brian T. Bradley, Esq. is a nationally recognized Asset Protection Attorney. He has been interviewed and a featured guest on many top shows such as: Bigger Pockets Rookie, Flipping America Podcast with Roger Blankenship the “Flipping America Guy” and member of the Forbes Magazine Real Estate Council. Brian was selected to the Best Attorney's of America's List 2020, Lawyers of Distinction List three years in a row (2018, 2019, 2020,) Super Lawyers Rising Star List 2015, nominated to America's Top 100 High Stake Litigators List, nominated to the 2017 Law Firm 500 Award. Brian also writes on high-end asset protection. Ownership of real estate has many benefits from an investment and tax standpoint. There is downside risk, however, since the value of real estate holdings may be significant and can be used to cover damages awarded in a lawsuit. Therefore, it's important to consider asset protection strategies relating to real estate holdings in order to minimize such risk. In today's episode, Brian lays out how asset protection really works from a legal standpoint and dispels some common myths that are thrown around in the industry. Episode Link: https://btblegal.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Brian Bradley, asset protection attorney and he's going to be dropping some knowledge about all the things we should be aware of as real estate investors when it comes to protecting our assets. So let's get into it.   Brian, what's going on, man? Thanks so much for taking the time to hang out with me today. I really appreciate it.   Brian: No, absolutely Michael, thanks for having me on. It's going to be an important topic, a fun topic, I'm gonna try to keep it fun and not legally dense and you know, just like I'm not anyone's, you know, Attorney here legal guru. So we're just gonna be talking generalities, right? We're gonna learn a lot in this, you know, it's gonna be a lot of fun and as you're building scale and making more money, you know, you're getting a bigger red button on you and so like this world of where we're gonna be talking about asset protection is kind of a big deal. There's just a lot of ways to skin a cat, different layers, different strategies for where you're at in your life. So, you know, I think as we break these down, hopefully I can, you know, make this will make a little bit more sense for you and your listeners.   Michael: Yes, it will. Thank you. I am super excited to learn a lot because before we hit record here, you and I were chatting about some of the topics that we'll be covering today and I was like, what is that totally brand new. So I'm really excited from a self-serving perspective. So give everyone that quick and dirty background who doesn't know Brian Bradley, who you are, where you come from, and what is it you're doing in real estate today?   Brian: Yeah, absolutely. So, you know, I'm an asset protection attorney, you know, we're talking about it off recording, like from Lake Tahoe, so you know, big snowboard ski, you know, ski bum, you know, Lake bum, I got into asset protection from the litigation side of the law, I was selected to America's best attorney list 2021-2020 Super Lawyers rising star 2021-2015.   Michael: My guess is that no, that's not like an online survey, you filled out to get that…   Brian: Oh, no, and another do with me, that's really just people that you work their butt up in court, and then they recommend you or judges recommend you and I have nothing to do with it and it's actually pretty, you know, I appreciate even just the nomination, let alone winning it, you know, to where I think they only say 1% of all attorneys in the nation even get nominated for those awards, let alone then, you know, 1% of those even gets picked to as a as a winner and so…   Michael: Congratulations…   Brian: Thanks, yeah and for me getting into, you know, asset protection, which will define what that is, you know, in a minute, like, that'll be like our think our base starting point. I just, I just got into this weird area of law, because when I like money, I like investing, I like, you know, not paying as much taxes as you know, as I can and as you grow, you got to be smart with your money, right and who can take it from you and so as a trial lawyer starting out, I just had so many clients who were being sued and their lives just turned completely upside down coming to me after they're already being sued and at that point, you know, you're just too far down the rabbit hole, you know, it's like going to get a car insurance after you already got in an accident or, you know, home insurance after your house already, you know, caught on fire, it's just, it's not gonna happen and so I see a lot of people thinking that they don't need to do anything is another misconception. You know, it's kind of human nature, right? You know, like, I'm just gonna ride lady luck. I'll deal with it when I when, you know, it hits me later on and that's just not how anything that needs to be proactive in the legal sense is going to work like insurance or asset protection. Wishful thinking is not a protection tool. You know, that's how everything you know, like, go to Vegas, go to breaks and hit the roulette table and see how long your wishful thinking is gonna last for you, right? You know or, you know, as you're leveling up, people forget about this. Like, as your wealth is leveling up, you're leveling up, you don't level up your protection, you don't level up your insurance. Yeah, people go buy an umbrella policy, but they don't realize what an umbrella policy is just like everything else, right? You know, it just provides more access and money to, you know, for coverage, but it doesn't, it's not the same escape clauses, you know, like, there's no insurance in the world that's gonna say, okay, hey, if I go punch you in the face, are you gonna cover it for me? No, like, they don't cover you for intentional wrongdoings or allegations of fraud and intentional wrongs and so that's how they have their escape clauses out especially for very big cases. You know, if you're talking about like a million dollar or more lawsuit. A couple other big misconceptions that we need to address as we lay this landscape is just, you know, the revocable living trust, if people think like, oh, yeah, I have a trust, right, that you know, they don't realize trust. There's a lot of different types of trust. Your family estate plan, your revocable living trust are not designed to protect you while you're living in they don't have the lead have teeth to be able to. So once you pass, they're only designed to avoid probate not protect you while you're living from lawsuits and then over the last five years, I've noticed this massive misconception about the use of limited liability companies. LLCs and they just think that they're like, you know, Silver Bullet Dracula slayers and you guys miss, like, first word first letter, like limited, I tell you. Whereas, whereas this happened, where's this come from? Like, they're not hiding the fact they tell you like they titled it telling you limited liability. So like, now we have to reeducate people on this, like, yeah, don't put everything in the world under one LLC. Otherwise, if it gets pierced, you're gonna lose it on like, What are you talking about, which we'll break that down, you know, in a little bit. And then the sad thing is like, and I think it's worth explaining is this, if you just look around, and you look at, you know, our legal system and the world we live in, it's just broken, it's a broken system, you know, and we're so happy nirvana and just to like, kind of lay this framework down a little bit more. We're no longer about justice. We're about redistributing wealth from the haves, which is you, your listeners, people trying to grow and accumulate more to the have nots and over the last 40-50 years, things that didn't happen in the past, or that weren't allowed to happen in the past like contingency fee lawyers or law from advertising their common place. and then this created a cultural shift of a predatory legal system that's no longer about justice. So it's about profits now and then when you get on the road of high net worth, in affluent families and wealth, this level of protection, now we have to deal with taking a macroeconomic, more of like a global look about what's going on and the big picture here is really that we have a global financial system that has structurally deep rooted issues. You know, we have government backed fiat currencies that are now in question. This is also including the US dollar. So don't think like, just because we're in the US, we're exempt from all of this, you know, monetary policy today, you know, the one that exists is, you know, inflate or die and then you got governments looking for a deep and accessible pools of financing and meaning our money, you know, the hard workers, the people who are investing, along with financial repression, monetary economic manipulation. So this just adds all the challenges that we have to deal with when we're looking to protect your assets and so asset protection is that modern best bet to level this playing field by using a lot of the tools and the combination of the tools that we're going to talk about today to make it very hard for you to be collected on and so what this is really about is just like a talk about giving you peace of mind, lifestyle preservation, and you know, really just how collectible are you at the end of the day…   Michael: Love it. But well, I am all about doing things to help peace of mind and insulate ourselves from the world at large. This you happy world at large. So help us understand Brian, like, what are some of the things when someone says asset protection to you like, Brian, I gotta protect my assets? What does that mean to you? What alarm bells are going off in your head?   Brian: Yeah, absolutely. One is like, do you understand the difference between tax mitigation and asset protection and I've been getting this a lot, you know, especially this last year, obviously, as we see what's going on, you know, within inflation, taxes and everything right now, asset protection is not tax mitigation, like that's your CPE and wealth managers job. If creating an asset protection plan or an asset protection, trust or going offshore, you know, where to create tax havens like one that's illegal, it's fraud, you know, so system won't work, and then you go to jail for that type of stuff.   Michael: So don't do that is what you're saying.   Brian: That's not what this is about. So people always like, oh, I want to protect my assets and I don't want to pay taxes, completely two different things. The asset protection plan is to protect your assets from predatory lawsuits and litigation, not saying I want to not pay taxes, that's tax mitigation, talk to your CPA and wealth managers. First, lock down your assets from lawsuits because if you get sued and lose everything, what's your miracle working CPA going to be able to do for you if you have nothing for them to work on, so order of operation, protect your assets, then let them work through the system that's created to actually like mitigate, you know, forced depreciation, all those wonderful things that they do cost segue analysis…   Michael: Yeah but Brian, to that, to that point, really quick. I'm just curious, like, do you work with a lot of CPAs because I can see, I can envision a scenario in which the legal side of things is super buttoned up super tight, but maybe isn't very tax efficient and so my guess is there's probably a happy medium, or some input that a CPA or wealth manager can inject into the situation to help make both things as tight as possible.   Brian: Correct. You got to, you know, the issue generally is people don't involve their lawyers until later on down the line and it creates a lot of problems. So for example, a lot of CPAs will set up S Corps for investors, especially real estate investors for some reason, and great for tax purposes, horrible for litigation and I get this call a lot, you know, and most of my clients are calling with like 50 $100 million of real estate all stuffed in one S Corp. Okay, great again, for tax mitigation, horrible for let's say you get sued and now you're S Corp and all the shares get frozen and cease, there is nothing I can do for you. At that point, I can't move assets out and then even if I want it and you realize like, oh my god, I have so many pieces of property under one corporation like this is very risky, I need to start diversifying and employing these assets out, you're stuck, you're not going to be able to and I just had this call yesterday with a potential client. The reason is, when you're all the benefits of the S Corp, right? You know, deferred taxation and all this stuff, you're kicking the can down the road, once you start taking the assets out, you have to pay the money back and so people don't generally have millions of dollars sitting in their bank account saying like, okay, hey, I feel like you know, taking all the assets out of my S Corp now and now I'm going to go and pay the piper and the IRS. So because you don't have that money sitting around to pay the IRS and the taxes, we can move the assets for you and I'm not going to force you to go, you know, and have the IRS coming after you to collect on you and move the assets out anyways, because now you're just creating a bad situation for the client. So the lesson here to learn is if you're thinking of investing, you need to talk to both the lawyer and the CPA, because a lot of CPAs, they shouldn't be giving you legal advice. They're not lawyers, and they're not going to understand the aspect of what happens actually in court with s corpse and C corpse, when it comes to litigation, and why we don't want to use those to protect your assets. So we have to all talk together. The problem is I get this all I get the mess after the fact right, and then I have to start supporting afterwards and so when done, right, really, the modern, you know, estate planning is asset protection, what we're doing is creating legal barriers between your assets, and your potential creditor, the person suing you, the person trying to come after your money before it's needed and that's it, you know, it's like a safe for your gold or your guns or your valuables. Anything of value, you know, you want to put behind the legal barrier and out of your personal name so that it's not easily attached with a lien or reached and so I just like the rich, I really liked the Tony Robbins saying success leaves clues. The rich don't own things in their personal names their businesses do their trust, do they just get the beneficial use and enjoyment out of them while separating out that legal liability and we do that through just like different tools and mechanisms that we have kind of like key concepts and roadmaps like LLC is limited partnerships and trust.   Michael: Got it. Okay and so when real estate investor comes to you, they're just getting started. They are moist clay, you can totally mold them, they don't already have a bunch of issues. What is your go to, like ideal scenario for asset protection?   Brian: Yeah, so there, I mean, you're just starting out your green horn, like really just going to be an LLC and insurance and that's where you're gonna go, okay and as you think about how to use these systems and how to grow within them, okay, I want you and your listeners to think about winter, okay, like we were talking about this before we started recording like I'm from Lake Tahoe, snow, cold snowboarding skiing, I lived in Michigan, freezing cold arctic, you know, minus 40 degree weather for a while, well, I'm in Portland damp cold, you got to really layer you and so the first entry layer is as your base layer, when you're getting dressed, it's going to sit on your skin. This is the equivalent of an LLC and insurance. This is you know, when you're just starting out investing in you have zero to three units, or you know, zero to three properties, you're exposed net worth generally is like 250,000, net or below and then as you grow, and you add more assets, and you hit around that four unit or four property mark, you could be starting to invest in a couple different states as well, you know, you have now around like 500, to 700,000 exposed nets, what you need is a mid-layer, which is usually a little bit thicker, that's going to be made out of like a merino wool sweater, or for you ladies a car and again, this is your management company, like a limited partnership and I can break down that later on if we have time and then when you hit around that 1 million net worth mark, you know, you're gonna want to water shell waterproof layer. This keeps you nice and dry and warm when the weather's really bad. You know, this is your doomsday lawsuit protection layer is going to be an asset protection trust and specifically for our clients, we use a hybrid trust, which is combining an offshore trust and domesticating it through the IRS. So when a client comes to me, I receive it I realistically, you want four things you know, you want you're going to want an effective plan to have, you're going to want to control your plan. Three, you want a reasonable and sustainable cost, you know, depending on what layer you're at, is going to be individual for the for the client profile and then four you want a plan that's going to be easy to maintain compliance on what the IRS like I can create the strongest thing in the world for you. But if you're not going to be maintaining it and you don't want to do the IRS compliance with it, eventually you're just going to stop doing it and the whole system falls apart. So as you go through the valuation process and you're talking to different attorneys and you're vetting the process, just remember the acronym ECCC effectiveness, control cost and compliance and as long as you can start checking off all those boxes, you know you're gonna have a really good system. If you want to I can break down the first layer if you want to Trying to kinda go there like LLCs, or just really wherever you feel like directing this.   Michael: Yeah, so I think our listeners probably have a good handle on LLCs. But I would love if you would walk us through what this hybrid trust is because it's not something that I'm familiar with, I've never heard of before.     Brian: So yeah, and I think the reason why is like not many people focus on asset protection at a high level, you know, I think events like insurance, a lot of people wonder not only purely asset protection attorneys, right, they're generally business attorneys who do some asset protection or their real estate, you know, attorneys who do a little bit and they take continuing legal education course, learn about LLCs, and the kind of stops there and like insurance, they kind of tried to cast a large net nationwide, what was one thing you can cast nationwide and LLC and so I kind of think that's why like, the base layer, knowledge kind of stops there, because not many people just focus on, you know, very, very strong protection. This comes with the asset protection trust. So it's this final layer, the bad weather, you know, the outer shell waterproof layer, is this asset protection trust, it's going to be really the heart and soul of the system, especially when you have over 1 million exposed and that wealth and what I mean exposed is like your 401 K is exempt. So I don't include that in a net worth evaluation, because it's already a reset protecting some states, like if you're a Florida resident, we have a very strong homestead exemption of 100% of your of your primary residence. So I will take that out of the equation too, depending on the state you're in and the homestead. So what we're looking at is exposed unprotected, and that, you know, equity and wealth, all right. The great thing about trust is that they can be sculpted, to fit how you need them and they can morph as you need them without dealing with funding issues that you're going to fall into an LLC and other business entities that get their protection pierced, meaning now you're going to be held personally liable. So I just love trust and having a trust at the very top of the planning is very powerful and this is where picking the proper jurisdiction for a trust really comes into play. The standard 101 trust that I'm sure like everybody's familiar with, you know, kind of started in the 60s is the family revocable living trust. So you know, like when trust, you know, trust don't die. So then when you do, you act, and you fund your trust, which a lot of people forget to do, like, oh, I created my estate plan, and then they never transfer title into it. Remember, fund that fund the trust, if it's just, you know, your revocable living trust, the benefit of it is when you pass you don't have to go through probate, you can just skip the court system and probate and it changed the landscape of estate planning. Then you have what are called land trusts for real estate, you know, you hold your land, and then you connect them to an LLC. But land trusts don't have any protection in and of themselves. They're only as strong as the LLC that they're connected to, you know, so they're just a privacy mechanism, not a protection mechanism. Okay from there, you have higher levels of trust. They're called asset protection trust and I really want to spend the time, you know, with this and break down the three different types, you know, and after this, I think you and probably 99% of your listeners are going to know more than 99% of all the attorneys out there about asset protection, trust, they came, yeah, they came about in the early 1980s. You know, and so an asset protection trust is what's called a self-settled spendthrift trust. All sell settled means is that you created it for yourself, you know, they're for you, by you, as your own beneficiary, and they have very important spendthrift provisions in them. So this lets you protect your assets while you're actually living, you know, from creditors trying to sue you from not having to relinquish control of your assets. The difference is that they allow you to protect your assets, not just for your grandkids, but for yourself, which you weren't allowed to do in the past and then like I said, you're probably familiar with another type of self-settled trust the revocable living trust. They're the same and that they're self-settled created for you by you. The difference is that with an asset protection version of this trust, it includes these critical provisions called spendthrift provisions and what spendthrift provisions are is they are provisions that allow you to protect your assets from the creditors, they're the actual teeth behind it and for those to work, the trust them has to be not revocable, but it will revocable. So it's a very different type of trust, you know, just like chocolate or vanilla, both ice cream, just different types of ice cream.   Michael: Yeah…   Brian: You know, this is where the fun really starts to actually happen. There's two major school of thoughts here you can go international meaning offshore, another country jurisdiction, you know, you hear about Cook Islands, Cayman Islands, Belize, in the Bahamas, or domestically here in the US, you know, Nevada, Delaware, Wyoming, Texas, um, so you can set them up here in the United States and you know, if you don't mind, I think a great way to talk about it, just kind of talking about it through historical context, because I think if you understand the foundations of both offshore and domestic then you understand the principles of how we combine them together and why you want to   Michael: Yeah, let's do it.   Brian: Alright, cool. So again, you really have these three options, right, you can establish them offshore, you're going establish them domestically, and then we can hybrid them out like a hybrid car, take the best of both worlds put them together. So from the historical concept, the offshore trust actually came first, in 1984, when the famous Cook Islands, they created the first asset protection trust. I like and choose the Cook Islands if and when it's applicable, just because it literally offers the best home court advantage and why it's the best is because asset protection is just what these trusts in the Cook Islands were specifically drafted for and the power here is they have this wonderful word called statutory non recognition of any other jurisdictional court orders in the world, including the United States and so what this means is that if you have a judgment against you, in the United States, and you took it down to the Cook Islands, your US judgment is literally worthless, it literally has no value whatsoever. statutorily the Cook Islands they prohibited from recognizing it even from their own constitution and so if somebody wants to sue your trust, and it has a Cook Islands, you know, clause in it. So as a Cook Islands trust, they will have to start their case all over from scratch, the person who's suing you, they're going to have to prove their case beyond the reasonable doubt. This is the murder standard, the highest legal standard in the world that 99% sure standard. Not that you know, 51%, preponderance of the evidence, I'm not sure we don't know what happened. But we don't like the way they look right now. So let's just let's just give it to them. You know, you can't get a contingency fee attorney to represent you, because they're just not allowed down there. It's an ethical in the Cook Islands, just like it used to be unethical here in the United States. But then that got changed in the 60s, the claim meaning the lawsuit, you know, it's not amendable. So what this means is that it can't be changed or amended after the discovery process starts like we can do here in the United States. Like we can literally just say, okay, I'm suing you for this, dig around start discovery, then completely change what We're suing you for, because we started using as a fishing expedition. The person suing you, yeah, no, I mean, this is just like standard trial tactics is like, okay, hey, let me just flood you with discovery and like, start poking around and say, oh, hey, we didn't even know this was right here. Now I'm gonna add this to the complaint and sue you now, for this looks like a better cause of action anyways, I can't do that down there. But we can do it here all the time in the US.   Michael: So it sounds like I need to go move to the Cook Islands.   Brian: Now. Well, here and maybe not right, because you know, there's, there's cons to things, we'll get to the cons in a minute. So the person suing you, they're gonna have to front the entire court costs by the judge from New Zealand and if you lose your pay, you know, and I honestly think this is one of the worst things that we don't have here in the United States, though, like the loser doesn't need to pay the legal fees and the cost of the winner. So if you get sued for something completely bogus, I mean, a frivolous lawsuit, and you spend $200,000, defending yourself on legal fees, then the judge finally is like, this is ridiculous. I'm throwing this case out, you're still out 200,000 bucks, you know, the person who sued you, they're not going to be getting the bill for that because our legal system in the United States, they just that will discourage lawsuits and our legal system is run by trial lawyers who don't want to discourage lawsuits and there's only a one year statute of limitations. So if you go back to those four things I mentioned, right, remember, like effectiveness, cost, control, compliance, I mean, effectiveness, five out of five stars, nothing really nothing beats statutory nonrecognition. So what about the other ones, right, you know, control costs and compliance. This is kind of his kryptonite, you know, these are the drawbacks. If you're going to be purely foreign, like a purely foreign trust, you have a lot more IRS reporting, compliance and disclosure. So you have these things called IRS forms 3520 3520 A's. What this is, is a full balance sheet disclosure of everything that trust owns, and sometimes even the entire trust agreement to be disclosed and submitted to the IRS and it is expensive for this IRS forms to be done every year. Also, you're going to have factor compliance, because you're going to have a foreign bank account at that time.   And of course, we're these trusts to work, you're going to be out of control of the trust. That's why they work so good. That's why they're the creme de la crème and clients are just not comfortable with this. So while we literally have the most effective trust in the world, by far, it's not something that I generally start with, I probably only say like 1% of my clients, I will go to a purely foreign trust with which then brings us right to the second option. Okay, we're not going to be going forward and what about these domestic trust? Yeah, they came about 10 years later down the road of all places, Alaska started it out and then not to be outdone, obviously, you're gonna be like, Well, hey, we're Wyoming and Nevada and Delaware like this is what we're known for. So we're jumping on the gravy train, right and then now about 19 other states now have created some form of asset protection, self-settled trust statutes. So we're seeing as a state starting to jump on board seeing yeah, our legal system is a threat and things have to get done to protect your assets and so as to protection the United States is very is very important to understand this ballot on It's just the concepts like how you go about doing it is very important. The issue with a purely foreign under the purely domestic asset protection trust is that, you know, we live in the United States of America, we have a Constitution, Article four section one for Faith and Credit Clause. What this provides and means is that every state has to grant the full faith and credit to the judicial proceedings of every other state. What this is means what it's telling you is that, for example, Nevada can pass and has passed an asset protection statute, okay, but it cannot ignore a California or Washington or like another states court orders. So where the Cook Islands can literally just throw that California judgment in the trash. Nevada can't do that. Nevada has to respect it constitutionally and even litigate it and then you have courts that are just simply ignoring the choice of law clause. So I mean, like literally, like bait levers more dissent in re Hubber, cucumber Steelman, Dover still all great facts, all great cases, they should have one of those cases, and judges literally just use their superpower public policy, we're ignoring the you know, choice of law clause, trust is breach means loss of assets, that's just completely unacceptable and so because of the case law that we're seeing, I'm not a big fan of a purely domestic asset protection, trust or anything purely domestic without something offshore built into it. This is why I prefer the hybrid version called like, we just call it a bridge trust, but it's really just like a hybrid, hybrid trust, think of them like a hybrid cars, okay? What we're doing just combining the best of both, and then making a better product and so these trusts have been around for almost three decades. So they're not, you know, the new lady to the dance, they've been around for about 30 years now and at the end of the day, what you're doing is taking a fully registered foreign Cook Island, offshore asset protection, trust, what all that for two years of solid case law, again, so it's fully registered offshore from the day we created with the offshore trustee, they're there in standby just in case you need them and then we build a bridge back to the IRS for IRS classification. So the IRS is literally taking this foreign trust and then they're classifying it as a domestic US trust, by complying with USC Section 7701. It's called the court test control test and so because of that bridge, as long as we have our compliance in place, we stay classified domestically and what this does is that the trust is now going to be cheaper to create. So generally, a purely foreign trust is going to cost like 4550, even $60,000 plus $12,000, a year to maintain very expensive, a hybrid trust is going to be cheaper, you're generally gonna be talking about, you know, 23 to 30,000, to set up a hybrid trust, plus no IRS tax filings whatsoever, while you're domestic because it's classified as a domestic US grantor trust, so you have no more IRS tax filings, unless God forbid, we have to break that bridge and now you also get the power of the offshore trust. If and when we need it. It's in our toolbox now, just like a contractor who says like, okay, hey, I don't need to use all my tools today. But I'm going to need them possibly at some point. So now I can use them as I need them. Versus coming to me later on after the fact oh, my God, Brian, I mow somebody over with my car, like, can you help me? You know, like, I want that foreign trust? Well, no, sorry, it's after the fact I can't do it now. But if we have the hybrid, I could have engaged it. So that would be like during the State of duress, we would break the bridge, stop being an IRS compliance, you are what you are a foreign trust. Until that point, you want to be classified domestically. So that hybrid trust is very, very effective, you may control of your assets, you may take control the trust, right up until that doomsday scenario where you don't want to be in control of it anymore. You know, maintenance and compliance with the IRS. Very simple. So at that point, you've now checked off all the boxes, effectiveness, cost control and compliance check, check, check, check, check and so this is where you know, for our clients, we generally are starting with these hybrid trust.   Michael: Wow, this is wild, is super cool and so are you thinking that most folks that are in that kind of million dollars of expose net worth, this is where that starts to make sense.   Brian: That's exactly like, so our main client profile that comes in you would think they'd be like, you know, 10s of millions of dollars for us, like realistically, I would say 75% of our clients generally around that 1.2 million, exposing that. Some high risk, probably like a doctor or surgeon lawyer, or just straight real estate investors. I have some of my favorite clients, nurses, firefighters, cops who self-funded their retirement through cash flowing properties, and now they're about to retire and they realize like, I can't lose all of this now because this is literally my nest egg and my legacy. Yeah, they need to lock it down and so you generally see the average client profiles like 1.2 to 2 million of exposed net with some risk, and it makes sense at that point. Yeah, get the LLC get the limited partnership get the trust for like 30,000 dollars locked down a million plus, and then sleep well at night. That's when the investment kind of makes sense for this type of protection.   Michael: Yeah, that makes total sense and what would you say because I would imagine, after listening to this folks might go to other attorneys they work with mentioned this type of hybrid trust and they might be told now you don't need an LLC is good enough. I mean, what's the I know, we've talked about kind of a counter argument, but how does that conversation get ahead?   Brian: Most of the time, I was, say, like the one the estate planning attorney, they will know about this, because their knowledge base, you know, is just not going to be around, let alone foreign trust. I mean, there's not that many people who even know like that much detail about how a foreign trust works, let alone using the incorrect domestic asset protection trust, you know, how many times I have California residents, using the Nevada asset protection trust, and the person who set it up for them, like the lawyer has no idea like, okay, what about this case? We're still in 2012, California case that said, hey, you're a California resident, we don't recognize asset protection trust, because we don't have the statutes here. So your Nevada asset protection, trust, and sorry, it's worthless, it's not gonna it's not gonna work, you know, so unless you go to an actual specialist and say, hey, here's the case law, here's what's going to happen down the run. Most people don't have that level of education, because they're not in that world. They don't exist in in it. So I feel bad for the clients because where's the knowledge come from? You think you're going to an attorney who was specialized in this, but you're not taught this in law school, you're not taught this for the bar exam, so how you develop this level of knowledge is really just did you get into the right group of people and were you passionate about it enough to like transition your practice into it… That's why I do these talks is just to educate people and you know, just the base thing, like, why not just an LLC, they're disregarded entities for tax purposes. So they're disregarded for taxes. That means it's disregarded to you for lawsuits and liability, meaning you're pierced. If you're using them for real estate. They're not businesses, they're holding companies, which means the number one argument that will win and pierce that every time is well, Your Honor, this is an actual business. It's an extension of Michael is just a holding company. Boom, you're pierced funding issues, bad accounting systems, like there's four ways to pierce that veil right there and I don't even have to think part about it. Charging, charging order protection mean, like what state do I go set these things up in? You know, how many times I hear people like, oh, just go create a Wyoming LLC? Are you a resident of Wyoming? Is the asset in Wyoming and the answer is no to either one of those, you just tried to buy another state's jurisdiction, that you have no connection to try bringing another state's laws to like California and other state that you're not connected to, and there's no reason to, you're gonna get laughed out of court. Like, it's just you can't go by other states more beneficial laws and bring them, you know, to another state that, you know, that has no jurisdictional connection to it and anonymity is the other like, really, like, flavor of the last like, two years is like, oh, create this anonymous, Delaware or Wyoming? Trust and Ghost the lawsuits, right? Yeah, well, that's not how these that's not how it works but that's how it's being sold by, you know, law firm salesmen and promoters. Yeah, create this and get a really crazy operating agreement and then next thing, you know, like, you're never gonna have to show up in court. I'm sorry, you have a personal agent of service for these out of state law firms their sole job, like, let's say, Mike here is my, you know, personal agent of service, he's gonna get my service and he's gonna say, hey, Brian, here's your service. That's why dude, you just…   Michael: Got to show up in court…   Brian: Court now and amenities done at that point. So the only way that an amenity works is you show up the court, a judge is gonna say, Hey, you're getting sued for a million bucks. Here's your you know, asset disclosure list. Tell me everything that you own, because we didn't know what can be collected on or not, at that point, and amenity or a quote, unquote, air quotes, Secrecy is now up to you. So you're gonna decide, am I gonna lie under oath and hope to god, I don't get you know, my operating agreement will hold up and commit perjury in court, or do I just disclose it. So like, you're the weak link at that point and then if you lie and commit perjury, under oath, you're going to jail on top of losing your assets. So it makes more sense just to say, hey, create a proper asset protection plan, LLC in the state that is layered up into a management company, once you hit the net worth put in the trust, and then sleep well at night because at the end of the day, I don't care if you lose your lawsuit. I care about it for your collectible or not, you know, like you can lose the 10 $50 million case. I just if the asset protection trusts setup strong and in the right jurisdictions with a proper exit strategies, does it mean that you can be collected on and then it lets me settle a case for pennies on the dollar…   Michael: Dang this is nuts, Brian… This is like or this is earth shattering stuff. We got to have you back on to talk more about this. But I want to be very respectful of your time get you out here for people that have a similar response and you're like, holy crap, I gotta call this guy Brian, immediately. Learn more about this, reach out for your services. What's the best way for folks to get in touch get a hold of you?   Brian: Yeah, one great resources, jump on my website, www.btbegal.com , I use it more as an educational resource with a lot of case law client studies. I just want you to be educated at the end of the day like, listen this here's the case law. Like, that's what lawyers should know about, especially trial lawyers. That's why I'm a good trial lawyer. I tell stories through case law and then another great way is through my email, you know, Brian: B R A I N @btblegal.com. I do you know, free 30 minute consultation, whether we're a great fit or not, like we'll figure that out over the phone. I would just rather how people have an educated decision, and then they can like go shop around.   Michael: Love it, love it. Well, hey, man, thanks again for coming on. Really appreciate the time and we'll definitely be in touch.   Brian: Yeah, for sure. Thanks brother…   Michael: All right, everyone. That was our episode, a big thank you to Brian for coming on talking about a lot of things that we've never heard before on the show and definitely bring up some excellent counterpoints to be thinking about as always, if you enjoyed the episode, feel free to leave us a rating or review wherever it is to get your episodes and we look forward to seeing the next one. Happy investing…

As a lawyer in Nashville, Tennessee, Brian Boyd helps clients with real estate, construction, and business matters. It is with that knowledge that he and his wife, Dawn, have grown their portfolio to a six-figure income. Brian earned his BA from the University of Tennessee—Chattanooga, a JD from Samford University's Cumberland School of Law, and an LLM in Taxation from Georgetown University Law Center. When not practicing law or working with Dawn on their real estate ventures, Brian can be found on the Brazilian Jiu Jitsu mats at his local gym. His newest book is Replace Your Income: A Lawyer's Guide to Finding, Funding, and Managing Real Estate Investments Today Brian talks about corporate structures, how they differ, and what you could be doing to protect your assets. Episode Links: www.briantboyd.com. www.boydwills.com --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum. And today with me, I have Brian Boyd, who is a legal tax professional as well as an author and active investor. He's gonna be talking to us today about what we need to do to protect our rear ends. So let's get into it.   Brian, what's going on, man, thanks so much for taking the time to hang out with me today. I appreciate you.   Brian: Hey, Michael, thanks for having me today. I'm glad to be here.   Michael: I am super excited to chat with you. Because you are a legal attorney and investor something we don't often see too much of.   Brian: Yeah, I am. I started out in Washington, DC as a tax attorney at a company called Ernst and Young. And over the years, I got into real estate and investing because I was representing a lot of contractors and developers and started looking at the way they were doing their businesses. And from there, I started tweaking their models trying to figure out well, how can I make this a little bit more tax efficient, create a little bit more loss with a lot more cash flow. And so that's when my wife and I in 2017, decided to get into real estate investing on our own. And now we're up to 25 doors, and we're cash flowing just fine. You know, in, in fact, maybe in the next year or two, she could step away from her full time job. And we'll just manage real estate.   Michael: Man, I love it. And so is your background in tax or on the legal side of things, or both.   Brian: So I have a JD and I have an LLM, which is a master's degree in, in law. But It specializes in tax. So yes, I do corporate formations. I do business transactions, helping people the real estate, anything and everything to do with businesses, individuals and their finances. In real estate investing. That's what I do. So there was a time I used to go to court, but I don't go to court anymore. My partner goes to court, and I just do business transactions and real estate investing.   Michael: Man, I love it. And before we get everyone's hopes up, you are located out in Tennessee. But is that the only state in which you practice in? Or can you help folks all over the place?   Brian: So I am licensed in Tennessee and Vermont of all places. My partner is licensed in Tennessee in Maryland. But if it has to do with federal law, I can work all over the country. However, if people are asking specifically about California law, I'm not your guy, call a local attorney speak to a local attorney. But from a structural standpoint, I can give you the basics and kind of point you in the right direction. But unless you're in one of those jurisdictions, and you want me to practice in those jurisdictions, those are the jurisdictions I'm limited to.   Michael: Okay. Well, let's talk about that for a minute. Because I think we were chatting before the show, we hit record, and there are a ton of Californians physically moving out to Tennessee. But my guess is they're probably a lot of Californians investing out in Tennessee. And so for those folks that maybe live outside Tennessee, but are investing in Tennessee, in terms of structuring their team around them, should they be thinking about having a local attorney local to them, as well as someone such as yourself or a an attorney located where the property is? How should you be thinking about that?   Brian: No, that's great question. I actually had an attorney contact me a few weeks ago and he is a he's in Chico, California. He called me and said, Hey, I properties in Tennessee. Can you help me on what? Yeah, I'll absolutely be happy to help you. And so what we did is we structured a Tennessee holding company with a wholly owned Tennessee subsidiary. And even though he's out there, he owns the LLC here. And as he invests around the country, like Texas, or Florida, or you know, any of the other states, you know, we'll set up other holding companies to represent those entities. But he can stay in California and own these companies, as long as they're structured properly, to pass through to him over in California.   Michael: Okay, awesome. Well, Brian, give us like, the quick and dirty if there is such a thing of what investors need to know, because I think a lot of our investors are starting to scale their portfolios that got a couple of deals under their belt, and they're really looking for some asset protection. What are some things they need to be aware of and where have you seen people go wrong?   Brian: So I have seen people go wrong with a few misnomers about what they believe series LLCs are and what land trusts are. So a series LLC, I know that everybody hears therefore multiple properties. and they are. But they also don't understand that when you have a series LLC, you have to have a separate bank account, a separate tax ID separate books, all of that creates an administrative burden on you to keep all these bank accounts separate all these books separate all these tax IDs separate. And typically I see those used more efficiently if you're a developer, that way you can develop a series, sell it, and not worry about it. Again, if you're holding your assets in series LLC, and you have series one through 10, for example, that's 10 tax IDs, that's 10 sets of books, that's 10 book keeper entries every month for those separate things.   Whereas if you just have an LLC, and you treat it properly, so your corporate veil cannot be pierced. And a corporate veil is the corporate formalities that you have to adhere to. So your corporate structure is honored by the courts. And typically, here are the things that people get popped for, they'll pay for their groceries out of their LLC, they'll pay their own mortgage out of their LLC, or they'll just treat their LLC like a checkbook. And that's not what it's for. It is a standalone entity, and it has to be treated and respected that way.   So if you don't do those things, you're fine. Your one LLC is going to handle it just fine. For example, my wife and I have, we have a parent company, and that parent company has two LLC is underneath it. And one LLC is for our portfolio over here. And the other LLC is for that portfolio over here. And it all flows up into the holding company, which is a perfectly fine way to structure your holdings. Yes, it is more filing fees every year, it's three filing fees. But if you're trying to get away from filing fees by creating a series, LLC, you're losing the war to win the battle on a filing fee. Because you're gonna pay all these other expenses for tax IDs and book entries and bank statements. And you're just creating a mess. I would not use series LLCs.   Now as it relates to land trust, we mentioned that earlier, I've heard a lot of people say, Well, I want to use a land trust. Why do you want to use a land trust? I understand that land trust, get it out of your name. And I'm well aware of that. But it doesn't really create any protections like an LLC would. A lot of people say, Well, I want the anonymity of an LLC, well, you can have the anonymity, you know, of an LLC without using Land Trust. Many states, Wyoming, Tennessee, Texas, you can file your LLC documents, and your name won't appear anywhere on there as long as you use a registered agent. So you can receive the benefits of the anonymity that comes along with the land trust by simply using the LLC. And you'll get more protections with the LLC.   So I would encourage your listeners to go talk to a lawyer about setting up an LLC to hold their assets, I tend to eschew Land Trust, they don't really provide the protection that people think they do. Unless you're using an irrevocable trust, which is a trust that gets it out of your estate. Not only does it get it out of your estate, it gets it out of your control, and you can't do anything with it, you have to go through a trustee and that trustee is supposed to use their best judgment on what to do for the trust. So think about that, as you move forward. And these these ideas that people read about online, I really like LLCs, my wife and I use them, I encourage my clients to use them. So that's just coming from my experience and what I do day to day in my practice.   Michael: Yeah, from a lot of the folks I've spoken to it sounds like the LLC has come like the Colt 45. For real estate investors. It's reliable, it's standard issue, it can do a lot of the things you need, you need it to do. It's nothing fancy, it just can get the job done.   Brian: No, absolutely. I agree with that statement completely. Okay, cool.   Michael: And, Brian, I think you're a good person to ask because I think we have similar styles of investing and asset protection, which I'm glad to hear. It sounds like you've broken down your portfolios into two separate LLCs What comfort what level of comfort do you have with the size of your portfolio in each LLC, before you want to further break it up or bring additional LLC online?   Brian: And you know, that's a good question. So the way we have treated our LLCs is we go by city, what's in each city. So for example, in Chattanooga, we have an LLC for Chattanooga, and Knoxville and Gatlinburg, we have an LLC for those properties. And in our short term rentals are Montana and the West Tennessee property. We have a separate LLC for that because they're out west So we've kind of broken it down over here, over here and over there. And then we have a parent LLC over top of it. So it's not really a matter of the number of doors or number of properties that have in an LLC. For me, it was geographic, and being able to keep everything separate. And especially for our bookkeeper to know that, hey, these are Chattanooga, they're in that LLC. When you run that k one, it needs to include all these properties. Same over here. So it wasn't a matter of my comfort level with the number of properties, it was just a matter of how can I segregate out all the separate assets that we have and make it user friendly? And also, we're not clumping all of our assets into one LLC. We're spreading them out. But we're doing it geographically.   Michael: Right. Okay. And as you and your wife do start to scale, I mean, is there a number of value that you that you'd see hitting in a particular LLC and saying, oh, that's maybe a little heavy, and that LLC, even if I'm investing in the same geographic area, let me bring online, another LLC, just so I don't have so much value sitting in a singular bucket? Or is not? Is that not really a concern of yours?   Brian: No, that's not really a concern. And here's why it's not a concern. It's because it doesn't really matter how much my entire portfolio is valued at, I'm always going to be deploying that equity somewhere else to get into another deal. And that equity may get deployed into another LLC. So it's not really a matter of oh, we're too heavy in this particular market. If I had 1000 doors in Chattanooga, I would still leave everything in that one LLC.   Michael: Okay, right on. Let's talk about insurance for a minute. Yeah, how much is enough?   Brian: I would tell people, you can't have enough. You can't. So we, we have homeowners insurance on every single property. And then our LLC is have business insurance as well. So we also have business insurance for the LLC. And each property is fully insured. And then we require renters to have homeowners insurance. And on top of that, we require renters to use a product called say Rhino, which is security deposit insurance. So they're not paying us a security deposit that we're holding an escrow for them, they're paying monthly, you know, let's say, you know, a month's rent is $1,000, we typically require two and a half months of rent for a security deposit, will Rhyno only requires them to pay like $8 per 1000. So they would much rather pay 20 to 24 bucks, as opposed to tune $2,500 in security deposit. And over the over the year, it comes out a lot cheaper for them. And we're safe and secure, knowing that as long as they're paying that Rhino insurance. If we have to make a claim, it's there, we've got it, they'll take care of it. So we're we're layering insurance, on insurance, on insurance with every everything we can do. So not only from a corporate standpoint of the company, and the asset, but also the tenants and the security deposit. So that's four layers of insurance.   Michael: Run that by me again, what rino does so so they are basically ensuring the security deposit, then you can make a claim for damage against that security deposit up to that limit.   Brian: Yes, yes, absolutely. That's exactly what they're doing.   Michael: And what about the tenant that goes haywire, decides I'm gonna stop paying rent? I'm not paying this right. No nonsense. So they stopped paying it. They've paid six months to date. How does that work?   Brian: Yeah, we make a claim. Like if, and so we're, we're on top of our rents and our tenants. And it's in our lease that you have to pay all this stuff. And they do. And if they don't we just make a claim immediately.   Michael: And how is your claim experience spin with those folks?   Brian: We haven't had to make a claim yet. But the person Yeah, the person I learned this from, he turned us on to it. And we're like, what, have you ever made a claim? He's like, Yeah, they paid us in four days. I'm like, done. You know,   Michael: Yeah, I'm sold. I gotta go check this company. What's it called?   Brian: Say Rhino. Okay. And, you know, we looked into it. I did my research on it. I think they just did another round of fundraising. And we were sold. We've talked to him, they're easy to work with. They won't reject any of your tenants regardless of credit. As long as you approve them, they're approved. So I take it look, yeah, no longer holding escrow and no longer dealing with security deposits. Let them deal with it. And our experience so far has been great. Let's knock on wood. I don't have to use it. But if I do They'll also pay attorneys fees. So, if you have to let somebody Yeah, go make a claim.   Michael: Man, this podcast just took a wild left turn, but I love it. I've totally here for it.   Brian: Yeah, it's, it's, it's great. And that all goes into ensuring our company, ensuring our tenants making sure everything's taken care of, but also protecting us, because we have put a lot of money a lot of time into these assets. And, you know, we want to protect those assets.   Michael: Yeah, no, it makes total sense. Speaking of Brian, let's talk about this topic for a minute, because you're another good person to ask because you have both short term and long term rentals. Do you see a difference in risk exposure between the two and grouping both asset classes in us in the same LLC?   Brian: No, I don't. The only risk that you run with short term rentals is the seasonal market. In that, you know, we were just talking about Gatlinburg, you know, and people don't realize that the high season is actually summer in Gatlinburg, and it's not winter, which is kind of weird. But yeah, people don't want to go to cabins in the winter. So you've got to be able to weather those low months. But no, I would keep both assets in the same LLC if it's in the same geographic area for me.   Now, that's not to say it's not right for you. And you know, we could also talk about what's best for you. But no, it doesn't matter to me. Because for us, as everything flows up into our tax structure, we've created this, this LLC step tax structure, that everything flows to the top as a pass through. So everything's flown to the top and the parent company pays all the mortgages on everything. So if you have long term rentals that are just, you know, clicking along and you have a week, month, say in Gatlinburg, like we both know that January, February is a week, month in Gatlinburg. You know, there's plenty of money just to go ahead and pay that note. So that's, that's how we do it. And that's what I encourage clients to do. Because you're, you're not really breaching the corporate veil of everything flows up in the parent company's paying for everything. And that's how we structured it. So we're still, you know, adhering to the corporate formalities, respecting those corporate formalities, and everything is paid from the parent company.   Michael: Okay, cool. And then from like a legal risk mitigation perspective, short term rental doesn't sound like it poses any additional risk as compared to a long term rental.   Brian: No, I wouldn't think so. Because the the management companies and I don't know, if you use the management company, but they have them sign all these documents, and they have their own attorneys, or all these waivers in there, and they have to put a security deposit down, you know, to rent the property and, you know, a cleaning deposit. And there's so many different deposits that we tend to get good renters at all the properties.   Michael: Okay. Okay, fantastic. And as someone is thinking about scaling their portfolio into multiple properties, maybe some different asset classes, from an entity structure, is there anything that they should be aware of, or they should be doing differently, if they've already, you know, started using LLC us in the past?   Brian: I would stay with LLCs. If you if you turn to like a C Corp, you get the double layer double layer of tax. If you turn to an S corp, I think you're gonna have to deal with more corporate formalities than you are with an LLC, an LLC is very flexible with what you can do with it. I wouldn't go with a partnership, a general partnership doesn't tend to have the protections nor does a limited liability partnership. You really want the corporate structure of the LLC to stay in place.   So there is no other entity out there that I would encourage people to use other than the LLC. You know, reasonable minds can differ on that. I wrote a chapter in the book on it. But at this point, I am not advising clients to use any other structure other than the LLC, it's very flexible, it's easy to buy and sell assets through and quite frankly, you know, it's it's easily respected in the state of Tennessee and in other states as well, I'm sure you know, LLCs are just common now, you know, as common now as s corpse were in the 60s 70s 80s and up to the 90s.   I would also encourage people to look at Wyoming, Wyoming is on the cutting edge of LLC formation. You know, they recently came out with a new type of LLC that has to do with crypto currencies and blockchain protections. It's it's crazy what they're doing out there. Tennessee follows shortly thereafter and we're all still trying get our heads around it because one, I'm not a crypto guy. I don't know a whole lot about it. But you're starting to deal with like blockchain technology for the way people can vote. It's, it's really fascinating. So I do like Wyoming, I have a Wyoming LLC for one of my assets. And, you know, it's a great state as well.   Michael: I dig it. You mentioned your book, let's talk about that for a minute. What's it called? Where can people find it? And what should they expect to find if they get a   copy?   Brian: Sure. It's, it's called replace your income, a lawyer's guide to finding funding and managing real estate investments. And they can find it on Amazon. Or they can go to www.BrianTBoyd.com. And they can order it through there. So the reason I wrote this book is because I'm having conversations very similar to what we're talking about now, about, how do I form things? What do I form? Why do I form it? Should I put all my assets in one LLC? And this book came about as a compendium of all those conversations I've had over the years with, with clients in real estate investing, how do they get started? How do they find properties? How do they get a loan? You know, what kind of loans are available? What platforms do I use? Do I do I use, Say Rhino? Or do I use Bildium? Or, you know, what's available? How can I do this using technology to leverage efficiency here? And so it's 13 chapters on all of that, including tax benefits, finance tips, how to structure an LLC, what you need to think about when you're putting together an operating agreement? You know, what's the difference between an operating agreement and bylaws? What's the difference between a charter and an articles of organization. I try to break it down. As if I'm talking to my 11 year old son, anybody can understand it. And that's what I want people to know about this book. It's, anybody can invest in real estate. You don't have to be a professional or have, you know, a six figure income, you can be a college student and start house hacking. You can easily you know, get a loan go buy a small two bedroom, one bath apartment somewhere, and get a roommate, move a roommate and then charge them rent and now your house hacking and now your real estate. And so it's possible for everybody.   Michael: Yeah, I love it. I love it. Brian, curveball question here. What's the best compliment you've ever received?   Brian: That I married up?   Michael: Is that Is that a compliment to your wife? Is that a sort of backhanded compliment to you?   Brian: It's probably a backhanded compliment to me, but I I, I could not do what I do without my wife, my wife is, you know, she's an inspiration. She basically runs the entire company. She only lets me talk to people if she can't figure it out. And she is the backbone behind this company. And the funny thing is, I had to drag her into real estate investing, I kept telling her about all the tax benefits of this honey, we can, we can make passive income. And, you know, let me tell you about appreciation and depreciation and how we can, you know, offset some of our income taxes. And she didn't believe me. Now, mind you, I have a master's degree and like, I went to school to do this. And I actually did this for a living for years. And somebody handed her Rich Dad, Poor Dad, and she read it and we're lying in bed when I was like, Hey, did you know that? If we did this, we could pay for a car?   I was like, yeah, she's like, did you know we could write our phone bill up? I'm like, Yeah, I did. She's like, did you know like, we could buy a computer and write it off in one year? I'm like, yes. I've been telling you this. And she doesn't believe it coming from me, the guy who has two graduate degrees and does it for a living, but she believes it from the guy that wrote the book, and I'm like, Okay, well, maybe I need to write a book and she'll she'll listen to, but she still doesn't listen to me. So it is what it is. But she she runs this company. And you know, I couldn't do without her. So when somebody says, I'm married up, I'm like, Yeah, I did. And I'm very lucky I did.   Michael: Amazing. So amazing. Well, Brian, that brings up maybe my last question for you. Before I let you out of here. I think there are a lot of folks probably listening to this that have a partner significant other that aren't interested or aren't involved with a real estate investing, but they would really like them to be or they need them to be. And so you went through this struggle with your wife, how how should people be thinking about bringing their other partner into the fold?   Brian: What I would tell them is you don't have to buy the book. You can look online and see the tax benefits of it. Is that You're going to create positive cash flow. And you're going to create tax deductions that's going to offset not only your cash flow, but your current income tax liability. So if you would like to pay less in income taxes every year, look at real estate investing. Look at it. You know, if you decide not to do and it's not for you, okay, don't do it. There are other things you can invest in. But our Congress has codified our public policy of investing in real estate in our tax code. It is there for you to take advantage of, look, when it comes tax time every year, I always kind of get a little tense, but then I'm like, Okay, well, let's go go buy another property. And then we can cost segregate that property, accelerate the depreciation, and create a larger tax deduction for ourselves, and it's not so painful come tax time.   I'm sure you know that as well that, hey, we can cashflow this property. And, you know, the government actually is encouraging us to go buy real estate, the government is encouraging you to succeed. And that's all I want for anybody is to succeed. You know, this book, I think it's 19.99. It's a lot cheaper than sitting down with me for an hour. And this is everything I've already talked about with people, and I do on a regular basis. So if your spouse is struggling to get on board with your idea of real estate investing, you know, maybe buy the book for them and show them that, hey, this is possible.   You're talking to a guy who worked two jobs to put himself through law school, and then two jobs while I was in graduate school on top of that, and I'm still paying off student loans. But you know what, I paid off a student loan last week. And I did it because we got a refund. That came back to me as a result of the deductions I have through real estate. And the first thing I did with that check was, hey, it's enough. I'm going to pay off that loan. And I did. So it's, it's a real example of how real estate can affect your bottom line.   Michael: I love it. That is awesome. And congrats on getting that loan paid off. That's really exciting.   Brian: Oh, thanks so much.   Michael: You got it. Brian, we're gonna get you out of here. If people want to continue the conversation, learn more about you. What's the best way for them to do so?   Brian: They can get in touch with me at the law firm. The website is www.BoydWills.com. And, you know, you can reach out to me on the Brian T Boyd, Facebook page and on Instagram.   Michael: Okay, amazing. We'll be sure to do that. Brian. Thanks again for sharing some amazing wisdom man. Appreciate you coming on. We'll talk soon.   Brian: Thanks, Michaels. Good to be here.   Michael: You could take care.   All right, everyone. That was our episode. A big thank you to Brian for coming on and sharing some wisdom about LLCs asset protection, tax benefits and some loopholes that we can take advantage of as real estate investors. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing

Neal Bawa is a technologist who is universally known in real estate circles as the Mad Scientist of Multifamily. Besides being one of the most in-demand speakers in commercial real estate, Neal is a data guru, a process freak, and an outsourcing expert. Neal treats his $947 million-dollar portfolio as an ongoing experiment in efficiency and optimization. The Mad Scientist lives by two mantras. His first mantra is that "We can only manage what we can measure". His second mantra is that "Data beats gut feel by a million miles". These mantras and a dozen other disruptive beliefs drive profit for his 700+ investors. In today's episode, Neal gives his take on what is happening in the multi-family market today, the dynamics of the current economy, and what he sees coming over the next year. Episode Links: https://multifamilyu.com/ https://www.linkedin.com/in/neal-bawa/  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today joining me again is Neal Bawa, who is the founder of MultifamilyU and a big time multifamily syndicator and Neal is gonna be putting his finger on the pulse of the multifamily market and sharing with us some pretty hard hitting facts. So let's strap in, and let's get into it.   Neal, welcome back to the show. Thank you so much for taking the time to hang out with me. I really appreciate you coming on.   Neal: It's great to be back, Michael. Great to be back.   Michael: Thank you, Neal. So last time, on our prior episode, we talked a lot about the single family space and what we saw going on with the market today. I'd love if we could focus our conversation on multifamily, since I know that you do quite a bit in that space as well.   Neal: That's right. I live and breathe multifamily. I started with single family like a lot of you know, the folks that are using your platform did, but multifamily is more scalable. So we currently have about a billion dollars of multifamily 31 projects about 4800 units that are either in construction or in lease up or you know, are stabilize, right. So, you know, a significant portion of them are already stabilized that we're holding, but we're also building a bunch of them, and working on the construction of some of them. So it's you know, what's happening today is so dramatic and so unusual. We you know, one could compare, maybe it's not as dramatic as the first three months of COVID. But otherwise, it's pretty crazy. It's pretty dramatic, dramatic. So it's, it's a great time to talk about multifamily.   Michael: Yeah. So a billion dollars and just turning back the clock a minute. I'm curious, how long did it take you to get to that point from when you started?   Neal: So I you know, ignoring a past company where I was a partner, this particular company has basically gotten to that billion dollars since February 2018. So, so about four and a half years, roughly.   Michael: Holy smoke, I was just interviewing a gentleman who's got a business he wants to scale to a billion dollars over a nine year period. So you mourn cut that in half, that's incredible growth. Neal: Well, keep in mind, I don't want to demean what we've done, because we're very proud of it. But with a when you're purchasing multifamily, the numbers get big, pretty, you know, quickly, right? So 100 unit multifamily today is $20 million. So you do get up there very fast. So I still consider myself to be a mid-level syndicator. There's dozens and dozens and dozens of companies that have bigger portfolios than I do and also, for reference, a billion dollar portfolio usually only equates to about 10 employees in a syndication business. Now, in my case, I have 30 employees, because I've 20 of them in the Philippines and that's helping me scale and so I have 20 full time employees in the Philippines in addition to those 10 people. But I think it's useful to have that frame of reference, I think that you're setting targets in multifamily, a billion is actually not a bad target the set.   Michael: Okay, I will definitely keep that in mind as I as I scale my portfolio. That's, that's really great to know. But Neal, let's transition and I would love to get your thoughts because you are a data scientist, you have so many great analytics to kind of backup your thoughts and opinions and viewpoints. Tell us what like what's going on in the multifamily space as we recording this today late, mid to late September.   Neal: Prices are falling and they will continue to fall. It's a bad time to buy any kind of multifamily in any market in the US and I rarely, I've never actually said that before, maybe with the exception of you know, first month COVID. It's currently right now, no one should be buying anything in the United States. But here's the good news. You don't have to wait very long. The market is now adjusting very rapidly. So I think that I think February March of next year would be a terrific time to buy you know whether it's the one to four units that get listed on Roofstock. By the way, I currently have a triplex listed on roof stock, check it out, it's on Brandon Avenue in Chicago. Whether it's those units or it's the you know, the larger unit we were also selling, you know, a 200 unit property at this point in time not on Roofstock but we're not buying anything. I mean, we've basically told our acquisition people to be pencils down stop looking, stop talking to brokers stop traveling to properties, because we are halfway through a correction. So and I'll explain why. Multifamily is a very different animal from single family. So let's say Michael is buying a single family property and it's next to another one that's identical to it. So there's two row houses and next to it. Well, if somebody last month paid a million dollars for the first one, Michael can get a loan that appraises for 1,000,000 value for his property, he can get that easily, regardless of what really happens in the market, he can get that, you know, and prices take so long to fall that even if the price actually falls, Michael can use a comp from half a mile away to still get that million dollars in value. So the banks on the single family side are really trusting you to do your, you know, to not to overpay, right. So if they're just looking at it, is there a comp that matches it and if it does, we'll just give this guy alone, right and if they feel like the times are hard, they might change their LTVs from 75 to 70 and but that's pretty much as far as the single family market goes. The multifamily market is radically different because a multi one multifamily property is a business. It's like you're buying a Tommy's carwash, or you're buying, you know you're buying a subway or a chain of subways, that's the best way to look at it. It's a business. So your underwriting really doesn't matter. It's the banks underwriting that matters, the bank that's giving you the funding and the moment that we start seeing interest rates go up in the market, the value of the property immediately decreases. Why? Because the bank's underwriting decreases the value of the property, because multifamily properties are based on just two things, something known as a cap rate, which is basically the market's estimate of what the property should be worth and then something else known as net operating income, which is basically rents minus expenses right? Now, the moment and you know, the moment your interest rates increase, and most multifamily today in the US is on floating rate debt. So what that means is, as interest rates go up, your mortgage is going up something a number called DSCR. I won't go into that into detail on that. But there's a number called DSCR, that basically starts to fall. So the higher your mortgage goes, the lower that number is. This means that, you know, let's say I'm a buyer and I'm selling two multi families and they're right next to each other, right. So they're same number of units, same occupancy, same design, so that their net operating income for both of these properties is exactly the same, like down to the last cent right. Now one, let's say one soft sell sold for $30 million. Okay, and I waited a month like 30 days, and the Fed raise interest rates by 100 bits right, but basically 1%. The second property now is worth less. It's worth less, even though there's another property that sold 30 days ago, that's identical with the same number of tenants with the same rents. It's now worth less so multifamily is on a sliding scale and that sliding scale is affected by interest rate hikes much sooner than single family.   Obviously, single family is also affected. We've seen there's 90 bond markets in the US where single family prices are coming down, but they're coming down really slowly, right. Like the I think the average decline in the last six weeks has been 2%, right and I mean, seasonal declines are bigger than 2%. So I don't even know what to make of that 2% yet, but on the multifamily side, depending upon the market, we've seen declines of six to 12% in multifamily prices already and in remember, the Fed only really started raising in May of this year that you know, we're doing this in the middle of September, right. So in five months, the Feds basically raised everything there was a tiny raise back in March, but it was it was so tiny that it really didn't make any difference. So in five months, the Fed has basically affected multifamily prices to the tune of six to 12%. Here's the bad news. That's not the end, because everybody including yours truly was thinking that when last week's inflation report came out, we would see a downward trend, and the Fed would give us some guidance that yeah, okay, well, instead of raising by 75 bits this week that there's a Fed meeting going on this week, we're gonna raise by 50 and then we'll see what happens in November, maybe we'll raise it by 25 and we were like, okay, if that happens, great. You know, where the Fed funds rate is at 2.25. They raised by 50 pips this week, then they raised about 25 pips in November at 3%. We're done with the Fed funds rate, and that means that multifamily doesn't have to drop any further. Well, it sucks but that didn't happen. Inflation didn't drop and so now the Fed this week is definitely going to raise interest rates by 75 bits, maybe they might even do it by 100 and that basically will spike up interest rates by 100 points immediately and then they'll have to do 75 points in November and maybe another 50 points or 25 points in December. So because of that bad news, we now know that we're midway through this drop in multifamily, right. So we think that there's another five or 6% drop coming by February or March. Is this bad? No. If you're not, you know, if you're not buying anything, just wait for five or six months and you get five or 6%. You know, you know benefits. What the heck is wrong about that because the market isn't bad. Rents haven't decreased, rents are continuing to increase nationwide for both single family and multifamily. So this isn't like 2008, where there's 5 million empty homes show me empty homes. I mean, there really aren't any, the market is an amazing occupancy levels. This is just one single factor, the cost of debt. So, if you can, in February, buy a property for 5%, cheaper, you will have had two advantages. Number one, the next six months, you're not paying for that high cost of debt, right? Number two, you would, you know, say 5%. So your property is cheaper, so your debts less right? Number three, you will be within six months of the Fed cutting interest rates. This is the part that most people don't understand. The Federal Reserve is not trying to kill us. They're just doing their job. and their job is to control inflation because if you don't control inflation, really bad shit happens really, really bad should happen. So it's much better to control inflation and obviously the industry that is most affected when you raise interest rates is real estate. No other industry in the US is affected as much as real estate by interest rate hikes. Here's the good news though. If you look at the last 61 years, the Fed raised interest rates nine times sharp up sharp down. So if you buy in Feb, by, I think July or August, the Fed should be dropping interest rates or at least talking about dropping interest rates.   Why is that important? Mortgage rates are guesses. So single family mortgage rates and multifamily mortgage rates in the US are just guesswork where the market tries to guess what the Fed will do next. So if the Fed starts talking about interest rate declines, the market starts to prices in., right and when the Fed says oh, well, we might hold, right the market reacts. So the interest rates basically adjust even before the Fed actually does anything. Perfect example of this: In December, the Fed started talking about interest rate hikes, but didn't actually raise anything. They didn't change anything until March. But in those four months, interest rates went up 100 basis points, they went up an entire 1% because the market was guessing what the Fed would do. So if you buy a multifamily in February and the Feds basically start to lower rates by June, July and August. Now you're in a better environment and as long as your rates are floating, they may float the other way, they may float down and give you a benefit. Where you start high and then you float downwards. That's why I think it makes sense to wait. I've seen a lot of my friends that have larger portfolios and me 2 billion 3 billion send emails to their investor saying we're pencils down. mean, what that means is we're not even underwriting a property we you know, we see 10 properties a day and normally we underwrite three or four of them. Pencils down means you just click the delete button 10 times and you're done with your job for the day.   Michael: Wow, I have so many questions. But I guess the first one is, why are mortgage rate guesses? Why doesn't, why don't banks look at actual data and what the actual borrowing rate is today and not worry about forecasting, but use hindsight. So it takes the guesswork out of it.   Neal: I'm not 100% sure on that. Just so you know, that's what the multifamily market does, right. So the multifamily market has two kinds of loans or I should say three kinds of loans. One of them is the guesswork kind where they try and guess what the Fed is going to do. The other one is one that's based on LIBOR or now called Sofer, these are basically and basically they're based on like treasury bonds and what those numbers are those loans. The moment the Fed hikes the they're going to hike this week, right so that they have a meeting on Wednesday, that we're probably going to hype it by 75 pips. Well, if I have that kind of loan, and I do at some of my properties, guess what, on Thursday, my debt is a lot more expensive. 75 basis points more expensive. So you can see that on the multifamily side. I have never, ever seen a single family loan do that. Every mortgage that I've seen 30 year 15 year five year ARM, they're all guesses forward looking guesses on the Feds rate. Why? I have no freaking clue.   Michael: Okay… We'll have to find someone out there that can give us a definitive answer as to why that is. But I'm also curious now, you mentioned at the beginning of our conversation that in the single family space, the banks are kind of depending on us as borrowers to look at the value of the home and determine hey, this is worth or not, which seems very counterintuitive because the majority of multifamily investors that I know, tend to be able to underwrite really, really well, oftentimes better than the bank and so why is the bank's taking the power away from a multifamily investor and really giving it to a single family owner it seems a little bit backwards now.   Neal: Single Family is considered to be a REIT in the United States and single family lending is encouraged by politicians. The overall banking system believes that even if they go a little it over on the single family side, it's not such a bad thing, obviously 2008 was 2007 was different because it was not a real estate failure. It was a failure of lending standards, you know, they were basically giving gardeners million dollar loans, right. So that's not going to end well. So obviously, I don't see any evidence of that kind of stupidity existing today. So there are lending standards, they're pretty tight on those lending standards, they're not going above them, you have to be, you know, a good, good buyer. But beyond that, they as long as there's an appraised property that similar your property will appraise. I am not in favor of this other countries do not do this. Banks underwrite single family loans in other countries, the way that we underwrite multifamily loans. But because of Americans believe that single family is a very key part of their life. We've seen this appraisal based system for the last 30 or 40 years and every once in a while it blows up a bubble just like it did in 2007. So this is a conscious decision that the people that run this company had a country have made, and it has lots and lots of good sides, because it tends to overall increase the prices of single family appraisal, you know, somebody buys for more, the your property is more than next was more next one's more. So generally, it has a beneficial effect on the real estate market. But it also tends to create more bubbles than other countries.   Michael: Interesting. Okay, that's really good insights. So knowing that this isn't the ideal time to buy multifamily. What should people be doing? Is this the time to get educated, is the time to go get capitals is the time you know, what should folks be doing right now?   Neal: Um, I think that I'll give you some ideas, right? So I'll give you kind of a sense of, Well, what would Neal Bawa be doing and what would maybe somebody that's newer than Neal Bawa, you know, doesn't have a lot of multifamily should be doing. So let's just focus on that piece first, right, because what I do is really different from what you should be doing, depending upon where you are in the process. So let's say you're early in the multifamily process, you should be educating your investors, that an extraordinary opportunity is going to present itself most likely in q2 of next year. So that's, you know, April, May, June and that opportunity is there for the first time since the Great Depression, that in the 2008, depression, we have an unusual thing happening, and that will be multifamily prices, not single family, but multifamily prices will be low in q2 next year, compared to let's say, now, or compared to, especially compared to a year ago, they will be low. But the economy will not be anywhere like 2008, it'll still it'll be weak, it will be in a recession. But this is what is known as an artificial recession. So recessions are of two kinds, they come in two flavors. Number one, a recession that is artificially created by the Fed to cool down inflation, and we're about to go into one of those recessions, those tend to be shallow, and the they don't damage the economy in the long term, they create short term damage, and the economy tends to recover fairly quickly from those unemployment doesn't tend to go down too much. You know, so, so go up too much, I should say, you know, so. So we're about to go into one of those and those are the kinds of recessions where you want to buy multifamily. Why because multifamily prices still decrease as interest rates go up, regardless of the strength of the underlying economy. So the underlying economy right now is amazingly strong, right. So with all the hand grenades that the Fed has thrown at us for over five months, they've managed to move the unemployment rate from a historic 3.5% to a historic 3.7%. In five months, they basically haven't managed to dent the unemployment market at all and even that point, 2% increase has largely been because of being because of more people joining the workforce. So post COVID, a lot of people took a year and two years off, a lot of those people are now returning to the to the workforce because they're running out of that stimulus money and that's really what that point to otherwise, when you see like you might see, you know, news about layoffs in the United States, Google it actually look at the statistics. Anytime at any point in the economy, there's layoffs, right. But there haven't been more layoffs than they were six months ago or 12 months ago. It's just the regular layoffs that happened in a normal economy. So there's the economy is extraordinarily strong, and it's going to get dragged into recession simply because the Fed is going to keep throwing hand grenades until the economy goes into recession. But because the underlying economy will stay pretty strong during this shallow recession, you've got a onetime opportunity to buy cheap multifamily because multifamily is just as affected in terms of price. Whether the economy underlying is weak or strong right and you have a quick chance to come out of it and make a lot of money. You should be educating your investors telling them about this opportunity, because I haven't seen that opportunity at all since 2013.   Michael: Interesting.   Neal: That's what you should be doing, telling every investor about this and telling them, I am not buying anything now. Well, you probably know me, you know, don't have the investor money to buy anything now. But what's the harm in saying it's still true?   Michael: Right, right, right. Do you think though, Neal, that at that time, q2, next year, that folks, sellers, owners are going to see that, hey, there's this dip in prices, and therefore, I'm not going to sell because I don't want to sell at a loss I bought 234 or five years ago, I'm going to hold on to my property and no, there will be an inventory shortage, or do you do not foresee that happening?   Neal: There is already an inventory shortage in multifamily prices have still dropped. So the if you look at the inventory available to sell in the multifamily market, it's half of what we had a year ago. But multifamily is different from single family in single family is shortage of inventory tends to drive prices up. With multifamily a shortage of inventory cannot drive prices up because banks are underwriting and they don't give a flying F about what the inventory is. They just care about your debt cost and your debt cost is going up. So when so the key thing is that the single family and multifamily markets are fundamentally different. One of them is just a business and the business is based on its debt cost, and its net operating income and nothing else right. Whereas single family is based on demand. If there's nothing available on your street to sell whatever appears is going to sell for more. That's not how multifamily works. So even right now, supply is pretty low. But that doesn't mean that people are over able to over bid, because if they over bid, guess what happens, Michael, they can't get a loan for that amount and now they have to raise lots of extra equity, which reduces their returns and so a lot of them are like this is painful, we're just going to sit back for three to four months for the market to adjust. Buyers have sellers have to understand that either they just keep their property off the marketplace, which you know, you can do infinite infinitely, you can do it for some amount of time or they will adjust their pricing as they already have. Remember, we've already seen a six to 12% delta in just six months. That's how quickly multifamily reacts and I think that's why I'm in the multifamily business because I liked the logic of that. If your costs are increasing and your profits are decreasing, you should get a lower price, right.   Michael: It's pretty black and white.   Neal: Yeah, yes and that's how it works in multifamily. With single family, you can very often see costs increasing, but because everyone's holding off, nobody's basically selling their property. Everyone's like I've got lots of equity in the property. Now there's no property in the marketplace and even with costs increasing, you can often see increase in pricing. To me that has no logic and so I don't play in in that in that field.   Michael: Yeah, yeah, no, it makes total sense. Neal, let's talk about multifamily loan products and some of the different ones that are out there. You mentioned there's three different loan types. There's the fix for five 710 years, there's the LIBOR, floating rates, what's the third one?   Neal: So the second one is tied to so I'll go back, right. So the first one straightforward, fixed, usually it's five years and 10 year fixed. The second one is tied to a number called LIBOR or LIBOR or so far, these days, it's called Silver. That's kind of the new version of LIBOR. So it's a number and the loans will be, you know, LIBOR plus something LIBOR plus 2.25, right and what that means is the moment the Fed changes, interest rates, that's gonna change, right? So your, the interest rate, you're paying changes the very next day, right, the bank's gonna send you a letter saying, hey, Sofer has changed, therefore your interest rate is now x, right and boom, you're paying more, the third one is available, that is basically a rate that you it's a floating rate. right, but it's not tied to LIBOR. It's not tied to Sofer. It's speculative in some sort of ways. Now, it does tend to go up as interest rates go up, it's really tied to treasuries. Now, US Treasury bonds are a speculative product, right? So today, something happens in China or something happens in Russia, something happens in Ukraine, and all of a sudden, treasury bonds will shoot up or shoot down and so that particular rate is tied to the treasury bonds. So it's speculative and so, you know, Fannie Mae and Freddie Mac, often these floating off of these floating rates. Now, in the end, the rate is going to end up more or less where the Sofer one is, but it's not immediate. It's not like you don't get that happening the next day after the Fed raises interest rates and I'll tell you why because it's tied to treasuries and treasuries move upward. Are downwards because of 100 different factors. Only one of those are interest rates. So geopolitical situations can often make treasuries move downwards. For example, if the Chinese economy collapses tomorrow and there's blood on the street, treasuries will go downwards, even if the Fed continues to raise interest rates. That makes sense? So, to these sorts of things, these movements can happen so that rates that are tied to the US Treasury bonds tend to move up and down with Treasury bonds. So those are the three kinds.   Michael: Okay, and who is do you think well suited or conversely, not well suited for each type of loan?   Neal: So in terms of who is the lender?   Michael: No, if I'm a buyer, and I'm going to buy … Yeah…   Neal: I think, yeah, yeah. So there's also something known as a bridge rate, when it bridge loans, which no one is getting, I don't know, if a single person that's gotten a bridge loan in the last 30 days, because there are simply very high there are 7%, or even higher in the last, you know, 30 days. So the vast majority of people today that should be buying, let's say you have to buy for whatever reason, you're not stopping you want to buy the key advisors, everyone should today should get a floating rate loan, because if you believe like I do, that the feds job is to raise rates and then drop them and that's what they've done nine times in the last 61 years, then you have to believe at some point in the future 6-12 18, 24 months rates will be lower, because right now, they're pretty darn high, right? So if you believe that locking in your rates doesn't make sense. So the market today, all we have is really Fannie Freddie floating lanes, rate rates, which are similar to what your local bank would provide. So maybe you have a smaller project, you want to go with local bank, those are the same kinds of rates that Fannie Freddie provides, they're probably charging you a quarter point more, but you've got a relationship with them, their points are lower. So lots of people go with local banks. But I think that's the only game in the market for multifamily today and the other thing that's happening in the multifamily market, which is driving prices down as you get multifamily, you might in a really boom time environment, you could get loans that are 75%, loan to value, right and then when the market starts to tighten up, they go to 70. Well, a few weeks ago, most lenders went to 65. So they're giving you a lot less loan to value for the same property forcing you to raise more equity. When you raise more equity, your returns go down, your underwriting suffers. So once again, people are like this not working. I'm not going to make any money. My investors have something known as pref or preferential treatment. So the property underperforms, they're going to make their pref I'm gonna make nothing. So a lot of people are stepping back, pencils down.   Michael: Yeah. Yeah, that makes total sense. That makes total sense.   Neal: And, and none of this has anything to do with a crash, you know, the 2008 scenario. If you believe that that is going to occur in the next 12 months, you're not data driven because the 2008 scenario, if you look at every if you list the top 10 factors that caused it, because it wasn't any one thing, right? None of those factors, not one of those factors exist today, right? What we do have is we pulled demand forward in 2021. In 2021, we basically helicoptered $10 trillion, worldwide, not 10 trillion in the US, luckily, 4 trillion in the US, but 10 trillion worldwide, we helicopter money to people for the first time in modern history. We've done a little bit of it before in 2009. But remember, we were bailing out banks, we were bailing out General Motors, the money wasn't going directly into people's pockets, right. So here we helicopter $10 trillion worldwide, and there's an inflationary effect. It pulled demand forward, everyone, all of a sudden had money, everyone spent money and so we pulled demand forward from let's say, 2023, next year, to 2021 and when we did that, we ended up creating massive amounts of inflation, nothing to do with the economy itself, but it created massive inflation and now we have no choice but to deal with it. I can tell you this if on the one side you said you know will you take 7% single Family interest rates right over the Fed stopping you know their program now just let him stop it I would say don't do that. Hyperinflation is so insanely dangerous, and so insanely destructive, that I would, even though it would really hurt me. I would take 7% interest rates any day, I will take 8% but I wouldn't tell the thread to stop doing what they're doing. 9% inflation if it gets entrenched if everyone believes that two years from now we're going to be at 9% It's astonishingly destructive.   Michael: Wow, wow. Okay and Neal, I'm just curious in based on your research the nine times over the last six to 10 years, the Fed has raised rates and then pretty succinctly thereafter dropped them. How far do you think we're gonna get, how low do you think inch rates are gonna go? I want the Neal Bawa prediction the crystal ball, if you will…   Neal: The federal funds rate, right, the Fed funds rate is what the Fed raises, they don't raise or lower mortgage rates. It's currently at 2.25% and in two days, it's going to go to 3%. We believe currently that the peak is going to be either 3.5 or 3.75% for the Fed funds rate and we think that on the downward path, they'll cut it all the way down to 1.75%. So from their peak, they'll go down 2%. So from the peak, whatever that peak interest rate is, it should go down 2%, right. Now, sometimes they have to go past that 1.75 on the downward leg, because they've hurt the economy so much when they were raising rates that they have to compensate. But we think that the Meet the perfect equilibrium rate for the Fed is around 1.75. Now, in their, in their public, in the public, they talk about it being 2.25. That's where they would like equilibrium to be. But they never seem to ever achieve that. It's always lower than that in a normal market. So they just like to talk it up a little bit to set expectations. So we think that whatever that top interest rate is that you're going to see the highest interest rate, the mortgage rate. Once the Fed is done and brings it down, you should see mortgage rates 2%, lower. So it there's a possibility that sometime in the next 180 days, you'll see a 7% mortgage rate, right. So it might touch that number, but I don't think it goes further beyond that. Okay, but I could be completely wrong, because if the Fed doesn't kill inflation, then all bets are off.   Michael: Right, right. Yeah, this is all under the guise of inflation getting tampered back because of the moves and so just to kind of put that in perspective for people as the end users, 2% reduction of the Fed funds rate will typically constitute a 2% drop on what a borrower is going to pay. So if rates get up to 7%, and then Fed Funds pullback to two by 2%, we would expect mortgage rates to hover on that 5% in the consumer market.   Neal: Yes, exactly four and a half to five and a half going up and down a little bit, you'd remember it's speculative, but you'll have plenty of opportunities to you know, lock something in under 5%. So I think the key message is this, never be afraid of 5%. It's really beyond 5%, that the single family economy starts to you know, it starts to miss heartbeats. That's where it starts to be problematic until five, I've really not seen much of an impact in the marketplace, there'll be a little slow down in price increases and right now a slowdown is healthy, they've gone way too much way too fast and so retrenchment is a very healthy thing.   Michael: Yeah. Okay and just for frame of reference for folks, during COVID, the Fed funds rate was zero, right?   Neal: They dropped it. It was zero, correct. So there were we've gone from zero to 2.25, in five and a half months, right and they were threatening to do it for about four months before that, but they wanted the market to adjust before they actually raise the rate. So we've gone up to 2.25. It was zero for two consecutive years. So two years, in two months, the Fed funds rate was zero.   Michael: And has that ever happened in American history that you know if?   Neal: No, I think that pandemic is very unique. We saw the Fed funds rate fall to about 1% in 2009 2010. But they didn't take it down to zero. So the only time they've ever taken it to zero is this time, I expect all future crisis will go beyond zero now that the eurozone has gone negative and Japan's gone negative. There's no stigma attached to going negative. So I think the next crisis will go below zero.   Michael: Wow and that'll be an interesting time to have a loan tied to LIBOR or Sofer?   Neal: It'll be is it's fantastically interesting. I think what we are, Michael, we're living in the middle of the greatest financial experiment in history and it's, it's an experiment that has no precedent, it doesn't have anything that you can look back to, right. We're doing some truly crazy stuff and we're hoping that it will work out even though we have about three years three or 3000 years of monetary history that says it's never worked out for anyone in the past. So we're just hoping that we are different so right it's all about you know, as long as the musical chairs are going people are you know, people are walking and that's how it's going to be and I don't know when the real challenges happen. I think we're getting closer and closer. I feel like China is just about ready to combust at this point. We'll see what happens.   Michael: Okay, well, I will definitely stay tuned, Neal. This was amazing as always, for people that want to pick your brain more, continue the conversation learn more about you. Where's the best place nice for them to do that,   Neal: Um, you can connect with me simply by typing in my name. I'm the only Neal Bawa on the worldwide web. So just NEAL BAWA, hit enter, there's a couple 100 podcasts that I've appeared on. There's webinars, conference recordings, where I'm on stage. If you'd like to chat with me on LinkedIn, once again, I'm the only Neal Bawa on LinkedIn. So go ahead and connect with me there or go to my website, multifamilyu.com. So that's multifamily, followed by the letter u.com. There's about 30,000 people that attend the webinars that are on that site, we have a new one coming up, which is the impact of interest rates on the economy, and the upcoming recession. So real estate at this point is officially in a recession. The housing market is now in a recession, because it's declining. But I think the rest of the economy is going to follow it and so we have a webinar on that and I think that's going to be in three weeks.   Michael; Okay, fantastic. Well, Neal, thank you. Again, really a pleasure to chat with you and have you on and I'm sure we'll stay in touch.   Neal: Awesome. Thanks for having me on.   Michael: You got it, take care.   All right, everyone. That was our episode a big thank you to Neal for coming on love his data driven approach to his conclusions, which I think we probably all could use another dose of that. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing the next one. Happy investing…

Garrett Sutton is a corporate attorney, asset protection expert and best selling author who has sold more than a million books to guide entrepreneurs and investors. For more than 30 years, Garrett Sutton has run his practice assisting entrepreneurs and real estate investors in protecting their assets and maximizing their financial goals through sound management and asset protection strategies. The companies he founded, Corporate Direct and Sutton Law Center, currently help more than 13,000 clients protect their assets and incorporate their businesses. Garrett also serves as a member of the elite group of “Rich Dad Advisors” for bestselling author Robert Kiyosaki. A number of the books Garrett Sutton has authored are part of the bestselling Rich Dad, Poor Dad wealth-building book series. There are three types of entities most commonly used to own real estate: Limited Liability Company, S Corporation and Limited Partnership. Tune in for todays episode where Garrett provides a quick summary of the best entities for real estate investment. Episode Link: https://corporatedirect.com/contact/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Garrett Sutton, who is an attorney, investor and author with over 1 million copies of his book sold and today Garrett is gonna be talking to us about all the different entity structures we should be aware of as real estate investors, as well as wherever we might want to think about forming those entities because it plays a big role. So let's get into it.   Garrett, thank you so much for joining me on the show today. I really appreciate you taking the time.   Garrett: Thanks, Michael. It's a pleasure to be with you today.   Michael: No, no, the pleasure is all mine ad I'm super excited to chat with you. I know a little bit about your background and what you do kind of on a day to day basis. But I would love if you could share with our listeners who you are, where you come from, and what is it that you're doing in real estate today?   Garrett: Well, I grew up in the San Francisco Bay Area like you and I moved to Reno in 1989 and Nevada is a great state for setting up LLCs and corporations along with Wyoming. So I practiced corporate law since 1978, and became associated with Robert Kiyosaki and have written a number of books in the rich dad advisor series and you know, have enjoyed talking to people around the country around the world about how to protect your assets. As you start investing in real estate, you need to think about how you're going to protect that real estate because we live in a very litigious society, people sue each other all the time and unfortunately, they don't teach this in school, you have to get this information on your own and so that's what we provide is the information you need and then we offer a service to help you protect your real estate and brokerage and other assets.   Michael: Love it and just right off the bat, I read one of your books for our Roofstock Academy book club, it was a great read, so I can definitely vouch for it. But what are the books that you've written and then what talk to us about your most recent book?   Garrett: Well, I've written a number of books in the rich dad advisor series, including start your own corporation, that's kind of a foundational one, and then run your own corporation, a lot of my clients and I set up a corporation now what do I do, and you have to run it properly. Then I also did loopholes of real estate, which is kind of the tax and legal strategies for investing in real estate and then the newest book is veil not failed and that deals with the corporate veil, you set up an LLC or a corporation to be protected and too many people do this themselves, Michael, they just set it up online, and they don't realize that there are additional steps you have to take to stay protected and so if you don't want your veil to be pierced where someone can sue the company, there are no assets there. They can go through the veil of the company and get it your personal assets, if you don't want that to happen and that's why you set up an LLC.   Michael: That's the point, yeah…   Garrett: It's that you don't want it to happen. You need to follow these corporate formalities and so that's what the book veil not fail is about kind of stories, horror stories of people who didn't follow the rules and then in the latter part of the book, it shows you how to follow the rules so you can stay protected.   Michael: Yeah, great. and where can people find out if they're interested in picking up a copy?   Garrett: Amazon has it the veil not fail. It was supposed to be out in April, but we have this thing called supply chain problems.   Michael: I've heard of that.   Garrett: Not enough paper out there. So it's not out until November but you can go ahead and preorder it.   Michael: Fantastic. Garrett, let's talk about I think a pretty hotly contested and debated topic in the real estate space and that's LLC versus no LLC, I think and it's tough because we're I'm California based. A lot of our listeners are California based and so to have an LLC in California, you're paying at minimum 800 bucks a year and with today's cash flow based on some real estate investments that can eat in to your investment pretty significantly and so I've heard folks say, you know, forget the LLC, go get umbrella policy, go get high liability limit insurance and call it a day. Don't worry about it. What are some risks pros cons associated with doing that, that you've seen folks run into?   Garrett: You know, there's a whole area of law called Bad Faith litigation, and that's when insurance companies collect the premiums and then find a way not to cover you. All right, the insurance companies have acted in bad faith over the years. errors in collecting the premiums and then having exclusions, that little tiny print that you never read and so, you know, the insurance companies, let's face it, they have an economic incentive to not cover every claim and so they're going to find reasons not to cover you and so I always recommend that people have insurance. That's the first line of defense but these LLCs are the second line of defense, in case the insurance company doesn't cover you, or what about a situation where your insurance is, say 2 million, but the judgment is 4 million, right? I mean, you're personally responsible for that extra 2 million. If the property is in an LLC, they can get what's inside the LLC. But if you've done it, right, if you if your veil is strong, they're not going to be able to reach your personal assets for that extra 2 million. So the idea that you're just going to rely on insurance is, in my opinion, quite naive.   Michael: Yeah. Okay, I love it. I'm of the same opinion. I always, I never like to play my hand, though but I love hearing that because I come from the insurance world. So I know how bad things can go and I also have seen how they're supposed to work. But I think you're totally right, there's totally an economic incentive to not pay claims and the insurance industry as a whole gets kind of wrapped in with the folks that are doing the latter, not the former. So I think it makes a ton of sense. But Garrett talked to me about I've heard this concept, and this idea that, okay, there's this, you can be over insured, there is such a point. Now, if I go get a $10 million umbrella, because I really want to be protected. Does that then put a target on my back for a claim or a plaintiff to say, well, hey, he's got a pretty a pretty massive insurance policy, you know, I was only going to sue him for a million, but let's go after the full 10.   Garrett: Well, I mean, there are a number of factors there. I mean, having enough insurance is not a bad thing. If the claim is a million, it doesn't give the attorney the right to try and collect 10 million, you know, I mean, the claim is a million. So you know, the fact that you have extra insurance isn't a bad thing. The attorneys, you know, what we like to do, what we tell our clients is you want to have enough insurance to cover any claim and so you want to have insurance on the property fire casualty, right? You want to have a personal umbrella policy of insurance covering your home and your autos because I think that's the biggest risk out there is a horrific car wreck, right. Do you need that umbrella policy, a commercial umbrella policy over your various rental properties, maybe I had a part such a policy for a while but here in Reno, it got pretty expensive and so I just have regular insurance on the properties. I have regular insurance for my home and autos and I have an umbrella policy for me personally and so you get in that horrific car wreck. There's enough insurance money for the attorneys to get at. They know how to get at insurance monies, they get a percentage of what they collect and then if everything else is held in LLCs you know you'll have a an LLC if you own a property in Oregon, you have an Oregon LLC on title, you own a property in Utah, you'll have a Utah LLC and tie on title and then those two LLCs are owned by one Wyoming LLC. That's how we like to structure things and the attorneys are going to have a tough time collecting from a Wyoming LLC and so they leave you alone on the LLC. Do you have enough insurance to pay the claim and they'll leave you alone on the LLC is that's how we recommend our clients structure things.   Michael: Okay, and why Wyoming LLC because I know you made a very deliberate point of saying where is formed, what's the point?   Garrett: There are three really good states out there and they compete against each other to be the best which is good for us. Instead of having one federal law that applies to every single state. After the American Revolution, each state wanted their own corporate law and so now we have each state with their own corporate law in Delaware, Wyoming and Nevada compete against each other to be the best. You know, the filing fees every year that come in are pretty good. It helps fund the government. So the reason I like Wyoming over Nevada and Delaware is all three protect the owner of the LLC the charging order is the exclusive remedy and all three, but in Nevada and Delaware the annual fee is $350 a year and in Nevada they list your name on the state website. In Wyoming the annual fee is $62 a year and your name does not show up on the State web site. So Wyoming offers lower cost, better privacy and equal protection. So a lot of our clients set up Wyoming LLCs.   Michael: Yeah, okay, well, I'm sold. So being a California guy, though, this is what I've heard and would love your insights. So I've been told that California they want their piece of the pie. So I've got to register any LLC that I own. In California, because I'm a resident here, I live here, even if it has not doing business, because the way California defines doing business is basically me living here. So if I do I own property in Oregon, I own it with an Oregon LLC, that LLC is owned by the Wyoming LLC, but then I gotta register both of those here in California?   Garrett: No, you raise a very good question. So in our example, we had an Oregon LLC and a Utah LLC and if those were owned by you, as a California resident, we'd have to pay 800, twice, once for Oregon, once for Utah, by having the Wyoming parent there, the Wyoming LLC, and we qualify that one to do business in the State of California. You don't have to pay the 800 for Utah, or Oregon. So that's a way to save the $800 for all the title holding LLCs yes, one of them has to pay right $800 to the state of California and you know, California has gotten a little bit looser, you don't have to pay the 800 the first year, that $800 is a credit on the first $50,000 in profits. So it's not like it's wasted. So, you know, I've had people move from California to Nevada, because of that $800 fee. It's just infuriates people. But there is if you love living in California, there's a way to work it so you have protection, and you don't have to pay $800 for every single LLC you own across the country.   Michael: Okay, fantastic and then in going back to that example, if I've got the I've got to register the Wyoming LLC here in California, do I lose out on any of the anonymity that Wyoming affords me because now it's registered here in California?   Garrett: Yeah, you'd have to list your name in California.   Michael: Okay, all right. Yeah, maybe I will think about moving, who knows? All right, Garrett, in your book, and I want to get really nice here for a minute, because I've got you. You talk about quitclaim deeds versus warranty deeds and I think a lot of our listeners out there have utilized this practice, or have heard about this practice because if you go get a conventional loan from a traditional bank, they won't lend to an LLC. So you go get the name the loan in your name, then transfer the property title to an LLC after the fact, right. In the book, you talk about quitclaim deeds versus a warranty deed, can you give us a little bit of insight into what the difference is and why someone should think about using one versus the other?   Garrett: Well, the warranty deed or the grant deed says, I warrant that I own this property and if I don't, if I transfer it to you, and I don't own it, for some reason, you can sue me. All right. So it's a more powerful deed. The grant deed, the quitclaim deed rather, says, I don't know what I own. But I'm transferring whatever I own to you and the title companies go, well, he quit claimed that property and so that severs the title insurance, right because he didn't know what he had and so we're not going to cover him on it on a quitclaim deed and so and too many people pronounce it quick claim.   Michael: I know, I know.   Garrett: You know, and it's the same deed with a couple of different words in it. But you really always want to use the grant deed or the warranty deed because in many cases, you sever the title insurance, when you use a quitclaim deed, okay, and that's….   Michael: Okay and that's even if you're going from yourself as an individual owner to an LLC that you own 100% of?   Garrett: Right, yeah, just ask for the grant deed. Also, if you're buying property from someone, you want to insist on a grant deed or a warranty deed, because if they don't deliver the title that they've promised they are going to deliver, you have the ability to sue them for failure to perform.   Michael: Okay, super good to know, super good to know, Garrett, as people who are just getting started on their investment journey, I mean, what's the appropriate time to set up an entity because I've heard people say, I'll do it later. I'm too small. It's too expensive. You know, what are your thoughts there?   Garrett: Right at the start, you know, it's just not that expensive. We do not charge a lot of money to set up LLCs for people. It's very affordable. It's a business expense, you get to write it off. But I'll give you an example Michael and I I've told this story 1000 times, but I was in San Francisco at an event and I gave a talk about asset protection and this lady comes up to me and she goes, Well, I'd like to transfer title. I just bought a duplex and I'd like to transfer title into the name of an LLC. I go, that's a great idea. I go in California, it's $800 per year per entity and she goes, oh, I can't afford that and so I'm giving a talk in San Francisco again and she comes up to me and says, I've been sued by a tenant, I'd like to set up that LLC now. Well, it's too late, right? You know, the tenant rented from you, in your individual name, UX, they have a claim against you as an individual, and they can reach all of your personal assets as a result and once you've been sued, or even threatened to be sued, it's too late to set up an LLC. I mean, you can't put a seatbelt on after the accident. Yeah, right. So you really want to set this up right at the start and I've heard CPAs say, oh, well, you know, just set it up when you can and that's bad advice. I mean, you know, the joke I tell is that CPA stands for can't protect assets. It's just, you need to set this stuff up right now.   Michael: Yeah, yeah. Okay. I think it makes a ton of sense and I love the seatbelt analogy. I think that really hits home for a lot of folks. So as someone that's getting more sophisticated with their investing strategy, what like tools or strategies should they be aware of as they're starting to scale up and they're investing?   Garrett: Well, I think having that Wyoming, LLC is the parent holding LLC is a good strategy. We talked about an Oregon LLC and a Utah LLC owned by one Wyoming LLC and that Wyoming LLC is passive. It's not going to hold real estate, it's not going to do business with anyone, because if someone sued the Wyoming LLC, they could get at Wyoming at the Oregon and the Utah LLC. That's what the Wyoming LLC owes. So that Wyoming LLC is passive, it doesn't do business with anyone because we don't ever want it to be sued. All right. So that's a key strategy in protection. Now, if your clients are holding brokerage accounts, right, bank accounts, gold and silver stock brokerage accounts, in their individual name, the same rules apply. If they get sued personally, and they have all these assets at a Charles Schwab account in their individual name, someone can very easily get those and so what we do is we set up an LLC for the paper assets for the bullion and if you get sued, and that horrific car wreck, they're in an LLC, it's much different, much more difficult for an attorney to get at those because the exclusive remedy in Nevada and Wyoming is what's called the charging order and that is a lien on distributions in the state of California if you own an LLC that owns a piece of real estate in California, the law in California is that the car wreck victim can go to court and the judge can say yes, you've been injured, you can set forth the sale of the duplex. All right, and that is not good asset protection. So we like Wyoming and Nevada where the court says, okay, you have a claim. But here's the remedy that we offer in our state, you are entitled to distributions that come through the LLC, you can't barge in and force the sale of the real estate, you have to wait for distributions to come and that's not a good use of the attorneys time. You know, monitoring if distributions are made there on a contingency fee, they get paid when they collect on the insurance monies. So their time is better spent going to the next case that has insurance. So that Wyoming LLC that offers the charging order remedy, not where they can barge in and force the sale of the real estate but where they have to wait and monitor distributions that go to you. It's a much better system for protection than choosing a weak state like California, Utah is a really weak state, New York is weak. So we have to understand which states are strong and weak and structure your plan accordingly.   Michael: Yeah, interesting and Garrett, talking through all this kind of makes me beg the question of in our Utah, Oregon, Wyoming, California LLC example where the Wyoming LLC owns the properties. There is a holding company rather, if the tenant in Oregon falls and Sue's sues the owner. I mean how far Is this go and where is the court date held, how does that all work?   Garrett: Well, if you, if the tenant has is renting from the Oregon LLC, that's or they're in contract with, so the claim would be tenant would sue the Oregon LLC, the lawsuit would take place in Oregon, right? That's where the property is. That's where the tenant fell. The action stays within the Oregon LLC, it doesn't give the tenant a right to go down to the Wyoming LLC, which is the parent, it doesn't give the tenant the right to go over to the Utah LLC. That's a separate business entity. So the key here is that if the tenant sues, you want to get notice of that lawsuit as soon as possible, right, you want to turn over this claim to your insurance company, so that they can assist in settling the case. Too many people, Michael have this idea that if they use a land trust, where no one will ever know who the owner is, and no one will ever serve you is just nonsense because you want to get notice of the lawsuit as soon as possible. In the Land Trust scenario, they say, well, geez, no one will ever find out who the owner is. Well, what happens is they go to court and they say, Look, we tried to sue the land trust, we couldn't find out who the owner was and the court says, okay, well published notice in the newspaper. So they published it little two point type in the newspaper that We're suing the Oregon LLC, or the Oregon Land Trust, rather and you don't get notice of that either. They go back to court and say we tried to serve them, we published notice in the newspaper, and no one ever showed up. The court says default judgment, meaning the tenant has won and then when they're trying to collect, you know, you find out that you've been sued, the insurance company can say, Well, look, you should have had notice of this lawsuit, we could have defended you, but we're not covering you now. You didn't give us the proper notice and so this whole idea of a land trust and privacy is just nonsense. You want to get notice of a lawsuit, so you can turn it over to your insurance company.   Michael: Yeah, that makes no sense. I guess it's kind of like the ostrich approach like if I stick my head in the ground, I don't see it. I don't hear about it. It's not a problem.   Garrett: Yeah, it is a problem.   Michael: Interesting, okay and Garrett talked to us about some of the different entity structures that are out there. Because there's the C Corp, the S Corp, the single member LLC, multi member LLC, like should we as real estate investors be thinking about utilizing some of these different corporate structures or is really the LLC that that kind of 45 of structures.   Garrett: Pretty much the LLC is the way to go, if you're going to hold real estate, you in some cases, the limited partnership can work. If you're syndicating real estate and you want to absolute control, the limited partnership can work, you're not going to hold title to real estate in a C Corp or an S Corp or any other kind of corporation, tax wise, it's just not the best way to go. So the LLC is pretty much I mean, 98% of our formations for real estate are LLCs. The other 2% would be LPS for syndication purposes, or, you know, for estate planning purposes where mom and dad with an LP, the general partners, which would be another LLC can own as little as 2% and have absolute control over the property. So mom and dad through their LLC have 2% ownership, the limited partnership has 98% ownership owned by the kids as limited partners, and the kids can't force mom and dad to sell the property. So there are cases where the limited partnership works but in the vast majority of cases, it's the LLC that is on title to the real estate.   Michael: Okay. Good to know, good to know. I had another question for it and it totally escaped my mind.   Garrett: Well, how about fail not fail the new book?   Michael: Yeah…   Garrett: You know, people have these promoters out there just say that most wrongheaded stuff about LLC. I mean, they say that you don't need an operating agreement- wrong. They say that you never have to issue stocks or timber membership interests certificates- wrong. So you you'd need to treat your LLC, like a corporation whereby you have to follow these formalities. You have to have the annual meeting, right and the idea that you never have to have a meeting is when you get into a court of law, you're in front of a judge or a jury. I want you to have a minute book with the minutes of every yearly meeting in it and these promoters say, well, you never have to have a meeting. I want you to walk into court and tell the jury, yeah, I ran this property for 12 years and never had a meeting. It just doesn't work.   Michael: It's not going to fly.   Garrett: It's not going to fly. So you know, the reality is, when you're in a courtroom, the reality is not when you're in office with a promoter telling you don't have to do anything to maintain your LLC. It's just not accurate. Yeah, so that's why I wrote the book, because there's so much misinformation out there about corporate formalities. So with a corporation, you need to follow the corporate formalities and with an LLC, you need to follow the corporate formalities because someone suing can pierce the corporate veil on a corporation, they can pierce the veil on an LLC. It's very, and the rules are not hard to follow. They're really easy. It's just if you don't follow them, they can go through the LLC and reach your personal assets.   Michael: Yeah no, that's such a great point and also, Garrett, I mean, to that point, if someone listening is thinking about reaching out to an attorney for help with forming for entities or restructuring entities, I mean, what are some questions they should be asking and things they should be looking for, with an attorney that they want to put on their team?   Garrett: Well, does the attorney invest in real estate? I mean, I think that's a good question to ask because, you know, I invest in real estate, I've been through the wars and so it just helps you appreciate what the client is going through to have done that yourself. You know, I think some attorneys specialize in personal injury. In contract cases. I mean, you want someone who really knows the ins and outs of LLCs, and appreciates that we have good states and weak states, and that you have to put the combination together to fully protect the client.   Michael: Yeah, that makes total sense and we're recording this, let's see September 2022, what is like the reasonable cost to form an LLC, and then what are any kind of maintenance fees associated with maintaining the LLC?   Garrett: Well, we charge a flat fee of $795, in that, and then the filing fees are on top of that. So Wyoming, for example, is $100. That 795 includes the registered agent for the first year. So you're not paying any extra for that. We also have a system whereby we keep all your documents and if you have lost your operating agreement, we give you a portal where you can go on and download your documents. So we kind of have this backup service for you and then so you pay the 795, the first year, and then the second year, it's already formed, so everything drops down, you only pay 125 to four, the registered agent. Now we give you a book that shows you how to do the minutes because you really should do the minutes every year and even though we give you the book with the forms in it, a lot of people don't do it. So we offer a service where for $150 a year, we'll make sure that your minutes are done and we want to keep you in good standing, we want you to have those annual meeting minutes in your file, just in case you don't want to be in a courtroom and say I never had a meeting.   Michael: Right, it's too late, then like you said, Garrett, this has been super informative and people want to reach out, continue the conversation, take advantage of your services, what's the best way for them to get in touch?   Garrett: Well, they can go to https://corporatedirect.com/schedule/ and set up a free 15 minute consultation with an incorporating specialist that you'll work with this person all the way through the process and they'll give you a quote for what our services entail and you know, just see if there's a fit, we're happy to talk to you and so we set up entities in all 50 states, maybe you're you set up your entity already, it's an LLC, you don't have an operating agreement, you haven't issued the membership certificates. Don't tell anyone but we can clean it up for you. We also offer a registered agent service in all 50 states. So if you've got one company here, one company there we can be your one company to serve as the registered agent in all 50 states. So we'd be happy to help your listeners Michael and you know, have them call corporate direct or go, go visit the website, corporatedirect.com and there's plenty of information and articles there and kind of tells you what we do.   Michael: Amazing. Well, Garrett, thank you so much for that. One final question before I let you out of here. We've said the term a couple times. But for anyone who maybe isn't familiar, can you bring them up to speed on what a Registered Agent is and what the importance is?   Garrett: Well, the Registered Agent is someone in the state where you set up the entity or where you're qualified to do business and the idea is that instead of having someone who's trying to sue you search all over the state of Texas for you, right? The Registered Agent is an address where someone suing, you can go and serve the registered agent with service of process. So it's just it's kind of an efficient way for the justice system to work. It's one place where you can serve an LLC or a corporation, and then they're responsible for forwarding that on to you and so you want to use a reputable registered agent service that knows the importance of a lawsuit, if we get a notice of a service, we're on the phone immediately to our client, because you've only got 30 days to get an attorney and answer that complaint. So you don't want a mom and pop that is going to go out of business or doesn't appreciate the consequences of being served with a lawsuit. So it's an important function and if you fail to pay the Registered Agent, they're going to refuse service a process and then they're, you know, the person suing us is going to go back to court and get, you know, authorization to publish notice in the newspaper, and again, you're not going to get noticed to this cert of the claim. So you want to have that registered agent on your team at all times.   Michael: Yeah, yeah, super great point and the Justice Department looking for efficiencies. That's not something I maybe I've ever heard before. So really exciting stuff.   Garrett: It's something that does exists, so…   Michael: Oh, Garrett, thank you. Again, this was super informative, and I definitely would love to have you back on once your book comes out in November.   Garrett: That sounds great. Thanks, Michael.   Michael: You got it, take care. We'll chat soon.   Garrett: All right.   Michael: All right, everyone, and that was our episode a big thank you to Garrett for coming on. Definitely take advantage of that. 15 minute free consult if you're interested. As always, if you liked the episode, feel free to leave us a rating or review. We'd love to hear from you all and we look forward to seeing on the next one. Happy investing…

Pete Neubig has been investing in real estate since 2001. He has owned and managed 39, 52, and 100-unit apartment complexes. He currently owns single-family homes and a 52-unit apartment complex. Pete created a property management company based on the motto "by investors for investors". His property management company has clients from Houston and all over the world. His technology-based systems allow owners to see everything that is happening at their property without having to be involved. Pete leverages virtual assistants to do more than he can do on his own. A real estate virtual assistant (VA) is a business admin who essentially acts as your right hand. A real estate VA can offer a variety of business services in-person or remotely. The right VA can cover diverse tasks like lead gen and database management, or even finance and marketing. Tune in for today's episode where Pete talks about how he uses virtual assistants and what real estate investors should be aware of when they want to take this step in building a team. Episode Link: https://www.vpmsolutions.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and joining me again today for a recurring visit is Pete Neubig and he is the founder of VPM solutions. He's gonna be talking to us today about virtual assistants and what we as investors should be aware of and how we can utilize them to our advantage. So let's get into it.   Pete Neubig what's going on man, you are back for more didn't have enough the first time we had.   Pete: Man, Michael, thank you so much for bringing me back on. I had we had such a blast. You know, last time just talking about my investor jury and then right at the end, we got to talking about my new venture and so I'm glad, thank you so much for having me back to talking about my new venture.   Michael: Of course, no, super, super excited. So for those who didn't catch the tail end of our conversation from your prior episode, give us a quick and dirty who you are, and what you're doing in real estate and what your company is all about.   Pete: Sure. Well, my name is Pete Neubig. I'm out of Houston, Texas, I started buying properties in 2001. I bought so many that I failed miserably at it that I ended up creating a property management firm in 2012, sold that firm in 2019 and in 2020, I started VPM solutions and we went live with our product in 2021 and VPM solutions is think of it as a dating service. It's like it's an online marketplace that connects people in the United States and Canada, like employers, you know, people in real estate, with contractors in mainly Philippines and Mexico, but we're in about 60 different countries where we have different contractors and so that's you know, so we're like, like dating service, like match.   Michael: I love it, I love it, I love it. Okay, so who are your clients? Kind of on the investor side and then who are your contractors on the contractor side, just random, random people?   Pete: Yeah, that's a great question. So we really try to stick with the real estate industry. So because I'm a property manager by trade, we started with property management and so we targeted property managers in the United States and Canada, right, because in property management, as most of your clients know, especially if they self-manage, is a process oriented and is a people oriented business, right? It there's a lot of things you have to do manually and so you can't automate as you can automate a lot. But there's still a lot that has to be done manually. So we started there. So that's our main clients, we're now breaking into the real estate and brokerage side of things because there's a lot of work, there's a lot of help, they need like transaction coordination, and just generating leads and appointment setting, so we're there, as well and on the contractor side, what we're looking we advertise we do quite a bit of advertising in different countries, just letting people know, hey, you can work from home, you can pretty much make a little bit more money than what you can get, you know, in your environment and we actually build some, it's called LMS. But it's video training, that you can literally take video training for free to learn more about right now is property management. But we're going to be built, we're going to be throwing some other videos out there always well, we'll be adding more video training out there and so are our contractors, somebody who's bilingual, someone who's educated, and somebody who's looking to make a little bit more than what they what they make in their own in their own country, and that they want to get into real estate, mainly property management or in the real estate industry.   Michael: Okay, interesting. So I am like, the whole concept of a VA is I understand it, but it's totally foreign to me, I've never utilized one but I know people who have so give all of our listeners who are listening, a little bit of background or insight like why should someone consider a VA, like what benefits do they bring?   Pete: Yeah, another great question, man. It's like, so, here's the main thing, right. What happens is, you get so much work, that you need to hire somebody, right? Whether it's whether you're self-managing, and like me and Steve, what my business partner, we were self-managing properties and next thing, you know, we had all these maintenance requests, we had all these leases that had been renewed and we had all these resident questions and we have lease marketing, and it gets daunting and all of a sudden your conical passive job becomes very, very active very quickly and so now you have to either A) hire somebody or B) you know, hire a property manager or hire somebody internally, right and so when you start looking at assistants in the United States, what happened was, especially after the pen EMIC with inflation. So what's happening is those low level low enjoyment tasks that that you don't want to do as the you know, as the investor or as the self-manager you want to give to somebody else? Well, if you, you try to hire that person United States, typically what happens is that job role doesn't pay what people want.   So for example, it might be like the job role might only pay 30,000 a year, right? That's a full time, whatever, but the person wants 50,000 a year and if you pay that person, what they wanted, you would make you would be negative cashflow, you will make any money. This happens quite a bit when you're managing your own properties and you're kind of building your portfolio and adding more properties to your portfolio. It's like all of a sudden, you're overwhelmed overworked, to hire somebody, now you're cash negative and so and then what happens is with these folks, what I found in my personal job, my personal company, Empire industries, when we when we started, we manage over 1000 units. When I hire people in the US, they have like a GED, or that you're getting very, like you're getting very low, you know, schooled, low education type people, and what happens is one, they're not appreciative of the opportunity get, and then two, they always want more money, and then three, they always bring in their outside challenges into your business, the car doesn't work, they take more time off, you know, they have family drama, that kind of comes into your business and so in the past, what happened was, you have to be stressed out to make money in property management. So I have I have, I have, I have all these doors are managing, I have all this work that needs to be done, I have to hire somebody. But as soon as I hire somebody, now I'm not profitable. So now I have to go get more properties to manage, so that I can bring the income up and now everybody's stressed again and the reason why everybody's stress is because I'm hiring people in the States, which, you know, demand a much higher hourly rate, if you will and so what I realized is, if I, if I hire if I outsourced, in a second or third world country, I can get educated people, bilingual educated people, that will work for a lot cheaper than somebody in the US and it's not, I'm just going to pay them less because they're in the Philippines or they're in Mexico, it's that in Mexico, $10 an hour goes a lot further than $10 an hour in Houston, or $10 an hour in Northern California. So the way I tell people look at is like this, if I took if I was doing the same job in Northern California, as I do in Houston, Texas, I'd get paid a lot more for that job in Northern California, because the cost of living, right, and then I'd get less money doing the same job in Houston, because of the cost of living and I probably make, I probably even get paid less if I was in like Arkansas, because of the cost of living. The dollar still travels just as far. Well just think of Mexico, as you know, as the next level down of cost of living. Just because you're paying somebody $10 an hour doesn't mean you're taking advantage of them. Matter of fact, $10 an hour in Mexico is a very good hourly wage. It's actually a very good wage and then in Philippines, to give you an idea, Michael $4 an hour is a good wage in the Philippines.   Michael: Wow.   Pete: And you think you save yourself? There's no way we're gonna take advantage these people? No, I mean, $4 an hour is a good wage in the Philippines. So it's, you know, as a criminal getting paid very well here in the States and so, the reason why people are outsourcing is because I can get bilingual and by the way, most of these people are either their high school educated or greater. They have some type of education after high school, whether it be associate's or a college degree. So you're getting educated people that that are bilingual, for a fraction of the costs in the United States that you are in the United States and because these low level jobs can, you can only pay so much. Now you can actually pay what the job role requires, which means now you can make more money in the company, right and then I'll turn this around on how we actually helped our US people, because I had people in Empire that were that were making some money. The ones I hired the virtual team members like oh, Pete, you got rid of jobs. Actually, no, they got rid of themselves because I couldn't afford them anymore. They wouldn't work at the level I needed them for the company make money. But once I hired these other virtual team members in the company started making money, I was able to actually pay my US people more, I was actually able to get better benefits for my US people, right because these are contract workers in the Philippines and Mexico and you know, Costa Rica, wherever you're going to hire them from and so they're contract workers, so they work they get paid, that's great. But your team members in the US once a company starts making more money, you can treat your kids because their employees right so you can treat them better stock options or 401k, whatever it was. So for us, it was bonuses, it was higher salary and we started doing we started we started looking at it we start doing health insurance. So that's how we were able to benefit out team. So the next question is, well, what can a VA do that somebody in the US?   Michael: Yeah, that's exactly where I was gonna go with it.   Pete: What I'll tell people is the VA can do anything that the person in us can do except for two things. One, obviously, if they need to be physically at the property, right, right, they can't they can't do that and then we'll do if they need a license, if they need a license to do something, they can't do license act, right. So give you an example, though. We actually had one of our virtual team members do all of our lease renewals? Well, you say, well, P That's a licensee Act and the you know, you need to be licensed to do lease renewals and the answer is actually, you don't need to be licensed to just create the lease renewal, you need to be licensed to negotiate the lease renewal. So what we would do is 90% of our lease renewals were not negotiated, most people just sign the lease renewal, right, most of our owner clients, or our residents would just sign the lease renewal and the ones that would have questions, that would get escalated to our property manager and so what we did just that one, just that one job role, what we did is we literally took 90% of the work away from the property manager gave it to give it to the virtual team member and then a product manager took the escalations. Now, I'm a big proponent of it, the way you can save your company, so to speak, a lot of a lot of stress and noise is can you automate through policy and can you automate through, you know, computer technology, in this case, what we did in this, you have to look at it but in Houston, we know that the average rate, the average renewal rate would go up about 2% per year over time. Now, some years, it would go up more in other years, it wouldn't go up at all, it actually would go down. But over time we…   Michael: need in terms of like the rent, like how much rent, you're getting rent increase the renewal… Yeah, okay.   Pete: So we did is we just create a policy that our rent increases every 2% every year, and we put that in the lease. So there was no negotiating, right on the residence side...   Michael: It wasn't up for discussion…   Pete: Right, so but if people say, hey, I'm gonna leave unless we do XY and Z, well, that would get escalated but we were able to reduce the escalations because of the part because of the policy we were able to automate and then we on the on the owner side, we would send something 90 days out, hey, do you want to renew your release or not, right like, we didn't ask them what the amount was, we because we built the 2% and so we stopped doing CMAs. So it is a lot of grunt work that we can stop doing, which then allows your virtual team ever to actually do a lot more, we have one person for 1000, doors, doing lease renewals, and, and reviewing inspections.   Michael: one person for all 1000 doors…?   Pete: For lease renewals and inspections. Yeah…   Michael: Holy smokes.   Pete: But then I had one person that did all collections. So I'll kind of go through the whole thing, right. So like, you can have a virtual team member, their whole job literally could be making sure that your collections are being done, your notices are getting sent out and that they can if you have if you have a third party company like we did that handle the evictions, they can actually be the gatekeeper with that third with that third party company and do all that stuff. My property managers did nothing with evictions   Michael: What?   Pete: Yeah, yeah. So we again, we had policies in place, right. So if, if the resident owed less than 50%, we, we wouldn't file evictions, if they owed, you know, 50% or more, we'd file the eviction we like so we just put on a different policy. You teach the VA, what the policies are, and then they just follow the process and what's cool is they actually know the process better than you and they, hey, can I do this or this or this instead, and they tweak the process and you're like, yeah, that sounds so much better and then they own the process. So if you're like an investor listening to this, and you don't like magic companies, for whatever reason, by the way, obviously, I own a magic company, I highly recommend. But let's just say, let's just say that you don't like me had a bad experience, and you're gun shy. But what you're finding is your leases aren't being renewed, right? You're your maintenance is overtime, the phone rings you like, I don't want to deal with this. You hate when somebody moves out, because you want to deal with the turn, your books are a mess, because you don't have time to do the books because you're, you know, a high net worth individual working 70-80 hours a week as it is, then a VA could do all of that stuff for you. They can do everything, you got to train them, of course. So just step back, take two steps forward. But they can do your property accounting, they could be your QuickBooks, they could do your business accounting, they could do your maintenance coordination, they could do your turn coordination, they can do your collections or evictions. So they can do your utility turn on and turn offs, like so all that stuff that you like, oh my god, they could do your onboarding for you. So I was going to get a new property you got to enter all that stuff in the in the computer system. They can do all of that stuff for you.   Michael: If anyone's watching the video here, you see that my jaw is like on the floor. So for anyone listening I just want wanted to bring you up to speed. But okay, so peace on, let me just understand. So they could do, like they could do all of this stuff and literally anything I mean sky's the limit is and with regard to things that they can do other than the two things you mentioned the license act, and then anything that requires them to physically be there. But when it comes to accounting, I mean, one thing that I'm thinking about is, there's very sensitive information, there's banking information, there's pat, you know, credit card information, as part of the accounting process that I do personally. So am I going to need to divulge personal information and sensitive information to the VA or like, how does that work?   Pete: Yeah, so, you know, in most in most instances, like in your QuickBooks, and in any property management software, they have different levels of permissions and even in your banking, like I bank with Chase, and Chase has different levels of permissions. So I can give you all the rights to, to my, my, my VA team, right, which I did, I gave them all the rights, so they can see everything, they can reconcile the bank statements, they can, they can look at everything, they just couldn't make any payments, right, they couldn't make any transactions. So that's, that's what we did. Now, we also had two property accountants that they did probably accounts for our third party folks and so they had access to, you know, sensitive information. So what we did is we did a bet we did a thorough background screening, there's a third party company out there that can do background screening, and they came up, you know, pretty, they came out really good. So we went forward, and then we just had our cyber liability insurance policy just to make sure go again, because we're a property manager firm with over 1000 units that we manage. So we wanted to make sure that we you know, we took care of ourselves. But if you're an individual with a handful of properties, or a small property manager, then you can do all of this through the permissions that your banking and that your that your software allows you to do.   Michael: Okay and so as I'm hearing you, you talk about as a man, I'm getting really excited, I'm trying my the wheels are kind of turning on all of the things that I might be able to outsource. What are some things that you should definitely not have a VA do? I mean, have you seen some things go really sideways or go really south because someone said, oh, well, Pete said, they can only can't do these two things. So I'm gonna give my VA everything else. I mean, what should I be thinking about in terms of limitations?   Pete: Yeah, so I gotta be honest, you, Michael I, at first, I always thought like, okay, I'm just gonna give him a list of things to do. I'm going to scan it to him and we're going to just do this stuff off the list, like a checklist thing. I quickly realized he could do much more. Then I said, hey, I own the process and they own the process and they can and now I do believe that I actually had VA supervise people in the States. So I had somebody in Mexico supervising people in the United States. So I believe they can get to that that supervisory level, what I will say is, they can do everything. So I'm not saying they can't do anything. But the one thing is you need to put in place some escalation paths…   Michael: What do you mean?   Pete: So even though they own so let's say for example, they own maintenance, right? Well, they're going to be able to handle 99 out of 10 maintenance calls, no problem. But then there's that mold call that comes in, right where the resident says they have mold, well, right there, that should be a buzzword that gets escalated to the property manager because they don't like they don't have mold in other areas of the country of the world that were that worried about mold as much as much as we do in the US. So if there's like an emergency, that could that can cause you know, a resident can get sick, right, or anything like that we're property code. So each, each state has their own little different property code, right. So like, for example, in Texas, believe it or not heat, if they have no heat, that's, that's a, that's an emergency. But if they have if they don't have air non-emergency, well, we treat no AC as an emergency in our in our company we did and so there was like three or four things that those got escalated a property manager. Now the property manager, at that point would say, I'm going to take it from here, or here's what you should do. But then the property manager is kind of co-managing that ticket. So I believe that in any business that you run, whether you own a property management firm, or you're a you know, an individual landlord that manages your 10 units, there's got to be certain. I call them taps on the shoulder, there's got to be certain tabs that you realize this is a potential problem, right? So let me deal with it or I call them taps two by fours and then getting run over by a man, right? On over by a Mack truck means that you're in a lawsuit, right? The two by four means somebody moved out because you didn't handle a maintenance request in a certain way and the tap is the maintenance request is 10 days, 15 days old, whatever it is, and no one's looking at it. Right, so how can you run your business through tabs? Well, if you have these vas, the great thing is you're not doing the work anymore, right? You're not creating the lease renewal you're not you know, calling, you know roto rooter to get out to the property. You're not doing that but what you have to do is you have to take a step above, right so you have to instead of being at the ground level, you got to be 2000 feet up, right, not 15 30,000 feet up, but at least 2000 feet up and as report you have to review and so if you see a property that's vacant for over so many days, that's a tap, if you see a maintenance request that's open for so many days, or major quests that hasn't been responded to, in so many days, these are tabs. So if you can identify what the potential problems are, your job now becomes manager, right? So I'm not the doer anymore. So you're getting rid of the task or hat, you put it on your manager hat. So if you hire a VA for him to do everything, and then you don't put your manager hat on, I can tell you, you're gonna, you're gonna get in trouble. Especially if you, especially if you do terrible training, which most people do.   Michael: That was gonna be like my next question and so like, for everyone listening, what what's the expectation around training? How long is it before a VA is really up and running and so as people are thinking about, okay, forecasting, I don't need a VA today, but maybe in 369 12 months, I maybe need one. So what's the runway lead up time to get someone effective?   Pete: You're gonna hit the answer, but it depends.   Michael: That's my favorite answer.   Pete: It depends, okay, so the more like, even if I'm a smaller firm, and only got 20 properties, I'm managing, I'm doing everything, you have to teach that VA, every piece of managing that property, right, from onboarding, to, you know, to utilities, to lease ups to move into maintenance, to collections to eviction, to move out, and you have to teach them everything… Well, just because only one move out happens a month, it doesn't make anything any easier, you have to learn, they have to learn how to do that they have to understand basically, property management. So that's going to take a lot longer than say, like, with me, I had one person like all they do is collections. Well, I can teach collections in less than two weeks. Right, especially if you have processes in place. So the big thing depends. So if I wanted to hire somebody for collections, it'd be about two weeks. But if I want to hire someone to do maintenance, the more I call them, if they analysis, the more decision points there are in the job. In the process, the longer the training, right maintenance, so many things go could happen with lease renewals, it's like there's three things, like you teach them the three things, and then they know, okay, I do these three, if this happens, I do this and if this happens, property manager, right. So to my least your own person, it really was like two weeks of training. My maintenance people, it was about two months to three months of training.   Michael: Wow. Okay, so yeah, you weren't kidding. When you said it depends.   Pete: It depends, yeah.   Michael: And then I guess, like, the next question that comes to mind is, what is the turnover look like if I'm an investor, and I'm investing two months, three months into a person really getting them up to speed, and then doesn't work out or they don't like it or they move on, like, what have you seen in terms of turnover?   Pete: That's a great question as well. So what I saw at Empire, I had 23, virtual team members, 23 different roles that that my virtual team members handled, and I had them for about five years, you know, most of the jobs some jobs were newer, but I had people there for five years and in those five years, I had to get rid of I let go of two and one person left. So I had three people, my churn rate was much lower on the VA side of things than they were on the US side of things…   Michael: I was gonna ask… in the US:::   Pete: Now, I'll tell you why my churn rate was low, though, okay, because I treated these people like team members, not like virtual assistants, right? So the old mentality of a virtual assistant is, I'm just going to throw you here's the work, you go do the work, I'm going to make sure it's done and like, that's it right. My guys that we have day out there on our website, they had videos, they were they were part of all of our company meetings, they had, they had ownership of each of their job roles so that they can, they can modify and do things they had, they had more control over certain things. We went down, I went down there to go visit them, because most of my people were one city in Mexico, so I paid them PTO like I gave them like if they even though there were contractors, if they needed a day off Mike just put the time in, that's okay, I'm gonna give you a day. So we the more you treat people like we can we put them on a bonus structure. So if their key performance indicator was met, they got a pat on the back, but if they exceeded it, they got they got 50 bucks, or something small, but $50 to somebody in California that Michael they're going to take the $50 thing it's critical and throw in your face like this isn't even a gallon of gas. You know, and but in you know, Mexico you give somebody 50 bucks that's like a half a day's work, like so again, you so you can make people happier with a lot less with a lot less money, right? because sometimes it's like, oh, it's not the thought. It's like, wow, man, you only gave me $20 like that's like almost like an insult you know, in the US where it's not a over there. So if you treat the people, right, so what does that mean? It's not just like paying them and treating them, right, make it part of the team, but also manage them correctly. A lot of people think like, I'm just gonna hire this VA, but they have, like, they hire the VA and then you're, you're not ready for the VA, like, you hire them because you like you got excited, you heard this podcast, I'm gonna hire VA, right and then it's like, okay, you don't have a good job description, you're not really sure what they should do, you don't know how to manage if they're doing a good job or not and so you hire somebody, and they don't really know what to do, and then you don't know what to do and then it doesn't work out, right. So I recommend anybody do is make sure like you, you create a job description first. So you can go about it two ways:   One is I want them to take this, this process from end to end or two is like I want to be an executive assistant and I want to do the things that I hate doing. So identify the low level low enjoyment tasks that you don't like, create a job description from that, post it out there, say this is what I'm looking for or say, man, I really want to give somebody collections evictions, you know, like that process? So it depends if you're if you're smaller than you may say, hey, I want them to be a property manager and give me all the things I have to do just understand it's a lot more training. So once you have the once you have the job description, so that you know what they should do they know what they should do. The next thing is what are the key indicators that you know they're doing a good job and the rule of thumb is 123 key indicators they call key performance indicators and every job role in the organization should have at least one if somebody has 14, that's way too many, I know because I live this I had my property manager API's and it's not it was way, way too much. So like, for example, your executive assistant. If that's where they are, you know, maybe they have to answer calls, well, maybe a KPI is answering 94% plus call rate, right or response to any email is in less than one day. Now, you the KPIs, you can pull them out of a hat, but they have you have to have a report that can show that, that they can put the KPI and so they have to get the data, the data has to be available, right? So if I say hey, I want a 90% call rate, but my call, my call software doesn't have call answer rate, I'm not gonna be able to get that number. Does that make sense?   Michael: It makes total sense.   Pete: And so you have to be able to report on it. So just because you want a KPI, but there's no way to report on it, then you have to figure out a way to report it and get that KPI. If not, you have to move to a different KPI. So if I have the job description set up, they know what to do that we have the key indicators, so they know what the scorecard is if they're doing a good job or not, and so to you, because so many of you will say, yeah, I feel like that he's not doing a good job. What the hell is that me show you?   Michael: How do you know?   Pete: Especially if they're, you know, 20,000 miles away for you in the Philippines? Like, yeah, like, so how do you know the key indicators and then if you have good training, and you spend the time with them, and then you should once you have the train, So training is like every day, right? You do every day for two weeks, maybe three weeks, you have training every day, hour a day video so they can rewatch it and they can build, they build the process manual, not us. So they build a process manual. Why is that important because if I had 100 page process manual for maintenance, I did Michael I swear at Empire had 110 page process manual…   Michael: We talk in single space, or double space?   Pete: Single space, I think. Like legit, it was legit. Nobody read it. Nobody knew how to navigate it and nobody learned once I had them build their own manuals, guess what happened, they started retaining stuff and they knew how to navigate their manual. So don't be don't be upset if they like let them create their own manual so they can navigate it. So now you know what they what you want them to do. They know what they know what they're supposed to do. You can you can you can scorecard it with the metrics, you train them, and now you manage them and the way you do that is you have a weekly meeting. Now if you're smaller, you're going to have you're going to meet with them every day, right my IV pm or smaller firm was five of us, I mean, when my VAs every day, because we're just we're so small, we have to talk about what to talk every day when I was at Empire because I have 40 people working for me. I met them once a week and I would meet my maintenance team, separate from my accounting team separate from my resident services teams and for my own services team. But I would go over with them each week and we'd go over, we'd say what's a feel good? Tell me something that's good, right because as humans, we have this habit of going below the line instead of like above the line. So let's start off the meeting really good. Let's go over to metrics, right individual and then the group metrics, the department metrics, then let's go over tasks from last week did they get done? Then let's go over challenges and each one of those a five minutes and challenges like 20 minutes, 25 minutes. You don't you can't solve all them all the time. But you can solve you know, a couple of them and if you could solve a couple of challenges each week, you're doing really, really good and then and then one thing I added was what's your stress level from zero to 10. This was interesting because sometimes they'd be at a 10 and it was because somebody was on vacation or we just got 50 new houses that week, it's worth, you know, 10 yeah, okay. But when it's 10 all the time, and that's the standard, that means you haven't to do too much and if somebody's attend all the time, it means they're ready to punch out. Like anybody in your team, you should literally take the pulse of your team on a weekly or monthly basis, right and but here's sometimes the 10 was because they had something going on personally and then I'd get everybody off the off the phone, and then I would talk to them personally and that gives you an incredible opportunity to create relationships with people who you never met, that working with you that are, you know, 5-10 1000 miles away and that is why they didn't leave me because they knew I cared, right, it wasn't a bonus. It was it was I cared, I want them to grow the company, I want them to, you know, to, to feel like they're wanted, but I also cared about their personal lives, I really did and so if somebody had an issue, you know, Hey, man, you know, we talk about so you get to learn a lot about people when you do that. But I did that each week and if a KPI was read two weeks in a row, and went to the issues list, you know, things and so you, if you have a structure with your business, you're the person you hire, the chances at whether that's in the US, like sitting next to you in the US, that's, you know, a few states away, that's working virtually, or a virtual team member outside the borders of the US. If you have structure, the chances of you hiring somebody successfully becomes great becomes very, you know, most cause much greater. But if you don't have that structure, the chances of hiring anybody is not going to be it's not going to be very, very, very good. It's going to be much lower rate of success.   Michael: Yeah. That makes a ton of sense. Pete, have you ever had a VA hire and train another like another VA?   Pete: Oh, yeah, of course. That's the whole job, right? The whole goal, right? So monkey see monkey do, right? So when I forget Empire, the first round of vas, you're looking at the trainer. I was the guy I trained there. Okay but my maintenance team, once somebody would leave, and somebody would get hired, or they would hire a new person, I was out at a training business.   Michael: I love it.   Pete: They train them. So once you train that first batch, and by the way, here, Michael, here's the secret to at Empire, I was gonna hire two virtual team members. That was that's what was in the budget. I interviewed four people hired all four of them and here's the reason why one figure one person is going to wash out right? Can you figure that and then the second thing is, it's, I was hiring two to three people for one person United States.   Michael: Okay.   Pete: All right. So think about that hourly rate, I would get rid of one person us and I'd hire three people in Mexico and so do you think more stuff gets done with three people?   Michael: I would than one probably guessed.   Pete: So. Yeah. So then I'm like, okay, I'm gonna hire four people. So I was over budget, guess what happened within 30 days, I'm able to grow my business because more tasks are being done and so all of a sudden, it's like, yeah, and if one but I hired four, none of them washed out, I was one of them wasn't a good fit, they were a good fit for the organization, not a good fit for the role. So we moved on to a different role. So another important thing is when you hire and this is probably I mean, your team, your, your listeners probably know this. But every business has core values, that can be a sheet on the wall that you never look at, and they're not going to be any, they're not going to be worth anything for you. But you should have core values that you hire, fire, promote and demote on, and give raises to like, that's your core value. So who are the people you want on the bus with you, right and if you are, if you are an individual landlord, that you know has a bunch of house and you're looking to hire that first person. Well, that's a business, right Michael, would you teach that like, as soon as you're hired, as soon as you buy that first house, you are business…   Michael: Yeah, you are business…   Pete: You are business. So you need to have core values and if you don't, as a business, you should have them as an individual. So who are the people I called the fog. So who do people want to foxhole with you? That gets you the right person in the organization. But that doesn't mean they're the right person in the right seat, right because the right see, for example, like, if somebody's super outgoing, you want them in sales, if they're super outgoing, but not detail. You don't want them in accounting, right? I might have the right person. But if I put that outgoing person, and that's shipping and sales and accounting, he's going to do a terrible job. So I found the people through my core values, I then put them through a personality profile test. I like disk. It's super simple. I don't know what you would use. Do you have one that you use?   Michael: No, not personally, but I'm definitely going to be adopting one as I'm gonna get for virtual assistant, yeah…   Pete: There's, there's a lot of them out there. Disk is super easy. I know it very well. It's easy to learn. So I use disk. So that tells me I get the right person in the organization. I put them in the right seat and through my job description and my key performance indicators. I know they're going in the right direction. So if you do all of that, and then you do the training and then you do the managing the chances of you having somebody washed out or somebody leave, it goes down dramatically. It's not 100%. It's never 100.   Michel: Like anything… Yeah, that makes a ton of sense to me, Pete this has been, this has been super eye opening, really exciting, exciting stuff for people that want to learn more want to take advantage of the cam solutions, like how do they get in touch with you? Where should they be going?   Pete: Yeah, so you can go to https://www.vpmsolutions.com/ , and create a free profile. So that's the other thing, Michael, everything on the company side is free. So creating a profile posting a job, searching for people, finding them is all free. When you thought when you hire somebody, they we charge the virtual team member a percentage, and that's how we make our money. So, it's free to the company. So all you're paying is the hourly rate, and a small processing fee that we pass on from the stripes of the world onto the onto the dude the company, but that's what it should go and if you want to email me directly, it's pete@vpmolutions.com and we have over 14,000 virtual team members in 60 countries on our on our site right now looking for work and we have property management video training that your listeners can actually take for free as well. So we have like, I think we have like 12 courses, it's over about nine hours of content it goes from, it's basically the lifecycle of property management. So if you are a, you know, a self-manager, and you want to learn more about how I can manage my property a little bit more efficiently, I highly recommend taking those courses and then when you post the job, you can actually ask your VA, these are the recommended courses that we recommend that you take and then people would actually take those courses on their time and they're done. So you're getting a little bit of people trained before you actually are paying them.   Michael: That's really slick and it probably helps weed out a little bit more of who's serious versus who's not is who's gonna put in the time in advance.   Pete: Absolutely, 100%...   Michael: Oh, man, I love it. Pete This has been so great. Thank you for coming on with us a second time. Definitely, we'll be in touch man.   Pete: Yeah, Michael, thank you so much for having me. Really appreciate it.   Michael: You got it, take care. All right, everyone. That was our episode a big thank you to Pete for coming on. Super exciting. If you couldn't tell it was pretty giddy throughout the episode. It's something that I'm going to be very much looking into for my personal business. As always, if you enjoyed the episode, we love hearing from you reviews, comments, feedback questions are always welcome in the comment section, and we look forward to seeing on the next one. Happy investing…

