From waiting tables to scaling up to 250 units! Today’s show is going to blow your mind. Brandon and David sit down with James Dainard, a real estate investor in the Seattle area, who is using his broad knowledge of real estate investing to do some big things! James shares how he got started door-knocking for someone else’s company to learn the business—and things took off from there! He also shares how he’s finding 60 percent of his deals from the MLS, how he uses local zoning knowledge to find opportunities others are missing, and how he made over a million dollars off an MLS flip! James has some GREAT strategies he uses, including combining flipping, wholesaling, and BRRRRing; improving the return on his equity; and “inventing returns.” You’ll also be blown away at how he created a 60-room rental (!!!) property that earns over $9K a month and how he saves money on maintenance and property management by running it all in-house. James is a smart, humble, and experienced investor doing some very impressive stuff. Download this one today! Click here to listen on iTunes. Listen to the Podcast Here http://traffic.libsyn.com/bpradio/bpp-338.mp3Podcast: Play in new window | DownloadSubscribe: Apple Podcasts | Android | RSS Read the Transcript Here Brandon: Hi James, welcome to the BiggerPockets Podcast, man. Good to have you here. James: Yeah, thanks for having me. I really appreciate it. Brandon: Yeah, so let’s go through your story. I know you do a lot of cool stuff up there in the Seattle area. When we were hanging out at [inaudible 00:00:19]’s event there, I just kept hearing really good things about you, so I’m kind of excited to kind of dig into your story. So why don’t we go … What did you do before real estate, and then kind of walk us in that journey going from not real estate to your first deal. James: What I did prior to real estate is I was actually going to college at University of Washington in the business school and I was actually serving burgers at Red Robin. Brandon: Nice. James: Kind of making tips, paying for school. My roommate at the time actually went to work for an investment company going out and knocking on people’s foreclosure doors, and so I figured as a senior in college, I needed to learn really good sales experience and the best way to do that is to go bang on people’s doors that don’t want to talk to me. So for my senior year at college, I would actually go knock doors three days a week and try to find them an opportunity to buy. They would just give me a stack of leads, I had no training on real estate whatsoever, and I would go out and knock on people’s foreclosure doors or just other kind of sellers and chat with them and try to get them to sell. James: Honestly, I was terrible at the job the first year. I made zero dollars, but I knocked on probably- Brandon: Balling. James: Oh, I was just balling. I was losing my gas money every month. I’d go to Red Robin, I’d work on tips, get my tips, put it in my car, go out and knock on a door and get the door slammed in my face. Once I graduated college, I was like, “You know, I kind of like this.” Real estate really interested me. I was seeing people making a lot of money flipping houses and buying and holding properties and buying apartment buildings. So I gave it like a six-month commitment after college to work. Basically, I was working six days a week knocking doors to try to generate some deals and all of the sudden, the lights just turned on. James: I spent a ton of time researching the market, what to do, what HUD was, what a loan was, because I had no training whatsoever. And I just kind of fell in love with it after six months, and it went from making zero money to all of the sudden, I was getting some checks for like five, six grand from this company that would pay me to find the deal, and for a senior out of college, that was a lot of money, and it just kind of got me hooked. Brandon: So what does that look like? For those people who are listening to this and maybe saying like, “What were you saying to these people?” You were knocking on their doors, foreclosures. Can you kind of walk me through like what was the purpose? What were you doing, and then what were you saying to get them to sell you their house? James: So the purpose was, I was working for an investment company out of Bellevue, Washington, which is a sub-market in Seattle. Their purpose was, they had a lot of investors wanting to buy rental property or flip properties and they just needed leads and so they would hire guys like me to go knock on the door and back then, it was pretty funny, because I consider I look pretty young now, I’m 35, and I looked really young at 22. And so I’d be knocking on these people’s doors and they’d like, “What are you selling?” And they’d think I would be selling newspapers or something. I would just knock on … I even had earrings in, too, so I was really young. I’d knock on the door and I would just start it off with a conversation of, “I came by to talk to you about your mortgage, and i have some people interested in buying your property.” James: I just kept it very simple, and actually, I went out with a couple of the owners of that company and they’re pretty high energy, very sales-y guys, and that’s just not really my thing. I’m kind of more analytics and get to know people, like in restaurants, you learn how to take care of people and you learn how to serve them, and so I kind of just … I remember for the first nine months, I made no money, couldn’t get in the door, and then randomly, I talked to my mom and she said, “Well, Jimmy, just be yourself,” and literally … So I would just go out there and just talk to people, like instead of going out with a mission to go get their house, it was just more to chat with people and just have a friendly conversation, and then from there, I would get in the door and kind of talk to them about numbers on the house. Brandon: Well, it’s amazing how so many people, especially I see this with wholesalers a lot, people who are jumping into wholesaling or even flipping, door knocking, whatever, they think that they’ve got to be like the person they heard on the podcast, or they’ve got to be somebody else because the guru they look up to or the podcaster they look up to or whatever is a certain way. So they think they’ve got to put on this act like that person, but I love that you said that, just be yourself. Your mom was 100% right. Because people can see through that fakeness all day long. James: Yeah, so if you’re having problems, talk to your mom first. Don’t worry about the guru, talk to your mom. Yeah, and just really, just when you’re out wholesaling and you’re talking to people, it’s just getting to know them, getting to know their situation and what’s their need for selling. Sometimes sellers don’t know what their actual need is. A lot of times, when I get to a situation, it might just be that they have two, three kids and a house that’s way too small and it’s not that nice, and I kind of went in with an approach to help them get into a better living situation and by doing that, that actually … I was focused more on their solution rather than buying the house, and then that just started bringing me a ton of properties. So I created … At 23, I created this little business where I’d go out, I’d get them in credit repair, I’d line up movers, I’d find them a new rental property, and what that did, is it just got me a lot of deal flow and then from there, I started learning how to actually analyze the deals from there. Brandon: That’s cool, so you … Sorry. Go ahead, David. David: I was going to ask, how did you go from helping this company to doing your own first deal? James: Yeah, so part of working there is they would basically … One out of 10 contracts, they would allow us to purchase the property. So it was kind of like an incentive for the employees, and even with my employees today, I have that same incentive. I feel like employees that are passionate about real estate want to buy real estate, so they were getting me involved. My goal at 23, I was seeing all these guys making tons of money, I was like, “I want to be that guy,” and so they gave me an option, basically on my 10th contract, I was able to start picking out the one that I wanted. Brandon: That’s cool. I’ve never heard that before from a company, but I really love that, as well, because it gives the person who’s working for you something to look forward to. “Hey, when I do 10 deals …” That way also, it’s not like … I’ve worried in the past about hiring wholesalers or people to work with me, like what if they just go steal the first deal or second deal? Do they have a way to prevent that? And then after the 10th deal, did you get to pick any deal? Or was there a certain … It was just number 10? James: It was after our 10th deal, I got to pick any deal that I found after that. Brandon: Okay. James: I still had to pay the company their fee, which that’s part of the job, and I think with them … A lot of the guys actually … It was kind of weird. I was this 23-year-old guy and then all the other sales guys were like 35, 40, and 50 years old. So I was the young guy in the group, but I was also the guy working the most. I was working like 60 hours a week, and I was doing … By after a year in, I was doing two to three times more deals than everybody else, and so they were like, “Who’s this young kid?” James: But none of the older guys, they were focused more on the paycheck than they were about buying real estate. So besides my business partner, we were the only two guys in the company actually taking the employee option, which was kind of crazy to us, because for me, real estate’s about building wealth, not just making income, and you can do both, but at the same times, if you just rely on checks, you’re going to run out of checks at some point. My goal was not to just involved and make a bunch of checks. It was, I want to build wealth. So my first goal was to buy my own property, which happened about 11 months, or about a year into working there. Brandon: So let’s talk about that first property. What was that? James: It was in Burien, Washington, which is a sub-market of Seattle. It’s about five, 10 miles south of Seattle, the core area. Actually, the reason I picked it, it was a 2001 built townhome. It was townhome style, really good condition. It needed carpet and paint, and at 23, I just knew I really didn’t know how to renovate a property. That was not my skill set. My skill set was finding the deal. So I wanted to find something low maintenance, that wasn’t going to distract me from my daily duties of working, and so I found this newer building. I paid $176 for it. At the time it was worth $245. So it had that equity position that I needed, because also what I was looking for was something with at least a 20% equity position or discount, because I wanted to … At 23, I didn’t have a whole lot of money, either, so what I had to do was line up financing for a first and a second with somebody so I could refinance them out of the deal. James: So I was looking for something that didn’t need a lot of work, that I could refinance quickly, that had a 20% equity position, and for me, I’m a firm believer if you’re a newer investor, don’t bite off more than you can chew, so it was a really good property for me to just start with, and it cash flowed me about $250 a month, too, so it was just kind of a win for me. Brandon: Okay, so it was a rental property. How did you finance it, then? Did you say that? James: Yeah, so how I financed it, I actually did a first mortgage with a hard money lender around town, and then I got one of our investor clients that liked me from finding him deals, what I did is, I did a really in-depth analysis of the property to make sure he knew the equity position was there, and then I got fully pre-qualified for a refinance with 100% commitment from the lender, and so I went to him and said, “Hey, can you do me a … I’ll pay you,” I paid him 12% interest and he did my second mortgage for me, and then he felt comfortable because I was all prepared, so I was in and out of the loans. I was only in hard money for two months because it didn’t need very much work. And got him refinanced and that was my first deal. James: From there, I actually took a HELOC out on the equity to then be able to purchase my next property. So I used that 20% to get me into the next few deals from there. Brandon: That’s cool. All right, so basically the way we talk about it today, right, is BRRRR-ing. You bought it, it didn’t sound like it needed that much of a rehab, but you bought it, rehabbed it, refinanced it, paid off the hard money lender and the private lender, which is a phenomenal strategy, by the way, and then you then … Now you own this rental property, it’s cash flowing, and because you had still equity in it, you were able to tap into that equity using a home equity line of credit and go buy something else. Did I sum that up good? James: Yeah, and so what I did is, I didn’t want to over-finance the deal, and so the HELOC gave me that … Instead of having to get a private money lender at that point, it gave me an additional about 40 grand with bank financing to be my next down payment. Then my goal of my next purchase was to find something, very similar kind of situation with a 20% equity or more and then that I only had to put $40,000 down. So I had to find something with a purchase of less than 200 grand. Brandon: Okay, yeah. Awesome. James: Yeah, the leverage put me into a whole nother position. But that’s why buying that first deal is so important, to get a good equity spread because you can maximize off that and start building your portfolio. Brandon: Yeah. Yeah, so I love that. I’m a big, big believer in buying stuff that you can build that equity right away, again. How do you balance, though, I’m curious, between somebody who’s just getting started, they’re brand new, they’re looking for their first deal, buying a deal that has tons of equity and just buying something so they get their foot in the door? If you’re talking to a new investor, how do you typically advise them? How good of a deal should they go for their first deal, and where’s that line between just getting something done? James: What I always tell people, and this is the same thing I do myself, is what kind of capital … As an investor, I always have a certain amount of money set aside for my investing and long-term holds, whether it’s what I … For me, because I’m also a big flipper, and so I flip about 100 homes a year, and what I do is I take 30% of that profit off the flips and I allocate it for my buy and old. Brandon: Oh, cool. James: And so … because like we were saying, money comes and goes, and for me, if I take 30% aside, it’s going to build my wealth, not just my income. So for a newer investor, I always tell them, “Hey, the first thing you want to do is find out how much money you have to work with and then from there, build the plan off of it.” If you only have 10, 20 grand, that’s okay. You just have to start setting your plan accordingly to what you can do with that 10 thousand. When I’m talking to an investor if I only have 10 thousand I want to put to work, I might look at cheaper sub-markets out of Seattle, because you can still get a good buy and hold and get good cash flow off it and put it to work, because … James: Sometimes just getting your first deal done is the most important thing because you get to learn your processes, you get to learn your strengths and weaknesses, and then … Just don’t buy any deal that crosses your plate that’s a big discount deal because if you’re also new, you might not have that construction background. For me, I didn’t go … I kept all with condos at first because they were easy for me to do, and then once I started flipping a lot of homes, it gave me that skill set to buy these deeper discounted properties and then get them refinanced and pull out cash and then reinvest the cash. James: So I kind of took it in steps. My first four buy and holds were all condos and as long as they were good deals on the condo and I believed in the market and the rents were very consistent, that was a good way for me to go. Plus, as a landlord, I kind of liked that condos handle all the exterior maintenance. I didn’t want to have to deal with all the maintenance and the wear and tear, because I didn’t have the skill set to do it now. Nowadays, I don’t really buy condos because I do have that skill set, but it’s a very good starting way, or sometimes buying a newer built house is good, too, just because as you’re learning all your maintenance [crosstalk 00:14:07]kind of issues. Brandon: Yeah, that’s a really good tip. I’ve always been nervous about condos, but then I look at them. I’ve got a buddy out here in Hawaii, his name’s Greg, and Greg buys condos up near the airport area. Not the greatest neighborhood, not the greatest complex, pretty low income, but the guy’s picking up condos for significantly cheaper than the average thing in Hawaii, and he’s making cash flow, like … I should get Greg on the show sometime, because it’s like stupid good cash flow on these properties that are like Section 8, lower end condos, but when he explains it to me, he’s like, “Look. They take care of all the exterior maintenance, they take care of the building itself, I go in,” he completely renovates these condos when he gets them, which doesn’t cost that much money, because they’re little one bedroom cement boxes, essentially, and the guy’s just making a killing off it. Brandon: So anyway, I was always scared of condos, but I never got into them, but it can be a fantastic way to get started. Yeah, you’re probably not going to make … you’re not going to scale necessarily condos to thousands of units. Some people do, I suppose. But yeah, not a bad idea to get started. James: Yeah, because condos do have risk. You want to make sure the HOA certs [crosstalk 00:15:13]reserves, because that can really affect your cash flow. Like one condo, I got hit with a $9000 assessment. I wasn’t really [crosstalk 00:15:20]- Brandon: Really? David: That’s the part no one talks about, is we all know there’s an HOA fee every month, but you can work that into your numbers. What you can’t work in is when, “Oh, a tree fell on the roof and there’s no money in our fund, so everybody’s got to kick in eight grand to pay for a new roof,” and that goes like two years of your cash flow is gone for something you couldn’t control. James: Yeah, and that is … One thing is, the maintenance is nice because they take care of it, but then again, you also have HOA people who are not usually investors hiring out the work, and that was my biggest problem, like you guys just spent … I remember I had that assessment, it was for a fence and a roof, and they spent a ridiculous amount of money on fences and I was like, “I’m not okay with this.” David: It’s like when the government tries to take over and [crosstalk 00:16:04]. James: Yes, exactly. David: There’s like no motivation to do it cheaply, and you’re like, “This is seven times what I would pay for that same fence,” and they’re like, “Yeah, well. You’re not HOA.” James: That’s funny. I can’t stand wasted budgets. It drives me nuts. Brandon: All right, so let’s go … You mentioned a second ago something that is kind of shocking. You said, “I flip around 100 houses a year.” Is that what you said? James: Yeah, about a hundred. Brandon: Okay, so I want to know, how did you go from … First of all, how do you go from the guy who buys a condo and then buys a second one to “I flip 100 houses a year”? Can you walk us through in like a minute, how did you go through that transformation? James: Yeah. I’m just a little crazy and I like to work too much, but … and I think I like to torture myself. But when we … So I got involved in real estate in 2006 and 6, and I started my business in 2008 on my own. That was right when the market just fell of a cliff. So during that time, we were starting from scratch. Back then, investors didn’t want to touch … You could just give something to someone for free and they would not want it. They’re like, “Ooh, real estate? I don’t want it.” So what I started doing is, as a wholesaler, we’d find these really good deals back then because again, even sellers were just giving away their properties, but no one wanted to buy them that much in like 2008, 9, and 10, and so what we did is, we kind of became the buyers. For us, it was about … because again, wholesaling wasn’t that profitable, either. You could get a really good deal and maybe you get five grand out of it. James: We decided to … We got lined up with a couple different lenders to finance us, and we started with just kind of cosmetic flips where we would actually do them a little bit nicer than everything else, like add in the extra tile, the granite, and be very thrifty about how we would buy these things, and also we would factor they’d be worth 10 to 20% less by the time we were done with them. So what it did is, we started with one to two and we’re like, “Okay, we’re making 20 grand a house and this is something we can live off of,” because wholesaling was really low … Because a lot about real estate is just adapting to the market and you’ve got to put together your systems with whatever’s going on in the current market conditions. James: For us, because no one was really buying, it allows us to get some really good deals out there, and then we just started flipping slowly and kind of building our systems and went from doing like 10 the first year and then we started doing 20, and then by the time the market started heating up in 2013 and 14, we had already started, we kind of saw the trend and we went heavy in and started doing about 40 to 50 houses at a time with a big team and then we saw all the upside and appreciation. Right now, I’m not flipping … I have been doing about 100 a year. This year, I’ll probably do 50 because I’m just trying to be more strategic with the market conditions. But yeah, it’s just hard work and no one wanted to buy it, so we just took the risk and bought it ourselves. Brandon: That’s amazing. I love that story, because people who listen to this show, a lot of them are on their first deal, their first condo, their second, their third, their fourth. So I just like people to know, it doesn’t take 20 or 30 years to scale up to a sizable business. You just, I don’t know, put in the work, constantly learning from your mistakes, figuring out what you can do better next time, and having that vision, I guess, just kind of moves you forward, which is awesome. Brandon: Now, you said we. Who is we? You have a partner involved in this or somewhat? Right? James: Yeah, my partner, Will Heaton. We’ve been partners … We were actually roommates when we started in college. Or not … He’s six years older, he’s older than me. He’s six years older, but me and him were roommates when he started working at this foreclosure company. He’s been a sales guy for a long time, and then … So we’ve been partners since day one in real estate together and we haven’t shifted since. We own all our business together, we own all of our rentals together except for I do own a few of my own personal rentals that I’m always trading around, but yeah, we’re just 50/50 partners. Brandon: That’s cool. Let’s talk about that for a minute. What made you want to partner with him? What made him a good partner, and kind of maybe relate that to people listening to the show. How can they find a good partner? Obviously, it’s been good for you guys. You’ve been blowing up. What made that so good? James: You know, the biggest thing with … I’ve had a lot of partnerships over the years, and some have worked really well and some have not worked that well. Having a partner … My biggest thing is making sure that A, your core values are on the same page. Right? That starts with integrity, it starts with honesty, and then it also with work ethic. Everyone’s got to be on the same work ethic page. Then Will and I, we just had a passion for not just, again, going out and making checks. We wanted to build wealth, and that’s been our focus, is to … We went from, I think, probably in 2009 was the first year we bought our properties together. We started with a couple, and now we’re up to over 250 doors. That’s because me and him are on the same vision, the same line, that we want to build a long-term wealth portfolio of real estate. So as long as our core values and core investing principles stay together, then we’ve been able to be really good partners. I mean, we’ve probably had only like six major … big discrepancies in how we decide things in the last 12 years. So it’s very rare. We’re just on the same page. Brandon: That’s cool. David: Okay, so of these 250 doors, what are they made up of? Are they single family, multi-families, mobile home parks? James: They’re a little bit of everything, but we have probably about 10 single family properties. For us, we hold single family properties if they have upside with zoning or some properties … Well, A, we bought them right in 2008 and they’re really cheap but they’re on very large pieces of land in some sub-markets in Seattle, so we feel like the next building boom is when we’ll probably develop those and sell those lots off or build on them, but not this building boom. Then we own, we have a lot of rooming houses where we take single family houses and we turn them into eight and 16-unit rooms, next to University of Washington, any kind of core school. We’re actually doing one where we’re doing a 60 rooming house in Capitol Hill right now, where we’re taking- Brandon: Whoa. James: … our building and putting 60 doors in. It’s a very complex project. Brandon: Yeah. James: And then we have a lot of duplexes and fourplexes, too, with … and we like things with extra zoning. You know, if they have L zoned and they can be development down the road. Brandon: Let’s talk about this rooming house thing. This blows my mind. 60, like 60 rooms for students? Is that … That’s crazy. James: Yeah, in Seattle, affordability is such an issue, and so we bought this historical building in Cap Hill. It’s an art house, and one of the things about Seattle is they want to preserve these kind of structures, and it was kind of like this … It was more a place for vagrants, really, but they called it the art house. So when we went to them with this proposal, we were a little worried about it because they don’t … Seattle does like to … I mean, they’ll stomp on some development because they want to keep the core neighborhood together. But the fact that we’re rolling out affordable housing, they worked with us so easy. It was so … because there’s so much demand for it, they worked with us on all different angles. James: So these rooms, what people need is a place to live and they want a nice place, and so these rooming houses we do, we actually strip them all the way down to the studs, make them really nice, all nice kitchens, all nice flooring, solid doors, and they can live there for 999 bucks a month. So with Seattle and kind of the hipster movement, people like shared living. There’s WeWork and co-living, and they like it. So what it really does, though, it takes a normal deal and you can hyper-accelerate the return by putting the right plan together. And so that’s why we came up with these rooming houses. Brandon: This is fascinating to me. Is there a common area? It’s almost like a giant dorm, but it’s a … but it’s not a dorm. I mean, it’s like a … David: Is it like a hostel? Brandon: Yeah, it’s almost like a hostel, is that kind of the feel it has? David: That’s what it sounds like. James: Yeah, so this one’s a little bit more complex. I’m doing another one, too, next to University of Washington where I’m taking a triplex that’s zoned SF500, but it’s grandfathered in, and I’m turning that into … Or no, it’s a duplex, excuse me, and I’m turning it into 16 rooms rather than a duplex. So with these rooming houses, what we do is we do like a really big kitchen, chef style kitchen with a big living area, flex area. Each floor usually has its own little, either a … The main floor will have a huge kitchen and then each floor has a little sub-kitchen with a washer/dryer area and then what typically we’ll do is in maybe one-third of the units, we’ll actually plumb in little small wet bars, too, for them, and those might go for like $1100 a month instead of $999, to give them a little extra space [crosstalk 00:25:07]- Brandon: Okay. James: But people really … Most of what we get is, a lot of them are actually, to be honest, they’re foreign students coming over, they kind of mind their own business. They want a nice, clean place to live and that’s why … We do them to like high-end, new construction quality, so they get a really good place, comfortable place to live, and people kind of mind their own business. If they have their own space, they’re good. But we do try to get in … If we have 16 rooms, we’re trying to get in like 10 bathrooms, because bathrooms are a big deal. So it’s usually like two rooms per bathroom, two to three rooms, and then some will have their own en suite bathrooms that we’ll charge a little bit more for. Brandon: Okay. Is that … Again, this just blows my mind. I love this idea. Does the government … because it is low-income housing and they need housing for students and stuff. So they’re okay with … They work with you on this? They work with the zoning on this? Is that how that … How do you get through that? Like in the neighborhoods and all that. James: How the zoning works in Seattle is you can put in, if you have an SF5000 property, you can actually put in eight bedrooms there. You can’t do more than eight at that point. So really, when you’re picking these, you could go get a 6000 square foot building but you’re only still going to get eight bedrooms. So there’s kind of the sweet spot with the size of the building you can get. That’s kind of … We learned that in the kind of downturn is, we were actually looking at a house next to University of Washington and it wasn’t a good enough deal for a flip and it didn’t really pencil as a rental, but we knew … It was 390, next to UW, and at the time, again, it wasn’t that good of a deal, but we saw potential. We were like, “This is 390 next to UW. This is a good buy.” So actually Will, my partner, came up with the idea and he’s like, “Hey, there’s this rooming house thing. Let me dig into this.” James: So we took this … We paid 360 for it, we put 250 grand into the building and made it really nice. It was our first one, so we had a little bit of inefficiencies on our construction. We made it a little too nice, went a little too in depth. But that thing brings in now $9000 a month in rent. And so our cash on cash return is astronomical, whereas every other investor … and this was a property just sitting on the market. No one wanted it, and we just kept looking at it and we were like, “This is a good piece of property.” It was also next to a freeway, too, so the flippers didn’t want it, the rental people didn’t like it. It was zoned SF5000, and then since then … So we’re into it like 600 grand, brings in nine grand a month which is just a ridiculous amount for a poor neighborhood in Seattle. James: Then since then, the zoning’s changed and now we can actually build … It got up-zoned, because when we do look at these buy and holds, we’re also looking at path of progress, what’s going on in the neighborhoods, and that’s why we liked this one. It seemed more commercial than residential. So they up-zoned it, and now we can actually build two houses in the backyard, too. Brandon: That’s cool. James: So if you put the right strategy together and not just overlook the just one sitting there that everyone’s overlooking, you can get something that’s a gold mine. Brandon: Yeah. Such a good tip. There are ways … Again, real estate … I like to say this a lot. Real estate is not two-dimensional, it’s three-dimensional. A lot of people look at a deal and they’re like, “Well, they’re asking 360 or 390 or whatever, they’re asking this price. I could rent it out for this much. Doesn’t make sense,” and they move on. But you guys definitely have shown how like … You’re like, “Well, what if we did this, and what if we turned it into this? And what if we did this?” It’s like a multidimensional project, and when you start thinking that way, in real estate deals, to use a cliché, the world’s your oyster. Right? There’s a lot … Not that every deal’s going to work out, but the number of potential properties out there, it just, the sky’s the limit. There’s so much out there if you just learn to think three-dimensional like that. Now, is that something you just get over time? How did you learn to start thinking more creatively like that? James: I think the credit actually goes to our flipping processes, because we got a lot of … Even back in the day, we would buy these small houses and carve them up into like … You know, we’d pick up a 950 square foot house and turn it into a three bedroom, two bath affordable product. So we got really used to putting together value engineered design, and then all of the sudden, we’re like, “Oh, well if we can rent these out for eight bedrooms legally, we can put our same flip process into our rentals.” Because a lot of times, people stayed clear from the major fixers in the rentals, and I don’t blame them. They’re a lot of work, you get dead time on your money. For a year, you’re out, you’re not making income. James: But if you put the right strategy together and you have the right systems, you can really maximize out these returns, and the flipping really benefited us because we know construction and we know how to design things. We know how to get the permit pushed through and we know how to get the inspections done. So it’s been a huge … Flipping is good for income, maybe not for … I mean, it helps long-term wealth by building your capital, but it also gives you very good systems and tools. Because flipping’s not easy, so the more you learn on it, the more tools you have for your rental portfolio. Brandon: So let’s talk about the construction stuff, because that is something that scares a lot of people. First of all, when you’re first … Not you necessarily, but when people are first getting into it, do you have any advice on how they can better estimate the costs of a rehab? When they’re brand new. How did you do it, or how do newbies can do that? James: Yeah, construction’s really tough, because I think a lot of investors and a lot of people I work with, they do this cat and mouse game with them. They’re like, “Oh, my budget’s 100, so I’m going to tell the guy 90, and then he’s going to come at 140, and then we’re going to try to meet in the middle,” without really going through and logically breaking it down. So what I’ve done is I’ve created a spreadsheet for my whole team to use that breaks down square footages and then it breaks down install rates and material rates. The best thing an investor can do is find out what a normal install rate is per item, because a lot of people don’t even know that. Like an electrician should charge you $25 a fixture to install that fixture. That’s a pretty normal rate. On the high side, it’s $50. James: So getting to know those things, like if I break down electrical, I know a panel is $1500 in Seattle. That’s a normal rate. A fixture’s $25. Running wires, $3 a square foot. So I get all these numbers from the electricians, compile it, and then when they give me a high bid, I then just work them backwards and say, “Oh, okay, well how much are you charging me for the panel? How much are you charging me to run wire?” You just have to really know your install rates. But the whole back and forth thing with the contractor is not a good method, because it just allows for massive amounts of change orders. So you really want to get the install rates and everything figured out, and working with a really good team that can help you with that. Brandon: That’s great. Yeah, so … Go ahead. David: What I love about what you just said was that you don’t just … Everybody asks, “How do you calculate rehab costs?” like it’s something that we can just say, “Well, here’s a cheat sheet. Every contractor’s going to charge the same thing.” It’s so complicated to explain to people how that works, that there is never going to be an easy way. You have to do exactly what you just said. How much is it going to cost you to do the wiring, why does it cost that much, how does a contractor look at it? Does he look at square feet, does he look at how many boxes he’s going to put in? They have a method or a metric that they use, and you’re asking the right questions so that you can understand it from their perspective. David: I tell people that all the time, when they’re saying, “Well, how do I know what the ARV’s going to be?” Well, do you know what an appraiser’s method is when they look at a property, how they come up with what the price is? Because if you see it from an appraiser’s standpoint, you can get a really good idea what your ARV’s going to be. If you know how a contractor looks at a home, how they bid it, how they price it, you can get a really good idea. David: You’re doing that really good, James. Everything that you’ve said is you look at a problem, “All right, I want to buy that house but it costs too much money. How could I chop it up into little pieces and rent them all out to make that work? What would I need to know in order to do that?” And you’ve just systematically broke this down into smaller pieces that then, it’s very easy for your brain to look at that problem and say, “I can make this work,” or not. James: Yeah, and then … Yeah, I always work backwards off the issue. The other thing is, I dictate where the contractor can get their materials from, and I know that pricing. So I’m saying, “Hey, you’re going to get this floor from this supplier. It’s $1.65 for the materials, and the average install rate is $1.50 to install this.” So when they give me a high quote, I can ask them a logical question and if they can’t answer it, they’ll usually come down, or they’re just not the right guy and they don’t know how to estimate something, regardless, and so at that point, you don’t want to hire them anyways. David: Isn’t that 100 times better than just living in fear of “I hope my contractor’s not ripping me off” or I don’t want to do this at all because a contractor might rip me off”? That’s what Brandon and I see all the time is, “Well, I don’t know. What if they’re taking advantage of me?” But what you just said is, “Well, I know the materials are $1.65 a square foot. I know the install rate’s $1.50 a square foot. So it should be a little over $3 a square foot times however many square feet I need.” And if he’s at $10 a square foot, he either doesn’t know what he’s doing or he’s dishonest and I can use someone else. There’s no fear, there’s no apprehension, there’s no worry, there’s no anxiety. It’s a very easy, quick-cut decision you can make. James: Yeah, and you’ve really got to … I do something, I call it the bundle method, where I’ll take my whole budget and I’ll chop it into like six sections and that way, my … Like for construction, I can take my kitchen cabinets, I can just go to my kitchen cabinet company and I know exactly what they charge me for the cabinets, the counters, and the install. So I take those things away from the contractor because I don’t want their ambiguity to kind of mess up my budget. So I’ll take my whole budget and chop it into six really systematic things, like I have them do all the hard work and the planning, but the easy stuff, I’ll pull out for myself and just call my dependable subs that will give me that guaranteed price. David: And you know, I bet if you get good at this, you could probably go to a contractor and say, “Here’s what I need. Here’s what I’ll pay you,” and you already have it broken down, and I bet you a really good percentage of contractors would actually prefer, because they’re not good at numbers. That’s not what they do. They like to build things and get sawdust in their hair. They don’t like to have to use spreadsheets and numbers, and if you could go to them and say, “Here’s what I need. Here’s what I’m going to pay you. Here’s what it’s going to cost,” and they can just look at that and say, “Oh, I’m going to make $7000. You got it,” and now you don’t have to worry about overpaying. I love … You’re the only guest I’ve ever heard that’s said that. That’s really good. David: For the people who are out there saying, “Well, how would I ever figure out what a cabinet costs?” Or “How am I going to get these numbers?” What James did, was he went and worked for another company that was already doing this, and he built his skills serving somebody else and that was how he got started, he got knowledge, he got confidence, then he did his own thing. That’s what I’d recommend if that’s what your problem is. “Well, I don’t know how much that stuff costs.” Well, go to work for a company that’s already doing this. Go to work for a guy like James. Figure out a way to make it worth his while to hire you. That’s the fastest way you’re going to learn. David: Now, one thing I want to know is, you’re definitely doing big things, you’re good at what you do and you’re very humble about it, by the way, which is impressive, so good on you, James. James: Oh, thanks. David: Tell us a little bit about where you’re finding deals, because that’s probably the number one objection that I hear from people, other than “I’m scared,” is, “There’s no deals out there.” James: You know, I hear the same thing. People are like, “Oh, I’m going to different states,” and there’s nothing wrong with investing in different states at all. I’m a firm believe you should just invest in everything, especially … Just learn it before you invest there. I like to play in my own sandbox, which is King, Snohomish, and Pierce county. I like to be able to drive it. I know my crews, I know my systems, and I do a little bit more complex plan, so I need to have my systems prepared. James: But everyone always asks me, “How do you get these amazing deals?” I buy them right off the market 60% of the time, and I buy them off wholesalers, I also own a wholesaling company, so we direct market to sellers, as well. But the best deals that I find are right on the market, and they’re usually misrepresented by the broker. The broker doesn’t quite know what they have going on there, or maybe it was a flipped inspection deal and the previous buyer’s inspection was so gnarly it freaked out the broker. So we’re always combing through the MLS, and I love the ones that are just sitting there on the … I mean, even my own, I just flipped my own house, basically, in Bellevue. I paid 850 for it, I just sold it for 3.1 over a two and a half year period- Brandon: Wait, 3.1? James: 3.1. Brandon: Whoa. James: And that property that I bought was on the market for 360 days before I even … and I bought it 10 grand off list. The seller wouldn’t budge, no one wanted it. Everyone thought it was a teardown, which is wasn’t, and so they were pricing that at dirt cost and I’m like, “No, this is a structure I can fix.” I mean, it was a lot of work. I put over a million dollars into it, too, so it was definitely a … It was not easy, I worked for it. My wife worked for it, too, because she dealt with [crosstalk 00:37:51]. But that … and so those deals are out there, as long as you can underwrite and look at them in the correct way. James: We also bought an apartment building in Magnolia, which is a really good neighborhood in Seattle. It was sitting there for over 200 days. It flipped four times on the inspection. We ended up getting in contract 300 grand off list, because it was the fourth inspection, and we bought it at 3.2 cap, which is not a good cap rate. I would always tell people, don’t buy that. But then after raising rents, we got it to a 5, which is still okay, right, but that’s not my standard. But the thing that everybody missed is, we have short platted off two lots in the back and now we’re building two homes and it’s bringing our whole basis down $600, no, $950,000 off because we’re building the two homes and selling them off, and so it turned our 5.2 cap into now we’re going to be around a 9 cap in Seattle, which is amazing. Brandon: That’s exactly what I was saying earlier about the 3D, thinking about real estate in three dimensions instead of two. This is exactly what your … That’s your magic superpower. If you were an Avenger, you’d be the 3D real estate investor. James: Yeah. One thing you have to be careful of, though, is don’t go too crazy. We have learned getting into too big of a project, you kill your return for two years. Brandon: Yeah. James: You need to factor in your dead time on return, and that’s … We’ve had to learn that over the last couple years, like, “Okay, well, maybe we’re going to do it this way now,” or “We’re going to do less projects, be more efficient, and get the cap rate out.” So you can start to over-exchange, and so we kind of learned that and now we’re kind of more balanced out. Brandon: That’s phenomenal. David: Cory Nemoto talks about that, too. They do a lot of flipping in Hawaii, and it’s basically the economic concept of opportunity cost. James: Yup. David: So you can look at it and you can say, “Well, I’m going to make this much money,” but you also have to factor in well, what else could I be doing with that money during the time, what you call dead time. That’s a really good point, and sometimes when you want to get a deal or you want to brag to your friends about what you did, you can make those decisions without thinking about, “Well, what if I could’ve turned that money over four times on flips where maybe I made half as much money, but if you did it four times during that period, you would’ve made twice as much in the end?” So that’s a very good point you’re bringing up, unless you can get access to other capital so that while your capital’s tied up, you can still do deals with someone else’s. James: Yeah, and finding deals on the MLS is really looking for that broker that doesn’t know what they’re selling but also looking for that next market that’s still depreciated, that path of progress. So those condos I bought, originally I ended up 1031 exchanging those into a house in Suncadia, Washington, which is kind of like a resort town, because I saw my condos go way up in value and I’m like, “Okay, these things are at the peak of a market. I need to sell that and maximize my equity,” and I 1031 exchanged it into a vacation rental, which was totally random, but it brought in … They were renting for $1100 a night, and then I liked that for upside because I was buying it below replacement cost. They spent $400 a foot building these houses and I was buying at $270 a foot, and so I saw the runway there. James: So it’s … buying and hold’s not just about your income that you collect. It’s about placing your money in markets for a couple years and then repositioning it when the market starts cooling down, because that’s how you can hyper-accelerate your appreciation and your return by buying it so you’re always increasing your cash flow but also increasing your equity position, the whole BRRRR method, and then taking that equity and putting that equity to use. Brandon: So you’re not a “I’m going to buy it, hold it for the next 50 years.” You’re always looking, “How do I get a better return on my equity that’s there?” James: That’s … In this kind of market, I think we … I personally think I have to be, because right now, markets, in Seattle, there’s a lot of things at peak pricing, in my opinion. I look at okay, what’s the upside? Am I going to get that much more in rent? The asset maybe has appreciated 25%, and then if I really like the building and it’s just turnkey and I don’t want to mess with it, then we’ll leave it alone, but … Or I’ll then … I want to always increase my position. Being an investor is my full-time job, so if it just takes me a little bit more work than to roll it over, I’ll switch it over there. James: Even the Suncadia property, when I bought that, I was like, “Oh, I’m going to keep this forever. I love it, I get a vacation there,” and then it went up 350 grand in value, and I’m like, “Well, that’s now going to go down,” because then I also saw a record number of building permits pulled there. And so I’m not only just looking at my asset, I’m looking at what’s going on around my asset. So if I’m seeing a bunch of building permits pulled around one of my assets, that means that there’s going to be an oversupply, which is going to bring my value down, which also could bring my rent income down, and so then I ended up selling that and going back into a traditional investment from there. But usually, I keep them for minimum two years. James: There’s some, in me and Will’s portfolio, there’s property, like that 60-room rooming house, we’re going to keep that, because that’s a lot of work and it’s a high income, and that’s just going to be a staple property for us. But other ones, I’ll always … If I can increase my position, I’m always going to increase my position, because I’m not retired yet, so that’s my job, is to always increase my investment position. David: Well, I talk about that in Long-Distance Real Estate Investing, that return on equity is a metric you need to learn and understand, because when you bought the property, let’s say you were getting a 10% return and rents have gone up and now you’re getting a 15% return, and it’s easy to say, “Wow, I’m crushing it. I’m doing so good,” but your property has increased in value so much that the return on your equity is 1 or 2%, and if you were to reinvest that money, you were getting a 3% return, now you’re getting a 15% return on something new, you’ve 5Xed your cash flow and you have the value added opportunity that comes from buying a new property and turning it around. I’m sure you would say, James, from the deals you’re doing, the money that you make, the equity that you build, comes primarily from buying underperforming assets and fixing them up, making them worth more. It’s that initial “I bought it cheap, I fixed it up” where most of your wealth comes from, and then the rest is where we just let it go and the cash flow comes in. David: But make sure your equity is working for you. Look how hard you’re working at what you’re doing. You can’t let your money not work when you’re working this hard, and you understand that and that’s exactly why you’re building wealth so fast, is you’re buying it, you’re making it worth a whole lot more, and then you’re saying, “Well, is this equity better spent sitting in this property? Or can I get more somewhere else?” and then moving it to a new asset class. You combine that with everything you know about real estate, zoning laws, how to buy deals off the MLS, making a hostel, all the stuff you’re talking about, and you’re going to accelerate your returns quite a bit. James: Yeah, and it really just comes down to timing, too. Because right now, the market’s still appreciating in a lot of neighborhoods, especially in Washington, and so for me, I’ll probably stop exchanging as much once the market kind of flatlines out. The other thing I pay attention to when I’m trading around is bank rates are really low right now, so it’s easy for me to trade around. But once rates creep up, which they will eventually, then it doesn’t make it as worth your while to trade around a property because now you’re also trading … you may be trading into a better discounted asset, but your bank financing could be two points higher. James: So there’s all these things outside the box that you’ve got to pay attention to. For me, the last five years, I’ve seen what’s going on in the market, so I’ve been doing all my trades. But at the end of the day, when everything stops and I’m going to settle down, I’ll be locked in with low rates and I’ll always increase my equity and cash flow position. So if I can’t get a low rate and I’m not increasing my cash flow position, then I’m not going to sell that asset. David: Once you’ve got a rooming house with 60 doors and you’ve a total of 250 doors in your portfolio, and a lot of that is not just an individual house that one property manager’s doing, it’s a property with a whole bunch of doors in it, how are you structured to collect those rents, make sure your bookkeeping gets done? I’m sure you’re not making sure all 60 rooms are full in your rooming house. How have you delegated that responsibility to other people? James: We used to use property managers, and property managers are a good way to go. They can cost quite a bit. Once you get to a certain portfolio … We actually have full-time leasing people on our staff now, and so we just have it all in-house, accounting’s all done in-house. We use a Yardi system for collecting rents. So it just really comes to down to … You always want to analyze your portfolio, what your expense is, and property management, usually we can get it for about 5 to 6% locally, if you’re giving them a lot of business. So we run our 5 to 6% cost and then at that point, it’s half the price to have two full-time salary people, and in addition to, we also can control the maintenance cost, because we want to do our own maintenance because we’re thrifty. Bad … Or not bad property management- David: Lazy property managers that send the first handyman they find that charges three times what your guy would pay, yeah, that’s your biggest expense with single family housing. James: Yeah, that’s how I pull my hair out. I’m like, “You just spent how much on a toilet?” I just can’t … I still have that cheap side to me, where I’m like, “No. I’m not paying that.” So but yeah, just putting together the right systems, and that’s where you have to look at your portfolio and go, “Okay, well how much time do I have?” If I’m a Microsoft guy, I’m probably still going to use property management because I’m not a full-time investor at that point. And so for me, being a full-time investor is my business, so we had to hire and staff accordingly. Brandon: Yeah, that makes a lot of sense, and a lot of real estate, what I’ve found is if you can get to that certain level, there is that level, like at 20 units, it might not be worth it, you can’t hire … I mean, it’s not worth it to hire someone in-house to run that. At 30 units, it might not be worth it. You’re still doing it yourself. But there gets to be this point, maybe it’s at 100 units, maybe at 200, where you can bring that in-house and then lower all your costs. It’s almost like … I’m looking at this with mobile home parks right now and with apartment complexes. What number do I need to get to where everything becomes cheaper at that point because of the economies of scale? I’m not saying I’m going to go out and buy bad deals, but what I can look forward to is hey, I can drop that property management cost from 7% down to 3% once I get over 200 units, because then I’m going to bring it all in-house, or something. It’s just another interesting way to look at kind of a three dimensional deal. James: Yeah, and you always just want to perfect your return, especially if you’re in a stabilization period where you’re like, Okay, I’m making 10%. Can I get it to 11 by doing nothing? Or by changing things, not doing nothing, but changing things around?” Brandon: Yeah, definitely. Well hey, I want to move us along to the next segment of the show, and dive deeper into one of your particular deals. So it’s time for the Deal Deep Dive. Hey, so James, I’m pausing real quick here. This is the part of the show where we … I don’t know, did we talk to you about this at all? We’re going to go … We just basically want to go into one of your deals, so any deal that you’ve recently done. We’re just going to ask you where you found it, how much you paid for it, what you sold it for if it was a flip or what do you rent it for. James: [inaudible 00:48:53]. Brandon: Okay, I didn’t want to spring that on you, but that’s why we’re pausing real quick here. James: Yeah, so I just bought one that I’m in the process of, where it’s actually, I bought three houses next to each other and then also had a ADU and a garage in the back, and so I short platted around it and kept the ADU, the house, and the garage, and then I’m selling- Brandon: Yeah, that’s a perfect one. Yeah, that’s perfect. All right. James: Definitely not a good deal on paper when I bought it. Brandon: All right, let’s talk about that one. Okay, we’ll start again. Give it a second of silence so Dave can see the … All right, the Deal Deep Dive. This is the part of the show where we dive deep into one deal that you’ve done and ask a series of questions about it. So let’s see, you got a property in mind, then? Before I ask the questions. James: Yeah. Yeah, yeah, yeah. I’ve got one I just closed on and about ready to list one of them, too. It’s kind of a flip/rental pseudo. Brandon: Ooh. Perfect. All right, well that’s the first question. What kind of property is this? Is it multifamily, single family? And then where is it? James: So it’s in Olympic Hills in Seattle, Washington, which is about 10 miles north of downtown. So it’s a good transitional neighborhood, borders with Shoreline. It’s actually a single family purchase, where I purchased three single family houses and then it also had a detached thousand square foot ADU in the back and a detached three car garage in the back, as well. Brandon: Okay. Wow. James: Yeah, it was a deal I bought off a builder that needed the cash. Brandon: So three single family houses and a thousand square foot ADU, like an extra unit. So it’s almost like four houses but not really, right? James: Yeah, four … The ADU is bootlegged into one of them, but yes. Basically three and a half houses and a big, big garage. Brandon: All right. James: Yeah, it’s good for toys. Brandon: That’s awesome. David: You said you found it from a builder. Can you tell us a little bit about that? James: One good thing about buying properties in Seattle for so long is people kind of know us, that if we give them our word, we’re going to close on it. So there was a builder, a lot of people are doing, like we’ve been talking about, 1031 exchanging, and the builder kind of got caught and needed to sell off some properties. But he’s also a very experienced guy, he wasn’t going to give them away. So we came to terms and I ended up buying these properties, it was a combined purchase of $1.56 million for three houses, and he had been shopping it, actually, for like 60 days before he found me to buy it. The reason being is a lot of people just said no because on a cap rate basis, they were rentals for him, it was like a four cap on houses in Seattle, which isn’t very good, and then the equity position, I paid basically 540 per house and they’re worth 699 to 750, so there wasn’t that big of a discount for a flip, either. James: So when he ran it by me, I originally was like, “No, I’m not really into this,” but I went and drove it and took a look at it, and I was like, “Oh, okay. I think I can come up with a plan here,” because partially what he did, too, is he built three houses, built that ADU in the back, built a garage in the back, and they’re all crossed all over property lines. So the house had the garage, but you couldn’t get to it, and it was just kind of a mess. So what I kind of dug into, I was like, “Well, I really like this property with the ADU and the garage, because it will rent out … that front house will rent out for $3500, the ADU will rent out for about $1900, and then I can rent the garage out for $100 per bay.” So there was a combined rent of around $6000 a month on this property. But the rest of the properties were kind of these dragdowns, and then even at the purchase of 550 and the renovations, I’m like, “This still isn’t that good of a cap rate.” James: So what I ended up doing was looking at two of the properties and running the flip numbers on them, and because they were pretty cosmetic, what I’m in the process of doing, I’m listing one this week, is selling off two of the properties. I short platted them, boundary line adjusted everything around to where the one property now had all, it had the house, the ADU, and the garage, and I’m flipping the two houses to take my basis down on that property. By flipping the two houses, I’m actually generating about 110 in income there, which is going to take my 550 purchase on that one building and it brings it down to 440, which ends up being a payment of $2400 a month, taxes and insurance included, which is now going to bring me in six grand a month in income, so after- Brandon: That’s awesome. James: I have no money in the deal. Once I’m done flipping them, I’ll have no money in the deal and generating about $2500 to three grand a month, plus I get to stick all my crap in the garage. Brandon: That’s amazing. James: [crosstalk 00:53:32]. Brandon: So okay, let me dive in a little bit. I was going to ask, did you just pay what he wanted, the 1.56, is that what he ended up coming at? Or did you negotiate him down- James: Well first I was going to tell him 500 a house, and then I drove it and kind of looked at it, and I was like, “Oh no, I can pay this,” and then I wanted to realize it before someone else realized what they could do with it. You know? Brandon: Yeah. James: I think everyone kind of blew by it, because there’s houses right by that for sale for 575 [inaudible 00:53:59]. So it didn’t look like there was a lot of discount on the houses. So for me, I wanted to kind of … and naturally, I always like to grind people down, but at the same time, I don’t want to lose a good deal, and if I can make an extra two grand a month and get storage for free, I mean, I’m going to, I’d be kicking myself a year down the road. The other thing that also passed while I was in contract on this is that new ADU rule in the back, to where now I can actually condo off that back house if I ever want to, and so now the combined value is worth like over a million and I’m only going to owe 450 on it. Brandon: Oh, I didn’t know Seattle had that. I know we have it out here in Hawaii, where you can condo out your ADU and separate it. I didn’t know Seattle has that. That’s cool. James: It’s been around for a while. There’s a trick to it, so maybe I’ll … I can explain the trick to you later. Brandon: Sure. That’s cool. James: About going through the county. But so at first, I was like, “No, I’m not really into this.” I didn’t really like the street. It was surrounded by apartment buildings, so I was like, “Eh, the upside of the houses aren’t really there.” But then once I did all the math on it, I was like, “Oh no, this is going to work,” and so I was paying him a little bit more of a premium on it, how I look at it. So because I was paying him a premium, I got cheaper financing lined up right away. He let me conventionally finance them all, so it saved me all my hard money and debt cost. And that was my thing to him, he wanted cash and I said, “Well hey, I’m going to pay you what you want, but you’ve got to give me 40 days to close these.” And by doing that, it saved me about 60 grand in hard money cost on there. Just by getting the … I gave him what he wanted. Instead of chasing, trying to get him down 60 grand, I just gave him what he wanted and financed the deal in a different way. Brandon: That’s awesome. David: So how did … Explain how you financed it, how you funded it. James: I funded it with … I actually really like working with credit unions and local banks, especially once you have more than eight properties financed in your name. As an investor, I’m a firm believer you should go meet with all those people, get them comfortable with your processes, and once you get that, you can actually get pretty good financing done quickly and very … I mean, it’s not very hard. My books are very complex, it’s a lot of different companies feeding into each other with a lot of different write offs, and so it’s a … I’m a mortgage guy’s worst nightmare when it comes to on paper. But they … I worked with Alaska Credit Union on these ones. They were quick, they were fast, and because of the plan, I explained to them my plan, too, and what I was doing, and so I was able to just put 10% down on all those properties as well, which usually you’ve got to put 20% down. But after I showed them the income potential and what my plan was, they actually got it down to 10% for me. Brandon: That’s awesome. That’s just another reason why yeah, getting to know those local community banks, credit unions, really, really smart idea, instead of just going to the big national banks. James: Yeah, big national banks, they have different people making the calls, and they don’t know us. So I’ve always had more luck with local banks Brandon: Yeah, that makes a lot of sense. All right, what about like … at the end of the day, you got it with 10% down, but are you going to refinance out now once you sell off those two properties? Is that the plan? Or how does that work from a title standpoint? James: I got a really good rate on the one, and so what I’m doing is the two flips are going to generate me about 120 grand in cash [crosstalk 00:57:20], and so after taxes, it actually comes down to 80 grand, which is the down payment for the one … So honestly, at the end of the day, I’m plus $30,000 in my pocket and I’m walking with two grand a month in cash flow. Brandon: That’s awesome. James: And I locked in a really, it was … because rates dropped at that time. I think I’m at like 4.65 on a 30-year fixed rate, because this one I do plan on keeping for a while, because I … well A, I need the garage, so it fits really well for my construction company, I can put tons of stuff in and rent it out. But for now, I plan on keeping this one for a while. But after everything … and that’s when I really realized it was a really good deal, because I could flip the other two houses, basically get all my down payment back plus 20 grand and collect two grand a month. Brandon: That’s so cool. That’s amazing. So what … I’ll take the last question, unless David, you want it. Lessons learned? All right, what’s the lessons learned? What have you learned on this project that you can share or that made an impact on you? James: The biggest lesson I learned on this was actually when I did my first … So when I was purchasing the property, part of it was I was going to do all the easements to get rid of the title issues with the buildings on different property lines. Originally what I did is I just went in and did easements and recorded easement for access. That cost me like three grand to do, three to four grand, had to survey it out. Got it all done, closed on the deal, and I was about ready to list the property three weeks ago, one of them, to get my cash back, and I screwed up. I didn’t think about my plan of possibly condo-ing off the house down the road, because to do it that way, I can’t do it with the easement I recorded and I need to do a boundary line adjustment. James: So I kind of … My first plan was too rushed, and so now what I had to do was un-record the easement, go in for the boundary line adjustment, and what it’s done is it’s made me sit on the middle house that I’m selling for another month, which is a loss of three grand at that point. But it would’ve been a lot more detrimental, actually, if I didn’t do it and I sold the house and then I couldn’t condo it later, because it’s kind of specific rules. James: So making sure … Sometimes speed isn’t your best friend, right? Don’t rush into that project and just try to get things done. Because my goal was to get that one flipped in 45 days, get my money back, and then move on to the next deal, and I should’ve slowed it down because it probably would’ve saved me six, seven grand at the end of the day. That’s kind of wasted money, plus it was just sitting there. Brandon: Wow. That was a phenomenal story, though. Very, very cool, and yeah, good luck on that project. I’m curious of- James: Yeah. Brandon: Yeah, that’s so cool. I love … Again, it’s just over and over and over, this theme today just keeps coming up of just finding different, creative ways, not necessarily to finance a deal, even though that was creative, as well, but to put together something that might not be a deal and how to turn it into a deal. We just keep coming back to that, and I love that. That’s your superpower. So yeah, keep that up. James: We call it inventing returns, like yeah, you can’t get a cap rate of … you get a four and a half to five cap in Seattle. We’re not okay with that, but we like the area, so we need to invent our own returns to get it to meet our minimum standards. Brandon: Yeah. It’s like David and I always talk about, how today’s market, you don’t really find good deals anymore. It’s not 2012 or 2011 anymore. Today, you make good deals. You make them by being creative, and that’s exactly what you’ve done. So very, very cool. Well, before we get out of here, let’s go to the next segment of the show. It’s time for our Fire Round. Brandon: All right, time for the world famous Fire Round. Of course, these questions come direct out of the BiggerPockets forums, which you can visit, everybody can go hang out there at biggerpockets.com/forums. Totally free. So let’s do it. Some people got to ask some questions of James here. Number one, Hector from Overland Park, Kansas, said, “I’ve got no cash, but I do have an investor willing to fund my first flip. What do I get out of it? What does he get out of it? What’s the best way to approach him and form a relationship that can continue into the future?” What advice have you got for Hector? James: Well, Hector, just like I did my first one, instead of bringing in an equity partner, I just paid him like a lender, because for me, it was about getting that first deal in my name. So you find that really good deal and what you want to do is you want to … Or what I did, is I went to my investor with a plan of, “Hey, I’m going to buy this. You’re going to do my second for me. I’m going to pay you this return,” and sometimes it makes more sense to overpay that person on the return to get the deal in your name, and then get set up to get him taken out with a plan … Give him the plan to get your money back, and then so just pay a little bit more for your financing rather than giving up equity on your first rental. That’s just where I came from, I wanted to start building my own portfolio, but I offered to give him better loan terms and a safe loan rather than giving him equity in the deal. Brandon: All right. Okay, cool. David: All right, question number two. “I love hearing success stories on the podcast, but I’m wondering if you can share a deal gone wrong? Why did it fail? Bad location? Did you overpay? Bad property management? Et cetera.” James: I have more bad deal … I have tons and tons of bad deal stories. You have to be … That’s how you learn in investing. Well, I guess going back when I was new, biggest mistake I made was jumping from buying condos to buying a really big fixer house in the middle of nowhere, and I had no systems for construction. I had only done carpet, paint, but it was this amazing deal, I was paying like 40 cents on the dollar for, and I just got smoked on this. Time and materials, it went six months over timeline and then during that six months, 2008 happened and the market crashed, and so I was three times the amount of budget, three times over the timeline, lost all my cash, and that’s because I was buying what I didn’t know how to buy. So as an investor, I won’t buy unless I have a process somewhat figured out for it, because that’s how you can really get your butt kicked. James: I also, same time, I bought a commercial building during that time, which I don’t buy commercial office space, is what I learned. I learned that because we bought a really cheap building in a not that good location, but it was this amazing, we were paying like $100 a square foot for this office building. But it doesn’t matter if no one wants to rent it in a bad location. So it sat vacant, and we actually had to move our whole business down there when the market crashed and occupy it, and then get it leased up, and that’s actually how we learned condo-ing things off. We condo-ed out little sections and leased it up and then moved out. But it always comes down to not buying the right deal, or buying what you don’t know. Brandon: I had a mentor tell me early on in my career, very, very early, said, “You can go broke buying good deals.” James: Yes. Brandon: I didn’t totally understand what he meant back then, but I completely understand it today. James: Yup. Brandon: Yeah, just because it’s cheap or just because you think it’s a good deal doesn’t mean you should buy it. Number three, Adam from Roxbury, Connecticut said, “My tenant wants to put in a ceiling fan in the unit he’s renting. He said he would buy the fan and his brother, who is an electrician, would do all the wiring and install it for free. Should I allow him to do that? Or any advice on how I should go about this?” James: Personally, I wouldn’t mind if a tenant improved mine, but I also want to make sure, it’s my building, that they get a permit and it’s inspected. You don’t want the liability of that thing possibly catching on fire because he had his brother do it. Personally, I don’t really talk to my tenants because I’m a softie, and so I’ll just usually approve it, so they go through … Usually my property management team will say no, and then if they ask me, I’ll probably say yes, but get a permit. David: You sound eerily like my best friend in real estate. Brandon: Are you talking about me? David: Yeah. Brandon: Yeah, I can’t … Tenants can’t ask me things, because I will always say yes, because I’m a softie, as well. So I created systems of people who say no for me, so I don’t have to. David: It’s insulation. That’s exactly what you need. James: Yeah, I’ve lost lots of rent because I let people slide, because their mom or whatever it is, and it hurts. Brandon: Me too. David: All right, next question. From Mike Nelson in Miami, “Does anyone have any tips to get hard money lenders to fund your deals? A little about me, I have a background in construction and I’ve done one flip, which was a big success. I also know a couple of good listing agents. Thank you.” James: For me, getting my first capital was really just A … So I got my first loan through a local lender. They just wanted 20% down, and so for me, it was really finding the 20% down was the harder part, and so I just had to make sure every property that I presented that person with had a really detailed out plan, not just construction, but I covered all different angles, like, “Hey, if I’m going to flip this property, here’s my backup plan in case this doesn’t flip. I’m fully pre-qualified, I can get a loan for this amount.” I always wanted to give them a really good exit strategy on it. James: If you’re doing a flip, one other thing you can do that’s worked well for me, especially in the beginning, was bringing in an equity lender at that point. That’s where I will bring in an equity lender, just to build my track record, because I really wanted to have 10 to 20 deals under my plate so we could kind of get it ramped up, but I didn’t have the 20% down for all these deals, and so it was I would give him way more equity in the first couple because then they saw it was a little bit less risky and then they wanted to be involved again, and I actually gave him less equity as time went on. So it went from going 50% to 25% to then just borrowing money at that point. James: And then as a first-time flipper, the most important thing I can tell you is don’t spend your profits. Save your profit. It’s really easy to get your first check and just blow it. Save it, because then you don’t have to bring in those equity partners. It saves you so much money down the road. Brandon: That’s terrific advice. Really, really good. Yeah, I know a lot of people when they flip a house … My very first flip I ever did, I took the money and I paid for my wedding, which wasn’t a bad use of the money, but I didn’t have anything after that. I was like, “Well, that went … Now that’s gone, and now I’m broke,” and so like- James: Did you feel like a princess for the day, though? Brandon: I did. I felt like a princess for the day. James: That’s all that matters. Brandon: It was all worth it. It was all worth it. All right, that was great. Great answers of the Fire Round, and now, let’s get to the last segment of the show. It’s time for our Famous Four. David: Famous Four. Brandon: All right, these are the same four questions we ask every guest every week here on the podcast. But before we ask James those questions, let’s hear what’s going on this week over on the BiggerPockets business podcast. But before we get there, let’s hear what’s going on this week over on the BiggerPockets Money Podcast. Dave [inaudible 01:08:00]you can pick the ones you want. Brandon: All right, here we go. All right, let’s get to the Famous Four. Number one, James, do you have a favorite real estate-related book? James: You know what, my favorite book that anyone’s ever given me, and it’s not that real estate … It’s How Not to be a D*ck. Brandon: That’s a book? James: That’s a book. I’ve got it in my drawer right here. Brandon: That’s funny. James: My employee gave it to me, because she said it was [crosstalk 01:08:27]- David: Brandon’s going to send me that now. James: It’s a good book. Brandon: Yeah, I’m going to send everyone that. Yeah. James: You know, I started with Rich Dad, Poor Dad way back in the day. It was just … It was the first book that someone gave me when I was 21, and most of the reading I do is actually more economics now and conditions than actual like strategy, because my strategy is based on market conditions than anything else. David: It sounds like that book might be the 2019 version of How to Win Friends and Influence People. James: Do you have that one? We can trade. I’ll trade it out. David: [crosstalk 01:09:02]books with- Brandon: [crosstalk 01:09:02]name. David: Yeah, there’s more and more new books with the really, titles that are just- Brandon: Yeah, there’s like a dozen books with the F word in the bookstores right now. David: Yeah, the Subtle Art of Not Giving a F. Brandon: Yeah, that was the first one, I think, and now there’s like a dozen of them. I see it every time I go to any bookstore. Yeah. David: I thought they were joke books, but they’re actually real published actual edited legit books that sell a lot of copies. Brandon: The Subtle Art was actually a fantastic book. David: See? I never would’ve thought so. I would’ve thought it’s like a bachelor gift or something. Brandon: That’s funny. James: What is it? The Subtle Art? Brandon: Yeah, it’s called The Subtle Art of Not Giving an F, and then they block out the F word. James: I like it. David: It’ll make a great complement to the book you just mentioned, James. We need to get it. James: We can start a book club. David: All right, I’m still having trouble concentrating because I’m picturing Brandon in a wedding dress at his wedding, all six foot five of him, bearded up, looking perfect and- Brandon: I only had a goatee at the time, so it’s okay. It was goatee Brandon, not beardy Brandon. David: Poor Heather. That woman is an angel. Brandon: She is. David: All right, next question. What is your favorite business book? James: Ooh. My favorite business book. I should’ve … Brandon: You could put Rich Dad, Poor Dad if you want. James: My favorite business book that I read, and I still, it was actually called The Sales Bible. As a young salesperson, I really wanted to learn on how to handle objections because I was trying to negotiate a good … It all starts with a good deal. Right? So that helped me organize all my, how I did sales, my followup methods, because following up is the biggest part of sales, and it taught you how to do objections, followup method, and it just, I remember, I read that book like five times in my first year because I was getting nowhere, and it just kept kind of helping me through. David: That’s a nugget, because followup is where it’s at. People, they don’t realize that. They send one round of direct mail letters and they don’t get a reply and they’re like, “That didn’t work.” I had a new agent on my team that went door knocking the other day and she’s like, “I’ve been door knocking twice in a row and I haven’t found one person to sell their house.” It’s like, what are the odds that the moment you knock on their door, they’re going to have been, “Oh, actually, I do want to sell”? You have to keep doing it. That’s the whole point is, you get a relationship, you build, and then eventually, that starts to feed you. But I see so many people that start off on that journey of lead generation, looking for leads, and then they only hit somebody once. It’s like, you’re looking for a tree that will fall down with one swing of the ax. That’s what you’re looking for. You have to keep chopping at it and eventually, it will go down. So that’s [inaudible 01:11:28]. James: I used to knock 30 doors a day, five days a week. That was my minimum. Brandon: Wow. David: But how many … I bet a lot of those deals did not come from the one door. They were consistently talking to the same people and letting them know you were there and saying, “Hey, I want to buy your house.” Right? James: Yeah, and then just … Yeah, you mark the hot leads, you’d be like, “Oh, this one’s beat up, this one’s neglected,” and then those ones, I would go back to weekly. David: You make it a funnel. James: Yeah, and you bring them gifts. You can bring them all sort … Whatever thing they liked, I was going to bring them. Whether it was a beer or cigarettes or food or whatever it was, I would drop by and bring it to them. David: I think we need to have you write a book, man. This is some really, really good stuff. Brandon: This is awesome. David: Yeah, How to Buy Real Estate Without Being a Beep. All right, next question. What are some of your hobbies? James: I’m a big … So I like boating a lot. I can spend a lot of time out on the water. My kids are top priority for me, so anything kid related on the weekends. I love hanging out with my kids. And then I’m just kind of a fitness person in general. I’m a firm believer if my body feels good, my mind works better. So anything active, like if it’s wakeboarding or working out. Like I said, I’m relocating to California a little bit just to be out in the sun while I’m surfing. Just anything active. Brandon: That’s awesome. James: And Seahawks football. I’m a huge Seahawk football fan. Brandon: So are you going to change when you move down to California? James: Oh, absolutely not. No, I’m flying back for every game. Brandon: Are you really? James: Oh yeah. I usually go to about four or five away games, too. I love … I don’t do much, but football is my thing. Football and real estate. Brandon: There you go. That’s cool. I went to the Seahawks-Vikings game that was outside in Minnesota, what was that, three or four years ago? James: Oh, you went to that? Brandon: When it was like 30 below. Yeah, I flew into Minnesota. I mean, I don’t even go to games ever. That was my first Seahawks game ever. But Minnesota was my team growing up, and it was a big game, right? So I flew in and it was the coldest [crosstalk 01:13:16]of my life. David: Is there anything in the world that’s fun at 30 degrees below zero or whatever- Brandon: No. David: It doesn’t matter what you’re doing. At that temperature, it isn’t fun. Brandon: Yeah. It was- James: You still had a better day than Blair Walsh, though. Brandon: Yeah, that is true. James: That guy … that poor guy. Brandon: Poor guy. That was a rough day for him. All right, number four. What do you believe sets apart successful real estate investors from all those who give up, fail, or never get started? James: I think the biggest thing you can have as an investor is having integrity and doing what you say you’re going to do. That has gotten me so much deal flow over the years, like building that representation and then telling … If I’m going to do something, I tell it to them and I’m going to stick to that, no matter what. That reputation alone gets me so many people coming to me to bring me stuff because they know if I tell it to them, and I always give them logic with my answer, give them logic, and then I just … and I’ve boughten properties that I told yes on that I ended up not really wanting to buy, and I did it just to keep the relationship going. But yeah, those … A lot of times, people go for these specialty, like, “Oh as a real estate investor, get a niche, do these things,” but core values will always make you stand apart. Brandon: Makes sense. I love that. David: I agree. I’ve done the very same thing, and it always comes back. And I think Josh Dorkin was actually a big proponent of that, as well, just you have to be a person of your word, and if you’re not, you’re not going to be in business long. That’s definitely been the case. David: All right, well James, I have thoroughly enjoyed this. I had no idea that you were this smart, because you, like I said- James: Not that smart. David: … you’re a very humble guy. You don’t come across like a know-it-all, but the more you talked, I’m like, “Oh my gosh, this dude’s got it together. We’ve got a really good guest here.” For people that want to find out more about you and learn to be you, where can they find out more about you? James: Well, my social media is … So actually, I will do daily, or not daily, but weekly videos of me visiting sites, looking at things. My Instagram handle is jdain, J-D-A-I-N flips F-L-I-P-S, or our company website is www.heatondainard.com, H-E-A-T-O-N-D-A-I-N-A-R-D dot com, and that kind of … and we do a bunch of different, just investor tool helping things there, so it’s all free. Our goal is just to always give back to the investment community and it pays back. Brandon: That’s great. I love it. Love it. Super cool, and of course, we’ll have links to all that at the show notes, biggerpockets.com/show338. They can check out it there, I’ll have links to all those good things, including your social media and all that. So definitely follow James, check him out, check out his website, and with that, I guess we’ll get out of here. David Greene, you want to take us out? David: This has been fantastic. He is jdainflips, Brandon is beardybrandon, I am davidgreene24. Follow us on Instagram to keep up with our journeys. Thank you very much, James. This has been an awesome episode, and this is David Greene for Brandon the beautiful bride Turner signing off. James: Thanks guys. Brandon: Perfect. That was great, dude. I’m going to stop my recording. Yeah, really phenomenal show. David: Oh man. I didn’t word that very well, saying I didn’t know you were this smart and made it sound like you look stupid. That’s not how I meant that to sound at all. Brandon was laughing when I said it, and I was like, “Oh, I stepped in it right there.” James: I prefer to look unintelligent anyway. Then you can sneak up on people. Male: There you go. David: Yeah, that’s my motto. That’s exactly why I look this way. Nobody sees it. Nobody sees it coming. But yeah, honestly dude, the more you talked, I’m like, “We could do like 10 series episode just from you.” You’re the perfect poster child for what investors should be learning. James: Well, if you guys ever need anything, and just so you guys know, I have a bunch of free webinar stuff, if you guys … It actually coaches … About nine months ago, so many investors were having issues with construction. I did a four-part series on how to negotiate contractors, how to come up with … It’s very … Basically, it’s my process, I just put it out there, so that’s kind of what we’ve been doing is these free, like, “Okay, here’s my process. Here it is,” because it’s- Brandon: That’s cool. James: I’m not like a guru course guy, we’re not trying to sell that stuff. It’s just not my thing. But I like giving out free education. Brandon: If you had any interest, I don’t know how … I’m not really in this department, so to speak, at BiggerPockets, but stuff like that is gold for the BiggerPockets YouTube channel, which gets tons of views. So if you wanted to, at some point, we can connect you with Zach and see if you want to do another one, or just take the one that you have and we’ll just edit it together and put it on the BP site. That’s not a bad idea. James: Yeah, I would … I mean, whatever synergy there is, I’m always for it, so yeah. Brandon: Cool. David: And what’s your email, James? James: It’s James, J-A-M-E-S at Heaton, H-E-A-T-O-N Dainard, D-A-I-N-A-R-D dot com. David: Thank you. Brandon: I feel like you need a url redirect so you don’t have to spell that every time you give people the url. David: Yeah, it’s- Brandon: Just go to James.com and it’ll send you to the website. James: Yeah, that’s a good idea. Brandon: That’d be expensive to buy that, James.com, but you know … Anyway, no, dude, this was amazing, so thank you. Yeah, and have you … You said learning to surf. Have you surfed before? Are you a surfer? James: I … You know, I’ve surfed a couple times. My first time ever, I got up on a longboard, rode it all the way in and thought I was like brilliant, and I couldn’t do it after that. It was in Hawaii. Brandon: Yeah, that’s exactly how it happens usually. Yeah, the first time you’ll get it. I actually, I help a lot of people learn kind of like the beginning surfing out here, and everyone does that. The first wave, they’ll ride it right in, and then after that, they can’t do it anymore. I don’t know. It’s weird. David: It’s that focus you get when you’re brand new. That’s exactly … like the first time I went snowboarding, I made it all the way down because I was so insanely, intensely focused. But I just couldn’t maintain that for the whole trip. That’s why … I honestly think that’s what beginner’s luck is. You’re so zoned in on what you’re doing that you make it through, and then after that, you don’t focus that hard and that’s when it has to become muscle memory. James: Yeah, are we going to go in July? Brandon: Yeah. Yup, we’re going, if you want to come. James: I’m in. I’m going to do longboard. I’m going to longboard- Brandon: Good. Yeah, I’ve got four of them, four longboards, so yeah. It’s going to be an amazing time. Yeah, it’s going to be cool. James: Yeah, I’m [crosstalk 01:19:16]. Brandon: Well cool. I’m excited. All right, dude, well, we’ll let you go, but thank you. James: Yeah, thank you guys. Brandon: Yup, see you later. James: All right, bye. Watch the Podcast Here Help Us Out! Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it! 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In This Episode We Cover: How he got started door-knocking for someone else’s company Story behind his first deal How he bought a 60-room house How he got to over 200 units all single-family Combining wholesaling, flipping, and BRRRR What he looks for in an area and using zoning knowledge to find opportunity Profiting $1 million on a flip he found on the MLS About his apartment complex that was on the market for 200+ days How he uses flips to fund his rentals Getting 60% of his deals off the MLS How he calculates the return on his equity Why he hires people in-house to manage properties and do maintenance How he BRRRRed a deal with no money left in that cash flowed $2K a month His unique method for “inventing” returns And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Premium Forum Thread about BiggerPockets Premium BiggerPockets Youtube Page BiggerPockets Podcast 302: Making $100k/Deal Using Other People’s Money, Time & Experience with Cory Nemoto Brandon’s Instagram David’s Instagram Books Mentioned in this Show Rich Dad Poor Dad by Robert Kiyosaki How Not to Be a Dick by Brother How to Win Friends & Influence People by Dale Carnegie The Subtle Art of Not Giving a F*ck by Mark Manson The Sales Bible by Jeffrey Gitomer Tweetable Topics: “Don’t buy more than you can chew.” (Tweet This!) “Getting your first deal done is the most important thing.” (Tweet This!) “Sometimes speed is not your best friend.” (Tweet This!) “You can be broke buying good deals.” (Tweet This!) “Don’t spend your profit. Save it, because then you don’t have to bring those equity partners.” (Tweet This!) “Following up is the biggest part of sales.” (Tweet This!) “If my body feels good, my mind works better.” (Tweet This!) 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Want to learn from two guys who have weathered several real estate market cycles and come out on top? You’re in the right place! In this episode, Brandon and David sit down with Russell Gray and Robert Helms, longtime hosts of the Real Estate Radio Guys program. In this wide-ranging discussion, Russell and Robert cover a TON of subjects, from house hacking to investing in overseas resorts. The guys share the lessons they learned from the 2008 crash (hint: don’t rely too heavily on credit) and explain how they’re preparing for the next one. They break down how multifamily investing is just like running a business, and why hiring an assistant is the most important first step when scaling up. Russell and Robert also tell us why having an A-student mentality can hinder new investors (and make them a target for gurus), and why you don’t need to know every step in order to just get started.  You’ll learn why Robert is about to make his 137th trip to Belize, why he and Russell stopped investing in Mexico and Australia, and why you should design your own personal investment philosophy, too.  If you’re a big-picture thinker interested in using the tax code to your advantage and staying on top of market cycles, this show will blow your mind. Listen here or on your favorite podcast app, rate and review us, and subscribe so you won’t miss the next one! Click here to listen on iTunes. Listen to the Podcast Here http://traffic.libsyn.com/bpradio/bpp-337.mp3Podcast: Play in new window | DownloadSubscribe: Apple Podcasts | Android | RSS Read the Transcript Here Brandon:                   All right, Robert and Russ welcome to the BiggerPockets Podcast. Good to have you guys here. Robert:                      So great to be here. Oh my goodness. Russell:                      Really good to be here. Thanks Brandon. Brandon:                   Yeah, so I was just telling these guys before we started recording like this show is what I’ve been looking forward to for like the last five and a half, six years. Because this is like … I don’t know if you guys knew this, but like we started the BiggerPockets Podcast because I was obsessed with podcasts, but I was only obsessed with one podcast, and that was your podcast. Like I listened to so many hours. Like my wife and I would just listen to probably hundreds of hours and I learned a lot about real estate by listening to you guys. This is like a fan girl right here going this is going to be great. Brandon:                   But I actually, I don’t know a lot because you guys are like very, very, like very informational on your show and you teach a lot of really good stuff, but I don’t know a lot about you. You guys don’t talk a whole ton about your past and your stories, so today’s the fun … At least that, you know, back when I listened, so today we’re going to dig into that I guess. And we’ll just start early on I guess, whoever wants to go first. How did you get into real estate? Walk us through that beginning journey into your first deal. Robert:                      All right, well maybe I’ll start since I’m more of a real estate guy as you’ll learn in a minute. Russ is a great financial strategist and idea guy, and really looks at numbers a lot. Obviously numbers matter in real estate. I was kind of born into a real estate family. My dad was a real estate broker, but before that he was a real estate investor. Bought his first property in 1957, and I just got around it and I wasn’t sure I was going to be in real estate, but pretty quickly he made it clear that I should get a license and the very first commission check I ever got I bought a duplex. Robert:                      I lived in half, and then rented out the other half, and my initial plan was I was going to buy a house every couple of years and just keep a trail of houses behind me. Never sell, just buy. And then that’s how I would collect real estate. And then a great mentor of mine said, “Well, Robert. Why would you keep a house as a rental if you didn’t specifically buy as a rental?” You might be able to instead buy something more strategically, and that led to a whole nother thing, but I just got the bug early on and realized that real estate was such a great vehicle for so many reasons that you guys always talk about. Brandon:                   That’s awesome. Where was that duplex at? Robert:                      That was in San Jose, California. So I was born in the bay area. We started our show in the bay area, 22 years ago. Today Russ and I, neither one of us lives in California. We don’t even live in the same state. But through the power of technology, we still do our show every week. I was a California investor for a long time. And then I had a big change, a big epiphany that might be interesting. I was at a real estate event and I was talking to a guy and at the time we had the same number of units. Same number of doors, and I said, “Well, that’s interesting,” except none of his units were in California even though we lived in California. Robert:                      And 100% of my portfolio was in California. So I thought, “Wow, we’ve got something to talk about here.” And he said, “well, being in California, tenant landlord law’s not good. Prices are expensive.” I said, “Well, why would you be anywhere else? Appreciation is great and it’s beautiful.” And so we had a long conversation and it really, you know, jarred me to start thinking about other places to invest, and so today I always say live where you want to live, invest where the numbers make sense. If you want to live in a place that’s beautiful and it doesn’t make sense really from a real estate perspective, well that’s okay. You can invest anywhere. Brandon:                   Yeah. And I definitely want to dig in that today, because I think that’s a topic … You know, David here wrote a book called Long Distance Real Estate Investing on the same thing. Like you don’t have to live, because David also lives in California now and he invests out of the area. And now I just moved to Hawaii and I now invest on the main land, but live here in Hawaii. Yeah, definitely doable and I definitely want to make that a good chunk of today’s show, because you guys seem to be really good at that. But before we get there, Russ, so what about you? Where did you … How did you get into this game? Russell:                      So I’m the opposite of Robert. I did not grow up in a real estate investing family. I grew up in an entrepreneurial family. My dad was a high tech entrepreneur in Silicon Valley and like a lot of folks do in his 30s, and I was already a teenager by then, he was at that spot in life where a lot of people get where they’re on this treadmill in the corporate cubicle. And he’s looking at the world and he’s thinking I need to find a way to get free, and he took an interest in real estate. So at 17 years old I went down and took a real estate principles and practices class at the local community college, and I think when I was 18 or 19 yeas old I bought my first home. At 24 years old, got my first rental property, and I really had no idea what I was doing. I didn’t have any real mentor, but I was just out there just kind of poking around, making a mess and trying to figure things out. Russell:                      I made a bunch of money early. I blew it all. I have a pattern of doing that. I make a bunch of money and then I blow it all. So that … I realized I needed more than that, so then I really took an interest in understanding what was underneath real estate and what made real estate kind of tick, and I was a lot more of an entrepreneur than I was a real estate guy. And the other thing was I was hyper analytical, and the problem with that is you analyze yourself right into not doing anything. Russell:                      So one of the things I’ve learned in life to do is remind myself of people who are prone to action. Robert Helms is one of those guys, and so I started a mortgage company at the end of the 1990s and went out looking for a way to market that company and I decided I wanted to specialize next week working with real estate investors, because I came out of corporate sales. I liked corporate better. I liked dealing with professional better than dealing with consumers, and so then I met Robert and then kind of that’s where it all took off from there. And really most of the real estate investing I did happened after I met Robert, as a result of the things we were doing together, a lot more than what I’d been doing on my own. Brandon:                   Okay, so it sounds like Robert is the people guy. He’s the networker, he gets up there. He’s the magnet that pulls people to you. And then Russ, you’re probably like the filter, that looks at everything and is like, “All right, let’s pick out for everything that we just got brought to us what our best opportunity’s going to be? Russell:                      Kind of. It’s actually gotten a little bit different. I mean we’re old guys and we’ve been around a long time. Brandon:                   You don’t look that old. Russell:                      Well, trust me. So after the 2008 deal, because prior to 2008 we were just out there multiple markets, multiple property types. We had so much stuff going on. We were in real estate. We had the radio show, we had the TV show, we wrote the book. We had the mentoring program and the seminar business. We got involved in real estate development, because that was really Robert’s passion. But he had come out of C Class Apartments, so we were doing C Class Apartments. We were doing ground up development. We were buying brand new high rise condos in multiple markets. Russell:                      I mean we just were doing everything, and everything we touched turned to gold. I mean it was great right up until about 2008. And then everything fell apart, and then so at the end of 2008, Robert and I sat down and kind of looked at each other and thought, “Okay, you know, we’ve been at this a while. We know how to make money. We know how to invest. This is no longer about making money,” even though we needed to make money because we’d lost quite a bit. “What do we really want to do?” Russell:                      And that kind of that Jim Collins Good to Great hedgehog concept. What is it you love to do? What do you have a chance to be best in class at? And what can you monetize? And we gravitated towards real estate development in very niche market, and Robert can talk a little bit about that. And decided to hone in on syndication as a way to get there, because it meant that we didn’t have to wait for our own resources. We didn’t have to wait to recover. We could just go big right away, and that’s what we ended up doing. Brandon:                   Okay, so you guys went from … You just got started with a couple small deals. How quickly did you scale up to start doing all these huge variety of things? Was it years and years you spent on a small step or did you just get out of that as quick as possible? Robert:                      Well, for me it was longer. I definitely was acquiring real estate. I kind of view myself as a collector of real estate, so I was doing that in California. Again, throughout California, but lots of different marketplaces and a few different product types, but almost all residential income property. Commercial property here and there, mixed use property, but no development of any kind. And I think for me the scale up happened when I was making a lot of money, and I was approached by a guy who was doing the development project and it’s a long story not worth telling, but it turned out to be a really great opportunity for me to put just $50,000 possibly into a commercial development. Robert:                      And I wasn’t just interested in making a return. I wanted to learn. So I would hang out with these guys and I’d sit in the conference rooms, and they would allow me and I’d [inaudible 00:09:35]over their shoulder and then I got the bug to start developing and they really held my hand. They had an arrangement where they would raise capital, and they would do a project, and they’d return the equity in 18 – 24 months, because it was new construction and it seemed every time I invested with them they’d beat the timeline and they’d beat the return, which is pretty cool. So I started to say, “Hey, can I bring in friends?” We started referring people and there was no money exchanged for that. It was just, “Hey, they’re doing a great job.” Robert:                      And the principal sat down with me and said, “You know, you raised more than half the money on our last deal. We’ve got a deal in mind that we think you could be the developer on and we’ll just ride shotgun.” And I said, “Well, I’m not a real estate developer.” And they said, “Well, it’s not that hard. Why don’t you sit in this chair and we’ll sit in this chair?” And sure enough we did that and it was amazing. Robert:                      So that’s when, for me, it scaled up. I mean, we’d already gotten the bigger units. You know, we went from four plexes and duplexes up to you know, the 20, 30, 40 unit buildings. We had over 100 unit buildings. But then development kind of got our attention and it was still in, when times were good before the crash, and yet development in many ways is a little resilient depending on what you’re building and where. And it just became a whole different type of real estate. I think for me that’s what we saw the scale in. But I think to Russ’s point we got enamored of a lot of different things. And we tried a whole bunch of different things. And sometimes you have to do that to figure out where your heart lies. Brandon:                   All right, so very true. A lot of people come to real estate, listening to this show right now, and they’re very new and they’re not sure what to do. They haven’t found out is development right of me or is you know, should I go buy that duplex and what we call house hacking. Live in one half and rent the other one out. Or should I jump right into flipping houses or you know … Do you guys have any recommendations if you’re brand new to real estate, how do you determine what that best thing for you is? Because there’s so much out there. Russell:                      Yes, I’m going to jump in on that one. Robert does this excellent whole presentation called Personal Investment Philosophy to help people understand that. And to me, because you’re playing with real money and real credit, and your time, and especially if you decide to raise money I think it’s really really important to get around a lot of people that are doing a lot of different things. So we’re big fans of networking, getting together in live meetings, doing meetups, becoming active in clubs, talking to lots of investors, going on field trips, getting out in the real world and seeing what there is and then just kind of seeing what interests you. Russell:                      Once you find something that interests you, then try to find a way to play passively if you can, or at least small until you can get the lay of the land and really know that the people you’re dealing with are good people, that they’re competent people, that they’re committed to you. And then when you have a little bit of success then you can talk about scaling up real fast. So to me, the secret isn’t about how much you learn, because you’re going to learn. But you can’t learn it all. Russell:                      I think one of the challenges and Kiyosaki talks about this all the time when he talks about the A student mentality, and we saw this a lot in our program when we were together in Silicon Valley. We had a lot of engineers come in, and these guys are A students, and they’re used to knowing everything. And if you’re selling real estate education you can make a mint on these guys, because they want to know everything. They want to know how to do appraisal, they want to know how to do inspections. They want to know how to do contract law. They’re trying to be the tax guy. They’re trying to do everything, and you can sell them 40 years of education before they’ll ever do anything. I think that’s a huge mistake. Russell:                      I think really there’s only a few things you have to be good at which you master those. It’s really about building a team and knowing how to ask, be conversational, in a way, in whatever the subject matter is. And then learning how to ask good questions and make good decisions when you get the answers. Once you master that, then you can begin to go pretty fast. It’s a lot more about people than it is about knowing. And you learn by doing. David:                        That is such a good point. And you know, Russell, I’ve never had anyone tie the fact that people think that they need to learn every single thing about real estate that there is to the vulnerability that like gurus can go after them and take advantage of them, because they’re saying, “Hey, if you don’t know it all, you can lose your money. So come pay $50,000 and we’ll teach you everything.” That’s exactly right, because the people that actually do this at a high level, they rarely ever are masters of more than one or two parts. Like they partner with other people that are good. They know, “I’m not a numbers guy,” or “I’m not a people guy,” or “I’m not an operation guy, I’m an idea guy.” Oh, I just love that you mentioned that, because it’s not that you … It’s not that ignorance is okay. Somebody has to know, it just doesn’t have to be you, and if you wait until you know it all, you’ll probably die before you ever actually take any action. Russell:                      That’s true. David:                        In this business. Can you tell us how you guys … Did you know that right off the bat? Did you learn that along the way? Was there something that clicked that made it make sense for you? Russell:                      Yeah. I think, for me, you know, I’m just very aware of my own weaknesses and it’s easy because there’s so many of them. But the thing that I was really good at, I think, was going and getting what I needed. So I recognize, because my dad was an entrepreneur and the essence of being an entrepreneur is to just go get what you don’t have. And so my dad didn’t get a college degree, yet he started a high tech company. He wasn’t an engineer, yet he found a way to create brand new products that were high tech. I never even understood what he did. It was just fascinating to me. But what he was was an organizer. He was the guy that would go out and he would get the money. He would write the plan. He would recruit the talent. He would set the vision. And then he would lead the team, and more often than not it wasn’t him answering questions. It was him asking questions and a lot of it was, “What do I need that I don’t have and how can I go get it?” Russell:                      And so I learned that. I mean I learned that early on. And I couldn’t be bothered to go to college. I lasted for one quarter. I wanted to play football. I played one quarter of football, and I had a wife, and kids, and a recession came and I had responsibilities. So I quit doing that and I just went into sales, because it was a short path to making money. And then I began to stabilize my income and look for other things to do. I realized that in order to change I needed to get into a different industry, and the first time I tried to know everything there was to know and I failed badly. The second time I realized I didn’t have to know that much. What I needed to do was meet the right people. And it was on that journey about looking for the right people that I met Robert. And Robert was the right person. Russell:                      Robert brought connections. He brought, he had a cache of reputation. He already had The Real Estate Guys Radio Show. This was probably three years old at the time. And so he had a seminar company going, and so there was a good foundation that we could work together on. I found a way to add value to the relationship. I brought the mortgage side, and I had a business model for teaching and mentoring. And we adapted that to him and his talent, and then pretty soon it just took off. So you know, the where it clicks for you is when to me, in anything that you’re going to learn, when it clicks is when you see somebody else doing something and you learn how to take what they’re doing successfully, that principle of success and apply it to your own situation. And I saw what my dad did in terms of being a true entrepreneur and I thought okay, I can apply that even though I’m not high tech. I can find a way to apply that to what I want to do. Brandon:                   That’s fantastic. You said something in there I want to point out. Because this is something I’ve had coaches over the years tell me this over, and over, and over is that … You know, business coaches. It’s not about how, it’s about who, and I love that you said your dad would say like, “What do I need to do and who do I need to get to do that?” Like you know like, it’s not always like how do I learn, how to do this particular thing. It’s who can I find that already knows that, who’s already a rockstar at that? Pull them into our world and get that done. I just want to point that out, that’s fantastic. Robert:                      Yeah, that’s bold right there. In fact, David my answer’s just a little bit different than Russ’s, and I wasn’t as strategic about thinking through that and observing. I was the guy that just wanted to do it all until I realized that I wasn’t really good at a lot of stuff. And I would try to take on too much, and I would try to figure it out. And then I’d find someone who could do it better, faster, cheaper, and go, “Wow.” That seems like a much better solution. And so there are a few … a handful of things that you will be masterful at and set your life up so that those are the things you do. And the stuff that you don’t like to do or you’re not good at, that has to be done, find somebody else whose joy and gift is in doing those things. That is the key to success. Brandon:                   Yeah, yeah. That’s so true. Do you guys have assistants, real estate assistants or people that work? I’m wondering if so, when did that come into your life? When did you hire somebody to … your first like assistant in your life? Robert:                      Yeah, I think we have a lot to say about this, because we grew a big company with a lot of people, and decided that wasn’t the way to go. I’ll let Russ tell that story. [inaudible 00:18:39]early on that in real estate transactions you need somebody watching the bottom. Most real estate sales people are good with people, and networking, and selling, and not necessarily paperwork. So you see that in real estate industry. I sold real estate for 18 years, and my business really exploded when my dad and I who worked together in real estate sales got our first assistant at the urging of a mentor who told us the first thing you should do is hire an assistant. Which is a hard mindset when you’re like, “Well, I barely make enough money to survive. How can I afford to pay somebody else?” Well when would you expect that to change? Robert:                      That’s the whole concept of anything you were doing that somebody else can do that you should delegate. And learning to delegate it. Having the right hand person, ironically one of the great assistants we hired, I think our third or fourth assistant in our real estate practice was Russ’s daughter. We met Russ and his daughter Stephanie at a seminar, and at the end of the seminar, it was a thing we did called Jump Start Your Real Estate Business, teaching to real estate agents how to be rookie of the year, basically. You know, collapsing timeframes, stuff that took us 20 years to learn, let’s teach you in a shorter period of time. And we hired Stephanie at 17 years old, and that’s really how relationships started. And that brought Russ into the picture to help us systematize even more and it’s one of the arts, hiring, and delegating, and getting help is difficult at best. So spend some time doing that. You can’t really scale up very well without some help. Brandon:                   Yeah. That is so true. It is something that for years I struggled with that, about bringing in an assistant and then finally I did, and it helped but I probably brought in the wrong assistant. When I did it, I just hired somebody that was available, rather than somebody who was good necessarily … and hopefully she’s not listening to this. And so I struggled for a year. And today I have a fantastic assistant, even he’s moving beyond assistant role. He’s just like running my life, and company, and everything. But yeah, huge difference in my life. And I have the same mental thing. It’s like I can’t afford this person. At least I don’t want to afford this person, but I needed that person and anyway, it made a huge impact in my life. Brandon:                   So those listening to this show, maybe that’s what you need in your life. If you need to be more organized, someone to take all, to keep your eye on the ball and all that stuff while you go and generate leads, or you’re generating, analyzing deals or whatever you’re looking for could be a really good option there. [crosstalk 00:20:58]. Can you – Russell:                      There’s a bigger lesson to that too, Brandon, and that is that’s a core skillset that you have to have. You have to have, you have to know … you have to have the ability. First of all, you have to have the mindset that you’re not spending money, it’s an investment. I mean when we go to buy a piece of property we don’t look at the money we’re putting out as an expense. We look at it as an investment. We expect it to make us money. When you have an expense in business, it’s exactly the same thing. When you have an expense in business, you expect it to make you money. You shouldn’t be making the investment if you don’t have a direct path. If you don’t have a plan for it to make money. So you have to develop the skillset of knowing how to make money on other people’s efforts. Russell:                      Fortunately, it’s not that complicated, because you just keep a time diary and you figure out all of the things that you’re doing and how much money you make at each of those tasks and it becomes pretty apparent, pretty fast, that you’re doing a lot of things that don’t make very much money that are easily replaced so that you can then invest more of your time on the things that give you the highest return on your time. And if you do it right, eventually you can build the businesses completely run by other people and all you do is own it, which makes it a lot like a professionally manged property where you don’t have a lot to do, you just collect passive income. Businesses can be the same as apartment building in that regard. Brandon:                   Yeah, it’s something I never thought a lot about, but businesses are a lot like owning rental properties if you do them right. You can build it the same way. You can get the cash fulfillment. Yeah, very good point. [crosstalk 00:22:23]. Russell:                      But the essence of business investing is harnessing the efforts of others. That’s it. Once you learn how to make profit on other people’s efforts and you master that these other … they’re just vehicles. I mean an apartment building is just a way to get 125 people to get up every day and go to work for somebody else, and pay you 20, 25, 30% of their income. You don’t have to train them, you don’t have to supervise them. You know, you don’t have [crosstalk 00:22:49]. David:                        I love that. Russell:                      Somebody else does it. If I start a business and I’ve got a bunch of work to do then I just bring people in to do it at less than I charged to do that work and I make a split. And so when you understand what’s the essence of what you’re building to create passive income, to create a portfolio, to build a business, whatever it is, then you just concentrate your efforts on mastering that one component. I wish somebody would have told me that in my 20s, because I didn’t figure that out until I was in my 50s. Until I really understood that concept. I had the same mental block that hiring people was an expense and that I was diminishing my bottom line. But can you imagine investing in real estate I think that attitude? I mean, I can’t make down payment. I’ve got to save my money. Brandon:                   Yeah. It wouldn’t make any sense. David:                        It’s something, Brandon and I get asked a lot, I bet you guys get the same question, like how do I find a mentor? Will you mentor me? They basically want someone to teach them the entire business without having to learn on their own. And I like the point you just made, Russ, that you want an ROI on the money you’re paying an employee just like you would on an investment. Are you investing in the right person or is that person a bad investment? And I would say to flip that around, if you’re the person looking for a mentor, is if somebody decided to take you on and teach you, or hire you and pay, give you time, give you education, give you money, are you a good investment. Would you make that person more money because they invested in you than they would make if they didn’t have you? And I don’t think many people look at it that way. They don’t understand that as an employee your job is to be the best investment possible, because what do we do with our best investments? We put more money into them. David:                        That thing’s performing amazing, let me go rehab it. Let me put more energy into this. Let me build off of it. You do the same thing with your best employees. That person is doing so well for me, can I give them more opportunity and more responsibility? And I feel like in 2019 that’s one of the big things just kind of missing from the world is we’ve had what? Has it been like 11 years of just straight an improving market and it’s gotten kind of easy to make money, and people don’t understand it’s not always like that. Which might be a good segue into what happened in 2008 when a lot of people lost money in real estate. Can you guys talk just about what the mindset was at the time and what it was like when it shifted? What you learned from it so we don’t make those mistakes again? Stuff like that? Robert:                      Oh my gosh, we will have to collapse the timeframes here a little, because that’s a long story. We, I will say, are much better prepared for a change today than we were back then having gone through it. It was pretty rocking there, right? 2003, 4, 5. Russ talked about everything we touched seemed to work and made us think we were smart. And now we’re pretty clear that wasn’t the case. All right? The market was good, and any real estate investor can make money when the market’s good. It’s hard not to. Robert:                      The key is being able to make money in any kind of a market, and that does take this perspective of time. So one of the things we did is we’re big lovers of leverage, so we found lots of ways to get lots of property with not a lot of money down. And that’s actually not a bad strategy, because if you have too much exposure to a property in terms of say about a 50% net loan to value, now if there’s a challenge in the markets or in the economy you’ve got some equity someone can target. So it’s not a bad idea. Robert:                      It’s just we got ahead of ourselves, and I think we weren’t looking at the signs of when is the market going to change and so forth. And so the mindset shifted pretty quickly when it all fell apart, and I think instantly people thought well, real estate’s a bad investment, because look at what happened. And of course, that wasn’t the case. It was the right real estate, the right market, the right situation, and boy we learned a lot. I know Russ has some things to say about that. Russell:                      Right, yeah. I mean, the first thing you learn is you learn that you’re not smart. And you’re actually, the smartest people I know are humble. They ask a lot of questions, they look for people who have expertise. And so I’ll just speak for myself, but I took a lot of pride in being the smartest guy in the room, and I learned real quickly that that was so stupid. So that was one part of it, because we had people who were warning us. People that had been investing longer than us. They told us these things come in cycles. Russell:                      The guy that mentored me in my mortgage business told me when the credit markets seized it’s just like somebody just takes a spigot and just turns it off. It stops instantly. It’s just like a power failure. It’s not, doesn’t just dim down. It just shuts off. And yet if I would have taken two minutes and really looked over our entire business I would have recognized we were 100% dependent on credit markets, healthy credit markets, and not studying the credit markets. Not understanding what drove them or wheat threatened them. I couldn’t even recognize the warning signs when they were there. Russell:                      And so when they seized up, exactly what he said would happen happened. All of the sudden you couldn’t get your projects funded. You know, I had a mortgage company. I couldn’t get any loans funded. We were running everything on credit lines. We didn’t have any cash. We were fully deployed because cash, having cash in the bank was a waste of money. So we said, “Well, we’ve got all the liquidity we need with credit.” When those credit lines got shut off, not because we weren’t paying, not because we were a credit risk, just because everybody was reducing their exposure. And if you were around back then you may remember some of that happening. Then all of the sudden we were illiquid. We were upside down, and we couldn’t generate revenue. Russell:                      That’s a bad combination, and so we learned that … You know, in fact it’s really interesting because Robert always does the interviews, especially all the major interviews, but we had this one circumstance back in January of 2015 where we ended up in Iowa, of all places, to go to a farm investing conference where Donald Trump, pre-president, pre-presidential candidate, Donald Trump was the keynote speaker and they ended up having a press room and we ended up in the press room. Russell:                      But Robert had to get on a plane to go to Belize. So I ended up being stuck in the press room and I got an opportunity to ask Donald Trump just one question, and I asked him. I said, “Well, Mr. Trump, you’ve had great times and you’ve had down times, and what did you learn in the good times and what did you learn in the bad times? And if you end up running for president and winning how would that help you?” He didn’t answer the last question, because he wasn’t ready to announce yet, but he said, “Yeah, I didn’t learn anything in the good times. In the down times, learned it’s always good to have some cash, to be liquid.” And that’s the voice of experience right there. Russell:                      So I think being liquid, real liquidity, not credit liquidity, being liquid, having some cash on hand is probably really important, and of course having good solid positive cash flows which was something else. We were running negative cash flow on portfolio, and negative cash flow on the business, and you put those in a blender and it looked good, but when the business failed because it was largely mortgage driven, at least on my side of the business, the cash flow stooped and then the properties were under water and I couldn’t get out and it was just disastrous. That was the big lesson. David:                        Do you think that having a good amount of money flowing through the businesses gave you this false sense of security about the criteria of the investments you were making? Russell:                      Yeah. Oh absolutely. I mean, when you’re making six figures a month and you only need, you know, 10 or 15 to live on, you can have a lot of negative cash flow. And my attitude was, “Hey, if I can own five, 10, 20 million dollars in real estate and it’s going up 5% a year.” You do the math on that, the negative cash flow versus the equity growth, it was great. The problem is equity is phantom. I’ve learned that capital gains unrealized aren’t really real. And stock market investors just find this out all of the time. But you know, you look at the real estate market, but real estate has never gone down or never substantially gone down or if it does go down it’s back in 10 years. Yeah, but you got to survive those 10 years. So cash flow is the thing that really makes you stay. Russell:                      At the same time, we were developing a friendship with Kiyosaki and Kenny McElroy, and we watched Kenny operate through that crisis and he had a very different approach. And while everybody else was selling, everybody else was strapped, everybody else was under water. Everybody else was losing, Kenny was out there acquiring $300 million in real estate and he was very much focused on value adding cash flow. We learned a lot in watching all of that. And then of course we started hanging around with Peter Schiff and that’s a whole different discussion, but we learned a lot from him too. Brandon:                   So, let’s a talk ait about what happened then after 2007. So pre-2008, it sounds like you guys are doing a lot of different things, including development at that time. And then what happened after? What did you shift to and then can you bring us up to where you are today and how did that journey go from ’08 now to here we are in 2019? What do you [crosstalk 00:31:59]. Yeah, where did you get to then? Robert:                      [inaudible 00:32:01]and I think every investor has an evolution. There are some people who are doing what they did 20 years ago, but I mean for most people we’re always talking about this idea of personal investment philosophy, which is getting in touch with who you are as a real estate investor and why real estate is interesting to you. What’s the why? And if you get that figured out then the vehicle can change over time. You try something for a while, markets change over time. With real estate it’s hard to pop in and pop out, because of the sales cost involved. So we say you get married to a market when you pick a real estate market plan to be there for a while, but you can definitely shift and I know we shifted a lot. I started in C Class apartments, which are management intensive, and you better keep your eye on the ball, but a lot of money can be made. But it just takes a lot of effort and we really shifted our focus. Robert:                      When we went through the crash and said, “Okay, starting over.” And we didn’t get completely annihilated, but we definitely got punched in the stomach pretty well. It’s like well, okay, knowing what we know what would we do differently, and the first thing we did is we started to get around people that saw it coming. Because we didn’t see it coming. I mean, there were a lot of people smarter than us who didn’t see it coming, but we certainly didn’t see it coming. But the people that … There were, there were not as many as claimed that they did, but there were people who were [inaudible 00:33:19]like Russ talked about, so we started to get around them and we made a big shift in kind of our show even. Robert:                      We were all about real estate, we went to real estate events. We got asked to speak at real estate events, we were at live events. It was the real estate events. Then we shifted to go to a lot more economic events, events that were broader picture, events that talked about the financial system, and trying to understand the federal reserve and the way money works, and all of that, because that was the key to really understanding every market, not just the real estate market. And then a big part of it was deciding what were we going to do with our time? I think this is critical. Robert:                      If you’re brand new in real estate investing, or you’re been doing it awhile, and you feel like maybe you’re bumping your head against the wall a little bit. Those people that say, “Well, if it’s not broke don’t fix it, and there’s people that say it’s not broke we’re going to break it.” Break out to something new, try something different. Without giving up what you have. And so we discovered that there were a lot of things we enjoyed doing better than managing tenants, and managers, and dealing with all the stuff surrounding C Class and so we made a conscious decision to be more in the development business and more in the higher end property business and land development and things like that. Robert:                      And it was great. The biggest shift from a structure point of view was real estate syndication, where we still invest in our own portfolios and most of what we do today is investing in other people. Which gives just a lot of exposure to different folks, and different markets, and different types of products and you can accomplish a ton and it’s a bit of diversification as well. You know, generally diversification can be a recipe for mediocrity. You know, think of stock investors with like 20 stocks. Okay, two are going to do well, and two are going to tank, and the rest are going to do okay and at the end of the day not much happens. But in real estate you can get so much more specific and based on those skills that you have, and the relationship that you have, you can outperform as you guys know. So I think us just getting in touch with our inner investors and deciding what do we want to be when we grow up. Russell:                      I remember the day. I mean, I remember sitting in the conference room of our building which, you know, was now vacant. It was like a morgue and we were sitting there, and we got out the white board, and we listed all the things that we had to work with, you know, just a typical strategy session. It’s like okay, what do we want to do? What do we have to work with? And we took that Venn Diagram from good to great, and started talking about that and we said, “Well, okay, let’s keep the radio show. Let’s keep the radio show going and let’s really focus on growing the radio show and developing it more into a business,” because up until then it had been something that was kind of a little bit off to the side. It wasn’t center mass. And so we did that, and we liked the seminar business, and teaching, and so we said let’s keep that and marry that to The Real Estate Guys Radio Show, which we did. Russell:                      And then the other part was we had the development company, and Robert really loves development, said, “Well, you know, let’s take a look at that.” I decided to get out of the mortgage business, but I wanted to stay in capital and I saw that the capital markets were broken. The flow of money from savers to main street was broken, and it was very difficult to get loans back then. So I thought okay, the flip side of every problem is an opportunity. There’s going to be a big opportunity in private capital. Well first thing Robert and I have had that experience of raising many millions of dollars. We said we can teach people how to do this. And so if we teach people how to do this we can help kind of heal the market, we can create opportunity for ourselves, we can fund our development projects without debt, just using equity, and now we can continue to go. We can actually go bigger faster than we could before when we were just investing with our own resources. Russell:                      So that’s what we ended up doing and then when it came down to really what we wanted to do it’s like okay, well we have to focus on markets that actually … demographics of people that actually have money. So we not only shifted to the financial conferences because we were interested in the subject matter, we wanted to understand the bigger picture of what was happening, in the bond market in particular and the symbiotic relationship between debt, the cost of debt, and real estate, but also because that was the demographic that had more accredited investors, more affluent people, more [inaudible 00:37:26]investors that would be the kind of people we would want to know and develop relationships with for syndication. Russell:                      So we ended up doing that, and so that shifted what we were doing with our annual investor summit at sea. And the types of people we were bringing in for the first 10 years, it was pretty much Robert and me, and our team. And we were the gurus and we taught. Since then, it’s been pretty much we’re the hosts, and the emcees, and we put it together and then we run around and we just bring people that are a heck of a lot smarter than us, investors that are really, really successful, and we learn from them and they learn from each other. And so in looking at where could we invest and drive rents from the affluent, and marry that to what we like to do, we deiced to hone in on resort property investing. And so we have this really, really narrow niche that we do personally that we don’t talk about a bunch on the show because we don’t like the show to be about what we do. We’re really interested in just helping people do what they want to do and kind of discover their inner investor and then facilitate that. Russell:                      But for us, that’s what we ended up doing, and when I say we I use that term very loosely, because it’s primarily Robert and our other partner in the development business that do all the work, at least as far as I’m concerned. You know, I spend my time just kind of organizing the business side of The Real Estate Guys, and keeping that rolling. But it’s fun. It’s fun, because it’s a fun place to visit, it’s a great demographic. It’s a super sexy story. I’m not qualified to tell it. Robert can if you’re interested, but it kind of took everything that we liked to do and put it all together in a ball and we’ve been able to focus on it. It’s been great. Brandon:                   Yeah, I want to dig in on the … Yeah, I really want to dig on the resort investing thing, because that’s fascinating. I do want to pull out one piece of information … or thing you said that I thought was just so smart. Is you guys sat down and said, “Where do we want to get to? Where do we see ourself in the future?” So many newbies don’t do that. They’re just like I’m going to go buy real estate, because that’s what I heard was cool, that’s what’s going to make me rich. Brandon:                   You guys are like, here’s where we want to be and here’s what we want to do or we don’t want to do. Okay, we think, even down to … What I love is like even down to like hey, we’re going to do this summit at sea. I want to change the type of people we bring in to make sure that we’re surrounding ourselves with the type of people that we want to get to know. I mean, how many people really go that deep in their thinking. It’s not very common. I don’t know, I love that. I just want to pull that out of there. You guys are just so like driven on what you want and how you want to get there. I think that’s awesome. Russell:                      Yes, Stephen Covey says, “Always begin with the end in mind,” and so you have to think about that. A lot of people do the two step. I think the biggest mistake I see investors make in their careers is they do what I call the two step. And that is they say, “Okay, I’m going to go do whatever I can do to make as much money as I can, and then once I make this much money then I can live how I want to live.” And I just, you get to a point in life where you go you know, life is too short to live that way and so many people die just trying to finish phase one they never get to phase two. And they die and they never fulfilled their dream. So to me it’s more about being a business modeler, an entrepreneur strategist, and saying, “Okay, how do I want to live and what do I need to build that will pay me to live that way?” Russell:                      And whether it’s a business, whether it’s a portfolio and so you know, you may say, “Hey, I can make a bunch of money doing whatever,” but if you hate doing whatever. Robert and I had a chance, we got called in by a friend of ours that was a real estate agent in Las Vegas, and she called us in and she said, “Look, I’ve got this client and he’s got,” I don’t know, “150, 200 condos that he’s aggregated into this giant apartment complex. He rents at this apartment complex. He wants to sell.” And so we went in, and you know, good sales technique is seller motivation. So we’re interviewing him and we’re sitting there in his office, and his office is flea ridden and fleas are climbing on my leg, biting my leg, and I’m like this is awful. Russell:                      And this guy’s explaining to us his situation. He works 16 hours a day, seven days a week. He clears over a million dollars a year, and he hates every single day of his life. Hates it, and he wants to get out of it. Meanwhile, his wife comes in and she’s all dollied up and she’s out shopping … Remember this, Robert? Remember this guy? Robert:                      Yeah. Russell:                      And Robert says to him. He goes, “You know, we have people in our program right now that would give their eye teeth to be you.” And that’s when for me the light bulb went off, and I thought, “You know what? Money is not the answer.” If you could live … if you owned nothing, but you had no money, but you stayed in four and five star resorts, you traveled, you ate well, you had a roof over your head, you got to do what you wanted, you were healthy, aren’t you rich? I mean, what’s the definition? So to me, when you think about what you’re really doing with your life force in the precious amount of time that you have on this planet, if you can figure out exactly how you want to live and what you want to do, and design a business and a portfolio that will pay you to live that way, you’re rich and you’re retired. And it doesn’t matter how much money you have or don’t have because you’re living the life. Russell:                      And that’s what Robert and I figured out how to do. People ask me what do I do. I go, “I’m semi retired.” I mean, because everybody gets up every day and, you know, does what they need to do. I get up every day and do what I need to do, but I get to do what I want to do when I want to do it, with who I want to do it. I have plenty and I always want more, but you know, I’m very, very happy in my life and I think that a lot of people do the two step and think I’m going to go do something I hate. I’m going to hold my nose and then I’m going to make a bunch of money and then I can buy the life I want. I think that’s the biggest mistake any entrepreneur can make. Brandon:                   Yeah, that’s deep. [crosstalk 00:43:06]. David:                        Can you guys share a little bit about how you built your portfolios and then what your portfolios consist of now? Robert:                      I would say, you know, at first real estate was part-time, like it is for many people. And many people it stays that way. If all you did was buy a nice little rental property every three, four, five years and just stay at it you can develop a nice income stream and then that will appreciate perhaps over time, right? So early on we were just collecting properties, finding great markets, collecting properties. And it really comes down to just personal investment philosophy idea, but for me I never buy a property I can’t see having in my family for the next 100 yeas. That’s just a screen I use. Robert:                      Don’t flip properties. I did it once, made bunch of money. That was fine. Learned that, that’s great. Just flipping properties is a great job. It’s not investing. Investing is where you put the money out and it comes back with friends, and it continues. Legacy. And then I think the development business that was also a way to collect properties, because several times he would do a small development and keep a building and that was a way to pick up profit, if you will, in real estate. But the whole act of turning dirt into dollars is very, very different than just passively accumulating income. So we continued to build that up and then when you’re in the development business that all really is more of a business than it is an investment. Robert:                      So to make sure we were investors we would hang on to property, we would develop some things for our own portfolio, but we’ve always had a heart to bring people along. And you’ve got to be careful about this. For some people partnerships aren’t healthy, and many of life’s problems do come with hair on top. So you have to enter partnerships lightly, but I will say that almost everything I do in my business life I do with a partner. I just think that power of 11 that Napoleon Hill talks about, you know, when two people get together it’s not just the sum. It’s greater than the sum, because of the synergy, and because of the ideas that will foster between two people, make that three people, it gets even better. But at the same time, like there’s … It’s personally figuring out for you what makes sense. Robert:                      So today a lot of what we do is investing in bigger projects with partners. Sometimes we’re the syndicator if you will, we’re the master partner, and sometimes we’re not. My favorite thing to do today is to invest alongside other people that are doing great stuff. It’s a form of leverage. [inaudible 00:45:36]will say, “Well, if you invest in a syndication there’s no leverage.” Well I think it’s exactly the opposite. It’s the ultimate leverage. Robert:                      You’re leveraging somebody else’s experience, and time, and relationships, and market knowledge, and you get to glean from that if you choose to and make the financial return. So you know, I think it is smart to have a niche of some type, something. For me it was small residential properties. Typically four, six, eight units. You know, there’s that financial difference between one to four units and five and above, but sometimes that niche is difficult because it doesn’t have as many economies of scales in the bigger stuff. So it’s been an evolution for us. Today we’re kind of all over the world. In fact we talked about that earlier. This live where you want to live, invest where the numbers make sense. We’ll ask an audience of people, “Who thinks it’s risky to invest outside of the U.S.?” And there’s hands that go up, and you say, “Well, who thinks it’s risky to have all your investment capital tied to one nation’s economy and currency?” And then a whole nother set of hands comes up. Robert:                      So it’s not right or wrong. You can become wealthy and successful and never leave your country. But to us it’s a big world out there, and there are so many places to invest, and the harder you search the better there will be opportunity if you choose to. So a lot of what we do today is outside the United States. It’s not just outside United States. It’s not that we don’t like U.S. property. It’s that there’s just different opportunity and there is some diversity and there also is … Part of the thinking is what happens when, not if, but when there’s a downturn or if U.S. dollar continues its climb downward like it has for 100 years. You know, trying to be on both offense and defense at the same time. Russell:                      I think there’s one interesting thing in there that … We talk about the lessons learned in 2008. We couldn’t tell the difference between a bubble market and a resilient market, and what we realized was that the markets that really shot up and then crashed hard were the ones were there was a lot of leverage. And Texas was a market that did not crash hard, and it was not because it had some economic bones that were rooted in energy, and that was part of it. But part of it was because they had some restrictions on how much cash out you could take, and so their lending restrictions created less leverage in those markets and so kind of extrapolating on that we went in and said, “Well, gee what about if you could invest in markets where there’s no leverage at all yet?” And of course that’s hard to find in the United States, and one of the things that drove us off shore was finding markets that don’t have leverage yet with the idea that at some point in time they probably will. And I’d rather be in before that happens then afterwards. Russell:                      And of course then once you study any market the big question is what’s the appropriate product type or demographic that you want to serve in that particular marketplace? And for us because we want to just spend time in exotic locations, and we found a place that had the right supply and demand dynamic. The question was what’s the right product and it ended up being resort property. So to come full circle, that’s how we ended up kind of in that resort property niche, and then the indication was the secret to getting it done and then there’s a little, yes, probably secret sauce factor that’s in it that we won’t talk about that makes it a real interesting investment for us in terms of passive income. So anyway, so that’s where we primarily focused our attention for these last eight or nine years, I think it’s been. Brandon:                   So where. Say you’re outside the U.S. Can you guys give us some examples of locations that you’ve invested or that you are currently invested? And do you have lots of resorts or there’s like a massive huge thing that you’re working towards? Robert:                      Yeah, great question. So we started out, first other country that I invested in was in Mexico. And in Mexico, anywhere … As soon as you cross a state line, laws are different, practices are different.So there’s a level of education you need. I don’t need to go pay $50,000 to learn it, but you do need to understand there’s mortgage dates, and deed and trust dates, for example. As soon as you go to another country, well now the very basis of law can change as it does in Mexico. Mexico’s based on Napoleonic Civil Law. That’s different than what we’re used to in the U.S. and then Canada and places like that. And so in the zones we were in, coastal property areas in Mexico, you don’t actually own the land. You own a bank trust. Something called a [inaudible 00:50:14], so that takes a while to get your mind around. Like I don’t have the simple title. Well, isn’t that scary? Well, it can be, so the learning curve there. Robert:                      But Mexico’s the first place we went and we bought some property passively there and then we developed two projects in Mexico, which was great experience. Today I don’t know that I have interest in doing any more in Mexico. It is the opposite of a tax haven. Very political, very difficult to get things done, in my opinion, but it was a great learning experience. And how do you operate in a completely different country with a different language? So that was tough. We invest a little bit in the Dominican Republic. It’s in the news a lot today, the Dominican Republic, but today just passively interested in that market. Robert:                      My next market was Australia. Australia was interesting for a lot of reasons. They almost speak English. It’s a long way away, but we had an opportunity to invest with a huge company with a giant track record owned by a big conglomerative that is publicly traded and so there was some security and stability in that. It was new construction in a great area. That turned out to be great. Again, lessons about team and who’s behind any project and most of these were just onesies and twosies and then after we made the strategic decision that Mexico probably wasn’t our long term development home we went on a two year search, and we wanted to find another country. And I think a preface to this is what really set me off in this direction was when Las Vegas, Nevada went up 52.6% median home price in one year we knew something as wrong. We didn’t know what it was, and we made a ton of money doing it, but it’s like wow, this can’t sustain. Robert:                      Today we’re probably better educated about those things, but at the time there was just something tugging at me. And I had been attracted to Cabo San Lucas, and that was the first part of Mexico that we went into and that turned out to be pretty good for us because again, leverage down there. So unleveraged properties don’t get into trouble when the mortgage market explodes. And then we sat down and said, okay let’s find another market. Mexico had a lot of great things to offer but also a lot of negatives, and we were on this two year quest. We went to every country in Central America, most of the Caribbean. We wanted to stay closer to home. My investing in Australia taught me that I want to be within a few time zones of where I live. Just easier to conduct business. You’re active. You’re passive, not as important, but if you’re active. And if we’re going to go there we want it to be a place we enjoy going, so we ended up in the country of Belize. And Belize had a ton going for it. Robert:                      It’s the only English speaking country in Latin America, so everyone speaks English. The law is in English. The contracts are in English. It’s postcard beautiful. Where we are is like a Corona commercial. The water’s 82 degrees, palm trees and white sand. I’m about to make my 137th trip to Belize, and never once I look at my calendar and say, “Oh man, I’ve got to go to Belize next week.” It’s always great. I take my family there. We vacation there every year. It’s extraordinary. Now, that wouldn’t be enough. There would also be a real estate opportunity there. And so to answer your question specifically, Brandon, the largest project is in Ambergis Caye, Belize and it’s the single largest hotel by room count in the country. Now it didn’t start that way, that sounds all impressive, but we really just started to try to come next to the great operators in the country and provide what was needed. There was real demand for quality hotel rooms that wasn’t being met. Robert:                      And again, financial construction is difficult there. You can’t really get a construction loan very easily, and that’s actually a good thing. Means that you don’t see too many broken projects, but it is hard to get off the ground. And so it’s been such an amazing learning opportunity. Seems like it’s always two steps forward, one step back. But it’s extraordinary and we got a bunch of great folks behind us and it’s humbling to go there now and walk around and so wow, we built this thing. Brandon:                   Yeah that’s super cool. You say you don’t have a construction loan. Does that mean you’re financing the entire syndication basically via … I mean just all raising money for 100% of it? You’re not using bank financing at all? Robert:                      Yeah, pretty much that’s what it means, and that’s a heavy life, right. So first of all, first money in is our money. So we’re at risk and we’re all in, and then rather than go to … We, you know, have some good connections. We thought about, “Hey, we’ll just go grab a bunch of money for this thing,” and instead we wanted to empower people to go out and raise money themselves. So we created kind of an environment where people can syndicate three of four rooms inside of a Hilton Hotel. Well, that’s a hard thing to do. How do you rent four rooms at Hilton? Well, you don’t. That’s not something that’s typically available, but we figured out a way that both could do that and raise the money to do it, and so we only did one syndication ourselves just to build the model homes and from then on we found folks that want to come in and syndicate. Robert:                      You know when you syndicate every day you wake up with two problems. You’ve got to find a deal and you’ve got to find money. And our premise was imagine this scenario where you didn’t have to worry about where the next deal was going to come from because you just bought another lot and have another four, five, or three hotel rooms and folks can just continue to raise capital in a market they understood and in a market they were talking to their investors about. So that’s how we did it, through an army of syndicators and it’s been quite a journey. Brandon:                   That’s cool. David:                        So there’s something I want to make sure that I understand right. One of the things you guys mentioned was you’re investing in countries that don’t have financial leverage, which meaning like it’s hard to get loans to buy real estate. And if I’m understanding you correctly what you’re saying is that if you go buy real estate when it’s not easy to get a loan, when that funding does come, when their government does like what ours does where they support Fannie Mae, Freddie Mac type loans now people can afford to spend a lot more to buy that same leverage because they can borrow money at a cheap rate which makes the value of it go up a lot. Is that the basic premise? Russell:                      That’s exactly what happens. I mean look at what happened to housing when Fannie and Freddie were created. They basically introduced subsidized debt into the system, and the purpose was to make housing more affordable, but it made it more expensive. Look at what happened to college education. They instituted student loans. The idea was to make college more affordable. It actually made it more expensive. Same thing happens anywhere debt gets introduced, because you hold purchasing power from the future into the present and then people can take, for example, a six percent 30 year fully amortized loan, $300 a month means I can pay $50,000 more today for that property. Well, if you’re the owner, the seller of that property, that person’s $300 a month is $50,000 cash to you right now based on their ability to bid up based on cash flow. Russell:                      And so until that shows up there’s no debt service in the marketplace, so the cash flows are very solid, and once it does show up typically it begins to push the rents a little bit too. In this case it’s overnight rentals, because you have to build in the cost to debt service so you end up pushing the higher end of the market. But the point is is that it pushes up the pricing, and so you’re always looking for those kind of opportunities to get in early. But that’s exactly how it works. When you bring purchasing power from the future into the present and it doesn’t just have to be that country. Russell:                      I’m not holding my breath for how long it’s going to take for Belize to figure out to bring financing, but what we experienced in Mexico was that at the height of 2006, 2007, U.S. lenders had made every loan they possibly could make in the United States. Part of the reason we had the crash is because now I understand this. I didn’t understand it back then, is we have an economic system that requires perpetual exponential growth of debt. And when you have lent to all the good borrowers you have no choice but to lower your standards and lend to the marginal borrowers. Russell:                      When you’ve done that, then you’ve got to go look for new markets. It’s like any company for anybody who’s trying to grow, you’ve got to get out on the margin. The problem is is when you’re doing that in debt markets that markets can collapse. Anyway, so they were moving into Mexico. Now of course the crash came, and then all of the lending went away. But we’re back at that phase. So at some point down the road, as long as this expansion of global debt continues, global lenders are going to be looking for premium properties to loan. Russell:                      And so for us they’re not going to be living on single family homes in the country of Belize. It’s a third world country. It’s very poor but primo resort properties on a tiny little island with no capacity to expand where you’ve got a big brand name development, big developer, great product. We think, now we don’t know, we’ll find out, but we think that at some point that’s going to make great collateral and either private or institutional lending is going to come along and want a piece of it. When that happens the folks that get in before all that happens are probably going to ride an equity wave, because that’s typically what happens. I can’t say that’s going to happen, but it wouldn’t surprise me. David:                        Well for anyone who doubts that, all you have to do is look at what happened in 2001 through 2007/8. That’s what drove prices to go so high was the lending standards were lowered and opened up and money flooded in there. And people would pay whatever they had to for a house if someone would give them the money. The money’s there, they’re going to take it. They’re going to pay more. It was great if you owned a property like what you were saying. Your values went up. People kept buying it and then it’s not sustainable. You also mentioned that, and then crashing, but that principle is absolutely proven through that time period when you say why was housing so expensive? It was literally because banks would give you the money. That’s why houses became so expensive. Russell:                      Well I call that the air in the jump pass. You know, when they’ve got the pump on, and they’re pumping a lot of money into the economy, they’ve got a lot of air in the jump pass and everybody’s jumping around and having a good time. When somebody trips over the cord and the air stops, the thing deflates, all of the sudden it’s not a [crosstalk 01:00:47]. David:                        You’re going to, yeah, head to the concrete underneath it it doesn’t feel so good anymore. Russell:                      Exactly. Brandon:                   So I want to ask you guys a question about, I’m sure you’re asked this all of time, but you talk to a lot of investors. You guys are looking at the world market, but also you’re still in America so you’re looking at the U.S. Market. Where are we? Like what inning are we in before a crash comes again? Is it going to be a big one do you think? I mean obviously none of us have crystal balls, but what are you seeing in the U.S. economy right now and what are you doing to prepare for it? Russell:                      Such a great question. And you’re right, everybody asks that question. I was on a panel two days ago and that was the question they wanted to know. We had Dr. Doug Duncan, you know, Senior Vice President of Fannie Mae and their Chief Economist on our summit boat for two years in a row, and one of the things he said last year was, “You know, these cycles don’t die from old age. There’s something that happened that creates the change,” and so yeah, we’re long in the tooth, but at the same time our federal reserve has done an amazing job of kicking the can down the road. That’s not necessarily a compliment, but I think we’re late. I think we’re near the top of the cycle. Russell:                      There’s all kinds of reasons to think we’re there. I don’t think that we all ought to be pulling out every dollar and sticking it in the mattress quite yet, but I think you need to be proactive. You need to be thinking about when the next downturn comes. How could you be best prepared? Because I know that in 2008 we were ill prepared, and in 2019 we are much better prepared. Brandon:                   [crosstalk 01:02:20]. Russell:                      Yeah, I. Brandon:                   Go ahead. Russell:                      Well, I was just going to say this is, you know, I spent a lot of time studying this, because it’s fascinating to me. Coming from the money side and understanding that this is all financial market and economic driven. It is hard to say, because I think anybody who’s an observer recognizes that the central banks around the world have been passing the baton around the globe, taking turns devaluing the currency, and pumping up debt and pumping liquidity into the global financial system. How long can that go on? I don’t know. But you know, the point is you have to be prepared to weather the storm and I think real estate is arguably the best investment to do that. I could do a whole dissertation on that, but I won’t. But I do agree with Robert and I think it’s the general consensus that we’re closer to a top than we are to a bottom and so now’s the time to be thinking about hedging equity. Russell:                      It’s a good time to be getting liquid. It’s a good time to be locking in long term debt on properties that you expect to be keeping long term, and just being prepared. You might miss a little bit more of the upside, but you’ll more than make up for that by being liquid when the time comes, when there’s blood in the streets. And I used to really resist the idea of like a vulture fund or the idea of capitalizing on other people’s misfortune, but the reality is having been the blood that was in the street. You know, somebody could have come along and bailed me out by buying a property out and mitigating some of my loss. They’re actually helping me and I would be okay with that. I didn’t realize that back then. Russell:                      The other thing is is we talked about this a lot on the show, because the show’s been going on since forever. And so we went through that whole 2008 thing and we talked about healing America one house at a time. And so when somebody comes in and buys a house, investors are like the white corpuscles in the economic system, and they run around and they clean up all the garbage and they get rid of the bad debt, they get rid of the bad properties, and they put things back in service. Russell:                      So there’s going to be lot of those kind of opportunities. So again, it’s just a matter of being prepared so that it doesn’t really matter which way things break. You’ve got a plan. If you’re only geared for one, for sunshine, and even though the forecast is sunshine it doesn’t cost you that much to pack an umbrella. And I really think that from a financial perspective, everybody should be taking a look at their portfolio, looking at their exposure to rising interest rates. Not saying their gonna rise. Right now they’re currently going down, but they could. Russell:                      And then how liquid are they really and what are they exposed to? And then really tightening up the properties that they have, making sure that they’re really operating optimally. That you’ve got competitive rents that you’re not at the top of the market. I think right now would be a dangerous time to be top of the market in a product niche in a market that’s at the high end of the market. Russell:                      In other words, when things can track, you’ve got to have somebody above you to bring some pressure to where you are. So the good news is real estate’s not an asset class. Because it’s not an asset class, whatever goes on in the macro really doesn’t matter. It only matters what goes on in the micro, but if you’re in a market where people who are living in a more expensive area when downtimes comes will move to you then you actually will get some upward pressure when everybody else is feeling downward pressure. So I think market section is real important. Product niche and the demographic you’re servicing is very important. Price point is very important. How your portfolio, your balance sheet is structured in term of liquidity. That’s very important. Making sure that you don’t have exposure to the potential for rising interest rates, even though you might pay a little bit more for that right now. I think it’s good insurance, so there’s things that you can be doing in a market like this without completely disengaging. David:                        Have you guys seen those companies that are literally giving you the down payment for your house in exchange for a share of the equity in the property? Russell:                      No, I haven’t seen that. David:                        It’s like a Silicon Valley tech, start up type thing, but they say, “Hey, we’ll give you 10% or 20%, or whatever of the down payment of your house, but we own 30% of it, and when you go to sell it you have to pay us back then.” That’s how much money is floating around that people are putting into real estate that are not thinking what you’re thinking. Robert:                      Based on that, I think we’re higher to the top than I [inaudible 01:06:42]. David:                        Changes your opinion a little bit. I know. I think … Brandon and I met a guy who worked for one of those companies a couple of years ago in Hawaii and then … Because I live in the bay area in California, and one of my clients works for that company. And he like, that’s actually part of his job is to help them find houses they’re going to give money to and then like well five or 10 years later when they go to sell it we’re going to get all this cash. But that is, that’s like gambling, literally. That’s a gamble that you have zero control over, but it’s a legit business doing it. David:                        And Russ, I think you made a really good point that we often criticize the vultures, but a vulture serves a purpose. If you didn’t have vultures you’d have dead carcasses stinking up the place. They’re everywhere, right? Russell:                      Exactly. David:                        And that’s kind of what Blackstone and some of these hedge funds did after the last crash is they were the vultures and we all criticized them because they swooped in and they took everything, but that’s also what cleared up the mess that all the people that had spent too much money for a house had made. So rather than criticizing the vulture asking “Well, how can I be prepared to be that vulture?” … Maybe you can pick a better animal. I’ll be a hawk or an eagle or something. Russell:                      Yeah, but I mean that’s the idea. So part of it is in being resilient, and we talk about this a lot with our friends at Peak Prosperity. The concept of resilience is they talk about eight forms of capital, but one of them was social capital. One of the things that Rob and I spend a lot of time working on is our network. We have I think arguably one of the best networks in the business, and because of that when there is opportunity we have a lot of people who take our phone calls. We have a lot of people we can talk to that have resources and the thing is typically the way the fed responds to economic crisis is to help the rich get richer. They believe in this trickle down thing. If we just help the rich get richer then there’ll be plenty of money in the system eventually that’ll find it’s way through the system to the little guys. Russell:                      That may or may not be true. I’m not here to debate the pros and cons and relative matters for that. It doesn’t matter because nobody’s asking me. But I just observe it, and I can see that that’s the way it works. And so if you have a relationship with lots of people that are on the winning end of quantitative easing, and loosening of money, and printing of money in order to simulate the economy, then you’re going to be able to aggregate that capital and put it to work. Because the people on the other side of that when they end up with all those gains, are like, “Okay, now what am I going to do?” Like right now, there’s something going on. This whole opportunity zone thing is really interesting. Russell:                      It’s like, to me, step two and it’s really interesting because you say okay, President Obama who is on one side of the political spectrum passed the Jobs Act that, the Obama Administration created the Jobs Act, and buried inside the Jobs Act was the ability for purveyors of private placement syndicators to advertise to accredited investors. Before you had to have preexisting relationship, where you had to be a publicly registered security which is extremely prohibitively expensive for small deals. And so that really opened up the ability for people to find investors and for investors to find deals. And so we talked about that a lot on the show, back in late 2013, 2014 when that first broke. Now this new thing with opportunity zones and the tax law, the tax law that the Trump Administration pushed through has elevated real estate to being arguably the best tax shelter there is. Russell:                      And on top of that, the opportunity zone thing has now made it possible for people who have unrealized capital gains in anything, including their stock portfolios, but folks like Robert that bought Apple Computer way back in the ’70s [inaudible 01:10:15]. Brandon:                   Nice move, Rob. Russell:                      And they’ve been sitting on it. They’ve been sitting on it, because if they sell it they’re going to have to pay the tax. They don’t want to pay the tax. So they borrow against it, but they don’t sell. And yet they recognize every day that if the markets do blow up they’re at risk. They can’t diversify. Well today with the new opportunity zones law they can. They can sell those properties, they can roll that money in and it’s done in such a way if you really break it down, and we’ve done a few shows on the opportunity zone thing, that when the money moves into marketplace it has to be invested in rehabbing and done on a mass scale, so whereas none of us is individual investors, even a group of investors, a group of syndicators aren’t powerful enough to turn an entire neighborhood or to turn an entire community, but the opportunity zone thing has the potential to do that. Russell:                      The hedge funds, just like the Blackstones got involved in cleaning up the single family housing mess, now are very much interested, and they’re aggregating a bunch of capital, billions, and billions, and billions of dollars that are going to come in. You as a small investor may not decide you want to do that, but as a syndicator you can go in and have these little small projects in the same areas and get in on that action, that flood of capital. In the essence of trying to catch a wave is just figuring out where the capital’s going to be moving and then getting in on the action. Russell:                      So these are two kind of related things that came from two very different administrations, but all are boding extremely well for real estate investors and real estate syndicators, in particular, right now. David:                        If they want to know how to catch a wave there’s no one better to ask than Brandon Turner. Russell:                      Now that he’s a Hawaiian. Brandon:                   Now that I’m Hawaiian, yeah. The [inaudible 01:11:50]. David:                        [crosstalk 01:11:51]Hawaiian. Brandon:                   I don’t know if I can catch a wave, but I show you where to find one. Brandon:                   All right, that was awesome. Yeah, and opportunity zone is something that intrigues me and we can do an entire dozen shows just on that. And then the other problem I have with opportunity zones is I feel like … I mean I probably, the thing that’s interesting about them is if I ask a dozen attorneys or opportunity zone experts about exactly what it is you’ll get a dozen more, 13 answers. Like I find that … which doesn’t necessarily mean it’s a bad thing. It just means it’s something that like there’s a lot of opportunity in opportunity zones right now. Robert:                      It’s early. [crosstalk 01:12:24]. Brandon:                   It is early. Robert:                      You know, it’s like we were talking about like who do we have that’s an expert on that? Well, just nobody, because up until a few weeks ago and even now it’s not finalized. Like every part of the wording of every law is not finalized. So it will be interesting to watch, and I think big picture it’s going to do a lot of good, and like everything else there’ll be folks that rise up and there’ll be those other folks too. Brandon:                   Yeah, I get conflicted about it. You know, partly because you have the phrase the pioneers are usually the ones with arrows in their back. In front of, you know, like – Russell:                      In the front and the back. Brandon:                   Yeah, exactly, right. So I don’t want to be the first necessarily. But also the firsts sometimes end up being the Steve Jobs and the Bill Gates, and so it’s you know, I’m not saying there’s not opportunity there, but it’s definitely, yeah, I’m not sure where to jump because I haven’t yet. Robert:                      I think the biggest thing to me is that what the opportunity zone opportunity does is it allows people that previously were not really that interested in real estate; they were investing in companies, or metals, or equities, and now the reason they’re not selling an appreciated asset like Russ talked about is because the tax thing. And here’s a potential chance for them to sell, and defer, and diminish their tax, and then to invest in something that is truly tax free. Robert:                      So someone that previously wasn’t interested in my apartment deal is like, “Wait a minute, I could be interested in that,” just because of the tax law. Now we always don’t let the tax tail bite the investment dog. Don’t make an investment just because the tax, because tax, as we’ve just learned can and does change. But at the same time, the tax benefits are huge in real estate and we definitely want to take the best advantage we can. So I’m with you. We haven’t jumped into it, but we’re certainly eager to watch. David:                        Yeah, I think it was a brilliant idea though from the government. Let’s figure out a way to get other people to fix up these areas that we cannot do efficiently by getting people smarter than us with money to put their own stuff into it. And if they can trick people into doing what you just said not to do, doing it just for the tax break and that’s it. Like I would bet when you guys were in the 2008 era, you talked about you’re making all this money in your business and you’re buying deals, a big reason why you bought deals that didn’t cash flow was because the tax savings that you were getting off of the money that you were making. If you were getting accelerated appreciation, and you can use cost segregation at the time. And it seemed brilliant until the bottom dropped out. David:                        So that’s what scares me about opportunity zones is your motivation isn’t this is sound financial thing based on good fundamentals and principles, it’s oh, we can save all these taxes. So let’s go do that and then the next thing you know your money’s stuck in something you don’t want. Russell:                      Yeah, I think what I’m saying though is that you don’t necessarily have to do it for the reason that everybody else is doing it. What I’m saying is that this is a giant wealth redistribution plan, and normally when you hear that you hear about taxes spent. Well that’s one way to do it. Another way is to create tax incentives and motivate wealth to move. It’s two different ways of doing the same thing. The Trump Administration is gravitating towards the idea of getting the government out of the way and creating a tax incentive that is going to incentivize people who have money to take a tax break and move it. What I’m saying is that when they choose to do that, we’ve identified where that money’s going to go and we can get in to those markets ahead of that money, or alongside that money, and it’d be easy to see it happening. So [crosstalk 01:15:50]. David:                        Similar to what you guys were talking about with other countries, right? Try to get in before the leverage comes to bring up the value. If you know that money’s going to be flooding into opportunity zones you want to be there first. Russell:                      Yeah, it’s the old Wayne Gretzky quote. Figure out where the puck is headed and skate to where the puck is headed. We kind of know where the money is going to be headed. We know that real estate is hot right now. You know, we’ve got at least for another two years, or year and a half, and maybe more we’ve got a real estate guy in the White House. We’ve never had a real estate guy in the White House. People are trying to figure him out. Russell:                      I mean, love him or hate him, at least it’s easy to figure out the way he looks at life. He likes debt. He thinks everything is a deal that needs to be negotiated. He doesn’t deal with things in groups. He doesn’t deal with commodities. He deals with individual relationships. So he’s the only guy, only president that I’ve ever met … even though I didn’t meet him after he was president and he’s the only guy that I feel like we kind of know a little bit, and understand a little bit, because of just friends with people that he’s friends with and have been around him just because he’s a real estate guy. And we’ve been real estate guys for a long, long time. Russell:                      But the point is that we can see where the capital, where the government wants the money to move. The tax code is telling us where they want it to go, and they’ve specifically identified these geographic zones which are not hard to identify. And so now it’s just a matter of just paying attention, and getting in position, and being ready to ride that wave as it continues to break. Brandon:                   That’s fantastic. All right, well this is a very different type of show, so I’m going to actually skip a couple sections that we normally do, normally we do the deal deep dive and then we do the fire round, which are questions from the four of us, but this was just so good and in depth I don’t want to … I want to move towards kind of the closing here and make sure we don’t tie this up all day. Brandon:                   So the next segment of the show that I want to get to is called our Famous Four. We got sound effects there. All right, before we get to the Famous Four, let’s hear from Mindy on what’s going on this week over on the BiggerPockets Money Podcast. Brandon:                   All right, before we get to the Famous Four, let’s hear it from Jay Scott or Carol Scott on what’s going on this week over on the BiggerPockets Business Podcast … I’ll resay that … All right, before we get to the Famous Four, let’s see what’s going on this week over on the BiggerPockets Business Podcast. Brandon:                   All right, with that let’s get to the Famous Four. So for the last 300 and some episodes, we’ve been asking the same questions, final four questions to every guest and so we’re going to play it with you guys. You guys can answer separately, and I’d assume you have different answers, but maybe you have the same. Brandon:                   But the first one is, do you have, other than maybe you’re own, because I know you guys wrote a book. But other than maybe your own, do you have a favorite real estate specific book? Some book about real estate that has stood out to you? Robert:                      You know, since you’ve been doing this so long I noticed that a lot of folks have some of the same books. There’s not that many great real estate books. I’m going to throw out one that’s not a best seller and it’s not that well known, but it’s really well written and it’s total contact. It’s called Construction Funding, written by Collier, and it’s just a no nonsense book. If you’ve ever been wondering about how construction or development projects get funded it’s got a really sizzling sexy name, Construction Funding. But a brilliant book and you’ll learn from it for sure. Brandon:                   That was great. Russ? Russell:                      I’m not that clever. I really do like our book. The reason we wrote it is because we felt like the world needed it. Of course that was like 15 years ago or longer, but – Brandon:                   You’ve got to write another one. Russell:                      It’s … I know, well we need to update the one we wrote. That’s on our to do list, but it hasn’t made it to the top of the list. I’m going to say for me it sounds kind of crazy, but I’m just going to say Rich Dad Poor Dad. And the reason is that’s because that was really what helped me understand what passive income really was all about and the importance of passive income. I kind of understood it before, but it took a long time. I mean a couple of reads and a lot of spending time with Robert himself to really begin to understand what it means. I know it’s technically not a real estate investing book, but it’s such a paradigm shifting book and I think you can’t do anything until you shift the way you think. So Rich Dad Poor Dad. Brandon:                   I agree. 100%. David:                        All right. What about your favorite business books? Robert:                      Yeah, that’s a tough one. We read so many business books and you know you look at your bookshelf in anticipation of being on the shelf. It’s like gosh, I have a hard time with favorite too. Like people say, “What’s your favorite beer?” It’s like which is your favorite child? You know. [inaudible 01:20:15]certain circumstances. But the book I’m going to go with is Steven Pressfield’s Turning Pro. Not a business book, but an entrepreneur book, and it’s a kick in the butt and you’ll feel like he wrote it just to you and it’s a quick read, Turning Pro by Stephen Pressfield. Brandon:                   I’m actually half way through that one right now. I’m always half way through like a dozen books, but that’s one of our [crosstalk 01:20:33]. Robert:                      Halfway through. Brandon:                   I’m loving it, yeah. And what was it, the War of Art was his first one? [crosstalk 01:20:38]. Robert:                      Yeah, the War of Art. Brandon:                   It’s phenomenal. Robert:                      Great book too. Definitely. Those two books together, read them like one book, good stuff. Russell:                      Well, I already mentioned Jim Collins, Good to Great. I think that’s a great book, but I’m just going to go with a classic … Sorry, I’m in classic mode today. Brandon:                   That’s good. Russell:                      Myth by Michael Gerber. I just think that really what a business is … And people say all of the time, you should run your real estate investing like a business, and you ought to run your business like a business even though a lot of people don’t. They run it like a hobby. But a business is just a system of processes, you know. Even getting ready to come on to do this podcast with you guys, you guys have a process. And we have the five forms you send, and this process that we go through, and these little formulas, and it just makes life so much easier, so much more efficient. I’m just going to say that nobody explains that better than Michael Gerber. Brandon:                   Yeah, that book was transformational for me. Huge. Cool, all right, number three. David:                        Number three. What are some of your hobbies? Robert:                      Music for me. I love music, I love going to shows. I’ve been playing in bands since I was in junior high school. Brandon:                   Oh, what do you play? Robert:                      It’s the one thing … I can play guitar and couple of other things, but it’s the one thing I do that really has nothing to do with anything else, although we do certainly push the boundary there. But I just think music is great. It’s so impactful and there’s music to help you through anything. You know, whether it’s working out, or you’re down in the dumps, whatever it is, music is magic. David:                        Brandon, he’s a musician as well, and he wrote a song while I was in Hawaii called Somewhere Over the Rain BUR. BUR is an acronym that we use and I just wrote the BUR Book and I think it was to commemorate – Robert:                      BUR [crosstalk 01:22:20]. David:                        I mean, but it’s hilarious. I mean, I just cannot look at that video without laughing at it. It sounds [crosstalk 01:22:25]. Russell:                      Your BUR book is on my bookshelf behind me, because I think [crosstalk 01:22:28]. David:                        Right on. [crosstalk 01:22:29]. I sent you guys an advanced reader copy. Russell:                      Yep. Robert:                      Well, and we’re happy that you guys will actually sing on your podcast from now on, because we [inaudible 01:22:37]don’t do that. Brandon:                   I try to limit that. David:                        Brandon peer pressures me into that. He’s always … I’m like, “Brandon I’m not comfortable. I don’t want to sing.” “You’re going to sing and you’re going to like it or I’ll find another cohost.” That’s [crosstalk 01:22:49]. I got bullied. Brandon:                   [crosstalk 01:22:50]. Yeah, I don’t think I’ve done that. [crosstalk 01:22:53]. Russell:                      It’s just the opposite with me. You better not sing or I’m going to find another cohost. Robert:                      That’s for sure. Russell:                      I have a reputation. Brandon:                   There you go. Well, what about your hobbies, Russ? What do you do? Russell:                      You know, I thought about that and actually I’m kind of in a hobby less mode. I’d say probably my number one hobby right now is still I study economics. I mean, it’s a boring hobby. I’ve still got my saxophone, I kind of broke out my old comic book collection the other day, and I collect coins. So I’ve done different things over my life, but in terms of what I’ve probably actively spent most of my time doing, which is probably related to this show, is I just study economics. Russell:                      I just think we’re living in the most interesting economic time. I really do think that somewhere along the lines the global system’s going to reset. I think we just happen to be fortunate enough to live at a time when we’re going to get a chance to get a front row seat and watch that happen. And in the chaos is going to be a lot of opportunity. I just want to make sure I’m on the right end of the chaos on the opportunity side. So that’s what I spend most of my time doing. Brandon:                   I feel like that could be a whole podcast right there on the future of the global economy. But we’ll people will have to listen to your show for more on that I guess. Robert:                      There you go. Brandon:                   Number four. What do you believe sets apart successful real estate investors from all those who give up, or they fail, or they just never get started in the first place? Robert:                      For me, I think it’s you’ve got to focus on the why and not the what. If your what is to put money in your bank and to collect a lot of doors, that’ll only be exciting for so long. But if you have a compelling, passionate why that drives you every day, whatever that is for you. It can be personal, altruistic, some dent you want to make in the world, if you focus on that and let real estate be the tool that the vehicle that drives you there that will keep you in the game and we see so many people get all enthusiastic and will then go off to the next thing, but at your core if what you’re put here to do can be enabled by your investing in real estate then you’ll never quit. David:                        Beautiful. Russell:                      I’m going to say relationships. I think that a lot of times that investors spend too much time focusing on the money. They focus on the transaction. They focus, to Robert’s point, on the how to and once you’ve got the why, which I think precedes everything, because you’re not going to do anything until you have a compelling why. The first thing you really want to spend your time doing is relationships and I see so many people play the relationship cards poorly, because they’re trying to extract the little bit extra profit from the real estate agent, or from the deal, or from their service providers, or from their property manager, and it’s just the stupidest thing ever. I mean, you know, create abundance and invest that abundance in relationships and creating abundance for other people, and if you do that plenty of abundance is going to be in your life too. So I would say to me it’s the biggest mistake I see investors make is not putting enough emphasis on relationships and the most successful investors I see put all of their effort into building quality relationships. Brandon:                   That’s a great answer. All right, well, David Green, you want to take us to the final question? David:                        The last question of the day. This has been an awesome conversation with you guys. Just tons of wisdom spilling out of it. For people who want to find out more about you, where can they go look? Russell:                      Well, we decided to make it easy for everybody. We’re old school, they can just send an email to us at BP like BiggerPockets @realestateguysradio.com and we will send you an email with information about all the stuff that we do. We’re easy to find, realestateguysradio.com, but if you send an email to [email protected] it’ll just land right in your inbox full of links and you can click away and learn all about us. Brandon:                   Perfect, perfect. All right, very, very cool. We’ll put links in the show notes as well. I think we’re at BiggerPockets.com/show338, I believe. So we’ll put a bunch of links in there as well, the things we’ve talked about today as well as where they can find all your different resources, and different things like the summit at sea and the syndication seminar. All that good stuff that you guys have going on. You guys are [crosstalk 01:27:06]. Russell:                      Yeah, we should get you. We should get you to come one of these days, Brandon. [crosstalk 01:27:09]. Brandon:                   I know, I would love to. Russell:                      It would be great fun, yeah. [crosstalk 01:27:11]. Robert:                      Come on down. Russell:                      Yeah, I definitely will. Robert:                      But we just appreciate what you guys are doing. It’s amazing and just the community you’ve built, and the help that is available, and just the nature of what you do is extraordinary. We couldn’t be more thrilled for your success and it’s been just an honor to be on this show, so thanks for having us. Brandon:                   Absolutely. David:                        Thank you, guys. Russell:                      Congratulations on everything you’re doing. Great job. Brandon:                   Aw, thank you, you guys.   Watch the Podcast Here Help Us Out! Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it! This Show Sponsored By Sharestates is America’s private lender. 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In This Episode We Cover: How these guys inspired Brandon What an entrepreneur does How gurus take advantage of hungry new investors How they are preparing for the next real estate downturn Their strategy for building big wealth in other countries How they learned the lesson about needing sufficient reserves the hard way What to do when available credit goes away Why they invest in resorts Where we are in the market cycle Why they are locking in long-term debt right now What they learned from the 2008 crash How to prepare and win for the next downturn What an opportunity zone is and how to use them Why they study global economics And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Real Estate Podcast Robert Kiyosaki BiggerPockets Podcast 052: Buying Apartment Complexes, Raising Millions, and Building a Profitable Business with Ken McElroy Peak Prosperity Brandon’s Instagram David’s Instagram Books Mentioned in this Show Rich Dad Poor Dad by Robert Kiyosaki Long Distance Real Estate Investing by David Greene Good to Great by Jim Collins Construction Funding by Nathan Collier Equity Happens by Robert Helms & Russell Gray Turning Pro by Steven Pressfield The War of Art by Steven Pressfield E-Myth by Michael Gerber Tweetable Topics: “Real estate is such a great vehicle.” (Tweet This!) “The essence of being an entrepreneur is to just go get what you don’t have.” (Tweet This!) “You can’t scale up very well without some help.” (Tweet This!) “The first thing you learn is you learn that you’re not smart.” (Tweet This!) “The smartest people I know are humble.” (Tweet This!) “Always begin with the end in mind.” (Tweet This!) 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Location, location, location! On today’s show, Brandon and David sit down with Robert Jones, a real estate agent and investor in Colorado, who has built a cash-flowing portfolio with millions of dollars in equity in an expensive market. Robert will blow you away with his knowledge on making deals work (even through the MLS) and choosing what to buy. You won’t want to miss his advice on buying properties with super low down payments, targeting ideal locations that attract ideal talents, and using agents to do the work of finding deals. You’ll also love his tips for creating systems so he can travel while making money and identifying the qualities of a good agent. Robert is extremely humble for having such massive success, and he shares his whole playbook for how he built a portfolio of 26 units worth millions before the age of 35. DO NOT miss this one. Download today! Click here to listen on iTunes. Listen to the Podcast Here http://traffic.libsyn.com/bpradio/bpp-336.mp3Podcast: Play in new window | DownloadSubscribe: Apple Podcasts | Android | RSS Read the Transcript Here Brandon Turner: This is the BiggerPockets Podcast show 336. This is the BiggerPockets Podcast show 337. This is the BiggerPockets Podcast show 338. This is the BiggerPockets Podcast show 339. Brandon Turner: This is the BiggerPockets Podcast show 336. This is the BiggerPockets Podcast show 337. This is the BiggerPockets Podcast show 338. This is the BiggerPockets Podcast show 339. Brandon Turner: All right. What’s going on, everyone? This is Brandon, host of the BiggerPockets Podcast, here with my co-host, Mr. David Greene. What’s up, buddy? David Greene: Not much, Brand. I’m wearing one of my t-shirts I just bought when I was hanging out- Brandon Turner: I see that. David Greene: … in Hawaii masterminding on the … Aloha, buddy. Brandon Turner: Aloha. Fancy, fancy stuff. Speaking of aloha, today, we are actually doing our show here in Hawaii, sort of. You’ll hear a little bit more about what today’s show is set up. Basically, I’ve got our guest live in the studio with us. He’s coming in here in a few minutes, a buddy of mine named Robert. It’s going to be an awesome show. I think you guys are going to love it. Brandon Turner: But David is still in California. What’s up in California, David? David Greene: Oh, it’s beautiful out here. The home buying season is ramping up, which is funny because we actually have a guest today who’s a real estate agent and a really good one. There’s a ton of information about what to look for in an agent, how to have an agent find you deals, what to avoid, in addition to amazing advice on how to build wealth through real estate, which this guy’s done a great job of. Brandon Turner: There you go. Yeah. It’s pretty cool. So, I’m pumped. I think you are going to love this episode. In fact, today, on the show, I know it sounds like he’s coming in in a few seconds but in reality, we already recorded this thing. But we are talking about all things … He talks about how he put together some no-money-down or low-money-down deals using something called cross-collateralization. We walk through that in-depth, how it’s done. He talks about how he got this amazing deal. You’re going to be blown away by this deal deep dive on how good of a deal it was but how not good of a deal was when he first bought it. Brandon Turner: Also, let’s see, his trip to the Caribbean, he spent three months sailing around the Caribbean or Caribbean, depending on how you say that. Really, really cool story there. And then, also, why you may not want to become a real estate agent. He actually is a real estate agent but he explains why you may and why you may not. I think those are all really just good points that he makes today. So, hang tight for that. Brandon Turner: Before we get to that, let’s get to today’s quick tip. All right, Dave. You want to take it? David Greene: Yes. Today’s quick tip. We talk with Robert about the importance of finding your why. Look, here’s the reality. For a long time real estate investing was a niche thing that only a few people could get into because they have the knowledge that you didn’t have. Well, the internet has changed that and BiggerPockets in particular has changed that even more. Now, there is no excuse for why you’re not investing in real estate or growing your wealth through real estate because the information is out there and the knowledge is available. What holds most people back is bravery. David Greene: Now, you could try to be braver just by willing yourself to do it but that’s not going to work for most people. What does work for people is having a very big why. Not the letter Y but the word W-H-Y. What matters to you? What drives you? What are your goals? What is propelling you? What is motivating you? They’re all words that are describing the thing that’s going to push you through whatever your fears, your excuses or your concerns really are. David Greene: So, if you find yourself not taking the action that you know we’re telling you that you need to, don’t beat yourself up about it. Sit down, have a long walk through the woods, Cal Newport style. Whatever you got to do, and ask yourself, “What is my why? What motivates me? What drives me, and is it worth getting over the excuses that I have to stop me from taking action?” Brandon Turner: Oh, it’s deep stuff. Well done. Well done. Brandon Turner: Well, before we get into today’s deep show, let’s hear from today’s show sponsor. Brandon Turner: All right. Big thanks for our sponsor always. Now, I just want to jump right in the show. This is a fantastic show, so let’s get right into it. Without further ado, let’s introduce you to Robert Jones. All right. Brandon Turner: All right. Welcome to the BiggerPockets podcast, Robert. How you doing? Robert Jones: I’m doing great. How about you? Brandon Turner: I’m doing good. This is weird. I don’t think I’ve ever done a podcast directly across from somebody. Very strange. Robert Jones: I feel honored. Brandon Turner: Yeah. Good. David’s over here. So, for those who don’t know, David is actually in, what, California. Robert, our guest today, and I are here in Maui, sitting across the table from each other, spitting at each other while we’re talking. David Greene: Yeah. It looks like you guys are speed dating. It’s kind of creepy. Brandon Turner: We pretty much are. Robert Jones: It’s a good fit, I can tell you. Brandon Turner: It is. It is. I like long walks on a beach and real estate. How about you? Robert Jones: I like big, bushy beards and I cannot lie. Brandon Turner: All right. Robert Jones: I like big beards. All right. Brandon Turner: There you go. So, Robert and I know each other because I am good friends with his sister and brother-in-law. In fact, they’re two of my favorite people in the entire world. Total digital minimalists, which is funny because we had Cal Newport on. They’re like perfect digital minimalists. I look up to them a lot. Brandon Turner: But, anyway, for years, Catherine, your sister, has been like, “You need to talk to Robert. You need to get to know him. You guys are the same person.” So, we pretty much are the same person, just I have a longer beard. Robert Jones: You have a much more impressive beard. Brandon Turner: Thank you. I don’t know if it’s impressive or dirty but one of the two. All right. So, we’re going to go into your story today because honestly, I don’t know that much of it other than I know you do real estate and that you’re kind of like me, apparently. And David’s here on the camera, being awesome. Brandon Turner: So, with that, how’d you get into real estate? Robert Jones: Yeah. So, I started in 2008, which fortuitous timing. Brandon Turner: Yes. Very good timing. Robert Jones: Good thing we didn’t start in ’05 and was in the car business in my previous career, in the service side of things, reached a very noticeable glass ceiling after multiple promotions. Brandon Turner: Car business, like selling cars? Robert Jones: No. In the service side. So, if your car was broken, you came in, talked to me with the intent of managing and owning a dealership at some point. Brandon Turner: Okay. Oh, that’s right. That’s where you met your wife. Robert Jones: Yeah. Met my wife at the dealership. Her came in with a broken car and the rest is history, as I say. Brandon Turner: There you go. “I can’t fix your car but I can your heart.” Robert Jones: Yeah. Sometime like that. Robert Jones: So, yeah. I hit a real noticeable ceiling. Growing up, I was always buying and selling stuff. Started with bicycles, then trailers, then dirt bikes, then cars, then trucks. My dad pretty much told me, “Hey, look at something with a larger profit margin.” Brandon Turner: That makes sense. Robert Jones: You’re great at selling things. You’re great at making deals. You should get into real estate. Robert Jones: And really, just to shut him up, I went and had lunch with real estate legend, Larry Kendall, the founder of the group Real Estate. He’s known nationally for real estate sales training and all that, like I said, just to get my dad to shut up. If you spend any time with that individual, by the end of lunch, I figured, “Hey, I should sell real estate for a living.” Brandon Turner: Okay. So you became an agent first? Robert Jones: Correct. Yeah. I knew nothing about investing really at all. I didn’t even know that it was a path that I could take, so decided to go into sales first. Then, quickly after that got introduced and eyes opened a little bit. Brandon Turner: That’s cool. That’s cool. Okay. So, by the way, since David’s awkwardly on the camera today or on the computer screen today, if you have anything you want to say, David, just yell at me or jump in but otherwise I’ll just keep asking some questions. David Greene: Sure. Brandon Turner: Walk us through that journey from I’m now a real estate agent to now I bought a property, your first deal. Robert Jones: Yeah. So, well, very first house bought when we’re really young parents. Said, “Hey, smart people will buy a house.” So, bought my first house when I was 20 before I got in real estate. That was the days if literally you had a pulse, you could get a loan. Looking back at the deal, it was pretty illegal by today’s standards. Robert Jones: So, owned one house when I got into real estate. Three to six months into the business, started doing an investment tour with one of our partners named Kevin. He ran a tour just teaching other agents about investing. That’s when things really the light bulb came on. Read Rich Dad Poor Dad and thought, “Hey. I can buy houses. Someone else will pay for them.” Robert Jones: It didn’t click. You can jokingly call me a slow learner but I asked the guy multiple times, “Wait. Let me get this right. I can buy this house. Someone else will pay for it, and I get to keep the house?” He’s like, “Yup.” I was like, “Okay.” Rephrase the question a different way. I was like, “Let me try this again. I can buy a house without too much money down, someone else will pay for it and I get to keep the house?” The third time I rephrased the question, he’s like, “Okay. Listen, dummy. This is the way it works.” Robert Jones: That’s all I needed to know. I wouldn’t say that I’m a hard details guy but the core concept at that point, I went home, told Sarah, “Hey, we need to go out and buy as many houses as we can.” Brandon Turner: That’s awesome. Where was this all at? Robert Jones: So, I’m in Fort Collins, Colorado. So, we’re about an hour north of Denver. Brandon Turner: Nice. [crosstalk 00:08:44]. Robert Jones: So, those familiar with the market know that our price point’s a little different than … Well, on a scale of 1 to 10, a David Greene’s a 10, Detroit’s like a one. We’re probably like a hard six, hard seven. Brandon Turner: Yeah. What is [crosstalk 00:08:57]? Robert Jones: It’s a seven. Average price like- David Greene: It’d be cooler that we started off talking about speed dating. Robert Jones: Yeah. And now we’re rating you by numbers. Robert Jones: Yeah. Our average single family price point’s about 425 right now. Brandon Turner: Wow! Which is crazy for the Midwest. Not that Colorado’s the Midwest but it kind of … When I think originally, before I knew Denver prices, I thought Denver and Oklahoma City and Kansas City, they’re all the same, but Denver is so much different, which again, just is more evidence why it’s so important to know your market and not just rely on just general things but why is that Denver and the surrounding metro area, why is that so crazy [inaudible 00:09:36]? Because I don’t know. Robert Jones: It’s something we talked about a bit. The quality of life and the desirability of living there, the listener’s familiar, if you’re not, fhfa.gov is a website where you can look at, since 1991, they track prices, quarterly appreciation, annual appreciation, five-year appreciation. Northern Colorado is an unstoppable machine. We’ve seen 363% appreciation since 1991, which second to DC puts us at the strongest market in the entire country. Brandon Turner: Wow! Robert Jones: So, I think it’s a combination of quality of life, desirability. Now, we don’t see the ebbs and flows that some other markets see, so we don’t see the meteoric rises in a single year but for sustained performance, I mean, I feel like we’re living in the holy grail for real estate. Brandon Turner: Yeah. All right. So, walk us through the very first investment property that … What was it? Robert Jones: Yeah. So, we come from pretty modest means, as a lot of your listeners and people you’ve interviewed. My wife looked back at our checking account recently. When we started in real estate in 2008, we had $900 in our checking account. As a first year realtor coming into 2009, we couldn’t use my income. So, my wife at the time was working at the bank making, I think it was $23,000 a year, something like that. Brandon Turner: Balling. Robert Jones: Oh, no. We were just out of control. We’d hit up the Chili’s like once a quarter, share a meal, have water. So, we talked about people that just keep hearing, “No.” We don’t like the answer no. So, we talked to one lender. No. Talked to another lender, no. Talked to another lender, no. We found someone that, yeah, they’d get the loan done under Sarah’s income alone which, at that point, in Fort Collins looking for a house under $150,000 it was quite challenging. Robert Jones: So, we found at the time the most affordable single family home in the city. It was listed at $149,900. The funny thing on that prequalification, the lender called me three weeks in and said, “Hey, you need to pay off Sarah’s credit card. She doesn’t qualify the ratios.” I’m like, “Okay.” I said, “How much is it?” “$186.” I was like, “Okay. Cool.” The minimum payment’s 186?” He said, “No. That’s the balance. The minimum payments $7 a month.” We were that close on our qualifying ratios. Brandon Turner: You were that close to not qualifying. That’s funny. Robert Jones: So, we bought the house. Moved into it. So, for us, you don’t know what you don’t know. So, I didn’t know anything about hard money, anything about portfolio loans or these more creative ways of getting real estate. I just knew that if I moved into the house, I could do an owner-occupied loan, I didn’t need a big down payment, and we could remodel it while we’re living there. Robert Jones: So, we did an FHA loan, which at the time it was 3% down, not three and a half. I am a licensed realtor. So, we were able to use my 3% commission, so we essentially got the house for free. So, we moved into the house and rented out my last house. That house cash flowed an entire $30 per month. Brandon Turner: Whoa! Robert Jones: Which I was stoked. In my mind, I thought, “Someone else, hey, they’re buying me a house. Fantastic.” Then, while living in the new house, we did a full floor to ceiling remodel while living there in 900 square feet including replacing the plumbing in the house. So, we had no plumbing for about two solid weeks. Shower at the gym, peed in a bucket. Those character-building attributes. So, that was a lot of fun. Brandon Turner: I’m sure your wife loved that time. Robert Jones: Yeah. It was great. Brandon Turner: All right. So, you did what a lot of people do. I want to talk on this for a second because I think it’s one of the best ways, two things you did. Two of the best strategies for getting started with real estate. Number one, obviously the FHA move into a house, buy a house, three, three and half percent down, especially … Now, that alone doesn’t mean it’s going to be a good deal, right? Robert Jones: Right. Brandon Turner: But what you did is you bought a fixer-upper, something that needed to be a total remodel. You did the work yourself? Robert Jones: I do. Brandon Turner: Okay. So, you used sweat equity. You got in there but then the second thing you did, which was cool is that you turned that first property into a rental. That’s probably the number one way that I hear people get into real estate is, “Yeah, I just turned my house into a rental property.” Brandon Turner: So, do you advise that for other people today when you’re talking to people, your clients or whoever that, “Yeah, turn your old property into a rental,” I mean, because you, as an agent, have a … You’d rather have them sell because you are an agent. You get money. Robert Jones: No, absolutely. It is. So, investment real estate is a big part of my business for building millionaires, building investors. If the property makes sense, which most of them do, especially younger clients of mine, they’re living in houses that would make good sense as a rental. So, that is my absolutely first and foremost advice. And even looking at tax strategies. You still have three years to make a decision moving out of your primary with capital gains rules. Robert Jones: So, yeah. I advise people to keep their existing home if they have the ability to. The laws related to qualification and income, even for new landlords, that’s eased up over the last couple of years, so it makes that transition easier as far as qualifying for both mortgages. Brandon Turner: Yeah. Makes sense. Robert Jones: So, there’s more leniency there now, too, compared to a few years ago. Brandon Turner: And if people are wondering what that means about the capital gains thing, I’ll explain that real quick. Correct me if I’m wrong here. Basically the government says, “Hey, if you live in a property two of the last five years, you don’t have to pay capital gains when you sell. Again, we’re not CPAs but the gist is you’re not paying cap gains if you live in the house two of the last five years. Robert Jones: Correct. Brandon Turner: That doesn’t mean the immediate two previous years. It just means two of the last five. Robert Jones: Correct. Brandon Turner: So, I actually did the same thing. Recently, I lived in a house for several years, sold it. I made, I think it was $85,000 in profit. Well, I shouldn’t say … I sold it but there was two years in between when I stopped living there and when it sold it and made the $85,000. I still got the claim that two year thing because I lived there two of the last five. It just wasn’t the immediate recent two. Robert Jones: Correct. Brandon Turner: So, yeah. So, that’s why you have a couple years at a side. Brandon Turner: A lot of people ask me that question. “Should I rent my house or should I sell it?” I like to say, “Yeah. You should just rent it out because it gets you into real estate,” but if you’re going to rent it out and lose 100,000 of taxes because maybe then you should have sold it and dumped it- Robert Jones: Right. Brandon Turner: … or something else. So, what do you usually tell people when they say, “Should I rent it or sell?” Robert Jones: Yeah. 95% of the answer is keep it as a rental. If they have the fortitude and the personality type that it’s going to work well. Again, it’s a house that makes sense, which in our market, most houses will rent for what your mortgage is especially if you got the mortgage a few years ago and even if it’s running skinny, if you only owe one, two, three properties, you can take on a little bit tighter deals as opposed to, say, owning 10, 20, 30. So, I think you could be a little more risk tolerant in the beginning on deals that might be a little tighter. Brandon Turner: Makes sense. Brandon Turner: David, you got anything you want to jump in with? David Greene: I have a couple questions I can ask, if that’s all right. Brandon Turner: Sure. Robert Jones: Sure. David Greene: All right. So, one of the things you said is that you guys wanted to buy as many houses as you could once you realized what was kind of being described as house hacking in a way. Robert Jones: Yes. David Greene: We can get a low down payment and we can rent out part of the house. You also, I want to make sure I cover the strategy. You talked about being an agent and using your commission for a down payment because not many people talk about that but that’s an incredibly good strategy, specifically for agents. David Greene: But I wanted to ask how are you avoiding over-leveraging or the people that want to ask the question of, “Well, if you just buy a house every single year for the rest of your life, what if you get too many of them? What are you going to do if the market turns?” Stuff like that. Robert Jones: Sure. So, I can say, over the years, our risk tolerance personally and when I say our or we, it’s my wife Sarah and I who own all the properties. We don’t have partners outside of our marriage. Yeah. Well-played. So, in real estate or otherwise, our risk tolerance has changed significantly. Robert Jones: So, when we started, like I said, we had $900 in our checking account. I did research what the implications were for foreclosure or bankruptcy and whether you foreclose on one house or five houses, it’s the same punishment. So, in the very beginning, we took on a pretty significant amount of risk. We were quite leveraged. I’d say the first five properties, we were 95% to 100% encumbered. So, we took on a pretty significant amount of risk in the beginning. Robert Jones: As we moved forward, as Brendon mentioned, through sweat equity, time in the market, appreciation and just improving the properties, our equity position started growing pretty significantly. Once we started having more of a net worth on our income, all of it started increasing. My risk tolerance has changed by doing those things but again, buying on the front end, making your deal when you buy it. We weren’t doing anything really creative because I didn’t know what I didn’t know at that time. Robert Jones: So, we were buying properties out of the MLS, just stuff where other people didn’t see value but we’d try, by the day we close, we wanted to have equity in it. Then, build equity pretty quickly upon renovations and just cleaning the place up. Brandon Turner: Okay. Yeah. That makes sense. So, can you walk us through the rest, I mean, not the rest of your journey maybe but the next few years? Robert Jones: Sure. Brandon Turner: You said you were buying property. So, what did that look like? What kind of property were you buying? Were they all in Colorado? How are you financing them? How are you finding them? Just kind of walk us through the next few years. Robert Jones: Yeah. So, we bought the first one. It was working. Like I said, we were stoked about $30 a month cash flow. Like, “Hey, this is sweet. We’ve got some extra money now.” But, again, I didn’t know about BiggerPockets. I didn’t know about these resources, so my perceptual math of what’s possible in real estate was still pretty limited. Robert Jones: So, it became very well-versed on conventional loans and what was available in that marketplace. So, initially, we decided, “Hey, we can move once every year,” which I’m not giving advice related to owner-occupied lending laws and all that. Seek your own advice on that but we were informed that if we lived in a property for a full year, that was a safe ground. We intended and we did. We absolutely lived in the properties, we were doing everything by the books. Robert Jones: So, our goal initially was once a year, 12 months and a day, we do a look for the next house. We’d move into it. So, 2009, we bought our first rental property, number two. A year later, we started looking. We’ll dig into this one a little bit more later but we did have a unique spot where we did an owner finance deal. That was my first experience there. So, two months later, we moved into that one. We bought a triplex and we were in there for just a couple months remodeling it. Again, I didn’t know the rules. We didn’t know what we didn’t know. Then, the light bulb. Someone told me, “Hey, man. You don’t have to stay here. This is not a convention loan.” So, literally, two, three months later, we found another good deal like, “Hey, we didn’t … “ Brandon Turner: Oh, that’s cool. Robert Jones: There was no rules telling us we had to stay for an owner-occupied loan. So, we bought other single family home, lived there literally 12 months and a day, started looking for another one. Went out and bought another house. Then, we tried to owner occupy a triplex for our fifth property. That’s in 2011, when the guideline changes shifted and they added pending underwriter discretion. Brandon Turner: Interesting. What’s that mean? Robert Jones: To all the conventional guidelines. They just added that cloud. So, even if you fit in the box, it said, “Pending underwriter discretion.” Robert Jones: So, if it felt weird to them, so we got declined for the first time after a while because we were fitting in the box. Like I said, we had a very skilled lender that knew how to navigate through this. We got declined but it was a killer deal we were under contract on. We didn’t want to lose the deal. We needed to come up, then shift it to an investor loan so we needed $90,000 in three days because the seller had a higher offer. He wanted to get out of the deal, so he wasn’t adjusting dates for us or doing us any favors. Robert Jones: So that was our first … I’d say, we had done our hard money deal but our real introduction of considering more creative solutions and creative financing where we got what I feel is kind of our first hard money private loan. I’ll throw some big word here. We cross-collateralized against a prior one in the portfolio because, on investment property, you can’t do a first and a second but you can at the same time concurrently, do a second against a prior property. Then, show that you have funds down for the current purchase and the current acquisition. Brandon Turner: Okay. Walk us through that again because that’s really, really good stuff and it’s really deep. So, I want to make sure people understand this strategy. Robert Jones: Yeah. Brandon Turner: The whole cross-collateralization. Robert Jones: A few years in there so we had other properties through our own efforts and through market appreciation, started having some equity. So, we needed to come up with 90,000. This wasn’t with conventional means. I reached out to … And this, let me step back here. The hard money conversation I know is an ugh, you know? Brandon Turner: Yeah. Robert Jones: It’s scary, right? Brandon Turner: Yeah. Robert Jones: People don’t want to go ask. They don’t want to ask their friends for money. They don’t want to ask their family for money but this was our first opportunity to dig into that. The phone calls were scary initially. I’d say the first three were. Then, they felt really good because the people I started calling, anybody I thought my entire database. Again, I didn’t know there was guys online that did this for a business or there’s places to find money so I just called everybody I knew that I thought had money. What I experienced through that is the people that I thought had money that didn’t have the money felt really good. They felt proud that I thought they had the money. “Oh, Robert thinks I’m a big guy,” right? Brandon Turner: Yeah. Robert Jones: Then, some guys did have the money. Some weren’t interested but, again, grateful for the call, really, really gracious about it. Within a day and a half, I had three people that were willing to lend me $90,000 in second position against prior properties in our portfolio. So, we told them. It would be a formal note. It’s be a recorded note against that property. It wouldn’t exceed whatever their threshold was for comfort of total leverage against the property. So, the investor we ended up working with, his threshold was 80% combined leverage. So, we didn’t have enough equity in one property. So, we put it against two properties- Brandon Turner: Nice! Robert Jones: … on that one. We split up 40,000 here, 40,000 there, recorded the notes or 45 so that we had our 90,000. We bought that triplex and, another eye-opener for us, we were planning on moving into it. We started packing boxes. Then, I had another one. I’m a slow learner. We kept having these aha moments. I thought, “Well, crap. We don’t need to move into this. It’s not an owner-occupied loan.” So, literally, we are packing boxes to move into the house and realized, we don’t need to move into the triplex. Brandon Turner: And something [crosstalk 00:23:53]. Robert Jones: This is a legitimate investment loan. So, two weeks later, we found a four-bedroom single family house. That one made more sense to the underwriter because it’s a single family home. It had a bigger bedroom count. It had a larger yard for our dog. We could explain it in a letter to the underwriter. So, I think two months later, we went and bought another single family house. Then, we bought another fourplex, chasing our tail again with a private second against prior real estate. Let’s see. Yeah. We bought another fourplex and then we bought a few more after that. Robert Jones: We were entering the journey now where we did a couple more owner-occupieds. As our income increased, we started moving into little bit nicer homes, so those ones were easy to explain and our tool belt, we had more tools for creative financing solutions where we started buying more intentional investment properties. Even through all that, we still did nine moves in eight years, which it was moving a lot, which I enjoy. It wasn’t that … People think, “Oh, God. That’s terrible.” It was fun. Brandon Turner: Yeah. And if it get you to where you’re at, then why not do it? Robert Jones: Exactly. My wife and I always joke around. People meet us and they’re, “Oh, my God. Your wife is a saint for her to put up with all that garbage.” It’s like, “Well, our lifestyle doesn’t suck now.” So, things have changed. Brandon Turner: And I’ll let, David, you jump in here a second, too, but I mean, could you tell us where did living in the boat for three months come in into the story? I’m just curious of where that was at and you can explain what that was. Robert Jones: Sure. Yeah. So, we … Gosh, what was this? Almost five years into my sales business. Things were getting a little intense as far as hours worked, stress level, buying the rentals and all that. And we had set, my wife and I liked to travel a lot. We want to travel a whole lot more than we do. And we started looking at properties to buy out of country. We looked at Mexico and all their laws down there. We considered Belize, Nicaragua, Dominican Republic. We started looking at, as a foreigner, buying property down there and started digging into that. Almost every resource we dug into, there’s even one book my brother-in-law read that said, “If you’re not okay losing 100% of your money, close the book and don’t even finish reading it.” And from a risk-tolerant standpoint, I’m like, “Holy crap. I’m not okay with that.” Robert Jones: So, the risk-tolerant standpoint was part of it. I thought, “Well, man. If we buy a property out of the country, we’re going to get really sick of going there pretty quick.” But my wife and I, we like moving around quite a bit and we like exploring different areas. We didn’t want to have just one place. Then, online, I found some family that was living on a boat that, when YouTube was just starting to gain traction, I thought, “Wow! Man, that’s pretty cool.” Robert Jones: So, we set a goal like, “Hey, it’d be pretty awesome to live on a boat someday.” Before we really cemented that goal, we thought we should take it for a test drive. So, in 2012, like I said, five years into the business, we were at, I think, five or six properties at that point. We decided take a little sabbatical which started out, “Hey, we’re going to take a week off,” which that’s going to be vacation. It won’t feel like a life. It won’t be real. “Yeah. Let’s do two weeks.” Robert Jones: Then, we talked to the guy we’re talking to. “How about a month?” We ended up leaving for three months. We flew into Trinidad just off Venezuela and sailed all the way through the Caribbean, BVIs, US VIs, Spanish, Culebra, all that and ended in San Juan. It doesn’t suck. As far as a test drive for our travel goal, with our family because we have children now. It cemented in our minds this is our goal that we want to achieve. Brandon Turner: So, how did you do that? How do you take three months off because you told me earlier, you just turn your cell phone off. How do you do that and own rental property and own a real estate business, because there’s a lot of people listening right now going, “Oh, man. I would love to live in a boat,” or, “I would love to go travel Europe for a few months,” or, “I would love to just go and sit on the beach for a few months,” or whatever. People want that sabbatical, that break but they could not even imagine, “What are they do when the tenant calls and has a broken pipe.” What do you do? So, how’d you survive that? Robert Jones: Yeah. So, three months, it was short enough we could still ask for favors. It was prior to where we have a lot of professional help. On the real estate side of things with my business, that was challenging. Not challenging to manage but challenging from a momentum perspective. David, you’re an agent. You know, if you’re not beating the street and hustling and keeping up those contacts, the momentum, it was an expensive trip from that capacity. For the rentals, my mother Stacy was a saint. She was our go-to. Brandon Turner: That’s cool. Robert Jones: Our voicemails, both mine and Sarah’s said, “Don’t even leave a message. We’re not going to call you back.” Now, we did communicate via email but our financial prudence pulls as far as frugality and just making sure things are handled appropriately. I can credit a lot of that to my parents. My mom helped us when we were gone for that first trip. Robert Jones: Now, if you ask her, she will say she would never, ever do it again. It was not her favorite three months of the year but again, we only owned six properties at that point, five or six properties amounting to probably 10 doors. So, it was before it got a little more time-intensive at least but it happened. It was easy. Any big problems, we got an email. Any emergency, whether you’re handling or someone else, if there’s a fire or flood, it has to be handled. Robert Jones: So, whether I take the call or mom takes the call or a property manager takes the call, it has to be handled. Other issues that came up, anybody can call a plumber, anybody can call a handyman. Now, did we pay a few more bucks for some of those things? Maybe and I didn’t fix them personally but the reward of the trip far outweighed any of those challenges. David Greene: That’s so cool. Okay. So, in order to be doing all this traveling which is this goal we all have is we want real estate to fund our life, not our life to be all about real estate. You have to put systems into place. A lot of people struggle with this because they’re playing at kind of a small scale but once you get into some bigger numbers, more properties, more projects, systems become vitally important. Can you share some of the steps you took to systemize things so that you could be traveling and it didn’t all fall apart? Robert Jones: Yeah, absolutely. And I feel we’re definitely still on this journey. It’s something we’re still getting more skilled at but we do have a professional property manager now that manages most of our units. Even through that transition, training the manager on what our expectations are, what our budgetary limits are for certain problems that arise, where I don’t want the phone call. Robert Jones: So, we are still in process of working on that but helping facilitate that, where, hey, if it’s A, B, or C, handle it this way. Shoot me an email just so I see it but you don’t need to call me. We can authorize these events. So, on the management side, that helps significantly. On the real estate side of things, it’s a function of two things. One, places where we do have communication. I don’t mind taking the random phone call. Being in this business, if it allows us to travel more, I manage a lot of my business remotely if we are traveling for a week, 10 days. If it’s something that needs boots on the ground, we’re at the group, our company in Fort Collins, the collaboration between partners is almost unheard of in a real estate world. It’s unique that we’re all broker-owners so having the sense of camaraderie and people willing to help out. I’ve got partners that’ll just step in. They’ll bust out a showing for me and be the boots on the ground, if an offer needs to be written I’m unavailable, they’ll write the offer for me. Robert Jones: But again, remotely, if we have internet and cell phone, I manage a lot of that. I want you to know it stresses some people out. They want to be on vacation but it gives us the ability to do more and travel more, that works for the shorter vacations. Brandon Turner: Yeah. Yeah, I think it’s an interesting point. I mean, obviously you don’t want to take a vacation, have to work the whole time, right? Robert Jones: Right. Brandon Turner: The company’s goal but then some people just won’t take a vacation because they can’t dedicate 100% of their time to vacationing. I mean, I don’t think I’ve taken a vacation in four years that I didn’t do a BiggerPockets webinar during the middle of it, every single week because it’s such a valuable thing both in terms of helping people and something I like doing and it helps BiggerPockets grow as well. Brandon Turner: So, I do it every week no matter where in the world I am. It’s okay. If I said, “No, I’m not going to do a vacation unless I could do 100% focus,” well, then, I’m just not doing a vacation, most like. Brandon Turner: I’m working more and more towards the trying to unplug completely like you did on the boat trip occasionally. That’s why David Greene here is going to take over doing some webinars. Jake, the new guy at BiggerPockets, is going to be doing some webinars. So, we’re working there. But anyway, I just encourage people who are listening to the show right now, don’t get stuck in that, “I can’t take a trip because I’d have to maybe do a little bit of work.” David Greene: The reason that I can take over webinars and Jake can take over webinars is because you systemize what you do. You broke it into chunks. You said, “Here’s how it works. Here’s a formula.” Now, we can practice within that formula and so we’re good.” Then, you’re like, okay. We’ve got it down. You can go do your thing. So, systems create freedom, right? Brandon Turner: Right. Yeah. David Greene: Because you hear discipline creates freedom where we’ve all heard Jocko say that. Well, discipline creates systems and systems create freedom. Now, you’re in the position where you can travel the world and enjoy real estate or you can create this thing that now you bring opportunity for me to get in because you’re leveraging me and it’s a good chance for me. David Greene: So, that’s just why I’m a big fan of systems in general is they open up doors for many people where only one person stood at one point. Robert Jones: Yeah. And just the efficiency of having a team. I don’t know the team in the conventional sense of these large realtor teams where showing assistants, buying assistants, all that. I don’t have that but I do have a full-time assistant with our company. I’ve got an entire escrow department, a marketing team and all these other functions. I mean, the week we’re recording, I have two closings on Friday where we’re going to make $21,000 while sitting in Hawaii. Brandon Turner: It’s not too bad. Yeah. Robert Jones: Again, it doesn’t suck. It’s great. So, having my team members and they way they’re trained, we can facilitate this. It’s fantastic. I couldn’t imagine a better career. I mean, we love it. Brandon Turner: On that note, let me ask that question, then. I mean, I’m assuming I know the answer but let me go a little deeper. Do you think new investors who are getting started, they have a job. Should they become a real estate agent? I know the answer’s probably yeah, they should consider it, but then I’ll even go deeper. What kind of person should consider doing it and what person should not consider becoming an agent? Robert Jones: Sure. So, if it’s becoming a realtor solely to save the 3%, my answer’s a hard no. If you’re not full-time in it, you’re going to lose more than 3% on something you missed. You just don’t have the depth of knowledge and your finger on the pulse of the market. I’d even argue the agents are selling five, six homes a year. You’re not doing enough business to keep your finger on the pulse of the market. If they want a career change and they want to do it as a career or a full-time investor where they’re really actively analyzing those markets on a regular basis. I think it’s a very rewarding career and I think it’s fantastic but if it’s, “Oh, I’m going to get my license on top of my nine-to-five, just because I don’t want to pay that guy 3%, I guarantee you’ll lose more money. For that sake, those investors are looking for a realtor. It shouldn’t be the guy that has a good smile and you like. It should be someone that’s eats, sleeping, and breathing what you do. Brandon Turner: Amen. Robert Jones: The David Greenes of the world that are investors and know investments and do a really high volume of business in that market to have your finger on the pulse because a lot of these markets, especially right now we’re on the cusp on, we’ll say, some changes at least, it’s important to have the right guy in your corner or gal but someone that gets it. Brandon Turner: So, I’m wondering, like David, I’m going to turn to you and ask you the same question. Anything you want to add to that, anything that you feel differently or the same, like who should become an agent, who shouldn’t, of our listeners? David Greene: That’s a really good question. You should become an agent if you want to learn the business of selling real estate and earn money from selling real estate. If all you want to be is an investor and passive income is all you care about, getting your license will not help you. It might even hurt you in some ways because now you have to disclose to people that you’re buying the house from extra things because they may be taking your advice on the fact you’re a licensed professional, saying, “Well, I’ll buy your house for 100K.” David Greene: If it’s worth 300K, you don’t want to get sued because they come back and said, “Well, when he said he’d buy it for 100, I assumed that’s what it was worth because he’s an agent and he’s representing me.” David Greene: But if you love real estate, you might like selling it more than your current job. If you ask me, there is a huge, huge, huge gap in the number of agents that know what hell they’re doing. I mean, I don’t know a nicer way to say it. I became an agent because I was so frustrated with knowing more about real estate- Robert Jones: That’s a pretty nice way to say it. David Greene: Yeah. We see this all the time. They’re just not good at their job and they don’t care to be good at their job. You hit it on the head when you said, “They’re just a friendly guy with a nice smile,” and nice cologne or a girl with a pretty headshot doesn’t mean they’d understand money or finances or what goes into a deal or how to protect your wealth or how to represent your interest. I routinely destroy agents on the other side negotiating because they don’t even know what’s in the contract. I meant half asleep and I’m beating them just because I know a few things that they never bothered to learn because instead, they’re out there working on their Facebook and making smiley videos, right? Robert Jones: Right. Yeah. David Greene: If you love real estate, there’s a need for agent who love real estate. That’s kind of why I’m growing my team is because I’ve all these people that come to me and they say, “Hey, David. I love real estate. I want to sell houses and I want to learn it.” I’m like, “Great. We have clients who needs someone who understands how to save them money.” That’s what our job is. We’re like a lawyer in court trying to get them out of trouble or trying to help their case or get them money, not just a smiley person. David Greene: So that is the person who should become an agent. You love real estate. You’re passionate about it. You want to take what you’ve learned for your own self and you want to ply it to your clients. If you do that, man, the top is really nice. 80% of the business goes from the top 20% of the agents. You can make really good money. If it’s just a thing you’re ho-hum about, stay far away from it because 80% of the agents have to split 20% of the business. That bottom 80%, they don’t do hardly anything and it’s really hard. David Greene: So, thank you, Brendon, for asking that because I think a lot of people think, “Well, I want to get my license to save money on commissions when I have to sell a house.” You’re assuming that you know how to sell a house, that you’ll actually do it better than someone who’s good at it and that you’re not taking effect all the fees you’re going to be paying to hold that license for the entire time. You got to pay your broker and all the other stuff. So that’s a really good point. Robert Jones: A real estate agent, all they do is push a button they just put on the MLS. That’s all you have to do as an agent. David Greene: Oh, yeah. And open a couple of doors and write up a contract. That’s all it is. Brandon Turner: Yeah. Whatever. It’s easy. Yeah. Robert Jones: It’s the Office Depot Easy Button. You just click it. David Greene: Yeah. You just click the one button. It’s easy. Robert Jones: Chip and Joanna Gaines rock so I want to sell real estate. David Greene: Exactly. Robert Jones: Yeah. You hit the nail on the head. The granite and stainless makes me feel warm and fuzzy. While there is a desire for that from some clients that they want someone just to hold their hands, the finding someone that has a passion to drill down and have an education for what we’re doing, like I said, That is 20% worth less of the market. I mean, I know- Brandon Turner: I just had a conversation with a client who didn’t want to pay a million dollars for a house that was listed at a million because she felt like it didn’t have the finishes that a million dollar house should have. When I broke it down by asking questions, it turned out it didn’t have granite countertops, it didn’t have stainless steel appliances, what you just said. The houses that did were 1.2, 1.2 million, and I was able to- Robert Jones: Appliances and counters, yeah. Brandon Turner: … explain. Yeah, we’re talking about $5,000 for counters and maybe another six or seven for cabinets and appliances. This is $12,000. You’d rather go spend 200,000 and pay it back over the next 30 years with interest. Her eyes just opened up like, “Oh, my god. I never thought of it that way.” Robert Jones: Hey. Calling three people and scheduling one contractor. That’s hard. Brandon Turner: That is. Yeah. Robert Jones: That’s at least three or four phone calls. Brandon Turner: So, yeah. That type of thing is where people just don’t understand the value that an agent can bring if they’re good but there’s so many bad agents out there. We’ve created this problem for ourselves. Robert Jones: Yeah. Sure. David Greene: So, Robert walk us through where you at today, then. What’s your portfolio look like in size-wise? You can go in as much or as little as you want about what kind of cash flow do you see today, where you see yourself headed in terms of your portfolio? Robert Jones: Yeah. So, we at the immediate moment, we’ve got 16 properties, 26 doors which in our market, our price point. I mean, we’re just shy of $8 million market value. Brandon Turner: Wow! Robert Jones: And about four and a half million in equity now, which, you guys talked a few months ago about I definitely will … Yeah, we got lucky in the timing of the market. That didn’t hurt. We’re not all real estate gods by any means. The market helped. Granted, a lot of sweat equity and all that stuff. Robert Jones: Our cash flow, I still question whether we made the right decision. We refied about seven of them onto 15-year notes in efforts to try to achieve some of these goals to retire or long sabbatical, quite young. So, our cash flow, we’re about just over $10,000 a month right now net. Brandon Turner: Awesome. Robert Jones: Depending on our maintenance month, about 10,000 a month, which that we don’t use any of the real estate money personally at all. It’s a completely separate machine. Brandon Turner: Yup. What do you do with it? Just recycle it into more properties? Robert Jones: Yeah. I jokingly say depending on my financial mid-life crisis, we go from debt paydown to we’re done buying properties and then we go buy a few more and then we’re done buying properties. In the last five months, we bought three more. So, here we are- Brandon Turner: I did the same thing. Robert Jones: … and now we’re at 26 doors which, like I said, most of that’s professionally managed, so it’s running pretty smooth. It’s good. Brandon Turner: Let me ask you this, then. I mean, one thing cool about an expensive market is that you were able to … I mean not expensive and, again, not New York, San Francisco necessarily but the higher tier. You were at this level. Then, it, as the market goes up … Brandon Turner: I mean, okay. Here’s a way of explaining it. If you would have bought only $35,000 properties and the market went up 50%, you’ve just gained $15,000 on each of those properties, but you have a $200,000 property and it goes up 50%, you’ve now gained $100,000 in equity. Brandon Turner: Now, the same thing works the opposite way. If the market drops, you can be severely under. I want to talk a little bit about the expensive market thing. How do you invest in an expensive market? Are you still finding deals today and what do you got to be careful of when you’re in that market? Robert Jones: Sure. The numbers are definitely skinnier and significantly compared to some of the guys I hear in your podcast. “Oh, yeah. I paid 80,000 for a place and it rents for 1,200 a month.” I think, “Holy crap!” They’re talking about 1.5% lever on rents or one and a half times, which you don’t see. Brandon Turner: Yeah. You don’t think [inaudible 00:42:32]? Robert Jones: But like you said, the leverage and I never sell on appreciation. We want the numbers to make sense without appreciation in the spreadsheet. That’s what I tell all my clients. If it doesn’t make sense without this icing on the cake, we probably shouldn’t buy it, but having that icing on the cake, the icing’s really thick. I mean, we bought a lot of properties when Sarah and I were considering in our more risk-tolerant days. I told her, I said, “I just want more expensive real estate.” Robert Jones: To a degree, when I felt like I saw the writing on the wall, we didn’t have a crystal ball but I felt like the market was going up and it was going to be marching up for a while. That was my strong belief. I just started buying more expensive properties, just so we had a more expensive real estate appreciating. Robert Jones: So, there’s a few plays we made on 1031 exchanges where tax-deferred exchange into another rental property where the cash flow didn’t change at all but for an easy example sake, we went from a $200,000 house that rented for 1,500 a month to a $400,000 house that rented for $3,000 a month. It was the same cash flow but gross rents, I was increasing our portfolio and increasing our gross rents because, for us, it’s a long-term hold for sure. We’re never going to sell any of these without replacing them in some form ever is our goal right now. Robert Jones: So, I figured, if we can increase our gross rents, regardless of cash flow at the time because we don’t need the money. We use my real estate business, my agent business to pay our bills so we don’t need the money. So, I wanted to increase dollars of real estate as well as our gross rents, which right now, they’re 39,000-ish, 39,000 and change a month, the gross rents, which once a property’s free and clear,- Brandon Turner: Yeah. That’s awesome. Robert Jones: … I think we probably can figure it out. Brandon Turner: Yeah. And that’s interesting thing, too, about these higher-end properties is and I don’t know if you’ve found this but I definitely found it. There’s some irony in here as well. The more expensive a property is, the easier that property typically is for me to manage. My most irritating tenants are the ones that are in my $30,000 houses. My best tenants are the ones that are in my $1.7 million houses, like property, and like Ryan. Brandon Turner: So, for whatever reason, I just get higher quality people who have less drama in their life. Now, they may be able to demand a little bit more and they want a little bit nicer stuff and that’s fine because then, the property stays nice. So, I would personally, this is again where I’m at in my … Earlier on, I want a cash flow above everything because I needed to get out of my job. That was number one so I bought the worst properties. Didn’t matter what they were as long as they cash flowed well. Brandon Turner: Today, I would rather get significantly less cash flow but buy in a market where I can spend way more, like have a way more expensive property and have a way more chance for appreciation. Brandon Turner: Again, I don’t think any of us is saying, “Buy a bad deal, loses money,” like that loses money every month. I don’t want to lose money every month, no matter what. But I would almost take a break-even property in Maui over a property that made $500 a month in Grace Harbor, Washington where I was at before because that one property, it’s not going to be worth anything later on but I’d rather, if I get truly net actually breakeven on a property here, means after maintenance, repairs, property management, all that, that I at least know the mortgage is getting paid down. The mortgage is a million dollar mortgage getting paid down significant chunks every single month and appreciation, even at 3% of a million dollar house or a half a million dollar house. That’s climbing quite a bit. Over time, I should always win. That’s just definitely a shift that I’ve had in the last few years. Robert Jones: Well, and that for use, the value of gray matter, I call it. Even David, as good a systems as we all build, as the portfolio start to increase and we’re debating whether we’re go to go to the next step and really exponentially grow here in the future but there’s only so much space between my ears for headaches and, like you said, just garbage. Robert Jones: So, we’ve got tenants, the whole spectrum in our market. We’ve got the most affordable rentals you can have, kind of our multi-family properties that rent for 900, a thousand a door up to single family that rents for 3,500 a month which, in our market, that’s a very high rent. And, like you said, typically, less headaches and the applications on the 3,500 a month are just bonkers. And it’s 810, 815 credit scores, a five-pound dog, no kids. Oh, yeah. “$5,000 deposit for the damage?” Brandon Turner: Yeah. No problem. Robert Jones: “No problem.” All that. They make three, four, five, six, 700,000 a year where at your entry level, your Section 8 and all that, it’s just different. We do own the whole spectrum but I can say is we’ve progressed in our investing. Like you said, I’ve noticed myself shift towards, I don’t know if convenience is the right word or safety, because the depth of the luxury market, in our market, it’s not that deep. Robert Jones: So, if we flood the market with too many high-end rentals, we’re going to bring everything down but there is value. I know investors listening will cringe when I say that I’ve bought five or six new construction homes, brand new from the builder to turn into rentals. Now, we get very aggressive offers and we knew when their fiscal year ended specifically- Brandon Turner: Nice! Robert Jones: … through a national builder and we knew when they had to get units out the door and got two for $75,000 off, two days before the end of their fiscal year and they had to post numbers so having that extra depth of knowledge but still, they were brand new homes. They had a warranty. We had the tenants call the warranty line instead of even calling us. So, some of that, there’s value in that. Brandon Turner: Yeah. David Greene: That’s why you want a good agent, not just a smiley, friendly one. Robert Jones: Yeah. If people actually run true, true accurate maintenance allocations, and not have their property just turn into a raging pile of crap over the years, if they run real numbers on maintenance, I think they’d be surprised at the gap between newer, not new but newer properties compared to the 60s-built piles of junk, the gap’s not as big as you’d think in some markets. Brandon Turner: Summarize for us. David Greene: Yeah. When we [crosstalk 00:48:43]some older investors that have invested in real estate and you ask them, “What advice do you have for me starting off?” Everyone I’ve ever talked to has said, “Location, location, location.” All this other stuff we talk about just goes right out the window from someone that’s done it for 50 years and they say, “Buy in the right area with the best schools. The appreciation you get will trump any bit of cash flow that you thought was important and you won’t have the headaches.” David Greene: There’s something to be said for understanding. I think Brandon and I had a conversation about this when we were both trying to work our way through it that you could literally go buy a $10 million mansion in Beverly Hills and lose a couple thousand dollars a month because the rent wouldn’t cover your mortgage, but if you looked at your tax savings and your principal reduction and your increasing rent and the overall value of that mansion going from 10 million to 20 million over 10 years or 20 years or something, you would make insanely more money than if you bought a handful of [cashel 00:49:36]in places somewhere in the Midwest that just crept up. David Greene: When you get into that cash flow is all that matters mindset, you miss the big picture of what you’re describing, which is you’ve built your net worth with a handful of properties so much more than the people we interviewed that say, “Oh, I’ve got 110 doors out there,” somewhere where they don’t get much appreciation and they have a ton of headaches because not all money is good money. Some of it is just blood money, man, like you’ve bought yourself a job. You did not buy an investment. Brandon Turner: It’s also where we talk about the different phases of your investment right in the beginning. Like I said, in the beginning, cash flow’s all that matter. I like to say cash flow gives you freedom but appreciation gives you wealth. Brandon Turner: So, the cash flow, again, I don’t regret buying the $30,000 junk crap house that rented for $700 a month. I don’t regret that because it helped me get out of my job. Those properties got me out, which gave me the ability to start building more wealth. As my investment in yours … I can see yours is kind of the same way, it starts shifting, you can start playing a little more appreciation. Brandon Turner: So, just because we’re talking this conversation now doesn’t mean everyone listening is like, “Oh, screw it. I’m going to go and lose money on a Beverly Hill mansion.” That’s probably a terrible idea but … Robert Jones: Call David Greene for $10 million [crosstalk 00:50:45]. Brandon Turner: Exactly. Call David Greene. He’ll represent you on that. He’ll tell you it’s a great deal. Brandon Turner: But there is something to say. In fact, just another day, I was talking to a buddy of mine who said he just hung out on a boat with this billionaire real estate investor. He got invited to some special mass client thing. David Greene: With a B. Brandon Turner: With a B, yeah. Billionaire. And the guy’s advice, basically, what he said was starting in the 70s and 80s, I just read a book that said, “Location, location, location.” I read one book and I was like, “All right. So, I’m just going to buy in good location.” He’s like, “I just kept buying properties in the best locations around the country I could find.” I don’t remember what he did. He had some actually job that made him really good money. He’s like, “Every property I bought lost money. Every single one. I would buy property that lost money. It didn’t matter.” He just lost money but I know that one book told me to buy location, so I just did it. Today, all those properties are worth over a billion dollars. David Greene: There you go. That’s probably how it worked for everyone else, too. You gave such a- Brandon Turner: A billion dollars. David Greene: … good example. Those first cash flow properties that we’re all buying, the get us out of the rat race. They get out of my nose is in the grindstone. All I can see is my boss and small thinking. They’re this little box that you step on that you can peek over the fence. David Greene: As you peek over that fence, you’re like, “Oh, my God. There are people that are making a lot more money than me that are not nearly as smart as I am. Look at that guy. He sits in front of his pool all day long. He doesn’t even try. What is he doing?” When you get that perspective, that’s when you can start taking advantage of these other opportunities but you do need to get those first few deals which do need the cash flow. That’s why we always talk about it. David Greene: Brandon has a perfect strategy for anyone who wants to do this. He calls is the stack. Brandon, can you tell us how the stack works to do what we’re saying? Brandon Turner: I guess. Sure. So, for those who have not heard the stack, basically what it is is your idea, when you’re first getting started, you buy a house, like a single family house maybe or maybe a duplex, whatever. Then, a whole year later, you go from a house to a duplex. Brandon Turner: Now, if you’ve already bought the house, that was really hard to buy the house when you’re getting started. So, then you buy the duplex but that was hard but probably equally as hard as buying the single family. You got some experience and knowledge and money coming in. Then, the next year, a whole year later, you buy a fourplex or maybe two duplexes, whatever. Everyone, don’t get caught up in the actual specifics here but then an eightplex the year after, 16, 32, 64. Maybe it looks more like one, five, 10, 50, 1,000. I thought you were going to go from 50 unit to 1,000 unit but whatever. The idea being exponential growth. Brandon Turner: The reason that’s so powerful is because it forces you continually outside of your comfort zone to scale exponentially versus what’s comfortable is, “I’m going to buy a house and then another house and another house.” It might take you 20, 30 years to get enough property to be able to make anything of it but when you scale exponentially, it constantly pushes you outside of that comfort zone. So, anyway, talk about it. Robert Jones: Yeah. We felt maybe it wasn’t size of units but it ended up being to a degree but our goal was to buy one house a year. And that, wow. Well, that’s getting real easy. Maybe we should be two this year. Then, the year we did two. Then, the year we did three. Then, we added a couple months where we did three. Yeah, it just got easier and easier. Brandon Turner: It could even be, the stack doesn’t even necessarily mean, I mean [inaudible 00:53:45]. Could be, “Hey, I bought 100,000 a property. This year, I bought $200,000 of properties next year and 400,000 the year after, then 800.” There’s a lot of ways you could look at it. The key is growth. Are you growing? Are you stepping outside your comfort zone? You guys definitely have been. Robert Jones: Yeah. We’re at a cusp again where we’ve been comfortable for far too long. Brandon Turner: Yup. [crosstalk 00:54:04]. Robert Jones: So, we got to figure out what the next step is. Brandon Turner: Yeah. And maybe next is just relax and go sail around the world in a boat or- Robert Jones: Yeah. We taper down or I could see us going one of two directions but they’re vastly different. Slowing down, paying off, or really wrapping things up if beardy Brandon needs a partner in a mobile home complex. Brandon Turner: Yes! Robert Jones: So, but David, I want to backtrack. You mentioned location. We were adamant on that. Every single property we own except one is in Fort Collins. I firmly believe in our city and looking historically, not just warm and fuzzies but looking at actually data of the performance we’ve seen, because we have considered out of state and we’ve looked at other markets and I have some partners in my company that have invested out of state. For all the reasons we just discussed, I believe I’ve made the right decision. We’ll see if that continues to hold true. Robert Jones: And, on the stack, the first one, you just need to buy a house. Brandon Turner: Yeah, yeah. Exactly. Robert Jones: I don’t even care if it makes money. I know it’s contradictory to BiggerPockets philosophy but- Brandon Turner: No, but I agree with it. Just get something. Robert Jones: … as far as getting your feet wet, you just need to buy a house. It doesn’t even matter what it is. Just to overcome that initial fear and start your perceptual map. Brandon Turner: Totally agree. Robert Jones: You just need to buy a house. My brother, older than me. He owned a condo in Windsor that for a season, like five years, it lost $200 a month. It’s a turd. I mean, it is, by any metrics of looking at a rental, you think, “Man. This thing sucks.” It still is positive if you look at all the benefits of owning real estate with taxes and appreciation and all that. Now, just this year, he’s a millionaire. Brandon Turner: Wow! Robert Jones: So, even writing through a dog that went through pretty cyclical market but that was one of his first rentals of getting his feet wet. Now, he owns a good number of doors in Arizona and is kicking butt on owning what most people would consider a loser and take their chips and go home. “Oh, real estate sucks. I don’t want to do this anymore because it didn’t work out.” Even though it didn’t didn’t work out. It’s still a winner, even though it feels like a loser. So that’d be my advice to anybody. Just buy a house. Brandon Turner: Yeah. I love it. All right. So, that’s awesome. Brandon Turner: So, let’s shift a little bit. I want to get deeper into one of your properties, get people an idea what that looks like, so why don’t we go to the deal deep dive? Brandon Turner: All right. Deal deep drive. This is the part of the show where we dive deep into one of your particular deals, so you got a deal in mind? Robert Jones: I do. Brandon Turner: All right. We’re going to drill you on seven questions. I don’t actually have my questions on front of you because I don’t have my computer in front of me today so I’m going to hopefully not screw this up. Number one, what kind of deal was this and where was it at? Robert Jones: Yeah. So, in Fort Collins. It is a triplex, a conforming legal triplex. For people that know Fort Collins, it’s on Mountain Avenue. It’s on not the most expensive street in the city of Fort Collins. Brandon Turner: All right. David, do you remember [crosstalk 00:56:55]- David Greene: Yeah. How did you find this deal? Robert Jones: Yeah. I jokingly say that someone had to punch me in the face, get the light bulb to turn on. It was through my real estate business. It was one of my sellers who asked me to list this triplex. I was just getting everything ready, getting ready to list it. Going though, I’d sold another property for her. At the time, we only owned two properties. My perceptual map wasn’t very big. You don’t know what you don’t know. Back then, there was a lot I didn’t know. Robert Jones: Throughout the course of getting ready to list it, she had told me a few times, “Yeah, and if people don’t qualify, I could help with the loan.” With my very limited knowledge at that time, I thought, “Oh, well. We don’t want those buyers. If they don’t qualify, we don’t want them to buy the house because that’ll be a pain and the deal probably won’t close.” Robert Jones: So, by about the third or fourth time she said that and one of my partners said, “Hey, man. That’s a pretty cool property. Can I buy it?” I went home thinking, “Well, I should try to buy it. Well, I can’t buy it.” I don’t know if I thought about it or Sarah has slapped me in the face and said, “Hey, dummy. She said she’ll help with the loan.” Brandon Turner: She said she’ll help, yeah. Robert Jones: “Call her and ask her if she’ll help with the loan.” So, we called the seller. Said, “Hey, you know, you mentioned you’re interested in price of the property.” We said, “It’s probably worth,” at the time, I think we said, “It’s worth 310, 315.” I said, “What if I give you 325 for it.” Again, respecting boundaries of an agent and not letting the property go to market and all that. “But would you be interested in doing the loan?” She said, “Yeah, sure.” We had a good relationship. She said, “Well, how much money do you have down?” I said, “Well, that’s the thing. I don’t really have any money. Would you be interested in financing the whole property?” She said, “Great.” I said, “Okay.” Robert Jones: Then, she said, “You know, what interest rate?” I said, “Well.” I pulled up on the internet and showed the banks and said, “The banks will lend me the money about X if I went out and got an owner-occupied loan, which at that time we could have in that stage of the journey. So, we did a 30-year fixed, 100% financed triplex at 4.75. Brandon Turner: Wow! That’s awesome. Robert Jones: So, at closing, we actually got paid. Brandon Turner: Because the … Robert Jones: Tenant security deposits,- Brandon Turner: Oh, okay. I see. Robert Jones: … prorated rents and all of that. We got paid at closing to own a triplex on one of the most desirable streets in the entire city. As far as framing perception of a win/win deal, the property when she owned it was grossly under-rented. She was only getting, combined, about 1,500 a month in rents. Robert Jones: Once we moved in, we did some immediate renovations, just personally. I was doing all that. The first cycle we turned it over, we doubled the rents but our fixed payment to her was 1,700 a month, so she was making more money with no maintenance liability, so she was thrilled with the deal. It truly was win/win for her. We were stoked because we got into a cool property on one of the most desirable streets in Fort Collins. Robert Jones: Now, it is built in 1885, which for us is quite old so there’s some different maintenance liabilities but that property that we paid 325 for is now worth somewhere in the 900 range. Brandon Turner: Oh, my gosh! Wow! Robert Jones: And we are getting 4,600 a month in gross rents. Brandon Turner: Wow! Robert Jones: So, it’s … Brandon Turner: You ever talk to her and just she kick herself for selling it? Robert Jones: We don’t. Brandon Turner: “I want to talk about that.” Robert Jones: But it’s … No. She’s an older gal selling off part of the portfolio. It’s more of a headache but it was one of those things, again, the light bulb didn’t come on. I just didn’t know hard money was a thing or private loans were a thing or, God forbid, opening the doors in my brain to think, “Hey! I need to be aware of these things.” David Greene: You know what’s crazy about this? Brandon Turner: What’s that? David Greene: There are people that would not have bought that deal because you said, “I offered 325 and she wanted 315.” Robert Jones: Yeah. David Greene: That number would have just … “No. I’m not overpaying for a property.” Brandon Turner: “I’m not overpaying for property.” David Greene: No. Screw that. Robert Jones: I agree, David. It’s one thing we have been skilled about in some of that area, seeing the forest through the trees. What I tell all my investors, if any deal we’re looking at. I don’t care if you’re underpaying for it, overpaying for it, whatever. If any deal doesn’t work over a number of 10 to $15,000, you shouldn’t be investing in real estate. I mean, you don’t want to blow 10 Gs on a $30,000 house. I get that. Robert Jones: But if you buy a house, for example, in Fort Collins markets, Northern Colorado market and God forbid the day after closing, septic systems goes out and you have to pay 10, 15 Gs to fix it. If you’re so pissed off that you never want to invest in real estate to start with, you probably shouldn’t be investing in real estate. I think you need to go in with your big boy pants on or big girl pants a little bit and know that there are unforeseen challenges. Speaking of unforeseen challenges, we’ll sidebar really quick. We’ve got a property which was our first experience with methamphetamine. Brandon Turner: Oh! Oh, that’s right. You mentioned that the other day. I wanted to dig in on that a little bit. Robert Jones: Yeah. It was after we owned it for a while. We had owned it for a number of years. We got notified of a police report of some bad stuff going on. In the moment, it was a very unpleasant experience. Insurance doesn’t touch it. Out of pocket, we spent $32,000 fixing the problem, which is a newer investor, that’s a problem. That’s unpleasant. We paid for it all. I had a number of investor friends and client … Then, my friends that don’t invest. “Oh, my God! How much do you regret buying that, idiot?” We got a lot of that. “Oh, you’re a sucker, dude.” So, we paid $305,000 for the property. Today, it’s probably worth 675. Brandon Turner: Wow! Do you regret that [crosstalk 01:02:39]? Robert Jones: I don’t really care about $32,000. Not to sound flippant but a large amount of money but, again, seeing the forest through the trees, it’s all good. In over ways, the headaches and the challenges. Robert Jones: But anyway, back to the deal deep dive. What else? Is there anything else? David Greene: You literally answered every single question. Brandon Turner: Yeah. Pretty much. David Greene: I pulled it up and I was going down. The only thing left is what did you learn from the deal. You might have answered that when you said, “I learned to see the forest, not the trees.” Robert Jones: Yeah, and it was really in that moment and to really try to expand your perceptual math, I mean, once you start … I mean, they talk about your reticular activator like if you’re talking about a Greene jeep, all you’re going to see is Greene jeeps, right? Brandon Turner: Yeah. Robert Jones: So, I didn’t know anything about hard money but then once I knew about hard money, it’s like, “Oh, crap. There’s a whole different ballgame here I’m not aware of.” And even to this day, as we’ve done reasonably well. I know there’s so much more that … Mobile home parks or apartments or syndications or all this other stuff that … Robert Jones: I don’t know. My biggest encouragement for the listeners would be there’s so much good information available on BiggerPockets and other resources. If you’re not taking advantage of it, you’re an idiot and you really shouldn’t be investing because it’s free. There’s so many resources now that if they were around when I started, I’m an idiot. I was the idiot. I just didn’t know there was this other avenue. I mean wealth of information. Robert Jones: So, you don’t need to go into it blindly anymore and just trip through it. You can have a depth of knowledge starting. David Greene: Isn’t there a meme going around where he whispers, “It’s free real estate?” Brandon Turner: I have no idea. David Greene: Yeah. I’ve seen it. Go, “It’s free real estate.” That’s BiggerPockets for you right there. Yeah. You’re exactly right. David Greene: I think I love about your story the most that you just said is you made so much equity on each of these deals, even though you did what some people would say, what an amateur would look at as overpaying. Instead of having to do this over 10 deals, you did it over one deal. You probably have very little headaches on a property that’s $900,000 property there. The tenants are top-notch, you don’t have to deal with them very often. You can totally afford to upgrade that house with really nice stuff so you get really good tenants. They probably don’t call you very often when things break, so they don’t want to bug you. They fix it themselves. You just end up with the perfect investment as opposed to the job of now managing 15 properties to get the same result where it’s a constant headache from the tenants that are asking you for everything every month. Robert Jones: Yeah. If you’re an engineer and you could design a Canon laser printer that just shoots out $100 bills, it’s that property. I mean, even being a hundred and, what is it, now? 135 years old. Like I said, there’s some different maintenance issues. It prints money. We make net probably 2,500 a month off of one property,- David Greene: That’s crazy. Robert Jones: … which, like you said, for the basic investor or the first-time investor, when we bought it, it lost two to $300 a month. Brandon Turner: Yeah. Crazy. Robert Jones: Just rents compared to mortgage. Not even factoring in the maintenance. They would have ran it through your whole calculator like, “Oh, my god. This thing leases a thousand dollars a month.” So, it didn’t pan out just looking at just by the numbers in a calculator at all but seeing the bigger picture, it’s our favorite property. It’s our baby. Brandon Turner: That’s cool. That’s cool. I like that story a lot. It’s neat. I also have a property that was, I think it was 1888 or 1890. That’s one of my, if not my favorite, one of my favorite property that I really like it a lot. Yeah. There’s a little bit more different maintenance. I don’t have bad maintenance concerns there but a little bit. When they do happen, they’re a little more expensive to deal with. Robert Jones: Yeah. $10,000 boiler and … Brandon Turner: Yeah, yeah. It’s like a little bit annoying stuff but overall, man, that property just prints money for me, too. So, anyway, very cool. Brandon Turner: All right. We are going to move on. Rush, you’re going to skip the fire round because I don’t have any fire round questions because I don’t have a computer in front of me today and those are the ones from the forum, so we’re just going to bypass that completely and jump right into the famous four. Brandon Turner: All right. The famous four. These are the same four questions we ask every guest every week and we’re going to throw them at you right now. Number one, Robert? Robert Jones: Yes. Brandon Turner: Favorite real estate investing book. Robert Jones: I don’t know if I’d say favorite but most impactful, Rich Dad Poor I have to defer to everybody. Brandon Turner: Nice. Robert Jones: That’s what got just the candle lit of, “Hey!” And, for me, I didn’t have … My parents are amazing. They taught us all sorts of great things but as far as a depth of financial education, short of, “Hey, don’t go into a bunch of debt. Buy a house when you’re young.” Beyond that, I don’t know that I knew the term asset and liability and some of those base foundation blocks. So, it was instrumental in changing our thought process on that. Brandon Turner: Cool. Yeah. Number two. David Greene: Next question, what is your favorite business book? Robert Jones: Business? I got to cheat and say a few. Brandon and I were talking that I love Audible and that you can crank it up to 2X speed so I can just cram so much more in. Pieces of a lot of books. Never Split the Difference, Chris Voss recently. There was some gold nuggets there that were just exceptional. Brandon’s delightful wife Heather Turner and The Book on Managing Rental Properties by BiggerPockets. That for my business, I’m ashamed to say that until more recently this year but it will change my business in the way I manage my real estate business in that the hours it’s going to save me of explaining this to every single young investor I work with because I do. My business, I built a lot of young investors. We’ve got a lot of young guys that are … I’ve got a buddy that owns 11 doors, another one with six, another one with eight. My little brother, Ben, 24 years old, is working on his fourth unit right now. Brandon Turner: Oh, no way. That’s awesome. Robert Jones: He’s got a legal duplex, finishing a basement, kicking butt. Brandon Turner: That’s awesome. Robert Jones: For those young investors, again, David talks about ramping up a high-volume real estate business, I don’t have the time to go through some of that. So that book, I’m excited. Brandon Turner: You can hand these out. Robert Jones: Oh, I’m going to go buy 15 copies to keep in my office and just every closing, “Hey, read through this.” Brandon Turner: That’s funny. Robert Jones: “If it doesn’t handle the topic, give me a holler. We’ll spitball through it.” So that’s exceptional. Robert Jones: What else? There’s an older book, Smart Talk by Lou Tice. Brandon Turner: I don’t know that one. Robert Jones: For Mindset is very good. The 4-Hour Workweek, parts of it. If I could take 25% of each of these books and just jam them together, it’d be the unicorn of business books. Brandon Turner: Was that a coconut just fell? The sky is falling. David Greene: Right. You got to go get that, Ryan. We got to show these people what this is. Brandon Turner: That’s hilarious. Yeah. It’s like everyone’s all sitting in my office here. All of a sudden, I hear thunk, dunk, dunk, dunk, dunk, dunk, splash. I think a coconut falls off a tree, bounces down. Robert Jones: Into the pool? Brandon Turner: Yeah. Into the pool. This time, it did fall in the pool, this one. David Greene: It sounded like it might have put a [crosstalk 01:09:24]. Robert Jones: Yeah. Brandon Turner: There we go. Look at this thing. David Greene: Maui fresh. Brandon Turner: Maui fresh coconut. We’re going to have to cut this thing open later. Isn’t that cool? Here. Want to catch? It’s heavy. Nice catch. Brandon Turner: All right. Anyway. Funny. Okay. Where were we? We were talking business books. Robert Jones: Business books. Yeah. Brandon Turner: So, next, David. David Greene: Next up, what are some of your hobbies? Robert Jones: Hobbies? I like working on houses. Brandon Turner: Nice. Robert Jones: We like traveling like we talked about, venturing into sailing. We’re not big sailors but we will be. Lot of old man sports, softball, volleyball, mountain biking, off road and all that stuff. We stay pretty active. Brandon Turner: Cool. Yeah. Brandon Turner: All right. Last question from me. What do you think separates successful real estate investor from those who give up, fail, or never get started? Robert Jones: Probably grit. I mean, it boils down to … Or I’ve heard it defined as do you have a big enough why? Your why doesn’t even need to be real estate. Why do you want to invest because if you don’t have a passion or … I mean, everybody’s … “Yeah. I want to make some money. Yeah. I want to be rich,” but no one’s willing to do what it takes to do it. If your why’s big enough, I think you’ll find out how. Yeah. And some bravery, taking that first step, just getting after it because there’s no excuse any more for education. There’s no excuse anymore for ability. In the land of the free in the USA and the knowledge that’s available, those are not excuses anymore. You just got to want it bad enough to get after it. Brandon Turner: I don’t think we’ve talked about … I don’t know if anyone’s ever used that word bravery before here on the show for that, answer that question. Can you think that ever been given, David? I can’t. David Greene: Nothing even close to that. Brandon Turner: Bravery! But I love that. And some level, you have to be willing to just go, “You know what? I’m scared. I’m going to do it anyway. I’m nervous. I’m going to do it anyway.” Robert Jones: Yeah. Well, if you’re that guy like us, the first rentals, join the real estate and a company, mind you, that the desk fee’s … Well, with an office, 37,000 a year desk fee. We had $900 in our checking account, or if you’re in that market. If you’re in Detroit or Kansas, whatever else and you’ve got $50, there’s ways to buy houses. You just got to get through enough nos to find the guy that says, “Yes,” which … But if you’re in that situation, who cares if your credit score gets screwed up. You know, like get after it. That’s the time to take on the risk. Brandon Turner: Yeah. Do it, anyway. Yeah. Robert Jones: Be brave. Be bold. David Greene: Well, you gave a good example on your deep dive about how you did that very same thing. Didn’t have any money. Made it work for the other person. All the pieces were in place because it was a great deal. You could add value to the rent. It was a really good location. You just went all out and said, “Whatever I got to do to get this property, I’m going to do it.” and it wasn’t even that hard. It was like, “Oh, yeah. Okay. I can do that.” Robert Jones: Yeah. Your self-talk is telling you, “Oh, this is a little bit scary,” but like you said, “Everybody was stoked and smiling and laughing at closing.” Be bold. Be brave. Get after it. Or find a why. If you don’t have a why, find a why. Brandon Turner: Yeah. Very, very good. Very good. So, David, I’ll let you take the last question and then we’ll wrap this thing up. David Greene: I like that. I like that find a why. We should write a blog post on that and put the cover of alphabet soup, like some got to get a spoon in there looking for the Y in the alphabet soup. Find a why. Brandon Turner: Well I was thinking we should get a t-shirt that says, “Find your why,” and you can do the alphabet soup. Find your why. Yeah. David Greene: That’s even better. That’s why you’re the marketer. [crosstalk 01:12:46]. Brandon Turner: I’m the marketer because then we can sell it for $20 and make $5 a t-shirt. David Greene: A lot of good … Robert Jones: Like you said, if you want to sit around watching Dancing with the Stars, you don’t need rentals, right. Brandon Turner: Yeah. Who needs it? Just sit around watching Dancing with the Stars all day. David Greene: In your T-shirt. Brandon Turner: All right. Last question. Robert, this has been fantastic. I’ve really loved you as a guest. I also think I should point out that you sound a lot like I think Brian the Dog from Family Guy. Robert Jones: Fantastic. David Greene: And we did interview Mark Hentemann, one of the producers of Family Guy so if ever need a job and he needs a backup for Brian, I think we can probably connect you with that. Brandon Turner: We can [crosstalk 01:13:16]. Robert Jones: Yeah. If we need some additional voice for … I can get some additional streams of income so go abundant style here. Brandon Turner: There you go. Yeah. Robert Jones: I can do voiceover Brian. That’d be great. David Greene: God. You’re like the perfect guest. David Greene: Okay. For those who want to buy a house in Colorado, sell a house or just simply learn more about their fascinating brain, how can they find out more about you? Robert Jones: Yes. I’m not on a lot of platforms but my website is easy. It’s robertforrealestate, Robert F-O-R- Brandon Turner: Oh, F-O-R. Robert Jones: … real estate. So, really easy. Robertforrealestate. You can’t forget it. It’s stuck on my truck. It’s on my scooter, my bicycles. My wife says I should tattoo it on my forehead. Brandon Turner: You probably should, backwards so you remember it [crosstalk 01:13:50]. Robert Jones: Yeah. That way if you’re- Brandon Turner: Yeah. In the mirror. Robert Jones: … looking at a mirror and you can see it and … But yeah, that’s easy. That’s where I’m at. Brandon Turner: robertforrealestate.com. Robert Jones: That’s it. Brandon Turner: Cool. All right. This has been a fantastic show. Thank you very much for joining me in the sea shed. Not the she shed. The sea shed today and … Robert Jones: The she said by the sea shed. Brandon Turner: Yeah. The she shed by the sea shed. And I don’t know. I’ll let David, you take it out today. David Greene: All right. Thank you very much, Robert. This is David Greene for Brandon speed dating real estate bachelor Turner, signing off. Watch the Podcast Here Help Us Out! Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it! This Show Sponsored By Fundrise enables you to invest in high-quality, high-potential private market real estate projects. I’m talking anything from high rises in D.C. to multi-families in L.A. — institutional-quality stuff. And each project is carefully vetted and actively managed by Fundrise’s team of real estate pros. Their high-tech, low-cost online platform lets you track the progress of every single project, and keep more of the money you make. Oh, and by the way, you don’t have to be accredited. Visit Fundrise.com/biggerpockets to have your first 3 months of fees waived. 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Links from the Show BiggerPockets Forums BiggerPockets Webinar GoBundance Audible Federal Housing Finance Agency BiggerPockets Podcast 280: The Key to Making Great Deals (Hint: Overlooked Properties!) with Mark Hentemann (Writer for TV’s Family Guy!) Books Mentioned in this Show Rich Dad Poor Dad by Robert Kiyosaki Never Split the Difference by Chris Voss The Book On Managing Rental Properties by Heather and Brandon Turner Smart Talk by Lou Tice The 4-Hour Workweek by Tim Ferriss Extreme Ownership by Jocko Willink Tweetable Topics: “A system creates freedom.” (Tweet This!) “We want the number to make sense without appreciation in the spreadsheet.” (Tweet This!) “Cash flow gives you freedom but appreciation gives you wealth.” (Tweet This!) Connect with Robert Robert’s Personal Website Free eBook from BiggerPockets! 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Two of the best strategies for getting started with real estate are: Go the FHA route, and buy and move into a house for 3 or 3.5 percent down. Turn that property into a rental. On an upcoming episode of the BiggerPockets Podcast, Brandon Turner sits down with real estate agent and investor Robert Jones to discuss whether people thinking of selling their home should rent it out instead. Below is a snippet of the interview, which will be released in its entirety June 27th. Should You Sell Your House or Rent It Out? Brandon: Buying property with an FHA loan alone doesn’t mean it’s going to be a good deal, right? But what you did, you bought a fixer-upper or something that needed to be a total remodel, and you did the work yourself—so sweat equity. You got in there. But then the second thing you did that was cool is that you turned that first property into a rental. That’s probably the number one way that I hear people get into real estate, “Yeah, I just turned my house into a rental property.” Do you advise that for other people today? Because you, as an agent, you’d probably rather have them sell because you get money. Robert: No, absolutely. Investment real estate is a big part of my business—for building millionaires, building investors. So if the property makes sense, which most of them do—especially younger clients of mine, they’re living in houses that would make good sense as a rental—that is my absolute first and foremost advice. And even looking at tax strategies. You still have three years to make a decision, moving out of your primary, with capital gains rules. So yeah, I advise people to keep their existing home if they have the ability to. And the laws related to qualification and income—even for new landlords—that’s eased up over the last couple years. So it makes that transition easier as far as qualifying for both mortgages. There’s much more leniency there now, too, compared to a few years ago.   Brandon: And if people are wondering what that means about the capital gains thing, I’ll explain that real quick. Correct me if I’m wrong here. Basically, the government says, “Hey, if you live in a property two of the last five years, you don’t have to pay capital gains when you sell. And again, we’re not CPAs, but the gist is you’re not paying cap gains if you live in the house two of the last five years. It doesn’t mean the immediate two previous years, it just means two of the last five. So I actually did the same thing recently. I lived in a house for several years, sold it—I think I made like $85,000 in profit. Well, I shouldn’t say I sold it, but there was two years in between when I stopped living there and when I sold it. I still got to claim that two-year thing, because I lived in there two of the last five. It just wasn’t the immediate recent two years. So that’s why you have a couple years to decide. So a lot of people ask me that question: should I rent my house or should I sell it? And it’s a hard question. I mean I like to say, “Yeah, you should just rent it out, because it’ll get you into real estate.” But if you’re going to lose a hundred grand in taxes, then maybe you should have just sold it and dumped it into something else. What do you usually tell people when they say, “Should I rent it or sell?” Robert: Yeah, 95 percent of the answer is, “Keep it as a rental.” If they have the fortitude or personality type that it’s going to work and if it’s a house that makes sense… which in our market, most houses will rent for what your mortgage is—especially if you got the mortgage a few years ago. And even if it’s running skinny, if you only own one, two, or three properties, you can take on a little bit tighter deals, as opposed to say owning 10, 20, 30. So I think you could be a little more risk tolerant in the beginning on deals that might be a little tighter. Are you debating between renting and selling? Do you have any follow-up questions for us?  Leave them in the comment section below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you