Quitting Retail to Flip, BRRRR, and Design with Kara Beckmann

Brandon: Kara, welcome to the BiggerPockets Podcast. It is awesome to finally have you here on the show. How are you doing?

Kara: Good. Thank you so much for having me.

Brandon: Yeah, this is going to be a lot of fun today. So, we are going to go through your story and I know you’ve got a pretty fantastic story. We met in person here. I think with that BP Con, right?

Kara: Yeah. Nashville.

Brandon: Yeah, that was awesome. And I got to know a little bit about you, but I didn’t get that much to know about you, so that didn’t really make sense, but I didn’t get to know as much as I wanted. So today, we’re going to pick your brain on how you became as awesome as you are today and how you get to do such awesome looking rehabs. Because I’ve seen your Instagram, it is awesome. So with that, what did you do before real estate? And kind of walk us through, how did you get into the idea of doing a real estate investing?

Kara: So, my background is not in real estate whatsoever. So, I’ve always had a really strong entrepreneurial spirit. So, as long as I can remember, I’ve wanted to have my own business. I didn’t necessarily know what that business would be. I just know that I didn’t want to work for someone else.

Brandon: Sure.

Kara: So, when I was 14 years old, my parents said, “If you want a car when you’re 16, you’re going to have to work for it. We’re not paying for your car. We’re not putting money towards it.” So, thankfully, they gave me a heads up.

Kara: So, when I was 15, I got a job at a bakery and I worked as much as I could being 15 years old. So, I would go to the bakery and work after school. I would work most all weekends and just constantly saving up for this car.

Kara: And when I turned 16 years old, I think it was that day or just a few days after I bought a car and I thought this is … It was so exciting to be able to buy a car at that age. And I noticed much later on in life how big of a lesson that really was simply … I mean, we think of saving, but it really is the art of saving money is so beneficial. And having such a strong work ethic really helped me going into real estate.

Kara: So, I’m in high school and I still don’t know what I want to do and my mom would decorate a lot of our cakes growing up, and so I would start helping her do the decorating. And I thought, “This would be really cool to own my own wedding cake shop.”

Kara: So, I went to culinary school right after high school and I was saving money to eventually open up my own bakery or a wedding cake. And this started when the real estate market started to go down. So, I would work at a restaurant for a few years. I would work at another restaurant for a few years and they were constantly closing. And I thought, “Wow, this isn’t good.”

Kara: And it was also very repetitive. You’re making hundreds of the same dessert every night. And it was kind of taking the fun creativity out of it. So, I ended up being a baking instructor at a retail cooking store. So now, I’m kind of in retail. And then I found myself full fledge in retail and years are going by and I’m still saving. I have a habit of saving money.

Kara: So, years go by and I think I started to become interested in real estate by looking at open houses. And I would go to these open houses and I would just notice different lighting pieces that they had and different design elements that I really liked and I thought, “Maybe I can do to a house what I used to do to a cake. I’m basically taking a blank canvas and turning it into something beautiful.” And that got me really excited.

Kara: So, my mom was a real estate agent and I started looking on Zillow and sending her listings. And I thought I’m going to take all of this money that I saved and this will be my down payment on a house.

Brandon: How much did you saved up by then?

Kara: By then, I had saved up almost $100,000.

Brandon: Wow, that’s awesome.

Kara: And this is years. This is years and years of saving.

Brandon: Yeah.

Kara: So, I thought this will be my down payment and also funding the rehab, because I knew I had to put 20% down. It was going to be an investor loan. So, I don’t even remember how many offers we put in before someone finally accepted my offer. And it didn’t matter. I knew that I was going to get rejected. That’s the name of the game. So, if someone accepts my offer and it was $50,000 below ask and it happened to be a probate sale. I found it on Zillow.

Kara: And I walk into this house and it was the worst house in a great neighborhood, which is what you always want. But whoever lived in the house was in a wheelchair and the hallway was not wide enough for her wheelchair. So, the dry wall was completely gouged and cabinets were literally falling off the kitchen. I see it, but I’m seeing all of the potential.

Kara: And I’m so excited about this house. I’m looking at the arches and the size of the kitchen and just so much potential. And I don’t remember ever being scared. I don’t remember being nervous. It was just so much excitement to finally have this project to work on.

Kara: So, I interviewed different contractors and it was a full debt remodel. From start to finish, I had that project for three months, sold in 10 days. And I thought, “Wow, that was really easy.” And everyone was saying, “Kara it is not this easy. It’s not this easy.” And I thought, “Well, that was pretty awesome.”

Kara: And I’m still working at my retail job. So, I did another flip and it was harder, but I do have to say on that first flip I made just under what I made in an entire year at my retail job.

Brandon: Oh, that’s cool.

Kara: So, why I didn’t leave then, I’m not sure.

Brandon: All right, so let’s dig into this first deal a little bit. I want to know just a little bit more about it. So, first of all, you got it on Zillow. You found the lead on Zillow and so you started … You put the offer in, you got it accepted, you jumped in there. Now, did you have rehab experience at this point? Were you doing the work yourself? Did you hire that out? How did that work from there?

Kara: No. So, I had no experience. I like to say it’s okay to not know what you’re doing, but it’s not okay to use that as an excuse. So, I really did just interview contractors. I went with someone who I felt comfortable using and I did the full design and I would purchase all of the materials. But other than that, I wasn’t really involved in the construction as I am now, so I’m much more hands on now.

Brandon: I guess, how did you find good contractors and not get ripped off your first time? Like a lot of people are very worried about that, their first deal. Was that just luck?

Kara: I think it was luck the first time. Again, I interviewed three. Even to this day, I’ll get a few different quotes. I have some contractors that are my go-tos, but I’m still getting quotes to make sure they’re not overcharging me for different things. I kind of went with my gut feeling on that one, on the first one, and he worked out for a few houses and now I’m using a different contractor.

Brandon: Okay.

David: Which by the way, there’s nothing wrong with it all. In fact, we need to do this for a while. You just accept. I’m not going to find a contractor and ride that same horse for the next 20 years. You’re always looking for the next contractor and the next wholesaler.

David: Things change so much in business. The people that were working well have problems with their family or they get really good at their job and now they don’t want to work with investors anymore. So, for anyone who gets discouraged by, “Oh, I thought I had a good person and now I don’t.” Kara, I’m sure you can attest that is …

David: It’s like you never just find a deal source and you just go back to that place and, “Oh, there’s another deal.” You’re always looking for new ones.

Kara: Right. Oh, yeah, for sure.

Brandon: Yeah.

David: Something that I really loved about what you said, Kara, was that you took skills that you built previously in life and you applied them to real estate. And I think just in general, I’m very passionate about that and I feel that more people would benefit if they would look at what they’re doing well right now in life and improve it so that when they get to real estate investing or whatever they’d rather do, they’re prepared instead of saying, “Well I hate my job, so I’m not going to try. I’ll wait until I get a job that I like.”

David: Because you mentioned I think like three different things. One was saving money, built more skills than just having money. You built discipline, you learned to say no, you learned to live frugally. You learned to look for the value in something as opposed to just, “Well, that’s the easiest one, so let me go buy that.” Because when you’re saving money, you’re always looking to save.

David: You took your skills from cake making and you applied those to real estate design. I mean I think that’s brilliant and that is now my excuse for why I don’t have an eye for design. I’m just like, “Well, I wasn’t classically trained in how to make pastries.”

Brandon: Make cake.

David: Yeah. Make cakes. So, that’s why I don’t know what I’m doing because I’ve seen your work and it is extremely impressive. You are very, very good at that. And to think that you learned to do it from the skills that you built with something as, I don’t want to say simple, but maybe basic as a cake, it’s not as complex.

David: That’s so encouraging for everybody else who maybe, “Oh, I just work at a bank underwriting deals. How could I ever be an investor?” Well, that’s a freaking skill that works really well when you get into investing. So, work on sharpening it.

David: And then you also mentioned that you didn’t like the uncertainty of working for someone else, because these restaurants kept closing. And so that created this drive in you that, “No, I want to learn how to provide for myself so that I’m betting on me and not other people.”

David: And every one of us that’s listening to this has similar experiences in life that if we take the attitudes you took, we can have a similar result.

Kara: Right. Yeah. And going back to saving money, real estate investing is like a financial roller coaster. So, if you do not know how to manage your money going into this, if you sell a house and you have a huge check, if you don’t know how to budget that money, it’s going to be a tough ride. So, before you get started, I really think saving money and learning how to budget is so important in this industry.

Brandon: Do you have any tips for people who are struggling with that? Because a lot of people listening right now are saying, “Well, Kara, I make $3,000 a month and I spend $3,000 a month. So, what am I going to do? This is just where I’m at.”

Kara: I would start writing down what you’re spending your money on. I think even simple things go so fast. So, you’re spending $5 here, $3 there. It adds up at the end of the month. So, just by writing down what you’re spending your money on, I’m sure there’s budget apps too. You’ll start to spend less because of that. You’ll see where your money is going.

Brandon: Yeah, that’s smart. Yeah.

Kara: And then also, don’t buy something if you can’t afford it. We have credit cards and so it’s so easy to put something on your credit card and think, “Oh, I’ll pay it later.” But if you cannot pay off your credit card at the end of the month, you have to cut back.

Brandon: Yeah, it’s pretty amazing just by, like you said, write it down. It’s such a good tip. Like when I was really struggling with debt back when I was like in my early 20s and I was spending way more than I was earning. Just the act of writing down and knowing where my money was going instantly made me say like almost $2,000 a month difference of what I was spending versus not.

Brandon: I didn’t even have to get all weird about it and like … I mean, I got weird about it. We got like envelopes and stuff and give ourselves a budget, but I didn’t have to go and eat out of a trashcan or anything weird like that. It was just knowing where my money was going. I didn’t notice a lifestyle change. I didn’t have to drive a worst car or anything. Just knowing where it was going is amazing.

Brandon: So anyway, that would be my advice as well. And of course, we have an entire podcast, like an entire show, multiple episodes, whatever. I don’t know, it’s 100 episodes now have BiggerPockets Money. So, if people are listening to this and they’re like at that phase of their life where they’re like, “How do I save more money? How do I make more money?” The BiggerPockets Money Podcast is an awesome show with Scott and Mindy, so definitely check that out.

Brandon: Now, Kara, from here you’re talking about you’ve saved money for the first deal. You made some money on it. You took that profit and you went and bought a Maserati, right? What was your plan with the profit on that first deal?

Kara: So, I didn’t take any money out of that profit. I saved all of that profit, turned it into another house. To this day, that’s what I do, so I still haven’t really pulled out any of my profits. They’re constantly being compounded.

Kara: And after that house, I did another flip and then I thought, “Okay, I really want to do this full time. I’m enjoying this. I love it.” But I was so scared to quit that steady paycheck. I had been working since I was 15 and a lot of times, working two to three jobs at the same time, so that was a true fear of mine.

Kara: So, I thought, okay, before I leave this steady paycheck, I want to get a rental property so I have some form of cash flow coming in. So, by word of mouth, I was able to purchase an off market rental property near one of our biggest universities, so that’s been a great rental.

Kara: However, I was supposed to finish renovations on that during the summer and it went … My renovations went past the start of the school, so that was vacant for about four months.

Brandon: Oh, okay.

Kara: So, that was not fun. And then ever since then, we’ve gotten on track with the school year, but it was nice that I was still working full-time, because I was able to afford those mortgage payments. So, I’m really happy that I started doing this working full-time, because I was able to basically use my day job to fund my side hustle at this point. So, that was pretty big for me. And I was also able to qualify for mortgages, because I was working full-time. So, that helped a lot.

Kara: So now, I have a rental property and then on my third flip, but my fourth property, I thought, “If I’m going to do this full-time, I need to learn more about construction.” So, this house was really pivotal for me. I hired all subcontractors to teach me how to do everything.

Kara: So, my electrician taught me how to wire can lights, switch out all of the receptacles, GFCIs, demoed. I was involved throughout the whole demo ripping up toilets, kitchen sinks. Painted that entire house, removed popcorn ceilings, you name it, I was doing this.

Kara: And I would go to work with paint on the top of my hair, like drywall on my arms because I was at my project for so long. Like every day, I was there a little bit longer and then I would go work full-time after that. So, this project, as you can imagine, took a long time. It took much longer than hiring a general contractor.

Kara: I was still nervous to jump into this full-time. So, I started applying to different jobs that were a little bit more in the industry. I applied for a job at a tile showroom and I didn’t get that job. I applied to work for a local builder who … It was a very entry level design position and I didn’t get a call back. He simply said, “No, you don’t have enough experience.”

Kara: And ironically enough, we actually have a house. I have a house on the market now and he’s finishing up a build just right around the corner. So, I know he’s going to use my comp, which is really funny.

Brandon: That’s funny.

Kara: But I kept getting all of these nos. And at this point, I’ve been at my retail job for almost five years without a single raise. No raise at all. And rather than taking all of these nos and getting turned down, and rather than looking at that as people putting their worth or telling me what I’m worth, it almost motivated me.

Kara: It motivated me more to, “Okay, I just have to do this.” So, with a huge leap of faith, quit my day job, finished this house. And I made the least amount of profit on this house, but I learned the most. I learned so many lessons on this house.

Brandon: I’m curious. I love the idea that you wanted to learn how the construction side worked and you want to get in there. Are you glad now you did that because you learned all those skills? How does that benefit you? And for those people listening, how would it benefit them to learn just the basics of how construction works?

Kara: Oh my gosh, it was huge. It was absolutely huge for me. And then going into the next project, I took a lot of skills that I learned and applied them to the next project. I just can’t even stress enough how important it is to know, even have just a general knowledge of what your contractors are doing.

Kara: Anytime I leave a job site, I make it a habit to ask subcontractors a question. And so you’re walking away with an education. So even if you can’t work at a job site full-time, it’s so important to ask questions.

Brandon: Yeah, that’s really good.

David: People ask me this a lot. They’ll say, “How much do I have to learn about this part of investing?” Appraisals, construction is obviously a big one. That comes up a lot. Number crunching. And what I’ll usually tell them is you only have to learn as much as you personally need to feel confident.

David: If you’re somebody who just, “You know what, I have the basic gist of it, I’m good.” Then focus on the thing that you’re really good at or focus on getting the deal and you’re good. But if you know personally until you know inside and out what they’re doing, you just won’t take a step forward. Well, then that’s how much you have to learn.

David: And it sounds like for you, Kara, that’s kind of what it was is you got in there, you got your hands dirty, you learn how to wire some things. I would guess from what you’ve shared, you’re a bit of a perfectionist that you like things done at a high level all the time.

David: And so people that have that wiring need a little more insight and hands on this with what’s going on to feel comfortable. But once they feel comfortable, those are the ones that are the most successful, because they have a high standard and they drive really hard, and that’s what you did.

David: You haven’t said, “I demanded that they pay me for teaching me.” Or I went in there and I said, “I’m not going to work for free.” You jumped into the world that you were maybe obsessed with is the right word but very interested in that you wanted to learn more about. And you played around in there until you felt comfortable and then, boom, you started flipping houses and it really can be that simple.

David: It doesn’t have to be something where everybody needs the same step by step thing to follow. I’ll hear people say, “Do I need to get my real estate license? Do I need to get my general contractor’s license?” Hopefully you don’t need that much reassurance. You can just like have someone show you how they wire a light. “Okay, I get it now.”

Kara: Right. And I think even just knowing small things, it builds your confidence along the way.

Brandon: Yeah. That’s so true.

David: And that confidence is what matters, right? Because when you feel confident you will take action. And taking action is what Brandon and I are constantly telling people this is what’s going to build your wealth. This is what’s going to make you successful is taking action, because that’s where you learn.

Kara: Right. Yeah. For sure.

Brandon: All right. So, what happened next? You quit the retail job, you jumped in full-time. All smooth sailing from then on? What happened next?

Kara: Oh my gosh. As soon as I quit my job … So now, I have to get hard money. I can no longer get these loans, obviously. So now, I’m using one of the most expensive forms of getting money. So, I get this house and it was built in 1955 and I think this is going to be great. It will be just an easy flip, and it was my hardest deal to date.

Kara: Everything that could have gone wrong went wrong on this property. Okay. So, I have hard money. I have to pay this loan back in eight months. And I think, “Oh, this will be a piece of cake.”

Brandon: Easy.

Kara: Easy. So, we start doing demo and one of the main things … I think it might have even been the top line item on my contractor’s bid was to pull a full remodel permit. So, I think, “Okay, great. We have the permit pulled. I paid for it.”

Kara: And we’re into the remodel just enough where the dumpsters are gone. We’re starting new framing, and so we’re pretty into it. And then we get shut down by the city. And my contractor calls me and he said, “We got shut down. Something is wrong with our permits, but it’s okay, we’ll get it fixed. We’ll get it all figured out.”

Kara: Four weeks go by. And it’s a stop work order. Nobody can be on the job and I’m paying hard money. So, this is costing me a lot. So now, we’re back on the job site and it turns out those permits were never pulled. And my contractor hits me with a $40,000 change order because now, we have to redo concrete, redo framing, redo electrical, redo some plumbing.

Kara: And he’s saying, “If you don’t pay this $40,000 change order, I’m pulling everyone off your project.” And I said, “I’m not paying anything until you’ll meet me at the house and we’ll talk about this.” So, we meet at the house and basically there were a few change orders that the city added on like hard wiring, smoke detectors. So, those kinds of things. I said, “Yes, I’ll pay for that. Absolutely.”

Kara: But a lot of this boils down to if we had, had those permits in the beginning, none of this would have happened. We would have had inspectors on site. And that was such a tough lesson to learn. So now, I will either pull my own permits. Now, if I don’t pull my own permits, I’ll make sure that they were pulled going on the city’s website.

Kara: So now, we’re finally done with this remodel. There were a few other things that came up. They removed the wrong exterior wall. I walked on the job site. As they’re just finishing, taking down some masonry and I’m like, “Oh my gosh. No.” So, that was a tough one.

Kara: And now, it’s under contract. And the inspector for the potential buyer scares the new buyer by saying there might be a subterranean leak, and I did this polished concrete floor. It’s a beautiful polished concrete floor. And the inspector is telling the buyer, “Yeah, you might have to rip all of this up in the hallway.”

Kara: And I’m thinking, “Why would you say something like that?” And it turned out it was a leak in one of the exterior landscaping valves. And it just totally ruined the deal. So, a few weeks go by, it goes under contract again and it closed two weeks shy of that eight month period.

Brandon: I bet you were sweating.

Kara: Yes.

Brandon: What was the plan if it didn’t go? What were you going to do if you didn’t get it done on time?

Kara: You know what, that didn’t even cross my mind. I just thought it has to sell, it has to sell.

Brandon: It has to go.

Kara: Yeah. That was such a tough house and I just thought, “Well I don’t think any other project could be this hard.”

Brandon: Yeah.

David: There’s so many things you can learn when you tell stories like this. I love listening to these case studies. What you just had me thinking about is it was a success for you because you got it sold. It was a big win for the buyers of it because they got a great house.

David: The losers were the people who backed out because their inspector told them, “You might have to rip out all of this beautiful floor,” because of a leak that had nothing to do with the house. It was from outside of the house. And it just had me thinking as an agent, this is why I’m bald because my hair has all been pulled out of my head.

David: How many times that will happen? Just real estate agents that are not good, which is in my opinion most of them, will hear that and think, “Oh my God, we have to back out.” Without ever thinking, “Well, what would we have to look into to find out why it’s really leaking?”

David: They won’t look deeper. They won’t take more of an effort. They just feel the emotional fear of, “Oh my God, there’s a leak. This could be a problem.” And they run away as fast as they can, which left the deal wide open for the next buyer, but those people lost.

David: And so the lesson to take from it is when you feel that fear, when you think, “Oh, there could be a problem,” don’t just stop. Ask the inspector. “Well, how would we know why it’s leaking?” “Well, actually, I don’t know. I just find leaks.” “Okay. Who do you know that would know?”

David: And then you find the person who actually understands this stuff and they say, “No, no, no, it’s just a problem from outside.” And you get a good agent who says, “Well, we’re going to negotiate as if it’s a problem with the house,” but we’re not going to worry about it because it’s a problem from outside. We’re going to get some money off of what the seller is asking for, something like that.

David: But just don’t assume like worst case scenario and just that’s it. Do a little bit more due diligence because that first buyer lost a really good deal over nothing.

Kara: Right. It’s True.

David: And I’m sure, Brandon, you’ve seen this all the time, right? I mean, we had a similar issue with your house in Hawaii that we were looking to buy with the loan issue. Like you weren’t able to get the loan and thank God you’re not the kind of guy who goes, “Oh, I guess, the whole thing can’t work. My loan won’t work. Well, what do I got to do to make it work?”

David: And Kara, I just noticed, you have that energy about you that you are that kind of person. That doesn’t say I can’t do it. That says, “Well, what would I have to do to make it happen?” And we stress that a lot cause we see that so often from successful people, that trait.

Kara: Yeah, for sure. Actually right on that topic, there was this house that a wholesaler brought to me and I didn’t know how I was going to fund that house, but I knew it was such a good deal. And so I put it under contract and, yeah, luckily I [crosstalk 00:25:38] the funds to …

Brandon: Figured out?

Kara: Yeah. You just figure it out.

Brandon: I’m such a big believer in the whole like jump out of the plane and build your parachute on the way down. Like, “Well, I got all these things here. I’ll figure it out.” I mean that was kind of the premise of the book. I wrote The Book on Investing in Real Estate with No and Low Money Down, the longest book title in history.

Brandon: It was like here’s all the pieces of the parachute. So, at least you can jump, and then you have the parachute pieces. You can put it together and hopefully you’ll be all right. Because you don’t know until you jump what you’re going to encounter.

David: And I like that you pointed that out, because oftentimes when I hear that, what I think is you’re going to jump out of the plane and find the pieces on the way down and then assemble them, but that wasn’t the case. Right? You did your research, you had the parts that you needed, it just wasn’t 100% there.

Brandon: Yeah. So, on that note, Kara, I want to ask you the question. You quit your job at that point before that deal when you jumped in. Do you feel it was the right time to quit your job? Did you quit too early, too late? And then I’m just wondering like what kind of advice do you have for other people who are in that same spot where they’re like, “I’m making some money in real estate or I’m close. I’m not sure if I should quit or not.” What kind of advice do you have for them?

Kara: I think it was a great time to quit my job, because all of the experiences that I had, had kind of helped me get to that point. Even though that was the hardest house and I really couldn’t have prepared myself more than literally just jumping in and figuring it out.

Kara: And I think as long as you have a little bit of experience going into it, I wouldn’t necessarily recommend quitting your job and trying to flip a house. I would get some experience under your belt and just know that every project is going to have its own set of difficulties and you have to mentally prepare yourself for that because it’s going to happen.

Kara: And sometimes, if I’m in a really tough project, I remind myself that this will come to an end and it always does. Eventually, the house will sell or you’ll get through the renovation. So, yeah, but really, you just have to do it. You just have to jump in sometimes and figure it out.

David: Brandon, do you find that you often have to have similar self-talk to get yourself through those emotional spikes? Like, “This is going to end. It will be okay. I may lose on this deal.” That kind of stuff.

Brandon: Yeah, you too.

David: I think when you’re an entrepreneur, yeah. First of all, you have entrepreneurial bipolarism. Kara, can you relate to this?

Brandon: Yeah.

Kara: Yeah.

David: Where you think like …

Brandon: “Everything is great.”

David: Yeah. “There’s nothing I can’t do. In fact, I’m going to go do this thing next and like Elon Musk better be careful because I’m on a roll.” And then literally, the next day, you’re like, I can’t show my face to the public. I’m such a sham. They’re all going to see through me. I suck at everything. I should just beg for my job at the bank and see if … I will eat the ham sandwiches out of a dumpster like what Brandon was saying.”

David: And then two days later you’re like, “Back in business. We got another one in contract. I’m a genius.” And so that’s part of being an entrepreneur. It makes you feel crazy. Then you have like the schizophrenia where you’re talking to yourself like, “Nope, you can do this. That’s okay. Brandon says he messed up on a deal too. Hang in there. This is going to end. You just learned something or, “Hey, don’t think that you’re a big deal.” That can also happen.

David: You’ll get a house and the ARB could be up to 800,000 and I was planning on 700,000. I’m going to make 150 grand on this deal, right? I should be teaching my own course. And you got to talk to yourself like, “Hang on.” You don’t know that’s going to happen, right? It’s not just me. You guys have the same issue?

Brandon: Yeah.

David: Okay. Yeah.

Kara: [crosstalk 00:29:09].

David: So, everybody who’s listening … Yes, thank you. Keep that in mind that being an entrepreneur comes with a small degree of craziness associated with it. That’s normal.

Brandon: Yeah. So, Kara, let’s go back to your story. So, at this point now, you’re into the flipping thing full-time. You’re doing it. Did you ever go back and get another job again? Have you been full time since? And then give us a timeframe of how did all this happen.

Kara: Yeah. I’ve been doing this full-time now for two years and this past February. So, I have never looked back. And even my toughest days, I’m so, so thankful to be doing what I do. Yeah. No, I’ve never looked back and I don’t have a second job. This keeps me very busy.

Brandon: That’s great. That’s awesome. So, you’re flipping full-time. Now, how many have you done now in the last two years and since then?

Kara: Well, total, I’ve done 11 deals, but it’s funny. I have an Instagram account too. And so when I started, right when I quit my job, ironically enough, my Instagram page started growing as well, so I’ve been taking on a lot of client projects as well. So, I will help them with full house remodels, kitchen remodels, bathrooms. So, that’s kept me very busy too.

Brandon: That’s cool. Look at you, Joanna Gaines. It’s awesome. I actually would love to do that someday. I have no time for right now, but man, I would love to like just work on other people’s projects where like I don’t … I could do the fun part, the rehab and guide the direction but not lose money, like have the risk. [crosstalk 00:30:34].

David: That’s what being an uncle feels like.

Brandon: Oh, there you go.

David: I show up, I play with Rosie, she laughs then she’s in a bad mood and I give her back to you and I’m like, “Here you go. You can have her.”

Brandon: That’s exactly it. All right. So, you’ve done these now. I mean, I’m sure you’re making more than you were at your previous job. What’s the future look like? Where are you headed? You’re just going to do more and more flips then? Are you getting into rentals, more rentals? Because you had the one, right?

Kara: So I have three rentals now. So, I do want to continue to grow my rentals. I still love the fix and flip model. I have a lot of fun with it. So, I wanted to continue to do that, but also get more into multifamily as well. So, the multifamily would definitely be buy and holds and just grow my rentals. So, my goal for next year is to have seven additional rental properties, so a total of 10 by the end of next year.

Brandon: Okay, that’s awesome. Now, how are you finding deals to get your deal full? You mentioned wholesalers earlier and a Zillow one, but what else are you doing?

Kara: So, I still find 90% of my deals on the MLS.

Brandon: Really? What market by the way are you in?

Kara: Oh, I’m in Scottsdale, Arizona.

Brandon: Okay. It’s a big market and you’re still finding MLS deals.

Kara: Yeah, it’s a big market.

Brandon: How?

Kara: It’s very competitive.

Brandon: What are you looking for?

Kara: Well, I have my certain areas that I invest in. So, the reason I like investing in specific areas, I can run the numbers really fast. I know what a good price per square foot to purchase is, and then when I’m going to exit at as well.

Kara: I know those areas so well. Six of my flips were in like about a three mile radius from one another. So, I look for that. I look for ways that I can add value on a few different homes. I’ve purchased them as like a three bedroom home where I was able to convert it into a four bedroom. I did that also with a two bedroom home. I was able to add a third bedroom. So, looking for opportunities that other people are missing and just putting in offers. You never know what someone is going to accept.

Brandon: Yeah

David: Do you mind if I bring in an agent perspective into why I think this works in Scottsdale?

Kara: Yeah.

David: From the long distance perspective of where should you invest. This is working really good for you Kara, because in Scottsdale, there is a big discrepancy between home prices. You could have a house that smells like cat and dog food that sells for 350,000. And in the same neighborhood, an upgraded one could sell for 525 to 550 because of where your price points are, and you’re dealing in a more affluent area.

David: There is a very big discrepancy. People that have a lot of money will spend a lot more money or really borrow more money to buy a house that’s already fixed up. Whereas if you’re dealing with houses that cost $60,000, maybe the spread would be between 60 and 70. It’s very hard to make that profitable then when you have six figures in between.

David: So, you can buy houses in the MLS when you have an eye for what you will do to add value, and that’s exactly what you said. Adding bedrooms, adding bathrooms. Obviously, you have a rehab background. So, for people listening that would think, “Well, I can’t invest in Scottsdale. It’s too expensive.” That’s a good thing if you’re looking to go in there and add value.

David: If you’re looking for a turnkey thing, that would probably be harder. It’s going to be harder in those higher price points to just walk in and buy something and make money. Do you want to comment on that?

Kara: Yeah. Well, I mean, for Scottsdale too, we have a really good Airbnb model. We have so many events going on and our weather is really nice in the winter. So, we have a lot of great months where you can rent them out too. So, having different exit strategies I think is really important.

Kara: So, if for any reason, I’m not going to be able to flip the house, I kind of know in the back of my head, “Okay, if something goes wrong, I can always hold this property.”

Brandon: Yep. I love that strategy. I mean, I make this comment a lot that I’m not afraid of a recession. I’m not afraid of not being able to flip a house correctly because the market changes, but I’m always preparing or asking myself, “Well, what if it does happen? What if a recession does happen the next six months or it starts while I’m in the middle of this flip?”

Brandon: And I want to make sure I have a couple options and Airbnb can be a fantastic way to say, “Okay. Well, if it doesn’t sell or I can’t get the right …” I got a condo that I’m working on out here in Maui. But I’m like, “Yeah, you know what? Since working on this project, the comps are dropping.”

Brandon: And that’s not exciting. I’m like, “Oh, man.” Like every time a new sale goes, it’s a little bit less and I’m like, “There goes my profit every time.” But I’m not worried because I’m like, “Okay, well if it doesn’t work, it’s zoned for vacation rental, so I’ll just vacation rental it for a while and get the profit again someday.” So, yeah, that exit strategy thing is smart.

Brandon: And I find Maui is similar to probably Scottsdale, we’re a little bit higher price point where. Or like, David you said, there can be a little bit more spread there where there’s a little bit more emotional ability.

David: Volatility?

Brandon: Yeah, emotional volatility. That’s a good word. I mean, yeah, when I bought my house, it was like $1.7 million right? Would I have paid 1.8? Probably. Or 1.6. It’s all just a big number at some point and I love the house.

Brandon: Yet, If I was at like $60,000 would I pay 160 for a house? No way. Like that $100,000 difference is crazy. But at the higher price points. Now, I don’t think Scottsdale is one and a half million for most of the houses you’re doing. Are they? Or Cara, what kind of price range are you in?

Kara: No. I’m usually entering in the 400,000s and exiting, I don’t know, mid five, sometimes mid six, depending.

Brandon: Okay. I’m wondering, what’s the most difficult part today for you of flipping houses? Like what do you struggle with the most?

Kara: That’s a good question. That’s a really good question.

Brandon: I’m a good question asker. I’ve done this a few times.

David: I was thinking the same thing. Like, “Wow, Brandon.” Every once in a while, you just [crosstalk 00:36:16]. Totally redeem yourself.

Brandon: Well, some people, they have this what’s really, really difficult for you or just one thing that just weighs heavy on your soul. You’re like, “Oh, I just don’t like doing that.” It’s something that I might be like, “What’s the best part?” And for other people, it’s like the opposite. So, I’m always curious of what do you just get a lot of joy out of one you just not enjoy doing?

Kara: Well, I really enjoy a lot of it. So, I think, probably … Okay, I know what it is. I’m very picky on the deals that I’ll take. So, I look at a lot of deals and I say no to a lot. I’ll say yes to a few.

Kara: So probably, taking on more deals at a time. Like if I wasn’t as picky, I might be able to do more deals. So, that’s the toughest part. But once I find a deal, it’s usually pretty good, I’m taking it on because I think it could probably be a pretty quick rehab. Yeah, I don’t know.

Brandon: Yeah. Okay. Well, how about this one. I’ll expand on that a little bit. On what you just said, how big is too big of a rehab? Like would you do a $300,000 rehab where you have to go and spend 300 grand and spend nine months working on it? Or are you strictly paint, carpet?

Kara: Yeah. I wouldn’t take that on right now, because I don’t know necessarily what the economy is going to do next year, so I’m doing more quick fix and flips. But no, we’ve done rehabs where they are over 100,000 and additions and that type of thing, but yeah.

Brandon: Okay. All right. And then finally, I’m wondering in the future. Do you plan on building more of a team around you and who do you have right now in your team? Are you running everything or do you have employees yet? What does that like now and where do you see that growing to?

Kara: I definitely want to hire more employees. I want to hire someone full time especially to help me more with the design, the client facing aspect of it. Right now, it’s pretty much me. And then I have some part time employees as well. One of them being my sister, which is so nice. She’s finishing up design school, so that’s so great because she can do my CAD renderings and sketch up.

Brandon: That’s cool.

Kara: So, that’s really nice. But I definitely need to build more of a team so I can do more projects at a time.

Brandon: Okay. Sorry, go ahead, David.

David: Go ahead.

Brandon: Well, I was going to say, on that note, I’m wondering. You said she can help with some of that stuff. And you obviously have a lot of skill. I mean I’ve seen your Instagram, it’s awesome. Your houses look great. Where do you get your inspiration from? How do you decide, “Oh, I’m going to do this color, this design?” Because you got a very unique, really cool looking style. What are you good at?

Kara: Oh, thank you so much. It’s funny, because every house feels a little bit different to me. If the house has a certain structure and I kind of go off of that. I’ve done a house where it had a very modern Spanish feel. I kind of ran with that, but I definitely like trying new designs. So, it’s not something that I could make a design for before I have the house. I couldn’t do that.

Kara: And I love traveling, so I get a lot of inspiration from travel and especially with tile patterns and colors, that type of thing. But I get a lot of inspiration. Even restaurants. There’s a lot of cool restaurants here and the unique things that I like to implement into my designs.

Brandon: That’s cool.

Kara: I think it’s just [crosstalk 00:39:35].

David: Do you have any advice for Neanderthals like me that just don’t pick up on that at all?

Kara: Yes. Probably just …

David: Hire you?

Kara: Yeah. Hire me. Call me.

Brandon: No, I actually think that idea that if you suck at design or you don’t like design, yeah there are people out there who that’s like their favorite thing in the world to go help you design your property. That’s one of those roles that should pay for itself like 10 times over, you hire the right person.

David: I’ll tell you how I’ve overcome that, because I literally feel colorblind often time when I’m doing a rehab. I just know what would look good to me, but I have zero faith until I became an agent and I saw enough homes and then you just get this generic idea of what to do. But anything outside of those lines, I’m not confident that what I like is what people would like.

David: I ask people when they hear I’m interested in real estate, what you look for is a person who says, “Oh my God, I love real estate.” And I would say, “Why?” And they say, “I’ve always wanted to be a home stager.” Why anyone wants to be a home stager never makes sense to me. You don’t make any money doing that. That’s like the hardest thing to do.

David: But now, when I’m like, “Oh, you’re the person that I need to walk through my flip and tell me what color that should be, what material I should use.” I saw you smiled, Kara, when I said. Have you come across people that are the same way?

Kara: No, but I enjoy staging my flips. That’s funny.

Brandon: Yeah, there you go.

Kara: But I would say, if you really have no idea what to do, don’t do anything crazy. Just keep it simple, because a lot of home buyers will be able to kind of imagine themselves living there more if it’s simple.

Brandon: Yeah. So good. So good. All right. Maybe one of my last questions before we kind of move on. I’m wondering about like managing these rehab projects. Can you walk us through kind of your process? Like what does that look like in terms of … Do you create a detailed scope of work? Do you do some kind of software for that?

Brandon: Do you just have an Excel document and then you give the whole thing to a contract? What does that look like on a broad scale of how you handle it to make sure you’re not over budget over time and you get contractors actually giving you good bids?

Kara: Yeah. So, the budget and the timeline are so important to me. So, when I’m walking a project with the contractor, once we have the deal, we’ll determine a date that’s fair for both of us for completion. And this has kind of been something new and it’s worked out really well.

Kara: If we go over that completion date, I’m charging him X amount. It’s coming off of his final bid. And then on the contrary, if he finishes early, he’s getting bonus out each day that he finished early. So, there’s an incentive on both ends, and that’s worked really well.

Kara: And then as far as budgeting, I pretty much know going into the project how much I’m going to spend per square foot. So, that’s based on the typical finishes that I use, and that’s kind of evolved. So, that also just kind of comes with experience and knowing what things cost, but those are really important. So, I’m always staying on budget by doing my Excel spreadsheets and those I just simply do on Excel and those are always up to date.

Brandon: Yeah, that’s fantastic.

David: I’m so glad you mentioned that technique about paying them extra when they finish early and having it worked out contractually to where they’re going to have to take less for being late, because that’s the same way that I do it.

David: And I get a lot of people that come to me and they say … Because I’m sure you get the same thing. “Help. I’m in up to my neck. The contractor is not returning my calls. It’s so horrible. How do I fix it?” Oh, it’s really hard to fix it now without going to court.

David: It’s better to have set it up in the beginning to where that person said it will take me eight weeks. It’s probably going to be six weeks. Eight weeks is worst case scenario. And they agree in writing to if it goes past eight weeks, I will not charge you for this or for that and then don’t pay him until it’s finished.

David: And then on the other side, if they keep their word, pay him extra, bonus him. Give them an incentive to get done, because you’re saving so much money not paying hard money that you can literally bonus your contractor and still come out ahead.

Kara: Right. It’s so true.

Brandon: So I tried to do this one time and I’m going to try … I’ve done it a number of times, but one time in particular I learned a lesson is that instead of giving them like a charging them a per day, it was like, “Hey if you get done by this date, I’m going to give you a …” It was like a $3,000 bonus if you get done by this date, and they didn’t get done by that date.

Brandon: So, the day after, they stopped working on the project and didn’t show up for like six weeks. Just never showed up again. Because all of a sudden they had no incentive anymore to get it done on time, because they didn’t hit their thing.

Brandon: So, then I learned, yeah, do the daily thing. Like, “Hey, I’m going to charge you $100 per day either direction. You get it done faster, you get an extra $100 per day.” Or whatever that works. Instead of a chunk, because then they just walked out and that project took so long. They just would not show up at all, because I became the lowest priority in their life.

Kara: And you’re like, “We’ll give you $3,000 just to get back on my [crosstalk 00:44:23].”

Brandon: Yeah. I’m like, “Let’s put another bonus back in the game.” And the only way I got them is just nagging them everyday like, “Where are you? What are you doing?” And that’s just going back to … Yeah, go ahead.

David: You would have had to not pay them very much up front so that they’re just trying to get. But usually, if they want like 50% up front or something, if that 50% was enough to make them profitable without going back to your job, then yeah, you just entered into this no man’s land where you’re kind of stuck.

Brandon: Yep. Actually, the other problem with that deal was that I was paying the guy basically a good chunk up front and then I paid him throughout the project at different benchmarks. So, the last final like …

Brandon: There was maybe 20 hours of work left at the end. They just took six weeks to get in that and finish that 20 hours of work just because they had no incentive. So, there’s only a little bit of payment at the end.

Brandon: And I learned also that lesson. It’s always you need to be ahead of the contractor, like significantly. He was having, what, $1,000 at the end, not a big deal when you can go make 12 on a roof. If he had, had $15,000 left, he would have showed up and got that done in two days with a couple of guys, and lesson learned.

David: See, that’s why you’re not discouraged, because you just looked at it like Jocko would say, you owned it, and you recognize …

Brandon: Lesson learned.

David: Yeah, I didn’t set this up the right way. Next time I will and then you’ll be good to go.

Brandon: Yeah. It is always my fault. I really believe like every … And I’m not just saying this because of Jocko or because of Extreme Ownership. I can literally look back at every single problem I’ve had with a contractor ever and said that’s my … Like I can clearly see where’s my fault, yet I still make the same mistakes over and over.

David: Yeah, it is. I agree. It’s always your fault. Everything else too. I wish that you would let me help you more. That one time we were in Hawaii and I just took the phone out of your hand and I’m like, “Just let me do this.”

Brandon: That helps.

David: Yeah, but I think … See now, I need to own that. I should do that more because Brandon doesn’t want to just [crosstalk 00:46:07].

Brandon: There you go. You need to just fly out here and come help me work on some flips out here. That’s why I have Greg now. Greg is my flipping partner and he’s just out there talking to contractors and doing all the work that I’m not good at, so it’s great.

David: God bless you, Greg.

Brandon: Yep.

David: Kara, I want to ask you something, because this is just … I’ve known you for a little while. Did we also meet in Nashville or did we know … No, we knew each other because you brought value by connecting me with a lender that you thought would help refinance some of my single family rentals, right?

Brandon: Yes.

David: Okay. I just got scared that, that might have been somebody else. I would have stepped in it right there. So, that was like a really smart and cool thing that you did for me and I just emailed them while we were talking to restart that conversation with my assistant, Tanner.

David: But I want to say, you are clearly skilled at many things, but one of them is networking. I mean all the stuff we’ve been talking about is why you’re good at flipping houses, but you are definitely someone. You don’t spend any money on marketing. You’re not trying to figure out some hack to figure out how to get a deal. You’re just good with people.

David: Can you share a little bit of how you navigate that road of being likable without being threatening? There’s kind of an art form to networking and making people like you that people that are listening that want to follow in your footsteps could start working on.

Kara: Yeah. Well, it started on Instagram and just getting to know a lot of people within the same industry. And I just think it’s fun to help connecting people. Like with you, David, I’m connecting you with a lender and I was at a party actually this weekend and someone was talking about, “Oh, I’m looking to invest in Kansas city.”

Kara: Well, when I was at the BiggerPokcets Conference, I met an investor in Kansas city. And so I said, “Hey, why don’t I connect you with this investor?” And I just think it’s nice to be able to do that for people. Yeah.

Brandon: That’s so good. I mean, just such a simple thing. It’s like how can you bring value to other people and connect people?

Kara: Right.

David: And it wasn’t a silly like, “Hey, here’s the lender. I heard he does deals. Look him up. Here’s his business card.” You actually spoke to that person, told them what my deal was. He said, “Yes, I think I can help him.” You made an introductory email. You offered to help with followup. That is the right way to do it as opposed to, “Oh, I heard Brandon is looking at mobile home parks. I found one on Zillow. Let me send him the link to Zillow. Here you go, Brandon. Here’s a mobile home park.”

David: There’s much less value in that. And I just noticed, Kara, that you’re good with … How did you get a contractor to teach you how to wire an electrical, like a can lighting or recessed lighting?

Kara: Well, I was paying them hourly specifically to teach me.

David: Okay. That’s smart.

Brandon: That’s cool. Actually, you bring up a good point, David, there about the value is not necessarily going on Zillow or going on Realtor, finding a property that’s already listed, throwing it to somebody and saying, “Hey, I found you a deal.”

Brandon: We talk about bringing somebody a deal. That’s a great idea, but I get listings all the time from LoopNet and from some brokers. I mean, I love the heart that people have and that they’re trying to help me and they’re trying to work with me. Then it gets really weird when they want a cut or they want a commission.

David: Of the house they found you on Realtor.com?

Brandon: Exactly. Exactly. And I’m like, “Do you want a partner? Let’s partner on this together.” And I’m like, “I don’t need you on this. I already knew about that property. Now, it’s weird because now you’re going to be mad if I go after it, because I already had it in my pipeline. I can’t prove it to you.” Anyway, it’s weird. Yeah.

David: That’s why we’re giving advice, because there’s a few more steps. Maybe called the listing agent, talk to them. The listing agent says, “Yeah, it’s listed at 500 but we take 425. We need a cash sale.” Boom. Now, you’re bringing $75,000 in value that, that person didn’t have. And that one small step can be a really big difference.

David: And I think, Kara, you probably instinctively understand that better. You’ll probably ask questions of the people you’re networking with. “Well, what are your goals? What are you trying to do?” And then you’ll go through the database in your brain of all the things that you can offer. And when you say you like connecting people, that’s what you’re really saying?

Kara: Yeah.

Brandon: There we go.

Kara: I enjoy it. I mean, it doesn’t necessarily have to be something that you’ll get out of it, I think. It’s good [crosstalk 00:49:58].

Brandon: Yeah. No, it’s so good. No, I think that’s such a valuable point. I don’t want to gloss over this. I want to spend a minute here. It’s like you’re not networking for a transactional thing. That networking should not be transactional. It drives me nuts when people do that.

Brandon: They’re like, “Hey, I did this thing for you. Now, I need you to do this for me.” This is such a transactional weird thing especially if I don’t appreciate necessarily what they did. It can be anybody. You’re like, “I just like connecting people.” You just have a heart that likes to help people and long-term, that will pay, and it has paid off for you and it will continue to pay off for you. Yeah. That’s super cool.

Kara: Good.

Brandon: All right. Well, before we get out of this show, I got a couple more segments I want to get to including the next segment, the Deal Deep Dive.

David: Deal Deep Dive.

Brandon: All right. This is the part of the show where we dive deep into one particular property or an investment you’ve made in the past. A deal you’ve done so to speak. So, Kara, do you have something in mind that we can pick apart?

Kara: I do.

Brandon: All right. So, let’s dive deep into this thing.

Kara: Okay.

Brandon: First question from me. What kind of property is it and where was it located? That’s two questions.

Kara: This was a single family home in Scottsdale, Arizona.

Brandon: All right. David?

David: How did you find this deal?

Kara: I found this deal on Zillow.

Brandon: Oh, okay. You found it on Zillow.

Kara: Yes.

Brandon: Let’s see. I’m looking for my list. Here we go. How much was it? I should have these memorized by now, but I was freaking out a second there. I’m like, “Oh, [crosstalk 00:51:24].”

David: I was freaking out when you just asked me to go. I was trying to find a clue. I knew [crosstalk 00:51:31].

Brandon: Yeah, that’s what I thought. I knew it. Yep, I knew it. I’m like, “I know the question.”

David: Luckily, I hit the bullseye.

Brandon: Yeah, you nailed it. Nailed it. All right. How much was the property like? What were they asking for it?

Kara: Okay. They were asking 330,000

Brandon: Okay.

David: I love how concise your answers are. This should be a case study in how to do The Deal Deep Dive. Way to go, Kara.

Kara: Thanks.

David: Brandon, that’s messed up.

Brandon: I had to write Kevin about that.

David: So, what our producer just did is he went into the questions that we asked people and he changed it thinking I would have noticed to what color was it, which I really almost did start to say. That was really good.

Brandon: Oh, it’s funny. All right. That’s not the question.

David: Now, we have to figure out what the question actually was. How do you negotiate that price of 330,000?

Kara: Okay. I didn’t negotiate that price. So, that was the list price, 330. And when I walked in the home, I saw that there was … Well, okay, I’ll get to that. I’ll get to that in a minute. So, we purchased the house at 3025, and I actually got to meet the owner of the home and she was from Sweden, and we had just got back from Sweden. And so I think she kind of liked that connection, which was really cool.

Brandon: That’s cool.

Kara: And so yeah, she accepted our offer at 3025.

Brandon: That’s awesome. It goes back to David’s point earlier about you’re being good at networking and getting people to like you. The fact that you had that thing in common, you could talk about it. Somehow, you connected those dots and you had …

Brandon: There’s such a thing. People love to sell to people they like. That’s why I always give that tip all the time. I put it in the book on rental property investing and pretty much I tell everybody. If you include a letter with your offer or you somehow make it somehow personal, there’s just a good chance that they’re going like, “Oh, I like that person. I’ll sell it to them.”

Brandon: I’ve done this kind of like thought process. I’m curious, David, of how you would approach this, because you’re not a high I like I am like on a DISC profile. But I’m curious. Let’s say you are going to sell a house. And I’ll pose this to both of you guys.

Brandon: You’re going to sell a property and the property is … We’ll call it $200,000 what you’re going to sell it for. It’s a flip. You’re going to sell it for $200,000 and you get two offers. One is for $200,000. You don’t know the person. One is for $195,000, $5,000 left and you met this person, you randomly stumbled across them, whatever. You really liked them, like whatever.

Brandon: Cute, young couple just starting out or whatever, you just really like them. How much is that worth to you? When I do that thought experiment, would I take 195 versus 200? If everything else is the same, would I do it? Hands down, I know I would do it, even though it’s stuck. What about 10 grand? Where’s that line? I’m curious about you guys.

Kara: Yeah, where does that stop?

Brandon: Yeah, where does that line go? I probably wouldn’t take 20 for somebody I liked, but I know I would take five. I would give somebody a discount of five if I like them. David, what about you? David is probably like, “I charge them more because I like them.”

David: Yeah. Not that bad. It does cross my mind.

Brandon: What number?

David: Maybe I can make them like me and then they’ll pay more if they like me. Yeah.

Brandon: What’s the number David?

David: It’s a funny question you asked, because when I became an agent, I had to literally learn how to be a high I like you Brandon. It does not come easy, which typically means I become better at teaching it because it wasn’t natural. I had to really focus on how this works.

David: And on my team, this is something I’d rather teach my agents. Before you ever talk numbers, I don’t want you to say a word to the other agent until they love you. Call them, compliment the crap out of their listing. Give them credit for the pictures, how they came out. It’s marketed so beautifully. I’m sure you have 15 offers on it.

David: Don’t ever even talk business until their ego is just completely swollen and they love everything about you. Because in this business, like Kara, she’s buying from the MLS, she doesn’t get to talk directly to the buyers or the sellers. You have to go through their agents. So, you have to win over the agent so that the vehicle that this information is coming to the clients through is speaking well about you. “Oh I love these people. They’re blah-blah-blah,” so it’s coming across good.

David: And what I found is … Like we were talking earlier about how … I don’t remember what our example was, but when the 60,000. I would never spend 160,000 but 1.7 to 1.8, I would do that. We learned in psychology that there’s a principle that goes with that where we will drive across town to get gas that’s three cents a gallon cheaper. But when we’re buying a car, we’ll throw on an $800 warranty we don’t need. That’s just how our brains work.

David: And I think that’s part of it. When the seller has a ton of equity in there, that 5,000 doesn’t matter. But if they are only going to be making 12 grand versus 17 grand, that 5,000 is a huge deal. So, that’s one of the things that I ask before we ever get into the price is like, “How much do they owe on the house? What are they really hoping to walk away with?”

David: And if the agent is like, “They just need to get it sold,” then I’m going to be super likable. I’m going to have my clients write an amazing letter. We’re going to put puppies in it. We’re going to do whatever we got to do. Or if they’re like they just want as much as they can possibly get that I’ll follow up with, “Well, what kind of a person do they want to see in the house? Are they working professionals and they wanted the same house to go to somebody else?”

David: So, I know that I did not answer your question at all because for me, I probably don’t care about the person who buys the house. I’m only going to care about how …

Brandon: You don’t think you’d give 1,000 bucks to somebody you really liked? Just think of really somebody you’ve liked that you met and you just hit it off with, “Well [crosstalk 00:56:47].”

David: No, you’re right. I would do that. I don’t think most people would figure out how to make me like them I guess if that really dig down. Like your cover letter, I would just assume you’re trying to play on my heartstrings and I wouldn’t buy it. It would make me more guarded because I’m all screwed up inside.

David: So, if the person figured out how to make me like them, yeah, totally, I would do that. It’s a tip. Kara is good at that naturally. She knows how to …

Brandon: Yeah. She would get you to like her and then you’d give her a $5,000 discount.

David: Which is why that’s a good skill to have because you’re saving money by being likable.

Brandon: Kara, what’s your number? $200,000, you get an offer. For 200, you get one for 195. Would you do $5,000 discount for likability?

Kara: I would do 5,000, for sure. Yeah.

Brandon: Yeah. See? I would too. So, get people to like you, you could save $5,000 on your next deal. Like I really believe that. All right.

Kara: I just don’t usually meet the buyers, so …

Brandon: Yeah, that’s true. Yeah, I usually don’t either, but if you can just find some way to get them to like you, it’s always a great thing.

David: Well, that’s where the agent really comes in handy, because if their agent can get your agent to like them, then that agent is going to say, “Oh, this couple is amazing. They’re going to butter you up. The design was perfect. They wouldn’t change a thing. They think that Picasso designed this house.” And then you’re like, “Oh, okay. I want to sell to them.”

Brandon: Yep. By the way, this was an example, a case study of how hosts should not do The Deal Deep Dive, because we just thought [crosstalk 00:58:04].

David: We wandered very far away from the concise pattern you started us off on. Sorry, Kara, we let you down.

Brandon: Is it my turn next? I don’t even remember who asked the last question.

David: We should let you ask it, because you’re the host and I’m the cohost.

Brandon: How did you fund this property? This $302,000 that you needed plus rehab? How did you fund it?

Kara: So, I funded this with part my cash and then a private money lender.

Brandon: Can you explain that for those who don’t know what a private money lender is?

Kara: So, a private money lender is usually someone who knows you. It’s a family member, it’s a friend, it’s someone who putting a lot of trust in you. And basically, I can use private money for significantly less than hard money. So, we don’t usually have … I’m not paying points up front or a percentage of the loan upfront. I’m just paying interest.

Brandon: Yeah. Perfect. Great explanation.

David: All right. What was the outcome on this deal?

Kara: Okay. So, the outcome of this deal. So, the benefit to this project, because it was on Zillow, a lot of investors had walked this home. And after I closed on this deal, someone actually reached out to me and she said, “I looked at that property and I could not make those numbers work.”

Kara: So what I did, I noticed that there were 12 feet of side yard, so I could build out 10 feet and a full edition the entire length of the house. So, this house was marketed on Zillow as a two bedroom, but it was two beds plus an office. So, that’s an easy third bedroom, add a closet, reframe a doorway.

Kara: So, I have three bedrooms and then we built 820 square feet onto the home. So, we added a huge kitchen. So, completely removed the existing kitchen to the addition portion and created an interior laundry room, a fourth bedroom, a powder room, and a little dining nook.

Brandon: Wow. What did that cost like? What was the rehab budget on that

Kara: The total rehab budget was 135,000 and we came in at 139,000.

Brandon: Oh, not bad.

Kara: So, that was really good, because there were a lot of things that came up, we ended up replacing the entire duct system and a new AC unit that I wasn’t planning on. So yeah, I was really excited to … That was a big project for us. So, 4,000 above budget was awesome and not included holding costs too.

Brandon: That’s awesome. What was the final profit? I guess, what did you make off it [crosstalk 01:00:33]?

Kara: That was a six month remodel. That sold really fast and we made $92,000.

Brandon: All right. Here’s what I love about this story is that it perfectly illustrates this point. I make it on webinars all the time that real estate is so three-dimensional, yet new investors get into it and they think it is two dimensional. They have like one option, like, “Oh, it’s a two bedroom house. This is what it sells for. This is what it rents for.” Then they applied for rentals, flips, whatever. It’s like, “This is what it is. This is what it’s worth.”

Brandon: Yet, if you start thinking, “Well, what if I did this and what if I did this?” It’s one of the reasons I love the BiggerPockets Calculator, and I teach this all the time. I’m like, “Well, what if you spent 10 grand rehabbing it? Then what could you rent it for? What if you’ve spent 30 grand rehabbing it? Then what could you rent it for? Or what could you sell it for if you add in a little addition?”

Brandon: And that is what in today’s market goes to that idea of Dave and I talk about today, you don’t find good deals. Today, you make good deals. So, where nobody else could even find a way to make a profit out of this, you went and made $92,000 off of a deal nobody else could figure it out because you’re good at the creative, the 3D real estate.

Kara: Yeah.

Brandon: That’s awesome.

Kara: Yeah. Your creativity, it’s huge. When you’re walking into these homes and seeing where you can add value, it’s really fun.

Brandon: That’s cool.

David: And you get that skill from experience, seeing enough deals. You get experience from taking action. You take action when you have confidence and that’s why we go back to do what you have to do, learn what you have to learn to get your confidence built up, because that’s kind of the formula for how to do this as well.

David: And now the next time Kara buys a house, she has this whole set of data already in her brain of, “Well, on this one, we did this. And it won’t work exactly on this house, but we could just tweak it this way and we could make it work.” And now, her mind spots that opportunity where the person who hasn’t taken action doesn’t, and that’s why it’s so important. That’s why exactly why we’re pulling this out of you.

David: Those are the same strategies that I use, Kara. I’m always like, “Okay, this house is smaller than every other house in the neighborhood. How do we make it bigger? How do we add square footage?” You would never do that if every house was already … They’re all the same size. It didn’t need to be.

David: Or if there was a limit on how expensive those houses sell for, it’s never going to sell over 110. It doesn’t matter how big it is, but that works really good in the market you’re in.

Kara: Yeah, for sure. And then on that house, it’s funny too because I staged it and then the new owners bought all the staging. All of my staging stuff because they were going to Airbnb the house.

David: That’s perfect.

Brandon: That’s cool.

David: Yeah. Great job. Okay. So, what lessons did you learned from this deal?

Kara: I think the main lesson I learned was really the value of adding square footage, because it cost me, I want to say, it was about $120 a square foot to do that addition, but then I sold it for 255 a square foot, so you can see where that profit margin is. And I didn’t realize that huge benefit of adding square footage until that house.

David: I talk about that a lot in the BRRRR book that, that’s something you factor into your equation when you’re looking to buy a house is what’s the price per square foot to build and what’s the price per square foot when you sell and the delta between them would be your profit margin. And what you want is areas like yours in Scottsdale with very big discrepancies in home prices.

David: You want a lot of difference. You don’t want every house to be a tract home. It’s harder to make that work in an area like Las Vegas or maybe Phoenix where they have these neighborhoods that are all just tract homes, are all the same thing over and over and over. It doesn’t matter what you do, it’s not going to sell for more than the house next door.

Kara: Yeah, that’s true. We have a lot of tract homes in Scottsdale too, but the areas that I like to invest in …

David: The older ones, right?

Kara: Yeah. They’re old and they have more character.

David: And more differences. Yep. The lot sizes are different. Yeah, absolutely. This is some high level stuff. Thank you, Kara for sharing this.

Kara: You’re welcome. And then also, just the importance of, again, having your spreadsheet and constantly updating it. There’s no way we would have come in at 139,000 for that rehab if that spreadsheet wasn’t constantly updated, because as we’re getting towards the end, I’m thinking, “I can’t spend this on a chandelier or whatever it is. I have to cut back because we’ve spent a little too much in other areas.”

David: Do you have literally like a number and every time you spend money it subtracts from that number like you’re watching a countdown as you get closer to zero?

Kara: No, but I should do that. I should do that way.

David: I was just thinking.

Kara: No, yeah. So, no. They’re all color coordinated. And basically, I have my budget but then I’m just adding everything up, so I know exactly where I’m at, but I like that.

David: I was thinking if you were having to watch like I have 30 grand left and I still have to do this. That when you attempted to make the decision that would be fun but not financially wise, it would impact you emotionally. Like, “No, I don’t have enough room in there. I won’t do it.” As opposed to when you’re just throwing expenses and it’s easy to justify it.

Kara: That’s true.

David: All right.

Brandon: Where I would always fail at that is I’ll go like, “Well I know it was in the budget, but I could probably get a little bit higher price if I do this.” And that is a very deadly game to play, because usually, I just lie to them. I’m just lying to myself because I want to do that travertine tile. And really, I don’t get another penny out of the house. It’s the [crosstalk 01:05:25].

David: And you’re not basing it on any form of objective reason. You just tell yourself that. Yeah.

Brandon: No. [crosstalk 01:05:30].

David: Yeah. That’s actually a very good point to … That’s how people get in trouble is they start justifying things in their head for no reason at all. Your brain doesn’t always help you.

Kara: That’s true.

David: All right. You want to move us along, Brandon?

Brandon: That’s fine. Well, let’s move along. Next segment of the show, it is our Fire Round.

David: Fire Round.

Brandon: These are the questions that come direct from the BiggerPockets forums and we’re going to fire them at you real quick here, Kara. Let’s go here. Number one from Jonathan in Scotts Valley, California.

David: Can you say his last name, Brandon?

Brandon: [Pflueger 00:00:00]. P-F-L-U-E-G-E-R. Thank you for saying that.

David: Thank you.

Brandon: Yeah, thanks for calling me out on that. What do you think of the Redfin, Zillow, Realtor.com, et cetera? As a realtor investor, what is the best way to use these tools, these online portals? Like how do you use them?

Kara: Oh, that’s a good question. I use them a lot. So, even if I have … For example, this just happened. So a wholesaler sent me a listing, which is not on the market, because it’s a wholesale deal. So, I pulled it up on Zillow because I can quickly see what other homes are listed for and I can even go in and see what other homes have sold for on really fast. So, I think that’s a good way to use Zillow. And then also, you can set up different searches. So, you’re getting emails of criteria, of your criteria into your inbox as well.

Brandon: There you go. And I think, as Zillow grows … Like I got a deal one time on Zillow just because somebody just went and made a listing because they didn’t even realize that the right way to do it is to go get a real estate agent. They just see some of the commercials for Zillow. They’re like, “Oh, I guess, I’m going to sell my house. I just put it on Zillow.”

Brandon: So, they just went and put it out and they you went there. List my home and they just put it for sale on Zillow. It was just a for sale by owner basically, so I went and bought it.

Kara: Yeah.

David: Yeah. Nobody else saw it, so you didn’t have much competition. They didn’t have anyone representing them.

Kara: Yep.

David: Thank you Zillow.

Kara: I’m looking at a really good house right now and it’s also up for sale by owner that I found on Zillow.

Brandon: Yeah, there you go.

Kara: I was just driving this neighborhood that I liked, so I put on my navigation on Zillow, so it tracks where I’m at and that’s where I found it.

Brandon: That’s awesome. There you go.

David: All right. Next question is from Andre in Korea. Very cool. From Seoul. When you’re negotiating, do you have a problem offering full asking price right away if you know the numbers will still work? Or do you hesitate because you’re giving up leverage and might be leaving money on the table?

Kara: I would have a hard time offering full price. I think it’s just a mind game. Even if the numbers worked, I would try to get it for less, because you always make your deal when you’re buying the house. So, just in case your budget went over, I would rather. I just want to get it as low as I can.

David: Does that change if the house has been on the market for five days and you’re looking at it thinking that price is really good already?

Kara: I would still offer a little bit less just to get the conversation started.

David: And then see what they counter you at?

Kara: Yeah.

David: Got you. What about you Brandon?

Brandon: It depends on how long it’s been on the market. So my kind of rule of thumb is if it’s like the week of and it’s a really good deal at the asking price and I’ll probably go in an asking price. Or if they give me multiple offers if I know that. If it’s been on the market a while, the longer it’s been on the market, the lower price, the more aggressive I’m being on it.

David: Very good point. Because I know where I work in the Bay area, if you offer asking price at a house that’s been on for five or seven days, the agent might not even return your call. There’s just an expectation here that it’s going to sell for more if it’s a good looking house. So, they factor that in. But yeah, every market is different.

Brandon: Yeah. That’s why you got to know your market. All right, next question from … Oh, your turn, David. No, it’s mine. Robert. You gave me the hard days, didn’t you? Robert Muzyka.

David: I’m wondering if the producer is purposely …

Brandon: Making these [crosstalk 01:09:18].

David: Making the names, hard to watch you struggle.

Brandon: Yeah. All right, Kevin. All right. Robert Muzyka. A real estate agent from Plano, Texas. I’m doing my first flip in quarter one of 2020 using hard money. Do you recommend? And I’m not going to ask you for a recommendation here, Kara, because it’s an LLC question. It’s like a legal question, but I’m wondering what you do. Do you do loans in your own name in an LLC or an incorporation? What do you do on your flips?

Kara: I do all of my LLC. I do all of my flips in an LLC.

Brandon: All right. Good. Me too. I didn’t use to, but now I do.

David: What about the houses that you refinance to keep as a BRRRR?

Kara: They’re in an LLC.

David: Same thing?

Kara: Yeah.

David: Have you found a hard time getting a loan with properties held in an LLC? Are you still getting like Fannie Mae, Freddie Mac financing?

Kara: Well, no, because all of my properties … Since I’ve only been doing it for two years, I still don’t have two full years of tax returns. So right now, I still have to use private money, my own money or hard money.

David: Got you. Okay. So maybe that will be a better question to answer once you’re at the point that you can refinance them into a cheaper loan, then you’ll have learned how that works.

Kara: Yeah. Yeah.

David: Maybe you need to get a lender or somebody on the line that can actually answer that or like a lawyer maybe, because this comes up so often and I think it’s a complex question.

David: All right. Last question from me. From Eli Gilbert in Cleveland, Ohio. Do you have a formula for how much profit you want to aim for in your rehabbing? Obviously, the numbers should change depending on the size of the deal and the risk, but what’s typical for you? And I think by rehabbing, he meant when you’re flipping a house.

Kara: So, I don’t have a formula for that. I will only do a house if I’m making minimum $20,000. That would be like bare bones minimum for me.

David: And I’m assuming that’s like a deal where you don’t have to put very much of your money in, there’s very little risk. It’s like get in, get out real fast.

Kara: Yeah, that would be a super quick flip.

David: And then if you have to put more money in or if it’s a more risk involved, like it’s a longer project, that’s when your profit margin starts to grow?

Kara: Right.

David: Got you.

Kara: And actually, usually, the bigger the risk, the bigger my profits are.

David: Yes. Good point.

Brandon: This brings up something interesting. I’ve never really put a lot of thought into this. I’m going to kind of work through this in my head right now as we’re talking live. But there’s a lot of areas of our life where we say we don’t have a rule of thumb or we don’t have a formula, yet we actually do.

Brandon: And so what I mean by that, and I’m the same way. When I think about it, when I really think about it, I would not do a flip in Maui where I have to go invest $800,000 for 20 grand. I would for 100 grand. Would I for 50? Would I for 40? Somewhere in there.

Brandon: Whether or not we’ve communicated it to our subconscious, to our conscious, we have a formula that we are abiding by. And we do this with all sorts of things in our life. And so I was just thinking about how like one of my …

Brandon: I guess, one thing I’m going to really work towards here in the near future and starting to right now that I say this is formulating or formulizing. Is that a word, formulizing? Those unwritten formulas so that other people then can give go or no go. The other people like an assistant in charge, right?

Brandon: You say, “Hey I got this flip.” I know there’s a rule in my head. Rather than me trying to kind of think about it and emotionally it’s like no. Does it make a 20% blah-blah-blah? If you’re going to spend five minutes, I bet Kara, you’d come up with a formula that actually you probably abide by, and David you probably do too. We just don’t think of it. We just internally do it.

David: Well, what happens is you have that formula deep in your mind, but you’re not aware of it. So, what happens if someone poses a question and your gut tells you yes or no. But if you don’t know what it’s using to come up with that, you just know you follow it. And what you’re describing, Brandon, is a brilliant business tool as you get what is in your head, out of your head. So, it’s not a gut thing.

David: Otherwise, they have to bring it to you because you’re the only one that has your gut feeling. If you create a process or a standard or a formula and you give it to somebody else, now they can answer that question for you and you can almost get yourself out of it. What if you’re tempted to do a deal because you haven’t done one in two months and your ego feels bad? Well, they don’t have those issues, so they’re not going to do the bad deal.

David: That’s a very good thing that you’re pointing out because that’s what smart business people do is they translate a gut feeling into something that can be articulated. They pass that off to someone else and it becomes delegated. And I’ll bet you, if we talk to Kara next year or two years from now when she’s been growing her team, this is all that she’s going to talk about. I knew how to do it, but now I had to figure out how to do stuff. Somebody else had to do it. That was hard.

Brandon: That’s funny. I like this. I’m going to post some more thought in this and this is probably going to be a video on BiggerPockets sometime soon. Because yeah, if we can take these things out of our subconscious and put them into a formula or into a rule of thumb, you can get other people making decisions that you would agree with and less work.

Kara: That’s true too, because it helps for you to step out of your business too. When you have a formula, you can teach someone how to look at deals for you and present them in a way where it makes sense for your formula.

Brandon: Yeah, it’s so true. And, you have less of a chance of letting emotion get involved and you’re doing something stupid. Being like, “Well, my gut says this is going to be a good one.” When really it’s because you really liked the kitchen. Your guts teaching you, it’s lying to you. Really, the numbers work on this. The kitchen is cute.

Brandon: Anyway, yeah, very, very cool. That was a good topic. I don’t think we’ve ever talked about that on the show before, but this is smart. Now, I know they’re like of a home going, “Elementary. Elementary.”

Brandon: All right. That is the end of the Fire Round. Let’s head over to one last segment of the show. It’s our world famous, Famous Four.

Kara: Famous Four.

Brandon: All right. This is the part of the show where we ask you the same four questions that we ask every guest every week. Number one, Kara, what is your current favorite real estate related book or a book that’s made a big impact on you?

Kara: My favorite real estate book is Rich Woman by Kim Kiyosaki.

Brandon: Oh, cool.

Kara: That is Robert Kiyosaki’s wife from [crosstalk 01:15:31].

Brandon: I have not read that.

Kara: I didn’t [crosstalk 01:15:33].

Brandon: Should I read that?

David: Is that why you’re so terrible at being a rich woman, Brandon? You haven’t read the book? I’ve been wondering when you’re going to step that side of your game up.

Brandon: I’m going to work on that. Yeah. Let’s go. Okay. Anyway. Very cool. Actually, I have seen the book in the number of times I thought, “I should read that,” because I could probably learn a lot of good stuff.

Kara: It’s interesting, because she kind of talks about how they started also, but in a very different perspective.

Brandon: Yeah, very cool.

David: Awesome. All right. What about your favorite business book?

Kara: Think and Grow Rich by Napoleon Hill. I love that. The mindset.

Brandon: That’s a great one.

David: How about some of your hobbies?

Kara: So, I like doing anything active. I love working out, hiking, biking, boxing, you name it.

Brandon: Cool.

Kara: And I love travel.

Brandon: Boxing?

Kara: Yeah.

Brandon: If you and I were boxing right now, I have zero skill in boxing. None. I’ve never done it my entire life, but I’m six foot five. I’m like six foot awkward and I got a long reach. Who would win? You or me. You have skill. I’ve got size.

Kara: I don’t know. I know how to Dodge. So, I don’t know. It might be tough.

David: I think most people that don’t practice combat sports just completely underestimate how extremely fatiguing it is. Brandon is asking the question of who would win and I’m thinking in my head, if you just didn’t get knocked out for the first 60 seconds, he’d probably be so gassed that you could just like wait for him to fall and step on his head. It’s just so much. It’s so hard. Because you didn’t you tell Jocko you’re going to start doing jujitsu?

Brandon: I’m actually going today. Well, for those who listened to the Jocko podcast, we did the Jocko Willink Podcast. He called me out and said I had to go do it this week. So, today is Monday. I’m recording this on a Monday and I said I would do it on Monday. So, I’m going tonight.

Brandon: And just to give you a quick Extreme Ownership type thing, he … I told him I was going to do it Monday. Though I looked up this weekend, the gym I was going to go to or the dojo or whatever, closed here. So now, I got to drive because I said I was going to do it. I’m taking an ownership of it. I’m not going to let anything stop me, so I got to drive like twice as far and go to another one that I don’t even know what it is or anything about it.

David: At it Baby BT, it’s very tiring. Just be prepared for that.

Brandon: All right. So, Kara, once I’ve done a few months of BJJ, then you and I will go head to head with some boxing.

Kara: Okay. Sounds good.

Brandon: I don’t know if I’m going to learn how to box, but maybe the skills will come in handy. All right.

Kara: Sounds good.

Brandon: Number four. What sets apart successful real estate investors from all those who give up, fail or just never get started?

Kara: So, I don’t necessarily think there’s one thing. I think there’s a few things that attribute to success. And the first is definitely being your mindset. I think your mindset is everything. So, you have to be willing to accept change no matter how uncomfortable that may be. And you have to be willing to accept failure, because it’s bound to happen.

Kara: And you also have to always want to be learning. Anytime I have some downtime, I’m listening to podcasts, I’m listening to audio books. Even when I’m working out now and rather than listening to music, I’m listening to something educational.

Kara: And the second I would say, it’s also knowing and acting upon your risk tolerance. I think simply by acknowledging what your personal risk tolerance is, you’re going to realize that you could probably take more of a risk than you’re currently taking and then to reevaluate that constantly.

Kara: If you look at any successful entrepreneur, business owner, anyone who’s found success in real estate, their mindset along with their risk tolerance has grown immensely from when they first started.

Brandon: Yeah, so good.

Kara: The third, I would say is being persistent. No matter how small these steps are that you’re taking, if you’re being persistent and taking those steps towards your goal, you will win.

Brandon: That’s powerful.

David: Beautiful. That’s very nice. All right. Well, this has been a fascinating show and I think people got a lot out of it, so thank you for doing such a good job, Kara. For people that want to know more about you, where can they find out more?

Kara: They can check out my Instagram. It’s Beckmann House. And I’m also on the BiggerPockets.

Brandon: All right. Very cool. Very cool. Well, Kara, it’s been fantastic. Thank you so much. And I would encourage everybody to go out and follow Kara because she’s awesome and her Instagram is awesome. So, follow her there and that’s all I got. So, Kara, thank you so much.

Kara: Thank you so much for having me. It’s been a lot of fun.