Recently, I wrote an article stating that the housing market has begun transitioning from an extreme seller’s market to a much more balanced one—at least on a national level. While I do […]
2022-07-27 15:12:23
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Property management can be one of the more complex decisions when it comes to investing. Do you save money and ensure the job is done exactly how you want it by self-managing, or do you invest in someone with experience and save yourself time, energy, and headspace? Today’s guest, Karen Lane, breaks down property management in bite-size chunks, so whether you’re deciding between property management vs. self-management or hoping to pursue property management already, this episode is perfect for you.
Karen has been in property management for commercial real estate for most of her career, so she’s seen it all—including a dead deer carcass in the middle of a shopping center parking lot. She’s worked with private investors on both coasts and internationally. Karen’s abundant experience has made her a wealth of knowledge and the perfect person to learn from. While she has thrived in the property management space, she now hopes to beat analysis paralysis and find her first investment.
Karen goes over what it means to be a property manager and how to become one. She also talks about the nuances of juggling the different relationships you need to maintain as a property manager. Today’s episode is the free property management masterclass you don’t want to miss.
Ashley:
This is Real Estate Rookie episode 203.
Karen:
I believe that the property manager needs to be seen, but I’m also the type of person that I’m a hands-on property manager. Years ago, I’d go up on the roof, and go in the basements and who knows where, but my point being that you’re much more involved, and you get much more of the actual detail when you’re there on site when something’s happening. I’m a firm believer that the property manager needs to be out on the property, not in the office.
Ashley:
My name is Ashley Kehr, and I’m here with my co-host Tony Robinson.
Tony:
Welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the stories, inspiration, and information you need to kickstart your investing journey. Part of what we do on this show is we ask our loyal listeners to leave us honest rating and reviews. Ashley always gives me a hard time when I say honest, because some of you are more honest than others. I just want to read a review we got in recently that gave us a good laugh. You can give a title for your review. The title for this one says boring.
Tony:
This is a one-star review from Missael_Emm. “Most of the guests that they have on the show seem like interesting people, but can’t help to not acknowledge how boring Tony/Ashley make the conversation. They should really know how to ask better questions.” I guess we got to focus on our banter, Ashley, and our ability to ask good questions. Something for us to work on.
Ashley:
You know what, there’s always a room for improvement. We can take constructive criticism. I would just rather you DM it to me, and not publicly put an honest review.
Tony:
Well, now onto our boring banter.
Ashley:
What’s new with you?
Tony:
I’m actually going back to Las Vegas tomorrow morning. Good friends of mine, they’re getting married in September, and their bachelor and bachelorette party is this weekend, so taking off again to Vegas, and spend the next few days out there. Ash, I know you’re going to be in Coeur d’Alene, but if for whatever reason you feel another Vegas pool party, just know you’re more than welcome to join us.
Ashley:
I’ll fly my kids out to Coeur d’Alene, leave them there for a day, drop them off.
Tony:
Leave them there. Exactly.
Ashley:
I’ll trust them with Ryan Murdoch to babysit.
Tony:
Sounds like a good time.
Ashley:
Just us traveling a lot. It’s been really cool to just be with other investors. I don’t know about you, Tony, but in your small cow town of Ontario, California, are there a lot of investors near you that you can actually network with and hang out besides going to the big meetups that you put on?
Tony:
I actually do have a few friends that live nearby that invest in real estate. But like you said, we’ve been doing our own totally free meetup. So if you guys want to know about those, just follow me on Instagram at TonyJRobinson. We’ve done two of them now. We’re planning to do them every month. We’ve had about 200 people show up to each one of the meetup. That’s been really cool, because it’s cool to be the person creating the community. I know there are a lot of folks that don’t have that connection, so to be the one facilitating, that’s been pretty cool.
Ashley:
If you don’t have that connection, do what Tony is doing, and create your own meetup.
Tony:
Do it yourself.
Ashley:
You don’t have to have a following or a platform. You can post it on biggerpockets.com. In the forums, there is a place specific for hosting events and meetups in there. The one that I go to in Buffalo every once in a while, that one, I mean, just started out with maybe two or three people showing up, but he consistently did it, Eric, every single month. I think it’s been going on maybe three, four years now, and huge, great turnout now. So, stay consistent, and then you can use that meetup to your advantage and opportunities for yourself.
Ashley:
So, “Oh, you want to learn about private money. Who wants to be a speaker at my event, and talk about private money?” Then bring them in.
Tony:
Totally.
Ashley:
Today, we actually are talking about project management, so we are bringing on Karen who works for a professional property management company. She is not an investor herself yet. So at the end, we try to give her some advice and help her get started in her journey, but we thought it would be interesting instead of bringing on an investor who is a property manager, bring on somebody who works at a property management company, and get some insight as to what to look for in a property management company, fees, and everything you need to know about the management agreement too.
Tony:
I mean, this was a masterclass on property management. If we go back to our episodes with James Denard about flipping houses and scope of works, this is equivalent but for property management. It’s that good level of information that she gives out about how to vet property managers, how to be a good property manager, as an owner, what you should look for. Just so many, so many, so many, so many good pieces throughout this entire conversation.
Ashley:
If you want to learn even more about property management, there is going to be a new, BiggerPockets bootcamp release this fall that is specific on property management. So maybe you took the rookie bootcamp with me, and you got your first deal, and now you need to know how to manage it. This bootcamp is for you. It’ll be hosted by myself. I’m in the middle of creating the course structure and all of the content for that, but I’m really excited about it. So if you guys want to check that out, you can go to biggerpockets.com/bootcamps.
Ashley:
Welcome to the show, Karen. Thank you so much for joining us. Can you start off with telling us a little bit about yourself and how you got started in real estate?
Karen:
Well, unfortunately I’ve been in property management commercials specifically for longer than I care to admit to. I started long ago and far away as a leasing assistant, and then from there moved up and became a property manager. I’ve been trapped in that ever since, but I’ve had a really good career. I’ve worked for a lot of different types of investors from private investors all the way up to REITs. I’ve traveled the world. I’ve actually worked on both coasts of the United States as well. I’ve worked internationally, including Dubai.
Tony:
Man. Well, your property management adventure seemed much more exciting than Ashley’s. I don’t know. Have yours taken you to Dubai, Ashley?
Ashley:
I mean, mine took me to a small, tiny little office with no windows, no air conditioning. It had its own bathroom attached.
Karen:
Hey, that’s better than what I had. I had one that was like a pie shaped cut between elevator shaft and a garbage compactor.
Tony:
Well, Karen, I mean, your story’s unique, and this is why we wanted to bring you on is because you haven’t started investing yourself in real estate, but you have this tremendous amount of experience dealing with everything related to real estate, right?
Karen:
Right.
Tony:
You have experience working with investors. You have experience dealing with tenants and managing the properties, but now, you’re ready to take that leap and start investing yourself. So before we get into your journey about the investing side, we really just wanted to be able to pick your brain for our listeners about property management. I think, there are so many rookies who are listening right now that have this desire to become a real estate investor, but the idea of managing tenants, and dealing with the issues that comes along with that has them stuck a little bit.
Tony:
We’re hoping that with you and your wealth of knowledge and experience can ease the fears, or maybe reinforce some of those fears, but at least give them some solutions when it comes to property management. I think the first thing that we want to start with, Karen, is in your own definition, what does it mean to be a property manager?
Karen:
I would have to say that you’re basically a firefighter, because you’re putting out crises or perceived crises constantly. You’re answering to different factions. You’ve got owners. You’ve got your contractors and your vendors, and then of course, you’ve got your tenants. You’re always juggling.
Tony:
You said perceived crises. I think that’s a really telling word. Can you elaborate on that? What does that part mean, the perceived crises?
Karen:
Well, I think that you’ve got tenants that. In their mind, it’s a crisis. It’s the end of the world, say for instance if their air conditioning breaks. Whereas those of us that deal with it on a daily basis, and Ashley, I’m sure you know, it’s like, “Okay, we know the steps. We have to call the vendor. We have to get somebody out there. We have to assess it.” That’s pretty much what I mean by perceived crises. I mean, I’ve had actual crises, but to me, most of them, it’s just a matter of perception.
Ashley:
Karen, let’s talk about the relationship you have with the property owner. So, the property manager, they deal with the tenants, but they also deal with the property owner. Can you talk about how that is set up? What does that relationship look like between a property owner and a property manager?
Karen:
Well, it varies, but I would say a lot of it is dependent on the owner. I would want someone that’s looking for the same goals as the owner. That’s going to take a pride of ownership, and really be transparent and tell them, “This is what I can do. This is what I can’t do.” A lot of that is just that rapport, building that rapport with them to say, “What do you want to see with this property? Do you want to see the aesthetics improved? Do you want to see the leasing improved? How is it that you see this particular investment of yours prospering?” Then take what that owner wants, and create a plan to do that.
Ashley:
Before we go any further, because I think as we get into talking about property management, there might be some people that are intrigued by it, and either thinking they want to do it for their own properties, or that they want to go out and manage other people’s properties. Can anybody be a property manager, or how do you become one?
Karen:
That’s one of the things that I would like to stress is not anyone can be a property manager. A lot of the states have licensing requirements, and even your cities and your counties have business licensing requirements. It’s also not as easy as people think it is. Once you get into the day to day, because you’ve got a lot of financial accounting, and you’ve got to be able to analyze, say, a budget and create a budget versus knowing where you’re going to have to make repairs.
Karen:
You’re going to need a basic mechanical knowledge, and then you’re also going to have to know how to read a lease, and read a management agreement.
Tony:
Karen, you talked about a lot of different aspects of property management. Is the property manager the one person that does everything? Say that I’m the owner, and there’s an issue. There’s a leak at the property. Is the property manager the one that’s actually going out there to fix the leak? If a unit needs to be turned, are they the one that’s turning the unit? I guess what is… Are they the ones that are writing and creating the lease documents? How much of it falls on the PM themselves, or how much is outsourced to other folks?
Karen:
Well, the PM is basically the responsible party, and it’s up to them to see to it that they’ve got people in place. For instance, if there’s a maintenance issue or something, that they’ve got the people in place to call, to get that taken care of. As far as the leases go, we always recommend that the leases are drafted by an attorney, because as real estate brokers, we’re not allowed to draft legal documents, and that they’re reviewed and approved by the owner as well.
Tony:
Interesting. The PM is like the quarterback, and they’re running in place for the rest of the team to make sure that the property’s being taken care of.
Karen:
Correct. We have to be the buck stops with us. I mean, there’s been times when I’ve actually had to be out there on the property at 2:00 in the morning just to make sure that everything was handled.
Tony:
Was that a perceived issue or a real issue, that 2:00 in the morning call?
Karen:
No, that one was a real issue. That was a 18-inch water main break.
Tony:
I guess that’s an issue. I guess that’s an issue.
Karen:
Especially when you’ve got all your electrical equipment in the basement of the building.
Ashley:
Karen, so there are some things that you need to know if you are going to be a property manager. For somebody that’s an investor, what do they need to ask? How do they vet? How do they find a property manager, and make sure that they’re going to do everything correctly, and follow some of the rules and regulations? You talk to… Find out that they’re licensed and that they can actually manage the property, from your perspective, what’s some advice you can give that they can use to vet a property manager?
Karen:
I would say, one, your property manager should have some references so that they could talk to other clients of that property manager, and know how they’re handling the property for other investors. As far as licensing goes, you can look that up on the state’s websites. You can also look up and see if they’ve ever been disciplined by the real estate commission. The other thing I would say is as an investor, I would ask that… Like I said earlier, you want to tell them, “This is what my vision is, and so what do you think I can do to accomplish that vision?”
Karen:
Then listen and see what they come back with. You want somebody that’s going to really take the time to understand your vision as an investor, but also understand what the limitations of the particular property may be. You may have a property that’s out in the tertiary market, and they want sales to increase 100%, or they want leasing in six months. It may not be possible, and you want somebody that’s going to be honest and tell you, “No, I can’t do this, but I can do this.”
Karen:
I think, building that rapport, and having that conversation and a lot of discussion before actually saying, “This is who I’m going to sign with.” I think the other thing too, as an investor is you need to be aware of what the limitations of the property manager are as well as what your limitations as an owner are.
Tony:
Karen, what a eloquently, laid out response to that question. Man, I feel like I’m learning a lot about PMs right now as well. You talked about them having the references, the licenses, being able to share in your vision, understanding the market, the local marketing, and what’s possible, and what’s not, but I also want to go back to the point that you brought up about you being at the property at 2:00 in the morning when this water main line burst. Why do you feel it’s important for a property manager to show up for the tenants?
Karen:
I believe that the property manager needs to be seen, but I’m also the type of person that I’m a hands-on property manager. Years ago, I’d go up on the roof, and go in the basements and who knows where, but my point being that you’re much more involved, and you get much more of the actual detail when you’re there on site when something’s happening. I’m a firm believer that the property manager needs to be out on the property, not in the office.
Ashley:
Karen, I have a question about that. So as the owner, is that costing them any extra on top of the percentage that they’re paying for you to go out of the office, and go to the building? The property management company I use now, they have the property manager, and then they have maintenance and maintenance charges and hourly rate. Well, anything that needs to be done at the facility. Say maybe an appraiser needs to be met. They have one of the maintenance guys, so they can charge that hourly rate.
Ashley:
How does it work for you, and what do you see that’s standard? Would you be the one that actually goes out, and is there an additional fee usually for the property manager to come to the property, or do you think that should be included in that percentage that is paid?
Karen:
I think it should be included. I know from a commercial point of view, it’s usually included. You’re basically on call 24/7. Unless there’s something out of the ordinary that’s an expense for the property, you don’t bill for emergencies and after hour stuff. Now with maintenance, depending on what route you go, whether you have in-house maintenance or you contract out, then that’s going to determine whether the property is going to be billed additionally or not.
Ashley:
You mentioned that you like to go to the properties to show your face to the tenants, and show that you’re involved, and you can see for yourself. That keeps a good line of, would you say, respect with the tenants that you are actually putting an effort to come to the property?
Karen:
Well, I find that it’s not only respect but communication, because I can tell you probably every time I go out to a property, and I go visit tenants, and I ask, “Hey, how’s everything going? Do you need anything?” They’ll give me something that a roof leak or something. Whereas if I wait for them to call me, and tell me that they’ve got a roof leak, nine times out of 10, it won’t happen.
Ashley:
More damage is probably already done because [inaudible 00:19:13].
Karen:
Oh no.
Ashley:
How are you keeping that happy medium, and walking that fine line of keeping the landlord, the owner happy, and also keeping the tenant happy? For instance, I had this tenant that there was a water leak because there was something wrong with the roof. She had her insurance to cover personal items, and the owner didn’t want to pay for her personal items to be replaced, because she’s supposed to have insurance on it. How are you dealing with issues like that, where the tenant may want something done or something covered, and the landlord is saying no? How do you keep both happy? Is it just standing by the lease, and staying strict to that? How do you keep a good relationship with both?
Karen:
I would say that the lease definitely is the Bible. We… It’s [crosstalk 00:20:05].
Ashley:
Blame everything on the lease.
Karen:
Blame everything on the lease, but a lot of it too is you got to know the owner. I’ve got some owners that they’d rather get the rent late than not get it at all. Others that are like, “Charge late fees the minute that they’re late.” A lot of it has to do with just talking through and educating them. I think a lot of it, you have to educate the tenant, because they don’t read the leases. They sign them, but they don’t know what’s in them, and it… You got to basically say, “Look, I’m sorry, but per the lease, you are responsible for your personal belongings.”
Karen:
I run into it a lot because we have a lot of triple net leases, and we’ve got people in older buildings with air conditioners that go out. It’s like, they call us up, and they’re like, “Oh, the air conditioner has to be replaced.” I have to be the one to say, “Sorry, that’s your responsibility.” Now, sometimes they’ll come back, and we’ll talk to the owner, and maybe the owner might split the cost or something. But a lot of times, what most of my owners do is they’ll tie it to something.
Karen:
Say for instance they’ve got a $20,000 air conditioning unit that has to be replaced. The owner will throw in and say, “I’ll replace it, but I want you to extend your lease another three years.”
Tony:
Karen, I want to go back really quickly. You mentioned the word triple net lease. Can you define what that is, and how that’s different from a standard lease?
Karen:
Well, a standard lease is what we call gross. That basically means that all your expenses and everything, that’s included in the price that you’re paying. The triple net lease means that just about all of the operating expenses for the property are passed through to the tenants based on what we use as their pro rata share, which is basically the percentage of the total of the property that they occupied.
Tony:
What will be a good example of something that you would have to cover under a triple net lease that you wouldn’t have to under a gross lease? What are some things that you become responsible for under triple net lease?
Karen:
Well, under a triple net lease, you’re basically responsible for the four walls in, and the landlord is pretty much only responsible for the parking lot and the roof. So if your air conditioner goes out, you’re responsible for it. Roof leak, the landlord is responsible to fix the leak, but if it damages anything in your personal property, then it’s your responsibility to pay for that.
Ashley:
Just to add to that, another thing too is the maintenance and the inside, like Karen said, but also the property taxes. If it’s just a single commercial building, you could be responsible for all the property taxes there, which I think is a great advantage as the property owner, because as property taxes increase, that’s on the tenant and not you. Then also insurance, they usually have to cover a bigger insurance policy than just a renter’s insurance policy on the property too, which can significantly decrease the cost or the property owner too.
Ashley:
It’s usually the triple net leases, the maintenance, the property taxes, and the insurance added on that the owner no longer has to pay. If there is a building that has different units in it, it is prorated, like Karen said, that you’ll pay this percentage of the property taxes, because you have this much square footage of the building on that. That’s a triple net lease for you guys. So if you’re looking for commercial, learn about triple net leases, because they can be a great advantage.
Tony:
I don’t own any commercial real estate yet, but I’ve experienced triple net leases as the tenant. At my day job, we rented these big, massive 500,000 to a million square foot warehouses, and they were all triple net leases. I remember at one point we had this issue where there were these polished concrete floors. We have these forklifts and all this other industrial equipment that’s driving on it, and the floor started to crack. There were these pockets in the floor of the concrete. We tried to go back to the landlord to say, “Hey, the floor is crumbling,” and they tried to argue that it was, “It’s triple net lease. You guys have to do that yourself.”
Tony:
We tried to argue that it was technically the foundation that was wrong. Anyway. Triple net leases are great for landlords. Maybe a little less so for the tenants. Karen, I want to continue on. You’ve shared so much good information so far, but I want to dig into the relationship between the property manager and the owner. What is that? Is it just a handshake agreement, and you guys are buddies, and we’re just going to do this, because I trust you and you trust me, or there are some ways to solidify and legitimize this relationship between the owner and the property manager?
Karen:
Well, there’s usually always a management agreement, and it’s a contract between the owner and the property management company. Those are standard in our industry. As much as we love everybody, we can’t do anything on a handshake, because then it’s going to be, “Well, the way I heard it, you were offering me this.” One of the things that a management agreement will outline is it will outline what the responsibilities of the property manager are as well as what the responsibilities of the owner are.
Karen:
There are other fees that property managers can get, and those are spelled out usually in the management agreement, whether it’s leasing fees or project management fees or management fees themselves. The percentage of the management fees is always spelled out.
Tony:
I want to dig into the fees a little bit more. But before I do, you said a lease of fee. Maybe let’s do it this way. What are all those different fees you just listed? What’s a lease of fee? If you can define those for us, because I’m sure a lot of rookies listening maybe didn’t know that there were these additional fees you might have to pay.
Karen:
Well, first and foremost, you’ve got your management fee. That’s based on your gross income that you receive, or that the manager collects for the owner every month. Then you’ve got leasing fees, which are usually based on whether it’s a new lease or whether it’s a renewal of an existing lease. Those range anywhere from 2% for renewals to 6% for new leases. Then after that, you’ve got project management fees, which are usually based on a cost of, say, zero to $250,000, might be 6%, 250,000 to 500,000 might be 5% and down the line or something.
Karen:
Those are all spelled out, and that project management fees have to do with when you get owners that want to rehab a property, and they buy it, and say they want to replace the roofs. They want to redo the parking lot. That’s a fee that the property manager is entitled to, because they’re basically acting as a construction project manager, and overseeing that. They’re getting the bids on everything. They’re checking out the contractors, making sure they’re insured, and getting the contracts actually executed.
Tony:
There’s a lot that a property manager can do for an owner, which I think is good because I think a lot of new investors don’t realize, if you find the right property manager, how wide ranging of type of services they can offer to you as the owner. I want to drill in a little bit, Karen, into the compensation. But before I do, Ash, any thoughts on you on all these different things that property managers can do?
Ashley:
I just had one question on it. So with the property management fees, how can somebody as a landlord, the property owner, what are some things they should be looking for to know what the fees are upfront? Will they get usually an attached schedule with all the fees listed in there, and are there ways to hide fees that the property owner should be looking for?
Karen:
Well, I personally don’t think there’s too many ways to hide fees. If you’ve got an owner that actually goes through that management agreement, and you make sure everything’s spelled out, there’s always stuff, I guess, that could come up, but that would be one that owner would then talk to the property manager, and discuss it. As far as the fees go, they should all be on a schedule in the property management agreement. Like I said, they should be spelled out exactly, what they’re based on and how often they can be paid.
Karen:
Then what we always do is we include in our management agreement all of the things that we, as the property manager, are going to provide you as the owner. That’s not only site visits, but we have the accounting side of it, and financial reports and budgets, as well as the maintenance and the tenant relations.
Ashley:
I think understanding those fees is so important, because you can look at say, “Oh, a property manager, 6%,” and even using the BiggerPockets calculator reports or a lot of calculator analysis to analyze a deal. They have that property management fee. You talk to property managers. They say, “Oh, we charge 8%.” You plug in that 8%, but a lot of times, there’s going to be more fees than that included, so you want to bump up that percentage when you are analyzing your deals, because those things will come up. Those fees will come up. They will need to be factored in to your numbers.
Ashley:
I think that’s really important to know those upfront, and not just that base percentage that is being paid. Also, I think when you’re interviewing a property management company along with getting that schedule that you mentioned, Karen, is asking some questions as to what their process or their system is when they are interviewing them. So for example, you can ask what happens when a tenant calls for maintenance, or if they have a maintenance issue, how does the tenant even submit the maintenance request, and then what does the process look like until the maintenance is completed and finished?
Ashley:
I think understanding that process, if the landlord needs to put in money, because he wants to do a big rehab on it, how does that process work? Does he have to meet them with cash? Can he send it electronically? Asking all these processes, I think, is really important, and we’ll get you a good understanding of how smoothly the property management company actually works, and if it’s going to be a great experience for your tenant. Because if there’s not those systems in place, tenants are going to be very unhappy when they put in a maintenance request, and 48 hours later, they haven’t even received a phone call to schedule it.
Ashley:
That’s another thing that I would make sure that you’re understanding before you sign those management agreements too.
Karen:
That is so true, because you want to make sure that you’ve got somebody that’s going to respond to your tenants within 24 hours is basically the way I look at it. You can’t leave people hanging.
Ashley:
Even if you’re scheduling them, or even if you’re not coming to do the maintenance in 24 hours, at least that communication to say, “Hey, I have somebody that can come on Thursday at 1:00. Does that work for you?” I think that as long as they’re able to keep communicating, and not just wait like, “Oh, well, we don’t have anyone for another week, so we’re not even going to talk to the tenant for two weeks or something like that.”
Karen:
It’s having those work order systems, having the accounting systems, all the different systems. You need to have those in place. As an owner, like you said, Ashley, you want to see what it is that this property manager’s going to do and produce for you.
Ashley:
One thing I just thought of too is to ask along with the work orders, but what is the communication between departments too? Do you have the property manager? Do you have the leasing agent? Do you have the maintenance department? Do you have the maintenance coordinators? I had this apartment recently that was renovated, and some of the rehab was actually being done by somebody outside of the property management company. An email is sent to the maintenance saying, “I know you guys finished your part. We have another contractor. That part is finished. Please send it to leasing.”
Ashley:
It was never sent to leasing, and that apartment sat and was never listed until we were like, “Wait, what’s going on with this apartment?” Go back and look, and there’s not a listing online. There’s nothing. We reached out. They’re like, “Oh, sorry. It never got communicated between maintenance and leasing that it was ready to go.” I think that’s another big issue too to watch out for.
Karen:
Like your project management, you’ve got to have it phased in, and you got to know where in that process everything is at all times.
Tony:
Both of you have made some really great points, especially about the fees. I want to just drill into that before we move on to our next point here. Let me ask both of you a question. Ashley, what’s the going management fee percentage in the Buffalo area?
Ashley:
It’s about 10%, unless you have a large portfolio of properties. Right now, I’m paying 6%.
Tony:
Karen, what is it in… Sorry, I don’t think we stated it. Can you let us know what part of the country you’re in, and then what are the average management fees for single family, small multifamily in that area?
Karen:
I’m actually in the Charlotte market. I would say more so in the single family, multifamily, I’d probably say 6% to 10%, but I could be wrong only because I don’t really do a lot of multifamily. From a commercial standpoint, the standard is about 4%.
Tony:
So, different management fees and different marks, I think, is typical. If I’m an investor, and I’m looking at a potential property manager, how can I make sure that their fees are reasonable? What steps should I take, Karen? Ashley, I want to hear your opinion afterwards. But Karen, what steps should I take to make sure that the fees that I’m being charged are reasonable for that area?
Karen:
Well, I think, easily, you could just call several property management companies, and ask them what their fees are. But talking to other investors, you’ll also get feedback from them, not only recommendations of companies, but as well as, “Oh, this is what I’m paying.” I think that’s the easiest way to figure it out is just different networks.
Ashley:
I would say there’s… When you’re in the… You already have the property manager, so shopping around, just like Karen said, and seeing what other people are charging. But once you actually have the property manager, there still is going to be some oversight as to make sure those fees are allocated correctly. I’ve had… These are just human errors where I’ve had a property that sold, and I got charged their minimum $25 a month fee because there was no rental income because the property sold, but I was still charged that.
Ashley:
I just had to go and email and say, “Can you please remove that?” It was fine, but I did not realize, when I took on a property management company, how much asset management there still was. I have Daryl who helps me with this, and he oversees all of the maintenance, all of the rehabs. He had seen a quote to paint an apartment for a one bedroom. Then he saw a quote a two bedroom. He’s like, “Why is the one bedroom way more expensive than the two bedroom?” Then adding it up, the maintenance person that was working for them and quoting them was just throwing out numbers, no rhyme or reason as to quoting the paint.
Ashley:
It’s a growing property management company and large, so it’s not it’s that one person’s fault. It’s not the whole company as a whole. I understand how hard it is to micromanage and manage people and things like that, because I hate it myself. I think that not… When you sign that property management agreement, don’t think like, “I know my fees. I know everything. I’m good to go. I can walk away.” Maybe there are those perfect property management companies out there where you don’t have to have that oversight, and to find those mistakes.
Ashley:
I would say keep watching for those fees, and know what your fees are because there are human errors just like any kind of invoicing and billing. Just my advice would be to keep watching as you use the property manage company.
Karen:
It’s funny you say that, because I’ve always thought of it as the owner is the asset manager. They’re overseeing not only their debt and their property as a whole from higher up, but they’re overseeing the property manager as well.
Tony:
I think that’s a common misconception that a lot of people have is that once you hire a property manager, you can just forget about the properties all together. Really, there is still some active involvement from you as the owner to make sure that, a, property managers have the right and, I guess, the authority to make the right decisions, and that, b, that they’re doing everything that they’re supposed to do. I know I was a bottleneck for my property manager, because they would send me something.
Tony:
They would send me a quote for something like, “Hey, do you want to get this fixed?” It would take me weeks to get back to them, right? I’m the one that’s pissing off the tenant, because I haven’t responded to this quote from the property manager. So even as the owner, there’s still a little bit of, I guess, active work involved to make sure your property’s being run the right way.
Ashley:
That is such a great point, because that was me too, the bottleneck of like, “Oh my gosh, do I eat this email? I have to respond it. That’s why I have a Daryl taking care of all that.” That’s such a great point as it can go both ways too.
Tony:
Moral of the story is everyone needs a Daryl, right? We all got to find a Daryl.
Ashley:
I’m definitely going to make sure he never listens to this episode.
Karen:
To add to that, I would say though, also, back to the management agreement and the relationship is you can set out some parameters, and say, “Okay, you can authorize up to $1,000, let’s say, without me okaying it. Then anything over that, I got to know about it.” Then you take that bottleneck away a little bit.
Tony:
That’s fantastic.
Ashley:
That’s a great point. We had to do… I think we do up to $500, but then also any appliance that was broken, non-working, even if it was more than $500, then they could go ahead and take care of it, because for them to wait for me to respond to a fridge that is just completely shot, go ahead and replace it for the tenant. What am I going to say? No. Nope. I won’t replace it. We had to add that into our management agreement too, is that any appliance that cannot be fixed or repaired, at least within a timely manner would be replaced for the tenant without any authorization.
Tony:
Karen, I want to talk a little bit more about the reporting structure. We’re talking a lot about the property owner still being involved, and a lot of that involvement comes from the reports that the property manager prepares on behalf of the owner. I guess, just walk us through what is the regular cadence of reporting that a PM should be following, and what kind of information should that property manager be providing to the property owner?
Karen:
My feeling and my experience in all these years is you basically want to give them anything and everything. What we normally do is an overview, and depending on the management contract, we’ll either do it monthly or quarterly. One thing is to advise them of all the different facilities issues, any collections issues. We watch our tenants closely, and make sure they carry the right insurance. Then of course, we update them on what’s going on with the leasing. Then in that package, you’ve got the overview. Then you’ve got the current operating statement with the month or the quarter, depending on how you’re reporting and the year to date.
Karen:
Then you’ve also have a variance analysis, whereby you explain to the owner why something’s off from what you had budgeted, whether it was a major repair that wasn’t planned, or you’ve got a tenant that’s not paying, and you’re in the process of evicting them, things along that nature. We include the general ledger. We include a cash receipts ledger. We include a payable ledger, and we include the bank reconciliations. As much information as far as everything that we’ve got on that particular company or that owner in our accounting system that we have our hands in, we are constantly giving that information to the owner.
Ashley:
Karen, are you using any property management software at your company?
Karen:
We are currently using some software that was developed for my company. It’s proprietary, but we’re also looking at new software as well.
Ashley:
Because the property management company I use, they use Buildium, which I’ve used before, and also AppFolio. They had it so that the owner could just log into their portal anytime, and pull everything, all of those reports you listed, and see where their property stood at any current day. I think that’s just technology does make it so much easier for the property manager to get the information out, but also the owner to retrieve the information. Then each month, I get an owner statement emailed to me for each entity.
Ashley:
It just shows what the profit and loss was, the current balance sheet, and a breakdown of the transactions that happened that month. Then if I want to dig in even deeper, I can go in and log into my portal, and see what’s going on there, and then, of course, the beginning cash balance, and the ending cash balance, and the trust account they have for that entity.
Karen:
That’s good. That’s real good.
Tony:
First, let me make a statement. My property manager did not give me nearly as much documentation as what you just laid out, so maybe a good thing. I’m not doing the long terms anymore. I guess, one question to you, Ashley. Does your property manager do all of your accounting for those properties as well? They have their own QuickBooks account, or are you taking their reports, and then uploading that into your QuickBooks account?
Ashley:
They do a lot of the payables. I still pay all of the mortgage payments and a couple other bills. We just got a roof done on some properties, and I’m paying the roofer directly instead of just having the hassle of sending the money to the property management company, and then paying the builder. They do a lot of the payables, and so a lot of the property management software actually has bookkeeping built into it. So with Buildium, they just enter the transactions into there. They can send payments through Buildium. They can print checks out of it, so all of their transactions, a QuickBooks built into the software already.
Ashley:
Then I can just print my report, and then I add it into QuickBooks, and then it has any other transactions I did out of that entity into it. Then that’s what goes to the accountant at the end of the year. But I think there are property owners that don’t do any of the bookkeeping at all, and they just print off that final report, but I like to do the mortgages just to make sure that they stay paid. Most of those are on automatic withdrawal anyways.
Tony:
Karen, is it the same for you and your tenants?
Karen:
Well, no. Most of our owners, we pay the mortgage. We pay the insurance, and then we make a distribution at the end of each month based on how much the cash flow is. A lot of times, what we’ll do is send them a list of the properties that we have of theirs, and what that bottom cash flow is. Then they’ll tell us, “Send me X amount of dollars.” The other thing is that all of our accounting software is Peachtree and Yardi, and so we take whatever they need, and we can just give it to their accountant basically.
Ashley:
What about property taxes? Do you pay a lot of the property taxes? That’s one thing I still pay too, just because they get mailed to me, instead of sending them back to them.
Karen:
No. We pay all the property taxes, and we actually calculate it, because we are commercial. We’ve got a lot of retail. One of the things is one of our big anchor tenants, we have to send their pro rata share bill within 90 days of us receiving the bill. We have to be able to track that, and get it billed promptly so that that tenant will pay us back or pay the property back, I should say, within a timeframe that their lease says, because some of the leases will say, “If we don’t bill them within that timeframe, then they don’t have to pay it.”
Tony:
Karen, you’ve shared so much good information. I want to keep going along this thread here. We talked a lot about what to look for as the property owner in a property manager. You’ve shared… I mean, honestly, you set the bar pretty high for what a property manager should be doing. I think even people that are listening right now are going to go back and have some tough conversations with their PMs. But what are some other things that maybe we haven’t touched on yet that you feel it’s important as a real estate investor to look for when doing your due diligence on a potential property manager?
Karen:
Boy, I thought we covered a lot of it. I would just have to say that to me, the biggest and the most important thing is transparency. You want somebody that’s going to tell you anything and everything you ask. You don’t want somebody that’s going to feel like they can’t tell you if there’s a tenant that hasn’t paid in six months. I would say transparency and communication, those are the two biggest things that I see.
Tony:
Karen, one followup for me, and this is something that I always think about as well is that your property manager is your first line of defense when it comes to keeping your tenants happy, right? For me, when I had my long-term rentals, I didn’t even know what my tenants looked like, because I was investing from multiple states away. My PM did everything. I could literally walk past my tenant in the streets, and we wouldn’t even know who each other was, right? There’s really a lot of responsibility placed on the property manager to maintain that relationship.
Tony:
I guess, is tenant retention the property manager’s ability to keep tenants happy? I don’t know. I guess, is there a way to track that, and I guess how important is that as a property manager?
Karen:
Oh, I think it’s very important, because owners don’t necessarily realize every time that it’s a lot more expensive for a business to move out and to release a space, because you’re usually from commercial. You’ll have it vacant for six months, sometimes a year. I would say that you’ve got to work with them, and there are so many creative avenues to work with them that people don’t think about. If it’s much more expensive to turn over a space than it is to say, for instance, work with them and say, “They need a month’s free rent,” let’s say.
Karen:
Well, then renew for 13 months, so then the owner basically is still getting their return, and the tenant is getting something in exchange.
Ashley:
Well, Karen, thank you so much for sharing so much about property management with us.
Tony:
So many good things. I’ve learned a lot, so much. This has been a great conversation.
Ashley:
Tony’s changing his strategy, not to buy and hold. Karen, we also brought you onto the show today, because you want to start investing yourself. You are a wealth of knowledge, and you definitely have the tools and resources to start investing. But before we touch on that piece, I was just wondering if you have any tenant horror story or even property owner horror story, or something to share with us?
Karen:
Oh gosh. There’s so many. I can’t remember them all. It’s funny because our CFO in the company I work for now, she recently introduced our new controller, and basically told him, “See, I told you, write this stuff down. You can’t make it up.” I mean, that was… I was dealing with a dead deer carcass somebody had dropped in the shopping center parking lot-
Ashley:
Oh my God.
Karen:
… and it was decomposing. Do you know how hard it is to find somebody to haul off a dead deer carcass?
Tony:
I wouldn’t even know who to call. I’m like, “Who do you even call?”
Ashley:
I bought a property recently that actually had a dead deer half laying in the pond half out. So when I did my initial walkthrough of the property, it was there, so it was joked that it was the dead deer pond we called it, but it takes so long to close the New York State. So when we did our final walkthrough for closing, it was already decomposed, and it was just a pile of bones there.
Tony:
I don’t know what’s crazier, the fact that the owner didn’t get rid of the deer, or the fact that it takes so long to close a New York State that a deer can literally decompose during escrow. Those are both crazy things.
Ashley:
Tony, just watch out. You haven’t made it in Real Estate till you got a dead deer.
Tony:
I haven’t had my dead deer story.
Ashley:
You got to find one flowing in a hot tub at Joshua Creek. Well, Karen, let’s get into… Maybe we could help you somehow. We have a segment called the Rookie Exam, and we thought that we would actually twist it this time, and turn it around. Usually, we ask our guests some questions. We thought that maybe you could ask us some questions that you had about real estate investing, and how we could help you get started.
Karen:
Oh, well, thank you. I would say the first thing I need an answer to is how do you get over that fear of not being able to do it? I think I’ve caught myself in analysis paralysis more times than I care to admit.
Ashley:
What is your fear that’s going to happen?
Karen:
I think my biggest fear is not from the standpoint that anything’s going to happen so much as I just don’t know how to come up with the money to actually do it. Because all of my history is in commercial property, that’s what I tend to look at because I know it the best. It’s also going to be higher priced than if I went out and bought, say, a duplex or a quadruplex.
Ashley:
So, you would prefer the commercial investing, even if it does cost more.
Karen:
Yeah, because it’s what I know. It’s really what I know. I wouldn’t have to hire a property manager.
Ashley:
The first thing that I think off the top of my head is you are the property manager for all of these owners. I think the first thing you need to do is put a little bug in their ear that if they would ever like to sell, let you know, or if anybody else they know wants to sell, let them know. I think going for seller financing would be a huge advantage is asking for that seller financing, and saying, “As an investor, they’re used to receiving this monthly income, and use that as a pitching point is that they’d still get monthly income doing the seller financing, or taking on a partner.”
Ashley:
I mean, that’s how me and Tony pretty much got started was a partner too.
Karen:
I think that’s probably what I’m going to need to do is take on a partner. I guess, some advice on how to find someone might help me out a lot. Because even though I’m currently managing for a lot of private investors right now, I have an ethical dilemma, because I don’t want to be basically playing in the same sandbox I work in.
Tony:
I don’t think that that’s necessarily something that should stop you, Karen, right? I mean, I think as long as you’re agnostic in terms of how you treat all of the properties, so it doesn’t matter whether it’s yours or whether it’s one of your clients, as long as they’re all treated equally, and you can say that with a straight face to your property managers or to your property owners, I don’t think that should hold you back. If it really is a big sticking point for you, then don’t be afraid to maybe get out of that sandbox that you know, and maybe go a little bit further out or some other market where you can still take your expertise in your abilities, but maybe apply them in a new market that isn’t overlapping with where you work.
Tony:
You talked a little bit about potentially finding a partner, right? I think you are the ideal person to partner with another investor, because I know if I’m someone who’s listening to this podcast, and say I have the capital. I have the ability to get approved for a loan, but I don’t have the ability or the desire to actually manage the property once we close, I’m going to need somebody to work with. I would much rather work with someone that has wealth of knowledge and experience as someone that’s just getting started. I think for you, Karen, the challenge is how can you expose yourself and your expertise and your abilities to more and more people?
Tony:
So in my mind, that’s going to local real estate meetups. That’s getting active on BiggerPockets in the forums. That’s getting active in the real estate focused Facebook groups, the Real Estate Rookie Facebook groups. That’s going to events like BPCON. If every time someone posts a question in the forum about property management in Charlotte, if you’re the first person to answer, I guarantee over time, someone is going to reach out to you with some partnership opportunity.
Tony:
I think you just need to put your flag in the ground as care in the property manager expert of the Charlotte area. Eventually, you’re going to find the right person to work with.
Ashley:
I think that’s such a great point, Tony, is just putting yourself out there, and especially going to meetups and Facebook groups, because you have so many resources available to you, Karen, that a lot of other people starting out don’t have, and that is going to make you so much more valuable as a partner. We start off very similar, both being property managers. I found a partner who gave me the capital. He knows nothing about real estate investing, doesn’t care, but he knew that I did, and trusted me because I had experience in that market and managing properties.
Ashley:
As far as the deal analysis and having that analysis paralysis, you have seen so many properties, and you know in your market what is going to be a good property, what tenants are going to be looking for in the commercial space. I think you going and looking at a deal, you’ll have some insight that especially out-of-state investors won’t have, because you go to so many commercial properties in the area anyways, and you’ll have that unique expertise too.
Karen:
I appreciate that, Ashley, because I do pride myself on being able to spot discrepancies written, and ways to lower expenses and increase income, just looking at properties sometimes.
Ashley:
Well, Karen, thank you so much for sharing your wealth and knowledge, and hopefully that was a little bit of help to you. I bet you’ll have some people reaching out to you after this to potentially partner with you after hearing your expertise on property management. I just want to give a shout out before we close out today to today’s rookie rockstar. It is Kevin Christensen, who we’ve actually had on the podcast before way in the beginning. Kevin, you’ve made it. You’re the rookie rockstar. He just want to talk about the importance of buying right.
Ashley:
He picked up a property. It’s literally across the street from one of his other rentals, paid 105,000 for the house, did 55,000 rental, and it appraised for 210,000. This other house needs far less work. He made an offer of 50,000. It was accepted. He’s using hard money. Today at closing, he got a check back for $1,185, so essentially, got paid to purchase this house. He expects the rental to cost him 35,000 to 40,000 all in, and it should take about eight to 10 weeks. His point is to make your money on the purchase side, guys.
Ashley:
The seller called him. He did zero marketing, and will be all in for under 90K on this house. Awesome job, Kevin. Kevin was also on the Real Estate Rookie podcast, gave a wealth of knowledge about doing subject to deals. So if you guys are interested in that, go back and check them out. Well, Karen, thank you so much for joining us today. Can you let everyone know where they can reach out to you, and find out some more information?
Karen:
Sure. I’ve got a website. It’s allisonproperty.com. Then also, my company work site is Primaxproperties.com. My email is at [email protected] I also have a personal email of [email protected]
Ashley:
Well, thank you so much, Karen. We appreciated you taking the time to come on with us today. You guys, reach out to Karen if you have property management questions or if you want to partner with her in the Charlotte market.
Karen:
Thank you so much.
Ashley:
I’m Ashley at Wealth from Rentals. He’s Tony at Tony J Robinson on Instagram. You guys, slide into our DMS if you have questions, or you wanted to be featured as our rookie rockstar, and join our Facebook group, Real Estate Rookie. If you’re loving the show, please leave us a five-star review on your favorite podcast platform. We will be back on Saturday with a rookie reply.
Ashley:
[Singing 00:59:52]
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
2022-07-27 06:02:09
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2022-07-26 18:04:21
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A home is the biggest transaction most of us will ever make. That’s why it’s important to work with an experienced and knowledgeable real estate agent. For more than 20 years, RE/MAX has been the leading real estate organization in Canada and beyond. With a presence in over 100 countries and territories, the RE/MAX network’s global footprint is unmatched by any other real estate brand. RE/MAX has always been an industry leader, adopting the latest technology and creating innovative marketing programs. RE/MAX was the first brand to expand its reach world-wide through a revolutionary global listing site, featuring listings from more than 80 countries, displayed in over 40 languages. Closer to home is RE/MAX’s deep commitment to the communities we operate in. Our exclusive Miracle Home Program allows RE/MAX agents to donate a portion of every home sale to Children’s Miracle Network.
Learn more about RE/MAX and real estate franchise opportunities in Ontario-Atlantic Region and Western Canada.
2022-07-26 14:14:55
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A home is the biggest transaction most of us will ever make. That’s why it’s important to work with an experienced and knowledgeable real estate agent. For more than 20 years, RE/MAX has been the leading real estate organization in Canada and beyond. With a presence in over 100 countries and territories, the RE/MAX network’s global footprint is unmatched by any other real estate brand. RE/MAX has always been an industry leader, adopting the latest technology and creating innovative marketing programs. RE/MAX was the first brand to expand its reach world-wide through a revolutionary global listing site, featuring listings from more than 80 countries, displayed in over 40 languages. Closer to home is RE/MAX’s deep commitment to the communities we operate in. Our exclusive Miracle Home Program allows RE/MAX agents to donate a portion of every home sale to Children’s Miracle Network.
Learn more about RE/MAX and real estate franchise opportunities in Ontario-Atlantic Region and Western Canada.
2022-07-26 12:54:32
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Knowing how to buy your first rental property can be the difference between you building a life of financial freedom or merely treading water working for active income. The life of a real estate investor isn’t glamorous, but it leads to generational wealth, time freedom, and the ability to do what you want, when you want, with who you want. The first step to becoming a real estate investor is buying your first real estate deal. This first step is where ninety-nine percent of people stop, but it’s where you will start.
Dave Meyer, VP of Data and Analytics and host of On The Market, has built a financial freedom-permitting property portfolio over the last decade. He doesn’t have thousands of units, but even with his medium-sized portfolio, he’s been able to travel the world, live abroad, and continuously build wealth. He’s here to teach you exactly how to do the same by buying your first, second, or third real estate deal in the next 365 days!
If you’re able to do so, you will see your life start to change before your eyes. Money will be easier to find, deals will come your way, and passive income streams will be dug in your direction. If you’re able to buy your first (or next) deal like Dave describes, put systems in place for future purchases, and slowly build a team around you, your dream rental property portfolio won’t be too far away.
David:
This is The BiggerPockets Podcast show 640. What’s up everyone. This is David Greene, your host of The BiggerPockets real estate podcast, here today with my sidekick, with my co-host, with my buddy, Dave Meyer, bringing you a special episode. Look, we realize the market is shifting. And that means a lot of different things, one of which, you should be listening to as much content as you possibly can to stay abreast of changes so you can position yourself to be in the best place possible. Much like Brandon Turner, trying to catch a wave, you want to know what waves are rolling in, what they look like and how they’re different than the wave before so you can pick the right one and be in the right spot when it breaks. Also, if you have not yet got into real estate, or maybe you own one or two properties, this is a very good time to scale your portfolio. Now, of course you want to be investing from a position of financial strength. We don’t want anyone to go and buy real estate they can’t afford. But if you have been saving, waiting, this could be your moment to shine. And in today’s show, Dave is going to give a presentation of just what you can do to get your first, second or third rental property. Dave, what do you think?
Dave:
That’s a beautiful explanation of what we’re talking about because it is a really interesting time to start investing. And I understand that a lot of people are fearful about the market because there’s a lot of hype and there’s some scary headlines out there. And in no way, am I, or is David saying that you should go out there and buy just anything. But if you are someone who knows how to analyze deals and how to get good leads, this is a really, really interesting time to start looking into the market right now, because competition is going down. We’re starting to see prices look a little bit wobbly. And although I personally think prices might decline a little bit, there’s not going to be a crash, but sellers are willing to negotiate right now. I don’t know if you’re seeing that in your own real estate investing David, but … Yeah? A lot?
David:
Yeah. A lot.
Dave:
People are a little bit fearful. The sellers want to get in before they think things are going to go down. And again, that doesn’t mean every property’s going to be great and every seller’s going to be willing to negotiate, but it does mean that unlike the last two years where sellers had this just iron grip on the housing market and they dictated terms, they dictated price and it was just a complete seller’s market. Now we are starting to see some balance get restored back and buyers have a little bit of power right now.
David:
Yeah. I haven’t bought this many houses since I was doing the BRRRR strategy in Northern Florida and I was buying four to five houses a month. And I probably messed up talking about that on the podcast because then everybody else moved out to that area and it got really hard to buy them. But I’ve got 14 houses in escrow right now and they’re probably averaging right around a million dollars each. So these are not cheap properties that I’m buying. And I’ve never seen the ability to negotiate like what we can do right now. It’s actually fun to be investing in real estate again. The interest rates aren’t fun, but when interest rates were low, we were constantly complaining that you can’t get a house and they’re getting overbid and it’s a bidding war and everyone’s overpaying. And so now we finally see an adjustment to that and the complaints are well, interest rates are really high. It just goes to show there’s always going to be something that pops in that makes you think I don’t want to invest into real estate. We’re already at the top of the market or the market’s going to keep dropping. The reality is none of us know. That’s why we rely on the fundamentals. We analyze a property to make sure it’s going to cash flow. Go ahead.
Dave:
No. I was just going to say this idea that there’s going to be a perfect time is wishful thinking. Is there ever going to be a time where interest rates are super low and prices are super low and rent is really high and there’s no competition?
David:
And there’s no risk. Yeah.
Dave:
No. And there’s no risk. That’s never going to happen. And people are like, “Oh, back in 2008, it was so easy. Everything was cheap.” Well, interest rates in 2008, 2009 are about the same as what they were today, just for the record. And secondly, it was super hard to get a loan back then. Credit was super tight. So even though prices were low, credit was high. There’s always something that you’re going to have to overcome. And so I think this to me and to you represents an opportunity because no longer are there just no houses to buy. Now there are actually things you can go look at and you can interact with people. A lot of what the presentation I’m about to go into goes into is all about momentum. And it’s like, no, it doesn’t have to be the perfect deal.
It’s about getting a deal that A, improves your financial position. Not saying to go buy anything. But find something that is going to make a demonstrable difference in your financial position and use it as an opportunity to learn. So hopefully everyone listens to this. I think there’s some really good practical tips that can help you go take action right now. And as David and I were just alluding to, that’s really what it comes down to is getting ready and taking action and committing yourself to investing. And hopefully what we’re going to talk about today gives you some practical tips on how to do that.
David:
Amen. That’s some good stuff there. Now, for today’s quick tip, if you like what you hear, if you decide, “Hey, this is the right time for me to get a little bit more serious about my investing. I want to take advantage of the soft points in this market and find a great deal.”, we have some help for you. If you go pro with BiggerPockets, there’s a lot of resources you can use that will help you analyze properties, help you find what the rents are going to be, discounts to use different vendors that you’re going to need in your investing journey. We have a discount code for you because you listened to this podcast and you took action. So you will get 20% off of a pro membership, as well as some goodies. Dave, what is the discount code that they need to use?
Dave:
They can use discount code prorental. That’s P-R-O-R-E-N-T-A-L. I don’t know why I just spelled that. I think people know how to spell pro rental. But if you don’t already know how, there you go.
David:
Yeah, it doesn’t hurt right? Never hurts. So we hope you guys enjoyed this episode. If you’ve been thinking about jumping into real estate, nobody knows for sure what’s going to happen. Could the market drop more? Yes. Will the market continue to correct if interest rates continue to go up? Yeah, it very well could. But will real estate become more expensive as interest rates go up? Yep. That’s probably true too. And is it going to go back at some point when interest rates go down again? Yes, that’s probably going to happen. Real estate is a fluctuating beast, and that is why we listen to podcasts like this. That is why we follow BiggerPockets and we talk to other investors to find out what is happening in the market at the place in time when we’re looking to buy. So it’s our pleasure to bring you this information. We hope you like it. Let us know in the comments what you think.
Dave:
Hey, everyone. Welcome to this BiggerPockets webinar. How to you buy your first, second or third rental property. My name is Dave Meyer. I will be your host today. And if you don’t already know me, I’ll get into this in a little bit, but I’ve been a real estate investor for over 12 years now. I work full-time at BiggerPockets in data and analytics and I’m the host of BiggerPockets’ newest podcast called On The Market. And I’m super excited to talk to you all today because financial freedom has been a passion of mine for years and I have been fortunate enough to find it through rental property investing and I’m super excited to help each and every one of you today find that financial freedom that we all yearn for through the power of rental property investing.
Now, if you are here today, it’s probably because you want to take some positive action in your life. You want to make a change. And maybe that’s because you want some more income or perhaps you want to retire early, get out of your job, whatever it is. And maybe you’ve heard, hopefully you’ve heard by this point, that real estate is the best possible way to pursue financial freedom and to live the life that you want and that you deserve. And I believe all of that is true. I genuinely, genuinely believe that real estate is the best way to pursue financial freedom. I’ve lived it. I’ve seen tens of thousands of people do this. But not that many people actually get there. So let me ask you a question. Why is it that so many people think about getting into real estate, but don’t actually pull the trigger, start investing, get those first couple of deals and wind up pursuing the financial freedom that they want so badly? Or maybe you have one deal. Why do so many people just have one or two deals and never scale up? Actually, that’s a problem I had early in my career. I took way too long to scale up. So why does this happen?
I like to call it the three D’s. Again, the three D’s, sorry, are three things. The most common things that I hear over and over again that prevent people from pursuing their financial goals. And they’re simple. One is dollars. And I know a lot of people are probably out there thinking, “I don’t have the money to invest in real estate.” That is a common objection I hear from people. Two is deals. Everyone’s saying that these days, right? All the deals are in the past. Oh, there’s nothing good to buy anymore. Everything is overpriced. We’ll talk about that. I don’t think so. So we’ll talk about that. And then third, direction. This is all about the purpose that you take. People don’t know how to pursue the goals in a consistent focused way. They may be interested. They’ve read a little bit, or they’ve watched a podcast or a webinar or something, but they don’t know the system for pursuing financial freedom consistently day in and day out.
And this direction one, I know it’s a little bit less obvious than dollars and deals, but it is super important. Maybe the most important, because it’s all about your mindset. And it’s important to know that success in almost all cases is not a secret or an accident. It’s not just something that happens to you. It’s something that you have some control over and it’s all about your action and your mindset and your ability to consistently show up every day and follow a system that honestly I’m going to teach you today. I’m going to teach you how to do it. All you have to do is show up and take action. But it’s hard so you’re going to have to commit yourself to doing that.
I think a really good example of this and a good parallel to what it takes to be in real estate investing is actually trying to lose weight or getting in shape. Everyone wants to lose weight. Everyone wants to be in great shape. But are you going to actually follow the system and process that everyone knows works. It’s diet and exercise. Not a lot of people know this. I actually used to weigh 40 or 50 pounds more than I do now. And I didn’t know any secret. There’s nothing I did differently than what anyone else did. It’s common knowledge. All I did was show up every day because I really, really wanted it. I wanted to be healthier. And so I pursued that every single day and I got there and real estate is basically the same thing.
You just have to show up and follow the systems that hundreds of thousands of people have done before and it’s not a secret. We’re going to teach you all about it today. That’s what we’re here for. That’s what this webinar is about. We’re going to talk about getting the dollars, getting the deals and finding that direction you need to be a successful real estate investor and get that financial freedom. I’m sure you’re with me, right? Everyone wants this financial freedom. It’s amazing. It’s such an incredible powerful force in your life and I really want to help all of you get there.
Now, actually, I made this webinar a while ago and there’s actually a fourth hurdle. I just couldn’t think of a D word to come up with it. But that’s basically the economy. We all know it’s pretty wild right now. It’s very confusing. And luckily, this is my job. I talk about macroeconomics in the housing market pretty much all day. So I am going to address that later in the webinar as well, because it is confusing and a little bit scary, but it doesn’t have to be if you actually understand what’s going on. So in addition to the three normal hurdles, I’ll also put some economy stuff there.
Before we get to that, let’s just talk about why this webinar is even called the first three deals. Three’s just some arbitrary number. Why did I pick that? Well, it’s because the goal of the first few deals is not to build wealth. Yes, it’s going to hopefully improve your financial position. But three deals, let’s be honest, is not going to get you to financial freedom unless you have three grand slams. But it’s probably going to take you more than three deals. So why are we focused here on three deals? Well, the first three deals are all about building momentum. That is what we are here for. This is about building your network. About building systems and processes that will take you really anywhere that you want to go with your investing career. It’s all about building this strong foundation and moving forward consistently.
I said this earlier. I made a mistake earlier in my investing career and I reflected on it a lot. And that’s why I talk about momentum so much is because I got my first deal in 2010 and then I didn’t do another deal for four years. I was doing work and all this other stuff, but I didn’t really think about it and I didn’t build a system that enabled me to scale my business at the same time as having a career. And I was in my 20s, I was trying to have some fun. But I could have done that and I should have done that. If I had put the systems in place at that time, I would’ve had a much bigger portfolio now. I’ve caught up since, but I really want you to focus on momentum because that is really the most important thing when you’re first getting those first couple of deals.
Okay. So that’s what we’re going to talk about today. It’s about how to get to those first few deals and from there you can move on to your financial freedom goals, because you’ll have the systems and foundation that you need to really reach anything. It doesn’t change fundamentally after three deals. I just think after you’ve gotten those first three deals, you’re going to be so good at this that you can scale to pretty much any size that you want.
If you don’t know BiggerPockets, let me just take one second and explain why I’m here talking to you. BiggerPockets is a massive community and resource for real estate investors. We have podcasts. We have webinars. We have blogs. We have all sorts of things. But underlying all of that, let me just tell you what we at BiggerPockets believe. We believe that real estate investing is the greatest wealth building strategy out there. We have helped hundreds of thousands of people. There are 2.5 million people who have used BiggerPockets systems to pursue real estate wealth. But we also believe that this is not a get rich quick scheme. Listen, this is not going to make you wealthy overnight. This is, again, about a system and process that if you dedicate yourself for not that long, for a couple of years, you can find yourself anywhere you want to be.
And third, we firmly believe that anyone can do this. Whoever you are out there. Any credit, any income, any circumstances. Of course, people come from different backgrounds and have different challenges to overcome but I am confident that no matter who you are, if you are listening to this, you can make this happen if you really want it. We can help you with these systems. That’s what we’re here for today. And again, I’m not just saying this. I know it’s possible because I have seen it. I’ve worked at BiggerPockets for seven years. I’ve seen so many people become successful through real estate investing and that’s what you’re here to do today.
All right. So let me just quickly explain who I am and why I am even qualified to lead this webinar. My name’s Dave Meyer. I’ve been working at BiggerPockets for seven years. I’ve been investing for 12. First couple years when I was investing I had no idea what I was doing. I was just making it up as I went along. I had never heard of BiggerPockets. And then one day I decided I wanted to take the two things I’m passionate about, which are data and analytics and real estate, looked for a job, found one at BiggerPockets. My life has changed dramatically since then. I’ve been able to scale my real estate portfolio. I am mostly a rental property investor. I now invest passively. I have one short term rental. And I still love data analysis and do that as well. So my new podcast called On The Market goes into macroeconomics, data analysis and all basically all the trends and news and things that you need to know as an investor that’s going on in the world right now. So check that out if you haven’t already.
I wrote a book with J. Scott. If you know J, he is an incredible real estate investor and he and I wrote a book together called Real Estate by the Numbers. It’s coming out this October. All about the math and how to really just be a great deal analysis. And we’ll talk about that today, but that book is coming out. And just as a reminder, I was once a newbie too. I really didn’t know what I was doing. But once I hit that three deal mark, I really started to understand my systems, my process better. And that’s why today we’re talking about building that stack so that you can get to that financial freedom. I do live in Amsterdam. It was a lifelong dream of mine to live abroad. And luckily, through real estate, through BiggerPockets, I’ve been able to pursue that. And it’s been an absolutely wonderful experience.
If after this, you want to reach out to me, you want to connect with me, the best place to do that is on Instagram. I am @TheDataDeli. If you don’t know already, I love sandwiches. That’s why I love data deli. So I talk all about real estate, economics, and of course, sandwiches. So, okay, with that out of the way, now you understand who I am. Let’s talk about our first few deals. Because in some ways it really matters a lot about your first few deals. And in other ways they just don’t really matter at all. Because again, we are talking about momentum here. So in the ways that they do matter, it matters just that you show up and actually do them. And I’m not saying that you should just go buy anything. We’re going to talk about how to find a good deal for your first deal today.
But what matters is that you jump in the ring, you get in the arena and you start learning. Because you don’t learn by watching and you certainly can learn here in a webinar about a podcast, but the way you really learn and understand it at your core is by actually getting in there and doing that. So that’s why the first deals matter. But why they don’t really matter is because you don’t need to hit a home run. As I said before, three deals, not going to get you to financial freedom. So don’t put so much pressure on yourself. You don’t need it to be a home run. You want to hit a double. Maybe a triple. Even a single is fine. Like a house hack where you just reduce your monthly expenses. That is getting in the game. You are going to learn so much.
So that’s what I want to talk to you about today is just getting started. Because once you do, the impact is going to cascade and is going to compound and is going to grow to whatever you want it to be. So let me share this concept with you. And this is a super important concept for what we’re talking about today and why the first few deals are so important. It’s a system and a concept that we call the stack here at BiggerPockets. And the concept here is something that you need to understand. Is that you don’t build wealth by getting a single property or by any property. The way you build wealth is by building a portfolio. You need a lot of assets. Not even that many. But you need more than one asset to actually build that wealth that you’re talking about.
And listen, I know that sounds probably intimidating, right? Maybe you’re sitting here thinking, “I’m just getting started. I don’t even have one. How am I supposed to start thinking about a whole portfolio?” Well, it’s the same to buy one as it is to buy two or to buy four, or to buy five. It’s about this system and we’re going to talk about this system and we’re calling it the stack. This is basically a blueprint for you to pursue for financial freedom. So just imagine you commit yourself today to in the next six months you’re going to buy your first rental property. Let’s call it a single family home. Most people start with single families. And a single family is a great deal. It’s a great way to get started. And no matter who you are and who you’re … Whatever it is. You can do this. A single family residence is entirely possible.
If you want a house hack, you can put as little as 3.5% down or maybe you have enough to put 20 or 25% down. I promise you, by the end of this webinar, you will know that you are capable of buying a single family home in the next three to six months as long as you dedicate yourself to that. So there you did it. Congratulations. That was the hardest part. One deal is the hardest thing you ever have to do. I admit it. I know it is scary to do that first deal. Honestly, I still get a little nervous on every deal I do. That’s okay. But after that first time, everything just keeps getting easier and easier and easier. So wherever you are, whatever you’re doing, please just focus on that first one.
A couple years from now, then you buy a duplex. It’s still only one unit, right? It’s still only one purchase. So first year, you buy one single family residence. Second year, you buy a duplex. Maybe in your third year, you buy a fourplex. All of a sudden you have seven units. All you did is buy three things. One per year. And now you have seven units. Imagine if you made a couple hundred bucks per unit off that, that’s in three years. Then you go to eight. Maybe then in 16. And all of a sudden in five years you have 31 units. And listen, don’t get caught up in the details of making it exactly one, two, four, eight. This is just about exponential growth. It’s that if you learn how to do a single family, then you can easily buy a duplex, you can easily buy a fourplex.
By the time you have seven units, you can buy an eight unit. You’re going to have these systems in place that allow you to scale to any size. The way you start is with one. So stop worrying about your third deal. I’m just showing you this to show where we’re going. But you don’t need to worry about your third deal or your fifth deal right now. This is about momentum and momentum starts with your next deal. That is the thing that matters most and that’s what we’re going to talk about right now. So what is stopping you from getting to this first deal or your next deal? Maybe you have a deal already and you’re like me and you bought one and now you’re just slowing down. I don’t know. But I imagine these are roadblocks that most people face because I’ve heard it so many times.
And again, we talked about them. They’re dollars, deals and direction. But I’m first going to just talk about market conditions because I said I would. And listen, home prices are at an all time high. Rents, also at an all time high, which is good if you already own some properties. And rising interest rates have been … Interest rates have been going up for a while now and it is slowing down the housing market. So that seems a little scary. On the other side, there are other things going on. Like stock market and cryptocurrency have been getting hammered over the last couple of months and there are valid fears of a recession. I do think there’s a good chance that there is a recession in 2022 or in 2023. So that begs the question you’re sitting on this webinar and I’m telling you all these scary things, is now a good time to buy? Overwhelmingly I can say yes. I’ve already done several deals this year and literally every experienced investor I know is continuing to buy right now.
But let’s talk about why because I’m not just saying this because I’m boosting something. I genuinely believe this. Number one, it is always a good time to invest if your numbers work. If you know how to analyze a deal, it doesn’t matter what the market conditions are. If you can find an 8% cash on cash return, I will buy it in any single market. Or if you know how to find a good deal and negotiate a good price, that works in any single market. Transitionary markets, which is what we’re in right now … We saw this huge run up in prices. That’s over I think. But we are still likely going to see probably appreciation over the next couple of years. And even if you don’t, transitionary markets offers opportunity to buy below market value.
If you listen to my podcast, James Dainard and Kathy and Jamil and Henry are always talking about this because basically sellers now in this type of economy are willing to sell. They’re willing to negotiate. They’re willing to talk to you. That didn’t happen the last couple years. There was crazy competition. Even as an investor, you had to bid aggressively, you had to waive contingencies. That is changing. You’re going to have much more leverage as a buyer. That means there’s opportunity. Third, this is true of any investment, but it’s true in real estate. Time in the market is more important than timing the market. And they say this in the stocks because it’s true. The longer you own assets, the better off you’re going to be. Listen, I look at macroeconomics literally every single day for hours and I don’t try to time the market.
And I know people probably think that’s not true, but it’s 100% true. I don’t try to time the market. Instead, I try to buy good deals consistently when I have the cash available to do that. And that’s because I know what a good deal is. I know how to analyze good deals and you will too by the end of this webinar. But as I said, every experienced investor I know is buying right now and that’s because they have systems. They know what a good deal is. They’re getting good leads. They are seeing really good opportunities and they’re pouncing on that. I’ll just leave you with some words that Warren Buffet … I’m not leaving you. I’ll end this section with some words from Warren Buffet. Where he said, “Be greedy when others are fearful and fearful when others are greedy.” And I really take that to heart. That means there are opportunities when everyone else is afraid. And I’m not saying buy anything. Absolutely do not buy just anything. Buy a good deal. You’re going to teach you what a good deal is and only buy that.
Okay, so let’s get into the traditional three D’s. Number one is dollars. All right. Real estate finance honestly is really all about mindset. You can find financing if you really want to. First way to do that is the traditional loan. This is when you put 20 or 25% down and get a traditional mortgage. This is the easy thing to do. If you have a W2 job or if you are a contractor and you have two years of pay history, you can probably get a traditional loan. Or if you want to owner occupy, do a house hack, that’s a great way to get started as well and you can put as little as 3.5% down.
So you can do this a lot. You can get five or even 10 mortgages just by using traditional mortgages. We talked about the stack. You could get to seven units or you could even buy more than that just by using traditional loans. So this isn’t super complicated, but there are probably people out there who don’t have 20 or 25% to put down so there are other options out there. And the number one option I recommend if you don’t have dollars is to do a partnership. Honestly, so many people overlook the value of partnerships. They look at their own financial situation and think I don’t have the money to do that. Well, someone you know might. And if you don’t, maybe you just put sweat equity into a deal. There are so many different ways that you can structure a partnership that whatever your financial situation is, you can figure this out. And I know people are maybe skeptical so let me just tell you the story of my first deal.
So let me tell you about the story of my first deal. When I was 23 years old, I was a year out of college. I was waiting tables and I had no money at all. Really, no money to my name. But what I knew was that real estate prices had just gone down a lot. And I had done some data analysis in college and I was able to figure out that this would cash flow. I knew it would cash flow. I didn’t really honestly know how much it would cash flow. I didn’t really know how to analyze a deal. But luckily I figured it out. I went to some people I knew and was able to convince three other people to go in on it with me. And the deal we had, we needed just over 100 grand to put down on this apartment. Four units. And we each needed to bring 26K. But I didn’t have it.
So I went to one of the other partners and said, “Listen, if you put in my 26K, in addition to all the benefits you’re getting for being an owner of the property already, I will also pay you 6% interest on the 26K you loan me.” So now this partner has a lot of equity and they’re getting cash flow basically from me paying them 6% every year on that 26K. So I did all the property management and the partnership basically paid me for my property management, what you would pay normal property management. And then I used that cash to pay off the secondary loan. So this is what I mean about getting creative. No one told me to do this, but I figured it out with some people I knew. I managed to be the property manager to generate cash.
And at first, did this make me a ton of money? No. But over the years I actually bought out two of my partners. I was able to figure out how to generate more cash flow and it wound up being an excellent, excellent deal for me. But at the time it was a single. It wasn’t a home run. But it did help me learn the business. And again, I didn’t follow this up as fast as I should, but in retrospect, over the years when I was managing this property, I learned a ton and I am so glad that I got into this, even though it wasn’t the financial home run that it might have been had I just bought it on my own. But it got me into the game.
So let me just get back to that. Partnership’s an amazing way for you to find the dollar. So far we have a traditional loan. We have a partnership. And then the last thing I want to say … This isn’t really its own way of financing. It’s a little bit different. But the BRRRR strategy is an amazing way to build a portfolio. When you do a BRRRR, it’s basically like flipping a house, but you actually keep it, which is the opposite of flipping a house. But you buy a house that needs work, you renovate it, but then instead of flipping it to someone else, you do a cash refinance and you can take out a lot of the money that you put down and take it out of that property and put it into the next property.
I’m not going to get too far into that. David Greene wrote a great book about BRRRR. We actually have a couple of resources I’m going to talk about here in a second, where you can learn more about this. But it is a great way to build a whole portfolio when you don’t have a lot of cash. So if you want to learn more about that after this, check that out and we have an awesome giveaway for you. If you’re a pro member, we have a full workshop that David Greene and Brandon Turner put together for nine strategies to invest when you have no money. I mean, Brandon wrote the book, How To Invest With Low Or No Money Down so he is the ultimate resource for this. And if you are a pro member … Which we’ll talk about later. If you’re not, if you want to go pro, we’ll talk about that in a little bit. But you’ll get nine strategies on how to do this. And believe me, I did it. I had no money when I got started investing in real estate. And you can absolutely do it too. Dollars are not a hurdle that you should really be considering. And I’ll explain that more in just a little bit here.
So the secret here … Well, not that little bit. I’ll explain it right now. The secret to financing real estate … I said it was a mindset and I want to convince you not to get so hung up on dollars because no matter what, the secret to financing real estate is having a great deal. The whole reason I was able to convince those partners to go in on me, even though I had no experience, was because I had an amazing deal and I was able to analyze the numbers and show them how much money they were going to make, even with a lot of contingencies. And that is true for you. If you have good deals, people will invest in it. No investor turns down an excellent deal. It’s just not going to happen. So that is really what it’s all about.
So it’s helpful to know what financing strategies are out there. But if you can learn to identify excellent deals, that is going to help you with financing a million times over. But let’s just talk a few ways to get deals right now. The MLS. I know it’s not sexy. It’s not the cool way to do it. But so many people find deals on the MLS. Honestly, I’ve found the majority of my deals on the MLS. And according to a lot of friends of mine who are super active real estate investors, they’re getting more deals on the MLS right now than off market right now because sellers … Again, it’s a transitionary market. Sellers are motivated right now and they are willing to cash in. They are willing to negotiate and there are great ways to find these deals.
One of them is of course a real estate agent. So if you don’t have one, you want to find an investor friendly agent. You can do that for free on BiggerPockets, biggerpockets.com/agent. You can find an agent who can help you find really good deals. Now, you can do this. You can go on Zillow, but not every deal on Zillow is going to be great. So don’t get discouraged. We’re going to talk about this in a little bit. How to whittle down. If you go on Zillow, how to funnel it down to find a great deal. We’ll talk about this in a minute, but just for now know that the MLS … Don’t listen when people say the MLS doesn’t have good deals. There are good deals on the MLS. You just have to be patient and figure out how to find them.
The next one is driving for deals. This is also called driving for dollars. It is extremely common because it works. But it takes a little bit of work. You’re going to have to do a bit of legwork here to actually find these deals. Now, if you’ve never heard of driving for deals this is basically a process of identifying properties that have a likely seller, but they haven’t put it on the market. So they have … Maybe it’s someone who had an unfortunate situation with their family and they need to get out of the house or you hear a lot about hoarders who want to move, but they don’t have the energy or the money to clean up their house to put it on the market. So a lot of people just don’t wind up putting it on the market.
But if someone comes along and says, “Hey, I’m an investor. I would love to buy this deal from you.”, then that’s a great opportunity for both parties. And I love the way that James Dainard says this or Henry Washington. People who are on my podcast say it. That you’re not buying a deal when you’re driving for deals, you’re buying a situation. Some people might just need cash now and they’re afraid to put it on the market. They don’t want people coming into their house. The house needs a lot of work. Maybe it needs a new foundation and they’re not prepared to do that. These are all situations. And going back to the idea of market conditions, situations happen in any kind of economic climate. These types of deals never go away. Yes, you’re going to have to do some work, but there are great tools out there.
Deal hub … DealMachine. Sorry. Is a good one. I have no affiliation, but I’ve used it before. It’s a really good tool. And this is a very good way to find deals. If you want to find things under value, if you’re willing to do value add and do some construction and rehab work, driving for deals works all day. There’s a ton of resources. Again, we’re going to share with you guys, that you can learn more about this for free. But don’t forget about driving for deals. It is an excellent way to find deals. There’s other ways to do it. We call it driving for dollars, but you can do direct mail letters, direct cold calls. This is similar to driving for deals, but rather than actually driving around and finding a house and being like, “Oh, that one. It’s a little rundown. Maybe I’ll call those people.” You can actually just send them mail or you can cold call them by buying lists.
There’s all sorts of services that do this. You can basically go on people who are in pre foreclosure or maybe people who live out of state. It’s not owner occupied and you know that they’re a landlord renting it out. And maybe the place is a little run down and needs some work. Maybe you can take it off their hands. And guys, this is a numbers game. Not everyone’s going to respond to you. You might send out a thousand mailers, you might cold call a thousand people, and you might get a couple responses. But all it takes is one deal and it’s entirely worth it. It’s about getting that momentum. So you just need one deal. Maybe you get one deal a year doing this. It would still be worthwhile. And there are all sorts of companies that can help you do this so you don’t have to do it alone. You don’t have to figure out how to do this. There are resources to help real estate investors do this exact thing because it works.
The last is relationships. I mean, real estate is such a … It’s just a relationship game. I get called, I get talked to by people all the time, because I am friends with a lot of real estate investors. So make friends with a lot of real estate investors. Make friends with real estate agents or property managers or lenders. Because they hear about deals all the time and they can pass them along to you. And this isn’t a quick thing. This does take some time. But it’s something to think about. Maybe it won’t work for you in the next three months but if you’re trying to build that stack, if you’re trying to get couple deals in the next few years, start building those relationships now, because they’ll start bearing fruit a couple years from now.
So that’s deals. Remember, if we have pro, you can get a masterclass hosted by Brandon Turner on how to find great deals. It talks all about relationships. Like I said, driving for dollars. The MLS. Brandon talks about going on Facebook, using Craigslist, all these really creative strategies to find deals. And like I said, if you can find deals, you will find the financing. So make sure you know how to find a good deal and how to analyze a good deal, which we’ll talk about in just a minute.
The last thing here is direction. We talked about this earlier, and this is about following the purpose and being really focused on where you spend your time and your attention. I actually listened something the other day where Warren Buffet and Bill Gates were both independently asked to write down in one word why they were successful. And they both … They didn’t know they were talking to each other. They both wrote down the same word and it was focus. It’s not direction. Didn’t have a D. But it’s the same kind of idea. It’s all about pointing yourself with intention where you want to go. So how do you find direction? Well, you’ve already taken the first step. You are educating yourself, which is the most important thing. You want to start really broad at the education phase. So you’re doing it by being on this webinar. You need podcasts. You need books. We have forums, blog posts on BiggerPockets. You get most of this stuff for free. So you need education. And this doesn’t stop even when you have a first deal or second deal. I’m still learning. I am still constantly talking to investors, watching webinars, reading the forums to learn more and more and more. And you want to do that as broad as possible.
Next is focus. Like I said, it’s sort of a subset of direction. But you need to be able to focus to support your long term goal. It’s so easy to get that shiny object syndrome. Maybe you’re looking for a short term rental, but then someone tells you about wholesaling. You’re like, “Oh, I want a wholesale.” Or, “I’m going to flip.” Or, “I’m going to do note investing.” Or whatever it is. There’s so many things. But specifically at the beginning you have to focus. Otherwise, you’re going to get overwhelmed. So you need to pick an area. Pick a market. Pick where you live. Pick somewhere close by and be specific. Pick the actual block or the zip code or the neighborhood that you want to buy in because that’s going to help you focus your brain on what exactly you need to do instead of being distracted by all the things that are going on around you.
Pick your property type. Do you want single family? Do you want a short term rental? We’re talking about rentals today because I think it’s the best way to build long term wealth. I started doing short term and large multifamily later in my career so if you’re talking about first, second or third, I do think buy and hold, house hacking, great way to do it, but just pick one. Pick a condition. Do you want to buy A class properties? Do you want turnkey? Do you want to do value add? There’s so much resources about this and we’ll talk about this more, but that focus is so important because it gets you to your buy box.
And I’m going to talk about that in a little bit. But your buy box is basically what are you looking for in a deal? If you know I’m looking for a traditional rental in Denver, Colorado that has at least an 8% cash on cash return in a good neighborhood, then when you see that you are ready to buy. You’re not going to be worried. You’re not going to have analysis paralysis. You’re not going to be worried about macroeconomic conditions. You’re going to be like, “This is what I’ve been looking for and I’m ready to buy it because I know exactly what I want.” And so this focus helps you create that buy box. We’ll talk about that more in just a little bit.
And then lastly, this is about process. Guys, we’ve been talking about this, but process is what you need to get the results. So even if you’re focused, even if you know what you’re doing, if you don’t show up every day and do the work, you’re not going to get anywhere. We talked about losing weight, going to the gym. If you don’t show up to the gym, you’re still not going to lose weight even if you think about it all the time and you get educated about yourself. You actually have to show up and do the work and that is what we are hopefully helping you do today.
In this process, you might be thinking, “What is the process? What do I do? What do I show up? How do I do this?” Well, that’s what we’re going to teach you right today. It’s all about the deal funnel. Okay. Deal funnel. We have an analogy for it at BiggerPockets. We call it lapse. And that’s the process I want you guys to focus on here. To get over that direction fear. The deal funnel is all about a numbers game. We talked about the buy box. So how do you find a deal that’s in your buy box? Well, you need to start with a lot of leads. There’s a reason this slide, it looks like a funnel. It’s because at the top of the funnel, you need to start with a lot of leads. It might be hundreds of leads. It’s probably not thousands. But let’s just say it’s 100. I don’t know. I’m just going to make up a number. Then if you’re looking at 100 leads on Zillow, not everything’s going to be great. But maybe 10 of them are kind of interesting. You’re like, “Oh, maybe this could work.”
That’s when you analyze the deal. You actually underwrite it. You figure out what the cash flow is going to be, what the appreciation might be, what your important return metrics are going to be and decide if any of them are worth pursuing. And maybe only 10%, maybe one of them is actually worth pursuing and succeeding. But that’s the game, right? I keep saying that all you need to do is follow a process that thousands of people have done. This is the process. All you need to do, get a lot of leads, analyze the ones that look good, and pursue the ones that look good from there. That’s all it takes. And even if those numbers … I just made them up. I said, out of a hundred leads, you get one good deal. That’s totally worth it. I was showing you before that to get a stack, all you need to do is really buy one, maybe two deals a year for a couple of years and you’ll get to that financial freedom.
Would do you not analyze 10 deals, analyze 20 or 30 deals to get that one deal a year? I know I would because analyzing deals is not really that hard. I’m going to show you how to do it in five minutes. I’ll show you in five minutes how to actually analyze a deal in five minutes. So that’s what I want to make sure you understand here is that real estate is just a numbers game. Follow this process. Leads, analysis, pursue, success. Just do it over and over again. If you do the leads and you are able to analyze deals and you find deals that are good, you’re going to find that financing. Like I told you, you’re going to know exactly what you need to be doing. So memorize this, guys. Memorize the deal funnel. It is not complicated. It is proven. And I know each and every one of you can do this, because I’ve seen so many people do it. But just remember it is a numbers game. Do not get discouraged if you look at 10 deals and none of them work. Good. You should be looking at hundreds of deals to know that you are getting the best possible deal.
We’ve talked a little bit about how to find those leads, driving for dollars, MLS, relationships. You can watch that masterclass I just told you about. So let’s talk about the next one. Because so many of those deals, so many of the leads that you’re going to get are not good deals, you need to be able to find the right ones. This is really important and this is where it takes a little bit of skill and I’m going to talk to you about how to do it. You have to be able to analyze those leads to pick out the best ones.
That’s why people are going to invest with you, that’s why partners are going to partner with you, and that’s why you’re going to find financial freedom. Is because out of all the properties in the United States, there are 140 million of them, out of all of those, you’re going to be able to find the ones that best support your strategy and best help you reach your financial goals. Here’s what experts know. Again, I’ll say this again. I said it earlier. But it’s not about timing the market, it is about time in the market and you need to focus on what your portfolio looks like 10 years from now. So those are the important things to keep in mind when we are analyzing deals in just a second, because it is easy to get distracted by the market. I know it is a confusing time. But if you have your buy box and if you follow this process of deal analysis I’m about to show you, and you keep in mind where you want to be 10 years from now, I promise you this is going to work.
Okay. So we’re going to try this in real time together. We’re going to actually analyze a deal together. And to help me with this, I am going to use the BiggerPockets calculators. Just so you guys know, this is a pro benefit, but if you’re not a pro yet you can actually use this five times for free. So go check it out because it’s a really useful tool. I picked this deal because it’s in Alabama. I actually just did a deal in Alabama recently. In Birmingham, not in Huntsville, but I’m interested in the market and so I like this deal.
It’s a three bed, one full bath, two half bath, 1700 square feet, two car garage. Looks great. Nice curb appeal. I like the look of the house. So I don’t really know that much about it, but we are going to analyze it. I just found this on BiggerPockets. I just went to find deals, real estate listings. You can go check it out there. That’s another good place to find deals. I didn’t even mention BiggerPockets tools of the finding deals part but that’s another good place to find deals. And to do this, we are going to go analyze a deal. And while I’m pulling this up … I’ll just show you. I just go here to tools to rental property. Again, this is for pro members but you can start for free. Just hit start a new report.
I’ll just tell you guys, the reason I’m doing it on the BiggerPockets calculator is because it’s easy. And let’s just start doing this. I’m going to show you how to do it and you’ll see that in about five minutes you’ll be able to analyze a deal once you get good at this, but I’ll explain this all to you. First, let’s just start by copying and pasting our address. That sounds pretty easy. Look, you can just auto fill it. Great. I’m going to add a photo actually. Before this just did this so I didn’t have to awkwardly do it while I was doing the webinar. But what do we got here? All right. Here we got our image. You can add as many image as you want, especially if you’re going to show this to a lender or partner at one point, which I’ll show you later how to do. You might want to add some good pictures.
For the purposes of this, I’m just going to do one. And then what was our zip code here? 35810. Let’s put that in. Great. So now all we need to do is hit next. Let’s talk about our purchase. Let’s just assume for now we’re going to buy it at full price. And we might not be able to do that. That might not be a good deal. But for now, let’s just start that way, because you’re going to learn and you’re going to see that using the calculators, you can sort of iterate on the deal and if it’s not a good deal at first, you can put in different purchase prices and see what you should be offering to make that deal. So let’s just assume that we’re at 140,000, easy. Closing costs. What are closing costs? This is starting to get hard. Everything easier before Dave. It was just copying and pasting everything and now we have to think. Purchase closing costs.
Well, BiggerPockets on the calculators have these little tips. So if you don’t already know what your closing costs are, first you can do that by talking to a lender if you want to. But you’ll see that it’s just one to 2% of the purchase price of the property. If unsure, one and a half percent. So I’m just going to do one and a half percent. What is that? That’s $2,100 bucks. And let’s just say we’re going to rehab it. It did look like it needed a little work. So let’s just say we’re going to rehab it. Listen guys, I’m going to make up some numbers here. I’m not going to do a full analysis. I want to show you how easy this is. And I’m pretty good at estimating this after many years of doing this. So let’s just say that we’re going to put in 25 grand and we think that will make 40 grand in value.
So instead of the purchase price, it was worth 140. Now it’s worth 180. That’s amazing. And for that, it costs us 25 grand. Again, I don’t know exactly what it’s going to be. Obviously I’ve never been to this property. I don’t know. But I’m just going to make some ballpark estimates because I want to show you how easy this is. Again, we don’t want you to get stuck. What I want for you is to be able to get good at these deal analyses so you can do the lapse. You’re going to have all these leads and you need to be able to analyze these deals accurately and quickly so that you can identify the ones that are good.
So if you get stuck, don’t be too worried. There’s resources here. How do I get ARV? We’ve got tons of resources for you built in right there for free. That’s it. Now we know what our purchase price are. Moving on. Loan details. I’m going to say we’re putting 25% down. For me, as an investor, normally that’s what I put down is about 25%. Sometimes you can get 20% or if you’re house hacking, you can put as little as 3.5% down. And interest rates, they’re high right now. They’re actually … Let’s just say they’re about 5.7%. Points charged, none. I’m assuming that since I’m putting 25% down, my lenders aren’t going to charge points. What are points? You can learn right there.
Loan term, 30 years. I love me a 30 year fixed rate mortgage. One of the most amazing things about the American housing market is that there are 30 year fixed rate mortgages. That does not exist in many countries around the world. It’s incredible that you can lock in your interest rate for that long. So I’m going to do that. And if interest rates go down in the future, I’ll just refinance. That will be great. So again, show you what we’ve done so far. We’re flying through this because it’s easy and I’m doing this because I know it well. But I just want to show you, once you get good at this, that you could be doing this quickly. So that when I talk about this funnel where you have a hundred leads, you can run these 10 analyses in an hour, maybe an hour and a half even when you’re really thinking about it. So we’ve gone through all these, now it’s time to get to rental income. How do you find rental income? How do you figure it out? Well, there’s a couple of ways.
One, talking to property managers. That’s a great way to do it in your market or perhaps you actually rent right now in a market that you’re going to invest in and you have a good idea of what rent is going to be. But if you don’t, I’m actually going to pop over to this other tool that we have here on BiggerPockets. It’s called the rent estimator that will do exactly what we needed to do. So what was our address here? I’m going to just copy and paste this. And guys, this is a tool that I built. Honestly, it’s pretty darn accurate. And you still might want to double check with a property manager or someone in the area. Maybe you know another investor in the area is a great way to also check rent. But if you want to analyze a lot of deals, this is an excellent way for you to get information quickly. Because we want to get our rent up quickly.
So what we see here is median rent about 1215 a month. I’m liking that. And our confidence … The thing I love about this tool is that it tells you how confident it is. Sometimes it’ll say it’s low and you’re like, “All right, I got to call a property manager.” But now it’s saying confidence is high because there’s a lot of comps in the area. Look how many different properties are around here. This was a three bed, one full bath and two half baths. So I think a one and a half bed, three bath comp is pretty good. And it’s saying 1215 and I think that sounds pretty good just based off what I’m doing. So rent, we are going to scroll back down here and put 1215 in there. Oops. Now we’re going to put 1215 in there. And we’re moving on. We’re almost done guys.
We’ve already done loan assumptions. We’ve talked about price. We’ve talked about rent. Hopefully you can see this is pretty easy. Property taxes. What are our property taxes going to be? Let’s see. Let’s go back to the listing. Maybe they list what property taxes are going to be. It doesn’t but usually it’s about half a percent. So I’m actually just going to estimate. Let’s just say it’s $1,000. I don’t know. That sounds good. Insurance, I’m also going to do about 1200. That’s about average. Actually, in Alabama, I know it’s in hurricane alley. Let’s jack it up. Let’s just say 1500. I don’t really know. For these two, property taxes, that’s public record. So if you’re going through the calculator and you want to see property taxes, just go to public record. You can do that very easily. And insurance, you can just google that as well. Those are both really easy.
Now, repairs, vacancy, and CapEx. This is going to depend heavily on every property. But what I like to do is 5%, 5%, five, five. And are you going to manage it yourself? If so you can put 8%. That’s about 10%. You can say 10%. But we’ll adjust this all in a minute. I like repairs and CapEx at about 10% combined. And the only difference between these by the way, repairs and maintenance are repairing something that’s broken. Capital expenditures is something that’s really big like a roof or maybe renovating. It’s just treated differently in the tax code. But for all intents and purposes, it’s maintaining, repairing, improving your property. You always want to have some vacancy in there. And again, you can learn how to more accurately represent these. I just want to show you how easy to run the numbers are, but you’re going to want to work with those inputs.
Next. Honestly, I personally love to just bill back. Just let the tenants pay their own utilities. It works better for everyone. They just pay what they owe and I don’t have to worry about it. So I put those in. I’m not a big HOA guy. I don’t like HOAs so I stay away from those. And so I’m going to put zero in all these and we’re done. I know I did it quickly, but I want to show you how quickly it could go. I’m doing this intentionally. Because honestly I can run deals this quick. I can do it in four or five minutes. It’s not because I’m some master of this. It’s just the calculator’s super easy. And once you get enough reps in, once you analyze deals … I’ve analyzed thousands of deals in my life. And that’s why I can do it so quickly.
But if you do 100, I promise you … If you sit down today and decide … We talked about showing up every day. If you show up and analyze five deals a day for the next month, you are going to be a master at analyzing deals. You’re going to know your buy box. Because I’m going to show you how easy it is to do, but commit yourself to that. That’s what it’s about. It’s about showing up every day and this is an easy way to show up every day. All right, let’s see who we got. All right. So 93 bucks a month. So it’s positive cash flow. 12% annualized return. Pretty good. Cash on cash return, 2%. Not great. That’s not where I’d really want it to be. That’s okay. You’re going to analyze 100 deals and you might only find one. If I know my buy box, that’s why I know that this deal isn’t right for me.
Personally, I actually usually take a lower cash on cash return than a lot of investors would if there’s good value add opportunity, good appreciation opportunity. I usually like 4% or 5% minimum, but still this deal would be a little too thin for me. But something that experienced real estate investors know that a lot of people don’t understand is that deals aren’t just found. Deals are often made. And I know that sounds confusing, but it’s true. I just put in random numbers here. So what if instead of 140 grand … Remember I said, sellers are willing to negotiate right now. All I need to do is … I don’t know. Maybe they’d take 130. All right. Now it went up to 216. Remember, when I put in my rent income, that was the median. That just means it’s the middle. So there are some higher than that, there are some lower than that.
I also said that I was willing to put in 25K to upgrade that property. Maybe that turns it into $1,400 a month. All of a sudden, now it’s 5.3% cash on cash return and I’m looking good. Now it’s a good deal. Will I be able to buy it at 130 and to raise the rents to 1400? I don’t know. I’m just trying to show you that deals … This is the time to get creative and this is the time to go make a deal for yourself. This is the great opportunity in this type of market because people are willing to negotiate. Rent is really high. Sellers are getting scared and they want to sell while it’s still perceived at the top. And so you can maybe find these deals. Will this deal work? I don’t know. I’m just trying to show you how to run these deals.
Honestly, if I could find a deal like this, this wouldn’t be bad for me. An 18% annualized return. Sign me up. Sounds pretty good. All right. So that’s just something you need to know. Obviously I also just made up these expenses. Oh, one other thing I should show you. If you’re new, a great way to make something cash flow, drop these management fees down. Manage your property yourself. I did that myself. You’re not going to want to do it forever. I think after three properties, you got to stop. You can manage maybe five units yourself. But at first, if you just want to get in the game and start building that momentum, just drop that down to zero. Look, you’re at an 8.5% if you do some sweat equity yourself.
A few other things about the calculator you should know. If you scroll down, you can see all these important metrics that every investor wants to know. Which is NOI cash on cash return, expenses. Everything in here is great. And something I really like to look at because I’m not a pure cash flow guy, I really like just looking at my total annualized return. Because you can see how much money you’d be making over time. Over five years on this deal, as I have it configured right now. 20% per year, basically for five years. You know what the stock market averages? 8% or 9%. So you’re almost doubling that on this deal that I randomly just threw together. Let’s just put this back at 140. Management fees at 8%. Let’s just go back to … What was it? 1215. Still 11.6%. Still better than the stock market. So just think about that when you’re thinking about timing the market.
What I love about this calculator is that it just makes it so easy for you to analyze a deal. It took me five minutes to do it in the first place. And then I can make my deal. I don’t know if the seller will accept that. But I have the tool now to be able to decide what I am willing to offer. Now, I know that I am willing to offer 120. That is such an empowering tool because now you can find things and you can build your buy box around this entire calculator. One other thing I like here is that this sharing setting … So you can actually enable report settings and then you can download your PDF. And I think this is super important, especially if you’re going to be doing partnerships. Because if you approach me as a partner and you send me an Excel file, I don’t really want to learn the way you made your Excel file. But if you hand me a BiggerPockets calculator report where I know the math is right, and I know that this is done correctly, I am much more willing to partner with you to take you seriously, because you know what you’re doing. You’ve proven to me that you know what you’re doing.
You can use this for your spouse. A lot of times you’ve got to get your spouse on board. You can bring this to a lender, to a partner. It is such a valuable tool to be able to show how to do it. So that’s why I love the BiggerPockets calculators. I literally use it for all of my deals. I really recommend you do it. Again, you can do five free deals on BiggerPockets so go check that out. You can do a spreadsheet too. You definitely can. I’ve done that in the past. But over time, I’ve learned that just using a tool that is built specifically to do this is easier.
Okay. Let’s start to wrap things up with three simple questions here, guys. Are you committed to buying your first, second or third deal in the next 12 months? Are you? I mean, be honest. If not, that’s okay. That’s fine. I just want to you to think about this. Because if you are sitting there thinking, “Oh, I don’t know. Maybe, maybe not.”, that’s okay. But if you’re sitting there enthusiastically saying, “Yes. I want this. This is for me. I can feel the financial freedom. I know the process I need to follow and I can get started right there.” Because if you want it bad enough, you’re going to get it. I promise you. This is not rocket science. So many people can do this. So if you want it, you can have it.
Second. Are you prepared to follow a process towards success? We’ve talked about this weight loss analogy, or getting fit analogy in the past. Are you prepared to follow the process? Are you going to show up every day? Because that’s all it takes. Do you want it? Are you willing to show up? And three. Are you willing to execute your plan every single day so that you can reach your full potential? Are you willing to be consistent? Because this is a numbers game. And if you are consistent and you follow that plan, I assure you that financial freedom that we are all striving for is possible for every single one of you. I’ll leave you with this quote by Jim Rohn. He’s a great speaker. He said, “Life doesn’t get better by chance, it gets better by change.”
So decide. Are you ready to make that change? If not, that’s okay. But maybe you are ready to make that change. That little change. It’s not some big dramatic thing. It’s about showing up and following a proven process. So if you are ready to start that, good for you. I am excited for you. I’m so happy for you. I really hope this webinar has helped you get there because this moment right now could be the start of the momentum that we talked about at the beginning of this webinar. So I hope it has been for you. If you are ready to make that change, and if you want that financial freedom, then let’s talk about one of the best ways that you can do that. It’s not for everyone, but it is one of the easiest ways and it’s one of the logical next steps for you if you are ready to take action, and that is a BiggerPockets Pro account.
Listen, it is not necessary. You can succeed in real estate without it, but we have designed it for real estate investors to succeed and it makes everything a whole lot easier. So if you want to know what BiggerPockets Pro is all about, it is about finding financial freedom faster. If you could shave off three or five years so that you can get to that financial freedom sooner, how valuable is that? That is worth anything. So you can do whatever it is that you are passionate about. Like for me, that’s about travel. That is about my time with my family. I actually moved to Europe. I live in Europe. I love traveling and it’s something I’m super passionate about. And now I get to do the things that I want to do every single day.
Not because I’m retired. I still work. But it’s because I’ve been able to engineer the life that I want for myself, because I was able to get that financial freedom at a relatively young age. And maybe that’s not it for you. Maybe it’s not travel. Maybe it’s about spending more time with your kids or being around when they show up. Or maybe it’s starting a business or giving more to charity, whatever it is, what are you waiting for? Don’t you want it faster? And that’s honestly what we’ve tried to build here at BiggerPockets. So what does it do? First and foremost, it gives you unlimited access to those calculators. I don’t know how many times it has saved me from a terrible deal and help me identify a great deal. You can go try it again for free, by the way. And you should.
And so nothing is more valuable than that calculator, honestly. Being able to analyze deals is the key to running that system. Again, if you want to do it in an Excel spreadsheet, you can, but this is a really easy way for you to do it. Next. You can get the rent estimator I just showed you. So if you want to analyze deals and know what something costs in rent, you need a good data source. And we have that data source for you with the rent estimator tool. Super valuable. And this is honestly, one of the most important things is showing the community that you mean business. Being a pro member, honestly unlocks a lot of networking opportunities for you. It shows people that you’re serious, that you have skin in the game. Remember the first question I asked you today is why so many people get interested but only a few actually take action and get started?
Well, this is a way to show that you are taking action and that you’re analyzing deals and that you are trying, and that you are putting your time and your money on the line to pursue what you want. So another great thing that we have at pro, something that’s super exciting is boot camps. This is an accountability program where for 12 weeks you’ll be working with cohorts and expert real estate investors to learn and get to your first deal. We have a rookie boot camp that will get you to your first deal. You can get that for 199 bucks and only pro members can get that so that is extremely valuable. You can learn from the best. We have incredible webinars, archives of hundreds of webinars you can watch completely for free. We have landlord forms. I use these for all of my properties.
These are worth hundreds of dollars all by themselves. On any single state. They’re rewritten every single year. We have lawyers look at them. They’re excellent. So you should definitely check those out. We have partnership deals with Mashvisor, AirDNA, Foreclosure. Some of the best data providers, some of the best marketing companies in the business all give discounts to BiggerPockets pro members. But really guys, I just listed a bunch of features. All of them super important, super helpful. But really the reason to go pro is because it works. I know it sounds silly or stupid, but it just straight up works. I’ve seen it tens of thousands of time over the last seven years. Just listened to some of our members. Aaron said, “The BiggerPockets calculators are my go-to for analyzing properties. There’s no way I could analyze the volume of properties I do without being a pro member. I locked up my first 33 unit almost a year ago and now selling for almost a 70K profit that’ll go towards something larger. BiggerPockets calculators were a huge factor in making sure my numbers were right.”
That’s exactly what I’ve been talking about everyone. You have to be able to analyze. I love that he says analyze the volume of properties I do because that’s what we’re talking about. It’s a numbers game. You have to be able to run these deals a lot of times. Patrick says, “Back in June, I attended a webinar. Right after, I signed up for pro. Next couple weeks, I analyzed a bunch of deals. Eventually I found a fourplex, got it under contracts three weeks later after signing up for pro.” That’s amazing, right? He ran a bunch of deals. He was patient and found the fourplex, got under contract. That’s amazing. Super proud of Patrick.
So just for being here today, if you want to go pro … Again, not for everyone. We want people who are ready to take action to do this. If you’re not, that’s okay. But if you are ready, if you want to take action, make this change, you can do that. Just use the code pro rental and you’ll get 20% off, which is a screaming deal. That’s 20% that you can use towards other stuff. So how much is it? I’m sure you’ve seen some people on the internet who sell their training courses for 10,000 bucks. Hell, I’ve seen 25,000 bucks. So what does BiggerPockets Pro cost? Costs $390. That’s it. It’s not because it’s worth less than the other ones. It’s because what I told you at the beginning, BiggerPockets genuinely believes that everyone can pursue financial freedom through real estate and should.
And so we have priced it at the point where everyone who wants to take action and to get into real estate investing can do it. And actually with the 20% off, it actually goes down to 312. So that’s an even better deal. Use the code of pro rental. 20% off, and you will get off pro annual membership. And we actually have a couple of bonuses here. I mentioned this earlier, but if you’re stuck on one of the three D’s, which is dollars, we have a investing with no or low money down workshop hosted by Brandon Turner and David Greene. That’s a $200 value for your pro membership. So you can get that completely for free. You can also get the finding great deals. So if the other D is bothering you, finding deals, you can get the finding great deals masterclass with incredible real estate investors.
We have Elliott Smith, Nate Robbins, Lance Wakefield. That is a thousand dollar value is what we assign that as. And you’ll get that entirely for free if you sign up for pro right now using that code. And so just look at what a deal is. It’s over a thousand dollars in bonuses and you can get that all today. And if you’re already pro, good for you. Hopefully you’re enjoying it. I’m sure you are. You can get these bonuses as well. Spread the love. Go to BiggerPockets.com/proupgrade and just enter the same code and you’ll get that as well if you are already pro. You actually have to be annual to get all of these bonuses. That is just part of the deal. 20% off. We don’t want people to just take the bonuses and run. But I just want you to know you can also get your money back.
We just want people who are ready to take action to do this. So if you’re one of those people, go pro right now and we’ll give you your money back if you don’t like it. If you decide this isn’t for me or something came up or whatever it is, no questions asked, give you a 100% refund. We just want people to go check it out. Hopefully you’re excited. You’re ready to take that action to build that momentum. And this is a logical next step if you’re ready for it. So again, as Jim said, if you really want to do something, you’ll find a way. If you don’t, you’ll find an excuse. Hopefully this webinar has shown you some things that you can do today to get over the fear of the market, of not being able to find dollars or deals or direction.
We’ve taught you a process to do the lapse system, to find leads, to analyze deals, to pursue them. You can do this. Tens of thousands, hundreds of thousands of people have done this before. I’ve seen it with my own eyes and I am confident that you could do this as well. So if you’re ready to do that and you want to go pro, great. BiggerPockets.com/proupgrade. And I hope you all learned a lot from this. Again, if you want to interact with me, if you have any questions about this webinar, I am happy to answer and I’m very active on Instagram. Again, my handle is @TheDataDeli. Hopefully this has been useful to you guys. If you want to go pro, again, BiggerPockets.com/proupgrade. I hope you all had fun and I will see you all again in the future. I put out these webinars pretty regularly, and if you want to learn, I do one on multifamily, I do a couple other ones. So definitely come check those out in the future. Thanks again for watching and good luck to you all on your path to financial freedom.
David:
All right. That was our show. Dave, what are you thinking?
Dave:
Well, I hope you liked it. I would love to hear your thoughts on it. Yeah, I mean, I hope people take away, obviously the practical tips and tools, but just wanted to get back to what we were talking about at the top of the show. And there’s something that I mentioned in the presentation is that I think every single experienced investor I know is pretty excited to be buying right now and is feeling pretty good about the market right now. Do you feel the same way? And is that true? Are most of your investor friends also pretty active right now?
David:
Yeah. I would say that the people that are, I don’t want to say full-time or professional real estate investors, but I’d say the people whose identity is most closely tied to investing in real estate versus a job they have or something else they do. There’s a lot of people that kind of do this just on the side, right? They love running marathons and they buy real estate every once in a while. But the people that are hardcore about it are buying a lot of real estate right now. And I’m one of those people. So I have not been this excited or having this much fun buying real estate in years. It has been a long time, probably since 2015 or so, where I was this gung ho and excited. And most of the deals I’m buying, I was happy about it.
Usually it’s, “Well, I’ll take it, but I don’t love it.” The that’s how it’s been for the last couple years. I was still buying, I just wasn’t buying as often. And I wasn’t putting as much energy into looking at real estate because so many other people were doing it. I didn’t want to go compete with 11 other people for the same house and burn all the energy you have to spend analyzing deals and then it doesn’t work out. Well now, there’s much less competition. There’s a lot of people that have stepped out thinking that we’re going to have a crash. There’s a lot of gurus. Now I will say this. The majority of the gurus that I hear calling for a crash are not real estate people. They are stock people, they’re crypto people, they’re business owners that don’t understand the lack of supply in our market, that are just thinking about what happened in 2010 and assuming that when there’s a recession, that means that the real estate market crashes.
If you understand the fundamental of real estate, you know that’s not necessarily true. Do I think there’s going to be a correction? Yes. Do I think that if rates continue to go up, demand’s going to continue to go down, which will in many cases bring prices down? Yes, I absolutely do think that. I just buy in areas where that’s less likely to happen. I look for value add opportunities so even if that happens, I’m okay. I’m aware of the fact that even if the value of the asset goes down, whoever is buying it is probably going to have the same or a higher payment than me because they have a higher interest rate in that situation. So it’s okay. The value of the asset doesn’t really matter. The cash flow that it brings in matters and eventually it’s going to turn around. So I’ve made peace with the fact that there’s always a hurdle in every market and you need to be grateful for those hurdles because that’s what keeps all your competition out.
Dave:
Yeah, absolutely. Going back to the presentation, you are familiar obviously with the lapse system. Just think about it. If you’re getting into it right now, as David was just saying, you can always find deal flow. You can always identify leads. But right now is an easier time to identify leads than it has been at least in the last two or three years and maybe longer. And that’s just a great way to be able to get started. You’re going to be able to look at a lot more deals. You’re going to be able to analyze a lot more potential deals. And when you do offer on properties, you’re going to be facing a lot less competition. So hopefully that’s going to encourage people, whether you’re just getting into real estate or maybe you’ve been waiting to see what’s going to happen. You heard it from David, who’s one of the most prolific investors out there, that he’s excited to buy and that there’s good deals to be had.
So yeah, totally get it and agree with you that there is likely going to be a correction. I don’t know if that’s going to happen in every market. I think when I look at some of the fundamentals, I see specific markets that nothing’s really changed. They look really strong, to be honest. Some look pretty scary. I think it’s going to be really hit or miss and that’s why you have to be an expert on your local market. I actually just wrote an article about this on BiggerPockets. You can go check it out and you can actually download all the data for local markets. But I’m with you. I’m excited. I’m not at the same quantity as you are, but I’m definitely excited to be active in this type of environment.
David:
So what are some of the markets that you’ve been exploring? I know I was watching one of your videos and you talked about, “I’m a Denver investor, but now I’m looking outside of Denver.” And of course you’re the data guy so what’s going on in the data guy’s big brain?
Dave:
Totally. I do mostly invest in Denver, but ever since I moved to Europe, I mostly invest in a lot of syndications. If you’re not familiar, it’s passive style investments. And it suits me pretty well because I get to just nerd out and pick markets because that’s the nature of syndications is you get to pick your operator, you get to pick your market. And I still think parts of central Texas and north Texas are really strong. There are parts of Florida. Miami’s market is still really good. I think Tampa’s still a really strong, long term market. And I’ve actually just to invested in a syndication, one in Alabama, one in Virginia. So I think there’s good places all around right now. It really depends city to city, not just state to state. You look at certain states, I think, especially in the south where some markets are really overheated and some are really fundamentally sound. So definitely recommend you look into the Southeast in particular, but even the Midwest is starting to look good. So there’s definitely good opportunities.
David:
What is it you like about the south that you think is leading to those being good opportunities for people?
Dave:
Mostly population. You look at migration trends and you see that people are moving primarily from the Northeast and the west coast to certain areas. A lot of them in Texas, Florida, North Carolina are all big net gainers of population. And that’s just simple supply and demand. If there is more people moving there, that is more demand that’s going to push up prices. And so that’s the most fundamental thing. And then you and I have talked about this before, but I think just looking at economic growth and you can measure that in a lot of different ways. GDP. Personally, I like to look at job growth, just seeing what kind of jobs people are getting, high paying jobs, are companies moving there. That kind of stuff is really important to me.
David:
I love that you’re saying that, and we can wrap up with this. Nobody knows what’s going to happen in the future. But one mistake that a real estate investor will make, especially when they’re afraid, is … And new people are often afraid. Is when you’re afraid, certainty becomes much more valuable than when you’re confident. When you feel really good about things, you don’t need to know every detail, but when you’re scared, you’re like, “I need to know this is going to work.” So think about right before you jump out of a plane. All you’re thinking about is, “Did my parachute get packed correctly?” You’re just running through it in your head over and over and over is that. Or you’re about to jump off with a bungee cord. You’re going to be looking at every single piece of equipment. Is that thing set up the right way? Well, it’s very similar to the world that we live in.
The problem is the snapshot of what you’re looking at as far as analyzing a deal, seeing the cash flow, that is very important. You need to know this. This is a fundamental piece of being a real estate investor. But odds are it’s not going to stay five years later what it looked like right now. And that’s one of the things that the BiggerPockets calculators will help, but they’ll actually project out if we just have 3% rent growth, this is what your cash flow will look like in five years and 10 years and 15 years. Well, if you invest in the right areas, you’re going to see much more than a 3% growth. I mean, inflation right now is climbing and it was at 9.1 at the last point. And that’s not including housing I don’t think. So it’s probably higher in the real estate market than it was in the CPI. Point is, investing in the right markets.
Even if things go wrong you didn’t expect. You have the typical toilet problem, you have a bad tenant, you have something that goes wrong. You will be bailed out by increasing rents, increasing home values and increasing demand for people that want to live in or buy your asset. So pay attention to the information. BiggerPockets is putting out there, particularly through Dave, about markets that we like, places that we’re investing, why we like them, population growth, businesses moving to the area. Pair that with the basic X’s and O’s of knowing how to analyze a deal and it should do a lot to take away your fear of getting started.
Dave:
I love it. Beautiful way to end. Couldn’t agree more.
David:
All right. Thank you everybody for your attention. We know you could be getting this information from multiple sources and we really appreciate that you’re coming to us to get it. We will continue to do our best to serve you right. Please leave us a comment if you’re listening to this on YouTube and let us know what you thought about this, and if you’re listening to it as a podcast, leave us a review. Whether it’s iTunes, Spotify, Stitcher, wherever you listen, we would really appreciate that and we love you for it. This is David Greene for David, the data deli Meyer, signing off.
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Living paycheck to paycheck isn’t sustainable. But, if you’re in this position, you already know that. The stress of always worrying about bills, scrounging for money, and never really feeling security can eat away at you. This is how Anthony Michael felt, but surprisingly, he wasn’t making a small amount of money. He and his wife were making six figures, but only saving around $200/month. This was far less than Anthony was comfortable with, so he sat down, crunched the numbers, and started taking drastic actions.
After he was able to increase his savings rate tenfold, he knew the extra money he was bringing in needed to be deployed. He started listening to The BiggerPockets Real Estate Podcast, read Rich Dad Poor Dad, and saw that house flipping could be his way to real estate riches. He found a partner, picked an area to invest in, and since then has made flipping homes his top money-marker.
Anthony’s story didn’t always go to plan. He had house flipping budget busters that forced him to use much of his emergency savings, a “partner” who ran off with thousands of dollars, and other fumbles along the way. But, all these mistakes lead to Anthony being in the position he is in today, and maybe you can avoid some of his pricey mistakes simply by hearing his story.
Mindy:
Welcome to the Bigger Pockets Money Podcast, show number 321, where we interview Anthony Michael, and talk about an 80% savings rate, avoiding lifestyle creep, and of course, investing in real estate.
Anthony:
When you do find yourself in this position, not being over-leveraged is so, so key because I have private money investor money about 120,000 words of it. I never fall below in my savings account, less than a year of expenses in all the capital that I borrowed from my private money investors, period. So we stay relatively liquid just on the base of like, I don’t know what’s going to happen. I always think of the worst case scenario, and if you’re prepared for that, everything else is great.
Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and joining me today is the military millionaire, David Pere.
David:
Howdy, always a pleasure, Mindy.
Mindy:
David and I are here to make financial independence less scary, plus, just for somebody else, to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.
David:
Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business. We’ll help you reach your financial goals and get money out of the way so that you can launch yourself towards your dreams.
Mindy:
David, it’s so nice to see you again, and I’m super excited to talk to Anthony today. He has a very interesting story of being not so great with his finances and then hearing how you could invest in real estate and the stock market and deciding, you know what, “I want to do that and I want to invest from a position of strength. So I am going to fix my financial situation so that I can start investing in real estate,” which is kind of how this whole podcast got started in the first place. So it’s nice to see somebody who has taken the lessons that he’s learned, apply them to real life and now has a whopping 80% savings rate.
David:
Yeah, Tony’s … Anthony has done really well and he’s just a good dude and he’s been able to do this while serving in the coast guard and while, not even living in the area that he’s doing a lot of these real estate projects. So, he’s gotten to partner with people. He’s got some experience with that. He’s gotten to dabble in a bunch of different side hustles and he’s done the right move, which is to earn and come through a side hustle and then, not spend it on stuff, you shouldn’t spend it on, which unfortunately, a lot of people … I see people get sucked into driving for Uber and then, they spend the money on … from Uber on fun stuff, rather than on increasing your investment portfolio and then, you’re kind of trapped in this perpetual cycle.
Mindy:
Anthony Michael is an active duty coast guardsman, flight mechanic who saves 80% of his income. You heard me right, 80% of his income. He’s created two businesses while serving in the military and is on track to become financially free this year. Anthony, welcome to the Bigger Pockets Money Podcast. I’m so excited to talk to you today.
Anthony:
Thank you so much for having me, I appreciate the opportunity.
Mindy:
So 80% of your income that is … that’s okay. That’s a decent savings rate.
Anthony:
It’s a little bit, not much. It’s good.
Mindy:
Let’s talk about your money story. Were you always an 80% saver?
Anthony:
Absolutely not. I was a paycheck to pay checker. Starting off, my first job was Long John Silver’s which I got fired from. Went across the street to Wendy’s. Quit, then got rehired. Growing up in a small town, I didn’t really have that many expenses until I moved away to the military. I wasn’t really good at managing money from the beginning until I moved to the military into New Jersey where I had met my wife and we got married. From there, I think we were on vacation. We were actually listening to Bigger Pockets Podcast and they were talking about investing in real estate and all this other stuff.
Anthony:
I was like, “Man, this is crazy.” Light bulbs are going off like crazy. I was like, “Man, we got to get into this,” and they were talking about the money that you need and all this other stuff. I’m like, “Oh my God, we’re not even close to being in the realm of real estate investors,” if you will. So education was key at that point. So we started reading books and listening to more podcasts, and then the icing on the cake was Rich Dad, Poor dad for us.
Mindy:
Rich Dad, Poor Dad is the number one most recommended book on the original, Bigger Pockets Real Estate Podcast. I wasn’t a fan. I misunderstood the book. So I’ll just stop there, but it’s interesting that so many people are so inspired by that book. What was it about that book that made you say I just have to invest in real estate?
Anthony:
Boy. So originally I didn’t read the whole thing through. He had so many great lessons to kind of take … stuff to kind of take away from in the first 60 … I think 68 pages where I stopped reading. Basically, what I told my wife was like, “We need to get our finances in check first. We can’t invest if we don’t have any money.” I told my wife, I said, “What are we spending money on? Are we eating out? Are we buying too much stuff? Are we living above our means? Do we have car payments that we don’t need? What are we spending money on?” Because we were making a pretty decent amount of money.
Anthony:
I think my wife was making … it wasn’t the best, but it was like $48,000 a year. Then, I was making 70, which 40 of that wasn’t taxed from the military. So we were making decent money, right at a 100,000 a year and our living expenses weren’t even close to being on par with that. So we were throwing money out the window on just frivolous stuff. So we locked that in, went through … got rid of the subscription based stuff and instead of eating out, two, three times a week, we ate out once or none. We started carpooling to different places or not just not going to different places, like really lockdown mode for the first two years.
Anthony:
We went from saving around two or $300 a month to saving 2,000 a month, and that’s when the light bulb kind of kicked in for me, and I kind of went back to the book and was like, “All right, cool. We got this done now. Now, we’re saving money. What do we do with this money or how can I make more money to save to then invest or do I invest in education?” Whatever. So once we got to that point, I started looking for a little side hustle type stuff, and it kind of just fell into my lap because I had a passion for mountain biking. I was up in New Jersey. There was a bunch of amazing trails and mountain biking up there.
Anthony:
It was a huge mountain bike scene. So I started off buying a mountain bike off of Craigslist while I was in school to become an aviator, and I actually had the bike shipped to the schoolhouse and I built it up in my room with my roommate who is also in my class. I was taking pictures of it, and all of a sudden he’s like, “Dude, what are you doing with this bike?” He’s like, “You just bought a bike, you’re not going to ride?” I was like, “No, dude, I can make 400 bucks selling this.” So I built it up, took pictures, put it online, had it sold like two days later, made 400 bucks. I was like, “Okay, this is pretty cool.”
Anthony:
I told my wife at the time too, the mountain bike was $2,000 and I think we had five or six, maybe eight, I can’t remember, probably $8,000 saved. She’s like, “Babe, you’re going to take a quarter of our life savings and spend it on a freaking mountain bike. Are you kidding me?” And I was like, “Babe, trust me, trust me, please. I know what I’m doing. I got this.” So I sold the bike, put the $400 in the bank account. I said, “Hey, look at the account.” She’s like, “Where can you buy more? Let’s keep doing this.” So we ended up flipping, I think 13 bikes that year. We made like … I think we netted like $5,600, but it was an amazing side hustle for me because I could ride these crazy high end, upper echelon bikes that I never normally would buy, especially in my income bracket.
Anthony:
I can make money doing it. So that was the start of the little side hustle venture that now grew into me owning two real estate companies while active duty.
Mindy:
I love this because you didn’t look for a side hustle, you could do. You looked for things that you already knew how to do, that could generate income and that’s the kind of side hustle that’s A, going to be fun to do and not feel like a slog. You’re not going to have to force yourself to do it and B, you don’t have to learn anything. It sounds to me, you already knew how to put a mountain bike together, right?
Anthony:
Yeah, and the better part of the whole thing was not the money that I was making, but the skills that I was learning, doing it. Supply and demand, have a product that people want, and then, negotiation skills on the front and backside, where I would have to negotiate with the seller of the bike. I would target ads specifically that look like crap, like for lack of a better term, they had one sentence write up. They didn’t have a component spec sheet on the bike. They didn’t tell what kind of wear and tear it had. They had a flip phone photo of a pixelated bike on there. I knew what the bike was worth from extensive research and being on the platform that I was selling on.
Anthony:
They didn’t know what they had because they weren’t getting traffic to their ad because it looked like crap. So I would specifically target those people. They would have the bike listed for the market value of the bike. I would just negotiate my profit margin so whatever I can negotiate them down off of their current asking price is what I knew I could make. So that was another hidden skill that I learned while I was flipping mountain bikes, was negotiation tactics.
David:
I’m going to take that sound bite, and I’m just going to throw out there to the entire audience that you heard that, and you should take that and you should know when you work with a real estate agent, this is exactly why you always get professional photos. You never do cell phone photos. You always have a really detailed listing. You need buzzwords and keywords. I mean, there is a reason that people who are looking for off market deals, hunt down FSBOs and hunt down … or for sale by owners for those who don’t know. FSBOs and hunt down crappy listings where someone took a cell phone and was like click, click, click.
David:
Even a nice camera and did it without lighting, without wide angle and whatever, and one or two sentence, like, “Look at this cute house or this is a fixer upper.” We target the heck out of them because they’re not getting other attention, so they are willing to drop the price. So if you’re going to list a property or anything else you’re selling the money is in the details, you got to make it look good.
Mindy:
Absolutely, and as you’re saying this, I’m thinking the same thing, “Oh this is going to be just like real estate.” You’re making, I’m hoping … I really hope you make more than $400 on a deal in your real estate deal.
Anthony:
Yes.
Mindy:
For flipping a bike that’s … I mean, that’s really good. How long did it take you to build the bike?
Anthony:
It wasn’t even that. I got to a point where I would have them … so the crazy thing was when I asked them about the bike, I said, “Hey, do you have any other pictures that you can send me?” They had the photos. They just didn’t take the time and effort to put them up. So I would literally … here’s the crazy part. I would take their photos. I would make a new ad, as the bike is being shipped to me, I would put up all the components, make a beautiful, write up, post the pictures that they sent me and have it sold before it even got to my house. I would print a new shipping label. I’d slap it on the side of the bike and I’d send it right out.
Anthony:
The UPS driver wouldn’t leave because I would put the new label on it and just put it right back in his truck and he could scan it in from there, and I already made the profit. That was the crazy part. They did the work for me, but they didn’t do the work initially. That was the problem.
Mindy:
There you go. They didn’t do the work initially. You can make a lot of money off of somebody else’s laziness.
Anthony:
Yes. Correct.
Mindy:
Okay. So let’s talk about your … you alluded to and I alluded to, you have started two businesses while active duty. What are these two businesses?
Anthony:
So one is a real estate fix and flip company. Actually, let me pull that back. One is a real estate investing company out of Pinellas County, which includes Tampa, St. Petersburg and Clearwater, Florida. Excuse me. Then, the second one is a hard money/commercial lending company that is based nationwide.
Mindy:
A nationwide.
Anthony:
Yes.
Mindy:
Interesting. Okay, and you said the real estate investing company, is this mainly flips, is this mainly rentals?
Anthony:
So as the wise person, Jay Scott said, “You should change your real estate investing strategy due to what the market is calling for at the time.”
Mindy:
Louder for the people in the back.
Anthony:
“You should change your investing strategy for what the market calls for.” So initially yes, this started off as a fix and flip company. It still is majority fix and flip, primarily just because of the capital. It’s hard to say no on a multi six figure exit on a real estate transaction. It doesn’t really matter what kind of cash flow you have at that point, if you kept it, it would take you infinitely long to get the gains and what I can put into 10 other properties. So the ones that make sense to flip, I’m flipping. The ones that make sense to hold, I’m holding for re for rentals. Then, the one I’m starting to dabble into the Airbnb market as well now.
David:
Which in Florida, Airbnbs are generally … I mean, there’s a lot of market there for it, so that’s awesome.
Anthony:
Absolutely. Yup.
Mindy:
You just said something I thought was very interesting. “The ones that make sense to flip, I flip. The ones that make sense to hold, I hold.” So you’re not targeting … how are you finding your deals? Because it doesn’t sound like you’re targeting deals that are on the MLS and trying to figure out how they fit into your strategy.
Anthony:
No, so we’re still targeting off market and direct seller via a direct mail campaign that we have right now. We pull our data from prop stream. We send the list over to our marketing friends. They print up the mailers, they send them to my house. I send them out. I have a program and a lead capture system or simply, I don’t know if I can plug that, but … and then, there’s a team that takes my calls for me, because remember I’m still active duty, so I can’t be on a helicopter taking a call with the seller that wants to sell me their house. So they take the preliminary call intake specialists. They take all the information down in an icon and close.
Anthony:
The interesting part of that is you don’t know what you’re going to get. You can put buying characteristics in the data source and it’ll pump you out, whatever you want to buy. There’s so many different variables with real estate investing and buying somebody’s house that the price make sense to be a flip. The price may not make sense to make an offer on because they want too much, and then, you go in a reverse negotiation tactics because everyone wants Zillow or Zestimate. So we get into yeah, reversing what they think they should get for their house and telling them why they don’t deserve that.
Anthony:
Then, we allocate whatever projects that we get into the different categories of real estate investing, whether it’d be buy and hold, fix and flip, and Airbnbs.
Mindy:
Okay. You just said, “The ones that make sense to flip, I flip.” What makes sense to flip for you and how do you tell the difference between flipping and holding and all the other things that you’re doing?
Anthony:
It’s all a numbers game for us. If the numbers work, they work. So our flipping criteria is based on us making $60,000 net. That’s enough margin for us to be able to work with the sways in the market or any kind of inspection criteria that might come up, that they want to negotiate off of, but we like to net the $60,000. Anything under that, we look to wholesale or keep as a rental, if the numbers make sense. Obviously, the zip code in the area that the property resides into plays a factor in whether or not we hold or flip as well.
Mindy:
So what kind of work are you doing to make $60,000 net?
Anthony:
Some of them … believe it or not, it just depends on the property obviously, but some of them are lipsticks. So I like calling lipsticks. You go in there, paint carpet, clean up the place, make it nice. You don’t have to bring it all the way up to current market readiness. It’s kind of stuck in between the middle age of like the early 2000s, which people still buy. Because a lot of people want to put their own personal touch if they can get a discount off of the normal market value of something. So if we stand to net what we want in the beginning and we don’t have to put a ton of work into it, then we’ll just do that.
Anthony:
Others are … Mind you, those are very few and far between. The majority of the properties are full guts. So down on the studs, rewiring the house, because the majority of the houses that we target in St. Petersburg and Clearwater were built before 1970, which is when Romex Wiring came out and cloth wiring is something that insurance companies no longer want to insure. So we have to change out the wiring, which means we have to go to the studs for that. Yeah, basic full renos, 60 to $80,000 is what we normally see as a renovation budget.
David:
What’s your average … if you’re netting 60, your average purchase price, is that 60 on $100,000 home or is that 60 on like a three million dollar home? Because that plays a difference in how much money that actually is.
Anthony:
Yeah. Great question, Dave. I don’t go above … I try to stay right at the national average for home pricing. I believe it’s in the 400s now, which is kind of crazy. Maybe I’m wrong. Maybe that’s Florida average, but we like to stay median home value for the market that we’re operating in. So it’s usually 60 on anywhere between an 80K purchase price and a 200K purchase price. We don’t really typically go over those amounts. The majority of the properties that we have in the pipe now are anywhere from an 80K purchase to a $200,000 purchase.
David:
I’m just going to just stop and derail because I Googled and holy crap, you’re right. Yeah, according to the May 10th … this is May 10th, 2022, statista.com, according to St. Louis fed, median prices for US homes rose from approximately 323 at the beginning of the pandemic to around 429,000 in Q1 of 2022.
Anthony:
Yeah, wow, that’s right, which makes our buying pool a lot bigger now, which is great.
Mindy:
So I like that you’re looking for properties that have a bigger spread, minimum of $60,000 net for your profit. The reason I bring this up is because I saw a post, I can’t even remember what group it was in, where somebody posted their numbers and they were projecting to make approximately $30,000 and their friends were telling them, “Oh, I wouldn’t do that. I wouldn’t touch that.” And they’re like, “Who turns down $30,000.” I’m thinking to myself, well on the surface for somebody who is newer to investing $30,000 seems great because you’re doing a month’s worth of work.
Mindy:
Well, that month is going to turn into three, at least if you’re a new flipper or six or 12, because flipping is not like the shows on TV. God, that makes me so angry.
Anthony:
Things do go wrong.
Mindy:
Things will go wrong. Can about it. Things will go wrong because drywall is not see through. As soon as you pull down the drywall, you’re like, “Oh, I didn’t realize it had knob and tube wiring or that’s where the smell is coming from. The sewer pipe is broken in the wall or the pipes are broken and now, I’ve got way more stuff to do.” There’s always something that’s unexpected that pops up during the flip. So you’re $30,000 with one unexpected, $10,000 expense, now you’re making $20,000, and instead of flipping it in a month, you’re flipping it in three months, if you are extremely lucky and your $5,000 a month in holding costs just ate up another $10,000. Now, it’s been sitting on the market because you listed it at 320, but it’s actually more like a 310 property and nobody is buying it.
Mindy:
So you have to reduce your price to 310, you break even before you’ve even done anything. We haven’t had our home inspection yet. Maybe there’s something wrong with the roof that you were really kind of hoping would be okay, and a month ago or three months ago, if you tried to sell it, that would be fine. Now, the market has changed so much, even just in a couple of months that people are now asking for inspection concessions and getting them because they’ll walk, if they don’t. They’re not bidding with 57 other people on your house. So the market can change in a heartbeat and you can have completely different marketing conditions than when you initially bought it and your ARV needs to be super conservative and your rehab cost needs to be super extravagant.
Mindy:
I think it’s going to cost 10,000 wealth, then budget 20. If you can’t make money with a $20,000 flip or rehab budget, then you’re not going to do it in 10 either.
Anthony:
I’m so happy you brought up that 10% contingency because I also have a hard money lending company, and the majority of the errors that we see from our people coming to us is they neglect that cushion in their rehab budget. Then, they have to come out of their personal capital for any expenditures above and beyond what the rehab budget was set to. I had this mistake early on in my career, on my first flip where we budgeted 25, it ended up being 37, and I had to come out of pocket as the business partner on the deal and extra $7,000 to dig up the foundation of the front of the home. This is in New Jersey, by the way. The crawl space was leaking, we had a snow. The snow was melting.
Anthony:
The water went through the foundation into the crawl space and was leaking literal like two inches of water in a place where the gas heater was. So that was a $7,000 expense that we didn’t foresee happening. Had we added that to the budget as an old crap expense, I wouldn’t have had to come out of my pocket, my personal capital, which was scary at the time, because I only had, I think, 15 grand to my name because I gave 15 grand for the gap funding for the loan. If you don’t know what gap funding is, it means you’re basically putting the down payment of the property for the loan 20%, 15%, 10%, depending on how many deals you have done. So I was already out $15,000 and we only had so much to work with and then, we had to come out of pocket another seven.
Anthony:
That’s scary. That’s very scary. So I wouldn’t want to be in that position. You ain’t going to pay an excavator to come dig up the front of your house with a credit card. I’m sorry that doesn’t happen.
Mindy:
If you’ve had a really long relationship with them, you might be able to pay them at closing, but even then, you have to have a really good relationship with them. You can’t just call up somebody, and I was going to say out of the phone book.
Anthony:
No phone books exist anymore.
Mindy:
Showing my age like always, but you can’t just call up somebody and say, “Hey, can you come do this, work on my house and by the way, I’ll pay you when I sell it,” they’re going to be like click. “Hello. Hello. Hello.” Yeah. So, no, I love that because you have to build that in and if you’re new, you should build in a 15 or even 20% cushion because if you don’t use it, you don’t have to pay anybody that money. It’s just there in case you need it, and I think another … Murphy’s law … Mindy’s law of flips and investment properties in general is something will break as soon as you close on the house. And if you’re planning a gut rehab, it’s not such a big deal, but if you are planning a rental property, something is going to break as soon as you close. And the cost of that repair is inversely proportionate to how much money you have in the bank.
Mindy:
That is a true statement, ask anybody who has ever bought a rental property with no money. And they’re like, “Oh, the next day the air conditioner broke or the furnace or whatever.” It was a huge expense because they didn’t have any money to cover it.
Anthony:
Yup.
Mindy:
Sorry I could go on these diatypes forever.
Anthony:
Yeah, no worries. It’s a good point though. It really is.
Mindy:
Okay. So let’s say that you have just bought a house in the last month or so, and you’re in the process of rehabbing it and maybe the market flips because the fed raises the interest rates by a half percent and people freak out. What do you do with your flip if you can’t sell it?
Anthony:
So I’m glad you brought this up because another rookie mistake is just thinking of one exit. The deal has to make sense on a multiple exit base. For me, it has to at least cash flow, $300 net, that’s after capital expenditures, as a rental for my all in costs and then a cash out of 75% LTB. If it doesn’t do that, then it fails that one portion, but it may make up for that portion in another way or the risk in another way for the profit made on the flip side. So if I’m going to make $150,000 net on a flip, it’s really hard for a market to swing that much in a one direction for me to go negative. So if it doesn’t play in the cash flow category, but it plays in the net income category for the flip side, then it’s still a deal for me, but I am still looking at each project as a multiple exit type project.
Anthony:
So for instance, the one that we have now, it’s a BUR-BNB. It was initially going to be a flip, which we were going to make 130,000-ish dollars on. Well, it makes 170,000 gross as an Airbnb, according to AirDNA. So even if it made half of that, half of my net income from the flip is made up in Airbnb cashflow after the first year, I’m going to keep it as an Airbnb and not flip it.
David:
So, all right, you’re doing all this. You’ve said you’ve got like seven projects going on right now and correct me if I’m wrong, but you don’t actually live in Clearwater, right?
Anthony:
I do not.
David:
I mean, you’re too far away, but a few hours.
Anthony:
Yeah.
David:
How in the world are you managing seven projects remotely while active duty, and I ask that with the underlying question, being the excuse that most people make for themselves, which is that they don’t have time to do X, Y, Z. So I’m curious how you’re building a team, how you’re managing those projects and how you’re finding set time.
Anthony:
Yeah. Great question. This originally started back in 2019 when I was … I wanted in, I had just done my first flip in New Jersey. This is going to be a little long winded, but there’s context here. We had just done my first flip in New Jersey and we were trying to find another property, but there wasn’t really anything that fit our criteria up there. So I started looking south because I’m from Florida originally. I got on Facebook one day and I typed in Florida real estate investors group or whatever. Then, I found Pinellas County Real Estate Investors Group. So I got in and one of the first posts that I saw while I was at work was, “Looking for private money investors for my fix and flip company. I’ve done over 400 flips,” and whatever.
Anthony:
This guy was posting this. I’m like, “Oh my God.” So I reached out and I was like, “Hey man, I got 50 grand. This is after we sold our first flip and we had some actual money.” He’s like, “Oh, I can’t take an investor under two 50. You need to have 250 minimum. Text me when you have 250.” And I’m like, “Man, that’s going to freaking me forever.” Especially if I can’t flip now, because I don’t think I was doing hard money at this point. So two weeks went by, I message him back, and I said, “Hey, I don’t have 250,000,” and it’s going to take me a long time to get there, but we could borrow hard money. He’s like, “Okay, I’ve never done that before, but let’s do that.” Because he buys all his stuff cash, he’s old school, right?
Anthony:
He doesn’t like leverage or whatever. So long story short, I ended up partnering with this gentleman who is now my business partner. We’ve done 19 transactions together in the last three years. Basically, our partnership structure is I bring the capital to close the property, i.e. the down payment and the hard money and then, I manage the renovation expenses on my credit cards, throughout the entire process. We both find the property. He manages the flipping portion or renovation portion of the property, and then, we share profits on the exit. That’s the partnership that we have. He already had an established relationship within the county and he already has all his subs and everything figured out ready to go.
Anthony:
We’re ready to pounce. When we find a property we’re in that … day after closing, we’re in, we’re already demoing. So instead of building that entire team out from New Jersey, I basically stepped into it for a partnership. I had something that he wanted, which was more money to expand his flipping company. Then, he had something that I wanted, which was making money off of flipping properties. So that’s my current partnership with my business partner. He handles the renovation aspect. We both find the property and I handle and manage all the expenses.
Mindy:
That’s awesome, and that’s nice that you were able to find somebody who brought what you weren’t bringing to the table, and he was able to find somebody who brought what he wasn’t able to bring to the table. I think that’s where some people kind of get a little hung up. Let’s say David and I both have money. Hey, let’s partner. “Well, great. Now we’ve pooled together two piles of money with nothing to put it towards.” You don’t partner with somebody who does the same thing as you. You partner with somebody who can bring what you can’t. So David has the deals, I have the money. Now, we have a partnership.
Anthony:
Yep, and I’m kind of his go-to guy now because him and I talk on a daily basis and he doesn’t have time, like I do … well, not so much anymore, but I have more time in him. He’s managing, I think he’s flipping 30 properties, seven of mine with him and then, 23 others with other investors. So he’s kind of skimped on time. So he’ll throw me a property and say, “Hey, what do you think about this deal?” I’ll analyze the deal for him, because he doesn’t have time. He trust and understand that I know the market now, and then, I shoot him back an answer, “Hey, that’s a deal or it’s not a deal?” And whether I want in or I don’t. So that’s kind of the relationship that we’ve we developed now.
David:
Yeah. So I remembered what I was going to ask. So you mentioned that you manage renovations on credit card and we had talked prior to the show about some of the stuff you do with credit cards and points and understanding how to use credit cards as a tool and credit cards are admittedly a tool, but they are something that a lot of people do not like using. I know for a fact that my wife does not like when I utilize our credit cards and I know that there are a lot of people who probably cringed when they heard you mention that you are doing renovations with a credit card. So I’m curious both why and how, because I would imagine that if you’ve made a couple six figure exits, you could use cash, so why would you still want to use a credit card?
Anthony:
Great question, and there’s a lot of answers to that. So the major reason why I use credit cards is I don’t like being out of my own pocket, because the majority of the deals that I have … actually, all of the deals that I have right now are funded via hard money. Hard money gives you something called draws. You have a scope of work. You finish a kitchen. It’s $5,000. The inspector comes in. They look at the kitchen, it’s done. They give you the $5,000 in a wire form. Then you wipe off the credit card, which have the $5,000 in material costs on it. I’m using these credit cards to essentially build points and build cash back up for my own personal expenses as far as like vacations are concerned or the majority of that is upgrading my own house.
Anthony:
It’s free money, and the second part of that is why not? Why would you use your … What’s the benefit of you using your personal capital, you’re putting it at risk, when you don’t have to put it at risk. The lender is paying you for the rehab. So that’s basically the major reason. For me, transaction wise, it’s a lot easier to break down at the end of the year when we’re doing taxes and stuff too, is there’s subcategories in all my credit card formats that I can log in and say, “Okay, miscellaneous,” which is basically building materials and then, we have food and labor and everything that I can type in and search certain names of transactions that I know came up and those are expenses as well. In my business partner, I pay him labor for his company off of my credit card.
Anthony:
He uses a … I think it’s called a swipe or something that you put on your cellphone and you can just run the number or whatever. It’s through QuickBooks, and it’s like a percent and a half transaction fee, but that gets paid with the hard money loan or the rehab costs back to us. So it’s not even really a fee for us and it helps us keep everything organized as well.
Mindy:
I want to point out, you said it’s free money. It is free money if you pay off your card every month, and if you use it responsibly, and this is something that you have to look at yourself and look at your past history. If you have a past history of being very irresponsible with credit cards, then find another way to fund your rehabs. If you have a past history of being very responsible with credit cards, then this can be a really viable option. I do this. I’m about to buy a house tomorrow and we are looking for, what’s the best card for us? What has the most points? Because we are going to be buying a lot of things and why pay cash or put them on a regular credit card when you can open up a new card that has … most card credit cards now have a sign up bonus where if you open the card, you spend X number of dollars in X number of months.
Mindy:
It’s really common to have to spend $3,000 in three months. Then, you get bonus points, you get 80,000 points for hotels or airfare or whatever. I’m going to be spending a lot more than $3,000. I can certainly do it in the first three months, as soon as I start buying an entire kitchen. Even if I go to Ikea, that’s a $7,000 kitchen that I’m going to be dropping. So maybe I’ll split it up on two cards and get two sets of bonuses. Why pay $7,000, I’m going to pay $7,000 anyway, why not get benefits out of that? Again, I have a history of using credit cards responsibly.
Anthony:
Yeah, and here’s the other thing too, if you can’t take this lightly, but if you can’t manage credit cards and use those correctly, I wouldn’t ask for other people’s money to then go into your investments and then you mismanage their money and now, you owe a physical person something. For me, taking private capital into my company, which I do … the majority of my deals are private capital based now for the gap funding and then, I get hard money cheap, because I’m a lender. I get it cheap, and then, I fund the rest of the deal with that. I wasn’t comfortable with taking people’s money until I had four or five deals under my belt, and I had the systems worked out and I had the processes in place. I knew that this was going to be a good partnership with good exits.
Anthony:
I found that we could make money. That’s when I started taking private capital in, but I still use credit cards too, because if I can borrow the 10,000 from a credit card, I’d rather borrow it from a credit card than from somebody’s personal capital. So that’s just the way I operate. So if you can’t manage credit cards properly, then don’t ask for other people’s money to spend on your projects either.
Mindy:
That is an excellent point. I’m glad you made that right, I mean, this is still somebody else’s money. It’s just the credit card company’s money and who cares, which is a terrible way to think about it. Okay. So you have seven properties going. You said that five of them are flips. One of them is a rental and one is a BUR-BNB.
Anthony:
BUR-BNB.
Mindy:
I love all the different ways that we collaborate with all of these. So the BUR-BNB is going to give you just … it comes with its own cash printing machine, it sounds like.
Anthony:
It is insane, and I think we found a little … I’ll touch on this just real quick, because I think this is pretty interesting. I get my data from AirDNA and us, adding a fifth bedroom to our Airbnb through our nightly projected rate, double. I made it double because now it’s considered a double family rental because it has the capacity to sleep 14 people and now, it can be … Now, you can monetize the nightly rate at a higher amount, because it’s considered two families paying for the one night together. I didn’t know this, but I’ve heard of this in other real estate investors that I’ve talked to with Airbnbs, they’re doing that.
Mindy:
I think it is very interesting. These larger properties that are on Airbnb. So I have a huge family and we had a family reunion a few years ago that we rented a house that sleeps 60, and I didn’t even know that these houses existed. Why would you have a house that sleeps 60 and you get into this house and there are just bedrooms, everywhere and beds everywhere, and we squeezed in there. We have a big … it’s a big family, but they have a wait list and they are rented every minute that they can be open. When we started looking for our next venue, we found it very hard to find these large properties, and when we did find them, we had … “Wow, there’s two weekends in the whole summer that are available for us.” Everything is all booked up.
Mindy:
On the outset, it seems like … one of the mantras of real estate investing is you don’t buy weird properties because weird is a five letter word. Unique is a … I’m sorry.
Anthony:
We get weird sometimes.
Mindy:
Weird is a five letter word, but in this case, weird is a four letter word. Unique is a four letter word you want normal. You don’t want to like wait for that one special person who could possibly want to live in your adobe mud hut. You want a bunch of people who want your property. So a five bedroom house is starting to get into the weird space and six and above, those are weird houses, especially if they don’t have a lot of bathrooms. This is interesting that having a five bedroom house now allows you to rent for significantly more.
Anthony:
It essentially doubled our gross profit margin.
Mindy:
Doubled,
Mindy:
.By adding a bedroom.
Anthony:
I didn’t believe it, but then I did my market research based off of what Airbnb listings had available and every place that slept 12 or more had a nightly rate and was booked at six to 800 a night, throughout the entire summer. I’m like, I told my business partner, I said, “We need to add a bedroom ASAP. I don’t care …” for the listeners, please don’t do this, but we put a non-coded bedroom, just framed out a part of a huge area and framed a bedroom in, a seven by 10 bedroom and put another bed there because it’s head sleeping. Now, I can list that property for 14 people instead of the 10 or 12 that we could get before in our nightly rate doubled.
David:
Yeah, so my office, where I’m at right now, it’s like a two one, but the upstairs is a four, two and a half that I Airbnb and it’s a four, two and a half that also has two pullout couches, so it’s 12 people. What’s interesting to me is not only did it significantly increase the amount that I could charge, because families are wanting to come in to entertain or gather or whatever, but it also opened up the door to where I’ll get crews of three or four guys who are in town, on a project, and they all want their own room, because they’re all adults, but it’s so much cheaper for the company to put them up in my Airbnb than to put them up in four hotel rooms or even two hotel rooms.
David:
So, I have found that I get … the weekend bookings I’ll get like a … it’s very common that it’s like Friday, Saturday, Sunday. Someone checks out Monday and then, I get Monday through Friday and it’s two completely different subsets of people, but it’s all opened up by having extra bedrooms.
Anthony:
Yeah, absolutely, and then, you add the amenities to it. So we’re five minutes from the ocean, Clearwater beach and then, we have a huge pool in the backyard as well as we’re a corner lot, so you have a bigger lot, so there’s a bunch of amenities that we’re going to offer in the backyard and all this other stuff. So really make it like a family type place, because there is a lot of places there that are only one bedroom, you can’t fit a family in that. So we’re really targeting that family market, which I hope pays off for us.
Mindy:
Well, That’s awesome. Here’s a tip, put in a big coffee pot or multiple coffee pots in that house, that flip 60 and we’re a very coffee drinking family, one coffee pot, one 12 cup coffee pot. We had to go to town and buy two more just to keep up with it.
David:
I now have a Keurig and a pot because I had the epiphany really. So, I had a Keurig and I was like, Keurig is awesome. I’ve got 400K cups. This is great. People will love it, and then somebody was like, “Hey, there’s 12 of us that drink coffee and making 12 cake cups in the morning is kind of a pain in the butt, and I was, “You know, that’s really good feedback.” So I now have a Keurig and a pot that sit right next to each other and I have bulk grinds and bulk cake cups and everybody loves it. So, for 100 bucks it cost to buy a decent pot and some coffee, one night stay, more than pays for that. So I’ll take it.
Anthony:
Yup and pays for itself.
Mindy:
Yup. Go with your family and bring another family and stay there together and see, “Oh, one refrigerator isn’t enough.” Then get two or this ice maker isn’t going to be enough then think about that, but yeah, this house had two ovens, which was nice and two refrigerators, which was not close to enough. They did not have enough dishes for 60 people. Well, then don’t advertise that … they had enough seating for 60 people, but they didn’t have enough dishes for 60 people. Then, it was up in the smokey mountains and it burned down with that big fire. So it doesn’t matter anymore. Yeah, those big properties are really … like I don’t want to go on vacation in a five bedroom house, but that is … I can see how that would be really, really valuable. You just have to think outside of your own personal norms.
Anthony:
When we talk about multiple exits too, so going back into that, the property has 130,000 in equity in it when we’re done. So, it could be a flip, quote unquote. Also, we projected half, when we initially write the numbers on a property to keep it as an Airbnb, we only had it at a four bedroom. It was going to gross like 75,000 a year. We were going to make like 40 grand and some change, after all expenses. That’s an amazing property. I’ll take that any day of the week. So even if we’re on the lower spectrum of what the property could do, it still makes sense for us to keep it. So anything above that is extra.
Mindy:
I love that.
David:
All right, Tony. So here’s the question of the hour, when we first started, we were talking about you, saving 80% of your income. You had this massive savings gap to get started. You’re obviously making a lot more money now. So one would think like, “Oh wow, if he was saving 80% of 100 grand, then surely he’s saving 10 times more money now that he’s making whatever.” The question is. How have you … have you noticed the lifestyle creep? How have you had to deal with that? Do you think it’s still 80% or has that maybe backed off a bit, but you’re still saving more money, how does that kind of waiver as you grow?
Anthony:
Yeah. I mean, great question. So the 80% isn’t a median calculation, I guess you could say, because some months we sell a property, the next month we don’t sell a property, but over the course of a year, it works itself out to about 80%. Some months are 90%, some months are 60%. With the influx of money, my wife and I still act like we’re broke. We still question whether or not we should go out to eat or hey, do we need this? We still buy at Marshals and look for sales. I don’t buy, name brand stuff. I drive my 2014 paid off truck. My wife was going to get a new Mercedes SUV and we have equity … believe it or not, we have equity in her Grand Cherokee that she has.
Anthony:
So she’s keeping that because the market value is insane. I think she owes 27 on it and it’s worth almost 40. So we decided against that, because that would’ve added another $1,100 a month payment to us. It just doesn’t make sense, because I don’t want to say fear is the driver, but really your income sources can go away, depending on what the market does. I mean, it would have to be a rainy day, but I act like my income sources can disappear. We still haven’t increased our living expenses above and beyond, before I got into real estate. I would be living the same lifestyle now, if I was just working for the coast guard and my wife was just working as an administrator at a school minus the real estate income.
Anthony:
Now, the one thing I will splurge on is experiences in creating memories. I know that sounds cliche, but that really is ultimately, what my driver and what a part of my why is, as to why I’m doing this. It’s to create time, to spend time with family, travel and make life experiences happen. I did buy a boat, cash because nobody would finance me, which is pretty dang crazy. So I ended up buying the boat, cash, but the boat provided value to me because, my … getting out of jail free card is basically me taking time for myself because we can all get wrapped up in our side hustles and go, go, go, go, go and burnout is a real thing, especially when you have a W-2 and you’re running all this different stuff, and the majority of what I do is sales base, so it takes a lot out of you to have these phone calls and locking these deals.
Anthony:
Commit that brain power to articulated conversations that have to happen. So the boat for me was my getaway, like, “Hey, we can take out the boat and just have the day to ourselves.” We don’t have to think about anything. We’re out on the water. Nobody is going to bother us, but what I didn’t see and what I didn’t know, when I first bought the boat was the opportunity and value it provided other people that don’t have a boat or have the opportunity to get away. So now, I’ve provided value to other people i.e or friends that can come out with us and making an experience. That’s the only thing I’ve really splurge on.
David:
And the Corvette I told you, I was going to call you out on-
Anthony:
That was a dumb move though.
David:
You sold it, so it worked out in the end.
Anthony:
That $1,200 a monthly car payment was not fun.
Mindy:
You didn’t pay cash for it. Okay. I was about to stick up for you and say, look, you’re generating income over and well over and above what you need. It’s okay to buy something that makes you happy, even if there’s no financial benefit behind it.
Anthony:
Yeah. So I sold the Corvette and bought the boat. That’s what I did.
Mindy:
If you like the Corvette, if it makes you happy to drive, you can keep it, but if you decide that it’s better to have a boat, then go that route.
Anthony:
Yeah.
Mindy:
When you say you save 80%, what does that mean? Where do you put this money? Are you just reinvesting it back into real estate? Are you taking advantage of tax deferred accounts? Are you … after tax, brokerage accounts, do you do anything in the stock market?
Anthony:
What’s crazy to me is the course at what my companies are growing over the last, I would say year and a half, I never really had to think about tax sheltering, because we didn’t make an opulent amount of money to have to worry about doing stuff like that. I think my last year’s tax bill was like 3,400 bucks, that’s what I had to pay out. This year is like multi five figures. So now, I have to figure out where to put money. So yes, those are coming, syndications, our IRAs, wherever I can … I actually have a strategy called my CPA tonight to talk about where we’re allocating funds to this year, to get rid of this stuff.
Mindy:
Do you have full-time employees or part-time employees or any employees?
Anthony:
So I’ve been pretty lucky. My business partner, he knows the full-time subs and stuff that work for the company. So they’re not my personal employees because he has his own fix and flip company that they’re branded under. I guess my company really doesn’t have employees, if you will, because they’re subbed under him. Then, we have all those workers sign hold harmless anyways, before they come work for us on the properties, and I got a liability policy on my LLC and all that is taken care of. I don’t personally have employees but what I do have is strategic partners in the spaces that I need them. So on my hard money side, I don’t do the handling of document collecting. My partner handles that.
Anthony:
So basically I’m the sales guy. I collect the lead, I convert the lead. I get the application submitted and then I swipe right, and it goes to my partner and he takes care of the rest of the stuff and then, I get paid out and that happens the same way on the transactional side for the fix and flip company. I hand the transaction. Once the transaction is closed, he steps in and does the quote unquote, dirty work.
Mindy:
Okay. I asked if you had employees for tax purposes, because-
Anthony:
My wife is an employee of the company.
Mindy:
Okay. She doesn’t count, which is the best part of this. Okay. So I want you … this is a research opportunity. I want you to talk to your CPA tonight about a self-directed solo 401k.
Anthony:
Perfect. That’s actually literally on my sticky note, that’s on my monitor.
Mindy:
Good, yeah.
Anthony:
Yes.
Mindy:
Okay. Not a self-directed IRA, and if your CPA cannot tell the difference or cannot explain to you the difference, then you shouldn’t hire them. The difference short term is that your self-directed solo 401k does not have unrelated business income tax. So when you are investing within your self-directed solo 401k, you don’t have to pay this tax. Anything you invest in is just an investment. So let’s say you bought low and sold high and bought something else, that growth just gains in your account, whereas with the self-directed IRA, you may be required to pay taxes on some of those gains. I don’t have a self-directed IRA on purpose. So I never really dove into what the differences are.
Mindy:
I just know that if you have self-employment income with no other employees, other than your spouse, no full-time employees other than your spouse, the self-directed IRA … I’m sorry, the self-directed solo 401k is a fantastic option because you can put in the … you can make your personal contributions. The limit is 20,500 for 2022 and then, your company can match your salary up to 25% with a cap at I think, $54,000.
Anthony:
Okay.
Mindy:
So you could have $54,000 in your retirement account every single year, and I believe if your wife is an employee of this company, she can do the same thing. So that’s … do the math really quick, $108,000 that you can put in there, and it’s not all tax sheltered, but think of it this way. So you made $20,000 because your company had to pay that to you, so you could contribute it to your 401k. Now, that 20,000 is your salary, 25% of that automatically can go in. So 25,000, I think just automatically based on your initial contributions. Then, you can start thinking of other things. So this is super oversimplified just to introduce it to you, so you can then talk to your CPA and they can be like, “Well, she’s sort of right, but she’s sort of wrong. Here’s the real-”
Anthony:
No, I appreciate that. That’s awesome.
Mindy:
Yes, since you’re already talking to them, talk to them about that. Talk to them about the … are you qualify to contribute to a Roth IRA? There are income limits to contribute to a Roth. IRA, contributing to your 401k, reduces your taxable income, and therefore you can make more and still contribute to your Roth IRA.
Anthony:
Got you.
Mindy:
Roth IRA grows tax free. So when you pull money out afterwards, you’re not paying taxes on it. You already paid taxes when you put it in. So that’s not really a tax savings now, but that’s a growth strategy for the future. So talk to them about that, but again, you have to make … I think it’s under 140 combined annual income, so I’m not sure … you might not be able to qualify.
Anthony:
I don’t think I’m going to qualify for that one.
Mindy:
Well, I mean, in that itself is a good problem to have, right?
Anthony:
Yeah. Yup.
David:
It’s like the conversation I had with someone the other day who I will leave nameless for the recording, but they’re at like the … they’re desperately trying to stay below the five million dollar net worth bubble because of the tax implications of when you pass away, and he’s like, I’m spending money that I’ve never spent before and the market is not helping me. It’s still going up. It’s like, yeah, but realistically, if you’ve got to pay tax because you broached five million dollars, there are worse problems out there. If you’re not able to contribute to this deal because you’re making a quarter million dollars a year, you could be in a worse spot.
Anthony:
Yeah, exactly.
Mindy:
Okay. I think this has been a really fun episode. We’ve kind of focused on real estate, which is still my favorite thing, and it’s hard to get me to stop talking about it. I really appreciate the ideas that you have. They reinforce what I keep preaching. Know your numbers, be conservative. Don’t just jump in on a deal that’s going to give you a really low potential payout because there’s so many ways that that deal can go sideways. You have multiple six figure payouts on these flips, and I think that that’s fantastic. I can’t really tell you the … change what you’re doing, because you’re doing such a great job.
Anthony:
One more thing, real quick I’d like to touch on is when you do find yourself in this position, not being over-leveraged is so, so key because I have private money investor money, about 120,000 worth of it. I never fall below in my savings account, less than a year of expenses in all the capital that I borrowed from my private money investors, period. So we stay relatively liquid just on the base of like, I don’t know what’s going to happen. I always think of the worst case scenario, and if you’re prepared for that, everything else is gravy.
Mindy:
I love that.
David:
Yes.
Mindy:
I love that. That I want to … I just want to say those words to everybody who is like, “Well, if it’s sitting there saving and it’s not working for me that I’m losing money.” No, you’re gaining peace of mind. You’re gaining the ability to pay back your investors even if something catastrophic happens. Now, if something catastrophic happens at one property, it’s probably not going to happen to all the properties. Even if it does, you are covered, and that is what investing is all about, you make smart, safe decisions. You don’t leverage yourself to the hilt and then, just hope that everything works out. I can’t imagine how it must have felt to the people that … right when COVID shut down America in March of 2020, people were on the Bigger Pockets forum saying, “How am I going to pay my April rent?”
Mindy:
You should have already had that in the bank, along with May and June and probably even July. What do you mean? How are you going to pay April rent? It’s March-
Anthony:
Yeah. That’s why establishing those core financial principles in your house first in your personal finances first, then you can start setting. You shouldn’t be investing if you don’t have a net stakes at all.
David:
So I give the opposite side of the coin here because while I agree, wholeheartedly, I didn’t have anything when I was starting. So, while I’m now transitioning more to paying off any debt and planning to pay off the primary residents … not the actual investments, but the primary for peace of mind and being much more conservative and having more in liquid, and I have those emergency funds and everything else. While growing, I didn’t have that option because it was like, “Well, I could either save for the next 10 years and have this money or I could start making things happen and have to find a way to kind of do both.” So what I did was I … the one thing I’d done right, was I’d invested in my TSP, my 401k.
David:
So I’ve just kind of always known like, “Hey, if everything else fails, I can pay a 10% penalty tax and that’ll bail me out,” which is not necessarily the right way to do it, but I’ve also never had to touch it.
Anthony:
I have one of those.
David:
So, the idea that it’s only liquid, if it’s in savings, the savings is a great peace of mind, but there’s nothing stopping you from putting some of that into an index fund and being able to tap into it or putting some of that into CDs and rolling. There are ways to combat inflation and still have money if things go wrong. So, it doesn’t have to be either or, it can be a win-win.
Anthony:
Yeah, no, I love it and my mindset on the whole thing is if I can use other people’s money to make 100% returns for my company, then that seven or 8% inflation loss that I had in my bank account is negligible based on the fact that I had 100% ROI turnout. So that’s how I think of it.
David:
Yeah. Absolutely.
Anthony:
Those are all great points.
Mindy:
Okay. I think we have reached the point in our show where it is time for the famous four. Anthony, are you ready?
Anthony:
I am ready.
Mindy:
Okay. What is your favorite finance book?
Anthony:
I think we got to hit it off with the old Robert Kiyosaki, Rich Dad, Poor Dad. I really do think it is the foundation of what I built upon. That and Bigger Pockets, but Bigger Pockets isn’t a book, I guess. They have books, but the podcast and stuff is what helped me obtain that mindset of like, “Hey, let’s jump in. Let’s get our feet wet. No more …” were you saying the sidelines … Over analyzing or-
Mindy:
Analysis paralysis.
Anthony:
Yeah, that’s what it is. Analysis paralysis. So it helped me combat that pretty good too, but yeah, I’d have to say Rich Dad, Poor Dad.
David:
That’s a good one. All right. What was your biggest money mistake?
Anthony:
Legal protection. So I think this was my second deal. I’ll keep this very brief. I was supposed to be partnering with an individual I met from Craigslist. Don’t go to Craigslist to find your business partners, ladies and gentlemen, please. I went to Craigslist. I contacted this quote unquote, real estate investor. He was selling a duplex on a Delaware River that was supposed to be cash only or whatever. I ran my numbers. It didn’t come out right? So he’s like, “Oh, don’t worry about it. I have another opportunity, you can invest with me.” He had a lease to buy option that we were getting ready to do in North Carolina. Whether or not this property ever existed. I’m not sure, but he drove from Maryland to DC or North Carolina to Washington DC to meet me on deployment.
Anthony:
We talked in a burger cafe for about an hour and a half. I thought I had vetted this guy as much as I knew how. Mind you, it was only my second deal in. So I was still a really new investor, I didn’t know a lot of stuff. This guy was the … he’s probably the best salesman I’ve ever … the way he structured everything in the conversation, I gave him $6,000, as soon as I got back to my room. I wired it to his checking account via picture of a check that he gave me. I didn’t even have a promissory note in place. I told him to send me the promissory note. He sent it to me. I didn’t have it looked at by a lawyer. I lost six grand, and that was a hit. Six grand is still a hit.
Mindy:
Six grand is six grand.
Anthony:
Yeah. So my business partner lost a million dollars in ’08. He told me, “You are the luckiest real estate investor for learning that mistake early in your investing game, because it is just $6,000 and not $600,000.” I went to the school of hard knocks for six grand.
David:
Yeah. That brings up a really interesting point and a conundrum that I see with a lot of flippers. So this is actually an Alex Feliz point. I’ll give them the credit, even though it’s Alex, so I probably shouldn’t give them anything. A lot of flippers, they do their first flip and they lose money and they get super disheartened, myself included. I lost 30 grand on my first flip. That is a loss that pays off so well because unfortunately, what I see a lot of times … and this doesn’t get talked about as much, is the person who wins on their first one, whether it’s because the market bailed them out or whatever. Then, they get cocky and they will lose so much more money in some deal down the road because they overlook whatever than the guy who got burned on the first one and lost some money and is now cautious.
David:
So not that you want to lose money, but your business partner is right. A $6,000 hit on deal number two, where you’re like, “Oh crap, I need to figure that out.” That is so much better than what could happen, if you hadn’t learned that lesson and someone came in and robbed you down the road.
Anthony:
The worst part is it wasn’t the six grand that was lost. It was the time … this had happened over the course of seven months. I didn’t have enough money to make another real estate transaction, and I had found others. I waited seven months to the date … I was already pre-celebrating with my wife in Clearwater. We were on the beach having a freaking glass of wine. We had some bang, bang shrimp or whatever, and I’m like, “All right, the wire is going to hit anytime now.” And I kept texting this guy. He never answered me back, and finally, I called the lawyer and he’s like, “What are you talking about? We don’t have this property to close today.” We didn’t even have this property in our system.
Anthony:
I’m like, “Oh man. Babe, I’m sorry, but we just lost six grand.” And it was hard because I wanted to be … I wanted that to work for me because that was my button that I could press for my wife to trust me, going further into future investments. When you lose six grand and you only have 18 in the bank, it’s a big hit. Yeah. Protect yourself legally. That is the moral of the story and don’t get your business … I can’t even say anything, because I got my business partner off of Facebook, but it worked out for me. It might not work out for you.
Mindy:
I hope he stubs his toe every day for the rest of his life.
Anthony:
It turns out, and here’s another thing real quick to plug, do a background check on your business partner. If I had done a background check on this guy, I would’ve saw the 11 misdemeanors and four felonies that he had and I wouldn’t have done business with him. Do a background check.
Mindy:
Anybody who needs money right now, we got to do this. No, you don’t have time to do your research. Okay? If you need an answer right now, the answer’s no.
David:
Always. Absolutely.
Anthony:
It’s costs $5, public crime search or whatevertheheck.com, five bucks. You pull up a report on them you get to see everything that they’re about.
Mindy:
Okay. Let’s switch gears and say, what is your best piece of advice for people who are just starting out besides to a $5 background search on your partners?
Anthony:
Those are two good nuggets. I would say don’t stop educating yourself. There’s always room to grow, especially in knowledge, building base like the solo 401k that you just dropped on me, I didn’t even know about. So thank you for that. Never stop growing and get out there and start meeting people. Get around the people that you idolize. Replace your group of people you hang out with, with the people that you want to be, and I promise you, things are going to happen.
Mindy:
I love it.
David:
Yeah. I absolutely agree with that. All right. What’s your … you’re the life of the party. What’s your favorite joke to tell at parties?
Anthony:
I think Mindy’s got me on this one.
Mindy:
I’m looking for coast guard jokes, but I don’t understand any of them.
David:
I got it for you then. The reason there’s no coast guard jokes is because the coast guard is the joke.
Mindy:
You stop that.
David:
I told you before we recorded, I love the coast guard, but I got to do it.
Anthony:
That’s great.
David:
I usually use that with army. I’m like, man, there’s no … the Marines don’t really talk smack about the army much because they don’t really need to, but it goes the other way.
Anthony:
The Navy says that we’re puddle jumpers. It’s not really a joke, but there’s just something that they call us because we don’t really go overseas.
David:
Puddle pirates.
Anthony:
Puddle pirates. Puddle jumpers.
David:
I’ve heard that one, but you know though, as much flack as the coast guard gets, you guys have some really cool … So they’re the only ones that roll around in icebreakers in the Arctic-
Anthony:
Yeah, and lane helicopters on ice and stuff.
David:
Yeah. There’s some really cool stuff that the coast guard does and there’s a lot of border places, a lot of lives saved and a lot of drug bust and a lot of good stuff that the coast guard does. In fact, I would imagine that on the day to day they probably engage in more action than the other branches unless we’re actually engaged in a conflict.
Anthony:
Yeah, absolutely.
Mindy:
Okay. Here’s a helicopter joke. In honor of Scott who is not here, a man walks into a bar and asks the bartender, “Do you have any helicopter flavored chips?” The bartender says, “No, we only have plain.” I didn’t think it was a good joke but it was a helicopter joke. I didn’t understand that coast guard jokes. They were either really mean or really foul. So we’re not going to call you that.
Anthony:
Yeah. It’s probably because the other people are from other branches that are running those.
David:
Yeah. That’s that’s typical. That’s how they roll.
Anthony:
We don’t have filters.
Mindy:
That’s what I’ve learned through David.
Anthony:
He’s a Marine. He’s different.
Mindy:
Okay. Anthony, where can people find out more about you?
Anthony:
I am really active on Instagram. Tony Michael, R-E-I M-I-C-H-A-E-L. You can find me, I’m always on there. People jump in my DMs all the time, asking me about different stuff and I’m willing and able to help. Secondly, on Bigger Pockets at Anthony Michael, you can find me on there.
Mindy:
Awesome. We will include these links in our show notes, which could be found at biggerpockets.com/show321. Anthony, thank you so much for your time today. This was a lot of fun. I always enjoyed talking about real estate.
Anthony:
Thank you so much for having me guys.
David:
Thanks for being able to work on a short fuse. So it’s probably worth noting here that this morning I … or maybe it was last night, I texted Mindy. It was like, “Are we recording tomorrow? We didn’t have a guest.” And I was like, “Hang on. Let’s see if we can find someone,” and-
Anthony:
Yeah and I responded and you responded this morning and locked me in.
David:
I was like, “All right, cool. Are you good for like three hours from now?”
Anthony:
Double note, I actually have single lung pneumonia right now. So I’m fighting through that. I’m going to take a nap as soon as we unair.
David:
Well, we appreciate you.
Anthony:
Of course. Thanks for having me again.
Mindy:
Wonderful. We’ll talk to you soon. Bye Anthony.
Anthony:
Bye.
Mindy:
Okay, David, that was Anthony. That was super fun. What did you think of his story?
David:
Yeah, it was a good story. He’s doing some good things. He’s helping a lot of people on both … obviously, providing housing for people when he is flipping houses and Airbnb, but also, he does some hard money stuff for other investors, which helps them make ends meet on their deals. So a lot of good information in the show today.
Mindy:
The biggest money mistake really broke my heart, but I’m glad that it didn’t crush him and destroy him and wipe out his desire to continue investing. That guy is a horrible person. The guy who took his money and I hope that he gets diarrhea every day too. That’s my new curse. I hope you get diarrhea and stub your toe every day for the rest of your life. Really, there are so many ways to make money in real estate, through investing. You don’t have to be a skeezy scammer to steal somebody else’s money. That was awful.
David:
Yeah.
Mindy:
I’m glad he learned from it. This is Anthony’s story. We’re not going to dwell on that other guy anymore. This is Anthony’s story. He learned from it. He moved on and now, like you said, that has made him a better investor because he knows what to look for, and I don’t want to belittle his loss, $6,000 is $6,000, but it was only $6,000. It wasn’t $20,000. It wasn’t $50,000. So my advice to people who are listening, if you want to start investing in real estate and you get an idea to have a partnership, vet that partner. Don’t be afraid to walk away because if somebody needs an answer right away, it’s usually not for good.
David:
Absolutely.
Mindy:
Okay. David, should we get out of here?
David:
Yeah.
Mindy:
From episode 321 of the Bigger Pockets Money Podcast, he is David Pere and I am Mindy Jensen saying, got to chat, hot shot.
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2022-07-25 06:01:51
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Real estate wholesaling is one of the most hated, commonly criticized, and least-trusted types of real estate investing. Most people paint real estate wholesalers as those who lie to sellers, incorrectly run comps, and try to market bad deals to unexpected investors. This is all said while top real estate investors around the country continue to buy from wholesalers. So what is it? Are real estate wholesalers a parasite to the property investing industry or are they the symbiotic counterpart every successful investor needs?
To put it simply, wholesaling real estate is when a wholesaler will put a property under contract for a certain price, then market the property to investors at a higher price, and keep the difference once the property is handed off. Think of wholesalers as the middlemen between a distressed seller and a real estate investor looking for undervalued deals. In a perfect world, all three parties walk away from the transaction happy. But how often does this happen?
Jamil Damji, James Dainard, and Henry Washington are on this week to talk about how to wholesale, what most wholesalers get wrong, and whether or not real estate wholesaling still works in 2022. Jamil and James are both active wholesalers, while Henry often buys his properties from wholesalers. They give a “wholesaling 101” course to any new investor looking to find deals as well as to new wholesalers trying to get their seed money started.
Dave:
Hey, everyone. Welcome to On The Market. I’m Dave Meyer, your host, and we have an awesome show for you today. I’m going to be joined by Henry Washington, Jamil Damji and James Danerd for a deep dive discussion on wholesaling. We cover what wholesaling is. We address the elephant in the room, which is, is wholesaling actually ethical? And we’ll learn how, as an investor, you can best work with wholesalers. Then at the end, we got goaded into playing investor truth or dare. It goes completely off the rails, but it was very fun and very funny, so definitely stick around to the end. Think you’re going to learn a lot. You’ll probably laugh a lot. Enjoy.
Hey there. What’s going on, everyone? Welcome to On The Market. I’m your host, Dave Meyer, joined today by Jamil Damji, Henry Washington and James Danerd to talk about wholesaling. What’s going on, everyone?
Henry:
Woo. What’s up?
Dave:
I love how James is just flexing on all of us by just sitting there on his boat. It’s rocking slowly behind us. We’re all in our offices. I’m sweating, but he just looks relaxed and happy.
James:
This is my new office. I’m going to go jump in afterwards. We’re going to hit 82 degrees today. 82 on an island.
Henry:
Are you going to jump in Danerd’s dinghy?
James:
Yeah, I got to get Danerd’s dinghy. It needs the label for, I got to get the name put on: Danerd’s Dinghy.
Dave:
But you know the name of the yacht’s called The Fruits of Wholesale, right?
James:
That is.
Dave:
For everyone listening, just to add some context to this, James actually did just get a dinghy, and his daughter wants to name it Danerd’s Dinghy, which is hilarious.
James:
That’s probably what it’s going to end up being.
Dave:
Now it has to be. It’s memorialized in podcast history. All right. So for today’s main topic, we’re going to be talking about wholesaling obviously, and we’re going to just be badgering Jamil with questions. But before we do that, I want to talk to you about two major data points that are actually coming out at the end of July. And just for everyone listening, we are recording this in the middle of July, but on the 28th, for nerds like me, it is a big day for data to come out. We have two things coming out. We will have GDP for the second quarter, which will tell us whether or not we are officially in a recession. The technical definition of a recession is two consecutive quarters of GDP declines. We had a decline in the first quarter. So if it’s down again in the next quarter, we will be technically in a recession. The net other is the Fed will be announcing their next interest rate hike.
So I just want to go around quickly and force you guys to make a guess to yes or no recession, and how big of a hike the Fed will implement on the 28th. And we will find out quickly the day after all this, whether or not you are right or wrong. So Jamil, you’re in the hot seat today, so I’m going to make you go first again.
Jamil:
I think we are in a recession. I think that’s what we’re going to find out with Q2 data. And then also, I think the Fed’s going to have to do something with the CPI of what we just saw. 9.1%. Are you kidding me? They’re going to go up a point.
Henry:
A whole point?
Jamil:
Yeah.
Henry:
Wow.
Jamil:
That’s what they’re saying.
Henry:
Wow. Yeah. No, I was going to go with yes, we’re in a recession. I think that’ll come out, and I was three quarters of a point to half a point. A whole point. That’s aggressive, so I’ll go with three quarters.
Dave:
James?
James:
I’m with Henry. Both of you guys I think have nailed it. We’re in a recession, for sure. I don’t think it should be that bad, but yeah, we’re definitely in it. And three quarters of a point. From what I understand, it’s just been three quarter point hikes until inflation starts slowing down. Hopefully it is not a point, because that’s going to get pretty drastic. Good news is a lot of this is already baked into the rates, so it won’t be that much on the actual rate.
Dave:
I’m with all of you. I think we’re almost certainly in recession, and I also think it won’t be that bad. A lot of the impacts that usually come with a recession, like a declining stock market or asset prices shifting, we’re already seeing that. So it’s not like if we’re officially in a recession, all of a sudden, things are going to get significantly worse. Investors already know that this has been coming for a while. And for interest rates, I’m going to go 0.75 basis points. But I guess we’ll see. And honestly, I’m curious if these interest rate hikes will even bring down inflation, because they only really impact the demand side of the inflation problem. They can’t fix the supply side shock. They already printed the money. They’re not pulling it out. So I’m curious, they’re going to keep doing it, but we’ll see what happens.
All right. So tune into that. Oh, I should mention, I’m also going to be doing an episode next week about recessions and some of the historical data about what happens to housing markets in a recession, so make sure to tune into that. All right. So we are going to move into our main topic for today, which is wholesaling, but first, let’s take a quick break.
All right. Today’s episode, we are going to do something a little bit different. We are going to do a deep dive into the fundamentals and basics of one of the most common and sometimes controversial real estate investing strategies, which is wholesaling. And Jamil is an expert wholesaler, self-described Wholesale Genie. And so basically, Henry, James and I are going to pepper him with questions and hopefully he’ll help us understand what the truth is behind wholesaling. So Jamil, could you just get us started and explain what wholesaling is in the first place?
Jamil:
Absolutely. So first,, I just want to say every industry has a wholesale step up market, right? If you look at hamburgers, you look at McDonald’s, you see, you don’t start with a Big Mac. It starts at a cow, and then the cow gets butchered and then processed and transported and then processed again and packaged and reprocessed. And every step that goes along the market, the price of the beef increases. That’s business. And wholesaling essentially is the art of selling potential. We are adding value because we see a potential in a product, right? So for housing, you see you’ve got these terrible houses, these vacant properties, these distressed properties that are in original condition and need a tremendous amount of work. Well, there’s potential there. And investors can see the potential. Wholesaling is the art of controlling the asset and selling a portion of that potential so somebody else can realize it. You take your fee, move on to the next.
Dave:
So can you just put some numbers behind that? Give us an example, like how it works logistically.
Jamil:
Logistically, say you buy a house for… I’m going to use just real flat numbers here. You buy a house that is in distressed condition for $100,000. And you notice, or you look at the comps in the area and you see, wow, if I really fix this house up nice, you might be able to sell it for 210 or 225. But a lot of investment, a lot of work is going to need to be invested in order to get this property from this position to that position. So the wholesaler comes along and they notice that. They see the opportunity. They look at the house and they say, “Wow. In its current condition right now, I think cash investors at the most would be able to pay $110,000 for this property in order to make it worthwhile for them to invest in it, so that they could eventually put it back on the retail market at 200 to say $220,000. So I’m going to go and control that asset, and I’m going to put it under contract for a number below $110,000 so that I can make some money.”
Now, whatever that fee is, whatever you’re going to make is tantamount to how good of a negotiator you are and the ethics that you’re bringing into the conversation.
Dave:
So when you put it this way, it sounds like a great value add. What is the controversy about wholesaling?
Jamil:
Well, I think I’m going to play the contrarian here. And I think that the controversy with wholesaling and the reason why people hate wholesalers is they hate us because they ain’t us. That’s what it is. I’m going to just call it out, because I’ll look at it. And every time I’ve had a conversation with somebody who really aggressively disliked a wholesaler, it’s because they saw what the wholesaler was able to do. They saw what the wholesaler was able to accomplish. No rehabber was ever mad at the wholesaler till they saw the wholesale fee. Here’s the deal. You’re at the closing table, you’re signing the documents and you’re about to close on a property that you know can make money on. And then you see a $25,000 or a $30,000 assignment fee, and you feel like you got gut punched. Well, you weren’t gut punched when you agreed to buy the property for the numbers that you bought it at. There was no problem until you saw what somebody else was making.
And so again, I think that when you’re looking at it from those perspectives, the reason why people are upset, the reason why real estate agents are mad, is because that property didn’t become a listing. That property sold off market. Somebody else was able to solve the problem for the seller. Somebody else connected the dots to the buyer. And so that’s the problem that I think happens, is that people are looking at what’s going on in this space and they don’t like it because they aren’t doing it. Now, that’s not to say that there isn’t unscrupulous activity, that there isn’t things that people could be doing better. And I want to bring that to light, because of course, nobody in business is in business to rip people off. And when you see shady characters and you see bad things going on, the right thing to do is to put light on it, call it out and make sure that people evolve and do things better. Have wholesalers done things the wrong way? Absolutely. Have they gone off and misrepresented value to somebody? Yes.
But again, remember we’re in business, and the object of business is to make money. And as long as I’m working with people that are of sound mind, sound body, and are there to make a decision for themselves, then it’s my job to get a good price on a house. It’s my job to make money for my company. It’s my job to feed the people that are in my office all day, waiting for Jamil or waiting for the acquisitions manager to go out and do their work. So again, I think we’ve got to readdress this whole narrative of the wholesaler, their value that they add to the marketplace, and why people are truly upset of what’s going on. Because I’ll tell you this as well. I’ve seen shady realtors. I’ve seen shady mortgage brokers, but we don’t tar and feather in industry because of a few bad actors. We understand that there’s a tremendous amount of value that these people bring to the marketplace, and the same goes for wholesaling.
James:
Wholesaling is like this redheaded stepchild of real estate, because it doesn’t really fit in the same box a lot of times. Real estate brokers, they’re the biggest group of professionals selling real estate. They also have a lot of lobby dollars, and they also have very standardized fees that are very normal across the whole nation. Whereas in wholesaling, people get confused because they charge non-standardized fees. It’s based on a margin. But what people always need to remember, including real estate brokers – and this is the… Brokers get really annoyed at. I wear both hats. I’m a broker and a wholesaler. But the reason is, they don’t understand each other because they don’t actually sell the same thing. Real estate brokers sell houses. Wholesalers sell contracts. It’s commercial paper. So it’s a completely different… Even though you’re selling an asset, it’s still different because you’re selling an investment as a wholesaler, whereas as a broker you’re selling housing and you’re getting paid a commission to sell that housing.
But I think the biggest reason that people ethically don’t like wholesaling is because, A, you nailed it, Jamil. It’s hate us because you ain’t us, because they don’t understand, it doesn’t fit in their box, and they lose deals because of whatever they’re pitching didn’t work. But it’s also because they just don’t get the business all the way through. When you’re selling contracts, you’re selling paper. It’s no different than assigning a note or signing any kind of interest in an investment at that point. And I think, as it’s grown, people just understand it less, less and less. And as there was less inventory in the market, people really got annoyed with wholesalers. But as the inventory increases, I think they’re just going to be a normal part of the market now. They’re going to be a good thing, a healthy thing for the market to absorb different type of inventory.
Henry:
Yeah, man. I agree with you guys for the most part. Where I disagree is the hate us because they ain’t us. And I think that, sure, there are some people who have absolutely seen a wholesale fee and felt some type of way about that. I recently sold a property, a package deal, to a guy that was on two separate plots and he really only wanted one of the plots. And so he ended up doing a wholesale on one of the other plots, and I saw he made about 40 grand. And when I saw that he made that 40 grand, I went, “Man, I didn’t give him a high enough number.” And then I moved on, right? Because at the end of the day, I sold that property for a reason. And I sold it for the price that I wanted to sell it for. And I was happy when I got my accepted offer on that property. And so me seeing that he made 40 grand, all it did was make me go, “Eh, I should have did a little more due diligence and raised my price.”
Jamil:
Yeah. But you’re a very mature person to say that, because I’ve been in deals, Henry, where I’ve made money. I bought from another wholesaler. Then I sold to another rehabber because I saw an opportunity for them to be more potential extracted from there, and still have somebody make money on the deal, right? So I committed to opportunity from a wholesaler, so I committed to buying it. If I wasn’t able to wholesale it, I was going to close on it regardless. But then I was able to sell the contract, and bada bing bada boom. I got some money, right? Now, at the end of the day, that wholesaler was so mad at me. He was so upset because he, for whatever reason, was offended. Offended that I saw what he left on the table. Again, it’s a maturity thing. And I think you come at this from a very different point of view, Henry, with all of the experience that you bring to the table, and just the kind of guy you are. You’re not looking at somebody else’s plate.
But I think human nature is what it is. And people look at others’ success, and you have an opportunity to champion it or you got an opportunity to feel a way about it. And I think that seven out of 10 people feel a way instead of champion.
Henry:
I mean, I totally get it, right? If I got time to count somebody else’s pockets, mine better be full, right? And so people better think twice about that. But look, I think where… Well, I’ll speak for myself. Where I struggle with wholesalers isn’t the fact that they make money. It’s the fact that a lot of the times they’re sold this pitch on this is an easy way to make money. And then they get into the game without properly educating themselves. And then they put themselves in tough situations by putting properties under contract for too much money. And then they inflate the numbers and then they end up backing out of deals. And what that does is, it doesn’t hurt them because they backed out. And that’s what was attractive about this strategy for them, is they felt like there was limited risk to them.
But what they did hurt was they hurt that person who has a tough situation that they were trying to alleviate by selling that property. Because while that property was under contract with this wholesaler, they technically couldn’t go out and try to sell this property any other way. And a lot of these wholesalers are telling these buyers that they are going to buy the property, right? And then they pay too much. Can’t get someone to buy it, back out of those contracts. And now someone who had a problem has even a bigger problem because now they’ve lost a lot of that time.
I think where wholesaling gets its bad name is that too many people call themselves wholesalers when they’re not wholesalers. They haven’t properly educated themselves on being wholesalers. And then they started a wholesale business, but they’re not running a wholesale business. They’re just trying to make a quick buck without doing their proper due diligence, and without really figuring out how to make this a business, how to build a network of people I need in my corner in order to do this properly. In order to know that when I tell a seller, “We are going to get this deal done for this price,” that you know good and darn well it’s going to get done for that price.
You see wholesalers sometimes, again, calling themselves wholesalers and then they just grab something off Zillow or off the MLS and then try to market that as a deal. And can you wholesale a deal on the MLS? Sometimes, but it’s pretty rare, right? And there’s usually an agreement between the agent and the wholesaler, because the wholesaler typically has a network of people the agent doesn’t have. But just to randomly grab something, call it a deal and put some people in tough spots I think is where wholesaling gets a lot of its bad name. And so I hope that we can talk a little bit about how do you approach the business of wholesaling, and then approach it in a way where you can be certain that when you tell a seller, “This is what you’re going to get,” that you know that’s what they’re going to get regardless of if you or somebody else closes on it.
Jamil:
That’s excellent. That’s an excellent observation, Henry. And I think that you nailed it, right? That’s that is a very, very huge issue in the entire business model. Because again, the barrier of entry is so low. There’s no licensing required. People lie and say that you don’t need any money. That’s not true, people. If you’re going to wholesale and you’re going to do it correctly, you need to execute a contract. And in order for you to have a ratified contract, it very likely is going to need earnest deposit. That earnest money could be anywhere from 10 to $10,000. So you do actually need some money, right? So let’s not buy into these myths. But again, what Henry’s talking about is people getting in and forgetting the fundamental thing that I said in the beginning, that what wholesaling is selling potential. If you don’t have potential in your hand, if you don’t have a deal, there’s no wholesale opportunity. That’s it.
So again, you begin your wholesale journey by understanding value. That’s why, at least for me, the thing that I did first when I got into the business was not get into the business. I got into the understanding of how to spot value. How do I see what an opportunity is? Because I know as long as I can get that piece down, as long as I can figure out where there’s a potential deal, I’m going to be able to get into control because I’m going to have the opportunity. I’m going to have the ball, right? And so I think we need to begin there. I think that if you’re looking at this, listening to us or thinking about getting into real estate investing, and wholesaling is the place that you begin to start because you know that it has the potential to give you large fees, it has the potential to turn you into a buy and hold investor or to take you down the path of fixing and flipping, because wholesale is the place a lot of folks start.
If that’s where you are, then listen to this and listen to it and tattoo this on you if you need to. Start by not starting and doing a deal. Start by learning how to comp, learn how to underwrite, learn how to spot potential. Once you get that piece down, then the next thing Henry said was find the network of people, squad up, go out there. And before you make a representation to a seller that you are actually a buyer, that you’ve got the liquid funds to perform on a deal, go get yourself some backing. Make that statement true. Actually have a backstop of funds that will allow you to perform on your deal, whether that be bring your buyer, whether that be connect with a Keyglee franchise, or work with Henry or James or somebody else that you know can pull the trigger that understands what they’re looking at and can perform. You will become the most valuable player on the team if you figure those two pieces out.
Dave:
That’s awesome advice, Jamil. And Henry, thank you for bringing up those points, because I do think there are some legitimate concerns that people have about working with wholesalers. But what Jamil said is true. There are bad actors in almost every part of real estate and there are bad actors in almost every industry out there. And as an investor, you need to make sure that you’re working with reputable people. And if you want to become a wholesaler, sure hope that you want to be a reputable and ethical one at the same time, because our show, On The Market, is all about current events, Jamil, is right now a good time to get into wholesaling and why or why not?
Jamil:
I believe it’s always a good time to get into wholesaling, because the beauty of wholesale is that you really get laser focused on what the marketplace wants and how you can fill the order. Right? So because I’m wholesaling and I can see where buyer mentality is right now, where buyers are pulling the trigger, where they’re not pulling the trigger, I can see all that data. I know where it’s heading. And because I know where it’s heading, I know where I need to be in my numbers. And so the beauty of wholesale is you can make money on the ride up, you can make money at the top, and you can make money on the ride down. And right now,. We’re seeing this shift we’re seeing fix and flippers look at their potential next flip and say, “I’ve got to bake in 10%. I got to make sure that if the market corrects at all, that I’m not going to just do this for practice. I’m still going to be able to pay the electricity bill and keep things moving along in my life.”
And so again, wholesaling is beautiful because you’re not really putting yourself out in that extensive amount of risk because, again, you’re not typically holding a lot of property. As a wholesaler, I sell my contracts. I don’t own a lot of stuff. And anything that I’m closing, even if I’m going to take a loss on it, I’m still selling it, right? So I’m not ever really exposing myself to that much time in the market. That’s why I believe wholesaling is such a beautiful business model, because again, you’re in and out of transactions fast. You’re trading, right? You’re trading, you’re not holding, you’re not gaming, you’re not timing. You’re trading. And as long as you understand how to seek potential, how to seek opportunity, then you can trade anywhere on the cycle as you want.
James:
Yeah. We started our wholesale business officially in 2008, right? When the market was sliding at… We worked for a company. We started our own in 2007-8, and literally the month that we opened our business doors, subprime mortgages blew up, the market went into a free fall. And the only way that we made it by was, A, flipping, barely get by on those, but also wholesaling out opportunities. And you can still wholesale even right now. The market’s still really healthy. It’s a little different. Investors’ appetites are changing. But we were wholesaling when things were dropping in 10% a month. It was a very quick trade deal, but it was very key for us to build that business and to really learn in all types of markets, because it allowed us to collect fees without putting out a ton of different types of capital. And especially back then, there was such limited money out there. We didn’t have a whole lot of it, so it was allowing us to get deals done.
But the beautiful thing about wholesaling is, it’s a way to get paid as you’re learning. It’s like getting paid for your own college, right? Wholesaling is this, it allows you… When I started, I was 21. I had no idea about real estate, but I got to learn as I was starting to make money. I got to learn how to sell, how to cold call, how to talk to people. I then learned how to underwrite properties, like what is a comp? What is a value? Because we can go into these deep things like, “Oh, we got to learn how to comp. We got to learn how to do that analysis.” That takes time and experience. And wholesaling allows you to learn that without losing a bunch of money or putting in a bunch of money at the same time, but it teaches you all the core fundamentals to grow as an investor.
If I didn’t start wholesaling when I was brand new, I don’t know if I’d still be in real estate today. It allowed me to team up with the right people, sell to the right type of investors, learn their processes, then implement their processes into my daily processes and really grow as an investor. I would’ve probably never been flipping homes or buying rental properties if I didn’t start wholesaling in the very beginning, because it gave me the capital and the knowledge to learn how to do all those things. And the more you learn, the more you perfect your craft, like what Jamil just said, is as the market’s sliding down or as the market’s shifting, he knows what his buyers want. He knows what the margins need to be so he can get ahead of it during those things. So the more you learn during wholesaling, the more you team up with people, that’s how you learn the core basics.
And that’s why I’m sharp as an investor is those core principles that you learn as wholesaling. Understanding margins, understanding rehabs, understanding investor demand and what they’ll actually buy and not buy at the time. And then it helps you set your own buy box. And it really does help you protect yourself as an investor all the way through. It’s funny, because a lot of people look at wholesaling as the new way to… Like, “Oh, it’s for new people in real estate.” It’s a way to train you to the best on everything. You can be a ninja going forward because you got that crash course in wholesaling, as long as you take the steps. No one told me how to do it. I had to research it myself and learn those things and communicate with people, but it is the best college you can get for real estate.
Henry:
That’s a phenomenal point. I totally agree. And to go back to Dave’s original question, is this a good time? I agree with Jamil, it’s always a good time. Real estate is cyclical, so we’re always going to have ups and downs. And just like any investment vehicle, there’s ways to make money go in both directions. With this strategy specifically, and then the market that we’re currently in, real estate values are still fairly high. We still have supply and demand in our favor as investors. And so there are some markets where values are starting to come down a little bit. We’re seeing properties stay on the market a little bit longer, but we are seeing more opportunities to buy properties at a discount because of the financial landscape, because we’re in this looming recession. And when financial times are difficult, that creates more difficult situations for people where they might look to sell a property at a discount to create cash, to go do something else, to solve some other problem that they have.
And so, yes. Even if prices come down, that shouldn’t scare you away as somebody who’s interested in potentially wholesaling, because that means there’s more situations, and more situations means you can potentially offer less money than you would in a higher market. And so what I’m seeing in my personal business is, yes, we might not be able to sell for as much as we could sell for six months ago, but I can also buy for less than I could buy for six months ago. And so my margins are still there, right? It’s the same margins. It’s close to the same margins. And so it’s the same thing with wholesaling. You’ll be getting properties cheaper and maybe not wholesaling them for as much, but the deals are still out there. And it’s about what service are you providing to the people you’re contracting with? And what service are you providing to the people you’re assigning those contracts to?
Your job is to be a problem solver for both your sellers and your buyers. So if you get really good at understanding… And also, if the market does shift and prices do come down, there’s always going to be buyers. Somebody is still going to be swooping up properties, right? Your job as a wholesaler then is to go figure out who those people are, what they like. And then you need to go figure out how to find the people that are willing to sell you those things so that you can bridge that gap between the two to make your money. There’s always a way to make money.
Dave:
James and Henry, I know both of you wholesale in addition to flipping houses and buy and hold. How do you make the decision about which properties you are going to work on yourself by either holding onto them or flipping them, and which ones do you decide to wholesale? Because as an investor who talks to wholesalers, I wonder that sometimes. Am I just getting the dregs of what Henry and James don’t want? Is this the backwash of all the deals that they come across?
James:
There’s nothing wrong with a little backwash.
Jamil:
Says guy on the yacht.
Dave:
Yes, it is the backwash.
Henry:
That’s the name of your boat.
James:
Yeah. Backwash. That is the new name.
Dave:
Oh, that’s a good name.
James:
That’s a great question. And honestly, I think it’s one of the most detrimental questions to investors because they get this paranoid state in their mind of, “Oh, you’re passing on the deals you don’t want.” I buy property based on resources and location. What I buy, and every investor should have their own buy box, their own set of requirements that they’re buying on. And to be honest, it should be pretty tight. I don’t go buy every different types of fix and flip property, because as I build my business, I have different types of contractors. I have different types of capital, different types of teams that are running things to where my cost per deal might be more. And so I’m going to look at different types of deals than other investors. And all four of us would probably buy a different fix and flip right now today, if we had to pick our type of deal. They’re going to be a different thing.
That’s what goes out of our company or when we’re passing on a deal, not the margin on a deal. The majority of the stuff that I buy, no one wants anyways. It’s just complex, it’s tough, it requires a lot of capital, it requires a lot of time. We like it because we get the absolute best margins, only because there’s less competition. Not because we’re stealing the property over there. We go where the competition’s not because we can get better margins that way, but that’s not leftover deals from any type of wholesaler. That’s just passing on a opportunity that doesn’t quite fit on your buy box and it allows you to capitalize on it. So it allows you to make money on a property because it doesn’t quite work for me, but it could definitely work for Dave, right? Or for Henry. If I find a cash flowing property that he can leave no money in and it might not fit my rental requirements right now, because right now we’re trying to buy bigger apartment properties, just for efficiencies – not cash flow, but for efficiencies only – I might pass that on to Henry.
It could be a great deal for him because that fits exactly in his buy box of what he’s looking to accomplish right now, but it doesn’t fit into where we can be efficient. And so that’s not a bad deal. I just have to know as a wholesaler, what is actually a good deal? What is the margins that investors need to pay? And it doesn’t really matter who’s buying it for what. We should all be buying around the same margin anyways. And so by knowing these margins, I can pass on a deal and still make it great for everybody. And it doesn’t take my resources, because I also don’t want to just go buy some random deal because it can affect my deals in other markets too, because I’m being inefficient. So most of the reason people are passing is because it doesn’t fit in their buy box, not because they’re being greedy or they’re trying to just keep the good ones.
Jamil:
It’s interesting. The intent always seems so sinister for helping, right? And I get it a lot. When I was first starting, before we built a brand, before people actually started buying so many houses from us and winning on the majority of them, that they said, “Wow, these guys actually sell great opportunities.” But before then it was always like, “Well, why aren’t you doing it yourself? Well, why aren’t you flipping it yourself if it’s so good?” Well, look. Again, let’s all remember that everybody can do their own due diligence. Everybody can run their own numbers. Everybody can do their own math. And so this isn’t about, hey, there must be some hidden motive or some agenda that I’m on, just because I’m giving you something that you can win on. Does it need to be that sinister? Can we not all agree that, hey, there’s people out there that actually want to see other people win. And I think, again, it goes back to the narrative of what wholesaling is that, are we here to add value to the marketplace or are we here to extract it?
Henry:
100% agree. And Dave’s question goes back to that age old saying of one man’s trash, right? One man’s trash is absolutely another man’s trash. So to answer your question, Dave, if you get a lead for me, it is 100% something I don’t want. But that’s okay.
Dave:
That’s okay. Right.
Jamil:
That doesn’t mean it’s not something you don’t want.
Henry:
Doesn’t mean it’s not a good deal. It doesn’t mean it’s not a good opportunity. It just means it’s not something that I want to do. And it could be a number of reasons. So James was right. A lot of my decisions are resource-based. And so if right now I’m contractor-deficient, so I can’t take on a ton of heavy rehabs right now. I don’t have the team in place. I lost one of my main crews. And so I may look to assign something that I know I don’t have the resources to flip. Maybe you do. Awesome opportunity for you, right? Doesn’t mean it’s a bad deal. Just means I can’t do it right now. It could also mean that it doesn’t fit my buy box. Maybe your buy box is super awesome duplexes, and my buy box is I only want single family homes in this one niche neighborhood, because I’m doing this one niche strategy and that’s my thing.
And so now I’ve come across this duplex. I can’t do my thing. Dave loved duplexes. If I send you a duplex that you can make some money on, you’ll probably buy it. It doesn’t mean it’s a bad deal. It just means it’s not for me. It’s not in my buy box. But that’s the value of building your relationships. That’s the value of connecting dots and learning how to solve problems. If you are the wholesaler, it’s your job to get out there and know people like Dave, who wants to buy the duplexes in this super swanky neighborhood in Denver, and then James, who wants to buy the big distressed properties to flip in the Seattle market. And then Henry who likes the little rinky-dink single families in these neighborhoods in Arkansas, right? And if you know all these things, and then you become this master marketer who’s just great at generating leads, as soon as the lead comes in, you already know your buyer if you’re a good wholesaler.
The lead comes in and you’re like, “Oh, this one’s for James. Oh, this one’s for Dave. This one’s for Henry.” And then you will know, because your job is to understand who the players are in your sphere and what they like. And you’re just throwing them deals. And if you’re smart and you’ve built up some capital from these wholesale fees, you should absolutely be picking and choosing the ones that you want and keeping those. That’s 100% what you should be doing. So yeah, Dave, that’s absolutely what you’re getting from me.
Dave:
I totally get that. That makes sense. You have a certain amount of resources and you have to pick the ones that you want. And it goes back to the same thing about comparing yourself to other people. As long as the deal works for me, it shouldn’t, I guess, really matter why you don’t want it because it works for me. And if it fits in my buy box, that should be good enough.
But this does bring up a question I did want to hit on for part of the show, which is, as an investor, what should I be looking for in a wholesaler? I, as you all know, work full-time at BiggerPockets. I live in Europe. I don’t have time personally to go source deals all the time. And so there is appeal to me, and I think to a lot of people, to work with a wholesaler. If you can find me a deal, I’ll pay you an assignment fee, but I don’t know how to vet a wholesaler and to find the right wholesaler for me. So Jamil, can you tell me a little bit about how I should go about finding people to work with?
Jamil:
Absolutely. Absolutely. So it goes back to, first and foremost, do you resonate with this person, right? When you first meet somebody, you get a vibe of how do they communicate? Are they responsive? Do they answer their phone? Do they respond to text messages? Do they look like they’re somebody that’s on top of it? I’ve bought a lot of deals from a lot of wholesalers, and I can tell you that a lot of them are not on top of it. They don’t respond. They ghost you. All kinds of craziness happens. And so, like anything else, like any other relationship, you want to see fundamentally, are you just an on top of it human being? Great. Next, I want to start asking them questions. I want to find out from them, what are your main lead sources? How are you doing lead generation? Are they mainly working with other wholesalers?
Then if I know that, oh, wow, you mainly work with other wholesalers? There’s very likely going to be multiple assignments on this deal, so I might not be buying as deeply as I might want to. Not saying it’s not going to be a good deal. I’m just saying, I know there’s going to be layers of people on it. The next thing I’d want to find out is, okay, what do you specialize in? Are you looking at small multi-family? Do you mainly go after single family? Do you mainly focus in these neighborhoods? Do you mainly focus in luxury? I want to get an understanding of your wheelhouse. What’s your expertise? And then beyond that, I want to find out how you do business, right? Are you handling a transaction from start to finish? Do you have transaction coordinators on your team? Am I going to get wiring instructions from you right away? When I ask you questions like what’s access, am I responded to immediately?
When I ask you question, what’s close of escrow and what title company are you with, does it take you six hours to get me that information? These are all signals. These are all signals to what’s going to happen further down the deal. And so that’s how I’m going to be vetting somebody initially, right? Because again, how you are at one thing is how you’re going to be at everything. And so immediately, if I find that you’re not on top of it, I immediately don’t get transparent answers, then I’m going to have my guard up. I’m going to feel like I don’t think I’m working with somebody that might be giving me all the details or all the information that I need.
But after that, you’ve just got to rely on yourself, right? Again, you are the person that’s doing the due diligence based off numbers. You got to be proficient at running your valuations on how much a rehab is going to be or what your rental rates are going to be. You’re going to need to know that. And so if, again, you’re buying something at a price that makes sense for you and you’ve seen the information that you need to do your due diligence, at that point now, you’ve just got to trust and hope that this deal is going to go the way it needs to. And that’s the reason why we have title companies. That’s why we have escrow. That’s why we have closing attorneys, because they’re going to make sure that the title is clear. They’re going to make sure your earnest money is protected. They’re going to make sure that the things that need to happen to protect you throughout the rest of the transaction are going to be taken care of.
That’s what they’re being paid for. But beyond that, that’s your job. You got to play in it, and you got to trust that everybody’s going to do their piece. This is what society is, right? If I go and I place an order for something, I trust a person on the other side of that order is going to fulfill it. Think about just how we feed ourselves, right? I place an order on my phone. This is food I’m putting in my body. It keeps me alive.Do I know the person on the other end of that washed their hands after they used the restroom? I don’t. I trust that everybody in our transactions in life are doing the things they’re supposed to do in order to keep society moving. And I’m going to think the same way of my real estate agent. I’m going to think the same way of the wholesaler. I’m going to think the same way of the escrow company until I’m proven wrong.
James:
And you always want to also dig into their paperwork a little bit. For me, I don’t really interview wholesalers. I kind of set the tone and let them know what my buy box is, because at the end of the day, wholesalers are not brokers. They’re not offering me a service. They’re not working for me or getting paid to do a service. They’re providing additional opportunities. It’s up to me as an investor to explain to them what my buy box is, what my terms for closing is, and then find out what kind of contracts and what their terms for closing are. Because for me, I don’t really care how they’re marketing for things, what kind of deals they’re looking for. I want to know what’s the process when they finally send me that 20th deal, because a lot of times I got to look at 20, 30 deals from one individual wholesaler before we actually pull the trigger on it.
But when I do pull the trigger and it is a great opportunity, I want to get that locked down right away. So those are the things that I’m talking about more with wholesalers. They can market whatever which way they want. I’m going to tell them what I want to buy as it comes through. How do I lock that deal down? Because if it is that great buy, you got to lock it down very, very quickly. And then the other reason I want to know about their paperwork is because if you’re being assigned to their paperwork, you are going off of their contractual agreement. If they have weak paperwork, if it’s shady, if they didn’t do the proper disclosures… In Washington state, we have a distressed homeowner law and that needs to be in every contract in 16-point font on a separate addendum. If someone is wholesaling, a distressed homeowner to us, and they do not have that clause in there, that is not a binding contract at that point. And then I’m now getting their assigned contract over with me, and it’s not legally binding.
And so you do want to know what kind of paperwork they operate on, what kind of agreements they have. And then also, if you are a little… I will say, I have met some very shady characters in this space, but there are shady characters in every space, probably broker space I’ve seen the shadiest. But you always want to make sure that you have your own disclosure too in release. So when we do wholesale deals, the wholesalers are giving me a disclosure and a release disclaimer, saying, “Hey, I’m releasing the liability from them,” but I’m also putting back on what their responsibility is, who they’re communicating with and what their responsibility in the deal was. And so in case anything goes bad, they’re covered and I’m covered at the same time. So know your paperwork. I think there’s a huge mistake that a lot of people make is they rush to get that deal, they get it assigned, and all of a sudden they’ve been assigned a mess or a contract term that they didn’t quite understand.
Henry:
Awesome. Jamil, James, I totally agree with you. I think you do need to be asking questions of the wholesaler you’re working with, because at the end of the day, you’re going to be taking over their contract. So you want to make sure the contract is great and you want to make sure they’re ethical people, people that you want to be contractually tied to a deal with. And so I talk to students about this all the time. And so I actually have a list of questions that you can ask wholesalers, and so maybe we can put something together for everybody.
Dave:
All right. With all of those amazing points that Jamil, Henry and James just said, we actually have a incredible data drop coming at you courtesy of these three. We are going to put together a master list of questions that you can ask any wholesalers you are thinking about working with, and as a wholesaler, you should be prepared to answer to any investors who you might want to work with as well. So thank you to Henry, Jamil and James for putting that together for all of our listeners. All right, before we get out of here or actually move to our crowdsource section, are there any last words any of you have for our audience that they should know about wholesaling?
James:
I think right now, if you’re getting in the wholesaler market, you just want to spend a lot of time understanding what’s going on, what investors buy at, and then build around that, rather than going out and just looking for property. Talk to buyers, find out what they want to buy, build your business around that.
Jamil:
For me, I think it’s really important that you fall in love with the model. I love wholesaling. I love real estate. I love seeing the difference between a fully remodeled house and the house in its original form when it needs help and love. Get obsessed with this, really enjoy what you’re doing, and be prideful that what you’re doing in the marketplace is actually of value and people need you.
Henry:
Operate in full transparency. If you feel like you have to hide something, then there’s probably a better way that you could do that thing. So be able to tell everyone the truth and make money, and you’re probably going to be doing it right.
Dave:
I love it. All of you bringing ethics and morality to wholesaling. Not that the majority of wholesalers are not unethical, but it is nice to hear from all of you how it can be done in a value-add way. We are going to move onto our crowdsource, but first let’s take a quick break. All right. For today’s crowdsource section, our producer Kalin has put us up to something. She has asked us to play investor truth or dare. I am a little nervous. I’m going to just keep picking on Jamil. Jamil-
Jamil:
Yeah.
Dave:
… first. Truth or dare?
Jamil:
Let’s go truth.
Dave:
Okay. What is the grossest or worst thing you’ve seen when touring a house?
Jamil:
Oh my gosh. So I was talking to a physician, and he was a GP and needed to sell two properties, and he was meeting me at the house. So I go there, it was at the end of his day and it’s a really nice part of Phoenix. I pull up into his driveway, and as we’re walking from the driveway to the back of the house, he says, “I’m really sorry. I didn’t have an opportunity to clean up because I just finished my day. And your timing and my day ending just matched up, so come on in.” And we go into this house and I’m in shock at what I’m seeing, because all it is is bags of used toilet paper.
Dave:
What?
Jamil:
Bags and bags and bags and bags and bags and bags of collected, used toilet paper up and down the hallways of the house, in every room of the house, in the bathrooms, in the kitchen. This man, who was a physician, collected his own used toilet paper, and then thought that there was a way that he could have cleaned it up before I got there.
Dave:
Yeah, just a casual cleanup.
Jamil:
Casual cleanup. It was the craziest thing. It actually made me second guess the entire medical system, because I realized that this person had just been giving people medical advice before I went to his feces-filled property. So get a second opinion.
Dave:
I have so many questions. Well, actually, I have a friend who’s a doctor and she graduated medical school and I asked her, “What’s the most important thing you learned in medical school?” And she said, “Get a second opinion. Some of my classmates were idiots.” But wait, were they clear bags? I have a lot of questions.
Jamil:
Well, yeah. It was grocery bags, so it was all just coming out. They were full, they were full and-
Dave:
Oh, they weren’t closed?
Jamil:
Some of them were tied. Some of them were open. It was like a horror movie. And you literally couldn’t not see it. It was everywhere. They were everywhere. And they were piled on top of each other. The home smelled so badly. It was insane.
Dave:
Wait, but did you buy it?
Jamil:
I didn’t actually buy it.
Dave:
James would’ve bought it. He would’ve negotiated that down.
Jamil:
I should have. I should have. I should have put it under contract, but a competitor of mine actually did. And I saw that they ended up making like 30 or $40,000 assigning it to somebody. So one man’s poop.
Henry:
So it wasn’t a crappy deal.
Dave:
Can we get a rim shot? All right, Jamil. Ask someone else now. Pass it along.
Jamil:
Okay. Henry, truth or dare?
Henry:
Truth. That’s an easy one for me.
Jamil:
Truth. Okay. What is the worst deal you’ve ever been a part of?
Henry:
Oh man. The worst deal I’ve ever been a part of. So I’ve been pretty fortunate on the flip side to not have been a part of any crazy losing deals. So let’s see, I bought a house as a flip that I thought I could make a quick buck on. And sometimes, when you think it’s too good to be true, it probably is. And so I got a call from a seller who had a house that they had just struggled selling, and the reason they had struggled selling it is because their agent just sucked. The pictures were terrible. They didn’t do any follow up. It was just an agent trying to make an easy commission on doing the least amount of work. But the house was a really nice house, and it was in a part of this area where a lot of people retire to.
And so I was like, “Cool, I’ll just snag this property at a decent price. And then I will stage it. I have a rockstar agent and he’ll be able to get it sold and I’ll make a whole bunch of money, and it’s going to be awesome.” And so I didn’t do the proper due diligence. And so this house was a multi-level house, and so lots of stairs, and the backyard was super sloped. And so what I realized after I bought it was that most of the elderly people who live in this community didn’t want to have… It was laid out in a way where you couldn’t enjoy the benefits of the full house without having to go upstairs. It’s not like there was only a bonus room downstairs. To use the house properly, you had to go up and down the stairs every day.
And so most of the older demographic didn’t want to buy that house, and most of the younger demographic who had kids didn’t want to buy that house because the backyard wasn’t usable and it was super sloped, and so there was no yard for the kids to play in. And so even though I bought it and I staged it and it looked way more desirable, I got lots and lots of looks, I couldn’t get anybody to buy this thing. And it sat on the market and we dropped the price, and it sat on the market and we dropped the price, and it sat on the market and we dropped the price, and I ended up finally selling it for on paper what looks like a profit, but by the time you counted my holding costs and my fees and my commissions, I lost, I don’t know, not a ton of money. 10 grand maybe.
But it was a lesson for me in, don’t get too greedy and don’t think that you can just ease your way into making money. If it was that easy to make money flipping houses, everybody would be flipping houses. And so I lost my fundamentals on that deal and it cost me some money and a whole lot of headache. And I know 10 grand’s not a ton of money in the grand scheme of flipping houses, but you got to remind you, I was only about a year into the game at this point, and so 10 grand was a lot of money at that point, so that one wasn’t my fave. But lessons learned. Haven’t made that mistake again. Do my due diligence every time. All right. My turn. Dave, truth or dare?
Dave:
Oh, I guess dare?
Henry:
Perfect.
Dave:
Oh no.
Henry:
So Dave, I want you to invest $100 into the most random investment, so let’s see. Let’s see.
Dave:
Oh, that’s great.
Henry:
You get to pick, so you can invest $10 into the wild commodity of wine.
Dave:
Ooh. Okay.
Henry:
Or you can invest… I’m sorry. Not $10. $100. Or you can invest $100 into water, and so water as a commodity.
Dave:
Is that a thing?
Henry:
Yeah.
Dave:
How do you do that?
Henry:
Yeah, you can invest in water. Water is a commodity. And so you, my friend, can now choose between water or wine.
Dave:
Well, that’s easy, right? Wine, obviously.
James:
Basic necessity.
Dave:
I don’t know which one’s a better investment, but I know which one I would rather own, which is wine. So I’m taking wine.
Henry:
Well, they say you should invest in things you understand. And so you’re simply saying more about wine than water. I don’t know what that says about you as a person, but we will… So you have to invest $100 into wine as a commodity, and then you have to give us a follow up on how your investment is doing later on.
Dave:
Okay. Accepted. I like this a lot. I will figure out how to do this and I will report back.
James:
And you got to figure out how to turn water into wine, and then you’re there.
Dave:
Oh, I could combine them.
Henry:
You’re right.
Dave:
All right. I think for the last one, James, truth or dare?
James:
Let’s do a dare, Dave. What have you got for me?
Dave:
Oh, good. Well, I was hoping you would say this because when you were… James, for everyone listening, had to go off camera, and Henry, Jamil and I decided that you should have to jump off your boat right now while screaming the most amount of money that you’ve ever made on a single real estate deal at the same time. Do you accept?
James:
You can’t not accept the dare, correct? What’s the alternative? Actually, what even happens if you don’t accept the dare?
Dave:
You’re fired from the podcast.
James:
Yeah, no. I’m in. I’m in. I’m definitely in.
Henry:
Your friends, you’re letting [inaudible 00:55:32].
Dave:
I just want to see James’ boat neighbors. He’s just screaming as a thousand dollar-
James:
It’s going to get awkward. So what are we doing with this?
Dave:
Good.
James:
All right. So we got to jump off the… All right.
Dave:
All right. He’s leaping.
James:
Any requests for back flip, dive? Actually, straight dive. That’s probably a good thing.
Jamil:
Oh wow, you’re going to… Yeah. Just straight dive. Don’t hurt yourself.
Dave:
Yeah. We could all rate his dives. I mean, look at this guy, his podcast studio is a-
James:
This is, I will say-
Jamil:
Man.
Dave:
If you’re all listening to this, you should be watching this on YouTube, because you could see how sweet James’ boat is.
Jamil:
Yes.
James:
I’m figuring out the best place to jump off without hurting myself.
Dave:
Where are you, by the way? Can you do a little travel show intro for us?
James:
Yeah. We’re in Catalina Island. We’re up the coast of California.
Henry:
It goes with the wine, the freaking Catalina Wine Mixer.
Dave:
Oh yeah.
James:
Yeah. The Catalina Wine Mixer.
Dave:
Wine mix. It’s a wine for me to invest it.
James:
We’re doing this. All right. Well, I got to take my earphones out.
Dave:
All right. Well, I’ll just say bye James, because I guess this is the last time we’ll see you on this podcast. So thanks for joining us.
James:
Here we go.
Henry:
Let’s hear that number.
James:
All right. A million dollars.
Jamil:
Yeah. Well done. Well done.
Dave:
A million times out of a single deal? Very nice dive.
Jamil:
Perfectly executed.
Dave:
All right. Well, Jamil, Henry, this was a lot of fun. It was a little disorganized, but we had a great time. Always fun hanging out with you guys, and honestly learned a ton about wholesaling. This was a really cool conversation. Oh, he’s back.
Henry:
Hey.
Dave:
James, Bravo. We were just complimenting.
Jamil:
You’re awesome, bro.
Dave:
Excellent form.
Jamil:
You’re the best, James. We love you.
Henry:
Thank you, sir. That was amazing.
Dave:
That was great, dude.
James:
The one time I cleared six figures, so.
Dave:
Wow. That’s unbelievable. We’ll have to hear about that in the next show. You can go towel off.
James:
Yeah. All right.
Dave:
All right. Well, thank you all for listening. We will see you all next time for another episode that will be hopefully just as weird as this one. On The Market is created by me, Dave Meyer and Kalin Bennett. Produced by Kalin Bennett, editing by Joel Ascarza and OnyxMedia. Copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
2022-07-25 06:02:07
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