BiggerPockets Podcast 446: Pivoting the Goal and Swapping Doors for Cashflow with Kyle and Lauren Clugston

BiggerPockets Podcast 446: Pivoting the Goal and Swapping Doors for Cashflow with Kyle and Lauren Clugston

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Have you ever had analysis paralysis? Maybe you have it right now and that’s why you’re listening to this episode! Kyle and Lauren Clugston would call that “productive procrastination”, and the only way to get out of it is to move forward! They should know, it took them over 3 years before they made their first move in real estate investing!

In college Lauren stumbled upon Brandon’s old blog about real estate investing. As she read, she gained more confidence in the craft, and knew that real estate was what she wanted to do with her money. She then started trying to convince her partner, Kyle, that real estate investing was the way to go. As someone without an investing background, Kyle was hesitant, but took a leap of faith which paid off!

Now they’re BRRRR-ing their way through New Jersey, with single family and multifamily properties throughout the state. Lauren and Kyle had to learn a lot before they became the real estate success stories they are now. Things like doing inspections, estimating rehab costs, getting financing, setting up systems and procedures, and getting legal documents prepared were at one point a great challenge to Lauren and Kyle. Now, they’ve got them down!

Lauren and Kyle lay out everything they wish their former selves had known, and go through the things that early real estate investors should worry about, and the things they definitely shouldn’t lose sleep over. This advice could save months, weeks, or hours off of your deal analyses and might be just the thing you need to get out of analysis paralysis!

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Brandon:
This is the BiggerPockets Podcast, show 446.

Kyle:
We were reading so many books, and just, when do you know enough to get some skin in the game? I would say it was probably three years, close to, before we actually made our first move. We overcame it really by just structuring it and reverse engineering. We want to get a house, so what do you have to do to get a house?

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’s going on, everyone? It’s Brandon Turner, host of the BiggerPockets Podcast, here in the sea shed, not she shed, sea shed, with my buddy, David Greene. David, man, how’ve you been? It’s been a whole, I don’t know, 10 minutes since we talked.

David:
Yes it has. And I’ve been in Hawaii for awhile now, so I’m slowly acclimating to [Ivan 00:01:00] life. I’m having a great time.

Brandon:
Very cool. Well, I drove by your upcoming condo the other day that you’re buying here in Maui that looks super sweet. I know you’ve got a couple of them you’re pursuing.

David:
Yeah, two.

Brandon:
Yeah, it’s cool stuff. And I just got one under contract. Well, we talk about it a little bit on the show today, but just got a condo. I was getting a fever, you started buying all this stuff in Maui, and I’m like, “Oh man, I want a vacation rental in Maui.”

David:
Isn’t that a great example though of how it works when you get around other people who are doing stuff?

Brandon:
Yeah, who are doing cool stuff. Yeah.

David:
I’m almost positive you would not have bought that condo if I was not talking about it, and I wouldn’t have bought the two condos I’m buying if you wouldn’t have been like, “You need to get out here to Hawaii and get a break.” Getting around the right people absolutely makes things happen.

Brandon:
That leads us today’s quick tip.

David:
Quick tip.

Brandon:
Quick tip today is, get around some people who are doing a little bit more than you. I’m not saying you have to go and hang out with like Grant Cardone or David Greene here, but I’m just saying, get around people who are like a year or two ahead of you right now and find a way to get around them. I know there’s COVID stuff going on, so if it has to be digital, make it digital, but the point being, get around some people on a regular basis in your area, preferably… I mean, just go find a landlord who’s been doing cool stuff and just take them out to lunch or whatever you got to do, but got to get around people who are just awesome. You can find those people by going to BiggerPockets.com, we’ve got over two million members.
In fact, but we just crossed the two-million mark recently. There are a lot of people that are on BiggerPockets that are in your area. So connect with them, learn from them, grow with them, and just provide value to them. That said, let’s get into today’s show. Today show’s a lot of fun. We interview a couple that you may have seen because they’re on the BiggerPockets YouTube channel a lot, they have a big Instagram account, Lauren and Kyle Clugston, I hope I’m saying their last name correctly. They are awesome. And they invest in mostly BRRRR properties. They do a lot of the buy, rehab, rent, refinance, repeat. We’ll talk about that later today. And they really go into detail how they got started.
They’re up to like 10 properties or 10 units or something like that now, and they’re talking about how they got from just nothing… The book that actually most people have not read, but I wrote a long time ago, it was before my BP days, I wrote a book. They talk about that, how that got them into the game. And they talk about something called the dash line agreement. I want you guys are listen for that term, the dash line agreement. Really, really good stuff. We go in depth on how to estimate rehab costs, all four of us share our opinion on estimated rehab costs for a project. So you’re going to learn a few different ways to do that. We talk about overcoming analysis paralysis, and Lauren gives a really good acronym GRIP, G-R-I-P, so listen for that.
If you’re somebody that maybe is struggling with analysis paralysis to get started or to take things to the new level, that is a great segment there. So listen for all of that and more. With that said, time to get into the show. Just a quick shout out to Kyle and Lauren, who’s on our show today. They actually are going to be doing a lot more for the BiggerPockets’ YouTube channel. But here’s the cool thing, and we’re going on announced this more later, but I’m just giving you a little tease right now. The BiggerPockets’ YouTube channels changing a little bit. Right now, every video goes on the YouTube channel, YouTube.com/BiggerPockets. We’re actually making some sub channels or different channels so you can follow different things.
So there’s going to be a rookie channel just for people getting started. They’re going to be a heavy contributor to that channel. David and I might even have a channel of our own, I don’t know, we’ll see. So stay tuned for that. All right. With that said, let’s get to the today’s show with Lauren and Kyle Clugston.
All right, Lauren, Kyle, welcome to the BiggerPockets Podcast. How’re you guys doing?

Lauren:
So good. Thank you so much for having us.

Brandon:
Yes.

Kyle:
We’re so excited to be here with you.

Brandon:
Good. Me too, because I hear that you’re called the Chip and Joanna Gaines of the Jersey Shore. Is that what this is? If somebody told me that I should call you that? That’s what we’re going to learn today, is how you became the Chip and Joanna of the… Is that where you guys are at, Jersey?

Lauren:
We are in Jersey.

Kyle:
We’re across the state from the Jersey shore. I know those are some pretty big shoes to fill, Chip and Joanna, I don’t know.

Lauren:
Yeah. We’re just fist bumping while we’re demoing and rehabbing. It’s a good combo.

Kyle:
We’re done when we’re rehabbing and we’re not fist bumping.

Brandon:
Okay, good. So let’s get into your story. We’re going to rewind back. I know people may have seen your videos on all of our Instagram, I know I follow you guys there, and all over YouTube and doing stuff for BiggerPockets, but let’s hear the beginning story. First of all, where’d you guys meet? I’m going to start with that one.

Lauren:
We met in college. I believe Kyle was neighbors with one of my friends back in my freshman, his sophomore year. A little blurry back in the day, but we met back then and have stuck it out since.

Brandon:
That’s awesome. And how did you discover real estate? Was that individually or together? And who led the charge on that?

Lauren:
I definitely led the charge.

Kyle:
Yeah. We were getting ready to graduate, and I didn’t even know. She was researching this stuff in the secret for like the last two or three years prior to 2011. She actually dropped on the table, Brandon, your ebook, 7 Years to 7 Figure’s Wealth. I don’t come from an investment family, my parents don’t invest or anything like that, so I don’t really know anything about, whether it be stocks, real estate. So that was an eye-opener for me to read-

Brandon:
That’s awesome.

Kyle:
And I was hooked ever since.

