BiggerPockets Podcast 121 with Andrew and Phillip Syrios Transcript

Link to show: BP Podcast 121: Creating the IDEAL Real Estate Investing Business with Andrew and Phillip Syrios

Josh: This is the BiggerPockets podcast Show 121.

Phillip: And so we’re trying to build a company that can sustain that workforce where really it’s just we’re creating opportunity with the wealth we’re building

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Josh: What's going on everybody this is Josh Dorkin host of the BiggerPockets podcast here with Brandon Turner, what up Brandon?

Brandon: I’m coming to your house tomorrow, are you ready for me?

Josh: I am absolutely not ready for you.

Brandon: Good. Go get the bed ready downstairs my little like I go the little guest room next to the bathroom, it's a nice little place I like hanging out there.

Josh: Thanks.

Brandon: Yeah we’re going to have a good time in Denver I think we’ll have fun.

Josh: We are, we are really looking forward to having you in town man.

Brandon: Thanks it’ll be fun.

Josh: Yeah.

Brandon: Maybe people don’t know that but I actually live on the West Coast and Josh lives in Denver. So don't get together that often I don’t know what three to four times a year.

Josh: Yeah, something like that. But yeah man, very exciting we’re looking forward to it. We’re going to knock out lots of important BiggerPockets business while you're in town. So yeah it should be good man. But speaking of good,

Brandon: This show.

Josh: We got a pretty good show today don't we?

Brandon: This is one of the best I’m going to say that.

Josh: It is.

Brandon: One of the best we’ve ever done I think in terms of just raw content, helpful tips to help anybody matter what your level is I mean.

Josh: A lot of fun.

Brandon: A lot of fun and these guys are hilarious and yes.

Josh: These guys are great.

Brandon: Guys, plural we got a couple of guests today.

Josh: Yes, yes. So let's kind of get to the business and then we’ll get to the show so.

Brandon: Why don’t we start with today's QuickTip? Today’s QuickTip is if you have read either the book on Flipping Houses, the book on Estimating Rehab Cost or the book on Investing In Real Estate With No And Low Money Down, do us a huge gigantic favor if you can see me I'm on my knees asking-not really- but do us a favor and leave us a review in Amazon.

We’re really trying to get a bunch of reviews we want to get all through those books over 100 reviews right after this podcast. So go ahead and do that for us. That would help us out a ton and it’s a good way to support BiggerPockets without having to do much so yeah.

Josh: Awesome, good job. Do it. Just go to Amazon and do it.

Brandon: Yeah go to Amazon or if you want to know how to leave the review at BiggerPockets.com/NoMoneyReview is actually the page that has a description exactly how to do that so BiggerPockets.com/NoMoneyReview.

Josh: Nice alright, cool. Well with that we've got yet another sponsor for our show today and big thanks to our sponsors as always for helping to support us. And let's talk about them now.

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Josh: Big thanks to our sponsors we really do appreciate it. Alright guys we've got two brothers who are enthusiastic, intelligence and they’re rocking it. So these two guys the Syrios brothers, Andrew and Phillip started investing I believe in Oregon and ended up moving out to the Kansas City area.

And they've done everything from flipping to buy-and-hold and they just got some really great insight. They’re young but their dad's been doing this since the 80s and the knowledge has definitely been passed along and there’s a ton of great stuff here, tons of stuff.

Brandon: It’s like they are really rocking it like in terms of hundreds of properties that they’re buying it’s crazy.

Josh: Yeah.

Brandon: They’re on a whole new level and you guys are going to love this so.

Josh: Yeah so pay attention get out the notebook and there's definitely some gold in this one. So with that why don’t we bring in Andrew and Phillip welcome to the show guys good to have you here.

Andrew: Thank you, good to be with you.

Phillip: Thanks.

Brandon: Yeah we’re glad to have you. Can I call you Andy and Phil or we…?

Andrew: Do not call me Andy. You can call me Drew.

Josh: Are you guys twins?

Phillip: Now we’re not twins but no, we’re not twins.

Andrew: Half of the people think we look nothing alike and half the people think we look identical.

Phillip: That’s true.

Brandon: Who’s the uglier one?

Phillip: The uglier one…

Josh: That would be you Brandon.

Phillip: There you go.

Andrew: Thank you for answering that one.

Brandon: Yeah so you saved them there Josh. Alright so today on the show we’re talking to obviously both Andrew and Phillip; Andy and Phil as their friends call them. And we want to talk about you guys’ like journey, how you got started all the good stuff. So I don't think we’ve ever had two brothers on the show have we? This is the first time.

Josh: No, first time.

Brandon: First time.

Phillip: It’s a precedent.

Brandon: It is alright. So let me start with a question we’ve never asked before; how did you guys get started investing in real estate?

Josh: Hold on and before we go there I just want to say Andrew was in town here a couple of weeks ago. And he hit me up he’s like, “Hey Josh I’m going to be in town and I happen to have some time.” He’s like, “Let’s link up,” we linked up and he was in town for this thing, it was a conference called Getting Things Done.

Andrew: Yes.

Josh: And the reason I bring it up is to plug a show that we previously had Show 117 with David Allen the author of Getting Things Done. And you guys obviously haven't heard it because that show hasn't yet aired, but it was a good…

Andrew: That would be a problem.

Josh: But it was a great show and since you are a practitioner of GTD I'm assuming Andrew I would love to just really quickly hear from you about how was the conference and did you pick up anything cool or was it worthy?

Andrew: Yeah the conference was great it was just eight hours of just going through every step that you need to do to put together his system. His system, we liked is so much because it’s so flexible. I use Avatar so I have like an online version, Phillip uses just virtual notebooks. You can have just stuff that you carry around it outlines everything you have to do it takes it out of your head.

So there’s no more forgetting things, you have a good idea of how much you have on your plate. So you can throw things to someday maybe that you just don’t have time for at the time. Because a lot of people just have all these commitments and they end up doing everything badly or halfheartedly. The system just makes it so easy to note this is what I have time for, these are my priorities.

These are the things that I need to do, it just makes everything more efficient. Because there have actually been studies on like willpower and it looks like using the system actually increases your willpower because there's less you have to keep in your brain and just using that mental energy, takes up your willpower.

Brandon: So how much do you actually I mean like because I read Getting Things Done and I do probably 60% of what I should be doing to implement to the full way. Right so how much you actually do on a big scale?

Phillip: I use it basically every work item that I do comes from Getting Things Done on some level. I have like eight notebooks that have all my lists on them and I basically go through I have a list for things that I have to do during the working workday. And during the workday I just look at that list and I know how to get things done off of that list.

And then I have another list of things that I need to get done but I can do them after work if I need to. So I'm not stressing about those things of what do I have to get done before the workday is over, what do I have to get done after work. I just know and I can see it right in front of me and I don’t have to worry about it. So my work life completely revolves around it currently.

My home life I don’t have that completely integrated yet but I’m working towards that and the great thing about getting things done is you’re constantly building it and improving it with the weekly review that you’re doing of like, what’s working for me, what’s not working for me, how can I make it better, how can I improve the workflow of my life and how can I not stress about all this stuff that’s going on all the time?

Josh: Awesome that’s great.

Andrew: Yeah we highly recommend it.

Josh: Awesome guys no, and normally we do start with you guys but because of this just happened we just talked to him I thought it’s be really cool to kind of hear from a first-hand experience. So thank you so back to Brandon's question.

Brandon: My precedent question, how did you get started investing in real estate?

Andrew: We got started from our father actually; our dad has been investing in real estate since 1981. And after I graduated U of O I joined up when he had this internship, he had like 10 students from the University of Oregon, Oregon State, it was a complete mess but it was very educational. And we did all sorts of things like marketing to try to find sellers to putting out offers.

I don’t know how we kept it organized but it was quite an experience and after that I got interning with Fix and Flip in Oregon. We flipped something like 200 houses between 2006 and 2010, in Eugene, Salem and Portland Oregon. And then it kind of tanked a little bit we were doing a lot of short sales at times and banks just tightened the noose.

They just tightened it really hard, they were giving them away at one point then they just stopped they were giving no more than BPO. And then in addition to that there was the first time home buyer tax credit and that went away. So we could buy very well, we couldn’t sell very well so we came out to the Mid West where we have a lot of extended family.

And we looked around and the prices were so much more reasonable than they were in Oregon which is like West Coast, its California like and it just…

Josh: Those weird West Coast people.

Andrew: Exactly, which we’re no longer part of I think maybe we’re kind of in the middle.

Phillip: Yeah.

Andrew: And then we’ve just been buying and holding in Kansas City ever since.

Josh: Cool.

Brandon: Thanks.

Josh: So 200 flips in Oregon I mean that is not an insignificant number, clearly you guys didn't just walk up and start doing it; you had your dad who had the background that’d been doing it since what’s that Carter or somewhere around there.

Brandon: Lincoln.

Phillip: Yeah it was George Washington or something.

Josh: Yeah.

Phillip: Articles of Confederation I think.

Josh: There you go. So how do you do 200 flips? I mean it's not you two and your dad I mean you have to have systems in place to be able to flip 200 houses over a period of 10 years, over 20 years.

Andrew: Phillip wasn’t any part of that.

Phillip: Yeah I didn’t do any of the flipping.

Josh: Oh Phillip then get the hell out of here.

Andrew: It’s what I’m saying right; we brought on I think six of us came on from the internship. There were two internships and total six people came on. So we opened up two branches and sort of a third the Salem and Portland were kind of a hybrid branch. And we just went pretty crazy with marketing. We bought them on the courthouse steps.

We made some offers on REOs, but we’d send out letters and all sorts of things. And then when we were really doing the short sales we were getting in touch with the agents and that was back when everybody and their brother was underwater on their house. So it was not hard agents who had listings where we were trying to purchase those properties. And we could wait as long as we wanted.

And whereas the normal homebuyer is going to wait maybe two months to buy a short sale. Process can take four or five so we were on the way so we all sorts of properties under contract. The one thing is we had too much overhead so we flipped a lot of houses but the number of houses you flip isn't that important, the main thing is how much money you made. And we did make some money but we didn’t make nearly as much as we should have with that much volume.

Josh: So I'm still kind of trying to get over the 200 right. So how many houses might have been flipping at any given time, how many crews did you have I mean really just trying to understand, this seems like a absolute, you need to have a fairly sizable organization to manage something of that size.

Andrew: We did, we had a couple of crews and some employees doing work as well. Most of what we were doing is more like whole tailing. Like we would do some work to it and the sell it. But usually these houses weren’t huge rehabs they were just homeowners who had a crisis ahead and they had fallen underwater.

So the houses didn’t need to be gutted and the banks were so desperate to get rid of these when we got a short sale until they decided that they weren’t that desperate to get rid of them. But we really had a lot of volume without having to do a ton of construction. We had quite a bit going but we usually had close to 10 projects we were working at the same time.

10 properties some of them were not the BPO wouldn’t come in the bank wouldn’t agree to it. But we usually had something like 10 under contract and that was just in Eugene. Salem and Portland were doing their thing as well which I was not a part of.

Josh: Interesting.

Brandon: And one thing you mentioned a minute ago that I think we just kind of like, you said really …

Josh: The whole tailing?

Brandon: Well no before that but you said really quickly but what was the phrase you said-it doesn't matter how many you flipped like the volume doesn’t matter, what matters is how much money you make. I hear people all the time especially like I don’t know gurus or whatever, people that are selling stuff are like, “I flip this many houses a year.”

And they’re always bragging about how many houses they flip per year. But you sell them here yeah we made this much money last year, or this is how much money per house we make. It’s a volume thing that people brag about. But at the end of the day it doesn’t really matter your volume other than as bragging right so.

Phillip: Well and I think that’s one of the reasons we wanted to move back into buy-and-hold that’s how my dad built his company. He built this company out of student rentals around the University of Oregon and he had a lot of success doing that and we wanted to get back to that model and Eugene was not a prime- you could do it in Eugene still it was a lot harder. And we wanted to find a good market to use the power of buy-and-hold again so that’s what led us to Kansas City where we now currently invest.

Andrew: Yeah I would actually say they probably grew too fast. I think a lot of people in business in general want to get from point A to C as quickly as possible. Whereas when you do that too quickly your systems start falling apart and you start making mistakes, your due diligence goes down.

And we probably would have been better off if we had just flipped 120 houses or something like that. So I think one of the lessons from that is really to grow in a sustainable consistent manner versus trying to get from here to there at the snap of a finger.

Josh: And how do you do that, I mean I could see how hey I picked up one cool and you got this pipeline right so with the volumes coming in and it could be really easy addicting almost to and go and say, “Hey I’m going to pick up one oh cool there is another one that’s kind of a buy.

You know what we need another property cool in case we don't find another one in a week. So we’re going to pick up this one, oh you know what there’s another let's just jump on that,” how do you have the discipline to not do that? I know the answer but I’d like to ask for that.

Andrew: Yeah I mean it’s actually even harder with buy and hold in some ways because buy and hold you have no feedback, when you’re flipping a house and if you don’t make any money or you break even you know you’re doing it wrong. With buy and hold there’s a million rationalizations for why it still cash flows or I think it still has a little bit of equity in it.

You really need to be even more diligent with buy and hold because if you don’t you’re going to start settling for worse and worse deals, and just still hoping to get through with it. The big thing with discipline to me is just you have your systems, your goals in place and you don’t deviate from them. So you know what you want ahead of time.

You know you want to buy these many per month, you know you need to get this type of deal and if you’re not getting that then you have a big problem. You continually review and continually measure, if you’re not doing those things very quickly you’re going to start falling to the shiny object temptation or something like that.

Brandon: I like it that’s smart; wise man. Alright let’s move on to buy and hold because you said you got out of flipping, moved to Kansas City and now you decided to buy and hold there. You had family there so that makes sense why you’re in Kansas City even though I don’t know moving away from the West Coast it’s nice out here I don’t know.

Josh: And Kansas City I mean…

Brandon: And Kansas City?

Josh: I mean it’s not Detroit but man I’ve been there I mean it’s really?

Phillip: Oh I love both cities, Oregon Eugene is a great place to live bit I’ve fallen in love with Kansas City…

Andrew: It doesn’t rain nearly as much here.

Phillip: Although we do have the snow which is so fun.

Andrew: That’s freezing.

Brandon: Alright so buy-and-hold in the Midwest obviously a lot of people like the Midwest for buy-and-hold for that very reason because you get a lot better cash flow. Maybe besides cash flow maybe in addition to – I want to talk about kind of the benefits of buy-and-hold.

For people listening to the show that maybe aren't real up on the whole, I don't know, why would I want to rent out a property make a lousy $100 a month or whatever.

Josh: And deal with crappy tenants and headaches and evictions.

Brandon: Yeah they’re like oh man flipping is way more fun you can make 20, 30 grand and then lay on a beach whatever. So like in your first or at least I don’t know if you’re both writing or just Andrew was writing but on the on the BiggerPockets blog your guys; first article ever was called like I remember it was like the Five Benefits Of Buy-And-Hold.

Phillip: I think it was buy-and-hold is the ultimate investment ever if you’re not doing it there’s something wrong with you.

Brandon: Something like that.

Phillip: I think it was something like that yeah.

Brandon: Yeah something nice and catchy like that.

Josh: No controversy or anything like that.

Andrew: It’s quite big.

Brandon: Yeah there you go. So in that post you talked about an acronym; the ideal acronym. Do you mind if we run over that real quick do you guys remember what that was?

Andrew: Yeah absolutely, I think first buy and hold is a get rich slow scheme. It’s the ultimate long game. Like just recently our dad ran into a guy that he had sold a property to in Portland in 1985. He bought this property for $60,000 in Portland Oregon in 1985, put a little bit of money into it, tried to do the rehab himself and failed miserably.

Mark was four when he ended up selling it for 70, breaking even and he was happy to do that. Anyway so he runs into the guys that he sold it to like two years ago and the guy is like you want to hear the rest of that story the property just sold again. This is like 2012 or 2013 he like, “It sold for $950,000.

Josh: 30 years $950,000.

Andrew: It’s not even 30 it’s like 20 something I mean it’s about 30 but yeah you’re a millionaire if you bought that one house and how long to it. So it’s the long game, there’s this old experiment they did it’s called The Stanford Marshmallow Experiment. And what they did is they gave these children marshmallows.

And they gave them one marshmallow and if they could sit there for 15 minutes and not eat the marshmallow, they’d get a second. So most of the kids failed but a couple of them were able to find a way to do it and so they got the second marshmallow. And then they checked on these kids like 15 years later and the kids who had held off for the second marshmallow had substantially better grades less likely to be using drugs or things like that.

Everything about their place in life was better, so it’s all about being able to defer gratification and being able to see the long run and that’s what buy and hold does. It is a long game and it has massive benefits you’re just not going to see them immediately.

Brandon: I love that.

Josh: That’s great.

Brandon: I wrote an article a long time ago and we talked about it on the podcast before. I always joke about how when I eat Lucky Charms, I eat the cereal first and the marshmallow later. And there’s something very telling about that that type of personality, I think so hopefully that means I’ll be successful, hugely successful someday.

Andrew: We’ll call it The Lucky Charms Experiment.

Brandon: There you go exactly I want Josh…

Josh: I want a blog post co-written by Andrew and Brandon on the marshmallow and Lucky Charms.

Brandon: Well Josh is the guy…

Andrew: Harvard is doing that I think that’s a Harvard study yeah.

Brandon: Harvard okay good. Yeah we’ll let them take care of it. And Josh is the guy that goes and like takes my marshmallows and then just eats them and throws the cereal on the floor.

Josh: I do not stick my hands in the cereal unless…shut up don’t tell people.

Brandon: This is hypothetical. Alright moving on…

Andrew: I think we’ve moved way off here let’s go back to the acronym.

Josh: Focus, focus.

Brandon: Going back to IDEAL.

Josh: Four people on this podcast is too many to manage.

Brandon: IDEAL.

Josh: ‘I’ is for IDEAL, no, what is the ‘I’ for?

