BiggerPockets Podcast 424: Make More Money, Build Your Portfolio, and Get Greater Tax Deductions in 2021 with J Scott, Amanda Han, & Matt MacFarland

BiggerPockets Podcast 424: Make More Money, Build Your Portfolio, and Get Greater Tax Deductions in 2021 with J Scott, Amanda Han, & Matt MacFarland

83 min read
The BiggerPockets Podcast

As a Guest you have free article(s) left

Join BiggerPockets (for free!) and get access to real estate investing tips, market updates, and exclusive email content.

Sign in Already a member?

We have a real estate and investing mastermind session in this episode of the BiggerPockets Real Estate podcast! J Scott, Amanda Han, & Matt MacFarland join David and Brandon to discuss what investors should do to maximize their wealth (and opportunities) in 2021.

Co-host David Greene goes over his new book SOLD: Every Real Estate Agent’s Guide to Building a Profitable Business, talking through who should (and shouldn’t) be an agent, what makes a great agent, how agents can maximize their income, and more!

J Scott talks heavily about how the election, stimulus packages, and new (proposed) tax codes could hurt (or help) real estate agents, and what you can do to ward off higher tax plans, loss of rent, or even inflation.

Amanda and Matt are our tax professionals on the show! They dive into which upcoming 2021 tax codes could affect you, whether you’re an agent, a real estate investor, or just a W2 worker!

This is a fantastic episode for any listener who wants to know more about how 2021 may shape our economic future. Thankfully, we have some of the best guests in the world to tell you about it!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Brandon:
This is the BiggerPockets Podcast Show, 424.

Intro:
You’re listening to BiggerPockets Radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online.

Brandon:
What is going on everyone? It’s Brandon Turner host of, The BiggerPockets Podcast here. Once again, with my cohost, Mr. David, soon to be another author, a three Peter author. Green, what’s up man? Congrats on the new book launch.

David:
That’s funny. It’s like when you have another kid and they say, “You’re going to be a dad again.”

Brandon:
You’re going to be an author again. Yeah. Anyway, congrats. I know your book comes out this week book comes out this week, right? I think so.

David:
It does, yeah and this is probably of all the books I’ve written, the one that was the most difficult to write, but probably also the most rewarding because it’s on such a difficult topic to get into.

Brandon:
Yeah, man. So was that difficult writing a book about being a double to Hollywood stars? Is that a tough thing? I don’t know.

David:
Well, it was, but really I did it for the listeners of the podcast. Really, they were the ones that motivated.

Brandon:
You sacrificed.

David:
Yes, that’s exactly right because I know how many other people would like to be able to say the same and I just wanted to pave the path for how to get there. It’s not an easy journey.

Brandon:
You’re a good man. You’re good a man. All right. Well, let’s talk about the book here in our quick tip. On today’s show, quick tip is all about… Well, the quick tip is really, you can get 20% off any book in the BiggerPockets bookstore that would include David Green’s new book. So new book is called, Sold. It is a book to help real estate agents be better to learn how to become a good agent and to grow and succeed and be awesome and it’s not just for agents.
I think any investor can read it and pick up a lot of stuff, but more importantly, or maybe equally importantly, it’s a great book to buy for the agent or want to be an agent in your life. So as you’re thinking holiday season, it’s a great book. Buy right now. Send it to somebody you love. Anything I should add on that?
Oh, podcast is the code. So use the code for 20% off any book on BiggerPockets Podcast. That is the code, podcast. Yeah. Good job. Anything you want to add on the book, that it’s a book?

David:
Oh, just that this is the first of a three-part series. So there’s going to be two more books coming out. The first book is geared toward someone who’s getting started in the business as a real estate agent. The next will be how to become a top producer really, one the top agents in your area.
Then the third will be how to put a team around you so that you can scale from job to business and really just become a rockstar.

Brandon:
Very cool. Very cool and we do talk a little bit about that in today’s show. Today’s show is a very cool show. We brought in some of my favorite people in the world, Amanda Han, Matt McFarland, my CPAs and J Scott, the famous J Scott, and honestly David Green. I mean, you were almost like… You are our guest today and we did kind of a panel where we talked about the future. What to do here at the end of the year, going into next year, what does 2021 look like. We covered a lot of stuff everything from, should you get your real estate license. We started talking about the real estate license thing because you know, obviously the book’s coming out with David, like who should get their license, why should they, why should you not get your license or why should you.
We’re talking about hiring employees in your company, if you’re going to try to grow next year or if you are somebody who wants to get hired by a company like one of mine or J’s or David’s, what should you be doing, what you should, be looking for, how can you dramatically increase your income this year. We talked about the tax changes that are coming up in 2021, including some of the current things that you have right now, some of the things that are going away, like possibly the 1031 exchange. We’re talking about what that means and how that could affect the real estate market.
We talk about the economy in general. In fact, we spent… Like, there was a moment where J spent about 10 minutes, just like giving some of the most in-depth economic outlook like you’ll ever hear. It’s amazing. So make sure you guys listen to that stuff. Interest rates, inflation, how it all plays into each other. You’re going to learn a ton, grab a notebook, grab a pen. You’re going to want to take some notes. Without further ado, let’s bring in the panel.
All right, Amanda Han, Matt McFarland. Am I saying your name correctly? It’s not like Mack Ferland?

Matt:
No. No. McFarland is good.

Brandon:
I always said it for years and J Scott, welcome you all and David Green of course, because David you’re kind of a guest today. Welcome all to the BiggerPockets Podcast. How are you all doing? All at the same time, go.

Amanda:
[crosstalk 00:04:09] Wonderful.

Matt:
Thanks for having us.

Brandon:
David, you missed out there. I don’t know. Today we are talking about the next year of our lives because the world has been in kind of a crazy turmoil the last year of 2020. So here, as we are preparing to go to 2021, we’re talking about things that people need to know, whether that’s economy related, whether it’s earning money related, whether it’s tax related, whether it’s just mentality, mindset related. We’re talking about the vital things that people need to know going into 2021 and so I want to actually begin talking about making money and the reason why is because David Green here is the king of making money.
Like literally if there’s like one person on the planet, I was like… Let’s say somebody came to me and they’re like, “Hey, who’s the guy that I need to double my income this year? Who was the guy to talk to?” I’d be like, “Talk to David Green because David Green’s like that guy.” So David, why are you the guy? Like, can you give a quick…

J:
Because you just told him he was.

Brandon:
Why are you the guy? Here’s what I’m getting at. David has been on the podcast now as like a host for the last couple of years but before that he’s had a slew of different jobs and every one of them is like this perfect picture of doing a really good job, making money at your job. So Dave, maybe just a quick one minute summary of like what you’ve done and why I say that about you?

David:
Oh man, that’s a tough call for one minute. I would say to sum it up, I value efficiency more than most people do. So I’m always asking how can I do the same thing faster. I have embraced leverage to where I have the confidence to say, “Hey, it’s better to let someone else do something then I focus on, the thing that I’m doing,” and I typically have a strong sense of urgency with whatever I’m doing. So I like to look at a lot of situations in life like it’s a competition. Like when I go to work, how many things could I get done that day that actually made a difference in the business. So when I’m investing that would be analyzing deals and writing offers and I wouldn’t say, “Hey, I did a good job. Let me Pat myself on the back. I wrote an offer today.”
I would think, you know what, I probably could have got six of them out if I would’ve done things a different way and then I go back the next day trying to write six and I’d say that’s kind of three habits I’ve developed that have led it to where making money isn’t nearly as difficult for me now as what it was when I was starting off.

Brandon:
Okay. That makes sense. So specifically I want to ask you about making money as a real estate agent. Now this show is about real estate investing and we’re going to talk about a lot of investing stuff today, but two reasons. One is because you have a book coming out in a few days, it’s called, Sold. It’s all about how to become a super rich and famous Instagram star and okay, real estate agent and secondly, because we all believe, I think most of us here may or may not… I’ll actually ask you, I’m using the collective, we. Maybe I shouldn’t.
I believe being a real estate agent is a great avenue for people to earn more money because there’s no cap on your income necessarily. It’s not like a job where it’s more like you work harder you can make more money, you work smarter, you can make more money. So first of all, do you guys agree with that or anybody want to disagree with that point?

J:
I think as real estate investors, anything we can do, any businesses we can do that are real estate adjacent, those businesses that aren’t directly involved investing, but are related to investing. So whether that’s being a real estate agent, whether that’s owning a real estate service business, whatever that is, there’s a great amount of complimentary benefits to doing that and I think being a real estate agent is one of those areas that it just makes a lot of sense for a lot of us in this industry.

Brandon:
That’s so true, and that’s J Scott, by the way, those just listening to this and can’t hear the different voices today. When you hear that voice, that was J Scott. Thanks J, by the way for joining us.

J:
Thank you.

Brandon:
Yeah, and then being a real estate agent, so let’s talk real quick. Like David, who do you think should become an agent and who should not become an agent? Let’s start there.

David:
That’s a really good question and I’ll answer that right after I comment on J’s comment, which was also super important because what J was describing was synergy, when he says a real estate adjacent thing, most of the really, really big investors, I know also did something else related to real estate before they took off. So my flipping partner, Mario, we flip a lot of houses together, he was a real estate appraiser. He got really good at knowing what houses were worth.
He had a reputation where everybody in town was coming to him and saying, “Hey, grandma died. Can you appraise the house?” Well, that turns into a conversation that we then have with the seller about, can we buy the house instead. So there’s a great nugget of wisdom in there that if you’re trying to get traction in your investing business, if you’re known as the tax professional and everybody comes to you to say, “Well, what are the tax implications of this?” That will turn into deals many times and I did exactly what I was afraid I was going to do Brandon, I forgot what your question was when I started talking about J’s comment.

Brandon:
Who should be an agent who should not be an agent and specifically again, this show is about 2021, what people should be doing going into the next year, is who should be thinking about becoming an agent in the next, like now, so that they’re preparing for 2021 and who should not?

David:
Okay. So the person that should not be an agent is the person who is only doing it because they think it’s going to help their investing business. In my opinion, that’s a fallacy. I don’t think it helps you just take on a lot of liability, a lot of potential lawsuits and a lot of fees and training that you have to take to become an agent. It doesn’t necessarily force deals to come to you.
You can use agents for the same purpose, more or less exactly the same as if you had your license, if you find the right agent. The person who should not be an agent is also the one who’s thinking, I want a little part-time job that gives me a ton of freedom and I can work when I want to, I’ll pick up a deal here and there, I’ll make a really nice commission and when I don’t want to work, I don’t have to. That is not how the industry works. You may have flexibility with your physical location at times, you don’t have to clock in a timecard, but your boss is now your client who’s oftentimes more demanding than whatever boss people have in a regular W2 job.
So it’s very easy to disappoint people. It’s why the industry in general has a pretty negative reputation, in my opinion. Not too many people say real estate agents are great. It’s more complaints than compliments that are given and it’s because of that mindset. They don’t understand when they get into it, you are becoming an entrepreneur. You will serve your clients. You’ll submit to your clients, they become your boss and they’re going to be very irrational and emotional and stressed out and sometimes need a lot more handholding than what we would have thought. So I can keep going on to who should be an agent or I can let you comment there.

Brandon:
I don’t know, J, what do you think on that one? Then I’ll go to you, Amanda and Matt and see what you guys think.

