How to NOT Get Scammed on Your Next “Real Estate Opportunity” w/Mike Nuss & Tyler Combs

David:
Hey, everybody. It is David Greene here. As you all know, Brandon’s stepping away from the show at the end of the month. Now, we have some great co-hosts lined up in the New Year, and we also want to take this chance to get to know anyone else out there who’s interested in contributing their talent to the BiggerPockets Podcast Network. If you think that’s you, you can make a submission to our system at biggerpockets.com/talent. That’s biggerpockets.com/talent. You’ll see a few questions and a place to submit a video reel of yourself. Again, that’s biggerpockets.com/talent if you’d like to lend your voice to the growing BiggerPockets Podcast Network.

Brandon:
This is the BiggerPockets Podcast show 548.

Tyler:
Just shrugging off the disasters, the failures, the times you were screwed by other people, and just focusing, very clearly focusing on how to get back on top, how to get back in the game. That has been our key to success is that just dedication of saying, “What is it going to take?” And being willing to do whatever that is to get back, instead of looking in your rearview mirror and being bitter at whatever just happened.

Brandon:
What’s going, everyone? It’s Brandon Turner host of the BiggerPockets Podcast, the show where we teach people that real estate investing can change your life forever. And you’re going to hear a lot about how real estate changed two awesome buddies of mine, their life forever on today’s show and we’re going to get into a bunch of cool stuff.

Brandon:
But first let me bring in my friend, my bestie, and the future full host of the BiggerPockets Podcast in the New Year, David Greene. David Greene, man, it is good once again to be joining you for of our last together shows for a while.

David:
It’s good to be joining anyone that says what you just said about me. I mean, you could do that all that you want. How do I hire a person like you to just go before me and announce me in that same way that you just did?

Brandon:
Well, let me just add to your ego a little bit. So as we jump on this call to talk a little bit ago, me and David to record this introduction, he was wearing a tank top because he was getting his official shirt on that he was wearing for this episode, the one you’re seeing right now. I made some joke about muscles and he flexed his arms. And I’m not kidding. I did not know you were that ripped, David Greene. I’m not even kidding, you guys, I wish I could have recorded it. The guy looks like the Incredible Hulk, in a good way, it was not so green. But man, your working out has made an impact, so good job, man.

David:
I appreciate it. I think I do a better job of hiding anything attractive about me than anybody else that’s out there. It is the best-kept secret in media, I promise you.

Brandon:
Mm-hmm (affirmative). Mm-hmm (affirmative). There you go. Well, if you want to see what I’m talking about, you have to watch the YouTube video this show. But anyway, we got to get on with this episode, we got a lot to cover today.

Brandon:
Like I said, today’s good buddies of mine, we got Mike and Tyler. They’re two awesome dudes that come out of the Portland area. Portland, Oregon, not Portland, Maine. Portland, Oregon area. When I talk to anybody who’s within 100 miles or 200 miles of Portland, they know these guys. They are a major player in that market, they do a lot of different types of real estate. We’re going to talk today about combining flips and rentals to maximize your growth. We’re going to talk about doing some seller financing, then something called land banking. We’re talking about how to vet somebody. In fact, they went through a really crazy, crazy experience of meeting each other in this crisis, being taken advantage of in this Ponzi scheme, and all that. Crazy story, all that, and more coming up.

Brandon:
But first, let’s get to today’s quick tip. All right, today’s quick tip is brought to you by David Greene because I didn’t think of one.

David:
Today’s quick tip is find your perfect partner. As Brandon just complimented my physique, which was very nice of him, he complements me in other ways, and we talk about that on the podcast all the time. Today’s guests complement each other and they talk about how they bring various skillsets into a partnership. So when you’re looking for a partner, a common mistake is that you find someone just like you that has all the same skills as you. And now you have two people who are fighting over the same jobs and avoiding the same jobs. You’re actually looking for the opposite. So to sum that up, look for someone that’s going in the same direction as you with the same values as you, but who has complementary skills than you.

Brandon:
Wow, man, that’s really good, that was good on the fly. Well, all right, well, let’s get on with this episode, and today is, if you’re watching this when it comes out, we’re Christmas Eve eve, right? So we are coming up on the Christmas holiday season. So merry Christmas, happy holidays. And as this greeting card that I bought online says, meowy Christmas. And yes, this is a picture of a cat in a sweater. So, David actually-

David:
It looks lot like the sweater that you bought when we went shopping.

Brandon:
It looks exactly-

David:
Doesn’t it?

Brandon:
Yeah, that’s funny. So I am actually going to… I have this card in my hand here, David. Funny enough, I was writing this card to you when we started when I realized, oh shoot, I’m supposed to be on a call with David. So this greeting card goes to you. So, man- [crosstalk 00:05:01]-

David:
That’s very sweet of you, however… And you told me about this card already, so you don’t think that I’m going to fall for it.

Brandon:
You’re going to fall for it to be great. It’s the greatest Christmas card in the history of mankind. I’m just going to say that one. So I’ll tell people what it is, so I probably won’t send it to each one of you. I found this on an Instagram ad and when you open it up, it plays this.

Brandon:
(Singing).

Brandon:
Can you hear that?

David:
Yes, we can.

David:
(Singing).

Brandon:
And then it doesn’t stop until the battery dies three hours later. You cannot shut off the sound of the meows. So, David, I’m looking forward to you-

David:
I think that’s hilarious.

Brandon:
Yeah, I want you to open that. Or I want you to give it to one of your assistants back here, “I got these cards in the mail for Christmas. Will you just open them all and put them in your office for a while?” Something like that.

David:
Exactly what I’m going to do.

Brandon:
Something like that. Yes, yes. It’s going to be great. Once you open it there’s no going back, it’s hours of meowing.

Brandon:
All right, man, let’s get on with today’s show. And now before we bring in Mike Nuss and Tyler Combs, two good friends of mine that are killing it, anything you want to say, David?

David:
Yeah. Just like your Christmas card, this podcast just won’t stop.

Brandon:
I thought you were going to say it’s like meowy good or something, I don’t know. All right, meow, let’s get to the episode.

Brandon:
Mike and… I forget your name. Tyler? Tyler, welcome to the… I’m just kidding, guys. Welcome to the show. How you guys doing?

Tyler:
We’re doing great.

Brandon:
Man, it is so good to have you. It’s been a year since we’ve been friends and we’ve talked 1,000 times about making this day a reality and it has finally come true, so I’m very excited to introduce you to the world. Everybody of the world of Tyler and Mike, and should be a good time today, so. And in fact, I don’t even know your guys’ story of how you met so I’m going to dig into that today. But first, let’s get your individual stories. Why don’t we start with, eenie meenie miney mo, we’ll go with Mike. Mike, tell us about yourself. What do you do, and what were you doing before partnering with this other guy?

Mike:
Yeah. I was a real estate appraiser so that’s how I got into the world of real estate. I was actually in high school when I started. So, I was an athlete, hated school, wasn’t good enough to get a scholarship or make anything of that. And I got a job opportunity to become a real estate appraiser. Job shadowed spring break of my senior year and then started full-time after that.

Mike:
So, I did that for about five years before I bought my first piece of real estate. I’m a slow learner, not really the most aware person. I’ve since learned that awareness is a superpower, it took me about 20 years to understand that. So that was back in 1997 so I’ve spent more than half my life in real estate now. Bought a handful of properties prior to the big crash, learned some lessons, 2009 wasted 26 grand on a rich dad, poor dad real estate package, which got me into the investing world. I met Tyler in 2010 on Craigslist of all places.

Brandon:
No way.

Tyler:
The personal section.

Brandon:
Yeah. I was going to say-

David:
How many relationships have started there?

Brandon:
Yes. All right, so let’s go to Tyler real quick. Tyler, what were you doing before meeting Mike?

Tyler:
Oh man, I was a youth pastor, a missionary, and then I finally… What was I doing when I met Mike? I was working in some tech job, working from home and I had a lot of free time and so I started flipping houses on a whim right after the market crashed 2009. Everyone seemed to be running away so I jumped in and started buying up REOs. And I found all of my contractors, everything off of Craigslist, which at first I was really proud of, and then I discovered they were all stealing from me, so I had to learn some hard lessons.

Brandon:
The only contractor who has ever directly stole from me, I gave him $5,000 for windows, he pocketed it and never showed up again, came from Craigslist. So it’s a-

Tyler:
There you go.

Brandon:
… it’s a pattern. So then you decided to meet your partner on Craigslist as well. So tell us how did that happen? How’d that go down?

Tyler:
Yeah. I bought an REO that ended up being a… I think it was a three-year legal battle with the city over a flood plain issue and some other stuff. So, I eventually did what every good flipper would do and tried to pawn it off on someone else. So I put it up on Craigslist as a flip opportunity, put all the keywords, motivated seller, willing to owner carry, just everything. So I actually got to know a lot of the scrappy flippers in the area that were combing through Craigslist, and Mike was one of them that called on it. And we had a brief conversation, he asked me all the best questions, and then he wisely passed on the opportunity.

Brandon:
That makes sense. Mike, why’d you pass on the opportunity?

Mike:
Well, I had a business partner at the time and I don’t know that I can say on this podcast the words that came out of my mouth when I hung up the phone. But I felt for him, I had a little appreciation for the struggle he was going through. And yeah, eventually we actually ended up getting out of that project together [crosstalk 00:10:21]-

Brandon:
Oh, I was going to ask what was the end of that one?

Tyler:
Ended up having to sell it at a loss. I ended up having… I resolved it with the city and was able to finish the remodel and sell to somebody. But after all the holding costs, and I had some pretty interesting squatter issues while I owned it over the years, so at the end of the day, it was a pretty significant loss. But we were moving and shaking and with all the other stuff we had going on by that time, so it was a loss we could stomach.

Brandon:
That makes sense. All right, so you found each other and let’s get to… so you find each other, what happened next? How did you end up coming together to decide to work together?

Mike:
Yeah, that gets into [inaudible 00:11:09]. We had met-

Tyler:
Thanks for bringing up that PTSD, Brandon.

Brandon:
Yeah, yeah, no problem.

David:
It’s what we do here.

Mike:
Yeah. So when I bought that real estate package, I cashed out a 401(k) to do that, and like I said I had learned some lessons in the great crash, so I had no money, no credit. What do people that want to do real estate full time do with no money, no credit? They try to become wholesalers. So in 2010, wholesaling was easy to find deals, tough to wholesale. Ended up finding two guys that I was able to wholesale a couple deals to. They saw value in me and said, “Hey, we’re putting together this Ponzi scheme,” for lack of a better term, “We want you to bring all your deals to us.” And they had this little event they’re putting together, I show up at this event, there’s this AV guy named Tyler. And I’m like, “Tyler Combs? Tyler Combs? I recognize that name. Oh, you’re the guy I talked to on Craigslist,” and met him in person at that point.

Mike:
They had conned him into doing the other end of that Ponzi scheme. So I was finding, negotiating, evaluating, and getting all the deals, bringing them to the Ponzi scheme. And then Tyler was going and raising capital to fund the Ponzi scheme. And then these two guys had nice suits, nice cars, boat, nice house. They just essentially made sure there was never any profit to share. And so after dealing with that for about a year, we split off to then form our own partnership and started that partnership with a lot of losses stacked together that we had to build [crosstalk 00:12:43]-

Brandon:
Individual losses that you just brought to the partnership?

Tyler:
Not only that but investor losses that we wanted to make right on. So people that had lent us money that these other guys had stolen from. Took us several years to dig out of the hole and make everyone whole again.

Brandon:
What exactly was the ruse, or the scam, or the scheme? What were they doing? Just taking investor money and then just living on it, was that essentially-

Tyler:
I mean, it was a mixture of mismanagement and then just overspending, taking funds that were meant for projects, and buying boats and cars. And then their books were a mess, but when we dug into them, found out they were just mismanaging a lot of money and then just… It wasn’t all stolen, a lot of it was just poorly managed construction projects.

Brandon:
Yeah, so for those-

David:
Let me jump in real fast.

Brandon:
Go ahead, go ahead.

David:
I’m going to ask you if someone is listening and they’re trying to vet someone who’s raising money because there’s a ton of that out there-

Brandon:
Yeah, that’s exactly where I was going.

David:
… right now, what are some things that they should look for that might indicate this would be a bad person to invest with?

Tyler:
That’s a great question. I’d say that, one, you have to get references from people that have done, actually finished deals. I think that all the references that we got from these guys were from people that were mid-project. So, no completed deals, no one had actually gotten their money back. So I think knowing how old these references are and weighting the references that have been working for say years with the person, those are so much more valuable than someone who just started working with that person.

David:
That’s a great point. So you just want references you can contact who has been paid and they can testify to the experience they had?

Tyler:
Yeah. And then you can audit their books. You can ask for P&Ls of the last several projects, you can ask for balance sheets. A lot of people can be really good at hiding their sins in QuickBooks, but a lot of people are surprisingly dumb at the accounting, and if you have any accounting background, you can sniff out that stuff. If I knew what I knew now, I’d be able to take one look at their books and call a spade a spade.

Brandon:
By the way, maybe we should establish right now. Where were you guys at when all this happened? What city?

Tyler:
Portland, Oregon.

Brandon:
Portland, Oregon. Portland, Oregon, the weirdest city in America, I think. But you got good donuts there.

Tyler:
We’ll take it.

Brandon:
You have a good bookstore and you got good donuts, you have a few good things going for you. I actually love Portland. But today, you guys have quite the empire. I mean, a lot of people, even just earlier, I was talking to my buddy, Gene who’s out here who’s from the Salem area, but he is staying out here in Hawaii with me right now. And I mentioned something about I’m doing an interview today, and I think I mentioned, Mike, your name. And he’s like, “Oh, yeah. Yeah, I just talked to him on the phone a while ago.” He’s the guy you talk to when you have a problem or something like that. You just have this reputation, you guys have a name and a reputation around.

Brandon:
So, I want to get through… Here you are starting, rocky, coming together, trying to form this partnership, to now you’re a player in the Portland space. So walk us through what’s your portfolio, or what’s your business like today? And then we’ll go back and fill in all the gaps.

Mike:
Yeah. So we have a development company that does short-term projects. We have various LLCs that holds a bunch of rentals. We have a property management company, and we have the brokerage. And so we started as investors, and just by taking incremental steps consistently over a long period of time and the compound effect through that, we slowly built a rental portfolio which allowed us to then take control of our own management. By having enough properties there we could afford our own manager. We sold enough real estate, Tyler had a broker’s license, it made sense for us to start our own brokerage. And so then it just snowballs from there, right? And we have a big enough name, enough marketing out there that we get a lot of real estate opportunities. And then we just fit those opportunities into the various buckets that we have based on how we set everything [crosstalk 00:17:04]-

David:
Okay. And what’s the portfolio like? Is it units, or multifamily, single-family, lot of houses, what’s the makeup of it today?

Tyler:
All right. So I’d say our rule of thumb has been to flip the single-family and hold the multifamily. So, almost all of our rental portfolio is small multifamily or a few single families that are tied to other multifamily acquisitions.

Brandon:
All right. So total then how many units does that makeup between you guys now?

Mike:
Yeah, somewhere in the 80 to 85 range. Most of that’s small apartments, we do have some commercial projects, and then a couple single families for land banking purposes.

Brandon:
Land banking purposes. All right, we got to cover that. What is land banking purposes?

Mike:
Yeah. It’s something with zoning that allows a future higher and better use with a building on it that creates an income stream to pay for itself now, right? So it doesn’t have a lot of value right now, doesn’t provide a lot of cash flow, but sometime in the future when either zoning’s going to change or when neighborhood’s going to be ready to be developed, then we can put it to a higher and better use.

Brandon:
That’s smart. So you guys are looking down the road saying, “Hey, 10 years from now this might be a really good spot to put up a parking lot,” or I don’t know, “Sell storage or apartment complex, but right now it’s only single-family houses. We’re going to keep it, hang onto it for the big picture.” Is that right?

Mike:
Exactly.

Brandon:
Ah, that’s very cool.

Tyler:
Yeah, an example of that is our office building is on a zoning where we could build a high-rise structure on it. So we just put as little amount of money as we can into the office, we bought up several things around that were adjacent to it. And later down the road when it makes sense for us, we can build whatever we want there.

Brandon:
Now, what would be the plan? How high is a highrise you want to build?

Mike:
We can go 105 feet, so 9 to 10 stories.

Brandon:
All right. Have you ever built that big yet in the development side?

Tyler:
Not yet.

Mike:
No.

Brandon:
Well, let’s go back and fill in the blanks a little bit. Here you are at the beginning, struggling, not sure where you’re headed… debt, I guess is the best way to say it. And then today you’re this force in Portland. So how did you get there? Walk us through some of your journey.

