How to Build a Business That Helps Find Deals Before Anyone Else with Neal Collins

This is BiggerPockets podcasts show 291.

Whenever you can put a buyer and a seller together and the management contract never changes hands. The tenants never know that the ownership changed and you make a transaction fee off of that. It’s like oh hey this is where we can actually generate money and use our expertise and increase our management company to start actually doing this full time and we see a path forward to grow a portfolio.

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Brandon: What’s going on everyone this is Brandon Turner today’s host of the BiggerPockets podcast, the number one real estate investing podcast on the planet. Here with my cohost Mr. David Greene. What’s up buddy? How are you doing? Where have you been?

David: I am doing great Brandon. I actually just got back from your hood up in Seattle, Washington.

Brandon: My hood.

David: For my cousin’s wedding.

Brandon: Nice.

David: Michael Greene married his dream girl, Allie Mendozona and I got to meet her family and we got to talk about real estate. There was about four people there that were all BiggerPockets fans and it was.

Brandon: Nice.

David: Easiest way for an introvert like me to make conversations with complete strangers, which is worse than death sometimes by talking about real estate because you know real estate investors love to talk about real estate. BiggerPockets fans, there are more of them out there than you think. You are passing these people on the streets every day and don’t know it. Just asking people have you heard of BiggerPockets.com? Sometimes they say no, but when they say yes oh my gosh their face lights up. They’re so excited. They’re like you know about it too?

Brandon: Yes.

David: It’s this cool little secret thing so. I had a great time.

Brandon: We need to get T-shirts. I mean like we need to get an apparel line honestly. We’ve been talking about it for years and we just have not been able to pull it off yet, but we need a complete apparel line so when you’re like walking down the street and you have a shirt that says like cash flow. People are like, “Yo I know that guy. He’s a BiggerPockets’s guy.” That’s what we need. We’ll work on it.

David: We should get like BRRRR T-shirts would like.

Brandon: BRRRR.

David: With like snowman just shivering or something like that. That would be pretty funny.

Brandon: Actually so for my birthday did I tell you that last week? Anyway for my birthday, Alex who is like a she does a lot of stuff at BiggerPockets like HR, social media all sorts of. Anyway she sent me a sweatshirt, a Christmas sweater that just said BRRRR on it. It was like an ugly Christmas sweater with BRRRR. It was pretty awesome. Anyway we got to move on because today’s show is fantastic. You want to talk about it for a second?

David: Yes, you guys are going to love today’s show. This guy has got it figured out. He has it together and he’s just like all the rest of us. He is just doing it better so in today’s show we are going to talk about how he bought a fourplex, house hacked it so he lived in it for free and still made eight to $10,000 every month while living there for free.

Brandon: That’s cool.

David: On a deal that anybody could find. I mean that was just fantastic. He’s going to cover basically how he took his real estate investing business and branched it off to build a property management business and a brokerage. Now he finds deals before all the rest of us ever will. He gets first pick of all the people whose houses that he manages and he has agents out there looking for deals for him, spreading the word. When you find someone that wants to sell a house call us first and so he gets to buy deals that way. For all those people out there that are like, “Oh I want to learn how to get into investing by working for a property management company.” I’m always like God that sounds horrible why would you want to do that? If you’re going to go build a property management company that actually starts to make sense right because we’re really entrepreneurs as investors and he’s figured that out.

Brandon: Yes.

David: Then the three things investors are looking for when they are giving their money to someone who is raising it to go invest so if you’re looking to work with private money you do not want to miss this. These are the three things that you need to learn how to convey to the people who are going to be giving you their money and you can raise money very easily and go invest in real estate with it.

Brandon: Yes, so good so good. Alright yes so today’s show is fantastic, but before we get there we got a few pieces of housekeeping to get through. First of all today’s Quick Tip.

David: Quick Tip.

Brandon: You were in the middle of taking a drink when I started that. I saw you throw that cup down.

David: Sometimes you got to adapt to overcome. Like a Marine. Alright so today’s quick tip is if you own property or even a primary residence you need to be looking at how much equity you have in that property. Yes, you may be getting a great ROI because you bought the property years ago and you’re getting a good return on your investment, but do you have a lot of equity in that property that is not working for you?

We all work very hard. Your money should be working just as hard for you and the new book I’m writing about the BRRRR method I stress this that like your money needs to be working just as hard or harder than you are working. If you have equity sitting in something that is not being used calculate your return on your equity. Look at the money you’re making, divide it by how much money you have in there just like you’d use for ROI, but instead you’re using your equity rather than the investment.

If it’s not a good return consider refinancing and putting that money to work, refinancing and giving it to someone else to invest and earning a return that way or selling your property and 1031-ing into something better. There are all kinds of methods. There is a ton of people out there that have an massive amount of equity that is doing nothing for them and you could be accelerating your wealth.

Building much faster so that is a quick tip. Know what is in your portfolio. Know how much equity you have and know what the return on it is.

Brandon: If that didn’t make sense to you we cover that in depth in today’s show again with our guest Neal. Neal Collins is our guest today. Like we said you’re going to love this thing, but before we introduce you to Neal let’s hear from today show sponsor.

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Alright thanks to our sponsors always and now we’ve got to get into the show. I’ve been talking again with Neal Collins. Neal is a real estate investor in the Portland area. He once worked in the Peace Corps. I ended up listening to the BiggerPockets podcast. Getting involved in real estate and now he’s just absolutely crushing it. You guys are going to love it. I’ll let him tell his story and let’s jump into it.

Alright Neal, welcome to the BiggerPockets podcast good to have you here.

Neal: Thank you Brandon. Thank you David. It’s great to be here.

Brandon: Yes so you and I connected, the three of us actually connected in Austin at a Go Abundance event last year. People have probably heard us talk about Go Abundance from time to time. It’s just a you know a group for people who like to live epic lives, but you know you have a pretty epic life from the things that I know. Can you share with us a little bit like how you got into real estate? Like how did—like why did you even go that path? What did you do before it and walk us through that transition.

Neal: Yes and I think that’s really the unique part of my story is that I was not real estate was not on our radar. You know I grew up in Louisiana and at 21 I decided, yes I need to see the world. I need to get out of here and Peace Corps was the route that I took and that just lead into a life of more adventure and international travel. I ended up going to graduate school and living in the Maldives after that and doing whale shark research.

Brandon: Wow.

Neal: Which is pretty awesome. I mean great lifestyle. Think Maldives and coconut studded islands.

Brandon: Yes.

Neal: Crystal-clear water and getting to swim with the world’s largest fish every day so awesome lifestyle. Really meaningful work, but then it got to a point where it was like you know we’re living on an island in the middle of the Indian Ocean. Where is our career going from here? I went to my boss at the time and I was like you know I really like to work, but I don’t really like the pay. What do I do next? How do I get paid more money and he said, “You know you need to go get a PhD.” That’s six more years of schooling minimum.

Brandon: Yes.

Neal: That didn’t sound like fun, but we plowed ahead. We went back to the United States. Got married in my parents’ backyard. This is me and my now wife and was making a road trip out to the West Coast where I had applied to a PhD program in California and I needed something to listen to on the road trip and this is right whenever BiggerPockets started the podcast or maybe a little bit after that.

I got addicted to the idea of passive income and I think a lot of people in real estate get addicted to that idea. I started thinking to myself like hey you know maybe I should get into real estate. What do I need to do to do that? We landed in Portland. I knew that direct mail you know a lot of people are going to do direct mail and so I was petrified so I sent out a couple hundred letters with my wife’s name and phone number on it.

Saying you know, “Hey we’re Neal and Alyssa. We want to buy a property. Give us a call.” Her phone started to blow up.

She was getting a ton of really angry people calling her and I just said look we’re going to fail at this endeavor if you don’t do anything. What ended up happening is we get her house under contract. It was not a deal. Very evident. You know it took us a lot of effort to get to that point and our very first deal was we went through, did an inspection.

Realize that this was not the right place for us, but as luck had it we looked across the street and we saw—you couldn’t even see the house across the street. It was just covered in blackberry bushes and trees. We did a lot of research on the property. Found the owner of it. She was about to lose it to tax foreclosure and she said the craziest thing.

She said look I want to sell it to you, but I can’t because if I get a lump sum of cash above a certain dollar amount I’m going to lose my benefits, social security benefits. She floated this idea that I had never heard before, but why don’t you pay me monthly and I’m kind of young and I want to get paid for the next 30 years. I really like cash flow and so why don’t you just pay me a couple hundred bucks a month for 30 years on an amortized loan. That was like great to me. Just like I have no idea what you’re talking about, but that sounds great and that was the beginning of how I got started. We did somewhat a complicated seller financing deal and made more money on that deal than what we knew what to do with and it just started the ball rolling.

Brandon: That’s awesome. Alright so a couple things. First of all I had no idea that your story started with BiggerPockets like listening to the podcast so that’s supercool. Anyway that makes me feel super awesome. I want to go through that the first deal I mean you started you sent out those direct-mail letters. You know you threw them out there. Do you remember who you threw them at? Like who were you mailing them to? Also what went wrong with that first deal why wasn’t it good?

Neal: You know what we were looking for is we were just looking for absentee owners and whenever you pull a list of just absentee owners you realize that there is a ton of absentee owners out there that are not motivated to sell. It does not fit your investing criteria or they want top dollar and your phone just starts ringing and you get a lot of angry people. You get a lot of people that are going to spin your wheels and so the first deal or the first property that we ever looked at it was just full retail. There was no room to run with the property. There was no improvements to do on the properties. I was like you know we’re on the West Coast. It’s already a really expensive.

Brandon: Yes.

Neal: Market to begin with so it was like you know this is great. I’m glad that we got some traction, but I can’t do anything with it.

Brandon: Yes, well what I love is that you did it though I mean because like that first I mean we talk about it all the time and you’re like just like nothing is going to happen if you don’t do it right. What’s the Jim Rohn quote like life doesn’t get better by chance, it gets better by change. Right so you’re like I’m just going to go I have no idea what I’m doing. I’m completely new.

I’m going to send out a few hundred letters and just like figure it out and like the first like that first deal like yes it wasn’t going to work out, but because of that you then were able to recognize another deal when it did come up. Let’s talk about that second deal then. You said you made more money than you you know ever knew what to do with at the time. Like right what did the outcome look like for that deal?

Neal: Right yes so whenever we bought it, we paid $145,000 for the house and that’s really low for our area and it I thought it was a little too high for the house. I mean it was just a 700 square-foot rundown bungalow that had been a hoarder house for a long time and the city had come along and boarded it up. Whenever we got into it we had to put $10,000 down to pay off the back taxes and then the rest, the $135,000 was on a note at 2% interest that was amortized over 30 years.

Brandon: Wow.

Neal: It was a we get to pay $500 a month for 30 years for this property and then a builder came along maybe a week or two later and we were just you know up to our eyeballs in stuff and blackberry bushes and garbage and a 40 yard dumpster trying to shove it all in doing the work ourselves. He said, “Hey look I want to buy this place and build an apartment building here I’ll give you $250,000 for it.” I was like well wait hold on we just paid you know $145,000 for it that’s a really nice profit without having to do anything, but the problem was is I couldn’t go to our seller and cash her out because she didn’t want to receive a lump sum of cash.

Brandon: Yes.

Neal: I was like well you know this sounds really interesting I don’t know how to do it I don’t know if you’re blowing hot air my way and so we were constantly getting letters at the house of you know I’ll buy your house for cash so I called a couple of those guys. Like one is this guy for real? What would you guys pay for it? I was getting prices of like $100,000 and $110,000. I’m like okay well I’m going to try it, but I’ve got to talk to somebody that knows what they’re doing. They said why don’t you got go by another property with the funds that the builder’s going to give you and then re-collateralize the.

Brandon: Yes.

Neal: Note that you have the trust deed with your seller onto that one and so seemingly kind of complex, but if you boil it down it’s a really simple two-step process of we just said look seller one we are going to secure your trust deed on another piece of property use and were going to buy it using the funds from the first sale. All of a sudden I didn’t just have $100,000 of profit I had $135,000 of debt at 2% interest.

Brandon: Yes.

Neal: For 30 years so for the first time in my life you have quarter million bucks hit your bank account and we had to before it hit the bank account we had to go out and find another property. We sent out a lot more letters and we got a little bit more strategic of hey I really like the idea of multifamily. I really like I didn’t know the city that we were living in at the time so I really wanted to stick to one area that I knew, which happened to be one of the most expensive parts of town and as luck had it there was a lot of landlords out there that are really tired of land lording. They’ve got an equity problem and they also want to seller finance properties.

We found this gorgeous A plus property in a A plus location. It needed a little bit of cosmetic work. It needed to be turned around so what we did is we took the $250 used it as a down payment. Fixed it up with cosmetic fixings and worked a little bit on the systems, but this was at the time that AirBNB was also starting to get pretty popular. We moved into one of the units and furnished the other three and this when the concept of real estate was like a wild fire because we were getting about eight to $10,000 net a month without having to pay living expenses.

Brandon: That’s amazing.

Neal: On our second real estate deal and I was like, “Oh my gosh jackpot.” You know.

Brandon: Yes.

Neal: This is what we’re going to be doing. Passive income. Sure it’s not that passive right now we’re doing a lot of work doing that, but that’s what really got us into the game and that’s what just got us addicted to the thought of we can build something out of this.

Brandon: That’s awesome so you basically transitioned this amazing 2% loan that you had. You moved it over so now that instead of the title being like instead of her holding the mortgage on the one property now she’s holding the mortgage partially at least on the second, then new one, which is just a really cool strategy by the way for people if you didn’t fully understand that maybe rewind it, listen to it again, but it’s super cool. You’re just moving the collateral from one property to another keeping the loan at 2% and then you basically now you’re house hacking a fourplex, living for free, and making eight to $10,000 a month in profit. Like not bad.

Neal: Not bad.

Brandon: For a second deal.

Neal: It does come crashing down later on in the story.

Brandon: Okay.

Neal: At the very beginning it is you know the lifestyle was great and it made a lot of sense and so for us it was like how do we go get more of these properties. That’s whenever we started to boil it down to. Who fits the criteria that we want to go after that I love multifamily properties and having multiple units and can we AirBNB more properties. That was literally my thought process at the time and then where it starts to unravel is that the city of Portland started cracking down on short-term rentals and we got a letter saying, “Hey we’re going to find you between $1,000-$5,000 in a day if you’re going to continue to operate these AirBNBs illegally. I was like, “Oh my God this was a really great run, but can we use it as an operational expense?” You quickly realize that even if it’s $1,000 a day, $30,000 operational expense in fines just is not worth it.

Brandon: Yes.

Neal: We still were able to convert it over to long-term units, live in it, substantially cut down on our living costs if you we were to go find another place. It rented well with long-term tenants in there and we were cash flowing and it’s just one of those properties that’s a back road property. You never want to change or you never want to sell it just because it’s gorgeous. I mean you look at it and you’re like this is the kind of real estate that I want to be buying.

Brandon: That’s cool.

David: How did this change your strategy moving forward when you realize you could no longer do the AirBNB thing?

Neal: Yes so what we started to do is we started going two different directions that at the time seemed like it was a coherent strategy. We started looking for owners that had multifamily properties and closed in locations where we knew the demand was going to be high for long-term rentals and short-term rentals. We started looking for value add opportunities at the same time so we really liked the fact that we could get in there, change the rent roll, work on cosmetic things and so we started to go after that and on the AirBNB side or the short-term rental side we were looking for something that we knew there was opportunity in that niche.

The problem was is the city wasn’t allowing us in residential zones and so we found a little bit of a loophole and we started going after properties that were in commercial zoning, but were being used for residential uses and there’s actually a ton of houses out there that are in commercial zones they just happened to be on a commercial corridor and it’s a house or it’s a duplex or whatever this. We bought properties like that or we were going after properties like that where we could really skirt the whole short-term rental laws in our city and that proved to be a really good niche.

Brandon: Just for clarification if it’s in can you automatically because it’s in a commercial location, if it’s a property in a commercial zoned area it’s good for short-term rentals then at least in your area or there’s like special licenses you still have to get or anything?

Neal: It maybe different across the country, but at least in our area what we’re looking for is you’re going after the commercial zones so you’re looking for retail and office and things like that. Industrial areas it’s not going to work for us and then it boils down to what’s the use of the property? This is what the city defines as the use and so if you are trying to go from a residential use in a commercial zone to a commercial use you’ve got to add things like exit signs and sprinklers and do a couple upgrades to the property. Just it’s mainly for ingress and egress type of safety concerns of if the property is on fire can your tenants or guests get out. If you make those upgrades then you are fully legally compliant. If you still have it as a residential use they may come down on you, but it’s not prioritized like you’re a commercial use or doing commercial activity in a commercial zone so.

Brandon: Yes. That’s cool.

Neal: Why go after them instead of the residential people in the middle of the neighborhood that all the the neighbors around there get upset about short.