Derek Dombeck, a Real Estate Expert hosts and runs the WiscoREIA based out of Wausau, WI. There he coaches and teaches other real estate investors his keys to success. He is currently hosting 3 national Mastermind groups called the R.E. Circle of Trust and puts on an Advanced training and Networking event each winter called The Generations of Wealth Voyage. In the last podcast episode, Derek talked about creative financing solutions for real estate investors. In today's episode he will be tackling the other side of the coin and will share some insights about private capital, lending and how that plays into real estate investing. Episode Link: https://gowvoyage.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have Derek Dombeck again on the podcast and for those of you who missed his first episode, I highly recommend you going back and giving that a listen. But Derek is the owner of best REIA funding a private lender, he's also an investor. So today, we're gonna be talking about private lending, and also what we need to know as investors and how to utilize it. So let's get into it.   Derek, what's going on, man? Good to see you. Thanks for coming back on the pod.   Derek: Yeah, absolutely. Glad to be back.   Michael: I'm super excited to have you on. So last time, we talked about creative financing solutions for real estate investors. Now we're going to be tackling kind of the other side of the coin and so talk to us about private capital and lending and how that plays into real estate investing.   Derek: Well, I like to talk to our clients that are coming to us for loans in more along the lines of what how would they want to structure if they were the lender? So it makes more sense to them why are we asking for what we're asking for? We design our company, primarily because we were borrowers ourselves, and we want to do it in a way that would be probed by our borrower, but still safe for our investors. So a couple examples, we don't collect monthly payments, we don't collect interest payments, we let it accrue. Very, very few lenders do that. The methodology is that when you're when you're the lender, and a payment is missed or late, that gives you an indication of something could be going wrong with the loan and that's true. But we don't want to have to collect payments every month on 175 outstanding loans, which is typically what we're carrying at any given point in time. It's another staff member that we would have to have basically just to do that do collections. So as a borrower when I was borrowing the money, that's what I would have wanted, right? As a lender, it's different. So a lot of times I'm trying to have these conversations with our borrowers, as I mentioned, in a way that shows them that we're their ally, we're not just somebody sitting across the big fancy desk with a, you know, a suit and tie on looking down their noses at them. We want them to really realize that we are their business partner, in one way, shape, or form. Most interactions with borrowers if they've never met me before, it just starts out with a brief overview of our loan program and I often tell them, well, if you were going to be the lender, if it was your money, what would you want to see happen, especially if they're, you know, if your listeners are out there trying to apply for loans. There's three things two to three things that I think are super important. First one is whether they're going to a bank, a hard money lender, or a private lender, or their great uncle, have all of your documentation ready to go. At the I mean, at the drop of the phone, right? Like we get off the phone, bam, you can submit it. What drives every lender crazy is when they send stuff in piecemeal. You know, and we always have to ask for it and then we have to remind them and follow up that makes you look so foolish in the eyes of a lender. Okay, another thing for us, we don't require appraisals, but most people do. So, and we don't require appraisals in our loans, because I don't trust appraisers. They have no skin in the game, we have way more experience. But we're in a niche lending market of lending on rehabs and some appraisers may never have picked up a hammer in their life. How do they know what the after repair value is going to be based off of a scope of work? You know, if I get a scope of work that's submitted on an application and they claim they're gonna put a brand new kitchen in for $2,000 I'm gonna call bull ** because I know what it cost to put in a low end, middle end or high end kitchen. But again, as a borrower trying to help your listeners in that regard. If you're going to an appraiser or you're coming to us and we don't require appraisals, but having your data somewhere you had to come up with your numbers, right? When you made your offer to buy the property, I want to see, an appraiser may not want to because some of them don't necessarily like to help. But I want to see, because, you know, some of them are just arrogant. Let's be honest at it.   Michael: It's the ego play, yeah…   Derek: It's an ego play. But for me, it's not for me, it's required. I want to see those comps, or CMA, or a BPO, from a real estate broker, something to show me how did you come up with your valuations? If it's going to be a rental property, where's your cash flow analysis, you wouldn't believe it how many times we get applications in and they want to rent borrow money from our short term to fix the property, get a tenant in there and then refinance. But yet they have not talked to any long term lenders, typically banks to even know what their refinance terms would be or if they'd be able to get refinanced. They haven't done a cash flow analysis. Again, have everything ready for your lender as much as possible, right? Gosh, what else as a borrower, you know, coming in with a backup plan, a plan B, is so crucial. Our job as the lender is to expect you to fail and every question we ask is, is asked, because we want to know, if something goes wrong? Can we either take the property back or lien against the, you know, the borrower to get our money back? I mean, that's what it's all about. We are asset based lenders, banks are gonna look at the asset and their income, every lender is a little different.   But the bottom line is, can we protect our investors' money? Can we protect our money and if that borrower walked out of closing, sign the papers and got hit by a bus and died? Can we recoup our money, right? Borrowers don't think that way. Borrowers think sun shines, and sunshine and unicorns, right. Nothing's ever gonna go wrong, the project is going to be on time on budget, we're gonna get under budget. You know, it's total bul****. But that's, that's our jobs to explain that to them in a way that's, you know, we're not trying to drive them from our business, we want to do business with everybody, that's got to legit good deal. But they've also got to be realistic and the number one, two spots that most borrowers come in sunshine and unicorns, their budget is too low on their renovations, and their comps are too high. So they want to use the top comps and we don't, why don't we because the markets shift. Now, if they came in on evaluation, I'm going to use Wisconsin numbers, you know, because that's what I'm used to, if they come in with an after repair value of $200,000 and I look at the comps that they submitted to me and there was one house that sold for 200,000. But the majority of them sold for 175. Which one do you think is the lender want to use?   Michael: Yeah, the 175.   Derek: Right, so we're going to lend based on 175. Now, that means they're going to have to put some of their own or more of their own money into the deal. If they sell for 200 bonus for them. That's great, I hope they can. But as the lender, we can't live on hopes and dreams, we got to live on reality and what happens most of the time is they're trying to come in with as little money out of their pocket as possible by using the highest comps, the lender takes on all the risk, which is why we use the middle of the road comps and I don't go to the very low end either. But we're using the middle and again, if they have to put in 10 20,000 extra dollars, and they're confident in their numbers, they shouldn't have a problem putting in 10 to 20,000 extra because according to them, it's going to sell for 200 they should get their money back and then some but when you start changing that or having that conversation with them. Boy, it's amazing when they have to use their own money, how they start to sing a little bit different tune.   Michael: Yeah. Interesting. So it's almost like you have to protect them from themselves.   Derek: Absolutely and we will tell them that I mean, there's plenty of times where we have just flat out told people you should walk away from this deal. Like we want to do business with you in the future. We want to give you a loan, but you are setting yourself up for failure on this deal and most lenders wouldn't typically do that most lenders will just say, we're only comfortable lending up to x, go ahead and do the deal and then when they fail, the lender will take the property back and the lender is in good position depending on loan to value. But we don't, I don't really like that model. I mean, it's certainly not our model and at the end of the day, if I take care of that investor, and I save them from themselves this time, hopefully when they come back around, they're more educated, and they bring us a really great loan, they've got a really great project. That's what it's supposed to be all about.   Michael: Yeah, yeah. Well, let's talk about that for a minute, Derek. So it sounds like the things that you asked for, from your borrowers. It's really an opportunity for them to showcase their experience level that they've taught, crossed, the T's dotted the eyes and really thought about it and in very proactive in that, what if someone's just getting started? I mean, how much hand holding should someone expect from their lender or can they expect from their lender to help them get to a point where they're feeling confident or do you tell people hey, you know, go kind of skin, your knees somewhere else, and then come back to us when you're a little bit more polished?   Derek: So the answer is, it depends. There's, most lenders out there do not want to deal with brand new people. I mean, it's just a reality of life. We are different in that regard, too because we may say to the applicant, alright, we want you to partner with somebody, and that person has to have, you know, we'd like to see at least three deals worth of experience. Now, I don't care if they get mentored for free, or if they split the deal 50-50. I don't care what that partnership looks like. But we would like to see somebody with experience that is backing this deal and if they can't do that, or they don't want to do that, then we typically would say sorry, but we can't lend on this deal right now and if they don't know anyone else, which happens, we have an extensive network throughout the state. So we can pretty much in any market, we can line them up with somebody that would be willing to, to mentor them and get some feedback from them. So but I don't think there's a whole lot of lenders that would do that much hand holding… Yeah, you know.   Michael: And that makes sense to walk us through because you're a private money lender. So you are kind of this middle person where you take investor money, and then lend it out to other investors that are that buying real estate. So when the Fed talks about interest rate hikes are this sort of thing? Like, how do you set your pricing and what should listeners be expecting if they're going to private lenders in terms of rates, right now, we're recording this almost near early September and August 2022. What are you seeing an image of you'll be expecting.   Derek: So it's very volatile, depending on where you are in the country, and how much competition there is, we certainly have national, hard money lenders that are that are, you know, advertising, much cheaper rates than we offer. But they sell off their loans. Almost many before the ink was even dry. They're white labeling almost everything, which means that there's a hedge fund or another note buyer, that is fronting the cash to close the loan and at the closing table, that loan gets transferred and you know, the person that you signed the paperwork with may still be the servicer of the loan. So you may not even realize it's been sold off. But most of the national lending companies, that's what they do. The challenge with that is, when the borrower gets to any kind of a challenge, we'll call it with their loan, maybe they need an extension, or something's just going terribly bad. Those lenders are not going to be willing to work with them because they don't own the loan anymore. It's gone. It's in some hedge fund on Wall Street, and it's just a number. It's just a loan number, they don't care. They just okay, you failed, get out, we'll take your property. As private lenders, we don't currently we don't sell off any of our loans.   We are 100% privately backed, so I don't have any institutional money at all. That has their thumb on us telling us what we can and can't do and our investors are all individual people there, some are mom and pop. Some are, you know, a little bit higher net worth individuals, but we can have conversations with them. So for example, let's just assume that the markets crashed and 20% of our portfolio defaulted and we had to go take these properties back well, if the market isn't really viable, viable option to sell them off and be made whole, we can go to our investors and we've done this with all of our investors. Prior to them even getting started with us, we have this conversation, but we can go to them say, okay, you know, we still myself, my business partner still run a full time real estate acquisition company, we have rentals, we have everything in place. So we're gonna have to take these, you know, whatever it is 20, 30, 40 properties, and we're going to lease them out and we're going to just collect rents until the market comes back and our investors are, that's not their first choice, but they're okay with it, because they know it's a Plan B, I mentioned that before, you know, the, the borrower's don't want to come in with a plan B or Plan C, we've got that in place with all of our investors upfront and, you know, we pay our investors 9% currently, maybe they would have to agree to go down to 7% or 8%, it would have to look at the cash flow numbers. But that's still better than the alternative of losing money.   Michael: At zero, yeah, zero or negative.   Derek: As far as rates are concerned with us, what we pay our investors dictates what we charge and at 9%, we've got a three to four point spread on interest rate. So we charge 12%, throughout the bulk of the state of Wisconsin, and we charge 13%, currently in Milwaukee and it's really just to be 100% honest with you and your listeners, Milwaukee, we could probably charge more, because our competition is charging 15%. So we don't really have any intentions of increasing our rates, we don't have a lot of junk fees, that's another thing your listeners really should consider looking at when we're looking at any lender, the interest rates might be much, much better, but their junk fees, I know of a lender within my state, who charged something like $3,500 to get paid off. In order for you to pay the loan off, you had to pay a payoff fee, which is asinine. We see a lot of lenders that are charging several $100 to do a construction draw, or a loan or an escrow draw for your construction proceeds, that's your money as the borrower and you now have to pay three, four or $500 to get your money out of escrow. It's crazy, you know…   Michael: I've seen that.   Derek: All these fees are they're nuts. We do charge an extension fee if they go past our six month term and it's equal equals to what if we weren't able to redeploy that money and another 12% in three origination points. So for an extension fee, for us, it's a point per month, up to three more months. Why because we want that money back to redeploy it. So we could charge three more points, right? So but it's not some 10 points in some crazy, crazy astronomical numbers, it's really just trying to get our same level return on our money, whether it's extended or redeployed to a new loan.   Michael: Okay and people listening might be getting excited about using private money, because it sounds like so much more flexible, and just investor friendly. Other people might be a little bit scared hearing this and so I'm wondering if you can talk to if those people are listening, can they get involved on the investor side of things where they're funding other people's deals, and just clipping that 9% coupon or whatever the return is?   Derek: Yeah, absolutely. I mean, if whether it's with me or with somebody else, I'm more than happy to talk to anybody about it and if you invest with us, you do if you don't, I don't, that's fine. But I would say there's some very important things that everyone should know if you went and borrowed money from your family. Okay, so maybe they're talking about a private lender being an individual that they have relationship with, or they might be using somebody's retirement account. I've seen this happen so many times, it makes me cringe. There was a couple young couple, I mentored them years ago, now they're, they're super successful, but they were just getting into the business and they were, they bought a flip house and they said, We borrow the money from my uncle at 2% and we can pay it back when we sell the house. So that's fantastic. That you know, this was back before 2% was popular, right? Yeah and I said, okay, did you put a note and a mortgage in place to protect your uncle and they said, no, he didn't care. He just said, pay me back when you get it, you know, when you get the money? I said, okay, do you have the property insurance? You know, the listing them? In case the place burns to the ground? Nope. Did you get them title insurance? Nope. All these things like they did not protect their family at all. So picture them getting sued by a contractor or anybody. Here's a free and clear property without a recorded mortgage against it and not and they lose it. Let's say we lose a lawsuit property gets taken away from them. Now they still owe their uncle all this money, and he had nothing to protect himself or we go back to the they get hit by a bus walking out of the title company, right?   Property, the money's gone, the money went to whoever they bought the property from, how does that family member collect or get their money back, if they don't have a mortgage in place, they can't foreclose on the property... So I just caution, anybody that's, you know, on the borrower side, that's going to borrow money from friends or family, make sure you always get title insurance to protect your lender. You know, the property insurance, the lender should be listed as a lender, not as an additional insured, there's a big difference and, you know, go through a title company, go through a closing attorney, make sure everything's aboveboard note mortgage in place, or deed of trust, depending on your state because you're just, I mean, you're hurting your family if you don't do it the right way. So always, always, always protect your lender, no matter what and if you're going to take a loss on a property or a project, I don't care what it takes, you make sure your lender is made whole, because we've lent money to people that screwed up their deals, but they took care of us and next time around, we lent the money again but you got to take care of your lenders. On the other side of it, if you want to be a lender, there's a lot that you have to consider just the whole underwriting of the deal. Is it a good deal? Is it not a good deal and how are you going to make sure that you get paid back are you going to have third party that goes there and make sure that the property is being managed, right, or if it's rehab, or you're gonna have somebody that's checking on the project and releasing money on construction escrow drawers. If you do want to collect monthly payments, who's going to do that who's going to service the loan. So there's a lot of things that it don't get me wrong, it's a great business, but there's a lot of things that people don't necessarily think about and I've seen it happen enough times where, you know, somebody has 100 200 $300,000 sitting around, and they just do a handshake deal, and lend the money to somebody, again, not getting the proper documentation in place. We had one ***hole and I say that, because he really was an ***hole, he took money out of his disabled brothers, IRA, to fund a rehab project and he had three other lenders on that project and he never he told his lenders, he was going to record all their mortgages for them and he never recorded the mortgages and it turned into this in this really nasty lawsuit. But he lost his disabled brothers IRA in that transaction and he's just the snake, you know, and they're out there. But you got to protect yourself. You know, I still believe in taking somebody at their word and believing the handshake. But that doesn't mean you don't write down and memorialize what you just shook hands about.   Michael: Right and if someone wants to get involved in the lending side of things, but you know what, you just said, what you just shared kind of makes them a little bit gun shy, or they want to have someone else take care of the day to day operations. I mean, are there businesses that they can plug into it? So here, take my money, pay me a return, I don't want to hear about it or know about what you're doing with it.   Derek: I mean, there is there's a lot of crowdfunding companies that you know, that became very popular. It seems to have died off here lately. You know, I don't hear as much or see as much marketing about crowdfunding. I would say the best way to do it is either find somebody in your local market at a RIA meeting, or, you know, a meetup group or even online, Bigger Pockets or something like that. But you got to spend some time getting to know who you're doing business with and, you know, Google the hell out of them, do background checks, all that kind of stuff. I invite anybody to Google me I have nothing to hide. You know, I'm never I just, I never tried to screw anybody over you know, and I mean, yeah, and it shows. But at the end of the day, you've got to know, this is I don't think this will ever circle back around. But I was invited to be on somebody else's podcast and I won't say the name. But then that gentleman was having a four day online conference and he asked me to speak for 90 minutes on this conference and I said, yeah, absolutely, I'd love to do it. He was expecting, you know, four or 500 people and so I was gonna send it out to my email list and help advertise it for him and it wasn't out there for 30 minutes, and two of my closest friends, one being a really good attorney were emailing me saying, Have you lost your fricking marbles? Like this guy is the biggest con artist and scammer there is and he actually the attorney sent me case studies of actual cases that this guy lost, and how he's not in jail, I don't know and I was just, you know, took and took him at his word. He's got a reputable podcast, right? So I'll go and speak on his conference. Well, who will you associate with can reflect very horribly on you, especially on social media. So I didn't mark it to anybody at that point, I still, I still spoke because I said I would and I believe in you know, I gave my word and I and there was a lot of other speakers at that event that were good. But I would never do business with that man and so that's the same thing. If you're going to lend money, or you're going to borrow money. Do you want to borrow money from a lender that doesn't want to be flexible if you run into trouble? Yeah, for us, we've only had to foreclose on nine properties in the last 10 or 11 years of lending, which is, is very, very, very low as far as the default rate. That's not to say we haven't had other people that had problems because we have, we have borrowers that have problems every week. But we're there to help them work through it, versus the lender, that's lending money as a backdoor way of getting properties.   Michael: It's a much more adversarial relationship.   Derek: Right, so you got to vet your lender, no different than if you were vetting somebody that you're going to invest with, we have a very clear in writing no ***holes policy within our company. I swear to God! Michael: I love it.   Derek: If I have somebody that and this has happened, I've had people that had several million dollars that approached us and said, We want to invest in your company and after half an hour, 45 minutes of talking with them, we just knew they were going to be the biggest pain in our *** and we turned them down. Same thing with our borrowers. If our borrowers stopped communicating with us, and stop doing what we agreed for them to do, then the ***holes  policy kicks in and we will have to default we will have to foreclose or at least we're not going to give them a loan next time. But the life is a lot better when you wake up in the morning and enjoy doing what you're doing and dealing with people that are not fun to deal with takes away from that. Yeah, we just don't do it. You just avoid it entirely. So I'd love to work with any of your listeners, unless they're an  *hole. Don't call me.   Michael: Okay, fair enough. Fair enough. Derek, on that note for people that do want to reach out that do want to work with you that have more questions about private lending, what's the best way for them to do so?   Derek: My, my personal email address is Derek spelled DEREK, @ bestreifunding.com (Derek@bestreifunding.com)  and I keep an eye on my own emails, my if I miss something, my assistant will grab it. But I'd love to chat with anybody that's got questions and again, it's this isn't a sales pitch. I mean, if somebody just says legit questions about lending, and they have no intentions of wanting to work with me as an investor, whatever, that's totally fine. I don't it's not about that for me and then the other thing I'm writing a book right now about lending in from start to finish. What happens when an application comes in all the way through closing and servicing after the fact and that's going to be coming out towards the tail end of the year, November December it'll be published. So I'd love to give your listeners that for free the electronic version for free.   Michael: Awesome.   Derek: So they just send me an email that same email address (Derek@bestreifunding.com) , and say, hey, I heard you on this podcast and put you on the list when the books published we'll get it out to you.   Michael: Fantastic. Thank you so much and I just have an ask for all of our listeners that do reach out to Derek if you wouldn't mind please referencing that you heard him on the Remote Real Estate Investor in the subject line. So he knows where you're coming to him from. That would be super helpful.   Derek: Absolutely.   Michael: Well, Derek, this was great, man. Thank you again for coming on the show. Really appreciate it and I'm sure we'll be chatting soon. Can't wait, can't wait to read the book.   Derek: Yeah, I can't wait to finish the book because it's great when you're writing a book, except some weeks are more stressful than others trying to hit deadlines and stuff. So I'm looking forward to it, but I'm really looking forward to it being done, too.   Michael: I can imagine I can imagine. Well, hey, man, we'll definitely be in touch soon.   Derek: Awesome. Thanks so much for having me.   Michael: You got it, take care.   All right, everyone. That was our episode, a big thank you to Derek for coming on again and sharing his time and knowledge with us. As always, if you enjoyed the episode, feel free to give us a rating or review wherever it is eat your podcasts, and we look forward to seeing in the next one. Happy investing…

Raising finance for new real estate projects is difficult. Property development firms face interest rates as high as 29% when working with banking institutions as single-source loan providers. They also face challenges with multiple loan sources as crowd financing can be difficult to administer. Blockchain simplifies access to alternative financing models by facilitating investor management for developers and ensuring investment transparency and continuous ROI tracking for investors. In today's episode Goeffrey Thompson, Chief Blockchain Officer of Roofstock, and Sanjay Raghavan, Head of Structured Securities and Co-head of Digital Securities Initiative, walk us through what blockchain technology is and how they are tokenizing properties in a revolutionary way to buy and sell property.     Episode Link: https://onchain.roofstock.com/ https://twitter.com/rsonchain --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Geoffrey Thompson, who's the chief blockchain Officer here at Roofstock and Sanjay Raghavan, who's the head of web three initiatives here at Roofstock and we're gonna be talking today about what blockchain is, and how it applies to us as real estate investors. So let's get into it.   Goeff, and Sanjay, thank you so much for hanging out with me today. I am super excited to chat with you both.   Sanjay: Likewise.   Goeff: Thank you for having us, thank you.   Michael: No, absolutely, absolutely. So I know a little bit, obviously, who you guys are because we work together. But for anyone who isn't familiar with you. Give us a quick and dirty description who you are, and what is it that you're doing at Roofstock? Goeff, I'll kick it over to you first.   Goeff: Sure. So I'm Goeffrey Thompson. I currently have the title of Chief blockchain Officer at Roofstock. Previously, I was General Counsel and I've been a lawyer for by training for a long time and now heading up the blockchain initiative at rootstock together with Sanjay.   Michael: Awesome, great.   Sanjay: I'm Sanjay, head of web three initiatives. Previously, I was leading securities initiatives at roof stock coming up on actually three years this week. So super exciting tomorrow, I think.   Michael: Right on, so really quick follow up questions for you both. Jeff. Were you just like a crypto guy in your everyday life? I mean, how does a real out as a lawyer turn into a blockchain official at a company at the C suite level? I mean, that's incredible.   Goeff: Yeah, I kind of backed into it. That wasn't a plan but I had been advising friends. Since 2017, during the ICO boom, the initial coin offering boom, and I started hearing people in my network, talk about it and say things like, oh, well, it's not a security because it's a coin. So you don't have to follow the securities laws, you know, and I thought, I don't get a lot of the technical stuff that talking about, but I know I can help them with the legal stuff. So then I just I was acting as legal advisor for a couple of years and, and then Gary, our CEO knew that and last year, maybe 12 months ago or a little bit more, our board came to our CEO and said, you guys, Roofstock, you need to get smart on blockchain. We're not saying you have to do it. But you know, we want you to have an idea of whether there's something there and so he asked me and Sanjay, because he knew I had some crypto background and there's a lot of legal and obviously, the financial structure is critical as well, so we kind of got into it together.   Michael: Awesome and Sanjay, at the risk of sounding like a total rookie, what the hell is web three man, I hear so much about it. Break it down for us.   Sanjay: All right. So I know it's so web low. So let's take a step back, right. So web one, which was kind of the first incarnation of the internet, right? There were sites that had static information, you could like type a URL, URL and go and, like, consume that information. But that's all you could do is just a read only type of a platform and then a few years later, the internet evolved to kind of web two, which widely is known as the read write version of the internet. So not only could you consume information, but you could go and, you know, provide information and content to the internet as well as a consumer and what happened with web two was it you know, that ability to read and write created all kinds of new interactions, and that allowed a lot of kind of the internet economy to bloom around it, where the Googles and the apples and eBays and other large companies were able to curate a lot of the content and manage a lot of the traffic. But you know, with social media and stuff, you are providing content as well, and you are consuming content, there was ecommerce, so a lot of these things came about, but the power resided with a very few large corporations that kind of controlled all of these transactions and the when, when web one started, the kind of original vision behind it was a more collaborative environment, where the consumers and the creators and consumers could actually work with each other and use a token economy and share you know, revenue and monetization. So that idea of you know, read, write and then adding on to it at the end. So it's a read write own type of economy that's decentralized. permissionless trustless has its own native payment rails, where the content creators and con Then consumers are all working together and you know, there's no power resting with large corporations, but it's, you know, giving power back to the people. So that's how that's how I would sort of succinctly describe, three and it's so it's a sort of a new way of thinking about things and it's super exciting.   Michael: Yeah it does sound super exciting and so give us all like a background again, treat me like a third grader, because that's probably my IQ level when it comes to the crypto and blockchain world. Give us all an idea of like, what is blockchain and what is cryptocurrency and then we'll get in maybe on how to be thinking about it. With regard to the real estate space and why it even belongs here you don't think this…   Goeff: Yep, sure, so the core concept for blockchain is that it's a network that can be validated the data that's recorded onto the network, which is the chain can be validated by an a limitless number of third parties who aren't organized or connected in any other way. So these are called validators I could have when you could have when they just computers that read the information that's coming in from the blockchain, they perform some mathematical calculations, and then they verify that the data that's been submitted is, is what it says it is and then at that point, it's formalized and recorded to the block and then, so these blocks are really just pieces of data, data that had been put together and then as you form one block after another, that becomes the chain. So it's really just a chain of data that's been validated by third parties that are completely decentralized. So why is that important because it means that there's no third party, a corporation or government, whoever it might be, that can intervene in the functioning of the blockchain, once it's up and running, and you have enough people who are validating and writing to the to the system, it goes infinitely, and it can't be shut down and so the first use case that really grabbed a lot of attention was payments, right? That's what Sanjay was alluding to, in the early you know, the current web two universe, you don't have an easy way to send value to another person without going through a bank or a financial services company, Blockchain, Bitcoin allows you to do that, it's just simply on the on the chain, if you have value in the in the form of Bitcoin, you can send it to any other address anywhere in the world, instantaneously and no one can stop you from doing that. So this really arose from kind of an idealistic perception, like, we have to be able to have to guarantee our own freedom, you know, the government can't intervene and prevent me from sending money to you and that's where, you know, it came from, like the sophisticated cryptographers mathematicians who had an idealistic view, and that's where Bitcoin came from and then since then, it's expanded to a lot more utility, where you can do much, many more things other than just send payments. You can, you know, NFT, you can have lending platforms, you can have social media companies that are effectively on a blockchain and can't be shut down or controlled by third party. So that's, you know, that's the overview of kind of where it came from and why it's important today. Sanjay, anything to add?   Sanjay: Yeah, no, taking a step from there right and that's exactly right, Geoffrey, the original idea was, you know, this all came about during the great financial crisis of 2008 2000, you know, 10 or so, where people thought that these, you know, financial intermediaries are, you know, in control of our lives and so Bitcoin kind of, you know, that was the reason why it came about as a peer to peer system where you can exchange value without involving these intermediaries. But then over the years, we've kind of seen that world expand rapidly and there's other cryptocurrencies now and one of the notable ones is Ethereum and on the Ethereum network, there's actually the ability to create what's known as a smart contract and a smart contract is essentially a piece of computer code that will execute based on a certain event occurring and why that is important is if you think about it from a disintermediation perspective, you know, in a transaction where two parties are involved, and party A needs to provide a good or service and party B needs to make a payment for that. You need a way to make sure that both parties are adhering to their portion of the agreement, or contract, right and so oftentimes, what happens in the financial services world is, in order to make sure that both parties are compliant with their aspects of the contract. You create an intermediary in the middle that takes that position of collecting information or payment from both parties and sending it across and a very common example of this in real estate. Michael, you as a, an owner of, you know, dozens of properties, you've gone through this process many, many times. But you there's an escrow agent involved exactly what I was thinking sure that, you know, right, the property title moves over to, you know, the buyer and the money goes to the seller, right. But imagine you had a piece of computer software that executed on a sale, and it made sure that the two parties were both appropriately receiving what they were expected to receive and there was no intermediary involved in this process. So this, this all executed, basically on the click of a button, right? Like that would be game changing in the real estate world and that's what we're trying to do now with through stock on chain.   Michael: Holy crap. For anybody who's not watching this video, I just didn't pick up my jaw up off the floor, because that was totally a game. So I have so many questions, I want to take just a step back and so Goeff, you were talking about this, these validations that can be done by any number of people. So I'm thinking about like a real world example. So if I go to the store, and I buy something with my credit card, I put down my credit card, they give me the goods and then in this case, would the validator be like the credit card company that says, look, this is the charge that like how do I think about that from like a traditional example.   Goeff: That's exactly right, the validator or usually there are multiple, but they'll they play the function of the credit card company. But instead of sending your data and the transaction data to the credit card company, where the credit, you know, the data goes to the credit card company, the credit card company says okay, this person has credit and the transaction is now going to be posted on their account, and then they send the okay back to the merchant. Instead, the merchant would send the data to a blockchain, the blockchain validators would pick up that transaction, they would validate that, you know, all of the details are the same. Usually, it's a small number of validators that have to agree on the transaction details to make sure that there aren't, you know, nothing's been missed and then once they've reached that consensus, whether that's five or 10, validators, or whatever it may be at that point, then it goes back to the merchant and as it says, The Merton now the blockchain has been updated to show that this transaction occurred, Goeff, or you or whoever was spending the money now no longer has that money. So I had that money in Bitcoin. I gave it to the merchant, the merchant side of the blockchain and said, hey, guys, can you verify that you're debiting Goeff's account and you're adding it to my account? Everyone said, okay, verified, validated, coming back. Now, I can't spend that money, I don't have it anymore and it's in your account. So that's, you know, a high level how that would work.   Michael: Okay   Sanjay: And a couple of more things there, right. Like, if you, you know, credit card transactions for small dollar values is one example. But if you look at larger dollar values, and there's ACH transactions that take three or four days to get validated through the banking system, a wire transaction, if you're trying to buy a house, and you need to make a wire payment, you're rushing to the nearest retail brand, scheduling an appointment to go into the wire, right?   Michael: It's such a pain.     Sanjay: It is all such a pain and like, imagine you had a way 24/7, right, like, you're looking at, you're browsing a site today, you find a property you really like, you want to buy that property, it's Sunday night at 10pm. You just click the button, and you know, your wallet says you have enough money and the smart contract validates that you have the money transfer property over to you, right, like imagine a world that's like that, where you don't have to worry about waiting three or four days for an ACH or running to your bank and getting an appointment waiting in line to get a wire done and it's all literally you're doing all this from your computer, click of a button 24/7 AMS and payments do anywhere in the world.   Goeff: And the cost is in most cases, negligible. You know, the wire fee is whatever 35 $50 It takes a day, you know, some amount of time to process ACH could be clawed back. The claw back concept that exists with ACH that doesn't happen in blockchain that doesn't exist. Like once it's final, it's validated, it's done and you could, you know, a simple payment transaction might cost from a few cents to a few bucks, but it's not going to be anywhere near the cost of a wire transfer.   Sanjay: And the transaction is immutably recorded on the blockchain, nobody can contest it, because you can go and open up that transaction on the blockchain and say, these two parties agreed to this transaction and it's hot, you know, it was hashed on the blockchain and there's this unique hash that represents this transaction, right. So there's no disputing later on. The parties agree that transaction gets done, it's instantaneously recorded and so that that makes this platform as a technology choice. You have innumerable number of possibilities because once you have those types of payment rails, you can build all kinds of applications around it.   Michael: This is insane, you guys. So like, we were talking about the validators and Goeff, you were saying, whatever, four or five or 10 validation points and people are doing it. So is it literally like people on their computer going, like watching their screen for these payments going back and forth or is this happening automatically?   Goeff: No, it can happen. It happens, it's automatic. Yeah, you set up a server that has the right hardware, there are different hardware and software requirements for different blockchains. But it runs silently in the background, or in some cases, it's, it's loud, because there are a lot of fans this morning.   Michael: I heard that, yeah…   Goeff: Yeah, but it's happening 24/7 In the background, and, and in most cases, it's just set or forget, set and forget, you don't have to be online all the time, doing anything manually.   Sanjay: And one other thing I wanted to point out was, you know, obviously, with banks, you can go there on weekends, after hours bank holidays and such, but even a MasterCard or Visa, if they're having a problem with their servers or something, you can have outages where you know, for a couple of hours, you're not able to do any credit card transactions, right? Whereas on the blockchain, that doesn't happen, right because there's blocks can be like, even if my computer was one of the validators, but for whatever reason, it's not working right now there are hundreds of other computers that are doing the same thing that are waiting to pick up the next block and compute it and solve the puzzle and so, you know, as Goeff was saying earlier, once the blockchain is up and running, and there's, you know, enough infrastructure in terms of validators that support that blockchain, you know, it's then it's permanently out there, and it's you can shut it down.   Michael: So that kind of brings to my next question and so you both are talking about this decentralization aspect and I think I've heard so much about the crypto world, it's like getting away from big banks and government and that sort of thing. But if this information is, I mean, it's public at this point, right? When I, Goeff, when I send you money or buy a service from you, it's now public information.   Sanjay: Just to just to clarify on that, right, the part of the information that's public is that this wallet address transacted with this other wallet address. But it's not necessarily public that, you know, Michael transacted with Goeff, right. So what's publicly stored is just the, you know, so, you know, when we talk about privacy, oftentimes, people use the words privacy and anonymity interchangeably, but they're two different things, right? You know, in one example, where there's just two wallets transacting with each other, you both still have full anonymity but the privacy concerning the fact that the transaction occurred between two wallets, that may be public information, but that's the kind of subtle.   Michael: Got it, yeah okay. Okay, that makes total sense, because, well, I was going with the question is, if I send Jeff money for a service, I mean, that could be a taxable event on the traditional world, like, if you were a credit card company, or you were a merchant, I send you that you have sales tax to pay. So I'm imagining government's point to the me sending you money and say, well, now we're going to tax it. But Sanjay, what you're saying is that the actual dollar amount, or what it was for, might not be available to them, all they could see was, someone sent money to someone else, end of story…   Sanjay: We use you the amount of money that went from a to b, but you don't like people don't automatically know who a and who B where the US are going as far as…   Michael: Or what it's for…   Sanjay: Right, in the US people are required, basically to report their own earnings and that's, you know, whether it's on the in the crypto side or non-crypto side, but, you know, you're required to report your earnings and in other countries and jurisdictions, they've passed laws where crypto transactions are not necessarily taxable. So, like, if you bought Bitcoin for, you know, $5,000 and sold it for $20,000, you may not have capital gains taxes in other jurisdictions in the US we do and that's, you know, self-reported, for the most part,   Michael: This is so nuts. Okay, so, taking one more step forward, we're talking about these coins. We talked about Bitcoin, and we mentioned Ethereum, as well, what gives these things of value? Is it just that we have generally I mean, the same thing can be said for the dollar, it's enough people have accepted or any currency have enough people have bought into this idea that this piece of paper that has an old president's face on it is worth what we've decided it's worth, same thing for Bitcoin and Ethereum.   Goeff: Exactly the same. All right, yeah. Nothing else. There's nothing else to we, you know, we all agree today that Bitcoin is worth 20,000. If it goes up, then you know, that's literally the market price. It's set by the people in the market who are transacting on a you know, every second and so it's a very clear pricing mechanism.   Sanjay: In a way you know, it's pure demand and supply that drive pricing for the these types of alternative currencies or crypto currencies, the dollar, for example, you know, we price $1 bill to be worth $1, right and so you will always be able to redeem $1 for $1. But, you know, inflation and other characteristics might make it less valuable to you, right like if a loaf of bread was 50 cents, and now it's $1, you know, you're paying more money to get it, but you know, you're not paying more bills necessarily, you know, like, the dollar bill is always $1 Bill, right? Whereas, one, one Bitcoin or one Ethereum, its value can go up over time, almost like the stock market, right? If you're looking at a share of Microsoft, it's $100 today, but because we all think Microsoft is very valuable, or Apple is very valuable, and the next iPhone is the most sexiest thing that's come out, and therefore, you know, we think we should, you know, put more value to the Apple stock, right? So the concept is similar with Bitcoin and Ethereum. It's simply people that are there are people who are, you know, buyers, and then there's their long on Bitcoin and then there are people who are short on Bitcoin and if there are more people long than short, then the price is going to go up. If there are more people short at a particular point in time price will come down. There's fewer demand.   Michael: Cool and so we mentioned, I think you both mentioned a couple of different use cases for the blockchain and for crypto. What, like, where do you see this going and for Roofstock, specifically, maybe you could talk about what we're doing as a company with regards to blockchain and where do you see it evolving from here?   Goeff: Sure, so, the, you know, the easiest use case for the blockchain technology is for something that is entirely on chain right payment is a perfect example, right? The you know, I give you send you something of value, call it Bitcoin, you accept that, and that's all on the blockchain and that's pretty easy. What we're doing is, we think taking the next step forward for blockchain and we're not the only ones. But we think that we do have something to add here, which is to bridge blockchain to real world assets and that's where things start to get a little bit tricky because let's say that you have a home, you call it a home on chain, a tokenized, home, whatever it is, and you have a token, a blockchain representation of a home, but it's a real world home and so you know, you say, oh, I go to my blockchain wallet, my crypto wallet, and I see I have this home token. That's great but let's say it's not the home that I live in and in fact, it's a home somewhere else in the country and I haven't been there for a while. How do I even know that there's still a home there, right and if I want to sell it to you, you know, you like the idea of using a smart contract to buy and sell this home? You like the idea of having a one click transaction of having certainty that you're going to get what you know, the home token in exchange for your money. That's all great. But how do you know that you're actually buying a real home and not just something that is called a home on a blockchain, whatever that even means, right.   And so that's where we've spent all of the last nine months and the better part of the last 12 months, diving into the nitty gritty legal details to understand and practical implications to understand how we can put this together in a system that works and the answer is, you have to have some type of validation from the real world as well, obviously, you know, the scenarios that I just mentioned, we can't allow that to happen where someone purchases a home token, and finds out that the home burned down three months ago. So you know, you just got nothing and so the way that I think what Roofstock can bring to this equation is the deep, detailed knowledge about how real estate transactions work, plus the blockchain, the blockchain, structuring the legal implementation and that's the value add that we have. I think there are a lot of others in the space and we encourage everyone to get out there and try, you know, try to build, but we do see others who don't have the real estate experience and even though they have a beautiful blockchain strategy, they don't know how to connect that and that you end up with something that's not useful. So what we're doing is designing a system that ensures that before any home is transacted, it's gone through all of the usual checks and balances that are necessary for real estate transaction and inspection has been done recently. We've done you know, made sure that taxes are paid, made sure that insurance is in place, make sure that the title is you know, unencumbered. We do all of that, because you have to do all of that no one's gonna buy it, if you doubt, but we do that behind the scenes, and so went by the time that you as the buyer come to see our site and you see the home, the home tokens that are listed there, you know that you have a data room that shows all of the documents that I just mentioned and more. So your diligence is already done for you. You don't need an inspection contingency, because you have an inspection report sitting right there, you know, you don't need on the on the on the flip side, you know, you don't need an escrow agent, because the smart contract simply it won't execute, it won't perform its function unless the buyer has the funds that it says it has. So you know, this smart contract at the time that you as the buyer purchase, you click, I want to buy this home, the smart contract checks, do you have money, the right amount of funds in your wallet? You know, they check the other side. Does the seller have a home, which is already been approved by Roofstock to be sold? Yes, yes, the transaction happens, and it's not and if one of those isn't true, then it fails and you know, we have to go back to the drawing board and fix whatever was wrong.   Sanjay: Right and then to add to that, right, the kind of the first version of smart contracts and NF T's and all these things that came about on web three, you know, a lot of those assets themselves had the value in it, right. So you might have heard about projects like board a, or crypto punks, these are well known NFT projects where people are spending Saturday 98 to buy, you know, a JPEG image of you know, this popcorn ape. But in those cases, that image itself has that value embedded in it and when people get that image when they buy that they've already exchanged value, right. But the example Goeff is giving us with a real life, real world asset, the NFT is a representation of that real world asset, but it's that real world asset that has the value in it and so when people are transacting these NF t's on the marketplace, Roofstock has to make sure that you know what they're buying and selling corresponds to that real world asset that has that value and we've gone through the inspection and other diligence process to make sure that is still true, right. So that's the sort of the next leap in the web three world where you go beyond just the you know, cryptocurrencies and crypto Native Assets getting traded and now you start looking at real world applications.   Michael: Goeff, I'm thinking about is like, so if I'm trying to understand this, I'm I buy this token, which the underlying asset kind of backing the token up, if you will, is the home, right? So I then own the home as well. How does that work for like, insurance purposes? If I gotta go get insurance on his home? Am I Michael, like going out to my traditional insurance people and saying, okay, well, I own this home, or like, who's on title of the home? How does that all work, is the token on the title?   Goeff: All the right questions. So the way that we're setting this up, each home is titled in its own LLC. So we have a limited liability company where the home is titled and so that really facilitates the transfer between different parties, because you don't have to record title, every time that home token is sold. The title obviously has to be recorded the traditional way at the county recorder's office, the first time that it's transferred into the LLC and then from that moment on, it doesn't need to be retitled because the only thing that's changing hands is the LLC, the ownership of the LLC, the membership interest, it's called like the share of the LLC. So that's, that's how we unlock that. So that when I sell you my home token, I'm selling you an LLC that owns the home and you as the owner of the LLC, you have full control of the LLC, and thereby full control of the underlying home. So you can do whatever you want with the home. If you want to rent it, you can rent it, if you want it to be a long term rental, a short term rental, you get to decide all of that you get to decide when you put a new roof on or if you want to repair the roof instead of replace it. You make all those decisions. As far as the insurance question that you asked, we do have an agreement with an existing insurance company that's tech forward, and they're interested in working on this project. So we've already set that up. The first time you buy a home from us, it will come with one year of property insurance, it's prepaid. If you want to change that you can you can change it if you want to cancel it and replace it with a different insurer. You can what we found is that a lot of intermediates in the space are not necessarily comfortable and dealing with this type of transaction. So we've spent a fair amount of time diligence seen a lot of, you know, providers in the market and we think the ones that we have are very good, but it's up to you as the owner, if you want to have a specific insurer, or a specific title company, you can do that. But otherwise, it's already in place and it's really as easy as just paying your annual premiums you can, you don't have to think about it, if you don't want to.   Michael: Okay, so the follow up what popped in my mind immediately, and then we're going to get you guys out of here, but we live in California. So Roofstock obviously doesn't have a very big footprint here, because there's not a lot of cash flow potential, or it's much more difficult to make the numbers work as compared to a lot of other parts of the country. So, Sanjay, if you buy a home for a million bucks, tokenize it and now you your property taxes in California are based on your purchase price. So if five years down the road, you sell it to me for 2 million bucks. Traditionally, my new property tax value is going based on that 2 million bucks. But are you saying that because this trent this sale isn't getting recorded, as it would traditionally that my property taxes are still gonna be based on your original sale price of a million bucks.   Sanjay: In many state that's, that would be true. But in California, unfortunately, prop 13 would pick that sale up. That's it's a state by state analysis and in most of the states, you know, the transaction would be fine. You individually report any capital gain on your taxes, of course. But in California, the transfer does get picked up.   Michael: Damn it. They always get you somehow but maybe in some states, it sounds like that might not get picked up, right. There's less of an issue…   Sanjay: That's right, in many cases…Yeah.   Michael: Interesting. Okay, man, I thought I had this huge unlock but clearly you guys have already thought of, of all this. So this is this is super exciting, guys. We definitely need to continue the conversation, got a lot more questions, a lot more information. I would love to disseminate to our listeners. But thank you both so much for joining me. If people want to learn more about web three and blockchain and crypto in general, is there are there good resources out there that we can point people to?   Sanjay: Yeah, I mean, definitely come to our website to learn about real estate tokenization. That's https://onchain.roofstock.com/ and also, you know, follow us on crypto Twitter. It's at @rsonchain and then individually, like Goeff and I do contribute in Twitter and LinkedIn and other areas as well. So, you know, look us up and follow us as well, on those platforms.   Goeff: And don't feel don't hesitate to reach out. Like you know, we're happy to talk we're here. We're you know, we're doing something new. We know a lot of people have a lot of questions, and we're happy to answer the questions and then he conversation. So ping us, we're happy to chat.   Michael: Amazing, amazing. Well, thank you both again, for coming on and super looking forward to doing this again soon.   Sanjay: Thank you. Thanks for having us.   Goeff: Likewise. Thanks.   Michael: Alright, anyway, that was our episode. A huge thank you to Goeff and Sanjay for coming on. We're gonna definitely be having them back on again soon. So if you have additional questions about things you just heard, or blockchain things in general, we'd love for you to see those in the comment section. Wherever it is, you get your podcasts, and we will try to get to them on the next episode with Goeff and Sanjay. As always, if you liked the episode, feel free to leave us just traditional rating or review. We love those as well and we look forward to see you in the next one. Happy investing…

Raising finance for new real estate projects is difficult. Property development firms face interest rates as high as 29% when working with banking institutions as single source loan providers. They also face challenges with multiple loan sources as crowd financing can be difficult to administer. Blockchain simplifies access to alternative financing models by facilitating investor management for developers and ensuring investment transparency and continuous ROI tracking for investors. In today's episode Goeffrey Thompson, Chief Blockchain Officer of Roofstock, and Sanjay Raghavan, Head of Structured Securities and Co-head of Digital Securities Initiative, walk us through what blockchain technology is and how they are tokenizing properties in a revolutionary way to buy and sell property.   Episode Links: https://onchain.roofstock.com/ https://twitter.com/rsonchain --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Geoffrey Thompson, who's the chief blockchain Officer here at Roofstock and Sanjay Raghavan, who's the head of web three initiatives here at Roofstock and we're gonna be talking today about what blockchain is, and how it applies to us as real estate investors. So let's get into it.   Goeff, and Sanjay, thank you so much for hanging out with me today. I am super excited to chat with you both.   Sanjay: Likewise.   Goeff: Thank you for having us, thank you.   Michael: No, absolutely, absolutely. So I know a little bit, obviously, who you guys are because we work together. But for anyone who isn't familiar with you. Give us a quick and dirty description who you are, and what is it that you're doing at Roofstock? Goeff, I'll kick it over to you first.   Goeff: Sure. So I'm Goeffrey Thompson. I currently have the title of Chief blockchain Officer at Roofstock. Previously, I was General Counsel and I've been a lawyer for by training for a long time and now heading up the blockchain initiative at rootstock together with Sanjay.   Michael: Awesome, great.   Sanjay: I'm Sanjay, head of web three initiatives. Previously, I was leading securities initiatives at roof stock coming up on actually three years this week. So super exciting tomorrow, I think.   Michael: Right on, so really quick follow up questions for you both. Jeff. Were you just like a crypto guy in your everyday life? I mean, how does a real out as a lawyer turn into a blockchain official at a company at the C suite level? I mean, that's incredible.   Goeff: Yeah, I kind of backed into it. That wasn't a plan but I had been advising friends. Since 2017, during the ICO boom, the initial coin offering boom, and I started hearing people in my network, talk about it and say things like, oh, well, it's not a security because it's a coin. So you don't have to follow the securities laws, you know, and I thought, I don't get a lot of the technical stuff that talking about, but I know I can help them with the legal stuff. So then I just I was acting as legal advisor for a couple of years and, and then Gary, our CEO knew that and last year, maybe 12 months ago or a little bit more, our board came to our CEO and said, you guys, Roofstock, you need to get smart on blockchain. We're not saying you have to do it. But you know, we want you to have an idea of whether there's something there and so he asked me and Sanjay, because he knew I had some crypto background and there's a lot of legal and obviously, the financial structure is critical as well, so we kind of got into it together.   Michael: Awesome and Sanjay, at the risk of sounding like a total rookie, what the hell is web three man, I hear so much about it. Break it down for us.   Sanjay: All right. So I know it's so web low. So let's take a step back, right. So web one, which was kind of the first incarnation of the internet, right? There were sites that had static information, you could like type a URL, URL and go and, like, consume that information. But that's all you could do is just a read only type of a platform and then a few years later, the internet evolved to kind of web two, which widely is known as the read write version of the internet. So not only could you consume information, but you could go and, you know, provide information and content to the internet as well as a consumer and what happened with web two was it you know, that ability to read and write created all kinds of new interactions, and that allowed a lot of kind of the internet economy to bloom around it, where the Googles and the apples and eBays and other large companies were able to curate a lot of the content and manage a lot of the traffic. But you know, with social media and stuff, you are providing content as well, and you are consuming content, there was ecommerce, so a lot of these things came about, but the power resided with a very few large corporations that kind of controlled all of these transactions and the when, when web one started, the kind of original vision behind it was a more collaborative environment, where the consumers and the creators and consumers could actually work with each other and use a token economy and share you know, revenue and monetization. So that idea of you know, read, write and then adding on to it at the end. So it's a read write own type of economy that's decentralized. permissionless trustless has its own native payment rails, where the content creators and con Then consumers are all working together and you know, there's no power resting with large corporations, but it's, you know, giving power back to the people. So that's how that's how I would sort of succinctly describe, three and it's so it's a sort of a new way of thinking about things and it's super exciting.   Michael: Yeah it does sound super exciting and so give us all like a background again, treat me like a third grader, because that's probably my IQ level when it comes to the crypto and blockchain world. Give us all an idea of like, what is blockchain and what is cryptocurrency and then we'll get in maybe on how to be thinking about it. With regard to the real estate space and why it even belongs here you don't think this…   Goeff: Yep, sure, so the core concept for blockchain is that it's a network that can be validated the data that's recorded onto the network, which is the chain can be validated by an a limitless number of third parties who aren't organized or connected in any other way. So these are called validators I could have when you could have when they just computers that read the information that's coming in from the blockchain, they perform some mathematical calculations, and then they verify that the data that's been submitted is, is what it says it is and then at that point, it's formalized and recorded to the block and then, so these blocks are really just pieces of data, data that had been put together and then as you form one block after another, that becomes the chain. So it's really just a chain of data that's been validated by third parties that are completely decentralized. So why is that important because it means that there's no third party, a corporation or government, whoever it might be, that can intervene in the functioning of the blockchain, once it's up and running, and you have enough people who are validating and writing to the to the system, it goes infinitely, and it can't be shut down and so the first use case that really grabbed a lot of attention was payments, right? That's what Sanjay was alluding to, in the early you know, the current web two universe, you don't have an easy way to send value to another person without going through a bank or a financial services company, Blockchain, Bitcoin allows you to do that, it's just simply on the on the chain, if you have value in the in the form of Bitcoin, you can send it to any other address anywhere in the world, instantaneously and no one can stop you from doing that. So this really arose from kind of an idealistic perception, like, we have to be able to have to guarantee our own freedom, you know, the government can't intervene and prevent me from sending money to you and that's where, you know, it came from, like the sophisticated cryptographers mathematicians who had an idealistic view, and that's where Bitcoin came from and then since then, it's expanded to a lot more utility, where you can do much, many more things other than just send payments. You can, you know, NFT, you can have lending platforms, you can have social media companies that are effectively on a blockchain and can't be shut down or controlled by third party. So that's, you know, that's the overview of kind of where it came from and why it's important today. Sanjay, anything to add?   Sanjay: Yeah, no, taking a step from there right and that's exactly right, Geoffrey, the original idea was, you know, this all came about during the great financial crisis of 2008 2000, you know, 10 or so, where people thought that these, you know, financial intermediaries are, you know, in control of our lives and so Bitcoin kind of, you know, that was the reason why it came about as a peer to peer system where you can exchange value without involving these intermediaries. But then over the years, we've kind of seen that world expand rapidly and there's other cryptocurrencies now and one of the notable ones is Ethereum and on the Ethereum network, there's actually the ability to create what's known as a smart contract and a smart contract is essentially a piece of computer code that will execute based on a certain event occurring and why that is important is if you think about it from a disintermediation perspective, you know, in a transaction where two parties are involved, and party A needs to provide a good or service and party B needs to make a payment for that. You need a way to make sure that both parties are adhering to their portion of the agreement, or contract, right and so oftentimes, what happens in the financial services world is, in order to make sure that both parties are compliant with their aspects of the contract. You create an intermediary in the middle that takes that position of collecting information or payment from both parties and sending it across and a very common example of this in real estate. Michael, you as a, an owner of, you know, dozens of properties, you've gone through this process many, many times. But you there's an escrow agent involved exactly what I was thinking sure that, you know, right, the property title moves over to, you know, the buyer and the money goes to the seller, right. But imagine you had a piece of computer software that executed on a sale, and it made sure that the two parties were both appropriately receiving what they were expected to receive and there was no intermediary involved in this process. So this, this all executed, basically on the click of a button, right? Like that would be game changing in the real estate world and that's what we're trying to do now with through stock on chain.   Michael: Holy crap. For anybody who's not watching this video, I just didn't pick up my jaw up off the floor, because that was totally a game. So I have so many questions, I want to take just a step back and so Goeff, you were talking about this, these validations that can be done by any number of people. So I'm thinking about like a real world example. So if I go to the store, and I buy something with my credit card, I put down my credit card, they give me the goods and then in this case, would the validator be like the credit card company that says, look, this is the charge that like how do I think about that from like a traditional example.   Goeff: That's exactly right, the validator or usually there are multiple, but they'll they play the function of the credit card company. But instead of sending your data and the transaction data to the credit card company, where the credit, you know, the data goes to the credit card company, the credit card company says okay, this person has credit and the transaction is now going to be posted on their account, and then they send the okay back to the merchant. Instead, the merchant would send the data to a blockchain, the blockchain validators would pick up that transaction, they would validate that, you know, all of the details are the same. Usually, it's a small number of validators that have to agree on the transaction details to make sure that there aren't, you know, nothing's been missed and then once they've reached that consensus, whether that's five or 10, validators, or whatever it may be at that point, then it goes back to the merchant and as it says, The Merton now the blockchain has been updated to show that this transaction occurred, Goeff, or you or whoever was spending the money now no longer has that money. So I had that money in Bitcoin. I gave it to the merchant, the merchant side of the blockchain and said, hey, guys, can you verify that you're debiting Goeff's account and you're adding it to my account? Everyone said, okay, verified, validated, coming back. Now, I can't spend that money, I don't have it anymore and it's in your account. So that's, you know, a high level how that would work.   Michael: Okay   Sanjay: And a couple of more things there, right. Like, if you, you know, credit card transactions for small dollar values is one example. But if you look at larger dollar values, and there's ACH transactions that take three or four days to get validated through the banking system, a wire transaction, if you're trying to buy a house, and you need to make a wire payment, you're rushing to the nearest retail brand, scheduling an appointment to go into the wire, right?   Michael: It's such a pain.     Sanjay: It is all such a pain and like, imagine you had a way 24/7, right, like, you're looking at, you're browsing a site today, you find a property you really like, you want to buy that property, it's Sunday night at 10pm. You just click the button, and you know, your wallet says you have enough money and the smart contract validates that you have the money transfer property over to you, right, like imagine a world that's like that, where you don't have to worry about waiting three or four days for an ACH or running to your bank and getting an appointment waiting in line to get a wire done and it's all literally you're doing all this from your computer, click of a button 24/7 AMS and payments do anywhere in the world.   Goeff: And the cost is in most cases, negligible. You know, the wire fee is whatever 35 $50 It takes a day, you know, some amount of time to process ACH could be clawed back. The claw back concept that exists with ACH that doesn't happen in blockchain that doesn't exist. Like once it's final, it's validated, it's done and you could, you know, a simple payment transaction might cost from a few cents to a few bucks, but it's not going to be anywhere near the cost of a wire transfer.   Sanjay: And the transaction is immutably recorded on the blockchain, nobody can contest it, because you can go and open up that transaction on the blockchain and say, these two parties agreed to this transaction and it's hot, you know, it was hashed on the blockchain and there's this unique hash that represents this transaction, right. So there's no disputing later on. The parties agree that transaction gets done, it's instantaneously recorded and so that that makes this platform as a technology choice. You have innumerable number of possibilities because once you have those types of payment rails, you can build all kinds of applications around it.   Michael: This is insane, you guys. So like, we were talking about the validators and Goeff, you were saying, whatever, four or five or 10 validation points and people are doing it. So is it literally like people on their computer going, like watching their screen for these payments going back and forth or is this happening automatically?   Goeff: No, it can happen. It happens, it's automatic. Yeah, you set up a server that has the right hardware, there are different hardware and software requirements for different blockchains. But it runs silently in the background, or in some cases, it's, it's loud, because there are a lot of fans this morning.   Michael: I heard that, yeah…   Goeff: Yeah, but it's happening 24/7 In the background, and, and in most cases, it's just set or forget, set and forget, you don't have to be online all the time, doing anything manually.   Sanjay: And one other thing I wanted to point out was, you know, obviously, with banks, you can go there on weekends, after hours bank holidays and such, but even a MasterCard or Visa, if they're having a problem with their servers or something, you can have outages where you know, for a couple of hours, you're not able to do any credit card transactions, right? Whereas on the blockchain, that doesn't happen, right because there's blocks can be like, even if my computer was one of the validators, but for whatever reason, it's not working right now there are hundreds of other computers that are doing the same thing that are waiting to pick up the next block and compute it and solve the puzzle and so, you know, as Goeff was saying earlier, once the blockchain is up and running, and there's, you know, enough infrastructure in terms of validators that support that blockchain, you know, it's then it's permanently out there, and it's you can shut it down.   Michael: So that kind of brings to my next question and so you both are talking about this decentralization aspect and I think I've heard so much about the crypto world, it's like getting away from big banks and government and that sort of thing. But if this information is, I mean, it's public at this point, right? When I, Goeff, when I send you money or buy a service from you, it's now public information.   Sanjay: Just to just to clarify on that, right, the part of the information that's public is that this wallet address transacted with this other wallet address. But it's not necessarily public that, you know, Michael transacted with Goeff, right. So what's publicly stored is just the, you know, so, you know, when we talk about privacy, oftentimes, people use the words privacy and anonymity interchangeably, but they're two different things, right? You know, in one example, where there's just two wallets transacting with each other, you both still have full anonymity but the privacy concerning the fact that the transaction occurred between two wallets, that may be public information, but that's the kind of subtle.   Michael: Got it, yeah okay. Okay, that makes total sense, because, well, I was going with the question is, if I send Jeff money for a service, I mean, that could be a taxable event on the traditional world, like, if you were a credit card company, or you were a merchant, I send you that you have sales tax to pay. So I'm imagining government's point to the me sending you money and say, well, now we're going to tax it. But Sanjay, what you're saying is that the actual dollar amount, or what it was for, might not be available to them, all they could see was, someone sent money to someone else, end of story…   Sanjay: We use you the amount of money that went from a to b, but you don't like people don't automatically know who a and who B where the US are going as far as…   Michael: Or what it's for…   Sanjay: Right, in the US people are required, basically to report their own earnings and that's, you know, whether it's on the in the crypto side or non-crypto side, but, you know, you're required to report your earnings and in other countries and jurisdictions, they've passed laws where crypto transactions are not necessarily taxable. So, like, if you bought Bitcoin for, you know, $5,000 and sold it for $20,000, you may not have capital gains taxes in other jurisdictions in the US we do and that's, you know, self-reported, for the most part,   Michael: This is so nuts. Okay, so, taking one more step forward, we're talking about these coins. We talked about Bitcoin, and we mentioned Ethereum, as well, what gives these things of value? Is it just that we have generally I mean, the same thing can be said for the dollar, it's enough people have accepted or any currency have enough people have bought into this idea that this piece of paper that has an old president's face on it is worth what we've decided it's worth, same thing for Bitcoin and Ethereum.   Goeff: Exactly the same. All right, yeah. Nothing else. There's nothing else to we, you know, we all agree today that Bitcoin is worth 20,000. If it goes up, then you know, that's literally the market price. It's set by the people in the market who are transacting on a you know, every second and so it's a very clear pricing mechanism.   Sanjay: In a way you know, it's pure demand and supply that drive pricing for the these types of alternative currencies or crypto currencies, the dollar, for example, you know, we price $1 bill to be worth $1, right and so you will always be able to redeem $1 for $1. But, you know, inflation and other characteristics might make it less valuable to you, right like if a loaf of bread was 50 cents, and now it's $1, you know, you're paying more money to get it, but you know, you're not paying more bills necessarily, you know, like, the dollar bill is always $1 Bill, right? Whereas, one, one Bitcoin or one Ethereum, its value can go up over time, almost like the stock market, right? If you're looking at a share of Microsoft, it's $100 today, but because we all think Microsoft is very valuable, or Apple is very valuable, and the next iPhone is the most sexiest thing that's come out, and therefore, you know, we think we should, you know, put more value to the Apple stock, right? So the concept is similar with Bitcoin and Ethereum. It's simply people that are there are people who are, you know, buyers, and then there's their long on Bitcoin and then there are people who are short on Bitcoin and if there are more people long than short, then the price is going to go up. If there are more people short at a particular point in time price will come down. There's fewer demand.   Michael: Cool and so we mentioned, I think you both mentioned a couple of different use cases for the blockchain and for crypto. What, like, where do you see this going and for Roofstock, specifically, maybe you could talk about what we're doing as a company with regards to blockchain and where do you see it evolving from here?   Goeff: Sure, so, the, you know, the easiest use case for the blockchain technology is for something that is entirely on chain right payment is a perfect example, right? The you know, I give you send you something of value, call it Bitcoin, you accept that, and that's all on the blockchain and that's pretty easy. What we're doing is, we think taking the next step forward for blockchain and we're not the only ones. But we think that we do have something to add here, which is to bridge blockchain to real world assets and that's where things start to get a little bit tricky because let's say that you have a home, you call it a home on chain, a tokenized, home, whatever it is, and you have a token, a blockchain representation of a home, but it's a real world home and so you know, you say, oh, I go to my blockchain wallet, my crypto wallet, and I see I have this home token. That's great but let's say it's not the home that I live in and in fact, it's a home somewhere else in the country and I haven't been there for a while. How do I even know that there's still a home there, right and if I want to sell it to you, you know, you like the idea of using a smart contract to buy and sell this home? You like the idea of having a one click transaction of having certainty that you're going to get what you know, the home token in exchange for your money. That's all great. But how do you know that you're actually buying a real home and not just something that is called a home on a blockchain, whatever that even means, right.   And so that's where we've spent all of the last nine months and the better part of the last 12 months, diving into the nitty gritty legal details to understand and practical implications to understand how we can put this together in a system that works and the answer is, you have to have some type of validation from the real world as well, obviously, you know, the scenarios that I just mentioned, we can't allow that to happen where someone purchases a home token, and finds out that the home burned down three months ago. So you know, you just got nothing and so the way that I think what Roofstock can bring to this equation is the deep, detailed knowledge about how real estate transactions work, plus the blockchain, the blockchain, structuring the legal implementation and that's the value add that we have. I think there are a lot of others in the space and we encourage everyone to get out there and try, you know, try to build, but we do see others who don't have the real estate experience and even though they have a beautiful blockchain strategy, they don't know how to connect that and that you end up with something that's not useful. So what we're doing is designing a system that ensures that before any home is transacted, it's gone through all of the usual checks and balances that are necessary for real estate transaction and inspection has been done recently. We've done you know, made sure that taxes are paid, made sure that insurance is in place, make sure that the title is you know, unencumbered. We do all of that, because you have to do all of that no one's gonna buy it, if you doubt, but we do that behind the scenes, and so went by the time that you as the buyer come to see our site and you see the home, the home tokens that are listed there, you know that you have a data room that shows all of the documents that I just mentioned and more. So your diligence is already done for you. You don't need an inspection contingency, because you have an inspection report sitting right there, you know, you don't need on the on the on the flip side, you know, you don't need an escrow agent, because the smart contract simply it won't execute, it won't perform its function unless the buyer has the funds that it says it has. So you know, this smart contract at the time that you as the buyer purchase, you click, I want to buy this home, the smart contract checks, do you have money, the right amount of funds in your wallet? You know, they check the other side. Does the seller have a home, which is already been approved by Roofstock to be sold? Yes, yes, the transaction happens, and it's not and if one of those isn't true, then it fails and you know, we have to go back to the drawing board and fix whatever was wrong.   Sanjay: Right and then to add to that, right, the kind of the first version of smart contracts and NF T's and all these things that came about on web three, you know, a lot of those assets themselves had the value in it, right. So you might have heard about projects like board a, or crypto punks, these are well known NFT projects where people are spending Saturday 98 to buy, you know, a JPEG image of you know, this popcorn ape. But in those cases, that image itself has that value embedded in it and when people get that image when they buy that they've already exchanged value, right. But the example Goeff is giving us with a real life, real world asset, the NFT is a representation of that real world asset, but it's that real world asset that has the value in it and so when people are transacting these NF t's on the marketplace, Roofstock has to make sure that you know what they're buying and selling corresponds to that real world asset that has that value and we've gone through the inspection and other diligence process to make sure that is still true, right. So that's the sort of the next leap in the web three world where you go beyond just the you know, cryptocurrencies and crypto Native Assets getting traded and now you start looking at real world applications.   Michael: Goeff, I'm thinking about is like, so if I'm trying to understand this, I'm I buy this token, which the underlying asset kind of backing the token up, if you will, is the home, right? So I then own the home as well. How does that work for like, insurance purposes? If I gotta go get insurance on his home? Am I Michael, like going out to my traditional insurance people and saying, okay, well, I own this home, or like, who's on title of the home? How does that all work, is the token on the title?   Goeff: All the right questions. So the way that we're setting this up, each home is titled in its own LLC. So we have a limited liability company where the home is titled and so that really facilitates the transfer between different parties, because you don't have to record title, every time that home token is sold. The title obviously has to be recorded the traditional way at the county recorder's office, the first time that it's transferred into the LLC and then from that moment on, it doesn't need to be retitled because the only thing that's changing hands is the LLC, the ownership of the LLC, the membership interest, it's called like the share of the LLC. So that's, that's how we unlock that. So that when I sell you my home token, I'm selling you an LLC that owns the home and you as the owner of the LLC, you have full control of the LLC, and thereby full control of the underlying home. So you can do whatever you want with the home. If you want to rent it, you can rent it, if you want it to be a long term rental, a short term rental, you get to decide all of that you get to decide when you put a new roof on or if you want to repair the roof instead of replace it. You make all those decisions. As far as the insurance question that you asked, we do have an agreement with an existing insurance company that's tech forward, and they're interested in working on this project. So we've already set that up. The first time you buy a home from us, it will come with one year of property insurance, it's prepaid. If you want to change that you can you can change it if you want to cancel it and replace it with a different insurer. You can what we found is that a lot of intermediates in the space are not necessarily comfortable and dealing with this type of transaction. So we've spent a fair amount of time diligence seen a lot of, you know, providers in the market and we think the ones that we have are very good, but it's up to you as the owner, if you want to have a specific insurer, or a specific title company, you can do that. But otherwise, it's already in place and it's really as easy as just paying your annual premiums you can, you don't have to think about it, if you don't want to.   Michael: Okay, so the follow up what popped in my mind immediately, and then we're going to get you guys out of here, but we live in California. So Roofstock obviously doesn't have a very big footprint here, because there's not a lot of cash flow potential, or it's much more difficult to make the numbers work as compared to a lot of other parts of the country. So, Sanjay, if you buy a home for a million bucks, tokenize it and now you your property taxes in California are based on your purchase price. So if five years down the road, you sell it to me for 2 million bucks. Traditionally, my new property tax value is going based on that 2 million bucks. But are you saying that because this trent this sale isn't getting recorded, as it would traditionally that my property taxes are still gonna be based on your original sale price of a million bucks.   Sanjay: In many state that's, that would be true. But in California, unfortunately, prop 13 would pick that sale up. That's it's a state by state analysis and in most of the states, you know, the transaction would be fine. You individually report any capital gain on your taxes, of course. But in California, the transfer does get picked up.   Michael: Damn it. They always get you somehow but maybe in some states, it sounds like that might not get picked up, right. There's less of an issue…   Sanjay: That's right, in many cases…Yeah.   Michael: Interesting. Okay, man, I thought I had this huge unlock but clearly you guys have already thought of, of all this. So this is this is super exciting, guys. We definitely need to continue the conversation, got a lot more questions, a lot more information. I would love to disseminate to our listeners. But thank you both so much for joining me. If people want to learn more about web three and blockchain and crypto in general, is there are there good resources out there that we can point people to?   Sanjay: Yeah, I mean, definitely come to our website to learn about real estate tokenization. That's https://onchain.roofstock.com/ and also, you know, follow us on crypto Twitter. It's at @rsonchain and then individually, like Goeff and I do contribute in Twitter and LinkedIn and other areas as well. So, you know, look us up and follow us as well, on those platforms.   Goeff: And don't feel don't hesitate to reach out. Like you know, we're happy to talk we're here. We're you know, we're doing something new. We know a lot of people have a lot of questions, and we're happy to answer the questions and then he conversation. So ping us, we're happy to chat.   Michael: Amazing, amazing. Well, thank you both again, for coming on and super looking forward to doing this again soon.   Sanjay: Thank you. Thanks for having us.   Goeff: Likewise. Thanks.   Michael: Alright, anyway, that was our episode. A huge thank you to Goeff and Sanjay for coming on. We're gonna definitely be having them back on again soon. So if you have additional questions about things you just heard, or blockchain things in general, we'd love for you to see those in the comment section. Wherever it is, you get your podcasts, and we will try to get to them on the next episode with Goeff and Sanjay. As always, if you liked the episode, feel free to leave us just traditional rating or review. We love those as well and we look forward to see you in the next one. Happy investing…

An international commercial airline pilot who, after the tragedies of 9/11, was forced to realize that his “Safe and Secure career” was nowhere near as safe and secure as he had thought. Steve Rozenberg chose real estate investing to be able to control his own destiny and create his own generational wealth. He created the fastest-growing property management company in the state of Texas. Managing over 1,000 properties across 3 major metropolitan cities. Steve built the business up and created maximum cash flow positioning his company for a very profitable exit.   He has been a guest and collaborated on countless panels, webinars, masterminds, conferences, and podcasts as well as being a published author. In today's episode, he shares his story, how he began real estate investing, and how important your mindset is to be successful in this business.   Episode Link: https://steverozenberg.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Steve Rozenberg, who's an airline pilot and entrepreneur, and he's gonna be talking to us about the mental mind shifts we as investors need to make in order to scale and have successful businesses. So let's get into it.   Steve, what is going on, man? Thanks so much for taking the time to come hang out with me today. I appreciate it.   Steve: What's happening, fellas, good to see you.   Michael: Oh, super good to see you, Steve. I am super excited to share with our listeners a little bit about you and your background, because I know a little bit about it. But for anyone who doesn't know who Steve Rozenberg is, bring us up to speed quick and dirty. Who you are, where you come from, what is it you're doing in real estate today?   Steve: Sure. So I live in Houston, Texas, born and raised in Los Angeles, actually, my career brought me out here and that careers, what got me kind of involved in being a real estate and being an entrepreneur. I'm an airline pilot by trade and I got hired at 25 years old. I was the second youngest person ever hired by this particular major airline and hired at 25, I had the best job in the world is flying all over the globe. I was 25 years old and it was the most safe, most secure job that anyone could imagine having. Until a certain day in history. That day was 9/11 and that day changed my life, it changed a lot of people's lives. It changed my life because on 9/13, two days after 9/11 in the towers fell, I got delivered a furlough notice and I was basically told, hey, Steve, you know what that safe, secure job that you thought you had, it was never safe and it was really never secure and you're about to be on the street with 50,000 other pilots.   So to say that I got punched in the face very, very hard within about 48 hours would be an understatement and it was it was rough. You know I always I ever want to do as a kid is be an airline pilot. I didn't want to do anything else. I was fulfilling my dream and this something happened, which I realized it had nothing to do with me but it affected me. You know, I didn't I wasn't a part of 9/11 but I was a repercussion, a ripple effect, if you will and so I started to talk about what I could do, what could I do? What to survive to make a paycheck, right? All I knew was to be a pilot, but there was many, many other pilots out there probably better pilots than me to be honest with you that you know, we're also on the street and I looked and I saw that everyone that was tied to wealth somehow was tied to real estate. I didn't know anything about real estate, but I was like, okay, I mean, I knew some pilots who had rental properties, but I didn't know much about it. So this is 2001. So there was no YouTube or Facebook. So I had to go to the library. I had to get a library card.   Michael: A lot of our listeners are probably asking, like, what is that?   Steve: Yeah, yeah, exactly. It's a big house with a lot of books and so I had to start learning about real estate, I read a book a week and I just I read everything I could, because I thought that I was behind the curve of figuring out what I was going to do with this airline thing. If there was another terrorist attack or something happened, I was gonna be out of work and so I learned all the different things you know, now it's very cliche, you know, burrs and all this other stuff. But I just I learned how to buy I learned how to flip I learned how to wholesale properties. I got lied to, I got ripped off, I got cheated on. I mean, you name it, I just kept getting pushed down face down in the mud every time. But I kept getting back up because I had to I didn't I didn't have a choice. I had to figure out this combination and I, I saw people that were successful. So I was like, okay, there's a recipe. I just don't know it. But I can think like, I'm not the dumbest guy in the world. But I could figure this out and then I started getting better and I started winning a little bit more than I was losing and I started figuring out and what I realized was communicators are actually the ones that are the most successful, not the contractors.   It's four walls in a roof. It's relationship driven. It's not anything else and that relationship is driven by business models, and it's driven by systems and so I started realizing that the four walls and a roof and the dirt really had nothing to do with being a real estate investor. The successful people were good communicators, and they understood the value of leverage and team and then I started looking back at my real estate in my airline career and I started looking at how airlines run and I was like okay, systems, procedures structure and I kind of started melding the two and that led me into start learning to become successful as with my, my old business partner, Pete Newberg, who has been on your show, he and I built a very, very successful property management company, by understanding how to leverage those models and how to leverage systemization and then I've gone on to do a lot of other things, coaching people working with people, helping people understand the systemization of a business is very fundamental to be successful, is what I've learned and that's what I help people with.   Michael: I love that and we're gonna get into a little bit more of the systemization here in a minute. But for anyone listening, it's like, well, Steve, Michael, I'm not an extrovert. I'm more of an introvert, I'm more of an insert inside kind of person, like, Am I just doomed to never be a real estate investor like, what should I be doing if that's me?   Steve: So that's a good question because a lot of people you know, are a lot of people that go into real estate, what I've learned is they're running away from a life or job that they don't want you when you talk to real estate investors, and I coach a lot of real estate investors all over the world and when I talk to them, I'll ask them, why are you doing this, and a lot of them will tell me, I don't want this, I don't want that. They're running away from something and what they're running away from is a life that they don't want to have. Unfortunately, when you're running away from something you don't want, that's what you're focused on, and you run right back into it. I mean, that's the cycle, right because that's your filter. But what I've learned is, you don't have to be the best communicator, but you have to have good communicators on your team. There's things that I am really, really good at and there are things that I am horrible at. It's a matter of understanding, what are my strengths? What are my weaknesses, I don't think that I should become like, that's just my opinion. I don't think it makes sense to work on my weaknesses. I don't know anything about accounting, I would make a company go bankrupt if I started doing the accounting books for my business. So why should I go and take two year courses at a junior college to learn how to do books, or I just hire someone and that's what they do. So I've taken my weakness, and I've actually turned it into a strength because now I don't have to think about it, I don't have to focus on it. I have someone in place that is run by KPIs and metrics and accountability and I just, I just parceled, that whole piece of my life off.   So to answer your question, I don't think you have to be good at that. A business needs it like my business partner, Pete. He was the integrator and I was the visionary. I was the forward guy, I was the guy out in front. But I sucked at the operational side, he was like the mushroom in the in the back room and, you know, my job was to break his business all the time. It's like I wanted to have so much sales and marketing coming in, that he would go Steve, I can't take it anymore and that was like my victory lap of showing. That's the that's the sales and marketing tug of war that goes on, right and so I don't think that you have to be good at everything because the reality is, is you're not, you're probably good at one thing and you suck at everything else that you do. It's a matter of identifying what am I good at? What am I not good at leveraging out those other things and focusing on that one thing to be the very best that you can be and if you can do that, you will help the business, the organization and you'll be much happier too.   Michael: I think yeah, I think it makes a ton a ton a ton a ton of sense. So talk to Steve about like, you got three to five properties, you're looking at scaling up, you're realizing maybe a little bit more and more, you're self-managing, hey, this might be more of a job than I was anticipating I'm trying to get out of a job that people what are some systems people should be putting in place and how should they be thinking about systemization if that's a new term for them, that's never something they've done before?   Steve: Yeah, that's a great question and let, I'm going to back it up a little bit if it's okay, because a lot of people, if they have three to five properties, and I get a lot of people that will call me and ask me that question like, hey, Steve, you know, if I'm in front of them, they'll put a deal like three inches from my face and they're like, hey, is this a good deal like being closer makes it more sense? I don't know. But they'll put this right to my face and they're like, is this a good deal? Well, I don't know what a good deal is for you. So first question is, what's the goal, right? What is the date of that goal? So if they don't know the goal, and they don't have a date, and a timeline and a way to achieve that goal, I can't tell them what to do. I can't give them directions. It's kind of like if you said, hey, Steve, we're all gonna go to Disneyland and we got to be at the front gates at 8am on Friday morning and we're going to leave our house at 6am and we're going to take the 405 to the 91. Get off on Disney drive, and we're gonna go into the gates to be there ready to go. Well, if along that way, you get lost, you're gonna pull over and you're gonna go, hey, Steve, can I get directions? What's the first thing I'm going to ask you? Where are you? Where are you going? If you say, I don't know, I'm just driving around today, I'm gonna go with it. I can't help you, because I don't know where you're trying to get to. So if you take that same analogy, many people buy properties. They don't have a goal. So they say, should I buy more properties? My question is, is I don't know what's the goal? Because, you know, many people, you know, they think that owning rentals is the goal. That's just the strategy to achieve the goal. That's like saying, I'm going to get on the 405 freeway and you're going, where are you going? I don't know, I'm just gonna get on the freeway and drive and the reason I know that is when Pete and I first started buying properties, that's what we did. We were just buying properties and we're going the wrong way, in the wrong direction at a very, very fast pace and nobody stopped us to say, where are you guys going because we're just driving. We're like, we're making great time. Unfortunately, we're going in the wrong way. So to answer your question, to going back to what you're saying about systemization, every business normally has about eight to 11 systems in their business, it's a matter of looking at what you do and systemizing everything. So if you took a system and put it in a vertical, let's just say when you're going to rent a property, what is the system that it takes to rent that property, you've got to basically first thing you've got to do is maybe the first trigger of that system is when the Make ready is done. Now the property is in rent ready condition, it now triggers this system to happen. What's the first thing you got to do? Well, maybe you've got to go and take pictures and video of the property. Step one, what's the next thing you got to do? Well, then you've got to do some comps and check out the area and see what the property is renting for. That's step two. So you're going through and you're just basically talking to me, like I'm a three year old or third grader and you're explaining to me in very painstaking detail, what you're doing. These are all steps in the process of a systemization. Once you create the system all the way through to getting the property rented, once the property is rented, that system is complete. Maybe that system is 19 steps, right? Then you look at that system and go okay, is this the most efficient way to run this system, does or is there any redundancy? Is there any things that we don't even do or should not do? Are we missing some things? Now, let's say for example, this person, he, let's just say he grows and he gets an employee to do these tasks, right and or he subs it out to a company. This company needs to know very, very clearly what they're doing because the definition like look, I think we can all agree that when you own one business, or you own 50 businesses, which are rental properties, those are businesses, that you've got to treat it like a business, right? The challenge is, most people don't they don't have any systems that don't have any structure and it's chaos, which is why so many landlords get sued, because there's no systemization or standardization, meaning how you lease a property. When you're in the airlines, right, we'll go back to being an airline pilot, if I'm an airline pilot, and I came out and said, hey, everyone, this is gonna be a great day today. We're off to Hawaii. This is my first time ever doing this. So wish me luck. I'm just gonna wing it and hopefully we make it there. How would you feel?   Michael: Yeah, a little bit shaky.   Steve: Right but yeah, you'd probably be like, I'm not getting on this plane. Yeah, but that's what many people do with their rental properties and they're doing that with their financial lives, right? This is your real life, you're trusting me with your life but you don't do that with your financial life. So there's a disconnect as to the training and, and the way that you can scale because if you have to do everything in your business, you don't own a business, you own a job and a job is not scalable, because you have only so many hours in the day, and you have so much knowledge of what you're good at and what you're bad at. So I don't know if that answered the question but there's, that's a very hard thing to unpack.   Michael: No, it totally does. It totally does. Two things. First thing is I think you must be having been out of LA for a long time, because your analogy you're talking about getting on the 405 Dizzy land, you leave by six get there by eight. There's no world in which that happens today. Yeah, first and foremost. But secondly, so like, how does someone make that mindset shift because I think so many of us and specifically, it seems to be pretty pervasive in the real estate world, this DIY mentality, you know, I do it myself, do it myself, do it myself. How does, how do you make that mental leap of, okay, I'm going from doing it myself, small business owner to hiring someone or contracting it out or putting it to somebody else so I can get out of my own way?   Steve: Sure. Well, there's a couple things. Number one, you've got to you have to be willing to let go of your ego and pride, right? Because ego and pride are success inhibitors, they will kill your success quicker than anything. I should do it because I'm in charge, right and so let's go back to the goal, right? If I said, hey, what's your goal and you didn't, you didn't and this is what I use this example when I coach people, I'll tell them, okay, let's just use this as an example. I call it a 2020 2020 properties in 20 years, giving you $20,000 a month in passive income. It's a bait. It's a goal, right? Yeah, it's, it's got a time limit on it. It's something that we can attach an actual goal to and we know how we're going to achieve that goal because we have a scoreboard to see if we've made that. So that means that each property needs to be giving off $1,000 a month in passive income to get 20 properties give me $20,000 a month. Okay, that means, okay, so let we're gonna, I'm gonna, I'm gonna answer your question in a roundabout way, we've got to say, Okay, if we want to have 20 properties, that means by year 10, we have to have acquired all those properties so that from year 10, to your 20, we're going to pay those properties off, because we want them free and clear by your 20. That means between year one and year 10, we have to purchase 20 properties, which means we have to close on two properties a year, which is every six months, which means every three months, we have to be looking for deals.   My first question is, is do you have the finances to even make this happen? Do you have the do you have the financial means to achieve this goal? If they say I don't have a job, I'm gonna go well, then we're done talking because first thing you need is the financial means to make that happen. That's number one. Then we say okay, when you achieve the goal of 20 20 20, right, and we get to where we want to go, what I have learned and what many people I'm sure some people will learn, it's not a bad thing to learn. But a lot of people identify success by their accolades, meaning how much money they have in the bank, or how many properties they have, how many doors whatever they want to whatever they want to use as their gauge. That's how they quantify their success, or lack thereof. Now, I had Pete and I had a very successful property management company that we sold to a venture capital much larger firm and I can tell you that when you get that money in the bank, it is very, very, very anticlimactic. Like I mean, literally, like after we sold our company, and we sold it for well into seven figures, all of a sudden, I thought I'm done, like, oh, this is awesome. Now, mind you, I still am an airline pilot this whole time. So I'm okay financially but I thought, man, if I just if we sell this company, we're good. You don't happen Monday morning, after we sold the company?   Michael: You put on your uniform and go fly a plane.   Steve: My wife said, hey, don't forget, take the trash out the trash bin or come and I'm like, when I sold the company, like I sold my goods just like, don't give a shit. Take the trash out. So, but the point is, is like all of a sudden you think you're in some magic club like you think you break through this glass ceiling and the reality is, is nobody cares and the reason I'm saying the reason I'm going somewhere with this is that we think that once we achieve a mark or a goal that's going to make our lives complete and sadly, it doesn't, it actually makes it more hollow because you realize, like, wow, I've been doing this all these years, and nobody even cares. Like they're, you know, everyone's moving on. So what I always tell people when I talked to when I told you earlier that a lot of entrepreneurs, they buy real estate, and people want to get involved in real estate and I asked them why they say I want more freedom, right? I'm sure you've probably heard this, I want anytime freedom, do what I want, blah, blah, blah, they use this word freedom, like it means something special to them. I tell them okay, well, let me ask you this, why don't you just sell all your shit today, go live in your car at the park, and you'll have all the freedom you need. No one will bother you, you'll have your freedom. They think about that I'm like, but you know, what you won't have is you won't have the memories that you want associated with that freedom.   So we're really not buying freedom. What we're buying is memories. So when I sell a business, or I have rental properties, giving me cash flow, what am I doing with that cash flow, it's giving me the ability to have freedom to go buy the memories. It's the memories we want. So going back to your question, how does somebody step out of what they want? I would first ask them, what memories do you want to buy because at the end of the day, we're not leaving, we're not leaving this earth with anything except our memories, right? When we go when our when our expiration date happens. We're not going anywhere, except with memories in our brains. What memories do you want, right in the real estate, and the cash flow or whatever you're doing with that will give you the means to buy those memories. So buy the memories don't buy the time is you go to prison and have all the free time you want. You may not like the result, but you'll have free time by the memories, right? Go to you know, have dinner on the Mediterranean in Greece, right? Go to this African Safari, the Rolling Stones in Wembley Stadium. Those are the memories that you want and that's what real estate gives you. So going back to your question when someone says, hey, like, you know, how do I get out of it? I'm like, what memories do you want? Do you want to be an employee? That's trading time for money because that's what you're doing? I'll give you an example. So my son, he bought a rental property at 14 years old. Okay and everyone's like, oh, that's awesome. Yeah and he bought it with his money, you know and so everyone's like, man, that's awesome. That's great. Like, did you have him do the rehab and clean the house and I'm like, No. Why would I do that? They're like, so he can learn. I'm like, I don't do that. Why should I make him do that? That's being a hypocrite. I want him to be a business owner, not an employee. Don't get me wrong. There's nothing wrong with being an employee but that's that that is not the goal of one rental property like, hey, congratulations, you want a rental property? Now go learn how to cut wood lay tile, put it insulation but dad, you don't do that. I wouldn't even know how to do that. Like, again, working on strengths versus weaknesses, right? People seem like when they get a rental property that like, all of a sudden, I've got to learn how to put a toilet in and I gotta get up on the roof and inspect it. I'm like, have you ever done that before? No and I'm like, Well, then why in the heck would you get up on a roof? If you didn't know what you're doing like this is how you become a statistic. But we think we should because of ego and pride. So that's kind of a long answer but that's my answer.   Michael: I love it, I love it a great answer. Steve, great answer. Talk to us a little bit about, like, the qualities and what you see really successful people do who are able to implement systematization like what like, what skills should people be go out there and refining in order to be able to execute here really, really well?   Steve: Well, yeah, that's a great question and I've studied a lot of very successful people. I've been coached and mentored by some very successful people and I'm a constant student, I still a mentor to this day. Anyone who says that they don't need to be coached, and they don't need to be mentored, is missing out on a lot of opportunity. I look at Tiger Woods, Michael Jordan, these guys are at the top of their game, and they still have coaches and mentors. All professional athletes have coaches, you don't become a professional athlete, and then lose the coaches. They make you better.   Michael: So I'm done.   Steve: Yeah, it's like I'm done. Um, you know, even Kobe Bryant, I mean, everyone, they all have coaches. I mean, that's how it works, right? Right, it's brings the best thing out of you. So number one, I think you always have to have somebody holding you accountable and if you look at all successful people, they have accountability. They have somebody holding them accountable in somebody, you know, a three feet distance is a world of perspective, right? In the simulators. When we find the simulators and we're practicing engine failures and all these things. The simulator instructor is about three feet behind us the control panel, and we joke and he they know, they're like, yeah, I'm the smartest guy in here because I'm three feet behind you, I can see all the mistakes you guys are making. You don't see it, because you're in the heat of battle. He's like, I can see it coming a mile away. I'm the smartest guy in the room. So having somebody three feet away, is a world of perspective, having an organization help give you guidance to when you're looking to acquire a property that's giving you that three feet difference. That's a world of difference, right? So, there is a recipe for success and I'm a firm believer. If you look at all successful people, they follow a very simple recipe. It's not magic, people who are failures, they follow a recipe also and I think that every day that you wake up every day that we all wake up, we have a decision to make. It's very simple. Am I going to be better than yesterday or am I going to be worse than that, initially, is our decision that we make every day because you're not good, you're they're getting better. You're getting worse, we never stay the same ever and so when you wake up in the morning, what is the decision you're gonna make? Are you going to do any reading? Are you going to do any I'm statements? What are you going to do to focus on solution based questions slash trying to be better or are you going to be in blame excuse or denial? So going back to your question, I think that people that if you want to learn how to become better at systemization, then talk to someone who knows what they're doing and that can help you become a systems expert because, look, as an airline pilot, right? I've been I've been flying for almost 30 years, I've been trained by Boeing, I fly one of the most complicated aircraft out there a Boeing 787. I didn't, I wasn't born that way, I had to be trained and guess what, we still go back to training every six months, and we go back through all the initial stuff. So just because you reach the pinnacle, you don't stay up there and if you look at people that are successful, they're always trying to be better, just because you have three houses or five houses or 500 houses. Look, the crash to the bottom is much faster than the rise to the top, as we all know, and seen, you know, with banks crashing and other things. It's the people that are cognizant and follow that recipe and again, I don't think it's a very complicated recipe and if you look at people, you know, they do a lot of things in the one thing that I've learned, I'll give you a quick story. I was with one of my mentors one time, guys. 11 businesses, right. He's on the board of 11 businesses and he was my mentor, and we lunch and I was like, man, I don't know how you do it. Like you have 11 businesses. I'm like, how many days a week do you work? He's like, Tuesday, Thursday, and sometimes half a Friday. It was like this guy was talking Martian to me. I was like, like, how is that even possible and he goes, You know what, Steve, you know what the difference is? He says, I say No, way more than I say yes and I said, you know what, that's easy for you to say because you're this multimillionaire that has 11 businesses and he said, I would have never become this way. If I didn't start saying no and he said there's an opportunity cost that every time you say yes to something, you are saying no to something else, right.   So he goes every time you say yes to doing something that is not the most high income producing activity, you are saying no to something. He's like, it's again, he goes, it's your choice. So when I coach people, one of the things I do, and this will be a freebie for people watching is, I always have them do a two week time study, okay? So it's a very simple time study that they have to go and they have to write down for two weeks, every single thing that they do, right, you want to go on a diet, you start tracking your food, you want to see where your money's going, you go on a budget, you want to see where your time is going and start tracking it at the end of the day, they have to give me an executive summary. Tell me how your day went? I don't care. I don't care what you did. I just want to hear it from your words. Within one week, within one week, they will be like, I now know where my time is going and most people think they're so productive, like, oh, I work all day long. I'm like, bullshit, you don't work all day long. Yeah, study and we'll see. After they do the time set, he's like, man, I'm only working like three hours a day. I'm like, because everything else is reactionary. A five minute interruption, a five minute phone call is equal to 23 minutes of lost time. How many times as a as a real estate investor entrepreneur, do we get the sideways calls that interrupt our data, and they sidetrack us, if you get 10 calls a day, that's 230 minutes that you were never expecting to lose, you just lost that chunk of time. So now you're living what's called a reactive life and when you're living a reactive life, you're in chaos and when you're in chaos, you're not in control and when you're not in control, you're not making money. So the challenges is what people don't put a factor into this chaotic life, is the mental stress that it weighs on you. So once they do the first week, the second week, they have to go back in every day, they have to do this and I and just the type of coach I am, every day, they have to send me a picture of their time study and I tell them, the day you don't send this, to me is the last day you will hear from me, because I can't want it more than you like it's very simple. Like, even if you pay me all the money, you're done like that's just how it is I can't I don't have time to waste if you don't want to be better. So when they do this, the next day is they have to put an H or an L next to that high income activity, low income activity. And guess how many low income activities they do on a day?   Michael: Probably the majority…   Steve: Probably the majority. So then what we do at the end of that next week, we go, okay, these are the things that make you money. These are the things that don't we need to outsource systemize or automate the things that you don't make money on of these high income activities. Which ones do you like doing? Which ones are you good at? I like this, and this, okay, this is the focus, we need to find someone else to do these other high income activities. We don't ignore them and so my point is, is one of my mentors said that he goes TV goes understand saying no is not saying that. No, the way you think it. He goes when I say no, it just means I'm not doing it. He goes, I just make sure that other people are getting it done, but it's not through me. He goes things to have to get done in a business but he goes, it doesn't have to be you. That's your ego and pride, thinking that you have to be the one doing it all. So that was a very valuable lesson for me that I share with you, you in the listeners.   Michael: Yeah, thank you. I mean, as you're saying this, I'm just like, oh, my God, I have so many hours in my day, this is insane.   Steve: Yeah, we do. We all look, we all do. And it's a matter of stepping on the scale whenever I'm coaching someone, or someone gives me a call, like, man, I just feel like I'm losing it. I'm like, just do a time study. I mean, it sounds it sounds so simple, or whatever but I'm like just do the time study you will see very clearly, and then just fix it. Look at the pendulum swings. It's okay but you got to do something to take corrective action. Otherwise, it's going to keep swinging, it's never gonna go back on its own. You don't all of a sudden become more organized and more productive. It doesn't work that way, right? You're always gonna go back and you've got to start focusing on making that decision every day. What am I doing? You know, and it could be something simple. It could be reading for five minutes, could be writing your day could be whatever it is, but start creating habits and those habits become patterns and those patterns will change your life.   Michael: Mike drop exit stage left, Steve, that was amazing. Man, I want to be super respectful of your time. If people want to talk with you more, learn more about you reach out, have you as their coach, what's the best way for them to do so?   Steve: Yeah, they can find me on all social media handles. It's Rozenberg, Steve on Instagram, Steve Rozenberg on all the other stuff. They can also go to my website. My website is https://steverozenberg.com/ , it's ROZENBERG.com and you know, I do a lot of coaching. I do three day masterminds with very high level, people like Bradley, the iron cowboy, other people, I bring them in. It's all about mindset and it's all about, you know, the one thing I'll say real quick before we go and I want to be respectful of your time is don't be selfish, and to the people watching and what I mean by that is as entrepreneurs, we watch these shows, right? We buy real estate, we do all these things, and we do it for the people that we love but here's the thing, we never actually share the knowledge that we've learned with the people we're doing it for. To me, that's the definition of being selfish be selfless. Like I said, my son bought his first rental property and 14, create generational wealth, right? Bring them into the loop. Don't be selfish, because when you're selfish, you're isolating yourself, have an open mind and the ability to give abundance and share the knowledge that you learned from this podcast, show reading, bring the family that you're doing it for into the mix, and you will have a much, much more fulfilled life and you'll be much more successful not just financially, but personally relationship and all that stuff. So don't be selfish.   Michael: Yeah. I love that, Steve and one more final question before I let you go. You mentioned you're running a mastermind and I think a lot of our listeners maybe have been to how to coach or been to seminars or been in real estate trainings, and just whoever reason can't implement it. They take the classroom knowledge, but they can't execute a role. So what have you seen people do who are really successful at that and actually applying what they've learned and taking that excitement and went out and actually ran with it…   Steve: That's a good question. So and the reason I created my mastermind is that very reason, right? Everybody goes there, rah, rah, they leave in there, like two weeks later, they're like, it's in their car underneath their seats, all the dogs chewing on it and so what I do when I do my masterminds is once they're done, they get unlimited coaching from me, they get my phone, they get my text, they get my email, if they need me, they call me. So I'm there as accountability for them every single day. It's not that hey, I know you have a problem Monday morning with a tenant exploding your house but we're supposed talk Thursday at three so call me then that doesn't work in the real world. I don't think that that's a very successful model. I give unlimited so that they have me and they have me as accountability. I think the biggest challenge when you leave these events and coaching is the accountability part. If the coach if you have a coach and he's not accountable, find them accountability person, one of the things I do when I coach partners is I have a board of directors meeting, I create a board of directors for them going over the P&I statements going over balance sheets, going over the goals. This is what you need to do in any organization, all businesses do it. Most people don't. So if you can't make your coach be accountable, or you can't afford a coach or whatever the case may be find a friend, a family member or go to the bum on the corner. I don't care but make someone hold you accountable that you actually have to answer for what you're doing and I think if you're accountable, based on what you learned, that's why I do unlimited coaching, you're going to be much more successful with achieving the goals that you set out to achieve.   Michael: Makes total sense, Steve, this was a total, total blast, man, thank you so much for taking the time to hang out with me. I really, really appreciate it.   Steve: Thank you, man. It's good having you appreciate you having me on.   Michael: Hey, we'll definitely talk soon.   All right, when that was episode, a big thank you to Steve for coming on super, super, super great stuff. As he was talking. I was like, oh my God, I need to start doing a lot more of what Steve is talking about. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing you on the next one. Happy investing…

James Dainard is co-founder and managing partner at Heaton Dainard Real Estate and Intrust Funding LLC. He is currently a co-host on one of the BiggerPockets podcast series. As a seasoned real estate investor, James leads the development and execution of corporate strategies, marketing, and property acquisitions at Heaton Dainard Real Estate. His decade of experience investing in multi-family and single-family units in the Puget Sound region has guided Heaton Dainard with over a billion dollars in sales and over 3,000 transactions directly to investors. Flipping houses remains one of the most well-known strategies in today's real estate industry, and for good reason: fix and flip homes can potentially offer attractive profit margins for real estate investors who know what they're doing. Unfortunately, many beginner investors make the mistake of assuming that the only important part of flipping a house is the renovation itself; in actuality, success will also depend on how good of a deal you secure when purchasing a property. Consequently, finding fix and flip deals is one of the hardest aspects of the job. Tune in for today's episode where James shares some his insights about fixing and flipping houses with us. Episode links: JamesDainard.com IntrustFunding.com HeatonDainard.com https://www.instagram.com/jdainflips/?hl=en  --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have James Dainard with Heaton Dainard Real Estate and James is the co-founder and managing principal of that company. They do apartment syndication, hard money lending, fix and flips and also have a brokerage among many other things. So James is gonna be talking to us today about the fix and flip market, what he's been doing and how it's changing, and what we as investors should be thinking about as we get into this market. So let's get into it.   James what is going on, man, thanks for coming on the podcast and hanging out with me. I appreciate it.   James: Yeah, I'm excited to be here. It's anytime I get to talk real estate's always a win.   Michael: I know, I know and it's crazy that we like get paid for it. It's kind of a joke, you know?   James: Yeah. I'm still waiting to see the big checks. But all right, I'll keep doing real estate until that somehow I figured that part out.   Michael: I'm right there with you, man. For anyone who doesn't know your background, know your name that your company give us a quick and dirty insight who you are, where you come from? What is it you're doing real estate today?   James: Yeah, I'm James Dainard. So I'm out of the Pacific Northwest. We've been an active investment company at the Seattle, Washington for the last 18 years now. So I started doing this when I was a senior in college actually knocking doors for an investment company and then once I graduated, we kind of just start building companies, one after the other, went through a pretty nasty weather. Well, the month that we opened our business was the month that the whole real estate market fell apart in 2007, and eight. So it's, we're very seasoned investors, we're active guys in Seattle, we typically do we have a brokerage that does about 200 fix and flip properties a year with our clients and then we do about an additional 50 ourselves and then we land hard money up in Seattle, Washington, just short term financing and then we're big apartments indicators as well. So we own about 2000 doors in the Seattle market. Very, very active, very active guys. We like to stay busy, we work and then also, and now we started doing it now we're putting out a lot of different types of educational stuff for people on project already and then on the market for bigger pockets with any podcast channel. So always expanding, always doing more things. But we're, we're guys that like to talk about what we're doing not about theories. It's like, whatever, whatever we're actually got our hands on. That's usually what we're talking about.   Michael Love it, love it. Well, James, I love to focus the conversation today on fix and flip, since I think it's something a lot of our audience members are really interested in and it's just a super unique time, seemingly in the market as a whole. So give us a little bit of insight. Are you doing anything different now than you were six months or 12 months ago with regard to fix and flip?   James: Oh, yeah, we are doing things completely different and you know, and I think one thing that investors always need to know is the market goes up and downs, it's changing all the times and so what you're doing, and this is why the fix and flip business can be so challenging. Again, we've been doing this for about 18 years, and we've been in four different types of markets, you know, we had, or five, you know, 2006, through eight was crazy hot like it was now maybe not quite as hot as this last one. We had the crash where we were flipping in a declining market where the market was crashing 10% every month, basically, there was like the it was just the walls were coming in on every project and then we were in a flat market 14 to 18 or 17 and then you know, this last 24 months had been pretty crazy with the appreciation and in the last 24 months, you had to do things completely different to make money and a lot of that had to do with like timing, purchasing the right location and also interest rates as interest rates were really low, the pricing was soaring and so now we're in that whole new, it's a whole new market again, you know, cost of money has gone up about 35 to 40% and it's slowed everything down.   So as flippers, what we've had to do is instead of just trying to secure a deal in the right location with low inventory, we're really checking the numbers and how we underwrite things is vastly different than we would do. Six months ago, like six months ago, we were looking for that high data point and interpreting where the market was going to kind of factor in a little bit of appreciation on the exit, which will allow us to buy in a slimmer margin. Now what we're doing is we're buying at cheaper, larger spreads because we don't think the market is going to get the depreciation and we're being very fine tuned on our comparables, we just have to really dig into everything and we only will use current market data because the rates are sky, they're moving around so much. So we only pull comparable data from what when the interest rates were in impact. So like, right now, we're only going back 30 days on our sales, we won't look at anything 60 to 90 days old, because it was just a different market at that point in time. So but yes, you always have to change, you have to change what you're doing on a regular basis. So we're buying differently, we're underwriting way tighter, we're looking for bigger walk and margins are being super conservative on our ARBs and then also, we're rebuilding our whole construction team as well to get more cost efficient.   Michael: Interesting, so when you talk about like underwriting things differently or buying differently, give us a little bit of insight, like what does that mean and like, how are you actually doing that?   James: So underwriting it's so key when you're looking at any investment, right? It's going to tell you a what it's worth stabilized. It's going to tell you if you're buying a property, what's your rent projection? What's your cash on cash return and with fix and flip the two major you know, I mean, the three major things and when you're underwriting fix and flip is a the performer what is the numbers telling you in the deal is that a good enough cash on cash return or return that you're happy with? The second most important thing is understanding your rehab costs and accounting for those correctly, because that's going to really dictate whether you're going to make money or not and right now, because we're in this volatile market, where we have cost of monies going up, the labor market is still a little bit messed up right now to where it's hard to get guys, the site materials are still more expensive, it's harder to find supply chain issues. So what we're doing in that market is we're adding 10 to 15% contingencies to every budget as we're underwriting, we also re snap out our budgets every 60 to 90 days to keep up with the cost. Whereas four years ago, we had to do it once a year, like update it, get our numbers down, but it's so rapid that we have to move things around and so we're staying on top of our construction budgets and then lastly, that valuing that asset for highest and best use, we're looking at how do you rapid return on each deal, because you can look at a deal and skin it three different ways.   You can go really heavy and go for the big margin, you can do it really light and go for a small margin, which you're in and out of the deal and get a good cash on cash return in a small amount of time. But we're being we're just spending a lot of times digging into comparables, we're staying very tight on our radiuses to make sure that we're staying inside of our neighborhoods, because you know, neighbor as the market cools down, things like schools, neighborhoods, neighbors, all these things, negative impacts, they affect the values a lot more, you know, the last 24 months, you could buy a house on a little bit busier road or maybe have a little bit crunchy your neighbor and you could still sell it with no problem. But as it slows down inventory increases, those things become kind of major issues for sale. So we're, we're really deducting negative impact properties, we're taking five to 10% off those on values, you know, when we're looking at comparables, and then we're only going back 30 days, because we want to see what the buyers with the same cost of money what they can afford, that's what we need a price off of and then lastly, we're not going to that high, high end comp, we're trying to stay in the cluster and then putting together our rehab plan to fit in the cluster. We don't want to be this super nice, expensive house right now. We want to be the most updated, but in the affordable masses and that's what's been selling things fairly quickly for us. You know, the market is definitely cooled to where we're not getting a ton of people coming through these houses. But we have 50 listings right now a fix and flip properties, and we're still 60% pending and so things are still selling as long as you're putting the right plan in play.   Michael: Interesting, man, I think that makes a ton of sense and are you have you shifted? I know, you said you're not trying to do like the most fancy updated house anymore, is that something that you have done in the past?   James: Yeah, we do. You know, I like to go where it's hard, because those are the best margins and it's, you know, especially real estate has been this thing that's it's almost like Bitcoin, right? Like we're everybody wanted in at one time, the last 24 months and so what that does is when you're the masters coming into the market, it really compresses your margins and sometimes it just comes down to straight luck, like people made a lot of money just because they bought something and the market made it worth a lot more. Not because they bought the right thing, not because they put the right plan on it, it was just the market and so is as you're kind of going in, we would go after more expensive property. So like the last 12 to 18 months, because they're more expensive. They require a lot more rehab plans, they require a lot more liquidity and to be honest, when you're taking out hard money loans that are over a million dollars, they're expensive to hold and so the debt cost is really expensive and so we been in that area because there was lack of investors buying there, it got us about we were able to achieve about 50% higher margins in that space, because…   Michael: Just less competition...   James: Less competition… So that's we went from doing more cookies better deals like I used to flip about 100 120 homes a year myself and then as that got more and more compressed, I was like, Well, why am I doing all this work for small margins, I'm just rack like, it's just wear me out. So then we went to larger projects, to where we get we're focused, instead of doing 120, we're doing 40 to 50. So we've got to work a little smarter. But as that market cools down those, that's a very risky market to be in, because if there's a, you know, a 5% correction, on $3 million, that's, that's a, that's a huge hit on your bottom 150 grand, they can come right off the top, which can be a lot of your margin and so the more expensive properties we're being, we're making sure we're padding and with a lot more walk in margin on. The other thing about the more expensive ones we're staying, we're being more conservative on now, where we've been doing a lot of them, it's because they take a long time, so you're exposed to a lot more market conditions. You know, if the if the Fed continues to increase rates over the next six to nine months with, they're saying they will, that that value can swing dramatically over a nine month period, whereas 12 months ago, it was just swinging up.   So it was all when at that point and so we have started scaling back on the more expensive properties just because they're really high risk, or we're expecting that we get our margins up even further than they were before. The one thing I have seen is not a lot of people are buying them. So the margins are getting bigger and bigger and so there is like that magic number for us, we're trying to hit at least 50 to 60% cash on cash return on those deals, because the extra return allows for any kind of market dip at the same time. But the key right now, because the market conditions are changing, they're going to be continuing change, it's just get in and out in and out, get your deal, buy, stabilize it, sell it, rack your return move on to the next and so that's why we've kind of pulled out of that market, in addition to as the market starting to get a little bit more flatlined, and stable, a lot of investors have already exited, because they I mean, to be honest, they don't have the stomach for it, it because it's risky and so the margins have gotten bigger on the easier deals. So that's why we're also going back that way as well because you know, we don't want to work on a project for 12 to 18 months on some massive project if we don't have to. So we don't really pick the project based on like our own personal opinion, I would love to only do multimillion dollar flips, because I just enjoy them more I get I get to do more, I get to do cool things there. But I want to go with what financially makes sense and so you know, for us, that's why we're also rebuilding our construction team right now as we build a team to do higher end properties. But as we go back to cookie cutter, we have to, you know, we got to change out our staff, we have to change our contractors and that's what we're working on right now. We have full time staff, like we're cold calling contractors for finding new guys or meeting them on site, because we have to build that new bench for what we're trying to accomplish. Not every remodel is the same and not every guy is the same. So you have to be balanced with who you have as your resources.   Michael: Yeah, that makes total sense and because things are changing, so drastically, seemingly, and so quickly. I mean, do you ever think about like a plan B? If you can't flip the thing? Do whatever makes sense to put a tenant in place and hold it and almost burned the property or are you like, no, we're gonna fix and flip it and if we have to take a haircut on the exit, we will just move on to the next one?   James: Well, that's the dream deal, right? It's the it's the lowest risk deal, which is your burr style flip where you know, because the hard part about the expensive properties, you know, if I'm flipping a home, I got two going on right now where we paid roughly 1.5 for one and we pay 1.8 for another we're putting 750 grand 900 grand into both properties. So I can't keep that as a rental like that. If we leave 25% in, no, our mortgage is going to be 25 grand a month at that point and so you know, 20-25 grand, so that's just not going to pencil and so that's another reason why we're kind of backing off because you know, the best kind of deal you can buy right now like I just gotten contract, I have one that I close in seven days. I picked it up for 275, which is about 25% cheaper than we were paying nine months ago for these houses and so we already got the discount because the market starting there's more opportunities as people get nervous and but it's a perfect deal for low risk flipping, and these are ones that people should be if you're really nervous about the market, you should target these kinds of properties. So we're paying 275 It is a piece of garbage. It needs a ton of work. We're putting, we're putting like $135 a foot into this house, which is a lot for us for like a low rent model, but it's we've 100 It's 110,000 our budget for 700,700 square foot house. It's…, that deal works. It's just toast it's the you know the roof caved in. It's stacked full garbage to the ceiling, it's definitely good. Actually, if anyone was check it out, we're gonna we're gonna do a live walkthrough on it pretty soon.   Lots of weird things in the house but and the reason is so good is we're paying 275 with a rehab, we're going to be into it like 375 385, we can refi that deal even at high rates, if it's worth a solid 499 to five and a quarter five and a quarter is a definite number right now. But we've actually performed it at 499, because it's about seven months out. So we've reduced our value down based on where we think the rates are going to be. And that's the most important thing for mitigating risk. You know, you don't want to just look at the rates. Now, if you think they're going to be higher in six to nine months, you want to bring your ARV down a little bit, because that means that property is less affordable at that point and so we had a performance at 499, which is going to be roughly about a $50,000 profit after all hard cup money cost, sell costs in that and so that's going to end up being like a 60% cash on cash return with our lender interest funding, because then we do 15% down. So you know, we're coming in with like 60 to $70,000 down, we're going to make 50. So it's a great return. But let's say the market drops down at 450, we can still refinance that property and get almost 90% of our cash back on that loan to value because we can go up to 75% and our payments going to be roughly about 25 2600 annual rent for 2800 and so it's the perfect flip, because no matter what you either can rack your 70% cash on cash return by quick in and out deal and that's a lot of work for 50 grand, but it's very safe and that's why we bought it or if the market falls apart, which it definitely could you never know what can happen, then we can still refinance it, we can keep it and then hold it for two years and then sell it off later at that point, or, you know, our $200 in cash flow, let's say we decided to just keep it and that rates fall down to about 5%, five and a half to what they're usually around, our cash flow is not going to just be $200 a month, it's going to be around $800 a month. So you can you can target the cheaper, heavy fixer smaller houses, those are very good properties that because the price points are so low, they make it very interchangeable. So if you want to be safe in flipping, buying a burr is the best way to go. Because you know what refi out, you know will pay for itself and you have that 25% margin, which is your profit in the flip and so those are the best things you can target in this current market…   Michael: It makes total sense. Have you ever thought about like on this particular property seller financing at like nine or 10%?   James: Well, it's the problem is seller financing in that kind of scenario. Let's say we got that guy to finance us 90% and we just had to bring in 10%. At that point, I can get hard money loan three interest funding at 10% rate, you know, 10 to 12 and the loan balance…   Michael: Oh yeah, you're in it for the hard money…   James: And then we can also get a construction loan, which is going to triple our return expectations because if we pay and we do 10% down, so we give that guy 27,500 down, but then we have to come out of pocket with the rehab of 110 220, our cash on cash returns actually going to be reduced by 65% by not using a construction lender because with the construction lender, we only have to come up with the 15% of the total project. Whereas the other way, we're coming up with 10 and all the rehab and so that's the dangerous part about seller financing. seller financing works really well, if it's a light fixture in my opinion, or they're just giving you 100% financing with a closeout term at that point and so for me, I don't really care about rates I don't really care about cost of money, I just look up cash on cash return and whatever the highest cash on cash return is how I want to set the deal up for leverage.   Michael: Okay, makes total sense. James, like you are clearly an expert in the space and in your market and you are so laser focused, it seems and you know Seattle, like the back of your hand. What do you recommend to newer flippers, newer investors that want to get into this space that maybe don't have that level of expertise in their market that you do?   James: Start with baby steps, baby that's the biggest thing where people I've seen it where I've gotten myself in the most amount of trouble too is when I buy something I don't know and the rehab gets out of control and in what the last 24 months depreciation would save your butt. It didn't matter if you bought a deal and you didn't quite know what you're doing that it made you look good. Yeah, yeah, you everybody looked good, including myself like it just the margins were absurd and but if you don't know how to nail that plan, that's where you can get really out of control. Like if you spend 35% more on your budget and it goes way over your timeframes, that's going to eliminate your profit and you better steal to sell that for top dollar or you could be losing really quick and so the first thing you want to do is really take baby steps try to go for more cosmetics where you're not doing like adding bathrooms changing out things, low permit properties where you can do more cosmetic swap outs, tile flooring, doors, trim, minor things, maybe roof windows, that will keep it you can you can kind of isolate your cost a lot more. The other thing that you to do is you always can partner with investor to, you know, bring in like a general. So like right now what I'm actually doing because the markets risks here we're doing we're trying to figure out how to cut costs is we are now partnering also.   So instead of increasing staff to manage more projects, we're actually we're running some projects ourselves to where we're generally in the whole thing, then we are also partnering with generals now to where I'm giving away 30% of the deal to the general, but they are running the whole thing with my team, my team is gonna go get in the paint colors, the tile that design the layout, they handle everything A to Z, and they have a vested interest in it. So what we're doing is we're bringing in our resources that are starting to slow down on work, too and we're tying them into the deal because it requires less management, and it reduces the risk because the contractor who can charge you, whatever he wants for change orders right now is tied to the deal, too. So he's essentially charging himself, right and so partnering with the general is a good way to go partnering with another investor, you know, like I bought a flip property out in Scottsdale, Arizona in the last six months and I don't know, Scottsdale, I don't have the same resources. I don't have the same deal flow out there. So I had some extra capital. So I invested in a gal named Cara Beckman's flip and so I was she found the deal. She ran the project, I put up all the cash and we split the profit 50-50 and so there's other ways you can do you can partner with people with the right type of processes in play.   Michael: Yeah. I love it, I love it. When you're underwriting a deal, I mean, they're talking about the 70% rule and as you're underwriting a flip, are there some rules and guidelines that you live by, in today's market to help you kind of get a quick, quick glance at a property and know if it's a potential interest or not?   James: Yeah, so I always buy off cash on cash return, because it's that 70% rule can be hard. It's a great rule of thumb, right? Like, what's it worth, buy it, you want to be buying at, you know, purchase price and fix up at 70% of that total amount, right. So for all the listeners, if you're if you have property worth 100 grand, you're trying to buy it for 50, put 20 in and then you're at 70% at that point and it's not it's a good rule of thumb to do so like a lot of times, even when I'm surface writing a deal, I'll just take the ARV or the value of the property, I times it by 80% because I knock off all my landing costs, selling cost, subtract the rehab, subtract the purchase price, and then there's the profit at the end of the day. The one thing I don't like about that is the ARV can be so changed, though. Like it can be 70% one way and it cannot be the other way and so there's so many ways that you can do a deal. It's hard to put it in a standard box. Now I think if you're in more of a cookie cutter area, like if you're in track wrong track home bill, like if you're in like Central Florida, Texas, where they're all the same, it's easier to do but in Seattle, every street matters so much whether it's like high crime, or is it a better street where the schools are, the homes are really old, and they're all different. So the rehabs vary so much you can't standardize as much every project is its own beast and so that's why I go off cash on cash return. So when I'm looking at a deal, I'm always going okay, can I get around a 50% cash on cash return after all costs, and that's how I buy off of is that's my minimum expectation for short term investment. Like on buying holds, I'm always shooting for 10%. So like, as long as I know, my margin, that's how I underwrite correctly. Now the market will change what my margin expectations will be, though and so like 12 months ago, my cash on cash return on a flip, I was trying to get 35% with leverage in there and then it would kind of bump up with appreciation. So as the market slows down, I increase my return, if that keeps me fairly safe at that point.   Michael: And that makes total sense. You're just patting yourself additionally, in case something moves the wrong direction.   James: Yeah, it's no different than how we were buying the last 12 months. It's like we were buying on slimmer margins, because we thought there was a higher exit down the road and you know, so if you're in a really good market, you buy slim and if you were in a really, you know the market start transitioning, you start patting your performance or like even in the stock market, a lot of people were day trading, right? They're getting them in now, people kind of getting more settled in because the day trading can blow up in your face really quick. The short term is harder to do and so you're seeing a lot more people just invest in the long term because they're like, hey, I just want a stable return, try to beat inflation. But you know, as the market cools down, you get less trading in there a lot too. Yeah. But with the market cooling down, it has created some massive opportunities. So I mean, we're definitely buying property way cheaper than we were buying 90 days ago. Which is nice. It's we're getting back to like a normal system like we can buy it for this we rehab it and then we sell for this and we're gonna make roughly around this whereas last two years is like well, I don't know what's gonna happen we'll see could hit…   Michael: Yeah, anyone's guess is good. So James is like 50% cash on cash is like insane. saine insanely high, which is amazing and I have to imagine not all of your deals have hit that target. So can you give us a little bit of insight into one that maybe didn't go your way to help level set expectations for what the flippers?   James: Oh, yeah, you can very easily lose 50% In flipping too. I mean, the thing about flipping is, wherever one always needs to remember the things I have to remember is I'm an investor, I'm making a decision on risk and if I have the chance to make a 50% return, that's an extremely high return, especially in like a nine month period, right? That's on an annual basis. That's like 70% 75%, that means that that investment engine is extremely risky. Like you don't like there's a reason but like, CDs don't pay 30%. Very risky and I feel like sometimes people forget, like how high risk this business is and so you really got to stay on top of it. But yeah, I mean, we've had all sorts of deals go wrong over the I mean, the first major fixture I ever bought when I was 23. I 2008 happened right as I was selling it, and I got flatlined, I lost all my cash I'd saved in two years of wholesaling and so it can go away very, very quickly. But I mean, even recently, like we, I mean, we had a deal where we bought a home, we got its permit, we jacked up the house and then the city came back to us back in the plan review decided to change the whole plan on us, we had to put a new foundation in which ended up costing too much money in the house fell over. It basically just collapsed down and so we had to build a new house and so what it's like in that house, we've owned this property now for three years, because of the time in the restore and the new plan, right, and we know what we're doing and so it was just one of those things where everything that could have gone oh, and then our foundation company walked off with half of our deposit, it was just everything went wrong and we do this and we manage and we watch everything. But sometimes things just go wrong and that was one of them. Where it's a domino effect, it was like this went wrong, this went wrong, this went wrong and then you know, and so now we're listed on the market and if we sell it for full price, which we've been at for 75 days, we'll maybe break even after three years and you know, and who knows, we might take a haircut too. But that's just kind of part of the game. Like how I look at this, I don't look at this per deal. I look at this as I'm an investor.   So if I'm looking at the stock market, again, like if I look at my portfolio, I'm not looking at that one stock, I'm going how did this work over a 12 to 24 month period and so that's how we even look at our flips the last 12 to 24 months, like some are like the last 24 we made too much money. Now we're going to take a little bit of a haircut. But when we look at it, at the end of the day, it's still going to be a great return as long as we're buying and selling consistently. But we have definitely had I've had all sorts of bad things happen on where we've lost money usually comes down to bad hiring or bad contractors, where we've hired guys, we've worked with them for five, six years, the wheels come off and they disappear with our money. I've hired a fake contractor before where he hadn't legitimate fake IDs and licenses and a business law and he still had a business license still had a contract. That deal I definitely lost I think I lost like 80 grand on that house because he didn't eat it's not only he, he took my money did a bunch of the work was supposed to get permits, never got permits, I got red tagged. That's how I found out it was all a big scam and we had to rip the whole house, we basically had to restart backwards and redo it again. So not only did we pay him way too much money, we had to redo everything that he had done and so when you get in that situation, it's really hard to get out of that hole and you know, for me, I just say sometimes you got to take, you know, take a face to the face and keep moving forward, go and go that route. But yes, if you can make 50% returns, you can lose it just as fast.   Michael: Yeah and I think that's so important to remember because I know I'm totally guilty of it myself getting so enamored with these high returns and the big sexy projects and oh my god, how attractive it is and then when things go sideways, you're like, oh, I didn't really think this was gonna happen and you can get caught looking pretty quickly.   James: It's easy to get caught in this business. It's you know, it that's what everyone just has to remember is you got to constantly be refining it. Typically when you're a flipper or developer even a buy and hold strategist, right? You have to change your business plan every nine to 12 months, because the market will change cost of money is going to change market conditions are going to change rehabs going to change and so you have to keep changing as long as you move your chess pieces around and try to forecast it down a little bit. Then that's how you don't get really rocked. But, you know, at the end of the day, bad things happen. Sometimes just things don't go the way you want and you just have to keep moving forward and the most important thing is don't lock up like I back when I was newer. I would kind of lock up and try to figure out how to save the money and get the money back. But then you just waste time and you get bled out by a holding cost because you're paying 10 to 12% for hard money and so you start to be you almost are becoming, you're spending even more money by trying to pick up the money. So for me, I just try to keep it moving for that point.   Michael: Yeah, that makes a ton of sense. It's like almost counterintuitive, but when you look at the math, like numbers don't lie. That's really a really great point.   James: Yeah, you got to look at the whole picture. Like, what were your cost racking and how do you mitigate the risk at the end of it?   Michael: Yeah, love it James. This has been awesome, man. For people that want to reach out to you learn more about your business, learn more about what it is you do, where's the best place for them to do that?   James: Well, first, check us out on Bigger Pockets on the market podcast is an awesome podcast where we talk a lot about a lot of these strategies in forecasting and data, how we change our strategies with data, like what's going on in the market, where do we see the trends are and then the key is the change before they happen and so we talked about it there or you can check us out we do a ton of free real estate education on our YouTube channel @projectre or Instagram @ jdainflips. We were really just trying to get good information out to people. It's not really surfacey like we get we get into the issues like alright, this is what happened. This is what how we're fixing it, and it cost me this much and so we get very, very specific training on our social media pages.   Michael: So it's not just glamour shots of Lamborghinis, and cheques and that sort of thing.   James: Yeah, I haven't got I haven't gotten to that. I haven't got my spray tan all the way on yet.   Michael: In good time and good time.   James: Don't believe what you see on social media. It's no we're gonna show you the glamorous lifestyle of it. Flipping is not easy and we let you guys know what we're doing. I mean, even for us, right? We flipped over. We've been in over 3000 flips, stuff gets asked all the time to it's caught we you just have to work with other investors find out how to fix problems, and the best way you can do that is just communicate with everybody. Yeah, so definitely check us out.   Michael: I love it. Well, James, thank you so much again for coming on and hanging out with me. I really appreciate you.   James: Yeah, no, thanks for having me on, I appreciate it.   Michael: Absolutely take care of we'll chat soon.   All right, everyone. That was our episode. A big thank you to James for coming on super interesting stuff and can't wait to see how they continue to perform in the next six, nine and 12 months going forward. As always, if you like the episode, feel free to leave us a rating or review. We'd love to hear from you and we look forward to seeing on the next one. Happy investing…