Mike:
Yeah. I think first off is it’s easier to move forward than it is to clean issues up, right? So we knew we had debts to pay off, we knew we had investors to pay off. So immediately, what do you do? You go find some short-term flips, right? So we got some flip projects so that way we could create some lump sums of cash, pay for our livelihoods, pay some investors back and then start stacking those wins.

Mike:
The way we started building our rental portfolios is through seller financing. So we learned some really, really good seller financing techniques that help us start building a portfolio that then created a chessboard. So I think if you look at real estate, the idea of getting a chessboard, you have some small projects that are your pawns, you have some rooks, some knights, some bishops, some kings and queens, and you build out, get pieces on the board, so you can move them around to fit your ultimate goals. We worked ourselves out of it, it’s probably two years of solid just flipping to work ourselves out of the hole.

Brandon:
Yeah. All right, that makes sense. So then let’s talk about your individual roles in the partnership. What do you focus on, Mike? What do you focus on, Tyler?

Tyler:
Well, so Mike does the acquisitions side of things. So he stirs up the chaos, finds the deals, helps negotiate it with our team, and then he hands off the project. We’re working out our project management systems, but we recently switched where he hands off that project and I manage our team that is going to be doing the actual flip or the construction. And then I handle the dispensation, the selling of the flip, and then he handles the… if we turn it into a rental, he oversees our property management company.

Brandon:
Okay. All right. And how are you finding deals today?

Mike:
Yeah, we have various sources. Deal flow is a… the best analogy I’ve heard is it’s like a bicycle wheel, right? You got lots of different spokes. So we do direct to seller, we do Facebook ads, we do cold calling, we do a lot of referrals, pocket listings. Repeat sellers is always a great example, bird dogs, wholesalers. And so you have to have lots of different spokes on the wheel to create a good enough volume. Because at the end of the day, if you have a good enough volume, it’s really easy to say no. And the ability to say no to a lot of deals ensures that what you’re doing is ultimately going to stay profitable. And so that’s our ethos on how to do deal acquisition.

Brandon:
All right. What’s your favorite?

Mike:
I like direct [crosstalk 00:22:08]-

Tyler:
Favorite type of acquisition?

Brandon:
Yeah. Acquisition process. Is it the Facebook, the direct… I know you’re doing a lot of it, but there’s one that you’re like, “Now, this thing we’re really, really good at.” Or is it all pretty whatever comes in, comes in.

Tyler:
I think we’ve gotten really good at sniffing out the seller finance deals in a way that isn’t… that when we can smell a deal that it’s beneficial to the seller, there’s a lot of motivation for them to do a seller finance deal, and it works for our goals. We can smell that pretty fast, we know how to market to that ideal seller that has a lot of options. And then when they start the conversation and they have a lot of experience in real estate and they’re pretty savvy, then it’s just a really fun transaction all the way through, everyone wins, and there’s not a ton of education or expectations that have to be realigned. I think that’s probably my favorite where you get the residual… the exchange where everyone is winning, and then you’re getting the long-term benefits and the partnership that extends. So your energy’s spent upfront, extends years into the future because of the seller finance.

Brandon:
Yeah. Seller financing, that’s something I really want to dig in with you guys a little bit on because that’s something that not… we don’t talk a lot about on the show but can be a really powerful tool. So maybe, Mike, I’ll start with you, what is seller financing? And then how does somebody start using it?

Mike:
Yeah, well, in the IRS code, it’s an installment sale, right? So you’re making a down payment and then you’re structuring installments, whether that’s monthly for a long period of time, whether it’s monthly for a short period of time, and a balloon payment at the end, but it’s just in installments to control real estate. And the key to seller financing is what makes sense from a seller perspective. I think a lot of times people say, “Well, I need this property, I need a seller financing.” And, well, doesn’t make sense for the seller.

Mike:
So it starts with the seller, if it aligns with them, then you find out what installments are going to make their life flow in the way that is going to meet their goals, and what can the property afford to make it successful as well. So simple as that, down payment, interest rate, monthly payments. Monthly payments can be interest only, they can be all principal, they can be negative amortization. They can be whatever you want it to be. So that’s the beauty of seller financing is it does not fit in a box. You can do exactly what you want to do based on what needs to happen.

David:
I think that’s a great point to highlight. I hear a lot of people will say, “How do I get the seller to sell it to me in seller finance?” And the answer is you don’t, if they’re not motivated to and that doesn’t work for them, that’s not the right strategy, but it often gets portrayed to people who don’t have money. I mean, if you think about when someone’s targeting an investor to sell a course to them or a class or something, they’re looking for a person who has some form of vulnerability. Bad credit, no money, that’s why everyone gets into wholesaling, right? Like you were saying earlier and seller financing is this magical pill that will work if nothing is right.

David:
The problem is you have to dig to find usually an off-market deal because realtors aren’t going to be listing a house if it’s going to be selling with seller financing very often. That person is selling their house with a realtor because they want a convenient transaction where they’re going to go use the money for something else. So a great piece of advice you just gave is that you got to have a motivated seller and you got to work to find a motivated seller. So can you guys share any maybe… I don’t want to say red flags, but something that pops up that makes you go, “Ooh, that person might be someone who’s interested in seller financing,” that people can look for when they propose that solution?

Tyler:
Yeah. We call them green lights.

David:
Better than a red flag, there we go.

Tyler:
Yeah, we call them green lights and they are… It’s the opposite of what you just said is the audience for the predatory real estate seminar. The seminar attendee is someone without options, right? They have poor credit. The real estate seller that we’re looking for if we’re going to do seller finance, is someone with options. They have the option to sell with a realtor if they want to, they have the option to keep renting it, they have the option to 1031 exchange if they want to. But they have all these options, a lot of times they’re overwhelmed by those options, and we have found our niche in the ability to go in and say, “All right, let’s lay all your options out on the table and let’s analyze them.” We’ll give them the numbers for every scenario, and a lot of times being able to defer their tax gains over time through an installment sale is the one that meets their needs the best.

David:
So can you cover that a little bit? What does that look like when somebody defers their tax gains by selling with seller financing?

Tyler:
The simplest way to put it is that they don’t have to pay taxes until they take the money. So if you delay the time that they have to take their money, then they’re only paying on what they get. And so a lot of times, if they’re really concerned about their tax hit, they want a very small down payment because then if they receive that money, they have to pay taxes on it. So they want a small down payment and they want a small installment sale payment. So a lot of times those payments are interest only. They’re not even amortized because they want to keep that payment as small as possible, and so those balloons at the backend are very large when due in paying the note, but it allows us the cash flow in the meantime pretty easily.

David:
It sounds like the way that you’re describing this, if I understand it right, is if I sell my house and you pay me all the money upfront, usually, traditionally you get a loan, you use the money from the loan plus or down payment to pay me, I pay capital gains on the full gain. But if I sell it to you with seller financing and I don’t get all that money upfront, I actually just collect a payment from you over time, I only pay taxes on the money that you are paying me. Is that correct?

Tyler:
Exactly.

Brandon:
So what type of person is doing something like that? Is this an experienced real estate investor or is this a new real estate investor or is just a regular homeowner?

Tyler:
I’ll let Mike speak to that.

Mike:
It’s the experienced real estate owner. What we’ve found in our life of doing a lot of it is they’ve owned real estate for a long period of time, they have significant capital gains, they don’t need the cash, they like the income stream, they have below-market rents, they have deferred maintenance, they don’t want to deal with realtors. So they have a mindset of costs and expenses they want to avoid, and a lot of times they want to pass on a legacy. They see themselves in you.

Mike:
And so then you just put all that together. Well, you have low market rents, you can increase the income stream, right? So you can match their net operating income that they’re currently getting, increase the income stream and now you have cash flow. The fact that they don’t need money, they don’t need a large down payment, they’re used to cash flow, they don’t like management. So you solve a lot of problems by just saying, “Hey, here’s a little bit of money we’re going to take into control of your property. We’re going to improve that property and improve the income stream, and we’ll all benefit from that elbow grease, so to speak.”

Brandon:
Yeah, I like this concept of seller financing in that, again, it’s not taking advantage of people, it’s not saying, “Hey, I’m going to trick you into it.” I know a number of investors, in fact, my mentor all growing up or getting into real estate, growing up as a real estate investor, Kyle that was always his plan. He would always tell me that, he’s like, “Yeah, my plan is just acquire a bunch and then pay them off and then sell them off on seller financing when I get older, and that just provides me enough income to get through life.” And I always thought that was cool, and he’s actually doing it right now. In fact, my in-laws bought a property from him on seller finance, and then he had it paid off and he’s just going with it.

Brandon:
Now, do you guys ever do anything with people who don’t want to pay them off? Do you ever do any subject to or lease option stuff? Or how do you get around the due-on-sale clause if they have a loan?

Mike:
Yeah, subject to for us, we’ve done and we typically just do that on short-term projects so we don’t take on the risk of the due-on-sale clause. But yeah, lease option’s a great way to get around that. Or you have the ability to pay the loan off if it’s called, right? So we’ve done that where it is set up as seller financing, there is a loan on it, it is disclosed, and then we just have a clause in our promissory note that should the loan get called we will pay that loan off. So you just plan ahead and accordingly for that, and don’t put yourself in a position where if that loan gets called, you’re going to have to take a loss or you’re going to have to struggle in order to get that loan paid on.

David:
Yeah, that makes sense.

Tyler:
But the vast majority of the seller financing we do is definitely free and clear. So there’s no loan on the property to begin with and that makes it real simple. Or if there is a small loan balance, a lot of times we’ll just make that the down payment. So if they owe a certain percentage of the property and say it’s 20 or 30%, we’ll just pay them that.

David:
Well, let me ask you this then. If your ideal seller finance-type person is an experienced investor, how does that change your marketing? I’m assuming you’re not writing a…, I mean, maybe you are, but I’m assuming it’s not a yellow letter with misspelled words like “I buy house, your house for cash money”, it’s probably not something like that. So what are you doing to attract people who would be willing to do seller financing for you?

Tyler:
We went back and forth on this as to how personal do we want to make it versus professional, and as we got more experience and had a legit company with acquisitions guys and realtors, we decided to go the professional route. And especially because we started targeting larger multifamily projects. So we have our logo and our branding on there, and we talk about being local guys that are building a portfolio in Portland, and we talk about the experience of how we’ve helped people like that owner. That we’ve helped people in their position save money, or whatever the goal is, whatever the specific marketing campaign is, we talk about how we have helped people like them accomplish their goals.

David:
Yeah, that’s cool.

Brandon:
That’s cool, yeah. I feel like this is where having… In the book, The Multifamily Millionaire which we just released at BiggerPockets, I talked a lot about this thing called the crystal clear criteria, which is this is the property type, this is the location, this is the strategy, this is what I’m doing, it’s very particular what I’m doing. And when an investor knows that, one of the reasons that that’s so important is it gives you the ability to then cater your marketing toward that. Look, let’s say you’re an investor and you’re like, “I’m going to do seller financing. That’s going to be a big piece of what I do.” Not that it’s all you do, but let’s just say it was a big piece of what you want to do.

Brandon:
Well, great, then you know that your ideal seller is somebody who has owned a property for maybe over 10 years or 20 years. And okay, great, now you can target your marketing just to those people. You can go send direct mail to that type of person. And the letter will look like something that’ll appeal to that type of person. Versus if you have no strategy or no plan, you’re just like, “I’ll buy anything, I just want a good deal,” then you’re just sending a general message to everyone and it doesn’t appeal to anybody. And so instead, I just like that concept of somebody can pull that out of this episode, pull something from this episode, be it that. Know what you’re going after, and then you can specifically target that thing.

Brandon:
And then you can broaden what you go after, go after numerous things, but then have a plan for each of those things. Because the thing that’s going to attract a 65-year-old seller, a real estate investor who’s been in the game for 40 years, is very different than what’s going to motivate the 25-year-old kid who got in over his head in buying his first property and now wants to move to Vegas and be a showgirl, or something, I don’t know. It’s a different type of marketing.

Brandon:
All right, so that’s cool. So, the seller financing is cool. What other stuff are you guys doing for financing-wise? Let’s say you can’t go seller financing, are you doing… I mean, do you just save up money for down payments? Are you doing any kind of syndication stuff, or raising money, or what’s that look like?

Tyler:
Yeah, we do a lot of private financing. We haven’t done anything, syndication is for like a pooling money standpoint. We do have some capital partnerships where we’re bringing all the real estate expertise, our partners are bringing capital, and we form an LLC and we have our rules in that. But it’s your traditional sources. Private capital, hard money for our short-term projects. We will get bank loans for BRRRRs on the backend. We also like to move our seller financing around. So, one thing that we learned early on is financing and real estate are two separate things. And a lot of times the financing may be a long-term agreement or long-term commitment, but the real estate is not a long-term hold. And so you can sell real estate and keep the financing and use it to buy other real estate. Or you can refinance real estate, keep that financing and buy other real estate. So we’ve used seller financing as a perpetual machine to help us build out our portfolio as well.

David:
Are you referring to cross-collateralizing, the financing you’re doing?

Tyler:
No. Re-collateralizing, substitution of collateral. I actually heard this… Full disclosure, I haven’t heard a lot of your podcasting [crosstalk 00:35:32]-

Brandon:
What?

Tyler:
But you interviewed some guys… I know, I know, blasphemy. You interviewed a guy, I think out of Colorado, he called it walking the mortgage.

Brandon:
Yeah. I remember that, but I don’t remember who that was.

Tyler:
And it’s just that. Yep. Yeah, neither do I. But so again, you created a relationship. What does a seller financer want? At first, they’re intimate with the real estate, they know of the real estate, that real estate makes them comfortable. But on a higher level, what they want is they want trust, they want loyalty, they want a rate of return, they want customer service and they ultimately want collateral. The collateral doesn’t necessarily need to be the real estate that you buy. And so if you’re doing a real estate transaction, whether it’s a sale or a refinance, you have cash coming into escrow, but you already have [inaudible 00:36:22] that doesn’t need to be paid off. So then you can take that note that doesn’t get paid off and the cash that would’ve paid off that note to then buy another piece of real estate, refinance another piece of real estate just by re-collateralizing the note and keeping the cash. Or giving the cash to the seller or giving it to a lender.

Brandon:
Yeah. Because this is such a powerful concept maybe can you wrap it into a story, whether it’s a real one or example of House A, House B, how would that work?

Tyler:
Yeah, yeah. So this is a really good story for you. So I got a call from Bob, Bob is amazing, but I remember Saturday, I was washing the dishes and the phone call. I know it’s piece of marketing when the phone comes in, so I’m all prepared for it. And his first words were, “Do you need to pay all cash?” That’s the magic phone call everyone wants. And Bob knew he didn’t want cash, he wanted $5,000 down. The problem was, was the piece of real estate he owned was a piece of garbage. It was in a part of town that had a high tax ratio, it needed a lot of renovation, it wouldn’t have provided any cash flow at the end of the day, but we needed to put $100,000 into it just to make it habitable.

Tyler:
And so what we did is we set up seller financing on that project, and he knew all along that we were going to sell the property, that we were going to collateralize him on that property to begin with, and then six months later, we were going to give him different collateral. Now, when we bought the property, we didn’t know what that collateral was going to be. We just knew that we always have opportunities, we would find that piece of real estate at the end of the day.

Tyler:
And so we bought the property five grand down, put like a hundred into it. We sold it, and when we were in escrow to sell it, we were then in escrow to buy something else, right? So we had a cash-out, a cash transaction on the buy side, and we had a sale on the front side. So as that sale came in, we owed Bob $220,000, we needed to buy a property for $220,000. So instead of paying Bob off when we sold the property, we just took Bob’s $220,000 and gave it to the other seller on the buy-side of the acquisition. And so we just used Bob’s financing and liquidated that other piece of real estate.

Brandon:
All right. All right, that makes a lot of sense. And it makes sense too because Bob trusts you, he likes you, he likes the payment, he likes all that. Basically, he just becomes just a private lender, long-term for that stuff so, that’s very cool.

Tyler:
A good chunk of our private lending pool started out as sellers.

Brandon:
Yeah. Shifting gears here a little bit, but what’s the hardest part, and what’s the best part of flipping houses? I know you guys do a lot of flips, what do you struggle with? And what do you find you just like “oh yeah, we getting flow, this is easy, we’re awesome at it”?

Tyler:
Man, I mean, the best part is when you underestimate every anything, right? You underestimate how much that neighborhood’s going to appreciate, you underestimate how hot the market’s going to be, and you underestimate how long it’s going to take you to the remodel. Now, most of us that have done any flipping know that it’s not super common for you to underestimate all that stuff, so it could really suck when you don’t. The thing that sucks the worst for us has been when the construction budget just… something gets discovered or you completely miss stuff that just blows the construction budget out of the water. That’s probably the most painful. We’re really good at knowing our numbers when we go into a project but those surprises can sting.

Brandon:
Mm-hmm (affirmative). Yeah, that makes sense. All right, what about what makes you guys each feel alive in your business? What’s your “I like this, this is my piece of the business, it’s what I love to do”? We’ll start with you, Mike.