Brandon:
That’s awesome. So for those that don’t know what that is, before BiggerPockets, I had a little blog called realestateinyourtwenties.com. It’s still there, I think, I just haven’t updated it in eight years. But anyway, I wrote a little ebook to just give away there, it was called 7 Years to 7 Figure Wealth. And then I shifted over now on BiggerPockets webinars, I give it out on almost every BiggerPockets webinar that I host. I actually went and looked at it the other day, and it’s actually funny, I need to update it because I didn’t realize how horrible the numbers were compared to where they are today.
And what by that is, it was like, “If you buy a fourplex for $100,000.” And I’m like, “You can’t even buy, even in a bad neighborhood, you can barely buy like… ” Yeah. Anyway, I need to update those numbers to 2021 levels.

David:
As a side note though, that’s a testament to how much inflation we’ve had over the last eight years.

Brandon:
Yeah, over the last eight years.

David:
That properties have doubled over just an eight-year period.

Brandon:
That’s totally true.

Kyle:
There’s so many lessons from that though, aside from the numbers, that we took away and we look at it now and it’s like, we implement so many of just little investor lessons, aside from running numbers and things like that.

Brandon:
Yeah. Well, that’s cool, man. That’s cool. All right. So you get inspired by this little book, I guess. What happened from there?

Lauren:
From there, we decided, “Well, we should probably moving in together.” We graduated college, lived with our parents for a little bit. And at first, I had some decent savings. Grew up, my family was like, “It’s smart to be frugal and save your money and pay yourself first,” so I had this nice chunk of change. And at first I was like, “Oh, if we could buy a house in cash, that’d be awesome. We wouldn’t have this mortgage payment. It’d be genius.” And then obviously, we read your ebook, and we were so used to living for free wile staying with our parents, I was like, “I wish we could just keep doing that,” and so house hacking became the solution to that problem.
We had a little bit of analysis paralysis, we’re not going on lie. We knew house hacking was the thing for us, and it took us a solid year of researching and just pushing through the fear to actually make it happen. And we house hacked, renovated it, got that first rent check, and we’ve been hooked ever since.

Brandon:
That’s cool. All right. Where was that first deal at?

Kyle:
It was out Jersey, just outside of Philadelphia.

Brandon:
Okay. So tell us about it. What was the thing?

Kyle:
So the benefit of the era and how we zoned in on it was, it had a nice central walking main street downtown with a lot of restaurants, but the taxes were low and costs to entry was lower in the South Jersey area, so that’s why we ended up honing in on there. And it just ended up being one of the only, I think, two multi-families that we toured that we ended up buying.

David:
So why make the decision to get out of multi-family after you bought your first couple?

Lauren:
Good question. So after we bought the first one, we realized… Well, no, we didn’t realize, we were looking for the next multi. We had a unit count goal, and all we could think about was the unit count and how many doors, and obviously, buying twoplexes, triplexes, and fourplexes is the quickest way to do that. And we were just having trouble finding that. I think you guys made house hacking trendy, and it was becoming a little difficult, so we were really frustrated. And everyone always told you, “Put the blinders on and just focus on the one thing, focus on the goal.” And that wasn’t serving us well at the time.
So just out of boredom, sitting on the couch, Netflix and Zillowing, and we decided to just switch the parameter from multifamily to single family. And we found this really awesome little pocket of a working class area with really affordable single family homes, low taxes, but weirdly high rent. And we went to go see this place, and the numbers just made sense, and so we figured, “Why are we forcing ourselves to do multifamily when this single family castle is just as good as our duplex is?” So that’s how we got into single family.

Kyle:
Yeah. It opened up a huge mindset shift on, instead of doors, cashflow. And it was an eye-opener to how well this place cashflowed and how little renovation compared to our duplex it needed. Yeah, that was huge.

Brandon:
Yeah. That makes sense. It brings up a really good point too of, you hear people on a podcast that go like, “Multi-family should do that.” Or somebody says, “You should wholesale, you should flip,” or whatever, like, “House hacking is the way to go. The BRRRR strategy is the best thing you can do.” And everyone’s got this thing, but what’s cool is how everything is unique to a certain area. Something works in every area, but everything doesn’t work in every area. And so you guys just discovered that if you just listened to blanket advice, you’re going to, you’re going to struggle, but if you’re like, “Hey, this area is unique. This has something different here. This works here.”
It’s just cool that you figured that out. And I think people listening to this need to realize, again, not every strategy works in every area, but you just have what works in this area, and you guys find a little pocket. Those pockets are all over the US, where it’s like, “Oh, this is weird, lower taxes here, but higher rent,” or lower this, higher that, or a really good school district yet the prices are half of what is over in this neighborhood, even though it’s the same school district, or whatever. That’s just the value of learning your market. So where do you guys invest today? What’s your portfolio look like today overall? And then where do you do all your stuff at?

Lauren:
We’re still in South Jersey. We have a mix of single family homes and small multis. We’re under contract right now, it’ll bring us to 10 units. And we strategically are investing in a more working class area where the single families are, where perfect BRRRRs are possible. And that gives us high cashflow and a little bit of appreciation. Property management takes a little bit, more effort though. And then we invest in another area that’s only just five minutes away, but it’s a lot nicer, definitely better chance for appreciation, tenants are a breeze. We still castle, but just not as good. And so we feel like we have a working class area that gets us that monthly profit, and then we have the other area which really builds our longterm wealth.

David:
Yeah. One of the things I find, and this is not a hard and fast rule, but a general guideline is, your multi-family properties typically cashflow well, but they usually require more work, more effort and give you more headaches. And a lot of it deals with zoning rules. Like in California, where I am, the areas that are zoned for multi-family is where they stick every multi-family property, they’re not sparsed around all the single family homes, so you get no pride of ownership, it’s all tenants living in that area. Which usually means that single family homes appreciate more. Have you found something similar in your experience, that the houses that you bought that were single family but in better neighborhoods have gained value faster than the multis?

Lauren:
We actually did the opposite. Our multi-families are in the nicer areas and our single families in the working class area. And the reason why we think that works is because, in the nicer areas, there’s more demand for like one bedrooms in working class professionals who are commuting into the city, so we get a lot of people our age who have decent professional jobs. And then in the working class area, single family homes, because it’s more families, they can’t afford to buy their own home, so they’re renting.

David:
And then what’s your portfolio look like at this point, as far as how many singles and how many multis?

Lauren:
We have a triplex, two duplexes and three single families.

Brandon:
That’s awesome. That’s super good. All right. I want to go into some detailed things that I know you guys are good at, and I want to start with this question of, how much work do you guys do yourself versus how much do you hire out?

Kyle:
So up until this new property, we’ve done all of the work aside from licensed, so electrical, plumbing, HVAC, but we still manage those subs. So whether we’re swinging the hammer or managing that sub, we’re doing all of it. With our next BRRRR, we will have 100% outsourced everything, hopefully.

Lauren:
Yeah. And we’ve been slowly doing it. Like we realized that maintenance calls are probably not the best use of our time, so we started working with a maintenance company, which has been great. Now, I just send an email and consider it done. So we’re slowly trying to pull ourselves away, but it’s still our baby, we’re still excited about it. And we’re still in the growth phase. So Kyle laying LVP is actually time decent well-spent because he could bang it out in a day instead of paying a guy a couple of thousand dollars for it.

