Brandon: What’s going on, everyone? This is Brandon, host of the BiggerPockets podcast, here with my co-host, Mr. David. David, what’s up, buddy?
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David: Not much, dude.
David: I’m feeling great. I just got back from San Diego. I was taking a class down there, a Keller Williams class on how to become a presenter, and actually almost sent you a video from there.
David: I learned a new way of giving a presentation that’s like, very, very solid method for doing it. And you know what? I’m going to make you a video today, showing it off, and send it to you so you can see how it works.
Brandon: Oh, you should. And then maybe you should make a blog post or a video and put it on your Instagram.
David: There we go. There we go.
Brandon: And then other people can learn as well, so do that.
David: If you guys go on my Instagram, @davidgreene24, and don’t see that video, then you know I’m a slacker.
Brandon: Okay, there you go. Now you got some reason to be … because presenting, not just in front of a audience, but in front of people, deals, potential lenders, that’s such a valuable skill. I’m anxious to learn what you’ve got to to say, so very cool.
Brandon: Which actually leads us to today’s quick tip. It actually doesn’t lead us there at all. I completely made that up. It’s completely different. Today’s quick tip, actually, David and I were talking about before doing the intro, what we wanted the quick tip to be. And we realized a lot of people have one preferred way of learning. They want to learn on a podcast, and they listen to podcasts all the time, and that’s all they do for learning.
Brandon: What we want to encourage you to do today is find a way to add another medium or two into your learning. If you like podcasts, which obviously you’re listening to this one, that’s great, but maybe add a webinar onto your thing. We do webinars every week at BiggerPockets. Maybe pick up a book. If you’re not a big reader, maybe say, “You know what? I’m not a big reader, but I’m going to become more of one, or I’ll going to listen to Audible and listen to some more books.”
Brandon: And just find a way to add a different dimension, because every way of learning has a different way of that information being processed in your head, which might give you a different take or a different idea, different strategy, plus it just opens up the world of education to you. So, find a different medium for learning that you can learn and grow and expand in life.
David: That’s beautiful. I’ve noticed one of the things we learned in this class was different people learn differently, so you incorporate all these different techniques into your speech that you’re giving, to get the people engaged. You ask questions to get the room talking to you. You give them an exercise to do to get their brain working.
David: And as you were talking, I realized that’s what happens on webinars. When you’re at a podcast, you’re just listening to other people talk. You’re not engaging. But during a webinar, you’re doing exercises to learn stuff for yourself. During a Facebook Live, you’re asking questions so your brain has to be thinking of, “Well, what would I want to know?”
David: And it really engages you and pulls you into the content as opposed to just listening to a podcast where you may be thinking in your head, “I wish that they had asked this part right here,” but you don’t really get to do anything about it, so it’s kind of like using different muscles. You always want to change out your workout. It’s the same way with your learning.
Brandon: There you go, there you go. All right. Well, before we get into today’s show, and you guys are going to love today’s show. We’re interviewing a fantastic woman named Whitney. Whitney got started, she had a goal of getting one deal, and she talks about how she completely … You guys got to hear it. Like, she completely blew that goal out of the water her first year in real estate, her first full year, which is awesome.
Brandon: We talk a lot about the REI spectrum, is what David here calls it, the real estate spectrum. Basically like, different ways of finding deals and as you move along that spectrum, you can get better and better deals. Make sure you listen for that, especially if you’re struggling finding deals today in this market.
Brandon: And then, she tells this really funny story early on in the interview about how a bus, yes, an actual bus, fell through the roof of one of her houses. Did I say “roof” or “roof”? I don’t know. People make fun of me for that word all the time but I’m just going to stick with it.
Brandon: So anyway, that’s our show today. We’re going to get to that in just a second. Before we do, let’s hear from today’s show sponsor.
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Brandon: Now, I think it’s time. You think it’s time, David ?
David: I am ready. This is an exciting show. Let’s jump right in.
Brandon: All right, Whitney. Welcome to the BiggerPockets podcast. Good to have you here.
Whitney: Thanks for having me on.
Brandon: Yeah. So let’s talk about your real estate journey a little bit, because I know next to nothing about you. But you do real estate, I’m assuming, unless we’re talking about something else today. We’re going to go …
Whitney: Am I in the right place? No.
Brandon: Yeah, I think it’s … The underwater basket weaving podcast was down the halls. Dang it. All right, no. Let’s talk about your journey. How did you get into real estate? What came before, and then how’d you get into that very first deal?
Whitney: Well, my first deal was actually an excellent landlord type deal. Bought a house in 2002, with my significant other. Closed on the home, and about a month later, the relationship unraveled and here you know, I have a house that I have to pay bills for.
Whitney: So, shoved it full of roommates and also needed to update it. It needed probably about $10,000 worth of cosmetic rehabs, so my roommates had to be able to live in a construction zone. And fast forward, 11 months later, I had not only not paid for any part of rent or mortgage, I had $300 in my pocket, and then I had pushed the value on the house to $52,000.
Whitney: So, sold it. Thought I was the coolest thing since sliced bread. Invested in a mountain home in Colorado, violated every mutable law of real estate, and purchased a home and nearly lost it on that second deal.
Brandon: Well, what happened? What went wrong?
Whitney: I mean, everything. Everything. So I bought that, I probably overpaid for the house. I purchased it in a very bad area. It had 19 steps from the parking area up to the deck. Most people who were looking to purchase a home from me when I was looking to sell, they’d only get to step number eight. Mind you, it’s 8000 feet, and they’re out of breath. So they’re like, “No, thanks. We’re going to turn around and drive away.”
Whitney: And anyways, by the time I held onto the property, I had sunk cost and sold it two years later. I broke even, and almost got sued in the middle of it. That’s a whole other story.
Brandon: Ooh, that sucks.
Whitney: Yeah. My neighbors’ bus fell into the roof of the house four hours after closing.
Brandon: Wait. The neighbors’ bus fell into the roof?
Brandon: Explain this. How does that happen?
Whitney: So, during the process, during the inspection process, the inspector flagged the back retaining wall of my … It was built into the side of the mountain, and said that the retaining wall was compromised, so the buyer forced me to repair the retaining wall, and we used his contractors, his engineers, all of his city contacts to get the wall rebuilt.
Whitney: My realtor just said, “Hey, sign this clause saying that you’re only going to bring X amount of dollars to closing to pay for the wall.” Which, I believe it was $6000. The wall ended up costing about $27,000 by the time it was all said and done.
Whitney: And the whole entire time, I was just saying, “If my neighbor just moves their bus, the wall’s going to be fine.” Well, of course they moved the bus in order to repair the wall, and as soon as the wall was finished, my neighbor moved the bus back into position, and this bombproof wall collapsed within about 48 hours of the bus being moved back into location.
Whitney: Yeah. So, that’s a really tenuous time right after you close a house, because you’re just like, “Am I going to get sued for this?” So in the meantime, I met my husband and he’s just watching this whole thing, just this entire spectacle unravel. And closed the house, realized I’m done. My liability is over with.
Whitney: And I’m like, “Hey. I got this figured out. I know what to do next. Let’s go invest in the house.” And he was like, “You’re crazy. No way.” So, we just kind of sat on that for a couple years, purchased a couple personal residences here in Boulder and traded up into what our house is now.
Whitney: And then it was in 2016 … My husband works for the government. We really just were looking at our situation. We’re married. We have a child, and we realized that his benefits plan with the government are just really at the pressures of what … you know, of politics. And so we were like, “Nothing’s really sacred in this case, so we need to kind of take action here.”
Whitney: My job also had a expiration date on it, and we were like, “Here, in about a year and a half, we could have nothing that we had built our future on, so what do we do?” We went and bought a house and we started off there.
Brandon: All right. So, interesting. I’ve never had anybody on this podcast tell us their journey started with a bus falling through a roof, so you’re the first time there. That’s crazy. All right, so how do you … Walk us through that mindset change. I mean, I know you had a success the first time, kind of accidentally, you got some success. Then you got some, we’ll call it “failure” for lack of a better term, or at least an interesting learning experience, the second time around.
Brandon: That mindset of going from, “That sucked.” Like, most people would go, “I’m never buying a piece of real estate again. I am never going to invest in real estate. I never want to get sued again, or the threat of that. I don’t want a bus to fall on my building.” How did you go from that to, “Now I’m going to invest in real estate?”
Whitney: I think for me, I was always cultivated. That was the mindset that I brought with me, because growing up, my dad, he was in the Air Force so there was no failure. It was lessons and learning the whole entire way.
Whitney: I also was a collegiate athlete, so that kind of aggressive mindset is just something that I have naturally grown up with. I think what I’d watch my husband go through the transformation, and looking at my failures and then taking a step back going, “You’re nuts.”
Whitney: But when I logically drew out the number on paper and I showed him what I had done and what we could do and the power of real estate going forward, it was just a no-brainer. I just had to break it down step-by-step, show a logical progression and that there’s actual returns in what the power of real estate could do.
