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Cutting Your Tax Bill, Investing in Different Markets, & “Investor Pressure” | Coaching Calls

Cutting Your Tax Bill, Investing in Different Markets, & “Investor Pressure” | Coaching Calls

53 min read
The BiggerPockets Podcast

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Should you invest in multiple real estate markets? How can real estate investors lower their tax burden? And, how do you handle all the pressure and stress that comes with success? These are just a few of the questions that live listeners asked top real estate agent, investor, and BiggerPockets Podcast host, David Greene. As per usual, David uses this coaching call as a way to answer questions from rookies and experienced investors, without any preparation.

You’ll get to hear firsthand how David answers questions like how to find your real estate tax expert, should you focus on one market or expand into multiple, what are the best real estate books to develop an “investor mindset”, and how do 1099 workers find financing? Regardless of the stage of real estate investing you’re in, all of these questions can help you develop your investing muscle so you can crush bigger deals and keep more of your hard-earned profit.

Have you heard of a real estate investing topic that you want David to go into more detail about? Is there a specific question you want answered by an industry expert? If so, be sure to follow David on Instagram (@davidgreene24) to see whenever he goes live for a Q&A session. Or record your question and submit it here!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

David:
This is the BiggerPockets Podcast, show 577.
Quit thinking that the world owes you, that other people are supposed to supply your dream, that someone else needs to make software that shows you what deal to buy. And instead, focus on bringing value to the world, get so good at something, which everyone will get good at something if they haven’t natural aptitude for and they just continue doing it for a really long time.
What’s going on, everyone? It is your host of the BiggerPockets Podcast, David Greene, here today with an amazing episode where we interview several people, just like you, who bring me their real estate related questions. Now, these are live coaching calls where people go back and forth sharing their fears, their strategies, and most of all, where they’re stuck. We get some really good questions today, many of which have to do with different aspects of real estate like BRRRR investing where one of our guests asked the question of, “Should I be investing in a specific market where property taxes are higher and I don’t see as much appreciation?” As well as how we can save in taxes, which was a huge one, by becoming a real estate professional or just investing in a lot of real estate.
We also talk if you should be investing out of state or in state, and when it’s appropriate to do both. So we have a really good conversation about someone who wants to invest in more expensive market, but also wants to identify an out-of-state market, which I thought was a really good conversation about how to use strategies so that you could win using both of those markets. And then we get to talk about what’s one thing that I wish more people knew about me, which was super cool from a very impressive 20-year-old named Cade, who asked some very, very insightful questions.
He’s a real estate agent, and I can see Cade’s career is going to be taking off. So if anything, just getting to hear the wisdom that comes out of this young person’s mouth was very inspiring and helped me myself start thinking about why I’ve gotten to the point that I am and what I can start doing to make that even better. This is a very insightful episode with some really good practical advice on what steps should be taken as well as how to make sure that you’re not taking the wrong step.
Now, for today’s quick tip. I just want to encourage everybody to like, subscribe and share the podcast, as well as check us out on YouTube. People don’t realize it, but we record these episodes with video and audio on YouTube. So you’ll get to see the hand gestures that I’m making, or the faces that I’m making, you get to see what the guest looks like. It makes everybody a little bit more relatable. Sometimes I try to inject humor into these things just to make it easier to listen to. One of our guests, I believe I said, looks like a spokesperson for the Home Depot.
Well, you want to see what Mark looks like, so go check us out on YouTube. You can also ask questions in the YouTube comments that me or somebody from BiggerPockets do our best to try to answer. And it’s another way to get more connected than just listening as a podcast. Make sure you’re still subscribed to the podcast and leave us comments, because we need that so more people will hear us, but also check us out on YouTube. Let’s get on with the show and bring in our first guest.
Tony, what’s going on. Welcome to the BiggerPockets Podcast.

Tony:
Thank you for having me. Piggyback off what Porsha said, I know you guys always ask on BiggerPockets to reach out and say what is some things you guys do like. And just sitting on here listening to everybody’s questions, this is a great format. It’s letting me hear from real world investors and newbies like me, to hear situations that they’re getting into, these little intricate stuff that gets them stuck and to realize there are solutions and to be able to move forward.

David:
I appreciate you saying that. One of the reasons that I like doing this format is it separates us from other podcasts. What a lot of podcasts will do is they’ll take a guest that BiggerPockets head on or a format that we started here, and they will just interview a guest and have the same stuff come out. And the host themselves doesn’t have to know anything about real estate investing, they just have to have a successful person that talks. And so the listeners like me, we would have all these questions and then they would never answer the actual practical question that I needed answered because they didn’t know.
It was easy for them just to say these rhetorical lines like, “Well, wait till the crash, don’t find out prices are going up,” or, “Make sure the numbers work.” And that sounds great, but it doesn’t actually tell me what I’m supposed to do when I’m in the scenario. So these types of formats don’t give me anywhere to hide. You guys are asking questions, I don’t know what they’re going to be. I got to shoot, and if I don’t know, I have to say, “I just don’t know.” So I appreciate your support with that and I hope more people see the value in a format that isn’t just a story because this is where you’re going to get answers to questions that probably nobody else in the Internet’s going to take the risk of giving.

Tony:
Absolutely. And that’s what I tell everybody. I’m only 22 and I just got my first house hack BRRRR with my fiance. We purchased it in Enfield.

David:
That is awesome, man.

Tony:
Yeah. And I go around work and everybody’s like, “How’d you do that? How’d you do that?” I’m like, “It all comes down to looking for the information.” And I refer to them to BiggerPockets, and I’m like, “Hey, they’re honest with what they’re saying. They’re not say if they’re not doing it.”

David:
Let me ask you a question. What did you put down on that house, is it 3.5%?

Tony:
I did. I got an FHA loan.

David:
How much was that 3.5% for you?

Tony:
3.5% ended up being around 10,000 with 10,000 in closings costs.

David:
Okay. So the house was around like 270 to 300 or so?

Tony:
I got it for 195.

David:
Oh wow. Okay, awesome.

Tony:
It was unlivable on one end, actually. The one end that was unlivable had tenants in it. I know we always talk about problem tenants, problem tenants and cash or keys. I listened to your guys’ podcasts and all the creative solutions. And honestly, I went in there and I said, “Hey, we’re going to be buying this property, and it’s going to be a rehab and they’re going to go reassess it.” They said, “No problem, we’re going to leave.” Nobody was going to buy it, but they ended up just leaving.

David:
That’s so cool. What would you guess conservatively that house will be worth in 30 years?

Tony:
I can’t even put a number on it. I put the 3% rule in to appreciate, people are saying around 500,000 in three years, and that’s just Enfield. I’m being real conservative because I hear… This is another question I have on here. We can actually start with this. I get told constantly Connecticut is not a good market. And I listen to you and there’s no such thing as a good market, it’s the deals that you buy. The two main flaws that I can see in Connecticut would be taxes, we have a huge property tax out here. I think mine is 6% in Enfield alone. And then would be appreciation, you don’t see these properties blow up like Massachusetts.
I’m originally from Massachusetts, so you seen my parents bought a $200,000 house and that’s worth almost 400,000. You don’t just see that out here. So those are the two main flaws. But what you do see is the houses are a little bit cheaper to get into.