Brandon:
Yeah. It’s interesting, most people get started exactly where you are. I got started exactly where you are, where my wife and I did all of our own work in the beginning, or at least most of it, anything that we could do, we would tackle, because at the time, yeah, I felt anyway, that was my highest and best use. Now, today, I realize that maybe finding deals would have maybe helped me. I could have probably found a deal $20,000 less, and then that $20,000 would have covered somebody else to do the work and I could have been watching TV. But, I didn’t have anything to bring to the table, but my labor, and so that was my leverage point that I used.
I think sometimes on the show here, especially because David and I are beyond that, we’re not doing our work anymore, I think people might feel like doing that is wrong or inferior, like doing your own work DIY they think is inferior and everything. I just want to make clear, it’s definitely not, it’s a choice, do you want to do that? Is that a good leverage point for you or not? Where we get at it is making sure people are asking that question and not just defaulting to it. I’m curious, how do you guys divide up what work you do? Do you both actively do everything, or do you like, “I’m the demo person and I’m the floor person”? How do you divide that up?

Kyle:
I was going to say that definitely came with DIYing it, because Lauren handles all the management and I ant handle all the project management. So we would step on each other all the time, and it would lead to little arguments. And we read the book, Traction, and that was a huge game changer for us also, started treating it like a business and dividing those responsibilities. And it’s something that Lauren coined, the dashed line. What do you call it?

Lauren:
The dashed line agreement. So basically, what was happening is, we decided we need to stay in our own lanes, and that works for a while, Kyle, you’re going to do all construction, I’m going to do property management. But then we started realizing that there were times where our jobs overlapped, and because we were so black and white, like, “Nope, that’s your job and this is my job,” it created another area of friction because now we weren’t being flexible. So the way we were talking about it is, if it’s like a double yellow line, you guys are going in opposite directions, that’s no good.
First off, you need to make sure you’re driving in the same direction, but then there’s the solid white line, and that’s, you’re both going in the same direction, but you’re both staying in your lane and there’s no option to go in any other lane. What we realized, what is both efficient and that works for us, it makes sure balls don’t get jobs is kind of like the dashed line. And that is, we’re both traveling in the same direction, we’re both in our own lane, but we are allowed to come into each other’s lane, as long as, the key, as long as you signal and let the other person know that you’re coming into their lane. You do your task, and then more importantly, you signal that you’re leaving the lane.
I mean, it really just comes down to communication. And an example of that is property management. I’d get a maintenance call and I would want to call one of our subs to go do it. Well, technically, that sub has the relationship with Kyle and not me, so it started getting a little blurry and then, was I pulling a sub away from a renovation job to go do a maintenance call?

Kyle:
And that’s where the weekly meetings really helped as well, scheduling out so she knew where I was at, what subs that we have, and I knew when they were tied up with her on maintenance calls.

Brandon:
That’s smart, the whole letting people know. Because I found a lot of the drama that me and Heather would have if we had any disagreements or arguments, it was because I wasn’t signaling to get into her lane like that. That’s such a good analogy, because I’d just be like, “Yeah, I just pushed my way in.” Or, then I wouldn’t let her know that I’m leaving the lane, so then just things get dropped. So that’s really, really good advice for that. You understand them?

David:
Yeah. It’s just, once again, this is coming down to business principles being applied into the world of real estate investing, that’s what we’re talking about. It’s recognizing, we have to have weekly meetings to talk about where we are so each person understands what lane they’re in and where that lane’s going. We have to show respect to our business partners. If I want to borrow a person you’re using or if I want to change the plan, that’s a great analogy of signals to let me know you’re coming in, and then signal to let them know you’re going back out. People respect it when you show them respect, that, “Hey, can I borrow this person?” Or, “Hey, I can see a problem coming up, let’s talk about what we’re going to do.”
Rather than the last minute, “Hey, I grabbed the guy off your job site,” and that screws up everything they’ve been working on. Frankly, just thinking about being in a relationship like you guys have and being business partners seems like that’s high risk, high reward. It could go great or it could go terrible.

Kyle:
Exactly. And that was something that we were coming up on, was that our business conversations were spreading out throughout the entire week instead of just Monday, we talked business and the rest of the week is husband and wife, Kyle and Lauren.

Brandon:
On that note then, you mentioned Traction, that you read the book Traction. You said it changed your business. How so? I wonder if we can get into some specifics there. How do you currently run your business? Because most people don’t get into Traction and like that level until much later. And I love the fact that you guys are in it now. What mean by that is, I didn’t start Tractions and EOS the model until I had six or five employees and millions of dollars coming in, it wasn’t until that level, but I wish I would’ve started when I was at your level. So what did you do? What does that look like? And how has that helped?

Kyle:
Yeah, it’s advanced but it’s applicable, I think, to investors, whether you’re just starting off or whether you have as much time, Brandon, as you. Specifically just at weekly meetings, something as simple as that to take away. Go ahead, Lauren.

Lauren:
Yeah. When we first started reading it, we were having like, “Business focused? There’s nothing about real estate in here.” And so it took us a minute to implement it and how it can reflect on what we’re doing. And I think the biggest mindset shift is that we aren’t real estate investors, we’re business owners and real estate investing just happens to be a part of that. And so, like Kyle said, we did weekly meetings, we started doing KPIs, and we did the whole organizational chart. So what do we want our business to look like in three to five years? Who are those people? Who’s responsible for them? And how can we slowly get there? So right now yet, we don’t seem to have a super big structure, but I think knowing that we know what the structure’s going to look like and we have that mindset in place now, is going to help us grow and really develop into that US system.

David:
That is a great point that getting the foundations settled on how you’re going to do it allows you to scale. I think it affects your subconscious quite a bit when you know, “If we go bigger, it’ll be okay,” versus your subconscious knowing, “If we go bigger, the whole thing’s going to collapse on us. You’ll hold yourself back.” I know one thing that stops a lot of people from getting into real estate investing is that they don’t understand how to estimate rehabs when they’re buying a property. Usually, it’s their first property. But I think even after you’ve got one, if you see what could be a good fixer upper or a good deal, and you just have zero idea of how to tell how much it’s going to cost to fix it up.
You guys are doing a lot of your own work, can you walk us through what your process is when you first walk a property to figure out how much you need to budget for the remodel?

Kyle:
Yeah. We at first were just walking it with a paper and pen, and it just wasn’t the most useful system. And very easily, you miss things, you miscalculate. We’re only talking about 1,300-square foot homes, three bed, one bath, you expand that to a 2,500-square foot home and a three to $5,000 miss is now, a 10 to $15,000 miss. Lauren actually developed an Airtable program, which we have all the prices for material because we use the same material over and over again, and our labor costs, so we just go right down and punch whether that property needs it, and it’s given us a calculation while we walk the property. So by the time we leave, we already know what’s going to cost to renovate the place.

David:
Do you mind walking us through what some of those would be? And when you’re looking at flooring, when you’re looking at a roof, when you’re looking at plumbing, how do you eyeball it so that people who don’t have your background in construction or rehabs can feel somewhat confident that this is a property they should pursue or they should walk away from.

Kyle:
So when we first walk up to the house, looking at the roof, is there a green hue? A lot of our roofs in the area that we invest, they’re flat tar roofs. So you can engage a lot by just looking at the soffit, whether it’s got water damage or not. And then we just assume it needs a roof repair. We just budget for a roof repair. Then as we go in, we try to save what we can and not just demo everything. What can we keep? When we have a foot of cabinetry, things like that, we just pull measurements and we know, like I said, when we leave.

Lauren:
Yeah. But if you don’t have construction experience or rehab experienced, I think the best thing is to have a contractor walk with you. And I know that’s a hard relationship to build like, “Hey, at some point in the future, I might buy a property. Will you come and quote me?” But I would say, one, definitely pay for their time. Once you get that first estimate, as long as they itemize it, and again, this might cost you, then you can take those itemizations and you could really calculate any rehab moving forward, at least for what you see for the most part. Like if you get an estimate and the guy’s going to charge you $3 for laying new LVT and that includes material and labor, well you know then anytime moving forward, you’re just going to pull a measurement and you got that.
So I think if you have no experience, unfortunately, you just got to bite the bullet and take the upfront costs of hiring a contractor and paying them to do a quote even if they’re not going to do the work, just so you can get that itemized breakdown.