Kellie Chrisman is a licensed attorney who has experience in estate planning, trust administration, contested trust matters, conservatorships, and business/corporate law throughout California. Following graduation, Kellie found her passion for helping people and clients by making the complexities of the law accessible and approachable during the worst of times, planning for a loss, or following the loss of a loved one. It is with great pleasure that Kellie feels she can take the worries and difficult tasks of legal issues off her client's minds and allow them to simply be in the moment and focus on what is most important to them. Tune in for today's episode where Kellie shares her insight on what you as a real estate investor need to be aware of to protect your estate and some real-life experiences of some of her own clients. Episode Link: https://www.taylorchrismanlaw.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have Kellie Chrisman who's returning on the podcast with me. Kellie is an attorney extraordinaire, and she's going to be talking to us about all the things we as real estate investors need to be aware of when it comes to protecting our estate. So let's get into it.   Before we get into the episode, I would definitely encourage everyone listening to go check out the Roofstock Academy at risk academy.com. It is a one stop shop education platform comes with over 50 hours of on demand lectures one on one coaching access to private slack forums and our community as well as a bunch of other financial benefits depending on which program you opt to enroll in. Just come check us out roofstockacademy.com. Looking forward to seeing you in there.   Kellie Chrisman, welcome back to the show. It is always a pleasure to have you on.   Kellie: Awesome. Thanks for having me.   Michael: No, it's totally my pleasure. I'm super excited. You are an attorney, an amazing person, a mother a rockstar. For anyone who hasn't heard your prior episodes, give us a quick and dirty who you are and what it is you're doing.   Kellie: Oh, this morning…My name is Kellie Chrisman. I'm an attorney I practice law in California and kind of I practice California law for other people throughout the United States. I grew up in Chico, which is in Northern California town, Sierra Nevada, beer, Chico State, things like that and then went to college at UCLA law school at Loyola and then my husband, I say we got stuck in LA for about 10 years. But we loved it, we had so much fun and then moved back to the Sacramento area to be close to family and really close to the mountains, we can get to Tahoe in an hour and a half we can get to San Francisco or an hour and a half. It's awesome. So that's where I'm based now and practice state planning, business for setting up business entity that has information and strategy for smaller investors and real estate clients and if I can't help somebody I like to send them where I would trust. So yeah…   Michael: Love it, I'm so glad you mentioned estate planning since that's the topic that I really want to focus on today. So I think I mean, in full disclosure, you are my attorney, you've helped me so much with estate planning and entity formation and just getting all my ducks in a row. So I want everyone to know how amazing you are and I can personally attest to that. Kellie: You can say it I can't, you know I can't. I really appreciate it…   Michael: Absolutely. So let's talk about what investors specifically real estate investors need to know when it comes to estate planning. What are some things that people should be aware of? What are some things they should be doing? What are some things that they should be thinking about kind of long term?   Kellie: Yeah, I think that, for me as an attorney in this area of law, because I do I do before people pass away the planning part and then I do when people don't plan anything. So I've seen both sides, and I've seen the worst of both sides but it's not necessarily just investors, it's anyone over 18 than then then when you add on, if you own property in California at all, we'll get into the dirty details, I'm sure, then you not really needing to trust powers of attorney. If something happens to you while you're alive, who's managing your investments, who's making sure you know, tenants are paying who's making sure you know, you're in the middle of a transaction and that it can close all that type of stuff, is stuff you can accomplish through an estate plan and I think it becomes this big giant thing a lot of people don't know anything about and a lot of attorneys try to make very complicated but it doesn't have to be.   Michael: Okay. So it sounds like just having a will from Legal Zoom, that maybe isn't going to cut it.   Kellie: I mean, it'll, it'll get you somewhere.   Michael: Maybe it's not where we want to go.   Kellie: I legally was great and so I think that there's this is one of those areas where I actually had a conversation with a client yesterday where she was very surprised by the cost and I told her, you know, there's always going to be someone cheaper, there's always going to be someone more expensive. You can go to Costco and buy the wills drafting program or go to Legal Zoom and buy a will and it will do some things it'll avoid, you know, maybe getting your property where you don't want it and you can get your property where you want it. But there's a lot of little nuances in this area where I think if you do it right the first time you, you don't have to pay for it. Again, it's an investment in your future and it's a gift to your family down the road. So it's interesting.   Michael: Needless to say, so talk to us about like, what a trust is, how does it get set up? Like, what should people be thinking about in terms of cost, or like who even needs one as opposed to just a will? Kellie: Yeah, so the difference between a trust and a will and I think the big thing in this area is probate and probate. People get very scared, and it's simply the court monitored administration of an estate. That's all it is. So you can pay, go to Beverly Hills, pay $10,000, for a will, or by your Costco will drafting program and pay $40, for your will, and you're both going to end up in probate. The scary thing about probate it's public. So if you want to know what was in a celebrity's a state that had a will, you can go and look it up, see where it went. They publish about it and it takes about a year. I say a year you say your NADs about a year and a half, with the way that COVID has affected the court system, and it's expensive. So the attorney ends up taking about two to 3% of the estate, the fees are set by law and then the administrator or executor, whoever does it takes two to 3%, then everything is distributed. Versus a trust is when you have enough that you need to trust which is in California $166,000. Whether you have a mortgage or not. A trust avoids the whole process. It says here's who I trust, to administer my estate and here's where I want it to go. The court is not involved. That's the that's the goal and that's the difference between having a trust you've done yourself, or trust that's been done completely, and having it done in tailored to us that the trust has been created correctly, it's funded correctly, and it just functions seamlessly down the road for you. So the will is great, and it says where your property goes. But it's probated and the trust is the same thing. Avoiding the probate process.   Michael: Got it, and so why, like, Why does a will exist versus a trust? Like, it seems like a trust is the obvious choice for anyone that has more than 166,000 in asset or value?   Kellie: I think so many so many levels to that answer. I mean, the will is something that has been adopted from common law, something that's been based on what was done in the UK back in the day, which is where a lot of our laws are from and at a basic level, not everybody needs a trust. So if you don't own over 166,000 and assets, so you don't really in California, I just assume if you own a house, you're over that. In every state's a little bit different. I've noticed in some states, I know not everybody's California, some states that's as low as like 45,000. So it's, it's vary state to state. But it just, it's there because it's easy. and so if you don't have enough assets to maybe make the trouble of a trust worth it, then the will is there and allows you to say where you want your things to go. So it avoids what the basic, okay, the other thing is, uh, wills a lot easier to create. You can hand write a will, as long as it's signed and dated, which I've told some of my friends, they they're going on vacation, and I'm like at least handwrite it out.   Michael: If you don't want it on the airplane on the napkin.   Kellie: You can do it on a napkin. You can do it, people have done it, you know, dying with a crayon on a wall, that's a valid will wow. At that, at that core level, it's just easier. You don't need a notary, you need witnesses. So it allows you to do things, if you have kids, that's where we do guardianship. So wills do all sorts of things and then and then to add a layer of attorney complexity, if you have a trust, you're also going to have a will which actually ends up making sense, but it just doesn't do as much.   Michael: Okay, okay, got it and so yeah, for all of our listeners that are not California based, is what we're talking about, at a very high level universal in the sense of if I have a will I'm going to probate if I have a trust I'm not is that was that national universal?   Kellie: Pretty universal and you can pick you don't necessarily have to have a trust from your state. Obviously, an attorney in your state is going to know the ins and outs of the probate law. But if I have a client that I set their trust up and they're in California and they move to Texas or New York, that trust is still valid, and they can continue to use it and that a lot of times I have clients that are not in state and they elect to use a California trust and we work together and I can fund and do everything the same way. So, yeah, this is something that these, these documents that comprise an estate plan are pretty universal.   Michael: Okay, cool and it's funny, because we so often hear that California law is like the worst for real estate investors or investors. So why would someone elect to use a California trust? I guess, specifically, like, what are the provisions in that that make it attractive as opposed to any other state stressed?   Kellie: I think that it's not necessarily the law itself in this area is pretty similar. It's not like business law, business is pretty unique. If you're talking about LLC formation, and, you know, Nevada, Delaware versus California. Like all that's a, it's a hot topic. But in this area, it's kind of not the exciting parts of this law, area of law come from other really the family dynamic, but yeah, it's, there's not much different. So a lot of times people will choose California law because they have an attorney that they trust that's in California, or it's simply where they were living or whatever it might be.   Michael: Okay, cool and so I live in California, now I invest almost exclusively out of state and I think a lot of listeners are in similar situations, should they be using a trust in the state in which they invest or should they be getting a trust in which the state they live or does it not even matter?   Kellie: Oh, I have to I have to use my typical lawyer phrase, it depends. It doesn't really matter. What matters is that whatever trust you choose, you fund it, that you when you get assets later, you add those assets into your trust, because you can have the best trust in the world and if your assets aren't in it, you're going to probate   Michael: And so I could have a trust and still go to probate?     Kellie: You can and that's why I, I say I fix a lot of Legal Zoom trusts, because people create this fabulous trust and they've, you know, they hey, it's super simple. I've got, you know, two kids, it's going to them equally and they don't fund it, or they don't maintain it, or their kids are under age, there's so many different considerations. Their kids are under age, and now they're getting a check it 18. So if you don't fund your trust, you don't add the title of your property. So you deed your property into the name of your trust, you update your bank accounts, an attorney will work with you to say this asset should be in the name of the trust, this one's okay out things like that, then you go to probate and that's where you have what's called a pour over will if you have a trust your will says everything I have that's not in my trust, goes to my trust, it pours over into the trust pot and the trust does the work. But it's still probate. So Funding Your trust is extremely important and in California, we have a couple of tricks to avoid that process. So you can we avoid probate at all costs. But it still can be avoided just by doing it right the first time.   Michael: Yeah. Okay and when you say fund the trust, I mean, it just sounds expensive. Let's say the listener has five properties. This is just the first time they're hearing about maybe thinking about, they should have a trust or set up a trust. What is involved with that listener for a couple of properties that they have that are titled maybe in their personal name, or to the name of an LLC?   Kellie: Yeah, so to fund a trust, there's a couple of I always say there's like good, better and best. Good is that you listed in your schedule of assets. So there should be a page to your trust. Usually, it's the last page and it should list everything you intend to be part of your estate, or your trust and your intent is a lot of the law. It gives me my defense down the road, hey, he intended this to be in his trust, but they took it out to refinance. So therefore give it back to the trust. So you listed on your schedule of assets better is it's titled correctly. So primary residence is titled in the name of the trust. It's in the Kellie Chrisman trustee of the Kellie Chrisman trust. That's what puts it into trust, LLC. If the property is owned by the LLC, we kind of trace up right so we have the property properties owned by the LLC, then we put the LLC into the trust and so then when we trace down, the ownership is still in the trust. So we don't need to change necessarily the details the property. So that's better. So good is scheduled assets better is titled correctly and then best is both if I see both of those things, there's no argument hey, you know, he didn't want that to be part of the trust. It's like, well, he clearly did.   Yeah bank accounts can be the same thing. So you can either make the trust the owner of the account or are the beneficiary. So funding doesn't have to be scary and I think the signs of a good attorney that's going to help you with this is they're going to give you instructions, they're not going to hand you the trust and say, all right, thanks for the money. They're gonna say, here's the next steps. Here's what to do. Here's what to watch out for. Here's the support on the back end, that when you buy a property five years down the line, and you're like, What do I do? I don't remember, you can call their office and they're there to support you.   Michael: Okay, fantastic and if someone is looking for an attorney, maybe they're just getting started with their real estate investing and haven't had a need for one in the past? What are some questions that they can use as like screening questions, or red flags to look out for as they're trying to reach out to an estate planning attorney, if they're going to use someone other than you? Which I don't know why anyone would do but you know, teach the round?   Kellie: Yeah. Well, and I like to offer people I mean, when I talk to clients, I see if they're interviewing people, I say, here's what to look for, right? You want somebody that that you trust. You can I think referrals from friends are great. If you're Googling, you know, try and look for Google reviews, or there's a website called Avvo- AVVO, it's like, the Yelp for attorneys. How exciting. But they'll kind of narrow it down in your area, look for great reviews on that. But things to look out for, what are they including? Are they doing the funding for you? Are they doing more than just, you know, the bare minimum? Are they and then what are they? What are they charging down the road? Right, so I see a lot of attorneys charge a yearly maintenance fee. That's great for the attorney, there is no reason you need to do that and I think if you have an estate plan, you've never had to do anything to it. There's no maintenance, I don't do anything as your lawyer, you know, I have a PDF copy here and, you know, if you need help, I'm here. So watch out for those yearly maintenance fees, you don't need them watch out for what's included. So you want to at least in an estate plan, a typical state plan is a trust, certification of your trust, the funding of your trust, then you want to will powers of attorney for finance and a health care directive. Those are kind of the core documents, we say trust Well, Power of Attorney health care, okay, the core four, make sure those are there. And then see what amendments cost down the road. That's the other thing, you know, they might be super cheap, but then you want to change something and it's quite expensive. I like to offer my clients, I do amendments for free for a year because I have major buyer's remorse. Like if I make a decision, I'm always like, we have to so and they're pretty simple to change. So that's kind of in you want that support, you want to be able to oh my gosh, I'm closing tomorrow, and they, they need a copy of my certification of trust, I'm on vacation, or I don't know where to find it. My clients will shoot me an email or give me a call and I just, you know, fire it over to title or whatever they might need. So what you're getting for the money, I think is huge.   Michael: Okay and is there a ballpark like figure that people should have in their mind as they go to an attorney to get this thing because I know you mentioned you know, the Beverly Hills $10,000 will versus the Costco $40. There's a big range there.   Kellie: Yeah, she'll be in the middle of that. It depends. So generally, and I think that it's going to depend by state right, but what I am seeing is pretty market is about that $3,000 Mark, for a married couple, the what… I guess one of the other key things you're going to look for is most attorneys do this on a flat fee basis. It's not hourly, because they'll make money. It's a standard process and usually if we can estimate how many hours it's going to be in, then we win some and we lose some right like some clients, I end up spending way longer with and make less…Excuse me and some, you know, it's, it's pretty easy and standard, but it's a lot of paperwork and so that flat fee would be a structure I would look for and that I would lean towards if I was paying somebody or telling family. But every stage is different. So will is cheaper. If you're a single person having an estate plan for yourself, should be about 1500-2000 and then I look for you know, if you want to have a trust and your wife wants to have a trust, look for discounts, I mean, an attorney is going to have to do far less work. If they know you and they know your wife then there so there should be some kind of a benefit there as well.   Michael: That's great to know and then from a like a lending perspective if someone is going to buy a property, they're going to get the loan in their personal name, but they want to take title in the trust. I mean, is that our lenders open to that or do they need to close in their personal name and then quick claim deed it over into the trust? How does that work?   Kellie: Every, every lender is different. So it's, it's more and more common for trusts to be there and I think that lenders get the benefit, if you're to pass away, it being in your trust is a huge benefit to them, because they're able to follow the trust. So the lender should let you close in the name of the trust, super easy. If they don't, or if it's some huge hassle because sometimes, you know, either lender or title is not familiar or comfortable. It's very easy, we ended up just doing a trust transfer deed after we closed. So a lot of times, our client will say, okay, Kellie, it's closed, and then it's a one page document that you have to assign in front of a notary. Some states have more expensive transfer fees, or transfer tax, that you'll have to pay. So that's a consideration to watch out for and those can be pretty significant, like five or $600. So in those states, it might be more advantageous to close in the name of your trust, but a simple process if, if you forget, or if you're if there's a property.   Michael: Okay, awesome. What else should people investors need to be aware of when it comes to planning their estate?   Kellie: I think managing who you trust, you know, who's going to take over who's going to get your property if you're gone. I think that a lot of the law assumes that an adult is 18 and over, so if you have kids, and, and they are under 18, or they're not responsible, and over 18, or the you just don't want them to get a large sum of money and trust should be able to contemplate all sorts of things. I see a lot of clients, you know, hey, I love my kids, but I don't want them to get a lot of money. I want them to, you know, work for it. So everything is held for the kids benefit, you know, education, whatever it might be, but they're not getting money until 25 or 30. The other thing I often see clients worry about is you know, who's going to be in charge, you know, if I am incapacitated, I get in a car accident, having those people that you trust, and then if that person is not there, then who I always say always tell clients in my intakes, and like, I'm going to come up with the worst scenarios where every person you tell me is unavailable and ask you for someone else. So yeah, watching out for that stuff.     Michael: Okay, love it. Can you tell us like a gooey horror story of when something went really wrong?   Kellie: So many, I mean, even like, amongst my, my lawyer, friends, everyone's kind of like, Oh, you do that area of law, like, is it boring? It is fascinating. Um, because families are fascinating.   Michael: Family dynamics. Yeah, for sure.   Kellie: So one of the reasons, I guess one of the reasons to have a poor overwhelm, I would say, we had a, there was a situation where somebody won at a casino, very exciting, when a significant amount of money, went out and bought a motorcycle, didn't put the motorcycle in the name of the trust, which is fine. But didn't put the money anywhere. They you know, it's just in a bank account, it was coming their way, crashed their motorcycle and died. Now we have this huge amount of money out there and that's not in the name of the trust. So the goal is to pull it in and probate it. So we go to void and we don't have to probate. So we have stuff like that happen. I've worked on cases where, you know, the parents have an estate plan that's been in place for 25 years, and then dad has dementia and suddenly has an amendment play a month before he dies, that leaves everything to one kid and that's the kid that took him to you know, the attorney.   Michael: Oh, my gosh…   Kellie: There's so many nightmare scenarios. That stuff we can get overturned. But I mean, all of these have solutions, right? If you already have it in place, and then families just fight. I mean, I think especially if you have a family that's going to, you know, your kids don't get along or you know, there's that one person I always tell people, every family has something or someone and if you don't know who that is, or that what that is. It's the right client. Also, you need to look at yourself like what's, what's good because the state plan can take that into consideration. I had a client that had a DeLorean and four boys and she said sell it and I said, okay, you don't want it. We can come up with solutions. You know, do you want to have a to flip a coin, do you want to have draw straws and she said, no, whoever wins, the other three will hate them and I said, okay, so it has to be sold and I, and then I was thinking to myself and like, well, if it was me, I'd have my buddy buy it right, like, and then I get the DeLorean. So it had to be sold, like out of state to a third, like a dealer or somebody like we had, it was so detailed, like pages about this DeLorean. This is one of those situations where I lost on a flat fee, right, because I'm drafting a car. But it was fascinating, because she goes, I know, it's gonna ruin my family and I want it sold. So we could do that.   Michael: Wow. It's crazy. That's pretty impressive.   Kellie: Yeah.   Michael: Okay, cool. Well, Kellie, I want to make sure that we are very respectful of your time. But before we let you out of here, you said something, and I just want to kind of come back and double click on it about in California, if you've own $166,000 and assets, then you're going to probate unless you have this trust and you said that if even if there's a mortgage on the property, so let's say I own a property, it's worth 200k. I've got 100k mortgage on it. My net value are my, my net worth is only 100 grand. So do I fall into that bucket? Where do I land?   Kellie: Yeah. So there's a there's a, I think, yes, you do. So you start thinking about all these other things. So the way that that probate law works, is they look at the value of the property, not the equity in the property, the value of the property because they see a significant asset that somebody could sell out from under the mortgage company, which is hard to do anymore, but and run away with and so they look at the value of the property itself, and then the equity down the road in the probate in terms of what everybody's paid off, and what is distributed is taken into consideration at that point. So I have clients that will say, well, I don't really want to pay for the trust, I just want to pay for the will and because I'm gonna put beneficiaries on all my accounts and my property, I'm just going to play joint tenancy.   All of that works if everything goes perfectly according to plan, right?   Michael: So which it always does…   Kellie: Always goes according to plan. You know, parents always outlive their kids. They live till they're 90, the kids are responsible, never get divorced, you know, they never see anything else happen. The problem is when it doesn't work. The last thing your spouse or your kid is going to want to do when you pass away is to see a lawyer which unfortunately, they usually need to do. But that property then if joint tenancy goes to one person, and now it's just one person that owns it, and it's not a trust, so it's you know, your husband dies now the wife owns it, and the wife isn't going to she's grieving. She's doing all these things and isn't going to think about it and then when the wife dies, it's probated. Same thing with kind of beneficiaries on accounts are you know, if I leave it to my husband, he passes away. Now where does it go, that money can go into probate. So that's where we get IRAs 401 K's things like that can end up in probate so people will list their kids next, I'm avoiding it. I still not over that. 160,000 miles, I have a contingent beneficiary. My question is then what ages are your kids getting it? What is you know, now we're letting that fidelity or whatever company whatever bank it might be, come up with where it goes, if one of your kids is in the car with you and dies with you and your husband now where's their share going? Is it going to your grandkids is it going to the other kid there's and so by having a trust you lease the trust is that contingent beneficiary it goes into the trust and the trust does all the work so if the worst happens a good lawyer has already contemplated if a kid dies before you what ages all of these things, and you'll avoid the whole mess but yeah, if you want a house in California estate plan if you are trust or if you want significant assets, significant amount of stock, things like that beneficiary accounts yeah, you can technically your pay on death pod. You can avoid it but it scares me. I make a lot of money off of people that do that because they pass away and I would rather probate I make a lot more money probating for clients than I do doing estate plans but that's not the goal. That's not why I do this.   Michael: Yeah. I love it, I love it. Super, super helpful, Kellie, for people that want to learn more reach out to you for your services, just chat with you because you're a cool, interesting person. What's the best way for them to do so?   Kellie: So I mean, I'm great with email, and my website is just https://www.taylorchrismanlaw.com/ TAYLOR Chrisman is like a Christian man stuck together, CHRISMAN.com. My email is just Kellie@taylorchrismanlaw.com, AWAL I am on there are my phone number you know, you can always reach out I've got someone that answers the phone all the time. 916-292-8646. But yeah, whatever people have questions on I'm always more than happy to help. I guess you should look for a free consultation because I that's I'm always happy to talk to people and if they're not if I'm not the right fit or you want to find somebody in the you know, in your state or whatever it might be, I like to help connect people where it might be I think if you put that good karma out there, it helps.   Michael: Amazing, amazing well Kellie, thank you so much. Again, this is super insightful as always, and I'm sure I'll be chatting soon.   Kellie: Yeah, sounds good. Thanks, guys.   Michael: Got it, take care.   All right, everyone. That was our episode. A big thank you to Kellie for coming on, as always in sharing some wonderful wisdom and really great insights. As always, if you enjoyed the episode, feel free to leave us a rating or review wherever it is. You get your podcasts and we look forward to seeing the next one. Happy investing…

Tune in for today's episode where Michael and Lori answer questions that we have received from listeners and members of the Roofstock Academy. We cover questions on property management, appraisals on all cash offers, editing lease agreements, wire transfers on EMDs, insurance assumptions, and renter's insurance. Please submit your questions as comments on YouTube for the next round! --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Pierre: Hey, everyone, and welcome to the Remote Real Estate Investor Podcast. Today I'm joined by Michael Albaum and it is my distinct honor and pleasure to welcome Lori Ruddle. Lori, welcome to the podcast for the first time.   Lori: Thank you.   Pierre: Do you want to give a brief introduction for yourself?   Lori: Let's see right now, I am the Roofstock membership concierge and also one of the coaches.   Michael: Yeah, you are!   Pierre: Today we're going to be tackling some more questions that we got from members of the Roofstock Academy and also some listener submitted questions. So let's hop right into it.   All right, so let's jump right into the questions. So I'll just pitch these out to you and whoever's excited about responding to the question, feel free to pipe in.   Michael: Let's do it.   Pierre: First one here. Can you have a property manager, only qualified tenants?   Michael: Ooh, Lori… You are all over this!   Lori: Yes, I will do my best! You have the ability to do like have them do everything that they would normally do or you can piecemeal it out and do everything ala carte. So you prefer to do the screening, which is very uncommon, but perhaps you prefer to do the screening and then you can do the screening and have them handle the month to month. So like collection of rents, all those different kinds of things, so you can definitely piecemeal it out.   Michael: And then if you because I've had this question come up to if you wanted someone to only do the leasing piece of it, do you think that most property managers are open to doing that, like with a leasing agent, and then you do the actual management yourself?   Lori: It depends upon the location, like some location, you know, it depends on where you're located, because some locations, some areas have a higher percentage of you know, leasing done by realtors and others have a higher percentage that are done by property managers. So it really kind of depends upon where you're located. Like in my area, it's not very common for realtors to do leasing, so…   Michael: Yep, yeah, same for me. I was super surprised to learn that that was like something that Realtors did. I was totally foreign to me.   Lori: Yeah, so it depends.   Michael: Yeah. Okay, so I guess kind of, like so many things, ask reach out to the property manager, ask them? Is that something that they're open to and what the fee structure would look like if they are?   Lori: Yeah, and definitely check with the realtor that you've been using, if you're using one in that area, because maybe it's cheaper, maybe they do it one off, you just never know, it's just good to kind of find out which way is going to work better for you.   Michael: Yeah, super good point and even to that point, I love working and I've chatted with a lot of people about this in the academy. But I love working with agents who are also property managers, or vice versa. Because I always say you date your agent, and you marry your property manager and so if your agent sells you a crummy deal, they're off to the next transaction, you might never hear or see them again, but a property manager there with you for the long haul, assuming it's a good working relationship and so having an agent that also spotted manager, they're not going to want to sell you their own headache and something that I've also encountered is if they are if they do wear both hats, asking the property manager, hey, what is your leasing fee look like if I buy through you. So I actually worked with a couple property managers that didn't charge me a tenant placement fee, because I bought the property through them. So there could be some additional added benefits you can stack on just by using the same folks and personnel.   Lori: For sure and it's also you know, if you are utilizing a property manager or leasing or realtor, depending upon, you know, it may be more cost effective for you to do all of it versus just take out one small piece of it. So depending upon the pricing structure.   Michael: Super great point. So hopefully that was a very long winded way of getting to a semblance of an answer but great question.   Pierre: Let's stretch out that wind a little longer, I have one more…   Michael: Yeah, let's do it!   Pierre: A nugget to drop on there. Yeah, I know. We're we can't make recommendations of who you go to on this the show in particular, but you can look up this property management light companies as well, that allow you that provide exactly this service. So we've had a property manager on the show before that, that showed their product, which is very much like this. It's very minimal fees, and you could employ them to the degree that you want them involved in your property.   Michael: Yeah, yeah. Since you were appointed yeah, those companies it's kind of tech enabled companies are coming becoming more popular seemingly to for the ala carte style.   Pierre: Exactly.   Michael: Sweet.   Pierre: I consider that sufficiently answered…   Michael: Closed, signed, sealed onto the next one.   Pierre: All right, next one here. Can you add or change verbiage in a lease?   Michael: Oh Lori, this is your this is right up your alley too.   Lori: Yeah, this is right up my alley! Yeah. 100%. Um, they usually property managers, or if it's the realtor, they have, like a pre canned version that they use. But, you know, usually it's best to say, okay, have you included something about this or about that something that's important to you and usually, it's covered in the leases that they have but if not, you can absolutely added it.   Michael: So Lori, question for your pop fire question. Yeah, I had a really bad experience with a tenant. They trashed the house on the way out and so I want a $20,000 deposit security deposit for my next tenant. Is that something that I can add to the lease?   Lori: Well, you could try, but that's never going to happen. No one's ever going to agree to that.   Michael: Yeah, I think I think it's a super good point, like, is it within the realm of possibility. Another caveat, I would add is also make sure that it's legal to do because there are some things that, you know, if you added it to a lease, and someone signed it, and this is your kind of binding legal agreement, and then you had to go to court for some reason, someone could look at the lease and say, hey, this is illegal, like, you can't, this is an unenforceable lease, and the whole thing becomes moot. So definitely, don't just be adding things willy nilly work with your property manager working with local attorney to find out hey, is this is this legal in the state of which the lease is being enforced?   Lori: Yeah, and one of the things I always like to add is a rent increase for the next year. So you kind of like, kind of, you know, hit that before you even begin, you know, like, okay, if you stay in, if you want to sign on for a second year, then this is going to be the amount the increase will be.   Michael: That's so good!   Lori: …known entity, and you don't have to have that discussion, which can be awkward sometimes, or, you know, feel like that you have to negotiate some sort of rent increase. It's just a done deal.   Michael: It's just this is plain black and white language. I love that, I love that. One instance of when this happened, actually, not with regard to the rent increases, but I was listening to a podcast, and they were talking about this exact issue about adding certain things to the lease and so it was like a hold harmless clause about litigation, and the tenant basically waives the right to sue people. So I called my property manager and was like, hey, is this in our leases and he goes, I'm not sure let me check and he got with the attorney. He was like, dude, like, great call out. We're adding it to all of our leases now. So don't think that just because you're hearing about it for the first time that other people aren't as well and don't be afraid to ask those questions or make those suggestions.   Lori: But keep in mind with something like that. Yes, it's a hold harmless for sure. But that may or may not stand up in court.   Michael: Right, fingers, fingers crossed…   Lori: And it doesn't stop anybody, right. It definitely deters it and but it doesn't necessarily stop anyone from suing you.   Michael: Right as landlords often know, all too well.   Lori: Yeah, yeah   Michael: Signed, sealed, delivered. Next.   Pierre: Yeah, check. Let's go. Buying with all cash, is it a recommended practice to pay for a professional appraisal before making an offer?   Lori: You should take this on Michael.   Michael: So before making an offer, I wouldn't say so. I don't think I've never gotten an appraisal prior to making an offer oftentimes, that especially in today's market, we're recording this mid-August 2022, you also have to shoot first ask questions later, sort of a thing. So get your offer out there, get it accepted, get into the due diligence phase, and then figure out all of your questions that need answering and I actually have also never used an appraisal contingency when making an all cash purchase. A lot of agents will tell you investors will tell you that every contingency you have and your part of your offer weakens the offer. So the offer with the least amount. Is that Is that fair to say Lori?   Lori: 100%!...   Michael: Yeah, so…   Lori: …A realtor! Yeah, for sure. Never seen it!   Michael: Yeah. You've never seen it. You oh, you've never seen it with an all cash offer and appraisal contingency?   Lori: No, never.   Michael: Well, there you have it, folks. So I think it's maybe a wise thing to do for yourself, if that's something you need to do. But the I think the thought process behind it is that oftentimes, if you're making an all cash offer, you might be buying the property for less than market value or less than list and so you're building in some buffer there and so the appraisal doesn't really mean anything other than you're buying it based on what an appraiser thinks is fair market value, so all that to say…   Lori: Because, yeah, and the whole reason to buy with cash is because you can get a better deal, you know, yeah, and usually that negates a need for are any sort of appraisal anyway…   Michael: Yeah, I will send me I guess there's an argument to be made of will, hey, we're in a super-hot market properties listed for 100 but I come in 110, all cash. So I'm overpaying and if the appraisal did come back at 100, I mean, maybe there's an argument to be made that, hey, I can, I can negotiate with the seller to reduce the price to 100. But, again, you're just adding more contingencies to your offer. So it all comes down to like, how comfortable are you with the offer you're making with the market value that you can determine with the other tools and resources that you have at your disposal and then, like, if you're wrong, if the number if the market value is lower than what you're actually buying it for? Do you care? Does that mean if you're gonna buy and hold the thing for 10 years, which is my intent for a lot of these properties? I don't really care because like property, still cash flows really well. So, Lori, do you have thoughts kind of in that regard?   Lori: Yeah, I mean, I feel like with the, you know, anytime you're adding anything to be able to get out of the deal, you're lessening your bargaining power 100%. You know, like, you might as well just do it with a loan than why buy with cash, the whole point of cash is, so you have bargaining power…   Michael: Yeah, that's a great, that's a great question. I mean, what about putting in that as part of your offer, as, hey, I reserved, you know, this is an all cash offer, but I reserve the right to go get financing, if I decide to do that. Have you ever seen that?   Lori: You know, I've seen that and it didn't I mean, then then you're just like every other offer, you know, that's looking for a loan, you know, it's like, okay, well, then why would they, you know, you start getting the buyer, the seller, or the agent starting to question like, why are they doing that? Why are they adding that in there? Why are they adding one more obstacle to the purchase?   Mchael: Yeah, I love it.   Lori: Because it's a totally different ballgame. If you have a lender, then you have so many more hoops, you have to jump through…   Michael: Yeah and I think, too, and thinking about this, like, let's try to take off our investor hats for a minute and put on the seller hat and think about, okay, if I'm in the seller seat, and I get this these two offers, one has an appraisal contingency and one doesn't. How would I How would I respond and when we can think about that, and think about how do we set ourselves apart from all the other offers that the seller is seeing that helps shed light on the scenario as well…   Lori: Oh, 100%! Yeah, if I, when I've had multiple offers on one of my investment properties, I'm not looking at anything has any sort of contingency, and I definitely have preferred cash and picked cash because I know I can close in a couple of weeks.   Michael: Yeah and you probably took lower offers in cash than you would find the next one, man, we're just lining these up, knocking them down   Lori: and giving long answers…   Pierre: All right.   Michael: Big meaty answers, that's important!   Pierre: That's good, though, you know, you need to provide all the contexts around them. All right, next one here. How often does a buyer use the same property manager that the seller was using?   Lori: I would say like 70-80% of the time I've seen it. It also depends on how forthcoming the current property manager has been to the new buyers, I've had where, you know, the current property manager was a nightmare and didn't want to disclose anything they didn't have to and that didn't set them up. Well, they didn't get to manage the property moving forward with the new buyer.   Michael: What, as a follow up Lori, when do you think, like, what are the pros and what are the cons of staying with the same property manager, if you're an investor buying the property from a seller.   Lori: If you, if you keep that current property manager, they already know the property, they know the issues of the property. The negative would be that you're inheriting any issues that may have been a communication between the property manager and the tenant, you could have all sorts of you just don't know for sure, you know, so I'd say, you know, definitely favor the possibility of using the current property manager, but definitely do your research and make sure you have the best option available.   Michael: Totally. Yeah, I agree. 100% and one other thing I would add to that is if you are changing property managers, like stuff gets fumbled all the time. Like there's a lot of moving pieces, it just a real estate transaction and now we're adding a tenant and property management into the equation and so there's like a physical key handoff that has to happen once you close and then there's documents that have to get handed off and the tenant has to know where are they paying their rent and maybe they have to get on to a new property managers lease so there's just stuff that has to happen so it's not necessarily as plug and play as if you keep the same property manager so I guess I'm going to think about is even if you don't love the new property manager, stick it out for 30 days 15-30 days whatever just get the transaction piece done, let the dust settle and then you can go switch things are less likely to get missed I would I would get I would garner…   Lori: Or even wait till you know you it's time to renew the lease because the lease is going to follow the tenant. So they're not going to change, the lease doesn't get changed necessarily right away, it would follow the tenant. So if you know the lease was only a couple of months in, then you still have 10 months, so you have to follow that lease as the new owner and property manager.   Michael: Sweet! Pierre's speaking from experience.   Pierre: And don't be shy to change your property manager, though, if I'm speaking from experience, what we're going through right now, in this moment, I think we wait, we waited a little too long. We're paying the price, so…   Michael: You're not a real investor and so you fired a property manager…   Pierre: Is it simple for an account holder at your typical bank to wire the EMD online from your bank's website?   Michael: Great question. It depends. I've got, you know, I have I had that ability with my bank. But I don't think every bank offers that. So I would say just do your homework ahead of time and determine what that looks like for you and your bank and if it's physically possible, because if it is great, if it's not, that could be a problem. But the other piece of that I would say to as a follow up is not just the end, but the rest of your deposit. So my bank has an online weekly wire limits, which I've exceeded at times trying to do a deal and I was like, oh, crap, like, I gotta get into a physical bank branch to send the wire because they don't like doing that stuff over the phone. So just make sure that you've got your T's crossed, and I's dotted with regards to how you're physically going to get the money from where it currently is to where it needs to go well in advance of when it actually has to happen.   Lori: Yeah and also be really careful about wire transfers, because I have seen it happen and it was horrendous, where a person had like, they just emailed and got the wire information. But somebody had intercepted it and gave them a different wire transfer information and they wired, I think it was about 100,000 to a bank, never saw the money again. No, just be I'm just saying yeah, make the call. Call the institution that your wire transferring to, and make sure you get like someone telling you the information because I've seen it happen. It's not pretty!   Michael: Yes, we had, we had someone on the podcast a while back, and we were talking about this exact thing and so what Lori is talking about is when you receive the wire instructions, it's probably going to be from the title or escrow company, pick up the phone and call that title or escrow company and say, hey, tell me what you just sent me, I want to confirm the wire instructions and they're going to tell you the account number, the routing number, the bank address where it needs to go and then you can feel more confident that hey, this okay, I'm talking to the person that's on the other end the receiving end of this, as opposed to just a bank in the Seychelles or wherever off the coast…   Lori: Yeah, because once that wire transfer is done, it's done.   Michael: It's gone, yeah.   Pierre: Yeah. Nuts are just Bitcoin.   Michael: Oh, there you go but I guess if you transfer Bitcoin to an account that you didn't want it to, could you…   Pierre: You can get one character wrong, and that those bitcoins will never be asked, and again.   Michael: Bye, bye…Best day ever to wake it up…   Lori: Where the hell did this come from?   Pierre: Yeah. All right, we're gonna go to the next one here. Do lenders typically fund 80% of the appraised value, 80% of the purchase price or whichever is lower?   Michael: Lori, you want it?   Lori: Whichever is lower? Yeah... Any way they cannot give you more money…   Michael: Yes. It's the sad reality. So you got to take your purchase price, and then your appraised value, if you're getting an appraisal, but of course, if you're using a lender, they're going to make you get an appraisal and so we're going to take 80% of that and whichever is lower and a lot of lenders do, by the way, like aren't going up to 80%. LTV, I'm seeing 70 or 75%. LTV. So the 8020 rule is not a rule, I would say it's kind of a guideline and so ask your lender. Hey, how much what LTV? Can I get out? I got anything else on that one? Yeah, that's, that was an easy way to stay straightforward.   Pierre: Yeah, that's a that's an easy one. Next one here: What is a rough rule of thumb for calculating insurance costs for a rental when you are evaluating properties during that time before you're making offers?   Michael: I'll take a stab at this one! Yeah, so I have kind of two, two thresholds one is for a property purchase price of 150k or less, and the other is for 150k or more, and so on 150k or less, I see for like, strong quality insurance point eight to 1.2% of the purchase price. So if we just roll that straight up the middle on $100,000 house, if you're paying about 1000 bucks a year Insurance, I'd say that's probably pretty close. Now, could you go get insurance for 500 bucks 600 bucks a year? Probably that that exists, I would imagine. But what's it going to cover is the question we need to be asking and so if we're trying to save 2, 3, 4-100 bucks a year on insurance costs, but we're cutting out a huge subset of the coverages or taking a really high deductible, it might come back to bite us in the butt and so you don't need to become an insurance expert to invest in real estate. But you definitely want to have a base level of understanding of okay, what are the coverages that are available? What do they actually cover? So not just, hey, these are the checkboxes, I'm checking for coverage but what do they mean? How do they come into effect and then what do they cost and you'll see like, there are some really expensive coverages that might not be worthwhile and there might be some really cheap coverages that, absolutely, you should be paying the extra 20 bucks a year to get and so I think that point eight to 1.2%, will get you within the realm of closeness and insurance costs change over time to like, just like property values change over time, insurance markets harden and soften and I come from this world, for better or for worse and so the market has been hardened in like the last eight, nine years or so and so costs are going up. Now, we'd go to the subset of properties 150k, or more in terms of purchase price, and we're probably in that point five to point seven ballpark range. So if you're buying a property for $280,000, I would be shocked if you were paying $2,500 a year in insurance, you might be at the 14-15 $1,600 price point, again, for some really great coverage and so a lot of the reasoning behind that is might be getting too deep in the weeds here. But there's just a minimum policy amount that insurance companies charge, baseline doesn't really matter how little the coverage is. So you could be getting an insurance policy for a $10,000 house or an $80,000 house, those two policies might cost fairly similarly, because they're on the lower tier just of cost for the insurance company to issue that policy. As you start getting higher and higher, your cost of insurance tends to go down on a percentage, or $1 threshold dollar per square foot threshold. So Lori, I hope I didn't just get too deep in the weeds there. But any, any thoughts?   Lori: No, no, you are the insurance expert, I leave that to you…   Michael: If I am the expert here then we are all in trouble. But that's again, just a very rough ballpark rules of thumb, I would say and that's going to be for your dwelling policy itself. There are lots of different kinds of insurances that people can get. But the kind of the big ones are the dwelling fire or the landlord policy is what people often refer to that covers, like the structure itself, and then also some liability for the owner. But there are both on insurance policies as well that don't come standard and so you really need to understand, hey, if you're getting this insurance policy, what's not covered and that's a really great question to ask of your insurance carrier, it's often going to be but not entirely limited to, that's my legalese disclosure there, flood is going to be a separate policy as his earthquake, wind can or cannot be depending on the area. So you again, you need to really understand what are the natural hazards that are affecting this area? Is it in a flood zone? If it is, and you have a loan lender is likely going to require that you get flood insurance…   Lori: 99% of the time! Yeah!   Michael: Right, so if you're the person that's using all cash, and not getting their appraisal, I guess an appraisal probably wouldn't pick that stuff up. But if you're using an all cash offer, you want to be darn certain about if you're in a flood zone or not because no one might come to your rescue and tell you, oh, hey, by the way, investor, this is in a flood zone, please go get flood insurance. So you just again, want to understand what the exposures are in the area and talking to a local insurance agent is going to be I think one of the best ways to do that, if that's something you're not comfortable doing on your own, unless you're like a total NAT has nerd like me, which I hope no one else out there is…   Lori: Well, and flood zones are super common in certain areas, like we have in where I live, you know, it's like there's some definite flood zones, and then those are prime investor properties because nobody wants to purchase them to live in as their primary because you have to pay for flood insurance, and it can be quite cost prohibitive for someone who's, you know, in that income range and living in those properties. So, you know, but as an investor, it's absolutely doable.   Pierre: And Mike, so does fire insurance come standard in your current policy at your primary?   Michael: Yes. And so that's the biggest hazard that's being protected against in in a standard dwelling policy or landlord policy.   Pierre: And then a separate question across your portfolio. Do you require all of your renters to have renter insurance?   Michael: That's a really good question. Yes, I think like technically by the letter of the law they are supposed to, whether they are get it or not is a different issue I really pushing to have that kind of be the uniform across the board. But it's I think, if you asked me today a gun to my head does every single one your renters have it? I would probably say no…   Lori: I know that like, and different college towns, I know that they require it. So it's like, if you don't already have it, and you have to prove that you have it, then you have to purchase through them. So through the property manager, so that's also an option too.   Pierre: Yeah and is there like a standard process because I know that when you're renting, you kind of as you're signing the lease and collecting all of the papers, you require them to submit their insurance? What about when you renew the lease? Are you asking them to send in updated insurance proof for each renewal of the lease?   Lori: I mean, it's definitely a good idea to do, so. You know, it can just be you know, when you know, because you'll have a copy of their current renter's insurance and you'll see when it expires, and you can just say, hey, you know, part of the process, you know, you just put it in as an extra clause in the lease.   Michael: I think it's a great idea.     Pierre: All right. Final question from this lesson, I think we'll wrap up on this one, who will replace the property in case of total property loss as a part of replacement costs? Will the insurance company construct or pay cash to rebuild…   Michael: I love that everyone's asking this insurance questions. So it's gonna go like this. So I had two fires in a property.   Pierre: I was gonna throw that in the question, if your property catches fire, Michael, yeah, twice, what do you do   Michael: What do you do? So the insurance company is you are the insurance companies client and so the property manager can assist in this whole process and it is a process getting everything squared away and corrected. But the idea is that the insurance company is going to read pay to have the property rebuilt, they are not going to go find the contractors, they're not going to go pull permits, they're not going to work with the city to make that happen, that's going to be on you as the owner. So if you have a total loss strap in, because it's probably going to suck, but it can, it can be okay, like, don't freak out, something I would absolutely recommend doing is if the insurance company is not playing ball with you go get a public adjuster. This is someone who's an advocate for you as a client, they're often paid based on commission. So however much additional they're able to help you collect from the insurance company, they'll get a cut of that it's worth every stinking Penny, because without them, you wouldn't have a dime more than the insurance company is willing to give you. That being said, so the insurance company is going to pay to have the house rebuilt up to the limit of the policy, and the policy limit that's stipulated in the policy itself. So that's kind of the guiding light, if you will, as to how much the insurance company is going to pay.   Now, they are often going to give you a check to get the property construction started to kind of get the process underway. But if you opt to not rebuild the property, the amount of money that you're going to walk away with is likely going to be less than the number listed on your policy. So if you have $100,000 policy, and the house burns down, do not expect a check for $100,000. They're gonna say, okay, well, here's $40,000, to start get the property rebuilt and as you do that, they're likely going to give you incremental draws on the policy as the property is getting rebuilt or they might say, hey, you know what, here's 90 grand, you get the other 10% once the property is completed, or once the construction is X percent done, because they're going to say, hey, if you don't rebuild the property, if you're going to take the cash, we're going to give you less. So that's kind of in a nutshell how it works. It's a lot more nuanced than that the policy can respond in a number of different ways and so policy language is really beyond the scope of this show, and my knowledge to because every policy is little bit different. But if you have a replacement cost policy, that's likely how it's how it's going to go. If you have an actual cash value policy and ACV policy, it's going to be a little bit different. They're going to look at that $100,000 house and say, hey, it's 30 to 2030 years old, it's only worth 60 grand. Here's a check. 60 grand, thank you very much best of luck to you and so I think it's very, very, very important to evaluate, especially if you have a loan, especially if you have a loan, what type of insurance policy you're getting is a replacement cost or is it actual cash value? Replacement Cost is the stronger of the two. It's the safer of the two I would argue but it's the more expensive of the two on most single family homes are see replacement cost is for sure the way to go on multifamily if you can get it like I have. I have properties that were built in 1908. The insurance company didn't even give me the option for replacement costs it was here's the actual cash value, take it or leave it kind of a thing and with partial losses, that's where you can get in to real, real trouble. So again, I'm gonna step off my soapbox here for a minute and leave you all with that.   Pierre: Lori, do you have anything to add on that one or did Mike just…   Lori: No really, me it's pretty straightforward. I always like it, just simplify it. I always just say, you know, think about when you have a car and it gets, you know, you have an accident or whatever, it's the same kind of thing, you know, like, they're not going to go find you a new car, you know, to purchase, they're gonna give you the money and you have to handle the rest of yourself. So, yeah, so like a simplified version.   Pierre: Excellent. Thanks, Lori, for joining us. We're happy to have you back on.   Lori: Thanks.   Pierre: And thank you all for submitting your questions, keep them coming. We love answering your questions. You can submit them on iTunes or as comments on YouTube and we will catch you on the next episode.   Michael: Happy investing…

Pete Neubig is a realtor who focuses on investment properties. Pete has been investing in real estate since 2001. He has owned and managed a 39, 52, and 100-unit apartment complex. He currently owns single-family homes and a 52-unit apartment complex. Pete created a property management company based on the motto "By investors for investors". His property management company has clients from Houston and all over the world. His technology-based systems allow owners to see everything that is happening at their property without having to be involved. Tune in for today's episode where Pete talks us through some of the mistakes that he made as an investor and how he's doing things differently today. Episode Link: https://www.vpmsolutions.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have Pete Neubig who is a real estate investor and CEO of VPM solutions and Pete is going to be talking to us today about some of the mistakes that he made as an investor and how he's doing things a little bit differently today than maybe your typical investor. So let's get into it.   Pete, what's going on, man? Thanks so much for hanging out with me today. Appreciate you coming on.   Pete: Michael, thanks so much for having me, I'm really looking forward to it.   Michael: No, me too and so before we hit record here, you were telling us about the three different lives that you've lived. So you are a super interesting guy. Needless to say. So for anyone who hasn't heard of Pete Neubig before, give them the quick and dirty rundown of who you are, where you come from, and what you're doing in real estate today.   Pete: Sure. Well, real quick. Let's see, I'm from New York City originally, I moved to Texas in Houston back in 1995. So I have a gun. So I guess I'm a Texan now.   Michael: Give me one when you move to the state, like I think…   Pete: They give you a cowboy hat, a gun in some boots, you know. So I started buying real estate in 2001 when I bought my first property, actually, I bought a duplex and a single and a a 100 unit apartment complex like same day, like I closed on the same day, I ended up owning bunch of property that I ended up starting a property management firm and I got so busy doing that, that I stopped buying real estate for a while just to build the investment, the property management business, I ended up selling the property management business and now I started a an online platform. It's a virtual property management solutions or VPM solutions where we connect the real estate industry with virtual talent around the globe, so…   Michael: That's so cool. Pete just taking a total step back to say you're from New York now living in Texas, do you remember like I don't know in the late 90s, early 2000s there was that pace salsa commercial where like all the cowboys were sitting around like, where's that guy from New York City, New York City? When you say that, that's like the first thing that I thought of like, oh, hey, salsa commercial.   Pete: And I still can't say y'all correctly I get I get I get yelled at all the time and I'm down here saying y'all, so…   Michael: Y'all with the New York accent, I love it, I love it. Well, you did you I mean, this is a really cool trajectory that that you've ended up on and I would love to focus on kind of the first stage of your investing career where you own a bunch of rentals and again, we were chatting before we hit the record button, and you were saying that you had sold a bunch of them off, and then actually paid off some of the remaining ones. So walk us through, you know, like, why because I think I think a lot of people would be like, oh, that's stupid, like, what is Pete doing? You gotta have leverage. That's how you juicy return. So, you know, walk us through how you built up the portfolio and then why you decided to sell them but then keep some free and clear.   Pete: Sure thing. So I started buying on my own first right so I own like 12 I think it was like duplexes. I was for some reason I was love duplexes. I think most people would say, well, it's the cash flow, right? Duplexes, have a great cash flow and I was always looking at just cash flow and I think if I go back in my, in my investor life, I can tell you, Michael, I've lost so many millions of dollars by not buying houses with very low cash flow, because I forgot about this thing called appreciation, right? I wasn't buying cash flow, right and my goal at the time, I was a young man, I was early 30s, like 30-31 when I started buying, my goal was to get enough cash flow so I can just leave my corporate job. That's kind of what the way I was thinking. So I buy a bunch of properties and then I get I get talked into being a passive investor for 100 unit apartment complex and I told if I buy one apartment complex, I can retire right? So I'm like, oh, great, you know, monopoly, I'll buy a bunch of houses, sell them and all that good stuff. Well, it just never materialized. I was buying lower income homes and if anybody knows the lower income homes a cash flow is really just on the sheet of paper. It's not it's not true returns unfortunately, because there's little things like you know, the evictions or you know, not getting all the rent and in the make readies are not a couple 100 bucks or a couple of $1,000 because people in low income they take what's called parting gifts. You know, they take your AC, your doors…   Michael: Your goodie bags, you know…   Pete: Yeah, good. Yeah, exactly. Exactly. So, so I ended up connecting with a business partner named Steve Rosenberg, who he's kind of a a national speaker now but Steve and I ended up finding his guy who is offloading a lot of his portfolio. So we thought this is great and we ended up buying like 30 houses and we were both enamored with buying property. But we didn't had no idea what to do once we bought them. Like we were terrible and how to manage them. So what happened was…   Michael: Pete was this was this local in New York or local in Texas, there was this remote?   Pete: Yeah, great question. So I was, I was, I had lived in Texas at the time, we're buying everything in Houston. I there was no such thing as Roofstock that we knew have to go buy stuff in other areas and back in the early 2000s, the average price of a single family home in Houston was like around 130. I was buying it for 35,000. Like, lower low income houses. Yeah.   Michael: But not have roofs, like, what's the deal?   Pete: Man, they were just in low income and today, those houses are now worth about 150, right, 20 years later, and I was buying them at 35 and they were worth 50 to 55,000. So I was buying them below. But I just found an investor who wanted to offload stuff but he was offloading me all his problems, right and if you don't have good management, behind you, if you have a good management company, by the way, it's really difficult to manage these low income stuff. It just is because they don't pay online, they don't abide by the lease, they have dogs, when they say they're not going to have dogs, all that all this stuff that you have to deal with. It's just difficult and so Steve and I, we ended up buying 31 homes. So now I have 31 homes, and we advertise bad credit, okay, no credit, okay, like you have you have a pulse and $1 will, we're gonna let you in the house and of course, that comes back to bite you to the point where not only are we not making the cash flow that was projected, but we're losing money at the end of the year, now I have to come in and pay for my taxes and my insurance and so now I'm working even harder at my nine to five than I did and I'm working hard to manage these properties.   But all of a sudden, this this like, dream that you have is becoming a nightmare and so, you know, caution, number of cautionary tale number one for your listeners is buy absorb, right, and then buy some more like don't just keep buying if you can't manage the assets, or number two is go find a professional management company that will take your properties. My problem was I had my problems was so low, I couldn't get a professional management company to take my properties. The manager companies know how hard they are and I'm like, Well, I'm gonna give you 25 They're like, Yeah, great. Keep it like, we want to charge you more. So I ended up creating the management company with Steve so we can manage our own properties and so there's been two there's two things, the two big instances that happen in my investing life that has propelled me to pay off properties, right. So let's get to your question. The first thing was I bought all those properties, and I wasn't making cashflow, right, but I had to pay the note every month, right and at the end of the year, now I'm getting in tax and insurance. And so there was no cashflow there and there's no appreciation I just told you it took him 25 years to get that double or triple of appreciation. So I own these properties for 10-12 years for 35,000 and they were worth like 45,000 right 50,000 I told you I got equity, but that nothing ever increased. So when that when the banks are coming and asking for their money, and I gotta go work a double because I need more money, or I gotta go sell off stock because I got to. So that that was something that kind of made me realize maybe I want to be the bank myself, or maybe I don't want to owe the bank so much money. So that was the first thing. The second thing was, I ended up buying that 100 unit apartment complex that I told you about and that 100 unit apartment complex. I am still today friends with the lead investor, he's a good guy, we just had a bad plan. We lost the apartment complex. Now I was a passive investor and now here's cautionary tale number two for your investor listeners. If you're going to be a passive investor, make sure that you either A have an attorney you trust or be read the documents yourself. So I was a passive investor, but I was legally on the hook for with my credit. So I personally signed the note. Yeah, I see you I see you if you for those of you not look, for those of you listening and not watching the video, Michael's jaw just dropped, right and so and then what happened was because the plan was bad, we couldn't we couldn't make a payment and so the bank led us to believe that we can restructure our debt. Well, they ended up having somebody that would buy the debt would buy the property from under us. So they foreclosed on us and sold the property for more than what we owed, which in normal cases, you think that's fine. I owed 1.1 million they sold for 1.5 million. I should be off the hook. Well, there was a little checkbox that said no, if they foreclose on me regardless how much they sell, they can sue me for that amount. So I got personally sued for one point $2 million.   Oh my god all because now I will tell you this, I paid a mentor and I paid an attorney. Before I got into that deal thinking I covered myself, I got a guy who's done a bunch of apartment complexes, I have an attorney, they just missed that. They just missed it, the mentor wanted to deal to get done because he was the broker on a deal. So it really was it wasn't aligned. You know, are you know, of course, at the time, I was like, get the deal done. But he needed to protect me from myself at that time and so when you owe, so long story short, I ended up selling. I had a six unit apartment complex that I sold, made 30 grand, and I actually was able to, to pay $30,000 to make the lawsuit go away. So the bank knew that what they were coming after me, they knew that they didn't really have a good case because they made their money. So they just wanted their attorney fees paid for but that put the fear of God in me to be quite honest and so I vowed that I don't want to ever be over leveraged, right and so of course, Kiyosaki talks about other people's money and every you know, rich, Guru, Rich Dad, Poor Dad, guy, every guru out there will tell you, if you can borrow 110% borrow 110%. Well, back in the early 2000s, you were able to borrow 110% I don't know if you remember and so I did that, right now. I was fortunate that I was able to overcome when the properties weren't making any money because I had a job. But if you are again, a cautionary tale number three, if you are a full time real estate investor, you cannot survive when you when your cashflow negative, it's very, very difficult, and you have to sell off assets. But if the assets are worth less than what you owe, that's a challenge. So when I got into property management, I realized pretty quickly that people will manage Class B homeless people will buy and rent Class B homes, I always had this mindset that people will only manage or rent Class C or D homes. I'm like, no one's gonna pay $800 in rent or $1,200 in rent, and go buy a property, a nice property and have $1,200 on my mortgage, right? Like it was a mindset thing and so another tale is if you're an investor, don't you don't try to buy anything that you would live in you. Other people will live in stuff that you like, why would they rent stuff when I when you can buy something? So when I found that aha moment, I pivoted and I hired a property manager. Finally I was trying to property manage and I was terrible at it. Like, I'm like, I had to hire a property manager. First day she comes in, she goes, okay, we're gonna fire half your clients, this tree store, we had 67 doors, 30 of them were mine. She's like, we're gonna fire half your clients, because those houses are in are in a low income area. They're not worth managing. We're gonna pivot, we're gonna get these Class B homes. Oh, and by the way, you need to sell off your homes. We're not managing your homes either. So you know what I said, You know what, I've been trying to make this work for so many years and are every year I'm coming at the end of the year, I gotta pay money. Now I quit my job to start my property management firm, which by the way, I was making $105,000 a year now making $12,000 a year am I okay? These properties, they can't be an albatross around my neck. So I sold a bunch of homes. So I had, I think 31 of them and 25 are in kind of the lower income area and I couldn't get rid of some of them. So I owner financed them and that was when I had an aha moment. So I was able to wrap the note, I had a very good, I had a local bank and I had a very good relationship with a local bank, and they allow me to wrap the note, right. So basically what that means is I've sold the property to you Michael, right. But I still own the property, you pay me 10% 20% down, you're gonna pay me a mortgage, and then I'm gonna pay the bank, the mortgage, and I get the spread. Yeah, the first time ever that those properties made me money.   Michael: Wow, okay. Were you able to sell them for much more than you paid for him? I know, you said there wasn't much appreciation.   Pete: No appreciation. But remember, I did have equity. So I sold them for like 50,050 to 55,000. I bought it for 35,000. So I was able to make money that way but if you think about it, I lost so much by owning and by doing the rehabs that I kind of broke even. Okay, it's great. Like, I'm able to be on podcast now. Tell that story, I guess. You know, it's the school of hard knocks, right? That's it. So college is way more expensive than that, by the way that just took me a lot of time. I ended up breaking even and making a little bit of money on it. But what happened was so when I when I started my property management firm, I don't know if you've ever started a business from scratch, Michael, but it is not easy, right? I didn't I didn't build it. I didn't buy somebody else's business, right. I built it from scratch and, you know, it's at 90 hour weeks. It's every day, you know, and so I got away from the investing thing. So I sold off my assets at a 52 unit that I sold office well took a bath in there, investors lost money.   So I don't like multifamily. I can just tell you that much. I know you do. I've listened to some of your stuff. But we could debate that on another pod. A lot of fun things off. So when I, when my property management firm seven years later started becoming like I was working now five hours a week, 10 hours a week, I started getting back into buying investment properties. So I was able to find and a bought a couple of properties for about $120,000. It's called Baytown. So it's a little bit it's like a Class B, B minus area, blue collar, I like it gray area of town in Houston to buy in, because there's a lot of renter's there, but I started buying them and I started buying cash. So of course, you have to have the cash, right. So I had some cash I was able to buy in cash and so all my other properties that I did keep, I kept paying those down, and I have those in cash. So today, instead of 31 non producing properties, I have eight properties, one of them is paid for, and I own the note. So I sold it, I did an owner financing sell and I make more money on that property now than I ever did when I rented it out. I have three others that are paid for three or four, four others that are paid for and then I have four others that have a note on them. With the four that I bought the last four, I bought a boat with a note, it was one of those commercial loans. Package note, I had to put 30% down I did, I bought them in January of 2020. So right before the pandemic, there I bought it for 535 from a California investor he was done. We I gotta because I own the management company. So before I went on the market, I made him an offer and so I got him for 535 they appraised at 640 and I put 30% down and they kept they cashflow beautifully and I have I have a small note and now if I want them to sell one of the houses, I can take it out of notes, sell it pay the note down. So now I own eight or nine properties total and they're worth you know, close to, I want to say like one like one, let's call it 1.2 million, I only want 300,000 or 350 on the whole thing, right and my cashflow is about 12,000 a month, uh, me a little bit less, a little bit less, a little bit less, maybe like 10, five around there and so, so I'm a big fan of owning the property outright. So I have both houses that aren't paid for right, so. So it's just hear me out on this, I am now in my 50s. So in my 30s I was a big fan of taking out mortgages, as much as you can bind as much as you can, because you got this thing called time on your side, you can make mistakes, right? At 50 you have less time, right? I've 20 years less, so I can't really make the same mistakes. So I believe even though I make less cash on cash, right? Less overall, I have this thing where I can sleep better at night, right? The house is paid for like, for example, I own  a house, I just had to put in a brand new AC and heater, right cost me like I think like six grand. That's cash flow for a year in most in most instances, right and you can't afford it because you don't have the money. Well, when the house is rented for 2500 a month. That's only two to three months. It's not terrible. It doesn't it doesn't knock you out of the game. You're not always stressed for cash. In my in my in my bank account for my business, my housing business. I got like 30 to 35 to $45,000 sitting there all the time, right. So if anything ever happens, I'm okay and so that in now because they're paid for I have more cash flow. I don't have to pay all the notes all the time. So, so again, as you get older, you're like, okay, well, how can I have like, How can I afford to live day to day? Well, if I have $12,000  a month coming in, and I only have $22,000 going out for principal and interest. Well, now I'm at 10 grand and now you figure another 3000 a month in taxes and insurance. So now I'm at seven grand. Well, that's, you know, that's almost 80,000 a year in Texas. It's not terrible and of course if maintenance happens, which always does you never get that full 70% right you never get that full deal. So because of my past issues with banks, by the way the bank on the 100 unit apartment complex really, they really screwed us they let us believe one thing and kind of did the end around and so because of that, I'm really you know, just I was scared is not the right word, but very unjust and very hesitant, hesitant to do it now. That doesn't mean that I won't take on a note, especially if I can't afford to buy something in cash, but I'm gonna He's going to put 2030 40% down, whatever, whatever the bank wants, and then a little bit more and then I'm like, I'm at the back into my life, right? So I am looking to, to pay these things off. So I have 20, year amortizations. If I could, if I could pay them off in 15 years. Okay, I'm 60-65 and now I have no notes, and I have all these houses paid for and at the end of the day, you want to live on cash flow, right? You don't want to live on like hoping that your properties increase in value, and then you can take the money out. If they're if they're paid for in 10 years, I can go take you know, 80-70, 80% of the value of the house, which are increasing now. tax free. So I have so I do have ability to, to go take the money out. Should I should I choose to do that?   Michael: Yeah, man, this is wild, man. This is this is such a cool story and of course, I'm so sorry to hear that you had to deal with all that nonsense, Bs. But it sounds like it helped lead you to the decision and kind of path where you are today. So would you say that you're thankful for those experiences as crummy as they were?   Pete: Yeah, look, whatever doesn't kill you makes you stronger and I am truly I think I'm a better business partner today than I then I was back then I'm a better investor today for sure and so overall, I feel like I'm, I'm better, I'm a better as a person, because you won't like, like I said, if it doesn't kill you, the one thing that you as an investor, as a real estate investor, you have to make sure that you don't make the mistake that could put you out of business, right. So in my when I had the 100 unit apartment complex, I use my 401k. No my IRA money, so I went and did a self-directed IRA and that's how I invested my money, lost it all, by the way, okay. Again, at 31, I lost 120 grand, which is a lot of money for me back then. A lot of money for anybody right now. Okay but it didn't put me out of business.   Once I once I was able to clear my name with the bank, my credit was cleared, everything was clear. Like it was never it's not on my it's not on my credit history at all, because they know that they messed up and I was part of our deal. So that allowed me to get back in the game and by I had another pair of business partners, that they ended up taking bad advice, they ended up using credit cards, taking money out of their credit cards, cash advances, to put money down to buy this apartment complex, because some guru told them that he did it, just because he did it and it's possible doesn't mean it's the right thing to do. Well, they had declared bankruptcy. So they were they were out of the game. They you have a bankruptcy, you're not going to be buying investment properties. Why don't you know, you're not going to buy your personal home, let alone investment properties. So as a real estate investor, for the for if you're listening to this, you know, it's great to take on some risk. I mean, obviously, we all take on some risk, right? We know there's no guarantee price is gonna go up. There's no guarantee that people are going to pay their rent. There's no guarantee but don't take on a risk that will put you out of business.   Michael: Yeah, I love that and I think that makes a ton of sense. Pete, you said something kind of at the beginning of your story that I want to come back to and that's you were buying these low income properties, and you bought them and you scrimped and you saved and you and you put these deals together, and they really hadn't appreciated very much and you sold them because your property manager, right, yeah, that after that, they appreciate it. So like, talk to us about how people should be thinking about if they're in a similar situation, they bought a property. They did all this work to get the deal done. they scrimped and they save and they just haven't seen very much appreciation. Maybe they're in a similar situation where it's not cash flowing, or it's just covering its expenses. It's just not what they thought it was going to be. When should someone cut their losses and run and maybe go try something else or how do they know maybe they should keep hanging on because we're right around the corner from that appreciation jump?   Pete: Yeah, that that is if I had a crystal ball, I could I could answer that. I can just, I can just tell you from my perspective, I did everything I could to make those properties work. I mean, I would put it you know, like when we did a rehab, we made the house even nicer than it was right? We got rents up, but for whatever reason, and we just can never get them to cash when we were losing money. After about five years, I think you got to if you do not have the cash flow, where you can lose money every year on your properties, and it hurts you. You know, I think you got to cut the cord after a couple of years of trying everything. You have to try everything though. I'll tell you my grandfather before he passed away, he was in his 80s and he when he passed away, he was worth I think 30 million. So this is a guy who knows a thing or two. But he told me one of the last conversation I had with him he said, Pete, never sell your property. When grandpa died here. We had a lot of property it was he was a mess. The guy didn't put any money into it. Son of a gun when we had to deal with it, but it was luckily all those properties appraise or appraised value over time, time heals all wounds if you can afford it and knowing like, hey, like, I can tell you this when I bought the properties in my early 30s, I needed the cash flow as a means to I try to exit out of the of my, you know, my w two life, right?   Luckily, my w two allow me to handle those properties, right, allow me to handle the losses. When I got into starting my own business, I knew the upside of starting my own business was great but starting my own business meant I had to take a huge step back in how much money that I can afford, that I was going to be able to extract out at a business. I wasn't venture backed, none of that stuff, right. I mean, I literally just hung a shingle and I started working. Well, I couldn't afford to lose the money on those properties anymore. So that was, that was a big reason on why I decided to sell. Now I will tell you, I sold all those properties in 2015. I bought them in like 2008 2005 I bought most of them and I saw them 10 years later. So it wasn't for lack of trying Michael like I tried right? Even after 2015 they didn't jump up until recently, like this pandemic has me all jacked up, I have no idea what's up what's down, like, I thought the price would come down. So I sold my last property in that area of town for 120. I bought that piece of property for 50 in 20 in 2005, so here we are. So it kind of matches up right 2005. Here we are 15 years later and that thing actually, you know, more than doubled. Now that property I owner financed, I sold it at 120. It was probably worth 100. Alright, so probably doubled in value over those 15 years. I always pay, I always sell it for a little bit higher because I'm holding a note. I want to build in that appreciation. You want to go through the numbers on it real quick?   Michael: Yeah, let's do it again. All right.   Pete: So when I when I own the home, and I rented it out, I was renting for 1000 bucks a month.   Michael: Okay, you bought it for 50 renting for 1000. So crushing the 2% rule. Everyone on paper is like, oh, you're killing it.   Pete: Right? Exactly. On paper, right. So 1000 bucks a month. So now you like Pete, you're making $1,000 a month. But am I Michael? I'm not making $1,000 a month, right? What do we have? We have taxes 300 bucks a month now making 700 a month? What do we have? We have insurance 120 a month. Okay, so now I'm down to 580. My management fee was 80 bucks, I'm down to 500 bucks a month and that's before you get into maintenance and turn, right. So on my best month I make 500 bucks a month.   Michael: Oh no.   Pete: You wanna go through the numbers?   Michael: Yeah, let's do it, man.   Pete: Or go through the numbers. Okay, so I'm renting that property for $1,000 a month, right? I bought it for 50 rent it for $1,000 a month, right? So am I making $1,000? a month? No way? No, right because the taxes were 300 a month. So now I'm making 700. Right, my insurance is 120 a month. So now making 580 and my manager fees are 80 bucks a month. So I'm making 500 bucks a month and asked me for any kind of maintenance happens or turn. So the best I can do is 500 a month, right? So now I sold the property I sold for 120 got 10% down. So the notes 113. I sold on a 20 year amortization 7%, I found a company that will actually serve as the note for 30 bucks a month that I pushed on to the buyer. So right now it's cost me nothing. The principal and interest on that house is 7-78 and it's like I think it's like $67 is principal and $7 is interest and that's what I make on that house every month, right? If taxes go up, does it affect does it affect me and my cash flow? No insurance goes up doesn't affect my cash flow. Refrigerator breaks doesn't affect my cash flow   Michael: Vacancy could be vacant doesn't affect your cash flow.   Pete: Doesn't affect my cash flow. Now I ended up selling this one to an owner occupied. So I didn't sell to an investor on this one. So the owner occupied and he pays and all I gotta worry about is if he doesn't make his payment, I can foreclose on him. I don't know what the laws are in California in Texas, it's about 21 days. Before we before we can start the process and start the process.   Michael: Okay, okay. Okay.   Pete: So 21 back in the day used to be 21 days, you get them out now it's like…   Michael: That's what I was going to ask. Yeah. Okay. So just real quick on owner financing, because I think this is something that a lot of our listeners who own property should hopefully their ears are perking up. How do you underwrite a buyer, someone who's going to be, you know, seller financing from you as the lender as the owner.   Pete: So, I don't really care about credit at that point because if they had good credit, they're not coming they're not buying.   Michael: They go then to a bank…   Pete: Right, exactly. So what I'm looking for and what I'm always looking for is why is it credit bad, right? So are they not paying their rent or are they not paying the you know, the electric bill or whatever, whatever, you know, car or bill or whatever it is, right? So I want to know what kind of why they're why they have such bad debt. I don't care why they have such bad credit, I don't care that bad credit and then I'm looking at cash, how much money they make. So what happens is a lot of these guys, so guy that that bought my property, he's in like the construction business, right? So he has his own little deal, he can't show he shows no income, but he showed me his bank statements and he showed me his deposits for the last couple of years and so I just look at how much cash do you have, can you afford it right and then, as a property manager, I always go to two and a half to three times. So if I can get two and a half to three times of cash for what it's going to cost them all in, then I feel I feel at that point, it's not that big a deal. Also, he's paid me 10% down. So I have some cash there. So if he did move out, or couldn't afford any more, I got a little bit of cash, I could make the place a little bit nicer. Okay but the mentality of somebody who buys your property, even if it's owner finance verse, somebody who rents your property, let me just tell you what happens, right? When somebody used to rent that property, what they used to do there give me a long list of stuff that didn't work in the house, that they wanted me to fix it, right, even though the lease says, as is all that good stuff, right? When somebody buys a house, they're getting a long list, and they're improving the house. When somebody rents your house, they're paying the car to pay the electric, they're paying their damn Hulu bill before they pay you because they know that they can they know the eviction process all the way through and how long it take them right? When they own the house were they paying first and for paying…   Michael: The mortgage first. Every time they pay the mortgage, first…   Pete: Hulu gets put on the back burner, the car payment gets put on the back burner. So the mentality is completely different. I've only I've only you know, I think he's been over there a little over a year, never had one issue with payment. Knock on wood.   Michael: That's great and is the term is the note do you get it full term to 20 years or is it a couple of shorter year term with a 20 year AM?   Pete: I will have to double check but I'm pretty sure it's just a 20 year amortization and he just pays me to 20 years and then that's it. So what a lot of people say to me is well, Pete, you're missing out on the appreciation, right? Like, if you sold the house or 100, or the house is worth 120,000 or 200, right? So if you think about this, Michael, most people don't pay extra. Most people don't pay the house off early or if they do right grade, they pay the house off early. They make my money. But he's paying $60 In principal and $680 in interest, right? If you if you pay that house off in 20 years, he's gonna pay that he's gonna pay about 240,000 hours on that house. I think I got my appreciation.   Michael: Just fine. Yeah. Oh, man. I love it, I love it. That is so cool Pete. That is such a great story.   Pete: I built into cushion of 20,000 so that he can't refinance right away. Right, because the house is only worth 100. So by no one's gonna give him $110,000 or whatever it takes to refinance the house. So by increasing it a little bit, you save yourself at least those first you know, five years or so.   Michael: Super, super smart. Super smart.   Pete: Yeah, that's a good one.   Michael: That's a that's a really that's really good, man. Pete, we could chat for hours, man. What's the best way if people want to learn more about you reach out to you for, nobody gets to cover your VPM solutions today, but learn more about your words, where is the best place to do so?   Pete: Yeah, you know, best thing is they can actually I'm on all the socials I guess. But it's Pete Neubig NEU big and you can email me at: pete@vpmsolutions.com or you can just go to our website to https://www.vpmsolutions.com/ and check us out.   Michael: Right on man. Well, thanks again for coming on and sharing some wisdom, really appreciate you.   Pete: Thanks, Michael. Very good talking to you.   Michael: All right, when that was our episode, a big thank you to Pete for coming on super interesting way of thinking and doing things just a little bit differently than maybe we hear about what we need to be doing as investors. So as always, if you've liked the episode, we'd love to hear from you ratings and feedback are always appreciated, and we look forward to seeing you the next one. Happy investing…

Real estate investor, author, and podcast host Henry Washington entered the industry in search of building passive income to achieve financial freedom. In just three and a half years, Henry built an impressive rental portfolio and now turns his focus to teaching others how to create wealth through real estate investment. Listen in todays episode where Henry talks us through how to work with small banks to get initial loans, make contractor connections, market effectively to generate leads, and adjust your mindset for success.  Episode Link: https://henrywashington.clickfunnels.com/order-485129501621009952063 --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Henry Washington and Henry is an investor and he's gonna be talking to us about how he went from zero to like a gazillion doors in a very short amount of time, and what he did to get there. So let's get right into it.   Henry, what's going on, man, thanks so much for coming on and hanging out with me and I really appreciate you.   Henry: Hey, man, thanks for having me, I appreciate it.   Michael: No, it's gonna be a lot of fun. So I know a little bit about your background but for those of our listeners who might not be familiar with the Mr. Henry Washington gave us the quick and dirty who you are, where you're coming from and what is it? You're doing real estate today?   Henry: Yeah, Henry Washington, I'm a real estate investor based out of the Northwest Arkansas market. So it's the northwest corner of the state. It's this like little unique bubble have an area. There's so much huge recession proof industry here. So it's a lot of money in this little part of the country that makes this market pretty unique and so I've been investing here, four and a half years, I'd say close to five years now I bought my first house five years ago and prior to that I was a nine to five or working for I worked for Walmart and so they're headquartered out here. It's one of the companies, you know, that's, that's based out here and so I did data analytics and software development for them for 10 years, and made a great salary and I also spent a great salary and so I often found myself not having money before I was to get paid again and, you know, I think a lot of people find themselves in that situation.   My, I guess the pivot for me came when I got married, got married fairly quickly, my wife did not want to run out of money before we got paid again and that was that was the first time where…   Michael: A reasonable request…   Henry: I guess. It's so I, you know, I started to realize that the path I was on financially wasn't going to provide me the life that I truly wanted and I knew that but when it was just me, like, there was no like, I was okay, I was like, whatever, I'll figure it out but like, when you have somebody else who's depending on you, you know, a lot of those things become a lot more real and so I had a panic attack one night, after we tried to buy a house together, and I couldn't be on the loan, because my credit was so bad and the bank said, hey, you're gonna ruin this for your wife, if you guys want to be able to buy a house and so then we, you know, we had conversations as a couple of about our future and what we wanted and kids and dream houses and you know, all the things married couples, young new married couples talk about, and I was like, I can't afford any of this. Like, I just, it was just as unsettling realization that like, even though I did all the things inside me told me to do, you know, I got the good grades, I went to the good schools, I got the good degree, I got the good job and I still couldn't do normal things, you know, without an extensive amount of like planning, budgeting, and like, it just was normal, things were going to be difficult and I just, I didn't want life to be like that and I didn't want her to feel like she was struggling by choosing me as her partner, and so I had a panic attack. Three in the morning woke up in a cold sweat because I was like, I gotta figure out a way to make some money and so I googled, how can I make some money and that's when that's when real estate kind of hit me over the head were really, really long story short is that's when I started to like pay attention to the articles that were popping up about passive income and about building wealth and well, you know, all those buzzwords that we all hear all the time, but like none of it seems to stick in our brains.   Well, it started to stick and I started to realize that like, owning real estate was feasible. I just never thought it was feasible before. I just thought super rich people in corporations on real estate, but like, stumbling upon us across articles on bigger pockets and all these places and seeing that it's just regular people that have real estate and they are building wealth and they are retiring from their jobs and I was just like, This is crazy and I didn't I didn't know it was I didn't know it was achievable, you know, and so I just made a decision that three in the morning and then I was going to figure it out because I figured it if all these people on the internet have figured out how to do it, there's no reason that I can't figure out how to do it. Pretty smart guy, so I'll just I'll just I literally said, I'll just do this and I had bad credit still and I had only had $1,000 in my savings account. So I didn't have any money. I had bad credit, but I made the decision that I was going to be a real estate investor and, you know, at the time, I'm sure that sounds like a crazy idea. But you know, now fast forward five years, I've got, we just counted yesterday, we've got 75 doors, and we are, we flipped 10 to 12 to 15 houses a year and I teach people how to be investors now and CO hosts a couple of Bigger Pockets podcasts and you know, why stick in a crazy turn in five years.   Michael: Dude, dude, that's amazing. So, okay, I have so many questions. Tell me some of them in the episode, when you say we are talking about we owning sending code, or is that you and your wife is that you and a partner, tell me about that?   Henry: Yeah, so when I say we, I'm referring to my wife and I, so my wife and I own the majority of our portfolio. Together, I have about 25 doors that I do have with a business partner that we bought early on in my investing career early on, I'm still early on in my office, but like in the first couple of years, and then I've got a few other doors and some partnerships, but you know, it's a mix, but the majority we owe…   Michael: Okay and so there's a pretty big gap in your story here, Henry, from the day that you woke up at 3am, Nicole 12 1000 bucks to now having $74. So fill in a little bit about for us and let's start with kind of that first deal. I mean, what did you do because I think so many people listening to this right now are in a similar boat. They're like, what I'm doing isn't working and I just discovered that real estate investing. I've always thought it was for other people. But I'd realize it can now be for me. So walk us through how do you get that first deal done?   Henry: Yeah, man. So I'll give will give to a couple of mindset and a couple of practical pieces of advice. So what I've learned, through retrospect, I didn't I wasn't the smart one at AG when I actually did it. I didn't know what I was doing. But now that I've looked back here, and I see I see what it was right and so I think the thing, the one thing that I did, that led me to where I am today had nothing to do with buying real estate. It had everything to do with mindset and I know people get all like, ooh, it's not that easy. You can't just make up your mind. You're rich, like, you're right, you can't but you can make up your mind that you're gonna do whatever it takes to hit to your goals, right and so that's what people that's what people mean, when they say the mindset changed their life because without the mindset, none of this was possible and so for me, the thing that I did, that led me here, the one thing was at three in the morning, I decided I was going to be a real estate investor, I made a decision I chose right, decide the suffix of the word decide aside, like suicide, or homicide, it means to kill off, there's no other option, right?   It's option A, or there's no option B is going to work or it's gonna work, right and when you decide, what you're doing, is you're telling your brain that this is what is going to be. So when we can't figure out how to do something, brain, go help me figure out how to do it, right, and you just open your mind up to helping you search for the answer for the root for the path for the thing that you need to get around the obstacle, like our brains are powerful, they do that. Like, if you tell your brain, if you tell your brain that we're doing something, it's gonna help you try to figure out how to do that and I think that most people, when they go down a path of anything, a business or a new venture, you know, fitness, whatever it is, like when you go down that path, most of us say, well, yeah, that looks cool. I'll give that a try, right? I'll try that out and when you say you're gonna try something, what you're telling your brain is like, we're gonna do it until we don't know what to do anymore and then we're not going to do it, your brain is just not going to help you navigate the difficult parts you didn't tell it to. You just told me you were trying it. You did, right and so I think the most powerful thing you can do is like truly make a decision in your heart and your mind. Like no matter what option A there is no option B, I knew I was gonna be a real estate investor, period, I was gonna figure it out and so everything I did to that point, like all the subsequent decisions that were made, were made with all that in mind, right and so when I bumped into walls and I obstacles and things. It was it was never like, well, I can't do it. It was just like, how are we gonna get around this obstacle, right? It's got to be a way people are doing this right and so I would say that's the biggest thing you can do is like, really do some serious soul searching like, you're you? Like, are you interested in real estate or are you committed to real estate, right? And if you're interested in it, that's cool. Do some research. See, see what's out there, right. But being interested in is isn't gonna get you to wealth being committed to it is, if you're committed to it, that means you're doing it no matter what, right, so.   Michael: Yeah and so what? Yeah, walk us through, like what you did, like, clearly, at the very end, you're committing to it, like, what did you do next?   Henry: Yeah, that's a great question. I had no idea what I was gonna do and so I just like….   Michael: You had to put it out to the world, you declare him….   Henry: I put it out there and then my thought process was like, alright, well, I don't know how to do this but somebody here is doing it. Like maybe I can just find people who are doing it and so I just started Googling, like real estate investment groups, meetups clubs, like I did all the words I could find to find people who were into this kind of thing. Who me I mean, there's, there's knitting groups, and there's, you know, there's dog walking groups, and there's, you know, you know, absolute backgammon groups, and like, I was like, there's got to be some investor groups, right and so that's what I did, I went and I found every investment Meetup group club, you know, association, wherever there was investors in a room in my area, I got in the room because I've always, you know, even before I was investor, I've always believed like, you know, who you know, who you choose to be around, let you know who you are, right? We are the sub parts of the people who are closest to us, right? We naturally as humans take on the characteristics of those who are closest to us. It's just human nature, we can't help it, right and so I was like, well, I'll just get around other investors and then it'll do a few things for me, it'll start to show me like how they're doing it. So maybe I can do it similarly, or how they're doing it. So maybe I don't want to do what they're doing or it'll start to show me what's possible because we like as people, we determine what's possible, based on what we see those closest to us doing, right?   Our views are limited to the knowledge that we have about a particular subject based on the people that are around us, right and so like, I knew that it seemed daunting, and I knew I had no idea how I was gonna buy a property. But I knew if I got around people who were buying properties all the time, it wasn't gonna seem as daunting anymore and so and so I would say the best, the next best thing you do is just surround yourself with people who are doing what you want to do, you will naturally start to take on those characteristics and remember, you told your brain, you're gonna figure it out and so as you're in these rooms, and you're hearing these people talk, and you're networking with these people, and you're starting to understand what's happening, your brain is listening, it's actively listening for the things that you need to know, that's going to help you down your path, right. It's the, you know, I would say it's like the, it's the red truck. I forget what they call it Pavlov's law or something like where it's like you buy a red truck, the truck you see is red. It's the same thing, right? You've told yourself, you've told your brain, I'm going to be an investor and so now every time something like it still happens to me, like if I'm out to dinner, and I hear somebody say something like rental, I'm like, who's to rent a property? There, it is good like, my brain is actively listening for it like, and then I'm like, yeah, I rented this boat. I'm like, it's not like your brain, it's gonna help you out, right and so when you go, and you surround yourself, you're not only learning new strategies, that you're meeting the people who are going to be able to help you down that path. That business partner I mentioned on 25 doors with, I met him in a real estate group. I met him at that same real estate group that I googled and found that that first day at the panic attack, the title company that I've used for almost every single closing I've ever done, I met through a connection at that real estate investment meetup and they have been a godsend to my business. I've met several contractors that I've used in that group, the banks that I've used, that have financed my deals at almost 100% sometimes I found in that group and so like you are, you are building your network, you are learning what to do and you are you're putting yourself in a position to be successful, you're putting yourself in a position to be ready, when the opportunity calls when the opportunity knocks. You know, we look at people sometimes and we say yeah, he's Henry's real estate investor, but he just he just fell into it, you know, because my first deal came from a friend of mine who heard I was buying houses and so from the outside looking in, it just looks like oh, your friend just called you and had this great deal, that's not going to happen to everybody.   Michael: I don't have any friends that are in real estate.   Henry: Yeah, right that that happened because I put myself in a position for things like that to happen and for me to be ready for them when they happen. That happened because I surrounded myself with other investors, I just started telling people, I was an investor, I had never done a deal, didn't know how to do a deal. I only had $1,000 and I had bad credit but I started telling people, I'm a real estate investor. That's what led my buddy to call me and tell me, hey, I'm in a tough spot with this property, I need somebody to buy it, right and so it wasn't luck. It's positioning, you've got to position yourself to be ready to take advantage of opportunities and so by just getting in the room, and it's not just going to one meetup, because I think that's what a lot of new investors do. Everybody knows, like, yeah, real estate investment meetups, but what happens is they go to one meeting, and then they go to maybe the second meeting the next month and then when they're gonna go to the third month, like life kicks in again, right, and they've got a kid thing, or they got a dog thing, or they got up, work early the next day, and they don't go and so the consistency is not there and when the consistency is not there, people don't know your face, people don't know who you are, what you're trying to do, they don't know how to help you, investors will genuinely try to help you. If you show up over and over again, you know, who else shows up over and over again, people doing deals, and when they see you in there, and they see you're hungry, you're trying to learn, you're making sacrifices, you're in there trying to contribute, and people will help you, they will help you, they'll send you deals, they'll send you contacts, they want you to be successful. It's a super cool group people.   So get in a very, very long winded way of saying, get into every real estate investment group you can get into because that is 100% what I did, and it really started to change the trajectory. You know, I listened to a story. I can't remember who it was but it was a guy whose first deal was a large apartment building and I remember hearing him get interviewed on a podcast and they said, well, what made you buy a you know, 150 unit apartment building for your very first deal. That's crazy people, like people work the way up to that they don't do that and he said, I didn't know I wasn't supposed to all my friends that I hung out with bought apartment buildings. That's what they did and so that's just what I did, right and I just thought that that's boom, that's it, like you have to surround yourself with people who are doing what you want to do well, because it will just make it seem like that's that means it's so achievable. If you tell somebody who's never ever bought a house ever, that they can go buy an apartment building, they'll look at you crazy, right but if you buy somebody tell somebody who's never bought a house ever, but all they hang out with is do to buy it, but grant cordons then they'll be like, yeah, I'm gonna buy five apartment buildings, right…   Michael: Like that's right. Yeah, I think that's such a good point and then also with regard to like, get getting around meetups and go into these events. I think the investor that goes to one or two, and then the life thing comes up that I think also the mindset like, oh, well, I don't own a property yet. It's like, this isn't working, or I don't have anything to add, like, what's the point? I'm like, no, like cart before the horse, my friend.   Henry: Absolutely. You know, it's, it's interesting. So I did, I went to Hawaii with my family and then I had a, I met up with a local real estate investor out there who I just happen to follow on social media a lot and so I was like, well, let's meet up and then we have that. Then it turned into this whole, like meetup and people coming from all over to go to this meetup and we went, I went with my family and a good buddy of mines, family, we all went together and got this big, you know, Airbnb property. So all of our kids were hanging out super fun, right and that guy, he is. He and his wife, I have like been trying to drag them along into real estate investing, kicking and screaming for like, several years and so I finally gotten them to buy a property, one that I had found, and then I sold to them, right and so like, they bought it, and I manage it for them, right. So it's like, they're kind of like their foots kind of in the water, right. You know, they own they own a property, right. It's and so but I don't think that they see themselves as real estate investors, I think that they just see themselves as, you know, folks who happen to have a rental property and so we went to this meetup and my buddy, like, I remember it, you know, he, he said to me, it kind of seemed like maybe, I don't want to say that he kind of like felt out of place, but it kind of felt like, there was a bunch of investors there and then he was there with me. Not like he was there as well, right and so, you know, when I talked to him afterwards, I was like, you know, what do you think and he was like, yeah, it's kind of cool. You know, some people were doing some stuff and I was like, like, you belong. You're one of those people investor.   I was like, half of the people over half the people I talked to never bought a property. You own more property than half the people there, right? You fit there more than half of those people did, right and so it's all just like, it's like mindset is so huge is like if you see yourself as an investor, like the opportunities follow the relationships follow on like, if you have approach that meeting with the mindset of you're just a person who's not who's there who's not an investor, then you won't get as much out of it as if you approach it as I'm an investor and I'm here to help some people and gain some information and some knowledge and grow and grow as a person and grow as an investor and those things, you'll get those things.   Michael: Yeah, I just took Henry this class, about mindfulness and self-compassion and it was a six week course it was amazing and they said, okay, I want you to think about how if your friend is going through a hard time, how do you talk to that friend? What's your body language? What's your tone, what kind of words you're using and then think about that? Okay, that was the reason they said, and now think about how you talk to yourself, if you're having a problem and we're like, idiots, who have you beat yourself up? It is the same thing like, I feel like so many people look around the room and think every one of these people has something to offer me, but they don't think about themselves. So I love that you shared that story and has your friend has your friend since changed their tune a little bit, did it click a little bit for him?   Henry: He's closing on his second property tomorrow.   Michael: Yes, I love it, I love it, I love it. Well, Henry, I think so many who are listening to this, especially who are just starting out or maybe have a couple of deals under their belt, look at you 74 units, and you're like, holy crap, that's like not even the top of the mountain. That's a whole mountain range, right? That's the Everest and so it's something I hear all the time and I'm sure it because you coach and mentor folks as well. You hear too? Well. What about the 10 loan limit? Like how do you have 74 doors? How do you get? Talk to us a little bit about what the scalability looks like and how should people be thinking about that because I think a roadblock that I hear stumbling blocks that people share with me is like, yeah, I can do one to whatever through 10. But then, but then what do I do, like I really want to blow this thing up? How do I make it big? So talk to us a little bit about how you've been able to scale so massively?   Henry: Yeah, great question. So you need you need to solve two problems in order to scale, right? You need deal flow, right. So you need a consistent flow of deals that you can purchase under market value, right? So you need deal flow and you need money flow, you need money to be able to buy these properties. If you can solve the problem of getting enough deal flow coming in, and having the money to be able to close on them, then you can scale as fast as you want to. I know that's like yeah, Henry, of course, you need money, right? I get it right, but…   Michael: Just turn on the money…   Henry: We're buying real estate, there's a bajillion ways to buy a property and so they only teach us the traditional ways to buy property, which is some conventional loan, right, where you can put 25% down and buy a property. But that's just one loan product, there are hundreds of loan products that you can use, you have to go educate yourself on what they are, so that you know that all the tools at your disposal and so what I learned early on, we never got into talking about that first deal. But when I bought that first deal, what happened was I told you, my buddy was in a tough spot with the property. He heard I was buying property, he was like, hey, come buy this house. If you could buy it, I need to sell it out, I need to make this amount of money, I need x for this property and that because that gives me the exact amount of dollars I need, because I have to go buy this property for my church and I was like, okay, he's like, so I need to sell it to you for 115 because it gives me the money I need. It's worth like 150-60. I don't care about that. I just need this amount of money as long as you can close on in 30 days, you can have it for this price. He was like, can you buy it? I said, yes. I had no idea what…   Michael: The price was in 1000 bucks. How are you going to come up with 115?   Henry: Right, right. But most people would do that most people would go I would love to buy it. But I don't have the down payment because they think they need it, right? We make decisions for other people all the time, right? We decided we can't buy it. Who told you that databank tell you that? Nobody told you that? How do you know? Like, go figure it out first and so I told him, I was like, yeah, I can buy it, even though I had no clue. But I had that network of investors and I went to them and I said, Well, how are you guys doing this and they told me about like, you know, go talk to go talk to a bank. They'll talk to a bank and see what they can do and so I went to the closest bank to my work happened to be this small local bank and I went in and I walked in and I had the contract in my hand. I said, Hey, I need to speak with somebody who could potentially do a loan for this investment property.   Michael: It's your money person.   Henry: Yeah. Who's, who's, who's the guy that gives people dollars? I want some of those. I would like some please. Yes and they looked at the contract and they went, you know, this is really good deal and I was like, yeah, yeah, yeah. Will you give me the money for this really good deal and so they line me up with the commercial lender. The commercial lender told me he was like, look, we'll lend you 85% of the purchase. We'll give you all the money you need to renovate it. as well, as long as you can come up with a 15% down payment, and I was like, he was like, do you have the 15% down payment and I was like, yeah for sure, right and so I went to I went to my, told them, yes, because I wanted the money in real estate investors and I was like, hey, people who do this all the time? How the heck are you coming up with these down payments and they just started like, the guy who was actually my business partner. Now that I met in that room, he was one brainstorming with me. He was like, hey, try this in. What about this and what about that? And I was like, no, no, no, those are gonna work and he was like, oh, well, you can borrow against your 401 K and I was like, what's that mean? I don't want to pay penalties. He was like, no, no, you can borrow.   He was like, so you can take a loan out against a 401k and then the, you have to pay yourself back with interest. But it's your money. So you get the interest too and your employer will just take the money out of your paycheck, and they take it pretax, so reduces your taxable income and I was like, and then you buy the real estate asset with it, and then the cash flow pays back. So your tenants are essentially paying back your 401 k loan with interest to yourself, and you reduce your taxable income and I was like, that's a cheat code, like that's a thing. Yeah and he was like, yeah, and I was like, cool. Now I gotta go find a 401k. I told you, I wasn't gonna love it. So my wife, obviously was the smart one with money and I went to her and I said, hey, remember that time when I said, we were going to be real estate investors? Well, we need to borrow $20,000 from your 401k. So we can buy this property and she said, Let's do it and we did and that's how I got that first property, right and so all that to say, like, most people don't know, you can do that they don't know about 401 K loans. They don't know that there's a commercial bank, there's a commercial loan product that you can use. That only requires a 15% down payment and not a 25% down payment. And you can use it on single family homes, and you can use it on single family homes and they don't care where your down payment comes from, like if I would have tried to do a conventional loan, and then I told them, I was gonna borrow the money from my 401k. Like, I would have had to give him like blood samples and like my firstborn child, money would have to be in my bank account for like, 72 years before, like, it's officially my money to be able to use. There's all these hurdles, right? Yeah. But with a commercial loan, they don't have those hurdles. They're like, I don't care. You can bring the down payment, we will loan you and we'll give you the renovation money and I was just like, right, but because I told myself, when my buddy said, hey, can you buy this and I said, yes, even though I didn't know how it forced me to go figure out how, right and so there's more loan products than people say. So yes, I don't commercial loans from small local banks, you can have as many as they will let you have, like, it's up to them and as long and what you're doing, so small local banks, what I learned because after I bought that property, the bank called me and they were like, hey, that property that you bought, it was a really great deal and there's equity in it. So we want to give you a line of credit against that equity. So you can go bring us more deals like that and so they opened, they did a HELOC for me and I ended up with access to like another 30 grand and like, 90 days before that I had a panic attack, right and now I had an asset that was paying me in the bank gave me access to $30,000 and so like, now I could go rinse and repeat and do that again and what I learned through that process, and what I want people to understand is like, when you're a real estate investor, like small local banks, in order for them to stay in business, they don't do like conventional loans to stay in business.   That's what big banks do. Small banks loan money to small local businesses, right, they're lending money to small businesses in order to stay afloat and most small businesses fail, right within the first five years. So if they if they have to choose between loaning to like a new food truck, versus loaning to a guy who's buying a property at 115,000, that's worth 150. If we both fail, in the rest in the food truck, they get access to like a food truck that they can sell for not the value it was worth or scrap that right or they can get an asset of a house that they can sell even though it's you know, they lend it 115. But they could probably sell it for 130, it was worth 150 they'll make more money doing if I foreclose they make more money on me than they do if I just pay my interest. So it's, it's like they want to loan to you and so you just have to go out and do the research and find out what loan products are out there and available to you. There's more than just what's out there and so don't take what you hear as fact, you've got to go do the research and you've got to talk to people who are actually doing it. A lot of the times when people say, well, there's a 10 loan limit and my debt to income ratio is not good. Well, you don't know that. You haven't spoken to a lender that told you that your debt to income was bad. You just assume it is. Go, go figure it out for yourself.   Michael: Yeah and even if you do find not to be true, like there are tons of people with bad credit and high incomes that are still investing in property. So like, go find a way…   Henry: All the time.   Michael: Yeah, Henry, we're running short on time here. But I want to circle back to something that you said. You said, buying property under market value but the deal flow, why is that so important? What about all the people who are like I want to buy turnkey, that's my strategy.   Henry: So for me, it's about multiple exit strategies because especially when you're new, there's so many things you don't know that can cost you money, right? You don't know how to estimate rehabbed values as well. You don't know how to estimate ARV, or after repair values as well, you don't, you might not truly know what a really good deal looks like yet and, you know, you don't know how long it's going to take you to renovate a property, you may think it's going to take you 90 days, but it's probably gonna take you six months, right and all these things end up costing you money, the best protection from all these mistakes, isn't to get better at doing those things. I mean, those things do help but the very best protection is cushion is your how much you bought the property for versus how much you're going to be able to disposition that property for and so the better deal you buy, the more exit strategies you have, if I buy a deal, if I buy a really, really, if I buy a house that's worth 200,000, and I pay 100,000 for it, I may be able to wholesale it to somebody for 105 110,000 or I can wholesale it and stick it on the market and sell it for 125, 130, 545,000 or I can spend 3040 grand fix it up and sell it for 300 or 200,000 or I can take that good lead and not close on it, not assign it and just call another investor and say hey, here's a phenomenal lead.   I got them they agreed to pay, you know, to let me pay you 100 for this, you can take this lead and just give me you know, just give me two grand after you close, right? Like that's five different ways. I just told you that you can monetize on a good deal and the only reason that that thing is possible is possible is because you bought it right and so if you do a turnkey, your only exit strategy is to keep it as a turnkey rental because you're paying market value for it, you probably can't turn around and sell it for more than what you're paying for it plus there's a tenant in it, which is going to make it harder to sell unless you sell it to another turnkey investor. So the only exit strategy you have is to continue to rent it. But if you buy a deal under market value, you can rent it you can flip it, you can wholesale it, you can wholesale it, you can just birddog it to somebody and so it's just better protection.   Michael: I love it. It's like that game Bob its wholesale spirit. That's Dude, that's like a million dollar real estate investor game idea right there. Let's trademark it. We're gonna blow it up.   Henry: Oh, man. Oh, man.   Michael: Henry, this has been amazing. Like we get I'm sure we could chat all day but I want to let you get out of here. For people that want to continue the conversation reach out to you ask your questions. Where should they do that?   Henry: Their best place is Instagram at the Henry Washington on Instagram or go to my website www.henrywashington.com .   Michael: Right on well, hey, man, thanks again. Definitely look forward to chatting again soon.   Henry: Thanks so much.   Michael: You got it, take care.   Okay, well, that was our episode a big thank you to Henry for coming on. Super great stuff loved, loved, loved the mindset discussion because I think it is so applicable across so many things in life. So as always, if you liked the episode, we'd love to hear ratings, feedbacks reviews from you all, and we look forward to seeing on the next one. Happy investing…

Derek Dombeck, a Real Estate Expert hosts and runs the WiscoREIA based out of Wausau, WI. There he coaches and teaches other real estate investors his keys to success. He is currently hosting 3 national Mastermind groups called the R.E. Circle of Trust and puts on an Advanced training and Networking event each winter called The Generations of Wealth Voyage. In today's episode, Derek shares his strategy for creative deal structures and how he raises private money to execute more deals.   Episode Link: https://gowvoyage.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the real estate investor. I'm Michael Albaum, and today I'm joined by Derek Dombeck, who's an investor, owner of a private lending company as well as conference host. So let's get into it and hear about Derek's private money and sophisticated purchasing strategies.   Hey, Derek, what's going on? Thanks so much for taking the time to hang out with me today.   Derek: Yeah, I just appreciate you having me on.   Michael: I think it's, it's totally my pleasure. I think we're gonna have a lot of fun today, because we're talking about a pretty interesting topic here but before we get into the meat, and potatoes and sausage, as you mentioned, the in from Wisconsin, give all of our listeners a little bit of background and insight into who you are as an individual and what it is you're doing with real estate today.   Derek: Well, don't forget about the beer in Wisconsin as well.   Michael: That's right. Before we get to the beer and sausage…   Derek: Yes, I just started out as a construction worker back in the day and started in 2003, just like most people do, you know, we buying and selling at that time holding rental properties and we were buying in the state of Wisconsin buying cash flow properties but we also got, I don't want to say sucked in in a bad way. But we kind of got sucked into the craze of building new construction in Florida in the early 2000s, which went really well until it didn't. So and in 2007, you know, in that short period of time, my wife and I had built up a pretty nice portfolio and, yeah, it we lost it. We lost it all down there. Fortunately, we didn't lose our personal residence but the majority of our holdings, I mean, at that time, we had about 29 doors, right around $4 million in assets and just within months, it was down to a million dollars in assets on paper, cash flow was negatives and I look at that now, as such a blessing. It didn't feel like a blessing back then. I mean, it was definitely a blessing in disguise. But we would have never been forced to learn how to get creative and learn how to structure deals creatively because when we started, we use banks for everything. You know, we were just like lending tree, everybody was throwing money at us and we had great credit, good income, jobs, all the stuff that banks love and we quickly realized how little control we had over our business, the bank's control their business and when the bank stopped lending, we were dead in the water. So it took a few years but fast forwarding on we learned how to get creative and more than that, I learned how to talk to people, because I didn't hide from our problems. Like many I didn't join all these class action lawsuits, blaming everybody for everything that went wrong. There certainly were people that did us wrong. But at the end of the day, we take responsibility for our own actions and I want it to be able to, you know, approach the banks, and especially our local community banks, that we have been doing business with, and they wrote it out with us. I mean, I had a couple of community banks, who didn't get their doors locked, that ultimately, you know, hung on with us and rewrote those notes and you know, the stuff in Wisconsin was cash flowing. It was the stuff in Florida that was burying us and you know, we made it through. But as we've transitioned forward and met my current business partner about 10 years ago, he had never used a bank ever to do any kind of real estate and he started one or two years after I did so we've both been in the business since the early 2000s and he had always raised private capital to fund all of his deals and so combination of raising private capital for the cash deals and structuring terms on the creative deals. That's how we've grown our business to this day. Right now we our goal is to buy two or three real estate acquisitions a month, but our bread and butter actually transitioned into the lending space because we got really good at raising money to fund our own deals to the degree we had more money than we had deals.   Michael: Wow, you never hear that…   Derek: Yeah, so we had a lot of friends and I think this is important, Michael. The first eight years of my business I was a closet investor. I didn't go around trying to build a network, I didn't really tell a whole lot of people what I did, I had a full time job and I, I built my real estate, you know, on the side with my wife. After that, we realize it's a team sport and I had to go out and find people to work with, and, you know, people to collaborate with when I needed help. So that's actually how I met Jeff, my business partner, he was running the real estate investor Association in Green Bay, Wisconsin, which is about an hour and 20 minutes from where I live and, you know, I started to see the importance of having a network growing a network and since then, that's where we found all of our borrowers we had, and that's where we found a lot of our private money as well. So we had the reputation of being reputable, we knew what we were doing on the real estate side, our investors had money to place, our friends needed the money for their own deals, and we started playing monkey in the middle, and getting paid to, you know, put the deals together, that parlayed into what is now about an average of 20 to 25 loans a month, going out the door, and, you know, several million dollars a month in in loans and it's we're still 100% privately funded, we don't take on institutional money, I won't sit here and say it'll never happen, but we have no intentions of it because part of the cool thing, Michael is what I do with mom and pop investors, I get to help them, right, a lot of our investors were getting, you know, 1% 2% 3% return on their money, and they're getting nine, secured by real estate, like it's changed a lot of their lives, and a lot of their retirement accounts and things like that. So it's been really, really fun. I honestly don't know where it's gonna lead to I mean, the, the opportunities are presenting themselves and, and we're, we're open to growth, as long as it's controlled growth and you and I talked a little bit before we jumped on camera here, about our, our lifestyles, and I really like to be able to travel with my, with my family, and work remotely and that's something that the lending business affords us versus managing flips, or even rental properties. We still do that, and we have staff, but if I'm going to scale a business, I want to scale the lending business versus the land lording business.   Michael: That makes sense. Yeah, it makes total sense. So Derek, I'd love if we could dive into something that you mentioned and that's about structuring deals creatively. Since I think it's something that people talk a lot about. A lot of our listeners have probably heard the term creative financing or creative deal structuring but let's talk about and unpack what does that really mean? So give us a little bit of insight when you say that you structure your deals creatively, what like, what does that mean?   Derek: So I think I want to clarify what people title creative deal structuring. So you've heard of purchasing a property subject to its mortgage, you've heard of leases, you've heard of options. You've heard of land contracts, or contract for deed, seller financing, using notes and mortgages. Those to me are all individually, they're all strategies. When you stack those strategies together in any 1234, you know, different strategies all together, I consider that deal structuring. Okay… That's, that's my definition for it. So when I get a seller, I do the majority of my negotiating over the phone only because we operate in a fairly rural area and we operate in a 200 mile diameter. So, yeah, and I don't want to jump in the car. Even though gas is cheap, I don't want to jump in the car and drive 100 miles to a house, if there was never a chance that I was actually going to put a deal together on that house. So I got really good at it being able to talk to people over the phone, and getting them to open up about what their goals are in it. It's to me, it's super important. solving their problem. I don't even need to mention what my goals are because I know them internally. I'm not going to do the deal if I don't hit my goals. So I'm only working towards their goals. I'm only talking about their goals and through those conversations, you know, a lot of negotiation books and gurus and people at Teach sales really try to tell you just ask questions, ask questions, ask questions, and that's not incorrect.   But I really feel it's important how you ask those questions. What the tone in your voice is what the response and the tone in their voice is the body language even if you can't see them. You can hear it and very much on that. that type of stuff. So I just did a presentation last week. So I'll probably use a couple of the same case studies but I did a presentation down in Milwaukee, Wisconsin, on this very topic and people are like, well, how do you get somebody to tell you what they really want? How do you get somebody to tell you what they owe on their loan? How do you get them to do all these things and I feel like number one, I'm just really blunt. It not in a rude way. But I don't hold anything back. I have no problem. If somebody is going through a foreclosure for example, I have no problem saying, Michael, I, I've been through several foreclosures myself, I lost everything. I know how you feel and they know if I'm bullshitting them or not, right, especially if they can see me if we're at a kitchen table tonight and I'm able to do that they can see the my face. But yeah, you know, I've lost family members, I've lost my father. So we've dealt with the grief and the probate and everything that you go through, if you're dealing with somebody that's selling an estate. So I have no problem opening up about that being vulnerable, letting them know, I am clearly here to help and I am going to profit and I'm not going to hide that fact, I'm going to profit if I'm able to help them, but I'm helping them. So the first thing I do within the first two minutes of any phone conversation, or in person, but typically it's on the phone, is I have a little elevator pitch and so Michael, I'm just gonna you use you as the seller, right?   Michael: Please…   Derek: Michael, I just want you to know that we buy houses in several different ways, all cash is not a problem. But that's typically going to be our lowest offer. If that doesn't solve your needs or doesn't meet your needs, we can look at taking over your payments, if you still have debt. If you don't have debt, we can make payments to you over time and in some cases, we actually just lease your property and put a document in place called an option and we purchased it in the future that really works really well. If we're dealing with a landlord who's trying to offset some capital gains taxes for right now. Just tell you all this, Michael, so you understand. I'm going to ask you some questions that most people probably would never ask you. But I'm really trying to give you a solution for your problem today. Is that fair? And finished...   You can tell I've said that right? A couple 1000 times or more. One, what that does, is that sets up any question I asked moving forward, they now know why I'm asking it. I'm asking it to, you know, when I say Michael, do you have any debt left on your property and that's important, too, like the way I just said it? I don't say, Michael, what's your mortgage or Michael, do you know? What's your loan payment? I don't say those institutional words. I come across soft and subtle and, Michael, do you have any debt left on your property in a tone, right and people just…   Michael: It feels so different. Even just as we're having this conversation…   Derek: People open up and that's the tone of the entire conversation. And I don't care if it takes 15 minutes or an hour. As long as it's going in the right direction and I'm leading them. I'm leading them to a pre preconceived conclusion that I already have. But I'm not doing it maliciously, or trying to take advantage of their bad situation, right. It's kind of like, Have you ever gone to whitewater rafting?   Michael: Yeah, it's great.   Derek: So you have a guide, when you go whitewater rafting, and they know that they're going to take you through a class four rapids, and it's going to be a possible shit show. But they also know that the joy and the excitement that it's going to bring you when you get to the to the, you know, the soft water at the bottom of that, and everybody's high fiving and they're excited, they got the adrenaline rush, they already know what was best for you, I do the same thing. I know what I can do for a property owner, I know I'm gonna have to get him through some class three or class four rapids and they're gonna have to, you know, take faith that I know what I'm doing to get to the end when we're all high five, and then the problem is solved. So I don't want to manipulate them through the class three in class four rapids, but sometimes, you might have to just, you know, throw them into the class three and class four rapids. No one, we're going to be okay.   Michael: Yeah that's a great analogy.   Derek: Yeah, so that's what we do.   Michael: Derek, I'd love if you could walk us through what a case study looks like your example looks like that that you've seen, because I think you threw out a bunch of really great strategies, but hearing how they all start to piece together and fit together and be really helpful.   Derek: Yeah, for sure. So I want you to know the case studies I talked about have all been done in the last couple of years during the hottest selling market we've ever had, because I don't I'm not going to give your listeners old information.   Michael: From 1979 a deal that was done…   Derek: For sure but I had a ranch house on five acres of land and Central Wisconsin, to give you an idea, our median price points here are 150 to $250,000 houses in most cities and you get rural, it can be a little bit, you know, plus or minus depending on acreage. But I, you know, this was a three bedroom, two bath ranch built in the 70s had some additional outbuildings sat on five acres land, and in a nice condition that would have been worth about $225,000. Now this was about a year and a half ago. Okay, so today's market, it would have been up another 20-30 grand. But Randy had two mortgages on his property and the if you wanted to do a full renovation on the property, it needed a $50,000 renovation. It had some dated stuff in it, part of it had been updated but Randy was a bachelor there was not a lot of wear and tear on the property. But he had some foundation issues, we had some leakage going into the basement, a lot of those things can be easily solved, which I'll mention in a second. He was retiring, and apparently had met a woman from out of state and he literally wants to retire and move within a week and go move to South Dakota where she lived. He did not want to deal with a realtor or showings or having to do anything to the house to make it pass a home inspection, anything like that. His two mortgages were totaling $132,000 and my cash offer to him was 124 and he said I can't take 124 for some obvious reasons and some other reasons he just didn't want to write. So we talked about potentially doing a joint venture where it's Randy, I could come in, I could stick the time and money into the property and we could you know, I want to get my money back hit a certain profit margin, we could split any extra proceeds. I don't like doing that with civilians. I don't mind doing that with other investors. But I'm not a fan of doing it with civilians and ultimately, he didn't like it either because how do I trust you? How do you trust me and I said, okay, well, what do you want to get in your pocket? And he said, I really want $150,000. If I got 150,000, I walk away, I've got a little bit of money to start over with and I said, well, you know, if you listen to this with a realtor, you could sell it for more than 150 and he said, Yeah, I know but for the same reasons I already mentioned, he didn't want to deal with it. I said, how long would you typically list your property with a realtor for and he said six months… Again we know the answer already. But I'm still asking the question. I said, okay, Randy, what if I had six months on an option to purchase your property for $150,000 and I stick whatever I feel necessary into the property to sell it. In the next six months, whatever I sell it for over and above the 150 is my profit and he's yeah, I'm okay with that and I said, okay, I also want to lease so I have the legal right to use the property, and I'm not going to use it to live in, I'm going to use it so that I can fix it up and he said, that's great. I said, What do you think is a fair price for rent? Now remember, I'm going to be paying the utilities and I'm going to take care of this was the fall of the year. So there's leaves falling and there's yard maintenance and some landscaping, which a realtor is never going to do, right? Yeah, potentially there could be snowfall during the six months. So I'm gonna have snow plowing and all these other expenses and he said, well, I don't really need anything for rent. I will tell you, he backpedaled before we signed the documents, he ended up chiseling me for the taxes, the real estate taxes monthly, so I ended up paying $220 a month for rent, which, you know, I gave it on that one. So, so I had use of this building for six months for $220 a month plus utilities. Okay, I am now going to go in there and only do the renovations to it that I feel necessary to get it to pass a home inspection, and an FHA loan or any government backed financing, because conventional would already qualify, but I want to make sure it's gonna qualify for all these other programs. That meant taking care of the water problem in the basement and ultimately, we painted everything the basement walls, we freshened everything up, did a deep clean on the property did some landscaping, five days' time, and $2,000 out of my pocket in labor and material, and we put that property on the market.   We had when I listed it with my real estate broker friend who already had a buyer in her pocket, but we did it legal and we marketed it. Her showing was the first showing we had 14 showings scheduled within the first 24 hours and I ultimately accepted the original offer which was my full asking price to $100,000. They had no inspections, they had good financing conventional financing, they were able to close in about 26 days. I never owned the property, Michael, I controlled it with an option and a lease, our net was $36,000, so…   Michael: For five days working to raise…   Derek: For five days working to raise work. So what's the what's the return on investment annualized? Who cares enough, right? It's enough. But it gets important on how you structure this because we talked about strategies and structuring, right. So initially, I had an option, and I had a lease and that was great but I want to protect myself and this is something you probably won't hear anywhere else, because very few people talk about it. You have the right to record an option on public record, right. So that Randy, Randy can't go and sell it to somebody else or, I mean, Randy could see oh, my gosh, he put this on a market for 200,000, which actually we talked about because I'm again, I'm opening blocked, I told him what my intentions were, he was totally fine with it and spoiler alert, he actually knew the kids that I sold it to they, his their parents were friends of his they just didn't never knew his house was for sale. So he was happy with who ended up with the house. But what I do in that scenario is I secure my option with a mortgage. A mortgage is nothing more than a security instrument, which typically is going to tie a property to a promissory note alone, right. But a mortgage or a deed of trust, depending on what state you're in, can secure an option it can secure lease, it can secure any agreement, because all it's doing is pledging the property as collateral in the event that the agreement is breached or defaulted. Okay, so why is that so important? Why don't I just record the option? Well, let's say that Randy decides he does not want to close, I do all this work, I find a buyer he doesn't want to sell to me because he, you know, he's seeing dollar signs, and he wants to backdoor the deal and go sell to somebody else. options have gotten missed in title searches. I mean, they're not as common as a mortgage and everybody's taught to look for mortgages or deeds of trust, if the option got missed, and that property actually closed, and Randy sold it to somebody else, what's my recourse, as the option holder?   Michael: Probably pretty limited.   Derek: I could file a lawsuit, I'm never going to get that sale reversed ever because it's done. It was sold to a third party, it'll never happen. But I'm sitting in front of a judge arguing contract law, which is gray at best and the judge has the ability to have an opinion on what he thought we meant. In this option agreement. If I record a mortgage instead of the option, number one, I don't want the public seeing what the terms of my option are and if they're public record, they get to see what my purchase price is. And they get to see how long I have to purchase it and everything else that's in there. So I could file what's called a memorandum of option. But I don't want to do that either because again, it could get missed now if I file a mortgage. How often do mortgages get missed, almost never but even if it got missed, I still have a lien against that property that's in senior position to who just bought it. Title insurance is going to kick in, there's going to be a bunch of stress, but I can start a foreclosure action, take the property back or if Randy refuses to sell to me, I can say, okay, Randy, thank you for being an asshole and not living up to what we agreed to. Now I have to turn this over to my attorney and foreclose and take the property away from you. In which case, you're likely gonna get zero instead of the cash he would have gotten, because he pledged the property as collateral to secure our agreement.   Now I would be in this particular deal I would be foreclosing subject to the senior liens, I would still have to pay off his bank loans… which is totally fine, because that's the way it should be anyways. And then here's the final piece. I always have power of attorney on the properties from Randy. So when I went to list the property, if I was going to sell it to anybody using government financing like FHA, any loan program that still has seasoning issues or title seasoning requirements, I should say I could not buy the property from Randy and then double close it 10 minutes later and sell it to you because there will be a title issue with seasoning of title because I had power of attorney from Randy. I listed the property as Randy's POA and I actually signed the closing documents on behalf of Randy to the end buyer and I got paid as a mortgage payoff on the closing statement. So it doesn't trip up any FHA underwriting or any other loan underwriting because they're doing a title search. They're seeing Randy's name is on title, right? I'm Randy's POA makes total sense   Michael: Oh my gosh…   Derek: and my payoff is just going to be a mortgage payoff which looks normal to any lender. Right? So we stack a couple of different tools there and that's creative deal structuring.   Michael: That is what for anyone who's watching this, you'll see my mouth is a game for anyone listening to SAT, take my word for it, my jaw just dropped to the floor. That's wild Derek, how did you figure this stuff out man?   Derek: I have a PhD of public high school diploma and I have I have a network. I mentioned earlier, it's all about your network, I have friends that I you know, most of them are, you know, in their 60s and 70s. I'm in my 40s but these guys have been there done that. So when I have a deal that comes up, I'm able to pick up the phone and talk it through with my friends and over the years now people are calling me to get the advice that I learned from them, right. But it's all about the network. It really is because you can read it, you can hear it, you can look at it in a book or a seminar until you're actually on the streets, work in the real deals, most of the time doesn't sink in. It doesn't for me, at least, you know, I gotta be, right. So I mean, that's one deal, which was actually pretty basic. In my world, I didn't stack a whole lot strategies there, it was really just a lease option but they get more intense, and they get more layers, depending on what we're trying to solve. I won't probably have time to give you the details but I'll tell you, we bought a house, subject to a first mortgage of roughly $65,000. I don't have in front of me. So I'm going to kind of round up the numbers, right?   Michael: Yeah…   Derek: The seller wanted 105,000 and so first mortgage subject to 65,000, she needed $10,000 cash and she was willing to carry the remainder of the purchase price on a second mortgage with payments of $200 a month until paid in full at 0% interest I needed about $20,000 tend to give her into cash and tend to stick into the property to do some paint and carpet and cleanup and I was going to lease option it to a tenant, future buyer. So I approached the financial friend who has a small IRA, how do I know they have a small IRA because I communicate with all my financial friends as small IRA, I said, hey, Dan, I need $20,000 I'll give you 6% interest only quarterly and I'll give you 25% of the equity in the property someday when we sell it. He said okay, cool and that's in his IRA. So that's growing tax free for him. Right. So I'm in the deal with nothing out of my pocket. We ended up about a little over two, two and a half years later, it sold, you know, to a lease option buyer and everybody got paid off. Dan got his portion, she got the remainder of her second mortgage, you know, the bank got their money, everybody got paid. I can't remember what the ROI was. But it was pretty sick because I had nothing into it, and, but that we stacked a lot of strategies in that deal structure.   Michael: This is wild, Derek, we got to do like five episodes with you, man just talking to all this. This is mind blowing but we're gonna wrap up here in a minute. But you said a couple things that I want to come back to and make sure that people really hurt and it sank in and one of which is that you said you're trying to solve these folks problems before mentioning what your goals are right? Not even maybe mentioning what your goals are, which I think is so important because so often in these in just sales in general real estate transaction, It's you versus me, us versus them type of mentality but what you're talking about is coming, hey, you know, putting armor on the person we're on the same team. Let's figure out how to get you out of hot water, which I think is so critical.   Derek: It is and it's a lost art in the United States and that lost art is sad because people don't care about people anymore, right. Many people don't even know their neighbors names. I live in the middle of nowhere. So for me, I got 40 acres and some horses and my family and I know all my neighbors around me I've been in the same area my whole life. But I go to these cities and I buy these houses and the first thing I do literally is I go on every house on either side of me across the street and behind me and I shake their hands, I give them my business card. I let them know what our intentions are with the property. Now I have a built in security system, because they're all watching the house for me and they all have my cell phone number and they're also seeing the improvements we're making to their neighborhood. So when they have a friend or somebody else they know that's trying to sell a property, they call, right like, but that's just a lost art that nobody everyone just wants to hide or they're the other way they want to put everything on social media and brag, that's a whole another thing…   Michael: We could do a whole episode about that.   Derek: Yeah but that's, I mean, what I do is nothing magical. I just truly care. And if I solve enough people's real estate problems, I'll make a healthy living and raise my family. That's really what it comes down to.   Michael: I love it, I love it. Derek, we're gonna get you out of here in just a minute but before we hit record, you were telling me about some pretty cool side projects that you're working on and I think you mentioned that you're writing and also coauthoring a book. Is that right?   Derek: Yeah. So I'm authoring my own book, which is not titled yet, because we're in the process of it and I'm coauthoring a collaboration book with a bunch of other really cool authors and they're both gonna be out towards the end of the year. So I can't give anything today, I just would have to have people reach out via email and let me know how I can get it to them later. But I'd love to give your audience the free version of both of those books and then…   Michael: Amazing… Derek: Yeah, so I mean, simply my email address is my first name: Derek spelled the shortwave, because my mom probably thought I was gonna be smart enough to spell it the long way, I'm not sure. But it's so derek@bestreifunding.com shoot me an email, tell me you heard me on Michaels podcast and put you on the list for the for the free books and when they get, you know, released, I'll have my assistant just email blast them out to everybody. So that's the first thing, I'd just love to do that.   Michael: Thank you.   Derek: The other thing, Michael, I host the conference once a year and we actually, this, this was handed down to us from all of my peers that I learned all this cool stuff from, we just became very close friends, they used to run a conference on a cruise ship and they it, you know, they aged out and so we don't do this anymore. So we took it over. It's called the generations of wealth. It's going to be in Cancun, in February, late February 2023. So, what I'm super proud of Michael is we have non selling speakers. So this isn't a pitch fest. We have a five day conference, we have people speak from nine in the morning until one in the afternoon. On advanced strategies, this is not really for brand new people. I mean, you still get something out of it but it's advanced stuff, what we're just talking about for last 25 minutes. But then the whole afternoon is spent just networking hanging out at the pool, having a an adult beverage, if you're you know, have like that kind of thing or if you're from Wisconsin having 12, adult beverages, whatever and then people are out to dinner together, people are hanging out by the pool, whatever. Then in the evening, we have these townhall sessions which are totally optional. I mean, you can come and do as much or as little as you want but those are more interactive discussions.   But what I really love about it is we encourage people to bring their kids, especially ages 10 and up, we don't charge you to bring them they can sit in on every session at free of charge. Last season or last February, when we had it, we had about 18 kids there and about a dozen of them sat through every lecture regardless of the fact that didn't have a clue what was being talked about. Other than my 15 year old daughter did a presentation on how to get your kids involved in your business, which made me super proud. But I want our kids to build a network of people in their teenage years and early 20s across the nation who have parents who are freaks like us, who just don't conform to a lot of the stuff that's being taught in school systems and if they never enter the real estate world totally fine but they know that there's other people out there. I mean, literally my daughter has friends in about seven different states and they communicate daily, weekly. It's unbelievable. So generations of wealth. The website is: G O W https://gowvoyage.com/ -G O W voyage.com. It's literally just being opened up to the public as we're recording this and which is it's not going to be this huge 400 person conference so there will get potentially a point where we're gonna have to shut it off because I've only got so much room blocked off at this all-inclusive resort, but it's going to be awesome.   Michael: I love it. We'll definitely go check that out everyone listening or watching Derek what's the best way for people to get in touch with you if they have more questions want to follow up? Is it your email that you gave earlier is there another way?   Derek: Yeah and that's my personal email guys. I actually check that and I'm more than happy to talk to anybody about, you know, whether they're private lenders or deal structuring or whatever. Yeah, reach out to me, I'd love it   Michael: Right on. Well, Derek, thank you again so much for coming on and sharing so much wisdom. This was really incredible. Definitely, we'll be in touch soon, man.   Derek: Awesome. Thank you so much, Michael, ever have a blessed day.   Michael: All right, everyone. That was our episode, Derek a big thank you to him for coming on and sharing some really interesting insights into creative ways to purchase properties. As always, if you liked the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing the next one. Happy investing…

Shawn Moore was selling high-end resort properties back in 2008. He was making big money, living lavishly, and about to close on a new mansion in Newport Beach. When, out of nowhere, the owner of the resort they were selling for got indicted on securities charges. Feds came in and shut everything down overnight, including their paychecks. In this episode, discover how Shawn came out of this huge loss and turned around to excell in a related sector. Shawn shares his strategies for growing and scaling a short-term vacation rental portfolio. Learn from Shawn's 20 years of ups and downs as an investor. Episode Link: https://vodyssey.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Shawn Moore, who's the founder of VITC, a short term and vacation rental education program and he's gonna be talking to us today about what we need to be aware of as we get involved in the space as investors. So let's get into it.   Shawn Moore, what's going on, man, thanks so much for hanging out with me. I appreciate you.   Shawn: Awesome, Michael. Thanks for having me, man. I really, really excited to chat with you.   Michael: Now, likewise, likewise. So it's gonna be a lot of fun. We're gonna be talking all things short term vacation rental today. But I want to give our listeners a little bit of background into who you are, where you come from, and what is it you're doing real estate today?   Shawn: Yeah, awesome. Well, first, thanks for thanks for having me and, yeah, we've been around the real estate game for a little while now. I've been a full time real estate investor for 22 years, if you can believe it. I feel like I've been around the block a time or two and really started my journey into real estate in the fix and flip game for a long time, I was just doing mostly fixing flip houses I wholesaled. One deal, it's what got me into the into the game back in 2000 and then realized I wanted to wanted to start doing the actual rehab on the properties and did that for a good bit of time and I remember going back in the day to a real estate investment club, local real estate investment club meeting, kind of sticking my chest out and acting like I was a big shot and telling everybody how awesome I was at I think I was about 23 at the time and felt like I'd had I had arrived, right and I remember this old guy named George, he came to me and put his arm around me and just said, Hey, Shawn, you I know you think you're pretty, pretty big deal around here. But you're really not a real estate investor, you need to quit referring to yourself as an investor, you have a job fixing up houses and at the time I really shot my ego, right? I was like, man, this this kind of sucks. I mean, he's like, if you can't be an investor, if you don't have any passive income and that was that was back in the you know, I was a couple of years into real estate in what I thought was investing, which a lot of people a lot of us have done fix and flips and but he was right, you know, really I was, I'd buy a house, I'd have to fix it up and I'd sell it and I have to keep doing over and over and over again and really that's what I had, I had a job of fixing up houses and selling.   So it opened my eyes back then that conversation to the idea of passive investments and passive income in real estate and, you know, there's lots of avenues, lots of lanes that you can run down in real estate and the natural lane that I ran down at that time was single family rentals, and just buying some single family properties over the over a couple year period. Back this was back in the early 2000s and if you could fog a mirror, you could get a mortgage and so we were able to get a lot of mortgages really quick. We got about 52 properties in a period of a couple of years. All single family homes, we had one four plex everything else was single family or duplexes. But I and so we started building that passive income up, it just wasn't exciting for me, it didn't. It was one of the biggest mistakes in 2005 we sold them all and I always tell people I at the time I acted like I was a genius because we sold them course right before the crash. But kind of the top of the market, they're close to the top of the market that it was, I mean, obviously, we were making like I think out of that entire portfolio, I was making about $3,000 a month in passive income. But on each of my flips, I was making you know, 30 to $50,000, depending on the flip that we had and I was like man, this I can make, you know, making a year's income with one flip is versus having this whole portfolio that I was managing myself and it's just kind of a pain, and really didn't figure the game out as far as how to how to actually make them passive and so we ended up selling them all. I had, you know, again, those probably the biggest mistake we ever made, because then we went back to not having any passive income, right, I had this portfolio that people were paying for. I was making money, not a lot of money, but I was making money every month and ended up having to get out of that game.   But at that time when we sold them. We started getting into the high end resort properties. We started really diving into resort properties and second homes and I'm talking like really high end private ski Golf Resort properties like in the 20 to $30 million range and so not what we do now, and it was this really exclusive resort but it introduced me to this new world of the hospitality world the second home world the resort type style properties vacation home properties, right and, and at that time I had bought a, we bought a cabin, my wife and I bought a cabin in 2006. And that was our first vacation rental that we ever bought. Well, in 2008, we started doing this in 2005 2006. Well, in 2008, late of 2008, the FBI came in and shut down this resort that we were selling properties for these really high end resorts, the owners got indicted on securities charges and so like we literally just overnight, computers are gone with the resort, we've gotten the word that we're involved in and selling properties that all of a sudden get shut down and we're like what is going on, right? We, we stopped our fix and flip business. I didn't have any passive investments at the time because I sold them all and I had this one property, this one vacation rental, I sat on my hands for about six months and threw myself a six month pity party and started to realize nobody was coming to save us. We didn't know what to do. This is in 2009 at this time, and the markets were tanking every day that the you know, the news is there's more foreclosures than there are you know, every single day, there's just worse and worse news. We're in the middle of the great recession and I started selling real estate I started I had a real estate license, I had never done that in my life. As far as actual an actual residential sales Asia, we started doing that I started working with investors to help them build portfolios of again, because I understood that I understood investors, I had been one but I didn't have any money to invest at this stage and really started getting back into selling real estate and kind of hustling to pay the bills and during this whole time, as I was throwing my six month pity party, we lost our house, I lost my vehicles we started, we literally lost everything because I sat there and blamed everybody and everything on my situation rather than doing something about it and I had this one asset, this one property that during this entire slide was it was producing and it was a vacation rental and at the time that was before they were really popular, right that was, you know, they weren't mainstream. They were obviously Airbnb was around and VRBO was around, but they weren't as mainstream as they are right now and I started to, I started to at least those seeds were planted in my head that this might be a viable asset class to, to pay some bills, make some passive income, even during a pretty rough time of real estate, right, even during the that eight 9, 10 that slide that were in the middle of and so as I started to build back up and get back involved in investing and developing properties, again, I had a we ended up my wife and I ended up having some kids and we ended up having twins in 2011 and that kind of changes your perspective on everything, you instead of this really cocky freewheeling, like, you know, okay, I can just make money whenever I want and do whatever I want. I, my perspective on everything started to change, I started to ask different questions I wanted it to be you start to say, okay, what kind of an example can I be? What am I really building? What am I really doing things for? So you ask those different questions and as they started growing up, I started to say, you know, I love real estate. I remember walking on the beach with my son, and he was they were four, we were in Hawaii, we always go to Hawaii for their birthday and I was frustrated. I was working on a deal. We were doing development deals at the time and I was working on a deal and I got off and he could tell us frustrated and he's just a little kid and he's like, Dad, you should just do real estate in Hawaii, it's way fun.   Like, like Dallas, all my problems, right? Like we're hearing, why might Why don't you just sell real estate here and do stuff here because it's you won't be frustrated on your phone calls, right? That's the perspective of a four year old but what really got me thinking was, what do I love about real estate and one I loved investment properties. I loved the idea of building passive investments and passive income from real estate and I loved that resort style, that vacation style world that we were introduced to, even though it all came crashing down and I had this one property and I really started at that time, forming this idea of what we do now with odyssey of really taking vacation rentals as a vehicle to build financial independence and wealth and financial and lifestyle freedom and that's really when it started back in 2000. That was back in 2015 and then we fast forward to where we're at right now and we've got Odyssey is the number one vacation rental education company in the world now and it's just been a lot of fun and a wild ride. So Long's longer winded answer there for you, Michael. That's kind of what brought us to where we're at.   Michael: I love it Shawn. Well, as you mentioned, it seems that vacation rentals are the new thing. Everyone's talking about them. You hear about them all the time. So curious without giving away the farm. What do people need to do? How do people knock it out of the park with vacation rentals and then conversely, I want to ask how do people really screw it up?   Shawn: Yeah, great question and really, there's really three phases that we focus on that I think are critical for people to get and it's the acquisition phase. So really understanding the underwriting, really understanding, there's a lot that goes into a good property and a good area, and really understanding and they're harder to underwrite, than what we're used to underwriting with a long term rental, like, you know, because you've got nightly rates that are fluctuating all the time, you've got occupancy that's fluctuating all the time, most of these areas are very seasonal and so you have to take in all of these factors that are moving targets, and figure out how to compile that data to actually run the numbers because you'll have really good properties and really bad properties in every area, even the best areas you're going to have not every property works even in the best areas and so there's a lot that goes into that first phase of acquisition and really underwriting and in I would say, in the beginning, that's where most people screw up. Most people think, hey, this is a great, this is a great market. It's a vacation real market that I like there's the you know, let's say Destin, Florida, everybody's down in Destin or Orlando, right, the kind of the home base for vacation rentals, that must be a good market, because everybody's down there, and I'm gonna go buy down there that doesn't, that's not how you underwrite these deals and so the very first part is, is really where people mess up is not understanding how to run the numbers and it's not rocket science, it's just much different than what people are used to and so that's the first phase that that you really want to focus on and dial in, you've got to be able to underwrite and find the best markets, and the best properties and it's not always about finding the top vacation rental market, some of the most, some of the like, the I call them backyard resort, communities that maybe are unknown, outside of a regional area can be some of the most productive, you know, markets to invest in, we've got one of our members who's a traveling nurse, and he builds a portfolio around major medical centers.   So there's all kinds of different markets that can work for short term rentals and it's not always these Class A resort towns that everybody thinks about. So really understanding how do you analyze a market? How do you analyze properties within that market and what works, and that's that very first stage of that acquisition, and then the next stage is the setup and management phase and where a lot of people dive into short term rentals, and they say, well, I'm gonna, I'm gonna manage this property my on my own and like, I can tell you like I have a portfolio, I don't manage any of my own properties, I know how to manage properties. But it can be a full time job to manage your own properties and unless you want a big side hustle, and you have the time for a side hustle, which a lot of investors that's not what they're looking for, right? We're looking for passive investments and so you really have to walk into it with your eyes wide open of what the management side looks like, and how do you build a management team so that it can become passive, and one, how much you're going to pay for it, because it's going to be your largest expense and so really diving into that second phase of that setup and management to really get the property set up correctly and then that third is the marketing and that the marketing side is how are you going to stand out in these crowded markets, right? A lot of these markets, like you talked about vacation rentals are kind of the thing. They're the they're kind of the trending vacate, or the trending real estate investment, if you will, for a lot of people, they because they think it's, you know, you know, the Wild West is, you know, you make way more money on short term rental versus a long term.   Well, that's not always the case, again, going back to the underwriting of it, but when you dive into these markets, how are you going to get your unfair share of business? How are you going to stand out because these markets are crowded? These markets are getting very, very saturated and I always tell people do. I really like saturated markets, because it shows there's huge demand, but you better know how to stand out in a crowd, right and so, and it's not always what people think and it's more how you set that property up. We always talk about delivering a unique experience, like right, a lot of people who are in real estate, because we're dealing with real estate, they'll have I always give an example of if you have a Zillow listing, and you have an Airbnb listing, they should look completely different and a lot of people a lot of times they look the same, they'll use the same photos like right, they're selling the architecture, and the property and the house on Airbnb, and that's not what you sell. You've got to sell the experience, you've got to sell what it's going to be like to use that property and so that's what we really dive into and that's one of the that's by far and away the biggest mistake once people own properties of what they're doing and what they're how they're how they go about this business is not understanding how to articulate what they have to offer outside of just pictures of a house. Does that make sense?   Michael: Yeah, it makes total sense. And something that I always joke about, Shawn, I always say you got to you got to have a high Instagram ability factor and your short term rental listing.   Shawn: Yeah and it's selling the experience right. It's not like it, we like Instagram because we can dive into people's worlds and we can see what they're doing and we have to have that same thing with the properties. It's not just having property photos, you better be able to, I should be able to look at your listing, and put myself in, in like, mentally put myself in that setting and say, This is what it's going to be like to stay in Michael's home because it's, you know, it's always in, I talked about delivering the fairytale having, you know, unique story, given that property, a soul, when you're really trying to articulate that to your prospective guests, that's looking online, where, and it's actually if you get that right, now, all of a sudden, you're playing in a category of one, and you're really standing out in a marketplace, because nobody takes the time to do that. Everybody just goes and hires professional real estate photographers to take pictures of their property, but they're not doing anything to articulate the experience.   Michael: Right, right. So Shawn, question for you, for everyone listening out there that's raising their hand, it's like, that's not me, I don't have that vision, I don't have that creativity. What should they be doing or should they not even be playing in the short term rental space? Does that mean that it's not a good fit for him?   Shawn: It's a great question now. One, you can definitely still play in the game. I think people think, because you can do a really good job of being it doesn't have to be this in your face, like creative theme that you're that you're putting together. But you do have to be able to put together an experience and so you may it may not be the right fit, right? If you're just like, I talk to investors all the time, that will say, hey, I just want to buy a short term rental because it has better returns. I don't care where it's at, I don't care what it's doing. I just want the returns and I always tell those investors, that's you're probably getting into the wrong game because that's not what short term rentals that's not how should you succeed with short term rentals. So there is an element there, Michael, where you do have to say, I do want to provide a really fun, unique experience for somebody, I really do want somebody to come experience this area, like I experienced it and I always tell people you should buy in areas or around properties that that will attract that you're attracted to you should be part of your target audience because if you're not, you're going to fall flat. When you're delivering that experience. When you're setting up an experience. I have a property that is a fly fishing property and it's up by Yellowstone National Park and we I said I love to fly fish and so it's very easy to for me to articulate what a great fly fishing experience is because I understand that group, right? It would be very difficult for me to put together a wellness yoga studio for somebody because I don't I don't, I'm not in that group, right. But we have some of our members that do these amazing wellness retreats, that are these I mean, these beautiful properties, and they have these yoga studios, and they do all this stuff, because but they know how to articulate to that group and so there is definitely an element to that and so if somebody says, you know, I'm not, I'm not that creative, I challenge people to say you probably are you want to set something up that you're attracted to and if you're absolutely not attracted to anything, and you're like I really don't care, then it's probably not the game you want to play because you're going to struggle when it comes to really maximizing the asset.   Michael: Yeah, that makes a ton of sense. That makes a ton of sense and Shawn, you said something that I want to come back to and it was with regard to the underwriting kind of that first phase that you mentioned, in the long term rental world, we have the 1% rule. So if something rents for about 1% of the purchase price, it'll probably cash flow with a mortgage and we have the 50% rule, which says take roughly 50% of the income throughout the window, the operating expenses, what's leftover is to pay the mortgage in your cash flow. Do you have those similar types of rules, I'm gonna say in quotes to help people underwrite at a 30,000 foot level.   Shawn: Yeah, and so the easiest. So I usually use the 10% rule of so you want to have about 10% of your acquisition price in gross annual income. So if you buy a $500,000 property, your breakeven amount for the end your annual breakeven amount, you need to generate about $50,000 in revenue. So it's and…   Michael: Is that with debt that?   Shawn: Yes, that's with debt and with management and so that that gives you that'll give you about your breakeven amount. Expenses are going to vary based because you got one big variable expense and management and your management's can vary anywhere from roughly about 20 to 35% and so that's a big, that's a big of your gross revenue, right? So that's a big, that's going to be your largest expense by far and so usually your expenses to cover debt service and management is going to be somewhere around. It's usually around that 65 ish 60 - 65%. So it's a little bit higher than like what you would find on long term rental, but your breakeven mark is easier to get It's an easier number to come up with because if you've got, because usually what the way we underwrite these, Michael is we're looking for annual gross revenue, because your 1% rule is on a monthly basis on long term rentals, right? The 1% rule, our monthly, our monthly income is inconsistent on these properties. So we have to look at an annual basis, a lot of these areas, you'll make 70 or 80% of your gross revenue in a three month span, right. So you're going to make it during the peak summer season, for example, in some areas and so that 1% rule, you might be negative cashflow for six months out of the year, but you can be really profitable at the end of the year, because your peak season made up made way more up for like than what you had to on those months that you were losing. So the one is close to the 1% rule, that 10% rule is close to the 1% rule, but you have to annualize it, because your the way that we run the numbers is going to be on an annual basis because your monthly numbers are going to be fluctuating so much.   Michael: Makes total sense and then you said about 65% on the expense ratio side of things.   Shawn: Yeah, yeah. Yeah and so and the biggest, the biggest jump in that is your management because your your fixed expenses are going to be very similar to long term rental, right? You got your your principal interest, taxes, insurance, you're gonna have higher utilities, typically, because you're paying the utilities on the short term rental side. So you're, you're gonna pay, you're gonna pay more of your utilities, and you're going to have a higher management costs than what you would on the long term rental, everything else is going to be pretty consistent as far as the other. So that's why it's a little bit higher.   Michael: Okay, that makes total sense and should you be factoring in this? Is your personal opinion, for cleaning fees? Is that part of your gross revenue or is that same dollar insane dollar out? So we're not even gonna count it?   Shawn: Yeah, it's a say it's $1. In dollar out, it's a pass through expense. So we don't even count it. Now you can, there are people that will run the numbers, they count it, and then they count. So they'll count it as revenue, but then they have it as an expense, we just we just cancel it out because it's passed through, we don't make money on cleaning. Some people do and so if it's a revenue generator for you could add it in that way. So that it's, you know, you know, $1 in or $2 in and dollar 50 out, right, so you've got a little bit of a buffer there. I just, it's anything that's a pastor expense, we don't we just don't factor it in.   Michael: Okay and that makes sense. Shawn, I'm seeing I'm curious to get your thoughts if you're seeing the same thing. But these vacation rentals and short term rentals as they're being sold and marketed. They're being marketed like a business and they're saying, hey, based on the NOI performance, this is the value of the property but as you and I know, to go get a single family rental, or a single family mortgage, it's gonna be based on the appraised value. So how are folks squaring those two things?   Shawn: Yeah, it's a great question and I think that I think it's going to be a little while before people, I think that you've got a lot of sellers that are trying to value properties based on performance and base like a business, but you're not able to get lending that way, right. They're still from a for all intensive purposes, most of the lenders out there, you're still buying and getting residential, regular mortgages, second home, vacation, home investment, property mortgages, it's going to be based on the property appraisal. Now, we're sellers have been getting away with it a little bit, because it's so competitive, and most things are selling over appraisal. So people are paying an appraisal gap, right? We're seeing that even outside of the vacation rental space, right? People are paying over and paying that appraisal gap. So sellers on vacation rentals, that's how they're starting, or they had been pricing properties and that's we're still we've been used to multiple offers, we've been used to cover an appraisal gaps. As things start to soften a little bit, I think that sellers are going to struggle to continue to price properties that way. I think that you there's a definitely a good argument. But you still have to get the right buyer that's willing to still cover that gap and say, yeah, I'm willing to buy it based on performance, because you're still not going to get lending based on performance. It's not it's going to be few and far between as far as lenders, even our DSCR lenders, even the asset based type lenders that are tackling more commercial type loans, they're still there. They're looking at revenue that the property is generating, but they're looking at they're still looking at average, they're not looking at individual property revenue. For example, if I have a really high performing property, they're not going to give lends you more money on my property, they're going to look at the market average and so it's still difficult, I think, to prop to price properties that way and we're where we see people trying to price it is it is about that 10% rule. It seems like okay, if a property's generating $100,000 or say, okay, we're going to, we're going to sell this for a million, it still has to be dang close to the property value though. At the end of the day it comes down to the what the property is valued at and what it appraises for. Ultimately, it's got to be somewhere close to that or we just don't we seem fallen flat if people are stretching too much.   Michael: Okay and that makes total sense. Shawn, you brought up an interesting point that I want to come back to and that's around revenue projections. I think most owners, short term rental owners will tell you that the last two years have been banner years for them and so how do we square what has been with what will be kind of given today's market?   Shawn: Yeah, great question. So one of the things that, that I think that the reason it's been banner years is because occupancies have been so high, right, we've had that we've had two years of basically never ending summer, right, we have we have seasonality has gone out the tube, it's been, it's been really high occupancy across the board. So we've been talking about I talked about this, you know, all even the very beginning of this year is kind of our projections is we're going to see occupancy, in short term rentals, come back down to the normal seasonal type levels, when we underwrite our deals. I never underwrite based on that, that top percentage of occupancy, like there are people that will say you should, you know, you can get 80 90% occupancy and short term rentals, we don't do that. I don't believe that that's a long term. I mean, short term rentals are short term for a reason, your occupancy is going to be somewhere 70 to 80%, in some of the best markets, where we've seen the last couple of years, some of those best markets are 80- 90% occupancy, that's not sustainable. In the short term real game, if you have a short term rental, and you've been tried to have 90% occupancy for an entire year, it's really, really difficult because you have these odd days that are there in between days anyways, that throw that occupancy, it's, it's just hard to do, right and so you have to say, okay, look back.   So when we underwrite we underwrite back to 2019 18, 17 levels with our occupancy, we look at that occupancy in those years, when we're doing our underwriting. So that helps us bring that overall revenue down a bit now that the flip side of that is, revenue numbers have been consistently going up, they didn't revenue didn't spike average nightly rates didn't spike like occupancy did. So the overall gross revenues had this huge spike in these banner years, but it was it was driven by occupancy. Now rates are a different story rates have been consistently going up. But they didn't have these big spikes they've been in where you will find in short term rentals, which is interesting is there's a gap in the market, you've got, you've got the you know, the bottom of the market, you got the middle of the market, you've got the top of the market and so when we underwrite these deals, we're very conservative on our occupancy and then we want to look at the range, we want to look and say, okay, given this given occupancy on this area that we're underwriting, I want to look at the bottom of the market, as far as average nightly rates, I want to look at the middle of the market for you know, three bedroom homes and the average hourly rates here and then I want to look at the top of the market, that will give me a revenue range that we're looking at, then what we want to do is say, okay, based on this property, I'm looking at where do I think it's going to fit in this market.   If I'm in a beach market, and I'm not on the beach, I'm probably not going to get that top revenue range, because most of those top revenue properties are on the beach, for example. So I have to take these, I have to start to now take make this logical analysis on this range of revenue. But you want to wait the way that I know, the original question is how do we how do we say, okay, the last two years have been an anomaly. It's an anomaly based on the occupancy for sure and then you've got to start to look at those nightly rates, and then take a more conservative approach back in 17, 18, 19, as far as occupancy, and that's how we underwrite the deals now, because we just don't think that occupancy is going to continue now, what we saw was, we saw another spike in occupancy this summer, again, really high, where we started to see kind of normal occupancy come in the spring, and then we just saw that a big spike again, this year, but I just don't think it's going to last and so we take a very conservative approach as far as occupancy goes.   Michael: Okay and that makes total sense and, Shawn, my last question for you is with regard to expenses. You mentioned in the kind of the long term space, your PITI your property management fee, we could throw in there and then in the short term realm, we've got your cleaning expenses and the utilities. What else should people be expecting to have on their line item for expenses for the short term rental?   Shawn: Yeah, so you're so you're, again, your fixed expenses are really pretty similar, right? Yeah. PITI, you've got the on your fixed expenses, what's going to be different than a long term rental or other types of properties are going to be your utility costs, right? You're going to be paying internet cable, you know, your electrical all that stuff is going to be that's going to be as part of your fixed expenses. So that's going to jump your expenses. As up, the variable expenses are what a lot of people miss calculate and variable expenses when you start to add in your and these are, these are based on the number of stays and they're going to be based on the gross revenue, your management company is going to take a percentage of your gross revenue, your booking your booking sites like Airbnb VRBO, they're going to take a percentage of your gross revenue, right. So when you get a booking, they're going to take a percentage of that those, those fees are what's going to eat into your overall profits and so a lot of times be like, Well, man, I'm making three or four times what I would make on a long term rental and a short term rental doing this nightly. But by the time you add in, you know, 30%, and management fees, all those different things start to add up. Now, you're not making three or four times the profit typically. So the biggest expense that people mess up is the management and I always tell people, there's, there's a couple of approaches you can take with management, even if you self-manage, and you put your properties on Airbnb VRBO, you're going to still run an average of about eight to 15% of basically a management fee, that's going to go to those booking sites, where you're booking your property, if there's a hybrid approach, where there's companies like evolve, and some of those companies that will do a 10%. But they're going to be 10% plus that eight or 10%, right from the booking fee. So you're going to be a total of about 20% and management, if you have that hybrid approach where you do some of it, they do some of it. If you go the full service route, which I suggest most people take that route and that's what it's going to be different than what most of the other coaches out there are ever going to tell you to do because it because it doesn't look good on the front end on the numbers, right?   It is but I just believe most people are not set up to manage short term rentals at a high level, you're better off getting a full service management committee to help you and that's going to cost you 30 to 35% of your gross revenue. That's a huge line item, right? That's a huge expense and so you have to make sure one that you get the right fit, because they're going to be your largest expense, you want to make sure they're doing a good job and I always tell people good management company is worth their weight in gold, a bad one is really a nightmare. So you want to make sure that you've got the right fit there. But it's a that's a big a big expense that a lot of people don't think about and I have on every one of my properties, I use full service management on every one of my properties for a reason, right? It because it's what makes these properties allow us to be passive investments and I want something that is a passive investment. I'm not looking I'm not looking for another job to manage these properties and so those are the biggest ones, the management and then your fixture your utility costs that you normally wouldn't have to pay for.   Michael: Okay, that's great. That's great. Shawn, this has been a ton of fun, man, I want to be very respectful of your time. If people want to learn more about you, or more about VODYSSEY where's the best way? How can I reach out?   Shawn: Yeah, awesome. I appreciate that, Michael, so they can just go to https://vodyssey.com/ . It's VODYSSEY, you can go check out our stuff. I've got a book there. It's called: What the hell is lifestyle acids number one bestseller on Amazon. So you can go check that out talks about our whole process, taking you through that acquisition phase, that setup and management phase and ultimately the marketing phase and then you know, you we've got a ton of I've got our podcasts on there. We've got a YouTube channel, we've got tons of free stuff that people can dive into if you just go to https://vodyssey.com/ and learn a little bit more about us and our view of the vacation rental world and then yeah, that's a great place to start right there.   Michael: Right on. Well, Shawn, thank you again for coming on and sharing some wisdom with our listeners really appreciate it and I'm sure we'll chat soon.   Shawn: Awesome. Thanks for having me, Michael.   Michael: Okay, everyone, that was our show a big thank you to Shawn for coming on super eye opening, really informative to learn about the vacation rental space from his perspective. As always, if you enjoyed the episode, please feel free to leave us a rating or review wherever it is get your podcasts and we look forward to seeing you on the next one. Happy investing…

Neal Bawa is a technologist who is universally known in the real estate circles as the Mad Scientist of Multifamily. Besides being one of the most in-demand speakers in commercial real estate, Neal is a data guru, a process freak, and an outsourcing expert. Neal treats his $947 million-dollar portfolio as an ongoing experiment in efficiency and optimization. The Mad Scientist lives by two mantras. His first mantra is that "We can only manage what we can measure". His second mantra is that, "Data beats gut feel by a million miles". These mantras and a dozen other disruptive beliefs drive profit for his 700+ investors. In today's episode, Neal shares insights about his strategy for multifamily investing, some interesting market statistics, and what he expects the future of the real estate market to look like. Episode Link: https://multifamilyu.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by my very special guest, Neal Bawa and he's talking to us about multifamily investing syndications and some really, really interesting market statistics about looking forward into what the real estate market future holds for all of us. So let's get into it.   Hey Neal, thanks so much for taking the time to come on the show with me today. I really appreciate you coming on and sharing some wisdom with me.   Neal: Well, it's exciting to be here, especially because I am a fan of your company and until five minutes ago, I didn't know that I was doing a podcast with Roofstock. So super excited to be here.   Michael: Awesome. Well, surprises always tend to keep people on their feet. So I'm really excited to chat with you today. So I know a little bit about your background and who you are but for anyone listening, who might not be familiar if you can give us the quick and dirty who you are, where you come from, and what is it you're doing in real estate today?   Neal: Absolutely. I'm a geek, a nerd, a maverick, I come from Silicon Valley. I live in Silicon Valley, I'm a data scientist by profession with a computer science degree. I've had a successful tech career, which, after 17 years ended in the sale of my technology company. I got into real estate because I live in Texas Fornia and I was paying 53.7% of my gross income in taxes and so you know, I looked around and looked at lots of different avenues to save money, looked at solar panels looked at oil, and came to the conclusion that none of those were anywhere close to real estate in terms of the incredible taxation benefits. I tell people, real estate is America's number one legitimate tax mafia. That's really what it is. I mean, no other area has the astonishing, the shocking tax benefits that real estate has. So I started doing real estate for that and started sharing a lot of my data science, you know, thought processes and ideas and it sort of just exploded from there. The first time I shared my insights on data science, I had four people in front of me. A week ago, I had 1100 listening.   Michael: Oh my gosh, that is really, really cool. So I love chatting with data scientists with geeks and nerds as the self-proclaimed title that you gave yourself, because I think it puts a process. They come from very process oriented backgrounds, and it allows them to apply the same processes to real estate, which I'm sure we're gonna get into in a little bit. But you're doing some pretty amazing things in the multifamily space if I'm wrong, mistaken, right.   Neal: I am, I am and I'm a huge fan by the way of the single family space and often direct people to single family, but multifamily is where I've been simply because of its amazing scale. So I started off in single family and I have now moved over to multifamily. So currently have about 750 million in construction and various multifamily spaces such as built around and apartments have about 250 million that I'm managing that I purchased that are existing buildings, and then I dabble in other areas as well as multifamily is kind of the core foundation of my business, but I dabble in self-storage, industrial townhomes for construction and student housing as well. So I love all kinds. I love all kinds of different asset classes at different times. But I always come back to the Foundation, which is which is multifamily.   Michael: Okay, now, you said a lot of amazing things with a lot of big numbers and I want to come back to that in just a minute. But I'm just curious on a personal note, can you share with our listeners, what's the best compliment you've ever received?   Neal: I think that the compliment had and I actually use it now you already heard it today was a person that walked in and said, This is the geekiest and nerdiest presentation I've ever heard that was still very entertaining. So that second part was like, okay, so I can I can get geeky I can get nerdy but I can still kind of get it down to the level where people enjoy it and are not snoring, you know, five minutes into the presentation. So I love that comment because it's hard to be a geek and be a nerd and still, you know have these aha moments for my audience. So I've worked really hard on that.   Michael: I love it and clearly you're doing it well because people 1100 people are coming to listen so my hat off to you. So let's talk about what excites you about multifamily because I think that there's an argument to be made that the fundamentals but you talking about going back to the basics is single family. So why do you think that it's multifamily? Why do you make that argument?   Neal: Because of single family? The short answer is this single family is why I'm excited about multifamily. Okay. So, you know, you hear a few numbers all over and over again, people say these numbers that don't quite explain the meaning of this, right. So we say in this home, the you hear this all the time, we have a shortage of single family homes in the US 5 million, the actual shortage is 5.1 4 million. You also hear we have a shortage of multifamily or apartments in this, you know, in the US and the actual shortage today is 600,000 units. So you notice most of the shortage is actually on the single family side, right? 5.2 million there 600,000 on the apartment side and for both of those, the vast majority of the shortage, not all of it, but the vast majority came from the fact that the US actually didn't really build anything single family or multifamily between 2011 in 2015. So we used to build, you know, I don't know, eight 700,000 800,000 a million units and then all of a sudden, 1112 1314 15, we built less than half of that creating this massive supply demand gap. It was enormous and that's why that has led to rental growth being you know, to AX what it used to be in the previous 30 years, we've also seen massive growth in prices on the multifamily side where, you know, we used to buy, you know, properties at, you know, $40,000 a door, and now we're buying the same properties at $250,000 adoor. So it's just an incredible, massive increase there in Parador prices, a lot of it really comes back down to the fact that we are absolutely unable and I haven't seen any evidence to the contrary, we are absolutely unable to build starter homes in the United States, we actually don't have a shortage of single family. It's a very common misconception. We don't have a shortage of single family, we have a shortage of starter homes and when I talk about starter homes, I mean anything that in a reasonably reasonable Metro, I'm not talking about San Francisco Bay area, but let's say something in Phoenix, right? Being able to build a nice three to four bedroom home that's brand new for about $275,000 that has become categorically impossible today. Okay, for I'll give you an example of this, as you know, multifamily scales a lot better because when you're building 100 units, you get all these economies of scale, blah, blah, blah, okay, my cost of construction in New Braunfels, which, by the way, is not a major metro, you've probably never even heard of it. It's in the corridor between Austin and San Antonio and so you one could say Austin and San Antonio are both, you know, secondary markets, not primary like San Francisco or Los Angeles and in so and this, so this market must be like a tertiary market because it's in between my cost of construction for townhomes, not single family is well over 300,000 units. That's what my cost as a builder is, right.   So you understand what's happened since March 2020. Construction costs in the US have gone up by 34%. That's basically about 27 or 28 months, they're up 34% and the problem was there before COVID. So before COVID, even in the face of outstanding and insane amounts of demand. We were only able to build enough single family enough multifamily housing just to keep up with demand. So remember what I said 11, 12, 13, 14,15 those five years, we under built massively, and then 1617 1819 20, those five years we built okay, we did find we stayed up with demand. But we didn't make any dent in the single family shortage. We didn't make any dent in the multifamily shortage, those numbers stayed the same, because we were just building enough. And that was before this once in a century 34% increase in construction cost. That was before that increase. Today, construction cost has gone up. So but people who think that home prices will drop 20% simply have no understanding of the fact that there is it's impossible to supply a product. If home prices dropped by to even 10 or 15%. Most builders will either go out of business or simply pivot to build the rent. So they'll stop building anything for the market and what that will do is make the shortage worse, which means that there's even worse it's going to make it much worse, right? Because we absolutely have to build 500,000 units a year just to keep up with this year's demand. Forget about the shortage from before, right, we still want to keep up with the demand for this particular year. So we can keep the shortage from getting worse.   You know, otherwise, that number that 5.2 million number will go to 5.5 million and 6 million and 7 million so we'll keep getting worse and every time it gets worse rents rise prices right? So there's a cushion under home prices and most people wonder mentally failed to understand the mathematics here. If your cost of construction goes up 34% how are you going to deal with prices going down and if developers don't make enough homes, the only homes available in the market are the existing homes, right? So will competition on them will increase and haven't you been reading already in the last three months that permits in the US have dropped to 30% because as the US economy goes closer into a recession, so it's inevitable at this point that we'll go into recession, builders are very skittish, their construction costs are at an all-time high and so they're backing off. They're saying, You know what, I'm not going to take the risk of building 10,000 homes, I'll build five. So if everybody drops their permits by 30, or 40%, you're digging now a new hole for the construction that would have afforded for the delivery that would have happened next year and the year after. So now we're digging a hole in 2023, deliveries and 2024 deliveries. How do you reconcile that with a 20% drop in prices? The mathematics, the fact that people actually keep saying this with a straight face is mind boggling to a data scientist.   Michael: Yeah, I love that because you like everything you just said, I don't know, if you're watching the video, you saw my jaw on the floor, I'm gonna have to pick it back up here. But it just people feel like it feels because prices are so high and toppling, then interest rates are so high, but everything you've just said, I mean, factually, and mathematically makes so much sense and so how should people be listening? How should our listeners be thinking and reconciling? Okay, well, interest rates have gone so high, so fast. So the purchasing power has been drastically reduced. How should you be thinking about like, what's going to happen next?   Neal: So the first thing you should do is study the past, because the past gives you some wonderful examples of what happens when these sorts of things happen, right? So I'm gonna give you some benchmarks that will really blow you away, right? So in 1982, the Federal Reserve raised interest rates so fast, and so many times that mortgage rates went to 18%. As we're recording this, mortgage rates are at 5.3%. So when I say this in front of a an audience, I was teaching in Seattle, there were 500 people listening. So just, you know, for shits and giggles, I basically went down to the stage and I stuck the mic in people's faces and I said, So if interest rates were at 18%, would you buy a single family home? No. Okay. Do you think anybody else bought a single family home? No. What do you think prices went down? Why the answers were 20 to 50%? Well, history tells us that in 1982, when interest rates to buy new homes were 18%. Home prices declined by 10% for one quarter, bounced up by 10%, the following quarter, and actually ended the 1982 recession higher than the beginning of the recession. study history. It tells you how sticky real estate is. Now, everyone, the biggest reason why people feel that prices are about to fall off a cliff is 2008. There's no other reason because if you look at the data from the last 61 years, all you notice is home prices are extraordinarily sticky when interest rates go up, because interest rates haven't gone up once or twice, or three times. Nine times in the last 61 years, the Federal Reserve has hiked rates to kill inflation, nine times, right? Eight times the economy went into a recession, how many times you'd be have real estate prices go down? Once 2008 because 2008 was not a recession. 2008 was the largest single evidence of large scale fraud in American history. Millions of brokers and 1000s of bank banks committed large scale fraud on about 20 million Americans. That's what caused those home prices to fall. I see no evidence of fraud at this point. If I if anything, underwriting standards are pretty darn robust. The people have trouble…   Michael: getting a mortgage is such a pain.   Neal: Right? So when you look at this, and you say, so every everything that you're doing is based on what you saw in 2008. But you're not comparing the US economy today to 2008, right. So let's go back to looking at 2007 and comparing it to today's economy. So you want home prices to drop by 20%? Okay, fine. Question is, have you looked at how many jobs the economy was creating in 2007 and have you compared that to today's jobs, right? So in the last three months, and people are saying we're in a recession, and maybe we can talk about that, in the last three months, the US created 500,000 400,400 1000 jobs. That's 1.3 million jobs in the last three months, we actually struggled to create that many jobs in most regular years. So in three months, we created 1.3 million jobs and of course, before you know anybody says, hey, the quality of the jobs is very low. They're part time no, they're not. Please go back and look at a a shockingly high percentage of those are full time jobs and then people are like, Yeah, but people are not getting paid enough.   These are standard objections, right because people are not studying the radar. No wage inflation is very high in the US right now in work have the upper hand. Wait, inflation is at 5.1%. Most years, it's one and a half percent. What that what does that mean? People are good people who have existing jobs are getting big raises and then there's 11 million open jobs in the United States. This is the first time in US history that we've been at 3.5% unemployment and still have 11 million jobs open. So the economy is producing jobs at two and a half times. It usually does in a normal marketplace. How do you factor that in with home prices falling 20%? It's the it's a highly desired asset that people want. Now, it's absolutely likely that home prices will fall. But the big question is, will they fall on a nationwide basis and the answer is that there is no data to support that. markets that are red, hot, white hot, some of those markets that I invest in Phoenix, Boise, Las Vegas, Austin, these are markets that are at risk of a 10% correction, maybe some markets might even get a 15% correction. But the US is combined of 330 markets. When you look at those 330 markets, the chances that we will see a 1% overall price reduction is still low and most people are talking about 10 to 20% based on what data?   Michael: Ah, I love it. I love it. Neal, this is this is super, super insightful. So kind of thinking about the feel part of the emotional part and the people talking about the 20% correction. There are those who have said that the Zillow or the kind of red fins that give estimates of value or rentability. It's almost a self-fulfilling prophecy if I'm an investor and I go on Zillow and see hey, this was only valued at 100k by Zillow, but it listed at 120 I just wanna be paying 100k. Is there some risk of that with public sentiment that prices should be falling with the Zillow effect that's not trademarked?   Neal: Let's call it the Zillow effect and actually, it's a very important thing to talk about because if you know, the question really is, is there a risk of that the there's a 100% chance that the Zillow effect will drag home prices down? Here's the catch, though. The Zillow effect is both ways, right? So we've also seen the Zillow effect when prices go up. So you're gonna see a short term curve downwards as the market adjusts and then when it adjusts, a whole bunch of people are like, home prices are 10% down, this is my chance to get in and it's not just, it's not just the individual investors anymore. America is fundamentally different in 2022, than it was in 2008. There one single company called BlackRock, I think is Blackrock or Blackstone, maybe I'm confused about that, it has now launched a $50 billion fund, just to buy homes during a dip and their definition of a dip is 7%. So the moment they see home prices falling 7%, they're gonna come in, and there aren't, it's not a billion dollar fund. It's not a $2 billion fund, it's $50 billion, just Google it, right. So just Google $50 billion home buying fund. Now, that's one company, but there's at least two dozen of them. So real estate now is an institutional asset class that rival stock markets, and people who invest at a big scale in the stock market, their dip is 5% 7% 10%. So you'll get that dip and they'll come in and they'll, you know, scoop up a bunch of these properties and then at some point, people will realize this market isn't going to crash 10%, they're going to be like, Yeah, but it's seven or 8%, or 12%, down in my area. Let me grab some properties and then you're going to see that correction and now all of a sudden, your backup as before you know it, this is normal, right? The market that we've had for the last 10 years where prices only go up. That's bizarre, that's abnormal. That's never happened before in US history. What we've seen before is prices go up. But they don't always go up in a straight line, they go up, they're just a little bit, they go down for three or four months, then they go back up, and the overall direction is upward. in markets like this. The Zillow effect is necessary, right?   I'm telling people number one, a dip in market prices is incredibly healthy. I've got my fingers and toes crossed that it happens. I've got my fingers and toes crossed that the US economy goes into a recession and most people would beat me up for that. It's like, why would you have your fingers and toes crossed for that? Short answer is when we have this much money floating around. If we do not occasionally adjust the economic cycle, we always end up in a bubble and bubbles when they burst of this size, create trillions of dollars in losses and can drag us into a 2008 type recession but if you look at the history, and again, I keep going back to this, the Fed has raised and income interest rates nine times and eight of those the US economy went into a recession, right? Only one of those eight was a destructive event 2008. All other seven events were in economic cycle, reset or adjustment and when you actually look at the effect of that recession over a three year timeframe, the net effect was zero, the cyclically adjusted, some of the bad companies fell out some of the bad developers fell out some of the bad money in the marketplace fell out and in the if you look at the long term trend, that that bumped down that six month recession had no real impact on the economy 2008 I can't say that, right. So once again, there's one time when we've seen total destruction happen, and that was because we perpetrated large scale fraud on American millions of Americans and using that as our benchmark to make all decisions in the future simply means we're ignoring 61 years of history.   Michael: Which seemingly is easy to do for a lot of people.   Neal: But for most people, it seems right. So I'm kind of looking at this going, this doesn't make any sense. Do you not realize that we just produced 1.3 million jobs in the last three months and isn't that the best way for company, companies are saying we're worried about recession, they're issuing earnings, you know, forward looking, and they're saying your earnings might reduce, and then they go off and hire 500,000 people in a month, right. So I mean, it's lip service for the stock market, it's lip service, for their for their, you know, phone calls with their investors. But they're not doing what they're saying they're going to do, which is reduce hiring, reduce hiring is half a million. Now normal months tend to be about 200,000 reduce hiring should be 100,000 new people being hired or 50,000, not 500,000.   Michael: Yeah, yeah. It's so interesting, Neal. So how do you take the data and use it when you're investing?   Neal: So one of the things that I do, and I'll kind of give you a little story on this on how I got started, so right, so I'm a data scientist. So right around 2009. I am, you know, looking at the real estate market, and everything looks incredible for me, of course, everyone else is telling me this is the worst real estate market of all time. So I go and tell my family, we should be buying all kinds of real estate today. Just buy everything in the marketplace, you know, with every last dime you have and then my family basically decides that I'm so stupid that they don't want me attending family events in case I infect other people with my horrible ideas. So I'm excommunicated from the family because, they like this guy is going to infect other people and we're going to lose millions dollars. So I'm like, okay, I'm gonna prove these people wrong. So I go and get gathered the best of my data science information and  I mined the Zillow website, I mined the Bureau of Labor Statistics website, along with a Ukrainian hacker was pretty good at mining. So we, you know, gather all this data together, we put it in a statistical software called R and we look at every city in America and up at the top is an unknown city, a town called Madera, California, mid era, it's 20 minutes from Fresno, right?   Nobody's ever heard of Madera, California. I know Madera, right and so Michael, what my data is telling me is, Madera, California is by far fallen way more than it should have, because from Peak 2005, it had already fallen in 2009 by 73%. So prices had fallen by 73%. But most markets fell by 30 and 40%. You know, some markets didn't even fall that much like Dallas only fell by 11%. So I'm looking at this falling 73%. I'm like, statistically speaking, this is the greatest market of all time. So I drive a jump into my car, I drive 144 miles to Madera, and I go there, and I see all these very beautiful Kaufman and Broad homes. They're like, gorgeous, like, they're brand new, right? Nobody's clearly nobody's ever lived in them. So I go to a broker in Madera, and I say, hey, what's happening here? I mean, these homes are gorgeous, right? Why doesn't anybody want to buy them and the answer is, well, Kaufman and Broad basically sold these two farmworkers, none of them had documented income. They've all left, so half the city's empty and I'm like, so. So what does it cost to make these beautiful five bedroom homes today? So it's like, yeah, if you were doing new construction would cost 250,000? So I'm like, but I'm, what are they available for? Oh, you can buy these for 90,000 any day, you know, they're all available for 90,000. You can buy as many as you like and I'm like, why in God's name? Would I not buy these for 90,000? He says, Neal only for one reason, one reason only one reason. You can't rent them. There's too many empty homes in Madera, so you can't rent them.   So you basically would have to buy these homes and then keep paying your mortgage in the hope that the market comes back someday. I'm like, I have to find a solution to this. There has to be a solution. So I jumped in my car again, I drive another 20 miles to Fresno, which is the big city, right and I go there, and I talked to a broker and I say, I want you to sell me an ugly property. He's like, Neal, no, no, no, no, I'll send you a brand new one. I've got plenty of them. None. I said no, I want a 30 year old ugly property in Fresno and he says, okay, well, these, you know, sells me a property. I buy it in cash. It's $110,000 on Summerfield, right? I take that property, I put pictures up on the web, and I go to my Ukrainian team and I say I want to In an avalanche of leads, rental leads for this one property and they're like, why? I mean, it's a pretty decent rental market in Fresno. Why do you want that many leads, I'm like, trust me, just give me like 5000 leads for this one property and they're like, okay, so the guy is sort of goes to back to his Hacking Team, and he hacks a bunch of sites, and he writes a bunch of scripts, and all of a sudden that property is like on the web 300 times in 26 different places and so is just listing it continuously using his engine and before I know it, the phone's just ringing off the hook, I'm, you know, my mailbox is filling up with leads. So I hired a person in the Philippines, this lady on a full time basis, and I say, call every one of these people and tell them this property is rented. But I have nine brand new properties 20 miles away in Madera and I will give you $50 amazon gift cards, if you just drive there and attend an open house $50, no questions asked. We'll just give you an Amazon or gas card and so she starts making phone calls. She was pretty good at her job. She'd been in a call center and you know, half the people swore at her because they would they were like, yeah, but this is not press No, this is Madera and it's like, well, this property is rented, I, you know, I've got these options and she would keep sending pictures to them by text, right, because people weren't reading, reading their emails, she would keep texting pictures of these beautiful properties and before I knew it, people were attending those open houses, I already had to deal with the banks where the moment I got a rent contract signed, I would pay cash for the property the next morning. Well, before I knew it, 11 properties were rented and then I turned around and repeated my success with my family and all of a sudden, I was making massive amounts of cash flow on these brand new homes, that now of course, they're all you know, $400,000 each.   But even back then, I was making so much money every single day on properties that I knew had to come back. It's all about the cost of construction. You don't hear about this on podcast, if it costs $250,000 to build something, and it's available for $100,000. Buy it because construction costs have never gone down in human history. They've only gone up and they've gone shockingly, up in the last two years. But even before that they've never really gone down. Nobody was able to reduce construction cost during the 2009 downturn. They simply didn't build anything, right. But did anybody get a reduction in construction costs? That's not possible. Most of our construction material doesn't even come from the US or I mean, our steel comes from places like China, right? You can't get a discount simply because your economy is in a recession. So it's all about construction costs. So once I had proven this algorithm, I decided I'm going to tell the world about it. But that's another story. So that's really how I got started in in single family and then I wrote algorithms, again and again, published them. As I said, the first time I had people that were for people listening to me last week, I had 1100 people listening to me, it's really about those algorithms. The only thing that's changed and this is the answer to your question, sorry, long winded but the answer to your question is, what I found was, when I spend this, use the same algorithm for single family that it has everything that I can possibly imagine except scale, I can never grow to a billion dollar portfolio, I can maybe grow to 10 million or 50 million, and a lot of people have. But if I apply the exact same data with multifamily, I have an 18 month crystal ball and I'll explain what that means and I was getting the same exact results. But because I was buying 200 units or building 300 units at a time, I was able to hit my goal of a billion dollar portfolio and I did it in I don't know that from 2014 to 2021, right. So seven years, I was able to hit a billion dollars. You just can't do that in the single family side. Otherwise, single family pretty awesome.   Michael: Neal, I love it. I absolutely love it. What happens and then I want to hear about your 18 month crystal ball. But what happens when things switch where the cost of new construction is cheaper than buying something that's existing?   Neal: My business is in trouble. We're all in trouble. But and so I obsess over that greatly. I go to all the conferences where I see new real estate technology coming out. I go to the modular conferences, I go to the 3d printing conferences. I look at what Amazon is selling online in terms of you know, kits I look at. I look at everything and I can tell you with complete confidence that in the next five to seven years, there is no technology that will drop cost of construction in the US. The first technology that I think will make an impact right around the 2030 timeframe is 3d printing. Modular is a laughable technology in the US. less than point 1% of homes in the US are made through modular and the total volume of modular factories in the US is under 5000 units. We need a million. So unless Congress decides to put $150 billion towards building ala carte factories, there's no volume and because of a company called KATERA, a very famous company K A T E R A going out and losing $2 billion of investor money. Nobody in the right white mind wants to build a modular factory modular completely, you know, not useful. 3d printing, yes. But remember, 3d printing only works in edge case scenarios, because the property looks odd because of all that concrete that you have to basically put on. So I think it'll work in subsidized housing for the first 10 years. So let's say 2030 to 2040. It'll be in subsidized housing by the end of 2040. I think 3d printing will completely change all math around construction and we'll do a full reset of real estate. So luckily, I'll be gone long before them.   Michael: I would say, well, hopefully this podcast is still in existence, we'll have to have you back on in 2040. To talk about it. Yep, so give us give us some insight into your 18 month crystal ball because that's something I've never heard before.   Neal: Yeah. So I love you know, again, going back to Statistics, right? So when we're crunching numbers or big data with our teams, one of the things we realized is when a market starts to see home prices going upwards. Okay, so it's home prices are screaming upwards, right in a certain market. What we noticed was between 12 and 18 months later rents in that market explode. Okay, between 12 and 18 months later, but not immediately and you might say, why not? Well, the short answer is, what happens is that there's a bunch of people in that market that are looking at home prices going up, and everybody wants to be on that train when it's going upwards. So they jump in, they buy these homes, and then that makes more people want to jump in and buy those homes, because they're friends, you know, their homes are worth a lot more and so you see this upward momentum and then finally, the market hits a critical point where most people that are looking to buy a new home in that marketplace, their income doesn't allow them to qualify, not most substantial portion of those people, right, so you get to maybe a quarter of all the people in market X can no longer qualify based on their income, right and the moment that happens, those people, they realize that their dream of homeownership is gone forever and then they don't want to go live in an apartment, what they'd want to do basically is they either wanted to go live in a class A apartments, so it's amenitized, with pools and gyms, and all those kinds of things or they want to go live in a built to rent community, which I'm building lots of, which essentially is the same as a single family home, but it's for rent.   But it's better than a single family home, because you've still got the pool and the jacuzzi and, and the dog park and the park, right, because it's 200 single family homes in one community, it's just that you're renting that home instead of buying it. So now you have a massive increase in demand for those kinds of assets because people realize I simply cannot buy any more unless I get a huge salary increase. I'm going to be renting, then those people they want to rent the best property they can find. At the very high end, they're going to be doing built around a single family rentals below that they're going to be doing built around. Below that they're going to be doing class a multifamily below that they're going to be doing Class B and Class C multifamily. So all of these rental markets see a massive boost. So this crystal ball works for every market, we've never actually found an exception to this rule with some weirdo exceptions in in rent control markets where rents simply can't rise. So as long as the market is not rent controlled, we have never seen an exception, the crystal ball works. The only part of it that is a little fuzzy is sometimes we see rents going up as soon as 12 months after the explosive growth of home prices and sometimes it takes 18 months.   So that crystal ball makes my life so much simpler because crystal balls are so hard to find actual crystal balls and reliably work are so hard to find. So I just look at these markets that are seeing these massive increases in home prices and I go buy a multifamily there, I have a business plan to rehab that multifamily and do value ads with it and do or maybe I'm doing new construction. So either way, I have a business plan. But that's my plan A but what I've found so far is in every instance that I've done this plan B has worked better, which is simply the market just went exp has explosive rent growth. So I didn't actually ended up implementing my business plan. I simply ended up selling my property in 18 to 24 months and making my investors a lot of money. I mean, I don't know of anybody else in the US that uses Core Data Science, not just numbers, but core data science to do what we do. We've had 37% IRR 47% annualized returns for our investors by simply using the crystal ball over and over again, over and over again. I mean, and I can tell you what those cities local like today, and I guarantee you've not heard of many of those cities.   Michael: Neal, I love it. What would you say have seen massive price appreciation? What is that mean because I think massive could mean different things to different people. So is there a percentage that you say, hey, you know what we crossed this threshold, that's the city that I want to invest in?   Neal: Oh, absolutely. The short answer is with multifamily. It's only about 25- 30% increase in prices. So one of the things that most people don't understand is, you don't need prices to double to double your profits, because you use leverage. So let's say somebody buys a $10 million building, and $3 million of that is equity, right or down payment, and 7 million of that is a loan. Now, let's say this building goes from $10 million to $13 million, right? So you've it's only gone up 30%. So if you sell it for 13%, and you return that $3 million in equity, right, there's $3 million in profit, plus all the rents you got for two years while you were holding it. So you've doubled people's money in two years or three years, right, even though the property's only gone up 30%. So that's very important to realize, 25 to 30% increase, usually doubled investor money in during the whole time and recently, those hold times have been very short, two years, two and a half years. So essentially, that means 45-50%, annualized returns. Now in normal times, it takes about five years to get to that point. So you're, you're doubling investor equity in five years, but that's still 20% annualized returns and I think that's pretty awesome because the investors are doing nothing, they attend a quarterly webinar, and they read a monthly update and if they, if they like you, they don't even do that. They just sort of delete your emails when they come to cash flow, right. As long as their cash flow checks are coming in. They're not reading anything you're sending them.   Michael: They're not complaining. That's it, that's it. Neal, this has been so much fun. Where can people learn more about you continue the conversation, and what's the best way for them to get in touch?   Neal: So I'm lucky enough that I'm the only Neal Bawa on the World Wide Web. So simply typing in any URL, and bawl and hitting enter into Google. There's a couple 100 podcasts that I've been on. They're geeky and nerdy, like this one too. But and if you're interested in my metrics, if you want to figure out what is that next unknown city that is going to have explosive growth, type in Neal space Bawa space, location, magic into the web, and you will see a 45 minute course that walks you through that process. So you can find those cities yourself. Or you can simply be lazy and go to my website multifamilyyou.com and find location magic they are sometimes we call it real estate secrets, same webinar, go in there and there's a list there's a list of those cities. You know, and I believe a lot of them are tertiary markets, but a lot of them are actually 35 minutes away from some kind of primary or secondary market, I find that the primary market secondary markets are really too expensive and are at much greater risk today of price drops. So like I wouldn't go out and in buy a property in Austin. But I've surrounded Austin with seven different properties because I find it to be the hottest city in America for the next 10 years. I'm just not interested in paying what I have to pay what I would have to pay in Austin. So I've literally surrounded Austin in all four directions with my portfolio.   Michael: Super clever. I can't wait to see how that works out. Neal, thank you so much for taking the time and coming on sharing with us. Really appreciate it and I'm sure we'll be chatting again soon.   Neal: Thanks for having me on the show.   Michael: Okay, everyone, that was our show a big thank you to Neal for coming on. Tons and tons and tons and tons and tons of meat and potatoes there to go digest and really think about because Neal kind of flipped the script on what a lot of people have been saying for a long time. So as always, if you enjoyed the episode, definitely we would love to hear ratings, feedbacks review from all of you, and we look forward to seeing the next one. Happy investing…

Gino Barbaro is an investor, business owner, author, and entrepreneur. As a real estate entrepreneur, he has grown his portfolio to over $100,000,000 in assets under management and is teaching others how to do the same. Gino Barbaro is the co-founder of Jake & Gino, a multifamily real estate education company that offers coaching and training in real estate founded upon their proprietary framework of Buy Right, Manage Right & Finance Right ™. When starting their real estate investing career, most investors initially think about buying a single-family property (whether that's one home or a condo) and renting it out. Multifamily, though, is an entirely different story. Few people have experience buying an apartment building, let alone being in charge of running one. How does multifamily compare to single-family investing? In today's episode Gino shares insights on being a multifamily entrepreneur and syndicator.   Episode Link: https://jakeandgino.com/ --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, what is going on? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Gino Barbaro, and he's going to be talking to us about being a multifamily entrepreneur and syndicator who used to be a restaurant owner. So let's get right into it.   Gino what's going on, man, thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Gino: Michael, thanks for having me on. It's gonna be a lot of fun. We're going to talk a remote investing seems like an all you single family, people out there. Come over to the dark side. The dark side is multifamily. I know it's the pie in the sky out there but trust me if the pizza guy and the drug rep can do it. Anybody can do it, Mike.   Michael: I love it, I love it. You know, so I know a little bit about your background. Give all of our listeners who might not be familiar with who you are, where you're coming from, and what is it you're doing in real estate today.   Gino: When people ask me that my wife always says Gino, you need to expand upon your background and I'm like, I hate talking about myself and I could spend the next 30 minutes talking about myself because I'm not a young dude anymore but real quick. I'm gonna give me the 32nd overview. I got into real estate, probably out of college family. I went into the restaurant business and it was awesome. The first 10 years the restaurant business back in the early 2000s. Late 90s was phenomenal every business was great back then you could actually have an you know, a middle class lifestyle that way we were having a small business 2007 hits my father passes away and I went to work with my dad since I was eight years old. So I was in the business with him. I saw him every day and at that point, I start saying to myself, and I've shared this story a couple times in my living his dream or is it really my dream coincided with the Great Recession of 2008 all of a sudden, I'm working harder.   I've got freaking GrubHub I've got Uber I got all these things delivering you can buy Taco Bell for three bucks was gonna come on by Geno's pizza. You know, I mean, the competition was fierce. I was losing the appetite for business because I didn't have a business. I basically had a job. How many of you out there feel like that have a small business and I didn't understand core values. I didn't understand how to scale a business. I had one restaurant, and I met Jake. Fortunately, in 2009, he was a pharmaceutical rep getting food out of my restaurant and delivering it to doctors' offices but that was starting to end because of Obama's Sunshine Act. So that started waning and Jake says to himself, I'm leaving New York, I'm going to Knoxville Tennessee, and me is the proud New Yorker says where's Knoxville didn't know where it was back in 2009. I didn't and he goes down there. I would open a laptop. I'm like, dude, you got some deals down here. Let's start looking at deals and at that time, I was fortunate because I just started my mentorship program. I started investing in education. I knew the business aspect of it. I had done a few deals prior that were terrible. They weren't real, they weren't multifamily. There were other real estate deals and that's why I decided to really get focused on the education aspect of it. In 2011, we get together and partner up, it takes us 18 months to find that first deal. We closed our first deal in 2013. The rest is history in like five years, we were able to close 1500 units and we're sitting at around 1600 units right now with you know, one syndication and the vast majority of our portfolio is owned by just me, Jake, and my partner, Mike and some of our, you know, employees are investing in our deals but you know, I guess probably the most important thing I left out as I've you know, husband, wife, a six, my wife, we have six kids, homeschool of six kids, I've got a 23 year old down to a seven year old and you know, everyone always asks, what's the why do you do what you do?   You know, always said that's the big question, Simon Sinek and for me, it's not really anybody can say family and it's really important, obviously, the family. But for me, I wanted my kids to have a really healthy understanding and a healthy relationship with money. I wanted to be their role model, I wanted my kids to see me that I love my job and I want to sit here in the studio, love what I'm doing. I also want my kids to see that we can create impact in our lives and really work towards our sole purpose and I saw that as multifamily as being that that vehicle. Now if I was educated enough where I was more intelligent enough younger, I could have done that with the restaurant. I just didn't know how to set up the business and with the restaurant, I still would have had to work on the weekends, I still would have worked the holidays. It was a different lifestyle. So I think multifamily is just gives you that amazing lifestyle. It gives you the generational wealth and it's also given me the ability to create legacy skills for my kids. I'm not going to give my kids a pile of money. I want my kids to work and to learn those skills and to be able to say hey, dad, you know what real estate really is a business so you can become an entrepreneur doing this and here's what you need to do and I want to translate those skills into my children and as well as the Jake and Gino community. That wasn't 30 seconds Mike I'm lying. It was probably about six minutes but I try I'd my best bro.   Michael: You're pretty close. So, you know, rewinding the clock a little bit, you said you did a couple of deals that didn't go so well, and then you kind of ended up in multifamily. So talk to us a little bit about what those deals were and then how did you end up with multifamily, like, how did you come to that conclusion?   Gino: A person with money meets a person with experience, the person with the experience gets the money and the person with the money gets the experience that was made in the first two deals and, you know, it's one of those things where one of our coaches says you either pay for your education in the classroom, or on the streets and unfortunately, I paid on the streets and looking back at it, it was, it wasn't my fault. The first deal, my partner was terrible. He was probably bordering on criminal, we had a syndication going on, but it wasn't a syndication but at the end of the day, I am 100% responsibility junkie. So it was on me not to do due diligence, it was on me not to flower to the property, it was on me to invest in a deal. So even though it was his mistake, ultimately, I had to take responsibility and that was a shift back in 2008. When I read the book by T Harv, Secrets of the Millionaire Mind, I understood that your fruits are in your roots and if you don't take responsibility for your actions, I mean, shame on you. I mean, I made a big mistake, I should have never invested in that first deal. That didn't stop me again. It's my second deal in 2000, late 2006 had extra money lying around, we bought a building up in New York, what are the wrong part of the cycle, wrong market, blah, blah, the list goes on and on made a huge mistake on that and then I ultimately said, Listen, I've got a four Plex that I invested in years ago. I liked the small multifamily. I can do it part time while I'm working the restaurant and I like dealing with residents and it's an asset class that I understand renting out. I don't know anything about commercial leases. I don't know anything about mobile home parks. I like the basic human need, its food, clothing and apartments. I like that my brain can understand that and that's a pivoted me over multifamily and didn't know anything about syndication.   They just knew that if I keep buy a couple of these a year, refinance my money out and continue to, you know, build a portfolio, there was no burr that you know, 10 years ago, 50 years ago, there was just a refi and roll. That's what we call it and that's why I got into it and I love the model. I love the simplicity, I could do it part time. I didn't want to get into single family homes, because I didn't want to fix and flip I had the job already. I'm like, how can I pay for my kids college and how can I pay for my retirement and how can I pay for their weddings and I'm like, well, I know what wealthy people do. They don't save for the event they save to buy an asset and that's why that's what ultimately shifted my mind and are they I'm gonna buy these assets. I'm going to start building wealth and I'm gonna let these assets pay for these events and that's why to me multifamily was a natural fit because I did not want that nine to five fix and flip mentality, work all that I'm already making transactional money, how do I get that equity and how do I build my wealth at the same time and I thought multifamily was a fantastic vehicle.   Michael: I love it and just for our listeners, let's clarify something when you say multifamily. What is it that you mean because there's obviously the small multifamily and then commercial multifamily. So it's clarify for us, what do you mean?   Gino: For multifamily to me, it can be duplex, you can go out there and buy duplex that's a multifamily to me maybe if it's for commercial purposes, five units and more is commercial. But crap. I mean, I bought a four Plex back in 2002. I sold it in 2019. That little bad boy cash load for me every month, I use it as part of my business one of the garages, I was paying myself 1500 bucks a month for to rent it because it was a it was a storage unit there as well. I would store the stuff in the restaurant there, I had rentals coming in, I was able to leverage it where hey, you have to plow that driveway, you plow my driveway, give me a break. So that four unit paid me really well over the years I use that as far as cost segregation went. So you stack a few of those little multi families and the sky's the limit and I want everyone to really think about this process that we were talking about. I'm talking about the conveyor belts, we were coming out with this trademark. It's called conveyor belt of real estate and what it is it's an imaginary conveyor belts in front of you picture in your mind, you're starting to buy assets, or you're starting to stack these assets on this imaginary belt, and it can be a two unit. Then next year, you buy a six unit, then it's a 12 unit and as these assets start to matriculate, and you start to get equity out of them. What do you do with them, you either refinance them out, pull the pull the equity out, and put it into the next deal, or you sell it, or you continue to hold it but you want to start putting assets in that conveyor belt. It doesn't matter how big they are, it matters how well they're going to do for you and just starting, if you're waiting to buy assets, you're waiting for the next correction, it's never going to come you have to be ready when you're ready. I was ready in 2011 with Jake, I said I'm done. I need to start and in 2013 everyone's like oh the deals are great back then GDP suck. It was a 1% rents back then for a one bedroom worth 350 bucks. Now rents that same apartment complex for 995 plus rubs because we still own it. So evaluations have exploded. There was no syndication back then. You couldn't you couldn't read was money back then who nobody was giving you money to buy multifamily cap rates were high, because there was a lot of risk in the market because the economy was terrible. So don't blame circumstances or where you are in the part of the cycle. Great Investors, whether you're in the stock market, real estate, self-storage, you're making money on them when the market goes up and when the market goes down.   Michael: Yeah, no, I love that and you know, you said something that I want to come back to because I love the strategy. But you said rubs rent plus, rather in Santa Ana five plus reps, what is rubs for all of our listeners,   Gino: Sorry about that. So rubs his ratio utility billing system and what happens is a lot of these Mom and Pop owners when they have a property, and it's all bills paid, so let's say a little 10 unit apartment complex, and there's one water meter, well, the owner traditionally pays for all of the water on the on the property, because there's no separately meter. So instead of separately metering it, what you would do is you'd buy the property, and then you say to yourself, okay, the water bill is $1,000, there's 10 units, I'm going to split up and pro rata share each one of those and let the residents pay for that and it doesn't seem like a lot of money. But if there's 10 units, and let's say the water bill is 50 bucks per unit, 50 bucks times 10 unit is $5,000 a month of 50 bucks times 10 is $500 per month, and then times 12 is $6,000 a year. Now, $6,000 a year at a 10 cap is $60,000 in value at a five cap, it's $120,000 that you've just created in value on a little 10 unit apartment complex.   Do you think you can get rich doing that once every couple of years? How many pizzas do you need to make to make 120 grand? You don't know, I know there's a lot of flour and a lot of sweat doing that. So there's so many ways to make money in multifamily and that's just a little 10 unit apartment complex. We've done that with 300 unit apartment complexes where all of a sudden, you're billing back. That's your billing, you can't build back more than what you're collecting. But you can build back for water sewer garbage trash, so you can collect it all back and obviously if the market allows it in Knoxville, Tennessee, where we are, it's traditional up in New York, we can't do that I had an oil tank for a four unit complex and my four units. That was just one heating bill. So what I did it I raised I raised the rents on average about what it was costing me to do that. So either way, you need to get it back to the residents, because they're the ones who are utilizing it and obviously, the most amazing thing happens socialism doesn't work. All of a sudden, they're seeing that they get no water bill, guess what? Water consumption goes down. So not only is it good for you, it's good for the environment, people.   Michael: Yep, no, I love it. I love it and people always make the joke, you know, the owner is paying for the heating in the wintertime, windows open heats on 80 degrees in the house and it's like come on.   Gino: And that's it's real, Michael that that I mean, I drove by that place on or when I had it back in 2015. I drove by one day putting stuff in, it was 22 degrees out in New York and I see the window up and I go up says I go Bros and they're like, Hey, there, it was 84 degrees that throws in Jamaica or something. I'm like guys, really, and they're not paying for the heat, because just kicking along. So for those of you out there, what I ended up actually doing was I ended up bringing the thermostat to the basement and putting the thermostat in the bait leaving the thermostats upstairs, but putting the control downstairs in the basement. So I had the control set. So then they couldn't touch with the controls and I was I was able to control all of those three apartments from that thermostat that was located in the base because after a while, it's like you get fed up with it and that same apartment complex I had all of the electric on one electric meter for the three units and I would always drive into that place my father would always tell me show you that the lights on the old Italian guy, the lights on the Dekoven are what are you gonna do? I'm like, Dad, I paid I paid the electrician six grand they get it a whole new panel and everything and that was the best six grand respects I shut my dad off.   Actually got I actually got electric consumption down. I pushed the electric onto them. So there's a ways that you can you can you can, you know, save the multifamily and you talk about a single family home, you can do that with one unit. But can you imagine if you have a 50 unit complex, are 100 unit complex. I think with entrepreneurs, the more problems you solve, the more money you're going to make. So the more residents you serve, the more units you have, the more money you're going to make and that's the dawned on me when we thought when we bought our first 25 unit property it was like wow, I 25 units in one location Jake is doing his pharmaceutical thing I'm doing my pizza thing. We can manage all 25 of those units, you go to the complex once and collect rents there you're showing units there. Every unit is very similar. So it's very easy to scale that you know where the hot water heaters are, you know, where the you know, one or two roofs on the property one or two landscapes grasses to cut hot water heaters. It's all very similar. You're buying basic boxes, and it's so easy to manage and it's so easy to scale that model as opposed to single family homes. Now if you're doing single family homes, congratulations because we've got a bunch of students in our community. I mean, there's one guy Andy and Scott, and they're both from Scotland. These guys amazing. They bought 100 they're up to 100 single family homes and it dawned on them maybe I could be doing something different.   Amazing, they're managing themselves and they still got a W two job one of them, kust the I don't even know how exactly, it's amazing. But to do all of that, you could have bought 100 unit complex and had the same scalability and had the same results. But you don't know what you don't know and that's what happened, me and Jake, we thought, hey, four units, let's do that we're great. 25 units, great. But once you start buying these assets, you start seeing, and I'm sure a lot of your guests have said, this is just numbers on a paper, right? That's really what it is, your behaviors are belief driven. If you think you can buy a 20 unit, you can, if you think once you've done that, you're like, oh, I've done that. Let me push the envelope and go to a 40 unit, then you can believe you can do it, then you'll end up achieving that it really does limit us sometimes when you think you can't do something is everyone's always saying to me, well, what's one of your regrets. One of the regrets was I should have probably started buying 100 units early on, but I didn't have the skill set, I didn't have the mindset to do it. So wishing I would done something and actually doing it are two completely different things.   Michael: Yeah and I think that makes a ton of sense and I'm a big believer in that too. But do you know, let's touch on like the mindset, because so many folks in our community, both on the rootstock side in the Roofstock Academy side, are very comfortable with single family because they understand it, they lived in one or they've owned it as their primary, they maybe never owned an apartment building or maybe I've never lived in an important thing. So if for whatever reason, there's this mental hurdle that needs to get overcome to make that leap. What does that look like and what have you seen work for people in describing and kind of coaching people through how to make the leap from single family to multi?   Gino: Michael, that's a great question. If I had to stop and think for a second, I think multifamily tends to be more of a team sport, or a single family, people are more comfortable owning three, or four, or five or six, and they're doing everything themselves and unfortunately, there's a book called Built to Sell when you're buying single family homes scattered about you don't have anything really that's I'm not saying that that's sellable, you can still package it. But there's not an intrinsic value. As far as if you're having these apartment complexes, where you're looking long term and saying, hey, I have this 40 unit here, this add to here, much easier to sell, they're more of a business and it's the much higher multiple. When you're looking at it, I would say if you're really afraid of getting into the multifamily space, first thing I would always recommend everybody to do is what I did, I just go out there and pay for your education. I say invest in education, but find a mentor, find a group, find somebody who's doing it at a high level that you really respect that you really admire and the accountability piece that comes with it. Once you spend money on that you're going to show up for those calls, you're going to come to these events, you're going to do the work you got you're going to follow through with what the coach tells you to do, because you've invested in it.   I think the other thing is start small, I would say think big think as big as possible. But start with a two unit or a four unit. It doesn't matter how big it is. It just matters that you buy something and my other thing is I will probably would not be here if it wasn't for my partner, Jake, I had an amazing partnership and for us, we only needed just me and him. It wasn't anybody else. It was just the two of us. There's groups in our community that have three, four or five people on because one's a capital raiser one's boots on the ground, one's an underwriter, one loves to talk to investors, just start out small and start out if you can't do it yourself, find somebody who's going to hold you accountable. Find someone who has, you know, their, your values aligned with each other, find someone who's going to want to be into multifamily for the long term, instead of someone who's jumping around in crypto and next week is self-storage and the week after his mobile home parks really playing your flag and multifamily, give yourself a couple of months to do the homework and then go out there and start networking and selecting that market is very, very important and once you select the market, start networking with brokers, and you know if you're in a community with other community members who are investing in that market, and like I said, it's important once again, start small, you don't have to start with an eight unit complex. Start with a duplex a quad and what I've seen from students and myself and Jake, you know, very similar, you'll start with a two, then go to a six, then go to a 20 unit, then when you're 20 units, you're like I don't have any more money, well, maybe you'll refi a deal out or you'll start syndicating and raising capital for a larger deal. I think the quote from Mark Twain I always I always mentioned it's not what you don't know that what hurts you. It's what you know, for sure. That just ain't so and what I really mean by that quote is that people like well, you need money, and I don't have any money, or I don't have a balance sheet to get into multifamily and I mean, did Mark Zuckerberg stop from creating Facebook because he didn't have money. He had an idea. He had no money. Michael Dell, Bill Gates, a lot of these entrepreneurs didn't have the money, but they had the idea and they have the experience and they had the systems and they had the knowledge. If you're gonna get into multifamily learn the business itself and if you can understand how to create value in that space, you'll learn how to raise capital for these deals, and you will begin to bigger deals.   Michael: I love it, I love it. Do you know let's talk to that was it Andy and Scott, who are two of your students that have the 100 single families? Yes, talk to the Andes and Scouts of the world for just a minute and they understand clearly the single family mechanics how to buy single family homes. So what we love on the show is really actionable steps and takeaways things that people can go really chew on. So what are the physical mechanics that are different rent for somebody if they want to go buy that quad. It's like I understand single family, what do I have to do differently to go and get into a quad?   Gino: Andy and Scott did something that I don't think a lot of people in the single family space and very few people in the multifamily space do. They have a certain buyer criteria that I don't even think they understood themselves, they were buying a specific house in Section eight with a specific tenant and a specific area with a specific unit mix and I looked at your portfolio and like wow, you guys own very similar with using creative financing. I mean, it's amazing how dialed in they were for us when students start learning the process and this should be for your single family home investors as well or any market real estate market niche understand where you are in the market cycle, we call it the three pillars of real estate because this is really important and no take notes on this because this translates I think throughout all niches real estate, the three pillars are market cycle, their debt, and their exit strategy and you have to understand where you are in the market cycle of your specific market. Because back in 2013, that was a buyers' market cycle, back then you're buying anything you can you're buying old assets, new assets, old assets, because they're cheap, and there's a runway for you to make money on them. So you can fix them up, buy them cheap, fix them up, and then sell them.   It's very similar to the single family space, as the market cycle gets longer, and there's more risk and these assets are getting older, the older assets, those older houses are probably just as much as expensive as the newer houses. So why buy the older houses with all that capex and all that work, where you could buy something a little bit newer, and you're going to hold it for a longer part of the market cycle. So understanding where you are in the market cycle will help you formulate what you're buying. Right now we're buying assets that are newer, we're buying assets that are in really good parts of the market, because the market cycle right now, if there's a downturn, guess what you're gonna have to hold on to this deal a little bit longer than what you thought I'd rather buy an asset that's a little bit newer and that's in a better market part of the market cycle and a better part of the market than something that's older. So we've transitioned into that. I would also say that exit strategy, understanding what you're going to do with this, you know, a lot of people buying these homes, what are we doing? Are we going to keep them for the next two years? Are we gonna flip out, people just buy a deal because they think it's a great deal? Well, every deal, as our coach Bill Hamm says, you know, wheels up, you're on the air, he's a pilot, you're flying that plane, you don't have to take off, you'd have to buy the deal. But once you buy the deal, that deal is gonna land sooner or later, you're you know, it's either crashing down crashing, you're gonna get foreclosed on, you're going to sell it, you're going to refi it, whatever that looks like. So understand what your exit strategy is and then let's talk about what the debt component is because once you know what the exit strategy is, are you getting bridge debt? Are you getting community debt? Are you getting agency what we talked about Fannie and Freddie and these bigger multifamily deals? Is it going to be shorter term debt, long term debt, we're even using credit unions. Credit unions are really big in this space and multifamily is all of a sudden they've seen they're not banks, they're nonprofit. I don't know how they make their money, but they're getting their way into it and it's really a big viable option.   But once you've taken all that into consideration, you're looking at the three pillars of real estate, you're looking at market cycle, debt and exit strategy. Now let's chunk down what kind of assets you're buying in multifamily, specifically and even single family, what kind of homes where are these homes located and for us, we like to look at median income, because we're looking at median income, we can figure out what kind of renters there are, when we've made mistakes on deals, it's when the median income is lower, it's mid 30s 35, 40. That's when we have problems when we're buying in those areas that are marginal, because unless you know the path of progress is going there, meaning incomes gonna rise. That lower median income means you can't raise rents as much it means the quality of the resident is harder, there's more return on effort. There's so much effort involved in that asset. So be wary of that. So we're looking for specific median income, at least 50 grand we're looking for our for our specific, you know, niche. We love two bedroom townhomes. So if you're if you're a single family home investor, okay, I want to look for three bedrooms, two baths $50,000, median income, this part of the city I like garages, whatever that looks like. So figure out what for your criteria is because when you're looking at a deal, you can just check it off and say that doesn't fit my criteria or hey, I liked this deal. Even more importantly, when you're talking to brokers, you can push it out to all your broker friends and say when this kind of deal comes across your table, call me up and getting crystal clear on more, I guess buyer criteria. We love assets that have amenities in the multifamily space washer dryer hookups, for some reason are really huge.   So maybe in the single family space, hey, you want to have a place with a pool, maybe a little patio, Little Dog, a little enclosure place for the tenants, or maybe having washer dryer hookups in the single family home and offering that amenity as well. So figure out what the criteria is what kind of asset you want to buy. I think that'd be really helpful for anybody, whether they're buying single family homes, whether investing in self-storage, or multifamily and this criteria is going to change. That's why you really need to stay educated because market cycles change. As the market cycle changes. You're going to you're going to be buying assets that are different because as the as goes from a seller's market back to a buyers' market prices are going to drop, you're gonna see those see assets come down in price, maybe. So looking at those assets more you can pay it's a function of price. If you can pay less for an asset in those buyers markets, you're more willing to buy an older asset because your capital requirements are still there. But you're still able to make money because there's a bigger, bigger, bigger price range where you can go up holding these assets for a little while and refine them is really important in our strategy as well, I did it.   Michael: Gino, you said something that I want to circle back to you were talking about the exit strategy and I love the pilot analogy that you shared a question for you if someone is listening to this, and they're just getting started and they understand that real estate investing is great. It can be powerful to understand the fundamentals. But maybe they're not sure what their exit strategy looks like. They can't think that far ahead. Should that person wait? Is that person not educated enough in your opinion or should they? Are they okay to figure it out on the fly?   Gino: That's a that is a good question. I started not understanding it myself. So don't let that hold you back. I you know, the thing is we it's so hard to be an entrepreneur and to be an investor and to how we will we call the long term mindset, we created a brand called the 100 year real estate investor because what me and you're doing right now, our actions are affecting our kids and our grandkids. That's the reality. So if you're waiting to buy multifamily, you wait five years, well, that's five years that you could have owned something and waiting and waiting and waiting for me. When you buy an asset, it depends on the size of the asset. If you buy a $50,000 home, there's less risk in that than investing in a $70 million multifamily. So it depends what you're starting on as well. Also, that's the that's the important thing. But getting clear on why you're choosing real estate. I mean, why real estate? There's so many vehicles out there. There's so much out there. Real estate is a business and I think people don't understand that I didn't for a long time i Our slogan Jake and Gino as we create multifamily entrepreneurs, that that's the reality when you buying real estate, you're buying an asset, but you're also buying a business. How many investments can you do that with if you can think about it, you're buying a stock, you're just doing an investment as a stock.   But with real estate, you can become a real estate professional, it can really help you immensely on your taxes, you're actually buying assets that you start asset, managing it and looking at it from the from the investors perspective, and you're able to scale up and start hiring people. So you're building the business and then from that, you're able to create multiple streams of revenue from that one asset. So if you have 30, single family homes, you're out there, you're like, wow, okay, I've got 30 singles, I can start an education platform. I can start writing books, I can start doing YouTube videos, I can partner up and I can start lending private money, I can start doing hard money. I can have a little fix and flip business going on. I can get my broker's license, Title Company, why don't I partner up with Sony's as a title company all these different streams of revenue coming from that single family home portfolio. We did the same thing with our mobile with our multifamily portfolio, we started the education company, we started a syndication company raising capital, we have a development company now that will start building multifamily assets. We have 100 year company that we're selling whole life insurance to our you know, students as well to be able to invest in multifamily. So I think when you're looking at real estate, and you haven't started yet, it's an amazing business, learn the whole entire business and the and the opportunities that it gives you because that's why I want people to stop investing in single family and get into multifamily, because you can start hiring out a property manager, you can start hiring out maintenance techs to help you with that part of the business. That's very important but I mean, should you be changing toilets. I mean, when you first started, obviously, when you have six to seven units, you should be really going out there paying somebody to do that and your value is an underwriting deals, your values and talking to investors to invest in your next deal your values and creating another business that aligns with multifamily not doing those tasks that really pay 30 or 40-30 to $40 an hour, which is probably a lot in a lot of markets. But still, that's not what you should be doing. You should be focusing on those bigger tasks.   Michael: I dig it, I dig it. Gino, one more question. Before I let you out of here. You talked about being familiar and aware of where we are in the market cycle or where you are as an individual as an investor in the market cycle. Where are we right now?   Gino: Michael, this is one of the weirdest economies that I've been ever involved in and I'm a lot older than you I just don't when a recession. Can we define what a recession is if you're a Democrat, right? The definition if you're a Republican, you're screaming bloody murder. I'm an entrepreneur. I'm trying to figure out where we are. We've added so many jobs but yet companies are talking about laying jobs off. I just don't get a it's a such a dislocation, the supply chain. I try to buy a car a year out from buying a car, airplane tickets or double hotels or not avail I just I can't figure it out. But I think long term. I'm always bullish on the economy. I'm always I know there's there will be a way for to figure it out. Because if the person is not doing the job in office, that's why we have elections every two years. They're going to vote them out. Someone else is going to come in and things are going to change. I think long term real estate is will always be the place to be because it's an inflation hedge my rents are going up the same amount as inflation is going up or rents have been going up the unfortunate thing you've seen what's happened with the middle class, the middle classes get a paycheck. They've got you know, raises of seven, eight 10%.   A person who owns $50 million in real estate, their portfolio has gone up 10% In the last five years or whatever, they're up 5 million bucks. So it's you know, you have hard assets when all this money has been given to banks, what do banks do with this money, they lend it to people who buy assets, so assets have just gotten this natural swell. So if you're looking at it from the equity perspective, it's amazing and like I said, it is a basic human need demographics are such that the build to rent space has gotten huge because people don't want to buy homes, they want to be able to be you know, wanna be able to move wherever they want to their job trips over, they don't want to fix screen doors, they'd rather rent and that's really bodes well for multifamily and further for the rental space going forward and there's not enough there definitely is not enough of a supply of rentals out there and you saw what happened with rents in the last two years are up. You know, Knoxville alone was up 20% last year, year over year in one year because there's just not enough just be aware of where you're investing. I mean, I think areas that have job growth and population growth are always going to stand out. We love the Southeast Conference. You know, Tennessee, Florida, Carolinas Georgia, great part Texas. You know, everyone says Texas is booming as well. parts of Arizona are doing really well wherever you see migration wherever you see people moving to I would say you know bide here and Michael if you ever speak in the next five years anyone listening to this I'm sure even if they paid a little bit too much for the real estate today. They'll be happy five years from now that they invested in the deal today.   Michael: Love it Gino as we get you out of here if people want to learn more about you continue the conversation learn more about multifamily where's the best place for them to get a hold of you and do that?   Gino: Just go to https://jakeandgino.com/ , we've got an event coming out November 5 and sixth it's in it's in Orlando. It's our fifth conference multifamily mastery five we had 900 attendees there last year. I think this year we're going to top 1000 and it's just an awesome place to get with people who are doing deals who are raising money who are networking you're gonna find your next partner there we've got amazing speakers as well so just go on the Jake and Gino website figure out if you've got the ability we call on it. We always call it the financial vacation for smart people because you're gonna be down at Disney you gonna be hanging out with people and it's great. You bring the kids nine to five you know during the event afterwards you're at the resort you go to Disney so that's our flagship event for the search go to https://jakeandgino.com/   Michael: Awesome. Well, Gino you know, hey, thanks again, man for taking the time. This was super fun, really insightful. Definitely look forward to continuing conversation.   Gino: Thanks, Michael. Appreciate it.   Michael: Hey, you got it, take care.   Alright, everyone. That was our episode a big thank you to Gino for coming on and sharing some really great wisdom with everyone. For anyone who is interested in the space. Definitely go check out Gino and Jake's websites and as always, we look forward to seeing on the next one. Happy investing…

In today's episode, we take on listener-submitted questions. We'll discuss calculating cash flow, risk-adjusted returns, getting started without large sums of capital with partnerships, and Michael's personal thoughts on the current housing market. We love hearing from you all and taking on your questions, so please keep them coming. Whether it is through reviews or YouTube comments, we will do our best to get to all relevant questions you all send our way. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Pierre: Hey, everyone, and welcome to the Remote Real Estate Investor. My name is Pierre Carrillo and today I'm with…   Michael: Michael Albaum   Pierre: and today we're going to go over some more listener submitted questions. So let's jump into it.   Good morning, Michael. How are you today?   Michael: I'm good. I'm good man woke up in Washington State this morning on our way up to the San Juan Islands so couldn't be more excited. How about you? I know it's a big day, couple days coming up for you too.   Pierre: I'm doing good man. It's hard to sleep so excited for the weekend…   Michael: Do you want to give our listeners any insights into why it might be hard for you to sleep?   Pierre: Yeah, keep on having dreams that the day is something that can go wrong on the day. I'm getting married this weekend, so…   Michael: Nice man super excited for you and it's gonna go flawlessly.   Pierre: I'm sure I'm just having these weird dreams that are very, very unlikely about like, completely impossible case scenarios, but…   Michael: Pterodactyls are gonna crash your wedding and…     Pierre: Pterodactyls are gonna come down on the altar and knock over the tables. Oh, man, well, it's really stupid.   Michael: It's gonna be an amazing event, really, congratulations and I can't wait to see pictures after.   Pierre: Thank you, Mike. Cool, so we got a bunch of questions here. Let's see how many we can get through. We're kind of in a rush today. So let's, let's knock out what we can. Alright, let's knock out some of these easier ones real quick. First, is cashflow accounting for all the costs for owning a property?   Michael: Yes, I think it should. You'll get different definitions from different people. Some might say, hey, your cash flow is you take your rent, and you subtract out your PI TI, because that's your principal interest, taxes and insurance. Those are the expenses that they're accounted for everything leftover as cashflow. I'm quite a bit more conservative and I say, hey, yeah, that's a big chunk of what you got to subtract out from the rent but there's also prepared maintenance Property Management expenses, if using a manager capex reserves, things that could go sideways and so you want to have money set aside and earmarked for those expenses for not if but when they show up and then anything above and beyond that is your true, free and clear cash flow is what I would say.   Pierre: Agreed, yeah, should operate on its own as its own business. Next question here, thinking about generating cash flow faster? Does it make sense to purchase a portfolio of single family homes versus one unit generating the same income?   Michael: Hmm, that's a really good question. So I think it comes down to personal risk tolerance and personal investment thesis and strategy. So we could absolutely make the argument that hey, that person that has 10 single family homes, has less risk, from an occupancy standpoint than the person that owns one big single family home that generates the same revenue, let's say, because if one person leaves the person, the guy who are the person who has the portfolio, if one person leaves, they're still 90% occupied, they've only got a 10% vacancy, because they've got 10 folks living there. If, on the other hand, are single portfolio or single house person, if they have that tenant leaves or 100% vacant. Now, we could also make the argument that the person with 10 homes has 10 roofs to maintain, and 10 h facts to worry about and 10 sewer systems to keep track of, versus the person with the one property only has one of each of those things, the knife kind of cuts both ways. What I personally have experienced is that's the reason I went to multifamily is because you get the occupancy and vacancy robustness of having multiple properties but you only have one roof, I still might have 10 H facts if it's 10 unit property or 10, whatever 10 systems to maintain.   But geographically speaking, it's all in one place and so it's a little bit easier to manage. Now, multifamily apartments are going to be very different than a single family from an asset class and you're likely tenant base and the stickiness of a tenant. So that's a whole another conversation for another time. But again, I think the knife cuts both ways, so it's tough to say definitively one or the other.   Pierre: Wouldn't speak to the quality of a property if 10 of them are cash flowing or generating as much revenue as one property, we would be talking about 10 lower quality or lower tier properties, comparing that to one higher tier property.   Michael: Yeah, you probably could get there with logic but I think it's really tough to do in the sense of that's a very unlikely scenario unless you were in two totally separate mark gets in once you kind of leave the bounds of the market, a lot of bets are off anyhow. Yes, real estate is contiguous in the sense of how it's built in a lot of instances and the fundamentals and the mathematics. But the specifics is the specifics is the specifics and the nuances of operating a single family rental in New York is gonna be very different than operating one in California, or in any city that you go into in between. So yeah, it's just it's an unlikely scenario that you would have 10 equaling the gross revenue of one unless that one was like a really big Airbnb or something but again, that's a whole different animal unto itself.   Pierre: All right, what is a risk adjusted cash on cash return?   Michael: That's a really good question. So a risk adjusted cash on cash return is basically taking what institutions it's implementing what institutions do and how they rate properties, and how they think about risk tolerance. So if you can imagine, here, if your buy box is targeting a three, two single family home and a three star neighborhood, and you're targeting an 8% cash on cash return, I'm making up numbers here, right? If you found a property that was in a four star neighborhood was in a better neighborhood, you should be okay accepting a lower return than your targeted 8%. Maybe you're okay with a six and a half percent cash on cash because there's a trade off, right? You were targeting this property for 300, you got something that was better than what you were looking for in one category and so there's this sliding scale and we can see I'm a very visual person, right.   So there's this balance the seesaw, if you will, of usually cashflow versus neighborhood score and so that tends to slide or cash flow and appreciation tends to slide and so we are sliding a little bit more onto the appreciation side, because we're in a better neighborhood, therefore, we should be okay giving up a little bit in terms of our cash flow. Now, that scale should absolutely slide the other way. If you found a property that was in a two star neighborhood, let's say and you were targeting again, three and eight, well, hey, you're giving up a little bit on the potential appreciation, or at least we will expect you to because of the neighborhood rating, as compared to the three therefore you should be demanding a better cash on cash return. It's a way to be dynamic with your Buy Box and adjust to the situation that you find yourself in with regard to the physical properties themselves, as opposed saying, okay, I'm only taking a three star 8% cash on cash like, yeah, you're totally welcome to do that but this gives you a little bit of a wider scope, so to speak.   Pierre: Okay, is there a way to what's Is there a formula to use to calculate what your risk adjusted return should be based on different neighborhood ratings or property ratings?   Michael: There is and so yes, and no. So we built that into the Roofstock Academy calculators that we helped give folks to help evaluate them, help them evaluate properties. So we built that in for some folks, if you're doing it on your own, it just really comes down to what your risk tolerance looks like and so you and I keep looking at the same we can have the same Buy Box three star neighborhood 8% cash on cash and if we both find a property, that's four star neighborhood, I might be okay, accepting a six and a half percent cash on cash, you might only be okay at 7% because of what your investment thesis is, and risk tolerance looks like I might be putting more eggs in the appreciation basket, so to speak, where you might be saying that I don't know if it's gonna appreciate that much. So it's more of a concept than a than a true like mathematical formula. So I think it's just important to be thinking about and be aware of as folks looking at properties in, you know, in neighborhoods in areas and markets outside of their direct scope.   Pierre: Let's stick with the cash on cash topic. Mike, in this question here asks, is 8% a reasonable cash on cash return to seek in this market today?   Michael: So you're using my own number against…   Pierre: …a just happened to be just 8%?...   Michael: Our last example? Yeah, it just happened to screenshare. So it all depends, I think is so often the answer, unfortunately, and it depends on a number of different factors. I just underwrote a property that I purchased as a short term rental, where the projected cash on cash was like 15 16%. So is 8% reasonable, totally doubling that. So it really comes down to what's your strategy is cashflow, and long term rentals what we're talking about here, and I'm gonna assume for a minute that it is. Yeah, I think it's still totally possible. We just have to engineer the return correctly, which is something I think a lot of people aren't familiar with or don't know how to do or aren't willing to do from the standpoint of, I think so many of us are trained to go purchase rentals with 20% down and that's it. That's the deal. Well, that is one way to purchase rentals. But if the returns don't work at that threshold, maybe we tweak it, maybe we need to put 20% down maybe had to put 30 40% down and I think people are listening to this and if they're really familiar with the mathematical equation for cash on cash might be thinking, Michael, that's going to drive your cash on cash down, because we're using less leverage and in a lot of instances, it will, but not all of them and so there are very certain types of properties based on the characteristics of purchase price, what they rent for their expense profiles, and what your what kind of leverage you're using, that all goes into this recipe, so to speak, to bake the end result, which is often cash on cash and cap rate and so we can unequivocally say, less leveraged bad in terms of cash on cash return. So we want to run the numbers and look at putting a larger percent down, because that will often give you a break on the interest rate and the larger the property purchase in terms of purchase price, the more impactful that additional breaking interest rate becomes and so if we're looking at an $80,000 property, for example, we're going to finance it, the difference between a 4% interest rate or a 6% interest rate doesn't move the needle a lot. Of course, 4% is better than 6%, because we're paying less in interest over the life of that loan, our monthly payments are smaller. But if we're purchasing a $250,000 property, the difference between a four and six can be quite significant in terms of actual dollars that you're spending on that monthly payment. So I think we just need to be a little more creative on how we engineer properties in terms of the purchase, are we purchasing them, right? Using the proper amount of leverage? That can that can be all that's needed to dictate what our return looks like.   Pierre: Cool and we did a video on this specifically, using a pro forma template and running the numbers and comparing what kind of property would do better with an all cash offer and what one would do better with leverage. So check that link right above here for seeing like break that all down into detail. Like what is the lowest cash on cash return that you would accept all other factors considered?   Michael: Oh, that's a really good question. For me, personally, I'll probably be in the 5% range because I know that that's a that's a point in time. I think we're all thinking about this point in time right now as kind of the whole picture, and as the movie. But I think if we think about, again, my visual brain coming into play here, if we think about a movie, like a movie reel, it's snippets of pictures, right? That's where we get our motion picture from and so right now we're seeing one of those snippets, tomorrow is going to be different, the day after is going to be different in every moment, every day, going forward is going to be different and so I'm not looking at this point in time as the whole movie and so if I'm getting a 5% cash on cash today, I know at some point down the road, the rents will probably go up, interest rates may come down. They may not but they may and if I'm okay with 5% today, and the interest rates don't ever go down. Well, okay, I bought a deal that I was okay with earning 5% and again, my rent should go up over time. So my return should get better with time and if the interest rates do go down, well just refinance, and get likely better cash on cash. So you know, I was probably 10%. Last year, if you'd asked me that question. This year, I'm probably at 5% for long term, very traditional rentals. But I've also pivoted my strategy quite a bit to be more short term focused and so the returns there tend to be quite a bit better than your traditional long term, at, at whatever percentage you're okay, accepting today.   Pierre: All right, Mike, this next one? Is it better to save cash and buy a home every two years cash or by using loans? I find using cash, I automatically save about $5,000 in closing costs?   Michael: Yes, so I would say the answer can be a little bit of both. You don't have to do one or the other exclusively and so what I've done in the past that I've seen work really well and can be a very powerful tool is to buy the property, all cash, and then turn around and get your refinance and cash out 75% of the dollars that you put into the deal and so yes, you save cash, when you save dollars by going the all cash out because your closing costs, depending on the size of your deal, those closing costs might be negligible, or they might be significant and so if you determine that they're significant for you, maybe you do just hold the thing in cash for two years and then go buy something else. But I like the all cash purchase because you get the benefits of quick close, aggressive offers, you can often get the purchase price lower, and they just turn around and refi and for you at the end of the day, it's like an all cash it was a finance purchase to begin with, except for that hold period and you might only be able to cash out 75% as opposed to the 80% that you can often get financed when you go to purchase the property which that I still don't understand. By the way, why you can only get 70% on the cash out after you already own the thing versus you can get 80% leverage on the purchase but I aggress. So I think you can do both and I think you have to run the numbers and figure out what makes sense for you and also think about the risk tolerance that that you have as an individual. Are you okay? Parking money in a real estate asset and leaving it there? Where if the value changes overnight, like your cash evaporates or would you rather put leverage on it and so if the value changes, you're only getting impacted what your equity is in the property, you're 20% and the bank kind of shares in the pain, so to speak with you. Now, if you let the property go, when you're underwater, you're gonna feel the most pain the bank's gonna make you pay for that. But there's, there's again, there's risks associated with doing it either way and so I think it's important to evaluate and determine and just decide for yourself what makes the most sense.   Pierre: What options exist for first time investors, if saving cash alone will not suffice 20% down?   Michael: Another super good question. I would say you got to figure out who has what it is that you don't and, and partner up. So or think about partnering up, if you don't have the cash, but you've got the deal and you've got the know how or the drive to do the deal. Go find someone that wants to be involved in real estate, but either doesn't know how, or doesn't have the time or the will to get involved but has money. Conversely, if you've got money, and you're looking to get involved in real estate, but don't have the time or don't know how to find someone that has those things and so those kind of two personality types are three character traits of having one of the three things you need to do a deal, you either need the deal, or you need the drive, or you need the money, they'll find he'll have what you're missing and start piecing it together for yourselves and I think you'll be surprised at how many people have like one or two of these three things, but not are missing the third and are looking for that kind of unlock, if you will and so feels like oh, well how am I going to find some of money, post about it on Bigger Pockets comm join the Roofstock Academy and network with our investors around the world who are doing the same exact things and I think you might be pleasantly surprised to see what you find.   Pierre: Yep and I was at the Bigger Pockets conference in Denver earlier this year and one of the activities they did at the very beginning was like who has cash but no time, and that those people stood up and then they asked who has time but no cash and everyone sit up and just go into those meetings like that. It's like they facilitate these meetings between people who have to could have a symbiotic relationship. So go to conferences, sometimes they may seem like a lot of money, you might pay five $600 to go to one of these things, but it could open up a lot of doors for you. So that was a cool part that I saw there.   Michael: That's great. That's great. Yeah, I think that's perfect.   Pierre: That's how I got my start. I didn't have any money to invest. But I've consumed all of the Roofstock Academy hundreds of podcasts by now. So I had a little bit and so I teamed up with my brother and that's how we got started.   Michael: Perfect, love it love it.   Pierre: All right, how much money should I have saved up before I decide to get my first rental property?   Michael: A million billion dollars, I think you want to have your down payment plus several months of expenses bank will often require six months of PTI in cash. It really depends on the property, if you're buying a brand new property, like brand new construction, a lot of this stuff is going to be warranted by the seller or builder hopefully and then the appliances are going to gonna likely come with a one year warranty or a manufacturer's warranty at some point. So I'm less concerned about a brand new property than it would be 1950s built, everything's still original. So you have to evaluate, okay, what's my, what's my risk here and the way that you would quantify risk, which I think a lot of people don't look at is, first and foremost, what's your insurance deductible, if you've got a $5,000 deductible, you should never have less than five grand in your pocket ready to go tomorrow because if a snowstorm caves in your roof, you're on the hook for the first five grand to replace that roof.   Similarly, if you have a home warranty in place, for all the major appliances, you need your trade coffee, which can be 50 to 100 bucks, whatever and then hopefully, they're going to cover the appliance, but just kind of look around the house and say, Okay, what's likely to fail, you know, walls just don't fall down on themselves. Garages don't just collapse usually on their own, unless you're in a sinkhole or earthquake zone, whatever. So there has to be something to cause this stuff to fail, versus like your electronic components or your appliances. One day, they might just stop working, you got to turn on the stove, and it just doesn't work and you gotta go replace that thing. So I think it's important to look around your specific property and figure out okay, well, what's old and what is my what is my risk profile and where do I have the cash or cash equivalents? You know, some people would argue that a Roth IRA that you put a bunch of money into could be considered a cash equivalent because you always could pull out your, your additional contributions. I think it's up to like five years or something. So like, oh, Well, that's access to money that I didn't maybe know I had. So if you're okay with that, think about what that looks like if that's going to be treated as your cash equivalent, but I would say at least several months of reserves, above and beyond the PITI that the bank is going to require you to have.   Pierre: Cool, let's dig down on this a little bit more like going to like a personal finance perspective. At what point, you know, before getting into real estate, should someone have their financial house in order? What is a good place to be financially before you know that is starting to save up this first chunk of money to get into real estate?   Michael: Yeah, I'd say someone should have a pretty good handle on what their spend in terms of income and expenses looks like and so they know how much on an average month they're spending, they know how much they're saving and they are cognizant of, like just where their dollars go, because you're gonna want to do that with real estate investing, you want to keep track of okay, where are the dollars coming in? Where are they going and you want to make sure that you can A) run the numbers, right, I find that to be a big thing for folks, if you can, if you're already doing that, if you're already tracking and budgeting, basically what we built ourselves a pro forma in life, right is what a budget is same thing for real estate investing. So that skill already translates but if you're constantly trying to figure out where am I dollars going, and you know, I'm spending a bunch more than I'm trying, real estate investing could be tough, because now you're adding an additional expense and we're hoping that there's income coming in if you do your homework there should be and if you operate correctly, there should be. But I'd say you want to feel comfortable because there are big expenses that pop up with real estate investing, anyone who's been in this business long enough will tell you that and so if that makes you uneasy or on shaky, or you're not in a financially sound position to be able to absorb those hits or those blows, that can be really scary and I would definitely encourage everyone to think long and hard before getting involved in this business. Are you willing to stomach that and are you in a financially sound position that you can absorb those blows, and those can come in all different sizes and forms and so again, that's why I think it's so important to understand what your risk exposure looks like because the exposure on a $80,000 house, run of the mill 1950s, build whatever is going to be very different than a $500,000 house in Manhattan or condo, whatever. So it's really important to get clear on okay, where is my exposure coming from and then quantify it? How bad could it get if it's gonna go bad?   Pierre: Alright, next question here, Mike, when I previously own property, I hit a limit, because my debt to income ratio, how do I get around this to own 36 houses in 10 years?   Michael: So I think my guess is that question is coming from someone who purchased their primary residence and then went to purchase investment property. So investment property, in theory should actually better your debt to income because if you can imagine you've got debt now in the form of your mortgage payment, but and then your taxes and insurance. But then you also have income and so the income if we're cashflow positive, outweighs the debt and so we often see debt to income ratios decrease with time and so, I mean, there's your answer, if you're if you're buying cash flowing real estate, your debt to income is gonna be better than it was before you own it. Now, a lot of banks might not consider or give you credit for that, until you've owned the property for X amount of time, this has happened to me, I just had a lender tell me, hey, we're not going to consider the cash flow on your primary residence because it hasn't shown up on your tax returns yet. I'm like, yeah, but look, here's the lease, and here's all the deposit into my account and like, we don't care, whatever. So that could be a scenario but that's a very short term problem and I think, too, by the time someone is looking to purchase, I get the question too, hey, I can only have 10 loans. How do I buy 36 properties or how do I buy more than 10 properties. And what I found just personally, is that by the time someone owns, close to 10 properties, they they're finding out a different way to finance the properties anyhow, whether that's going commercial or going hard money or private money, whatever or you just bundle up a bunch of the single families into a portfolio note, put it on a commercial loan. Now you've just freed up a bunch of more conventional conforming loans. You're back in the game. So I think there's a number of different ways to approach it but I think to the original question of the debt to income issue, again, if you're buying cash flowing rental properties, your debt to income is likely going to be getting better with time.   Pierre: What are your thoughts about the upcoming housing correction crash? Is it best to wait for a few months to see how the market behaves to possible recession and interest rates hike interest rate hikes later in the year?   Michael: That's another really good question. So without having a crystal with a very hot topic, so it's interesting because interest rates have already gone up over the past six months drastically and yet demand still seems to be at an all-time high with purchasing rates at an all-time high. So if you're someone that is feeling more calm, trouble to kind of sit and pause and take a break and just see what happens, knowing full well that interest rates may continue to climb, and prices might not drop. That's totally cool. I think it's the person that's like, hey, I want to wait and see what's going on, figure out where this is going, rates continue to go up, prices continue to go up and that's not something we've seen before other than the last six months and then you're gonna be pissed that you missed out. That's where I think I want to encourage you all to think differently. I think you have to understand full stop, what are the implications of me doing nothing today? What could happen, and be okay with that?   So I think just, again, getting straight with yourself getting clear with yourself around, hey, interest rates might continue to go up. That doesn't necessarily mean prices are going to come down as much as maybe we think they are, or necessarily at all, because again, this past six months, they haven't really come down much and again, it's market specific. So in some markets, you might listen to like, yeah, I've seen it come down 10-50%. That's totally fine in your market, I think it's important to understand your market. So that was a kind of roundabout way of saying, get clear on what could happen, the likely the possible scenarios, and then decide and also like, if you go back to fundamentals, and you're looking at a deal today, and it makes sense and hits your Buy Box, like I'm, I'm all for it. I just bought a deal back in May and prices were more expensive than they were a year ago but I was like, you know what the deal still make sense? The numbers don't make sense. So I'm going to proceed and getting back to like we were talking about previously, interest rates change with time and so if it makes sense today, and it rates go down, you only got a better deal down the road and if they don't well, then okay, then you're okay with the deal that you bought today and again, the income should go up with time.   Pierre: And it does seem like we are seeing a drop in prices in markets where the tech industry is most concentrated. But you're right. It is not global, that it doesn't happen everywhere all at once but it's happening and anecdotally, I'm we're looking at homes right now and see price cuts on so many houses. So it's not a statistic, but I'm seeing it happen…   Michael: But you're seeing it.   Pierre: Yeah. Have you been looking at all Mike for you? You've been in an acquisition mode at all lately?   Michael: No, not since that last one in May. We've been just trying to get the short term rentals humming along nicely and smoothly. So we've just been focused on that and then also my development project getting that over the finish line, which I am so so close, which I'm very excited about.   Pierre: Awesome. Well, that is it for the questions today. Thanks, Mike for sharing.   Michael: You got it.   Pierre: It's got to go.   Michael: Sweet.   Pierre: Thanks, everyone for tuning into the podcast. Please leave us your questions as YouTube comments or on the podcast app. We love hearing from you all. We will catch you on the next episode. Thanks so much for listening.   Michael: Happy investing…

Taylor Loht is the founder of NT Capital and host of the Passive Wealth Strategies podcast. He teaches busy professionals how they can invest in real estate without dealing with tenants, toilets, and termites. He lives in Richmond, Virginia, where he started and runs the monthly Richmond Multifamily Investors Meetup, trains Brazilian Jiu-Jitsu, and actively contributes to Bigger Pockets. Intrigued with real estate investing but concerned about picking up a second job and more headaches, Taylor Loht searched for new investing strategies. As a busy professional himself, he understood the importance of learning passive investing strategies and sharing those insights with others. In today's episode, Taylor provides us with some insights on passive & active investing and real estate syndications. Episode Link: https://www.passivewealthstrategy.com/join-the-investor-club/?source=investwithtaylor   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Taylor Loht, founder of NT capital and Taylor is going to be talking to us today about syndications and how to spot some of the not so great actors out there and who syndications may and may not be for as an investor goes. So let's get into it.   Taylor, what's going on, man? Thanks so much for coming on and hanging out with me today. I really appreciate you.   Taylor: Thank you for having me today. I'm really excited to talk with you.   Michael: No, likewise, likewise. So I know a little bit about your background and kind of what you're doing but for those of our audience members that don't know who you are, give us a quick and dirty who you are. Where do you come from and what is it, you're doing real estate today?   Taylor: Sure, absolutely. I'm a real estate investor based in Richmond, Virginia, I decided to make the switch to real estate investing. A number of years ago, I don't even honestly remember exactly when but had been investing in Wall Street, you know, typical things. For a few years. You know, at the time, it was kind of hard to pick and miss on Wall Street because it was right in the wake of the great recession. But I just saw real estate as a better opportunity to create passive income and then, you know, here we are.   Michael: Awesome and now today, you got a company and T capital. Talk to us a little bit about what it is that you all do.   Taylor: Sure, absolutely. So it's part of my real estate syndication investing. So basically, I help people passively invest in real estate syndications. Got the securities licenses and everything to do that and help sponsors raise capital in a compliant manner, of course, and, you know, help people, as I say, on my podcast, escape the Wall Street casino and build wealth on Main Street by investing in real estate.   Michael: Love it and what is your podcast called for anyone that wants to go check it out?   Taylor: Sure. Thank you for the opportunity. It's the passive wealth strategy show available every Monday, Tuesday and Thursday, new episodes interviews, just like this one,   Michael: Right on. So it's a common debate that we have passive versus active real estate investing. So I love for you to wear your passive hat because you've done both right? You've been on the active side, and now you're on the passive side. So why did you end up there?   Taylor: So, that's an interesting question. So I'm a little bit in a in a hybrid state right now, to be honest with you. But, you know, I think most people when they start real estate investing honestly, myself included in this, our familiarity with real estate kind of is limited to flips, which we see on HGTV, and buying single family rentals, and you know, the one up the street and rent it out. There's nothing inherently wrong with either one of those. But the reality is that both of those strategies take a lot more work than we really think they do from the outside. Now, if you buy a single family rental and put it use a property manager, you can turn that into passive income over time, if you kind of do it the right way and buy at the right price and all those kinds of things. Flipping itself is a very active business and after learning about both of those and most of the other real estate, investing strategies.   When I was kind of getting started, I just really gravitated toward commercial real estate larger properties. I honestly don't know what it is. Maybe it's aesthetic. Maybe I just I like to think big, just get really excited about big things. But when you're buying you want to buy a $15 million property. Well, you know, I don't want to say too much about myself here, but I don't have all the money for that down payment. I can't put all that money down and I never could write when I was just a guy at college trying to figure out my way in real estate. So eventually I found this path through real estate syndication. I had money saved up from investing in Wall Street and you know, I didn't did alright in that. But wanted to make this shift and started passively investing in real estate syndications, with my eye on getting on the more active side of things, and now I do both and you know, I'm more than happy to have this be my investing strategy, I love it.   Michael: I love it. Well give us some insights into who real estate syndication investing is for and who's maybe not a great candidate to be an investor in a syndication?   Taylor: Sure, absolutely. So, my mind first goes to and this is most of my investors are high earning busy professionals who maybe have a family they have a job that they work 40-60 plus hours a week, make a lot of money. and maybe have some leisure activities, just want to earn some passive income but don't want to build their own real estate investing business on the side, they want to maybe like I said, say as a lot of harp on this, get out of the Wall Street casino, and invest in real estate, then that may be a good fit because if you're somebody who earns a couple of $100,000 a year, then you have to, I think you should think about what your time is worth in terms of dollars per hour and where you can best allocate your time because time is our most finite resource and I was kind of debating whether I was gonna say this, but today we're recording today is my 33rd birthday and I'm always thinking about the shortness of life, I guess, if you will, and I think, from your investing standpoint, you should think about that we all only have 24 hours in the day, if you do really well in your career, then bear that in mind, when you're considering an investing strategy, that could kind of be another job like, like maybe flipping as often another job for folks more active investors, again, you know, I love active investing, you need to be ready to put the work in, it's, it's a lot of work to invest in real estate, find deals and do deals, especially today when interest rates are going up and prices are at all-time highs and we're seeing some softening in the retail market in particular, which, you know, we have to kind of, we have to work with the market that we're given and we find ourselves in. So you know, if you're willing to put the work in, I say go for it. You know, there's absolutely nothing wrong with that. I like putting the work in on my deals and everything. But really just think about your time how you want to spend your time and what your time is worth for you both in terms of what you want it to be worth, but also what it is actually worth, if you're working. What are you getting paid now and think about that for your real estate investing…   Michael: Yeah, I think that makes a ton of sense. I think it's a really great way to be thinking about things. Well, first and foremost, Taylor, happy birthday. Thanks for taking the time on your birthday day to hang out with me, this is awesome.   Taylor: It is my favorite thing to do. So no problem…   Michael: Well give us a little bit of insight into how you coach your investors or how you coach folks that think about the returns and the return on their time because I think that makes a ton of sense and thinking about, okay, how much is your time worth. But I can pretty clearly calculate, okay, if I buy this property as an active owner, this is what my return is going to be this was my cash on cash is going to be this is what my hopeful eventual exit price might look like versus about up to a syndicator like it's in your hands and if they screw up, well, then that that's a bummer for me.   But I don't have control over that. So are the returns going to be stronger as with this indicator? Are they going to be not as enticing, but I have to do as much work kind of give us an insight into how people I should be thinking about that?   Taylor: Sure, of course, I want to be careful what I say in this regards and you know, every deal is different and past results are not an indication of, you know, future performance and all those kinds of things. You know, in my experience, both in an active real estate investment if you're doing your own deals or investing in real estate syndication, either those strategies can do very well and either while either one of them can lose a lot of money, I think it's a, it's a matter of weighing pros and cons and to kind of get back to the question about if somebody is considering if passive versus active makes sense to them. If you're somebody who can't imagine giving control of your money or your investment over to a syndicator, no matter how experienced they are, maybe they have several 1000 units under their belt and several billion dollars in assets under management. But still, you can't get past it. Well, hey, that's a sign you know, and that's your priority. That's your decision to make it's your money as your financial future. Go for it. You know, I think that this spectrum when we're talking in a general sense about the returns that you can make, you know, it's a little tough to be specific about that. Either type of deal can make money either type of deal can lose money, I think some of the other things to consider is if you're going in buying a single family up the street, getting the data in your own name and those kinds of things. Well, you're on the hook for the debt as the investor and if you're willing to do that, hey, great, no problem.   Most real estate syndications, however, which use that, set it up and the lender set it up so that the passive investors are not personally guaranteeing the debt. So their risk of loss is limited to their initial investment, their equity that they invested in the deal. So your potential downside is your investment can absolutely go to zero. Of course, we always want to be cognizant of that and the risk in our investments but if you're not on the hook for the debt, then hey, you're not on the hook for the debt. Now somebody is on the hook for the debt and that's what you want and one of many things you want to look into. In a real estate syndication, who's guaranteeing the debt? How are our interests aligned that hey, we all want this deal to perform and if it goes wrong, it's going to be worse for say the general partners who are guaranteeing the debt. Those are things we want to think about but again, debt is a big factor in real estate investments, and it's one of the risks so that as a passive investor in the syndication, you can kind of take off the table for yourself and the general partner or key principal or somebody else will guarantee the debt.   Michael: That's a really interesting point that I want to come back to but since you were describing the person that really can't give up control, I think that's me in a lot of instances, I'm a recovering engineer and so I like to engineer the crap out of things but I'm just curious, have you come across people that like really want that high degree of control, but also invest in the stock market?   Taylor: That's an interesting question and I think, yes, I think we, maybe we've been kind of trained or programmed or maybe it's the way that media talks are something that we think that when we're buying a portfolio of stocks, hey, I have the control, because I get to hit the buy and sell button, which is true, you do get to do that. But there are many other factors that are outside of your control and when I was really heavily investing in the stock market, I got, I got my props here, my books. This is the first book I read about investing the Intelligent Investor, it's incredibly thick, I only read it once.   It looks like a dictionary, which is a ginormous book but you know, it kind of drove me toward index investing, because I learned through this book, Benjamin Graham and its Warren Buffett strategy as well that I can't pick stocks and I honestly, I tried a couple times, and I always lost out on I'm no good as a stock picker but I think that having that buy and sell button really gives us the feeling that we do have a lot of control and you do get that amount of control, you can buy and sell but you can't control the fluctuations of the market, you can't control the positive or negative decisions that the executives might make, or you know, kind of anything.   Michael: Right, right. It always cracks me up when people talk about yeah, I got so much control and it's like, like, stop kidding yourself. Alright, so let's talk about leverage for a minute because I think you bring up a really good point and it's interesting to know that the general partner is usually going to be on the hook for the leverage for the debt rather, and that it stops with limited partner. But talk to me a little bit about how people think about debt to invest. So what I mean by that is, if I want to go buy $100,000, single family home, I can go bring 20 grand to the table and get $80,000 mortgage. Now I control $100,000, an asset and the appreciation I see is going to be that $100,000 number versus if I want to go to a syndication, can I go get a loan from that same bank and say, hey, I want to put $100,000 into the syndication.   Taylor: No, and frankly, if the if I were, you know, the general partner seat in that case, and I found out that somebody was taking a taking out a loan to invest in the equity portion, it may or may not be technically legal for me to accept that money, but it would not be wise for me to accept that money because if things aren't going to plan, which can happen in a real estate deal of any kind, then you're going to be in a personally difficult position and that's going to flow to me, and it's going to be still going to be my problem and I'm just gonna have to deal with that. So it wouldn't be wise for the general partner or the limited partner to do that and I think I should clarify, what I previously said, Is there are multiple types of real estate debt. At a high level, there's recourse and non-recourse where recourse means you're personally on the hook for the money. A lot of syndication deals and commercial real estate deals will use non-recourse debt where the general partner while they're kind of they're putting up guarantees, and they're agreeing to behave well. We're not technically on the hook to repay the debt, but there are so many carve outs to that. So in the sense that if the general partner misbehaves or doesn't act in a certain manner, then the bank, you know, just reverts, and it becomes recourse debt anyway. So those are important things to consider but I wanted to make sure to clarify that point.   Michael: That's a great point to clarify. So talk to us Taylor about this specific scenario. You got a landlord, they own five single family homes, and they did the active investing, and they're kind of done, they're tired but because of what's happened over the last couple years, they've seen their equity go through the roof and they're thinking, you know, what, I will kind of want to get into this whole passive thing. I heard Taylor and Michael's podcast would love to get into one of those deals. So they cash out refi on some of those properties. So they take on new debt, now they've got a ton of cash. Are you thinking that that's not a great time to go invest that into a syndication deal, because it's technically borrowed, or when you say, take on debt is not a wise investment to go put into a syndication deal? Talk to us a little bit about that.   Taylor: That is a good point and that is an interesting way to reframe that question. I suppose in my mind, the previous question, I kind of interpreted that as, say, I'm Taylor, I'm going to go passively invest in this deal. I call my buddy Michael, I say hey, man, loan me x $10,000 $50,000. I'm gonna go invest in this deal, and I'm gonna pay you y percent over a certain amount of time. Well, that would not be wise but say if somebody's pulling debt out of properties, or applying a new mortgage to cash out refi buying properties that they already own. I think you can make a good case for that. I think it's really so one of the things where it If you're in that situation, you need to consider or you should consider all the available options. So interest rates are going up right now but historically, they're still at pretty much all-time lows and values are at all-time highs and single families. We're seeing some softening going on. But it's not like we're currently in the midst of a crash. Now, I may, I might be wrong about that but something to consider, the way I would look at that is what I want to continue owning these properties, say for another 10 years or so technically, think the average mortgages refight at seven years but how long? How much longer? Do I really want to own these properties?   You know, what's my potential here? Do I still want to mess with them? What rate am I going to get on this debt? I would consider, really all those factors are so many other options that you can technically get 10, 31 exchange into a single syndication if you do it properly. Now, a lot of times, it may not make sense, if there are fairly inexpensive properties, you're not bringing a lot of equity to the table, then it's a little more difficult to 10, 31 but I just think you have to consider all the possibilities and again, it's all about the individual making decisions that are right for them. If you still want to own those single families and continue to rent them out, then that is a valid way to do so and you still have real property there and hopefully, when you do that cash out refi you're still earning strong cash flow in the future, because you still need to support that new debt that you took on.   Michael: Great, great and Taylor give us some insights into what folks should be doing to screen syndicators because they're, you know, kind of like realtors, they're a dime a dozen, you see syndicators all over the place, doing all kinds of deals, talking about their deals are amazing. So what are what are some kind of BS meters or red flags that people can help raise on some of these folks?   Taylor: That's a great question. I mean, honestly, one of my favorite things to suggest that people do is go find other passive investors and ask them, who have you invested with what's gone positively or negatively? It's a little different than going to a syndicator and saying, hey, give me a couple of references because what kind of knuckleheads gonna give you a negative reference, right? You're gonna tailor it properly, right but if you're in that position…   Michael: Was that a play on words you're gonna take tailor right now…?   Taylor: In a way… But I would, you know, it's always you do get that question and I, you know, give people references if things have gone well, but for anybody out there in that position, there are so many groups out there that are focused on passive real estate investing leftfield, investors are great. Go there and talk with those folks and ask them, who have you invested with, it's gone? Well, there are a lot of other things you can do along the lines of background checks, heck, take the person's name and Google them. I mean, it's shocking how many people won't just punch a name into Google and you know, see what comes up, sometimes and this, this does happen. I know of at least one case where this happens. There, somebody out there who has a relatively common name, and if you google them, somebody else's prior court case comes up. So if there's any point of clarification, there's no harm in asking. But if you're, you know, if you're already out to let you know, make that judgment call on your own, if you want to ask them, hey, what happened here? Is this you or if you don't, then that's fine. That's up to you. Those are definitely things that that I would consider, I would dig into there. Also forums like bigger pockets you can go to you can post Hey, has anybody here invested with so and so, you know, DM me, and let's talk about search on bigger pockets as well.   There are many threads about positive and negative experiences with syndicators. Now, there's always an important factor to bear in mind that past performance is not an indicator of future results but I think learning about people learning about experiences can help illuminate things like scammers and fraudsters because those people are out there and you need to know how to look for them. I think as you if you're new in real estate syndication and passive investing, really try not to feel FOMO you can go out, get on people's deal lists and look at deals for a while you don't need to invest in the first deal that you ever see come across your desk, if they're good, and they're experienced indicators and they know what they're doing. They're gonna do plenty of deals right and you will get diversity, a diverse selection of deals in terms of asset classes, markets, you know, the what their maybe target returns are everything so that you can see get a picture a broad picture of how folks are doing deals and I think that really is illuminating and just taking a pause reminding yourself not to feel FOMO can really help prevent a lot of a lot of mistakes and I did put out a seven day course on red flags and passive real estate investing recently that people can get that's totally free. Not everything that can go wrong in a real estate deal because that would be an Encyclopedia upon Encyclopedia of right of information, but their high level things that if you spend enough years in this business, you'll see kind of recurring themes of things that go wrong in these types of deals.   Michael: Okay, that makes a ton of sense and those are all really great resources and tips. Thanks for that. curious to get your personal thoughts. There's the expression get rich in your niche or niche down and get laser focused and so from the standpoint of syndication, if someone has 100 grand to invest, are you thinking it makes sense to go all in on a particular deal because you love the deal and believe in that deal, and that syndicator are you going wide with kind of spray and pray across multiple deals?   Taylor: So for me, so just taking a step back, most of the time, in real estate syndication, you'll find that a typical minimum investment is $50,000. There are a lot of reasons behind that if you're accredited, that means it gets into the weeds but most real estate syndications can accept an unlimited number of accredited investors but find a 506 b syndications can only accept up to 35 non accredited investors. So they want to allocate those spots to people who are able to invest additional capital and where I'm going with that is they say a $50,000 minimum but you're not quite ready for that and you're accredited. It doesn't hurt to ask, say, Hey, would you take 25, would you take 35? Can we go a little lower? Because I'm trying to spread this out. But if I was in that position, having $100,000 I wanted to invest in real estate syndications. I would like to diversify it as much as I could because I think that's the wise decision. I was speaking with somebody recently about this. I don't want to say too much. But this person had almost a million dollars to invest. This was about a quarter of their portfolio. They had invested in Wall Street type of stuff for years and years and did very well and high income earner. Very great for them just getting into real estate syndication, asking about hey, how should I allocate this? What would you think about they were looking at their second real estate syndication investments are just getting started in the space and their consideration was I'm gonna go 500 out of this, this portfolio that I've chosen to invest in these deals and my thought on that is, that's probably too much. I think if you're really getting into it, it makes sense to not just dive in, right, kind of walk into the water kind of slowly so you can get getting diversified across markets and asset classes and operators and all those kinds of things and get your feet wet rather than just cannonball on into the waters.   Michael: Yeah, and find out later that it's two inches deep.   Taylor: By very possibly. I mean, you know, I've counted myself lucky to have I feel as though I've stayed away in my real estate investing career successfully from people who you might consider scammers and fraudsters, that doesn't mean you don't meet them, but you kind of find out who they are, and avoid them and don't do business with them but I think the more patient you are kind of helps you have a better a better batting average, if you will, maybe that's not the best way to put it. But I think diving in is the wrong, you know, wrong way to go, especially in a time when the market is, you know, maybe come volatile in the future.   Michael: Taylor, I'm curious, kind of in that similar vein, do you think personal tailors personal hot takes that having invested on the active side makes someone a better or more difficult, passive investor or does it not matter? I mean, if I'm thinking about getting started, I'm thinking, you know, I'm not sure maybe which one I'm thinking maybe as an active investor, I can learn the business and not have the wool pulled over my eyes as much or maybe I just go straight to the passive route without having to learn all of the stuff that comes along with going the active route.   Taylor: That's an interesting question. I'm not sure I'm honestly not sure how big of a I haven't noticed a difference, I suppose is what I'd probably say. I mean, I would say that though, regarding that one point, being a passive investor doesn't absolve you from learning how the business works. I think it's very wise to pay attention to what the industry is saying what at what active syndicators are saying to each other, what they're out there talking about and where they learn, right because you're going to learn the most about how deals work by say, reading the same books as them or attending webinars or maybe going to conferences. Some people are some passive investors are willing to make that investment many aren't. Some of those can be very expensive but just as a general comment, being a passive investor doesn't get you out of learning. You still got to learn.   Michael: Okay, no, I love that. I've always been preaching that that you got to learn the fundamentals from the get go, because who knows, you might learn that real estate investing isn't a great place for you and I think that's important to be cognizant of too. So kind of again, thinking similarly through that thought exercise, if we go back to our prior example of this, I'm the active owner. I own five single families looking to get involved in the passive side, and I'm looking at a pro forma from a syndicator and all I know is the single family space, right? I've purchased homes, I've done renovations on homes, capex, that sort of thing and I see a line item, big apartment building 15 million, like you mentioned, and their capex reserve is 250 a door and I'm like, no fricking way I've been in his business 250 is not going to cut it, you know, doesn't get you a stove. So how much should I be kind of nitpicking, this indication of what I know, to be true for my business, versus how much of the syndication world is just so above my head, and playing in a different Echelon that I don't really need to be spending time picking things apart?   Taylor: So I think if you're in a situation where a number doesn't make sense to you, then my opinion is you can either ask a question about it, you know, clarify, maybe run your own underwriting model, if you're so bold, not everybody wants to do that. But at a certain point, when the math doesn't make sense to you, the assumptions don't make sense to you, then just walk away and look for the next one because, you know, I, I hate to sound like an old dog. You know, 33, I've been investing in this business for a few years now but I've seen syndicators make math mistakes that lead made a pretty significant difference in the deals, and sometimes those are identified early on, sometimes they're a little, you know, higher profile but if a number like a Capex budget per unit or something like that doesn't make sense to you. You can ask question about it but use your own logic, I mean, you're at the end of the day, you're going to bear the benefit or the cost of your decision more than anybody else.   So, you know, ultimately, I think the at the individual investor level, kind of the buck stops with us, right, and we should walk away. If something like the math doesn't make sense, I've and I could go to the math errors, I've seen them blow up in a higher profile manner that I don't want to get into and I've caught them from others indicators and sometimes the ones I caught were not huge, but there was enough. Just seeing that is enough for me to say, okay, I'm done because.... Where are the other problem? Where are the mistakes? I'm not going to dig through this enough to find them, but, again, that's that feeling of FOMO, right? Really try not to feel it and if you bear that in mind, I think that helps make fewer mistakes, or kind of helps you, when you find that the capex budget doesn't make sense. It'll help you say, no problem moving on.   Michael: Yep. So is it is it fair to say to folks listening, don't go invest into a syndication until you get warm and fuzzy…   Taylor: Potentially, I think this again, gets to the individual investor level is that we all have different bars of warm and fuzzy, I'm at the point now where I get pretty warm and fuzzy with the deals that I invest in, and I don't invest in everything I see for sure. But I feel my opinion is that my warm and fuzzy is pretty well calibrated at this point, and also pretty heavily data driven. If you're brand new: Think about how is your warm and fuzzy, calibrated correctly. Maybe it is maybe it's not but you know, I'm, I'm not a pushy person in this regard and I think on the individual investor level, if you're not ready, you're not ready and that's okay. There's no harm in continuing to look at deals and, quote, sit on the sidelines but as long as in my mind, as long as you're looking at deals and you're evaluating them, then you're not quite sitting on the sidelines, you're still taking action, and you'll most likely step up eventually, or you'll decide, hey, this isn't for me at all, and you won't do it. But in that sense, you know, consider whether your warm and fuzzy is calibrated correctly. Maybe it's not, maybe you're a little too cautious or maybe you're actually being a little overly trusting, if you will, maybe you're mis calibrated in the other direction.   Michael: Yeah, I think that makes a ton of sense. Taylor, man, this has been a super fun interview. Where can people learn more about you reach out to you invest alongside you if they're interested in doing so?   Taylor: Sure. Absolutely, so I already mentioned my podcast the passive wealth strategy show available you know where you're listening to us right now I'm sure. My company NT capital, you can find out more at investwithtaylor.com or I mentioned the free seven day video course I put out on red flags and passive real estate investing that's available at passiverealestatecourse.com.   Michael: Awesome. But hey, man, thanks again for coming on. I really appreciate you taking the time and I'm sure we'll chat soon.   Taylor: Thank you.   Michael: Okay, well bye…   Okay, everyone. That was our episode a big thank you to Taylor for coming on really insightful. Again. I love some of those questions that you can ask syndicators to get an idea of whether or not it makes sense to invest alongside them or with them as oh, If you liked the show, or even if you didn't like the show, we'd love to still hear from you. Leave us a rating or review wherever you get your podcasts, and we look forward to seeing on the next one. Happy investing…

As a dreamer and life-long learner, Hashim Ismail makes it a goal to push himself. Hashim officially started his real estate investing journey eleven months ago but began learning about real estate just two years ago. He dealt with analysis paralysis, but after making a goal to start in 2021, he decided to jump in with both feet. Through hard work, dedication, and optimism, Hashim has closed on seven properties in eleven months. Since Hashim invests out-of-state, he dealt with a whole new set of obstacles apart from the usual challenges new investors face. Through the new connections he made, Hashim educated himself on the area, without having to physically visit! Investing out-of-state can be risky within itself, so he has created a series of processes to mitigate risk as much as possible. In this podcast episode, Hashim talks about how he got started in real estate and how he found immense success simply by stepping out of his comfort zone. Episode Link: https://www.linkedin.com/in/hashim-ismail-76087120/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, what's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have Hashim Ismail, who is a San Diego based investor doing some pretty cool things, investing remotely as well as locally if you can believe it. So he's gonna be walking us through his story, his background, and some tips and tricks that got him over the hump to finally make that first purchase. So let's get into it.   Hashim, what's going on, man, thanks so much for taking the time to hang out with me today. Appreciate you coming on.   Hashim: Hey, Michael. How's it going, man?   Michael: Oh, super, super good. I'm on my way up to the San Juan Islands in my van, which is northern Washington. So I'm super excited. You're a SoCal guy, right?   Hashim: I am, I am SoCal. Yeah, similar, similar to you.   Michael: Right on and so we're gonna be chatting today about kind of your investment story and your journey and I'll be very interested to learn because you're a SoCal guy. Were you investing in Southern California? Are you doing the remote thing?   Hashim: So I started with the remote thing, and most of my investment is, is remote investing for the most part and recently this year, I got my first property in Southern California, but most of my properties are out of state.   Michael: So you did kind of similar to me, you almost did it backwards, like you started super far and then came zoomed in and zoom close. So walk us through I want to hear like soup to nuts what your investment journey has been like. So walk us through what your very first deal was kind of where was it? How did you get started and how did you get that meant, like, mentally your head screwed on right to be able to do the whole remote thing?   Hashim: Yeah, so as with many things in life, taking that first step is typically the hardest and most challenging for many people, including myself and, you know, I was listening to a lot of podcasts, Bigger Pockets podcasts, real estate, different real estate, reading books, and taking that first step was okay, what am I going to do? What am I going to do it and finally, in 20, December of 2020, typically at the end of the year, I tried to write my goals for the following year, December 2020, I wrote down real estate investing goals and it was I remember, it was wanting to investment property in 2021. At the time, obviously, I did not know how I was going to do it. Obviously, I had been listening to podcast reading. So I had an idea and I knew what real estate investing was, but I hadn't done it and until you do something, there's only so much you can read or listen about and 2021. So which was last year, April, to be specific, I took a first step towards that and I went, I started in Tennessee, Memphis, specifically the market that I started in and that's how I started my real estate journey and to be here today, well, throughout 2021 got a couple properties more in Memphis and then this year, I had another goal for myself to go into another market and I thought I could try my local market here in Southern California.   Michael: Okay, I've got a, like so many questions for you. This is gonna, this is gonna be a lot of fun. So taking a step back, like how when did you start, like getting educated, listening to podcasts, reading books, thinking, hey, real estate investing might be something I want to do. How long ago was that?   Hashim: Yeah, so I started roughly around sometime towards end of 2018, beginning of 2019 and actually, I saw I used to listen to podcasts on financial independence and one I remember one of the shows, they, you know, real estate came up, and that's when I started hearing more about real estate. I was like, okay, and I started doing little googling little research came across Bigger Pockets and that's how I started listening to more of the Bigger Pockets podcasts, and reading some of the books.   Michael: Okay, and so you spent, like, roughly plus or minus two years getting self-educated. Did you have like friends or family or like a coach or mentor anyone that was like, hey, this is like the theory and now let me help you put it into practice or was it all you by yourself?   Hashim: At the time it was myself. So listening to the podcast, different guests that come on the show sharing their story, and you get to learn a lot from that and obviously, that's, I'm sure that's one of the reasons why you host the podcast, I listened to some of your guests as well and there's a lot of nuggets and learnings that we take from that by other sharing. So I got to learn or gain a lot from that and then read some books and that's how it was for about two years give or take. It was just me reading, listening to podcasts, making the routine, but I didn't feel it because time flies by and I found it interesting and fascinating. It wasn't until, yeah, a year and a half, two years later, I was like, okay, I've been listening and reading, but I don't have anything. I haven't done anything yet, let me take action.   Michael: so I'm so glad you brought this up. I think that's like the linchpin. That's the turning point for so many people, or rather the disconnect between getting educated, listening to podcasts, reading books, seminars, whatever, and then actually taking action and doing something. So how did you bridge that gap because it's so easy to say one more podcast, one more book, one more seminar. So how did you how did you take that leap?   Hashim: Yeah, Michael, I think that's, that's true for, again, for many for many of us and I think it's human nature, especially when you haven't done something before that very first time. There's always a challenge. It's always, you know, a sense of fear. You haven't done this before, where do I go? What do I do in the waters, I typically use goals to, to push me and to push me specifically out of my comfort zone, things that I haven't done. So I use my goal setting and I, every year, I write my goals for the next year. So I use my goal setting as a way to push me in that way, I hold myself accountable. Hey, I wrote this down. I said I was gonna do this. Am I doing it? Have I done it? So that's what I used to push me. At the time out of my comfort zone was real estate investing. I hadn't done it yet. There was a lot of unknowns for me and that's what I use, as, you know, something to nudge me in the direction that I would like to go.   Michael: I love it any clearly you're motivated person, because you know you're holding yourself accountable to which is, which is something that I think a lot of people struggle with and so kind of getting philosophical here for a minute. How do you hold yourself accountable because it would be so easy to say, I missed the goal. I didn't do it. Oh, well, I'll do it next year because there's no one looking to you saying, hey, you, Tom, you said you were gonna do this, like, do it. Other than yourself, so how do you how do you motivate yourself?   Hashim: Very good point, Michael. So I think it's important. So personally, for me, I use my inner you know, my wife and my inner drive to, you know, to push me towards my goals and what I'd like to do, you know, look at big picture, where would I like to be? What is what would my life be like and I use that, you know, to motivate me, because real estate, like everything else in life, there's ups, there's downs, there's days that oh, my god, I'm crushing it some days, what am I doing?   Michael: And oh, my God, I'm being crushed….   Hashim: Yeah, am I doing this right? And it's important, it's part of it, it's part of almost anything left. So it's important to have, you know, something that can keep you going and I think finding your inner why your true reason and being clear, and your goal is going to help you stay the course it's going to, it's going to help you from distractions, from the lows and try to, you know, push you back to go to the highs. So, you know, when I write, you know, when I write my goals down, I try to stick to them. I mean, nothing's 100%, but I try to stick to them as much as I can. I will say another thing and I haven't done that as much, but I'm starting to do more of that is using accountability groups, you know, having a group, a core group that are on a similar journey as you are, and you guys can help each other out, you guys can learn from each other, but at the same time, you can hold each other accountable. I think that's super important for people to do and have, including myself and, you know, I'll share a bit more story around that is one of the bigger pockets, courses that I or, you know, like boot camps that I took, they put us into groups and at the end of I mean, there was a lot of value in that boot camp, one of the main thing was, you know, we get to be put in what they call accountability groups and to this day, I am in touch with my accountability group and we have regular meetings, everybody's busy, but we have regular meetings, and we try to push each other and hold each other accountable.   Michael: I love it and how long ago was the bootcamp?   Hashim: It was q3 of last year, so right nine months or so ago.   Michael: Okay, right. Well, good for you. That's awesome. So as she walked us through what it was like to do your first deal remotely, because I think we have a big segment of our audience listening to the show is just getting started or just about to get started. There may be a little bit nervous or unsure about how to proceed doing something remote Roofstock is a great system to plug into to leverage the preexisting relationships but did you do that or did you go kind of forge your own path?   Hashim: So when I what I did when I was looking at different at the time, I was looking again, I didn't know too much for from my knowledge, I would I knew I was looking at a couple of markets and there were certain criteria that I had in mind. You know, one of them was, hey, is this market? What's the number one thing actually for me was because I hadn't done it before, is what is the risk? What is the barrier to entry into this market and what is the risk? So if things don't go as I'm thinking they should and as I'm planning, can I absorb the hit or am I gonna fall flat on my face, and I'm pretty much knocked out and I did not want that. So I was looking at markets we're in if things go went wrong, I could learn but I would not be knocked back completely out of the game, I could sort of absorb a hit that you know, the hit. So that was one criteria. The other criteria is does this market this is Mark, you're gonna cash flow, because I was interested, I still am in cash flow and then the other criteria was around, hey, what's the owner to renter population, like? Is there enough renters? So my focus is birth and, you know, after the birth, I want to rent the property, and I wanted to cashflow are there enough people that are going to be renting this property and then the other thing, you know, for the market was around? What's the job market? What's the job like in this market? Is that that is their diversification.   So these are a couple of criteria that I had in mind, as I was looking at, you know, a couple of markets and, you know, there's other markets that meet this criteria and ultimately, I decided to pull the plug in, in Tennessee, and part of that meant specifically and part of that was when you're investing, you know, long distance out of state, as I'm sure you very well know, Michael, that team is super crucial to your success. I connected with a bunch of people in different markets and you know, in the Memphis market, specifically, I connected with some great people. So Steven, I can Dona mentioned that before, was on the folks that I connected with the Memphis market, and I learned a ton from him and at the time, he was I was able to share with him what my goals are, and what I'm thinking and he was able to also share with me what he's done, his experience in the market, and how he can help me get to what my goals are, and where I'm looking to go and, you know, based on my criteria, and based on, you know, barrier to entry and risk probability and tolerance, I decided, yeah, let me pull the trigger and get into one deal and that's, that's how it all started.   Michael: I love it Hashim and you mentioned something about this risk versus reward ratio, which I absolutely love. I think that as you're going to quantify this stuff and figure out okay, where is my, where can I swing for the fences and if I miss still be okay. So how do you quantify that? What does that look like? Is it a mathematical equation? Is it a gut feel like, how did you come to that conclusion?   Hashim: So in my mind, the way I think of it is, the first thing was the barrier to entry. How much are these homes? How much are properties costing? So I was starting with single family, how much a single family costing in this market? So take the Tennessee or Memphis market specifically versus, say, the Miami market or compared to Southern California, LA or…   Michael: slightly different purchase prices, right?...   Hashim: Yes, exactly. The barrier to entry and purchase prices are very much different. So if you think about that, AIG, you need a lot more capital to get into these markets, into these markets, some of these markets, and then be in the event something was to go wrong, you're at a much more, you're a lot more exposed, you're a lot more higher risk and I did not especially that's something I hadn't done before I was creating a process. I was learning everything was new to me, I wanted the lower entry point, and the lower risk profile when something goes wrong. I can absorb it and I can know I can take the learnings and keep pushing. I will say, as with anything else, it's good to learn and evolve and grow and now that I've done this a couple more times, I'm more comfortable. I am at a better place to explore, you know, some of these bigger markets. Obviously, the numbers need to make sense, but I feel more comfortable now than I was 15 months or so ago.   Michael: Okay, right on and you mentioned if I heard you correctly, that your very first deal was a burger. Is that right?   Hashim: Yes.   Michael: Okay, that's kind of crazy. I love it. So how big of a burger are we talking how what kind of cosmetic work was needed because I like for me personally, my very first deal was turnkey, I could barely wrap my head around owning rental property being on the hook for a huge sum of money, let alone doing any kind of work. So walk us through, like mentally and then physically what that was like?   Hashim: That my very first bird deal that I got, it took and I've shared that before. So it took it took about two months before I got it and the reason for that is I was so reluctant because I was no there was a lot of fun. They're like, Oh my God, it's a burger. I've never done this. I'm here the property is 1000s of miles away, how do I do this, and then the, the property went under contract, and that was bumped and then it came for whatever reason it fell out of contract and came back and as soon as it did, I just, I got it immediately after under contract. So what, you know, along those lines, at the time, I had spoken to Steven and Stephens team, that is what they specialize in. So in one end their brokerage, so you can buy and sell with them real estate with them. On their other end, they have a full, full blown team to help and work with investors around rehabbing and project management for their properties. So I worked. So I run the numbers, the numbers made sense to me, I run it by my team, Stephen and his team, the numbers checked and then I physically went and walked the properties and when we do the, you know, we take pictures, we see what the rehab, the extent of the rehab is going to be and have an estimate cost around what the rehab is and then if everything, you know, checks, we run the numbers, everything makes sense. Finally, I you know, I do you know, a final desk appraisal to just confirm because when you're doing the birth, the ARV is very important. So is the rehab cost. So you don't want to miss them those. So I do take a stab at them. But I also leverage professionals. I get the final desk appraisal and make sure the ARV is exactly what I'm thinking and then the rehab costs and make sure we narrow and nail that down and still plug in the numbers and make sure they still make sense and if they do, then I just you know I just go with it. It's a matter of reducing your risk and probably as much as you can, nothing is certain but these redundant steps help reduce that risk for you and so we get there, and I pull the trigger on it at the time I bought that property for 100,000 and I put about I put 45,000 into it for rehab day.   Michael: I mean, so you're 45% of the of the purchase price you put into it and rehab, that's not an insignificant amount. So share with us. Okay, share with us how you how you purchased it, was it, was it all cash? Or did you have to finance it and then how did you pay for the rehab and how close was that 45k that you ended up spending to what you projected or what you budgeted for.   Hashim: So for financing, I leveraged my my brokerage account, and I got a line of credit from that and that's how I was able to pull 100,000 in cash to buy the property. So I bought it off market, so I had to buy it in cash and then for the rehab par 45, 40, 45 is exactly what the estimate was. I you know, estimating rehab costs at the time, and even today is not a strong suit of mine and that's where you want to leverage your team and people that you can, you know, trust and that's what the rehab was budgeted for and it was Michael, to your point, it was significant. We did. I mean, flooring, paint inside out roof, kitchen bathrooms, I mean, everything, cut trees, trim stuff. So it was it was Major, it wasn't just cosmetic and little things. However, you know, on the other end of that, and it is you know, upfront it's, you know, you buy you rehab it it's you know, it takes also time it took about three months going through that process and then the tail end of that for the you know, as any other product process is doing the refinance at the end.   Michael: And so what was your projected ARV that you did your desktop appraisal on and then what was the actual ARV? Cuz I'm assuming this is all buttoned up. You got it refinanced, right.   Hashim: Yes, that was my first deal and it's all buttoned up at this point. So our desk appraisal was 271 270. When we did the desk appraisal, yeah. So that's where the numbers were at the time when we did the actual appraisal when everything was done and I think part of it also has to do you know, where the market was, it appraised for 281. So about 10,000 above what the desk appraisal was. So that was, that was a great deal and a great first deal for me and, you know, I'm, I'm happy I did it, and I'm excited and that will say, you know, to listeners, or anybody out there, not every deal is like this, again, with everything. There's offices that this was a good deal for me and I'm excited I did it. There's other deals that were not so sexy, and the numbers were not, you know, as appealing and there's some deals that don't even make those numbers and I tried to stay away from those but it happens.   Michael: So, for everyone listening, I'm tempted to not ask this question because it's gonna be like a dagger and everyone who's listening stomachs but what was your what were you able to cash out and what was your interest rate and what kind of like what kind of financing was a 30 year fix, talk us through that?   Hashim: Yes, I went with a 30 year fixed refinance and on the back end and I was able to pull out about 75% LTV with the lender and I got about 211,000 out of out of the deal and yeah, locked in 30 year fixed…   Michael: And your interest rate?   Hashim: 3.62 cents.   Michael: Oh my god. So you spent 145,000 plus your holding costs whatever those panned out to be, and paid yourself 211,000 at a 3.6% interest rate fixed for 30 years.   Hashim: Yes. Now, some of the other deals are my…   Michael: Draw exit stage left, amazing…   Hashim: Thank you Michael, again, this is like, you know, you know, I'm 14, and I'm thankful that that was my first deal and they went that way. I mean, some, especially, you know, interest rate change, and the landscape changed. Some of the deals are, again, are not as you know, as sexy, but it was exciting and I'm, you know, I was happy when I was on the other end of this and when I'm going over the numbers again, for sure.   Michael: Well, I think it's great and my hat off, and kudos to you but I think something that like it's so important to highlight, and we talk a lot about on the show is that. So often, we talked about the wins, we talked about the high points, and like, clearly, this was a massive win for you but we spent like the last 10 minutes talking about this and we only spent a few minutes talking about all the stuff that you did leading up to this, like literal years of prep work leading up to this point, for you to have this massive win for you to even recognize that, hey, this is a potential win for me.   So for everyone listening, don't beat yourselves up. Don't compare yourself if you're not there yet, or if your deals haven't been as sexy or as amazing because there's all this stuff going on ahead of time, prep, work legwork that you should be doing to be able to lead to deals like this. So that was your first deal. Amazing, amazing, amazing. What were your next deals like? Were those also birds, were those, were those more turnkey? Talk us a little bit about that.   Hashim: Thank you, Michael. Actually, that's a really good question that you highlight and I think it's important. I'm gonna answer the question, but I just want to acknowledge what you said. I mean, that's super important. You look at athletes, we watch them on TV for whatever timeframe it is that that game is going on for whether it's basketball, soccer, football, and they're performing, or they're supposed to be performing at their best during that time that everybody's watching and cheering and we're enjoying them. Behind the scenes, the amount of years that it took for them to get there is insane. We don't we don't have privy to that and you know, it's similar to almost everything else in life. So thank you for pointing that out. So the question that you ask, my deals are through a little bit of different stages as we speak. So some of them the one I just shared and one more I've gone through the entire cycle of refinance, some of them I'm not entirely sure I want to go the refinance route at the end of the burr, a will be more either if I can hold it for now. Especially that interest rate landscape is changing or perhaps what I'm also exploring is doing a home equity line of credit on them, for the time being and some of them are still on the rehabs. Some of them are not fully done yet as we speak. So they're, they're kind of like they're staggered in different stages at this point.   Michael: Okay, right on and getting back to that first deal for just a second. What did that property rent for?   Hashim: The rent?   Michael: Yeah…     Hashim: $1,520 was rented for currently love it.   Michael: And the cash flow?   Hashim: The cash flow is about $130 a month, which is, and I'm gonna elaborate on that a little bit more typically, not what I go for, for cash flow purposes. So my goal is my, my goal, when I target for properties for cash flow is higher than that, with this property. In particular, it was my first one, but also because I was able to pull a lot more, I pull about 60,000 more than I put into the property. So as you would imagine, that would impact the cash flow. So I'm okay with that and every, every property is going to be a little bit different but I typically shoot for a couple of 100 bucks cash flow and properties in general.   Michael: Right, so quick question Hashim, what's your cash on cash return that you've calculated on that property?   Hashim: Infinite…?   Michael: You're a spa like that's what I was hoping you would say. So again, for everyone listening, Hashim got a $60,000 payday and $130 a month cash flow, so he has negative $60,000 in this deal, so I fricking love it, man, I love it.   Hashim: Thank you.   Michael: Give us let's I want to be very respectful of your time and get you out of here but talk to us a little bit about what your local deal has looked like or deals that you're doing now in San Diego. Why did you come, why did you go from remote now to local after clearly accomplishing so much on the remote landscape, you know, why bother?   Hashim: I wanted to push myself to go into other market and part of it was, you know, my background is engineering and science and I like, you know, again, to create processes, but also to mitigate risk as much as you can. Part of that is diversification, so I wanted to go into another market, I do like when I get into a market, don't just do one deal, I like to go a little bit deeper into the market, because you're creating processes, you're building teams are spending time into it and in my opinion, you want to get the most out of your investing, right? You're investing time you're investing, so you want to get the most out of it and I will stay in the Memphis market that these are what I see, as of today. However, I wanted to get into the market, and I use goal setting to push me into that. I didn't know specifically it was my local market, but I wrote the goal in a way where and I want to get into another market if you're marketing 2022 and as the year started, I thought about it a little bit more and I know that in Southern California for many, many years now, and I don't own the property here. So I thought to myself, you know, why not do something local and the numbers are different, and the approaches very different than you would in other markets, every market is different and anybody listening to this are real estate investors out there, know that if not keep that in mind market to market things are going to shift Market to market strategy is going to shift and yeah, so I decided to I live here, let me attempt something local and that's where things are right now. So far, I got a house here and it's not necessarily my personal difference, less of a burr and more little bit of a little bit of a house hack, I'll say and then trying to add doing work to add more value and playing the appreciation game down the road.   Michael: Right on so is the thought to, you bought it as a primary residence live in it, add the value, and then do a cash out refi or do a home and put a home equity line of credit on and leverage that to go do something else. What does that look like?   Hashim: Exactly, Michael so that's, that's my thought. So I bought it living in fixing doing work on it and it's going to that's going to add value, but also you know, expecting the market, you know, with time, you know, the market is the market depends on where the market trends gribble with the work that I do to it, and with time, there will be some value, forced value added into the home and depending where that number is, most likely do home equity line of credit. So I have some cash to tap into and then I can go do more deals. Depending what that cash, how much cash I can tap into and what else I have going on. Yeah, that's, that's, that's I do.   Michael: Hashim I love it, man, I love it. We're gonna get you out of here but before we do, what do you have to say to newer investors who are just getting started or maybe two, two years ago, Hashim who's just getting started, now that you've been to the other side…   Hashim: But I'll say like, you know, stay hungry, stay learning, it's a journey, I take this approach and this philosophy and everything in life, keep learning stay at it and take action. For me I use I write down goals and I that's one way that I push myself find what what's gonna motivate you and what's going to push you and you know, tap into that and you know, take action. Having friends having an accountability group, I think is huge as well so you can leverage that you can leverage different combinations but those are couple things I have used and a couple of ways I recommend and anything in life is learning so do it and know make sure you calculate it but do it and doesn't go as well take the learnings from that and try to be better and try it again or you know try something else that would work better for you.   Michael: Right on I love it. Well hey, if people have more questions for you want to reach out to you want to compliment you on your on your amazing successes. What's the best way for them to get a get a hold?   Hashim: Yeah, absolutely. You can reach me on LinkedIn. So by tapping searching for my name Hashim Ismael on LinkedIn, you'll find me and then you can email me directly. My email, which is hashim@sirabucapital.com, SIRABU capital is spelled S I R A B U capital.com and then you can also find me on Bigger Pockets as well and just before we get out of here, Michael, I just want to give you a couple of shout outs so I want to let you know thanks Steven. I mentioned Steven I can Dona Tyler Madden. You know they've helped me out a lot, I learned a lot from them. You know they're mentors to me. I want to thank friends family, and my girlfriend for a lot of support Bigger Pockets community and finally, um you know anything tech related? Dan D and MC, you know who you are. Thank you for all the tech support with you everything. Anything that breaks, I just I just go to them and thank you guys. Thanks for having me here on the show today, man. I'm glad to share my story and you guys are doing a lot of you know, great recordings and great guests on the show. Thank you guys. Thanks, Michael for doing that.   Michael: Thanks, Hashim our pleasure and we will definitely be in touch with you man. Looking forward to seeing where you go from here.   Hashim: Yeah, man, thanks a lot.   Michael: You got it. Take care. Okay, everyone, that was our show a big thank you to Hashim for coming on being vulnerable, opening up the vessel a little bit, giving us an insider's look at what his journey has been like. As always, if you liked the episode, feel free to leave us a rating or review wherever it is. You get your podcasts, and we look forward to seeing you the next one. Happy investing…

Kenny Simpson and Krystle Moore are real estate investors, and Kenny's expertise is residential lending while Krystle's is in commercial lending. They have helped over 1000 clients on their path to creating generational wealth. 2019 has been about focusing on growing our business through marketing for them. Until this point, their business was solely from referrals. They started a podcast – Value Add with K&K – and have focused on using their influence on social media to educate their clients, potential clients and followers. They talk a lot about real estate and building wealth on the podcast but also about health, fitness, mental health and other areas where they feel they can add value. In this episode, Krystle and Kenny talk about how they got started in buying multifamily properties and what they did to leverage that to buy more properties. Additionally, they talk about what borrowers should do to be well equipped, as well as things to look out for as your purchase different property types. Episode Link: https://getinthecashflowgame.com/   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I have Krystle Moore and Kenny Simpson, a real estate power couple in the lending space, Kenny in the residential side and Krystle on the commercial side and they're gonna be talking to us today about things that we need to know about each space, what we can do as borrowers to be well equipped, as well as things to look out for as we're purchasing each type of property. So let's get into it everyone.   Just a quick shout out before we get into the episode, definitely want encourage everyone to go check out roofstockacademy.com It is a one stop education shop for both new and seasoned investors comes with tons of access to on demand lectures, potentially one on one coaching with me or some of the other coaches we have at the academy as well as marketplace, cashback credits for you to use on the restock marketplace as you're making a purchase. So come check us out roofstockacademy.com, look forward to seeing you there.   Krystle and Kenny, what is going on. Thanks so much for taking the time to hang out with me today. I appreciate you.   Krystle: Thanks so much for having us.   Kenny: Yeah, thank you excited to be here.   Michael: Oh my gosh, I am, I'm super, super excited. We are going to be chatting today about all things real estate financing related. So give us a quick and dirty insight into the two of you. who you are where you both come from and what is it you're doing real estate today?   Kenny: Sure, who we are well, people for short, if you want to cheat they call us K and K, because we both have K surname. So our background is in financing commercial for Krystle residential. For Kenny, we've been doing it for about 18 years here in San Diego and we've you know, we invest as well, too, primarily in multifamily. Gosh, how did we get here, you know, basically just jumped into the business and then kind of built our businesses up and then at some point in our career, we decided to get real crazy and start a property manager company and that grew way too big, way too fast and we said, how are we going to have you ever have kids in a life and do anything else because we can't work 80 100 hours a week. So we sold the company to start up and kind of took that time continue to work on building our brands starting our podcast doing a lot of content while doing our main businesses that finance and you know, and we just are active investors. So that's kind of the short story.   Michael: Right on, so you both kind of tag team in the residential side of lending, and then also the commercial side but it sounds like you're investing mostly on the commercial side.   Krystle: Yeah, so we invest primarily in multifamily and I think, you know, they kind of call us the one stop shop in terms of financing just because there's a lot of crossover between the residential and the commercial. So in Kenny's gotten really experienced at dealing with complicated real estate investors and people who own you know, several properties, I mean, things like we always say that those clients are like an underwriters nightmare but Kenny knows how to walk them through the income and how to do all that kind of stuff and then a lot of times they want to cross over into buying apartments. So it's a good partnership for us and it works out well for our clients.   Michael: Perfect and I feel like so many of our listeners as well kind of go through the single family organic progression, start with single family then maybe a duplex triplex quad up and therefore. So where have you seen from your experiences, like people do really well, in the commercial space, as opposed to sticking in the residential space at one to four unit, like when's the appropriate time for someone to graduate, if you will, or make that leap from one to four into five plus?   Krystle: Honestly, I mean, at least for us in Southern California, or probably any major metro, your biggest issue is going to be qualifying for the loan amount. So I think when you're trying to make that transition from residential to commercial people come to me and they say, well, what LTV can I get and I'm like, well, I need to underwrite the property because it's not like that just because we can go to 75 or even 80%. LTV, it doesn't mean that the property is going to qualify. So in San Diego, at least for Southern California, where we're at, we're usually debt service constrained, so cashflow and I like to tell people the lower the cap rate, the bigger the down payment. So obviously, cap rates have been super compressed recently and then now with rates going up, that means people are having to put more money down so the best time to make that transition is when you have the cash to make it I tell people I always recommend the more units you can buy, the better because you know if you have a four unit building and one person vacates, you have a 25% vacancy, maybe you'll break even on that property but if you have a 10 unit building and one person vacates, you have 90% occupancy still. So you're likely still cash flowing even with one person vacating. So you really want to get to that point, but you might have to, like, you know, I the BRR method, or those kinds of things to trade up but the biggest thing is just making sure you have the down payment, I think people should always be underwriting because that transition from four units, let's say to like a five, or a six unit building, you know, you've got to kind of like look at four to six units, just to make sure that you can get the down payment before you take that step.   Michael: Okay, that makes a ton of sense and let's maybe even take a step back for anyone that's not familiar with either the lending space as a whole or what commercial financing is. So I'd love to hear from both your perspectives. What do you look for on the residential side, like what pieces of information you're looking for and then on the commercial side, because I think it's a little bit different, what pieces of information are you looking for and how do you treat those two different types of loans?   Kenny: Yeah, so the residential um, I don't want to say it's very straightforward, because we do have we have more options, and probably Krystle and the reason why is because with Krystle like she says, if you just do not have the down payment, then you might just not qualify with us, the property could like not cashflow and you could put 25% down and still, if you qualify with your income, you could still get it but we also have full doc programs, maybe bank statement or debt coverage service ratio programs. So we have multiple, so really, what we're looking for probably is, depending on what if you're buying a four unit, most of the time, you're going to be looking at least 25% down, like I said, the property does not necessarily have to cashflow on a DSCR program that might be a little different.   But we have people buying an example for unit, it's way under rented, they're going to buy it, they're going to kick people out, they're going to raise the rent, and it's going to eventually cashflow. So that's number one, obviously, number two, you're looking at credit, can you go full dock, and kind of the traditional stuff of everything else, so but when you're looking at a two to four unit property as an investment, you're definitely gonna have to put like, at least 25% down and some people are putting more because rates are higher, and they just want to make sure if they buy it that it's cash flowing, too. So that's probably like the general quick, like overview with wonderful like two to four, for example on investments.   Krystle: I think that's the issue like for me, when I look talk to people who are buying four unit properties, the biggest thing I want to make sure of is, like Kenny said, a residential lender will give you a loan even if the property is cashflow negative, but the purpose of buying investment properties is to be cashflow positive. So, you know, you kind of have to do more of your own due diligence upfront, when you're buying a four unit versus apartments, I mean, I like to say like a bank is never gonna let you really fail, because they're not going to give you like a loan that's higher than what the property can support and they're going to put a lot of like cushion in there, too. We have replacement reserves, if you're self-managing, we're still going to use a management fee, we use a vacancy factor, we have all these kinds of things to kind of set you up for success, as an owner, I always say like with apartments, you can you can like you basically have to ignore your property and not pay attention to it and completely neglected in order to run in the ground, like apartments are very forgiving.   So when it comes to the four unit space, I tell people like you should be underwriting your four unit, just like you underwrite an apartment building, because probably the agents not going to do that. I think that there's a little bit of a hole in the realtor space where, you know, people that sell homes are also selling two to four unit investment properties, but they don't even know how to underwrite an investment property. So you just want to make sure of that and underwrite it like an investor. Like I always tell people marketing is marketing, right? So you want to look at it as an investment through an investor's eyes? What, what's that really going to cost you not the pretty package, if everything goes 100%- perfect. You want to like kind of factor in, you know, additional expenses that are unforeseen, because these are properties, and especially in southern California, you've got a lot of older properties. So you're probably dealing with plumbing or electrical, you're gonna have more maintenance than what's probably in the marketing package.   Michael: So is it fair to semis for a residential, you're more interested in the borrower itself and on the commercial side, you're more interested in the property itself?   Krystle: Yes, so we're definitely more interested in the property but I people say that to me, they'll call me and I'll go like, I doesn't matter about what I have. It just matters about probably well, no, we also want to make sure that you have decent credit, we look at what we call global debt service. So we are going to make sure that you can afford your monthly bills and things like that. So you definitely need to qualify, but it's not as strongly looked at as you would on residential. Like for example, if I'm going to do a commercial loan, and I'm getting copies of your bank statements, I'm not going to ask you to source your $1,000 cash deposit.   It's painful. So we I like to say that we have common sense. So we allow, you know, cash from business accounts, we allow personal accounts, we're not going to question you about all these things. So yes, we're a little bit more easygoing. because we look at you, as a sophisticated business investor, you're coming to me for a business loan, that means you're a savvy investor, not an unknowing, you know, potential homeowner. So we do look at it a little bit differently, you do need to qualify personally, but we do put most of the weight on the property.   Kenny: And you do, but you guys do require, like, if you are getting into bigger loan amounts, like some people, like, hey, I want to go out and buy this 30 unit building, and there is a net worth requirements like that. So the bigger you go with the buildings and the loan amounts, I would say, it's like, they're gonna look at you not just like, you know, net worth but you know, probably like a lot of people like talking about that, like, it's for me, it's going for a bigger building, I'd like to, you can look a little bit more.   Krystle: So the big things that you need to pay attention to, because when if you go to a commercial lender, or you want to buy an apartment building, they're not going to give you a pre-approval, they're not going to get you pre qual, if you ask for that, they're going to immediately know that you're a rookie, and you've never done this before, what we look at as your personal financial statement or real estate schedule, and what we're looking at specifically is that your net worth is at least equal to or greater than the loan amount and then we also want you to have 10 to 15% of the loan amount and post close liquidity. So that means after your down payment, after paying out all your closing costs, so let's say you're gonna get a million dollar loan, we want to see that you have 100 to $150,000 of cash or cash equivalents, most of the time retirement doesn't work, that's not going to unless you're close to the age of being able to access it. So and then credit score, it's like, you know, we're kind of like 680 score, I mean, some big owners have like things on their credit. So, you know, that are like maybe a tenant eviction, or like, you know, they've got little things on their credit. So we're not really paying attention to that as long as you look your credit worthy, you don't have a bunch of mortgage lates and you didn't file bankruptcy last year, you know, like, those are the kinds of things that we're looking for, but net worth and liquidity are the two big things that we require looking for experience to a certain level, there is they do want you to have experience, but if you don't, then they want you to hire a professional property manager.   Michael: Okay, and yeah, Kenny, you me to the question the words right out of my mouth. So when you do send, because that's like, I've got a mortgage package that I send all the commercial lenders that's got my PFS my schedule, real estate, but for anyone that's just getting started, like if they want to go buy a five unit building as their first one, is that going to be an obstacle for them from a lending perspective?   Krystle: Not typically, they might they, they'll more than likely want you to have a professional property manager. That's what most lenders are looking for and quite frankly, though, I've been telling my lenders this more recently, and I feel like believe it or not of all the things, especially with where we're at in the world, and everything in the economy, that I feel like lenders have led up on is the experience because I tell my lenders, you know, it's really funny that anybody can go buy a two to four unit property and again, negative cash flow, here you go, here's a loan, you're gonna be negative $1,000 a month. But now you want somebody have all this experience for apartments, like, if you can survive owning two to four unit properties, and as an investor, then you can definitely own five plus units. I think that's sufficient experience. So we've been getting around that but yeah, some lenders are still going to want it, I still definitely stand by my argument, though, that if you can own a four unit, that you can definitely own it, you know, a 10 unit, it's not like you're gonna go from four to 400. You know, if you go from four to six or seven or 10 units, that's pretty comparable but some lenders might require a signed Property Management Agreement.   Michael: Okay and from both your experiences on the owning and operational side of things, I mean, what are some of the big differences that you see and obviously, we talked about lending, but like, just between like a two to four, and then a five plus, like, what are the differences that people should be aware of?   Kenny: Yeah, so two to four? Well, one of the things is, especially here in San Diego, a lot of people on the four units, they're, they're moving into them, right. So you're probably how you can have an owner user, if it's an investment, you could live in it, and you have the tenants there helping to pay your mortgage, the other thing is on for units, a lot of times the trash, you might come with the property tax, you don't have to have a dumpster on the property and paying that additional, a lot of times the tenants are paying their own water, electricity and things like that. So the cost of running, it could be cheaper, just from that standpoint and then otherwise, like the for unit, I mean, if you're managing it, you're going to manage it pretty much the same. I mean, Krystle can kind of get in when you're getting bigger, but when you're getting bigger, you know, five to 15 or 16 probably the same when you get over 16 the difference really is you're gonna have that onsite manager by law but then you know, as you get bigger and bigger, if you've got 100 unit, then you're gonna have staff and this so it's really like Chris says, as you scale and size. It's it makes more sense because you know, if you have 100 homes compared to 100 unit property, you know, it's a lot more work 100 homes driving around 100, roughs, 100, things like that. So, you know, I don't know what else you have on a larger scale.   Krystle: Yeah, I would say the management of like a four unit to like a 15 unit building is roughly the same. Besides the fact that you have economies of scale, like Kenny, you mentioned, it's like you have all these roofs to take care of all these walls to take care of things like that that are going to be, you know, cut down, the larger the building is so and then once you get 16 plus you have the onsite manager but honestly, I think the psyche of the person owns a four unit is the biggest difference, because like I said, I mean, it's stressful, you bought this property as an investment, you saved a bunch of money for it, if you have to come out of pocket for that investment, that's an extra expense that you didn't anticipate if you have vacancy, or if you know, you've got to evict someone, or things like that. So I just, what I've noticed is that the real estate investors who own like the single family home to the four unit have a lot more stress when they have vacancy or someone that doesn't pay because they're going to be negative. Whenever you own a larger apartment building, you have a little bit more comfort, because you have a little bit more margin for error there. So I think the biggest thing is just the psyche of the person that owns the four unit versus owning the larger building and of course, there's like this kind of break through transition that you have to have to feel have the confidence to make that step. But I tell people, it's 100% going to be easier, the more units you own, like you're just going to feel more safe, more confident, you're going to have a cashflow. No worries, you're not going to be negative, you're not going to be putting money into your investment property.   Kenny: Yeah and when we managed, we managed from homes to one point that was over 100 units. The single families would do great until somebody wouldn't pay rent or they'd move out and they had to do a unit turnover and they cost more than the deposit and then it would sit there for maybe a month or two sometimes because they're trying to get this high rent and they didn't listen to couldn't get it and you're losing money and the other thing is, is we know guys that like flip properties, for example, like they flip houses and then you come to environment like now where it's sitting maybe you know could sit 30, 60, 90 days, they're getting zero cash flow and then when the guys started saying, well, I could just flip apartment buildings, and maybe they're going to even hold them for a year or two. In exchange, they started realizing why I'm sitting here on the market. I'm actually making money I'm getting paid, I'm not sitting there going, I need to get all my books, it's cost me money, that private money. So it there's you know, like the bigger the better. So when we manage it all we realize, like, if you really own a house, it's like man, it's almost has to be free and clear to like really make sense. Otherwise, we always thought like, gosh, it's tough, you know? So that's just from our experience here, just managing and then on the bigger when you're more like when you do those little rent raises, right? Yeah, but small rent raise across 3040 50 100 units. That adds up, you don't think so? You're like, oh, 100 bucks a month times 100? Holy crap. That's a lot of money. You know? Yeah. 10 grand, so…   Michael: Totally. Okay, that makes a lot of sense and Krystle, you mentioned it before, but I just want to come back to it from the underwriting perspective. What do you do with seller provided pro formas? Do you think there's any value in those?   Krystle: Totally, I primarily just pay attention to like utility cost and yeah, like trash and stuff like that. So I pay attention to like, the things that aren't going to change for a new owner and I pad those even a little bit because obviously utility costs have been rising. So those are the biggest things that I pay attention to and then I also want to look at, like I usually ask for the GL, like the general ledger from a seller to because I want to see what repairs they've been making and see look for any kind of patterns. Okay, this property has a lot of plumbing issues, like we need to focus in on that. Maybe we look at replumbing. Maybe we need to get the camera, you know, camera, the lines like we need to look at this. What capex have they done, like I want to know what kind of capital improvements they've done on the property. So I can kind of get an idea of what the condition is. So I definitely do pay attention to sellers, pro formas but I build my own and they usually like for example, brokers here we'll use like a 3% vacancy factor. I use five lenders use five, they'll use like $200 a unit for replacement reserves, we use 250 or even 300. You know, so there's just little things like that where I am going to be more conservative, but certainly actuals are very, very helpful. So if nothing else for the utility costs.   Michael: Yep, I was hoping you would say something to that effect. I always say that. They're good for lining your garbage can… like in place rent 400 market rent 1200 It's like, then you get it to 1200. Yeah, you know.   Krystle: And you know what, I've seen it both ways. I've seen it where sellers are under estimating what the building's worth. So that's why it's so important for you to do your due diligence because they can be too aggressive. They cannot be aggressive enough. I mean, the whole like, value and finding real estate as an investor is where you can find value where other people aren't, like I've heard so many people say, you know, LoopNet is the worst place to find apartments. Well, I found really good deals on there because I was able to get it in a way that nobody else did. I was able to see value and you know, adding creating additional income or reducing expenses, like there's deals everywhere to be had. It's just are you going to do the work and investigation to find where the little like pops of income and you know value ads are.   Michael: Krystle didn't mean it LoopNet is a terrible place. No one should go on and look at it ever. We should all stay off it.   Krystle: All right, no, I'll get more deals.   Michael: That's exactly right. That's exactly it. Like, I love that it has that stigma because I think it does turn a lot of people off and I like you have found some amazing deals from there. So it's like, awesome, keep thinking that it's like surfing sucks. Don't start, you know, I let people think that…   Krystle: People in the water…   Michael: Yeah, that's it so from a borrower perspective, and this is I kind of want to give you to the soapbox and the podium to sing it from the rooftops? What are some things that borrowers can do to be better borrowers, both on the residential side, and on the commercial side, like if you could describe your wish list your ideal borrower, what things do they have and what is their kind of their picture look like so to speak?   Kenny: And it's kind of funny because I, I'm forbidden to even work on my own loans because I'm not a good borrowers.   Michael: Really?   Kenny: Yeah, it's funny, right? I'm not a good borrower, I'm impatient but I will tell you, it's very simple. If somebody sends you a list of 10 things, and you actually have those 10 things we actually need them. Not like it's nine out of 10 out of maybe another 10. Yeah, so I always tell I joke, but always tell borrowers this. I said, I'm like your doctor and your attorney. They're like, huh, I said, so if you lie to me, I can't discover the cancer and eventually, we'll probably find the cancer but it will be like, when we're three weeks and underwriting and somebody pulls some report, and something pops up and they go, what's this, you're like, oh, I didn't think you'd find that. So I'm like, whatever you think we're not going to find, just tell me now and so I can tell you, let's deal with it now, and not three weeks down the road. So you know, filling out a full application. Letting us know if there's anything else we should know going on with income with job changing with changing bank accounts with maybe recently purchased property, that you're just not going to tell us that you think we're not going to find, you know, the skeletons in the closet, right, especially for us, because that's really what they're doing.   They want to give you a loan, but they also need to go like, what is it that you're not telling us and we pull reports and the reports they pull, they can find things. So for me, it's just being transparent. I mean, the list is pretty easy to follow. I would say one of the things is also a lot of people think I'm self-employed, I don't really show the income or this or that and I can't get a loan, that's really not true. There's many alternative solutions for self-employed. There's solutions for people that might just have you on property rich, I got some cash in the bank, and I you know, I got equity, there's options that don't think because you're not this cookie cutter person, there's not an option, you should talk to somebody and you'll explore it and see and really beat a dead horse and really make sure that there isn't.   Michael: Fantastic and what about on the commercial space?   Krystle: I again, we're so much easier. I just found that people go like, what do I need to get called and I'm like, send me your personal financial statement or real estate schedule. They're like, okay, what else do you need? I'm like, I'm pretty good. You know, I can tell you. I still want your tax returns and your bank statements and all that. So I think for me, just obviously getting stuff in a timely manner. I, you know, we have those clients that take forever to send you something and then the second they send it to you, you're like, they're like, okay, what are we doing now, like, or have you? Are you done yet? Are you close and you're like, you know, I can I also need time. So I think just having somebody that sends you the information that you need, again, someone like Kenny said, someone that's upfront with you about things, like the other thing that I find is like people are just so like, they don't want conflict, right? So if they're shopping you like they don't want to tell you and I'm like, I've lived my entire life, 18 years doing this business competing, like I'm aware, but you have to be upfront, because if a banker finds out like, you know, if they hear the deal for me, and then they hear it from three other people, like that doesn't look good on you as a borrower.   So you want to be upfront with whoever you're working with, hey, look, I'm getting quotes from a few other people. Okay, well, do you know who they're shopping because I just won't go there. Like, that's, that's fine. I don't want to screw the deal up for you. So there's little things like that, where reputation and commercial is so important and this is a small, small business, we all know each other, we all talk to each other. My bankers call me sometimes they go hey, so I just saw this deal from another, another broker, like do you know who's gonna you know, and it's a problem because if I dissected the information, like I don't just take information and throw it at the lender, I dissect it all i breakout capex, I say, okay, I got my insurance, quote, I it's lower than what's projected here. I get a lot of things. So what I submit might be different one than what the other guy is going to submit and so I think, you know, just making sure that you're upfront with people and what you're doing then I can strategize with you like I'm not gonna get upset or work on your deal any less because you know, you're shopping me so I think just being upfront with people is gonna get you the best deal ultimately in the end.   Kenny: Yeah, I will say funny to piggyback on that. I might even end Krystle's business. but I know they're really good at what they do. They just do it and they know what they want the bankers, but bankers will say like, if I'm out there like, oh, Krystle limits are so good. I go, well, what's alternative they go You wouldn't believe how many like commercial mortgage brokers just take the stuff from the seller or whatever just send it to us go, hey, what do you think we can do and they're like, did you look through this? No, you do it and you're like, that's the person that's taking your loan and getting a loan, and Krystle, that's what happens. They could submit that to the lender and lenders like, hey, we already saw this, like, that's not right. I know about, we can't just throw it out the window. So who takes your information, how they present it can literally, like cost you a deal at a good lender and it has. So that's one thing to make sure you work with the right people.   Michael: Yeah, I mean, to that point, Kenny, what questions should people be asking, of their lending professionals are working with and how do they spot some red flags?   Kenny: Well, number one, I would say, you know, if you're working with like, I know Krystal or myself, because I know as you're let's say you're buying an investment property, if your first one, you're probably going to have a, you know, conversation up front, and we're gonna ask you a bunch of questions. So we're going to kind of interview you and we get your stuff. You know, you should be leery when somebody's like, yeah, they took my stuff and I haven't really heard from them. Like, they haven't really asked me anything. I'm like, nothing. They're like, no, I'm like, so did they talk to you about the loan or no and I'm like, so you've had it over there for two weeks? So they mentioned rates? No, I'm like, so when I call somebody to ask them five questions, they can't answer. One, they've been working with somebody, I'm like, what have you talked about that, like, I don't really know. So you should feel very, very informed by the person you're working with and you should feel like, they're getting a lot out of you and they're also even if you're not asking me the questions, I'm kind of like telling you like the things you should know, you should be asking, because, like, so that way, if you do shop, you're like, This conversation was way different with Kenny than then. So and I know you're shopping, I want to be like on your guy, you know.   Krystle: You want to feel like the person like advising you and I don't think it's super common really to find that. For me, I think a big thing that's important is if I'm working with somebody, even a broker, like if I want to go work with a broker to buy properties, they should own properties to like, you should be drinking the Kool Aid, like you're selling it, so you should drink it too. You know, so I think you know, somebody who also is an investor, because I think they're going to understand and look at things as an owner and as an investor themselves. Like, when I look at a deal, I'm looking at it as if I was buying it as if I owned it. So a lot of our clients call us and say, What do you think about this deal? You know, and they get, they get our advice, and they want to get like, you know, their brokers advice. So you can listen to a couple of different people, because we all have a little bit different perspective but especially if you're getting into this, you want somebody who can kind of guide you through this and walk you through the process.   So I think, you know, if you're interviewing people, or you're wanting to like work with a broker or lender, you should ask them, hey, what's the loan process? Can you walk me through it, and how much that person says is going to be really telling, I think you want to work with somebody you like, you know, you just have to like them as a person and then secondly, ask them about the process and see what they say. I mean, either they're going to say something, you know, a few short sentences, or they're actually going to walk you through and let you know what to expect. I think that's the biggest thing is for us, we're advisors, but we also need to manage expectations and so you're going to find out real quick if that person will manage your expectations or not by you know, just understanding what the process is and how they how they answer that question.   Michael: I just want to come back and double click on what you said about liking the person. I can't tell you how many lenders I've worked with that it feels like such a combative relationship, whenever they call, I'm like, oh, god, like so and so is calling, like, kill me now. So versus I've worked with people that I love answering their phone calls, and I've paid more in rate, because I like them and because it was a partnering relationship, as opposed to this, you know, U-verse me type of thing. So I think that that's huge.   Krystle: For sure. I mean, it's somebody you're gonna be working with a lot and like, this is like getting like a physical, you know, like, stripped down, look at your…   Michael: Full cavity search.   Krystle: Yeah, all of it. So, uh, you definitely want to like that person and you want to have like, a sense of trust and I think we only trust people we like, you know, so if you don't really like someone, you know, or they're not getting back to you or they're not really communicating, you're gonna have like, these these, like, you're gonna feel really insecure the whole process and I mean, even as people who do loans, like Kenny says, I'm a bad borrower. Like, yeah, he is because he's always like micromanaging the situation and like, you know, freaking out that there's like, some weird thing that's gonna pop up out of nowhere. So it's like, you want somebody to kind of walk you through that process and manage it. If people who do loans for a living are already stressed out getting loans, like we can guarantee that borrowers who don't do this for a living are probably having a lot of insecurity.   Kenny: Yeah, and one more thing I'll say is, this is a good this is good to know, is like I'll get a complicated real estate investor with a lot of stuff. There are certain lenders you go to and there's certain lenders you do not go to and the problem is they're like I was is that this lender that and I get a lot of people that like I went down the road this guy and couldn't get it done. How do you know you can get it done? I'm like, Well, I don't know where he went but this is definitely a doable fall but I can tell you, there's a lot of lenders, I wouldn't take this, why am I because this is just not what they want. They're not good at this, you know, this is not what they do and Krystle is the same way and I think it's like so some people that are not doing you know, the investment stuff that often they just don't know that they just throw it against the wall, hope it sticks, and they come back to sorry, I know you're we're in escrow, we're not going to get it done. You got to we got to start over again. You're like what I'm supposed to close. So, you know, like, like, goes back to like, and trust is good, but also work with somebody that just has it, like, have they closed these loans? Have they done many of them, you know?   Michael: Yeah, no, that's great. Y'all, this has been super, super fun. The last thing that I want to touch on, which I'm sure is on everybody's mind, I would love for you all to get out your crystal ball and no, that wasn't a play on words, legitimately. Where do you think rates are going?   Krystle: So yeah, I wish we all had a crystal ball for that I've had I have certain clients who think the sky is falling and rates are going to be at 10% by the end of the year and then I have other people who are like, you know, I think you know, because of the amount of debt that we have, we've never had so much debt ever. Real estate inventory is still down, there's still a lack of housing. So in terms of real estate and interest rates, I think rates are gonna go up a little bit more of most of our lenders are predicting another point to a point and a half by the end of the year. But I think after that they're gonna have to start bringing scaling back because this last Fed rate hike, like definitely caused a lot of panic in the market. That was like a rough week for us, just everybody calling is everything, okay and what's happening lenders just raising rates, like multiple times a day, which does not happen in commercial. So things like that.   So I definitely saw the scare the next Fed rate hike, I think they will raise the rates again, I think we'll be looking at another half to three quarters hike. So I think we're in like a little low right here, right now I really like okay, treasuries have come back down and finished my summer vacation, you know, but the winter is going to be a cold road, you know, like, I think that things are gonna slow down a little bit, and people are just going to wait and see what happens and rates will be up maybe another point or so and then I think we're gonna have to start heading the other direction, because corporate debt, like there's a lot of debt, besides just our home loans and our apartment loans, there's all the corporate debt, there's government debt, all this stuff, and that's all tied to prime. So if the country can't pay their bills, you know, like, they're gonna have to keep, they're gonna have to keep rates low. Like, we can't keep going like this. So that's, that's my opinion.   Michael: There's no such thing as a cold winter in San Diego, come on.   Krystle: I mean, 16 degrees is cold.   Kenny: Yeah, I think I mean, like Krystle said, you know, piggyback off that, I think at the end of the day, we have to understand why the rates were raised and it's simply we've learned, it's like, yes, Jerome Powell, we got you loud and clear that until inflation, not just stops, but we see it progressively go low, and it stays there, they're gonna keep doing what they only know to do is to I look at it this way and I keep saying this over and over is, the more I studied this stuff, is where they want the economy to boom, they just put liquidity in, they either give it to people, they give you gas credits, give you money, don't pay, well pay your rent, you know, let's lower rates, let's you know, it's all that's monetary coming in, when they want to slow it down and hit the brakes. They just pull the liquidity out and they're pulling tons and tons and tons of liquidity out of the system. It's parked on the sidelines, they don't talk about it, but it's a massive, massive number that's sitting there and so on top of pulling liquidity out, which actually is the bigger issue, right? They are obviously in pushing rates up, so they're gonna hike and then we all know that even if they stopped hiking now and they started doing QE, we probably still have some type of recession, you know, so they're gonna put, we're going to have some pain. I mean, unfortunately, the party went on too long, they spied the Punchbowl and they left it out too long and we are going to have a massive hangover and we're all going to feel it and then they're going to put us to pain right there. We're going to be held down, we're gonna get to two, three wave hold down and then the Jetsons gonna come along and grab you and pull you back out and then when they do that, they'll probably do the same type of thing. So you know, lower rates, no, no one knows the Krystle ball, like how long this is gonna go but I just tell people, you just have to listen to the Fed and they mean business now ad there and when we start feeling pain, but I think like Krystle said is I think we're already starting to hear little this and that, you know, from people we know that owns jewelry stores or people that have you're starting to hear things that in the last couple of months, things have slowed down and you're starting to hear that. It's in one way, it's like not good, but one way it's good because if we don't slow down, they're just going to keep raising rates and we're going to have more probably Oops but I feel like the next hike is definitely going to do. I feel like that's going to be it. That's going to be like the nail in the coffin nail.   Yeah, I feel and I think they're going to let that run and then I think like Krystle says, come after summer, I think a lot of people are going to be like, you know, we're gonna start pulling back and I'm already hearing it, I'm hearing it from people, we're gonna do a addition on their house. Now they're not people, we're gonna go buy this or do this. Now, they're not people, you know, you're hearing talks of people and it's not that they don't have the money. They're like, I should probably not do that right. Now, that doesn't make sense but that's because what the Feds doing is working. So once this all happens, of course, we'll be back to QE, lower rates. My prediction is, we probably see start seeing some lower rates definitely by like early next year, q1, q2 starting to see rates come down and look, we might be shocked, depending on how much pain is in the market itself, they might have to really like COVID really hit the hammer on him and drop rates for a small period of time. So I think a refi boom, and the pent up demand that's going to come on the backside of this is going to be pretty insane. The amount of commercial guys that are big syndicators that aren't doing deals. They're just chomping at the bit there waiting. Where's the bottom? So everybody's sitting here going, we're kind of waiting for this recession. Where's the bottom? Where do I enter, right and it's just as unknown and it's kind of weird that we're just sitting here. Usually we get blindsided by it.   Michael: Yeah, interesting. Well, we will definitely have to have you both back on and q1 q2 of 23. And see how the predictions panned out.   Krystle: If we were right or wrong.   Michael: Yeah, well, we'll either be celebrating you are nailing you both up to this…   Kenny: But this is but it's funny, because we do we do month over month. I do month over month, a webinar on the housing market and in January, not I mean, you couldn't find one person that we looked at our study that they thought by q4 of this year, the worst highest rate prediction was 4% of this year. We were there like the first month. Yeah, everybody that thought we were gonna go this fast. Nobody predicted that sort of like, I thought this is like we're just kind of like in this. Like, they didn't think that you know, so we're just sitting here going, wow, nobody predicted this. They all thought we'd be raised to be at least a point or two lower, which is crazy…   Michael: Oops… Yeah…. Okay. Well, you too, this has been so much fun, really, really, really informative. Thank you so much. If people want to reach out to you both directly, where's the best place for them to do that?   Krystle: You can go to https://getinthecashflowgame.com/ and that links to both Kenny and I's, separate sites for financing, whether it's commercial or residential and then we're on Instagram and all the things so I'm Krystle Moore, and he's Kenny Simpson, the opposite the two best places.   Kenny: Yeah, appreciate you having us on. This has been fun.   Michael: Awesome. No, totally, totally my pleasure and definitely looking forward to chatting with your again soon.   Krystle: Absolutely, thank you so much.   Michael: Take care you two!   Okay, everyone, that was our episode a big thank you to Krystle and Kenny for coming on a lot of fun, super insightful, and especially if you're thinking about making that transition that leap from residential two to four units up to commercial family, this was a good one to listen, definitely keep it in your back pocket and as they mentioned, have some of those documents at the ready and you'll be really well prepared for getting into some of those commercial mortgages. As always, if you liked the episode, please leave us a rating or review wherever you get your podcasts and we look forward to seeing the next one. Happy investing…

Using an LLC is a powerful way to protect yourself from the liabilities inherent in owning rental property. We have had the discussion of whether you should use an LLC or an umbrella policy on the show before so we will dive into the details of setting one up. Today, Emil asks Michael about the process of creating and managing LLCs in regard to real estate investing.   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey, everyone, welcome back for another episode of the Remote Real Estate Investor. My name is Emil Shour and today I'm joined by…   Michael: Michael Albaum   Emil: and on this episode, I'm going to be putting Michael in the hot seat and asking him questions about putting his properties in an LLC. We'll quickly cover why he did it and then I'm just going to ask him how he did it, what he learned what tips he can offer you. So that if it's something you've been interested in, you have a step by step guide on how to do it. So let's hop into this episode.   Before we hop into it, what's up, man? It's been it's been a while since we recorded up so…   Michael: I do I know it's been a minute I'm doing well, thanks. Trying to get some financing lined up on these three multifamily that I got the rug pulled out from under me on so still working through that but construction project, the rehab projects almost done, which I've been told is almost done for a while now. So I'm not really holding my breath but really I think this time for real is almost done. So let's get to you Emil, how about yourself?   Emil: I think you when we started this show like two years ago, you told me it was almost done. So I don't know if that's true.   Michael: That's true, I believe it…   Emil: I hope, I hope it finishes soon.   Michael: Thank you me too.   Emil: Good. My update with me, we are still selling the Jacksonville property. We just got it under contract but a week and a half ago, I want to say we did inspect the buyer scheduled inspection on Thursdays so I should probably be hearing back from my agent like today or tomorrow on I'm sure you know what, what they want to knock the price down based on seeing the inside, which I knew going into it like, once the inspection is on the inside, you know, we've had a tenant there for five years there. They're definitely gonna want some. They're gonna ask for something. So I'm expecting it. We'll see how that goes.   Michael: Okay, cool. Well, keep me posted, let me know how it all shakes out.   Emil: Yeah, man. Absolutely, so this episode, you know, a lot of people think in in a previous episode we covered what should you do an LLC? Should you put your properties just get umbrella coverage. In this episode, we're going to really just focus on like the steps that you personally took on setting up an LLC getting your properties in things, you learned mistakes, you made all that stuff but before we hop into like the how can you briefly give us the why, like, why did you decide to set up an LLC and put your properties in it?   Michael: Yeah, totally. So I grew up in the insurance world. Next question. So like, it's, it was something that I grew up around, like segregating assets, and like, understanding what risk is and how to mitigate risk and so that's really, from my perspective, what an LLC is used for, you put things into an LLC, that's bucketed and so that's kind of the limit of your exposure and so I used to work as a fire protection engineer and the commercial property insurance industry and that's also kind of on the physical side of things, what we would do, we would say, okay, how bad can a fire get and can we physically build a building and put systems in place that will contain that fire, so it doesn't spread to the rest of the stuff because if you have a small fire, it's usually not a big deal. If it's contained, it's not necessarily the end of the world versus if you burn, burn the whole plant down, that can be very problematic. So same kind of thinking can be applied to asset protection from the real estate investing side of things.   So it just made sense to me to bucket things in their own bucket, and keep them totally separate from my own assets. So therefore, if I did have a fire, quote, unquote, metaphorically speaking, or physical one, as any listeners of the pod know, that I've had to, it doesn't affect the rest of my building, so to speak, the rest of my net worth or my nest egg. So just keeping things separate made sense to me and so there's financial burdens that go along with that in order to have own and maintain an LLC. There's a cost associated with that. That overhead was worth it to me to mitigate that risk exposure.   Emil: Yep, makes sense. So did you did you set up an LLC before you bought your first property? Did you buy a property and then like quitclaim it in? What was what was your timeline for LC?   Michael: Yeah, so my very first two properties were Southern California single family homes, and so they didn't cashflow very much. If you live in California, the LLC has to be registered in California from everything I've been told and heard, if someone has a way around that I've been asking for years, let me know, I would love to not have to give California State Government 800 bucks a year per LLC. So those first two investments, I just had my personal name, I had high liability limits on the insurance policies themselves, like on the dwelling itself and then I also got an umbrella that sat on top of that, because that just made me comfortable on an umbrella for anyone who doesn't know what it is. It's basically a liability only policy that will sit on top of your existing policies and give you have limits across the entire portfolio and so the dwelling policy itself has a liability limit attached to it and so for me, I think I had like $2 million of coverage, or maybe 1 million on the dwelling and then I had an additional, I think, one or 2 million as an umbrella and so that can be applied across multiple properties but that dollar limit is like all that the insurance company would pay out in in any given occurrence and they also have an annual limit that they'll pay out in any given year.   Emil: Right, that's my current setup, I never LLC seed, I wanted to at some point, but…   Michael: Oh, good verb.   Emil: What LLC seed?   Michael: Yeah, you heard it here first folks, see new, new real estate investing verb…   Emil: Yeah, don't trust the words that make up. So I wanted to, but decided to just, I had an umbrella policy from the beginning on top of, you know, regular rental property insurance. So that's still my setup.   Michael: I think it makes sense for a lot of people and so you have to like understand what is entailed and what are the risks and benefits of having an LLC versus not having an LLC and just weigh the pros and cons? I definitely don't think it's you, like, thou shalt have an l like, no, you don't, I don't think you need one, necessarily. You just have to make sure that you understand again, what are the pros and cons for your situation and so it wasn't until I bought my third property and that was out of state that the cash flow cumulatively between all three was enough to support the 100 bucks a year payment. So that's when I did the whole LLC thing.   Emil: Yeah. Yep, that makes sense. I probably say, this is just my opinion, not legal advice, or anything. I probably say, once you're, when I did it, my net worth wasn't very big. I didn't feel like I had a lot to lose. I feel like when you start having more to lose, right, you're like, someone could personally come after more, probably a very, very good idea to make sure you have an LLC. So at the bare minimum, that's, you know, my opinion.     Michael: Yeah, totally and I mean, talk to like, talk to a legal expert, and get an understanding because they can really give you the breakdown, hey, this is this is what's exposed, or this is what's protected with an LLC, because the one thing I really hate to see as someone open an LLC, especially themselves think that they're totally protected, and then get totally shafted, you know, in a lawsuit or that sort of thing. So you really want to understand because you're setting up this system to protect yourself and your family and the assets, like spend the extra couple 100 bucks, whatever it is to do it right, and make sure that truly you have an understanding and a grasp of what is this doing and what are its limitations?   Emil: For sure, so that's a good segue. So at what point did you decide to LLC you, about the SoCal properties, didn't have an LLC.   Michael: So it was after that third, the third property that I purchased at a state, the cashflow was then enough on that, and then the other two, cumulatively to support that 800 bucks a year LLC payment to California. So at that point, I said, okay, let's move everything, put it into the LLC and now that'll kind of be its own standalone thing and so that that just made sense at the time and so I kept a very similar insurance policies structure, where I had the same liability limits on the property itself and then I also had the umbrella for the LLC that sat over those three properties.   Emil: Got it, okay…   Michael: Because I'm neurotic.   Emil: So, I think you're just being smart. So walk us through that you because now that you have properties, you have to do what's called a quitclaim of the deed, right from your name into the LLC. So we'll get to that but what did you do? Did you hire a lawyer? Did you just go on, like Rocket Lawyer or one of those online? How did you do it?   Michael: Yep. So I did it myself. I went on, like I think was like LegalZoom, or one of those type situations where you can set up your own LLC. In hindsight, I probably wish I had used an attorney, just because it was totally brand new and I was worried about making the wrong choice or selecting the right things. So in hindsight, I wish I would have spent the extra money just to have it done, right but for the quit claiming process, I use an attorney and we've had her on the podcast before Kelly Chrisman. She's amazing, she's awesome, really well versed and all this sort of stuff. So for the two properties I owned, I quit claimed those into the LLC and for this third property, I knew I wanted to basically start an LLC to take property ownership and so I actually did that concurrently, while I was in escrow and got the LLC opened before the property closed. So that actually took title directly from the seller into the name of the LLC. Because the more you can keep your name off the chain of title, apparently that's more beneficial. So I was like, okay, like, I'll just do that because I wanted to do it anyhow. So instead of closing in my personal name, and quit claiming, I just went straight to the LLC and it was a private lending note. So that was no problem to close from the lending perspective in the name of the LLC   Emil: God, okay, so that's, that was gonna be my next question is like, what are the differences in, like the process, when you buy in your personal name, I think you've highlighted on the first one, you can get a loan based on you, you as the individual, when you get in an LLC, it's a little bit different, right?   Michael: Right, so my understanding and definitely chat with your lending partners professionals out there, but my understanding is that like the government subsidized conventional loans, the Fannie Freddie type products cannot be titled in the name of the LLC, they're not going to lend to the LLC, they're going to lend to Emile Shour, or Michael Albaum, or Pierre Carrillo as individuals, not as entities can, commercial mortgages, totally different space, different ballgame, we actually just recorded a podcast with a commercial lender and a conventional lender, their husband and wife team and so that was really interesting to kind of get both sides of that coin but if you're going to get a non-conventional mortgage, you can likely get one in the name of your LLC, or some sort of business entity and so I would just simply ask your lender, hey, this is what I'm trying to do. This is the goal I'm trying to accomplish. What's the best way to do this and if they say, well, you need to close in the name, or your personal name and you eventually want to get it to the LLC, ask them oh, hey, can I transfer to the LLC after the fact? Some lenders will say, no, you may not. Others might tell you, yeah, the loans closed, do whatever you want, we don't care. So that might affect your lending decision of who you ultimately get financing through because if someone tells you no, don't do that, do you really want to go get that loan from that lender might kind of make you take pause and think twice about it.   So again, be super forthcoming with all the information, give them the goals, the strategies, the hopes, the wants to dreams, so that they can really help structure what loan product makes sense for you because if we just give them the transaction piece of it, and we're going to do something different down the road, it just, they're not giving you the best advice, because they don't have the whole picture.   Emil: Got it, okay and so, if I have a brand new LLC, and I decide to get a loan, in the name of the LLC, if it's a brand new LLC, like how do lenders usually look at that brand new LLC, like, how do they deem it worthy of, of lending?   Michael: Yeah, so they'll in that instance, likely look to you as the borrower, and just be like, do you have enough money to do this and we're gonna make you sign a personal guarantee. So you're still I mean, even if a meal shore LLC 123, doesn't can't pay the debt, like a middle shore, can we're coming after you directly and so new businesses new LLC, is are started all the time to take over property ownership or to receive property ownership, essentially and so I think that's something that they're used to, if they balk, and say, oh, you need two years of like business tax returns, like, obviously, new businesses won't have that and so ask them: Hey, how do we work around this? Can I give you a personal guarantee? What do you need from me to make this happen?   Emil: Got it, okay. Good to know. Let's see what else we want to ask you. What other parts of the transaction are different? So financing can be some that you need to ask your lender might, you know could be different. What else was different about buying a property through an LLC versus in your personal name.   Michael: The one of the main differences from a process standpoint, really nothing that the two are equivalent, you still get an inspection, you still negotiate with the seller. One thing I would definitely recommend people do is if they are considering purchasing in an LLC that might not be in existence yet. As you put your name on the purchase and sale agreement, put your name or assignee, and that basically allows you to assign the contract to someone else and so it's something that wholesalers might do and if someone asks about it, just say like, no, I'm just not sure it's either gonna be B, or my LLC. I'm just not sure yet. I haven't created it yet and that way, you can assuage any fears that oh, someone's trying to wholesale this deal on me but that makes it super easy for once you open your LLC, you can now say, okay, it's not Michael Albaum, it's Michael Albaum, LLC, 123, whatever, whatever that entity is.   And then the other thing to keep in mind is like the money flow, for how you physically need to purchase the property. So if you do purchase and close in the LLC, the money needs to come to escrow to the title company, from the LLC and so in your example in the like, you were asking, what if it's a brand new LLC, so if you're buying $100,000 property, and the bank's giving you a loan for 80, you're bringing 20, you Emil would transfer that 20 grand into the LLC bank accounts, which then that's where you're going to wire the money from to close the deal over to the escrow company as opposed to wiring it from Emil Shour checking account over to the escrow company. So you want to be able to show very clearly that this is the LLC is asset. This isn't a meal shores asset.   Emil: Got it, I'm glad you gave us that note about either your name or assignee because you're right, a lot of wholesalers use that and it's funny, you bring that up, because on the Jacksonville property, we got a couple offers, and they had that language and we didn't choose some because we're like, you know, wholesaler like those deals can fall out, they have to go find a buyer and you know, not as strong as someone who's just coming to buy it. So like, if you mention, you know, if you're you have your agent mentioned to the selling agent, or whatever, that I'm putting that in, because it's going to be my LLC, it's gonna get looked at differently. So good thing to clarify when you write that offer.   Okay, I think that was most of the questions I had for you. Any big lessons you had from the process? I think you mentioned a couple but if you could do it all over again, what you did differently?   Michael: Yeah, I think I would just have an attorney do it from the start draft up the LLC documents. It's also super important to keep in mind of if you don't live in the same state as where the property is owned in the LLC. Like, what is the registration process look like and so I've done it both ways. I formed a California entity, and then registered as a foreign entity in the state where the property is owned. So for me that was like Kentucky, or Alaska or Ohio. I've also done it the opposite, where I formed the LLC in Ohio, and then registered as a foreign entity here in California and so again, not legal advice, definitely chat with a legal professional. But from my experience, the LLC needs to be registered in both locations in California, because that's where I live and in the state in which the property is owned as well and there are certain things, taxes forms filings that I have to maintain for both states, which are separate and distinct and so making sure that you're in compliance with the local state, governing rules and regulations around LLCs. You also need to have a Registered Agent. If you're not living in the same state in which the LLC is owning the property. You might even need a registered agent if you do live in that same state but basically what a Registered Agent is, is someone or some company that can receive court papers on your behalf really is what typically is getting served.   Like, is there, like where do we send the mail to and so that's what a Registered Agent is. So there's businesses and services out there that can do that for you. I just use like a service provider that handles all that I've also used like my CPA or my property manager, that can also work but you just want to check and understand the local rules and regulations around who can and can't be a registered agent for you.   Emil: Yep, illegal zoom all those internet you know, LLC providers, they usually have that as like an add on option as well. So if you're like how do I do that? They make it super easy, like very, very common thing and make it super easy for you.   Michael: Yep…   Emil: You know, if you do want to talk to a lawyer, your accountant a good accountant can be very helpful here as well. They don't bill you for a 30 minute consult, so accountant can be helpful here as you're trying to figure this stuff out as well.   Michael: Absolutely, absolutely.   Emil: Cool, man. I don't have anything else. I think that's probably a good spot. This was this was actually enlightening for me because I haven't gone I mean, I have an LLC for my business but not for a rental property. So this was this is good for me as well.   Michael: Yeah, right, alright man. It got us all helpful.   Emil: Thank you everyone for tuning in. Please, please, please leave us a comment. Let us know what you liked what you want to hear in future episodes, wherever you're listening to this and we will catch you on the next episode. Happy investing.   Michael: Happy investing.

Mike Simmons, a real estate investor, author of the book Level Jumping (linked below), has shared the stage with some of the greats like Gary V. Has made over $1 million in profits in 12 months!! He knew he wanted to invest in 2003, and bought his first flip in 2008....why did it take so long? Like a lot of people starting out Mike was afraid to tell his spouse because of the difficult conversation. It wasn't until he finally decided he was tired of allowing fear to be his excuse that he dove in. Today, Mike shares his inspiring story of how he left his job, entered the real estate world professionally to begin wholesaling and flipping houses. Episode Links: https://www.mikesimmons.com/ Level Jumping   --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me, I'm joined by Mike Simmons, author, CEO, business coach speaker, and we're gonna be talking about Mike's business, wholesaling and flipping houses, and what we should be aware of if you're going to get into either of those businesses. So let's get into it.   Mike Simmons, what's going on, man? Welcome to the real estate investor.   Mike: Thanks for having me, I appreciate it.   Michael: Oh, my gosh, no, the pleasure is all mine. Super excited to have you on and really excited for our conversation today. So Mike, I know a little bit about your background and a little bit about what you do but for all of our listeners who are not familiar with you, give us a quick and dirty who you are, where you come from, and what is it that you do in real estate today?   Mike: Yeah, no problem. So, you know, I always say that my background is probably the least remarkable. I didn't sell baseball cards, I didn't go around the neighborhood looking for lawns to mow or things to do. I was a normal kid, probably on the lazy side. You know, and my parents were, we're in the automotive industry, and we're very blue collar Michigan, right. So the life that was displayed before me through example, and through explicit, you know, direction from my parents, and the Blueprint was, you got you finish high school, you go to college, or just as maybe even more preferable, you get into a union factory type of environment and it's very secure and you work there for 30 to 35 years, and you retire and you hopefully save some money and you scrimp buy and that's how you that's how life goes. That's just life. That's what people do, that's normal. Yeah, there wasn't one single person in my family or anybody on the horizon that was doing anything remotely entrepreneurial. So I did that I went to school, I went, I finished high school, I got a job with UPS, Teamsters, my parents could not have been happier with me being in the Teamsters and I went down that path, and I got married young, and I was working at UPS and like, unfortunately, UPS is a great company.   But there are injuries that happen because people you know, lift wrong and all that and at 25 years old, 24 years old, actually, I couldn't get out of bed in the morning without going to the chiropractor three times a week as a 24 year old, otherwise healthy man, oh my gosh and I knew I couldn't retire from there, because I was already almost too hurt and crippled to do the job I had to do at that time and I was in my early 20s and so I got another job in the automotive industry. It was a desk job and I started working there and this was, we were the mid to late 90s at this point and the automotive industry, like most industries, were starting to decline starting to have some problems. We were heading toward 2000 where a lot of bad things happen and in, you know, people think about tech and what happened if tech the big boom that happened. But the same thing happened in the automotive industry, essentially, we went from, you know, booming industry to many, many suppliers, going out of business struggling, it was really bad for a while and so I had to look around and ask myself, and I'm one thing I'm good about one thing I one of my superpowers is I'm a very honest, and I can I can very objective about myself and part of that is because it can be a tough thing to do. It's most people I don't think are, are objective about themselves and I'm not saying this to brag, I'm gonna tell you why I'm objective, and it's gonna kind of be like a poor, poor guy. My dad was a Marine, and, and he made it real clear what our shortcomings were on a daily basis as kids and so I have no problem. being real, honest, in a way that say, these this is what I'm not good at.   This is what's not great about me, like I'm very aware, I'm very easy for me to for me to figure that stuff out and so I asked myself at this point in the automotive industry, and things were declining, I didn't have a college education. I would I hire me if I were without a job and I was in the position of HR and I was, you know, somebody like me was across the table. What is there anything about me, that makes me more hirable than the 1000s of people who've been laid off over the last few years and it was easy. There was nothing about me that was remarkable. I had no college experience and I had very little practical experience. So why hire me when there's so many really, really talented people that were being laid off because of the industry. So went back to college, got a degree and I was working I'm kind of fast forwarding a lot, but I got my degree and I doubled my income. Like the minute I retire, graduated, the minute I graduated, I got a job, which literally was twice the annual salary and I was like, here we go, baby. There's no stopping and so just to kind of illustrate how that went, so I went into a company, it was automotive and I was working there for about six, seven years and at one point, it's seven o'clock at night and it's everyone had gone except my team. Everyone had gone home for the night, obviously, it was a five o'clock, most people were gone. It was seven 30 and I'm in at work and there are our client is there too, because there was something going wrong with our program that we are working on and he's there and in we're discussing the problem, and the guy gets really agitated the client, I'm not going to say which automotive company I'm talking about, but it rhymes with board.   Break company, I have an F 150. But he gets in my face and basically start screaming at me like dressing me down, like very much, really like when I was a kid like my dad did write down. Yeah and he was and it was seven o'clock at night. We're all working overtime. We're all clearly busting our butts to solve the problem and he gets in my face. They're screaming at me and he's the client, right? He's a big client and I can't really say anything back, except I'm really sorry. We're working on it and after he walked away, I went to my manager who was there too and I said, what are we doing here? What is happening right now? Why are we here? I'm getting screamed at we're doing our best, like there are issues I get it but nobody, nobody was negligent. We just have we have things that have happened, and we're working through but why are we still here? We should be at home and he said to me, I'll never forget, you need to get your priorities straight and I thought you are correct. I absolutely do, I have young children at home, I have a wife at home. I've been working overtime all week on this project. I didn't say this but in my mind, I'm thinking, you are correct, my priorities are wrong and from that point, I decided to take my side hustle that I was doing, which was real estate, flipping houses not doing a particularly great job at it, but just kind of stumbling through it and I said that is going to become my career priority. My priorities need to get dialed back to my family and make sure I'm at home and I'm spending the evening with them. I'm eating dinner, putting my kids to bed but from a career standpoint, that now becomes my focus and I will get my priorities straight and so he essentially put me on the right track. Inadvertently, he obviously was referring to work priorities but it worked the other way and so I from that day, I started making my side hustle, my main focus and I will say I a year later quit my job and the first year that I was in business and real estate full time that listen to this, this is true and I did this math, the first year that I was in business full time for myself as a real estate investor, my company's gross profits were equal to the total sum of my salary for the previous 25 years that I was working for somebody else, year one, which was a million dollars, I made over a million dollars in my real estate and over the years, like I'm talking going back to 18. When I started working right, I was making very little money and in the middle, I wasn't making a ton toward the end, I was making more but if you just take the average, which is about $40,000 for me, and you times that by 25 and is $1 million. My company grows that in in one year.   Michael: That's crazy, Mike! So where did you take it from there? I mean, are you still flipping houses today where you focus exclusively on that? Give us give us the insider scoop?   Mike: Yep… Yeah, good question. So I was flipping houses. When I was working full time, my wife and I were flipping houses and like I said, we weren't doing a particularly great job of it because she worked full time as a teacher, I was working full time plus as an automotive person and we were getting flips done. But we weren't particularly profitable, like we should have been. We didn't have any processes in place. My wife is extremely risk averse and so I kept trying to do more and do it faster. And she was slowing like brakes, brakes, brakes, right because she was nervous that we were getting ahead of ourselves and she probably saved me from really screwing up bad in the beginning. But at some point, she said, You know what? This is great and you clearly love it. I don't love it as much as you do. In fact, this is making it hard for me to sleep and it's making me hard for me to focus on my day job with the kids and I'm a teacher and that's what I do and I love you, I love the I love real estate but it's the roller coaster, the mental roller coaster is too much and I really would rather you go on without me and let me pull back and I'll just cheer for you from the sidelines and I totally support you and this isn't a negative this is actually a positive I just trust you to do it better without me and I did in and that's when things started taking off because I started doing way more activity like before we would get a house under contract. We would get it quoted out, you know, we would renovate it, we would put up for sale, we'd go through the wholesale process closed, check in the bank, before we started looking for the next day and that's not really a that's not how you scale anything, right?   So when she backed out, I was like, okay and I started putting offers in on multiple houses a day, like I was putting offers on everything and I started getting multiple deals at one time and so I had to learn how to raise money and I had to learn how to manage groups and what a forced me to do was, it forced me to come up with a process in a system that was repeatable and could handle scale. Before that, nothing we did was scalable, is all very manual, we'd go to Home Depot, we'd pick new colors for the walls, we'd pick out different cabinets, different flooring, like everything was custom to the house that we were working on and what I realized was really, really good house flippers who do it at scale, okay, and I'm not talking boutique flippers, who go into a town and they buy a $3 million, you know, historical home, and they like, put it back together with love. It's I'm not talking about that I'm talking about the people that are flipping 20-30 at 100 200 deals, they are not falling in love with every single house and going in there and making it the route, right, it's turning burn a little bit and so I learned how to turn and burn a little bit more in my business and scale it in a in a way that had systems and processes. But I still hadn't hired anybody. It was still just me, what changed the game for me and that changed the game for me in terms of, you know, a racing analogy, but, and again, this is not like I said all this in front of my wife as early as like the last month I've said all of this and she 100% agrees but she was like the governor in a race car, right? They put the restrictor on there. So you can only go so fast. Once that got pulled off. I pushed the gas all the way down to the floor, and I never stopped like, and so things just go faster when you're doing that much volume and back then, you know, now we're talking about 2014 ish timeframe. It was easier to get deals, I'll be honest, like, as someone who coaches people in real estate, I'm not gonna lie. It's harder now than it was back in 2014.   Still possible now, but it was easy back then. So I was getting deals off the MLS and it was going pretty fast. Fast forward another year or so and it started to get harder to get deals off the MLS and I was struggling a little bit and so I had to do some research and figure out and I was I was going to all the meetup groups and I was asking all the other house flippers like, where are you guys finding deals like what's happening? Where are you guys getting your volume from and they were all like, man, it's hard, like we're not getting deals like we're struggling and I'm like, Well, where are you looking? Where are you trying to find deals and everybody said the MLS everybody. I only knew one wholesaler in my market and I reached out to him. I'm like, Dude, I know you're not buying off the MLS. So where are you finding deals? He's like direct mail, I'm going direct to sellers and I'm like, what do you mean, go direct to sellers? How do you do that and so I took him out to lunch. He gave me the down and dirty playbook for how to do direct mail is what I was doing at the time and I started doing that and the deal flow started happening again and I started building and what I realized was and there's a whole story behind it that we don't necessarily have to get into but I changed my model from house flipping to wholesaling and it wasn't because of that guy. To finish in a nutshell, I was overly dependent and this is a huge mistake that new investors make all the time. I was overly dependent on one contractor and one realtor, they were everything the realtors, he found all the deals for me and they ran the numbers and they told me what was a good deal and my contractor was my only contractor and he basically made her are broke my rehab and on the same project as chance would have it. The realtor missed the numbers pretty badly and my contractor started flaking.   Now if you flip houses or renovate houses, or you have rentals, and I say my contractor flake, you probably don't need more information than that you go I'm with you, my contractors flaked too, right. But essentially, he stopped showing up he started charging me for things that he wasn't doing. He started making up half truths about stuff that he did do and so I was forced it and by the way, I was getting deal flow because I was direct mail, right. I had to let both these individuals off my team, to say the least and I had no backup plan and so as these deals were coming in, I reached back out to my wholesaling friend, I'm like, What do I do? I don't know how to wholesale. Can you just tell me what that even means? Like, what do you guys do and he again, gave me the down and dirty playbook and I called a house flipper friend of mine who I had recently talked to and he's like, I can't find anything and I said, Hey, man, I got this deal under contract. Do you want it for 110,000 at the time, that was the price 110,000 he's like, let me take let me look at let me look at the numbers coming back in 10 minutes. He's like I'll take it, I got it under contract for 95,000. I made $15,000 in like 10 minutes and In Michigan at that time, a normal flip 15 to 20,000 is a good flip number. Right, profit. Yeah and I was like I made almost the entire profit with a phone call. That was cool and probably a lot easier sold.   So much easier to do. No, by the way, no contract, right? No realtors. So I got another deal under contract. Ironically, it was also a contract for $95,000 and it was in a similar neighborhood. I called the exact same guy and I told him the exact same thing. I've got a deal for 110,000 It's yours. He said, give me five minutes. Call me back, he said, I'll take it. This all happened within four weeks to deal. I was like, I felt literally talked about love at first sight. I was in love with the model of wholesaling and so I switched my model over to wholesaling and I started, I started scaling it up and what really changed everything for me though, because although I was scaling up and I was starting to have some success, I still wasn't really running it like a true business I was I was a little bit scattered, I was a little bit unfocused and I joined a mastermind, a friend of mine at the time who lived in California, he had a podcast, and I knew him just through podcasting, and I was listening to his podcast one day, and at the end, he signed off, thanked his guest signed off, and I was doing dishes actually, at the time in my house and I saw I let it go, it was it's just kept going because I wasn't able to turn it off. My hands were wet and if it was over, he goes, Hey, if you're still there, I want to let you know about this very exclusive opportunity. I am pulling together some of the best real estate investors from around the country. We're going to form a mastermind, we're going to share ideas, we're going to help each other it's going to be awesome. If you want to get involved, you know, send me an email, whatever.   So I did $25,000 mastermind. Well, I $25,000 bazillion dollars to me at the time, but I was I was doing wholesale deals, right and at the time $25 was like two wholesale deals because I was averaging around 12 $13,000 per deal and I thought, I mean, if I surround myself with these people, will I do two more deals as a result of the relationships and the knowledge that will be exchanged. It seemed reasonable that I would and so I joined and I met someone their mentor, more than one person, but one person in particular, who laid out his company, he just laid it out. This is how I run my company is exactly what I do is what I did right and wrong over the last decade and he had the company I wanted and I said to him, his name's Andy, I said, if I if I see what you did, and I see what you're telling me, I should do and I totally agree with you. But you took you 10 years if I knew everything that you know now, and I apply it proactively. Couldn't I condense that timeframe? Like could I do any year and he said, I don't see why not? That's exactly what I did and I sort of came up with this term that, that I didn't think about a much until I've said it on podcast, and people resonate with it but I think the most powerful thing you can do in business is to use other people who are successful use their hindsight, which is 2020, as they say, right, as your foresight and so I used Andy's hindsight, all the things he did right and wrong, as my foresight going forward and I was able, that's what I was telling you that first year that I was doing the full time because I applied all of Andy's principals and I went from doing a couple of deals here and there to 10 to 15 deals per month and scaled up to a million dollars in that first year.   Michael: That is amazing and so right now your business is focused exclusively on wholesales, are you still doing flips?   Mike: Historically, it's always been wholesales but recently, and I have a business partner to its which is a whole story in itself kind of interesting about hiring and identifying talent. But so my partner and I have started strategically buying properties outright and then doing in Michigan, what we call them land contract, or we basically play the bank, we own the property, and we sell it to them and we hold the note as a company. So we started doing a lot of that. So we do like 100 deals a year, but half of those or more, but at least half would make fantastic land contract deals for us and so, and because of you know, COVID kind of showed us this a little bit and over the last several years that we've been in business, every business has ups and downs every industry has, you know, markets go up and down, right. So revenue kind of fluctuates and we thought how do we level that out a little bit? How do we make the valleys much higher, you know, so they don't go down and so we're doing a lot of this land contract stuff because it's every it's like you know, monthly recurring revenue and so we make the valleys much shallower and the peaks are still there. So we're probably wholesaling half of our deals and the other half we're buying inland contracting out…   Michael: Okay, let's dig into land contracts live because it's just not something I know very much about and we always joke on the podcast that we get to ask self-serving questions of our guests... So walk our listeners through asking for a friend walk us through like how land contract works and why it's so wide, so interesting.   Mike: Yeah, it's pretty straightforward but the concept and I'll kind of give you a peek, like a little bit behind the curtain here, right? The real like mechanics or the real like logic behind it. Me and my partner both as of a year ago, I had about 25 rentals, okay, which I have sold recently and I did it for a couple of reasons. Now, because rentals aren't great, they're great and actually, the rents are higher now than even when I sold them. So rent rents are going up, which is awesome. But for me, I bought them really, and I bought them like 2015, most of them and so the equity in them was very tempting to tap into and I recently have started doing lending on a grander scale, like I've scaled up my lending company, and I wanted to put that equity, that money into my lending company, it's just more of my focus now. But so what we're doing with land contracts, and why one of the reasons why we love them is unlike a rental, we are not responsible for any maintenance, any vacancies like we are, what the bank is to your mortgage, we get the mortgage payment, regardless of whether or not they have a leaky roof or whatever has to happen, right, we don't have to deal with any of that stuff and what we're able to do at least in Michigan, this doesn't work necessarily everywhere, the same way, because the rents aren't high enough in the house prices aren't low enough for to work in a lot of areas.   But for us, if you take someone who's living in a neighborhood, and they're renting, and let's just say they're paying for the sake of round numbers, they're paying $1,000 in rent, okay and they're renting a certain level house in that neighborhood, I can buy a house in that neighborhood that maybe is a little bit in distress that I can go in and buy it inexpensively and put some work into it and if someone were to buy that house with a traditional mortgage, especially a year or two ago, when rates were like high twos, low threes, they could buy that house and their mortgage payment might be $600, right, right. But they can't get approved for a mortgage for whatever reason, right? They have bad credit, or whatever it is, right? But I can buy that house, I can renovate it, and I can sell it to someone and really the pitch to them is listen, you want to own a home, and you're not currently in a position to get approved for a mortgage through a traditional mortgage company. But what if you could have homeownership, and you would pay no more than you were paying when you were renting, right still give me $1,000 give or take. But you own the home and you can build equity and in three to five years you can refinance out at a lower rate and you can own the home and probably drop your payments a little bit. Is it important enough to a person to own the home? If they're if all things being equal rent 1000 I have to pay this company 1000 for the house, but I own the house. That's what we do we buy the houses now, the reality is the interest rates are a lot higher than what you might get at a mortgage company, right. But we're also taking a bit of a risk. These are folks that have defaulted on things in the past and their interest and their credit scores are not great, but they have homeownership at this point and if so they if they have a down payment, and they want to own a home, we can get them into a home for no more than they would pay to rent a home in that neighborhood and three to five years, the goal for them is to fix things in their life and be able to refinance out at a lower rate and move on forever and then. So we're typically an average deal for us might be, you know, we buy it for 50. The ARV is 100, we put 20 into it. So now we're into it for 70 and we sell it for 85, right, we're still a little undervalued. So they're getting some instant equity, they have home ownership but when they go to refi in three, five years, we're getting a $15,000 check or whatever it is at that point, right. So in there's no calls from tenants, and there's no vacancies and none of that stuff. So that that's the that's the allure for US interest…   Michael: Interesting, I mean, isn't that similar, like rent to own or is it different?   Mike: It's similar, but they're not renting, right? a rent to own it, depending on how it's structured. Obviously, you can have some portion of the rent go toward whatever, but you still own the house, right? You still own the house as the person who's having that rent down. We don't own the house, necessarily. We own it, just the way the bank owns your house when you have a mortgage, right. But we're never getting calls from the city for law for Tallgrass. We're not getting calls about the maintenance issues or whatever. We don't have to worry that they didn't, you know, they left and they didn't finish their contract like it's a mortgage and if they if they don't pay their if they don't pay their mortgage, then we will foreclose we can foreclose on them.   Michael: Yep, interesting and so that like when you place these tenants into the home, there's a recorded sale that happens and so you're literally just playing bank, interesting…   Mike: Yep, just playing bank. Yeah, because we both had rentals, both of us and like I said, rental they're awesome but there's just a different level of responsibility for us playing the bank than then playing landlord and that's just what we're choosing to do. We both of us have rentals and it's, it's awesome. I rentals have been fantastic for me. It's just, it's not what we're doing now and we were just like, gonna get rid of the rentals and just wholesale. That's it but then this model presented itself, somebody we mutually knew in the industry is kind of like, hey, I'm doing this and they're doing it in Texas and it works down there too. I don't know that it would work in Los Angeles or San Diego or I don't know that it would probably not as well because the house prices but if you have house prices that you can get a house in a nice in these are like safe blue county collar neighborhoods, we're not talking about like war zones, but by any means I wouldn't buy a house there but in a nice blue collar brick ranch neighborhood, if you can get a house between 50 and 150,000. It could work when they start getting up to a half a quarter of a million, it just doesn't work as well anymore. You can't, the numbers don't work out.   Michael: Okay, okay. Good to know and just out of curiosity, I mean, how many folks end up refinancing out of your mortgage and then truly then own the house versus how many what percentage defaults or you have to go through that?   Mike: Really good question. We started doing this, like, eight months ago. So okay, I don't know, we don't have a loop. Yeah, but the friend of ours who kind of introduced this concept to us. He said about half of them refi out. Very few defaults, very few defaults because it's home, you know, people it's their home, right? They don't default, like they do necessarily on a lease, because it's not as transient. So according to him very few defaults. But we also screen people pretty well to like you would with a rental, like we're not just letting anybody in there, right? If they clearly have a pattern of defaulting on everything they've ever done, we could expect to default to we're not special but people have certain circumstances where their credit cut takes a pretty good hit but it's you know, it's something that is understandable, or it has a you know, story behind it. That makes sense. So I'm not expecting a lot of defaults, how many people will refi out? You know, our plan is to be a little bit more proactive with helping them with credit repair right now, we're not really getting involved in that but I suspect as we do get more involved with helping with that, that the number of people who actually refi out will probably go up, you know, so I don't really know right now how that's gonna go down. We'll see, we'll see how that goes. I don't know. Sure…   Michael: Okay, we'll have to have you back in 24 months to see. See what that looks like…   Mike: For sure, for sure.   Michael: Awesome. Well, Mike, let's shift gears here just for a moment and talk about wholesaling because, I mean, like you were mentioning a bit ago, it's no surprise that deals are a bit tougher to come by today. I think in the industry as a whole it's probably no surprise that wholesalers don't have the best reputation out there. Yeah, so I mean, I have I'm going to share kind of my thoughts on I think what makes you different but curious to get your thoughts and share with our listeners, me what makes you different as a wholesaling company and then what are some things that people can do to protect themselves from the not so great actors out there who are wholesalers?   Mike: The problem with wholesaling and the reason why it can get a bad name Is it is it is advertised and when I say advertised, I mean if you go out on the internet and say how do you become a wholesaler? Should I be a wholesaler? It's billed to people as this no money, no experience and that's how you get started in the industry…   Michael: And no risk…   Mike: Yeah, no risk. You get this, like, this mentality of this person who thinks they're just gonna roll out of bed open up their eyes, and money's gonna pour through the windows of their house if they're a wholesaler and it's not true, obviously. So you asked me what I do that makes me different. Here's what anyone can do to make their business different, but it doesn't it's not, you know, just for wholesaling but you have to run it like a business and a lot of wholesalers are very transactional in their thinking. They only care about the cheque they're getting next they don't care about future checks. They don't care about consistency, or predictability of their of their business and so they treat wholesaling, like this little dirty act they have to do before the real serious business comes along and in the reason why a lot of wholesalers get this bad reputation also is because there's something called daisy chaining in real estate, and most real, most wholesalers I'm doing air quotes if you guys aren't watching.   The reason most wholesalers or a lot of wholesalers have this reputation is they're not really wholesalers as much as they are what's called daisy chains and a daisy chain er is okay I'm a wholesaler I market to sellers I go into a seller's home. I create rapport and trust and in understanding of what's happening. I get a purchase agreement with them and I take that purchase agreement and I market it out to the other real estate investors in my community and some person who sees this takes the pictures, they take the text, and they mark up the price and then they send it out to a bunch of people, a lot of times a lot of the same people at a higher price and it's like called them and so you call them and you say, hey, I'll take it because you didn't see my marketing, you saw their marketing for whatever reason, you say, I'll take it. They don't even know me and I don't know them. But they're representing that they have this this deal under contract and meanwhile, I'm working with my buyers and I come to an agreement with a buyer and then this person calls me who's was also marketing up my contract and says, hey, I want to buy that house and I go, I've already sold it. Well, he's already told his buyer that they can have it for that price. But I already sold it because I have it under contract. Now he has to go back to the buyer and say, sorry, we have to back out of this deal, right and so it looks like a wholesaler is a really bad business person, bad guy, dishonest, whatever, misrepresenting himself, but he never had the deal and so that happens that's runs rampant. That's a real epidemic in the wholesaling world. So you also asked me, How do you tell the difference or how do you how do you avoid the bad ones?   The first question is that because I get people who send me deals, and frankly, I'll look at them if some other wholesaler finds a deal, and they were they offer it out at a price that my company might be able to land contract that house and we want to buy it, we'll do it. So the first question I asked them is, do you have this under contract yourself or are you representing somebody else and a lot of times they do and sometimes they don't? Sometimes they say they do and I say good. Then before I would buy this, I would need to see the agreement between you and the seller, your company in the seller, what's the name of your company, and I verify this stuff because if they don't have it under contract, I don't even care if they say, yeah, it's not me. But the guy who has under contracts a good friend of mine, and he gave me exclusive rights. I want to talk to who has entered a contract always deal with the person who has an order contract with the seller, with the seller, right? All right, that's, that's key. That's huge and we don't, we don't allow daisy chaining, we don't ever allow people to market out our deals, we only market them out and so all of our buyers know, we've told them several times, if someone if we're marketing a house and you see the same house being marketed by someone else, believe me when I tell you, they're not authorized to do that, they will never be able to sell it to you. So and as a wholesaler, I always make sure that I'm dealing with the end buyer, not a middle person, right? So if someone comes to us, though, and says, hey, I've got a buyer, and they're gonna, they'll pay you this much money and it makes sense for us. We'll give them a check like, well, we'll compensate them for bringing that buyer. But we're not going to we're not going to be what's going to be all transparent, we're going to let everyone know what's happening and so transparency in the wholesale process is important between us as the wholesalers and the buyers total transparency. Now, I'll say something that your audience may not love. There is not total transparency between us and the seller and does that mean that we're lying to them? No, it's not it doesn't. But here's what I always tell people to illustrate my point. Nobody loves or trusts me more than my mother, nobody.   My mom has heard me explain what I do as a wholesaler 1000 times and she has been all ears like she's could not be more dialed in to hurts her baby boy and what he does, and she's so proud and so happy and she's listening intently. But if you call my mom and put her on the air right now and said, Could you please explain to me what your son does? How he does it? She wouldn't know she might even tell you. I'm a realtor. She just doesn't know. It doesn't make sense to her. It's just it's too obscure. Right? So when we're in a seller's home, we don't say to them, Mr. Mrs. Seller, I know you're under a lot of duress. You have to move maybe there was a death or divorce or whatever there was right? Something happened in your life is spiraling. Here's the deal. I want to sign a contract, saying that I'm gonna buy your house, but I'm not buying it. I don't even know who's gonna buy it. I don't know where the money is coming from. I don't know who's gonna show up at closing. I'm not even sure if I'm gonna be able to close. Can we sign the deal now? It nobody would say yes. Okay and that's an a character characterization of what a wholesaler does. But on some level, it's facetious, but it's sort of true, right? I'm signing a contract. I don't exactly know who's going to buy it. In my case as a wholesaler and what I think makes what I do ethical is I have the financial backing to buy any house that I put under contract. If worst comes to worst, I can buy it right and that's not that doesn't come in the beginning. new investors don't always have that luxury. But what you can do as an investor and where you can be transparent and you should be transparent is do not sign a contract and imply or explicitly state that you will for sure be closing on the house without exception, you can't say that in most cases.   So what I say is some version of this, Mister seller, when I came here I was prepared to offer you $100,000 for your house, that was the highest number that I was authorized to offer you, you cannot go below 110,000 That is your lowest, that's the number. That's the gap, right… You want 110 minimum, and I was maximum allowed to offer you 100 but here's what I would like to suggest. Let's sign the contract for 110. Okay, I'm gonna go back to my investors and people who make decisions and help me buy these houses and I am going to see if there is interest at that price, I anticipate that there is not going to be but there very well could be but at the very least, if you can give me two weeks to talk to my investors and go to bat for you, and try to make them understand now that I'm here, I see this house is very nice. I didn't know is this nice but it is a very nice house. I think I can get this done but give me two weeks and I will come back to you in two weeks or less by the way and I'll tell you one of two things either, we can't pay 110 and so we need to rip this contract up and just part as friends, because we all knew that that was a possibility or we're going to move forward at this price and everything is good and I guarantee you will close. Okay, can if you couldn't give me two weeks. Now, if you don't want to do that, I totally get it. If you go to a realtor, they're going to want you to sign it like a three month contract where they get three months to market your house. I just want two weeks and if it takes me two days, I'll come back in two days. Either way, I'll be totally honest with you and it will be up to you what we do from that point we rip up the contract or not. It's totally up to you. Is that? Is that something that you can live with just for a week or two and nine times out of 10? They say yes. Now, when I when I go out now I am going out to my buyers and I'm saying hey, I got this this opportunity who's interested, right? If I get crickets and it's like, nope, nope, nope.   Then usually we'll try to figure out what our buyers would pay, right? That's the next question. Okay, you don't want it? It's fine. But what would you pay for this and we start getting that feedback and so we can go back to the seller and say, listen, I was right. 100,000 is the best we can do but I'm totally willing to rip up this contract because you want 110 or we can talk about a reduction or, or the or we get buyers that are like, yeah, I'll do it for that price. That's great, right and it's a little better than we thought and we go back and tell the seller, hey, if we go out to our buyers, and we find out that 110 is a really good price for us still, we'll still make the money we thought we were going to make we always go back and say we'll honor the 110 because I think that's the question I would be thinking in my mind if I'm listening to this interview? Well, what happens if they get really great offers? Do they still always go back and try to get that lower number? No, we don't. If we can make what we thought we would make or pretty close to it, we'll pay a higher price, right? We're, my goal here is to get to heaven not to make an extra $5,000, right. So I'm not trying to be a bad guy. But the key is the ethical wholesalers versus not the ethical ones, prepare the seller for the potential for a renegotiate or a cancellation up front and so when we go back, how often are they irate because we come back and say, hey, we can't do the 110. Almost never, because we very thoroughly explain what we're doing and we prepare them that we may have to come back and discuss the reduction or cancellation. The people honestly, they just want clarity.   They just want to know what's going to happen. What people get mad about are surprises. So when you say oh, great 110 done deal. I can't wait to close with you in a few weeks. This is so exciting and then you come back in three days and say we have to cancel the contract. They're mad 100% of the time, because they weren't you're not clear on what was happening. You surprise them with bad news and nobody likes being surprised with bad news but when you come back and say, hey, remember when we talked a week ago and I said this? Well, we can't do the 110. You know, we tried nine times out of 10 they're totally fine and honestly, seven times out of 10. They say well, what can you do and then we have that discussion. So, man, it's all about setting expectations.   Michael: Yes, 1000 times yes, as funny as you were going through kind of your pitch. I was like, Oh yeah, like that makes sense. That's such a different, like feeling that I got as you were giving as you were giving that Spiel than what I was expecting or than what I've experienced with wholesaler. So I mean, kudos to you and your team. It's clearly it's clearly working for you, so keep up keep up the great work.   Mike: Well, honestly, we have gotten deals, where and I know that sounds cliche, but I swear to you, this happens all the time and it we only know that when people tell us right so my guess is it happens more than we even know but we get deals where they got a higher offer from another wholesaler. But because we come in and we are professional, and we do address their concerns, but we wholesaling is not really about buying houses. It's about solving problems and again, sounds cliche, totally true. You can figure out what their pain point is and you can focus on that the sale of the house is secondary and I know that because we've had sellers tell us listen, we had somebody come along and offer us more than you guys, but we're not going to sell to them, we're going to sell to you because we believe you, we believe what you're saying and we like working with you. So professionalism matters and just to illustrate that point, underline it real quickly, one of our reps went into a house one time, and he was talking to a seller and they were going through the whole thing, it was like halfway through the meeting, and then knock on the door, and the seller says, oh, I forgot.   There's another investor or another, whatever. They call them coming in another person who wants to look at my house and my rep was like, oh, okay, and he kind of stood aside and a guy came in, my rep looked outside, and he saw the guy was driving a Mercedes, nothing wrong with that Mercedes fine but he left it running. He was wearing a suit, he came into the house, briefly said hello, and started walking around, pointing out all the flaws in the house, this is all this has to be replaced. That's no good. Nobody wants that and he shot a number at her with what he would pay and said, think about it and he got in his car and left. Like, everything that guy said, that wasn't verbal screamed, you are not that important to me. I'm way too big of a deal for you and I don't even have time to turn my car off. That's how little I think about what is your situation. I'm just telling you what I need and what I want and what I'll give you and I'm out of here, right and understandably, the seller was floored. She's like, that was the rudest thing I've ever seen, like, that was awful. I feel so like, offended by that. Yeah and of course, my rep was like, yeah, I would be offended too, right. Like, I agree with you. They're horrible. We're great. Let's get back to talking about how great we are. So it matters, like paying attention to their pain points, and not being all about the number. If you start talking about price right off the bat, you can almost guarantee you're not gonna buy the house. Yeah, if you start by listening, and addressing their problems, and let the sale be last. It'll work out for you much, much better.   Michael: I love it, I love it, I love it. Mike, we could go on, I think probably for days talking about this stuff but I want to be very respectful of your time and get you out here. For anyone that wants to learn more about you, your processes your business, where's the best place for them to do that?   Mike: Yeah, thank you for that by the way, I appreciate it. The best place to get a hold of me would be at my on my website, https://www.mikesimmons.com/ . If you go on mikesimmons.com, you can find anything about me and also my podcasts. I have a podcast called just out real estate. You can find the link to that on my on my website as well.   Michael: Right on…   Mike: Which you were on right, you were my guest.   Michael: We had a lot of fun.   Mike: Yeah, we did.   Michael: Well, Mike, thank you again for coming on and sharing so much wisdom with our listeners really appreciate it and I'm sure we'll chat soon, man. I look forward to it.   Mike: Absolutely. Thank you for having me. It was a pleasure.   Michael: Likewise, talk soon.   All right, everyone. That was our show a big thank you to Mike for coming on. Super, super insightful stuff. I learned a ton about the wholesaling business and wholesalers in general, and some really great questions that we as investors can be asking wholesalers to protect ourselves from the downside. So as always, if you liked the episode, feel free to leave us a rating or review wherever it is you get your episodes, and we look forward to seeing the next one. Happy investing…

In this episode, we cover questions submitted by attendees of a recent webinar. We talk about using 401K loans for investing in real estate, how to choose strong rental markets, inspections on remote properties, property management, and how disclosures work in different states.   We love hearing from you, and taking on topics that you are curious about. Feel free to submit your questions as comments on YouTube, in a review on the podcast, or tweet at us: @RemoteEstate.   --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals. Hey, everyone, welcome to the remote real estate investor.     My name is Pierre Carrillo and today I am with     Michael Albaum.     And today we are going to be going through some listener submitted questions. So let's get right into it.   Alright, Mike's up for this first question here. This one came off of a YouTube comment. Jeremy asked, how do you use a 401 k loan for a down payment on a rental or an S short term rental? Do they have lower interest rates so that you can pay yourself back especially now that the market is down? What do you have to say about that?     Yeah, it's a super good question, Jeremy. So this is something that I've actually done in the past on my second rental ever I did this, and it's all dependent on your 401k administrator. And so who holds your 401k what the company is, and so mine at the time happened to be through Fidelity. And at that time, they say you can take a loan up to $50,000 or 50% of your balance in your accounts, whichever is less. I think that was how it worked. And then the interest rate at the time was four and a half percent.   Now this is back in like 2014 2015, something like that. So it's been a while. And so every interest in, the interest rate is going to be set by the Accommodator or by the facilitator. And the cool thing about it is that interest is actually paid back to yourself on a monthly basis. And so you can actually choose and again, this is specific for Fidelity and for my situation at the time, but I was able to choose the period in which I wanted to pay back the loan. So I can pick one year through five years in one year increments. So once you have 1 2 3 4 5, and so I chose the longest period possible because I wanted the payment to be as small as possible. So that way I could cash flow as maximum ly as possible. And the lender had no problem with this whatsoever, because they saw that the cash was coming from my 401k, they will often count that treat it as a cash equivalent, because we have access to them through these 401k loans and through other vehicles as well. So I made monthly payments to myself, it got automatically deducted from my paycheck on a, again on a monthly basis. So they took out half, I was paid every two weeks, I took out half the payment, and it went back into my 401k.   And so it's your again, you're paying yourself back the interest. So it's a really cool way to be able to get actually more dollars into your 401k account. Now the tax implications of this definitely not going to get into you're definitely gonna want to talk to a tax professional to understand how it's gonna affect you. But again, I would definitely look into your 401k Accommodator and see what the rules are around 401k loans because they can be a great, great, great tool to access.   Now keep in mind, the one thing that I think is super important to highlight is that if you end up leaving that company or that job, the entire loan balances due back. And so you just want to keep that in mind. That's uh, that can be kind of a sticky catch all. So that you don't want to get caught off guard with but again, every every Accommodator is going to have likely a little bit of a different way that they handle it. So reach out there, there's probably someone in their loan department that you could call and just start asking around these questions. But again, really great question, Jeremy, and a super, super powerful way to gain access to cash and quickly.     So follow up on that a little bit more, are interest rates on these type of loans the same as what's going on in the market? Or are these calculated differently?     It's a really good question. You know, I really haven't looked into it in a while since I haven't needed one. But you could very easily like, again, mine through fidelity, you could go online today and walk through this exercise and see what the interest rate you're quoted is. Yeah, I mean, it varies at the time, I think mine was like four and a half percent. And I think I got a four and a half percent loan on the investment property. So if that's an indicator of of kind of par for the course, I would I would say that yes, I would, I would think we could we could extrapolate that and say yes, that the loan you'll see on your 401k is likely going to be what you're seeing in the market. But again, remember this interest gets paid back to yourself so that the true like quote unquote, cost of it becomes a lot more tolerable. It just has to look at what your cash flows look like.     Okay. And are there any property types that are best for this strategy, or is it does it not matter?     You know, I really don't think it matters. Most 401 k loan accommodators will tell you you can take a loan for really any number of reasons, I don't, I don't know, if you have to specify you might. But I think if you wanted like a new TV, you could go take a 401k loan and do that. I don't recommend that. Because that is not an asset, that's a liability. And so I would say any type of cash flowing asset is going to make sense or could make sense for a 401k loan. And I know some of you listening are out there thinking, well, the stock market is a cash flowing asset, or a dividend stock is a cash flowing asset. And so I would just be very cautious around investing those funds in the stock market, because they're very correlated.   And so if you see your, if you see a stock market dip, now your balance in your 401k has dipped, and the amount that you have invested in the stock market, because you use loan proceeds to go invest in the stock market has taken a dip and so your proceeds to pay off the loan that you took is taking a dip, so it can just get very dirty very quickly. And so that's why I think real estate is a great investment to use those funds for because they are, I would say pretty uncorrelated, if just because the stock market dips doesn't mean the real estate markets taking a dip the next day.     All right, Mike, I know we've seen this question before. But let's hit it again. Because it's a really common question that people have is what advice do you have for selecting a strong investment market?     Yeah, it's another super great question, Pierre. So I think that it needs to come down to a couple of things. And I think people need to get really clear on what's important in a market for them, and what makes them believe in a market? For me, it's like five things. It's is there population growth? So are people moving to that market? Is there job growth, so the people that are moving there are have jobs to work, so they can pay rent and pay their mortgages? There it is, as their wage or salary growth, people that are moving there that are now working there are getting paid more to do so. And then is it diversification of employment? So are there multiple sectors supporting the local economy? Or is it exclusively manufacturing or exclusively entertainment? I like to see that it's it's diverse, so that if we do you have a pandemic-like occurrence, the entire market doesn't evaporate. And then last, but not least, for me, I like to see a plethora of deals that I would invest in, I want to see several deals on the market, you know, through the MLS through Zillow, wherever you're getting your deals from, that you could say, Yes, I would be happy investing in all of them. And they all make sense.   And for me, that's because I like to go deep into a market, I used to go wide, I used to buy one or two properties in multiple markets, and then it got really overwhelming and cumbersome. And so I like to go deep into a particular market. And so I don't want to go buy the one good deal in Atlanta, Georgia, I wanted the process to be repeatable. And so that's what I look for. And so I'd say people should get clear on what it is that's important to them. That is an indicator that the market is going to be around and healthy for a long time for the duration of their investment, and then some.   And so if you can find markets, and I can almost guarantee you, you will find multiple markets that check all of your boxes. I know for me, I have. And then it's just about picking one and picking one could be I interview property managers in four of the markets that I found that work for me, and who do I have the best working relationship with? Who am I getting the best vibe from? Where am I finding the best lenders? And so now that we found kind of the macro high level things, and we've also found the micro deal, let's start expanding and say, Okay, who are we going to utilize, who's going to be part of our team on the ground, because you can find a great market with great deals. And if you can't find a good property manager, you can't find a good lender. It's tough to transact there. And it's tough to own in that market.   So I think once you find the market and the deals now we got to start building up a team and seeing who makes sense to work with Who do you like working with? And then I would execute based on that.     When you say look for these deals, where are you looking?     You can look all kinds of places. So you can work with a local real estate agent. You could look on roof stock on the marketplace, you can look on Zillow, you could look on you know, any housing, like website that lists properties for sale, it's just pulling information from the local MLS. And so every every major metro is going to have multiple MLS is that are local to that Metro. And so that's where the listings agents are posting listings. And that's where they're showing you listings from, maybe you get off market stuff, you know, there's there's all kinds of ways to source deals, and so many different places to look, try all of them and see what you come up with.   And if you're working with an agent, I would say make sure you're working with an investor friendly agent and investor focused agent and make sure they understand when you say cash on cash return and cash flow, that they know what you're talking about. A lot of agents out there are residential agents that are used to working with owner occupants, not knocking them, but they just may not know and be familiar with the terms and key financial metrics that we as investors are interested in and looking for. And if that's the case, it's not necessarily your job to educate them. And so I would, I would maybe shift gears and look to go find an agent that understands our lingo. And the things that we're trying to accomplish.     What are some questions you can ask a potential agent to? I'm sure they like to say like, oh, yeah, I'm investor friendly. Let's do a deal together. What are some questions you can ask to kind of get to the bottom of it and see if that real they really are?     Yeah, totally kind of put them through their paces a little bit? What's the typical cap rate in your market? How long? You know, what's typical cash on cash return? In your market? What's the average monthly cash flow? In your market? What kind of value add projects? Are you seeing people doing? And are you an investor yourself? Do you invest in rental real estate? And if they say yes, well, I mean, there, you can kind of skip all the other stuff, if they if they tell yes? Or how many investors have you worked with? And can I get some recommendations? Can I get some references from you from some of your investor clients?     When you're buying a property remotely? How does the inspection process work? Do I know you get an inspection from a third party inspector? But can you also get a video walkthrough? Like how do you get all the information that you need to feel comfortable moving forward?     Yeah, it's another great question. And so for most people, if they are buying a property locally, I would be interested to know if they go and walk the property with the inspector. If they do great, it's, it's a good way to put eyes on and be able to really talk through what you're seeing with the inspector, when you're doing it remotely. I always have my agent go first and do a video walkthrough before I go ahead with the inspection, because it burned me once where I had the inspector go in and be like, this place is a mess. It's terrible, yada, yada, yada. And then my agent was like, oh, yeah, you don't want anything to do with this. And I said, Why don't we reverse that process and save me the couple hundred bucks that I just spent on the inspection.   Because all this stuff you could call out, you could see it doesn't take an inspector to recognize, hey, there's a massive crack in his foundation. Anybody who has who has site can be able to see that. And so I always get my agent, give me a video walkthrough. First, give me their opinion, then we'll schedule the inspection. After I get the inspection report, I usually call the inspector and say, Hey, what scares you about this property, if their inspection looks pretty clean, they'll tell me they'll be honest with you, they often don't have a dog in this fight, so to speak. And so they their job is to be honest. And their job is to find all of the stuff that's wrong with the property. And so sometimes we get an inspection report back, and it sounds a lot scarier than it actually is. Because that's their job, they have to find all of the stuff that's wrong or not working, or it could be a potential safety hazard.   And so it's something like some things could be like a missing light switch cover, right, that's going to be called out as a safety safety issue. But like, the reality is as a 75 cent repair, it's really not a big deal. But when you start seeing a lot of these things stack up as a laundry list. And maybe you're not familiar with the light switch cover, and that it isn't 75 cent repairs, you're like, oh my gosh, look at all these things I have to fix, it's gonna be so expensive.   So I think understanding and really talking through with the inspector, hey, what was actually scary, and what's just, you know, some stuff I need to take care of down the road or immediately, and really having a conversation, because a picture's worth 1000 words, but also getting the words. But the backstory behind the picture, I think is also really important and really valuable. And so most of these inspectors are very happy to talk to you. So have your agent, walk through the property, get pictures, if you can't get a video walkthrough, and then get the inspection and then have a conversation, and then make your decision. Don't let yourself get all hot and bothered and really bent out of shape over the inspection without first having a conversation with the inspector or with a property manager or a contractor. Someone who really knows. Okay, what is this going to take to correct? Or is it even needing correction right now, maybe this is a problem for down the road.     Okay, and say like in this inspection, certain repairs are noted. And you want to get a quote from local contractors for fixing it is there like a Kelley Blue Book of what certain services cost for real estate? Or, you know, I kind of have to know?     I wish there was you after doing this two or three or four times, you'll get a fairly good ballpark idea of what costs are in your market. And it's important to recognize that it's market specific. So a plumber in San Francisco charges, I'm going to bet more than a plumber in Topeka, Kansas, right? Just cost of living is different trades get priced differently. Materials even cost slightly different amounts. And so understanding Okay, there is going to be a difference for maybe what I'm used to in my market where I live. And so let's go get quotes for those things.   A lot of property managers have in house personnel that can do a lot of those repairs for you. And so they can be kind of your one stop shop for Hey, go get this inspection report. You can give it to them. And which I think you absolutely should, like hey, give me your thoughts and then give me quotes to get this stuff repaired. And they might have a plumber or electrician or a handy person in house that they can say, Okay, this is going to be $300 It's gonna be $200 It's gonna be $2,000 Whatever the cost is, if they don't, they might be able to put you in touch with some contractors or go get those quotes on your behalf with outside vendors.   Depending on the size of the job, I always like to go get three quotes. If it's you know, more than 1000 bucks, go get a couple additional quotes just to see where things are coming out. For anything under 1000 bucks, I've just found that, you know, it might not be worth someone's time to delay the repair, or to send a property manager chasing around trying to get quotes from people for, you know, a $75 repair or $100 repair, the savings that you get in dollars don't necessarily equate or are equivalent to the time savings that you put that you ask that person to do something. And so they might start to get a little bit annoyed with you.     Okay.     But I would definitely do that before your inspection period ends, like go get hard numbers, because that way you can you can use that to negotiate with the seller on the price or to make the repairs themselves or what have you can decide what makes the most sense.     Okay, so what should people know about managing the property themselves? So they don't want to skip professional property management and keep that extra cash? What should they know?     They should know that you shouldn't do it? No, just kidding. I think I think self management makes sense for a lot of people. It's just not for me. So Coach Dean over at Roofstock Academy with me, he self manages all of his properties, and he lives in a different country. So it's absolutely possible. And that works really well for him. It's just not something that's worked really well for me in the past. So I manage I self manage a short term rental that I own on the central coast of California. And then I self manage my my house hack, the upstairs unit and the house that I live in. And so I think if you're going to be self managing, you need to have a really good team around you, just like you would if you were using professional property managers.   If you're using property managers, they likely have those plumbers, electricians, handy people, like we were just talking about. And if they don't, they know who they can call in the event of an emergency repairs needed. Because you're not using those property managers, you kind of need to put yourself in that role and say, Okay, well, they're not going to call the plumbers, electricians handy people for me, I need to do that. And so having a network of service professionals to be able to call on a moment's notice, I think is really important.   Also, having someone that can be a go check on the property on kind of a moment's notice. And just put eyes on is also important. Because you can imagine if the tenant pays, doesn't pay rent on the first of the month, and they skip town on the second, you might have no idea that your property is vacant for quite some time. If you can't get a hold of the tenant not returning phone calls. Like there's just like you want to have eyes on physically, if not yourself than someone who represents you if you're not using a property manager. So again, building out your team is so so so hypercritical, even more critical if you're self managing.     Okay, so next question here is if you're buying a property that is currently tenanted, is there a way to get in touch with the current property manager, before, you know to find out more information about it before making a decision?     Yeah, it's a really good question. Sometimes, if you can find out who the property is managed by, of course, then you can just give them a call and start asking them questions. I don't know if property managers have a legal fiduciary responsibility to anyone. If they do, my guess is that it's going to be with their, their owner. And so you might, you know, if I, if you own a property that has a tenant in place, and I call your property manager and say, hey, you know, I know that there's probably 123 Main Street, do you guys manage that? Yes, we do. Tell me about all the problems that you've had with that property? Well, we probably can't do that, because we know it's trying to get sold.   So yes, you might be able to find out that information, but you might not be able to find out all of the warts, if you will, all of the kind of nitty gritty associated with that property. That's really what the inspection is for. And that's what you your due diligence period is for you get to ask the questions, you get to get answers to those questions. And if you're not satisfied with the answers, you get to walk away for free.   Yes, it can be helpful sometimes, but it's it might not be the silver bullet that I think a lot of people think it might be, because they might just refuse to answer your questions and say, you need to talk to the seller, you need to get that information from the agent, the selling agent.     Alright, Mike. So the next question here is on disclosures. Every state seems to have different requirements around what needs to be disclosed. How do you handle that in states that don't require disclosures?     Yeah, it's another really great question fear. And it's tough. Like if the state's not going to require the seller to tell you everything they know about the property, we have to go find that information out for ourselves. And the best way to do that is by piecing together kind of you have to make this story for yourself with pieces of information that you can get access to. So first and foremost, I would say look at the seller's taxes if you can get a hold of them for the last two years for that particular property. I'm interested to see, okay, you've told me you're getting this much in rent you've told me that the property performs like this? Now let's see what you told the IRS and make sure that those two things are the same. Oh, there's a discrepancy. Let's go ahead and reconcile that either in terms of price or figuring out what what it is that you weren't telling me before.   Also with the inspection, I mean, the physical inspection is going to show up, turn up a lot of stuff if there's water leaks, if there's foundation issues and so I think that's also important not to skimp out on or not to skip, unless it's a full teardown or a full gut renovation anyhow, there's not a whole lot to be gained from knowing that, hey, the roof leaks if you're planning on replacing it entirely anyhow.   But I think you start to have to gain different pieces of information and piece it together for yourself to have the story come to light, as opposed to the seller saying, oh, yeah, there's a leak in the roof. Well, if there's water stained, and the leak hasn't been replaced, you'll see that from a physical inspection. The other thing to keep in mind is that in a state like California, where disclosures are required, like the seller just says, I don't know, I don't know, I don't know, it's every single answer. And that's a totally valid response. And so am I any better off than if I didn't have the disclosures to begin with? In my opinion, not really.   And so of course, we are relying that this person is being honest and telling us about the things that they do know. And I have seen sellers be super honest and super transparent about the things that they do know, which is wonderful, because now you're armed with some additional pieces of information to help you make your decision, both around whether to proceed with the purchase, or the purchase price itself. But when a seller says yeah, I don't know, like you figure it out. I genuinely don't know, because it's been a rental for 10 years, I you know, live there for a year. And that was, you know, there's all kinds of things that sellers can say that muddy the waters that don't really give us any insight into what the answers are, the true answers are, and so we have to go find that out for ourselves.     All right, Mike. So like a state like Alabama, where it's a, they don't have to disclose something, if you ask them? Are they legally required to tell you? Or is? I don't know, good enough for in that case as well?      It's a really good question. I think legally, they have to tell you, I think don't quote me, I'm definitely no no legal experts. So I would definitely get a hold of a legal expert in the state in which you're transacting and ask that question. I think it comes down to if you ask them a question, and they lie, and you can prove it, there could be ramifications for the seller. And so I think it all comes down to proving that they knew about what you're asking about was not the truth. That I think is always the hard part. So there, it's very easy for someone to say, Yep, I don't know. And then how are we going to prove that they knew that they actually did know and that the thing was an issue for their property? So it gets kind of murky pretty quickly, as you can see. But yeah, just understanding what your state requirements are in the state you're transacting is really important.     Okay, cool. I think we will leave it at that we have a bunch more questions, but we're running out of time today. So want to leave us with any final words Mike?     No, keep the questions coming. These are great. We love to see how engaged our members are in community are and we love getting answers out to your questions as best we can. So please keep them coming.     Alright, everyone, we're gonna leave it at that. Leave your questions as comments on YouTube or comment on the podcast. Leave us a review. Give us a rating that helps us out a lot. And we will catch you on the next episode. Thank you so much for listening. Happy investing.

