Getting Your Market, Money, and Mindset Right | 3 Coaching Calls!

David:
This is the BiggerPockets podcast show 511. I would have anxiety if I was around fishermen, especially if they’re catching a lot of fish. It’d be nerve racking to go say, “Hey, could you show me how to tie a knot? I’m a grown man, I don’t know how to do this.” So I wouldn’t do it. Right? I’d find myself, I want to use the fish finder, I’ll steer the boat, I’ll make the sandwiches, I’ll do everything other than have to get out there and be exposed as not knowing how to catch a fish. And that’s what you’re feeling. Okay? Everyone else is feeling the same thing, because very few people have anyone teach them how to fish. But the problem is in business, the one who catches the fish makes the most money.

Speaker 2:
You’re listening to BiggerPockets Radio, simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing, without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

David:
What’s going on BP fans, I am your host, David Greene here on the BiggerPockets podcast today, I’ll be rolling solo today, as Brandon is off on his own doing the same thing I am. So basically we’ve got a new format, we are going to be interviewing different BiggerPockets members just like you and diving deep into specific issues they’re having with their real estate investing business. Now this could be something as specific to a deal that they’re trying to get under contract, they’re trying to work through an obstacle, or it can be bigger picture stuff like how to structure their business, how to hire people, or what to look for in a team. The point is, we are trying hard to figure out how we can better serve you and your goals of owning more investment property. And this show is the new format that we’re grazing to try to express that. Now, Brandon is doing his own. He’s interviewing three people, I’m interviewing three people, what I’d like is for you to listen to today’s show, and then go to the show notes and let me know what you thought.
Now, you can find this at Biggerpockets.com/show511, please go there after you listen and let me know if you like this format, if you don’t like this format, what you’d like to see more of or what you don’t like and we will tailor the show to approach how people want to see it. Now, I’d also like to know who did better, Brandon or I. I obviously would like you guys to say that David did better. But hey, you got to be honest. So if Brandon did a better job, I need to know that too. Today I’m going to be interviewing Carly, Michael, and Katie. Now, they took the step of having the guts to go open up the books as to what their struggles are, what they’re going through, what they’re feeling. It’s very cool how raw and transparent these BP members are. If you feel like you can support them, you want to comment on the situation that they’re in or you’d like help from them, you can also connect with them at Biggerpockets.com/show511. So please do that, reward them for opening up and giving us some great contents today.
Let them know how you can help them, how they can help you, what you thought about the show, let me know how I did and let BiggerPockets know what you want more of because BP wants to give the people what they want. Now, before we go any further, let’s get today’s quick tip. Today’s quick tip is that there are a lot of new and exciting developments happening at BiggerPockets in the coming weeks and they’ve decided to celebrate with a giveaway. They’re going to be giving away the BiggerPockets bundle which has everything you need to finally get into real estate investing. So, what’s included in this bundle? Well, there’s a year BiggerPockets pro, an awesome membership and one of the best ways that you can spend any money investing into your career. A year of the BiggerPockets wealth magazine, and $100 to spend on BiggerPockets books. Hopefully you spend it all on mine. But I guess there’s a couple other books out there too that are pretty good.
To enter just create a free account at Biggerpockets.com, or login to your existing account. That’s all you have to do. This giveaway is sponsored by BP and runs until 9:30 at 11:59 PM Mountain Time. There’s no purchase necessary. Obviously it’s void where prohibited, you must be 18 to enter and if you want to see the full rules, go to Biggerpockets.com/bundle and you can read them there. Okay. In today’s call, I’m going to dig in pretty deep with Carly, Michael and Katie, and we’re going to hear about their specific situations, the obstacles they’re facing, the challenges that they’re having. And I would love if you could listen with the way of trying to relate to what they’re going through. Most of what we talked about today, every single person can relate to and if you can’t, you will at some point in your journey. So I thought that this was a super cool format, I learned a lot from listening to them.
I hope you learn a lot from watching me sort of dissect the situation they’re in and give them some insider advice as to what I think that they can do to overcome that and I’d love for you to go follow along with those people on BiggerPockets, connect to their profile, send them a colleague request, get connected with these folks. And then lastly, if you would like to be on the show, we want to talk to you too. You could go to Biggerpockets.com/david, and submit a video question or a regular question of what you’d like to be answered on the podcast or you can connect with these three and they’ll tell you how they got connected with us and we can have you on a show like this as well. The point is I want to have more connection with the members so that you guys believe this is something you’re part of not just something that you’re peeking in through the window and watching everybody else’s story.
Come on into the house, grab a seat, grab a drink and let’s all talk some real estate. Without further ado, let’s bring in Carly. All right, so Carly, welcome to the BiggerPockets podcast. Glad that we have you here. I understand you’ve got a situation going on that sounds like is mostly location related. Is that right?

Carly:
That’s right. Yes.

David:
So tell me a little bit about what your struggle is and where I can give you some advice.

Carly:
So, right now I have a six unit in Rochester, New York, where I’m originally from, and my strategy was really to kind of acquire small to mid size multifamily properties in a desirable area of Rochester, New York and build enough cash flow to replace W2 income from both my husband’s job as well as my own. And while that has been a really nice experience, so we purchased the property in the midst of the pandemic. So, I’ve been learning a lot over the past year and a half, I’m questioning the market space. And so, Rochester… There are reasons why I purchased in Rochester, I’m from the area, I have a team of people that I trust, I knew that I felt confident managing it remotely. But to be honest, the city of Rochester, Rochester proper has been steadily declining in population for over 10 years. New York is not known for its landlord friendly laws, and the taxes in that area are kind of insane.
So I’m having second thoughts on my initial strategy, I really wanted to be really focused and create a niche for myself, but I’m wondering if my strategy should maybe perhaps shift to focusing on short term rentals in the Poconos, which is something I’ve been exploring recently.