Brandon:
This is such a good point that you bring up here. I want to make this clear because it’s about more than real estate, but it will apply to real estate right now, and I’m using an analogy, like I tend to do, of like going to the gym. So the first time you go to the gym, you have no idea what any of that equipment does. There’s 500 things of equipment there and you have no idea. But if you go there and you learn one of those things and you get good at it… And how do you learn it? You ask the people standing around, you pay for a personal trainer to go walk you through the first dozen equipment things, you watch some other people do it, you maybe watch a YouTube video on it, like I’ll pull my YouTube at the gym if there was a machine I don’t know what it does.
Or even if I know it does, I want to make sure I’m doing the proper form. So those are all things that I do. And then once I know that thing, this is what you were saying, once that you’ve got it from then on out. So what I think people that are new to real estate, especially, they get into it, they’re like, “Well, I don’t know how to estimate rehab costs. There’s all these complicated things. Oh, I guess I better just sit down and watch some TV instead.” Rather than realizing, if you just add that, you figure out, “Okay, I don’t know how to estimate flooring. How am I going to figure that out?”
Well, I bet you a Google search or talking to a contractor, paying a contractor, you’ll figure that out, and then you’ll never need to figure that out again. And unlike the gym where there’s 500 different machines there, in reality, there’s probably like 50 things on a rental property or a BRRRR or a rehab that you need to learn. There’s like the plumbing, you need to figure out how that plumbing is estimated, and electrical. It’s not terribly complicated. Maybe 50 is even probably generous, it’s probably more like, I think there’s 18 categories that Jay Scott has in the book on estimating rehab costs. So it’s not a horribly complicated thing.
My encouragement for people listening to this is just, it is going to be difficult in the beginning, most things are, but the more you do them and the more you practice and when you ask the question, how do I do it? You’ll figure it out and then never have to do it again. David, I’m going to fire this question over to you, is, how do you, from a distance, especially, estimate rehab costs? What are you relying on there?

David:
Yeah. I got better at this from helping our clients that we’re buying houses for, because have these same questions. We find a deal, they say, “That’s great.” And we say, “Hey, here’s the vision for how we’re going to fix it up. This is what it’ll be worth.” We put together all the things that we’re telling the people in BiggerPockets, “This is what you should look at,” but they still have the question of, “How do we know what it costs?” So what we do now is, we take a video of the inside of the property and we send it to our contractor and we’ll say, “Okay, to do the flooring, to do the roof, to remodel the kitchen, give me a ballpark of what it would cost. Make it a little more expensive than you actually think it’s going to be so that they don’t get caught off guard.”
And then a lot of times, the sellers will have inspection reports that we can also send, “What would it cost to fix this electrical problem?” When they don’t have inspection reports, you usually have to wait till you get your own. But oftentimes, contractors have done this so many times, they can tell you, if you need new electrical, if we have to reroute plumbing, it’ll be about this much. So I just started applying that same strategy to my own deals. So now, when I’m looking at properties, I’ll ask the sellers, “Do you have any inspection reports? Do you have a report from when you bought the house?” If they bought it two years ago or something, then there’s a good chance that they still have something.
And I have them send me the video, which I send to my contractor. Now, he’s going to give me California prices, usually, if it’s somewhere else, it’ll be less. But it should, if it’ll work for California prices, it’ll work if it’s going to be less.

Brandon:
Yeah, good point.

David:
What about you? What have you figured out to solve this problem?

Brandon:
Yeah. Like you, I do a video, like I’ll do a video walk through. In fact, I was over in Oahu, the other Island in Hawaii, and I live on Maui, but I was in Oahu, that was two weeks ago, and my wife was here and then a deal came on the market and I wanted to go look at it right away but I was on a Oahu for a couple of days and I couldn’t get back. And so my wife went and she just walked around with a camera. So this is what we typically do and it shows how it worked really well, is, we just record a camera walking around the place recording everything, and then I usually just go home and I get on either a spreadsheet or like BiggerPockets actually has a rehab estimator calculator, which we designed to work exactly like this. It divides everything into categories.
So I’m like, “Okay, check one, roof. Well, it’s a condo, don’t have to worry about that. Landscaping, oh, it’s condo, don’t have to worry about that. Oh, flooring.” And it’ll just say, “Okay, flooring, how many square feet is this property? Oh, it’s, I don’t know, 900 square feet.” Well, if I figure $3 a square foot, which you could get by Googling, that anywhere between, I don’t know, two and four, two and five, depending on the level you want to do, but I’m like, “Okay, three bucks a square foot.” It’s like, “I don’t know, we’ll call it $3,000 for flooring.” Boom. Now, I’m done with flooring. And I’m like, “I can move on.” That’s good enough.
And then when I came back from Oahu, I did that whole thing, I estimated the rehab costs, came back. And then when I looked at the property in person. We just got it under contract. We, looked at it, and I was exactly right on, even though I’d never seen the thing, just because the video got me, just by doing categories, there was nothing surprising there. Anyway, that’s how I do it. I get a video, and then I sit down and I put it into categories. And then just ask the question, “Flooring, how much is the flooring going to be here?” If I don’t know, I ask the question, “How do I figure that out?” Anything you guys want to add onto that one, Kyle or Lauren?

Kyle:
Yes. Just to take away from walking the properties, our local meetup, we had a member. We were in the middle of a rehab and he asked us if he could come walk the property with us, and he was just getting into, it was going to be his first property. He was going to go put an offer in on. And he took a lot away from how we were going about renovating, how we came up with our numbers, because he was going to be investing in the same market that we were doing our property in.

Brandon:
Yeah, that’s smart. So let’s shift gears a little bit from the rehab side and go backward in the funnel a little bit. How are you even finding these properties in the first place?

Lauren:
A mix. We’ve done the MLS, we’ve done direct mail, and wholesalers. So it’s just been, we’re putting leads out everywhere and seeing what works.

Brandon:
Okay. So you fill in your funnel, run it through it, see it works. Let’s dive in the direct mail, what’s worked with you with direct mail marketing? Because that’s something that, it’s a little more complicated strategy, but it’s a good off market thing.

Lauren:
Yeah. We’re doing this, what I call like a DIY approach. So we’re doing super targeted, super niche. We’re only sending out about 30 letters at a time, but we’re driving for dollars. We are pulling expired listings, which has worked out super well for us, but we just like really narrowed down our criteria. So I know how I said before that you don’t want to have your blinders on, but now that we know what works, especially in this market for BRRRRs, we are super focused. We know we want three bed, one bath, over 1,000 square feet, preferably under 1,300, needs a certain amount of renovation.
And so we’re really targeting those owners. And granted, this might be a little bit beginner’s luck, but our very first direct mail campaign, I think we sent out 47 letters and we got a deal from it. So we’re still doing that, but we just try to be like super hyper-focused. We put a picture of ourselves and the letter, we talk about how we love the community. We don’t want to be the, we-buy-houses people, we want to be Lauren and Kyle, your friends from down the street who are going to help you solve your problem.