One couple that truly found financial success is Ali and Josh from the FI Couple. Ali and Josh are a power couple! They are real estate investors, financial educators, and all-around great people to grab a beer with and talk finances. Today, Ali and Josh share their inspiring story of how they went from broke and in debt to real estate investors. Are there any couples out there? You're going to want to tune into this one. Episode Link: https://www.theficouple.com/ https://www.instagram.com/theficouple/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Josh and Ali of the FI Couple and they're going to be talking to us about their journey to financial independence, and all of the wins and losses that they've occurred along that path. So let's get into it.   Ali, and Josh, welcome to the podcast. Thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Ali: Thanks so much for having us. We're really excited to finally quote unquote, meet.   Michael: I know, I know and so for anyone who doesn't know ally, Josh and I are friends from the innerwebs that we get together face to face and you all kind of have an alter ego online. Tell us a little bit about that, what's it called and what is it you guys we're doing real estate?   Ali: Yeah, so our Alter Ego is the DI couple which is short for financial independence and although we are not financially independent, yet, it's a really big thing that we're working towards. That is a huge part of our life and a big piece of the FI Couple is not necessarily being up on the mountain top and making it but showing the everyday journey of the everyday person getting there the ups downs, and all the way in between.   Josh: About 16 months ago or so we were kind of running the numbers and by we, I mean, I was like, you know, we're, we're kind of like 50% or so fie and we had a lot of time on our hands because we were in lockdown, like so much of the world and Ali had the idea to start a social media platform, which I thought was a terrible idea because if you knew us in real life, neither one of us are overly active in social media. But yeah, it was the idea of we're not there yet. But we've learned a lot in the two or three years that we've been doing this and maybe we could bring some value to people who are just starting out like we were just a few years ago.   Michael: I love that I saw this. I think it was a tick tock or real online and it was talking about van life and I lived in a van full time with my wife and dog for about eight months and everyone's like, it's so glorious. You wake up to these beautiful landscapes and so someone made a joke, like they woke up, poured their coffee and then open their van door and was a Home Depot parking lot. I was like, yeah, like I've done that tons of times, like, it's not always as glamorous as the social media makes it out to be. So I love that fact. I love you guys are doing that. So walk us back to when you started this journey into fire when you started really paying attention to your finances, what was going on your lives and what made you want to make a change?   Josh: Yeah, absolutely. Yeah, so it's like the quote is like necessity is the mother of invention kind of thing. We, Ali had just graduated from her master's program in 2017 and we were like one year away from getting married and we hadn't ever talked about money or anything like that prior to that. So we started having those conversations.   Ali: And that year, we were like, this is going to be our year for the first time in our relationship. We were both dual income, like solid incomes for what we were making at the time. We were planning our wedding and this was going to be it.   Josh: So it was at that point that it was like well, it was the act of planning for a wedding and figuring out how much that cost that led us to wonder like, How much money do we have in savings? What's our savings rate? What are our bills, it just kind of went down that rabbit hole and that was also like the first time we really started tallying up like all the student loan and car loan and credit card debt that we had, that we had always kind of known about, but never really looked at it, as you know, just kind of put it under the rug, if you will and that was when we realized, like we have over $100,000 in debt. We're not really making a whole lot of money. We have no idea how we're going to afford a wedding and we were both burnt out already in the jobs that we were working.   Ali: So we had done that basic research, we're starting to talk about finance more, but not really to be honest and then the year of 2018, the year of our wedding, Josh gets laid off from what he thought was his forever employer and we now went from like a pretty modest two income household to a one income household and we realized just how shaky things got in a moment and it was completely out of our control our lives were in someone else's control. So that was really terrifying. But having that crisis is Josh alluded to earlier is really what kind of put us in the corner and was like you're either going to figure this out sink or swim,   Michael: So, what did you do? You clearly are swimming…   Josh: Yeah. Luckily, and I had no idea like I was getting fired. In hindsight, I was like, yeah, I kind of make sense. But like we had started, I had started, it was like you have debt. So I went to the internet, I was like, Well, how not to have debt and so I first discovered the Dave Ramsey methodology, if you will and I was like, nice, we're just going to sell everything and we're going to eat rice and beans and that's what we're going to do and that lasted probably about like two months, and we were even more burned out. So I was like, so I went back to the internet and I said, okay, what's a better way to not have debt and just through just through the act of that, I started to kind of learning a little bit more personal finance. But that was actually when I stumbled upon biggerpockets.com. I had never envisioned us being like real estate investors or anything and that's when I discovered that and then the concept of house hacking, which was, you know, I didn't know a lot about real estate, but I was like, well, that seems like pretty interesting. Like, we could buy a house that has another house, and that person's will pay for most of ours and we'll save a lot of money, like it seemed really simple and so that kind of led us get down that path of beginning to plan for real estate.   Michael: Love it and so at the time, did you own your house? Were you renting walk us through kind of what that looked like?   Ali: So we were renting we were renting, I'm putting it in air quotes, a luxury one bedroom apartment, there was probably more than we realistically could afford at the time. But like, that's what you do, you get a nice place to live. So that's where we were living we were paying about, I would say like 13 a month before utilities or any of that type of stuff and Josh proposes let's house hack, let's buy a duplex and be landlords and I thought he had lost his mind. I, you know, like, I thought it was a really horrible idea, a really crazy idea and neither of us are handy. Neither of us have backgrounds in real estate or anything like that. So it felt like this really, really scary and radical idea.   Michael: Awesome and so what did you do next? Did you end up buying the duplex or did you get Josh's?   Josh: Oh, yes, a lot. Well, so yeah, so I got fired in January of 18 and then I was like, well, we still have a wedding to plan for. So I started driving for Uber and when I wasn't transporting people, but even like, sometimes when I was transporting people, I was just listening to BiggerPockets Podcast and I was just like, I don't know how we're going to buy real estate. But like, what we're doing right now definitely doesn't work. So we're going to find out a way so I was just like studying as much as I could from podcasts.   Ali: So, the Cliff's Notes version is we were relentlessly looking at real estate. We went to showings all the time, we drove for dollars, every spare moment, to really better understand opportunities in our area in terms of houses. We settled on like a city and we started putting in offers, and this was probably like, two months before our wedding and we were getting out there left and right. We were tiny fish in a big ocean and we weren't like sexy buyers. We were like, we have a 5% conventional loan and we need Max seller concessions because we're broke and we're scraping together every dollar we have. So we really worked hard to try to get that first deal. I think a month before the wedding, we press pause, because I'm like there's not going to be a wedding if we keep looking for properties right now. But then we skip the honeymoon and we ended up finding a duplex a few weeks after our wedding that we put an offer on it got accepted and the rest is history.   Michael: Oh my gosh. So did you skip the honeymoon because of finances or because you didn't want to leave to go then not be able to search properties in person?   Ali: I think a little bit of both but I think the real reality was we didn't have a lot of money. We were like neither of us ever made more than 50,000 in our career and at that time, we were making far less. So we were very intentional with the amount of money that we had and how we could best use it. So we could spend a few 1000 on a honeymoon or we could scrape together a few 1000 and buy a duplex that would allow us to reduce our cost of living, thus pay off our debt more expeditiously.   Michael: I love it, so walk us through the numbers on that first duplex. What did you buy it for? What was your housing payment and then what is it rent for?   Josh: Yeah, so and this was nice, too. This was our first off market deal. So we didn't have any other competition besides us and we were super flexible with the sellers. They needed a really long closing period and so we were happy to accommodate but the duplex was 158,000 It was 5% down. So with closing costs all in it was $14,200. We had $3,000 concessions at closing to help offset some of that and the total monthly payment on that was 13-180 and the unit we were moving into was really nice. There's a big three bedroom, one bath and there was a guy living upstairs in the second unit paying 725 a month and we moved in like the week of Christmas, I think it was 2018.   Michael: And so that you still have that tenant up there paying 725?   Ali: So he actually left in that unit was far below market, he was a great tenant, but he got married and decided to move in with his partner, which is understandable. But when he left, we did some like modest upgrades on the apartment and ended up raising the rent to like 925. So then our cost of living went down even more, which was really cool. So we've had a really great experience with that we lived in that unit for about a year and a half and then Josh got the idea what why don't we house hack again Ali, which I again, thought he was crazy but somehow, you know, we decided to do this and we ended up finding another off market duplex only six houses down from the first one, which was really convenient.   Josh: Because it was like really inspiring to see we went from like $1,300 a month, I think down to like little over 400 and neither one of us, were making much money. So that was like a huge win for us and it was really inspiring to see while we were saving money every single month, we have gotten rid of car payments. Now we're paying off a lot big chunks of student loans all throughout 2019 plus also like learning real estate, learning how to be a landlord, etc. So, but we were still paying like $400 a month. And I was like, Well, if we do it again, we'll be paying $0 a month. So we went into 2020 light guns ablaze, and we're gonna buy another deal and then obviously, like the world shut down and so it wasn't really until maybe like, may or may be the end of April that I was like, you know, I think I think it's going to be all right, we should still try to push forward with that and I'm always networking, whether it's in person or social media, we found another investor on our street who explained to us that he had a problem and he needed to sell a property and we were like, We'll buy your property, just don't tell anybody else about it and we closed on that, I think September of 2020 and moved in a week later.   Michael: Oh my gosh. Okay and so give us the numbers on that one and then let us know to what you rented out your unit for that you had moved out of?   Josh: Yeah, so that one was even better. So that was 150,000 but it appraised for 168. So we had some really nice equity walking in, we use three and a half percent down FHA all in was $13,200 and so we moved into the downstairs unit, the upstairs was already rented for I think 975 and then we rented our former unit out for 1350, which was pretty cool, because the mortgage was like 1380.   Ali: So that one unit essentially like covered the mortgage. So the numbers on that were really awesome and by moving into the second one, you know, the cash flow from property one covered our cost of living for property to so we were essentially living for free, which was our goal when we first started this so that was a big milestone for us.   Michael: Oh, that is amazing. Well, I love it. I love in the first one that you're caught your tenants rent didn't cover your entire mortgage payment because as you can probably attest to end the house hacking community. Everyone says, oh, you gotta cover you live for free, cover all your expenses and if you like, that doesn't always work out. That's not always possible in some markets. So what was that like for you guys? Knowing that, hey, we still have a housing expense, and we're house hacking. Did you ever feel like you were doing it wrong?   Ali: I love that you're saying this because this was such a sticking point for us because I think in the community that is such a thing, like live for free or bust and that was definitely something that Josh often said, like, we're living for free. Like that's what the people do on bigger pockets and we're gonna do it too.   Michael: That's what the internet says…   Ali: That's what the internet told me like success means. So the problem was when we went to the house isn't toward them, those houses, we live for free, and there were murders on that street. We, you know, we met prospective tenants and they were slamming doors in our face and I remember our real estate agent at the time was like, do you want to collect rent from that person? I was like, No, I really do not want to collect rent from that person. So I think it is, especially with house hack important to think what is my quality of life going to be because real estate investing inherently makes your life more complicated. There's more moving pieces, there's more challenges. So do you want to live in a place where you don't feel safe and you're miserable and your life is more complicated? I think that is how new investors be Come no longer investors very quickly. So, you know, in our relationship, Josh is 100% the numbers guy and make sure it works but for me, it was more of that qualitative of like quality of life and making sure it was realistic for us and I think we found a nice compromise.   Michael: Yeah, I think that makes a ton of sense and that's so often what I've seen with couples who are doing similar things is there's one person that does one half of the stuff and then the other couple, the other person does the other half of the stuff and then together, you kind of make it work. So that brings up a really interesting point, you too is, you said that before your wedding or as you're gearing up to get married, you really hadn't talked a whole lot about finances. So talk to us talk to me a little bit about what that conversation looks like what you've seen go, well, let's have a little therapy session here for a minute for all of our listeners, like, what did you know what worked for you too and what would you absolutely avoid going if you had to do it all over again.   Josh: So I'll start off with what didn't work. I became obsessed with financial independence and real estate nd I had all of the Excel sheets and analytics and cash on cash, YouTube videos, Baba, I put them all into it was like a board, like a board meeting, like I had it all set up, Ali is going to come home and wait till she sees these analytics, right? It could have blown away because bar graph literally instantly dead in the water and I was like, but wait a minute, like I like look at that, look, we're gonna get paid to live for free, and we're gonna cash out cash, excellent and she was like, I don't care. I made the mistake of trying to speak my language and not her language and when I went back to the internet, like how to get my partner on board. So often the message was like, stop trying to project what excites you onto your partner learn what excites them and then kind of back your way into that and so instead of going at Ali with, you know, Excel sheets and stuff like that, I remember, we sat there and we wrote down, like, what are the things that make us happiest? Like, what's your perfect day look like and so we wrote all that kind of stuff down and it was like, you know, it's traveling and spending time with family and stuff like that and when I stopped looking at the numbers and started showing, well, if we do this, this is just a bridge, like real estate isn't the end destination, it's the bridge to more freedom to do the things that we both have documented, we really enjoy more and when she realized that, like if we do this, yeah, it'd be hard sometimes. But you know, when we want to have a family will have more flexibility, she was in a really stressful job, it would give her greater optionality very close with family, we could spend more time with family and when I started speaking more like Ali's language, if you will, that's when I saw a lot of progress.   Ali: Um, I would say for me to like being the partner on the other side, where it wasn't my idea, it wasn't necessarily something I would have wanted to do. I felt really resentful of Josh, I felt like he was like doing something to me. Like, I felt like I had someone wanting to take our life in a direction that we never talked about. I didn't want I had no desire for and it felt like really like a lack of control and I didn't like that feeling and I think that that could very easily cause like a schism in a relationship where it's either like, we do this together, or we go in opposite directions and I, I like remember the words of Josh. So clearly, like, I'm not doing this, like our debt is doing this, our financial situation is doing this and I think when we made it less about us and more about like our situation, it really helped bring us together, because the debt was the problem. The low incomes was the problem, the working 30 years at a job we hated was the problem. So when we kind of approached it, it's like we're a team. So it's not like Josh holding you back from the nice single family home that I want. It's like the reality of our situation and I think we live in a society of such like, I want I want I want and I'm gonna get it right away, that the idea of delaying that sucks. People don't know how to do that, like Josh wanted to know how to get on the same page as a spouse and he could just Google it in two seconds, right because like, that's the world we live in and there's benefit to that but the reality was like it was hard to kind of have our cereal before we had our marshmallows, but we figured out a way to do it together.   Michael: That is so, so good and so bring us up to speed on what's going on today. Are you still in that second house hack? Are you investing in pure investment properties, what's going on?   Josh: Yeah, a little bit of both. So property one is now rented for just under 2450. So it's 1000 up top and then 1425 and both are still below market quite a bit but we just we hedge because we realize like stuff shifts and we don't want our rent to be a huge burden on people.   Ali: So, we didn't raise at all during COVID, we actually just raised both units by 75…   Josh: Marginally, so but it's still but it's a nice comfortable cash flow and it's like super low maintenance, which is really nice. We're still living in, we're actually in house hack number two, we've done a bunch of renovations while we're here and then we actually in April, we just bought our first non-house hack off market property using private money, which was really cool. This is our first endeavor into more creative financing. But we just bought that and that we bought for 190,000, we believe it's worth about 230. So we're about to go through the appraisal for the refinance process. But that rents right now on that are kind of low, it's like 2780 but the market rent was a little bit of a buffer is probably about 3000, maybe 3100. So once we get through a refinance, and then kind of depending on where people situations are, will steadily work to get that to market rent or a little bit below.   Michael: Amazing and is that in your local market or is that remote?   Ali: Yeah, I mean, everything that we've purchased so far has been within like a walking distance, or like a less than 10 minute radius and we do that really intentionally just because we self-manage our properties and we really, we live in the city that we invest in, and we love this city. So for us, it's really like taking these 100 plus year old homes, giving them some TLC and providing like safe and affordable housing to members of our community. That's not to say that we would not want a vacation home in another area that we could go to sometimes and rent out the rest of the year but we're taking it one step at a time…   Josh: Like buying super local has actually become quite the calling card for us and I mean, we've bought deals now from sellers who had other offers, even though they were off market, but sometimes they were out of town and just being locals and kind of spotlighting the work we do in the community was like a nice selling point for us and so they chose to work with us, even though maybe someone from somewhere else could offer them way more. They wanted to work with someone local.   Michael: That's great, that's great. and you mentioned at the beginning of the show that you're about 50% of the way to financial independence. So what does the rest of the roadmap look like for you too?   Josh: Yeah, so right now it's we don't want like this big portfolio per se, just for based on our goals and kind of our lifestyle. It's kind of like you can either have like a lifestyle, business or business can become your life and so for us, we want to be this small but mighty portfolio owner, so that looks like probably about 14 units total, maybe 16 and then if we shaved off two of those mortgages. For us, that's like more than enough cash flow to cover our needs and then when we're not investing in real estate, we also invest in like Roth IRAs, taxable brokerages. So basically, it'll be like a taxable brokerage. Probably like three more rental properties multifamily pay off two of those loans, you know, and then at that point, it's kind of like if we want to continue to, to work on projects that really excited us we can but it won't be out of obligation.   Ali: And like I see us really resonating with the first half of the fire movement like the financial independence but like the retire early piece kind of has like a little asterisk on it for us. I mean, when we first started all of this, we were both 40 hour week employees a W two jobs and this past November, I was able to leave a really toxic work situation. I was a school social worker schools as many industries were, were very tough during COVID and it just wasn't really serving my physical or my mental health and we were able to make the plunge but like me leaving so now I work two days a week in a school in order to maintain health benefits and Josh was working 40 hours a week and now you're coasting in the 20 hour range. So I think for us like that number hopefully goes lower. We build up our business through the FI couple we're looking to launch a podcast and some other fun stuff. So I think that will be really cool but really just more control over the work that we do and our time…   Michael: So I think you might agree that in the financial independence community the fire community big a lot of podcasts, Bigger Pockets, folks talk about the wins the highlights the successes, look at my Lamborghini, I just gotta look at this rent check. I just cash, no one talks about like the things that suck the things that are hard and they kind of dark times the underbelly, if you will. So can you give us an insight, maybe share a story about when were things crummy when did things suck for you too?   Josh: So I'll give you two I'll give you like a really specific one and then kind of like a broad overarching one. So a very specific one was the property the second property that we bought We thought it was in a lot better condition than it was and when we moved in quickly, we realized we had grossly underestimated the amount of work that needed to get done and we it was during like a really cold part of the season up here and so we ended up having like, no floors for a while, we had to have a lot of windows replaced, we basically took all of our belongings, and we lived in like a small bedroom for, I don't know, it was like two weeks, maybe three weeks, and like, we had to like tiptoe on the floor, because there was like nails and glass and stuff like that and that was just, it was a lot harder than I think we anticipated and I think a lot of shows, you might see like, quick boom before and after. Well, that couple of weeks in between was actually pretty brutal and it was very challenging for us and then I would say, on the broad spectrum, like, it can be really isolating, because the lifestyle that we're living, like, we talk about it a lot like, in real life, nobody we actually know for the most part is like living or thinking the way we are or do and we can kind of become like the weirdos and sometimes that can strain, like friendships or relationships and people kind of look at you a little bit different and people that you like love or grew up with or like you're different now and all you care about is money and, and we could try to tell them like our philosophy and the mindset behind FI until we're blue in the face to all you're gonna think about was like you just care about money. So I think it can also like really strain some relationships.   Ali: I think like, this stuff like comes in waves, like there are times when we feel like we're doing amazing, and everything's kind of running smoothly, like a well-oiled machine and then like chaos ensues and it's like one thing after another and again, like life is not an easy experience like as humans, we have a lot of complex things that go on in the day to day and I think that sometimes it's hard, like I think that we really glamorize financial independence and real estate investing, like it's this very sexy thing and once you achieve that, like your time freedom, your location independent, like all these cool things, but we often have the conversation of like, I feel like I'm complicating the hell out of my life right now. Like, we're like, wow, like if we had just a regular W two job like that seems kind of sexy now like with like, with life be easier, then yeah, rental property, that rental property but it's like reminding ourselves that like we are adding more spinning plates to our life, to ultimately have the freedom to have more choice and for me, like, our life gets crazy now in ways that I couldn't have imagined. But it's a good crazy that we picked versus a crazy, we don't have a choice over and someone else is dictating what we do on a day to day. So it's kind of just like, you know, you're gonna hit different challenges throughout and what feels the best for you?   Michael: Yeah, yeah, no, I think that makes a ton of sense and I just kind of want to highlight and tip my hat to you both because I posted it's funny we were chatting about before he record about different tweets, we were thinking about posting or Twitter, you know, tweets we've made in the past and my tweet this morning was about financial independence, thinking that I was going to be interviewing YouTube later in the day and I said, people who are serious about financial independence will do whatever it takes to get it done. Those who don't or those who aren't serious complaint and like you were working a W two job, Josh that you went and got a degree for and then you went and drove Uber, because that's what you had to do to make it work. So and it gets do you want to share anything with folks out there that are saying, oh, well, I can't do it because or this isn't gonna work for me. insert blank here. What do you have to share with those folks?   Ali: I just want to say to though, I think you can do both, I'm really good at complaining often and still doing it and I think you need to give yourself space for those feelings because I think sometimes it's like, just get over it and do it, whatever it takes and I think that mentality can be toxic to because you are human and you are allowed to have feelings and sometimes like the whatever it takes, maybe that isn't worth your mental health and your energy and there's another way you could kind of find a solution or maybe it's going to take a little longer but you're going to enjoy the journey a lot more. But yeah, I think so often we meet with people and they're like, I wish we could do what you're doing but and it's a laundry list of excuses and it's like we bought like Junker cars and cash. We're living in an apartment that in my opinion is way too small for the life that we want but we're doing it because it's like these are the things that we know we need to do to get where we want to go. So we have been in constant experiences of making ourselves uncomfortable for the greater good. So to speak and having perspective that, like, our life is really good and these are first world inconveniences, you know,   Josh: It's kind of like, it's like, if you want something you've never had, you have to do something you've never done and I think anyone a little bit today, like if people step into our lives, if you will, through social media, they'll be like, oh, my God, like, it'd be so nice if I could do this or I could have a social media platform, blah, blah and I'm like, yeah, but two years ago, no, this didn't exist. Like we didn't have a social media platform and we were, I was, at one point, I think we kind of had like seven jobs between the two of us and we were just scrapping and scrap and scrap, scrap it and stick exactly right. So it's not, you know, it's definitely doable but I think also, sometimes people they like, it's like zero to 60, right. They're like, I either can do nothing, or I need to do everything and say, well, there's like a lot of wins in between, like now and then but instead of like focusing just on the mountaintop, which I'm like 100% guilty of, and that's where it helps having either like, whether it's like a romantic partner, or a business partner, whomever, like someone who can keep you balanced and grounded because like, sometimes I will have my own little personal pity party and I'm like, oh, my God, we're not here. We haven't done X, Y, and Z and luckily Ali, be like, yeah, but like, here's all the things that we've been done and I'm like, yeah, don't show me that. I just want to look at all the things like we haven't done. So, yeah, perspective is huge.   Michael: Absolutely and I'm right there with you, Josh. I love throwing my pity party for a party of one and I think it's interesting two people are, like envious of the result or not envious of the work you have to do to get there. So I love that you both shared about having that perspective.   Ali: I heard this on a podcast once and I'm super obsessed with it and I feel like it really transformed my perspective because so much of all of this is mindset and she the person on the podcast was talking about like life is 50/ 50 but we often only focus on one half. So people like focus on like, the wins and all of the amazing things, but they're not focusing on the challenge that it took to get there and often I'm focused on like, the uncomfortable and the sacrifice, but I'm not focused on like, where it's going to bring me. So both pieces of that equation are like, so important to really be aware of.   Josh: Last thing I'll share on that. Actually, I posted this earlier, but it is it's like the iceberg analogy, right? Like, people will see the 20%, but they'll never see the 80% but you don't get the 20 without the 80. But a lot of times people that that 80 can be 80 can be really hard. It can be really stressful, but you don't get the results without it.   Michael: Yep, you two this has been so much fun. I really, really appreciate you coming on sharing with our audience and our listeners. If people want to learn more about you reach out, where's the best place for them to do that?   Ali: Absolutely. Yeah, I'm pretty sure that we've locked down the FI couple on every major social media platform that our main platform is Instagram and then Twitter, and we have a website to https://www.theficouple.com/ , so those would be the best ways to connect.   Michael: Amazing. Well, thank you again, and I'm sure we'll be in touch soon. We'll have to have you back on as you progress along your journey.   Okay, everyone, that was our episode a big thank you to Ali and Josh for coming on, and really being vulnerable and kind of opening the vest a little bit and showing us what it's been like for them along the journey to financial independence, wishing them best of luck and can't wait to see where they go from here. As always, if you like the episode, we'd love to hear from you all with ratings and reviews, comments in the feedback section and we look forward to seeing on the next one. Happy investing…

With a passion for researching and sharing the most important facts on real estate and economics, Kathy Fettke is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best-seller, Retire Rich with Rentals, and host of two long-running RealWealth podcasts – “The Real Wealth Show” and “Real Estate News for Investors.” You'll also find her on the recently launched BiggerPockets “On the Market” podcast as one of several co-hosts. Kathy received her BA in Broadcast Communications from San Francisco State University and worked in the newsrooms of CNN, FOX, CTV, and ABC-7. She's the past president of American Women in Radio & Television. She is passionate about learning and sharing that information with the members of RealWealth and her podcast listeners. In today's show, Kathy shares her investment journey, her predictions on where we've been, and where the market is headed. Episode Link: https://realwealth.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Kathy Fettke, who is the co-founder of Real wealth and she's going to be talking to us today about her predictions around where the market is headed, and where we've been. So let's get into it.   Kathy Fettke, how are you? Thanks so much for taking the time.   Kathy: I am doing wonderful, thanks for having me here.   Michael: Oh my gosh, I'm so excited. So we had your husband Rich on a while ago on our podcast and we were asking him about market conditions and forecasting and he goes timeout you got to have my wife on. So for anyone who didn't catch that episode, give us a quick, quick intro background, who you are, where you come from and what it is you're doing in real estate.   Kathy: Yeah, well, Rich, and I founded real wealth, which we really did by accident. It was back in 2003 when he was really more in the motivational world. He was a speaker and had come out with a book called extreme success. He was doing this national book tour, we didn't know anything about real estate, but we house hacked, which wasn't really a term then. But basically, we bought a house it was way too expensive for us. So we rented out rooms and that's how we afford to live there. That's how you summarize that. But other than that, that was our only landlord experience and we didn't we didn't think that we could buy real estate until we were rich. You know, that's oftentimes what people think like, I gotta wait till I am a multimillionaire before I can do that, so he you know, he was building his coaching business, I was a stay at home mom. It was on that. On one of his when he came home from his tour, his media tour, and he noticed a freckle. As you probably saw, he's a redhead. So there's a lot of freckles on that guy but he noticed he was like this one's weird.   So he checked it out and the doctor looked at it did more tests, thought he basically told rich, he had probably six months to live because melanoma was extremely deadly than it probably still is. But they have better things today. But back then it was just like, here's your diagnosis, you got six months. So obviously a massive shocker. Both of us being motivational speakers and coaches were like, no, no, no, I'm not buying this. But I had to figure out the finances and I wanted to take over so that he could you know, if the doctor was right so that he could really enjoy himself for those six months. But really, we both were like No, don't even go there just get better. So that's when I had a weekend radio show in San Francisco that I just did for fun. It was kind of a coaching show is helping people go after their dreams in a in like a 90 day period and, and really create the things that they always wanted, but were afraid to do and all of a sudden, I'm like, I gotta change the show to me figuring out how to make money in 90 days, you know and how do I do that? So I completely changed the focus to wealth building and because it was the San Francisco show, I could interview really high level people like Robert Kiyosaki and that's how I learned real estate investing and that's over time, we built real wealth and we've been helping people, you know, educate people and educate ourselves ever since on how to build wealth through real estate.   Michael: I love that. So you're telling us that you learned real estate investing via hosting your own podcast and interviewing folks that had done it?   Kathy: Oh, yeah and I was such a dummy. I mean, like, literally knew nothing. Nothing. I mean, we were renting out rooms in our home on Craigslist. So like, we understood the dark side of what's doing, right, because of stories there. But no, it wasn't until I just thought I got it. I gotta figure this thing out. I've heard that there's a thing called passive income. I don't know what it is but let's find out and I just started interviewing people but I was lucky enough that because I was so desperate to create money, and I've been a stay at home mom for years. I I'd been in broadcasting and that was my degree. But I didn't want to chase fires and murderers when I was raising young children. So I, I basically was not doing that anymore and, and so and bless. They had strikes all the time where I'd have to march for hours in the middle of the night like that. Anyway, I hadn't been working and I didn't It's hard for women when you're out of the workforce for even a few months, but let alone a few years, kind of don't know how to get back in. So that was the focus is like how do I do this? But one thing I thought, well, I could maybe sell sponsorships. So I just started listening to everybody who was advertising at the time. It was like, oh, wow, there's a lot of people, but advertising mortgages.   So because you know, this was 2003 and that was what it was everybody was wanting a mortgage? Because they were ridiculous. So I went down the phonebook which existed at the time, and called all these one by one and finally I got someone. Well, I finally got someone to agree only because I was so tired of hearing no, I called finally the last person on the list. I was like, I got an offer you can't refuse. I'm looking for a co-host, instead of like an advertiser, and the guy's like, yeah, sounds good. So that's how I got my sponsor, but it ended up being a mortgage broker who I made a co-host and I came home and rich started laughing. He's like, oh, now you have a mortgage show. Like, that's gonna be funny, because you don't even like going to our fight you skip every financial planning meeting we ever have. And because I just really wasn't into it. But this mortgage broker who became my co-host, I thought, you know, how am I going to make this interesting, so rich, and I thought, well, you know, interview his clients, find out what they're doing with these loans. And that's, that was the game changer and again, like, I had no idea what I was talking about but I think that's what made the show interesting is, I would I was in such awe of the things that, that these people were doing, that all my audience was like, also learning along with me, and they were in awe. Because I was interviewing these 30 year old who were retired, you know, it was like, I'm 40 and I'm not retired. So what are you doing and I learned about flipping and I learned about buying hold, and I learned tax benefits and, and, you know, just all the strategies that Pete that at the time, were kind of secret because podcasts didn't exist back then. I'm so aging myself, but you couldn't you couldn't get the information. It was like late night TV or $10,000 boot camps, infomercials. Yeah, so it was like I was opening this secret world of real estate investment and making it public and I'm happy to say I was one of the first it changed my life and it changed the life of 1000s of people who got to listen.   Michael: I love it, I love it a little bit. Kathy, I want to shift gears here in just a minute. But before we do, I mean, you had such an interesting purview into this world of real estate investing. So having interviewed all those folks, and having taught numerous people how to do this, is there a red thread, or kind of key takeaway that you think should be thought should be spoken to would be investors or newer investors as they're just getting started?   Kathy: 100%, I can tell you, for me, I, I had a completely new mindset, because people like me who aren't born wealthy, you know, and, and have parents who work for money, you know, whoever, you know, they, if they're not working, they're not making money that you know, they don't understand investing and assets and cash flow and stuff like that, which is most of the world, right? So if you don't come from that, you don't have it, you don't have the mindset. So interviewing these people who were so different than what I thought rich people were like, and so you can even see it today, people who are angry at those who have there, they're just they feel it's unfair, that that's, that's the mindset I was in and then to actually talk to these people and find out there the most generous people, they have a different way of thinking, they look for opportunity, they look for ways that they can make a difference and making a difference is, you know, you're not going to be in business very long if you're not making a difference. And if you're not helping people, that's the bottom line, you're gonna be out of business unless you're government funded, and you get paid no matter what. But, you know, but you know, in a, in a free market society, it's like, if you're not making a difference in helping people, you're, no one's gonna buy your stuff. So I just really learned that, that these, there was a different mindset. So it had to start there and the way that my mindset changed was just being around people and you hear that a lot you hear, like, if you want to change your mindset, get around people that you want to be like, don't hang around the people you don't want to be like, you know, you become who you hang out with. So for me, just even being on the radio, with these people was enough for me to be exposed to a different way of being so it really begins with mindset,   Michael: Love it and kind of taking that a step further, what's your best advice, or the best way that you've seen people get around some different people that have the things or have accomplished what it is I'm looking to accomplish?   Kathy: You know, today, it's so much easier. There's so many more opportunities. You have podcasts that are free. Again, this didn't exist. There weren't radio shows that talked about, you know, how to build wealth through real estate, you know, and if it was it was probably someone who was trying to sell you something. So today, you have access to so many different podcasts like right now. You have books that are $20 You know, my book retire rich with rentals is 20 bucks, and it's my experience all summed up. There's so many books like that. out there that are cheap. So, you know, learning from those who really technically have nothing to sell you, you know, except a $20 book, you know, that's, that's okay do that real estate conferences Rheas. There are local Rheas everywhere and you have to be careful, because RIAs still have sharks. Even when I started real wealth, I couldn't believe the number of sharks that were out there and I ran into all of them. I'm telling you, like I couldn't. This is the other thing that new investors don't realize is that not everybody's nice and not everybody's telling you the truth. When you're a truth teller, you just assume other people tell you the truth and I can tell you when it comes to financial services, it's like, you know, there's so many people that can lie to your face and I met all of them here as well as smile, and they're so happy and they would come to my real estate group groups, they would come to me, assuming I was naughty, like they were and be like, hey, I got some properties to offload. You know, I'll pay like 10 grand, you know, we're getting them.   This was when the when everything fell apart. He's like, we're buying these things for like, $2,000 in Kansas City, and you can resell them for 20. Like, that's not fair, that like, these are tear downs, you know, but so, and they thought that I would be down for that. So there's, there's still RIAs where there's sharks who got out. So I guess the next step is when it comes to mindset, you've got a next step, educate, educate, educate, because then you can't be ripped off as easily. It's kind of like, I like to describe it, like when I took my family to Costa Rica, and I forgot to do my due diligence in the sense of, I forgot to find out what the exchange rate was and I had my $20 and I wanted an empanada and we were hungry and I handed the $20 and I got some change back and I looked at it, and I didn't know what it was and we walked out and I heard the people laughing. I'm like, oh, I just got ripped off but I don't even know how I don't know. You know, so that's how it is in real estate, if you haven't done your homework, and you haven't read those books and listen to those podcasts and you have learned that it's pretty easy to get ripped off.   Michael: Yep, I love that, I love that. Let's shift gears here, Kathy, because what you're doing right now, in this space is super, super interesting and talking about market trends and forecasts. So give us a little bit of insight, give us a little preview into your world of what that looks like and how you're doing it.   Kathy: Sure, well, it was in 2005. I'll just kind of go back again, where I was able to get people like Robert Kiyosaki on my show and he was the first one who was counterintuitive and that taught me so much because he was saying things that nobody else was saying, and no headline was saying, at the time, like what oh, like at the time, the, the main economist for the National Association of realtors had just come out with a book in 2006. That said, you know, I can't even remember it. But it was basically like, why this is why there's no housing bubble and why home prices will continue to go up for the rest of the decade and it was like this was the National Association of realtors Chief Economist. So you get Kiyosaki coming on and going, no, no, that's like, the loans are going to reset and they're starting now and by 2007 2008, people won't be able to pay the payment, because it's all adjusting and it was so obvious once I could see the data and that oh, you know, I ended up joining my co-host and becoming a mortgage broker. So I knew how bad the industry was and I knew how full of lies it was I my first loan that I turned in. They the bank came back and said, oh, your client doesn't make enough money and I was like, well, that's too bad. I'll let him know. He doesn't qualify and they said, no, no, we changed his income he qualifies now and I came home and I was like, pocket, I go rich. Is that legal and he goes, no, honey, that's fraud. Don't put your name on that. So I was one of the few mortgage brokers that Dec was didn't want to deal with the consequences of fraud. So I would turn down people and they would just go to the mortgage broker next door. They were Nina loans, no income, no assets. I didn't need anything. Anything, I didn't need to know anything about you and I could give you a $5 million loan. It was crazy. So I knew something was wrong. But so did everybody else but it was it was nobody could see it. So Kiyosaki is going, you know, this isn't going to end well and like yeah, da. So he was explaining that all the markets that really benefited from easy loans and easy lending were California, Nevada, the San states, Arizona, Florida and he said, but there are certain places that haven't abused these loans and Texas was one of those places. Texas wouldn't allow 105% cash out refinance.   Do you know what that is? That's where you would do a refi and get more money back than the value of the house. It's bright, steady. So Texas didn't do that because they'd been through the SNL crisis in the 80s. They weren't going to do that again. So, he was Kiyosaki was explaining in 2005 2006 I've sold everything in California and all the San states and I'm buying in Texas, I'm exchanging everything in Texas, because the fundamentals are there. The jobs are there, the population is growing. But the but the property's cash flow and that was something. As a California girl, I didn't even know the word. I didn't know what cash flow was, except for negative cash flow, that was a thing. I was curious, like, if you invest in California with negative and that was like common. So it was like all positive cash flow. Okay, so rich, and I jumped on a plane, we went to Texas in 2005, we came back with five properties, because back then you could buy as unlimited amount of investment properties, no money down. That's the kind of lending that existed, and no paperwork. So you know, sign on the dotted line. So we came back with five, but we bought, right, we bought, where the growth was headed, where the jobs were, where the freeways were going, and I talked about it on the show.   Next thing, you know, everybody wanted to do what we were doing. So that's, again, how real well start is just helping people buy and these markets. So I knew back then that you have to does like don't pay attention to the headlines pay attention to fundamentals and that's the same thing I'm doing today and this same thing exists today, where the headlines are, are not following data and people are basing their investment on these false headlines. Like even today, I had a little Facebook fight with some people saying, you know, everybody's like housing crash housing crash, and I'm like, where, like, where? Just show me the data…Yeah, I'm really curious to know where this housing crashes and I get crickets, you know, nothing. But that's what people are thinking and I'm okay with that. If, if my competition leaves the market, I'm okay with that. I would love less competition. Go, go away. Let me buy the stuff, you know.   Michael: Yeah, totally, totally. So I mean, I'm hearing the same chatter and seeing the same headlines doom and gloom, bubble housing crash. Talk to us about what you're seeing from a data driven perspective and what kind of your perspective and projections are   Kathy:   Sure, well, let's look at the American home owner versus the American homeowner before the last crash, before the last crash, there was no money down. In fact, you got cash back for buying, you could buy as many as you want. No, no, no paperwork required, right. It was just right. You know, today, it's a very different situation thanks to Dodd Frank changes it you have to put money down. I mean, not necessarily the first time homebuyer can put 3% down, but they still have to qualify with open books. And we all know how hard it is to get a loan and it has been for the past 12 years, so…   Michael: Full cavity search… as your neighbor's mailman, like…   Kathy: It's crazy awful. I'm doing one right now and I hate it. But you know, this is what it's been for 12 years is difficult. So you've got people for the last 12 years that had to qualify, you have the highest FICO is these are people who have proven a history of paying their bills, that was not the case back then it was subprime at, you can have a history of not paying your bills and still get a loan 100% financing, not the case today, you have to show that you pay your bills, and that you put money down and that your income supports the payment and not just that, but that debt to income that you can't have so much debt that you can't pay your home. So, you know, it's not been easy. The people who own homes today qualified, they're locked into low rates. They have the lowest housing cost in history. I might be wrong on that but they have very low housing cost the people who own homes.   So because they're locked into 3% rates, and they qualified and since then their wages have increased. I'm talking about homeowners only now this is not the case for renters. Renters are in a horrible place today. Horror, I've my heart bleeds for renters today because they they're spending most of their paycheck just trying to have a roof above their heads. It's a difficult time. That's why I've been on a mission to tell people buy a house because you can lock in your payment for 30 years and not worry about rent. But unfortunately, there's a lot of people who are unable to do that and that's the story. It's the renters and hopefully, you know, hopefully landlords will be able to provide affordable housing but it's hard you know, it's hard today because we're trying to build affordable housing and how can we do it when lumber went up? 100% or whatever like it's not easy, eight right la Los Angeles. I live in Southern California. I don't know you know that what happened here but la tried to build affordable housing with a grant you know, free government money. Do you know that that the homeless housing that they built cost 800,000 a unit for I kid you not the oh my gosh, housing 800,000 because it's Well, first of all, governments don't tend to know leave it to the efficient sector. Yeah but it's not easy.   So, you know, when you've got a situation now where the Federal Reserve stimulated the housing market when they shouldn't have, they misread even our Federal Reserve that is supposed to be controlling the economy wasn't because they were thinking that during COVID, there would be a slowdown. But of course, when you print 40% of the money that's circulating in two years, there's probably going to be an impact and of course, that impact is inflation and add to it that the Federal Reserve was buying mortgage backed securities to keep interest rates low. So and all this happened when you had the largest demographic ever, of first time homebuyers hitting the market, the millennials, age 28 to 34 biggest, biggest generation ever hitting the homebuyer age and they're very well educated, well paid people, low interest rates, and then add COVID where they could live anywhere. So a recipe for disaster that drove prices up. People think they're going to come crashing down. Tell me why. Tell me why people who are highly paid, qualified for the loan or locked into 3% loans are going to suddenly go, oh, no, rates are up. I'm going it's kind of like that scene and you know, where the roller machine is coming at? Oh, awesome. Yeah, there's no, it's not. That's not happening.   Michael: Yeah, well, that's such a good point because I think I would be remiss if we didn't talk about interest rates going up. But that's so much of one side of the equation we're hearing about, in order for people to buy properties at these higher interest rates, there needs to be inventory to sell. So talk to us about kind of that side of the equation as well.   Kathy: Yeah, no, it's a great point, you know, it kind of economics comes down to supply and demand, always, always, you know, you can, you can have 2% interest rates, but if nobody wants, whatever it is, that's out there, it doesn't matter and that was kind of what happened in in 2010-2011 and 12. You know, interest rates went so low, but no one was buying housing, because they were scared and there was a lot on the market. So a lot of lot of supply, not enough demand, it didn't matter that rates were low, of course, that that turned around, eventually. But here we are, you know, fast forward, this massive demographic of young people that are trying to just have a place to live. You know, this isn't stocks where you just invest, this is like your life. People want shelter. They don't necessarily want to live with mom and dad. They don't want to live in small apartments downtown as they're forming families and there was this crazy headline that millennials weren't going to form families. Well, not at 21 but they're their family forming age now, you know, like, right, right, right, who's gonna buy a house and have babies at 21… I don't know maybe in the Midwest, but not generally, today. So there was just a lot of misinformation. Again, don't trust the headlines, it's be careful about headlines and look at the data. Today we have a situation where building has been difficult and in 2008, 2000 2008 builders got absolutely wiped out and they were in no mood to get started and many couldn't and there wasn't financing for builders.   That's how I got started in syndications because builders came to me and they're like, I can buy land for almost nothing. I can't get money, can you? Can you raise money? I'm like, I don't know. Maybe it turns out I could and so we were able to buy land for almost nothing and you know, buy 4200 lots in Tampa for like 10 cents on the dollar was crazy. It was crazy. But there was no money. So builders just and there was no demand. So why would builders built and that didn't mean that that's applied and really thin out until like 20 I don't know 14 Maybe. So okay, and then being a builder now being someone that boy tough business. You know, that land that we bought in Tampa, we're just now finishing, you know, selling those lots because it takes so long to get infrastructure in place took 10 years to get the roads in and the utilities and stuff. It's not quick, and that's even in Florida and in our other subdivisions. They're all two or three years delayed and that's just us, you know, so think of all the builders out there that either don't have the appetite to do spec housing, they'll build to order basically but and now you know new homes tend to get hit the hardest when rates go up. So builders really aren't in the mood to to build at a time when it's so desperately needed and then add the supply chain issues and the you know, just the blame issues, it's hard to hire anyone and then during COVID, we had to shut down our site, the cities were shut down, we couldn't get permits, we couldn't get approvals and, and then you know, one person gets sick on the job site and you're shut down for two weeks, you come back to work and one other person gets, I mean, it's been hard to bring on new supply at a time when it's so desperately needed. So here we are higher home prices, higher, higher rates, less people able to buy homes, more people forced to rent, and the inventory is not there.   Michael: So you think that there is enough kind of demand pent up there with not nearly enough inventory now or on the horizon, that that demand is going to push through those elevated home prices and interest rates?   Kathy: You know, again, it just depends on the market. The mistake, I think in the headlines is that they keep treating it like it's a national housing market and you and I both know, that's just not the case. It's so market specific. So there are some areas that really boomed because people from the San Francisco Bay area or from New York, got the heck out of town because they could live anywhere and cities are not so exciting when everything shut down. So you have places like Boise that just bubble up but is it a bubble when it's California money moving to a cheap area. For them it's no bubble, you know and it's not like these Californians are gonna go, oh, you know, gosh, prices are stalling. Maybe I should sell it a loss. No, they bought a house in Boise because they want to live there, you know, they want a second home or whatever and it was cheap for them. So but do I see that continuing? Probably not. I think I'm guessing prices have kind of maxed out at Boise but I also don't see a crash. You know, same for Austin, these aren't places I wouldn't necessarily invest. I don't like investing in places that saw 40% growth year after year. You know, like I, I doubt that's going to continue. I want to be in areas where that hasn't happened yet. It's about to happen.   Michael: And so you that's perfect segue into my next question is how do you find the next Boise or the next Austin? What are you looking for and what should our listeners be looking for?   Kathy: Yeah, I mean, it's definitely a changing market and, again, that doesn't mean people aren't going to still be moving to Austin and Austin still looks really cheap for people from New York and San Francisco. So some of these areas where, where there's tech growth and job growth and jobs of the future kind of growth. It's going to continue. I mean, look at Miami, if you asked me if Miami would see the kind of growth it's had, I would have said no way. You know, everybody's afraid. It's got to be underwater. No one seems to care. Miami was the hottest market ever last year in the year that everybody's talking about climate change, I don't get that.   But you know, what you have? Is the financial sector moving there from New York. So, you know, do you want to live in New York City where it's cold and windy in the winter or do you want to live in Miami, like one? That's right, you're moving? Easy, so I wouldn't, I wouldn't buy there but what that tells me is people that are that lived in Miami who are getting priced out, they're gonna move kind of to other parts of Florida, that are cheaper and companies that you know, maybe are concerned about climate change, you're gonna move to parts of Florida, that aren't as risky. Texas, you know, look at Elon Musk, you see, he's part of a trend that's been going on for 10 years of, hey, there's two places that stayed open during the pandemic, Texas and Florida, maybe South Dakota, but no one wants to live there. So it's really Texas in Florida. If you want to have a business that stays open, you're gonna go there, so the businesses are going there and people are following.   Michael: Yeah, that makes total sense and Kathy, where do you go to get your information and to get your data, the raw data, not the politicized headlines, but these are the numbers, I want to use them to then interpret and come to conclusions? Where do you get those from?   Kathy: I just I really just interview people all the time that are in that are either longtime experienced investors and have been through cycles and, and understand fundamentals versus hype and I'm not saying not to be cautious. This is a time to be cautious, because we're in a changing market and we don't know how aggressive the Fed is going to be and we don't we don't know what's hot, what's coming. But the fundamentals work no matter what. So I listen to longtime investors who have been through cycles. I follow the I follow closely the federal reserve and what they're doing. I follow the Treasury, the 10 year treasury and this is you know, this tells me when there's all this concern that interest rates are continued going to continue to rise, the 10 year treasuries retreating and the Fed follows the market and the market is saying, we don't, you know, we don't see that inflation is going to continue forever, or that the markets gonna boom forever and if the markets not booming and there's not rampant inflation forever, you're not going to see interest rates continue to rise. You know, if the 10 year treasury is retreating, that tells you rates are going to come back at some point to, again, my opinion. Right. So, those are some of the things I follow. I follow Housing Wire Logan Mota Shami, I love what he says you see could be controversial, but he's to me, he's been he makes sense and just data I mean, it you just look, all you have to do is search mortgage payments on the Fred I look at that's the Federal Reserve and historical, you know, mortgage payments to income, and its lowest it's been, and then look at jobs. We're still at what 3.6% or something on unemployment, so super lawyers the recession… I usually you don't have a recession when you got jobs like that and continued job growth. You know, we've got job numbers coming out, and we're seeing growth. So I don't know, they got two jobs for every one American who wants them. So how is that a recession?   Michael: Right, right. Yeah, no, I'm with you 100% and Kathy quickly for investors, because we've talked a lot about and focus a lot about homeowners and owner occupants. But for investors who are just getting started, you know, looking at their fellow investors or hearing podcasts, everyone talks about double digit returns for long term buy and hold for cash flowing properties. Should people be adjusting their expectations now, if they're just getting into the game, because prices are higher and because interest rates have also gone up pr do you think rents have kept up with them over time…   Kathy: For us, and I don't know what you guys are seeing, we're seeing cap rates look pretty pathetic honestly, it doesn't look great. So that's a bummer but there's still parts of the country that where you can get pretty good cash flow. They're just not areas that excite me. There, there will always be linear markets, markets that kind of just are there, and you can cash flow in those markets, but you probably won't see appreciation and they haven't even appreciated in this crazy bull run that we've had. So yeah, if something goes wrong, you know, your roof to change your roof, or you know, and I own these kind of properties. You have a plumbing issue, man, there goes your yours cashflow. So, you know, I like cash flow, but I would rather be in areas that are experiencing growth and in those markets, the cashflow is just not great. So I've been telling people, if you're you know, if you're it depends on what you're trying to do and if you're trying to create a retirement for yourself, and you're not needing the cash flow right now, don't worry about it, think about the future and ask yourself, where do I think this property will be 10 years from now, maybe 20 years from now…You know, that's what matters more, because you can make cash flow today, you know, if you're young get a get a job, you know, that should be your cash flow. You're here to give your gift to the world.   We don't have an economy if people aren't working and contributing, you know, you were not really meant to come here and retire at 30. I don't think you know, right. So if your job your cash flow and have that job is something that you're great at and you love to do and contributes to society, and have your real estate be what happens when you're you don't want to work anymore and maybe that's 40, maybe that's 50, it shouldn't be 30 if it is good for you. But you know, I look at it, like buy something that is going to hold up in the long run and be in an area where there's growth. Because my experience has been that's where the big bucks are made. We had a single family rental fund that we just closed out. I know you guys, you do lots of funds and what we found in our fund, we bought properties and growth markets and then we bought some cash flow markets to kind of offset and that's how we've always promoted things is like hey get your cash flow properties and get your not so cashflow but growth properties and you know, balances. What we found is that the cash flow properties ended up with like a 8% return or so and the growth properties were like 40% like there was no comparison between the two. So for the long term, you know, get into the hot markets where people want to live and where the where the demographics are moving to and don't worry so much. I mean, obviously the cash flow should cover your expenses. But it's the returns have definitely gone down but that's not preventing me from buying in those areas because you're right, what was it was such a limited supply of inventory. When you're in markets where people are moving to, you're going to see rents go up over time. So never judge a property on the first year of the performer. Don't do that have a five year or a 10 year or a 20 year pro forma, because the first year is always going to be the worst and you know, because you're paying closing costs and, and your rents are, you know what they are that year…   Michael: But you're finding stuff you missed in the inspection and…   Kathy: All of that… So, but year two, year three or four, just like with apartments, you don't buy an apartment based on your first year. You know, you buy it based on what it's going to do for you. You know, if you're gonna buy an old car, you're gonna you're getting an old car, if you're gonna buy a new car. I mean, I, you shouldn't really compare real estate to cars but I gotta tell you this time, it kind of make sense, rich, and I both own Tesla's that we bought Rich's early adopter. So he bought the first ones. They're worth, like $10,000, more than we paid years ago, the value has gone up on our tests, as I think that's funny, you know, usually, values go down, because of lack of supply, they can't get batteries and who wouldn't want a battery operated car?   Michael: You know, it's like 615...   Kathy: Yeah, that's right… So that's driving prices up. It's the same thing with real estate. You know, people want a place to live, and they want to lock in their rate, and they're going to lock it in and anyway, it's the same and it's the same as an investor, you're buying in an area where people are moving to you are locking into a rate if there's not enough supply, for all the people moving in, you're gonna see rents go up over time.   Michael: That makes total sense. Kathy, this has been so eye opening, super, super fun. If people want to learn more about you reach out to you learn more about your fund, where's the best place to do that?   Kathy: You can go to realwealth.com and join it's free and you get access to lots of free information and data and then the real wealth show is my podcast and I interviewed lots of economists there. So that's helpful in trying to sort out what's really going on out there.   Michael: Amazing, amazing. Well, thank you again for coming on. Definitely look forward to being in touch and we'll talk soon.   Kathy: Awesome, thanks for having me.   Michael: Thanks!   All right, everyone. That was our episode a big big, big thank you to Kathy for coming on. Super insightful, really, really informative and I love that way to be data driven and not get swept away by the headlines. As always, if you'd like the episode, we'd love to hear from you with a rating or review wherever it is you get your podcasts and we look forward to the next one. Happy investing…

Isabelle Guarino-Smith, the CEO of RAL (Residential Assisted Living Academy). She has spoken across the country and has been featured in magazines & articles nationally. She was named both “Future Leader” in the Senior Housing industry and “Top Senior Housing Influencer” under 30. Isabelle is a sought-after coach and trainer for all things "RAL"! Isabelle's goal is to carry on her father's legacy by training investors & entrepreneurs how to... "Do Good & Do Well". In today's show, Isabelle shares her investment story and the many benefits of investing in residential assisted living. Episode Link: https://residentialassistedlivingacademy.com/ --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Isabelle Guarino-Smith, and she's going to be talking to us today about all of the things we need to know and be aware of if we're going to get started investing in the residential assisted living space. So let's get into it.   Isabelle, welcome to the podcast. Thank you so much for taking the time to hang out with me. I appreciate you coming on.   Isabelle: Of course, happy to be here. Thanks for having me.   Michael: Oh, it's my pleasure and I'm super excited to chat with you today because we're talking about residential assisted living, which is a newer topic for the remote real estate investor. But before we get into that, give us a quick insight who you are, where you come from, and what is it you're doing in real estate today?   Isabelle: Yeah, I'm the CEO of residential assisted living Academy. We basically teach and train people all across the country how to own and operate their very own residential assisted living homes. We've been in the industry for now, this is our 10th year, we own and operate three care homes ourselves out of Phoenix, Arizona and I say we because it's a family business, I work with all my siblings, most of their partners, so I love that aspect, too…   Michael: So amazing and so you are teaching people how to own and operate versus residential assisted living facilities that is so interesting. So why are you I mean, why residences living? Why, what got you involved in it to begin with?   Isabelle: Yeah, so we actually got involved because my grandmother fell and broke her hip and the doctor called and it's like, she can't go home alone. She needs 24/7 care, help with activities of daily living? She was in upstate New York, and we were in Arizona, and it's like, okay, what are we gonna do? You know, and so a lot of families find themselves in a situation like this, where all of a sudden, poof, a loved one needs help and it's like, are you gonna quit your job and take care of them 24/7? Are you gonna give them in home care, which is insanely expensive or are you going to put them into a…   Michael: Dreaded H word?   Isabelle: Right, the H word, you're like, oh, no. So we were faced with that dilemma. We searched and hunted for like a place we even felt competent or comfortable with up there for her and found nothing that we liked, we were just grossed out of a lot of the options, and came back to Arizona, kind of found a residential assisted living home here. My dad was always a real estate investor. So he talked with the business owner and just asked her like, hey, would you be willing to sell and she's like, yeah, bought the real estate, bought the business had no idea what we were getting into, but got into it, so she could live there for free and he's like, all figured out how to run the business and over the course of the next couple years, my whole family jumped in got involved was like, We love this industry because not only is there great cash flow, but you're offering an incredible opportunity to like the community, the families, you're providing jobs, it was just so impactful and it was like, man, this feels so much better than so many other real estate investment opportunities.   Michael: I love it. It's kind of like the parents that have their kid go to school, and then they buy him a house so they could live rent free and end up becoming landlords like, oh, this is kind of cool. Yeah. Oh, that's awesome. So tell us what kind of services should someone's thinking about getting involved in the industry? Yeah, I'll take I'll use myself as an example. Like, I have no idea how the medical industry works. I just know there's a ton of red tape and dealing with medical insurance companies is a nightmare and a half. So do I need to become a medical expert as someone that wants to get involved in this industry?   Isabelle: Great question and the answer is no. We are real estate investors, I have zero medical background. I am not a caregiver by nature. If I was I probably would have taken care of my grandmother, you know, so? Absolutely not what we teach is how to own the real estate and own the business, you're still going to hire a licensed administrator who's going to run all of the day to day and they're going to hire the licensed caregivers who are going to care for the seniors. So you're really running the business in a way that you're hands off. I visit the home once every other month and talk on the phone with my manager like once a week maybe so we're definitely teaching how to do it as passively as possible.   Michael: Okay, okay. Love it and can you give us an idea let's talk numbers because people I think love numbers they can wrap their head or round numbers, let's dig in. So it sounds expensive. But just from what I've heard about how much people are paying to stay in these types of facilities, so give us an idea. If someone is just getting started, wants to wants to get involved, but doesn't have a several million dollars, you just tell us what some of the numbers look like from a purchasing standpoint, from a revenue standpoint, expense perspective.   Isabelle: So I always say it depends what route you want to take to get involved, right. Some of our students like in the Midwest, they want to buy land and build custom homes from the ground up, there's still land to buy out there and so they'll, they'll do that. So that's obviously the cost of the land and then building it that could take anywhere from a year to two years and be pretty expensive. But then the home is perfectly suitable and custom done and yeah, pretty those homes that I've been into are like incredible, they're so gorgeous. Another way you can get involved is buying a single family home and converting it to become an assisted living home. So that might be adding on square footage, more bedrooms, bathrooms, or it might be ramps, guardrails, light minor renovations, it just depends on how the home started. I like to say three to 500 square feet per person is comfortable. So if you have 10 residents, minimum 3000 square foot home upwards of 5000 is pretty comfortable for that.   Michael: Okay, that's a great kind of metric to go off of, and then that bed bath count does that play into that as well?   Isabelle: Most seniors are going to want private bedrooms, private bathrooms, but you can get away with like one or two shared options within the home, but as many private privates as you can, is better, the other ways you could get involved is buying an existing one, like I shared with you, we did so you buy the real estate by the business, you're up and running cash flowing day one and then the fourth one is maybe you don't have as much cash and you're going to lease the home, from someone who's retrofitted, got it licensed, it's ready to go and you're going to lease it from them, and just pay them, you know, the lease fee every month, and you're going to run the business and they own the real estate. So that's another way you could get involved but numbers wise cashflow I know you're in California, yeah?   Michael: Yes.   Isabelle: Okay, so California average, the state average is about $5,000 per month per resident is how much it costs to live in an assisted living home right now. But San Francisco's average is closer to like 6800 per month per person and that's for an average home and I told you, my grandmother, those average homes were yucky. I didn't want my goldfish there. Let your mother so let's say most of these homes that we're teaching our students do, they're more upscale, they're like luxury. They're beautiful homes. So let's say you have six residents there in California, and they're all paying $8,000 a month to live in your home. This is not unheard of, this happens all the time. That's 48 coming in each month, right? 48,000 but let's minus 15,000 for a mortgage or lease because you're in San Fran, it's expensive. Yeah, so 15,000 can get you a pretty nice home that could house six people comfortably right? Minus about 20,000 in your expenses, that's including your staff, including, you know, everything else that you need insurance activities, food, cable, everything, that's still leaving you with $13,000 of monthly net on that home. So it's very, very lucrative and that's what just six residents, every state varies between six and 16 on your maximum amount allowed, so if you get hired…   Michael: Oh my gosh, wow… But I'm like, yeah, for those that watching, I gotta pick my jaw up off the floor, because I've just gasping here. So it's about talk to us about like, you mentioned, you'd hire that third party licensed person that would then administrator, thank you, and then they go hire all the staff. So can you I mean, how do you find these people? Do you just like indeed.com or monster.com, third party administrator for RLS?   Isabelle: Yeah, you can definitely use job search engines, you can honestly go to licensing schools. So there's like caregiving, schools and administrative schools and you can get a fresh list of graduates. You can also just talk to other homeowners in the area and say like, Hey, is there anyone you know, looking for a job or things like that? It's a really tight knit community. So networking is like vital and we have our first manager, we asked around and found a guy, and we loved him. He was amazing, he moved on and started his own business, and we were so happy for him to do that and now we have a wonderful gal who oversees all three of our properties. So once you find a good one, they're really with you for a long time and you can lock them in and just share the vision of what you're looking to create and then they'll get excited about it too because they're really running all the day to day like they feel a lot of ownership for the business. You know um, so it's good to have them like on your team and getting excited and involved in stuff.   Michael: Totally and you can, you would feel confident to go to them saying, hey, I know nothing about this business. But I understand real estate investing, I understand numbers, like you're going to do all of the stuff and I'm going to be like the money and kind of deal structuring person…   Isabelle: You can go to them like that, or I would encourage you to come to our training first to learn everything. So that way, you're not walking in so blindly because you know, a lot of the things that you're going to be asking them to do, like, I want you to have some form of background knowledge just so that you're not coming from, like, you have no idea if they're doing it right or wrong, like you want some knowledge. So we teach and train all those different aspects of it. So at least you have a base knowledge. So when you go to them, you know, what you're looking for, and can kind of help guide them in that way. But you don't need to know the English intricacies of their job at all.   Michael: Okay, all right. Love it and where can people find out about that training?   Isabelle: Yeah, so a great free place to start is RAL101.com. We've got books, webinars, you could have a discovery call with me, I'll chat with you all about it but RAL 101 is a great place to kind of get started.   Michael: Love it, so I've got a million questions, we're gonna try to get through as many as we can on the show. Zoning comes to mind, because this is different than a traditional single family home with a single resident, what are some things that you need to be aware of at a high level because I can imagine market to market is different but what are some things we should be aware of?   Isabelle: It's still zoned residential and I know everyone is like, but you're running a business here and it's like, yeah, but an Airbnb is the same and that's not zoned any differently. So it's still zoned residential. It's still in a residential neighborhood. It's just there's a license on the physical property that it will vary state by state what is required or isn't required. More or less, if you've got to be Tom Cruise to get out of the house that is not SR safe, right? We want to make sure that it's like grandma's. We want to make sure grandma can get in and out nice and safe. You know, the hallways are wide enough the doorways that there's windows and accessible egress, and different things of that nature. But you'll get the home physically licensed through the state and they will approve based on square footage and safety and things of that nature. Occasionally, they'll ask for things like fire suppression system and it to me it's like put it in if that's if that's a requirement. Just do it. Like I you know, keep it safe. We want our grandma's safe.   Michael: Right, right. We want our grandma's and our goldfish is safe. Yeah. So how much if someone's looking at an existing home? I know you mentioned retrofitting is maybe one of the ways someone can get involved in the business. What should people be looking for? I know you mentioned 300 to 500, square foot bed, bath count private, private, what are some other things that people should be keep an eye out for?   Isabelle: Demographics are key in our industry. So you want to make sure that you're in an area where there's a large amount of 50 to 70 year olds, who are upper middle class and typically home owners. That demographic is what we call daughter Judy. That's usually who's paying for mom or dad to live in your home. So she you're marketing to her you want the home close to her because she's usually searching for the home choosing the home paying for the home and coming to visit mom, so she doesn't want to go 45 minutes outside of town, just because it's cheaper. She wants to go five minutes on her way home from work to visit mom or dad. So demographics is vital in our industry and really kind of doing that market research to determine what area and then even deeper like what neighborhood what, what like literal area is she in, you know, and really kind of narrowing down in that way.   Michael: Okay and then what about some property specifics are single level homes better are we want pools to be like Jacuzzis. Talk to us a little bit about some of the physical attributes, physical aspects of the home.   Isabelle: Definitely one story is a lot easier if you do multi-level like we have a guy in Jersey who's got a four story home and he added an elevator, right? We have some people in Texas who have elevators so you can do an elevator. It's just if you can get a single story home, that's obviously better and easier. It's just an extra fee. But some states and cities it's like that's impossible. Like you know, they all have multilevel homes, you're just going to have to deal with it. The three to 500 square feet and then don't think like oh, let's cram all these people in a home like you still want it to be a home. You want a living room, a dining room, a kitchen. If you can add in a library, a movie theater, a hair salon, different amenities like that. That's awesome and that's a major selling feature or factor to you. You want the backyard to maybe have some rose gardens or walking past a swimming pool won't get used very often. but it's a feature and you could you better pointed out to daughter, Judy, when you come to tour Look, grandma can be swimming and enjoying. So there's a lot of different things that they'll use more, and they'll use less but no matter what you're going to market them all and make sure that you're pointing them out and featuring them as amenities if you have it.   Michael: Okay and in terms of the actual care of the individuals, who are the residents? How do you decide or determine how much care to offer or what additional care offerings you have, like, I know there are a specific system living locations for like memory care, or for then different needs. So how do you determine what yours looks like?   Isabelle: So when someone comes to tour the home, you'll do? Well, you won't, the administrator will do an assessment with that senior to determine their level of care. So are they awake at night? Are they a two person assist, right, do they need help walking or is it just they forget their medication sometimes or like you mentioned? Is it a memory care thing, like, are they physically fine, but they're not mentally there anymore. So there's different varying levels of that they'll do that assessment with the senior in the family, when they first come into the home to make sure that we can accommodate them that we're able to do this, you know, and that it is going to be a good fit for them because you don't want a house full of people who have a super high level of care, that's going to be tough on your staff, right, you want to make sure that if you have one or two people who are super high, maybe everybody else has kind of less level of care. as they age and live in the home, their level of care will change and it will, you know, go up and down depending on all sorts of things. So you'll want to redo those assessments with the family and if anything has drastically changed, their rate to live in the home may also change because the level of care and then the type of physical bedroom that they are going to be in Is it a private, private, private, shared, shared, that's going to determine their rate to live in the home.   So you're going to want to be doing those assessments with the senior maybe every six months or something. There's usually doctors who can come to the house who can help do an assessment with you and kind of determine you know if it's a good fit, but we don't want to be on nursing home level doctors IVs gurneys. No, you can't we that's legally you shouldn't be doing that. That's not what you're licensed for, you can get licensed for memory care and we have a lot of students who have memory care homes who focus on those with Alzheimer's or dementia and those residents actually charge you charge more if you're a memory care home about 500 to $1,500 per month more, if that's how you're licensed because the home has to have different physical requirements like locks and things of that nature and the caregivers have to have an extra license level. So because of those things, it actually costs more to live in a memory care home. So a lot of our students like to go that route.   Michael: Okay, and that makes total sense and you touched on it, but I just want to circle back to it, that at what point does your licensure stop and say ABA level of care does it need to be hey, you now need to go do something additional.   Isabelle: It's really like there's only two way people leave the house they pass on you know to the other life or they go to a nursing home. So once you need doctors IVs gurneys, you know, you're hooked up that we can't accommodate that anymore. So basically, once something like that happens, where it's a true like medical need, where they need to be in a hospital, we can't help that anymore.   Michael: Got it and as far as like day to day stuff, I know the administrator is going to be taking care of a lot of this but are we providing three meals a day activities, like what is the day to day look like? Are people free to come and go as they choose?   Isabelle: Definitely three meals a day snacks on tap whatever they want to need, right? They can pull up to the little fridge and get whatever they want. It's not like a big facility where it's like lunchtimes at noon and it's like, no, if you're not hungry, you're not hungry. We'll feed you when we want to feed you and when a new resident comes in, we always ask them what's your favorite food and we'll add it to the menu, you know…   Michael: Like a tech startup?   Isabelle: Yeah, beer on tap perfect.   Michael: Happy hours.   Isabelle: Yeah. No, we do, we like to have fun with them and we like to let them enjoy. Especially food so important for seniors when your health is like taken from you. If you've ever had a health scare or family member has a health scare, it's like, that's all you think about like forget what you're wearing that day or what you're driving, it's like, oh my gosh, that's all consuming and that's their lives, you know, like it's painful for them to walk and, you know, they're hurting and whatever and so, like food, that's such a simple thing that makes you so happy when it tastes delicious and it looks beautiful and it's really important to have great food in the homes and whatever food they want and need. Activities wise, we do have activities that come to the home, we've got pet therapy, SR yoga, music therapy, we do all sorts of fun stuff in there, just contractors who will come and do a little, you know, class or interaction with the with the residents and it's really cute and fun and, and I love that.   Michael: I've man, I love it too. That's great. If someone is listening and thinking that these types of homes are a great fit for maybe someone in their family, or maybe for them as an individual, can you walk us through what the payment looks like? So IE is their insurance? Can this be built through insurance.   Isabelle: So about 10% of the population has long term care insurance, so not many people, but if you do have it, they will pretty much take care of your family to live in a home like this, which is excellent. That means the family or you don't have to pay anything. So if you don't have long term care insurance, get it because we're all going to need it. The only other ways really that people pay for these homes is if you served in a time of war, you might have VA benefits. If you have Medicare Medicaid, but they don't pay very much about $1,800 a month, but it might help supplement and then cash IRAs investments, paying off their needle selling their home and using that money and letting their kids figure it out a lot of people rely on their kids and it's God Children.   Michael: Daughter Judy…   Isabelle: Yeah, daughter, Judy.   Michael: Yeah. Okay, interesting, interesting and from a kind of, again, again, kind of getting back to the numbers and how to physically do these deals, and I'm sure you cover it in your academy, but we'd love to get a little bit of a preview or like, can you go to a bank and say, hey, bank, I'm gonna buy this property. Oh, and by the way, I'm not going to put a traditional long term tenant in place, I'm going to put in five tenants in place, and I'd be paying 1000, they're paying five grand each, like, how does that work?   Isabelle: Because the will first it's going to be like, you know, when you're purchasing a home, it's like personal secondary investments. So you're purchasing onto that investment category. So they know that you're not going to be living in it as your primary, you know, house, which is fine and that's one way to get the loan. A lot of people use different ways to fund these projects. They'll use SBA loans, some government funding. Sometimes people will use syndication, crowdfunding, private money, hard money, all sorts of different stuff. But you can get a bank loan to get started, you know, in this industry, specifically for the house, that is fine and, and it happens all the time. But the seniors in the home, they're technically not tenants. So like, you don't deal with the eviction moratorium at all. They're residents, and they're signing a residency agreement. So if they're no longer fit, you can kick them out, you have all the right in the world to kick them out. Because it's a very strict document. That's basically saying, we can only provide XYZ and you have to do XYZ and if you don't, it's right there, you're out not that we're kicking a lot of Grammys out…   Michael: To the curb…   Isabelle: I remember when COVID happened and so many of my single family rental friends were like, I'm screwed. Like, no one's paying me. I have all these homes, like I'm just screwed right now and I was like, dang, that sucks. Like, we're not having that issue because I mean, even looking at our world right now, things are getting a little scary, right? Like people are like, where should I invest? What's safe? What's recession resistant? I love Airbnb. But like Airbnb, that's what you do, when money is flowing. The when you're ready to go on that vacation, when you have extra money to spend and you're going to do all this stuff. Soon as money's tight, you're not going on that trip to La Jolla, you're not going to Europe, like you cut back on those things. necessities are always good to invest in because they're not going to go away. No matter if money is high or low. It doesn't affect it. So your mom or dad's care needs and home isn't necessity, you're not going to not pay for that. Like, we don't have that issue and it's pretty wild, because so many people are like, how does the recession affect you guys and it's like, what recession like no one stops paying for their mom or dad like, you just don't, especially at the higher end level. You don't it's pretty incredible.   Michael: Wow, so okay, talk to me again about the residency agreement versus considering them tenants because I want to convert all my tenants over to resident agreements like ASAP. How does that work?   Isabelle: Because we're taking care of them physically because there is that I don't want to say medical but there's that component of care. You're not only paying for the home, you're paying for the care as well. So that's kind of where that falls into place is that it's not that I'm you're just leasing this property from me and you have all these rights and stuff. No, it's the care component combined and that's kind of our saving grace in that regard.   Michael: Got it, got it. Okay…. Yeah. Maybe people like foot massages? I don't know. We'll have to see. We'll take a poll.   Isabelle: You can add in.   Michael: Yeah, exactly. Exactly! Alright, well, Isabel, I mean, we've talked about all of the great things. I think all of the Silver Linings give us what the downsides. What are the risks? What keeps you up at night?   Isabelle: Yeah, I think in any business, always, the difficult thing is people, right, and people across the board from the seniors, families, right, the expectations that they have, and making sure that you're accommodating to them, and things of that nature, all the way down to your staff, making sure that they show up, they're happy, they're enjoying their time, and they're representing you and your brand well, so I think people in any business is always going to be your most difficult or keep you up at night item, right because it's just, it's challenging and if you're anything like me, I'm very type A I like to be controlling, it's hard to run a passive business where somebody else is representing you. You're always worried. Are they representing me, right? Are they saying everything right? Are they doing everything? Right? So I think it's just learning a little bit to like, let go let things happen. You've got your policies in place, you've got your cameras in place, you can check in as much as you want but also, it's just going to drive you crazy. If you do so, just let it go a little bit.   Michael: Yeah, yeah. without violating any like HIPAA laws requirements, can you give us like your most outrageous family interaction story?   Isabelle: Oh, yeah. Okay, we had a family, this is the only family that we've ever asked to, hey, you're gonna have to move the senior, the only family in 10 years and 10 years in three homes. 10 years. That's pretty crazy. So okay, this family, um, they were very boisterous and loud. So they would come over and be like, tell our chefs get out the kitchen, we're cooking, and start cooking their traditional food, and there'd be like 10 or 12 of them and they would just like take over and start cooking and they would curse and they would scream, put on their music and be really loud and we were like, What is going on? Like, no, you're welcome to come over and join us for a meal but like you don't kick out my chef who I'm paying like, and they're like little coke, it's fine. You get out the night off but then they're like cursing and saying like, and it's like that's no that's not happening.   So we had a convo with them, hey, this can't happen anymore. You if you want to bring over food to share with everyone love it, love that. So, you know, then they do that but then it's you know, still the cursing the loud music that this it's disrupting the home and the other residents so we had to have more conversations with them and eventually say, this is no longer the fit for you guys, which sucked because the senior was precious and nothing was wrong with them like and so but it's like, like, that's just not going to fly in our house maybe in another house. That's fine but hear it was not a good fit and yeah, so that's my own. That's my one that experience.   Michael: Wow, that's pretty impressive and 10 years and three homes.   Isabelle: I know. Isn't that crazy?   Michael: That's awesome. Yeah, okay Isabelle. This has been so much fun. Anything else you think folks should be aware of to that should they should be aware of as they're interested in learning more.   Isabelle: I definitely want to share this live where you want invest where makes sense. If your market is not good to invest in right now or ever. Don't worry, you can do this remotely. 31% of RAL owners are remote owners. So it's totally possible and if you're remote, it does keep you more hands off because you can't just run over to the house if something's going on, you know, you're maybe a flight away or whatever and so you have to deal with things on Zoom or on the phone and figure things out that way so it does encourage you to be even more hands off if you are remote so I do I always like to share that especially I know you're in California and it can be a tough market so...   Michael: Preach to sabel I love it. This is the it's the perfect it's the perfect tagline for the real estate investor. Yes, we love it. We love it. If people want to learn more about you or RAL Academy where's the best place for them to do that?   Isabelle: RALacademy.com is a great place to learn more about us and RAL one on one if you want to chat with me more schedule a discovery call and I'd love to chat with you guys.   Michael: Amazing. Well thank you so much for this as well. This was awesome, really appreciate you coming on.   Isabelle: Happy to be here, thanks for having me.   Michael: You got it, take care.   Okay, everyone, that was our show a big thank you to Isabelle coming on super interesting insights and perspective and a very interesting asset class that I'm gonna have to go take a closer look at. As always, if you liked the episode, we'd love to hear from you a rating or review our big helps, and we look forward to seeing the next one. Happy investing…

AJ Osborne is an American entrepreneur, businessman, and investor who owns and manages his self-storage portfolio of over $212 million of assets through his companies Cedar Creek Wealth, Bitterroot Holdings, and Clearwater Benefits. He's the owner and host of the largest self-storage podcast, Self-Storage Income. As an operator and private owner with over 1.2 million square feet of self-storage, he regularly keynotes at national conferences on operations related to investing in, buying, and managing self-storage facilities. AJ specialized in developing, converting, and turning around underperforming facilities with a value-add strategy, and loves to show other entrepreneurs and investors how to focus on technology and self-storage automation. To learn more or to connect with AJ, tune in to today's podcast where he covers mindset shifts that we can be making as investors, as well as what we should be aware of if we're interested in getting into the self-storage industry. Episode Links: https://www.ajosborne.com/ https://www.selfstorageincome.com/ https://www.instagram.com/ajosborne/?hl=en --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by AJ Osborne, who is a maniac in the self-storage industry, absolutely killing it and he's going to be talking to us today about some mindset shifts that we can be making as investors, as well as what we should be aware of if we're interested in getting into the self-storage industry, so let's get into it.   AJ Osborne, what's going on, man? Thanks so much for coming to hang out with me today. Appreciate it.   AJ: Thanks for having me on, I appreciate it. This is gonna be fun though.   Michael: It's gonna be a lot of fun, I'm really looking forward to it. So I know a little bit about your background. I know you spoke very recently at the BP conference in Denver, Colorado in the spring. Give us all the quick background, who you are, where you come from, what is it you're doing in real estate today?   AJ: Yeah, so I'm up here in Boise, Idaho. I'm like, I don't know, like sixth generation Idaho and my family came and we're herding sheep over the mountains here and we grew up to see the big change that's happened in Idaho, which has been crazy over the last 20 years. But my dad grew up in extreme poverty in the southern, I mean, nothing like no running water, like poached to eat. They didn't have you know, they took baths with a pot of hot water to try that they boil over the fired. Try to get it like poverty that, you know, we don't, nobody knows that America today, right doesn't even exist anymore and that wasn't that long ago. He's only 64 years, so he's not even that old. Yeah nut when he was growing up, you know, he had it really brought this father died and early and so he married my mom and he wanted to get out of that. So he started selling insurance and then I grew up and I followed in his footsteps and I sold insurance too and we did that for a long time and you know, I quickly realized that selling insurance is awesome. I loved it, it taught me so much broke away.   But it I called it the treadmill, you know, you got to run, you got to run hard and the end of the day just didn't feel like we're going anywhere and it was like, You know what happens when this treadmill stops. So we started to really invest in real estate. In a big way, after a wait, we started in prior 2004-2005 and then we stopped in 2006/ 7 because things didn't make sense, started back up in 2010-11 and we have been building ever since then I but we like the asset class self-storage. When we got into self-storage, it was very much looked down upon people were like, you want a junkyard? My has that changed today. So storage is so hot and seems like every investor wants in and wants a piece of it. That that's not at all how it was when we started, banks didn't want to give us money. You didn't know really what to do with them. But we liked them because it was more of a BIST business than real estate. That made a lot more sense to me. I don't even view myself as a real estate investor. We own and operate businesses and that's our approach we took to self-storage. We didn't take the approach of traditional real estate, things that people viewed and hold it standards on valuations like cap rates, things like that. I couldn't tell you what a cap rate was on any property that I've ever bought, don't have any clue. We just fundamentally looked at it differently. We focused on revenue, only improving those revenues and cash flows due to operations technology, training and we needed because we didn't have anybody to manage these assets. We had to manage them ourselves.   There was no third party management at the time and that meant we needed to get our velocity of money, meaning we needed to turn our money over. We didn't want to have it trapped because we needed it to grow. But at the same time we had to pay for the management. So we needed the cash flow. So our strategy became that we would buy really underperforming assets, we turn them around, we'd have a capital event at the refinance time and that would give us our money back plus profit to go redeploy it, but we still would have the asset. We still own it. It was still making money and it could pay for everything we needed to and we did that out of necessity and so we grew that way and We did really well and that models worked very, very well for us and we did that for a long time. I became paralyzed from head to toe about five years ago and I was working for major brokerage firm out of Chicago $40 billion company or something like that I can remember and I was let go in the hospital, but I didn't need to worry about it because we had our real estate and I was put on life support at the hospital, I was put into a coma, then put on life support for months and then I had to relearn how to do everything.   I had to relearn how to talk, I'd relearn how to eat, oh, my god, occupational therapy, speech therapy, everything else in between and I spent the following. Six months from the time I got into the hospital, trying to learn all that kind of stuff, again, going home, paralyzed, and just kind of relearning things from scratch and it, you know, it obviously changed the direction of my life, for obvious reasons. But as well, it really changed the way that I view investing and financial security and wealth, and income and from there, we thought, you know, this is really important. I'm like, we need to share this with the rest of the world. So we started to allow investors to come in and invest with us alongside us. We started different things like podcasts, we do it, we just need to openly share information and that kind of became my passion, financial independence and, and education. Overall, my wife started a school that blew up, she has hundreds of students, it's OK through high school that focuses very largely on economic functions a way the world works and financial literacy and I started to do three companies out of my wheelchair and we've just been going strong sense. So that's yeah, so I am, that's what I do.   Michael: That is amazing, AJ, and I mean, there's just so much there to unpack but before we even get there, I mean, before we hit record here, I was telling you how good you were looking and I had no idea that you were paralyzed, so you've clearly come a long way. Good for you, man. That's, that's amazing.   AJ:   Thank you. It's been a long, long road, but been very, very fortunate and the gains that we've seen and had so not over yet, I still have paralysis in my lower legs, I still have pain, because my nerves were destroyed. So I have to deal with that but I mean, it's not that point complain about where we couldn't be happier with what I have to deal with, we do that as a blessing. So it's, you know, we are just so fortunate and excited to be doing what we're doing.   Michael: Awesome. So talk to us a little bit about kind of the new perspective that you got on investing that you had as a result of being paralyzed. What was that, like?   AJ: I think I didn't realize probably the entire position of where I was at in life, what that meant, and tell that happened and that changed the way I viewed my own position, maybe the value that I inherently had, and the knowledge and things that we could do and it also changed kind of the idea where it was like, you know, at the end of the day, we all stop working at some point in society, we call this retirement and I didn't have really a choice and when that happened to me, and it the whole idea of it just kind of became a little silly, to me, this this path that we came on and this idea of risk that, you know, entrepreneurship or investing is risky and I'm like, but it doesn't make sense when I think actually probably having a job is the riskiest thing you could do.   It's a single point of failure, so meaning you have no control over that income or that revenue at all and it's one single point that everything else is predicated on. So the moment it's gone, everything else falls apart, right? It's not diversified you so you have no control. It has no you don't own the source or the means you aren't diversified. It's, you know, I'm like that's, that's the risk. That's the risk right there and it was something I obviously always knew, but I interpreted it in a very different way and I thought there is no reason why people shouldn't be participant eating in the economy, and we have to change people from being economic consumers to economic participants and that's how we're supposed to be. This idea of us being economic consumers and holding a job is actually relatively new in society. This isn't something that has been around for a long time. The idea of retirement is no, I don't believe in it, I will never retire, like, what am I supposed to do? Go sit on a beach.   If I'm retiring, I'm dying, right? You know, we're supposed to do things that give us purpose, and we're supposed to be participants, and we're supposed to be delivering value to society and if you're not, you should really start to think about what the heck you're doing with life because you can tell people feel fulfilled, and it's in who we are. As humans we want to be busy, we want to work, we want to be participating. We are not meant to sit around and watch Netflix, we are not meant to not be in control of our lives. Yeah, that's we're not meant for that and we've seen in society, particularly over the past 20 years where, although problems across society have tanked. Like we have this viewpoint that there's so many problems in society today and that's just unequivocally not true. I mean, everything from murderers to it, just name it any metric you can think of in society, and we are 10 times better off than we were 50 years ago. We are you go back 150 years ago, and there's nobody I don't think anybody could survive. That's alive today, just 150 years ago, right, and you keep going back, and you're just like, wow, us as humans, we live so differently in such a very short period of time and yet, during this time, of incredible prosperity, and during this time of incredible lack of risk in anything, I mean, anything, you we live so long, you there financial safety nets in this country, are crazy to even think about, and yet mental health has skyrocketed and people are unhappier than they've ever been and when you start to look at these problems, it's because people lack purpose and they lack drive, and they lack control and, and it's we're not meant to be like that and I think when you look at financial independence and financial prosperity, it's about dealing with means like it's not money, it's just means like, money is this weird intangible thing that makes no sense at all and people give different meaning to it, depending on their own experiences, or whatever, it's but it's nothing, it's just debt, all money is debt. Paper money is a fraction of anything we even have everything else is ones and zeros on a computer.   All it is, is a means to accomplish something and it's crazy that no one knows how to use this means it would be the equivalent of you know, a few 100 years ago, you're not understanding how to grow food or hunt, you're dead. You just die, right? Like, and so if this is a means or a tool that we have, yet society, we don't know how to work within it. We don't know how to function it. It's not taught. It's not. And I think that makes so many people feel out of control. They feel helpless and they're stuck in this position that, you know, we just weren't meant to be in and so I get, I got really passionate about this stuff, and rethinking you know, what we're doing and why we're doing it and we're made to be creators and we're, you know, we are made to be driving after our passion to take care of each other. That's just so core and fundamental to our being and I want people to have that power, to feel that they are driving towards a purpose that they're caring for the ones that they love and they have the ability to do that and in today's modern society, that's an economic function.   It's not a natural function, which thank goodness, it's not because if it was a natural function, that means you would have to be the biggest and strongest to really accomplish that, right and if it was a natural function, I'd be dead long fires because I would never, I would have never been put into a coma I would have just died. So you know, it we have to rethink in today's society, all of that, and it just seems like nobody is and our school systems are failing. Clearly they're failing and society where we're concerned with things that don't matter and it's, it's making us all very unhappy and we don't we don't need to be like that.   Michael: Kind of, in that same vein, AJ, you have a little bit of a different view on leverage, wondering if you could talk to us a little bit about what that is.   AJ: Yeah. So leverage is a very interesting thing. When you look at when we're talking about creation, right? Leverage, leverage is synonymous qith capital, and it shouldn't be because no matter what you do in life, you're leveraging something. We leverage each other, we leverage knowledge, we leverage time we leverage resources, right and leverage is a component that we all have to use. We have to, you cannot do everything by yourself. That doesn't exist this idea, I think that we have these stereotypical entrepreneurs that were like, oh, I started in my garage, and now I'm a billionaire, right? It's just all by myself.       Michael: I did all by myself, right?   AJ: That's never happened once. That's not how it happens and I also think that that makes people feel really inadequate because they're like, Well, I'm not like that and you're, of course, you're not because nobody is right now.   Michael: Have you read Outliers?   AJ: No.   Michael: Oh, it's such a good book, it talks about things like exactly this point about, like the circumstances surrounding all of these people's rise from seeming, you know, rags to riches, and there's so much more there than meets the eye that that isn't talked about. So for anyone listening, if you're feeling that way, check out the book, Outliers. Great read, super interesting.   AJ: Well, and, you know, I felt that way and I think a lot of people do and it's a component of marketing. You know, aside the idea that Steve Jobs created apple, and he was just this Renegade, that, you know, it's a great marketing ploy, but it's not at all and, you know, you're gonna have a lot of haters out there for saying this, but it's just the truth. Venture Capitalist had way more to do with Apple success, and Steve Jobs rights than he ever did. You know, he was working on nothing in a garage. Like, it's not like they were really building a business. They were toying around with something and a venture capitalist was driving by saw them and said, hey, why don't I actually make this into something and that's how Apple came to be and then he went back, and he had all of their resources and their tools and their employees, and they really built something from nothing. But that's what it takes. It takes way more than you, you aren't enough. You never will be enough and that's okay. That's not a bad thing. People say that. And then they get upset and I'm like, don't win when you use this like, hurrah, hurrah stuff of No, I am good enough. No, I am I can accomplish anything.   You always feel let down and actually does great damage because you're not, you never will be, and no one is. And so like, you need like, you need to be totally okay and understanding that you're not like, why would you think that you are? We can't do everything all the time? I don't think I am and because I realized that when I hear that voice in the back of my head that says, AJ, you can't do this. Instead of saying, Oh, shut up, I can write that's pride. First of all, I actually lean into it, say, okay, you're right. Why, so I either need to find someone, or something that can help me accomplish this, because this isn't either a natural skill set that I possess. Now, I can either really take the time to learn it and do it. But if you had to do that, for every single thing, you would be stuck. You would never function in life or society. And so it's like, nope, lean into those, though your insecurities is the voice of reason. That's a good thing, right? I'm a dyslexic ADHD kid, right?   Do you think that I really care and think that I have to be able to spell to function in life? No, it's not something I'm going to work on my brain doesn't work like that. I don't need to worry about it. It's I find somebody else that can do those things and move on. Those insecurities are actually just things that are telling you, hey, you need to improve here, or you need to figure out ways around it. Listen to him, don't fight them, say great, thank you, and then get to work. But I mean, you're not bestowed upon you anything and you're not some great person, and neither was any of those entrepreneurs, right? It takes a lot a lot of people and you have to leverage talents. You have to leverage knowledge. You have to leverage time you have to leverage structure infrastructure, you have to leverage technology and then yeah, there's capital to you need to leverage capital, but it's all about identifying needs, and then figuring out solutions around those needs that isn't strictly designed around you. If I couldn't leverage other resources like I am, no one else could ever accomplish anything in life. So get rid of that kind of that fluffy stuff, right? That's supposed to be feel good and you read the story about some amazing person, like you're just not getting the whole thing and that's not reality and that's okay. It shouldn't be it doesn't need to be you don't need to be successful. It's not about you being more, right. It's about you having access to more and that is the key differentiator. You need to put yourself in circles with other people. You need to change your circle stances because you're leveraging your circumstances, whether you want to or not, you're hanging around a lot of deadbeats, you're leveraging deadbeats, and you're going to become what I like, call me curl, but it's true and if you're, that's fine.   But if you're not, okay, if you don't want that to be your outcome, why are you leveraging that the moment you spend time around it, the moment you're around it, that's the outcome. So like, you need to really take seriously who you're surrounding yourself with what you're doing, right, where you spend your time, and what you spend your time doing because little things are leveraged in time, meaning the things you do today, the impact is not direct, it's in 10 years, it's 100 times whatever impact that is one piece of knowledge that you can obtain today, you can leverage that through 10 years and so the outcome is 100 times what it was. But that's the same thing, if you just sit around and watch Netflix, or if you just, you know, hang out with deadbeats or people that complain. That effect is also 10 times in the future and you really got to look at that leverage, because you use it no matter what. It's just how you're using it.   Michael: Yeah, I love that and I think something we talk a lot about in the Academy is just being having the ability to get out of your own way. Which it sounds like you know, you're definitely touching on and so for people I think a lot of our listeners, something I hear regularly is I don't know anyone that does real estate, I don't know how to get started, how can people change their circumstances, like you were saying, how can they start to get around other people that they can then look to leverage for their own growth?   AJ: The circumstances are versatile, interesting enough, people feel like they don't have control over their circumstances, which is the greatest lie ever told. I mean, that is so stupid to even think about considering that, first of all circumstances are very much dictated right now by online, literally, just go unfollow everybody that you don't want to be like, follow everybody you do and you're immediately just now you just changed your circumstances, because I don't know what the average person spends on their phone, but it's probably eight hours a day at this point. So think about the impact of that and then on and then from there. Your friend group, like, just because they're your friends doesn't mean you're obligated to be around them and just because you don't want to spend time and take on their problems that are mostly self-caused, doesn't mean that you're mean, right? Like, you're not mean because you don't serve an alcoholic alcohol. No, you're a good friend. So stop, stop serving them social alcohol, like, right, they're alcoholics and get away from it. If you're an alcohol, don't go to the fricking bar, right? Just change your circumstances and when I say I'm obviously not alcohol, I mean, everything in life that you want to become or don't want to be moved. You live in a bad area move. Like, it's shocking to me that people are like, I have no opportunity where I'm where I live and I'm like, leave. All my friends are here, like, okay, then you don't care. Like, it's not that you like opportunity, because you want opportunity to come in the way that you want it and this is that pride thing again, why do you think anybody cares about you? Like, why do you think that they should deliver you something, right? We're not entitled to that we're entitled a slap on the butt when we come into the world and then maybe you gravestone I don't know, you know, and then a quick death.   Hopefully, you're not entitled to anything. So if you don't like your circumstances, but don't want to change them, and then complain about not having opportunity that's on you. Nobody else, stop complaining and you've got to move you got to get out of them. I'm shocked at how many people that you know, live in places where they're drowning in debt, they can't get ahead or, and they don't and then you ask them, why don't you? Oh, yeah, but I just love this area. It's so beautiful. It's like, so you're making a choice there, right? So first of all online, you can do that immediately. That's very simple. Stop spending time with friends that are deadbeat. That doesn't mean you're not their friend. You can still love that person. But you don't have to give that person your future. If they require you to give your future to them. They're not your friend and so stop it and then you know, family members the same. I have family members that I love dearly, and I'll always be there for them. But I don't want to be like them. Yeah and I'm not going to spend my life. Those are two totally different things. So you have so much control over your circumstances. It's the easiest thing to do. Go online, go to in real estate meetups, start going to events I went to I didn't know anything about storage. We started we want to get into storage. I started going to all the associations and all the event meetups right. We started to get into contact and I call people that had been in the business, but it's all about your actions and if you don't create the circumstances, no one's going to do it for you…   Michael: I dig it, this is there's so much good stuff in here. I want to transition a little bit to self-storage, because I think it's a super interesting asset class, it's being talked about and spoken about all over the place, yet why self-storage?   AJ: Yeah, so self-storage, I think offers the number one opportunity for anybody wanting to get into commercial real estate and here's why. First, the first reason is just structural. So prior to when we got into the business, 91% of everyone in the business was Mom and Pop operators, because this asset class had not been institutionalized. It was the newest asset class, as far as commercial real estate goes in the United States, institutional money couldn't operate it and they also had no way to model out what would happen in a credit crisis or anything else. So they couldn't invest in it. So institutional money didn't come into 2008, that all changed. With that said, a huge portion of the industry is still majorly mom and pops and that allows you to buy assets, that's value is crazy low, and they're not being operated well, and to very simply change that value around but so the two opportunities is firstly opportunity to actually change the asset but the second, the first one is just access. So if I, you know, when I was looking at trying to go into multifamily, well, multifamily over 80% is all owned by institutional, that means I have to compete to try to get limited supply of assets, I was at a disadvantage, right and there wasn't a lot of them. There's so many storage facilities, they're just everywhere and they're in every small town there. So your access to the industry, and your access to assets that can be improved, are just so plentiful in self-storage but the opportunity is that it's been institutionalized now, and it is a consolidating industry, meaning that's changing fast and because it's institutionalized, the value spread is crazy in them. That means there's institutional demand, right? Yeah, underperforming Mom and Pop properties that you can buy, and set them up to be institutional quality and that value offering is enormous.   Michael: Interesting and so if someone wanted to get someone's interested in, in self-storage, and they want to look to go get involved, I mean, it sounds very expensive as an individual to go buy a self-storage facility, do the value add play, as opposed to single family rental, people understand that usually have lived in them at some point in their life, or at least in apartments that understand kind of the guts and inner workings of it? How should people start to get educated about self-storage if they're interested in operating and owning one for themselves?   AJ: So firstly, you're in Northern California, right? Bay Area?   Michael: Yep.   AJ: So in the Bay Area? Well, I can guarantee you that most third tier market storage facilities are cheaper than any single family home, anywhere near you. So our perspective of cost with these and I think people have a very wrong way you can go buy a small storage facility that has 60 doors for under a million dollars, Miley, in most places in the United States, that is substantially lower than upper middle house, housing, right in today's world, right? So all of a sudden, you go, oh, well, that's not costly and I'm getting all these doors. It's a cash producing business. We don't value self-storage because somebody wants to own it. No, it's valued on our return. So when you buy it, it has its cashflow positive, right, or you wouldn't buy it, as opposed to like single family homes. Nobody cares if the cash flows, the demand functionality of it is due to wants and desires and needs that have nothing to do with revenue. That's not how storage works. So for the most part, I can find storage facilities all over the place that are cheaper than lots and lots of homes across the United States.   Second of all, you can raise capital, nobody wants to give you money, not in a big way to buy homes, right? Well, commercial real estate's different, because here, here's the investment and here's how it produces. Investors want to get money to buy a business, and a cash flowing investment. So the demand for other people to give you money to go into an asset that is cash flowing, and as upside potential is a lot higher. So I actually think it's much easier to get into commercial real estate than it is to get into single family homes. Now, the only reason why people think otherwise isn't there. They know single family homes, and they're everywhere, right? So it's an inventory thing. Oh, I can see lots of them, right but when you look at actually trying to scale or build a bit businesses needing to get capital, that's gonna be really hard to get people to give you money to go into a business, that for the most part, cash flows very, very little, if at all in most areas, whereas you're buying a diversified portfolio of tenants 60 doors as compared to two or four or 10, right, that have low capital expenditures, and as a way that you can improve the revenue. As investors, that's a great idea. So, you know, when you look at it from one side, meaning well, either they're expensive, or, you know, it's easier, multifarious single family, you're, you're only seeing what you understand and no, but when you look from a business or an investment standpoint, it's much easier to grow, build a business, or invest in a real estate asset like that, than it is the other one.   Michael: Got it, got it and then what about the operational side of things? I know that you said, when you first got started, you were doing it hands on, are there management companies like you have in the residential space that you can just plug and play into your existing asset?   AJ: Yeah, there are. So we, you know, after 2,008 third party management became institutionalized, meaning big companies got into it. There's also regional players, right, things like that to do third party management. I'm a fully vertically integrated private equity company, meaning we do everything from asset management to funding to all of it right, you don't need to do that anymore though, you can get a third party manager to come in and operate it, you need to make sure that they're on the same page as you and understanding the value proposition but management is the hard part, right? But it's so managing a single family home, obviously, much easier. Managing a self-storage facility is much harder, I view it more like retail than anything. These are short term leases, right and we have turnover all the time. So that I can see as being scary, or people not understanding but to have a third party manager that is great at what they do. Now, it's even easier. You don't even have to worry about it. You can hire somebody else to take care of it all.   Michael: Awesome, awesome. AJ, this has been super fun man, where if people want to learn more about you your story, self-storage, what it is you're doing, what's the best way for them to get a hold of you?   AJ: Yeah, so you know, I have self-storage income, which is the largest self-storage podcast in the world. I also wrote the number one best-selling book in our space, growing wealth in self-storage, and YouTube. If you want to learn about self-storage, all our contents free go out there and we have endless amounts of it and then Instagram is showing you everything we're doing. That's probably the easiest way it's AJ Osborne and you can go to any of my company self-storage, income cedar creek wealth, that's my private equity company but yeah, we're all over the internet. So AJ Osborne self-storage and there's no way you're not going to find me. But any of those resources, podcasts, YouTube, the book, or once again, my Instagram, which I'm always populating and uploading to learn more.   Michael: Love it at. Well, thanks again for hanging out with me. I really appreciate you taking the time.   AJ: Hey, thanks for having me on, I appreciate it.   Michael: Hey take care, we will talk soon!   Alright, everyone, that was our episode for today, a big thank you to AJ for sharing all those nuggets of wisdom, his background, where he come from, where he's been and where he's going. As always, if you'd liked the episode, feel free to leave us a rating or review wherever you get your podcast anything focusing on the next one. Happy investing…

Brandon Schwab is based in Chicago where he specializes in boutique assisted living. Brandon who is, founder, and CEO of Shepherd Premier Senior Living and Boutique Senior Living Fund had experienced first-hand the deficient care of his grandfather at a large, industrial-type senior living facility, he vowed to make improvements in the industry by starting his own senior living company that provides better, quality care to the elderly. It seems that parts of the US are significantly under-served with this class of product. To learn more or to connect with Brandon tune in to today's podcast and you can set up a time to speak with him directly. Brandon talks about his unique business model of syndicating small senior living assets. Episode Link: https://boutiqueseniorlivingfund.com/ wwww.shepherdpremierseriorliving.com www.brandonschwab.com   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Brandon Schwab, who is going to be talking to us about how he's turning the senior living facility industry upside down. So let's get into it…   Brandon Schwab, what's going on, man? Thanks so much for taking the time to hang out with me today. I appreciate you coming on.   Brandon: Hey, man, this year is awesome, man. Thank you for having me.   Michael: Oh, of course and I think we're gonna have a lot of fun today, talking about senior living, which is I don't think we've ever covered this topic on the show before. So I'm super excited.   Brandon: Never…?   Michael: I don't think ever I don't think ever and shame. I know, I know, I know. Shame on us, that's our bad but give us the quick and dirty. We're gonna get into senior living in just a minute. Give us we can do it, who you are, where do you come from and what is it that you're doing in real estate today?   Brandon: Down and dirty… I've been in Crystal Lake Illinois. For 35 years, I am 40. I've got two kids I got in real estate in 2010. But back before that, I actually opened up our own company at the age of about 15 years old. I did that for 14 years, until I figured out quickly that I didn't actually own anything. I thought I owned something the whole time. But I found out at the end, I didn't actually own any assets. So therefore, I  didn't actually have anything to own to actually have up for sale. So I got into this industry in 2010. After I got crushed after 2008 happened. I at the age of 15. I was cleaning cars in RVs for 14 years and I thought I was crushing it doing there. I was taking home 200 220,000 per year but I was probably working 7080 hours per week. So like wholesaling back in 2010. Because I was like dude, I got paid like $200 for each car and probably about 500 for each RV. So like wholesaling in our first deal was like $1,000 I was like, do you know that would take me like 40 hours just to like, even come close to that and I said I have to get into that business. So that's it, man, it's awesome. Fast forward to today I am changing the industry for how the elderly are taking care of totally upside down.   Michael: That's wait. So you're putting elders on their head? I don't think is that is that good for them?   Brandon: We obtained we are changing the whole and we're changing the whole industry of how everyone thinks of it because typically, if you think of the older industry, right? You think of 100 to 200 type with a ton of elderly in there, right? Tons of them, right and they typically have a pretty terrible odor and the odor isn't very good. It's the odor because people don't get any help and then there's also the atmosphere of everyone asking for help because the average caregiver has to care for 20 to 30 people. I don't know on you, but we are in the top country in this whole entire and if that's how we care for the elderly, I feel like we didn't do things properly and they have to be totally turned upside down because how they're currently doing it isn't able to operate. I had a thing happen in our family back in 2004 where there was a person in our family who was 85 who ended up in a place for 200 beds and we pulled the pull cord to have people come in there to help them and it took them 10 minutes 15 minutes by 20 minutes like I'm getting like pretty irritated by 25 minutes like I just lose my shit and I go out to get a them to help them and I can't say I handled it all that well because I kind of exploded but like that's how I was first exposed and it turns out that's actually common to how the industry is able to operate and I said that's terrible. I hate this industry, hate it, hate it hate it.   They bought 10 years after that I was down in Florida and I got exposed to a five a home that had five people in it and I was like what is this? You know at the time I had 23 homes in our total I began build In our portfolio in 2012, and by the end of 12, I had 23 homes and I had, I thought I kind of had everything figured out. Well, at the end of 14, I'm in this house down in Florida and I'm doing each one of these like arms kind of crossed, because I'm just looking at the place and I go, What is this? I haven't ever seen a home before that is it was probably a 2800 foot house. There was houses on each side, probably 10 or 12 feet from the house and I was just like, What is this because typically as I would go down to Florida, Kelly's dad would play his piano in the old folks home 328 times per year for 35 bucks and I hated going because it was typically in these huge in the elderly in the odor was just terrible and I was just like, if we can get out of that, is there anything that I can do that I don't have to actually, and I would offer to like cook to clean all of that just so I didn't have to go? Thank God, I didn't I didn't have any option because I was ill put this house and I was like, What is this? This is cool. It's it didn't have any odor. It had this awesome atmosphere and I was just like, how have I been in?   How have I been investing in assets and I don't have any clue what this is and I asked the girl in charge, and I said, hey, how much do these people pay to be here and I threw out a figure of like 1500 or $2,000 in this girl did this hurt? Like her eyes came down here and like this girl's answer was like, and just kind of kept on walking and I was like, Kelly, what the hell was that answer? She didn't even answer me. So I ended up calling her and the girl goes, Brandon, I am sorry, I thought that you were only kidding because they begin at $5,200 a month, what times five people I'm like, that's $26,000 and every home that I had all 23 Our highest was like $2,200 per month and our average was like 18 and I said holy crap that one house with five people in it was outperforming every house that I had two times each month. And I was like, I'm in the I have to get into that business and by the time I was able to come home, I found a house in a town of 832 people and it was the house was 4880 feet on three acres. So like we bought it for 250 and put $550,000 into it right over the top. I got this house full by February of 17 and we were gross and 55,000 of income within a cost of the expenses of like 30 to 32,000 a month. So this house was jam on month, one month, one house, we were changing the industry to and offered this cool option that people have never heard of.   Michael: So you're netting like 20 grand a month on this place.   Brandon: Per house, yes and I have homes that are 1015 and 20 each home. So that's the that's the entry level for us, is 10, so…   Michael: I mean, okay, I've like speeches, I have so many questions. So I've got to imagine caring for the elderly. This is a very medically intensive, medically heavy industry and so talk to us a little bit about how do you how do you get into this industry because I think there's so many barriers to medical and then care and I could go on but tell us how you how you got started.   Brandon: So when I got going, I had everything in the to open up the house, right, I was able to open it. I even got the first two or three people in there, right and when I quickly got past like two or three people, I quickly figured out that I didn't really have the experience to operate them, right. So I was doing what I was trying to do to get the house full was I was calling on churches, in particularly wanting to talk to the head of each church. Now, I found out quickly that churches are hard to call on because they don't ever answer and they don't tend to call you back but I finally got one and I called in I was talking to the church pastor and honestly, I think he felt terrible for me because he's like, Brandon, you aren't so good at this like this is this isn't going to be your thing, right? So like he goes Brandon, hi god, their closest friend was in health care for 38 years. She just retired in in. She was getting kind of anxious to like go in to do things. So they introduced me and she was in health care industry for 38 years I ended up taking You're out to eat every Tuesday for about six months and I finally got her on our team, I got her to invest, but I had her in charge of operations and that was back in 2015. So I basically was able to open up homes, but I quickly figured out that I needed a team of experts to actually operate them. So after I had her in, it was in 2015, I kind of had her handle the ops and I focus on opening up homes.   Michael: That is wild. So at the beginning, before you brought her up, where I mean, were you there at the home, cooking, cleaning, doing all that kind of stuff yourself?   Brandon: No, I only had to go there when people didn't come in. So there was a handful of times where a person called in, and I had to go in there. That wasn't very fun and I quickly figured out I need to have things in place that that isn't going to ever happen over because I found out quickly that I am not very good when it comes to cleaning and taking care of people I quickly said, you know, I had to get out early. So I found people, I did have to cover a handful of shifts and I did call in for help because there were some things I just couldn't do.   Michael: I can imagine, I can imagine. So when you're looking at properties, I mean, this first property, what about it kind of jumped out at you and said, Hey, this, this is a good candidate or a good prospect to purchase, you know, for this type of business.   Brandon: So when I was down in Florida, I saw a five bed house in the five bed house was great. But the five bed house wasn't. It was geared for like an owner operator, a person that was in a health care field and I quickly figured out that that wasn't going to be us that I couldn't do that personally. So I decided to exercise. So I was looking for a first floor house, it was like 5000 feet, first floor 5000 feet. That's hard to find. So when I came back home, I thought that they'd be everywhere because down in Florida, there's 1800 of these homes. California has 2800 out there close to you, I think Arizona has 3000, Texas has 15,000 back by us. There's 55 by five, so I said…   Michael: And when you say when you say these homes, you mean like single family homes in neighborhoods that are being used for senior care facilities.   Brandon: So I am talking about homes that are caring for the elderly under 10 people. It is under 15 people per home.   Michael: Okay, All right. So you had 55 in your market…?   Brandon: 55 not in and there's 18 in all of Florida, and there was only 55 here, right and I said, that's bingo. Perfect I'm in, so that's how I first jumped in but a thing a thing that happened is when I first got in, there wasn't a ton of other people out there doing this. So I had to kind of go teach people this concept. So the healthcare part was definitely challenging but the houses that I was trying to find where four to 5000 feet, first floor only our first house, it was on three acres. It was a financial planner that I purchased that bought our debt built in office on to his house. So I had to open things up, I ended up putting 550,000 into the first house. So I had four private bedrooms, and I had three bedrooms for two people each. So for privates, and then I had three for two. So I had a total of 10. Did I go over, did I go overboard? Absolutely but I feel like if you're going to do anything, you have to do it how it ought to and I put three ADA A's on the inside for people to go to the psych bathroom, I only had to have only one and I had 380 access points to get into the house and out of the house and we just did everything over the top. So that's how I first got in and then beyond that house, it was harder to find that type of house over. So fast forward to today I've got five homes up and operating. I got two homes opening up in quarter three this year. And then in 2000 are in I also have 7.2 acres of land that I bought before COVID that I was going to put our own homes on.   Michael: This is incredible. So what is the financing look like for these homes? I mean, can you go to a bank and say hey, I want the purchase. I want to purchase it at 20 and I want you to give me a line of credit for the construction for the rehab. I mean who's financing this type of stuff…   Brandon: I had a chance, dude when I went in there to talk to these guys, they thought I had like, they couldn't get it. These guys are used to like, easy, typical type deals, when I told them that, that I was going to 10 people each paying 5000 to 5500. Each month, their heads literally exploded. They're like, Hey, man, why don't you come back after you do your first house? Then I'll talk to you and I was able to do that and they're like, hey, why don't you come back when you have two houses and then at that, at that part, I am like, you know, I don't think I'm going to actually go ask him for anything anymore. But like, that's how it happens. So a thing that I do for financing is I actually brought in private capital, from investors on a per L for each home and that's, that is how we did, I had to offer some pretty high IRR hours. But when you're first getting things going, that is your only option and a thing that I found that I was really good at is when I was buying properties, I was buying like oddball type properties, not the typical like three to 2200.   So I was buying houses that were on properties that the typical family at the time weren't trying to buy, right. So I was buying houses that were on the app on the MLS for 200 days, 400 days, 500 days and what I would do is I would give them an offer for them to carry back financing at the full asking price. Or I would give them an offer for cash but the cash offer was like so like 50% and a lot of times I was just using that cash offer to help prop up the other offer but I've had a handful of times where when I was putting in those two offers, they would take the other one. So I bought one house off the MLS one time that was on for 2.4 million. I bought that for 750 cash and other time I bought one in Connecticut that was on the MLS for 2.1 million. I bought that one for 700,000.   Michael: Okay, you are not kidding, those cash offers 30, that's incredible a budget you're solving for someone's like, that's…   Brandon: Yeah, those are offers that as I was able to have them in I thought no ways anyone can ever take this off or like they are going to be like, click just kiss but they took him because our other offer was 1.8 million owner carry back financing and they just didn't take but that was probably only 30% of our upfront portfolio. The other ones, I've had them take the owner offer carrying back financing. So that so that is how we did hazing.   Michael: And then you bring in investor capital to do the rehab, whatever upgrades you need. Yep, amazing.   Brandon: Yes, sir.   Michael: So like, when you're looking at properties, there's got to be at Imagine zoning limitations or requirements or local licensures that you need to get what, like, what should people be on the lookout for or how should someone be thinking about those?   Brandon: Well, anyone that's thinking of getting into this themselves and having people operate it themselves, I would tell you don't do it. It is something that I casually got into it thinking that I could just figure it out and it's been one of the most challenging things I've done, where it's taken me eight years, open up five houses and it's challenging. But as I would look for houses, I would look for houses in an area where the household income, the average was over 80,000 and then one of the things that I would do is I would go to the population and I would look for a population of in each town over 65 years of age, I would look for like 10 to 12% plus, anything that was up over hire, that was awesome. I did buy the 7.2 acres of land, all of our first five homes, they're in towns where it's like, you know, 10 to 20 or 10 to 18% over the age right. And then the town that I bought this dirt in for 7.2 acres, we paid 220,000 per acre but it is located directly next to a Dell property.   That's that is 5500 homes that are all 55 plus. So our percentage of over 65 in this town of 26,000 people is 32% Wow. Let's go. All of us purchase that. Before COVID. We were finishing that we got through entitlements, we were going to build six homes, 20 beds each and in office, it was gonna cost us $15.5 million. We had the all of that done, we even had a closing in place for a family office down in Florida, actually to give us a 10 $10.86 million at 12% and they were going to close March 13 2020. We were going to begin pushing dirt April 1, 2020. If you think back to the time, a little COVID pandemic entered into this plan, and the family office were two guys that were probably in their 70s or 80s themselves that earned a bulk of their family office capital from offices and they were in the class a office industry, right and they were trying to take cash out of that inputted into any other asset class and they ended up pulling out two days before closing. Yeah, because they were having tenants that GSA weren't paying. So it wasn't ideal, the overall timing of it, but our things have changed where we aren't building today because cost the build is just too high, where we are holding off until that cost comes back down and we are doing other things today that that fit what is going on.   Michael: Okay, you should have told those guys look, you'll get a free room and board. Just give me the money. I'll build you a spot.   Brandon: I was trying. It just wasn't great timing. I was like, what COVID? Come on. That's fine. It was just too early for us to have any clue. So yeah, unfortunately, they passed but I'm gearing things today now to try to build those connections up with those guys, because a ton of those guys have capital galore. So much dry powder that's just sitting, where if they can find an asset class that is out there that can help the elderly that can help give them awesome IRR that's going to top inflation and also help have a tangible asset. That's what they are looking for today. I think the days where people earn in 200% 300% Kryptos those days are kind of over for some time now, where people are looking for tangible assets today and I have this, so…   Michael: That is amazing and so these houses, I would imagine they serve three meals a day, and they've got all the medical care and there's like it's like a proper business like you would expect to see if you went to a traditional elder care facility, you would have all those same amenities and sounds like and then more, right…   Brandon: So a thing that's different for us for a for every home that has 10 Total people in it, I have a caregiver to every five to eight, five to eight total people compared to the other. The other competition has a caregiver every 1520 to 30 people. That's the thing that causes the old the overall odor. So in a home for 10 total people, I've got two caregivers in there from 7am till 10pm and then I've got a RN that comes in in the am and in the evening just to have eyes on everybody and then I have… that comes each week or as he has to write. So I offer everything in a home that is very cozy that other places have in 100 to 200 type building. Now, with that being said, it's actually harder for us to be as efficient as everyone else. As I only have 458 homes, I actually need like 1020 3040 80 homes to actually have things be efficient. So I'll tell you 10 Plus, under 10, it's hard to be efficient and that's a thing that keeps other people from being able to get into this overall industry or if they do get in there.   They're the owner operator that owns a home or to homes but they're in it every day going 80 hours per week probably profiting 250 to 400,000 per year, but they're busy and I said you know I can't do that I'm going to operate a company that I can expand, to have time to go do other things. You know, I've our oldest is 14 years old and I openness that I could have time to coach him, right and I have been able to coach him playing baseball just since he was eight years old and that's only possible because everything here so time free is…   Michael: That's amazing, Brandon. I think my last question for you. I mean, I have a million more, let's be honest but we gotta keep this within time. How do you insure the thing, is it like us traditional long term rental? Is it insured like a medical office? I mean, what does that look like?   Brandon: Yeah, so the insurance is going to, you're going to have insurance on the overall asset but then you also have to have extra, the extra insurance for operating it for E and O for if anything is able to happen, if anyone's able to get hurt all of that. That's typically about $800 Each house each month but a thing for us, though, is because I haven't had any issues. Over the past eight years, we haven't had any, any type claims, whereas you're in a home with only 10 people, if you offer on if you offer awesome care, they don't tend to have any issues and that's what's awesome on this because typically at the other places for 100 to 200. They have a they've got a caregiver to every 20 to 30 people because the owners are trying to get it to earn extra money. The only avenue to do that is either to push up your income or to cut your expenses. That's the only thing to change the actual NOI. So what they typically do is they cut the care giver item, which is going to an increase the NOI. However, when people are able to have issues and they are able to pass, then you have their families, a attorneys after you and they're pissed, telling everyone how terrible you are. I always feel that it is better to do things how they ought to be done upfront, even if it's harder, because everything that I'm able to do is harder. Like this isn't easy by any means I would tell you, it takes you getting to like home tend to like really cover the overhead. The overhead I found to truly operate this properly, is over 500,000 per year and in order to pay for that you need enough houses paying towards that, to don't have each house covered in too much expenses that they just can't cover, so…   Michael: That makes total sense. Big numbers…   Brandon: Big numbers.   Michael: Yeah, awesome Brandon, this was so much fun, man. If people want to learn more about you reach out with additional questions. What's the best way for them to do that?   Brandon: They can they can call me or text me. So on my phone, you can call me at 815-790-2330 or else you can call our office of 847-380-8624, yes, 847-380-8624.   Michael: Amazing and do you have a website that people can check out as well?   Brandon: I do for our fund but our fund isn't for everyone or funds only for a for investors that are a core they are qualified purchasers. So it's a tear a BB it's a 506 C they can check that out their shepherd, our operating company, I can get you the page to put in there. So it is well just for anyone to put eyeballs on our actual homes or our fund is https://boutiqueseniorlivingfund.com/   Michael: Awesome.   Brandon: That is that as well, man. Thanks for taking time to talk with us today, man. This has been awesome!   Michael: It has been a pleasure, I am sure we'll be in touch soon and take care.   Okay, everyone, that was our show a big thank you to Brandon for coming on super, super interesting topic that like I showed at the beginning of the show. I don't think we've ever had someone on the show talking about this topic, so really interesting. Definitely go check out Brandon's fund, and it's an interesting asset class. See where it goes from here. As always, thanks so much for watching or listening, and we look forward to seeing the next one. Happy investing…

Rich Fettke has a passion for helping people improve their businesses, grow their wealth, and live more fulfilling lives. He is the author of The Wise Investor, Extreme Success, and the audio program Momentum. Rich is also a co-founder of RealWealth®. Since 2003, the company has helped over 60,000 members improve their financial intelligence and acquire cash-flowing income properties — so they can live life on their own terms. As a licensed real estate broker and an active investor, Rich was selected as a Rich Dad Author for his expertise as a Wealth Mindset Expert.   The real estate industry is not easy for everyone to jump into. If you have just gotten your real estate license and feel you need extra support before getting your feet wet, or if you are an experienced agent looking to take it to the next level, you may decide to get a real estate coach. Rich who is a coaching mentor and investor will discuss the value of having a coach and mentor and what you can expect to find in his new book.   Episode Links: https://realwealth.com/ https://realwealth.com/the-wise-investor-book/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Rich Fettke, who is an author, investor, coaching mentor, surfer, among many other things, and Rich is going to be talking to us today about some of the mistakes he seen investors make the value of having a coach and mentor as well as what you can expect to find in his book, which is soon to be released. So let's get into it.   Rich, what's going on, man? Welcome to the Remote Real Estate Investor. Thanks for hanging out with me.   Rich: Good to be here. Great hanging out with you.   Michael: Super excited. So before we hit record here, you and I were chatting a little bit about some sports where you both share in common, but I would love if you could give our listeners a little bit of insight into who you are, where you come from and what it is that you're doing in real estate today.   Rich: Sure, absolutely. My name is Rich Fettke and yeah, interesting. The way we got into real estate investing, I'm an I'm an investor and my wife and I also have a company that helps investors but that was what really got us into it was despair. It was about it was exactly 20 years ago, I was on top of my game, I had a book deal, just signed with Simon and Schuster. I was a business and personal coach had a thriving coaching practice, I was giving keynote speeches all over the country. It was like I was just crushing it and I felt so good. I was 37 years old and then I was diagnosed with melanoma, which is an advanced skin cancer but that's not the biggest deal is that they thought it spread to my liver.   So they had me do a CT scan and ultrasound and it kept showing these masses on my liver and so I met with an oncologist and he said, you know, it looks like you got about six months to live and we had a 10 year old daughter. Yeah, it just rocked my world, I had a 10 year old daughter, a three year old daughter. My wife is amazing but she was a stay at home mom and so she was freaking in the sense of what am I going to do financially if Rich dies and so she started to she had a as a coach, we were doing things together, she was also a trained coach and so she had this small radio station in San Francisco that she used to do a radio show on about all areas of life being your best self and personal development and all and she said I gotta figure this out. So she started to help people on that were financially successful, and was interviewing them about how do they create wealth and how do they create financial success and most of them turned out to be real estate investors. No surprise, so she came home all excited. One of them was a mortgage broker and he said, if you get your license, you can come become a mortgage broker. This is about 2003. So you know, things were still the mortgage world is pretty easy back then. So she went and did that. In the meantime, we figured out I had a PET scan, which is the most advanced scan for cancer, and it showed me cancer free. So it was just it was a false diagnosis. It was just hemangiomas little clusters of blood vessels on my liver but that was enough for me to go for those three months of not knowing if I was going to be alive, it was enough to give us the kick in the butt to get out and, and make things happen. So Kathy, and I see after that after I was healed, we started to invest together. We bought a bunch of properties in the Dallas, Texas area and it just took off from there and then Kathy started to help other investors with their mortgages. We had a bunch of friends and family saying, tell us how are you doing this? We you know, how are you doing this out of state investing and so we started we formed a group that we thought would be just a small group of family and friends and people that listen to the radio show. We thought it'd be a couple 100 people and today it's over 64,000 members now at real wealth that we're helping invest.   Michael: It's pretty amazing. Richard, good for you guys, so I I'm curious in your coaching business before you got diagnosed, did you ever come across real estate investors?   Rich: That I coached? Yes. Yeah and my mindset was, I want to invest in real estate someday when I have enough money and so and I was thinking I needed, you know, several $100,000 you know, to buy that first rental property or first investment, not realizing the power of leverage and how much banks love to lend money on real estate and so that was that was the eye opener for us.   Michael: Okay, I love it and what made you go remote? I mean, you're in California and your wife live in in San Francisco. Why did you pick to invest outside California?   Rich: Actually Robert Kiyosaki. It was she because Kathy was on the San Francisco radio station she was and it got bigger and bigger or she was able to attract some pretty big names and then this guy who had just written a book called Rich Dad, Poor Dad, not long before that, and he had this cashflow game that he was promoting and we had a friend who was his distributor for crypto cash flow game back in the day and so he was on the radio show, and he warned Kathy's listeners to sell their overpriced California properties and to invest in Texas and so we took his advice. Not we didn't sell all our expensive property, sadly, because 2008 crushed us with our California properties but it was, you know, he just saying for cash flow and what's going to happen, he was currently kind of calling out what was going to happen in 2008-2007. That's what sent us out of state.   Michael: Love it. So you also recently have written a book, haven't you?   Rich: Yeah, I just finished my second book. 20 years later, well, I have an audio program back then, too but yeah, it took me 20 years to write my second book and it's called the wise investor and it's a lot different than my first book that was mostly coaching focused. It was a nonfiction, basically a personal development book and this book is a modern parable. So it's story forum, and it tells a story of creating financial freedom and but also living your best life.   Michael: That's awesome and why did you decide to write it?   Rich: Interesting process, you know, I've had my own coach, to walk the talk to over the last 25 years now, I started coaching 25 years ago, and this coach that I that I still talk to every week, or every other week, now, he kept kind of he had read my first book, so he's always kind of knocking on me saying, when are you going to write your next book? When are you going to write your next book and I was like, I'm too busy running this company, you know, we have 27 employees and but then what we did is we applied story branding to our company. Are you familiar with that story branding?   It's a guy named Don Miller. He wrote a book called Building a story brand and it's all about basically telling the hero's journey, Joseph Campbell's work, using the hero's journey, just like great movies, do great books do weaving a story where your customer is the hero, and you are the guide. So the company is the guide, you help your customers and so we changed everything on our marketing around that, and how we served our members as being the heroes and I just got into this whole storytelling thing. I'm like, this is fascinating the structure of how to write a story, a compelling story that engages people that elicits an emotional change all that and so one day when in a coaching session, I said, you know, if I was going to write a book, I'd probably tell a story and then he heard that and you just like, What do you mean, tell me more and then that was the spark. So then then I get obsessed with it and I'm like, I could write a parable about what I've learned over the last 20 years as an investor, what I've learned in the last 25 years as a coach, yeah, and kind of weave them together into a story.   Michael: How cool and without giving away too much of the book. I mean, what could people what should people expect to find when they when they get a copy?   Rich: Basically, it's about this family, man, his name is Ryan Brooks and he's like a hard worker. He's got a wife, he's got a couple kids, and he's making a decent six figure income maxing out his 401k but he has no time for his wife or his kids or even his life and he's not investing. He's basically what we call today, Henry, right? A high earner, not rich yet. So he's…   Michael: I love it.   Rich: Yeah, they're out there does a lot of people you know, especially in California, where I'm based, and that make a lot of money, make a good income, but they're not rich, they're not wealthy, and they're not investing their money. They're spending it on things and so this guy is, is in that same trap. So he just starts to learn from he meets this new friend and mentor, who takes him out on adventures. Of course, it takes him out climbing takes him out mountain biking in in the sessions, when they're having fun together. He teaches him about investing about how wealthy people think, how rich people operate, and how and how poor people operate and think and he really goes over the difference between, you know, truly wealthy people, and people with a lot of money. He even says, you know, I know some people who are so poor, all they have is money and I see that in Malibu, you know, where I live there's a lot of has a lot of money and some of the people are really stoked and really happy and getting the most out of life and investing their money at some of the people are grumpy and miserable and, you know, that's rich in money but not in life.   So there's a lot of lessons about helping Ryan Brooks and his mentor walks them through this on how to invest how to how to really look at life through a different lens. One of my favorite things a mentor says to his mentor is about assets and he just kind of puts it in a different frame. He's like, you know, assets is are anything that will provide you income, or better health or happiness or two time and liability is anything that detracts from your income, or your health or your happiness or your time. So it's kind of a cool that type of perspective is this mentor is like, he's the me I hope to be in the future. He's that in that wise investor who's you know, he's got it all together, he's got this sage advice. He's very stoic, but he shares these lessons. So it covers the journey of five years of when they first met, and Ryan Brooks is struggling and just doesn't know what to do and it shows five years later, what happens and how he becomes wealthy in more ways than just money. I love it in money, too.   Michael: I love it. I love it enrich. Where can people find the book?   Rich: It's on Amazon, all major booksellers, published through Rich Dad advisors. So Robert Kiyosaki wrote the foreword for me, which I'm very grateful for… Come full, full circle, right.   Michael: Totally.   Rich: Yeah. So it's on Amazon. It's called the wise investor. Subtitle is a modern parable about creating financial freedom and living your best life. I got the cover right here. So it's out on eBook. This is what the cover looks like. Perfect. So it's out on eBook. But the printed version, the hardcover and the audio book won't be out until August and it's because of just like real estate supply chain issues. There's not enough paper at the printers, so it's a long wait six, seven months now to get a book printed.   Michael: Holy smokes…   Rich: Isn't it wild?   Michael: Yeah, okay. Well, I'm interested, get your order in now, because it might be a while.   Rich: Right, yeah. So hopefully it all comes out in August. Hopefully it comes out earlier in August but yeah, and the audio book was, that was a fun challenge for me. Big goal, because, you know, it's a story and there's 10 different characters, females, older people, young kids, so I had to become, I had to learn some voice acting skills over the period of a couple of months and really practice it. Oh, how can I think I pulled it off, we'll see how the reviews are.   Michael: Right on. That's great. Well, Rich, I'm curious to get your opinion on something because you're a coach, I will also work as a coach and there are folks out there that say you can take the horse to water, but you can't make him drink and so thinking about kind of the Henry's out there, and I think a lot of our listeners might find themselves in this boat, too. They have friends, family, folks around them that don't get real estate investing, right? I have a six figure job, I got a great job, why would I bother investing, I can make more money at my job. So what do you say to all those people and really, how do you position investing in general or real estate investing specifically to the people that think they haven't really good as things stand?   Rich: Yeah, I mean, first of all, you know, as a coach, I'm going to help point out what is good first, you know, this is the way I coach, the gratefulness piece and, you know, it's like, well, you know, be stoked on that six figure job, or whatever it is and it's about creating freedom and so many people don't have that freedom and that's what the Henry's don't have. If they have a short runway, if they stopped if they lost their job, which we've seen happen, they don't have many months left of cash flow, to be able to live their lifestyle, or any type of lifestyle. So that's the biggest thing would be that, do you want to create freedom for yourself, and not have the stress of losing your job, or wanting to move to a different job, if you're not loving what you're doing, a lot of people stay trapped, struggling, just trapped in their jobs, because it's like, this is my income, this is the way this is what I need to make ends meet. So that's the biggest thing, it's really about having your money, make money, so you can create freedom in the future freedom of time and everything. I think that's the biggest one and then so then flipping on the other side, there's something too about America, in the world that we are preprogrammed.   When we think invest, we think stock market and you know, I have nothing against it and Kathy and I are and my wife and I are invested in the stock market, but our major focus and the big aha, back through that story is, you know, we were doing that we were contributing to our IRAs and, you know, doing everything we were supposed to do investing in the stock market. But when we learned about leverage the power of leverage and how you can like 5x your money, just through the power of leverage. I mean, that's a standout and that's one of the lessons the mentor goes over in the book. He, he has Ryan compared to say, say you have $200,000 to invest and you invest 200,000, and gold, you put 200,000 and you buy, you buy maybe 400,000 in the stock market on that, you just leverage it and then you invest that same amount into real estate and then he kind of plays it out over five years, and over 10 years, sorry. So he's like 10 years later, and he said, so how much would the gold be worth at the same appreciation that's gold has been at and they look at that outcome and he said, oh, now let's look at your stocks and he looks at that. It's like good, he's got a decent return. Another investment, you know, he's got home and he's like, almost tripled his money but then the real estate, he looks at it, and he's 5x his money and more and then he's like, and that doesn't include the cash flow. It doesn't appreciate all the depreciation write offs and the tax benefits. So it's kind of like an eye opener to be like, oh, wait a minute. Now I see the, you know that the angels sing about investing in real estate and all those amazing, amazing benefits.   Michael: Totally, totally. Yeah, that makes that makes complete sense and curious, rich to get your thoughts on when looking for a coach because I think that that's something that some people have trouble wrapping their head around, it's like, oh, I you know, I don't have a coach in life and so I would never be inclined to go get a coach or pay for coaching and so if people are inclined to do so if people are okay, accepting that, what are some things they should be looking for when selecting a coach, or a mentor or whatever, you'd have someone to help walk them through their journey?   Rich: Yeah and that's a great question. It's like, I'd actually like to start step back a little bit, because you said what if they want to coach I would even go as far as there's a lot of people that I meet who say, Why do I need a coach, you know, I can hold myself accountable. I, I know how to set goals. I know how to go after what I want and everything in so why would I… Yeah, like you said, Why would I even pay someone or do anything like that and it's, you know, it's that age old metaphor or an analogy of an Olympic athlete, right? Did they get to the Olympics without a coach? No, you need someone to point things out. So for me, I know the power of coaching has been incredibly amazing because I have a coach to basically hold up the mirror to ask me the questions that I'm not asking myself, to help me look at myself and be like, you know, asking those tough questions. How are you operating? Are you being your best self? Are you, where are you getting in your own way? What's that inner Gremlin in your head saying to you? What's your limiting beliefs and what are you going to do here, what and look at new perspectives, new ideas. So there's a power in that, that it's called, I'm certified in CO active coaching, which is two people, you know, when you come together, you come up with ideas that you neither would have thought about their own? So that's another powerful piece of coaching. So that's, that's the first part of my answer and then the second part is, when you're looking for a coach, I think it's really what you're looking for.   So are you looking for a mentor, which is I think, different than a coach, a mentor has kind of been there, done that, just like the mentor, and in the book I wrote, he's been there and done that. So he can say, if you just do what I did, you will be where I am, which is awesome, and very valuable and that's a mentor and I think some people are looking for training and consulting, where they sign up for a coaching program. But it's more about teaching to learn a specific skill and that's very valuable to so and then the third one would be looking for a coach who's more like that coactive approach where it's someone who I first shared, and what I've gotten from coaching is someone to ask the most powerful questions, someone who's intuitive, someone who can really help you shift your mindset and be your best self and operate at your best self. So that would be a another type of coach or a peer coach in my eyes and sometimes it comes together, you know, I'll say to my clients, do you mind if I throw on my consulting hat right now or my mentoring hat? So they know that I'm stepping out of that coat peer coaching role and be like, you know, I've invested in real estate for a while I can give you some advice here, I'm not going to have you, you know, go and search it and try to learn it elsewhere when I've got it right here, and I can share it with you. So I think that's it, it's like looking for what is it that you want? What are you looking for and that would be the first thing and when I was interviewing for a coach and looking for I've had several coaches over the past 25 years, when I interview a coach, I'm always coming from the place of like, what's the vibe? What's it feel like to be coached by this person?   Do they? Do they ask powerful questions? Are they really hearing me and are they into my vision? You know, I think the biggest thing would be connecting with that coach, and really, really noticing, like, is this coach, really seeing my vision? Do they really get me who I am and what I want what's going to help me be fulfilled in my life, and in my career, and it's just a sense thing. So you can get that sometimes you you're talking to a coach, it's like, oh, this guy's or gals just coaching for the money, you know, just looking for another client. Sometimes you talk to a coach, it's like, wow, this person is really like, wants to coach me on their ideal client and so you can sense that   Michael: Interesting and how should people be thinking about it for themselves? If maybe they're not sure if someone is just getting started out in this journey, they know they want to invest in real estate, that's the goal but they don't know how to approach it to the to coaching and mentoring a consultant. I mean, what are some questions that they could be asking or things they could be thinking about, as they're starting?   Rich: That process gets great, I mean, experience, I would ask for experience and you know, I think it's great, you can find you can definitely find a coach, you know, or whatever they call themselves. They might call themselves a mentor, but it's like asking those questions. and talking to that person, just you know. So here are some of my goals. I know that you invest in real estate, can you tell me about your real estate background? What's your investment, investment philosophy? What have you invested in and I would even ask the coach, you know, what's been your biggest challenge your biggest failure as a real estate investor, you know, get see how vulnerable and real they are and if they're willing to, you know, to share that, and what's been your biggest, you know, what's been your biggest win as a real estate investor and what's your greatest strength? So I would ask some of those questions of a coach and then also like, what's, where do you I mean, real estate investing so broad, right and so it's like, what do you specialize in? What do you know best? When it comes to real estate investing?   Michael: Yeah, I love that. You mentioned tell me your biggest failure, biggest flop. I had a mentor back in the day, and he said, I don't trust anybody without a limp. Yeah, because like the people that have only had successes don't know how to do save no right to ship when things go sideways, and they will go sideways.   Rich: They will, they will. Yeah, I know that people who got into real estate in 2010-2015, who are just, you know, knock it out of the park, and they think they're, you know, superheroes. Sometimes I'm like, oh, careful, careful   Michael: We are all superheroes in this, you know, the last decade.   Rich: Exactly. Yeah, yeah.   Michael: So Rich, talk to us a little bit about what you've seen. Some of your coaching students or mentees get right and what have they gotten wrong because you really we have the beauty of hindsight now…   Rich: When it comes to investing, specifically?   Michael: When it comes to investing specifically…   Rich: Yeah, wrong and it's the same mistakes that Kathy and I made too. And it's that you try to talk people out of it and it's like buying an overpriced property in a non-landlord friendly state that is maybe slightly negative cashflow, or just breakeven, and they're looking at and say, but look at how this is appreciating in five years, it's going to be worth this much and it's like, no, so honestly, that's the biggest mistake I can see and I can see it in single family all the way up to multifamily. You know, just speaking at these conferences and meeting with a lot of people are doing multifamily. They think they're superheroes. They're doing this short term, short term lending short term loans, and bridge loans and really dangerous stuff at this time in the market because it's what's worked in the past and they think that they just like, Well, yeah, it's like, I know, this is a I know, it's only a you know, 2% cap rate, but that's okay because, yeah, just a one in three years… Yeah, exactly, so there's something there's something about, there's something about that. Yeah, it's just it's fundamentals, I think that's what it is, is comes down to investing fundamentals and that's what we preach at our company. It's how we help our investors, it's just really coming back to the fundamentals. Make sure you're doing it right.   Michael: Yeah, that makes sense and what about the other side of that coin for the folks that you've really just seen knock it out of the park? What are they doing and you can't say the fundamentals, you have to pick a different answer go?   Rich: That's great. I love that. Agreed, yeah, what value is that? Really, it's the people who, what I've seen, it's the people who take the long term game plan to the boring investors, the ones who are not trying to do this rapid growth, and trying to 10x their portfolio or 20, exit, or whatever it is. So it's keeping that long term perspective and just, you know, making sure that you can control the properties through any type of downturn and so the lessons learned that that, you know, being going through the whole recession, the Great Recession, and the whole mortgage meltdown, and all that big lessons came from that and so that it's the people who take out long term, continuously reinvesting to so it's like, you start this small, small portfolio, whether it's passive or active, and then you just start expanding and expanding and expanding it and I would say, it's the people who focus on the overall cash flow, not just I mean, brink weaving into appreciation, but looking at it, like five years from now, this is what my portfolio will most likely be doing based on everything, even if there's a recession, or whatever and then looking out 10 years and looking at it 15 years.   So it's that big picture and then reinvesting. The opposite of that would be someone who's I have some friends who were only flipping, so very transactional, and they had to find the properties either flip it and that's where their income was coming through into constantly flipping it and they adjusted the wise ones and the smart ones adjusted and switch to the bur stead strategy and so they started to find these properties, fix them up, but then they would hold them and rent them out and now they're the ones that have amassed a good amount of wealth, whereas the other people who are flipping are still in the transaction game.   Michael: Yeah. Ah, that makes sense, that makes sense. Okay. We've had a pretty good debate on the show over episodes about something called an alligator, which I don't know if you know Michael Zuber at all he's an author of one rental at a time. He's a good friend of the podcast, but in his definition alligators any property, that's negative cashflow, you have to feed it every month to keep continue owning it. So as you're talking about big picture, are you okay? If you say for instance, take out a cash out refinance a property to make that property a go negative, but to buy property B and now your global cumulative cash flow is greater than that a property a alone.   Rich: I'm in the camp of no, don't, do not no, no negative cashflow and negative cash flow and I'll be completely honest and transparent that the house at Kathy and I were in in Malibu before this, we bought it, we fix it up, we bought it for $747,000 in Malibu, which is rare, hard to find, it's like unheard of. Yeah, it was like it was a one bedroom, one bath built in 1927 and we had to completely gutted it and rehab and we put about 300,000 into it and then we didn't get permits. So we got busted in that process and now there's still a lien on title from LA county building department and so we can't sell that place and we can't even get a refi until we get those liens off title and get it all permanent everything which is a, that's a whole different stories…   Michael: Trying to get us to do an entire podcast series…     Rich: Coastal Commission and all that stuff. So oh my gosh, so we have a tenant in there and it's slightly cash negative cash flow. So that's like 150 to 200 a month negative cash flow.   So being completely honest, we do have a negative cash flow, it drives me crazy and that house has gone up probably $400,000 over the last couple of years in value. So we could look at it that way. But we can beyond that everything that we hold is positive cash flow, even if it's just like $100 a month positive. That's fine and if we're going to do a cash out refi we make sure that it's appreciated enough where we can do that cash out refi and not have the loan payment, PTI go over what we're gonna get for rental income.   Michael: Yeah, makes sense. Well, I appreciate you sharing the misstep and the vulnerability here on the show but it wasn't intentional, that was just a series of consequences. That hadn't be negative. You wouldn't you would intentionally do that.   Rich: Yeah, we did bring it on ourselves and but yeah, wasn't intentional. We didn't want to get caught.   Michael: I've played that game before, too. It's a risky one.   Rich: It is. Yeah, so you're always looking out the window and yeah…   Michael: Who is coming in, roday gonna be the day get caught o maybe tomorrow?   Rich: Exactly. When we were almost done. We were building the final deck in the back and all of a sudden, this building inspector shows I'm investigating you because one of your neighbors called…   Michael: I was gonna say but it's probably one of your neighbors.   Rich: Yeah, because it would make the cut and concrete and it was so loud or for the whole week. I think it just drove this neighbor crazy and so it is what it is.   Michael: As soon as a quick aside one of the other hosts on the show with me, Tom he, one of his neighbors called on him he was adding an offer a small prefab office in the backyard of his property. neighbor called he gets in trouble. Same thing didn't pull permits. So now he's going through that whole rigmarole. But the funny part is the neighbor that called Tom found out that their fence is on Tom's property, it's on the wrong side of the property. He's like, thanks for calling and alerting me to that little fact.   Michael: Unbelievable.   Rich: So he's, he's playing that game. How do I how do I want to you know, play my next hand?   Rich: The revenge game…   Michael: That's it, that's it, best served cold on ice. Okay, Rich. Let's wrap up here. I'm curious to get your thoughts. We are in this very unique time in our economy in our market in this country and I'm just curious to kind of get your thoughts on what are you doing, personally as an investor and what are you doing in your business and what are you telling your students to do, as well?   Rich: Absolutely, yeah. I have the benefit of being married to Kathy Fettke, who has been around for a while she's on the on the market podcast on Bigger Pockets and so she's constantly doing her market updates every year, she does predictions and has done that for the last 15 years and then at the every quarter, she doesn't investor update and at the end of the year, she puts herself on the line says okay, here's what I predicted back in January. Let's see how accurate I am and yeah, and she's been really good. She's like almost 95% on her predictions, which is awesome. So I just listened to her. You know, she's always interviewing experts and she's connected with like John Chang from Marcus and Millichap and so many just, you know, experts, as I said, with Kiyosaki and all that. So what she's saying I'll just speak, you know, because I get to hear through her office door when she's doing all her interviews and everything she think He said interest rates are not going to go up that much more, maybe even dip a tiny bit for mortgages, and then maybe level off.   But even though the Feds gonna keep raising the rate, the lender and great mortgage rates can't kind of withstand that going up too much. So she thinks mortgage rates are going to hold around where they are and then there's such a glut in such a need for properties and not enough inventory. It's like a whole different world than 2008-2009. So yeah, I think we're, it's estimates are between three and 5 million homes shy right now, for housing units. So inventory still low and also, there's that whole thing where people are locked into these amazing interest rates, so they don't want to sell. So they just, it doesn't make sense to sell something and when you got a 3% mortgage or lower and go into a higher mortgage, so the real estate is gonna hold strong is what she's predicting, it's even going to increase a little bit rents are even going to increase a little bit surprisingly, even with, with the economy and inflation, rents are still gonna go up a little bit, that's her prediction and then a recession will hit well, most likely, sometime around late 2023, early 2024 but it will be a mild one, just kind of more of a correction that that's needed.   Michael: Okay. Okay and does either her or you think that there will be any kind of pullback in demand as folks go back into the office or are we going to be seeing remote work kind of indefinitely, which I think was a big driver of that single family rental demand?   Rich: Yeah, that's a big one. Yeah and the cool thing is like, we have teams that are like the boots on the ground. So there's different 15 different property teams in our company that find properties and so and we just did a mastermind with them in Tampa, Florida and we spent two days and we really talked about all this exact same stuff. So it's, it's something around not like a big hit on it. There still will be some availability, but not much different than if you look at today's current market right now is not going to be a lot different than that over the next year and a half.   Michael: So for instance, we don't expect there to be much pullback in terms of demand. Dude, because we're expecting people to continue remote working basically…   Rich: There's definitely a return to the office. There's there are definitely companies that are saying no, it's time to come back now that we want to look over your shoulder, we want to hold you accountable and all that stuff. It's so funny, because it's like the surfing lineups are getting a little bit lighter thinning. So funny. Go Oh, it's like why are so many people surfing? Oh, they're supposed to be orange. They think they're working. Their bosses think they're at work right now. Yeah. So I'm seeing a pullback there. So that's my gauge.   Michael: So funny.   Rich: Yeah, but not as much. There's definitely, with so many people how they've learned to use Zoom and GoTo Meeting and being remote and all that stuff. It's we're in a new world, there's no doubt about it. So I think there's going to be a slight pullback on buyers and transactions and all that. As far as the rate, but it's still not going to it's not going to drop to like dismal levels.   Michael: Okay, sweet. Well, we will definitely have to stay in touch and see how you do how you and your wife do on those percentages. Rich, this has been so much fun, man. Thank you again, if people want to learn more about you want to learn more about real wealth, where can they do that?   Rich: For the book? Like I said, it's on Amazon or if people want to learn more, before they buy it, just go to https://realwealth.com/the-wise-investor-book/  and then our website is just simple, real wealth: https://realwealth.com/   Michael: Perfect. Alright, thank you again and I'm sure we'll be chatting soon.   Rich: All right, man. Thank you, it was fun.   Michael: All right, everyone a big thank you to Rich for coming on. Super, super insightful. I know I learned a ton as a coach myself in what to look for in a coach and mentor going forward as well. So as always, thank you so much for listening, and we look forward to seeing the next one. Happy investing…

Dana Dunford is the CEO of Hemlane Property Management and a real estate investor. In today's episode we discuss market conditions, interest rates, what is happening in the stock market, and what the current moment means for real estate investors. If you are wondering if it is the right time to purchase an investment property, you will want to listen to this episode. Links: Hemlane.com --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Dana Dunford, co founder and CEO of Hemlane Property Management. And today Dana is gonna be talking to us about the state of the economy and some things that investors should be aware of and thinking about as we move forward in today's market. So let's get into it.   Dana Dunford, welcome back again to The Remote Real Estate Investor. Thanks for coming on and hanging out with me.   Dana: Great. Thanks for having me. Again, Michael.   Michael: Oh, my gosh, it is such a pleasure. You are great friend of the pod. Great friend of Roofstock. For those who might not be familiar with you give us the Quick, quick and dirty background of who you are. And background on yourself.   Dana: Yeah, so I'm Dana Dunford. I'm here in San Francisco. So just right across the bridge from rootstock. I have been in technology for gosh, now we're going on 18 years. So I'm a tech veteran, which we'll be talking about tonight, today, which I'm excited about. And on top of that, I'm in property management. So we're a tech platform for property management, and partner of Roofstock's. And we've seen what has been going on since q1, the market softening things changing in technology. So I think this is going to be a great call, because both Roofstock and Hemlane have seen it firsthand. And hopefully this gives some insight into what, what the upcoming year is going to look like for all real estate investors out there.   Michael: Totally. And just to give some people, some additional color, you are CEO, co founder of Hemlane, and you just did your series A, what was it q3 of 2021 or q4 of 2021?   Dana: Q4, so we raised at the perfect timing, those who are not in venture and the tech world of Silicon Valley. We couldn't have timed it better. You know, right now, and we'll talk about this today. Right now, the market is really softening. There's just less capital going into startups. We can't say this was people were already predicting this. So back in q3, and q4 venture capitalists were already saying, Ooh, there's a lot of money pouring into this valuations are really high. And some had already started pulling back. But it wasn't until what happened in the public markets, where you know, trillions of dollars were taken out of these Sass companies, valuations are overall the market cap, that suddenly the venture world that trickled down and people really started to pull back capital. So yeah, we raised back then roofstock, when was your guys's last raise? Because you guys are at a later stage. And so obviously, also impacted by this and quite, potentially, more significantly than us.   Michael: I think we got our term sheet squared away in in q4, as well. So right around that same perfect timing with money getting wired in coming in and in q1.   Dana: Yeah, perfect. So you guys will be able to weather the storm with that what we're going to be talking about soon here.   Michael: Yep, absolutely. I'm thinking so. Okay, so let's talk about how, like, how did we get here, because you're mentioning that trillions of dollars have been essentially taken off the table in terms of market cap. But for those people that aren't familiar with the space that haven't maybe been following along as closely, what like, where are we today? And can you give us some insight and background as to how you think we got here?   Dana: Yeah, so first of all, I believe most people on this podcast today listening are real estate investors. And so all of you hopefully got in when interest rates were super low, just artificially low, right? We never seen interest rates below 3% for so long. And one that was fantastic for real estate, right? You could get a rental properties at afford a higher price because your interest rate is much lower your loan. And then for startups and for companies money was much more free it was much more flowing. What we ended up seeing happen which most people predicted this would happen. But no one knew when or at least I haven't heard of any economists who knew this was going to happen exactly. We're in March, but we started seeing the inflation go through the roof, you know, 8.6%. And it's been consistent where we have seen the inflation rate really, really high.   And so the only way for the Fed to essentially combat that was obviously, to increase interest rates, which we are all seeing now are all seen in our real estate itself, doesn't mean there aren't great deals out there. So Mike, like, do you want us to talk about that, because I still think there's great deals out there that you guys have on the platform, and now could be a really good time to buy. So don't let that taint your decision of whether or not you should go into real estate.   But with that, as you know, when the Fed raises interest rates, consumer spending just goes down, that will probably people will spend less, and also things are more expensive. And so once you have that happen, the stock market's inversely correlated to interest rates. And so once interest rates went up, there was a correction in the stock market. Why it affects us on the private company side so much is Roofstock and Hemlane are both considered growth companies. And what happened was essentially, in the public markets, so any public company, there's basically two different types, there's growth, just like us, companies like Roofstock, that have gone public. And then there are value companies and the value companies are much more stable. They're based on their cash flow. They're typically larger, older companies, and their price is based on their sales. So their price is relatively low relative to sales, in companies like that, or like Bank of America, if you think about it, and RG like gas companies like very stable, steady businesses, where you're not going to see   Michael: Blue chip companies.   Dana: Yeah, your blue chip companies where you're not going to see, you know, 500% growth year over year. But what ends up happening is when the interest rates go up like that, and stocks go down, the ones that get devalued, the most are the growth stage companies. And the growth stage companies are companies like Roofstock, and heavily that are public. And so what we basically saw happen was this huge, huge cut in market cap in the public markets. And so for SAS company software as a service where you go, you pay a subscription every month to use a service, the market cap cap got cut by $1 trillion dollars from November of 2021. Until today, and so what that did was essentially, these companies thought they were worth a lot more.   And you know, some of them, like the stripes of the world, in the snowflakes had these really high revenue multiples, and suddenly, those just deteriorated. And the multiple based of what their valuation is versus their, their revenue went down. And that essentially trickled down to private companies like us as well. And so now when a company goes out to raise capital in q1, q2, primarily, now it's even, it's even worse. And what we're foreseeing in q3 is that you might have had a 10x, revenue multiple, so your valuation, it's 10x, what your revenue is, that's how it used to be.   Now you go out to a venture capitalist, and they're like, great, you're worth 3x, or 5x. So much lower valuation. And so what they're, they're expecting is a lot of down rounds, a lot of startup saying, If I can, let me just hold on to my cash, let me cut my bird, let me try to raise later and better times. And all of this impacts the economy, because it was the public markets that were hit. And now it's also the private companies where we are in Silicon Valley. And I do think this, this trickles a bit to real estate. It's it's a different type of market correction that we saw in 2008. In 2008, it was housing right and the mortgage crisis today, I think this is a lot more like the.com bubble. This is very similar to the.com bubble of these really high tech valuations that need to be corrected. And so when you think about purchasing real estate, I actually think that's why Roofstock is such a fantastic place to go. Because you're getting out of the tech scene, you're going to other markets and purchasing there.   Michael: It's so interesting. But then so I'm curious, we talk so often about in real estate that the price is only a factor, or it's only important if you're doing something with the property if you're buying selling refinancing, because otherwise you're just having a cash flow, and that often is independent of what the value is of the company, or excuse me, the property. So why does that matter? or for companies like the fact that there's the company is now worth less, unless they're trying to do something buy, sell, or refinance or raise, raise, raise capital, like, why does that matter?   Dana: So it doesn't matter for Roofstock. And it doesn't matter for Hemlane, because we just raised, we have enough capital to weather this storm. But imagine a company that raised and they had a, let's just give the case of like the stripes of the world 100x Multiple. And let's just say it's a private company, with 100x, multiple, and now they're going back out, and they're now getting a 10x. Multiple, they could have what we call a down round, where suddenly they are worth less than they were before. And that gives a lot less confidence. One the company itself, right? The amount that you're giving up as a founder, as an employee, as an existing investor, it's a lot more just to get in the same amount of capital you wanted to historically, in so what you're seeing is these companies really, really tighten the ship, and just say, Okay, we're going to stop hiring as many people, we're really going to look at our expenses. And that means there's not more money pouring into, you know, hiring 100 people every week, they're suddenly going back and thinking about who are the strategic hires, we really need? Should we be letting go? You've seen the massive tech layoffs where it's, you know, 20% of the workforce. And now suddenly, they're really tightening their books, because cash is king right? Now, you want to hold on to that cash? Because the last thing you want to do is go out and have a lower valuation.   Michael: Yeah. Okay. Well, that makes sense. And so talk to us a little bit about why this is affecting real estate investors or why real estate investors should even care about this that's going on?   Dana: Yeah. So I always think there's a huge opportunity when there's like the Warren Buffett, quote, right? be fearful when others are greedy and be greedy when others are fearful. I think right now everyone's scared. And there's a lot of real estate investors, like we actually just did a survey at Hemlane, where majority were saying we're not going to purchase in the next 12 months, because interest rates have gone up we should have gotten any year ago. Well, you know, the best time to get into real estate was 10 years ago, and the next best time is today, I think there's going to be a lot of great deals out there. I think that while others are tightening up, other investors are scared, this is a time for you to be really aggressive. I mean, still looking at your pro forma and and follow your numbers. But you'll be able to find some some great deals out there.   Michael: I've heard a lot of sentiment around, you can always change your interest rate, but you can never change your purchase price. So if someone is getting into a deal today, at an interest rate that's a little bit higher than they're comfortable with. But they anticipate interest rates to come down at some point down the road. What are your thoughts there?   Dana: Yeah, you can always refinance. I mean, don't do a deal hoping that interest rates go down, and you can refinance it or fudge the numbers on your spreadsheet. This is why   Michael: I was hoping that's what you were gonna say.   Dana: Yeah, like this is I mean, this is why I'm, I'm more conservative than most in every property purchases had a fixed rate. I don't do adjustable. But I can refinance, right? So I can always refinance. But I want to know what I'm getting into. So when you do your pro forma, do it with whatever the interest rate is now and consider it a huge advantage and just like increased cash flow, if you can refinance in the future, will interest rates go back to this like artificially low rate that we saw over the past five years, maybe not. But I don't think that is a reason not to purchase now. You do your numbers, and you look at it just because you might say property values are really high interest rates are going up, now's not a good time to buy. That's just laziness. Like, honestly, that's just you being lazy and not wanting to do the work.   There's always great deals out there. You just have to do the work, find them look at the numbers and say even with this increased interest rate, it's still a great deal. I'm still cash flowing and I've got a great cap rate, and you can go ahead and purchase. So I don't think of this as the time really to, to change your decisions on real estate. And part of that has to do with I think, you know, some markets will soften. Some markets may remain flat for a while but that doesn't mean that you're not getting the cash flow and having a great investment that by the way, with inflation where it is If it continues, having an asset where the value goes up with inflation, so I still think now's a great time to purchase real estate. And you might be able to get some fantastic deals as other investors are pulling out, you can really, really go in and get those great deals.   Michael; Love it. And Dana, I'm curious if because we've seen prices go through the roof, and interest rates have also gone up significantly, there might be a bit of a lead lag measure until we see prices come down. So in in terms of looking for different markets, I mean, are you targeting markets that are continuing to grow? Are you targeting markets that maybe are seeing some of that softening in terms of pricing?   Dana: So for us, we go where the real estate investors are. So if there's a real estate investor there, right, we're going to do the property management for them. I think when you're when you're thinking about the lag, that is definitely true. I've heard this with other real estate investors, I've seen it myself, where you see a price. And with interest rates up, the seller puts one price out there, because that's what it was two weeks ago. And suddenly, it's not worth that much. It's worth like 10% 20%. Last, but it's actually really good to put yourself into the position of the seller, and of the real estate agent, because you can actually get some really, really good deals off of that.   And what I mean by it is real estate investors have always told historically, have told their buyers in the past couple of years. If your mark, if your property is on market for over two weeks, people might think there's something wrong with that. And so, you know, we're going to ask for offers on X date, right, like X date and two weeks, or maybe we'll do one week, we're going to ask for offers. Well, if they've missed priced the property, you might be able to go in and you don't know this, but you might be the only offer because they priced it way too high, because we priced it from a purchase price from two weeks ago. And now that has suddenly changed like the market changes every two weeks, it really is. And you could go in and get a great deal. And so I think from from that perspective, there are still fantastic deals out there. But you have to be patient. And some of it will be that luck, where you get the right deal, though what else has gone into, and you can go ahead and purchase that.   So if you put yourself in the other shoes, you might see that you also see a lot of people you know why I don't think it's like 2008 and 2009 is people have a lot more equity in their properties because one value values have gone up. And then two, the interest rates were really low, people could afford more put more money in the market was booming. And so what we're seeing is that more people have equity in them. And at some point, it's emotional for someone, they're like, I just want to get rid of this asset, because I'm gonna go buy another one, or I just really want to move out of the city and move somewhere else. And, you know, to them, maybe 20 To 50 to $70,000 is not a lot depending on what it is. But that is a lot to you. And that changes, changes the numbers on your spreadsheet significantly.   And so I mean, with that purchase price, obviously that matters. But just because the price is out on the market for a property doesn't mean that the price is going to sell for. And so it would be a really good time to go out and experiment with that you will know your market better than anyone else, whatever market you're in, because it will take you bidding on like five properties. And maybe people will laugh at you like your first one, you go like 20% under and they laugh at you. But maybe you get lucky on the fifth one, and you'll get a great deal. But yeah, just follow the numbers in your spreadsheet don't have a purchase price, that doesn't make sense and you're not cash flowing. Or don't change the interest rate hoping that it will go down to that to that amount.   Michael: Yeah, that makes total sense. And speaking of spreadsheet numbers, are you seeing a lot of your investor clients that you work with adjusting their expectations around cash on cash returns? Now that prices and interest rates are up?   Dana: So not really I think most investors like most of the savvy ones we work with, we work with his sort of two different types of of customers, those who had properties just handed to them. And they actually never did the analysis like pan downs from parents and things like that. And then others   Michael: Accidental landlords.   Dana: Accidental Yes. And then others who are very strategic real estate investors and what we have found with them as they have the capital and they might not be they might be with inflation to your point Michael being like, Oh, maybe I should just go buy something because the dollar today is worth less On tomorrow, but no, I actually think most real estate investors are still saying, this is the deal that I got, historically, I want to get something like that. And so they're not changing those expectations on cash on cash return, but they might be going somewhere else. So they go to Roofstock, and they say, Okay, I, you know, couldn't find this property, you know, in my backyard, but on Roofstock, they do have the cash on cash return that I that I that I targeting. And so I do think they're not changing their expectations. But they are going out and finding alternative ways to get the numbers they need.   There's one case, Michael, where I find people change their expectations. And it's first time real estate investors to just get their foot in the door. And I'm actually okay with that. I think that there's too many people who, and for anyone who's listening to this, who doesn't have a real estate investment, you kind of sit there and you kind of fantasize about getting one and then you put so much like anxiety into getting your first property. And once you have your first you're like, oh, okay, that's what I got, here's what it is. And it makes it easier, where then you can go and purchase more properties and more properties. And you know, what you're looking for, and you know what the return was, and you have this process set up.   But the first one is really difficult to get into. So I find that those people today are changing their expectations, for certain metrics just to get into the market, before it's too late. Interest rates go up more, or you know, they're kind of kicking themselves that they didn't get in, you know, four years ago, five years ago. So I only think it's first time real estate investors where that's happening. And I'm actually okay with that. Because I think if you can get more people into real estate investing, and more people to just get their foot in the door, you're going to learn so much off of that first property, that then you're going to say, Okay, this was my cap rate for my first property. My next one, I have to at least have that or better and you kind of improve, you know, it's kind of like dating, you never like you don't date someone who's great. And then like the next person is like a downgrade, you kind of have the standard. And you're like, I can only go up from there. It's the same exact thing with real estate investing. So I really think it's only first time homebuyers where that happens are real estate investors for rental properties?   Michael: Yep, I think and I think that makes tons of sense. It's something that I hear all the time. It's Michael, I'm trying to get my first deal done and has to be amazing. And you know, it has to be a Grand Slam? Like? Don't worry about the grand slams, let's practice getting on base first. And then you'll know how to swing for   Dana: Exactly, exactly. And it makes it a lot easier when you have one property in that area. You know your market a bit more, and then you can kind of purchase some more around at.   Michael: Yep. Yeah, I think it makes him think that's totally right. And so Dana, we're kind of at this like crossroads where we're talking about, some investors are pressing pause on their acquisitions. And then this whole other cohort of investors are like, Oh, crap, I gotta get into the market before interest rates go up further before prices go up further. So it does feel like there's this pressure to buy or there's frenzy to buy, on the one hand, and then there's this whole other group, that's again, kind of taking a step back and saying, let's, let's wait and see what happens. How do you square those two?   Dana: Well, to me, I'm like a pretty unemotional real estate investor. And I feel like for anyone, whatever segment you fall into, you still have to go back to the numbers and see what makes sense. And so I mean, is there a right way to go? I think one people who are not going out, and they're using this as an excuse not to purchase properties, or just being lazy, honestly. And for those who are out there saying, I gotta get in and get my next deal. I think they're almost too emotional. Where they might go in and change the numbers to your point of saying, like, oh, it's not, you know, my last deal was was better than this, but I just need to get my foot in the door. Maybe that's not the right approach to have, it's, Hey, there's gonna be a deal out there. I might have to be a little bit more patient during this the for the next three to six months, I have to be patient, I have to understand what's going on.   But yeah, I just kind of go back to the numbers. I think in both cases, they're they're taking emotion and what's happening in the market and using that, like the macro for the micro. And instead of saying, You know what, I know what is a good deal, here's what it looks like on paper. Let me continue to go search until I find that and it might take you a little bit longer to find it. Or you might find a process like oh, wow, I can, you know, go 20% under and get lucky on a deal off of this, whatever the home price is, I could, you know, undercut them and give them an offer and maybe they'll take it to get that great deal.   Um, But I don't I think both categories are bad. I think someone who says I have to get my foot in the door. Before interest rates go up is emotional. I think someone who says there are no great deals out there are just lazy. And so I kind of fall somewhere in between of saying, yeah, just be financially prudent as you always should be with your real estate investment investments, know your market, know what numbers numbers you need, and make sure you're a little bit more conservative. Like, I know, a couple investors with adjustable rate mortgages that did them, you know, back when interest rates were really low. And I bet they feel pretty stupid right now. So   Michael: we won't name names,   Dana: Won't name names here.   Michael: Well, I'd be very interested to meet the the emotionally lazy person, because it sounds like those are two opposite ends of the spectrum. Yeah, I have to see. Okay. And last thing that I want to ask you about is around expectations. If someone is newer to the investment space, they may be looking to get their first deal done. Everyone around them, their sister, their brother, aunts, uncles in this market are making 10% cash on cash. Yeah, pick a number. Nice round number 10%. And they're like their expectation was was 15%. Right, for whatever reason, that's what makes them tick. That's what gets them excited about an investment. Everyone around them is making 10%. So how the how should investors be thinking about not looking at other people, and just focusing on what's good for them, but also not being blind and naive to what a market is really able to produce? In terms of In other words, like, they I want someone to be excited about the returns that they're getting, but I also want them to be realistic. How do you kind of how do you?   Dana: So the biggest thing I would say to throttle that is, most likely you've sort of selected a market because you've looked at, okay, where is and I mean, Roofstock does this for you, and you guys, I think have some great shows from like every single market of why why you guys are looking at a certain market. So that helps. But you as a real estate investor are gonna say worse population growth? And why like, is more industry going there? Like maybe an Amazon facility was just put into place? Does it have fed, ed's and meds? Like, is it stable, even recession proof, especially now? So you kind of go through and figure out why am I excited about this market? And you just start there? And like, don't forget about your, I mean, 15% cash on cash return? Like, let's just forget about all of that and just go through? What looking at macro, and now we're kind of going to micro to like city level?   Why do I think this is going to be a lot a good market in five to 10 years, because you're going to hold on to these properties and purchase more, right? Do that first, then you say, Okay, this is my market, then what you're going to do is for two to three months, you're going to look at all the deals there, go on Roofstock, I think you could set up alerts because I have those that go to my email that essentially like tell you here's a new property in that market, great purchase. Um, you're gonna go through and you might the first couple of properties, say you know what? Those, those don't really hit my cash on cash return expectations, but now you're starting to know your market and you're gonna see a trend, are they going up? Are they going down? And you can look at that over time to make an unemotional decision that is based on data.   I think that is the most important thing to do. When someone gets in this frenzy of I need this cash on cash return shoot, I'm not going to get it. So I'm just going to slash it. And I'm going to say now I need, you know, seven or 8% I and you're just becoming emotional. But if you go through look at the numbers and you say okay, great, I wanted 15% You know, my friends are getting 10% I'm and you're you change those expectations. And suddenly you say, Okay, I made this decision, and here's my cash on cash return. But I knew at that time, that was the best I could do. Because I looked at the data, then suddenly you never go back and wish you had done it differently. Because you have something that is non non emotional to back you up. And don't compare yourself to other real estate investors. I've seen real estate investors in the past four to five years who've been super successful, who are super stupid.   And the reason they were successful and I hate to say that but like there's so many people out there because basically it was free money like there was so much investment it was there was so much easy money from investors that I saw way too many people also going into real estate. A lot of actually on the fix and flip side that just got lucky because yeah, money was basically free to do a fix and flip and a The home prices were going up astronomically. And they feel like they're the smartest people in the room.   Well, maybe they were at that time, but like, give it two to three months, maybe six months, and the story might change. And so that's why I think it's hard at like one point in time, if you're just getting started to compare yourself to those around you, I don't think you should do that. I think you should just be financially prudent, and make sure that you're not overextending yourself. And you know, your market. And you know why you made the decision, you see you did, and it's all based off those numbers. And it's based off the numbers, but also you need to know the market, like you need to know you guys have neighborhood scores and ratings, that kind of stuff of like, here's why I only invest in neighborhoods that have three stars, or greater, or whatever it may be like it, write all of this stuff out, and take a really methodical approach to your assets, your real estate investing, and I don't think you'll regret it. Like, I don't think you're gonna go back and say, Oh, I really wish I would have gotten that 15% I targeted?   Michael; I think that is like spot on. Thank you so much. And if you missed it, if you missed any part of that, go back, rewind the last three minutes, and listen to that again, cuz I think that's a lot of gold in there. Then this was super fun. As always, if people want to reach out more, find out more about you or hemline. Where's the best place for them to do that?   Dana: Yeah, you can go on to Roofstock when you purchase a property, how many will be listed as a property manager? So go go ahead and do that. You can also go to Hemlane.com. And my email is dana@hemlane.com. So I love hearing from people.   Michael: Awesome. Well, thank you again, and very much looking forward to having you on. Again, I'm sure take care of we'll chat soon.   Dana: Great. Yeah, I'm excited in six months for us to see if we were if we stand corrected on what's going on in the market.   Michael: I know it'd be very interesting. Well keep close tabs on it.   Dana: Great. Thanks so much for having me.   Michael: You got it, take care.   Okay, everyone, and that was our episode A big thank you to Dana for coming on as always big friend of the pod as we were saying at the beginning of the show. As always, if you liked the episode, we'd love to hear from you all with a rating and review and we look forward to seeing the next one. Happy investing

Dana Dunford is the CEO of Hemlane Property Management and a real estate investor. In today's episode we discuss market conditions, interest rates, what is happening in the stock market, and what the current moment means for real estate investors. If you are wondering if it is the right time to purchase an investment property, you will want to listen to this episode. Links: Hemlane.com --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The remote real estate investor podcast is for informational purposes only and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of The Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Dana Dunford, co founder and CEO of Hemlane Property Management. And today Dana is gonna be talking to us about the state of the economy and some things that investors should be aware of and thinking about as we move forward in today's market. So let's get into it.   Dana Dunford, welcome back again to The Remote Real Estate Investor. Thanks for coming on and hanging out with me.   Dana: Great. Thanks for having me. Again, Michael.   Michael: Oh, my gosh, it is such a pleasure. You are great friend of the pod. Great friend of Roofstock. For those who might not be familiar with you give us the Quick, quick and dirty background of who you are. And background on yourself.   Dana: Yeah, so I'm Dana Dunford. I'm here in San Francisco. So just right across the bridge from rootstock. I have been in technology for gosh, now we're going on 18 years. So I'm a tech veteran, which we'll be talking about tonight, today, which I'm excited about. And on top of that, I'm in property management. So we're a tech platform for property management, and partner of Roofstock's. And we've seen what has been going on since q1, the market softening things changing in technology. So I think this is going to be a great call, because both Roofstock and Hemlane have seen it firsthand. And hopefully this gives some insight into what, what the upcoming year is going to look like for all real estate investors out there.   Michael: Totally. And just to give some people, some additional color, you are CEO, co founder of Hemlane, and you just did your series A, what was it q3 of 2021 or q4 of 2021?   Dana: Q4, so we raised at the perfect timing, those who are not in venture and the tech world of Silicon Valley. We couldn't have timed it better. You know, right now, and we'll talk about this today. Right now, the market is really softening. There's just less capital going into startups. We can't say this was people were already predicting this. So back in q3, and q4 venture capitalists were already saying, Ooh, there's a lot of money pouring into this valuations are really high. And some had already started pulling back. But it wasn't until what happened in the public markets, where you know, trillions of dollars were taken out of these Sass companies, valuations are overall the market cap, that suddenly the venture world that trickled down and people really started to pull back capital. So yeah, we raised back then roofstock, when was your guys's last raise? Because you guys are at a later stage. And so obviously, also impacted by this and quite, potentially, more significantly than us.   Michael: I think we got our term sheet squared away in in q4, as well. So right around that same perfect timing with money getting wired in coming in and in q1.   Dana: Yeah, perfect. So you guys will be able to weather the storm with that what we're going to be talking about soon here.   Michael: Yep, absolutely. I'm thinking so. Okay, so let's talk about how, like, how did we get here, because you're mentioning that trillions of dollars have been essentially taken off the table in terms of market cap. But for those people that aren't familiar with the space that haven't maybe been following along as closely, what like, where are we today? And can you give us some insight and background as to how you think we got here?   Dana: Yeah, so first of all, I believe most people on this podcast today listening are real estate investors. And so all of you hopefully got in when interest rates were super low, just artificially low, right? We never seen interest rates below 3% for so long. And one that was fantastic for real estate, right? You could get a rental properties at afford a higher price because your interest rate is much lower your loan. And then for startups and for companies money was much more free it was much more flowing. What we ended up seeing happen which most people predicted this would happen. But no one knew when or at least I haven't heard of any economists who knew this was going to happen exactly. We're in March, but we started seeing the inflation go through the roof, you know, 8.6%. And it's been consistent where we have seen the inflation rate really, really high.   And so the only way for the Fed to essentially combat that was obviously, to increase interest rates, which we are all seeing now are all seen in our real estate itself, doesn't mean there aren't great deals out there. So Mike, like, do you want us to talk about that, because I still think there's great deals out there that you guys have on the platform, and now could be a really good time to buy. So don't let that taint your decision of whether or not you should go into real estate.   But with that, as you know, when the Fed raises interest rates, consumer spending just goes down, that will probably people will spend less, and also things are more expensive. And so once you have that happen, the stock market's inversely correlated to interest rates. And so once interest rates went up, there was a correction in the stock market. Why it affects us on the private company side so much is Roofstock and Hemlane are both considered growth companies. And what happened was essentially, in the public markets, so any public company, there's basically two different types, there's growth, just like us, companies like Roofstock, that have gone public. And then there are value companies and the value companies are much more stable. They're based on their cash flow. They're typically larger, older companies, and their price is based on their sales. So their price is relatively low relative to sales, in companies like that, or like Bank of America, if you think about it, and RG like gas companies like very stable, steady businesses, where you're not going to see   Michael: Blue chip companies.   Dana: Yeah, your blue chip companies where you're not going to see, you know, 500% growth year over year. But what ends up happening is when the interest rates go up like that, and stocks go down, the ones that get devalued, the most are the growth stage companies. And the growth stage companies are companies like Roofstock, and heavily that are public. And so what we basically saw happen was this huge, huge cut in market cap in the public markets. And so for SAS company software as a service where you go, you pay a subscription every month to use a service, the market cap cap got cut by $1 trillion dollars from November of 2021. Until today, and so what that did was essentially, these companies thought they were worth a lot more.   And you know, some of them, like the stripes of the world, in the snowflakes had these really high revenue multiples, and suddenly, those just deteriorated. And the multiple based of what their valuation is versus their, their revenue went down. And that essentially trickled down to private companies like us as well. And so now when a company goes out to raise capital in q1, q2, primarily, now it's even, it's even worse. And what we're foreseeing in q3 is that you might have had a 10x, revenue multiple, so your valuation, it's 10x, what your revenue is, that's how it used to be.   Now you go out to a venture capitalist, and they're like, great, you're worth 3x, or 5x. So much lower valuation. And so what they're, they're expecting is a lot of down rounds, a lot of startup saying, If I can, let me just hold on to my cash, let me cut my bird, let me try to raise later and better times. And all of this impacts the economy, because it was the public markets that were hit. And now it's also the private companies where we are in Silicon Valley. And I do think this, this trickles a bit to real estate. It's it's a different type of market correction that we saw in 2008. In 2008, it was housing right and the mortgage crisis today, I think this is a lot more like the.com bubble. This is very similar to the.com bubble of these really high tech valuations that need to be corrected. And so when you think about purchasing real estate, I actually think that's why Roofstock is such a fantastic place to go. Because you're getting out of the tech scene, you're going to other markets and purchasing there.   Michael: It's so interesting. But then so I'm curious, we talk so often about in real estate that the price is only a factor, or it's only important if you're doing something with the property if you're buying selling refinancing, because otherwise you're just having a cash flow, and that often is independent of what the value is of the company, or excuse me, the property. So why does that matter? or for companies like the fact that there's the company is now worth less, unless they're trying to do something buy, sell, or refinance or raise, raise, raise capital, like, why does that matter?   Dana: So it doesn't matter for Roofstock. And it doesn't matter for Hemlane, because we just raised, we have enough capital to weather this storm. But imagine a company that raised and they had a, let's just give the case of like the stripes of the world 100x Multiple. And let's just say it's a private company, with 100x, multiple, and now they're going back out, and they're now getting a 10x. Multiple, they could have what we call a down round, where suddenly they are worth less than they were before. And that gives a lot less confidence. One the company itself, right? The amount that you're giving up as a founder, as an employee, as an existing investor, it's a lot more just to get in the same amount of capital you wanted to historically, in so what you're seeing is these companies really, really tighten the ship, and just say, Okay, we're going to stop hiring as many people, we're really going to look at our expenses. And that means there's not more money pouring into, you know, hiring 100 people every week, they're suddenly going back and thinking about who are the strategic hires, we really need? Should we be letting go? You've seen the massive tech layoffs where it's, you know, 20% of the workforce. And now suddenly, they're really tightening their books, because cash is king right? Now, you want to hold on to that cash? Because the last thing you want to do is go out and have a lower valuation.   Michael: Yeah. Okay. Well, that makes sense. And so talk to us a little bit about why this is affecting real estate investors or why real estate investors should even care about this that's going on?   Dana: Yeah. So I always think there's a huge opportunity when there's like the Warren Buffett, quote, right? be fearful when others are greedy and be greedy when others are fearful. I think right now everyone's scared. And there's a lot of real estate investors, like we actually just did a survey at Hemlane, where majority were saying we're not going to purchase in the next 12 months, because interest rates have gone up we should have gotten any year ago. Well, you know, the best time to get into real estate was 10 years ago, and the next best time is today, I think there's going to be a lot of great deals out there. I think that while others are tightening up, other investors are scared, this is a time for you to be really aggressive. I mean, still looking at your pro forma and and follow your numbers. But you'll be able to find some some great deals out there.   Michael: I've heard a lot of sentiment around, you can always change your interest rate, but you can never change your purchase price. So if someone is getting into a deal today, at an interest rate that's a little bit higher than they're comfortable with. But they anticipate interest rates to come down at some point down the road. What are your thoughts there?   Dana: Yeah, you can always refinance. I mean, don't do a deal hoping that interest rates go down, and you can refinance it or fudge the numbers on your spreadsheet. This is why   Michael: I was hoping that's what you were gonna say.   Dana: Yeah, like this is I mean, this is why I'm, I'm more conservative than most in every property purchases had a fixed rate. I don't do adjustable. But I can refinance, right? So I can always refinance. But I want to know what I'm getting into. So when you do your pro forma, do it with whatever the interest rate is now and consider it a huge advantage and just like increased cash flow, if you can refinance in the future, will interest rates go back to this like artificially low rate that we saw over the past five years, maybe not. But I don't think that is a reason not to purchase now. You do your numbers, and you look at it just because you might say property values are really high interest rates are going up, now's not a good time to buy. That's just laziness. Like, honestly, that's just you being lazy and not wanting to do the work.   There's always great deals out there. You just have to do the work, find them look at the numbers and say even with this increased interest rate, it's still a great deal. I'm still cash flowing and I've got a great cap rate, and you can go ahead and purchase. So I don't think of this as the time really to, to change your decisions on real estate. And part of that has to do with I think, you know, some markets will soften. Some markets may remain flat for a while but that doesn't mean that you're not getting the cash flow and having a great investment that by the way, with inflation where it is If it continues, having an asset where the value goes up with inflation, so I still think now's a great time to purchase real estate. And you might be able to get some fantastic deals as other investors are pulling out, you can really, really go in and get those great deals.   Michael; Love it. And Dana, I'm curious if because we've seen prices go through the roof, and interest rates have also gone up significantly, there might be a bit of a lead lag measure until we see prices come down. So in in terms of looking for different markets, I mean, are you targeting markets that are continuing to grow? Are you targeting markets that maybe are seeing some of that softening in terms of pricing?   Dana: So for us, we go where the real estate investors are. So if there's a real estate investor there, right, we're going to do the property management for them. I think when you're when you're thinking about the lag, that is definitely true. I've heard this with other real estate investors, I've seen it myself, where you see a price. And with interest rates up, the seller puts one price out there, because that's what it was two weeks ago. And suddenly, it's not worth that much. It's worth like 10% 20%. Last, but it's actually really good to put yourself into the position of the seller, and of the real estate agent, because you can actually get some really, really good deals off of that.   And what I mean by it is real estate investors have always told historically, have told their buyers in the past couple of years. If your mark, if your property is on market for over two weeks, people might think there's something wrong with that. And so, you know, we're going to ask for offers on X date, right, like X date and two weeks, or maybe we'll do one week, we're going to ask for offers. Well, if they've missed priced the property, you might be able to go in and you don't know this, but you might be the only offer because they priced it way too high, because we priced it from a purchase price from two weeks ago. And now that has suddenly changed like the market changes every two weeks, it really is. And you could go in and get a great deal. And so I think from from that perspective, there are still fantastic deals out there. But you have to be patient. And some of it will be that luck, where you get the right deal, though what else has gone into, and you can go ahead and purchase that.   So if you put yourself in the other shoes, you might see that you also see a lot of people you know why I don't think it's like 2008 and 2009 is people have a lot more equity in their properties because one value values have gone up. And then two, the interest rates were really low, people could afford more put more money in the market was booming. And so what we're seeing is that more people have equity in them. And at some point, it's emotional for someone, they're like, I just want to get rid of this asset, because I'm gonna go buy another one, or I just really want to move out of the city and move somewhere else. And, you know, to them, maybe 20 To 50 to $70,000 is not a lot depending on what it is. But that is a lot to you. And that changes, changes the numbers on your spreadsheet significantly.   And so I mean, with that purchase price, obviously that matters. But just because the price is out on the market for a property doesn't mean that the price is going to sell for. And so it would be a really good time to go out and experiment with that you will know your market better than anyone else, whatever market you're in, because it will take you bidding on like five properties. And maybe people will laugh at you like your first one, you go like 20% under and they laugh at you. But maybe you get lucky on the fifth one, and you'll get a great deal. But yeah, just follow the numbers in your spreadsheet don't have a purchase price, that doesn't make sense and you're not cash flowing. Or don't change the interest rate hoping that it will go down to that to that amount.   Michael: Yeah, that makes total sense. And speaking of spreadsheet numbers, are you seeing a lot of your investor clients that you work with adjusting their expectations around cash on cash returns? Now that prices and interest rates are up?   Dana: So not really I think most investors like most of the savvy ones we work with, we work with his sort of two different types of of customers, those who had properties just handed to them. And they actually never did the analysis like pan downs from parents and things like that. And then others   Michael: Accidental landlords.   Dana: Accidental Yes. And then others who are very strategic real estate investors and what we have found with them as they have the capital and they might not be they might be with inflation to your point Michael being like, Oh, maybe I should just go buy something because the dollar today is worth less On tomorrow, but no, I actually think most real estate investors are still saying, this is the deal that I got, historically, I want to get something like that. And so they're not changing those expectations on cash on cash return, but they might be going somewhere else. So they go to Roofstock, and they say, Okay, I, you know, couldn't find this property, you know, in my backyard, but on Roofstock, they do have the cash on cash return that I that I that I targeting. And so I do think they're not changing their expectations. But they are going out and finding alternative ways to get the numbers they need.   There's one case, Michael, where I find people change their expectations. And it's first time real estate investors to just get their foot in the door. And I'm actually okay with that. I think that there's too many people who, and for anyone who's listening to this, who doesn't have a real estate investment, you kind of sit there and you kind of fantasize about getting one and then you put so much like anxiety into getting your first property. And once you have your first you're like, oh, okay, that's what I got, here's what it is. And it makes it easier, where then you can go and purchase more properties and more properties. And you know, what you're looking for, and you know what the return was, and you have this process set up.   But the first one is really difficult to get into. So I find that those people today are changing their expectations, for certain metrics just to get into the market, before it's too late. Interest rates go up more, or you know, they're kind of kicking themselves that they didn't get in, you know, four years ago, five years ago. So I only think it's first time real estate investors where that's happening. And I'm actually okay with that. Because I think if you can get more people into real estate investing, and more people to just get their foot in the door, you're going to learn so much off of that first property, that then you're going to say, Okay, this was my cap rate for my first property. My next one, I have to at least have that or better and you kind of improve, you know, it's kind of like dating, you never like you don't date someone who's great. And then like the next person is like a downgrade, you kind of have the standard. And you're like, I can only go up from there. It's the same exact thing with real estate investing. So I really think it's only first time homebuyers where that happens are real estate investors for rental properties?   Michael: Yep, I think and I think that makes tons of sense. It's something that I hear all the time. It's Michael, I'm trying to get my first deal done and has to be amazing. And you know, it has to be a Grand Slam? Like? Don't worry about the grand slams, let's practice getting on base first. And then you'll know how to swing for   Dana: Exactly, exactly. And it makes it a lot easier when you have one property in that area. You know your market a bit more, and then you can kind of purchase some more around at.   Michael: Yep. Yeah, I think it makes him think that's totally right. And so Dana, we're kind of at this like crossroads where we're talking about, some investors are pressing pause on their acquisitions. And then this whole other cohort of investors are like, Oh, crap, I gotta get into the market before interest rates go up further before prices go up further. So it does feel like there's this pressure to buy or there's frenzy to buy, on the one hand, and then there's this whole other group, that's again, kind of taking a step back and saying, let's, let's wait and see what happens. How do you square those two?   Dana: Well, to me, I'm like a pretty unemotional real estate investor. And I feel like for anyone, whatever segment you fall into, you still have to go back to the numbers and see what makes sense. And so I mean, is there a right way to go? I think one people who are not going out, and they're using this as an excuse not to purchase properties, or just being lazy, honestly. And for those who are out there saying, I gotta get in and get my next deal. I think they're almost too emotional. Where they might go in and change the numbers to your point of saying, like, oh, it's not, you know, my last deal was was better than this, but I just need to get my foot in the door. Maybe that's not the right approach to have, it's, Hey, there's gonna be a deal out there. I might have to be a little bit more patient during this the for the next three to six months, I have to be patient, I have to understand what's going on.   But yeah, I just kind of go back to the numbers. I think in both cases, they're they're taking emotion and what's happening in the market and using that, like the macro for the micro. And instead of saying, You know what, I know what is a good deal, here's what it looks like on paper. Let me continue to go search until I find that and it might take you a little bit longer to find it. Or you might find a process like oh, wow, I can, you know, go 20% under and get lucky on a deal off of this, whatever the home price is, I could, you know, undercut them and give them an offer and maybe they'll take it to get that great deal.   Um, But I don't I think both categories are bad. I think someone who says I have to get my foot in the door. Before interest rates go up is emotional. I think someone who says there are no great deals out there are just lazy. And so I kind of fall somewhere in between of saying, yeah, just be financially prudent as you always should be with your real estate investment investments, know your market, know what numbers numbers you need, and make sure you're a little bit more conservative. Like, I know, a couple investors with adjustable rate mortgages that did them, you know, back when interest rates were really low. And I bet they feel pretty stupid right now. So   Michael: we won't name names,   Dana: Won't name names here.   Michael: Well, I'd be very interested to meet the the emotionally lazy person, because it sounds like those are two opposite ends of the spectrum. Yeah, I have to see. Okay. And last thing that I want to ask you about is around expectations. If someone is newer to the investment space, they may be looking to get their first deal done. Everyone around them, their sister, their brother, aunts, uncles in this market are making 10% cash on cash. Yeah, pick a number. Nice round number 10%. And they're like their expectation was was 15%. Right, for whatever reason, that's what makes them tick. That's what gets them excited about an investment. Everyone around them is making 10%. So how the how should investors be thinking about not looking at other people, and just focusing on what's good for them, but also not being blind and naive to what a market is really able to produce? In terms of In other words, like, they I want someone to be excited about the returns that they're getting, but I also want them to be realistic. How do you kind of how do you?   Dana: So the biggest thing I would say to throttle that is, most likely you've sort of selected a market because you've looked at, okay, where is and I mean, Roofstock does this for you, and you guys, I think have some great shows from like every single market of why why you guys are looking at a certain market. So that helps. But you as a real estate investor are gonna say worse population growth? And why like, is more industry going there? Like maybe an Amazon facility was just put into place? Does it have fed, ed's and meds? Like, is it stable, even recession proof, especially now? So you kind of go through and figure out why am I excited about this market? And you just start there? And like, don't forget about your, I mean, 15% cash on cash return? Like, let's just forget about all of that and just go through? What looking at macro, and now we're kind of going to micro to like city level?   Why do I think this is going to be a lot a good market in five to 10 years, because you're going to hold on to these properties and purchase more, right? Do that first, then you say, Okay, this is my market, then what you're going to do is for two to three months, you're going to look at all the deals there, go on Roofstock, I think you could set up alerts because I have those that go to my email that essentially like tell you here's a new property in that market, great purchase. Um, you're gonna go through and you might the first couple of properties, say you know what? Those, those don't really hit my cash on cash return expectations, but now you're starting to know your market and you're gonna see a trend, are they going up? Are they going down? And you can look at that over time to make an unemotional decision that is based on data.   I think that is the most important thing to do. When someone gets in this frenzy of I need this cash on cash return shoot, I'm not going to get it. So I'm just going to slash it. And I'm going to say now I need, you know, seven or 8% I and you're just becoming emotional. But if you go through look at the numbers and you say okay, great, I wanted 15% You know, my friends are getting 10% I'm and you're you change those expectations. And suddenly you say, Okay, I made this decision, and here's my cash on cash return. But I knew at that time, that was the best I could do. Because I looked at the data, then suddenly you never go back and wish you had done it differently. Because you have something that is non non emotional to back you up. And don't compare yourself to other real estate investors. I've seen real estate investors in the past four to five years who've been super successful, who are super stupid.   And the reason they were successful and I hate to say that but like there's so many people out there because basically it was free money like there was so much investment it was there was so much easy money from investors that I saw way too many people also going into real estate. A lot of actually on the fix and flip side that just got lucky because yeah, money was basically free to do a fix and flip and a The home prices were going up astronomically. And they feel like they're the smartest people in the room.   Well, maybe they were at that time, but like, give it two to three months, maybe six months, and the story might change. And so that's why I think it's hard at like one point in time, if you're just getting started to compare yourself to those around you, I don't think you should do that. I think you should just be financially prudent, and make sure that you're not overextending yourself. And you know, your market. And you know why you made the decision, you see you did, and it's all based off those numbers. And it's based off the numbers, but also you need to know the market, like you need to know you guys have neighborhood scores and ratings, that kind of stuff of like, here's why I only invest in neighborhoods that have three stars, or greater, or whatever it may be like it, write all of this stuff out, and take a really methodical approach to your assets, your real estate investing, and I don't think you'll regret it. Like, I don't think you're gonna go back and say, Oh, I really wish I would have gotten that 15% I targeted?   Michael; I think that is like spot on. Thank you so much. And if you missed it, if you missed any part of that, go back, rewind the last three minutes, and listen to that again, cuz I think that's a lot of gold in there. Then this was super fun. As always, if people want to reach out more, find out more about you or hemline. Where's the best place for them to do that?   Dana: Yeah, you can go on to Roofstock when you purchase a property, how many will be listed as a property manager? So go go ahead and do that. You can also go to Hemlane.com. And my email is dana@hemlane.com. So I love hearing from people.   Michael: Awesome. Well, thank you again, and very much looking forward to having you on. Again, I'm sure take care of we'll chat soon.   Dana: Great. Yeah, I'm excited in six months for us to see if we were if we stand corrected on what's going on in the market.   Michael: I know it'd be very interesting. Well keep close tabs on it.   Dana: Great. Thanks so much for having me.   Michael: You got it, take care.   Okay, everyone, and that was our episode A big thank you to Dana for coming on as always big friend of the pod as we were saying at the beginning of the show. As always, if you liked the episode, we'd love to hear from you all with a rating and review and we look forward to seeing the next one. Happy investing

Brian Hamrick began investing in single-family homes in 2002. During the Great Recession, he purchased his first multifamily property and has since worked with private investors to acquire apartment communities, self-storage facilities, and non-performing notes. In 2012 he founded Hamrick Investment Group ("HIG") to help other qualified investors take advantage of the lucrative returns real estate has to offer. Self-storage properties enjoy high demand from Baby Boomers in need of extra space as they downsize and from Millennials who would rather pay less for storage than pay rent for more living space. During the last decade, self-storage investment returns have outpaced most other property types, which means investors should take note. Episode Link: https://www.higinvestor.com/ --- Transcript   Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Brian Hamrick with Hamrick Investment Group and Brian is going to be talking to us today about note investing, as well as self-storage investing, two topics that are super interesting. I wish I could say that they are near and dear to my heart, but I'm a total newbie at them and have no experience. So really excited to chat with him about that. So let's get into it.   Brian, what's going on, man? Good to see you again and thanks for coming on the podcast.   Brian: Appreciate you, Michael. It's great seeing you again, too. Thanks so much for having me on your show.   Michael: No, absolutely. I think we're gonna have a lot of fun today as you are a very interesting person with an interesting background. So I'd love for anyone who might not be familiar with you. Can you give us quick insight who you are, where you come from, and what is it you're doing in real estate today?   Brian: Yeah, thank you. So my, my name is Brian Hamrick. My company is Hamrick Investment Group and what I what I am I started off as a multifamily apartment investor syndicator and over the years have also expanded into performing and non performing notes, self-storage, vacation rentals, office, a little bit of retail. Basically, if I have a rockstar strategic partner that I can partner up with, I'm the one who raises the money brings the equity and I partner up with someone who's got a great track record knows how to make money in their space and that's, that's kind of my business model for the past five years.   Michael: Right on and I don't know if I've actually met or spoke to anyone that got their start with multifamily syndication? Is that really where you got your teeth cut or did you start out with single family kind of like so many of us did?   Brian: Yeah, so going way back in 2001. When I first read Rich Dad, Poor Dad, I did get started in single family. I was living in Los Angeles at the time and everything in LA back then was way overpriced. So I started investing in a network that was investing out of state. So I bought single family in North Carolina, South Carolina, and Albuquerque, New Mexico and I got my portfolio up to seven separate single family properties and quickly realize, you know what, this is the very, very slow way to financial freedom and that's when I started looking into multifamily, because I realized you can get that economy of scale by having more units under one roof.   Michael: Yep, makes total sense. Okay, well, let's shift gears here entirely and talk about note investing and self-storage and if we have time short term rentals, because it's just like a super fascinating space and we always joke in the show that these podcasts are very self-serving, I hate to ask all the self-serving question. So talk to us what is note investing and what attracted you to it initially.   Brian: So I also host a podcast and just like you, I love talking to different investors, who have different asset classes, different skills and one of the investors who came on my podcast, his name was Jean Chandler and I was just so fascinated with his systems of buying non performing notes and basically a note is like a mortgage or a land contract or a contract for deed and you're so when you buy a note, you're not buying an actual property, you're buying the paper on that property, that the IOU, and there's a lot of value to those IOUs, especially if you can buy them at a discount. So let's say there's a property that is that has $100,000 balance on their loan, and you can buy that note for $80,000, you know, 80 cents on the dollar. Well, now, whatever that interest rate was that was being paid, you're actually making more than that interest rate and if that note pays off, you know, sooner rather than later. Well, I just paid $80,000 for $100,000 note that's $20,000 that I could profit.   So Jean and I , Jean Chandler, I had him on the show and I was just really interested in notes and I had a little bit of experience With notes previously, so I called him up after the show and first of all, I said, How many people have called you, since this show has come out to invest and he said, no one's called me and I said, well, that's interesting, because I'd like to invest with you. So we started off by buying 10, different non performing notes and a non performing note is basically, if someone's not paying their loan, that and over after three months, if they're not paying, it becomes non performing. So, the, the strategy that Jean had at the time was to buy these non-performing notes, like 30 cents on the dollar and the goal is to get them re performing because if you can, if as of note is paying, say 10%, and you buy it at 30 cents on the dollar, while your yield if you can get it REIT performing is going to be well above 30%.   Michael: Holy smokes.   Brian: Yeah, so there's, there's so much value there and that delta between what you pay for note and what it's actually yielding anyway, we bought 10, non performing notes, and we lost money on two of them but our average return on all 10 notes was over 80%.   Michael: What?.... That's insane. Like, as you were describing the nonperforming of it, I'm sitting here thinking to myself, like, what do you guys like bounty hunters, you go out and they okay, you got to start paying your notes like, how do you what does that process look like to get a nonperforming to a performing because there's a reason that's being sold at a discount?   Brian: Yeah, exactly, exactly. Now, don't go out and try this on your own. That's necessary, have the experts on your team that know how to do it properly, because there's a right way to do it and a wrong way to do it but the what we're able to do as private investors quite often what Jean does, I, I leave the heavy lifting to Jean, but what he's able to do, quite often is contact the borrower directly and the larger institutions have guidelines and rules that they have to follow that, that basically puts all the borrowers in a certain box, and they have to be treated a certain way. But as private investors, Jean can call them up and just have a real conversation of person to person conversation and usually it starts with, do you want to stay in your home? Yeah, that's the first question he typically asked and then that's when kind of the guard comes down and they're like, nobody's ever asked me that before. So then gene can have a real conversation and say, Well, what is preventing you from paying your mortgage, how do we get you back on track, and sometimes that means might mean modifying the loan, so that their balance stays the same, or maybe there we take off some of the fees that have been charged over time but maybe we modify it so that their monthly payment is lower, you know, by stretching out the amortization, or we allow them to get caught up, because they just weren't getting anywhere with the previous servicer or lender.   So it starts with that conversation and quite often, that's a successful conversation and we've luckily been able to help a lot of borrowers who have had some sort of distress stay in their homes and that is our goal. But at times people go dark, you know, there's, believe it or not, there are people out there who want to be in denial, or just keep not even be consciously aware of what's going on around them and they either don't respond to us, or tell us that they're going to send us a check, and they never do. So they don't perform and in those cases, we actually go through with foreclosure and when you buy a non performing note, and we buy performing notes to but I'm focusing on buying non performing right now, when you buy a non performing note, there's two values that I like to look at. One is what's the what's the unpaid balance that is owed and then what is the actual cash value? So if you go through foreclosure, what would you sell that property for on the okay market and quite often, on average, over the years we've paid, we've paid roughly 45 cents on the dollar for the unpaid balance and 35 cents on the dollar for the actual cash value. So if we do have to foreclose, take something through that process, and then sell it. Quite often, we're seeing you know, 50 to 100%. In one case, we had a 550% return on a property we took through foreclosure.   Michael: That's on believable, Brian, I've got I have so many questions. Let's start with like, who is selling these non-performing notes? Are these coming from banks? Are these coming from other private lenders because you mentioned interest rates in the 10%? I mean, that's probably not your Bank of America, Wells Fargo type of loan, or are they?   Brian: Well, 10% is kind of the limit on that you can charge under Dodd Frank rules. So we're huge guy. Like, if we're striking a new note, it's 9.99 and the reason the reason people are willing to pay that is because these are our lower value properties, where the loan amount is under $50,000. So we're kind of in this market where the normal, the typical borrower can't go to a typical lender or bank, because banks don't want to make loans that are less than $50,000. It's the same amount of work on a loan, that they that would be a million dollars, and they make a lot more money off the million dollar loan than the 50,000 loan. So when you get to that price point, you're quite often dealing with four private company, private capital, that's making these loans. But a lot of our loans are trickling down, some of them come from Fannie Mae, and then they trickle down to hedge funds, who buy them up in bulk, you know, billion dollars to take up 1000s of loans in default are performing.   Michael: A big short, right, that's what the whole movie was about?   Brian: Yeah, exactly and yeah, and that, that that movie is a good kind of a good touchstone because a lot of the opportunities that we were seeing, and this was five years ago, that I started working with GE and a lot of those opportunities we were seeing had trickled down from the larger institutions, to the hedge funds to the private equity groups and then we were still picking them they had they had run got all their value out of them and we were then picking them up for like, 30 cents on the dollar. At that point.   Michael: Oh, my gosh…   Brian: But yeah, so they're trickle down. We're buying them typically from hedge funds and then sometimes we're we've have situations where we're we are possibly taken up a property through foreclosure. In some cases, we buy these notes, and it turns out that they're Oreos, and we've bought notes that we thought were non performing, only to find out that they're Oreos, and we own the property. It's already gone through foreclosure. In those cases, then we can turn around and resell it and generate a new note.   Michael: Interesting. So talk to me again, about that the foreclosure process specifically, because you mentioned, being able to buy the note for 45 cents on the dollar, and then the physical property for maybe 35 cents on the dollar but if you buy the note and then take the property through foreclosure, don't you then own it or is there another step involved in that process something else you have to buy or pay for?   Brian: So there again, always have an attorney to help you take through go through this process. But yes, quite often, when we take a property through foreclosure, we will end up with the property and owning the property and then we can go ahead and just sell the property. Sometimes you do have to you know, it's not it's not an easy process, because sometimes the borrower might declare bankruptcy, and that sort of sets you back, you know, six to 12 months, or whatever it takes to work through that bankruptcy. Every state has different rules and laws, and sometimes different municipalities in that state have different rules and laws. So it's always important to have an attorney who knows those rules and laws in that state, working with you through this process.   Michael: Makes total sense. Okay, man, so now let's say you, you buy the note, it continues to nonperforming take you through foreclosure, they don't declare bankruptcy, everything checks out, you own the property. I mean, literally, like your name is on the deed and title now, or like whatever entity bought the note or took it through foreclosure. So like, it's yours, you can do whatever you want with it?   Brian: It's ours and yes, we can do whatever we want with it. Quite often, we find a local broker or realtor who can just put it up on the market and sell it for us. So we I'll give you an example, we had a property and this is kind of a general example that takes into account a number of different properties. So this isn't just one specific property, but it's kind of like the typical homerun scenario that we encounter, okay and by the way, we could buy 10 notes. Two of them will be complete dogs and losers. Six of them will be breakeven or make a little bit of money, but it's those two kind of grand slam home runs out of the 10 that really make the whole thing work. So some of the winners that we've had is there was one property where we bought the note for, I think that the balance was around $35,000. Okay, we bought the note for $20,000.   Michael: And it's not you got to pay cash for this right or is there a lending institution that I'll give you?   Brian: There's no lending institution where yeah, we're we are buying our notes with cash, we pay $20,000 for a $35,000. unpaid balance really just blows my mind, and I don't understand, but that we do everything we can to contact the borrower, we will call them, we will send them mail, through the post office, we'll do whatever we can, sometimes gene will even buy a burner phone and fax it to them. So that when they open it up, there's it says call me and there's the number, and then they'll actually call on the burner phone. So he will do everything bend over backwards to establish contact. In this case, we never established contact, they never responded to us. So we went through the foreclosure process. At the end of that foreclosure process, we showed up to the house, it was broom swept in incredible condition and we listed it for $125,000 and sold it for $110,000 and this is a note that we paid 20,000 for. So after legal fees, broker fees, we ended up with about $80,000 in profit, and our money back and our original $20,000 back.   Michael: That is mind blowing. So and let me know if this is like a legal question but I'm just curious from a high level, let's say we'll use this property as an example. Let's say they bought the property for 50 grand, they pay down their mortgage over the years. So they have 15,000 and equity for the 35,000. unpaid balance and let's say you could establish contact, you knew the person you'd but you still went through foreclosure does that person lose out on their 15,000 in equity or do you have to make them whole for kind of their ownership stake in that property, you know how that works?   Brian: Yeah. So they lose that you would you would hope that that $15,000 in equity that they have is enough incentive for them to try to get that loan re performing again, right and quite often that is the case and we will we will do everything we can to work with them to make that happen but sometimes, people just they go dark, and they bury their head in the sand. They don't respond and then they end up losing the property and the equity that they have in that property, which is unfortunate but it does happen.   Michael: Wow! Well, Brian, this like a blew my mind. But let's shift gears here because you also invest in self-storage, which is another really interesting asset class, and folks at the IRS Academy have expressed some interest in learning more about it. So can you give us the high level of again, what should we know about it and what attracted you to that investment class?   Brian: Initially, self-storage, once again, is an asset class that I got into because I had a rockstar strategic partner who brought me a deal in self-storage that was just looked amazing on paper and the more I looked into it, and by the way, so this is my partner, Tim puffer in this case, he took Scott Myers course, okay, on investing in self-storage. I don't know if you know who Scott Myers is, but he's one of the trainers out there and he started cold calling self-storage facilities in the area and like the second call he made, he landed a property is 28,000 square foot with a 63,000 square foot office building and the owners were like, Yeah, we're thinking of retiring and moving to Florida. So Tim made them an offer of $1.3 million and we picked it up and we immediately a lot of times you look for the value add in self-storage and one of the value adds is when you buy a property that's been kind of mom and pop operated. You know, they've been proceeding with under the same systems for the past 10 years or so. Right. So they quite often they don't have like an online presence.   They're still doing like paper checks and mailing out bills every month. So right away, the first two things we did was we started bumping the rates up to market rate, okay, and we started putting in systems like having a website having automatic booking, you know, so someone could go to our website at 2am Lisa space, and at 2:30am, enter the their number on the keypad and get in and store their stuff. So we automated everything, so we don't need on site management. After a year of that we boosted the value of the property enough that we were able to tear down our office space 3000 square foot of office and put up another 15,000 square foot of storage, this is all drive up storage. So we brought our square footage up to 43,000 square foot, no money out of our pocket, we were basically pulling cash out from the value that we had added in just 12 months and that was about $700,000. So we got it up to 43,000 square foot and then with another two years go by this property we paid $1.3 million for we sold it for 3.5 million.   Michael: What…?   Brian: So our investors were very happy there.   Michael: That is outrageous, that's outrageous…   Brian: Yeah, self-storage is probably my favorite asset class just on the principles that it's very easy to manage quite often. Very, very, when you add value, if you have a clear path to adding value, you can add a lot of value and I liked that it's automated too. You don't have to have you. I know some people have on site people to maybe sell boxes and, and locks and stuff. But you don't have to have that you can automate that as well. So I really like self-storage from that those perspectives, that is   Michael: Just remarkable and how can people get access to those types of deals? I mean, can somebody go out and buy a self-storage facility and do this themselves? It is something that they should be thinking about doing with that experience, syndicator and operator? What are your thoughts there?   Brian: Yeah, so if they want to do it themselves, I highly recommend getting coaching from like a Scott Myers and I know there are other people out there teaching it, if they want to invest with experienced operators like myself, I'm there's a lot of us out there. So, you know, I wish I could say I have tons of self-storage opportunities. But sometimes I do sometimes I don't and I know there are other people out there who are who are buying self-storage as well.   Michael: Okay, and what are some, like canary in the coal mine type of things to look out for or red flags to look out for when it comes to both the self-storage facility as an opportunity, as in addition to the operators themselves because like, I don't know anything about self-storage. So other than someone's track record, if they're showing me their offering memorandum? I'm like, I don't know that sounds good. What should we be looking out for?   Brian: That's a good question. That's like, how do you judge someone like myself, someone like some of the other syndicators out there who are doing it, I think you need to look at the track record, look at their communications with investors really dig into that what is their expertise in that area and that's why I partner with people who really know their space. I, I don't claim to be a self-storage expert, but I partner with people who are self-storage experts. As far as the facility, here are the metrics you want to look at. Because you're looking at the square footage. First of all, how much square footage is available. A lot of people asked me well, how many units do you have and like I have no idea how many units we have because they're you know, some are five by 510 by 30s 10 by 40s 10, by 10s.   You know, so they you can have any configuration of units, it's really the rentable square foot that you want to look at. So we always do a feasibility study because we want to look at how much square footage is in the facility that we might be buying or considering to develop and then what's our competition how much square footage is already available in that area and you want to look at kind of a one mile radius, a three mile radius and a five mile radius that's where most of your customers are going to come from and within that one, three and five mile radius, what's your competition look like? How much square footage is out there already? Then you look at how many people live in that area. What and then what is the square footage per person that's available in that area. So, these are kind of loose metrics not to be taken you know, as a hard and fast rule. But if you have, say, less than four square foot per person in those areas, then you're probably under supplied and you can compute on paper, how much more square footage can be absorbed in those areas. If you have over say, five, seven, you know, closer to 10 square foot per person, then you're probably over supplied, and the absorption rate is going to be a lot slower. The other thing you want to really pay attention to in the feasibility study is the income in the area, you know, you want to see incomes that are at least over 40,000 per year, on average, over 60,000 per year on average, then you're really in a good area to add more or to buy that buy that supply and then of course, you want to look at well, what might be coming online. So you want to check with the city and the municipal municipality to see what's been approved. That may not have been built yet, but it's out there waiting to be built and become a competitor to you.   Michael: Okay, I used to live down on the central coast of California and down there, there was like, tons and tons and tons of storage facilities. Is that bad business or is that common practice that were there's one, there's many…   Brian: You know, here's probably a huge density of population there. So there's definitely in some of the primary cities, you hear about oversupply, they're over building self-storage and hopefully, those are companies that are building the self-storage that have deep pockets, because eventually that space will lease up, and they'll meet their pro forma but it's going to take longer, because there is this oversupply. So that does it, it is justified, because you have more maybe you have more and more people moving to those areas, there's a lot of density. I prefer secondary and tertiary markets, where you don't have nearly as much competition. But you still be if you when you look at the demographics, and the absorption rate, and you know, the amount of square footage available. There's still a need. So we've recently bought some facilities and I have I have several Self Storage partners. I have another cell storage partner, his name is Charlie Gao and we bought a facility in northern Michigan, that was already 52,000 square foot, we immediately we purchased that, and then we bought 10 acres next to it and we immediately more than doubled the size of that facility and it just came on line two months ago, and it's leasing up three times faster than we anticipated and projected.   Michael: People got lots of stuff and they need somewhere to store it.   Brian: Yeah, they do. They say self-storage is good in all economies, when the economy is good people buy stuff and they need to store it. When the economy is bad people downsize and they need to store their stuff.   Michael: Yeah, I remember that.... My wife and I got a unit when we were traveling in our van because we had moved out of our primary home rented it out and then we were living in a van full time and we hadn't yet bought a new primary to move into so we got a storage unit and I walked into this facility and I'm like, these people are printing money and like I'm a tenant, I'm never gonna call landlord say my toilets broken or my lights broken or I have a clock. You know, like, so many of the problems that people run into or hear about traditional real estate. I don't think exist in self-storage. I'm sure it has its own sets of problems but like man to not have to deal with tenants in the middle of the night. Sounds awesome.   Brian: Yeah. Yeah, the calls we might get are the gate is stuck and I can't get out but no one's gonna say the toilets busted. We don't we there's no gas. There's no water and sewer, there's electricity and then there's security cameras and a gate and you know, it's so simple and done, right…. Self-Storage, I think is like an ATM machine. It just, you're right it just you print money with it, if you do it right…   Michael: Oh my god. I love it, I love it, Brian. We didn't have a chance to get to short term rentals love to have you back to chat more about that. But for those interested in your podcast in investing with you in reaching out learning more about you and your company, where's the best place for them to do that and what are the names of some of those things we just mentioned?   Brian: Yeah, thanks, Michael. So I also host a podcast and you're a guest on there. I'm not sure when this episode comes out, but your episode will come out sometime this summer. The podcast is rental property owner we're in real estate investor podcast, and I host that on behalf of the Rental Property Owners Association here in Michigan and then you can also go to my website to find out more about me. It's my company is Hamrick investment group and the website is H I G investor.com, that's https://www.higinvestor.com/   Michael: Awesome. Well, Brian, thank you so much for coming on here and helping me pick my jaw up off the ground from the things that you were sharing with us. Really appreciate you taking the time.   Brian: Thank you, Michael. It's been a pleasure.!   Michael: Likewise, take care. We'll talk soon.   Okay, everyone, that was our episode a big thank you to Brian, for coming on. If you're watching this on YouTube, you saw my jaw dropped several times. Super, super interesting stuff that Brian is working on and was sharing. So thank you again for coming on as always, if you enjoyed the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing…

David Friedman has more than 15 years of experience starting and leading technology companies in the real estate industry. In 2018, he co-founded Knox Financial, which offers a smart and frictionless way to turn a home into an investment property, manage that investment property, and secure the appropriate financing for a new home. Prior to Knox, Dave founded Boston Logic, and served as the company's CEO for more than a decade. At Boston Logic, he led the company in becoming a leading provider of real estate brokerage software. David sold Boston Logic in 2016 and continues to sit on the board. Today, David shares how his company facilitates the converting a primary residence into a cash-flowing rental property while allowing you to tap into your equity to purchase a new property. Episode Link: https://knoxfinancial.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by David Friedman, who is the co-founder and CEO of Knox Financial, and David's going to be talking to us today about anyone who's considering moving out of their primary and converting it into a rental, all the things you need to be aware of, and some of the revolutionary products that Knox financial is putting out to help assist with that process. So let's get into it.   Really quickly, everyone, before we get in today's episode, I wanted to give a shout out to the Roofstock Academy, and encourage everyone to come check us out at roofstockacademy.com. It is a one stop shop for Investor education. Whether you're just getting started or you're scaling up a crazy big portfolio, we probably got something for you. The Academy consists of both automated lectures, access to private slack forums and dedicated one on one coaching sessions, depending on which program you opt to leverage, come check us out roofstockacademy.com. We look forward to seeing you in there.   David, welcome to the show me and thanks so much for taking the time to come on and hang out with me, I appreciate it.   David: It's a pleasure to be here, thanks.   Michael: Oh, of course, so I know a little bit about your background. I know a little bit about your company. But for those of our listeners who are just joining us and maybe don't know the name, David Friedman, can you give them a little bit of background, who you are, where you come from, and what is it you're doing in real estate today?   David: Sure, so my name is David Friedman. I'm originally from New York, where I live in the Boston area, I am the father of three kids, the husband of one woman.   Michael: Important to clarify…   David: That's the picture I got, buddy… wasn't worried wondering, I'm a skier. I'm a cyclist, I like to hike. I like it when I swim in a natural body of water as often as possible. Other than that, what am I doing today? So I'm a CEO, and one of the founders here at Knox financial, and we are trying to change how homeowners build wealth. When you move, you have the best investing opportunity of a lifetime, which is to keep that home as a long term investment and we've built Knox around making that investment opportunity possible for millions of families.   Michael: David, that's awesome and it's funny because it's something we talk a lot about at the Roofstock Academy about how so many landlords became like accidental landlords. So tell us a little bit about a why you think it is so advantageous for folks to keep the rental property to keep their primary home as a rental property and what is Knox doing to help facilitate that transition from?   David: Sure, so it's not why we think we're a data company, the data just tells you the story. So when before we launched Knox, I lived a life experience and then I will, I'll tell you the experience, I'll tell you that the data supports that. I'm like, in the majority, I'm just a normal dude, which is. So when I got engaged my wife who I mentioned earlier…   Michael: Just the one wife…   David: Just one, and it wasn't random, like we didn't just like you know, I didn't arrive in the mail, right, like, like we dated and stuff. So we get engaged one day, again, wasn't random and we realized we have too much stuff to fit in her place or my place, we need to buy a bigger place. So we go and do that and I go to put my 20s bachelor pad on the market for sale and I think to myself, this is the worst decision I've ever made. What am I doing? Why am I selling the best investment I've ever had. So just the math, I put down $100,000 When I bought that property, and I was going to turn that $100,000.10 years later into $350,000 when I sold it that I'd never ever in my life made that much money on any investment and I know that as the south end of Boston, which is a downtown neighborhood if you're not familiar with the City of Austin, and I knew the value is going to keep going up I am going to turn this into a an investment property I'm to keep it as a rental and at the time I was building another software company that made software for real estate brokerages and I thought I know enough people who do this professionally I can figure this out, I can turn this home into a rental and I thought about all the things that have to do and it gave me a headache can pass every five and I need new insurance.   That's fine a renter probably need to open up a new bank account and probably a credit card to make sure my expenses are really like walled off from like, like, you know, take my wife out to dinner. All that stuff as like alright, screw it and I sold it. So four years later, that same property sold again the new owners only held it for four years and they sold it for another $200,000 more than I had sold to them for. And I saw this because Zillow sent me this evil email about it and when I saw that I was like, oh my gosh, Somebody sold $200,000. To me, I was gonna keep that property as an investment. What the heck did I do here and I'm a kind of guy who likes to make fun of myself and I told all my friends that I made this huge investing mistake and they all said, same exact thing happen to me, I am new to them. I own this home in Seattle, I don't own this in Brooklyn. I lived in DC, I lived in Houston and everybody said, yeah, every time I searched that home on Zillow, I get depressed and I said, this is exactly this is my life. So I'm a data nerd. So we pulled the data and we learned two things in the data. First of all, this is true. For the vast majority of homes in America. If you look back, we look back 10, 20, 30 years, 40 years, took the average home in America and you index into Case Shiller and you can't look back much further than that, because Case Shiller didn't exist. Case, Shiller had to invent it chipchase actually was down the road here in Wellesley, the guy. You look at the data, and every the vast majority of homes in America, when people move out of them, they keep them as long term investments, not only are they great investments, they vastly outperform public markets. Alright, so you index that home with some very, I shouldn't say vary with some conservative leverage, right?   So the nice thing about real estate is that the latter allows the average person to get a levered return, which you can't get the public markets. So when you index that home with some mortgage on it, not a crazy mortgage to some mortgage on it, too and the performance of that principle, to that same principle invested in the public markets, the real estate, absolutely clobbers, the public market. So that moment when you move, these people have this opportunity, we figured out to have own a better investment than then the alternative they could do with their down payment overseas with the principal there and then the next question is, do they have the money for the down payment? The next step is this transaction possible and the data shows once again that the vast majority of families in that home upgrade when they moved from, say, the first or second home they've ever owned into it, their second or third primary residence? Do you have more than enough equity and or savings to make the down payment on their new home and not sell the home, everything, so it's so long way of answering your question, I don't think this is this is a great investment. The data says this is a fantastic investment and we're in the business of showing people how it's done and making it possible for them and we've created some lending products around it and a whole bunch of other services, so that's how we do it.   Michael: That's awesome. So getting back to what you said a moment ago, and talking about your own personal story, you were saying that in order to convert, if you wanted to keep your initial place as a rental, you would have had to refinance, get new insurance, yada, yada, yada, was the purpose of the refinance to grab that equity for the new down payment because you didn't have that savings in cash…   David: For a lot of people… So I was in a very lucky position, I just created a new family with my fiancé soon wife, and we pooled resources and had enough to make the down payment without having to sell or refi, the old home. But the other thing is, I had actually lived at home for a while I bought it my 20s, I lived in it for a decade, if you look at the holding patterns of people who buy homes in their 20s, that's actually a pretty long hold and when you, when you when you hold the home for that long, it's very common for people to have an awful lot of equity, but also that their financial position has changed, right? So that marriage to my wife is a common change in financial position, the amount of w two in the household with, you know, more than doubled, because my wife, my wife's a successful woman, but also like we can combine our savings. She at one point in Oklahoma prior to meeting before we met, she didn't anymore, she'd sold that so she had a down payment. So there's all sorts of reasons why one's financial position might change. But there's, the longer you're holding that home that you're living in, the more likely you are to have plenty of equity in that in that property that you can tap…   Michael: Makes total sense and how do you chat with people around because I know you said in the vast majority of instances it like it makes sense for people assuming they have the down payment, like keeping the home as a rental or as a long term investment. What about everyone out there that says, you know what, David, my monthly mortgage is five grand a month I use 20% down and my home is only gonna rent for 3500 am I going to be in the hole 1500 bucks a month, like how does that make sense?   David: That doesn't make sense. So, so we walk people through this math all the time we build proprietary investment analysis software. If you have a $5,000 a month mortgage, and then you got to pay taxes, insurance maintenance, you know, allowance for vacancy all that on top of that, and you're only going to make $3,500 a month in rent, we would not recommend you put that home on our platform. There are, I would say, some edge cases like some people are looking for tax advantages and some people are looking for. There's markets like, I can look at the Austin market or let's take Tampa set the curve for the fastest growing market last its 12 month and a 12 month look back. In the last year, prices are going up 30% a year. So if you're losing 1500 bucks a month, over 12 months, that's 18 grand if the home went up in value 100 grand in that year, that's not a bad trade off.   The question is, can you shoulder that or one things we do is we offer a sort of specialized flavor of a home equity line of credit, where you can actually tap the home's equity over time to cover that negative cash flow. So this is part of the alchemy we do with people is can we make this property not impact your day to day spending habits or your quality of life while keeping it and realizing the benefits of owning that property. If it was net negative cash flow by that much might not work. That's a pretty rare scenario, though. If you have a $5,000 month mortgage and $3,500 in income potential, there's something weird going on in that local market, we rarely see misalignment that numbers that large effect, it's usually the other way around, just that we see $3,500 a month and carrying costs and $5,000 a month in rent projected. That's a that's a pretty standard scenario on our platform.   Michael: Love it, so talk to us a little bit about what the platform does and how it all works.   David: Sure, so you put your you set up your home for the platform and first of all, we package everything into one simple success fee. So we don't charge you for a place a tenant, we don't charge you to collect rent, we don't charge you for renewals, we would charge you for legal, none of that. Before it comes on the platform I should have mentioned we're going to help you tap that equity, so we might be writing what we call a keep loan, so that's a that's our own lending product that helps you tap the equity in your home in a flexible way. It's kind of like a HELOC but you know, if you sign a HELOC, before you move out and you move out, you're technically violating the paperwork you just signed. So we've got sort of like a HELOC. That will you don't mind if you move out or even if you have already moved out. So we can give you a second lien flexible line of credit against the property you're no longer living in, which is a hard product to find, so we can get some of that equity, it turned into the down payment on the new home, use it for prep work, or just keep it for writing up the ups and downs of cash flow, that's fine and then we're going to turn that property into a passive investment. So we're going to put a tenant in there, collect the rent on your behalf into your account in our system, pay out your expenses and if the tenant has a problem, they're gonna call us and we're going to deal with it. So we're basically doing the financial side of things, the welfare, the finding the right insurance, that's important. So risk mitigation is incredibly important. Our insurance team is going to find you the right policy, because the policy had when you live in it, they'll work no more. That's a homeowner's policy, you know, landlords policy, and, you know, the KNOX Insurance Services Division of our company is going to put that in place.   Michael: And so what is that all cost someone because I mean, it's like what you said that you don't charge for rent collection? I mean, you don't charge that, like, it's mind boggling, because that doesn't exist anywhere on the marketplace anyone who invested in a property will tell you the same. So what do you charge it, it's got to be something…   David: We work on… Yeah, we've worked on a success fee, it's 10% of rent that actually passes through our system. So it's kind of like a payments model. It's kind of like working with stripe, where like some percentage of the payments that go through stripe, they keep we do the same thing. So we collect $1 of rent, we keep a dime and then in full disclosure, we make our money off of the market for the financial products that we do. So like our loans are bought by third parties, and they pay us for that our landlord policy is our we're representing larger carriers, we're not an insurance carrier. So representing, say, travelers or somebody like that, they pay us for that, just like they would pay any insurance broker and then also some of our clients are actually decent percentage of them work with our lending team to not only tap the equity in the home they're moving out of but also find the mortgage for the home they're moving into. So that's another way that we make money. So we make money as an insurance brokerage, selling or brokering normal mortgage transactions.   Michael: I love it, David, this is so cool like anyone who's watching this and see me like getting giddy smiling ear to ear. So question for you. Do you only work with folks that have moved out of their primary residence or do you have a market for just your traditional landlord that owns property that wants to utilize your services?   David: So we do work with traditional landlords. We're kind of picky on it, to be honest. So your home actually has to pass an inspection by us as a virtual inspection. So you'd have to like you know, open up your door, but you'd have to walk us around and we're going to need to take a look at the foundation and we're going to need to take a look at the major appliances and system. So we are careful about which homes we actually accept in our platform because we find that a lot have traditional rental units are? Well, they're expensive, they're expensive to operate and we would generally not recommend that our clients keep those units as long term investments. So we look at them and tell our clients very honestly, this is a good investment or it's not and if it's not right now, we try to advise them on what investments need to be made in order to turn that home into a good long term property investment. So actually happy to talk to any landlords out there who are like, oh, I like what Knox is doing and I want to tap my equity and all that good stuff. Just be aware that we, we don't, you can't just sign up any home to the KNOX platform. It's not Airbnb, for example, you can't just come along and put a home up there.   Michael: Got it, got it. Okay, well, I mean, in your experience, what are some of those things that you have seen or advise folks against in terms of what makes a great rental property? If someone's listening to this? It's like, oh, man, I totally want to sign up. What are some things that they should be aware of that they can do practically?   David: Oh, gosh, the first thing I would say is deferred maintenance. You know, we're not big fans of deferring maintenance way out into the future, you know, invest in the property now make it livable, it'll get better rent, you'll be happier. As an owner, fewer surprises. Yeah, that's absolutely bullet number one. The next thing is, I should have started this health and safety, just like, you know, we will absolutely get will actually take properties and incident off our platform. If the owner won't authorize a repair that we think impacts health and safety. That's just not a that's a, there's no, there's no exception to that for us. The next is, yeah, so if you've got like, really old floors, like smudged walls, cracked windows, things like that, you know, definitely better off doing that as soon as possible and ahead of time, and certainly, as they come up. You know, we have a client who said, you know, I bought this property 15 years ago, that time, they told me, I needed a new roof, they were wrong, I've patched it five times it works out, we're like, no, we're gonna, that's that's just…   Michael: It does doesn't work…   David: I know, you know, I know you've had this, this is lucky experience with all the patching, you've been dumped. That's not how we would want to run things, it's really what's gonna happen is one day, the people in the top unit, that building, you're gonna go on vacation, and they're gonna come back, and there's going to be like, you know, $100,000 of damage to the building and you've, you've just been lucky, you've been on the, you know, the edge case here. So that's, that's deferred maintenance is obviously number one. The next thing is, if it is a landlord own property, who are the tenants and what have you done, to make them happy? Sometimes they're just unhappy, like, the tenants are unhappy with what's gone on and not only that, the property, what we find all the time, we inherited properties from landlords who've been self-managing the property is that they, the tenants are underpaid and rent, the tenants know it too and then you go in there and say, okay, we're going to turn this into a performing asset for you and the tenants sort of balk at the, the rate that they should be paying and so we try to like the market, oh, you're just totally unaware of what market rent is and the major mistake that's made by so many, so many owners is they become friends with their tenants and, you know, let's be honest, money is a touchy subject for most of us.   So going in there and saying, yeah, I know, you've been living in this piece of property they own and I think there's sort of a parental aspect to being a landlord, like you're putting a shelter over somebody's head, you're responsible for that shelter. So it's kind of a, you know, a little bit of a parental role you're playing and they have to go in and ask them for more money. So you're touching on these two touchy, touchy subjects? So yeah, we look at these portfolios like a deferred maintenance. You you've had tenants in there a long time. They're not paying market rent. Oh, when they're month to month on their leases. Oh, yeah. You signed a lease originally a long time ago, but now you haven't raised rent and the lease is like totally lapsed and now we want to go put those tenants through, like, hey, we're going to make this official we're going to put you to market rent. Oh, but by the way, we've got the owner refusing to upgrade the place and make it nicer. We avoid those situations we actively avoid them.   Michael: That sounds like a losing recipe.   David: Yeah. You look at the let's look at the exact opposite institutional owners, right. So you look at the guys like tricone or pick your favorite. The first thing they do is go in and renovate almost every single unit and they also they standardize them. The other thing I could go on nothing that landlords do is they, you know, they, when they get in, they try to find like cheap units and all those guys, the big institutions are actually looking for premium units they want. They want families that move in, and, and stay and plant roots and send their kids to school and care about the property. Because they get to know the neighbors and they want to plant the flower bed, you know that that's the tenant that they're going for. Versus Hey, how can I, I want to own eight units that are all, you know, half the price, the average in the market and turnover every other year, right, yeah.   Michael: It's yeah, it's a totally different investment thesis overall.   David: Totally.   Michael: Yeah, David, so if someone is right, on this transition point, what makes Knox a better alternative to just a local property manager? Why would someone reach out to you?   David: Yeah, so we use local property managers to be clear. So we don't actually employ actually, we have one guy on w two, who like, you know, carries a hammer route. So the vast majority of what we do is local maintenance. Right, you know, we operate in seven states, like there's no, there's no way well, it's not No way. But like, we did not have all those people on our staff. So you know, with us, as far as that goes, like, we are using local people, and there is actually no difference between us and the political person to swing a hammer drive in this group. When you look at all the pieces it takes to make this investment work. Knox is providing it all under one roof in a way that aligns our incentives with the owners, and we're actually putting risk behind it. So we're actually putting our own risk on the table along with yours, in that, for example, with the lending. So we're making it possible for you to access your equity to make the investment work and we're also doing you know, find the insurance. We're doing the bookkeeping, making sure you're deducting things on your taxes properly. I think a lot of not so, a there's a vast difference.   Michael: It sure sounds like it. So what states do you all operate in?   David: Massachusetts, Georgia, Texas, with three major cities in Texas, actually and then Florida and Arizona. Love it and I should say Massachusetts, we also I forgot to the Boston Market also includes Southern New Hampshire and all of Rhode Island.   Michael: Okay, okay, perfect. When are you coming to California?   David: That's a great question. It's on our list, I'll tell you it's we actually, to be honest, expand by Metro. So when we, when we expand into Texas, we did you know, to three cities of Dallas, Houston and Austin, and then with Austin, San Antonio is basically a first cousin market. So we do San Antonio as well, sort of considered that the whole the same media market. So California would be like, hey, let's pick a city in California. That's expanded to there but as we do it, we're gonna get the licensure for real estate insurance and lending in the state and then we'd probably go from, let's just say we started with, yeah, LA, we then do San Diego, and then the Bay Area, and Sacramento and the major markets California   Michael: Love it. Well, I know you'll have a waiting list. Whenever you ultimately do get out here, my name will be right there on it.   David: Appreciate it.   Michael: No, of course, that's awesome. So for all the folks out there that can't take advantage of Knox. What are some things that they can be doing looking out for as they're looking to make this transition or considering the transition? Do they have to go piecemeal it together for themselves or are there other Knox like folks out there that you could recommend?   David: No, you have to piecemeal it that's like the big part of it is what we are doing is putting a lot of this under one roof and then the lending is sort of our unique sauce, because it is a loan that you can't really get elsewhere where you can't get elsewhere. What are some things they should look out for, you know, I own several pieces of investment property myself, only one of them did not have to make some cash investments in in the first year or two. So the first thing I always tell people is just be aware, there's like a period of turning that property into an investment. Even if you've lived in it. Somebody else is gonna move in your property and they're gonna they're gonna use the space in a different way and they're going to discover things that are not up to 100% and they're going to call us and say hey, this is an outlet that doesn't work and one outlet that didn't work well was behind the bed when you were living there. Now there. It's where their desk is where they're working from home, right so be prepared for some upfront maintenance costs that is totally to be expected and tenants often You will just pick up the phone or you know, go on online and say, hey, this is broken, expect it to be fixed. Whereas you when you were living in the house might have just lived with the, you know, that problem, whatever it was for a while and said, I'll deal with it later, just expect that there's going to be a few things that are going to happen, things will come along. Yeah, it's very normal for a property be cash flowing less in years one and two than it is down the road. That's the that's the one surprise that I try to make people aware of ahead of time.   Michael: That's a great, a great tip. Something that I heard is, is kind of a good way to go about it too, is to actually go pay for like a home inspection as you would when you're selling or buying a piece of property as you're moving out to just see, hey, what are the issues that are going to be found, because like you mentioned, you're not going to notice the outlet that's not working behind the bed, to the inspector, that's what they're looking for.   David: Oh, man, if an inspector actually tested every outlet in the house, that would be one heck of an inspector. So here's what I'll say. So we do this, this video in intake of a home. So we actually collect 200 points of data, we get everything down to the year making model of your dishwasher. So what I recommend doing, if you're doing this on your own is really go and look at all of the major things in your home and there aren't that many, right. So every major appliance, every major system, the roof, the foundation, you know, a dozen things, right? Fridge, dishwasher, hot water, heater H back, things like that and just look at when they're hot, close, they are the end of their useful life, right roof last 25 years founded, I mean, the foundation and look, there's no cracks are probably good hot water heater decades and just on a piece of paper and a spreadsheet, just put the name of everything the model number, and when the warranty runs out, or when it should expire, right, and you'll just get an idea of what is coming down the road and don't be afraid of that because remember, it really you're investing in this for the long haul, you're investing in it because you think the home is going to keep going up in value every single year or over a long period of time, it's highly, highly likely to continue to go up in value and because the rents gonna keep going up what your costs are fixed inflation, hedges, all those good reasons, don't be afraid of it, just be aware that those things are gonna happen and say, okay, I'm actually expecting in the next five years, this extra $12,000 in expenses and just put at the back of your mind set.   Okay, here we go. Done and if you're really good, an ear market and say, okay, I'm gonna have the hot water heater replaced and nine and a half years instead of 10 and I'm not going to wait for it to like, spring a hole and have water over the basement. That would be that would be the plan I would I would make. The last thing I would say is really I would say is if you're doing this on your own, be really careful about your tenants. You know, do the background checks, don't just trust your instinct. Look at what their employment is not just how much they make, what do they do for a living. There's a big difference between having people who have non steady employment versus I don't know, a police officer who's in the union has incredibly steady and flip employment. So don't rush into the tenant selection. It's a little bit of work but again, if you're doing it yourself, set yourself up for the long haul pick somebody who you think's gonna be around a while, who has very steady employment next year when you raise the rent three, five in this market seven 10% they're going to be able to afford it because they're gonna get a they're gonna get raised.   Michael: Yeah, no, that's such a good point. I was just on a podcast this morning and someone asked me like what the biggest mistake was and I said exactly that rushing intended decisions, because you're like, oh, crap, I gotta get these expenses paid for with the rent, and you can end up in painting yourself into a corner very easily.   David: Yeah. Sometimes our team will tell an owner, hey, I have an application, I can show it to you. I don't think you want to take it. Now, this does mean that I don't have I don't have a backup for you today but you know, waiting another 15-30 days it could be to for somebody else better is a recommendation and here's why and we have that conversation with the customer and say the owner and hopefully they are … got along, yeah.   Michael: No, that's great. That's great, David, one final question for you. Okay, so two final questions for you ones like information. One was a real question. What are your thoughts on Home Warranty?   David: What are my thoughts on Home Warranty, that's a great question. We hear more complaints than we hear praise is my answer to that. I never bought one myself and right and all that said, we have considered offering one that we create. So that is, you know, I like it. I like the concept of a home warranty. I think the execution for most of the major home warranty companies as anecdotally has been is…   Michael: …less than…   David: …doesn't live up less than thank you.   Michael: Yeah, perfect. David are people that want to learn more about you reach out find out more about Knox, where can they do that?   David: https://knoxfinancial.com/   Michael: Easy enough. Well, David, thank you so much for taking the time. I really appreciate you coming on and can't wait to see you out in California, man.   David: Pleasure, thanks. Appreciate your time, Michael!   Michael: You got it, take care…   All right, everyone. That was our episode a big thank you to David for coming on. Super, super, super, super cool stuff. After we finished recording he and I were chatting a little bit more about some of the products that he's working on and there is a lot more to come. So stay tuned, of you are thinking about moving out of your primary or selling it definitely consider keeping it as a rental and potentially Knox financial might be able to help you out with that. As always, thanks so much for watching, and we look forward to seeing on the next one. Happy investing…

Anson Young is a real estate agent and the owner of Anson Property Group, which is based in Denver, CO, and specializes in distressed property purchases. As a full-time real estate investor for the past ten years, he has completed more than 120 wholesale deals and 95 flips. Anson and his team specialize in marketing directly to sellers for off-market deals, using many of the methods that can be found in his book Finding & Funding Great Deals. A common talking point today is that supply is low, demand is high, and cash-flowing deals are hard to come by. Anson pushes back on this by focusing on finding off-market deals. These off-market properties, otherwise known as pocket listings, are a great source of leads for those that know how to find them. By using some old-fashioned elbow grease, Anson is able to find cash-flowing deals in competitive markets. Today, Anson shares his insights on how he finds off-market deals in today's market. Episode links: https://www.instagram.com/younganson/?hl=en https://www.biggerpockets.com/users/anson https://www.youtube.com/c/ansonyoung --- Transcripts Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum, and today I'm joined by Anson Young, who is an investor, agent, wholesaler out in the Denver, Colorado area and he's gonna be talking to us today about how do you find off market deals in today's market environment. So let's get into it.   Hey, everyone, before jumping into the episode today, I would just like to encourage everyone to leave us a rating or review wherever it is you listen to your podcasts, they are super, super helpful for us in getting out there to a wider audience. So if you'd like the content we're producing, or even if you don't like the content we're producing, we'd love to hear from you. Let us know how we can improve and do better, so thanks so much and well let's get into the episode, Anson Young, what's going on, man, thanks so much for hanging out with me today, appreciate you.   Anson: Yeah, thanks for having me. It is awesome.   Michael: Now, I'm super excited. So I know a little bit about your background. But I would love if you could share with our listeners who might not be familiar with you, who you are, where you come from, and what is your doing in real estate.   Anson: Yeah, so I come from Denver and we were just talking about how there's not many natives left. But I was born and raised here and what I do is for since 2006-2005, I've done investment, real estate fix and flips wholesale. Wholesale are just now getting into kind of burr buying holds looking more into short term market and I've been licensed since about 2007. So I've been licensed almost as long as I've been investing.   Michael: So right on we actually like just before this episode, we're recording with another guy who is a broker, licensed broker agent as well, as an investor we were talking about, does it make sense for investors to go get their license and kind of vice versa and so that was a really interesting discussion. Has it helped you in your investing being a licensed agent?   Anson: Yeah, I don't know honestly, how people do without it, because I can't stand waiting for waiting on other people. So if I had to wait for somebody to send me comps, or if I had to wait for somebody to submit an offer, I would probably go insane. So being able just to do that myself, is huge. So but besides that there's a lot of advantages for sure. I have never regretted it. There are a couple of like very niche, creative real estate things that I can't do because I'm licensed, but it's never affected me. I don't do like sandwich wrap, lease options, whatever, I don't do any of that. So it doesn't affect me at all.   Michael: It's not applicable. Wow, love the hot take, man. This is perfect timing, right on and so okay, so you just also spoke at the recent Bigger Pockets Conference, which if anybody was there, they hopefully heard tell us what that was all about.   Anson: Yeah. So that was their first rookie conference, so they have a rookie podcast, hosted by Ashley and Tony and they, and they decided, You know what, they've been doing a rookie boot camp. That's a like a 12 week virtual boot camp and they decided, hey, why not do like a two day live event and so they did and so they put all their power behind it and it was geared completely towards rookies. I did like an informal poll, when I did my, my speaking of you know, who's done zero deals, who's done, you know, 12,35,10 deals and there was like one guy who did 10 deals, and I was like, why are you here? But for the most part, wrong conference, I was like, whoa, hey, doors over there. Could be a good guy. But no, like, I think that everybody there has done zero to one, maybe two deals and they were just looking to have guidance on how to do more how to finance them, how to find them, how to structure their business, how to implement systems, you know, basically just how to scale and how to grow. What to do next. So yeah, it was it was a really good vibe, I've, I spoke at the, you know, the big BP conference and the rookie conference, and the rookie was smaller, and more intimate and definitely, everybody's there just to learn, you know, as much as they can, so it's awesome environment.   Michael: That's so, so cool and so you were speaking specifically about off market deals, right?   Anson: I was yep how to like how to find deals at any market.   Michael: Yeah, okay, awesome, which I think is so important for this market and kind of where we find ourselves. So give us just a little bit of insight, so you know what people who are at the conference got to hear about.   Anson: So I do say, like any market, because I learned really quick, like if I'm in Denver, and I just do Denver things, and then somebody comes to me, and they're like, Hey, I bought, you know, 100 properties last year, and they're all $20,000 and I sent out yellow letters, and they're like, in Chattanooga, Tennessee, or something like those things, you know, that like the things that he's doing there might not work in my kind of a plus capital city market and so being from, you know, being working here in this market, and then now I'm also working in smaller markets, I feel like I can speak a little bit more to like finding deals in any market, because it's, you know, I'm kind of working from the top down, I'm working from what works and like, the highest competitive, insane market and when I implement that strategy down into a less competitive market, it still works really well and so whereas I think the reverse isn't always true, where they're like, you know, I've talked to guys who have done exactly that they're still selling, sending yellow letters to, you know, just basic, generic lists and they're still getting, you know, a dozen deals a month or something like that. It's like, that just does not work here. Whereas my methods definitely work there. So I feel like, you know, I feel like a little bit of elitist there. But no, but, you know, we definitely, we definitely talked about, you know, I wanted to implement, you know, hey, here's what's working today, here's what's working, not just in my market, but in multiple markets, and also kind of how to how to do like a fast start. So like what you should do when you get home. Here's kind of a fast start guide, based on the things that I talked about. So we talked about some different strategies that we talked about, like, hey, this is exactly what I would do. If I was starting today, in almost any market, it would be applicable. So that's kind of what we went over.   Michael: Awesome. Can you give us a little bit of insight into like, what that starter guide looks like? I mean, what would you do starting today.   Anson: My favorite, like, like, so, you got to look at like your lists of who you're targeting, especially when you're going off market, your list of who you're targeting, and then how you're targeting them. So what you're sending them how you're contacting them and so my who is definitely my favorite list, if I'm a rookie, and I don't have a lot of money, but I might have more time than money, I'm gonna go driving for dollars, I think it's still, it's still my favorite list, it's still, you know, the least amount of competition on any of our lists, it's almost like nobody wants to just jump in their car, put in the work to, you know, write down the addresses of, you know, the 10 worst properties in a neighborhood or whatever that looks like so. So for us, you know, we're all we're almost like one of one or one of two people who are contacting these, these homeowners, because they may not be in foreclosure divorce, they may not be dead. The only thing wrong is that their house looks terrible and there's no list for that and so unless you go and you and you put eyeballs directly on to those properties, and so.   So if I was just starting out, I would start there and then again, if I had more time than money, I would cold call that list, that's going to be the most aggressive, direct way to get a hold of those homeowners to figure out if they do need to sell if this is something that that might work for them and so, you know, and everything depends on goals and if you're looking for 100 properties this year, versus like two rentals, your entire strategy is going to be totally different. But, you know, in general, if I'm a rookie, I'm going to start there. I'm going to network with agents in the area, see if they have any upcoming listings that are maybe pocket listings, or, you know, if they ever come across a hoarder house, or if they ever come across something that's just so far outside their wheelhouse, like, I'm their solution, right? I'm the guy that can come and help save the day and then I'm going to go network with wholesalers as well and so, between those three activities, you know, you should be able to kick start, you know, finding deals in pretty much any market because now you're in front of two, two gatekeepers, you have wholesalers and agents who are in front of deals, and you're going out and you're looking for deals yourself and contacting homeowners directly.   Michael: I love it. Dude, that's such a cool like three pronged approach. So when it comes to finding lists or scraping lists, I mean, I hear it all the time. What are some actionable like programs or sites that people can go to and use to come up with these lists or get access to these lists?   Anson: Yeah, if you look at kind of ease of use, you know, something that you can go in 15 minutes later pop out a list, you know, something like a prop stream type product is going to be just, I mean, it's designed to be easy that way, right? So you can go in there, sign up for an account, I think they have like a 14 day free trial or something like that. Go in there, say I want all of the pre foreclosures in these zip codes and boom, it'll, it'll give that to you, you might have to pay extra for it, for exporting it or something like that. But, but that's like, you know, five button clicks, and you should have some sort of lists, you know, high equity absentee, you know, they have different metrics in there that you can kind of just click a couple buttons and have a list in your hands. If you want a little bit more hands on, you could go to List source, which is kind of kind of the gold standard of just backbone lists that almost everybody goes in. But there's like a million different options inside of there. So I can understand that it'd be confusing to kind of find exactly what you're looking for because there's, there's so many different options inside of there and then you could export a list that just does you pay for, and it doesn't make sense, because you just clicked one wrong button or something like that. So I understand like ease of use, it's not the easiest thing to use but if you look at title companies, they they'll use lists, sources, their backbone for all of their, their data, like land title, uses them as a backbone, my MLS, for being an agent, and our tax system is all based on the same company that owns list source and so all that core logic data, it's, it's, you know that there's hundreds of MLS systems that use the core logic, list source backbone. So it's kind of an industry standard for title companies, agents, and where that data lives. So I like to go directly to where the data lives because I don't know where prop stream gets their data. It seems to be okay but I kind of I like going directly to the source but I understand it's hard to use.   Michael: Yeah, no, that makes a ton of sense and that's a really good tip and then, so when it comes to agents and wholesalers, so from the agent side of things, talking about pocket listings, or off market deals, I think a lot of investors struggle, especially newer investors struggle, because they haven't built a name for themselves. They're having trouble getting access to those types of deals. So what is something an investor can do, especially when he's just starting out to position themselves to be able to take advantage of or get access to some of these popular things or off market deals?   Anson: Yeah, so for, you know, for agents, agents do get hit up by investors pretty often. I mean, I probably get a couple texts a week from investors that are kind of saying the same thing, like, hey, we're looking for more projects, if you have any, you know, listings that that are just outside of your wheelhouse, let us know, we'll come in, we'll pay cash we'll do you know, they'll do all the investor things. The whole nine yards. Yeah, so I get that it is kind of competitive, I think it comes down to like rapport, you know, building up a relate an actual relationship with agents and not just kind of a transactional, like, hey, I'm going to be nice to you. So you can give me deals or something like that, like, I think people can, can see through some of that. So if you want to actually like form a strategic partnership with people, you know, sit down, buy them coffee, you know, talk to them about what they're doing and if there's any way that you can help them because if you're an investor, and you don't have your license, you will come across sellers who want to just list their house and so having a resource as an investor of like, hey, you know, my, my friend, James, is an agent and he can take care of you and so if you're, if you're kind of reciprocating, and giving, you know, to an agent or a few agents, they're going to be more, you know, much more willing to give you a deal when it comes across their desk, like hey, this you know, hoarder House came across in my brokerage. Everybody's like pointing and going, like, what the heck do we do with this thing and, you know, this could be a good opportunity for you to take a look at, but yeah, being in front of the gatekeepers is, is very powerful. So whatever you can do to get in there, I suggest being nice and building rapport, but whatever you could do, get in there.   Michael: Yeah, that makes total sense. I mean, it kind of goes to drive home. The point something that I've been preaching for years is like relationships, like real estate's relationship business. It's not an asset business. It's not a sit, you know, physical bit like I think it's all about relationships and this goes to really drive that point home, so I think it makes a ton of sense.   Anson: Yeah, 100% a relational, absolutely.   Michael: Moving on to wholesalers because I think a lot of people have a view opinion preconceived notion about what wholesalers are, you know who they are, the kind of people they are and the things that they do. So there are good ones kind of like everything in life, and then there are less good ones. So how do you develop a relationship with wholesalers and like, especially as a new person? How do you know that they're just not pulling the wool over your eyes?   Anson: Yeah, that's a like, that's so prevalent, like that. Just everybody knows that most wholesalers aren't great. I said, you know, I said it from stage, I was like, finding, finding wholesalers is easy. Finding a good wholesaler is different, like, that's the hard part.   Michael: Right, right. Right, right.   Anson: So it's gonna come down to like weeding, you know, weeding through it, you're going to, you know, if you meet 10 wholesalers, maybe one or two of them are doing good deals that are, that makes sense and so you won't know that until, you know, you might talk to them and get a feel, you know, feel for them. But a lot of people, it's kind of hard to tell if they're, you know, if they're legit there, but you might just start having to see their deals, get on their list, start getting deals across your desk, and analyzing them and you're gonna have to analyze them anyways. So, right, and it's good practice. I mean, if you're like, if you're a rookie, or if you're somebody just starting out, like, I tell, I tell investors and agents and whoever I can, like, look, get these, get these, get this input, and then evaluate it. You don't have to be ready to buy, you don't have to be ready but you're putting in the work of figuring out what these properties are worth estimating repairs. plugging in numbers into your formulas of what works for your business, does this work as a rental? Does this work as a short term? Does this work as a flip, you're putting in those reps and so if you're putting in the reps anyways, and you're getting, you know, 10 wholesalers worth of deals across your desk, you know, analyzing those and really figuring out like, oh, these two are actually having, you know, consistent deal flow with numbers that makes sense for my business and then you might, you know, you might just kind of unsubscribe for some of the other the other ones or, occasionally, the worst wholesalers come across good deals, and they just don't know it and so sometimes, you know, sometimes you'll find a diamond in the rough from somebody who you might write off, so I don't, I don't subscribe because sometimes they just don't know, maybe the deal, or maybe the values in the land, or maybe the values in a pop top or maybe the value is in a rezoning play and they're trying to push it as a flip. That doesn't make sense. Right, so, you know, don't there'll be some diamonds in the rough there, but you're going to be analyzing deals and double checking the work anyways. So, so that's going to be a good way to weed out the good ones from the bad ones, for sure.   Michael: Yeah, that makes a ton of sense. All the wholesalers that I see they give you a deal. So this is the purchase price, this is the rehab cost, this is the ARV. I mean, what are some resources for people to get accurate at validating those numbers for themselves because I don't think anyone should take anything at face value you want to trust but verify it. So how do I figure out like, what is the ARV and what is the rehab cost, if I'm just getting started?   Anson: Yeah, those are, those are huge questions because those are those are definitely the two blind spots that most new investors have. So they're, you know. It's not just finding a deal and then financing it, but now it's like, now I have to evaluate it and then we have to figure out rehab costs and it's very daunting. I would say like, the easiest way to do some of that is to lean on others for their expertise. So if you have network with, with agents, you know, see if they can run some comps or you know, teach you how to run a couple comps, you know, in that or watch some YouTube videos on you know what, what are comparables? What does that look like? Can I find them on Zillow? Can I find them on Redfin? A lot of investors they will just lean on the expertise of an agent to pull the CMA or pull the ARV for them and then, you know, basically trust that number but based on a little bit more expertise than the wholesaler, okay, but learning to do it yourself will always it'll always benefit you, you know, whether you have to teach somebody on your team later on. Whether you know, become an agent yourself or something and have to do it in the long run. Go at being able to figure out what comparables look like and then where to go find them. There are you know realtor.com Zillow, Redfin, there are places where you can go find comparables, and then really just try to compare them apples to apples and then for rehab, it's kind of the same thing because if you don't, like, I don't know anything about rehab, especially when I was starting off and so being able to lean on a general contractor, or somebody who has that experience was huge, because otherwise I wouldn't have even gotten into my first flip. Like, I have no idea what these things cost and what labor costs and right time, timelines look like, even if you have to pay for that contractors time, it's always worth it, it's always worth the education. So if you're like, hey, I'll pay you like, $50 an hour to go walk this property and if they have an extra, you know, a couple hours or a little bit of downtime. You know, say I just need a line item bid, and I want you to walk through the property with me and that 100 or $150, for them to walk through the property is that education is priceless and if you can get, you know, if you can get two or three other newbies to pitch in to, I mean, you could you could potentially offer a contractor, you know, hey, four hours of your time, for you know, 567 $100, everybody just pitches in, like $75, or something like that and the contractor slow walks you through a property that education is priceless and if, you know, barring that, if you want to get two or three contractors to go and give you bids on our on a property and then you can compare those bids kind of side by side, like this contractor is charging this for paint. This one's charging this for paint. This one's charging this for paint like what's, what's the real number, I just average it out, like this guy's way high. This guy's way low. This guy in the middle looks, looks good. You know, there's a couple of different ways to kind of get a gauge and an idea of what rehab costs are. But I mean, I mean, there's a rehab book on costs, but the minute the book comes out, it's already out of date, right… It's like two months later it you know, you could almost just burn it, and it wouldn't matter because sorry, Jay Scott but yeah, like, like if you, you know, you go through a pandemic, and all of a sudden labor and wood prices are just off the charts. A normal person wouldn't know that but if you're in the business every day, you know that those things are going up and so relying on somebody who's in the business every day is usually the way to go.   Michael: Yeah, that's such a good point. That's such a good point Anson, and curious, get your thoughts on like just the physical, like nuts and bolts of doing a transaction via a wholesaler, as opposed to going with an agent or a more traditional route? What are some things that people should be aware of and like, can they go get an agent to represent them as a buyer's agent sell on a wholesale deal?   Anson: Most, most good wholesalers will let you do that they don't care. What they will do is they'll ask you to roll your agent costs on top of the price. So if it was, you know, $200,000 is their price. They might say whatever your agent wants to get paid, it's gonna go on top of 200. It's not coming out of my pocket. And so they'll so yeah, so the big wholesalers here in town, including my, I wouldn't say I'm a big wholesaler, but I have had buyers who bring their agent, and you know, they can get paid just fine. It's not a big deal. Now the, the transaction is a little different depending on how the wholesalers are doing it. If they're doing an assignment, it's going to look a bit different than if they're doing like a double close and so as a as an investor, you just have to know the difference between those two and what that looks like. You know, a lot of times the earnest money is nonrefundable.   So know that once you put the money down on that deal, you might not get it back. Most of them are nonrefundable. It's like $7,500 nonrefundable and that kind of covers the wholesaler costs if you don't close like they're like, my earnest money is covered on my end, plus maybe a little bit of extra money for them for their time or something like that. But so no, you know, in a normal real estate transaction, you have outs in the contract to get your earnest money back in a wholesale deal. It's pretty much hard from day one, it's just gone. So you buy so you're either closing or you're losing your money. You know, and everything else besides that it's pretty sort of normal. They might give you an inspection window. They might just say as is like, do your own due diligence, but they're not going to budge on price. They're not going to you know if you find uncover a structural issue or something like that, they still might not let you out with the earnest money because it went, you know, it went hard on day one and so they're like, either close it or, you know, walk away, like those are kind of your options. So, yeah, on a normal real estate deal, you might have more contingencies for your inspection and stuff like that and then most wholesalers are looking for either hard money, cash or something that closes fast without any headaches or issues. If you come in with an FHA, you know, offer, and you're trying to buy a wholesale, I don't know if the wholesaler is going to take your, you know, take your offer, because there's still an appraisal, there's still like all these other hoops to kind of jump through. So you might just have to go get a hard money loan for that deal.   Michael: So Anson, I'm curious to get your thoughts because the like the ins and outs and kind of the some of the risks, I would say, associated with a wholesale deal tend to be or sound to be a bit higher than a traditional MLS deal or just a traditional transaction. So for that reason, do you think that wholesale deals lend themselves just by nature, by virtue of the deal to more experienced investors or have you seen newer investors utilize wholesalers and break into the market?   Anson: I'd love to see both, I would say as long as you know, you know what's going on when you go into it. All the things that I just talked about, like earnest money, being hard and having to have fast funding and all that stuff. I have seen brand new investors who have who haven't done any deals, you know, they'll buy like a triplex from a wholesaler, you know, as their first deal. So it happens all the time, the hoops are just a little bit more to jump through and to figure out like, hey, if it is an assignment, that's what this looks like, if it's a double close, that's what this looks like. So just knowing those things going into it, I think any new investor can utilize wholesalers as a resource for sure. Yeah, shouldn't be a problem.   Michael: Okay, great to know and so this has been like super fun super eye opening man if people want to reach out to you learn more about you ask you some follow up questions where's the best place for them to do so?   Anson: Yeah, you can you can find me on Bigger Pockets. Just type in my name it'll it should come up with my profile, send me a message there. Find me on Instagram @younganson or find me on YouTube Anson Young and either one of those reach out say hi, if you have questions or need anything just hit me up.   Michael: Right on, well, thank you again man for coming on, this has been a lot of fun and I'm sure we'll chat soon.   Anson: Awesome, sounds good. Thank you so much.   Michael: Hey, you got it, take care Anson.   Alright everyone that was our episode with Anson, a big thank you to him for coming on the show and sharing some really actionable takeaways for folks to do, whether you're a seasoned investor or just getting started in how to go secure some off market deals, so you're not fighting with everybody on the MLS. As always, we look forward to seeing you on the next one and happy investing…