David:
Okay. So to sum this up, you feel like the upside to this area is that you know it, you’re familiar with this area, you know the good parts of town and the bad, and you have a team in place that can help you take action faster. Is that right?

Carly:
Yes. Absolutely.

David:
Anything else that you consider an upside to Rochester?

Carly:
I mean, my family’s there, I have a lot of… A network of people. So, it’s not just the real estate team that I’ve built, it’s kind of the extended family that’s there as well. And I’m considering… Oh, sorry, go ahead.

David:
No, you go ahead. And you’re considering?

Carly:
Well, my husband and I are actually planning to move back to the Rochester area with our kids next year.

David:
That’s good. So you may be able to find some off market opportunities just from word of mouth, because you know people that live there, right?

Carly:
Yep.

David:
All right. And the downside would be sort of more like demographic data. So you’re seeing the population is steadily declining, you’re seeing that the laws there tend to favor tenants over landlords, and that there’s higher than normal property taxes. Is that right?

Carly:
Correct.

David:
Okay, this is cool. Let’s dig into this a little bit. The first thing I would ask is the population decline, does that seem to be a permanent trend, or is that maybe more temporary because it’s COVID related?

Carly:
Definitely not COVID related. I think it’s probably in likeliness more long-term. I suppose that remains to be seen. But I don’t see any major job growth in that area anytime soon.

David:
So would you say that the population decline is mostly employment related, there’s not enough jobs there and people are moving elsewhere for employment?

Carly:
I’m not exactly sure that the big employers in the area or the University of Rochester and the hospital systems as well as Wegmans, the grocery store, and they’ve been in recession times, they’ve been able to absorb a lot of the workforce. So they never really experienced a huge depression like other cities have. But I’m just not convinced it’s going to have the growth that we’re seeing in other metropolitan areas around the country.

David:
And how many properties would you say you get comfortable or able to buy in a year?

Carly:
Probably one or two.

David:
Okay. And you mentioned your goal was to get enough cash flow to get out of your W2, and then from there you’re going to kind of figure out what direction you want to go?

Carly:
Yes.

David:
Okay, this is really good. So a few things to highlight. The goal you have is very important as far as the strategy we pick, a lot of people listening are going to think, “Well, just tell me where to buy?” Well, it’s different. Areas like Indiana have a lot of cash flow, but they’re not going to appreciate, it’s hard to build long-term wealth. Areas like Maui, where I do a lot of investing aren’t going to make a ton of cash flow in year one, but in years, three through five, they’re going to blow out of the water anything else, and they’re going to appreciate. So, because I don’t need cash flow right now, I’m going to be investing in areas where I’m expecting more appreciation both for property value and rent. But if you’re in the stage of the journey, where you just got to get your time back and you want to get out of your job, cash flow is more important.
So the advice I’m going to give you is going to be skewed towards cash flow being the goal, as well as the fact that once you get out of your job, I don’t think you’re going to be done. From what you mentioned, Carly, you seem to have some pretty big goals and you seem like a very talented person. So, once you get out of the rat race, you’re going to want to get into the [inaudible 00:09:50] race or I don’t know something more positive, right? So the benefit of Rochester is that you’re less likely to make a mistake, you’re less likely to buy a bad deal. That’s what I’m hearing. And there maybe even some lubrication as far as getting things moved along, because you’ve got a team there and you know the area. There’s also the component that you may want to live there at some point, which is, brings up house hacking, which we’re going to get into. And house hacking is absolutely a risk mitigator.
It’s one of the reasons I love it, is you get all the upsides of real estate and you mitigate the downside, the only thing you sacrifice is a little bit of convenience, both in the living situation and in finding the deal. Here’s what I think that you should do, you should get a smaller percentage of your portfolio in Rochester. So, if you know that you guys are going to move there, maybe the first house you look for is a primary residence that has a floor plan that is conducive to house hacking. So, this would be something with two levels. I often find houses built on hills work better for this because if you just get a track home that’s two story, there’s no entrance to the top level, the person would have to walk up the stairs of your main house, but you don’t really want when you have a family. But I look for houses that have separate entrances, three levels is even best.
And then your family stays on one level, you rent out the second or the third levels which have their own entrances, this can often be accomplished with the basement. That’s one of the easiest ways is you convert that space or you find space that’s converted. Now what I like about this as you buy it as a primary residence, and you live in it, and you rent out the other one or two units, very low risk associated with that. If it ends up not being a great investment, you were going to live there anyways, so it doesn’t hurt you. It also sort of gets your foot in the door in that market. You can see how well the team performs, you can see how well things go. And if you like it, you continue to scale. Now, what I would want to challenge you out of is from thinking, “do I invest in Rochester? Or do I invest in… Was it Poconos?

Carly:
Yeah, in Pennsylvania.

David:
For short term rentals. Right?

Carly:
Right.

David:
Short term rentals are going to be higher risk, higher reward. What we’re talking about Rochester is going to be low risk, low reward, it’s going to be kind of hard to screw it up in Rochester, but you may not get a lot of gain because like you said the population is leaving and there’s not as much upside. So, if it was me, I would probably set it up to where maybe 40% of the houses I own would be in Rochester and 60% would be in Poconos. Or maybe you could go the other way while you’re still working. And as you get out of your job, that’s when the portfolio shifts more towards Poconos and out of Rochester. But I wouldn’t be thinking one or the other. I would be saying I have a standard that I want to hit for deals in Rochester. And that standard would be harder to hit than Poconos because that area is not as desirable. So the deal itself has to be better because you’re not going to be supported by the outside factors of rising population and rising employment.
So look for deals that are below market value, look for properties that you can make cash flow, look for opportunities for a house hack that you can rent out different parts of the home, or small multifamily that just is a better deal than normal, there’s going to be less people fighting to get into Rochester if it’s like you say, because a lot of people are leaving that area. While doing that also be looking for deals in Poconos that you might be able to have a little bit less stringent of criteria. Short term rentals tend to bring in a lot more revenue. So you can pay more for the house and it’s still a good investment for you then if it’s like an apartment complex, where rent’s going to pretty much be capped, it’s going to go up very slowly, that deal’s got to be much better coming right off the bat. That information being said, what’s going through your head?

Carly:
So yeah, that’s a really good point. I think one of the things that I’ve been kind of worried… Maybe not worried about, but trying to figure out and I really need some help here, is how… I’m trying to build a team in the Poconos, and I really… I know that I don’t want to manage the property myself, so I’m looking to hire a property manager, how can I get that property manager invested in my success in our success? How do I align incentives? And what do I look for?

David:
That’s very tough to do. You got to get to know the property manager pretty well to know what their incentives are. Now, I’ve found since I’ve started talking about the podcast that I own property in Maui, a bunch of people have reached out and said, “I’ll manage it for you, I know short term rentals.” I think that there’s a very big contingent of listeners to the show, and people in general, that have one or two short term rentals that have the system down, but they don’t have the capital to go buy more of them. So, they’re sort of stuck with how fast they can scale, but they have the knowledge that someone like you would want. They have properties in Poconos they’re renting out, they know how to price them, they have the infrastructure set up, the cleaning crews and all the other like buying the supplies and stuff that goes into managing a short term rental, that they should be able to help you with for a relatively low cost because they’re not doing a ton more work, they’re just adding you onto the system they already have.
So what I would do to find a property manager rather than going and paying somebody 30% of the rents or something like that to manage it, is I would find a person that already has properties there. Now you’re leveraging into their knowledge, they know what properties are working well and which properties are not working well. I would introduce myself to them, I would see if they’re open to managing yours. I would learn about their system, then I would use them as a resource when I was looking for deals. When I found the deal that I liked I would say, “Hey, what do you think about managing this one for me?” And if they’re getting paid to manage it, they want you to be in an area that is less likely to cause them headaches or less likely to have a lot of vacancy, because then they got to deal with you asking that question.
And I think you can probably find those people within the BiggerPockets community, within the forums, even people that are listening to the show, there’s people that have short term rentals that are there that are listening, that would probably love to have you pay them to manage it for you. It’s more money than they’re currently making, but from your end, it’s less money that you have to spend a traditional property manager.

Carly:
That’s really helpful.

David:
What do you think about that?

Carly:
I think that’s a really, really great point. It’s something I hadn’t really considered. But as I build my team, I’ll certainly be maybe contacting Airbnb hosts who might be owners themselves and trying to go about it that way. I have reached out to a few people on BiggerPockets, on the forums and elsewhere to hear more about their experiences. So, that’s been really helpful. But I think, what I’m hearing from you is that my overall strategy isn’t terribly crazy, like having this shift of strategy might actually be beneficial, it might be good to diversify my portfolio because I’m not going to get to my goal if I stick to kind of one area and just do long-term buy and hold, I really do need to kind of diversify and take on more risks to get that reward.

David:
But do it in a way that mitigates your risk, right? So you’re not going to go all in on Poconos because that may be just pure risk. And you’re not going to go all in on Rochester because that might put you at a snail’s pace. You’re going to look at your finances and how much money you have in reserves, and how fast you want to get out of the rat race. And if maybe Poconos is going to develop more cash flow to get you out of the job you have that slows you down from growing your portfolio, once that happens, now that gives you a lot of time to figure out where can I find better deals in Rochester? You may end up flipping houses in Rochester, because you don’t want to own them long-term.
You may just realize they’re not going to appreciate as much as something else, but there’s less competition here because of that. So I can find these fixer uppers and then sell them and the money I make there helps me put more of my capital into Poconos for long-term. Each of those markets has something it offers you and a challenge to it, and your goal is to figure out how do I maximize what it has to offer while I minimize the challenge?

Carly:
Yeah, that’s great. Thank you.

David:
Well, it sounds like you’re on a really good path. I appreciate you sharing this. This question comes up a lot as far as where should I invest? And kudos to you for doing your research. You knew exactly what the main employers are in the city. You knew what’s happening with the population, you knew what’s happening with the workforce? Those are always the question I ask people, usually they don’t even know how to answer that. So, I will not be surprised if we talk to you in another couple years and you’ve got a pretty impressive portfolio. If I could buy stock and you currently right now I would before it’s more expensive.

Carly:
That’s my goal. Thank you so much, David, I really appreciate your time.

David:
Thank you for sharing your story. Michael G, what’s going on my man?

Michael:
Excuse me, nothing much, sir. Thanks so much for having me. This is pretty amazing.

David:
Well, you’re pretty amazing. All right, I understand that you’re feeling stuck in two major areas. Can you describe to me what those two areas are?

Michael:
Yeah. So, I think the first one that I’m hoping to get most of your input on is, I’m a fairly new agent in the Columbus, Ohio market. I got my license in April after actually reading Sold and then going through some coaching with Jason Drees and figured out that’s really what I wanted to do. And I went into a very intentionally understanding there was going to be a lot of work, I had no fantasies about making a bunch of money easy or anything. And I find myself understanding why the lead generation and the calls and getting off market deals, and why all that is super important, and why it’s the most valuable use of my time. I just really find myself having some major, major call reluctance, mostly around I think some personal issues of feeling like I’m going to be a bother to people.
So my question’s do you being a successful team lead and rainmaker and everything for kW, have you seen agents on your team kind of battle those same things, and are there any tips or practice mindset shifts that you’ve seen them implement to kind of break through that and go kill it basically?

David:
Now, was that both of the areas you’re stuck, or was that one of them?

Michael:
So, that was one. I guess the other area, sorry, is I’m also trying to get into commercial real estate. And I was kind of curious, but you have experienced in the commercial world dealing with brokers and kind of what makes them good or bad or valuable and kind of what maybe a newer commercial person could bring to someone like yourself and actually be a value and not just be like kind of another person running around trying to sell commercial real estate, basically.

David:
Okay, these are great questions. Let’s start with the first one. You may need to remind me of the second one after I answer it. If I can sum up what I’m hearing you say for your original challenges, you’re an agent and you’ve been told what to do, it’s stop worrying about the tasks that come across your desk and force yourself to be disciplined and focus on dollar producing activities like lead generation, talking to people, getting belly to belly, getting on the phone. Is that more or less the case?

Michael:
Yeah, absolutely. 100%.

David:
Anything I’m missing there?

Michael:
No, no, that’s it.

David:
Okay. Now this is applicable to everybody not just agents. Because if you’re an investor, you should be doing the same things. You should be spreading the word to everybody you know that you buy real estate, you should be talking to people that come across deals, you should be going to try to meet attorneys and meeting CPAs. Meeting property managers, just everyone around you, you want them to know that you’re trying to buy real estate, and we don’t. So first off Michael, what I’ll tell you is if there’s any shame that you’re feeling stop, because 99.9999% of people hate doing this, and the other 0.0001 are complete narcissist, and that’s where they like hearing themselves talk. Okay? There is no answer like, why can’t I do this? It sucks. And I could go into all the reasons that it sucks, but we’re going to get into how you can try to overcome that.
The first thing I’ll say is you’ve never done this before. That’s the main reason this is really hard. Think about every job we ever had in life. My first job was at Baskin Robbins only place I could get to hire me. But I went to Togo’s, then I went to a Mexican restaurant, then I went to a nice restaurant, then a nicer restaurant, and I became a law enforcement officer. Not one of those jobs ever required me to develop my own lead. Okay? At Baskin Robbins, somebody walked in the door and said, “I’ll take that.” And all I had to learn how to do, was get that into a cup or a cone, right? Or maybe make them the coffee machine. I went to Togo’s, “I’ll take that sandwich.” All I had to do is learn how to get that sandwich into their bag, and then maybe do a little bit of cleaning of the restaurant. Right? What I’m getting at here is that in every job we ever had, which is how our brain has been literally designed to operate, we were servicing someone else’s lead.
So when my book sold that I wrote for BiggerPockets, it’s right there, Every Real Estate Agent’s Guide to Building a Profitable Business. I refer to this as a W2 mindset. You’re used to cleaning fish, someone dumps a bunch of fish on you and says clean it, but you never have to actually catch them. And in our heads, what happens is we start to think that’s what work is, it’s cleaning fish. And we complain about the knife not being sharp enough, or the night being too sharp, or the fish not being right, or we just complain about everything, right? But what we don’t realize is someone did a whole bunch of work to catch that freaking fish and brought it to us and all that they wanted us to do was a tiny little piece which was clean it. Then you become a real estate agent, and all of a sudden you are responsible for catching fish.
And what you’re describing is the anxiety, the lack of confidence, the lack of I want to go do it that comes from not knowing how to catch a fish, which is what every human being in the world feels the first time they go fishing. Right? I haven’t been fishing since I was a kid. My dad used to take me he would tie the line. I couldn’t even tell you how to tie a knot. I don’t know how to get… I could cast it, and once he had it on there, I don’t even know how to tie the worm onto there. Okay? I would have anxiety if I was around fishermen, especially if they’re catching a lot of fish, it’d be nerve wracking to go say, “Hey, could you show me how to tie a knot. I’m a grown man, I don’t know how to do this.” So I wouldn’t do it. Right?
I’d find myself, I want to use the fish finder, I’ll steer the boat, I’ll make the sandwiches, I do everything other than have to get out there and be exposed as not knowing how to catch a fish. And that’s what you’re feeling. Okay? Everyone else is feeling the same thing, because very few people have anyone teach them how to fish. But the problem is in business, the one who catches the fish makes the most money. That’s the most valuable part of the job. Finding the client, creating the revenue. So you asked about me as a rainmaker with Keller Williams, that’s just a Keller Williams term for a person who brings all the business in, right? We catch all the fish and we give it to someone else. It took me years to get comfortable being in the role of fish catcher, then I had to watch other people catch fish, then I had to struggle with all my own issues that I didn’t want to have to deal with in order to get good eye catching fish.
So, I relate to you that’s why I’m writing these books, because I remember how difficult it was as an agent to get started. And the same is true for investors that are out there that just don’t want to tell people, “I buy houses,” because they don’t know where their financing is going to come from. And they don’t know what contractor they’re going to use. And they don’t know how to structure the deal. And they haven’t listened to enough webinars of David and Brandon telling them how to do it. So they just avoid it. The first thing I just want to say for people in your position is that you’re never gonna feel natural at it, it’s supposed to suck. It’d be the same as if I went to a yoga class when I got done here. There’s not a yoga pose that I’m going to be able to comfortably hold. I’m going to hate every second of being a yoga class. Okay?
But the only way that I will get better is if I go. So, what we’re really talking about is trying to shorten the learning curve of how bad that’s going to suck. Now what I want to ask you is what is causing you to be hesitant to offer your services to the people who you want to represent buying or selling real estate?

Michael:
Oh, man. What a question! I had a base value understand that I am a pretty good expert of the real estate in my area just from having my own investments here and just from following it constantly. So, I know I can bring value to the people. It’s this… It’s kind of once I’ve met a person and once I’ve had that initial interaction, I’m fine. But it’s that icebreaking first interaction really being bother seems to be my own like kind of personal inner issue. And I don’t know if it helps at all, but I’m actually an 89S, and an 89C on the DISC profile and a 10 of the other two. So, I think I’m battling a little bit of just a natural personality thing, but yeah, it’s a huge feeling of just bothering people that I’m trying to work through essentially.

David:
Yeah. You telling me your DISC profile does help because the majority of successful agents are a combination of I and D. And you’re literally the opposite of that with the S and C. Right? S and Cs tend to skew more towards task oriented things, you’re more comfortable with that. So what we’re really trying to figure out is how do you get over your own natural propensity to believe that you’re bothering somebody and to not want to risk rocking the boat with that relationship? The first thing that I would say is that most human beings are much more self absorbed than what you’re probably thinking. They’re not going to look at you like you’re bugging them, they just care about what do you have to offer me? Okay? The people listening to this podcast right now are listening and waiting for the part that piques their attention and perks their ears that says, “Oh, that matters to me.” Right? The rest of it, they’re not paying attention or they’re talking bad about me in their head, why is David talking so much?
Why are we talking to someone about being an agent? I’m not even an agent. That’s just how human beings are. Okay? So, no one’s going to be looking at this and say, “You’re bugging me,” that’s the first piece of advice I’d want to give you. What you need to do is to communicate in a way that lets them see why your information is in their best interest. And this is advice I want to give to everybody. Okay? You got to figure out a way to communicate to people what we say is communicate your value. But that’s just so general, I don’t like throwing that around show value. It doesn’t help people. It’s more like show why it’s in their best interest to talk to you, to be your friend, to respond to your calls. Find some way that would show them that. Now, you know the area, you know the market, you know what a good deal looks like because you do this yourself. That’s the angle you should be hitting. Okay?
Don’t be like, “Hi, I’m Michael and I’m a real estate agent, do you want to buy a house? That isn’t going to work for people. It would be like, “Hi, I’m Michael, I’m an agent and I also buy here I made a bunch of money from the real estate that I bought, that money allowed me to take a vacation a year that my real estate paid for and blah, blah, blah. My rental pays for my car payment, I’ll never have a car payment for the rest of my life and I could get a new car every three years. Would you ever be interested in having something like that too?” Now that makes people say yes. “Okay, well, here’s what I did. I bought a house, I used a low down payment loan, it’s called house hacking, I put 5% down on this property, I reduced my rent from 2500 a month down to $400 a month, every year that gets better by 200 bucks. So in two years, I’ll be living for free. Plus, all the money that I’ve saved in rent every two years buys me another house with another 5% down payment.
I let my houses buy houses, I’m going to have a whole bunch of rental properties, they are going to go up and…” That right there makes people go, “ooh, okay, I want to do what he’s doing.” And their next question is, “Well, how do I do it?” And that’s where you want to be. Okay? If you can focus on that, you’ll stop thinking I’m bugging people. Instead, I’m opening people’s eyes to something that changed my life that I’m naturally passionate about, right? There’s a reason that vegans talk about being a vegan all the time. And it’s not bad. It’s because they know that plant-based living really did improve their life, there’s a reason CrossFit people won’t stop talking about CrossFit, because they struggled with getting fit, and they found this community that helped them get over that hump, and they love it and they want to tell everybody about it, right? There’s reasons why people talk about the stuff they like. We’re like that with real estate. So just be an evangelist of why real estate has changed your life, and then the guide to take them there.
The last piece I’ll give you on this topic is that most of the time human beings get our confidence from other people. So you see this, like if a guy wants to go talk to someone that he’s interested in like a girl, and she’s into him, and all of a sudden his chest sticks out, and obviously he’s telling these great stories from college, he becomes Al Bundy, right? But if the girl is not into him, his confidence shrinks. And we see this with a lot of stuff. If people feed into you, then you take that energy, and now you feel good, now you feel confident. The problem is, we give away our power when we let other people tell us if we’re successful or not. So, what I want you to do is think of yourself like a firefighter. And it’s not your first day on the job. You’ve been in burning buildings before. And the people you are talking to are rookie firefighters who are looking at that first building that is on fire, and they’re being told we have to go in and rescue a child and they’re scared to death.
That feeling of the heat of the flames and is the building going to collapse on me and I can’t even see in the smoke. I know I was trained to do this, but your training, you don’t even remember what you were told, you’re overwhelmed. Okay? In those moments, people look for the most confident, assured certain person and they just get behind them. They say, “I’m just going to follow you.” Okay? When we look for other people to get our confidence from them, you end up looking at the rookie and saying, “All right rookie, tell me what to do.” And then they just panic. Who wouldn’t panic if that was the case, right? A lot of agents do that with their clients. “Well, what do you want? Do you think you want to buy there?” And the client who is already on the fence and scared about investing in real estate, now they’re running the other way, right?
You’re the firefighter, you’ve been in there, you’ve done this twice now, okay? They can get behind you and you can trust your instinct to lead them into the house and find the deal, or say, “Hey, this isn’t going to work, we need to get out of here right now and go find another house somewhere else. And so if you keep seeing yourself like that, it should help you to feed the psychological barriers that you’re going to have of I just want to be the one to clean the fish.

Michael:
That’s an eye opening. That was so helpful.

David:
Does that help a little bit?

Michael:
So, helpful.

David:
Okay, thank you. The second component of your question had to do with how do you bring value to a commercial broker, or was it more you want to help buyers find commercial property and you’re going to represent them?