Brandon:
That makes sense. I was going to say that you may have gotten lucky on that, but really what you did is you’re taking the rifle approach instead of like the shotgun approach. So you’re like, “I’m going to target these specific properties,” and you get very, very specific on how you’re going to do that. And yeah, you can get a way higher conversion rate when that’s what you do, somebody driving for dollars. If you go download a list of like every property for sale in my… or every property in my area that’s a absentee and then you mail all of them, you’re going to mail 10,000 people and you’re going to get like 12 phone calls maybe. Because everyone’s doing that, and it’s just a very…
It’s not that it doesn’t work, it can work, but you’re taking a very different approach. It’s the approach we take as well. I got an open-door capital with the mobile home parks, and we pick specific ones and then we go after them hard with really good info, not just a crappy postcard necessarily, but we will write a letter or we’ll send them a gift or we’ll do something creative to try to get it. So yeah, the rifle approach definitely can work, especially if you’re you’re new and you don’t have a $5,000 a month budget for direct mail, then you’ve got to compensate by doing a really, really good job on picking the people you want to go after. Anything you want to add there?

David:
I want to get a little bit of clarity from you guys, you mentioned the BRRRR strategy. Can you tell me a little bit about what that means and then how you guys execute that strategy yourselves?

Lauren:
BRRRR means Buy, Renovate, Rent, Refinance, and Repeat, hopefully at the end. And our first BRRRR deal happens where a wholesaler contacted us and we were able to get this off market deal. And because we were able to DIY that one ourselves with renovations, we were able to save money and make it work. Now, we’re moving forward, we’re like, we don’t want to DIY the renovations, we wanted to take a trooper. So our focus is now, but what we learned from that first property is that when we got the appraisal report, the appraisal shows you exactly what items the appraiser’s looking at when they’re coming for the after repair value.
So now we have this almost like the contractors quote that you paid for once and now you could use moving forward, and we just work backwards and reverse engineer the appraisal report. So we know that an enclosed front porch adds $2,000. We know an end unit of a row home adds $3,000. We know that a fenced yard doesn’t have to be vinyl, it could be chain-link, adds $1,000 dollars. Now we take that, that thing we paid for once and we use that for all of our future BRRRRs to do our renovations. We know, should we do central air? Should we do stainless steel appliances? So that’s been super helpful for us and is making our BRRRRs more efficient.

Brandon:
That’s smart. I don’t think I’ve ever actually heard that tip before is by looking at the appraisal report to figure out what’s your appraisal.

David:
Very smart.

Brandon:
Yeah. That’s really good.

David:
You have me wondering how you could get appraisal reports from other houses in the area? If you looked it up and you saw who the realtor was, can you ask them if they would talk to their client if you gave them 100 bucks, if they send you over the appraisal from their property, you can put together a really good picture for a neighborhood and what properties are worth?

Lauren:
1,000%. At our local meet up, we all invest in the same area. We are very open about being friends with our competition because we don’t view it that way. We don’t have enough money to buy the whole entire neighborhood, so we’d rather be friends with them. And I don’t know if this is kosher, but we all share our appraisal reports and we know, “Oh, so-and-so got screwed a little bit on his duplex. Okay. We’re noticing that single families are appraising a bit more. Maybe we’ll shift our focus and focus on that.”

Brandon:
Yeah. That’s a really, really, really smart. I like that a lot. I love that. The BRRRR strategy is something that David… David, you wrote a book called BRRRR, Buy, Rehab, Rent, Refinance, Repeat. So people can check that out, of course. And what’s cool too is when you talked about, maybe it was beginner’s luck with that first direct mail that you did and you got a deal. One thing I’ll make the point is that the reason we all like BRRRR so much is because it’s like flipping houses, but instead of selling them, you’re going to keep the property. Because of that, we can pay more than house flippers, we can pay more than wholesalers, we can pay more than what a lot of people can do, but the retail buyers, they don’t want touch those because they’re usually nasty properties.
So we’re in this really cool spot where you can pay more than everyone else, and therefore, some of the strategies that maybe are really competitive and hard for the flippers and the wholesalers, the BRRRR investments can swoop in there. I’m sure like a lot of flippers probably just hate the BRRRR people because we could just simply pay more. There’s condo I’m buying right now, it’s kind of a BRRRR, I don’t know if I’ll actually end up refinancing, I might keep the money in there, but it needs a little bit of work to make it nicer. But we’re in negotiations and I’ll say, they were asking, I think it was like 800, and I offered him like 740 and we went back and forth and the guy just did not want to come down much.
We ended up settling at like 785. But honestly, I hope he’s not listening to this, but I didn’t really care, this sounds stupid, if I paid 750 or 770 or 775, because 30 years from now, it just does not matter. I don’t care that I paid 785 versus 780. The realtor was like, “Oh man, they won’t do that final $5,000 drop. Do you want to walk?” I’m like, “Well, of course I don’t want to walk over a half percent. Come on, dude, it just doesn’t matter.” And it’s that mentality. Now, obviously I’m not going to buy, overpaying if I’m going to lose money on a cashflow, it’s good cashflow for me. But long-term, that’s what’s fun about the BRRRR strategy. You guys agree?

Lauren:
100%.

Brandon:
That’s cool. Again, it’s different strategies, learning different things, they’re doing a better job with the direct mail or the reach out. Actually, one more story on that note, there’s a house, I may have started telling the story once on another episode, I can’t remember, but there’s a house in my neighborhood that I really wanted. I’ve driven by it 100 times, I started mailing the person just with one of the driving apps and them some postcards and stuff. And because I didn’t put half effort into it, and because it was one of many houses we’ve been mailing in Maui, my partner and I, and so I didn’t put a lot of effort, it was a very generic letter and postcard, I didn’t do what you guys are doing.
The guy never called me, nothing. And then the other day I’m talking to my buddy, Tarl, Tarl Yarber who has been on the podcast a couple of times, and he’s a really good investor. And he’s like, “You know that house near…” Because he lives up here too now. And he’s like, “Hey, you know that house over there?” He’s like, “I’m getting it under contract.” And I was like, “I’ve been mailing that guy for like six months.” He’s like, “I just like found his phone number and skip traced him. And then I found somebody that knew him, a neighbor or something like that and asked for introduction, so it was a warm intro. And then I talked to the guy and I hit it off. We talked for half hour and then ended up getting it.”
And I’m like, he did what I wasn’t willing to do, he put in the work, he did the rifle approach on a property he knew he wanted and I was just shot-gunning stuff out there. Anyway, it just shows again, if you’re new, if you’re in a competitive market, put in the hustle, put in the time needed to get those things. And then if you’re going to BRRRR, you can pay more than everyone else. All the stuff still works even in a super competitive market when you’re smart like that. So anyway, good job Tarl for kicking my butt on that one. Tarl might wholesale it to me, we don’t know, we’ll see. All right. Let’s move on to talk about funding. How are you guys affording to buy these properties?

Kyle:
The first couple we started with our own savings. We moved on to using private money, which was one of our BRRRRs. And that was luckily a family member, but we still set up the terms just like we would be using a private lender because we do want to eventually use outside private lenders. And that was essentially a perfect BRRRR, we had no money left in that deal when we were done.

Lauren:
Using private money has been a really good experience for us because we definitely started out as like, “Oh man, I’ve got to go ask my parents to help us fund this deal.” And now our mindset definitely turned into, “No, we’re providing an investment opportunity for people and we feel like we have a better foundation to grow that private money aspect moving forward.” And it all has been happening in the last six to 10 months, with COVID unfortunately, a lot of bad things have been happening, but it’s really allowed us to really sit down and start treating this thing like a business. And so that growth has been happening in all areas of investing for us, and it’s just really cool to see, we’re super excited about 2021.

David:
This is an interesting topic. As you broach this idea of private lending to whoever you’re going to borrow from, how do you typically initiate that conversation?

Lauren:
If it’s a family member, it would be a different approach than if it’s somebody else, but what we have been doing is trying to really legitimize ourselves. So we created an Invest With Us package, which is basically a downloadable PDF that introduce people to us a little bit, what we’ve been doing, gives a full breakdown of our entire portfolio, what’s the value, what are rents, what’s going on. And then we share a vision of where we want to go, and then we invite people to be a part of that vision with us. Then we also give them a sample deal. We got this from Matt [inaudible 00:36:17] book.
I definitely do not make this up, but get a sample deal, which looks just like a deal that you’re hoping to do in the future and let them know, “Hey, if I brought you a deal that looks just like this, would you invest with us? And what questions do you have? Do you need to bring this over to your spouse? You guys can marinate on a little bit.” Try to get all those conversations out of the way so that when a deal does come, you can just rock and roll and move forward. So having all this documents has been helpful for us.

Brandon:
This is so incredibly important. Like this idea of what you’re saying. I want everyone to listen very carefully to what you guys… just rewind this, listen again. It’s like when you approach a private lender or really almost, you can even expand this beyond real estate, but if you approach a private lender and you’re like, “You know I do real estate or I want to, I’m thinking about it, anything you ever want to do with me, let me know. Cool.” It just shows you are just not professional, it doesn’t exude confidence. They’re like, “Okay, well this is just, whatever.” And it’s going to be really, really difficult, but treat it like a business like we keep saying today, put together like you said, what did you call it? The-

Lauren:
Invest with us.

Brandon:
Yeah. Love, love, love that. And it explains, here’s why you should do it. And even if you’re brand new, find a reason why people should invest with you in credit and invest with us package, just find your way to make yourself look professional and good because everyone understands this concept. How you do anything is how you do everything. I was talking with a buddy the other day about that. He’s got a cleaning business, he clean houses for people and he doesn’t have a website or business cards. Now, business cards, whatever, you can take them or leave them, but at least they show you’re professional, you have something. So when he’s talking to people about his business, there’s like, “Well, yeah, I clean houses.” “Oh cool. Where can I learn more about.” “Well, there’s nowhere really to learn more, it’s just this what it is.”
Like, “Ah, just put together something simple, even like a one-page piece of paper.” And you’re like, “This is whatever home cleaning and here’s what we offer, and here’s what we charge, and here’s four testimonials of how good we work. And here’s our guarantee.” All of a sudden people are like, “Oh, it’s a thing.” And they’ll invest or they’re buy or they’ll work with a thing, but people don’t want to work with somebody just throwing things on the air.

Lauren:
And something that we didn’t do strategically, but has worked really well for us is having an Instagram account. We started putting stuff on Instagram just because like, “Hey, we’re doing this thing and I want to document it and not blow up my personal feed.” My friends don’t care as much. So we started and it became a visual resume that we didn’t know we had. So we had a private lender reach out to us and he invited us out to meet, and we were so prepared. We got our iPad, we got our invest with us packet, we got everything, we’re so excited. We’re going to share all the numbers. We’re going to show them all the pictures.”
And he was like, “Oh no, I’ve seen the stuff you guys do on Instagram, I know you’re good, this is more just like a sanity check.”

David:
Okay. So you have someone who’s interested, you’ve given them the invest with us package. They say, “Yeah, I think I will do this.” What are the actual forms or documentation that you need to solidify this so it’s safe for them, it’s safe for you and everybody understands what the terms of the deal are?

Lauren:
There are two major things. One is the promissory note, which spells out the terms, and basically, you’re personally guaranteeing the loan. And then the other thing is filing documents with the county. And we’ll just have a lawyer do that, so I can’t dive deep into what actual forms they are, but that’s an example of, I could spend a lot of time figuring out that process or I can just pay somebody to do it for me and make sure they do it correctly. So in the scaling traction mindset, I was like, “Let’s just hire a lawyer.”

David:
So what are you guys approximately, what are you paying the lawyer to do this for you?

Lauren:
I believe the first time she drafted up the documents for us and it was like 500 bucks and now we just reuse them.

David:
Okay. So you paid 500 bucks for paperwork that you can use every single time?

Lauren:
Mm-hmm (affirmative).

Kyle:
Yeah.

Brandon:
I know. And people are like, hey want to save money on that. It’s such a good point that it doesn’t cost… And I think people are afraid of lawyers. One, I think they’re afraid it’s going to be $30,000.

David:
That’s exactly why I asked, because that’s what everyone thinks is, “I can’t afford a lawyer” What does a lawyers cost? I don’t know, but I know I can’t afford one.

Lauren:
And this came into play too when we were doing off-market deals. The first time we ever did an off-market deal, I don’t know how to close an off-market deal, our agent had always done that for us. And so we reached out to a lawyer and she’s like, “Well, I could do it two ways, I could either draft the documents and then you do everything else. Or I can hold your hand through that process, I’ll work with the title company, I’ll order the appraisal and the survey or whatever.” And so the first time I was like, “I want the handholding.” But what I did is during the handholding, we took notes. We’re like, “Okay, she emailed a title company on this day, she sent this document to this person.”
And basically created an SOP of what she was doing, and now we just use her to draft the documents and I do the process myself.

David:
This reminds me of your gym analogy, your first time in the gym, you don’t know how the machines work so you just won’t go, but you pay your personal trainer to show you how to use them. And at a certain point you say, “Okay, I don’t really need the personal trainer, I can do it.” This is the same thing we’re talking about. What I want to highlight is that I think when most people consider, I’m going to go to the gym, what does it cost? Well, this is your membership, this is what you’re going to pay for supplements, and this is your personal trainer fee. And you assume it will always be that expensive, or people assume I’m always going to have to pay a lawyer.
But like Lauren just said, no, you pay for that the first one or two times because you want the handholding, but once you’ve shown me how all this stuff works, it’s not scary anymore, now, I can do it on my own. I think we talk ourselves out of it is what I’m getting out of it, assuming it’s always going to be this expensive every single time we do it.

Brandon:
Yeah. That’s a really good point. Also, it goes to that the LLC question. How many times you and I get these questions like, “Well, do I need an LLC to invest in real estate? Do I have to have an LLC?” And everyone got this question. And the answer is like, yes, no, maybe, I don’t know. Then we say, “Well, talk to a lawyer.” And then people will just never will. And the funny thing is, just with the dollar amount thing, if you had to get a phone call, and this what I tell people, if you’re really concerned about the LLC thing, get on a 30-minute phone call with an attorney and a CPA at the same time, three-way call,
You’re going to pay 150 bucks for a half hour with an attorney, 150 bucks for that CPA. So $300 for 30 minutes of really smart people telling you exactly what to do together, and they can bounce back and forth. In other words, you can answer the entire question for 300 bucks. Specifically for you and your situation, you can learn exactly whether or not you should have an LLC or not in a 30-minute conversation for $300. And some people have been sitting on the sidelines of real estate thinking, “Well, I just can’t get into it now for the last six months or a year because I don’t know the answer to that question and I don’t know what to do.”
And in reality, it’s pretty simple, just go get that answer to that question and then do it. So the real question is, is it the money of the attorney? And is that what everyone’s afraid of? Or is that just the excuse that they’re using because fear is causing them not to take action? And they don’t want to admit that they’re afraid, instead they say, “Well, I don’t know the LLC thing.” And that’s where I would want people to really dig into their souls and ethics, what really is stopping me from moving forward today?

David:
Well, let’s ask you two that. Did you guys even care about opening an LLC or did you just jump in there and start buying properties?

Kyle:
We asked that question just like you said, Brandon, a hundred of times, we’re still asking it, what’s the correct answer? And we just started buying on our names. We just have a nice umbrella policy for asset protection and that’s where we sit now and we’re still continuing to buy on it.