Omni Casey, along with his wife and kids, owns and operates New Leaf Redevelopers, which is their family real estate investing company. Although they tackle many different types of investment projects, their primary focus has been to purchase vacant and barely habitable properties, fix them up to be the nicest property on the block, then rent them out at affordable rates. Omni has been a real estate investor, broker, and coach for nearly 20 years. His real estate career started in Hawaii where he grew up. Over the last 10+ years, he and his family have lived in Northern Virginia and have been very active in both growing their real estate investment portfolio and growing a top-performing real estate team and office in Loudoun County Virginia. With a passion for building wealth and helping others achieve financial freedom, Omni has coached hundreds of real estate investors, real estate agents, and clients alike to create and execute a plan to grow their real estate business, grow their investment portfolio, or both. Today, we talk about whether it is worth it as an investor to get your real estate license or not. Episode Link: https://www.omnitheinvestorguy.com/ https://www.instagram.com/omnitheinvestorguy/?hl=en https://www.facebook.com/omnitheinvestorguy --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, before we get started, I want to encourage everyone to actually go share this podcast with one person, you know, we are trying to get the word out there to help all investors all across the country and throughout the world. So if you know someone that is looking to get in investing, please go share this podcast with them and encourage them to the same. It's also really helpful for us if you could leave us a rating or review wherever it is get your podcast. Thanks so much, happy investing.   Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today with me I have a returning guest Omni Casey, agent, broker investor entrepreneur, he's gonna be talking to us today about is it worth it as an investor to get your real estate license and vice versa, so let's get into it.   Hey, everyone just wanted to give a quick shout out and encourage everyone before we get started here to go check out the Roofstock Academy at roofstockacademy.com, it is an education program that we talk about all the time on the podcast, we've got different price offering tiers depending on what it is you're looking for. We've got one on one coaching, 50 hours of on demand lectures, Slack channels, private forums and a whole lot more, as well as money back on your marketplace fees if you're transacting in the marketplace. So come check us out rootstockacademy.com. I look forward to seeing you in there, I'm not a cash flow guy. Welcome back to the show, man, thanks for coming on hanging out with me today.   Omni: Like that, thanks for inviting me back, Michael.   Michael: No, of course. So last time, your book hadn't yet come out but you were just sharing with us that now it is available. So before we get to the episode, what is it and where can people find it?   Omni: Excited, so cashflow Breakfast Club, sign up on the back there as well. So it's on Amazon, finally, you know, both eBook and print is available. Actually, we sold out the first week. So if you go on Amazon right now, it might be like a delayed a couple of weeks but you'll get it and we're working through some voice talent right now to do the audiobook. I'm not comfortable doing it myself, so we're hiring somebody out to do that, so hopefully in the next month or so we'll have the audio version as well.   Michael: You should go get Obama to do it. He did and he did that naturally.   Omni: I saw that I think he's a little out of my budget but you know what, maybe on the next book   Michael: On the next book, all right. All right, cool, well, today, I mean, last time we had you on, we were talking about your book and kind of your story and your journey. Today, we're talking about something a little bit different and that's really should people who want to be investors go get the real estate agents license and so would love if you could shed a little bit of light around how you did it and then I got a lot of questions for it because as I've shared with you, my wife's going through the same question, so we're going to talk through it.   Omni: Yeah, absolutely and it's a great question and it's not a simple yes, or a simple no, no, some people go on, absolutely get your license and some people say no, don't do it. You know, back to my original story, I started investing before I was an agent and I got my license fairly soon after, because one, I think I'm a control freak and so it helped me to control the information and the data and the access to speed. You know, and I would say, when I started, there weren't many real estate agents that understood how to help real estate investors rallies, I didn't, I didn't know where to find them and so it allowed me to one, understand that if I wanted a good agent, I need to become a good agent myself. So I went down that path. Now there's a lot more information, so it's not a necessity, because there's a lot of great agents out there that know how to help investors just got to find the right agent to do that and then there's a lot of good information, you know, outside of just from real estate agents as well.   So it's not a necessity, but the when someone comes to me, after they hear my story, and they say, Okay, you're an agent, and you're an investor, that must be it and, and really, you know, my kind of go through processes just kind of tell me like what drives you? What's your motivation because the reality is most people are not built to be real estate agents and so the reality is, it's actually much harder than people think it's a very detailed process of owning a business and if you're not built to own a business and be your own boss, and be a successful boss, right, some people are good employees, but they're terrible bosses and so, if you are not driven to be a really good boss to hold yourself accountable, you're gonna probably not be a successful real estate agent and I usually tell people, get an agent if you become an agent if you plan to use that as your active income if you plan to, whether it's full time or part time, make them money from it, then go for it. But you have to commit the time to becoming successful at that and then if you earning cashflow as an agent helps you become a better investor and have more capital to invest in, it's a win win but if you're only getting your license as one option to, you know, because you're an investor, you think I should have my license, well, why won't why don't you become a contractor? Why don't you become a property manager? Why don't you become so many other things along the way, real estate agent is a very integral part of the process of becoming successful, successful real estate investor, it doesn't necessarily mean that you need to be that. So that's kind of where I start and then it kind of takes us on a very few various tangents from there.   Michael: That makes total sense and I mean, it really gets I love that question. I've never thought to ask someone that because I get asked all the time, like, should I go get my agents license, and I don't have mine and for kind of a specific reason, really, to your point that you mentioned, but it kind of gets to the problem. I think of so many people starting out small businesses like, oh, I don't need that person, I could do it better myself and that sounds like the struggle that you went through of like, I can't find a good agent, I gotta go become the expert. I gotta go do it myself, knowing what you know. Now, are you glad you did that?   Omni: Oh, absolutely. So it turns out I love being an agent. Starting out, I almost had no knowledge of it. Right. So I've been doing this about 20 years now and I had no real knowledge of what a real estate agent does. I had some friends and family that were but it wasn't like on my plan, right? So I was an entrepreneur, and I didn't really look at being an agent as running your own business. It wasn't until I got my license, that I realized it was a really cool business and of itself. So real estate investing, I look at that as a standalone business and then the real estate agent side is as a standalone business as well and so it's no different than if you were to go open up a Subway franchise or some other business, you are the owner and probably the only employee to start, right and so both as the owner and as an employee, do you have the skill sets to run both of those until your business is profitable enough that you can step back and be just an owner? If not, you're always going to be an employee. If we go back to Robert Kiyosaki, it's a Cashflow Quadrant book, right, you have the various quadrants you have the employee, the self-employed, the business and investor quadrants, the self-employed means you own your job, but it's still a job, and you make no money at a job that you don't work at. So I loved it and I became a very successful real estate agent and eventually transitioned into becoming a coach and a broker, have an office about 100 agents right now that I kind of coach and train and so I lucked out, because it became a passion for me. But starting out It by no means I had no goal of becoming a top agent or actually being a successful agent. What I realized now is to be a to really scale your investments at a high level or at a level that were to my ambitions, I needed scalable income and any job out there most jobs are not scalable, meaning I'm going to work and I'm going to make about the same amount no matter what, and maybe there's some performance bonuses in there.   But you're always kind of capped at what you can do, real estate as an agent truly is one of the most scalable incomes you can have and I've leveraged that because I've put deals under contract early on in my investing career that I could not afford, like it was too good to pass up and I just put it under contract and I'm like, I'm gonna buy this no matter what I don't have the money to buy it. I don't know how. So I've got to go find a partner or I've got to go earn income and my highest producing agent, income wise months, were tied to me putting myself in a position that I needed to earn money, and I needed that extra income. So you go out, you can make 5060 $80,000 in a short period of time, because you need it because it turns out, I don't really care about money, and I don't need it and I earn exactly what I need to be at my comfort level and so finding ways to push yourself outside of that comfort level. To need more income was the trick for me to kind of have really high production productions as a real estate agent.   Michael: I love that. There's a I don't know, forget who told the story or of what King or conquer but they talked about, like getting to a beach coming on boats and then burning all the ship because going home is not an option. So you better win the freaking battle because there's no other choice. So I love that putting that I mean really turning the pressure up on yourself intentionally to perform.   Omni: That's great that definitely burned the ships behind you is really what it comes down to and although prior to becoming an agent, I was a you know, business owner, entrepreneur and in sales. So I've always been used to that. But the complete scalable income where you can make zero or you can make $100,000 in a month really depends on how hard you work and the results of your effort, right. It's not just clocking in and feeling like hey, I put in a hard day's work is like no, I need to do things that were actually leading to productivity leading to contracts and sales and so you can, you can be as successful as you're motivated to be.   Michael: I think that's, that's such a good point that I kind of want to spotlight on as an employee, you show up and get paid, kind of independent of what you do. I'm not saying you can't get fired, right? There's performance stuff, but like, all you have to do is kind of show up and do the bare minimum and you'll get by, versus as an entrepreneur, as a business owner. If you don't do the things that are getting results that are actually moving the needle, you probably aren't getting paid.   Omni: Yeah, absolutely, absolutely and so, so back to the original question, right of should I get my license? If I'm a real estate investor or want to be a real estate investor? It's yes, if you're going to use it as active income, and it's maybe if you're going to do if you're going to use it as so. So most people think I'm going to get my license to save commissions on my deal, right? Like, I'm licensed in five states. I don't earn commissions on my deals, because I make sure everyone else my I hire agents still because one, I don't have the time to do that anymore myself starting out. Sure, I was involved in some deals but actually getting your license to just save on commissions could backfire on your success because starting out, I said, oh, that's cool. I'm going to make money on every deal that I do and other agents knew that I was an investor. Other agents saw me as alright, well, if I send someone to this guy or tell them about a lead, they don't have an opportunity to make Commission's because I was going to be making the commission. So it wasn't until I figured out I tell everyone, I want to pay you well, I even though I'm an agent, I want you as an agent to get paid on this and I started telling everyone agents and wholesalers that I will pay you extremely well, if you bring me an off market deal. That made it easy for them to bring me off market deals, because now I wasn't they weren't worried about me cutting them out of some sort of potential listing fee or biography down the road.   Michael: That's such a great point. I'm going to two statements that I'm going to make and I want you to evaluate which one you think is more true. Investors make great agents, or real estate agents make great investors.   Omni: Oh, man, both are false 100%. I love the way you frame both of that. So I will say investors make great agents. Some investors, it takes a certain mindset, right. So from a real estate agent standpoint, or I guess you can pull out from a business owner standpoint, you really need a visionary and an integrator and kind of goes back to that book. I was at rocket fuel. No, there's, there's another one.   Michael: Is it a traction?   Omni: Traction? Yes, traction. Thank you.   Michael: I haven't read it. But someone just mentioned that in the course…   Omni: Traction and rocket fuel, both by Gino Wickman talks about the visionary and integrator and most people starting out, you're just one person, and you got to figure out how to be both. But really, there are different, you know, mindsets altogether and so from an investor's standpoint, you will reach your limit as either an integrator or visionary unless you start to build the team or hire beyond that and as a real estate agent, as well, a visionary, usually those are the ones that like had the big vision, they're usually you know, out and social and they're kind of building, you know, ideas and kind of getting people excited. But then the details fall through the cracks and they don't have the ability to actually execute on their plan. They get people to say, yeah, help me buy help me sell, but they don't have the details in place to do them. So it's actually easier to be a visionary and hire out from for administrative purposes, from the integrator standpoint, than being an integrator and hiring out on the visionary standpoint. But once again, those are just roles and we all play both roles until we get big enough to go beyond that. So from the investor standpoint, most are visionaries, most are absolutely visionaries, but you get to the point where you don't have the details in place or maybe you don't even value the details of what the real estate agent does and the investors that have been investing for a very long time, especially at a high level, getting into real estate, they're saying I don't understand the purpose, I don't understand why we're talking about, like this $5,000 commission or this one little transaction. So it's hard for them to bring them into the moment as a successful investor. From a from a real estate agent standpoint, unfortunately, most real estate agents actually get into the business and unless they connect with an investor or investor broker like myself, they actually look at real estate investors as like, like, I don't want to deal with you like the worst clients in the world, right? So there's almost as friction between the two was spoken or unspoken and really, it's only the agents that get in with the mindset of I think I want to do both, or the investors that get in the mindset that I think I want to do both you're almost ruining yourself from jumping over to the other side. Once you're established as an agent, or as an investor, it's very tough to cross over from what I've seen.   Michael: Interesting. Okay and why do you think some agents don't like working with investors because objectively A, I would want to work with me humblebrag. But like, it seems like we're so much more fact driven and numbers driven, as opposed to an owner occupant. You know, I don't like the paint color. I don't want this house. Like, I don't care about the paint. If the numbers make sense, great. It's a go for me. So why do you think that is?   Omni: So I think, just like any industry, the inexperienced investors and the, the, the investors that I've never invested before, give everyone else a bad name, right because they're all about one, they don't have the money to actually hire somebody and pay for the services. So they're trying to use and abuse as many people as possible, because that's what they were taught to do, and pay nothing for it and make no commitments, right. No, I'm not going to sign an agreement with you and so, so they are one, the least committal group out there. They are the cheapest group, they're always trying to, you know, Beat Agents down for their commissions and their fees and things like that and so I'm not saying that's everyone I'm saying, if I'm a terrible investor, and don't know how to find or put under contract deals with good margins, that I might be pressured to make sure I'm paying nobody along the way, right, because I'm making only make a little bit of money, you can't make money, I can't have my agent make more money than I'm making on the deal, right. So that's the, the beginner or the novice investor mindset, where I think Robert Kiyosaki is the one that kind of ingrained in me and many people that you pay, your vendors will pay your broker as well and the more I decide to pay, like, if the going rate for a commission is 3%, I'm paying 4%, I pay above market rate, because I want everyone to see me as a more profitable venture for them to actually take them down the path of getting a deal sold and so, you know, the margins need to make sense, but I just don't buy the deal. If I can't pay my brokers, pay my agents pay my contract as well, and get a good deal because that relationship is far more valuable than that one deal. I need to make sure that that agent, or that wholesaler, or that contract, or whatever it wants to do business with me over and over and over again and they put me at the top of the line, when there's all these other newer investors out there are newer agents that want to work with them. Hopefully, they're thinking about me first.   Michael: That is a great point, that's a great point. I'm not I feel like everybody and their brother and sister are real estate agents. We all know someone, we may even have some in our family, how can you get in the business and separate yourself and what seems like already a pretty saturated market, if you decide that's the route for you, getting your license, make sure.   Omni: So my wife is not licensed and she helps me on the investment side and like every other year, she's like, maybe I should get my license, maybe I should get my license. I'm like, you would be a terrible agent, right. So and I love my wife. She's amazing at what she does. But I know what she would not be willing to do, right and so to set yourself apart, you need to establish that you're different or you need to establish some sort of differentiator, right and if not, then to be a successful agent, it's okay, well, can I be the cheapest and the reality is there's so many cheap agents out there that are willing to reduce what their cost of services are. But it also reduces the quality of service and just like that gives investors a bad name to agents, right. I only deal with investors that never buy properties, or that do want me to make 1000 offers before they actually put in a reasonable offer, right. Same thing on the, in the real estate industry. There are many real estate agents that got their license, because one, it's easy to get your license, and there's such a low barrier of entry and they really didn't, they just they just said, Alright, I'm going to do this as a hobby, maybe not as a business and so because of that, for them to be competitive, they got to be make themselves at a lower rate, but they can't afford to offer the same level of service and so from an investor standpoint, you're like, I hired the worst agent in the world, that agent wouldn't return my calls, didn't know what he was doing wasn't educated. Well, that's what you want it right. You wanted the cheapest agent out there, and you get what you pay for. So it is a self-fulfilling prophecy in terms of who you end up with but someone just getting in and getting their license, it comes to education. So I think I bounced around from a few different brokerages throughout my career and it wasn't until I found like a mentor and someone that was willing to kind of take me under my wing and say, okay, you got potential, but you're all over the place. Do you need to kind of stay organized and put a plan in place. I don't think I would have made it right, I needed that direction. So having the coaches the mentors and the masterminds that I relied on the investing side, same thing on the real estate agent side, also the essential and I'm although I'm a visionary to start, I do get very analytic Call and so I try to calculate the ROI of everything right, the ROI of my dollars is easy to track. But the ROI of my time now, you're telling me I need to go sit at an open house on the weekend. And you know, I'm talking to people, but what's my ROI on that, right.   That's three hours or four hours or five hours, I'm sending out postcards, what's my ROI on building a business and so you know, I got really good at tracking everything I did from the beginning, and actually writing down the results over a period of time off, alright, if I did an open house, and I made on average $10,000, let's just say every time I sold a home, and it took me five open houses to sell one home, I got to figure out what my ROI was, right. So every time I did an open house, I made $2,000, or you know, something along those lines. Turns out, I was really good at drinking coffee. So that became like, my number one business generator was meeting people drinking coffee with them connecting with them on a one on one basis at our favorite coffee shop in Hawaii and then it's not, Hi, I'm an agent, I want to sell you real estate, it really is sitting down with them and you know them somehow they might be a relative, they might be a friend, you might barely know them from social media, wherever your relationship is here. You're just trying to take your relationship to there and it's not whether or not that person in front of you, buys or sells with you, which is the end goal for most real estate agents, it really comes down to, is that person in front of you? Do they like you? Do they trust you and would they actually refer their family and friends to you, because there's no guarantee they'll actually ever buy in the next 10 years, right? You're building this relationship for something that might not turn into a transaction but if they are saying, hey, I like this guy and at some point, I'm going to hear about someone that needs a good agent. I'm gonna feel good referring Omni as my agent, that became it. So I realized that I can build those relationships, one on one, at my favorite coffee shop back to back, you know, sometimes I would sit down and have two or three meetings back to back of just having coffee, sometimes breakfast with people and just building the relationship that eventually turned into referrals.   Michael: That's great. Sounds like you're very caffeinated for quite some time and you're very caffeinated…   Omni: Very caffeinated. I switched to decaf, decaf, usually around the third person but the ROI at some point got to like $6,000 per coffee meeting, right. So I figured out what my average commission was and how many coffee meetings I needed to get to enough referrals to get the clothes that I was making about $6,000 for a 45 minute coffee meeting, I was motivated to have a lot of coffee meetings. Yeah and from a broker coach standpoint, I go to the same organization with every one of my agents, I say, okay, how do you figure out your ROI and what you're good at everyone's good at something different but once you know, what you're making per activity, how do you motivate yourself to continue to do that activity and that's really the key, like, keep yourself motivated?   Michael: Yeah, no, that's so good. That's so good. I think we could do the exact same thing from the investor side is like, okay, what how, you know, how are you networking? What is the activity you're doing and what is the ROI. That's great man, absolutely curious to get your thoughts, because you've been on both sides of the coin, like, what should investors be doing to a, like, be good to work with to be a good investment be a good client for their agents but also, how do they go find a good investor friendly agent and how can you kind of, you know, how do you break up with a bad one?   Omni: Yeah, that's a really good question. I think there's a lot of online forums now, with investor friendly agents or agents that are at least advertising as investor friendly. No, I think it'd be hard for me to work with an agent that is investor friendly, but doesn't invest themselves, right. So, so it's a simple conversation, like, what are they doing? Are they actually investing in not to say it's required, but at the level that I need right now, of the amount of transactions I do in the advisor, I'd love if my agent could actually be an advisor, right, so I think I understand the investment standpoint, but they should know that the market specifics, they should know how that ties into that specific geographic region that I might not be familiar with and I want them to walk me through and have this kind of mastermind kind of effect of us both thinking through and, and if they have not, kind of done their own investments, it makes it harder now, we'll say for our brand new investor, and investor friendly agent that has not invested I think it's okay, because they're learning the knowledge there.   But yeah, I think I when I asked him, how, what kind of investments do they do, and if I'm focusing on doing a burr in a particular area, that usually means that they need to know you know, how to be a landlord how to fix and flip you know, how to get contractor quotes and things like that, to give me some guidance of what the cost structure for that type of project in that area would be and where do you where do we find them? It's through referrals. So from an investor's standpoint, you know, various meetups, there's a lot of online meetups now but if you can connect with online meetups, various podcasts like this, you know, people make recommendations per area and what's interesting people go to an area and they, they are usually gonna go through one of one of two, they're like, I want to find the best agent in the area, the top agent, guess what the top agent doesn't want to work with us, they don't have time to work with an investor looking to buy a $200,000 property, right, because they've gotten to a level. So they're not to say they couldn't help you, they just don't want to help you right now, unless they have a team of people, they're gonna hand up the truth, they're gonna go the right, the other route of I'm gonna go with a brand new agent that has nothing else to do. So they're going to do everything that I want, and they're going to do it at a, at a very affordable rate. Once again, now you are just coaching, and you don't get the benefit of someone with expertise. So usually, it's somewhere in between someone that's a successful agent, not a top agent, but also an investor as well and if you get stuck with somebody that is not meeting your criteria, one, it usually comes down to one or two things, one, they don't know how to help you, maybe they don't even want to help you because they didn't know what they're gonna get into, or the communication, expectations or not and so I think getting really good at setting your communications upfront, before you agree to work with them. If you're really good at setting your communications, people will, some people will not actually want to work with you, not because of you, but they're gonna say, okay, I need to be at a certain level of understanding and expertise to meet his expectations. I don't think I can meet that. But guess what this agent I think might be the right fit for you and maybe you might get a recommendation from there, but lay down exactly what you, you know, what you would like to see from the relationship and they have to see that it's mutually beneficial. So whenever I go into a new market, I rarely go in with the intent of buying one property, I usually go into the intent of establishing a market and if I can build the right team, I'm gonna buy a lot of properties in that area and whether I'm talking to a in real estate agent or a property manager, I tell them that I want to become your number one client, that's my goal, there's no guarantee I will, it will be based on whether or not this relationship continues at work and I find deals that are profitable, and you help me find those deals. But if so, I will continue to invest around you and so I invest around good agents and good property managers, more so than specific locations. There's great locations out there that I own one or two properties in, I just have not continued to buy there. Because I don't love the team that I have yet, you know. So it's, it's I just have not found the right team to give me the confidence to scale up to 30, 40, 50 properties in one area around someone that maybe I'm not fully happy with in terms of communication or results.   Michael: Yeah, that makes a ton of sense and I talked about with folks on the podcast and in the Roofstock Academy all the time about just that, like, do you go deep into a market or do you go wide across multiple, and I think when you go wide, you get exposure to a lot of different markets, you can you can decide, hey, market A was great market beat, maybe not so much. See, we're gonna pass entirely, but you wouldn't have seen market A;B;C if you're only in market a so and that makes a ton of sense and then so from on the investor side, like what should we be doing. Other than setting very clear expectations around communication to be to make agents want to work with us. I mean, we want to, of course, be the number one client for those agents but what can we be doing skill wise or communication wise or pitch wise to make ourselves as attractive as possible for agents to fight over us so to speak?   Omni: Yeah, I love that and I think, even today, when I go into a new market, I still, like come in with when I'm interviewing agents, but I really want them to be interviewing me as well and I really want to show up as a as a good and desirable client and, and so I do want to make it as easy as possible for them. So I will do a little bit more backend research on my end. If I know I have access to the data, rather than making my agent go do some, you know, meaningless task or some task that they might not fully understand yet. I'll do that until we kind of are on the same page and reach almost partnership level, right. So I do try to make it easy. If I just go in and say okay, here's a list of everything that I need right now and guess what we're going to make 30 offers and none of them might get will probably not get accepted, but that's my average or whatever the case may be. They're probably not going to like working with me or want to work with me. So I set the expectations up front of here's what we're going to get to, but I also if there's something that I can do, or some like my virtual assistants, someone on my team can take care of, I'll take that off of the agents play and really only use them for the essential things that I don't have access to or I don't like they're my boots on the ground. They are my local knowledge and those are the two things and sources to sources to other contractors, sources to wholesalers. But those are the things that my agents really bring to the table and I want to make sure that anything outside of that if I can take care of it myself, I'm going to take care of it myself or have someone on my team take care of it.   Michael: So even though they might be a Jack or Jill, of all trades we shouldn't be using and abusing them as a Swiss army knife.   Omni: Yeah, until they volunteer to be abused, or until they say, you are my number one client, and we bought 10 properties together, what can I do to help you buy 10 more. Sure, but if you're still trying to buy your first or second property, I mean, how many of those type of investors has every real estate agent worked with a lot. The reality is, there's always a little bit of skepticism until they get to that first one or two transactions, then it's like, okay, this is real. He's one of the good investors and not one of the investors that don't know what they're doing. So I think it's prove yourself both sides are proving yourself through till you get to your first few transactions.   Michael: That makes total sense. I met a question that I have for you, and you're gonna have to kind of wear both hats, if you could. So as an investor, I'm sure I would actually ask you, have you ever made an offer, like a ridiculous offer. You're like, there's no way this gets accepted and it does?   Omni: Yes, all the time, all the time, so…   Michael: I have to, and I've had agents tell me, that's probably not going to get accepted and I push them I say, do it anyway. Now, you mentioned that as an agent, working with clients, like throwing out ridiculous offers, and you feel like it's a waste of time for the agent. So how do you square those two. I mean, how can you know what I mean?   Omni: Yeah, and I can see absolutely both sides and I do take off and put on hats all the time, as you mentioned, right. So whenever I do training, I gotta explain like, okay, I have my broker head on right now and then sometimes I'm like, no, I'm not a broker right now, I'm putting my investor hat on. So it is a different perspective. I think understanding the perspective on the other side is definitely helpful. Me personally, when I put in offers, I usually, for a very long time, I've usually done in three offers strategy. So I usually put in three offers at the same time to the same client, and it is varying strengths of offers and it usually has some sort of component. So there might be an all cash offer, there might be a traditional lending offer, that's a little bit all cash is going to be the lowest price the seller needs to sell today, it's going to be the lowest price and traditional lending offer is going to be at 95% of value, or whatever it is and I might go 100% or 105% of market value if they're willing to do seller financing, right and so you're kind of laying out these, you're educating your agent at the same time, if they're not familiar with that. And you give I give my agent, my agent, the exact wording the exact template, so they're not having to figure out, what do I do here, I say, here's the wording, here's what you sent to them, here's the attendance for the offers and we're gonna give them three options to choose from and so although it is more explanation on their part, it really is some coaching that I take on if it's a new agent of here's what I want you to say, here's what I want you to do and they usually see that as really good education of how they can better serve other investors moving forward.   But rarely do I just put in an offer of alright, they want $500,000, let's say 200,000, you know, so it's just that just not me, I usually give multiple options there and they're comfortable doing that not to say, you can't do that, I think you just need to set the right expectations with that agent of alright, we are going to be putting in 50 offers at ridiculous prices and then if they're okay with that, great, they build a template and hopefully it takes them two minutes to get the paperwork ready for you because it's already pre built but if they're having to like struggle through and spend, sometimes upwards of a few hours prepping offer paperwork, people don't understand, like it could take several hours prepping that paperwork and reviewing it. That's probably not worth it to submit 30 offers for the chance of one going through, you know, if they, if they figured out their ROI on that activity, it'd be like less than minimum wage. So I think it's setting the right expectations, making sure they're okay with that but my strategy is that three offers strategy that gives them at least a better chance of having a conversation with that listing agent or seller that might turn into something.   Michael: Yeah, it's funny, I actually do the same thing that three offers strategy, and I just made a YouTube video talking all about it. So I think it's great. It gives folks the choice of which of your offers am I going to choose as opposed to yes, no accept or reject.   Omni: Absolutely, I don't want to sell everything in between yes and no, I want them to be thinking between option one, two and three and it works at a much higher rate than people think.   Michael: I love it, I love it, Omni this was so much fun, man really insightful for people that want to continue the conversation and learn more about you reach out to you directly where's the best place to do so?   Omni: Yeah, I'm on social media Omni the investor guy Facebook, Instagram and actually on Tik Tok now no dancing yet but I'm getting there soon and then I'm on https://www.omnitheinvestorguy.com/ is my website you can get information on the booking see my story you can send me messages there as well.   Michael: Awesome. Well, hey, thanks again man and I'm sure we'll be chatting soon.   Omni: Always a pleasure, thanks.   Michael: Take care. All right, everyone. That was our episode a big thank you to all my for coming back on the show, super, super interesting stuff. Definitely have a lot to think about and hopefully you do too as an investor or as an agent, kind of walking on the other side of the coin. So as always, if you'd like the episode, please feel free to leave us a rating or review and we look forward to seeing on the next one. Happy investing…

Kori Covrigaru is the Co-Founder and CEO of PlanOmatic. PlanOmatic provides quality photos, floor plans, and 3D to the single-family rental industry with speed and at scale, nationwide. With an unwavering determination for client success, he has created a team that thrives on the core value of together we win. With a national network of 200+ contractors and more than 40 employees, Kori has met the moment with the unique value proposition PlanOmatic offers through technology combined with data to support their clients' goals. Today, Kori shares what he's doing as a remote investor in the single-family rental space with a fund that he started with some of his colleagues.  Episode Link: https://www.linkedin.com/in/koric/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Kori Covrigaru with planOmatic and he's returning to the podcast not talking about planOmatic, but actually to talk about what he's doing as a remote investor in the single family rental space with his fund that he started with some buddies. So let's get into it.   Kori, what's going on, man? Welcome back to the podcast, thanks for taking the time to hang out with me.   Kori: Always, always excited, Michael.   Michael: This is gonna be a lot of fun. So the last time we had you on we were talking about your company planOmatic and for anyone who missed the episode, give us the quick and dirty, what is it that you all do and how you're disrupting the industry?   Kori: We helped at the beginning of this industry. So back in 2012, we started out with the SFR industry but we've been playing thematic creates professional photos for plans in 3D for the single family industry at speed and scale nationwide. So that's what we do plain and simple, we are the boots on the ground that go out, take professional photos, do 3D scans, export floor plans from that, and then deliver that media to our customers. We try to do it under two and a half days and we're pretty damn close to it. So that's what we've been doing, we help these REITs institutional investors in smaller companies scale from 5000 properties all the way up to hundreds of 1000s. That's our business, that's what we're here for.   Michael: Amazing and today, you and I are here to talk about something a little bit different kind of related. Yeah, but really, it's about your journey in the SFR space as a remote investor.   Kori: Yes, sir. So, you know, just being in this industry for so long. I'm surprised it took me so long to decide to get involved on a higher level. But yeah, I've been just watching, you know, myself and some people that I work with here and some family and friends outside of here have been watching this SFR industry grow to the level that it has and never really gotten involved on the investor side. I mean, I had rentals on my own. I've had a rental, you know, my first rental I bought with my business partners. I want to say it was 2006 I think it was October 2006 or 2005 and we bought a rental out in Grand Rapids, Michigan. Since then we exited that then I had a couple rentals here in Denver, but nothing remote and nothing to the level of what we're building right now with SFR Emo, that's the name of the partnership, the group that we've established with 13 partners, and we all threw in some cash and have been acquiring homes, single family homes, for, you know, residents to live in and Alabama, of all places Birmingham, Alabama. So that's what we've been doing, yeah.   Michael: Interesting. So you've done the local investing local with you in Colorado, so what I mean, what did you eat? What did you drink that decided, hey, I'm gonna go do this crazy thing and invest where I don't live.   Kori: I ate and drank reports for where our customers are buying real estate and where it made sense and just reading articles. I mean, there's so many great content distributors, you guys included in terms of what markets make the most sense what to look for in a market and so I had been immersed in all of this data and all of this information for so long, that I finally pulled the trigger and said, hey, time to form a partnership. You know, we started out with five partners, that was the deal was gonna be five partners no more and then, you know, I don't know if you've ever been involved swings. But what happens is you start getting phone calls from random people saying, hey, I want this thing going on, like I want and why didn't you invite me? It's like, well, hold on a second, like, first of all, I don't I don't know how you found out within second. Like, it's this really small thing we're doing and so it went from like five partners to 13 and we had to like, we had to cut the investor pool out at that point and build with what we've had what we have right now, because we still haven't, you know, deployed all the capital. So it started, I'm starting to understand why we see billions of dollars come into the industry committed to buying SFR is, but it's very slow to deploy and so we're experiencing that right now. I mean, we're not slow to deploy, but it takes some time and so that's kind of how the idea started. Yeah, just get involved eat your own dog food, as they say, I think right, that's the term.   Michael: That's it, that's it. So Kori, I mean, you just went through, I think what so many newer investors really struggle with, and that's picking a market and talk to us how I mean, what are these reports showing? What were they telling you and also like, how did you settle on Birmingham because I'm sure the reports show that there were really a lot of other great markets to invest in, too, yeah.   Kori: Yeah. I mean, we landed on a cut to the chase, then I'll kind of backtrack a little bit but we went with Birmingham because this is a small partnership, and we really didn't want to have to continue to put money in so we wanted to pick a market that could cash flow. We wanted to pick a market that was cashflow positive, had great cap rates, relatively speaking hearing coverage are being compressed everywhere right now as we know, cost of capital is going up, prices of homes are going up, that's actually going to reverse here pretty soon, in my opinion, we can get into that later. But so we picked Birmingham, there was a lot of economic opportunity being created there, jobs being created there but also, we knew we were going to be cashflow positive with the cap rates, and there was a room for appreciation. Plus, we found a really great property management company partner that we work with down there that can not only serve us in that market, but we can also expand to other markets, you know, with their with their support. So that those are the reasons the main reasons why I mean, we apply nomadic had the advantage, we have a critical mass of single family rentals that come in through our pipeline to shoot photos, create floor plans, you know, 3D and so we kind of have like this, this holistic view and indicator of what markets might pop off next and, you know, we use that data to make decisions for us farm on where to invest, it's a bit of an advantage that not most have, but I'll tell you what, all that data is public, I mean, we can go out there and see and look at county records and see where all the institutional landlords are the professionally managed properties are being bought and so if you dig data or like to, you know, you can always go on Upwork or Fiverr, and say, hey, please go find me this set of data, those are kind of hacks that you can do to figure out where companies are buying. Now, just because professionally managed companies are buying there doesn't necessarily mean it's a homerun, you have to do your own research, figure out what your goals are with your portfolio where you want to start. So that's kind of been our trajectory on the direction and where, where to own and operate for us.   Michael: Yeah and that makes a ton of sense and I love that you said that to like, go find someone else who can kind of help aggregate the data or figure out the data for you because like, you can, like you don't have to be the person to do all of the due diligence, you don't have to be the person to do all of like the research and also you can leverage other companies paid employees, like you were just mentioning, if an Amazon fulfillment center is going in there, or like Whole Foods is setting up a new headquarters there. They've done the research, so of course, don't reinvent yourself. The wheel, right… Yeah, it's, I love it.   Kori: It's out there.   Michael: Okay, so Birmingham was the target. Yeah. What did you all do next? I mean, how are you executing there? I know, you said you had a great property manager, but like, yeah, the, from the physical like property acquisition to due diligence. There's so much more involved before you even own the property. How did you get that accomplished?   Kori: Yeah, so we this idea came about at some point in 2020, when, you know, shit hit the fan and COVID was on the way and in my mind, and I've always been fairly wrong, when it comes to trying to predict the market. The only thing that's, that's, ya know, I mean, the only thing that's going to be successful is that there is no bad time to buy, that's just my mentality. Like, there is no bad time to buy, it's just a matter of how you go about finding those properties and what you do during negotiation, and due diligence. But um, you know, back in 2020, you said, oh, the real estate buyer is going to absolutely flop right now, everybody's, nobody's got jobs, unemployment is gonna be crazy, we're headed into this, you know, doom and gloom period, which is, of course, very wrong and we said, you know, it's a good time to buy single family rentals, rentals, they perform, regardless of economic conditions, typically, in recessionary periods, they still grow not as fast, but they do grow, that's a hedge against inflation, so on so forth and so we decided to form the entity again, went from five to 13 very quickly. But between, you know, between mid-2020, and mid-2021, I don't think we purchased a single property and so you know, we had to go through all kinds of processes, right, you have to have a good operating agreement, you have to establish a an EIN number, you have to select a property management company, you have to make sure you're finding the right tax forms, you need to find a broker, you need to do research and figure out where you want to go. I mean, that was a big chunk of our time was we didn't know in 2020, exactly where we wanted to go. So we had to do that research, we had to have, you know, make sure that everybody all the partners were kind of on board and then at some point in time, we decided to, hey, these three partners or five partners are actually gonna make the decisions. Okay, now we have to amend the operating agreement that requires lawyers again, I mean, we kind of did a lot of stuff makeshift but, but there's a there's a lot to do, and a lot of time to be had between the moment where you decide, hey, I'm gonna get into this, especially if you're remote and we just closed on our first property, right. So it's, you know, it's, it's more than you expect, but doing it right is the most important thing and I think we've done it right. So far we learned a lot along the way. But we're on the right track. I mean, we're almost at will be at 28 single family homes and that's only that's the course of a year right. So from 20, mid 2020 to 21. We didn't purchase a single home in the last 12 months we've purchased approximately 28-20 single family homes.   Michael: Wow, that's so killer. So Kori I mean, I'm curious to know too. Why did you not just do this alone, a lot of people would argue well, wow, 30 people like that's way too many cooks in the kitchen or five people making decisions like it can get very convoluted very quickly are very quickly. Wouldn't a single operator be more lean and be able to move quicker?   Kori: Yes, yes. I mean, well, so the short answer that is, I can't really do anything. I have a lot of really good ideas but I can't do much. So that's why I didn't go at it. Yeah, I'm the idea guy, right, and the people around me to do things. So, but no, I mean, you know, what, one big reason why we went with more just to have more capital, to be able to diversify more, you know, it's, it's risky as an individual to go out and buy one or two rentals. But if you go out with a group and buy, you know, our goal is to hit 60. That's a pretty diverse portfolio and minimizes risk and there are a lot of great minds in our partnership. I mean, we have a finance guy, right, we have a data guy, we have consultant who's seen many different organizations, we have myself, who's kind of like, overall, seeing the organization from a high level and helping with the financing part of things. So I think it helps to have different people plus, this is all you know, passive for us, right? Everybody's got a full time job and so, you know, if, if I were to do this alone, this would be a full time job, no doubt, but spreading it across having the right property management company, but this person doing, you know, diligence in this person negotiating offers in this person, making sure our bookkeeping and finances and taxes are all in line, it just helps kind of spread that out…. It's fun, man. It's more fun to succeed with partners, like I, you know, I have two business partners here at planOmatic and I couldn't imagine being a sole proprietor, it just doesn't seem as fun to me. Like, for us, it's always been the game in the chase and like winning the game, and it's, if you're by yourself winning and celebrating, that's not fun and the same goes with, you know, the lows. I mean, 2020 was a tough year right and so having a supportive business partners help. So I just think it's more fun.   Michael: Yeah, that makes a ton of sense. That makes a ton of sense. I'm curious, quite, how did you figure out like, who does what, and when you were picking your partners and picking your team? What was the process that you went through to do that because I think a lot of people like, oh, my best friend, we're so uh, like, we're so similar. We think the same, we should be partners, we should be business partners. Was that kind of the case for you?   Kori: You know, for me, I mean, I kind of surround myself with people that are like minded and sort of see things, you know, in a certain lens when it comes to opportunity, right? So it was actually it was pretty simple. It was more like who do we, who do we not tell, you know, and ask versus who, because a lot of people came to us a lot of really good friends. So it was just who's willing to take an opportunity who trust I think trust is the number one thing when it comes to partnerships is like, is there trust, we had to make sure there was trust there and then, and then different specialties from different people, again, like I said, like one guy is a full time controller, you know, big company, that's really helpful. Another guy is an operations guy who's operating, you know, we're shooting five to 700 listings a day, right. So like that, that really helps play into one of our guys, Tim Rose, he heads Planet Labs and we analyze and optimize workflows and analyze and optimize reports and data just based on what's coming in and so having him on board to help us decide which market to go with, or what cap rates to focus on, I mean, that was helpful. So it kind of this one all came together and then the people that wanted to be involved, they kind of like stepped forward said, hey, I'd like to be more involved those that didn't, are just passive for this particular partnership. I mean, one of the, I don't want to call them mistake, but it was a rookie move was like 13 partners all equally invested right and so that creates challenges for two things. One, every time we close a loan or refinance, we have to get 13 signatures and that's like, probably the biggest pain in the ass that we've got as a group. The other is like, we're putting in a lot of work on the side, especially, there's one person in particular in the partnership that puts a significant amount of work in, and his return is the same as everybody else's and so this was really like a search and destroy mission for us. Let's figure it out, figure this out, figure out a proof of concept, see if it can work and then in the next round, we're a little more educated, we'll structure the company a little bit differently, make things happen and move a little bit quicker. So yeah, that's kind of where we're at today.   Michael: Okay, like with regard to that signature, and then the equity piece where what else? What else would you do differently for anyone listening? It's like, I want to do this, like, what should they be thinking about?   Kori: When owning and operating and SFR funds, you want to separate out the management company from the fund that owns the properties and we didn't do that it's all one thing. So when you've got one entity that manage manages the portfolio, you know, that's where all the work is. Capital, putting in capital to buy homes is simple. You read a check and then there's typically somebody at the fund but the management company, you know, in today's world, and so far, they're helping acquire the properties on behalf of the fund and so creating an entity for the fun with limited partners, and then a property management company or management company that owns an app rates the portfolio separately, it just makes a whole lot more sense and that's really, you know, shame on me, like I've seen this, I know this, but we just wanted to get going and again, at first it was five, right. So we weren't going to separate those two out as simple as like, we can get five signatures. But when it grew with 13, it became challenging and so we'll look at that a little bit differently.   Michael: Okay and have a separate management company, even though you all are leveraging a local property manager.   Kori: Yeah, because there's much more that you have to communicate with the management company, you have to go through the process of buying the homes and through due diligence, and you have to make offers, and you have to make sure your books are in order, you have to file taxes, and you have to sometimes raise more capital, you have to open up a line of credit, so you can buy in cash and turn on refinance, we can talk about that, that as well. But there are a number of things hidden, hidden chores, let's call them that have to happen when you manage a portfolio, even if you have a property management coming up property management companies can help you place tenants and make sure your tenants are happy and having residents are having a positive experience. Outside of that, they're not doing a whole lot. They might help you find homes, they might help you negotiate, they might help you with renovation, but everything around organizing the company there, that's just you know, that's one vendor that you have as a part of the organization, you have your CPA, you have a bunch of different things that are you have your banker that you have to manage property manager company is not going to deal with your banker, it's not going to happen, they're not going to go find a line of credit for you like that doesn't work that way. So there are a lot of hidden chores that are in there that I strongly recommend, like thinking ahead, because it doesn't take very many homes, very many investments to need to put a significant amount of time even if it's distributed amongst partners into the operation. It doesn't it's not a set it and forget it. This is not George Foreman grill, this is like there's a lot there's a lot going on.   Michael: I don't think I've heard a George Foreman grill reference.   Kori: Now you have or maybe it wasn't George Foreman, maybe it was. What was that? No, it was a different one. It was an infomercial, set it and set it and forget it.   Michael: Oh, that's too funny. Well, Kori talk about like the strategy because you mentioned it just briefly about like line of credit, purchasing and cash and then going turning around and doing a cash out refi. So how are you purchasing properties and how are you structuring your deals?   Kori: So up until now, and oh, boy, are we headed for some news on Mays real estate market, like people aren't going to believe what they what they read in terms of percentage swings. But up until now, it's been a very competitive market for buyers. I mean, like, you know, you had to show up with cash you had to show up with, with no contingencies, waive the inspection, right. All of these things that everybody in a healthy market will tell you don't ever, ever do this you had to do over the last two years to buy real estate in some markets, you've had to do that since 2011, or 12. I mean, in Denver, for example, you know, and this is one of the reasons why we didn't we didn't come to Denver, but in 2012, we went my wife and I visited a home and we had to put an offer in same day and we thought we were crazy, right and we ended up closing about houses, it's now a rental above, you know, closing at 332 is it's probably worth 900,000 and there's a reason why because Denver has been nuts, right. So the markets been like that since then. So what we decided to do is utilize a lot of the cash that the partners put in to buy the homes in cash, make cash offers, you know, promise a quick close, because we had to win the properties and then we would turn around and take the portfolio, once it got to a certain size and refinance it with a bank, we have a great banking partner down in the southeast, and they've been fantastic. But we've always historically bought in cash and around refi pull the money out. Oftentimes, it'll appraise much higher than, you know, we initially bought it for and I'm scared to say this because it sounds so 2009. But the bank is paying us at this point to buy these homes because we're able to leverage 85% and so if they've appreciated more than 15%, right? They're like giving us cash to close on these homes that we bought in cash. Again, sort of scary to say but in terms of rentals, like we're not in danger, like they've performed fine and as long as you as long as you cash flow through ups and downs in the market and interest rates, ups and downs, it's you know, you'll end up on top, but like Denver is a crazy market.   I mean, I remember I was talking about getting a single family home to rent like separately outside of SFR I think it was like two months ago, maybe a month and a half ago and I took my kids to the open house and I showed up about 10 minutes early because I had to be like a birthday party or some bullshit like that and I get there 10 minutes before and there are already eight like, like a groups touring and I'm just like, still really like in in this neighborhood frankly, like, really and so I it took me one open house so you know, I'm out of this market. I mean, I know this right and a lot of the advantage that that people will have is they'll understand the local market and understand the neighborhoods understand where are they putting, you know, new light rail estate in where's their economic opportunity. But Denver was just too competitive, you know, to stick around for. So, yeah, yeah, it's been amazing. So we buying cash, turn around refi, pull cash out, rinse and repeat sort of deal and as long as properties are appreciating, you know, it's a, it's a pretty good model, especially when it comes to rentals, you know, fix and flip, I'm not a big fan, I think, you know, someone gets caught with their hand, that cookie jar at the end of the day of fixing flips, but as long as you're keeping in cash flowing, I think you're fine. And that's, that's kind of been that's been our model and we're able to now take out a line of credit. That's, that's, you know, securitized by our portfolio. So even better, we're able to use cash and a line of credit, make sure that there's good cash flow, turn around the bank, you know, refi it, pull the cash out, and rinse and repeat and that's, that's sort of what we've been up to and you can keep doing this, depending on how the market performs and how interest rates look. I mean, you can keep doing this for a while, right. Our goal, we're at 28. Now, our goal is 60. But depending if, if things continue to appreciate, then we could be even higher than 60, depending on how much the bank will pay us to buy these homes, basically, I'm afraid to say that, should I be saying that?   Michael: It sounds it sounds terrifying. But that's what I wanted to ask you. So you say they're financing 85% loan to value?   Kori: Yeah, yeah…   Michael: That's, like, unheard of in the investment property space it.   Kori: You know, usually, here's 7525, we find a bank, that's pretty aggressive. I mean, it's not like a small lender, it's a bank, it's a legitimate bank and they've been, they've been a great partner for us, and they see the opportunity, and they're a little bit of a risk taker. You know, they're keeping these loans or not, obviously, not selling them to Fannie and Freddie, I don't think, but we've also got so many partners to fall back on, like, it's, it's not risky for them, you know what I mean, when you have, yeah, that much that much wealth behind the partnership, and I'm not talking about the individual employment as a group, like you've got 13 households, where if something goes wrong, for some reason, with the majority of the portfolio, like, they'll be fine, you know. So I think that's also potentially why they're able to leverage so much. But they also are bullish on the rental market and SFR and they understand, you know, as far as you go to a bank, let's say up in upstate New York, they just haven't been around so far, very long. So they might not be as accommodating and as flexible. But boy in the Sunbelt, I mean, banks are trying to try to monetize this just like every other individual investor and so finding the right banking partner has been, you know, really great for us and strongly recommended. I mean, that's, you know, one of the most important things, we've gone through two banks. Now, we were with the credit union before, they didn't really see the vision that we had, but now with private bank, and it makes a lot more sense.   Michael: Okay. Well, that's great to know and I'm curious, when you started putting this all together on paper that was 2020-2021 and the interest rates were at three, four, maybe sometimes even in the twos. Now they're up in the five, six sevens. Has that changed your model much or really changed the performance of what you were expecting return wise?   Kori: Well, yes, of course, right. Cost of capital is it's real, it's real thing for individual investors who are buying their primary home, it's a real thing for smaller investors, family office all the way up to up to the REITs and the institutional landlords. So everybody's feeling a squeeze with those interest rates, cost of capital, obviously, going up, cap rates being compressed. I think what we'll see and what we've seen, historically, is that rents keep up with interest rates, right? So we'll see, you know, rents have gone up, I think, year over year 16%, I believe, and so far, we'll see those continued fact check that before you post it, but I think I saw it in the Wall Street Journal and so rents kind of keep up and so that's, you know, we have that to look forward to in terms of paying more for capital. But also, you know, the goal is to cash flow through the periods through the ups and downs, right through the different markets and so foreign investors, you'll see, you know, we borrow at five and seven year, seven year loans, right, so we're not in it for the 30 year fixed and so that should take us through any sort of period, right? We should be able to refinance within the next seven years, again, hearing things from 2008, kind of reverberate in my head. But that's the idea is that if as long as you can cash flow through interest rate periods, you should be fine and as long as rents hold up, which we don't see any reason why they shouldn't. I mean, we're again, four and a half million homes short of supply right now supply is not going away. Now, home values have gotten to a point now where buyers have said I've we've had enough, we're not we're not doing this anymore. Besides the fact that we can't afford it, right. Like between the interest rate hikes and the appreciation of home values over the last two years, we're seeing about a 43% increase in cost to pay a mortgage. Okay, like that's insane, so…   Michael: Compared to when?   Kori: Two years ago, that's compared to like beginning of 2020. I mean, between the appreciation and the interest rate increase, going from like three on average to five whatever and a half, one would be 43% more expensive to make mortgage payments today. Now, the good thing for SFR and for rentals is people are still there's a high demand for spacious, professionally managed homes, right single family rentals, and that demand isn't going away. So when people can't necessarily afford today to buy a home, or maybe say, hey, I'm going to sit on the sidelines for a couple of years, because this is batshit crazy, they're going to rent, right and so the demands keeps up, the rents keep up inflation continues to go up and hopefully we'll see that slow down here, due to the increase in interest rates. But you know, cash flow is important, I think it's been proven over time and history that rents will keep us cash flowing and that's why the industry is so attractive and so, you know, so new still, we're only a decade into this being professionally managed, right landlord has been around for before we can remember.   But there's an appetite for professionally managed properties, so that the experience that I'm gonna have, as a renter as a resident is on par with if I own my own home, and was able to do whatever I wanted to do to my home. Now I can have that luxury of having that home, but having it professionally managed. So if things go bad, I can just call someone, they'll be here soon to fix it right or if I want to move, it's not it's not that big of a deal on my lease ends, I go find another lease, right. So that demand isn't going away and that's what's keeping us so strong as an industry and I was just at the National rental home Council conference in DC and that's kind of the theme is that, you know, everybody's cautiously optimistic, because it's a weird time. There's a lot of uncertainty right now in the economy. But there isn't a whole lot when it comes to our industry and so I think, you know, again, when is it a good time to buy, in my opinion, always. So what's happening right now is interest rates are going up, prices are still like going up. We are seeing I think a Redfin report came out today that prices are starting to come down, actually and so there's a huge opportunity for investors to get into the market right now and buy, and investors don't have to buy at this price. Like it's been only a month, but the whole thing has been flipped upside down. So what I'm telling my acquisitions team, right, my expositions team, is, this is a time where, frankly, you go in and you offer 15 to 20%, less than what it's listed for, and you offer on volume all of a sudden, and then those that are willing to get out with a cash offer today, those are the deals to be had and yes, you are paying a higher interest rate right now for that. But you know, what, if you get the deals, and I'm not saying you'll get them at 20 or 15% discount, but you'll get them, you don't have to pay this price today, because the market just hasn't adjusted down to the interest rates that we're at. There are some steals out there and so it's a volume game, right? It's like, it's like going to a bar and meeting men or women, right. The more the more you ask, the better chance you're gonna have to succeed and it's the same with real estate today, like the more offers you throw out there that might be less than what they're wanting or hoping for a price. Some are in a situation where they need to exit or want to exit and so there are opportunities out there more right now than ever so far, which is crazy to think about.   Michael: That is crazy to think about and so you mentioned there's some big news coming out was that was that the Redfin report about where you think prices are going for the May report?   Kori: No, well, I mean, there was there was some information out but we're still they're still reporting on April, my mind, this is just, you know, my prediction is crystal ball, my crystal ball tells me based on very, you know, various different data points that may will be the biggest drop in transactions we've ever seen the biggest drop, the biggest drop in transactions month over month that we've ever seen, I'm predicting, I'm putting it for…   Michael: May 2020.   Kori: To May over April and may year over year, also that will be the biggest drop in in housing starts as a percentage and let's say close transactions will be in May, that'll continue into June because there's always a lag housing starts we get at the beginning contracts to buy new construction, we get the beginning. So that's always an indicator, a leading indicator of where the markets headed. But we'll see that as built, you know, are already built on existing home sales. They're just going to plummet right now and that's because there's pretty much gonna be a standoff between buyers and sellers right now. I mean, when do you remember seeing homes drop in price in Denver like, right, I don't remember when that happened. Yeah, you know, so I think that I think the buyers are fed up. I think that affordability has gone through the roof and I think that the Fed is going to succeed and installing the economy and stalling you know, the housing market, which has a trickledown effect to the rest of the economy, right. I mean, think about movers, Comcast, right, any sort of cable television, Home Depot and Lowe's, right, all these all these companies that we don't really think about. or Amazon people buy stuff for their new home like the Fed wants to slow the economy down, they're definitely going to succeed. We're going to see some job loss from it. But at the same point in time, this is an OK, adjustment to the overall market and the housing market. We know that this is not sustainable. We said that a year ago, a year into this crazy Rock chip ride. So we'll see a slowdown and it's healthy, it's okay and that also creates these deals that I think are definitely still out there. You know, there are still motivated people that need to sell for one reason or another. Maybe they have to move, maybe they are they're adjustable rate mortgages off, right, maybe they set it seven years ago, and all of a sudden, they're having to refinance and it doesn't make sense. Maybe they just feel like they want to cash out and it's time and so, you know, those who went under contract, let's say a month ago, kind of probably hit the top. But for the short term, but there's still a lot of opportunity out there to get some good deals right now.   Michael: You heard it here first, folks. That's awesome, that's awesome. All right. Well, Kori, we got to get you out of here, man. Thank you so much for coming on again. For people that want to reach out to you connect with you learn more about planOmatic where's the best place for them to do that?   Kori: LinkedIn is great. Although my name is hard to find K O R I C O V R I G A R U, I'm sure it's in the in the post, LinkedIn is great. My email kori@planomatic.com, I'm always fielding emails. So send me an email and otherwise I'm not I'm not really on Facebook or Instagram or any of those, so email and LinkedIn is probably best for me.   Michael: Right on that'll have to do. Well, Kori thanks so much, man. Appreciate you coming on again. We'll chat soon, all right.   Kori: Thanks, Michael. Great to be here.   Michael: All right, everyone. That was our episode, a big thank you to Kori for coming on and sharing with us what he's been doing in the space. As always, if you'd liked the episode, please feel free to leave us a rating or review wherever they as you get your podcasts, and we look forward to seeing on the next one. Happy investing…

Pam Hill is a Harvard and Dartmouth-educated entrepreneur and CEO of a multi-million dollar real estate company, a business and money expert, a former Fortune-500 executive, and the founder of My Smart Cousin.  Her main goal is to help people understand money, increase their accountability and build generational wealth. Today, Pam shares her story of how she became a professional real estate business owner, how she purchases homes for the price of a car and how you can start your real estate business. Episode Link: https://mysmartcousin.com/tag/pam-hill/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by a very special guest, Pam Hill, who's talking to us about my smart cousin, and how she purchases homes for the price of a car, or maybe sometimes even an expensive bike. So let's get into it.   Hey, Pam, thank you so much for taking the time to come hang out with me today. I really appreciate you coming on.   Pam: Thanks so much, Michael, really looking forward to engaging conversation.   Michael: Oh, my gosh, me too. So, Pam, so excited to have you here. If you could give us a quick intro bio about who are you? Where do you come from and what is it you're doing in real estate today?   Pam: Absolutely. So I'm Pam Hill with my smart cousin. The nifty name comes really from family coining that for me, because I am that smart cousin at family reunion to always follows up make sure that folks do what they say they're going to do on their finances on their real estate and that, of course, is now brought in to my clients as well. How I got into real estate was about 10 years ago. So during the Great Recession, my husband at the time we were dating, he was looking for his first home and he was looking in Wilmington, Delaware, and we were stupefied at just how cheap there's, there's not a better word inexpensive to the wrong word, cheap houses were in Wilmington, Delaware to the tune of 20,000-25,000. In perfectly rock solid working class neighborhoods. Once I saw it, I definitely could not unsee it and that's what led me down the real estate rabbit hole since then I've bought 21 houses totaling 25 houses totaling 31 units, and have loved every step of the journey.   Michael: That is so cool and so Pam, were you living in Wilmington, Delaware or was this something that you were doing from afar?   Pam: No, so I was living not too far from Wilmington, Delaware in a suburb and so I was used to six figures and not 100,000 as in six figures. But in fact, what the average price of real estate is in the United States, some 321,000, I think I've read is the average price of real estate across all 50 states. So I was used to seeing those kinds of numbers. I had already owned real estate before as a homeowner and I really couldn't believe that there was this whole other world and once I saw it, I became committed to helping others who are looking to start their real estate investment journey and feel like they just don't have enough coin to get there. Or those who are aspiring homeowners and thinking the same thing that it's got to be a generation, three decades, 30 years slog My goal is the number of fingers you've got on your hands, 10 fingers 10 years or less. That's when the house should be paid for and everything is cream after that.   Michael: I love it, I love it. So was it just a function of where the economy was at that point in time that you and your husband were able to find houses for that price point or were you doing something different or looking in a different way than everyone else?   Pam: Yeah, no, it's a great question, because it kind of begs whether that opportunity is still there and very much still is. There are hundreds of houses listed on any given day that are maybe not as cheap as what I got them for that takes a little bit of digging, although they are that cheap still to just not in Wilmington, Delaware. So my cheapest house was 2500 in Jersey that included the all four walls.   Michael: …a roof....   Pam: Yeah, absolutely. Goal number one is don't buy anything that is best addressed through the services of a wrecking ball company. So only things that maybe they're going to take a new furnace, okay, a new furnace, but not a new every single thing you can think of and my most expensive house was 35,000 and that includes I'm really kind of a an adherent of eating your own cooking. So that includes the house of my husband and I live in the house we bought in a suburb of Philly was $35,000. So and that was in 2016. So it's still there and there are many homes in states like certainly New York, Wisconsin, Michigan, quite a number of homes that are in that 60-50-40 neighborhood and even multi families and small commercial, that price point.   Michael: And so I mean, I've got to imagine at that price point the homes are in really rough areas or need tons of rehab. Are you finding that to be the case or is there something there's something that you know that that we don't?   Pam: Right, so the homes are in areas, how would I think about it. areas that aren't so rough that no one at all lives there, I've yet to find a neighborhood that that is on livable, I suppose everyone needs a home that it's just a flat out the truth and so there are really three things that any person who's renting is looking for one is the neighborhood. So they aren't going to be concerned if crime, for instance, is a big problem and where it is, for some of my houses I work closely, you know, first thing I do is find out who the police captain is, and introduce myself, I asked the tenant to let me know if there's any kind of roughness going on, so that they don't have to feel like they're the one making the call that I can be the person making the call. If there's a car that has sat abandoned in front of their house or near their house, I call the licensing and inspection agency, so they will tow it. So those are the things I do to make the neighborhood better than how I found it. Then the other things that a renter is going to look for, is going to be the landlord as well as the house itself, those two things I can absolutely control. So I control the neighborhood, only at the barest of margins, but the house and the landlord, absolutely within my scope. So that's what I do and to your question of where are these houses? I think that the I think that the issue is that most folks don't look from the bottom up, they look from the top down. In other words, they're used to asking themselves or allowing their bank to suggest to them that they start at what they have qualified for and what you have qualified for is probably far more than you have to pay. So if your salary and such qualifies you for that average price of a home in the three hundreds, first thing you should do is tell your real estate agent, only show me houses that are 60 to 100,000. In fact, don't even give them a range. I don't want to see anything. That's more than six figures. If I do if it's more than $99,999, you're fired and they will quickly show you the houses that meet that criteria and that way you accustom yourself to that to that look and you tell the realtor, just a look where the neighborhoods makes sense for you school district wise and so on.   Michael: Interesting. There, I've got so many questions. There's so much there to unpack, Pam but and Vicki about the price point, if someone goes to buy a $20,000 home, are they able to get financing on that home right?   Pam: Going to be difficult, that's the honest truth. The easiest source of financing, if they buy a house like that is going to be if they are also looking to be a home owner, and really a multifamily home owner. So for a person who tells me, they really don't have much, much in the way of savings, but they want to do something now and moreover, they're not too satisfied with where they are living as either a renter or possibly as a homeowner, then I would help them find homes, let's say in that lower price point of that 20 that you mentioned or 30,000 that are in the areas that they are okay with, we would look at the land banks listings, for instance, sometimes there are more than 200 land banks across the US. So sometimes a land bank will have a house that is in terrible, terrible shape, but it's in a good neighborhood, that house is going to qualify for some financing that can help the homeowner if it's not that kind of house, and instead, it's something owned by Fannie Mae, by Freddie Mac, by US Department of Agriculture by Veterans Administration, all these wonderful government agencies that you didn't know we're in the real estate business, well, then that's good news because they can now become your lender, in addition to selling you the home.   Michael: Interesting, okay, so someone can just google or your online search for the local land bank and whatever market they're interested in living or investing in, and it'll pop up with listings, just like the MLS.   Pam: That's exactly right. Just type in name of your state. If nothing comes up name of your county, if nothing comes up name of your city. So try it in that order and if nothing comes up in your county, then look at the surrounding counties. I would also just type in something like land banks, United States map sometimes, you know, some set of words like that and then that should uncover all of the line land banks and help you see For your state, for instance, if you're in New Jersey, what are the land banks in New Jersey and then find it that way.   Michael- Interesting. Wow, this is so cool, Pam and so you are you self-managing all of your properties that you own?   Pam: I am, so when I first got started with this, I was working in a really demanding job in corporate America as an exec and that was not feasible to be self-managing. So I worked with a property manager and perhaps someday I will go back that route except this go round, of course, creating my own property management company. But right now, I'm right in the thick of it. So all of the units are self-managed and that includes units that are two family, three family and even four family, again, all bought for 35,000 or less.   Michael: And what are the rents that you're seeing on these types of properties?   Pam: Yep. So for a house, that's a four family that well, that particular one is all studios. So of course, the rents there are going to be a lot less, so that's 850 each for a house…   Michael: Wait, wait, wait, wait, sorry, timeout back one second, 850 each on per unit on a four family that you bought for 30 35,000?   Pam: Yeah, for 26,000, yes, that particular one.   Michael: I've been thinking about people talking and saying there's you can't find properties that are the 1% that meet the 1% rule. This is like the 678 percent rule.   Pam: And that's why I encourage folks to come to come to my smart cousin.com where I will hold you by the hand and help you not only find these, but much more importantly than just like, hey, that one there? How about that one? But to really evaluate them and see, does it meet? What I hope is a set of criteria that you've given some thought to? So for instance, you asked me a really important question, which is do I self-manage? That's a question that anyone should think about, do they have the ability to self-manage and moreover, do they have any interest in self managing or do they think that's going to lead them to hate all of humanity and…   Michael: A one way ticket…   Pam: One way ticket straight to? Why am I already 30 years of my life before I was headed downstairs? So that's how they're built. Don't do it, don't do it, turn it over to someone else, pay someone else to 10% 12%, even 15% to do the property management. But if you're built for it, then go ahead and do it. So that's one. Second is are you looking at long term rentals, which is what I do? Are you looking at short term rentals, meaning the Airbnb ease of the world? If so, well, then we need to look at a different set of properties. Are you looking to have something have tenants essentially under your feet, in other words, a to family where they're next door to you or underneath, right underneath you? So those are the kinds of questions to think about before you just run in and buy the first thing that you say.   Michael: Yeah, that makes a ton of sense and such great tidbits and advice, but I'm so sorry, I interrupted you because I would just like my mind exploded. You have to forgive me. I hope it didn't get too much on the screen here.   Pam: Oh, no, no, not at all…   Michael: So, that was your for family lower rent at 850. A unit studio? Let's get that. Let's jump back to other side….   Pam: Yes, right. Okay, so probably the standard size is going to be your three bath, three bedroom, one bathroom, right and so that I have a lot of those and I suppose the lowest cost one is 1025 and there I just keep it there because it's, you know, a great family. They've lived there a long time and I'm not interested in changing anything for them. But I have another one where someone just moved in and that's 1500.   Michael: So that you bought for 28,000-30,000?   Pam: Right, that I bought for that one within a paper that one 345, 345. So yeah, it's a it's good pickings right now, but like anything, you just have to stay strongly tethered to the ground planning for other variabilities that could occur in the market for the two family that I have there. That's two beds, one bath, and that rent is 1000 for each. So I guess I just say that to say that in the north east. Generally the rents are going to be higher however, prices I mentioned a couple of states earlier, I mentioned Ohio and I think I mentioned Michigan and so certainly the Midwest is many, many more houses for the price of a car prices for rent are lower. But that said, Certainly you would target I think, the Midwest for a good solid multifamily, perhaps a three family that you might buy in that 40 $45,000 neighborhood. This is and then it won't hurt as much to have those lower rents.   Michael: Right, this is amazing. Pam, what are some of the risks or the downsides that either you've seen or learned about that folks should be aware of and hope to help mitigate?   Pam: Absolutely, so the risks, certainly one risk. You mentioned this earlier, when you asked about obtaining a loan and I would say more broadly, the risk is ensuring that you have sufficient cash to whether all of a sudden something is needed on that house, oops, I thought I could just put something to repair this roof and in fact, what do you know the roofer went up there, he said, it's like an eight layer cake made of asphalt shingles and so now I've actually have to replace that roof at a large cost or some other thing. So that's one risk is that you need to have the pocketbook, or access to a home equity line of credit or some other string to pull on. A second risk is how you start. I don't advise anyone to start in the deeper end of the pool, deeper and meaning, let's say auctions, auctions are site on scene, you are not able, at least not legally to go into the house and see it…   Michael: I think it might be a story there…   Pam: …And see it, it is Buyer beware. So I would never advise someone to do that as their very first house. Start instead with you mentioned MLS, lots listed on MLS, start their land banks, they will allow you most of them anyway, to go inside and bring someone with you to tour the home. I'd say another one, I suppose if I had this to do over again and so like a 2020 hindsight, it's think about when you're looking at homes, if something is in a much better neighborhood, or has some other vein of silver running through it, for instance, it is in a commercially zoned area. But maybe it costs a little bit more not a ton more. So for instance, it doesn't costs 55,000 Instead of cost 65. This thing that's a little better, I would have, I would say to young Pam Hill isn't worried. Those are what you should target the ones where you've got to spring for a little more and the reason why is even though that 10,000 or 15,000 will seem like a lot in the moment, the appreciation value is significantly higher. So that is something I would suggest to folks as well, to not just pick as many as you can dollar store style. But to instead look at where it makes sense to go a little bit higher, and that includes more multi families. 2-3-4 families are always going to be a little better than a single family because that is just one piece of infrastructure in the case of the roof. In the case of the sidewalk in front of the house versus two, I've also found that with multifamily is oftentimes the person who is living in unit one, as soon as unit two becomes empty, they refer you to a friend of family or someone else for unit two and that way you have a self-reinforcing mechanism for rent being paid by both parties because neither wants to see the other get into the terrible shape.   Michael: That is very interesting, that's very interesting. Pam on the property that you purchased, and I think I know the answer, but I'm going to ask it anyhow. What has the appreciation been like because as investors we talk about cash flow or appreciation, it tends to not be both or that's what kind of land somewhere in the middle. So what have you seen with your properties thus far?   Pam: That's a great question and it even gets back a little bit to the other question around the risks. So I would say First answering the question, the appreciation is not as high when you are buying for the price of a car and thus that is also the risk. If you are looking for a flip opportunity, you would do better to buy your standard $200,000 home, for instance, that is in a $400,000 neighborhood and needs $80,000 worth of work, you are going to be able to obtain, maybe not from a percentage perspective, you might not think, gee, that's returning as much, but absolute dollars are what matter in that example, not the percentage. So percentage wise, my houses have all appreciated quite a lot relative to others to the tune of two or three or even four times as much but think how low the base is. So those houses are really two things. Thing one is cashflow, thing two is lottery ticket for appreciation value. So as a for instance, the houses that I own in Wilmington, Delaware, I would imagine that when the Joseph R Biden library is built, I'm presuming that is going to happen in Wilmington, Delaware. Given President Biden's long experience there as a senator, that neighborhood is going to see some significant appreciation value. So that's where I see the upside, should there be a cash sale as it were of these houses. Something else that you can consider this is more of a risk. But it is something that you can consider when you buy a number of houses that have a common macroeconomic theme to them, like house for price of car, you can think about either a real estate investment trusts, so putting them under a REIT, or putting them under a hedge fund and for those investors who are interested in that higher level of return, you mentioned the 1% versus the six or seven, those investors kind of like low, low investment grade high yield bonds, might have some interest in that kind of portfolio and that can be another way to both obtain cash flow, or certainly to, to get out of the market as it were all together without selling them off one at a time.   Michael: Interesting and this has been so eye opening and so insightful. We chatted before we hit record last time we spoke about some of the things that you're doing to be an advocate for some of your tenants and people might hear that and think well, how can I be an advocate as a landlord and also have a tenant relationship? It seems almost counterintuitive, so can you speak to a little bit of the work you're doing?   Pam: I'd say first is that I do it, I do it because I feel driven to do it. In the same way that the community that I focus on mission wise is black and brown people, women, but certainly there's room under the tent for everyone. But I think about who has been disenfranchised, certainly by FHA and others, some many decades ago and still there's some of that rattling around in our system. So as I think about tenant rights, there are two in particular in Delaware that I'm passionate about. One of them says that you should not be able to discriminate against a tenant, because they receive a Housing Choice Voucher. In other words, because they receive section eight, it is legal to do that to advertise your home and say I do not accept section eight. That strikes me as a very strange, legal rule, since it is not legal to discriminate for other reasons, including economic source, I certainly couldn't tell a nurse your money doesn't spend here, missy, where are the firefighters? That's who I want. So it strikes me as the same with that and so I am advocating for that. A second one is a right to paid representation for very low income tenants who are facing eviction. This is a one year pilot of sorts that Delaware is looking to implement and that I approach from a perspective of fairness. It seems only fair, that folks who more than likely cannot afford not just a lawyer, but even a day off work to come to the eviction hearing in the first place. It seems only fair that some sort of representation for them just the same way that it's within my scope, should be available and second is from a landlord perspective, my hope is that with that representation, and usually it would not be a lawyer, it would be some sort of legal advocate. But the hope is that, that gives the tenant someone else to listen to, rather than thinking, Oh, Pam Hill, you're just talking your book, I do not want to listen to what you have to say, I'll just take my chances in front of the judge. But by hearing another person, look over their case and tell them, You owe the grant. It's just that simple. Let's work out an arrangement to make a payment. I think that that could help us both, so that's the reason that I am behind these.   Michael: It makes so much sense and it is so interesting, and frankly startling to hear that these laws exist, and it does seem so punitive to the tenant and so I really applaud you and thank you for being such an advocate for your tenants and I'm sure that they appreciate it as well. So keep up the good work.   Pam: Yes. Thank you, thank you.   Michael: Absolutely. Well, Pam, this as I've been saying it the whole show, the whole episode has been so interesting, so insightful. So much fun. Thank you again, for coming on. If people want to learn more about you want to learn more about my smart cousin, where's the best place for them to do so?   Pam: Come to my M Y, smart S M A R T cousin C O U S I N.com. Certainly follow me on instagram or twitter with the handle @mysmartcousin. If you go to my site, you'll be able to see a couple of things. One is a free eBook. Second are free webinars that I do and then third, paid courses. So look forward to seeing you there. Look forward to helping you on this journey. Please take action, even if you listen, and then tune out from any sort of hand holding from me or anyone else as quite alright. Just get going on your slice of this American Pie.   Michael: Love it. Pam, thank you again. I'm sure we'll be chatting soon. Take care, alright!   Pam: Thanks so much, Michael.   Michael: Okay, everyone. That was our show a big thank you to Pam super, super interesting story and pretty amazing what she's been able to accomplish at the price points that she has really amazing stuff and really cool work that she's doing being a Tenant Advocate where she invests locally. As always, we would love to hear feedback from you all on things that you'd like to hear future episodes on and the reviews are really helpful for us. We look forward to seeing our next one. Happy investing…

Before becoming a real estate entrepreneur, KeePon Cashflow's founder Billy Keels worked in the corporate world. In fact, he was one of the best “corporate soldiers” you'd ever want to meet. Billy says that he was happy enough in his J.O.B., but something was missing. An emptiness and longing for a different life chewed on him, pulling him to what he knew he wanted to do more than anything else. Billy wanted to be an entrepreneur who brought two worlds together. So he took steps and kept on the path to his goals. Today Billy is an international real estate entrepreneur, problem-solver, author, coach and mentor. He sees opportunities where others often don't in real estate. No “overnight success,” Billy continues to work toward his vision and goals. Topmost on his list? Building a bridge between investors and buyers in Europe with sellers in the U.S. Today, he talks about his transition story, how he became a real estate business owner, and how long-distance real estate business works for him.   Episode Link: https://www.firstgencp.com/ https://www.firstgencp.com/paylesstax https://www.linkedin.com/in/billykeels/?originalSubdomain=es --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Hey, everyone, welcome to another episode of Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Billy Keels, who is an entrepreneur, Ninja remote investor who actually lives over in Europe, but invest here in the States among many other things. So let's hear from Billy the renaissance man about what it is he's doing in real estate today. Let's get into it.   Billy Keels what's going on, man, so good to see you again. Thanks for taking the time to hang out with me.   Billy: Michael, I am just like super excited about being able to spend more time with you have a conversation. Although I have to admit, man, there's like a lot of people going to be listening and watching us, so I'll be on my best behavior, don't worry.   Michael: I am, it makes two of us, alright good. Well, I obviously know who you are we we've become very fast friends over the short time we've known each other. But for anyone who might not be familiar with you, who are you, where do you come from and what is it you're doing in real estate today?   Billy: Yeah, so who am I, would you mind if I ask just one thing really quickly before I answer that?   Michael: Go for it!   Billy: So as a fellow podcaster, I just wanted to ask one thing. So I know just got here. But if you haven't had a chance already to leave an honest written review, as well as a rating. The guys do an amazing show here, Michael, I know you put a lot of time and energy into this and it will be great because that way ultimately, they're going to be able to help get you even better guests that are going to help you move forward faster. So with that as a background, Billy Keels I'll give you this fastest version as I can. Originally born in Columbus, Ohio. From there, probably by the time I was 12, I lived in three different states brother and sister were born in Colorado. I come from a family with two parents who were both working two jobs most of the time very blue collar, I watched them struggle a lot with money, making tough decisions, sometimes at the end of the month, do we buy this or do we pay this bill or do we pay the other bill, they had a lot of focus on education because they didn't think that they had formal education. So ended up being in a lot of different school districts, usually in the really good school districts and I saw I was exposed to a lot of things that my parents couldn't actually afford for me and my brother and sister. So that was kind of nice, but also kind of frustrating. But what it did is it taught me the work ethic, like you have to work really hard to get the things that you want. I wasn't A student, sometimes I still suffer from that A student and like today, I call myself a recovering perfectionist. Because the thing is Michael, like I used to do what I was told, because when I did what I was told, like study for the exam, I got really good grades, they came back and that was like the whole positive reinforcement, like I got good grades, study more, got good grades, got the dopamine hits, and all that kind of stuff. So ended up through college, I went to college, southwest of Ohio, then in a town or in a university called Miami of Ohio, got two degrees there was really set to get my dream job and got rejected not once but twice. But the thing is, is through that rejection and it was like really, really difficult for me because I like set my whole college career up to work as a project manager in marketing for Procter and Gamble, and I didn't work out for me. But through that, I learned that it's okay to be rejected, like you can be rejected and still things will be okay because after that the most amazing job I ever had was working for a company that allowed me to travel to five or two in five years, it allowed me to travel to 58 different countries, Michael and it just completely changed my entire view of the world because I'm from Columbus, Ohio, like I just thought I was gonna be in the Midwest most of my life. After that didn't see myself doing a normal nine to five I got accepted into university and Paris was going to do a one year sabbatical and just to kind of make things really fast, that one year sabbatical that started in September of 2001, has since turned into 20, additional 21 years, I left France, went to Italy, moved from Italy, back to France, and then from France, to Spain. So it was 21 years, three countries. I've learned four additional languages. I got married and we have two kids and up until recently like until last December, I was working in the corporate job so like still being a good student like doing the things I was supposed to do moving up the corporate ladder, and as of December of last year, which was December 2021. I'm no longer a part of the corporate world so kind of all that said, yeah, I kind of just joked it with everybody like I mentioned before like those one year sabbaticals you really have to be careful what happens because anything can anything could happen after that, man.   Michael: That's so good. Billy was so, so I mean, there's obviously a ton there that I want to dig into and unpack but getting back to last December. Did you fire yourself or did you get fired? I mean, what happened?   Billy: We separated.   Michael: It was amicable separated…   Billy: We separated, we separated now, but you know, it's one of those things like, I think corporate life is really, I took a lot of very positive things away from corporate life, I know that there are a lot of people like, don't do the corporate job, quit your job, do all that kind of stuff. I learned, I like I was surrounded by really smart people all the time, because I was working in enterprise software sales and so this is like very cutting edge and I was exposed to amazingly smart people got a chance to go deep industry knowledge on a number of different industries, got to work across Europe, Middle East, and Africa, managed 70 million euro budgets, plus, you know, learn languages learned different ways of thinking and doing things and I was also making a lot of money and so all of those different reasons, like I really enjoyed it, I probably kept going to my corporate job for about another four, four and a half, five years that I didn't need to but because I liked it so much and because I was in a top talent program, I was traveling to Hawaii, because I was part of the top achievers, like it was really good, but it just didn't fill my heart up and it took actually my dad getting really ill in the last part of last year and me being with him in the ICU, to really reflect on life and go, you know, what like, is this really what I want to keep doing and I know that I was very fortunate, I know that there are other stories that don't end so nicely, right because my dad is still alive today and we're able to enjoy him but that incident, what it made me really do, Michael was realize, like, hang on a second. Like, I want to really invest my time in the things that are going to give me the most emotional joy, rather than just going through the motions day after day, so.   Michael: Right. That's awesome, man. Well, I'm so glad to hear that your dad's doing better, that's exciting.   Billy: Thank you.   Michael: No, of course. So how did you get to the point where you were able to leave the corporate world because I think it's very easy to say like, oh, yeah, I'll quit my job because I get more joy, more emotional reward by doing this other thing over here but that's very well, that's nice, well, and good in theory, but I mean, we got to eat, we got to survive. We got to put a roof over our head, so what was it that you did, leading up to that point that allowed you to say, you know, I don't need this job.   Billy: I read a book and then I retired…. No, it's a joke!   Michael: Well I love it, it's so simple. I wish I had know that.   Billy: Exactly, I mean, everybody wish I yeah, exactly, everybody's doing it that way. No, you know, in yeah, I wish it was that simple. It took over nine and a half years, almost 10 years. But now the reality was, because I was such a happy employee, right. I mean, even people used to look at my moniker on LinkedIn and it was like happy corporate employee. The thing that happens when you are in a student is you do what you're told, you know, I mentioned earlier and so when you're in the corporate, it's the same thing, like you go in, you work the hours and then once you're working the hours, you want to move up the move up the chain and from there, you also want to make sure that you're maxing out your 401 K and your IRA. Well, I was doing that and then 2000, I'd been working for probably five, six years and bubble burst for the.com bubble that went down. And then a couple years later, the 2008 great financial crisis happened and so I didn't actually have any other kind of backup plan. It was like go to work all day, and then invest in the stock market and so I realized that I had to have my own plan and that is actually where real estate came in. Because I was like traveling between Barcelona and the states. I remember picking up Rich Dad, Poor Dad, and I started reading it, but I didn't actually finish it. So a couple years later, I assume Yeah, I know. Right? So I ended up picking it up again and then I read it and this time I read it and I loved it so much. I was like this cannot be true. This is unbelievable. This is not true. So then I went and read another one it was Cashflow Quadrant and then I read another one and another one another one and all of a sudden I'd read all the rich dad series, right, as most people binge, and then I found some podcasts and I watched some videos and eventually I was like a theoretical like theoretical ninja Michael, like I knew every single thing that you needed to know and then when you would ask me like how many like, okay, cool. So what's your portfolio look like?   You know what you can get to the NOI by taking the revenue minus the other operating expenses and so it took me a while, you know, to realize like, I've got to move from theory to action and unfortunately, or fortunately, the thing that took me that got me into action, once again, was like something that had nothing to do with real estate had nothing to do with money. It happened because as an A student, I was doing all the stuff that I was doing. But at this point, I was a really young father and one of the things that was really important to me early on was like I wanted to be present. At the same time because I don't come from money, I wanted to make sure that I kept winning at the office, like I was doing all the extra hours and all that kind of stuff and rising and getting the promotions. But one of the things that happened that I used to be really ashamed to even talk about Michael was the night before my son's third birthday, my oldest son, I didn't sleep very well that night. It was like not a good night's sleep for me because the next morning, I had to get up and take a flight to Frankfurt, Germany and I remember like not sleeping well that night got up really early the next morning, you know, woke my wife up, woke our one year old up, told them get ready. You know, I want to be able to sing Happy Birthday to our oldest, got in another shower and then like you can imagine, like 5:45 in the morning, everybody's half asleep, I go wake my three year old up, we sing happy birthday hug and kiss and then I'm out the door, like on my way to the airport, like just sick to my stomach, like what am I doing? Like this is completely incongruent, like I want to be present and like I said, I used to be ashamed of it. I didn't talk about it that much. But it's one of the things I finally realized, like, that's part of what happened to me, it took me from the theoretical ninja to actually getting into action because when I finally got to Frankfurt, and we spent all day in this business meeting that Michael, I don't even remember what the business meeting was about, like even to this day. What I can tell you though, that night, when I was at the dinner, and I walked out to go while everybody else was singing, and gave my young, my oldest son a hug and a kiss and blew out the candles like I was in Frankfurt, Germany, and I was like, I'm not doing this anymore and so that's the thing that took me from the theoretical ninja to actually going out and getting into action and starting to figure out, like, what do I want to invest in and all these other kinds of things and it took me from that point, it took me about eight months later, somewhere between six to eight months, I knew to make the very first purchase of the property I thought I wanted to buy here in Barcelona. But just one thing led to the next didn't work out, I was not in the type of market that would provide cash flow. I wasn't I didn't have enough education or network at the time to really understand the difference between cash flow markets and appreciation markets and all that stuff. But I finally took action and my wife and I were in Cairo, Egypt, I bought my very first duplex, which was in New Jersey and it was just a completely different, like different time, like didn't use leverage so much of the technology and stuff like that, that we do nowadays. But that's actually how I started getting into real estate wasn't really for money, it was just to start to get control because I didn't want to miss any more that really important stuff in my life.   Michael: And I love that story, thank you for sharing and I know that there's a lot of things. I think it's so hard because there is a lot of things that investors are often have a hard time talking about or ashamed or whatever the cause is and I think it's so important to highlight those and spotlight those because there's a couple of things in my opinion, A it humanizes you, you're someone that's accomplished a ton and it shows people like look, Billy is just a person like you or I or anybody else out there and two like it shows the struggle, like we always talk about on podcast and these sort of things like oh, look at the we've we've climbed the mountain, we're there, we're at the conclusion. But there's this whole build up that isn't spotlighted, so thank you for sharing it.   Billy: Hey, man, sure, no problem because like I said, I kind of jokingly earlier like just read a book. No, I didn't just read a book like you, you got started from there and then from there, you know, you get your first property, and then you get your next property and you make mistakes along the way. Like I said, I didn't have enough education. I didn't surround myself with people that were more knowledgeable than I did and it took me actually making a lot of money coming in the door, not having processes in place, things were broken, not necessarily the best experiences for the residents that we're living in our properties. I had to stop, I had to decide that it was time for me to pay to have a mentorship, like paid mentorship so that I could actually figure out like, what processes do I need, what systems need to be in place and things like that, and things got better. But definitely, I needed to take action. I took action, and I did a lot of things wrong, a lot.   Michael: Yeah, well, I mean, that's what kind of builds you up, right and that's what makes you figure out okay, this works, this doesn't work. But how great that you could also leverage your mentor to say, hey, what have you seen because I'm just one person with one set of eyes. What are all the things you've seen him go well, and not well, and I think that's what people often miss out on?   Yeah, yeah. So this is obviously the remote real estate investor people tell them all the time, Michael, there's no way I could invest remotely, but you're living fricking across the ocean across the pond, investing in the state. So what was that like, how did you wrap your head around, not physically being there never seeing the property, like you are different times But like, it couldn't be more different.   Billy: Yeah, so you know, and this is one of those things, right and this is, I guess, just paradigm shifting. You know, one of the things that I love when you came to join me on the going long podcast is that we start to normalize this, right because a lot of the books that I was the theoretical ninja and always either they said it directly, or maybe kind of insinuated that, like you have to be a landlord, you have to live in the exact same place right and so I guess in my mind, I was thinking that because I initially started looking Michael to purchase properties here in Barcelona, and all the books when they were saying how are you going to make $200 a door $300 a door. You know, I would go and I would because I was a theoretical ninja right, so I went through and I penciled the numbers out and I would go through and talk to Donna rinse minus the operating expenses, net operating income, like and get a decent loan and I was like, hey, second, this is minus 50 euros alright, let me try the next one. Okay, well, yeah, well hang on a second. This is minus 75 euros. I mean, no, no, this can be hang on a second, the books at two and three and conversion, nope, still negative and so negative 150 and I was like, wait a second, like, this doesn't work like none of these numbers were working for once again, I didn't have the education and I did not have the network to actually ask the questions and so what I realized is I got a little bit frustrated, because I wasn't going to be able to invest here in my backyard and thankfully, I have very good friends that challenged me many times and they're like, well, Billy, you're like, you know what, you're American, why don't you invest in us and I just looked it up. I remember going well, that's probably not that's one of the least smart things I've ever heard in my life. It was a little bit more colorful than that but the reality was, I thought, do you not see the Atlantic Ocean between me where I live in where the closest property could be and then I thought, you know, what, actually, let me find out and so then I started figuring out like, what, what, who would I need on my team, because I knew that I wouldn't be able to manage the properties, I wouldn't be able to buy the properties I wouldn't be able to go through plus, that wasn't my skill set and so one thing led to the next where eventually, I ended up making that first purchase, doing it remotely, I started here and Michael, hopefully you have a similar type of view, which is, like, I see it as it's like any relationship. I knew that I needed in one in something, so I started taking action towards that towards building, being able to build relationships and make purchases. That's what I was, in my mind and so I started writing people emails, calling talk to family members that were back in the States. Hey, listen, do you know anybody who could help me I don't know anything about getting a mortgage and getting a loan and so they would help connect me with people. I was on the phone, I was sending emails. Once we finally connected with the broker, a general contractor, they introduced me to an agent. Then we started going from email to surprise, surprise. Hey, Michael, big, big hint here. Zoom has been around since before the pandemic, most people didn't know that, right? So I've been using it for the last eight and a half, 10 years, right and so you would that progression started happening from the phone calls to jumping on Zoom, hey, how you doing, be able to talk to one another find out if we're aligning certain types of things and then from there, once I knew that, I wanted to go deep into a specific area, because my goals were that big. It made sense for me to actually continue the progression. So I then put my money where my mouth was, and I actually got on the plane, I flew to meet with the brokers with the property managers, because I wanted to go deep in that particular location and that's what made the most sense for me. So it was having that progression, recognizing that I wanted to go deep in a specific location and then I followed that natural progression, to get to the location, meet a number of the members of the team and then started to build the team. I didn't do it very well that time, because I started without really having a mentorship but then afterwards, once I really figured out how to do it, I actually replicated that model in a different location, much faster, much better and with a lot less pain, being able to do it in the next location.   Michael: Yeah, I love that. I think it's so important again, just to kind of stop and highlight this. So many people, I think, get into real estate and think I got to do all the things, I've got to become all the experts and like you don't, you can go and meet people and people know people and people talk and so once you find one good person, they probably know one other good person, if they don't, they might be able to tell you who you could go ask who might know somebody else. So I love that I love and I love that you took the like the system of setting up the team and you just like, did it another location and that's applicable anywhere, right.   Billy: But you know what it is and so here's the thing that I did wrong, right because I think I love that you said they're like because we usually talk about the things we do, right and everybody wants to say about those types of things and so one of the things that I recognize now that I did not do in the proper order the prepper sequences, I had money in the bank and I knew I wanted control because I was not going to let the stock market thing happen again and one of the ways of being able to do that was start to generate my own income so that I was not going to miss another one of my son's birthdays or anybody else that I love, right and so, as I started doing that, I just went and I bought the property. Like I knew that I wanted to buy a property so I was looking to buy the property. But then when things so I bought the property had a skeleton kind of team but then when things started happening, I didn't have a team in place. I was like, hang on a second, this is broken, and they're calling me and I've got a Spanish phone number and this is not convenient, like they called the realtor and the realtor then sent me an email. I mean, it was it was because I'm in a different on a different continent and so I then realized that oh, hang on a second after being there for like, over a year in the same location, I didn't really even understand anything about the location that I was in. I just bought it there because I knew family members could get there more or less than an hour but there was no not much more process than that the only thing that I was crystal clear on is that I needed that I wanted the benefit of cash flow, like that's what I really wanted and I understood that I could also get some tax benefits.   So I did it just the opposite of the way that I would say to people today, or that I do, say and teach to people today, which is, first get clear on the benefits that you are looking for what you're looking for, then get really, really clear on why you're looking for them. Because it's not if but when things get really, really hard and I know this sounds like probably an old record, but like you really are going to have to cling on to the why you aren't wanting to do this, because it's going to get hard and then afterwards, then you go to the location that gives you the highest probability of being able to achieve that benefit, tax benefits, cash flow, whatever and then you build the team and then once you build the team that understands the location that also understands the benefit that you're looking for, then it doesn't really even matter if you buy the single family house, it's on 123 Main Street, if you buy the multifamily building, if you buy a piece of energy equipment, if you buy whatever, because all of the four different steps are aligned, but starting with you and what it is that you want to do and why you want to do it like that's the way you're supposed to do it not don't do the way that I did in the beginning, because it's like you're gonna learn but it's just gonna be a lot more painful and costly.   Michael: Mic drop podcast over Billy exit stage left, like that was amazing. It's so good, it's so good and I think like, it sounds so it sounds so simple, right? Like, it's so basic, you just like break it down into these four steps, I love it. I think it's just the execution, you've actually then just got to go do it and I think the the why piece of it, and we talked about it all the time on the show, and with friends and colleagues like that's, I think one of the most important pieces of this because you're right, it does get hard, it will get hard and if that's what you have to kind of ground you. I think you're gonna be okay. Oh, that's awesome. All right, Billy, let's fast forward. What is it that you're doing today because you mentioned like energy equipment and this is a real estate investing podcast shows like, fill us and fill in the gaps, what's going on?   Billy: Yeah, so one of the things that I started realizing, right as an accredited investor, right and if you've not talked about that before, maybe if you want, we can talk about what that is. But I started realizing that I enjoyed real estate and I, I really, really, really like real estate, I enjoyed that asset, because it is an asset that you can have much more control over either doing it investing yourself or with a team and you're able to the control you can you can generate the income, you can force appreciation, you can control your expenses and things like that. So I really like that aspect of it and then when you look at the tax efficiency, because passive income is not the income that you're not working for, but the way that the IRS looks at in taxes, passive income, it's really extremely tax efficient, at the same time, because I was someone who is a high wage earner, and someone who was dedicated to working for someone else I understood really quickly, or actually, after a couple of years, that there's different types of ways that it does matter, actually how you earn your income and if you like the income, that is real estate related, which I like it a lot, I needed to figure out a way to stop paying 40 plus percent in taxes, right, and being able to find different vehicles that would allow me to do that. Now and let's say this is an overarching statement, not giving anybody any tax advice, just you asked me a question. So I'm sharing my experience in terms of why I even got into this other area because I believe, Michael, that as long as you know what it is that you want to do, why you want to do it and you have a general idea of the direction that you want to go just like big companies like what's your strategic five year plan, you know, you want to move towards these things. When you know the destination, then it's about figuring out which are the right vehicles in the right moment in time to help you get there and so real estate very much as an active part of my portfolio, I am also a passive investor and I got into the to the energy sector because there was a very specific energy opportunity so investing in carbon capture equipment, which allowed not only for the creation of consistent cash flow moving forward, but it also helped me on my W two income the taxes that I was paying on the W two income and so the way that I saw it was hey, listen, if I'm able to reduce the amount that I'm paying for my w two in terms of tax, then that's capital that I wouldn't be able to use input into other more tax efficient vehicles i.e. real estate and the likes so that I can actually move faster I can get into vehicles that get me to my destination much faster. So that's how that carbon capture equipment which is part of the energy sector got involved because it's that vehicle helps me speed up a bit if you will to get to the destination because it helps to reduce and relieve some of the tax obligation that I have on my w two income which is something that is very unique in my real estate investing because it's passive income was not doing so it's combining these different vehicles once again to get to the destination.   Michael: I love it and it sounds like we could probably do an entire episode on carbon capture equipment and the whole energy sector. But for people that aren't familiar with it, like, give us a quick and dirty, how does someone get involved in something like that and really like, what is it?   Billy: Yeah, sure. So the best way is we've been we've got a thing, and I'm sure you'll probably let me tell how people can get their head around that we have a special guide, it's a free guide, leaving your email, and we'll send it out to you. But in essence, basically, you are part of a company that owns a piece of equipment, that piece of equipment is used by a third party, and that third party, large companies that are using that piece of equipment, because of the because of their they're using this piece of equipment that you can take things like bonus depreciation, if you're familiar with bonus depreciation, if not, it's in the guide. So you can find out in that free guide that that that you can pick up and basically, for the use of this piece of equipment, we're able to use the tax code that's already in place, the IRS says, hey, listen, if you use this type of equipment, you find these types of you have this type of a working interest, then you have the option to or the ability to not the option the ability to take those losses against your active income and so basically, by being able to help, what the IRS is asking us to do, we are doing exactly that, putting it in the form of a company, and the company receives the benefits and the owners of the company are able to receive the benefits that they are proportionately involved in in terms of ownership of the company. I know it probably sound a little bit wordy, but it's only because it's probably easier just to read through the document and you can actually get the specifics on exactly what it is but just technically high level, that's what it is.   Michael: So good and it's a what's the company called and where can people go get that guide and we'll link to it here?   Billy: Yes, yeah sure. It's just go to first gen cp.com, forward slash pay less tax, it's: https://www.firstgencp.com/paylesstax and like I said, it's really for a lot of people, if you are a Mac like I was in software sales world, and I was working for a very large three letter German company called SAP and that company, you know, I was surrounded by lots of other people who are high wage earners. Also, today we're serving number of people that are in professional sports franchises or, and doctors, lawyers, and they enjoy investing in other assets like real estate and if they could do more real estate by having their tax bill, the right size, then, you know, they get to their destination much, much faster.   Michael: It makes so much sense, so let's just turn back the clock for a minute here and I'm curious to know, because you've done both active investing and passive investing and we've been having a lot of syndicators on the show recently talked about the passive side of things. How did you figure out that it was appropriate for you from a timing perspective and how should people be thinking about whether going the active route themselves getting their hands dirty doing it versus just giving their money to someone else and letting them do the hard stuff?   Billy: Yeah, so great, I love this question. I wish I would have known about passive investing earlier, because I would have done a lot more of it because the type of role that I was in as a high paid professional, if I just broke it down to the amount of money that I was earning per hour, based on the amount of time that I put in real estate versus my day job. passive investing would have made more sense for me at the time. One of the things I also say is there are some people like me, that really, really, really enjoy control, have to have control and so sometimes, well, I wouldn't even say sometimes, probably the right thing for that person that absolutely needs a lot of control is to be able to be the active investor, go out, find the property, do all the legwork, build your team, all that kind of stuff and I say that for two reasons, Michael. The first is you get the experience and people that have a need lots of control. If you don't do that, you're going to be unhappy, because you're going to be thinking to yourself, I could do it better, I do it faster. I could do it though, all this kind of stuff, right. So that's the first thing you need in will want that control. The second thing is when you do it, you are going to realize how much work it actually is and what it takes to actually make your, your, your residence happy, and your properties profitable and so you may decide after gaining the experience that maybe you can do it better than you shouldn't be doing it better and even if the dollar per hour euro per hour is less well at least you're in control, you're going to be right. For those people who are looking to get to the destination much faster. It's usually leveraging the efforts, the strengths of others and being able to be a passive investor. You can be involved you can learn what you need to learn so that you feel comfortable. Especially comfortable on the one thing that I think no one ever, ever talks about Michael, I'm gonna go out on a limb here and say normally when you're looking as a passive investor you're talking about, okay, great and you look through the business plan and you look and you say, okay the COC the cash on cash return is such and such, and the NPV is something else and the IRR is something else and that looks amazing and this is fantastic and you know what, what you're never looking at the ROS, right and that, to me is the one metric that that trumps all of the metrics, because it's the only one that really matters, right and so, like I said, if you're looking at IRR, well, great, perfect have to it's a 330% IRR. Fantastic, what your ROS, is you're always negative, is it positive, I don't know. Okay and you're probably thinking yourself, well, what is the ROI is Billy?   Michael: Yeah, I was like for all of our listeners asking for a friend, because I definitely know what it is.   Billy: Yeah, it's the most part, it's the most important metric of all, it is the return on sleep. So if your return on sleep is negative, even if the IRR is 380%, I'm gonna guess you probably wouldn't want to do that, because there's nothing that replaces the amount of nice, calm sleep that you receive in the evening and so that's, that's one of the other things that you want to look at, look at and think about it as an impassive as a passive investor. Excuse me, so those are the, I guess some of the things that I would think about as an active investor, if that's what you want to do some of the profiles of the people that probably need to try that or not probably, but you do need to try it, because you're going to understand, yes, you can do it better, faster, cheaper, or you should let somebody else do it better, faster, cheaper, better, maybe cheaper, or maybe exactly the same but you're not spending the same amount of time doing that because at the end of the day, Michael, the most important asset is time and how are you using your time? Are you using it to gain more education or insight, build a talent so that you can select the right team to do the same thing or do you are you using it so that you can actually build the skill to go out and find the properties and to be able to fix the properties and be able to do all that kind of stuff? So think it's a personal decision, but you need to sit down and look at the things do you need to control and look at, you know, what is your return on your hour of time and is that the best use of your time?   Michael: Yeah, no, I love it. I love it. Be like you this has been so much fun as expected you delivered as expected. Where can people learn more about you can learn about your company invest alongside, you, where should they go?   Billy: Yeah, sure. So are we done already, really? I can't believe it goes by. Yeah, well, you know, it's, it's, so here's the thing. So the best way and I appreciate you giving the opportunity earlier, but especially for those of you that are that you're in that accredited investor standpoint, and you want to understand more about what we're talking about for the energy you can go to first gen cpe.com forward slash pay less tax: https://www.firstgencp.com/paylesstax , the website is: https://www.firstgencp.com/ . You can go there just check out things and look get a better feel for who we are, who I am, who our company is and also to Michael, one of the places I love being able to also connect with people is through LinkedIn and so if you go to LinkedIn, I'm pretty sure I'm the only Billy Keels in Barcelona, Spain. So check out Billy Keels in Barcelona, send me just an personalized request. If you can just let me know that you heard Michael and I already having this conversation. It's just gonna let us keep the conversation going and be much, much easier for both of us. So those are the ways Michael man I really appreciate it and I mentioned before as well if you want to find out more complimentary to what you're doing the going long podcast with Billy Keels. We love talking about people who are remote investing long distance investing, if we can get build more momentum and get more people on board, it will be awesome.   Michael: It's an amazing podcast. Oh my god, Billy my pleasure. Thank you, man. Thanks again. I'm sure we'll be chatting soon.   Billy: Awesome, thank you, you too.   Michael: Okay, everyone, that was our show a big thank you to Billy for coming on super great knowledge bombs dropped throughout the episode. Definitely go back and give it another listen if you missed any of them. As always, if you've liked the episode, please feel free to leave us a rating or review, like Billy mentioned they are super helpful for us, and we look forward to seeing the next one. Happy investing…

Monique Kelly has been selling real estate since 2007 but has been around the business all of her life. She is the third generation in her family in the real estate business. Monique feels so privileged to work for the #1 company in the industry Century 21 and feels even prouder to work for the #1 Century 21 in over 38 states. Monique understands that a home is often the most important investment a family can make, and she wants to help make the process of buying and selling easy, successful and enjoyable. In this episode, Monique gives us her take on the Jackson, MS market. We cover what makes Jackson an attractive market, the areas within the market, price to rent ratios, level of competition, geographical considerations, and things investors need to be aware of when investing here. --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: What's going on everyone? Welcome to another episode of the Remote Real Estate Investor. I'm Michael Albaum and today I'm joined by Monique Kelly, who is a Roofstock certified agent out in Jackson, Mississippi and she's going to be talking to us about all of the things we as investors need to know, and what we should be aware of as we're getting involved in the Jackson market. So let's get into it.   Hey, everyone, just a real quick shout out before we get into the episode today, on Wednesday, June 15th at 5pm Pacific time, I'm going to be hosting a group coaching session inside the Roofstock Academy. So that is for all of our Academy members on short term rentals. So we're gonna get together I sent out a message in Slack, I'll be sending everyone an email as well. For those in the academy, keep your eyes peeled. If you are not already a member of the Roofstock Academy, I definitely encourage you to come check us out at roofstockacademy.com and you can even come participate in this first group coaching session and learn quite a bit more about what we have to offer. Look forward to seeing y'all in there.   Hey, Monique Kelly, thank you so much for taking the time to come on and chat with me today about the Jackson Mississippi market. I really appreciate you coming on.   Monique: Yeah, thanks, Michael. I'm so excited to be on with you today.   Michael: Me, too. So let's just jump right into it and then we'll circle back to your background. Why should people be excited about the Jackson Mississippi market?   Monique: Well, it has historically been a really great market for rental properties. People tend to pay a pretty high price point for rentals, I don't really know why. But historically, that's been the way it is and so, you know, it's a great place to invest. You know, the property prices are not too high. But the rent values are pretty high. So you know, it's just a, it's a growing area as well, so just a good a good area to invest in.   Michael: Just love it and give us a little bit of background on who you are as an individual and where you come from and what is it that you're doing in real estate today?   Monique: Well, I grew up in here in Mississippi, my family has been in real estate. So I've been around real estate since I was in diapers. My dad started this company about 40 years ago and he started our company with my grandmother and my aunt and so I've just been around it my whole life. I started selling real estate right outside of college and worked with my mom for several years. We were kind of a team. She's since retired and you know, I do this full time I've been selling since 2007. So and then in the past, like, I'd say three or four years, my main focus has been investors, and most of them are from out of state. So it's been interesting, pretty crazy ride, but I really love it.   Michael: Awesome and I think most of our listeners may not know the difference between like what an investor buyer client versus an owner occupant buyer client looks like. So why did you make the shifts to work with investors and what are some of the differences that you found?   Monique: Well, um, it kind of was just something that happened, honestly, I'd started working with some local investors and then I got a call, you'd like a an open door with Roofstock and so I kind of had a little bit of the experience and my family, they've all been investing, you know, as long as I can remember, they've owned lots of rental properties and so I've seen it firsthand and I've seen you know what a great income that can be for people and so once I started working with Roofstock, it just kind of blew up and that's been my main focus. You know, it's great that I get to meet people from other areas of the country and even over the world, you know, and get to share the great things about Mississippi and most have never been here. So, you know, it's just great to introduce them to Mississippi and the market here and they're usually pretty shocked with the value of the homes that they can purchase here for and get good rent and everything so, but they are different than owner occupants. You know, of course, they're looking at cash flow, and they're looking at numbers and so I tried to find really good deals and properties that are in great shape. So there's not a lot of maintenance up front or issues in the beginning and try to find a good product for a good solid product that's going to bring in some good income. So Jackson is in what's considered Hinds County it's central Mississippi would be, and then around it, you have Madison County and Rankin County and so the population would be, you know, the large population would be in all three of those counties. I would say the main, probably study jobs come from government jobs. It is the state capitol. So we have a lot of state government jobs and then we have local government jobs, I would say probably number two, the employment would be medical and we have a ton of hospitals. We've got the big teaching hospital in Jackson. So you have a lot of med students, nursing students, dental students, and then you've got nurses and doctors and just a lot of people in the medical field that live around here and then I'd also say Trucking is another big industry here. We are centrally located. So if you go north, you hit Memphis, you go south, you hit New Orleans, if you go west, you're gonna hit Dallas and if you go east, you're gonna hit Atlanta. So you have a lot of traffic, and truckers coming through and so that is actually a big source of jobs here is.   Michael: Interesting.     Monique: We did we are… Yeah, yeah. So I'm in Canton, which is part of Madison County, Amazon is building a facility. So that will be a new source of jobs pretty soon. We do have a Continental Tire factory and Clinton, Mississippi, which is part of Heinz and, you know, so there are some other things, but it's pretty diverse here, most of the jobs.   Michael: Fantastic, so for anyone listening, we're gonna be doing a kind of walkthrough of Jackson, Mississippi. So take it away, Monique, where should people be looking to find some of those cash flowing rentals and what neighborhoods are you most excited about?   Monique: Well, okay, so um, I would kind of break it down into three counties. So you've got sort of like the higher income higher rent county would be Madison County and if you look, it's kind of up north of 55, you'll see Madison and if you look up where Lipstadt is right above it, that is actually a brand new city. So it was part of Madison, it still has Madison address, but they just became a city, they've just voted for a sheriff and they're going to vote for a mayor and that part of Madison is growing major. I mean, there are new restaurants coming and just a lot of growth in that area and it's actually not in the city limits. So you have tend to have lower taxes, it's part of the county and that area is where you're going to get the top rents in the whole Jackson metro area. The schools are some of the top schools in the state and that's a big reason why people want to be there and so I would say on average, the rent in that area is going to be around 2300 a month would be the median.   Michael: Wow, okay. Yeah, for like, three to kind of run of the mill home.   Monique: Yeah, you're looking at maybe 16 to 1700 square feet, and you're probably going to get around 2300 a month for that property.   Michael: Right on and where are you seeing purchase prices?   Monique: The median purchase price is around 363.   Michael: All right, cool.   Monique: So but you know, you're able to get a property for under 300, you know, maybe 250 to 300 and rent it out somewhere between 20 320 500. So, also, you know, of course, if you get four bedrooms, you're gonna get closer to 3000 for it.   Michael: Okay. Right on.   Monique: Yeah, so that's, that's a great area, I would say probably the middle part would be Rankin County, which if you go down, where you'll see, Brandon… close to 25. I don't know if you see how a 25 right there. That's going to be in Rankin County and I would consider that sort of kind of like in the middle of the three counties and in that, at that area, I would say the median rent you're gonna get is around 1700. You could probably get close to 2000 or a little more, depending on the size of the house. You know how new it is and there are a lot of new houses in that area as well. So there's still there's growth in there too and they have great schools too and I would say the average price for a house would be around 270 and then I would say so then after that would be Hinds County and that's where Jackson is and it's pretty diverse. I mean, you've got little pockets in there. Have that are going to be a little different and so the numbers I kind of pulled are pretty broad. But for Hinds County, you're looking at an average rent of around 1350. Some of the areas, you might get a little more, you might get closer to 1700. Like in Clinton over here. It's kind of like its own little community. There's a university there and it's actually where I went to school at Mississippi College University and so it's a little bit different than the rest of Hinds County, but and the average price for a house there would be around 207,000.   Michael: Okay, right. So kind of starting to approach that 1% rule, so to speak.   Monique: Yeah, yeah, you'll probably get a little bit more cash flow in Hinds County. But the houses tend to be older. You know, there's tends to be a little bit more maintenance and things there. But, you know, any of those counties are great areas to invest in.   Michael: Perfect and talk to us a little bit, Monique, about how property taxes work out in if the three counties vary drastically, or if statewide, it's kind of similar.   Monique: Well, so we do have homestead exemption in Mississippi and so you know, it that pretty much cuts taxes in half for an owner occupant and so you know, an investor is going to pay almost double, then when an owner occupant pays and each area is different. It depends on if it's in the city, the county, it what fire district it's in and so when I put, you know, upload properties to Roofstock, I tried to do all of that up front and put the investors tax amount into their, you know, Roofstock website so that they're getting the accurate amount and so I'm able to do that sometimes on the tax records, they can they'll let me do a tax estimator type thing and so it just varies depending on the location, how I get the taxes, but.   Michael: Okay and let's just take a kind of shot in the dark for a $250,000 purchase price. What are you estimating ballpark for taxes, is it 1% of the purchase price, is it some other number? How should folks be thinking about that.   Monique: In Jackson, it's a lot higher. So a property and Jack that will and it also depends. So in Mississippi, they don't base it on the actual value of the property, they have an assessed value, and it typically is about 80% lower than the actual value. So what I do is I go look at the tax records, figure out the actual assessed value, and then I can base it off of that. So it just depends. In Jackson, you're gonna pay city taxes, which tend to be a little higher county taxes in school taxes, and Madison, some of the areas you wouldn't pay city would only be county and school and so it can vary a lot with that. But I do try to give an accurate amount when I put in input any properties so that they know that upfront or if you know it have been investors interested in a property and is curious about the taxes, I'm happy to make sure to give them an accurate amount as well.   Michael: Okay, fantastic. Well, that's a really good point to make about the homestead exemption. So for anyone listening out there, if they go on Zillow, and find an owner occupant home and look at the tax record and think, Oh, great, this is the amount I'm going to pay, they should at least be doubling it and then Monique, does the assessed value change on any kind of regular frequency, like here in California, anytime the property is sold, that's when they reassess the property at the price point at which it was purchased. So does a sale trigger reassessment or is it just every couple of years or how does that work?   Monique: It's every couple years, the sale does not trigger it. So I think it's every like four to seven years, it gets reassessed.   Michael: Okay, fantastic and talk to us about some of the things that are kind of maybe nuanced or unique to Jackson or maybe Mississippi in general, when it comes to like home inspections. In California, we have termites, that's a very common thing. So if you see termites, it's not the end of the world as long as the damage isn't super extensive. But if you're not used to that, that can make investors run to the hills. So what should people expect to find what's kind of par for the course in the Jackson market when it comes to home inspections?   Monique: Okay, so in Central Mississippi, we have what's called Yazoo clay in the soil, and it can cause a lot of foundation issues. Just settlement in general. I would say in older homes, it's more common. Now they pretty much will do soil tests, dig up you know, so many feet of the clay and putting good soil so you don't typically see it with newer properties. You might see a little bit of settlement like a little crack in here or there but it's not anything major. But some of the older homes like in Jackson, or even southern brand and a Madison, I mean, depending on the age, it's a little bit more common and so there's a lot of houses that have had foundation work, or they might need it and so I do try to steer people clear from that, just because it can be an ongoing thing. You know, once you repair, it doesn't guarantee that you won't have more movement. You know, because that clay it's going to expand or shrink, depending on how wet it is and we have a lot of rain here in Mississippi. So um, you know, I do try to steer clear that, but I can usually tell, you know, we can look at engineer report and see how extensive the movement is, if it's within so many inches, like three inches, it's not really anything major. But more than that, and it can become a pretty major thing. We also have termites in Mississippi. So I do see some of that, but as long as it's not extensive damage, it's typically okay, those are probably the two major things that you would want to look for.   Michael: Great and what about natural disasters and this might be a silly question. But do you all have hail down there or tornadoes or hurricanes, right, that sort of thing.   Monique: We don't typically get the hurricanes. We're a little too far north from the coast. But we do get hail damage and some wind damage, we can get some pretty straight line winds, and there are tornadoes that come through here. So people might notice if they start looking at disclosures, that roofs are pretty much replaced pretty frequently, and it is due to hail damage, you'll get a storm that comes through and you'll notice in a certain area, all the roofs got replaced around that time period. So but that is that's pretty much it. We pretty much have mild weather here. We don't get a lot of snow, if we get shut down if we get any snow. Because it's so rare and yeah, but we do get a lot of rain. It's pretty wet here and we do get some tornadoes and things like that here.   Michael: Okay. Awesome and kind of in thinking about the some of the natural disasters, and that leads me down the insurance path. What do you see, do you have like a ballpark estimator for what insurance costs are in Jackson?   Monique: I mean, I would say, it just depends on the price of the house, how new the house is how new the roof is. But for a newer house, like around, I don't know, $300,000 that the insurance will probably be about 1000, somewhere around there.   Michael: Okay, awesome, awesome, that's great and for everyone listening who is interested in the Jackson market, definitely be looking at your wind or hail deductibles. Oftentimes, those policies have a different deductible, which is different than the fire. So it's in a high prone area, the insurance companies say no no no, you got to pay a higher deductible for this kind of stuff. So that's great to know. Monique, tell us any final thoughts, things that people should be aware of tips, tricks, advice for folks how to be competitive in today's market or things they could do better in working with you as they're making offers?   Monique: Yeah, so I recently pulled up to see how much inventory we currently have and so right now, for Rankin County, we've got about one month's worth of inventory and then I also pulled up the rentals, and we've got about 1.9 months' worth of inventory. So almost two months, for Madison, for homes for sale, we've got about one month of inventory and then for the rentals in Madison, we've got about a month and a half worth. Hinds County, we've got two months inventory of houses for sale, and for the rentals about two and a half months and so it's still a really competitive market. There's still a lot of buyers that haven't been able to purchase anything yet. So they're still looking still have a lot of investors trying to invest here and so there's still multiple offers and so you have to make competitive offers, you know, to have a chance and so most are gonna sell for above list price right now and I would say the biggest thing that has helped me when writing offers and getting them accepted is if it's not cash, then to add an appraisal clause where you're willing to pay the difference between appraisal price and purchase price and we often cap it just so that the investor feels comfortable with it. But that has been the most successful tool and getting offers accepted and it just helps them be competitive with the cash offers that don't have those contingencies.   Michael: Okay, and so for anyone that's not familiar with what, what Monique is talking about, let's break it down. So let's say you're gonna go buy $150,000 house, and you say, okay, I'm willing and the bank with a bank loan, and the bank is going to come appraise the house, and the bank is only going to lend you 80%, say of what the value of the home is. So if the bank comes in and says, hey, actually, the house is only worth 140 grand, they're only going to give you 80% of 140 and so you've got to come up with that difference to get to that 150 purchase price. That's what you're talking about, right?   Monique: Right, right. Yeah and it's usually not much difference. Um, we're talking five to 10,000, you know, that somebody would be willing to pay the difference for so I'm not seeing your appraisals coming much lower than that. They usually come in at contract price, honestly. But it just gives that amazing set. They're gonna, yeah, yeah, yeah, exactly. But it just gives that seller the assurance that they're going to make a certain amount, and that's very appealing when there's other offers on the table.   Michael: Okay. Great to know, and how many days on market are you seeing most of the properties sit for? I mean, is it, are they getting souped up within hours of getting listed or is it a week? I mean, how fast should people be prepared to move?   Monique: I would say usually within one to two days, those houses are pending. So you know, as soon as it goes on the market, I would make the offer. Sometimes they're giving about three days. But at that point, they have so many offers to shuffle through. A lot of sellers are choosing to do it quicker than that. Just so they don't have to continue with the showings and go through so many offers. Yeah, I'd say a day or two.   Michael: Okay, so for everyone listening out there, if you're ready to move quick, have your pre approval letters, have your proof of funds ready to go and be making strong offers? That's good to know. Well, Monique, thank you so much for taking the time. If people want to learn more about you or reach out to you directly. What's the best way for them to do that?   Monique: They can email me at monique@maselle.com and it's M O N I Q U E @ maselle M A S E L L E or you can call me I have my phone with me pretty much all the time. It's 601-941-4447.   Michael: Amazing. Well, many thank you again, for sharing so much wisdom and knowledge about the Jackson market. I'm sure I'll be chatting soon.   Monique: Thanks so much for having me.   Michael: Yeah you, take care. Okay, everyone, that was our episode for today. A big thank you to Monique for coming on and dropping so much knowledge and wisdom about the Jackson market sounds super interesting and while the things are still flying off the shelves, so go get them while they're hot. As always, if you liked the episode, feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing…