Month: March 2022

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David:
This is the BiggerPockets Podcast show 589. What I look for is me. So I think I’m a good realtor because I buy a lot of real estate. So if you come to me and you say, David, I want to buy real estate, I’m not looking it from a perspective of a salesperson, I’m looking at it from the perspective of someone who wants to help build your wealth. I like to work with other realtors who also own real estate and who like real estate. They don’t have to be a realtor, they want to be a realtor.
This is David Greene, your host of the BiggerPockets Real Estate Podcast, here today with my co-host Rob Robuilt Abasolo. How’s it going today, Rob?

Rob:
Oh, it’s going good, man. Just in the throws of putting together offers and negotiations and re-negotiations and triple re-negotiations. But I think we’re getting to some closure here, which I’m really excited to share with the audience at home.

David:
Yes. If I’m going to use a jujutsu analogy, which I do too much of already, we’ve got our joke sunk in and we’re just slowly, slowly tightening it. And this deal is about to submit to our plan. So on today’s show, Rob and I are going to walk you through the 10 steps to make sure that you get a property under contract in 2022.
So we actually have a rhythm, a pattern, a plan, if you will, of what we do to make sure we are moving forward on our plan of getting a property under contract. And it’s only been, what do you think, Rob? Like a month or two? How long do you think we’ve been going at it for?

Rob:
Eight weeks at this point. In six months, it’ll be eight months.

David:
There you go. But only two months of actual focus.

Rob:
Two months or so.

David:
Yeah. Like looking to get a deal. And we’re narrowing in on the one that we wanted the very most, that we think is going to be awesome, that we’re super excited about. We wanted to make a show that shared what we did to get to this point, right? Everyone always says, here’s the deal I got. They hold it up there and they wave it in front of you and they say, look, how cool I am. I got a good deal. And then you listen to you go, oh, I wish I could get a good deal, but I’m just not as good as them. And I kind of suck. So that’s what we’re trying to avoid.
Here’s all the work that went into the after picture, right? No one shows you that. They just show you what the six pack looks like. Well, this is what the actual workout routine looked like to get to have a six pack like Rob. So I’m very excited to be able to bring this to people today. This is a very practical show. If you write down these 10 steps and you and your partner or you yourself start executing them, you will get to a point where your offer is accepted as well.

Rob:
Yeah. I think we talked about this on a previous show. Or, hey, maybe it’s in a show that’s coming after this one. But consistency is the number one most important factor to success, I think. Especially in this game, in this market, so many people that come to me and they’re like, is it too late? Is it oversaturated? Is it so competitive? What do I do?
And I’ve heard you just say it time and time again that you don’t find good deals. You make good deals. And that’s kind of this deal that we’ve been working through. It, really on the surface, wasn’t what we wanted, but we started laying out our terms. We’ve been very consistent about chipping away at the other side. And I think now, after consistency and some tenacity, now we’re finally getting to a part where we’re seeing progress. And it’s by following this system that we’ve just been doing for years now, right?

David:
Tenasistency. The word that Rob created on today’s podcast.

Rob:
Hey, you heard it here first. It’s actually going to be the first book that I write tenasistency.

David:
I like it. Brandon used to make up words. And now Rob is doing the same thing. So we are really excited to bring this show to you, especially if you’re someone who knows that you want to take action, you just don’t know what that should look like. This is what it should look like. For today’s quick tip it’s going to be, check out BiggerPockets agent finder. If you go to the website, you can find their agent finder service, which will help find you a real estate agent that is familiar with the BiggerPockets way through the actual site.
When you are looking for an area that you want to invest in, like Rob and I did, you’re going to need to find an agent. Now we describe on the show how we found ours, but you can also use BiggerPockets to do it even easier. So I highly recommend that you check out their agent finder system and find an agent who understands investing in your needs today.

Rob:
I wish I would’ve heard that quick tip first before all the work that I went through. But duly noted, David.

David:
Yeah. It’s funny how I say that on the podcast, but I didn’t say it to you when I was asking you to go do something.

Rob:
I want people to take out their notepad and I want them to write down, verbatim, everything we say. No. Create your system. Honestly, I think that’s the real important message from today. Go in, have a system, stick to it. the more you can be disciplined about not straying away from your system, I think the more results you’re going to achieve in the long run in your portfolio.

David:
I agree. And make sure that you’re okay with tweaking that system. So whatever you create in the beginning is not going to be what you have in the end. It sort of evolves like everything else in life. So you don’t need to have it perfect to get started, but you do need to have something.

Rob:
Something yeah. That’s right.

David:
All right. Let’s get into the show. Mr. Abu Solo. So nice to have you joining me today. How are you?

Rob:
It’s a Wednesday. I don’t know when this is going to be released, but it’s always a good day here whenever I’m recording a BiggerPockets Podcast.

David:
Yeah. And in addition to it being a good day because of the podcast, we also have some potentially good news where you and I are very close to getting something in contract. You want to share a little bit about the background of where we are on this property we’re trying to buy?

Rob:
We’ve really been working this one. I probably, in most other circumstances, would’ve not necessarily called it quits, but no, I don’t know, maybe I would’ve because it was kind of one of things where a lot of convoluted communication going on and disgruntled sellers with offers and everything like that.
So you and I approached a property that was 3.4 million in Arizona. And we put an offer in, not too much under, but at around 3.25 million, because it been sitting on the market for six months I think. And they effectively told us to kick rocks at first. You came in, you swooped in with an all-star strategy that we’ll get into. It really worked out to the T. And now we’re just kind of waiting to hear back on some of those final details. So we won’t count our chickens yet, but it’s looking pretty good.

David:
Yeah. And what we really want to do in today’s show is we sort of want to share with everyone what the rhythm looks like of how we approached buying a property. Because I think this will work for anybody. Doesn’t have to be with a partner, but it doesn’t involve account ability, predictability structure, and a plan. That’s what we’re trying to give you, is if you look at the whole idea of being a real estate investor as a human body, this is a skeleton, this is what everything else sort of hangs off of.
So we have 10 parts to this plan. And the first is that we have to determine the criteria. So this could include finding an asset class, finding the area, want to invest in, and then picking a price point. Now, in different episodes, we’ve talked about those things. So we don’t want to get into them too deep, but I will share that our plan was that we wanted a short-term rental in a high appreciating market that we thought was going to be friendly towards short-term rentals. And we wanted to get into a price point that we felt would help remove some of the competition.
So we didn’t want to be chasing after $400,000 houses because so many other people are there. We basically wanted to get into a price point where we felt like there’s not a lot of other investors that are in the same arena as us because we frankly didn’t want the competition. Is it anything you want to add to that Rob that you can think of?

Rob:
Well, Yeah. We also wanted to just find a deal that was worth our time.

David:
Yes.

Rob:
And that’s really important because we’ve batted around dozens of properties at this point.

David:
Such a good point.

Rob:
And you’ll shoot something down, I’ll shoot something down because we’re just like, this doesn’t excite me for this reason. So, honestly, the best learning experience here is getting into a partnership with somebody that you haven’t partnered up with before. And what you and I have really done is we’ve explained each other, our respective philosophies in investing in why we do things a certain way. That way, whenever the partner shoots something down, we can respect that decision because we understand where they’re coming from.
So it’s been a really, really fun process. I’ve done partnerships now, Oh, I don’t know, seven, eight times they’ve all worked out. I think if I remember correctly, you’ve typically shied away from partnerships, is that right or-

David:
That’s true.

Rob:
… you haven’t done as many?

David:
Yeah.

Rob:
You want to talk about why, or maybe we can hold off into the very end? We don’t want to spoil all the good stuff yet. Yeah.

David:
I’ll give you the gist and then we can get into at the end. The main reason I haven’t got into partnerships is that most of the time, the assumption is we’re cutting the work in half, but you actually end up doubling the work. Because what happens is everyone ends up doing their job and then they have to explain to everybody else why they did that job and sort of satisfy the curiosity. So it ends up being more time.
And a lot of the times we get into partnerships because we’re afraid of doing it on our own, which is a terrible reason. You actually want to get into a partnership because you know you have a very good skillset in one area, which you wouldn’t have developed if you were afraid. You’ve already, at that point that you’ve developed a skillset, taken action to a certain point and your partner has to.
And the last is that the time element, like what you said, there has to be enough meat on the bone in this deal to justify all the work we’re putting in this partnership, which is why I’ve only done it on multifamily properties that were bigger. I never did it on single family homes. I could get into the more later, but do you have any questions after hearing that?

Rob:
I knew that. I was just throwing you a softball, but I think that makes a lot of sense. Because, honestly, I’ve done so many partnerships now. And one thing is when you partner up with so many people, it’s very tough to kind of go big or go home with every single partner. And so if you’re just going to partner with somebody on just one house, you’re right, man, there’s a lot of education, a lot of handholding if the other person is new to it.
And then if you’ll never actually end up doing any other partnering or any other houses, flipping or anything like that, then it was just a lot of education for one deal. Whereas you and I are trying to cultivate something a little bit bigger. We’re trying to go pretty big here. And so that’s why we’ve sort of been really taken our time with really understanding our viewpoints and everything like so.

David:
Very good point. Now, point number two, out of our 10 steps here, has to do with our viewpoint that we’re forming. So Rob and I look at every deal that we evaluate through a matrix of five different areas. The first is the revenue that it creates or the return on our investments. So that’s usually the first thing we look at is, hey, would this property cash flow? And how much would it cash flow?
The next thing we look at is the equity. And that’s either, are we getting it at a really good price, so there’s equity built in, or is this an area where we can reasonably expect appreciation to be happening and why? That’s where we start.
The third is we look at debt, like how can we use debt on this property? Is debt a benefit to us? Rob and I believe that in this environment borrowing more money, especially if it’s at a rate lower than inflation, is a good strategy. If you’re a Dave Ramsey fan, you. Well, you’re probably not listening to us talk about real estate using debt if you’re a Dave Ramsey fan. So I don’t worry about that, but we look at debt when it’s used wisely and prudently. That’s good thing.
The next thing we look at is time. Like, would this property take all of our time? Even if the revenue looks great, that revenue stops looking great if it’s a 30-hour a week job to manage this property, to get that 60% ROI. And then the last thing is risk. Like how much risk are we taking on in ordered buy this deal?
So every time we have a property that we’re going to analyze, we look at it through these five, I call them prisms, right? Imagine holding glasses up to your face and you’re looking through those glasses at the property, what are you seeing when you put on that different lens? Is there anything you want to add on to that, Rob?

Rob:
I mean, for the most part, I think kind of in the price point that we’re in, risk is sort of the big one, for me personally, because most of actual properties that I’ve purchased I would say cost between, well, $165,000 from my tiny house, all the way up to $624,000 for my house in LA.
So now we’re looking at properties that are at a minimum, two million, three million. And that right there places a whole new level of skepticism and critical thinking and scrutiny for every single deal. But the strategies that we’ve learned are whole career, they still apply the same. You got to be willing to take a risk every so often. And I have my whole experience, I have my whole life here of always being strategic to rely on and really take a bet on myself that I can figure anything out. If I have a little bit of confidence in myself, there’s never been a time where I didn’t succeed at what I do in this space.
And I know you probably feel the same way. And so when you really just kind of walk yourself the back from all that, it’s not as risky as-

David:
It feels that way.

Rob:
It is, obviously, but it does feel that way. It does. Yeah.

David:
Now it’s important to highlight when you’re doing this, as Rob and I do it, when you put on your risk goggles and you look at the deal through the prism of risk, you’re going to see risk. What you’re not doing is just looking at all your deals with risk goggles and saying, oh, I found risk. Don’t do it. Risk is going to be there.
Instead, what you’re doing is you’re looking at where the risk is and determining, do I have a plan that will mitigate if something goes wrong in that area? That’s what’s key about this whole thing. So you can imagine looking at a three and a half million dollar residential property is going to involve some significant areas of risk. We’re going to be renting out for a lot of money per night. That could change. What if we can’t get, whatever, 1500, $2,000 a night for this property?
You’re going to have a lot more expenses associated with an estate this big. You are going to have the fact that if there is a decrease in the market, these properties, they’d be very hard to sell. People still need to buy starter homes even when the market drops. They don’t have to buy luxury homes.
So what we do is we sit here and we say, all right, here’s where we have risk. How are we going to mitigate it? What is our plan? We come up with a contingency for every area that we can see when we put on our risk goggles. And there’s very practical things, right? We’re going to be borrowing some money to buy this place and to fix it up. Well, we’re going to keep at ridiculously large amount of money in reserves so that even something goes wrong, we have like three years of reserve set aside that we can pay somebody back.
That is an example of how we look at risk. We see where it is, but we put a plan in place. We keep moving forward. And you could do that for everything. If you’ve got your ROI goggles on, how can I improve the ROI on this property? Is there a place where I can make it go higher? As far as the appreciation and equity, there’s no appreciation here. Well, that means that I need to get this property with more equity built in. Or, there’s no equity in this deal, we’re going to be paying at the top of the market. Well, is the market continuing to move up? Because that can grow equity, right?
It’s not is it or isn’t it there? It’s, where is it missing and what is our plan for how we’re going to improve it? And so that’s just, what I wanted to highlight is we look at every deal through these lenses, but they’re is no perfect deal. Every deal will have something. Or in every one of these areas will have something that you don’t like. Your job as the investor’s to figure that out. Anything you want to add before move on to number three?

Rob:
Yeah. I just want to talk about a little bit of the discipline here that just between you and I, what actually we do on a weekly basis. Because we are pretty consistent. I don’t think we’ve missed a week yet, but we basically meet every single week. Same time unless there’s something comes up and we have to just move it, move it to the next day or something like that.
But we meet every single week. Most of the time, I would say 80% of the time or maybe 90% of the time, we Zoom, which I think is important to me. Well, first of all, I’m ADHD. So when I’m on the phone, I just know that it’s going to be so much easier for me to walk around and look at the dust on my door frame or on my fan or start making my bed. I always make the bed when I’m on the phone. I’ll remake it. I’ll take the sheets off and make it several times.
So being on zoom really forces me to be there, be in the moment, give my time to… Because our time is valuable. And so you want to respect your partner’s time and everything like that. And we’ve been really consistent about that. And I think that has really, even if we don’t have something to present, we’re still excited to meet, I think.

David:
Yeah. So that for exist to number three, which is that we meet weekly to review what we got going on. And this is incredibly important. I really, really want to just pound this point. If you are an investor and you’re committed to getting your first deal, maybe you got Brandon Turner’s Intention Journal, maybe you attended a webinar where we talked about how to get your first property, or maybe you just heard on this podcast, you said, I want to do this.
My philosophy is, if it is not in my calendar, it does not exist. If I’m going to go have dinner at my mom’s house or I’m going to my niece’s birthday party, it has to be in my calendar. If I don’t put it in my calendar, it doesn’t exist and there’s no way I can guarantee I’m going to be there. And if I do put it in my calendar, I can’t schedule anything else for that time. That’s what I love about it, is I block off the big things first and everything else goes around it.
So you not going to have success finding a property if you’re new and you’re not used to this if you don’t block time off to do the things that you need to do. And Rob and I block a time off every week where we’re going to meet and review the properties that we are considering.
Now, Rob, I just want to thank you for being incredibly gracious because the reason we don’t meet a hundred percent of time on Zoom is a hundred percent David. It’s me every time that say, ah, I’m stuck, I’m not going to make it back to the office. Can we do this on phone? And you’re very cool about that. But it is important that you do the meeting in a structured way, right? So we like ours on Zoom, because we can share our screens, we can go over the properties that we’re reviewing.
Now what’s happening is Rob and his partner are showing me the properties that they’ve looked at throughout the week that they think they have the best chance with and saying, hey David, here’s what we like about them. Here’s what we’re not sure about. Here’s what our thinking is. What’s your opinion? And then I will weigh in with my perspective based on the experience that I have with real estate. And they’ll learn from what I’m thinking and I’ll learn from what they’re thinking.
And what we end up coming up with is a list of questions on every property. Now, some of them we dismiss, right? Maybe during this, we realized they’re an HOA that doesn’t allow for short-term rentals. That’s happened a few times where they only let you do it six months out of the year. Those get thrown out. Other ones, we say, yeah, this would work, but we need to figure out these things.
And in that meeting is when we determine what we would need to know. This is why it’s so important you have the meeting. So we have our list of properties. We then get our list of questions. Now we’ve got our work set out for the next week. And that would lead us to step number four, which is delegating tasks. Rob will say, hey David, here’s what we need from you. Can your lending team solve this problem? Can you tell me what you think? Do you know a realtor in this area that could help us answer this question.
And I’ll do the same thing. I’ll say, Rob, can you look this one up on AirDNA and tell me what you think. Can you look at a comp that would show maybe the rents will be higher than what AirDNA is giving us. We will delegate the task that we have on an individual property. And then that’s what we’ll work at for the following week until we meet again. And anything you want to add there, Rob?

Rob:
No, no. I think we can move into number five because this really sets the tone and the communication for the entire week. And number five here is, communicate throughout the week for follow up. So this would be text messages, emails, voice notes. I actually really like voice notes. We send a lot of those. The only thing I don’t like about them is, when you send them, if you don’t hit, keep, they erase.

David:
Yes.

Rob:
And all of the golden nuggets that you send me, they’re gone. They’re gone after I listen to it one time. But it’s really nice because we may not be in a scenario where we can take a phone call. I’ve got two kids and all that. You might be in meetings and everything like that. But we can relay some pretty nuanced things that are very hard to relay via text message. We send emails. This is where we’re kind of introducing each other. Like if you’re introducing me to a realtor that you’re connected with, or if you’re introducing me to someone on your lending team, this is where I can then pick up the communication and drive that ball forward a bit.

David:
Yeah. That’s important. So if you’re working with a partner like what we just mentioned in step number four, when we’re delegating tasks, okay, Rob, you’re going to work on this and I’m going to work on this. You don’t want to just get and then say, oh, I don’t know what to do. I’ll wait until the end of the week and we’ll discuss it. You just lost five days of possible productivity.
Instead, Rob’s going to say, hey, this is what they’re saying. What do you think? Or I’m going to be like, hey, I’m stuck on it. This is worth it. Can you look this part out for me? I need help accomplishing my part and you can help me with it. And that’s when this communication happens.
The voice notes, they’re powerful. It sounds simple, but there’s times when you’ve received a text that was like three feet long and you just think I’m not even going to read that. That’s something that should have been a voice note.

Rob:
My entire inbox. I’m like, no.

David:
Exactly right. And then there’s other times where you get that phone call and you’re like, I just don’t have time to take this call. So the voice note is the perfect medium between the two. And if you have a partner, this is something that you need to be working on yourself. If you’re meeting every week with yourself to review where you’re at on every property, make sure you’re working throughout the week to get the answers to the questions that you needed so that when the week comes, you actually have information to be able to move forward. This is the structure that’s so important, is we’re treating it sort of like it’s a job. Not just like it’s a hobby.

Rob:
I’d like to squash a bug here. Just something that I’ve really been wondering since the day I met you. And I just want confirmation on if this is an urban legend or if it’s true. When I first met you, when I did the BiggerPockets Podcast like six months ago, I was like, oh yeah, I’ll shoot you a text. And then you’re like, man, I’ve got 1200 unread texts right now. I was curious, do you actually have 1200 texts? Because I think about that every single time I text you.

David:
It’s more now. In fact, what happened is I need a new iPhone because you hit a certain point where it stops displaying the number on little text thing. Like it doesn’t even tell you how many unread text messages you have. I hit that. So that’s one of the things I say to human beings. If you take the same road everybody else has taken, you’re probably not going to get there, right? Like, Rob, text me. And if you don’t hear back, you don’t take it personal. You’re like, all right, I need to email his assistant Krista and get time on David’s calendar. And then boom, you’ve got all my attention.
And I use that hack all the time. If I’m trying to get ahold of somebody who’s over 30 years old and they’re really busy, I send them a message on Facebook Messenger because nobody else uses that other than 30-year-olds or older. Right? So if you look at my Facebook Messenger, I have like two or three unread messages. If you look at my text, I have a million. So that’s just a little a quick tip for everybody there, is find the road most traveled.

Rob:
Quick tip. Okay. It’s good to know. All right. Well, I always send the gentle… Just I write bump anytime I hear back bump. Just a little friendly reminder.

David:
Yeah. Everybody who’s listening. If you’re in my life and you text me, just bump me all the time. I don’t get upset about it. I’m never going to say, why are you bumping me? I’m like, I know I need bumps. I need to get bumped all over the place. It’s really hard to get ahold of me. And I’m aware of that. Thank you, Rob, for your patience there.

Rob:
Go to the day. I need to get bumped everywhere. All right, cool. So moving on to number six. This one is receiving information from your realtor. This is really… Man, this is big, because we get so amped up and step five here, texting, I’ll text you bangers all week and be like, dude, check out this house. It’s going to gross $250,000. And then we get all excited and we’re like, oh, what if we do like a hot tub and oh, a golf card, and a basketball court. And we get all excited. But it’s kind of one of those things where I’m usually better about this, but on some of these luxury properties, one cannot help but get excited at certain properties, because they’re like dream properties. And then you talk to your realtor and your realtor’s like, oh yeah, that isn’t an HOA. And they will not allow short-term rentals. And you’re like, no, I spent three hours counting this out. Happens all the time.

David:
Everyone does this. This is where experience has led me to sort of being able to direct in these situations better than someone who’s not. Experienced by my own properties. And frankly, the thousands of houses that we’ve helped our clients buy, I had to learn how to do the same thing. You don’t want to get too emotionally connected or put too much time into a property that you don’t have a good chance of getting.
So when we first look at them, it’s easy to just want to run as far down the path as you can get, even in your mind of, oh, I can do this and I can do this. And I love it. And I have to have it. And as a realtor, I’ve learned, if that house has been on the market for two days, don’t do that. There’s 30 other people that are doing the same thing. And you know what? It kind of goes down that don’t take the road that everyone else is taking, right? Like if you’re trying to text me, that’s not the best method. You don’t want to look at houses that everybody is looking at, especially if you’re going to put all that time into it.
So what’s important is that you identify, is this a property that would work for what we want? You go through your matrix, which for us is these five prisms that we look at. And then we say, do we have a chance of getting it? So oftentimes, the first step is having our realtor call the listing agent and saying, how many offers do you have and where do we actually have to be? And if the listing agent plays this dumb game of, I don’t know, highest and best, that’s like one of my pet peeves is this little parrot on the shoulder of a pirate that just says highest and best, and they call themselves a realtor. That is not selling a house.
If you’re a listing agent doing that, they are not earning you money. They need to be aggressively trying to get a good offer from the other side. But if we get that and they’re like, oh yeah, they just said highest and best And they just don’t really care, we’re probably not going to go after that property. Okay. Let everybody else have it. That’s why we went after the one we’re talking about now that’d been on market 190 days or whatever it was because they weren’t getting a ton of action and we knew that we had a better chance of putting time into it. So that’s huge.

Rob:
Well, I’ve actually got a new policy now. Whenever a realtor says highest and best, I actually submit lowest and worst. So I’ll submit an offer for $2 and see if it’s a-

David:
Put that in your pipe and smoke it.

Rob:
Highest and best.

David:
That’s really good. So a lot of what the conversation involves around in the beginning is something that actually should be happening in the due diligence phase. Okay? That’s why you have an inspection period. And it’s just it’s easy to not be disciplined and to do all that up front and call it work. And this is how you get your heart broke, right? Like you try to date too many people that aren’t interested in you, you’re just going to get tired of the rejection and stop dating and become like a cat person. Right?
That’s not what we want to do. We only want to actually put our efforts of pursuing the properties that we have a reasonable chance of getting. So part of this is experience, but the other part of this is just working the system that we have, where we know, all right, realtor, we need you to go find out, can we get the property? What price would realistically get it at? They’ll bring that information back to us. We will then kick in and say, okay, at that price, would this work? How much equity? We look at it through the prism. How much equity be in there? How much risk would be in there? How much revenue would we expect? And if they have nothing, then we go look for a different property.

Rob:
Well, yeah. Let’s talk about that a little bit. Because there’s obviously the communication… Well, not just the communication, but the actual selection of your realtor-

David:
Yes.

Rob:
… is so important. So can we talk about what do we look for in a realtor? What kind of questions do we ask? How do we even choose ours? I would like to tell that story in a second.

David:
Yeah. So I’ll start and then I’ll let you tell our specific story. I’ll start with a general. What I look for is me. So I think I’m a good realtor because I buy a lot of real estate. So if you come to me and you say, David, I want to buy real estate, I’m not looking at a firm perspective of a salesperson. I’m looking at it from the perspective of someone who wants to help build your wealth.
I like to work with other realtors who also own real estate and who like real estate. They don’t have to be a realtor, they want to be a realtor. Now, that means they’re going to be picky about their clients. So you actually have to be on your A game to get them to work with you. And a lot of people don’t like that. They want the realtor that answers their call right away, that they can boss around. I don’t like that. If I can boss around my realtor and I haven’t proven why I should, they’re probably not that great.
So what I tend to look for when I’m going into a market is what is our strategy. That’s why the number one thing that we talked about was determine your criteria, what asset class, what area, and what price point, because you want a realtor who works in that area, owns in that area, sells in that price point, and understands that asset class. That’s actually what you’re going to look for.
We kind of talked about that, Rob. And I connected you with a couple people. And then with this specific issue, we had a bunch of questions and I said, hey, we need to find a person that is an expert in this asset class. Why don’t you call the brokerages in the area and ask who their luxury specialist is, and then find out if has these questions. And I shouldn’t have been surprised. You completely hit it out of the park on your first try. You came back with a rock star. So tell me what you actually did to make that happen.

Rob:
All right, man. So I woke up. I went out to my front door. I took out my yellow pages. I found it. I was like, all right. And I flipped all the way over to the S’s and found Sotheby’s. I mean, we all know that Sotheby’s is obvious one of the more lucks places out there. And so I called him up. And it was like the receptionist of the place. And I was like, listen here, bub, Robuilt and David Greene are looking for a luxury house. I was like, excuse me, do you have anybody that might be able to help us please?
And so they were asking and I was like, look, it’s really important to me that they know short-term rentals because I already know short term rentals. And so if they don’t know, I’m going to know that they don’t know. And so she was like, okay, okay, great. She actually ended up patching me through to two people. They were like partners. I think they partner up on selling houses and everything like that.
And I talked to the guy. He was super nice. I mean, really, really nice. And I started kind of interrogating him a bit and being, well, what does short_term rental mean to you? And we kind of went back and forth. And it was pretty clear that it wasn’t his wheelhouse, but that’s okay. We talked it through and I was like, hey man, honestly, I appreciate your time, but I need someone that can help me accurately estimate how much we’re going to gross on a property like this because it’s $3 million.
And he is like what, you know what? I know a guy. And I was like, you do? He’s like, I know a guy. He doesn’t work here. He actually works at a competing brokerage. And he’s really great. This guy knows everything there is to know about short-term rentals. He owns five luxury short-term rentals. He owns a property management company that manages 70. This is going to be the guy. And I was like, hey, I just want to say, thank you, because you just gave over a $3 million lead to a competitor. And I know he’s your friend, but that’s super nice of you to do.
And that’s what he did. And I called the guy. I talked to this new realtor. And he was schooling me, man. He knew everything there was to know about luxury. And his insight throughout this whole process has been so helpful for us because now I can run my comps and I can go back to him and say, hey, am I off here? I have calculated $47,559 and 49 cents. Is that right? And he’s like, yeah, that’s pretty close. Or, actually in this neighborhood, it’s a off because of this, this, and this, and this.
And so there’s a little bit of a synergy there that I get to work with. And it wasn’t necessarily easy to get to that realtor. There was a little bit of work involved, but now it’s going to dramatically affect us moving forward because now we got the best of the best.

David:
And that perfectly highlights step number six, receive information from your realtor. If you know your asset class, your area, and your price point, you can go to the realtor and say, what do you think we need to do to get these properties? What should be be aware from? And that’s some of the stuff he provided, because he owns these things.
One of the concerns I had was, we’re being told this is the revenue that’s going to get in tonight. That seems really high. How can we verify that? Well, he happens to own properties and he actually said you’re probably going to get more than that. You’re more than okay on this one. Avoid these ones. So we got information from the realtor that helped us to develop the strategy that we use to move forward.
And number seven, the next step would be communicating what we need to that realtor. So that’s where you say, here’s what I want you to look at up. Here’s a question that we’re stuck with. Can you ask someone else in your office if they know what to do in these situations. That is also very important, is that after your weekly meeting and the tasks are delegated, that you go communicate with your agent and say, here’s what I need to know. Is that something you can help me with? Or is that not something you can help me with very clearly?

Rob:
Well, we also want them to go in and sort of suss the situation, if you will. Right? So if this property’s been sitting for 1, 2, 3, 4, 5, 6, 7 months, we kind of want to know why, and we want to know if the sellers are at all motivated. Why hasn’t it sold? Has it fallen in escrow or has it fallen out of escrow?
And go in and do a little bit of recon. Run some recon on the property. Get back to us and let us know why. And usually, they’ll go in and they’ll talk to the listing agent. And that property that’s been on the market for six months, that listing agent might say, oh yeah, you could pay. By the way, the seller’s super motivated. Between you and I, let’s get this done. That’s not exactly how it worked out for us, but that’s really important to have. A realtor that can play the game of bit. I think that’s going to work out in your favor whenever you’re really going back and forth in negotiations.

David:
Yeah. And I’ll probably highlight here before we move on that when you’re telling your realtor here’s what we need, a big piece of it is telling them to call the listing agent and find out if we wrote an offer today at this price, would it be taken? Just don’t waste your time in a hot market if there’s 14 other people that want that house and you’re insistent on having very strict criteria. It’s great to have strict criteria. That’s why the first step, is you should figure it out. But if the property isn’t going to work for that, don’t try to make it work. Just move on from it and find a house or a property where it’s still going to work for you and they’re more motivated.

Rob:
Yeah. It’s been really interesting because we tend to only look at properties that have been listed for a while because I we’re just so tired of competing. Why compete with a hundred people when we can go find the diamond in the rough that’s been listed for a while and see if we can make that one work.
And for the most part, I think most of our options have been things that have been sent for a bit at that higher price point, which is really great for us because we see where we can add value to the property. And we know that we can maybe come in a little bit lower. And if we can’t come in a little bit lower, maybe we can start asking for things like seller credits.

David:
That’s exactly right. Now, I use this a strategy on the David Greene team with all of our clients, because I tell people, stop chasing the house that’s been on the market for two or three days. You’re going to get your heart broke. You’re going to grossly go over asking price. But of course it’s tempting. But it says it’s only $800,000 on Zillow. Why can’t I get it for that price, go work a miracle?
But this is the strategy that I use myself. We’re looking at one here that had been on the market 190 days. I have an offer out on one yesterday that was sitting on the market at 2.4 and sat there until it expired. And we got a hold of the sellers off market. And I’m now trying to put a deal together with them because their motivation level is different after their house sat and expired.
I only go after properties that I think the seller wants to sell it just as much as I want to buy it. If I want to buy it more than they want to sell it, they’re going to get a lot of other buyers and they’re going to sell it for more. So be disciplined in how much time you spend on a property. The first thing you should be looking at after it matches your criteria, which for us are those five things, is do I have a chance of getting it? If the answer is no, don’t put any more time into it. Wait until it falls off the market or it sits there for longer. If the answer is yes, then you can dig in with a little bit more due diligence.

Rob:
Yeah. If you’re excited about a property, just a rule of thumb. If you see a property, you pop up on Zillow and you’re super excited at how beautiful it is, and you’re even more excited at the price point, you’re probably not going to snag it for that price point. It’s pretty rare.

David:
All right. Step number eight is actually writing an offer. So we’re going to do a show in the future with a lot more detail about this, but just let’s focus on this deal that you and I are working on that we’re probably going to have in contract today. Can you share a little bit about the offer that we wrote, what we asked for and why?

Rob:
Yeah. So I alluded to a little bit at the beginning of the show, but this house was on the market for, I think just under six months by a couple days. It was listed at 3.4 and we made an offer with a couple of interesting contingencies. So we came in at 3.25 million, so about $150,000 less than asking. But then we also at asked for a $75,000 credit to be applied toward closing costs and other things like that.
So really when you start mapping it out, the offer is closer to 3.175 million. And then we also ask for all the furnishings to be included as well. They weren’t necessarily all my favorite furnishings, not necessarily things that I would choose, but they were pretty good. They were good enough for this property. And I was like, I’m happy with 90% of this stuff.
And so when you factor that in, that stuff could be anywhere from 35 to $50,000. And that’s really important for us, especially in this short-term game where cash-on-cash is a really important metric in our matrix, right? And so if we can save $75,000 in closing costs and we can save $50,000 on furniture, we’ve just saved over $100,000 dollars in cash. And so our cash-on-cash, our ROI really starts going through the roof.
Was there anything else on offer that… Oh. Yeah. And then we also asked for a 60-day close,

David:
A 60-day close because we wanted more time to be able to raise money. And then we asked for a home warranty that would cover anything that might break in the property. But I want to highlight here, is that price is not the only thing that matters. Most people get stuck on price. They think they won or they lost based on the price.
This property, from what we’ve seen so far, we have to do inspections still, appears to be turnkey. We’re not going to have to spend hardly any money in fixing this thing up. And now that we’ve taken out our closing costs and we’re actually able to buy down our rate with that 75,000 credit and get it to be a cheaper monthly payment, and we don’t have to furnish it, even if we paid more than someone else, our cash-on-cash return would be much higher in theirs.And we would have more capital to buy another house.
That’s the thing, is we structure the deals so that we have minimal money in it while still keeping incredibly big reserves so that it’s not risky. And getting to borrow the majority of the money at a lower interest rate. Now, people get really good deals on properties, but they need a ton of work. And then they dump a bunch of money into it. And then they got to borrow money from somebody else, like a hard money lender at 12%.
And so even though the price was better, what they actually end up spending per month ends up higher. So it’s not only about the price. And that was one of the ways that we’re able to work this deal out to work for us, where the other people who were looking at that property probably just got stuck on the price and couldn’t see past it.

Rob:
Yeah. Literally, you and me, just with the credit and the furniture, you get to keep $60,000 in your pocket, I get to keep $60,000 in my pocket. Not only that buying that rate down, that’s not necessarily a big deal on a $300,000 house, but on a $3.25 million house, buying down a half a percentage point, that’s a pretty significant difference, not just in the monthly, but in the actual interest that we’re paying on that property over time, over the life of that loan.

David:
That’s exactly right. So that’s one strategy that we use on the David Greene team that we brought into this one, was a lot of the time, if you got a deal with a seller and they’re willing to take 500 grand, it might be better to give them 520 with a $20,000 closing cost credit that you can use to cover your closing costs us, to fix the house up, to buy down your rate. Because when money is cheap like this, borrowing more of it is less expensive than when rates are higher.
Another thing moving on to number nine actually offers strategies like our strategy with this deal is when we first submitted that offer, they said, no. They told us to go… You said kick rocks? I think maybe pound sand might be more appropriate because it’s in the desert. Right? Surrounded sand in Scottsdale.
So they told us to go pound sand. And we said, that’s fine. This is normal. Right? My experience as an agent, I understood that the sellers were in an emotional place. They received our offer as kicking the pants. Like this to them was like an insult. That it was lower. And if your house has been on the market for six months and it’s not selling, you have some unrealistic expectations. They should have already dropped the price.
So here’s what we said to the realtor, ignore them for a couple days, then we want you to go back to them. And this is what I would do if I was the buyer’s agent representing us, is I would say, hey, my clients are going to buy this house if I tell them to buy it. They rely on what I’m saying. They don’t really understand whether they should buy this one or another one. They told me to go find them a deal that works for their numbers. And that’s my job.
So if I tell them that this is the one that’s going to work for their numbers, they’re going to do it. But the numbers need to be right here. Listing agent, what do we have to do to make this work? And we are going to put the onus on that agent to go work on her own clients and say, guys, what do you need to feel good about this deal?
That is different than what most agents will do, which is they’ll protect their own ego at the expense of yours. So what they’ll do is they’ll say, I got a lot of clients. I don’t really need this sale. But my clients really want the house, what do we got to do you here? That doesn’t work. You want it to be the opposite. You want your agent to say, I want to put this deal together. Tell me what has to happen in order to do it. My clients will listen to whatever I tell them.
That’s literally what I say to the agent on the other side. And what happens is it now gets the listing agent to go to her clients and be an advocate for us. She’s or he is going to go say, listen, we got an offer here. We haven’t got anything else. I think this is our best shot. What do you guys need to feel good about this deal? And then she’s going to go back to our agent and say, here’s what they said. And he’s going to say, oh, that just the numbers won’t work at that. What can we do to get him to this point instead?And we let the agent sort of whittle down the sellers until they got to the point where they were good with us.
Now, I knew if this house had been on the market for six months, that there’s a very good chance that they’re not going to maintain their resolve to keep going. That was one of the things that Rob really liked about it, is he’s like, dude, this one’s been on the market for a long time. There’s not a lot of houses that are at this price point. There’s not a lot of buyers that are looking at this price point. They can’t move on with their life until they sell it.
And that’s what you want to remember, is when it’s been there for a long time, when that offer comes in, their knee jerk response is no, most of the time. But then what happens is their thoughts start going into, what else could we use this money to buy? If we got rid of this thing, we could go buy that house in the Caribbean, or we could buy that multi-family property that we could use to retire. All that stuff starts moving through their head and it slowly weakens their resolve to hang on at.
And lo and behold, about a week, maybe a week and a half later, a realtor came back to us and said, yeah, they’re willing to accept your terms. They just asked for a few little things to be different.

Rob:
Yeah. I actually want to point out the phrase I that he put out there. And I think he said putting them on ice. He’s like, oh yeah, I call that putting them on ice. And so that’s basically… That’s ignoring them for a little bit. And then coming in strong and saying, hey, I want to put this together. And then that realtor came back and said, oh, highest and best, whatever. And then he was like, okay.
Then he put them on ice for, I don’t know, however long, several days. And then he came back and then he is like, hey, I really want this of my clients. They’re not going to go for it. I’m the decision maker here. I’ve comped it out. The numbers have to be here. And yeah, they accepted most of the terms and were kind of working through what that means.
But all in all, a pretty… I called you the morning he told me that. He sent me a text and he said call me. And I was like, oh, okay. This is always my favorite text from a realtor. And then he was like, all right, hey, they didn’t really counter your counter after they had let it expire. And I was like, man, David’s going to be so happy about this. Because it worked out exactly how you called it, man. It was like pretty funny. Exactly how you called it, hey man, I guess what you’re talking about.

David:
Well, thanks, Rob. This is David Greene team pen. I’m holding up here. That’s why I learned it. Right? So that’s why we wanted to share this, because most of our listeners won’t have the experience that I do being in these situations and they wouldn’t have understood this is a stride that will work. So I wanted to make sure we conveyed that. Because it did worked awesome.
The last thing, step number 10, is have several irons in the fire. And this is what we do so we never get too in love with this deal. While we had it on ice when they rejected our offer and we said, hey, just let them chill for a minute, let them think about it, we didn’t just sit around crossing our fingers and feeling tempted to adjust our standard. We went out and looked for other homes. And it let our realtor tell their realtor, hey, these guys have me looking for other properties. If you guys don’t want to put this together, they’re going to find something else. I’m going to find them something. You be the thing that I find them.
But you got to be willing to keep looking. You cannot fall in love with any one deal. So we sort of set that one off to the side and we kept evaluating other properties. We kept meeting every week. We kept bringing new properties into this perspective that we had so we never fell in love with one property. This will help you in two ways. One is it will stop you from falling in love with the property you should not be in love with. Two is, if that property is really good and you just don’t want to accept it when you see everything else is not as good, it will make it more clear that’s the right property to go for.
This is what we do to make sure that we protect ourselves in those two ways. Anything you want to add there, Rob?

Rob:
No, I think that’s… Obviously, I very much overanalyze every deal and I think your advice to me. Because in this market, it’s crazy. We’re just lucky to get an offer accepted. Period. But your advice was like, hey, stop being a sniper and start throwing grenades. And I was like, all right. All right, I’m going to ease up a little bit on every single criteria. Then I just started. I was like, okay, I’m just going to look at all of the other prisms in the matrix, I guess, if you will. And I’m just going to cash flows there, but I’m just going to really start evaluating deals on all those other points and start looking at dozens of deals. And I’m like, all right, we have all of these to fall back on right now if this one doesn’t work out.

David:
Right. We call that the call of duty strategy, right? You don’t win a call of duty by just hiding in one little spot and waiting. You have to go out there and go crazy. Now, once it’s in contract, we will go into sniper mode. That is when we look down the scope at every little single fine-tuned detail to make sure we like the deal. It’s not appropriate to do that before you even have it in contract. That’s how you’ll just burn yourself out. It’s too hard to look from a scope if you’re trying to see the whole field. So that’s what we’re getting at there. I forgot about that. That’s a really good analogy that you brought into this.

Rob:
Yeah. Well, hey, it was just yours. I’m just throwing it back out there. But yeah, we’ll get into that whole strategy of the actual due diligence of a luxury property in a different episode. But this is pretty good synopsis on everything we’ve been going through for the past what? Eight weeks or so?

David:
Yeah. That’s exactly right. And I really believe this method works. I do it with… When I partner with someone, this is how I do it. And when I was in super buying mode, this was a strategy that I had set up when I was buying three to five deals a month. And I was using the birth strategy is I’d meet with my realtor every week. We would discuss these things. I had a prism that I looked at every property through. I would look at the list and say, here’s what I need to know.
Now, it’s obviously more fun and better to do it with a partner like Rob who understands this asset class because he’s done it a ton. And I don’t really have to teach as much as Rob is bringing value. That’s what you want your partner to feel like. Is their angles that you don’t see. And they know stuff that you don’t know yet. And Rob’s really experienced with this. So that makes it a lot more fun and easy.
But the system’s the same. And that’s what we’re trying to say. These are the 10 things that you need to do if you are serious about wanting to get your property under contract. So thank you for joining me here, Rob. I’m going to let you get going, but I’m going to give you the last word.

Rob:
Ooh, wow. So much pressure. I guess… Hey, the personal note here. I’ll let you know what the realtor says. He’s going to be getting back to be here in like the next hour or so. So the ultimate cliffhanger for everybody listening at home.

David:
So if it works out great, we’ll start our series of due diligence, like we said. And if it doesn’t work out, that’s fine, we have other irons in the fire. We’ll talk about them at our next meeting. We win either way. So, thank you very much. This is David Greene for Rob call of duty Abasolo. Signing off.

 

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As a Real Estate Tax Strategist, I review thousands of tax returns every year. Throughout my career, I’ve detected a common area for mistakes: depreciation.

Depreciation is a fundamental tool for real estate investors. Improperly reporting it on your tax sheets could lead to paying thousands of dollars extra in taxes. That’s why in this article, I’m providing five critical items you must review on your depreciation schedules to ensure you’re getting the most out of your properties.

Reporting Depreciation

First, if you have any income generated by a long-term rental property owned by you or by a single-member LLC, you must report it on Schedule E of Form 1040. 

All ordinary and necessary expenses related to your property, including depreciation, can be deducted.

But what is depreciation, anyway?

In short, depreciation represents a rental property’s declining value over time. We know that real estate tends to appreciate, but depreciation still applies and actually helps us pay less on our taxes. There are several depreciation methods, but it’s important to abide by what the IRS allows. The IRS prescribes a long set of rules and regulations on depreciating assets, including a standard useful life of 27.5 years for most residential rental properties.

Like I said, depreciation is great because it offsets some of the costs you incur throughout the year and lowers your tax basis. That’s why reviewing these next five topics are so important!

Before we get started, here’s a visual of what a depreciation schedule looks like:

Five Items To Review On Your Depreciation Schedule

1. Review All Listed Totals

It seems obvious, but the first thing you must do is check the property’s total depreciable value. For the most part, you’re just making sure the total is less than the purchase price. Keep in mind that some costs such as inspections, due diligence fees, and more will be included in your depreciable basis but the total should never equal or amount to more than your purchase price. 

For instance, if the depreciable value equals $200,000 but your purchase price totaled $150,000, you should consult with your tax professional. 

Errors over depreciable value occur all of the time, especially in determining land values. Since land isn’t depreciable, the solution is to use a ratio against the total value of the property, then multiply by the purchase price for a lower land value that helps reduce the tax basis. This is the same method a county tax assessor uses.

But say, for example, a tax preparer uses an actual land value of $50,000 instead of applying a ratio. With the building included, the total tax basis equals $160,000. 

The problem? The client paid $120,000 for the property. This mistake accidentally gave the client an extra $40,000 on their basis!

An awful mistake like this can be prevented by simply being vigilant about the numbers posted in your depreciation schedule.

2. Make Sure Land Is Accounted For

To expand further on the topic of land, it’s important that your depreciation schedule accounts for it, despite it not being depreciable.

What do I mean?

If you paid $200,000 for a rental property and all $200,000 is listed as the depreciable amount, something is wrong. You’re essentially stating that you are, in fact, depreciating the land, since the purchase price is equal to the depreciable amount.

You cannot do this. As mentioned earlier, you should use the county tax assessors ratio to determine a proper land value in depreciation. 

In the event you fail to do this and continue to deduct depreciation year-over-year, you’ll be facing serious back pay when the error is found and corrected.

3. Make Sure Renovation Expenses Are Broken Down When Possible

If you had a major renovation, see if it is listed as a lump sum amount on the depreciation schedule. If you spend $40,000 on a renovation that included $10,000 worth of landscaping and $5,000 on new appliances, there may be a more advantageous way of reporting it. 

A major renovation is assumed to be a 27.5-year improvement, the same useful life of a rental. However, there are certain assets that have been specifically assigned shorter lives. 

Landscaping, for example, falls into a category known as land improvements, which have a life of 15 years. Additionally, any assets with a life of less than 20 years can potentially be expensed in the first year of ownership using bonus depreciation.  

There are lots of potential savings with renovations. I highly recommend having a conversation about it with your tax professional. 

Beware of errors, though.

For instance, we once had a client who was considered a real estate professional (meaning they could deduct unlimited rental losses). They had been buying 2-3 new rentals each year, completing major renovations on each. Their prior depreciation schedule listed “$82,000 Renovations ? 27.5-years” for every property. This resulted in a depreciation deduction of about $2,980 for the year.

However, when we broke down the components of the renovations, there was a lot of depreciation left on the table:

• $8,000- Landscaping
• $6,200- Appliances
• $2,000- New fencing 
• Total: $16,200 – Assets with a life of fewer than 20 years, qualifying for year one bonus depreciation 
• Total value: $63,800

With these numbers, the client could have taken a depreciation deduction of $18,520 for the year.

4. If You’re Using Delayed Financing Methods, Make Sure Your Tax Pros Know

If you run a delayed financing strategy where you place your renovation costs into escrow when you purchase, your tax professional may be shorting you on depreciation. This is because many tax professionals do not realize the structure of this type of transaction. They are likely taking the full renovation amount and lumping it into the purchase price, then allocating the total amount between land versus building. 

This is incorrect because the allocation should only apply to the purchase price. The renovation amount should be accounted for separately.  

Let’s say a client’s prior CPA took the full amount of his HUD property — where they prepaid renovation costs to allow for earlier refinancing via the BRRRR method — as their purchase price. The totals would show $30,000 for the purchase price and $40,000 for the renovation escrow (ignoring miscellaneous closing costs).

Their initial depreciation was calculated as:

$70,000 Purchase price * 82% building value (per the tax assessor’s ratio) = $57,400 depreciable value at 27.5 years for a deduction of $2,087 per year.

However, because of the strategy the client used, the depreciation should have been:

$30,000 purchase price * 82% building value = $24,600 depreciable value at 27.5 years for a deduction of $895 per year and a $40,000 renovation value (which could have likely been broken down further as we did earlier) at 27.5 years for a deduction of $1,454 per year. That amounts to a total annual depreciation deduction of $2,350 per year. 

This might not seem like a lot, but this client had nearly ten properties that were all set up using the traditional, but incorrect method. As you can see, it resulted in a lost depreciation deduction of close to $4,000 per year, across multiple years. 

The good news is that we were able to correct it by utilizing Form 3115 and recoup the deduction. 

5. Be Aware Of Service Dates

Your rental is eligible for depreciation when it is “in service”, meaning ready and available for rent. 

Important note: Normal vacancies or spans of non-occupancy for renovation do not take a property out of service. If you were to buy a rental with tenants in it, issue them a 60-day notice to vacate, then spend 90 days on a renovation, the property is still in service throughout that time.

Review the dates listed for your rental asset and any renovation dates. Many preparers will ask for an in-service date, but won’t ask if the rental was occupied when first purchased. They’ll just utilize the purchase date. 

That’s why it’s important to note if a property is purchased vacant. If you buy on January 1st but require a six-month renovation, the property won’t be in service until the end of those six months.

Conclusion

With tax day quickly approaching, it’s important to review depreciation concepts and make sure you’re on top of your filing requirements.

Hopefully, this checklist has served as a useful guide for you and your business!

This past winter in Calgary has been one of the hottest on record – unfortunately, for residents, we don’t mean because of the weather. The Calgary Real Estate Board (CREB) has once again released statistics showing the city has broken records in February. With an unprecedented two years in the city, investors are now wondering what they can expect next.

We spoke with Jesse Davies, a top local realtor in the Calgary area, about newly released stats from the Calgary Real Estate Board, his own experiences in the market now, and what changes may be coming in the future.

According to CREB, the month of February 2022 marked the highest sales ever reported for a February in Calgary with 3,305 sales total. The higher sales are due, in part, to an increase in listings from the previous month, but also due to continued demand for homes in the market. In particular, detached homes are driving much of the market currently. Davies notes that persistent sellers’ market conditions and limited supply are helping to drive this segment. Currently, there is less than one month of supply for detached homes available.

“Most of the gains in the housing market have been driven by the detached sector which has accounted for more than 60% of all resale activities in 2022,” said Davies. “The market is still adjusting to the loss of inventory before the pandemic, but the demand still remains. This winter we saw higher demand while not all of the inventory is fully replenished yet.”

The benchmark price of a detached home in Calgary climbed to $569,400 in February – a 19% increase year over year. Other segments saw similar increases, with the condo market displaying the slowest growth at 5%, though demand is still increasing in this segment as buyers move away from the tight detached market.

Beyond looking at other property types, investors are also branching out into nearby areas of the region to find better deals on homes. 

“The Calgary housing market has definitely increased interest in other surrounding areas where buyers can find less competition and more affordable homes,” said Davies. “The prices have increased overall in Alberta, however, the surrounding areas are still more affordable than in the city itself, so it makes sense for investors. Investors are looking at areas like Airdrie, Okotoks, Cochrane and Chestermere as alternatives.”

With steady performance through what is usually a slower winter season and interest from would-be homeowners and investors alike driving demand, it seems things are good for Calgary at the moment.

Now, investors want to know just what they can expect in the future. With new changes like an outgoing pandemic and increased mortgage rates, things are likely to change, though how much and how quickly is still up in the air.

“The current mortgage rate increase has cooled down the competitive detached market a little, but we still have a high demand from buyers that are looking for the right home, as Calgary still holds an affordable home pricing when compared to other areas of the country,” said Davies. “The market should eventually pick up again shortly after the announcement of mortgage rate increases, similar to what happened in GTA.”

“We are still experiencing a seller’s market in the detached and semi-detached sectors. However, townhouses and apartments are showing signs of improvements towards a balanced market with an increase in sales of 100% in townhouses (active listings down by 32%) and 108% in apartments (active listings down by 25%). Also, both show a positive increase in the average price.”

Overall, Davies echoes what many analysts have predicted for the coming year: though changing conditions may slow the market somewhat, persistent demand and supply issues will likely keep upwards momentum going, at least in the near future.

“In 2022, rising interest rates and higher average prices are going to be two factors the Calgary real estate market will have to contend with. Short term, the increase in interest rates should create urgency for buyers to take advantage of their 90-day rate holds and avoid higher monthly payments. Supply is still expected to struggle to keep pace with the options in the new-home market and higher prices should keep new listings above average, but it will take some time before the detached sector returns to more balanced conditions.”

Jesse Davies and his team have over 15 years of experience in the Calgary market and have helped countless clients buy, sell, and invest in the city. Visit Jesse Davies online to connect with him and his team, and to learn more about real estate opportunities in the Calgary area.

Mindy:
Welcome to the BiggerPockets Money podcast, show number 287.

Kassandra:
You need to actually create a relationship with your boss, a professional relationship with your boss that is positive, and that is open for dialogue. This is what I’m saying. This is a project to people. Asking for a raise is a project. It’s a step-by-step process.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today is Kassandra Dasent, a world-class connector with the voice of an angel. On top of that, she is a gem of a person and absolutely a joy to be around. Today, we’re going to talk about how to really quantify one’s value in the workplace setting.
I am here to make financial independence less scary but just for somebody else, to introduce you to every money story because I truly believe financial freedom is attainable for everyone no matter when or where you’re starting. Whether you want to retire early and travel the world, going to make big-time investments in assets like real estate, or start your own business, I’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dream.
We have a lot to unpack in today’s episode because Kassandra has an enormous amount of information to share with you today. Here’s thanks to the sponsors of today’s show. Kassandra, welcome to the BiggerPockets Money podcast. I am so excited to talk to you today.

Kassandra:
Thanks so much for having me. I’m legitimately excited to talk about you, talk with you, I should say, and about this topic.

Mindy:
I reached out to Kassandra after she posted on Facebook that she is a connector and sharer of information. She offered to share on a variety of topics. The one that really, really hit home to me was how to advocate for one’s self in the workplace with regards to negotiating salary and bonuses. I think that this is something that people know they should do and also really gives people the heebie-jeebies because they don’t want to do it. It really makes us uncomfortable to advocate for ourselves and push, push, push, but if you don’t push, your boss isn’t going to give you a raise, right? So let’s jump right into this. Why do you feel that it’s so uncomfortable for people to really ask for a raise and really ask for a lot of money as a raise?

Kassandra:
I think one of the reasons… Actually, I don’t think I know. It’s from an emotional perspective. A lot of us are dealing with the fact that it’s almost like survivor’s guilt in the workplace especially if it’s during recessions, if it’s during major consolidation of companies, mergers, things of that nature. So if you’re experiencing that or you’ve had that experience, you tend to feel the thought of, “I should be grateful for what I have. I should be thankful for what I have because so many people are not in the situation that I have that I have a job.” So you get the guilt conscious on you that you should be just thankful and just leave it alone and just take what you get. So that’s definitely one.
For women in particular, I think we’re still working through a lot of constraints in the workplace in terms of whether some of us females are few and far between in our profession, especially in domains such as engineering, science, mathematics, even in the education system, how many are tenured versus not. So already if you feel like you are in the minority, whether it is a visible minority or whatever minority you represent, you feel that, again, “Okay, well, if I have a position, if I feel like, ‘Okay, I have a good salary. I shouldn’t push this any further.’” So I think definitely it’s a collection of emotions, guilt, and also you don’t know how to do it. Very few people talk about what the roadmap or what’s the process to actually setting yourself up for potentially getting that raise or that transfer or that bonus. So a lot of people don’t really discuss… Still many of us don’t talk about our salaries, so what makes you think that people are going to talk about the process of how to get a raise?