Lauren:
And we try to stay educated throughout. Right now we’re really focusing on being an offensive protector. So LLC protects you once you get sued, but what are the things we could do to just prevent us from getting sued in the beginning? So those are the things that we’re really focusing on, good contracts, working with licensed professionals, making sure we have everything really squared away. And as we’re growing, yes, we realize an LLC is going to be part of our strategy moving forward, but if we waited to answer that LLC question, listen, we were already analysis paralysis, I didn’t need to go research LLCs now. So we were like, “Let’s find our personal name, you can always change it later.”

David:
Yes. This is also a great point that you mentioned, rather than trying to find the right answer for when I’m sued, how do I avoid just ever getting sued, such a smarter way to approach it. And this comes up a lot for me when people… I own California property and I represent people, and California is a tourist city, not a landlord friendly state. So it scares a lot of people. They’re like, “I don’t want to buy in California. If it goes to court, I’m going to lose.” And yes, the very first house I ever bought, I went to court because I did everything wrong. I didn’t vet a tenant, I just grabbed him, threw him in there for someone off Craigslist. Literally didn’t call a reference, didn’t check their credit, nothing.
Since then I hired a property manager, my entire time of investing in real estate, never, ever have I needed to even have these landlord friendly or tenant friendly laws come into play because I buy in B and A class areas. I have property management scout, the tenants and I rent to people that have something to lose. They don’t want their credit hammered, they don’t want to have an eviction on their record. They would be embarrassed if they did something like that. So these laws that are meant to protect landlords, never come into play. And that’s something I’ve realized is if you’re choosing where you’re going to invest based on the worst case scenario and where you’re safest in that, you’re probably doing it wrong.
You’re better off to avoid ever getting in situation where that would happen. And I think that this is just a great thing to point out that you’re taking the right approach. How do I make sure I never get in that situation? Most of the questions that people ask Brandon and I, they’re tough to answer, have to do with the equivalent of, “Okay, somebody’s got my back, they’ve sunk into rear naked choke. I’ve got three seconds to figure this out. How do I get out of this?

Brandon:
It’s good. Another ride ju-jitsu.

David:
Yeah. We’re doing a lot of those. But the point is, you’ve screwed up 12 times before you got to that point. Let’s go back to that and try to avoid doing it. So the next question I want to ask you guys, you’ve got the private money, you have an investor, you found the deal, you draw for dollars, you’ve got a seller who’s willing to put it under contract, what can someone expect as far as the timing and the logistical things that have to happen once all of the ink is dried and you’ve got a contract?

Lauren:
It depends, for us at least, who’s responsible for the certificate of occupancy, but it can be as quick as 24 hours, and it could be as long as 30 days. And that we really leave up to the seller. If it’s their primary residence, do they need time to move out? If they’re an absentee landlord, did they want it off their books immediately? We’re really just here trying to solve their problem as best as possible. For us, 20 days has been the sweet spot for everyone to get their ducks in a row and make sure everyone’s happy.

David:
What’s happening during those 20 days?

Lauren:
If you want an inspection, you’re getting an inspection. We’ll sometimes waive those to get a cheaper price, the title company’s doing the tender report to make sure there’s no liens. We have to communicate with the lender or sorry, the private lender to make sure that they have the proper instructions how to wire money either to the closing table or to us. So it really is a lot of logistics. And a lot of that can be done in less than five days, but 20 days has been what it’s been for us.

Brandon:
Yeah. That’s cool. I used to do the whole like, “Well, I can close in 10 days.” And I would tell people that, and then I’ve found that, especially in Hawaii, you can’t close in 10 days in Hawaii. They don’t move that fast here. They’re like, “Well, I can get you in an inspection in a couple of weeks from now.” It’s just everything works very slow here. Even the condo that I just got under contract for, I’m going to do a vacation rental thing with it, I gave myself 60 days to close just because of how much problems I’ve had in the past with just how slow some people move.
And that’s just, know your area and do it as fast as you can, but if you need more time, take more time. I’d rather not be stressed right now. Now, what about the private money, the money itself? This is something that a lot of new investors don’t understand, does a private lender just put all the cash in a duffel bag and then throw it on your front porch and you guys go and drop that off at the seller’s house? Well, obviously not, but walk us through, where does the flow of money go in that process?

Lauren:
Usually it goes through an escrow account, so they’ll wire it to the closing table and then you can take it out of there for renovation. So it never actually comes into your personal pocket, which is nice, and then it keeps it super clean. And then if you’re going to be doing a delayed financing, which is the new trendy thing that everyone’s doing, you want that money to be documented at the closing table, because then when you go to refinance, there’s documentation of that, so then you could pull out that money, plus the renovation costs.

David:
Why don’t you explain delayed financing for those who don’t know what that is?

Kyle:
I love that this is Lauren’s lane and it’s not my lane.

Lauren:
He’s not blinkering, he’s not coming in. Delayed financing is very similar to just cash out refinancing, but you can do it sooner than the six month seasoning period that most banks want. And the reason is that you can’t pull out any additional money than you actually put in. So at the closing table on the final documents, you’re going to put the purchase price, you’re going to put the estimated rehab costs and any additional costs, maybe interest or closing fees. And you’re only going to be able to refinance the amount of money that’s sitting on that closing statement. You’re only going to be able to refinance what’s on that closing statement.
So some banks will be able to refinance the day you finish renovations, or maybe the day you place the tenant and then you’ll get all that money back. And so the major difference is really just timing, financing you could do sooner, and you can’t take out additional where a conventional cash refinance usually has a four to six months, maybe nine months using period, but if you do a great job, you can pull out additional cash if that equity is sitting there.

Brandon:
Yeah. So this is something that… I’m going to pick your brain and see if you know the answer to this. I’m using you as my own personal… I’m going to pick your brain here. This condo that I got under contract right now, like I said, 785, I think is where I’m at on it, it needs $35,000 of work. My plan is… Now this is going to get a little bit legal reasons like, can I do this with a 1031? I’m not sure. But let’s avoid that for now. So if I were to buy this property and then on the closing, buy for all cash. If I just paid 100% cash for this property, can I use delayed financing so that way I can then basically when I refinance it or finance it here a month from now, once the repairs are done, I can get back the money I put into repairs?
Because right now, I can put the down payment down, but the repairs I have to come out of pocket with it, I’m just going to invest that in a deal forever. So delayed financing is a way for me to get my repairs done correct if I do it right on the closing statement, is that right?

Lauren:
Correct. And as long as the ARV is there and it’s 75 or 80% of the ARV.

Brandon:
Yeah. Interesting. I think I might. I haven’t look into that. Again, the thing that might throw a wrench in that is because the down payment is coming from a 1031, I wonder how that would work. I use half of my own cash, half 1031 and then refinance the whole thing. I don’t know. I’ll figure that out later, but it’s an interesting one. All right. Let’s move over to one last topic before we begin to wrap things up, and I want to talk to, you mentioned the word analysis paralysis. I want to know, what is analysis paralysis and how did you guys overcome that to get your first deals, to start building momentum and to get to where you are today?

Kyle:
We were reading so many books and just when do you know enough to get some skin in the game? I would say it was probably three years close to before we actually made our first move. We overcame it really by just structuring it and reverse engineering. Lauren could break it down, but we want to get a house, so what do you have to do to get a house? Go for it, Lauren.

