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Latest podcast episodes about Michael Oh

Super Serious 616
Episode 186: Where do sabertooth tigers come from? The past … or Antarctica? (X-Men #10) -- March 1965

Super Serious 616

Play Episode Listen Later Dec 15, 2022 8:55


Apologies for no episode last week. Here in 2022 we are also shutting down for the Christmas holidays. We should be back the first week of January. Also: Welcome to all the new listeners. If last episode was your first with us, we would love to hear how you heard of us. Apparently we are now the #25 top Marvel podcast, but that was published on December 11th, and we picked up many new listeners on November 30th. Where did you all come from? If you subscribe at www.SuperSerious616.com you can reply to the email we send you and you can tell us. We would appreciate it if only to satisfy our curiosity! See you in the New Year!In this episode:Mike and Ed discuss the mind-bending news that a sabertooth tiger has been found in Antarctica. Does this mean that other previously assumed extinct animals are not actually extinct? What about dinosaurs? Questions abound!Behind the issue:This is the first appearance of Ka-Zar and the Savage Land, which will go on to be a major environment in X-Men comics and the Marvel Universe more generally. There are rumors that the Savage Land and Ka-Zar may make an appearance in the MCU during the Thunderbolts movie due out in a couple of years. This is where it all began.In this issue:The evening news broadcasts a video from Antarctica of a Tarzan-like figure with a sabertooth tiger fighting explorers to the frozen continent. The X-Men suspect that this wild man may be a mutant, and they decide to investigate. They head to Antarctica and find a secret passageway through the frozen environment to a tropical land filled with dinosaurs and other strange creatures. They also encounter warriors fighting with preindustrial weapons. The wild man Ka-Zar and his sabertooth tiger Zabu come to their aid and help turn the tide of the battle. The X-Men leave, having made a potentially valuable ally.Assumed before the next episode:People are still wondering whether the sabertooth tiger is real, and if so, whether other extinct animals may return from the dead.This episode takes place:After the amazing news that a sabertooth tiger has been cited has been somehow lost in the new cycle.Full TranscriptEdward: Mike, when did Sabertooth Tigers go extinct?Michael: I don't know exactly, but I thought they were prehistoric. Did they not go out at the time of the Willie Mammoth? Think so. 2000 years ago.Edward: I feel like, my understanding is that they, ex, number one is they existed. They're not like a unicorn. Unicorns never did exist. I know some people think that unicorns went extinct, but they did not. There was never a unicorn as far as we know. But sabertooth tigers, which kinda. Kinda unicorns. Cause they have giant, huge, giant teeth that kind of stick out. They existed and I think they were North American. I think they existed in North America. Yeah. And then when people came across that the land bridge into Alaska and then came down through the continent, there were all these crazy animals there. And humans just basically killed them all. By the time the Europeans got there, there weren't many of these big animals left. There were still bison and there were cougars, but, things like the mammoths and the sea two tigers were all killed off.Michael: Were they killed off or they just die? I don't know if there's historical record for it being killed off by humanity, but I thought,Edward: I think the record is, they overlapped with humanity. So humanity was there at the same time as they were. And, humanity lasted and they didn't. So they died off at some point after humans were there. And it turns out humans liked to eat animals. So there's a possibility that humans. Them all.Michael: I thought it'd be more temperature. I thought it'd be more temperature related.Edward: It could again, maybe, maybe Was Willie Mammoth ? Well, there's, there's wooly mammoth in Europe I think as well, but they also went extinct. And we know that humans ate those things for sure. Mm-hmm. , I think there's a lion, but regardless Europe, there's a lion in Europe too, and that, that also went extinct and we know that humans kind of wiped that out. I think I was curious what's going a lot of these animals in, in North America, they basically, they didn't have a defense against humans. Like all the animals in Africa. They evolved along with humans and the ones, and so they had defenses against humans. But I think all those animals in North America, we were an invasive species and we showed up and the animals had never seen us before, so they didn't know what.Michael: That's interesting. Well, anyways, you asked me, but going back to the beginning. Yeah. So Saber Tooth Tigers haven't been around for a long, long time.Edward: Except now they are.Michael: Except now they are. Yeah, I mean, likeEdward: they're back baby. They're back.Michael: They're back. They're back. And they're better than ever. So the people, uh, they watch thisEdward: not just as a sports team logo, basketball. No.Michael: Well, like, so what we're talking about,Edward: I feel like there should be though, shouldn't there be, why isn't there a sports team with like the Philadelphia Sabertooth Tiger.Michael: Well, I, support it, but now they could probably get one maybe, but, for people that aren't, that haven't, haven't watching the news lately, what it is, is that there's a recording, a video recording of a man who looks like Tarzan walking with a sabertooth tiger who's attacking people in Antarctica. And it's like, it's so,Edward: can interrupt thatMichael: crazy.Edward: He looks like Tarzan. What does that mean? That means he, that means what does Tarzan even look? You mean like the drawings, the things that were on the covers of his books like a hundred years ago.Michael: Yeah. Like a bear chested, loin, loincloth, guy walking around Antarctica, which is odd with a se tiger.Edward: When you're saying he looks like Tarzan, you're basically saying there was some dude without clothes on.Michael: It's for our younger listeners. I didn't wanna get too graphic, but Yeah. Some, some dude is basically wearing Speedo, walking around Antarctica with a sabertooth tiger.Edward: Mike's gonna go to the next swim meet and he's gonna be like, Tarzan Tarzan's everywhere.Michael: Well, that's what comes to mind when there's a man dress in a loin cloth with a prehistoric animal. Yeah. It kind of makes sense. Or with a big cat, like a saber tooth tiger. But there's a saber tooth tiger.Edward: Yeah. But, Tarzan was never a, didn't have prehistoric animals in those books, did he? He was just, it was a chimpanzee, elephants,Michael: the lord the jungle. No, he's in charge of the jungle and this guy's in charge of, it looks like from the video that he's in charge of the sabertooth tiger. And so, no, that's why, that's my connection, . But anyways, the Tarzana, the tar side. What I'm really getting at is that it's nutty.Edward: Don't get confused by the Tarzan reference. Tarzana is not evolved.Michael: I'm moving on from it. Moving on from bit, but here it is. So a sabertooth tiger. And, 10 years ago we would be, it would've blown our. If there's a video of a saber tooth tiger, that would be the front page of the news. I don't think many people know about this. Number one, and number two, we can't. We, you and I were talking before our show. Neither of us can totally agree on what is the most likely reason. There's a sabertooth tiger right now.Edward: Yeah. There's a couple of things going on. Number one is, there's a sabertooth tiger. They went extinct thousands or tens of thousands of years ago, and now there's one back. So that's weird. Number two is it didn't appear in North America where they were last seen. It appeared in Antarctica. , which is like a weird place for it to be. And then number three is of all the, the weird places for it to appear. How does it survive in Antarctica? Like nothing survives in Antarctica. There's penguins.Michael: And, and then so you say, well, where would it have come from? Because presumably, if there's been a line of savory tooth tigers for thousands and thousands of years that we didn't know about, there would be some evidence of that. And, people that investigate these things and the study of prehistoric animals just got it wrong and missed it and missed the evidence of years and years and years of sabertooth tigers prowling around or, the evidence, their bones or whateverEdward: Be fair fossils if sabertooth tigers were really prowling around Antarctica this whole time, we haven't spent much time in Antarctica. I just think the evidence that any animal could survive in Antarctica is so low. That's the reason why we haven't been exploring Antarctica, is it's not really a place where animals survive.Michael: Well, so that leads, okay, so number one, sabertooth tigers can survive in Antarctica. That's number, that's the first question, but it doesn't make a lot of sense because there are mammals, they're furry mammals that would live in,Edward: they're predators. They have to eat other animals. If this sabertooth tiger is surviving in Antarctica for any period of time, that means there are prey animals living in Antarctica for some period of time. And I don't think it's just penguins. Like I think we've studied penguins in Antarctica as far as we know they do not have lions preying on them.Michael: No, no. And so, it's kind of odd, but that's the most logical thing is that just it, we just happen to have missed it. And that's the conclusion that we'd have to draw if this was 10 years ago. But we have to entertain other possibilities. Could it be that we know time travel exists? So maybe it's a time travel thing.Edward: That sounds a really easy answer, right? Like if, Kang who came here and tried to take over our timeline, take over our world, what would stop him from just going back in time and picking up a caveman in a sabertooth tiger and bringing them into our time. That sounds very reasonable.Michael: It's a possibility or maybe it's another dimension that overlaps with our, we know that there's other dimensions and overlaps with ours and just maybe that. There's a crossover point down there. Maybe,Edward: maybe in that dimension, Antarctica is like hot and bombing because we also know that a long time ago in humanity, Antarctica was hot and bombing, it was a nice warm right place with lush forests and so on. Maybe there's another dimension where that never changed and we got a portal to that dimension and these guys hopped through.Michael: Maybe it's an alien because we know that there have been alien attacks and they seem to be similar. The aliens seem to be relatively similar to how we look, so maybe there's versions of mammals on other planets and this is just an alien either left their sabertooth tiger here, or maybe the sabertooth tiger is an intelligent species from another planet and we just haven't found the spaceship .Edward: And he brought along his prehistoric man as a pet .Michael: That's right. That's what it is and then maybe the other one I was thinking maybe it's from Asgard or something. Maybe it's from where Thor comes from. Because just a magical beast just like Thor's a magical Oh, that's true. God, I don't know.Edward: And then this magical beast might be tens of thousands of years old. It's an un aging magical tiger.Michael: Yeah, but the point is that we don't know. And so,Edward: oh, I have another, I have another possibility.Michael: What's thatEdward: robot? You know what I mean? We've had robots be we're we thought they were aliens. Turns out they were robots or we thought it was Iron man. Turns out it was a robot. It feels like robot impersonators are a thing. Why not just make a robot cat?Michael: How about, and that's a good idea. But how about this also, it came from underneath the earth.Edward: Oh, we, Atlantis is we know there's, there is an Atlantis underneath the earth. That could be a, it's almost like another dimension at this point, but yeah, that makes sense. Totally.Michael: Boy, this all leads though. Is thatEdward: Maybe this old Atlantis kidnapped primitive humans. Mm-hmm. and and, giant cats and mammoths and stuff. And then breeding them underground in zoos. And these ones just escaped from the zoo.Michael: Well, the point is that these are all now equally logical. , right, because it's just because there are of theEdward: broadest sense of the word .Michael: Well, but there are, there, they, we know that there's these are things that are, have happened last few years and so it, it doesn't stretch the imagination to believe that this is that there are sabertooth Tigers through any of these various reasons. So this is why you and I have been doing what I consider to be the hard news Ed, where we've been talking about the real stories. And I do think, these things have to be studied so that people, we, we could turn to, a more scholarly academic source to say, oh no, we've looked into this and turns out the robots who promote it, and now that people can study itEdward: like mad scientist, it's a mad scientist who found ancient DNA and recreated primitive man and and tigers.Michael: Oh my, I love it. I love it.Edward: It's, it's The Thing. It's The Thing for an academic to dive into.Michael: Yeah. Well, you know, Ed, if you and I, if our legacies that we're encouraging scholarship, so be it. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.superserious616.com

THE WONDER: Science-Based Paganism
INTERVIEW: Michael of the Atheopagan Society Council

