$6M Portfolio Before Age 30 by Finding “Problem” Properties with Kevin Paffrath

Brandon: Kevin, welcome to the Bigger Pockets Podcast, man. It has been a long time coming, this is great.

Kevin: Thank you so much for having me. I’m super excited.

Brandon: All right, cool. Let’s talk about you and your real estate journey. I know you’re a real estate agent, but you also invest in real estate. So let’s talk. How did you first get into this whole real estate investing thing?

Kevin: Absolutely. First thing was, I got my license, and I thought “Wow, how am I supposed to possibly get clients?” It’s 2010, turn of 2011. Nobody’s wanting to buy real estate. There are tons of properties to be bought, yet everybody’s fearful of this double-dip recession coming. So I’m like, “Well, nothing now better than a salesperson going, ‘I’m buying right now.'” So I bought a house.

Brandon: Bought a house. What’d you buy and where?

Kevin: I bought a house in Ventura, California, and it was a $305,000 foreclosure. Of course there were actually two cash offers on it, so it’s like, how do you compete against cash with a FHA three and a half percent down renovation loan? And I thought, “Well, I really need a house so I could sell more houses, so I’ll just pay more.”

Brandon: That works. It works in, what year was this? You said 2010?

Kevin: 2011, when I bought and closed the property. So it’s worked out very well, because even when we bought the place it was a foreclosure. There was no kitchen, the bathrooms didn’t have toilets. So at the time, when I bought it, even paying 305 for it, if I put 50 into it, the day after I put the 50 in I knew I could’ve resold it for 400, 425. So at least I felt comfortable that, even in that market, I felt like I had a worst-case scenario exit strategy. But that really helped me sell real estate. Then the cool thing that came out of that was, oh my gosh, I’m making more money investing in real estate than I am in sales. Because you start seeing that equity and that net worth build so fast, it’s unbelievable.

Brandon: Yeah, that makes sense. Now you said a renovation loan. What does that mean, for those who never heard that term before?

Kevin: I don’t recommend it really for anybody. It’s like one of those worst-case scenarios. This was an FHA 203(k) Renovation Loan, which is basically where you go in with three and a half percent down, so on $305,000, three and a half percent down, that was pretty small number, somewhere around $11,000. Then we borrowed about $50,000 for fix-up from the bank, which was bundled into our first loan. So really, we were putting about three and a half percent down on 355, which again, super small relative to us being able to now control … And that’s my girlfriend at the time, Lauren and I, we bought this. We each put together our $8,000 that we had at the moment.

Kevin: But for us to be able to control, going from literally Jamba Juice and Red Robin employees to brand new real estate agent, and being able to control a three quarters of a million dollar property that we could fix up and equity in, we’re just like, “Wow.” Day one, our net worth goes from $8,000 to more than $75,000 after a fix-up. It’s like, whoa! And that and that excitement really helped me sell real estate, because people, they meet me an open house, and they go, “Kevin, what do you think about the market?” Everybody wanted to know about the market. They’re like, “What do you think about the double-dip recession?” And I studied as much as I could about the market, but when I was talking to people, the biggest thing that people related to was, “Wow, you’re an agent and you’re buying right now.”

Brandon: Yeah. Why did you say you don’t think, the renovation loan, you don’t recommend it? Because, I have my own reasons why it’s good and bad, but what’s the downsides?

Kevin: The downside is, of that $50,000 we borrowed, probably eight, at least eight of that, went to HUD consultants and extra bank fees. Which is really frustrating because it’s expensive, but cost of doing business, so I can’t really complain because it got us in. But the process is also a bit of a pain in the butt, because they really want you to have a contractor that goes in there and does, let’s say, the kitchen. Then the HUD consultant comes and says, “Okay, kitchen’s done.” Then the bank gives you more money. They give you an initial draw, and then they’ll give you the additional draws after you do work. The problem is most of your handy folk, the drywallers, the electricians, the contractors, they finished the job. They ain’t putting bread on the table if they’re not getting paid that day.

Brandon: Yeah, yeah.

Kevin: So we actually sort of hacked it. They way we did it is, because it was a good deal, which I always recommend trying to find those below-market value deals, I went to a client. My first client ever, whom I sold a six-unit apartment building for, he said, “Hey, now that I sold this property, I have extra money.” I go, “I happen to need money. Could you lend me 20 grand?” He put a second on the property because he saw the equity, he walked the property, he saw our building materials there, he saw the struggle we were having with the bank, he goes, “I’ll lend you 20 grand.” So we used that 20 to do a bunch of work, get reimbursed from the bank. Do a bunch of work, get reimbursed from the bank. That made the whole renovation process way easier. But to do it legit: tough.

Brandon: Yeah. I’ve never done, personally, 203(k). I’ve done an FHA but not a 203(k). Except for, I was the contractor on a 203(k) back in the day, years ago, and it was hell. It was actually my best friend at the time. Adam was trying to buy a house, and he was going to do a 203(k). It took like nine months to get through all the paperwork, and the hell. Just to get paid from the bank, for me it was insane. Yeah crazy.

Kevin: If you don’t have a best friend contractor, it ain’t happening. Because you need the contractor to bear all the pain, basically.

Brandon: Yeah.

Kevin: The amount of paperwork you need, oh … Look, not saying it’s not terrible. If you get a smoking hot deal, it’s the only way you can do it, hey, you know what, it’s a tool. But if you can avoid it at all costs, please.

Brandon: Yeah. What I think a good use for that is, and man, I’m not saying it’s easy or not hell, but if you can buy the duplex, triplex or fourplex, you can also do the FHA 203(k) Loan with that. So potentially, you buy that fourplex, get the 203(k), remodel the whole thing. Again, it’s hell to go through, but at the end of the day, you could be into a fourplex that cashflows like an ATM machine for three and a half percent down total. So that, I think, is awesome. It’s just, it’s hard to get through.

Kevin: [crosstalk 00:06:58] that’s a really good point. What’s so wonderful about what you said there is, I think you’re drawing a clear distinction. And it’s so important, because I think people on YouTube and on the internet, a lot of people, they’re looking to get started. And they believe that, “Okay, you know what, I’m going to start getting passive income tomorrow.” As if it’s not going to take any work or effort or time to build the net worth to actually get there. And doing what you said, yeah, sometimes when you get started trying to build up passive income, you have to go through a little bit of work. Imagine that. People are like, “Well Kevin, you have to deal with fixing up your rental properties, or re-renting them when they come vacant.” Yeah, it just happens to also pay very well, so it’s worth it.

Brandon: Yeah.

Kevin: Not saying it’s not work, but it’s worth it.

Brandon: Yeah, a hundred percent.

David: I’m so glad we started off with this topic, because just yesterday, I had a … I’m a real estate agent just like you are Kevin, and also an investor. I had a client who’s like, “Hey, I’m going to buy a house. I want to use an FHA 203(k) Loan. This should be a breeze.” And I’m like, “Okay, I hate to be the bearer of bad news, but you need to understand that there’s a principle that sounds like, yeah, this is great, you get a 203(k) Loan, and then there’s reality that you will hate every single thing about doing this.” That they’re such a pain in the butt, nobody wants to do it.

David: Kevin, you hit it right on the head. You better hope that contractor’s your best friend. Because the government has made it so hard for that to work, it’s almost a useless product for most people. And there’s a lot of pieces of real estate investing that work that way. You said another good thing, Kevin, that when people focus on, “Well yeah, but then I got to do all this work,” yeah, that’s why there’s an opportunity there. Because if there wasn’t work involved, somebody else would’ve bought it before you even found out about it. That when you get a deal, you are literally getting a problem. You’re getting somebody else’s problem that they don’t want to solve, and if you’re the person that can solve it, then you get the fruits of your labor.

David: You really have to just accept that that is what you’re doing. You get results in the gym because you work out. You get a paycheck from work because you bring them value. You make money through real estate because you do the same thing. And a 203(k) Loan is not always a great tool to do that, but Kevin, you highlighted what you should do. Okay, that loan sucks. It’s going to be very hard. How do I make this easier on myself? Let me go ask somebody for money. How do I know that they’re going to be able to trust that I’ll pay it back? I’ll put a second mortgage on my house, so they’ll get a lien on my property.

David: You took all the tools that Brandon and I are talking about, and you creatively used them in a situation to make this happen, then you got the bug. You’re like, “This is great. I don’t have to work at Jamba Juice anymore. I can actually have a job where I wear a tie. Tell me more about it.”

David: What I want to know is, did you become an agent because the real estate investing bug caught you and you fell in love with real estate, or was it the other way around?

Kevin: Yeah, honestly what you just said there is so one point. First of all, I actually took out a notepad and I wrote down, “You get a deal, you get somebody else’s problem.” That is so understated. You’re going to get very well compensated for it often, especially if you get a good below-market value deal in real estate, but that’s so great, because it sets the expectation a lot more properly. And yeah, I became a real estate agent first, and the problem that I had was, at 19, 18, 19, it’s hard to convince people to use you as an agent. But for some weird reason, when you, at 19, buy real estate, now people are like, “This guy’s 19, and he’s buying real estate.”

Brandon: Look at the wiz kid, yeah.

Kevin: “I got to work with this guy.” You know what I mean?

Brandon: Yeah.

Kevin: It ended up just paying dividends, not only by being a good deal, but also, in my opinion, if somebody’s a salesperson of something, they better freaking own and invest in what they’re doing. Sometimes I hear real estate agents, they go, “Yeah, I sell real estate in the area here …” And look, I’m not trying to peg on people, but whatever. Sometimes I do that, that’s why I say, “Don’t sue me bro,” right, but it is just what I feel. Sometimes I hear real estate agents, they’re like, “Look, I sell houses here, but I don’t invest here. I buy REITs,” or something else. And I’m like, “What? No!” It’s the wrong message to be sending to your clients, first of all. And second of all, it’s not congruent in my opinion. If I’m going to legitimately go to buyer and go, “You should buy this, it is a good deal, and if you don’t, somebody else is going to get a lot of money buying it,” I have to legitimately stand behind that as if I would put my money on that deal.

Brandon: Yeah. I think that’s the key to sales in general. Every good salesperson I’ve ever known in any field, they actually believe in what they’re selling. So if you’re out there telling me, “Yeah, you should really invest in this type of property,” or, “You should really live here because it would be a great investment for you and your family,” but then you’re not willing to do it, yeah, you just look like a liar.

Kevin: Yeah.

Brandon: Granted, there are some people who maybe feel like they can’t buy. Because they’re like, “I live in southern California,” but I mean, obviously you did it. You pulled it off, right. There’s always ways if you really want. You know the Jim Rohn quote, “If you really want something, you’ll find a way, if not, you’ll find an excuse”?

Kevin: That’s the thing.

Brandon: I love that.

Kevin: People have every excuse under the sun not to get started. Honestly, I mean, I went live on Instagram one day, somebody’s like, “I live in Orange County. I can’t find anything to buy. Everything’s like $700,000.” I pull up a … Here I’ve got my iPhone on Instagram, I pull up my laptop, I go on Zillow, I go, “Show me everything that’s a townhouse or a condo under $400,000 in Orange County.” Wow! Here are 50 hits. All right, let’s go through these. Oh, wow, here’s one that says it’s a fixer-upper. Why don’t we set up a showing for that one?

Brandon: Yep.

Kevin: Oh, wow, and it’s a two-bedroom, it’s a three-bedroom, you can house hack it. Like, there are ways to solve your problems people!

David: Yeah.

Brandon: Yeah.

David: Because what you’re realizing is, what he’s saying is, there’s nothing that doesn’t require work that’s underneath $700,000. There’s nothing easy that’s under $700,000, right, and that’s exactly what you pointed out.

Kevin: That was good.

Brandon: Whenever people say they can’t-

David: They all-

Brandon: Go ahead.

David: They all come with problems, right.

Brandon: Yeah.

David: “Everything that’s under 700 is a problem, and I’m not willing to inherit that.”

Brandon: Yeah. I always like to push people a little bit too, when they say they can’t find any deals. I always ask them three questions, right. How many offers did you make this week? How many deals did you analyze? And how many leads came across your desk? Because if you can’t find deals, it means you’re not doing one of those three things, or you’re not doing those three things. And every time … I’ve never had somebody answer any of those with anything other than zero. Every time it’s like, “Well, none. None. None.” I’m like, “Okay, well now you know what your problem is. How are you going to get leads across your desk? Go to Zillow and sort of buy cheapest, or recently reduced?” There’s so many ways to do this. It’s a lot easier to sit on the couch and watch The Bachelor than it is to sit and actually invest in real estate. So that’s what people do. They sit on the couch.

Kevin: Golly, you’re so right about that. And I think, really, one of the biggest things that stops people, and it’s almost the easiest thing to solve, is get pre-approved.

Brandon: Yeah.

Kevin: Just by the nature of picking up the phone and getting pre-approved, you now have a lender telling you, “You know what, we should really work to pay off this car, and then you can afford this kind of property.” Now you get motivated. Come on. You know?

Brandon: Yeah.

David: You’re so right.Right.

Kevin: But I just think too many people that are … Sorry. I think too many people are like, “I don’t want to have my credit run because it might drop my score by six points.”

David: Let me chime in on that because dude, Kevin, you’re speaking my language. This is the frustration of every real estate agent, right. The first thing is, your credit will drop; it will come right back in a month or two. It’s a temporary hit. The other thing is, if you get your credit run, you have a 30-day window to continue to run it from other banks and it won’t go down anymore. Because after the Fair Credit stuff happened after the last crash, the government changed the standards of how credit is run so that you could get multiple quotes and don’t get ripped off.

David: The third point is, I tell my clients this all the time, getting a pre-approval is not just something you have to do to be able to buy a house, although it usually is if you’re using a loan. It’s like going to the doctor and getting your blood work back. And they say, “Here’s the deal. Here’s where your cholesterol is. Here is where your A1C count is. Here’s where your protein count is. We need to make these adjustments to make you healthier.” Your pre-approval is a form of paperwork that you look at and say, “If I pay this off, I can borrow more money. I didn’t even realize that my debt was this high on this interest rate. All that I have to do is move this thing around, and I could get a better rate.” It empowers you now to have a plan to go forward. And like you said Kevin, it motivates you.

David: I think the reason people really don’t want to get pre-approved is the same reason guys don’t like to go to the doctor, is we don’t want to hear, “There’s a problem. You have something that you have to do.” But it’s so important, because once you see that, it impacts you emotionally, and then you start to take action. And that’s what we can all agree here. Taking action’s actually what’s going to build you wealth and help you grow.

David: Now Kevin, you’re a unique person. I know you have a YouTube channel that is massive. You’re known as a real estate educator, you’re very young, you give really good advice. I’ve listened to you on YouTube before, I think you have really good stuff. As far as being an agent, because we actually have a lot of agents that listen to this podcast, and we have a lot of people that work with real estate agents as well, give me some insight into what you’ve learned being a real estate agent, similar to me, that you didn’t know before when you were just an investor. What’s some things in the industry that you see, that give you an advantage because you work selling real estate for a living, that might benefit people who want to get into investing?

Kevin: Wow, that’s a really good question. It’s one that I would say … Okay, so we’ll go down this rabbit, because this is a big pet peeve of mine for investors. Most of the time when people become investors, or they start investing in real estate, they kind of turn into Draculas. “I’m an investor,” and everybody around them, “Bow down to me.” It’s honestly … People, for some reason, become mean and aggressive sometimes when they’re investors, and they don’t treat agents well, escrow well, lenders well, electricians, plumbers well. They’re the king of the universe, is their own impression. And that may be true, because investors create a lot of business for a lot of people.

Kevin: But what I’ve found being an agent, so to answer your question, what I’ve found being an agent, is as an agent, my relationship with the other agents is what gets me deals. Not because somehow I’m getting these pocket deals, but because when I call an agent, I don’t even necessarily have to know them. But I call an agent, and I say “Hey, you’ve got …” And I just did this this year, is I put my money where my mouth is. This guy, he put a listing on the market from out of the area, great deal, put it on the market for $650,000. I looked at the thing and I go, “This place needs $10,000 worth of work, and it’s going to be worth $775,000.”

Kevin: So I call them and find out, I talk to them, build some rapport, “Wow, it sounds like you’ve got a great listing here. Tell me a little bit, what are the seller’s motivations?” And by getting to know him and talking to him, and building a relationship, building rapport with him, I’m able to go from not knowing him, coming in as an agent, like “We’re colleagues here. Tell me what’s going on with the sellers, what’s going on with these other offers, what are the problems, why haven’t you guys picked an offer yet if you have 10 offers? Oh, because of this, because of this, because of this? Well what if I was able to make you an offer that checked off all of these boxes? Would you be able to sign off on an offer tomorrow?” That’s how I got a deal.

Kevin: That’s just one of the deals that I bought this year, but the big message that I’m trying to send was, and hopefully clearly, is by going in, a lot of investors, they start with, “Here’s an agent, I’m going to pick up the phone. Yeah, so what price are the other offers? Just tell me, where do I got to be? I got all this money ready to go, I’m preapproved, I got cash, where do I need to be?” And it’s very offputting to agents when you come in with the mindset that you’re going to be in the business for the long run, either as an investor or an agent, because your reputation will travel as an investor too, and you treat people like, “They’re going to be there for a while. Let’s work with people like you’re people.” You’ll actually end up getting more information, which will lead you to getting deals.

Brandon: That’s awesome. Work with people like they’re people. There’s a tweetable quote right there. All right, I want to go back to your story a little bit. So you got that first deal, that first house. How did you get into, actually, your first, other than your primary or your first investment? Let’s talk through that.

Kevin: Wow, yeah, so my first investment. We closed on this deal, we fixed it up. A lot of people are fearful of putting less than 20% down because of mortgage insurance, and they think this is the end of the world. Which, often times, when you do the math of mortgage insurance, it’s really the difference of getting a 4% to like a 4.75. It ain’t that big of a deal, it doesn’t change your life that much. Especially if you were getting a good deal. But we did have mortgage insurance, and we also wanted to pay this $20,000 back that we had borrowed.

Kevin: So what we did is, after we fixed up the property, and this is a method you folks have heard from before, we did a cashout refinance, and we were able to refinance to a conventional loan. 20% down essentially, because of the equity we had in it. We were able to take some cash out as well. We got rid of our mortgage insurance. The rates stayed about the same, it didn’t matter to us. So the payment went up a little bit, three, four hundred dollars the payment went up, but we now had extra cash available to consider going shopping.

Kevin: So I remember the next year, the beginning of the next year, we finished that renovation somewhere around August, November, we finished that renovation. I remember January, I was passing out flyers and I was thinking to myself, “I’ve got to find a deal. I’ve got to find a fixer.” I was almost sort of driving for dollars. I just wanted to put that energy out there. I think I had just seen the movie The Secret, and I’m like “Okay, if I put the energy out, I will get a deal.” That’s kind of what I thought. I just had no idea where it was going to come from. I was holding an open house in a neighborhood that I would gladly invest in, which I always recommend. Go work in the areas where you want to invest.

Kevin: Anyway, I’m holding an open house, and the neighbor across the street walks in and says, “Would it be weird to have two for sale signs on the same street?” And me as an agent, I’m like, “Ding, ding, ding, oh, tell me more!” Anyway, long and short of it, I visit her house and I see her house, and I asked her what she wanted for the property, and I go, “Gee, what if I told you I had a buyer?” And that’s how we got into our first investment property. Which, what was crazy about that was, it goes sort of back to this relationship world, and how small our investment communities can really be. Lauren, I brought Lauren by, my girlfriend at the time, now my wife, to look at the property. Lauren gets out of the car, walks up the driveway, I’m at the top of the driveway with the seller, and the seller’s like, “Oh my gosh, Lauren!” And Lauren’s like, “Oh my gosh, Mary!” They knew each other! Like oh my gosh.

Brandon: That’s funny.

Kevin: Imagine if they hated each other. That wouldn’t work well.

Brandon: “Oh Lauren, ugh, why’d you bring her around?” Yeah, good thing. So it was a single-family house, how much was this thing?

Kevin: We bought this single-family for 387. The first one, I’ll just backtrack quick, the first one, it was listed for 287. We knew there were two cash offers. I go, “The only thing I can compete on is paying more.” Which, remember, when people are flipping, the people who can always pay more than a flipper is the person who’s going to rent out the property. Then the only person who’s going to pay more than that is a person who’s going to buy it, live in it, and fix it up. But that’s a small percentage of people, right. Usually it’s a big gap. The home buyers, they don’t want the fixers. So bought it for 305, we paid more, we refinanced it. When we got our refinance appraisal, that was probably somewhere around 450 to 475. I didn’t mention this, I didn’t want to complicate it too much. We ended up getting a home equity line of credit as well, because we were able to get that 20% loan, get our mortgage insurance moved, then HELOC up to 90%, which gave us a little bit more money for fixup. The second property was $387,000. It was probably worth somewhere around 475 to five with maybe $30,000 worth of work.

Brandon: That’s cool. So what does a property like that in this area, this is Southern California, right, so what does it rent for in an area like that?

Kevin: When we first rented that property out, we probably rented it for somewhere around 24, 25. Now it rents for 29. So rents have moved a little bit, but usually these deals, the only way they cashflow, and this is the case for a lot of areas of the United States, a lot of rules don’t work out here because each market is kind of their own. Most of the time something like this, if you put 25% down on a good deal, good deal, 25% down, should be somewhere around two, three hundred dollars a month cashflow, so you’re not really getting rich off cashflow, you’re really making your money on the equity plan of building your net worth, acquiring these fixer-uppers.

Brandon: Yeah, it just shows that there’s different strategies for different areas.

Kevin: Absolutely. The other thing, too, that I personally like … Just this year, for example. And obviously as I’ve gotten better at this, the deals have gotten better. But this year I closed three purchases. One of them was 450, worth six. One with about 50, all of them, well the first two, about $50,000 worth of work. So 450, needs $50,000 worth of work, it’s worth six. That’s maybe a $100, $200 a month cashflow after vacancy repairs, PITI, everything. And there’s $100,000 of equity in that deal. Another property, 465, worth 615. Then that’s 650, worth 775, that one only needing about $15,000 worth of work, I talked about.

Kevin: So to me, I look at these three deals and I go, I just essentially increased my net worth $300,000, and I payed $0 in taxes on that, and because I’m a real estate investor, which anybody can do this when they own real estate, I’ll never pay taxes on that. Because if I go to sell, I’ll exchange. And one day, after I exchange my way, and the government says, “Kevin, you’re doing an exchange, no worries, catch us later on the taxes,” and I do that over and over again, one day I’ll have 9 million, 10 million, 20 million dollars worth of capital gains that I’m supposed to pay the government. Let’s say I sold them all, I’d have to pay a couple million, three million dollars in taxes. That would suck especially in California. But if I don’t sell, and one day I happen to get hit by a bus, my children and family will get all of these properties with a stepped up tax basis, and nobody will ever pay taxes on my gains.

Brandon: Yeah.

Kevin: Because of that, I look at real estate and I go, I just made $300,000 tax-free, and people are like, “Well how can you use that money?” Call up my buddy Bob like I did the first time and go, “Hey, can I borrow 100 grand to go buy another deal?”

Brandon: That’s awesome.

David: You said something I really want to point out, because I think it’s very valuable for especially new investors to understand. When everybody starts off, they have a perspective of how real estate works. It’s usually, cashflow is the reason that we do this. And there’s many reasons that that’s the case, especially just when you think about, we came out of the last recession, a lot of people lost real estate because they didn’t make sure of cashflow and they couldn’t hold it. So cashflow took this elevated position of the reason why you should invest in real estate. But when you talk to people who have actually done it, cashflow is usually the least important thing they care about. I tell people, cashflow does not make you money. Cashflow is a defensive tool. It keeps you from losing a property. You’re not going to make a lot of money … Oh, you’re writing that down too.

Kevin: Hell yeah.

David: All right.

Brandon: He’s going to have all these YouTube videos over the next couple weeks of-

David: That’s great, buddy.

Brandon: “cashflow is a defensive …”

Kevin: [crosstalk 00:27:00]

Brandon: Yeah?

Kevin: That’s a brilliant line there. Because people think that okay, I’m going to buy real estate, and I’m going to sit on the beach in Tahiti and drink Mai Tais all day long. But to me, and this is a challenge I always pose to first time investors, I go, ask yourself this. If you had a zero dollar net worth and you had no assets, how hard is it to create passive income? You have to go work, it’s hard. If somebody now, just to show the difference of net worth and cashflow here, if somebody now gave you $20 million of property, with $20 million worth of debt and zero cashflow … So literally, you’re in the same place. The person that has no assets, no debt, no nothing right, zero net worth, compared to somebody who has $20 million in properties, $20 million in debt, and zero cashflow, they’re technically, on paper, net, the same place.

Kevin: But what’s going to happen next year? This guy with $20 million in property is going to have paid down $500,000 of principle, they’re going to have appreciation, they’re going to have-

David: Tax benefits.

Kevin: The tax benefits out the yinyang. And, if they raise the rent on $20 million of real estate, boom, there’s a lot of cashflow real fast. So it goes to show that the challenge isn’t, let me get cashflow now. To me it starts with, let’s get some net worth going first, and some tools that are going to build us that net worth. Then [crosstalk 00:28:25]

David: And single-family real estate, it’s somewhat easy and simple to build net worth. You buy it for less than what it’s worth, and it’s valued based on comparable sales, right. So sometimes just buying an ugly house and making it a pretty house is all you had to do to build equity in the property, even if you didn’t build cashflow. But that starts to build your net worth. That’s because single-family real estate is not intended, it wasn’t built for the purpose of cashflow. That’s not why it exists. It was built for someone to live in it. We’ve Jimmy-rigged it to make it work that way.

David: What is intended for cashflow is multi-family property. Apartment complexes are designed to produce cashflow, and they’re valued based on how much cashflow they produce. The metric that you use to make it worth more is literally to make it a more profitable business. So if you understand that it becomes very simple, that you start off buying single-family rentals, not for cashflow, but to build equity; you then exchange that equity into multi-family properties later, which is designed for cashflow, and it’s a very simple process if you start with the end and work backwards.

David: You’re pointing out something I’m so glad you are, because I usually feel like I’m banging this drum and nobody’s listening to me. They just don’t want to hear it. Like “You have all these properties, you’re making so much money.” I’m like, “I’m really not. There’s stuff that goes wrong all the time.” You get this many single-family houses, you’ve got to pay people to help you manage them. You’re constantly dealing with paper cut after paper cut. It’s really annoying. However you’re building a snowball of equity that someday, in one fell swoop I’ll sell them all, I’ll go 1031 into a handful of properties that cashflow really good, most of my problems will be gone, and I’ll have cashflow. But my house is bought by cashflow, as opposed to the money that I saved up buying my cashflow, which is much lower.

Kevin: Bingo, that’s it. And it’s funny you say that, because that’s literally … People here, I’m just going to say it, people hear Grant Cardone all the time say, “single-family, don’t buy that, only buy multi-family.” He made almost $11 million dollars on a single-family which he was then able to take that $11 million in gains and … I’m not sure this is the case, but it’s presumed, this was 1031 exchanged into $50 million worth of multi-family real estate in Florida. So take $11 million in gains in California, boom, here’s your cashflow in Florida.

Kevin: One thing I do want to point out too on cashflow is, a lot of people, at least for people in their earning years, cashflow can actually be a little bit painful, because you do get taxed as ordinary income on that. Which is kind of frustrating, especially out here in California. You’re paying like 45, 50% in taxes, it sucks.

Brandon: Yeah, it’s true. But here’s the point we have to be careful to make sure we say, is that none of us are saying go buy a bad deal that you lose money every single month on, just because you want a chance at equity. Unless you’re rich. I know a guy in Southern California who came to me and wanted to buy a deal, and it was like, got to rent for $2,100 a month. His mortgage payment was going to be like $3,000 a month. And he’s like, “Should I buy this deal?

Kevin: Yeah, no.

Brandon: Normally I’d say no, but this guy makes millions of dollars a year in income from his business. So I’m like okay, fine. Of all the people I know, if you’re going to gamble on appreciation, and you really believe in this property, and that it’s going to go up, fine. You’re the guy that maybe could do it. Because you can handle it. But nobody else. That’s where it’s just knowing yourself, knowing what you are capable of, what you can handle.

Kevin: Yeah.

Brandon: I would buy a property in Maui, I live in Maui, Hawaii, so I buy property here and break even all day long. Why, because one, I can afford it, and it’s got to be actual breaking even, I’m not talking about mortgage same as my rent, but actually got to break even. Fine, whatever, if I hold it for 20 years the thing’s going to be worth way more, and my loan’s going to be way less, and I’m going to have a massive net worth from it, and then I can jump into multi-family.

David: Yeah, bingo.

Brandon: Cool.

Kevin: Well another thing that’s so interesting, just to kind of cap that, because what you just said there is so perfect, it’s like build that net worth, and even in an expensive area in Hawaii, you’re buying there because A, your income can support it; B, the numbers make sense, where your repairs and vacancies are covered by the rent with everything else. But another thing to know is, when people get started, you want to go start in multi-family, 35% down. Because like we said here, the banks, and multi-family being designed for cashflow, the banks are going to require that cashflow, and how do they get that? Out here, I go run the numbers on a multi-family deal, I’ve got to sometimes put 45 to 50% down for the bank to be satisfied with the cashflow. In single-family it’s like sure, you put 3% down; are you really going to be expecting cashflow right now?

Brandon: Yeah.

David: Okay, this is good stuff, and I think people are getting a lot of value out of this. At least I feel really good that we’re sharing the truth about real estate right now, and not the infomercial version where it’s packaged up so that you spend $40,000 to buy this thing that … I mean to make $40,000 in cashflow on these courses, that takes you like 70 years to do.

Kevin: It’s shocking, some of these really expensive programs. Sometimes I have people that come to me and go, “Kevin, I spent …” Actually I went to a shooting range, and the trainer knows a real estate investor and he said, “I’m looking into this $40,000 program that’s going to teach me how to flip real estate using other people’s money.” And I’m like, holy crap, I could tell you how to do that in the next 10 seconds. There is no shortage of hard money lenders. The shortage is deals. You find the deal, you find the money. There you go.

Brandon: Now you send them a bill for $40,000 and have a great time.

David: There you go, yeah.

Brandon: We’re all in the wrong business. Right now we’re launching the Kevin, David, and Brandon course on how to flip houses with no money. It’s $40,000, you can send your checks to me, it’ll be great.

David: It’s $39,000, we’ll save you [inaudible 00:34:10].

Brandon: We’ll save, there you go.

David: For the low low price.

Brandon: Yeah.

David: I wanted to ask you, Kevin, can you tell us what your portfolio looks like, and what your favorite parts of your own portfolio are?

Kevin: Yeah. Right now I control $6 million worth of real estate, and it’s all single-family at this point. Every single year of my career I’ve looked into acquiring duplexes, triplexes, fourplexes. I just, every single time I’m shopping, like I’m shopping right now, I’ve got money ready to go, I’m ready for my next deal, every single time I go shopping, I will put on Instagram, I’ll show videos, like “Here I am looking at houses, here I am looking at multi-family.” And every single time I go shopping, the multi-family stuff gets, at least in this area, so overbid, and I think it’s because you have so much money. Especially, you look at countries like Europe, where they have negative growth rates. People are looking to pension funds, insurance companies, everybody’s looking to dump money into real estate, and where’s that real estate going? Where is that money going? A lot of it’s going into multi-family real estate. They’re not looking at the single-family space.

Kevin: So a lot of these properties, they’re having offers from institutional investors, that it doesn’t matter how much they pay. It doesn’t matter how much a syndication pays for a 20-unit apartment building, or a 100-unit apartment building in California, because they make their money on how much money they have under management, and holding the property for the long term. The buy price doesn’t really matter to them. And that’s frustrating to me when I’m looking for undervalued real estate. In this particular area, multi-family undervalued doesn’t exist. single-family, on the other hand, only 11% of people looking at single-family are investors. To me it’s like shooting fish in a barrel.

David: It’s the same way in the Bay Area. I’m a real estate broker up here. We help people by helping them find houses. Everybody comes to me with what you said: I want to find duplexes, triplexes, and fourplexes, use a low down payment. It sounds great in theory, and at certain times it works really well, but what you just said is really important. Everybody’s playing in that space. I hear people complain all the time, “How are they going to ever make money at that price?” They don’t understand, they don’t need to make money. They just sold something, and they have 900,000 that they need to put into play in a 1031 so they don’t pay taxes; they can break even and save all the money that they were going to be taxed on. To them, it makes sense to pay that price.

David: When you get into your own perspective and you think about what you’re wanting, it’s very frustrating. When you step back and you look at the big picture, like what you’re saying, you’re making no money on your money in the bank. There are tons of people who’ve raised a buttload of capital, and they have to put it somewhere, and they can earn enough cashflow to break even or make a tiny little bit, so that makes sense for them. When you’re the little guy trying to get started, don’t go compete with these people that have a ton of capital and a ton of experience and all these advantages over you. You’ve got to find a place to hunt where there’s less people looking for the game, and that is absolutely single-family.

David: So what we do is, we look for areas with like a split-level single-family house, that can easily be managed like a duplex. It’s got a finished basement and a top house, and maybe we put some drywall in the top part of the house, and put a kitchen on the other end of it, and we can just turn it into three units. Now it’s not technically a triplex, because it’s not zoned for multi-family. You wouldn’t be able to use the income from it to qualify for the loan. But if it’s in a price point that you can qualify for, I can find you something that will make you cashflow, and make that deal, as opposed to just looking for something that’s labeled a triplex that every other investor is getting in their search. And that’s the way you’ve got to be. You have to be different. You’ve got to look in places other people aren’t looking.

David: Now I completely believe we will hit a recession at some point. I don’t think it’s right around the corner like some people do, but eventually it will happen, and there will be the fish in the barrel. Those multi-family properties will be dropped in value, the investors will want their money out, the people will be selling them, they’ll go to foreclosure, that’s the time that you go buy those deals. Why not build equity in the single-family space in the meantime, so that your gun’s loaded, so to speak, so that when those opportunities come you can move on it, rather than just sitting around and complaining that, “It’s so hard, the deals go so fast.”

Kevin: That’s a really, really good thing you just said there, is find a way in your space to make your deals work, and in your area that might be taking that single-family. You know what, maybe you’re Airbnb-ing out the basement. What we’re seeing a lot of, especially now with the new ADU laws, people are buying fixer-upper, in our area midtown Ventura homes. These are these little 1920s, 30s, bungalows that have larger yards, and they go, “Let’s convert the garage into a legal ADU now. Boom, there’s our cashflow.” What a great way to get started. There’s so many opportunities for people to get started. And really, things become a lot easier when you own your first place.

Brandon: Yeah, so much easier. So you’ve just got to get started somewhere. So how does somebody who’s just getting started, how are you finding deals in a competitive market, in an expensive market? How do you find deals, and how do you recommend newbies listen to this, to get started?

Kevin: To me, there are dime a dozen opportunities. When I look statistically, let’s just throw the numbers out, we have about 1,000 sales per year in the city of Ventura. And of those 1,000, I’d probably say about 10% need work and are fixers. And maybe about half of those are good deals, like great deals. So I just took 1,000 to 100 to 50, and now if I divide that 50 by 12, I get one deal a week that hits the market that’s very, very good and juicy. So for me, every single week there is an opportunity that hits the market, that I could be writing an offer on, that I look, I go, if I just get one a year, I’m doing really really well.

Kevin: And there aren’t that many people competing against me in a smaller city like Ventura. I mean Ventura has 100,000 people, but the problem is, most of the people in the real estate competition space, 89% of them based on kind of what I see out here, and stats that I can read online or research, 89% of them, the average home buyers, they’re not looking at these fixers, these deal a week that comes up. They’re not looking at those. And these are MLS deals. I’m not even talking about doing anything like driving for dollars or the other ways that you can find deals. Just straight up deals that hit the MLS, being fast on them, being preapproved, being ready to go, and seeing value where other people don’t see it. Those come up easily once a week.

Kevin: And again, so 89%, your home buyers, they don’t care about them because the carpet’s stinky, it’s got a little bit of mildew in the bathtub or whatever, they don’t care. Then you’re against the flippers, which, just pay a little more than the flippers if you’re going to rent it out or live there, and you win.

Brandon: Yeah. One thing we talk about a lot with the BRRRR strategy, the buy, rehab, rent, rinse, repeat, where it’s like flipping but you hold onto it, we talk a lot about it, you can pay more than the flippers where you’re going to do a BRRRR strategy, because you’re holding on to rent it. So if you’re doing the BRRRR strategy, you can pay more than what the flippers are. So this is what I always say, if there’s somebody in your market flipping houses, anybody, if there’s flipping going on, you can get into rental properties. Because if the flippers can do it, you can do it as well. Almost entirely, you can find a deal to buy, rehab, rent, and refinance your … You can find those deals if the flippers are doing it, and they’re everywhere. So people just love to have these limited beliefs of, “I can’t do that in my market, it doesn’t work here.”

Kevin: It’s just an excuse. What you’ve said is so brilliant. Literally. You said two great things. One, if the flippers are doing it, you can do it. And the second thing you said is, everywhere has a flipper.

Brandon: Yeah, everywhere.

Kevin: Yeah.

Brandon: Yeah, for sure. So let’s talk about, what do you look for, specifically those deals of the week that come up? You kind of mentioned a few things, but let’s say, give some people some actionable, like “This is what I look for that makes me go, ‘Yes, I’m going to go analyze this deal.'”

Kevin: All right. First thing, and let’s see if I can pull something up here. The first thing that I’d like to do when I look for deals is, usually it’s got to be new. I’ve seen all the old stuff already, and a lot of the old things, the older listings, I’ve already tried to lowball occasionally. I keep them on a list, I try to lowball them again. I keep a dialogue going with the agent, that’s usually the easiest way for me to do it. Generally though, the deals that I buy are the deals that, they hit the market, I’m there the first day, they get other offers, but I don’t get discouraged by the other offers. I see the other offers, and this is maybe just a mind twist, but I see the other offers as my safety net. If other people are writing offers, other people see value here, and that’s good. I know I’m going to be again … Those home buyers, they’re usually not writing offers on this, but let me show you what I’m looking at.

Kevin: Let me see if I can do this. If I press this button, that button, we should have an example.

Brandon: Nice. I do see it.

Kevin: This is an example of a property that I just bought, and you go in here, you go, there’s no flooring, so the way the agent sold this property is, it has to be cash only, because they ripped the carpet off. The old asbestos tiles are here. You’ve got the acoustic ceiling, you’ve got the older fireplace, everything’s kind of disheveled here. This is the kitchen. Everything about it, most people are going to look at this and go, “Gross, it’s old, we’ve got to demo everything, we’ve got to tear everything out.” You go walk over towards this way here, you literally have your blue bathroom tiling, which is kind of nasty too. They even, to match, over here, have, where is it, there it is, a blue toilet. You can kind of see the blue toilet bowl right there.

Brandon: Oh yeah, beautiful.

Kevin: Just everything about it is just nasty. This is money to me. And the reason it is, is because this place we bought for $465,000, we’re going to put about $45,000 into it, and that’s scraping the ceilings, flooring, removing the white paper, painting it, new light fixtures, outlets, door handles, a couple new vanities. We’re going to glaze the tiles in the bathroom, refloor. Then 40 will be gone after we repaint. We’ll actually keep the kitchen cabinets and we’ll repaint these instead.

Kevin: Because initially people look at this and they go, “Ew, gross, look, they’re terrible.” I look at this, I go, this is hard wood. This is nice quality stuff ready to go as long as it’s not water damaged or broken or whatever. I can make this work. Over here, for example, we cut in a range, so we put a little 18-inch cabinet here and cut in a range right here. So now I’ve got my oven and my cook top and I’m ready to go. That’s the kind of stuff I look for. When I see that I go, I could play that game all day long. And I’ll keep doing that. Maybe it’s just because a lot of people go in there and they go, “I’m going to have to spend $150,000 on it.” I look at it and I go, “I only need to spend 40 on it, what are you talking about?”

Brandon: Well yeah-

David: You’re buying a problem, and the problem is, it’s ugly. Right, that’s it. It’s not a horrible problem.

Kevin: Hey, whose house are you saying is ugly? Yeah, you’re absolutely right.

David: And that problem, it looks worse than it is, right, and you’ve got some experience, so what you’re seeing is, okay, this is a facelift. I just need to go put makeup on this thing. That’s not a very big deal.

Kevin: Yeah.

David: I love the fact that you just showed us a deal that makes a ton of sense, there’s a ton of equity in there, it scared everybody else away because it wasn’t pretty. Well you can make it pretty. That’s like the best problem to solve.

Kevin: Yeah, exactly. I’m going to see if I can just probably take a second. I’ll see if I can pull up a partial after that I have, but if not, no worries. Basically what I described to you is what we did. And exactly, maybe it’s just because I look at these deals, and I don’t go in there and I say … My favorite thing to buy, and this is my definition of your wedge deal, and it’s very much like this deal; I go in, everybody else, they’re looking at all the nasty stuff, and the smell, and the lack of carpet and stuff like that. I look at it, I open the furnace closet, I go, brand spanking new furnace. I like this. I look at the roof, I go, that roof is pretty good. We’re going to put on new ridge caps for $1,800, that roof’s going to kick it for another 10, 15 years. And you look at the foundation, all of the expensive things are good. Grounded electrical. The expensive stuff is good. The cosmetic stuff is, I think, what people dramatically overvalue, and that creates an opportunity to even get on the market deals for a dramatic discount.

Brandon: I’ve had so many people I’ve talked to … One specific, I remember, a friend of mine said, “We walked into a condo and just took one sniff, and we walked right out.” And I was like … They were trying to buy an investment property and they’re like, “We took one sniff and walked right out.” They were kind of proud of themselves because they didn’t want to …

David: Yeah.

Brandon: I’m like, “No, that’s my favorite thing in the world.”

Kevin: And condos are like the safest thing to buy if you think about it, because you’re sharing responsibility for the roof and the plumbing with everybody else. It’s a great way to start.

Brandon: I got two condos right now that I’m flipping, but ‘l hold them as rentals all day long if I have to, if the market changes, because yeah, I like the idea of the … I mean yeah, there’s some annoying things you’ve got to be aware of, but overall-

Kevin: HOA, yeah.

Brandon: Yeah, the HOA primarily. So here’s my question for you real quick. Oh by the way … That’s the partially finished, it’s looking awesome.

Kevin: Yeah, this is partially, so you could see, these are the same exact cabinets. We did a gas line here so I have a patch I got to do. I just quickly wanted to show you, this is just a quick little shot of what that kitchen looks like now, where we painted the cabinets this gray, we put the hardware in, you can see the stainless appliances, the quartz countertop, new faucet, new sink. So this all of a sudden, you get a regular home buyer that walks into this, they’re like, “Whoa, where do I sign up? I like this.”

Brandon: That’s awesome. Of course if people are listening to this right now, you should go and check out our YouTube page, and see what Kevin’s got showing here, the before and after. It’s pretty remarkable. So YouTube.com/BiggerPockets, you’ll see some things up there, and of course, obviously, follow Kevin as well on YouTube. What have you got, Meet Kevin on YouTube, right?

Kevin: Meet Kevin, yep.

Brandon: All right. So I’ve got a question for you. How does a new investor know … You and I look at that property, the one that you just kind of walked through the matter port there right, you and I look at that, and David, and we’re like “Oh yeah, great, we’ll paint the cabinets here, the flooring, whatever, we’ll cover them with this …” It’s not a scary thing. But how does a newbie know something is cosmetic, and not a scary thing? Or, this is a tremendous rehab that they should not get into, because it’s going to be a money pit?

Kevin: That’s a great question. Really, the … The first thing that everybody should do is buy something to live in. And when they buy something to live in, they start understanding, wow, these houses, they’re really just … Especially if it needs work, and you start doing some work yourself. When you start doing things like, “I’m going to put on paint, I’m going to do a little bit of drywall. Maybe I’m going to have an electrician show me and teach me how to change an outlet safely.” All of a sudden …

Kevin: That’s exactly what I did when I started. My first deals, I did the drywall, I scraped the old tiles off the floor. I scraped the ceiling. Whatever it took, I did it. And what it taught me was something that I thought, especially at 19 years old, was an invaluable lesson that, wow, these houses are really just toothpicks and paper. It’s not that complicated to deal with the cosmetics. But what it also showed me is, if you don’t properly inspect the systems, those could be a lot more expensive. So by doing it, by owning the first property and surrounding myself, this is probably more applicable for everybody who doesn’t have the time to do the work, by surrounding yourself with professionals who know, now you protect yourself.

Kevin: So you go into a house that needs work, you say “I’ll do some paint, I’ll try drywall, I’ll try some of these things.” But now you bring in your real estate agent who also invests. What’s going to happen? Your real estate agent’s going to tell you, “I invest in this neighborhood, and Kevin, you know what, we need to make sure that we scope the plumbing lines, not just from the outside to the street, but the inside as well, because these cast-iron drains rot out. Maybe they’ve been replaced, maybe not. Let’s look at that and see what our exposure is there.” That’s where you learn a lot really fast. For free basically, because your agent’s getting paid by the seller.

Kevin: And then guess what, you do a home inspector, and the home inspector goes, “You know what, this electrical thing over here, this is a little janky.” Okay, you call an electrician, the electrician comes over, and even if you had to pay him … People are so fearful like, “No electrician is coming to talk to me.” Have you tried this? You pick up the phone, go, “Hey electrician, I need an electrician for about 30 minutes next week, I’m willing to pay $150 just for a site consult on a property. I’ll pay you right there on the spot, $150, if you could walk the property with me.” I guarantee you they’ll be down, because it’s like four times their hourly rate, right. So they’re there, and now, “I’ve seen these panels before. You know what, these houses, they’re actually wired pretty well. But we should change out the panel. This is really just an 1,800 problem for you.” Wow, cool, thanks. I knew nothing about electrical. Now I quantified it with a number. It’s $1,800. Does that still make sense to my deal?

Kevin: So the two things. One, be willing to do some stuff yourself, and learn and be exposed. Because if you walk in and you see stinky asbestos and lead and mold and all this, you’re going to be fearful unless you’re willing to try to expose yourself to understanding, what does it actually take to deal with this and solve it. Second thing, surround yourself with professionals, because you’d be surprised how much you can learn for a very little price.

Brandon: Yeah. That is so good. Really really good. So this deal that we’re talking about here can really kind of be … We always do a segment of the show called a deal deep dive, and really this is kind of it. It’s, how did you buy it? You bought this MLS, right. You bought this property, you already told us what you paid for it, you walked us through all that. What’s the long term plan with it? Where are you headed with it? Are you just going to hold it as a rental?

Kevin: Exactly. This property, if I don’t refinance, because we bought it so far below market value with 25% down, this property will cashflow probably around $700. But I actually, like I said earlier in the segment, I don’t want the cashflow. I could easily do a YouTube video or whatever, “Look at all this cashflow. Even after we’re $200 for repairs, and vacancy or whatever, and management expense, this, that, and the other, the PITI, all this stuff, look at all this cashflow. Just because I got a good deal, it’s $700-plus, wow, cool, I get to spend it on whatever I want.” I don’t really like that. Because it’s a lot of taxable income for me, and I don’t want that right now.

Kevin: So for me, this deal, usually I probably only refinance deals like 30% of the time, but this particular deal, because it does have so much on the bone, I’ll refinance it, and probably pull out cash to where the cashflow is closer to $200, maybe $100 after repairs and vacancy and all of that. So I’ll be able to take out a little bit of cash, and then I’ll just go shopping for another deal. The plan is, because I’ve renovated, because I know how old the systems are, and the quality of the property, and the quality of the cosmetic remodel that we did, I look at it and go, “I don’t mind holding onto this for the 27 and a half years. I don’t plan to sell it.”

Kevin: Mostly I don’t want … Look, I’m a realtor, but I always say, I sell real estate, but I don’t sell real estate, because I hate paying other realtors. So even though I represent myself, I just don’t want to pay the closing cost. So I’ll keep it for 27 and a half years. In the meantime, as values go up, I can pull seconds on it if I need to. I don’t want to over-leverage though, I want to be safe, and I’ll go shopping for other deals. Usually, portfolio-wise, I don’t like to be any more than like 60% debt overall, the whole portfolio. And right now I’m below that, so I don’t mind doing some refinancing.

Brandon: That’s great. So where do you see yourself out in the future? What does the next five, 10 years look like for Kevin?

Kevin: It’s funny, because I think our society says that … There’s society-driven Kevin, and then there’s the “Kevin you should do this.” So society-driven Kevin says, “I’ve got to 10X, I’ve got to do a syndication of single-family wedge deals, Meet Kevin Capital. I’ve got to go out there and have a big team with 20 employees, and we’re going to have a startup. We’re all going to start in a living room and then we’ll be out in a warehouse somewhere or whatever. Everybody’s hunting for deals and helping people. We’ll pay more than Open Door and Redfin now or whatever, and just go crank it.” There’s that side, which is, I say that’s society-driven, because it’s always like, “You have 10X, 10X, 10X.” But then I also come from a place of having been a licensed contractor, having had 15 to 18 employees at one time, feeling that stress, feeling how little time I actually got to enjoy myself, my family, my children. That’s a problem.

Kevin: Then there’s the other Kevin, which is like, “Wait a minute. This is such a good formula, just buying these simple, basic little deals, building your equity so fast, renting them out, and then just enjoying …” It doesn’t take that much effort to do these deals, you know. It’s like, just keep doing that. I know that’s more of the boring answer, but honestly, that’s just such an easy thing. I’m one of those people though, that, I do get bored easily, I’m constantly like, “What’s next, what’s next, what’s next”. And I think that’s dangerous and risky, because that could make me very unhappy. Where right now I’m in just such a happy place where I don’t have to go crazy like that.

Brandon: Yeah. That’s a great answer. I struggle with that as well. Part of me says, “I should just relax and hang out and enjoy my time,” and then I’m like, “No, I’ve got to go bigger and bigger and bigger.” You know what made a big impact on me was, Tim Farris said, I think it was on one of his honor podcasts, but also just on his own show, what if it was easy? So the question I’ve been asking myself all the time is, how can I get that thing, the growth of a big company and equity, Brandon Capital, how do I do that but not have to do the 50, 60 hours of hard work, the Grant Cardone hustle, hustle, hustle thing? That’s a hard question to answer, but that’s what I’m exploring and trying to figure out right now, I show do you do that?

Kevin: Yeah, and I think in part, it’s a hard question to answer because it’s … And I’m not trying to say this about your goals, [crosstalk 00:57:39] in general.

Brandon: No [crosstalk 00:57:41].

Kevin: In general, usually it’s very unrealistic. People, I think, they think, “All right, I just want to work four hours a week. I’ll have a startup and I’ll be rich.” It usually doesn’t work that way.

Brandon: Yeah, never.

Kevin: You look at Elon Musk sleeping on the floor of his offices, and I’m not trying to compare myself to him, but … 2015, for example, the year I sold the most real estate that I’ve ever had in my career, and had employees, and had all these other business ideas and stresses going on, pre-YouTube, I look at that time and I go yeah, there was money success, but it came at the cost of working 90 hours a week, not four hours a week, and I was really unhappy.

Brandon: Yeah. Really good point. Really good. All right. Let’s head over to the next segment of our show. It’s the fire round.

Kevin: Fire round.

Brandon: Fire round. All right, this is the fire round. This is the questions that come direct out of the Bigger Pockets forums, and we’re going to fire them at you and see what you’ve got to say. So Jordan from, I’m not sure where he’s from, but Jordan said this. Oh wait no, he says it in the question. Jordan said, “Where in California are people having the most luck finding cashflowing properties? I’m in central coast and it seems like the costs are simply too expensive to make the numbers work.”

Kevin: This is sort of the generic scenario that we get all of the time. People look, they go, “If I’m going to put 10% down on the deal, this isn’t cashflowing, that’s it, I’m just not buying real estate.” Well of course. Two things. The only two ways you’re going to get cashflow in Southern California, southern coast, or NorCal, anywhere along the coast, the only way you’re going to get cashflow is, one, below market value deals, to where the cashflow now makes sense, or number two, you put more money down.

Brandon: All right.

David: Very nice. This next question is from [Synkai 00:59:36] in New York City. “I have never purchased a house in my life, so when, where does a buyer’s real estate agent role and responsibilities end for the commission they get paid?” I like this question. “Is it their responsibility to arrange the city code inspection, the regular inspection, communicate with my attorney and title and closing company, et cetera?

Kevin: Okay, interesting. Every real estate agent is different. I’m just going to say it because it’s real. Usually what I’ve found in my experience is, the larger teams, the real estate teams, they’re so busy that often times they can’t go to that level of providing more value to you. I’m not saying don’t use teams, but I found a lot of the really busy agents, where their phone is ringing off the hook with people asking to work with them, you’re going to often times get a little bit of lesser service. Not always, but this is what I’ve found.

Kevin: Generally what I’ve found is, if you find an agent that’s not overly busy, invests in real estate … And maybe this is a unicorn, but I don’t know. Invests in real estate, and isn’t overly busy, but is out there looking for deals for their clients, these agents can often times provide you a lot more value. And these are people that, you really … The way the question was phrased, I’m just reading between the lines here, makes me think that this is somebody who’s doing a cost-benefit analysis on their real estate agent. They’re going, “They’re making this much money from my purchase; they should do this, this, this, and this.” And I think it’s the wrong way to look at it.

Kevin: I think if you find that agent who invests, and that agent that’s working with you directly, it’s not an assistant and it’s not a team member, that agent who’s working with you directly, that agent should be a lifelong relationship for you. I have clients that, I know their tax returns, I know their finances, I know how much money they have, how much their businesses make. And for these people, when they call me and they say, “Kevin, you know what, who’s the plumber of choice this week,” they could call me three years after they bought something, I’m there for them to help. Because I’ve created this relationship with them. I think if you look at a real estate agent as a long-term, money-generating relationship, then you’ll look at real estate a lot better than, what I’m worried in the direction you might be going.

Brandon: Yeah. Great answer. All right, number three. “The last month I’ve been getting my butt kicked with tenant complaints, repairs, high vacancy. What’s a bad rental situation you’ve been through, and how could you have prevented it, or what would you do differently next time?”

Kevin: Wow.

Brandon: Yeah, what would you do? Or, how do you deal with just, rough times?

Kevin: It’s tough for me, a little bit, to relate to, because I drive myself so crazy in my pre-screening stages … And I’m not saying that they don’t pre-screen properly, but one of the things that I’ve found that I’ve loved about these single-families is, I’m buying median priced, single-family homes, and I’m prescreening people to where I know they have excellent credit. Maybe they own property somewhere else, they’re gainfully employed. And they meet all of these criteria that, I usually don’t have headache tenants, A. B, I don’t buy a property and rent it out as-is. There are a lot of investors that I know, they buy a property, they rent it the way it is, and then they say, “If something breaks, tenant can call me.” Well yeah, then you’re going to have issues. So those two things, the prescreening and the tenants, the quality tenants. Keeping the properties properly renovated is helpful, even if that means you have to rent slightly, a little bit, below market value rent, just to get a good quality tenant, you’re now going to minimize that turnover.

Kevin: But the other thing, and this is possibly a risk, and I’m going to try to help in that scenario, this is another possible risk. When I hear somebody saying, and [inaudible 01:03:36] phrasing the question high vacancy, you’re probably dealing with units. One of the problems that I’ve found in units is, people get started with smaller units, like studios, like tiny things. These are always going to have high turnover. So you have three possible issues here that could be longer term things that you might want to solve. That’s making sure they’re properly renovated, making sure you’re properly getting those higher quality tenants, doing the renovations to attract the higher quality tenants, because high quality tenants don’t want to live in crap, and then maybe increase the size of your unit.

Kevin: Once you have those three things solved, what do you then do when you’re dealing with these rougher times? You suck it up, it is called real estate ownership. I’m sorry, it is what it is. You get in there and you fix the problem. Look, I’ve got an insurance claim on a property going on right now. I didn’t want to have to crater a hole into a property to replace the sewer line. But guess what, it’s an insurance claim. I’m getting all new stuff out of it. I’m getting $35,000 worth of value paid for by the insurance company, which is spectacular. But yeah, guess what, it’s a pain in the butt. I have to go over there and make sure they have the faucet I bought on Amazon, which I usually don’t recommend getting faucets on Amazon but this is special circumstances. I’ve got to make sure everything’s coordinated. It’s work. But it’s still a good deal, and I’m still coming out ahead.

Brandon: Yeah. Great answer. Awesome. Hi, last question.

David: All right, last question. Which apps or online tools do you use the most in your real estate investment business? Is there a specific system that, once you set it up, it saved you a ton of time and headache?

Kevin: So I’m like the opposite when it comes to apps and stuff. I’m very anti … I hate to say it, but very anti-spreadsheet, I’m anti-programs, anti pretty much everything tech. Because when it comes to the deals, what I’ve found is, when I go through with a spreadsheet, I often times, in the past, I’ve misvalued properties because I wasn’t able to incorporate, what’s the market doing at this time, and sometimes these intangible values, in terms of my market valuations. Like competition, and how am I going to make sure I’m not overpaying. Sometimes the spreadsheet can miss that for me.

Kevin: But also on my renovations, when I walk through a property, the way I do it is, I create a new spreadsheet every single time. I take my laptop, I stand there, and I look around. What do I have to do? And look, okay panel, the roof, the flooring. I write everything down before I ever even write the offer. I do a custom spreadsheet, and I just kind of write down, “I see I need to do outlets, I see I need to this, I need to do this, I need to do this.” To me, rather than being focused on an app or program, I focus on the property itself.

Kevin: I know sometimes that could be like, “What if you don’t think of something, what if you don’t see something?” I guess that’s where you want to surround yourself with that circle that helps you, the agents, the contractors, the professionals. But the most important things that I do use in terms of apps are the Zillow mortgage calculator, just solely because I see what interest rates are doing every single day, I can kind of see that up-and-down, I like that a lot, and then usually, and aside from the MLS, and as much as I’m not a fan of Redfin, especially in the realtor community, they’re big competitors, their app is fast. So when you’re looking for new deals, their notifications for deals that [inaudible 01:07:01], fast. So those are the two things I use, but outside of that, I don’t use anything.

Brandon: All right. All right, good answers in the fire round. Now it’s time for the last segment of the show. It’s our famous four. These are the same four questions we ask every guest every week for going on, almost what, seven years now or something like that. It’s crazy. Let’s hear what you’ve got to say. Number one. Kevin, do you have a favorite real estate, specifically real-estate-related book?

Kevin: Ooh, ah … This is a tough one to answer because I’ve read so many. The difficulty that I’ve found is, markets are so dynamic that a lot of people will read books … And the nice thing is, you guys have an excellent selection of books, and I’ve read some of your books on rental property and investment.

Brandon: Thank you.

Kevin: They’re great, and they take you from this place of zero knowledge to a good baseline of knowledge, which I love. Like if you don’t know real estate, this is so great. Or if you have courses online or whatever, there’s such great ways to go from zero to a good amount of knowledge. But often times I struggle a little bit with finding … If I only zone in on books, I miss my local market opportunities. And that’s where often times I try to drive people, I go, “What can you do to get out there and get involved with a circle of people that are going to help you get deals? How are you going to find those agents that are out there hunting for deals?” That’s usually my preference over books.

Kevin: Seriously, your books, great.

Brandon: Thanks.

Kevin: So I hate giving that answer, because I like you guys. You guys are awesome, okay. But that’s my answer.

Brandon: No, I think if there was a choice between reading a book or going to a local meetup, I’d go to the local meetup, all day long. I’d tell somebody, “Go hang out with real investors in your local market.” Again, baseline, great, but get out there.

Brandon: Number two then. David, you want to ask it?

David: Number two. Do you have a business book that you really like?

Kevin: Oh man. Yeah, so I really liked the Good to Great series. There’s Good to Great, Built to Last, and there’s one more. It’s like a trilogy of books, I can’t remember-

Brandon: Yeah, wasn’t it like Great on Purpose or, I don’t remember, something like that.

Kevin: Yeah, exactly. Those were really, really good, and they gave me some good perspective. I’m also a massive fan of Malcolm Gladwell. Blink is a really really good one. Some things like that.

Brandon: Awesome.

David: When you’re not selling real estate, walking properties, playing with your kids, making awesome content, what do you do for fun? What are some of your hobbies?

Kevin: Wow. What’s funny, and it’s probably a curse of being an entrepreneur, is you’re almost always thinking about work. You’re always thinking about, is there a new Redfin notification for a deal, or an MLS email? And this is a struggle, even when I’m with my kids, I’m trying to have fun playing Nerf guns, which I love, with them, I’m still often times thinking about, got to get some content, or got to deal with this with a property, or whatever.

Kevin: Outside, if I could just remove every distraction, which sadly lately I haven’t had much time for, the things that I really like, paintball and Call of Duty.

David: I like it.

Brandon: That’s really funny. All right, last question from me then. What separates successful real estate investors from those who give up, fail, or just never get started?

Kevin: What separates successful real estate from the ones that give up and fail? Those things all relate back to almost the truth in any business. You’ve got to be tenacious, you’ve got to get through the crap. You are going to have bad deals. You’re going to have hurdles that come up that say, “I should not do this.” Let me just make this very, very simple and go back to that first deal. We started out this podcast by saying, “I’ve got this great deal.” It’s really easy and exciting for me to talk about that in hindsight, but when I zoom into that deal, what I didn’t mention is, we started that escrow, I think it was like in February. We didn’t close it until July or August. There was like a six-month transaction. And there were so many parts during that transaction where, this is a Bank of America foreclosure at the time, there were so many parts of that transaction where I go, “That’s it, this just isn’t meant to be.”

Kevin: I’ll never forget standing inside of the house, and when I go inside a house to look at it I usually lock the door behind me, and I take the key inside … I’m in a showing, and people will literally just stroll in, “Oh, I thought it was an open house.” “Really? There was no sign.” Anyway, going back to that [inaudible 01:13:13], in the inside of the house, the house is locked, and the seller, Bank of America, is like, “The deal’s done. We’ve had it with you guys.” This is only two months in. “We’re done, we’re canceling, that’s it.” They put it back on the market, it’s active. I’m in the house at the time, I was doing inspections and meeting a kitchen contractor to work on some proposals, and so we’re in there doing our due diligence, and the deal’s canceled, the other agent’s freaking out, and they’re like, “That’s it, it’s over.”

Kevin: At the same time I’m in there, two other people show up, and they’ve got this investor vibe, they’ve got that investor look, and they’re walking around here in California with their shorts, their T-shirt, and their polo, and they’re kind of doing the look in the windows, and looking around at the eaves. At that moment, the despair I felt, that utter defeat, of “Wow, I thought this was going to be a defining moment of my life, and now it’s trash, it’s horrible, I’m a failure,” was so … It’s something I’ve never shared before. It was so miserable that, looking back now, I could look at that time and go, “Wow, I’m so glad I didn’t give up, and I fought to get that deal reactivated and kept going.” Then that’s the advice I give for everybody. Don’t give up. Even if you fail, don’t give up. The beautiful thing about America is, I could go bankrupt and I wouldn’t give up. I would get an FHA loan in two or four years, and I’d start over and do it all again.

Brandon: Man. Awesome advice, dude. Well this has been fantastic. Thank you for joining us today. Where … Actually I don’t want to take David’s last question. David-

David: You always worry about that. Brandon, you go ahead.

Brandon: I know. Nope, I’m not doing it. I’m not doing it, you take it.

David: All right. Kevin, where can people find out more about you?

Kevin: Yeah, Meet Kevin on YouTube or Instagram @MeetKevin, and hey, I’m around. I try to post daily, we’ll see.

Brandon: That’s awesome. Awesome, you have a great channel, and everyone go follow Meet Kevin on YouTube and Instagram. And, very cool. Thanks Kevin.

Kevin: Thank you.