J:
I agree with most of that, I think there are benefits to getting your real estate license as an investor. I definitely agree with David that people get their real estate license for the wrong reasons. They get it because they say, “I’m going to get more deal flow,” or they say, “I want to make more money,” or whatever. For me, it has nothing to do with the extra money you make. People are always like, “Oh, I can make an extra 3% or save 3%.” Yeah, it’s great, but that’s not a reason to get your real estate license.
Likewise, with deal flow, for me, the best reason to have your own real estate license is control. Being able to control your deals. When you have your real estate license, when you’re the agent on your deals, you can talk directly to your buyer’s agent. You can talk directly to your buyer’s lender. You can talk directly to the appraiser. You can talk directly to the inspector and nobody questions it. If you try and do that as the seller, sometimes you get questions about it but if you do that as the agent, it’s perfectly natural, you just have a lot more control over your deals. So in general, I definitely agree with David, don’t start a real estate agent business for those reasons, but I do see some advantages to having your license, for your specific deals, specifically around control.

Brandon:
Yeah. It’s kind of reminds me of like being a general contractor. Let’s say you’re going to build a big addition on your house and so you’re like, okay, first, I’m going to go get my general contractors license and then I’m going to hire some people, but you can just hire a general contractor. Yes, it’s going to cost you a bit more, but you don’t have to learn all of that crap that comes with becoming a general contractor. You have to go through all the permitting processes, and the licensing stuff. It’s just like, you just hire that person. If you want to build houses for people and that’s how you want to make a living. I think it’s really a pretty darn good idea to have your generals contractor’s license.
So Amanda and Matt from a tax standpoint, is there any changes? First of all, how do real estate agents get taxed? Can you explain what that’s like, because it’s self-employment usually right and then are there any changes coming in the next year for those people who are looking to do that?

Amanda:
Yeah, I’ll take that one. So yeah. Real estate income commission’s income is taxed as ordinary income. So, whereas, in the real estate realm, you always hear people talk about there’s so many tax benefits of being an investor, this is a completely different buckets in the eyes of the IRS. So it’s taxed similar to W2 income in a way because you have to pay federal and state income taxes as well as self-employment tax. So that’s sort of the downside, but from a benefits perspective if you’re a real estate agent and also you’re an investor and if you’re a real estate professional, oftentimes you can use rental losses from your real estate to offset the income taxes from your realtor commissions income.
So it’s a really great way to generate active income, but also potentially reduce it through your rental property. So that’s really good. I mean, currently under the tax cuts and Jobs Act real estate commissions income is one that is usually eligible for the 199A tax deduction. I don’t want to bore you guys with the code sections, but effectively, that just means the first 20% of that commissions income could be zero taxed. So we’ve seen that to be a huge benefit in terms of our clients who are realtors or brokers in reducing taxes from commission, right. 0% tax on part of that income.

Brandon:
So let’s talk about what you were just mentioning there about offsetting your income. I’m going to shift a little bit towards the tax stuff real quick with you guys, because this is so important. I want to talk about offsetting that earned income, whether it’s a real estate agent, whether you just have a really good paying job or, whatever. You made money somehow. What did you mean by that, for those who don’t understand what that means, you’re offsetting your income or your deduct… How does that work and why is real estate beneficial in that regard?

Matt:
Well, yeah, the way it kind of works for a lot of our clients, they are full-time investors and now we have some that are kind of part-time, but it does run the gamut from your work at the W2 job, investing on the side and just being a full-time investor but really from a tax perspective, the one huge benefit is if somebody is involved in a quote unquote, what we call like, the day to day stuff of doing investing every day, they can have a good likelihood of qualifying as what’s called a real estate professional for tax purposes and when you do that, if you can generate losses from your rentals through like depreciation and other tax strategies, you can use those losses to deduct against your W2 or your earned income or whatever other business income you might have.
That’s a huge advantage for the day-to-day investor where the hazard investor may not get that opportunity and that’s just because of the way the tax laws are written. They want to incentivize the day-to-day investor to get I guess more benefits right than the passive investor who will-

Brandon:
People who invest in a syndication, like they still get the depreciation benefits, don’t they, if they’re a passive investor in that? How does that… I guess I’ve never really understood that is they aren’t real estate professionals because they’re just passively invested in somebody’s fund. They put money with somebody, right? How are they getting a deduction still and I guess, is that still like how is that a thing?

Amanda:
Yeah and that’s a common misconception. We get that question all the time. People will say, “Oh, I’m not a real estate professional therefore, I cannot get depreciation therefore, I cannot take home office,” and that’s not true at all. So investors, all investors can take depreciation. If you have a valid home office, if you use your car for business, as long as it’s related to you pursuing your real estate activities, these are all tax deductible. So all expenses, including depreciation can always offset rental income.
In your scenario, you’re talking about a syndication investment, right? It works exactly the same way if it was someone owning a property on Main Street. You can always use those to offset rental income. The next question then is, if we’ve already wiped out the taxes from our rental income, and we also want to try to use it to offset taxes from other income, like a W2 or some sort of commissions or whatnot from real estate in David’s example, then there might be some limitations for higher income earners and that just means that if you’re a higher income earner, than if you’re a real estate professional in the eyes of the IRS, then you can use the excess loss to offset these other types of income.
So that’s really the only difference, but there’s nothing special about depreciation. Everybody can utilize it to offset taxes on the rentals.

Brandon:
Okay. That makes sense. All right. So, I’m going to jump around a little bit today, but I want to run back to David again real quick, because we asked him who should not become an agent who shouldn’t do that. So keeping all this in mind now that there are a lot of tax implications, you’re going to pay a lot of taxes as an agent. I mean, would it be fair to say, Amanda, if you’re in a state like Hawaii or California, you may end up losing up to half your commissions.? Is that fair? Maybe not quite that much.

Amanda:
Yeah. No, that’s very possible.

Brandon:
Yeah. Crazy. All right. So who then David, should become a real estate agent if you’re going to potentially lose half of it, unless you get some creative strategies like Amanda and Matt are talking about, who should become an agent David?

David:
Well, Amanda mentioned something about when you’re making good income as an agent real estate investment stuff can help offset some of the taxes on that income, the depreciation. So that only applies if you’re making good money as an agent and then J mentioned as an investor, this is where being an agent can help you. You can have some control. So those are two great points to consider but what I want to take away from it is that you’re also spending money and time to become an agent. It isn’t as carefree as I think a lot of people look at it when they watch HGTV. So if you’re not making good money as an agent, all that depreciation from your profile portfolio, isn’t actually saving you any money because you’re not making it. So the person that I believe should become an agent is someone who first off loves real estate, which is why we talk about this, the BiggerPockets people, because they’re here because they love real estate.
They want to be free from the confines of their current situation, but they don’t necessarily want to completely be retired on the beach, kicking back, doing nothing. So it allows you to become a business owner and in my opinion, the duties of a real estate agent are more easily leveraged than many other jobs you could have. I can’t think of any examples off the top of my head, but if you’re a truck driver, you can’t exactly pay someone to go drive the truck for you. As a real estate agent, there’s a lot of things that you can do that you can leverage others and build a business out of what is normally looked at like a job. So people that are interested in a form of entrepreneurialism, this is a great way to get started and then the person who is known as a real estate person, be that in a buy and hold investor, a flipper, anything to their sphere, to the people that know them.
That’s one of the reasons that my business did very well is when I got my license, everyone that knew me already saw me as a real estate person. It wasn’t uncommon for people to call me or text me and say, “What do I do with this house or I want to buy a house, where should I go? Hey, what’s up with this loan? Do you think this interest rate is good?”. They already kind of saw me that way and I have a feeling, a lot of our listeners are in a similar boat where everyone knows their real estate net. We get this bug and we’re into it. If you’re looking for a change and you already have that, that’s a huge, huge asset in driving business towards yourself to get that business started.

J:
Yeah. I had a deal that came across my desk earlier this week and it was in the Bay area of California and it took me about three seconds before I thought, David Green, I need to get in touch with David because A, he’s an agent, so he knows the market better than 99.9% of investors out there but he also understands from an investor standpoint, what I’m looking to do and that’s just tremendous value add to any investors and I pointed out earlier that we have our license, my wife is licensed in three States. I’m licensed in one state, but we still have real estate agents, third-party real estate agents on our team because yeah, we like that control, but there are so many things that a great real estate agent is going to be better than my wife or I are going to be good at because that’s what they do everyday, we’re investors.
So even though we like that control, there’s still tremendous opportunity to leverage the value and the benefit of a real estate agent, even if we’re licensed and in some cases we’re doing our own deals. I also need to point out and just a little bit of a plug for my show, episode 20 of the BiggerPockets Business Podcast, we had David Green on and as good as you might think David is as a host, he is a hundred times better as a guest. He was my literally no offense to you, Brandon, because you were on the show and all our other guests, David was absolutely my favorite guest ever and for anybody that really wants to dig into the mind of somebody who is an investor, an agent, and just an awesome business person, you have to listen to episode 20 of the BiggerPockets Business Podcast. I mean, it was just phenomenal and so David, I’m excited to read the book because I mean just based on that episode of the podcast, it’s Dave… David’s great.

Brandon:
All right. So on honest question here, let’s get serious for a minute. How much did David pay you J, to say that?

J:
It was literally the easiest episode we ever did.

Brandon:
That’s actually true.

J:
And one of the best.

Brandon:
This is why [crosstalk 00:22:04].

Matt:
And he gave him information about that deal in North Cal.

Brandon:
Hey J, you want to know about that deal? Here’s what we need from you buddy. All right. So let me ask all three of you, all four of you a question and just the same question. What do you think makes, I know like obviously David, you’re an agent, J, you’re an agent, your wife’s an agent, Amanda and Matt, you are not agents, correct?

Amanda:
Yeah, I think we will be after this.

Brandon:
Okay. There you go. [crosstalk 00:22:30].You’re licensed but you’re not an agent.

J:
I have my real estate license. I can legally do what agents do, but I would not call myself an agent. David and his team are agents. I just have my license. I can own a business and not be an entrepreneur or a business guy.

Brandon:
Which is a topic I would love to actually get to. We’re definitely going to cover that today because that’s, that’s so valuable. So here’s the question, what information… So Amanda, Matt, more from your perspective as a advisor to agents out there, but I’ll start with David. What makes a great agent? Like if people right now are listening to this going, “I need to make more money in 2021, I’ve got to, I want to make an extra 50 an extra a 150,000, $200,000. So maybe I can go invest in real estate.” What traits, what skills allow people? So I’ll start with David and I’ll go, J?

David:
Why don’t I go last? I kind of want to hear what they have to say?

Brandon:
All right, let’s start with Amanda and Matt then. Like what have you found, the agents that you guys know that just like, I mean, you know, their taxes, you know who’s making money, like what do they have? What’s special about them?

Amanda:
Gosh, I think just kind of going back to what David said earlier, just really treating it as a business for our client. We do have clients who kind of earn some commission on the side, maybe just for their own deals, but yeah, the ones that are truly successful, they run it like a business. They try to systematize and streamline as much as possible and I love what David said earlier about growing that business where you have other people working for you, delegating and making commission.
So that’s typically when we see successful agents or brokers, they have those business systems in place.

Matt:
I think the thing that comes to my mind when you guys were talking about it earlier too, was I had a friend ask me this few years back and you know, “I’m thinking about becoming an agent,” and I was just like, the thing that stands out is you got to be flexible.
As to David’s point, this is not a Monday to Friday job, if you’ve got kids and you’re doing soccer, baseball, whatever on the weekends, you know, hopefully in post COVID you’ve got to be flexible. That’s when people obviously want to go look at houses, right. You’ve got to be willing to go roll with it. So that’s what I’ve seen with most people that are most successful when they can make that work in their situation.

