Rental Arbitrage, Out-of-State Investing, & Home Loans You’ve Never Heard Of | Q&A w/Henry Washington

David:
This is the Bigger Pockets podcast show 573.

Henry:
And you never know what kind of leads you can get from that. And as you build that relationship and they’re going to see just like you told us, they’re going to see that you care, you want to provide good, beautiful, nice housing for people. They’re going to want to make sure that the assets in their neighborhood get sold to somebody like you over somebody else. So the relationship networking is huge.

David:
What’s going on everyone. It’s David Green, you are host of the Bigger Podcasts podcast here today with my co-host Henry Washington for another live show. On today’s podcast, we have callers or viewers. I don’t really know what you call somebody if they come in through the internet anymore. It used to be a caller. It used to be a radio show. We’re sort of in a period of limbo where I don’t know what you call these things, but we have live people who are bringing their questions to us for us to answer. And I love doing these shows. Not only do we never know what they’re actually going to ask us, but we get to dive into their specific situation so that the advice we give is custom made. And I love being able to do this because many of the people listening will learn more from what somebody else was advised to do than they would from just listening to the story of someone who’s different than them and is on a different path.

David:
So, in today’s show, you want to make sure that you pay attention. We share some information about what to do when you’re just kind of bored of investing in real estate or the work doesn’t seem worth it. If you get to the point of success where the juice just isn’t worth the squeeze, what can you do? We talk about when loan products are no longer working for you, when you can’t get conventional financing, what can you do to ensure that you still get loans to be able to buy more real estate? We talk about if you should go after cash flow or appreciation, and when the right move is to made. We have some conversations about what to do when you just are in an asset class like multifamily and you can’t make any ground. There’s just too much competition, you feel like the numbers are too tight. You don’t feel like you should be moving forward, but man, everybody else’s too. Henry, did you have any favorites that you wanted to comment on that people should keep an eye out for?

Henry:
I absolutely do. So my favorite part of the show was when you were speaking to the gentleman from Idaho and he was having an issue of trying to find a way to buy cash flowing property in a market where frankly, a lot of people are getting priced out of. And this is why I love these live shows. Because you were able to listen to the struggles that he was having and see beyond that he was having just real estate struggles. And that he was having struggles just trying to figure out how he could add value and still be of service and be of value to people. And you were able to pinpoint that and then point him in a direction that would not only help him feel like he does have something to offer, but that he can use that strategy to then find him real estate. And you just can’t do that on a typical show. So this is… It’s a really special moment and I’m really excited for people to be able to listen to that.

David:
Thanks for that Henry. That’s actually one of the things I enjoy about being in this position the most. Is there’s a lot of people that you can listen to on a podcast that will just spit off information like here’s how you find an ROI and make sure that the house has a good roof when you buy it. But that often doesn’t translate into specific, actionable things that you can take and go put into your business. And it also doesn’t always create a vision for yourself. A lot of the time you won’t move forward until you see what you’re moving into. You have to have some kind of vision of what this would look like. And a lot of people that are listening are stuck, because they know they should do it, but they just don’t know what it looks like to do it.

David:
So they don’t know if they’re doing it right. And if you catch yourself in that position where you feel like you don’t know if you’re doing it right, what you need is vision. And we’re trying to provide that for you here.

Henry:
Yeah. And so, I have one really pressing question for you. I try to bring the hard questions, David. And so, do you practice the numbers thing when you do the intro with the fingers like five? Because I would get five, seven. How does that work?

David:
I hired a personal coach. He was a former Navy seal and a brain surgeon, who’s also a philanthropy billionaire because that’s the level of person that it took to be able to get into my head and help me with this. And much like a Buddhist martial artist, I just sat in front of that person for 14 hours a day throwing up different finger signs until my mind could be honed into the weapon that it’s become. So, I really appreciate-

Henry:
It’s phenomenal.

David:
… understanding of that.

Henry:
It’s phenomenal.

David:
It’s probably the only value I’m really bringing if we’re being honest and I got to hope that like nobody else learns how to do that other than Brandon, because I’ll be in trouble if someone figures it out.

Henry:
It’s impressive, sir.

David:
Thank you for that. All right. Today’s quick tip is go to biggerpocets.com/livequestions and submit a question for us when we go live. I am on social media at @davidgreen24. Henry, what are you?

Henry:
I am @thehenrywashington.

David:
Follow both of us please, so that you can get a notification when we’re going to go live and then follow the instructions on biggerpocets.com/livequestions, so that you could be a part of the show, or you could just follow along behind the scenes and sort of get a look at the stuff we’re saying, the jokes that we’re making, maybe some of the areas that we got stuck and we’re kind of brainstorming on, man, how could we have done that better? Or did we do that well at all? But it’s very cool and we’d love to see you there. Okay. Without any further ado, let’s bring in our first caller.

Jason:
Okay. So, my current situation is, I was in the air force a few years ago, got a little banged up while I was in and didn’t take it easy like the doc said. So I’m currently on VA disability, that and social security in my primary income. Well, those are my only income. The good news is those are tax free. So I don’t have to deal with that. I got the whole thing to myself. I currently live in my primary residence and I live in Boise, Idaho. No consumer debt. I have some money set aside in savings for emergencies, personal emergencies, that kind of thing. With the disability, that’s something that it’s not permanent. It can be revoked at any time. So, my goals are to try to generate $3,000 a month in pure cash flow as quickly as I can just in case that were to happen. And then $8,000 a month within the next eight years.

Jason:
So, I’ve been trying to figure out the strategy of what I want to do, how to go about it. And here in Boise, I grew up here, I know the area very well. I have a friend who’s an amazing contractor who’s done this his entire life. Great real estate agent. So, I have those things in place here. But as you guys know, the appreciation here has been absolutely insane to the point that there’s a lot of native Idahoans and people who have grown up here who are actually leaving the state cause they can no longer afford the housing costs. So, I was wondering, should I focus here where I kind of have that infrastructure already in place, do something such as a rent by the room or student rental to generate that cash flow? Or should I look towards the south and the Midwest and something along that nature at lower price points?

Henry:
Yeah, that’s a great question. So for me, I’ve always been a proponent of if you’re just starting out and you can start where you live, that’s always a strategy that I recommend because there’s so much you don’t know when you’ve never bought a rental property. Right? Even when you’re watching Bigger Pockets and reading podcasts and reading books, man, when you actually get a property and start dealing with things that properties… The problems that properties can create or tenants can create. Man, there’s a lot you don’t know. And so being able to have access to that property is huge from kind of like a comfort perspective. And also from a learning perspective, because you’ll be able to be hands on. Now I understand everybody doesn’t feel like they live in a market where they can get started investing, but there are definitely ways you mentioned one of them right? Renting by the room on some level. Right?

Henry:
Renting to nurses. And there’s other strategies like that where you can produce cash flow. What I recommend to people there is just try to… What people do a lot of the times when they’re going to do rent by the room or Airbnb, is they buy something at a higher price point because they know they can get more rent. And I would say you want to be able to focus on still buying a good deal so that you have more than one exit strategy in the event you don’t get the rent by the room or if something catastrophic happens, you have to turn it into a long-term rental. Maybe it still breaks even as a long-term rental and you’re not cash flowing, but that’s better than losing. Right?

Jason:
Right.

Henry:
And so, don’t be willing to overpay because you’re going to get so much more money renting by the room, still focus on finding a good deal and also try to focus on, with your fixed income, you can think about finding something that you can potentially owner finance. Right? And so doing some sort of targeted marketing to people who maybe are older and own a rental property. So, if you look for something like an absentee owner that’s been owned for a period of time, 15, 20, 25 years or more, and it’s not in an LLC. Right? Those are probably older landlords. You may be able to find somebody who’s even got some sort of military background who you can kind of communicate with, let them know what you’re trying to do and work out some sort of owner financing situation.

Henry:
Because if they’ve owned it for that long, there’s a high chance that they’ve got a ton of equity or it’s paid off. And then when you walk into those owner financing situations, you’re able to get more favorable terms, which helps you produce more cash flow. It might help you get to your goals quicker. And so just being a little more strategic about how you’re finding those deals may be a benefit.

David:
Yeah. My first thought is we’re giving you market specific advice. So, for everybody listening here, don’t assume that whatever we’re going to give advice in this case would work for everything. You’re in Boise, very hot market. My personal opinion right now, I’m not speaking for all of Bigger Pockets, because this might be semi controversial. I think you need to use different strategies in different markets. And I think that as the market heats up in general, which was what we’re seeing due to several factors if you want me to break that down, I’m happy to do it. Your expectations need to be tempered there also. For instance, if you were a farmer and you needed a crop that was going to grow in three months because you needed a food right away, you’d plant a different kind of seed that would immediately produce fruit versus a farmer that said, “Hey, I got 10 years before I need to see any kind of fruit from this thing.” You could grow a Redwood tree. Right?

Jason:
Right.

David:
In certain markets that have a very high upside, like a Redwood tree like yours, you can’t expect a crop that’s going to happen right away. And if you try to use a strategy planting those kind of seeds in that kind of market, the soil isn’t going to work, you’re just going to get nothing. Right? So part of what’s unique about what we’re doing with you right here, is that we’re giving you advice specific to your situation. This isn’t just like, “Hey, in general, this works with, real estate.” So, what I’m hearing you say, if I… And I want you to correct me if I’m wrong is, A, you are not working right now, you’re getting disability and so you’re feeling some pressure about finances and you want to do something to fix that. You don’t want to sit around feeling anxious. And real estate is something you’re passionate about. So you want to go in that direction.

Jason:
Yeah.

David:
And I’m assuming you’re not afraid of hard work.

Jason:
No. No.

David:
Okay.

Jason:
I’ve owned a couple of primary residences, this is actually my fourth one. And each of the ones before that I’ve done things here and there to fix them up and answered the questions myself, because I didn’t know who to turn to. So, yeah. I have no problems with that.

David:
Do you mind if I ask you a personal question right here on the podcast for everyone to hear?

Jason:
Go. [crosstalk 00:11:49]-

David:
You don’t have to answer if you don’t want to.

Jason:
Go right ahead. Do you feel like you’re suffering or struggling with not being able to work since this injury happened?

Jason:
Oh, absolutely. Absolutely.

David:
Okay.

Jason:
Yeah. It’s very hard sitting on the sidelines and that’s why it’s… I think that definitely plays in the part of the urgency is it’s not just because that income can go away, but because I need to be doing something.

David:
There it is. I could feel that. And that’s why I’m incorporating that into what we’re talking about. You’re not a man, Jason, who says, “Hey, I just want to work for 18 months and then do nothing. And I just want to play World of Warcraft with my whole life and never have… I want my real estate to pay for it.” My advice would be different if that was a case. I can actually see part of you is withering away that you miss because you’re not able to get out and get stuff done.

Jason:
Yeah.

David:
So based off of that I think being able to work and be productive will be good for you in many different ways. And you sort of have something to contribute to the world and you know it with the fact you’re not afraid of hard work and the fact you like real estate and then throw on top of that, Boise’s incredibly difficult market to be able to find deals. I’m not going to tell you that you need to just keep looking at stuff on the MLS and keep making offers eventually it’s going to work out. It’s probably not. You’re going to keep planting seeds and they’re going to keep dying in that soil.

Jason:
Yeah.

David:
Because someone else is going to come along that wants that house a lot more than you because they don’t need it to support their lifestyle. That’s just icing on the cake for them. Right? They’re playing the long-term game, you’re playing the short-term game and you’re going to lose in that market. It might be different in a different market. That strategy could work. What I want to encourage you to do is to start a business. Now, I don’t want you to go completely… I’m trying… I was going to say a word I shouldn’t say. I don’t want you to go completely all out in this and dump 50 grand into it or something crazy, borrow money as you’re trying to learn real estate. Right? The business needs to grow in a congruency with your experience and your skill level and your knowledge of how real estate works. Right? And I think Henry was giving you very good advice along that line of you’re going to learn as you’re going.

David:
But I do see that ultimately, I see you doing better running something like a construction team where maybe you don’t do the physical work, but you run the crew. You give the bids on the job, you do the marketing to find… There’s a lot of people in Boise that are going to need construction work. There’s a lot of skilled labor out there that knows how to fix stuff and doesn’t know how to run a business. They got to be out there swinging the hammer. They can’t be at the computer working on an Excel sheet or trying to figure out accounts payable and receivable. Right? I’m guessing in the military, were you involved in some sort of logistical operations?

Jason:
Yeah. Actually, I was a fuel POL guy, so I refueled the aircraft. And then when I made staff Sergeant, they put me in the control center, actually doing the dispatching, the accounting, all of that good stuff.

David:
Dude, that’s what we’re talking about. You’re just going to be instead of refueling planes and working schedules and keeping things on a schedule, you’re going to be doing that with a crew, or you could do the same thing for… You could become an appraisal management company. There’s a big need for appraisers out there. You could run a wholesaling business. You might put the direct mail together and get the phone to ring. And as you’re sitting there feeling like you’re doing nothing with yourself all day, your phone could be ringing and you could be wheeling and dealing with people who own property and trying to like, whatever makes you come alive, that’s what I want to encourage you to do. And I want you to be okay taking a long-term approach. You’re not going to just in your first six months be crushing it and be that 22 year old on TikTok who’s like, “I got 97,000 doors in my first four days. And here’s how I did it.” Right? That’s not going to happen. That’s how weeds grow most of the time. It’s not how really good crop grows.

David:
And somehow I ended up into a crop analogy on this one. I’m glad that you’re taking it because you don’t look like a farmer. But I think based on what I’m hearing you say is, you know you have a lot to offer. You did a lot in the military, you managed a very difficult job and now your soul is kind of dying because you don’t have any way to use those skills. And that’s, I think what’s going to make you come alive. And if you come alive, “What do I do?” Is just going to answer itself. It’s not going to be that complicated. So, that’s what I want to encourage you to do. Is to start telling yourself every day when you wake up, “I am an entrepreneur. I am a business owner. I solve problems.” And continue to just tinker with different problems that you see until you see which one you start to pick up momentum in and go that way.

David:
And that will open up doors to fine properties. If you have a construction company, people are going to hit you up with a mess of a house that you’re going to be able to offer to buy. If you run an appraisal management company, you’re going to come across those kind of opportunities. In addition to the capital you’re making… It’s going to put you in front of the kind of people that want to sell. And that’s how you win in a market like Boise. You don’t win by go went down the same road that everyone else is walking.

Jason:
Awesome. Awesome. That’s great. Thank you guys.

David:
Well, hey, I appreciate you calling in Jason. I also appreciate your transparency because it’s never easy, especially for dudes like us to have to admit when we’re having a hard time with something or when we feel the way that you’re likely to be feeling. But it was pretty obvious. I mean, you started talking to me at least that you have quite a bit to offer that you’re just not offering right now. So look for a way to do that, and then the real estate will sort of. Sorry. You’ll see those doors start to open on their own.

Jason:
Will do. Awesome guys. Thank you so much for your time. I really do appreciate it.

Henry:
Great talking to [crosstalk 00:16:45] you, Jason.

Jason:
Yep. You all take care.

Evan:
Hey, David and Henry. Loving the new format of the podcast.

David:
Thanks, Evan.

Henry:
Hey bud, how are you?

Evan:
So, my questions are about non-QM lenders. So I’ve used those a couple times. Something I purchased on hard money and trying to get them off of hard money. And I’d just like to hear more about them. I’ve done some deals with them, but nobody talks about them on podcasts or out when you come of the world. And it just seems like a really interesting way for a real estate investor to keep going, because we’ve had the challenge of your global debt service gets a little troubled after you’re accumulating properties without selling or flipping or something like that.

Henry:
I’m not familiar with the QM term. What does that mean?

David:
Qualified mortgage.

Henry:
Okay. Qualified mortgage lender. Yeah. So, I’ll talk a little bit about what I do. Man- I’m-

David:
I’m impressed that you have something say here, I thought you were going to be like, “I got nothing.”

Henry:
No, no, no, no. And so, you’ll have to tell me what you mean by a qualified mortgage. I use small local banks instead of your 30 year fixed rate, those type of qualifying mortgages. Right? So portfolio lenders is who I typically lean on and that’s the tool that I use to grow and scale. Now, the portfolio lenders, obviously they keep their loans in-house, they’re not selling them out after you get them. And so they can be a whole lot more flexible with the rates in terms. They’re also not as strict on debt to income ratio like some of these other typical lenders are going to be because these loans are in place for you to buy income producing assets. And so they understand that yes, you’re taking on debt, but that debt is going to be bringing in income and they can it or that in your debt to income ratio.

Henry:
And so it’s typically easier to get qualified. And a whole lot more friendly with kind of where your down payment terms come from. They all want you… Most of the time, they want you to have some skin in the game, but that skin in the game can be equity on another house you own. It can be a line of credit. It can be just money from somebody else that’s letting you borrow it at another interest rate. Right? So where that money comes from isn’t as important.

Evan:
And what kind of terms are you getting? Are you getting 30 or fixed or is it like a more commercial product where it’s the five, seven tenure term?

Henry:
Great question. Yeah. So, it’s typically 20 to 25 year amortizations and you’re going to be on a three to five year adjustable rate. Now what happens after three to five years is the rate can adjust based on what the new market rate is. Some of them can be where your loan and some can just be where the interest rate adjusts, right? So, you’ll have to speak to the lender. Each lender is different, but the terms generally tend to be the same. And I’ve used those to kind of grow and scale my portfolio. And then where I need to… As deals start to get cash flowing, I’ll refinance them into, into longer-term loan down the road. But I’ve been able to get favorable lending that way.

Evan:
And are they looking at your tax returns? One of my challenges is bankers are looking at my tax returns from three years ago and pointing out some flaws, but it’s like my portfolio in 2022 has nothing to do with that. 2018.

Henry:
Yeah. They’re going to look at two years of tax returns, but like I said, it’s a whole lot more… It’s an easier process in my opinion, to get approved because they are in the business of loaning on cash producing assets. And so they also care a lot about what’s the deal you’re buying. And does it make sense? Is it going to make money? They should know enough about your market to know if you’re buying something that’s going to make money and make sense. And if it’s going to make money, they feel like it’s a safer investment that helps you get qualified as well.

David:
So, let’s break down a couple terms here for people listening. Non-QM or non-qualified mortgage is a industry term for saying nonconforming loan, which basically means it’s not conventional. So, here’s just what you should… In general, this is what that usually means. I don’t know if this is legally exactly right. So don’t hold me to it if there’s actually a slightly different definition. But in practical terms, a conventional mortgage is one at Fannie Mae and Freddie Mac would insure. It’s a government insured mortgage that you’re going to get the best possible terms. And if the borrower or the loan product does not fit within that exact type of borrower box, we call it non-conforming because it doesn’t conform to that, or non-qualified. Now the danger is that during the loan freaking scandals that were happening in 2000 through 2006, a lot of these terrible loans were non-QM loans. They didn’t fit conventional boxes. And so they fell outside of it and that word became synonymous with evil.

Henry:
With bad.

David:
And it’s funny, because right now you hear people talk about HELOCs a lot, but there was a time five years ago that the word HELOC was considered evil. The minute you just said that, people are like, “Oh, that’s a great way to lose money. You’re going to lose your house.” We’ve kind of gotten out of that PTSD, but that hasn’t really happened with the non-QM product. So, Evan I’m in the same boat as you. I do not qualify for Fannie Mae or Freddie MC loans. I cannot get those anymore. I also have such a complicated sort of tax return would be ask this way to say it, but just portfolio in general. That if I try to go to a bank like Henry and I say, “I want to get a loan,” they’re going to say, “Great, here’s what we need.” And it’s going to be like a CVS receipt that just keeps printing and printing and printing and printing and printing.

David:
By the time I got you everything you needed, the first stuff I got you would’ve been timed out and I got to go get it again and I can’t get a mortgage with the different businesses and companies of properties and LLCs and types of them that I own. So what happened is when I started the mortgage company, I have, I started it by going to the guys and saying, “All right, we can do conventional mortgages. We can do the conforming loans that everybody is going to want first.” Yes, let’s do that, let’s give great service to the people who are getting them, let’s give great service to the realtors. Let’s just be better than everyone else as opposed to, I don’t answer my phone after five o’clock and I’m just going to tell you, yes, I can do your loan without making sure I can. That was the first step of that company.

David:
The second step was, when we get a person like David that cannot get a loan, we need a loan to be able to offer them. They need help in these situations. So they went out there and started finding stuff that would work for me. And if it will work, it’s going to work for just about everybody, right? So we found these same non-QM products that basically instead of using the debt to income ratio of me specifically, which would be fine, but I have to prove it. That’s what’s hard, is I have to show you all the ways that the income’s coming in and show why we’re showing a paper loss in certain areas, but the company is still profitable. Instead of that, they just look at the income of the property and they say, “Okay, here’s what it would bring in rent. Here’s how we find out what it would be. It’s a short-term rental.” Or I even bought one that wasn’t a short-term rental and it’s going to lose money on paper.

David:
At least the numbers we showed them when we were first looking at it, it was going to bring in about 80% of what it was going to cost to own. So I had a debt service coverage ratio of 0.8. And the lender was okay with that. They could see that even though the property isn’t bringing in all the money, there’s other money that’s coming in from this borrower, which was me. And so we’re good. Now the property will end up making more than the numbers we showed them. That was just… Because what you can prove and what act see happened is different. Anyone who’s ever been in court understands it’s not what you know.

Evan:
I’ll take your word for that.

David:
So, that’s often a problem.

David:
Okay. Yeah, that’s a good point. I work in law enforcement for a long time, that was something that I was very frustrated by, but I eventually had to learn. It just doesn’t matter what you know, it matters what you can prove. And so we have products now that will base it off the income of the property. We have products now that will base it off of just a bank statement. So now I can get loans by showing them a bank statement of money coming in and money going out in this business and that’s where I make my money, not the full freaking… I don’t know the word I want to describe here. Just very intrusive medical pursuit of looking into your finances. That’s terrible. And the thing that’s cool is these non-QM products are no longer predatory.

David:
They’re still 30 year fixed rate. They’re not adjustable rate mortgages. They’re not like, “Hey, for the first year or two, you get this and then it screws you over when you go to that.” The interest rates are a little bit higher because they’re not being insured by the federal government. And that’s always the case. When you go get a portfolio loan or you go to a jumbo loan or anything like that, the rates are going to be higher than a conventional mortgage. So, that would be the trade off. But for me, it’s not, is it better than conventional? It’s, can I get a loan at all?” Is it better than nothing? Because conventional is just off the table for me. So for the situation that you’re in here, Evan, the first thing is if you’re going to a bank, like what Henry’s saying, that is often a really good option. Especially if you have a preexisting relationship and you feel good that they’re going to green light you, you’re going to get what they have available, what that bank and their money, what they’re willing to lend on their terms.

David:
And that’s why you got to jump from bank to bank until you find one that’s like, “Okay, we trust you.” Now, I’m a big fan. If you find a bank like Henry’s has that trusts him, that will do business with him specifically, who cares if the rate’s half a point higher or something like that. You’re you’re buying property, you’re making progress. Nobody ever said I got rich on real estate because I got great interest rates. You’re never going to find a human being that will ever say that. Okay? So, that’s one thing. But what we do is we’re a broker. So people come to us and they say, “Here’s my problem.” And they just pull it all out there and then we go find the bank or the lender that says, “All right, we found one that will work and here’s what the terms would be. Would that work for you?”

David:
So, that’s your other option. If you don’t want to go from bank to bank, you just go to the person who for a living goes to bank to bank and then they broker that deal for you with the individual lender. Okay. That’s a lot of info. What follow up questions do you have?

Evan:
Yeah. No, that really kind of speaks to where I’m at, where we’ve tried a couple things going on to QM and then we’re using more hard money lately, but then it’s a little bit concerning and stressful when you’ve got stuff on hard money and you don’t necessarily have that clear exit strategy, which we think we do with these non-QM loans. But I just don’t hear anybody talking about it. We’ve got one who’s talking about 40 year money where it’d be like 10 years of interest only, and then a 30 year RAM. And it’s like, “Well, that sounds great.” But I was just kind of surprised because I hadn’t heard about that kind of talked about in the market. But it seems like hopefully is a really important part of like a BRRRR. Take it down with hard money and then stabilize it, increase rents and then put it on QM. And like you’re saying, if you’re paying half a point higher, who cares? You could always refinance it in five years, 10 years, whatever. So, that’s really helpful.

David:
Yeah. As far as why it’s not talked about, I’d have to speculate as to why it doesn’t come up a lot. Here’s what I think it is. The banks that offer these products, they typically don’t want to pay a person like me to bring you to them. I’m the middle man in this case. So if you come to me and my mortgage company looks for it, you’re not paying me, the lenders pay me for bringing you. So, they don’t… They want to advertise directly basically, they want to put an ad on a podcast or in a place where real estate investors might be looking and say, “Here’s our product. It’s like direct lending basically.” But they have a very hard time getting in front of everyone, that’s why you’ve never heard of them. Right? So the people like me don’t typically spend ad dollars to go say, “Hey, we’ve got a product that we can help you with.” Because it’s not our product and we’re not getting paid that much to be able to do it.

David:
So what happens is if I’m not going to market it and they’re not going to market it, well, you’re never going to hear about it. But that doesn’t mean it’s not out there. If you have the relationship with the person like me or another broker that has relationships with these lenders, then that’s how you hear about it. So what it looks like, is there’s this esoteric secret group of Illuminati that have access to all the best loans. And of course David can do it because he’s in the inner circle and he has access to stuff you don’t have. And I’m sitting over here lie the whole reason that I do that is so that I can find out the secret and then bring it to everyone else and I can show them and they come to me and I can bring him into my world.

David:
It’s just hard to get it in front of everybody. So, that’s the best I can answer. It’s really not that hard, man. I go to my partner and I say, “Hey, this is the situation, we have to buy this property in the name of an LLC, not in my own name and the LLC has only been in business for this long.” And he just gets on the phone and starts talking to lenders until he finds one that will do it. The experience is really easy for me. So, if you find the right person that’s also doing the same thing, then I don’t think it’ll be as tough as you think. And Evan, you should be very optimistic. There’s a lot of financing options out there. There is a butt-load of them because the truth is that everyone has money right now and they all need a place to put it. Institutional capital needs to put money somewhere and they’re trying to buy real estate with it.

David:
These lenders are able to borrow money, huge amounts of money to lend out at really low rates because there’s just too much money and they want to give loans to people like you. So it’s not like 2010 where you just couldn’t find money and Jills were everywhere. It’s actually the opposite.

Evan:
Awesome. Thanks.

David:
All right.

Henry:
Thank you sir.

David:
Any last questions or you’re good?

Evan:
I can go all over. One last question if you had just a few more seconds. But when do you stop? When do you stop growing the portfolio and take a step back? It’s kind of a fun gamified process, but at what point is enough enough?

David:
I’ll jump and answer that one first. I can’t tell you when enough is enough. I’ll tell you how it is for me. Because it’s fun and because I see the value in building this thing, not just for my own self, it’s one thing to get financial freedom and I get my time back. That’s kind of one of the tiers. And then there’s financial freedom and where the point is I don’t have to worry about what this t-shirt costs. I could just see a t-shirt I like and I can buy it. Right? And then maybe there’s another tier where it’s like, you can buy a $1,400 t-shirt if that’s what you want and you don’t have to worry about it. There does come a point where the benefit for finances to yourself are just diminished returns. It doesn’t matter. Right? There’re certain people that have so much money that they’re buying a yacht that they use every two years, just to say, that’s kind of stupid. Right?

David:
But if you get the tension off of yourself and you put it onto other people, it’s starts to change when enough is enough, because you’re seeing that you are able to either give money to people or what you learn making that money. You can give that to people and you can empower people. So, that’s the first thing I would say, is there’s always this assumption that there’s only one dimension. Yourself. And there’s a point where you don’t need to go any higher for yourself. And that’s true. That doesn’t mean that you stop. That means you get over yourself. You hard think about other things. And I will say right now I am not wealthy enough that I can just help all the people in the world that I would want to help. Right? David Green is comfortable, I probably wouldn’t have to work anymore if I didn’t want to and I’d have a really good life.

David:
So by many standards, I’m very wealthy, but it’s not to the point that if somebody came to me and said, “Hey, my car broke down and I can’t get to work and I’m in a really bad spot,” that I could just buy them my car whenever I wanted. Eventually I’d run out of money if I tried to do that type of thing. So when it comes to building the portfolio, this is what I’m doing and this is what I probably advise someone like you. The way that you got started like for me was the BRRRR method. I got like 40 houses using the BRRRR method. And then I thought, I don’t want any more of these things. Just the anxiety and the pressure and the time and the headache it takes to manage these rehabs and try to hit these numbers and get my capital back out for what I get out of the property. It stopped being worth it. So now I’m looking to sell those properties and reinvest them into bigger ones and less of them with less headache. All right?

David:
And then, if let’s say I do enough of that and I’m like, “Okay, I’ve got these properties, but I still have to check in with the property manager every single month to make sure things are going well, because that’s all always going to be the case. You’re never going to get out of that, it’s never truly passive. There’s still stuff that breaks and I got to make sure the contractor’s not taking advantage of me. I still got to talk to an employee and we got to keep the books. I’m still getting sucked into this thing. Why don’t I sell all of them in 1031 in one or two big apartment buildings? Right? There’s always something you can do to consolidate the mess and turn it into something that less messy and not as bad that still enables you to grow. And my overall strategy is to get this like, I basically look for equity and cash flow is important, but not nearly as important because I have money coming in from other areas.

David:
So, I build up equity and then I upgrade that equity into a bigger property that cash flows better. And then that property’s cash flow helps me buy more of… Consider it like a hotel and monopoly. That hotel’s cash flow helps me to buy smaller green houses again. So, I get this little… I don’t know what you want to call it. A rhythm or a pattern going on where I buy 20 houses, exchange into a hotel, buy 20 houses exchange into a hotel. Use the hotel to buy houses. And then at a certain point I’ll exchange all the 20 hotels into something that’s bigger than that. So it’s only like the property… I guess what I’m getting at is the property itself determines how much time and effort you have to spend on it. The money can come from all kinds of different places, but the more sources of revenue you have, the more time of your own that you’re dedicating to where managing them. And that’s what makes us not like real estate or like our job or like wealth building.

David:
So as long as you’re scaling up into properties that don’t require as much of your time, and then ultimately put off enough revenue that you yourself can pay somebody to manage it and there’s less of your time. You won’t get tired of this. It’ll actually get addicting and it’ll get really fun. And if you pair that with helping other people to do the same thing, you’ll stay energized. So, I would encourage anyone who’s listening who may be at the point where they’re like, “Yeah, real estate just isn’t fun anymore.” Okay, cool. Well, do it differently. Find a different way to pursue it. Find a way you’re doing real estate that isn’t fun anymore, but there’s whole other frontiers that can be exciting if you get into those. Henry, anything you want to add?

Henry:
Absolutely. I agree wholeheartedly with what David said, because my strategy is very… It has some similarities. There’re some things that echo and so, David’s right. I can’t tell you when it’s enough for you, but for me it’s kind of a three tiered approach. Right? It’s freedom, which is what David talked about. Right? Getting the financial freedom. Tier two is security. Right? Protecting that freedom. And then tier three is passion. Right? What is it that I need to do that I feel like I’m called to do? And how much income do I need to generate to do that at the level I need to? Right? And so freedom is what’s the amount of doors I need to get to that’s going to buy my freedom in my time? Right? We got there this past year. Right? Next is securing that freedom.

Henry:
And so I am actively looking as I acquire more doors right now, I’m actively looking at, Okay, what’s the point where I can potentially sell some of those doors to pay off the majority of my portfolio. Right? That gets me a free and clear portfolio. Maybe less doors, right? Maybe I sell 30. Right? And I keep the rest. Right? And I keep 60, 65, 70, whatever that number is. Right? And doing that, I’ll always have those properties free and clear. They will always feed me, my family, my children. Right? They can be passed down, that’s generational wealth. Right? And then from there I can pursue the passions that I have. And if I need more income to do that, maybe we do more real estate deals, maybe I build another business, whatever that is. But my passion will be driving that and helping me to figure out what direction I need to take there. And so, that’s kind of the way I’m looking at when enough is enough for me.

Evan:
That’s awesome. I really appreciate it. That pivot from [crosstalk 00:35:49] taking care of like the basics to like to pass the basics. But then at some point pivoting to you impacting the world and that I think would be really interesting and enticing and you can’t run out of money giving it away. So, that’s pretty cool. Thanks.

Henry:
And you won’t run out of desire to do this work if you’re seeing that the work is contributing to you getting passion in some other part of your life.

Ray:
Okay. So, I do have a two part question. I guess you can decide if they are interrelated, but it’s around strategy. It just started about a year ago. My first investment property is a cash flowing rent by the room. Thank you, David. It is a full functioning BRRRR, woo-hoo. We bought it by… It was a drive by, it was a for sale by owner and thanks to Bigger Pockets, I stopped by and asked the owner and we made them a cash offer. And so the past year it has been a really great experience building this house from the ground up. So now that it’s up and running fully cash flowing, I am wanting to do more. I’m wanting to expand my portfolio because it is just one property so far. So, in this time I’ve also had an opportunity to take a look at this is bleeding into my second part question about multifamilies.

Ray:
I’m also looking into small multifamilies around the Baltimore areas where they’ve been popping up. And however, the prices and my mentor who’s been walking me through how to do the cap rates and making sure that the numbers make sense. A lot of the properties that we’ve been looking at have been really run down. So when we’ve been running the numbers, we’ve been seeing the multifamilies through a broker. So the properties have been pretty run down. And as we run the numbers, the cap rate in the offer number that we needed to make on a regular basis has been maybe like two to $300,000 less than what the broker’s asking. So, it’s kind of a tough market. And one of the other ones that we really wanted to get, because it’s right next to where my parents have their own multifamily property already.

Ray:
It went for three million dollars over what we had determined our number was going to be through an auction. So anyway, these prices are really, really high in these multifamily. So my question around that is, are these things… What is the strategy I guess, that some of these people are pulling the trigger that’s okay for them. Is it something that maybe me and my investor need to reevaluate because do we need to start being okay bringing up our prices? Are we being too conservative in our CapEx and trying to calculate our numbers that we’re coming up with our low number? My investor is very experienced in the field, so I do trust his numbers, but at the same time, I don’t know. I’m trying to navigate this changing market. And especially with all the energy that’s happening around multifamilies right now, we’re seeing a lot of people wanting to get into it and just taking the dive and being brave about it.

Ray:
So, that’s great. But I would like a balanced view on the markets and perhaps that’s something maybe I just need to stay away from multifamily and its entirety. And that also goes back to arbitrage. Arbitrage I just learned about from the concept of somebody’s almost subletting from you in a retail capacity. So, I was thinking, is that a beneficial strategy from a landlording perspective where if you were to buy a home and find someone to connect with who wants to arbitrage out that rental home? So, those are kind of two separate topics, but hopefully it blends them together enough so that you can understand where I’m coming from. Yeah. So, that’s the question. Your thoughts, your insights, any recommendations on being able to pivot on this market, given those two strategies?

Henry:
Yeah, that’s a lot. So, let me try to break this down a little bit and ask you some qualifying questions. So, when you say you’re looking at multifamily, give me a ballpark on how many units on average you’re looking at for a multifamily.

Ray:
This last one was just a five unit, but the one before that was, we also looked at a 22 unit and a 40 unit.

Henry:
Okay.

Ray:
So, small to medium.

Henry:
Small to midsize multifamily. Awesome. And so I learned a long time ago that man, you’re going to rack your brain trying to figure out why people are paying what they’re paying for some of these multifamily properties or overpay what they’re paying for and how they’re going to make money. And the truth doesn’t matter, man. Some of that money just comes from all over the place. You’ve got people that are 1031ning out of other properties, right? And then they’re pouring it into a larger project because they have to. And they’re willing to forego some cash flow so that they don’t have to pay taxes. Right? There’s all kinds of situations where people would be willing to overpay for something. And so your question around, do I need to think about coming up or raising my offer prices? I mean, that’s hard to know until you dig into the numbers, but my gut would tell me if it’s me in that. But well, I’m typically in that position, is I stick to my numbers and if it doesn’t work, it doesn’t work. Right?

Henry:
And maybe I just need to get a little bit more creative about how I’m going about finding those deals. Right? If it’s in a broker’s hands, especially if it’s something that’s small, that means there’s more than your eyes on it. Right? There’s other investors eyes on it. And the more eyes that are on it, the higher the price is probably going to go up in this market. Right? And so maybe you have to look to doing something direct to seller marketing to kind of find your own deals where there’s not as much competition for you to make the offers. Right? Where you’re solving some sort of problem for that seller in order for you to get that deal at the price point you feel like you need to get it at, in order to make money. Right? And so changing your approach on looking is probably what I would do before I would change how much I’m willing to pay.

Henry:
And that’s just my general thoughts. When you shifted talking about arbitrage, that’s a… I’ve been asked a lot about arbitrage as a strategy for investors getting started, but I haven’t been asked about arbitrage as from a landlord’s perspective. And so I think that’s a great question. And so just for those who may not know, arbitrage is when you rent a property and then turn around and sublet it to make money, maybe it’s through Airbnb. Maybe you rent it by the room to somebody else. Right? Whatever strategy you use to go ahead and make money. But you’re making money on a property you don’t own. If it were me and somebody asked me about arbitrage, I don’t know that I would immediately say no, but I sure would want that person to have history of success in that arena. Right? I wouldn’t want to let somebody who’s never been successful in Airbnb, who’s never been successful with some sort of arbitrage rental business before rent my property.

Henry:
And so I would want to vet that person pretty thoroughly. Now, am I willing to put at that kind of time and effort into researching someone just to have them rent my property? Probably not in this market, because again, this is market specific here. In my market, vacancy rates are so low things rent so fast. I can find somebody, I can find a traditional renter who’s willing to pay the price that I want to pay and not have to worry about the headaches of vetting them to make sure that they run a reputable business on the up and up and that they’re going to be successful. And so, my gut tells me I wouldn’t do it. I wouldn’t be a hard no, but in my market I don’t know that I have to. Does that make sense?

Ray:
Yeah, absolutely.

Henry:
Awesome.

Ray:
It was just something that I had heard from some of the other local groups I was in, some of the newbies are asking about arbitrage opportunities for themselves. So yeah, I was just curious if that would be-

Henry:
I know-

Ray:
… recommended way of connecting, but yeah.

Henry:
I know of some landlords that do that. I know of a landlord who specifically loves that. They rent to the same person who does multiple Airbnbs out of their properties and they just have this great relationship. Landlord feels like they’re getting guaranteed rent. They know the tenant is going to pay the rent, take care of the property and treat it like a good business. And so I’m sure there’re some scenarios where that works out in my market or in a market where you’ve got low vacancy and things are flying off the shelf of rentals. I stick to what I know and what I’m comfortable with.

Ray:
Excellent.

David:
Ray, when you hear that, what type of emotions are you feeling.

Ray:
Which? On the arbitrage?

David:
No, just the advice in general.

Ray:
Well, I really appreciated the boom moment on the multifamily about shifting my strategy on just how do I find the off market deal of these multifamilies before they even get to the broker. So, that is something that I’m going to take home and… Well, home. I’m home. But take it to the market and really run with the strategy on how to market around where I am. So, I know that they’re skip tracing things and lots of ways to find off market sellers, lots of education. So I just need to hit the payment with that one. That was really, really good advice. Simple advice, but excellent. And then when it comes to the arbitrage, yeah, I can see the value in… You’re right about the fact that if the demand is out there, might as well cut out middle man and be able to just rent that out myself.

Ray:
But I guess it would be a strategy for someone who wants to be hands off that is appealing to have less involvement in it. I guess for similar reasons that people have higher property managers. So I will keep it in the back of my mind in case that’s an opportunity, but yeah. Because vacation rentals in general are not something I had dove into until the last couple months, or seriously thought about. And in terms of how that makes me feel, vacation rentals makes me feel excited because that’s one of my passions, is to travel. So I would love to be able to… I’ve always wanted to be able to travel and travel with a purpose or travel with a reason whether it was related to business or whatever it’s doing. So I would love to combine the two and obviously vacation rentals seem to kind of bridge that gap there.

David:
All right. So it sounds like you took a great perspective from Henry’s advice there. Is there any follow up questions you want to ask? I love the way you responded.

Ray:
Awesome. No. So you really have my brain rolling about this whole trying to find these off market deals. It is something that has been suggested… It’s been one of those where you get all those different… The same messages from different sources.

Henry:
Sure.

Ray:
It’s a message that’s been showing up quite a lot. So, I was wondering if you, since you’ve done… Sounds like you do a lot of multifamily. If you have any success stories, recommendations, things that you have found work when it comes to marketing to sellers off market trying to find these multifamilies in particular. And if a multifamily off market marketing strategy is different from single family home since I am trying to both strategies here.

Henry:
Awesome. Love to. That’s a great question. And so, I’ll start by generally talking about off market deal finding, kind of at a 10,000 foot view for those who just aren’t familiar with it as well. And so when you’re looking for a deal off market, it means you’re trying to buy something that is not listed with a real estate agent. Right? And you’re typically trying to buy it under market value so that you can add value to it by fixing it up and then renting it out if it’s a multifamily or fixing it up and selling it if it’s a flip. Right? And so to find something off market, essentially what you’re trying to do is gather a list of people who may be interested in selling their home. Right? They need to have equity and they need to have motivation. They need a reason to sell at a discount.

Henry:
If they don’t have those two things, it’s really, really hard to make a deal. Obviously you can’t make a deal if there’s not equity. Right? But if they don’t have a reason to sell it a deal discount, then they don’t need you, they need a real estate agent. Right? And so it’s essentially finding a list of people and then figuring out a way for those people to get on the phone with you in some way, whether that’s you send them mail and they call you, whether that’s you sending them a text message and they call you. Whether that’s you have somebody make cold calls to them and they answer the phone, right? It’s getting them on the phone. Right? And then it’s about understanding what their reason is for selling at a discount. Right? Is it because the property’s super distressed? Is it because they just inherited it and they have no idea what to do with it. Right?

Henry:
Is it because they’re getting too old and don’t want to be landlords anymore? Right? There’s reasons why people would sell at a discount. Your job is to figure out that reason. So, that’s in a nutshell. So when you’re talking about small to midsize multifamily marketing, I really like that niche because what you find is when you start dealing in the big multifamilies, 100, 200, 300, 400 doors. Right? You’re dealing with big time buyers with big time money. Everybody’s looking for those deals in certain markets of the country. Right? And then when you start looking at duplexes, triplexes, quadplexes, you’re really dealing in the area where the everyday investor plays. And there’s lots of everyday investors right now. Right? The new bees, the beginners, the people who are building up a small portfolio, that area between quadplex and 100 doors, there’s a lot less people playing in that space.

Henry:
Right? And there’s a lot more mom and pop owners playing in that space. And so, market to that demographic, but be a little creative in how you market to that demographic. So, there’s something that’s called… What’s the fancy term for it? I’m drawing a blank. But I can’t think of it. But so when you think about marketing, maybe take the approach of, “Okay, I’m going to pull a list of multifamily properties…” And you can pull a list like this on ListSource or PropStream, wherever you can buy lists from. Right? And you market to properties within that range of doors. Right? And try to look for properties that are either owned in the owner’s name and not necessarily an LLC or owned in a trust, like a family trust or a living trust. Right? Because those tend to be mom and pop type owners, right?

Henry:
Especially if they’ve been owned for a long period of time. So, then you can send them marketing. But I would focus on sending them marketing, it’s called network market. That was the term I was looking for. So, I would focus on sending them marketing as if you were wanting to network with them. Because truly that’s what you’re trying to do. Because what you’ll find is if you send mail that says, “Hey my name’s Ray, I want to buy your apartment complex at 123 main street.” Right? It may get overlooked, it may not. But if you send them a letter, try to do like a yellow letter or something with a handwritten type font that says something like, “Hi, my name is Ray, I see you on the property at 456 main street. I am also an investor in this area and I am looking to meet other investors. I’d love to sit down, have a cup of coffee and talk with you.” Right? And you can start to build relationships that way.

Henry:
And a lot of what you’ll find is maybe that property isn’t for sale, but a lot of these owners have owned these properties for years and a lot of these owners know all the other owners in that same kind of demographic. And so he might not know who’s selling, but he might know, “Oh, Bill down the street who owns that 12 unit, he’s been looking to get out of the game.” And as you start networking, you’ll start to meet some of these people and you can be in their circles. And some of these deals might start to come your way as you build relationships with these people. So don’t just market for trying to buy it. Obviously be open to buying it as they respond to your marketing. But you can also, even if they’re not willing to sell when they respond marketing, try to sit down with as many of them as you can and build those relationships and deals will start to come to you that way in that small multifamily space, it’s a cool niche to play in.

Ray:
Oh, my gosh, light bulbs just went off because one of the units that I was just looking at, it’s down the street from the one that my parents currently have. And I was looking into who’s the owner, it was just recently bought from the original owner, which we have actually made an offer on like two years ago. But they didn’t accept the offer because it was too low. And so the current owner is someone who owns a real estate investment trust. So a REIT where they have a bunch of properties. Yeah. So, I found the owner of that LLC, I’m getting good at all this cyber spy game here. Super [inaudible 00:53:40]. And so I found her on LinkedIn. And so you just… You gave me this boom connector thing about having a genuine conversation because I genuinely have those kind of questions.

Henry:
Yep.

Ray:
That’s great. So, thank you. I have-

Henry:
You’re very welcome. You’re very, very welcome.

Ray:
That’s excellent. And then not to mention for the other places. Yeah, because that area where we are currently looking to expand in that small multifamily area, a lot of the buildings are built the same, a lot of the tenants, the tenant pool that we currently have, they are similar and we’re really proud of the property that we have now that we’ve built up it’s nice. We’ve done a great job of the landscaping, all that stuff. So I do hope to expand that multifamily in that area because we know what to do to make it a good property. And that’s my goals. I want to make good rentals. So, thank you for that part-

Henry:
Very welcome.

Ray:
… and for the multifamily portions. Any other recommendations or I guess this will be a marketing shout out to any kind of tools that you find or resources that you use for off market searching lists?

Henry:
Right. So this episode of the Bigger Pockets podcast is sponsored by all the things I’m about to say. No. No, I mean the tools that I use are pretty typical tools. Right? So I like LandGlide. I like PropStream, and I like DealMachine. And I use those sometimes interchangeably through looking up owners and pulling lists and contacting owners. You can skip trace on all of them and you can find out who the owner is in all of. And then typically, and if I find a small multi like in your situation where you have that… You know who sold the last small multi, you have a family member that owns something close by, I just hop on a phone call at that point.

Henry:
I still probably would send them marketing, but when you have an in like that, when you have something that’s a good ice breaker, it’s a great way to just go ahead and hop on the phone call because you can say, “Hi, my name is Ray, my family owns 123 main street and I saw you just sold X, Y, and Z. And I would just really love to sit down and chat with you about real estate or talk about this property.” And you never know what kind of leads you can get from that. And as you build that relationship and they’re going to see just like you told us, they’re going to see that you care, you want to provide good, beautiful, nice housing for people. They’re going to want to make sure that the assets in their neighborhood get sold to somebody like you over somebody else. So, that relationship networking is huge.

Rob:
Yeah. I want to hop in on that because I think one of the most neglected ways of marketing because we get sold in our heads about using tools and making sure that we’re using all the skip tracers and how do I market on social media? So I just want to say that one of the most neglected ways to market is to literally post your social media channels, asking people and telling people what you want and what you’re all about. Like for me, I started partnering up with people in my early kind of Airbnb days because I was posting photos of the houses that I was actually going live on Airbnb with. I was telling people about the progress that I was making and I was asking for investors. And then randomly when I did and expect that at all, people would reach out and say, “Hey, Rob, I know that you’re into this short-term rental thing. I’m super interested in getting into that. I know that you’re really smart in this, would you want partner up?”

Rob:
And so by putting myself out there, these opportunities came to me. So, if you’re looking for some kind of deal in your network or in your vicinity, I would definitely encourage you to kind of put that out there and make it known to everybody within your family, friends, peer group, and all those old Facebook friends from 10 years ago that you’re looking to get into multifamily. And if there’s a good deal to find you. Because I think that the power of putting yourself out there, will present the most opportunities when you’re starting out.

Ray:
Excellent advice. Thank you. And then I did also have a question too, on there for David. It was about recommendations on how to work with brokers. Because part of my first question was working with brokers and that’s how it landed me asking about the off market deals. But how do I build relationships so I’m working well with brokers? How do I-

David:
Okay. First off, send me a message on Bigger Pockets or DM me and I’ll give you a better response there since we don’t have time.

Ray:
Okay.

David:
Short answer is stop looking at what they can do for you and start looking at what you can do for them. Any human being alive if you want to know how do I build a relationship with them, that’s where it starts. Now, if you’re giving to them first and they’re not giving back to you, well, then that’s not the right relationship you should move on. But brokers don’t care about you, they don’t care about your goals, they don’t work for you, they work for the deal. They’re trying to get that thing sold. So if you can’t show that you are the best person who’s going to buy the property, then as their eyes, you just don’t really have a lot of value. So, I could give you more nuanced answer elsewhere, but that’s the short, cold, hard truth.

Ray:
Okay.

David:
All right. Thanks, Ray.

Ray:
Fair enough. Thank you guys.

Henry:
Thanks, Ray.

Hugh:
Thank you guys so much for taking my call. I’m so excited to be here today. So, I’m Hugh. It’s nice to actually meet you guys live and in-person. I’m a little shell shocked right now. So, my question is I’m going kind of through a very transitional period of my life. I have two rentals in the state of Delaware. I also am a licensed real estate agent in the state of Delaware. One of them has been sold off. I’m selling the other in my portfolio and I have about 95K in reserves that I have to play around with. I’m 22 years old. So, I’m still new in the game. And I don’t know if I want to go into a market that’s heavy and cash flow, if I should invest in a high class asset like you talk a lot about David. And just kind of build my wealth that way. Like I said, it’s a really transitional period of my life and I’ve also had the opportunity to live in multiple different markets.

Hugh:
So I lived in Delaware, which is a little bit slower paced. I recently moved back to the state of Connecticut and I was in Miami. So, South Florida, I was a bit familiar with. Do I go into a place that’s a little bit more cash flow heavy like Delaware, where I have boots on the ground or just looking to get some perspective and advice in this transitional period of my life?

Henry:
What a good problem to have, right? That’s amazing. 22 years old selling a couple of rental properties and having some money to play with and wanting to figure out, “What’s the best use of my funds?” If I’m hearing that correctly.

Hugh:
Yes.

Henry:
These questions are a little difficult. Right? Because you want to do what you feel like drives you. Right? And so I’ll talk a little bit about what drives me and why I do what I do. And maybe that’ll have kind of guide you in a direction. Right? So I tend to buy smaller multifamily and single family homes. Right? I know that multifamily, larger multifamily can be a more lucrative investment if you will. Right? But I don’t find myself veering into those lanes because I really like the impact that I have on families and on my community, by buying smaller multifamily and single family homes and seeing the transformation that has on neighborhoods and driving by those properties and seeing the impact it’s having on families, seeing families playing in a yard in front of a house that I helped renovate. I call it the warm fuzzies. Right?

Henry:
So I really get the warm fuzzies from transforming my community and seeing the impact on almost an individual level. And even though I know I can get a higher return putting that money somewhere else, those warm fuzzies drive me. And so I like being able to put my money there, get a return on my investment and seeing how it impacts my community. And so all that to say is, think about what drives you, think about what makes you happy? What part of real estate do you get the warm fuzzies about? Right? Because real estate has so many ways to be lucrative. And yeah, you can go put your money in a high cash flow market, buy some properties and produce a bunch of cash flow. And that’s awesome if that’s what you want to do. You can also go put your money into a high appreciation market. Right?

Henry:
Maybe you don’t get the cash flow right away, because maybe you don’t need it, but you get the appreciation in the long-term. And from a business perspective, either one of those can make you money, it’s about which one of those is most important to you, your family, your finances and your goals. And so I would think about what is it that I truly want? Is it cash flow or is it appreciation? And what is really driving me to use real estate to get there? And you may find yourself leaning awards one more so than the other. And then that’s where I would say you should go and plant that money to invest. But that’s a super cool problem to have and congratulations to you for even putting yourself in this kind of a position at such a young age. It’s amazing.

Hugh:
Thank you. Thank you. I definitely appreciate it. Just to add onto… Oh, sorry. Go ahead, David. I do just want to add into what you were saying Henry. So, personally I definitely want something more passive to be able to choose to work if I want to, but not have to. That’s definitely my biggest driver. I’m also actively working right now. I’ve also always loved to real estate. I’m currently a controller for real estate investment firm. And then I’ve also worked in accounting with developers prior. So in general, real estate is awesome. But my personal goals is to obtain passive income. The only reason why I’m starting to get confused is because a lot of people are saying… And including stuff that you say, David, on your podcast, you’re young cash flow could be killing your generational wealth if you only focus on cash flow. And I’m still actively working. Right? So, that’s where I start questioning. Do I really want cash flow? But my long-term goal is to make sure I’m building a passive empire.

Henry:
I was going to say, do you want the passive income so that you can get to financial of freedom? Or do you just want passive income because that’s what people say to get? Right?

Hugh:
I want passive income up to get my time back.

David:
Right. So, when I do have that financial freedom, I might decide to continue working or not, but I want to have that option.

Henry:
So, for me, if I want passive income through ownership, right? And not through just lending money, I would look at buying in a high cash flow market and I would look at giving those to a property manager. And that’s, as passive as you can get, you’re still going to have to manage your manager. And I think that’s where a lot of people fail when they hand over to property management. And then you get your cash flow built up and then you figure out what else you want to go do or what else you want go invest in once you have your freedom. But in a nutshell, that’s what I would think about.

Hugh:
Okay.

David:
All right. So, let’s… This is why I like doing these life shows because I get to actually ask the clarifying questions. It’s hard when someone like you, Hugh, comes on and says, “Hey, should I buy here or there?” And I’m like, “Ah, I don’t know because I don’t know about your goals.” So you’ve shared a little bit that, you want to have real estate supplementary income. And that sounds like your current desires are rooted in that, and then every decision that comes after it is going to be the different branches that break off from, “I want financial freedom and I want to be able to live off the rent.” Is that fair to say?

Hugh:
Yes.

David:
Okay. I’m going to tell you something that probably nobody else is going to tell you, and I don’t want you to hate me for it. I want you to understand that this is coming from love.

Henry:
I love it when he says this.

Hugh:
Okay.

David:
I’m about to go Dave Ramsey on here.

Hugh:
No worries.

David:
I don’t think that you are going to accomplish that goal in a very short period of time. I also don’t know that for you specifically is just my personal opinion, that’s a healthy goal. If you are a controller for a real estate firm, you are a real estate agent, you’ve come across $95,000 at 22 years old, you are freaking talented. Okay?

Hugh:
Thank you.

David:
You’re you’re like Michael Phelps. You put him in the pool, he just swims better than everyone else does. It’s not really debatable. Okay? It doesn’t mean he’s better than other human beings. I’m not trying to say you have more value than other people, but in this world that we are talking about right now, you’ve got a swimmer’s body and you’re crushing it in the water. All right? What I hear you saying is how can I swim for a couple years and then never be in the pool? And I just don’t know that’s the best thing for you. I think that you need to swim as much as you can and win gold medals and inspire people through it. I think that when you’re finally tired of swimming, you should be coaching other swimmers. I think maybe you could build an entire building of Olympic swimming pools and put a place together where other people can come swim. You’re two talented to say, “I just want to do this for a little bit and retire and then just be bored.” Am I okay with what I’ve said so far?

Hugh:
Yes you are.

David:
All right. You get real estate. You’re an agent, you’re helping people, you’re a controller, you understand how this works? You understand enough to know that I’ve got cash flow option over here or equity. So, you’re already seeing that there’s different styles. I call them personalities of real estate. So, can I just challenge you to let go of, “I just want to do this for two years and never do it again.” And instead embrace, “I want to stay in real estate for as long as I’m working, but I only want to do the parts of real estate that I love.” Would that be fair?

Hugh:
Yes. That is fair.

David:
Okay. So, do you love being a real estate agent?

Hugh:
I do not.

David:
What do you like about it?

Hugh:
I like having direct access to the MLS. I like that I can do my own analysis very analytical in the accounting department. But the actual customer service transactional part of it.

David:
Okay. Would you believe me if I told you that is… It’s not exactly the same as me, but we have the similarity that I did not like the customer service element of being a real estate agent.

Hugh:
Oh, I didn’t know that.

David:
I despised it. And that doesn’t mean that I despised people. Okay.

Hugh:
Right.

David:
If you just look at my personality, I’m really good at swimming like you in the pool, I’m not that good at tree climbing or something. Okay? So, I could climb a tree, I could do customer service, the energy it takes for me to get up that tree is exhausting. You put me in the same pool, I use the same energy I could be way more effective. Right? So what I do is I turn it into a business. I love teaching. I love educating. I love systems, I love winning, strategizing. I could see in order to sell this client’s home, this is what I got to do. Telling the client what I did was exhausting. I don’t want to have to go and tell them over and over and over, “This is everything I did to make you a bunch of money,” but that’s what they wanted.

David:
So, I hired people that would do that part for me. That were scared of the part I like to do. The high pressure, high risk, the negotiating. We’re going to get every dollar we can. The game I played with the other agents, like, “Fine, we’ll just go sell it to someone else.” And I can get another 30 grand out of them because I pulled the right psychological levers. They were afraid of that. They just wanted to make someone’s life happy. So, what happened is I built a business out of a thing I understood because I didn’t like the customer service side and my clients were way better off getting customer service from someone who’s good at it and having me oversee the big picture. So that’s an option for you. You don’t have to… It doesn’t have to suck forever. No one told me this. When I was 22, man, I was working at a restaurant probably.

David:
I was doing nothing like what you’re doing. You’ve got a long time to get this right. So you could run a real estate team. You could own a real estate brokerage. You could turn into a business where make a bunch of money teaching people about real estate that helps them go help clients. And then you still get that access to the MLS. You just get a million other things on top of it. Okay?

Hugh:
Mm-hmm (affirmative).

David:
You could continue to work as a real estate controller. You could continue to learn information and make connections. And guess what? All those people you make connections with that are impressed by you because you’re super talented, those will become referrals to the brokerage that you have and you’ll be feeding those agents and helping make them money as well as helping make you money. Right? You could give your agents that have money an opportunity to invest with you at a certain point.

David:
There’re so many freaking options that you have that would allow you to just have an amazing life inspiring and teaching and coaching and building wealth and helping people and feeling like a fish in the water that it doesn’t make any sense that you’d say, “I just want to buy a couple properties and get out of it.” All right? So, that’s the first thing that I want to tell you. I’m just shocked you’re 22 years old and you’ve already got this going on. Now, I am willing to give you some practical advice about where to invest to. But is there anything you want to comment on what we’ve said so far?

Hugh:
Well, I do think that it’s interesting you say that. I think I’ve been through a lot more than the average 22 year old. I will say that for sure. I think I can agree that I want to commit to this passive side of real estate, but knowing myself and how I thrive on stress and I thrive on being busy. I don’t know if I could stop when I got to that point. Right? So that’s why I put that little caveat in there saying, “Well, I want to choose not necessarily that I want to stop there.”

David:
The way that people like you and me and Henry and in general, people that just know we’re good at the stuff we’re doing, not arrogant. We just are. There’s lots of things I’m not good at. I have a vision in my mind of how I see it that turns into an analogy. Here’s your personal analogy. We are all people that are on the real estate track going down a hill in our car. All right?

Hugh:
Okay.

David:
It actually takes more energy to stop going down by smashing on the break than it does to just let ourselves go. So to try to stop is harder than to keep going when you’re in this place. All right? So if you just make peace with the fact that I’m going down this hill and I’m going to be picking up speed, instead, focus on what direction do I want to take and what do I want to avoid? Because I’m going to go somewhere, right?

Hugh:
Mm-hmm (affirmative).

David:
So if you see, I don’t like going the customer service route with these people, that’s bumpy road. It’s going to be a miserable ride. Well, take a path that’s downhill in a different direction that’s smoother for your personality. And as you go down that hill, you’ll make more and more of these decisions where you’ll peel off from one path and go another where the road will become smoother and smoother for you. And that’s in general, how it works as you build a portfolio. You get to build a big portfolio, you have a lot of equity, you have a lot of cash flow. Now you make decisions on like, “Well, it’s really awkward and hard trying to own properties that I have to do at this way. Let me take a different path where I sell these ones and get into different ones or get into a different market.”

Hugh:
Okay.

David:
As far as your decision right now, if you are making money, the way that you are and you have the future ahead of you that you do, immediate cash flow to me in your situation is not nearly as important as the long-term game, especially being 22 years old. So, if you go buy… I would say that you should buy cash flow stuff if you said, “David, I’m a bank teller and I have dreams to be more. But I can’t get out of this job cause I need the money.” Cash flow would be your tool to get out of that immediate trap. It’s a short-term solution. And then you have freedom to go build something. But if you already have that freedom, I would recommend that you buy in markets that not, I don’t want to say a appreciation like you’re speculating that it’s going to go up.

David:
That it makes all the sense in the world that population is moving there and jobs are moving there and tenants are moving there and better fundamentals of real estate are going into that market. That will… It won’t make you broke. You’re not going to lose anything over this property, but you delay gratification as long as you can. So, I’ll give you an example. A lot of New York is moving to South Florida right now. They’re making a huge push to become like the new New York, new New York.

Hugh:
Yes.

David:
Right? I don’t think you could go wrong if you buy in Miami in a decent area, unless the HOA you buy in specifically is bad or something. But that area is going to explode as more and more business moves there and they like what Florida is. So if you bought something in say like Miami or the Miami area, and you don’t need money right away, in 10 years in 20 years, your jaw would drop if you understood how much that’s going to be worth. The same property in Delaware would probably be pretty solid return. Right? But something in Miami could be life changing. I’m talking about, you could make seven figures in equity. And I know that sounds, but with the way inflation is going, that’s not crazy. And if you bought a couple of them, that could be like three, four, five million dollars that becomes your seed money to run your own REIT someday or whatever you want. It gives you options. You see where I’m going with this?

Hugh:
Right.

David:
So at your age with what your resources are, I want to encourage you to do everything you can to delay gratification, to give you options later in life. Because at 22, you’re probably not pulling the trigger on something huge. I mean, unless you’re some absolute freak wonder kid, you’re in a great position to learn, but you’re not going to be the leader at this stage in your life. But when you hit 28, 29, 30, you will probably absolutely find yourself like, “It’s time for me to go do my own thing, build my own brand, go out of my own way.” Plan for that phase of life, put that money in a place where it’s going to grow and grow and grow so when you hit that, you’ve got dry powder. Do you even know what that phrase means? Dry powder at 22? Have you heard that before?

Hugh:
No, I have not. Can you elaborate?

David:
It comes from World War II when they had to load their muskets up with gun powder and if it was wet, it wouldn’t fire. Right. So it’s basically you’re saving resources so that when you need them, you’re ready to go. You don’t want to be like, “I got all this Delaware property that’s been cash flowing for 10 years, but I can’t do anything with it.” Right?

Hugh:
Right.

David:
That’s the advice that I would give you.

Hugh:
Okay. And so specifically regarding Miami. So, I did look there for a little, I know the areas. What areas you might want to avoid, what areas people are flocking towards. And with my current amounts, my reserves, I’m only looking at like condo town home type properties. Right? I mean, I could go more north, like in the Fort Lauderdale areas. But if I were to invest in South Florida, I would want it to be in Miami-Dade County.

David:
Mm-hmm (affirmative).

Hugh:
I know there’s kind of back and forth regarding the HOAs with condos. And sometimes you just have to be careful with them. What would you recommend if I wanted to get into the Miami market to pursue?

David:
First thing I’ll say is either email me if you have my email, you can get it off my Instagram page or send me a match just through Bigger Pockets, I will get you connected to my loan team because we are licensed in Florida. And we can give you options of what type of properties that you can buy with what loan products. In general, I wouldn’t beholden into just Miami. I think Tampa and Orlando are both really solid markets that we should expect a lot of growth from. So, basically what I’m getting at is we should look and see what you’re approved for, look and see what type of properties we can get in those three markets.

David:
And if we can get something solid in Miami, that’s our first option. If the only properties in Miami-Dade are just like, eh, then maybe we look at Tampa and we see what you could get there. And we can kind of compare apples to apples to see where you can get the best property that will actually make sense so we don’t stick you in a condo just because you like you have to, if that’s where you want to invest.

Hugh:
Okay.

David:
I think you’ve got some really good short-term rental options in Florida. Some really good corporate housing options in Florida. And then maybe something on the outskirts of Miami proper, right? Where you can actually get a house that you can rent out. It doesn’t have to be a condo with the down payment money you have, you’d do really well there too.

Hugh:
Okay. Perfect.

David:
All right.

Hugh:
I appreciate you guys taking the time to meet with me and I will definitely be emailing you, David.

David:
Thank you-

Henry:
Awesome. You’re amazing.

David:
… for the call.

Hugh:
All right. Have a great day guys.

David:
All right. That was our show. Henry, what do you think?

Henry:
Man, I love doing these. Man, it’s such a unique vibe to be able to talk with somebody in-person and speak specifically to their problem and their market and their situation, man. How many shows give you an opportunity to do something like that, man? Awesome.

David:
Yeah. Especially… I mean, we had some really good questions on this one and like I said in the show, I really love that we’re able to sort of ask deeper questions to get more of an understanding of their specific situation so we could give advice tailored for them.

Henry:
Yeah, man. It’s… Sometimes we do this all the time and we do it specifically for us. And so you don’t always get a view of other people’s why, or what’s fueling them to make the real estate decisions that they’re trying to make. And so it feels really good to hear those things and then be able to provide some guidance and hopefully we don’t scare them off the path.

David:
Yes. Well, if you guys like this, please follow Henry and I on social media, we go and say when we’re going to be doing a live session so that you can get on and get your questions answered as well. You could also go to biggerpocketsts.com/livequestions where you will see a recording schedule at some point that will tell you when you can be here. And if you scroll to the bottom of the page, there’s a link where you can actually join and get in the chat so that you can get your questions answered on the show or just kind of get a behind the scenes peek at what it looks like to record a podcast.

David:
So, I want to thank all of our guests for coming on. We literally couldn’t make the show if we didn’t have people coming on to ask questions. And if you’re watching this on YouTube, please leave a comment below and let us know what you thought. Do you like this format? What did you get out of it? How did this inspire you to go take action? Or maybe how did it change the way that you’re thinking? Henry, any last words before we get out of here?

Henry:
No, man, just keep logging in and giving us your questions. Like I said, what a unique experience to be able to get your specific question answered by people who love doing this and who love teaching? And it’s just amazing. So, thank you all for being here.

David:
All right. This is David Green for Henry always bringing value Washington. Signing off.