Brandon: Yeah. So what did you guys do, then? 2016 comes, you decide to get into real estate more heavily. What was the first thing?
Whitney: 2016, we put a house under contract on Christmas Eve. Which, by the way, holidays I feel are the best time to buy a house.
Brandon: Me too.
Whitney: So, our goal was to buy a house the first year, two houses the second year, three houses the third year.
Whitney: Take a nice, gliding path. We bought 10 the first year.
Whitney: So, I mean, hey. Between actually changing our mindset, pulling the trigger, within a month, we had a house under contract. And we’re like, “Well, wait. 2017 hasn’t even started yet. We’ve got to … So we did one in 2016. Now we need to do two in 2017.”
Brandon: You did 10.
Whitney: And we did 10. The second house really didn’t come that easily for us. We had put our capital into a very expensive market. We bought here locally in Colorado, and our goals weren’t aligned with what our actions were. So, here we were, saying that we needed to replace income and have cashflow, and we bought an asset that barely cashflowed after you put aside all the expenses.
Whitney: And anyways, so we paused after our first investment, and said, “Okay. All these other people are investing out of state. It can’t be that hard. We just don’t know what to do.” So, our next four investments were turnkey investments, which worked for us. We learned about other markets. We learned about working with property managers.
Brandon: Before you walk into the next one, can you define “turnkey” for those who don’t know what that is?
Whitney: Yeah, definitely. So, turnkey is where you’re buying a house that has already been rehabbed or fixed up, and it has a tenant in place. So essentially, the day that you close on the property, you’re collecting rent. You don’t have to negotiate the price of the property. You don’t have to negotiate any part of the rehab. You don’t have to work with the contractors. You don’t even have to find property management or lease out the tenant. All that’s been done for you beforehand. Somebody else is actually earning the equity on the house when that happens, so really, you’re just getting the rent paycheck.
Brandon: It sounds like a dream.
Whitney: Yeah, definitely. For us, we’re like, “Yay. We’ve figured out a replace income.” And then we’re just sitting here looking at other properties, other people’s successes, like David posting on BiggerPockets. And I’m like, “Wait a second. He’s doing this. How do you get on that side of the deal?”
Whitney: So we dabbled a little bit. Our next two properties, we purchased off the MLS. We didn’t have any major rehab that had to be put into them, but we bought them for below market value, so we were able to push a little bit of equity in them. We placed our own tenants, so we kind of worked out the property management piece that way.
Whitney: And then, that brings us to about 10 in a year later, and I said, “Okay. I’m looking at our capital reserves. I don’t have that much money left. We have to figure out how to do our own rehab investment.” So I went to my property managers and said, “Hey, would you ever walk us through how to do this?” And one of them said, “Yes.” And so that’s where the-
Brandon: Like, actually walk you through how to rehab a property?
Whitney: Yup. Walked us through purchasing the property, doing the project management on the property. They handled all the contractors, thankfully. And we placed the property with them, once the rehab was done, and away we go.
Brandon: Wow, okay. So I want to go back a little bit, and then move forward to that point.
Brandon: You started with these turnkey properties. You’re looking at them, realizing, “I think we can get better returns. We can buy them cheaper.” Because the thing I’ve always looked at, there’s a lot of pros and cons with turnkey, right? People ask me all the time, “What do you think about turnkey?” And I can share my thoughts real quick, you can share yours. Maybe we’ll ask David if he wants to chime in his.
Brandon: But basically I always think like, yeah, with turnkey, it could be very hands off. Typically, I don’t usually trust the numbers that turnkey providers put out there. I mean, some turnkey providers are great, and some are awful. Some are like, “Oh, yeah. Properties never go vacant. Don’t worry about vacancy, or maintenance. We already fixed it up. You don’t have any maintenance ever.” And I’m like, “That’s not true.”
Whitney: Not true.
Brandon: Yeah, not true at all.
Whitney: 100% not true.
Brandon: Yeah. But then again, if you’re in an expensive market and your time is best spent working your job because you make really good income at your job, well, yeah, maybe you shouldn’t be out there spending all your time finding deals. So that’s kind of my thought. There’s pros and cons to it, but what do you … I guess I’ll go Whitney first, then we’ll go to David. What are the pros and what are the cons of turnkey?
Whitney: Well, I think you did a really good job addressing the pros. For us, I mean, you have to think about my position. I was working full-time. I knew my job actually had a expiration date, so I was also trying to find another job at the same time. I’m a wife. I’m a mother. My husband, he’s doing his own full-time work, and we just literally … Time was very valuable to us, and so I knew that I wanted to get started out of state.
Whitney: I didn’t know the markets, and we had the means at that point in time to pick up one or two and start learning the different markets, different property managers starting, and trying to figure out how the whole thing worked.
Whitney: And turnkey, for me, got me in the game much faster than it would had if I had just sat there and kind of tried to pick away and put together my whole system, and dive right into BRRRR investing. So for me, it was kind of an easy glide path.
Brandon: That’s a great point, because David and I always talk about, the first deal, the first couple deals you do aren’t going to make or break your life for the most part, as long as you don’t buy a awful deal. But just doing something gets you along that path. So you’re basically saying, “Hey, we just did something.” It didn’t have to be a home-run deal. It might have been a very base hit, but whatever. It got us in the game. It got us learning. It got us growing. It got us moving. David, what do you think on that?
David: I think turnkey works really well in this case with Whitney as a transition piece. So I know I want to get into real estate investing, especially out of state investing. That can be even scarier. But I don’t want to jump right in off this 50-foot cliff. Why don’t I go to the diving board of the pool, and I’ll jump in from there, and I can … This is how water feels. This is what the impact felt like. Okay, now I know what I’m getting into. I can handle more than this.
David: And the you take your next step, because maybe out of turnkey and into a move-in-ready MLS house. Not a big rehab, not a whole lot, but you had to work with an agent. You had to get it yourself. You had to do a little bit of repairs. You don’t do anything crazy that can cost you a lot of money, but you did get the cadence and the rhythm down of how it works with dealing with contractors, what a property manager does and what they don’t do. Because in the beginning, you don’t even know what you have to do and what they’re going to be doing. It’s just all a mystery.
David: So then you kind of wade in a little bit deeper with that. Then maybe you go into a MLS property that’s a fixer-upper. Not a complete tear-down. You’re not building a whole new building, but it needs a pretty big rehab and you manage that. Now you’ve got enough tools in your tool belt, enough experience you can get into the heavy stuff where you can pick up big chunks of equity on every deal.
Brandon: That’s a good way to explain it.
Whitney: Yeah. I mean, and truth be told, we just sold off five of the six turnkeys that we had, and made a 55% return in under three years.
Whitney: So, yes. Could I make more? Absolutely, doing BRRRR investing, but I’m not sad about a 55% return.
David: No, especially because you might not have ever got to BRRRR investing if you wouldn’t have started with those turnkeys, right? We wouldn’t be sitting here.
Whitney: We wouldn’t.
David: You’d be listening to the podcast.
Whitney: We probably wouldn’t be talking.
David: “Oh, I wish I could buy my first deal.” That’s where you’d be.
Brandon: All right, so walk us through this. You got into doing your own a little bit. You eased into a rehab. You got some help from a property manager. How did that … That was a BRRRR property, right? Was that your first BRRRR?
Whitney: That was my first BRRRR, yes.
Brandon: Okay, so walk us through that property. Where was it? What’d you pay for it? What’d you end up doing to it?
Whitney: Yeah, so the first BRRRR property, it was in Kansas City, Missouri. We picked it up for $60,000. It was very competitive, though, at the time. So we put down cash. The rehab on it was only 10 grand, so very cosmetic, very light, and it rented out for $950.
Whitney: So we can do the math on the return there, but for me, that was kind of a slam dunk because I was like, “Okay. We’re not getting into foundations, roofs, HVAC, water heaters, nothing like that.” It was a very rentable market and I had already worked out it … because I had purchased it cash, I had not figured out the hard money lending or private lending.
Whitney: So I had already talked to my conventional lender and he said, “Yes. I will re-finance out the $60,000 to you as soon as you get a tenant in place.” So I felt comfortable at that time leaving $10,000 in. Again, kind of dipping your toe in the water. It was a good first BRRRR for us.
Brandon: Yeah. I think a lot of people, when you hear the word “BRRRR,” we talk a lot about BRRRR investing. For those who don’t know, “BRRRR” basically means you buy a property, rehab it, rent it out, so now you’ve got a nice, fixed-up property. Rent it out, you refinance it. So you go to a bank just like Whitney did. She went and got the 60k back. She paid cash for it. Later on once it got rented out, got the 60k back, so now she could repeat the process. Buy, rehab, rent, refinance, repeat. That’s what we’re talking about here.
Brandon: And a lot of people, I think they hear stories that maybe we talk about on the podcast or I say or David says or somebody says about BRRRR, and they feel like they have to get all their money back or else it’s not a real BRRRR deal.
Brandon: But like, I leave money in BRRRR deals all the time. There’s nothing wrong with that. If you have capital, especially, it’s not a big deal. Ideally, the perfect BRRRR, maybe you get all your capital back and you go invest it elsewhere and it’s a true no-money-down thing, but I don’t think people should ever feel sad that they left some money into a deal.
David: Yeah. If you were going to be leaving 40 grand in the deal and you only left 10 grand in the deal, that’s still a success, you know? Is this, by any chance, Whitney, is this the deal you were going to go over on your deal deep dive?
Whitney: It was not, no.
David: Okay, good. So let me ask you. What did you cashflow on this thing a month? Do some quick math.
Whitney: I don’t have that exactly in front of me, but …
David: Give me an average number of one of your average deals with this.
Whitney: So, I always set aside CapEx maintenance reserves. So, if you look at it with that calculated in, it’s $450. I only set about 200 of that, for kind of play money.
David: So right around 250 a month is what this one would probably cashflow, right, on average? So that’s $3000 a year. If you divide that by the 10,000 that you left in this deal, you’re looking at a 30% ROI.
Whitney: Oh, yes.
Brandon: Which is awesome.
David: Pretty stinking good on a deal that most people would say, “Oh, you failed. You didn’t get all your money out.” Where else are you going to go get a 30% return? Plus whatever equity you added to the property, plus your rents are going to go up everywhere so that ROI increases [crosstalk 00:23:39]gets paid down.
Brandon: The loan now gets paid down. Yeah.
David: Yes, exactly.
Brandon: And the tax benefits and the appreciation … Yeah.
David: You’re starting off at a 30% ROI with only going up and that’s why we talk about BRRRR, why I wrote the BRRRR book. It’s why Brandon’s wearing a BRRRR T-shirt right now.
Brandon: I am, as we speak. Because we’re BRRRRos.
David: We’re BRRRRos. Yeah. Okay, so I’m very curious, because I also wrote a long-distance investing book, so you’re kind of talking about all the stuff that I love. Why Kansas City? How did you know that this was an ideal area?
Whitney: I had already picked up a turnkey in that area. I’d been networking heavily on BiggerPockets. We had several friends that also had invested in rental real estate in Colorado, but had come from different areas of the country and could speak really eloquently about those areas.
Whitney: And Kansas City was just one where, when we were evaluating markets, it was a market that was appreciating and getting good cashflow, so there’s several different terms for that, but a linear market, and that was a market that we wanted to be in.
Whitney: Also, it had good job growth, good income growth, wasn’t heavily dependent on any one job sector, so a good variation of jobs. And just visiting the area, it has a wealth of opportunity there.
David: Now, was this Kansas City, Missouri, or Kansas City, Kansas?
Whitney: All of our properties except for one flip is on Kansas City, Missouri.
Brandon: So, how do you know in an area like this, like you’re in Denver, which is not a quick afternoon drive over to Kansas City. So you’re a little ways away from this. How do you know one street from the next? How did you feel comfortable over in this area of Kansas City and not this one? How much research do you put into understanding the market? How much are you relying on other people? Because that’s the one thing that kind of scares me when I go into a new market. I’m like, “I just don’t know. That could be just the worst street in the world over there.”
Whitney: Well, it … I mean, this isn’t the approach that we took, and it’s one approach that we’ll be taking in different markets going forward, but literally just flying in, breaking out a map and then driving around the town.
Brandon: Love it.
Whitney: We relied heavily on property managers there and realtors, and also our inspector on the properties was an investor as well, so we were talking to different investors in the area. I think a pool of, all told, six before our first investment there, and just really getting to know their style, how they were investing, where they preferred, and you would map that out, there were three different areas that continually popped up. And so those were the areas that we were focusing on.
Whitney: One thing that I really like is investing near medical centers. It’s a good job pool. There’s always going to be the need for medical care, especially in markets where hospitals are expanding and not contracting.
Whitney: That’s not the case throughout the whole United States, so you can’t take that and move that to rural Oklahoma or anything like that, but in major metropolitan areas, house centers tend to be expanding. And so they’re relying on travel nurses, travel doctors, to come in. And those are not always who we rent to, but a good portion of our rentees.
Brandon: That’s great. That’s a great point. I never really think about it too deeply with the medical thing. I never look at that, but I probably should. But when I think about some of my best tenants over the past few years, a lot of them have been traveling nurses, traveling doctors.
Brandon: Some of our best tenants that stay … They don’t stay forever. They don’t stay years and years and years, but they stay for a good year, but they pay above average rent, especially when we offer … We’ve done a few units that are … What are they called? Like, already furnished.
Brandon: Furnished, yeah. That’s the word I’m looking for. And they’ve been great, because they pay a higher rent for that, and I’ve even had the hospital itself has paid their rent and the utilities and all this other stuff. It’s like, guaranteed money. And they always leave the places so nice and clean, every time I have those tenants.
Brandon: You know, I’m reading this book right now called … actually, funny, I have it sitting here. It’s called Clockwork by Mike Michalowicz. Hopefully I’ll get him on the podcast someday. Yeah, really good book. But in there, he makes this point about identifying what your best customer … It’s not a real estate book, but it’s a business book. What’s your best customer or your client if you’re a coach or whatever? Who’s your best customer or client?
Brandon: If you really identify what they are, how can you build a business around serving just those people by offering amenities? And so I’ve been thinking a lot about that lately, but I bet a person could go, “You know what? Our best client, or people we like doing, are near hospitals, so let’s buy near hospitals.”
Brandon: It just makes your entire business life easier when you start thinking of real estate in those terms, of your tenants are clients, they’re customers. What are our best customer and how do we get more of them? Buy near a hospital. It just makes a ton of sense.
Whitney: Yeah, and it’s an industry that I understood, so …
Brandon: Yeah. Is that what you did? Like, your job that you said you had to … It was going to come to an end. Are you in medical?
Whitney: Public health, so I was working for a community pharmacy at the time, so it’s just the whole medical arena was, it’s an industry I understood. And interestingly enough, before we did the first BRRRR and probably an impetus for us to getting into that, is I had lost my job. Like, that expiration date came.
Whitney: And so, most people would kind of take a kick in the teeth. And I did for a couple hours. I cried. Who likes being told, “We no longer need you”? That company was in the process of downsizing, so I didn’t take it personally. And I got home, but we had two houses under contract and I’m like, “Oh my gosh, they’re under my name. What am I going to do?”
Whitney: And I called my lender and the lender was like, “I can’t lend to you. I’m sorry. You’re kind of done.” Wait a second. My husband can buy a house. So by the end of the day, we had him approved. He was purchasing and closing on those next two homes, and of course, my husband was like, “Okay. We need to pause. What are we going to do about all this?” I’m like, “Hey. I just got my 401k back. We’re going to invest.”
Brandon: That’s awesome. Okay, I want to make a point. I want to pull something out that you said here, that oftentimes in my real estate journey … I’m sure, David, you’ve heard this as well, and I’m sure, Whitney, you’ve heard this. You hear a lender basically say things, maybe not in those exact words, but yeah, “You’re done.” Or, “You can’t do this.” Or, “It’s not going to happen.”
Brandon: What’s amazing to me is how little lenders know about … They’re not typically, most lenders I’ve ever met, are not ones that think, “Well, that didn’t work. Let’s try something else.” Most lenders I know go, “Yeah, doesn’t fit in the box. Sorry, you’re done.” So I just love that you’re like … instead of just taking no as an answer, you were like, “No, you know what? I’m going to keep thinking, how do I do this? Oh, my husband. He can get a loan.”
Brandon: People are always like, “Well, you can’t get more than 10 loans in your name. It’s against the rules.” I’m like, sure you can. Just get your spouse to do 10 and you get 10. Or go to a local community bank. There’s always other ways to get the stuff done, but so many people are just … They hear that lender say no and they’re like, “All right. Well, they know more than me, so I guess I’ll just give up and go back to watching TV.”
David: So, the older I get, the more I am convinced that most people, at their job, have zero idea what’s happening outside of the very tiny little specific world that they work in. Like, when you go to a Burger King, the girl at the cash register doesn’t know what’s happening on the fry machine. She’s like, “That’s not my job. I just do the cash register.”
David: Because as I talk to lenders and I’ll say, “Can I do this?” And they’ll say, “No, I can’t,” and I’ll just ask a question like, “Well, why not?” They should have the answer lined up. “Because of blah blah blah, these are the requirements. This is …” They usually don’t know. It’s like, “Oh, well, because we don’t do that.” Why don’t you go ask your boss if you could do that? And they come back, “Oh my gosh. It turns out we can do that.” Like, 80% of the time, there’s something like that or why not? And then they go ask and then they actually learn, so you’re helping them become better.
David: But Brandon, you’re 100% spot-on. There are so many people who I talk to and they say, “I tried these three things and none of them worked. There’s nothing I can do.” And I ask that same one question, “Well, why did they say it won’t work?” “I don’t know. I didn’t ask them that.” And then they call them and they ask and they come back, “Oh my gosh. This is awesome. They can do my loan. I just have to do this thing different.”
David: Just like you said, “It just has to be in my husband’s name.” But we’re relying on the person we’re talking to to some up with a solution for our problem, and unless you just get lucky and that loan officer wants the money enough to say, “Well, are you married or do you have a friend that could do a loan, or can you do it in an LLC?” then we’re never going to get the answer. So you’ve kind of got to start with taking responsibility for solving your problem, and then like Brandon said, relentlessly asking, “Why or how?” every single time you get told no.
David: So I want to ask, how many do you have in your portfolio now, Whitney?
Whitney: We have 20 … Well, 22 by this time this airs, I bet.
David: Okay. And the majority of them are in Kansas City, Missouri?
Whitney: Yes. Kansas City and Indianapolis.
David: Okay, awesome. So, what did you learn while scaling that … like, now it sounds like you’re really, really systemized. You don’t have a lot of anxiety, while in the beginning it probably wasn’t that way. Every single deal just feels like a cliffhanger and it’s so exhausting. What changed for you where you started to get comfortable where you’re okay scaling faster and buying more properties?
Whitney: Well, so my background is in logistics, systems and logistics and project management, so I think it’s really, for me, I had to learn the different pieces of the puzzle and then put checklists in place, and then make sure that I could hand that off and step out of that piece.
Whitney: But when you’re first getting started, especially if you jump into BRRRR, there’s multiple areas that you have to understand. So, what do I have to do to secure the initial loan? What do I have to do to get the initial … Well, obviously, the property under contract. You need the budget all drafted with the contractors, and then get it tenanted, and then get it rehabbed out, and make sure that you’re not dropping the ball on any one of those pieces.
Whitney: So I think really for me, putting together a checklist. A checklist is a system. You just check a box. I mean, David, I think I heard you speak to this really eloquently a couple weeks ago, it’s just like, you put together your checklist. You know, there’s several different moving parts and then you look to, once you get your checklist together, what app can you put in place, or what person can you put in place to take that over, to take it off your workload?
Whitney: I think for me, I fell into this too. I was trying to find all the cool apps and bells and whistles and stuff like that, instead of just actually stripping it down to simplistic steps and being like, “Okay. There’s a literal checklist and then I can get cute and fancy later with all the different apps and bells and whistles.”
David: That’s such a good point. I’m actually working on a book right now that I want to call Systems, and I’m breaking down … It was such an elusive concept that was so esoteric, just how do you build a system? And then I basically realized it was nothing more than a platform that I could write down a checklist, and then start to break that checklist down from big concepts to smaller tasks and then start assigning those tasks to either a person or a program. And at the end of the day, you’re left with 5% of it that you actually have to do.
David: And I’ve done this so many times now. I have a guy that I’m helping learn how to invest in real estate, and what we found is just analyzing a property, the only number that he actually has to do any work to figure out is the mortgage. The rest of it, you can make a spreadsheet or you can use a calculator that will automatically calculate all that for you.
David: The only piece that you even need to put into your phone, which is an app that will do it for you for free, is just the mortgage. But I see people sit down, every single deal they analyze, they want to do numbers for the whole thing and it takes them 45 minutes just to find out, “That’s not a property that works.”
David: And you do this more and more often, systems become a bigger and bigger deal, and I love that you’re saying that’s what took the pressure off of you, is you weren’t doing it all. You had a system doing it.
David: For those who want to do a rehab from a distance, this is a big scary thing. A lot of people get scared about this. What are some of the systems that you’ve put in place that have made that much more manageable?
Whitney: For me, it goes back to the team. So I really have pieced together a great team in both Indianapolis and in Kansas City, and I really heavily rely on those people and for me, the property manager is the key.
Whitney: I mean, they’re the key anyways in the investment, how the investment performs over the long term, but the property manager too can really help you kind of be the glue that holds everything together with the contractors, just managing all the different contractors and the subs from a distance. They’re going to also help you not over-rehab the properties, so keep your budget more in check.
Whitney: And then, even when you’re on the purchase side, they’re going to help, if your property manager’s involved, they’re going to be able to tell you whether that’s a good area to invest in, because if they don’t want to manage the property, don’t buy the property.
David: There you go. Yeah, so let’s talk about this a bit, because I think what you’re saying is the team is the key piece you need to manage a rehab, really everything, right? Pick out which property you want to buy, where you want to buy it, even how much you want to pay for it, your team can have some input in. So how did you go about building the team? Who did you go for first? How did you use them to help you … How do you tell if this person’s good or not? That kind of stuff.
Whitney: So, when we were getting into the turnkey side, picking up those initial properties, we interviewed about 40 turnkey providers between Indianapolis and Kansas City.
David: Whoa. That’s awesome.
Whitney: Yeah, and daunting.
David: Yeah, that sounds daunting but that’s so good.
Whitney: My husband was like, “We’re on another phone call?” He just lost track. He stopped keeping track at that point in time, but I had a spreadsheet. I had my system.
Whitney: So, for me, vetting the property manager, I think people really get drawn to like, “What are they going to charge me? How much are the expenses going to … Are they going to layer on a fee for any sort of maintenance? What is their average CapEx, their average vacancy?”
Whitney: Those are great. You have to know all those metrics because those are going to help you with your underlying underwriting, but for me, success looks like, “How are they finding tenants? How are they working with the different contractors? How are they handling tough situations?”
Whitney: If somebody says, “never had an eviction,” that’s a red flag for me. I want to know how you handled an eviction, you know? Because if they’ve never had an eviction, and maybe they have amazing tenant screening, but they haven’t been challenged in that way, because there will be somebody that gets into one of our rentals and if they’re going to just kind of take their head and stick it under the sand like an ostrich, then that’s a problem, and I’ve had a property manager do that before.
David: Me too.
Whitney: Also, I think we had went through this experience last year. We had part of our portfolio with a property management agency, another agency in town folded, so their business almost tripled, and then all of a sudden we’re non-existent to them. So we had to be able to speak up for ourselves and let them know what we needed as far as service, and then be willing to walk away and move the portfolio.
Whitney: So, that’s also something I really strive for. I always keep two property managers in the market that I know, like and trust, in case something happens. Either the portfolio’s getting too large for them, or something happens and service is going down. That way, we can easily move, take care of our investment and move it with a different property manager.
David: Yeah. I always have at least two in every single city where I have a rental property. I have my primary and I have a backup, because yes, you never know. But see, that in itself is a system. You’ve got a generator in case the power goes down, that will keep things moving until you get the power turned back on and you get another property manager.
Brandon: David “analogy” Green. There he is.
David: Well, you know. You know how they say when you go blind, that your sense of smell gets better or whatever? That was what happened when I lost my hair …
Brandon: Are you giving an analogy about an analogy?
David: Yeah. I went deep there, didn’t I? It’s a dream within a dream, like Inception.
Whitney: I love it how you take … He’s taking my rambling and making it sensible. I love it, thank you.
David: Oh, it’s not rambling at all. It’s really good. I think that … What I love about you, Whitney, is that you make me look smart because this is everything I tell people they should do, and you went out and did it, and you got 22 properties in a completely different state without being a hedge fund manager or something crazy. And you’re just like me, just the average Joe. I was a police officer. You worked in logistics. You went on. You built a huge portfolio, because you did it … I don’t want to say “on the backs of,” but by leveraging other people.
David: And one of the things that I’ve heard that you do really well that I really want to ask you about is, you don’t just leverage people. You’re leveraging the systems of those people. So you’re not just building your own system and sticking a person in there. You’re actually finding a person. They already have a system, and you’re leveraging that system to make your job easier. Can you tell us how you learned to do that and how that looks in practical terms?
Whitney: I read a book … just kidding.
Brandon: That’s actually the best answer in the world, just so you know. That’s my answer to everything, pretty much, is like, “I read a book.”
David: It really is Brandon’s answer to everything. I drop analogies and he drops book titles.
Brandon: Yes, pretty much.
David: That’s what …
Brandon: No. Like, literally, I was sitting on the deck the other day with a friend of mine who was visiting and he’s like, “Brandon, if you could just sum up your entire success story, why you’ve been successful in life, what would you say?” And I was like, “One word: Books.” That’s it. I’m just like, “I read books and I do exactly what they tell me to do, and then it tends to work because smarter people than me already figured out the system.” That’s it.
Brandon: But you can expand on that, I’m sure. Go ahead.
Whitney: Well, no. I’ll just bring in part of the conversation David and I were having earlier. You know, we started off building our portfolio. We got to 10. We picked up our first couple of BRRRR investments, and then David’s book, Long Distance Real Estate Investing, came out. I went, “I really want to read this book but I’m scared to.” Because you don’t know what you don’t know, and I didn’t know if I did it wrong, right? So you’re like, “Okay. I’ll go to class. I’ll read the book.” And there was a few light bulbs that came on for me.
Whitney: Like, at that point in time, I was still scrubbing the MLS, doing everything that I could to find all the deals, and I hadn’t been tracking the numbers because every deal that I had picked up, my property manager had sent me.
Whitney: So then I was like, “Wait a second. What am I doing? He’s finding all the deals. There’s my deal finder, right?” But I was just like, “I can actually immediately take back about three to four hours a week of my time.” That was mind-blowing for me, and his deals were great. I mean, it didn’t get me off the hook for continuing to analyze my own deals, but I was just like, “Now I’m going to dig deeper on his deals.” Like, when something hits my inbox, that one’s priority, and not-
Brandon: You know what’s great about that? Is this exactly ties into what I was saying earlier about this book Clockwork I’m reading, where they say, “Find your ideal customer or your ideal client.” The exact same thing here. Who’s your ideal deal finder? Where do you get most of your deals? And duplicate that, and build that system, because again, once you know what’s working already, and it could be working for you or working for someone else, just duplicate that over and over and over, and have your ideal client, ideal customer, ideal deal finder. I love that. I [crosstalk 00:42:16]that angle.
David: It’s so much more simple than people really think. Someone was asking me the other day, “Well, David, with your real estate agent business, how do you know where to go to find leads? What do you do? How do you know where to put your money?”
David: And I said, “I sit down at the end of the year and I look at where all my deals came from and I count them up.” Like, let’s say I did 40 deals last year, I believe. And I say, “This many of them came from open house. This many of them came from a sphere, and this many of them came from a meetup.” And I can see where most of my deals came from and I say, “Okay. This year, I’m going to do more of that thing.” It’s that simple. And then you just come up with a plan for how you’re going to do that.
David: That’s what you did, Whitney. You’re like, “Okay, I’m buying deals. Where are they coming from? My property manager is sending me deals. Okay, maybe I don’t need to be spending a ton of time doing direct mail and putting all this energy into looking for off-market deals or combing the MLS and going through emails all day long,” especially if you don’t like it, “Maybe I just need to sweeten the pot for this guy so he brings me every deal before everybody else gets it. And if he’s going to be managing it, it’s only his own best interest to find more properties for me to buy and them to manage.”
David: And I would even take it a step further and call them and say, “You’re doing a great job. What would it take for you to find more of these?” “Well, we would need this piece.” “Well, what if I help you with that piece?” Right? “How can I help you to make more money, to help me make more money?”
David: And boom, real estate investing is super easy. You’ve got a flow of deals coming to you that you don’t have to do the work for. That property manager has a whole company of pieces to make this work. They’ve got all the pieces of the clock that Brandon was talking about, all right? You don’t have to go find them and put them all together like we talk about. You just jump into what they’re doing. You skip to the head of the line and boom, you’re getting fed sweet deals all the time.
David: So, I love that you’ve learned to think that way. You’re not trying to build the entire building all by yourself. Brandon, would you agree that’s one of the main things that screws people up, is they think they have to learn everything there is about all of investing?
Brandon: Yeah. Yeah, definitely. Definitely.
Brandon: Hey, I hope you’re enjoying today’s show, but before we go any further, I did want to bring in today’s show’s sponsor. So stay tuned, and we’ll be back to the interview in just a moment.
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Brandon: Hey, let me tell you a story. One of my rental houses burned down. So I rented this tenant early on in my investing career, didn’t know what I was doing. Thought he looked good. I mean, I actually picked up rent in cash from this guy. I just did everything wrong you could imagine, right?
Brandon: And things went fine for a little while, but eventually the guy ended up just stop paying rent, was getting evicted, and then “accidentally” burned part of my house down. Crazy story, right? And that’s what people fear when they’re getting into real estate, is they’re going to have a crazy tenant experience.
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Brandon: All right. Well, let’s move on a little bit. I want to know, looking back now, you’ve got these 22 properties now. Are they all single-family houses, by the way? Or are them some …
Brandon: Okay. All single-family, which is cool. How has your investing been different? Looking back now what you’ve done so far, how has it been different than what you expected, both either good or bad?
Whitney: Well, I think one thing I … you know, getting into real estate investing, especially … Well, we started off in turnkey, and so that’s really passive until you actually have to start dealing with the issues. And the issues for us didn’t start coming in till like, about a year in.
Whitney: And I think that’s where our mind shift had to change, is that this isn’t … investing in single-family rentals, even if they’re at a distance, you’re still active. It’s not 100% passive, so even though we had passed everything off to a property manager, we’ve got out of actually self-managing our property here in Colorado. We sold it, repositioned the equity.
Whitney: We still have to make a ton of day-to-day decisions, so it was more hands-on than we would probably like, but we’re in total control, and I think that’s been kind of the monumental shift for us, is beforehand, we were heavily invested in the stock market. That’s where all of our money was, and we didn’t have daily cashflow and we weren’t in control. We had no say.
Whitney: And so, our mind shift in investing has been more on a high level, a 30,000-foot view, that we are now invested in a hard estate that we can control, we can pull levers on. We get to say when we sell it. We get to say what we sell it for. And holding it, and holding it in our portfolio, we’re generating cashflow. And I know the classic saying is “cash is king.” For me, it’s “cashflow is king.”
Brandon: Ooh, I like that. “Cashflow is king.” Very, very cool.
Whitney: Yeah. I can’t claim total … I don’t know where I heard it. I heard it from somebody.
Brandon: Well, I like it. Hey, what in your business do you absolutely love doing, that makes you feel alive, like you’re in flow, you’re doing it, like time disappears, you’re just like, in the moment? What is that? And then what for you just, do you just can’t stand doing?
Whitney: Well, I can start with what I can’t stand doing, which is bookkeeping.
Brandon: Yeah, me too. Yeah.
Whitney: And that is something we’ve dabbled with hiring it out, and we just haven’t fit a good fit for that yet. You know, actually piecing together the deals and understanding the due diligence and the underwriting and the initial part of the deal and putting in the offer, I really like that. I like running down that checklist and finding something that hits all the marks for us, and being like, “Oh, wow, this is a great investment.”
Whitney: And then, at the same time, you might have something that doesn’t hit all the marks. Maybe it doesn’t hit your cashflow number or doesn’t hit your rent, and then looking at what levers you can pull and seeing how you can add value to that deal to actually make it better, because it might be seeing an opportunity that somebody else hasn’t seen in a deal.
Whitney: So, we have a property that we picked up in March. It was another investor. It was a two-bedroom, one-bath home. The tenants were, I believe, getting evicted from their property, so that he was kind of in dire straits to get them out and get the property moved. And my property manager went and looked at the property and I’m like, “Really, it’s 12,000 square feet.” Or 1200 square feet. Wow. Not 12,000.
Brandon: Yeah, that was a big house.
Whitney: 1200. Yeah, 1200 square feet, and it’s a two-bedroom, one-bath. Are we sure about that? Is this a typo? And he went in, he was like, “No, it’s not a typo. It’s two-bedroom, one-bath.” And I’m like, “Is there any other place to put a bedroom?”
Whitney: He was like, “Actually, yeah, there is.” I’m like, “Okay, we’ll take the house.” We bought it for $71,000, put 8500 into it, fixed up, added another bedroom, corrected a minor thing on the foundation which was keeping other conventional buyers from buying it, which I have a funny story about that too. And then we just did kind of a paint, cosmetic overhaul, and it appraised for 112.
Whitney: Yeah, so that’s what I like doing is just kind of taking a look at something and being like, “What lever can we pull here in order to make that a deal that would fit our model?”
Brandon: That’s awesome. So, yeah. I want to know the story too. You said you had another story. But I’m also just, again, it shows you’re looking outside … I love that you’re looking outside what the broker … you know, like, “Oh, the listing says it’s two-bedroom, one-bath, so I’m just going to accept what they said. The lender said I can’t get a loan, so I’m just going to accept what they said. My mom said I shouldn’t invest in real estate so I’m going to accept what she said.” Like, not that yours said that, but like, people are always-
Whitney: She did, actually.
Brandon: Everyone like, it’s like, somebody else tells you, who hasn’t actually done it, usually, what you should do or what you shouldn’t do. Versus somebody like … you know, if David here, if I was going to go buy a house in Kansas City out of state and I was doing something, he’s like, “Hey, dude? I looked at your numbers. It’s not a good deal. You shouldn’t buy it.”
Brandon: Hands down, I should listen to David because he’s done it, right? If you told me the same thing, if you told me, Whitney, that I shouldn’t buy it, I’m going to listen to you. But when Joe Schmoe says, “Yeah, I heard real estate’s just not a good idea. You shouldn’t do it.” Or some lender … like, I don’t know. It blows my mind that happens. Anyway, tell us that story. You said you had another story.
Whitney: So, I figured out on another deal last year that you can actually … This kind of feeds back into the thread of somebody telling you no. We were closing on a property. We were buying it conventionally. We weren’t doing the rehab upfront to push the equity. We were doing it afterwards, because it only needed about 3000-4000 to put into it and it just wasn’t worth it to us to do a construction loan on it.
Whitney: So, we were buying it conventionally. The appraisal came back and the lender said, “I can’t lend on this.” And I’m like, “What are you talking about, you can’t lend on it?” And he was like, “It has an X on the appraisal saying that there’s settlement, so there’s an issue with the foundation.”
Whitney: And I’m like, “No, the foundation, we have it all certified with the inspector, with a certified foundation inspector, engineer, that there’s nothing wrong with the foundation.” He goes, “It’s on the appraisal.” I’m like, “Can we talk to the appraiser?” He was like, “I can’t.” I’m like, “Can I?” He said, “Yeah, give them a call. See if they’ll remove the X.”
Whitney: And so I’m like, “Are you kidding me? No way that just happened.” So I hung up the phone. I called the appraiser and she agreed. She was like, “If I can leave my notes on the form, I’m totally fine. I’ll remove the X, and away you go.” We were closed in 48 hours.
Brandon: That’s awesome. Again, you’re not just accepting what somebody else said. You’re saying, “You know what? I’m going to work through this, figure out, take matters into my own hand.” Super cool. Super cool.
David: “Remove the X.” That’s a cool way to say it. How do you remove the X?
Brandon: Yeah, that’s the new phrase. Whitney, you can write a book called “Remove the X.” It’s all about how to get through … I got to come up with a good subtitle. You know, “how to force through other people’s negativity and create your own future.” There you go.
David: What I love is the appraiser said, “as long as I can leave my notes.” So they felt like they’re covering themselves. They’re not in trouble anymore. They don’t have to have an X there, which you never would have known if you wouldn’t have asked. They’re like, “Okay, fine. I don’t care. Take away the X, but my notes need to be there so if the house crumbles and they come ask me, I very clearly said, this is what I noticed with the foundation,” or whatever the case was. It was such a easy solution that you never would have known if you would have just accepted, “Oh, I guess I can’t.”
Brandon: Yeah, that’s how it is.
David: “Do I have Dancing with the Stars on TiVo that I can go look and console myself?” All right, so I want to ask you one more question before we move on to the deal deep dive. And it has to do with how you have scaled to 22 deals. Now, it could be that you’re just insanely wealthy and real estate’s just fun for you, so you love to throw money at it. But I have a feeling that’s not the case. Can you share with us how the BRRRR strategy has helped you to grow to 22 out of state deals from someone who wasn’t just throwing money at problems?
Whitney: Yeah, so we started off with our initial savings. And again, that got us through about six to seven deals. Then I lost my job and was let go, laid off, and we had been socking away, in my 401k, a majority of my paycheck for about 10 or 12 years. And I had been investing in the Roth side of my 401k, so when I was let go, there’s a clause that you can actually access your 401k, move it to a traditional IRA provider.
Whitney: I didn’t have to roll it over into my next company’s 401k, and by doing so, that opened up me being able to access my basis in my 401k. And because I had been investing in the Roth side of it, and … not a CPA. Not a lawyer, but to give some perspective, I think the government rule is, you can put $19,000 a year away on a Roth 401k or in a 401k. So imagine that we had been doing that for about 10 to 12 years. And so I was able to pull my basis out, not my gains, penalty-free, and then we used that to move forward to fund our next investments.
David: And then, after you funded those, did you just keep recycling that same capital?
Whitney: Yeah, so we probably leave anywhere from zero to $10-12,000 in a deal depending on how we’re investing and what levers we’re really pulling on it, but we still have a majority of that capital, so I feel like it’s better protecting us as an investor, because that 25% equity we have to leave in a house on a conventional refinance or even a commercial refinance now, it’s to force equity in the house. It’s not my capital.
David: Not your own capital, yeah.
Whitney: I’m also better protecting the bank because if I, for whatever reason, have to sell that asset, I can actually buy or sell it 20% off and I didn’t lose money and the bank didn’t lose money. But I feel like actually, we’re better positioned, in the crazy case of a downturn or some other financial disaster where we had to liquidate our properties.
David: Yeah. I refer to that concept as the velocity of money. I think I talk about it in the BRRRR book. I have a presentation I give on that in the meetups that we do in the Bay Area in Sacramento, where I teach people this concept of putting money out, having it gain equity, like you said, like the forced equity in every deal, you’re adding 25% or so to the deal, getting the capital back, and then sending it out there to do that again, is very similar to having an employee that goes out and makes a sale, earns your company money, comes back to the office, reloads.
David: You send them out there again to go make another sale. The faster you can turn around that capital and make it work for you, the quicker you can grow your own equity, your own net worth, but the beautiful thing is, it’s the same equity. You’re not just dumping it in a deal. Now I got to stop and go save another 50 grand before I can buy my next house. And that’s why Brandon and I love BRRRR.
Brandon: Yeah. There you go.
Whitney: Yeah. We have actually less capital invested in our last 12 deals than we did in our first six, so it’s really a powerful tool. I am really happy that you wrote the book, David, because that’s such a powerful way for new investors to get started that have limited capital.
Brandon: Yeah, fantastic. Fantastic. All right. Well, let’s head over to the next segment of the show. This is our deal deep dive.
David: Deal deep dive.
Brandon: Hey. I want to take a quick break from today’s podcast to invite you to this week’s upcoming webinar, “How to make your first 5000 a month through real estate investing.” I mean, yeah, 5000 is kind of arbitrary, right? It could be three or seven, but my guess is this: Five grand a month could change your life, and that’s the goal of the webinar.
Brandon: I’m going to be going through three key strategies for getting there, no matter what your financial picture looks like today. If you don’t have any deals right now or you don’t have money, you don’t have experience, don’t worry about it. Come anyway. Just go to biggerpockets.com/5000webinar. So biggerpockets.com/5000webinar. See you there.
Brandon: All right, this is the part of the show where we dive deep into one particular deal that our guest has done. Whitney, you got a deal in mind, something we can dig into?
Whitney: I do.
Brandon: All right.
Whitney: I’m just pulling up my notes because I know you guys are going to ask me numbers.
Brandon: Sure. All right, good. So I’m curious, first of all, what kind of property is it and where was it located?
Whitney: Single-family house, located in Kansas City, Missouri.
Brandon: All right.
David: All right, and how did you find this single-family house located in Kansas City, Missouri?
Whitney: I used my property manager, who actually picked it up off of wholesale.
David: Oh, I love. There’s like, two levels to leverage. Your property manager leveraged his wholesaler to get you this deal.
Whitney: I’m all about win-win-win-win-win. Like, if everybody can get money and the numbers still work, I mean, who cares?
David: Yeah. That’s fantastic. All right, well, on that note then, how much was it?
Whitney: We picked up the property for 65,000.
Brandon: And by the way, what’s the incentive for your property manager? Are they getting a commission as well on that, because they’re an agent as well, when you buy a property that they gave you, or is it just because they want the management fees going forward?
Whitney: Yeah, so he’s getting the commission from … Well, he’s either getting a split-in with the wholesaler, if he makes money that way, or he goes direct to buyer, he’s going to get commission. So, he’s working out that. We pay him a property management fee, then he gets to lease that fee for property and management and then the ongoing check forward. And then if we reposition the property, he’s getting a cut of … We try not to do full commissions because, generally, our properties are flipping to other investors, so it’s usually a flat fee, but if we do retail, he gets a commission that way too.
Brandon: Okay, cool.
David: And that’s a good thing that he’s making all that money, because he’s now incentivized to find more deals to grow your wealth.
Whitney: Yeah. I think … and we can dig into this a little bit deeper. I don’t want to derail the conversation, but I mean …
David: Oh, please.
Whitney: It’s all about aligning, aligning interests, and that’s the best way that I can help align his interest with mine. We’re all making money. I think too many times, we’re taught to make it a win-lose situation just for the sake of saving a dollar, but if the numbers are there and the deal works, why not?
Brandon: Yeah. That’s fantastic, yeah. Win-win as much as you possibly can. Align interests, yeah. Fantastic. Fantastic advice. All right, so how did you negotiate this deal?
Whitney: I didn’t. I’m just kidding. My property manager actually had it under contract and assigned it to me from the wholesaler, so we were at 65,000 purchase, and then we had it inspected, and the rehab on it was 45,000. Actually, the rehab on it was 35,000.
Brandon: 35,000. Was that more or less than you expected when you …
Whitney: So the initial rehab was 35,000. It ballooned up to 45.
Brandon: Oh, I see. Oh, dang.
Whitney: So our lesson learned there was, have a contingency.
Brandon: Yeah, okay. And did you assume … When you first bought the deal, so you’re at 65k, you knew it was a rehab, though. You knew it was a BRRRR. You knew that you were getting into a big rehab, and it just ended up being 10 grand more than you thought.
Whitney: Yeah, exactly. Well, so it was actually an investor that had purchased the deal and started the rehab himself, and then he got in over his head with the rehab, and so we were actually able to pick it up with the … All the paints were there. All the cabinets were there. We were able to pick it up with the supplies in place. So it was a really large rehab, even though 35,000 doesn’t sound that large, it was a really big rehab.
Brandon: Okay, cool.
David: Okay, how did you fund this project?
Whitney: This was one of my first deals using hard money, so we funded the purchase price and 90% of the purchase price and 100% of the rehab, using had money.
David: Nice. So almost no money down, which is awesome.
David: What did you do with it, then?
Whitney: So we were all in for 110k and it appraised at 135, so we then refinanced out our money and we left in 8500 after everything was said and done. We were hoping to get … We underwrote it to get 100% of our money out. I also learned to build in a much larger contingency budget.
Brandon: Yeah, so you would have … In other words, had you cut the budget at 35, you would have actually been out with no money in the deal whatsoever.
Whitney: We would have pulled a little bit of cash out, yes.
David: You know, that’s one of the things I just want to note about BRRRR investing in general is that appraisal’s kind of your wildcard. It’s probably the only part of the deal that you really do not have control over. Even if you line up a bunch of comps, you don’t know if the appraiser’s going to use the same one or if they’re getting pressure on the bank to come up with a lower appraisal.
David: You can’t control it, so you can’t beat yourself up when that part doesn’t work out like what you were hoping for. You just got to remind yourself that a lot of the time it appraises higher than what you were expecting to, and it’s going to balance out over time.
David: And even when it appraises low, if you’re leaving only a little bit of money in that deal, your ROI skyrockets. You get capital back. You can go buy the next property and you’re going to be okay.
David: So what lessons, other than “I need a build a contingency into my rehab budget,” did you learn from this deal?
Whitney: I learned probably the biggest lesson of all, which is, “Don’t buy a house that has been infected with raccoons.”
Whitney: I have on my checklist, “Has it been infested with raccoons?” [crosstalk 01:03:45]Kansas City.
Brandon: The raccoon asterisk.
David: That’s funny.
Whitney: Yes. Because you know why?
Brandon: What’d they do?
Whitney: When they get rid of the initial … What do they do?
Brandon: Yeah. What’s so bad about raccoons? They’re cute little fuzzy, like pandas, trash pandas, right?
Whitney: Well, you’ve seen the Allstate commercials, like Mayhem?
Brandon: Yeah, that’s true.
Whitney: Yeah. They roll around in the …
David: Raccoons like to party, man.
Whitney: … the insulation in the attic, and they don’t really care where the bathroom is.
Brandon: Have you guys seen that movie, The Other Guys, with Mark Wahlberg and Will Ferrell?
David: I have not, no.
Brandon: It’s like a cop show, really funny. There’s a scene where Will Ferrell’s car gets stolen. It’s like a Prius, and I think a raccoon gives birth to a litter of raccoons inside it. It makes a big mess. That’s what that reminds me of.
Brandon: Yeah, they’re mischievous little guys. I can see that they could just completely tear something apart.
David: That’s funny.
Brandon: So your inspector missed the raccoon damage?
Whitney: No, we knew that. We knew that going in. It was in there, but raccoons like to come back, and during the rehab, it started to rain when the roofer was correcting some of the roofing in the soffits, and accidentally left one of the soffits open.
Brandon: Oh, no.
David: They got back in.
Whitney: Yeah, they came back and just mayhem.
David: They like to party.
Whitney: And they went right back to the same part of the house and destroyed part of the house.
David: Oh, man, that sucks. Okay. Raccoon-proofing your house. We got to figure out how we can work that into our system.
Brandon: There you go.
Whitney: I think it’s when you hit some of those things that you know that you can’t tolerate, like you know somebody else … My inspector, when he inspected that house, he was amazed. He was like, “If you can’t finish the rehab, give it to me. I’ll take it.” He was really hoping that I was going to stumble on that deal. He didn’t want me … He wasn’t rooting for me. I had an out. He was like, “If it gets to be too much, give it to me.”
Brandon: “Yeah, let me know.”
Brandon: That’s cool. All right, well that was …
David: That’s a good sign. When every time they’re like, “Well, it’s going to be this much money, but hey, you know you don’t have to pay it. I’ll gladly take it off your hands.”
Brandon: Yeah. All right, super cool. Great deal deep dive. Great example of a really good BRRRR. Even when things go a little bit wrong, you know what? You got an awesome property. I think now today, cash flows a little bit, I’m assuming, and you make some money on it every month? You got those numbers?
Whitney: We rent it for 1200 a month. We’re cashflowing 28%.
Brandon: That’s awesome. So good. So good. All right. Well, very cool. Well, before we get out of here, let’s get over to the fire round.
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Brandon: All right, this is the fire round. This is the part of the show where we dive into the questions from the forums. These are questions that real life people are asking from the BiggerPockets forums and we’re going to fire them quickly at you.
Brandon: Whitney, number one. Darren in Utah said, “I’ve noticed that house price appreciation has stopped. I think it’s time to stop flipping. Too dangerous now because margins are slimmer and, worse, you might get stuck at a market peak. What do you think?”
Whitney: Flipping, I have done two flips. I’ve done a couple live-in flips. So I think you have to understand your market first, but you don’t need the house to appreciate if your hold time is short. You just need the market to stay stable.
Whitney: But at the same time, if you’re underwriting these deals, I would have multiple outs. Like, if the market did start to turn on you, can you rent it? Can you Airbnb it? Can you do a corporate rental on it?
Whitney: That is something that we’ve been actually looking at, at one of our flips, should it not go under contract in the next month.
Brandon: Yeah, that’s good. One of my outs right now, I’m working on building up my flipping here in Maui, which Maui’s a different price point than most of the world, right? So average price, over a million dollars.
Brandon: And I’m looking at this, I’m like, “We’re probably at the peak of the market. Not the best time to flip houses, but the margins are just stupid good if I can do it right.” Right? So I’m looking at this, and what I’m doing to … again, as an out, is I’m not flipping by myself. Any flip that I go into, I’m going to partner with people.
Brandon: In fact, I have a couple friends that I’m working with, hopefully, on this thing, but we’re going to partner together, essentially, where they put up 100% of the money for the flip, 100% of the rehab budget for the flip, and I make no payments to them during the whole entire process.
Brandon: Then, we will split everything at the end of the day. We’ll just do a rev share, probably 50-50 on the profit at the end of the day. Now, of course, a hard money lender would be cheaper than doing this, or I could find a bank loan. There’s other ways to get this done, but I’m nervous buying a million dollar house where I’m going to put a half a million dollars of work into it or something at this price point, and then the market crashes six months later.
Brandon: And so, for me, splitting it with somebody else, all we’re going to do then is rent it out. Because I can rent it out. I’m good at renting out properties. We’ll rent it out for the entire recession if we hit one. I’ll be just fine for three, five, six years, and my friend who’s putting the money in, that’s their risk is that they might only get a 2 or 3% return on their money from cashflow for a few years, and then we’ll sell it later for a higher amount when the price does come back.
Brandon: So it’s like, we’re not losing no matter what, but we’re building that backbone in. So anyway, I got to find more wealthy friends who can afford a million and a half dollar investment, but that’s what I’m doing to prevent against that.
Brandon: So again, some people are like, “You shouldn’t flip houses because it’s a bad market.” And good investors are saying, “No. How do we flip markets, how to flip properties because of the market? What can we do today to prevent against that?” And that’s my solution. I’m sure other people have better ones than that, but that’s what I’m doing.
David: Do you think that if this person’s model is building in, there has to be appreciation to make sense, that maybe they’re paying too much for the house in the first place?
Brandon: Yeah, yup.
Whitney: That’s a great point. Great point.
David: Okay, cool.
Brandon: Thank you. Question number two. This is from Dennis Higgs. “Let’s say you have your property and everything is going according to plan. How often do you want your property manager doing a walkthrough of your tenant-occupied units just to make sure that everything’s in decent shape?”
David: Good question.
Whitney: Well, for me, I have a minimum of one time a year, I would go for twice a year. That’s what I’m comfortable with. At the same time, what is your tenant base? Like, if you’re dealing with college rentals, I would have them in there, I don’t know, every month. I don’t know. Ever week if you could.
Whitney: But if you’re … We have a renter that they’re in their upper 70s and they take the greatest care of the place. I’m not going to check on them that often.
David: They’re the opposite of a raccoon. They don’t like to party.
Brandon: That’s funny.
Whitney: I don’t encourage it, but they do a lot of the maintenance themselves. But anyways, I think it really has to go back to knowing your customer, like you know who’s in that property, what are you comfortable with. At the very least, I would say a couple times a year, you’re going to want to get eyes on your roof, your gutters, maybe even the HVAC too.
David: One of the things that I like to do is, because my property manager always wants to charge me to do these extra walkthroughs and I don’t always trust that the employee that they send is really paying attention, is I wait until a maintenance request comes in for something really small, and I send my handyman and I task him with like, “You’re going to look everywhere in that house. Check every toilet, every sink, make sure it’s not leaking.”
David: Because as you guys, as Brandon, I’m sure you have to have seen, tenants will let a water leak go on for like, nine months, and completely destroy one of your … because they just didn’t bother letting you know that, “Oh, yeah. The caulking’s bad. It’s been leaking like that for two years,” and now you’ve got an entire subfloor that has to get ripped out.
David: So I leverage my handyman. “Hey, you’re going there anyways. Say, ‘Hey, does anything else need to be tightened up around here?’ and walk around with your crescent wrench and just look. Look for everything. Look for drug paraphernalia, look for signs that raccoons are in this place. Look for anything else that could cause problems.”
Whitney: You guys aren’t going to let me live that one down, are you?
David: I love that. You should write a blog article, like, “These are the signs you need to look for to know if raccoons are there.”
Brandon: If raccoons have …
David: If raccoons have … Yes, crashed your party.
Brandon: That’s awesome. All right, number three. Oh, this is a great question. Cory from Charlotte, North Carolina, said, “What do newbies say or do that makes you roll your eyes and groan?”
David: Such a good question.
Brandon: If you want to think for a second, I want to ask David as well, because this is a hilarious question. David, what about you?
David: I think my favorite thing, or the thing that drives me nuts when newbies say it, is when they try to tell you why you shouldn’t be doing it, but it’s very clear that they don’t understand themselves how real estate investing works. Like, that comment earlier, “I think we should stop flipping because prices aren’t going up anymore.”
David: It almost sounds insightful, but then you think a little bit deeper and you realize, “Well, if you’re getting a good deal, prices could go down and you’d still be making money.” The market doesn’t have to go up. That just makes it easier. Like, when the wind’s not at your back, do you just stop running? “Oh, this is harder, so I’m just …” No. There’s still value in doing it. You just do it differently.
David: So that’s one of the things, is just when a newbie that gives me like … a naysayer, like, “Here’s why you shouldn’t invest in real estate,” but they very clearly don’t really understand what the factors that go into building wealth in real estate are. What’s yours, Brandon?
Brandon: I was going to say, the thing that always makes me laugh is when wholesalers say things like, “I’ve got buyers in all 50 states, or I’ve got deals in all 50 states.” And they try to make themselves sound like they’re some big deal and I’m like, “You’re like a 21-year-old kid who’s never bought a single property. You don’t have deals in all 50 states. You don’t have buyers in all 50 states.”
David: Why would you want deals in 50 states?
Brandon: Yeah, I know. I get these emails from people … It used to be worse. It actually doesn’t happen as much anymore, but that used to be a line. Some guru must have been teaching people to say that, because it was everywhere for a while. It was just like, “I’ve got deals in all 50 states.” Like, no you don’t. Stop it. Shut up.
David: That was like, your red flag that you knew this is a newbie, basically that just gives them away right away.
Whitney: I think for me, it’s just the mentality that you have to do it all yourself, right? Honestly, like I kind of felt that way when I was getting started, but I quickly realized, this is all about relationships and partnerships, and that even though I am leveraging other people’s systems, I would love to meet people that would learn how to leverage … I don’t want this to sound bad. You know, that I can network with, and then I can help them leverage the systems that are already put in place.
Whitney: So there’s a power in leverage. There’s a power in win-win, and just to say that, “I don’t have the time. I don’t have X in order to get started.” There’s always a way to figure it out. You just have to … That’s the part that you have to figure out is how to overcome the obstacle.
David: Remove the X.
Brandon: Remove the X, there you go. I got one more, just because I’m … I want to throw one out. Actually, I got two more. One of them is, when newbies will say things like, “Hey, can I just get on a quick phone call with you?” And like, provide no value whatsoever. Just, “Hey, can I just get on a quick phone call with you and pick your brain for a while?”
Brandon: And then the second one was … Oh, shoot, I lost it. Anyway, that’s the big one. I get that from newbies all the time. It’s like, “Hey, can I just pick your brain for a little bit?”
David: How about the one where the newbie wants to jump like, seven steps ahead of where they really are and talk to the person that’s so far ahead of them that it doesn’t matter what that person’s doing?
David: Like, I do not need to talk to Mr. Olympia about my weight lifting routine. At all. It doesn’t matter what he tells me. What do you do to go to the gym five times a week? That’s the guy that I should be talking to, right? When they’re like, “I really want to go talk to Grant Cardone and figure out how he’s doing what he’s doing,” I just think, “Why would you? What is he ever going to say that could apply to your position?” You know, find a person who’s like, two steps a head of you or one step ahead of you, and say, “What did you to get there?” I think that’s a much better …
Brandon: There you go.
David: Okay, last question.
Brandon: Oh, I remember the last one. Sorry. I remember the last one, is I actually hear this fairly often, and there’s different ways of phrasing it, but essentially …
Brandon: “We tend to focus on building our portfolios, but what’s your ultimate end goal with real estate? Do you want to keep your rentals and pass them on to your kids, sell them at the end of your life, exchange them into something bigger?” I think this is a really good question for you, Whitney.
Whitney: So, we have a couple different strategies. I don’t have one just endgame strategy with my rentals, because I’m all the time going back and looking at our spreadsheet, the overarching returns of the portfolio and really trying to understand which ones are better positioned for retail sale, which ones are better positioned for investor sale? Which ones can I kind of … Another really smart thing that I heard from this guy who’s sitting here in the room right now is like, packing them up in like five, and maybe flipping them out on a portfolio.
Brandon: That must have been David.
Whitney: I know, right?
Brandon: Smart guy.
Whitney: And then, reinvesting that and trading it up for larger properties. So we actually trade ours up when we do a package sale. We’ll trade them up for multi-family syndication.
Brandon: Very good.
David: Yeah. The reason that works so good for someone who hears that and goes, “Why? Why would you do all the work to get it and then exchange it?” is because building wealth through cashflow is very slow and laborious. It’s very, very, very slow. But building equity can happen fast. It’s so much easier to buy a house that you’re all-in for 75 grand that’s worth 100, you made $25,000 in equity, than it is to save up $25,000 of cashflow. That just takes forever.
David: So what you do is, you focus on the part you have more control over, building equity. Then you exchange that into an asset that will build you cashflow faster or more passive like a syndication, and then you just supercharge the rate at which you can build that cashflow. That’s the short story.
Brandon: There it is.
David: Thank you. Thank you for pointing that out. That’s great, Whitney.
Whitney: Yeah, absolutely.
David: All right, Brandon. You want to move us along?
Brandon: I will move us along to the next segment of the show, the final segment, called our famous four. Famous four, the same four questions we ask every guest every week. But before we get to that, let’s hear what’s going on this week over on the BiggerPockets business podcast.
Speaker 7: Hey, guys. This week’s show is all about breaking into low barrier to entry businesses, businesses where you’re sure to face lots and lots of competition. Our guest this week started a self-storage and moving business, and on Tuesday, he’s going to tell us all about how he competed against some of the biggest companies in that industry and kicked their butts. So, tune in to the BiggerPockets business podcast next Tuesday, subscribe and we will see you then.
Brandon: All right, thank you. And now, let’s get to the famous four. Number one, Whitney, what is your current favorite real estate-related book?
Whitney: I still am a big fan of Long-Distance Real Estate Investing, by David.
David: Is that the first time anyone’s ever said that? I think it is.
Brandon: I don’t know. It’s up there. It might be the first.
Whitney: I don’t think so.
Brandon: Maybe somebody said it. I’m sure lots of people think it. Just nobody wants to flatter you too much in a podcast, David, so they all hold it in.
David: Yeah. My head has to fit on the screen for YouTube.
Brandon: It does.
David: If it gets too big, it won’t serve me, if it’s just a big forehead staring at you.
Whitney: I can pick a different book if you want me to.
Brandon: Absolutely not. Moving along, what is your favorite business book?
Whitney: Well, so I’m going to cheat. I’m going to do two. I think E-Myth is fantastic, again, for learning to put systems in place. And then also for just getting started in real estate or in any part of your life, really, The One Thing by Jay Papasan.
Brandon: Very good. All right, how about some of your hobbies?
Whitney: Anything outdoors. I live in Colorado. I’m a typical Colorado girl, mountain biking, trail running. When I can, climbing.
Brandon: Cool, very cool. Last question, what sets about success investors from those who give up, fail, or never get started?
Whitney: I think several of the guests on the podcast have really talked about resilience and focus, and I think something that I can point out of the value is just really creating those win-win relationships, understanding that it’s not a win-lose game, that you’re not in it all by yourself, but how can you bring value to somebody, even if it’s a realtor or somebody that you’re paying, how can you bring value and create a win-win relationship? Because you’re going to go so much farther faster with partnerships.
Brandon: Yeah, awesome.
David: Yeah, so true. All right.
Brandon: All right, Whitney. This has been a fantastic interview. I really like how this turned out. Can you tell us, for those who are fascinated by your story and want to learn more about you, where can they find out more about you?
Whitney: Yeah, absolutely. They can find me on BiggerPockets, so feel free to message me there. And also, you can find me on ashcapitallllc.com.
Brandon: All right. And of course, we’ll put links to that in the show notes at biggerpockets.com/show340. Again, Whitney, thank you so much for joining us today. This has been fantastic.
David: This is David for Brandon, my best BRRRRother turner, signing off.
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