Brandon:
There you go. J, what do you think?

J:
So I can answer the question from two sides. So what makes a great agent in terms of an agent being successful and then what makes a great agent from the perspective of me being a customer of that agent and why I think they’re great. From the first, certainly Amanda and Matt hit the nail on the head that it’s all about treating it like a business and I talk about that in real estate as well. Every business is the same. I mean, not… Well, every business is different, but every business has the same components. I mean, you have to be great at marketing. You have to be great at sales, you have to be graded operations. You have to be great at customer service. You have to be great at all of these things and being an agent is no different and a lot of times as real estate investors, we get into this mindset of it’s a solitary business.
We can be investors ourselves. See, I can find my deals. I can rehab, I can sell them and I think a lot of people feel the same way being a real estate agent. They feel like I can do this all myself, I can find clients, I can market houses, I can sell houses, get them to the closing table and technically you can do that but just like in any other business, you’re probably not an expert in every aspect of business. You’re not both a marketing expert and an operations and a supply chain expert. You’re not an expert in all these things and so just like in any other business, if you want to be successful as a real estate agent you-

J:
So just like in any other business, if you want to be successful as a real estate agent, you have to surround yourself with people who are experts in each of these areas. And you have to bring in the right people and you have to trust them and rely on them and build a cohesive team that can do that. So exactly the same thing, Amanda and Mattson. Now, from the perspective of me as a client of a real estate agent, some of the things I look for every agent does some of the same things. They’re going to put the house on the MLS. Hopefully they’re going to hire a good photographer. Hopefully they’re going to write good copy.
I want an agent that does more than that. I want an agent that’s proactive. The agent that goes out and says… Especially as an investor, I want an agent that can tell me, “This is the level to which you should rehab this house to get maximum value out of it. And this is your demographic of buyer. Here’s, who’s likely to buy this house. You’re likely to have a family with one young child, or you’re likely to have an older couple with no kids, or you’re likely to have a middle-aged couple with an elderly parent.” And knowing who my likely buyer is based on the demographics, and you’ll never be perfect there, but knowing who the likely buyer is, that tells me what amenities I should put in the house and what finishes I should put in the house and which special touches I should put in the house.
And so a great agent to me as an investor is going to help me make money by helping me make great decisions before I list the house. Too many agents are just like, “Okay, call me when you’re ready to list the house.” The great agents are like, “Call me before you buy the house.”

Brandon:
That’s really good, man, really good. Before David, I’m going to go to you last David, because you wrote the book here. I’m going to say this. I had a buddy who a year and a half ago decided he was going to get his real estate license study needed to make more money, super low on income, struggling to put food on the table, kind of situation. “I want to be a real estate agent.” And I said, “I think it’s a great idea. I think it’s a great way to make money.” But my advice to him was if you’re not willing to make no money for the next six months, but work every single day anyway, then don’t do it. If you’re not willing to do that. And I’m not saying it takes six months or a year to make money in real estate, maybe you could do it in the first week or two, maybe.
But what I see is that so many people, they see the outcome that they want make an extra 100, 200, $300,000 a year as an agent yet they don’t realize it takes a long time, maybe six months, maybe a year of not making anything while you’re learning and struggling and trying to build up clients and all that. And if you’re not willing to work for a solid year, and I actually give advice to all business owners, no matter what business you’re going to do, if you’re not willing or capable to do heavy amounts of work for a long period of time before you start reaping rewards then don’t do it. That’d be my advice for future real estate agents. What do you think David?

David:
That’s a great… I mean, I literally say the same thing in the book. You have to understand just like everything else in life. You want to start buying deals. It takes a while to get your name out there, to find the right contractors, to find the right rhythm for you. You want to get in shape. You don’t have great results. The first time you go to the gym, you don’t have any results the first month or so. You’re just sore all the time and you’re trying to learn what to do, but nobody doesn’t have results six to nine months after consistently going.
So I think that’s a big hurdle for new agents is not many times in our lives have we been in a situation where you went to work and didn’t get paid. It’s a hard mental shift from, “I deserve X amount of money an hour because I’m at work too. I deserve whatever I can get.” And J just described the value that the agents should bring. You don’t know how to do that when you’re new, you don’t know what to tell the person who, before they buy that house, you have to learn. And that’s a big, big problem for new agents is that they go in there, just not understanding the W2 mindset does not work in the 1099 space in the entrepreneurial space.
So this book is the first of a three-part series written for agents. And it’s written… The first book here is written specifically for new or inexperienced agents. Maybe you’ve been an agent for four years, but you haven’t sold many houses because you never got good mentorship or training. And it comes from the lessons that I taught the new agents that were on my team that worked in my business. It helped my clients. So they come in, they’re green, they’re hard workers, they’re honest people, they’re smart. They have no idea what to do. That is the hard… That’s the most crucial part in your career. And it’s the most difficult because you got to convince that person to go to the gym every single day when they’re not seeing results. And I took all the lessons that we’ve taught the agents on my team, and I put them into this book for all the people that I can’t personally mentor, because I think that’s probably the biggest hole in the real estate agent space.
I got my license, I’m ready to go. I’m I going to take on the world. What do I do? And there’s not a whole lot of answers that are given to you until you go get a bunch of leads and a bunch of clients. And then your broker is going to say, “Okay, now I’m going to teach you.” So there’s a lot of things that go into making a good agent. There’s not a lot of places to get them. There’s actually a huge shortage. I people would ask me, “What’s a good book to read, I just got my license.” And I said, “Well, The Millionaire Real Estate Agent is really good.” And that’s it. I can’t think of any other books are written.
So that’s why we wrote this book because I know there’s a lot of listeners on BiggerPockets that are also real estate agents. We talk to them all the time and they’re all asking me questions that I can’t answer to the thousands of people that are saying, “What do I do?” So that’s why this book is written. And I’m happy to talk about more specifics or if you want to open it up to go another direction. That’s cool too.

Brandon:
Yeah, I would say let’s move on from the agent thing. I will say this. I mean, everything you write David is phenomenal. This book is, there’s no difference. It’s really, really good. And it’s really good. Even for those who are not trying to get into real estate to understand the… Like as an agent, to understand the mindset of an agent, but more importantly, what it takes to be successful in anything you could literally like apply every pretty much every principle you wrote in that book to other areas of life, including real estate investing. And it really translates well. So definitely I would recommend people pick up the book. You can get the book going to order at biggerpockets.com/-

David:
New books.

Brandon:
New books [crosstalk 00:05:50]. All right. New books?

David:
Yeah. That’s one of the links they have where-

Brandon:
Oh, I didn’t even know that there was the link.

David:
It will take to you to all new books that are getting ready to come out.

Brandon:
All right. All right. Well, biggerpockets.com/new books go there. And it’s going to be phenomenal. There’s a bunch of bonuses you get with it and all this other stuff, but I want to shift a little bit here and go back to 2021. Here we are going into what we talked about, making more money. Actually, before we go to taxes, I want to go to business like generating money from business. So J Scott, hosted the BiggerPockets Business Podcast, what opportunities do you see coming into 2021 for people to make more income, to make more money so they can then invest maybe in real estate with it?

J:
I don’t necessarily see any different opportunities than I’ve seen in previous years that said, it’s again, being a real estate investor. I think there’s always opportunity in real estate, adjacent spaces, areas that are related to real estate, but aren’t necessarily specific to real estate investing. So we talked about real estate agents potentially are owning a real estate service business. So an electrical business or a plumbing business, I don’t know more of a remediation company, the synergies as the great word that David chose there are tremendous. One, you have a company that can do work for your own projects. Two, you already have a built-in customer base, you network with other investors in your market, hopefully. So potentially you have an avenue for marketing for your services or your business. And additionally, it may give you discounts on materials. It may give you access to labor, cheaper prices.
There’s so many synergies by owning a real estate adjacent business. One of the potential values in 2021 that we don’t normally see and I said, there are none, but that may not be true is simply the fact that with COVID and with the economy where it is, what we’re seeing or starting to see is there are a whole lot of businesses that are going out of business these days. There are a whole lot of business owners, unfortunately, that weren’t able to weather the COVID storm. And over the next several months, maybe the next several year, as stimulus starts to run out, I think we’re going to start seeing a lot of businesses that go under, and that does provide an opportunity for anybody that’s looking to buy a business.
They’re going to be a lot of business owners out there, who are they be happy to take a small amount for their business, as opposed to having to shut it down and take nothing. Or I’ve talked to plenty of business owners out there who are telling me that I would be happy to give my business away to somebody that would come in and promise to keep my employees. Basically, they just don’t want to have to lay people off. So what we may see, and I said, this and I was wrong. I said, this eight months ago, I said, there’s going be a tremendous opportunity this summer to be buying these types of businesses. And what we’re seeing is that that hasn’t happened. But mostly because the stimulus has just kept going and going and going.
But once we see the stimulus run out, I think we are going to see a number of businesses that start to go away and there’ll be a lot of opportunity for entrepreneurs or real estate investors who want to buy real estate, adjacent businesses at low prices, or again, maybe even free if they’re willing to put some money in and keep the employees. And then additionally longer term, I think what we’re going to see is because all of these businesses going out of business, we’re going to see a lot less competition in a lot of these spaces. So we’re going to see some opportunity to come in and be able to snag some market share a little bit more easily than we were in the past, just because they’re going to be fewer of these businesses out there.

Brandon:
So with that in mind, all of us here today are business owners of some sort.

J:
Absolutely.

Brandon:
What are some shifts that you can recommend other people take to be successful in the new economy?

J:
Yeah. So one of the big things, one of the big opportunities is because we have a lot of businesses going out of business because we have a high unemployment rate right now. There are a lot of very qualified candidates that are looking for work. And I think it might’ve been your episode of the podcast, the business podcast that we talked David about the fact that one of the big mistakes we see a lot of business owners make is they want to bring in employees that are really inexpensive. And those inexpensive employees are the ones that you have to train. And you have to spend a lot of time bringing up to speed and you have to teach them. And that’s great. I mean, you can basically mold them how you wish and save some money. But if you really want to be impactful on your business, bring in employees that you’re not training, bringing employees that have expertise in an area that you don’t, and that can hit the ground running from day one.
I don’t want to train a marketing person because I’m not a marketing expert and I can save a lot of money by bringing in somebody that’s not a marketing expert in my real estate business. But given that I’m not an expert myself, I’m not going to do a great job of training them. It’s better for me to spend twice as much money and bring in somebody that on day one is going to start generating income for my business than it is for me to spend half as much money and have to wait six months for that person to generate any income if they ever do.

Brandon:
Why do you think that’s still hard for people? Because it’s hard for me, right? Because I get that fearful, they’re cheap. I want to go hire the cheaper person rather than the good one. Even though the good one’s worth 10 times what the cheaper ones.