David:
And you have to remember that most human beings have to pay rent to live if they’re in that area, and so you’re not just comparing Connecticut to another area, you’re comparing renting in that area to owning in that area. And over at least a small amount of time, it becomes wildly more favorable to own instead of rent. And then if you’re house hacking on top of that, it just keeps getting better and better and better. I know you only had to put $10,000 or so into this deal, your property’s going to appreciate more than $10,000 over the next couple years.

Tony:
It is a trooper. I’ll put it out there. I got it for 195, but we’re doing around 60,000 of rehab on the unit we’re going to be living. It was absolutely destroyed. I tried being real conservative with the cost, but one lesson I did learn is, no matter how conservative you could be, there’s always going to be another cost that you did not foresee. But our numbers are still looking good and feels one of those places where it’s between Massachusetts, between everywhere, it’s 20 minutes from everything. So it’s a real good place to be in. Taxes are high, but the rental market is strong and a lot of people don’t see it.
My main question is about taxes. I’m 22, have a fiance. We’re not married yet. And it just seems like everywhere you look, you hear, “I’m not a tax advisor, this is just my opinion.” Looking for the right way to proceed, this is my first property, I want to get more, the LLC stuff, all that in the future. I want to learn how to get the who or the how to be able to build a strong foundation on taxes to be able to continue this. Because I can predict rent, I can predict what, it’s going to cost to buy this property, but one thing you can’t predict it’s going to be your taxes, it’s always changing.
And I’m really struggling with that. I reach out to a few places and it’s just, “Oh, well, $2,000, $1,000, we’ll do your taxes for you.” But one thing you say is find somebody who can explain why and build off of that.

David:
So are you looking for some practical advice on how to save on your taxes using real estate? Or is this more, how do I reduce my taxes on this specific property?

Tony:
More of how do I plan for taxes? Build that into my investments. So I want to make sure I’m doing everything right now that can benefit me later when taxes do arrive.

David:
I could give you some good advice here, it’s not going to be everything, so I’ll sum some of it up and then I want you to either challenge me or dig deeper on the answer I gave you to get assurance that this is the right advice. All right? The biggest thing that someone needs to understand when they’re investing in real estate from a tax perspective is the concept of depreciation. Now, depreciation is misleading to many people because it sounds like the opposite of appreciation, which means price is going up. So people assume depreciation means the price of the house going down, but that’s not what that means from an accounting perspective.
From an accounting perspective, depreciation is acknowledging the concept that if you own a business and you buy material for it, that is going to wear down over time. So if you own a restaurant and you buy a dishwasher, that dishwasher is not going to exist for 100 years, it has a usable life. All right? And let’s say that usable life is 10 years of time. I don’t know how the tax code works for restaurants, but there’s two ways that they can let you take a write off on that. If you spend $10,000 on this dishwasher that lasts for 10 years, they may say, “All right, you can write off $10,000 against your income because you bought that dishwasher.”
The other thing they will do is they will say, “You can write off $1,000 every year for the next 10 years.” Does that make sense so far?

Tony:
Absolutely.

David:
Okay. The problem is, when you bring financing into this, it would create a situation where no business would ever have to pay taxes on anything. Because if you could finance the dishwasher and a new oven and new tables for your restaurant or whatever it is that you had to buy so you only had to put $1,000 down and you borrowed the rest, let’s say you bought five things that all cost $10,000, you could write off $50,000, even though all you actually put was $5,000 into buying them in the rest that you borrowed. So what would happen is, businesses would just continually buy new stuff and write it off. Whatever they made in the year if their profit was 100 grand, they would just buy $100,000 worth of stuff like, “Oh, we’re going to buy a catering truck. That’s going to be 50,000. We’re going to buy two of those. So now we have two catering trucks. We don’t have to pay any taxes that we made, and we’re making more money because now we have these new trucks.”
So the government wouldn’t generate any income. So what they do is instead of letting you write off the full amount of what you bought, they chunk it down and they say over the usable life of this thing, you can take off that percentage of it every year. Now, as a real estate investor, your house or property is actually a business. You’re not just buying a property, you’re buying a very small business. That’s why Brandon and I have constantly talked about the fact that you’re a business owner if you’re a real estate investor. And if you’re buying a house that costs $300,000, or let’s say in your case, 200,000 is what you paid for it, you could say, “I don’t pay any taxes on my rental income because they’re less than $200,000.”
So they’re not going to let you do that. What they do is they say, the usable life of a residential property is 27 and a half years. So we divide 200,000 by 27 and a half. Let me actually do the numbers for you real quick.

Tony:
I would put two 60 because we have that rehab. It’s actually a 203(k) loan. I got a FHA 203(k) loan to be able to rehab everything.

David:
So that would be just under $9,500 a year, is what you will get covered by your rent. So if your profit on that house is less than 9,500 or at 9,500, you won’t pay any taxes on it because you get the write off of that much money for depreciation. Now, commercial properties, I believe the usable life is 38 years. So if I get one little thing wrong, if it’s 28.5 instead of 27.5, please everybody, don’t crucify me over that. I believe it’s 27, but the concept is the same. So this is one of the ways that real estate investors don’t end up paying a lot of taxes, is if this property made you 10 grand year and you have depreciation of 9,500, you would only have to pay taxes on $500, which is very little. Are you with me so far?

Tony:
Yeah. I’m with you. And all this information is beautiful. My fear and my worry is, so just like me, you had to start somewhere at some point, you had your first property. And going into this, there’s all these different types of advantages. And I want to just make sure I’m not losing out on them because I don’t have the information. I guess, how did you find the information and what were some mistakes that you made that you were able to recover from? Like I said, “I’m going to be getting married, I’m not married yet. We both work W2 jobs, so it’s not like this is my only income. So you have all sorts of different money getting thrown together.

David:
Here’s what my problem was. I paid an insane amount of taxes forever and it was very hard to get ahead as far as saving money, especially when you get into higher tax brackets, where with living in California, plus the federal tax bracket, I was paying right at about 50% of the money that I made was going out in taxes for several years. Now, you factor in like you got to spend a little bit of money to live somewhere. It was very little money that I was actually able to save out of the 100% of it that I made. What changed was when I came across a CPA that explained how I could practically use accelerated depreciation to save on taxes, and that was the next part I was about to get in to help you understand.
Part of your problem, Tony, is going to be that you have income that comes from rental properties that is protected by the depreciation, and you understood that concept. You’re also having income from W2 jobs that is not protected that you’re going to get taxed on, and the more you make, you’re going to get taxed. Are you with me there?

Tony:
Absolutely.

David:
So if you’re looking for a long-term strategy to save on taxes, especially, if you like real estate, and anyone listening, what I would recommend is you talk to a CPA about becoming a full-time real estate professional according to the tax code. And there are certain rules. I bet if you just Google them, you could find it pretty quickly. Like you have to work so many hours a week on real estate, it has to be more than you work on other things. There’s some standard definitions of it. But basically, the way the tax code is written right now, if you are a full-time real estate professional, the depreciation that you get from your real estate can also be used against the income that you make from other real estate related activities.
So that includes real estate commissions, loan commissions, money you make flipping houses, money you make managing properties for somebody else. A lot of different ways that you could make money in real estate can be protected by the appreciation that you made from your properties. Are you with me so far on that?

