Old-School Investing Wisdom from 60+ Years with Mike Anderson

Brandon: And this is the BiggerPockets podcast Show—what number are we on, Mindy?

Mindy: Uh, Brandon—this is the BiggerPockets podcast Show 259.

Brandon: Woo!

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Brandon: What is going on, everyone? This is Brandon, the host or co-host of the BiggerPocket podcast today, here with my guest, co-host or host, Mindy Jensen. How are you doing, Mindy?

Mindy: I am doing wonderful, Brandon. Thank you very much. How are you doing?

Brandon: Man, you know what? Life is good. Christmas is over now, which you know, we recorded before Christmas but whatever. What a stressful holiday.

Mindy: Oh, my goodness, I can’t believe it! I do random comments.

Brandon: Good, good. No, things are good. If all is scheduled to go the way I think it’s supposed to go—and again, we’re recording this a few weeks earlier. I should have both my apartment and my mobile home park closed here by the end of the month. So it should be any day now.

Mindy: Well, that’s very exciting. I’m super excited for you. We’re going to have to go and take another episode to really dive deep into your investment and your experience with the 1031.

Brandon: We will have to do that.

Mindy: You mobile home park, very excited about that.

Brandon: There you go. Well, cool. Cool. All right, well whatcha been up to? Anything fun? Anything exciting? I haven’t had you on the podcast in a while so we need an update.

Mindy: I know. So, Scott and I have started our new podcast.

Brandon: That’s right. That’s coming out here in just a few days from now.

Mindy: January 1^st is our very first episode and we are getting ready to record. We recorded several episodes already but we were really hoping to get a first guest on—a very special first guest—can I say who it is? I don’t know. We haven’t recorded it yet. I think I’m going to tease you and say you should listen in on January 1^st, kick start 2018 by listening to Mindy Jensen and Scott Trench interview a very special guest.

Brandon: Wow, that’s a good tease.

Mindy: We’re going to talk about money. We’re going to talk about finances in general. What are the biggest questions that we get in the BiggerPockets forum at BiggerPockets.com/forums is how do I get started investing with no money and bad credit and I know you wrote the book on investing with no money. But you, Brandon Turner, can invest with no money. I don’t know about your credit. I’m assuming it’s not terrible. It’s that I don’t want to—

Brandon: Not too shabby. You know. However, I just found out yesterday my wife is beating me on credit score. That made me sad.

Mindy: I beat Carl!

Brandon: Did you?

Mindy: I beat Carl all the time and it was funny because for a while, I was a stay-at-home mom. So I had no income and he had an income and I have a better credit score. So I guess the moral of that story is don’t have a job?

Brandon: Don’t have a job. Yeah. There you go.

Mindy: That’s a great idea! So anyway, back to the question.

Brandon: So you’re launching a podcast.

Mindy: We’re launching a podcast, airs January 1, about finances.

Brandon: It’s about how to be rich with money.

Mindy: How to be rich with money. Exactly. No, we want to help you fix your no money and bad credit situation.

Brandon: Is this only for people with bad credit and no money? Is it the only people who listen to the show—we know the show is for everybody who wants to be smarter with money. What’s the show called? Do you guys have an official name yet?

Mindy: Around the office, I call it the S&M Podcast, the Scott and Mindy Podcast, but apparently that has different connotations and yeah, I can’t call it that. I think it’s going to be called BiggerPockets Money. But we will see in a couple of days when it comes out.

Brandon: All right, when it comes out, make sure you listen to it and then write a review of that show as well. We’re going to launch, hopefully, the biggest personal finance podcast on the planet. That is the goal here. So, with that, let’s get into today’s show.

Before we do, I want to get to today’s Quick Tip. All right, today’s Quick Tip is very simple. Next week, like the first Wednesday in January, we’re doing a special once-a-year, we’re going to call it How to Make 2018 Your Best Real Estate Investing Year Ever. And I’m going through how to make a plan for the full year, how to really kickstart your investing, how to do all that stuff. So go to BiggerPockets.com/webinar if you’re watching this webinar or listening to it about the time that this comes out and sign up because it is going to be life-changing.

And I did this a year ago. I did How to Make 2017 and people like thought it was the best thing ever, so I’m going to repeat it, tweak it, change it, make it a little bit more closer related to this year, what the market is like today and how to find deals, how to fund them, how to set a plan, how to set your goals. It’s going to be epic. So, BiggerPockets.com/webinar. That’s your Quick Tip.

Mindy: And that is Wednesday, January 3^rd, 2018. What time is that, Brandon?

Brandon: I think it’s going to be at 4:00PM PT but I might change that so go check the site and go see what time it’s at. I got a couple of days to figure it out.

Mindy: Okay. BiggerPockets.com/webinar. So, thank you very much, Brandon, for that Quick Tip. I will say that I’ve sat in on some of your webinars and they’re always really, really, really great.

Brandon: Thank you.

Mindy: You’re pretty good at what you do.

Brandon: I’ll give you your $20 later for saying that.

Mindy: Thank you.

Brandon: Yep. All right, let’s get to today’s show. I want to hear a quick word from today’s sponsor, though. Let’s bring him in.

Today’s sponsor is FreshBook. So if you are a real estate hustler, you’ll probably end up billing people for stuff quite often, like late rent, contracting work, etc. I know that I do, which is why I am a huge fan of FreshBook and I recommend them all the time. FreshBook is an incredibly easy to use invoicing software designed to help entrepreneurs get organized, save time invoicing, and get paid faster. You can also use it to keep track of your employees’ hours, track expenses, and generate awesome reports. So bill like a boss. Try FreshBook free for 30 days. Go to FreshBook.com/BiggerPockets and enter BiggerPockets in the “How Did You Hear About Us” section when signing up.

All right, big thanks to our sponsor as always. Now, without any further delay, let’s bring in today’s guest. Mindy, today’s guest is somebody that you have been bugging me to get on the show for a while now because you said he has the best stories of any guest we’ve ever had and I don’t disagree. This guy is a riot in a lot of ways.

Mindy: He’s been investing since way before your mother was born.

Brandon: I think that’s true.

Mindy: I can’t even say that he’s been investing before you were born because that’s nothing. He’s been investing—that doesn’t accurately convey how long Mike has been investing in real estate. Mike has seen it all and done it all. He currently owns a mortgage company and he talks about financing. In this episode, he talks about general mindset, what newbies need to do to get going.

Brandon: This is like old school advice for newer and older investor. It’s just like, how do you condense down 60 years of real estate knowledge into one episode? This pretty much does it. You guys are going to love it. Should we do it?

Mindy: This is a really awesome episode. Let’s bring Mike in.

Brandon: All right, Mr. Mike Anderson, welcome to the BiggerPockets podcast. We’re glad to have you here.

Mike: Well, thank you for inviting me.

Brandon: Yeah, this will be a lot of fun. Now, you came on the show because you are friends with Tim Shiner, correct?

Mike: That is correct, a very dear friend of mine. Very sharp man.

Brandon: And he’s got a very good episode. Mindy, what number is that? Do you remember off the top of your head?

Mindy: That was Episode Number 221 with Tim Shiner where he talked about, his phrase was, “Buy from me and tear up your lease for free”.

Brandon: Oh yeah, that’s right.

Mike: He means that, too. And if you buy a house from his wife, he’ll tear up the lease and though she makes commission on the houses she sells—it’s really a pretty good deal. It’s good for both parties involved.

Mindy: I have heard from so many people who have said that is such an excellent tip. And you know, it makes sense. It’s like a no-brainer once you hear it but I don’t think as many people listen to it or think of that as they should.

Mike: Yeah, well most people are in this business and investors are not being in real estate business anyways, so it’s really a great idea with what he does with renters. Tim owns a lot of expensive property in the nice Dallas area, so he can get away with it. He’s got a lot of demand for him. So they make money doing it. But I think he would do it just because he’s a good guy. I don’t think he does it to make money. I really believe that. That’s the way Tim is.

But you know, talking about investors, one of the questions—well, you’ve got some questions, Mindy, you want to ask those first or you want to just carry on here?

Mindy: You just do what you want and I’ll just jump in when I feel like it.

Mike: When I had an earlier podcast from a gentleman and they were asking me about particularly novice investors or new investors in the market, one of the questions they asked me was how I got into it. Well, I was working for my dad’s company when I had just gotten out of college and my dad owned an appliance store company and large parts distributorship for Southwest and sold parts and refrigeration parts and I had no clue I wanted to go into real estate or anything like that so one day, a guy was in the office and buying some parts with us, and he said I want to sell my house. You want to buy it? And I said, well how much do you want for it? He said $3250. I said, how much down? He said, $500.

Mindy: Wait, what? $3250? Three thousand—

Mike: Well, this is 55 years ago.

Brandon: Okay.

Mindy: Okay. I’m sorry, continue.

Mike: Well, that’s how long I’ve been doing this. I’ll never forget this story because it’s a true story. Anyways, it was $3250. He wanted $500 down and $50 a month. So I bought it and I put up a rent sign in my dad’s store because plenty of customers came in. I waited a couple of days and had it for $100 a month. And about three months later, my wife and I were building a house and we were short on budget. We went over budget. So I called a friend of mine who was in the mortgage business. Red was his name. I said, Red, I need to sell this house and get some cash out. I said, what can this house do for you. He went and looked at it, he said it’ll bring $11,000. And I said, $11,000? I just paid $3250 for it. He said, yeah, so I put signs up in my dad’s store and I sold it in three days’ time to a couple. And I made about $8000 on it in three months’ time. I didn’t have to do any repairs on it or anything. I sold that paycheck.

Brandon: Real quick, what would that house be worth today, do you think? What would you guess?

Mike: $100,000.

Brandon: Okay.

Mike: But we’re talking about 55 years ago so it’s been a while. So I talked to my dad. I said, Dad I just made $8000 in two or three months and I didn’t do any work on it so I started buying and selling houses. Two or three a month, making pretty good money. $15,000 a month. $20,000 a month. And this was right after I was out of college. So I told my dad I was resigning and he said, no, you’ve got to stay here for six months because you’re a valuable part of the operations. So I stayed there six months and did real estate on the side. So I was buying and selling four or five houses a month and I learned a lot from buying and selling houses. I didn’t make a lot per house. A lot of investors back then, if I could make $3000 or $4000 a house, that was sufficient for me. But if you’re doing three or four a month or five a month—so the one thing I would tell investors is, buy right. In other words, you’ve got to buy under market to buy houses.

I later on was buying as many as 200 homes a month. I actually had a lot of credit with FHA in Washington, D.C. I could borrow a million dollars from in Washington to buy their foreclosures. So it got to be a big business with me, maybe three or four years after I went into the business. But what I found is three things about people that are buying houses. One of the things they do that I don’t particularly like is they go to these seminars and they buy these books and tape. They’re $1500 or $2000 about how to make a million dollars in real estate business with no damn work. And all those books need to say, when you open up to the first page is, “good damn luck because that ain’t gonna happen”.

So I’ve been on the stage many times with people that wrote those books. They all have experience doing it but not nearly the experience, in my opinion, to be telling people how to make money. And they really don’t tell people what I think is the essential to make money. It’s called hard work. I can tell you that most investors—

Mindy: Thank you.

Mike: It really is, Mindy. It’s all about hard work. So if you’re the type of passive investor that thinks that you’re going to go buy a house and rent it or flip it, whatever the case may be, first of all, you have to set your objectives. And your objective may be two or three different things. Particularly if you’re looking for rental property. A lot of people are buying rental property for retirement. They want to buy a house, pay for it for 15 years. They may be 50 years old when they retire and they want to live on their income from that house.

Those types of people are buying more expensive homes, in my opinion, or buying homes in the $300-$400K range or whatever it may be in your particular area. And they are generally better school districts. That’s an important thing for investors to look at. What school district it’s in because school districts in the metroplex of Dallas, you could be two blocks away, same house, and one be in one school district and rent for $1000 more than the other one that’s not in as good of a school district. So I think it’s very important for people to look at school districts when they’re buying real property. But there’s two basic differences in rental property. There’s one that’s called cash flow and that’s all you’re buying is cash flow. And the other one’s appreciation.

So a guy that may be buying appreciation may have a job somewhere else and this is a sideline for him. He’s looking for retirement. He may be making $100,000 a year or $150,000 a year and he’ll buy one in a pretty god neighborhood and make cash flow of $300-$400 a buck which is not enough to cover expenses by the time you do maintenance repairs, reserves or upkeep, etc. He’s breaking even on it. And his hope is over ten or fifteen years, that house will go from say $300,000 to say $450,000. $425,000, whatever—depending on what the market is. You have no control over that.

That’s one type of investor and in my opinion those investors should look at five to fifteen years because they’re not looking for cash flow. They’re looking for appreciation. And that house will be paid off. A 30-year note pays down 25% for the first five years’ worth, 15 will pay down 10%. So if you’re buying it as an investment tool to retire on, look at a 15-year note because the payments are about 15-18% higher than a 30-year note and the equity build is so much better.

The other side of that coin is buying for pure cash flow. And I can tell you this unequivocally that the least expensive homes you can buy is going to cash flow better. For example, I’d rather have three $100,000 homes than one $300,000 home. Because the three $100,000 homes will rent for $1500 a month while a $300,000 home may rent for $2500 a month. So the cash flow is significantly different between the more expensive homes. The more expensive homes, the less cash flow you’re going to get in return on your dollar. But they have more appreciation potential so that’s what buyers need to identify going in, is what their goal is. Because a lot of them I talk to have no—well, I’m just buying real estate to make money. For what reason?

Brandon: Yeah.

Mike: Does that make any sense to you?

Brandon: You know, this is a big debate we hear on the site all the time. Do we buy it for cash flow or do we buy it for appreciation? Why is somebody buying it? Where do you draw the line? Where do you think somebody should aim for appreciation and where should somebody aim for cash flow?

Mike: I think the guy that aims for cash flow needs the cash to live on or is building a portfolio or the guy building for appreciation or retirement has enough income to where if he loses $300-$400 a month on houses, it’s not going to set him back any at all. So there are two entirely different products and that’s what these investors don’t do, in my opinion, is identify what their goal is. I mean, how are you going to buy real estate if you don’t know what your goal is? Keep it, flip it, buy it and sell it. Now, flipping houses, that’s an entirely different situation. But I can tell you that in my opinion, it’s not an opinion, it’s a fact, as far as I’m concerned—I’m highly opinionated and I highly believe in my own opinion. Just because I’ve had a lot of experience doing this. I’ve never made any money the easy way.

I can tell you a story and this happened when I was about 25 years old so it was 49 years ago. I used to keep a book and when I was driving down the street and I saw some houses I thought, “For Sale by Owner” or a house that was deserted, I’d go back and I’d look it up in mapping plans and find the owner, call him on the phone, go, “My name is Mike Anderson. Are you interested in selling your house?” Yes I am. How much do you want for it? And we’d try to make a deal and most of them would hang up on me because I was trying to steal their homes. And that’s true, I’ve never told anybody they were getting a good deal because they weren’t getting a good deal.

Anyways, I was driving down the street when I was about 25 years old and I saw eight homes on this main street and one of them had a rental sign on it. So I went back to the boss and I called and his name was Evelyn Sibley. I’ll never forget it. She lived in Texas, a suburb of Dallas. And these houses were worth $18,000. I called her on the phone and I said, “Miss Sibley, I’m a real estate investor. I’m interested in buying your rental home. Are you interested in selling?” She said, yeah, I’m thinking about selling. How much would you give me for them? And I said, I’ll give you $64,000 cash for all eight of them. And she went off on me like—I mean, she said she called me a thief, a crook, every kind of name in the book, cussed me out and said I would never deal with you. You’re a damn crook and slammed the phone down on me. So I was like, she was telling the truth. I was trying to steal her homes so why would I be upset with her? I wasn’t.

So, anyways, I had this little book, a green spiral notebook and I wrote a million dollars on the outside of it. I wouldn’t get rid of that book until I made a million dollars. So these people I had called over the years, I put in this book and I’d call them every Friday afternoon because you never know. If you catch somebody who wants to sell or doesn’t want to sell. So every year for three or four years—I’m not kidding you—it actually took me five years. I called her on the phone every Friday afternoon. It was about ten seconds, our conversations. I’d say, Miss Sibley, this is Mike Anderson—she’d go, you’re the crook that’s trying to steal my homes. Don’t ever call me again, slam the phone down. And after about two or three years—totally true story—after about two or three years, I’d go, Mike, what is wrong with you? That lady is never going to sell and I would go, if it takes ten seconds a week, who cares? It’s not bothering me. I don’t have anything to do on a Friday afternoon. Fridays were slow in the real estate business.

So one Friday, after five years, I called her on the phone and she was crying. And I said, Miss Sibley, what is wrong with you? And she said, I cracked my rib today and some guy snuck up behind me and hit me in the head with a pipe and took my purse along with my money in it and drove off in my new Cadillac—I don’t know what I’m going to do. And I said, oh Miss Sibley, I’m so sorry. Would you like to sell your house? And she said, yes, I want to sell it. I drove down there that night, 30 miles, at 6:00 o’clock at night. Signed the contract. I made $80,000. That was 49 years ago so figure it out.

What I’m saying is, perseverance. Which people don’t have the perseverance to do what I’m talking about doing. But if you want to make any money, you can be a—look, I call them players and nonplayers. You can be what I call a nonplayer, which is kind of play on the sidelines and never get in the game. Or you get in the game. If you’re going to get in the game, I’m telling you right now, if you’re listening to this podcast, it takes a lot of hard work and a lot of luck on top of it. And a lot of ethics. You don’t need to lie to people.

If you’re trying to buy a house from somebody on a wholesale level and they go, well you’re trying to steal my house. You go, yeah I am, but I’ve got to pay salesmen, I’ve got to pay holding costs, I’ve got to pay insurance, I’ve got to pay taxes, I’ve got to fix it up. And I’m going to make a reasonable profit. People understand that. But if you tell somebody, I’m paying retail for it, they know damn well you’re not doing it so why even pull that.

Brandon: I like that phrase. I need to make a reasonable profit. Nobody’s going to argue with that. That’s what every business does.

Mike: They really do. And these books that people read, I actually went to a big CBS and left when I was on stage was with Rob Kiyasaki and some other keynote speakers from New York and some other places. And most of these guys were selling their books and tapes and everything and I was the last speaker up and most of the audience was here in Dallas and they knew me because I had a radio program on CBS for 16 years.

So they really wanted to hear what I had to say, so when I got up there, I said look, I wrote this book and I’m telling you, for $1750, it’ll be the best book you’ve ever read in your life. It says, How to Make a Million Dollars in Two Weeks’ Time in Real Estate Business. And I could see all of them going, oh my God, he’s going to try to sell us another book or tape. And I go, no. I said, here is how to read it. I opened up the book and it had one page in there and it said, “Good f*cking luck”. It ain’t gonna happen.

So I’m not a big believer in buying those books and tapes because I think you have to get down and really dig in the dirt. It’s kind of like going to war and going to boot camps. It’s different when they’re shooting live bullets at you. So I’m just telling you. I can’t know how much time it takes to work on deals. And don’t be scared to make offers. I know I weren’t ever scared to make an offer. I didn’t care if I insulted somebody. I didn’t like insulting them but generally speaking, if you’re going to insult somebody—

Brandon: You know, I ask people this all the time. Newbies come up to me and they say, I can’t find any deals. The first question I always ask them is how many offers did you make last week? And what’s the answer, always? None. Because people are so afraid to go and make an offer.

Mike: I was going to talk about that. Find a realtor you can trust that knows the market that’s not in it for the commission. I work on commission for the most part and I’ve always told every loan officer that works for me and everybody else, I said, don’t worry about commission. Worry about your customers. If you care about your customers, commission will take care of it. So I interview some real estate agents and find out who’s got their act together, who knows what you’re talking about.

And in Texas—I don’t know about the rest of the states—but you can make an offer on a house without even looking at it. So it weren’t uncommon for me to put an offer on a house I never looked at, when I look through MLS. And I look for houses that need repairs because a house in tip top shape is going to bring in tip top dollar. And repairs didn’t bother me so that’s one thing—investors, don’t—you want to look at a house that’s been on the market for four or five months and hasn’t moved. The price has gone down steadily on it and people are tired of showing it. They want to get their money out of it in a lot of cases.

So make an offer. My rule of thumb was, if I couldn’t buy it for 75% of market value—in other words, say a house is $100,000. I might pay $75,000 for that house and I would deduct my closing costs on it which would be maybe 3% and I’d also deduct the repairs. If I figure repairs were $12,000 on it, I’d deduct $15,000. So I’d take the $15,000 of repairs, the $25,000 off the top of it, and the $3,000 closing costs, I’d make an offer of $62,000. If they took it, fine. If they didn’t, they may counter with $64,000. And then you make up your mind. But don’t get caught up in this trap of well, I’m going to be getting into this bidding war with somebody. Make your mind up what you’re going to pay for it and don’t go over that.

Brandon: I was going to say, what do you think percentage wise, you get rejected over your years? Do you think you lose half, three quarters, 90%?

Mike: I’d say 75-80%.

Mindy: Okay, but I’m jumping in here. I’ve got like 19 things to say because you just keep talking. I’m like, wait, wait, wait. I’ve got a question about this, too.

Mike: I told you about that. Didn’t I warn you?

Mindy: You did. Take a breath. Sit back. Okay. So, I want to say you had called them every Friday. I’m looking—my notes got all wapped up because I made a note some place else. You said, call them every Friday. You got your little book. We call that driving for dollars, when you drive around and you see houses for rent—

Mike: Dialing for dollars.

Mindy: Dialing for dollars. Well, first you have to drive for them. Or walk for them. And then you come home and you look up where they are—you called them every Friday. I am in the BiggerPockets forums all day every day and I see people all the time, “Oh, how often should I send a letter?” I sent one once. Okay, and you got a zero percent response. That’s because you’re not being consistent. When somebody gets ready to sell, Evelyn got ready to sell to you, you called her right when she was ready to sell.

Mike: I called her at the moment when she needed to sell. Absolutely.

Mindy: Yeah. But that’s not going to happen if you do it every six months.

Mike: The point of the matter is, it didn’t take any time. I mean, it took me 15-20 seconds. And let me say something else. This is one of my pet peeves. I am so damn tired of people thinking that, iPhones—I don’t even have an iPhone nor do I want one. I don’t text. I don’t need to text. Do you see a computer on my desk? I don’t have one. I don’t use a computer. I have three assistants that send out texts for me occasionally, maybe once or twice a day. I do probably eight or ten e-mails a day. But I pick up my phone and call people on the phone. It doesn’t cause cancer to call people on the phone.

Brandon: But it’s scary, Mike. It’s scary. I’m a millennial. I couldn’t handle it.

Mike: I can’t tell you what to do.

Mindy: What if they say no? What if they don’t like my offer, Mike?

Mike: Well, I’d say I’ll find another person that likes the offer. You’ll find them. When you talked about how many offers I made on houses, really, when you think about it, I’ve offered maybe a hundred contracts a month. And you need to look at the house and what it takes—my secretary, five minutes to type up a contract and send it out. It’s got an option period in there where I can back out of it any time in 15 days. If I am able to get one. Because I wasn’t going to go waste my time—let me tell you. Time is of the essence to me. It always has been and it always will be. I’m not going to waste my time driving out to somebody that I’ve got a 5% chance of buying it.

I’d rather shoot them an offer at my price and if they accept the offer, then I’ll get off my butt and go out there and look at it and do a take off on it. If I don’t like the house, I just back out of the contract and lose my option fee of $100 or $200. But I don’t waste a lot of time doing it. It’s a numbers game. Why are you going to take a shotgun when you’re going bird hunting instead of a pistol because you’ve got a lot more shots at it? So just fire at them. I’m serious. Just fire at them. People are not going to be upset about it.

And the realtor will turn those contracts out like crazy, and particularly if you’re buying a few houses. He may cut you a deal and pay part of your closing costs or maybe cut the commission. If he’s doing any volume with you. Even then, realtors are not overpaid, I can tell you that. Most of them aren’t. They work hard and for them to make 3%, particularly depending on what product you get, they deserve it. Any break you can get to save you money, that’s money in your pocket. That’s the way I look at it.

Brandon: Yeah, I love that. I love that. I like the mentality that you come at this. I teach an online class every week to people and my message is almost always the exact same. It’s like, your job as an investor is not to go out and convince every single person to sell you a house. Your job is to simply follow a process that is, you get leads, you go and figure out what number makes sense, like you talked about. And then you go and make an offer. And if they take it, great. If not, move onto the next one. Like, this is largely a numbers game.

Mike: And in today’s market, you should be able to, as an investor, make $10,000 on a house. That’s after everything’s said and done.

Brandon: Slimmer on a rental.

Mike: Flip. Not rental. Purely flip market. If you can’t make $8000-$10,000 a house, pass it. If there’s too many things—I can tell you that 90% of investors that start remodeling homes spend more money than they thought they were going to spend.

Mindy: I’d go a little bit higher. I’d say 100%.

Mike: They always think they’re going to get top of the market. They also think they’re absolutely going to get it on the first day they put it on the market. It just doesn’t happen. In the hot markets down in the Dallas metroplex market, it’s not unusual for a house to have 15 contracts in one day’s time. I’m not kidding you. If the price is right. Those are in tip top shape so that’s why I tell investors, find one with little repairs. Find one that needs a little lipstick on it to make it look pretty and get out there and feed it up and make the drive-up appeal pretty good and you could sell it.

If you look at it this way, if you could make $8000-$10,000 a house net—I’m talking about after expenses, commissions, holding costs, taxes, insurance, the whole ball of wax, it’s a pretty good living if you do that once a month. That’s $96,000 a year. If you do it twice a month, that’s $192,000 a year. That’s like walker size to figure it out. But you’re not going to find them sitting on your butt. I’ve never gotten a letter in the mail I can think of, saying do you want to buy my house? Every house I’ve ever bought, I went after them all.

Mindy: How about you, Brandon? I’m the same as Mike. I’ve never gotten a letter in the mail that said, hey Mindy, I think you want to buy my house.

Brandon: Yep, never have. Every deal I’ve ever gotten—that’s like another thing we talk a lot about here at BP is like, back in 2008 and 2009, you could find good deals. Today, you can’t find them. You have to make good deals. You have to go out there and hunt for good deals. They don’t walk on your doorstop.

Mike: These “wholesalers”—they’re buying houses and they do a lot of advertising and they have phone banks and all that sort of things, call all around. They’ll send you a deal and say, look you can buy this house, the ARV, the retail value at $200,000. You can buy it from us for $150,000. And repairs are $50,000. You can sell it for $80,000 and buy the time you come out of it, you’ll make $30,000 profit. When you really bore down to it, it’s like the [inaudible][28:07] it’s a lie.

First of all, it’s true. The evaluation they give you is very top of the market. I’m talking about stuff in tip top shape. So it may be worth what they’re saying—if it’s $280,000, it may be worth $260,000 truly. Also, they say repairs are $40,000-$50,000. Truly, they’re like $65,000-$70,000. They get these investors to believe in all this BS and they buy these houses and they make $5,000 off them or can’t sell them quick or whatever. And it’s too much work and everything and they get bored with it.

Run your numbers yourself. Don’t believe what a realtor is telling you. Call another realtor and say, I want to know, if I put this into this house, what will it sell for? Within 30 days. Not 60 or five years on the market, depending on that one buyer that wants that particular house. Whatever repairs they’re telling you about, look at those closely. Because I don’t believe half of them. In fact, I’ve seen a lot of them I used to buy houses from. I just quit buying from them because all their numbers are just a joke.

Brandon: Yeah, I would say nine times out of ten, the wholesale deals that I see are just—I laugh at them. They’re just, you don’t even know your market. So maybe, can you talk to those people right now that are listening that are wholesalers or they’re trying to be wholesalers? How can they get better at getting those numbers correct?

Mike: Get your numbers right.

Brandon: How do they do that?

Mike: Be honest with it. If the incentive was saying people are going to make $35,000 on this house, tell them you’re going to make $10,000. But you’re right, Brandon. In Dallas, and I think it’s around the country, affordable housing is in short supply everywhere. So there is not many flip houses around that are worth a damn. If it’s hard to find, that’s why you’ve got to dig them out. They really are hard a sale to find. I know investors and I know people that make what people call predatory lending money. Where they loan investors 12-15%.

Brandon: Hard money lenders, yeah.

Mike: They can’t find enough buyers for them right now. There’s too many—there’s not enough product on the market and I’m sure that’s the way it is in Colorado. In Denver and surrounding areas, that market is on fire like it is in Dallas. So it’s hard to find deals. But they’re out there. You’ve just got to find them. But look for the ones that honest to God need a lot of repairs. I’d rather buy a house that’s $50,000 with a little work than one that would need a paint job.

Brandon: The more work that a project needs, the fewer people are interested in. Also, the law of like—we should make a law for this—the law of smelly houses. The more smelly it is, the fewer people want to buy it. I love buying smelly houses because everyone is afraid of it. But usually, it’s a paint job or replace the carpet.

Mike: But you know, I used to think that whoelsalers, or whatever you want to call them, the people that are flipping these houses for $3000-$5000 or $10,000, you really don’t know what they’re making on them. They are making pretty good money doing what they’re doing but I just don’t believe a lot of the stuff they do, at least not in Dallas. I can’t tell you about what’s going on in Colorado, but here, they’re giving you the high sale, the lowest a repair deal, and it’s somewhere in between there’s the truth.

Brandon: Yeah, it’s hard. You said it best a minute ago. You always have to do your own numbers. Don’t trust your agent to do them. Don’t trust the wholesaler to do it. Don’t trust the turnkey company or your mom to do it. Don’t trust Mindy to do it. Don’t trust Mike or Brandon, right? Do your own math. I don’t know. People want to take the easy way out. They just want somebody to give them a nice deal on a plate.

Mike: That’s that book I was telling you about. Good luck. That just isn’t going to happen. Another thing I find in investors, they really don’t know much about financing houses. I know that a lot of people in Dallas go to these predatory lenders like you’re talking about. They charge 12, 13, 14%, four or five points, and they’re easy to deal with. You don’t have to go through a lot of applications. They’re just going to loan the value of what you’re putting down on it. That sort of thing, and make a loan based on that. When the reality of it is, if you’re paying someone, let’s say 12-13%, and four or five points, and that note’s only good for six months and they renew it every six months for one point, which is what they typically do in Dallas. They’re making as much money as you are. And so, a lot of these investors, if you’ve got good credit and a viable income—in other words, you can afford some taxes, and most investors that are buying and selling houses don’t report anything in their income and their credit is always screwed up. I never have figured that out but it is just the way it is. But for the ones out there that have good credit, that have a job, why go to a hard money lender? Go to a bank. Go to a local bank. You can borrow money for 15-20% down and maybe a rate of 5.5% with one point—why would you pay somebody like that because you’re just damn lazy, I guess. I don’t know why.

I’m serious. They’re intimidated about going to a bank for whatever reason. I’m not at all. I can tell you that I have a substantially large credit due to real estate loans. A lot. And I’m constantly looking at new banks. I don’t deal with a major bank. I don’t deal with Bank of America or Wells Fargo, Chase, any of the big ones. Not because I don’t like them. I think they’re great banks. I have no problem with them. But you’re just a name and number there. In a small local bank, they’re generally wanting to invest more in the community. They’re more personalized. So go to a bank—and you’d be surprised, one bank tells you no, that doesn’t mean another bank’s going to tell you no, because banks have what they call buckets.

For example, if you go to a local bank in Denver, let’s say. And they may have 20% of their total assets in spec homes, build jobs, another 20% in business loans, another 20% in car loans, another 20% on pre-approval loans. Well, the government doesn’t want you to have your bucket filled with all a certain type of loan. They think it’s too much risk. So Bank A may have their bucket full with real estate loans and they don’t want to make them so they say, we’re not doing that right now. Bank B may not have their bucket full so don’t give up.

It’s just constant follow-up, communication, pick up the phone, go to see them personally. E-mailing is fine and dandy but I don’t do it. Trust me, if I needed money today, and there is probably 25 new banks within two miles of them malls right now. You know what I would do if I couldn’t find a bank to make me a loan? I’d go to all 25 of those damn ones of them and I can guarantee you, I’ll walk out with two or three of them saying I want to make you a loan. I promise you that would happen.

Brandon: We get that pattern on the podcast here all the time. We’ve been doing 250 of these shows now, over 250 of them, and I’ve probably heard that like dozens of times about if your bank turns you down, just go to the next one and then go to the next one and like, it works. It clearly works. People are like, no, the bank said no.

Mike: It really does. And I’m not bragging. I’ve got pretty strong real estate and good income and good credit. And I don’t go to a bank and try to borrow money if I think it’s a bad deal. But they may think it’s a bad deal for whatever reason. They may—I mean, I’ve had banks turn down a loan because they made a loan on the street 19 years ago and it went into bankruptcy, the house. I go, what the hell does that have to do with me today? I remember, I go. Okay. I’m out of here. I’m just saying, don’t give up. It’s that same thing I was talking about, perseverance and going after something you want. If you want it bad enough, I don’t care if five banks tell me no. The first five banks I go into, I’m not giving up.

I will say this. If I wanted a job today, I’d go down there and talk to them in person. You know the first thing I’d say? I need your help. I want this job. I work my butt off. I’m honest. I’ll be your hardest worker. In fact, I will work here for free for a week if you’ll hire me and give me a shot. How many people will think I’m going to take off on that? Instead of coming in, oh, I sent a resume. And if you’ve ever read a resume. Have you ever seen a resume say I’m a turd? I’m not going to work hard, I’m just going to keel over. They all say the same thing—I’m the greatest thing. It’s a joke.

Mindy: That’s how Scott got his job here, Brandon.

Brandon: He wrote, “I’m a big turd” right on his resume.

Mindy: No, no, no.

Mike: Give me an educated worker but give me a worker over education. I’ll take a worker anytime over somebody who’s got an education but doesn’t want to work. Hands down.

Brandon: You’ve probably hired a lot of people in your day, I’m assuming, over the last you know, whatever, 50something years of investing. Do you have any tips on—how do you find that good person? This is something I struggle with. How do I find—everyone sounds good, right? Luck, yep.

Mike: Well, you know. Let’s talk about Cody, one of my assistants who is doing real well. He came to work for me five years ago and one of the things I looked at when he came here, because he went to work for $10 an hour and trust me, he’s making lots of money right now. He just bought a $400,000 home, about to get married, great life, money in the bank, good credit, good kid. But one thing Cody likes is to make money. And he doesn’t mind working for it.

I look for that trait, but the one trait I look at if I’m looking at a college graduate—did they work through college? Did they have a damn part-time job or did they just go to school and never work a day in their life? So I would prefer somebody that went to a less expensive college that actually had to work and knows what work is all about then hire somebody with a degree that’s never had a clue what work’s all about.

Brandon: I’ve never heard that in my life but I love that. I love that tip.

Mindy: I really love that.

Mike: A Wall Street guy told me one time—a guy named [inaudible][36:58]. He and a guy named Jake were rich guys and he wanted me to go to work for his insurance company. I wouldn’t do it. I said, I want to do my own deals. Plus, I didn’t believe in insurance. And he said, what do you want to do? I said, I want to own my own business. For something like, 65 years, I’ve run my own business or my own company. I couldn’t work for anybody. They’d fire me in a New York minute. They would. I’d go, what do you mean we can’t buy a computer? We need a computer. Well, we need to set it up in the right position. We’re going to take bids on it and we’ll get you a computer in three or four weeks. I’d go, ya’ll are nuts. Nuts.

So I believe in moving and moving swiftly and taking action. I think you should hire smart. If an employee isn’t working for you, get rid of him quick. You know it. Brandon, come on, ya’ll know it. Mindy, you know it, too, if they’re going to work out or not. You just know it. If they’re not working out, just let them go and say look, we think you’re better off somewhere else. You’re just not a fit for us. Thank you for coming to work for us but we just need to split company. And let them go.

Mindy: Brandon, after the show, we’re going to have to have a talk.

Brandon: We’re going to have a conversation, okay, good.

Mike: But the Wall Street guy told me there’s three things that make success. He would never hire a good loser. He would never hire somebody that didn’t believe in God. He would never hire anybody that didn’t have a big sex drive.

Mindy: Oh, that came out of nowhere.

Brandon: Okay, let’s hear it.

Mike: I’m talking about a really rich guy. And he explained to me what every one of them means. He said, Mike, if you ever deal with a loser that doesn’t mind losing, he’s a loser. Don’t hire him. Particularly in an executive position. He said, if you don’t believe in God—it doesn’t have to be the God you believe in, it has to be some superior being of some sort. It could be the sun, the moon, it could be the earth, it could be any kind of God. But people have to find something to fall back on in times of peril. I mean, the first thing people say when they’re about to have a cardiac arrest is thank God. They need to believe in something bigger than themselves. And the third thing is sex drive. He said, I’m not talking about going to have sex with women. He said, just have that drive to achieve and get what you want. He said, I call it sex drive. And he’s a Wall Street rich guy and he owned a corporation when he died, so—

Brandon: He can call it what he wants.

Mike: Yeah. I mean, he couldn’t talk me into coming to work for his company because I didn’t like what they were doing. Although it was a legitimate business. I don’t mean it that way. I just didn’t see myself fin insurance.

Brandon: What did you say that guy’s name was?

Mike: Moody. Jay Moody Foundation is bigger than the Ford Foundation, the Ford Motor Company.

Mindy: Moody.

Mike: O-D-Y.

Brandon: Crazy. Okay, let’s kind of sum up where we’re at so far. So can you give me like—usually we say this at the beginning of the show but we skipped over it. What do you do in real estate? I mean, what have you done in the last 60 years? You’ve done a lot but give me a broad overview of the last 60 years of your real estate.

Mike: I can’t answer that question. I don’t know what I do. Let me get some water and stuff and I’ll tell you what I do in a minute. One last thing I’m going to say about financing for investors—go to a local bank rather than a hard money lender. You may have to go to a hard money lender until you get a track record. Don’t let that stop you but go to a bank. Second of all, Fannie and Freddy will only finance ten homes for you at a time. And they count your homestead as one of them. They count a duplex as two units and a fourplex as four units. And so anyone investing, we sell off those two, it’s not going to take more than three or four rental properties for one customer, so you’re going to have to find two or three more until you’re up to ten. When you get up to ten property, you can’t buy anymore no matter what you want to pay down. In fact, DIA and FHA don’t even make investor loans. It’s only Fannie and Freddy and they want 20% down, generally 25% down would get you a better rate of interest. And if you have a better score, the rates are higher.

That’s what a lot of people do when they start out in this business. They buy a smaller home to live in, say $150,000 home, live in it six months, get it repaired or whatever they can do to it, rent it for enough cash flow to make the payments and cover any expenses. Then, they’ll buy a little bigger homes and owner-occupied home. The reason you do that, quite frankly, is because the down payments are lower, anywhere from 3.5-5% down instead of 20% down, the rates are lower. And as long as your intent is to live in that house, that’s what the law says. You’re tenant-occupied. Moving into an occupied and then start moving up the ladder. That’s the way a lot of investors build their portfolio for less money down.

Brandon: That was my first few houses. Same way.

Mindy: That’s how I did it.

Mike: It’s not illegal. It really isn’t. It’s a point to make. But once you get eight or ten homes, you’ll find that people don’t even want to talk to you because you’ve got too many rental properties. So why not take those properties to a bank and bank them. I know, for example, I do a lot of investor loans here in Dallas where he had about 25 homes, 30 homes spread out with I don’t know how many different investors, paid anywhere from 4.5-6% rate. He got $2 million dollars’ worth of property here just in this bundle. Why don’t I go borrow $2 million dollars on them, pay off the million dollars you owe them and give you a million dollars for a line of credit and you’ve got one loan, not 20 loans or 25 loans and you can buy other houses down the road.

So he listens to me and I got him a $2 million dollar line. Here’s what it did for him. He found a house—because you and I both know, Mindy you know and Brandon you know, that when you’re buying a house, the quicker you can close it and if you can pay cash, it’s a better deal you can get. So he had an open line of credit where he could go to Las Vegas and write a check if he wanted to because he had collateral behind the note. He was a pretty strong investor so we got him a $2 million dollar line or whatever that line was that he had available and if he wanted to buy a house, he could say, as soon as you get the title to me in two days’ time, I’ll write a check for it. It made a big difference as to what he could buy.

So if you’ve got that many houses and you want to continue buying them, take them to a bank and if they’re cash flowing, it doesn’t make any sense to bank them, finance all ten of them and put them on one note. You’re not going to get as good a rate as a long-term 30-year fixed note but you’ll get the rate and a lot of times, they’ll give you excess money and they might loan you a 75-day to extend the praise value, particularly if they’re cash flowing. So you may have $2 million dollars in real estate or a million dollars or $500,000 and maybe get another $100,000 that can go into another property.

Brandon: That’s interesting. On that note, this gets a little bit into the weeds a little bit, but I learned something interesting. So I’m working through a refinance right now, trying to get a conventional loan and they only let you have ten, so like ten residential, so I was working things, selling some properties up, but anyways. In that process, because I really wanted to get a conventional on these last couple of single-families that I was trying to refi. Anyways, so I learned that—and again, I’m not a lender person, so if you’re listening to this, don’t take this as like Gospel truth, but this is what I learned and what I read. It’s that they don’t count it as one of your ten if it is a loan to your LLC and it’s a commercial loan to an LLC that owns the property versus your own. So what I did was I went to my lender and I turned that loan into a commercial loan to my LLC, basically.

Mike: That was through a bank.

Brandon: It was actually through a private lender so originally, it was to my own name, but then—

Mike: Oh yeah, lenders. Quite frankly, they will probably drive the bank into an LLC for a lot of reasons. First of all, it’s your homestead and in a lot of states, they’re hard to foreclose. They’d rather make a loan on a commercial property and secondly, the Dodd Frank Act doesn’t say you have to make any income to qualify for an investment property. It’s only, the ability to repay it has to be for your homestead or your second home. So no matter what you’re doing on rental property, they don’t have to verify your income.

But that’s the sort of thing—Fannie and Freddy won’t do LLCs anymore, or family trusts anymore. They may do partnerships. Now, what people do, if they want to buy a house like that, put it in an LLC or a family trust later on down the road, they buy it, finance it under Fannie or Freddy if the loans are out of ten properties, then they’ll deed it to their LLC or their company, trust, or whatever three weeks later. Now, those are due on sale but I’ve never seen one called out. I’ve been doing this for a long time. As long as you’re paying the mortgage, they don’t care what name it’s in.

Mindy: Okay, I was going to ask about that because that is also another topic that comes up frequently in the forums is, I want to buy this and I can’t get it financed through my own self or through my LLC, so I want to buy it as myself and then transfer it over. And there’s a lot of discussion about, are they going to call the note due or not?

Mike: Well, let me ask you a question, Mindy.

Mindy: Yes.

Mike: Let’s say the speed limit in your area is 35 miles per hour.

Mindy: Yes, I would never ever go above the speed limit, Mike.

Mike: I know that. But if you were going 35.1, what’s the possibility of you getting a ticket and going to jail?

Mindy: Probably zero percent. Well, if they pull me over.

Mike: Because all these notes—well, no, they’re not going to do that. All these notes—

Brandon: I don’t know. Have you seen Mindy’s car?

Mike: The notes will say if you pass for a title, the note’s due in full. However, I’ve been doing this for 35 years and I’ve never seen it happen. The lenders don’t give a damn. It’s a big misnomer. A lot of people say, they just want to foreclose that to make the money. That’s BS. I’ve never known a lender in my life to want to foreclose a piece of property who would rather get paid on it than to foreclose it.

So the chances of them ever saying anything if you transferred to your LLC is almost nil. If they’re going to say anything, if they do, just write and say look, it’s in my family trust. I’m on the note. I’m personally liable on the note and I think it’s risk-free. There is risk, it’s like the same as thee example I gave you going 35.1 in a 35 mile per hour zone. You could get a ticket. You could go to jail. But the odds of that happening are 1 in—I don’t know what they are.

Brandon: You know, I’ve only heard of one investor and it was on a larger multi-family where he deeded it something, or transferred it to something different. He got a letter from the bank and he just went and transferred it back and they were like, okay, no problem. But it was like a bigger transaction that I think they wanted him to like force them to refinance with them or something. Anyways, that was the only time I’ve ever heard of it. But I transfer my properties and again, I’m not giving legal or tax advice here, but I typically will buy in my personal name, yep, and I will then transfer into my LLC.

Mike: Technically, you’re not supposed to do it. But technically, you’re not supposed to go 35.1 either. So what the hell.

Brandon: Yep, I do it. And I also—

Mike: Look at it this way. I’d take the risk.

Brandon: Well, I take the risk but I also make sure to have equity. I always look at it this way. If ever the worst thing happened and the bank did freak out about it, I’ve got equity in every property that I buy because I like to buy good deals. I buy fixer uppers just like you mentioned earlier. So that if ever the worst case scenario happened and the bank freaked out about it, at least I can fall back on, okay, I could sell it if I had to or refinance it or go to a private lender, go to a hard money lender or go to a credit line. I’ve got options. Equity gives you options.

Mike: See, and that’s another thing about mortgage companies. Most mortgage companies don’t have all the outlets and they’re not hard to find. But unless you fit in a little box, they don’t want to screw with it. If your credit score is not so and so, if the LTV is not so and so, and I’m saying there’s a seat for everybody but… There are insurance companies that carry those notes or all kinds of companies that carry those notes. Their rates may be a little higher. It may be 6.5% versus 4.5-5% but you know, it all depends on what you’re trying to do. I would always tell your people out there listening to this podcast, you’ll get the best rate with the least amount of cost you can. But if that doesn’t work, go to plan B. It may not be the best rate but at least you’re getting in a property that you wouldn’t otherwise have had unless you go to alternate financing.

Brandon: Yeah.

Mike: That’s why I think that you need to have a mortgage company, any mortgage company that has more than one outlet per product. Ask your loan officer, can you go to the bank if I can’t get this done? Can you make a loan to an LLC if I can’t get this done? Do you sell off paper to insurance companies? If not, they can call me on the phone and I’ll tell the insurance companies to buy something nationwide at a reasonable rate.

Brandon: Yep. So do you, Mike, own a mortgage company? You do own a mortgage company, correct?

Mike: I do.

Brandon: Okay. So you do mortgages. You also do real estate investing. At one point, didn’t you say earlier you were buying like up to 200 houses a month or something crazy like that?

Mike: Yeah, but you couldn’t replicate that today. Because back then, those, I bought, every cost was $8000. The average value was $16,000-$17,000. The average repairs were paint and carpet and HUD was big back on Venetian blinds back then and gutters. So you could actually repair a house like that, it weren’t any big sheet rock damage or kitchen damage or that sort of thing and that was actually before built-ins, though. There weren’t even appliances to be replaced. You could repair a house like that in actually two or three days. They were about 1200-1300 square feet and FHA would take anybody that would want to buy it, if they were all FHA foreclosures. So they had a deal where you could be in for $100 down. So when I first started buying those houses—I’ll tell you another story that’s kind of interesting.

Brandon: Sure.

Mike: I had been buying and selling maybe $5,000-$6,000 a month and HUD came out with a program called PPUB. Public Program Package Offering. All over the country. And they put anywhere from 10-15 houses in the same area together and they had a minimum bid you could bid on these properties. And let’s say the minimum bid was $80,000 for ten properties. Then, you bid the minimum bid at a public auction and anything you bid over those values, you had to put up in cash. So in other words, if the package was $80,000 and you bid $85,000, you had to take a cashier’s check the next day to HUD for $5,000, what you bid over. They’d carry the notes up to $100,000 for six months with no interest. And you had to do repairs out of pocket. So they have you repair all these houses for about $2,000. HUD would let you make 5% commission. They would let you make 20% on repairs and that’s about it. So they thought that you could make $2000-$3000 a home.

I could make $4000 a home by selling them myself because I had a real estate company. I could also do repairs quicker and faster than they could, get them done, because I had a bunch of subcrews, maybe 15 crews working for me. That’s all you needed. I bought carpet for 50,000 yards at a time, they had it at the warehouse. I’d use the same carpet over and over and over again. You saw one of my houses. You saw them all. They’re all the same.

Mindy: Same.

Mike: It’s true. It was a master deal. And I had been to a lot of these auctions. When I was in high school, I bought a lot of furniture and antique stuff like that. So I knew about how to get caught up in auction and that BS and I would never get dragged into that thing.

So for the first four or five months, I went down to the auction every Tuesday morning and they would be 300 people in this room bidding on maybe 150 homes, 200 homes. And the bidding went way too high and they couldn’t make any money. I kept on thinking, man, these people are either stupid or dumb or what the hell, I don’t know what’s going on here. Because they’d bid $20,000-$30,000 more which the problem is they bid $35,000, they want to do that work for a $5,000 profit. So I never bought any for the first four or five months.

I went down there one day and the room was crowded. Standing room only. At least 300 people there and there were—14 houses came up in Louisville, Texas on the market. And I hadn’t looked at them because it was totally out of my territory. And nobody bid on them. It was $86,000 for 14 houses. So I asked these two guys in the back, I said, do either one of you see them? Both of them said, yeah, we’ve seen them. I go, what’s the deal with this? They said, Mike, they’re a year in a half, two year old homes. Some of them have already been completed. They’ve been on the market for six to eight months and they can’t sell. I go, I’ll buy them and get rid of these damn things. So I bid $86,000, sight unseen.

So after the auction, a guy named Jim Cox—I know it’s too late but it’s kind of a funny story, a true story. After the auction is over, Jim Cox is the property distribution manager for the metroplex and he says, Mr. Sanchez wants to see you upstairs. I said, who the hell is Mr. Sanchez. He said, he’s the deputy director of for HUD and he wants to talk to you about those houses you just bought.

So I go upstairs and Mr. Sanchez, he’s standing there and he’s a very nice Hispanic guy, had his act together quite frankly. And he had two of these big deputies that looked like they were football players standing by him. And he said, son, did you look at these houses? I was about 22 years old and he was probably about 50 at the time. I said, no sir. He said, do you know what you bought? I said, no sir. He said, we’re going to let you out of the bid because you don’t know what you’re doing. I said, well, tell me why I don’t know what I’m doing.

And he said, you bought 14 houses. Seven of them have been on the market for six to eight months. We totally repaired them. We’ve offered 10% commission and no down payment. We can’t sell them because right around the corner, three blocks away, they’re building brand new homes that are 245 S-homes and they have a dishwasher. Well, yours doesn’t have a dishwasher. You’re at three bedrooms, one bath. Those three bedrooms have got a bath and a half. Your four bedrooms have got one bath, they’ve got two full baths and they’re brand new and they can pay for half the years in subsidized interest so you can’t sell them. We put them together for a builder buyback or manage to sell them if the sellers didn’t come and buy them. So, we’re going to let you out.

Brandon: That’s awesome, they were going to let you out of it.

Mike: I didn’t want out.

Brandon: You wanted them anyway.

Mike: I bought them.

Brandon: Really?

Mike: I did. So I drove up there that afternoon and fortunately, it was off a a major highway, 35 North so you pulled off the highway on Main Street and you drive by all these huge signs and flags and you into these 17-18 homes, they look like mansions. All of the furnitures on the sides, they’ve got mirrors on the walls, doors taken off, $85,000 for the landscape on each house and they looked like, honest to God, these houses looked like million dollar homes. I mean, they were really well done by the builder. And I had known the two salesmen up there were twins from a Catholic high school, that I knew from high school. And they said, Mike, go back there and tell them you’re giving the houses back. You can’t sell them.

So I said, and I was just cocky as hell, I didn’t know. I was going to turn them into rental houses anyways so I didn’t care one way or another. So I went and looked at them and they were on Blue Wood, Deer Wood, and Fair Wood, three blocks and there was 14 of them. So I bought them on a Tuesday. By Sunday, a week—ten days, the other seven homes, I had painted, yards mowed, and I had 14 of them on the market. I put an ad in the paper that said, “Let’s make a deal”. And it was the Dallas 20 News. I had a map up there. Instead of taking them off Main Street, which was the best way to get there, I put them off of an exit before called Fox. And I brought them through the back way, had a map on up there. I had an open house that was from 1:00 to 4:00. I got there about 12:00 o’clock, there was a hundred cars up there parked. Honest to God. So I said, let me open these houses up. I had a little flyer for all of them and I opened up these houses, sold 13 of them in an hour on that Sunday afternoon. And half of them, I sold VA. So I go back to FHA. They want all these contracts turned into FHA. So they thought it was a scam. Jim Cox called me up and said, listen, you bought these houses ten days ago, we couldn’t sell them and you sold 13 of them in a week? What’s the deal here? I go, I sold them. He said, we’re going to check all of this out. We don’t believe this.

So a couple of days later, Patsy called me on the phone and said, Mike, we checked all these out and they’re all buyers. So Mr. Sanchez wants you to meet him. And I go, I don’t want to talk to him. They said, look, he wants to know—he just wants to meet with you. So I said, why don’t you come down at 5:00 o’clock and you always drank cognac in the afternoon after work. So he’s sitting there having a cognac with his two deputies and he said, Mike, we want to know how you sold those because we just can’t believe you did that. And I said, I’m not going to tell you because I didn’t know what he thought.

I didn’t know if he thought it was deceitful, to put a map up there. And not taking them in the main way, taking them to the back area. I didn’t know what he thinks. So he just kept on hammering away, going look, it’s cool. We just want to know how you did it. And I finally said, he had a blackboard in his office, so I’m trying to do it on a blackboard and he said, my God, that’s a genius. I’ll get back with you in a couple of days’ time. So instead of them thinking I was shady or something, I didn’t know what they think. I was a kid. You know.

So a couple of days later, he called me and said, I want you to come talk to me again. So he said, I called Washington Bank and we’re going to make you a million dollar loan to buy homes from HUD. We’re so impressed with you. No interest. Six months’ time. You can buy all you want up to a million dollars, which at that time was probably 300 homes at $8,000 a piece. Figure it out. I don’t know. And I sold these houses like hotcakes.

But that was a different time in a different era. You couldn’t do that right now and I don’t know anybody that could do that now. But that’s how I did that. But that’s what I’m talking about. Thinking instead of sitting on your butt going, I can’t sell these homes. What am I going to do? I don’t know.

Brandon: Yeah, getting creative.

Mindy: Think outside the box. That’s really a common theme.

Mike: And pick up the phone and call people. The eleventh commandment, I promise you. It’s not thou should use an iPhone. That’s not the eleventh commandment I’ve ever read. You know, just persevere. Go after it. Do some work. Be honest with people. Don’t jerk people around. Just do what you tell people you’ll do.

Brandon: I love that. So Mike, did I read somewhere that you do storage units as well?

Mike: Yes. Right now, I’m building about four or five homes in Dallas, anywhere from below $1.5 million to high $4 million dollars. But I’m not a builder. I just put money up for them. I know the builders I’m investing with. I’m currently building three storage units, two of them just finished. I just got a contract. In fact, it’s right here, the one we just got in April. It’s $13.5 million in CubeSmart, all cash. Again, I don’t know anything about it—what I like about them anywhere they can build a mini warehouse in seven months’ time.

We’re building the second biggest in the United States out on a major highway here in Dallas, right across from the new State Farm location. It’s got 2800 units in it. It’s 1100 feet long. 260,000 square feet. But I don’t know about building them. I just know the guys I’m investing with, I own 30-50% depending on what money I put up. So I do that. I take notes. I carry notes for people that can’t get qualified. For example, if you called me on the phone and said, listen Mike, nobody will touch me. I’ve got bad credit. I’m bankrupt.

Mindy: That’s what Brandon will say.

Brandon: Yep.

Mike: So here’s my deal to you, Brandon. I’ll loan you money with 25-35% down. It’s 11-13% and it’s four points and you’re going to have skin in the game. You’re going put 25-35% equity into my deal.

Brandon: Sounds like predatory lending to me.

Mike: It is. It absolutely is. But it’s legal as long as you disclose it.

Brandon: Yep. And if I needed it, I would pay it.

Mike: People that maybe had a hiccup in life had to declare bankruptcy or had a foreclosure. It doesn’t mean they’re bad people. It means they had something bad happen to them. So, I get enough equity in my property and I’m not in the business of foreclosing. I’ve foreclosed one property in 25 years doing what I’m doing. I currently carry about $18 million dollars and they pay like slot machines. But they have real equity in the property.

As long as I disclose to them, and Brandon, you probably wouldn’t do this but have somebody call me tomorrow and just say they’re looking for a hard money lender in Texas. First thing I’d tell you is you don’t want this loan. It’s a bad loan. I’d say, it’s like having a baby. It’s an ugly baby but if you want it, I’ll get you a baby. It’s going to be ugly. Well, how do you clean up 24% at four points, it’s a good deal. You’ve got me—how am I going to tell somebody that?

Brandon: You’re right.

Mindy: Well, it’s a great deal for the lender.

Brandon: It is a great deal for the lender.

Mike: It is. But I take the risk on them. The other lenders won’t take the risk. Because I can tell you the answers to lending. It’s all in the value. I’d rather loan a guy who bought a 7-11 for a living, 50% loan on the value of a piece of property than loan to a guy that works at American Airlines with 3% down that could lose his job tomorrow and you’re under water on that damn property? Give me a break. I do pure equity lending and the ability to repay it.

Brandon: Well, you know, my very first loan I ever did was when I was 21 years old, or maybe 20. I wanted to buy a house to flip it and I had no money, no credit, making $8 an hour so I went and found a hard money lender and I paid ten points, so 10%, a fee of ten points and 10% interest. So a little lower interest, way higher fees. And it was crazy but I got the deal done. It was insane. I would never pay ten points today.

Mike: You know, in Texas, when they changed the usury laws, when rates were 14-15% nationwide, I’ve actually done those FHA loans when I had a mortgage of 17%. You know that discount points to make a loan in Texas on FHA were 17 points?

Mindy: The discount points?

Mike: FHA was paying 17 points because they couldn’t charge more than 10% in Texas until they changed the usury law.

Brandon: Oh, wow.

Mike: Lenders were making it up in points to make the yield. Why would you loan money in Texas at 10% when you can loan the money in New Mexico for probably 15%? So they charged points to make up the yield spread so they were the same. So I’ve seen all sorts of things. And I will say this, too, for everybody who thinks, God, I’d rather pay 5%. BS. That’s not true.

Let me tell you something. When people were, listen this is a fact, when rates were 12-15%, it was probably going up 25-30% a year all over the country. Now rates are 4.5-5%, they’re going up maybe 4-5% on the country. So would you rather have the property going up, would you rather pay twice the interest and have the property triple in value or have a low interest rate and have it go up a little bit? It’s all relative is all I’m saying.

Brandon: That makes sense. So that brings up an interesting point. You’ve been in this game a long time. You’ve seen a lot of boom and bust cycles that have been going up and down over the years. Where do you—

Mike: Oh, I’ve even bought in them.

Brandon: So where do you feel we are right now? Where do you see yourself now and what do you expect for the future?

Mike: You know, I am concerned about it. And trust me, this is not what I’ve read in a book or anything, it’s just my own observation. I personally think the government is spending way too much money. I think that the average American doesn’t give a damn about it because it hadn’t hit them in the butt yet. But it will. All you have to do is look at Greece and Italy and France, what’s happening over there. It’s a blueprint of what’s going to happen here. You can’t keep on spending money. More people are paying no taxes. 50% of the United States doesn’t pay any tax now. And actually get a tax rebate on earned income, you know.

I think the world is so insane right now, all over the world, there’s riots everywhere. Food shortage. Repressive governments. Religious battles going on all over hell’s half acre, I think the immigration around the world is, I think there’s way too much of that stuff going on. I think the economy is pretty strong but I don’t really trust it a whole lot. I don’t know. You’d have to—I think the economy’s going to hold after the next two years. I don’t know after that. But it does scare me to see the amount of college debt that we have. I’m scared and people don’t want to pay it back. It scares me that Congress doesn’t have a clue what the hell they’re doing. They don’t.

Brandon: I agree.

Mindy: It’s really hard to argue with that statement.

Mike: I mean, they couldn’t run a damn thing. They can’t run the government. And it’s not just Democrats, it’s Republicans, it’s all of them. They don’t give a damn about the country. All they care about is getting re-elected, in my opinion.

Mindy: Preach. Yes. So true.

Mike: There are some good ones up there. It’s like student loans. If ya’ll want to get on something else, I don’t believe in student loans. I believe they should make student loans but not the way they make them. I think that if you’re going to get a student loan, look, let’s face it. These college students go to school 12-15 hours a week. It’s not exactly a big load. If they want a student loan, here’s the deal. You have to make your grades. In other words, if you flunk one semester, you’re not getting a student loan next semester until you bring your grades up.

Second of all, if you want a loan from the government, and you’re taking 12 hours, you’re going to have to do 12 hours’ worth of work. Either get a job, a part-time job of 12 hours. If you can’t find a job, you’re going down to the school and you’re going to the libraries, you’re going to go to hospitals, you’re going to go to grade schools or high schools and teach kids how to read. So if you take 12 hours, you’re going to work 12 hours. And you can’t find a job, we’re going to put you to work.

Brandon: You know what’s funny, when I went to college, the average was like 12-15 credits people would take for a semester. I took 25-28 every semester, worked a full-time job 40 hours a week, and donated plasma for like gas money.

Mike: I bet you it was worth it.

Brandon: It was a good experience.

Mike: Same thing, I did 15 hours a semester and I worked the whole time. I went through Monday, Wednesday, and Friday from 8:00 in the morning until 12:00 and never spent a day at college. The Community of North Texas University and I had more money in my pocket. I worked to make money. I was a little hustler. I loved it. I loved the action but I don’t think there’s any free rides in the world and I think they’re making it too easy for students to get those loans and they never intend to pay them back. I think they’re burning students unfairly with debt. I think a lot of these students that’s never worked a day in their life, they have no clue what they’re getting. A lot of them are getting worthless degrees.

Brandon: Yeah, I totally agree.

Mindy: My degree is in Fashion Design.

Brandon: Is it really?

Mindy: You want to talk about the most worthless degree on the planet?

Mike: But you could make a lot of money doing that.

Mindy: Well.

Mike: That sounded condescending but—

Mindy: No, I didn’t take it that way. There’s like nine famous fashion designers and the schools are filled with students and they’re getting student loans. And they’re racking up all this debt and there’s no jobs in the fashion industry. Not to be a fashion designer.

Mike: A lot of people tell the kids that. Do the kids even care? That’s what I wonder about.

Mindy: I don’t know. I think they get this in their head that they’re going to be famous and they’re going to be amazing.

Brandon: Well, I think they’re hearing from their parents. Our parents’ generation or you know, your generation, Mike—if you went to college, you were guaranteed a pretty good job because not many people went to college. When I was growing up, my dad’s like, you have to go to college. You have no choice. So I went to college, right? But that’s different today. I feel like, just because you go to college doesn’t guarantee you a job. But kids are trained that way from their parents who believe that.

So I think it’s going to be the next generation that’s going to—like, I’m not going to tell my daughter to go to college. Rosie, if she wants to go to college, great. Our real estate is going to pay for it. I’ve already bought her a property that will pay for it but like, I hope she doesn’t in a way. I’m like, I hope she comes up with something else instead. An entrepreneur idea or something, you know?

What’s going on, everyone? This is Brandon Turner, your host of today’s BiggerPockets podcast, here with my guest co-host, Scott Trench. How are you doing, Scott?

Mike: In my particular scenario, I’ve got a marketing degree but it is worthless with what I do. I could be doing just what—I didn’t waste time in college. I wouldn’t say that. But if I had my choice to do it all over again, I’d rather spend the time in production. And trust me, I’m successful but I’ve had my ups and downs because I’ve been busting a lot of times in my life. I’ve always paid the base so I can pay people back but it takes a lot of luck, a lot of time, and that sort of thing.

It never bothered me. If I lost whatever money I accumulated and I had to start over again, that ability in myself to know I could always make it no matter what. I actually think you could open up and say look, Mike, come up to Colorado and open up a snow cone stand, I guarantee it within two weeks’ time there will be a line at the damn snow cone stand. I don’t know what I’d do to make it but I’d make it work. That’s just the way I am.

Brandon: I agree. There’s certain people that are going to be successful no matter what and I don’t know. Mike, we could talk forever but we’re at an hour so I’m going to start transitioning us over to the next segment of our show, which we lovingly refer to as our Fire Round.

Mindy: Fire Round.

It’s time for the Fire Round.

Brandon: Hey guys, I want to actually tell you a true story that actually happened to me. So a couple of weeks ago, I was out here in my office recording, actually, I believe a BiggerPockets podcast and all of a sudden my security alarm went off. My SimplySafe security alarm. You know why? Because I have a moisture sensor underneath my kitchen sink and while my wife was upstairs with Rosie and I was out here in my office, the water exploded from under my sink. I don’t know, my dishwasher started leaking. Anyway, the alarm went off and I then got a phone call from SimplySafe saying hey, your water detection leak thing went off. And I was like, that’s amazing.

So actually, the alarm sent off. My wife ran downstairs, saw it, turned the water off and saved us potentially thousands of dollars in damage. So anyway, a lot of people know a SimplySafe house with home security, which we use every single day, but not many people know that it also helps with leak detection. If you put one of those leak protection devices underneath your sink. Very, very cool. So check it out at SimplySafePockets.com for a special discount for $200 off the special holiday system that we put together. Again, SimplySafePockets.com.

The Fire Round are questions that our community have asked in the forums. People are asking for help and these are just kind of specific questions that we pull from our community. Let’s see, how about this one? I’m new to real estate investing and I’m wanting to be an unseen owner, meaning I’ll be working with a real estate team to find and purchase properties but I want to turn over the management to somebody else. Is it worth it or doing it? Do I have to manage my properties or can I have a company do it?

Mike: I would say it depends on the individual. I do think management companies have a big place in managing properties and they have more abilities. For example, they have the ability to run credit on people who want to buy things and have all the problems. But if I was starting out new, I don’t think I’d let management come in because it’s too expensive. Most companies want 8-10% and it’s too much to give up if you’re starting out, if you’re a newbie. If you’re a seasoned pro and you can afford it and you’ve got the cash flow, it’s okay because a lot of these houses, I can tell you that. But I think if I was just starting out, I can manage my own properties for a couple of reasons.

Not only because I couldn’t afford the money and the cost of management but the other reason is I’d want to find out what the hell is going on in the real world. It’s like I said, want to go into boot camp where they’re shooting blanks at you or going to war where they’re shooting real bullets is a whole lot different. I’d rather have the experience of managing two or three properties then maybe turning them over to management companies myself.

Mindy: So a couple of weeks ago, we had a podcast guest who said something like, do it once. Do everything at least once, Gabe DaSilva from Episode 258? We’re on 259. Yes.

Mike: I think that’s a good idea. At least have some experience and that way, you’ll know if they’re jabbing you or not jabbing you. I like management companies. I used to have a big one but from my perspective, I learned from the ground up. I agree with Mr. DaSilva.

Mindy: Okay. Yeah, I do, too.

Brandon: All right, next one.

Mindy: Okay. My question to you all is if there’s a way for me to get started with little money to invest, can anyone who has done this give any insight for me? I have read several forums and books on the subject, however, I am a little apprehensive about getting started with little money invested. I just feel like I would be constantly tuned out. How can I combat this feeling?

Mike: That is a tough question because generally speaking, you’re going to have to put some money into making money. However, there are other avenues. And one of the things that Brandon and I were talking about earlier was hard money lending when he got started where he paid ten points? And he may have not liked it but it was a way to get started. So, a lot of these investment companies are making these hard money loans, charge you a higher rate and more points but they’ll do a deal where it’s based on the loan to value and based on the repairs you’re doing. So you may be able to get one of those at 5-10%. Brandon, what’s it typically cost to do it these days? I don’t know.

Brandon: For?

Mike: Predatory lending.

Brandon: Yeah, I mean I see—

Mike: You can actually buy a house with no money in it, correct?

Brandon: You probably could with the right lender, but most of them, I would see they want a little bit into the game, at least 10%.

Mike: What, 5% or 10%?

Brandon: Yeah.

Mike: There are lenders here in Dallas, I don’t know about Colorado or where you are, Mindy, but they actually will loan you 100% if there’s enough equity in the property they think the repairs can be handled. And that’s the way to get it done. It’s an expensive way to go but it’s a way to get started. And if it were me, I’d look to put more money down so you can have enough money to put it down so we can get started having a better rate of interest because I think people paying predatory lending give a third or half of their property is what I think.

Brandon: Yeah, there’s been several flips that I’ve done, at the end of the flip, I look at it and go, I made less money than my lender did. And like, I’m in the wrong business.

Mike: That’s my issue with it. Although if that were the only alternative, I would take it.

Brandon: Yep. You know, I would say 50% of a great deal is still better than 100% of no deal, right? I’d rather give somebody else—that’s why I look at partnerships and all of that stuff. And you learn from it, it’s huge.

Mike: And you learn. And Brandon, you learn from it.

Brandon: Yep. Yeah, I don’t regret the ten points I paid on those deals. I mean like, or in the first couple of deals I did because whatever I learned, I gained—like the first few deals, I would say this, too, it sounds bad but like the first few deals you do don’t really matter. You don’t want to lose money on them and go bankrupt but like, generally speaking, nobody is getting rich off one or two deals. It’s the lessons you learn on those early deals that get you to deal number four and five which gets you to deal 20 which gets you to deal 100 and that’s how you build a lifetime of success. It’s the learning.

Mike: You know in all the homes I’ve ever done in my lifetime, I don’t think that I’ve done homes up to flip homes, maybe up to a million dollars. I don’t think I’ve ever made more than $100,000 on any home and even the bigger homes, I was lucky to make $56,000 on it with a lot bigger risk. There’s just not the homeruns people think there are, that these books say there are. I don’t see them.

My deals were quick in, quick out, maybe $4,000-$5,000 property, maybe a long time ago. So it’d be the equivalent of maybe $10,000-$12,000 today or maybe $15,000 today. But my deals were in and out, quick and turn them. I’d rather own a McDonald’s hamburger place and turn out 5,000 hamburgers a day than own $12 just turning out 300 hamburgers a day. Money’s where the volume is and that’s kind of always what I believed in.

Brandon: Yeah, that makes sense. My average flips are like $15,000, $20,000. I feel pretty good about getting $20,000. We interviewed a guy last week, he’s doing a different—he’s basically building—he’s tearing off the tops and putting on new levels, doubling the square footage and now he’s making $100,000. But that’s a whole different business model. It’s basically construction.

Mike: That’s stuff we didn’t talk about—if you’ve got the money, that’s a good place to start. Going to a neighborhood that’s hot, finding a little home and adding 1,000 square foot to it and use maybe the same footprint and just take it up. I know people that are doing that and they’re making more money than flip people. You’re right. Certain areas in Dallas, they take these houses and maybe spend $150,000 on remodeling and make $100,000 on them.

Brandon: Yeah, that’s exactly what last week’s episode was on, exactly that. Good money in it.

Mike: Yeah, I hadn’t thought about that but what you just said is very true.

Mindy: And I’ve done that. I live in my flips. So I’m not paying any taxes on it because I live there for two years. I’m avoiding my capital—what is it, deferring my capital gains?

Brandon: Avoiding it.

Mindy: Avoiding it? Tax avoidance. Ignoring it.

Mike: As long as you live there two years, you’re going to make more than $250,000. You can make up to $500,000 on it.

Mindy: Yep, and I’ve never made $500,000 but we made $100,000 a couple of times.

Mike: Yeah, but see, you can do a 1031 exchange on it, too.

Mindy: Not if you’re living in it. I’m doing the Section 121. To be a 1031, you have to have purchased it with the intention of making it an investment.

Brandon: Well, look at you, Mindy.

Mindy: Oh, but wait a second. Would a live-in flip be an investment?

Brandon: I don’t know.

Mindy: It’s also my primary residence. I don’t know. Either way, I think the 121 is better than the 1031 because I’m just completely not paying taxes at all.

Mike: All you’re doing with 1031 is deferring taxes. You’re not avoiding them, you’re just deferring them.

Mindy: Yeah, I’d rather avoid them than defer them.

Mike: Good point.

Brandon: I’m doing my first 1031 right now and it’s fun. It’s good. I got my properties.

Mindy: Tell Mike how far in advance you got that property under contract, Brandon.

Brandon: You know how they give you 45 days? I got my property four hours before my deadline.

Mike: Nominating is 45 days.

Brandon: Yeah, so I nominated four hours before and I got it under contract four hours before the deadline. So I made it.

Mike: Did you overpay to make the deadline, though?

Brandon: I did not overpay. I actually think I got a good deal.

Mike: Good for you.

Brandon: That’s the danger of a 1031. It’s very easy to overpay because you’re scared and you’re—

Mike: Yeah, because you’ve got to get the dang money out of it, too. They have [inaudible][1:16:16] closers, nine days closing than 45 days to nominate.

Brandon: Yeah, maybe 180 days total.

Mindy: I think it’s 180 days total.

Brandon: Cool.

Mike: I don’t remember. I haven’t done it for a long time. All right, what’s your next question?

Brandon: All right, number three. I’m scared and I’m in paralysis by analysis. I can’t seem to pull the trigger. What can help me move forward?

Mike: Load the gun with real bullets.

Brandon: Can you explain?

Mike: I mean, who the hell can answer a question like that? If you’re scared, you don’t need to be in this game. It doesn’t take a lot of guts but it takes a little bravery at times and a little leap of faith. If you’re really concerned that much, I’d stay out of it. I really would.

Mindy: That’s a really good point.

Brandon: Yeah, if you’re too afraid to do it, then don’t do it. There’s lot of ways to make money in the world.

Mindy: Yeah.

Mike: You know, if you’re worried about everything, eliminate the things that worry you. I don’t know—look, you probably don’t believe this but if this boss were on fire right now, we’d finish this conversation, I’d walk up out of here.

Brandon: I would believe that.

Mike: It’s true. I mean, what the hell.

Brandon: You don’t strike me as a guy who’s afraid very often, Mike. I don’t know.

Mike: Look, I do a lot of different—I do four or five major deals a month. I hit on most of them but the ones I lose on, I can lose a substantial amount of money. But it doesn’t bother me because it’s a major to be so—if I play the game, you can’t play with scared money. You really can’t. It’s like playing poker, anything you play with it, you can play with scared money, and you’re scared to lose it, you shouldn’t be playing the game.

Brandon: Very good.

Mike: So I’ve never been scared to do anything in my life. I’ve never gone into a deal but that I thought was going to be bad. I wouldn’t have gone into it. But I’d be in plenty of deals that went bad because I didn’t do my homework. I was in bed with crooks or missed the market or just plain stupid. I don’t know which of the four but it was probably in some of those categories.

Brandon: There you go. All right, Mindy. Last one of the Fire Round. You take it.

Mindy: Okay, Mike. Are there any rules of thumb you use to determine if you should buy a property?

Mike: If it makes sense and you can get the money and get the financing, why wouldn’t you buy it?

Mindy: How does it make sense?

Mike: Well, it has to make a profit, either cash flow, appreciation, or flipping that house and making a profit.

Brandon: Is there a number—like, you want to make this much cash flow or this much profit? Is there a minimum that you have in your head?

Mike: On rental property, no. I’ve bought some houses that were in better neighborhoods that actually lost money on rental but I made it up on appreciation. Because I’d rather have a house, it goes up 10-12% in a year and so you pay $300,000 for it, and you go up $25,000-$30,000 a year so you hold it and lose say $5,000 cash flow but you still got $75,000-$80,000 cushion to sell it. That doesn’t mean that’s what you’re going to make. Obviously, expenses and all that crap, you’ve got to pay the realtors.

And then from a cash flow point of view, again, if I were going purely for cash flow, I’d buy less expensive homes because they rent for a lot more dollars than you can get for more expensive homes. But they’re what I’m talking about, you’ve got to define what your goals are. If your goals are appreciation and retirement, it’s one thing you’re doing. If it’s cash flow, that’s another thing because you’re buying a totally different type of property if it’s for retirement. And get it paid off quick versus cash flow. We’re looking for cash to live on or to reinvest and that sort of thing.

That demands—and that’s why I say, starting out with a goal, if you’re not investors then it’s imperative you sit down and know what your goal is. For example, you can’t go for appreciation or you can’t go for rental income and you can’t go for flips all at the same time. You need to narrow your field and know what you’re going to specialize in and do it well. I’m not saying you can’t do all three of them, because I’ve done all three of them, but it’s not easy to do. So define what you’re trying to do in my opinion.

Brandon: I like it. I like it. All right, moving on to the last segment of the show, which we lovingly refer to as our Famous Four. All right, these are the same four questions we ask every guest every week and we’re going to throw them at you. Number one, Mike, what is your favorite real estate related book if you have one?

Mike: I don’t have one.

Brandon: Good effing luck.

Mike: Well, Rich Dad, Poor Dad was a pretty good book but I don’t believe in a lot of stuff they say in those books because it’s fine in theory but it just doesn’t work in the practical buying and selling. You all know that.

Brandon: You’ve got to get out there and do it.

Mike: You all know what I’m talking about.

Brandon: Cool, number two.

Mindy: What is your favorite business book?

Mike: I don’t have a clue. I really don’t. I don’t read those kinds of books. I read a lot of books. I read them for enjoyment.

Brandon: Well, how about this then? What have you been reading lately? What’s something that you’ve read—it could be a book, a resource, a magazine. What have you read lately?

Mike: I like James Patterson. I like Robert Letham. I like novels like that. I’m trying to think of an author. I read a lot of books. What I do is I go to the bookstore every two or three weeks and I buy bestsellers, novels, and they’re generally on sale for $6.98. I buy 15 or 20 of them and I’ll probably read maybe once a month, I read maybe five or six, seven books a month. Eight books. And I’d read them. Almost any bestseller. I always buy bestsellers and they’re always pretty good books. I’d buy novels, fiction, spy, detective, that sort of thing.

Brandon: Did you read John Grisham’s new one, The Rooster Bar?

Mike: I did. I just got finished with it.

Brandon: Oh yeah, it reminds me of the conversation earlier about student loans.

Mike: Yeah, about student loans. Yeah.

Mindy: Don’t ruin it. I haven’t read it yet.

Mike: I thought those guys were pretty cool but what I couldn’t figure out in that book was why the hell they paid off their student loans.

Mindy: Lalala.

Mike: What’s that?

Brandon: She hasn’t read it so she doesn’t want to hear it.

Mike: Oh, okay.

Mindy: I can take off my headphones. You guys talk.

Mike: No, that’s the kind of book I read in two days’ time.

Brandon: Yeah, I did, too, actually. It is fun. That was probably my favorite.

Mike: Have you ever read the Stuart Woods books?

Brandon: Which ones?

Mike: Stuart Woods.

Brandon: No.

Mike: He writes about a treasure named [inaudible][1:22:35] they’re really good books, they’re fun, fast, and easy to read.

Brandon: Cool, I’ll check it out. Well, good deal. All right, next one. Mindy.

Mindy: What are your hobbies, Mike?

Mike: Playing cards, travelling. Spending time—

Mindy: What kind of cards?

Mike: Blackjack, poker. And then I like to play, I used to be a really good bridge player. I love playing bridge but there’s not many people around that could play worth a damn that I know.

Mindy: I’m learning.

Brandon: Are you?

Mike: I like to travel.

Mindy: I’m learning. It is a tough game. There’s a lot of rules.

Mike: It’s the only game—I could sit down and play bridge 24/7 and not ever bet a dime on it. It’s the only game I could play without money because it’s brain against brain. It’s cunning against cunning.

Brandon: Well, Mike, you have to teach me someday. I’m going to come down to your area. What are you in, Dallas? We’re going to play some bridge.

Mike: Yeah, Dallas. Either one of ya’ll. I love to entertain.

Brandon: And where do you travel to? What’s your favorite place in the world to go?

Mike: My favorite place is China.

Brandon: Oh, never been.

Mike: I like it. It’s action. Everybody’s always hustling. When I was over there, they called me a street [inaudible][1:23:40] because I love screwing with those people. I tipped my hat. But I like the hustling. I like the atmosphere of it. I like the fact that they’re all working. It’s a very clean country. I mean, and you think New York’s hotter—Shanghai, there are so much new stuff over in China. It’s a really cool place. I like Africa. I like Europe. I like all—I’ve never been to a place I wouldn’t go back, let me put it that way.

Brandon: Yeah.

Mike: I love travelling.

Brandon: All right, my last question of the day, Mike—what do you believe sets apart the successful investors out there from all those who give up or they fail or they never get started, they never pull the trigger? What separates the successful ones?

Mike: I’d say one word: perseverance. Not ever giving up. If you have a setback, just pick yourself up and charge again. Keep on charging because eventually you’ll break the barrier. But if you have the bad experience starting out with, don’t let that—because a lot of fortune in the United States, I would bet more fortune have been made through real estate than any other thing. I don’t know that to be a fact but I would bet that. So just don’t give up. Just because you get busted once or twice, that doesn’t mean you should give up. I’d say perseverance and keep on charging.

Brandon: Very cool, very cool. That’s awesome.

Mindy: That’s a great answer, Mike. Where can people find out more about you?

Mike: I don’t know.

Brandon: They can listen to the podcast again. You’re not on Twitter? Come on, Mike.

Mike: No. Just go to RelianceMortgage.com in Texas.

Brandon: What was that?

Mike: RelianceMortgage.com.

Mindy: RelianceMortgage.com.

Mike: Right. And I only do loans in Texas. Somebody else mentioned me on a podcast and I was getting calls from all over the country. And I don’t mind taking them. You call me, I’ll give you advice in that area. But I can’t make loans in any other state but Texas. I’m primarily in Texas.

Mindy: And according to Cody, you also are Reliance Mortgage on Facebook and Reliance Mortgage on Twitter.

Brandon: Oh, you are on Twitter.

Mike: My kids do that for me.

Brandon: Nice.

Mike: My loyal kids.

Brandon: That’s awesome. Well, Mike, thank you so much. This has been super—

Mike: I like ya’ll’s attitude. I will say this. You both know what you’re talking about. Which is refreshing.

Brandon: Well, Mindy does. I make it up.

Mindy: Brandon’s only 9.

Mike: I don’t care. Ya’ll are very good at what you do. I appreciate it.

Brandon: Well, thank you, Mike. We’ll see you definitely around soon.

Mike: All right. Merry Christmas, guys.

Mindy: You too. Merry Christmas, Mike. Byebye.

Brandon: All right, big thanks to Mike. That was awesome. Man, I’m glad you pushed me to get Mike on the show, Mindy. You’ve been telling me about him for a while. That was fun.

Mindy: I love Mike. And Tim Shiner sent him our way. I love Tim Shiner, too. Tim is just a really great guy. He also introduced us to Josh Randall from Episode 242?

Brandon: Tim is just a little networker, isn’t he?

Mindy: Apparently Tim knows everybody.

Brandon: Apparently. No, that was a good show. I love like just hearing the perspective from people who have not—I’m going to be honest. I’ve only been investing now for ten years. That sounds like a long time in my head but in reality, what have I seen? Like one up and one down in the market cycle? This guy has probably seen like 20 of them, right? I love that perspective of like the big picture of what real estate looks like over a lifetime, not just an up and down.

Mindy: I like the basic information that he gives that you might not hear because you’re trying to do all these new strategies. What did he say? Call them. Keep calling them. He called that woman, Evelyn, every single Friday. Perseverance. His answer to the question, the Famous Four? Perseverance. You know what? That’s how you do it. You just keep pushing through.

Brandon: I love it. Very, very cool. And very neat strategy with the calling people. Just to give one little quick tip here at the end. Quick Tip! I say this a lot of times on these webinars that we do every week where I’ll suggest, go to Craigslist. I mean like, he’s not going to know what Craigslist is, I doubt.

But if you go to Craigslist and go to the rental section and find some of these houses for rent, I mean, the landlords—the mom and pop landlords that are listing their property for rent, they give you their phone number in the ad. Could life or leads get any easier? And put them in your little, what did he say, red notebook, yellow notebook, whatever he had? And then every Friday, why don’t you call that landlord and just say, I wanted to know if you’re interested in selling yet?

Even if you didn’t need to do it every week. What if you did it every month? What if you just built relationships? I mean, if you had a hundred people on your list that were landlords in your area, how many of them every year might want to sell their property? Maybe ten percent, maybe 20%? Like, people sell all the time. So if you are the guy that consistently month after month contact those people, you’re going to be the guy they go to. Because you’re going to build relationships. They’re going to want to sell to you because you’ve been persistent. So anyway, a little quick tip right there.

Mindy: And did you hear him say it doesn’t cause cancer to pick up the phone and call them?

Brandon: It could, actually. With cell phones, but you know.

Mindy: Not on his cell phone. He’s got a flip phone.

Brandon: He’s got like the old like rotary on the walls, spinning the dial around. Yeah.

Mindy: With the giant cord.

Brandon: Yeah. I remember, some of my earliest memories, my mom like taking the 90 foot cord through like every room in the house to get away from the kids yelling, yeah. Anyway. All right, let’s get out of here, Mindy.

Mindy: Okay. Brandon, thanks for letting me step into Josh’s shoes. I appreciate it.

Brandon: Yeah. Should be fun. It was fun and we should have Josh back next week.

Mindy: Yes, we will have Josh back next week.

Brandon: Good. All right, well, thank you guys so much for being a part of the BiggerPockets podcast this week and listening to us ramble for an hour and a half with a really, really smart, old investor. Don’t tell him I said that.

Mindy: Happy New Year, Brandon.

Brandon: All right, Happy New Year, Mindy. Happy New Year, everybody. Thanks so much and don’t forget to rate and review us and listen to Mindy and Scott’s new BiggerPockets Money podcast. See you next week.

Mindy: Okay, this is Mindy Jensen, signing off. Isn’t that what Brandon says, or Josh? Wait, who are you?

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