Michael:
I specifically joined up on the residential side of things concentrating on the small multifamily, basically because the team lead I found was to your point, the complete polar opposite of me on the DISK profile. So I’m hoping to learn all this from him. And I’m trying to break into commercial, and I’m just… I’m taking a class, and I’m doing the work and I know I’m still new there. But I’m just curious with year of recent experience buying some commercial properties if there were some things that you felt like commercial agents you’ve dealt with do well, or that they don’t do well, or maybe wish they would do better. And maybe a newer agent or a newer broker like myself, if there’s kind of any tips or things you would give advice on having been through a commercial purchase.

David:
Your biggest problem working with brokers in the commercial space, is that they’re constantly putting lipstick on a pig. And everybody who buys commercial property just started listening to what I’m saying, because that’s their experience with, “Hey, what does this deal look like?” And they put the financials together in a tricky way that make the property look like it’s performing way better than it actually is. So I would say the first thing, if you want to work with the whales, you got to be a man of your word, right? If you say, “Here’s the T12, or here’s what you can expect,” it better be what they can expect. If they find that you doctored that stuff a little bit, which every listing agent does, you’re going to lose credibility with them, and they’re not going to work with you. The people who won’t lose credibility with you are probably people that are never going to buy in the first place. They’re just tire kickers, and you’re kind of trying to avoid them.
So that’s the first piece I would give. Here’s the advice I would give to like if I had a son, or my brother was going to get into this space, this is what I would tell him. There’s many benefits to owning real estate. Would you agree?

Michael:
Oh, yeah. 100%?

David:
What’s the benefit that we tend to talk about far and away more than all the others?

Michael:
I feel like it’s a tie between tax advantages and cash flow.

David:
I would… Yes, it’s cash flow, I would say. I hear about cash flow way more than tax advantages. But tax advantages are one of the better reasons to own it. So, your secret weapon should be explaining the deal to somebody and not just pounding cash flow. So I own some properties in Maui, okay. And a lot of people come to me and they say, “Hey, David, I want to buy in Maui.” And I connect them with my Maui team. And then they look at the actual deal and they say, “Oh, the cashflow is going to be 5% a year, I don’t want to buy it.” Okay? They’re done. They’re looking at year one cash flow. When I bought those properties, I was looking at 5% and it has skyrocketed from them just in one year. And in five years it’s going to be so much you can’t even count it, right? And that’s not including the property appreciating, that’s just the money it generates in revenue going up.
They’re looking at just a cash flow angle, and they can’t see outside of that so they miss on the deal. I would say that you should hit on the tax advantages for people that are spending a lot in taxes. So don’t go and say, “I got a great deal, it’s going to cash flow, do you want to buy it?” Say, “How much are you spending in taxes?” “Oh, last year, I spent 150,000.” “What if I found you a way that you could make money and get back that 150,000 that’s legal?” “Well, that would be great.” “Here’s something called cost segregation. Here’s a strategy that smart people like David Greene use to lower their tax bases while growing their wealth.” And you explain to them something like that that they’ve never heard of, okay? Now, if you’re explaining the vehicle to get there is real estate, they’re all yours. And you’re the firefighter that knows how to get them into that property.
If you just go and say here’s the cash flow, here’s your ROI. It looks like every single other deal that they’ve looked at a million times or they’re not interested in. So you got to find the backdoor into their psyche because their defenses are set up on the front door. Everyone tells me to invest in real estate but I could get a better return in tech stocks or something like that. Does that make sense?

Michael:
So much sense. It’s so fascinating.

David:
Okay. And Michael, you have an advantage over every other agent because you actually own the freaking real estate. None of the other agents do. This is why the David Greene team, I think is one of the top teams in Keller Williams because we own real estate. The clients that we’re helping, we are helping from something we’ve already done. My agents own rental properties, they own Airbnbs, they house hack for themselves, they help find houses for me to do that kind of stuff with. So, when our clients come our way we’re not just telling them what to do, we’re showing them how we did it and you’ve got that same advantage. So if I was you I would just be men freaking proclaiming that from the rooftops, everyone should know the Michael Gallagher owns real estate and he can help them do the same.

Michael:
Fantastic.

David:
All right, man. Well, thank you very much for sharing your story. That’s pretty cool. It’s also cool that you’re a fellow kW agent. I was supposed to be at mega camp and speaking this year, but that got canceled due to COVID, so maybe next year I’ll see you there.

Michael:
Yeah, that’d be fantastic. Yeah. If you’re ever in Ohio, come on by the office.

David:
All right man, thanks very much.

Michael:
Thank you for the time, appreciate it.

David:
All right, Katie, welcome to the BiggerPockets podcast. How are you?

Katie:
Great. I’ve been listened to the podcast since it first started. So this is quite an honor to be on the OG.

David:
Well, let me ask you, how do you feel the podcast is now compared to when it first started?

Katie:
It’s definitely evolved. And I’ve enjoyed it all the way along the way. But I love how it’s really ramped up our mindset in the last year or so. Because in my journey, I’ve been really ramping things up and it’s taught… It’s spoken to me.

David:
Yeah, the mindset thing is, nobody wants to talk about that, or they don’t like to hear it, right? It’s kind of like when you go to the doctor, you just want a medicine or a pill to make you feel better, but then the answer is usually you have to get healthy. And that’s a brand and I have found is we can tell people this is how you do it all we want, they’re not gonna actually go do it. The mindset is what has to get in place to actually put into practice all the information that we share.

Katie:
Absolutely.

David:
Okay, so I understand your situation has to do with the obstacle balancing scale and growth with liquidity, because you claim that growth is expensive. And as you scale, a lot of things are competing for cash flow. So, can you walk me through a little bit of what your situation is?

Katie:
We have been investing in real estate actively for about 11 years. And we started doing four plexes, bought them out of foreclosure, fix them up, and rent them to low income tenants and hated it, hated it. But we loved the fixing them up, we loved getting them leased, but we just realized we hated the management part of it. So, we decided to pivot, it was a good time in the market to do it and started doing flips. So for the last 10 or 11 years, our bread and butter has been flips. But we knew ultimately we were trying to create cash flow and all we’ve done is really created a job for ourselves. So, a few years back, we said we want to keep an asset for cash flow that we like. And having the experience we started to learn what we like. We like having something unique, something we’re proud of, we’re full of emotion, even though we’re not supposed to be, that’s just the people we are and we want to do stuff that we love. So we would acquire one asset a year.
And typically, what we acquire are commercial mixed-use buildings, and almost everything we do is in our revitalizing downtown area. Well, when COVID hit, it kind of shook us and gave us a scare. We know real estate’s a cycle. My business partner by the way, the we is my mom, and she’s been a real estate agent and in real estate for 45 years. So, she’s been through the good and the bad. We know it’s a cycle, but we kind of got so comfortable and it became our brand and people knew for flipping houses that we didn’t really want to move away from it. And then COVID happened, and just the reality of this could all end tomorrow made us think we need a more aggressively move towards our goal of passive income. So most of our deals that we do are development deals. So we buy the land, we get it entitled, and then we build something that we love, and then we rent it up.
And so it can be best case scenario one, but typically two to three years before the cash flow comes through. And in the past, we’ve had flips that were able to cover that cost. We’ve never charged development fees or anything to our personal investors. And so now we’re like at a situation where we want to do three, four, five developments a year, and everything competes for your cash flow. The bank wants us as the guarantors to have liquidity on the balance sheet. Every deal we buy makes us more levered, our debt to income looks worse because we only get a pro rata of the income, but we get all the debts since we’re the guarantors. We finally hired our first employee, who is amazing, I don’t know why we took so long to do it, it has been so great.
But I don’t know if I mentioned we’re also the general contractors of our deals. So, now we’ve pushed that on him, and he is overseeing all the projects. But now we have a salary. And so we have to pay him whether it lines up with the fees that we collect or how fast we flip a house. So it just seems like we have lots of things competing for our cash flow, because growth is expensive. So, we’re trying to figure out how do we prioritize them and address them, so they don’t keep us from growing, which I feel like that’s what’s happened in the past.

David:
All right. So when you say cash flow, are you referring to how much profit you show as your income on your taxes?

Katie:
Right. Since we don’t have jobs, our income has been the money we make from our flips, and any cash flow that we generate from our portfolio.

David:
And most of the cash flow from your portfolio is going back into the salaries and the new deals you’re doing?

Katie:
Really, yeah. Yeah, all our money goes back. I’ve never felt… You look at your net worth and you think you’re supposed to feel rich, but you always feel broke is what it feels like.

David:
Yeah, because what you’re doing is you’re delaying recognizing that money and you’re putting it more and more into the future. So your net worth is growing and your upside is growing, but your present is still having to live very thin, which you probably don’t mind, Katie. It sounds more like your ability to get additional leverage or get more loans is inhibited by that fact. Right?

Katie:
That’s right. I’ve tried to tell my kids, we’re not going to have three meals a day anymore to cut them back so they don’t spend as much of money, we’re focused on getting more assets.

David:
All right. And that’s the right play, is you want to be growing your assets to grow your wealth. And I actually like… I was telling my team about this the other day. I do this on purpose. I drive a 2017 Camry that’s been wrecked, not wrecked but bumped into a few times in the parking lot. So it doesn’t look that nice. I wear t-shirts that I buy when I go visit Brandon in Hawaii, I live beneath my means a lot, and I often feel broke. And that forces me to continue valuing money and I keep pushing off the wealth I’m building further into the future. But what I recognized is, I’ve been in the same problem as you, is I wasn’t going to be able to keep getting loans to buy real estate unless I made money now. So what I did was I started additional businesses.
So I have a mortgage company, I have my real estate team, I have a mastermind I run, I have different ways like book sales that I can create income for myself that I show so that I can get loans to be able to buy in the future. And it was sort of that synergistic component that I had to figure out that I think I saw quickly because I was a sports person. So I recognized that in order to get the basketball into the center, that’s near the basket, I needed a point guard that could get it to him, right? Both of those things had to be in place. So one solution for you would be to take the skills that you have right now and we can dig into what those would be in a minute, and see how you can create additional businesses to generate revenue and get those businesses as passive as possible.
Now, if there was one ingredient that would make that possible, building businesses and then making them passive, what do you think that would be? You mentioned it earlier, when you said I don’t know why I waited so long to do this.

Katie:
Other people, who not how.

David:
That’s it. And that’s both the… It’s so clutch crucially important. It’s also very difficult. The reason I am sort of an evangelist for this concept of hire people is that you’ve got an entire listener ship of two million members in BiggerPockets that in some degree want to learn how real estate works. There’s a big demand for people who want to learn and then there’s also demand for people that are doing this at a higher level that need help. And what I really like is connecting those two pieces, because then everybody’s going to win. Now it’s not easy, but I would challenge you to start thinking about kind of the model I put together in order to build wealth in the future I have to have cash flow right now. You’re exactly right.
So these businesses that I’m making, they do put off a lot of money right now, but that’s useless to me unless I reinvest it back into assets. It just helps me get loans to be able to do that. So you mentioned that you’re doing all the construction. Is there any chance you could hire a couple more people like this gentleman you mentioned and start a construction company?

Katie:
Maybe.

David:
Right? There’s a lot of people that are looking up to you. What city are you in Katie?

Katie:
I’m in Bryan, Texas. Houma, Texas A&M Bryan College Station.

David:
Okay, how many people in Bryan, Texas have had their houses appreciate in the last 10 years?

Katie:
A lot?

David:
How many of those people do you think.. How many people do you know that know what you do and respect you and your husband?

Katie:
A lot. We get lots of requests to renovate people’s houses and we always tell them, we only do our own projects.

David:
There you go. What if you could change that? What if you could hire people, train people, build the system, which you’ll have an advantage doing because you’ve already done it with the real estate deals, where you had this construction company that did work for other people, made you some money and literally covered its own expenses with the deals that you’re doing? This is something I’m working on with the David Greene team. And I learned this from what Amazon did. They took every single source of expenses that they had, and they converted that into revenue. So, Amazon had a 2% budget for advertising. Well, they went and they created Amazon Prime, and they could advertise themselves basically for free, because Prime brings in more money than what their advertising budget was.
They had data storage fees of like maybe 5% of their income. Well, they started AWS and people now pay them to store data. So that now is expense written completely after book and it’s been replaced by profit. And you go through that company in every single area where they had to spend money, they started a business that now brings in more revenue than what they used to spend, which means that they sort of operate at an infinite return model. I think you could do something similar to that for your specific situation. Do you guys manage your own properties?

Katie:
We do not. That is what we decided we hated in the beginning. And so we forced ourselves to have a property management.

David:
Me too, I don’t like doing that. But what you could do is find a struggling property management company that has the infrastructure in place, and a person who just is ready to retire. And they don’t want to do that anymore. And you replace them with a person with a lot of energy that wants to learn the real estate business and you buy their company on terms and you pay them over maybe a 10 year period of time, not a lot of capital upfront, and you take over their management company, which is probably already profitable, and you add all the stuff you’re already doing into it. So now that company becomes profitable, and you’ve eliminated your property management fees from the stuff you’re already doing. Boom, two problems solved, you have an income source, and you have less property management fees. Now, the downside of that is you took on another problem, okay? There’s another set of work that you have to do, which only works if you leverage.
And that’s why I was saying the key is being good at managing people, hiring people, finding people. I think the reason more people don’t do this is because they got into real estate to avoid working. And as you’re seeing now, that just is sort of a fairy tale. That doesn’t happen, right? Like it’s just a different kind of work. It’s work that you probably like more, it’s more freedom, you get more… There’s no ceiling on you, but there’s also no floor. There’s no one saving you if you fall, like when you have a job and you come in hung over and you still get paid even if you did bad work that day that a lot of people don’t realize. So, it sounds like your guys aren’t afraid of hard work, it sounds like you’re good there. The next evolution I would think in you growing your business would be to learn how to acquire other companies or start other companies, leverage them out at a very slow, reasonable pace, take the income that those companies are generating for you, use that to be able to buy more real estate.
And if you do it right, when you buy more real estate, you will then feed those companies more money. Okay? So every apartment complex that you buy, feeds your management company makes it more profitable. Every deal that you take on feeds your construction company and makes it more profitable. And then you start marketing this and everybody start seeing what you’re doing. And so now your Instagram DMs are people saying, “Can you rehab my house?” And you start peeling some people off and let them go tile showers and redo kitchens, and you start finding people that are interested in real estate, letting them learn the ropes through your construction company and sort of apprenticing with these people. And you could build a very cool ecosystem of value.

Katie:
Yeah, that’s an interesting idea. Scary, but-

David:
Other than scary, is there any components to that solution that you’re hearing and you’re just like, “No, that would never work for me.”

Katie:
It could totally work. The reason that we probably haven’t done it in the past has been my mindset, and I want to push forward fast and get the job done. And that you can’t really push through custom homes or customers like that. And you can’t push through employees like that. So it’d just be a matter of me growing my mindset and my skill set to slow down and be more patient.

David:
Another quick solution if that’s the road you want to go, maybe an option B. Is you get a key principle in your deals with a huge network.

Katie:
Yeah.

David:
And you just rip them off a piece of it, and they get that and you use their income to guarantee the debt.

Katie:
So, [inaudible 00:47:08] how that works. Are they like part of the GP? Are you giving them a part of that company? Are you giving them a fee? How-

David:
No, they become a part of the GP for this specific deal. Yeah. If you got when you really like, you could take a bunch of these different syndications and put them all into one fund, and they can be the GP for the whole fund. But it sounds like that’s probably a little further ahead than where you are right now.

Katie:
Right. Right.

David:
But there’s people out there whose value they bring is literally their net worth. And if they see the deals you’re doing, and you have a good reputation, they’ll back what you’re doing, and you can just live off of their income until you get more of your own.

Katie:
Yeah. Now, that’s a great suggestion.

David:
Thank you, Katie. Hopefully, you got two options there, I think it’d be cool if you took on option A and you became this person that converted a lot of BiggerPockets listeners into investors and gave them a place to express their own talents. Maybe I’m projecting some of what I’m doing onto you, because I’m trying to have a place for loan officers to come and pursue excellence and help people with loans in a way that makes sense and real estate agents and I’ll have my own construction company at some point and a lot of that stuff I said, but if that’s not the road you want, I think a key principle would help you out a lot.

Katie:
Awesome. Well, I appreciate the feedback and it’s a lot to kind of internalize and figure out where to go from here.

David:
Hopefully you listen to this again, and some more things pop in your head than when I first gave it to you, but I really appreciate you sharing your struggle because there’s a lot of people who are in the same boat.

Katie:
Thank you for your time.

David:
Thanks, Katie.

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