Mindy:
That’s so true. It’s not like there’s really this, like you said, roadmap to… right after your review do this, and three months later do this, and six months later do this. It does have to be this conscious, all the time but not really all the time but all the time process that you’re thinking about. Because how many people have been sitting there, “Oh, my review’s next week. What’d I do? What’d I do since my last review?” That is, to me, I sit here and talk about money all the time, and that is me. I’m not looking for advancement in my company. I don’t want to manage anybody. I don’t want to grow my career. I’m at the end of my career. I’m right where I want to be. But that doesn’t mean I don’t want more money. Who doesn’t want more money?
So sitting here, I’m like, “Ooh, I know I’m supposed to do my review every January. I’ll remember. I don’t remember. I don’t remember at all.” We talked to Erin Lowry on Episode 169. This is Episode 287, so it’s been a minute. She talked about keeping a success folder in your inbox, on your desktop. Any time anybody gives you praise, like through email, put it in your inbox. If somebody shares with you successful thank you accolades, anything, you put it in your desktop folder so you can remember what it was. You don’t have to rack your brain. You just go into your folder, “Oh, that’s right. There’s 27 emails from people who loved me,” or, “Here’s 57 things I did right at the company.”
Episode 169 released a really long time ago. Guess who hasn’t started her success folder in her inbox yet or on her desktop? That would be me. So this year is different. 2022 is the year of Mindy, and I have now a success folder. Every time somebody sends me something, “Mindy, I’m so thankful for your podcast,” I get a lot of emails like that, it goes in my inbox or my success folder inbox and it goes in… I’ve got work things. People send me DMs on Facebook. If you want to do that, it’s [email protected] on Facebook, [email protected] on Twitter, [email protected] if you want to send me a letter so I can put it in my success folder, or you can send one to [email protected] But not everybody has a boss who hosts a podcast with them. So let’s talk about some of these things. Erin’s success folder is a really great idea. How frequently should I be looking into that?

Kassandra:
I definitely second what Erin said. It’s so important to have a log of your accomplishments or successes, comments, feedback. You need that. Before we even talk about the money part, it validates your work. It lets you know that you are doing good work and that you’re impacting somebody positively. You’re doing good work. So first and foremost, give yourself the kudos to say, “I am getting an acknowledgement.” You know that you’re doing good work, but when you get that affirmed back to you, that confirmation, that knows that you’re on the right track. You’re doing something right. That’s first and foremost.
The other part of that equation is it’s not only important to have that log. Here’s where the money part comes in, and here’s where you start setting yourself up for that conversation is that you need to actually link it back. Whatever accomplishments or whatever feedback you’re getting, you need to link it back to any department goals, any major organization objective, essentially. So you need to know, is this falling in line with what the company wants to do? Is this falling in line with what our department is looking to achieve on a monthly or a yearly basis? So it all has to roll back, roll up, I should say, to the upper levels of your company, your division, or whatever that may be. Because if you cannot quantify your results to management, they’re really not going to give you anything.
That’s the truth. Because as much as you think you’re the best thing since sliced bread, which you are, we’re not saying you’re not, you are, but for money purposes, you need to come with metrics. You need to demonstrate the fact that you were able to resolve X problem has saved the company money or has saved the company from going into a dire situation on a project, whatever that consequence could have been, and you need to map it out. As a program manager, my job is to plan. It’s to expect unforeseen circumstances and be able to address them with potential solutions. From the gate, I need to look forward. I need to be future looking. You know what I mean? You need to do that as well with your career.

Mindy:
Oh, that’s really great advice. I love that: be future planning. Yeah, you need to pull it back to the business objective. Oh, the business wants to do this. Here’s how I contributed to that big goal, here’s how I contributed to these little goals, and this is why I have earned this raise. That’s another thing that Erin said in her episode was it wasn’t just, “I want a raise.” Well, nice for you. I want a new car. You don’t just get things because you want them. You earn them. You don’t even deserve them. You earn them.

Kassandra:
Exactly.

Mindy:
Here’s what I have done, and here’s why I am so valuable to this company.

Kassandra:
I think and also just to… It’s not only the company objectives. Also, typically in a corporate setting or in a company environment, every year, once you do that, we have a common review process, so there’s the department objectives, but then you, yourself, are supposed to come up with personal objectives to show the company that you are looking to grow, that you are planning to grow your career or grow within your position. So whatever you’ve accomplished, you need to find ways to tie it into both: the company objectives and the personal objectives that you identify, that you said were promising to the company that you are going to fulfill, two-pronged.

Mindy:
Let’s see. I want to make sure that I’m on the right track. It’s been a year since I had my last review. I’m doing great. I know I’m doing great. I want to make sure that my boss thinks I’m going great, too. How can someone check in and use their boss to their advantage to make sure that not only does their boss know that they’re doing well, their boss knows that they are expressing interest in growing, but their boss can help correct anything that they’re seeing? Because just because you think you’re doing great doesn’t mean that your boss thinks you’re doing great.

Kassandra:
Absolutely. I think what you said is key. You have to take the initiative. You cannot allow your career to be determined by your boss because your boss probably has more than one employee. You may not be the only person in their sphere, so you cannot count on them to manage your career. It is your career. It’s your responsibility. If you have a great boss who is… she’s very forward in the sense that she or he takes the initiative to set up quarterly meetings or monthly meetings, that’s great. But you need to think like the boss because at the end of the day you have to put yourself in their position to say, “Okay, well, how much of the full purse of money am I going to allocate to each employee? Why is [inaudible 00:12:44] deserving 6% raise while Emily’s only getting 3%?”
What I would suggest, first and foremost, is that you approach your boss and say, “Hey, I would love to have check-in meetings with you. I know your schedule is busy. I think it’s important for me to be able to tell you what’s going on within the workplace, within my environment, within the team because I know that you’re not really hands-on because you trust us as employees to get the job done, but I know that you’d like a summary.” So whether it’d be a monthly or quarterly call, whether it’d be an email every couple weeks, however that person likes to receive information is how you’re going… You need to cater to them. That’s the first thing is that you need to take control and cater to them how they like to receive information.
Secondly, you need to be delivering that information. You need to be consistent with how you communicate your results or communicate what’s going on or communicate even obstacles or even situations that are not going well within a project or within, let’s say, customer service. The metrics are off. You need to be able to clearly and succinctly explain the problem, explain what you’re doing to resolve the problem, and communicate with them that the problem is resolved, because that’s what you’re guaranteeing them to do is you are here to resolve problems. That’s what we get paid to do. We create, we innovate, and we resolve problems. That’s what we do as people. So that’s the first and foremost thing is you need to take control. If you want a one-liner, you need to take control of the process, and you need to set and establish consistent reporting to them.

Mindy:
How much time do you think it would take to set this up? How much time should be spending on checking in with your bosses? Is this a five-minute process? Is this a 30-minute process? Is this per week, per month, per quarter?

Kassandra:
I think it really depends on the nature of your job. Let’s say, for example, you’re working in a call center, you typically have more touchpoints than, let’s say, someone who’s a program manager or who’s in engineering. You may have it just monthly. You may have it biweekly. Again, that’s why it’s important to have that first conversation with your supervisor and say, “Hey, based on your current workload, based on your schedule, what works best for you?” You don’t want to be domineering and say, “Okay, I’m just going to send them emails.” You don’t know if they’ve got a thousand unread emails. You don’t. I know I had a boss who had. In reality, that’s it.
So it could vary. It could be weekly. But typically from my experience it’s been biweekly to monthly. Quarterly is a stretch. I think quarterly is a little long. I think you should at least touch base monthly, let’s call it average, at least monthly for at least 15 to 30 minutes every month if you’re doing a con call. If you’re doing email, I would say every two weeks, very short, concise emails, bullet points. They don’t have time to read. Put yourself in the position of your boss always.

Mindy:
That’s very interesting. You said quarterly is a little long. If you’re listening to this and you’re thinking to yourself, “Oh, yeah, I get together with them once a year,” I’m thinking-

Kassandra:
Oh, gosh.

Mindy:
… we do quarterly at BiggerPockets, but I also don’t do a [crosstalk 00:16:23].

Kassandra:
Do you remember? My question is, from each quarter, do remember those conversations?

Mindy:
I don’t remember what I did last week. I have a terrible memory.

Kassandra:
This is why I’m saying it’s important to stay in the front of their thought. Because if you’re not present in their thought. If they don’t think about you at least once every couple weeks, either they’ve got too much on their plate or you have not put yourself in the sphere of consciousness, and that’s really, really important even if it’s for five minutes, even if it’s just for… My manager and I, we talk about our dogs. It doesn’t always have to be about work, but it’s building that connection and that rapport that you need to establish first before demanding money because that’s very off-putting. You need to actually create a relationship with your boss, a professional relationship with your boss that is positive, and that is open for dialogue. This is what I’m saying. This is a project to people. Asking for a raise is a project. It’s a step-by-step process.

Mindy:
Let’s talk to our introverted friends. It seems confrontational. I’m not an introvert, and it seems almost confrontational to say, “I want a raise,” because I would love if my boss just recognized it and gave me a big pile of money. But I also don’t like to pay more than I have to for anything, so I can understand why my boss wouldn’t want to pay more than they have to. If I’m not out there advocating for myself, who else is advocating for me? But it seems really confrontational at the same time. So how can our introverted friends make the most of this plan?

Kassandra:
I am an ambivert, if you will, so I can related to many people. I can be social when I need to be, but I’m good at home with my cup of tea and with my dog and I’m fine. Life could stay like that, I’m happy. So I can understand the anxiety that people may experience or just the plain, “I just don’t want to do this.” So I think you have some questions that you need to answer for yourself. How important is getting a raise to you? If you decide on a scale of one to five, let’s say, that one is not important and five is, “Okay, I need this raise because I want this new car or I want to pay debt off,” or whatever that X is, the closer you get to five, then you need to realize that, “Okay, what needs to give in me, what am I willing to give up in terms of discomfort in order to gain?” Because this is an exchange of energy at the end of the day.
If you decide that, “Okay, I’m a four and a five. I want this money. I deserve this money,” so here’s where, again, you say… If you’re an introvert, typically it’s easier to do this by email. You’re not visually in front of somebody. You’re not having to just read someone’s reactions visually. That’s very tough for introverts. So if your boss knows you as a person… Again, I come back to building that relationship of understanding so they know you as an employee so they respect your boundaries as well. They understand that, “You know what? He or she is a great worker. They just don’t do well with face-to-face constantly all the time.” So you have to explain to them who you are as a person. Otherwise they’re going to do things to you that you don’t like. They’re going to make you do things that you don’t enjoy. It’s true.
In my career, I have managed to mold my boss to react to me in a way that makes me feel comfortable. Really, that’s it. It sounds psychologically challenging, but it’s not. I really want to encourage everybody that talking to your boss is not the end of the world. You’re going to have to do it. If you really want the raise, you need to educate them on how you best like to communicate. It takes time. For some it might be easier than others.
If you’re in the situation where a boss is not necessarily respectful of your introvertedness, what I would suggest you can do is perhaps… It depends if you’re on a bigger team or not, but you could potentially ask a colleague to not intervene for you… I don’t know how I can put this. They can advocate for you in very subtle ways. What I mean by that is, let’s say there’s a con call and everybody needs to be on video. By the way, I don’t go on video typically for my company con calls. I’m very like, “No, you don’t need to see my face,” because I built over time a level of self-confidence and self-awareness that I’m not afraid that I’m going to be fired if I advocate for myself.
That’s the muscle that I’m encouraging you to build is learn how to advocate for yourself even if you’re introverted. There are ways to do this. I’m not an expert in it by any means. It’s also a process over time where you’re just like, “You know what? The worst that can happen is I lose this job. I know I’m skilled enough to find another one.” That’s where I am at this point in my career that I’m very confident in my skills and my ability and my value. I know my worth. I know my worth. Now it’s just finding your way of communicating your worth and your belief in your ability to do your job so that your boss really doesn’t pressure you into doing or communicating in ways that you don’t want to communicate.

Mindy:
Let’s switch gears a little bit and talk about setbacks because it is really nice to think that your employment is always going to be unicorns and rainbows, but there are problems that sometimes come up. You make a mistake, a project doesn’t get out on time. Sometimes the project doesn’t get out on time due to no fault of your own, but it’s still your project so it doesn’t go according to plan. How do we get back on track after a setback?

Kassandra:
The first thing that is crucial, you need to accept responsibility for it. You need to demonstrate that the blame game doesn’t work here. So if you are responsible for an outcome, you need to take responsibility for that said outcome. You cannot hide behind other people. You cannot throw people under the bus. That’s not going to lengthen your career. It really will shorten it, in fact. So first and foremost, you just need to be honest. Explain why it went wrong, explain the factors that caused it to go wrong, and really come up with some solutions, plan A, B, and C, not just one option. You have potential options how to be able to rectify or at least limit the damage or the consequences of what happened because sometimes we can’t fix it to fruition. Some projects just… You know what I mean? It doesn’t end well.
In those cases, you really just have to say, “Okay, well, I identified why and how and when it went off the rails, so for future, I am logging it so that I recognize that if we are even close to being in that position in a future effort, I know how to roll it back. I know how to divert, and I know how to deal with it.” So there’s lessons learned, we call them in our world. That’s really it is you’ve got to acknowledge it. You have to state the reasons why. Then you’ve got to be able to present solutions or how would you do it differently in a future project.

Mindy:
What do we do if you state your case, “I have earned this raise because of XYZ. Here’s all of my proof. Here’s all of these things that we’ve done right,” and your boss says, “No, we can’t give you a raise at this time. The company doesn’t have any money. I don’t agree with your assessment”? Whatever the reason is when your boss says no to your raise request, what do you do?

Kassandra:
Before you go into the raise, you have to understand that there are two outcomes potentially. There is the, “Yes, okay. Yeah, we agree with you.” There are actually three outcomes. There is the, “Yes but we don’t have as much money so here’s what I’m going to offer.” There’s the worst-case scenario that you outlined that says, “You know what? No.” But before you go into that meeting, you need to be prepared to essentially say, “Am I willing to walk away from this job if I don’t get this raise?” Before you even open that door, what’s the worst-case scenario? Are you willing to accept it that you would be willing over this issue even if your job is amazing, you love your colleagues, you love the work that you do, all the good stuff? But if that money request is denied, are you willing to give that up?
Then secondly, depending on the type of boss that you have, they may be thinking, “Well, they’re a potential flight risk because they’re asking for money, and if they’re told no, well, then they’re going to quit.” You have to also understand it’s how you communicate that request with money. That will determine how they will view you even if you’re told no. So you can still be told no and both parties leave with the same respect that you guys entered into the conversation with. So it’s really important how you approach that conversation. Like I said before, are you willing to stay with the current terms if you love your job or if you appreciate your job, or b) is the issue of money so important…? Like, you’re seriously underpaid, and they’re not willing to budge, are you prepared to look for something better that will pay you your worth? That I cannot answer. Only you can determine that answer for yourself, but you have to understand that that is a conclusion.

Mindy:
Let’s talk about that for a minute. I want to go in and ask for a raise and my boss is going to say no. How can I ask so that I am preserving my relationship with the company? Honestly, I’ve got to take care of my own self first, and if I need income, I don’t want them to think that I’m a flight risk until I have found something else. How can I ask for a raise in a way that says both, “I’m really serious, I want this, but I’m not going to leave if you don’t give it to me”?

Kassandra:
I think actually you start with that: You are not interested in leaving the company. You’re really, really happy with the work that you’re doing. You feel that it’s fulfilling to you. You feel that you’re a valuable contributor to this organization. That’s the bridge is that you’re a valuable contributor to this organization, and here is metrically why my value. I’m actually now demonstrating my value from a dollar/cent goals, objectives, perspective. But you always lead off the conversation is that you are genuinely happy with working at XYZ, working for you. Also, highlight the boss’s qualities as well, that, “You’re a manager that really helps my career to grow. You help me with opportunities.” Make them part of your success. You’ve got to get their buy-in. That’s what this is. This conversation is a buy-in. They need to buy in to you as a person.
So that’s my suggestion is how you would lead that conversation off is that you’re happy. You’re genuinely happy with your job. You’re happy with them as a manager. Also, I would suggest, ask them of their opinion of you. I know it’s scary. I know it’s scary, but feedback is really important. We’re not perfect. No one is perfect. We can all improve, and show them that you want to improve in the process. So with all these things, I think if you really position yourself as pro-them, not anti-them… But at the end of the day, you have the right to ask for more money. They know this. They know this. This is why they have HR. They know that employees are going to do this every year. It’s not surprising to them. I want you to become comfortable with the idea that you going into ask this, they’re expecting it.

Mindy:
Ooh, I like that. It isn’t surprising. Rates go up. We’re in inflationary periods right now. There’s a cost of living increase. There’s a cost of goods and services are going up. Girl Scout cookies went up this year.

Kassandra:
Hello? Yes.

Mindy:
Everything is going up this year.

Kassandra:
[crosstalk 00:30:05]. Actually, I want to add… Let’s say, an example, they love the work that you’re doing. They acknowledge that you’re contributing. They acknowledge the results because many acknowledge. They see for a fact that you are producing. But for whatever reason, they say that, “No, unfortunately we don’t have the purse strings for that,” you can negotiate in other ways. Well, can you get an extra week vacation? Can your bonus be increased? Because they tend to give more money on bonuses because it’s not guaranteed every year.
But still, if you were to say, “Okay, I’m typically allowed up to a 15% a year bonus,” would they be willing to give you extra on that? Because it’s still money for you. Technically, this year you got, let’s say, $3,000 more than you would have because they put it on the bonus side or you got an extra week of vacation. Do people understand a week of vacation, what that calculation is? That’s a nice piece of change, and that’s rest for you. Or, for example, can they, kick in more money to…? Let’s say, if you’re a smaller company, potentially they can kick in more money to a HSA or a 401(k). There’s a lot of ways around this, so don’t think that the door is shut to straight cash. So you also have to think about how else would you potentially be willing to be remunerated.

Mindy:
Ooh, that’s a really good point. I would love more vacation time, hey, Scott. We actually just went this year… I’m super excited. We went to unlimited vacation so as long as you’re getting your work done. Maybe I’ll just be unlimited vacationing to Fiji when it’s freezing cold outside. That’s great. More vacation, more bonus, more 401(k), more HSA.
Let’s say that there’s none of that available. When is it a reasonable amount of time to check back in with your boss? Let’s say that you love your job. I think that there’s a lot to be said for finding a company that you like to work at. I’ve worked for Satan himself, and it’s no fun. You get up in the morning, and you’re like, “Ugh, I have to go to work.” You drag your feet. You don’t want to get out of bed. It is just soul-sucking. Then I’ve worked for companies where, my husband is a stay-at-home dad now, I’m walking out the door, the girls are fighting, and I feel guilty because I’m going off to work and I’m going to have a good time.
So the difference is night and day, and it’s this huge weight that’s lifted off my shoulders. If I was working at this, and I am working at this job that I love so much, if they said, “No, we don’t have money to give you for a raise,” I wouldn’t automatically think, “Well, I’m leaving,” because in my decades of working I know that there’s a lot of value in working for a company that you love. When is a good time to check back in? Should you ask your boss about this, or should you just throw it at them, “Hey, okay, we don’t have any money now. I’m going to check back in six months or three months or tomorrow? Is there a rule of thumb to checking back in for more money?

Kassandra:
Yeah, there typically is a process. That’s usually agreed upon during that initial discussion, that initial ask, so you can ask, “Well, what would be a good time to check in back?” if they even mention, “We’d love to do this for you, but now’s not the best time. Our company’s just going through some difficult times,” or whatever that case may be. You could suggest whether it’s six or eight months, but give enough time a) let’s say if it’s a real deal where it’s a cash crunch, to allow them to work through that, and b) you collect more proof. You collect more ammunition. This works for you in a couple of ways.
Typically six months, eight months is a good period to check back in. Also, for bigger companies, they typically have a schedule, so you need to learn what their review schedule is and their calendar is because they literally have cut-off dates that decisions are made because it goes to committees to approve budgets. So you need to learn what that schedule is for your company. So you’re actually asking for that review in the cycle so that you can actually collect on it so you don’t miss the window. You need to know what that window is. So whatever that window is for your company, play within the window.

Mindy:
I like that a lot. I’m trying to think, as you’re talking, “Oh, yeah. That’s August.” And it’s known, so ask your business, ask your HR department. Now let’s go to the nuclear option. Despite all of your best efforts, there is no money available, that maybe the company’s not doing well, maybe other things are happening. Are there any warning signs that you need to leave no matter how great the company is?

Kassandra:
Well, if they’re a public company and they’re traded, you should be watching their stocks to be honest. So that’s kind of left field. Most people are like, [crosstalk 00:35:31].

Mindy:
That’s a great tip.

Kassandra:
So you should be watching their stock. You should be following the company’s results. Every company that’s traded on the stock exchange has quarterly earnings, and that basically tells the state of the company’s finances. They are published. They are public information. You can find it either within the company or outside, but either way you should be seeing if you are working for what other people, investors and shareholders, view as a healthy company. When you start to see that the company’s lagging, their earnings are off, they’re missing their earnings completely, like zoom, it just went south, you know what I mean, that’s an huge indication actually that you may need to look for another option. So that’s my first tip and biggest tip I would say.
The other thing is, how many people are quitting? How many people are being hired versus leaving? So see how your department or how your core team is shifting. Are people leaving? Where are they leaving to, if they’re talking about it? If people are leaving but they’re not hiring to fill that role anymore, they’re starting to share the responsibilities across people, these are signs. These are warning signs that you need to pick up on.

Mindy:
That’s really powerful. Don’t get caught being the last employee there to close up the company and then get your $1.50 severance.

Kassandra:
Literally. I got you another tip I thought of because I lived it. I’ve never really been fired from big girl jobs. I have lived through two corporate downsizings, and they’re traumatic. The typical rule of thumb is the longer you are there in terms of years worked, the higher chance you have to be let go. If you know that you’ve been at a company for, say, 10, 15 years and they’re looking to do massive cutbacks, you need to be very careful. So you need to start considering, should I negotiate for severance? Should I potentially take the money if you can find another job within your field? There’s a lot of things that wrap into this, but I want people to think that that is a potential possibility that you might be on the chopping block faster than someone who got hired only six months ago or two years ago because they cost less. You cost more typically.

Mindy:
That is a really good point because when they do a buy-out, it’s usually based on how many years you’ve been there, so you get a month for every year you’ve been there. Well, here’s two months versus 10. If you’ve been there for two years, you probably know the processes and understand enough that you can help them maneuver through [crosstalk 00:38:46].

Kassandra:
Like I said, they’ll keep you around because you’ve got the knowledge. Until you’ve passed that knowledge on to somebody else, you’re still golden to them, but as soon as that knowledge transfer occurs, you’re at risk.

Mindy:
Okay, that’s sparks a couple of questions. We’ve heard the advice that in order to get a big raise, you need to leave your job and go to another company. We’ve seen that in several of our guests, A Purple Life and Financial Mechanic, kind of job hopped. You and I are the same age. It was definitely taboo for us to job hop when we were younger, but now it seems like it’s no big deal to just spend a year at a job and then move on and move on and up in the pay scale. Does it look bad to your current company that you went out and sought another job even though you weren’t planning on leaving? Are they thinking to themselves, “Oh, Kassandra’s going to leave, so we will give her the raise so that she’ll stay until we can find somebody to replace her”? Or do they think to themselves, “Wow, Kassandra went out and figured out what her worth is, so we’re going to reward her by giving her so much money”? That doesn’t really seem on-brand for the companies.

Kassandra:
Gosh, I think it really depends on your skill set. It depends where you’re working. Like, if you’re working for Apple or Microsoft or Google, you know what I mean, they’re desperate to keep high-knowledge talent. So this is very subjective. For, let’s say, people who are doing administrative work or people who are doing clerical work, for example, in the minds of many companies it’s almost sad to say, but they’re a dime a dozen, meaning that you’re easily replaceable. So they don’t value you as much as they should. That’s where you need to be careful in terms of what role that you’re currently in. How much knowledge do you have at the company? For example, you mentioned, we’re in the same generation. I was one of those exceptions that did leapfrog before it was-

Mindy:
Wow.

Kassandra:
… en vogue because I understood that… Really, the ultimate bargaining tool is when somebody wants you. When you’re at that hiring process and they want you, that’s when they’re most willing to give you the most. Really and truly, that’s just the reality of how it works. So it is much harder when you are already installed in your job. You’ve been there for a couple years. If you haven’t been advocating for yourself and you suddenly find Jesus in the process and you’re like, “Oh my gosh, yeah, I’ve been underpaid. I need to fix this right away,” they’ve been like, “Oh, oh, okay. She’s now aware. How do we handle her or him?” It really depends how you’re coming in, what role are you working in, what company do you work for, what relationship do you have with your bosses. Again, I come back to that. If you haven’t established a positive relationship from the get and you haven’t maintained it, that’s your job. That’s part of your job. It’s not only your job to do the work. It’s your job to make your bosses think you’re a superstar because you are.

Mindy:
Oh, I love that. I love that. I’m going to mark that as a quote. We’re going to have that up. It is your job to make sure your boss knows that you are the superstar that you are. How frequently should somebody update their resume? I know people who have never… As soon as they get their job, they just put it to the side. I look at that girl in the mirror every day, although I’m not looking for a new job, I don’t want a new job, but how frequently should you update your resume? Because it’s kind of hard to remember all the things that you’ve done.

Kassandra:
Well, if you’re keeping a log of what you’re doing, it’s not hard at all. It comes back to that folder. So that folder serves multiple purposes. That folder is not only to help you navigate your present career and to demonstrate your value to your company in the hopes of being rewarded financially. It’s also to help you to position into a new job should you need to do this very quickly. LinkedIn is a great tool, and I don’t think enough people use it the way it is laid out properly. I think your resume updates should be happening in concert with your updates to your folder. You can set yourself a time, let’s say, every three months. You have a meeting with yourself. You look at your folder, and you’re like, “Okay, well, what projects have I working on or that I’ve completed that they challenged me? They provided me an opportunity to learn a new skill set, new software, new systems, new programs, new processes. Whatever these newness is that can translate in potential raises, whether inside or outside the company, that’s when you need to update your resume in tandem.

Mindy:
My final question, how long should your resume be? I ask this because I see a lot of resumes. I’ve seen some 25-year-old applicants who have a three-page resume, and I’m like, “Ooh, no. You’re supposed to do that now? No.” I mean mine’s not even three pages and I’m not 25.

Kassandra:
No, no. Max is two, and two is big max I would say. If you’re able to consolidate everything into a one-pager… Obviously, it depends on age. The older you are, you have typically more work experience but that depends. If you’ve been at the same company for three years or for 30 years, I should say, you can actually format it to one page where you just separate the roles that you had or what you’ve working on. Ideally, I think the rule is that HR typically looks a resume for less than 10 seconds and chucks it. If they don’t see what… The other part is a lot systems are automated, so they’re looking for key words in your resume. So if they’re not finding key words that align to the job posting, that gets chucked. So you need to [crosstalk 00:45:05]. I don’t know if you knew that.

Mindy:
It’s been a while since I applied for job really. I only applied for this job. Before that, it was a really long time.

Kassandra:
A lot of companies are using that automatic, automated screening process, and it’s based on key words. It’s no different than websites. If they don’t see a certain number of key words, let’s say five out of 10 key words that they have identified in the job postings that is important or crucial to finding the ideal candidate and it’s not on your resume, this is why your resume can’t be cookie-cutter for each job that you apply to.

Mindy:
Oh, say that again for the people in the back. Your resume cannot be cookie-cutter. Say it again.

Kassandra:
You cannot be submitting the same resume with the exact same description of your job to 10 different postings because, again, it comes back to those key words. Also, the job descriptions may not be… They’re not unique necessarily. They’re not exactly unique. So you need to cater to them. Again, do you want this job or not? It’s work.

Mindy:
It is work. Yes, it is work to find a job. I was laid off once. I completely deserved it. I was a terrible employee. I’m much better now. It was horrible. I was married at the time, I’m still married, but I was married at the time, which made it a lot easier to regroup over the weekend, and then Monday I was at the unemployment office. It’s been a long time.

Kassandra:
Well, we’re dating ourselves because I remember the unemployment office, too, because I did get fired when I was 17. I’ll admit that. I was a bad employee.

Mindy:
I was at the unemployment office, and then I grabbed the newspaper and started looking for jobs in the newspaper because that’s how you found a job in 2002, I think it was, maybe 2003. Either way, that’s how you did, and Monster.com was just happening.

Kassandra:
That was it.

Mindy:
LinkedIn didn’t exist. I would circle everything. Then I applied to absolutely everything. I wanted them to tell me no because nobody was calling me up saying, “Hey, Mindy, are you looking for a job?” That might happen now, but back then nobody was reaching out.

Kassandra:
No, the age of recruiters was not happening then. It’s a completely different world when it comes to job hunting now. Honestly, for me, I find it so much easier, but I think a lot of people are lackadaisical in terms of they approach finding a job even today. Recruiters will not knock on your email or call you unless they have seen something publicly about you that interests them. That’s just how it works. So you have to make yourself an interesting candidate. There’s a process. You need to put work into this. You need to stand out because there’s millions of other people that want… [crosstalk 00:48:11] they want the same job.

Mindy:
Yeah, yeah, absolutely, absolutely.

Kassandra:
How do you stand out?

Mindy:
Anybody who’s had one applicant for the job that they were advertising for.

Kassandra:
Exactly. If it’s one applicant, you should question whether you want that job or you want to work there.

Mindy:
Exactly, exactly. Oh my goodness, Kassandra, this was super fun. Is there anything else that you want to share that I forgot to ask or that you think people who want to prove their worth or want to go on and look for a new job need to know?

Kassandra:
I think we’ve covered so much. I would just encourage people to put yourself out there. Before you put yourself out there to ask yourself, what’s the worst-case scenario? Can you live with that worst-case scenario that they tell you no? Nine times out of 10, yes, you can accept that no. But don’t be afraid to put in the work in order to justify why you deserve more. So it’s not an automatic. It’s not a guarantee. But I think it helps you to grow as a person to be open to that conversation, exchanging that information and seeing, “Yes, I know I deserve it. Here’s why. But I’m open to feedback, too.” I think that’s part of the conversation that people don’t typically go into that with is open yourself up to their perception of you as well because you might be working and thinking that you’re doing great, and their perception of you is not the same. It may be for a reason that… miscommunication. This is an opportunity to correct it before things get worse.

Mindy:
Yes, yes! If you want a raise in six months, you need to know now that you’re on the right path.

Kassandra:
Exactly.

Mindy:
Kassandra, I love you. You’re the best.

Kassandra:
Thanks so much.

Mindy:
This was super fun. Kassandra, thank you so much for your time today. I really appreciate you.

Kassandra:
Oh, it’s my pleasure. Thanks for having me.

Mindy:
From Episode 287 of the BiggerPockets Money podcast, she is Kassandra Dasent and I am Mindy Jensen saying so long and toodle-loo.

 

David:
This is the BiggerPockets Podcast, show 588.

David:
It’s like saying you’re going to plant a tree and live off the fruit forever. The tree needs time to produce fruit that’s mature. It needs time to mature itself. So you’re going to keep working while that tree is growing, but the important thing is that you’re planting trees while you’re working. What we don’t want is for people to just keep going to work every day and do nothing to improve their position so that five years down the road, you’re in the exact same position, but with a little less hair.

David:
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast here with a Seeing Greene episode where I take your questions and I answer them from the Greene perspective. You get to see it from the way that I’m seeing it.

David:
Today’s show is fantastic. We get into the question of should I or shouldn’t I build an ADU? How do I know how much an ADU is going to be making my property worth? We talk about should I put more money down on real estate to improve cash flow or save more money to buy more real estate? And I sort of walk that person through how much they’d be saving and what the better option would be in each circumstance.

David:
We talk about how to find real estate meetups in your area or how to start one. And we get into several times when to know it’s the right time to live off your cash flow. This question’s coming up a lot. A lot of people are asking it. There’s so much change that’s happening in the world right now and people are looking for certainty. And isn’t that something? We all want that certainty and we want to figure out when does cash flow become certain? Should I quit my job? Should I keep my job? Should I work part-time? Should I work [inaudible 00:01:34]? Should I work remote? Should I buy more real estate? Should I wait? We’re all thinking the same thing.

David:
So we get into that today. We have some really good answers. And then I also read some comments that you have all left on YouTube. So as you’re listening to this, if you hear something that makes you laugh, if you hear something that makes you think, if you hear something that you wish I would’ve dove more into, please go into YouTube, leave me a comment. Tell me what you thought about it so I can do a better job of answering.

David:
And the last thing I’ll say is I want to hear from you. So go to biggerpockets.com/david and leave your questions so we can get you featured on the BiggerPockets Podcast.

David:
Today’s quick tip is going to be consider how hard your equity is working for you. Many of you that bought real estate in the last two to five years, some of you did it through me, have way more equity than what you think. Prices are going up so, so fast. And in many cases, rent is not keeping up. So if you’ve got a property where cash flow is not keeping up with the equity that you’re creating, it’s a really good time to consider selling it or refinancing it and using that capital to buy more real estate.

David:
There’s lots of ways you could do this. Companies like mine can help you qualify off the income of the property you’re buying, not your own personal income. We can figure out ways to do refinances where you don’t and have to put any money into the refinance. We can figure out how to tell what your house is worth and what the equity that you have in it is doing. It’s called return on equity. So we look at it and see how much money are you making on the equity you have versus how much money could you be making if you reinvested it more wisely.

David:
So don’t play the set it and forget it game. If you already own real estate, make sure that that equity is working just as hard for you as you are to earn money to get the next deal. You better not be out working your real estate. Make your real estate work harder than what you’re doing for sure and message me if that’s something I can help you with.

David:
All right, without further ado, let’s get into our first question.

Suzette Haas:
Hi, David. My name is [Suzette Haas 00:03:23] and I live in New York where I invest in the Hudson Valley area. My question for you is why is no one talking about climate change? I know so many investors who are investing in Texas and Florida and Arizona and I know that you’re invested pretty heavily in California. And without getting too political, I do feel like these are the states that will most likely feel the biggest effects of climate change.

Suzette Haas:
And so my question for you is do you consider climate change when you’re investing? And if so, how do you protect your investments and how do you protect your portfolio for 10, 20, 30 years down the line when you’re either underwater or you have no water?

Suzette Haas:
Anyway, sorry if that’s really loaded, but thanks so much. I appreciate it. Bye-bye.

David:
All right, Suzette, thank you for this question. What a way to kick things off. I will admit I was waiting for when this would happen. I didn’t know when it would happen, but I was pretty sure it would, when someone would ask me a question that I literally would not be sure how to answer, and you win the prize for doing that.

David:
So I’m going to sort of talk myself through this out loud and share my perspective on it, but I want to highlight it by saying many times when I’m speaking, I’m telling people this is what I know or this is what I believe based off of what I’ve seen. This is not one where I’m doing that. This is just me sharing my thoughts. They could change at any minute, and it’s not something where I’m speaking with authority on.

David:
So you asked a really good question. You kind of caught me off guard, so let’s see if I can work my way through this.

David:
First off, I really appreciate you saying you’re not trying to be political, and I’m not going to answer it from a political perspective. I don’t know what’s happening with climate change to be completely clear. I hear conflicting science. I see that there’s things that are saying we’re headed down this road and I hear other things that say this is normal and it’s cyclical.

David:
So understand I’m coming from a position of where I’m just not sure what’s going to happen. And it’s really not a political issue when you’re looking at it from a real estate investing perspective, it’s just a practical issue, which also starts with P, so maybe that could be something we could say, move from political to practical.

David:
I do invest in the states you’re saying. I invest in Texas, I invest in California, I invest in Arizona, and I’m in Florida. I don’t remember if you said that one, but yeah, I’m in a lot of these states that are very sunny and warm for a lot of reasons that I like about them. And I can’t say I’ve never wondered what if Arizona runs out of water?

David:
I remember actually Googling that five or six years ago. I was really worried about it. I was reading all these articles. And some of them were saying Florida is headed for a cliff edge. They’re going to completely… Or sorry, Arizona is going to run out of water, and others said this is not a problem at all. There’s all these solutions if that did happen, but it’s not going to happen. Southern California itself is an area that I believe has to import water for what’s going on.

David:
So I can’t say it’s not going to happen, but I can say I don’t worry about it. I just don’t know if I’m right. Maybe I should be more worried about it. Maybe that’s what you’re… raising the flag.

David:
But here’s why I’m not worried about it. In the beginning of the pandemic when we had a shelter in place, most people in my position, whatever you want to call them, pundits or influencers or people with a platform or authority, were telling everyone sell everything you’ve got, we’re headed to a depression, you want to be cash rich. All of these deals are coming along because the whole country’s getting shut down. Nobody’s going to go to work. Everyone’s going to default. Tenants aren’t going to pay, landlords are going to get foreclosed on, regular homeowners are going to get foreclosed on. They were kind of painting the whole Chicken Little, “The sky is falling.”

David:
And I don’t know anyone else that was taking my position other than maybe Brandon, who I don’t even know if he actually agreed with me. Maybe he was just a good friend and he wanted to support me. I never talked to him about it, but I said I don’t think so. I think the government’s going to print more money because the politicians we have in place tend to solve problems that way.

David:
Lo and behold, I was right. We’ve had tons of appreciation since then. We didn’t see a dip at all. And if you invested in real estate, you did really, really well.

David:
So the reason I saw something that other people didn’t see was I wasn’t looking at logic, as weird as that sounds, which I prefer to do. I was looking at human behavior and I made my bet based on the fact that politicians want to stay in office and that if they give human beings what human beings want, they will get voted in, and what human beings was stimulus and money to come around and moratoriums and all these things.

David:
I’m kind of betting the same thing when it comes to climate change. Everyone loves living in Southern California. People love living in Arizona. They love living in Texas and Florida. There’s a lot of human beings that are there that would rather be there than North Dakota or maybe Maine.

David:
I think if we did hit a issue where if water became a problem, that we would put a lot of pressure on some of our best engineers and scientists to solve that problem. And I don’t want to sound like I am a scientist because I’m definitely not, I’ve just seen this happen time and time again, that when something goes wrong, human beings are wildly creative with coming up with solutions when it matters to them.

David:
As far as the property being underwater, I don’t think that’s a thing we can solve, right? That’s probably more of a legit concern if we are in a situation where the ocean is rising to a point where, in 30 years, some of this stuff would be underwater.

David:
So I guess what I would think is if I go back 30 years, were there properties that are now underwater, but weren’t back then? Have we been seeing that happen previously, right? Is there a track record I could see of the ocean rising at a certain rate so the stuff that was on the seashore is now covered? And if not, has something changed in the data to make me believe that that’s more likely to happen now?

David:
And to be frank with you, you asked the first question I’m not really sure how to answer. I don’t have that data and I am not sure. If I start seeing more and more information coming up about this, I would probably look to sell my homes, but at the same time, who’s going to buy them? Because they don’t want to buy a property that’s going to be made underwater as well. Maybe you put them on stilts or something like that.

David:
Okay, so I’ve admitted that I don’t really know what’s going to happen, but let’s talk about if I do, right? Let’s say in either direction if we think this is going to be a problem.

David:
Certain areas, like you’ll see in the Gulf Shore or in New Orleans, they’ll build properties elevated because floods are so common there. So that’s one solution, is if you’re going to buy a property in an area that you think might end up becoming underwater, you buy at a certain distance away from the shoreline. Don’t buy right on the beach, or buy a property that’s been built with a foundation that allows it to be raised so that if the waters do come in, it’s okay. You may have a city like Venice that could come out from something like that.

David:
Buy properties near an area where there’s golf courses or heavy populations where there’s already water present, right? Maybe if you’re in an area that might run out of water, make sure there’s a strong supply line of water coming in from a different area that’s not going to run out of water. Don’t buy in an area that’s dependent on another area for water if that area could run out of it.

David:
I suppose that this is probably worth looking into, I just don’t know how far out that would be from a reasonable perspective and I’m not able to anticipate what’s to be expected. I think what you said poses a really good question. I think I took way too long answering this because you caught me off guard, and I want to commend you for being the first person on this show to ask a question that I really was not prepared to answer. Well done, Suzette.

Garrett Ott:
What’s up, BiggerPockets? My name is [Garrett Ott 00:10:44]. I’m a newbie investor from the Chicagoland area looking to house hack my first multi-family property.

Garrett Ott:
To avoid any major headaches, I’d like to purchase something with minor necessary renovations so I can focus more around the fundamentals of investing, and right now I’m weighing two options, one, find something that’s more affordable and be able to put down 5% to 10% to decrease my mortgage and increase my cash flow, or two, buy something a little bit closer to my preapproval numbers and only put down 3.5% to 5%, but still have a cash flowing property with something that has greater value at the end of the day.

Garrett Ott:
Which option would set me up in a better position to buy my next property sooner and are there more options that I may be missing that would still stick to my criteria? Thanks for any help.

David:
All right. Thank you for that, Garrett. It’s nice to have a question I know I can answer. You’re allowing me to address a couple of misconceptions that are powerful that I am really appreciative that I get to do.

David:
This comes up all the time with me as an agent representing clients. People come and they say basically what I’m hearing you say, is, “Should I put more money down to increase cash flow or less money down to keep more money in the bank to buy more real estate?”

David:
Here’s the way that I’m going to answer that. The short answer is when rates are very low, putting more money down doesn’t help you, not nearly as much at least. When properties are appreciating faster, putting more money down is not as wise of a use of your capital.

David:
If rates are very high, putting more money down will help you. And if properties are not increasing in value, putting more money down doesn’t hurt you as much.

David:
In our environment right now, properties are going up pretty quickly in price and rates are still really low.

David:
So let me give you an example when you’re talking about the difference between should I put down 3.5% or 10%? At a 3.5% interest rate, if you borrow an extra $1,000, so look at that like if you don’t put down a $1,000, it’s going to cost you $4 per month more. That’s how low rates are right now. So for someone to say, “I’m going to save up 20 grand and I’m going to put it down on the house so that I can get more cash flow,” 20 grand at a 3.5% interest rate would work out to the difference of 80 bucks a month.

David:
How long is it going to take you to save $20,000? How much do you think property values are going to go up to save that $80 a month? Here’s the problem. In the time it takes most people to save $20,000, properties have appreciated so much that they have to borrow more money to get it. And that 20 grand, not only did the property go up more than 20 grand, but now they have to borrow more than they were going to so that they don’t actually end up saving that $80 month. It just isn’t worth it to do that.

David:
In this environment that we’re in right now when we’re recording this show, my advice is that you put less money down on the property and you keep more money aside. That’s assuming that $80 a month isn’t going to break the bank. If you’re thinking that it’s more risk to take on $80 a month, you might not be in a position where you should be buying real estate at all, just to be frank. You need to improve your financial position before you try to own your position owning properties in your portfolio. Most people, 80 bucks a month isn’t going to end the world. You could pick up a shift at a coffee shop or something one day out of the month and you can make up that 80 bucks a month if God forbid something terrible happened.

David:
Now, money in the bank is worth more to you. First off, it’s 3.5%. You can get a better return on that buying more real estate. Second off, you can put money into the house to fix it up to make it worth more. You’re going to get a better return than the 3.5% that you’re saving by putting it down on the real estate. Third, you can keep that money in reserves. That’s worth more to me than paying it down on a mortgage. If I have that money set aside for if something terrible that goes wrong, I feel way better about it than just putting it down when rates are already super low.

David:
If we get into an environment where rates get back up to where they were in the ’80s, you know, you’re in the 20%, 25% range, I think they got up to like 21% or 22% back then when they were trying to combat inflation, my advice will flip. I will be like, “Put more money down and only buy the best deals because we don’t know what’s going to be happening.”

David:
So I hope that helps. I hope that that number… I just keep this in mind. At 3.5%, it’s about $4 a month to borrow 1,000 bucks. So if I want to borrow five grand and more, it’s going to cost me 20 bucks a month. That is stupid low for what I can get with it. So I’d rather save five grand, borrow it from the bank instead, have my payment be 20 bucks a month more, and use that five grand to either keep in reserves, make the house worth more, or buy more real estate with it.

David:
All right, Next question comes from Ryan Hayes. Ryan asks, “Hey David, I wasn’t sure how to find out, but I’d like to come to your meetups. I’m right here in the Lodi area.” Little piece of pop trivia. If you watch that show Sons of Anarchy, that took place in Lodi, California, which is about maybe 20, 30 minutes north of Stockton, which is where I went to junior college and very close to where I grew up in Manteca. “I’m a big fan of BiggerPockets and I’m a real estate investor. How do I find out when they are and where?”

David:
Okay, so for me specifically, you could go to davidgreenemeetups.com. You can register. It’ll put you on an email list. We will tell you when I’m going to be having a meetup. You can follow me on social media, @davidgreene24. Typically on Instagram, we will post when we’re going to be having a meetup. You could go to davidgreene24.com, which basically kind of shows everything that I’m doing. So if you want to come to meetups, if you want to travel to hear me speak somewhere else if I’m going to be at a conference, if you want to sign up for my text letter to see what’s going on, if you want to come to a webinar that I’m going to do, there’s a lot of stuff that I end up doing and that’s a great place to kind of follow and get in touch.

David:
Now, some of you don’t live in Lodi. Some of you live in other areas and you’re probably not traveling from Bangor, Maine to come to California just to come to my meetup. So for those of you in that position, BiggerPockets actually has a place where you can advertise your meetups, and we advertise them on their pretty frequently too.

David:
So if you search BiggerPockets for meetups, you’ll find that there’s a page that people go to specifically to say, “I’m having a meetup and it’s going to be here. This is how much it costs,” or it’s free or whatever. Everyone should be doing that. Search to see if there’s a meetup in your area that you can go to. And if there’s not, guess what? You get to be the one to create that meetup. They’re pretty freaking fun.

David:
Now I don’t do meetups like normal people do where they typically just have a bunch of people come and just hang out and talk and drink, right? I always try to be more direct and give more value than that. So when I do a meetup, it starts with socializing. And then when I get there, I have a presentation planned. I’m teaching on a topic. I educate people so that it’s worth their time. Then I take questions just like I’m doing right now and people throw stuff at me all the time. And I sort of give as many answers as I can because everybody who’s listening gets to benefit. And then if they have follow-up questions, they get to ask it.

David:
I don’t think that everyone does it like me. I don’t think everyone’s an educator from the sense that I am and they probably don’t have the experience that I do to be able to. So some of them are just kind of chill places where you just meet people. That’s literally why it was called a meetup. It’s a very unorganized event. Mine are more like a minor seminar or something like that.

David:
But I’d love to have you come to mine. We’ve had people that come from out of state to go to them. I get really good reviews about when we have them and they’re really fun. I get to introduce people to real estate agents on my team, loan officers on my team. I get to talk about my own deals.

David:
So I advise everyone to go to a meetup. And if you’re not in an area that has one, start one of your own.

David:
All right, we’ve had some great questions so far. I like them. Again, I got stumped for the first time ever. I’m going to be thinking about this one now because I really haven’t thought about climate change in the overall plan of how I build my portfolio.

David:
In this segment of the show, we’re going to talk about some comments that people have left on YouTube. I actually got this idea from a comedian named Nate Bargatze. If anybody doesn’t know who that is, go check him out. He’s very, very funny. And on his podcast, they actually read comments from his viewers. And his viewers like comedy, so they leave really funny stuff and then he gets to read out loud what they’ve said.

David:
So we’re doing that. I want to encourage you to go leave comments on there, and the funnier, the better, I mean, don’t be too mean about it, but if you have a question about a specific thing that didn’t get answered, if you want to tell me that you’d like to hear more about a certain thing or if you just want to leave a funny comment, we’d love it, we want to read them, and this is the segment of the show where do it.

David:
The first comment comes from Helene Solomon. “‘It’s okay for things to get worse before they get better.’ Smart quote. Sometimes better to look longterm and try not to lose sleep if things are really bad now. Thanks, David.” Hey, I’m guessing that was my quote, so thank you for saying it.

David:
Let me give you an example of how this works out in real life. So my partner and I put a property under contract in Scottsdale. That would be Rob. And we actually have some episodes. I don’t know if they’ve been released yet, but if not, they will be, where we break down our process of how we come up with a plan, how we analyze deals, how we communicate with the realtors, how we make decisions, how we write officers, everything, we lay it all out there for you. I think I said write officers. I meant write first. Sometimes my brain works faster than my tongue does.

David:
And on one of those deals, we found out today that because we own so much real estate, the lender that we’re going to do the deal through wants a ridiculous amount of money in reserves, like $750,000 just for this one property. And it became one of those things where things got worse.

David:
So instead of just quitting or getting discouraged, I got on the phone with my lending partner, Christian, and I said, “Hey, Christian, this isn’t going to work. We have to figure out some way around it.” And he came back and he said, “Well, we could structure the loan a different way.” And the different way of structuring the loan is actually going to require 10% down, not 15% down, and the rate is going to be similar. It’s going to be a little bit more work on our behalf, meaning we have to get more documentation, but we’ll be able to refinance out of it later if we want.

David:
And that is a situation where things got worse before they got better. So it’s going to be a little bit more work for us to have to get the documentation together, but we’re saving 5% down on a $3.2 million property. So that’s a significant amount of money that we’re not going to have to raise or put down ourselves.

David:
And that’s just an example. Sometimes things get messy. You got to clean up your books before you get a real understanding of what you’re looking at, or you have to hit rock bottom with a certain strategy you’re using or way you’re living life, but it’s okay for that to happen. Don’t look at things and say, “I’m only going to keep going if I make progress.” Sometimes things go wrong.

David:
And I talk about this in the TED Talk that I did. So if you want to see that go to dgtlive.com/textletter. And you can sign up. We have a link in there to see my TED Talk. You might be able to find it on YouTube. I’m not sure if you can find it just by searching right now.

David:
But I talk about how many times in life when I’m trying to build a skill, things get worse before they get better and that it’s actually a normal part of life and it’s not something to be afraid about. So thank you, Helene, for sharing that.

David:
Next question from Billy [Cha 00:21:47]. “Something I love most about this show is that you have successful investors sharing free and valuable knowledge with zero Ferraris, Lamborghinis, or suits and ties. No flashy multimillion dollar mansions, no half-naked women, just knowledge. Thank you.”

David:
Well, thank you, Billy. That’s sort of the BiggerPockets culture and we do strive to do that here. I’ve actually been told that I probably should dress a little nicer, right? Like I’m in a t-shirt when I do these. I drive a Camry, a 2017 Camry. I probably could get a nicer car. And I’m not against those things, but yeah, when you’re around a culture where they’re taking half-naked women or Ferraris, they’re basically just appealing to your greed and your lust to get you excited about real estate. And at BiggerPockets, we want to appeal to a better version of you. We want to appeal to freedom, to family, to potential, right? We want you to follow your fire. We don’t want you to follow your Ferrari.

David:
And I think that that’s a stronger well to pull from. If you’re doing this to get your time back and to get passion back in your life, it’s going to sustain you, whereas the desire to have a really nice car or really nice clothes isn’t going to be enough to pull you through the work you’re going to have to do to get there. So thank you for that.

David:
Our last comment comes from [Arielle Kopinsky 00:23:00]. “I think one of the things I’d like to see discussed is cash flow management. People say they are living off the cash flow, but I can’t figure out how. Between repairs, CapEx items, et cetera, the cash flow isn’t smooth. Do they siphon off some funds every month and have this ever growing bank account? My goal is to get to $15,000 per door for larger items, the roof, the furnace, et cetera, and then I feel like I can reinvest the rest, but I still have other repairs. I also agree with others who say cash flow does matter. David used to say it’s the glue that holds deals together and is used to make repairs.”

David:
All right, Arielle, thank you for bringing up a crucial point in the conversation about real estate investing that we don’t talk about enough. Where do even want to start with this? Your answer is correct or your comment is correct, cash flow is very unreliable. And this is so important to me because I feel like it gets framed like cash flow is safe and appreciation is speculative. And I believe that comes from 2010 when we saw the market crash because people were betting on appreciation and not looking at cash flow. And they would’ve kept their home if they would’ve bought cash flowing properties.

David:
And so that stigma still exists today. The problem is appreciation is unreliable because you don’t know what the market’s going to do. You cannot control it. But cash flow is unreliable because you don’t know what your tenant’s going to do or your property’s going to do. You also can’t control that.

David:
And here’s the problem, I don’t like people saying cash flow is safe. It’s not. Any of us that own real estate know living off cash flow is incredibly risky and difficult to do because you don’t know when things are going to go wrong. It’s a very unstable foundation.

David:
Now, over time, so like the properties I bought in California in 2009, ’10, ’11, ’12, 10 years ago for some of those properties, they’re relatively stable because I’ve already fixed a bunch of stuff that has gone wrong and rents have gone up so much that if new things go wrong, it’s covered by the increase in rent. All right? But properties I bought a year, two, three ago, stuff keeps popping off and going wrong and I got to keep fixing those properties up, and the problem is if you think you’re a bad investor because you didn’t anticipate that.

David:
This is why I personally give the advice that for the majority of BP listeners, quitting your job and going full-time in real estate is not the best thing to do unless you’re starting a business in real estate, like you’re going to become a wholesaler or a flipper or a real estate agent like me or a loan officer or a construction person, you’re going to do some type of trade work or start a business that’s involved in real estate. Yeah, you’re full-time in real estate, but you’re not a full-time investor. You’re still sort of earning income. And that’s because the income that real estate provides, it’s like planting a tree. It’s not going to produce the fruit that you’d expect when it’s been around for 20, 30, 40 years.

David:
So the answer to your question, how are people living off cash flow? They’re typically living off cash flow properties they’ve owned for a lot longer than a year or two when they bought them. They’re also typically not living off all the cash flow. They’re setting aside a big chunk of it. And even then, sometimes you get hit with a bill or you get hit with a repair that’s more than you have and you got to take money from your personal account. It’s okay to do that.

David:
This is why I always tell people to take the longterm approach for real estate investing. It’s just, in my opinion, it’s unwise, it’s not prudent, and it’s frankly somewhat misleading to tell people, “Hey, you can buy a house and you can never work again,” or, “You can buy four houses and never work again.” It’s like saying you’re going to plant a tree and live off the fruit forever. The tree needs time to produce fruit that’s mature. It needs time to mature itself. So you’re going to keep working while that tree is growing, but the important thing is that you’re planting trees while you’re working. What we don’t want is for people to just keep going to work every day and do nothing to improve their position so that five years down the road, you’re in the exact same position, but with a little less hair.

Brian Smalls:
Hi, David. My name is Brian Smalls, long time listener of the podcast. I’m a new investor and my question is centered around cash flow. I hear about investors who use cash flow to be able to maintain their lifestyle, so to take care of their daily, monthly living expenses. But at what point is it okay to do that? I know that I’m supposed to be accumulating cash flow to have reserves and then also take care of capital expenditures, but at what point is the coast clear, is it safe to start utilizing cash flow from my rental properties? Thanks.

David:
Brian, thank you for this question. I sort of addressed it a little bit earlier in one of the comments from YouTube and so I won’t go into it as deeply as I normally would because I addressed it there.

David:
Just my opinion on this is you typically shouldn’t be living off your cash flow nearly as soon as what you would think. I think I’m sensing hesitation in your voice that it doesn’t seem wise to do it and you’re cautious, and I want to encourage that part of you. Have way, way, way, way, way more in reserves than what you think you would ever need, okay? We want to plan for the market correction.

David:
Now, I don’t wait to buy for the market correction, I just buy more aggressively when I see a market correction, but I’m still buying right now. I don’t think we have a correction coming anytime soon. My guess, because it’s all a guess, we’re all just betting if we think it’s going to go up, it’s going to go down, taking action is a bet, not taking action is a bet. You take where we were 10 years ago, we’ve gone up to here and people think that’s high, and they’re waiting for a correction where it might drop 50%. Well, it might go up twice as high, and then when it drops by that 50%, it’s still going to be higher than where we are right now.

David:
And that’s why I’m still buying real estate, but I’m not living off cash flow. I am one of the people who is financially free. I could retire and I could live off my cash flow and never work again, just like a lot of people say, but I don’t like that because it’s a shaky foundation. I’m actually starting companies and building businesses and training people to help create profitability.

David:
I’m in an expansion mode right now because I see that we’re in a high inflationary environment with a lot of opportunity to make money and I want to make hay when the sun shines knowing it won’t always do that.

David:
Now, some people think that’s greedy. Some people might say it’s greedy to not quit your job, to work a job and have cash flow coming in. I don’t think it’s greedy. I think that I am conservative. I think I’d like to have so much money put aside that I don’t have to worry about what happens if I have a vacancy. I don’t even even want that question in my mind, right? I will stop working when I get to a point that I don’t have to ask myself what something costs if I want to buy it. When I no longer equate time to money and I just have enough money that it doesn’t matter, that’s when I would consider, “Okay, I don’t have to work.”

David:
And I’m just not there. If I went to go buy a Ferrari right now, that would take a chunk out of what I’ve got. So I’m not buying the Ferrari, but I’m also not going to quit working.

David:
And I’m just giving this philosophy because I want everyone to understand that I have freedom in the sense that I can work from where I want when I want on what I want, okay? I don’t have freedom in the sense that I don’t have to worry about the economy shifting or property values dropping or a property having an issue, right? I don’t have that much and it’s okay to keep working, but I’m not working on stuff I didn’t like. I’m not working 20 hour days as a cop. I’m not working in the restaurant industry and then trying to go to school at the same time.

David:
It’s okay to work, but I get to do work I like. I get to educate people like this. I get to write books. I get to help people with selling their homes. I get to take the knowledge that I’ve built over the years and use it to help other people to build their wealth. So work isn’t bad when I like it.

David:
So what I would encourage you, Brian, and everyone else listening to this is when you get some cash flow coming in, don’t quit altogether, but do say, “All right, I don’t like this part of my job.” Let’s say you’re a sanitation engineer, you drive a garbage truck. You got to wake up at 2:00 in the morning and go to work. That’s probably not a lot of fun. When you have some cash flow, you can quit that job and you can go find a job with less stability, but more freedom.

David:
You’ve already taken a step toward freedom. You’ve improved your life, you just didn’t go cold turkey. And then when you get more cash flow coming in, you can take a position where you might just only work when you want to, right? That might be a place where you work sometimes and you don’t work other times. Maybe you take six months off of the year. Maybe you’re picky about what client you work with. Maybe you get into a commission-based industry like me where if for some reason commission stopped coming in, I’d be okay, but I still have the opportunity to make money when it’s there.

David:
I would just encourage you all don’t look at it like it’s this, then that, and that’s all there to it, right? It’s a spectrum. You’re kind of flowing in that direction.

David:
So the direct answer to your question, Brian, when you’re saying, “Hey, at what point can I live off the cash flow?” you should have so much in reserves, you should have your properties fixed up with new stuff, very unlikely anything’s going to go wrong, incredibly stable asset, then you can start living off the cash flow. But if you do things right, you don’t actually ever get to the point where you have to live off the cash flow. You can keep saving it and then have money from a job that you love coming in until you own so much real estate and you have so much cash flow that you’re okay to live off of it. Hope that helps.

David:
All right, next question comes from Amy who’s in rural Minnesota. “Hi, David, my husband and I are new investors, but I come from a family with a past in real estate investing. My grandfather, now deceased, had many rentals and eventually set up trust funds for several apartment complexes and storage unit sites with my uncle as the trustee and my siblings and I as beneficiaries. None of us have really taken a dive into all of this to see how to maximize the portfolio, we’ve just been enjoying passive income for years. My question is once a property no longer has the tax depreciation, what options to continue getting the maximum tax benefits of real estate investing? Should we sell the property? Should we use the equity to invest in something with a higher price tag? I am very curious how we can leverage equity to purchase more deals, especially since the 24 years of tax depreciation is up. One apartment building he bought over 40 years ago.”

David:
All right, Amy, thank you for leaving this comment. So let’s just explain what you’re actually getting at here. We talk about how there’s depreciation in real estate, and that doesn’t mean the value of the asset going down. What it means is you get a tax write-off for 27 and a half years of a equal part of what a property’s worth because technically it’s falling apart. Everything is that’s being built.

David:
At the end of those 27 and a half years for residential real estate, you no longer get to depreciate the assets. So if you made $10,000 in income, you’re going to pay taxes on that full $10,000. Otherwise, if your depreciation was say $7,500, you’d only be paying taxes on $2,500 of this real estate.

David:
So what I think you’re asking here, Amy, is, “Well, how do we get back into that cycle where we get the tax benefits?” I’m not a CPA. I’d have to check with a CPA before I gave a super firm answer, but my understanding is that you’d have to sell the property and buy a new one to get that depreciation and you won’t be able to do a 1031 exchange because that would keep the depreciation cycle where it’s at right now. So if you sell the property, you take your hit, you pay your taxes, then you buy a new one, you can start a new depreciation cycle.

David:
Another thing to consider though would be if you refinance the property, you increase the debt on it so that your profit is less on that property, okay? So let’s say it’s paid off and you’re making 10 grand a month on it, what if you refinance it and now you have an $8,000 expense because you borrowed money? So now you’re only making $2,000 that you’re being taxed on on that property, but with that money that you pulled out of it, you go by three more apartment complexes that all start a new cycle of depreciation that do have the benefit.

David:
So what you’re doing essentially is you understand this one that I own, I can’t get tax benefits from it anymore and I don’t want to pay capital gains, so I’m going to make this property less profitable by pulling money out of it and then I’m going to use that money to go buy three or four other more profitable properties that would maximize, increase the efficiency of what you’re doing like what you asked, and it would get you back on the depreciation schedule that you’re wanting to be on. If you want to message me about this refinance, I’m happy to look into it for you and see if we can do it, as well as give you some direction on what type of properties to buy. But that’s the way you solve the problem. When you feel like you can’t play any more defense, which is where you’re at, you play a lot more offense to make up for it.

Peter Amador:
Hey, David, this is Peter [Amador 00:35:45]. I’m based in New York and invest currently in the San Diego real estate market. My question for you today is related towards building an ADU on one of our properties.

Peter Amador:
So we currently own a single family home that is about a mile from the beach and is on an 8,700 square foot lot. It’s a perfect lot to build an ADU, and so we’ve hired a design and build firm and we’re moving forward with the permitting process.

Peter Amador:
My question to you is related towards what you see in terms of ADU values. It’s been difficult for us to get an idea of what the ADU will appraise at. We’re taking out a home renovation loan to do the build, and with that, we have to put in some of our own cash to finance the entirety of the project.

Peter Amador:
That’s totally fine because this is a longterm buy and hold play for us. And so as we start to think about what kind of appraisals we’ll get, we’ve been reaching out to appraisers as well as a couple different real estate agents. And the perspective has been quite all over the place, just because of the limited number of homes that have been built with an ADU and/or sold.

Peter Amador:
So my question to you is, one, what do you see as the best perspective in building an ADU on terms of that longterm value? And then two, how can we work and share information with the appraiser for them to evaluate the home, not only as a single family property as it’s currently zoned, but as a multi-family property because the duplexes in this area are selling for quite a bit of a premium. So thanks so much and look forward to your feedback.

David:
All right, this is a good question, Peter. I’m going to have to break this down into a couple different segments for my answer because you gave me a lot of information there.

David:
Let’s start with the beginning, why do we build an ADU? Well, same reason we invest in any real estate. We can simplify it by looking at the two ways that we’re going to gain. It’s going to gain equity, which in this case, it would make the primary residence where you’re building it worth more.

David:
The second reason is for the income, the cash flow, right? So your question of, “How much is it going to increase the value of my home when I get it appraised?” has to deal with the equity portion of it. “If I make this repair or if I make this improvement,” would a better way to put it, “by adding an ADU,” just like you make an improvement on your kitchen, “how much more does it make my house worth?” Let’s start with that.

David:
You’re on the right track. You’re asking agents and you’re asking appraisers. That’s the best thing that you can do. And what you’re hearing, it sounds like, is a lack of consensus. They don’t know. That would give me pause on if building an ADU is the right move to make.

David:
Primarily, if you’re looking at adding value to your property, you need enough comparables, enough data to be able to see, hey, these houses that have ADUs are worth this much more than those that don’t. And if they don’t have enough houses with ADUs, you’re not going to get that. You’re already entering into a place where you have less control and therefore more risk.

David:
The next reason that we build an ADU would be for the income. The problem with ADUs is you usually can’t finance them. So if you’re going to spend 100 grand or 150 grand to build this ADU, it will bring in more revenue. The question you want to ask yourself is, “Would I be better putting that 100, 150 grand into a whole new property, not an ADU on my property? Would I rather build a 900 square foot ADU or would I rather take that same money and buy a 2,400 square foot house?” That’s the question that you should be asking.

David:
And even if for some reason it looked like the ADU was going to bring in more income than the house, like it might cash flow more because there’s no loan on it, you have the fact that you didn’t take a loan on it. So if you go buy a whole other property with that same capital, you’ve now borrowed a lot of money that you’re paying off, or I should say you’re having your tenants paying off.

David:
If you do this with the ADU, you’ve in a sense just bought a property cash, which is rarely as good as financing it. Now, you can get away from the whole, “I just bought it cash,” if you can refinance and get the money back out. Now it becomes you financed the ADU, but that brings us back to the equity question of, “Is it going to make my house worth as much if I build this ADU to get the money out?” and you don’t know.

David:
So just as I’m hearing this right here, I’m not saying don’t do it, but I’m saying this is very uncertain. I don’t like it. If you’re in a position where you don’t have a ton of money, this could go bad for you in the sense that you sink a bunch of money in your property and you can’t get it back out.

David:
Now, another part of your question was, “How do I get the appraiser to look at it like a duplex?” because it sounds like duplexes in your area are selling for more. Yeah, I believe you did say that, the duplexes are selling for more.

David:
Here’s where I think you’re getting mixed up, the word duplex. Your definition of duplex is two properties together. So to you, “I’m building an ADU, I have a single family house, it’s now a duplex,” but to the city where the zoning is, is a duplex means one property split into two. It’s at a tax assessor parcel number for a property, but it’s still just one structure, and there’s only certain parts of town where they allow duplexes be built. That’s what you meant by the zoning.

David:
So if it’s zoned for multifamily, you may go to the city and say, “I built an ADU, can this be considered a duplex?” They’ll probably say no. That will be considered a single family house with an ADU. It is not the same as a duplex. And that’s where I don’t want you to get yourself in trouble because if duplexes are worth more and you think you’re turning it into a duplex by adding an ADU, you’re not. You’re taking a regular house and just bolting something onto it. That’s how the city’s going to look at it. It’s not the same as changing the actual title to a duplex.

David:
So before you go into this venture, that’s something you want to check with the city, “If I build this ADU, will you consider this a duplex?” And if they say, “No, that’s a single family home with an ADU,” you can’t call it a duplex, then you can’t sell it to someone else as a duplex, then the appraiser’s not going to give you the value of a duplex like what you’re thinking.

David:
I don’t want to see you go too far down this road to where it late and then try to make this into something that it’s not going to be, and I’m seeing some of those early signs right here.

David:
So I’m not going to say you don’t build the ADU, I’m going to ask you to stop and reconsider where you’re at. Before you go forward with this, see if the city will let it be considered a duplex or if the area you’re in is even allowed for duplexes. Typically if you’re in an area where it’s zoned for single family, it’s usually considered R1 or residential 1 unit.

David:
The next thing I want you to look at is, “Are there comps that would show I could get my money out of this by adding an ADU and then refinancing?”

David:
And the third thing that I want you to look at is, “If I do this, is the cash flow that I would get the same or better than if I just bought a whole property that I didn’t have to build this ADU from the ground up?” If the answer is not yes to all three of those things, I would look for a more efficient way to use your capital than building your ADU.

David:
Now, here is the ray of hope I’m going to give you if the answer is no to those three things. You don’t have to build an ADU from the ground up, a whole separate structure. You may be able to build out from the existing house that you already have and you may be able to do that from an area that has a bathroom very close or electrical already run so that you can create a studio or a one bedroom unit without building it from scratch. I do this all the time. If I have covered patios, if I have part of the basement that isn’t been developed, I’m looking at a house right now in Moraga, California that has this huge basement that has plumbing already run to it and electrical run to it, but it’s not finished.

David:
All that I have to do in that case is add finishings to it and build out a bathroom and frame up some rooms and I’m going to have added like 1400 square feet to this property with its own entrance to be able to go in. And I didn’t have to build it from the ground up. It’s going to be significantly cheaper because I’m not framing an entire property and pouring an entire foundation and I’m not putting a roof on and I don’t have to add windows because the basement already has it. All the things that make real estate expensive, I don’t have to worry about in this case.

David:
So look at your property and say can you do that? Can you make an ADU that way rather than building an entire new structure?

David:
And I’ll say this, if I was your agent, I would’ve had this conversation with you before you got in this deep. So maybe the next time you’re thinking about a venture like this, talk to some of these people first before you invest your time or your energy into the construction company that you have and make sure that there aren’t angles that maybe you’re missing.

David:
All right, that is going to wrap up another Seeing Greene episode. Now, I thought we had some really good stuff here. I got stumped on the first question that I just wasn’t sure how to answer. It was a bit of an eclectic question, so I’m not going to be too hard on myself, but it was definitely not something that I was expecting.

David:
We got to dive into the ADU dilemma, and this is a complicated situation, right? ADUs are not surefire things, but they’re also awesome in certain areas. So I kind of took a long time to answer that question, but I’m hoping that you all could see what my thought process was and how you should be looking at a situation when it comes to should I build an ADU or not build an ADU? It’s all about the most efficient use of your capital.

David:
In certain situations like that one, if you’re going to add value to the property by doing it and you’re going to increase cash flow and you’re going to get your money back out, it makes a lot of sense to do it, especially if you could build one for cheaper than you could build a new structure. And that question allowed me to kind of dive deep into that, so hopefully you all know should I build an ADU or not build an ADU.

David:
We got to talk about tax depreciation and some strategies you have if you own property for a long period of time and you’re no longer getting the tax benefits of it, how you can alter the way that you’re using the equity and I thought that that was a pretty cool solution that I hope would benefit you guys as well.

David:
And we got to talk about the cost of capital when it comes to loans and interest rates and if putting more money down actually benefits you instead of hurts you. I think a lot of people might have had their eyes open to what the facts and the numbers actually say when it comes to the decision of should I put more money down versus the psychology for maybe 20, 30, 40 years ago that was always like, “Put as much down as you can. It’s the safest road to go.” Back when rates were 14%, 15%, that made a lot more sense than what it does right now.

David:
I want to personally thank you all for joining me on this podcast. I want to thank you for the attention that you’ve given me and the time that you’ve given me. I also love the comments that you guys leave. So please, leave more comments on YouTube about what you’d like to see.

David:
I also want you to be featured on this show. So can you please go to biggerpockets.com/david and leave your question, and then let us know if you would be willing to be interviewed live on one of our live Q&A type shows. We want people that we can have show up and we can actually pick apart the situation they’re in and give them better advice for how to grow their wealth through real estate, as well as let all the listeners benefit from what’s happening.

David:
And lastly, if you want to get in touch with me, if there was something you wanted me to cover, if you’d like me to help you with your personal situation, maybe you own property and you’re trying to figure out how to use the most efficient equity in it, that’s what I love. I love when people already have properties and they want to know, “How do I get more cash flow, more appreciation, more efficiency, maximize the return I’m getting out of this?” please hit me up. That’s the stuff that we want to talk about. That’s where I want to help you.

David:
And then if you haven’t got your first property, BiggerPockets has tons of resources for you. Please consider going on the forums. Please consider looking into some of the boot camps that they have for new investors. Just type in newbie and see how many blog articles have been written and forum posts have been made for somebody just like you. It is so important that you get started on this journey. It’s a marathon. It’s not a sprint, everybody. And the sooner you start the marathon, the better.

David:
So let me personally encourage you to do that. I will open myself up. DM me or message me on BiggerPockets if you have a situation with a property and you want to talk about how you can maximize it. I’m happy to do that and I’m happy to connect you with my team to see how we can help you do the same. And then continue to give us great content so we can help you more.

David:
BiggerPockets is the best community for real estate investors out there. I want to thank you for being here. Check out the website, register for webinars, get more involved. Tell your friends about what you’re doing, and most importantly, take some action. Thank you very much. This is David Greene signing off.

 

Ashley Kehr:
This is Real Estate Rookie episode 168. My name is Ashley Kehr, and I’m here with my co-host Tony Robinson for this week’s Rookie Reply.

Tony Robinson:
And welcome to the Real Estate Rookie Podcast, where we focus on all of those investors who are at the beginning of their journey. Maybe you’ve got one deal, maybe you’ve got zero deals, maybe you’ve got a couple and you’re looking to scale. Either way, this is the podcast for you. Ashley Kehr, you’re not by yourself, you’ve got somebody else sitting next to you again. I love when we have a guest surprise in the podcast.

Ashley Kehr:
Yeah. So I’m sitting here with Daryl Clinch again. So if you guys listened, he was on two weeks ago for our Rookie Reply. And the day that he was on, he quit his job. Tony and I were actually getting ready to record and I said to him, “Hey, actually, do you want to be on the podcast so we can talk about that?” And he was put on the spot. So people seemed to love his story and be encouraged by it, but they wanted to know more. They wanted to know the numbers. So we brought Daryl back on to break down the steps he took and what the numbers look like to be able to quit his job.

Tony Robinson:
So Daryl, first, man, congratulations again on taking that leap, I know that’s both a scary and an exciting moment. But like Ashley said, I think we just wanted to dive a little bit deeper into your journey and how you got to that point. I think my first question Daryl is, and this is one that a lot of people struggle with is, how do I prepare for leaving that day job? How do I know if I’m ready? So a two-part question for you. First is, from a financial perspective, what were you doing to prepare yourself to take that leap? And then the second part of the question is, how did you know that you were actually ready to do it?

Daryl Clinch:
So, yeah, I actually didn’t even think that I would ever be able to quit my day job for the simple fact that I was there for 16 years. And when you think about something like that, you feel like you’re just stuck. There’s nothing else. “I’m here. I put this much time into it,” and whatnot. “So this is pretty much it/” but I knew I hated it. And I knew if I was going to leave my job, I figured, “You know what? If I’m going to find something else and do something else, I’m going to need at least $70,000 roughly a year in order to do that.”
So as I met Ashley or whatever, and we got to talk, and when I went through all my numbers and put it all down on paper, I realized that I was living way under my means and that I could actually make it work for $3,500 a month, that I could actually get by and live on it. And I could actually cut more costs and probably go even lower than that.So here I was thinking the whole time that I was stuck and this is all I could do. And didn’t realize that, “You know what? If you actually just go through the numbers, you possibly could live off a lower income.”

Ashley Kehr:
Yeah. So Daryl, when he said that $70,000 amount that he needed to quit his job, to replace his income, that’s when we sat down and looked through what’s actual expenses are, but also going through what his actual take home pay was. And that ended up being what, $50,000, I think-

Daryl Clinch:
Yeah, it was a little bit over $50,000.

Ashley Kehr:
… after he paid his union dues and all these other fees. And then another thing too, when you have a W2 job, he would have to drive every Monday an hour and a half-

Daryl Clinch:
Out of town.

Ashley Kehr:
… to work and then stay out of town and then drive back Thursday or Friday.

Daryl Clinch:
Thursdays or Fridays.

Ashley Kehr:
So just the mileage he’s put on his truck, the gas, there was all these other costs associated with working his W2 job, that he would have less expenses, because now, he basically works at home.

Daryl Clinch:
Exactly.

Tony Robinson:
I’m so happy you brought that up because I think that’s a part that a lot of people overlook. They’re like, “Hey, I’m making 70K a year,” but it’s like, “Okay, how much are you actually taking home?” My partner Omid, we’ll have him on in a future episode as well. But that was part of the reason why he left too, because he was like, “Man, once you look at taxes,” he was contributing to his 401(k). He was doing a stock net. And all these things were coming out of his paycheck. So when he looked at what he was actually bringing home, it was a lot less than what his gross pay was. So if you can frame it that way for the listeners about, okay, not so much, “What does my offer letter say?” But, “What is the amount that’s getting deposited into my bank account every two weeks?” Or however often you get paid, that’s the number that you want to keep in mind.
So Daryl, you work backwards. You figure out what this number is. At what point do you finally feel ready? Was it that you were like, “Okay, here’s a clear path for me to get to that,” whatever it was, $3,500 per month. Were you like, “Oh, I’ve got maybe six months saved up?” What was the thing that made you say, “Okay, I know that I’m ready?”

Daryl Clinch:
I was actually surprised. After we went through everything and I looked at it, I never really had to think about budgeting or whatever, just because what I made, it was comfortable and I didn’t have to be like, “Oh I need to save this or this and this.” And I did put a little bit of money away here, but I was actually really surprised when we did do the numbers at how much I could actually get by and by making that less.

Ashley Kehr:
I think when Daryl, we started talking about him quitting his job and becoming financially free, he had me explain it probably 50 different times as to how it’s going to-

Daryl Clinch:
I didn’t think it was possible at all.

Ashley Kehr:
… work, because he’s always been in that mindset of a weekly steady paycheck. And just me going down like, “Okay, here’s the different ways that you can make money as a real estate investor.” So writing everything down on paper and going through and actually physically showing him was a lot better than just saying, “Oh, I bet you a hundred bucks I can make you quit your job in six months.” But there definitely was that fear and that-

Daryl Clinch:
Oh it was super scary even thinking about it.

Ashley Kehr:
… a lot of trust put into me too as me helping him. But when we looked at his budget and going through it, there was subscription costs that he completely forgot that he had. I mean, the OnlyFans, those charges were… I’m just kidding. But the sacrifices he was willing to make in his budget too, if he needed to. So he was so amped up and motivated to be able to quit his job that he was like, “If necessary, you could probably live on $2,500, not even $3,500 too.” And he’s willing to make that sacrifice.

Tony Robinson:
So Ashley, you brought up an interesting point, that you were the one that walks Daryl through what this transformation or journey towards financial freedom might look like. And what I’m afraid is that some of our listeners might be hearing that and they’re going to say, “Well, hey. Daryl had the unique advantage of knowing Ashley Kehr.” Or, “Omid,” my partner “had the unique advantage of knowing Tony.” And that’s what our platforms, we kind of… We have some opportunities that maybe not the everyday investor has. So Daryl, what I’m curious is, were there any other… I guess first, maybe we can talk about how you guys built that relationship, because that might be instructional for people to hear. But second, was there anything outside of the relationship with Ashley that you felt was one of the things that allowed you to step away and leave your W2 job?

Daryl Clinch:
Yes, definitely meeting Ashley was a huge advantage that most people don’t have. And I’m very grateful for that, but I get laid off every winter. So leading into this, I told her, “You know what? I’m ready to do this. I want to quit my job.” And I just told her I would do anything I could to learn the process, anything I could about it to make money, to be able to quit my job. I hated my jobs that much. So I mean, yeah, her by my side the whole time giving me information, listening to every episode of the podcast, it definitely was an advantage. And then some of the other advantages that I do have is I was in the military, so I get my health through the military. So I don’t have to have a W2 job to pay for my health or to have health through a W2. So that’s one huge advantage and expense that I didn’t have to pay for right there as well.

Ashley Kehr:
And you live below your means too. Already, he doesn’t have any credit card debt or any major debt. You have a mortgage, you have a boat payment, and then you tell about your truck. You just…

Daryl Clinch:
Yeah. So I lease my truck, which is a low payment right now, but I’m turning that in and then I’m just going to buy a vehicle out that way. I have no payment out whatsoever for a vehicle. I don’t have to drive a super nice fancy vehicle. So I mean, if it gets me around and it’s cutting payments and making me live easier, then let’s do it.

Ashley Kehr:
Yeah. I think going back to your first question, Tony, about him having me as an advantage. Daryl and I have talked about this before, where there’s other people in my life that have had the same opportunity and they didn’t jump on it like he did. So I think so many people have different advantages and opportunities available to them, but it’s the people who actually take action on them. And how he even said that he would “do anything thing this winter to help me to learn.” And he did.
I mean, when I tore my ACL, this is my life auxiliary right here. He would come and set up my podcast studio for me and everything. I mean, he even does all my mail now. And we’ll talk about that too when we get more into the numbers of how he’s making income now. I mean, he went from doing a very skilled construction job to now, he is opening mail once a week. Yeah. I think the fact that he took advantage of this opportunity where a lot of people would say maybe they would, but they don’t actually take action and really maximize the opportunities that are available to them.

Tony Robinson:
Yeah. You bring up a really, really good point. Ashley. And I guess two things I want to ask that. First is that I get way more strangers who I’ve never met that reach out to me for real estate investing advice than I ever get from friends and family. And not to say that I can solve all of their… If they did have a question, I’d be able to answer every single question. But I definitely do have a skillset that I think I can show and teach to other people. Like you said, just because someone’s close to us doesn’t necessarily mean that they’re the most well equipped to take the knowledge and information that we have and apply it to their own lives. And then the second piece is that, maybe you don’t know Ashley Kehr, maybe you don’t know Tony Robinson, but is there someone else in your life who is walking the path that you want to walk?
And it’s like, how can you provide value to that person and create an opportunity for yourself? Can you go sweep up the job site? Can you be the person running to Home Depot to pick up supplies? Can you be the person knocking on doors, trying to help get off market deals? There are so many challenges every real estate entrepreneur faces. And if someone who’s hungry, who’s willing to work, comes to them to say, “Hey, I’m willing to help you solve this challenge,” if you really need it and you can show it and prove it, nine times out of 10, that person’s going to say yes.
If someone came to me and said, “Tony, I will knock a hundred doors a day all summer in Joshua Tree to help you find a deal. And all I want is for you to spend half an hour with me once a week so I can ask you some questions.” I’d say, “Sure, absolutely.” But that work has to be there. So anyway, my point is that even if you don’t feel that someone right now, is there someone that you can start providing value to help build that relationship?

Ashley Kehr:
Yeah. And I’ll explain too how we actually structured our partnership too. So once Daryl decide… Tell him what you did, how you used to spend your winters.

Daryl Clinch:
Yeah. So every winter, I was just sleeping in. I’d go to the gym and then I’d wake up and go snowboarding. And that was pretty much my day in the winters. Very not learning anything. Just like, “Okay, I’m going to go back to work. I’m going to just be lazy this whole winter.” Yeah, I legit did not do much.

Ashley Kehr:
And that sounds actually pretty nice, getting to just go snowboarding every day.

Daryl Clinch:
It definitely was nice.

Ashley Kehr:
Doing that. And then, so I think the fact that you shifted and did start to hustle and grind. So he did whatever I needed at first to learn, almost like an intern. And the agreement was, if this started going well, that we would do a partnership. So how we structured it is that we are 50/50 partners on the properties that we are acquiring together. So anything in my previous portfolio or with other partners that I’ve had, that if he does work for them, he’s just paid for that. He’s not getting any ownership of any other properties. So it’s just properties going forward.
So right away, we started working on getting properties under contract. So we have already closed on one and Daryl has certain roles and responsibilities that he’s doing. Yes, he’s getting to quit his job. But this has been a huge benefit to me too, because I found somebody who complements my strengths and weaknesses. And that was a huge advantage to me. That he’s taking over the project management. He does all the materials ordering. He does the estimates on the projects. He oversees the contractors. He has great leadership skills from being a foreman. And he handles the team of contractors. Great. Also, he did quality control in the military. He talks to people when I don’t want to talk to anybody. So there’s all these huge advantages.
And I looked at, “Okay, so I could hire someone, but also I didn’t feel like I was ready yet to be responsible for somebody’s full-time salary.” To say, “Hey, I need a project manager. Will you quit your cushy job and come your safe job and come work for me?” And so taking on a partner, whereas like, “Okay, this is a bit of a risk. You’re going to make money based on how we do as partner in this venture.”I have had pushback as to like, “Why would you just bring on as a partner? You have the experience, you have the knowledge.” But I will tell you what. He cares a 1000% more about what is going on in our business, because it is part of his, and that has made him an even more valuable asset it to me than if I would’ve just hired him on as an employee. And I’m more than willing to share the profit with him, because I know that I’m going to be able to grow and scale better because I have him as a partner on my team.

Tony Robinson:
Ashley, I think there’s a lesson to be learned in that, not only for the person that’s in your position, but also for the person in the other side. You just really echoed everything that I said leading up to that, is that, if you can provide value to someone, you would be surprised in the ways that they would be willing to work with you. You, as a successful already real estate investor, are willing to give up half of a deal to someone because they’re solving a problem for you. They’re making your life easier. So again, for the rookies that are listening, that should be your goal. If you’re looking for someone to show you the robes, you’ve got to identify, “In what ways can I bring value?” Ashley very clearly laid out all the ways that Daryl, as someone who’s new to the role of real estate investing, is providing enough value to her as a more experienced real estate investor for her to feel not only okay with, but eager to, give up half of a deal because it’s a win-win situation for both of them.

Ashley Kehr:
Yeah. Tony, I also wanted to mention real quick too, is we had Anthony Michael on the podcast. It was episode 147, and he did the same thing. He was in Daryl’s position and he went to an investor and basically forced himself into the partnership, but he provided value to this partner. And now, this guy was already doing a ton of flips on his own, But now, him and Tony are 50/50 partners on deals. So go back and listen to that episode too if you guys want to learn more about providing value to an investor to become their new partner. That was episode 147.

Tony Robinson:
So I guess last question for me, Daryl, I mean, so it’s been a little while now, maybe what, like a week or so, a little over a week that you’ve officially left. How is it feeling? Do you feel different? Is there a weight lifted off of your shoulders? Are you floating out of bed every morning now? What is the feeling?

Daryl Clinch:
Definitely not floating out of bed, but yeah, it is a great feeling. I look at some of the old coworkers that I used to have, their Snapchat or their Instagrams. And right now, they’re starting to start jobs up right now and hanging off the buildings and being up there at work and all the stuff I used to do. And I’m just like, “Oh man, I so do not miss that at all.” So yeah, it’s definitely a great feeling.

Ashley Kehr:
So like Daryl said, he thought that he needed $70,000. Okay. Then we looked at it and he was actually bringing home $50,000. And then I think what’s $3,500? That’s $42,000 a year, roughly, that he needed actually to get by. So that was definitely a lot more feasible than $70,000. It made me a lot more confident that I could help him reach that. So the first thing we actually did was I work for another investor. He’s the one I started out with. I did property management for him, and I’ve slowly pulled away from doing different things. And I just love him to death. And I’m so loyal to him that I just can’t completely cut ties yet.
So there’s little things that I shouldn’t even be doing, because they’re not the best use of my time, but great opportunities for Daryl to learn. So Daryl is being paid $750 a month for that, to take care of the asset management of this investor’s properties. So he’s leveraging the ability that he has to work for another investor, also learn, and get paid for it. So right there is his steady income that he knows he is getting. Then we have the two short term rentals that we’re doing. And even though those aren’t done yet, you have what, your savings you’re living on?

Daryl Clinch:
Yeah. I’m living on the savings that I’ve had that I usually deal with through the winter or whatnot. And that’s kind of what’s getting me by right now as we have no income really coming in from these rentals yet.

Ashley Kehr:
Until the properties are done. So those will cash flow each, about Daryl’s percentage, he’ll get between $400 and $500 a month each for those properties. And then we also have a mobile home park under contract where Daryl’s actually going to act as the property manager for that. And he’ll be paid a fee off of that. And then also he’ll get his percentage of the cash. So that’s estimated to conservatively be around $1,500, and then he’ll get paid a $300 a month management on that too. So that gets him pretty close to the number. And we should have these projects and the mobile home park wrapped up hopefully in a couple months. So he’s using his savings to float by. I have another benefit that he has is that I have a lot of other opportunities that he could do work for me to fill that income gap.
And then you have in construction and experience worst case scenario, we hire him as our contractor to whole work on our project. So we can talk about that. And that’s another thing too. If you are in Daryl’s position and you’re partnering with somebody and they’ll say, “Well, I have all these things you can do,” make sure you get it in writing. So we have a dollar amount that we’ve agreed upon that if he does do work on the properties, he’s paid that hourly rate. So having some the roles and responsibilities split up so that it’s defined as to who’s doing what, and that you can get paid for more if you’re doing them. So it never gets to that unfair balance, I guess.

Daryl Clinch:
Our contractors are actually getting paid more than anyone right now.

Tony Robinson:
I was just going to say, I think what I hope is inspirational for the listeners is that, in a very short period of time, you’re able to create a pretty clear path, Daryl, to getting towards your number. You had a little bit of cushion from your job to hold you over, but you work really hard. You work really fast, and you were able to see the light at the end of the tunnel. And it reminds me a lot of my own situation. When I got fired from my job, we had a decent amount of money saved up. I knew we could last 18, 24 months without really having to worry about where the next paycheck was going to come from.
And just having that little bit of runway was enough for us to really go pedal to the metal and really build a portfolio. And that’s the same exact thing you guys are doing now. So for those of you that are thinking about leaving, maybe it’s not even always… Depending on the sever things, but if you’ve got a big enough runway, if you’ve got enough cash saved up, and you’ve got a clear path on how you’re going to replace that income, maybe it’s not even waiting until your investments are completely replacing your income, but you’ve got a clear path to get there. That’s another strategy folks can use.

Daryl Clinch:
Right. And with me not working now as well, I can oversee these projects that we have going on. So instead of me working and then coming home and overseeing them, it gets the projects moving faster and better managed, that way they get done quicker so that we do start having the cash flow coming in.

Tony Robinson:
I mean, you can scale so much faster if you can be in it all day every day. There’s no way we would’ve purchased, I don’t know, 12, 13 short term rentals last year if I was still working full time. We just wouldn’t have had the bandwidth to do that. So there’s some fear and some scariness associated with taking that leap. But the amount of time you get that you can reinvest back into the business, you can’t put a price on that.

Daryl Clinch:
Yeah. Another advantage I’m using right now is I also get the VA loan. So I’m going to take the house that I’m currently living in and I’m going to move out of here and then buy another house to live in with the VA loan, which is no money down. I have to live in there for at least a year. So I’ll move into there and then I’ll rent this house. So there’s just another house hack that you can use and another advantage of being a veteran. And any veterans out there, I would definitely take advantage of these benefits that they give you.

Tony Robinson:
So if anyone’s thinking about quitting their job, quit, go into the military, and then quit the military, and then you’ll be able to follow in Daryl’s back.

Ashley Kehr:
Okay. Well, Daryl, thanks so much for coming back on and sharing your financials with us.

Daryl Clinch:
Thanks for having me on again.

Ashley Kehr:
Where can everybody for find you and reach out to you or learn more information about you?

Daryl Clinch:
You can find me on Instagram @DarylC138.

Ashley Kehr:
Okay. Well, thank you guys so much for listening. If you guys have more questions, more follow up, you want to know more, go ahead and message Daryl on Instagram. And we will be back on Wednesday with another guest. I’m Ashley, @wealthfromrentals. And he’s Tony @TonyJRobinson on Instagram. Thank you guys so much for joining us. We’ll see you next time.