J:
Here’s what I found. And I think a lot of us, our initial thought is we want to save money. But if you really dig in and I’ve talked to a lot of people about this when you really dig in, it’s often not the money that’s the concern for a lot of people. The concern is that they’re terrified of hiring somebody that’s smarter than they are. They’re terrified of hiring somebody that they feel, “I don’t know what to tell them to do because they know more about this than I do. I don’t know how to define their job role because they know more about this than I do.” And feel like by hiring somebody that is less experienced than they are, they don’t ever have to worry about saying, “I don’t know something, or I’m not an expert here.”
And hiring somebody that is an expert, you have to admit, you don’t know what you’re doing, at least in their role. And so the first thing I would say is we have to remember as business owners, the best business owners surround themselves with people who are smarter than they are. In my most successful businesses, I worked at at Microsoft for a long time. And we used to have a saying at Microsoft, “If you work with people who… If you’re in a hiring manager and you have people who aren’t as smart as you are, you’re not a good hiring manager.” Every single person you hire should be smarter than you are. And if everybody in the organization does that, every year that organization gets better and better.

Brandon:
How do you guys balance that? I’m curious to all of you, maybe you can jump in real quick. How would you rate or rank, I should say, experience culture fit and skillset. If you had those three things for an employee, do you have people who can… They have the skill set needed. Like, let’s say you need an underwriter for your real estate business. So somebody who is really good with spreadsheets and can run the numbers, but hasn’t really done a lot of real estate. And then there’s somebody who’s done a ton of real estate, they got a lot of experience in the industry. And then there’s this, I’m a really good cultural fit. I like hanging out with them, I like being with them. How do you balance those? How do you rank them? How do you view those three things? Maybe I’ll start with Amanda and then Matt and then we’ll… Then you got to hire a lot of people as well. And then we’ll jump through David and then J.

Matt:
That’s a great question because I think we’ve had our own business for 12 years now and we’ve probably run across the gamut of that situation where someone’s got all three of those and we’ve got one. I mean, on the front, I think experience is important, but then again, do they have the right experience, right? I mean, they can have a resume that say, they’ve been doing taxes for six years. So, we think they’re going to have a certain level of experience because they should’ve known how to do A, B and C. But then when you go and talk to them, interview them, you find out that they’re really in our eyes, they have two years of experience. So the experience is in everything, cultural fit, I think just in my eyes probably depends on how big your organization is.
Now, if you’ve got 100 people and somebody doesn’t “Sit in the best.” Maybe it’s not such a big deal when you’ve got… If you only have like five people or something, that’s probably going to be a bigger deal, you know? But again it depends on how the economy shapes up with people, working from home, working from the office.

Amanda:
I think like Matt said, I mean and that may be specific to a county. I know J earlier had said, you can hire a lot of good quality people in today’s market. We really haven’t seen that on the tax side, just because there’s been such a shortage. And oftentimes we end up with people who have just bad experience from working with other CPAs. So it is for us, really just being able to find someone that is a quick learner, smart teams oriented, who can learn quickly the right things and implement them the right way.

Brandon:
David, what do you think on that experience or skill set or culture fit, which is most important? What do you look for?

David:
Well, skill set meaning if you’re hiring an accountant, they have to be analytical. That’s non-negotiable, you don’t even try… If you need to center for your basketball team, you don’t go look at five foot three players. It doesn’t make sense. So I just assume if I’m interviewing you, you have the skillset for the role. And then it comes down to experience versus the attitude.

Brandon:
And culture. Yeah, [crosstalk 00:41:19] culture fit versus experience.

David:
So now that I’ve limited to just those two options. What I say is I need somebody who has experience. If I’m looking for a leadership role. Here’s my vision. I need you to drive us to where we’re going. Like for you that would probably be Brian, who helps the properties you guys are looking for. He’s done it before you turn it over to him. It doesn’t take you three years of Brian, may be developing into what you need them to be. When it comes to a maybe smaller role or less of your company success is dependent on that person. That’s where I can go more with culture fit. This person isn’t maybe going to get paid quite as much. They have more time to learn. They’re an assistant to your Brian, to the leader who’s going to drive it forward. You can get away with it there. And that’s where you kind of find that Tom Brady that was drafted at the end of the draft, that turns into the great point.

Brandon:
Which is exactly how it operated. I brought Brian Murray who wrote the book, Crushing It In Commercial Real Estate and Apartments. And he’s writing a new multifamily book that comes out next year. Brian Murray was like my… Yeah, experience guy, but he going to work 40 hours a week at the same. So we brought in Walker. Walker is now my basically integrator. He’s my underwriter. He runs most of the day-to-day. We call him my integrator in training because he is… he doesn’t have the experience, but he had the skillset and the culture fit perfectly. We then took Brian’s experience and now he’s gaining experience being part of that. So that’s a perfect example of that. J, what do you think on those three things? What do you look for? What do you care most about?

J:
I’m going to be a little bit contrarian here and say that of those three, there’s only one, that’s a disqualifier and that’s culture fit, especially in a small organization, but even in a larger organization, somebody that doesn’t fit in the culture is going to hurt morale. Ultimately, at the end of the day, they’re going to hurt the organization in a way that’s going to outweigh how much value they can add. No matter how strong their skillset is, no matter how much experience they have. If they’re not a good culture fit, I will contend that they will hurt the organization more than they will help it. I’m not saying there aren’t any exceptions there, but general rule of thumb, and this is something I’ve learned the hard way over the years, because it’s real easy to say, “Yeah, we can overlook the culture fit for this one person.”
But one person who doesn’t have the culture fit, can really drag down an organization, so that’s number one for me. In terms of skillset and experience, they’re interchangeable. Typically, somebody that has a lot of experience, but not the skillset is going to be a little bit more valuable because they can acquire it. We learn how to learn. And over years of doing anything, we get better at learning. So somebody that has 20 or 30 years of experience, successful experience at anything they’ve gotten good at learning. And they can probably acquire a new skill faster than somebody that has one particular skill, but no experience. So if I had to rank it, I’d say culture fit is a non-negotiable number one. And then typically I’m going to want to see experience over skillset simply because a lot of experience can drive, picking up a skill set faster.

Brandon:
That’s awesome. Well, I got two up points real quick to make on that. And I think you guys would probably all agree with these things. Number one is for years, I thought I had to choose between these three things and so I’d hire people without the skillset, but had great cultural fit and it didn’t work. So at some level or vice versa, right? At some level like now today it’s an all three. And I know we all agree, this they’re all non-negotiable, right? Like to a level of like, “I’m not going to hire a jerk to come work at my company. I’m not going to hire someone who’s fresh out of high school to run my entire real estate fund.” So one is don’t settle. My advice would be this don’t settle if you’re like, “Well, I really like this person for this thing, but they’re terrible at this.” Don’t hire them. There’s enough people out there right now in 2021 are going into that, that are looking for work right now. You probably just need to broaden your search. And before you settle with the one or two people you had applied.
The second point I’d make is the biggest lesson I learned over the last year, year and a half in building open-door capital is that you do not know how somebody is going to be until you work with them. That’s like, this is really, really difficult. And I understand I have a leg up on this because I have a lot of people that want to work for me. But like we found all of our people pretty much through either internships or previous relationships. So I mentioned Walker earlier. He came because of an internship. Mike came from who my investor relations, [inaudible 00:45:47] he came from one of our internships. Today I have Matt and [Drew 00:45:50] with two of my interns. And they’re both like awesome. And I’m learning what they’re good at what they’re not good at.
So relying on applications and interviews is pretty much the best that most people ever do. But if you can find a way to either JV first, partner first, just get to know them first in some way, it’s going to save you a lot of the risk of hiring the wrong hire. That’s just a couple things I’ve learned.

J:
I was having a discussion with Nathan Brooks and he’s somebody who’s been on this show. He’s a Turnkey real estate operator. He’s been on the show four or five times. And we were talking about hiring a couple of weeks ago on my show. And he gave one of the best tips that I’ve heard on hiring. And that’s bring them in for a trial run, bring somebody in four hours, eight hours even a whole week. Just say, “Look, this is what I want. I’m going to pay you for the week. I might even pay you double for the week. I want you to come in for a week. I want you to do the role we’re hiring you for, work with the team and no commitment. You can walk away on day two and say this isn’t working. We can kick you out on day four and say, this isn’t working.”
But by the end of that week, before you’ve committed to a long-term relationship. You know if they’re a good culture fit, you know if they have the skillset, you know if they have the personality, you know if they’re going to work out in that role. And so it’s a lot less risk on both sides. We’d like to think of it as the employer, we’re the ones taking the risk. But as an employee, a lot of times employees are taking the risk too, because they may be quitting another job and so now they’re risking coming to you. And if it doesn’t work out, they’re jobless, or maybe they’re not quitting another job, but they’re losing opportunity cost. If they come work for you, they’ve now stopped their employment search. They’ve stopped interviewing, or maybe they’ve cut off interviews at other companies. So they’re taking as much risk as you. So if you can do a trial run, it reduces risk on both sides.

Brandon:
That’s really, really good advice. Yeah. Yeah, Nathan Brooks he’s awesome. All right. Let’s go back real quick to this idea of hiring somebody real quick. The last point I want to make on this, when you’re hiring somebody like what do you guys individually right now, like maybe an actual example, but what are you looking for right now? Like what is going to make somebody stand out and be like, “Yeah, I want to hire that person.” [inaudible 00:48:03] because of people listening right now that they should probably go find a job working for somebody like one of you three, because that’s the best way to gain experience and knowledge right now. So what are you looking for? I will start with Amanda and Matt. Like what kind of person do you guys look to hire?

Matt:
I think for us, and this is how I was thinking, as you guys were talking earlier, which was one of the things that’s huge for us as somebody who is detail oriented and kind of the points you’ve got to make an earlier, like it’s so true is that don’t be afraid to… There certain things you can teach people for sure, obviously right. But based on experience with doing this for years, somebody is not detail oriented. They’re not going to become detail oriented. And so it’s like, don’t bang your head on the wall. Don’t try and teach that dog a new trick. So I think it’s definitely a detail oriented. And I think probably somebody who’s a go getter, obviously like somebody that’s, especially in today’s economy and having to be flexible and adaptable in the working conditions. I think that’s really huge.

Brandon:
Just give an example of detail oriented because that’s like a word that we all use, but sometimes I’m like, I don’t even know how to explain what that is. I want to give you a perfect example and I’m going to pick on my intern Drew for a second. I love Drew, he’s awesome. But this is the example of yesterday I had him deliver rock to my house because we’re redoing a garden and I didn’t think I’m not detail oriented either. So that’s why I can pick on him a little here. Like they dropped the rock off, but what would have been super detailed oriented is if he, or I would have thought let’s get a big tarp first, because now once the rocks move, I’m going to have a bunch of rock all over my yard. Like instead then now it’s just going to get a bigger problem later.
That’s an example of detail… They don’t just think of the issue, they think of the surrounding issues. And then the thing that affect those and then around those. So they’re just a tangible example. So again, Drew, I love you. I think of it-

Matt:
I can give you a good example of-

Brandon:
Yes, please.

Matt:
Somebody told me this years ago about, we do this when we’re interviewing people is you can ask them to pretend they’re role-play right. Ask him to pretend they’re a waiter or a server, and that they’re taking your order for breakfast. So they come and they asked you, “What do you want for breakfast?” And you say, “Toast.” If that’s all, if they just write it down, that’s the end of the thing. Obviously that’s a bad sign.

Brandon:
I love that.

Matt:
But if you know they say coffee and they follow do you want, cream or sugar or whatever. Things of that nature where they can think on the fly and think of those follow-up items.

Brandon:
I’m totally right in that tip down, I love that.

David:
That’s literally a training point we have on my team is, as they say, you’re not an order taker. You don’t go to the client and say, “Which house do you like? Oh, you like that one? Okay. Let’s go look at it. What do you want to do?” “I don’t know.” “What do you think I should do? Well, tell me, do you want to write an offer? Okay. What price do you want to write it at?” You’re taking this person who is overcome with nervousness and anxiety and looking to you for guidance. And you’re reducing yourself to just tell me what to go do, which is so easy.
And the reason we’re covering this is because going into 2021, when we don’t know what the economy is going to look like, the best thing that anyone can do is increase their own skillset, increase their own ability to be valuable to a company. And you find the people who did that well in 2020 made a lot of money. And the people who didn’t are the ones that their businesses literally went away and they had nowhere to work. So that’s a great piece of advice is quit thinking that you’re an order taker that just runs off after what everybody wants. The good waiter say, “That’s a great choice with your filet mignon. How would you like it cooked?” “Medium rare.” “Can I recommend a wine to go with that? What other types of wines do you like?” That’s the people that are going to do really well, regardless of what the economy does.

Brandon:
That’s really good. So, J, what are you looking for right now? Like what would you hire right now for?

J:
Sadly over the last couple of months, we’ve had to lay a few people off in two of our businesses and that’s always a hard thing to do. And it’s reminded me that in good times, we tend to grow a little bit too fast. We tend to hire people faster than we should. We may not be as efficient as we need to be. We might hire two people for a role where one good person could do a better job. And so laying people off over the last couple months has really reminded me how important it is to run an organization…

J:
Two months has really reminded me how important it is to run an organization lean, and to ensure that every role is filled efficiently, not just filled. And again, don’t hire two people to do one role because you’re too lazy to go out and find the perfect person to do that role. And so I would recommend to anybody right now, again, going into 2021, we don’t know where the economy is going to go.
Hopefully it’s going to go up. My gut tells me and I’m sure we’ll talk about this at some point, my gut tells me that things are going to stay soft and may even soften and get worse before things get better. And so if you’re running a business and all of us as real estate investors, as David pointed out, we’re all business owners, run your business lean and efficiently. Don’t necessarily try and do it all yourself, but make sure that every single person in your organization has a well-defined role and is performing their role well. And if they’re not, go find somebody better now, because at some point you’re going to wish that you had the right person in every role.

Brandon:
That’s really good advice. David, what do you think, what are you looking for right now in your team or whether it’s a specific role or what type of character type or personality are you looking for?

David:
So I’m looking for people that want to come in here and they want to build an empire. Somebody who says “I have a skill set, I am good. I want an area where I can grow with no limits and I’m willing to be a mini David.” So like I was saying, when you’re the agent, if the client’s unhappy, that’s 1,000% on you, there is no shifting the blame. So I like people that have that same mindset, who walk in here and say, “I have to be accountable to David. Like David is accountable to the clients.” We all have that extreme ownership. And the thing that I’m passionate about after working for the last three years trying to build a team and build a business that J, just mentioned, is helping people that are looking to break into the industry, understand the mindset they need to do to get in there.
So, like J, just said, if you have one stellar person, instead of two semi people, when things turn around, that person keeps their job, as opposed to two people having to get laid off. Everybody loses, the business owner losers, the employees lose, the government loses because that’s another person that goes on unemployment. It doesn’t benefit anybody. So we’re talking to business owners about, “Hey, who’s who you need to hire,” but I want the listeners who are looking to break into becoming a real estate agent, break into becoming an investor, whatever it is they’re looking to do to understand what makes them good at that job. And that’s something that there’s just another, there’s a big gap in the education for here’s how to be a good employee. And so when it comes to us, I’ll tell you the two people that I have been in 2020 that did the best job in my companies was my buddy Kyle Rankie.
He was interviewed on the BP Money Podcast. And he came in, in the middle of COVID. His first day was when our economy literally shut down. And last month, I don’t know if he’s going to want me to say in this, but he just made a little under $50,000 in real estate commissions. He’s only been doing this for about full 18 months total, at about six or seven full-time. And he was someone who said, “David, just tell me what to do and I’ll go do it.” He didn’t give me pushback. It wasn’t a whole lot of, but why do I have to do that when they don’t have to do it? He had such a great attitude that he learned so quick. And every single customer that I assigned to him said he is amazing. So I start seeing in my email inbox compliment after compliment, after compliment about Kyle, what do you think that makes me want to do?
I am way more likely to give him more opportunity as opposed to the person who I’m getting complaints about. And then I go ask him what happened. “Well, the customer was kind of salty so I didn’t really like their attitudes so I kind of just ignored them.” And then they’re expecting me to sympathize with them. “Oh, the customer was salty with you,” but I’m like, you’re trashing my business here. I can’t give that person anything. And when you come into a situation, your attitude determines how successful you’re going to be, how quickly you’re going to learn it, how fast your skill sets going to develop, then how much experience you have. Your attitude is so important. And the other one was my lending partner, Christian, who said, “Hey, I will advise you because I had skillset, and I had culture fit. And I didn’t have experience with all the loan officers.”
And he was an experienced loan officer said, “I’ll do everything for free. I don’t care. I just want to partner with you.” And for about four months he advised everybody pretty much for free. He didn’t ask for a thing. What do you think happened at the point where I’m like, well, I can’t do it without this guy. Now he’s a partner in the company because he came in with the right attitude. When you find the right fit. It’s okay to think that way, you don’t have to be so worried about like, well, I need to make sure I get mine before you’ve proven yourself. And that’s the way that I think all of us are like Brandon, with the people you’re raising money from, you don’t go in there and tell them all your fears about them. You answer all the fears they have about giving you money. When J’s running his companies and someone’s bringing them a deal.
He’s approaching this. Like how do I make that person who brought me the deal want to bring all their deals to me, he’s not just thinking about his own side. And I would say, that’s, if you want to be successful in 2021, have the faith to say, “I’m going to serve this other person and put them before myself and learn everything that I can, and watch and see if that develops into a good opportunity.” If it doesn’t well, then you go find a new company to work for. But that’s how you ingrain yourself into someone who’s already being successful. And I think if we all sat here and said, who our best employees were, that helped us build the most that are now being compensated the best. I bet you that’s a trait they all have in common.

Brandon:
Yeah, man, that’s really good. I want to pivot this show now a little bit and move over to, I mean, we have like my actual tech CPAs here on the call. We should talk taxes a little bit specifically. We’re going into 2021. What are some of the changes, we’re going to start with taxes and then I want to move to economy as well after this. So I’m going to be asking J and I mean, all of you really where you see the economy headed, but let’s start with tax changes that are happening, that people need to be of those who are real estate investors or are going to become it. So Amanda and Matt, the floor is yours. What do we see coming in the coming year?

Amanda:
Oh man. So, well, firstly, I think before we talk about next year, what’s coming up in 2021. Just want to do a quick reminder that the CARES Act brought us a lot of great tax benefits and tax saving opportunities. Those are things that we know are in existence. So as we head into the end of the year, one of the main things to do is to make sure that you’re working with your tax advisor and figure out how some of these benefits might be able to help you. I think for a lot of people, especially for investors, 2020 may not have been the best year. And so it’s really about turning lemons into lemonade. If you have losses, there are opportunities to carry it back and get refunds for prior years for immediate cash in your pocket. There are ways to access retirement funds with no penalties before the end of the year.
So there’s still a lot of these benefits that we know that are in existence that we can take advantage of in terms of getting some cash flow that might be needed. But looking ahead at 2021, unfortunately, there’s all signs point to potential tax increases. We really haven’t seen anything that’s indicating the opposite. And maybe J will tell us more about macro economically, why that is and how it’s impacted. But really from an investor’s perspective, one of the things we talked earlier about with David on that real estate commissions, right now, you can get up to 20% of that tax free. So within the proposal, as it exists, there are talks that may be further limited starting in 2021 or later years we don’t know. But certainly the changes that are coming up are all counting towards or pointing towards additional taxes.
Of course, you guys all know that there are talks that there might be limitations or phase outs of 1031 exchanges, which are huge for most of us who own rental real estate. So really not much in terms of tax benefits, but at the end of the day, I think the key word is tax planning. Because as tax changes come out, CPAs like us and others in the community, we are already taking lots of classes and reading and research and see how do we get around some of these tax increases, what are going to be the new strategy?

Brandon:
A couple of questions on that one, 1031 exchange. If that goes away. That was a talk during the campaign. I think that Biden, I don’t know if he personally said it or it was just part of his documents somewhere, said that they might do away at the 1031. Do you A, do you guys foresee that coming now, this is kind of open question to everyone. Do you think that actually could happen? If so, how does that affect real estate, how does that affect us as investors?

Matt:
He didn’t mention it at some point or the mentioned it in one of their proposal. It wasn’t as clear cut as some of the other things that he’s talked about. So it’s a little more vague, but is it going to go away? Is there only going to go away for people who make more than a certain amount of money and totally unknown. But I personally, this is just my personal thing. I’d be surprised if it went away. I think there’s too much of a strong lobby to keep it around. And whether it’s to some extent of the full thing, but I don’t know, I’m obviously not an economist, but I feel like it could slow down the selling process or the number of homes that are sold or what have you but.

Amanda:
Yeah, I think the 1031 exchange, a lot of people don’t know, but a lot of the 1031 benefit actually went away as part of the tax cuts and JOBS Act, starting in 2018. So you used to be able to 1031 exchange and defer taxes on other assets too. So business assets, when somebody sold business assets, you could have deferred the taxes before. Although we always talk about real estate because we’re real estate investors here, but that actually went away under the previous tax reform. So like I said is I mean, anything is possible, but hopefully that’s not the case. I think looking ahead if 1031 exchanges removed completely and the capital gains tax rate in another part of the proposal, right? For might be increased to over 39%. So you combine those two with someone who’s owned real estate for years and years. And not only do they have to pay taxes, but it’s also going to be at a much higher tax rate. I think people will think twice or more about whether they’re going to sell a specific property.

Brandon:
Yeah. I would envision a whole lot fewer big apartment complexes that have been traded up over the last 20 years. A lot fewer of those sellers wanting to sell it. But what do you think, J?

J:
So I obviously, I don’t know. We’re all guessing here, but I’ll throw out a couple things. One, it’s important for us to remember that first and foremost, and over the past four, eight, 12 years, depending on who you ask, there’s been this push towards the president having a lot more involvement in legislation. We’ve seen a lot of executive orders over the last two administrations. And so historically speaking that hasn’t been the case. I’m hopeful that we’ll get back to the point where presidents are not making legislation and it goes back to Congress to make legislation. So I’m hopeful that even if the president decides to do certain things with respect to taxes, that he will push it to Congress to make those decisions. And so then the important point to realize is that there are a lot of people in Congress who rely on real estate as their primary source of income outside of their congressional salary.
And historically speaking, Congress has not done a whole lot to vote against their own interests. So the fact that, and we’ve seen this with things like conservation easements, which actually have been tested a lot the last couple of years and certain real estate loopholes. And now I think we’ll see it with 1031s. I have a feeling that Congress is going to be very hard pressed to pass laws that would hurt them in their own pocket books or their own wallets. So I’m not too concerned about 1031s going away.
That said, I think it’s pretty clear to me that we are going to see an increase in taxes overall. I think we would see that with either administration, but certainly it looks like the Biden administration is going to be taken over. And they’re certainly pushing for greater tax increases than we would see if the Trump administration were going to stay. So I think it’s something we need to prepare for. And I think as real estate agents, part of our real estate investors and business owners, part of our job is to zig and zag as things like this are thrown at us. So am I happy about it? No, absolutely not. But I will do what I do with any administration and any changes that come my way, I’ll figure out how to zig and zag best I can.

Brandon:
I think that’s a really good point. Is that there’s a lot of fear around change, not just with real estate and taxes or politics, but especially in those three areas. People get fearful because the world is changing. But I think it’s just a good reminder that that’s the nature of life we zig and zag, we move with it. And generally speaking, if you’re listening to this show right now, you are probably smarter than the average bear, right? We’re going to figure this stuff out. If you all start feeling anxiety, people listening to this feeling anxiety about the coming year or the new administration, or what’s going to happen. We always figure this out. And investors typically come out ahead at the end, because like you said, Congress is largely made up of many real estate investors. And so it’s usually not too terrible for us.
Let’s talk about COVID though. Where do you guys see the economy headed in 2021? And again, we don’t have crystal balls. We’re just guessing here, but for the sake of conversation, let’s start David Green. What do you think? W what’s COVID and what’s all the unknowns and uncertainties going to do to the economy and real estate specifically?

David Green:
I think you’re going to see a bifurcation of opportunity.

Brandon:
That’s a big word. I don’t even know what that word means.

David Green:
You’re going to see a polarization. That’s still kind of big. Huh? You’re going to see everything was in the middle of the two extremes. If you work for a certain industry [crosstalk 01:06:28].

Matt:
Are splitting.

David Green:
All right there you go. I think like a twoferezation, I think that should be a new word, but such a good [crosstalk 00:14:37].

Brandon:
Hey, bifurcation. Okay, go ahead.

David Green:
So if you work for a company like an Amazon, and I don’t want to give a huge list of what they all would be, you’re going to do really good. You’re going to be getting raises, you’re going to be in a solid position. If you work for a company, whether you worked at a manufacturing plant that’s going to become under a ton of regulation and restrictions that might be harder to keep your job or at least be able to do well. So what I’m noticing specifically in my space as an agent, is that condos and town homes are becoming much less desirable.
Single family homes with yards that have more square footage are becoming much more desirable, which was the opposite of the trend that we saw for the last eight years or so, where all millennials were wanting to buy in the big city and they’d get a tiny little condo, but it was the location was what they wanted. They didn’t have to have a car. That’s all changing. And that’s that’s to J’s point, you got to be okay, zigging and zagging. You cannot just get comfortable thinking, this is the way it goes. I don’t have to educate myself anymore. I don’t have to pay attention.
So one of the things that I’m noticing is helping people who are considering buying look at well, shelter in place might now become standard operating procedure with our country. It might be the next there’s going to be another virus after this one. It could be other concerns where they say, “Nope, everybody Batten the hatches, stay home.” How do you position yourself so that you can do better there? When you’re buying properties, do condos become something that you can expect appreciation with quite as much. I bet you in your market, Brandon in Hawaii, I think you guys had a condo. You probably just got a sold and you might not buy another one if it was in today’s environment. So that’s one thing I’m telling people to prepare for. And the other is that I think I made this point a little bit earlier. Most people look at it from this binary perspective of “Am I working at W2 or I’m a retired doing nothing?” And real estate is the way you jump from one to the other, real owning real estate is.
I like to consider, well, there’s a spectrum. How do you move from I punch a time clock. I work nine to five. I’m a strict W2, into I have some freedom, I have some flexibility, I’m a business owner. And then eventually I become an investor. Maybe more like the Robert Kiyosaki cashflow quadrant. You don’t skip from employee to investor, that there’s actually transition, it’s okay to take so that if we get a big change or when we get the big change and you don’t know exactly where it’s going to come from, you are prepared to handle it no matter what. That’s really the advice that I give people because I don’t have a crystal ball. I can’t tell you what’s going to happen, but I can tell you it’s going to change. Whatever we’re used to isn’t going to be the same. So position yourself where you can be very flexible and you’ll be okay.

Brandon:
Amanda, Matt, what do you think, where the economy headed in real estate specifically?

Amanda:
Oh, my gosh.

Brandon:
We’re going to hold you to this and we’re going to broadcast it.

Amanda:
I know. I feel so pressured. Gosh, I have to agree with David’s that I think, I don’t know about the economy as a whole, but back down at the individual level, I completely agree because we have clients who maybe work in the tech space, and are real estate investors where COVID 2020, even 2021 are projecting huge windfalls. And so from a planning perspective, it’s okay, how do we take those windfalls maybe in stocks and put it into real estate so we can scale very quickly. And then we also have clients are just our landlords who are struggling a little bit this year because tenants inability to pay and things like that. So for us we kind of see the two different spectrums that was mentioned earlier. I think from an action perspective is really just being able to pivot like you guys were saying earlier, we have clients that earlier in the lockdown, people who are doing Airbnbs, where they weren’t able to get any bookings, everything was refunded.
And for a lot of those people that we’re talking to, they’ve now made up whatever was lost in those earlier months. And even more, because now people prefer to do Airbnbs rather than staying in large hotels with lots of other unknowns. So I think regardless of what the economy does as a whole, there are always things that we can do and looking at what our resources are, what our expertise is and how do we deploy that so that we can continue to build our wealth. Irrespective of what the economy at large is doing.

Brandon:
J.

J:
So it’s such a hard question because when we talk about the economy, we’re talking about so many different things. We’re talking about the macro economy, so unemployment levels and how money is flowing. We can talk about the real estate market. We can talk about inflation, we can talk about the income gap and wealth inequality. We can talk about interest rates. We can talk about so many different things. So I’m not going to be able to cover the subject extensively, but let me kind of start with, you always want to ask first and foremost, where are we right now? And normally there’s an easy, clear response to where are we now. That’s normally the easiest question to answer when we’re talking about the economy, where are things today? The problem is we don’t know where we are today. There are so many inconsistencies in the economic indicators that we’re seeing.
On the one hand, we look at things like the stock market. Let’s just take the stock market. We hit an all time high in the Dow this week. I mean, at the same time, we’re seeing real unemployment at about 15%. We’re seeing U-3 unemployment, which is the common unemployment measure at about 8%. We’re seeing unemployment filers at 800,000 people this week. We’re seeing the largest number of people who haven’t been able to pay their rent or who haven’t paid their rent in history. We’re seeing the largest number of people now we are giving them the option of not paying their mortgage through forbearances, but we’re seeing the largest number of people in history, not paying their mortgages right now. And at the same time, as David pointed out, there are a lot of people who are doing tremendously well, billionaires are making billions and trillions dollars more.
And people that work for big tech companies are doing tremendously well. And so right now we’re not seeing any consistent people always ask me, “Where are we in the cycle?” I wrote a book all about economic cycles and people read the book and they say, “So where are we right now?” And I’m embarrassed to say that when I wrote that book, nobody had ever thought about something like this happening, not just me, but economists. And right now we’re kind of nowhere in that economic cycle, we’re outside the economic cycle. So that leads me to the next big question that we need to be answering. What’s going to get us back into the cycle, and once we get back into the cycle, where are we going to be? So start with that first question, what’s going to get us back into the cycle?
In my opinion, the thing that’s going to kind of get us back into reality, economic reality is when the stimulus runs out. Right now we’re living in a foe or a fake economy that’s being propped up by all this stimulus. And its personal stimulus. We literally sent out cheques a couple of months ago to every American. It’s small business stimulus, PPP, EIDL loans. It’s big business stimulus. I mean the too big to fail and basically carving out trillions of dollars that were just handing to businesses without any accountability. Then we have what we’re doing for renters and homeowners, rent moratorium. So people aren’t being kicked out if they’re not paying rent. And forbearances where people who own their houses aren’t being foreclosed upon if they don’t pay their mortgage. So tons and tons of stimulus. And it’s likely now that the election’s over, we’re going to see a whole lot more stimulus.
At some point, that’s going to need to stop. And right now it may not seem like that time’s ever going to come, but it is going to come. And when that stops, we’re kind of all going to be jolted back into reality. And we’re going to find ourselves somewhere in that economic cycle, we’re going to find ourselves at the top of the market or the bottom of the market or somewhere in between. We don’t know where that is, but I have a feeling that once the stimulus runs out and we allow things to go back to, I use the term steady state. We kind of let everything fall into place. We’re going to see that the market, the economy in general drops. I think we’re going to say, and again, I’m just guessing, but I think we’re going to see what we refer to as a double dip where unemployment actually drops lower. And we’re going to see a lot of foreclosures or a decent number of foreclosures, maybe not 2008 type foreclosures, but we’re going to see a decent number of foreclosures.
We’re going to see a whole lot of people that are getting kicked out because landlords, unlike with our mortgages, we can do mortgage forbearance. And we can say, “Hey, don’t pay your rent for six months. We’ll add that onto the back end. So you just pay your mortgage longer.” We can’t do that in the rental world. If somebody hasn’t paid their rent in 60 months, your two options are or three options are, you forgive them and say, “Okay, just keep, start paying your rent from here,” two you ask them to pay it all back before you allow them to move forward. Everybody knows that’s not going to happen. Or you somehow figure out some hybrid where you attack it on the end, but you can’t really do that. And so for people that are renting and not paying their mortgage, there’s going to come a day of reckoning. And we’re going to have a whole lot of people that are getting kicked out on the street.
I think when that happens, we’re going to see the economy kind of dip. So how does that, then that leads to the next, how does that impact us as real estate investors? After all that talk, you would think I’d have a good answer for how all of this impacts the real estate market. But the truth is we don’t know. If you look at various recessions over the last 150 years, there’ve been several of them, 2008 was a good example of one that real estate market got crushed. Go back to the early 90s, late 80s, early 90s, real estate market got crushed. Go back to the great depression, real estate market got crushed. But then there are plenty of other recessions you’d look at 2001. Real estate was barely touched. In fact, in a lot of areas, real estate kept doing well.
Go back to the 70s and some recessions in the early 50s, the first recessions after World War II, real estate just kept going up. So we don’t know exactly how real estate is going to be affected. That said, my guess is that affordability is the largest driving force and there’s debate over whether this is true, but in my opinion, affordability is the largest driving force of whether an economic recession is going to lead to a real estate downturn.
And these days, what I think most people will agree is that we’re seeing affordability issues in a whole lot of markets. You look at the Case-Shiller data that bears out the fact that there’s a lot of affordability issues across much of the country. That leads me to believe that we are going to see a softening in the real estate market. Again, I’m not saying it’s going to be a 2008 sort of thing. I’m not saying it’s going to be a great depression sort of thing, but I definitely think that we’re going to see a downturn in the real estate market. So there’s that answer. Then that leads to a couple of other questions, inflation and interest rates. So, because that affects us as real estate investors as well. Let’s start with interest rates. One, I don’t think interest rates are going up anytime soon. First and we’ll talk about inflation in a few minutes, but there’s a lot of pushes for inflation.
The fed is pushing for inflation over the last couple of years. The best way to generate inflation is for the economy to keep going strongly. The best way to spur on the economy is to keep interest rates low. So I think we’ll see interest rates slow for that reason. Number two, the fed has printed four, $5 trillion over the last couple of months, we have to pay debt on all that money that we’re printing and the amount of interest we pay on that debt is directly proport…

J:
Printing and the amount of interest we pay on that debt,, is directly proportionate or directly related to our interest rates. So, increasing interest rates is going to cause us to have to pay a whole lot more money on the debt and the money that we’ve printed. So, I think for that reason, we’re going to see interest rates stay low. So, all in all, I think interest rates are low for the next three, four or five years, could be 10 or 15 years could be forever, who knows. But, I think anybody that’s sitting there thinking, do I need to get a mortgage now because interest rates are going up, I think interest rates are going to stay low. Now, let me talk about that. Mortgage interest rates aren’t necessarily the same as the federal funds rate, the real interest rate that the government sets or the Federal Reserve sets.
So, what are mortgage interest rates going to do? Typically speaking, when there’s uncertainty in the market that has an effect on bond prices, bond prices have an effect on mortgage interest rates, and we see when there’s uncertainty in the market, we see mortgage interest rates go down. When there’s certainty in the market, everybody is a little bit more comfortable, we see mortgage interest rates go up. We’ve actually seen a pop-up in interest rates over the last week or two since the election, just because I think, regardless of who would have won the election, people like the fact that there’s some level, and you can argue whether there is any level of certainty, but I think to a lot of people, there’s more certainty than there was a few weeks ago. And so, the market is like that, but that has pushed up interest rates a little bit.
Long story short though, I think mortgage interest rates are going to stay low, at least for the next couple of years as well, which leads us to the next question. Inflation, and I’m sorry, this is probably more information than you were asking, but let’s talk a little bit about inflation. So definition of inflation, I’m not going to give the technical definition, but the definition that we tend to care about, is the price of the stuff that we buy, the consumer goods, and the commodities that we buy, going up. When the price of your milk and your cars and your rent and all the stuff that you buy goes up, That’s inflation. When it goes down, that’s deflation. So, the question is, are we going to see inflation, are we going to see deflation or we are going to see things hold steady. For a whole lot of reasons, I think we are going to continue to see inflation, and probably we are going to see over the next few years, maybe not the next few months, but over the next few years, we’re going to see an increase in inflation.
Biggest reasons there are, one, the FED came out about a month ago and said, We want more inflation, we have not seen enough inflation. We can talk about why that is if you want, but basically, when the FED says, we want to see more inflation, good rule of thumb, the FED gets what they want. They create what they want. So, when the FED says, we want more inflation, typically that means we ARE going to see more inflation. Number two, as long as interest rates are low, interest rates… Low interest rates spur the economy, economy being spurred, drives inflation. Typically, inflation is driven by the market doing well.
Third, we are printing lots of money, when you print lots of money, that deflates the value of our currency and, we see inflation. So, long story short, I think we are going to see over the next three, five, 10 years, a decent amount of inflation but, a lot of people say, Well, how about in the next month or two or six or 10, are we going to see a lot of inflation? Do I need to worry about all my money like the value of my dollars going to zero and, I think over the short term, we are not going to see a lot of inflation because, there are two other things that factor into inflation that are important.
Number one is demand, when the economy is kind of soft and there’s not a lot of demand for goods inflation is caused by basically everybody wants to buy lots of stuff so, businesses need to start making more stuff and, they have to hire more people, they have to buy equipment and buy inventory and buy warehouse space. And, when they spend all that money, they have to raise their prices so they can get the money back. When people aren’t spending money and the economy is not doing well, businesses are not raising prices and we don’t see a lot of inflation.
So, short-term, I think until the economy gets it back on track a year, two years, three years, whatever it is, I don’t think we are going to see a ton of inflation. The inflation starts in three, four or five years. And then, number two, is, just like gravity in the physical world, there is this gravity in the inflationary world, gravity, there is this general push of towards deflation. Prices tend to drop, because we get more efficient at doing things we automate. And so, to get inflation, you actually have to work at it. Inflation does not happen automatically, deflation happens automatically. And, so I think over the next couple of years, we are not going to see a ton of inflation, but over the next three, five or 10 years, we are probably going to start to see more of it. Wow. Okay. So is that, all the answers to all your questions?.

Brandon:
Yes. That, is a great answer to where the economy headed. Do you have any feedback on that, Amanda, Matt, or David? Anybody want to comment on that everyone? [crosstalk 01:22:46].

Matt:
Yeah, I was going to say the same thing. [crosstalk 01:22:57].

Brandon:
So, let me ask you this question. Based on all of that thought, and I can start with J, but maybe that is a follow-up wrapping question for today’s podcast. Based on everything we talked about, including, and especially where the economy is headed possible inflation. Because I actually think I agree with J on that, for those things I could understand. Based on that, where do you guys think investors should be doing? What should they be doing right now? What are a couple of tangible tips? Maybe one each or two each that investors should be focusing on right now? Why don’t I start with David Green because I know you’re good off the fly.

David:
Tangible tips and investors should be doing first to find out whether we have, a lot of inflation or a lot of deflation, real estate works good for both. That’s why I love buying it. If, ever… The values go down on everything, great, I have cash flow in place that keeps my asset protected. The stock market can’t say that, if everything goes up in value, that’s even better for real estate. So, you’re good either way when you’re trying to figure out where do you put your money, putting it into real estate. That’s one of the reasons that I love the asset class. Second piece is, where are you going to invest? J made a good point about inflation coming, and as he was talking, I was thinking, man, I already see it in my market, inflation is rampant here, everything is going up, wages are going up.
So, remember [crosstalk 01:24:09] that real estate is locally-based. Have you seen, there you go. Right?

Brandon:
Or like restaurants, they’re charging a lot more money now because they have to because, they can’t sell as much stuff. So, if you live out here in the California Bay area, prices are already going up a lot, maybe in the middle of the country, that’s not so much. So, depending on where you think the market goes, that might depend on where you want to invest. So, I would recommend checking out long distance real estate investing, talking to some other people about what they’re seeing and then trying to predict where migration patterns are going to change. For instance, California, because of COVID has put themselves under water as far as the money that they’re bringing in on taxes. We can’t afford to continue going like we are going, but we probably don’t have any politicians who are going to say, Cut back.
So, they are going to raise taxes, there’s no way around it. That means people are going to leave the state because they don’t want to get taxed higher. They’re talking about bumping up our tax almost 17% for state income tax. So, what I would say is, what climates are similar to California that have no state income tax because, that’s where Californians are going. J’s really smart, he went to Florida first and he’s already buying property out there because, when Californians move places, as anyone knows who has had Californian’s move in, it pushes prices up. Nobody loves that. So, consider areas like Tennessee, Texas, Florida, because they have warm climates and they have no state income tax, I think a lot of people are going to move there. That’s, the advice that I would give that really works regardless of what the economy does, because we can’t know what’s going to happen, but we can be pretty sure that it’s not going to be the same that it is now.

David:
All right, Matt and Amanda, what’s your advice for people going into 2021?

Amanda:
I just agree with everything David said, it’s what we are seeing on our end in working with clients and, in looking at where we’re going to be investing. It’s so true about the migration out of certain States like California, do the taxes or New York do they… Just being, too crowded or too urban into places like Florida. And, so many of our clients have made the shift from an investment perspective, from a tax planning perspective to really try to grow and protect their wealth. I think that, one of the things is to just really stay on top of what we think is going to happen in terms of the economy and, making those types of decisions.

Matt:
Yeah, I think we are talking to clients now, as you know, we’ve got a few weeks left in the year, obviously, you’ve got to think about.. We can’t make decisions for people obviously, but you as the individual have to think about, what do you think is going to have more taxes. Do you think the taxes are going to go up, you think they’re going to stay the same, go down, because that’s going to dictate what moves you make, obviously. And then, there’s an extreme example obviously. If you think capital gains rate is going to go from 20% to 39.6, and you were planning to sell something next year, does it make sense to pull the trigger sooner, by the end of the year?. That’s an extreme example obviously, but that’s a real life example that people have to think about.
So, that answer’s going to be totally different for everybody, obviously. So that’s what I’d tell people. [inaudible 01:27:12] look at 2020, look in 2021 and you’ve got to make the decision based on the facts of what’s happening in the economy and the political ramifications. And, if there’s going to be tax changes, how soon or never, are they phased in, are they right away? Are they retro? There’s so many things, but that’s where I would start from a tax perspective.

Brandon:
All right, J, what do you think?

J:
So again, lots of things we could discuss here, let me start with one of the biggest concerns longer term. And, we talked about inflation and as I pointed out personally, one of my bigger concerns, longer term is inflation. And, that’s one of the reasons that I love real estate. If you’re concerned that we’re going to have inflation and it’s no guarantee, some people think we’re going to go the opposite way, but if you’re concerned we’re going to have inflation and I am, the second best hedge or the second best investment you can make when you’re concerned about inflation is real estate. And, the reason for that is if, let’s say I have $100,000 and next year I still have $100,000 in cash and, the price of everything doubles, my $100,000 is basically worth half as much. Inflation has cut my spending power in half.
And so, cash is a bad thing. Real estate is a good thing because if I took that $100,000 and I put it in real estate, if everything doubled in the next year, most likely the value of my real estate doubled in the next year and the amount of rent I’m getting doubled in the next year because, typically with inflation, the value of real estate and the value of market brands keeps pace. So, real estate is probably one of the best ways to preserve the value of your capital over any inflationary period.

Brandon:
You said second best though. What’s the first?

J:
Yeah. So let’s talk about the best, the absolute best hedge against inflation is debt. And, here’s the reason for that. Let’s say, I buy again, $100,000 property, let’s say I make $100,000 a year and let’s say that $100,000 property, I have a mortgage payment every month of $1000, quick math, how much of my annual salary am I putting towards mortgage every month? Anybody? Come on, you can do a percentage.

Brandon:
1%?

J:
1%. 1% of my annual salary is going away towards mortgage every month. Now, again, let’s say next year, prices of everything, doubles, value of that property is now $200,000, I’m getting twice as much rent. And let’s say, because everything’s doubling, my wages are going up too. So now my wages, instead of making $100,000, I’m now making $200,000. Did my debt go up by twice? How much am I paying on mortgage every month, I’m still paying $1,000. And that $1,000 is no longer 1% of my salary, it’s a half a percent of my salary. That’s a half a percent. There you go [crosstalk 01:30:09].
See, I saw you pull out the calculator. And so, basically I’m paying down that debt with quote, unquote, cheaper dollars. Basically, I am taking the debt when the dollars are worth a lot, and then I am paying them down when I have a whole lot more money when I’m making a whole lot more money. And so, with real estate, typically I can keep pace with inflation, with debt, not only can I keep pace with inflation, I’m actually benefiting from inflation because I’m paying down that debt with cheaper dollars.

Brandon:
Are you saying by having debt, or by being a debtor, like you are, lending money. What do you-

J:
No, by having debt.

Brandon:
Okay, Okay.

J:
By taking debt against my property. I am not telling anybody out there over leverage, I am not saying get as much debt as you possibly can, use debt wisely. Always use that wisely, but intelligent use of debt during inflationary periods is literally the best way to make money.

Brandon:
Yeah, that’s cool. Alright

J:
And if you’re a lender, you’re going to get screwed during that time [crosstalk 00:13:11].

Brandon:
That’s what I figured when you said that debt is the best, I would not like being the guy holding the debt because, you can’t raise your rates. You can’t raise your interest rate.

J:
Exactly. So, basically for anybody out there that I’m lending money to, be forewarned.

Brandon:
Yeah.

J:
So, but seriously lending tends to be a lot less effective and profitable during the inflationary period. Keep your loan short and, make sure you’re resetting your rates appropriately,

Brandon:
Unless you’re lending money to people, with like good-looking beards and-

J:
Sometimes, you are just going to give it away because you like the person.

Brandon:
Sometimes, because you like the people, people like to lend to people they like. There you go. Thank you. Let’s wrap this thing up. So, those who want to learn more about the stuff we [inaudible 01:32:00] about, all three of you have books that you have written. J, what books have you written and, what did each of them cover, and then we’ll go to Amanda and Matt and we’ll go to David Green.

J:
Yep. Brooklyn Flipping Houses covers, one guess.

Brandon:
Rental [inaudible 01:32:12]

J:
Yes. Flipping houses, basically lays out a chapter by chapter ,20 chapters, 20 steps towards getting your first flip or your next flip. Next book is, the book on Estimating Rehab Costs. So, one chapter of the book on flipping houses was all about estimating rehab costs and, by the time I was done, that chapter was 300 pages so I turned that into its own book. So, if you want to learn how to… A good methodology for Estimating Rehab Costs, the booklet estimate rehab costs, the booklet negotiating real estate. As far as I’m concerned, the best negotiating books specifically geared towards real estate investors. And, as David Green would attest if he actually read it, because he hasn’t, it’s probably good for real estate agents as well. And then, finally, Recession-Proof Real Estate Investing, which is a book all about economic cycles, how the economy works and how we should be modifying our strategies and our tactics during each part of the economic cycle, which is a very timely book for today. So check it out.

Brandon:
There we go. All right. Amanda and Matt, you guys have written some books.

Amanda:
Yeah. Only two though, compared to J that’s not a lot.

Brandon:
J is an over achiever.

Amanda:
So, our first book was, The Book on Tax Strategies for the Savvy Real Estate Investor and, we just had The Book on Advanced Tax Strategies that came out recently. So, both are essentially ways to use real estate to save on taxes. So, if you are someone who is investing in real estate or planning on investing real estate, these are really great books. The feedback we’ve got is, it’s not your typical, [inaudible 01:33:46] the tax code, boring calculations in fact, we talked very little about the tax code in itself, but mainly going over examples of what can be done to use real estate to reduce taxes. Well, we also talked about what can not be done with some of the horror stories that you might want to avoid too, so.

Matt:
But, we do change people’s names to protect the innocent, so [crosstalk 01:34:07]

Amanda:
So if you see Brandon in there, that’s not Brandon Turner it’s another Brandon.

Brandon:
I may or may not be one of those examples in that book. It’s okay. [inaudible 01:34:14]. Oh, there we go. J’s holding up the books. Yeah. Pick them up, they are awesome. In fact, I’ve [inaudible 01:34:20] behind me as well. In fact, I am going to answer a question before I get to you, David. The earlier J said the best investment… The second best is real estate, the best is having debt. I am even going to go one above, that the best investment you can make in a potential recession is in your own education. I am such a… And I know we are all big believers in that. The best thing you can do, is be knowledgeable. Don’t just be passive, don’t sit there watching TV all day long, waiting for the government to take care of you.
And I know if you’re listening to an hour and a half into this show, you are not one of those people who just lets life go by, so continue to educate yourself, pick up a copy of these books and start reading. Listen to more podcasts. Tell your friends about this, become an expert in your area. Just keep building that knowledge and that expertise, that skill set, that social network, that brand around you. And, you’re going to be fine no matter what you see. With that said, David Green, what have you got or what have you written?

David:
[inaudible 01:35:08] Long-Distance Real Estate Investing. That’s the book that describes how you buy in other areas, but-

Brandon:
Oh, thank you, J.

David:
Like Vanna White over here, but even hotter. I appreciate that.

Brandon:
But really, that book [crosstalk 01:35:22] .

David:
Too hot to touch, I don’t blame you. It details systems for when you’re buying real estate, this is the systems you should have in place to be able to do it and, that’s why it can work anywhere. The Brrrr Buy, Rehab, Rent Refinance, Repeat describes… Here we go, thank you. Can I buy an R please? It shows us how to buy properties, fix them up and then pull your money out to increase the velocity of your money, increase your ROI and scale portfolio safely and rapidly. And now the new book, which will be the first of a three part series, which is the labor of love spent towards helping real estate agents not suck at their job. And hopefully this helps the industry as a whole, as new agents learn how to be better agents so that us, investors have a better experience, with those agents and bigger pockets can be responsible for improving the entire real estate ecosystem.

Brandon:
And that book is called

David:
Sold.

Brandon:
J doesn’t have that one yet.

J:
Yeah, this is what you get for not sending me an advance copy.

David:
Yeah, We need to talk to [inaudible 01:36:23] publishing about that.

Brandon:
Very good point J,

David:
It’s Sold, every real estate agent’s guide to building a profitable business.

Brandon:
I like what you said the first time, Sold, is about how to not suck as an agent, that would have been a better title [crosstalk 00:01:36:40]. Yeah, because that’s the book you buy for your real estate agent friends. But that said, speaking about it as a gift, if you are not interested in becoming a real estate agent, that’s fine. I am not going to become an agent anytime soon. However, I’m still going to give copies of that to my agent friends and my buddy who wants to become an agent still hasn’t taken action yet too much on becoming an agent over the last 18 months, but I’m going to send him a copy of David’s book.
So, I hear we are in the Christmas season, probably if you’re listening to this, when it comes out, pick up a copy of, Sold, to send to your agent or any of these books to send your real estate investor friends, family, or just to read for yourself. And I think, if I remember right, there’s actually a sale going on. Yeah. When this comes out, discount code, podcast, will give you 20% off everything in the BiggerPockets bookstore. So , anything you want in BiggerPockets bookstore, 20% off, and that is active. That code is December 10th, 2020 through December 15th, 2020. Again, code is podcast. You can get the books at biggerpockets.com/store.

J:
[crosstalk 01:37:37] your books. I’ve got a bunch of them and that’s it. So, here’s a little surprise for anybody, walk into your nearest Barnes & Noble and check out… Or whatever your local bookstore is and make sure you check out Brandon’s books because here’s a little secret. Whenever I go into a bookstore and I find a Brandon book, I sign it from Brandon and I put his phone number in there.

Brandon:
Great. That’s what I thought. That’s why I keep getting phone calls. So, that’s great.

David:
That’s hilarious.

J:
We want Brandon’s personal cell number.

Brandon:
It’s like the Willy Wonka golden ticket. [crosstalk 01:38:12].

J:
I have been waiting for that day that Brandon comes to me and says, Somebody found my phone number in a book. So, that’s actually a funny idea. I think we should do that with the next book.

Brandon:
Okay. I’m going to do that on the multifamily millionaire book that I’m writing right now, it’s Brian Murray and I write in a two-part series on multi-family, comes out next summer.
We’re going to include it… Somebody remind me of this later. We’re going to include a golden ticket in one copy somewhere in the world. And, that person gets to do something cool Like come out to Hawaii and spend some time learning real estate or something. That would be fun, that would be cool contest.

J:
Love it.

David:
I like this idea. Yeah. I’ve got to figure out how to get a golden ticket.

Brandon:
All right. Well that said, Oh yeah, I’ve written some books there in the BiggerPockets bookstore. And, where can people find out more about each of you? J? Where do they contact you at? Or at least learn more about you? What’s your phone number?

J:
My phone number 770 [crosstalk 01:39:02]

Brandon:
J Scott’s phone number

J:
You can contact me, my website is Jscott.com, by email, you can send me an email [email protected] or if you like everyone to invest with me, go check out, invest with J, just letter j.com.

Brandon:
Hmm. Fancy. Sounds like bring Brandon a deal.com. Yeah, amazing, awesome. All right, J and you, of course are the hosts of the BiggerPockets business podcast, the best business podcasts on the planet.

J:
Thank you, contractually, I am obligated to actually say that. So yes, my wife and I are co-hosts of the BiggerPockets business podcast, check it out.

Brandon:
Well, you were contractually obligated to your tattoo of my face on your upper arm, but you haven’t done that yet either. So,

David:
Where did you get that tattoo J, because I don’t see it on your upper arm and I know you [inaudible 01:39:56] contracts.

J:
The bandage hasn’t come off yet.

Brandon:
All right, Amanda and Matt, where can people connect with you guys at?.

Amanda:
So, our website is Keystonecpa.com. That’s K-E-Y-S-T-O-N-Ecpa.com. We have some great free downloadable resources to check out if, you want to learn more about tax savings.

Brandon:
And finally, David Greene, host of the bigger pockets podcast, best-looking agent in California. Where can people find out more about you?

David:
Well, I think they should just ask Brandon, I would rather you tell people about me or J, J said some really nice stuff. Just go to them and they’ll tell you everything you need to know. To contact me directly, you can get me on anywhere on social media, DavidGreene24, has an, e, at the end of green, Instagram’s probably your best bet or the BiggerPockets website. I do check my emails. I try to check them more often than I really get around to doing it.
But I’d say every week or two, I’d go through there and reply to everybody. And, if you have an agent friend, if you want to give your, your agent a gift for helping you with your house, I think this is a really good way to do so. So, you can get the book at biggerpockets.com/new books. It’s the top one on there.

Brandon:
All right guys, thank you so much for being a part of this webinar… Podcast today, not webinar, those happen on Wednesdays and you can sign up a biggerpockets.com/webinar. Let’s get out of here. David Greene, in typical fashion, would you like to close today’s show?

David:
Yes, sir. This is David Greene for Brandon, the webinar wonder kid Turner, signing off.

Brandon:
You’re listening to BiggerPockets radio, simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

 

Watch the Episode 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

Rent To RetirementEnjoy all the benefits of Real Estate Investing without all the headache! Rent to Retirement is your partner in achieving financial freedom & long term wealth! Retire on your terms & timeline by investing in passive income properties!

Learn more by visiting renttoretirement.com or call 800-311-6781.

PPR LogoPPR has managed distressed mortgage investment funds that have bought and sold thousands of residential mortgages nationwide. Managed by a team with expertise in real estate finance, property management, and BRRR investing, they’ve provided investors with passive income for over a decade.

If you’re looking to supplement your active investing and get a nice return passively, learn more about how to get started today in notes or a diversified note fund at: pprnoteco.com/bp

Mid-roll Sponsors

Deal Machine e1562821662145Deal Machine is a smartphone app that lets you (and your team) pin distressed properties, look up the property owner on the spot, and send them a personalized postcard in seconds – directly from the app. You can set the mailer on repeat to make sure you won’t forget to follow-up. And, while the app is sending a custom postcard, you can look up the owner’s phone number and email instantly.

Go to dealmachine.com/bp to get a 14-day free trial and $40 worth of mail!

simplisafeCheck out SimpliSafe Security’s DIY home security systems; an affordable, wireless, cellular, and customizable system that doesn’t require a contract!

Go to SimpliSafe.com/pockets to enjoy their 60-day money back guarantee.

Post-roll Sponsors

Rei NationAre you interested in investing in out-of-state properties that safely? Chris Clothier, owner of REI nation,  has contributed to BiggerPockets for a long time and has written an excellent ebook and recorded an audio book laying out the specific steps that smart passive investors follow to invest safely and securely.

You can download the ebook and audio at REInation.com/biggerpocketspodcast.

In This Episode We Cover:

  • Who should and shouldn’t become a real estate agent
  • How to offset earned income tax with real estate investments
  • Why you should buy David’s new book SOLD: Every Real Estate Agent’s Guide to Building a Profitable Business
  • The new opportunity of buying businesses in 2021
  • How to hire your best workers (and why you may need to let some go)
  • How 2020 taught us to keep our businesses lean
  • What to do if 1031 exchanges go away
  • How inflation may affect your wealth over the next 1-5 years
  • Why debt is a great inflation hedge
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with Amanda & Matt:

Connect with J:

Connect with David: