Month: June 2022

Many jurisdictions in the U.S., other parts of Canada and around the world have been thinking outside the box and pushing the right buttons to boost the housing supply. Here in Ontario, we’d be wise to follow suit.

The State of California, for one, has taken direct aim at the problem. Despite substantial opposition, the legislature stood firm and passed into law Senate Bill 9, known as SB9, a radical density experiment which will effectively eliminate single-family zoning in wide swaths of the state’s cities.

The legislation overrides locally approved zoning rules and permits denser development in residential neighbourhoods. This will lead to hundreds of thousands of new homes being built.

SB9 will enable more housing options. The thinking is that new units will be smaller scale, more cost-effective, and more varied. This is critical as cities like Los Angeles, San Diego, San Jose, Berkeley and Oakland are in dire need of more housing.

Under the legislation, property owners now have the legal right to sever a residential unit property into two plots and turn any single-family unit into a duplex. So, instead of one unit on a single-family lot, the owner can build up to four units.

The legislation is controversial. There have been objections to the move, most notably from the media. For example, the LA Times said in an op-ed that it is the absolute wrong way to solve California’s housing crisis. Pleasanton vice-major Julie Testa wrote in a column in the Pleasanton Weekly.com that SB9 will destroy local control over housing and silence neighbourhood voices.

But the legislation has its supporters. An extensive and well-researched report by the Terner Center for Housing Innovation at UC Berkeley indicates that the legislation could enable the creation of approximately 700,000 additional new units, representing a 40-per-cent increase in existing development potential across single-family housing parcels in the state. The authors calculated SB9 would enable new development on 110,000 parcels where none were financially feasible before. 

Other jurisdictions have also made moves to speed up the production of new housing. Cities like Minneapolis, Tokyo, Copenhagen and Barcelona have jumped on the bandwagon and made substantial changes that allow for increased residential density. New Zealand has also revamped its rules.

In Oregon, the state made changes to ban single-family zoning and allow a duplex or four-unit building to be erected on land zoned for residential use if it is in a municipality larger than 25,000 people. It was the first law of its kind in the U.S. or Canada. The Oregon Home Builders Association reports that the state will have to build 584,000 new homes over the next 20 years to keep up with demand.

Closer to home, the City of Surrey, B.C., has approved a guaranteed timeline plan for building permit applications in an effort to limit frustration for builders. The city has beefed up its staffing resources and expanded its online digital permitting portal. Opening hours were also expanded by one day a week.

Meanwhile, Vancouver is also looking at establishing guaranteed timelines for building permit applications. A task force has been directed to explore the feasibility of waiving fees or giving automatic approval to applications that don’t get a decision within an established time period.

The city is also embarking on a new, city-wide plan centred on the need for adding housing through more density, especially in the many neighbourhoods zoned for single-family homes. A draft of the plan proposes to increase development near rapid transit and shopping areas and allow more types of housing in neighbourhoods of detached single-family homes.

But here in Ontario, we still have a way to go.

Our zoning policies are restrictive and stymie residential construction. In Toronto, for example, about 70 per cent of the city is zoned for detached houses only. The rules must be changed to allow for intensification.

The province has taken many positive steps to address the housing shortage, but there are still inefficiencies in the development approvals process. Further actions are warranted and necessary to keep up with demand and ensure that our industry can meet the housing target.

We must remove the many pointless systemic barriers to building and spur more missing middle housing by implementing all 55 recommendations in a report by the Housing Affordability Task Force. We must also streamline the development approvals process by adopting the One Ontario solution.

It is critical for Ontario to address the housing supply crisis. If the left coast can do this, so can we. 

Richard Lyall is president of the Residential Construction Council of Ontario (RESCON). He has represented the building industry in Ontario since 1991. Contact him at [email protected]

 

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David:
This is the BiggerPockets Podcast, show 626.

Zach:
I mean, there’s not a lot of difference. Whether you have a $200,000 single family in the Midwest, a $2 million deal in a more expensive neighborhood, you still evaluate the numbers the same. So don’t limit yourself looking at the larger deals and getting scared at participating in those, even if it requires bringing in some private money.

David:
What’s going on, everyone. I am David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with my fantastic co-host, Rob Abasolo, where we get into an interview with the CEO of Rent To Retirement, Zach, was it Lemaster, or how did he say it? Zach Lemaster. You know what’s funny is when Brandon did these shows, he always messed up the last name, and now I, as the host, find myself doing the exact same thing. It’s funny, because when I was the cohost, I always knew what it was and as the host, I don’t.
Well, Zach gives us a great interview from several different dynamic perspectives of real estate investing. So Zach owns investment property himself all across the country, some of it small multi-family. We get in to talk about a luxury property that he actually bought in Colorado in a ski area that he’s going to be renting for $5,000 a night at peak season.
He also owns a turnkey company. You may have heard their name, Rent To Retirement. They are familiar in the BiggerPockets space. You probably heard his ads on our show. And we get into how he runs a company, how he hires, why he believes turnkey could be better for some people. Really good stuff. Rob, what was your favorite part of today’s show?

Rob:
I think it was really nice to hear his insight into turnkey properties. He really spoke a lot on stacking your strategy and staying hyper focused, because he’s had a very cool trajectory in his real estate journey. He went from being an optometrist to going into wholesaling, then to residential, then to commercial, and like you said, incredibly successful business owner as well. So just really fun to always dig into those stories a little bit deeper.

David:
Absolutely. Before we bring in Zach, let’s get to today’s quick tip. Today’s show, we talk about the W-2 mindset and how it doesn’t always fit into the world that we work in, which is an entrepreneurial space, what I call the 1099 environment where you don’t have clear paths drawn out for you for an employer to walk in. You’ve got this huge, immersive 3D environment. You can take any path you want and it can be very scary and unsettling when you bring a W-2 mindset into this world.
So ask yourself, in what ways are you operating in a W-2 mindset, ways that you may be and not know it? Is it a unseen expectation that other people should be telling you what to do? The thought that when something goes wrong, somebody else should be having to fix it and not you? The belief that you shouldn’t have to do work after 5:00 PM, or that during the hours of 9:00 to 5:00, you need to be working all the time?
None of these are rules that are hard and fast, set in stone, they are habits that we’ve created because we’ve worked in a W-2 world for so long. And if that’s you, that’s okay. But if you’re trying to get into the world that Rob and I and Zach operate it on a daily basis, that could be holding you back. So find out somebody, sit down and talk about what ways you might be experiencing a W-2 mindset that’s holding you back. Rob, do you have anything you want to add on that topic?

Rob:
No. I think it’s always very helpful to talk to someone who’s actually made the leap and has struggled with just going full on in the self-employed. And I think one, funny enough, I always used to say that I was unemployed and then Tony Robinson, Rookie host was like, “No, man, you’re self-employed, be proud of it.” And I was like, “That’s right. I am.” So find someone, pick their brain and learn. That’s all you can really do.

David:
All right. Well, that sounds great, Rob. I’d say without anymore ado, we should get into our interview with Zach. Zach Lemaster, welcome to the BiggerPockets Podcast.

Zach:
David, Rob, thanks so much for having me. I’m excited to be here.

David:
Yeah, we’re glad to have you too. So let’s get started by asking you, what does your portfolio look like right now with real estate and business?

Zach:
Absolutely. This is an ever evolving scenario, but today what we’re looking at, we mainly have transitioned to owning a lot of commercial retail space. That’s the majority of our personal holding. So we have 30 commercial spaces or doors, I guess that’s spread out across seven doors. We have 29 residential units. Two of those are single family in Canada that we own. My wife’s Canadian. Majority are here in multiple states. We have a couple duplexes, one fourplex in that. We have one very unique, large short term rental and we have 18 build to rents. Those are all single family.

David:
Awesome. And then what about from the business side?

Zach:
Yeah, on the business side, so what we’re doing is our core business Rent To Retirement, we’re a turnkey provider. And so we work in multiple markets throughout the US, mainly in Midwest and Southeast. We probably do about 50 houses a month. These are mainly single family or small multi where they are rehabbed, leased, and managed for our investor clients. And so that’s really our core business.

David:
Sweet. So you’ve got your wealth in real estate. You make your money and business in real estate. You are like us, a real estate nerd. So how did you get started in this whole space?

Zach:
Yeah. I think real quick to your point, David, it’s interesting is we interview a lot of people that are really successful in real estate and other businesses. There’s so many people that make money outside of real estate and other avenues and put it into real estate. And there’s so many people that flip houses, but don’t hold houses. I always thought that was a very interesting thing.
But going back to our story, so I’ll try to keep this somewhat short for you. We have a background in healthcare, I guess. My wife and I are optometrists by education. We met in school in Oregon. I think I initially got interested in real estate investing, as many people did, reading just Robert Kiyosaki, Rich Dad Poor Dad. That really stuck with me just in the mindset. I continued to always educate myself about different aspects of real estate, although, it took many years to actually take our first step into investing.
So we went to school in Oregon. I was on a scholarship with the Air Force after professional school. So I went in as a Air Force captain for five years, practicing optometry there. That’s where we started investing in real estate. My first house was a house hack, duplex. Used a VA loan to purchase that, excellent loan. We kept that house as a rental for many years, continued to move out of that and scale up over time.
One thing I always tell people is every single year, since that first duplex, which is over 10 years at this point, we’ve bought more and more real estate every single year and that has really allowed us to scale our portfolio where we’re at today. That’s just an internal goal we’ve set, just with that scalability mindset.
One other thing we did early on was wholesaling. We started to explore. Wholesaling we thought was an interesting way to just basically use a side hustle to make money in real estate and was, I guess rather low risk, at least initially. As many people have done, I paid a large amount, $25,000 for a course, money I didn’t have at the time just coming out of school, and so we put it on a credit card. I was very nervous about that, couldn’t sleep, worried about losing the money. I brought in a partner that ended up paying 50% of that and helping us get started with wholesaling.
We grew our wholesaling business to the point where we were probably doing 15 properties a month, decided to keep some of those as rentals and scale that over time, and then decided to also manage those, which many mistakes were made there of course. We started to scale over time, investing in different states throughout the US.
And I think that’s really a pivotal moment for us because that opened up our eyes, when we found out that, hey, you can invest out of state following, it’s really the same process as you can locally. And it’s all about your team and systems in place. And that allowed us to really focus on growing our portfolio in areas that had the best returns.
Some of the first two properties we bought were turnkey properties from a turnkey provider. These were South Side, Chicago, D class assets, numbers looked great on paper, high end rehab. And so it looked all good on the initial investment and they just performed terribly.
And actually the provider we bought them from, who also managed the properties. He ended up dying a year later, had a brain aneurysm. We were stuck with these properties. There was just nothing to do, no one to help us. But that was really the catalyst for us to start our turnkey business is, hey, we can go out there and do this on our own, and develop our own systems just through having to learn through those experiences.
So fast forward to where we’re at today, we’re investing in multiple markets throughout the US, scaling our portfolio and doing a lot of transition into the commercial space. We own a lot of commercial retail and that’s an area that we’re focusing on allowing us to scale up quicker, do the tax advantage benefits of cost aggregation studies on those. So that’s where we’re at today.

Rob:
So I want to jump back just a hair here, and I wanted to ask you … Oh, well, I mean, you mentioned you spent $25,000 on a course and you split it with a partner. A lot of people do this. My question to you is when you’re getting started, do you feel like the success that you had, the boost that you had from this course, did it come from the fact that you just spent money on it and you said, I am financially committed to this thing now, so I’m going to do it, or did the success come from the knowledge that you got from it? I’m always curious to hear, because I think it’s 50-50 for a lot of people.

Zach:
Rob, you hit the nail on the head, it was a hundred percent the financial commitment. It’s like, oh crap, I better do something because I just dropped this amount of money that I don’t actually have. Sure, the course had some educational stuff. You had a little bit of coaching. They reviewed some contracts with us. The reality is all that stuff was available online for free or just networking with the right people. But it’s definitely the financial motivation behind it. I don’t think that’s necessary, but definitely it’s going to light a fire under you to make sure that you do something in that scenario. That’s what happened to us.

Rob:
For sure. And so when you were first getting started, just so I understand the timeline, I know you said you were into the optometry industry, was that what really fueled your, I don’t know, the initial capital to get into this? Or how did that work out when you were first getting started? Or were you using the money from wholesaling to really fund the purchase of all your residential properties?

Zach:
Yeah, it was a combination. I mean, we were also in debt. We had six figure student debt, so that was a little bit of a burden, of course. Having the VA loan allowed us to purchase that first property with no money down. That was an excellent loan structure. But actually wholesaling rather quickly became the main method to fund a lot of the rentals that we were holding.
Wholesaling was key for us because it allowed us to evaluate deals, learn how to find and evaluate deals. And that I guess was crucial in allowing us to evaluate how to take on deals that we were going to buy and hold. But that was a great side hustle, I guess, that allowed us to build capital much quicker than we would just in our typical profession.

Rob:
Are you still in that? I guess it’s a little bit more of a front hustle at this point, but are you still in that world or did you move on once you built your backlog of capital and everything like that?

Zach:
You mean in the healthcare setting?

Rob:
No, no, in the wholesaling setting. Do you still execute that side of it at all? Or are you just now fully into the other niches that you discussed earlier?

Zach:
Yeah. Wholesaling is always an exit strategy that’s a potential. If there’s a deal that we’re not going to take on, we’re going to sell it to another rehabber. So, I mean, that is something we’ve definitely done, but it’s not the core business. Really, now, we buy a lot from wholesalers to actually take on, that we’re going to add to our own portfolio. So it’s something that’s not a main focus, but definitely I think it’s just an exit strategy to be aware of.

Rob:
Totally. Yeah. I guess it’s very rare that we have someone in your position here where you do have a really great business and you also have an amazing real estate empire. So just from a philosophical standpoint, I wanted to dig in a little bit on how you handle your investments and personal philosophy on how you’re funneling money from one side of the business to the other. And so what I was curious is do you take all the profits from your real estate side and just keep reinvesting that? Because it sounds like you’re always just growing your portfolio and buying more and more. Or is there a little bit of reward that you actually take from your real estate portfolio? Or do you live solely based off of business income?

Zach:
I mean, we don’t live huge, lavish lifestyles by any means. It doesn’t take much to replace the income that we have today. But I mean, when we started to earn significant income through our business, the tax burden was painfully real, and so a lot of our strategy now is to reinvest that money and that’s following our philosophy of how you should reinvest your proceeds. And so a lot of our active business we take and we put it into, at this point, now these commercial retail centers, run cost segregation studies on those to reduce our taxable income and just try to keep scaling that way. So I guess the answer, Rob, is just reinvesting it, absolutely.

Rob:
Yeah. This is something that I really find a lot of entrepreneurs and real estate investors struggling with, especially when they do have a business like you’re talking about and real estate and they just don’t know like, how do I pay myself? When do I pay myself? When is that appropriate? Because for me in my personal investment career, I’ve never actually spent any of the money that I’ve ever made in real estate. Not really anyway. I mean, not anything significant. I’ve always taken the profits that I’ve had and I’ve just dumped it back into the portfolio to just keep it growing.
And it’s really hard because obviously I feel like you do have to reward yourself every so often. But I’m in a similar scenario where I have another business outside of that and that’s where I’m … My income is mostly coming from that so that I can just protect the real estate nest egg that I’m slowly building over time.

Zach:
Absolutely. I love that.

David:
When it comes to what you really love about real estate, why you left your former profession to dive into this, what can you tell us? Was there a moment where you saw something that you hadn’t seen before? Was there an element of it you fell in love with? Was it a pure business decision? What got you into leaving your old job and going full steam into this one?

Zach:
I think probably the moment that we were just like, hey, we got to go full blown into this. This makes complete sense. It’s a simple fact that real estate, it’s not time associated. With working in the healthcare setting, you’re compensated based for your time in the chair, right? You can only see so many patients, you can only be compensated … Even owning businesses too, you’re wearing multiple hats. And a lot of healthcare professionals are not great business owners.
But just the ability to create income streams, where you are growing your net worth and providing consistent passive income, whether you’re actually working or not, I mean, once we saw the writing on the wall with that, David, that was very much like, hey, we got to go all in. We’ve seen a successful business model. We have a proven track record.
It was an emotional change though, too. There was a lot of people like, hey, you spent eight years of college going to school for this profession, what are you doing? So, I mean, there’s a little bit of that and it was an emotional change, but the best decision we made, absolutely.

David:
So this is probably a good point to ask you. We’ve talked about what we love about real estate, what are some of the challenges that you’ve encountered that you were not expecting when you first got into it or some of the things that stop you from growing at the pace that you wish you could?

Zach:
It’s an ever evolving world. You really need to stay up on legislation, on financing. I mean, financing is a huge thing. That’s been a big obstacle for us as we’ve grown our portfolio over time. One thing we always do is interview multiple different lenders to try to find the best financing options.
We hit a little bit of an obstacle with some of our commercial properties we purchased where they required … They gave us the best loan terms, but then they stuck us with all these loan covenants and requirements. They wanted a 10% liquidity requirement just sitting in the bank, just letting inflation eat that away. And they check that quarterly. So it’s just a little bit of a hindrance to be able to use that money to grow and scale. I mean, there’s all sorts of obstacles in real estate from all different capacities.
One thing that’s allowed us to be successful, I think is just being creative. And I also like that, that’s a challenge obviously with the obstacle, but being creative to find a solution to those problems, to be able to scale your portfolio, whether that’s a tenant, a financing issue, whatever the case is.
We’ve had some bad partnerships in real estate. I mean, that could be applied to business in general. We’ve lost a lot of money in partnerships that we jumped in too quickly and scaled too quickly with that unwound. But that’s just part of the game and staying out and trying to stay the course.

David:
Rob, as you hear this, what are you thinking about when you’re thinking about what your experience has been, and now we hear Zach’s doing this at a pretty big scale? What kind of thoughts are going through your head as far as the challenges that you’ve had as they compare to Zach’s?

Rob:
Well, Zach, obviously, you’ve scaled up and there’s a really big difference between running a 20 unit portfolio and a 100 or 200 or 300 unit portfolio. It’s a very interesting challenge. I think the scaling is something that a lot of people are … They have a lot of trouble because everybody has a very different idea of what scaling looks like and how to successfully execute it.
And so now that I’ve been doing this and scaling and growing my team and making this work for me, I’m starting to understand, and I don’t say this in a negative way, but it feels like I’m leaving the golden days of when I was learning everything and cutting my teeth and I could still make mistakes and I could still fail really big.
And now I’m really having to hold myself accountable and be like, okay play time’s over, we experimented. It was the wild west for the first five years of my career, but now there are a lot of things that I have to take in consideration and there are jobs on the line and I pay people, I pay employees. And so for me, I’m just in the throes of scaling.
But I know that even five years from now, I’m going to say that right now is the golden days, because I feel like this is going to be the most important period of my life is figuring out how to scale my business. And so yeah, I don’t know. I mean, I have a lot of respect for people that can grow a portfolio past 20 units, 20 doors, just because the team that it takes to do that is very difficult to build. It’s very difficult to find people who are on your page, on the same page as you, I guess.

David:
Yeah. So Zach, what’s your thoughts on that element of what you’re trying to build?

Zach:
Yeah, systems. I mean, systems and scalability is the hardest thing. I think it’s rather easy for a lot of people to scale their real estate business and portfolio to a few million with a handful of employees, but to really take it to that next level of growing your portfolio, where you have maybe 20 plus employees or you’re really making this a legitimate business, and really any business I think for that matter, scalability is tough and dealing with real big issues with employees. I mean, that’s a hard thing, I think we all are consistently facing.
And I haven’t figured that out yet, but every step we take on scalability, you try something out, if it doesn’t work, you try to implement a better system to do that and continue to add the right people to your team. That’s what it’s all about. I mean, we’ve heard the term or the saying of hire slowly and fire quickly. Sometimes we’ve done the opposite. But the right people are really what it’s about, creating those systems.

David:
So another challenge that investors face is where they live can have a geographical hindrance on their investing. So if you live in a great market, you don’t really think about this, if there’s opportunities to buy properties, if you’ve got cash flowing properties that are where you are. But if you’re in a market that’s not so great, you’re painfully aware that this whole investing thing sucks.
So you’ve had to learn how to buy properties in different parts of the country, that’s out of state investing. I mean, you’re actually in other countries with some of the stuff. What are some of the challenges that you encountered when it came to long distance investing and how did you overcome those?

Zach:
Yeah, I think the challenges of real estate really, there’s some challenges that don’t matter geographically because you’re going to have the same issues and then there’s some that are obviously. There’s this comfort, this mindset associated with, hey, if a property’s close by, I can solve this problem, which could be true to some extent, but it can also maybe take up too much of your time.
The reality is if you have the right people and teams and systems in place, it should follow the same process regardless of where you’re at. But investing out of state, I mean, finding good contractors, how do you build that team, whether it’s locally or in different areas? Obviously there’s different state legislation you need to be aware of and tax structures.
It’s like, what are the tenant laws and how do we know that we’re abiding by those? Can we vet tenants the same way that we do in this area? How does the eviction process work? There’s a lot of things to look at as far as managing the properties long term.
Internationally, I mean, constantly. And we have family that owns a property in Australia and many other countries as well. I always love to compare the US to those countries as far as a lending and tax structure, because there’s nothing else that comes close. I mean, there’s no such thing as a 30 year fixed loan in Canada or any other country. Australia does negative gearing where they actually buy negatively cash flowing properties to offset taxes. So that’s a constant reminder that the US has so much benefit to invest in. That’s why we have so much international money coming.
But as far as the challenges, I think they’re all really the same, David. I think you face the same challenges regardless of actual location and that’s why it’s vitally important to have the right people set up.

Rob:
Yeah. So I wanted to dive a little bit into it because I know you’re a big turnkey guy, right? And so I wanted to ask, what does that look like? What do you consider a turnkey property? Do you truly consider that when you’re investing in something that is in that category, a hundred percent done, locked down, ready to go, or do you still go into a potential turnkey property with any kind of renovation budget, whether it’s 3 or 4 or $5,000 just to get it up to your standard?

Zach:
Yeah. Turnkeys, I mean, we could go down many different rabbit holes with this, right? I think there’s a lot of people that have different opinions about turnkey versus doing syndications or something like this. I think in general turnkey, and obviously this is our business, but I think turnkey is an excellent option, if you’re working with the right people to allow you to scale, to allow you to have a little bit of hand holding starting out and allow you to diversify into different areas.
But it doesn’t make you immune to the same sort of challenges that you would have with real estate in general. When we look at turnkey, I mean what our definition is, is a house that’s newly built, because we actually participate in a lot of new construction. That’s about 50% of what we do at this point in time is build to rent.
But we want to see a house that has at least 8 to 10 years of life expectancy. So if your HVAC, your water heater, the roof needs replacing, then definitely those are your CapEx items, those are your biggest items to do that, and then of course lease and manage the property.
But we also, even though we sell turnkey products, we also buy turnkey. A lot of the commercial assets we buy, I would consider those even more so turnkey. Those are triple net leases, management pays our taxes, pays our insurance, pays our mortgage for us. Those are triple net leases often corporately guaranteed. So I mean, there’s a lot of different philosophies about what turnkey really is, but I think it’s really just going and having the right team in place to assist you in learning how to do that.
And I also think that turnkey is not the only option out there. We see so many people that are buying turnkey and this is the exact same thing with us too, Rob, is turnkey is a great way to invest in a certain area alongside what else you’re doing. If you’re doing your own flips, if you’re doing your own wholesaling, whatever the case is, it’s a great way to diversify into these different areas.
But as far as rehab budget, we have an expectation. We have different contracting teams in these different areas and they have a specific budget and line item, as far as what the expectation is. On management, we don’t do any internal management at this point, same sort of thing for property managers. We have a specific process we want the managers to follow as far as vetting tenants and how they’re actually managing the properties.

Rob:
David, are you buying any turnkey these days? Because I know obviously you’re the value add guy right here, Sir BRRRR, and I know that obviously that has been a very big component of your career. But obviously, I know that you’re a very busy and a very successful real estate entrepreneur. So as you grow in your business, I know that your time is more limited, does that mean that you’re typically looking for more turnkey stuff at this point? Or are you still in the value add space?

David:
I think that’s a really good question here. My heart is in the value add space, but depending on what I have going on at any given time, I’ve had to be humble enough to admit if I take on this project, one popped into mind right now, a property I have under contract in Savannah, Georgia that is in the historic district. It’s coming with short term rental permits. There’s a lot, I really liked about it, but in the inspection, it’s got some significant issues, like needs to be torn down to the studs at some point, needs a complete new roof.
And I was thinking, if I’m honest with myself, if I buy this thing right now, I am never going to manage that rehab. I’m not going to know what’s going on. I don’t have a person in place that I trust that could manage the rehab. That’s the wrong move for me, even though it’s got a ton of value add potential. I won’t be able to execute on that.
And I’m probably more geared towards when we say turnkey in the short term rental space is what I’m looking at. I need something that is coming furnished, doesn’t need a whole lot of work, out the box is good to go. And I recognize I’m not getting the built in equity I used to have, but I’m not going to be bleeding, trying to find how am I going to get furniture brought into this place, when we are having the supply chain shortages.
And how am I going to get a contractor in one of these really hot markets where it’s very difficult to find them? It’s going to be 90 to 120 days before someone even starts the project. And then I got to sit in the permit line that’s going to be really long because everybody else is doing the same thing.
So it is a balancing act that you’re constantly having to go through. And at times the turnkey option is definitely better for me, but there could be a moment where everything’s running great with the businesses, I’ve got good hires in place, people are doing good, and I’m going to be like, hey, this is the opportunity to go take on a bigger project.

Zach:
David, I think that’s a crucial point, just being realistic with what your capacity is right at this point in time. And if your time is limited based on other things that you’re doing than your business or building your portfolio, I think a lot of people are looking for … They may get distracted with … If you don’t have the time to dedicate to a deal, then you’re not going to perform on it, to the best of your ability. And so it’s just being realistic with what you bring to the table and what your time capacity is and what fits your goals at this point in time.

David:
Yeah. And that’s an important thing to acknowledge in real estate in general, because there is a temptation … I need to come up with a name for it. This is where I missed Brandon Turner because he was so good at coming up with clever names for things.
But it’s this idea that there’s a part of human nature that wants to ask the question of what am I supposed to do, just give me the blueprint and I’ll just go do it, as if life works that way, as if there’s just a path that everybody can walk, and that isn’t the way that this goes. There are many paths, and depending on your skill set, your time, your goals, they’re all going to be different. And part of, I believe at least, part of being good at real estate is knowing yourself well enough to know what type of properties that you should be getting into and where your time is better spent.
I think that’s one of the reasons that I went out and I built businesses and built teams instead of just focusing on buying a whole bunch of smaller properties is I had a skill set where I like leading people and I’m a visionary, whereas somebody else, that’s not what they’re good at. They’re really good at bookkeeping, and so they just need to be running syndications and buying multi-family properties.
And it’s both frustrating when you’re new trying to figure it out, but it’s beautiful when you’re experienced because all of a sudden the tree explodes into branches and you have all of these different ways that you can walk in that makes your job more fun.
And I know Zach, one of the things that you believe in is this concept of strategy stacking. It’s, hey, you’re good at this asset class, what’s the next asset class that you can bring in that will complement what you already got going on. Can you share what that strategy is and how you’ve worked it into your business?

Zach:
Yeah, absolutely. And I think so many people, especially starting out, David, they get the shiny object syndrome, right? And it’s like, oh, I want to do this, I want to do this. And that’s a beautiful thing about real estate, there’s so many different ways that you can make money investing in real estate and be successful, but you can’t start with all of them at once.
And so you need to stay hyper focused on what makes sense for you and then just understand that as you continue your journey, real estate investing is a lifelong journey, that there’s going to be multiple different ways that you can learn about and participate in. That’s exactly how our business and our personal investing has grown over time.
We bought our first duplex and the next year decided to buy two more duplexes and continued to scale over time. We tried wholesaling. That was a lot more work than we initially anticipated, but that allowed us to learn how to evaluate deals. Guess what? We wanted to decide to keep some of those deals, because we really liked the idea of long term holding. Then we started to build this business and be successful with that, investing in different areas.
Started to make more money. What do we do with that money? We got to put it back into real estate. We didn’t want to own 500 single family houses. I think I heard you refer to your portfolios, like herding cats at some point in time and that’s very much the case. I love single family, but only to a certain degree. And so we needed a place to scale quicker and larger deals takes those tax benefits.
There’s all sorts of different strategies to invest in real estate. And that’s the beautiful thing is you can be successful in multiple at once, but you got to stay hyper focused with one strategy at that particular point in time. Learn it, succeed at it, and grow over time.

Rob:
Yeah. So when you’re entering a new strategy, I guess, because it seems like … So looking at your portfolio, you did wholesaling, residential, now a little bit of commercial, you’ve succeeded at it. Is it a matter of, oh, I feel like I’ve succeeded at this, time to try something new? Or do you think of it as more like, I need to master this strategy before I move on? What’s your mindset there?

Zach:
Yeah. I wish I could tell you that I have this clear action plan, Rob, but it’s more or less learning about a new strategy, being intrigued by it, because if you’re interested, if you’re passionate about it and you’re interested in a strategy, then you’re obviously going to migrate towards that more and want to learn about that and take it on.
I’ve always been attracted to the idea of commercial in general, just because it’s longer term leases. Now there’s a lot of risk and volatility with that as well, make no mistake about that aspect of it. Single family and residential I think is just your bread and butter, solid way to build wealth, at least initially. But that’s been something I’ve always been interested in, just to be really passive and have these long term leases in place. So we decided we wanted to invest in commercial, well, probably five to six years before we even bought our first one, but it was just talking with the right people, learning about that.
But the next and when we hear about different strategies, and this applies to the tax side too, when we learned about cost segregations and investing in opportunity zones and things like this, my mind was blowing because I was like, there’s really ways to completely reduce your taxable liability, if you’re in and invest in real estate doing the same things we were already doing. We love real estate for all these reasons. So it’s learning about it and just continuing down that path until the next thing comes up.

David:
So what are some practical examples that you can think of where the average listener can sort of … Let’s say somebody starts on the small multi-family path. I think that’s probably the most common way everyone gets started. Rob, you were part of the Pokemon generation. So was Pikachu the first Pokemon everybody gets?

Rob:
No, you usually choose between Bulbasaur, Charmander, or Squirtle.

David:
Okay. So real estate’s just like, it’s the same thing. You’ve got the small multi-family road, maybe that’s Bulbasaur. Then you’ve got the single family house hacking road, that’s Squirtle. And I don’t remember what the other one you said was, but there’s another route that-

Rob:
Charmander.

David:
Charmander, right? Maybe that’s going to be like just buying single family homes in cash flowing areas, like Kansas City, lower price point areas. So there’s typically those three passives people start on, you’re going to house hack, you get into single family or small multi-family.
Small multi-family is probably the most common way that people get started. You learn the fundamentals of real estate, the best. Zach, you mentioned you have a lot of duplexes, triplexes across the country. That’s not a coincidence.
So somebody gets 7, 8, 9 of these things and they start to experience what I call that herding cats feeling. It’s like in the cartoons where there’s a leak in the submarine and they stick their finger in it. And then another leak pops out and then they stick their finger in, another one they stick their toe. And then they got to let go of one finger to go plug in another one, and the water’s coming out from there.
And for me, it was like every single day, another little leak was popping up and none of them were going to sink the boat, but they were freaking annoying. And it wasn’t fun to be investing in real estate because I’m dealing with these very small problems of a leak going on, a sewage line breaking, an air conditioner going out, a tenant complaining about something.
And I just thought, I could sell 25 of these houses or replace it with one house 25 times as big or as good or an apartment or something and get the same benefits, but not the 25 different holes that I’m having to plug. So for me, that was my moment where I realized, all right, I need to get into a different asset class.
I guess what I’m getting at here is can you share some practical examples of what a listener who’s got seven or eight small multi-family properties that’s ready to get another stack added onto what they’re doing, some possible scenarios that would work for them?

Zach:
Yeah, absolutely. I think that’s really what a lot of people think about when they’re trying to achieve financial independence or significant passive income is how do I scale up into some of these larger type of deals? And there’s multiple things you need to do to position yourself to really be the most attractive investor.
Biggest thing is on the financing side. I think that’s why starting out with single family, small multi-family puts you … Not only does it give you the experience investing in real estate, but it also positions yourself in the best financing position. When a commercial type of lender, whether we’re talking commercial, retail, office, industrial, multi-family, when they’re evaluating you as a borrower, they’re going to look at your track record and your performance.
Most people are not jumping right into real estate, buying a 50 unit apartment complex. I think it’s a great way to scale up over time and also show the bank that, hey, I can be a successful investor buying and holding these properties and running them successfully. And that’s going to dramatically change the type of lending that you can accomplish. Having that experience gives you the confidence as well, to look at larger scale deals and just changing your mindset about that.
But I think financing is the biggest thing to really look at, make sure you’re having a successful portfolio. Other than that, I mean, there’s not a lot of difference whether you have a $200,000 single family in the Midwest, a $2 million deal in a more expensive neighborhood, you still evaluate the numbers the same. So don’t limit yourself looking at the larger deals and getting scared at participating in those, even if it requires bringing in some private money.
Practical examples though, I mean, running a business successfully with those smaller rentals, that’s huge, and also scaling your team over time. As I mentioned on the managerial side, your management … And David, did you have management on … I mean, you weren’t doing your own management, right? You had employed management? It was still this herding cats feeling, even though you had management?

David:
Yeah. Even with the managers that were in place, they still had come to me and they’re like, “What do you want to do with this? What do you want to do with that?” And it was, well, the bid that you got. I remember one of them, there was a sewage line that broke underneath one of the properties and they came back with a bid for $46,000 to fix it. And I remember thinking like … I mean, I wouldn’t let a house go to foreclosure, but that would make more sense than what they were wanting me to spend on this.
So I said, “All right, well, who did you talk to?” They gave me the name of the company. And I said, “Did you send anyone else out?” No. Would you like us to? I was like, “Oh.” I’ve told this … Here’s a side note. Property management companies go through staff so fast that you can tell someone, this is what I want, and they probably hired three people since the last time you spoke to them and that person has no idea what you had said to the first one. So you’re always reiterating these instructions.
And we sent somebody else out and he said, “Oh, I can fix this for $2,700.” They ran a scope through the line and figured out where the problem was, whereas, the initial bid was, they were just going to rip out the entire floor of the home to try to find where the leak was. And I just remember thinking I could have easily just replied yes, fix it, and threw $46,000 at a $2,700 problem, and that was with property managers. So my issue was more, I needed to hire a person that could manage your property managers, and I wasn’t able. That’s been a very difficult thing to find.

Zach:
So practical examples from that, and I agree with you a hundred percent is yes, knowing how to manage your managers. If you need to hire an asset manager at some point in time, it’s worth doing that because they will also allow you to be more successful and more passive.
But I mean, even in that scenario with your property managers, even if they took care of the issue, which clearly in your case, they didn’t because they just gave you the first, most expensive quote and left it at that, but even if they take care of everything and you’re just hearing about it, that’s just so much noise and it distracts your mindset from what’s actually …
And that could be a super successful property that sell and have huge appreciation in the future, but there’s so many of those issues that are distracting you from being able to focus on your business. So focusing on how to manage the manager, how to find and vet good managers, and how do you solve individual problems when they come up? Sometimes it takes getting on the phone and calling those contractors and being creative and finding the right people to actually solve those problems.
It’s the same type of issues, single family house, it’s just maybe a larger scale issue, but solving those problems is probably one of the best skill sets you can have in learning how to follow through with that.

Rob:
I’m curious, David, what was that job title? Was it property manager, property manager?

David:
Kind of.

Rob:
Or was it property manager, property manager?

David:
So that is another issue I run into in business where your staff is always asking for a title or a job description. There’s this like, I need to know what’s my title, what’s my job description. I was like, well, I’m hiring you to do all the stuff that I don’t want to do and there’s a lot of different things. So I don’t know that I could possibly come up with every possible thing that could come up. But can I just trust that if you have to send an email out through MailChimp, you could do that. Do I need to include that in your job description?
I don’t even think I called him an asset manager, because every time I put something out for that, I got people that wanted $200,000 a year. But basically what they had to do is sit in front of the email that all of the property managers would send the statements and their repair requests to and handle the emails that came in with some degree of common sense. And if you ran into a big problem, no, I need to go bring this in front of David and learn from what he did and fix it.
So I learned quickly that giving the title asset manager was not a good idea, because it was like, oh, well, I’m an asset manager for this huge corporation and they pay me 250,000 a year, so I’ll come work for you. And I’m like, no, this is only like three hours a week of work that I actually need done.

Rob:
Yeah. I sent out an email yesterday that was like eight roles. And I put in the email that each role would require like one to two hours a month. It wasn’t anything. It was to help the people in my program. I’m trying to like expand the capabilities of it. But I had a lot of people that reached out and they were like, “Oh, I want X amount and X amount.” I was like, “Oh, no, no, no. As per my email, it’s like two hours a week, maybe. It’s not a lot.” So I think that’s probably pretty common.

Zach:
Well, no one’s going to care as much as you care about your properties, and so how do you make that hire? How do you find someone that can make those executive decisions for your portfolio? It’s tough. But if you find a good property manager, which that’s a tough job, right? I mean, that’s a tough business. It’s really like you have mad owners and you have mad tenants and you’re just in the middle of it, but there are good ones out there that can usually, if you give them good direction, handle the majority of the issues.

David:
Yeah. I would say to the people listening, if they’re trying to figure out how do I get into the next step, I really believe, and Zach, I’m curious if you would support this, and you as well, Rob, a big hindrance to people being successful in our world, which I’m going to call the 1099 world because it’s just, you’re responsible for your own success here, is they bring a W-2 mindset into it.
They’re expecting structure and rigid rules and a 9:00 to 5:00 schedule and all these things that we’ve been conditioned to expect from grade school, into the workplace, to where it’s just like we almost have a moral system set up around you shouldn’t have to work past 5:00, or weekends you should have off. And if you’re asked to do something outside of that, it feels like you’re being taken advantage of, even if you sit in the office and do nothing for seven out of the eight hours you’re getting paid for, right?
So when somebody comes into our world with those expectations, it’s very difficult to adapt to some … You could have a problem at a short term rental. Let’s say that there’s a mouse running around inside there at 9:00 at night. And the tenant isn’t looking at it like, oh, I’m bothering the person, they’re, I want this mouse out of this house and you don’t want a bad review. So the right thing to do is to jump in and fix it.
If people could have that flexibility with understanding that you are getting paid to solve problems and they could pop up at any given time, but there’s benefits to this as well. I personally think we would have more people in our space that were able to get more involved in what the three of us are doing and therefore, they would learn. Zach, do you take a similar opinion to that?

Zach:
Well, that’s the hardest thing, David, is finding staff that has that mindset. I mean, the entrepreneurial mindset, there is no 9:00 to 5:00, there is no on, off. And that’s a hard thing too. I think that we can probably all attest with this. I mean, sometimes you need to turn off your own mind and focus with your family when you’re at home. That’s a hard thing to do and I’ve struggled with that. It’s like my wife constantly reminds me.
But to find someone that has that same sort of mindset, I don’t know how to do it. I mean, it’s the biggest challenge is finding good people. And if you have someone that has that entrepreneurial mindset and to keep them, I don’t know, they would likely want to be some sort of partner to some degree at some point. How are you going to compensate them and keep them happy to stay? That’s a tough thing. What do you think, Rob?

Rob:
Yeah. This is hard, with the W-2 and the 1099 thing is we want all the good things of the W-2 world when we’re 1099, but none of the bad things. And so it’s like, we want our cake and we want to eat it too. And that this is something I deal with a lot. I’m a podcaster, a content creator, a real estate investor, there is no moment in which I’m not thinking about really those three things, other than if I try to turn off at 5:00 or 6:00. And my wife and I have an incredibly flexible life, and so do the kids, but it is not fun when I come home at 6:30 because she’s like, “Well, you can come home at 4:00, right?” And I’m like, “Well yeah, but if I don’t work, we don’t we don’t pay the bills,” kind of thing.
And it’s really similar even with hiring employees and everything, because I’m the entrepreneur, they’re not. And so the meeting of the minds there can be very difficult because I have to really make them understand, especially my assistant, who she’s my property manager and everything, and I have a lot of sympathy for her because she’ll be messaging Airbnb guests at 7:00 in the morning, 7:00 at night, midnight, 2:00, 3:00, but she might have downtime from 1:00 to 6:00 PM because there wasn’t a single peep on it. So it ebbs and flows.
And I think you’re right. I mean, I think you just have to prep people that it’s like, look, it’s cush when it’s cush and it’s not when it’s not. When it rains, it pours. You have to really understand that with the real estate space, because it’s never a 9:00 to 5:00 thing. It’s a 9:00 to 9:00.

Zach:
But that’s what you’re building. That’s what you’re growing over time. You got to put in that work now. You got to be willing to do what no one else will right now to build that type of lifestyle and portfolio long term. So it’s just part of the game.

Rob:
Although, I will say that when I was living in an apartment and stuff broke all the time and I would put in my maintenance requests, they wouldn’t come fix it for two or three weeks. I wish I could do that, where things go wrong and I’m like, yeah, I’ll give it a couple weeks and then I’ll fix it. I am envious of that.

David:
All right. The next segment of our show is the deal deep dive. In this segment of the show, we are going to dive deep into one of our guest’s specific deals to see how it turned out, how they found it, and a bunch of other juicy details. Remember that you can do more deals yourself with the help of BiggerPockets tools and resources. So be sure to check those out. So question number one is what kind of deal is this?

Zach:
So the one we’re going to be talking about today is right up Rob’s alley. This is a luxury short term rental out in the mountains in Keystone, Colorado. We actually found it basically just through broker relationships. It was listed and poorly marketed and then just became a stagnant listing.

Rob:
Okay. And how much was the deal?

Zach:
So it was listed at 4.8 million and that was far over list price, far over market value. Of course, Zillow has it at 5.5. And I think that they were going off of that as their pricing structure. But no one, there had been zero activity on it, no bids, anything. And it was listed by a broker that wasn’t really, I think checked in and was maybe on the ski mountain more than they were answering their phone. So that’s what it was listed at.

David:
Okay. And then how did you end up negotiating it to get it in contract?

Zach:
So we looked at it. And we don’t have a lot of short term. I mean, we have limited short term space. And so this was really a big learning lesson for us is evaluating it, looking at areas for value add. So this is something we looked at as, hey, obviously we need this, the numbers to make sense, be positive cash flow. We evaluate all these deals, even if they don’t make sense on the surface, just to see what kind of opportunity there is there.
So what we did is we basically gave them an offer. We saw that this is a stagnant listing, no activity. And so we just put an offer in. Our initial offer was 3 million, and so that was significantly less than what they … And especially in today’s market. They told us, well, they didn’t even respond, that’s just insulting. And so that’s what we did. We threw it out at 3 million.
We heard back from them later, I think it was three months later, still no activity on it. And it’s a unique house too. It’s like 9,000 square foot, 8 bedroom, 11 bath, just a very large, unique house, I don’t think a lot of people wanted to take on either. And we ended up going under contract at 3.2 ultimately.

Rob:
Sounds very, very familiar to a deal that me and David just did. How did you fund it?

Zach:
So we actually used a second home loan for this property and this will be a good learning lesson, just on the financing side to look at what different financing options are out there. Because of the price point on it, we were told by probably 20 different lenders that no way can you do a second home loan with 90% loan to value, this is jumbo, this is above our underwriting criteria that we would allow for. And so most lenders were quoting, I think it was a 60 to 70% loan to value on it. They also didn’t know how to value the property. They’re like, well, why are you buying it below market value? What’s wrong with it?
So we actually ended up finding a good credit union locally that had done some financing for us commercially in the past. We got a second home loan with 10% down. They actually waived the mortgage insurance because there was no company that would provide mortgage insurance at that price point.
And the interest rates as well, we almost used an ARM product on that, just because interest rates were a little bit more volatile at this point in time. ARM products were still, I think we got a ARM quote at 3.75, but we ended up getting a long term fixed product at 4.25 on it.
That’s the interesting thing too, some of those larger loans, and on the commercial space, you can actually get a lower interest rate than … I mean, those interest rates have less volatility sometimes than your single family.

Rob:
When was this again, just so that I know?

Zach:
Yeah, so we just acquired this earlier this year.

Rob:
Okay. Yeah, because we just closed our 3.25 million house at, I think six and a half, or no, 6.25. So just a little bit over yours.

Zach:
Yeah, and that’s a tough thing. We were getting a lot of quotes at … So this was obviously a couple months ago, interest rates were definitely different than right now, but still, we’re still seeing some quotes on, again, ARM products below that 4% and it’s just, I think finding the right credit unions and banks to explore with.

David:
So what did you end up doing with this deal?

Zach:
So this is a short term rental. There’s not a huge value add as far as renovation, it was built in 2001. So it is dated and we’ll put some renovation into it over time, but really the opportunity with this one is the property manager, which was also the listing broker on it. So you can imagine how that property was run.
It’s large enough where it’s a wedding venue in the summer, as well as corporate space. So it actually has quite a bit of activity in the summer. But they kept the rental at, I think it’s $1,700 a night throughout the entire year. I mean, I think that’s probably rule 101 with short term rentals is having dynamic rents, especially in peak season. Ski season, that property is projected to rent out between 4 to $5,000 a night in peak season, and she was still renting it out at $1,700 a night.
Now, she kept it rented for 340 nights last year, but obviously there’s much more upside potential. So that’s our use of it is obviously going to keep the short term space, probably do a little bit of value add just in the renovations, but also increase that income significantly.

Rob:
Well, I guess we sort of talked about the outcome. Is there any other specific outcome that came out of that, or we’re still figuring out exactly where you’re going to net out, right?

Zach:
Yeah, this is a new deal for us, so we’ll look at it and see how it performs over time. We’re excited about it. If there’s a huge equity position, maybe we’ll do something with that, or look at 1031 in the future, but I don’t know. I mean, we’ll plan to use it of course maybe a couple times a year when it’s not rented out.
But we’re excited to see how the path goes and just on initial projections, I mean, they did … Just in using dynamic rents and not changing anything else about the property, we were able to increase the income by over 30% on it, and that’s huge.
And so that took it from being a property that didn’t cash flow at all, at 90% loan of value, we would’ve been losing quite a bit of money on that to actually being a positive cash flow, which has been hard to do.
We’ve been looking in this area for short term rentals for probably three or four years now and it’s always a scenario where it’s like, okay, we’ll buy it. If we’re not putting 30 to 40% down on it to make it cash flow, it’s not going to cash flow. We just could not find anything. So I think the ability of finding something at this price point, unique house, undervalued rents, we’re just excited to see how it performs over time. Have you guys out to ski in the winter.

Rob:
Oh yeah, count us in.

David:
So what lessons would you say you learned from the deal?

Zach:
I would say, well, we didn’t really talk about too much of the negotiation. I went straight to the point of what we actually ended up acquiring the property at. There was a lot of tactical conversations throughout the process of, oh, we have this person, we have some people, because they knew we were interested in it. We were the only people that viewed the house. Even though we gave them a low ball offer, it was, hey, we’re interested. We have some other people that are interested. They’re putting in these offers and countering us.
And we just stuck to our guns the whole time. We knew the number. This wasn’t an emotional buy. That’s the biggest thing I think in this one, David, this was not an emotional buy that you can easily get yourself into, I think especially in the Airbnb space, if you plan to use it. But we knew where our numbers were to make it make sense and we stuck to that the entire time and that allowed us to actually acquire it at the price that we needed it to.
It was a waiting game, but we just stuck to the numbers as well as exploring different financing options. That’s a huge thing. I encourage everyone to look at least 5 to 10 different lenders for every deal, even if you have a lender. I think we so often fall into this category of, hey, I want to use a lender that I’ve been using, because I feel loyal to them and I feel comfortable and it’s easy, I don’t have to turn in all my docs.
Well, lenders are not created equal and they’re quite dynamic as well. So if you have a good relationship with someone, absolutely explore that, but every deal is different and definitely be willing to look at different loan options out there. We had so many people that tell us that you cannot finance that, a 90% loan to value. We don’t have mortgage insurance on it and a lot of people said that’s just not possible. So those are the biggest takeaways. Also, just looking for value and sometimes that takes some time, especially in today’s market.

Rob:
Awesome. And lastly, who was the hero on your team for this deal?

Zach:
Ooh, is this a new question? I don’t know if I’ve heard this one before.

Rob:
It is. We’re throwing you a little curve ball, Zach. The old switcheroo.

Zach:
Well, my wife’s a hero. I have to give her the shout out because even though we … I got emotionally attached to … I was willing to pay more than we should have, but she was the one that really reigned us back in and said, “No, we’ll find something else. You don’t need this. Don’t stretch this to make it work just because you’ve been looking for three years for something like this. If it makes sense, it does, and if it doesn’t, we’ll find something else. It’s not a big deal.” And so I think really that is the biggest aspect of just keeping us focused, knowing the numbers and going through our criteria. And so definitely wife is a hero on this.

Rob:
They always are.

Zach:
Yeah. Yeah. She made me say that by the way, she knew that we were recording this.

Rob:
She’s standing on the other side of the camera like, you better say it.

Zach:
Yeah.

David:
All right. Well, that brings us up to the last segment of our show, it is the world famous, famous four. In this segment of the show, Rob and I will ask you the same four questions we ask every guest and we’re excited to hear what your answers would be. Question number one, what is your favorite real estate book?

Zach:
And I don’t have anything that hasn’t already been said. There’s been so many good books. A huge Kiyosaki fan, but probably for right now, The Millionaire Real Estate Investor, Gary Keller. That one’s just huge for me, and I try to read that once a year, section two, talking about the different stages of think, buy, own and receive a million. That’s huge, implementing systems. I mean, that’s just an outstanding book and encourage everyone to read it if they haven’t.

Rob:
Great. Great. Question number two, favorite business book.

Zach:
Business for us, I mean, this kind of goes to what we were talking earlier about the entrepreneurial mindset, so the E-Myth absolutely, or E-Myth Revisited on this one with Michael Gerber. This is definitely something that I try to read consistently as well to remind myself to focus on the business, not so much in the business. I think this is a crucial book for anyone running a business in any capacity and definitely something that is just how to build a team, focus on systems. It’s an essential book.

Rob:
Awesome. And when you’re not building a turnkey empire and a commercial empire, what are some of your hobbies?

Zach:
So as I mentioned to you before the show, we have a one year old, that’s our hobby right now. We’re loving that. We used to travel quite a bit. Right after we got married, we did a seven month honeymoon and visited like 30 countries, scuba dive a lot. We love to travel. We’re excited to get back into that once the kiddo’s old enough to do that. And then other than that, just enjoying nature out here in beautiful Colorado.

David:
In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Zach:
I think I’m going to say I’m going to use three terms because I believe that all of these are essential for people to be successful in real estate. First of all, they need focus. You got to stay focused on what path of investing you want to participate in. If you’re a new investor, don’t get the shiny object syndrome, choose a path and take action and follow it.
But the biggest thing over time, I think is just staying the course. Tenacity and creativity are the two other keywords. Real estate has a lot of obstacles and it’s not easy, right? This takes a lot of time. This takes work. This isn’t a get rich quick type of scenario and it’s challenging and frustrating, but as long as you can stay consistent to invest in this lifelong journey, generational journey, as you teach your children how to be a successful investor as well.
But you got to stay the course and be creative about solving problems. There’s always a solution, multiple solutions often, and put in the due diligence to find out what those are.

Rob:
Very wise words to live by, Zach. Lastly, can you tell us where people can find out more about you?

Zach:
Absolutely, our YouTube page. Although it’s a newer page, we’re trying to put out as much educational information about all things real estate. So our page is just Rent To Retirement, Rent, T-O, Retirement. They can go to our website as well. That’s renttoretirement.com, to learn more about our team, different things that we have going on. If they’re interested to learn about turnkey investing in any of the areas that we operate in. And that’s got links to all our social media accounts as well, so that’s a great place to start.

David:
Rob, how about you?

Rob:
Well, you can find me on YouTube as well on Robuilt. That’s R-O-B-U-I-L-T. And you can also find me on Instagram, @robuilt, and TikTok, @robuilto.

David:
All right. And if you like the interview that you heard today with Zach, go check out BiggerPockets’ YouTube page. We have a ton of stuff. I guess it’s called a channel, not a page. Tons of stuff on there, different interviews. I’m interviewing people. Rob’s got some stuff that’s on there. Lots of different BiggerPockets personalities that if you want to get deeper into this world, there’s plenty of content. And then be sure to check out biggerpockets.com/podcasts, where you can see the other podcasts that we’ve got for you to listen to on specific topics. If you want to follow me specifically, I am davidgreene24 on Instagram and everywhere else.
Zach, this has been fantastic. We really appreciate you being here with us and sharing your information. Is there any last words that you’d like to leave with our audience before we let you go?

Zach:
Go out and take action. It’s a crazy world right now, high inflation, interest rates are crazy, competitive markets. There’s still deals to be had and people are still being very successful in real estate. Don’t let that stop you. Educate yourself and take action. It’s been fun guys. Thank you so much.

David:
Awesome. We’ll let you get out of here. This is David Greene for Rob power-coif Abasolo signing off.

 

A perfect storm has been brewing in the U.S. economy. Supply constraints coupled with increased demand built up during the pandemic have led to rapid inflation. The Fed is now taking action by raising interest rates significantly, a move that has many worried about the impending recession soon to follow. While a housing market crash is not anticipated, economists are predicting more inventory and a cooling market due to the interest rate hikes. 

In an episode of BiggerPockets’ On the Market Podcast, we spoke with Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, to get his thoughts on the Fed’s plans now that the Fed has increased its interest rate by 0.75%, the most aggressive increase since the 1990s.

The Difficult Task of the Federal Reserve

Timiraos says to think of the Federal Reserve System as “a bank for banks,” because the Fed controls short-term interest rates. The Fed doesn’t directly set mortgage rates but determines the interest rate banks pay to borrow from their reserves overnight. 

The Fed is charged with the difficult task of monitoring and maintaining the economy’s health in a couple of ways. “They have two goals assigned to them by Congress: to maintain stable prices and to have maximum employment,” explains Timiraos. “And you could think of that as the most employment possible without having inflation. And those are their two goals. And then, in addition to all of that, they’re charged with regulating the banking sector.”

When the Fed reduced interest rates at the onset of the pandemic, they were trying to stimulate the economy. As they increase interest rates like now, they’re doing it to slow down inflation, which inevitably slows down the economy. 

What is Causing Inflation?

The problem started with the $5 trillion stimulus package for pandemic relief. The federal government’s response resulted in much higher inflation than we currently see in other countries. In the short term, it may have appeared that they achieved the intended result of providing more financial stability to families. But national debt must be repaid. The government must, at some point, tax more than it spends. Federal Reserve economists estimate that pandemic spending contributed about three percentage points to the inflation we are experiencing now. 

In the long run, any government attempt to stimulate the economy by creating money without also increasing production leads to harmful inflation. But the impact of the pandemic was so swift and far-reaching that it would have led to deflation if the government hadn’t stepped in. And meanwhile, food and housing insecurity was rising. About one in five children may have experienced food insecurity during 2020. So despite knowing that distributing more money into the economy would debase the currency, the federal government was most concerned with the greater implications of starving children and broad housing insecurity.

Then, when lockdowns were lifted, there was a pent-up demand for goods and services, along with extra money for consumers to spend. “You have a lot of demand. You have more people working, making more money, spending money on things,” says Tirimaos. 

But, at the same time, global supply chain issues have prevented producers from keeping up with demand. That’s pushed the inflation rate to 8.6%, according to May’s CPI report, and now the Fed will do whatever it can to keep that rate from rising. 

“The Fed can’t do a lot in the near term about the supply side of the economy,” explains Tirimaos. “They can’t create more oil, they can’t create more houses, their tools just don’t do that. So when they talk about bringing supply and demand into balance, they [need] to get lucky, they need to get supply chains moving again.” 

Or, they need to do something to curb demand so that a balance between supply and demand can be achieved. 

That’s the goal of raising the benchmark interest rate. When the Fed’s rate rises, its effect spreads into the mortgage market, the auto market, and increases the cost of borrowing business loans. Overall, people become less likely to borrow and purchase homes or vehicles. “And also businesses hire fewer workers. And so people have less overall income. And so they don’t spend as much money,” says Timiraos. 

Why the Fed is Taking Action Now

If inflation has been a problem since last year, why is the Fed suddenly getting aggressive with interest rate hikes? 

During the pandemic, specific supply-constrained industries, such as new and used cars, saw the highest price increases. “And so for a while, of course, the Fed infamously said, and a lot of private sector economists agreed that this was transitory,” says Timiraos. “The idea behind that was that inflation was really driven by the pandemic. And assuming the pandemic was over with quickly, inflation would be too.” 

But more fuel has been added to the fire since then. The war in Ukraine caused inflation in the global energy market and supply chains never recovered as well as they needed to. The problem no longer seems transient, which has the Fed concerned. 

“They’re worried that one year of high inflation is okay, but if we have a second year of that, people are going to begin to build expectations of higher prices into their wage setting and price setting behaviors. And that psychology is something the Fed really strongly wants to avoid.”

The Fed’s goal now is to achieve a neutral interest rate, says Tirimaos. “A neutral interest rate is the level the Fed thinks isn’t providing any stimulus to the economy. If you think of the economy as a car and the Fed is the driver, they’re taking their foot off the gas. They’re not pushing on the brake, but they’re trying to find that place where they’re no longer pushing on the gas, not necessarily stepping on the brake.”

The Fed is “not trying to induce a recession,” says Federal Reserve Chair Jerome Powell. But it will do whatever it takes to slow down the overheating economy, which could very well implicate a recession.

What About Asset Prices?

Real estate appreciation isn’t factored into the Fed’s assessment of inflation, but the Fed is charged with overseeing the financial system’s stability. So in that way, Tirimaos says, they’re concerned about rapidly rising asset prices. “Now, there’s been a big debate over the last 10 years which is: should the Fed raise interest rates even if inflation’s contained and even if they’re meeting their mandate unemployment, but to prick a bubble? Because an asset bubble could jeopardize their ability to achieve both of their other goals. And the argument has generally been, no, we shouldn’t use interest rates. We shouldn’t raise interest rates to prick asset bubbles.”

But in 2022, inflation is so high that the Fed needs to raise interest rates regardless. Curbing the asset price boom simultaneously is a “happy coincidence” rather than a direct goal. 

Still, a cooling housing market aligns with the Fed’s goals. “They want [economic] activity to cool, they want to remove some of that excess demand that you have right now. And so if you’re in situations where homes that used to be getting 10 or 30 offers are now getting three or four, for the Fed, that’s probably a healthy development.”

What This Means for Consumers and Investors

The Fed is attempting a “soft landing” that won’t result in a recession, but the chances of this are slim, with history as a guide. Dave Meyer, VP of Analytics at BiggerPockets, writes, “As the Fed raises rates, many parts of the economy will be negatively impacted.” These include a falling stock market and a loosening labor market. “With all these factors converging, I believe a recession will likely come in the next couple of months.” 

The best thing Americans can do in preparation for a recession is to save aggressively and invest for the long term. Experts recommend adjusting your budget to bolster your emergency fund in anticipation of layoffs. Once your emergency fund is adequately funded, invest in the stock market while prices are low—or invest in real estate, which is typically more stable. 

Investors relying on mortgages to make deals will have their margins constrained by rising mortgage rates, so they’ll need to factor that into investment decisions. Make sure the deal is profitable with the current rate, but remember that refinancing may help increase your profit margins later on if we see interest rates fall again.

A perfect storm has been brewing in the U.S. economy. Supply constraints coupled with increased demand built up during the pandemic have led to rapid inflation. The Fed is now taking action by raising interest rates significantly, a move that has many worried about the impending recession soon to follow. While a housing market crash is not anticipated, economists are predicting more inventory and a cooling market due to the interest rate hikes. 

In an episode of BiggerPockets’ On the Market Podcast, we spoke with Nick Timiraos, Chief Economics Correspondent for The Wall Street Journal, to get his thoughts on the Fed’s plans now that the Fed has increased its interest rate by 0.75%, the most aggressive increase since the 1990s.

The Difficult Task of the Federal Reserve

Timiraos says to think of the Federal Reserve System as “a bank for banks,” because the Fed controls short-term interest rates. The Fed doesn’t directly set mortgage rates but determines the interest rate banks pay to borrow from their reserves overnight. 

The Fed is charged with the difficult task of monitoring and maintaining the economy’s health in a couple of ways. “They have two goals assigned to them by Congress: to maintain stable prices and to have maximum employment,” explains Timiraos. “And you could think of that as the most employment possible without having inflation. And those are their two goals. And then, in addition to all of that, they’re charged with regulating the banking sector.”

When the Fed reduced interest rates at the onset of the pandemic, they were trying to stimulate the economy. As they increase interest rates like now, they’re doing it to slow down inflation, which inevitably slows down the economy. 

What is Causing Inflation?

The problem started with the $5 trillion stimulus package for pandemic relief. The federal government’s response resulted in much higher inflation than we currently see in other countries. In the short term, it may have appeared that they achieved the intended result of providing more financial stability to families. But national debt must be repaid. The government must, at some point, tax more than it spends. Federal Reserve economists estimate that pandemic spending contributed about three percentage points to the inflation we are experiencing now. 

In the long run, any government attempt to stimulate the economy by creating money without also increasing production leads to harmful inflation. But the impact of the pandemic was so swift and far-reaching that it would have led to deflation if the government hadn’t stepped in. And meanwhile, food and housing insecurity was rising. About one in five children may have experienced food insecurity during 2020. So despite knowing that distributing more money into the economy would debase the currency, the federal government was most concerned with the greater implications of starving children and broad housing insecurity.

Then, when lockdowns were lifted, there was a pent-up demand for goods and services, along with extra money for consumers to spend. “You have a lot of demand. You have more people working, making more money, spending money on things,” says Tirimaos. 

But, at the same time, global supply chain issues have prevented producers from keeping up with demand. That’s pushed the inflation rate to 8.6%, according to May’s CPI report, and now the Fed will do whatever it can to keep that rate from rising. 

“The Fed can’t do a lot in the near term about the supply side of the economy,” explains Tirimaos. “They can’t create more oil, they can’t create more houses, their tools just don’t do that. So when they talk about bringing supply and demand into balance, they [need] to get lucky, they need to get supply chains moving again.” 

Or, they need to do something to curb demand so that a balance between supply and demand can be achieved. 

That’s the goal of raising the benchmark interest rate. When the Fed’s rate rises, its effect spreads into the mortgage market, the auto market, and increases the cost of borrowing business loans. Overall, people become less likely to borrow and purchase homes or vehicles. “And also businesses hire fewer workers. And so people have less overall income. And so they don’t spend as much money,” says Timiraos. 

Why the Fed is Taking Action Now

If inflation has been a problem since last year, why is the Fed suddenly getting aggressive with interest rate hikes? 

During the pandemic, specific supply-constrained industries, such as new and used cars, saw the highest price increases. “And so for a while, of course, the Fed infamously said, and a lot of private sector economists agreed that this was transitory,” says Timiraos. “The idea behind that was that inflation was really driven by the pandemic. And assuming the pandemic was over with quickly, inflation would be too.” 

But more fuel has been added to the fire since then. The war in Ukraine caused inflation in the global energy market and supply chains never recovered as well as they needed to. The problem no longer seems transient, which has the Fed concerned. 

“They’re worried that one year of high inflation is okay, but if we have a second year of that, people are going to begin to build expectations of higher prices into their wage setting and price setting behaviors. And that psychology is something the Fed really strongly wants to avoid.”

The Fed’s goal now is to achieve a neutral interest rate, says Tirimaos. “A neutral interest rate is the level the Fed thinks isn’t providing any stimulus to the economy. If you think of the economy as a car and the Fed is the driver, they’re taking their foot off the gas. They’re not pushing on the brake, but they’re trying to find that place where they’re no longer pushing on the gas, not necessarily stepping on the brake.”

The Fed is “not trying to induce a recession,” says Federal Reserve Chair Jerome Powell. But it will do whatever it takes to slow down the overheating economy, which could very well implicate a recession.

What About Asset Prices?

Real estate appreciation isn’t factored into the Fed’s assessment of inflation, but the Fed is charged with overseeing the financial system’s stability. So in that way, Tirimaos says, they’re concerned about rapidly rising asset prices. “Now, there’s been a big debate over the last 10 years which is: should the Fed raise interest rates even if inflation’s contained and even if they’re meeting their mandate unemployment, but to prick a bubble? Because an asset bubble could jeopardize their ability to achieve both of their other goals. And the argument has generally been, no, we shouldn’t use interest rates. We shouldn’t raise interest rates to prick asset bubbles.”

But in 2022, inflation is so high that the Fed needs to raise interest rates regardless. Curbing the asset price boom simultaneously is a “happy coincidence” rather than a direct goal. 

Still, a cooling housing market aligns with the Fed’s goals. “They want [economic] activity to cool, they want to remove some of that excess demand that you have right now. And so if you’re in situations where homes that used to be getting 10 or 30 offers are now getting three or four, for the Fed, that’s probably a healthy development.”

What This Means for Consumers and Investors

The Fed is attempting a “soft landing” that won’t result in a recession, but the chances of this are slim, with history as a guide. Dave Meyer, VP of Analytics at BiggerPockets, writes, “As the Fed raises rates, many parts of the economy will be negatively impacted.” These include a falling stock market and a loosening labor market. “With all these factors converging, I believe a recession will likely come in the next couple of months.” 

The best thing Americans can do in preparation for a recession is to save aggressively and invest for the long term. Experts recommend adjusting your budget to bolster your emergency fund in anticipation of layoffs. Once your emergency fund is adequately funded, invest in the stock market while prices are low—or invest in real estate, which is typically more stable. 

Investors relying on mortgages to make deals will have their margins constrained by rising mortgage rates, so they’ll need to factor that into investment decisions. Make sure the deal is profitable with the current rate, but remember that refinancing may help increase your profit margins later on if we see interest rates fall again.

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Ashley:
This is Real Estate Rookie Episode 193.

Jeffrey:
Relationships have an infinite return. So if you think of it like that, if you’re going to be here longterm, then having access to these people, this is a longterm play. So for the next 40, 50 years, hopefully for the rest of my life, I’ll be able to build on these and make money and help bring value and learn about new things and just gain new experiences. And the money, I mean, for me, at the end of the day it’s paper. So what can I get with it is the main thing? How can I get value out of the access to those people. So that’s really why I think it’s investing in your relationships and stuff like that, by going to conferences and joining mastermind groups is so important.

Ashley:
My name is Ashley Kehr, and I am here with my cohost, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the stories, the inspiration, the information you need to kickstart your investing journey. And before I bring on my cohost, I just want to say thank you to all of you that have left an honest rating and review for the podcast on iTunes. We’ve seen so many of them come in over the last couple of weeks and really, really appreciate you guys taking the time to do that. And if you haven’t yet, we would really, really be appreciative if you could. Every new review we get helps us reach another potential investor. And obviously that’s our goal here at the Real Estate Rookie Podcast. So if you haven’t yet, we definitely appreciate it, but Ashley Kehr, my wonderful cohost, what’s up? What’s going on?

Ashley:
Well, to add on to that, Tony, this whole episode today, half of it at least is about networking, going to meetups and going to conferences. So Tony and I were just talking before we came back on to do the intro about maybe doing an in-person meetup with everyone, an in informal meetup. So let us know, send us a DM on Instagram @wealthfromrentals or @tonyjrobinson, and let us know if that’s something you think would be really valuable to you is having an in-person meetup with other investors. And hopefully, a bunch of guests that had been on the podcast.

Tony:
So today’s guest is actually a repeat. So he was initially on episode 175, his name is Jeffrey Donis. He was on with his two brothers, but we brought him back today because Jeffrey within their business is the one that focuses on… He’s the capital razor networker, extraordinaire. And he gave a really, really amazing breakdown and a lot of step by step instructions on how at, I think he’s what? 23, at 23, he’s been able to raise enough funds to be a co-sponsor in over 600 doors in just two years.

Ashley:
And if you are even wondering what syndication is or what it’s like to raise money, Jeffrey goes into this little part where he breaks down and explains what a syndication is. What the SEC does all these terms that you might hear thrown around an accredited investor. So definitely listen to that part and he really will help you understand what some of this terminology means too.

Tony:
And last thing, one of my favorite parts is when we got into the money that he’s invested into his real estate education, versus what people typically spent on a four year college degree, and there’s actually some cool money episodes. So if you check out money episode 267 or money episode 297, we’ve got Robert Farrington who came on and he talks about the ROI on college degrees. So again, that’s bigger pockets, money episodes 267 and 297.

Ashley:
Jeffrey, welcome to the show. Thank you so much for joining us. For those of you that are avid listeners, you would’ve heard Jeffrey and his brothers on episode 175. We loved their episode, the content they gave, that we are having Jeffrey come back on with us. Jeffrey, just if somebody’s new here listening, can you just give a quick backstory about yourself please?

Jeffrey:
Yeah. First off, thank you, Tony and Ashley for having me back on. My name’s Jeffrey Donis, I live in Durham, North Carolina. As many of you, if you’d listened to the previous episode, my brothers and I got into real estate a little over two years ago, we got into it through the single family space, through wholesaling, creative financing, some other different projects that we took on, and then eventually ended up getting into the multi-family space as of last year where we’re cosponsored on a little over 600 units. So that’s a quick general, I guess, description as to what we’ve done so far.

Ashley:
A quick but mighty description. So you guys are doing awesome. And we were talking, before we even started recording that, part of the reason you were here is because we have a mutual friend. Our friend, Leica out of Seattle, an investor there, amazing woman. She connected us to have you on the podcast. So we have heard you are an expert networker. So would you go through that? How have you built such a incredible network of people?

Jeffrey:
Yeah. Yeah. So simply put, what we quickly learned was the first way we actually got into whole ceiling was through YouTube. But soon after that, we went to our first meet up in one of the local cities that we live by. We live in Durham, North Carolina, and the city was in Greensboro. So we drove there. It was a 45 minute drive where we met another pretty well-known, a single family investor named Dedric Polite. And not to go into a tangent, but that’s where we followed him on Instagram, and we started to see, okay, wow, this guy’s doing a lot of deals. He’s making a lot of money. So it just starts to spark that. But after we got to that first event, we realized the power of networking and it’s simply just by going out and putting yourself out there. At another networking event I went to, someone told me, “You aren’t going to be able to do a lot if you always stay inside.”

Jeffrey:
So I always keep that in mind, put myself out there. On my team, my brothers and I, I’m in charge of going out to these events. And that’s really, a lot of people think they need money to do it. And I do think the events that have that higher barrier of entry tends to be the ones that you might want to be at, but you can obviously start with the free ones, like the local meetups and the eventbright.com. They have different events like that. And I can go into that later, but yeah.

Tony:
Jeffrey, one follow up question. You mentioned this, but if you can, just share with us what role you play within the business that you and your brother have built?

Jeffrey:
Yeah. So on the front end, I do the capital raising side of things. Pretty much I’m building an investor or nurturing the investor relationships that we have. I’m on the backend, that’s obviously investor relations where we’re keeping in touch with our investors, making sure that we’re answering any and all questions and keeping them updated on the projects that they’ve invested in. But also, I do like the networking side of things. So if we have to pick someone to go to a conference, for example, I’m flying out by myself to Dallas next week. So that’s stuff that they have me do. They throw me out.

Tony:
And it’s such an important skill, I think, to, not necessarily to network, but you have to, how can I say this? Because the power of your real estate business or the success you have is directly related to the size of your network and the quality of your network. And I think the better job you can do of surrounding yourself with people that have similar goals and ambitions, but there’s a balancing of maybe strengths or resources. That’s how you can really scale your business because anyone, at any point in your business, if you want to scale big enough, you’re going to need to be able to raise money from other individuals. Right now, Elon Musk is trying to buy Twitter, for $44 billion. He’s the richest man on earth, but he’s still raising money from other people to make that deal happen. I just read this morning. I think he raised money, I don’t know from some other billionaires, like Larry Ellison or some other guys.

Tony:
But even the guy who’s the richest person on earth, is still using his network to take down these bigger deals. So if Elon Musk is doing this, shouldn’t Jeffrey and Ashley and Tony be learning how to do this as well? So I’m excited to have you on man, because I think the ability to build your network and raise capital is a critical skill for rookies.

Jeffrey:
No, yeah. 100%. And I think a lot of people… I was talking to someone earlier today and she’s a newer investor. And one thing that comes to mind for a lot of these people that are getting into real estate is, it can be intimidating because there are so many different facets to it. But I always like to think you don’t need to know the answer to everything, but you can just know someone that knows the answer. So I have a lot of people on my phone that I can just reach out to if I have any question. And literally with my mentor, who I networked with, that’s why I met him, and I met him through someone else. So all of this comes back down to who you know. I reach out to him if I have a question about real estate, but also just about life advice. So I do think just knowing people that you can reach out to, it starts with networking, but it can help you become more successful in all aspects.

Ashley:
Jeffrey, how are you… So you’re reaching out to these investors, whether it’s face to face or through Instagram messages or through connections. How are you building credibility with them?

Jeffrey:
Yeah. So I would say first thing, there’s a lot of different ways I do it. But first step that we started, as soon as we got into the real estate space was documenting our journey via social media. So people, they’ll meet me in person, and they obviously, I can’t hide my face. I look like a kid. Because I am a kid. So you can’t really avoid that. But they’re like, “Okay, well, this guy, he sounds like he knows what he is talking about, but let’s just look him up.” That’s what people typically do before they work with anyone nowadays, they’re going to look you up online. So they look us up and they can look our name up, Donis brother or Donis Investment Group. And we have a website. It looks pretty legit, in my opinion. That’s one step, is just building a ton type of online presence and brand.

Jeffrey:
And another thing that we’ve been able to do is build a thought leadership platform. And the way that we did that was by creating a podcast. Now you can pick Instagram, Facebook, LinkedIn, wherever you want to put content out. Fortunately, we have the bandwidth to do all of them. So we’re out here publishing content and speaking on the business that we’re doing, which positions us as the experts in the space compared to most of the people that we’re speaking with.

Ashley:
Jeffrey, how important do you think it is to have a social media following? Whether it’s Instagram, TikTok, Twitter. Do you think that actually makes a difference whether someone believes you’re credible or not?

Jeffrey:
Yeah. I think especially as a younger person or just newer in general, I think it can only help you. You don’t need it necessarily. Because I talk to one guy, he’s flying under the radar, but he’s got over a billion assets under management and he’s never had a social media presence and his website’s not even like… It’s pretty bad to be honest, not to shame on him, but he’s making obviously a lot of money and is very successful and he doesn’t need all that. But as someone who’s new, having that there is only going to help attract more attention. And a lot of gurus, like to say money goes where attention flows and I would have to agree with it, that’s how I’ve met so many people. And also just being able to show people when I meet at an event, I’m like, “Yeah, follow me on Instagram.” And I’ll follow them back. And they actually stay connected with me. And if you’re posting content consistently, they see that you’re not going anywhere. So you’re not a stranger anymore because you’re building that relationship.

Jeffrey:
And people also like to see that if I were to invest with you, if you’re posting content consistently, I at least know where to find you. You’re not going to ghost on me.

Tony:
And I know we’ll have your brother, Kerwin on, hopefully in the near future here to talk more about social and how you guys built out that platform for yourselves. But I mean, I love that you guys are taking that approach because I say this all the time, if you want to grow your business to a big level and you want to do it quickly, you’re going to have to work with other people. And people do business with other people that they know, that they like and they trust. And if you’re just in your room, in your office, by yourself, granted out or no one knows what you’re doing, it’s harder to build that, know that, like and that trust.

Tony:
And I’ve shared multiple times, the only reason I’m sitting on this seat talking to you right now is because I took the initiative to start my own podcast before I got found by bigger pockets. And I started a podcast, Your First Real Estate Investment, it’s still out there. You guys can go find it. I started that podcast before I even had my first deal. I wasn’t even a real estate investor, but I had this platform because I knew that in order for me to reach my goals, I was going to need to be able to connect with more people. So whether it’s Instagram, whether it’s a podcast, whether it’s YouTube, whether it’s a blog, I think everyone listening should find that outlet that they most resonate with to keep going.

Tony:
So anyway, I want to touch on something else you said or something that you mentioned in the last episode that I’m hoping we can dive a little bit more into, but you mentioned before about the 80-20 rule when it comes to networking. Walk us through what that is and why it’s been beneficial for you.

Jeffrey:
So what I do at a networking event, when I meet someone, what I just did actually, so I was telling you guys, before we got on the call, I was in Atlanta for a conference and we got 60, or it was like 35 business cards. And what I do and people may think, whatever, I’ve found it effective. So it’s not the most fun thing to do, but you get the business cards and I have a CRM and it’s a free one called Podio. And I’ll sit down, I’ll look at each card. I look them up on LinkedIn to see… I’m pretty good with my memory. So I recognize their face. And if I’m like, “Okay, I remember what this guy talked about,” I’ll add it to my notes. And I’ll only put them in if I think there’s some type of way that there’s going to be some synergy moving forward. Some vendors that I may just not be able to work with right now that I put them in. But my goal is to put a follow up date.

Jeffrey:
And one thing I did in the past, and I can go into the sales process, but you just treat it like a pipeline. You’re just following up with these people, keeping track. And when you call them, you’re taking notes of what you talked about. And as you grow in your business, there’s going to be different ways that you can add value to these people. And hopefully, at least let’s say a small percentage of them are going to be building their own business and they’re going to be growing as well. So you’re going to maintain them in your network by not forgetting about them. You can’t expect other people to do this because most people aren’t going to. So if you do it, they’re going to really respect you for it. And it’s going to be a great thing.

Jeffrey:
One thing I’ve done in the past was I met someone at an event, this was a Belize event with the real estate guys. I met him, we had a really good conversation. I came back and I remember this guy, he’s actually Paul Moore, I’ll name drop. He’s Paul Moore. He’s with BiggerPockets. And he does mobile homes. So I met some other guy. He heard me on a podcast, he reached out and he said he does mobile home parks. And he was looking for… He didn’t really say he was looking for anything, but I was like, “Huh, I know a guy named Paul Moore who has a fund. He might be able to make that connection and see if there’s any synergy there.”

Jeffrey:
So I made the connection, they ended up working together and these are both very valuable people that are a lot more successful than me. And people think like as a newer investor, you have to have money or something like that. All I did was literally took the time out of the day to call these two people, have conversations and then make a connection. And now I’ve brought value to valuable people. And I’ve been able to do that in so many different ways where it didn’t cost me money, but it cost me some time and some type of resourcefulness. But I think anyone’s capable of that.

Tony:
So Jeffrey man, what an amazing point. And Ashley and I just got back from the rookie bootcamp weekend and our friend Tyler Madden gave a presentation on the power of networking and what you described as one of the exact same things that he said, as a new investor, a lot of times you feel like what value can I provide to Jeffrey or to Ashley? I’m new. I don’t have anything. But if you have a large enough network and you know that Ashley’s looking for campgrounds and you know someone that’s a wholesaler that just found this off market, whether it’s not a deal or whatever. But it’s like, if you have someone in your network that you can connect one person to another person, there’s a lot of value in that. So I love that you pointed that out.

Tony:
Something I want to circle back to before we move on, it sounds like you’re really active going to networking events and conferences and things like that. A lot of people I think are hesitant going into those environments, especially if they’re new, especially if they’re by themselves. So I guess just give us your approach. So when you walk into this conference and whatever, there’s 500, 1000 people, how are you approaching people? How do you break the ice to build these relationships?

Jeffrey:
For sure. I’m happy you asked. So I went to a networking event earlier this week, and then when I got back driving yesterday, I went to one last night. So I’m always like, I think as you go to more of these, you’ll get more comfortable. And I just, eventually I’ve always been someone that was easy to, I can make friends pretty easily, but if you’re not… I talked to someone today on the phone before I got in this call and she was like, “I’m nervous to go because I’m newer. And I feel like everyone’s going to be a lot more experienced than me.” And I don’t really know how I can bring anyone value. And I told her, “You’d be surprised. A lot of these free meetups locally, a lot of the people there are actually new.” And it seems like if you have any experience at all, or if you’ve at least learned or listened to a few hours of podcasting, you can have a really good conversation with people. And at the end of the day, people that go to these events are looking to network. So you always have to keep that in mind.

Jeffrey:
And I get nervous every single time I walk in. But what I do is, one, understand everyone else is looking to network. So I literally just walk around and every single person I want to meet, I’ll just walk up to them, “Hey, how’s it going?” And now going back to the 80-20 rule, I let them talk. As much as my ego wants to come up and talk about all the things that I’ve done or whatever. I just let them talk. And as soon as they ask me a question, I answer it. But I quickly flip it back to them because people like to hear themselves talk. It makes them feel good in my opinion, just based on my experience. So I just have them talk to me as much as they can, and I want to leave the conversation… Once I answer their questions so we have a good conversation.

Jeffrey:
The first thing I’ll ask is, “What have you done in real estate? What’s your background in real estate?” And they’ll answer and I’m like, “Oh, cool.” And like maybe, “What are your goals moving forward?” Try to find a way to bring them value. Maybe you know someone or maybe, I know a lot of wholesalers locally. So if I’m talking to a fix and flipper, I’m like, “Okay, cool. I know actually know what wholesaler right here.” I point him out at the meetup. I can make an introduction. I know him. So I literally walk them over or I’ll just do something small like that. And you just come off as helpful to these people.

Jeffrey:
And the one thing I always do now is I get their phone number and I text them their name. And then I text them my name, so that I remember them. And then after the event, the most important thing that no one does is actually follow up with these people that you’re meeting. I try to do it literally the next day. And it doesn’t have to be a long conversation. I used to get nervous thinking that people are going to think I’m trying to get something from them, but they really, it’s very thoughtful to just reach out and say, “Hey, it was nice to meet you. Just to retouch on what we talked about through the last conversation at the meetup. This is what I do. I know this is what you do. Moving forward, if there’s any way I can bring you value, let me know. I’m more than happy to help and hope you don’t mind if I just stay in touch.” And that’s what I do every single time. And it’s actually paid off a lot of ways. So I highly recommend it.

Tony:
Jeffrey, what an amazing breakdown of how to network at an event. I think so many rookies struggle with that piece, but you just literally gave a step by step of how anyone with any level of experience can replicate what you’re doing. I’m glad you brought up the follow up piece because I wanted to go there next.

Jeffrey:
Yeah.

Tony:
So you meet them, you send the follow up message the next day, but what about the future follow up, are you just sending a message saying, “Hey, remember me? It’s Jeffrey, hope you’re doing well.” Or are you presenting them with some opportunity? What does that follow up look like in the future, and how are you still making it a valuable conversation?

Jeffrey:
Yeah. So the main thing is just to not forget about people. You may not have something to bring them today or next month or in three months or even three years. But the whole point is just not to forget about people. And maybe eventually your time becomes a lot more valuable and you can get someone else to do this, but for now, this is what I do. And eventually, maybe I won’t be doing it. But what I have is a simple CRM where I keep a note and I may give them a phone call every three months or I shoot them a text, just so they don’t forget. And a lot of these people, it’s a small space. Depending on what niche you’re in, a lot of multifamily, syndicators or operators or whatever, it’s not that big of a space. So we go to the same conferences. So I can send one email a year or just touch base with them one time a year, and the next time they see you at the event, they recognize you. They’re like, “Oh, yeah, we spoke.” And you’re almost like friends with just one conversation. It’s crazy.

Jeffrey:
And it just makes the events more fun too. And you start to… It’s a relationship business at the end of the day. So it’s about who you know, like I said. And as you just build that trust with them, they start to become more familiar with you. Then when you actually may need something or you think you can bring them value, that’s when it actually matters, you reach out and they’re there for you because they have that relationship existing. So that’s how I keep track of it, is I just put follow up dates and you don’t always have to touch them every month. It could be a three month thing just depending on who they are. Because these people are busy, so you don’t want to bug them. But I would say every three months, just shoot them a text, email, maybe a phone call that I would’ve to get.

Ashley:
I think the whole CRM thing is awesome. And this is a great way to track because when you do leave conferences, you forget who you talk to, who you met because there are so many people. And this is something that can easily be done in Google Sheets or Excel, you don’t need to actually purchase a software or even use a project management software or monday.com or Asana, just the free version to track all of this too. So Jeffrey, I was wondering if you could give us some examples of people you met at a meetup and you touched base with, how did you provide them value? Because I think that’s one thing I struggle with, other people probably struggle with too, is okay, I want to help this person. I want to do whatever I can for them, but how do I figure out how I can provide them value without them having to ask me how to provide value?

Jeffrey:
Great, great question. I have a few examples. The first thing that comes to mind is there was a girl that met me on BiggerPockets. We had a call and she asked me the same question, “How can I bring these people value?” And I always say, “Well, do you know how to use social media?” She said, “Yeah.” I said, “Okay, cool. Ask them if you could help them with that. A lot of these people that are typically in real estate, sometimes they’re older. They’re not as tech savvy as you are. So if you can add value that way, then ask them.” She ended up doing that and they actually ended up paying her for it. Now she’s helping with a real estate meetup locally and she gets in free. So now she doesn’t have to pay, she’s getting paid for it. And she gets mentored by this individual who’s a successful fix and flipper in that area. So that’s one way that she brought them value.

Jeffrey:
One way that I did was there’s a local multi-family syndicator in my Raleigh market that has his own meetup. So one way that I bring him value is I help him host the meetup in exchange I don’t have to pay to get in, and also I get to network for free. I get to go every single time. And he attracts a big audience because he’s already built that. I don’t have as big of an influence in this market that he does, so I just leverage my time, just to help him sign people in. That’s all I do. And it’s literally, I think anyone can do this. It’s just, are you going to be someone that’s showing up and gives that good energy to that individual to let them know, “Okay, this person, I might want to work with them in some type of way.”

Jeffrey:
The third way is, like I said, just connecting people. So going back to my initial example, if you can just make introductions, it’s something that most people won’t be able to do because they’re not keeping track of it. And they’re just going to forget. So if they’re not thinking of it, it’s hard to remember, “Okay, I forget that person’s name.” But if you’re keeping track of it over time, just making that simple introduction is a great way to bring value.

Ashley:
I love that. And I think the personal touches too, like in the CRM, even putting in, I’ve seen sales people do this dealership I do some work for, they’ll put the person’s daughter’s name. So three years from now, I’ll be like, “Oh, my gosh, she’s probably graduated high school by now. How is Suzie? Or whatever.” So keeping track and people will think, “Wow, they remember that.” That’s pretty cool.

Jeffrey:
No, 100%.

Ashley:
Jeffrey, yeah. I want to transition this. Okay. So we’ve talked about how to network with people. We’ve talked about keeping track of them, providing them value. Can you now give some examples of how it’s actually provided value to you? What have you gained out of this networking experience?

Jeffrey:
Yeah. So becoming resourceful is I think someone that doesn’t come from a lot, initially I come from a low income background. None of my family members or my close friends were in real estate that I knew of. I was starting from nothing. So how do you build a network out of nothing? You just have to put yourself out there. And over time I was just able to start. We made some money, so you start investing into conferences that are paid. You have to pay for the flight and stuff like that. But as you go to these higher, more expensive events, those attract higher, just more successful people. So as you meet them, you can do the same process, where you keep track of them. And over time I started building these relationships.

Jeffrey:
Now I also had a podcast where I would bring on very valuable guests that I’d build relationships with. And then I’d go to networking events and see them in-person. So they’d remember us. So you start building that relationship. Eventually, I was able to introduce a very successful syndicator to one of my partners now, and now we’ve actually partnered on a deal together. That’s the first thing that comes to mind, is I was able to make an introduction that no one on my team knew this guy, but I knew him. So I was able to bring him on, just because I had the thought leadership platform that I brought him onto. I networked with him over a few events. I saw him at two events prior to actually asking him if he wanted to work on this together.

Jeffrey:
So it’s something that I used to think it wasn’t that valuable, but over time I’ve talked to my partners and they’re like, “This guy now has been working on different deals with my partner. And now he’s raised over, I don’t know how much money and he’s done so many deals with him at this point.” And it all started with me making a simple introduction. And I was like a 19 year old, or I was like 20 when I did it, thinking, “Oh, man, what can I bring to these guys?” Nothing to bring of value, but you’d be surprised. It’s very simple. But a lot of these people may not be as good at networking. A lot of these people may just not really think that’s even something to do at a networking event or try to meet as many people as you can, or they may not think it’s worth their time to keep track of it. But if you don’t have any other thing to do, I think it can pay off in a lot of ways.

Ashley:
That is such a valid point. This past weekend night, a couple of people ask me questions about something that I really wasn’t experience in. But I was able to connect with them, be like, “You know what? Hold on, follow me. We’re going to go find this person. They are the expert on this. And they’re going to be able to.” And doing that matchmaking, and that’s happened before in the past. And it’s really cool to see those relationships evolve and those people remember that you’re the one that introduced them too.

Jeffrey:
Yep. That’s so true. Yeah.

Ashley:
Yeah. Just them remembering you, just a simple thing like that, making that connection can be very valuable.

Jeffrey:
Yeah. I like to say you always want to try to bring value to valuable people and that’s just something that you’ll be remembered for. And it’s a good… This is all a reputation business. So if you can just have a really good reputation and that’s a great way to do it, is just by adding value to a lot of people. And especially if you’re newer and you don’t think you have as many resources, I keep repeating that, but just doing certain things like this is a great way to start that process.

Ashley:
Yeah. Jeffrey, before we transition, I actually have one more question. So when you’re at these high powered events, how do you get some of these fuel to give you their phone number?

Jeffrey:
Yeah, I know it’s funny. So one thing I’ve always been curious, I do have imposter syndrome still, but it’s always weird. As a younger person, they obviously noticed that, but it’s almost like people immediately respect you. Because I’m typically one of the youngest people in the room and it’s almost like they immediately give you respect. So if you’re young or just newer, I think, not always what it is but-

Ashley:
They take interest in you.

Jeffrey:
Yeah. Yeah. They’re like, “How did you end up here?” And then we have really good conversations. I also, I like to not only talk about real estate, I feel like that for me, I love talking about other things that I can relate to the person on because at the end of the day, these are people and I mean, yeah, they like talking about real estate, which we can talk about, but I’d also love to learn about like your kids or do you like watching sports? Something like that.

Jeffrey:
You build that kind of relationship, so at the end of it’s actually like, yeah, I’d love to stay in touch, man, anyway or woman. Any way I can bring you value or just build some type of relationship I’d love to learn more. And do you mind if I get your phone number, I just simply ask and they never say no. They’ll always say yes. And the most important thing is to text them their name with the correct spelling and then text them your name so that when you call them, you can add them to your contact list and then call them.

Tony:
I’m so glad you brought up the imposter syndrome piece of it, Jeffrey, because I know for me that was something I struggled with a lot early on. And I’ve shared before. Even when I became the podcast host my very first thought after the initial excitement was fear. It was like, “Oh, my God, am I even qualified to be doing this?” I think at the time we had like, I don’t know, a small handful of properties. And I was like, “How are people going to listen to little old me?” But like you said, there’s always value that you can bring to people. And I think as long as you lean into your strengths and what you’re good at, even if someone has maybe achieved a bigger portfolio than you or financially they’ve had more success, it doesn’t necessarily mean that they’re still not a way for you to provide value to them. So I’m super happy that you brought that up, man.

Tony:
Cool. So I want to talk a little bit too about some more of the software that you’re using. So you talked about the CRM, but is there any other software that’s important in your business that you guys are leveraging on a regular basis?

Jeffrey:
Yeah. And to tie into the credibility question, one thing that, it is crazy how it all ties back into each other. So the network, a lot of people think, or I used to think, how do I do this? I have no idea how to even start raising money or how to start becoming a lead sponsor or co-sponsor whatever. I just built my network. And then I started hanging out with certain people at certain events. I had their contact information. So when I had questions, I’d reach out to these people. I added myself to their email list to see what they’re sending out when they are raising money, what’s going out? What’s the process of what that looks like. And you start to just pick up different things that you like.

Jeffrey:
And it’s you don’t have to recreate something. It’s really just finding someone that’s actually doing it successfully, rubbing shoulders with them. And then learning on that diamond. I’m going to go back a little bit. So on the guy that I introduced to my partner, he ended up wanting to bring me value. So he offered to mentor me for free technically, because he didn’t want to charge me because I brought him into this deal. And that’s something that you can get out of these things. You’re getting these highly successful people offering free mentorship. And these guys are doing a really good job at whatever they’re doing, but they’re willing to do that because I brought a little bit of value. So that’s something that I was able to now apply to how I was able to learn about these softwares.

Jeffrey:
So I use SyndicationPro is one of the CR… It’s a CRM as well as an investor portal. And what it does, it really just organizes your investor list, your investor contacts, you can keep track of them there. And also when it comes down to actually working with your team, whoever the lead sponsor is can actually sync all the documents there. All the documents are there and they can electronically sign, meaning your investors can sign up, make an account and then sign all the documents on that portal. And all the information that the investor needs to know is all in one spot. It’s not like you’re sending out these individual emails with like PDF files. And here you have to download this, sign it, send it back. I’ve never done that. I’m sure it works. But I know that I come off a little bit more credible if I have it all really looking nice. It’s very simple and it’s easy and it just looks very professional.

Jeffrey:
So the software’s another thing I’d used in regards to leveraging my team, because I didn’t know about that until I joined certain groups. So I learned that over time. And once I had that software, it made me look a lot more credible because it looks very professional. And at the end of the day, you want to present yourself in the best way, if you’re newer. I think first impressions come off or play a big role in whether or not this person’s going to trust you. So if it looks clean, it looks very professional, then it’s going to help build that trust.

Tony:
I want to comment on the software piece, before I do, you mentioned something like that last little piece there, and you talked about just being in the same room as some of these other successful people. And that’s honestly a really big part of paying for some of these more expensive conferences, is that free meetups, sure, you’re going to get a wide range of people there. You’re going to have some folks that have maybe never done a deal or you’re going to have some people that are super successful, but if you’re going to…

Tony:
For example, there’s a guy, his name is Joe Polish and he’s a marketing business a coach. But only for super high level entrepreneurs and the name of his group, it’s called the 25K Club. Because every year you have to pay $25,000 just to be a part of the club. And obviously you have to be super successful to be able to spend $25,000 a year to even be in that group. So it’s like if you have the ability to pay into it, now your whole world of what’s possible changes, because you’re talking to people that are ultra super, highly successful. And it’s like how many more resources and lessons can you learn by sitting in a room with people that pay $25,000 a year to be in a group?

Tony:
Now, obviously I’m not encouraging everybody to go out and spend $25,000. My point is that when you pay to go to some of these conferences, the level of success steps up as you go from one to the next. But going back to the software piece, we’re doing our first indication right now and we’re using a platform called InvestNext. And Ashley, have you seen InvestNext?

Ashley:
Yeah. I’m actually using it right now to collect investors’ information just to… Almost to use it as just the CRM-

Tony:
Cr-

Ashley:
… right now. Yeah.

Tony:
And it’s such a powerful thing. We just had our first demo last week and yeah, everything you said, it brings all the investors’ information in, you can even calculate the distributions that everybody’s supposed to get once the deal actually goes live. So if you guys haven’t looked into it, I’d definitely encourage you guys to look at SyndicationPro or into InvestNext.

Tony:
So continuing to pull on that thread, so we know that you found out about the software through your network, but you also talked about mentorships and masterminds. So what kind of role have those played for you in your business? And I don’t know, how can someone else get value from those kind of relationships?

Jeffrey:
No, for sure. So I joined… I’ve honestly paid. I always like to make, not fun, but it’s funny that I dropped out of school, I was like, but you guys already know. I would’ve spent, I don’t know how much, but it would’ve been a lot less than what I’ve spent on courses and mentorships, mastermind groups. So it’s funny because I’m still investing in my education, it’s just me choosing what I want to invest in, and whatever. I think it’s paid off. But in regards to how it’s paid off. So the first one I joined was one called SubTo by Pace Morby. And the reason we joined that was everything starts with YouTube, for us. It’s always started with free content. But you can only get so far with the content that you get from YouTube. Unfortunately people tend to shy away from paying for mentorship and stuff like that. And I can understand why because it’s expensive and you do think you can. I mean, I’m sure you can do it by yourself, but honestly,-

Tony:
I mean, and just really quick, there are a lot of people that are pushing bad information too. So I think you’ve really got to vet who you’re giving money to because there are some people, it’s like they’ve done it one time and now they’re going out there and charging a really high premium. So I think you want to just vet the success to that person before you, before you jump into it. Sorry, I didn’t mean to cut you off there, but I [inaudible 00:34:17] point.

Jeffrey:
No, no, no. There’s a funny meme I’ll quickly go into, there was a wholesaler at McDonald’s and I saw you sailing a wholesaling course last week. What happened? It’s just funny but…

Jeffrey:
But yeah. So with the SubTo, I joined that group and it taught me, I think if you can take action, then education just by itself is really worthless. But if you’re taking action on that education, then you can make that return very quickly. So when I was cold calling originally for single family, I would be having my computer here and I would be watching my mentor, who I paid a few grand to get into. He would be pitching the sellers with its different strategies. I would be cold calling and then pitching it while I was learning. So I literally was learning and then implementing immediately. So that’s how I was able to get two rentals that way. And if you do the math, we definitely made our money back very quickly. So that’s how that paid off.

Jeffrey:
And then I was able to meet a lot of people there. Eventually I networked into another mastermind group that was free and this guy, named Alvin Hope Johnson, who was a syndicated, he was syndicating his development deals. I learned about syndication through him and that all started through networking. So once that happened, I was like, “Okay, I want to do syndication. I think this is something that I want to do. And I started listening to podcasts about it.” Eventually we learned that we couldn’t do it by ourselves because we’re not going to be able to take down the kinds of deals that we want to take down. So we ended up looking for mentorships and where do we go? BiggerPockets, the best mastermind and networking platform out there. So that’s where we started networking and just trying to figure out what group made the most sense.

Jeffrey:
Eventually we landed on two different ones and chose one because they focus on larger assets. So what we get out of this is the main thing is that the network and the team that they already have in place, also the culture that they have, they’re very welcoming. So on the company, the page, there’s a directory page with everyone’s information. Some people don’t leave their phone number, but they have email addresses. So what I did, I just messaged blast everyone trying to book as many Zoom calls as I could and successfully it was 30 to 40% of the people responded. I was able to build my network, and very quickly after that, I was able to partner with some of the people that I spoke with initially.

Jeffrey:
Now, as you mentioned, a lot of these people that paid a lot of money to get into these groups are already very successful. And I think at the end of the day, I always tell people, it’s crazy because this is simply a mindset, in my opinion. Because the way that I’ve used to think before I got into real estate, the only thing that’s changed, I’ve learned a lot and stuff, but the way I think, the thoughts that I’m thinking, and I sense a change with whatever I’m like with different people. So when I’m at a multi-family conference, these people are doing 100 plus unit deals and everyone’s doing it. It seems like it’s like the normal thing. So I start to think, “I can do it too, because everyone here is doing it, so why can’t I do it?” But when I’m somewhere else, whether that’s doing something else, it just starts to seem like it’s farther away.

Jeffrey:
So that’s why it’s so important to surround yourself with really good people. And the best way to do that, where you’re going to have these valuable connections and the ability to actually build and create these relationships is by joining high caliber mastermind groups, which some of them are expensive, but I think it’s worth it.

Ashley:
Jeffrey, how much did you guys spend, you think, on mastermind-

Tony:
That was my question.

Ashley:
… courses?

Jeffrey:
Yeah. Well, I have never done the math. That’s a great question. It’s honestly, on one it was over 35 grand, on the other one, it was over seven grand. Over one it was 1000 and that’s already close to 50 and I’ve been to, at least 15 events now. Let’s say 15, but I’ve already booked coming up this year. So we’ll be well over close to 100 grand by the end of the year, on all the expenses if you do the math.

Ashley:
Yeah. Let’s compare that to a college. Going to college. And what that costs. And you don’t have to sit in the classroom for four years for five days a week.

Jeffrey:
Yeah. College. It depends what school. I think I was going to pay like five grand a year. So it would’ve been like 25 grand. I mean, I was getting scholarships and stuff, but most people pay like what? 50. I mean, I don’t know. Maybe did you guys go to school?

Ashley:
Yeah, I did.

Tony:
Yeah.

Jeffrey:
How much did you guys pay, if you don’t mind me asking?

Tony:
I think I racked up, I don’t know, like $65,000 worth of student loan debt when I went to school,

Ashley:
I got a lot of financial aid. So I think I only had 20,000 when I graduated.

Tony:
Yeah.

Jeffrey:
Yeah.

Tony:
Yeah. People will do that in the blink of an eye. They’ll go out. They’ll rack up $10,000 of debt for school, which is debatable on the return that you get for that investment. But I do believe if you find the right person and you have the right motivation and you have the right skillset, there is a lot of value in investing in some of these things. I think the most I’ve spent on anything real estate related, me and my partner spent $20,000 on an apartment syndication coaching program. And we’ve never syndicated any apartments. So did we get the value? I don’t know. But I think it was beneficial for us because through that program, I met the guy that introduced me to short-term rentals, which completely changes my life. And now that we’re scaling up into commercial assets, already have this foundation of knowing how apartment syndication works and now we’re just applying it to short-term rentals. So I think you get out what you put in.

Jeffrey:
100%. And I think, sorry, just quickly. I mean, I probably, like I said, I’ve invested a lot of money on events and conferences, but my brother always likes to say, “Relationships have an infinite return.” So if you think of it like that, if you’re going to be here longterm, then having access to these people, this is a longterm play. So for the next 40, 50 years, hopefully for the rest of my life, I’ll be able to build on these and make money and help bring value and learn about new things and just gain new experiences. And the money, I mean, for me, at the end of the day it’s paper. So what can I get with it is the main thing? How can I get value out of the access to those people? So that’s really why I think it’s investing in your relationships and stuff like that, by going to conferences and joining mastermind groups is so important.

Tony:
I’ve never heard it put that way before, relationships have an infinite return. And man, that’s true. It’s almost impossible to measure the value that you get from a good relationship. Not even just financially, but just mindset wise, happiness, yeah. If you invest into the right relationship, that’s amazing, man. So I want to know, so you’ve talked a lot about how your networking and your relationships have helped you. What would you say is maybe some of the advice from mentors that you’ve gotten or lessons that have really stuck with you that you’ve implemented really well into your business?

Jeffrey:
Yeah. Okay. So certain things like, specifically the things that comes to mind is failures. One thing that I learned this year was setting expectations with my investors. I learned that through my mentors, I had to ask them after the fact, unfortunately like, yeah, the K1 documents this year would be sent them out a little late and I didn’t do the as good of a job as I could have in regards to letting the investors know, “Hey, this is going to happen.” And I really think the main thing is just setting expectations up, so that they can expect these things. And if it’s not going to be good news, I mean, that sucks. But at the end of the day, just letting them know beforehand, not having them reach out first and asking you, I think that’s the biggest thing that comes to mind. But was your question, in regards to how I found the mentor or some of the biggest-

Tony:
No. Just some of the big lessons. Because obviously, you’ve invested a lot into these relationships, into these mentorship, into these coaching programs and just, what are some of those big pillar pieces of content or lessons that have really shaped how you’ve grown into an investor?

Jeffrey:
Yeah. One thing that also comes to mind is, this is like, I don’t know if this answers your question, but gut instinct in this business, I’m starting to realize and my mentors used to tell me this all the time, “Be careful with who you get into business with.” But it’s starting to like, every single time that I’ve gotten a gut instinct about someone. And I used to be, I don’t know if gullible is the right word, but I want to give them the benefit of the doubt and assume. I like to meet people, I like to build relationships with anyone. It doesn’t matter what your personality is. So I always give you the benefit of the doubt, but it almost always comes back down to, I find out later that something negative was going on with that type of person.

Jeffrey:
So one thing that my mentors always told me is, “Be careful with who you do business with.” And at the beginning, I wasn’t really taking that advice. I just thought I was able to do business with anyone. But over time you start to realize that, well, if you’re typically my gut is right. So I think that’s something that I had to learn on my own, but they did tell me that and I didn’t take it into account until after I had to learn.

Ashley:
Before we get to the rookie exam, I do want to dive into one more thing. For everyone that’s listening that maybe doesn’t even know what a syndication deal is, and there’s also the SEC that oversees syndications, can you break those two things down for us real quick, please?

Jeffrey:
Yeah. So syndication really is just when you pull together a group of investors’ money and buy something. So you can really syndicate anything. But when it comes to what we do, we syndicate apartment complexes. So when it comes to the SEC, they’re the advisory board, like the police of syndication. Just to make sure that it’s regulated and that any owner operator, which is us in this case, is following the rules to protect any investors that are actually investing in these deals.

Jeffrey:
So in regards to the types of investors that you can bring on, it depends on what fund you deal with, but I only speak on what I do. We do 506 (B) funds. Typically these are deals where you can only bring on a nonaccredited investor, who you have an existing relationship with. It has to be a substantial relationship. And then they have to be considered sophisticated, meaning that they understand the risk of the investment.

Jeffrey:
Now, the other side of that is accredited investors and they have to meet a certain requirement, which is $200,000 or more over the last two years, and they have to have a net worth of a million dollars or more with the expectation to make that amount of money this existing year.

Jeffrey:
Now, the other side of that is if you’re applying with your spouse, so say as a couple that wants to invest, they have to make 300 grand or more over the last two years with the expectation to make that this year and they still have to have a million dollar net worth or sorry, or have a million dollar net worth, not including your primary residence. Now with a 506(b), you’re not allowed to actually go to social media and post this on your story and say, “Hey, everyone invests with my deal.” Because this is soliciting, which is illegal. The SEC is the person that would’ve enforced that. So for the 506(c), which we haven’t done personally, but that’s just when you are able to go to social media and post about your deal, because you’re only accepting accredited investors. So they’re just seen under the eyes of the SEC as someone who’s able to make more of an educated decision and protect themselves better than a nonaccredited or sophisticated investor.

Ashley:
Yeah. I just wanted to, I think you misspoke there real quick. For an accredited investor, you can have 200,000 income or the net worth-

Jeffrey:
Okay. Yeah.

Ashley:
… of a million not including your primary residence.

Jeffrey:
Yeah? Yeah.

Ashley:
Yeah. I just, I think you said and, and I just wanted clarify for everyone. Yeah. That was a great breakdown, Jeffrey, on that, thank you for explaining what all those different parts are to a syndication. So we talked about your software. How does your software help you follow these SEC rules and regulations?

Jeffrey:
Yeah. So when we, I only send the link to sign up to someone that I have a relationship with. So they don’t have access to it. It’s private offering. It’s not a public thing that people have access to. So that’s the first step, is making sure that you’re not just soliciting random people. You’re only allowing access to certain individuals. And one thing that the CRM comes into play is you’re keeping track. So let’s say I meet someone at a networking event and I meet them and I go back to my CRM and I add notes about what we talked about when I met them and I put the date and then I call them the next week, I put the date again. And then two weeks later, I call them again, put the date and then all this time I’m actually documenting all of this.

Jeffrey:
And then eventually I start sending them information because I’ve now vetted them, I’ve learned that they’re not accredited, but they’re sophisticated because they have a finance background that they’ve invested before, et cetera, whatever reason now they’re considered sophisticated. And this is just by your best judgment. But now this is all documented. So if the SEC were to come to my brothers and I, and want to vet us and then do an audit, they could come and look at my CRM and see that I’ve built this relationship, I’ve taken notes, good notes on all the conversations we’ve had. And this is how I can prove to them that I’ve actually done my best due diligence to make sure that I bring them through this process before actually getting them into any of my investments.

Tony:
That’s a great breakdown, Jeffrey, I think one of the best that I’ve heard. You hear a lot of SCT attorneys saying you need to have a substantive relationship with this person in order for them to qualify, but what a subjective phrase that is, for what you laid out as a really great playbook to say, “Hey, I talked to them on this date. Here’s some notes from that conversation. I talked to them on this date. Here are some notes from that conversation.” And you can show that there has been a preexisting substantive relationship beforehand. So thank you for giving us that playbook.

Jeffrey:
Yeah.

Tony:
So Jeffrey, as a new investor, who’s trying to raise funds, I think the natural default response to anyone who’s willing to give you money is to say, yes, right?

Jeffrey:
Yeah.

Tony:
It’s like, “Cool. You want to help me buy this deal? Doesn’t matter who you are, what you did, let’s work together.” But I think you’ve got some criteria you look at to determine whether or not someone’s a good fit for your deal. So would you mind walking us through that?

Jeffrey:
For sure. So initially I was, I would say a little bit more fearful to ask certain questions, but asking them like, “Hey, are you married? Hey, what does your spouse do if you’re married?” You learn more about where they’re coming from in regards to an income standpoint. And eventually you get an understanding as to, you also ask them, how much would you be looking to invest and how often? So as you start to get a feel for where they are financially, you don’t want to take someone, say that your minimum investment is let’s say 50 grand, just to throw that number out there and they only make 75, but they have that in the bank. You may just want to really make sure that this person is really sophisticated because they may not be accredited. And if they’re investing a lot of money, most of their money, they have, this might be someone that may… If things were to go bad, you don’t want to necessarily put them in a bad spot. So that’s something that I definitely keep an eye on.

Jeffrey:
Also making sure that they understand that this is a passive investment. I mean, they won’t have any control if you’re bringing them on as an LP. So you want to make sure that you’re not necessarily bringing someone on that wants to have control because they’re not going to have that. And they have to make sure that they understand that. So that’s something that, for example, a lot of people in the real estate space, like fix and flippers and stuff like that, they like to be active, meaning that they have control over the deal. But if they’re coming on as a LP or a limited partner, they’re in an inactive role, meaning they don’t have control. So that’s something you just want to make sure you keep an eye out on.

Tony:
So if you saw someone that wanted to be super active and maybe this was their very last dime, those are some of the red flags, you’d say like, “Hey, maybe this isn’t the right deal for you.” Are there any other big red flags you look for?

Jeffrey:
I mean, yeah. I would honestly try to bring them value and be like, “You know what? You may not be a right fit for the passive investment route. But I mean, if you find a good deal, how can we partner together?” But in regards to that, there are certain things personality wise at the end of the day, this is an opportunity for people, that you have to approach it that way. A lot of people don’t actually have access to these deals and they’re just in the stock market and paper assets, which it’s subjective, but I’d rather just be in a hard asset especially during these inflationary times. So you have to understand that you’re approaching these people with a really valuable opportunity. So as you do that, you have the right to actually vet these people and determine whether or not you want to partner with these people, because this is a longterm play. It’s like a marriage. You want to make sure that you’re working with people that aren’t going to be bugging you.

Jeffrey:
I mean, if you’re not vibing with them and the energy’s off, I definitely keep that in mind, because at the end of the day, worst case, this person is a pain in the butt and it’s not worth their investment. So even if you’re new to it and you’re not raising that much money, or you’re just not able to have that much investors in your database, I would make sure to highly think about whether or not you really want to be in a longterm relationship with this person before bringing them on.

Tony:
One last question for you, Jeffrey, you said that you guys are co-sponsors on a little over 600 units now. Would you mind sharing, how big is your pool of potential investors? Do you guys have 50 people or 20,000 people? I just want to give the listeners a sense of maybe how many people you need to be able to be co-sponsors on, on a portfolio that big.

Jeffrey:
Yeah. I was at a networking event, I don’t remember who… I think I was on a call and one of my mentors said, “You’d be surprised, it’s like the 80-20 rule with a lot of these things. You can have 100 people and only 20 of them are your big time investors, but they’ll invest big time. You know what I mean?” So you don’t need that many people. Ours is anywhere from 20 to 30 people, just depending on the time of the year. I mean, it’s not that big, but you’d be surprised, certain people would actually invest a lot. So you don’t need a lot of people. It’s really just starting with building solid relationships with each one and making sure that you’re treating them well. And it’s all about the experience. So you want to make sure that they’re having a good investor experience.

Tony:
And that’s what I wanted to share with the listeners, that you don’t need to know 50,000 people or have this super massive platform, where you got a million followers on Instagram, you need 20 or 30 people of really solid connections to kickstart this journey, brother. So thank you for sharing that.

Jeffrey:
Of course.

Tony:
Awesome, Jeffrey. Well, man, you dropped a lot of knowledge here. Ash, should we roll to the exam or do you have anything else you want to hit before we go there?

Ashley:
No, I think let’s take it to the rookie exam, Jeffrey. We had to ask you guys these questions on the last episode you were on. So we might maybe change them up a little bit, but last time we would ask you one actual thing rookie should do after listening to this episode, but I want to tailor it to this episode specifically. So what is one thing a rookie should be doing right now to become a better networker?

Jeffrey:
Yeah. I would just say start going. So I mean, make a list of five different events and then book them on your calendar. So you don’t forget them. And typically these networking events are repeating. So you can look at about two websites, and I might have said this last time, but it’s meetup.com and eventbright.com. Just start going there. A lot of people think they haven’t done anything yet, so why would I go? You really want to have those relationships there so that when you do find the deal, you don’t have to waste time or you can’t actually do a deal successfully if you don’t have those pieces in place. So you want to have those things there before you actually find the deal.

Tony:
All right. So second rookie exam question. And again, we’re making these up as we go along, because we already asked you the other ones before. But say you had to start all over Jeffrey. You had no contacts. You didn’t have the relationships that you have today and you needed to raise $1 million in 60 days. What do you do first?

Jeffrey:
Do I have any money?

Tony:
You have no money. I’ll give you no money. You have a cell phone. You have the internet, no money, no contact. What are you doing?

Jeffrey:
I would try to get a credit card. This sounds trash, but I’m sorry. This is what I would do, I would get a credit card, because I’m of age now. So I’d get a credit card and I’d try to get into an event. Or you just start reaching out to these people that host these events, email them, ask them, “Do you guys have any vendor tickets?” This is actually another gem that I forgot to drop. A lot of these people that are at the events, hosting the events, or there are going to be speakers at the events, they have free tickets. So maybe sometimes they just don’t have anyone to give it to. So if you reach out and ask for it, maybe they can get you in for free. And then what I would do is just go at the event.

Jeffrey:
Now, if I’m raising money, I’d have to obviously have a deal in mind. So I’d learn the deal like the back of my hand. And then hopefully I have a good team around me. Not sure. I assume I don’t have anyone, but anyways, and it’s a theoretical. So I would just go to the event and network as hard as I could and sell yourself. At the end of the day, they’re investing with you. And I think that’s the biggest thing. So just I would network like that. And one thing I would really want to make sure they take away is people have free tickets. So if you can’t afford them, just try to find a way to get one.

Tony:
Yeah. Ashley, before we keep going, can I ask you that question too? I’m curious what you would do. If you’re in that same boat, no contacts, no money, but yeah, you had like this killer deal and you need to raise a million dollars. What would you do?

Ashley:
God. I don’t know. I mean, I think that use social media.

Tony:
Yeah. Yeah.

Ashley:
I think that’s what I would have to do. I mean, that’s how I’m here sitting on this podcast is because of social media. So I guess that’s what I would do, is I would start posting as much content as I could about real estate investing in general, providing value to the people following me and then start posting about the deal. Yeah.

Tony:
Yeah. I think I’d do the same. I feel like my natural inclination is to go to social. I would also try and go to a lot of in-person events as well, but I know the power of a strong social platform. So yeah, just posting as much content as I can, commenting on other people’s posts that are doing this, sliding in DMs all day. I’d have rug burn from all the DMs I slid into. So I’d just be like all over the place, man. But cool. Awesome. That was my question.

Ashley:
Yeah. Another thing too, Tony is look at how we both started as we took on partners that we knew, somebody that we already had an existing relationship. So maybe, I would actually go back to that where I would approach somebody I knew that had money to partner with me on the deal.

Tony:
Yeah. Yeah.

Ashley:
Okay. Now, Jeffrey, the last question is where do you plan on being in five years?

Jeffrey:
Well, our goal is to… To give you an exact number, I would say to own half a billion dollars worth of real estate in five years. I like to think big. I read 10X by Grant Cardone, and I shoot really high, and if I fall short from it, that’s fine with me, but I would want to just go as high as I can. So half a billion dollars worth of real estate over the next five years by the time I’m 25.

Ashley:
That’s awesome.

Jeffrey:
And that’s in… Yeah.

Ashley:
Yeah.

Tony:
Yeah. I’m sure you guys are going to get there. I know.

Ashley:
Yeah.

Jeffrey:
Thank you. That’s the goal.

Tony:
All right. So we’ll give a quick shout out to this week’s rookie rockstar. Again, a lot of these rock stars come from the Real Estate Rookie Facebook group. If you all are not in the Real Estate Rookie Facebook group, make sure you get there. It is literally the most active, the most engaged Facebook group that is out there. And every time I try and go in there and give some value, it’s hard for me to do that because there’s been 10 other amazing answers on questions that have been posted. So make sure to get in there if you’re not. But today’s rookie rockstar is Kadim. P. And Kadim says we close on a duplex. This makes 10 rental units in the same area and brings us up to 14 rental units in total. So Kadim, major congratulations to you and love seeing the success.

Jeffrey:
Awesome. Congrats, Kadim

Ashley:
Well, Jeffrey, thank you so much for joining us. We really appreciated having you back on the show. If you can tell everyone where they can find out some more information about you and possibly reach out to you.

Jeffrey:
Yeah. So feel free to visit our website and get our free playbook at www.donisinvestmentgroup.com/playbook. You can find me on all social media platforms at Jeffrey Donis and then my brothers and I @donisbrothers on every social media platform. And then listen to our podcast, the Real Estate Monopoly Podcast.

Ashley:
Jeffrey, thank you so much. Everyone, I am Ashley, @wealthfromrentals and he’s Tony @tonyjrobinson, and we will be back on Saturday with a rookie reply. Don’t forget to leave us a five star review on your favorite podcast platform. We’ll see you guys next time.

 

 

If you’re anything like me, you grew up believing rental properties were inherently profitable. Within that belief, you likely didn’t know how they made money, just that they did.

Well, in this article, you can learn precisely how rental properties make money. Overall, they make money in five different ways.

Cash Flow

Cash flow is what’s left over from the rental income after all expenses are paid. Cash flow may also be referred to as “net income” (as compared to “gross income” which is the income before expenses are taken out). 

Cash flow can be positive or negative. Positive cash flow means there’s excess income after the expenses are paid, and that income gets to go right into your pocket as profit. Negative cash flow means the costs have exceeded the income, and you now have to pay out of pocket to cover those.

You can calculate your cash flow on a monthly or yearly basis. Decide which you want to look at, total up your expenses for that period, and subtract that expense total from the rental income total. What’s left is your cash flow. 

A nice thing about positive cash flow is that it can act as a tremendous buffer against shifting real estate market dynamics. For example, suppose the real estate market crashes and the value of your property decreases. As long as you’re still collecting cash flow from the property, you can wait until the market corrects and the value of your property goes back to where it was. 

In that situation, you wouldn’t even know we were experiencing a recession since you’d still make the same amount of money from the property each month. 

Compare this to a negative cash flow situation and the market tanks. You may get stuck in a position that forces you to offload the property at a loss because you can’t afford to maintain it through the recession.

While not the highest profit center of all, cash flow can serve as a critical foundation for successful rental property investing.

Appreciation

Probably the most popular form of profit when people think of rental properties, appreciation has been a consistent performer over time and one of the biggest players in what makes people so wealthy from real estate.

Appreciation is when the value of a property increases due to various factors. 

The three main causes of appreciation are:

1. Improving a property
2. The location

Improving a property

Rehabbing a property will create appreciation because that rehab has now increased the property’s value. In most cases, the increase in the value of the property will be more than what the investor had to pay to complete the rehab. 

For example, let’s say you buy a $100,000 property and put $30,000 into a rehab. With all of the improvements, the property is worth $150,000. You only put in $130,000 ($100,000 plus the $30,000 rehab), but now the property is worth $150,000. There’s an extra $20,000 in free money thanks to the appreciation generated by the rehab. 

This kind of appreciation is called forced appreciation.

Location

The location you bought the property in will also be a primary driver of appreciation. If the demand for housing in the area—the broader market or the specific neighborhood—rises, so will property values. Demand may rise due to general market growth, or it may be because you bought in an area that got intentionally gentrified, which could force quicker and more dramatic appreciation. 

In addition to improvements and demand increasing the value of a property, an investor may likely also experience appreciation in the market value of rental income. Rents inevitably increase over time due to several factors, but what causes appreciation to the value of a property will usually trigger appreciation in rental values as well. When the rents increase, your cash flow will increase proportionately.

While appreciation is one of the highest profit centers of a rental property, it’s also speculative. It’s never a guarantee that the reason you believe a property will appreciate will pan out as you assume it will. You should always consider contingency plans on how you expect a property to profit should the appreciation strategy fold. 

The other consideration to remember is that rental properties are long-term investments, and often true appreciation potential is experienced over the long-term rather than the short-term.

Building Equity Through Mortgage Payoff

One of the coolest things about owning a rental property is that your tenants’ rent check is most likely covering your mortgage payment! Hopefully, it’s covering more than that, but if it’s at least covering your mortgage payment, it means that you aren’t the one paying down your mortgage—they are.

Here’s an example: You buy a $100,000 rental property with 20% down. That means you paid $20,000 upfront and the remaining $80,000 is the balance on the loan, in addition to interest payments. 

Over 30 years, the mortgage balance is paid down every month through the income you receive from your tenants. At the end of those 30 years, $80,000 has been paid off and you now own the property free and clear. The $80,000 isn’t immediately liquid because it’s in the form of equity, but it’s your money, and you can either keep it as equity or pull it out of the property and use it however you wish. 

The bottom line is that you turned $20,000 into $80,000, plus any appreciation that’s most likely occurred over 30 years.

Tax Benefits

*Disclaimer: I’m not a tax expert. You should consult your CPA for all tax matters involving your real estate investments.

Rental properties are among the most advantageous investments within the IRS tax code. Essentially, rental property income can wind up being tax-free income when filed correctly.

While that may not sound like profit in your pocket right away, think about how much you end up paying in taxes on your normal income. If you’re in the 33% tax bracket, you could pay $33,000 in taxes on a $100,000 income. 

What if you were able to keep that $33,000? Isn’t that a hefty amount of money? The tax benefits aren’t exactly black and white, but they should at least give you a perspective on how substantial the profits from these benefits can be. 

The primary way rental properties generate tax breaks is through write-offs. When you write off an expense, it decreases your taxable income, decreasing how much you owe in taxes. If you have sufficient write-offs to decrease your taxable income enough, you could bring your tax liability way down or even zero it out.

The write-offs for rental properties come from two primary sources:

1. Expenses. Most of your expenses on a rental property can be written off. For example, property taxes, insurance, management fees, repairs, maintenance, mortgage interest, etc. How these are written off is specified and you should consult your CPA for help on those.
2. Depreciation. The IRS assumes that a rental property will degrade over time, so they allow you to write off perceived wear and tear on your property. The IRS provides a specific equation to be used for depreciation. 

With the expense and depreciation write-offs reducing your taxable income, you stand to receive a notable amount of money taken off your tax liability each year, which in turn equates to profit in your pocket.

Hedging Against Inflation

Inflation, possibly one of the most hated words in the English language, tends to strain our lives in myriad ways. But is inflation always bad? When it comes to rental properties, inflation is actually a good thing. The more inflation, the more profitable your rental property may be.

Inflation causes the dollar to become worth less than it used to be. Assume you get a fixed-rate mortgage today on your $100,000 rental property. While $100,000 is worth $100,000 today, what if $100,000 is only worth the equivalent of today’s $70,000 at some point in the future when the dollar’s value goes down? That’s how inflation works.

As mentioned earlier, rent increases are caused by a lot of different factors, and one of those additional factors is inflation. When a tenant’s rent payment increases due to inflation, your fixed-rate mortgage payment doesn’t change, resulting in even more cash flow.

As with appreciation, inflation helps with both the overall equity in your property and the tangible cash flow hitting your pocket.

Applying the Five Profit Centers

It’s exciting to know how rental properties can make money, especially since the profit comes from five different directions. Having owned my rental properties for 10-12 years, I can personally vouch for all five profit centers. I vaguely understood them when I started investing, but it wasn’t until I owned my properties for a substantial amount of time that I could see how lucrative each profit center is.

One of the best things you can do as an investor is to understand each of these profit centers and apply the knowledge to your analysis when looking at prospective rental properties. 

There are two keys that you should know when beginning to analyze the profit potential of a rental property:

1. Contrary to what a lot of us were taught to believe about rental properties being inherently profitable, not all rental properties are. This is important to know so that you are prompted to analyze the profit potential of a property stringently. But also, if you run across a rental property and your analysis of it doesn’t suggest a profit, it may not be that you’re doing your analysis wrong; it may just be a property that doesn’t stand to be profitable.
2. Every rental property you look at may create a different balance between the profit centers. For example, an extremely high cash flow property may not come with much, if any, appreciation potential. Or the nicest house with the highest appreciation potential may not offer much in the way of cash flow. Or maybe cash flow is low, as can happen with higher interest rates, but you’re investing in a time of extremely high inflation, so suddenly, the inflation profit center takes the lead.

No two rental properties will make money in the same way at the same rate. In most cases, there is a risk versus reward trade-off. Mismanagement of a rental property can cause even the best property to not see a profit. But when you take the time to understand these dynamics and how rental properties make money and apply that to your buying decisions, you stand a much higher chance of experiencing noticeable profit from the properties you invest in.

If you’ve owned rental properties for a significant amount of time, what has your experience been in seeing returns from these five profit centers?

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David:
This is the BiggerPockets Podcast Show 625.

Stacey:
I think that what’s really clarifying for me is to pull up a little bit from the numbers, when do we pivot, how do we do this and be like, what’s our goal and how do we play a perfect game that’s balanced between offense and defense? And that’s honestly, in just a few minutes, it’s really helped me to see, let’s sit down, let’s make sure we got a well-balanced game and we’re focused on what our goals are.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the best real estate podcast in the world. Hey, if this is your first time here and you want to learn how to build financial freedom through real estate, you want a better life and you want to get the most out of yourself, you my friend, are in the right place.
BiggerPockets is a community of over two million members that are all on the same journey as you, trying to improve their life and real estate is their chosen vehicle to do so. We’ve got an amazing forum where you can ask pretty much any question in the world related to real estate and get an answer or look at other people that have done the same thing, an incredible blog full of articles that will help you gain knowledge in real estate and a podcast much like the one you’re going to hear today.
In today’s show, we are bringing in different guests to have them ask my co-host, Henry Washington and I as many questions as they have time to fit in regarding the specific situation that they’re in. Now, oftentimes this is people that are stuck, they’re trying to figure out how to get past their problem, or maybe they’re having a hard time getting started. Occasionally, we get someone that’s doing so well they’re not sure how to hold it all together. And Henry and I are both experienced real estate investors and we do our best to try to give them the advice that we would use if we were in their situation while making it fun, interesting, and thought provoking at the same time. Henry, thank you so much for joining me on the show.

Henry:
Thank you for having me. I love being back on here and I love these Q&A episodes, man. They’re super fun.

David:
Yeah. They’re fun and scary at the same time. I think that’s what keeps them engaging, because we never know what they’re going to say and we also don’t know if we’re going to be able to actually have an answer. And the worst thing ever is for someone to pour their heart out and be like, “I don’t know what to tell you, man, you’re in trouble.”

Henry:
Absolutely. It is a little terrifying when questions start to roll. Hey, one of the questions today was a little terrifying for me, and so I put that one right back over to you. And you did an excellent job, thank you.

David:
I like to look at it more like we’re playing volleyball and you kind of set me up for the spike, right?

Henry:
That’s right. That’s right.

David:
As opposed to, “I completely just disappeared and said, David, you can handle that question.” You’re setting me up.

Henry:
That’s right.

David:
So what were some of your favorite parts from today’s show?

Henry:
I think this is a really relatable episode for people. And so I encourage you to stay till the end, because we cover a lot of topics that are often asked by real estate investors. We talked about how to find a mentor and, I think that’s one of the first things we cover. And I encourage you to listen to that all the way through, because David gave some really good analogies to what people are really truly looking for when they’re asking for a mentor. And then he gives some really great advice on how to actually go and do that because, I mean, we got to have some real talk when it comes to people, approaching people about mentors, I think. And I think you sum that up in a great way.
We also talked about tax strategies and, again, neither one, you or I are tax professionals, but I think we’re able to give some really practical advice to people about how to handle depreciation and tax strategies. And we talked about some marriage counseling. We talked about how to approach conversations with your spouse about real estate tactics, about when to pivot your real estate approach, and how to have that conversation when you’re ready to pivot or how to even know when you should pivot. So I think you kind of run the gamut of questions that a lot of people have either in their heads and they haven’t asked out loud or that they’ve asked other people and hopefully they get some real practical advice from some real people out in the real world doing real real estate deals.

David:
Well, thank you, Henry. You’re someone who always keeps it real. I think that’s why people like you so much.

Henry:
I am a realist.

David:
You are the realist. Today’s quick tip is, don’t ask, can something be done? Ask, how can something be done? Now this will help you in your own life, but it will also help you when choosing which fiduciary you want representing you. So whether you’re looking for a loan officer, a real estate agent, a property manager, a CPA, if you know what your goal is, you want to ask them, how can I get there? The best supporting pieces that you can have, aren’t your order taker. You don’t tell your loan officer, “I want this.” And they say, “Yes, sir. I’ll go get it for you,” because you probably don’t know exactly what you want. You just know what you already know. The best people are the ones that know what you don’t know. They’re the ones that say, “Hey, this would be the best way to do it. And here’s what I would need from you in order to get you from A to B.” Those are the kind of people you want to pick.
This comes up often when someone’s trying to decide like, who do they want their agent to be? Who do they want to sell their house? Who do they want to do their loan? Who do they want to give tax advice? If your first question is, how cheap are you? I want to find the cheapest CPA that I can find. You’re probably not going to find the best CPA that you can find. And you’re probably going to end up with the one that says, “You can’t do that,” to everything that you say. When you go for the really good ones, they’re going to say, “You can do that, if you do this.” That means you’d have to move these things around. You’d have to open this entity. You’d have to claim a different thing. Your wife or your husband would have to buy it in their name. You’d have to buy this one in your name. And then you get to make the decision if you think the juice is worth the squeeze.
But my advice to you in today’s quick tip is to look for people that can paint a picture for how to get you from where you are, to where you’re going. Those are the ones that I like to work with. And those are the ones I recommend that you work with. Henry, before we get into today’s show, is there anything you’d like to add?

Henry:
Yeah, man, again, listen through to the end because we’re going to run the gamut of how to approach your real estate portfolio from a tax perspective. We’re going to run the gamut of how to approach your spouse when you want to approach your real estate investment from a different perspective. We’re also going to talk about how you can find or seek out the person you want to be like and then how to approach them to see if they can help you become a better investor.

David:
That is awesome advice. Thank you as always. All right, let’s get to today’s show.
Samantha Halper. Welcome to the BiggerPockets Podcast.

Samantha:
Thank you. Pleasure to be here.

David:
Awesome. I’m glad to hear that. So what is on your mind today?

Samantha:
Okay, so I started some short-term rentals last year, so this is our first sort of tax year, closing them out, and we thought that we were exempt from the 15% self-employment tax. But we’re finding out now that, I don’t know if it’s a new rule or just one we didn’t really know about before, but we’re being told by our accountant that we are subject to the 15% self-employment tax. My husband and I were just wondering, since we do have to pay that, is there any other strategy we can use to counteract that or do something different with a different rental where we can negate that a little bit or really anything, or just pay it and move on?

David:
I was really hoping we could open up today’s show with a legal advice request. Those are my favorite. I always love when we get that. But at the same time, I know what it’s like to be in your position, Samantha. And you’re like, everybody keeps telling me they’re not a lawyer, but like somebody in the world has to solve a problem without having to be a lawyer. So I totally understand your position. Henry, did you want to take a swing at it first before I see what-

Henry:
I am going to gladly lob this. [inaudible 00:07:44].

David:
Ole right out of that charging bull of a lawsuit coming right down the pipe. All right. So neither Henry and I are legal experts. We’re not CPAs, we’re not lawyers. So anything that you hear me say, please go run this by your legal crew before you take action. But here’s a couple things I’m thinking, are you a full-time real estate professional?

Samantha:
No, we looked into that, but I guess we’re not really entirely sure how that would help us. I listened to some podcast about it and so I was thinking that it would help us, but my husband listened to it and he interpreted it differently. So I guess we aren’t really sure if that was something that we should do or not.

David:
Here’s my understanding of it. And if somebody would like to hear more, please reach out. I’m happy to connect you with my CPA and I can have them run you through the same thing that we ran me through.

Samantha:
Okay.

David:
When you’re a full-time real estate professional, you are allowed to use the depreciation that comes from your real estate asset against income that you make in other real estate ways. So what that means to the lay person would be normally when you buy a house, you are able to write off as a loss, a portion of the income that… I said, house, I should say property makes because it’s falling apart. So I won’t get into a really long explanation of how that works or why, but if you buy a rental, the rental is theoretically deteriorating every year. So you get to take the income and have a loss that we call depreciation. That doesn’t mean the house is becoming worthless every year. It’s a confusing term. But in accounting, depreciation refers to a property becoming worth less.
So many times, if you make $10,000 a year on a rental, you only get taxed on 1,000 or 2,000 of those dollars, because the depreciation covers the rest. Sometimes it covers all of it. As a full-time real estate professional, you would be eligible to take the commissions or the income that you earn from managing properties, selling properties, doing loans, flipping houses, whatever it was. And any unused depreciation that you had from that property will cover income from other places. And the IRS understands, well, if you’re a full-time real estate professional, you’re taking a lot of risk. You’re an entrepreneur. You don’t have a safety net. So because we want to encourage people to get out there, buy more properties, take more risks, make the economy go better, create jobs for people, we’re going to give them a tax break on the other income that they make, because being a real estate agent is risky. Being a loan officer is risky. Anything where you’re not being spoonfed income, there’s some risk.
So how this works in my world is that I make income from The David Greene Team selling properties. I make income from the loan brokerage with the commissions that come from the brokers that compensate us when we bring them someone who wants to do their house. I make income from flipping houses. I make income from rental income of some property. Some do better than others. Now, the problem is that your property that does really well, if you don’t have a ton of depreciation, you pay a lot of taxes on that income. But if you have another property that sucks, but there’s a lot of depreciation, you don’t even get to use it. Unused depreciation is like, what we’re trying to solve here is when there isn’t any purpose for it to be. Well, when you’re a full-time real estate professional, you can take the property that didn’t perform well and has the depreciation you haven’t used yet and apply it to a different area where you did.
So that would be the benefit to you and your husband being full-time real estate professionals is, if you’re in a situation like this, where you’re showing that you made money and they want to tax you for 15% of that income as a self-employment tax, I’m not a CPA, but my understanding would be, if you showed you made no income, because depreciation washed it all out, there would be nothing to tax.

Samantha:
Okay.

David:
That’s the first thing that pops into my head. Now, if you want to… I made that sound it’s simple. The concept is very simple. The execution is not. Okay? You have to buy a lot of real estate. It has to be very expensive real estate, right? Like in order for me to do this, I bought a place in Minnesota that was $16 million and that covered my income. So I had to buy a really expensive property. It’s not like this just accidentally happened. So you have to be willing to really commit to buying a lot of property and leveraging that quite a bit, because it doesn’t make sense. If you save 200,000 in taxes, but you had to put $800,000 down to buy the property, you still ran out of money.
So you have to be willing to leverage these properties where you’re putting down less of a down payment to where the taxes you’re saving are close to what your down payment was on the real estate. But what ends up happening is it kind of ends up, in a sense, free real estate. If you don’t have to pay $300,000 in taxes and you put a down payment on a house of 400,000, you really only put down 100,000. So your ROI would be four times higher than someone that had to put down 400,000. Does that make sense so far?

Samantha:
Yeah. Yeah, it does.

David:
Okay. So, that’s one strategy to say right off the bat.

Samantha:
Okay. So we were thinking that we wanted to get a more expensive house, like you said, a lake house that probably wouldn’t make that much money because we’d be using it as a short season. So, that would be that same idea where the lake house might help offset the properties that are making the bigger amount of money. That one would not make as much money, so that would help offset the ones that are making money, if I was a real estate professional to make sure that’s correct.

Henry:
Correct.

Samantha:
Okay.

David:
So your question was, if I buy another house that does not make money-

Samantha:
Right.

David:
Would we be able to use the depreciation that was unused against a property that does?

Samantha:
Yes. Yes.

David:
Is that correct, Samantha?

Samantha:
Yes. That’s correct.

David:
Theoretically, what you’re describing would work, but I want to caution to make sure you understand, it’s not necessarily that you lost money on a property or didn’t make money. It’s that the depreciation of that property was big.

Samantha:
Okay.

David:
Is this a commercial property or are we talking about a residential property?

Samantha:
Residential.

David:
All right. So what they’re going to do is they’re going to take the value of that residential property, and they’re going to divide it by 27.5. And that’s the amount of depreciation you can take. So if this property loses money, but it only costs $200,000 per se, if you divide 200,000 by 27.5, that would be $7,272 of depreciation. That’s how much income that would shelter. That’s not very much. So if you go buy a million-dollar property for what we’re talking about, you divide that by 27.5, every year, you’re going to get $36,000 worth of depreciation, right?

Samantha:
Okay.

David:
So you’re going to have to figure out… What I do is I literally go to the CPA and I say, “Okay, here’s how much money I think I’m going to make. How much real estate do I need to buy in order to cover that much money?” And then he goes, and he figures out, well, based on the value of the land, we have to subtract that, because you only get to depreciate the actual structure. And then the cost segregation study, depending on the type of property, we think you’re going to save around this much. There’s a little bit of detail that goes into that. I don’t want people to just hear this and think, oh, I don’t have to talk to a CPA, because there’s quite a bit of pieces that make it not simple. The execution of it is a bit complicated. It won’t be if you’re a CPA, because they do this.
But he’ll come back and say, “Hey, roughly you need to buy something in this price range.” And then I will typically go a little bit higher than that. Just to cover myself in case I made more money than I thought I was going to make. And now the question is, how can I buy this much real estate? And then you have all of the fricking avalanche of questions that come like, can I afford that? Can I handle the cash flow from that many properties? How much money do I have to keep in reserves? What do I have to change? Can I make enough income to cover that? But that’s the gist of how you do what the Donald Trumps and the Robert Kiyosakis of the world are doing when they say, “We don’t pay taxes,” is. They’re still paying taxes or they’re still earning income. They’re just having their taxes sheltered by depreciation.

Henry:
What we’re looking for there, what to be looking for there is that your amount of depreciation is greater than the money it makes. And then that is your unused depreciation that could then be applied to another property if you are a real estate professional.

David:
Yep. And my understanding is it can even be applied to next year’s income. So I think being a full-time real estate professional is something I would encourage you to look at. I would like to introduce you to my CPA. And the question you ask is, how do I become one? Not am I one. That’s what you’re looking for. In fact, I would say the litmus test for every professional I work with is, can you answer the question of how do I do it? If someone comes to me and they’re like, “David, I want to sell my house and it’s in bad shape.” And I say, “No, you can’t sell it.” Well, what worth am I? What they want to hear is, how can I sell it? What are my options? And so that’s the professional that you want to work with. As far as any other means of avoiding that tax, have you been given any other kind of advice or possible strategies from other people?

Samantha:
No. A lot of people I asked, who were just other Airbnb or short-term rental owners just pretty much told me I’m wrong and that you shouldn’t pay the tax. But when we read the rules, it looks pretty clear that you do.

David:
Here’s a wild suggestion. What would it look like if you just found a different CPA and got a second opinion? This is a hot button topic and CPAs that are listening to this are probably losing their mind. You have half of them that are like, no, you never have to do that. Why would they tell you this? They’re just a coward. And you have the other half that are like, you’re going to go to jail if you don’t pay. This is so black and white. Black and white stuff still is gray within that community.
So I would go to a new CPA and say, do I have to pay this? And if they say, yes, say, explain to me why. And then say, all right, if I would’ve done it differently or how would I have had to do it differently to not pay it? And you might find a CPA that says, no, they think you have to pay it because of this. But actually, if we change the way your income’s reported or we put it into a different LLC, I don’t want to make it sound like I’m encouraging you to do something illegal. Okay? But oftentimes I will restructure the way that I take money. Let’s say, for example, I don’t know if this would be the same for you, but this is an example of what I’m describing so people don’t think this is illegal or this is unethical.
If I’m taking money in the name of a C-corp and I have a lower corporate tax rate because of that, but it’s still tax that I’m going to have to pay, and that C-corporation has not bought any real estate, but me, personally, I bought a bunch of real estate, so I have depreciation, that depreciation that I have, doesn’t just magically get inserted into my corporation. Corporations are looked at as a different entity than me. But if that corporation pays another corporation or I pull money out of it as a salary, now that salary is covered by the depreciation of the property that I bought. All right? It’s completely legal. It actually makes logical sense. Now, there’s ways you do that. You probably can’t pay yourself like a ridiculously high salary. That’s where you got to ask the CPA, how do I do this?
But I would get a second, third and fourth opinion. And if every one of them tells you the same thing, you have to pay this tax, well, then you look at, well, next year, how do I avoid it? But there might be one that has that creative understanding of, well, if we change the money from this corporation to that, or we change the way you… Yes. I just can’t tell you what the actual answer would be, because I’m not a CPA myself-

Samantha:
Sure. Right.

David:
But please reach out to me if you’d like, and I’ll introduce you to mine.

Samantha:
Okay. Will do. Thank you so much.

David:
Thank you, Samantha.

Samantha:
Thank you.

David:
Henry, what do you think? Do you think we dodged that raging bull of a lawsuit charging right down.

Henry:
I think you did a wonderful job of providing valuable advice and not putting BiggerPockets in a tough situation.

David:
Thank you. And Samantha, thank you for asking that question that doesn’t get brought up. Nobody ever wants to admit when they have to pay money in taxes or they look like they made a mistake. So I appreciate your candidness there. Cody, welcome to the BiggerPockets Podcast. What’s on your mind today?

Cody:
Hi. So my question pertains to mentorship and kind of applies to partnership as well. But quick little background, I guess. I’m 31 years old. I have a wife and kid. I’m an aircraft mechanic, so I have no experience in real estate. And I have about $10,000 saved up in the bank. So I’m not like a big spender, can’t go buy a house for cash or anything like that. My understanding with mentorships and partnerships is that it’s a relationship. Like you want to bring something to the table or be able to provide something and in turn they give you the knowledge you need to succeed. So my question is, what are some things I can do to make myself more marketable to a mentor or a partner?

Henry:
Awesome. Super cool. So are you the guy they call when they say the plane has maintenance issues and then you come fix it, or do you work at a place and they take the plane to you and you fix it?

Cody:
I work at a place and they bring the plane to me.

Henry:
Got it. Cool. Yeah, I like this question. Mentorship is helpful for sure, because you get to leverage someone else’s experience and learn from the things they did right as well as the things they did wrong. And the whole concept is that you can move a little quicker with mentorship and ways to bring value. So look, from a value perspective, you can bring the deal, you can bring the money, or you can bring the experience. Those are kind of the three buckets that people look for. And so you have to look at what is it that I feel like I can provide and if you’re a person, like you have a day job. But finding deals right now is challenging for people. There tends to be more money out there than there is deals it seems like for people.
And so I always tell new investors, if you’re looking to add value, find a partner, find a way to get a deal done. If you can get out there and find deals and then bring those deals. And so one thing to think about is, hey, you get in real estate investment groups, go to meetings, find people in your area or in the area that you’re looking to invest who are successful, strike up a conversation. Ask them what they’re buying. What they paid for it? What they’re doing on the exit strategy. Are they flipping? Are they selling? Are they Airbnb? You’re starting to gain information and investors will talk about their deals. If you asked David what his last deal was, he’d tell you. We’ll tell you that information, and then you can use that information to go out and source deals.
There’s tons of different ways to find deals. You can find deals on the market. You can find deals off the market. But if you’re willing to put in the effort to source a deal, when you have a deal, that’s hugely valuable to people, especially investors who are actively doing deals, if you can bring them something that makes money and then ask to take on some equity. You can take on 50%. Said differently, the percentage in my opinion, doesn’t matter, because the experience is huge. If somebody brought me a deal in my buy box and said, “Hey, I found this. Will you help me get this deal done? And you can have 50% of it.” There’s a strong likelihood that I’m going to say, yes.
Putting in the work to find the deals and then bringing a deal to somebody is a great way to provide value. You can also provide value in the form of paying attention to what people are needing. Like right now, for example, I need someone to help me manage my social media. And if you’re networking with active investors, you’ll start to see what some of their needs are. And sometimes you can provide value with something that you currently have as a skillset that maybe doesn’t relate directly to real estate, but relates directly to what they need.
And so being able to just be around investors to understand, hey, I saw you were looking for someone that can do this. I’d be glad to do that for you on the side if you take me under your wing and show me how you’re taking down your next deal or how you’re finding your next deal or how you’re finding, whatever that may be. But you’ve got to be around the people to understand what their needs are and for you to understand how your specific skillsets can line up with their needs. But all that involves you having to be around those investors to understand what their needs are. That’s one way. I’m sure David has some ideas for you.

David:
What do you think so far, Cody?

Cody:
Yeah. Sounds like I just need to go out and search, I guess, find groups of people or find the investors and then kind of find the deals.

David:
So was that the first kind of light bulb moment you had where you realized you’re going to have to go look for someone if you want them to be a mentor? It’s not like the job you have now where someone brings a broken airplane to you.

Cody:
No, I do know I have to get out there and find the people or find a mentor who’s kind of doing what I want to do.

David:
Okay. Henry gave you some very good micro level advice, some actual practical tips. I’m going to give you more of a macro big picture thing. The older I get, the more I recognize that when you work against human nature, you make things very difficult for yourself. Strife and conflict is a result of it. It’s like going against the grain. When you work with human nature, it’s like shaving in the direction you’re supposed to be going. You don’t get those little skin tags. Like everyone just likes it when you go with human nature. So there’s a few things that I’ve learned as I’ve gotten older that I think help me in business that will probably help you.
The first is the law of reciprocity. A lot of human beings I notice, like when they’re dating, they want to find someone that will love them unconditionally. But I’ve yet to meet the human being, when you say, “What do you want in a relationship?” And they say, “I just want to find someone that I can love unconditionally. I want to find someone where I can accept all their flaws and never have them change anything and just give, give, give, and never get anything back.” That’s never happened, but almost 100% of people are looking for someone to give that to them. So can you see how that could create some strife and some conflict and what happens in most relationships.
So recently I was thinking about this and I came up with this theory that humans that have that idea of, I want to be loved unconditionally are trying to find a love that only comes from your mom and dad. Your mother and your father, if they were in your life, you’re blessed. And if they weren’t or you didn’t have a great mom and dad, it probably left you with this hole and then you go looking for a human being to fill that hole who never signed up for unconditional love. They’re looking for more of a agreement. I’ll handle this part, you handle that part. That’s how relationships end up ending up. That just isn’t what anyone starts with.
Well, business isn’t much different. What I’m getting at is this is human nature. Everybody needs to be getting something out of it. And if they are, they’re usually willing to give. But if it’s a one-way relationship, it doesn’t work unless it’s your mom or your dad. Even grandparents are not a one-way relationship. They’re going to give to you because your mere presence is giving something to them, but they’re still getting something out of it. Your parents are the only people that don’t expect anything because by loving you, they’re loving themselves. You’re a part of them and that’s why there’s an exception there.
So, so many people ask this question of how do I find the mentor? And they’re looking at it like, how do I find the parent I never had to help me with these problems that don’t expect anything from me? And then they’re just always frustrated that that doesn’t work. And what I’m positing here is that works against human nature. There’s nobody who’s really successful with a lot of the problems that… Like, can you imagine the problems Elon Musk is dealing with on a daily basis? He doesn’t have a whole lot of peace. It’s just when you run the company, you’re the person that deals with every problem that no one else knows how to solve. It’s like being the best doctor in a hospital. They’re only calling you when all the other doctors could not figure out what to do about this. And so you’re freaking challenged all the time.
That’s what the people at the top of the heap look like, that we’re all looking up to and we’re saying, “We want you to be my mentor.” And those are the people that tend to have the least amount of resources and mental energy to spend helping the new person. And so it’s like that system inherently is designed to be really screwed up. If I wanted to be like an airplane mechanic, I wouldn’t… If I went to the best mechanic that existed and said, “Can you teach me how to do this?” Their answer would probably be, “No, because I have to fix all the airplane stuff that the other mechanics don’t know how to fix. I’m really busy with it.”
So a better question would be, how can I find a way to be useful to the mentor that I want? Okay? You got to go look for the person that you think, I’d like to be that person’s mentee. I like their integrity. I like their style. I could see myself becoming like them. I like their approach. Whoever you pick as your mentor, you’re going to move in the direction of them. And many times this isn’t even someone you meet. It’s someone you listen to on YouTube. So someone’s listening to me versus Grant Cardone versus Robert Kiyosaki versus some other real estate guru person. You’re going to move in the direction of that person who’s telling you all the time, how to think and how to act and what values to have. So you want to make sure that’s someone that you want to turn out like first off.
And then the next question should be, what do they need? So if you wanted Grant Cardone to be your mentor, this is me speculating, you would have to find a way to help him raise money, because that’s what’s on Grant’s mind constantly. He never stops thinking about, how do I raise money? So if you went to him and said that, Grant’s brain immediately goes to like, well, how would this help me? And if you had a plan in place that could help him raise money that he bought, boom, you probably got a shot at him being your mentor. If you just show up with nothing, that only works with mom and dad. Okay?
Now this isn’t directed to you, Cody, because you’re just sort of the person who brought this up. This is to every human being that asks this question of how do I find a mentor that doesn’t realize that what they’re actually asking for is, how do I find the parent I never had? How do I find the person that cares about my career, cares about my wellbeing, wants to see me succeed, is willing to be patient with me, will answer all my questions, will hold me by the hand, all things that parents do for their kids, but I don’t have to bring anything to them.
You’re a smart guy. If you fix problems with airplanes, your brain’s already thinking the right way. Like something’s not working the way it’s supposed to be working. The first step is you got to diagnose why it’s not working and what the possible system malfunctions could be from the end working backwards and then eventually isolate whatever that problem is. And then your brain switches into, how do I actually fix it? Is it a part I need to order? Did something break that I need to put back into place? How do I take something else apart to get to whatever that piece is? It’s very structural.
Well, learn how business works. What are the pieces that someone needs to make a business work? Like Henry said, do they need deals? Yes, they do. You find a way to bring somebody a deal, you are inherently valuable, they’re going to want to mentor you, but they’re not going to want to mentor you because you’re the child they never had. They’re going to want to mentor you because you’ll bring them more deals. That’s what makes it mutually beneficial. I mentor everybody that’s in my companies. If you work on The David Greene Team or you work on The One Brokerage, I’m your mentor because I want you helping my clients better. It makes me look better and it makes us all money. I’m not going to mentor someone I don’t know in another place that I’ve never met and I have no idea what kind of human being that is. Does that make sense?

Henry:
Yeah. Yeah.

David:
If I had people reaching out to me and saying, David, I want you to mentor me. How do I join The One Brokerage? That would be a good way to start that conversation versus, Hey, you don’t know me. I live in a state that you don’t live in and I know nothing. Would you be my mentor? Does that make sense?

Cody:
Okay. Yeah.

David:
Henry, you have something you want to add there?

Henry:
Yeah, absolutely. I love how you took what I was trying to say and made it sound so much better. So, I appreciate that. I want to give you practical… I’ll talk to you about the last two people that I’ve mentored that came to me out of the blue to put some practical around what David just said. One was a contractor. So instead of just approaching me and saying, hey… So one, he found me. He liked what I brought to the table as a person and said, “You are somebody, as an investor, I want to model my investing career after.” And instead of just saying, hey, mentor me, he said, “Hey, I see that you’re doing projects. It looks like you need some help from a contractor perspective. I’d be willing to do a bid on the next job that you have. All I would want from you is that you pay the labor for my guys in exchange for you being able to help guide me, answer some questions, point me in the right direction.”
For me, that was huge. He, 100% was right. I did need some help with some contractors. He noticed that by following me on social media, by networking with me at real estate investor meetups, and then he came to me with a solution. And so I absolutely took him up on that. I asked to see some of the work that he currently has going on. And then I asked him to give me a bid on a project, a labor bid. And he did. And he did that project. He did a good job. And so now, if this guy calls me, I’m answering the phone. I’m answering his questions. I’m helping to guide him, because he solved a problem for me. But he had to get around me to understand what it is that I needed and see how he could help in that arena.
The other person was somebody who did exactly what I told you to do. They came to me and they said, “Hey, I found this deal. I don’t know how to take it down. But if you help me take it down and guide me, we can be 50/50.” When I took a look at the deal, I knew the person a little bit from playing sports with them previously, and I said, “Let’s do it.” And so now, we talk all the time. We own this property together. And she’s getting a firsthand look at how I approach real estate and how I approach getting a renovation done and how I’m going to approach picking tenants and how I’m going to approach managing that property. Front row seat to all that, because she brought the value.

David:
Yeah. It’s a form of a partnership. It’s not free. You’re providing something also. Now you’re not providing the same thing as the mentor. And that’s something just to keep in mind. But that’s the approach you got to take is, Henry likes this person. He trusts this person. He thinks that they have some value. They’re probably helping with managing the rehab. They’re taking some stuff off his plate. They’re helping him be more successful in some way, which makes it mutually beneficial, which now makes sense for him to invest into this human being. Just don’t find yourself in a position where you’re trying to learn from someone that you have no way to help them because you’re now disincentivizing them from investing in you. None of us invest in the rental property that isn’t making money. We don’t put more money into money pits.
So if you just take that philosophy moving forward and say, how do I make sure that I’m bringing value, what is my value, it should lead to all these really good questions. You’re a smart brain. You diagnose problems. That’s a great way to start with. When you’re talking to real estate investors, you say, what are the hardest parts of your job? What makes this suck for you? And if they start talking and you realize, ooh, I could help with that, just go help. Come back to them and say, “Hey, I found the person that you think you need to fix the HVAC and they’ll do it at a lower price.” Something like that, boom, you’re in the inner circle.

Henry:
Phenomenal advice. Just fix the problem. Don’t ask if they need help and bring them the solution on a silver platter. They’ll give you the world, man.

Cody:
All right. Thank you.

David:
There you go. All right. Thank you, Cody.

Cody:
Good. Thank you.

David:
Good luck to you. Stacey?

Stacey:
Hi.

David:
What’s on your mind today, Stacey?

Stacey:
I am thrilled to be here, David. Love this format. And, Henry, your IG post caused me to push that submit button. So thrilled to be here. I live in paradise, which means right now I’m sitting in Tucson, Arizona, and sometimes I live in the beautiful Pacific Northwest and in Honolulu, Hawaii.

Henry:
Oh, that’s rough.

Stacey:
I know, right? We are unorthodox investors in that we’ve picked these places we want to live, and then we have our plan B. And then we’ve started getting more involved in real estate investing and we’ve chosen to do it within our home state of Washington, which can be an expensive market and doesn’t always pencil out great from a cash flow perspective. But we’ve always kind of toyed around with this idea of, what’s our plan B if this doesn’t work? Give you a recent example.
We acquired our first short-term rental property. It’s not in a vacation destination, so we weren’t sure how it was going to go. But it’s a home that’s residential office and used to be a counseling office. So our plan B was, if they change the short-term regs on us or something else comes up, maybe we can turn it back into some sort of office rental. That’s how we kind of mitigate this idea of not having this perfect cash flow and handling all that. Here’s my question. One, how do you know when to pivot? I got to tell you, my first guest, I was on a trip to New York and they’re blowing up my phone and I was like, “That’s it. We’re not doing this. Let’s get out of this.” So one is, how do you know when to pivot to your plan B? And obviously if it’s a change in regs, that’s an immediate, but when it’s just not working out, how do you know when to double down versus switch?
And then second is, how are you smart about it? I’ll give you an example. We have another one that’s a longterm flip and hold that we were going to fix up and turn into a longterm rental, which means we were choosing certain finishes and whatnot. But then we were all of a sudden seeing this market depreciation where maybe we should flip and sell. So how do you make the wise decisions when you do plan for a plan B so you find that middle ground? I hope those questions make sense.

David:
What do you think, Henry?

Henry:
Yeah. They make sense. So for me, I am paying attention to, or what I try to stick to is, so I set goals on both what I want my business to look like and what I want my life to look like. I know it’s time to pivot when the results that I’m getting from that asset are not meeting the goals that I had in mind. And also, I would look through the lens of these assets. Is it truly that you are needing to pivot or is it just that it’s bothering you? That something’s not going perfectly according to plan and it’s bothering you. And so your brain is now looking for a different direction to take that asset in. When I get in that situation, then I just have to go back and look at the numbers. Is this asset what I wanted to buy to meet my goals? If the answer is, yes, okay.
Now, is it producing the results that I want it to produce? If the answer is, yes, then, okay. Then it seems like I just have a process problem. I need to fix the process that’s causing me the headache so that I can keep the asset because it’s doing the things that I want it to do. It fit my buy box. It fit my results that I want from that product. It’s just giving me some sort of a headache in between there. And that just means I need to go fix that problem. So is it that I need to hire an Airbnb property manager or a short-term rental property manager, or is it that I need to bring somebody in, a VA or someone that can handle taking those phone calls for me so I don’t have to do that portion of the management?
And so just remember your goals and then look at the results. And if they’re meeting those things, then I would look at solving a different problem. But if they’re not meeting those things, then that’s when I know it’s probably time to pivot. Does that make sense?

Stacey:
That makes perfect sense. We wrote our goals at the beginning of the year and I know exactly where they are and they’ve been there ever since. So I think your point is so solid. It’s time to pull them back down and just once a quarter check in, are we on track? I hadn’t even thought about linking it back to goals. Super smart.

David:
Okay. So after hearing that, what questions remain?

Stacey:
I think the other problem, and I started thinking about this as you… I thought it was going to be the second part of what you were talking about is, how to not get caught in that shiny new penny syndrome? Because everybody gets excited about short-term rentals, so everybody wants to go out and try it and get those blockbuster numbers. That’s the other issue that I have. And I invest with my husband who’s more like, “Stay the course Steady Eddie,” and I’m like, “Let’s go change up the world and do it all different.” So trying to find that balance between us is a tough one too. So I don’t know if you have any guidance on how to do that with partners, especially ones you’re married to.

Henry:
Marriage counseling.

David:
Yeah. I can’t offer you help there, because I’m not married. I forget that that’s a struggle other people have to be honest with you. Every once in a while Brandon or Henry will be like, “Oh, how do you get your wife to,” whatever. I’m like, “Oh, I forgot you have to do that.” My struggles are with my own schizophrenia of all the different aspects of David that want to do all these different things and I argue with myself. I forget that there’s actually other human beings that you have to… So I can’t help you there, but I can possibly help you, or maybe the water’s worse when it comes to the shiny object syndrome. You’re saying shiny object syndrome, but what I think, it’s not that as much as I know I am talented. I see the vision of how to make this work. I want to use all of my skills and I’m willing to take some risk. And your husband’s like, no, the tortoise won the race. Just keep doing with what’s working.
You are an offensive mindset, Stacey, you see what’s possible and you want to go out there and make things happen. And your husband’s a defensive mindset. His vision is geared around not making mistakes and not losing capital. Okay? Both need to happen. So what we’re really talking about is how you marry the two together. This could be an entire show. In fact, maybe we’ll have you back on and we’ll get into like, I’m having so many thoughts that run through my head about how to do this the right way.
The first thing I want to address is I don’t think… I mean, shiny object syndrome is a thing. You see people that jump from exciting opportunity to exciting opportunity. But I think that’s more of a problem when it’s in a completely different asset class or opportunity. So if you quit your job working at a CPA firm and you go try to be a multi-level marketer, and then you quit doing that and you go try to be a personal trainer, that’s clearly you looking for something to fix a part of your life through your job, that isn’t going to work. Okay? If you’re in real estate and you’re like, this strategy was working, but it’s getting harder and harder and harder to make it work, I got to move somewhere else. To me, that’s more like, this well isn’t producing water. I want to go look for another well.
So I don’t deter people from that and that’s why I’m using… I’m kind of clarifying, I don’t consider this to be shiny object syndrome, because it’s not motivated by just something fun, or I have a hole in my life I’m trying to fill. I feel like that’s shiny object syndrome. This is almost motivated by, god, it’s getting harder and harder to make it work this way. There’s got to be another. And I think that can be smart. That’s one of the things that I haven’t figured out with jujitsu is, someone will have something to stop me. And I will just try to overpower that thing and wear myself out. And my instructor will say, “Why don’t you just move your hips to this side?” And I didn’t even think about that. I just kept pounding away at what I was doing. Okay?
And I am like you in the sense that I am adjusting strategies. And when it comes to real estate, luckily I’m the black belt. I’m not the white belt. So I can see, man, it’s too hard to make it work this way, we got to change something. And a lot of people will not adapt. That’s where your husband’s strategy can actually get you in trouble. So I keep going back to this analogy of the NFL and they change the rules for how the game is played to where you’re not allowed to touch wide receivers. You’re not allowed to touch the quarterback. It made offense much easier. Well, the teams that didn’t adapt, that just said, nope, we’re just going to keep running the ball over and over and over, they just started to lose because the rules don’t benefit them. They’re at a huge disadvantage.
So short-term rentals became popular in large part, not just because the returns are higher, but because you could not get cash flow any other way. This is more like, why are the mountain lions coming into town? Well, we’re chopping down all of their freaking where they live. We’re chopping down all the forests. They got to go somewhere. We’ve pushed people into short-term rentals with the lack of inventory and the lack of cash flow. And now you’re finding that now that the mountain lions are in town, there’s a lot of municipalities that are like, “We need to shut down short-term rentals. We don’t like these mountain lions walking around.” And so a lot of people are going to get stuck. Like the mountain lion that thought it was safe going into town, that’s when animal control’s going to get called.
So to me, that’s the conversation we’re having is, how do I safely bounce from asset class to asset class within real estate without getting caught buying a short-term rental? And then they say that they’re outlawed or not understanding how to underwrite a short-term rental and then finding out it’s actually costing a lot of money. That being said, and we’ve kind of clarified it, what thoughts are going through your head when it comes to how to do this with you and your husband?

Stacey:
I think what you hit on is exactly right. It’s offense and defense. I think at the end of the day, a game that’s well balanced is what causes you to win. And so I think it’s us coming together and to Henry’s point, going back to our goals and saying, okay, is it time to pivot because we’re too far off course from this goal? The idea of the short-term rental came because we wanted to stay in Washington, we wanted to self-manage, and you couldn’t do that anymore with longterm rental for where we were at. And so I think what’s really clarifying for me is to pull up a little bit from the numbers. When do we pivot? How do we do this? And be like, what’s our goal and how do we play a perfect game that’s balanced between offense and defense? And that’s honestly, in just a few minutes, it’s really helped me to see, let’s sit down, let’s make sure we got a well-balanced game and we’re focused on what our goals are.

David:
That’s awesome. Here’s the advice I’ll give you when you have that conversation to keep it productive.

Stacey:
All right.

David:
You each make up a half of a whole, you need offense and you need defense. Okay? Imagine a football team where the offensive coordinator is saying, we want to throw more long passes. We want to throw the long bomb. We think we can air it out. That may be good for the offense. The defensive coach might be hearing, we’re going to take some big risks. If it works, we’re going to score really quick. And if it doesn’t work, we’re going to turn the ball over. But either way, the defense has to come back on the field really quickly. And he’s like, I got to get my guys a break. This strategy does not work for us because by the fourth quarter, they’re going to be so exhausted, we’re not going to able to stop a team. Okay? And you may have the same thing happening from like the defensive side where he’s like, I want to blitz. I want to blitz. I want to blitz. Let’s just blitz constantly. And the offensive person’s thinking, well, if that doesn’t work, we’re going to get the ball back in a really bad position or something.
What I’m trying to say here is, there are ways that will work for defense, that don’t hurt the offense. And there are ways that hurt the offense and vice versa. So when you guys are having this discussion, when you’re coming up with a possible, hey, we could do this to make money. Your brain should be thinking, how do I make money without hurting the defense? How do we limit the risk or limit the downside? And he needs to be thinking the same thing. How do I protect us, but still give us the opportunity to have an upside? And if each of you can approach it from that perspective of my solution cannot hurt the other side, at least not significantly, you’ll probably come up with things that you guys are both going to be excited about.

Henry:
Who said you’re not good at marriage?

David:
Counseling.

Stacey:
I know, right?

Henry:
That’s was perfect.

Stacey:
And I love football. I love the football analogy. So hot.

David:
Did you guys hear that? A sports analogy that people didn’t complain about? Thank you, Stacey. I need more of that.

Stacey:
This has been gold. Thanks to you both.

Henry:
You’re welcome. You’re welcome.

David:
Thank you, Stacey. We really appreciate you being here. Please come back on and let us know in the future, what you thought.

Stacey:
Will do.

David:
And if you’re listening to this on YouTube, please consider right now going and leaving us a comment to let us know what you thought about Stacey’s situation. If there’s an angle you can see that maybe we missed, what advice you could offer her, as well as what type of question you’d like to see in the future. All right, Colin, what’s on your mind today?

Colin:
Yeah, so obviously we just filed our taxes. We were reviewing them with our accountant and I noticed our depreciation for a property that we had. We’ve owned the property for about five years. Obviously Northwest Arkansas, like all markets have depreciated a lot. So I’m looking at the cost basis of that property and what we’re depreciating and wondering if there’s a way to raise that so we can increase our depreciation amount each year without having to sell the property.

David:
Okay. So this isn’t legal advice, run this by your CPA first, but here’s my understanding. When you make improvements to the… Actually, let me back up and explain what you just asked. Can you share what you paid for the property?

Colin:
Yeah, 140.

David:
Okay. So you paid 140,000. You’re dividing that by 27.5. That’s how much depreciation you can take off every year and your cash flows are higher than what the depreciation shelters, right?

Colin:
Correct. Correct.

David:
All right. And let me tell you why that’s happening. You already know, but let me explain it probably. The lower that you get in price point, your price to rent ratio typically gets stronger. So when you get into lower-priced homes, that’s when you get the 1% rule, the 2% rule, the cash flow is stronger, theoretically, when you get a good one. Okay? The higher of a price you go into real estate, the harder it is to make it cash flow. So here’s just like a principle that you can apply to in general. Like when I was playing basketball, there was a rule. The closer you get to a guy, the harder it is for him to shoot, the easier it is for him to get past you. The more you back off, the more space you have to react, the harder it is to get past you, but the better he can shoot. So you’re trying to find this balance, right?
When you buy more expensive real estate, the cash flow is less so that your depreciation covers it, and then you can usually have leftover depreciation to cover something else. Well, you have the opposite problem. You got all this cash flow, but your depreciation isn’t sheltering it. So, that’s one-

Colin:
Exactly.

David:
Go ahead. You have something.

Colin:
And that was one of the ahas when we did our taxes, I was like, I thought just general rule of thumb, depreciation would cover our income, but it did not this year. So trying to figure out how we can make that increase.

David:
So thank you for highlighting one of the ways I give people advice when I say, cheaper properties don’t actually equal safer all the time and you should buy in more expensive markets. I’ve been getting heat about this like, “David thinks cash flow isn’t the only reason to invest it.” It is, it just, there’s more nuance to it, as you’re finding out right now, Colin, where this isn’t working out as well. So on the next house you buy, you probably want to consider going into a nicer neighborhood that might depreciate more, rents will go up more over time and you’ll have more depreciation.
Now, for the problem you’re in, I can now kind of comment on that. When I thought, when I first started buying properties, that if I bought a house and I spent a lot of money to fix it up, that would be like a write-off against my income. So I’m like, oh, I spent $30,000 to fix up this $140,000 house. So all my rents will be covered because I didn’t make more than $30,000. I thought it was a loss, but that isn’t what they do. They take that, that you spent to fix it up, they add it to what they call the basis of the property. For your case, that would be like $140,000 what you paid minus whatever the land value was. And they say, okay… So in this case, it’s kind of like you get the depreciation of $170,000 house, not 140, if you spent 30 to fix it up.
That is one way to bump it up if you spend significant amount of money to improve the property. The same is true if you’re furnishing it. So like with the Airbnb stuff that we’re doing, when I spend money to buy furniture or amenities for the property, they’re going to take what I spent on the house and they’re going to add it to the basis. I’m not going to get subtract all of that in year one. Are you with me so far?

Colin:
Yes. Yep.

David:
Okay. So my mind as I was just talking started thinking about, how small is the house? What’s the square footage of it.

Colin:
1,600 square feet.

David:
So it’s not tiny, but there’s definitely room to go. I would probably talk to an engineer and see, can I pop the top? Can I add more square footage to it? Now I’d make sure that you’re in an area where the demand for rentals would support that. But the pop top, put something above the garage or even convert the garage, something like that is a pretty good bang for your buck. You’re going to add square footage to the house, which makes it worth more. I bet you’re going to improve your basis. Okay? Then you can refinance when you’re done, you’ve improved your basis, but you spent money. Well, now you can get that money back out on a refinance. Go ahead. You have a thought there.

Colin:
I was just going to say, so that comment right there, a second part of the question was, when you refinance, obviously it’s been talked a lot about the past few years about refinancing because of the low rates, does that increase your cost basis when you refinance?

David:
I would email my CPA and I would ask right now and they could answer that question for me pretty quick. So I’m not positive because I haven’t had to do that yet. I don’t think that it automatically does. I don’t think that you get to take the new value on a refinance and say my basis has increased to this much. I do think you get to take the money that was spent on the refinance, like your closing costs. That might be able to be added to it.

Colin:
Okay. Okay.

David:
But I think the money that you spend to fix it up would absolutely be added. So if you spend $40,000 or $50,000, even if you borrow that money, the government doesn’t care. Now you’ve bumped your basis up from 140 up to maybe 200 if you spend 60. But you just lost 60,000, because you spent it or you borrowed it. Well, you can refinance it to get that cash back, pay off the money that you borrowed or pay yourself back. Now you’ve improved your basis and you’ve improved your cash flow and you’ve improved your property.

Colin:
Yeah. I mean, that sounds like a win-win.

David:
Henry, he just dropped right before-

Colin:
I was just going to say, I was listening in to two people ago and you’re just like, “Make sure you get that comment about how I just dropped some knowledge on them.” So yes, that was great.

David:
Now the caveat I’m going to give you because I always do this, I can’t help myself. I always just see worst case scenarios. People don’t like it about me. Maybe 5% of the population thinks I’m cool. The rest of them just think I’m annoying, that I’m constantly talking about what could go wrong. Don’t do this if you’re in a bad neighborhood, a bad area. It’s a bad property. Okay. That is just throwing good money at bad. So if you’re like, I never get good tenants or I can’t find tenants at all, don’t assume that making your house bigger makes it better. If it’s in a good area, that works. If it’s in a bad area, you just made a bad house worse.

Colin:
Yeah. No. Actually, fortunately, this is in a good area.

Henry:
This is one of the unique opportunities where I get to give like localized advice. I live here. I love it.

Colin:
I was like, I can give you the street address and everything. You’d probably know where it is.

Henry:
Yeah. David nailed it. That’s what my advice was going to be is I was like, you got to improve the property. But knowing what I know about where your property is, here’s… So pop tops are great, but can be difficult, depends on layout of the house, blah, blah, blah, yada, yada, yada. Fayetteville is very bullish on ADUs. And so Fayetteville will allow you to put an ADU one attached and one detached. So you could take your one-unit property, turn it into a three-unit property. So that’s improvements, which improves your cost basis. Plus you can Airbnb those units. You’ll have to get an Airbnb permit through the City of Fayetteville to do that. So now you’re increasing your cash flow substantially because, as you know, Fayetteville, as an Airbnb, amazing place to do that. And David’s right, you want to make sure you do that in good neighborhoods. The benefit to Fayetteville is there’s like one bad street in the whole city.

Colin:
Yeah. I was just going to say. I took responsibility.

Henry:
So yeah, that’s what I would look at is, how can you improve the property. And knowing what I know about what Fayetteville is willing to do with ADUs and allowances for setbacks and variances and things is something you might think about.

Colin:
Cool. Awesome.

David:
Here’s what I’m going to leave you with, Colin. This is what I’d love to see. Ideally you pop the top, you add upstairs, you get an engineer to bless it and say, yes, he can support it. Then you look to see where you can build onto your existing structure and add a ADU if you can avoid having to do a standalone. Okay? Then you want to throw a little bit of razzle-dazzle on this puppy, you look at converting the garage and you put a separate entrance to your upstairs from the outside. And you end up with the downstairs that you got, an upstairs that’s a separate unit that can be rented out, an ADU that can be rented out, and then a garage conversion for just a little bit of icing on the top of that bad boy. And you just added an extreme amount of cost basis and a lot of cash flow. And you’re going to be a Fayetteville celebrity when you’re like, look at what I just did to my thing.

Colin:
That’s good.

Henry:
And if you’re looking for a partner that’s local, I’m just saying you can-

Colin:
I was just going to say, I think I know somebody.

Henry:
Maybe you know a guy.

Colin:
Yeah. Awesome. Well, hey guys, I really appreciate it. That’s great advice.

David:
Yeah. We appreciate you, man. Good luck with that.

Henry:
Thank you, man.

David:
We’ll be rooting for you.

Colin:
All right.

David:
And that was our show for today. Man, that was a lot of fun. And I think we might have actually given some practical advice. What do you think, Henry?

Henry:
Yeah, I think we might have helped a person or two. I’m in for it.

David:
Yeah. That was a lot of fun. I love these live call-in shows. And I want to know, is it just me or do you guys love them as well? Please leave us a comment on YouTube and tell us if you like this style or if you prefer a different style. I mean, at this point we’ve got a buffet that you could pick from. Do you like the story, hearing someone talk about what they did? Do you like the scene green? Do you like the news stuff where we comment on what’s going on in the market? Or do you like these kind of coaching calls? We want to know, because we want to make more content geared towards what you like. So leave us a comment on YouTube and please subscribe to this podcast. Subscribe on YouTube, subscribe on iTunes, wherever you’re listening. It really helps.
I know that right now, BiggerPockets, we are the best real estate podcast in the world, but things are changing. A lot of attention’s go going to TikTok. A lot of it’s going to Instagram. A lot of it’s different. It’s like 30-second soundbites where you can’t actually get the full level of knowledge that we’re trying to bring here. So what I’m saying is, we need your help to stay at the top. Please subscribe and let everybody else know about this podcast. We want to grow it. Henry, what do you think about today?

Henry:
Today was fun, man. It was like being a member of David’s tax, marriage, and legal advice brokerage. Mind you, we are not professionals at any of those things, but it was a fun episode. Because real estate investing, I know you said you’re not married and so you forget that people have to work with their spouse sometimes, but real estate investing with a partner is like your second form of your marriage. Hearing how other people are dealing with those struggles, it’s fun for me and it’s encouraging for me too, because I too have a spouse who I’m in this business with. We talked about it on a previous episode, becoming a real estate investor helps you build wealth, but also helps you become a better person. It can also help you become a better spouse. So, super fun.

David:
Really good. I love that advice. Henry, you always drop these little nuggets that are inspirational and insightful at the same time. If people want more nuggets, where can they find out more about you?

Henry:
Absolutely. You can catch me on Instagram. It’s the best place I’m @thehenrywashington on Instagram.

David:
Can they pronounce it “the,” like The Ohio State University?

Henry:
You can pronounce it “the.” You can pronounce it “The Henry Washington.” I’ve got the website too. You can go to thehenrywashington.com or thehenrywashington.com.

David:
All right, you can follow me online @davidgreene24. Check me out and tell me how my new social media company that is helping running my page is doing. I would love to have that. And then if you’d like to be introduced to my CPA, to one of the loan officers on my team, to a real estate on my team, please reach out to me as well. I’ve been getting a lot of people that went with someone else and then came to me after the fact and are like, “What do we do? We’re in trouble.” And my answer is always, “You should have come to me before you did it.” So in general, no matter who it is you’re going to, don’t work with the first person you talk to, unless they’re a rock star that was referred to you by people and you know they’re really, really good. Ask around to make sure you pick the right fiduciary that you want representing you before you get into this.
Henry, I just want to thank you again. It’s always fun doing these with you. They’re always a little bit scary because we never know what the guests is going to throw at us. And we have to kind of think on our feet. So it sets our podcast apart from other podcasts where people don’t do this type of thing nearly as much, but it also makes your butt pucker a little bit when you’re like, oh, man, I really hope I can give some advice.

Henry:
It sure does. I have no problem lobbying grenades right back at you when they come through. So I’m good with it.

David:
All right, my friend, we’ll have to do it again sometime. This is David Greene for Henry “Call of Duty” Washington signing off.