THE WONDER: Science-Based Paganism

Play Episode Listen Later Nov 28, 2022 45:35 Transcription Available


Remember, we welcome comments, questions and suggested topics at thewonderpodcastQs@gmail.com   S3E41 TRANSCRIPT:----more----   Mark: Welcome back to the Wonder Science-based Paganism. I'm Mark, one of your hosts. Yucca: and I'm Yucca. Mark: and today we have a really exciting episode. We have an interview with a member of the Atheopagan Society Council, Michael, who is joining us today, and is gonna tell us about his journey and what this community means to him and his vision for the future and all kinds of cool stuff. So welcome. Michael: Well, thank you very much for having me. Mark: I'm delighted to have you here, Yucca: Thanks for coming on. Michael: Yeah, no, I'm excited. Yucca: Yeah. So why don't we start with so who are you? Right? What's, what's your journey been to get here? Michael: Gosh. Well, I kind of have to start at the very beginning. So my name's Michael and you know, I've, I start, sometimes I go by Mícheál, which is my Irish, the Irish version of my name. And that's something I've been using more as I've been involved in the Pagan community. My parents are both Irish and. They moved to the United States in their early eighties cuz my dad got a green card working over there Mark: Hmm. Michael: and I was born in America. And then they decided they want to move back to Ireland then in 1991. So already I had this kind of dissected identity. Was I American or was I Irish? I never really lost my American accent. When I, when I moved to Ireland my sister who was born in Ireland, she actually has a slight American accent just from living with me. So she never people always ask her, are you, are you American? And she's like, I've never lived there. So it's funny that it's kind of stuck with her, but I moved to Ireland and I suddenly was kind of got this culture shock at the age of five and moving to this new country. And my mother has a very large family, so she has like, two, two brothers and seven sisters, and then I've got like 30 cousins. So , it was a big, a big change from AmeriCorps. It was just the three of us. Moving back to Ireland and. It was a very, you know, Ireland, you know, is, would've been considered a very Catholic country, and it's been kind of secularizing since the nineties up until now. But back then it was still quite Catholic. Like homosexuality was only decriminalized in 1992 and divorce was only made legal in 1995. So, I guess the first kind of sense of, of what I meant to be Irish back then was, You know, you learned Irish in school, you learned to speak Irish in school, and this was very it wasn't taught very well, I would say, and I think most Irish people would agree with that. It's kind of taught like almost like Latin or something as a dead language rather than as a living language. So you're spending time learning all this grammar. And you don't kind of develop that love of it that I think you should. I did go to like Irish summer camp in the Gaeltacht . The Gaeltacht  is the Irish speaking area of Ireland, and I kind of became aware of my Irishness, you know, just through being part of all this and also. I would've introduced myself as American when I was little but people didn't really like that. It was kind of a, like a weird thing to do. So my mom eventually told me, maybe you should just stop paying that. And so throughout my I, you know, as I mentioned, it was a very Catholic country. And when I was in the Gaeltacht in Irish summer camp one of the kids said they were atheist. And I was like, what does that mean? I'm like, I don't believe in God. And I was, and in my head I was like, I didn't know you could do that, I didn't know that was an option. . So I kind of thought about it for a while. I became, we started studying the Reformation in school when I was about 14. And then I learned that Catholics believed in transubstantiation and nobody had really mentioned that before. They didn't really teach the catechism very well, I guess. I'd done my communion and my confirmation, but nobody ever mentioned that. We literally believed that the, the body and blood, you know, was that the bread and water? Oh, sorry. The bread and wine actually became literally, And the body. And I thought that was a very strange thing, that that was a literal thing. It wasn't just symbolic. And then we also studied Calvinism and all that stuff. And I was like, then I started to read the Bible and I was like, then it fun, it finally just dawned on me that I didn't believe any of this, and it was kind of liberating. But it was kind of a way of being d. In a very homogenous society too. You could be a bit of a rebel. So I think I was one of those annoying teenagers who was always questioning everybody and having, trying to have debates with everybody about religion and they didn't enjoy that . And so I went through school and I just remember hating studying the Irish language until eventually when I left school. On the last day, I actually took all my. My Irish textbooks and burnt them and I feel I . Yeah. I mean I feel so much guilt and regret about that and I think about that how important it's to me now and that, that was a real shame that, but I didn't, partially I didn't put the work in, but also I just think the structure. Was not there. I mean so many Irish people come out of outta school not really know, knowing how to speak the language, you know, and I think it is an effective col colonization as well, where, you know, you consider English is a useful language and learning French or Spanish, that's a useful thing, but there's no use for Irish in people's minds, which is a, and I find that a real shame and I. could go back and change that. In university I studied anthropology and history because I was very interested in religion. All throughout my teenage years, I was obsessed with learning about world religions, you know, there was a world religion class in, in secondary school. I didn't get into it, but I begged the teacher to allow me to. Into it because I was so interested in the topic. And he was like, fine, fine. And he kind of thought he'd humor me in one class one day and he was like, well, Michael, maybe you could talk about satanism. That's the topic for today. And I was like, well, let's start with Al Crowley. And he was like, okay, maybe he actually knows what he is talking about So, I went, I. I went to the university sorry, national University of Ireland, Minuth Campus. And it's funny because that used to be known as so it's actually, it's two campuses. They're St. Patrick's college, which is like a, a seminary for priests. And there's the I, which is like the secular version, and they're both, but they both share the same compass. So it's funny, it used to be the, the biggest seminary in Europe. They call it the priest factory cuz they pumped out so many priests that sent, sent them all over the world. And it's when you go out and you walk down the corridors, you see all the graduating classes. So you go back to 1950 and you see a graduating class of like a hundred priests. And every year as you're going down the corridor, it gets smaller and smaller and smaller. Until I think the year I graduated, there was like two people graduating as priests. Yeah. So that was, that was a, I decided to study history and anthropology at n Y Minuth and one of the books that I read. Was kind of a gateway into thinking about land and language, which are two things that are really important to me in my, when I think about Paganism. It's a book called wisdom Sits in Places by Keith Bato, bass by Keith Bassell, and. I'm just gonna read a little bit here from the book because he was an anthropologist working with the Apache, the Western Apache, to try and remap the land using the Native Apache words rather than the, the English words. So trying to make a native map and working with Apache people to find all the true, the true names of all these. so this is the quote, but already on only our second day in the country together a problem had problem had come up for the third time in as many tries. I have mispronounced the Apache name of the boggy swale before us. And Charles, who is weary of repeating it, has a guarded look in his eyes after watching the name for a fourth. I acknowledged defeat and attempted to apologize for my flawed linguistic performance. I'm sorry, Charles. I can't get it. I'll work on it later. It's in the machine. It doesn't matter. It matters. Charles says softly to me in English, and then turning to speak to Morley. He addresses him in Western Apache, is what he said. What he's doing isn't right. It's not good. He seems to be in a. Why is he in a hurry? It's disrespectful. Our ancestors made this name. They made it just as it is. They made it for a reason. They spoke it first a long time ago. He's repeating the speech of our ancestors. He doesn't know that. Tell him he's repeating the speech of our ancestors. And I'm gonna just there's another section here, a little, a few pages. But then unexpectedly in one of those courteous turnabouts that Apache people employ to assuage embarrassment in salvage damaged feelings, Charles himself comes to the rescue with a quick corroborative grin. He announces he is missing several teeth and that my problem with the place name may be attributable to his lack of dental equipment. Sometimes he says he is hard to underst. His nephew, Jason, recently told him that, and he knows he tends to speak softly. Maybe the combination of too few teeth and two little volume accounts for my failing. Short morally, on the other hand, is not so encumbered though shy. Two, a tooth or two. He retains the good ones for talking and because he's not afraid to speak up, except as everyone knows in the presence of gar women no one has trouble hearing what he. Maybe if Morley repeated the place name again slowly and with ample force, I would get it right. It's worth a try, cousin. And then he, I'm just gonna skip forward a bit and he successfully pronounces the name, which translates as water Lies with mud in an open container. Relieved and pleased. I pronounce the name slowly. Then I, then a bit more rapidly and again, as it might be spoken. In normal conversation, Charles listens and nods his head in. . Yes. He says in Apache, that is how our ancestors made it a long time ago, just as it is to name this place. Mm-hmm. So this became important to me when thinking about the Irish language because something similar happened in Ireland in the you know, we have all our native Irish place. But in the 1820s the British Army's Ordinance survey came and decided they were gonna make these names pro pronounceable to English ears. And so they kind of tore up the native pronunciation and kind of push an English pronunciation on top. So you have these very strange English Anglo size versions of Irish Place names Yucca: Mm-hmm. Michael: Soin in is is probably better known in English as dingle, but doesn't really have anything to do with the Irish. And there are plenty of, there are so many examples of this and I think when you're trying to learn about a landscape in your relation to a ship, to a landscape, it is important to know the native place. It's something that I think about a lot and I try to learn. One of my favorite writers is named Tim Robinson, and he's well he died in 2020. But I had the opportunity to meet him in 2009 and he was an English cartographer. But he moved to the west of Ireland, to the Iron Islands and also to Kamara. So he kind of moved between those two places. He lived there for more than 30 years, and what he actually did was he went out and mapped the landscape and talked to local people, and he was able to find some of the place names that had been lost over the years that weren't on the official maps, and he was able to help recreate a Gaelic map of those areas. I think that's a really kind of religious or spiritual activity to go out onto the land and walk it. And to name it and to name it correctly. And I think that's what I think my pagan path is in a way. It's to go and walk the land and learn it, what to call it. Cause I think language is the most important tool we have as pagans. Mark: Hmm. Michael: So those are, that's kind of when I started to think about this stuff. I've always been interested in folk. It was actually funny. There was, it started with a video game one of the legend of Zelda video games called Major's Mask Mark: Hmm. Yucca: Yep. Michael: in, in the game, they actually have like a mask festival and they dis they discuss the the history of the festival. Anna was just like, wow, I didn't, I ended up making masks with my sister and we kind of pretended to. A little mask festival of our own Yucca: Mm-hmm. Michael: that you're, you're familiar with that? Yucca? Yucca: Yes. Yeah, I played a lot of it. Michael: Yeah. So, but I guess I really started to think about folklore when when I watched the Wickerman as um, as a teenager. I was probably at 16 when I watched it, and it kind of opened my eyes completely. And we've talked a lot about this in the group. And I. It's watched as a horror movie in a way, but   I think I really got into the, the paganism idea of, of paganism as a teenager because of watching the Wickman and just the symbolism and the pageantry. And I also just like the