Tony:
Absolutely.

David:
Okay. So here’s the third piece in this stack that I’ve been building. When you’re determining how much depreciation you can take, they base it off the total price of the property. So if you’re buying expensive real estate and then you’re accelerating the depreciation, meaning you do a cost segregation study to say, “Hey, not all of this property’s going to depreciate over 27 and a half years. The stove, the oven, the refrigerator, the toilets, the HVAC system, that has a much shorter lifespan.” So I’m going to say all of those things combined, I’m going to take those out of the depreciation schedule, and I’m going to take all the depreciation in year one for those things, that’s called accelerated depreciation.
You can work it out to where you buy expensive or enough real estate to cover your income then you do cost segregation studies on it, and you end up with enough depreciation to shelter all of the income that you’ve made if you’re a full-time real estate professional. That is the way that you hear guys like Donald Trump and Robert Kiyosaki that say, “I don’t pay taxes.” They almost brag about it all the time, and I’m like, “God, stop saying that, because you’re making it sound like you found some loophole.” It’s not free money. You are taking risk when you do that. You have to buy real estate. Then you have to manage that real estate. You have to operate it.
It’s not like it’s just a free way to avoid paying taxes. You can lose money to doing this too. This only makes sense for people that already like real estate investing and already plan on doing it. Those are the people that may switch their W2 job to be something that’s more in line with real estate sales or owning a brokerage or having some form… like flipping houses, whatever you’re doing, making money. So that’s what I was getting at.

Tony:
Yeah. That sounds amazing. I work crazy hours, I work 60 hours a week sometimes and I’m not ready to just up and leave my job, that’s my main source of income. But I want to do the real estate to increase my future wealth and then be able to, like Brandon says all the time, spend more time with his family.

David:
The only way you get that, Tony is you have to be willing to let go of the security and the safety that comes from that stable paycheck. That’s the trade-off we all have to make. Do you ever watch the movie Dark Night Rises, the Batman movie?

Tony:
Yeah.

David:
Do you remember the scene where he’s trying to escape out of the pit and he realizes that the rope that they tie around your waist to stop you from dying if you don’t make the jump, that that’s what saves you from dying, but it’s also what prevents you from making the jump? That’s what it’s like. When you leave the W2 world to go into the 1099 world. We all talk about, you don’t have to pay taxes, you can work for yourself, you have freedom. I can spend more time with my family. It’s all true. It comes at the cost of losing the security and the stability and the safety of working for someone else and getting that check.

Tony:
And that was the idea around the house hack. If I do want to leave and pursue this, my actual expenses are so much lower than an average house or apartment and I get all the benefits. If I want to paint a wall or whatever it is, I can, because at the end of the day, I own it.

David:
That is how you play the game to win, that’s exactly what I did, is I said, “All right, I’m going to leave my job as a cop and I’m going to become a real estate salesperson. I’m going to lose all the security of that guaranteed paycheck. So let me build up my passive income to the point that it will support me. If I fail, if it takes me a while to get started, I don’t go broke.” It’s exactly what you’re doing, which is why I love you’re starting this at 22. You start buying a property every year and building up that passive income and reducing your housing expenses so that when it is time to leave that W2 job, it’s not like you’re going to die.
You’ve got a cushion there so you don’t need to wrap that rope around your waist of the W2 job. The advice I’m trying to give you is that you should plan on, “How am I going to transition into something that would help me to designate myself as a full-time real estate professional so all my income can be shielded by depreciation, not just the rent that property is bringing in?”

Tony:
Absolutely. And any advice on and finding that hoop, because that’s my main struggle is finding that hoop. Obviously, you’re not going to get that golden nugget right off the bat of this guy’s right for you, but looking in the right place, because like you said, there’s tons of vultures or out there, people are preying on you to, “I can teach you this, I can teach you that,” but I want to make sure I can get somewhere where I might lose some money, but it’s the knowledge that I’m learning.

David:
Two things. The first I’ll say is, I am looking to find someone who’s already a CPA, who’s very good at it, but maybe doesn’t know how to run a business really well or doesn’t know how to get a ton of leads. I’m looking to partner with someone to start a company that would help someone just like you, because like, “Where do I go?” I want to have control over a company and the product that they create so that I can guide people to use the same strategies that I just described to you. Because there’s a little more detail about how to pull that off, I gave you the overview of it.

Tony:
And that’s why you need somebody in your back pocket.

David:
Yeah. Or someone that I could build a company with so that when there’s people who say, “David, how do you do that?” I can feel comfortable saying, well, this person can help you with it and they’ve been vetted and they’re good to go.

Tony:
And you don’t hear any of that, ever. That’s the one thing that I am glad to hear you’re saying that. You look on the BiggerPockets form and like CT’s that one place that isn’t lit up. So you ask anybody and it’s like, “Oh, you’ve got to find it. You’ve got to find it.”

David:
And then when you find it, they all say the same thing, “Here’s everything that could go wrong. Here’s what you got to be careful of.” But they don’t actually tell you what you can do. And that’s what we’re all looking for, is, “Will somebody tell me what I can do?” That’s why I started the mortgage company, because we don’t want to say, “Yeah, you can’t get a loan,” we want to say, “You can’t get a loan that way, but we can find you one over this way.” And to me, that’s what you want to look for with somebody, and that’s why I’m trying to build the things I’m building so that people that are on BiggerPockets have a person they know that they can trust.
Now, what I can do for you now is if you DM me or if you just message on the BiggerPockets website, I can refer you to the CPA that I use that does these strategies for me.

Tony:
Absolutely. I can do that at Instagram or BiggerPockets, wherever is easiest.

David:
Yeah. Now, here’s what I love about Tony you asking this question for everyone to hear. Not only did you get an answer, but a lot of people got to hear, “There’s a way to not pay taxes by buying real estate? I love real estate, I hate taxes, you’re telling me I can combine them together to avoid it?” The answer is yes, it just comes with the price. And I want to make sure everyone understands that you can’t do it while also staying comfortable. You can’t do it while staying in your W2 job where your boss is taking all the risk and you’re getting a guaranteed paycheck and you don’t have to take any of the risk.
There is a step that you have to take that does expose you to failure, so the smart thing to do is what you’re doing, to build up that passive income while you’re waiting to make that jump so that when you do make it, it’s not nearly as risky.

Tony:
Absolutely. And like I said, we both have incomes. If I can get just the house hack underway, get all the tech stuff, find that person for my back pocket so my next deal comes, whether it’s going to be a quadplex, I’m in love with these duplexes for some reason, I know Brandon says he loves those, but they really are a great starting point to get yourself out of that rat race of just always having to pay somebody without having any benefits of it.

David:
Yeah. And Brandon also says to follow your fire. So if you love duplexes, then go in all in on duplexes and do that and get really good at it.

Tony:
Yeah. My idea right now is, I think I heard one of the guests on here earlier say he rents out a lot of these duplexes as single family homes, finding a quadplex but four different units on the same lot and renting them all as like little townhouses. I love that idea. Having nice clean places for people to live. I grew up myself in complex with 15 units, always listening to fire alarms, all that crazy stuff. So if somebody have a place to live where it’s affordable, nice, clean, and then also getting the benefits on the back of it, is huge.

David:
That’s awesome, Tony. That’s exactly what I like to see is you had an experience that was less than ideal and instead of letting it make you bitter, you let it make you better. And so now you’re going to go on into how to solve that problem for other people, and in doing so, that will create wealth for you.

Tony:
I appreciate it.

David:
All right. Well, thanks for asking great questions. And if you ever have any more, you have an open invitation to go to BiggerPockets.com/david and ask some more, because this was awesome.

Tony:
Absolutely. And I’ll be reaching out for you about that CPA, I really will be.

David:
Yeah. We could probably help with the financing on the properties that you want to buy in the future as well, so message me about both.

Tony:
Absolutely. We’re looking to refi out of this too once we’re done with the full reno. Coming up on the final weeks.

David:
Thank you Tony. Great job, man.
Mark, with that orange hat you look like you could be a spokesman for the Home Depot. You got the beard, the orange wristbands, the hat.

Mark:
Everything ready to go. Absolutely.

David:
Are you a Home Depot fan?

Mark:
I love Home Depot. Are you kidding me? For Christmas, all we got was Home Depot gift cards.

David:
So does Brandon. Brandon get so excited, and I hate going there. Every time I go to Home Depot, as fast as I can, I’m trying to get out of that place.

Mark:
Yeah. We relate to that in a little bit. TAs you get older, your gifts are a little less exciting.

David:
All right. So what you got for me?

Mark:
I’m super excited to be here. And just like Tony, this format has been great, and I’m very similar that I was just scrolling through Instagram and this happened to be something that popped up, so I’m glad that I was able to catch on and jump on and ask a question. I come from the perspective of a little bit more of… Well, not a little bit, a newbie investor. We, me and my wife and my family, my two kids, we really have taken the plunge and we really have you guys to thank for that in learning all there is to learn so far in the real estate investing world. We’ve taken the jump in selling our primary home, and we’re in the process of house hacking, rehabbing. We’re under contract of our first duplex to start that process going forward for ourselves.
First question is along the lines of where Brandon talks about the stack, starting that process of going through. And I really like that and I like how you dive into the different numbers and going from there. As a newbie investor, is there anything wrong or what would be the upsides and downsides of maybe a two-market approach? And the reason I ask is, where I’m at in North Jersey, it’s a little bit more on the pricier end when it comes to taxes, we’re going to be house hacking this first one, so it makes it a lot more doable. Is there some downsides or upsides to a two-market approach when it comes to the newer investor?
Me and my wife, we have W2 jobs, definitely only part time on this, but what are some of those upsides and downsides to that?

David:
Okay, we’re going to have to go back and forth on this a little bit, because this is a very good question. Short answer, the downsides to two-market approach is that you don’t commit to either one so you just end up analyzing a lot of properties in both areas, but you don’t ever commit. Also, a big part of being successful when real investing is building your team. I talk about the core four in long distance real estate investing. It’s twice as much work to do that in two different markets, and it’s a lot of work to do it in even one. So, a lot of people assume, “Well, I’m just going to find a lender and an agent and a contractor and I’m good.” No, you’re always looking for another contract. Your property manager might not be great. You might have to go through three or four before you find one you like.
Right when your agent starts doing really good for you, their business blows up and then they can’t keep up with it anymore. And you have to find another one. So the idea of a core four is one thing that the actual practical implementation of it is that it is a lot of work. So if you’re trying to do that in two different areas, it can become, to the point where you’re just doing all the work of interviewing people and looking at deals, but not actually buying real estate, and that could be a problem. The upside would be that you can use two different strategies, assuming you have enough capital, so that you can win in two different ways. And I’m happy to go into that more if you like, because that’s how I handle things. I invest out of state, I also invest locally.

Mark:
Yeah, I know. That’s one of the things, the Long?Distance Real Estate Investing book, it something I dove into right away, just knowing an approach as we started out, we’re jumping into this with the house hacking and starting here, definitely looking for some more insight because it’s one of those things living close to an area like Pennsylvania where it might be something. I haven’t gotten into those numbers, but we’re just starting out on that. So very much following the lines of what you did, looking at the long-distance stuff and looking at that book has been a great resource so far.

David:
Well, thank you for that. A few things, even though I wrote the Long?Distance Real Estate Investing book, when I give people advice, I almost always tell them, house hack one house a year where you live as your primary goal and anything after that, do the long distance thing. So I’m not a fan in most cases of people just only going out of state even though I wrote that book. Because when you buy an investment property, you’re putting 20 to 25% down, sometimes more. When you house hack, you can be putting as little as 3% down. So just right off the bat, the return on your investment tends to be higher priced properties and you can put less capital into it.
So I hear people tell me like, “Well, I can go here and I can get this much cash flow, I can’t get it over here,” but they’re not considering the fact that they’re putting seven times as much money down to get that cash flow as they are if they buy locally. The next piece of advice I’ll give anyone is, look for markets with two different strengths. You don’t want like on a basketball team, two players with the exact same strengths and the same weaknesses. Some obvious ways would be, look for one market that appreciates a lot, another market that cash flows more. One market that you can use traditional, like just buy a house and put a family in it or house hack, another market that maybe you do a short term rental or flipping.
So it’s nice to have complimentary markets so that you can go back and forth between the two. And what my situation looks like is, I buy in California whenever I can, I try to at least house hack one property every single year, which in finance, it becomes much more difficult in my spot, but when I’m able to pull it off, that’s what I do. And I put low money down and I buy a house, which I then either turn into more than one unit or live in it and rent out parts of it or whatever, some form of house hacking with the low down payment. And then anything on top of that, I buy in markets that may be cash flowing better.
Or for someone like me, they’re a little more speculative or I believe if I get in that market early, it will make me more money over time. But that’s a very different strategy than I just put low money down in California, I’m just going to wait and it’s going to go up, I don’t need to get there early. What I like about that is, I’m diversifying the potential gain that I could get out of these properties. And I’m also able to, if one player in your team isn’t shooting the ball well, you have another person to pass it to. I like looking at the overall economy and seeing, “This area’s not doing great, these areas are, I can build teams here knowing at some point it’s going to shift back and I still have resources in that area.” Does that help a little bit?

Mark:
No, it really does. And on top of that, I’m super glad that I got a David Greene basketball analogy. I was hoping my question would bring one of those up. So the diversifying of everything, when it comes to that, I like that aspect because as we’re looking into this, it’s definitely the approach. And hearing that confirms a little bit of what I was saying, but hearing it come from your experience on that, it definitely is helpful. And definitely, starting things up being a little bit of a newer investor, hearing some of these guys who have been through it before, it’s great to hear, listening to the podcast and out of that.
One of the most helpful things I think in starting, you guys did the recommendations of books a little bit ago, and they weren’t really real estate specific either. A lot of it had to do with mindset. What would you say as far as mindset? Because I think that’s one of the things as newbies and starting, especially with family working through, what do you think some of the recommendations are? How would you go about saying the best way to get the right mindset as far as staying focused on generating long term, generational wealth?

David:
So Good They Can’t Ignore You. It’s just one of the best books anyone could read ever. I just can’t see how that won’t make you successful if you just follow it. I’m not an old man by any means, but I did get started investing in real estate relatively young, so I’ve got a little over 10 years as an investor already in this. And one thing that I’ve seen and really experiences I had in life before real estate investing also support this, is many times when you listen to people asking questions about how to be successful, I can tell from the way they phrase the question, what they’re really saying is, how can I be successful easily? I’m 24 years old, I don’t want to have to go through the hard work that it takes to be successful, so what’s the work around? Like you’ll hear people say, that’s why they’re investing in crypto and they are making really good money right now.
There’s a lot of people buying NFTs and investing in cryptocurrency that are not in the job market because they’re doing great. And I’m happy that they’re doing good, I’m not bitter about that at all. I don’t know how wise it is to assume that you will always be making the same money you’re making right now. Now, when you’re 22 years old, 23 years old, that’s all you’ve ever known, so it’s easy to think that’s the only way it’s going to be. The problem would be, let’s say you crush it for the next three years in crypto, and at 26 years old, you see the market dropping, you get out, you save most of the money you made, but now you can’t make money in that space anymore.
What do you do? You have no skills. Making money’s great, but it’d be like, I don’t know, you were able to eat at home from mom’s food and then mom dies or mom moves and you can’t eat there anymore. And you haven’t been growing anything of your own, you’re stuck. That’s the problem with people that are looking for the fast answer. Another one that I saw was there was a time maybe four years ago, three years ago, was really popular, so they have these companies that are making software that would scrape the internet looking for the best deals. So they would like go through Zillow and put in the rent and the price and say your ROI would be best on this property.
And everybody wanted to figure out how do I get involved in that because I don’t want to have to actually analyze deals or learn the market. Even if you somehow did find software that did that really well, how long before Blackstone comes in and they just buy those properties before you ever get them? Have you tried to buy a PS5 anytime him recently? Bots are scooping those things up before anybody can. So part of the problem with throwing your lot in with the technology game is you’re almost guaranteeing when technology figures how to solve a problem, the people with all the money and all the power take it over.
They buy the technology and now you don’t have access to it. What they cannot take from you are the grassroots efforts that you put together, knowing what a deal looks like in your market and what’s below value, having relationships with people that are going to have those deals, knowing how to talk to agents or lenders so that you can make sure you stay at the top of the funnel with what they’re bringing. Those people skills can never be replaced with technology. And a deep understanding of the macroeconomics that make real estate go up or down or markets do better or others, that technology has to be reprogrammed to understand. You can’t understand it before that happens.
And that book’s So Good They Can’t Ignore You, really just focuses on quit thinking that the world owes you, that other people are supposed to supply your dream, that someone else needs to make software that shows you what deal to buy. And instead, focus on bringing value to the world, get so good at something which everyone will get good at something if they have a natural aptitude for it and they just continue doing it for a really long time. I’ve seen very physically unimpressive human beings that can destroy big strong men at jujitsu because they’ve done it for a long time. There’s a teenager who I think is 15 or 16 at my gym that rips through grown men like a knife.
It’s sickening watching this kid, he’s been going since he was like seven years old or something. It’s scary to watch him, you don’t want to end up… And this is because he’s just done it for so long. So is there a thing that you can dwell on and get really, really good at so that no one can ever take it away from you, you can name your own price and then you can build off of that?

Mark:
That’s so good. That’s so good that you gave that recommendation there. It’s one of those things. Hearing this, it’s the action that you need to take and getting all this and having all this knowledge and going forward. It’s one of the things where we found ourselves in the situation where we met the right people, taking that action, stepping out and talking to the right people that you find yourself in the right positions to be able to do something, which is what we were able to do. And having that knowledge and that the recommendations that you guys have done has been super helpful in that.

David:
Let me add this part. There’s two kinds of knowledge, there’s knowledge that I’m providing right now, which is something that you can hear and regurgitate and re-articulate, it is knowing the right answer to the question. And you can pick that up from being around people that talk about it. Then there’s a different kind of knowledge, I don’t know what the fancy term for it would be, but it’s the gut feeling that you get when you know to go do something. I played basketball for a long time, there’s knowledge where you listen to coaches talk and they understand, “Yeah, you got to make three passes at least before you shoot and you want to get an open shot. And these are the places you want to shoot from,” that anyone who listens can say.
Then there’s another knowledge that comes from playing a lot of basketball where you instinctively recognize this is a good shot, I should take it or if this doesn’t feel right, I shouldn’t. And that goes for a lot of things, for passing, for defense. When you do something long enough, your feelings start to guide you. You don’t have to think about it like we’re talking right now. It feels right or wrong, which is really just like the algorithm of your brain has had enough data run through it that it can spin out, this is good or bad. I really want to encourage you and other people to not just listen to a lot of podcasts and read a lot of books, that gives you the first knowledge that can make you sound really smart at a cocktail party.
And you hear these people throw around cap rates and ROIs and IRRs and talk about waterfalls, and they’re usually really good on Excel spreadsheet, but when the actual opportunity comes to act, they freeze because they really don’t know if it’s a good deal or not. And that’s the kind of knowledge that you want to have. You want to know a market so well that even though that house has been sitting there for 90 days and no one has bought it, you can figure out why, and you know if that’s a problem that you want to take on or not, and you’ll feel excited if it’s the right deal, and you’ll feel scared if it’s the wrong deal. That’s really what the goal is.
I’m in the jujitsu phase where I got to think about everything. I’m not good at it. I’m really good compared to a person that doesn’t know anything, but you put me against people that have been doing it for a long time, I could sit there and tell you, “Oh, this is the escape from that thing.” That does me no good when I’m actually in that thing. My brain isn’t thinking of it, versus the person who’s been doing it for a long time, that the second they fill my weight shift in that direction, they’re like, “Nope, not going to happen.” And boom, they’re moving their hips, so I never even get into that position. That’s how you know that you’re good at something, and that’s what you really want to be diving into.
I’m at that point with our real estate sales team, where someone come to me and they say, “Hey, here’s what I want to do.” I know what questions to ask because I can recognize red flags way before everyone else does because I’ve had so many of those conversations. That feeling is really what you’re going for, and when you have that feeling, that’s how you know that you’re ready to really expand and go big.

Mark:
Yeah. It’s so good. That instinct, it’s definitely something that comes and working toward that. I appreciate that insight.

David:
Thanks Mark. I’d love to follow in your journey. I like the questions you asked and the way you received it. I think you have a great attitude and a big future. So make sure you DM me on Instagram or something. Let me know how it’s going.

Mark:
We will do, sir. I appreciate it. Thank you.

David:
All right. That was Home Depot spokesperson, Mark Sinclair.

Cade:
David, thank you for your time. Thank you Eric, for putting us together too. I just had one question, David, I wanted to ask, it’s not even really real estate related, but what is one thing about you that you wish more people knew?

David:
Oh wow. I wasn’t expecting to get that at all. Who that I wish more people knew? I think it would be helpful if more people understood the reason it seems like I always have an answer for things I get that a lot is like, “David just seems to know everything about everything.” I don’t think that I’m necessarily that, I’m not smarter than other people in that sense, and I don’t know everything about everything, but my brain never stops thinking about what could go wrong or how I would answer certain questions.
Now, the reason that I don’t sound very confident answering this is I have not prepared to answer this question. That’s what I’m getting at. Because I’m always thinking about real estate, what’s somebody going to ask me, I’m the host of the biggest podcast in the world for this, I can’t get caught off guard. So almost every real estate related thing, I at some point have thought through, how would I articulate this? How would I explain it? What analogy would work best? I spent a lot of time trying to do that. And that’s why it seems like I have all the answers.
And I would say that to encourage people that it’s not like there’s some secret society of Illuminati people that have all the information and I’m a part of it and they could never get there, it’s more that I just I’m passionate about, I really like it, it’s really interesting to me and I feel a sense of responsibility to be able to help other people achieve financial freedom. So I’m constantly thinking about like, when is the market going to change? How am I going to know it changes? What is the right house to buy for which person? And how do I explain that? It’s somewhat exhausting actually. So when somebody DMS me and I don’t answer back or they email me about a really long thing that I’m like, “That’s probably something you should ask to your agent, we’re not your agent on that deal, I don’t want to get into it.”
It’s not that I just don’t care, it’s that I’m almost always in a state of fatigue, because I’m always trying to get ahead. So it’s great in situations like this where I get questions that are thrown at me all the time, but in my personal life, I think, that I’m definitely more withdrawn. I don’t talk as much, I’m more introspective, I think, a lot more. Brandon is the opposite of me. I don’t think he thinks about things as much, he’s more of the build a parachute on the way down from jumping around the plane. So he doesn’t even know how parachute works until he’s going out and he’s brilliant so he can figure it out, which means he has way more energy to just be more fun.
He’s a mushroom, he’s a fun guy. Brandon’s just fun all the time. And so he’s much better at acknowledging how other people feel and making them feel good and being fun to be around him. And at times we get same page and we do really good together, but it doesn’t happen as often because my brain is usually six or seven steps ahead of where I ever I am right now trying to figure out like what’s the best path to take because I feel a big sense of responsibility that I help lead the BiggerPockets army on this march that they’re on to finding financial freedom.

Cade:
How do you go about dealing with that type of pressure because I’d like to think that most people couldn’t handle that?

David:
I think a lot of things I went through in life before this set me up for that. So I look back at when I was in high school and I was playing basketball. My high school career did not work out the way I wanted it to. Looking back, I can see some providence involved and doors were closed that I thought would be open because I needed to go a different way. At the time, that’s not what you’re feeling, I was just feeling rejected and very low confidence, and it was very hard. But my coach put like grown man responsibility on me, even though I was technically still a teenager. So I was responsible for finding this young, really good player we had on our team that was a space cadet.
And I had to find him every day after school and bring him with me to practice. I had to go get him at his house and drive him there if he wasn’t ready. The coach basically said, “If he’s late, you don’t play.” So that one area where always had a lot of pressure put on me at a young age. As the captain of the team, if somebody else messed up on like an inbound play or a defense that we called out, I had to run laps while they all watched. So my coach, he recognized leadership qualities in me. He was very, very hard on me so if I didn’t have everybody else playing the right way, I got punished.
And then everybody had to watch me get punished, which wasn’t really fun either. So that happened. And then obviously getting into law enforcement, there’s just no room in that realm, you’re not allowed to make mistakes. Anytime you make even a small mistake, you are called into account and it’s very painful. And so I developed an attention to detail and I learned how to always try to be a step ahead. You don’t want to wait until a really like a horrific car accident happens and you stand there, like what do I do? You’re trained to think ahead, if that car in front of me crashed right now, what would I do?
Well, I don’t even know what street I’m on, you’re getting in trouble. You need to be able to call on the radio and say, “I’m at Main Street and Jones Street and this accident just happened and this is what I need,” so that you can act quicker. I think those things and then becoming a business owner of The David Greene Team and The One Brokerage where now every time an employee of mine does something dumb or makes a mistake or has a bad attitude, that is a direct reflection of me. So that’s just pressure, I can’t get away from it. One person has a bad day. It says something dumb to a client and they’re like, “David’s company sucks.” That’s is what I’m worried about.
So I have to constantly be looking at all those people and monitoring like, are they in a good emotional state? Are they well trained? Is this the right fit for where they should be? Are they getting information? And I think that environment that I’m in has led to me being able to maybe handle pressure more than other people might. And then the last thing I throw onto it is I think I probably compartmentalize things better than other people do just from having more practice. So the pressure that I have put on me to deliver a great podcast when we’re here, this is the biggest podcast in the world, I’m representing BiggerPockets, I need to make sure their brand gets upheld, I got to be able to completely put that in a box and set it aside when I get off of this and now the pressure to get a book written on time for the deadline is there.
Then I got to put that away, the pressure to get this next listing signed or whatever the thing would be. It’s really just a result of doing it over and over, and over. People could get to the point where they can handle, everyone can become a Jocko Willink if they went through what Jocko Willink went through. That guy makes me look soft and pathetic compared to how much pressure he… I’m not waking up at 4:30 every single morning, I’m like, “That’s just too much.” I don’t want to do it bad enough.” Well, he does. It’s the result of putting yourself through difficult things and not quitting, lots of people got put into Jocko’s situation and they quit.
If they would’ve stuck with it, they would’ve ended up like Jocko. And coincidentally, Jocko has a great life. He makes a ton of money, he’s in really good shape, he’s well respected, he helps a lot of people because he went through hard things. So that’s one of the reasons I tell a lot of people it’s okay to switch. I was on this path, now I’m going to go on this path, but don’t quit. It don’t be like, “This path was hard, so I’m just going to quit. How old are you Cade? You’re asking really good questions?

Cade:
I’m 20.

David:
Okay. You’re 20 years old, that’s insane. Feel free to ask anything else you like. I’m very impressed.

Cade:
Yeah. Well, I was going to say, I’ve often heard it said that there’s going to be pressure no matter what you’re doing. So for me as a 20-year-old real estate agent, there is pressure when I’m selling some of these New Yorkers house and they’re breeding down my neck. So it’s really not so much a matter of pressure versus how you handle it, so whether you’re doing the biggest podcast in the world for real investing, there’s going to be pressure there, but I think pressure’s all relatively the same. If I was hosting the BiggerPockets podcast, I think I would feel the same amount of pressure that I would be feeling selling the New Yorker’s house. It’s a matter of how do I deal with it?
So I think compartmentalizing it is the way to go. Do you have tips on how you compartmentalize it? I can’t even say the word.