Lauren:
Because it was so scary, buying house is a huge overwhelming task because there are so many steps and you just don’t know where to start, and we were just stuck in it. And it was to the point where I was like, “We either need to do this or move on.” Because we took the advice, we’re calling ourselves investors before we even had a property because you got to be it before you could be it. I was like, “We’re just lying now, and we’re wasting a lot of time reading.” And so we broke it down, like house reverse engineer. And it was like, “What is the one task I have to do right now to get me to the next task?”
Because I was so worried about, but then what about this later on? But it wasn’t even doing the first step, kind of the LLC analogy example you were giving before, you won’t even buy your first deal because you don’t know the answer to what’s going to happen when you get sued 10 years from now. So we came up with a little acronym, it’s called GRIP, but it’s basically, you really need to get a grip on yourself. So first one is goal, you got to set a goal. Maybe that’s buying your first property, maybe it’s switching to new asset class. The next one was R, and it’s reverse engineer. So just starting with the end in mind, work backwards and break all the steps down into something as simple as possible.
And then I, identify the first step, what is that first thing you need to do? And then P, perform. Do not even look at step number two until the first step is done. And what we realized is that you start doing productive procrastination, “Well, I’m just going to listen to Brandon and David one more time and I’ll have more information and I’ll totally be ready.” But if you guys are talking about 1031 exchanges and I’m still working on my first properties, is that really productive for me?
Obviously everyone should to keep listening to this podcast all the time, but take one thing from whatever you’re doing and then go implement it and make sure that you’re only focusing on that first task. So don’t be reading about LLCs if you don’t plan on starting one yet.

Kyle:
And there’s so many problems that you come across in the middle of these deals that you didn’t read about and you only learn just by experiencing them. And then it’s that documentation that’s going to help you on your next property to either avoid that problem or you’re going to know the answer to it.

Brandon:
Yeah. That’s a good point is that you will figure out as you go. I like to use the analogy of driving through fog. You drive through fog and you can’t see the deer in the road a mile ahead, you don’t know if there is one or does the road end? Is there a bridge out? You don’t know any of that stuff, but if you pull over to the side of the road, you’re never going to get anywhere. So it’s best just to just keep driving, maybe slow down a little bit if you need to, but just keep driving through the fog, don’t pull over. And as long as you just keep taking little baby steps forward, there’s always a zone a clarity around you.
When you really stop and think about it, you can always figure out the next step, you can’t always figure out the 10th next step because it’s too far away. So just keep moving forward, keep asking, what is that next thing I got to do? And you’ll figure it out. All right. Let’s move on then to almost the last section of the show. I do have one more question actually before we get to the Famous Four. I’m wondering what our audience can do to bring value to you guys right now. What are you looking for in your real estate business right now? Are you looking for deals, looking for something else, what do you need?

Lauren:
Definitely looking for deals, definitely looking for private money. Really our immediate need right now is we are doing a lot of video content, can we get editor? If you guys want to trade editing time for some real estate knowledge, we will make that happen.

Kyle:
Like coaching or something.

Brandon:
Here to get inundated, but smart, show what you got and make it happen, help somebody else. Having a video editor changed my life. I got a guy named M. J. He’s amazing. Amazing. You should get that. It’s awesome. Let’s move on then to the last segment of the show, it’s time for our-

Speaker 6:
Famous Four.

Brandon:
This is the part of the show where we ask the same four questions to every guest every week. We’re going to fire them to you right now. Question number one, what is your favorite real estate related book?

Lauren:
We teased it before, and I don’t want to keep sucking up, but 7 Years to 7 Figure Wealth was game-changing for us. That paired with Rich Dad, Poor Dad which everyone says was really what got us to invest. And people always ask us, how do you convince your spouse? Or how do you get your partner on board? I spent so much time researching real estate investing, how am I supposed to convey this is somebody who hasn’t read a single blog? And just slapping that ebook down was the answer.

Kyle:
I don’t read, convincing a guy that doesn’t read books and then having that be the first real estate book, yeah, it was game changing.

Brandon:
Well, that’s cool, man. Well, if anybody else wants a copy, just show up to any of the BiggerPockets webinars that I teach every week, I give it away every week there. And that’s awesome. I don’t think anybody ever said that on the show before, so thank you.

David:
Yeah. Very cool. What is your favorite business book?

Lauren:
We would say Traction, but we’ve talked about that enough. Right now I’m reading The E-Myth, and that just really ties into Traction and focusing on… I forget how they break it down, but you don’t want to be the person that’s working in the business, you want to be the person working on it. And that’s been really huge for us. We’re fine right now, putting all this work in, but it’s still fun. And I obviously hope real estate is going to stay being fun for us, but we also need to have the future in mind. And when we have kids and we have more responsibilities, it’s just not going to be feasible for us. So The E-Myth has been really fun to read.

Brandon:
Yeah. I feel like The E-Myth is like the emotional or the spiritual side of Traction. Traction is like, “Here’s exactly how you do it.” And The E-Myth is like, “I believe it. I get it now.” So yeah. Amazing, amazing book. All right. Next question.

David:
What about your hobbies?

Kyle:
Oh, man. Anything to do with the beach. We love surfing, fishing, we’re huge beach people.

Lauren:
Yeah, we got scuba certified last summer and it’s been a little difficult to do that with COVID but yeah, anything that involves the water boating, we just like to be outside.

Brandon:
That’s awesome. Last question from me. What do you think separates successful real estate investors from those who give up, fail or never get started?

Lauren:
You alluded to this earlier in the conversation, but I really think it’s just the fear of doing something that’s uncomfortable. We have so many people reach out to us and they say, “Hey, what’s the best first step.” And we promote house hacking just because we feel it’s a really great way to tip toe in real estate investing. And it’s like, “Well, I’m married and I have kids.” Okay. Well, there’s other ways you could house hack, like the house we’re under contract on right now, it’s a side-by-side duplex and each side has five bedrooms. Could you and your family live there? Probably.
So I think it’s just wanting the goal enough more than fearing the worst case scenario. And with analysis process, there’s so much decision and indecision, it’s easy for you to stay stuck and not do anything. So you got to push through the fear, and I think that’s really the big difference.

Brandon:
There you go. Anything you want to add on there, Kyle?

Kyle:
Yeah. Just you come up to a roadblock and instead of just turning around and going home, find a solution to that roadblock.

Brandon:
This has been phenomenal. I guess, I’ll leave it to you, David.

David:
Last question of the day, where can people find out more about you?

Lauren:
Definitely Instagram, we’re big there. If you DM us we promise we’ll answer. And we just launched our own YouTube channel, so if you guys want to follow along with us as we’re investing and growing our portfolio, we’d love to have you with us.

Brandon:
All right. Very cool. And what’s the Instagram handle.?

Kyle:
Rentalstowealth.

Lauren:
Ooh, Good catch. Rentalstowealth.

Brandon:
Rentalstowealth. All right. Go follow them right now. Right now. I’m talking to you guys listening right now, go follow them. And follow David while you’re at it. David, you need more followers, you got to get up.

David:
I look really bad compared to Brandon. I will admit that. It’s pretty embarrassing.

Brandon:
That’s not true, your account looks awesome. Anyway, davidgreene24, rentalstowealth, and I’m of course, beardybrandon. David, you take us out of here. Thank you guys so much today for joining us. This has been a long time coming and I am just super glad to know you guys. You guys are great.

Lauren:
Thank you for having us.

Kyle:
David, thank you for having us really.

David:
Great job guys. This is David Greene for Brandon, writing books that are changing real estate, Turner signing off.

Outro:
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, be sure to join the millions of others who have benefited from biggerpockets.com, your home for real estate investing online.

 

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In This Episode We Cover:

  • Why house hacking is such a great strategy for new investors
  • Focusing on the right metrics, whether it be cashflow or units
  • Defining your specific roles as partners and investors 
  • The importance of weekly meetings with your team
  • Setting up your real estate to run like a business, not just a hobby
  • How to put together an “invest with us” packet for private lenders
  • And SO much more!

Links from the Show

Books Mentioned in this Show:

Connect with Kyle and Lauren: