Want to Work Less and Earn More? Think Like a Pilot! With Steve Rozenberg

Brandon: This is the BiggerPockets podcast, Show 343.

Steve: I can get in the cockpit with any other pilot that I’ve never met. We can sit down, he has his systems and flows that he does, I have mine. We run the checklist, and it’s like we’ve been flying together for 30 years even though we’ve never met because everything is so systemized, and that’s why planes don’t crash. We don’t even flip a switch unless we’re pushing a checklist.

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Brandon: What’s going on, everyone? This is Brandon Turner, host of the BiggerPockets podcast, here with my co-host David Greene. What’s up buddy?

David: Not much, man. It’s another beautiful day. I’m wishing I was out there in Hawaii, hanging out with you and all these cool real estate investors.

Brandon: Yeah, you have to do that some time. Yeah, we just got down, and wrapped up some mastermind weekend with a bunch of really great investors including the gentleman that we’re interviewing today. So, this interview that we’re going to get to here in a moment, actually, we recorded it in person. Well, me and our guest were in person, Dave was over on the computer screen, which was actually fun. So, if you want to see the actual three camera angle, high quality video, you can check that out on our YouTube page, biggerpockets.com/youtube or YouTube.com/biggerpockets, both should get you there.

Brandon: Anyway, Steve Rozenberg is our guest today. A fantastic real estate investor, an airline pilot who uses the methodology that an airline pilot would think through like checklist, processes, systems, and he applies it to his real estate business. So, he’s built a really amazing business, both in real estate and property management, that takes very little time out of his actual life because he still has an actual career besides real estate. So, really phenomenal interview, and just one of the best people I’ve ever met. I mean, Steve is just a phenomenal guy, so I’m excited for that. Before we actually bring him in to the interview, I think it’s time to get to today’s quick tip.

David: Quick tip.

Brandon: Today’s quick tip is short and simple. We publish all of our podcasts over on YouTube. Every one of our podcasts is actually also on YouTube, so be sure the subscribe to our YouTube channel. In fact, sometimes the YouTube videos are just a little bit different than our podcasts, not usually too much but a little bit. And then there’s 10 times more content besides the podcast over there on YouTube. And Zach, who’s running the video platform of BiggerPockets has been just doing a really good job of organizing more and more and more great, high quality content over there. So, make sure you’re following us, you’re subscribed to our YouTube channel, and check it out there.

Brandon: One last thing, I don’t know if we mentioned this ,but we are transcribing every podcast as well, on the show notes page. So, for example, today, if you wanted to read the transcription of today’s show, go to biggerpockets.com/show343. All right, that was our quick tip for today, and now, before we get to the show with Steve Rozenberg, let’s hear from today’s show sponsor.

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Brandon: All right, big thanks to our sponsors, always. And now, it’s time for our interview with Steve Rozenberg. Hi Steve, welcome to the show. Good to have you here, man.

Steve: Thanks for having me. I appreciate it, guys.

Brandon: All right, so let’s get into your story, your journey, how you got into real estate. You’re a pilot now, right?

Steve: I am. Right, yeah.

Brandon: What I find fascinating, and we’ll get into this, is how you’re able to do that while working a job, and I know you’ve done some cool stuff.

Steve: Sure.

Brandon: So, let’s go very beginning. Why real estate?

Steve: Well, I would say at first, I never even wanted to be in real estate. I didn’t know anything about real estate. Grew up in Southern California, and my life was always, I wanted to be a pilot. Little kid, see the planes in the sky, it’s what I wanted to do. So, I was one of those people that really worked really hard, overachiever, whatever you want to call it. I got hired really young with the airlines, I got hired at 25 years old, with a major airline, and best job in the world. Right? So, I get shipped out, I’m flying out of Gaum in the South Pacific, flying all over Australia, Asia and then August of 2001, I move to Houston.

Steve: Obviously, a month and a half later, and I know I’ve been hit. Basically, what ended up happening was the safe, secure job that I thought I had being an airline pilot actually proved to be the most unsafe, most unsecure because the illusion of me being basically untouchable, because I had this air run job, and I’m in the union, and pension, and contracts. September 10th, I had the best job in the world. September 12th, I had the worst job, and the September 13th, I was given a furlough notice saying, “Thanks for playing. Basically, we don’t need you. We’re cutting contracts, pensions, good luck.”

Steve: So, you realize that when you’re so specialized in a field, there’s not much other things that you can do. You don’t have any other talents because you’ve been focusing your whole life on this one skill. So, it really is a point that you have to actually do a self-check on yourself to go, “Man, did I make a big mistake of this? Everybody told me this is what you do.” This is what our parents did. You get a job with a big company, and now it’s gone. When you’re dealing with situations like an industry churning, let’s say oil prices are churning, and oh, they’re laying off. This is coming, I need to prepare for it. This was in a matter of 72 hours, from the best job to nothing. So, it really made me realize, man, I need something else, and I don’t know what something else is.

Steve: So, it took me probably about three months just to get my head around the fact that I did not have a safe, secure job anymore. For people that remember that timeframe, all of a sudden, we had foot and mouth disease, we had SARS, Asian burger. I mean, it was like the locusts were coming next for the airlines. So, it was more and more impactful for me to realize that I needed something else to do, so I started reading books just to get an understanding. Everything gravitated towards real estate, everyone that was wealthy at some level was tied to real estate. I thought, “Okay, well, I’ll go down this path of real estate,” and I started just reading books. I read a book a week, on real estate, just devoured it.

Steve: I think because at that time I’m 29 years old, and I thought, “Man, I’m behind the curve. I’ve been going down this wrong path, and i need to make a hard correction. So, I need to do as much as I can.” Because if there was another attack, anything else that happened, I would be out of a job, and not only out of a job, but I’d be out of a job with about 100,000 other people just like me. So, now, where you going to go? And at the time, pilots that were losing their jobs were going over to Asia to fly, they were going down to South America. I’m thinking to myself, “I don’t want to do that. I don’t want to run just to save onto this dream. If it’s not there, it’s not there.” So, I just started learning more and more about real estate, and I started getting in, doing wholesaling back then. I was wholesaling option contracts and stuff like that.

Brandon: Can you explain what that is for those who-

Steve: Sure.

Brandon: … might not know what wholesaling is?

Steve: Yeah, sure. Basically, I would find somebody that couldn’t sell their property, and I would go ahead and put an option contract on it, which is basically a one way contract that they have to sell it but I don’t have to buy it. And then I would go, and I would find a buyer, and I would basically marry them up. I had equitable interest, so I had money in the deal. Maybe it was 10 bucks, maybe it was 20, depending on the day. But I would basically put those two together, and then I would make the difference of what I got the option at, into what I assigned the new price at for the buyer.

Steve: So, you’re basically putting them together, and you’re making the difference between the two. It’s a good way to make money. I mean now, obviously, everybody does it. Back in 2002, 2003, it wasn’t very known but it’s a job. You’re constantly putting people together, but I was using it as a means to learn more about real estate, understand verbiage, understand terminologies, and just get a lay of the land, and also build up money. So, I ended up building up enough money that I bought an apartment complex.

Steve: So, I went into partnerships with another business partner of mine, at the time, and we went in, and we bought, I think it was a 39 unit apartment complex. It’s funny, so the grass is greener. He wanted to learn what I was doing, I wanted to learn what he was doing. So, he’s like, “Hey, if you teach me,” and I’m like, “Hey, if you teach me.” So, we basically did that, and we exited that deal of the apartment complex. Turns out a church bought, the church next door bought from us cash.

Brandon: Wow.

Steve: Because it was a land lock scenario, and it was a C complex in an A-area. It was being re-gentrified and stuff, in Houston.

Brandon: I want to dab into that a little bit.

Steve: Sure.

Brandon: Because that’s, I guess, I don’t know, courageous, bold, whatever the word is. To go from I’m doing wholesaling of this houses, I’m going to go buy a 30 … What?

Steve: 39.

Brandon: 39 unit apartment. That’s a big jump. First of all, let me back in before we get there, do you recommend wholesaling? You said it’s a good wage job, it’s a job. Do you recommend that today, still, for newbies that are listening to this? Maybe, hey, go learn wholesaling, or would you actually recommend starting somewhere else?

Steve: The one thing that I’ve learnt about all these different things is a lot of people, they get into a … These are strategies, right? So, buy and hold is a strategy. Flipping is a strategy. These are all strategies, and if they don’t have the end destination of where they want to go in life or as a result of that, it’s like saying should this person get on the freeway, and start driving north? Well, where are they going? So, to me, it’s a good way to make money, it’s a good strategy to get you to a goal as long as they can identify what that goal is, and where they’re going in the real estate life. So, if they can’t tell me, “This is what I want out of flipping and wholesaling.”

Brandon: True.

Steve: Then, I would say maybe they need to identify that a little bit more before they just jump in. Because now, they bought a job, right? Now, they’re busy, they’re working, and don’t get me wrong, you can make a lot of money at it but it’s very competitive now. There’s a lot of people doing it, it’s the buzz word. So, I don’t think it’s wrong, I think what’s wrong is people get into it without the strategy to the end destination. I think that’s the challenge people have.

Brandon: Yeah, that makes a lot of sense.

David: Steve, I really like what you mentioned about needing an end destination. In fact, that’s where a lot of people, they don’t ever actually sit down and plan that. In fact, I think a lot of people are surprised that they’re actually going to be successful, they find themselves successful, they’re rapidly trying to keep up with their success, they don’t know where they’re going. Do you feel like you got that mindset from being a pilot, and part of a flight plan is you always have to know where you’re going and how you’re going to get there?

Steve: That’s a good question. I wish I could say yes, but the reality is the answer’s no, because the second half of my story is after we sold the apartment complex, we started buying a bunch of low income properties, and we got our butts kicked. Within about a year, we bought about 20. 20 in about a year, and all of a sudden, we had a lot of problems. I mean, these people called tenants started calling us. Right? They wanted things fixed, they couldn’t pay their rent, and nobody ever asked me, “Why are you buying those properties? Those do not align with what you want out of life.” Meaning properties that cashflow, appreciation. These may appear to cashflow but the way you want to run them as a passive income role is not going to work because again, we didn’t do that. So, I learned by my mistakes, and one of the things I talk about a lot is you can learn a lot by seeing how other people fail, and what they make of the failure.

Steve: So, I wish I could say that it was a strategy but the reality is back then, there was no BiggerPockets, right? There was no one to talk to, to say, “What should I do? Where am I going?” And if I would’ve had that, if somebody would’ve asked me that one question, why is this strategy going to get you to where you want? I would’ve said, “I don’t know where I want.” I think that would’ve cued something to go, well, maybe, you need to think about that before you start putting your money on stuff because my thought was, I’ve always been a hard-worker. I’m a grinder, and I thought, “Well, if 20 didn’t work, let’s buy more.” So then, we buy 35 of these or 40 of these things.

Brandon: Wow.

Steve: And it was like gasoline on a fire. I mean, it was unbelievable the problems we had. I mean, if I didn’t have the airline job, I probably would not be able to financially able to sustain the losses. I learned a lot of valuable lessons, and that’s why I’m such a huge proponent of telling people, “Look, don’t make the mistakes I made. Do this the right way, and sharpen the mental ax before you start swinging.” Because I’ve touched that hot stove, and I’ve been burned. I wish I could say I was smart enough to say I had this plan and this master strategy, but I really didn’t.

Brandon: Well, I want to know more about this. So, the apartment complex worked out okay, right?

Steve: Yes, it did.

Brandon: So, that worked out good, probably gave you some confidence. You’re like, “Oh, I got this. I know what I’m doing.”

Steve: We’re the smartest guys in the world.

Brandon: Yeah, exactly.

Steve: We just sold an apartment complex.

Brandon: We got this.

Steve: Yeah.

Brandon: So, you jumped from that, and then you bought, you said 30 or something like-

Steve: Yeah. So, what was going on is I was still flipping properties because I had a good system down for it, and we’ll talk about systems later. I had some pretty good systems around it, and we started seeing the market churning a little bit. This was 2007, 2008 where all of a sudden, people were not able to get as many loans. So, we were noticing that it was slowing, so we thought, why don’t we just hold some of these properties? So, my business partner, who’s still my business partner today in the management company, he says, “Hey, man, I found all these properties. There’s huge cashflow on paper. They’re super cheap, they’re called low income, high cashflow. We can get as many as we want of these things.” I’m like, “Well, we’re flushed with cash. We’re the smartest guys on the block, man. We just sold an apartment, let’s roll.”

Steve: And one of the lessons I would tell people is that is a different business strategy, and I never thought there was a business strategy to begin with. But more importantly, anything you go into, you really got to map it out to make sure that you have the strategy for the end goal. We just went crazy like two kids with money. We’re just buying stuff, buying stuff, and again, that was a big problem, that you think you’re smarter than you are. That was the problem with us.

Brandon: Why do you think those low income housing … Because a lot of people get really excited about the really cheap rental houses like back in the day, Josh [Dork 00:16:06], another host on the show, would make fun of Detroit all the time. It was like a running joke forever. Did you buy a house for a pack of smokes in Detroit? What’s wrong with those? What went wrong?

Steve: I can tell you what we did wrong, and from managing them, we were the ghetto kings for a while because everybody said, “Well, we’re just going to hand them to you, to manage in your management company.” So, we got to really understand the dynamics. First of all, the one challenge is the tenant, in general, is a month to month mentality tenant. So, right off the gate, you have a tenant, let’s say the rent is $600 a month, when you start doing this on a large scale, and I’ll talk about the state of Texas. I don’t know about other states but in the state of Texas, anything over four units, you are basically in the same pool with fair housing, discrimination. So, when you charge one tenant late fees, you have to charge them all late fees. You can’t let them slide.

Steve: So, al of a sudden, now, we can’t let this tenant slide, but these tenants are month to month. So now, you have late fees, the late fees are almost as much as half their month’s rent. So, what do they do? They skip. So, our average tenancy was eight months, our make ready costs were three times the amount because when the tenants left, they would take a lot of parting gifts with them, wiring, air-conditioning, light bulbs, I mean plants. So, we realized that it’s not that the model doesn’t work, it’s that the model didn’t work for the way we were trying to run it. So, low income properties are great, and I tell people it’s not that they’re bad, we were trying to be hands-off, and run it systematically where they all paid on time, every time, without any variances. As you want to scale that, I think that gets harder and harder because if you don’t, what a lot of people don’t realize, and one out of three landlords are in a lawsuit every year for some kind of fair housing discrimination law.

Steve: They don’t realize that they’re breaking laws by letting tenants slide on late fees, by not charging them. One thing that I had learned is that a lot of landlords, and again, I did it, I’m sure you guys have all done it, where you have a tenant that you let them slide on the rent. Well, a lease contract, and I’m not an attorney, but a lease contract, it’s a bilateral contract. Meaning if they don’t perform, meaning they don’t pay their rent, you have to perform, and you have to enforce that contract. Meaning if it’s in the contract that you’re charging late fees, you have to do it. So, again, you don’t realize that what you’re doing is you’re actually setting a precedent that you’re discriminating against your tenants, possibly, and you’re putting yourself in a bad position. Not only that but you’re putting your business, your family, your finances because you’re trying to let someone slide. So, if you don’t let them slide, what happens now? Now, they leave. So, it’s this vicious cycle. Again, I’m not saying they don’t work, but we had the wrong model for what those properties represented, and that was a mistake on our part.

Brandon: There’s a lot of really good stuff in there. I mean, we could pull out a ton, which is property management, lessons of it. Right? I mean, just the fact that you’re talking about if you let tenants slide all the time. First of all, I’d find that whenever I let tenants slide, those were always the ones that caused me problems later, anyway.

Steve: Once that pendulum swings.

Brandon: Yeah, exactly. If you give a mouse a cookie, they’re going to ask for a glass of milk.

Steve: Absolutely.

Brandon: It’s like that just keeps going. So, we started, and you probably do the same thing, we started … Because of the fair housing thing as well, a lot of people don’t realize this, I’m really glad you brought that. [crosstalk 00:19:22].

Steve: A huge …

Brandon: It’s huge, yeah. If you treat your tenants differently, you can get sued for fair housing problems.

Steve: Absolutely.

Brandon: So, don’t treat your tenants differently, instead rely on the lease. So, my wife has been huge, she wrote that in the book on managing rental properties. Make the lease the bad guy, because I’m a nice guy, I don’t like to do … It doesn’t matter. I would tell my tenants, “I have to do this or else I could get in trouble with legal stuff.”

Steve: Absolutely.

Brandon: Because it blames the government, it blames the lease, it blames the state, it blames the courts. It’s not my fault, I’m just doing my job. And everybody generally understands that.

Steve: Well, what I’ve learned, and not to go down this path of management conversation, but what we’ve learned is when you set the proper expectations in the beginning with the tenant, and we explain to them. Listen, we have 1,000 properties that we manage, that means we have 1,000 tenants, and we have about 800 owners, and everybody has a different definition of happiness. All we can do is run it down the line of what the law says, and the law is the agreement that everyone has signed. Our job is not to interpret the law, we have to enforce the contract. We tell them, listen, this is our systems, this is what is expected of you. I think the biggest challenge landlords have, especially new landlords, is they’re afraid to basically have that bad conversation of if things go wrong. We’re a business, and we explain to them, listen, this is what you can expect of us, this is when we will make payment, this is when we will fix your property, this is what is cosmetic, this is what’s inhabitable. These are the things that you’re responsible, we’re responsible, and then this is what we expect of you. If you don’t do it, here’s what will happen.

Steve: It’s like when the aircraft pushes at 12:01 off the gate, it doesn’t matter if you’re stuck in traffic or security line. It’s gone. So, you have to realize that you have to take the human factor out, and you got to run it like a business.

David: So, what you just described right there, Steve, is exactly why I don’t want to manage my own properties. We all know about fair housing laws, discriminatory practices, but I think the majority of people who want to own real estate or do, just think, “Well, I would never discriminate, so I don’t need to worry about that,” having zero idea of how discrimination is even defined. Because as you just said, not charging somebody a late fee could be defined as discrimination. What we would consider helping somebody could actually get you in trouble if you’re not offering it to everyone else. If you’re not offering it to everyone else, then you can’t have it in the lease at all.

David: I think that for the vast majority of investors who think, “I want to get into this, and I want to manage my own properties,” they need to start with the end in mind like you said. Do you want to be a property manager? Do you want to have a business of property management? If so, mange your own properties, learn on your own dime, that is a great model. But if you know you don’t, like me for instance, I never, ever bothered learning property management. After the first house, it went so bad, and I realized this is just a terrible waste of my time. I don’t want to get involved in this stuff. I let someone else do it, and I never looked back. I think that’s a very good point that you just made.

David: As far as your experience, what do you think makes a good property manager? What should people be looking when they’re wanting to pick a property manager?

Steve: That’s a great question, which I actually answer a lot on BiggerPockets for people but I think that one of the things is are they running a business? To me, and I’ll use my airline background, everything is about systems, policies, procedures and structure. I think one of the challenges with landlords is they don’t get into it thinking they’re running a business. One of the things I explain to people is when you’re running a business, whether it’s one property or 50, you own a business when you own that rental property, and if you are not going in there with the mindset of having a business plan, and having what is your income, what is your profit, who is on your team? I don’t know of you guys, I’ve never read a book that talks about how to become wealthy, and saying, “This is the part that you’re going to do yourself.” Everything is about leverage, everything is about getting smarter people in certain realms to do what they do best. There’s never anywhere that says, “This is where you should spend all your time.” And David, to your point, I don’t even manage my own properties. I hand it over to a company. It happens to be my company.

David: Sure.

Steve: But the point is it’s all about systems. So, if you’re talking to a company, in my opinion, and you’re asking them questions like what are your average days on market? What is your eviction rate? What is the average rental property price range that you manage? If your property’s $3,000 a month, and they mange $500, they may have a different way that they handle things in certain situations. To me, it’s not so much their answers but do they have the data to back it up? Because if they don’t have the data, that tells me they’re not running a business. Look, we know a lot of property management companies that don’t run like any business in general, they don’t run it correctly because they don’t have policies, structure, and they’re not running like a business. And again, we know a lot of landlords that do the same thing because they get into this thinking, “Well, I live in a house, I’m renting a house. It’s the same thing.”

Steve: I have explained to them, you’re buying four walls and a roof, it’s the business running inside the four walls, and the room that is actually going to get you that return because look, we all know a lot of people that bought great deals, and ran them right into the ground because they didn’t know what they were doing. So, I tell people it’s not the house, it’s the business running inside of the house, and that’s what a property management company should bring to the table, is their business model. I tell people, I say if we talk about self-landlords, I said, “Let’s say you owned 10 properties, and they’re $200,000 each, so let’s just say you had a million dollars in assets, and some guy comes off the street, and he says, hey Brandon. I’ve never done this before, I don’t know anything about the law, I don’t know how to deal with tenants, but I feel pretty good that I can run this for you, would you hire that person?” The answer is no.

Brandon: Yeah, no.

Steve: The problem is we are that person, and we hire ourselves, and now we’re running a business that we have no idea what we’re doing. So, the odds of being successful, of not hearing these horror stories, when you hear these horror stories … And again, we get a lot of the landlords after the fact, when they’re going, “Man, I got my butt kicked.”

Brandon: Yeah, what did I do?

Steve: “I don’t know what to do, I’m in a lawsuit.” And I’ll start asking them questions. Well, what is your policy for this? I learned that if you put the right tenant in, a lot of these problems go away. So, we have a very strict tenant acceptance policy, and we have a 1% eviction rate because we know that if you put the right person in, a lot more things go right after that. But if you don’t have a policy on that, and again, now you’re getting to fair housing and all that stuff, but it’s just a way to systematize your business so that you can …

Steve: I tell people you should systematize 80%, humanize 20%. If you can do that on a scheduled basis with anything, whether it’s using a virtual system or a software, or CRM, whatever it is, you’re going to make things a lot easier because you’re able to focus on the important 20%, and not the white noise 80% that really, it’s got to be done but it’s not important. So, long way to answer your question, David, I think that just see how are they running their business because that’s how they’re going to run your business in the rental property.

Brandon: That is such a good point. When I think of the property managers that I’ve had in the past, who’ve been horrible, and I think of the ones that I have right now, I have one that’s really, really good right now. I can clearly see the one that’s good has a very good business model. It’s actually a franchise, and they have a way of running their business, they know what they’re doing.

Steve: It’s a proven model.

Brandon: It’s a proven model, yeah. And the other ones were like, “I own some rentals, I can manage properties.”

Steve: I got nothing better to do, so I’ll manage yours.

Brandon: Yeah, exactly. So, that was rough.

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Brandon: So, walk us through the rest of your story. You bought these properties.

Steve: Sure.

Brandon: What happened after these 30 some properties that were just rough?

Steve: It was bad. Basically, my wife ended up coming to me, and said, “Basically, you suck a buying houses. You are not good at this. You need to stop.” My thoughts were, “I can fix this.” I kept thinking if I buy enough properties, I can-

Brandon: I can fix it.

Steve: … push through the hill. She was like, “No, you can’t. You need to stop.” So, what we ended up doing, my business partner and I, we sat down, and said, “Okay, we have three options. One option is we hand these over to a management company. The other option is we sell them, or the last option is we self-manage them.” First option, he says, “I know some management companies. Let me make some calls.” So, a week later, he calls me back, and he’s like, “We got a problem.” I’m like, “Did we buy another one, and we don’t know? What happened?” He goes, “Nobody wants them.” I’m like, “What do you mean?” He goes, “They said they’ll never make money. They’re always going to be a problem,” and he said, “It’s not going to work.” So, they didn’t want them. I’m like, “Okay, well, that sucks but …”

Steve: Now, it’s 2010. No one’s getting loans, can’t sell them. The last option was, okay, we need to figure this out on our own. So, he and I sit down for about six months as investors, and we plummet the foundation of how we would want our company to run, for self-preservation. So, it’s about six months, we kicked out about 70% of our deadbeat tenants, they weren’t paying anyways but they were taking up air. So, we basically said, “If we’re going to do this, we’re going to stick to it.” So, we did that, and what happened was we actually had other people start approaching us, other investors saying, “Hey, man. You guys seem like you’re fixing your problems. What are you doing?” We told them. “Could you manage our houses?”

Steve: Our first answer was no freaking way. We do not want your problems, we barely fixed ours. And then we started thinking, well, we can keep buying, we can keep marching on. So, we started taking on properties, and I mean, literally, within about six months, we had about 80 we were managing because they wanted to give us their problems, basically. And we were looking at it as investors going, “Okay, well, this is how I would fix it, this is what I would do.” So, it’s almost like we were giving them consulting. The first thing we did, the smartest thing we ever did is we went to a business coach, and we said, “Do we have a business?” He looked at it, and he said, “Well, you have scalability, you’ve got opportunity, you have market ability. By definition, yes, you have a business. You guys are not very smart based on what you’ve done. I don’t know if you guys can run it.” So, we hired our business coach that day, and-

Brandon: Good pitch.

Steve: Yeah, good pitch. Right?

Brandon: Yeah.

Steve: Good closer. So, for the last six years, we’ve had a business coach. Every week, we’re coached.

Brandon: Nice.

Steve: So, our company, flash forward now, we’re managing about 1,000 properties in three different cities, Houston, Texas, Dallas and Fort Worth, and we’re very big in scaling. We’re very well-known in the industry because I think we look at things as business owners, not as property managers. Everything to us is sales, marketing, acquisition. Everything we do is KPI’ed and tracked with spreadsheets, and we’re very, very detailed because the devil’s in the details. So, that’s how we’ve been growing and scaling.

David: It’s funny that you say that because what I’ve found is that no matter where you start, whether you’re a real estate agent, you’re a loan officer, you’re a real estate investor, you’re a house flipper, when you talk to people in the very beginning of starting something, they don’t even know what a KPI is. I mean, a lot of our listeners don’t know what that means. When you talk to anyone that’s been doing it well, KPIs or key performance indicators is the first thing they talk about. J Scott, he runs the BiggerPockets business podcast, he’s a big time house flipper, he probably doesn’t even care about flipping houses anymore. He’s running the business podcast because he learned it was business skills that he needed to run that well.

David: Brandon and I have had this talk before, and it was Brandon that told me it doesn’t really matter what you do. You just got to pick something, and do it because if you’re good at business, if you understand these principles and these fundamentals, you can make anything work. I’m bringing this up because a lot of people that are listening, they’re in love with real estate, that’s great. We’re in love with real estate too but to be good at real estate, you have to run it like a business. You have to understand business principles, and one of those that you mentioned is scalability, and that happens through systems.

Steve: Yes.

David: So, systems gets talked about a lot. We throw this word around, it’s always in a very general vague way. I get asked a lot, “Tell me about your systems.” Can you tell us, when you say systems, what you actually mean? And then maybe give us an example of how a system would be built, and how that would save somebody time and allow them-

Steve: Sure. When it comes to system, that’s a great question, and let me start by saying systems and checklists are vital, and they’re used in every business. We just don’t really notice them or see them. They’re very prevalent in the airline industry, so as an example, everything that we do has a checklist, and behind that checklist is an extended version of what that means. The way checklists are run, which is opposite of what a lot of people think, is it’s the things that will kill you that you check. It’s not the, hey, sit in your pilot seat, and put your seatbelt on. It’s hey, put the landing gear down when you’re going to land. So, it’s those kind of things, and people will inundate the small details of a checklist to where it’s a lot of white noise, which is not the way you want to do it.

Steve: Now, because things can be so systematized, the company I work for, there’s 12,000 pilots. I can get in the cockpit with any other pilot that I’ve never met, we can sit down. He has his systems and flows that he does, I have mine. We run the checklist, and it’s like we’ve been flying together for 30 years even though we’ve never met because everything is so systemized, and that’s why planes don’t crash. We don’t even flip a switch unless we’re pushing a checklist. So, with that being said, when we’re trying to scale our company, the one thing we learned, especially when you’re scaling a company rapidly, 50% of the systems and 50% of the people will break. They’re just going to break because what worked when we were at 100 properties doesn’t work at 400, doesn’t work at 600. We learned our job as leaders of the company is to always be looking ahead for the bottlenecks, and to figure out where the choke points were going to be coming that we could fix, and see them coming.

Steve: And again, it could be call volume. We’re getting 1,000 calls a month on our vacant properties. Didn’t have that problem at 100 properties but at 600 properties, that was now a problem. So, in any event, what we realized is first thing you have to do when you have a system that you’re trying to figure out, that’s automated, you have to first flow it out. What I mean by flowing it out is you take a basic flowchart, and say, “Okay, Brandon. What do you do on day one when rent is due? Tell me what happens.” Okay, now, tell me what happens. What is the next step and responsibility? You may say, “Well, rent is due on the first, and then it’s late on third.” Okay. Now, what happens then? Well, on the fourth, now, something happens. Okay. When something happens, who does that? Who is that person? Again, when people have a business, and they’re scaling this out, whether it’s flipping or anything, it doesn’t matter, you always attach the role, not the person. You never attach anything to a person because this goes into D profiling, and having the right person in the right seat.

Steve: But what you need to do is you need to make this so that anybody can walk in, look at this flow, which the flowchart ends up going … Let’s say, for example, you said on the fourth of the month, notice to vacate are sent out. That’s all it is, right? That could be a check item, but what does that really mean? Well, what happens is as you’re doing that, you’re creating a manual, a systems manual that actually says, in detail, what does that mean when you send out a notice to vacate. You’re going in the software, you’re going to check to see who’s delinquent, and you’re going to do this. So, that’s the detailed version. You checking off, saying, “Sent,” that means that you know what that expanded version is. So, then you’re going through all these systems, and again, we’ve been able to do this where the property management company, we don’t sell gadgets. We don’t sell product. We sell services, and those services are backed up by a lot of processes and procedures.

Steve: All of those or a lot of them are tied into one another. So, we have checklists that are cloud based, and a lot of things now are cloud based, that basically, one ties into the other. So much so that we actually have people in other countries, virtual assistants that actually do the task.

Brandon: Right.

Steve: Because the reality is if something’s scalable, right? And if you’ve been able to sit down, and basically, I don’t want to say dumb it down because that’s not the right term, but if you can make it to where it’s simplified, to that person knowing exactly what they’re responsible for on a daily basis per the checklist, and what that duty is, and if they don’t know that they can look it up somewhere, now it’s a scalable model. The reason a lot of people don’t put systems in place, or they don’t put checklists in place, and they don’t put outsourcing or virtual assistants, is it shines the light of a weakness in their own company, and they don’t want to do that.

Steve: So, as an owner, you’re going, “You know what? Don’t look over here, look here. I’ll just do it myself because nobody can do it as good as me.” The reality is everybody can do it better than you because if that’s their only task, they’re focused on it. When it comes to property management, there’re so many things going on, and whether it’s flipping, it doesn’t matter. There’s things that you’re good at, inherently, and there’s things that you’re not good at. We all have skillsets, and the way that we know if somebody is good or bad, and if they’re doing their job or not is through key performance indicators, which are the metrics. Those are what we call KPIs. So, the way we run our company is everything is based on KPIS. You can even take a step further as upper level CEO role of the company, we have them color-coded. They’re red or green. If it’s green, it’s good. I don’t care. If it’s red, maybe we havee a problem. If it’s red, two weeks in a row, we definitely have a problem, we need to look at it.

Steve: Is the parameters off? Is it a person problem or is it a system problem? Again, now, what you’re doing is you’re pulling yourself out to work on the business instead of working in it, and again, everything that we’re talking about is owning a rental property. It’s just doing it on a scalable model because the one thing, I think we all can agree, nobody gets into real estate to own one property. They know it. Look, they want to be you, they want to own hundreds of properties. They just don’t understand how to do it because they don’t understand scale, and they don’t understand leverage, they’re afraid to go out there, and get in that uncomfortable of saying, “I don’t know how to do it or I don’t know how to do the systems.” Because they think it’s a matter of owning the rental. I disagree. I think a rental property, in my opinion, is a mathematical equation. It’s an inanimate object. It either hits the mark or it doesn’t. If it doesn’t hit the mark, it’s like buying a stock, and that’s where I think people have a mistake with owning rental properties. They don’t look at it as business owners, they look at it as living in a rental and owning a rental.

Brandon: Can you give an example of a couple KPIs in your business that you look at on a year basis?

Steve: Sure, absolutely. One of the biggest challenges in owning a rental property, and having a management company is maintenance. Maintenance is a big problem. One of the things that we have are work orders that are over seven days. We want a certain percentage that are over seven days, we want it to be a certain percentile. Right? We want a certain percentile of month to month tenants. So, their lease is up, have they renewed? What’s our percentile? And again, normally, what you want to do is you want to have maybe three to five, you don’t want too many. But if you see a problem, then you got to dig deeper, and you got to put more KPIs on that. So, all of a sudden, you see that’s bleeding a little bit, we need to go a little bit deeper to see where is it bleeding because we’ll use a sales process for example.

Steve: If you have a salesperson, the salesperson’s not closing, I had this exact example where the salesperson was not closing doors, bringing in new clients. They were answering the phone, they were contacting the person, they were setting up the appointment but they weren’t getting the contract. If you didn’t have KPIs that actually broke down eac one of those steps, I would say that salesperson’s no good. But when I was able to break it down, and look at individual KPIs, I could say there’s a problem at the appointment with that salesperson not able to close. There’s a scripting problem. Let me go with this person, and let me see what are they saying. Went there, fixed the problem. It was that simple. If I didn’t have KPIs, I could’ve gotten rid of a good team member because I didn’t know. And to em, that’s not being a good leader, right? Because you got to investigate it.

Steve: So, sales step processes are huge for KPIs because you’ve got to break down. If someone’s in realty or something in sales, and they do not break down their sales step process to tell me everything that happens, and what those percentages should be, then they’re just winging it, and they don’t know. And then they don’t know what’s your conversion rate, what’s your lead rate. So, to me, maintenance, vacancy, eviction. Why would you get pissed? If you had to run a property, what are the things that would piss you off? If my property’s costing me money, if it’s making me no money, or there’s a maintenance on the property that’s not being done. Because ultimately, the tenant’s going to leave, and it’s going to cost you money.

Brandon: What’s great about this too is it translates this idea of KPIs. I’ve been talking a lot about this the last six months in the project.

Steve: Huge.

Brandon: Now, I’m obsessed with it. I feel like I’ve grown more in the last six months than I have in the last six years because of this idea of leadership, and this is what leaders do.

Steve: Absolutely.

Brandon: They look at KPIs, and they figure that out. So, if you’re brand new to real estate, let’s say you’re brand new, you’re trying to buy your first deal, your KPI isn’t going to evictions, it’s going to be whatever.

Steve: Sure.

Brandon: But you have something. Maybe how many deals have you analyzed this week?

Steve: Absolutely.

Brandon: How many offers did you make this month?

Steve: Absolutely.

Brandon: Once you start having the data, good data leads to good decisions.

Steve: 100% agree.

Brandon: Yeah, it’s huge. I mean, another perfect example, you said vacancy or occupancy, right? Two sides of the same coin.

Steve: Yeah.

Brandon: Was it four months to go, five months to go, I mentioned on the podcast here before but Ryan and I who work together, I set … Whoa, dropped my pen. So, Ryan and I who work together, we looked at our number like, I finally got good data. After the move to Hawaii, everything got crazy, I lost track of a lot of KPIs in my business.

Steve: Sure.

Brandon: Sat down, looked at it, and I realized I was at 15% vacancy, and I was always at five, six, four. I didn’t really track that closely.

Steve: Sure.

Brandon: But I know I was always better than I was, and I saw my revenue, my cash flow’s down dramatically.

Steve: Right.

Brandon: So, once I knew that, I dove into it. Me and Ryan investigated, figured out, oh, our vacancy’s really high. Okay, now let’s set a weekly meeting. We know what the number is. Every week, we set a goal. We’re at 95%.

Steve: Right.

Brandon: 95% we’re at, we’re at 85 right now. How do we get there? And then-

Steve: Absolutely.

Brandon: Just tracking it, it took a month. We were like, up at 95 because then we knew there was a problem there. We have a dozen KPIs now that we monitor on a regular basis.

Steve: Look, what’s a KPI right now may not be a KPI in the future. You fix that problem, and you go, “Okay, we may want to put one KPI, but we don’t need five on there now. We just need one.” And what we’ve learned is every time we have a problem, it’s because we don’t have focus on it. It’s like a rock on your shoe when you’re running. It doesn’t go away, it just gets worse. Whenever we have something, and we dig deeper, and we put our focus on it, we fix it. You ignore it, it doesn’t get better. It doesn’t fix itself, right? It’s like a bad tenant. They’re not going to all of a sudden make themselves right, they’re just going to keep getting worse.

Steve: And again, it goes to show, and to David’s point, business is business is business. I’ve been fortunate that I get to talk in Australia, I talk all over the US, when I’m done talking, they’re like, “That really wasn’t real estate related.” I’m like, “No. It’s business 101.” That’s what I’ve learned is we’re all running businesses, they just don’t realize they’re running a business. And if they can start to learn first to run the business and think of it that way, a lot more things become less emotional because we all know that when you’re making … I’ve never heard one person tell me, “Man, I was so emotionally fired up, and I made the best decision because of it.” Right? I’ve never done it, I’ve never heard of it. So, I tell people, I go, “If you think of it that way, that just goes to show that if you can run your business without emotions, and remove yourself with KPIs …” Because if you looked at it, you said, “Okay, here’s the problem, here’s how we fix it. Let’s fix it.” It’s very simple. And then it’s not emotional getting upset, it’s just fact. That’s one of the things I’ve learned.

David: You know what I like to tell people is that emotions are terrible when it comes to making a decision. Should I do this or do that? If you rely purely on emotions, we have to make stupid decisions. You want to make decisions on what direction to go in based on facts and logic, but emotions are wonderful when it comes to powering or fueling the journey. So, if you sit down, and you say, “You know what? This is where I want to go. We need to have a 95% vacancy or occupancy rate, we need to add this many units to our portfolio by the end of the year. We have to make this many offers,” that’s a logical decision. Now, let the emotion of how bad you want that fuel the effort you put into making it happen. It’s better than when you switch the two.

Steve: Yeah, I agree. To your point, if you go back to the rocket fuel and EOS system, there’s always a visionary and there’s an integrator, and there’s the leader. People want to follow a leader, and what people don’t realize is when you’re running a one person rental property, you still have to put yourself in different roles. When me and my business partner started, we had an org chart, right? Our business coach said, “Make an org chart.” So, we make this org chart, and our names are in every single thing but we realized that when we’re doing that task, that was our job, and we had to take the hat off and put the other hat on.

Brandon: Yes.

Steve: And that’s what we’re doing.

Brandon: Yes.

Steve: But to your point, David, is that people want to be led, and they want to follow a leader, and that’s the visionary that … We were told a long time ago, if you get bad employees, it’s because you’re a bad leader. You get the people you deserve. So, if you’re getting bad tenants, and you’re getting bad vendors, and you’re getting this, you’re probably a bad business person. And it’s probably something that you’ve got to look within you. If you don’t have that vision, that drive … People don’t go work for a dollar, right? They don’t come work for money, they work because they want to make a difference, and they want to be a part of something, right? BiggerPockets is a great example. People want to be a part of what BiggerPockets is doing. It’s not because they want to make money in BiggerPockets, they believe in the mission, the vision of what you guys are doing. That’s a great example. It’s not that you’re going, “Hey, I’m going to make money. You guys are not, so you guys should all join me.” They’re going to go, “I don’t see that vision, I’m not following you.” So, I completely agree with you.

Brandon: Yeah, that’s great. Just a few minutes ago, we did a Facebook live. [Taral 00:47:47] and I, up on my [inaudible 00:47:49], did a Facebook live. And then we brought you into it because Taral knew a story. For those of you that aren’t aware, Taral [Yarbor 00:47:55] was on our show, I don’t know, mid 200s, super cool investor. A good friend of ours out here in Hawaii with us right now. Anyway, so he had you tell a story on our Facebook live about your son. Can you tell us that story?

Steve: Sure.

Brandon: It was fantastic.

Steve: Yeah. There’s a great lesson that I learned from this, that I really try to pass onto people now. And again, it was never planned, I’ll say that from the beginning. So, I have a 14 year old son, he’s 15 now, and he basically came to me one day, and said, “Dad, I want to buy a rental property.” It took me by surprise. Now, understand that I’m on a lot of radio shows, podcast shows, anytime I’m in the car, I’m listening to an audio book or podcast. So, he’s immersed in it. Without me even realizing it, he’s getting it. You think your kid’s just sitting there, staring out the window, but he’s actually listening to this.

Steve: So, I said, “Okay. Well, you don’t have any money. How are you going to buy a rental?” He says, “Well, I do have some money.” I said, “Well, how much money do you have?” He said, “I’ve got $10,000.” My first thing was like how did you get $10,000 without me even knowing? But he said, “I’ve been saving my money, and I got this money, and that money. Can I buy a rental?” I said, “Well, that’s not enough.” He said, “What do you mean?” I said, “Well, you need more money. If you’re going to buy a conventionally standard deal, you need more money.” He said, “Well how much do I need?” I said, “Well, for a decent, you’re probably going to need about 20, 25,000.”

Steve: This was the thing that I thought was very interesting. He says, “Well, how do I do it?” I said, “Well, you got two options. You can either save the rest of it or you can try to get some creative deals, and maybe partner with someone.” He said, “Okay.” So, he comes back to me a couple days later, and he says, “So, if I save the money, I’m going to be 28 by then it’s taken me 14 years to get this.” And I said, “Yeah, you’re right.” I said, “So, what’s your other option?” He goes, “Well, you mentioned that you can partner with someone.” I said, “Yeah.” He goes, “What does that mean?” I said, “Well, somebody else can put in the money, and you can be 50/50 partners, and basically, you take on half the debt, he takes on half the debt, and you buy it together. Or you can do things where they run the property, and you put up the cash or vice versa. There’s many ways to do it.”

Steve: He said, “Well, would you go in half with me?” I said, “Well, what are the terms?” He looked at me like, come on, dad. I said, “Hey, this is business. This is how you’re going to learn because if you don’t know the answer to this, this is how you get burned. This is how people take advantage of you.” I said, “So, this is a lesson that don’t let me take advantage of you. Tell me the terms.” So, he went back, and he did some more homework, and what was funny is about three months prior to that, he was asking me about real estate. I talk about appreciation and debt pay down, and equity capture. He asked me to explain it to him, which I did, I explained it to him, and I drew a map of the US, and what properties appreciate where, and why people buy.

Steve: One day, I went into his room, and it was up on his wall. He was looking at it, and studying it, and he just was always up there on the wall. I never said anything, and then a couple months later is when he asked me this question. So, he says, “Well, how about if we did 50/50?” I said, “Okay. So, what are you going to do?” He says, “Well, I’ll put in 50%.” I said, “Okay. Who’s going to manage the property?” He goes, “Well, your company can manage it.” I said, “Okay. Well, is that a good deal?” He said, “Well, I don’t know.” I said, “Well, first, you got to work this backwards. You have to explain to me what is a good deal, what kind of property would make sense with everything taken out, all the expenses. What kind of property makes a good deal? What is your exit strategy on this deal?” Because, again, no one ever talks about the exit strategy, which is one of the things that I’ve learned that even if you don’t know what it is, you at least have to think about it. Is it a 1031? What are you doing with it?

Steve: So, we went through the gymnastics of it. He got a couple sample deals, and I told him, I said, “Listen, we’re not going to go looking for a deal until you can tell me what is a good deal because if you cannot identify a good deal, no one else is going to tell you if that’s a good deal or bad deal, and they’re going to rip you off.” I said, “You have to know what a good deal is to you before you can go outside this realm.” So, we went through the cashflow, the cash on cash return, and I forgot what exactly the numbers were but we both decided, okay, this is the deal. So, I said, “Okay, this is what we’re looking for now. Now we know, so when this deal comes across our plate, we know it’s a good deal. There’s no question. It’s not, hey, is this a good deal, is it not? It either fits our parameters or it doesn’t.”

Steve: So, the deal that we got was I didn’t want him to have to learn makereadies, or big rehab jobs. I wanted him to get a cookie cutter type property, and I had some buddies that … flipping and all that stuff. So, I told them what I was looking for, pretty much something done, knowing that … I said, “Listen, we’re going to pay more money for this but it’s done. Either pay now, and do the rehab, or you just get it.” This house, literally, we got the property, we closed on it. Four days later, we put a tenant in, it’s been rented ever since. Never hear about it. My son gets the cashflow. My wife makes him put 40% back into reinvest, to buy another property, and he gets to keep 60 himself.

Steve: So, now, understanding. I told him, I said, “Listen …” His name’s [Jet 00:52:49]. I said, “Jet. If you had 10 of these, think of the cashflow coming in.” He’s like, “I wouldn’t have to work.” I said, “Or you could work and exponentially speed this up.” So, he’s like, “That’s a good point.” I said, “But you’re getting in position.” So, his goal now is to own five before he gets out of high school.

Brandon: That’s cool.

Steve: And I’m thinking, “Man, I didn’t own a property, I didn’t own my first house til I was 30.” So, I just think the one thing I’ve learned, and you and I were talking about this in Seattle, is that we all work so hard to get wealthy, we all work so hard, and we never want to see our kids suffer. But giving our kids a portfolio of properties is not actually helping them. Teaching them the legacy of how to keep building that, I think … And again, I can’t take credit that I want to do this but now, I’m realizing how many people out there are out there trying to be successful, but they never teach it to their kids, and they’re not building a legacy for their family. Because giving them that money, it’s like giving someone a good deal. They can lose it just as easy if they don’t understand the fundamentals.

Steve: So, it’s something that I think is very important, to take this education that we’re all working so hard, grinding, trying to get better, and actually sit down with our kids or whoever, just show them how they can carry that legacy on. Because I don’t think many people do that, and I think it’s something that we should be doing because it’s going to stop, right? It’s not going to keep passing through generations if we don’t keep doing that. They’re going to day, “Oh, my dad made a lot of money, and I got the inheritance, and I spent it.” That’s not really doing them any favors, in my opinion at least.

Brandon: People often ask me if I’m going to home school [Rosie 00:54:21] or if I’m going to go public school with there, and I’m like, “Well, I’m going to home school her but she might go to public school too.” But either way, school doesn’t end at three o’clock.

Steve: Absolutely.

Brandon: She will know more about cashflow, and financial freedom, and wealth and all that when she’s seven.

Steve: Absolutely.

Brandon: And most people know when they’re 30.

Steve: Because think of what they’re learning. I mean, they’re learning a skill that they can … They’re learning that things that people fear are really not real. They’re learning these things. My son’s been on radio shows with me, I’ve got him speaking at events with me. So, he sees that, so the things that other people fear, he’s like, “It’s no fear.” Again, I just think you’re teaching them a skill that I don’t think they’re going to learn in school, I really don’t.

Brandon: Yeah, they won’t.

Steve: No, not at all.

Brandon: So, very, very cool story. I mean, the fact that you’re able to-

Steve: Yeah, I-

Brandon: You get to get more people [inaudible 00:55:05].

Steve: I agree. I think it’s something that’s such a void out there that all of us are working so hard. I mean, how many people on BiggerPockets are out there grinding, trying to make a living but they never really show how to pass it down. And again, I think we’re busy being busy. I don’t fault anyone for that but at some point you got to step back, and go, “Okay, what am I doing this for? Why am I doing this? How do I help other people, meaning my family, carry this on for me?” Because look, we’ve all work hard. Look, you’re in the middle of the night in Atlanta, David, I mean we’re here. I mean, we’re working hard to be better, we don’t do this because we’re getting paid to do this right here. We’re all trying to be better at what we’re doing in life. Right? But how do we pass that to our kids to be better?

David: In the real estate sales side, I see a lot of 25, 26 year old kids that are selling twice as many houses as me, and it blows me away. How did you do this? Every single time, it’s that their mom or dad was an agent, they grew up seeing. The stuff that we’re trying to teach people at 30, 35, 40, when they get a new career, that takes a long time to adjust the personality you got to have, the way you have to think. They’ve been seeing this since they were 13, 14, 15 years old. It’s not thing for them, and they walk in with this supreme confidence, and just start dominating right away. It’s because they have parents that cared, and their parents were often not top producers. They were just standard run of the mill agents, maybe a little better than average, but the kid who saw that for 10 years before they even got in the industry, flies right through.

David: I think that’s such a good point to make. When you’re the first generation of someone learning this, when you’re listening to BiggerPockets, and you’re trying to figure this out, and you’re reading the books, and you’re hammering away at knowing how to analyze a property, you’re trudging through this sludge, but you can lay a path behind you that’s like a nice, smooth concrete trail that someone else can come walk, and get much further than you were. I think we forget that it doesn’t have to be this hard. It’s very hard in the beginning, and then for Brandon and I, man, we can buy deals, and we can analyze in what takes maybe seven minutes. It just doesn’t take very long once you know what to look for. So, I can say, “Hey, Steve. Should I buy this house?” And you can say, “What’s the address?” And you can probably come back to me in 14 seconds, and give me a yes or a no, because you’re so experienced, right?

David: That did not happen when you were brand new, whatsoever. Once you got that, if you’re not passing it onto the next person like you just went through all the sludge for nothing.

Steve: Yeah, and the one thing I learn from our business coach in business, he always says business doesn’t get easier, you get better. To your point, right? The houses don’t get easier to buy, we just get better at what we’re doing, and it just goes to show that the more and more you work on your craft, and the more you try to refine it to be better, you’re getting better. It’s not getting better. It’s still the same house that we could’ve overpaid for, right? We just know it more, and we’re faster at it.

David: We need to tweet that, Brandon.

Steve: Trademark it, huh?

David: Yeah. Winds don’t get lighter, you get stronger.

Steve: There you go. I like it.

Brandon: Yeah, that’s awesome. That’ll be the new T-shirt. By the way, speaking of T-shirts, BiggerPockets now sells T-shirts. Biggerpockets.com/shirt, S-H-I-R-T. I finally, after five years of people asking, I went and put up the bird shirt on the website. So, anyway, go check it out. All right, so we’re going to move, now, to the next segment of our show, which we lovingly call our deal deep dive.

Brandon: Hi, remember that time you were driving around, losing a bunch of money? No? All right, well, if you’ve ever spotted a rundown house, you know, the perfect candidate for a flip or a buy and hold rental, and you didn’t have a system to do anything about it, then you might’ve been leaving money on the table. This is where Deal Machine comes in. It’s a smartphone app that lets you and your team pin distressed properties, look up the property owner on the spot, and send them a personalized postcard in seconds, directly from the app. You can set the mailers on repeat to make sure you won’t forget a follow-up, and while the app is sending a custom postcard, you can look up the owner’s phone number and email, instantly.

Brandon: Plus, if you want to find off market deals, you can now build a team of people to drive for you. Deal Machine automates the sign up process, and trains your deal finders without you having to lift a finger. You just get to track how many properties your deal finders add every day. So, go to dealmachine.com/bp to get a 14 day free trial, and 40 bucks worth of mail. That’s dealmachine.com/bp. Check it out guys, I ran into the owner, the founder of Deal Machine at a conference recently, he walked me through this thing, and now I can’t stop using it. Have it my phone, I use it all the time. I think you guys will love it, so check it out. Dealmachine.com/bp.

Brandon: All right, this is that part of the show where we dive deep into one particular deal that you’ve done, the DDDDD. And let’s jump right in. Do you got some in mind?

Steve: Yeah, I do.

Brandon: All right. I’m going to fire a bunch of questions at you, we’ll go back and forth, David and I, fire an answer. Number one, what kind of property is it, and where was it located?

Steve: Single family property in Houston, Texas.

Brandon: All right, fine.

David: How did you find this property?

Steve: I found it from an expired listings, when I was doing wholesaling, and the guy couldn’t sell it. So, I was going to do an option contract on it, and then I was going to sell it through wholesaling.

Brandon: Okay, so you were trying to wholesale it. You found it that way. How much did you get under a contract for it, and what were you going to wholesale for it? Do you remember?

Steve: I got it under contract for, I’m going to have to guess, it was about 72,000, and I had a buyer for 95,000.

Brandon: Okay. That’s nice.

David: And how did you negotiate the 72,000?

Steve: The way that I would go in negotiating is that I would come in with a cash price of maybe 60%, and then I’d come up to about 70% with the option idea, with a 30 day, give me a 30 day window, and I can get this done, and you’ll get a bigger deal. So, I’m working on their greed.

Brandon: Okay. All right. Okay, so I’m going to ask how did you fund it? You weren’t really going to fund it, you were going to wholesale it though but you-

Steve: I was going to wholesale.

Brandon: You were going to wholesale, you say, yeah. So, what’s the-

Steve: I was going to wholesale. There was an older gentleman, nice guy, and I felt bad for him. Mistake number one is got a little bit emotional in the deal.

Brandon: Sure.

Steve: And the buyer backed out at the last minute, and I was pissed, and I felt bad. It was going to be a slim deal, even though I got it at 72. It needed some work done to it. At 95, it was an okay deal for someone at 95 but for me, for my parameters, I didn’t like the deal, even at 72 because of what I was going to have to put into it. I made the ultimate mistake, and I just bought it because I felt bad for the guy. It was not in a good area, there was a lot of indicators that were saying it was not a good deal, but I made an emotional decision, which is never the right one, and I bought the deal. I think I used a line of credit, and I bought it with a line of credit.

Brandon: Okay.

David: Got you. That’s actually the richest man in Babylon, one of the rules they talk about is never do something to help someone else if it’s going to hurt you. [inaudible 01:02:06], that’s what that made me think of. Okay, so once you bought it, what did you end up doing with it? Did you keep it? Did you flip it? How did you go about this property?

Steve: I turned it into a rental. After my third tenant moved out, three days after, somebody came in, and borrowed some stuff from inside the house. It was about $30,000 in air-conditioning, copper wiring, refrigerator magnets. I mean, you name it, engines. They took everything from it within three days of the tenant moving. It was gone. So, now I’m into much more, and at this point I was done. I was just done with this. Was that your question? What did I do with it?

David: Yeah, so you kept it as a rental, basically?

Steve: I kept it as a rental. Yeah.

Brandon: So, what happened longterm, then?

Steve: So, longterm, we had a lot of people from Canada coming down, buying properties, and if you’re a Canadian citizen, you can’t get a loan in the US, but we were already managing the property. I had put the money back into the property to fix it, I had a deal with it. Because a lot of Canadians can’t get a loan, but they wanted to own real estate, I did a owner finance, I did a wrap.

Brandon: Oh, cool.

Steve: And I owner financed it to them with a 20 year amortization, with a three year balloon.

Brandon: Okay, good.

Steve: So, I basically sold to them. They bought it owner finance, they put it in LLC, and then they bought it, refined it out.

David: [crosstalk 01:03:30]. I love that you shared a pig with us and not a huge winner. That’s so-

Brandon: Yeah, that’s cool.

Steve: Yeah. This was one of those properties that every time my wife would say, “I told you.” This is an I told you deal, and I knew it from day one.

Brandon: That’s funny. All right, so …

David: All right, last question. What lesson did you learn from this?

Steve: Well, the obvious one to me was never, ever let emotions dictate a deal, never. That was the biggest one.

Brandon: Such a good lesson. No matter how many times I tell myself that, I still do it but-

Steve: We all do it.

Brandon: We all do it, yeah.

Steve: Hopefully, less and less.

Brandon: Exactly, yeah. We get better over time. We get better.

Steve: Yes, exactly.

Brandon: That’s another reason why it’s so good to … Steve’s here in Maui right now because we’re doing a mastermind get together with the high level investors, because we need that.

Steve: Absolutely.

Brandon: Other people look at our business, and be like, “Hey, what are you doing stupid right now?” I want you to tell me this week, what am I doing stupid? What am I not thinking about? Where am I letting emotion call my judgement? So, if you don’t have that in your area, people, find people in your area you can get together with. Invite them out, go somewhere cool like Maui, and get people that can get around you, and tell you what are you doing, what can you improve on.

Steve: Absolutely. If you’re the smartest person of your friends, you’re with the wrong friends. You’ve got to elevate yourself to smarter people, to tell you … And you got to be okay with people telling you, “Hey, you’re doing this wrong. It’s all wrong.” You have to be okay, not let your ego come into play because a lot of times, we all know, people’s egos. They don’t want to be told they’re doing something wrong, and that’s the challenge.

David: Become friends with Brandon Turner. You will not have an ego for very long.

Brandon: I don’t know what that means.

David: It means that you are not shy to tell people when they’re doing something [crosstalk 01:05:06].

Brandon: Hey, David-

David: You have a pretty good way of doing it but you [crosstalk 01:05:09].

Brandon: Hey, David, you should probably not wear pajamas everywhere you go.

David: What’s that?

Brandon: You should probably not wear pajamas everywhere you go.

David: Yeah, exactly. Exactly.

Brandon: You should probably dress a little nicer, David. Come on. That was the first, apparently, I told David when we hung out the very first time. I don’t remember saying that but-

David: [crosstalk 01:05:23] if you had better clothes, you look like a hobo. Like, hi, I’m David. Nice to meet you too, Brandon.

Brandon: I think we had been talking for a while, and you were talking about how you wanted people to take you more seriously, and I was like, “Well, you’re-

David: You’re 100% right.

Brandon: “You’re in sweatpants.”

David: I know that’s why I decided I wanted to be your friend.

Brandon: Okay, good.

David: Because you cared about me enough to say that without worrying about how that would make you feel. That’s what people need to look for in their friendships. Steve, you said your wife told you were not good at this. Right?

Steve: Yes.

David: Steve, it was not hard for her to say, “I love you, and you suck.’ This is not the part [crosstalk 01:05:55].

Steve: Basically, yeah.

David: And that was probably why you said, “You know what? Then I need to systemize this, and get other people that can do it. In order to do that, I need to have crystal clear systems,” and boom, you’re on the BiggerPockets podcast, teaching about it. So, tell people the truth. That’s how you love them.

Brandon: Yeah, there it is.

Steve: Absolutely, absolutely. I agree.

Brandon: All right, well, we got to begin wrapping this up. Normally, we would go through a fire round set of questions here, which are questions in the forms but to be completely honest with everybody, the sun is getting closer and closer into our faces.

Steve: I think we’re melting.

Brandon: We’re sitting here in the afternoon sun of Maui, and the sun has been going just down over the edge of where we are right now, and we’re about five minutes from getting blinded.

Steve: Close, it’s getting close.

Brandon: And our face getting bright red sunburn. So, we’re going to skip right ahead, and get to the world famous four. All right, Steve, let’s get to the same four questions we ask every guest, every week. Number one, either current or past, favorite real estate related book, other than the one you wrote.

Steve: Favorite real estate book. I would say my favorite book of all time would be Rick Dad, Poor Dad.

Brandon: All right.

Steve: So, it’s a mindset shift.

Brandon: It is, so good. That’s what I answered to, back on episode 92. That was my answer, so good. All right.

David: What about your favorite business book?

Steve: Favorite business book. The E-Myth.

Brandon: Yeah. I just finished reading that the other day. I was going to say this earlier, and I didn’t get a chance. I’ll say it now. You mentioned this idea where you had the org chart, and your names where on everything. So, I just re-read that in The E-Myth, and I don’t remember that from last time when I read it. Last time, all I remembered was don’t work in your business, work on your business, and franchise model, which I love. But this time, I really got that, it’s like org chart, every single person, every role … because it’s not about the person, it’s about the role.

Steve: That’s right.

Brandon: Ryan and I sat down the other day, and talked a lot about this. This is Ryan’s role, this is my role, this is what Lance Wakefield is doing. I’m doing three roles, Ryan’s doing 400 roles, and Lance is doing a couple roles. And that’s okay.

Steve: Sure.

Brandon: One of my roles is CEO. That is one of my roles but I’m also other little things like I’m building the slide deck for me real estate, that’s one of my roles I have to do. I’m the money raiser right now. Eventually, we’ll hire somebody to help raise money but right now, that’s me, so I’m both. So, we can take that hat off.

Steve: Absolutely.

Brandon: That’s totally E-Myth. I’m 100% on that.

Steve: Yep, and real quick for people that do the org chart thing, what I would suggest is, again, never, ever put a name by the org chart role. Also, I use DISC profiling, put a personality profile to what type of person should be doing that role.

Brandon: That’s so good, yeah.

Steve: Because you may go, “Well, Ryan does that but he sucks at talking to vendors, so he’s not going to talk to vendors. So, we’re going to-

Brandon: Sorry, Ryan.

Steve: … change the role around.” And that’s what you don’t do. It’s like, this is the role, this is the DISC profile, this is the duties, this is the KPIs, it’s unemotional. So, that’s the one thing I would say, never change it around the person.

Brandon: I had a call this morning with my business coach, I have one as well, have had a couple years now, been phenomenal. He encouraged me to do the same thing. He’s like, “Tony Robins and Michael Gerber have the same thing. There’s three types of people. There are entrepreneurs, there are …” Tony Robins calls them artists but Michael Gerber says technician, people who do the work. And then there’s managers, people who control the systems. Right? And he said everyone of those roles in your org chart is either a technician, a manager or an entrepreneur. Make sure that you’ve identified what those are, so your COO better be focused on operations, which is a manager role.

Steve: Absolutely.

Brandon: But your money raiser is going to be more focused on a technician or artist. Anyway …

Steve: We’re very big, we hire people on DISC profile.

Brandon: Yeah, [crosstalk 01:09:30].

Steve: So, we don’t care what the resume says. I want to know what is their DISC, and I’m going to hire a C person that should be a salesperson because I know they can’t do that. That’s just not their role. It’s like me, I couldn’t be an accountant, it’s not my role. I always say hire on DISC, and hire for the role, not the person.

Brandon: Yeah, and if people don’t know what DISC profile is, David, want to tell us real quick what that is? Because you’re good at this.

David: Disc profiling is one of my favorite things. In fact, this was the Rosetta Stone that helped me understand how to communicate with other people. It’s a way of measuring four different aspects of your personality. Disc is an acronym that stands for D, decisiveness, I would be interactive or influential, S is the stability rating, and C is conscientious or compliance. High D people make decisions very quickly in environments that they’re not used to. These are typically your CEOs or usually leaders. High I are often people the best salespeople-

Steve: I’m an I.

Brandon: Oh, me too. Sorry, go ahead, David. Sorry.

Steve: See?

David: You guys are [crosstalk 01:10:27].

Steve: You’re being I.

David: That’s an I move right there, to interrupt me in the middle. Is that what you wanted, Brandon, or is this too much.

Brandon: Yeah, yeah, it’s exactly.

David: I’s are influential people, they’re typically the best salespeople. These were the homecoming king or queen, the most popular people in school. Everybody likes them, they like to make people happy. They do really good in sales roles or concierge type roles. Your S is your stability score. High S’s are systems people. They like the same thing all the time, they really do not like change. If you give them a task, they’ve already done. They do it very quickly, and very well, they don’t like to let people down but they’re the opposite of a D. They don’t like to be put in unfamiliar situations, and have to make decisions there. Your C score is your compliance people. These are your engineers, your architects or lawyers. The people who really love policy, the people who love spreadsheets. If you take everything that comes your way, and try to put it into a spreadsheet, turn it into a formula, you’re a high C type person.

David: These are your really good analyzers but they tend to not be as good with the personality side, the networking type of stuff. So, just understanding that alone, where you fit in, will help you figure out what role you should play in your business. And then when you’re hiring, like Steve said, you don’t want to put a salesperson like a high I in charge of analyzing stuff or in charge of running operations. You don’t want to put a highly analytical person in charge of sales or raising money because they’re not very charismatic, they speak very monotone. They’re dry. That’s what he meant by getting the right people.

Brandon: Bet some high C’s out there are like, “Wait a second.”

Steve: Now, here’s a question. Do you know, statistically, what the investors are?

Brandon: No.

Steve: What would you guess?

Brandon: Investors.

Steve: Real estate investors.

Brandon: I feel like they would be high D’s but I don’t know.

Steve: What do you think, David? You probably know.

David: I would say it would be D’s and C’s. A combination of those two.

Steve: C.

Brandon: Is it?

Steve: Yeah, because it’s logic. It’s numbers.

Brandon: Yeah, it’s logic, numbers. Yeah.

Steve: It’s just numbers, so there’s no emotions. The reason they’re not D’s is they’re very impatient, and they’re more stock brokers, stock traders because they want it now. They want to control the situation. C’s are logical, they want spreadsheets and data. So, we DISC profile our customers. We know, statistically-

Brandon: That’s fun. Yeah.

Steve: They’re C’s.

Brandon: All right.

Steve: And when you’re a salesperson, you got to know how to talk. You have to talk C language to a C. You can’t be an I talking to a C, you’re not going to get a long.

David: That’s without even knowing the DISC.

Steve: Absolutely.

David: That’s just for yourself. It’s when I’m talking to Steve or I’m talking to Brandon, or I’m talking to Ryan, I have to do it differently, based on how they like to interpret [crosstalk 01:12:50].

Steve: Absolutely.

David: Which is why I just fell in love with it, because it finally helped me understand why a lot of people thought I was just a jerk, and I would run over people. That’s how I, D’s are, and I assumed everybody else wanted to be talked to that way too.

Brandon: That’s funny. Okay, let’s move on here. Next question. Steve, what are some of your hobbies?

Steve: Hobbies. Well, I work a lot because I’ve got multiple jobs and businesses. I go to the job.

Brandon: You clearly work out.

Steve: I go to the gym, yeah. I don’t look at it as a hobby, though. It’s funny, I’ve been doing it since I was 11 years old, it’s just what I do. I get up in the morning, I do my thing. It’s like breathing to me. It’s just what I do.

Brandon: Seven days a week, gym?

Steve: I go about five, probably. I mean, the older I get, the less I could … But it’s just what I do. I cannot function if I don’t go to the gym in the morning. And I would say probably ride motorcycles, I love riding motorcycles.

Brandon: That’s cool.

Steve: Yeah, those main things.

Brandon: And apparently diving. You just got out of the water, didn’t you?

Steve: No, I didn’t go diving with them. No.

Brandon: Oh, you didn’t?

Steve: No, no. But I do dive, yeah.

Brandon: Okay, all right. Last question from me. What do you think sets apart successful real estate investors from those who give up, fail or never get started?

Steve: I would say very simple, it would be consistency and taking action. Not being right, not being perfect. I think the ones that fail, they fail the start, and I think if you’re consistent, and you just get out there, and you’re okay making mistakes, and you’re okay failing, you’re going to be more successful than anyone else out there, which I think is attributed to my success and everything that we’ve done. Because we failed so hard, and we’re very open about it, and we have no ego about it, and we share it. So, I think consistency and basically getting out there, and not waiting for the stars to align before you pull the trigger on something.

Brandon: Fantastic, fantastic. All right, David.

David: All right, that’s the question of the day. Tell us, Steve, where can people find out more about you?

Steve: Sure. I’m on social media. They can find me on Facebook. Steve Rozenberg, R-O-Z-E-N-B-E-R-G. My property management company, Empire Industries. Www.empireindustriesllc.com. RozenbergSteve1 on Instagram. If they Google my name, I wrote a book. They can pretty much me, I’m all over the place.

Brandon: What’s the book called?

Steve: It’s called Building An Empire, Failing Our Ways To Millions. There you go. And on my website, I probably have about 300 video blogs that I’ve done, of education people on mistakes that landlords make, of finding the perfect tenant, and all the stuff that, again, it’s just our way of giving back. So, I do a lot of blogs, a lot of video blogs just to help people. So, if you want to learn some stuff, it’s not like BiggerPockets but it’s an educational thing for people that want to figure out what they’re doing.

Brandon: And you’ve been doing more speaking and stuff too lately, right?

Steve: I do a lot of speak. I speak around the country. I do a lot for either property management companies, for investors, as well as just for businesses.

Brandon: Very cool, very cool. All right, dude, well, this has been fantastic.

Steve: It’s been awesome, man.

Brandon: Really excited, yeah.

Steve: Thank you guys so much, appreciate it.

Brandon: Yeah, thank you.

Brandon: All right, guys, that was our interview with Steve Rozenberg. Hope you enjoyed today’s episode. Again, if you want to watch the video version, just go over to our YouTube page, YouTube.com/biggerpockets. Check it out there, and if you like this video, make sure you share with somebody. Go throw it on your Instagram or on your Facebook, or whatever, send it in an email to somebody, or write down the URL, put it in an envelope. Send it in the mail, and tell them to go check it out. No one’s going to do that. Anyway, Steve is a phenomenal guy, great investor. What do you think, David? I know you guys really hit it off as well.

David: Well, we have that in common with the same haircut.

Brandon: You do.

David: There’s a lot that we have, that you’ll never really understand.

Brandon: I could not, I couldn’t understand that. And yeah-

David: Steve is very similar to me in the sense we both had full-time jobs. I was a cop, he was a pilot, while building our empire, and we both focus on systems. We’re both very, very big into systems. Everything that I learn, I want to systemize it right away, and I think as Steve mentioned, real estate’s like any other business. You have to learn systems if you want to do it well. And any business can be systemized, that’s really the secret to scaling and success.

Brandon: Yeah. Very, very true. One thing that, we didn’t really talk about it, maybe you … Because Steve’s a super humble guy, and doesn’t like self-promote but he actually has a outsourcing company. He helps real estate investors find an outsourcing person, typically in Mexico, for a lot less than you pay in the US, for people to answer phone calls and whatever. So, I’m actually working with Steve right now, and setting that up in my business. Anyway, be sure to check out links in the show notes, biggerpockets.com/show343 for more on that. That’s all I got, so David Greene, you want to … I don’t know, should we get out of here?

David: Absolutely. This is David Greene for Brandon, “the mega mind of masterminds”, Turner. Signing off.

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