Andrew: ‘I’ is for Income. Income is basically cash flow in your pocket. When you get into a buy and hold investment, the whole point of it is that the rent is more than the mortgage and the expenses on the property. So if you have a good buy and hold investment, it’s putting income or cash flow into your pocket every single month which is what people are trying to do typically when they’re doing a buy and hold investment.

If you have an investment that you have to pay every month, it’s basically a company that’s losing money which is no good. So if you buy a good buy and hold investment you have income or ‘I’ in your pocket every single month that’s what ‘I’ stands for.

Phillip: Want to switch back and forth?

Andrew: Yeah let’s do that.

Josh: Okay you guys good I mean you guys got this planned out?

Phillip: We got it yeah.

Brandon: Okay.

Phillip: ‘D’ is Depreciation so that’s basically every 27.5 years property taxes depreciate from the value you bought it to nothing. And that counts as a ‘loss’ to the IRS, you have to write off that income, so you end up not really paying any income taxes. The last time I think our dad has paid income taxes was like 1980 something.

Josh: I’m glad now all the people who are in the IRS who listen to this show…

Andrew: We pay plenty in property taxes.

Josh: Alright, I’m just checking.

Phillip: Because of the depreciation of all the assets the IRS sees him losing money every year so he doesn’t have any taxable income on an earnings space. So that’s just…

Andrew: It’s just the benefit that Uncle Sam gives real estate investors.

Josh: Can you guys very quickly just explain in even more layman's terms what depreciation is, because I think a lot of people don't fully understand it. Give me just like a really bread-and-butter example.

Andrew: Yeah so basically it’s that every real asset, everything breaks down over time or wears down over time. So the IRS thinks like okay if you have a car it’s going to break down over a certain period of time. You bought it for this amount it’s not going to be the same next year it goes down in value. The same is true with houses.

The IRS considers them going down in value but that’s not how it works in real life because one is you should put maintenance in the property the capital repairs that you need to. So you actually improve the value and it goes up actually I think slightly faster than inflation. So the IRS is considering the house as if it was depreciating. It was wearing down to the point where it would be worth nothing.

Phillip: It considers the asset to be worth- it’s going to be good for 27.5 years so one 27th and a half of the value of that you get to write off as a loss. So if you made $50,000 in taxable income and you had a house that depreciated with what one 27th and a half of $100,000 is like $3000 so you only have to pay income taxes on $47,000 instead of the full $50,000 that you actually made because that asset is depreciating so I was able to made cash on that last bit.

Josh: You guys are awesome I totally put you on the spot on a question that wasn't the easiest question to explain and I think you guys did an awesome job so thank you.

Brandon: I have a follow up.

Andrew: Go ahead, go for it.

Brandon: Why 27.5 years let’s see you explain that one.

Phillip: Because someone decided they could really complicate it with that no real reason. There’s no reason for it.

Brandon: We need to get that guy, whoever came up with 27.5 we need to get him.

Andrew: I got this email once, one of those chain mails and it was about why train tracks are separated as far apart as they are, and it goes back to like the Roman Era. And I don’t know if that’s true but it’s…

Josh: What the hell are you talking about train tracks we’re talking about depreciation oh my God, I feel like I'm watching House of Cards or something. You guys just talking about non sec or stuff alright.

Phillip: Alright we’re going back we’re going to ‘E’ okay so ‘E’.

Brandon: Alright ‘E’.

Josh: Let’s go to ‘E’.

Phillip: Okay so ‘E’ stands for Equity and with a typical buy and hold investment you’re going to get a mortgage from a bank which is how you typically finance the property not always but typically. And if you get a 30 year mortgage the principle on that mortgage goes down over time. If you see it actuary charges go down, our amortization charges goes down.

So over time it’s kind of like a savings account almost you’re building up your equity in the property over time and like Andrew said it’s the ultimate get rich slow scheme. So over time your equity position in the company or in the house just increases over time.

And you have this asset that the loan is really small by the end of it and your equity position is really large. So you can either sell it and not have to pay back much on the loan that you’ve paid down or you can refinance it and pull out the equity you have through another loan.

Andrew: ‘A’ is appreciation and properties generally go up slightly faster than inflation. I think the national average is like the last 30 or 40 years is like 4.5% and inflation is like 3.5%. So you have properties increasing in value and your principle is going down at the same time so you almost have this exponential growth in your mind equity and property over the law period.

Josh: Now does that hold true like so if I bought a property in Detroit 30years ago…

Phillip: Why Detroit because you’re in Detroit?

Josh: Today I’m still…

Brandon: Wait, wait I promised Ben Leibervich we would pick on another city.

Josh: Lima Ohio okay so if I …

Brandon: We were going to take on Ohio yeah.

Andrew: It’s not true everywhere you got to pick the right spots.

Phillip: Yeah it’s just a general thing where if you look at the history of appreciation in America over time it has gone up about four point something percent and it’s done pretty well. Now every market does not go up every year and we obviously saw that 2007/2008.

So it’s not something to speculate or guess what’s actually going to happen. But if you’re in it for the long run a lot of people have made a lot of mistakes in real estate and it’s been all wiped away because the properties went up in value.

Josh: It's the whip cream on top of the ice cream sundae.

Andrew: Exactly.

Phillip: Yes, yes.

Brandon: I like it.

Andrew: The last one is Leverage; the ‘L’ is Leverage. And that just you can leverage properties so much like you do a stock market or stocks or bonds or anything like that. So you buy a property for $100,000 it goes up 5%and it goes up to 105 but you only ended that property for 20 and so you’ve made 25% on your money and…

Josh: Now you can do that but it’s called margin on the stock market.

Andrew: You can but not as much I don’t think.

Brandon: I think margin two to one.

Josh: Oh you can do some dangerous margin man trust me.

Phillip: Well didn’t that cause the crash in 29 so we don’t want any more of that.

Josh: It caused a lot of crashes and it caused a lot of people to lose a lot of money and I used to work for a stockbroker and I saw people lose a lot of yeah.

Phillip: Well actually I mean leverage can be a dangerous thing to get involved in because lots of …

Josh: In real estate too.

Phillip: Yes if it goes down in value it means you lost 25% on your money but Andrew can go into this a little bit more about why we think real estate kind of makes more sense than buying a bond or a stock or something like that.

Andrew: Yeah and there’s this thing called the Fiction Market Hypothesis I don’t think it’s completely true but it basically goes where the stock market all the information is out there, it’s easy to buy it’s easy to sell. So the price is pretty close to being accurate. I think the crisis fulfilled that but I think there’s a lot of truth in it.

In fact there’s these guys looking these different stockbrokers and they found like the correlation between how successful they were year in year out was 0.01, it was like there was no correlation. It’s almost just gambling. But with real estate it’s an inefficient market, it’s completely inefficient there’s no question about it.

Because you can find motivated sellers, you can kind of find banks that need properties off their books, all sorts of things like that and get the discounts that we’d and many investors should try to get. And if you get a property let’s say for 75% of its market value. So you buy it for 75, it’s worth 100 the market goes down 10%.

Well now you’ll only have $15,000 of equity on it but you still have $15,000 of equity and you’ve still made money from that purchase. By giving good deals you have insulated yourself from the risk then is thereby leveraging it. And it’s extraordinarily difficult to do that with the stock market or things like that, it’s so much easier to do with the real estate market which is why real estate makes so much sense in the realm.

Phillip: Yeah you basically have like if you find a motivated seller who’s only talking to you, you kind of have a monopoly in working with that seller and they need to get out of the property, you’re the solution to that. So they’re willing to give you some of their equity to fix their problem. In the stock market no one is that motivated.

Anybody can sell shares or buy shares but no one is that motivated to get out where they’re going to sell at a discount. With a house or an apartment building, people are in that situation and so you can get a margin built into the leverage they have.

Andrew: So you take advantage of the benefits of leverage by insulating yourself from the risk of leverage by getting really great deal.

Josh: Well and it’s the liquidity of the home that gives you an investor the advantage by providing as you were saying Phillip the solution to somebody’s problems. It's not like there's 100 people banging on their door saying, “Hey I’m going to help you out of this potential problem,” so awesome guys, really good explanation. I very much like IDEAL it’s-what is it an acronym, is that what it is?

Brandon: Yeah.

Josh: It’s a great acronym.

Brandon: Did you guys make that up or did you read that somewhere?

Andrew: My dad told it me so we’ll just say he made it up.

Brandon: Okay we’ll go with that.

Josh: He made it up or stole it …

Andrew: Yeah.

Brandon: Either way we’re going to take it today. It’s now a BiggerPockets rule so good job guys, thank you.

Phillip: Nice, nice.

Brandon: We’re claiming it.

Andrew: You have my blessing.

Brandon: Alright so I want to go back to your story a little bit and kind of tie in the whole buy-and-hold. So first of all, I mean like you guys are buying buy and hold in Kansas City, how many have you done now since you got there?

Andrew: We 120 houses and I think about 89 apartment units not 90 nine something apartment units.

Phillip: Yeah so we’re close to about 200 units or so in Kansas City currently.

Brandon: Wow, I’m assuming you’re working with your dad still on this thing is he part of the company right like?

Andrew & Phillip: Yes.

Brandon: Okay so that…

Phillip: The three of us are partners in the company yeah.

Brandon: That’s awesome.

Josh: And what's the average price per door that you guys are paying?

Phillip: Probably about- purchase or all-in?

Josh: Purchase.

Phillip: Purchase is probably in the 40s.

Brandon: Okay.

Josh: So $40,000?

Phillip: 45 I’d say was probably the average right now in the end.

Josh: And what’s the average property type that you guys are buying?

Andrew: Oh it ranges; we try to get a good mix. Depending on the area like if it’s in a really nice area we’ll buy in a nice area for us we’ll say. We’ll buy 2-1 but if it’s not a nice area we want to get at least a third bet but anything from a 2-1 up to a four.

Josh: So it’s all houses?

Andrew: No we get duplexes, fourplexes, small apartments.

Phillip: Small apartment complexes, so we came to Kansas City looking for larger apartment complexes it’s really what we wanted to get involved in. But we couldn’t find anything that really makes sense to work. So we kept going down in size and we went down to fourplexes and we down to duplexes and we just realized this was 2011.

There was so inventory on the market single family houses where like it’s easier to find four good deals that are single family houses than it is to find a fourplex. So we just found the niche that made sense to us and we just attacked that niche. We still looked for smaller apartment complexes and stuff like that even bigger ones if they made sense. But our niche is small single family or small apartment buildings and we just have attached that niche ever since.

Josh: Quick question, Phillip you said you guys do 2-1’s that's something that a lot of investors will shy away from; two bedroom one bath. Why do you guys pick those properties again a lot of people think that they're not as appealing as a 3-2?

Andrew: They aren’t.

Phillip: They aren’t as appealing that’s a plain fact. The reason we like them is because every property has some sort of value. Sometimes that value is negative if it needs to be torn down but every property has some sort of value. A two bedroom one bath house has value to it; it’s not as much as a three bedroom two bath house. But someone is willing to pay rent for it; a bank is willing to refinance it.

We just know we have to get it at the right price compared to other two bedroom one bath houses. So if we can make a cash flow by renting it for enough, we can get it for an expensive enough price and fix it up right, we can turn that into a cash flowing asset for us and get all the benefits. It doesn’t have to fit into a particular model if that house in itself works as an investment.

Andrew: To piggyback on that I would not recommend flipping a 2-1. I mean maybe just some cases.

Brandon: I’ve done that, terrible idea. Yeah.

Andrew: But they can [Inaudible] [32:37] really well so I think they work much better for buy-and-hold than for flipping. But you need to have that equity that you can sell it if you need to. So that’s what we look at our equity. Actually there’s two reasons we want to get in our business model a little bit, it’s twice as important to get a really good deal.

Because we do is we buy our properties, we look for everything we can find but most of them actually we get off of more or less REOs as we go out on properties you want to look at 15, 20 properties, make offers make offers on probably three quarters of them get one or two. Our goal is to use more lumber in the paper that we sit down on offers than in our rehabs.

Brandon: Nice.

Josh: I like that. And you guys are writing like just stupid lowball offers I’m assuming.

Phillip: No, no we sell.

Andrew: No, no actually there’s this HUD house that HUD repossessed and they’re selling and have a 30 day period that only homeowners can buy but they put this property on it was a 3-2 in a good area it’s worth probably $130 as its stat. they put it on for 32. It was just ridiculous so I was currently living in the basement of our office because we were just trying to live by a shoestring and I needed a place to live.

So my purposes was I’ll buy this house as homeowner and I’ll move there. So we were the 17th offer and there was still two days to go in the period. We think there was something like 30 to 40 offers. We offered $56,000 so the offer went 24 over asking. We got it and we just had it reappraised it came in came in at 130 and I think that was low.

Phillip: Sometimes when it’s these REOs sometimes you have to go above asking. Often we’ll make low balls we make a variety of offers but sometimes it’s not always the case that you want to go, that this is the asking- the asking price should be immaterial. What is the price that you want to pay for the property?

Brandon: I love that, and I like how you said earlier too that like every property has a price. I mean a lot of people like…

Andrew: Sometimes it’s negative yeah.

Brandon: Sometimes it is negative I was looking at one like back a few months ago yeah and no matter how I did my numbers in the end I always came back to they got to pay about 15 grand to buy this house. But I think a lot of people when they want to get into real states they go look at a house, I mean my brother did yesterday on the phone with me he was saying the same thing.

It’s like yeah it looked like a good deal but they’re asking way too much so move on. And I’m like, “well what’s it worth then? Tell me the number.” And I don’t know maybe it’s this much, well okay go offer on it. I think it was my brother it was a friend I don’t remember somebody said that to me yesterday.

Josh: And I mean that’s one of the reasons why I formally talk smack about D Town was really about Detroit, they were selling houses for a dollar they couldn’t give houses away for a while there. And it didn’t behoove the average person to pick up those properties because they were worth negative money to the average person.

Andrew: Actually it’s a real danger for anyone who’s investing out of state. We’ve seen it hit us too we made some mistakes because we took some assumptions from the West because the prices are so they have to be good. There were so many just coming from California and we’ve seen Australians, come in. These prices Sydney house started a million and then go up.

And when they see a house for $ 25,000 on the intersection of Skidrow and War Zone they might not know that that’s the intersection and they buy it, all of a sudden they realize you can’t keep it rented, the tenants stop paying rent they destroy the unit on and on and on. So the price of the property doesn't tell you what you need to take a look at it in its global sense.

Phillip: You need to evaluate as kind of a business investment like Warren Buffet is known as one of the greatest investors of our time basically. And what he does is he goes out a finds a company like Geico for example. And he sees that oh this company can make a bunch of money but I’m going to buy it for less than it’s worth.

You have to think of all these houses as little companies that can make profit for you but they’re only worth how much money they actually make you. It doesn’t matter if the house can’t make you any money it’s not worth anything as a business. So it doesn’t matter if it’s selling for $100 if you can’t make a profit from it, it’s not worth anything as a buy and hold investment.

Josh: It’s worth the cash it could generate minus your expense.

Phillip: Exactly.

Josh: That’s pretty much it and if you can't rent something out or you can’t keep tenants in there or it’ll cost you too damn much to fix up and get rented out then it's not worth doing. So yeah no that's great. Alright so for somebody getting started how can they decide what kind of investing they want to get into?

I mean you guys are obviously going with this buy-and-hold and I think it's a great strategy formulated the flip thing. What would you tell somebody who’s like, “Hey I’m 21 I can't get a job or hate working and I want to do something, what do I do?”

Phillip: If you hate working I don’t know if this is going to be good you.

Josh: Phil thank you I mean that’s a great point; that’s a really good point but keep going.

Phillip: I think it all depends on what your goals are, I mean you got to know what you want to accomplish and then you have to pick the model that kind of fits that and there’s different models for different types of goals.

Andrew: And where you start from like what we’re doing right now is we will buy a house or we try to get all in for no more than 75% and less than if we can do it. That 75% is really a key number because if we try to fully finance this with private lenders that we know various people that we’ve come across.

And so they’ll give us a trust deed on the property and then we get it fixed up, get it rented and then once its seasoned our bank will be willing to look at the property not how much money do you have into it but what is it actually worth? We offer the appraised value it’s usually about a year when they want to do that.

And then they’ll refinance it out and you refinanced the loan so you put in this high interest private loan and it’s got a cash flow there too then you get to the point where you can refinance is out with a bank loan and then it’s going to cash flow all the better. So that’s how we do it and we’re able to do that because we have a network.

Our dad is great at finding people, networking and things like that. Whether or not that’s a possibly upfront it really depends on where you start and what your goals are. Like if you have a really good income and you’re making good money from a job and you don’t mind that job maybe the best thing is to just stay working use your proceeds to buy real estate.

Or you can do a combination; you can flip one house use that money to live off of, flip another house, use that money for down payment for a house that you can hold and just rinse and repeat. Or if you can find people that want to lend money to you or willing to do so, go that route and try to borrow the money and buy the properties that way.

And then refinance that with the bank and that’s worked great for us and it depends. It’s a hard question to answer because it where they start. If they want to make a ton of money upfront and you have a little bit of rehabs I’d start with flipping. If they have some money or they really want to build sort of a long-term retirement, long-term wealth I’d try to get into buy and hold as quickly as possible. I mean one of those ways is probably the best.

Brandon: I love it. Yeah. I want to touch up you talked about financing there and that was actually next question was how do you guys finance them? So clearly private money is a big strategy and what you just mentioned there was just to make sure I’m tracking with you here. So you buy a property let’s say you find property for $50,000.

And you get a private lender to then fund the entire $50,000 or a good portion thereof. And then a year goes by the seasoning requirement you have to wait and then you go to a bank and they refinance that property then into a long-term actual mortgage so you can pay after lending.

Andrew: Yeah well let me give you an example.

Brandon: Please yes.

Andrew: Like this house, this is not typical this one of our best here.

Phillip: This is the best we’ve ever done probably with all of these houses.

Josh: I like how you guys share brains without even talking you know what the other one is talking about.

Andrew: Some say that we’re like genetically similar.

Josh: Or mutated or?

Phillip: But okay so we bought this house down South Kansas City it was actually fairly recently after we’d gotten there and they had listed at 30,900 and I offered like 25 and it came down to 28,250. And I really didn’t know this area very well and I looked at the comps and everything is over 100. And so I’m just like accept.

And we put about $12000 into it, we get the loan from someone who had some extra money I can’t remember, I think it was an insurance agent; a retired insurance agent.

Phillip: So the loan was for $40,000.

Andrew: Yeah so the loan was $40,000, 9% interest the property rents for $995 so it still cash flows really well. And then we wait a year or so we get it appraised and just appraised at 105. So now we can borrow just shy $80,000 on it, pay off that first and also pull some cash out as well. Typically it’s not quite that good like we had another property that we were all into for was it 55?

Phillip: Yeah another house we bought in the south part of Kansas City we were all into it for $55,000 we only got a loan for 50 because that’s what we thought but we went over budget on a rehab, who’s ever done that before; nobody except us apparently. Everybody has done that once or twice if they’re open on a rehab.

So we tried to fully finance it but we only got $50,000 on the 55 all in investment. We got a 9% interest only loan that cost $375 a month. We rented that one out for $775. So we still have a margin there to kind of cash flow the property, within get an appraisal on it for $70,000 a couple of years later. We then refinance it for $50,000.

Pay back the private lender the $50,000 and we’re all into that property for $5000 of our own cash but now we have a cash flowing asset with long-term financing in place. So based on when a loan is 100% financing upfront they want us to get the asset re performing so that it’s cash flowing and it’s a good asset to lend on.

Then they’ll give us a loan on appraised value rather than just the money we had into the property.

Brandon: I love that so people ask me a lot like what’s my favorite no or low money down strategy like what’s my favorite of all the things hands down.

Josh: Oh wonder why you’re being asked.

Brandon: I did not even bring up the book on investing in real estate and all of that but people ask me what’s my favorite and like hands down hands that is my favorite, is working with a private lender to fund the entire deal. I did that with a member I met on BiggerPockets actually. He funded the entire $90,000 fiveplex that I bought.

I wrote about this like a year ago in an article called How To Buy A Small Multifamily Property I’ll link to it in the show notes. But anyway bought it for $90,000 the private lender funded the whole thing I just got the appraisal done like I don’t know two months ago. And I got a loan now for $90,000 long-term thirty-year amortized loan from a bank.

Andrew: Nice.

Brandon: Paid off the lender yeah and now like the whole thing took a few thousand dollars of closing costs and repairs because I didn’t borrow that money from him which I probably could've. But either way I mean the thing worked out really well. Now that sounds really awesome I was going to ask what are the risks of doing that?

Phillip: First of all Brandon…

Josh: Before you guys do that I just want to ask Brandon what kind of rate were you borrowing at from the private money lender and what kind of refi?

Brandon: Okay so I hope the private lender is listening to this but this but he’s a BiggerPockets lover. No, so it was actually a funny story; he asked me, “So how much do you want to pay? And I’m like, “I don’t know how about 12%?” and he goes, “Sure.” And now I’m thinking about it like I probably could've easily said, “How about 9%?”

And he probably would have been like, “Sure,” but whatever I picked the number and I paid 12%, refinance to I think 5.125 amount.

Josh: Nice and that’s a huge difference obviously so for those people listening you definitely want to make sure also that you could sustain that 12% and I mean…

Brandon: Correct and we were breaking even for that whole year, we didn’t make a dime on that property probably lost a little bit because we were paying such high interests but.

Andrew: I don’t know if this is true our dad has told us that like 9% is sort of like the best to aim for. If you go 10 or more it almost sounds a little like…

Brandon: Yeah.

Andrew: But if you’re under that it’s like it starts to get- and I know people can get less than that. I listen to the podcast with I think Dawn and she described funding and gets like 6% or something like that. Go for it, if you can get less go for it. But if you can cash like 9% that sounds like a sweet spot it’s not too high to sound ridiculous. But it’s also if you’re getting 0.2% CD it’s going to sound very appetizing.

Phillip: What we’re doing is very similar to flipping except we’re getting that 75% of the total ARV of the property but we’re going off of appraised value. And then instead of flipping it for all the cash, we’re refinancing to pay back the lender and keep our new equity in the property to hold the property long term.

Brandon: Love that strategy. Okay so what are the risks I mean what could go wrong in that situation?

Andrew: There are a couple of things that can go wrong one if you get lazy as a buy and hold investor sort of settling you could buy a property that doesn’t have equity in it and you can’t refinance it out. So you’re stuck with a high interest loan. Or if you don’t do due diligence and no very good budgeting and budgeting is not easy.

But you need to know what you’re going to get into. So you want to add contingency. You want to go through everything you read as much as you can. Jay Scott’s got a great book on it about Estimating rehab costs.

Josh: The book on Estimating Rehab Costs found on BiggerPockets.com/flippingbook/ what’s the book?

Andrew: Exactly.

Josh: Oh that one.

Andrew: And Brandon if you’d like to plug your book I mean what book, we’re perfectly fine.

Brandon: I’ll let you plug it sometime in this show.

Andrew: Okay Brandon’s book is one of the greatest I’ve ever picked.

Josh: BiggerPockets.com/NoMoney.

Brandon: There you go.

Andrew: It is a good book.

Brandon: And thank you.

Josh: It is a book yeah.

Brandon: It’s the best book ever written on that topic. I decided today I’m going to take grand cart on the standpoint.

Andrew: On any topic.

Brandon: On any topic it’s the best book ever written period I mean it’s like my book followed by like I don’t know I was going to say the Bible but that’s sacrilegious. So we can put the Bible followed by my book and then we got the others.

Josh: Says the junior wow you just got kicked out of your job man.

Brandon: I know I'm losing my job.

Phillip: Well there’s Aristotle and there’s like John Law Evan.

Andrew: Way above the rest there’s Brandon Turner.

Brandon: Yes alright good.

Phillip: There’s lots of risks; one of the biggest risks of this whole thing is property management that is something that really only buy and hold investors have to deal with because that's the only way you can extract the value of the property. People say you make your money when you buy but with the buy and hold strategy you never realize your profits until you manage. That’s when you actually see the money come in the door.

Josh: That’s a great point.

Phillip: So if you don't manage it correctly you cannot make money with buy-and-hold I mean going back to Warren Buffet if Geico doesn’t have a really good advertising campaign that everybody knows Geico because of the Gecko, then they make a lot more money because of that. You can't tell me a good property manager is going to have the same vacancy percentage as a bad property manager. So it’s all dependent on how well you manage the property.

Andrew: Our dad puts it as a circle you start with the acquisition, you have the rehab you have the property management and maintenance and you have the financing and all four pieces need to work. So if you’re not getting enough financing upfront you can’t buy, if you’re getting too high it’s…

Josh: Why do we have you guys when we could have your dad on the show Brandon, why did you even book these guys?

Brandon: They blackmailed me.

Andrew: We do all the work he just finds all the money and stuff.

Phillip: Yeah he’s off in like Tahiti right now so I hope he might be back sometime but we’ll also get him.

Josh: Must be a nice dad.

Andrew: No he works hard too.

Josh: Alright so you guys talked about management do you guys self-manage or do you have an outside company do it?

Andrew: We basically built our own management company.

Phillip: Yeah we chose in-house management over out house management.

Brandon: That’s the best quote I’ve ever heard.

Josh: Now at what point did you do that? Did you do that from the beginning? Brandon is like trying to hold his stuff together.

Brandon: I’m going to use that forever out house management.

Phillip: Now I mean it’s a question everybody has to ask themselves. You all have to figure out what is your goal, what do you want to do? There’s advantages and disadvantage to both. But our dad has taken property management on as a challenge of his since he kind of started his investing career in Eugene Oregon. We took that same thing over to Kansas City.

One of the main reasons we felt like is because the big advantage is no one is going to care more than us and these assets are going to produce as much income as how well we do. And there are a lot of risks with putting it with another management company. A lot of managers are going to be great. And if they can do a better job than you, give it to a good management company.

But I mean actually this happened three weeks ago or something in Eugene Oregon. The largest property management company in Eugene Oregon basically turned out to be kind of a pyramid scheme. They had 3500 units and then basically it went into receivership. And they ended up finding out there was $9000 in the bank account. And this was all tenant deposits, this was all owner deposits and basically …

Andrew: They hadn’t paid owner distributions in two or three months.

Phillip: Yeah so…

Josh: I had the same experience by the way with a different company so yeah.

Phillip: So it’s just you're only as good as your management and it was so important to the success of our company, we decided to keep it in-house and some point with 200 units the reason I got involved in the business was because I kind of became the head of the property management or company. I was playing poker for a long time that’s what I did professionally.

I saw the ideal investment with buy and hold and I’m like, “I got to get involved in this,” I jumped into the management and then we had to build our own management company because I can’t manage 200 units on my own.

Andrew: And I let him jump in with a lot of …

Josh: He let you and he won’t let you forget that little brother. By the way you we should get you and Jay Scott in a room playing some professional poker that’d be kind of fun to watch. I bet you we’ve got other pro-poker players.

Phillip: You’ve probably got a lot of poker players.

Brandon: We had another one the show.

Josh: Oh I know his face I just can’t think of his name.

Brandon: Ben Gryce yeah.

Josh: Yeah Gryce yeah.

Phillip: Yeah you’ve had a couple of them. So it’s just critical to the success of what you do so we kept it in-house because we knew how important it was.

Brandon: I love that.

Josh: And I know like this morning Brandon and I were talking about his property management ordeal so to speak and he's been kind of turning over more and more of his management to a management company. They’ve been doing it themselves.

Brandon: An outhouse company.

Josh: To an outhouse company. And there's a fair amount of not complete satisfaction with what's been going. And this morning you told me something really cool and I figure since we talked about it on the air you might as well just kind of get to where we are now Brandon which is…

Brandon: Sure so yesterday, again people listening to this over time probably think this is going on for months and months but we recorded a lot of these episodes at one time like within like a two-week time. But anyway so last night I sent an email to this property manager and just said, “Look this property has been vacant for three weeks now.”

“There's been no work done other than a little bit of emptying out of his stuff like nothing.” And I asked her the question, “Is this how long a turn over for you normally takes or is something going on that’s wrong with the situation?” and she got back to me right away this morning and said, “I'm so sorry and of course said her vendors and whatever were the ones at fault.”

But still she claimed responsibility despite it being her vendors that and she offered to like make amends not going to charge me for this month or the placement and she’s got tenants to move in now she’ll have it done by Friday. We’ll see that’s three days from now we’ll see but yeah hopefully she had a very good response. So I'm excited hopefully that works out I didn’t just…

Andrew: There are good management companies we don’t want to make it sound like they’re all awful.

Phillip: Yeah but you have to manage the manager. You have to know if they’re doing a good job or a bad job.

Andrew: Yeah.

Josh: Absolutely.

Brandon: And that’s what I’ve been trying to do like it’s a hard line trying to figure out how much is trying to do their job for them and how much is managing the manager. And that’s something I haven't quite nailed down, like even in the letter I sent to her I’m like, how much am I pushing her and how much of this is normal? It's hard to figure out but…

Josh: But like Brandon's in a different position than the average person I think because …

Brandon: Because I’m so good looking?

Josh: It’s because you’re clearly insane8.

Brandon: Oh okay.

Josh: No but…

Phillip: This man wrote the greatest book ever.

Brandon: The greatest book ever.

Josh: Well it takes a crazy man to write a great book.

Phillip: Yeah, yeah the line between brilliance and insanity, yes.

Josh: Yeah no, no because I mean like he didn't have a lot of choice right there's no property managers where he is and he's trying to train, I don't know this person who’s managing them but somebody who probably isn't super savvy, and try to kind of get them to work up to become really high quality. And that’s hard.

Whereas you’re in a major city or even a minor city the odds are you got five, 10, 20 managers you can choose from and you should be interviewing all them you should be meeting with them all and deciding, which is the best. You don’t just pick one you got to kind of talk to them all.

Andrew: Absolutely. And check the references too.

Josh: Oh yeah.

Andrew: I think that gets skipped a lot people just assume they’re going to give good reference. Like we called one reference for a property manager mentioned they had to come flying out-of-state and sit down with them for the whole weekend to work out their books because they were so screwed up which is the reference he gave me told me this.

Brandon: Wow.

Andrew: So I was trying to find a new contractor and I called his references they were all great and then he called me the next day and he was like, “I heard you called my references,” and then he goes, “It’s fine the problem is just like this is the first time it’s happened in 15 years.”

Brandon: Yeah.

Andrew: I’m like, “Are you kidding me?” so it’s critical to do it, they’ll tell you things. Even if they’re recommended is the person that you're asking it from, they will tell you things.

Josh: Awesome, awesome you guys.

Brandon: Great.

Josh: Alright so let’s move kind of to the next phase of this which is we’ve got big brother, we got little brother and we got pop all working together so we got a family business. What is that like I mean clearly you guys don't get along very well.

Andrew: Well I threw Phillip off into property management and so I mean that’s kind of I think it’d be a little bit of …

Josh: He lets you come in and manage the business.

Andrew: Exactly.

Josh: Don’t forget that he let you.

Andrew: Yes so I permitted you, you had to pull away from me but it’s worked really well for us. I think we’re all kind of on similar wavelengths I think we’re all pretty even too we’re not going to jump down each other throats. And we all have a good relationship outside of work. It’s worked great for us and it’s worked for quite a while. I don't know if that’s always going to be the case I think it really depends on kind of your situation.

And you need to have a very good relationship with your brother or sister or father, mother whatever and it should not be a good fit. You’re just in different wavelengths you have completely different ideas about how the business should be run. I think really you need to have a relationship one and two, you need to kind of fit in a certain personality wise. Not you have the same strengths and weaknesses but that you just kind of are on the same page.

Phillip: And you need to define your roles I mean that’s one of the things we’ve done really well. Our father is in-charge of financing. We help him with financing obviously but that’s his role at the company. He’s the person I know at it and he does a really good job. Andrew is in-charge of acquisition and rehab he finds great deals all the time. It’s amazing some of the deals he finds and then he fixes them up.

Andrew: What I do.

Phillip: Typically on budget to make it work. And then I have to focus on making sure money actually comes back to us in rent so I focus on the management and I’m kind of zeroes in on that. I help with the other stuff.

Andrew: Actually Phillip is master of tenant relations in a way that I have not seen ever before.

Phillip: I try to.

Josh: I mean he’s like the Aristotle.

Andrew: Okay I’ll let him tell the story but we had a tenant who was suing us I would say sort of legitimate like we made some mistakes. It was before Phillip took over property management. Phillip actually went into property management went out and then came back long story we’ll skip that.

But while our previous property manager was there a lot of mistakes were made. And she did a bunch of things wrong too but she had some case and she was suing us for $3500. In one conversation she was begging to rent from us.

Phillip: That is kind of true. So the important thing though with property management is you always have to be on the residents’ team. You always need to be on that team there's always a bad guy you are always the good guy. The bad guy could be the lease, it could be the law, it could be fairhousing, it could be the owner or your boss or whatever.

I mean I try to be truthful in everything I tell people but there’s always a bad guy but you’re the property manager you’re never the bad guy you’re always the good guy and always on their team.

Josh: I love that; that is awesome man. And that is gold right there, that is absolute, probably if you're listening to this and you manage properties or you’re a landlord that's probably one of the most important things that’s ever been said on this podcast no BS. That is amazing and true and true so yeah you have to do that.

Because you know what, being winter sucks I mean it really does and you always feel like the decks are stacked against you even when they're not, you feel that way. I’ve rented…

Phillip: And the property manager is against you too.

Josh: Oh yeah and I've been there man I've had some horrible property managers in properties I've rented and if they had just been there and kind of made me feel like I was the guy right, I wasn't the problem it was somebody else because I wasn't.

Well maybe a little bit but not really then it would have made a big difference. Yeah it was back in the day I mean yeah whatever. No, no but seriously that's awesome thank you for saying that because I mean I thought it was amazing.

Phillip: Well to get into the story a little bit what happened basically so this lady was suing us over some damage to her property because of a maintenance issue that she didn’t feel like it was dealt with correctly. So she stopped paying rent because of that ad so we ended up evicting her. She did get evicted.

We won the eviction case mainly because we had tried to fix the problems but she put extra locks on the doors and we couldn’t get in to fix them. So she lost that, she got evicted but then two days later in the mail I get, “Oh you’re getting served for small claims court for $3500. Well we have no guarantee of winning that; I have to spend a lot of time preparing for it. I just want to get this out of the way.

I’m trying to call this lady she’s not responsive her phone’s not working correctly, she just walks into the office one day and she's obviously not very happy because she’s suing us she’s telling us when she’s going to be out of the property. Comes in with this huge dude like this guy is just massive and it’s like I don’t know who he is. It might be the boyfriend or- I don’t know who he is.

Andrew: The Rock maybe I don’t know.

Josh: It wasn’t Tony Johnson.

Phillip: Yeah he’s not looking very friendly so I have to remind myself I’m the property manager my job is to fulfill the lease but as long as I’m fulfilling the lease I’m trying to find out the best solution for this person. It’s not necessarily a good solution that you’re finding but you’re always trying to work towards the best solution for the person you’re dealing with.

So I bring her into my office I figure out that she stopped paying rent because she thought her stuff was damaged and there wasn’t good communication going on. She stopped paying rent because of it and she paid it all back when she’s getting evicted but she didn’t pay the charges for the eviction but she still got evicted.

So really where she was she got an eviction on a record so now can’t rent another place, she has a judgment for the charges still owed and she just wants a new place to live and move on so.

Andrew: If I could jump in real quick, one of the things that is critical is to find out what does the person actually want and you get that through listening to them. So like Phillip could have just sat there and been like, “You put locks on the doors, you wouldn’t respond to our phone calls blah, blah, blah it’s your fault there’s nothing we can do.”

But instead he listened to her problem. Did she even bring up the property that was damaged? It was almost like her concerns were finding a new place and the eviction was making it very hard to do so. So like the property wasn’t even the problem and that was what we would have been thinking had you just sat down and listened to her.

Phillip: And talked to her and then I figured what she wanted, what we wanted was to get out of the suite, get the property back in good condition, so we basically just made a quick settlement. We’ll reopen the case for like $100, get rid of the eviction on your charge. I’ll write a letter explaining exactly what happened.

So you can give that to your new property manager to find you a place to live. As long as you leave the place in good condition you get your deposit back and you go move on with your life and you’ll drop the suit against us. And by the end of the conversation she said, “Well what do you guys have available?” because she was so happy that I actually was on her team.

Brandon: Yeah.

Josh: Yeah.

Phillip: She just wanted to stay renting from someone who actually cared about her and tried to figure out a solution with her instead of making this combative relationship which you’re never going to win. You can never make someone do something that’s not in their best interests.

Brandon: Yeah.

Phillip: So why try? Just follow the law, follow the lease and be on their team.

Brandon: Love that. Everything you said there I think like we could have done a whole show on just that one conversation so yes.

Phillip: You definitely could property management is so big you can do that definitely.

Josh: We’ll be having Phillips Syrios guys.

Andrew: What?

Josh: Sorry buddy.

Andrew: We’re going to do a quick little bit of self-promotion on our…

Josh: Aaah we’re done. Alright anyway…

Andrew: We’re done it’d be good yeah.

Brandon: Alright moving on that was awesome and I love the idea of having the bad guy we do the same thing right the lease or the law or whatever is always the bad guy and we’re just doing our job. And that works pretty well we want to help them out so I love that.

What are your goals with your business? To kind of wrap up here before we go to the Fire Round. Where are you guys headed what do you want to do with your business?

Phillip: Right now we want to keep growing in Kansas City eventually we do want to probably start a new city as well. We have been playing around with different ideas of how to do that. It’s still a little way’s off but right now we’re trying to just continue to grow at a fast but sustainable rate. We’re not trying to get ahead of ourselves.

But we’re trying to get somewhere between or probably about 40 properties a year. And maybe an apartment complex that’s our goal right now probably opening up into a new city sometime in the next couple years. We’re still trying to work our way better to do that.

Brandon: You can come to my town if you want I got some properties.

Josh: Buy all his properties get him out.

Brandon: Yeah I got some good properties. I’ll get it yeah.

Phillip: If we can buy all 40 properties there?

Brandon: Yeah everything.

Andrew: We’ll buy the whole city.

Brandon: You can own this town I think.

Josh: Buy the whole city.

Phillip: But my personal goal is really like I want to be able to have control of my life. I want to have a family, grow a family someday and I want to be able to, if it’s a sunny day outside and I have a couple of little girls one day I want to be able to go, “It’s a great day let’s go to the zoo and have a lot of fun!” I don’t want to be tied to have to do something every day.

So we’re trying to build a company that can sustain that workforce where really it’s just we’re creating opportunity with the wealth we’re building. And I mean we want to create that opportunity for ourselves; we want to create for our employees, for our lenders who’re making their return.

We want to make it for our renting. We’re just trying to create opportunity everybody and for myself personally it’s about having the freedom to do what I want to do in a given situation.

Josh: That’s great but what if you have two little boys?

Phillip: Then I’ll go play basketball with them or something.

Brandon: Okay yeah.

Josh: Alright just checking.

Brandon: I would say that exact same thing like when I do a BiggerPockets webinar which we try to do a week which people can sign up for at BiggerPockets.com/Webinar. But whenever I do them like one thing I talk a lot on those is like the importance of having that goal and not necessarily like I want to have a million dollars.

I mean that’s a fine goal if you want to have a benchmark to you to but understanding the why behind that. So what I would say is my why is because I want to sit in the front row of every basketball game my kids go to someday. I don’t even have kids but I want to be that guy that’s always there and the little girl in her ballet recital whatever like I want to always be that person.

And working nine-to-five job or eight-to-six whatever you'll never get that or at least it’s very difficult. So I love that I guys good job. Alright moving on let’s go to the Fire Round.

It’s time for The Fire Round!

Josh: No, no they don’t know what’s happening.

Brandon: We’re shooting you.

Phillip: I am so confused right now.

Josh: Guns are blazing you’re supposed to be taking…

Phillip: Or am I supposed to say something or like?

Brandon: No, no that’s alright we just want to go, it’s the Fire Round.

Phillip: Alright.

Brandon: Alright.

Josh: Damn!

Brandon: Alright the Fire Round, these questions are asked directly from users on the site in the BiggerPockets forums so if people are listening and want to check out the forums, BiggerPockets.com/Forums and these are just some of them. Number one; is it a bad idea to use your own money when it comes to buy-and-hold?

Andrew: No I don’t think so it depends. There’s a story in a book I like a lot The Millionaire Real Estate Investor about a couple and they would buy a house, they’d pay down all the mortgage and then they’d go to buy another one so they’d have no debt. They wanted no debt their goal was to have just a bunch of free and clear properties.

I think they finished at 25 or something they retires which is great, it’s not a very aggressive strategy but if your goal is to do in a safe way yeah absolutely it’s perfectly fine to use your own money if you want to be more aggressive and buy more properties then yes you’re going to have to use integrated financing or private money or something like that. There’s no problem with using your own.

Brandon: Great.

Josh: There you go great question, great answer. Hey speaking of the forums I noticed something today here’s a little plug for BiggerPockets we had a record yesterday, we had a record day on BiggerPockets yet another one but it was kind of cool, the first time that I've ever seen that we broke 2000 forum posts in a day. Not only did we break 2000 we were like 2150 forum posts on BiggerPockets.

Andrew: Wow that’s huge.

Josh: There’s a ton of activity, so if you're a listener and are not participating and getting active and getting involved in those conversations you’re missing out a lot of the energy that’s happening on the site. Anyway let me jump back to this would you do a buy-and-hold as a rental property on the same street as your primary residence?

And that's almost like saying would you house hack because if you’re renting like a multifamily and you’re sitting in one of the units I think it's kind of the equivalent but.

Phillip: I’ll say I do currently so yes I definitely would. There’s no reason to do that I mean, be the manager, be on their team there no reason it has to be a combative relationship. Just keep the distance if you have rules stick to them, if they’re not supposed to call you for a maintenance issue make sure they don’t do that just stick to your rules and you’ll be fine.

Andrew: I think one of the best ways to get started in buy and hold is to buy like fourplex with an FHA loan

Brandon: Yeah love that.

Andrew: And you would live in one unit and rent out the other three. So I don’t see any problem with living close or right next to people that you’re renting from just make it clear what the rules are and be fair, be firm.

Brandon: I agree with that actually but just a counterpoint to that so my wife and I talked about-our next-door neighbor moved they were foreclosed on and then the house was an REO and it was fairly reasonably priced. And we thought about it, I asked her several times should we just buy this thing. And she was actually adamantly against buying it.

Because she said she wanted a mental break from our properties and not have to drive by every single day all the time have to see it when the lawn has gotten long it's always just a drain on you like, “Oh now I got to deal with that.”

Josh: That’s a good point.

Brandon: Yeah so I fully agree with that so I think a lot of is personality I think part of it is also like we’re all young guys and we can handle that stuff we got this. But she’s wiser and more mature.

Josh: Speak for yourself.

Phillip: Yeah exactly.

Andrew: Well with me the people that I rented from them are even not a part of the company so which is kind of the way I like to keep it so I’m fine with it but we might have some problems.

Brandon: Nice.

Josh: Nice.

Brandon: Alright cool next question do you suggest living in a residence that you’re flipping or doing a flip-in or a live-in flip however you want to call it.

Andrew: I don’t think I’ve put a lot of thought into that. I think there are cases where it might make sense. I’ve heard people like buy a house and it’s okay to live in and they need some work and they do the work themselves while they’re living there and then they flip and move on to the next one. I think there are cases where it makes sense.

If you’re going for any sort of volume I think it’d be very challenging or if you’re trying have a sort of trying to settle plant and roots that can be very just bouncing from one place to the next and the next. So there are some instances where I think it makes sense than others but generally speaking I probably wouldn’t.

Josh: There you go. Alright guys last question, what’s the best way to avoid being scammed in real estate? And I know that’s really like vague and broad so maybe we’ll change it to what's the best way of being scammed by a tenant as a landlord?

Brandon: The best way to be scammed is this a scamming show?

Josh: To avoid being scammed.

Brandon: Oh okay that.

Josh: Please.

Phillip: I would say the most important thing of property management is who you let into your properties and doing screening upfront and getting the right people in. How a residency is going to work with the resident, is all going to be determined upfront of who you accept and who you do not let into your property.

So doing really thorough screening is the best way to do it and then after that it’s having rules, having a bulletproof lease and sticking to those rules and if you let go of one rule they’re going to think you can go through another rule.

Josh: Do you guys have a rules list?

Phillip: We basically put all the rules in the lease. Even if it’s a Missouri law we put that law on the lease and then go over it with them when they sign the lease so that they know this is the law and I’m going to enforce it on them.

Josh: Sounds great.

Brandon: Nice.

Josh: Awesome.

Brandon: Yeah love it. Alright let’s end this thing with the world-famous.

Famous Four!

Brandon: Alright number one what is your favorite real estate book and why? And you can each answer this question.

Josh: Didn’t they answer that already?

Brandon: Yeah the book on investing in real estate with no…

Josh: Why did I even ask that question?

Andrew: That’s all the answers that Brandon came through the book. All the answers.

Brandon: Thank you.

Andrew: My favorite book other than Brandon’s The Millionaire Real Estate Investor by Gill Keller. That one was sort of the first book that I read on real estate that really just hit home in what we’re trying to do and it goes about flipping and holding. And that’s a great overview, it’s a great first book and it’s also a great book for intermediates or even people who’ve been doing it for while.

Phillip: Yeah I read that book and loved it too. The book that really helped me with management is from Jeffrey Taylor it’s The Landlord Survival Guide it really turns property management from it’s not a drudgery anymore it’s about partnering with your tenants, coming with creative ways to run your business. And it takes property management not to just be a business that you’re running.

It makes you turn it into something that you’re trying to create value out of and to prove property management is more creative and trying to create a business out of it rather than just something you have to do. And it really helps you partner with your residents by the end of the book. I just got a lot out of it and it helped me with how property management works.

Josh: Right on.

Brandon: Cool, I’ve not read that one.

Josh: So what about business books favorites? Why doesn’t Phillip go first I mean you like to go first? You always like to go first. You’re a little bossy man.

Andrew: Okay, I’ll go first. If that’s your beat man, sure whatever. I don’t mind.

Phillip: I actually have two really quick I have to go over the first one Getting Things Done by David Allen which you guys have talked about a lot it just focuses you so much- I’m probably 10 times more effective because I follow that system. Otherwise I’d be stressed out all the time not knowing what I have to do.

The other one, the only book better than Brandon’s book is How To Win Friends And Influence People I could recommend that book to every person every day in my life, it is great for every situation. It’s just how you deal with people and it’s a textbook on how to do that. And that’s every part of your life and your business is how to deal with people. And just follow that book as a textbook and you will have much success in life.

Josh: Nice.

Brandon: Cool.

Andrew: All of Jim Collins’ books are great for business his most recent Great By Choice has really been influential. I think it’s one of my favorites. It’s probably my favorite now for sure. It talks about all sorts of things about The Shiny Object Syndrome how you want to focus, how you want to start. If you’re going into something new shoot a bullet not a cannon ball.

Don’t jump from thing to thing. You want to have consistent growth versus either stopping and hunkering down because of a 20 mile margin or going crazy and jumping ahead and trying to go from A to Z right off the bat. So that book I found very helpful.

Brandon: Cool.

Josh: Right on.

Brandon: I just got finish with Good To Great.

Josh: Good To Great.

Brandon: Yeah it was a great book.

Andrew: That’s a great book too.

Josh: Yeah, nice what about hobbies what do you guys do for fun?

Andrew: Who is starting this time?

Josh: Whatever, just do it okay.

Brandon: I’ll start I like long walks on the beach I like to go to… alright yeah.

Josh: Yeah you like having your dog lick your neck while you do podcasts.

Brandon: I know he was like … yeah I got to take a bath somehow.

Andrew: He’s just friendly. I love playing the guitar, I’ve really gotten into it.

Brandon: What do you have guitar wise?

Andrew: What do I have?

Brandon: Yeah what kind of guitar?

Andrew: What did I just get? I just got a new guitar it’s sitting right over there.

Brandon: Puts you on the spot.

Andrew: You put me on the spot and I completely forgot where my new guitar was.

Brandon: That’s alright.

Andrew: The neck broke and I need to go get it fixed so I haven’t like played it much yet. So it’s really put it in the show notes okay.

Brandon: Alright I’m going to put in the show notes.

Andrew: Yeah and then I love to travel I have not gotten do so recently but I do want to start traveling again in the near future.

Brandon: Nice.

Phillip: I have lots of different things that I like to do when I have time I still like to play poker when I get a chance, I love to play video games with my younger brother who is not pictured here you’re not listening to. But I play video games with him over online. I love to go dancing with my wife all sorts of stuff.

Josh: Why isn’t your other brother with you in the company?

Andrew: This guy listens to the cheesiest music.

Phillip: He is in the company he’s just not in Kansas City.

Josh: Oh he is in the …

Brandon: You guys are like the Kardashians all we hear about is like Kim and I don’t know what other kardashians there are but just like.

Josh: And they all look the same.

Brandon: Yeah but there’s these other siblings you never hear about I don’t know.

Phillip: There’s another one too that’s older than us so.

Brandon: Oh yeah you’re four yeah.

Phillip: There’s like a third Williams’s sister you got Venus and you got Serena and there’s a poor other Williams sister who nobody knows about, well he’s your brother.

Andrew: We know about him.

Josh: Alright guys Brandon, last question.

Brandon: Alright final question and you can each answer this if you want to. What do you believe sets apart successful investors from those who give up fail or never seem to get started?

Andrew: You want to do this simultaneously?

Phillip: No I got this one.

Phillip: The honest answer to this question is making money and having success because you never seen someone do real estate for 30 years who’s lost tons of money year after year after year.

Brandon: It’s true.

Phillip: So I mean honestly success builds on itself and if you’re working hard and you’re having access you’re going to want to do it more. And making money is kind of what keeps people involved I think.

Andrew: I call it The Goldilocks Zone you need to be always pushing ahead, always confident, always proactive except if there’s going to be challenges there’s going to be failures the people who persevere for that. At the same time you don’t want to go so crazy that you’re not going your due diligence.

You’re trying to buy way too much, way too quickly so you want to fall in the Goldilocks Zone, always persevere and pushing ahead but not going so crazy that you skimp on due diligence.

Josh: Like 200 properties in six months.

Andrew: My dad started the company in 1981. So we’ve been gone for a while.

Josh: I’m just asking. Awesome guys we’ll listen, really great stuff this has been a lot of fun, great show lots of great stuff including one of the best nuggets we’ve ever had in the show at least I think. And that came from Phillip so.

Brandon: Way to go Phil.

Phillip: I don’t know what happened but we’ll go with that.

Josh: I’ve been busting Andrew’s backside the whole time, come on. Alright so Andrew answer this where can people find more about you guys where can they find you?

Andrew: Well I write on BiggerPockets you can also go to our website it’s stewardshipproperties.com we just gave a presentation on buy-and-hold. Every part of it we’re not selling anything but we’ll have the videos up so if you want to I’ll post it on my member blog at BiggerPockets so if you want to watch those videos and get more on what we do and how we do it. And yeah those are the two best places to find me BiggerPockets or stewardshipproperties.com.

Phillip: And I do Twitter I have a YouTube channel I do all that kind of stuff. Andrew is great at writing about real estate and stuff I like to talk about it more so I do videos and stuff like that.

Brandon: Nice.

Josh: You’re a little more personable than he is.

Phillip: Just like Brandon is more than you Josh.

Brandon: Yeah.

Josh: I’ve had your back the entire show and then you just went and…

Brandon: They’re family you forgot Josh they got each other’s back.

Josh: Ouch nicely done.

Brandon: Alright it’s them against us.

Josh: Nicely done zinger wow.

Brandon: Alright we will link to all that stuff in the show notes again at BiggerPockets.com/Show121 and I’m going to stalk you on twitter are you following me, are we following each other?.

Phillip: I have no idea.

Andrew: I don’t like Twitter.

Brandon: What are you like a twenty-something guy or something, come on everybody has Twitter.

Andrew: I’ve got the Facebook.

Brandon: Okay.

Josh: Alright, listen it's been a lot of fun we thank you so much for being on the show. Alright before we roll out of here guys this is Show 121 of the BiggerPockets podcast definitely make sure to check out the show notes BiggerPockets.com/Show121. And of course if you're not a member of our community please jump on.

You to meet and hang out with guys like the Syrios brothers and earn from them and connect with them and engage with them and we hope to see you around the community. We hope to see you on our social channels Facebook Twitter, G+, LinkedIn, YouTube, we’re all over the place so definitely follow us and keep up.

And with that also if you have not yet left us a rating or review guys ratings and reviews please leave us one on-not Amazon-please leaves us one on iTunes and actually if you’re a reader of Brandon’s book or Jay’s books…

Brandon: The best book ever.

Josh: Yes or the two books from Jay Scott jump on Amazon and leave us reviews for these books. If you've read them they are amazing and please help us out by doing that. So that’s all I got for you I'm Josh Dorkin see you next week. I’m signing off.

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.

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Brandon: We’re not going to let them say bye? Bye. We’ll add this in after the song yeah.

Andrew: Bye, yeah.

Brandon: Bye, bye.

Josh: You guys that was awesome no seriously.

Andrew: Bye, thank you.