David:
It’s really good. That is something that takes time because what compartmentalizing is really doing is controlling your emotions. So it’s not numbing yourself so you just don’t feel pressure, it’s understanding that when I put this podcast aside and then I do whatever the next thing is I have to perform at, when I step back into the podcast box, all the pressure that was there is still there, all of the problems that were there or the benefits. I look at it like owning a rental property. If it’s in good condition, when I revisit it, it will be better, if it’s in bad condition, when I leave it, it’s just waiting for me to come back.
So you’re always trying to improve this situation you’re in. Something I liked about what you said when it came to the pressure of selling this New Yorker’s house, say you’re selling a $10 million penthouse in New York and this person’s just like breathing down your neck. Well, let’s say you don’t have a house to sell. That’s just as much pressure, where’s my next paycheck going to come from? And let’s say that, you’re like, “Well, I don’t like that pressure so I’m going to go get a job so I have a paycheck.” Well, now you have the pressure of having a boss that’s constantly telling you what to do that you might not believe in or not having a future, you’re stuck in this rat race.
What I love that you said is there’s always pressure, there’s always risk. There’s always fear. We tend to take whatever we’re dealing with right now and assume that’s the only pressure, and if we quit it’ll be relieved. And the piece of advice that you asked me, I remember I had this life changing moment when I was in the police academy, it was 110 10 degrees, we were running around the streets of Pittsburgh, California. It was one of the first days, I had had an ankle surgery not too long before that I didn’t really want them to understand was as bad. But if we ran for more than three days in a row, it would swell so big I could barely handle it. I got very lucky that several times we got to three days and then the fourth day didn’t happen.
But it was a day where you sweated through your shirt so it’s see through, it’s over five miles, it was in the beginning of the academy, you’re in a shock, it was miserable. And I started to have thoughts like, “Do I want to quit?” And I got scared because I worked so hard to get there, and I had this thought that was tempting me to quit. And I got really afraid if I listen to this voice for too long, I might actually quit. And I saw some people that were on the sidewalk looking at us and they were like, “Oh my God, these recruits are just getting smoked. That looks so hard.” And they had sympathy.
And I had this like paradigm shift where I realized, if I was them watching me right now, I would give anything to be in the position I’m at. This is what I wanted, I fought to get into the position where it would be hard. So if I quit, I’m now like going to go into the position person watching and wishing I was there. And at that moment, that pressure stopped bothering me. I stopped caring about how hard it was, I was like, “This is what I wanted, I wanted it to be hard, now it’s hard. This is where I’m going to stay.” And so for you, it’s the same thing, is you have all the pressure of this person whose house you’re selling, that’s what you wanted.
You wanted to sell an expensive house and make a lot money as a 20-year-old. And you eventually, you want to be the next Ryan Serhant and just crush it. That doesn’t happen without this kind of pressure, that’s what you signed up for. So if you keep reminding yourself of that, the pressure doesn’t go away, your interpretation of what that pressure means will change.

Cade:
I love that. That’s so funny you bring that up because that’s what I tell myself. And you got to be careful who you’re jealous of or what you wish for because you may not be in a position where you can handle the type of pressure that they can. If I was to be like, “Oh man, I wish I was David Greene, have a dope sales team and run the biggest podcast in the world.” Well, I could wish that, but I don’t know what your schedule looks like or the type of pressure and work you put in, so who am I to wish I was in your position. So I think it just puts-

David:
You’re so wise. That’s so good. I say all the time, there’s a lot of people that say, “I wish I look like the Rock.” Right now, Cade, if some fairy touched you on the head and said, “You can have the Rock’s body, would you take it?

Cade:
That’s a big man, but sure yeah, I think.

David:
Well, okay. Maybe Brad Pitt from fight club, just somebody that has an amazing body that you wish you could have. The truth is you don’t want to look like the Rock because what the rock has to do to be able to have that physique is not something that most people are willing to do. You described it perfectly. It’s one of the reasons that people that win the lottery always lose the money and they end up miserable. It’s like having all that wealth is like putting a lot of weight on yourself. And if you put 500 pounds on a bench breast and then said, “Okay, go Cade,” it would just collapse and it would crush you, which is what happened when people win the lottery.
The way that you’ll be able to handle wealth is you add five pounds at a time, very slowly and you build yourself up to handle the weight of the success that you want and the pressure that comes with it, which is another reason why you just can’t quit. You have to keep going. Yes, I want people to want financial freedom through real estate, but if they did it all in the first year and they just had 25 houses and they went that big, the weight of trying to manage all those properties might crush them. So it’s better to build up your ability to handle that weight. And I can already tell from the questions you’re asking, you’ve got a really, really promising career. I’m proud of you, my man.

Cade:
Yeah. Thank you.

David:
Yeah. Make sure that you message me on Instagram too. I want to keep up and see what I can do. Have you read my book Sold yet?

Cade:
I have not.

David:
Well, good news for you is that’s okay because you’re already doing well. The sequel to it is called Skill and that’s about becoming a top producer, Sold is about just building a profitable business, but the sequel will be coming out in a couple of months. So I’d love to get your feedback on it.

Cade:
Oh yeah. Dude, I would love to for sure. I’ll message you on Instagram.

David:
All right. Thank you, Cade.

Cade:
Awesome. Thank you for your time.

David:
All right. Our next question is from Katie, who has a question about hard money? Katie from Happy Homes in Colorado says, “When you don’t have a W2, what are the criteria that lenders need?” Such a good question. And I’ve learned so much about this once I became a loan officer. When you’re trying to get a loan and you don’t have a W2 job or your W2 job doesn’t make enough money, or for whatever reason, your debt to income ratio doesn’t meet the criteria that you would need it to, you got a couple options. The first, as you could look for one of loans we provide, which is a loan that is based off the income the property makes not on you yourself.
Now, Katie, your question was more directed towards hard money. So the first thing I would say is, do you need hard money? The rates and the points on hard money tend to be higher than they would be on different loans, and the term is also shorter. Most hard money lenders want their money back in 12 months, sometimes you’ll get 18 months, but if you go past that, you need an extension. That becomes an expensive extension and expansion. I don’t know if that’s a thing, Brandon would probably have come up with something better there. So I always try to sell people like, hard money’s a good option, but it should be a fallback option.
Can you do it without using hard money? Can use private money or can you use a normal loan? So reach out to somebody, me or somebody else and ask like, “Hey, can I get a loan for this property based off the income that the property’s going to make?” Now, let’s say that’s just not the case, this property is not going to generate any income, it’s just like a track house in a suburban neighborhood and you want to live in it. The question of what are the criteria that the lender needs? The first thing a lender will always be concerned about is how do I get my money back? And I want everyone listening to this understand that the first question you’re thinking is, how do I get a loan so I can buy the house? You’re not too worried about them getting their money back.
They’re just some abstract thought of a person that you need to get what you want done, similar to how most people look at real estate agents. They don’t love that they have to use an agent, they just want a person to open the door and write them contract. It’s not till later that you really realize your real estate agent was important, hard money’s the same way. So get yourself out of your head, put yourself in their position. How do they know they’re going to get their money back? Well, the first thing they’re going to want to know is, are you good at this? Have you done this before or do you suck? They don’t want to basically lose money so that you can learn how to invest in real estate.
BiggerPockets is willing to give you a whole lot of information for free, contractors and loan officers and real estate agents and hard money lenders, they’re not trying to give you a whole bunch of information for free. They’re looking out for their interest. They’re going to look at your experience level. The next thing they’re going to look at is how much skin do you have in the game? The higher of a down payment you put out there, the less risk it is for them. So if you buy this place for 500 grand and you put 100 grand down, and that means that they let you borrow 400,000 and they think they can sell the property for 500 or maybe they can always sell it for 450, they still get their money back.
So they always want you to put more money down, but us as investors, we’re always like, “Other people’s money leverage. How do I borrow more and put less of my own money into it?” So what that does is it increases the risk for the person that you’re borrowing it from. If I’m a lender, I don’t mind having increased risk from a person with a really strong track record that’s done this for a long time. I do mind increased risk for a person who’s already risky because they’re a newbie. So that’s something else to keep in mind. And then I’d say the last thing that they would look for is what’s your ability to repay it?
If I’m going to let you borrow for 12 months and you’re going to make interest-only payments, how much money do you have coming in your own finances so that you can pay me back? Now, if you actually pay attention to how BiggerPockets runs things, all of those things that I mentioned are what they’re trying to provide to you. BiggerPockets Money Show is constantly harping on how you can manage your own personal finances better. They want you to be in a position that you’re more likely to get a loan so you can invest in real estate. Pretty cool, right?
BiggerPockets is providing a free education like you’re getting right now so that when you go to a hard money lender, you don’t have to learn it from them. A lot of how this whole company is constructed is to make it easier for you to get the pieces that you need. So the short answer is, learn to look at it from the hard money’s perspective. I’ve explained what that is. And then the second answer is, make changes in your life so that you become a better applicant to borrow money from a hard money lender. Don’t do the easy road, the downhill road is, which is to wait until you’re in a position that you need money and then frantically try to figure out, “How do I find someone to give it to me? Someone said hard money, let me just go run over there.”
Prepare before you need that money to put yourself in a position so that it will work. And if you can’t borrow money from a hard money lender, start taking steps right now to make yourself a more eligible borrower and start looking for alternatives to hard money. So like the loan product that I mentioned would be one thing, borrowing money from a family member or a friend would be another thing. There’s lots of things you can do to put yourself in a better position there. The last piece that I neglected to mention is I’m assuming that you’re not making that much money because you said you don’t have a W2, but you might be a 1099. Maybe you’re a real estate agent who does make money, but you don’t make it on a W2.
In those cases, lenders like us will collect information that we provide to the bank that we’re going to try to broker the loan to. And what we’re trying to show them is a history of you making money. So if you don’t have a W2 job that is more risky for someone to let you borrow money, that doesn’t mean that they’re not going to give you the loan every time. It means they’re usually going to require more documentation from you to prove that you are making money. So if somebody comes to us and has a W2 job, it’s awesome, we just get your pay stubs and your taxes and we say, “Look, they have a job, they showed the money on their taxes. Here’s a pay stub. We can prove they’re making money. Maybe here’s some account statements that show the money’s been going in for the last six months. This person’s good.”
If you’re self-employed, it becomes a little more complicated, and where a lot of people shoot themselves in the foot is that they take so many write-offs on their taxes as a self-employed person, which is great when they don’t have to pay taxes. The problem is you can’t show that you’re making money when you want to get a loan. And sometimes you lose more money in potential gains from real estate investing than you save by not paying taxes. So I mentioned earlier in one of these shows that using accelerated depreciation is a way that you can avoid paying taxes. Well, enough other benefit of it is that even though you don’t pay taxes on the money that was sheltered by depreciation, you still get to claim that you made that money.
It still shows up as income that you did make. The bank recognizes that the depreciation that you were able to offset, how much you pay the government, isn’t money you’re losing. It actually sits in your bank account and they let you use it. So that’s one of the reasons why depreciation is good to use because you can still borrow, you’re still showing the income, versus if you’re taking business write-offs from your company, like you’re riding off your car, and your clothes, and your dinners, and your trips that you’re taking or whatever, and you just show you don’t make very much money, you might not get the loan.
So what you’re going to do is you’re going to find the loan officer and you’re going to say, “I’m self-employed,” and they’re going to ask you for a laundry list of things and unfortunately, is a pain, but that’s what you can do if you actually do make money at a 1099 job and you want to use that to get the loan. Hope that helps. All right. And that was our show for today. What a blast that was, I love getting to interact with BiggerPockets members. It’s one thing when somebody read you a book and they send you an encouraging DM or email about what they liked about it, but it’s even better when I get to talk to them in-person, hear their questions, see the look on their face and then ask them clarifying questions to get even more out of them to give them better advice.
Now, typically, I only do this in consultations with clients for The David Greene Team, or The One Brokerage, or people that I might be partnering with to start a business. And so I get to dive deep and figure stuff out, but it doesn’t always get recorded and shared with everybody. And I think it’s really cool that you guys can see behind the curtains of what it looks like when you’re trying to actually provide value to somebody and you don’t know what struggle they might be facing. But what always comes out of it is there is an answer and a direction to take. There is positive steps that can be made if somebody shows you what they are.
So please, keep listening to these shows, please keep submitting more questions for us to share with everybody else. If you want more practical questions and show up and ask more practical question, if you want to more general question, then do that. If you want to know about the economy versus a specific market, ask me what I think about Miami, Florida real estate and why it might be going up, or ask me what type of loan might be the best one to use, whatever you’ve got, get out there and submit your questions to us. The first place to do it is biggerpockets.com/david. You can go there and submit your question and we will air it on one of the Seeing Greene episodes, or invite you onto one of these coaching calls.
The other place is you could follow me on Instagram @davidgreene24 and keep an eye out for when I go live. Now, when I go live, that’s oftentimes because we’re recording the podcast that I am doing in the moment so you can see what goes on behind the scenes, hear when I say something the wrong way or slur a word, and we have to go back and redo it, which is fun. Or even more importantly, you can get the link to join these coaching calls where you can be interviewed and ask your question on the podcast and then brag to everybody that you were on one of the biggest podcasts on all of iTunes, because you’re awesome.
Thanks a lot, also for joining me. That’s another indication of your awesomeness and getting your real estate information from us here at BiggerPockets. We really appreciate that, and we are working hard to try and make sure we continue providing the most value that we can to you. I would encourage you to check out BiggerPockets YouTube channel, where you can give comments, you can ask questions and you can get connected at a deeper level to other people. Hope you have a great day, and I will see you on the next episode.

 

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In This Episode We Cover:

  • Accelerated depreciation and using it to substantially lower your tax bill
  • Finding a real-estate specific CPA that allows you to do more with your current portfolio
  • The pros and cons of investing in different markets and the strategies for each
  • Developing your investor mindset and having the courage to act when opportunities present themselves
  • Dealing with the pressure and stress that comes with investing and leading teams
  • How to finance real estate investments without having W2 income
  • And So Much More!

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Books Mentioned in the Show:

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