Mike:
At this point in the career, what I really like is I like seeing other people win, and new investors get traction in their careers. One example is, the majority of our staff have all bought a piece of real estate. One staff member, in particular, has now bought three pieces of real estate over the past 18 months, every one has been a successful BRRRR. One of them was seller financing that they rolled into another acquisition. They have no money out of pocket, in fact, money in their pocket after successfully completing all those projects. So I get more appreciation seeing someone get their first deal than I do from us getting our next deal.

Brandon:
Mm-hmm (affirmative). How about you, Tyler?

Tyler:
I’m a sucker for creativity, and that’s been something that’s been a key to our success is how crazy creative can we get on the deal structure. But it’s also been our kryptonite because sometimes we over-complicate things. Because we have all these tools over that we’ve mastered over the years, tools of how to do deals in different ways, different ways to finance it, different ways to structure the terms, that sometimes we can kind of get overly complicated. So I’d say that’s both probably my favorite thing, as well as the thing that gets me into trouble the most is getting too creative because I didn’t used to think that was a thing, but it’s definitely a thing.

David:
Well, we see that with house flippers. The boring ones tend to do the best, they just use the same materials. They don’t have surprises. It’s when you start trying to get creative, that mistakes tend to happen. So I definitely think there’s a part of that in business. Gary Keller had a quote that was really good for real estate agents where it was something along the lines of “we get bored of doing what works so we start doing what doesn’t work and trying to make it work”. And that’s definitely like a… There’s a fatigue in business that when you hit a rhythm and you just keep doing the same thing, it gets boring and you want to try new stuff, but that’s often the death blow for your business. So with you two each specifically, tell me what is in your future? Where are you two headed?

Tyler:
Where am I headed next? We just did some restructuring where we got rid of a lot of distractions in our business. It was painful, we had to cut some overhead and cut some departments completely that… Just really focus. And so I’m really excited about diving in and becoming masters of the investing that we do, and trying to take a break from the shiny object syndrome that we’ve had for so long as entrepreneurs. And Brandon has hit it home many a time about going a mile deep instead of a mile wide, and last time we had drinks with Brandon, he asked us some pointed questions about that as well and so we finally pulled the trigger and cut out a bunch of extra things in our business. And so now I’m really excited about the amount of mastery that we can achieve with the extra focus.

Brandon:
Well, you probably shouldn’t have… I was pretty drunk that night, so I don’t know what I said. “No, we based our whole strategy off it. I fired 40 people.”

David:
How much money does it cost to get drunk at [Monkeypod 00:43:41]? Is that a $900 night with those [crosstalk 00:43:44]-

Brandon:
One drink does it. One Mai Tai, that’s all it takes.

Tyler:
It depends on how much of a lightweight you are, and I think Brandon is pretty light.

Brandon:
I’m pretty light. Yeah, I’m all 112 pounds of me. Mike, where are you headed in the future? Where do you see the business headed?

Mike:
Yeah, I’m real excited from an affordability standpoint, right? So affordability is an issue. Any large MSA, especially in Portland, we have affordability concerns. So we have a couple things in the works. We’ve taken an advantage of a new zoning program in Portland, which allows you to build more than one unit on a single-family lot. So we can have a house with two ADUs, we can have a duplex with an ADU. We can have three-plexes or fourplexes, or we can do cottage clusters and get up to eight units. On city lots, right? So we permit density at the city level and then we can condo-convert at the state level to then set up… to divide up ownership and sell. And so what this allows us to do is lower our land cost basis to then bring new construction at a price point that’s just almost nearly impossible to get in really high demand portions of Portland.

Mike:
And then on top of that, we bought a piece of property that we can eventually build a 60 unit affordable housing apartment [inaudible 00:45:03] as well. So I’m excited to start adding, changing the value we add to our community here locally.

Brandon:
Yeah, I love that. I love the idea when you’re in a city, yeah, where there’s major problems like Portland with affordability when you can become a solution for that. I just think there’s a lot of power there. So, right on, man.

Brandon:
Well, with that said, we’re going to move on toward the end of the show, I think we’re 40 minutes into this thing so gets us closer to the end here. The next is our thing (singing).

Brandon:
All right, this is the famous four. It’s the same four questions we ask every guest every week, so let’s throw them at you guys each. So why don’t we start, we’ll start with Tyler each time and then move to Mike. So Tyler, first question for you. Favorite all-time or current favorite real estate-related book.

Tyler:
My favorite and I will call this a real estate-related book, Crucial Conversations, just because it’s so applicable in both the way we run our business and the conversations we have with sellers, with other agents, with everyone involved in the transaction. I read it again recently, it’s really helped me revisit the way I structure the conversations I’ve been having.

Brandon:
All right. What about you, Mike?

Mike:
I’m going to go with my favorite two authors, and I’m not just kissing ass, but Brian Murray and Brandon Turner are amazing authors when it comes to their level of experience and the ability to put it on paper that allows people to implement and take action in their lives. When I read books, I rate them based on the ease to implementation, and I think Multifamily Millionaire hits that in spades.

Brandon:
Oh, thanks, man. You might be the first Multifamily Millionaire mentioner on the show, I’m not sure. Well, thank you.

Mike:
It’s a new book, give it time.

Brandon:
Mm-hmm (affirmative). Yeah, we’ll give it time. All right, number two, David?

David:
What are your favorite business books?

Tyler:
I’ll let Mike go.

Mike:
I really like Compound Effect, I think that’s a great one. I’m sure a lot of people mention that too, but I’m a big fan of Benjamin Hardy. Personality Isn’t Permanent, Gap Versus Gain is the latest one, Gap and The Gain. To me, who you are as a person is going to speak volumes to who you are as a businessman or a business leader. And so your personality or how you look at things, how you take on challenges in life are extremely important, so I look more on that of who am I? Because at the end of the day, that relates too much to business.

Brandon:
All right. Yeah, The Gap and The Gain. I’m just about finished with that, I got a few minutes left in the audiobook, but that is a phenomenal book. I really, really enjoy that a lot. All right, Tyler, anything you want to add to that? Business books that you’re loving?

Tyler:
My friend, Ashley just recommended a book recently called Thinking in Bets that has been super… brought some new energy into the way I process my business decisions. Because in our relationship with our partnership, I would definitely be the over-thinker, the one wants to slow down and have a plan and would be the one that would suffer from analysis paralysis. So have a book like Thinking in Bets that teaches you how to make decisions faster with less information, it was really helpful for me.

Brandon:
Yeah, we had Annie Duke, right? She was on our podcast a long time… I wasn’t on that episode. But yeah, Josh interviewed her with, I think, Scott back years ago.

David:
It was Scott and I.

Brandon:
Oh, was it you and Scott? Okay.

David:
All right. Next question, what are some of your hobbies?

Mike:
Yeah, I like to golf. I learned how to wake surf this past summer. I do a lot of hiking, a lot of trail running. So typically for me, it’s getting outside.

David:
And Tyler?

Tyler:
For me it’s, I have two little girls that love the outdoors, or at least they don’t have any other choice, they’re going to learn to love them. I love the snowboard, mountain bike, paddleboard, and we’ve just been doing a ton of camping and road-tripping this summer, and going to go into fall doing some backcountry stuff. So just getting outdoors and playing will be a lot of fun.

Brandon:
Awesome man. All right, well, last question from me and we’ll ask each of you this. What separates successful real estate investors from those who give up, fail, or never get started? Tyler, you want to start?

Tyler:
Sure. I mean, if I look back at all of our critical moments, it’s definitely that idea of just shrugging off the disasters, the failures, the times you were screwed by other people, and just focusing, very clearly focusing on how to get back on top, how to get back in the game. That has been our key to success is that just dedication of saying, “What is it going to take?” And being willing to do whatever that is to get back, instead of looking in your rearview mirror and being bitter at whatever just happened.

Brandon:
Mm-hmm (affirmative). Yeah, man. What about you?

Mike:
Yeah, I’d say for me, short-term memory, forgiveness, strong ego, not having to win. A great book actually is Infinite Leadership by Simon Sinek. Just having that mindset that keeping in motion… you don’t have to win the game, you just have to keep playing game. And that mindset really has done wonders for us.

Brandon:
Yeah, that’s awesome. That’s awesome. I’ve not read that one, but I started it. I read the first chapter then somehow set it down, I never picked it up again. But I need to because I take your recommendations seriously. So that’s said, guys, thank you very much, appreciate you guys. And yeah, it’s been a blast. So I’ll let David ask the final question.

David:
Where can people find out more about you?

Tyler:
Well, for our combined YouTube page, that would be Rarebird Real Estate. Just search that on YouTube and that’s where we have a lot of our content that we’ve put out over the years. And then for socials, my social is iamtylercombs, Combs with a C. And, Mike, think you just had to get a new social, what’s your Instagram handle?

Mike:
Yeah, rarebird_mike. And I highly recommend setting up dual authentication because I had my account hacked so I’m kicked off Facebook. I can’t get back on Facebook and I had to redo Instagram, and so [crosstalk 00:51:47]-

Brandon:
Dang, man. Sorry. That sucks. Well, I’ll put a post on my Instagram later and tell people to go follow you, build you back up a little bit. Guys-

Mike:
[inaudible 00:51:59] gratitude to you.

Brandon:
All right. Well, thank you, guys. Appreciate you a ton and thanks for being part of my community, my tribe, my people. It’s been awesome getting to know you guys the last few years.

Mike:
You as well, man. Appreciate you.

Brandon:
All right. Well, that was our interview with Mike Nuss and Tyler Combs. These guys are incredibly smart and talented so make sure you guys connect with them over on social. And follow BiggerPockets for more episodes just like this. Of course, this is one of my last episodes going to be airing. I think my last episode is going to be on the 30th of December and then David takes over as host, as I sail off to go do some more surfing and family time for a while, taking a little sabbatical. I’ll be back again, of course, and I’ll be here on the show many times in the next year, but going to take a few months at least to just relax. So, David, it’s on you, man.

David:
For people at miss you, Brandon, what can people do to help you in this next phase of your life? What are you looking for?

Brandon:
You can send me teddy bears, preferably cat teddy bears with sweaters, that would be probably a good thing. Or you can follow me on Instagram, I’ll still be active there, beardie Brandon, so hang out with me there. I don’t know how active I’ll be.

David:
Anything we can expect from Open Door Capital? Is there any reveals that you can drop in this podcast?

Brandon:
Oh, man, we just got done with our annual goal planning thing, we are going to the moon and we’re actually changing our name from Open Door Capital, just shorten it to ODC because of the confusion with Open Door, the other companies, so ODC is… Yeah, but we’re going to buy some massive apartments this year, so if anybody has any $100 million-plus apartment complexes, let me know.

David:
There you have it. All right. Sounds good. Anything we should say before we get out of here?

Brandon:
I don’t know, man. I just appreciate you a lot. Thanks for being a good friend.

David:
Thank you, Brandon. That’s incredibly sweet of you, and for the guidance that you give me over the years. I’ve told everyone that you’ll be steering me from behind the scenes like the good friend that you are. So your spirit will live on forever as well as it will be looking at us from above, from our bobblehead.

Brandon:
Yes. Our bobblehead partnership, it’s great. Awesome. Get us out of here, man.

David:
All right. This is David Greene for Brandon ODC Turner signing off.