Brandon: I got a buddy right now who is they went to like the commercially like the hotel area of their city and then they booked out an entire like they rented on like a 20 year lease the entire floor of some skyscraper. Like some high up floor in an amazing area then they went and converted and they were in the process. I think they’re probably done now. Convert them into like 15 different AirBNB, like short-term rentals and they opened a boutique hotel so it’s not violating any short-term rental things. It’s just a boutique hotel that you happened to check in on on your own and use the AirBNB to facilitate the whole thing, but it’s a way to like side step the entire you know anti-short-term rental sort of thing because they opened a hotel. Again I just I like the creativity in that and I like that you guys did that. Is that continually still working for you? Have you still done that or have you shied away from that now?

Neal: You know if you’re in a lot of cities or if you’re in a location where affordability is an issue like it is on the West Coast you’re quickly going to develop a pretty bad reputation if you take an entire floor of a new development and turn it into a hotel. Developers in Portland at least they’ve done that and they’ve been skewed for it and we’ve really looked at this model of like should we continue down the AirBNB path and doing short-term rentals in these properties and the cash flow is great, but man is it a lot of work?

Brandon: It is.

Neal: That’s what a lot of people don’t understand is that like you’re going to have a ton of operational costs. You’re running a hotel so you’re going to be getting calls in the middle of the night. You’re going to need to set up systems. You’re going to have to replace linens and coffee filters and all kinds of other things that for us it always seemed like something monumental, a big screwup would happen whenever we were on vacation.

I was just like, “Oh man I don’t know how we’re going to get out of this.” What we started to do was say you know AirBNB is great in the background if we run a couple units and we systematize that, but how do we go out and get more long-term units because that’s what we were after is we were after passive income. We wanted to go back to Maldives and Southeast Asia and go travel more and so that’s why we started looking for more strictly traditional rental models.

Brandon: Yes.

Neal: It continued on the path of you know is there more property owners out there that have problems that they don’t want to receive a big lump sum of cash, but want that annuity payment of seller financing. That’s what what our compass was set towards.

David: You know Brandon talks a lot about the scale of passivity that he has. It’s a cool idea that he’s come up with.

Brandon: The scale of passivity.

David: Yes, he likes to say it like he’s Zeus and he’s like got this scale of passivity.

Brandon: The scale of passivity.

David: Yes so he measures and judges the world, but it has to do with like it’s true there’s the spectrum where on one end you see a lot of profit. On the other end you see a lot of work and most things in life work that way. Life is not always black-and-white. It’s a spectrum and you have to decide where on that spectrum you want to be. Can you tell me Neal and also you Brandon because you guys have both done the AirBNB thing how do you feel about the return you’re getting for AirBNB when you have to factor in the work you’re doing, the constant fact that’s changing all of the time. The worry that you’re going to be fine. Like there’s more work involved is it still worth it to do it?

Brandon: I let you start.

Neal: Oh man. Yes it really depends on is the juice worth the squeeze on AirBNB. Me personally working in that job or having my wife work in that job is not a long-term solution. You’re going to get burned out. It’s novel at first to be accepting bookings and dealing with all that, but it quickly gets tiring and unless you can bring that in and you really need to figure out your lifestyle design like I want to move to Hawaii, but I don’t want to afford a mortgage.

Brandon: Yes.

Neal: Or pay a mortgage the whole time how do I get short-term cash flow and in a room it’s perfect for that. A lot of people try to go down that route of can I scale up an AirBNB operation. If they’re successful at it congratulations. That is a lot of brain damage and a lot of energy that goes into it.

Brandon: Yes, I think.

David: Alright how about you Brandon?

Brandon: Well I was going to say I think people often times, yes they look at AirBNB, the numbers are you know. We say AirBNB, but right vacation rentals that and they look at these huge numbers. They’re like oh my gosh there’s so much money to be made there, but yes you know I had I’m sure a lot of you guys remember years ago or two years ago I bought a property. I turned it into an AirBNB. I called it the great AirBNB experience or experiment and it was an experiment and at the end of it I thought no I’m not going to do this. Unless I wanted like I believe there are people and we’ve had them on the show before that is their business. Just like flipping houses, it is like in my opinion AirBNB or vacation rentals that’s a business and if you want to run that business great and eventually you’re getting to hire people to oversee the business and fine, but yes that was not my business and Neal it sounds like it wasn’t yours either.

Neal: You know what it for the people that want to manage an AirBNB property you’re on call 24/7. It’s not just oh maybe the plumbing is going to go out and I’m going to get an emergency call from a tenant. It’s like hey I’m locked outside. It’s two in the morning.

Brandon: Yes.

Neal: How do I get in and you’re like punch in the code that I gave you and they call you back and they’re like oh yes that worked.

Brandon: That’s funny that’s actually exactly what happened to me. Maybe I’ve told the story before, but I’ll tell it again real quick like the day I decided to quit my AirBNB was the day that these people I was leaving town. It was on vacation day like leaving for the airport and like you know half hour I get a call we can’t get in the house. The code is not working. Try to walk them through every single thing I could think of they couldn’t figure it out so I sent my assistant over there. She couldn’t figure it out. I’m like oh so I’m like leaving town. I sped to town real quick. Go over to the house. I punch in the code you know whatever it was like 1753 and the large huge unlock button right in the middle of the keypad right has a little unlock icon and it opens right up. They say, “Oh I didn’t know you had to press the unlock button.” I was like I’m done. Like I’m not doing this anymore. That was the day I like I yes I quit AirBNB because I was like yes you are on call.

Neal: I get it.

Brandon: 24/7.

Neal: Oh I get it and then if you want to hire somebody it’s really expensive to.

Brandon: Yes.

Neal: Find somebody that can do that to the level of a detail that you want.

Brandon: Yes.

David: Brandon did you just give your AirBNB code to every single listener of the BiggerPockets podcast?

Brandon: No that wasn’t that wasn’t it. That wasn’t it.

Neal: Every single lockbox Brandon has 1753.

Brandon: I couldn’t remember what it actually was so no that was not actually.

David: Okay good well but I guess the good news would be if you didn’t tell them to hit the unlock button no one would have ever been able to get in even if they have the code. You know I’ve always looked at AirBNB like it’s a business and if I was going to get into it I would hire an assistant to run it for me. I would not consider that passive investing.

Brandon: Yes.

David: Because a lot of investors are like oh no I’m doing AirBNB and I’m getting a way better return than everyone else and they talk about the numbers, but they’re not talking about the work right. The minute that work gets involved I start looking at how can I leverage that onto someone else and I just pay someone and say here’s the standard. Here’s how you advertise. Here’s a checklist of all the answers to questions people answer. Every time something comes up I want you to make a note of it and let’s figure out a way to put something in the house so that they can get their answer on their own. Make this as less work for us as possible and then you can scale it. Brandon you look like you’re chomping at the bits to say something here.

Brandon: Well I was just going to say that works great unless your assistant can’t figure out how to press the unlock button either.

Neal: Yes.

Brandon: Anyway I’m not going to go there.

David: That’s a whole another topic.

Brandon: That’s a whole different.

David: About assistants and how to get them to.

Brandon: That’s a whole different topic.

David: Alright so that’s good. Neal where are you at now? Tell us a little bit about your portfolio, what you scaled to and what the majority of your investing is like.

Neal: Yes so what we did is whenever we meandered away from short-term rentals we started going after small multifamily properties and it was really looking for what’s going to be an in demand location that we know that we can have a value add component to it and that’s been the most critical thing is getting into these properties, being able to fix them up because we’re trading at really low cap rates on the West Coast. It takes a lot of money to get into them and it’s got to be financially worth it to hold on. What I really like is I really like to hold on to these properties because there’s not a lot of multi-families in general in our cities. You know it’s mostly single-family zones throughout our city and so we like to buy them, fix them up, hold onto them and we got to a point where I got busy with a handful of tenants trying to do leasing because if you’re fixing these places up you’re going to be doing a lot of leasing and leasing takes a lot of time so we had a more than a handful of tenants.

I was just spinning my wheels and I had to go out and hire an assistant. That’s I wanted her just to do leasing of our properties, but then whenever you take on an assistant the overhead goes up and you realize well I am I freed up some of my time, but I still am have a net drain on our bank account trying to have an employee do this. That’s whenever we finally relented to other people had been asking us, “Hey we’ve got properties in similar areas as you can you manage the properties for us?” I had had property management experience whenever I was younger in college and it was more like big apartment buildings and I was thinking to myself you know property management is not that hard.

Like if you have a work order you just submit it to the maintenance guy and then the leasing coordinator will tour people through the complex and that’s how you do property management. Now easily we went into managing other people’s properties as well as our own and it was really it was an easy it wasn’t even a pitch at the time. It was just hey this is how we run our own operations. I understand what it’s like to have a vacant property or a property that’s not performing. I know what it’s like to get ripped off by contractors so yes if you want us to manage it in the same style then sure. That turned into what’s now a full-fledged property management company. We’ve got several hundred units that we’re doing. We really are hyper conscious about managing properties in one specific area of town just so that we’re not having to drive all over creation.

Brandon: That’s smart.

Neal: The property management as a lot of people know it’s got really thin margins, but it gives you a lot of credibility. We built a system and for me it felt like a ton of work and it still is a ton of work, but in the eyes of the community bigger investors and more serious investors started coming to us saying, “Hey look I loved what you did on this place can you manage mine or hey if you ever want to partner on a deal can we if you come across anything can you let me know?” For the first time it was wow we’re actually getting solicited for our expertise. We’re getting money. We’re attracting money to go find deals and that was the catalyst that really started. We saw what we needed of buying and holding properties in really expensive cities. It’s like a bank account. It’s a huge wealth generator, but what you don’t have is you don’t have the cash flow of these other markets that you know it’s consistent you can scale up a pretty big cash flowing portfolio. For us, we can create hundreds of thousands of dollars in equity, but then we’ll get $50 a unit in cash flow. We needed to go out and create cash.

Brandon: Yes.

Neal: That’s what we found is if you’re in property management it’s going to lead to brokerage and if you’re in brokerage it’s going to lead to other things. Where we are at now is we’ve got property management going. We incorporated our own brokerage firm. Mainly it just started with our management clients of, “Hey I’m ready to sell. Neal do you know somebody that is willing to buy this place?” I don’t want to go to market. I don’t want to spook my tenants out and so I would put it out to my other clients and then say, “Yes you know I’d love to buy this. Can you help me do that?” We got our real estate licenses and whenever you can put a buyer and a seller together and the management contract never changes hands, the tenants never know that the ownership changed and you make a transaction fee off of that.

Brandon: That’s awesome.

Neal: It’s like oh hey this is where we can actually generate money and use our expertise and increase our management company to start actually doing this full time and we see a path forward to grow a portfolio.

Brandon: You know one thing I really like about that as well is when you I guess when you start the property management thing I mean it is a lot of work right. Like it’s not necessarily a passive business, but it’s again it’s a business so if you focus on it and you build systems and hire the right people you can get more and more passive, but what I love about it is that it’s kind of a hedge against the economy collapsing right. Because like if the economy goes down and all of the sudden you can’t by any and you’re not you know buying any more rentals people still got to manage your tenants. I mean tenants still need to find a place to live.

The landlord still most likely will own their property unless you know see a complete destruction of American society, but like generally speaking it’s a good kind of hedge. Then jumping into the brokerage thing as well like right now is a really good time to be in to have a real estate brokerage because a lot of people you know prices, people are selling. It’s not I don’t want to call it easy, but it’s definitely not like 2012 trying to sell a house. You know like so anyway I love that you’re kind of picking up these ancillary income streams as a way to both diversify, make more income, and justify having that employee. I think because you know I think this is awesome so. Nice work.

Neal: You realize that you know there are so many opportunities within that model that if you look at it just from a residential perspective every single tenant you have is a potential buyer.

Brandon: Yes.

Neal: Every single property owner that you have is a potential seller and a buyer. Every one of those people as well they are in the game. They know you. They trust you. You have an ongoing relationship with them, which is what a typical real estate agent what they don’t have is they don’t have ongoing relationships.

Brandon: Yes.

Neal: They’re constantly having to hit the pavement. For us it’s really telling when people are saying, “Hey you know I’ve got a couple hundred thousand dollars that I need to put to work. I don’t know if I want to buy a whole property or you know what do you think I should do with it? Like do you want to borrow it and buy property?” Is like oh yes.

Brandon: Okay.

Neal: I do actually and let me tell you a little bit about what I’m looking for is I don’t want to be going to a bank. I don’t want to be having to do appraisals and go through underwriting and this is why I think it’s a really good deal and the more I can communicate our criteria the better it gets of okay if I’m calling if I’m doing a capital call and I say that we have a property it’s hey we have a property and we need to move on it.

Brandon: Yes, I love it.

David: Neal let me ask you one quick question. How many units are you up to right now?

Neal: We’ve got about 200 units that’s under management and probably about 10% to 15% our own that we’ve held onto. You know buy-and-hold real estate is amazing. It does not put food on the table sometimes and so we’ve let go of properties and that’s where you’re just like wow in a couple of years we’ve created hundreds and thousands of dollars on one property. We’ve naturally been looking at okay interest rates are going up. We’ve really squeezed out all the expandability out of this property and we’ve increased the value and the rents so is this a good time to sell it. For some of them they are. Here’s the point.

Brandon: Yes.

David: Here’s the point I wanted to make. Brandon and I interview a lot of investors and we talk to a lot of investors and we network with a lot of investors and what I see a lot of the time is the real heavy hitters are doing what you’re doing. They own businesses and they’re investing those profits into real estate because sharp business minds recognize that real estate is probably the best investment vehicle available to the average Joe. You know like if you’re Elon Musk maybe you have opportunities the rest of us don’t have, but you have figured out what I like to call like the synergistic quality of investing to where I bought rental properties so I learned how to manage properties so I was able to start a property management company that now generates me income I have a business.

Well now I have all these properties that I’m needing to sell and I know people that need to sell properties and I know people that come to me and say I want to buy. Well you could refer them to a real estate agent or you could go become a real estate agent, which is what I did and that was how I started that business. Now you’re owning a brokerage where you have other agents that are A looking for deals for you and B helping other people to find deals and C selling deals that make you money and D selling your deals probably for less money when you want to exit right. The synergy of all these things working together is making you money and it’s saving you money because you got out of I need to find a deal.

I need to find a deal. I need to find a deal. That very narrow focus and you said, “Okay this is the stuff that I have learned. How can I apply this in every way possible to be able to generate income for myself.” Once you learn the power of leverage it doesn’t even have to be something you like anymore.

It could just be something that makes sense and you hire someone to do the stuff you don’t like and you keep focusing on what you do. That’s what I want to highlight for people listening to this. Learning to invest in real estate everybody wants cash flow, cash flow is great, but that’s like just the very beginning, the tip of the iceberg of how much real estate can provide for you. You now are making lots of money I’m sure from all these different ventures that you have and 10 years from now when we talk to you it will be even bigger. You will have more units under management.

You will have more agents working for you. Think about all the people that are going to bring you the deal before they put it on the market. Hey I know that Neal buys property let’s just see if he wants to buy it right. You’re going to get first pick of all that portfolio you have before any of those people put it on the market.

For all these people that are saying I don’t get it. Where is the deals? I can’t find the deal. Well Neal is soaking up a lot of the deals before they ever hit the MLS because he has those relationships in place right.

That’s what all of us should be doing is we should be looking for opportunities like that. How do I hit it before it gets to the marketplace where it’s like out there for everybody to get so I love that aspect of what you’re doing. I want us to be talking about that more on BiggerPockets and learning how you’ve taken the things you’ve learned from investing and incorporate that into your business and it’s kind of amplified the returns that you’re able to make. With that being said how do you guys feel about going into the Deep Dive and finding a little bit more about what Neal is looking for in a deal that he wants to buy.

Neal: Yes let’s do it.

Brandon: Sounds good.

Hey everybody I’m really sorry to interrupt the podcast, but I have news that I cannot wait to share. We have just added a significant amount of perks to our pro membership. We’ve negotiated discounts for a variety of services including various discounts on closing costs from several lenders, monthly savings on land lording tools, and even a discount for converting your retirement account to a way to fund your real estate investments. Check out these [email protected]/perks/pro and we’re not done. We’re negotiating even more discounts to make the pro membership even more valuable to you. Alright now back to David and Brandon.

Brandon: Alright it’s time for the Deep Dive. The part of the show where we Dive Deep into one particular deal to ask you seven very specific questions about that deal. Neal do you have a deal in mind? Something you bought recently that we can just dive deep into.

Neal: I do it’s a fourplex deal that we purchased in 2016 and it’s actually on the market right now. We went under contract two days ago.

Brandon: Okay.

Neal: With a thirty-day close and it’s a great deal. I really like the fourplex model because it’s the most amount of units that you can have in a residential property and get that really nice long-term financing, but have.

Brandon: Yes.

Neal: As many units as possible.

Brandon: Alright so let’s go into it so the first question of the seven how did you find it?

Neal: We found this one off market. It was a long-term landlord that was pretty burnt out on land lording and you could tell right away whenever you pulled up to the property it just looked like it needed help. You walk in the front door a smell was just coming down the common hallway. One of the units serves a hoarder in there that there’s just it was a flea infestation to boot and so we kind of skipped our due diligence on that unit on our inspection. The other units were in decent shape, but it just it needed some TLC to come in there and so what we did is we were hitting the absentee owner list looking for people with lots of equity, long-term ownership in the neighborhoods that we really wanted. In the kind of zoning that we were really looking for.

This is a guy that really fancied himself as a great landlord. He was boasting that he was a commercial agent for a long time and he just knew how to manage real estate. We ended up coming to a price of $450,000. At the time it was a little on the high-end that I was thinking, but we paid it. He definitely got the price that he was looking for.

We got the kind of product that we were looking for, but it was one of those scenarios where you just cannot do the work that you need to do on a property like that and turn it around with tenants in the property. The fortuitous thing was immediately we had two tenants that just they vacated whenever they found out the property ownership had changed and so that gave us two vacant units to go address. Then we had a really challenging situation with the tenant that was the hoarder. We did have to pay relocation fees, which was essentially a gesture of goodwill of our.

Brandon: Yes.

Neal: We really wanted to help this lady move on to the next chapter of her life and I cleaned her space that was a little bit more conducive for healthy living. We went in. We were able to put a lot of sweat equity into it at the time. I had just hired an assistant and he was able to go in and clean up a lot of the property. We had our contractors lined up and so we were all in probably another $50,000 in terms of materials and probably a little bit more for labor. We took the rents from about $600 a unit. They’re five between $550 and $600. Put in new tenants. They’ve been fantastic tenants. We re-rented them at $1,150 to $1,275 it’s the last rental turn that we’ve done.

Brandon: Wow.

Neal: We were then able to find a tenant for the garage, which wasn’t being used and they’re paying another $150 bucks. We added things like laundry and storage and we started to bill water back to them. We added a garden outside so the tenants could actually appreciate the space that they’re in and we got it appraised shortly after that for $775,000. Now we are exiting very close to that price.

Brandon: Wow.

David: What did you do to negotiate this deal?

Neal: What was very interesting is that the seller actually brought a real estate agent to the transaction. It was one of the neighbors from across the street he had no marketing into it. He was just there to pretty much push paper and that was actually really helpful because we were able to play to sensibilities of some of the property owners that you end up negotiating with. They want an exorbitant amount of money that is not based in reality so we found dealing with a representative of them that knows the market and knows how escrow works and knows how the programming works we are able to negotiate with the seller and the agent at the same time. We definitely hit some snags along the way of the owner was there for all inspections and was always just talking about how this was a non-issue. Oh no don’t worry about that. It’s fine.

Brandon: Yes.

Neal: If you’ve ever gone through those walk-throughs everybody does that. Of oh don’t worry they’re fantastic tenants. Don’t worry about the fleas.

Brandon: Yes exactly.

Neal: That’s how we found it is just hitting off market lists. He called us and then he brought the agent in later.

Brandon: When you say off market I mean would you send them a direct mail letter is that pretty much how it worked? Like you send him a letter and he calls you or how did that like how did you get in touch with him?

Neal: Yes, we send him a direct mail letter and for us our direct mail is always this is who we are. This is what we want to do. It’s not flashy marketing. I’m really looking for the marketing that we’re sending out can it be congruous with our personalities whenever we get there. You know if Neal and Alyssa show up I don’t want to have sold them on fast cash in four days and you know.

Brandon: Yes.

Neal: The closing of your choice so.

Brandon: Yes so what does it look like? I mean your letters are they typed? Are they handwritten, yellow paper, white paper like. How do your.

Neal: You know at the beginning we did a lot more handwriting, but as you get busier you realize you have to leverage other people’s time and experience or build systems that you can leverage your own time to do that. A lot of our marketing started off very tailored. Hey I see a house or see a building I’m going to handwrite them and that’s always really going to for us to have, but if you look at overall just backing out the numbers you’ve got to be sending quantity.

Brandon: Yes.

Neal: You just can’t do that handwriting.

Brandon: Yes, that’s really tough so cool alright well next question or next part of the Deep Dive here. How did you fund that deal? Before you answer that you said $450 is what you paid for it and then how much did you say you put in for repairs?

Neal: We’ve had about $50,000 into repairs.

Brandon: Okay.

Neal: You know a lot of sweat equity in on top of that.

Brandon: Okay so how did you fund all of that?

Neal: The funding actually this one came from a conventional loan that we had on the property where we went to the bank. We showed them our track record which was really helpful. We had them do an appraisal on it and I it came in just barely above the purchase price that we were looking for, but those loans are pretty much gold if you can get them.

Brandon: Yes.

Neal: What other loan product is out there that you can get four units at a 30 year fixed interest rate?

Brandon: Yes.

Neal: At the time the interest rate was like 4.1% and every single month it’s like a savings account by clicking down.

Brandon: Yes.

Neal: On equity.

Brandon: Yes, I love that.

Neal: We had funded it conventionally and then we put in our rehab funds from a private lender that we had negotiated. Hey this is the interest rate that we’re going to pay you. This is the security that you’re going to have and this is how we’re going to refinance later on and pay you back.

Brandon: Nice.

David: That brings us to the next question we like to ask. What you ended up doing with the property did you refinance it and then pay back your investors? Did you keep it and you haven’t refinanced it yet how did you end up?

Neal: Yes, on that deal we refinanced out and whenever we bought it we knew you know $450 down or $450,000 purchase price, $50 down into the rehab. A couple months later once we had stabilized the building and put in new tenants that’s whenever we did the appraisal and it came in at $775 and got a loan to value that essentially just exited out our lender on it. We still had a really big chunk of equity in there.

Brandon: Yes, that’s awesome. Yes that’s why I love I mean this is classic BRRRR in a way. Well I shouldn’t say classic BRRRR. Typically on a BRRRR deal, which we talk about BRRRR here on the podcast, but BRRRR is usually yes where you buy the property. Your rehab it.

You rent it out now you know to nice new tenants then you refinance it and get your money back. Typically it’s done. You use a like a hard money loan or a private money loan or a home equity line of credit or something to buy it because typically they are in such bad condition when you buy a rental. In your case it was actually able to be purchased with a conventional loan which is even better because it’s like this you’re not down to the wire like oh I got this hard money six-month loan I got to get it refinanced right away. That’s awesome.

I love that and I love the fact that you took that those rents from like the $500 – five – the $600 range and almost doubled them. That’s tremendous value add and then billing back water to them. That’s one of my favorite strategies in the world for increasing cash flow. That leads us to what was the like outcome in terms of you said that it appraised at $775. What did your cash flow look like? Then did you just say you are selling it? Is that what is going on?

Neal: We are. Yes, we are under contract to sell it now. They’ve got.

Brandon: What was the cash flow like in the meantime? Like since then and then what are you selling it for and why did you decide to sell it?

Neal: We’re cash flowing about $375 a month and that’s really where you know it’s a little bit of cash flow. It’s a four unit property. Yes, I do like to hold onto those kinds of properties, but what we’re really looking at is where do we want to go from here? The more we get the experience of being professional managers and investors of properties the better that we can really crank on the forced appreciation lever and not have to worry about okay we’re going to be buying a property that is now valued based upon comparable properties and not upon the income that we can generate on the property. That’s why we’re exiting is we can just take those funds and put it into a bigger and better property and create more equity out of that.

Brandon: Yes.

David: You know I know you mentioned you’re making almost $400 a month in cash flow, but how much money did you leave in that property?

Neal: In terms of equity?

David: Yes.

Neal: Roughly $275,000.

David: You’re probably looking at an ROI of like 20% or so. Is that about where you are?

Neal: Right.

David: Okay. That’s something I talk about all the time is it’s not just cash flow because you can make anything cash flow if you dump enough money into it right. What you’re able to do is take the equity that you had, pull it out. You’ve improved your ROI now on the property because there’s less I left in it. There’s less investment and you can go buy something else.

I wonder how many people there are out there with just hundreds of thousands of dollars in equity in a property that’s making them $500 a month that they could be making $5,000 a month if they pull that money out and they went invested in something else. In my book I talk about comparing the return on investment versus the return on equity. When you first bought a property your ROI might have been stellar, but it’s appreciated so much that now if you calculated that on the equity instead of what you originally put down it’s actually a horrible return. Your property is not performing well and for those people if you’re thinking well I have a ton of equity, but I don’t want to go through the hassles of being a landlord again. Well you got to find a guy like Neal, pull your money out and give it to him and let him give you a return that’s much better than what you’re getting or partner.