idea. These island people turning on the state in the form of, of the policeman. So that's kind of been something I've that I've really enjoyed over the years, watching that every every May as part of my, my, my annual ritual so, you know, after university, I, I moved to South Korea to teach English, and, but at the same time I was quite into Buddhism. I had been practicing some Zen Buddhism from about the age of 18, and, but not like, more as just a practice rather than believing in any of it. Not believing in reincarnation or anything like that. I just found the ritual of it very beautiful. And I ended up going and doing a temple stay in a, in a place at, at a temple. Up in the mountains and it was very beautiful and really amazing. You know, something you'd see in a movie because the monk, the head monk actually brought us out into a bamboo grove and we sat there meditating just with all surrounded by bamboo. And it was waving in the wind and it felt like a correction, tiger Hidden dragon or something like that. And one of the powerful events that happened on that trip. Doing the Buddhist meal ceremony where we ate in in the style of a Buddhist monk. And the idea is that you do not leave any food behind. After you're, after you're finished eating, you've, you eat all the food, and then when you wash the bowls and they kind of put the communal water back into the, the, the waste bowl, there should be no no bit of food, nothing. It should just be clean water. That comes out of, after everybody finishes washing all their bowls. So we followed all the steps to do that and, you know, some people really, really weren't into it. They didn't wanna do the work of, of being extremely thorough. And there were a few rice pieces of rice in the water at the end and the head monk said to us oh, that will now get, you're, you're gonna cause pain to the hungry to ghost. Because the hungry goats ghosts have holes in their throats, and when we pour the water outside for the hungry ghosts, the rice particles are gonna get stuck in their throats. And a lot of people were like, what? What are you talking about Mark: Hmm. Michael: But I thought that was beautiful because it doesn't, not, you don't have to. It's a story that has a purpose, and that's why, you know, It made me think about the superstitions that we have. And I don't know if I like superstition like these, calling it that. Cause I think a lot of these things have purpose and you have to look for the purpose behind them. And the purpose of that story of the honky go story, maybe for him it is about not causing harm to these, these spirits, but it's also about not wasting food. And I think it, it has more power and more meaning. And you remember. More thoroughly when you have a story like that to back up this, this practice. So I think it kind of made me rethink a lot about the kind of folkloric things that I, in my, in the Irish tradition and that, you know, I think about things like fairy forts, which are, you know, the, these are the archeological sites that you find around Ireland. Like, I think there's like 60,000 left around the country. These, these circular. Homesteads that made a stone or, or saw, or saw that you find all over the country and people don't disturb them because they're afraid they'll get fair, bad luck. The, if you, if you disturb the, the fair fort the ferry's gonna come after you , or if you could, or if you cut down a tree, a lone tree. Lone trees that grow in the middle of fields that don't have a, a woodland beside them, just singular trees. These are known as fairy trees and it's bad luck to cut them down. But I feel like these folk beliefs help preserve the past as well, because, you know, farmers who don't have this belief, they don't have any problem tearing down fray, forts and that kind of thing. They just see it as a, something in the way of them farming, especially in the kind of age of industrial agriculture. Yeah. So it just made, that was when I started to think about how important it is to keep folk belief alive. And I've really, and I really started to study Irish folk belief after that point. And I lived in South Korea as I mentioned. I met my wife there, she's from Iowa and she was also teaching in, in South Korea, and we moved to Vietnam after that. And we lived there for a couple of years, and I might come back to that later. But fast forwarding, we moved to Iowa then in 2013, and I'm teaching a course in Irish. At a local community college, but I always start with this poem by Shama Heini Boland. And I just wanted to read two extracts from it. So the first stands out is we have no prairies to slice a big sun at evening everywhere. The eye concedes to encroaching. And then moving downwards. Our pioneers keep striking inwards and downwards. Every layer they strip, they, every layer they strip seems camped on before. So I, I started with that initially, kind of trying to, as, it was almost like a gateway for my students to kind of look at. Look at Iowa with its historic prairies, which don't really exist anymore. It's all farmland. There's very little prairie land left. I think maybe 2% of the state is prairie. But that idea, that idea of our pioneers strike downwards, and I've been thinking about that a lot as well, that that's kind of a, a colonial look at the land because this land, the American land has is just as camped. As Ireland, and I've been kind of experiencing that more and more. I have a friend who's an archeologist here and just hearing them talk about the kinds of fines that they have. You know, we lived in a town where there was a Native American fishing weir was a couple of hundred years old. It you could kind of see the remains, but it mostly washed away by the time we had. But I did see an old postcard of it from the seventies, and you could see it very clearly. And so just make, and then we always it's become a ritual every every autumn, we go up to northeast Iowa to these, to these effigy mounds, which are some Native American mounds up there on a bluff, just overlooking the miss. Mark: Hmm. Michael: And that's really amazing to look at that and experience and experience that. And you know, I'd love to go back, unfortunately, Shamus, he died more than 10 years ago now, but I'd love to go back and ask him if he would consider rewriting that line, you know, because this land is just as a count on Yucca: Mm-hmm. Michael: and I'm trying to, trying to make sense of that and what it means. As an Irish person living in America, Yucca: Mm. Michael: Cuz we, Irish people are victims of col colonialism,  Mark: Hmm.  Michael: Irish people, when they moved to America, they just became white as well and had the same colonial attitudes as everybody. And I'm trying to kind of, but you know, there's, there's, there's kind of stories of reciprocation as well. Where during the famine, the Irish famine the, I think, I believe it was the Chota Nation sent Emin relief to the AR to Ireland. Even though they didn't have much themselves, they still saw this. People in need across the water and they sent money to help. And, you know, there's that connection between the Chta nation and the Irish has continued to this day. But I am just trying to figure out what it means to be an Irish person and a pagan living in this country. And that's kind of where I, where I am right now. But to get back to how I got into Ethiopia, paganism I mentioned earlier that I was really into the Wickerman and I found this group called Folk folk Horror Revival on Facebook. And somebody one day mentioned that there was this group called Atheopagan. And so I decided to join and I found a lot of like-minded people. And I've been kind of involved in the community for, for, I think that was maybe 2018. Mark: Mm-hmm. Michael: And I've been involved in the community since then and maybe on a bigger, I've been much more involved since Covid started and we started doing our Saturday mixers. And I think I've made maybe 90% of those Mark: something Michael: and we've, yeah, and we've been doing that for the last three years and it's just been. It's a really amazing, it's one of the highlights of my week to spend time with with other people in that, in that hour and 45 minutes that we spend every Saturday. Mark: Mm. Michael: Mm-hmm. Mark: Yeah, I, I really agree with you. That's, I, it's a highlight of my week as well. Such warm, thoughtful people and so diverse and living in so many different places. It's yeah, it's just a really good thing to do on a Saturday morning for me. And. We'll probably get into this more a little bit later, but the idea of creating human connection and community building I know is really important to you and it's really important to me too. I think there have been other sort of naturalistic, pagan traditions that have been created by people, but they just kind of plunked them on the internet and let them sit. And to me it's. That would be fine if I were just gonna do this by myself. But when other people started saying, I like this, I want to do this too. To me that meant, well then we should all do it together. Right? Let's, let's build a community and support one another in doing this. And so the Saturday mixers, when we, when Covid started, I think. I mean, to be honest, COVID did some great things for the Ethiopia, pagan community.  Yucca: Yeah. Mark: yeah. Kind of accidentally, but that's, that's Yucca: Well that's the silver linings, right? That's one of the things we, you know, life goes on. We have to find the, the, the benefits and the good things, even in the challenging times. Mark: Mm-hmm. Mm-hmm.  Michael: yeah. I think. I'm just thinking back to when we started. So it's kind of, we have maybe six or seven regulars who come to every meeting maybe. And then we have other people who join now and then, but I'm just trying to think back to the first meeting. I think we, that's when the idea of doing virtual ritual began as well in that first meeting. And we were trying to figure out how to do.  Yucca: Was that was the first meeting before Covid or was it as a response to Covid? Mark: You know, honestly, I don't remember. I think it must have been in response to Covid because everybody was shut in and, you know, everybody was kind of starving for human contact. Michael: I think the first one may have been March or April. 2020, Yucca: Okay, so right there at the. Michael: Yeah, right at the beginning. Yeah. And I think, I remember in the first meeting we were talking about ritual ideas and I think the first suggestion I came up with was like I'd love to somebody do like a, describe what an atheopagan temple might look. Mark: Oh yeah. Michael: Yeah. And I left, and I think you were recording the meetings at that time, but we don't record 'em anymore, just so people can feel free to be themselves and not have a recorded recording of themselves out there, . But I know that, I think James who you interviewed recently he, he was listening to that one, I believe, and he came the next week and actually had prepared a guided meditation. Of what a pagan temple would be like to him. And it was a walk through nature. I think that was the first, our first online ritual together. Mark: Yeah, I remember that now. Yeah, and it's been, it's really been a journey trying to figure out how, how can you do these ritual things over a, a video conferencing platform. In a way that makes everybody feel like they're participating and engaged. Right. So that there's a, a transformation of consciousness. But I think we've done pretty well, to be honest. I mean, some of the rituals that we've done have been really quite moving. Michael: Yeah. And I think the ritual framework that you've worked at translates very well to. A Zoom conference as well. I dunno if maybe, if he wants to describe that, what the usual atheopagan ritual would look like. Mark: Sure. We've, we've talked about this before. The, the, the ritual structure that I proposed in my book is basically a, a five step process where the first is arrival, which is sort of, Transitioning into the ritual state of mind from the ordinary state of mind, and then the invocation of qualities that are a part that we'd like to be a part of the ritual with us, which is sort of the equivalent in Wicca or other pagan traditions of invoking spirits or gods or what have you, ancestors, what have you. And then the main working of the ritual, which varies depending on what the purpose of the ritual is. But it can be, well, we've done lots of different kinds of things. We've braided ribbons and then tied, not tied magical knots in them. We've made siles, we've we've done just lots of different kinds of things. And then gratitude expressions of gratitude. The things that we're grateful for. And then finally, benediction, which is sort of the closing of the ritual at a declaration that we're moving back into ordinary time. Yucca: So how does that look in, in a meeting, like a Zoom meeting In a digital format? Mark: Michael, you want to take that one or should I? Michael: So you know, you have maybe, I think usually when we have a ritual more people attend that and so we might have 12 people there and often  Yucca: cameras on. Michael: Camera's on. Well, it's optional. Yeah. If you don't feel comfortable having your camera on, that's completely fine and you don't even have to speak. We do encourage people just to you know, leave a message in the chat so you can just listen in. You can engage as much or as little as you want. And you, you, so. We have all the people on in the conference, and maybe we'll try and get some more of the senses involved as well. So sometimes we'll like candles and everybody will have a candle in front of them. I do know for for some of our sound rituals. Mark, you've used two cameras where you, you aim one camera at maybe a focus, like what's one of the examples of that that you. Mark: Well we did that both at Sown and at Yu. So both the Halls ritual and the Yule ritual where I would create a focus or alter setup with thematic and symbolic things relating to the season. and then I would point, I would log into Zoom with my phone and point my phone at that. And then, and then I'd log in separately on my laptop for myself as a person, and then I could spotlight the focus so that it's kind of the centerpiece of what everybody experiences on their screen and sets the atmosphere. Michael: Yeah. So just a virtual focus that everybody can, everybody can virtually gather around. Yucca: Mm-hmm. Michael: Yeah. And I think we've also used a Pinterest board in the past as well for people. I think it was at Sound again, we had that Pinterest board where people could put up notes about. Their ancestors or loved ones that they were That's correct, isn't it? Mark: Yeah. Yeah. Or pictures of people that had passed recently or. Yucca: mm. Michael: yeah. So yeah, there's a lot of digital space that you can use for this ritual. We also try not to involve too many props as well. Because we wanna make it as easy as possible for people of all abilities. And just if you don't have the space for something, for a large proper if you don't wanna make a lot of noise, you know, we're not gonna have you using chimes or things like that. So we try and make it as easy as possible. Sometimes we do invite you to bring some food to eat as well, because, you know, a lot of these are feasting rituals. So we maybe, if you feel comfortable bringing some refreshments, you might want to do. And just have a friendly meal with people online. For example, we're actually gonna start doing I'm gonna be leading full Moon meals every month on the, on the, so the first one's gonna be December 7th. And I'll post, post about that on Discord, and I think Mark will post about that in the Facebook group. Yeah. And so the idea is everybody just comes. Joins the Zoom meeting and everybody should have their meal. Whether you're, whether that's lunch or if you're in a different time zone, maybe there'll be dinner or maybe it's just a snack. And then we'll spend a minute just thinking about the providence of the food and then we'll eat us and maybe people can talk about the food that they're eating and what it means to. And I'm hoping to make that a monthly event that we meet every full moon to share a meal together Mark: That sounds. I, I, I really I have pagan guilt over how little I pay attention to the full moon. I'm, I'm always, I'm always aware of what phase the moon is in, but I, I don't do a lot in the way of observances of the phases of the moon. And so, I'm excited to have this added in to something that I can attend. Michael: Mm-hmm. . But yeah, as you can see from that format, it's very simple. And again, you, if, if people listening would like to attend as well, there's no obligation to keep your. Your camera on, there's no obligation to speak. You just, you can just listen in and just feel part of the, part of the community that way. Yucca: Mm-hmm. So in the mixers sometimes ritual, are there discussions or what else do the mixers. Michael: Usually the mixer is kind of a freeform thing. Yucca: Mm-hmm. Michael: Maybe we'll have a topic sometimes, but usually people just come and do a check in and talk about how they're, how they're getting on that week and if there's anything they wanna discuss, we just open it up to that. Depending on the size of the turn, we may require some kind of etiquette stuff. So if there are a lot of people and we don't want people to. Shut it down or have spoken over. So we'll ask people to raise their hands if they wanna speak. That's, that really is only when there's a lot of people and, and often I, I know I'm somebody who likes to talk, so it's a, I think raising hands also gives people who are less confident, or, I'm sorry, not less confident, just not at, don't feel like interrupting. It gives them an opportu. To to have their say as well and be called on mm-hmm. Mark: Yeah. Yucca: Mm. Mark: I think it's really good that we've implemented that. It, it's, it helps. Michael: Mm-hmm. I think one of the really cool rituals we had recently was for like the ATO Harvest, so that was when was that? That was in September or October. In September, yeah. Yeah. So. We were trying, I mean, usually it's, you could do some kind of harvest related and I think we've done that in the past. But I have a book called Celebrating Irish Festivals by Ruth Marshall. And this is my go-to book for, for, for ritual ideas. And this is, and I like to. Kind of some of the traditional holidays and maybe just steal from them. . So Michael Mass is is the holiday around that time in Ireland? It's a Christian holiday, but it's also it's a  Yucca: were older. Michael: yeah, yeah, Yucca: Christians took for the older Michael: yeah, yeah, yeah. you know, it's about St. And he's known for slaying a dragon as just as St. George was known for slaying a dragon. But I thought, well, let's turn this on this head and let's celebrate our inner dragons. Let's bring our dragons to life. So it was the whole ritual was about dragons. And we actually drew Dragons, drew our inner dragons and shared them. Talked about what they. And kind of we were feeding our inner dragon so that they could warm us throughout the coming winter. Yucca: Hmm. Michael: Mm-hmm. Mark: as well as watching the home. Star Runner Strong Door, the Ator video, Michael: Oh yeah, Mark: which you, you have to do if you've got dragons as a theme. It's just too funny to avoid. Michael: That's an old flash cartoon from the early two thousands. That was pretty popular. Mark: Mm-hmm. Michael: Yeah. Track toward the ator. Google it, and in fact, I did a, I did the hot chip challenge as part of that ritual as  Mark: That's right. Yeah.  Michael: where I ate a very, very hot tortilla chip on camera. And. It was it was painful, but I'm sure, I don't know if it entertained other people, but it was, it was fun Mark: Oh yeah. It was fun. Michael: So, yeah, they're like, I mean, these rituals aren't all, they're, they're fun and they're kind of silly and goofy and but I mean, I thought at the same time they're very meaningful because people really opened up in that one  Mark: Yeah.  Michael: and shared some really profe profound truth. That was one of my favorites actually, and I hope we do another, another dragon invoking ritual in the future. Mark: Maybe in the spring Michael: yeah. Mark: you do it at, at both of the equinoxes. Michael: Mm-hmm. Mark: so you've joined the Atheopagan Society Council, which is great. Thank you so much for your, your volunteering and your effort. What do you think about the future? How do you, how do you see where this community is going and what would you like to see? What's, what's your perspective on that? Michael: Yeah, so just before I discovered the Pagan Facebook group I had attended A local cups meeting. So that's the covenant of Unitarian Universalist Pagans. And so it was just a taro reading workshop and, you know, I was, I, I like kind of using these kind of rituals just for their beauty and, but not, for not, not seeing anything supernatural in them. I was, it was amazing to, to find a group that was interested in these kind of things too, but without the they weren't incredulous. So I guess what I'm hoping for is that as we, as we kind of find more people who are, are, are aligned with us, maybe we can have more in. Experiences. That was one of the great, the great highlights of, of last year was attending the Century retreat and meeting all, all these amazing people in real life and being able to spend time together in real life. And I hope that as we kind of, as the word gets out about this group, more and more of us can meet in person or as we are able to, Mark: Mm-hmm. Michael: That's what I really hope for the future that you're finding your, your people that we are, we are being able to get these local groups together and then spend time on these important days of the year. And I believe the Chicago Afu Pagan group was able to do that not too long ago. And I know Mark, your local group meets quite regularly as well. Mark: We, we meet for the, for the eight holidays, for the eight Sabbath. So yeah, we're gonna get together on the 18th of December and burn a fire in the fire pit and do a, a ritual and enjoy food and drink with one another. And yeah, it's a, it's a really good feeling that that feeling of getting together is just You can't replace it with online connection, but online connection is still really good. So that's why, that's why we continue to do the mixers every Saturday. And Glen Gordon has also been organizing a mixer on Thursday evenings. Well evenings if you're in the Americas. And. Yeah, there's just, there's, there's a bunch of different opportunities to plug in and it's always great to see somebody new. Michael: Yeah, I think that would be another hope as well that, you know, if you've been on the fence about coming to a mixer I hope that what we've described today maybe entices you to come along. You know that there's no expectations and you can, you can share, you can just sit in the background and watch, or you can participate. There's no expectations and it's just a nice way to, to connect with people, so, Yucca: how would somebody join in? They find the, the link on the Facebook discord. Michael: that's right. Yeah. So I think, mark, you post it regularly on the Facebook group, and it's also posted on the disc. As well. So, and it's the same time every Saturday, so it's 12:15 PM Central for me, so, and that's like 1115 for you, mark, on the, Mark: No, it's 1115 for Yucca. Michael: Oh, okay. Mark: It's 10 15 for me. Michael: Okay. Okay. Yucca: one 15 for Eastern. Then  Michael: one, yeah, that's right. Yeah. Yucca: Hmm Mark: And. Michael: and it's always the same time, and I think we've, I think we've only missed one week, maybe in the last three years. Mark: Yeah, I think that's right. I wasn't available and I couldn't find somebody else to host or something like that, but yeah, it's been very consistent. And I see no reason to think it isn't gonna keep being consistent. But yeah, we, you know, we welcome new people. And if you're not in the Americas, that's fine too. We've got a couple of Dutch people that come in all the time. There's a, an Austrian woman who lives in Helsinki who participates. So Yucca: E eight nine ish kind of for Europe, Mark: Yeah.  Michael: Yeah, yeah. Yeah. We've even had on the Thursday night mixer, we've even had Australians join occasionally too. So Yucca: That sounds like that'd be early for them then, right?  Michael: yeah,  Yucca: getting up in the. Michael: Mm-hmm. . Yeah. But I'd I'd love for some of the listeners to come and join us on one of the mixers and then cuz you know, you bring new ideas. And I we're always looking for new ritual ideas, Mark: Mm. Michael: That kind of bring meaning to our lives and to everybody else's. Mark: Mm-hmm. Yeah, cuz that's, I mean, that's what we're doing, right? We're, we're create, we're, it's a creative process for us. We've got these sort of frameworks like the Wheel of the Year and the, the ritual format that I laid out. Although people can use other ritual formats too. That's fine. But it's, it's an ongoing process of creation and of taking some old traditions and folding them in where they fit but creating new stuff as well. One of the innovations that we, that we've been doing for the l past year or so is if people want to be done with something, if they want to be finished with something in their. They can write it in the chat and then I take the chat file and I print it on my printer and I take it and I burn it in my cauldron. So it is actually being burnt physically. But it just takes a little bit of technical processing before that happens. Yucca: Hmm. Mark: And it's those kinds of innovations that are really useful for online rituals. And boy, if you have new ideas about things we can do for online rituals, I, I would love to hear 'em. Yucca: So thank you so much for sharing your story and your visions or the future with us. This has been, it's, it's really been beautiful to hear and to get that insight. Thank you, Michael. Michael: Well, thank you for having me on. Yucca: Yeah. Mark: It's been delightful hearing from you and, and I, I gotta say, I, I feel like our community is very lucky. You've been exploring religion and and folklore and ritual for a long time in a lot of different frameworks and I feel really fortunate that you've landed with us cuz I like you so. Michael: Okay. Well thanks very much. I like you too, Mark: Okay folks, that'll be all for this week. And as always, we'll have another episode for you next week on the Wonder Science Based Paganism. Have a great week. Yucca: Thanks everybody.  

Super Serious 616
Episode 184: Not by the Charity of the Butcher (Strange Tales #130) -- March 1965

Super Serious 616

Play Episode Listen Later Nov 17, 2022 16:14


In this episode:Mike and Ed discuss whether the Fantastic Four or the Beatles are more famous. The Thing and the Human Torch were recently at a Beatles show and did some damage while capturing thieves who targeted the cashboxes. Who should pay for that damage? Should good samaritans like the Fantastic Four be held responsible? If they are, what type of disincentive does that create for other superheroes to help others? Are there more superpowered people out there who are keeping their abilities secret because they can't afford the insurance?Behind the issue:The Beatles are first mentioned in the Marvel Universe in Fantastic Four #34 (two months prior to this issue's release), but this is the first appearance of the actual band. The Beatles' first comic book appearance was a few months earlier in July 1964 when Dell Giant released a special issue focused on the fabulous foursome. A few days after the Dell book hit the stands, an Archie title also mentioned the Beatles (Archie's Girls Betty and Veronica #105) and the girls shopped for wigs, but the actual musicians did not appear. Perhaps the very first appearance was in the aforementioned Archie series #104, which teased the following issue and had a page of text explaining who the Beatles were (see below). The Beatles are mentioned in Marvel Comics a number of times through the years, but, as far as we are aware, they do not appear again until 2007, when it is revealed that the band had been kidnapped years ago and had been replaced by Skrulls (who were responsible for the majority of their music in the Marvel Universe).In this issue:The Thing and the Human Torch are getting under each others' skin, and likely need a break from each other. No such luck, as their girlfriends convince them to go see the breakout sensation from Britain, the Beatles. The foursome head to the show, but before it begins, they learn that the venue's payroll has been stolen. The Thing and the Torch head out and capture the criminals, but unfortunately miss the entire show.Assumed before the next episode:People are more interested in being entertained by the Beatles than being saved by the Fantastic Four, or so we assumeThis episode takes place:After the Beatles have started their British Invasion!Full transcript:Edward: Mike, who is more popular? The Beatles or the Fantastic Four ?Michael: I think if you listen to our show regularly, you would assume the Fantastic Four. But if you lived in the real world you'd probably say The Beatles people meaning it for a reason, right?Edward: Fantastic Four have clubs, fan clubs, but there's no fantastic mania. How even the four mania how would you even say that?Michael: Yeah, I don't know ff mania, but like, you know, there's, I thinkEdward: we don't swear on the show, Mike. No swearing on the show.Michael: Yeah, . Well, they're certainly popular. They're incredibly popular and they're being followed and there's celebrity magazines that report on them, but, Nothing like the Beatles. Nothing like The Beatles has happened in a superhero superpowered world. Yeah.Edward: And in this particular case, we had the Fantastic Four went to go and see a Beatles show and we've had no incidences, we know about where the Beatles have gone to see a Fantastic four show.Michael: No, they're not showing up the Baxter Building, you know, pen and paper hand asking for autographs. Although, funny about it is maybe it's just a comment on human nature or our society, but like the Fantastic Floor have saved the world more than once.Edward: And Beatles, the Beatles have not, Beatles have never saved the world.Michael: So you think, you'd think that if there's gonna be this adulation, idolatry, of anyone, it would be the fantastic for, but no, it definitely isn't. It definitely is not. The Beatles are far more popular.Edward: Yeah. The, I guess the Beatles have saved music.Michael: Okay, we'll go with that. They definitely struck a nerve in our society and they're making their mark. And so time will tell us whether the Beatles will be remembered. But right now it's hard to avoid them. If you're trying to avoid them, they're everywhere.Edward: There's that question too, a thousand years from. Looking far, very, very far in the future, are we gonna remember the Fantastic four of the Beatles and I think it would be the Fantastic four, the first real superheroes on the planet are I imagine more memorable than any music bandMichael: the Fantastic four are, as we chronicled or the vanguard of this new evolution of almost post humanity then this is a moment in our history, where there's, who knows where we're going to evolve to. So my money would be that the Beatles are a flash in the pan and the Fantastic four are here to stayEdward: and interesting there's four of each of them. I think that's a coincidence?Michael: Oh my, I didn't think about that. So do you think that maybe, do you think that there's a matching principle going on here, we noted in, remember we talked about recently with the frightful four, there's four of them and we're just confused as to why they would limit them.Why wouldn't they be like the hateful eight or something. But instead it's like they pick the four and the beetles are quarted as well. So do you think. Are we? Are the Beatles being influenced by the Fantastic Four? Is music being influenced by superhero culture?Edward: Yeah, maybe. Or maybe the other way around. Maybe the Fantastic Four just search out for groups of four things.Michael: Yeah.Edward: They go to the grocery store and be like, yeah, I know you have a dozen eggs, but do you have like a smaller package, like maybe a third the size?Michael: Or maybe. Or maybe it's just. Things come into four, right? There's the four of food groups, there's four seasons. It kinda just naturally would evolve to where the Fantastic four, who, when you really think about their powers are quite elemental in nature. They have this sort of,Edward: there's four elements. There you go.Michael: There's four elements. Yeah. So maybe there's an inherent connection to the idea of having teams of four. Although maybe I'm just spinning some mirror here. But anyways,Edward: Can you match them? Can you look at the, we talked about this before, the frightful four. There's like a match almost between, Medusa had her stretchy hair. Mr. Fantastic Reed, Richards could stretch his body. There was kind of a rough match betweenMichael: mm-hmm.Edward: the Frightful Four and the Fantastic Four. Can we do the same thing with the Beatles, is there does Paul match to Sue? Like what is the match? The Four Beatles and the four Fantastic. Four.Michael: You know, I just don't know enough about 'em but maybe there might be something there. Maybe that's something that if they stick around, we can we'll explore it a little more and look, maybe they're the first. Maybe the Beatles were the first super. Powered band. Maybe we're gonna find out that they have powers too. Just don't know about, we just know, knowEdward: IF it happens to anybody, it'll happen to the Beatles. I think a couple things to talk about. I think with this encounter with the Beatles and the Fantastic Four, well, I guess the Fantastic Half, the Fantastic four, it was The Thing in the Human. Torch were going to see a show and in the process, I guess someone tried to steal all the money from the show andMichael: mm-hmm.Edward: the Fantastic Four prevented that. So I guess they did, they did their good deed for the day. But in the process of doing that good deed, they did some damage and. I think this is interesting is that the damage that they caused is not being paid for by the theater, not being paid for by the Beatles, not being paid for by the government, not even being paid for by an insurance company. The fantastic for themselves are gonna cover that damage. And I think that's just, it's interesting that it wasn't like The Thing and the Human Torch were being professionally employed by anybody. They went out of their way to help the Beatles or to help the theater anyway with these thieves, and now because of that good deed, they're gonna have to pay. They're taking the money outta their own pocket, and that doesn't seem,Michael: It doesn't, and it, but it's interesting. It probably, it gives us some insight into the institutional nature of the, or at least the institutional connection between the Fantastic Four the society that they live in. So we've talked before about how the Avengers seem to have a pretty direct connection, almost be a separate like military force or arm of the armed forces in America. But the Fantastic Four haven't. You think that Fantastic Four has some kind of formal relationship. As being almost a police force that they would. They'd have an immunity from any kind of possible civil liability or prosecution if they're,Edward: are you saying that they are a police force or they should be a police force?Michael: I'm saying that they aren't, because if they were then if they're acting in the course of their duties, then they would have an immunity from prosecution and civil liability to provide that they were still carry of their duties within their own responsibility. And so then they wouldn't care about paying the damage themselves because if they got sued, they have an insurance policy, they would respond. And they're not, they won't be worried about, say, being arrested for the damage that they caused in the course of exercising their duties.Edward: And that's, I was gonna say that's probably true. If when the US military went and asked the Fantastic four to go and take down the Hulk, they were basically working under the under the authority of the US military, and I'm assuming that any damage caused during that battle with the huk was paid for by the US government, by the military. In this case nobody asked Ben and Johney to go and stop the thieves. They just, they were good Samaritans and they went and did it. That changes the calculation a little bit.Michael: It does up that. I think when they're tasked by the American military, I think that they could be considered to be contractors in that role. But I am saying that here, that they just acted as good Samaritans and did a public good. They acted as if they were, police officers. But the fact that they paid outta pocket tells me that they don't have any kind of special protection or immunity from prosecution or from civil liability. So they did, then they wouldn't have reached into their own pocket. But the fact they reach into their own pocket tells me that they're doing the analysis, which is that it's probably better for us just to pay outta pocket than to get sued by the people that owned the buildings that were damaged or anyone that had a possible liability claim.It's probably just worth their time to pay it out. So they must have number one tons of money. And number two they don't have any kind of protection. So number three, they're gonna use their money to avoid getting sued and have their time being eaten up. It's just worth their time to just pay people rather than having a claim against them.Edward: But I guess why are they doing it at all? So basically these thieves came in, they stole the money, they took off if Ben and Johney just said, oh, you know what, that's not our problem. We're gonna go sit and watch the show.Michael: Mm-hmm. ,Edward: Then number one, they get to see the show, and number two is they're only out of the ticket price. Instead, they went and chased these guys down. They didn't get to see the show, and they had not having to pay a bunch of money outta their pocket. What was the incentive for them to do that?Michael: That's The Thing, right? If there was a, they had immunity from a civil lawsuit, then they would go do it. But here they clearly don't. And so they had to pay out of pocket because they're involved in this incident that caused damage and they pay out pocket cuz it's easier for them to make the claim go away, the potential gifts go away. And I don't know what their incentive is other than to do that other than that they're heroic or because they feel they can solve the problem and they have so much money that it's worth it for them to both be heroic and to also make sure that they don't have their time wasted that they're, after you keep against them,Edward: you keep saying they have so much money. Is that true?Michael: They'd have to, otherwise they wouldn't do it. If they didn't why would they pay out of pocket? Why would they wait and get sued? I guess.Edward: I guess that's my question. So where's that money coming from? I guess they had that one movie that they had a while back. And Reed has some inventions that he's invented. He lost all his inventions that he invented in the past due to that bankruptcy. But he presumably he's invented other things since then but it doesn't seem that that's an unlimited fund of money. I just, I think there's a, from my business world. One of the heroes of the business world was Adam Smith, who invented the whole idea the trade is good. And one of his famous quotes was, it's not the benevolence of the butcher, the baker, or the brewer that we expect our dinner, but it's regards to their self interest. We don't count on the butchers and the bakers to give us their foods for free. Why are we counting on superheroes to do all of their work for free?Michael: We're missing some information then, right? Because it's clearly happening. So number one, the Fantastic Four don't have this protection from being suit for damage that they cause in the course of acting heroically because they're paying out pocket, because that's the only reason that you would pay outta pocket. So why would they continue? Why would they do it?Edward: So let me dive into that cause it's exactly right. It sounds like of there's an incentive to be a butcher, there's an incentive to be a baker.Michael: Mm-hmm.Edward: society incentivizes people to be police officers and salesmen and retail clerks and radio personalities like us, there's all sorts of incentives in the system for these things. It sounds like right now there's a disincentive to be a superhero, and so that's what, okay, go ahead.Michael: I was gonna say that, but that's where I think this is going is that. On its face it doesn't make any sense unless they have so much money and how are they getting so much money? I don't know. Perhaps it's that we are talking about the Fantastic four who have access to space travel and interdimensional travel, right? Based on their recent adventures to our knowledge.Edward: They're just stealing from other dimensions and bringing,Michael: I don't, yeah, I don't know. I do not know if they have access to resources or minerals or something that we don't have access to here and that we're just not made aware of it. Or Reed has been inventing things and selling and profiting off of that.Edward: Yeah. So I guess that could be it, right? So you could be Right. Maybe they're just obscenely wealthy and in order to keep that wealth, in order to keep getting access to these other dimensions and keep the government off their back, they go and do good deeds for good public relations and those good deeds cost them money. But in the same way that, I dunno, Proctor and Gamble donates to clean water in Kenya, they're just like going like they're, it's like the tax on them. The good deed tax is there to keep their good PR so that they can go and make their money some other way that we don't really know.Michael: Yeah but on a personal level I work as a lawyer, so I make my money by going to work and billing and I bill my time. And so if I'm walking to work and I see someone's gonna walk into traffic and I'm gonna stop them because that's a normal human thing to do and it, but on a cost benefit, I guess it costs me time so therefore it costs me money. Cause I don't get to go to work early enough. But, It's on a human level it's what you wanna do. Now if it's now if to save, if I saw someone fall into traffic and for me to save them would require me to, you know, run.Edward: You don't want to skuff your shoes.Michael: No, but if I could lose my life, then I think that it might be more, I'd hope I'd be heroic and chance losing my life to save somebody who's falling into traffic but I don't know, maybe that's where there would be a line. And what I'm saying is that the fantastic core haven't hit that line yet. Yeah, it's still worth their time.Edward: Let's going back to this scenario, it's even worse than that. It's imagine if now you go and you save that guy, he falls down the road and you rush into the road and you save him but in so doing so, you cause a car to swerve and hit another car. And so now they wanna fine you for that car accident because you jumped in the way to save that dude. That doesn't seem right either. It's one thing you've already risked your life, you've already taken your time. Now we're gonna say, Hey, oh, and by the way, now we want your money too.Michael: That analysis only works, that analogy only works, is that I said, whoa, whoa, whoa, whoa, whoa. Okay, hold on a second. Let me pay for everything outta my own pocket. But I have an insurance policy that would respond to it. So likely I'm gonna be okay. So even if I did that quick math in my head, is it worth it for me to go in traffic?Edward: Yeah. But should your insurance company be paying for that? The guy who busted his car up again, not, not his fault, maybe the guy who felt that in traffic, you go after him, but going after the insurance company of the guy who saved the person's life, that doesn't seem right,Michael: It doesn't work like that though. If somebody falls into traffic and I go in and try to save them, as a result, some other car gets into an accident. I guess if they sustained injury, they would sue me. They wouldn't Sue the insurance company. My insurance company would respond on behalf of me. And there are some legitimate legal defenses that would apply to that very scenario where it's there. I didn't do anything wrong. I wasn't negligent. They'd have to establish negligence in order to trigger it. But my point was less about the intricacies of motor vehicle law and claims, and more just to say that my analysis is not gonna be influenced. I wouldn't have to think I take into my pocket and pay this person out rather than pay my deductible so that when I got sued, that my insurance company would respond and defend me. Whereas the Fantastic Four, clearly it's just not worth it for them to. To possibly don't have insurance, which I don't think they do to respond to the claims that would be made them damaging thatEdward: if they did their insurance would be so high ,Michael: they'd be so high.Edward: What insurance?Michael: You're an orange, rocky, monster that could destroy a building. So I think the insurance would be quite high if you had it. But at the same time, they could sued personally. The, Thing would have to, he is paying outta pocket. They must have so much money that it's just like there's, they're not even thinking about being tied up in a potential lawsuit later because so much doughEdward: and so clearly all these disincentives that we're creating haven't stopped the Fantastic Four from existing. But what's I always find interesting is when these disincentives exist, we have to ask what isn't happening because of these disincentives. Are there lots and lots of other superheroes out there that are being like, you know what, I don't wanna be a superhero. Look how much it's gonna cost. It's too expensive to be a superhero, like being a lawyer. I'll just be a lawyer by day and a nothing by night because it's too expensive.Michael: Well, I'm not, nothing by night a cause you know that.No that's why Spider-Man wears a mask. We've been quite critical on Spider-Man, how he wears a mask and doesn't reveal his identity would be super critical of him.Edward: And it's not, it's not afraid of a villain's attacking him. It's not because he's wants to do criminal things. It's because he's not super rich. Everyone who's not super rich wants to be a superhero, has to cover their face.Michael: So maybe, so I think the solution would be if we recognize it being a superhero is public good, much like having volunteer firefighters and police officers and things like that, then there needs to be new legislation passed in order to provide some immunity from civil prosecution civil claims, if he did, it would remove that disincentive if The Thing and the Torch burned down a building or destroy a building, the building owner can't sue them because they were legitimately acting the course of their superhero duties and roles, then I guess I had to put a claim over to their insurance company. But what would, and I think the only way that works is that probably all of our insurance rates are gonna rise to accommodate that but it's pretty fair to spread their risk out of superhero related damageEdward: It does. And then what that should open up is all these other superheroes that are presumably hiding right now and aren't doing anything. Or have they have secret identities or they have no identities at all because they're not super, they're just, well, they're super, but not heroes. If you wanna take, if you want more of your supers to be heroes, fix the insurance laws.Michael: No fix. You know what we need to have, there? Have to be local, state level and federal legislation that's passed in order to have, immunity from prosecution and immunity from civil claims pass. And that the question for us, I guess as a society, is that a better way to go? Or is it better to have them running around with masks and I don't know. I used to be pretty anti masked, but now I'm kind of seeing the value of it.Edward: Yeah. I think these laws, when you create these new laws, don't they have like catchy names and stuff too?Can we call this law the put the hero back in supers?Michael: I like where you're going with this, but what it be like, there's no i n team, but there's I Insurance Act from 1965. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit www.superserious616.com

The Remote Real Estate Investor
How you handle adversity determines your legacy

The Remote Real Estate Investor

Play Episode Listen Later Nov 8, 2022 33:03


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

The Remote Real Estate Investor
Billy Keels on making the leap from employee to entrepreneur

The Remote Real Estate Investor

Play Episode Listen Later Nov 1, 2022 30:57


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…

The Remote Real Estate Investor
How much to today's higher interest rates really matter?

The Remote Real Estate Investor

Play Episode Listen Later Oct 25, 2022 23:29


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

Screaming in the Cloud
Raising Awareness on Cloud-Native Threats with Michael Clark

Screaming in the Cloud

Play Episode Listen Later Oct 13, 2022 38:44


About MichaelMichael is the Director of Threat Research at Sysdig, managing a team of experts tasked with discovering and defending against novel security threats. Michael has more than 20 years of industry experience in many different roles, including incident response, threat intelligence, offensive security research, and software development at companies like Rapid7, ThreatQuotient, and Mantech. Prior to joining Sysdig, Michael worked as a Gartner analyst, advising enterprise clients on security operations topics.Links Referenced: Sysdig: https://sysdig.com/ “2022 Sysdig Cloud-Native Threat Report”: https://sysdig.com/threatreport TranscriptAnnouncer: Hello, and welcome to Screaming in the Cloud with your host, Chief Cloud Economist at The Duckbill Group, Corey Quinn. This weekly show features conversations with people doing interesting work in the world of cloud, thoughtful commentary on the state of the technical world, and ridiculous titles for which Corey refuses to apologize. This is Screaming in the Cloud.Corey: Welcome to Screaming in the Cloud. I'm Corey Quinn. Something interesting about this particular promoted guest episode that is brought to us by our friends at Sysdig is that when they reached out to set this up, one of the first things out of their mouth was, “We don't want to sell anything,” which is novel. And I said, “Tell me more,” because I was also slightly skeptical. But based upon the conversations that I've had, and what I've seen, they were being honest. So, my guest today—surprising as though it may be—is Mike Clark, Director of Threat Research at Sysdig. Mike, how are you doing?Michael: I'm doing great. Thanks for having me. How are you doing?Corey: Not dead yet. So, we take what we can get sometimes. You folks have just come out with the “2022 Sysdig Cloud-Native Threat Report”, which on one hand, it feels like it's kind of a wordy title, on the other it actually encompasses everything that it is, and you need every single word of that report. At a very high level, what is that thing?Michael: Sure. So, this is our first threat report we've ever done, and it's kind of a rite of passage, I think for any security company in the space; you have to have a threat report. And the cloud-native part, Sysdig specializes in cloud and containers, so we really wanted to focus in on those areas when we were making this threat report, which talks about, you know, some of the common threats and attacks we were seeing over the past year, and we just wanted to let people know what they are and how they protect themselves.Corey: One thing that I've found about a variety of threat reports is that they tend to excel at living in the fear, uncertainty, and doubt space. And invariably, they paint a very dire picture of the internet about become cascading down. And then at the end, there's always a, “But there is hope. Click here to set up a meeting with us.” It's basically a very thinly- veiled cover around what is fundamentally a fear, uncertainty, and doubt-driven marketing strategy, and then it tries to turn into a sales pitch.This does absolutely none of that. So, I have to ask, did you set out to intentionally make something that added value in that way and have contributed to the body of knowledge, or is it because it's your inaugural report; you didn't realize you were supposed to turn it into a terrible sales pitch.Michael: We definitely went into that on purpose. There's a lot of ways to fix things, especially these days with all the different technologies, so we can easily talk about the solutions without going into specific products. And that's kind of way we went about it. There's a lot of ways to fix each of the things we mentioned in the report. And hopefully, the person reading it finds a good way to do it.Corey: I'd like to unpack a fair bit of what's in the report. And let's be clear, I don't intend to read this report into a microphone; that is generally not a great way of conveying information that I have found. But I want to highlight a few things that leapt out to me that I find interesting. Before I do that, I'm curious to know, most people who write reports, especially ones of this quality, are not sitting there cogitating in their office by themselves, and they set pen to paper and emerge four days later with the finished treatise. There's a team involved, there's more than one person that weighs in. Who was behind this?Michael: Yeah, it was a pretty big team effort across several departments. But mostly, it came to the Sysdig threat research team. It's about ten people right now. It's grown quite a bit through the past year. And, you know, it's made up of all sorts of backgrounds and expertise.So, we have machine learning people, data scientists, data engineers, former pen-testers and red team, a lot of blue team people, people from the NSA, people from other government agencies as well. And we're also a global research team, so we have people in Europe and North America working on all of this. So, we try to get perspectives on how these threats are viewed by multiple areas, not just Silicon Valley, and express fixes that appeal to them, too.Corey: Your executive summary on this report starts off with a cloud adversary analysis of TeamTNT. And my initial throwaway joke on that, it was going to be, “Oh, when you start off talking about any entity that isn't you folks, they must have gotten the platinum sponsorship package.” But then I read the rest of that paragraph and I realized that wait a minute, this is actually interesting and germane to something that I see an awful lot. Specifically, they are—and please correct me if I'm wrong on any of this; you are definitionally the expert whereas I am, obviously the peanut gallery—but you talk about TeamTNT as being a threat actor that focuses on targeting the cloud via cryptojacking, which is a fanciful word for, “Okay, I've gotten access to your cloud environment; what am I going to do with it? Mine Bitcoin and other various cryptocurrencies.” Is that generally accurate or have I missed the boat somewhere fierce on that? Which is entirely possible.Michael: That's pretty accurate. We also think it just one person, actually, and they are very prolific. So, they were pretty hard to get that platinum support package because they are everywhere. And even though it's one person, they can do a lot of damage, especially with all the automation people can make now, one person can appear like a dozen.Corey: There was an old t-shirt that basically encompassed everything that was wrong with the culture of the sysadmin world back in the naughts, that said, “Go away, or I will replace you with a very small shell script.” But, on some level, you can get a surprising amount of work done on computers, just with things like for loops and whatnot. What I found interesting was that you have put numbers and data behind something that I've always taken for granted and just implicitly assumed that everyone knew. This is a common failure mode that we all have. We all have blind spots where we assume the things that we spend our time on is easy and the stuff that other people are good at and you're not good at, those are the hard things.It has always been intuitively obvious to me as a cloud economist, that when you wind up spending $10,000 in cloud resources to mine cryptocurrency, it does not generate $10,000 of cryptocurrency on the other end. In fact, the line I've been using for years is that it's totally economical to mine Bitcoin in the cloud; the only trick is you have to do it in someone else's account. And you've taken that joke and turned it into data. Something that you found was that in one case, that you were able to attribute $8,100 of cryptocurrency that were generated by stealing $430,000 of cloud resources to do it. And oh, my God, we now have a number and a ratio, and I can talk intelligently and sound four times smarter. So, ignoring anything else in this entire report, congratulations, you have successfully turned this into what is beginning to become a talking point of mine. Value unlocked. Good work. Tell me more.Michael: Oh, thank you. Cryptomining is kind of like viruses in the old on-prem environment. Normally it just cleaned up and never thought of again; the antivirus software does its thing, life goes on. And I think cryptominers are kind of treated like that. Oh, there's a miner; let's rebuild the instance or bring a new container online or something like that.So, it's often considered a nuisance rather than a serious threat. It also doesn't have the, you know, the dangerous ransomware connotation to it. So, a lot of people generally just think of as a nuisance, as I said. So, what we wanted to show was, it's not really a nuisance and it can cost you a lot of money if you don't take it seriously. And what we found was for every dollar that they make, it costs you $53. And, you know, as you mentioned, it really puts it into view of what it could cost you by not taking it seriously. And that number can scale very quickly, just like your cloud environment can scale very quickly.Corey: They say this cloud scales infinitely and that is not true. First, tried it; didn't work. Secondly, it scales, but there is an inherent limit, which is your budget, on some level. I promise they can add hard drives to S3 faster than you can stuff data into it. I've checked.One thing that I've seen recently was—speaking of S3—I had someone reach out in what I will charitably refer to as a blind panic because they were using AWS to do something. Their bill was largely $4 a month in S3 charges. Very reasonable. That carries us surprisingly far. And then they had a credential leak and they had a threat actor spin up all the Lambda functions in all of the regions, and it went from $4 a month to $60,000 a day and it wasn't caught for six days.And then AWS as they tend to do, very straight-faced, says, “Yeah, we would like our $360,000, please.” At which point, people start panicking because a lot of the people who experience this are not themselves sophisticated customers; they're students, they're learning how this stuff works. And when I'm paying $4 a month for something, it is logical and intuitive for me to think that, well, if I wind up being sloppy with their credentials, they could run that bill up to possibly $25 a month and that wouldn't be great, so I should keep an eye on it. Yeah, you dropped a whole bunch of zeros off the end of that. Here you go. And as AWS spins up more and more regions and as they spin up more and more services, the ability to exploit this becomes greater and greater. This problem is not getting better, it is only getting worse, by a lot.Michael: Oh, yeah, absolutely. And I feel really bad for those students who do have that happen to them. I've heard on occasion that the cloud providers will forgive some debts, but there's no guarantee of that happening, from breaches. And you know, the more that breaches happen, the less likely they are going to forgive it because they still to pay for it; someone's paying for it in the end. And if you don't improve and fix your environment and it keeps happening, one day, they're just going to stick you with the bill.Corey: To my understanding, they've always done the right thing when I've highlighted something to them. I don't have intimate visibility into it and of course, they have a threat model themselves of, okay, I'm going to spin up a bunch of stuff, mine cryptocurrency for a month—cry and scream and pretend I got hacked because fraud is very much a thing, there is a financial incentive attached to this—and they mostly seem to get it right. But the danger that I see for the cloud provider is not that they're going to stop being nice and giving money away, but assume you're a student who just winds up getting more than your entire college tuition as a surprise bill for this month from a cloud provider. Even assuming at the end of that everything gets wiped and you don't owe anything. I don't know about you, but I've never used that cloud provider again because I've just gotten a firsthand lesson in exactly what those risks are, it's bad for the brand.Michael: Yeah, it really does scare people off of that. Now, some cloud providers try to offer more proactive protections against this, try to shut down instances really quick. And you know, you can take advantage of limits and other things, but they don't make that really easy to do. And setting those up is critical for everybody.Corey: The one cloud provider that I've seen get this right, of all things, has been Oracle Cloud, where they have an always free tier. Until you affirmatively upgrade your account to chargeable, they will not charge you a penny. And I have experimented with this extensively, and they're right, they will not charge you a penny. They do have warnings plastered on the site, as they should, that until you upgrade your account, do understand that if you exceed a threshold, we will stop serving traffic, we will stop servicing your workload. And yeah, for a student learner, that's absolutely what I want. For a big enterprise gearing up for a giant Superbowl commercial or whatnot, it's, “Yeah, don't care what it costs, just make sure you continue serving traffic. We don't get a redo on this.” And without understanding exactly which profile of given customer falls into, whenever the cloud provider tries to make an assumption and a default in either direction, they're wrong.Michael: Yeah, I'm surprised that Oracle Cloud of all clouds. It's good to hear that they actually have a free tier. Now, we've seen attackers have used free tiers quite a bit. It all depends on how people set it up. And it's actually a little outside the threat report, but the CI/CD pipelines in DevOps, anywhere there's free compute, attackers will try to get their miners in because it's all about scale and not quality.Corey: Well, that is something I'd be curious to know. Because you talk about focusing specifically on cloud and containers as a company, which puts you in a position to be authoritative on this. That Lambda story that I mentioned about, surprise $60,000 a day in cryptomining, what struck me about that and caught me by surprise was not what I think would catch most people who didn't swim in this world by surprise of, “You can spend that much?” In my case, what I'm wondering about is, well hang on a minute. I did an article a year or two ago, “17 Ways to Run Containers On AWS” and listed 17 AWS services that you could use to run containers.And a few months later, I wrote another article called “17 More Ways to Run Containers On AWS.” And people thought I was belaboring the point and making a silly joke, and on some level, of course I was. But I was also highlighting very clearly that every one of those containers running in a service could be mining cryptocurrency. So, if you get access to someone else's AWS account, when you see those breaches happen, are people using just the one or two services they have things ready to go for, or are they proliferating as many containers as they can through every service that borderline supports it?Michael: From what we've seen, they usually just go after a compute, like EC2 for example, as it's most well understood, it gets the job done, it's very easy to use, and then get your miner set up. So, if they happen to compromise your credentials versus the other method that cryptominers or cryptojackers do is exploitation, then they'll try to spread throughout their all their EC2 they can and spin up as much as they can. But the other interesting thing is if they get into your system, maybe via an exploit or some other misconfiguration, they'll look for the IAM metadata service as soon as they get in, to try to get your IAM credentials and see if they can leverage them to also spin up things through the API. So, they'll spin up on the thing they compromised and then actively look for other ways to get even more.Corey: Restricting the permissions that anything has in your cloud environment is important. I mean, from my perspective, if I were to have my account breached, yes, they're going to cost me a giant pile of money, but I know the magic incantations to say to AWS and worst case, everyone has a pet or something they don't want to see unfortunate things happen to, so they'll waive my fee; that's fine. The bigger concern I've got—in seriousness—I think most companies do is the data. It is the access to things in the account. In my case, I have a number of my clients' AWS bills, given that that is what they pay me to work on.And I'm not trying to undersell the value of security here, but on the plus side that helps me sleep at night, that's only money. There are datasets that are far more damaging and valuable about that. The worst sleep I ever had in my career came during a very brief stint I had about 12 years ago when I was the director of TechOps at Grindr, the gay dating site. At that scenario, if that data had been breached, people could very well have died. They live in countries where that winds up not being something that is allowed, or their family now winds up shunning them and whatnot. And that's the stuff that keeps me up at night. Compared to that, it's, “Well, you cost us some money and embarrassed a company.” It doesn't really rank on the same scale to me.Michael: Yeah. I guess the interesting part is, data requires a lot of work to do something with for a lot of attackers. Like, it may be opportunistic and come across interesting data, but they need to do something with it, there's a lot more risk once they start trying to sell the data, or like you said, if it turns into something very unfortunate, then there's a lot more risk from law enforcement coming after them. Whereas with cryptomining, there's very little risk from being chased down by the authorities. Like you said, people, they rebuild things and ask AWS for credit, or whoever, and move on with their lives. So, that's one reason I think cryptomining is so popular among threat actors right now. It's just the low risk compared to other ways of doing things.Corey: It feels like it's a nuisance. One thing that I was dreading when I got this copy of the report was that there was going to be what I see so often, which is let's talk about ransomware in the cloud, where people talk about encrypting data in S3 buckets and sneakily polluting the backups that go into different accounts and how your air -gapping and the rest. And I don't see that in the wild. I see that in the fear-driven marketing from companies that have a thing that they say will fix that, but in practice, when you hear about ransomware attacks, it's much more frequently that it is their corporate network, it is on-premises environments, it is servers, perhaps running in AWS, but they're being treated like servers would be on-prem, and that is what winds up getting encrypted. I just don't see the attacks that everyone is warning about. But again, I am not primarily in the security space. What do you see in that area?Michael: You're absolutely right. Like we don't see that at all, either. It's certainly theoretically possible and it may have happened, but there just doesn't seem to be that appetite to do that. Now, the reasoning? I'm not a hundred percent sure why, but I think it's easier to make money with cryptomining, even with the crypto markets the way they are. It's essentially free money, no expenses on your part.So, maybe they're not looking because again, that requires more effort to understand especially if it's not targeted—what data is important. And then it's not exactly the same method to do the attack. There's versioning, there's all this other hoops you have to jump through to do an extortion attack with buckets and things like that.Corey: Oh, it's high risk and feels dirty, too. Whereas if you're just, I guess, on some level, psychologically, if you're just going to spin up a bunch of coin mining somewhere and then some company finds it and turns it off, whatever. You're not, as in some cases, shaking down a children's hospital. Like that's one of those great, I can't imagine how you deal with that as a human being, but I guess it takes all types. This doesn't get us to sort of the second tentpole of the report that you've put together, specifically around the idea of supply chain attacks against containers. There have been such a tremendous number of think pieces—thought pieces, whatever they're called these days—talking about a software bill of materials and supply chain threats. Break it down for me. What are you seeing?Michael: Sure. So, containers are very fun because, you know, you can define things as code about what gets put on it, and they become so popular that sharing sites have popped up, like Docker Hub and other public registries, where you can easily share your container, it has everything built, set up, so other people can use it. But you know, attackers have kind of taken notice of this, too. Where anything's easy, an attacker will be. So, we've seen a lot of malicious containers be uploaded to these systems.A lot of times, they're just hoping for a developer or user to come along and use them because your Docker Hub does have the official designation, so while they can try to pretend to be like Ubuntu, they won't be the official. But instead, they may try to see theirs and links and things like that to entice people to use theirs instead. And then when they do, it's already pre-loaded with a miner or, you know, other malware. So, we see quite a bit of these containers in Docker Hub. And they're disguised as many different popular packages.They don't stand up to too much scrutiny, but enough that, you know, a casual looker, even Docker file may not see it. So yeah, we see a lot of—and embedded credentials and other big part that we see in these containers. That could be an organizational issue, like just a leaked credential, but you can put malicious credentials into Docker files, to0, like, say an SSH private key that, you know, if they start this up, the attacker can now just log—SSH in. Or other API keys or other AWS changing commands you can put in there. You can put really anything in there, and wherever you load it, it's going to run. So, you have to be really careful.[midroll 00:22:15]Corey: Years ago, I gave a talk at the conference circuit called, “Terrible Ideas in Git” that purported to teach people how to get worked through hilarious examples of misadventure. And the demos that I did on that were, well, this was fun and great, but it was really annoying resetting them every time I gave the talk, so I stuffed them all into a Docker image and then pushed that up to Docker Hub. Great. It was awesome. I didn't publicize it and talk about it, but I also just left it as an open repository there because what are you going to do? It's just a few directories in the route that have very specific contrived scenarios with Git, set up and ready to go.There's nothing sensitive there. And the thing is called, “Terrible Ideas.” And I just kept watching the download numbers continue to increment week over week, and I took it down because it's, I don't know what people are going to do with that. Like, you see something on there and it says, “Terrible Ideas.” For all I know, some bank is like, “And that's what we're running in production now.” So, who knows?But the idea o—not that there was necessarily anything wrong with that, but the fact that there's this theoretical possibility someone could use that or put the wrong string in if I give an example, and then wind up running something that is fairly compromisable in a serious environment was just something I didn't want to be a part of. And you see that again, and again, and again. This idea of what Docker unlocks is amazing, but there's such a tremendous risk to it. I mean, I've never understood 15 years ago, how you're going to go and spin up a Linux server on top of EC2 and just grab a community AMI and use that. It's yeah, I used to take provisioning hardware very seriously to make sure that I wasn't inadvertently using something compromised. Here, it's like, “Oh, just grab whatever seems plausible from the catalog and go ahead and run that.” But it feels like there's so much of that, turtles all the way down.Michael: Yeah. And I mean, even if you've looked at the Docker file, with all the dependencies of the things you download, it really gets to be difficult. So, I mean, to protect yourself, it really becomes about, like, you know, you can do the static scanning of it, looking for bad strings in it or bad version numbers for vulnerabilities, but it really comes down to runtime analysis. So, when you start to Docker container, you really need the tools to have visibility to what's going on in the container. That's the only real way to know if it's safe or not in the end because you can't eyeball it and really see all that, and there could be a binary assortment of layers, too, that'll get run and things like that.Corey: Hell is other people's workflows, as I'm sure everyone's experienced themselves, but one of mine has always been that if I'm doing something as a proof of concept to build it up on a developer box—and I do keep my developer environments for these sorts of things isolated—I will absolutely go and grab something that is plausible- looking from Docker Hub as I go down that process. But when it comes time to wind up putting it into a production environment, okay, now we're going to build our own resources. Yeah, I'm sure the Postgres container or whatever it is that you're using is probably fine, but just so I can sleep at night, I'm going to take the public Docker file they have, and I'm going to go ahead and build that myself. And I feel better about doing that rather than trusting some rando user out there and whatever it is that they've put up there. Which on the one hand feels like a somewhat responsible thing to do, but on the other, it feels like I'm only fooling myself because some rando putting things up there is kind of what the entire open-source world is, to a point.Michael: Yeah, that's very true. At some point, you have to trust some product or some foundation to have done the right thing. But what's also true about containers is they're attacked and use for attacks, but they're also used to conduct attacks quite a bit. And we saw a lot of that with the Russian-Ukrainian conflict this year. Containers were released that were preloaded with denial-of-service software that automatically collected target lists from, I think, GitHub they were hosted on.So, all a user to get involved had to do was really just get the container and run it. That's it. And now they're participating in this cyberwar kind of activity. And they could also use this to put on a botnet or if they compromise an organization, they could spin up at all these instances with that Docker container on it. And now that company is implicated in that cyber war. So, they can also be used for evil.Corey: This gets to the third point of your report: “Geopolitical conflict influences attacker behaviors.” Something that happened in the early days of the Russian invasion was that a bunch of open-source maintainers would wind up either disabling what their software did or subverting it into something actively harmful if it detected it was running in the Russian language and/or in a Russian timezone. And I understand the desire to do that, truly I do. I am no Russian apologist. Let's be clear.But the counterpoint to that as well is that, well, to make a reference I made earlier, Russia has children's hospitals, too, and you don't necessarily know the impact of fallout like that, not to mention that you have completely made it untenable to use anything you're doing for a regulated industry or anyone else who gets caught in that and discovers that is now in their production environment. It really sets a lot of stuff back. I've never been a believer in that particular form of vigilantism, for lack of a better term. I'm not sure that I have a better answer, let's be clear. I just, I always knew that, on some level, the risk of opening that Pandora's box were significant.Michael: Yeah. Even if you're doing it for the right reasons. It still erodes trust.Corey: Yeah.Michael: Especially it erodes trust throughout open-source. Like, not just the one project because you'll start thinking, “Oh, how many other projects might do this?” And—Corey: Wait, maybe those dirty hippies did something in our—like, I don't know, they've let those people anywhere near this operating system Linux thing that we use? I don't think they would have done that. Red Hat seems trustworthy and reliable. And it's yo, [laugh] someone needs to crack open a history book, on some level. It's a sticky situation.I do want to call out something here that it might be easy to get the wrong idea from the summary that we just gave. Very few things wind up raising my hackles quite like companies using tragedy to wind up shilling whatever it is they're trying to sell. And I'll admit when I first got this report, and I saw, “Oh, you're talking about geopolitical conflict, great.” I'm not super proud of this, but I was prepared to read you the riot act, more or less when I inevitably got to that. And I never did. Nothing in this entire report even hints in that direction.Michael: Was it you never got to it, or, uh—Corey: Oh, no. I've read the whole thing, let's be clear. You're not using that to sell things in the way that I was afraid you were. And simultaneously I want to say—I want to just point that out because that is laudable. At the same time, I am deeply and bitterly resentful that that even is laudable. That should be the common state.Capitalizing on tragedy is just not something that ever leaves any customer feeling good about one of their vendors, and you've stayed away from that. I just want to call that out is doing the right thing.Michael: Thank you. Yeah, it was actually a big topic about how we should broach this. But we have a good data point on right after it started, there was a huge spike in denial-of-service installs. And that we have a bunch of data collection technology, honeypots and other things, and we saw the day after cryptomining started going down and denial-of-service installs started going up. So, it was just interesting how that community changed their behaviors, at least for a time, to participate in whatever you want to call it, the hacktivism.Over time, though, it kind of has gone back to the norm where maybe they've gotten bored or something or, you know, run out of funds, but they're starting cryptomining again. But these events can cause big changes in the hacktivism community. And like I mentioned, it's very easy to get involved. We saw over 150,000 downloads of those pre-canned denial-of-service containers, so it's definitely something that a lot of people participated in.Corey: It's a truism that war drives innovation and different ways of thinking about things. It's a driver of progress, which says something deeply troubling about us. But it's also clear that it serves as a driver for change, even in this space, where we start to see different applications of things, we see different threat patterns start to emerge. And one thing I do want to call out here that I think often gets overlooked in the larger ecosystem and industry as a whole is, “Well, no one's going to bother to hack my nonsense. I don't have anything interesting for them to look at.”And it's, on some level, an awful lot of people running tools like this aren't sophisticated enough themselves to determine that. And combined with your first point in the report as well that, well, you have an AWS account, don't you? Congratulations. You suddenly have enormous piles of money—from their perspective—sitting there relatively unguarded. Yay. Security has now become everyone's problem, once again.Michael: Right. And it's just easier now. It means, it was always everyone's problem, but now it's even easier for attackers to leverage almost everybody. Like before, you had to get something on your PC. You had to download something. Now, your search of GitHub can find API keys, and then that's it, you know? Things like that will make it game over or your account gets compromised and big bills get run up. And yeah, it's very easy for all that to happen.Corey: Ugh. I do want to ask at some point, and I know you asked me not to do it, but I'm going to do it anyway because I have this sneaking suspicion that given that you've spent this much time on studying this problem space, that you probably, as a company, have some answers around how to address the pain that lives in these problems. What exactly, at a high level, is it that Sysdig does? Like, how would you describe that in an elevator without sabotaging the elevator for 45 minutes to explain it in depth to someone?Michael: So, I would describe it as threat detection and response for cloud containers and workloads in general. And all the other kind of acronyms for cloud, like CSPM, CIEM.Corey: They're inventing new and exciting acronyms all the time. And I honestly at this point, I want to have almost an acronym challenge of, “Is this a cybersecurity acronym or is it an audio cable? Which is it?” Because it winds up going down that path, super easily. I was at RSA walking the expo floor and I had I think 15 different companies I counted pitching XDR, without a single one bothering to explain what that meant. Okay, I guess it's just the thing we've all decided we need. It feels like security people selling to security people, on some level.Michael: I was a Gartner analyst.Corey: Yeah. Oh… that would do it then. Terrific. So, it's partially your fault, then?Michael: No. I was going to say, don't know what it means either.Corey: Yeah.Michael: So, I have no idea [laugh]. I couldn't tell you.Corey: I'm only half kidding when I say in many cases, from the vendor perspective, it seems like what it means is whatever it is they're trying to shoehorn the thing that they built into filling. It's kind of like observability. Observability means what we've been doing for ten years already, just repurposed to catch the next hype wave.Michael: Yeah. The only thing I really understand is: detection and response is a very clear detect things and respond to things. So, that's a lot of what we do.Corey: It's got to beat the default detection mechanism for an awful lot of companies who in years past have found out that they have gotten breached in the headline of The New York Times. Like it's always fun when that, “Wait, what? What? That's u—what? How did we not know this was coming?”It's when a third party tells you that you've been breached, it's never as positive—not that it's a positive experience anyway—than discovering yourself internally. And this stuff is complicated, the entire space is fraught, and it always feels like no matter how far you go, you could always go further, but left to its inevitable conclusion, you'll burn through the entire company budget purely on security without advancing the other things that company does.Michael: Yeah.Corey: It's a balance.Michael: It's tough because it's a lot to know in the security discipline, so you have to balance how much you're spending and how much your people actually know and can use the things you've spent money on.Corey: I really want to thank you for taking the time to go through the findings of the report for me. I had skimmed it before we spoke, but talking to you about this in significantly more depth, every time I start going to cite something from it, I find myself coming away more impressed. This is now actively going on my calendar to see what the 2023 version looks like. Congratulations, you've gotten me hooked. If people want to download a copy of the report for themselves, where should they go to do that?Michael: They could just go to sysdig.com/threatreport. There's no email blocking or gating, so you just download it.Corey: I'm sure someone in your marketing team is twitching at that. Like, why can't we wind up using this as a lead magnet? But ugh. I look at this and my default is, oh, wow, you definitely understand your target market. Because we all hate that stuff. Every mandatory field you put on those things makes it less likely I'm going to download something here. Click it and have a copy that's awesome.Michael: Yep. And thank you for having me. It's a lot of fun.Corey: No, thank you for coming. Thanks for taking so much time to go through this, and thanks for keeping it to the high road, which I did not expect to discover because no one ever seems to. Thanks again for your time. I really appreciate it.Michael: Thanks. Have a great day.Corey: Mike Clark, Director of Threat Research at Sysdig. I'm Cloud Economist Corey Quinn and this is Screaming in the Cloud. If you've enjoyed this podcast, please leave a five-star review on your podcast platform of choice, whereas if you've hated this podcast, please leave a five-star review on your podcast platform of choice along with an angry comment pointing out that I didn't disclose the biggest security risk at all to your AWS bill, an AWS Solutions Architect who is working on commission.Corey: If your AWS bill keeps rising and your blood pressure is doing the same, then you need The Duckbill Group. We help companies fix their AWS bill by making it smaller and less horrifying. The Duckbill Group works for you, not AWS. We tailor recommendations to your business and we get to the point. Visit duckbillgroup.com to get started.Announcer: This has been a HumblePod production. Stay humble.

The Remote Real Estate Investor
Entity structures for investing, and which one is right for you w/ Garrett Sutton

The Remote Real Estate Investor

Play Episode Listen Later Sep 24, 2022 32:23


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…

The Remote Real Estate Investor
How to use virtual assistants to grow your real estate business

The Remote Real Estate Investor

Play Episode Listen Later Sep 20, 2022 37:39


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…

The Remote Real Estate Investor
Systems to scale up a healthy portfolio with Steve Rozenberg

The Remote Real Estate Investor

Play Episode Listen Later Sep 13, 2022 33:13


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…

The Remote Real Estate Investor
Learning from the mistakes of a veteran investor w/ Pete Neubig

The Remote Real Estate Investor

Play Episode Listen Later Aug 24, 2022 34:26


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…

The Remote Real Estate Investor
A data scientist's process for success in multi-family real estate

The Remote Real Estate Investor

Play Episode Listen Later Aug 13, 2022 39:10


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…

The Remote Real Estate Investor
Leveling up your real estate business with Mike Simmons

The Remote Real Estate Investor

Play Episode Listen Later Jul 19, 2022 43:27


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…