Steve Rozenberg and Alex Osenenko are joined by J Scott while in Nashville attending the Bigger Pockets Convention 2019.
J Scott is an entrepreneur, technologist, investor, and advisor. Host of the BiggerPockets Business Podcast. Author of four BiggerPockets books, including “The Book on Flipping Houses,” “The Book on Estimating Rehab Costs,” and “The Book on Negotiating Real Estate.”
Alex Osenenko: Boys and girls, welcome to the first episode of The Myndful Investor podcast Show. Your hosts here, Alex Osenenko and-
Steve Rozenberg: Steve Rozenberg.
Alex Osenenko: Steve Rozenberg. Good buddy. This might not be episode one, this is episode zero. Why don’t you introduce the series do.
Steve Rozenberg: Sure.
Alex Osenenko: So, very quick background. Steve and I have spent the last probably decade plus in real estate in various-
Steve Rozenberg: various forms
Alex Osenenko: various forms. We don’t have to dig in too much into it, but the takeaways is we want to still provide on this episode and this very, very first, first episode is, how do you deal with fear of getting started? This is something that I think is in the way of a lot of people’s success.
Steve Rozenberg: Sure. It’s sometimes it prohibits them from success because they just don’t take action. And I don’t think it’s just real estate. I think it’s anything that they do whether it’s we’ll talk about us making decisions to you know, join Mynd and leave our businesses and join our companies together. And all the things that we’ve done. But those are big things that lack of action would not cause us to be here.
Alex Osenenko: Huge. Or there’s risk-tolerance. So let’s start unpacking this.
Steve Rozenberg: Yeah.
Alex Osenenko: So this is The Myndful Investor podcast show boys and girls. Our purpose here, our goal is to bring reality data, facts for real estate investors who are about to make an investment or can, will continue to be successful making investments, maybe pivot into different types of investments. We’re going to cover a lot of things here, but the underlying purpose for us is to make sure we provide you with data and fact driven stuff, but also in story format.
Steve Rozenberg: Yeah. And you know, the one thing I think that a lot of people have a challenge with is when they, they want to get involved in investing and they want to see and seek out how to get wealth. I think the biggest challenges is that everybody shows you kind of how to get the deal. You know, the sexy, how I can make a bunch of cash on cash return and investments. But there’s nobody there that actually shows you what do you do on day two? Once you own that deal, like you get a deal that says this is going to be a 30% cash on cash return and this is going to be these numbers. But the next thing is what do you do on day five when the tenant says, I lost my job and I’m not leaving. And so we’re going to talk to the investors in my opinion and discuss how did you guys as investors get around those kinds of things and how did you work through those problems?
Because as investing, I always tell people this is the sandbox that we play in. We’re in a sandbox where there are a lot of challenges. There’s a lot of, the good thing about real estate is there’s no rules. The bad thing about real estate is there’s no rules. So it’s, good and it’s bad. And if you know, unfortunately when you’re in this industry, there’s really nobody there. There’s no guidelines to tell you whether you’re doing right or doing wrong.
Alex Osenenko: You know what Warren buffet said, which is like stays with me forever. He’s like, he’s never, he would never make an investment in the business or company. He does not understand. Completely. He’s a smart guy? He understands a lot of things. But this is kind of the… This show’s purpose is to help you understand. Whether it’s a specific vertical you want to get into. But even before getting like super educated on a particular vertical, let’s call it, buy and hold or-
Steve Rozenberg: Flipping [crosstalk 00:00:03:53]. Or maybe
Alex Osenenko: and within buying hold, there’s single-family, there’s multi-facets-
Steve Rozenberg: Absolutely there’s so many ways.
Alex Osenenko: There’s Houston, there’s Boise, there’s Albuquerque, right?
Steve Rozenberg: It cascades down. I mean it’s, it’s such a deep cavernous column. People don’t realize. And that’s a good point cause I think a lot of people, they want to get into investing. There’s all these people that show them how to get the deal, but there’s nobody to show you how to create the wealth.
And they never, and I think that a lot of people, they don’t want to take the time to slow down, to speed up. They don’t want to take the time to educate themselves on how to actually get the wealth. They just want the wealth. And I think all of us want that, right?
We just want to make it happen. And unfortunately there’s people that have hands in your pockets, they want to make money off of you. They see the a-
Alex Osenenko: especially in this business,
Steve Rozenberg: absolutely.
Alex Osenenko: there’s a loosely say, there’s no rules-
Steve Rozenberg: there’s no rules. That’s the problem.
Alex Osenenko: You can put a syndication. You can announce syndication on this show and there will be people who will-
Steve Rozenberg: Absolutely [crosstalk 00:04:47]. absolutely. And you know the whole, like you had said, the whole goal of this show is not to talk about the glory of some of these investors that we’ve had on the show and going to have on our show-
Alex Osenenko: cause their shows like that. Everybody’s just coming in and-
Steve Rozenberg: everybody showing me how broke they are, how much money they make. I don’t want to know that. You know, we want to know and I want to know personally, like first of all, how did you get to where you are and how do you continue to drive yourself to be a better person, better?
You know, because a lot of people on the show are going to learn that a lot of the people that we talk to, the one common thread that you’re going to find with a lot of these investors is the balance of their personal life and how happy they are on a personal level, not just a fine, it’s not just a numbers thing of owning investments. They’re doing it to create a lifestyle for them and for their family. And it’s very interesting to see how people that are creating wealth and being wealthy, how they actually will continue to do it. They’ve already made the money. They don’t need the money. They’re doing it to keep the lifestyle that they want to have and the balance with their family, which is totally different than a lot of other fields and investment, industries that I’ve ever known of.
Alex Osenenko: But it’s also a gain.
Steve Rozenberg: Absolutely.
Alex Osenenko: Once you get-
Steve Rozenberg: it’s the thrill of the hunt.
Alex Osenenko: We spoke to Jay and we’re about to sort of J Scott, we’re about to announce like what this first series is going to be all about the first season I should say. But like the J Scott and I, he’s the thrill of the deal.
Steve Rozenberg: Oh yeah.
Alex Osenenko: he’s, well, he’s fine. He’s very happy like they, but like what are you going to do if you are not, if you’re not, if he is just sit there and enjoy me. I guess some people can go to the library and ski all day.
But the folks that will listen to the show, I think will find thrill of the deal. But also that, as you said, not just the deal thrill of the deal is like step one, but then it’s the day to day management.
Steve Rozenberg: Yeah. Yeah, absolutely.
Alex Osenenko: Of your portfolio. It’s-
Steve Rozenberg: It’s the all encompassing. It’s almost like you’re, you’re living not a mantra, but you’re living a lifestyle.
And we had a doctor, Dr. Steve on, right.
Alex Osenenko: Is an interesting-
Steve Rozenberg: [crosstalk 00:06:46] he’s a doctor and he owns a lot of real estate. Has no desire to quit being a doctor. Very successful. And so-
Alex Osenenko: wait, wait, no, no, no, no. He wanted to quit. That’s why the whole episode was about, don’t you remember? He actually-
Steve Rozenberg: I thought at the end he said he didn’t want to quit. So we got him there.
Alex Osenenko: But, so this is very interesting episode and look forward to that episode.
Steve Rozenberg: Yeah, that was a good episode.
Alex Osenenko: There’s the MD, like legit one of the best doctors- [crosstalk 00:07:09]
Steve Rozenberg: Put himself in medical school [crosstalk 00:07:10] on his own.
Alex Osenenko: Oh yeah, Oh yeah. Is this fascinating story. And what happens is he now wants to go real estate full time just because he loves-
Steve Rozenberg: he loves it.
Alex Osenenko: He loves the dynamic of it, he understood it. He is the kind of guy, like he went through the pilot school. He’s the kind of guy who put his mind to something and just get it done.
Steve Rozenberg: Did it.
Alex Osenenko: He’d be like a top 1%.
Steve Rozenberg: Yeah, absolutely.
Alex Osenenko: But he wants to quit MD and be… So eventually I think where we got with him, I’m not going to give too much away.
Steve Rozenberg: Don’t give too much.
Alex Osenenko: but there’s an opportunity for him to continue practicing medicine and a lot less intense way.
Steve Rozenberg: Yeah, because he doesn’t need the money. Cause he does it. He’s doing what he loves doing and money’s not a problem. And so that’s what you’re going to learn with a lot of these people. And what we’re trying to extract from the show with a lot of these guests is that you’re going to find, there’s a lot of people that have different work life balances that are very successful. Some that money is not the driver, but they are successful, but that doesn’t drive them.
And so it’s going to be a way that you as an investor or aspiring investor or experienced investor, whatever it is at your… Wherever you are in your stage of your career. You’re going to look at that and maybe do some self reflection and kind of go, Hmm, I wonder how this applies to me. I wonder if there’s some things that I could do better. I could do different. Maybe I can’t do any of these at all, but I think that you’re going to do some self reflection on that from these people that we talked to. I’m very unassuming but very successful and I think you’re going to get a lot of very good takeaways from that. Just like you and I did because you had a business, right? You owned a business, you removed yourself from that business and joined another company.
There a lot of self reflection that has to go on before you do something like that. Right?
Alex Osenenko: I mean it’s incredible. So let’s shift, let’s shift to that part of the conversation. By the way, those of you folks listening or watching, if you’re watching, thank you. You can just go into the next episode, if you want to get dig into the content and stuff. But Steve and I will talk about next is very quickly talk about how to actually get started. So I think those of you who have not, maybe you want to stick around a little bit, there’s a mental shift that has to happen. Like I didn’t use to believe in any of that Voodo sheesh, right? To me it was all, it was just like-
If you are smart enough if you work hard enough, you get there.
Steve Rozenberg: Right.
Alex Osenenko: You get there, you work hard enough. You’re smart enough, you’ll get there.
Steve Rozenberg: Yeah. It’s not always the case.
Alex Osenenko: No.
Steve Rozenberg: I know a lot of smart people that make [crosstalk 00:09:31] no money and they’re not happy either.
Alex Osenenko: It’s not even about money. Right? It’s like, you know what the doctor wanted to… Dr. Steve wanted to make a move. I think, I mean I clearly remember there’s a lot of administration stuff.
With his profession [crosstalk 00:09:46] that he just doesn’t… With real estate frees him up to do what he loves. With doctoring, he wants to cure people. He loves that.
Steve Rozenberg: He loves it. He loves… He was saying, he loved being there when a baby is born and even when somebody passes on, he feels like he’s a part of that. It’s something almost holistic. He said that you’re a part of this whole cycle of life.
But if you’re just sitting there trying to get a paycheck. You’re not even paying attention to that part of the job. Which is probably why you even got involved in being a doctor in the first place. Or you know, Jay Scott, right? He’s, got race horses, right? He spends so much time with his family. Brandon Turner, you’ve got all these people that we know that are just so focused on doing what they want to do. They can enjoy their family because they’ve taken those, I don’t even want to say calculated risks, but they’ve been so smart and understanding what their next steps are because they’ve watched shows like this. They’ve educated themselves. Sure, they’ve made mistakes. We’re all going to make mistakes.
You know, it’s not a failure unless you learn from it. If you learn from it, then it’s a lesson, right? I mean, but it’s just one of those things. And I think what we want to unpack in these shows is why these people are being successful and how you are just like these people. And you can be successful too. You’ve just maybe have to change your mindset and think a little bit differently. Would you agree?
Alex Osenenko: Yeah, I would agree and the passion plays into it. I’m just wondering like I want to first step this out or point 0.01 episode. I want to introduce our behind the scenes guy. Dan, I’m just curious, Dan, are you passionate about the video? I mean, you out there fill me-
Steve Rozenberg: You look passionate.
Alex Osenenko: You sipping on a Corona. You look a little passionate there Dan. Anyways, so Dan is our… You’ll see the quality of what we produced.
Steve Rozenberg: Yes, absolutely.
Alex Osenenko: That will be his top-notch quality.
Steve Rozenberg: It’s going to be top-notch quality. It’s going be the level of people we have, the thought processes we have, the access to educational levels that we’re going to be able to bring in. I mean, I think it’s going to be bar none, one of the best, if not the best shows that are out there with current constant education at a ground level. I think.
Alex Osenenko: Let’s talk about this. Let’s… we promise this, let’s talk about this. Let’s talk about your move that you made.
Steve Rozenberg: Why am I first.
Alex Osenenko: I don’t know cause I’m the one speaking.
Steve Rozenberg: Okay, fair enough you be first.
Alex Osenenko: I’m the one asking the question. And so you’ve made a significant move. So I’ll give a quick pre-story.
You’ve been an investor and I’m going to move out the chair for a second cause I want to grab your book. Oh, we’re using it as a coaster.
Steve Rozenberg: Yeah, They threw it on the floor. [crosstalk 00:12:16]. It was on the way and they threw it on the floor.
Alex Osenenko: So there was kind of-
Steve Rozenberg: A lot of respect-
Alex Osenenko: [crosstalk 00:12:21] to throw it in my face.
Steve Rozenberg: for my workings.
Alex Osenenko: Hey you sign my book, we’re not selling any books.
But the idea is, he was a failed investor, Steve, because it looked good on paper and they kept on buying it and when it didn’t work, you know what was a good idea?
Steve Rozenberg: Buy more of them. Buy more, why not?
Alex Osenenko: Buy more and so from there he said he couldn’t manage it. So started a management company, very successful Gouda company to 900 properties that can manage.
Steve Rozenberg: 900 doors. Yeah.
Alex Osenenko: In Houston and all of a sudden the things like he’s one of the fastest growing companies in Texas.
Got like 500s of five-star Google reviews. I mean, absolutely dominating. And guess what happened? Steve decided to make a move and partner with mine. So in other words, essentially sell his company to mine. In order for a chance to join and become host of this show. That was a big deal, wasn’t it?
Steve Rozenberg: Absolutely. It’s to me again… I’ve always learned in my life and this is something I think a lot of people can take away. What gets you here is not going to get you there. You and I have had these conversations and I think life and someone told this to me one time and it really resonated with me that life is like a book and you have chapters and there’s a chapter that could be a great chapter, but at some point that chapter ends and when that chapter ends, a new chapter begins and you don’t go back to that chapter again. And the company, Pete Neubig and I built and the team that we had. It was a great chapter and it got us to the next chapter and the next chapter is going to be better chapter.
And that’ll be a chapter after that. And I think that’s life. And I think that a lot of people never flip that page and they never move on to the next chapter. And maybe they slide backwards. And so I think the biggest challenge, the thing that I learned was this is just part of the growth cycle. It’s like leaving high school, right? We all know friends in high school that never left high school. They’re still, they’re mentally talking about the days of high school. They’ve never left there. And so a lot of people, same thing in business, some people just do not want to leave the comfort zone of their business. And look, you read these books, you do the audios and you hear like, you know what, you have to be comfortable being uncomfortable and that’s all well and good until you really are uncomfortable.
And now you’ve got, it’s like the rubber meets the road.
Alex Osenenko: That’s growth, that’s when the growth happens
Steve Rozenberg: It’s growth. You have to be okay. And at some point you’ve got to say, you know what? I’m going to trust the process. I’m going to trust my education. I’m going to trust everything I’m doing. I’m going to shut this chapter and I’m going to move onto the next. And that, that’s kind of what I did. I just… I trusted the process. I trusted you. The people at mind, everybody that was involved in helping us come over. I trusted it and I said, you know what? Based on educated calculated decisions based on everything that I think that mind will be able to provide for me and where the future is with mind. It was a no brainer. But there’s still that risk. You’re leaving your own company that’s doing fine. That’s very successful.
Alex Osenenko: No brainer. People say that in a rear view mirror, it’s no brainer. When you in the-
Steve Rozenberg: When you’re in the turn, it’s not as easy.
Alex Osenenko: Remember we talked about your role, so now you’re VP of investor education. We’ve talked about your role. We had a lot of back and forth. Those emotional moments. It’s difficult guys and girls it’s definitely difficult.
Steve Rozenberg: Not easy.
Alex Osenenko: Can I unpack something you said?
Steve Rozenberg: Sure.
Alex Osenenko: You said there’s a chapter. I love that, by the way. You always teach me new things. Oh, it’s mine now.
Steve Rozenberg: Dan quote that.
Alex Osenenko: So it chapters, how do you know this is, I sometimes have problems with this. How do you know when the chapter is coming to an end? Is it when you see a new opportunity, and it’s like, Whoa, you know, it’s it. Like how do you know when the chapters ending, how not to hold on for too long [inaudible 00:15:58].
Steve Rozenberg: You know, I think that’s different for everybody, but I think sometimes the chapter closes already and you don’t realize it. Like your chapter… you may have a chapter that’s already closed and you are just not accepting that it’s closed. Sometimes when we’re… When you’re in the heat of battle and you’re kind of in the weeds. And again, this chapter this… The books over the book, the movies over, right? The, the credits are rolling and you’re still sitting there not leaving the movie theater. Right. And so sometimes we may not want to it accept that that chapter is over in our life.
Alex Osenenko: Do you have an example, by any chance, can you think of an example of someone you know. You don’t have to name names. Or maybe yourself where you sort of overstayed your welcome per se? I mean-
Steve Rozenberg: I never overstayed my welcome.
Alex Osenenko: You wheeled in a bag today, your airline bag into my house
Steve Rozenberg: Yes, yes, yes to my house. And he said, are you staying here tonight?
Alex Osenenko: You did not tell me anything. Maybe we’ll cover that. But is there a chapter?
Steve Rozenberg: I don’t know that I have a chapter, I mean maybe I do that I don’t know about. But I think at… My thought… I’ve learned… I’ll give you a perfect example where I made a decision, a lot of indicators. So you know my, my being an airline pilot, right? So that chapter 9/11 that chapter ended, right? So for me now, I still stayed as an airline pilot, but after 9/11 there was a new chapter I didn’t want to… A lot of people did not want to accept it. So what did a lot of people do? They went down to South America to fly. They went over to Asia and they flew airplanes at a quarter of the income that you are making as a U S airline pilot. Why? Because they didn’t want to accept that things were changed and they didn’t make the decision to flip the page and start a new chapter.
I said, you know what, I love being a pilot. However, I’m not going to let this dictate me anymore and what I’m going to do is I’m going to take control of my future and start learning about real estate. A lot of other people said, I’m going to Korea. I’ll be there for three years flying small planes until this thing weeds itself out. To me, that’s not accepting that the chapter has ended. So that’s the best way I could describe how a chapter can change and you not accepting that it’s changed. Because all the indicators were that the airline industry as a whole will never be the same again.
Alex Osenenko: That’s very good.
Steve Rozenberg: So that, that’s how I would basically essentially say that’s how you know it, but enough about me. Let’s talk about you Alex.
Alex Osenenko: Dude, I can’t believe like, I can’t believe how like we’ve done podcasts in the past, but I can’t believe like how this is connected because I was just going to say, Dan, stop the recording for a second. Steve, why don’t you ask me about me now? We only have 20 minutes to this 0.01 episode. We want to be respectful to the audience. They don’t want… us yammer for 20 minutes. They want to get into the meat of what this is all about. Which is top-notch education validated with a couple of guys .
Steve Rozenberg: So based on this conversation, we’re talking about people making a decision and moving on and things happening, right? So you had a company, right? You had a very successful company, still do, still have the company and you made a decision to basically essentially remove yourself and join mine. Right? Essentially he’s my boss, so I got to be somewhat nice to him, I guess. But you know, basically you, you made a decision, right? And calculated or not the chapter ended, right? Some chapter ended and again, it’s not just you, right? You’ve got a wife, you’ve got children, there’s a whole trail behind you that are affected. There’s a ripple effect, right.
Alex Osenenko: There’s also people in the current, in the company I left
Steve Rozenberg: in the company left. Yeah. The allegiance going, Hey, where’s Alex? Alex, you know, and so there’s, maybe a guilt factor at some level to go, man, how do I do this? Am I doing the right thing? Am I being selfish? Am I being, am I doing the right thing for my family? How did you unpack all that and go through those iterations mentally?
Alex Osenenko: Definitely a lot of guilt. Definitely a lot of sort of second guessing yourself. That’s, I think that’s all normal. But like you will laugh. Maybe a stoicism is something that I am sort of investing in right now. My sort of mental resources and Tim Ferriss is my favorite podcaster and he’s big. He wrote this book, the Towel of Seneca and anyway, it’s very interesting philosophy on how to sort of deal with change. But the way I think about this is, one life. I think I learned it from you. Like you only have like 4,900 whatever however many-
Steve Rozenberg: 4,400 weeks is the average person lives.
Alex Osenenko: Yeah. 44 that’s it?
Steve Rozenberg: 4,400 weeks is the average person [inaudible 00:20:29].
Alex Osenenko: Blink of an eye baby. So yeah, if you not like take an action now. Like when opportunity came about Mynd CEO and I had a great podcast on my previous show, The Property Management podcast, and we connected really well.
We’ve sorted started talking and we will find out this company is going to crazy things. Somebody is going to figure out how to do… How to become like the South West of property management. Zappos of property-
Steve Rozenberg: There we go. I mean I don’t fly for Southwest so [crosstalk 00:20:59], but I get it. I get your point. The Google of the search engine how’s that.
Alex Osenenko: Yeah… I like to be… Yeah… Okay… So yeah… Not we work. Different, but too soon. Yes. Somebody is going to figure this out. I loved the team, I loved the direction. I loved the company. They have access to capital. Smart people. Smart boys and girls work with us. And look, Steve and I have a chance to create amazing things and my passion is to teach. I love teaching, running company is, I love it. But the creative part of directing the strategic… I guess direction of the company and teach and coach the team.
And our future customers or just listeners or just audience. So anyway, that’s why I’m passionate and so for me like just let me take a quick shortcut cause I could talk a lot about this. This was very difficult decision but, and I left a lot of people behind. I don’t necessarily feel great about everything that I’ve done, but I think, I think to me the important thing is no fear. You can’t, you’ve got to remove fear and being more deliberate about this. That’s number one. And number two, it’s a game. It’s a game. You get 4,400 weeks to play it.
Steve Rozenberg: That’s right. That’s it.
Alex Osenenko: I will make the moves that I need to make for my family. But as well as I’m not going to be 39 to 40 again.
Steve Rozenberg: Yeah. You can’t go backwards and you can’t be afraid to step off that ledge. You educate yourself and you learn how to step, but you cannot be afraid to take that step. Now you’re going to have, critics are going to have criticism. You’re going people that second guess you. You’re going to have all of that.
Alex Osenenko: Just the comments on the show. We’ll show that there’s a lot of people really unhappy with my decision. A lot of people that wished me well and very, very happy but-
Steve Rozenberg: Yeah, I think more the latter. I think a lot of people want to wish you well. I think all of us, I mean, I think, you know, there maybe there’s some people that kind of go, man, I kind of wish I did that. Deep down. I mean I think there’s a lot of that. So, I think just to kind of wrap this up, I think what we’re trying to get across as Alex and I are really going to dig deep in these shows with these investors. We’re going to ask them those questions-
Alex Osenenko: Hard questions.
Steve Rozenberg: Hard questions. We’re going to ask them some self-defining questions and we are going to have some definitely solid industry players that are here. Maybe not here in this studio, but in our studio. We, we’ve got some, some bigger pockets content. We’ve got a lot of stuff that’s really going to unpack and really asked people, how do you do it, why do you do it, how do you keep doing it and how are you getting better? And those are the kind of concepts that we’re going to go through.
Alex Osenenko: So until then, enjoy the rest of the season. We love to have you as a listener to drop us a line or comments to this show. We’re always happy to hear if you… There’s any specific thing learn what’s our Facebook group.
Steve Rozenberg: The Mastermind Real Estate Facebook group. Definitely join that. Cause there’s a lot of people in there.
Alex Osenenko: It’s a private group though. So you got to go through a little bit of a quick here interview questions. I need to ask questionnaire. We want to make sure like real people-
Steve Rozenberg: We want quality people. We don’t want people selling stuff in there. We want people to actually want to learn or want some resources to answer some real estate questions cause that, that’s what it’s about.
Alex Osenenko: And speaking of selling that one thing, you can be assured, we’re not selling anything yet. The beauty to be funded by a large company and growing and thriving company like Mynd, we don’t have to sell anything. Nobody is going to sell you crap on this show. Mark it now and enjoy the rest of the season. Thank you very much for tuning in.
Steve Rozenberg: Make sure you subscribe to our show and make sure you go to our landing page. We’re going to have shows dropping all the time on Fridays is when our shows are going to drop. Make sure you’re paying attention. Join the Facebook group and you’re going to get a lot of good content information from all different walks of life and all different types of investors. So again, make sure you subscribe it, write it on your hand, do what you got to do, but make sure that you know, our shows are coming out here.
Alex Osenenko: Write it on your hands.
Steve Rozenberg: We’ll see you guys.
Alex Osenenko: See you late
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Alex Osenenko and Steve Rozenberg discuss real estate and technology with Chad Gallagher in Nashville while attending the Bigger Pockets Convention 2019.
Chad Gallagher is the Chief Investment Officer & Co-Founder of SlateHouse Group. Chad is originally from Lititz, PA. Chad graduated from the University of Virginia with a Systems Engineering Degree. He launched Advertising.com mobile, which is now a $100M global advertising business and helped it eventually get sold to Verizon.
Alex Osenenko: Boys and girls, welcome to another episode of The Mindful Investor podcast show, Steve Rozenberg, Alex Osenenko here for you, for you because we want to bring you the latest and most interesting, the most valid and fact-based information on investing in real estate so you can find your way in this wild and amazing world of real estate investing. Steve, who do we have on the show today?
Steve Rozenberg: So today, as you know, we’re still at the BiggerPockets Conference. We’ve got a lot of information. We got to sit down with Chad Gallagher, owns his own property management company. Guy’s grown his company exponentially fast to 4,000 properties.
Alex Osenenko: In two weeks.
Steve Rozenberg: Yeah, I mean it was amazing how quickly he did it. He’s got nine offices and you know, what you’re going to get out of this is how he understands that there needs to be less friction in the property management industry and use artificial intelligence, use technology to speed up the ease of use of owning a property and having it managed by a company. So he really gets a bigger picture stuff that a lot of people don’t see yet and you’re going to really be able to dig into what he thinks, how he thinks and understand his perspective of how he grew to 4,000 properties in a very, very fast time.
Alex Osenenko: Essentially he is the real estate investor who was just not happy with property management.
Steve Rozenberg: Exactly.
Alex Osenenko: What was available at the time. Let’s get into the show and find out what Chad thinks.
Steve Rozenberg: Hey Alex and Steve here. BiggerPockets man. What an amazing conference.
Alex Osenenko: It’s been good man.
Steve Rozenberg: It’s 2019, they haven’t done that one in seven years and here we are. I didn’t expect to have that kind of a show with 1200 people showing up. But also it’s the caliber of investors, caliber of people we meet. We can record a 43 podcasts.
Alex Osenenko: There’s some talent here. There’s some knowledge in this building.
Steve Rozenberg: Yeah, and I think our guest is one of the one of the most interesting people we’ve met.
Alex Osenenko: Yeah, he’s like under the radar too. Never heard of his company. Didn’t know anything about him.
Steve Rozenberg: Like imagine being in the property management world and not knowing you have a 4,000 unit company.
Alex Osenenko: [crosstalk 00:02:21] 4,000 units.
Steve Rozenberg: That’s quietly killing it in four States that we didn’t even know about. So Chad Gallagher, welcome to the show buddy.
Chad Gallagher: Oh man, this is awesome. I love the setup. For those of you on the audio waves were in this hotel room in a bat cave, side of the conference doing a podcast. But we have like lights and you guys…
Alex Osenenko: We’ve got a video guy. Doesn’t everybody have a video guy? You don’t bring your video guy with you when you go to a conference?
Chad Gallagher: [crosstalk 00:02:45] This is like a thing.
Steve Rozenberg: Yeah. It’s a thing. The beauty of a podcast is our audience gets exposed to this really kind of private conversation between sort of thought leaders or people who at least have a lot of knowledge and background.
Chad Gallagher: Or pretend to at the very least.
Steve Rozenberg: Or pretend to, correct. And then they get exposed to this. So this is interesting. Let’s jump right into the topics. So Chad, you’ve built this fantastic company in a very short period of time, probably 4,000 units under management.
Alex Osenenko: Five years?
Chad Gallagher: Yeah, we started from four and a half years ago. We opened up the doors.
Alex Osenenko: That’s insane, man.
Steve Rozenberg: Yeah.
Chad Gallagher: Yeah.
Steve Rozenberg: It’s called SlateHouse Group, by the way, those of you listening.
Chad Gallagher: Yeah, it’s called SlateHouse. My best friend growing up, we started investing actually in 2012. We both had full time jobs. He was a math teacher. I was heading up a mobile advertising business unit, traveling all over the world, talking to CMOs about mobile ad tech, which is a whole other story. We started to invest in 2012 acquired some units and honestly we needed a prime management company. So we interviewed a bunch, this is like 2014.
Alex Osenenko: How many times do you hear that story? We needed a management company so we started our own. That’s my story that’s yours, it’s so true.
Chad Gallagher: Yeah. And honestly, so I left those interviews, pissed off, I wasn’t excited, I was pissed. I was like, Nate…
Steve Rozenberg: Can you tell me why? What was some of the things?
Chad Gallagher: So look, I’ve got an engineering background and so for me it was, like in 2014 I was saying, the world of property management is going to be tech driven and if we’re going to try to scale, we need a partner who lives, eats and breathes tech and is into transparency and is also just passionate about, that’s what I wanted as a partner. And I went 0 for 3. I didn’t see any tech, no one believed in tech that we talked to. On the transparency front, I thought prices were way higher. I mean I was hearing management fees of 9% to 10% of collected rent. I was like, that’s crazy. Your pricing hasn’t changed in the last 25 years. And then three, and I’m just a believer in this, I think you got to be passionate on what you do. And I saw a lot of people who were really grumpy.
Alex Osenenko: Just worn out.
Chad Gallagher: Yeah, just it seemed like they were running companies for the last 40 years. Some of them passed down through generations and they just seem to hate their life.
Alex Osenenko: I think a lot of property management companies, the property manager, the owner of the company, they identify themselves as property managers. They’re not business owners, so they don’t look at tech. They don’t look at ways to leverage. And this is just my opinion.
Steve Rozenberg: A few do, but most don’t.
Alex Osenenko: Very few do it. But the ones that, the majority, they identify, I’m a property manager, I go walk properties. I do, it’s all I, it’s not a, “Hey, what do we do as a company? How do we scale?”
Chad Gallagher: Yeah. And the problem with that is when the leader is in the trenches, they’re not excited about growing, number one. And they’re not set up to scale because it’s all based on them.
Alex Osenenko: And they’re really not giving good service to an investor because they’re not there. I’m going to say they’re being selfish in regard as far as if I was an investor, because they’re not up the world of technology of what could be. I’m limited by whatever the property management company is willing to invest in their own company. We don’t invest in technologies. So you don’t get technology. So as an investor I’m going, “Well that’s not fair. I mean if mine wasn’t in all the locations that they are, how do you go and invest in these other locations? Well you don’t. With mine, you would have to go with another company and that’s the challenge when you get these mom-and-pop operators as an investor, you’re stuck. What you went through is the same thing, man.
Steve Rozenberg: This is one of my friends. I’m kind of like, he’s invested, he’s a serial investors, buying properties. I buy based on the property manager relationship. I go into the town…
Alex Osenenko: Integral, man.
Steve Rozenberg: I would go into the town, I do my interviews, I find a company that I can trust. I do reviews. He has a whole matrix on how he does that and if he finds that company, he then puts the effort into researching it and start looking for houses.
Alex Osenenko: Which is ridiculous in real life.
Chad Gallagher: But that’s how it has to be.
Alex Osenenko: But it’s necessary.
Steve Rozenberg: So property management first absolutely is a smart investors’ mentality, by the way.
Chad Gallagher: It’s interesting there’s this phrase that you hear in real estate, which is you make your money on the day that transaction, right? If you buy at the right price. I don’t if I can swear, but that’s bullshit. Like I don’t agree with that. Right? I mean, yes that’s one approach, but the operator is really important. Really important. Especially if you’re trying to be at arms length and you’re trying to go out and just be the asset manager or you’re trying to actually grow a portfolio. I mean the operator, how that thing is operated is going to matter just as much as the price you buy it for.
Alex Osenenko: Yeah, I mean it’s funny, I always tell people, I’m like, “Anybody can get a good deal,” right? You can bargain with 200 owners and you could get a great deal.” Getting that return day after day, month after month, year after year, there’s no books that show you how to do that. They all show you how to get the deals. Like you see the Instagram, I made this much money on a purchase, but how do you get the 10%, 15% return?
Chad Gallagher: You have a property management relationship.
Alex Osenenko: You have to have somebody running the business.
Steve Rozenberg: So let’s pivot. Let’s pivot this conversation into now, what are the innovations that you are seeing your implementing and you’re looking to implement that’ll benefit investors, that benefit people that need this kind of help and transparency as you call it.
Chad Gallagher: I mean, look, I think it sounds kind of like an overkill, but I think it’s all about tech and with tech you can actually scale up processes and you can scale up across different geographies in a way that the experience feels the same. We have investors who will invest across a couple of different states and obviously the people who are doing the plumbing repair are different. But it doesn’t feel different. The reporting feels the same. The maintenance coordination feels the same. The way we handle leasings feels the same. Our company’s strategy and philosophy and how we treat owners, all that feels the same.
Alex Osenenko: [crosstalk 00:09:03] So the client and the client facing portion is the same for them. They may use different PVC piping and galvanized piping in there. That’s irrelevant, right? I mean it’s what the clients see, it’s the same experience. You’re selling the same experience basically, right?
Chad Gallagher: Yeah. And so I think that’s kind of interesting because, and we were talking about this a little earlier, is like as an investor, I mean the other thing I kind of run contrary to is everyone says like “Real estate is local, real estate is local.” And I just say, “Yeah, used to be.” I mean there’s still a local component or always will be, there’s always a building in the ground locally, but now you can actually invest across different areas. You can have teams spread out across different areas. I mean, our company, we’re four and a half years old and we cover four states. I mean, 10 years ago that didn’t exist. I mean not that I know of at least.
Steve Rozenberg: Five years ago it didn’t exist. I didn’t know anybody who scaled that fast to this day.
Alex Osenenko: I know, I don’t think I have either.
Steve Rozenberg: I’m very surprised to hear, well there are people that have operations, so the RentVest model is, you know, you put in a portfolio manager in the area and so you just throw some leads their way and until it grows out into something meaningful, it’s one manager. You actually guys have a physical whole operation set up?
Chad Gallagher: Yeah.
Steve Rozenberg: Or is it more of a virtual?
Chad Gallagher: No, we have eight or nine offices. So there’s an office and then there’s local property managers. And then one thing that we do is a little different, I think it’s really important and it comes with scale, I’ve got full time maintenance guys that are employees on with SlateHouse.
Steve Rozenberg: On staff?
Chad Gallagher: Yeah. And it’s not just carpenters, it’s carpenters and cleaners and roofers and HVAC. So you say like, “Why does that matter?” It’s a couple of things. One, if there’s a catastrophe, a big problem and I need someone out there tomorrow, I can get someone out tomorrow because this is my employee and I can tell him “I need you there tomorrow”, you know, or today, right? That you can only do that with scale. If you’re managing 50 units, you can’t have a full roofer.
Alex Osenenko: Right. Well let me ask you this is because we tried to go down this path and we weren’t big enough and so we backed out of it. But, what we realized is that’s another business. Did you actually have to create a… I mean maybe not entity wise, but it’s a different business model, business plan. I mean now you’ve got staffing and hourly to tag to a property. How do you do all that?
Chad Gallagher: Yeah, his name’s Nate Jones. Yes. So the other co-founder of the company, he heads up all of our just brutal blocking and tackling of really managing both our kind of day to day operations, but also our maintenance team and their teammates. And they’re employees of ours. And look, anyone who’s ever hired any maintenance tech to do anything, it knows that there’s days that’s not easy. I think there’s some things we do that are a little different. So we offer healthcare to these guys. We’re just rolling out 401k. Right. And so as an investor you say, “Why do I care?” What that creates is continuity with the team.
Alex Osenenko: Quality work done on your property.
Chad Gallagher: Yeah. And look, man, right now the market’s hot in a hot market, it is hard to retain contractors and find contractors. Right? And so it’s really nice to our investors to say, yes, like property owner, we’re happy to use a subcontractor if they want to use someone they like, Billy the plumber. We have this long list of subcontractors that we work with, but we also have full time maintenance guys are employees that have been employed with us for three, four years that I know I can trust to go fix a roof.
Alex Osenenko: You know their strengths and their weaknesses. So you know what, don’t send Joe because he sucks at that, send him to this job, send this one to that you know?
Chad Gallagher: Yeah. It’s hard. Yeah, I mean, I totally agree and I think it’s going to be really interesting. One thing I’m super passionate about is this, like what we’re calling like the next generation of real estate. So I didn’t come from a real estate family. Seven years ago I was a renter, my parents were school teachers, the co-founder of the company, his parents were a school teacher and a factory worker. But I think what tech and transparency enables is for people to get into real estate and invest in properties and create meaningful wealth who didn’t know anything about this before.
Alex Osenenko: You don’t have to learn how to frame a house now. Back in the day, as a kid, I mean my parents didn’t own real estate, but you know, you hear like, “Oh, I had to work on the properties with my parents.” That’s not as relevant now. Now, like you said, you can own something and what’s interesting is it’s not even around the country. You could own stuff in other parts of the world, you know? I know people that own stuff down in South America, they own stuff in Australia. So technology gives you that ability or people in Australia that own stuff in the US that never used to be the case.
Chad Gallagher: That’s what I’m excited about is that person who today has all of their money in a 401k somewhere making 4% a year, right? Can start to get in, I mean I’ve been posting on Facebook a lot about this is like just go buy one single family home. There’s a lot of talk about multifamily and we manage some multifamily and we love multifamily investors, but we don’t need to overcomplicated this thing. Go buy.
Alex Osenenko: [crosstalk 00:14:11] Keep it simple man.
Chad Gallagher: A hundred thousand dollar single family home and over the course of 20 years that thing gets paid off. You buy one of those a year that is literally life changing to the average American.
Alex Osenenko: It works, It just, it works. It’s simple and it works and it’s worked from the beginning of time and it’ll keep working. Everybody needs a roof over their head.
Chad Gallagher: Yeah. And I’ll tell you that. So something I’m passionate about is so my wife, her grandmother owns this portfolio in Florida and it’s a cool story. She started investing at the age of like 65, a baller by the way, all by herself. So and over the course of like 10 years built up a portfolio of like 50 units. Super cool story. But here’s the sad part. The sad part is it was all in Panama Beach, Florida and a hurricane came through and basically decimated her portfolio. And the point of that story that I tell investors is what technology enables is for you to truly diversify. And so I tell our investors, “Yeah, buy a property in Baltimore and then buy something in Virginia Beach and then buy something up in Lancaster, Pennsylvania and, and you can then own stuff in different economies, different states, different areas.” And man, that is really powerful because now when that big strong comes through and hits, it’s hit, you know, 5% of your assets, not 100%.
Alex Osenenko: It’s like similar to owning stock, right? You may have stock in tech, you may have stock somewhere else. It’s just stock. It’s a map. You know? And what I think a lot of people don’t understand, and I think why a lot of people think they need to invest locally is because they think because you live in a house, they equate that to owning a rental property. That’s the worst mistake. If it was a pizza shop, you wouldn’t equate to living in a pizza shop. You would know they have to pay rent. But when you live in a house, you go, “Well I live in a house, they live in a house, so I’m going to run it the way I would live in my house.” It’s like owning a stock. When you own stock, you don’t go and stick your head in the building of Chase and go, “Hey, what’s going on guys?”
Like why was the board of directors meeting going on today? No, you buy based on dividends, PE ratios, all that. And that’s the same thing in real estate.
Chad Gallagher: You wouldn’t just be, “So what’s your for retirement? I’m going to own Chase stock.”
Alex Osenenko: Yeah, exactly. Exactly.
Chad Gallagher: Like I live in New York and Chase’s headquarters are there.
Alex Osenenko: I can see the building. That’s where I’m going.
Chad Gallagher: That’s it. I’m just, people would say that’s crazy. Yet that’s what they do in real estate, right?
Alex Osenenko: Absolutely.
Steve Rozenberg: So that’s fantastic. So let me ask your opinion on something. So there is a tool, we here at Mind recently sort of merged with, acquired a company called HomeUnion and their tool is INVESTimate. It’s online marketplace for buying, selling investment properties. There’s Roofstock. There’s a population of these kinds of startups coming up. What are your thoughts around it? Have you thought about sort of plugging in into that ecosystem? You building something over your own? What are your thoughts?
Chad Gallagher: We’re not building our own, but we are starting to work with them. So I was actually here at this conference talking to Roofstock being one of their preferred property management companies. So that’s where I think we’ll do is, by the way, I put Zillow in that bucket too. I don’t know if they quite had the product there yet, but they will.
Alex Osenenko: They will. It’s just a matter of time.
Chad Gallagher: Right. So I think you’re going to see four to five of these things. And I’m totally a fan. Look, if you can buy a pair of socks online, you’re darn well should be able to also buy a piece of real estate.
Alex Osenenko: I love when people say…
Steve Rozenberg: I like your analogy though, “If you can buy a pair of socks, that’s complicated enough.” What, Alex?
Alex Osenenko: Whenever I hear somebody say they could never do it in this industry, that is the next thing coming.
Chad Gallagher: [crosstalk 00:17:41] That is the most awesome opportunity. That’s the unicorn right there.
Alex Osenenko: Yeah, exactly. Like really, you don’t think they could like Uber couldn’t have knocked out the taxi cab industry.
Chad Gallagher: I’ll tell you who’s in trouble. I’ll you who I would not want to be right now is a real estate agent who is not buying into tech and is not creating a differentiated value for him because in this world where people start buying things online the information flow is there. And so the value of the real estate agent drives diminishes greatly.
Steve Rozenberg: It’s a very powerful organization, real estate. A lot of people are taking chunks, try to bite out of this real estate industry. You know, us included. Let’s face it, like stodgy, you know I love property management. There’s a lot of players like you. And you guys are going to be great and many others, maybe 100, 150, 200, 300 others will be great, but most are just not interested in improving their.
Chad Gallagher: I actually don’t think there’s going to be 300 so I actually think if you…
Steve Rozenberg: Project management companies?
Chad Gallagher: If you look at what tech has done.
Steve Rozenberg: Interesting.
Chad Gallagher: So right now, how many project management companies are there? It’s like crazy, right? 40,000 or something?
Alex Osenenko: Yeah, there’s a lot.
Steve Rozenberg: 30,000 but realistically maybe 10,000.
Chad Gallagher: But you know what that sounds like to me? It sounds like there used to be a lot of taxi cab companies.
Steve Rozenberg: But there’s still a lot of taxi cab companies.
Chad Gallagher: I don’t know.
Steve Rozenberg: I mean, every town. Castro Valley. That’s my town has a freaking Castro.
Alex Osenenko: If you want to go out with your wife, would you take Uber or your taxi?
Steve Rozenberg: Well that’s not [crosstalk 00:19:07].
Alex Osenenko: That’s the point. That’s what technology has done. Right? They’d taken your…
Steve Rozenberg: I got it. I understand, so I want to hear your thinking.
Chad Gallagher: So I think that the days of it being every town has 30 property management companies. It’s just going to go away.
Alex Osenenko: I agree with that.
Chad Gallagher: There’s going to be, in every town, there’s going to be three to four.
Steve Rozenberg: But that’s like 50 major markets.
Chad Gallagher: But then we’re going to see is these scaled property management companies where country-wide, I mean this is just a hypothesis. I know, but I think it’s going to be like 50, 100.
Steve Rozenberg: 300 rather. That’s what I’m calling 300 in 10 years.
Chad Gallagher: Yeah.
Steve Rozenberg: But let’s take a step back for a second. That is an interesting aspect. However, there’s one other thing I hear a lot about and that is yes, we want tech, we want radical transparency, all those good stuff. Most investors will want that. But a lot of investors want personal service too. It’s important for people to get a call like Memphis Invest, get a call from your portfolio manager every month and say hello.
Chad Gallagher: So our style is, in with all of our tech, you still have a day to day property manager who’s your point of contact.
Steve Rozenberg: Relationship?
Chad Gallagher: Yeah. And that’s the person that you can ping, you can email. We actually, we prefer tickets. And I know it sounds crazy.
Steve Rozenberg: But we have to operate on tickets.
Chad Gallagher: You got to scale.
Steve Rozenberg: What is the number of properties that you expect a property manager to manage?
Chad Gallagher: It’s about 120.
Steve Rozenberg: We try to drive 500, right?
Chad Gallagher: That’s a lot.
Steve Rozenberg: Right? But there’s layers, right?
Alex Osenenko: But there’s supporting staff.
Steve Rozenberg: We have a hub, the asset, we go asset management. So they solve all these problems.
Chad Gallagher: [crosstalk 00:20:40] There’s different versions.
Steve Rozenberg: Yeah. But you can’t, like you can’t, and there’s property assistance and all that. But if you expect your PM, like realistic, if you expect your PM to be on call at any time, you’re not going to be able to scale.
Chad Gallagher: Here’s the bigger problem. The bigger problem, you think about today’s day and age, if you’re prime manager, you’re getting pinged through text message, you’re getting phone calls, you’re getting emails, you’re getting that random tenant who stops by the office.
Steve Rozenberg: Freaking walk-ins, yeah.
Chad Gallagher: I mean the passenger pigeons coming through pretty soon, right? And so the reality is…
Alex Osenenko: And how many of those are nice messages and phone calls.
Chad Gallagher: Most aren’t. The reality is even your best property manager to stay organized is so hard. So what we’re trying to do is say, “Look, let’s funnel all of that into a ticket” and the ticket is something very simple. The ticket might just say, “Hey I need a copy of my five leases because I’m about to do a refinance my building.” Okay, great! So it’s a ticket and then the property manager just resolves a ticket and when it’s done tickets closed out.
Steve Rozenberg: Well the team resolved the ticket but you’re right. But the customers not trained that way yet. They want to pick up the phone and call to Steve Rozenberg, Steve Freaking Rozenberg because his name was on the bill.
Alex Osenenko: I disagree though. I think that the reality nowadays, they don’t even want to have to make the call. If you can do it through a ticket or a non contacting way. And this is what we’ve seen where…
Steve Rozenberg: I’m just saying there’ll be subset of people who would still want the personal service, they will pay the premium and those property management companies, good ones are going to be an exist.
Alex Osenenko: But that’s not the bulk. The bulk are the people that they would much rather have it in a text message and say it’s done.
Steve Rozenberg: So the way I think it’s shaping up, in my opinion, initially yes, we’re going to start taking market share away from, we meaning tech enabled PM companies, market share away from these old people who don’t want to improve, these overpriced who just basically running the business as a cash cow and just don’t want to improve. Then we going to start taking some people who never hired a property manager right now. The bulk of investors don’t hire property managers. So we’re going to start taking some of those people away. And so that is going to be huge market. So right now 70% of people self-manage. So there’s going to be this, there’s going to be that. And there’s going to be a layer of boutiques that are going to do really well with an off the shelf technologies but also personalized service. That’s how I see it.
Chad Gallagher: It’s right. I mean the only thing is, we have clients who are Amish. I mean we have people who are not always tech enabled, older generation of folks. And what we tell them is they can actually call in and we’ll create the ticket for you. So look, I mean the reality is being tech enabled does not, I think there’s this, there’s this missing point that is being tech enabled does not mean you can’t be personal. It doesn’t mean you can’t solve problems and help different people out.
Steve Rozenberg: That’s interesting.
Chad Gallagher: All that means is if that guy calls in and I still want it turned into a ticket cause that’s how I know things get resolved.
Steve Rozenberg: Yeah, you could track it.
Alex Osenenko: It’s the old adage, you know, systematize 80% humanized 20 yeah. So you’re going to have that 20% humanization factor that every business has to have.
Chad Gallagher: Uber still as a person driving the car. Even though [crosstalk 00:23:43]
Steve Rozenberg: For now. For now.
Chad Gallagher: Sure. That driver, they do everything they can to get somebody who is awesome and does the above and beyond, has the little mints in the car.
Alex Osenenko: Yeah, I like the mints.
Chad Gallagher: Right. Aren’t the mints good?
Steve Rozenberg: I never had the mints.
Chad Gallagher: Oh, what!
Alex Osenenko: The mints and the water.
Chad Gallagher: It’s different. It’s a differentiation.
Alex Osenenko: It’s a different experience.
Steve Rozenberg: Yeah. Well so anyway that ranking system, I get it. But you know Uber is not really built for continuation of the human driving the car. Like that company’s going to make it based on automation, automating the driving.
Chad Gallagher: I look at project management the same way, right? Every year we take another task and we figure out a way to automate it.
Alex Osenenko: Systemize it.
Chad Gallagher: But it’s not all or nothing. You don’t go from zero to a hundred. You go every year we just take one more little piece and say, “How do I turn this into tech and code that will not screw up.”
Alex Osenenko: And if you are an investor or a property manager, property management company, and you were to look at this whole area 10 years ago and see how it’s changed, five years ago.
Steve Rozenberg: I was there 10 years. I was there 10 years ago.
Alex Osenenko: I mean, but think about it.
Steve Rozenberg: I was in the founding, well, I was employee what, 18 and AppFolio which changed the landscape like AppFolio single handedly changed the landscape of property management in my opinion, they went public. They’re doing really, really well.
Chad Gallagher: I’ve heard of them.
Steve Rozenberg: You know, because of that. Yeah, you’ve heard of them.
Chad Gallagher: We use them.
Steve Rozenberg: You use them. Yeah, exactly. Maybe now you can start thinking about replacing parts of AppFolio modules but back then [crosstalk 00:25:08].
Chad Gallagher: We just augment.
Steve Rozenberg: That’s smart.
Chad Gallagher: So we take AppFolio, but then we use a piece of tech called Property Meld for maintenance coordination.
Steve Rozenberg: Very familiar with that.
Chad Gallagher: We use ShowMojo to do online bookings, right? We have Freshdesk which has our tickets.
Alex Osenenko: I think the challenge is there’s all these third party widgets and apps. You think somebody would just kind of bring it up, and I don’t know if that’s possible. Maybe not because there’s different entities.
Steve Rozenberg: Well we’re growing in the house solution, right?
Alex Osenenko: There’s an in house solution.
Chad Gallagher: But that’s a challenge in itself.
Alex Osenenko: Everything is a widget in a gadget in a zap, zap it this and that.
Chad Gallagher: But I will say this from an owner perspective, all these tech we use, they don’t, to them it does actually pretty well melt together. They don’t need to know that when they submit a ticket it’s through Freshdesk.
Alex Osenenko: It’s the experience. The forward facing experience that they’re getting.
Steve Rozenberg: I get it. But it does add a little bit of a cost layer because you have to pay for the software. If you develop yourself like we’ll pay for dozens of engineers working on our stuff. There’s definitely a bank cost.
Chad Gallagher: I’ll say this, there’s also Mindshare of not when the code, you know someone has to make sure that code’s working and the tech working and the bugs and that kind of stuff. You know it’s nice that AppFolio just works. I don’t have to worry about QAing. I mean I’ve got enough problems with my plumbers and roofers.
Steve Rozenberg: Lets you run your business.
Chad Gallagher: Let me ask you this as we kind of wrap this up and we need to do another one with him cause I want to dig deeper into what he’s doing.
Steve Rozenberg: There’s a lot there. There a lot more Chad.
Chad Gallagher: Yeah, more Chad, we’re definitely going to have you back on but as we wrap this up what would you say in your opinion is going to be coming during 2020? Wat do you see is on the next frontier for the investor, for the property manager? What do you see is the next kind of like “Wow, didn’t see that one coming.” In your opinion.
That is a really good question? By the way I ask that question. I ask that question and close out most of my podcast is, what are you most excited about in the next 35 years? I don’t usually get asked that question. What I’m most excited about? The short answer is continuing to digitize things that still require the people element that just have flaws in them.
Alex Osenenko: And you think it’s going to be bit by bit. You don’t think it’s going to be a big, big grab.
Chad Gallagher: I do. I’ll give you a couple of things that I’m in the back of my head thinking about that are still very people driven. Showing an apartment, it is ridiculous how much time is spent getting someone to show an apartment. I’m just not convinced the average person really needs…
Alex Osenenko: There’s no value.
Chad Gallagher: Right?
Steve Rozenberg: What do you need somebody to tell you where the kitchen is. This is the kitchen.
Alex Osenenko: Let me open the door. Couldn’t have guessed that one.
Steve Rozenberg: Your kids could look out of this window. Well, thank you.
Alex Osenenko: Yeah, gee. Very enlightening.
Chad Gallagher: So right now at SlateHouse a tenant could go on their phone and they can book a showing time online, which is great. We are using some digital lockboxes and people can get in. But to me that experience gets a lot better when on their couch they can actually start to…
Steve Rozenberg: Like a 360 tour.
Chad Gallagher: Like start to actually walk through that unit without even going.
Steve Rozenberg: The Matterport and all that.
Chad Gallagher: I tell them the person at some point goes, but by the time they’ve gone…
Steve Rozenberg: They’re pre qualified.
Chad Gallagher: They know they’ve seen other phone, they’ve probably even applied before going. So now it’s like I’ve already applied, I’ve done the immersion tour and I’m calling offering some Facebook goggle headset or Oculus or.
Steve Rozenberg: I have that, I don’t know.
Chad Gallagher: You have an Oculus.
Steve Rozenberg: No I have PlayStation VR. It’s okay.
Chad Gallagher: But I think that’s really interesting to me because it just, it’s a time saver for everybody. And I think that the tech isn’t like, this isn’t Star Wars 20 years in the future tech. This is like, I mean, I think in the next year you’re going to see more and more people be able to have realistic showing experiences, apply online, and then when they go, they’re still going to go see it. But that point is almost a foregone conclusion as opposed to right now I might have to do 15-20 showings to get someone to actually book. That’s a lot of wasted time for everybody.
Alex Osenenko: Yeah. Well Chad, thanks so much man.
Chad Gallagher: Yeah man.
Alex Osenenko: It’s just been a flood of information.
Chad Gallagher: I think we touched some stuff.
Alex Osenenko: Yeah, we just barely touched.
Chad Gallagher: This was fun.
Alex Osenenko: Thanks for being on with us.
Chad Gallagher: By the way, if you’ve never been to BiggerPockets Conference, next year you got to go. This conference was awesome.
Alex Osenenko: 1200 people, it was legit. They did a good job.
Chad Gallagher: Super high caliber and we’re big fans of BiggerPockets so probably give a shout out there to those guys.
Alex Osenenko: Yeah, they did a good job.
Steve Rozenberg: Before you go, if people interested in more of what you have to say, how they find you?
Chad Gallagher: So my email address is Chad, C-H-A-D @slatehousegroup.com that’s S-L-A-T-E like a slate roof. And then we’ve a podcast called Real Estate Hackers where we really focus on a lot of we talked about here, which is the intersection of real estate in tech and people that are doing cool things and kind of where the world’s going. So they can check out our podcast Real Estate Hackers or email me.
Steve Rozenberg: Awesome. It’s great to have.
Alex Osenenko: Great. Thank you.
Chad Gallagher: Cool man. All right, see ya.
Steve Rozenberg: See you guys.
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Alex Osenenko and Steve Rozenberg are joined by Chris Clothier from Memphis Invest at the Bigger Pockets Convention 2019 in Nashville and talk about the right investor for turnkey properties.
Alex Osenenko: Boys and girls. Alex here and Steve, the Mindful Investor Podcast show is on for episode number… I think we have official song. This wasn’t the song. This is [inaudible 00:00:11].
Steve Rozenberg: This was not the song, that was just your voice.
Alex Osenenko: This is the next episode and we’re still on tour in Nashville with BiggerPockets crowd, amazing conference, amazing show. We had some real, real talented people. We got a chance to interview. Today we’re going to introduce an amazing interview of Chris Clothier. What’d you learn from Chris?
Steve Rozenberg: Man, I’ll tell you what, Chris Clothier, he’s a co-founder of Memphis Invest, turnkey operation for people that don’t know. And if you don’t know the guy, you gotta look him up. Amazing guy, a true gentlemen. But basically what we learned is they basically are the people that, I’m going to say they’re kind of the godfathers of bringing the turnkey operation to the masses.
Alex Osenenko: And the turnkey is essentially, you just put the money down and they got-
Steve Rozenberg: It’s that, they have the house for you-
Alex Osenenko: All redone, remodeled. And what we found out is like, my courses were like, who is it for? Why isn’t everybody getting a turnkey? It turns out-
Steve Rozenberg: It’s not for everyone.
Alex Osenenko: … it fits a particular category of customers, and he knows his customers so intimately. And it’s very interesting, he talks about red flags. How do like if… Turnkey and turnkey could be different depending who’s who’s providing the service.
Steve Rozenberg: Absolutely. Reputation.
Alex Osenenko: Man, the information I got in this show is amazing. Why don’t we let you guys in on it. Let’s get into the show.
Steve Rozenberg: Hi everyone. So we’re here at BiggerPockets’ 2019, and there has been really some amazing people. One of the gentlemen that’s most amazing is right here with us. Pretty cool guy that we’ve gotten to know from your conference. And then, obviously amazing how paths cross.
Alex Osenenko: They do. And so Chris Clothier is a VP of sales and marketing. He’s also the owner of a company called Memphis Invest. I think you what? Top 5,500 units?
Chris Clothier: Yeah. We’ll end the year about 5,800.
Alex Osenenko: 58. And so one of the most spectacular family owned companies in this sphere of real estate investing. I think if you have never heard their name, you really haven’t been in real estate that long. Like you have probably come across and I think-
Steve Rozenberg: They may not have known that it was their company.
Alex Osenenko: This is like, I think of Memphis Invest as a spearhead for this whole kind of turnkey investment movement. And so a lot of people in your wake. But what I want to talk about today is some of the more harder questions that you may be getting, because I know a lot of investors, a lot of my friends are investors. Even conversations today, people seem to think that turnkey is for the beginners, turnkey is for the, somebody who just kind of really does not want to take the time to learn and have somebody else-
Steve Rozenberg: The lazy investor.
Alex Osenenko: … assume all the work. Right. The lazy investor. Like how do you combat that, Chris?
Chris Clothier: Well it’s, I guess, the easiest way to combat it is to look at our investor profile. The investors that we’ve worked with, and certainly some of them are new to the real estate game. They have a lack of depth when it comes to really deep understanding about how to invest-
Steve Rozenberg: Experience.
Chris Clothier: Yeah. Well, and they may not even necessarily always be experienced. They could be experienced with real estate and investing. It’s just the whole idea of-
Steve Rozenberg: Sure.
Chris Clothier: … doing it passively. They just don’t have a real deep knowledge of. But at the same time, many of our investors, especially with our company, they are experienced in life. These are not people that aren’t inquisitive. These aren’t people that are looking for an easy way out. They’re not people that say, I don’t understand this or I’m just going to go, dump my money into some poor man’s investment that it has a low chance of being successful. So this idea that these are new investors always and that they’re unsophisticated and they don’t know what they’re doing, so it’s the dummy’s investment that’s-
Steve Rozenberg: Not true.
Chris Clothier: It couldn’t be further from the truth. But those are the investors that say that are the investors that wouldn’t work with a company like [inaudible 00:04:26].
Steve Rozenberg: They’re not your profile.
Chris Clothier: Not even close.
Alex Osenenko: So let’s talk about the industry as a whole, because I don’t think anybody said that particularly about Memphis Invest, but people say that in general to the category. So the question is like, is Memphis Invest, are your customers different or do you think it’s a category kind of selection?
Chris Clothier: I think that us in particular, our particular client is different. Now there are, so as with any investment, not even with investment, with any business. There are those that choose it because it’s the easy path and it’s a lazy path. It’s the path of least resistance for them getting started. They’re also the ones that tend to go for a low price investment. So they’re looking for kind of their loss aversion. They don’t want to lose money, and they don’t want to learn either something to buy this really low pricing, inexpensive property. And there’s a lot of people that had been and will continue to be taken advantage of. And it’s interesting.
Steve Rozenberg: And that’s kind of to me, like people that do that. Like I think what’s great about in my opinion about turnkey is two things. Number one, people that value their time and they say, you know what, I don’t have the time to deal with this. I’d rather put people in place that know what they’re doing and they can do that. So it’s a time value. And number two, it’s a location value. So let’s say you’re in San Francisco and they’re in Memphis and Memphis is a better market for your goals. It’s easy, right? You don’t have to go there and find the contractors. You don’t have to go there and figure everything out. It’s in place.
Alex Osenenko: But you do pay the markup for people who do. Right?
Chris Clothier: Well, of course. And-
Steve Rozenberg: What’s your time worth?
Chris Clothier: Well, and it’s the age old question. And I will say that the investors that are the most successful at this particular strategy, that look, let’s be clear, it’s simply passive investing, is what it is. So it’s just investors that are passively investing. Turnkey becomes the marketing catch all word. So it catches the good and the bad.
Steve Rozenberg: Sure.
Chris Clothier: It catches the ones that are going to be successful and the ones that are going to fail. It catches all of the investors in the companies that are in that passive mode, if that makes sense. That it’s, you’re going to own the deed, you’re going to own the property, we’re going to do the work for you. But everyone uses the same word, turnkey to market their service. It’s the investor that spends the time that gets to know who they are investing with.
Steve Rozenberg: Absolutely.
Chris Clothier: And that really gets to know themselves because there’s two types of investors that you say don’t have time. The ones that have the time and they’re just… They’re not going to put it into it. They’re going to be busy doing maybe not even more productive things.
Steve Rozenberg: It’s just busy stuff.
Chris Clothier: Yeah. I’m not going to learn real estate. So I’m just going to go do this. And those that know that the value of my time and money is to leverage someone else’s knowledge and their time to [inaudible 00:07:14].
Steve Rozenberg: And they’re willing to pay for that.
Chris Clothier: You’re exactly right.
Alex Osenenko: Going back to unique abilities like, we had, Kara and Brit on the show-
Steve Rozenberg: Brittney.
Alex Osenenko: … and then these two wonderful ladies they’re doing their own fix and flips and they’re in there, they’re painting, they figured out the construction management. Like they actually are doing it, they’re loving it and they’re passionate about it. But like that’s their unique ability. They really wanted to do this and now they using Instagram as a vehicle to sort of promote that and really getting more successful.
Chris Clothier: Of course.
Alex Osenenko: But like for example, I’m a very busy executive. He’s a pilot. Presumably if you wanted to you can take more routes and just be like real estate wouldn’t be top of mind for you. So what you’re saying is turnkey sort of attracts this level of a professional who knows they need to invest their time if they’re to be successful, but they don’t just choose not to in real estate. They choose their time because-
Chris Clothier: You got it. You nailed it. They’re choosing to where they’re investing their time is what they do best, their unique ability. And then they’re taking whatever their revenues, whatever their money is, their investments, and they’re finding those that are best at their unique ability, which is building a portfolio and managing it properly and delivering, executing for that investor on the return and the investment that they want.
Steve Rozenberg: It’s like if you said, hey, I want to start buying real estate and I think I want to buy something, the numbers in the Midwest or in Tennessee look good. Would you have the time to go to Tennessee, find the deal, source the deal, find the vendors and the contractors, set it all up, get the flow going, or like you talked to Chris and go, hey, Chris goes, I got a deal. It’s ready to go. It’s turnkey and you’re going, you know what? I don’t have the time. Do it. Done. That’s who it’s for.
Alex Osenenko: So that’s very, very interesting.
Steve Rozenberg: Is that correct?
Chris Clothier: Absolutely. And those are the investors that are finding success. Those are the investors that kind of laugh behind the scenes when someone says, turnkey is for the beginners because they’re like… In your case, you’re not a beginner.
Steve Rozenberg: Right.
Chris Clothier: You know you’re a business builder, you’re an entrepreneur. You by no means would look at yourself in the mirror and say, I’m just this beginner. No. Not even close.
Alex Osenenko: But I wouldn’t, like I’ll be honest with you right now on the show and I want to make this admission like, I have no interest per se to dig and understand every single aspect about every single house that I’m about to sort of put money into-
Chris Clothier: Correct.
Alex Osenenko: … and try to get partners to do stuff with me-
Steve Rozenberg: Nor should you.
Alex Osenenko: … or for me or me trying to fly and like I have my kids, I have my job which I love, but it demands all of me. All of me. If I don’t give it all, it’s like, why bother? So for me it works. For me it works. For you maybe not as much, because you know your stuff, like you’ve done this.
Steve Rozenberg: But a perfect example, like I’m talking to some guys about doing something with some mobile home parks. Some guys here at BiggerPockets, and investing with them. I don’t want to learn mobile home parks, but I like the returns and I’m willing to go in on with them. So I’m just saying, I don’t have the time, but I’m willing to put the money into this thing. But I do have a question. What kind of… And you’re big into education, because you’re huge with BiggerPockets and everything.
Chris Clothier: Sure.
Steve Rozenberg: What kind of education do you give or do you suggest people take before getting into a turnkey? And do you have some kind of, not a curriculum, but is there something like setting expectations with them prior?
Chris Clothier: So with us, we try and be deliberate and we try and be, purposely slow. So we want to spend time getting to know the investor on the other side. And the very first thing that we want to get to know is, do they know the reason that they are investing in the first place? Why did they call us? Why are they looking for-
Steve Rozenberg: What’s their why?
Chris Clothier: That’s right. What’s this passive investment that they are looking for? We will oftentimes uncover that being a passive investor is not for them. And that’s what we want to do.
Steve Rozenberg: Absolutely.
Chris Clothier: We’re looking to-
Alex Osenenko: Proper discovery to qualify or disqualify.
Chris Clothier: Exactly. It has nothing to do with us. Everything to do with them.
Alex Osenenko: Can I ask a qualifying question there? Can we keep that thread? Just remember this thread. I do want to have because running a business-
Chris Clothier: Sure.
Alex Osenenko: … you have salespeople.
Chris Clothier: Sure.
Alex Osenenko: Salespeople are typically compensated on performance.
Chris Clothier: Right.
Alex Osenenko: So how do you deal with this balance where your job is to disqualify potentially a customer? How do you train Salesforce?
Chris Clothier: Well, because-
Alex Osenenko: This is a selfish question from me.
Chris Clothier: No. With us, so our repeat client, the client that comes back and is going to continue to build their portfolio. We know and we track this for going on at least five years at this point, that roughly 62% of our monthly sales go to an existing client building their portfolio. And so should you fail to qualify a purchaser on the front end and they do not continue to purchase down the line, you’ve taken money out of your own pocket. You’ve made your life more difficult and-
Steve Rozenberg: You got to go pay some more.
Alex Osenenko: So you pay your sales team on repeat transactions?
Chris Clothier: Of course. We continue-
Alex Osenenko: So it’s they’re recurrent, they’re building a book of business.
Chris Clothier: Their job is to continue to touch base with and discuss performance. How is the portfolio doing for you? When would you like to do a review? Would you like to speak again? What else have you been doing out there in your investment world? Are you ready to continue to build?
Alex Osenenko: They’re consultants. They’re not really salespeople.
Chris Clothier: No, absolutely.
Alex Osenenko: [inaudible 00:12:39].
Chris Clothier: Absolutely. They’re consultants. And now they are licensed real estate agents. So there’s no other licensing. They’re not giving any other financial advice.
Steve Rozenberg: They’re not CPAs or financial planner?
Chris Clothier: Not at all. Nor do they pretend to be.
Steve Rozenberg: They do more strategy sessions of saying, hey, you know you… And I love that because, whenever I talk to investors, I’m always like, “Look, nobody gets into real estate to own one property.” Never. You work for multiples, but what happens is it about number two to maybe three life starts happening and you slow down and you get busy and you lose sight of why you even got into it.
Chris Clothier: Well, you mentioned earlier that, and we do, we grabbed the mantle of being the leader of this industry with both hands. That’s what we set out to do. We take that seriously and we-
Steve Rozenberg: And you are.
Chris Clothier: We lead that way. One of the things that we’ve done is we will not sell an investor of one property. An investor comes in and says, “I’m ready to go. I’ll love your company. I’ve read everything, whatever. I’m ready to buy a house.” But they only have the ability to purchase one property. That is a losing proposition for them and us. What we found is that, that investor, and we’ve done that through the years, but we ended the practice because that investor that does not continue to build a portfolio, they put themselves on a roller coaster.
That when the property is occupied and they’re getting their monthly call from our customer service team, they’re happy. Everything’s great. But when a maintenance issue occurs, when there is a move out and we have a turnover and they’re not receiving the full rent, suddenly they go from being perfectly satisfied to, this is the worst investment I’ve ever made, because I just had to write a check for my mortgage and I didn’t have any income.
Steve Rozenberg: And they’re making it based on emotions because they’re emotionally tied to that.
Alex Osenenko: How is building a portfolio? Isn’t that so that I imagine there’s a piece for the diversification that, your four houses are rented, one is not, it’s not that big of a difference. Right? So you have a little bit of a cashflow-
Chris Clothier: Sure.
Alex Osenenko: … cushion, right?
Chris Clothier: Sure.
Alex Osenenko: But beyond that isn’t like you just getting from like isn’t getting worse with more houses? Like explain that to us.
Chris Clothier: Which part of it getting worse?
Alex Osenenko: Well, just the whole like you said-
Steve Rozenberg: If you have a dip.
Alex Osenenko: … you won’t let him buy one house. Like what’s the difference if I have six?
Chris Clothier: So the difference is the mentality of the investor on the front end. Number one, we simply choose to deal with investors that can and desire to build a portfolio. That’s a business decision. That’s a side that we know it makes it easier for us. We know that it builds in longevity. If you have a client that’s going to build a six property portfolio over the next three years, you have transactions built into your beginners.
Steve Rozenberg: You’d be customers.
Chris Clothier: So it’s a business decision number one that comes with size and ability. We’re able to make that decision. But number two, for the investor themselves, when you’re building a longterm relationship, which passive investing should be longterm, especially when you’re buying out-of-state, and you’re speaking with us like on a monthly basis, when there are issues that come up, two vacancies at the same time, three vacancies at the same time. A property is vacant and three other ones have maintenance issues. You built a relationship, you built a certain level of trust. If that occurs in month 39 down the road and you’ve got 38 months of-
Steve Rozenberg: Goodwill.
Chris Clothier: … how you build trust, then it’s an understanding that hey, this does happen. But we are going to take care of this for you. There’s a certain level of, again, ability to be able to step in and say, we’re going to handle this at cost. There’ll be no markup. Or we’re going to cover the price of that particular issue or we’re going to not charge you for the next resident if they didn’t fulfill their full lease. It gives you a lot of… I guess success gives you a lot of freedom to build and make those decisions and do those things.
When you have an investor that has six properties and you can say, these all six I’ve done perfect over time. You had a little issue here, a little issue there. Now we have this big hiccup, we have the ability to say, look, this is what we’ve already earned. We’ll get it back on track and get you back in that lane and-
Alex Osenenko: Got you. So Chris, to me it sounds like, there’s really distinctly like two, I’d say the biggest scattered two types of investors. There’s people who are like scrapping and they don’t really have… like we just had a medical doctor on the show, like the last show right. Now he’s definitely, because different income levels, different kind of a motivation for investing. It’s a lifestyle choice. It’s not a desperation.
So I guess what I’m hearing is like, a turnkey is really for some professionals who make significant income to be able to, well, let me just finish this statement. To be able to invest in real estate without dedicating their time, but having the ability to take care of any problems if the problems arise because real estate is not like a, it’s not just this flat line. As you say, there’s issues that come up. Like tenants move. Like it’s people in houses. And so you need wealthy people basically to work with you. You can’t have-
Steve Rozenberg: Well, that’s their target.
Alex Osenenko: You can’t have a college student that basic just scraped up the money for the down payment and they’re coming to you and say, here, Chris, take care of it now. Now I’m rich.
Chris Clothier: That is not what we’re built for you. You’ve nailed the concept of us as a company. That’s not what we’re built for. We want to help that particular college student invest his money in what we would call a wiser way. So possibly close to home, possibly something that he’s actively doing some other way to build a larger ability in a portfolio. So now you can actually, because one property far from home, is an expensive headache.
Steve Rozenberg: Absolutely.
Chris Clothier: It’s not, can it be an investment? Sure. But in our opinion [inaudible 00:18:21].
Steve Rozenberg: It’s not scalable.
Chris Clothier: No.
Steve Rozenberg: I think what he does with what I’m hearing is, is they’re very big on building the relationships with them, with the client. And I think the difference is from your person to their target is, is they’re explaining to the person, correct me if I’m wrong, basically they’re running a business. And in that business you’re going to have ups and downs, hills and valleys. And in that part of your business model is you’re going to have vacancies, you’re going to have maintenance. But because they’re building the relationship with the client on the front end is, they’ve got that Goodwill in the bank so that when that phone call does happen, and what I liked about what you said is every month you do like a check in.
Chris Clothier: Yes.
Steve Rozenberg: So every time, normally every time a phone call goes to a owner, it’s bad news. Well, now it’s peppered in with good news in the relationship building. So now it’s like, hey, how’s it going? Hey, we’ve got a challenge. We’re going to work through it. Just like you know, this is part of the business. This is part of the gig. My other question though is though, is that correct?
Chris Clothier: Yeah. And it’s often before you get that question it’s often peppered with, last time we talked, you said your grandson was coming to visit. How did that go? Was it good?
Steve Rozenberg: It’s relationship.
Chris Clothier: Or your wife was getting ready to start a new job and she enjoyed it. How’s that going? That’s great. We’ll call you next month and check in again. Let us know if we do anything for you. The vast majority of phone calls are, I have nothing to tell you. But I’m here, you’re there, your investments are good. Your money it’s just that-
Steve Rozenberg: The news is, there’s no news.
Chris Clothier: Yeah. The news is, there’s no news, but you can sleep well tonight because you know.
Steve Rozenberg: Absolutely.
Chris Clothier: Rather than being, there’s no phone call. I haven’t heard from my manager in six months. I think everything is good. Now it’s a case of every month, they’re there-
Steve Rozenberg: That’s great.
Chris Clothier: … everything’s good. And so when an issue occurs, it is much easier to let them know that, hey, this has occurred, but we haven’t handled.
Steve Rozenberg: Absolutely. Now my second question on a business marketing, was that a strategy to bring your client acquisition cost down? Because if you’re paying to get the client, but now the repeat business of them six times, now your acquisition cost goes down tremendously. Right?
Alex Osenenko: Well, the acquisition cost, I think the lifetime value of a client goes up and compare to it, the customer acquisition cost is probably, a lot smaller percentage. That’s how it works. But you guys spend a lot of time and effort, which are on education like I’m super passionate about.
Steve Rozenberg: They invest.
Alex Osenenko: So you have a huge, huge top of the funnel that people eventually trickle down into. And those on top of the funnel, you just help. Like if they never trickle down, you just help them.
Chris Clothier: I really want every person that comes into our funnel makes contact with us to say, I had a good conversation. I didn’t buy from them, but the conversation was helpful. They’re good people. They truly care. When and if someone ever says that I was completely sold by them, they just sold me from start to finish, that’ll be the day that whoever that was gets a readjustment on our side and possibly even out the door, because we are not here to sell anything. This is, we-
Alex Osenenko: And yet you are massively successful. Maybe that’s a lesson. There’s a lesson there’s somewhere.
Chris Clothier: Well, and many people would say that in actuality we’re selling constantly, and sure here at this event we’re selling, we’re selling our family. We’re selling the idea that-
Steve Rozenberg: The concept.
Chris Clothier: Yes, the concept of what we’re doing. The homes, the properties themselves are not the product. The product is the care and comfort that you will receive.
Alex Osenenko: The relationship [inaudible 00:21:55].
Steve Rozenberg: And the why in helping them find their why. Because look at the end of the day, four walls and a roof does nothing for you. It’s the business running in that four walls and the roof that actually is going to make or break your business and your future.
Chris Clothier: That is correct.
Steve Rozenberg: So they’re doing a great job building the relationships and the education and on BiggerPockets. And you said this at PM Grow and I looked after you said that, whenever they talk about Memphis Invest on BiggerPockets just as a reference, it’s all good because they’re there as an educate.
Alex Osenenko: [inaudible 00:22:28].
Steve Rozenberg: Because when you educate it’s about them, when you sell it’s about me. So they do such a good job of pushing that model out there. I mean-
Chris Clothier: I want to give, I’m going to take a moment here to make sure I get proper credit. That I do have partners. I’ve got, a brother, a younger brother. I’ve got an older brother that’s not, a partner in the business, but he certainly has been very influential on helping us develop the company. And then of course I’ve got my dad. Every business that my dad has ever started has been predicated on customer service. The experience that the client has. And every business. We’ve been in multiple different industries, but they’ve all been predicated on the experience that the client has because they will come back and they will tell others. And so-
Alex Osenenko: But so easy to say, it’s so hard to do. [inaudible 00:23:16] we’re trying to scale this property management thing and it’s like there’s so many hidden facets. You know the business intimately. But people who are listening, like there’s so many facets to property management, there’s so many different client types. There’s so many different housing types, like it’s crazy complicated.
And to deliver on that promise like the saying, it’s like, we’re a customer service company. Everybody says, but you guys have been delivering and which is fascinating to me. I’ll be honest with you. But I do want to poke at something. Not poke at something. But I want to understand, and maybe our listeners have this takeaway. I want you to be honest and talk about good turnkey and bad turnkey, because we see a lot of not so successful turnkey relationships, not with your company, but there’s a bunch of others. Can you give us a guideline or like how do people decide, like if it’s not Memphis Invest, let’s just say they have no appetite in Tennessee and Texas, wherever you are, four states, right?
Chris Clothier: Right.
Alex Osenenko: Let’s say they want to do Ohio.
Chris Clothier: Sure. I think there are red flags. And so-
Alex Osenenko: Let’s go through them.
Chris Clothier: Let’s touch the red flags. Number one. One of the issues that we all know is that, oftentimes it’s the sand states. It’s California, it’s New York or these places where wealth exists, that you see companies go to. And it’s a constant battle that you’re always promoting to the California investor to come invest in the heart land. And so you’re taking advantage.
Alex Osenenko: So those free seminars that we get advertised all the time.
Chris Clothier: Yes.
Alex Osenenko: Okay. Got it.
Chris Clothier: And so one of the things that happens is that when you are from an area where the cost of housing, the median price home might be four or $500,000 and it’s a three bedroom, two bath home, or one bath. It depends on where you’re at.
Steve Rozenberg: Depends on where you’re at.
Chris Clothier: There may not be a garage. There may not even be, just a sliver of yard that you have.
Alex Osenenko: You’re just describing my life.
Chris Clothier: All right, so there you are. So when you are presented with a very pretty picture of a three bedroom, two bath, fenced in yard, two car garage, beautiful little bungalow in wherever, middle America-
Alex Osenenko: Wherever.
Chris Clothier: … that costs $79,000 to get in, it automatically looks like a deal.
Alex Osenenko: It is to me like you painted the picture and I’m salivating right now because that’s-
Chris Clothier: It’s how quickly can I get started. And so I try and show people all the time that, that $79,000 deal to the investor that we just described, it looks like I need to get going and I need about 12 of these today. Where in reality that property, the real value of it, where it is might be $37,000 because there’s 27 more on the streets and half of them are boarded up or-
Alex Osenenko: Wasn’t that in your book? I read exactly [inaudible 00:26:07].
Steve Rozenberg: That’s story of my life. That was my life.
Alex Osenenko: If you guys want to read Steve’s book, he describes exactly what Chris did.
Chris Clothier: I love it. Well, that’s the issue that, to use the word turnkey, it’s easy. You can use the word turnkey. I made this very turnkey and easy. When in reality, as I talked yesterday on stage that, the red flags are that cheap is relative. Don’t buy cheap.
Alex Osenenko: So low priced, overpriced. That’s something to look into.
Chris Clothier: So it’s to aware of. So the house that costs $79,000 today, understand in middle America five years ago costs 29,000. And eight years ago it could be picked up for 4,000. In many scenarios.
Alex Osenenko: I can’t believe numbers like that existed. But keep going.
Chris Clothier: Well, you might have a company. I try to explain all the time that we’ve done real estate before. They’re just the economy. Economics doesn’t work with these low prices. It’s very difficult to make it work-
Steve Rozenberg: It’s tough.
Chris Clothier: … in this low cost properties in that it has been purchased, it has been renovated properly, with all the codes, all up to standards and proper, and that it’s going to function as a ongoing investment the way a passive investors should want, meaning headache free. I’m not going to have a lot of issues with these homes. And then at the same time to put profit in for the whoever is selling it and who did all the work and took the risk. I mean, there’s a lot of hands in that particular. And so the lower the price is, you got to start [inaudible 00:27:43]. There’s things that have been cut and no one’s going to do anything for free. So what’s been cut, it’s been the work.
Alex Osenenko: The quality.
Steve Rozenberg: The quality.
Chris Clothier: And then if you, let’s say the quality of the work hasn’t been cut but the price. So then the purchase price of whoever picked it up had to be cut. Well, not if you’re buying homes for four, $5,000. An investor has to think, why? Why was that home sold that inexpensive? Is there a lack of demand? Is there a lack of interest? There’s a lack of something, and who’s going to pay the price for that? Me. I’m owning the property in the backend. So really, really cheap is something that I think investors have to avoid. And price is all relative. Just because it’s way lower than what you’re accustomed to seeing where you live, that doesn’t mean it’s probably price for where it is.
Steve Rozenberg: The one thing I’ve always learned is, and someone taught this to me long time ago [inaudible 00:28:27] ever forget. The reason people fail is laziness or greed. And what you just said was the greed. You sit there and you say, you know what? I’m getting something and they’re not looking at it logically. They’re not doing their homework.
Alex Osenenko: It’s both. Laziness and not doing their homework. And you’re thinking, gosh, I could get-
Steve Rozenberg: [inaudible 00:28:44].
Alex Osenenko: … rich quick.
Chris Clothier: And here’s the third. I’ll offer a third to it. It’s loss aversion. If somebody comes in and says, this is too good to be true. So I’m probably going to lose money. But if I’m going to lose money, I’d rather lose a little bit. So I’m going to buy the thing that’s too good to be true because then my loss won’t be very big. Rather than buy say $150,000 a turnkey property, that is absolutely going to-
Steve Rozenberg: Man, that was my life.
Chris Clothier: … succeed.
Alex Osenenko: Perform.
Steve Rozenberg: You just described my life when I first got involved in investing.
Alex Osenenko: It’s fascinating.
Steve Rozenberg: That was it.
Chris Clothier: No, I don’t know if you mean that that’s what you bought.
Steve Rozenberg: That’s what I did.
Chris Clothier: I did.
Steve Rozenberg: That’s what I did.
Chris Clothier: I have 26 of them.
Steve Rozenberg: We had like 30 something, but same thing. We bought these low income properties and they killed us.
Chris Clothier: Yes. Before I understood that these basics, I made the same mistakes. I imagine you and I are the same way in that at this point I’m trying to operate, our family is trying to operate in a way that says, I don’t want other people to have these same mistakes-
Steve Rozenberg: Absolutely.
Chris Clothier: … nor do I want manage-
Steve Rozenberg: Exactly.
Chris Clothier: … those mistakes. So that’s number one. The other things to look for-
Alex Osenenko: So red flag number one is low price-
Steve Rozenberg: Too good to be true.
Alex Osenenko: … be aware.
Chris Clothier: Yes.
Alex Osenenko: Too good to be true. Be aware.
Chris Clothier: Yeah. Understand the economics. I mean, it’s hard to make low price properties actually operate the way you expect. Number two, this is a big one for me. It’s really length of time in business. You’re looking for a little gray hair. I told the story yesterday about the pilot. I don’t know if you heard it, where my father is really funny. If he gets on an airplane, he’s not turning right and walk into his seat, before he gets the chance to stick his head in the cockpit and just say hello to the pilots.
Steve Rozenberg: I didn’t hear that.
Chris Clothier: And he says, he’s like, “I’m looking for a little gray hair. I’m looking for the knowledge as I go sit down and I’m fine at 500 miles an hour or 30,000 feet that, should there be an issue, the person in front has the time and the wisdom and they’ve dealt with issues that they’re going to be able to safely handle whatever comes my way.” The same thing is true in real estate that if you’re dealing with a company, and you’re dealing with someone who says, “I’ve been extremely successful, I’ve had seven properties that I’ve owned and managed myself. Now I’ve decided to sell them to other investors. I’m managing 27 different properties now, so trust me, I know what I’m doing.”
You have to question that, when there is a correction, when there is some form of economic crisis or should there be another 2008, how are they going to handle my investment properties? Do they have the knowledge in business, not necessarily just in real estate, but in business in general? Have they been around the block a few times to know how to handle it when things get really hairy? And there’s just not enough.
Steve Rozenberg: And it’s funny is when I was doing a lot of the sales and stuff, I would tell people, I’d say, “That’s like going to a doctor that also does dry cleaning and he’s having a 50% off sale for surgeries today. What’d you go to that doctor? No.” So why would you trust your investment money, your life savings to go the cheapest way possible? Like does that make any sense?
Alex Osenenko: But people do that all the time.
Steve Rozenberg: They do it all the time.
Chris Clothier: And you just, you have to make sure and do a little investigation of who am I doing business with?
Steve Rozenberg: Laziness and greed.
Chris Clothier: What’s your background? Tell me what your successes have been. Ask the question. What’s going to happen if suddenly 50% of the portfolio that you’re managing goes vacant? How are we going to handle it? Have you ever been there before? And when there’s, don’t worry about that, that’s never going to happen. It’s never happened. Walk. I mean, because it has happened.
Steve Rozenberg: Well, and more importantly, my opinion is, is when you ask those questions, if they don’t know their numbers. What is your vacancy rate? What is your eviction rate? Those things like, what is your average rent price? If you have a property that’s $5,000 a month and they manage properties that are $800 a month, maybe not the quality you want.
Alex Osenenko: I have an idea. Do you guys have a document somewhere on how to interview a turnkey?
Chris Clothier: Yeah. I’ve published that multiple times.
Alex Osenenko: Can we please-
Chris Clothier: Of course.
Alex Osenenko: Can you please send us [crosstalk 00:32:37]. We’ll actually link it in the show notes-
Steve Rozenberg: That’d be good.
Alex Osenenko: … and have people because there’s probably a lot of different things.
Chris Clothier: I’m happy to do that. Happy to do that.
Alex Osenenko: Appreciate that.
Chris Clothier: I’ll give you two last red flags [crosstalk 00:32:47].
Alex Osenenko: So we have low price, length of time in business. So experience.
Steve Rozenberg: Gray hair.
Chris Clothier: Experience. Yes.
Alex Osenenko: Gray hair.
Chris Clothier: If you cannot purchase this property using the lender, if you must pay cash for a turnkey property, that is a major red flag.
Steve Rozenberg: Now, are you talking hard money too or?
Chris Clothier: I’m talking if the company says-
Steve Rozenberg: Cash only.
Chris Clothier: … you must pay cash.
Steve Rozenberg: Got it.
Chris Clothier: So they don’t care where the cash comes from, but you have to pay cash. Now what the typical explanation is that we’re moving too quickly. We don’t have time to wait on lenders. There’s high demand for what we do. So this has to go. It’s generally in my experience, a couple of things that you really have to have your red flag up for. It doesn’t mean it’s all bad. It doesn’t mean that there’s not somebody out there that operates that way that’s on the up and up. It just raises your risk as an investor because it generally means that the property, that there’s no opportunity for comparable sales. So it’s, I picked a price, a bank is going to say it’s worthless, but-
Steve Rozenberg: Were an encumbered title.
Chris Clothier: There could be-
Steve Rozenberg: You know.
Chris Clothier: There could be [inaudible 00:34:00]. I’ll say there can be good people doing this. [crosstalk 00:34:04].
Steve Rozenberg: I mean those are the things that you go, okay, I mean-
Chris Clothier: Why?
Steve Rozenberg: … why?
Chris Clothier: You lose the opportunity to have a disinterested third party that-
Steve Rozenberg: Look at this.
Chris Clothier: That is protecting their interest, review it for you to make sure that everything is-
Steve Rozenberg: Absolutely.
Chris Clothier: … proper. So that’s number one. The other thing about the cash transaction is that, it generally means it’s a low price property and so banks wouldn’t finance it anyway. So now you’re back to what we talked about earlier in price.
Alex Osenenko: Number one.
Chris Clothier: Now you’re back to, if there’s just reasons that a bank says no, we’re not touching that, maybe I as an investor should slow down. Because again, what we’re talking about here is risk. Is not necessarily good or bad, it’s that the more risk I have, certainly the worst, or the longer time I should spend before I make this mess.
Steve Rozenberg: And this is also barn that you, if you’re an out of state, now you don’t know the area. So you’re two dimensional basically because you’re not there.
Chris Clothier: Well, the vast majority of people that do purchase turnkey, they’re not local to the property themselves.
Steve Rozenberg: Correct.
Chris Clothier: And it’s that there’s various reasons for that. Some of them are absolutely personal and the investor just doesn’t want to see it. I don’t want to go and look at the property. I just want to make my investment.
Steve Rozenberg: It’s a mathematical equation.
Chris Clothier: Which is fine. Yes, exactly. But being that is the case, that is a big one. And the fourth one, the last red flag is just as big because we’re seeing more and more companies do this, where you can hire a third party inspection either. It comes with our certified-
Steve Rozenberg: Guaranteed.
Chris Clothier: … in the box, guaranteed. This is perfectly packaged up. We’ve done all the work for you. It’s almost like putting a big sign on that says trust us. And I say this all the time. I tell people about my own company. You can take nothing on faith.
Steve Rozenberg: Absolutely.
Chris Clothier: Make Memphis Invest earn-
Steve Rozenberg: Trust the verifier.
Chris Clothier: … the right for you to trust us. Exactly. And here’s the big thing about that. So we encourage the third party inspection and we use it as a check and balance against our own team, because we’re human. Our team makes mistakes every single day. When you’re doing 100 properties a month, we want to be perfect, but we’re not always perfect. There’s a certain number of properties every single month that we grade, the home inspections as average at best. And that’s not good enough. So we get these home [inaudible 00:36:32] back and we bring it back to our team as a number one, we fix everything. But number two it’s, how did we miss this?
Alex Osenenko: [crosstalk 00:36:40]. Is that [inaudible 00:36:40]?
Chris Clothier: 100%. That how we grade our team. They know that when you bring in a perfect home inspection where, and we’ve had these, when the inspector says, “I literally can’t find anything. The home is ready to go, there’s nothing that needs to be fixed.” I mean, you’re popping champagne in a party. That’s big for our team.
Alex Osenenko: [inaudible 00:37:00].
Chris Clothier: It’s rare. But like for us it might be, you’re talking about 1%, less than 1%. I mean, it is rare because they are really going through the home.
Steve Rozenberg: They’re looking for things. Their job is to find-
Chris Clothier: That’s right.
Steve Rozenberg: … what’s wrong.
Chris Clothier: So what is more likely is, here’s some very minor things that we found. And even though those are great and we reward our team for those, it’s still minor things had been found. We want to train our team up to be the inspector themselves. So when you are denied the ability to do a home inspection, that’s a-
Steve Rozenberg: Like, don’t look behind this wall. There’s nothing to see here.
Chris Clothier: That’s a major red flag. And I won’t put through this very much, but I will just say that, there are more and more, we’ll call them I buy companies. I think that’s what they’re calling themselves where you can buy across the internet and it’s dangerous. It’s dangerous when the company says, “You can’t inspect this property, that we began. We’ve done all the inspection for you, so you can’t look at the property,” and they’re using the word turnkey to [crosstalk 00:38:04].
So now this is going back to the turnkey is a marketing word, but I’m going to create a scenario where it’s been fully certified by me and you can’t look behind the curtains to see how it looks. These are things that, it’s a newer trend and it’s one of the reasons why I bring it up as a red flag. These are things that the investor has to watch out for and really kind of demand for their own good that we’re able to do this third party inspection, this disinterested in the sale. They’re just coming in to sure that, because even if the property has a few issues and on the front end, whoever’s selling it says look, “It’s as is.” At least now as an investor, you know.
Steve Rozenberg: You make those decisions.
Chris Clothier: So I have some CAPEX decisions that are down the road. This is minor, but without the ability to know that, you really are flying blind.
Steve Rozenberg: Now I have a question for people that are learning about the turnkey. You do all this stuff on the front end. Now the management side, is that part of it where it… because you do things where you’ll sell the property and not manage them or do you always manage them?
Chris Clothier: So it’s completely separate. That’s a good, it’s not really necessarily a red flag, but it’s a good point to bring up and understand. Are you able? Is it your property? Are you able to hire your own management company? Because if you’re not, there’s [inaudible 00:39:21].
Steve Rozenberg: There’s another chance.
Chris Clothier: There’s a problem somewhere. There’s a reason why you must use our management in order for it to perform and us to give you guarantees you have to use us. Well, that’s a red flag. I guess that’s another one [inaudible 00:39:33].
Steve Rozenberg: That’s another one.
Chris Clothier: So like on our side, you don’t have to use our property manager. These are two separate contracts. You purchase and then you hire a manager.
Steve Rozenberg: Then you want to earn their business as a management company.
Chris Clothier: In a vast majority. I’m talking as close to 100% they use our management company-
Steve Rozenberg: Absolutely.
Chris Clothier: … on the front end due to our experience and longevity. But it’s not required.
Steve Rozenberg: Got you.
Chris Clothier: What is required for performance.
Steve Rozenberg: I had a situation, in Houston, there was a lady reach out to me, she was in San Francisco and she says, “Can you help me? My parents live in Hong Kong and they bought this house and they haven’t gotten rent for nine months from the management company.” I’m like, “Yeah.” So I started doing some homework on it. I look up the tax records and basically the whole subdivision was people in China that owned the properties and bought it from a turnkey and basically they weren’t giving them the rent money.
Had been like two years on some people. They had not gotten any money. And they were in China and they didn’t know who to call or contact. And they went over there and did a dog and pony show over there in China. They placed their funds over here and it was a turn key.
Alex Osenenko: That’s a really bad apple though.
Steve Rozenberg: Absolutely.
Alex Osenenko: So let’s kind of, I think, let’s sort of wrap this up and say, look, if you want to learn more about Memphis Invest or at least how they do it, Chris, where would they go?
Chris Clothier: Right to our website, memphisinvest.com is probably the easiest and simplest way. There’s what I’m not sure what they’re called, buttons on the side where they can go and they can learn more about our company or they can learn more about turnkey in general, to be educated first. But they can schedule a, what we call a one to one consultation where one of our team members will take the time to sit down with them and get to know the investors, see if we’re the right fit for them and they’re the right fit for us.
Alex Osenenko: Sounds good. Well, I hope this was educational and helpful. It was for me. I think I have a good understanding how to at least look into it, and what is turnkey and the right way to do this. Chris, thank you very much for your time.
Chris Clothier: My pleasure. Absolutely.
Alex Osenenko: We appreciate it very much.
Steve Rozenberg: All right guys, we’ll see you next time. Thank you.
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Alex Osenenko and Steve Rozenberg sit down with Dr. Charles Steve Shaffer and talk family, investing, and quitting one job for another.
Alex Osenenko: Boys and girls. Welcome to the next episode of the Mindful Investor Podcast Show.
Steve Rozenberg: Nice one.
Alex Osenenko: It’s pretty good. Today we have Dr. Steve Shaffer. Man, this one we teased out an [crosstalk 00:00:15] introductory episode. Yeah. Man, how exciting. This guy is an amazing personality. Like I’m talking about emotional, like if you watch this on video, his eyes light up. He’s so passionate about medical, he’s a doctor MD about curing people, and real estate. Equally, as passionate. And we talked about him potentially quitting. Actually, he’s really seriously considering quitting being a doctor in the interest of being real estate investor full time. Steve, you consider quitting your [pilot 00:00:44] so this was near and dear to you [crosstalk 00:00:46]. You took over this show.
Steve Rozenberg: We actually had some great conversations. And you know what you’re going to learn here is, putting himself through medical school, the guy bought a triplex, worked his way through and ended up leaving medical school debt free. How many people you know do that?
Alex Osenenko: That’s incredible.
Steve Rozenberg: That’s incredible. And the guy now he’s a doctor, and he just loves being a doctor, because he enjoys doing what doctors do. Bringing in life, being there when life ends, the full circle. He just enjoys what he’s doing and doesn’t have to worry about money. I mean, what a nice life that would be.
Alex Osenenko: It’s amazing. Let Dr. Shaffer save himself. Let’s get into the show guys. So we hear it, 2019 BiggerPockets Conference met a very interesting group of people, a lot of folks in different stages of real estate investment, adventure, career I should say, and this is what we’re going to talk about today is the adventure versus career. A lot of people get into real estate investing with a vision of passive income, with a vision of freedom for their families, for themselves, whatever the case is. But a lot of people who get into are professionals and today I’m blessed to have my co-host here, Steve Rosenberg, who’s an airline pilot, flies for United. And I have Steve-
Dr. Shaffer: Shaffer.
Alex Osenenko: Shaffer. That’s easy. I can pronounce that. Steve Shaffer who was a medical doctor. Both of them are successful real estate investors and have a little bit different paths. But at the end of the day, Steve Shaffer is going to talk today about the decision that he’s about to make. On whether to keep his day job, or transform it into something else. So, he can focus on real estate investing full time. This is fascinating topic and I’m sure many of you listening-
Steve Rozenberg: I think there’s a lot of people that either are in this boat or could be in this boat, like Steve and myself that you focus your whole life on one path. And all of a sudden for whatever reason and everyone has different reason, but their why changes and now they do a shift. And so, I’m curious to hear your story as to what happened and what caused you to, to actually even think of doing that shift, let alone doing the shift.
Dr. Shaffer: Sure, absolutely. No, that’s a great question. My story is probably a little nontraditional as far as the path of medicine, right? I don’t come from a long line of medical people. And my dad was a police officer and my mom’s a teacher and nobody medical in the family. And I grew up in West Virginia. And I wouldn’t at all say poor, like we were great. But I didn’t realize until I was much older that like, “Oh my goodness, like we had the nice house. And it costs, this house that we paid for forever, it costs half of what medical school costs.” So, I went to a private undergraduate institution in South Carolina for my undergrad. And it was kind of hoity toity, a lot of people there had some dollars. It was a private school.
Steve Rozenberg: [inaudible 00:04:08].
Dr. Shaffer: Yeah, they were doing great and I was not in that boat. And so I worked four jobs all the way through undergrad. And they were all food service. So, you know. And when I was a manager, when I was a cook, when I was a server. And was just grind-
Steve Rozenberg: Just scrapping and grinding.
Dr. Shaffer: Just grinding. And was able to graduate debt free, which is wonderful.
Steve Rozenberg: Oh wow.
Dr. Shaffer: And then again, looking up at the mountain of the med school debt. And so, I actually did an air force scholarship.
Steve Rozenberg: Okay.
Dr. Shaffer: And so I was a doctor for the air force for a while. But yeah, somewhere in there, into high school really. Even before I got to college, I read Rich Dad Poor Dad just like everybody else. [crosstalk 00:04:46]. Got bit. So, in medical school I bought a triplex, lived in the big unit, rented the other units to classmates. It pretty much covered the mortgage.
Steve Rozenberg: Based on that book? Based on what you’ve learned basically?
Dr. Shaffer: Yeah kind of, I mean just based on assets, liabilities.
Steve Rozenberg: Okay.
Dr. Shaffer: Right? Trying to wrap my head around that. Even at that stage where everybody’s just accumulating the student loans. And I accumulated some student loans that I shouldn’t have, especially in light of the air force scholarship. I’ve made a lot of mistakes along the way. But that was the first thing, that triplex looking up and being like, “Oh I live for free.”
Steve Rozenberg: Right?
Dr. Shaffer: Like the rent-slash-mortgage is covered. And that was in the good old days where I walked into a bank and they were like, “You’re in medical school?” And I was like, “Yeah.” They were like, “What’s your income?” I was like, “Absolutely nothing.” They were like, “Well sign here, we’ll give you a house. [crosstalk 00:05:31] Here’s your triplex.”
Steve Rozenberg: Yeah.
Dr. Shaffer: And then you know that shift, 2008 happened while I was in medical school. And so, when I came out I was on the back end of it. So, I bought a foreclosure for residency and did a live-in flip. And that was really the second deal. And then worked with the air force a little bit, got transitioned to a station in New Mexico.
Steve Rozenberg: Okay.
Dr. Shaffer: And did a flip down as well. And so like this, you know, primordial, starting with the single families and working my way up with the idea of always passive income.
Steve Rozenberg: Right.
Dr. Shaffer: So, I would say that the grind stuff for me, that shift was… It’s old.
Steve Rozenberg: So, now were you actually… You started doing real estate as a doctor?
Dr. Shaffer: Yeah.
Steve Rozenberg: It wasn’t a doctor first and then real estate.
Dr. Shaffer: Correct.
Steve Rozenberg: It was both running parallel.
Dr. Shaffer: Absolutely. And I mean I think it’s valuable the way that it worked out for me. So, like I house hacked in medical school. So, this time where some people were starting to eye the BMW and stuff, I was able to pull the reins back on that and be like, “Hey listen, you know, if we live for free, we can get out of this thing and not really have a lot of debt.”
Steve Rozenberg: Yeah. That’s some huge insight. I mean that that alone, just to think that way is, I mean talk about contrarian, I mean your complete opposite of what society thinks.
Dr. Shaffer: Sure.
Steve Rozenberg: Which is probably where you are today because of it.
Dr. Shaffer: Yeah, a little, I mean I have to be careful because that’s my thing, right? Is that contrarian side and that chip on my shoulder.
Steve Rozenberg: Right.
Dr. Shaffer: And so when I was in undergrad, I am sure that it was not actually as bad as it is in my mind. Where these guys, all of these rich guys, making fun of me for smelling like French fries. It probably wasn’t that bad at all.
Steve Rozenberg: Sure.
Dr. Shaffer: But that’s the way I remember it. That like that was-
Steve Rozenberg: So, that’s how it was.
Dr. Shaffer: Yeah.
Steve Rozenberg: If that’s what you think that’s what it was.
Dr. Shaffer: Right, right. But that was my chip. That’s what kept me going. And so I could not afford the Kaplan course to study for the MCAT, this admissions test to medical school. I couldn’t afford it. And there was no possible way I could afford it. Well, everyone else went and I remember showing up to the MCAT, a lot of them rode together too, and I wasn’t invited.
Steve Rozenberg: [inaudible 00:07:45]
Dr. Shaffer: That’s in the back of my head. Yeah. And so I showed up and it was me and a pencil. Because, that’s what you needed to take the test. It’s not a big deal, right? These guys had the layers that they teach you to wear in case the room is cold. They had the salty snack. They had Gatorade. They had like a system-
Steve Rozenberg: They’re in teams.
Dr. Shaffer: And they looked at me and I mean that was the one memory that I’m pretty clear on. That actually happened and they gave me a really hard time about it.
Steve Rozenberg: Really?
Dr. Shaffer: Yeah. And then I ended up doing quite well on the exam and got accepted to medical school first. And that was my thing, I was just like all right, well.
Steve Rozenberg: That’s awesome.
Alex Osenenko: That’s a pretty cool story. So, that sounds like you are basically putting… You’re scrappy, right? You’re entrepreneurial.
Dr. Shaffer: Yeah.
Alex Osenenko: That’s what it is. And you don’t see a lot of entrepreneurial doctors, nor pilots per se.
Steve Rozenberg: No.
Alex Osenenko: It’s interesting. So, let’s explore that a little bit. For those who are listening. Maybe they’re maybe an accountant, maybe it’s some other job.
Steve Rozenberg: Engineer.
Alex Osenenko: Engineer. So, your passion from what I understand, your passion for real estate is not really for real estate. Your passion is for independence. Is it building that-
Dr. Shaffer: Yeah, exactly.
Alex Osenenko: Building that wealth? And real estate is just a vehicle or you actually are passionate about real estate?
Dr. Shaffer: It is both. So, it is definitely in that financial independence, retire early mindset. And I consume a lot of content in that space. I love that stuff. I love thinking that way. I’m more of that… If you’ve talked to many of these people, the [fat fire 00:09:15], like I don’t want to be extremely frugal. I want to be able to enjoy my life. But yeah, it’s freedom. That is the driver. Real estate is an excellent vehicle. And heard other people say this so I don’t get credit at all. But like it’s not get rich quick. It’s get rich for sure. And especially in the market that I’m in.
Alex Osenenko: [crosstalk 00:09:29] I haven’t heard that before.
Dr. Shaffer: Yeah. So, the market that I’m in. Fargo, North Dakota, 2008. They didn’t know that it happened.
Steve Rozenberg: Yeah.
Dr. Shaffer: Because, every year you’re going to get that 2 or 3% plod. You’re never going to get 30% appreciation.
Steve Rozenberg: It didn’t swing far, so it didn’t swing far the other way.
Dr. Shaffer: It never went up a ton. It never went down a ton. It just, it just plods along and the population increases. You have a diversified employment base, like those kinds of things. So, I don’t know if he’s been on this podcast yet, he’d be an excellent guest? Neal Bawa offers a lot of insight into demographics and those kinds of things in areas as a multi-family guy. And like that is the part of real estate that I love.
Steve Rozenberg: So, you like the data, you like the data side of it or?
Dr. Shaffer: I like the data side, but it’s just really, yeah, I actually really liked the nitty gritty, but the multi-family reposition.
Steve Rozenberg: Okay.
Dr. Shaffer: So, this building is a small business.
Steve Rozenberg: Absolutely.
Dr. Shaffer: And it’s failing and I can fix it. So like Shark Tank, The Profit, those kinds of shows. That’s my jam-
Alex Osenenko: I love those too.
Dr. Shaffer: Yeah, right. [crosstalk 00:10:33].
Alex Osenenko: In Shark Tank-
Dr. Shaffer: Oh man.
Alex Osenenko: Every episode, every time. There’s not enough of these shows out there.
Dr. Shaffer: Yeah, sure. And the funny thing is they’re quite popular, you know? And so, Shark Tank’s doing great. But yeah, I mean Marcus Lemonis goes into this business and people, process, product. And fixes it, that is fascinating. And I don’t know enough about the [small 00:10:53] business.
Alex Osenenko: [crosstalk 00:10:54] Major dumpster fire.
Steve Rozenberg: [crosstalk 00:10:57] I’d like to backup.
Dr. Shaffer: Yeah, yeah. Sure.
Steve Rozenberg: So what I’m curious… Especially for people watching. How do you think differently today? Because, I want to go to where you are today.
Dr. Shaffer: Yeah.
Steve Rozenberg: But for people that are thinking of doing this, how do you think that you were able to change your mindset from what you thought of back in med school, right? You were on that path, but how do you think you are different today than you were then? And if you were talking to yourself, what advice would you give yourself back in the day?
Dr. Shaffer: Yeah, that’s an excellent question. I would say the reason I led in that way. The reason I laid that groundwork was I didn’t change that much. And so I think that if somebody is coming to this kind of a podcast from the medical community or whatever, they may have a bigger mountain to climb as far as mindset.
Steve Rozenberg: Yeah.
Dr. Shaffer: Because I was there mindset-wise, the things that I would do differently… I mean this is very candid, very personal stuff. But I used to gamble too much and I didn’t have money because the [macro 00:12:00] I was excellent in. You know what I mean? Like, “I’m not paying for a house. My car costs $3,000 and it’s great.” I’m doing all these different things to start revenue streams and all this stuff that’s smart. And then you go and give money away to the house.
Alex Osenenko: You have to live with little though too. Right?
Dr. Shaffer: You got to live a little.
Alex Osenenko: I was going to ask you-
Dr. Shaffer: Yeah.
Alex Osenenko: This is my question. When you had four jobs.
Dr. Shaffer: Sure.
Alex Osenenko: You went through medical school.
Dr. Shaffer: Yep.
Alex Osenenko: Air force scholarship. What do you do for fun? That was my question.
Steve Rozenberg: Gamble.
Dr. Shaffer: Not anymore.
Alex Osenenko: I guess there’s a little bit of a life has to be left. So, when people are listening, they might be wondering like, “Hey man, I can’t do that.” I mean Steve Shaffer is a monster. Like he’s smart, he learns stuff. He passes the tests, you know, without layers, what have you. But how do you blow off steam? How do you actually mentally get back on?
Dr. Shaffer: Yeah, I think, I’m glad you brought that up, I think that is a glaring weakness of mine. I’m not good at it because I had that chip on my shoulder still. You know what I mean? I’m the kid from West Virginia, I moved, the nobody believes in this thing or whatever. It’s really a lot of artificial now. But that’s what drives me and I’m not good at it. I’m not good at relaxing. I’m not good at unwinding and I actually have to work on it.
It takes work for me to be like, “Okay, I’m going to do nothing for a few days.” And I read, I mean, I really enjoy that. And so some people might get on me for that, “Hey, well that’s not really taking time off.” Or whatever. Like you’re still the… I love reading and I don’t get a lot of time to like sit and read. I consume a lot of content via audio because I commute. Back and forth [crosstalk 00:13:44]
Alex Osenenko: Yeah. We all are the same. I’m an avid podcast listener, and audio books.
Dr. Shaffer: Right.
Steve Rozenberg: But I will say much like him… And so I did a, over the summer, I did a mastermind with the BiggerPockets people.
Dr. Shaffer: Awesome.
Steve Rozenberg: Some very high successful people in this mastermind. And the biggest thing I got out of it was that I never celebrate my wins.
Dr. Shaffer: Yeah.
Steve Rozenberg: I’m always any win I get, it’s in the rear view and I’m looking at the next thing.
Dr. Shaffer: Yep.
Steve Rozenberg: It’s a fault, I think, of mine because I never, I mean, airline pilot, real estate, built a business. I never stop and enjoy any of it. Anything I do it maybe a dinner, but that’s it. And it’s moving on to the next.
Dr. Shaffer: Yeah.
Alex Osenenko: Yeah. I agree with that. So, celebration, let’s put a pin in this because this is an interesting topic. But you have a hobby. You ride a Harley, don’t you?
Steve Rozenberg: I do, yes.
Alex Osenenko: I fish. Fishing for me is that.
Steve Rozenberg: Clears your head.
Alex Osenenko: I’ll listen to a book. Like I wait. I’m not one of those OCD bass fisherman. I sit there and let them come to me. I like set it all up. What do you do? Do you have a hobby?
Dr. Shaffer: Yeah, kind of. I mean I actually really enjoy, I don’t know if this is obvi or not, it’s more work I guess, but I really enjoy working on the properties. So my-
Alex Osenenko: That can be therapeutic.
Dr. Shaffer: It’s really cathartic. And so, I have outsourced much. I have learned a lot. I held on to too many things for too long. But painting? Painting is mine. Painting is catharsis. And so, man, cutting in those lines and it’s so transformative in such a short amount of time for just [crosstalk 00:00:15:18]-
Steve Rozenberg: You’re seeing [crosstalk 00:15:19] You’re reaping the rewards of you’ve done.
Dr. Shaffer: Yeah you step back, and you’re like, “Oh.”
Steve Rozenberg: “I did that.”
Dr. Shaffer: “That’s pretty.” Yeah. And so, I really enjoy painting, but like painting houses. I wish I could paint people. That’d be awesome. I can’t-
Steve Rozenberg: You can [crosstalk 00:15:32].
Dr. Shaffer: No, absolutely not. Like I, yeah, I go to the painting classes. I really enjoy those.
Alex Osenenko: You do that? Wow.
Dr. Shaffer: Yeah, I really enjoy those. Those are fantastic. So, that kind of stuff. Like I, I want to do things. And so like the painting classes, the cooking classes, learning new things that is my relaxation. Like I love learning juicy stuff.
Steve Rozenberg: Do you tinker with stuff?
Dr. Shaffer: Yeah, some.
Alex Osenenko: Do you, let’s shift gears a little bit, let’s talk about your decision to now forgo or mostly forgo this hard earned profession that you’ve built a career-
Dr. Shaffer: Sure.
Alex Osenenko: You’ve built this, there’s progression, there’s opportunity where you are, right? And is a medical doctor.
Dr. Shaffer: Yep.
Alex Osenenko: Talk us through that decision. When was that initial thought occurred in your brain and how you developed it?
Dr. Shaffer: Yeah, I mean again, I have always been looking down the barrel of freedom. You know what I mean? From the get go. And so I took a step back and I was like, “Okay, science, I like people, how do I make money?” And then that’s how I ended up in medicine. Which is really difficult to put out there in the universe because that’s judged pretty harshly, right?
Steve Rozenberg: Sure, there’s a stigma to it.
Dr. Shaffer: Yeah, right. The answer in the interview is to help people and it absolutely is to help people. And the things that medicine has afforded me have just been outstanding. I mean, fabulous. And being there when babies are born and being there when people die and this amazing profession. I love it. And I think that’s an important point to make is that I don’t dislike medicine. I don’t hate my job.
And there’s a lot of doctors who do, they’re burned out. And that might be some of this audience, they’re burned out. They’re tired. Paperwork, insurance companies, their staff, billing. There’s so many things in medicine that that can cause you problems. And just like anything else, I selected my job on purpose. And so the job that I’m currently doing is perfect for me. Like schedule wise and the pay’s great. And the people that I work with.
Alex Osenenko: So, how do you leave that?
Dr. Shaffer: Well and that’s the question, right? So, I mean I am not-
Steve Rozenberg: You’re not like pushing to go, “I got to get out, I got to get out.”
Dr. Shaffer: Exactly. I am not leaving out of a sense of frustration or bitterness or anything like that. I’m leaving out of the ability to do so.
Alex Osenenko: Yeah, it’s intentional. I get it Steve. But what I’m trying to get to is why?
Dr. Shaffer: That’s all right, let’s get there. Yeah.
Alex Osenenko: Right? So, are you… The opportunity costs, right? So you leave that, you leave your professional behind, the opportunity cost is significant. Like what are you going to do with that time?
Dr. Shaffer: Right. Excellent. And I think that, to throw it back on you would be, why not? And like you bring up opportunity costs. And I would counter with sunk cost fallacy.
Alex Osenenko: [inaudible 00:18:31].
Dr. Shaffer: So, like 11 years of my life, so four of undergrad, four of medical school, three of residency. And I did this air force scholarship, which genuinely… I mean I’m entrepreneurial. The military is a bad place for entrepreneurial people as Steve made out. So, I did not have a good military experience and most of that, almost all of that was entirely my fault. And so there’s a lot of lessons that I learned there. But you have this massive cost in the rear view mirror and now you have this great salary. And honestly, the hardest part for me in the fire discussion is 401k, 457 some of these tax deferral vehicles for that income. I don’t need it. So, I think that-
Alex Osenenko: Hold on, let’s just take a second here.
Dr. Shaffer: That’s okay, yeah.
Alex Osenenko: That’s really interesting. So, your aspiration is not to make more money, but then this is where I’m confused. You are an incredibly driven person. I think a rare breed I’ve met, top the top 1% of people I met. And I meet some high powered people.
Dr. Shaffer: Sure.
Alex Osenenko: Very driven. Where is that drive going to go? I’m wondering like, okay, it’s not the money necessarily. You’re not going to all of a sudden start making 10 times as much in a year or so. But-
Steve Rozenberg: I think what you’re asking is, is you’re asking destinations [crosstalk 00:19:56] and I think he’s saying he’s doing it for the ride.
Dr. Shaffer: Yep.
Steve Rozenberg: And I think that’s a bit of the difference because I’ll tell you very similar, just like an airline with airline pilots, I fly with guys all the time that are miserable. And they would be miserable if they were sitting on their couch flying from home. They would still, whether it’s the company screwing them over, or the union, or this, and it’s just nonstop. And whenever I hear that, I’m sure, just like with doctors, I always think of the Guns and Roses story, right? Guns and Roses was at the top of the world and they broke up because basically they didn’t get along. And you’re thinking these guys were on top of the world. They were making the money, they were living the life. But to us they were living the life. To them they were miserable and unhappy.
So, the fact that like I… Same thing with flying and maybe the same thing in your position. I love going to work because I don’t need it. I go to work and fly, but I don’t need to be there. So when I hear people bitching and moaning all the time, I’m thinking to myself, you can complain or you could change your environment. You’re choosing to be unhappy. You could do what I did. You could buy real estate. You could do these things you choose not to. So, this is the environment you’re in and you go to work and it’s like, “Oh, did you hear about the union? Did you hear about this?” And I’m like, “No, I didn’t hear anything.” I don’t get any of those emails. I don’t get anything. Because I want to go to work and I just want to fly and enjoy it. And is that similar?
Dr. Shaffer: It’s very similar. And we can get into… I have some questions for you with that too, that Alex kind of clued me in on. Because you kind of hacked your job.
Steve Rozenberg: Yeah.
Dr. Shaffer: You’re doing the what? This two route thing, right?
Steve Rozenberg: Yeah. Two times a month.
Dr. Shaffer: That’s awesome. That’s amazing. And like it exists out there for a certain number of pilots. And some of these guys are grinding it out and they’re miserable. Charlotte to Dallas and you’re like, “Listen man, switch gears. That’s all you have to do.”
Steve Rozenberg: Just change your perception.
Dr. Shaffer: Yeah. And so, I was a primary care physician. I’m family medicine trained. And so I was a primary care physician and I loved primary care, you have this sense of ownership and these are your patients. And you get to see the progress because they’re coming back. I really enjoyed it. There’s also a lot of challenges in primary care. It’s not extremely well compensated. There’s tons of paperwork, there’s a lot of frustration. There’s frustration around noncompliance. And so, it gets into this huge ball of bitterness where you spent 11 years of your life to like help people. And you have lost it.
Steve Rozenberg: [inaudible 00:22:16].
Dr. Shaffer: You have 0% of it. Now, you hate these patients. Some people. You know what I mean? They’re coming in and you hate it or whatever.
Steve Rozenberg: And that feeds upon itself.
Dr. Shaffer: How did we get here? It’s 100% the wrong way. And so I have been very fortunate where I’ve been offered opportunities in my life, and been able to take advantage of them. But I started moonlighting at this, [inaudible 00:22:44]. I’ve got a second job. Because the job that I’m currently doing now, I started as a moonlighting position. And I’m a hospitalist.
And what that means is when the ER calls to admit somebody to the hospital, I’m that guy. So I go down to the ER, I admit the person at the hospital and then I’d take care of the people that are in the hospital overnight. Overnight only. I only work nights. And there’s a couple of reasons for that. But that was one of my conditions when I came on to that position. That position had never existed before. But several of the doctors that were there didn’t want to work nights. They don’t like it, you know?
Steve Rozenberg: Right. They probably want to be with their families.
Dr. Shaffer: Yeah. They’ve got families. That’s great. And so I love it. And so it’s, it’s seven on, seven off, 12 hour shifts. I have half my time off to myself. 12 hour shifts if I am not busy, I get to sleep.
Steve Rozenberg: Now is some of that because you don’t have to be around other doctors? And you can just do what you want to do, which is take care of people.
Dr. Shaffer: Absolutely. And then the cool thing with that is, I mean I’m really hesitant to put this out on a podcast just in case it ever goes anywhere. But I had an administrator from the hospital the other day literally run into me like physically in the hallway and he’s, “Oh excuse me.” Because, I was in this kind of employee stairwell. He’s like, “Hey, are you lost? I can get you back to the main area or whatever.” And I was like, “I work here.”
Steve Rozenberg: “I work here.”
Dr. Shaffer: Yeah. He’s like, “Oh cool. What do you do for us?” I was like, “I’m a physician.” And he’s like, “Oh neat man. Did you just come on?” I was like, “I’ve been here two years.” But that was the secret sauce to me.
Steve Rozenberg: Absolutely.
Dr. Shaffer: I don’t go to a meeting.
Alex Osenenko: Are you thinking then, this is going to be your gig moving forward?
Dr. Shaffer: No, no. So, this is the gig that I’m potentially hanging up and it’s great. It’s wonderful. I love it. But just like the flying two routes or whatever, it is wonderful to know that you can lay it down.
Steve Rozenberg: Yeah. It’s funny, you know, I did a trip one time where I was about three, four years ago. I was going down to Rio de Janeiro and we had the chief pilot with us and we’re flying down to Rio and he’s like, “Stevie, how long have you been here for?” And I said, “About 15 years.” And he’s like, “Really?” He’s like, “I’ve never met you.” And I said, no offense, “I don’t want to meet you.” Because that’s the 10% that are always in trouble. And I said, “Do you know what’s even more funny?”
I said, “When I was based in Guam, you are the chief pilot in Guam. And I never met you there either.” He’s like, “I get it.” He’s like, “I get it.” But that’s, again, I don’t want to be in that crowd. I go to work, I love what I do because I love to fly. And then I love to go home and I leave it all there. And so, a lot of people they take that home with them. And that’s when it starts eating them up and it eats them up from the inside and then they’re miserable at home. Then they’re complaining, then they’re this and that’s the challenge.
Dr. Shaffer: Yeah. And I think the one thing that, and Alex was probably going there, but like pilot and doctor. And you mentioned engineer earlier.
Steve Rozenberg: Yep.
Dr. Shaffer: It’s interesting to me because like I have met so many engineers in real estate investing. And several of them that have gone full time and now they’re realtors and there’s a lot of that. I have, and I’m sure their family gave him grief or whatever, that doesn’t seem as big a deal. But if you are a doctor and you said that you were going to quit medicine to be a real estate investor, everyone thinks you are. [crosstalk 00:25:46].
Steve Rozenberg: You got on the podcast.
Dr. Shaffer: Yeah. Right. I got on this podcast, they were like, “This guy’s an idiot.”
Steve Rozenberg: “What is he thinking?”
Dr. Shaffer: Absolutely. Because it’s this massive income and you’re potentially landed down for something that is perceived as risky.
Steve Rozenberg: Sure.
Dr. Shaffer: But the thing with pilot and medicine and engineer and a couple other professions, it is so woven into your identity.
Steve Rozenberg: Absolutely.
Dr. Shaffer: And I mean you are a pilot. You have a thing-
Steve Rozenberg: It’s who you are. [crosstalk 00:26:13].
Dr. Shaffer: You have the cool hat.
Steve Rozenberg: I got the hat.
Dr. Shaffer: I got the white-
Steve Rozenberg: I should wear the hat from now on.
Dr. Shaffer: You should wear the hat from now on. Be the captain. I’ve got a white coat. I’ve got a stethoscope.
Steve Rozenberg: Yeah. That’s the identity.
Dr. Shaffer: That’s it. That is your identity. You know what I mean? And so laying that down, that is, I think the climb that most people in medicine would really have a hard time with. You are-
Steve Rozenberg: You have to change who you are.
Dr. Shaffer: Sure.
Steve Rozenberg: Yeah, absolutely.
Dr. Shaffer: And it’s not even the people who like, correct you when you say Mr. because those people are a special breed. “Dr. If you please.”
Steve Rozenberg: “It’s doctor.”
Dr. Shaffer: Yeah. You don’t like those people. But not even just those people. I mean you’re a doctor. It’s a lot of work. It’s, it’s one of the hardest paths there is, right?
Alex Osenenko: So let’s sort of take it all the way.
Dr. Shaffer: Yeah man.
Alex Osenenko: I still am struggling to understand why.
Dr. Shaffer: That’s okay. Yeah.
Alex Osenenko: I want to get that. I want to leave here-
Dr. Shaffer: Sure.
Alex Osenenko: And the audience with understanding. All right, what’s next for Steve Shaffer? What is that next thing? Is it more freedom?
Dr. Shaffer: Yeah.
Alex Osenenko: More freedom to do what you want. Because you’re a driven guy you’re going to do stuff.
Dr. Shaffer: Yeah I know.
Alex Osenenko: You’re not going to paint.
Dr. Shaffer: Oh, yes I will. To your point the… When you asked about relaxation earlier, that is actually the part right now that I am figuring it out. And that’s the part that scares me. Because if I get to the point where I’m satisfied with my passive income and I don’t have a full time job anymore. But I mean I have three kids and absolutely love them. I love chasing them around and occasionally I catch one of them.
Alex Osenenko: You have three kids? There’s new things-
Steve Rozenberg: Keep popping up.
Dr. Shaffer: Yeah. Yeah, no.
Alex Osenenko: 24 hours a day. Do you have more?
Dr. Shaffer: Yeah, no.
Alex Osenenko: Do they teach you more than school? [crosstalk 00:27:57].
Steve Rozenberg: Time travel.
Alex Osenenko: Time [hockey 00:00:27:59].
Dr. Shaffer: Yeah. The same amount of time. But I, to answer your question directly, I am scared about what’s next. Because I’m not good at taking my foot off the gas. I’m just not good at it. And I am sure that it will pivot into something. Like you asked the tinkering question I wanted to like take off on this whole, like I got a grant for this STEM education thing that I came up with.
There’s stuff in my head that I haven’t had time to act on, but like I am genuinely… Us three at the table. I would love to go to culinary school. Why? Because I don’t-
Steve Rozenberg: Why not?
Dr. Shaffer: Because I don’t know how to do it yet. You know what I mean?
Steve Rozenberg: So, you’re a problem solver. You like to solve problems.
Dr. Shaffer: Love solving problems.
Steve Rozenberg: Puzzles?
Dr. Shaffer: Yeah, absolutely. My daughter inherited it. We did an escape room for her birthday the other day and it’s… She is the best. So my daughter is-
Steve Rozenberg: I’d love to go to a game night at your house.
Dr. Shaffer: Oh my gosh, my daughter… Oh, no you wouldn’t.
Steve Rozenberg: It’s probably pretty intense.
Dr. Shaffer: It’s cut throat. Yeah. So, my daughter is a testable, verifiable genius. Like literal genius. People call, they want to put her into programs. Like she is off the charts smart. I hope she never hears this. She’s off the charts smart. And I love that kid so much because she doesn’t know it yet.
Steve Rozenberg: Right.
Dr. Shaffer: And she’s still very grounded. And so, we walk into this escape room thing. And it is minimum four people per team because of the size of the rooms. And it’s her and I. And like she is below the age limit, everything. And the guy was like, “Hey man, well come on in and have a good time.” But whatever, we got out.
Steve Rozenberg: No kidding.
Dr. Shaffer: Oh yeah, absolutely she got out. That kid is so awesome at solving problems and whatever. And like seeing that, I mean that’s what’s next.
Steve Rozenberg: So, I have a question. Quick side note, kids.
Dr. Shaffer: Yeah, yeah, go for it.
Steve Rozenberg: How are you going to and are you going to instill this freedom mindset? Because I think what you’re asking and what he’s done. And like myself what you’re actually doing is it’s not necessarily… I don’t know if it’s necessarily a destination. I think what you’re doing is you’re buying your freedom or you’re getting your freedom. You’re getting the ability to make a decision on what you want to do.
And that is very hard. When you’re a pilot, when you’re a doctor, when you’re any of those things, you’re very conformed. And you can’t move out of these huge organizational structures. And now with him, he could do what he wants. He could say, you know what, tomorrow-
Alex Osenenko: He hasn’t done it yet so-
Steve Rozenberg: But he has the ability to say, “You know what, I’ve got real estate. I’m going to punch out. I don’t need this.” And so my question is are you going to instill that in your kids? And if so, how?
Dr. Shaffer: Yeah, excellent question. Absolutely. I don’t know how yet. I mean, exactly. And the, the interesting thing for me, I might get a little emotional. I’m going to try not to. My daughter, verifiable testable genus. My son, my middle son, so my daughter’s the oldest she’s 12, my middle son that that kid is awesome. I just really enjoy him. He is so fun. He’s 10 and he is perfectly normal, like upper tier of normal but normal. And then my youngest is six and he’s autistic. And so like you take those three kids somewhere and try to keep everybody busy for a minute, good luck.
And so, it’s been fascinating to find the things that they can all enjoy. And so solving problems, building, that kind of stuff, that’s one of those things. And so there’s these… That’s kind of where the STEM education concept was born when I was working on that. A little more full. Like you can take them to these places, these Lego STEM kind of plays where they build things. There you go. The smart ones over here like, you know, constructing a skyscraper. And then my little guys like patterns, and so. But, you can keep everybody busy. And so my thing is I don’t have a book. I don’t have a program. They’re going to be very individualized. So, my daughter has already read Rich Dad Poor Dad.
Alex Osenenko: So, that’s an interesting. How old is she? 12?
Dr. Shaffer: She’s 12. And so the Rich Dad Poor Dad thing for me is interesting because I love that book very much. I read it every year. And there’s a lot of problems with it, holes in it, and people poke holes in it all the time now. But that inspirational piece is invaluable.
Steve Rozenberg: It’s a mindset shift.
Dr. Shaffer: It’s a mindset shift. It’s a great mindset book. And the cool thing for me is I am both, I’ve done both. I’ve climbed the academic mountain and I’m willing to lay it down to be the poor dad. Because he wasn’t the poor dad, right?
Steve Rozenberg: He wasn’t.
Dr. Shaffer: He wasn’t. And that, and that mindset shift, I want my kids to always be empowered to quit. Yeah.
Steve Rozenberg: Yeah. To have the freedom to make a decision.
Dr. Shaffer: Absolutely. I want them to be monsters that are absolutely persistent and never quit and like work so hard, until they should quit. And I want it to be their decision.
Steve Rozenberg: So one of the parts of that book, and I believe it was that book where he talks about minding your own business.
Dr. Shaffer: Yeah.
Steve Rozenberg: And basically you know where you work your job, but you mind your business. Meaning you run your business at nighttime and on the weekends to build up that empire basically.
Dr. Shaffer: Sure.
Steve Rozenberg: So, that’s obviously… So, I’d like to go into where you’re at now. So, that’s kind of what you did. You basically minded your own business.
Dr. Shaffer: I did.
Steve Rozenberg: You ran your real estate up. So, take everyone to where you are today in this cycle, and what you’re doing and where you want this to go.
Dr. Shaffer: Excellent question. Thanks.
Steve Rozenberg: You notice I get the excellent questions, he hasn’t said that about you.
Alex Osenenko: I’m just fascinated processing.
Dr. Shaffer: It’s because excellence’s not a good enough word for you Alex.
Steve Rozenberg: Oh wow.
Dr. Shaffer: We need a better superlative. [crosstalk 00:33:41]. Right now I am at 42 units. If I close, what’s in front of me, we’ll be at 61 by the end of the year. I say we a lot, it’s just me. And so I own 100% of the equity right now. I used my own money up until this year.
Steve Rozenberg: Okay.
Dr. Shaffer: And I have started taking in some outside money but as debt.
Steve Rozenberg: Sure.
Dr. Shaffer: And so just saying, “Hey listen, I’m going to give you a return on your money and I’m using that for down payments and renovation.”
Steve Rozenberg: And there’s nothing wrong with that.
Dr. Shaffer: No, no, no. And the thing for me is like the only deals that I’m doing right now are grand slams.
Steve Rozenberg: Right.
Dr. Shaffer: And so, I’m able to be a little choosy. I’ve closed on a couple of decent multi-families. And in Fargo, North Dakota, there’s probably 50 people that trade everything. It’s just-
Steve Rozenberg: It’s a small community to begin with. And then you get-
Dr. Shaffer: Sure. So, if something’s coming up, I’m on the list of people who get called, you know what I mean? And so, that transition. That shift is enormous. And so, and I don’t know if you guys have experienced it yet, in your businesses and stuff. But I mean, yeah, you get to that point where people start bringing you deals. And then it’s picking gold up off the beach.
Right now my baby is a 15 unit building. I love it. It’s gorgeous. I’m so excited about it. But it is my problem solving just masterpiece. So, the thing in multi-family is you buy on [actuals 00:35:00], right? You do not buy in [proforma 00:35:00] period. Understood, this building, the actuals were horrible and no one bought it because no one went to look at it with their eyeballs. And so I walked in and did this massive renovation. It was ready. It was a release project.
Steve Rozenberg: Oh wow.
Dr. Shaffer: Yeah. And I mean management wasn’t where it needed to be and all this stuff. So I mean, I just stumbled into it and it’s awesome. So, by the time we closed that… When I bought… When I put it under contract, there were 40 units that were full out of this building. You know. So, when I closed there were nine, now we’re full a couple of months later.
Steve Rozenberg: Nice.
Dr. Shaffer: Yeah. But they have this massive attic space upstairs that is an attic. That’s what it is. It’s going to be a three bed, two bath showpiece.
Steve Rozenberg: A penthouse type?
Dr. Shaffer: Oh, it’s going to be great.
Steve Rozenberg: Nice.
Dr. Shaffer: And so, like that kind of stuff. There’s this massive boiler that fed the building, but it’s been decommissioned for 30 years. I found a gentleman, an enterprising gentleman with a sledgehammer and a [settling 00:35:53] torch and now the boiler’s gone. So, there’s going to be a unit in the boiler room.
Steve Rozenberg: Nice.
Dr. Shaffer: And-
Steve Rozenberg: So, you’re seeing opportunity where other people don’t.
Dr. Shaffer: Oh man, the multi-family reposition stuff, juice in the [NOI 00:36:03], getting to where it needs to be and then how that translates into the value of the building. I love that.
Steve Rozenberg: Now when you’re taking in capital, what’s the exit strategy on those deals? Or is there an exit strategy?
Dr. Shaffer: Yeah, it’s a great question.
Steve Rozenberg: Great question again.
Dr. Shaffer: He got it again. Yeah, no. So I been refining out-
Steve Rozenberg: Okay.
Dr. Shaffer: All this stuff has enough meat on the bone, right? I’m coming out like 70/30 paying everybody back.
Steve Rozenberg: Nice.
Dr. Shaffer: Yeah. And it’s, yeah, it’s been pretty great.
Steve Rozenberg: That’s awesome.
Dr. Shaffer: Yeah.
Alex Osenenko: So guys, I feel like two of you can sort of sit on a plane, fly to what’s the furthest destination? Is it Sydney?
Steve Rozenberg: Sydney, Australia.
Alex Osenenko: 17 and a half hours. Talk one way. Talk to the other way and just like barely get to know each other. So, so why don’t we, why don’t we call this? It’s been a fascinating experience-
Steve Rozenberg: Yeah, great story man. Awesome.
Dr. Shaffer: Thanks for having me.
Alex Osenenko: I think the underline here is like the is the passion. You have the drive and the passion for all these things you do. So, I think in this people have this term for something like this, whatever you touch turns to gold. Because you have full attention and intent and focus behind it, which is quite fascinating.
Steve Rozenberg: Yeah.
Alex Osenenko: But let’s see how this story develops. So Steve, I’d love to have you on the show maybe what six months from now. Do you think that-
Steve Rozenberg: Will evolve by then?
Alex Osenenko: The job will come to an end.
Dr. Shaffer: So, we didn’t get into specifics. The job, what I’m looking at. I signed a couple of sign on bonuses when I came on and there’s really no reason for me to pay a penalty. I love my job. So 20 months.
Alex Osenenko: 20 months.
Dr. Shaffer: 20 months is what it is right now. There’s a step off point. So it’s basically, is it going to be one year or two years? There’s a step off point in nine months.
Steve Rozenberg: That’s when we need to talk to him, is in nine months.
Dr. Shaffer: Yeah, eight, nine months.
Steve Rozenberg: Yeah.
Dr. Shaffer: So eight, nine months I’ll be at a decision point.
Steve Rozenberg: That’s-
Alex Osenenko: That’d be a good show.
Steve Rozenberg: That would be a good [crosstalk 00:37:48].
Alex Osenenko: Let’s have a conversation then. And I’m so fortunate to go to this conference and meet people like you. Steve it was incredible.
Steve Rozenberg: Yeah it was awesome.
Alex Osenenko: Thank you for your time.
Dr. Shaffer: Thanks a lot fellas.
Steve Rozenberg: See you next time guys.
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Alex Osenenko and Steve Rozenberg wrap up season 1 of The Myndful Investor Podcast Show on location at The Bigger Pockets Convention in Nashville with Brittany and Kara. The roundtable discussion is about social media, the power of Instagram and overcoming gender stereotypes.
Alex Osenenko: Boys and girls, welcome to another episode of The Mindful Investor show. So good to have you here. Steve, don’t we have a show for-
Steve Rozenberg: Man, we’ve got to good one. So, on this show we have Kara and Brittany. These girls are Instagram wonders. Kara is out of Phoenix, she’s got over 40,000 followers on Instagram. Brittany is in Saskatoon, Canada, and she has 85,000 followers on Instagram.
Alex Osenenko: But they’re both real estate investors.
Steve Rozenberg: They’re flippers. They’re in the heat of battle.
Alex Osenenko: They’re serious. They’re out there. They’re actual investors.
Steve Rozenberg: And so in this episode, what you’re going to learn is basically number one, how they use social media to basically get all of their deals. All of their business comes because of social media, number one. Number two, you’re also going to learn how they get sponsored by suppliers to give them supplies because of their dominance in the social media arena.
Alex Osenenko: When you’re flipping your house, your tile could be free because you just mentioned who the tile is by.
Steve Rozenberg: Exactly. And these girls do an amazing job. You’re going to learn basically not only how they do it now, but kind of how they got started. And you know, Kara gets other business, not just flipping but design project business because of her reputation. So it just goes to show how powerful social media is and how strongly they feel that social media has been a major player in their success story.
Alex Osenenko: This show is unique and their passion is fantastic. Let’s get into the show.
Steve Rozenberg: [inaudible]
All right guys, so we are here at BiggerPockets and you know one of the reasons you come to these conferences and these events is you get to meet like-minded people. You get to hang out with them, you get to talk to them. And so we couldn’t have two better people to talk to now on that are just known out there in the industry is our good friends, Brittany and Kara.
Alex Osenenko: And the theme, if I may add, the theme of the conversation is going to be like one of the things I’ve heard from Kara, she said, “all my clients came from social media,” and antenna goes up like, “what’s [inaudible 00:02:15], how does that possible?” And so we’re going to explore that. We’re going to dig in and unpack some of the stuff. But by the way, Kara, to my left, 43,000 Instagram followers, I don’t know how to even possible. 10 homes she renovated herself. She does a lot of work for the clients as well. And every client came from social, which is amazing. Britt is right in front of me to the right of Steve, those of you watching on video, but smart and very articulate. But 83,000 followers on Instagram and 13 rental properties. Britt that’s amazing. So today we’re going to talk about how to use social media, how to leverage social in rental properties business. So you guys, maybe give us a little bit of how’d you get into it? What was the moment where you said, okay social works. How do you even come to that?
Steve Rozenberg: And I think just also maybe where they’re working, operating out of, cause they’re completely different markets and that’s important to know as well. Different countries. Tell me a little bit about you and where you’re from, where you operate, and how you got into this.
Kara Beckmann: I’m from Scottsdale, Arizona, which is a great market right now, and I started real estate investing in 2016, I was 28 years old, and when I went into real estate investing, I knew nothing about real estate. So everything has been self-taught. And that was also before I found BiggerPockets, that would’ve been helpful back then. And that’s when I started my Instagram, Beckmann House, and I started it just to have a place where I can keep my memories. So when I started early on, it was my way to, okay, I bought my first investment property, and so it’s really fun to see that progression. And then I started featuring more of the before and afters. And it started off slow, the growth was very slow. And on my third investment property, I hired subcontractors to teach me how to do a lot of the work because I thought this is what I want to do full time and I don’t want to jump into this full time not knowing construction.
And so by hiring those subcontractors, they taught me how to wire can lights, properly demo walls, rip up baseboards, rip up tile. And so I was starting to feature more of that on my Instagram and that’s when it really started to grow. I think people like seeing, wow, if she can do it, I can do it. And that really is the message that I want to relay that anyone can do this. And I think it’s fantastic and there’s a lot of different ways to invest in real estate. And then I would feature more before and afters and more extreme before and afters and then it would grow and people would feature my posts, which would in turn grow both accounts. And that is really how it started to grow immensely when people were sharing mine. And more interaction too. I noticed the more I interact with my followers, the better it is for everybody.
Alex Osenenko: How long did it take, Kara? Sorry to interrupt, but how long did it take? I’m just super curious. How long did it take when you felt it crested? It was a point where somebody actually started sharing.
Steve Rozenberg: A tipping point. You got to a tipping point where it started going.
Kara Beckmann: I was probably on my fifth property.
Alex Osenenko: It took awhile.
Kara Beckmann: It did. It was a very slow growth.
Steve Rozenberg: Look, 2016 that’s only three years though. So it’s-
Alex Osenenko: Only three years? That’s like a lifetime. These girls are in their [inaudible 00:05:35] So that was pretty awesome. Do you mind if we just shift to Britt and get what is your, how’d you get started and where?
BrittanyArnason: I’m in the middle of nowhere in Canada, right in the middle on the prairies. I’m not actually from that city originally, but there’s cheap properties there. And I bought my first property in Saskatchewan when I was 18 years old. So that was how I got my start. But my mom owned rental properties, so I would help her do DIY renovation stuff as well. That’s where I get this mentality from. So I’m like DIY everything. So it actually took me a while after I bought that first property to really get all-in on real estate. I didn’t even realize like people were doing it full time as a job. So I found BiggerPockets and I’m like, wow, this is a whole new world. So then once I started investing full time, that’s when I started posting a lot on Instagram. But I would tag, cause I look up to Brandon and whoever, so I tagged them in posts and get attention that way.
Alex Osenenko: Are you guys listening? That’s a tip, that’s a pro-tip.
BrittanyArnason: And I try my best to add value to people. I don’t want to just be constantly taking, I want to be able to give back. So it’d be like, “Hey, like I read Brandon’s book, it’s so awesome” and I’ll do that for Steve and my friends as well, just to give some value back to them by promotions or whatever. So instead of just tagging them being annoying, asking questions, I’m tagging him like, “Hey everyone, you should read Brandon’s book, you should listen to this podcast episode” and I’m able to talk to people I never thought I’d have conversations with and look at where we are now. It’s so insane who you could meet over social.
Alex Osenenko: So what is your crest, where did you feel that moments, like five properties for you Kara? Like how would you picture it?
BrittanyArnason: I guess with mine, it would have actually been around five as well. But it was weird because it was the same thing because it was really slow and once I started really getting big on Instagram–
Steve Rozenberg: And did you intentionally start to post stuff with that plan or no?
BrittanyArnason: No, not at all.
Steve Rozenberg: So you were, just like Kara, you’re just posting to post.
BrittanyArnason: Yeah, exactly. But one of my really good friends actually started making money through Instagram and I was like, “Oh, this could be another stream of income, right?” So, that was in the back of my head too. I had a few different ideas, but I never would have imagined what it is now. But back in the day, I was thinking about, cause I love to travel as well, so I always wanted something that I could do online as a business or I could make money like wherever I am in the world. So that was another thought I had, but then it went like really just to investing.
Steve Rozenberg: So is it happening now? The people who are listening, is it happening now? Are you making money while traveling?
BrittanyArnason: Yeah, and lots of product sponsors too. So a lot of companies will sponsor, just give me free product.
Steve Rozenberg: Is that common? Do you get that as well?
Kara Beckmann: We’ll partner with companies; I do a lot of tile partnerships, which is amazing. And you’re having fun. You’re doing what you love to do.
Steve Rozenberg: Now, I noticed you guys do different types of videos though. So you do the, I don’t know if you’d call it a time lapse type video and you do more of like showing the product. Is there one versus the other?
Kara Beckmann: I don’t think so. A time lapse is nice cause you can show a lot more of the process much quicker. So if Brittany’s demoing, or laying a whole floor of tile, she can show that whole process where I have to “this is what I’m doing now, this is the before, these are a few steps, this is after.” So it’s just different. And I think it’s fun to do a few of those different, to do some maybe slow-mo. I like slow modes when I’m punching walls or something. And then time-lapse is great for longer videos and then it’s nice just to have, “here’s it before, here’s an after.” So constantly changing.
Alex Osenenko: So Kara, you’ve learned construction management you’ve said, which is very interesting. That perked my ears, because not a lot of people want to get into it.
Steve Rozenberg: And so does she [Brittany]. She does the demos and everything too.
Alex Osenenko: You do that too?
BrittanyArnason: Yeah.
Alex Osenenko: So I guess that’s one takeaway for the listeners; you have to not only learn it but love it, right? [crosstalk 00:09:40] Like I see your passion-
Steve Rozenberg: You have to live it.
Alex Osenenko: [inaudible 00:09:42] have this amazing tile sponsorships, to me, I’m like, [inaudible] Who’s got tile sponsorships, come on, but hey, that’s a passion. I guess take away number one, learn it and then be passionate about it. What are some of the other takeaways? What have you seen being successful in that social media real estate play, which, by the way, I’ll just set it up, like Property Brother — there’s some shows on TV, people do it, but to me that looks like not real. It’s very hard to connect with real. You guys are real.
Steve Rozenberg: They’re doing the work. The other ones, it’s virtual TV, but you know, there’s some staging.
Alex Osenenko: Reality TV.
Steve Rozenberg: Reality, I’m sorry, but you know there’s probably some staging going on sometimes.
Alex Osenenko: That’s what I’m thinking. It’s very hard to believe what’s on TV is real.
Steve Rozenberg: But when they’re doing it, I mean, it’s videos of them actually doing the work. Let me ask you this, have you seen, and I know it’s an ever-changing industry, how have you seen it change as far as what you did before, I’m guessing wouldn’t work — what you did in 2016 probably would not work today, is that a safe statement?
BrittanyArnason: Yeah.
Kara Beckmann: As far as investing?
Steve Rozenberg: No, no, I’m sorry, as far as on social media, gaining traction and doing what you’re doing. How do you stay up on that? Cause if not you become irrelevant and you get kind of pushed aside, right?
Kara Beckmann: Well, I really think it’s just being consistent. You know what I did back in 2016 I’m still doing that same stuff. I’m just doing more of it and more consistent.
BrittanyArnason: And getting them to know you and let them into your life. People like to see that; they want to get to know you. So I think that’s important too.
Alex Osenenko: Here’s a question I have, a percentage split between female and male followers, what would you say yours is?
Kara Beckmann: I know mine. Mine are 75% female, 25% male.
BrittanyArnason: Really? Mine’s opposite. Completely opposite.
Alex Osenenko: That is so interesting.
Steve Rozenberg: Well Canada, I mean, what’s there, right?
Alex Osenenko: These are just interesting stats. Those listening out there, it really varies within your content. Okay, so next question, we have Dan, our director here. He’s talented, he’s setting up this whole routine, pictures; we don’t have to learn about it and do it. How did you like this photography and video? Like did you learn that stuff?
Steve Rozenberg: She was showing me her phone of all the things the phone did last night and I was thinking like, “wow, how would you even learn this?”
Alex Osenenko: So let’s talk through that. What are some of the apps are you using?
Kara Beckmann: I don’t use photo apps, so I use my iPhone, all of my pictures, before I hired professional photographers to capture my homes, they’re all done on my iPhone. You have iPhone editing, so you can enhance the brightness maybe, play with the contrast a little bit, but that’s it. And it’s funny because sometimes I’ll notice that pictures that look like they were homemade or on my iPhone versus a professional get more likes, and I think it relates back to, “I can do that.”
Steve Rozenberg: It’s within their grasp. They’re like, “I can do what she’s doing. It’s not impossible. She doesn’t have this huge budget and a film crew following her around. It’s just her.” Got it.
Alex Osenenko: So when you thought about, and, Britt, before we come back to your strategy on this, have you thought about elevating the game? Now that you’re gaining momentum, what are your thoughts on next stage?
Kara Beckmann: I’m always thinking about my next stage. So through Instagram I’ve also met another investor who’s in the Phoenix-Scottsdale market, and he does a lot in the commercial side. And that is really where I want to end up going. And so we’ve been talking a lot through Instagram and also talking about partnering on a deal, whether that be commercial or whether we partner and he funds a flip, and that would give me more just more capital.
Alex Osenenko: But that’s venturing into a different avenue of the business, not necessarily changing, sort of upgrading your presentation or your content. Have you thought about actually upgrading? You said iPhone things work, but have you thought about getting more professional stuff done?
Kara Beckmann: Not yet.
Steve Rozenberg: Because it’s working.
Kara Beckmann: It’s working, right. And a lot of people, once they start to grow, they have someone manage their social media accounts. And right now, I love managing my social media accounts and I think it’s important for me to do that because I see what my followers are wanting. They’re messaging me, “oh, I want to see this, can you talk about this, what are your exterior paint color go-to’s, or what is this?” And that gives me more content. This is what people want to learn. The other day, I was walking through a house and I walked through the reasons I didn’t end up investing, and the amount of messages I got, “thank you so much for saying the reasons you didn’t invest.”
Steve Rozenberg: Sure. I’ve always learned that when you’re on social media, everyone always hears the successes. They want to hear the reasons you don’t do something or the mistakes or the top landlord failures or what could get you sued because nobody ever talks about that stuff. They always talk about the fame and “I made this much money on a flip and I did this,” as opposed to “this was a horrible situation, I can’t believe this happened to me and I X dollars” or whatever the case may be. And I think a lot of people like that. They like the fact that you’re able to go in and say, “hey this is good or bad and this is why I didn’t move forward in it.” I have a question-
Alex Osenenko: Hold on a second, I want to give Britt a bit of a stage to discuss it because this is kind of interesting. We are in content production, it’s very professionally interesting to me. How do you think about quality? Cause Dan is obsessed with quality. He won’t let Steve and I be too creative without him overseeing and that’s not a bad thing, it’s a great thing. Thank you. We need some, we need discipline. Britt, how do you do it?
BrittanyArnason: Yeah, well I was going to go back to the apps thing because I do have a few video editing apps and stuff like that. So for photos I use Snapseed. So like Kara was saying-
Steve Rozenberg: Kara-
BrittanyArnason: Shoot. It’s the Canadian accent, you guys, I know her name, we’ve been friends forever. I’m sorry. So I use Snapseed-
Steve Rozenberg: Snapshoot? Seed?
BrittanyArnason: Yes, Snapseed. So I really like that one. And like you said with the brightness, it’s really important to increase your brightness because when people are walking around, maybe they’re outside or something, you really want your photo to stand out, so I think that’s important. With video, there’s a few, if you have an iPhone, like iMovie, Clips, and then my favorite is called Splice. But I had it for free and someone told me recently they started charging. So, shoot, cause it’s so good. It’s a really awesome app.
Alex Osenenko: What’s with people not paying? Sorry, just, it’s a little bit of a intersection here. But, $8 for an app? $8 for an app? Like somehow we have a problem with that. We’ll dump, we’ll get a venti in Starbucks for 14 and that’s okay. Anyway, go ahead.
BrittanyArnason: So true. So those are really good and time-lapse on my iPhone and that’s all I’ve used, just on the actual camera.
Steve Rozenberg: On what you guys have done, how do you think it’s, I mean, we know it’s helped you, right? You guys have said it’s opened up a lot of doors, but could you specifically say, this is because I’ve met these people or I’m afforded this ability or deals, because how would you guys relate that to actually going, “this is why I’m doing so much on social media?” Because at some point, you may go [crosstalk 00:17:05].
BrittanyArnason: It’s a full time job.
Steve Rozenberg: Some people go like, “man, I don’t have the time to do it.” But you’re saying you don’t have time not to do it, because this is actually what’s getting you business.
Kara Beckmann: Right. You have to make time to do it every day.
Steve Rozenberg: So how much time would you say you guys allocate for social media?
Kara Beckmann: I do about two and a half hours a day.
Steve Rozenberg: Two and half hours a day?
BrittanyArnason: Yeah, I would say, for my videos and stuff, to edit, it takes a lot of time. But I would probably say even maybe three hours a day.
Steve Rozenberg: Okay. So now you guys are on one channel, on Instagram more than Facebook or anything else. Is there a reason you guys picked that channel?
BrittanyArnason: I think Instagram is like the popular app.
Kara Beckmann: I just get so many more comments and interactions through Instagram.
Steve Rozenberg: I believe you get like access and you get things like “swipe-up for this,” that we don’t have access to those things.
Kara Beckmann: Right. So you have to have 10,000 followers for the swipe-up.
Steve Rozenberg: 10,000 okay, So you’re [crosstalk 00:17:57] you’re not, cause I was talking to her about, I’m interested, I’m trying to learn.
Alex Osenenko: Oh I get it. I get it. So can we do a little bit of a coaching here? So you use two and a half hours a day, Kara, you use three hours a day. But I think it’s a lot of it is video editing as well. What is your unique ability? Both of you, I want to hear from each of you, please. What is your unique ability and what’s the next thing you’re going to outsource? [crosstalk 00:18:22] What are you going to hire for, what are you going to keep?
BrittanyArnason: So for me, I’m really passionate about renovations. I’ll do that all day and forever until I’m dead. [crosstalk 00:18:31] But I just love being creative and hands on. I’ve always just thought I would love to retire and do woodworking or metalworking or stuff like that. That’s what I love to do. Because it’s my creative outlet. It’s fun for me, it’s relaxing. So that’s what I’m passionate about it, and that’s, I think, how I grew my account because I love this stuff and people can see that.
Steve Rozenberg: The passion.
BrittanyArnason: [Inaudible] so like that. But when it comes to paperwork and property management and things like that-
Alex Osenenko: Oh we know a property manager.
BrittanyArnason: Do you? In Canada?
Alex Osenenko: Not in Saskatchewan.
Steve Rozenberg: Saskatoon.
Alex Osenenko: Whatever. I’m bad at it, but yes. Over there we don’t have it.
Steve Rozenberg: You can let Kara answer and then I’ve got a couple. I’ve got some investing questions for them.
Alex Osenenko: Well that’s actually very, very good cause we want to sort of tie it in and give our listeners the whole idea. These girls have amazing portfolios as well as Instagram stuff. So Kara, what are you going to outsource next?
Kara Beckmann: So, hi, I’ve been working a lot with Steve on this because I do so much of it. I do a lot, I’m managing my, well, not managing but managing the construction aspect of a lot of my jobs, the design work as well and I enjoy being at my job sites. I like what’s going on. I like the interactions with the contractors, making sure we’re on budget. That’s very important to me and they know how tight I am on that. And so I would probably outsource accounting. I actually enjoy doing spreadsheets and that’s why I take it on myself because I like it, but it’s not the best use of my time. Designing is a better use of my time than working on my spreadsheets and I need to outsource that and possibly bring in someone who’s more full time for the client aspect as well.
Steve Rozenberg: The client experience.
Alex Osenenko: Can you hold your questions for another follow-up question?
Steve Rozenberg: Sure.
Alex Osenenko: I have to have this one. [inaudible 00:20:34] I don’t think there’s enough women doing this. We all know that. Right?
Steve Rozenberg: Believe it or not though, on Instagram, there are a lot of women-
Alex Osenenko: It’s amazing and it’s happening, but you guys leading the way, right, so you’re spearheading this. Tell the women that are listening, how do you manage like highly male-dominated trades contractors? You said that’s one of the favorite things to do. Like I imagine, you come in, you’re blonde, I mean, how did they take you seriously? And if they don’t, how you make them take you seriously.
Kara Beckmann: You don’t take any BS. And you have to set that precedence right away, because as soon as they start to pull one on you, I told my contractor, “don’t pull that on me,” cause I caught him in something and he said, “I’m so sorry. I’m so sorry.” Didn’t happen again. But you have to set the precedence. You are the boss. Things will go accordingly or you’ll call them out on it. You have to set your expectations right off the bat. And that does come with some experience. When I wasn’t experienced, you don’t know what you don’t know, and that is exactly why on my third property I hired subcontractors to teach me how to do things because now I can say that’s wrong or right, or you’re charging me too much, or if you’re taking too long, because I know now. And also the more you work with that contractor, my contractor tells me a lot, “you know, I really respect you. I have a lot of respect for you” and-
Steve Rozenberg: Because you’re out there doing it and you know it, is that-
Kara Beckmann: Yeah.
Steve Rozenberg: Yeah that makes sense.
Alex Osenenko: Because you don’t set unrealistic expectations probably, but you also push them to be their best. Right?
Kara Beckmann: Right, right.
Alex Osenenko: Britt, do you have another view on this?
BrittanyArnason: Well, I think it is extremely intimidating for women in the industry, but I’ve always kind of grew up in trades and whatever, so I never really felt that. But I think, even through Instagram too is a really cool way to green the credibility because like people see, and they want their company, like if you’re hiring a plumber or whoever contractor, they want you to give them some shout outs or whatever on your Instagram. So you have this level of credibility now.
Steve Rozenberg: [crosstalk 00:22:38] you’re helping them, yeah.
BrittanyArnason: So I find that to be really helpful.
Alex Osenenko: That is a good tip.
Steve Rozenberg: Okay. So let’s go into the investing job that you guys do, right. Getting into this-
Alex Osenenko: By the way, I do appreciate your patience.
Steve Rozenberg: Thank you very much. I appreciate that.
Alex Osenenko: As soon as you got the word in.
Steve Rozenberg: All right, so Kara, you had a job and you quit your job, right?
Kara Beckmann: Right.
Steve Rozenberg: And so it wasn’t in real estate at all, right?
Kara Beckmann: No.
Steve Rozenberg: So how do you think differently today than you did? So there’s other women out there that are going, “”man, I would love to do what she does, but I just can’t. And they have all the reasons why, but you did it, you took that step, you cut the rope and you jumped to this new thing. And there was, I’m sure a lot of fears.
Kara Beckmann: There were. It took months before I finally said, “okay, I’m taking a huge leap of faith.” And that is what it was. It was really trusting God and saying, “okay, I’m going to do this and here we go.”
Steve Rozenberg: So what advice, and for you too Britt, what advice would you give for, let’s say women that are out there working that say, “man, I would love to do what these girls are doing, but I just can’t do it.” They have all the reasons in the world, which a lot of times those are just made up in our heads, but what would you tell them that they need to do and how would they execute that plan talking to you three years ago?
Kara Beckmann: Well, I’m actually really thankful that I started investing while I was working a full time job for multiple reasons. Having that full time income, I was able to qualify for loans, which helped me purchase the home. My backstory, my degree is in patisserie and baking. And so I wanted to have a bakery, and for years I’d been saving money to eventually open up a bakery.
Steve Rozenberg: Vegetarian bakery — a vegan bakery. Very important.
Kara Beckmann: Yeah, I wanted to do wedding cakes and that was when the economy started to go down. And then long story short, I ended up in retail. So I’m working in retail. I needed a creative outlet and I thought I’m going to take this money that I’d been saving for years and years, put 20% down, because it was an investor loan, so you have to have your 20% and then I got a mortgage on the property and then I funded the rehab with the money I was making from my full time job.
So I did this a few times, so I got the hang of it while I’m still working. So it’s a lot less fearful when you have a steady paycheck coming in and you know you can pay your contractors, and you know you can purchase supplies and everything. And so I think that helps to build the confidence rather than quitting your job jumping into it; now you’re going to have to fund it fully cash, get hard money. It’s a lot; it’s a higher risk.
Steve Rozenberg: It’s a high risk. I would say it’s a higher risk when you don’t know what you’re doing. When you know what you’re doing, it’s low risk. But what’s interesting is it’s the same risk. You’re doing the same thing. It’s just your knowledge is actually what’s taking it from high risk to low risk, right? Because now you may look at this and go, I would do this. Like when you look at a deal, same as you, you look in a deal and you go, yep, I would do this, this, this, and this. Where if you’re someone new, you’d be like, wow, I don’t even know where to begin. Maybe I’ll just keep my nine to five, you know? And that kind of thing. Now for you, Britt, you came from the industry with, like you said, with your mom and everything, but for you, what were some mental blocks that you had to get over and to do what you do? Cause now you’re, you go and live at the property sometimes, right?
BrittanyArnason: Yeah, all the time.
Steve Rozenberg: All the time. Well now you’ve got the bus, right? You follow on Instagram, she has a school bus now she’s living in, yeah.
Alex Osenenko: I’m not even on Instagram.
Steve Rozenberg: You seen her in the school bus? [crosstalk 00:26:09] Yeah, but it’s a converted short bus, is that what you said?
BrittanyArnason: Yeah, short school bus.
Steve Rozenberg: But yeah, so she goes and actually lives at the properties that she’s doing the rehabs on. So I mean talk about being into this, right?
Alex Osenenko: That struck me. We should have a better pre-show briefing. I had no idea.
Steve Rozenberg: So what would you tell women that want to get it? Especially, they want to get into this, maybe not even go into a career and they want to start doing this. What would you guys give them advice-wise?
BrittanyArnason: Yeah, I mean, I guess obviously you want to be educated enough so you don’t make a bad choice. You want to make sure the property is going to make you money in the end, that’s so important. But I also always thought what’s the worst case scenario? Because in my market, I’ve been buying really cheap properties, so under like $25,000 around-
Steve Rozenberg: Canadian? Canadian dollars?
BrittanyArnason: Yeah, Yeah. So like nothing for you guys, so come on over.
Steve Rozenberg: So it’s like three bucks?
BrittanyArnason: Yeah, pretty much. Yeah, so for me, the risk didn’t really feel like anything cause I was like, “all right, I know this property is going to make money,” cause after renovation it runs for around $900.
Steve Rozenberg: So the numbers make sense. [crosstalk 00:27:22] And you’re totally redoing the house, so you’re giving someone a brand new house.
BrittanyArnason: Exactly. Yeah, so I don’t know, I felt like-
Steve Rozenberg: The risk factor was low.
BrittanyArnason: Yeah, and for me it’s like worst case scenario, I have to go get another job if this doesn’t work out. Like it felt fine to me.
Steve Rozenberg: Now the price points where you are, are different. [crosstalk 00:27:41] So you’re taking off a bigger, you’re getting a hard money loan or something that’s a bigger, you’re taking a bigger bite there.
Kara Beckmann: Oh yeah, a couple of hundred thousand dollars.
Steve Rozenberg: So there’s a limit, I mean, at some point, especially when you’re new, there’s a limit. You’re getting trust with the hard money lenders and stuff. But initially, till you get that track record with them, there’s a limit on the amount of funds that you can borrow.
Kara Beckmann: Right.
Steve Rozenberg: So that’s a factor.
Kara Beckmann: That’s true. And maybe, as a first timer, it’s not a bad idea to partner with someone.
Steve Rozenberg: Absolutely.
BrittanyArnason: Yeah, I agree.
Kara Beckmann: Take a lower percentage of the deal, just to get the knowledge. That lower percentage is going to be worth so much more.
Steve Rozenberg: Oh yeah, totally. Now let me ask you this, so you guys doing what you’re doing right now, this is a strategy, right? This isn’t a goal, you guys are going to a destination, right? What do you guys think is your end destination in real estate? You guys are in real estate, you’re not going anywhere. You guys are going to ride this wave. Is it rehabbing and flipping? Is this it? Or is this leading to something else?
BrittanyArnason: Well, I think we’re kind of on the same path with this, but I have all single families and duplexes right now, but like I want to go bigger because it just makes more sense. Right now I have properties spread out all over, and I just want to get one building and take control of that.
Steve Rozenberg: And you’re looking at a commercial deal right now.
BrittanyArnason: Yeah. So I have one pretty much under contract, we’re just working on some seller financing details, but it has 22 units and seven commercial spots on the bottom. It’s a cool, it used to be an old bank. I love it. It’s such a cool place. But it’s the brass handles going up and the marble staircase and all the vaults, like all the old things.
Kara Beckmann: That’s amazing.
Steve Rozenberg: Oh nice.
BrittanyArnason: It’s super cool. It’s a cool place.
Steve Rozenberg: But now, that’s a strategy.
BrittanyArnason: Yeah.
Steve Rozenberg: What’s the end goal?
BrittanyArnason: The end goal…
Steve Rozenberg: So you guys are doing this and is it to say I want to have assets that are producing revenue for me, right? Is it, I want to have a company that’s doing rehabbing and I’m just running the company, like what is the end goal? Cause the end goal is money coming to you without you having to do it, right?
BrittanyArnason: Exactly. Yeah, I think that’s definitely it. The point where I can step away is really important because I love to be involved, but I also want to be able to have my systems down and under control so I can be able to step away if I want to. Canadian winters are really cold, so, I want to get out.
Steve Rozenberg: Go to Phoenix, go to Phoenix, snowbirds.
BrittanyArnason: I’ll come visit you.
Steve Rozenberg: So what about you, Kara? What’s yours?
Kara Beckmann: I mean, I have a number, for sure. That I want to make per month. So that’s my goal. I love the fix and flip strategy. I love it. But I am doing more BRRRR investing. So rather than, actually the-
Alex Osenenko: Can you explain BRRRR?
Kara Beckmann: Sure, so you’re going to buy it, you’ll rehab it, rent it, refinance it, pull cash out, and then repeat the process. So I just successfully did my first BRRRR deal. I’m so excited because, and this is a good thing. I thought, “oh I bought a property specifically to BRRRR it. I didn’t know, I don’t have two years of tax returns.” Because I was still so new, and so I didn’t realize without two years of tax returns you can’t do a refi. So I went to four different lenders, finally someone was going to lend on the refinance, so-
BrittanyArnason: That’s great.
Kara Beckmann: I just got the check in the mail before I came, so it’s very, very good. It’s been a long process.
Steve Rozenberg: Oh, nice.
BrittanyArnason: Congrats.
Steve Rozenberg: That’s great.
Kara Beckmann: Thank you. And so now I’m taking that money to finish the rehab on the one I currently purchased and I purchased that in a wholesale deal.
Steve Rozenberg: Was that your first one? Cause I saw online that you posted something about your first deal you did or-
Kara Beckmann: No, the one, no, this is recent. This is the one that I just purchased. I purchased that to flip and now we’re halfway through the renovation and I think I’m going to hold it.
Alex Osenenko: Look at that, we’ve got a holder. That’s awesome. So you flipped 10 but you have to make that little cash, stack of cash, so you can ride deployed into the rentals. Right. You’ve been renting them. Have you flipped any?
BrittanyArnason: No. Haven’t sold one yet.
Alex Osenenko: So you keep them.
Steve Rozenberg: She gets them and fixes them.
BrittanyArnason: All BRRRRs.
Steve Rozenberg: Yeah. Now. Okay, so one final, I know you have a question that you wanted to ask, but let me ask you this. So what would you say in all of this, is your weaknesses that you guys have been able to identify on your own that you could give advice for other people out there watching and just say, “Hey this is my weakness and this is how I’m going to fix it.”
BrittanyArnason: Yeah.
Steve Rozenberg: So what would you say?
BrittanyArnason: Oh man, I have a lot of weakness, especially talking to you, I’m like [inaudible]. No, I definitely think I’m the big picture thinker and I didn’t realize how important Instagram was going to be to my business. So I’m really good at connecting with people and the big picture stuff. But when it comes down to like the details and it’s like, all right, how are we actually going to do this?
Steve Rozenberg: Make this happen?
BrittanyArnason: Yeah. It overwhelms me; it’s a lot.
Steve Rozenberg: But you do that with your houses though. I mean, you do that.
BrittanyArnason: With the rehab stuff that’s fine, but the paperwork and the finances and figuring that out and being like, all right.
Steve Rozenberg: How are you doing that now?
BrittanyArnason: Well, we did hire an office manager, so that’s been very helpful. And that was recent, because I had such a hard time hiring. You know how it is. But we’re looking more into like the BA’s and stuff as well, which I have a part time on helping with social a little bit. So looking to get more into that. But yeah, I guess just like-
Steve Rozenberg: So detailed work and the details.
BrittanyArnason: Yeah.
Steve Rozenberg: Okay, and what about you Kara?
Kara Beckmann: I would say there’s two main ones that come to mind. I like to control. I like to have a lot of control over the whole process because you’re building this business and your name is on it and so it is important that all the details are not being missed and I do need to step back a little bit and bring some more people on and just have that faith that it will be okay to bring people on. And then I also, there’s so many things that I want to do. And I have to hone in on, and get really good in this field and then stay.
Steve Rozenberg: Stay in your vertical.
Kara Beckmann: Right, right.
Steve Rozenberg: Got it.
Speaker 1: Yeah, they call this, I think Gary Keller, his book, the unique ability-
Steve Rozenberg: The ONE Thing?
Alex Osenenko: The ONE Thing, yeah.
Kara Beckmann: Oh, I’m reading that now. It’s really good.
Alex Osenenko: [crosstalk 00:33:45] that unique ability is really important to discover and just focus on that. That’s why my first question was what would you outsource? But I think Steve took it full circle. You guys weren’t ready to answer that question, and now I’m hearing you admitting to Steve like, “Oh yeah, I’m going to do this. I promise you.”
Steve Rozenberg: I kind of know a little bit about what they’re doing.
Alex Osenenko: Unfair advantage, yes.
Steve Rozenberg: Doesn’t have to be fair. Just had to be an advantage.
Alex Osenenko: So one last question. This has been a great interview, but let’s give our listeners like this final nugget of wisdom and actionable advice — finding deals. Top one, two ways you find deals.
BrittanyArnason: So I’ve found deals mostly through MLS or realtor.ca, whatever, I don’t know about guys, that’s what I use. So I actually just look out of my city so I’m not like stuck in one spot. I’m going to look all over the place to find the best numbers where the numbers work. So I think that’s really important. You can travel to your deals. I’ve driven–
Alex Osenenko: Hence the bus.
BrittanyArnason: Yeah, hence the bus. Exactly. But I think a lot of people get stuck in their specific city or their market and they’re like, “Oh well I can’t buy a house here. It’s $400,000, whatever.” They have to start looking outside and find, even if it’s even further out of state or something like that, find where it works, because people just get overwhelmed and they don’t do anything.
Alex Osenenko: So go where the deals are.
BrittanyArnason: Yeah, go where the deals are.
Alex Osenenko: Kara?
Kara Beckmann: It’s so funny cause mine is the exact opposite.
Speaker 1: [inaudible]
Kara Beckmann: I hone in on my areas because I can run the numbers faster. I know the zip code. I know what a good price per square foot is to enter in. I know what I can sell. I know what the ARB should be. I know what I can exit at price per square foot. And I’m constantly getting the highest price per square foot when I’m selling. My last five flips were in a two mile radius of each other.
Steve Rozenberg: Really?
Kara Beckmann: Yeah. So I love these neighborhoods and now my mom’s my real estate agent and I get 90% of my deals on MLS.
Steve Rozenberg: Nice.
Kara Beckmann: I always say put in an offer, you never know.
Steve Rozenberg: You never know. You don’t know their situation. It’s so true. Absolutely.
Kara Beckmann: You just never know. And I’ve never lost money on a deal. And a lot of them have been on MLS. And the second way is wholesalers. So I get wholesalers that know I’m targeting these zip codes.
Steve Rozenberg: You’re just hyper focused in that area that they know this girl knows her stuff, she knows her numbers. Let’s give it to her what she wants.
Kara Beckmann: Yeah. He’ll text me, he’ll say, “I have a deal. It’s yours. You are the first investor to see this deal. Other investors are coming in an hour.” And so I walked in, I said, “yeah, I’ll take it.”
Alex Osenenko: Fantastic.
BrittanyArnason: I love it.
Kara Beckmann: And I had my lenders say, “Kara, there’s this great deal in Mesa,” which is out of my zone.
Steve Rozenberg: It’s out of your area.
Kara Beckmann: And I said, “those numbers might be fantastic, but the deal is not for me. I don’t know that neighborhood. I don’t know the buyer.” I would rather wait to get a good deal, a solid deal where I know those numbers really well.
Alex Osenenko: Really, really good advice.
Steve Rozenberg: Absolutely.
Alex Osenenko: Really good advice. So I guess to sum this up is, “Hey social works, be passionate, learn the biz {business}, get in the construction, ask your carpenter how the nails go in, whatever the case is. I, you know, I’m trying to be- [crosstalk 00:37:07].
Steve Rozenberg: I don’t think that’s what you do, but anyways.
Alex Osenenko: That’s a really good tip too. And going back to women who want to get started, but don’t know how, if you can’t be involved in your renovations as much as you’d like, every time you go to the job sites, I’ll do this with my client projects too, every time I’m at their job site, I’ll ask the contractor or the tradesman something that I didn’t know before.
Steve Rozenberg: Oh, so you use it as a learning lesson.
Kara Beckmann: Yeah, it should all be a learning lesson. So every time you’re walking away from that job site, you learn something.
Steve Rozenberg: Oh yeah.
BrittanyArnason: And then that’s less of a chance to get taken advantage of because people truly don’t — we know what we’re doing.
Steve Rozenberg: Yeah. And eventually you’re going to learn all the things and they’re going to be like, okay, they know what they’re talking about.
BrittanyArnason: Yeah, exactly.
Alex Osenenko: So, if I list the takeaways here, just to sum this up, it’s going to take another episode, so maybe we’ll do a comeback episode.
Steve Rozenberg: A recap.
Alex Osenenko: And we wish you success with your commercial beginnings and with your buying hold beginnings, and we’ll come back maybe in a few months and check you guys out and see how you’re doing.
Steve Rozenberg: Yeah, and obviously, how do they, I’m sure everybody knows how to find you, but how do they find you?
Alex Osenenko: Yeah, good point.
BrittanyArnason: I’m at investor girl brit on Instagram, my main.
Alex Osenenko: Investor girl brit.
BrittanyArnason: That’s right.
Alex Osenenko: All right. Kara?
Kara Beckmann: And I’m at Beckmann house.
Alex Osenenko: B. E. C. ?
Kara Beckmann: B. E. C. K. M. A. N. N.
Alex Osenenko: Beckmann house.
Kara Beckmann: Yes.
Alex Osenenko: Awesome. Well, thank you so much for taking the time. Let’s get back to the conference.
Steve Rozenberg: Thank you ladies.
BrittanyArnason: Thank you.
Kara Beckmann: Thank you so much.
Steve Rozenberg: We’ll see you guys. Bye.
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Jett and Steve Rozenberg talk with Alex Osenenko about how Jett, at 14, not only purchased a rental property but was excited to do so.
Alex Osenenko: Well, hello there and welcome to the next episode of the Myndful Investor show. It’s great to have you here with us. Steve and I are continuing to explore the single family investment realm and we are in this season trying to understand what it takes to be successful in single family investment. Luckily my cohost Steve Rosenberg has deep expertise in this field and he’s failed and won a lot, so but want to unpack, want to bring people, interesting people here who have done it or are doing it, unpack their experience and see if our audience, you guys and girls can learn something and so can we as well. Steve, how’s your day today?
Steve Rozenberg: It’s good. It’s good. We’re down here in Houston, which is rare that you get to come down to Houston. We’re in the headquarters of Empire and special guest, we have my son Jett here. Jett?
Jett: How’s it going?
Steve Rozenberg: Thanks for being with us today. But yeah, we’ll talk about a lot of people were very interested hearing about the story of Jett buying a rental property when he was 14.
Alex Osenenko: Well, don’t give it all away.
Steve Rozenberg: Well. Okay.
Alex Osenenko: There’s a special reason why Jett is here.
Steve Rozenberg: There is a special reason.
Alex Osenenko: Jett is 16 which is not defining him as an individual, but it is a factual statement. Is 16 years old and he’s not ashamed of it are you?
Jett: I am not.
Alex Osenenko: You know he’s not because you know what? He’s probably ahead of a lot of people including myself. He owns a rental property.
Steve Rozenberg: He does own a rental. Yes.
Alex Osenenko: He actually owns a rental property and this is exciting. We’ll get it in the show in just a second. If you want to get more, find us on Facebook, we have this new mastermind, real estate investment club. Would love to have you join this private group. Doing a lot of meetups. Would be great to meet you and of course if you need property management help, it’s all Mynd.co, M-Y-N-D.C-O.
Alex Osenenko: Well let’s get into the actual introduction. So, a little bit about Jett. Steve, I know you know your son but I’m just going to give a quick overview. So, he’s 16, 10th grade, lives in Houston. His hobbies are cool though. Drummer, knife flipper, rugby player and he bought a rental when he was 14. Steve, why don’t we start with you? Like our kids never want to do, like in my experience, my daughter, oldest daughter is 10.
Steve Rozenberg: Yeah.
Alex Osenenko: So she still likes daddy but like as they become teenagers they want to be the opposite. Like so if you’re a pilot like he builds like he goes into the ground.
Steve Rozenberg: Yeah. [crosstalk] Well, you know it’s funny you say that because a lot of times I’ll ask him, “Hey do your friends at school know what I do?” “Yeah. You own a business.” I say, “Well, they don’t know about me being an airline pilot.” “No.” Doesn’t tell them. So, very much to your point they kind of do go opposite. He seemed to resonate with the me owning a business and with empire and being involved in investing maybe because he was around it. We would kind of include him in meetings and bring him into conversations and when I’m on the phone in the car, he’s kind of immersed in it whether he wants to be in it or not. He’s in the car.
Jett: Yeah.
Steve Rozenberg: And I think that’s what kind of got him more understanding of it. Not like, “Hey, sit down and read this book.” Initially it was more just, I think him listening to conversations is what started this whole process for him.
Alex Osenenko: Yeah. So as the theme of the show, and you may be wondering what is this going to be about? Well, I think it’s about to help our children, our kids to be successful in whatever they want to be successful in but I think buying a rental property and becoming an investor can just help with whatever else they’re going to do. It doesn’t need to define them.
Steve Rozenberg: Sure.
Alex Osenenko: But it’s great experience doing it. I wish like if we were in United States, if I grew up in United States and my dad was doing this, like this would be like by now I’m 40 which you think is super old, but like in reality is like super young. Right?
Steve Rozenberg: I’m older than you so I don’t know-
Alex Osenenko: You’re also super young but the point is like we have a whole life ahead of us. Had I had capture four or five, seven [inaudible] of houses by now or reinvest that money like I’d be a lot better off than I am today. So, in anyway enough talking for us. I want to sort of understand like what was the first thing as a first time, Jett, that you thought, hmm, maybe I should do this on my own?
Jett: Well the first thing is like my dad said like just being in the car with him and listening to the audio books. Half the time I wasn’t really paying attention, but it was still going through in my ear and sitting in the back of my brain. So, I’ve always had an interest in it and how you can do what seems like a little work and get a lot of profit out of it. There’s still work to be done it’s just different work. I don’t specifically know why, I just liked it.
Alex Osenenko: So, as far as I remember at 16 years old-
Steve Rozenberg: 14.
Alex Osenenko: 14. Even 14, 14 you would get a job permit. So, if you want to have your own money-
Jett: Yes.
Alex Osenenko: Like I was 16 here and what I had to do is get a permit from my school, work and flip burgers at a restaurant, which was great, I actually enjoyed it a lot. You could do it still, but the point is like that was my option.
Steve Rozenberg: Right.
Alex Osenenko: Like go flip burgers only like so many hours a week and I had to come in on this time. Like there was a lot of restrictions so is this a way for you to make money and finance your hobbies or did you think of it as future opportunity?
Jett: I thought of it as both. I thought of it as well now it’s just the beginning point so I can just like keep reinvesting into savings, put some of it into my hobbies and then later when like the mortgage is paid off and you’re getting a lot more income from it, then it’s more of an opportunity thing to do it now when I’m younger so that I can have all that when I’m older.
Alex Osenenko: Do you even know how smart it is? You’ll listen to this podcast a few years from now and be like-
Steve Rozenberg: Well you know it’s funny because when we first started having the conversations and one of the things that I think was really helped and it wasn’t necessarily real estate related is you know we had the Grant Cardone University for the sales team and part of that you got the whole package of stuff and one of the things in there that he has is a hundred ways to stay motivated. And so what I started doing and they’re little five minute segments and so that was part of his chores is every day he had to listen to a five minute segment of Grant Cardone a hundred ways to stay motivated. And I think it just started, I’m assuming it just started getting him more in-
Alex Osenenko: Subliminal messages.
Steve Rozenberg: Yeah he just started-
Alex Osenenko: You programmed your kid.
Steve Rozenberg: Well it was part of his chores so-
Alex Osenenko: For success. [crosstalk]
Steve Rozenberg: And you had said it when I started talking about a mortgage and taxes. Well he doesn’t know what any of that was and he’s like, “What’s a mortgage?” So then now we had to go back to basics of a deed, a mortgage, buying a, so you really had to get very basic for him to understand appreciation, stuff that we kind of assume he’d never heard those words before. He knows rental, cashflow doesn’t really know what they mean so we had to say, “Okay, your mortgage is this, this is what a tenant will pay. The difference is what we get.” You know, really had to get very rudimentary for him to understand it and maybe he did or didn’t understand it at the time, but we kept working through the process of trying to understand it, which I think was key.
Alex Osenenko: Did you do it on purpose Steve? Like was your goal and we’ll come back to the first time you thought about buying a house by the way, I didn’t think I got an answer, but like did you do it on purpose? Like did you want your son to buy a property at 14 or you just wanted to educate him? Like what was your end goal?
Steve Rozenberg: No, I mean actually he came to me and said that he wanted to buy a rental property. I mean obviously everybody would want their child to be successful and carry on buying something that I’m in, real estate, but no, he actually was the one who came to me and said, “Dad, I want to buy a rental property.” And I was just like, “What? Like, how do you even know about that?”
Alex Osenenko: So let’s go unpack that moment like maybe it’d be interesting for me and our listeners to hear like what was the pivotal point for you? What was the trigger for you?
Jett: I don’t really think it was a trigger or like anything that just kind of causes a snap. It was just a steady thing over time and then I was like, “I guess I’ll just ask him and tell him that I want to buy a property.”
Alex Osenenko: So you were thinking about it?
Jett: Yeah.
Alex Osenenko: You were brewing it?
Jett: Yeah. It had been stirring in my mind for a couple months.
Steve Rozenberg: You know, he and I had talked about it and he had the money in savings that he had saved, which I didn’t know he had that much, but he did. But you know, then his thoughts, what he said to me is, “Well, it’s not going to make anything sitting in a savings account.” So, he was smart enough at the time to realize that he didn’t really know that it was called a return but he knew that it was not going to make him any money just sitting in a savings account.
Alex Osenenko: Let me ask you this. On the savings account, personal interest, how old were you when you had your savings account first?
Jett: I don’t quite remember exactly how long-
Alex Osenenko: So, that young?
Steve Rozenberg: I think he had had it. Yeah. I mean we had opened it when he was young.
Alex Osenenko: Like how young?
Steve Rozenberg: I mean probably like three. You know what I mean? Yeah.
Alex Osenenko: Three?
Steve Rozenberg: We started a savings, you get birthday money and you get this and you know, we’d always put money, we had like some he could have and a ratio. And that’s actually, you know, speaking of that, that’s what he does with his cash flow. He has to divide it. He gets 60% he can use and 40% goes back in to save for another rental or whatever so of his cash flow, he gets some that he can use and he gets some that no matter what it goes reinvest back in.
Alex Osenenko: So let’s talk about now that you’ve had an ask, like, “Hey, can we do that together?” I listened to your podcast on Bigger Pockets and sort of, I know some of this, but I want to unpack this for the audience, too. There’s more to buying a property than just wanting buy it. There’s a lot of people who are listening to us who want to buy property who can’t or won’t or like there’s a lot of blocks. It’s a complicated.
Jett: It is.
Alex Osenenko: And to me the first thing I think about is down payment. Like have to have that. So you had some savings, was that enough to-
Jett: No, definitely not. I ended up going in splitting it with my parents.
Alex Osenenko: Splitting so they gave you part of it and you had part of it?
Steve Rozenberg: We didn’t give him part of it. We partnered with him and invested part with him.
Alex Osenenko: Tell me more.
Steve Rozenberg: So you know, we had the discussion and he didn’t have enough. He had like $10,000. And so it was like, that’s not enough. And I don’t know how much he remembers of this, but it was like, “Well, how do I get more? How do I make it?” And I’m like, “Well you need about 20 minimum.” You know?
Alex Osenenko: In Houston.
Steve Rozenberg: In Houston, yeah. [crosstalk] And I’m like, “You need about at minimum of 20, you know? Not counting if there’s a make ready that needs to be done or anything like that.” And he was like, “Well that’s going to take me forever. I mean, I’m 14 and this is what I have.” And I’m like, “Yeah I agree it’s going to take you forever.” You know? And the one thing he asked me that I remember is he said, “Well how can I do it? How do I do it?” And I thought that’s a pretty smart question, right? Because he’s actually asking how, and instead of that’s not fair, whatever.
Steve Rozenberg: And that’s when we kind of went down the path and I was like, “Well you can partner.” You know? And that’s when we started unpacking the thing of, “Well, you know, would you partner with me?” “Well, what’s the deal?” You know? And so we had to talk through the deal and of course, first I had to explain to him how a rental property pays money because again, I go back to if I was a young kid growing up in Los Angeles and my parents had the ability to buy me 10 houses, right? No offense, but you and I probably would not be sitting here right now. But you know, if he can get that now 30, 40 years from now, I mean, where will he be? Right? And so my thoughts were, I don’t want to give him all the answers, but I want to have him understand the dynamics of owning a rental property, the cashflow, they appreciate.
Steve Rozenberg: So, I had to explain to him that how you make the money? Of course he’s thinking cash flow of what he’s going to make in lieu of maybe getting a job or whatever he wants to do with it but I’m trying to explain to him like, look, there’s more to the story here. Like this is for your future and this is going to go up in value. So, I had explain why is it going to go up in value and I remember we sat down on the kitchen table one day, right? And I drew a map and I showed him what appreciation does on the East coast and West coast of the US and the Midwest and all this and I wrote all these numbers down and showed him, kind of walked him through the numbers and then it was probably month or two or a couple weeks later when I went into his room and it was actually up on his wall.
Jett: Still is.
Steve Rozenberg: Still is on his wall and I was thinking, wow, like he actually listened.
Alex Osenenko: Give us a shot for this podcast, we’ll put it in the show notes or something. I think it’d be cool for the listeners to actually take a look at it.
Steve Rozenberg: Yeah. Oh, a screenshot?
Alex Osenenko: Yeah.
Steve Rozenberg: Yeah. I mean, I’m not the best artist in the world for the record, but I did a pretty good job.
Alex Osenenko: You can’t be best at everything, Steve.
Steve Rozenberg: That’s true. That’s true.
Alex Osenenko: You know, having 16 things be best at, that’s enough. [crosstalk 00:14:16].
Jett: He got his point across and it’s all I needed.
Steve Rozenberg: Yeah.
Alex Osenenko: Exactly. And then you just put that as a reminder?
Jett: Yeah.
Alex Osenenko: And that’s probably like when we talked pre show and I said, “Hey, couple of things you get out of the hundred ways to motivate yourself,” and you like had a little bit of a like hesitation is probably a lot of things you’ve learned out of there?
Jett: Yeah.
Alex Osenenko: But maybe looking at your goal, visualizing every day, that’s probably out of there somewhere.
Jett: Yeah. Persistence is a big thing.
Alex Osenenko: Yeah. So, that’s good. I have a question for you, a little bit of a challenging question. So, you know we’re right now-
Steve Rozenberg: No I’m not buying you a house.
Alex Osenenko: No, no, no, no. It’s not like, “Yeah, let’s partner. Let’s partner.” No, seriously. It’s along the lines of what we’re currently educating on and we’re big on out of state investing.
Steve Rozenberg: Sure.
Alex Osenenko: Right? You do a lot of presentations. We acquired a company called HomeUnion Investment. You can go there and actually just like you would on your bank account or something or something like you can look at properties and you know, bid and acquire an investment property. So, question is like if you had 10 grand, why not go to like Indie or Detroit or somewhere where the medium price of the house is say $110,000 versus $220,000 or whatever. Or is 10,000 this little money? Like your loan to value needed to be what? Like over 20%? Like why not buy somewhere else where it’s cheaper?
Steve Rozenberg: So, okay. So, that’s a good question. Some of the reasons were I’ve got a local network here, right? So, of course we bought this before Mynd was in the picture or Investment was in the picture. Right? And so for me, we know Houston, right? I know I’ve got a large connection in Houston of investors and everything so when I put some feelers out to people that I know that were for a rental property, “Hey, when you get one, let me know. You know, I’m looking for something that,” I didn’t want to get him a property. I didn’t want to find a property that had a lot of problems. I didn’t want a project for him to get, right? I wanted him to learn the numbers and not learn the working side of it, per se his first one. So, I wanted a property that was pretty much, we buy it and it’s ready to go for the most part. Right? And that’s pretty much what we found. Now I was able to do that through connections and through people I knew that were able to find me a deal that had those numbers.
Alex Osenenko: What about the listeners that don’t have those connections? People who are just starting out. So if I’m thinking if I’m just starting out like, Oh, that’s great Steve, you had all these connections-
Steve Rozenberg: Right.
Alex Osenenko: Super good. How do I do it?
Steve Rozenberg: Well, I think now, I mean, look, you’ve got the investment software. Now, the guy that sold me or sold us the house, I didn’t get a fantastic deal. He had a house that he needed to get rid of. I had money that I wanted to buy.
Alex Osenenko: But you knew the type of deal that he needed to get into to qualify for your specific goals, which is not giving him a deal that requires a lot of work.
Steve Rozenberg: Yeah. I didn’t want to get a major rehab for him first property to take a property go, “Okay, now we’ve got to knock down walls. We got to do this.” I wanted something turnkey. I think to answer the question is, is that’s where education comes in. That’s where someone who buys a property needs to be educated in the area, in the prices of all that before they buy something, they need to know what are they buying. Like again, could we have bought a total rehab and bought something for pennies on the dollar and done it together? We could have, but then we’re trading time for money.
Alex Osenenko: Ah, so this is an important extrapolation that I want to stop here and unpack this for a second. I think it was J Scott, I think multiple guests talked about you have to have time, money and what’s the other one? There’s three things, time and money is specifically stick out to me so if you are willing to invest time and go rehab the house, because if you had a construction business for example, and you were like spending summers working there, you guys would probably do different things.
Steve Rozenberg: Exactly.
Alex Osenenko: You throw in the five grand or on like a dilapidated house and rebuild it together.
Steve Rozenberg: Yeah.
Alex Osenenko: That’d be cool too.
Steve Rozenberg: And there’s a lot of very successful people that have that as a model that do that and very well that could have been a way to do it, but that’s not my specialty and not my educational knowledge. So, I could have, but it also could have turned into a disaster.
Alex Osenenko: Sure.
Steve Rozenberg: Because of that I’m not educated. So, for me to do that, that’s like me buying a deal in an area that I don’t know in a price point that I’m not familiar with, with clientele and all that. I’m going out of my circle of knowledge and so it would be on me. If it fails, it’s always going to be on you. Right? But I wanted him to get, I don’t want to say a layup. Right? I don’t want him to get a softball, but I didn’t want him to have a problem where now he’s going, “I don’t like real estate. All this is doing is costing me more money, more money, more money.” Again, I look at real estate, especially for him as very longterm. Right? So, I wanted him to get a deal that he could get. I mean, I think in this property, I think we rented it like, well, we handed over to Empire. Right? And how many times have you seen the house?
Jett: Just once.
Steve Rozenberg: One time. Okay? It’s been rented ever since. What are the problems that we’ve had?
Jett: We had to rebuild a fence.
Steve Rozenberg: Rebuild a fence when the tenants moved in and we had an AC call, I think.
Jett: Yeah.
Steve Rozenberg: That Empire took care of.
Jett: AC issues.
Steve Rozenberg: But other than that, he’s learning from here up, which is what I wanted him to learn. I want him to learn the education side.
Alex Osenenko: Right.
Steve Rozenberg: And again, not that there’s anything wrong with rehabbing a house but that’s just not my specialty.
Alex Osenenko: I understand. Like this is really well explained. Thank you Steve. Because like people who are listening in different circumstances-
Steve Rozenberg: Absolutely.
Alex Osenenko: And so the understanding is like look, for example for me, I’m in San Francisco Bay area, like you were in a super investible town like why go outside if you able to make this work?
Steve Rozenberg: Right.
Alex Osenenko: You have a network here and all that. I’m in the San Francisco Bay area. I will probably call you.
Steve Rozenberg: Yeah because this is marketable, right?
Alex Osenenko: Right.
Steve Rozenberg: But if you were saying, “Hey Steve, I want to get a property and rehab it and do this and do that and I want to tear it down, I want to rebuild it,” I’d be like, “I’m not that guy.”
Alex Osenenko: I wouldn’t be calling you.
Steve Rozenberg: You wouldn’t be calling me. Right?
Alex Osenenko: But you’d probably give me a card or give me a phone number.
Steve Rozenberg: But to your point I think is if I was doing that and that was the way that he and I were going to get involved in real estate, then that would be the avenue that we took and look at the end of the day, you’re not buying it for the rehab, remember you’re buying it for the long term 30 year goal still, or 40, 50 year goal for him. So, it’s still the education of him understanding why are we even buying a rental and how does a rental even work? Like how does that work where you’re getting cashflow and oh, every year the tenants renew and the rent goes up and his cashflow goes up or expenses go up and your cash flow goes down. And so he’s learning about finances and all of a sudden it’s like, “Hey Jett, we had an AC issue this month.” It’s like, “What does that mean?” It means no cashflow. You know what I mean? There’s a maintenance call, you know? So he’s learning about that where he wouldn’t have learned, I don’t know how you teach that in modern day.
Alex Osenenko: It’s invaluable. It’s invaluable. I mean kids these days put money in the piggy bank and I’m just impressed about the savings account. Like I’m thinking, I’m like seven years behind because my daughter is 10 and then the other one is five so it’s like I better get on it because I think they’d love to see the bank balance and like really start understanding like, “Hey, I can spend it now. Get the candy, eat the candy, have nothing. Or I can look at my little app bank account and see that number grow.”
Steve Rozenberg: Yeah.
Alex Osenenko: But you’re right, there’s no interest. Like you’re not earning any money.
Steve Rozenberg: You’re not earning anything and that’s what he took out of it was, again, once he realized that the savings account, and that’s what he said we had the conversation was, “I’m not going to get anything out of the savings account.”
Alex Osenenko: So what’s your plan Jett? Let’s talk about like what are you thinking-
Steve Rozenberg: Yeah, that is a good question. What is your plan?
Alex Osenenko: Right now, you know, I know it’s like you haven’t lived through college or anything yet. But like when do you want to get your first Ferrari?
Jett: Whenever I can. When I can afford it.
Alex Osenenko: That’s what I want to know.
Steve Rozenberg: Is it the Ferrari or what is it that you were talking about?
Jett: It’s whatever car I’ll be happy with when I can afford it.
Alex Osenenko: Interesting. So, it’s just a car?
Steve Rozenberg: Here’s a question. So, he gets his cashflow so maybe you can explain a little bit about what you do with your cashflow and how much you get and all that stuff so that you can break down the actual numbers maybe tell them what we bought the house at, what it was worth, all that stuff.
Alex Osenenko: Oh yeah, let’s do some math. That’d be great.
Jett: All right. Let’s do some hard numbers. So, the house we got, we got it for what, 150?
Steve Rozenberg: 159.
Jett: Yeah, 159 and the house was worth 180. So, for the math I was told for putting a good rent price we set our rent at 1500 per month.
Alex Osenenko: What was the down payment?
Steve Rozenberg: I think we put-
Alex Osenenko: Like 20%? let’s just percentage-
Steve Rozenberg: I think it was about 20% I believe. Yeah, I think it was about 20%.
Alex Osenenko: What about financing?
Steve Rozenberg: I got the financing.
Alex Osenenko: So, he’s not mentioned on the loan?
Steve Rozenberg: He’s not mentioned on the loan.
Alex Osenenko: Okay, got it. Okay. Then there’s no way to [crosstalk 00:23:29].
Steve Rozenberg: Under 18 yeah. Yeah.
Alex Osenenko: Do you have a trust? I know that’s a separate question.
Steve Rozenberg: No.
Alex Osenenko: Okay.
Steve Rozenberg: No.
Alex Osenenko: So, this is one of the things that I’m thinking about, like setting up a trust and then having the house in a trust name instead of your own personal name.
Steve Rozenberg: Yeah.
Alex Osenenko: I’m not an attorney, so. But go ahead please. So, 1500 rent.
Jett: 1500 rent and then since we split it halfway, they would get half the profit, we would get half the profit. So after mortgage, taxes, HOA, all that stuff, that’s a total profit is about 500.
Alex Osenenko: Cool.
Jett: So then we split it 250/250.
Alex Osenenko: That’s good money.
Jett: Yeah it is.
Steve Rozenberg: But then he’s got to break that down into a ratio.
Jett: So, then I got to break that down 60/40 where 40 goes into savings and I keep 60. So, 60%, $150 I keep that and then a $100 goes back into savings for another house, say.
Alex Osenenko: Gotcha.
Steve Rozenberg: So, I taught him a lesson over the summer is he uses his money to buy knives, right? He’s big into flipping and all that stuff. And what you were trying to do earlier, not very successfully, but you’re trying. But-
Alex Osenenko: We’ll see about that. Better than you.
Steve Rozenberg: Yeah, I don’t even try. But so he uses that money to buy and sell knives and do all the stuff that he does. So, I took him to a knife show and he wanted an advancement on his cash flow because he wanted money to go to the-
Alex Osenenko: Don’t tell me you charged him interest?
Steve Rozenberg: I didn’t the first time. So, he wanted the money to, you know, to ahead and so we gave him the money and said, “Okay, well this will be the next quarter’s worth and here you go, here’s your money.” And then he wanted another advancement on top of it and I said, “Okay, here’s the deal. We’ll loan you again but that’s it. After this you got to start paying interest on the money that you borrow because you’re defeating the purpose of the waiting for the cashflow to come through. So you want to borrow it? That’s fine. Now you’re going to pay a percentage of interest against what you borrow moving forward.”
Steve Rozenberg: So, it was kind of a secondary again, that’s why people get in debt. They borrow and borrow and borrow, and all of a sudden he could be six months behind going, “Hey,” and now let’s say the house goes vacant but there’s a maintenance.
Alex Osenenko: Yeah.
Steve Rozenberg: Now all of a sudden he’s in a bad negative position.
Alex Osenenko: Hey, let me ask you a question. This house sounds like a screaming deal, like I hope it turns out that way for you. Why would somebody sell it? Like you said a guy had to get rid of it. Like why would somebody do that?
Steve Rozenberg: Yeah, so the guy that I bought it from was a rehabber.
Alex Osenenko: Oh.
Steve Rozenberg: He bought it for, I think he told me he bought it for like 130, he rehabbed it, made it basically immaculate, perfect inside and he called me and he said, “Hey, here’s the deal. This thing is turnkey. It’s ready to go. I did all the work.” He told me, he said, “Listen, this is what I bought it for. This is my profit and this is what I’ll sell it to you at.” And he said, “If you don’t want it, I’ll throw it on the open market.” But he said, “I know you’re looking for something.” He goes, “This is perfect. And it’s in a great area that’s it’s a solid area that’s going up in value.” So I’m thinking this is a good lesson for him. Right? And so to me, working with flippers and rehabbers, it works. I mean the model works.
Alex Osenenko: I just bought a house that was rehabbed. It’s awesome, I don’t have to do any work.
Steve Rozenberg: You don’t have to do anything. Same thing. That’s the same thing with the rental property. So, it’s very much along those lines and it just goes to show, he met the guy, we’re at closing, we took a picture with him and everything and you know what I mean? We’ve got a good relationship and he calls me, he’s like, “Hey, you want another one?” I’m like, “Do you want one?” He’s like, “No, not right now.” I’m like-
Alex Osenenko: Next time he calls you call me.
Steve Rozenberg: Well there you go.
Alex Osenenko: You’ve heard it here first.
Steve Rozenberg: But to me that’s the thing, is he’s seeing how it works. Yeah. Did I pay, did we pay a little bit more than probably I would’ve liked to? Yes, because I didn’t go find the property myself. Right? I didn’t do the rehab myself. I probably could’ve found the house for 130 myself, put all the time and energy and effort. You know, we have crews. We could’ve gotten it done, but I’m thinking that’s not the lesson I want him to learn. I want him to learn the lesson that you can get this, you’re going to pay for it but do the numbers work? The numbers still worked at the price we bought it at.
Alex Osenenko: Hey Jett, how busy are you? How many hours a week you go to school? What’s your situation?
Jett: Five days a week, seven hours a day I go to school. After that I got rugby practice two days a week for three hours. Three hours a day.
Alex Osenenko: Have you thought about getting like a part time job? Like is that a thing?
Jett: Yes, I have been thinking about that more and more recently and…
Steve Rozenberg: Yes. Yes.
Alex Osenenko: I’m just curious. Like right now, like I know I’m putting you on the spot a little bit, but I’m just curious like, hey yo young people these days, there’s different situations, there’s different things. It doesn’t look like things are just given to you.
Jett: No.
Alex Osenenko: Like they probably got the jeans for you but that’s as far as it goes. Right?
Steve Rozenberg: Yeah. I mean he works for his stuff. He understands, he gets it, you know, he’s a good kid. Good in school and he drums in a band and he does the rugby and I mean, he’s out there, he’s being a kid, which is what we want him to do but he’s also learning. I mean, I asked him and you could ask him about teachers, your teachers that-
Jett: Yeah.
Steve Rozenberg: I asked him, I go, “Do your teachers know that you’ve,” so he’s in a class about money. It’s called money matters.
Jett: Yeah.
Alex Osenenko: Oh really?
Jett: Yeah [crosstalk 00:29:05].
Jett: Yeah they have that now it’s-
Alex Osenenko: I never learned that.
Steve Rozenberg: No.
Jett: It’s pretty much just a class that tells you how to invest your money properly, how to finance it correctly and just how to make sure you don’t go in debt.
Alex Osenenko: That’s really cool.
Steve Rozenberg: It is cool. But I said, “Do they know like kind of about your history and you owning a rental?”
Jett: No, that’s not their business to know.
Alex Osenenko: All right, so-
Steve Rozenberg: So he doesn’t tell them.
Alex Osenenko: That’s interesting. Let’s talk about this for a second. You don’t say that your dad is a pilot and you don’t say to you own or rental property. I could see multiple reasons for that but what are your reasons?
Jett: Because I don’t want to seem like the guy that just shows off everything that’s like, “Oh yeah, my parents do this, I do this, I’m better than you.” I don’t want to be that guy.
Alex Osenenko: That’s really smart. Humble. Humble, mind your own business, do your thing. I need to learn from you man. Sometimes. Sometimes I show up in a M3 and that’s how it is man. It’s a stick shift and it’s very loud.
Steve Rozenberg: Yeah. I mean look sometimes you want to show and let people know that you’re doing well.
Alex Osenenko: Yeah.
Steve Rozenberg: He’s more reserved. I mean, he’s very reserved. He doesn’t talk about it, doesn’t say anything about it. I mean, being able to be a pilot, we’ve traveled all over the world and seen a lot of [inaudible] He’s gotten to experience a lot. Like you, he’s done martial arts. I mean he’s got a second degree black belt. I mean he’s done a lot.
Alex Osenenko: One degree above me that’s for sure. That’s awesome.
Steve Rozenberg: He’s done a lot but he understands the work ethic and maybe martial arts taught him that, to be humble about it.
Jett: Yeah.
Alex Osenenko: That has a lot to do with it. This is what I learned. Like I sold my M3 three years ago as soon as I start getting like really into it. And I think it’s part of it. I think it’s true. There’s a little bit to it, but I’ve looked at like a lot of people I know and I read about and I’m an avid podcast listener, love podcasts and I found that like most real, true, successful people are more like you.
Jett: Yeah.
Alex Osenenko: Right? It’s not the talk, it’s the walk. Right? You do your thing, somebody asks, free to give advice, you’ll discuss it, you’ll be transparent and honest, but you’re not going to volunteer, you’re not going to go, you know-
Steve Rozenberg: So, let me ask you this. So, your friends, do a lot of your friends know that you own a rental or do you… Like how do you have that conversation with them?
Jett: Just a couple of my closer friends know and that’s just, I mean, because you hang out, you talk-
Steve Rozenberg: Have conversation.
Jett: Yeah. Just in conversation. You talk about your interests and whatnot, so that-
Steve Rozenberg: But it’s not a, yeah.
Jett: I don’t make a full conversation over it. It’s just a-
Alex Osenenko: Gloss over?
Jett: Yeah. Just kind of gloss over.
Steve Rozenberg: So, I’ve got a question. So, if you’re in high school and kids were to come up and talk to you and ask you advice, what advice would you give them?
Jett: Don’t spend your money on stupid things and put it into a savings account.
Steve Rozenberg: Start putting money away?
Jett: Yeah. If you think you need the money, you don’t need the money, it can wait unless it’s a big emergency, you don’t need it because if you’re still a dependent, then all the major things are still covered for you.
Alex Osenenko: Learn how to work with your parents.
Jett: Yeah.
Alex Osenenko: That’s what I would say. Hey, if my daughter vacuums, like I’m happy to pay, like somebody is going to wash this table, like it’s either going to be my time or her time, you know. It’s a glass table, it’s a pain in the neck. Like you know, my wife, she’s going to sit there and like 15 minutes, maybe she does it and then she vacuums, she does those things. Like there are jobs to do in the house I’d say that parents are willing to pay for-
Steve Rozenberg: And you know the other thing too is-
Alex Osenenko: That’s money.
Steve Rozenberg: He’s learned like with his knives, right? He buys them, he sells them, makes money, buys them, sells them-
Alex Osenenko: That’s a side hustle, there’s money involved?
Jett: Yeah, that’s actually why I am happy that I did take out that advancement earlier is that because now I’ve gotten the collection to be where if I want something else then I can sell something off again, get that and then it’s just a constant circle of-
Steve Rozenberg: So, he’s learning how to use money and start moving it around and flipping it, no pun intended, flipping it over.
Alex Osenenko: Dan, how old is your son?
Dan: Three.
Alex Osenenko: Are you downloading here? [crosstalk] Are you recording?
Dan: My son has a savings account already.
Steve Rozenberg: See?
Alex Osenenko: But it’s pretty cool. That’s smart.
Steve Rozenberg: Yeah.
Alex Osenenko: This is something that I need to even myself get behind is getting a hobby where your things are worth something because, and knowing so deeply, like because I go fishing, like you know, I spend money on fishing, I go catch the fish, I eat it. There’s really no value in it but like if you were collecting knives or I suppose cars, if you’re in that position, like that’s a lot of money. Like that’s value.
Jett: Yeah.
Alex Osenenko: Like asset.
Jett: Yeah. That’s one of the big things that I got from Grant Cardone and the Rich Dad, Rich Kid, Poor Dad, Poor Kid books is that always look for opportunity. So, that’s the first opportunity I saw and said, “I can buy these and then sell them for just a little bit more,” but that little bit more still profit and over time that piles up to be more and more profit.
Alex Osenenko: That’s really good stuff.
Steve Rozenberg: I mean because pretty soon that could become cars.
Jett: Yeah.
Steve Rozenberg: It can be become houses. I mean, he’s learning the concept of, in my opinion, he’s learning the velocity of money. He’s learning how to get something. He plays with the knives, he does whatever he does for a while then he’s like, “Okay, now there’s a better one out. I’m going to sell this one. Use the money for that, make a little profit and keep it rolling.” You know?
Alex Osenenko: Be honest with you, like this is sort of a definition Rich Dad, Poor Dad and I’m not saying that you’re a rich dad or anything like that-
Steve Rozenberg: Yeah I get what you’re saying.
Alex Osenenko: But it’s like-
Steve Rozenberg: It’s a mindset.
Alex Osenenko: I grew up in Minsk, Belrose like socialist country. You know, two years ago before I was 16 and when I say I’m 16 now, it’s a little capitalism, but nobody knows anything much less your parents.
Steve Rozenberg: Sure.
Alex Osenenko: You know? And so I never learned any of that but when I came to US I got really hungry, started learning. But to me it’s like associating what I’m reading to reality was very, very difficult. Like it’s really good to have an example and then it’s interesting because before the show you couldn’t really tell me exactly what you’ve gotten out of this Grant Cardone book.
Steve Rozenberg: Yeah.
Alex Osenenko: And now it’s just coming out. It’s like, think about it. Those knives are an asset and I make a profit on those. That’s amazing.
Steve Rozenberg: Go ahead.
Jett: So what I was going to say is like, just like to kind of help with how I saw how I can do this with knives is that I would just like see something in school. I would pick an object and I’m like, “All right, what can I do with this?” And then I’ll just do that with other things. Like, just walking around like in the mall, I’ll look at that. I’m like, “All right, what can I do with that?” And it’s just constant thinking.
Alex Osenenko: That’s an entrepreneur mindset.
Steve Rozenberg: That’s a muscle, right? I mean you’re working that muscle to figure out, okay, is there something here? One day he’ll see, I mean, he’ll probably see something that I wouldn’t see and go, “That’s a deal right there.” I may be looking at a plot of dirt, right? And going, “I don’t know what he’s talking about.” You know? And he may see it where it’s something there that he’s going to go, “That’s opportunity.” And you know, the thing that I always think about is, you know, as entrepreneurs of all of us out there grinding and trying to be successful, we’re so busy being successful, we forget about them, right? We forget about the kids.
Alex Osenenko: Oh yeah.
Steve Rozenberg: And so we’re so busy trying to make it, we kind of forget to show them what we’re doing and help them and that’s why, you know, again, I can’t say that I did this on purpose, that I realized that he was learning all this Andy Frisella and all these podcast shows and audio books that I’m constantly hearing. But it was, and I remember one time we were in the car and you know, I take him to the gym, we’re going to the gym together and we had a friend in the car, I’m taking him to the gym also and I think we’re listening to Andy Frisella or something, one of his podcasts, and he goes, “Oh Jeff, this is the guy you were telling me about.” So I’m thinking, oh, okay, so he’s listening and then he’s telling other people about these podcast shows.
Alex Osenenko: Yeah.
Steve Rozenberg: So, it’s resonating.
Alex Osenenko: I’ll tell you when in life. This is really good. This has been really, really, really good. And I think the takeaway for those that are listening is learn yourself and then invest in your kids and let them invest, not give-
Steve Rozenberg: Yeah.
Alex Osenenko: Invest. Invest, that’s very important. I really like your mindset young man. I think you’re going to go places, but for now to wrap it up, why don’t you and I show a trick.
Steve Rozenberg: I do not partake in these.
Alex Osenenko: And mind you, I just learned this today. Steve doesn’t know how to do any of it.
Steve Rozenberg: I do not. I’m waiting for the fingers to be cut. You could maybe get a job at Benihana.
Alex Osenenko: That’s big man.
Steve Rozenberg: Maybe Benihana, I’m not sure.
Alex Osenenko: Like Nations was where I grew up and that’s how-
Steve Rozenberg: I don’t know that-
Alex Osenenko: Nice burger spot.
Steve Rozenberg: You didn’t give him the sharp one did you?
Dan: No I did not. [crosstalk 00:00:38:41].
Steve Rozenberg: This is the practice knife.
Alex Osenenko: This is pretty cool.
Steve Rozenberg: So, if you want to find us on iTunes, we are there. We are on Spotify, we’re on YouTube, the Myndful Investor Podcast show. Also, you can find us on Facebook, the Mastermind Real Estate Investment Club. Make sure you find us on both, like us, join and subscribe. Everyone, thanks for watching today. Appreciate it, and we’ll talk to you guys later. Bye-bye.
Jett: See you.
HOW CAN YOU TEACH YOUR KIDS ABOUT REAL ESTATE INVESTING?
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Self-made real estate investor Ashley Hamilton dishes on the buy and hold market in Detroit.
Alex Osenenko: I’m going to start with boys and girls. That’s just how it’s going to happen.
Steve Rozenberg: Just do it.
Alex Osenenko: Boys and girls, welcome to the next episode of Investing in Single Family Homes. This is our season two where Steve and I are taking a deeper dive into the world of investing into single family homes. We have an amazing guest for you today, but let me first say and introduce cohost. My name is Alex and my cohost is Steve Rosenberg.
Steve Rozenberg: It’s rare that we’re together. We’re actually in the same room together, which is not very common. Thanks for having me. I love being here. It’s going to be a great show. We’ve got someone who is a ball of energy. It’ll be a good conversation with her. Also, for people that are new to the show, you can find us on Spotify, iTunes. We’ve got a Facebook group, The Mastermind Real Estate Investment Club. Join the group. There’s a lot of information in there. We’re not selling anything. We just want investors, like-minded investors on the Facebook group to have conversations. Again, we’re all investors. We’re just trying to get better. We do webinars on there, we do meet ups. All that kind of stuff. I think it’s a good place for investors to converse. Ashley and I have a common bond of both being bigger pockets guests, which you haven’t been, right?
Alex Osenenko: Yeah. No. [crosstalk 00:01:43].
Steve Rozenberg: Just making sure. I’m just making sure.
Alex Osenenko: I have not been. I’ve noticed when you opened you said, “Thanks for having me”. Bro, this is like-
Steve Rozenberg: That’s true. You’re hosting this show. [crosstalk 00:01:52].
Alex Osenenko: I know.
Steve Rozenberg: I’m trying to be humble. I want to be humble.
Alex Osenenko: Let me introduce… Really?
Steve Rozenberg: Well not really.
Steve Rozenberg: Let me introduce the real guest here, who we have the pleasure and honor to have on the show today, Ashley Hamilton. And I met when I listened to the Bigger Pockets podcast episode where she was a guest. That was her very first show. And to me I was just stuck to the… I was in the car like. So I stopped the car when I got home and I just stay there in a car for 20 minutes to finish out the podcast. That’s how to me, groundbreaking her story was. And, it’s a pleasure to have you on the show. Ashley, how are you today?
Ashley Hamilton: Thank you. I’m good. Thanks for having me. It’s such an honor to be on a show with you guys. I really appreciate it.
Alex Osenenko: So let’s play with some data. Let’s say okay, well she’s awesome. Well, how awesome is she? Well, let me just throw this nugget out there. In 2009 when Ashley started, she had zero properties, right? And in 2019 today she owns 15 properties. And Ashley, is this your main source of income these days or do you actually do other work?
Ashley Hamilton: Yeah, this is the main source of income, but I am a Jill of all trades, kind of like a Jack of all trades. So I honestly still work a nine to five, but I only work part time. So I worked 20 hours a week for a bank. I own my own property management company. I have 35 units on top of mine that I invest for an out of state investors. I’m doing coaching a little bit on my Instagram, trying to build the social media. I am doing active renovations for these flips and managing my own properties. And then also I’m a single mother to two teenagers. So, that’s my most important job. That’s the one I cannot plug in a person to replace me for it. And that’s the one that I take most pride in. That was really my why.
Ashley Hamilton: So I’m really excited to be a mother to them and be able to do it. I feel like I’m doing a good job at it now and I’m seeing my why and the sacrifices I’ve made in the beginning. Seeing it coming to fruition with being able to spend so much time with my kids, to the point where they get tired of me honestly. I’m like-
Alex Osenenko: This is-
Ashley Hamilton: look, your mom is cool. I have 100,000 views on YouTube. And then my son’s like, well I’m not trying to be funny, but this kid got a million views reviewing the toy and it’s only been up for two days. I’m like, what are you serious? So honestly I feel like in the long run they’ll see other great things I’ve done, but they are appreciative and I really enjoyed it.
Steve Rozenberg: And something I think that the viewers need to know is that you are in a market that is not known for investing and that’s your handle on Instagram, Detroit_Investor. So you’re in a Detroit market, which I don’t know what it’s doing right now. I know over the years it’s been a depressed market. Is that helped you or is that hurts you being an investor? Because I know sometimes when you’re in a market that people pass by, there’s sometimes a lot of deals there that no one’s looking at that you can scoop up. And I’m just curious if that’s what’s going on where you are or is it tough?
Ashley Hamilton: Yeah, no, it really helped me. When I first got in… Especially for a person starting like myself and I’m sure we’ll get into that. But just a brief background I had no real estate experience. No one in my family’s in real estate. No one owned a home or owned a business. I didn’t have credit or anything like that. I was making $20,000 a year as a waitress. My parents didn’t have a 401k or they didn’t own a home to do a [inaudible] lock on. So if you’re starting from nothing, this was the perfect market for me. And it was just luckily that I lived in Detroit my whole entire life.
Ashley Hamilton: So basically what I would just say, when I went to a seminar back in 2009. There was a quote about; “Be fearful when others are greedy. And be greedy when others are fearful.” And that really stuck out because every time I called a lender, everything I looked online, everybody was saying, stay away from Detroit. So I took that as being greedy because others were being fearful. And at the time I was picking up properties for $5000, $4000. Some might be picked up for $1,900
Steve Rozenberg: Wow. And I remember reading in your bio, used your tax return to buy your first property. Is that right?
Ashley Hamilton: Yes, absolutely. So my first property was $6,300 and I was only making $20,000 a year. But because I had two kids, I was getting back about $5,000 in tax return. So instead of… My friends were buying new cars or getting new furniture or taking trips and I just decided not to do any of those things that year. And I took my $5,000 and saved about $1,300 over 3 months. And that’s how I was able to purchase my first property in Detroit.
Steve Rozenberg: So let me ask you this, Ashley, and this is I think important for people that are maybe in your situation you were in. What mental shift did you have to do from having the regular nine to five of being a waitress and working and basically going against the grain and going against what everyone else says you should do and putting that faith in an unknown. And again, it’s not like you had family that was in the construction business or anything. What was it mentally that you were able to tell yourself to keep on the path? Was it a watch or was it a need? Did you have to do it or is it something that you just wanted to do in your mind?
Ashley Hamilton: I really wanted to do it. I had to do it if I wanted my family, my last name and my kids to ever have a different life than I had. It was absolutely necessary. I wanted to do it because I wanted to spend more time with my kids and I did not want them to grow up like I did and go to different daycare centers and things like that. So I needed to spend more time with them and work less. And that was the want and the need to do it. So the mind change. And then I wasn’t like a really social person, so I never liked all the flashy things, the new gadgets and things like that. So I was okay with foregoing those things. Because I knew how the life I wanted to live in the future. So it was a mind change shift and I would say it all sparked from the seminar I went to. The first seminar, but it really was the want to do it but I needed to do it. Because I needed to provide a different lifestyle for my children.
Steve Rozenberg: What advice would you give to people if someone’s watching this show right now and they’re going, man, what can I tell myself to get myself over the edge? I’ve always learned that it’s a matter of not letting fear paralyze you and just taking action and being okay with making mistakes. Because, everyone’s afraid to make a mistake. But we all make mistakes every day and we’re okay with that. But what advice would you give someone if there’s a single mother out there thinking, man, I wish I could be like her. What would you tell that person?
Ashley Hamilton: Right. So I would just tell them, you never make a mistake or you never lose. You know what I’m saying? You just learn a lesson. If it’s no life threatening or something like that, you can always learn something or learn from the situation. You just may have to do it a little longer. That’s definitely. So what started the whole thing was the quote that I heard from Warren Buffett was; “Live how most people won’t. So you can live how most people don’t.” And what that meant for me is take a few years. I feel like I’m young, I was 23 at the time. I had two years to just stop with buying anything extra, like a Dave Ramsey. And try to live debt free and try to buckle down and save everything I had to make the goal.
Ashley Hamilton: So once you do that… To me, I feel like that’s the biggest thing for people to forego. Everybody wants the nicer cars, even I-phones honestly, they’re so expensive now. The money that you’re investing in your iPhone and phone bill, that could be a property in Detroit if you just didn’t do it for one year. So, that would be the biggest advice is living frugal. And I know it’s hard, but. Because everybody wants the instant gratification, right? So if I go buy a new iPhone, I instantly have an iPhone that I can show the world. But if I spend $5,000 and put a down payment on a house, I’m not really getting anything back instantly. Because I [crosstalk] find a tenant. So just try to not focus on the instant gratification and the delay gratification. I mean, I feel like the compromises and the sacrifices that I made early on, I mean it’s like I’m gratified every day for it.
Ashley Hamilton: So it’s like the gratification has come 10 times more now that I delayed it. So just live frugally and be willing to make mistakes, but just get in there. Because honestly, there’s more people that know more about real estate than me, obviously. But they haven’t done as many deals as me because everybody goes in and they think, well, I got to know what happens when a contractor don’t show up or I got to know how to use the utilities. Well, I just threw myself in there. When the issue came up, I just handled as it went. And obviously it’s very important to educate yourself, but just get in there. So if you have to just do a deal on a different side of town or you can invest the least amount of money just to get started to go through the trials and tribulations so you can learn, that would be great.
Ashley Hamilton: Just so that you wouldn’t lose so much money up front, but you have to do a deal. Even if it’s a partnership, because I’ve done all these deals and I still have issues that I’m facing to this day. So if you spend so much time on just trying to learn everything, you’ll know so much, but you won’t get any deals done. You know what I’m saying?
Steve Rozenberg: Yeah. Now, do you have any regrets of doing what you’re doing? Obviously, maybe doing it again, you may say, Oh, I wouldn’t make that mistake, but a lot of times those mistakes or lessons that make you better. Do you have any regrets of anything that you’ve done?
Ashley Hamilton: Not at all. I mean, I regret not leveraging credit cards and debt to buy more.
Alex Osenenko: Right.
Ashley Hamilton: I wish I would have known enough and just bought more. So far as buying, no. The only regret is just not diving in full fledge back then.
Steve Rozenberg: It’s funny I’ve always heard a saying and it was; “Very successful people never say, I wish I didn’t do as much as I did.” They never say they have a regret that they did too much. They’re always going to say, I wish I would have started sooner. I wish I would not have let fear stop me. I wish I would have… It’s never the; “Man, I really made too much money in my lifetime. I really had too good of a life.” I’ve never heard a successful person say that. Have you ever said that?
Alex Osenenko: No.
Steve Rozenberg: Yeah. That’s weird.
Alex Osenenko: Well the one thing I was going to ask you, Ashley, is when you were getting started and you’re diving into it at first. This is one thing I read from like somebody set this up. So I read Steve’s book and he’s talking about investing in these dilapidated properties in, we’ll call them D class. Which you say D class?
Steve Rozenberg: D.
Alex Osenenko: D class properties in Houston. Where, they were just losing their butt, like him and his partner. And they decided to double down because, Hey, maybe at scale we can make it work and it didn’t work. They could make it work. What class of properties did you like? What was your first property? I mean, I know it because I listened to podcast, but let’s talk to the listeners and walk through how you were able to acquire and en stabilize and then get that property going.
Ashley Hamilton: So in Detroit, it’s not technically to me at least a Sonata class neighborhood. So for example, my first property I paid $6,300 for. So, you would think it was in a war zone, maybe. A dilapidated area where lack of development. But it was the complete opposite. I had homeowners on my street, a nice park. I was close to all the suburbs, all the transportation. And it was just a really nice area. And even now since I moved out, I stayed in that house for five years. But I rent that house out for $775 a month. So I make $9,300 a year and I only paid $6,300 for it. So, that speaks up to the neighborhood that it is.
Alex Osenenko: Sure.
Ashley Hamilton: Detroit is really block by block. So I feel like the only reason Detroit does not have the super high prices, is just because of the weather. You never know, you may get 10 inches of snow. And it obviously it draws a lot of people from here. But it’s not really… When I went out to California and Vegas, I travel a ton and just seeing the areas out there, Detroit is really not like that. Where you can classify the areas because in one zip code you’ll have a property that’s worth $500,000 and you can also have a property that’s worth $20,000. So, it’s not so much as class here, it’s just the amount of work that you put into it, stuff like that. So, but to get to your question, how it all started, with the first property, when I bought it, like I said, it was $6,300. And it only needed minor repairs. So, obviously paint, someone had stolen the furnace and the hot water tank and it needed plumbing.
Ashley Hamilton: Anything else would have just been an upgrade, but just to get it livable, it was probably going to be about $3000 more. That I spread out over, over time. So, that’s basically what I did. I purchased the property, I think it was around April, and I just went to work every day and saved every penny I could. And when I moved into property, it was around August, which was hot in Detroit. I moved in without a furnace. So it wasn’t like I just moved into the spectacular, Oh this is my first house. I’m going to have new furniture, new everything. I literally scraped every dime I had just to get in there and then saved up and saved up to continue on. But once I got in there, like I said, the neighborhood, I knew all the neighbors. There was a park, it was just a really nice neighborhood.
Alex Osenenko: Well, so Ashley you occupied your first house? You lived-
Ashley Hamilton: Yeah. Because, I had to eliminate. So what a Brandon Turner, he calls it the income creep. I just knew what it was. I didn’t know a name for it. So, Brandon’s is famous for making names for everything, but yeah. So in order to do anything, I had to eliminate my biggest expense. At the time was my rental payment. I was renting. I was a single family, so I was paying $700 a month in rent. So once I got the first property that eliminated the rental express expense and that’s how I was able to start saving and then start multiplying the properties. By basically versus instead of paying the $700 in rent, since I own the property, I didn’t have to pay it so much. So I just took that and saved about $600 into a savings account and that’s how I was able to get my second property fast.
Alex Osenenko: What was the time period Ashley, between the closing of the first property and closing to the second property?
Ashley Hamilton: It was about 11 months. Because I also use my tax return to push it over where I can do all the renovations as well. So I’ve saved about, I would say about $5,000 in that 11 months without paying rent. And then when I got my income tax the next year, which was about $4,000, I use that $9,000 to buy my second property. So it was 11 months.
Alex Osenenko: This is incredible. Do you talk to people in your similar situation where you’re basically at poverty level, like just above, right? Waitress salary, I mean you probably not… You’re not going around in fancy cars or anything. Just providing for your kids and pulling yourself by shoestrings. It sounds to me you should be gathering these… You should be teaching a class in university. I mean, that’s-
Steve Rozenberg: It’s interesting the way you say that because that’s a lot of people’s reality, right? So a lot of times you had mentioned earlier social media and Instagram and you see all these people just killing it. But that’s not reality. The reality is the people that are out there slugging it out, getting punched in the face in the morning because they wake up and the tenant trashed the property and left and you’re trying to figure it out. You don’t have the money. That’s reality of owning a rental property. And that’s what landlords deal with. And so I mean what she’s talking about is exactly what a lot of people go through. But even more so, people don’t even take the steps that they did because they would have stopped at the $6,300 price point of a property. And they go, that’s got to be a horrible situation, I would never do that. And she’s saying, that’s where families live. It’s fine. And you agree with that Ashley?
Ashley Hamilton: Yeah, I definitely agree with it. So like you said, people would be fearful and just look at the price tag and just run away. Where I was willing to get in there and do the work and stick it out. And that’s why I really am trying to build so much because obviously I have 10 jobs. I feels like I’m always busy, but I try to give back and help as much as possible. But on my Instagram and any social media that I do in a podcast is I want to be as real as possible because I want to speak to people that were like me. Even at my second property, I still didn’t have a general contractor. It was just word of mouth going to home Depot.
Ashley Hamilton: So I want to speak to people like me that don’t have a leg up who just really don’t know what to do, but they’re willing to sacrifice a year, are willing to live frugally for a year so they can get started. And, just the reality, like you said, Steve, that they don’t teach this stuff in universities. And if you’re looking on Instagram, you may just think like, Oh, everything is gilts and glamor and you won’t really see the real like punch in the face moment. So that’s what I’m really trying to put out there and really trying to speak to people. So I can inspire people to just get out there and do it any way they can.
Steve Rozenberg: It’s like I always tell people, the great thing about real estate is there’s no rules. You can do whatever you want to do. The bad thing about real estate is there’s no rules and there’s no one to tell you’re doing something wrong until you’re standing in front of a judge or you’re getting subpoena for a lawsuit to go; “Oh, I didn’t know that that was illegal because I didn’t know what the laws were.” And you know that’s the part that people don’t talk about. And I think that like very much like me, like you, we’ve taken our licks over the years and we’ve learned lessons and so if we start moving forward now, that it’s been 10 years, right? It’s 2009 so the end of 2019 and you now have 15 houses, is that right?
Ashley Hamilton: Yes.
Steve Rozenberg: And, you’ve obviously got some sort of system down, I’m assuming of how you buy them and how you manage properties. Is the managing of the properties a means to… Is that a strategy to grow a business or is that just to satisfy your properties and extra properties or just help out? I mean is that a focus definite business model or is that just a; I got them, I need to manage them, I might as well manage other people’s while I’m doing it?
Alex Osenenko: I think it was opportunistic for her, but I want to see, I want to hear Ashley, maybe it’s grown into something else by now.
Steve Rozenberg: Yeah.
Ashley Hamilton: Definitely. So it was really, because I’m doing it for myself, I might as well do it for others, obviously. There is a business opportunity there, but I’m a very person that really believes in integrity and doing things the right way. And I just hear horror stories all the time. So it’s really hard for me to transition with letting the business grow massively because I know I have to trust other people to put my name behind things. But that is definitely a goal. But because of the systems that I’ve put in place in the trials and tribulations that I’ve made through this time, I got really good at it. So it’s just a no brainer to do it for other people and to help other people. But I just feel like I should just self manage my own because honestly I spent about. I’m sorry about that. I spent about-
Steve Rozenberg: See how famous you are. You probably got someone else wants to give you a property.
Ashley Hamilton: No, that’s an alarm system. And that’s the only thing that comes through when you sound off. But I’m sorry about that. But I feel like that manager… I’m sorry. Is this edited?
Alex Osenenko: Are we good?
Steve Rozenberg: We’re good. Keep rolling.
Alex Osenenko: Keep rolling.
Steve Rozenberg: That’s life, right? That’s the reality of life.
Ashley Hamilton: Well, [inaudible] I know what I was saying. So, but to be honest, even though so all together it’s about 47 properties that I manage right now. Including my 15 because I managed that in the business. But I spend about four hours a week. So, even now, like today, I haven’t got one tenant call, one late at night phone call because I manage things so good and so systematically that I don’t really deal with a ton of the issues that other property managers or other landlords may deal with. Because, I feel like just doing everything up front. So, typically when I turned over a house to a tenant, everything is pretty much done.
Ashley Hamilton: So, even if it’s just something as simple as the door knob, I’ll just go ahead and change everything upfront. And that way I can have a long time with like repair free or low maintenance issues. So the property management becomes so easy that I can take on more people and I’m really not even spending a ton of time in the business. That’s how I’m able to work part time 20 hours a week. And then now I just started the new coaching business.
Steve Rozenberg: So are you looking to expand? What I’ve learned is any business needs a whole business model structure. You got to have vertical. And property management, as we both know is very, very processed procedure driven. So are you looking to expand that, make that a bigger play in what you’re doing? And is that going to overtake your investment properties or is it kind of you’re going to keep this on the side and grow your investment portfolio? What’s the strategy?
Alex Osenenko: Coaching.
Steve Rozenberg: Coaching. Yeah, coaching.
Ashley Hamilton: Absolutely. So I feel like I’m going to always be an investor first. I want to grow that business as much as possible. And then coaching and knowledge education, and then property management. So there’s no reason why all three of them couldn’t be huge, but that’s just the way I’m going. So even now, I just picked up two clients just based upon the interviews and the podcast I’ve been doing. So, I’m definitely willing to pick up more people and I’m doing it a lot with my coaching class. But I just need people that are really serious and they match with me and my business model. For example, if I talk to people and they just want, well they’re only $20,000 properties, let’s just throw it in there, put $5,000 in and throw someone in there. That’s somebody that I just wouldn’t work with. Because I have to have a level of integrity and a standard that I do. So I’m growing the business daily, but it’s not growing massively because I am very selective of the properties that I pick and also the people that I work with.
Alex Osenenko: It’s a good lesson for all of us who are running property management companies. We have to understand who is the best client that we can help. [Crosstalk 00:25:02]. That we are fit for. And then deliver the services. But I wanted to project this is one thing I wanted to project this your story into our audience circumstance. I’m going to make that attempt because when I was listening to your story Ashley. I was thinking, okay, well, she’s in Detroit and the properties are so low priced and that’s why it’s so much easier to do it there than let’s say in California or like I’m in California, I can’t do it. Or somebody sitting here in Vegas or somebody sitting there in Albuquerque, well, she’s got this $6,300 homes, we don’t. And I just want to sort of project my thought process around that. Why can’t you go to the Detroit and make those investments? Like nobody stopped you. But like a listener you’re probably not making $20,000 and as a waiter or waitress. Maybe you’re making $60,000, $65,000 and you’re spending every dime. And then maybe your incredibly broke man.
Steve Rozenberg: Broke is broke man. If you have less than what you started off at the end of the month, you’re broke. I don’t care how much you’re making.
Alex Osenenko: The lesson is, I think the key lesson is, which most people are not, I just not willing to do but need to really truly look inside themselves and find this delayed gratification. I think that to me was like the biggest key to the story that took me a little bit while to want to understand. And in fact all the way up to up until this podcast, like what is the secret that gets that delaying your gratification. Plenty of scientific psychological studies, kids are unable to delay gratification at all.
Alex Osenenko: They’ll take one candy over six candies. It’s like my daughters, eight and five. And tomorrow almost does not exist. You’ll get an ice cream tomorrow, right dad? You have a child too. Like, no tomorrow this [inaudible 00:26:45]. But like this is really interesting to me, but I wanted to unpack a little bit like the pre investor story of Ashley. I wanted to know how… And Steve already alluded to this. But your mindset shift had happened somehow. How did you learn? You mentioned about seminar. I want to find that pivotal moment for you.
Ashley Hamilton: Right? Absolutely. So I would probably say early on, everybody, all the kids, even as 9 and 10 everybody was watching Nickelodeon. I was watching HGTV, the transformation. Which is the biggest thing. So I really guess that’s what started it. I didn’t realize the investment. Everything I’ve done, it’s just been year by year just increasing and changing the goals. But I just wanted to really transformation. Flip this house, do the transformation. And I didn’t realize about the financial freedom and the passive income and things like that. So, that was always early on fascinating to me. At 17, I had my first child, I was a teen mother, I was still in high school and she was born prematurely. She was two pounds and seven ounces. So I was in high school. So I would go to school, I would go to the hospital afterwards and then I would have to leave about 10:00 PM so I can go to school and the doctors can do their thing.
Ashley Hamilton: So, she was only in the hospital for about 31 days, but I never wanted to leave her again. That really just being there. I even wrote a journal every day. And I even look back at it now just seeing my process. That probably was the mind shift. As being a mother, I didn’t even realize. I mean I was 17 but I was just doing it. It’s really a hard thing to do, but I would… I just don’t want to leave her. I want to be the best mom to her because she’d been through a lot being in the hospital. And I just want to make sure she never has to go through this pain. She never has to be without me. So, that was the biggest mindset change.
Ashley Hamilton: But obviously, I couldn’t just go and do it right then because I was uneducated. I just had a high school diploma. I did one semester of college. I didn’t have a parent or an aunt, an uncle I can go to and say, Hey, show me how you invest or show me how to start a business or can I work for you? I just didn’t have anything. And it just came out of sheer necessity. But with being a parent is really what shifted my mindset.
Alex Osenenko: That’s very interesting.
Steve Rozenberg: There’s something that… You asked her about a pivotal point and I don’t think that from what she’s saying and a lot of people… I don’t think there’s always a pivotal point. I think what happens is it’s a compound effect of watching. Maybe something in her life or like for me 911, or something that made you actually do that shift. But a lot of it is compounding up over time and you’re building it up.
Steve Rozenberg: And I guess one of the things I’m curious with Ashley, is I wonder if, because you didn’t have people in the industry to tell you why something wouldn’t work. It’s kind of like, you don’t know what you don’t know. Right? If all of a sudden you’re thinking I’m just going to do this, and everyone’s like, all right, knock yourself out. A lot of times it’s all these people telling you why it won’t work. Why this won’t happen. Why that won’t happen. And that stops you from doing it. It sounds like you didn’t have anyone to tell you yay or nay. So it’s like, you know what I don’t know what I don’t know, so I’m just going to keep on moving. And so I guess was there a pivot or was it just compounding over time and finally something caused you to actually make that jump?
Ashley Hamilton: Yes. So it was just compounding like you said. So there was no one thing in particular that just made me do it. I would just said, except for just seeing all the foreclosure signs. I was walking past and realizing, Hey, how much is that house? $6,000 I can afford that. Now, if I would start calling those signs and they’re saying $80,000 then I probably wouldn’t be here today.
Steve Rozenberg: Right.
Ashley Hamilton: But, so it was just a compounding meat. Being a problem solver. I knew I wanted to be with my kids as much as possible. I had to have passive income and seeing signs and calling them and seeing the prices. I knew I can afford it. And that just basically what it was.
Steve Rozenberg: Now let me ask you this. How do you think differently now compared to how you thought back before you even bought your first deal? Now, you’ve got 15 deals, you probably look at them, it’s probably not as emotional. What goes through your mind now when you see an opportunity, compared to what you saw back at deal zero?
Ashley Hamilton: Absolutely. So now it’s just trying to do as many as possible. If it’s $100,000 and I don’t have the cash, not just scrolling and passing it. I at the point where I let me reach out to people and use my resources and finding a deal. So the only thing that really changes to having more liquid cash, available credit, but also the connections that I’ve made, knowing that these are obstacles that should not stop me versus back then. I just, honestly, when I started I was 23. I just wanted to be a millionaire by 30. I think it was a Forbes magazine that said there’s not a lot of. This was before the… we’ll write one Facebook, think he was the youngest millionaire or something like that. So I’m like, well I can do that. I can be a millionaire by 30 years old. So the plan was buy 10 houses and wait for them to appreciate, once they are worth $100,000. Sell them all, get my million dollars, move to California and then I’ll never have to work again. Obviously, that’s-
Steve Rozenberg: Live on social media. You’ll be the Instagram queen, right?
Alex Osenenko: Social security in California. A million dollars gets you maybe a half a house.
Steve Rozenberg: Get a tram ticket.
Ashley Hamilton: Well that just goes to speak to my mindset and how things were 10 years ago. So, obviously that has changed dramatically, but that’s all up until up until three years ago. That’s all I was just trying to do, just get 10 properties before I wasn’t quite a millionaire at 30 but I had my 10 properties at 30. So I did hit that goal even though things have drastically changed. So another thing I want to talk about, so when I did my bigger pockets interview, it came out around May 24th at that point I had 10 properties free and clear in Detroit. So that was like a big selling point and that’s what I had prided myself upon just doing this thing. I didn’t realize there was a story or really, great. But I just wanted to do it free and clear and just have, is less debt as possible. Well, since May 24th until fast forward… I just bought my last property September 18th. I picked up five homes just in that short period of time. So there’s been a mind shift or mindset shift just within these last five months.
Alex Osenenko: So are you like let’s go back a little bit. Are you leveraging now? Was that the biggest shift? So you leveraging before it was free and clear? I want to own it to nobody can take it away from me and nobody can touch it. I can make all the changes I need to make. I’m not responsible to anyone. I don’t need to be obligated to anyone. And now since that interview, you’re saying that you are more open to leverage because that will speed up your-
Steve Rozenberg: Scalability. Yeah. It’s a velocity of money. Here’s what it is.
Ashley Hamilton: Absolutely. So back in April when I did my portfolio, including my primary, I was at $765,000 free and clear for my 10 properties with my primary. So fast forward to today, I at $1,000,055.
Steve Rozenberg: Look at you. Congratulations.
Ashley Hamilton: Millionaire at 33, even though I don’t feel like it, but I am. And I did that just by leveraging. So I mean I only did 4, I could’ve done 10 and had maybe $600,000 to play with. But I only did four because I want to kind of even it out. I haven’t really thought of how much I want to leverage, but I know I can probably do up to 10 and then I can start using other financial ways. But these are properties that are fit. Some of my properties… I have one that’s appraised that only $40,000 some are $50,000 some are $70,000 but so these aren’t a $100,000 houses, obviously. So doing this in Detroit properties that I paid $1,900 for our appraisal for $60,000.
Steve Rozenberg: Yeah. So I mean the numbers are through the roof. Your ROI is huge. I mean.
Ashley Hamilton: Yeah. [crosstalk] Millionaire and I was able to do that. And I’ve increased my equity by almost $300,000 just in five months just by leveraging he locks in the hard money loan. But what I did not talk about on previous interviews because I didn’t realize how good it was. But even now with my million dollar portfolio, I still bring home $12,000 a month in passing income.
Steve Rozenberg: Right.
Ashley Hamilton: Just from that’s from my rentals. That’s not including my coaching, my property management or my bank job. So that’s amazing because in California or any other place you can have $1 million wort of properties or maybe… I know a guy that has $6 million of property. He doesn’t bring home $12,000 in passive income a month. It’s more like $6,000. So, that’s what Midwest in Detroit has been able to do. For me the cashflow is second to none.
Steve Rozenberg: Now let me, let me ask you this Ashley. And it sounds like you’re utilizing cashflow and you’re doing stuff with this. And obviously you like Detroit and there’s a emotional tie there because you’re from there. Do you ever think about going into other markets and scaling out for maybe a pre… Starting to get maybe appreciating properties. Because Detroit’s good, you’re making cash flow, but it’s not going to go up exponentially like it would in the Bay area of California. Right? So have you thought about scaling out into other areas or are you thinking of staying just in Detroit?
Alex Osenenko: Oh, she’s coming to California. She’s done.
Steve Rozenberg: Oh yeah, she’s just a social media queen. Right?
Ashley Hamilton: Right. So I’m definitely. If the numbers make sense. I’m willing to invest anywhere. So I just went out to Vegas. I love Vegas. I feel like Vegas is my second home. The thing gets, like I said, it’s more appreciation, less cash flow. It’s just so hard to do when you’re getting so much cashflow and passive income in. And you are appreciating these properties. So, I don’t want to go too much into my deals, but for example, I closed the deal for $11,000 on my birthday August 12th. That house rents out for $1,100 a month. But not only that, after a $17,000 renovation. So I only spent $27,000 into the property. It appraised that $65,000.
Steve Rozenberg: Wow.
Ashley Hamilton: So [inaudible] after I have six months of ownership, I can go pull out my $27,000 plus the extra $5,000 or $10,000. So even though it’s not appreciating ton, it’s basically doing deals for free. All you’re doing is waiting six months to pull your money out. So, if I find better deals like that, and I know a lot of Indiana, Tennessee and Ohio. I’m looking in Ohio now. But the cash flow is what I’m really after in the long term.
Steve Rozenberg: Sure.
Ashley Hamilton: So the difference is though, because not only with Detroit, there’s not a lot of demand and some of those other places, or even if it is demand, you’re not getting that high for rent. So Detroit, what’s so special about Detroit is you got all these properties, but if you’re a decent at your job, like me, if you go over and beyond. I have zero vacancies. And I have 20 applications in a week. So that’s what I feel like why I’m so focused on Detroit. But if I can get those things in other places, I’m more than willing to do so.
Ashley Hamilton: So I’m not sure if you heard of like Ryan Pinner. The all star investor. Yeah. [crosstalk] I was actually able to meet up with him out in Vegas. Such an amazing thing. We had a great conversation and he was schooling me on the Vegas market and there’s some value there for me as a primary residence. But as an investor, like my buying hope, it doesn’t really make that much sense. So I would just say, and I know I dragged that question on so long, but I would just say if I can get the kind of returns and numbers or in other markets, then I would do so. But I just don’t want to risk my portfolio because obviously if I did it in California, a market that would appreciate. I would have to have a lot of cash or some kind of leverage and then that would potentially put me at risk if something goes wrong.
Alex Osenenko: But I bet there are people who would say similar things in the markets they’re in because they figured out a niche. Like in Seattle-
Steve Rozenberg: You get the rythm [crosstalk 00:39:26].
Alex Osenenko: You can make money in Seattle, you can make money in a lot of places. Ashley, this was a terrific interview. I really enjoyed it. I think our audience enjoyed it as well. Steve, do you have a last question?
Steve Rozenberg: I do have a last question. Detroit in general what is happening with the city? Is it the same? Is it getting better? Is it getting worse? I think a lot of people want to know what is Detroit like?
Ashley Hamilton: Right. Absolutely. So Detroit was completely bankrupt about eight years ago. Who would want to invest or live in a bankrupt city. Now we have multimillionaires investing is ton of revitalization. So just to speak on that, like I said, I was lucky enough to buy a property on August 12th for my birthday for $11,000. I bought a property September 18th on the same street for $33,000. So it was just the luck of the deal. But the market is definitely creeping up. I have investors calling me all the time. The market is saturated with investors, which is bringing the prices up. So that’s the only thing that’s changed is just it’s not a lot of inventory, a ton of it at low prices. Where I need to start probably leveraging mortgages or spending more cash to buy properties. But other than that, it’s just all changing for the better. We have a couple of big three auto, excuse me, auto plants coming into town. We have the casinos, there’s tons of redevelopment. It’s just going up. And I feel like we were already at the worst at the rock bottom, so there’s nowhere to go but up.
Steve Rozenberg: That’s great. And the one thing just to finish this up, I’ll say that like in Houston, whenever there’s a natural disaster or any anywhere, but I noticed from Houston, like anywhere. It’s not the government that rebuilds the houses and gets housing going. It’s investors. It’s investors that take their own money, they take their time, they invest in properties, they make them livable. And they do that. So investors, like you had said, are the ones that are actually rebuilding cities with their own money, with their hard work. And they’re making places that were unlivable, they’re seeing opportunity, they’re putting in their time, sweat, equity and they’re making these places livable. That now people can buy, people can come in. And that’s the same in any city, especially after a disaster or dilapidated area like this. And all of a sudden prices start going up. Well it’s interesting.
Alex Osenenko: And that’s why our mission is creating happy homes and healthy investments. Because it all comes into full circle. So here at Mind we help people manage their properties as well as acquire investment properties through a tool called Investimate. But Hey, if you guys want to go and follow this wonderful lady and see her succeed and continue to thrive, go to Instagram.
Steve Rozenberg: Yeah.
Alex Osenenko: Detroit_Investor. She’s got 6,400 followers. When we publish I’d like her to get couple 1,000 right? A couple 1,000 more. Not down but a couple 1,000 more. And maybe, Steve’s trying to keep up.
Steve Rozenberg: I know she left me, she doubled me man.
Alex Osenenko: Steve what is your handle?
Steve Rozenberg: I’m like 3,300.
Alex Osenenko: What is your handle?
Steve Rozenberg: Oh my handle is RosenbergSteve. So it’s R-O-Z-N-B-E-R-G-S-T-E-V-E.
Alex Osenenko: Do really need to spell that?
Steve Rozenberg: Well a lot of people spell [crosstalk 00:42:33]. That’s very normal.
Alex Osenenko: Ashley, it was immense pleasure. Steve.
Steve Rozenberg: Yeah.
Alex Osenenko: Same here as well. And thank you very much for listening.
Steve Rozenberg: And also if anybody wants to follow us on Facebook, go to our real estate group, Facebook Mastermind Real Estate Investment club. Obviously, please join and like our iTunes account. Leave us a review, share it with someone, let people know about Ashley because she is awesome. She’s going to be a rock star. And we will say that we knew her back when she only had 15 before she dominated the world.
Alex Osenenko: Yeah, she’s small.
Steve Rozenberg: And if you want to talk to Ashley about coaching, you want to talk to her about real estate. You want to talk about any of that stuff. I mean after you and I have chatted a lot offline, I mean you’re such a likable person, you’re bundle of energy and you’re very inspiring. So I hope you keep doing what you’re doing Ashley.
Ashley Hamilton: Yes, thank you. And I did want to say something else guys, just to the listeners that are fearful or maybe just trying to get in there. I would just really want to tell people to just do what you can. Try to save as much as possible and just get your first deal done.
Alex Osenenko: Absolutely.
Ashley Hamilton: You can do this. If I can do it at $20,000 a year, you guys can do it. And I just had a quote that I came up with. I mean, obviously it’s probably been out there but, “A failure is not a fail. It is an attempt that did not go as planned.” So if you look at things like that, then you’ll never be discouraged because if you wouldn’t have attempted it, you wouldn’t have been able to succeed or fail. So, “A failure is not a fail. It’s an attempt that did not go as planned.”
Alex Osenenko: That’s-
Ashley Hamilton: And so just attempt, reach out to me if you need any questions. I love to help new people, but just get your first property going and then it’ll just all waterfall from there.
Alex Osenenko: Okay.
Ashley Hamilton: And follow these guys. Steve has a great book. He tried to downplay it, but it’s very great.
Steve Rozenberg: Thank you.
Ashley Hamilton: Amazing. I love him. I love his story. And Alex, I appreciate you and I really want to get to know you more and see what you’re doing and I look forward to working with you guys.
Alex Osenenko: Great. Thank you guys for listening, Ashley. Thank you, Steve.
Steve Rozenberg: Thanks everyone. We’ll see you next time. Bye. Bye.
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INVESTING IN REAL ESTATE: IS DETROIT WHERE YOU SHOULD LOOK IN 2019?
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Josiah Smelser (founder and host of The Daily Real Estate Investor podcast) discusses the Buy, Rehab, Rent, Refinance, and Repeat.
Alex Osenenko: Boys and girls, welcome to the Myndful Investor Show. It’s so good to have you here with us. And by us, I mean it’s Steve Rozenburg and I are your hosts. Steve, how are you doing today?
Steve Rozenberg: I’m going good, man, how are you my friend?
Alex Osenenko: You know, it’s fantastic. So we starting a new series you and I?
Steve Rozenberg: Yes.
Alex Osenenko: This series is going to be all about investing in single family homes. We have an awesome guest today to help us break down what’s called the BRRRRR strategy. It’s B-R-R-R-R-R. Steve, what does that stand for?
Steve Rozenberg: You got to add a couple R’s in there, right? Just to be safe, yeah.
Steve Rozenberg: (music)
Steve Rozenberg: So, we’ll let Josiah explain it more in detail, but basically, you’re going to buy it. You’re going to rehab it. You’re going to … And I’m not sure if I have this order correctly, so, Josiah, you can jump in. You’re going to rent it. You’re going to refi it, and then you’re going to repeat it. Did I get that right?
Josiah Smelser: You nailed it, man.
Steve Rozenberg: Bam! Bam! First time, how do you like that?
Josiah Smelser: Episode complete.
Steve Rozenberg: Episode complete. Hit end. High five.
Josiah Smelser: That’s it. That’s all you need to know.
Alex Osenenko: Let me set this up. Josiah Smelser, we’re very lucky to have him in the podcast. A, he is a host. Pre-show, we talked about his podcast and why he started it. It’s a fascinating story. He’s the host and founder of the Daily Real Estate Investor podcast. So check him out there. He’s been doing it for a year, he’s got a good library of episodes. Lots of good stuff there. Formerly though, a college finance professor. Josiah, what up with that?
Josiah Smelser: Yeah, two years, man. It was a good time. I got my master’s degree, and at the end of the two years they wanted me to go get my PhD. They wanted a 12 year commitment to pay for it.
Steve Rozenberg: Whoa.
Josiah Smelser: And I was like I can’t give you 12 years because I wanted to start my own business, right? It felt like a retirement job too. It was challenging. It was a lot. I was teaching seven different classes, and it was actually pretty stressful. Anyway, I left that and launched my own real estate business, and it’s been a great decision. Thanks so much for having me on the show, guys. I’m really excited to be here.
Alex Osenenko: We’re excited to have you too, and the audience, I’m sure, is getting on the edge of their seats at this point because over 12 months you’ve built that three million dollar portfolio of rental properties using the BRRRRR strategy, so we’re going to break it down. I guess maybe we can start with this. Josiah, why don’t you break down the BRRRR strategy into its components and let’s start getting shovels out and start digging in.
Steve Rozenberg: Man, we’re just digging right into this aren’t we?
Josiah Smelser: Yeah, the BRRRR strategy has been my favorite way to build my real estate portfolio. If you’ve never purchased real estate before, you’re kind of wondering how do you make massive progress? How do you go quickly through this? Because really the bottleneck … There’s a few bottlenecks. Number one, you’ve got to find deals. Number two, you have to have money and then you have to have time. Really, what was hanging us up was the money part of this. If you get a deal … Let’s say you’re just starting off. The B part of the BRRRRR strategy stands for buy. So you’re trying to find a deal to purchase, okay? So how do you purchase a deal, get it fixed up, get it rented out, get it refinanced and then go purchase another? That pretty much is the foundation of this.
Steve Rozenberg: The core. Yeah.
Josiah Smelser: That’s the essence of this whole thing, the core of this whole thing. When we started off, we’re like, okay, we’re going and buying it. We look for a deal. We find a deal, we buy it. We’re getting it renovated, and the renovation is going to take a little while. Then when you go to get it refinanced there’s rules around the refinance process of pulling money out of properties if you’re going with Fannie Mae or something like that. Fannie Mae will allow you up to 10 properties in your own name before you’re shut off from them. In different states you have different ability with maybe financing 10 more in your spouse’s name.
Josiah Smelser: You can check. I don’t know, of course, where everyone’s living, but in Texas where we’ve been buying a lot of these I’m allowed to put 10 in my name and then 10 in my wife’s name as well. That really allows us the capacity to take down 20 of these. When we started off what we found was the process of buying something and then putting money down on it and then getting it fixed up and then getting it refinanced we had to wait six months. Fannie Mae was requiring us to wait six months.
Steve Rozenberg: That’s called seasoning of the title, correct?
Josiah Smelser: Exactly.
Steve Rozenberg: For people that don’t understand.
Josiah Smelser: Yeah. They’re seasoning the loan. They’ve come up with this six month requirement for whatever reason. It is what it is.
Steve Rozenberg: Well, I think they… Just to kind of, I think, for people to understand the complexity of it, that had kind of evolved after people… obviously, some unscrupulous people buying properties and turning around and pulling a bunch of money out of it. I think the lenders finally said, “You know what? You need to hold this for a little bit.” I remember at one point it was down to 30 days seasoning, and that’s when things were going crazy back in 2006 and 2007 where it didn’t matter. That caused a lot of problems because a lot of these numbers were inflated, and then they would pull more money out, and so now they’re kind of saying, “Okay, we want this to settle a little bit. You’ve got to own it for a little bit.” I think it’s like everything there was a disaster, so then they put in some cautionary-
Josiah Smelser: Sure.
Steve Rozenberg: … things in so that people don’t take advantage, just so people understand why seasoning exists.
Josiah Smelser: Yeah. Absolutely. They’re trying to protect themselves and make sure they’re not lending too much money too quickly. But it’s a bottleneck for the investor.
Steve Rozenberg: Sure.
Josiah Smelser: Because that capital, if you’re required to put 20% down… You’re required to put some chunk of money down on every deal even with hard money and all that. We can unpack that here in a second if you want to. When we first started off we were just buying them off the MLS, going to the bank, getting a loan. They want 20% down. A $100,000 deal, they want you to put 20k down when you start, and then you’ve got repairs. If you do a subject to completion loan on the property, they’re going to lend you based off of what the property would appraise for once it’s fixed up.
Josiah Smelser: Let’s say you buy $100,000 property, you’re going to put… Sorry guys.
Steve Rozenberg: That’s the beauty of getting to work from home, right?
Josiah Smelser: Yeah, exactly. I even locked the door. Somehow he got it open.
Steve Rozenberg: They’re smart those kids.
Josiah Smelser: You can tell he’s out of the hospital. He’s back.
Steve Rozenberg: Yeah, exactly.
Josiah Smelser: Let’s say you buy a $10,000 property, you’ve got $50,000 in repairs, and it’s going to be worth $200,000 when you’re done. The traditional route, they’re going to have you pay your $100,000. They’re going to take 20% of basically the 150 of the loan. They’re going to do a loan to cost, which is taking the maximum cash out of your pocket. So 20% of 150 is going to be $30,000. You’re putting down on your… As long as it appraises for 200 or whatever and they’re getting their loan to value that they need. So you’re going to put your 30k down, okay? There’s $30,000 that’s out of your account that’s locked into the deal. If they require you to keep that in there for six months, you can’t keep using that capital to go buy more deals.
Steve Rozenberg: Right.
Josiah Smelser: The first pain point that we tried to solve was how can we get our money back quicker because we want to do more deals than just… If we’ve got $100,000, and we want to keep a little bit of money in reserves, and we do three deals like I just said-
Steve Rozenberg: You’re done.
Josiah Smelser: … we’re locked out for six months. We can only do six properties in a year, and we’ve only got $10,000 in reserves. What was really a game changer for our business was we started figuring out a cheaper and quicker way to do these things while conserving our own capital. What we started doing was using hard money as long as the numbers worked, and they would lend 90% loan to cost on a deal, so that same deal I just talked about they would lend 90% of the 150, so it’d only require you to put $15,000 in instead.
Josiah Smelser: Then I went and found private money. Private money lent me the other 10%. Private money lent the other $15,000. So now I’m able to do as many deals as fast as I want because I’ve got my-
Steve Rozenberg: You’re in it for zero.
Josiah Smelser: Yeah, I’m in it for zero, and I’ve got my capital in my account in reserves. Any problems that come up, I’ve got that cash sitting there. So what that allows me to do is I can do 10 properties at once if I want to.
Steve Rozenberg: Right.
Josiah Smelser: And then the cool thing is on the Fannie Mae side on the refinance you don’t have to season it if you’re not pulling cash out of it. You can refinance it as quickly as you want to. When you go to do your… Let’s say you buy your property and you get your renovation done in a month, and you’re ready to rent it, Fannie Mae will let you refinance one month in and pay off that first and second because you’re not pulling cash out.
Steve Rozenberg: Right.
Josiah Smelser: That allows you to rev that cycle really quickly. That’s how we’ve been able to make so much traction so quickly.
Alex Osenenko: So let’s break this down a little bit.
Josiah Smelser: Sure.
Alex Osenenko: First of all, conceptually, how much value can you drive with the renovation? Let’s keep using the same example for simplicity’s sake. You found a deal for 150, let’s say you get your hard money and your private money so your cash out of pocket is zero. How much do you invest in the rehab, and what do you appraise at afterwards?
Josiah Smelser: Okay. You’re asking about the first scenario like if I just go through traditional route with the bank how much am I putting into the reno? Is that your question?
Alex Osenenko: Well, either way you finance it, the question is what is the home going to be worth? How are you planning for it?
Josiah Smelser: We’re always looking. We’re looking at deals. We’re basically buying distressed properties. What that means typically is that the property is either a foreclosure, it’s really beat up, there’s something wrong with it, it needs some attention and love. What we try to do is we try to all in be in it for 75% loan to value or less. For the sake of round numbers, if I buy something for $50,000, I would need to be all in for $75,000 or less if that property is worth $100,000.
Josiah Smelser: What we do is we back into it. We say, “Okay, the ARV, the after repair value of this property is $100,000. We can get this property for 50, and so we’d like holding costs… financing costs, closing costs, holding costs and repair costs to be $25,000 or less. If we can come in at 20, we’d have a $70,000 debt on a property worth 100. That’s below 75% loan to value, so when I go to do my refinance, they’re going to lump that all into one loan, and they don’t keep any of my capital.
Josiah Smelser: That’s basically the BRRRRR strategy in a nutshell. It’s trying to take control of a property if you can with none of your own money but with a margin of safety, which is that 25% equity or more. That comes on the refinance.
Alex Osenenko: So let’s slow it down even more.
Josiah Smelser: Okay.
Alex Osenenko: Let’s use that $100,000 post renovation value. Is that what you call it?
Josiah Smelser: The after repair valve. The ARV, that’s thrown around. Yeah.
Alex Osenenko: After repair value. Okay, so it’s 100,000, that’s what we’re estimating at. We can get the house for 50. Let’s say we do the renovations for 25. So now 75. Now what can you pull out of the house?
Josiah Smelser: If you’re in it for 75, and it’s worth 100, most lenders are going to cap you at 75% loan to value, so you couldn’t pull anything out, but what you can do is consolidate. If you had a first and second from a hard money lender and private money, on the refinance Fannie Mae is going to pay those guys off with that 75% loan to value loan, and you’re going to have one loan with Fannie Mae for that 75,000. Does that make sense?
Alex Osenenko: It does.
Steve Rozenberg: Alex, I think maybe the thing that you’re asking and what Josiah is saying is that some of these deals that you do the goal is not necessarily always to pull money out, the goal is that he’s getting in a deal with zero out of his pocket. He’s going to basically get a deal, buy it, fix it up, put it in, still be at 75% of the value and have zero dollars in it, and be able to rent this thing out and be able to keep on moving around.
Steve Rozenberg: Now, the thing about hard money that I think people have a misconception on is they don’t understand it first of all. Josiah, it sounds like you do, and a lot of people do, and I’ve got some good friends. We’re going to have Darrel Dyke on our show in the future that talks about hard money. It’s really what’s called a bridge loan. It’s a loan to get you from purchasing it to closing it and have another set of loan set up for the next round of what you’re going to do. The hard money is just to get you the deal so that you can get it quick because hard money will get you the money right away, number one. Number two, they don’t put you through all the things that you’ve got to do with normal conventional lending.
Steve Rozenberg: You don’t have to abide by all the rules that you have to with Fannie Mae or conventional or they call it, A, paper lending. To me what hard money gives you is speed. You’re able to get the deal and say, “I’ve got a deal. I need this money like tomorrow.” If everything works out in a perfect world, they could get that to you. Then he’s got his private money guy that can give him the rest of the money, he could buy that, rehab it, and then what hard money people do is they do what’s called a draw.
Steve Rozenberg: Let’s say you have $25,000 in repairs, they’ll pay that out in draws as they inspect the house to verify that that work is being done correctly because it’s their money. They want to make sure that if they’re loaning you this money and they’re paying contractors, especially if you’re new in the industry, they don’t want you to get burned because they don’t want to get burned.
Alex Osenenko: Wait one second. I just want to break it down for the sake of our audience and my own sanity. Josiah, you’re also borrowing the actual renovation costs, like the 25,000? So you’re not only taking a $50,000 loan, but you’re also levering the repair costs?
Steve Rozenberg: Correct.
Josiah Smelser: That’s correct. If you didn’t have this private money piece, which I was talking about, what’s kind of like the last layer that we figured out. If you just had hard money, and your deal was $100,000 and your costs were going to be like we were saying you get it for 50, you’re in it for 75, you have 25 in repairs, they’re going to lend you 90% of 75. They’re going to lend you 75 minus 7,500.
Alex Osenenko: Got it. And then-
Josiah Smelser: And then $67,500. What they’re doing is they’re giving you cash to buy the house, and then like Steve was saying, you’re going to pay cash out of your pocket for the repairs and you’re going to make a draw reimbursement request from the hard money lender. They’re gong to need receipts and pictures or maybe do an inspection or something like that. Then they’re going to send you a check to reimburse you for the cost of the repairs.
Josiah Smelser: The beauty of all this is when you go do your refinance, if you got a good enough deal and you kept your renovation costs low enough and you pull this off like you can, you refinance out everything into one loan with Fannie at a low interest rate locked in for 30 years, and you didn’t have any of your own money locked in long term.
Josiah Smelser: Now, sometimes you’ll have a little bit of money locked in. Sometimes you can get money back. I find that it’s more often that you have a little bit of money locked in than you’re getting money back. But in the same scenario, if the thing is worth 100, you get it for 50, if your repair costs are $10,000 and you’re all in it for 60, you could do a cashout refinance with Fannie Mae at 75% loan to value. Since you’re only in it for 60 and they’ll lend you 75, you can get a check for $15,000.
Alex Osenenko: Fifteen. Got it.
Josiah Smelser: That’s where the cashback part comes in. That’s a lot more difficult to do than just breaking even or even leaving a little bit of money in because one thing that a lot of investors don’t consider is the holding costs on the thing. You’re paying interest only payments to the hard money lender the entire time that you’re waiting to do this refinance, so-
Alex Osenenko: What would be the example-
Josiah Smelser: You’ve got to factor that in.
Alex Osenenko: Josiah, sorry. What would be the example of an interest amount in our example? Let’s keep this consistent with the numbers. What would be the interest payment? What do they charge?
Josiah Smelser: The last few hard money deals I’ve seen, they’re charging about 10% interest and two points. If they’re lending you a total of 75,000.
Alex Osenenko: I’ve got a calculator.
Josiah Smelser: If they’re lending you 75,000, you’re going to have $7,500 in interest for the year divided by 12, so it’s going to be interest only payment 7,500 a year divided by 12, so whatever that comes out to. That would be your monthly payment.
Steve Rozenberg: And now normally-
Alex Osenenko: That would be $625. Plus, you said two points?
Josiah Smelser: Plus two points is paid at closing. So 7,500, two points on that is going to be, what? What’s that?
Alex Osenenko: You’re the math professor, man. You figure it out.
Josiah Smelser: Fifteen hundred bucks. Right?
Alex Osenenko: Fifteen hundred bucks.
Josiah Smelser: Yeah.
Alex Osenenko: So two points. You don’t pay two points on a whole $75,000 loan, right? Or you do?
Josiah Smelser: You do. [crosstalk 00:17:55].
Alex Osenenko: It’s two percent?
Josiah Smelser: Yep. Then they’ll have some other miscellaneous fees in there.
Steve Rozenberg: Josiah, the goal is not to hold this for a year, the goal is to get this turned and get your money in and our as quickly as possible, right?
Josiah Smelser: That’s correct.
Steve Rozenberg: Maybe three months. You really… Alex, once you get this money, the clock is ticking. You do not mess around. When you have hard money on the line, you are doing everything you can to get this thing turned as quickly as possible.
Alex Osenenko: I just want to make sure our audience respects that aspect and has the number assigned to it because I don’t want them to turn off the podcast and run out and start getting deals right now. We’re going to talk about… I can totally see you losing your pants on this one. There’s just so many ways you can… Inspection didn’t pass. There’s so many different-
Josiah Smelser: Oh, yeah.
Alex Osenenko: Before we go there, 625 bucks a month plus the 1,500, 625 a month are your holding costs. If you’re holding more than you’ve estimated, let’s say the roof took longer or whatever, you’re bleeding, right?
Josiah Smelser: Oh, absolutely. That’s a mistake that’s very easy to make especially when you haven’t done these before is underestimating your holding costs or the time it’s going to take you to get all this stuff done because when you start you don’t have the processes and the system set up. You may not know who you’re going to use for your contractors. That’s a rookie mistake, right? You may not know how long it takes to actually do a renovation of this scale. You may not properly estimate your repair costs. There’s a thousand different ways to screw this up.
Josiah Smelser: And then the linchpin of the whole thing, and I am an appraiser so I can say this, the appraisal, the appraisal on the backend. If you think it’s worth 100 and it appraises for 90, they’re going to lend you 75% of 90, which could make you leave money in the deal. That’s something you really got to know your numbers on the front end. I’ve even started putting a package together of comparable sales, everything that’s been done to the property, kind of a little history and like package that we give to the appraiser. We’re like, “Hey, this is what we did to the property. This is what we spent on the property.”
Steve Rozenberg: Telling the story.
Josiah Smelser: Here’s comparable sales in the area. We don’t tell them what to appraise it for because you can’t do that, but you can certainly say, “Hey, here’s everything that’s been done, and here’s good comparables. Here is a property in the same subdivision,” all that. Appraisers actually appreciate that, so I wouldn’t be scared to do that.
Alex Osenenko: You just them out with data. You help them out with data-
Josiah Smelser: Absolutely.
Alex Osenenko: … in their job, so that’s great.
Josiah Smelser: Yep.
Alex Osenenko: Here’s a question burning, it’s burning in my mind. I can’t get rid of it. Your business, you’re running this thing. You build this portfolio. How do you get paid, man? You got to pay rent. You got to pay mortgage for your own house. You have kids.
Josiah Smelser: Sure.
Alex Osenenko: You got to buy them clothing. Where’s the monthly income coming from, brother?
Josiah Smelser: Sure. Well, there’s a number of different ways to monetize this. You’ve got to kind of choose your own adventure, if you will. You can build a cash flow portfolio, which Steve in his book talks about that. A lot of times the properties that are giving you a high margin on your cash flow are going to be the lower end properties.
Alex Osenenko: Right.
Steve Rozenberg: Right.
Josiah Smelser: That’s one way to go. Another way to go is to build a portfolio of high quality properties that the cash flow is not going to be as great. What we have targeted is something kind of right in the middle. We look for B class properties. We try to cash flow $200 a property. These are single family. Two hundred dollars a property. Now, when I say cash flow, that’s net of all operating expenses. These are managed by third party. That’s also net of the debt payment, so that’s taxes, insurance, management. We’ve got money in there for repairs and all that kind of stuff and vacancy and collection, loss, and all that.
Josiah Smelser: We want a cash flow of 200 bucks a door. We want this to be located in an area that we think has a reasonable chance of appreciating at 3.5% a year or better. That’s why we’ve picked Fort Worth, Texas. I used to live in Dallas Fort Worth, and I know those areas really well because I run my own appraisal business. I started an appraisal company out there. You were asking about how I make a living. My partner and I have decided on all this, we’re going to reinvest all of our profit back into buying more deals and into paying our portfolio off eventually. We’re not going to take any capital out of the business.
Josiah Smelser: Brian Murray said the same thing. Brian Murray was on our real estate Mastermind that Steve and I were a part of in Hawaii. Brian said that in his book that he reinvested all his profits in his apartment business, and I think that’s one of the reasons that he’s been so successful. If you’re living off of the cash coming off of your real estate business, you’re not reinvesting it. Where you’re going to get that really dynamic growth is by reinvesting everything back in.
Josiah Smelser: We’re seeing cash on cash returns well over 20%. So you think every dollar I take out of this, I’m losing that 20% compounded growth for the next 30 years. That’s crushing.
Steve Rozenberg: You’re building wealth is what you’re doing.
Josiah Smelser: Exactly.
Steve Rozenberg: Other people they want the cash flow out of it or build them the job.
Josiah Smelser: Exactly. We decided we want to build a high quality portfolio of BRRRRR properties. We want to hang on to this thing until we’re retired. Right now, we’ve got three million. If you run the numbers at 3.5% here, I’m 38 years old right now, until I’m 60 it’s worth about seven million bucks. We would split that out, and that’s three and a half million a piece. We’re going to try to keep growing it. We’re going to try to have at least five million before we cut off the single family and just start focusing on apartments.
Josiah Smelser: How do I make a living? I run my own appraisal business. I’m also a real estate agent, so I make money off of commissions when I’m… Some of these are local, so I get a commission off when we close on them on the by side, and then I’ve got other people that know I’m an agent, they come to me wanting me to help them find investment properties and that kind of thing. So it’s been really cool because I spent about half my day doing appraisal work, and I’ve spent about half my day working on investment properties doing this, and this is kind of like a retirement thing for us.
Steve Rozenberg: I’ve got a question Josiah.
Josiah Smelser: Sure.
Steve Rozenberg: You and I met, and we had a great time in Hawaii at the Brandon Turner Mastermind and stuff. We got to know each other very well. I didn’t know the part about the professor, which is interesting. I guess my question to you is, when you thought that real estate was going to be the track that you were going to go down, how did you do it? Did you sit there and create a strategy saying, “Okay, here’s what I’m going to do. I’m going to create an appraisal company, and then I’m going to start doing by and hold”? Or did you just kind of say, “I know what I don’t want, which is I don’t want to be in the teaching industry, so I’m just going to pivot out of this, and I’m just going to jump into whatever catches my fancy right away”? Can you walk people through that?
Josiah Smelser: Yeah.
Steve Rozenberg: Because I think a lot of people, they may think that you just said, “Screw it. I’m out of here.” You lit the desk on fire, and you ran out, and you jumped into real estate. Normally, I’m guessing, that’s probably not what happened.
Josiah Smelser: Yeah. I already had my appraisal license. I’m a certified general appraiser. I was the multifamily specialist at CBRE. CBRE is the largest real estate service’s firm in the world, a Fortune 500 company. I was the apartment appraisal specialist when I worked at CBRE, so I have my commercial appraisal license. I can appraisal commercial or residential. There’s actually a shortage of appraisers nationwide. You have to have a college degree in a lot of states on top of another two or three years of classes.
Steve Rozenberg: Right.
Josiah Smelser: And then you’ve got to pass the state exam.
Steve Rozenberg: It’s not easy.
Josiah Smelser: It’s difficult. It’s not easy to get the license. It’s a pain.
Steve Rozenberg: Right.
Josiah Smelser: A lot of people don’t want to go back after they have their college degree and start on something else. I got this license back when I was in Texas and helped buddy start a residential appraisal company then, and so I learned pretty quickly. We started our own business when I was 21. We were running this thing out of our house. We had more business than we knew what to do with. I was like, “If I ever need to, if I ever want to, I can quit my 9:00 to 5:00 and go start an appraisal company.”
Josiah Smelser: Honestly, when I decided I wasn’t going to give the 12 years and go get my PhD and all that, the first thing I thought of was the appraisal business will put food on the table. The investment business will be the retirement plan. So far, it’s been crazy. It’s been a blessing to do it because the money has been better working for myself than it was when I was working for CBRE, which is insane because you kind of think when you cut the 9:00 to 5:00 off and you start your own business, you kind of think like, “Well, this works for some other people I know, but I’m going to fail at this for some reason.” You know?
Josiah Smelser: You got to honestly just give it your best and get in there and try and work hard at it. It’s one of those things if you put in the time and you keep grinding, it’ll work out.
Steve Rozenberg: Now, when you started going down this path, and I think this is important. As you read my book you know I’m a big proponent of talking about challenges that arise. I say failures, but things that pop up that you have to reassess on and audibilize on. Can you give anyone some things that you went through that you kind of just got smacked in the face or you were just like, “Man, this is not what I thought”? Then how did you work around that. A lot of it it’s not a physical fix, it’s normally a mental fix.
Josiah Smelser: Oh, yeah.
Steve Rozenberg: I’m also curious on the “balance” that you have with family life, with your wife, and how you kind of bring her into the mix. I know she’s involved with you as well. How did you get her to buy into this as well? As you know, some people, you go to a seminar, and you come running home, and the wives are like, “Oh, my God. Here we go again. He just went to a seminar. He’s buying the world. He’s doing this.” Can you talk about some failings and then how you aligned the family with that?
Josiah Smelser: Yeah. Would you prefer to hear about failings in my business or in my real estate investments? Which one do you want?
Alex Osenenko: I love Steve’s question. Steve’s question is like six questions in one, four parts. It’s awesome. Tell me about your life, all of it. I want all of it now. You pick, man.
Josiah Smelser: Man, I would say one of the hardest parts about starting the business was I basically formed my LLC and started going out and networking with different banks to get on their appraisal list, and a lot of the banks would say, “Our list is full.” It was like, “Cool.” Well, I know there’s a shortage of appraisers, but you guys aren’t letting me on your list. I figured out pretty quickly a lot of these banks it’s kind of like a good old boy system where they’ve got a couple of buddies on their list, and they want to give their buddies all their work.
Josiah Smelser: I just made it a numbers game just like the real estate game. If I’ve got to talk to 20 banks to get on one list, I’m going to go talk to 20 banks. I remember I would… When it would start raining, I would go get bagels and I would go out in the rain, walk into banks and talk to the person in charge of their appraisal list. They’d see me come walking in sopping wet bringing them food, and that works, man.
Steve Rozenberg: Nice.
Josiah Smelser: People are like, “Dude, this guy’s out in the rain trying to get on lists. This guy really wants it.” You know? Pretty quickly I had more appraisals coming in than I could do. Then I applied the 80/20 rule to my appraisal business. Eighty percent of my most problematic deals and appraisals were coming from 20% of my clients. So I got rid of those clients and then focused on my best work and those clients. And all of a sudden my appraisal business got a lot more fun to be a part of. The work was better, and it was more profitable, and then-
Alex Osenenko: Can I ask you… I’m so sorry. I’m very curious about this. What’s-
Steve Rozenberg: He’s only on part one of my question, man.
Alex Osenenko: Just hold that pen where you were going. What is a bad appraisal? Can you define it for us? You said, 20% gave you bad business. What does that mean?
Josiah Smelser: Yeah. I was talking about my clients. As an appraiser, I’m doing single family. I’m doing residential one to four family right now. I’m not doing commercial, although I can, but I’d have to go by a bunch of data that I don’t have right now and all that. A client that can be difficult just on the management side from the appraiser’s standpoint would be a client that just basically asks for a thousand revisions on every report and calls you up and wants to argue with you about everything that’s been done. You’re only getting paid so much per report, so you don’t want to spend all day doing one report. You know what I’m saying?
Josiah Smelser: There’s some clients who are easier to work with than others. I just decided, okay, this is how much I need to make for my time. If I’m not going to make this much for my time, then I’m not going to do this anymore. Steve, we talked about this, but you had this virtual assistant business going. I have a virtual assistant that’s really made my life a lot easier in my investing business. You can get a virtual assistant to kind of help cut down on the repetitive tasks that you don’t need higher level for. That really opened up my business as well is getting a virtual assistant to help me out.
Alex Osenenko: Cool. Sorry, I threw you off a little bit. You were-
Josiah Smelser: No, that’s good.
Alex Osenenko: … answering the fifth question.
Josiah Smelser: Yeah. You’re talking about mindset, Steve.
Steve Rozenberg: Yeah.
Josiah Smelser: Throughout this entire… the last 12 months of doing this, I basically journaled a lot and wrote a lot. I’ve been working on a book. The book is going to be called, “Dream It and Build It. How to Crush Your Real Estate Investing Goals.” It’s all about mindset for this whole thing. The E-book will be on Amazon in December, and the hard cover will be on Amazon January 1st. I would love for everybody to check that out. It’s not out quite yet. I don’t know when you guys are going to air this, but it’s coming out soon.
Josiah Smelser: Anyway, mindset in real estate investing is everything. I know it applies to pretty much every other kind of work you’re doing. Mindset is 95% of it. Because if you think you can’t do it, you’re not going to be able to do it. I can guarantee you, you’re going to run into a thousand problems. If you’re not willing to have the right mindset to those problems, you’re going to get smoked because you were talking about a second ago, wow, this refinance it seems like there’s like six things that can go wrong. They will go wrong. You know what I mean? They will. It’s not if they will, it’s they will. Your appraisal will come in low sometimes. Sometimes your costs will be higher than you thought they were. Sometimes you’ll go under contract on a property and discover something about it that wasn’t in any kind of disclosure and no one told you that will kill the deal.
Josiah Smelser: There’s a lot of stuff that will go wrong in real estate, but that’s why you make great money at it. It’s a problem solving business. You have to be willing to adapt this mindset of we’re going to have a lot of problems come our way, we’re just going to have to figure them out one at a time and just keep grinding away at it. The people who have that kind of mindset will get through it and be successful.
Steve Rozenberg: What-
Alex Osenenko: Steve, I’m sorry, just another curiosity question. How do people in your shoes, the BRRRRR investors, the successful ones, think about property management? Is that a component you build into your costs, and how do you find a good one? Or this is kind of you self-manage for the time being? How do you think about that?
Josiah Smelser: I think property managers are worth their weight in gold if they’re good. That’s a qualifier, if they’re good. If they’re just taking 10% and not really doing much, you’re better off without them. If you find a really good property manager, they’re worth far more than 10%. It sounds crazy saying that, but this is the reason why. If you’re paying a property manager 10%, and I’m talking one to four family here. If you’re paying a property manager 10% to manager your property, and they’re keeping your property occupied, they’re cutting down on your vacancy, that’s a massive benefit to you as an investor. If you have a good property manager, and your average vacancy rate is… Your property is vacant one month out of every two years versus you have a mediocre property manager and your property is vacant three months out of every two years or something like that, that average property manager is costing you three times as much money as the good one.
Josiah Smelser: But I bet you the good one is not charging you three times as much to manager your properties. You may have one charge you 9% and one charge you 10%. You’re paying 1% more to save on an extra two months of vacancy. If your property is renting out for $1,500 a month, you just saved yourself three grand by paying 1% more on your rent, which is not much. We’re talking pennies here compared to the savings you’re getting.
Josiah Smelser: We have a really great property manager that we’re using right now. They save us on repair costs. They save us on vacancy. They’re always looking out for our best interests. They look at our property as if it’s theirs. They take care of our tenants, which is another thing I’m really passionate about. I want my tenants to feel like they’re taken care of, they’re not getting screwed by their landlord, like their landlord cares about them. I think property management is the way to go for your properties.
Josiah Smelser: We own a lot of stuff out of state because we like Fort Worth, Texas. I live in Huntsville, Alabama right now. We own a couple locally, and we manage those ourself, but all of our stuff in Fort Worth and we have a few in Little Rock, Arkansas, those are all managed by third property management companies.
Steve Rozenberg: I think also-
Alex Osenenko: Gotcha. So the definition… Steve, one second. I’m just going to put a cap on this one, and you can go into auto state investing. I think you wanted to. We have a few more minutes to cover that.
Steve Rozenberg: Sure.
Alex Osenenko: Your definition of good, because we are a property management company, I’m very curious what makes good for people in your shoes, people who are running this BRRRRR business and serious about investing. The two things I’ve heard is reduced vacancy and reduced cost of repair and take care of residents. Three things. That’s-
Josiah Smelser: There’s one more big one and that’s communicating with the owners. Yeah.
Alex Osenenko: So true.
Josiah Smelser: As an owner, if you email your property manager, you don’t hear anything back for a couple of days, you start getting concerned. You don’t know what the property manager is doing. The property manager is probably out at some property fixing something or how knows. But from your perspective, you’re like, “I guess they just don’t care about what I’m… ” You know? I think when you email your property management company, if somebody will just acknowledge that you’re requesting something and just say, “Hey, I’ll get back to you on this. I’m working on this,” or something like that, your satisfaction ratings will go way up.
Josiah Smelser: The second cutting costs down, there’s a leaky toilet, instead of just saying, “Hey, this is going to cost two grand to fix,” which seems really high, you’re going to say, “Hey, I think I’ve got… ” You’re going to give some options on ways to save money on this because that money is coming out of the profitability of these properties, and what’ll put you out of investing is letting your costs go too high because then you’ve got to sell it.
Steve Rozenberg: The one thing, Josiah… You kind of said it all, but the one thing I would say that a lot of people don’t factor in when it comes to a management company, the difference between a good one, a bad one, or none, is I think as entrepreneurs we don’t value our time as much as we should. We’re willing to give up our time to do things to do it ourselves. We have heroitis or we can do it better. The thing about a bad property management company is the stress level that you have to deal with because now you’re babysitting the babysitter essentially.
Josiah Smelser: So true.
Steve Rozenberg: A lot of people don’t factor in the mental stress. If you’ve ever had properties that are not being run correctly, which I personally did because I didn’t run them correctly as you know in my book. A lot of times they don’t factor in what is my time worth, and more importantly, what are those sleepless nights worth when you don’t know what you’re going to do. The challenge, I think, about real estate in general is the good thing about it is there’s no rules. You can do whatever you want. You can flip wholesale. You can do BRRRRR. The bad part is there’s no rules. You can flip, wholesale, BRRRRR, and there’s no one to tell you you’re doing it right or wrong until your bank account says zero or you’re in a lawsuit.
Josiah Smelser: Right. Yeah.
Steve Rozenberg: That’s, I think, the challenge, right? When you and I get into a new industry, you came from being a professor, I came from the airline industry, there’s no rule book that says, “Hey, this is what you do. These are the bumpers that you stay in as an investor. Don’t go out of the lines.” There’s no one that tells you that. You look at a house and ask the guy selling it, “Hey, is this a good deal?” He’s going to go, “It’s a good deal. You should buy it.” You buy it, and then he’s like, “Sucker.” He walks away. And now you’re the one… Because we didn’t protect our time. We didn’t do the time before to educate ourselves or we didn’t understand the system around it.
Steve Rozenberg: I think that’s the thing. Alex, you had mentioned earlier about… You guys both talked about communication. I have learned in owning a company the three reasons that you will lose a client is vacancy, maintenance, and communication. If those three… Those are the three. If you’re an owner, if you have a vacancy, you’re losing money. If you have over maintenance, you’re either going to lose the tenant or it’s going to cost you too much because the management company doesn’t know what they’re doing. If you don’t communicate at some level… You can be the best management company in the world, but if you don’t let the client know all the things that you’re doing, they really don’t… They’re like, “Those are great, but it would’ve been nice to know that.”
Steve Rozenberg: I’ve learned those are the three reasons why you lose a client. If you can focus on those three things as a management company, you will do very, very well. Again, not having an answer for an owner is okay as long as you let them know-
Josiah Smelser: Exactly.
Steve Rozenberg: … We’re still working on it. We’ll let you know as soon as we find out. Normally owners are okay with that as long as they don’t think they’re in some black hole of forgetfulness. Because true investors… The difference between a landlord and an investor, the landlord wants to do everything himself. He wants to be the one to run to Home Depot or you would run to Fort Worth and handle this and handle that. An investor sits behind the desk and uses appraisers, inspection teams, management companies, and they leverage the other people and their time. I think that’s the challenge that a lot of people have is they don’t value their time, so they’re leveraging themselves.
Josiah Smelser: Sure.
Steve Rozenberg: I think that’s the reason. I know that I had a problem with understanding leverage initially was how do you scale and understand leverage. The key was you’ve got to be able to push it out there for other people. Your job, Josiah, is you’re the CEO of the company. You have other people doing things, and then you bring that in, I’m assuming, and then you look at the numbers, and you make decisions. And there may be some things that you do, but if you’re just doing it all the time you’re not going to be able to scale. You wouldn’t be able to be in three states owning real estate. You would be in your local neighborhood.
Josiah Smelser: Yeah, absolutely. Absolutely. I know this is an interesting connection to all this. I’m a big Fantasy Football enthusiast. The way I always approach my team is the way… Building my Fantasy Football team is the same way I approach building my real estate portfolio. Continuous improvement. Looking for value. I look for value in the properties I buy, and then I try to continuously improve the properties and continuously improve my processes, continuously improve my portfolio if you will.
Josiah Smelser: Same with the Fantasy Football thing. You get these players when you start. They may not be great, right? But you can improve as you go. That applies to work as well. You’re building your business. Figure out how you can improve continuously, right? Over communicate, keep costs down. Basically just show people you care. You know what I mean?
Steve Rozenberg: I’ve got a question. I know we’re going to finish up here in a little bit, but let me ask you this. You and I met at a Mastermind, so I know that you do these things. What do you do to improve yourself? Doing all these improvements, those are all tools to improve your business. You and I both know it all starts in your head, and it starts with improving your mental positioning.
Josiah Smelser: Yeah, absolutely.
Steve Rozenberg: What do you do?
Josiah Smelser: I read as many different books as I can on these kind of topics, real estate. Basically, improving mindset. There’s a lot of different people out there you can follow that are big on this kind of stuff. I love Gary B, and we were talking about-
Alex Osenenko: We talked about Tim Ferriss, right?
Steve Rozenberg: Yeah, I was talking about Tim Ferriss.
Alex Osenenko: He’s part cop.
Josiah Smelser: Yeah.
Steve Rozenberg: It’s really, really good.
Josiah Smelser: Yeah. Just always figuring out ways you can improve on anything. I need to get healthier. What can I do to do that? I like to keep building my real estate business. What’s not working well? I go back to this example earlier. When we started off we were bottle necked by this seasoning period of six months because our capital would get locked into a deal, and we only had so much capital, so we could only do so many deals a year. Well, once we figured out the hard money piece and the private money piece that opened everything up. That allowed us to be able to do three million a year.
Josiah Smelser: Whereas if we were doing the old route, we wouldn’t be anywhere close to that. It’s figuring out how to improve your process. If you could kind of document your process right now for everything you’re doing and figure out what’s the one thing in that process that’s hanging you up, that’s the thing you need to work on the most. If you can figure that piece out, it’ll open up your business and open up your investing experience.
Steve Rozenberg: Gotcha.
Josiah Smelser: Did that answer your questions?
Steve Rozenberg: It did, it did. Again, everybody has their own processes. I do a lot of audio books. I do a lot of Audible. I try to have conversations with people like you and other people that are successful. Alex and I have a lot of brainstorming conversations. When you’re an investor, it’s a lonely place. The challenge is you quit a 9:00 to 5:00 because you don’t like the people you work for or work with, now you’re working 5:00 to 9:00 basically, 60 hours a day, and they say the person you work for is crazy because you’re that person. And you’re running yourself into the ground for no money.
Steve Rozenberg: A lot of times you’re trading one for the other, and it’s one of those things, be careful what you ask for because you may get it. I think that it’s very hard when you’re an investor and you’re out there trying to figure it out. How do you keep that sanity to know that you’re on track, to know that you’re making ground? Because, again, you’re lucky you have your wife involved in this business with you. She sees what you’re doing. A lot of people don’t have that option. They’re out there working in the garage at nighttime trying to build this model. They’re kind of looked at as crazy by their peers because they’re trying to do something different. It’s tough. It’s a tough place to be.
Josiah Smelser: Yeah. I’ll give a lot of credit to my business partner too. I would much rather own something 50/50 with someone that I have a lot of fun working with and I really care about. My business partner is one of my best friends. We were friends as kids, grew up best friends. We’re doing all this together. He really was a big part of putting money in when we started. I’ve really run point on basically just getting all the deals done, getting the financing set up, getting them leased out and that kind of thing.
Josiah Smelser: I would much rather own three million with a partner than 1.5 million by myself. That’s just how I am. Because to me the joy is in the journey. I want to see him be successful as well. People don’t have partnerships all the time, but if you find the right partner, a partnership is great.
Josiah Smelser: You were asking about improving yourself. Another way is the podcast that I’m doing, The Daily Real Estate Investor. I did the podcast number one to stretch me as a person. Number two, so I could meet people like you, Steve. I met Brandon through my podcast, and we ended up having this real estate Mastermind in Hawaii. It’s been a great way to just grow as a person doing the podcast and then to also share this journey of building a real estate investment portfolio and trying to help other people.
Steve Rozenberg: Yeah, that’s awesome.
Alex Osenenko: All right, guys. This was incredible. I think we can talk… We can all hop into Steve’s flight to Sydney and just talk nonstop for 17 hours, but there is a limit to this particular show. Josiah, it was an immense pleasure to have you on.
Josiah Smelser: Thank you.
Alex Osenenko: I think we’d love to have you if you don’t mind… Would love to invite you back for some other topics to dig deeper into stuff. I think you have amazing knowledge. Tell people what’s your podcast and how they can go find you. We’ll link it up in the notes. Tell us your podcast. Tell us what your book is called again. Tell us how people can find you.
Josiah Smelser: The book is called Dream It and Build It. How to Crush Your Real Estate Investing Goals. It’s basically a book on mindset. It’s got a lot of tips and tricks that I learned along the way, things that have helped me. Things that I’ve learned from others that you can apply to your own real estate investing goals. It can hopefully help you accomplish what you’re going for. That should be out on December… The E-book should be out in December… The hardback should be out January.
Josiah Smelser: The podcast is called The Daily Real Estate Investor Podcast. I had Steve on there as a guest. I work hard to get high quality guests on there and everybody’s sharing about their own journey and experience in real estate. It’s been a lot of fun to do it. I plan to try to keep that going as long as I can. I’m also on Instagram. The handle is @dailyrealestateinvestor. Just spell it all out.
Alex Osenenko: @daily-
Josiah Smelser: Yeah.
Alex Osenenko: Daily real estate investor.
Josiah Smelser: I’d love to connect with everybody. Send me a message. Let me connect with you. I really appreciate you guys having me on the show. It’s been awesome.
Alex Osenenko: Thank you, Josiah. Those of you listening you can find us, Steve and I, and our whole network on Facebook. We are Mastermind Real Estate Investment Club. It’s a private group. Join us. Of course, if you need a manager, a good property manager for your investment properties, hit us up or if you want to buy investment properties, hit us up at mynd.co, M-Y-N-D dot C-O. If you enjoy the show, give us a rating on iTunes. We’re just spinning this thing up. Give us a thumbs up. Let us know you liked it, share it. We’d love you for it until the end of days.
Alex Osenenko: Steve, any parting words?
Steve Rozenberg: No, man. Josiah, as always, buddy, I thank you so much for your time, man. I love learning from you. Thank you for imparting your wisdom on the BRRRRR method for us. I’m sure you and I will be hooking up again very soon, if not in Maui, with Brandon I’m sure somewhere in some part of the world or something, man.
Josiah Smelser: Yeah, man, it’s-
Steve Rozenberg: Thanks again, I appreciate your time, Josiah.
Josiah Smelser: It’s been awesome, guys. I appreciate learning from you guys as well. Yeah, I really appreciate the opportunity to come on the show. I look forward to follow along with you guys as you build this.
Alex Osenenko: Have a great day. Thanks for listening.
Steve Rozenberg: See you guys. Bye-bye.
Josiah Smelser: See you.
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Darel Daik of Noble Mortgage explains how hard money could be a viable option for investors.
Steve Rozenberg: Ladies and gentlemen, welcome to the Myndful Investor Podcast Show. I am your host, Steve Rozenberg and I am here with my good friend Alex Osenenko-
Alex Osenenko: Well said,
Steve Rozenberg: … And we are here in Houston, Texas. And Alex is coming down and checking out the scenery, getting to know the local people, local talent. And we have our good friend, my good friend Darel Daik here. Darel, thanks for being here today-
Alex Osenenko: Good to see you Steve.
Steve Rozenberg: So little history about Darel and I, we’ve known each other for man maybe 15 years-
Alex Osenenko: Been a while.
Steve Rozenberg: … Yeah, been a while. Done podcast shows together, radio shows, done a lot of speaking together. You do your forecast panel, which we’re going to have in January here in Houston-
Alex Osenenko: Yap, January 8th coming up in Houston.
Steve Rozenberg: … Yeah, Darel does a lot of happy hour networking events, very connected.
Alex Osenenko: So what are we learning today?
Steve Rozenberg: So today what we’re going to talk about is Darel’s connection being a hard money lender. How it ties into the investing world, what is hard money, how do you use it, how do people get hurt with it in all the scary bad things about it?
Alex Osenenko: Very cruel.
Steve Rozenberg: … Is it for the average investor? Is it for an experienced investor? So-
Alex Osenenko: So it’s essentially how to finance a single family investment property because that’s ours-
Steve Rozenberg: Right.
Alex Osenenko: … We are still in a single family investment-
Steve Rozenberg: Single family series.
Alex Osenenko: … Series, yeah. And we want to sort of have this episode and this conversation specifically to understand that all the intricacies of the financing aspect hard money or not, but the hard money from what I hear is the popular way to do it. So maybe we can get Darel, introduce yourself, kind of talk a little bit about your experience background. I hear you own your own rental properties.
Darel Daik: I do.
Alex Osenenko: Yeah. So tell me how you got in the business and you-
Darel Daik: When people ask me that, I always say I got lucky. I got lucky to fall into the mortgage business. I was right out of school. I went and worked for a brokerage house, thought I wanted to be a stockbroker and that just wasn’t working out after six months. And I got a job as a loan officer at a hard money company. And it just came very natural to me for some reason that the lending side and selling loans and so forth. So I did that for about five or six years with the two different companies and then finally branched out on my own in 2003 and started Noble Mortgage. And I absolutely love what I do. I love the lending side.
Alex Osenenko: Wow. Loving what you do is kind of really important?
Steve Rozenberg: Yeah, I mean-
Alex Osenenko: … For success, wouldn’t you say?
Steve Rozenberg: … But not only that, but I mean Darel and I we’ve kind of gone through the hard times of the industry and so to still love what you do after coming through the recession, and what percentage of people do you think, numbers wise or if you could kind of calculate how many lenders were before the procession and how many were standing after?
Darel Daik: Well, especially in hard money, I mean, I would say about 90% went out of business-
Steve Rozenberg: Wow.
Darel Daik: … At least in the local market. I remember they had this mortgage company, Implode-O-Meter online and it was a nationwide deal, every day you could check it and they were adding more mortgage companies that were going under.
Steve Rozenberg: Wow.
Alex Osenenko: I think at the time for a little while I worked at a company called Ameriquest-
Darel Daik: Yep, I know Ameriquest.
Alex Osenenko: … That was, I think one of the reasons, one of the big ones that failed very, very quickly, just walked away. But it’s amazing to see… And by the way, for those listeners who are a little bit younger, it’s 2008 through 2012 or so, right?
Darel Daik: Mm-hmm (affirmative).
Steve Rozenberg: Yeah.
Alex Osenenko: … That’s what we call Great Recession then that’s where the economy took a dive due to real estate essentially. And there’s a lot of reasons, but end of the day nobody was financing homes, nobody could afford their mortgage payments anymore, a lot of foreclosure. And as a result, a lot of mortgage companies went out of business.
Steve Rozenberg: And it’s interesting, I think just case in point is a lot of people that are in real estate now, it seems weird to me, but they have only been on the upside-
Alex Osenenko: Oh, yeah.
Steve Rozenberg: … They don’t know anything about the 2008 timeframe-
Alex Osenenko: Very good point.
Steve Rozenberg: … So to them it’s kind of ancient, not to date ourselves, but we kind of know that there’s an opposite to everything and the pendulum swings both ways and we’ve seen what it’s like on the other side. So a lot of people in real estate right now are kind of like, this is easy. I can syndicate, I can buy houses, I can flip, there’s no way I can lose. And-
Alex Osenenko: Interesting. So this is a question for Darel. Darel, you are in the heart of it right now. What are you seeing if we had to predict next, let’s say six months to three years, what are you seeing?
Darel Daik: It’s hard to predict three years out. It’s even harder to predict one year out, but what’s interesting is real estate is very local, but earlier this year there were signs that the Houston market was really starting to slow down a little bit. We’re getting days on market, we were starting to go a little bit longer, prices were starting to dip a little bit, but now we’ve had about a five month good run. Prices have been increasing, volume has been increasing in the last five months. So right now everything is pointing to a good 2020, it’s an election year, obviously whoever’s in power always just tries to make sure they hold the economy up during that time. So right now the Houston market is looking pretty strong and nationwide is still pretty strong. We have days on market a little bit higher than they were a couple of years ago, but inventory is still unbalanced, we’re less than I think at 4.2 months of inventory right now, which is still very healthy. So we’re in a healthy market right now.
Alex Osenenko: This is very interesting Steve, because we did see the signs of slowing down. I personally had thoughts about maybe exiting some investments, maybe waiting out a little bit, but you’re right. I mean, without going too deeply into the economy and politics, what do you think is causing this recession-
Steve Rozenberg: The drivers?
Alex Osenenko: … Right, we haven’t really had the dip. I think it’s time for the dip or really haven’t had one. How are we surging back up?
Darel Daik: Jobs-
Steve Rozenberg: Yeah, yeah.
Darel Daik: … It’s always jobs. I mean, typically an easy way to look at real estate is for every two jobs created, one house is purchased and when you have strong job growth like we do and we have very, very low unemployment, that’s great for real estate. And what we didn’t have in 2008 where jobs, the jobs were negative and so now we have positive jobs and very low unemployment and people can buy houses and now not just buy a house, it’s the higher end markets doing really well. That 250 to 500-
Steve Rozenberg: Yeah.
Darel Daik: … Is doing really well, that’s the strongest market Houston right now. And then second behind that is the 600 to 900 market. That’s a really strong market-
Steve Rozenberg: Which is real.
Darel Daik: … Which is real, that’s a move up market-
Steve Rozenberg: Yeah, yeah.
Darel Daik: … So, right now Houston is doing really good, run good footing.
Alex Osenenko: So, and then if you had to narrow down to Houston market, not going nationwide but to Houston market, what do you see right now in a single family investing in what realm, what do you see a good slice right now? Would you go higher end right now or would you stay a little bit at a 220?
Darel Daik: It depends what you’re doing. I think if you’re flipping, I think you want to be between 250 and a million.
Alex Osenenko: Oh wow. Okay. 250 and a million-
Darel Daik: Yeah. Yeah, if you-
Alex Osenenko: … And then buy and hold?
Darel Daik: Buy and hold. In Houston, the prices are not as high as in some other markets nationwide. So typically anytime you’re buying and holding, you want to be less than 250, you want to be in that 100,000 to 220 range.
Steve Rozenberg: Yeah, I think one 160 or maybe 180 is a sweet spot, isn’t it?
Darel Daik: Yeah, that’s where typically most people like to go-
Alex Osenenko: Some people go a little bit lower end-
Steve Rozenberg: Some people go a little lower, yeah. They’re just more comfort zone, but I mean if you’re anywhere between 150 and 200 I would say that’s a sweet spot of good renters, good properties, the ages are right, they’re not too old, they’re not dated, the neighborhood is good, so it’s just between… And at least in Houston you’re getting a lot of the all data aligns good between 150 and 200 in general. Good school districts, good houses, good everything.
Darel Daik: Yeah.
Alex Osenenko: I have got you. And we had your son on a previous episode-
Steve Rozenberg: Yes.
Alex Osenenko: … And we broke down his property, and Jett’s property is around what, 150?
Steve Rozenberg: It was worth 180, we bought it for 159, yeah.
Alex Osenenko: 159, so you were in that zone?
Steve Rozenberg: In that zone, yeah.
Alex Osenenko: Very, very cool. So Darel, how did you get started? Obviously you love what you do because you’re helping people. Because if you are not helping people, it would be difficult-
Steve Rozenberg: Eventually he’d wear out.
Alex Osenenko: … Right. It would be difficult. Even property management is a difficult gig because you’re helping a resident or investor and sometimes-
Steve Rozenberg: It’s a balance.
Alex Osenenko: Yeah, it’s a little bit of opposite interests. And so that’s a tough one, but you have to believe that you’re doing a good job.
Darel Daik: Yeah, absolutely.
Alex Osenenko: But in mortgages, there’s a lot of people, or at least back in the 2008 they were not doing the right thing-
Darel Daik: Sure.
Alex Osenenko: … So talk us through what does it mean to you and how do you consider helping people in investment world specifically?
Darel Daik: Well, what’s cool about the investment side, we do mortgages for people that are buying a house to live in as well. But on the investor side, you’re allowing people… People start getting into real estate and maybe they have a full time job, they start dabbling in real estate, they buy a couple of rentals. And what’s interesting is some of them start taking that a little bit deeper and deeper and go further, and next thing they’re doing real estate full time and you see them live in this completely different lifestyle than what they were living before. Before they were at work, 8 to 10 hours a day and strike time to do real estate on the side, but I love it when we take a rookie investor who was in corporate world and eventually retires out of corporate world and starts his own real estate full time and you see him making social media posts. I have all this free time now, I can take my kids here, I can go and take the day off, and walk around in shorts and flip flops and to me that’s a success story.
Alex Osenenko: That actually happens?
Darel Daik: All the time.
Alex Osenenko: That is awesome.
Steve Rozenberg: You’ve got that story of that older gentlemen. I love hearing that story, maybe you could share it with him. I think it’s a great story
Darel Daik: Yeah, he came to us, he bought at the bright time, he bought in 2010 but he wanted to buy 10 houses. He was in his early 80s, his wife was in her early 40s and they had two kids that are 8 and 10, so think about that age difference-
Alex Osenenko: Yeah.
Darel Daik: … So he’s like, “I want to buy 10 houses to leave something to my family. And his name was George and he had $50,000 to invest. And so he realized pretty quickly if you go the commissional route of putting 20% down on every single house, you couldn’t buy 10 houses-
Alex Osenenko: Right.
Darel Daik: … You buy maybe one or two. And so we showed him how to use the hard money route where you can get 100% financing, and he ended up buying eight houses over the course of two years, and all he does is hang out with his kids and he travels with them. He came into our office a couple of years ago out of the blue just to say hi. And he’s like, “Man, I’m living the dream. I love this. I’ve been in Australia for a month with my kids.” It was over the summer and he goes, “Those houses are just paying for everything.” I mean it was a really cool success story.
Alex Osenenko: Can you talk to us about the financing part of the real estate? Because I’m fascinated by this and we assume that 20% is what you need to get into a decent house-
Darel Daik: Sure.
Alex Osenenko: … How do you guys work?
Darel Daik: That’s a myth. And that’s why people use hard money. So the hard money, it’s a more expensive loan, but the loan is built for investors that are buying houses under market value that need to be renovated. So if you’re buying a house that needs to be renovated, typically you’re getting a better deal on it, because you sweat equity there. So what it does is it enables you to borrow up to a hundred percent of not only the purchase price but the repairs and even the closing costs. So you can get into these deals for no money down at all if you buy them, right, you have to be able to find a deal. If it’s a buy and hold rental we will lend as high as 75% of the completed value, what we call the after repair value of the property. So easy example is you’re buying for 50,000, it needs 20,000 in repairs, there’s 70,000 right there in costs. If that house appraises for 100,000 after the repairs are completed, then we would land as much as $75,000. So that’s 100% financing including closing costs.
Steve Rozenberg: And you’re still got 25% equity in the deal. So he’s protected and more importantly the investor is not putting themselves in a bad position and they’re protected.
Darel Daik: That’s right.
Alex Osenenko: Understand. And so that money… So I’m just going to start breaking it down a little bit-
Darel Daik: Sure.
Alex Osenenko: … Bear with me, through for the benefit of the audience of course, but my own as well because I want to learn this. And so, when you find that ideal, let’s stick with 50. You find that ideal, somebody come to you and… Because how do you know the house will appraise after those renovations?
Darel Daik: So typically the investor is working with a realtor and or a wholesaler who’s giving him an indication of what they think the property is worth based on homes that have sold in that area in recent months. Now as the lender, we have to verify those numbers. We send an appraiser out there and we can get a full report from the appraiser who tells us this is what they think the property would appraise for if certain repairs are completed. When we get an appraisal back, we make a loan based off of that.
Alex Osenenko: Do you specify the type of repairs that needed to be completed?
Darel Daik: Yes. So the investor will give us an itemized list of the repairs. If it’s something very, very higher end, we want to see finishes. If they’re changing the floor plan, we want to see some kind of drawing, spec some plans, things like that. So the more detail we get, the better to give the appraiser an idea because houses are typically outdated or they’re in very various stages of disrepair. So the appraiser kind of has to paint a picture in his own mind what the house is going to look like at the end of the day.
Alex Osenenko: I got you. And then let’s say I came to you with plans, you’re going to lend me 50,000 right away to buying the house, or you’re going to lend me the whole 70,000?
Darel Daik: So typically in that transaction at closing, we would fund the 50,000 for the purchase. We would fund the closing costs as well. And then the 20,000 we would hold it back to be distributed to either you or your contractor as the repairs are completed.
Alex Osenenko: So, and then you sort of do inspections-
Darel Daik: That’s correct.
Alex Osenenko: … And then if there’s a specific… I can’t remember the terminology, but you release that money-
Darel Daik: It’s withdraws.
Alex Osenenko: … Withdraw-
Darel Daik: Yeah, so you’re doing the roof and the foundation, you do that first and then we send an inspector out to make sure it was completed and then we issue a drawal for that work.
Alex Osenenko: So let’s work out the best case and the worst case scenario. Talk us through Darel, what is the best case scenario in this particular situation, and what is the worst case scenario for the investor?
Darel Daik: So the best case scenario, and let’s stick to the buy and hold strategy where you’re buying and keeping it as a rental is-
Alex Osenenko: Correct.
Darel Daik: … They buy the house using those same numbers, they have a hundred percent financing from the hard money side. Once the repairs are completed, we immediately refinance them into a 30 year mortgage. Okay, it doesn’t even have to be rented yet, just the repairs have to be done. We do those loans all the time, we do hundreds of them a year and they’re in and out of that hard money loan, about 60 to 90 days. They immediately transitioned into a 30 year fixed interest rate. Right now they’re hovering around high fours, low fives, and they have a fantastic loan. They never have to mess with it again. They’re getting positive cash flow within the first three months.
Alex Osenenko: Wow. So that’s the best case scenario?
Darel Daik: That’s the best case scenario.
Alex Osenenko: And you’re onto the next one?
Darel Daik: Okay. Yes. And you’re onto the next year and you can do multiple deals at the same time.
Steve Rozenberg: Well, let me ask you this, once closing costs and everything’s done, let’s say again, you’re at 25% equity, is there a rule that investors should like to see in that final equity position after they refile out of the hard money into the next one?
Darel Daik: It depends. It’s interesting, everybody has a different model-
Steve Rozenberg: Sure.
Darel Daik: … But we’ve done deals where people are at 100% of costs at the end of the day, they don’t have any equity, but they’re after the cash flow-
Steve Rozenberg: Right.
Darel Daik: … And so it depends what you’re after-
Steve Rozenberg: It depends on the strategy.
Darel Daik: … Yeah. Are you after longterm gains or are you after cashflow? And if they say both, then they don’t know what they’re doing.
Steve Rozenberg: Right. Yeah, exactly. Yep.
Darel Daik: But it’s hard to get both-
Steve Rozenberg: Yeah, exactly.
Darel Daik: … It’s either you want gains in real estate value or you want cashflow. It’s difficult have both-
Steve Rozenberg: Alex, that changes in the price point of property you’re buying-
Darel Daik: Yes.
Steve Rozenberg: … And it changes in the cycle of where real estate is at the time-
Darel Daik: That’s right.
Steve Rozenberg: … Right now real estate, if it’s slowing down, if it’s a buyers’ market, you’re going to get one thing, if it’s a sellers’ market, you’re going to get something else. So sometimes you have to kind of honor and change per what the market is doing. You can’t go in assuming you’re going to have one strategy when the market is clearly doing something else, because someone like him won’t lend you, they’re going to go, “That’s not going to work.” Or I don’t know, do you go that far to go, post you what the strategy is or is that not really your business-
Darel Daik: More on flips-
Steve Rozenberg: Yeah, flips-
Darel Daik: On the flip side certainly, yeah-
Steve Rozenberg: Yeah.
Darel Daik: … If it’s a buy and hold, if they qualify for longterm financing, I don’t care where the property is located, as long as I know I can get them out of it, I’ll give them that short term loan where we’ll immediately refinance him out-
Steve Rozenberg: Yap.
Darel Daik: … The only time we would stay away from a buy and hold as if maybe it was in a small town, there’s no sales. There’s very small collection of sales available and I’m like, “Look, we can’t get you a longterm loan.”
Steve Rozenberg: Right.
Darel Daik: You’d be stuck in this short term loan, which the short term loans are typically six months, maybe a year. So that’s the only thing we look at on that, but on a flip, certainly we look at how that market’s doing especially if it’s a higher end deal. Higher end markets are slowing down right now, there’s a lot of houses that have been on the market in that particular neighborhood for a long time. We’re going to have a discussion with the investor at that point going, “Hey, look at all these houses on the market, what makes you better here?”
Steve Rozenberg: Yeah, because you basically could be not putting them in a bad situation, but you could see a very bad situation evolve and now your money is tied up in that bad situation.
Darel Daik: Yeah. And we’re not in the business of telling people what a good deal is and what a bad deal is. We’re lending money. But if it’s in a market where the market is lots of days on market, it’s a flip, it’s a higher end deal, we might lower our loan to value or we might just say, “You know what, we don’t want to lend in that particular market because there’s too much inventory.”
Steve Rozenberg: Right. Right.
Alex Osenenko: So going back to the worst case, so the best case is I’ve basically performed this purchase and performed the renovations, got refinanced out of the short term into long term mortgage, got a tenant in and cashflow, and onto the next one let’s say… Or doing multiple deals, I got you. What’s the worst case scenario? How do you see people lose their butts, so to speak?
Darel Daik: Well, what’s good about going through a lender, especially if you’re new is you have the… The lender is like a second set of eyes for you. So we’re not going to lend on anything that we think doesn’t make sense in some capacity. Where we see people get in trouble that are new is maybe they don’t go through a formal lending process. Maybe they buy from a wholesaler, and the wholesalers says, “Hey, you’re buying it for this and it’s worth this and it needs this much in repairs and I’ll even finance it for you.”
Darel Daik: That’s dangerous. So now you have the guy that’s not only selling you the house but offering you the loan and you’re believing everything they tell you, and these people don’t know how to verify the value or verify the repairs you could get in trouble. Even maybe the house is worth a lot less made, maybe the repairs are a lot more, which is typically what you run into with a lot of wholesalers. There’s a lot of very reputable wholesalers out there that show you why it’s worth that much, but there’s a lot who aren’t as well. So you have to verify the numbers.
Alex Osenenko: And the wholesalers wouldn’t be those free seminars that you usually go to where they-
Darel Daik: Yes.
Steve Rozenberg: But yeah, there are people that are out there basically finding deals. Like the guy that I bought the house with Jett, he was a wholesale flipper, well rehab. But yeah, I mean basically they find deals that are motivated sellers, they send out mailers, they do all these things and they find people that have an issue that needs to sell. They go in, they negotiate the deal. They either buy the property or they’ll put what’s called an option contract essentially on it. And then they’ll find me and I’ll buy it with the option contract or they would buy the property, rehab it like Ryan did with Jet and then sell the final product. So perfect example is the guy Ryan, a friend of ours that he bought the property, he rehabbed it… So in this theory he could have used Darel as a hard money lender, rehabbed it with Darel, still had undervalue numbers, turned around and sold it to me instead of refining it, he just sold it to me. Darel got paid his money, he got his profit and moved on.
Alex Osenenko: Got it. And then you’re now cash-flowing that profit-
Steve Rozenberg: Right, now the-
Alex Osenenko: … Without having to renovate and.. Yeah.
Darel Daik: Yeah.
Steve Rozenberg: … Exactly. Now the way that somebody could get hurt, another way is that I’m new to this world, I buy a property and I’m thinking, okay, I’ve got three months, I’ve got a three month window and I buy it November 15th where you got Thanksgiving, you got Christmas, you’ve got bad weather, contractors aren’t working. All of a sudden clock is ticking and you don’t know any contractors because you’re new. And-
Alex Osenenko: Or you end up with a bad contractor-
Steve Rozenberg: … Or you get a bad contractor that does a horrible job fixing the property. Now you’re trying to figure out why they want their money, that’s where it becomes this snowball.
Alex Osenenko: So we had Kara on the show-
Steve Rozenberg: Correct.
Alex Osenenko: … And she-
Steve Rozenberg: And Brittany-
Alex Osenenko: … And Brittany, right-
Steve Rozenberg: … Both of them do that.
Alex Osenenko: … And they’re really deep into understanding the renovation itself. They’ve managed the contractors, they can put cement-
Steve Rozenberg: Yeah.
Alex Osenenko: … They can make cement basements and paint and they can do all kinds of cool stuff-
Darel Daik: Were they contractors?
Steve Rozenberg: They’re just flippers.
Alex Osenenko: They’re flippers, but they really get deep into this-
Steve Rozenberg: They’re doing it, they’re on the down and dirty-
Alex Osenenko: Yeah, yeah.
Steve Rozenberg: They’re getting it done.
Alex Osenenko: So they’re all like, do you see a profile of a person who performs these, and not necessarily just flips, but maybe the be are process, the holes-
Steve Rozenberg: The bad.
Alex Osenenko: … We just talked about the bad, yeah. Do you see a lot them have this a little bit of background and-
Steve Rozenberg: Not necessarily-
Alex Osenenko: No?
Darel Daik: … Not necessarily. The ones that end up doing it full time, certainly have to get a grasp of that at some point. But the guys that are doing it part time, maybe they have a full time job and they’re buying some property and they’re going to just build a rental portfolio, there’s lots of good contractors just like there’s lots of good wholesalers. I’m talking about how people get hurt on dealing with wholesalers or contractors, but there’s plenty of really good ones. You just have to vet them-
Steve Rozenberg: Yeah.
Darel Daik: … There’s plenty of bad property management companies and bad hard money lenders out there. So, if you don’t know that side of the business, you’d have to make sure and get the right contractor, the right wholesaler. Because the right contractor can knock out that job very, very quickly. It might cost you a little bit more as if you’re… Instead you being involved in the process it might cost that investor a little bit more, but at least they know they’re going to get done and done on time, and done on budget and then I can move on to the next deal. So I think if you’re new and you don’t know the contracting side, it is very, very important because the biggest risk of buying a property that needs to be renovation is from the time you buy it to the time you get it refiled, making sure the work gets done.
Alex Osenenko: So that compressed that-
Darel Daik: Right.
Steve Rozenberg: And done correctly.
Alex Osenenko: … Controlling that type of area.
Darel Daik: That’s from our standpoint, from the lending standpoint, that’s the riskiest sides. Not only making sure it gets done, but it gets done in a timely manner and done correctly. If it’s completed and it’s not done right, then it’s going to take them more time, the loan’s going to keep ticking and ticking and costing more money and that’s where people can get hurt on a deal.
Steve Rozenberg: And Darel kind of hit on it, there’s a lot to be said with creating your team and getting the relationships, and correct me if I’m wrong, but when you get someone who’s new, you’re a lot more cautious as to opposed to someone who you’ve been working with, they have a known track record. Obviously you’re still verifying the information, but someone who doesn’t know anything, you’re going to be a lot more cautious and conservative on what you do and help them as opposed to someone that you know and you’re like, “Yep, they know what they’re doing. They’re going to kill it.”
Darel Daik: Yeah. I mean, if it’s a new investor, the investor’s going to have a lot more questions up front. We’re going to spend the time to visit with them and also help them create their team-
Steve Rozenberg: Right.
Darel Daik: … Recommend some contractors, recommend some wholesalers where they can find deals. Like I said, it’s all about-
Steve Rozenberg: You want them to succeed.
Darel Daik: … Yeah, we want them to succeed so we can do multiple deals-
Steve Rozenberg: Multiple deal.
Darel Daik: … I would say, 90% of our new investors end up doing multiple deals-
Steve Rozenberg: Right.
Darel Daik: … Maybe they do two, may they do twenty.
Alex Osenenko: At the same time? Concurrently or you mean like-
Darel Daik: Sometimes… No, like typically multiple transactions. Maybe not at the same time. Some at the same time. But typically they don’t just come and buy one rental house or do one flip, typically they’re doing several.
Alex Osenenko: You get excited, you get into this if it works right, you keep doing it.
Darel Daik: Of course. Yeah. And they’re like, “Oh yeah, this is…” The first one is always really scary for an investor-
Alex Osenenko: Because you don’t know what’s coming.
Darel Daik: … It’s like a symphony. There’s so many different players out there. You got the percussionist, you got your trombones, you got your team. And so all these players in real estate, you got the realtors on both sides, maybe there’s a wholesaler, you have the title company, you have the mortgage company, you have the appraiser, you have those… And they’re trying to figure out how all these pieces work, and then they all come together at the end for one closing. And so it’s a little intimidating for someone they first start, but once they get one behind their belt, they’re like, “Ah, okay, now I get it, I wasn’t that bad.”
Steve Rozenberg: Yeah.
Darel Daik: Now they know the process and then when they get to the point with us where they, “Hey, I’ve got this deal, I’ll shoot you the contract and it’s closed next week.” Yeah, sure. No problem. That’s our favorite client. The one we’ve already done deals with, they know what they’re doing, they just shoot us the contract, we have all their paperwork set up, we close and-
Steve Rozenberg: It’s a business.
Darel Daik: … We closed one last week in two days. The guy called us on Wednesday before Thanksgiving at noon. I got to close on Friday. I’m like, “Hey, we’re closed on Friday. So is everybody else in this…”
Steve Rozenberg: Yeah, yeah.
Darel Daik: … So we close on Monday.
Steve Rozenberg: Wow.
Darel Daik: I mean that quick. So, it’s all about who you know and building your team and building that trust.
Steve Rozenberg: What-
Alex Osenenko: Darel, I’m sorry Steve-
Steve Rozenberg: Yeah.
Alex Osenenko: … This is before I forget. I want to sort of, what happens when you… Everything is looking good, this is your third flip or this is good, or not flip maybe purchase, whatever. You open up the wall and you see that there’s a lot more there than you thought-
Darel Daik: Sure.
Alex Osenenko: … What happens next?
Darel Daik: Well, you got to fix it, right?
Alex Osenenko: Right, but let’s say you assumed it was $20,000-
Darel Daik: Sure.
Alex Osenenko: … It’s going to cost you… You got to fix the foundation, it costs you double that. What now-
Darel Daik: So, if your loan is already set up at 20,000 in repairs and all sudden is going to cost 30,000 in repairs, well the investor has to dip into their pocket to pay for those repairs, because it’s not in the loan. So that’s also why from a lending standpoint, we want to make sure that even if I give you a hundred percent financing, you have to have money. You have to have some liquidity for things like that. If there’s a cost overrun or maybe it takes you longer to fix the property than you anticipated, and then you have more mortgage payments along the way. So cash reserves are huge.
Alex Osenenko: Do you take that in 401k… Sorry, maybe that’s a little bit more technical question, but I’m just curious-
Darel Daik: We do-
Alex Osenenko: … Because IRA and 401k a cash reserve-
Darel Daik: … So, they have to be able to have access to it. Can you cash out an IRA? Yes. Can you get a loan on your 401k? Yes. So they have to be able to access it-
Alex Osenenko: I got you.
Darel Daik: … If it’s locked up in a trust and they can’t touch it. No.
Alex Osenenko: But that doesn’t- [crosstalk]
Steve Rozenberg: And that’s a good point that I think people need to realize is just because they can get into a deal with no money out of pocket, doesn’t mean they don’t have any money in their pockets. You have to have money to be able to do these kinds of deals-
Darel Daik: Absolutely.
Steve Rozenberg: … Because it’s not for people that say, “I’ve got no money. I want to do a no money down loan,” which we remember way back in the day, you had no money that’s why you got the loan. You have to have reserves. You have to have the ability that if I said, “Hey man, I got a problem.” Darel is going to go, “You have a problem. You need to get that fixed because your notes come and do.”
Alex Osenenko: That’s a very interesting point-
Steve Rozenberg: Yeah.
Alex Osenenko: … A lot of times you see this get rich fast in real estate-
Steve Rozenberg: No money down.
Alex Osenenko: … No money down, and that’s why I want to qualify that. But then I have the other side of the question Darel, like, “All right, I got money. I got maybe a hundred grand sitting liquid in my checking account. Why as an investor should I leverage you as a lender? Is it the second set of eyes? I mean, is it sharing risk? Why would I use you?
Darel Daik: I wouldn’t say sharing risk, but it certainly is a second set of eyes if you’re first starting number one, but most importantly it’s leverage. Even guys that have 100,000 in the bank, you want to buy 10 houses, 100,000 is not going to do it-
Alex Osenenko: Right, right.
Darel Daik: Yeah, 20% down on every single deal, if you’re buying 150,000, $180,000 houses, you’re going to get three, four houses-
Steve Rozenberg: Exactly.
Darel Daik: … But they’re not going to buy 10 houses. So we have investors that do have money in the bank and they’d like to keep that reserves, but they want to leverage themselves-
Steve Rozenberg: Right.
Darel Daik: … So even if you’re getting a hundred percent financing, obviously they still have that a hundred thousand end of the day to use as a backup. And maybe they don’t get 100% financing every time. If they’re new, they’re typically not going to get 100% financing, because it’s hard to find those super, really good deals where all the numbers work out, but maybe they’re only putting in 5% or 10% on that transaction for their first three or four deals. And then they learn how the game works and they start getting better at finding those transactions and getting relationships with wholesalers and realtors. And then they start getting 100% so they can buy a lot of property with that $100,000 without having it all be sunk into maybe just three or four houses. So now you’re leveraging your portfolio. You’re building much bigger cashflow on a monthly basis just based on that a hundred grand that you didn’t have to spend-
Steve Rozenberg: It’s like that old adage, when you don’t need the money, everyone will loan it, when you need the money, no one will loan it to you.
Darel Daik: Cash is king-
Steve Rozenberg: Cash is King. If you’ve got the cash-
Darel Daik: … You got to have cash in the bank.
Steve Rozenberg: … Yeah, exactly. I remember you and I were in Dallas that time where you actually had to take one back. So let’s talk about-
Darel Daik: Two back.
Steve Rozenberg: … Two back, well I was up there with him. So let’s talk about that side of it. When you actually do have to take a property back from someone and how often does that happen, number one, and what’s the transaction like?
Darel Daik: Well, it’s interesting, there’s a lot of people when they hear about hard money.. Because hard money is typically 10 to 12% interest rate, two or three points at closing. It’s expensive loan and you’re lending 70% so, when I speak a lot and a lot of people say, “Oh, how many properties do you take back? I bet you love taking back properties.” And I’m like, “I hate taking back properties.”
Alex Osenenko: Who loves that?
Steve Rozenberg: Yeah.
Darel Daik: I mean I’m sure there are some loan sharks out there where that’s their model-
Alex Osenenko: Oh wow. Okay.
Darel Daik: … That’s how they acquire real estate, but from my standpoint, we hate taking back real estate because it’s not what we do-
Alex Osenenko: Right.
Darel Daik: … It slows down my whole business. So we don’t take back that meeting, we take between zero and three a year-
Steve Rozenberg: Okay.
Darel Daik: … And a lot of times it’s zero.
Steve Rozenberg: Yeah.
Darel Daik: And so this year we took back those two houses in Dallas and quite frankly we were defrauded by the investor. They were doing the repairs, they weren’t getting permitted, our inspector missed some things on his side, so we weren’t aware of that being done. So they basically came to us and said, “Yeah, we’re giving up on these deals and gave us the keys and walked away, while-“
Alex Osenenko: The investors did?
Darel Daik: Yeah, the investors did. So after we got in there, started looking at it, we’re like, “Man.” The foundation wasn’t done right. They didn’t permit this, they didn’t do this. So we had to completely redo everything that they did, and we have a contractor who’s finishing the houses right now, so it’s going to be fine.
Steve Rozenberg: You’re still working on those?
Darel Daik: Oh yeah-
Steve Rozenberg: It’s been awhile.
Darel Daik: … Oh, it took two months to get permits.
Steve Rozenberg: Wow.
Alex Osenenko: Darel, are you going to lose money on this?
Darel Daik: I don’t think we’re going to lose money. When we take back a property, normally maybe we lose a little bit, maybe we make a little bit. But typically we’ve never taken a knock on wood, we’ve never taken a big loss in anything because we-
Alex Osenenko: Get spread.
Darel Daik: … We keep our eyes on it, and yeah we have that 70% spread on these deals. So unless the market crashes overnight, like in ’08-
Alex Osenenko: Yeah.
Darel Daik: … In 2008 2009 you had houses that we were lending on that were worth $100,000, but by the time you took them back, and got them fixed and put on the market, those houses were worth $70,000 now-
Steve Rozenberg: Yeah.
Darel Daik: … So that’s why lenders were going out of business in 2008 and 2009 because there’s… And then nobody was buying them. So with those, from our standpoint, we just held them. We had a rental portfolio that we created for my company. We said, you know what, we’re not going to take the loss on these houses. Let’s just put a tenant in there and rent them out when the market improves, we’ll sell them. And that’s what we did.
Alex Osenenko: So that’s my question back, how did you survive the 2008 2012? How-
Darel Daik: There was a lot of whiskey and a lot of creative thinking-
Steve Rozenberg: Well, the nights-
Darel Daik: … I wish I was kidding about that.
Alex Osenenko: So part of it is turning those assets that people walked away from into rentals?
Darel Daik: Mm-hmm (affirmative).
Alex Osenenko: Was there other parts? What else-
Darel Daik: We had to get very, very creative on what we did, and we still adapt the strategy. So when we take back a property now, the first thing we do is we go out there and assess it and see if we can find one of our investors that we know and trust that wants to buy it. Hey, you want to buy this house as it is, we’ll finance it for you. If they don’t, then typically we will hire a contractor to finish it ourselves and either sell it on the open market as a retail investment for someone to live in it, whatever. We’ve pursued owner financing on transactions and then we’ve also pursued holding them in a rental portfolio. So we have multiple exit strategies.
Darel Daik: So it depends on what it is and where it is. If it’s a higher end house, typically we’re going to want to try to sell it. But if it’s a good rental and the market had dropped and we couldn’t get our money back, we’re like, “Let’s just rent it out.” So we rented out several houses, we had about 15 houses at one point that we were renting out and just manage the process. And then when the market improved here in 2012, 13, 14, I think we sold most of them in 2016 and we did well on them after holding them and they both paid for themselves that entire time.
Alex Osenenko: Really cool.
Steve Rozenberg: So let me ask you this, if you’re talking to an investor, and I know you’ve talked to tons of new investors, ones that are watching, what advice would you give them? If they’re getting into this and they’re thinking hard money. I like it. I like what I’m hearing. What kind of tips would you give them when they’re getting started, getting their team, knowing numbers, what would you say?
Darel Daik: I mean they need to educate themselves. There’s so many ways to educate themselves, either online or in all these investor groups that are in their local markets, and align yourself with the right team members. There’s people you can network with that would be glad to help you and introduce you to their contractors or their lenders. I mean, you just have to work at it, and make sure you vet out everybody. Because real estate is a great business. I love real estate, but real estate also, there’s an easy way to get burned because most of these businesses are not highly licensed-
Steve Rozenberg: Right.
Darel Daik: … So it’s very lucrative, but it has very low barriers to entry-
Steve Rozenberg: Right.
Darel Daik: … Anybody can be a wholesaler-
Steve Rozenberg: I was going to say-
Darel Daik: … You can just wake up today and say I want to be a wholesaler.
Steve Rozenberg: Yeah, I’m a wholesaler, here’s a card, I’m wholesaling now, yeah.
Darel Daik: Yeah, and then on the hard money side, you don’t have to be a licensed lender in Texas to lend-
Steve Rozenberg: I was going to ask you that, yeah.
Darel Daik: … To lend hard money, unless you’re lending to people that’s going to live in the house as their primary residence, which most hard money lenders don’t. And I mean personally I lend on the conventional side as well, 30 mortgages. So all my team, we’re all licensed with NMLS, which is a federal licensing. But most of the other hard money lenders, they don’t have that licensing. They don’t have to have that licensing-
Steve Rozenberg: They just loan the money and-
Darel Daik: Yeah. So you don’t know who you’re dealing with-
Steve Rozenberg: Sure.
Darel Daik: … Unless you get references and vet that process.
Steve Rozenberg: Right.
Darel Daik: Wholesalers especially-
Steve Rozenberg: Yeah.
Darel Daik: … Contractor, same thing. There’s no licensing for contractors, and realtors have to go pass a test and they’re held to a certain standard. So realtors-
Steve Rozenberg: Appraisers do-
Darel Daik: Appraisers do, yeah.
Steve Rozenberg: Mortgage-
Alex Osenenko: Contractors don’t have licensing here?
Darel Daik: Nope.
Steve Rozenberg: No.
Alex Osenenko: That’s crazy, in California it’s very, very difficult-
Darel Daik: It’s not like that in Texas.
Steve Rozenberg: Yeah.
Alex Osenenko: Wow.
Darel Daik: They did it for a while. They actually had a construction commission prior to the Great Recession, and when the Great Recession hit, you had all these builders implored too, so that government agency shut down because it was surely just a profit center-
Steve Rozenberg: Right.
Darel Daik: … It’s not that they really care about you, they just want to lock taxes, guys that are doing the work-
Alex Osenenko: Right.
Darel Daik: … And so we had no contractors left, no builders left except the big boys, and so they shut down that whole thing.
Alex Osenenko: Wow.
Darel Daik: So yeah, you have to be careful. You can get caught up in it.
Steve Rozenberg: Go ahead.
Alex Osenenko: Well sorry, I just want to sort of follow up on this. How do you go research, maybe you can advice folks who are listening. How do you go find the information on wholesalers and contractors or may be lenders? What would you recommend? Online reviews good enough, talk to references, what would you do to go-
Darel Daik: I think you can start online by Googling their company name and see if they have reviews. I’m big on reviews, I mean that’s how everybody vets restaurants, contractors, everything is online now, pretty easy to find-
Steve Rozenberg: Yeah.
Alex Osenenko: Yap.
Darel Daik: … But I would also ask for references from these contractors and or lenders or whoever, people that have actually done deals with them and actually call them. Some people ask for references-
Steve Rozenberg: I was just going to say, absolutely, get up the phone and call.
Darel Daik: … They get the references, they say, “Great, thanks.” And then they never call them-
Steve Rozenberg: Yeah.
Darel Daik: … Same thing when you’re hiring people, right-
Steve Rozenberg: Absolutely.
Darel Daik: … You got to call them and really talk to them. How many deals have you done with them? How was the process when you’re getting your drawals, did it take a long time? Did everything they tell you up front stay the same? Did they change the fees on you at all? So you got to take the time to have those conversations. Same thing with the contractors, did they stay on budget? Did they stay on time? How many deals have you done with them? So you have to spend the time doing it and you can find there’s plenty of good people out there that you can surround yourself with and create a team.
Steve Rozenberg: Yeah. So I’ve got a question, it’s a little off now you don’t know, but Darel is certified to do DISC profiling and he teaches classes on DISC profiling.
Alex Osenenko: Can you explain to the audience.
Steve Rozenberg: Well, you’re certified. Go ahead and give everyone-
Darel Daik: What’s DISC? It’s personality assessment. So, it helps you understand the different types of person… So there’s several different personality assessments. This one is called DISC and each letter stands for something different, but enables you to understand how a person thinks and how to sell to them and how to speak to them. Someone who has a D personality or a C personality are completely different. So if you can understand that, you understand what you are first, but you also understand who your team is, who your contractors are, whether it’s your employees, your spouse, whatever, it teaches you to communicate in a way that they best understand. Because Steve is a different person than the next guy, he likes to be talked to a certain way. He’s a very upbeat, positive, high I, but-
Steve Rozenberg: Very.
Darel Daik: … He’s a very high I and someone who’s maybe an accountant or engineer is a very, very high detailed person that doesn’t need all the pat on the back and actually spending the time to get to know you type of thing. This guy’s like, “I don’t… Why are you talking-“
Steve Rozenberg: Just data. Give me the numbers.
Darel Daik: Yeah, give me the numbers, give me all the data let me analyze it.
Alex Osenenko: That matrix code, just code.
Steve Rozenberg: Yeah.
Darel Daik: So it’s very valuable in any business, but especially in real estate where you’re dealing with so many different people out there-
Steve Rozenberg: Yeah.
Darel Daik: … So I teach it to all my employees, they have the profile right under their desk. So when they’re speaking to someone on the phone, they try to figure out what their profile is so they can speak to him in a way that makes most sense to them.
Steve Rozenberg: Do you-
Alex Osenenko: Sorry Steve, I’m just curious, how does that relate to a real estate investor?
Steve Rozenberg: Well, correct me if I’m wrong, statistically investors are a certain DISC profile, they’re going to resonate with… And normally they are C’s, is that correct? Is that-
Darel Daik: They’re all over the map really. I mean, they’re all over the map-
Steve Rozenberg: Okay.
Darel Daik: … Most realtors are high I’s.
Steve Rozenberg: Most salespeople are I’s-
Darel Daik: Most salespeople are I’s.
Steve Rozenberg: … My understanding, the reason most investors are C’s at least buy and hold, not the flipping, but the buy and hold because they’re data-driven. Because the numbers are dictating the deal, not the emotion. So if you get a D in the DISC profile, they’re very dominant, matter of fact, get that person out of my house today, rip the doors off, I don’t care. It’s my house, I want my money, get them out. That doesn’t work in real estate. Those are more liquidity things like stock, they can buy and sell, they can control the situation-
Alex Osenenko: Right.
Steve Rozenberg: I’s, not really because they’re bubbly, they’re chatty, they’re they’re sales people, they’re not really investor minded. S’s are emotional, sentimental. They hear the sob story about the tenant or the challenge of what’s going on with the tenant and they’re like, “Oh yeah, they lost their job. They can stay for four months, five months, a year without paying rent.” That doesn’t work either. The reason a lot of them are C’s, my understanding is because it’s the numbers. It’s the data that’s telling them, buy the property for X, Y return, Z is the end result, this makes sense. Let’s move forward.
Alex Osenenko: I think as a property management-
Darel Daik: Yeah, very logical.
Steve Rozenberg: It’s logical.
Alex Osenenko: … I think it a property management company you wish all of your investor clients are C’s-
Steve Rozenberg: Yeah.
Alex Osenenko: … But in reality it’s probably-
Steve Rozenberg: It’s a mix up.
Alex Osenenko: Like you said Darel, it gets across the board and there’s no extremes. I can’t just be emotional-
Steve Rozenberg: No.
Alex Osenenko: … I may be a little bit emotional, right? But I’m also data driven, but you can identify as particular inclination, right?
Darel Daik: Sure. And you can move around the spectrum, right? So if you’re high I, it doesn’t mean that you can’t put your C hat on. It’s just not natural for you. So it may take a lot of energy for you to sit there and look at the data and analyze it because it’s just not what comes natural to you. But also that same person who’s a high C, who’s good at data, it’s very unnatural them to be upbeat and bubbly and have to sell something.
Darel Daik: They can do it, they certainly can do it, but they struggle with it and it’s actually physically exhausting for them. So you take a guy who was a very high C, who’s data driven and doesn’t spend a lot of time socializing. You put him into a networking event, he has to talk to everybody there. He’s going to go home afterwards after an hour and just sit in a dark room and just-
Steve Rozenberg: Like, “I’m done. I can’t deal with this.”
Darel Daik: … Just kind of relax. Whereas me, I’m a high I and Steve is, I can do that every single day-
Steve Rozenberg: Right.
Darel Daik: … I can go to networking functions every single day and talk to a hundred people and it gives me energy as opposed to the guy who’s-
Steve Rozenberg: Drained.
Darel Daik: … Yeah, that guy was… But me sitting down and looking at data all day, I’m like, “Oh gosh.”
Steve Rozenberg: And so how that’s important for him, just like in the property management or any industry that you’re in, sales, doesn’t matter is when he’s talking to someone… If he’s just giving someone like me data data data, I’m going to be like, “Dude you’re killing me, that’s enough. Let’s talk.”
Darel Daik: Yeah.
Steve Rozenberg: … Let’s have a conversation-
Darel Daik: Yeah, yeah.
Steve Rozenberg: … And he’s just pushing numbers. So you have to be able to resonate with the person that you’re in front of. And so I’m curious if that has helped as you’ve gotten more involved and now your team is doing that. Do you think that, that’s helped your business and your model and understanding how to work with different sets of people in the depths?
Darel Daik: Absoulutely. I mean, number one, it has helped us hire people-
Steve Rozenberg: Sure, absolutely.
Darel Daik: … When we’re hiring people, we have to take the DISC profiles, we need to understand what their personality is like, but teaching them how to read people’s personalities, because all of our loan officers are on the phone. So it’s very rare that people come into the office anymore, they want to do it over the phone. You don’t get to see their body language-
Steve Rozenberg: Okay.
Darel Daik: … And so body language is the number one way you can kind of tell how somebody’s profile is, so over the phone if they can determine what their DISC profile is, then they can speak to them in a way that they understand the best-
Steve Rozenberg: Yeah.
Darel Daik: … And that’s what’s valuable. You ever meet someone and you’re just butting heads with them the whole time-
Steve Rozenberg: Yeah.
Darel Daik: … You can’t figure out why. Well, it’s because you’ve have opposite profiles and you’re both speaking in your terms, not their terms.
Steve Rozenberg: Yeah, it’s very… Yeah.
Darel Daik: That’s not how you communicate. You have to speak in a way that they understand.
Steve Rozenberg: Yeah.
Alex Osenenko: Well, I think this was-
Steve Rozenberg: On that note, yeah.
Alex Osenenko: … Incredibly educational-
Steve Rozenberg: Yeah.
Alex Osenenko: … I really appreciate your time Darel, and it was great meeting you and-
Darel Daik: You as well.
Alex Osenenko: … I’m sure, we can get deeper and get more stuff, but those of you listening, if you want to continue the conversation, you can find us in MasterMynd Real Estate Investment Club on Facebook, if you need property management services, mynd.co and if you need money, hard money, Noble Mortgage-
Darel Daik: noblemortgage.com.
Alex Osenenko: Yeah, it’s always a pleasure and thank you very much for listening. We’ll see you next time.
Steve Rozenberg: We’ll see you guys. Thank you.
Alex Osenenko: Thank you. Bye bye.
Steve Rozenberg: Bye bye.
Alex Osenenko: Boys and girls, welcome to another episode of The Myndful Investor Podcast Show. We have a good one for you, as every episode is a good one, but this especially is interesting because we’re going to look into the income side of the equation, because obviously part of real estate investing, a large part, is making money. And to make money you got to provide good product. Now let’s say you provide good product, you bought an investment home and it’s in tiptop shape and it’s ready to go. What you need next is a resident that will live in a property, enjoy the property, but also pay rent and pay rent on time and they can respect the property. And that’s part of the equation we’re going to cover today. My cohost is Steve Rozenberg. We are deep into single family investment, serious, and today we’re going to unpack the resident side of the equation.
Alex Osenenko: How’s it going?
Steve Rozenberg: It’s going well. It’s going well. We have an all star lineup today.
Alex Osenenko: We certainly do.
Steve Rozenberg: Doug Brien, CEO of Mynd Property Management. Thanks for being here with us today, Doug.
Doug Brien: Absolutely.
Steve Rozenberg: And we have Jason Waggoner with Accutrac. And just to give you a little background, we’ve been using Jason for the last, I’m going to say five years, Jason, would you say?
Jason Waggoner: Closer to seven now.
Steve Rozenberg: Maybe closer to seven, yeah. And so they’ve done all of our backgrounds with Empire. We had a 1% eviction rate with using Jason, and we really honed down what is a good resident and a resident that maybe is not the best fit for us. Because as you said, it’s like building the best car and not having the right gas. At the end of the day it’s not going to get around the track for that. Jason was instrumental in helping us to help our clients understand that putting the best resident in for the situation for you, not putting the wrong resident in, because you can put them in a bad situation where they’re going to fail and it’s not a good property for them.
Steve Rozenberg: We really created the relationship with Jason over the years to make sure that how do we get the right person that can afford the property? Not put the resident in a bad position, and make sure that it’s a long relationship, that they want to stay a long time. I’m not going to say it’s an art or science, but it’s definitely something that has to be done over time.
Alex Osenenko: And Doug is here to provide color to a lot of this from a personal experience. You are an investor as well, but Doug has a long record of, I believe, successful investments and maybe some fails that you can tell us a little bit more about, but let’s get started and just say, Jason, what’s the first thing that a young investor, young meaning an investment career, what would they need to look out for?
Doug Brien: Protecting that home with everything. Because the thing about it, if that young investor has just gotten enough money to be able to start this journey, that’s the biggest investment he’s ever made in his life. He or she, and protecting that home and the person you put in it will make the difference. And I can tell you a quick story. My father-in-law, I guess I would have been 18, 19, inherited a rental property. It lasted about a year and a half, and two evictions later and the property was destroyed. He washed his hands of it, sold it for what he could get and vowed to never do property management again. Not a good experience. It doesn’t have to be that way. Qualifying that tenant, keeping the control, because where a young investor, or somebody that just like that, that inherited a property will get in trouble, are listening to the stories.
Doug Brien: Everybody has something going on in their life. And when you’re a qualifying a tenant, can you pay the rent? Do you have good past rental history? And the story that comes along with it, sometimes will get that that landlord or that investor involved. They’ll cut the person a break and rarely does it end well when somebody does something like that. Starting off on the right foot, having that process and then treating everybody the same with that process is going to keep them out of a lot of hot water and hopefully get a return on their investment.
Alex Osenenko: Doug, what is your experience with this? Have you had anybody or any situations where you said, maybe I’m in the wrong business? Investing is not for me.
Doug Brien: Yeah. When you get the resident piece of the equation or part of the puzzle wrong, it can be expensive and painful. I think sometimes, new investors can be a little bit shortsighted in that regard. As you’re really thinking about leasing more generally, I think there’s three main things that you’re focused on. One is the rent that you achieve. Two is the amount of time that you take to lease the property and three is the quality of your resident. And the reality is, you kind of have to pick two to prioritize, because if you’re trying to get all three, you’re going to be stuck. You’re not going to get the highest rent in the shortest period of time with the best resident. What do you prioritize? To me, the two that you prioritize, and it does depend a little bit on the market, but the rent you achieve is very important.
Doug Brien: I think some people underestimate what 50 bucks a month means. 50 bucks a month is 600 a year. At a five cap, that’s 12,000 dollars of value. Is it worth waiting another week to get that extra 50 bucks? I say yes. I would also wait a little bit longer to get that right resident. Because the wrong resident can cost you a lot of money in eviction costs. It can cost you money in terms of property damage and just trying to chase down rent in general. And so I think in thinking about those three aspects of leasing that you’re trying to solve for, prioritizing the rent you achieve and the quality of your resident are probably the most important, and I see a lot of people really focus on speed. How many days is it going to take to lease? I can lease it tomorrow if you want; however, it’s going to cost you rent and we’re probably not going to get the best resident.
Steve Rozenberg: And, and I think Doug, my perspective is the one thing that people don’t factor in is the mental stress that now you’re going through. Because now, not only do you have a vacant property, if you put the wrong person in, you’ve got a property with someone living in there now, and you’ve got to get them out. Now you’re trying to figure out how to untangle something that you did. Normally, you didn’t stick to your rules, if you have have rules that you’re sticking to, which you should, and then it could even get into a legal issue, that if you’re not using the same qualifications for your business and you start changing those up, and maybe you can talk about that, where all of a sudden you lax your qualifications because emotionally you’re getting nervous, and now someone says, “Wait a second, you didn’t rent to me three weeks ago because you said I wasn’t qualified. Now you rented to someone with the same qualifications,” and it goes down a whole different path.
Alex Osenenko: Yeah, fair housing is huge. As an individual investor and landlord, it’s very, very hard to navigate, but we’re going to try to unpack some of this today with Jason’s expertise and really focus on quality. And I want to actually explore a little bit later down the line of this episode, talking about how to maximize rent from Doug, because I think you brought up a good point. It’s the same thing as if those people in cars, modifying cars, whatever, it’s fast, comfortable or reliable. You can’t have all three. You can have two though. It’s very interesting how the three rule works. But Jason, what are the some of the things that you’ve seen individual landlords and folks without professional property management, what are the first couple things that you can help them fix or you can give them advice to fix to eliminate a lot of risk. What are the top two or three things?
Jason Waggoner: Number one, charging an application fee. A lot of landlords, especially new investors, they’re afraid they’re going to scare off potential tenants, applicants. And the reality of it is you may scare some really bad ones off, but that’s your first line of defense. And you as the landlord, if you’re taking 15 applications on a house, you shouldn’t be out the full-
Steve Rozenberg: It’s going to cost you money.
Jason Waggoner: Yeah, you’re going to be spending a lot of money. The ones that pay, they have no reservations in paying, are probably going to be your more qualified tenants. The other one is the application process. Are you using paper? Are you using an electronic form? There’s a lot of options out there nowadays, but you can really streamline that process to make a good… The good tenants are out there searching online. They’re not playing around on Craigslist and different things like that. Now, there’s nothing wrong with that if somebody has a good process for that, but if you have your process down to where they call you, you email them an application, you can have that filled out within 15 minutes, or you’re busy running all over. Can you meet me here? Can you meet me here? You’re using gas, money, resources, time, everything.
Alex Osenenko: But also dictates to the prospective resident, this is disorganized. I’m not going to expect to be looked at very closely.
Steve Rozenberg: That’s a good point. You’re running a business. When you own a rental property, it’s a business. And if this is the first indication of how this business is run, you may be thinking, I don’t want to rent from this person, or you may be thinking, I do want to rent from this person because I could maybe get away with some things and I can go down this path.
Jason Waggoner: And typically people that have bad history are looking for those landlords that they call. “What’s the application fee?”
Jason Waggoner: “Oh, we cover that.”
Jason Waggoner: “Do you run me through a background check?”
Jason Waggoner: “Yeah, sometimes.”
Steve Rozenberg: I go by my gut.
Jason Waggoner: They’re thinking, I’m in. All I have to do is show up and put on my Sunday school face.
Doug Brien: Taking candy from a baby.
Jason Waggoner: And it happens. It’s happening to somebody right now as we speak. And it is the reality of it.
Steve Rozenberg: I remember when we first started doing this and we were going through that path of getting problem residents, and I remember someone said, “Steve, they’ve been renting their whole life. You’ve been a landlord for a fraction of that. Who do you think knows the rules a little better?” And I thought, you know what? That’s an interesting point. I never thought about that.
Steve Rozenberg: We said, “You think they don’t know rent is due on the first? You think you calling them is going to make them get the rent quicker to you?”
Alex Osenenko: Because you were walking around collecting the rent physically.
Steve Rozenberg: I used to go pick up the rents because I thought I’m saving time, I’m getting the money, I’m getting it in my hand. Pete said, “They’re just training you. They know that when rent is due, you’re just going to show up and walk up and it’s your time.” I learned a lesson.
Alex Osenenko: Your book is worth picking up just for those stories.
Steve Rozenberg: Just for the stories.
Alex Osenenko: Actually there’s a lot of lessons in the book and it’s a short one. You can read it, but there’s a lot packed in there. I personally really enjoyed it, and one of them is the stories of you collecting and people ducking-
Steve Rozenberg: Yeah, ducking in the windows and I’m like, “I can see you. I know you’re there.” Again, we didn’t have a screen-
Doug Brien: You had the wrong people in there.
Steve Rozenberg: We had the wrong people. And what’s funny is the average investor owns three to five properties. Normally, a lot of times they stop at one or two and if you ask them why they’ve stopped, it’s one of those stories. They didn’t put the right person in and it went south and they don’t go and do where… Because everybody knows that if you buy a rental property, it only works in multiples. You have to ask them, “Why did you stop at one or two?” Well I had a problem, I didn’t have the time. And it’s normally a horror story. When you boil it down, it’s because they either didn’t have a policy and procedure in place, or they didn’t follow it. Like Doug said, they, had rules and then they basically did not obey those rules and they deviated from them.
Doug Brien: And I would just highlight, I know there’s a flip side to this coin, because the more qualified residents, if you think about what someone’s looking in a rental property, the property, the structure itself is part of it, but what they’re looking for is a living experience. Part of it is the property, part of it is their interaction, their relationship with their manager. If you come across as highly professional, you’re responsive, you’re friendly, the right kind of residents looking for that experience. They’re going to look at the property, but they’re also going to look at the professionalism that you show and they’re going to be willing to potentially pay more and you’re going to attract them. Those are the people you want.
Steve Rozenberg: Yep. A perfect example is when you get a resident and you tell them you have multiple ways you can pay. You can do ACH transfers, you can do monthly autodraft you can do mail it, you can bring it to our office. You give them five ways to pay, you can pay credit card. All of a sudden the resident’s going, okay, I like this. These people have systems in place. If you just said, “Hey, yeah, I’ll pick it up,” like I did, they’re going, okay, that may not be a resident that may see me and say, this isn’t professional because maybe they had a bad experience with someone in the past and they’re not looking for that.
Jason Waggoner: It also sets the expectation. We have five different ways for you to pay. Late payments are not tolerated, we will evict you.
Steve Rozenberg: Exactly. You’re setting that expectation.
Jason Waggoner: The thing about it is, going back to your first question, the other thing to really look for when you’re running that background check are evictions. Something so simple that you can search for, and if somebody has been through two evictions, they know that process. They know how long it takes, they know they’re fixing to squat on you for a month or two before everything’s finalized, and a simple search, you can tell.
Alex Osenenko: Let’s actually take a step back for a second. We’re going to unpack the background check, because I think what you brought up the first two is really key. I didn’t think we’re going to surface this out. This is really good stuff. Charging an application fee and application process itself, have that narrowed down. If you’re listening, those two things I would… There’s not that difficult to do. There’s plenty of companies that provide application process and stuff like that, but background checks. I think I want to unpack a little bit more there. That’s your expertise and that’s what you do. As an individual landlord or newer investor, how would they go about it? To me it’s like, how do even start?
Jason Waggoner: Well there’s a thousand people that do it and if you Google, start your own background check company, I think you can do it for $29.95, they say. The liabilities and everything that comes along with that though, look for a reputable company, a company that’s been around for a few years. There’s plenty of them, but you need to be doing one. Something so simple that shouldn’t be out of your pocket, the credit report. There’s plenty of places now, even as a small investor, that you can go through that you will initiate the invite, the applicant does everything and they send you the credit report back. Or you go through a company like Empire that has the ability to run that credit report.
Alex Osenenko: Or Mynd.
Jason Waggoner: Or Mynd, yes, that has the ability to run that credit report at will and really streamline the process.
Alex Osenenko: But then you have a credit report. Sorry Steve, I’m just going down this path here. If you have a credit report, I’ve looked at credit reports. People look good or they have a lot of delinquencies, but I know that there are good people with delinquencies and there are bad people with good credit reports. What now?
Steve Rozenberg: How do you decipher? What is the data telling you from that?
Alex Osenenko: What do you do with it?
Jason Waggoner: A lot, because you want to look at the trade lines. The credit score, it may be a 601 credit score, but why is it 601? Do they have medical bills? Student loans? Can you look on there and see where it’s current now but it was late a year ago? They may be on their way to fixing it and they haven’t missed a payment in a year and a half. That credit score started at 400. They’re at six now and they’re working their way up to eight. Knowing the details, and it’s all in the trade lines, you’ll see this is a bank, this is a credit card. They’re really easy to read nowadays, so you can get a better snapshot of who this person is. Some people pay some of their bills, some people don’t pay any. If they don’t pay any, they’re not going to pay you either, is the reality of it.
Jason Waggoner: And even HUD, HUD doesn’t want a landlord or a company making a sole decision based off the credit score. Look at the bigger picture of what’s going on with that credit. Same way with the criminal history. It’s up to the landlord of what they’ll accept, but what you accept, make that consistent across the board. Like he said, if my cousin shows up three weeks after I applied and gets approved with the same guidelines, I’m going to be upset.
Alex Osenenko: Fair housing violation.
Jason Waggoner: I’m going to be upset.
Doug Brien: Yeah, I think my strong advice would be don’t just kind of think you’re being consistent. Have a written down box. This is my screening box and apply it equally to everyone, because fair housing is one of those things, it’s not a problem right up until it’s a problem. When it’s a problem and you’re caught in the crosshairs of a fair housing violation, it can be really, really expensive. Really, really painful. They can actually just shut you down.
Jason Waggoner: Let’s say that you’re that applicant calling into the landlord. You’ve seen the property listed and you call in and the landlord says, “Yeah, we do, from time to time run that, or this is the process.” As opposed to when you call that landlord and they say, “Yes, everybody’s run through the same process. Late payments are not tolerated, we will evict.” The whole conversation, They’re not going to call you back. They’re not going to call the second landlord back.
Steve Rozenberg: Now I have a question. Doug, when you were growing Waypoint, you were buying all those properties, this was a time when people’s credit probably was not the best. How did you go through that process? Because I know it wasn’t that long ago, but technology is different today as it was back then. How did you guys do it at such a large scale?
Doug Brien: Yeah, so we had to create a wider box early on. Especially, you just couldn’t draw the same FICO lines that you have today, because everybody’s FICO was in disrepair, the folks that wanted to rent. We had a wider box. We looked very carefully at all FICOs are not created equally. What kind of a trend are we seeing? But we also started to look at lots of interesting data. I think one of the most interesting things that came up for us was, we were trying to figure out what were the attributes of residents that predicted who was going to stay and perform? And prior to this analysis, we used to get people who’d sign a lease and they were going to move in within seven days. We’re like, “Awesome!” They’re going to move in, they’re going to start paying. What this analysis showed us, not awesome.
Steve Rozenberg: Those are the bad… yeah-
Doug Brien: Who moves in, who signs a lease and moves in in seven days? Someone who has some-
Steve Rozenberg: They’re screwing someone else that they’re leaving, or yeah.
Doug Brien: Who does that? And the reality is that we discovered was people that we didn’t want.
Steve Rozenberg: Those other tenants.
Doug Brien: We created a new screen, applied equally to everybody. We don’t allow move ins within seven days. If you need to move in with seven days, go somewhere else.
Steve Rozenberg: That’s a red flag.
Doug Brien: That is a red flag.
Alex Osenenko: Interesting. They’re not moving in?
Doug Brien: Yes. Apply it equally to everybody. Nobody, I don’t care who you are, moves in within seven days. If you can’t wait until the eighth day-
Steve Rozenberg: If the stuff is in your car when you show up and you want to move in at that point, that’s a red flag, which it wasn’t for me when we were doing this and that’s why we ran into problems.
Doug Brien: You’re filling your vacancies.
Steve Rozenberg: Exactly. High five. Let’s roll on.
Doug Brien: You think you’re celebrating. Not so fast.
Steve Rozenberg: Now, how did you do this on a… you guys were national, on a national scale with that? Was it the same across the board or was it local in nature as far as the rules?
Doug Brien: Yeah, that’s a great question. Every market had its own individual screening criteria. Every property had its own individual screening criteria. The system we used, TransUnion, there were A neighborhoods, B neighborhoods, C neighborhoods, D neighborhoods. We had a D box… We actually didn’t do D. C, C was our lowest. C box for C neighborhoods in Atlanta. What that meant was if we were trying to find A neighborhood residents that made a lot of money with really good FICO scores, they didn’t want to live in this C neighborhood. We would have a lot of vacancies. Figuring out which houses go in which box is really, really important, because if you have a mismatch of screening criteria and the actual location and the property, that can be a way to put the puzzle together in a very-
Steve Rozenberg: Because you’ve got the city and then you’ve got the breakdown inside of the city, of the particular property.
Doug Brien: Whole different criteria, but all documented. These addresses are in C quality neighborhoods and this is a C box for that.
Alex Osenenko: How would an individual investor listening to the show now be able to replicate or think through some of this? They may have two or three properties or maybe just getting their first one. How would they, because with Waypoint, you guys had made significant investment in that, because this is a core part of the business. How would an individual investor be able to replicate something like that?
Doug Brien: Jason, you might know better than than I, but I would think most screening companies, you have to apply a neighborhood quality attribute to your-
Jason Waggoner: Definitely. That even goes back to helping the consumer. You’re changing those metrics because you understand the position that they may be in, in that demographic. And to try to place people and house people is huge. A lot of times, the screening companies will even help with that. Go over those metrics. What’s a standard in the industry? What should we be looking for? The only thing that we can’t really do is say, “Yes I would rent to this person,” or “No, don’t rent to this person.”
Steve Rozenberg: You’re just saying based on the qualifications, they match-
Jason Waggoner: We have to be outside of that decision, but we can say, here’s what we’re seeing in the industry for that demographic, and really work through that.
Steve Rozenberg: Now, I have a question. I don’t know how much you dealt with this, but emotional support animals, it’s kind of changing gears a little bit. Did you have to deal with that much when you were… Was that a big thing?
Doug Brien: Yeah, because there’s some scanning along those lines.
Steve Rozenberg: Yeah, absolutely.
Doug Brien: If they have documentation, you have to let them in no matter what.
Steve Rozenberg: That was big back when you guys were doing it?
Doug Brien: Yeah, absolutely.
Steve Rozenberg: Okay. And so what is going on? Because I know that that is a big problem or a challenge now with investors, is to find out… obviously there’s things you can and cannot ask them obviously, but how do you address that?
Jason Waggoner: Well, just for statistics point of view, about 30% of the ones that tell you they have a service animal or an assistance animal are bogus.
Steve Rozenberg: They’re not?
Jason Waggoner: Right.
Alex Osenenko: 30% are bogus, but 70% are legit?
Jason Waggoner: Right. Think about that if you’re a landlord and you know the damage pets are going to do and you need that 300 dollars or pet deposit or the pet rent, and you don’t get it because this person gave you a bogus-
Steve Rozenberg: For people that may not know and may not… Can you explain what an emotional support animal is and just kind of the criteria?
Jason Waggoner: Yes. And the big thing with those, an emotional support animal will be a dog or a miniature horse, basically. I’m sorry, a service animal will be a dog or a miniature horse.
Alex Osenenko: That’s it? It couldn’t be an alligator?
Jason Waggoner: Well, an emotional support animal-
Steve Rozenberg: I saw a peacock on the news one time.
Jason Waggoner: Emotional support, service animals, they’re starting to lump those into the same category now, and there are legit reasons for both. The thing about being an investor is you’re a liability if you start asking those questions. Like you said, you just kind of have to take the paperwork and run with it. One company in particular now that is taking the load off of that, they know what to ask, all the right questions, but it is an added expense. As an investor you have to say, do I want to take that liability? Do I want to add this expense? But for the most part, disabilities, emotional support animals, service animals-
Alex Osenenko: You’re talking about John Bradford’s company, Pet Screening, right?
Jason Waggoner: Yeah, petscreening.com. Wonderful, what they have put together. We partnered with them. It was a no brainer. Seeing what they put together, there’s no reason for us to reinvent the wheel when they’ve got a perfect product.
Steve Rozenberg: It’s part of the process when you’re getting a tenant, that this is a verification that you have to do. You can’t be intrusive, but you need to… Again, when you’re running a business, you’ve got to at least know that you’re covering yourself, because if the person puts an animal that’s maybe… And this is my question, if they’re on the dangerous breed list, but they’re an emotional support animal, dangerous breed list, I don’t know if you know this, some insurances will cancel you.
Doug Brien: Correct. I have a German Shepherd.
Steve Rozenberg: What happens there? You can’t turn them down.
Jason Waggoner: You’ve got to take it. But the thing is though, what we found, we’ve had people try to pass off ferrets as service animals. I’m sure out there somebody has tried to pass off an alligator or an iguana or something, which may very well be an emotional support animal, but it’s not going to be a service animal.
Steve Rozenberg: What’s the difference there? What’s the bifurcation?
Jason Waggoner: Service animal is typically going to cost 20 to 30,000 dollars to train that animal. It’s going to have a specific task. It’s going to help somebody that has a disability.
Alex Osenenko: Physically? Physical help, or mental is included in that?
Jason Waggoner: Mental would be more… could be mental. Now there’s definitely service animals that help with PTSD and things like that. The emotional support animal, it’s in a different category, but you still could be sued for not taking it. Those details are really-
Alex Osenenko: Differentiate. What’s the difference. If you have to take him either way-
Jason Waggoner: Well that’s the difference. One came from a doctor. As far as the paperwork, you may have a legitimate emotional support animal that came, that was documented, prescribed by a doctor. It’s legit. And then you’ve got so many platforms, you go online now and just print off for $29.95, “Yep. I’ve got an emotional support animal. I go to PetSmart and I put my orange vest on them and my landlord is none the wiser.”
Steve Rozenberg: If I’m an investor, again, and I may come across this every two years, and someone comes to me and says, “I’ve got an emotional support animal.” What are some things that they should know? They say, okay, you need to ask them this. You cannot ask them this. Where can you direct them so that they can learn this?
Jason Waggoner: I would just tell them I need the paperwork submitted with your application. If I’m an investor outside of any of this, I wouldn’t even touch it.
Steve Rozenberg: Don’t dig deep?
Jason Waggoner: Right, because they have rights for a reason. There are people with disabilities that are preyed upon that are victims of things. And so all the laws that are in place are there to protect them. We always know there’s going to be people come along and abuse that, and people that aren’t really disabled or whatever the case may be.
Doug Brien: I just want to take a brief tangent here because I think one of the biggest missed opportunities in the rental property investment business is pets. Because I think a lot of landlords think, I don’t want to have pets in my property. They’re going to destroy my property. No pets allowed. The reality is the majority of all renters have pets. You’re automatically cutting the universe of applicants that you’re going to take, in half.
Steve Rozenberg: It’s 80% actually, statistically.
Doug Brien: 80%. 80%, you’re shrinking, you’re massively shrinking the universe, and the reality is you can actually be better positioned for these emotional support animals or any pet by having a program where it’s basically like you have pet rent. You can charge 50 bucks a month per pet. And then you can have big deposits. You could have as big a deposit… It probably depends on the state, but you can have meaningful deposits. If that dog does do damage, you have 500 bucks plus 50 bucks a month. Again, remember what 50 bucks a month is worth if you’re going to try to sell your property? That’s 12,000 dollars in value. I would strongly encourage you to open your property up to pets, have strong deposits, charge pet rent, and then when you have a situation like we’re talking about now, okay, you have to take them, but you still can charge your pet rent and you can still charge that big deposit to protect your property.
Steve Rozenberg: And you can actually make that a point of difference, where you can make that a marketing, where you can outwardly let people know that you accept pets and that you’re pet friendly, because people that have pets, they’re going to go right to that and they’re going to be like, I’m going to go to this landlord because they like pets. I’m going to be a patron of them.
Alex Osenenko: This was my personal experience. It was just unbelievable to me, because me and my wife we rented out our house. We wanted to move to start a business. I didn’t want to have liability, so we rented our house, we moved into a rental one, wanted to move into a rental closer to the office. We have 790 credit score, income, everything’s good, but I have a German Shepherd. We had a hell of a time. We ended up with a individual landlord who was actually pretty good, but no processes, no systems. He looked at us, he looked at our car and says, “You’re in, guys.” And that was it.
Alex Osenenko: And I’m like, “I have a German Shepherd.”
Alex Osenenko: He’s like, “I don’t care. You’re in. You drive a nice car.”
Doug Brien: What’s this guy setting himself up for?
Alex Osenenko: Right, but we paid rent, fine. We paid rent fine and it was good.
Doug Brien: He does not have a problem.
Alex Osenenko: No, he did not have a problem. He got lucky. He got lucky in the situation, but this is the challenge with this. And Doug, I admire what you just said. People love their pets so much. I pay for that German Shepherd. I pay 100 bucks a month. That’s what I would do, and most people would. And so this is such a good opportunity, and by the way, we got to we got to look at this opportunity company-wide, what we can do to help our investors make more money and get tenants happier.
Doug Brien: Yeah, as a third party property manager, all you can do is advocate for it. Especially in a neighborhood like this. There’s a dog park down the street. You are going to be able to get more rent. You’re going to lease your property faster, you’re going to have an adequate security deposit. Why not accept pets?
Steve Rozenberg: And again, sometimes their perception is that an animal is going to just tear apart this house because they think this Great Dane is going to be running through the walls. When I would talk to owners, I said, “The reality is, is these pets are taken care of more better than children.” Sometimes they’re not… A goldfish, legally, is a pet. When you say no pets, again, that’s the 80 percentile, and you can even call it a pet fee, not a pet deposit, because the deposit you get back. A pet fee, you do not. That’s a transaction to do business. But there’s things that you can do. But again, you can make this where it’s win-win. You can make it as a point of revenue, but also you can increase the time that the property is going to be vacant. And again, people that love their animals will do anything for them. If you promote that and go after them, to me it’s just a smart business choice.
Alex Osenenko: Jason, what do you see as a missed opportunity that a lot of individual investors who are a little bit newer to the business make? What’s one thing that we can help? Somebody is listening right now, what’s one thing you can help them fix?
Jason Waggoner: I would go back to taking the story of the applicant out of their decision. That’s the biggest thing that we find. When somebody comes to us and I hear them every week, “We need a service like this. Here’s what I’ve dealt with.” I just think, oh my goodness, I wish you would’ve called me sooner, because all it amounted to was they were getting emotionally involved with the applicants and the stories. I’ve seen it happen to people in my own family where I’m like, “Why didn’t you call me? They told you what? That’s a red flag.” But even going back to the animals, if you’re qualifying that tenant and they have animals and that tenant’s qualified, they’re probably going to be a more responsible pet owner than the average person.
Jason Waggoner: If you have that set of criteria in place, they paid the application fees without even thinking about it, that’s a red flag. If you’re charging the application fee and they call and say, “60 dollars a piece? How can we afford that? We’re trying to move and do everything.” Probably going to be check to check. You’re probably going to be chasing them down for rent. Just things to think about. When those applicants start calling, listening to them and what they’re saying, your situation, that landlord got really lucky. We’ve seen stuff where somebody pulls up in a nice car, briefcase, “Hey, I want to pay six months up front.” They go check on the property six months down the road and they can’t get in. It’s barricaded up, and then they do get in and it’s completely gutted inside and it was a commercial grow operation. They’re long gone and the harvest-
Steve Rozenberg: Now you have a much harder problem.
Jason Waggoner: … has been gathered. The qualifying process is going to be their lifesaver.
Steve Rozenberg: This is good. As we kind of wrap up here Jason, one of the things I’m curious about is right now the economy’s doing well. Do you think that when the economy changes, that maybe the laws start changing as well, or do they keep those pretty steady? You’ve been doing this for long enough.
Jason Waggoner: No, that’s going to be steady. What’s going to happen in the next couple of years are background checks are really… we’re under the eye right now. It’s going to become even more so in the forefront of the news and the things of that nature. What we’re seeing right now, you guys know, when somebody is denied they get the adverse action letter. That’s something that individual landlords don’t think about. When somebody is denied, telling that person why they were denied, who ran the report, when they don’t do that, they’re basically violating that person’s rights and they could get sued.
Alex Osenenko: We expect to have more renter friendly laws and regulations to come out?
Jason Waggoner: Yes.
Alex Osenenko: And companies like mine, we exist to help investors have healthy investments, but also provide happy homes for folks who are going to live in those homes, because we know the fair housing rules. We know we have the team of people. This goes back, let me just wrap this up and say, the theme that I’ve caught across all of our single family investing serious episodes is, have a team. Have a team in place. If you have a lot of free time, absolutely go it yourself, but you have to build a team and this is what I recommend: Going out there, listening to podcasts like this, educating yourself, taking notes, but also go out to events. Meet your local other landlords, talk to them and see. A lot of times they’re not doing the right things, but at least they potentially have relationships that you can capitalize. You have a company called Accutrac?
Jason Waggoner: Yes.
Alex Osenenko: Accutrac’s to check them out.
Jason Waggoner: You know what? The team aspect of it, like you’re saying, the investors, what do they do? They try to do it all on their own. I can fix that air conditioner. I can fix the flooring. Get a team of people.
Steve Rozenberg: Yeah, and just to kind of close up, my opinion, do you think Doug, all the books that I’ve ever read about being successful and owning real estate for wealth, I never once saw anywhere that it said, do it all yourself. You need to be the sole-
Doug Brien: But that’s how people think. That’s how I would think if I didn’t know any of it.
Steve Rozenberg: We think maybe it goes against our IQ level or our ability, or because there’s money involved, people don’t like to talk about making the mistakes, but I have never met anyone that’s said, “If you want to be successful, get away from everyone else and do it all on your own.” Never.
Doug Brien: Here’s what I see the successful investors do. They start with what’s their opportunity costs?
Steve Rozenberg: Absolutely.
Doug Brien: What is my time worth? And you can kind of pretty easily back into, is my time worth more doing something else or managing my property? I think that’s question number one. Question number two is, with everything that needs to be done with investing in a property, what do I enjoy doing and what am I good at doing?
Steve Rozenberg: Absolutely.
Doug Brien: Pick a couple of things that you’re really good at doing. I like to find the property. I like to scope the renovation. I don’t want to do the renovation but I want to scope it out, because I know what the rent is going to be if I get these amenities, hire a good general contractor, hire a good property manager to execute the plan. Leverage, maybe a broker or a lender to get my loan, but what I want to spend my time on is picking the right properties, doing the renovation the way that I know is going to maximize the value of the asset and then get the team of people around me that I’ve screened and gotten reference checks on and they’re the best and they’re my team and we go do multiple deals together, and you get better as you go. That’s what the best investors do.
Steve Rozenberg: Absolutely. I agree.
Alex Osenenko: That’s fantastic. I want to say thank you to Jason and Doug for joining us. Thank you for listening. You can find more of this in and lots of discussions on subjects at Mastermind Real Estate Investment Club on Facebook. Maybe we’ll get Doug into it. Maybe he can field some questions.
Doug Brien: Can I get in that club?
Alex Osenenko: We’ll see. We’ll see. But yeah, check us out on Facebook. We’re at Mynd.co as well, M-Y-N-D.co, if you need property management services, would love to talk to you. Thank you very much for listening.
Steve Rozenberg: Thanks everyone. See you later.
Jason Waggoner: Thanks guys.
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