Brandon: Yes.

David: With another investor. There’s all kinds of options out there, but don’t let it just sit in an investment just because that’s what you’ve always done and you’re comfortable there when you have a ton of equity that’s not making you any money.

Brandon: Yes just to jump in quick with some math. Like just quick and dirty stuff right. Let’s say you’re making $400 a month in cash flow times 12 is what’s that? $4,800 right? Yes, $4,800 a year in cash flow on a $275,000 in equity sitting there works out to like 1.7% return.

When we talk about return equity right you are basically in cash flow making like less than 2% on your money. What you did is you’re like we’re going to sell those property so that we can take that equity, dump it into another property that will be getting way more hopefully than 1.7 or at least maybe you’ll get in the same cash from the next deal, but you start that appreciation climb again. You know so you can start back low again and bump up a couple hundred thousand dollars more and build it up. You know it’s just different styles, different types of investing, but you know I love that. I love that you are at least making some cash flow, but you bought an awesome property and an awesome location that you had forced appreciation in. It’s just yes. It’s an awesome game to play.

Neal: Yes, you can really analyze it from the return on equity and it is a great holder of wealth, being able to have a property that you’ve got several hundred thousand dollars and for some people it really makes sense to say I’m not going to sell. I’m just going to depreciate the property. I’m going to receive the income on it. I’m going to let it coast, but if you’re really looking to scale a portfolio you’ve got to be analyzing what your return on equity is and if you’re starting to just trade up into bigger properties using 1031 exchanges then it’s great. For the landlords that they are tired and they’re not really in making a good return and they’re just letting their properties slowly degrade, that’s the people that I think they really need to make a decision here.

Brandon: Agreed agreed. Alright last question of the Deep Dive. Lessons learned. I mean we’ve been talking about a few lessons here. Return equities up, but anything else that stands out you’re like oh man this is something I learned about maybe went really well or didn’t go so well on that one.

Neal: Yes, I think it goes back to the marketing of the properties is that we spend a lot of time at the very beginning doing direct mail and you can easily go find properties like that just knocking on somebody’s door or going around a neighborhood that you want. A lot of people ask us all the time how do we find a property like this. How do we raise money for it? What went right is that we knew what we were doing.

We knew the kind of owner that we wanted to go after. We knew the kind of property we wanted to go after and then finding the financing to go do something like that it’s actually quite simple. Investors are looking for three things. You know they’re looking for a return. They’re looking for security and they’re looking for customer service. That’s what I really liked about the deal is that it was a win for the property owner. We paid him what he thought was a great price. It was a win for our investor because they got to put their money to work and it’s a win for us because we got a great property. We got some cash flow off of it and now we’re going to get another great property after this.

Brandon: Fantastic.

David: That’s like perfect set up for my next question is what comes next?

Neal: What comes next is really serving the landscape of where we’re at. I really like the fact that we are positioned in a service oriented model right now. That you just can’t go out and buy a property every other day in our market. We are hyper local. You know we don’t go to the other side of the river.

We don’t go five miles out and so for us where we can really gain a lot of value is by sticking close and sticking to know or knowing what we’ve done before in our bread-and-butter and so what we’re looking to do is leverage our service side of businesses. We did incorporate a brokerage where we’ve got 16 agents with us now. That’s a great source of clout in the market and being able to leverage other people of hey how can we help you to run a successful business and at the same time if you find anything that we might like to invest in or if you need help funding a deal or if you need management help on it come to us. Now we’ve got a lot of other people out there that they know what we do. They know what we’re looking for and now it’s how do we consistently generate cash and we don’t even have to be the quarterbacks anymore. How do we give it to somebody like you guys?

Brandon: Yes.

Neal: That are in different markets to go place into bigger deals that you know you get to a point where if you’re in if you’re landlord you get tired of being a landlord.

Brandon: Yes.

Neal: Let me go give it to other people that want to landlord and they know how to do it better than we do.

Brandon: Yes you know that brings up a really interesting point about you know when you’re first getting involved in real estate you’re like I need to borrow money from somebody. I want to get private money. I mean that’s a big huge thing right and we talk about this all the time on the show, but I’ll say it again. We oftentimes think we’re asking for a favor when we’re raising money.

It’s like I need a favor from this person, which yes they are giving us money, but at the end of the day this is just part of the investor lifestyle. Like in the beginning you’re typically the one using borrowed money and later on you’re the one looking for opportunities. In fact, I get like hit up almost every day from people who are like yes do you know any deals out there I can invest my money into? Like you know you want partners because people don’t want to do like at that stage, later stage of their investing they want to put their money with somebody else. I love that you talk about the three things that every investor needed that you know is looking for. What was it what they were looking for a good.

Neal: They’re looking for a return.

Brandon: Customer service. Yes, return, customer service.

David: Security and customer service.

Brandon: Yes, I love that. That I think that’s fantastic. I’m going to totally make an Instagram thing and share that. Steal that from you. Anyway no this is fantastic. Again, I love that and I think you’re right on so I’m kind of looking forward to seeing where you’re headed, but before we get out of here. We’re not quite done with today’s interview we want to go and move over to the world-famous Fire Round.

David: Fire Round.

It’s time for the Fire Round.

Hey it’s Brandon. Have you ever been listening to the podcast and you wish you could ask the guest or maybe myself a question or go more in depth on a topic? Well you know you actually can every single week with the live at BiggerPockets webinars. You know webinars are like live online classes hosted by myself or others in the community where you can get involved, ask questions, and leave inspired and ready to take action. Webinars are hosted at least once weekly and cover a wide array of topics from evaluating multifamily deals to funding deals to mastering the BRRRR strategy or just plain how to get started. Did you know that BiggerPockets Pro members can actually go back and watch previous webinars anytime in case they missed it or need a refresher. Go register for the next webinar. Just go to BiggerPockets.com/Attend. That’s BiggerPockets.com/Attend, A-T-T-E-N-D and I’ll see you there.

Alright let’s get to the Fire Round. These questions come direct out of the BiggerPockets forums and we’re going to fire them at you nice and quick here Neal. Number one how do you reset for your next short-term rental guest and if you don’t have any anymore I’m not even sure do you have any rentals short-term anymore?

Neal: We’re running three of them right now.

Brandon: Okay so how do you resend? In other words what they’re asking specifically is like like how do you schedule cleaners? How do you check thoroughness? How do you refill or replenish things? Like giving you like just book tips on how you run that part of your business.

Neal: I had a good cleaner Pam Well systematize them as much as possible. Have a checklist and make sure you’ve got more towels and linens and coffee than you know what to do with. I fortunately don’t have to work in that side of the business very much, but it’s tough and you really got to boil it down to what’s your process.

Brandon: I love that. Systems. Checklist like they’re lifesavers like my whole life is about checklists now so.

Neal: You know it’s so cool is that you can actually have can app and take a picture of a unit. Of this is what I want the finished product to look like and then the cleaner has to take a picture and it will send in your apps so you can see oh this is what it is now and this is what I want it to be.

Brandon: Wow.

Neal: It’s pretty cool.

Brandon: Is that an or AirBNB app or is that something else?

Neal: No it’s a different app. I think it’s called Properleap. I could be wrong about that though.

Brandon: Alright we’ll put a link to it in the show notes on this, but yes that’s cool.

Neal: What’s awesome about that is you because it’s just a picture is it like a you can have a VA in some other country who compares the pictures and sees right away if it looks like it should and gives the actual green light. Like okay you’re good to rented it out or no no you need to go pick up those socks that are in the corner that haven’t got fixed and doesn’t have to be you.

David: This is why we need to hang out more. Getting that kind of information and just a push of hey this is how you can do it without having to actually do it yourself. That’s the kind of mindset that I want to be around.

Neal: That is my whole life right now because I am a real estate agent who doesn’t love being a real estate agent. I love real estate, but I don’t love all of the tiny little paper cuts of death that come from being an agent of all the tiny details you have to handle so I have been learning to systematize and push that on to other people.

Brandon: That’s funny because so last week we were recording the podcast. Whenever the last week’s show was and my Internet was just acting so bad because my like my wireless router wasn’t good enough. I was just having so many problems with it and so afterwards I’m talking with David. I’m like my Internet is just horrible.

What I need to do is I need to plug it in directly and I need to go get. I told David I’m like I’m going to head to Staples right after this and go pick up a like a converter box that I can plug well anyway ethernet into my computer. Anyway he’s like well isn’t Chris there and Chris is like my video editing assistant. I’m like yes he’s editing a video. He’s like send Chris to Staples. I was like, “Oh I guess I could do that.” That’s what David is really really good. I mean David here is good for a lot of things, but Chris left right then. I was like, “Hey Chris go run to Staples and pick up this thing.” He came back 45 minutes later. Plugged it in. My Internet worked just fine and I didn’t have to do it. It’s good to have people in your life that kind of push you to think outside the you know the day-to-day inside your business. Thank you, David.

David: Because I love BiggerPockets. Brandon probably made a YouTube video teaching someone how to become a millionaire and that person will suddenly be able to think me because I sent Chris to Staples to pick up the router. Yes, I mean I am a huge proponent of it. If you hate doing something, find someone else to do it because it will kill your energy. It will kill your vibe. You won’t be as productive as normal and most of us just have no idea how many people out there wanting a job like I want to go pick up routers for Brandon Turner because I freaking love this guy and he’s so cool.

Neal: David just lost all his real estate clients.

David: I know. You guys just kind of interrupted me before I was able to finish where I was going with that. It just lets me looking like. Let David sell your house and he’ll hate it every step of the way. You’ll know the whole time. It’s not like that at all. I love selling real estate. There’s just aspects of the job that are mind numbingly boring to me and I like to leverage that off to other people so that I am in a peak state and.

Brandon: Yes.

David: It’s I do my very best.

Neal: I say nice things.

David: Thank you guys for actually letting me say that not actually doing business and have people right now. Alright next question before I make this any worse. I just got my first booking. This is an AirBNB question.

Neal: Oh man oh AirBNB.

David: If they could check out 4 to 5 hours later than they were supposed to check out. That’s not a problem because the calendar is still wide open. They want to make an exception for these people and let them do it because they don’t want a negative review. That’s what this question is. How would you handle this so that you don’t get negative reviews from the guest if you don’t let them leave late, but you don’t want to get penalized by AirBNB for not having them stick to the time limit.

Neal: It’s a fine balance. Every AirBNB host is petrified of a negative review.

Brandon: Yes.

Neal: Which is one of the reasons why I hate the business model in general.

Brandon: Me too.

Brandon: Me too.

Neal: If you have a flexible, if you have the ability to personalize it and look in the calendar and see if somebody is coming in on the backside, sure stay late, but just know you’ve got to then shift your entire cleaning schedule and so it can be a big pain and you’ve got to be able to communicate that to the guest of how do I gently tell you no 90% of the time and it just that’s really where I would take it, but again I didn’t like AirBNB management and I don’t have to do that anymore.

Brandon: Wow.

David: You know that comes up a lot for me in my business as well. The real estate agent thing because what you’re describing is you don’t want someone’s expectations not to be met because then they’re going to be upset and they’re going to give you a bad review. It’s the same thing with any business right. What I found is every single problem like that that could come up that you have to fix like figure out on the fly you could have prevented by preparing somebody ahead of time for that situation and telling them what you’re going to do.

Brandon: Yes.

David: As I see like oh this keeps going wrong in every escrow or oh this always happens right. Now I jump in in the very beginning of the process and explain when we get to like one of the big problems with selling a house is that people don’t realize you have to clean it. You can’t leave a complete mess for the person moving in right. We might think that’s common sense. A lot of people don’t care. They just leave garbage everywhere and they take off and they’re like, “Ha ha see you suckers.” This is your stuff to deal with right. Then I jump in. I’m trying to not keep them from getting sued and they don’t understand that that’s a big problem. Now I tell them when we’re first meeting about selling your house when we get to the end this is something you need to know. The contract says the house has to be cleaned. This is the way it needs to look blah blah blah so that they can’t come back and give me a bad review because I got them sued as their agent or whatever so.

Brandon: Yes man.

David: Go ahead.

Brandon: The managing expectations I think that’s huge.

David: Yes that’s exactly what you’re doing is.

Brandon: Yes.

David: You got to tell them up front, “Hey if you check out late this is what the extra fee is and this is why I have to do all this extra work. The next person is going to be ticked off that they didn’t get to come in when they wanted to. If you’re going to be late it’s going to cause a big problem so this is what you have to pay upfront.” Then they are less likely to give you a bad review because they knew the expectation going in.

Brandon: One thing to add to that that worked for me when I had the AirBNB I did it a couple of times is I just blamed the cleaner. Like, “Oh yes you know I’d actually love to, but the cleaner can only come between two and three on this date and so like if she doesn’t get to clean it we just won’t get it cleaned up for the next guest so.” Then what are they going to leave the cleaner a bad review? Anyway, I love blaming other people for.

David: That’s why I love using property management Neal because I get to blame you guys when something goes wrong.

Neal: Alright that’s whenever.

David: Can you fix this thing? No I’m sorry. Property management said it’s not in the budget I can’t go. I’ll give you granite countertops and you’d be like horrible neighborhood.

Neal: Our hands are tied. The owners just they don’t want to do this.

Brandon: Yes, exactly. Yes.

David: That’s exactly what we need. We’re all just that buckle on in this big circle and then eventually the tenants just get like worn out to from asking and they just accept the lower expectations that we wanted in the first place.

Brandon: There you go.

David: Alright.

Brandon: Alright next question.

Neal: Just a disclaimer that is generally not how I like to run our company, but.

Brandon: Good.

David: Just Brandon and I.

Brandon: Yes. Alright next question. This one is going to be a legal question so I you know obviously we’re putting a disclaimer here. You’re like we’re not giving legal advice, but I want to see your take on it. I am looking at—somebody said, “I’m looking at a triplex and the ad says the unit is only legally a duplex. What are the ramifications of that? How do I do my due diligence in confirming whether or not I need to remediate that or destroy a unit or just live with one that’s not legally allowed.” How would you approach a situation like that?

Neal: I think first of all what you’re not going to be able to do is get appraised at the value of a triplex.

Brandon: Yes.

Neal: The bank is going to say, “Hey this is a nonconforming triplex.” You have to value the property as what it legally is. Now there’s going to be investors out there that they don’t really care about that third unit. They know they’re hedging their bets that the city is not going to find out and make them take it away.

Brandon: Yes.

Neal: Maybe they’re going to live in it, whatever that scenario is, but there is risk there. You need to know that going in and for me it boils down to how much money is it going to take to remove the unit. What is that going to do to value and can I get it at the right price going in?

Brandon: Yes. That’s a good answer. I also find just to throw in a piece of some towns like our way more flexible than others. Like in Montesano where I live, Montesano, Washington right or at least did live. The town like they wouldn’t I have a couple that are just none conforming. Like they’re duplexes, but it’s not really a duplex. It was like somebody added on a barbershop and then I turned that into a unit. The town could not care less like at all. Now someone is going to go call the city and complain, but like if I was buying in Portland like there I would be much more worried especially when it’s a bigger city where there’s a lot of red tape and things. Yes, in my town I just go and I call the guy’s cell phone because I have the guy’s cell phone number who was the you know city inspector and I’d be like, “Hey dude this is the situation.” He’d be like, “Yes don’t worry about it.” Like kind of knowing your town can kind of help with that kind of stuff as well. For zoning issues.

Neal: Yes. For sure.

David: Alright I really like this last question because it kind of touches on what we just talked about as far as being the property manager, blaming it on different people. This is a newbie investor and they are saying that they’ve read that some experts present themselves to tenants as the property manager not the landlord.

Brandon: Yes.

David: Poor Neal is just getting hammered would like the worst ethical questions that we’ve ever come up with before. He is handling it so good. Alright that makes sense to them so they’ve been showing the property and saying I am the property manager rather than admitting I own this property. Some of them have asked me out right if I was the landlord and I evaded the question, but the impression I gave was that I’m not the landlord or owner. Here’s my question. When it comes time to pay me aren’t they going to have to put my name on the check? I think what they’re saying is the how do I get around this problem of telling you I’m the landlord and you trying to figure out if I’m really the owner.

Neal: Go hire a property manager.

David: There you go.

Neal: It’s that simple. You know if you don’t want to be, if you’re having to pull all kinds of like pull the wool over somebody’s face you know either own up to it because I don’t really want you know I lead a very honest life of if I’m talking to a tenant I’m not going to lie to their face of yes I am the owner. This is what we can do. This is what we can’t do. I don’t need to hide the fact, but the best thing that I ever did for my investing career was we hired a property manager. I don’t have to go talk to the tenants about this and so now it goes back to you know if the property manager has a question from a tenant they can come to me and I can make a decision that’s not a pressure cooker situation in an awkward social setting. I don’t want to put myself in that scenario and if I didn’t have a property management company that I owned I’d go and hire one. If I had to do it all over again I probably wouldn’t create a property management company because it takes so much time. They are very, but that role is so valuable.

Brandon: Yes.

Neal: There’s a lot of reasons why you need to have that barrier between you.

Brandon: Yes you know I’ve gotten I had a number of these discussions with people on BiggerPockets because of this issue of like when I started I didn’t tell anybody I was the owner. I just said I’m. We’ll see I would say, “I’m the landlord and then the owner is somebody else.” Because when I was 21 and I’d rented these 50 year old you know mill workers that would scare me I was too afraid to tell them I was the owner right. That’s changed now, but what I do today that helps is I just say I am one of the owners. Oh yes yes I’m one of the partners in this deal. I’m the guy that’s in charge of kind of dealing with the showing the units and stuff. Like that’s what I would say because that that is legitimately true. The other owner just happens to be my wife. They don’t have to know who the other partners are.

Neal: The real boss.

Brandon: Yes, but it gives me that ability to always step back and go well let me talk to the other partners about it or let me go talk to my partner. Let me go talk to the manager or whatever, the other owners. It gives you that one of the biggest problems I see in property management is when you make decisions on the fly. Like a tenant says, “Hey do you mind if I have a dog in here?” Like my initial reaction is always, “Sure. I don’t care I mean go ahead. Whatever.” Then I like that can leave problems because I didn’t let the other person do it. Now am I being racist because I let one person not another. You know like those are the issues that come up if you start making decisions on the fly. By oh like no matter what the question is it’s well let me check with my partners. Let me check with the owner. Let me check with whatever so anyway. Cool alright well that was the end of the Fire Round.

David: Round.

Brandon: We’re not quite done. We got one more section of the show, which we call our.

Famous Four

Alright let’s get to the famous for. These are the same four questions we ask every guest, every week and Neal I know you’ve heard them before. Let’s see what you got to say. Number one what is your favorite real estate related book?

Neal: I was thinking a lot about this and it was a book that I read early on and it’s called The Confessions of a Real Estate Entrepreneur by James Randall.

Brandon: Ah no one has ever said that one I don’t think.

Neal: Oh really.

Brandon: It’s an original.

Neal: I mean it’s probably from the recesses of BiggerPockets. That’s where I get all my reading list and Go Abundance now.

Brandon: Yes.

Neal: it just it was the first time that you could really hear the anecdotes of how a real estate entrepreneur went out and created value doing different kinds of projects. You know if you get stuck in a rut doing multifamily or single-family you’re constantly looking at like yes am I doing this right? Can I do other things and that book just lit my brain on fire.

David: Alright. What is your favorite business book?

Brandon: Cool.

Neal: My favorite business book right now I just finished it the other day. I could not. I listened to it on audible. It’s called Shoe Dog by Phil Knight the founder of Nike.

Brandon: We’ve had a lot of people recommend that lately.

David: Yes, keeps coming up.

Neal: Oh man.

Brandon: I should read it.

David: It’s just one of those that it reaffirms to you like, “Yes business is hard. You’re not the only one in a scenario where you’ve got to figure out problems all day long.” I tell you what I finished it in like three days. I didn’t even talk to my wife or kids for a good portion of the night. It was just walking around the house with earbuds.

Brandon: That’s funny. Alright well yes I’m going to have to get it now because you’re like yes you’re like the third or fourth. In fact Josh Dorkin the other day was like you need to read Shoe Dog it’s so good. Shoe Dog.

David: Josh Dorkin said that?

Brandon: How does it go? What’s it called? Shoe what?

David: Dog.

Neal: Shoe Dog. He is a hometown hero here. You know where in Portland home of Nike and so just it kind of came full circle for me.

David: Alright.

Brandon: That’s pretty cool.

David: What are some of your hobbies other than ignoring your family so that you could listen to business books?

Neal: You know we love to travel. As I mentioned one of the reasons why we got into real estate was to do more traveling. We haven’t been able to do that a lot because we’ve got a two year old now, but we’re starting to really get into systematizing so that we can go travel. Do outdoor stuff like hiking and skiing and fishing and I’d like to learn surfing more.

Brandon: Nice.

Neal: I’m pretty jealous of Brandon doing that.

Brandon: You come out and hang out too.

Neal: The first time surfing was with you guys in Texas in a big pool and so ever since then I’ve got the bug.

David: Oh.

Brandon: My little girl Rosie just ran over people can’t obviously see her if you’re listening to the podcast, but can you say hi?

Rosie: No.

Brandon: Okay we’re going to be shy. Anyway alright next question. David this is you.

David: No this would normally be you.

Brandon: Oh you’re right. This is me.

Rosie: Mommy. Mommy.

Brandon: Okay here you go. Here you go.

David: Neal what sets apart successful investors from those who give up, fail, or never get started?

Brandon: I was handing the little girl back. Alright go ahead.

Neal: I think there’s two things. One is everybody they get into real estate and it’s like a shiny object syndrome of well I can do a buy and hold. I can do wholesaling. I can do this. I can do that. I can flip and without that lack of clarity of let me focus on one thing and get really good at it and then realize a lot of people that we see fall off they’re just not proactive. You know the deals are not going to come to you and if you’re not consistently swinging the bat you’re not going to be hitting the ball.

Brandon: Ooh that’s another good Instagram quote right there.

David: That’s I was just about to say. Brandon will put an inspirational picture on that and put it on his Instagram and then he’ll take credit for it later it. He’s known for stealing.

Brandon: I don’t steal.

Neal: I’m trying to help analogy David Greene right now.

Brandon: Nice, yes it’s hard.

David: Why would you?

Neal: Analogize.

David: Let me just go beat Bruce Lee in a street fight. That’s what that was. Alright. That was an analogy. The answer is I didn’t realize I did that.

Brandon: That was an analogy. Yes, that was nice.

Neal: Touché. Touché.

David: Alright Neal where can people find out more about you?

Neal: They can go to our company. It’s called Latitude Realty and Property Management. You can email me [email protected]. We’re on LinkedIn, Facebook. The Instagram thing I’m sure we have an account. I just don’t check it and so I feel like if you want to get a hold of me an email or go into our company page is going to be the best spot to do that.

Brandon: Alright.

David: Alright. Neal you are an awesome dude. You have an incredible story. You are a very good real estate investor. I think I’ve learned a lot just listening to you here. Thank you very much for being on the podcast and sharing some of the stuff that you’ve mentioned. Brandon do you have anything you want to add?

Brandon: You know I don’t think so, but why don’t we take this thing out with Neal here together. We’ll do this as a three way outro so I don’t know. Neal this is fantastic and we’ll see you around the show definitely. You know keep listening and all that good stuff and hopefully we’ll hang out again soon. Maybe do some surfing. I think that would be fun so. Everybody else thank you guys for listening to the BiggerPockets podcast. You all rock. If you have questions for Neal of course you can always check out the show notes at BiggerPockets.com/Show291. You can jump into the comments there. Have conversations. We’ll have links to everything we talked about as well and lastly if you have not yet left us a rating or a review in iTunes or Stitcher or Google wherever it is you’re listening to this. Spotify now has it. YouTube, go there. I don’t know if you can leave a review on YouTube, but you can lick the thumbs up button. Anyway please do so. It helps us reach more people. Like people like Neal here who came on you know started listening to the show and it definitely kind of set his life on a new trajectory so we want to be able to do that for more people so thank you all for helping spread the word about BiggerPockets. With that that’s all I got. Anybody else want to add anything before we get out of here?

Neal: No thanks guys this is full circle for me so it’s been an honor to be on the show.

Brandon: Awesome. Thanks.

David: It started with BiggerPockets and now you are a guest on the podcast. Very very cool. If you would like to be on the BiggerPockets podcast and have a story that is similar to Neal’s please reach out and let us know. There is a process you can apply online to be a guest we.

Brandon: BiggerPockets.

David: We look at those every.

Brandon: Yes, BiggerPockets.com/Guest.

David: Wow. That’s I wish I could have remembered that it’s pretty simple.

Brandon: Now you know.

David: Let us know what you like about the podcast. Leave us some feedback. Do you like the Deep Dive segment? Is there parts of it you do or don’t like. Brandon and I are continually tweaking this to make it better. With that we will get out of here. This is David Greene for Neal Collins and Brandon there’s an echo in here Turner. Signing off.

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