BiggerPockets Podcast 082 with David Krulac Transcript

Link to show: BP Podcast 082: From 0 to 800 Real Estate Deals with David Krulac

Josh: This is the BiggerPockets podcast, show 82.

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 million of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Josh: What's going on everybody? This is Josh Dorkin, host of the BiggerPockets Podcast. Here with my cohost, Brandon Turner. What’s up Brandon?

Brandon: Not much. How are you doing Josh?

Josh: I am doing really good, man. I’m doing really good, sitting here in gloomy Seattle. Oh, no this is Denver. I just got confused. I thought I was in—okay.

Brandon: Nice. Hey, I have another serious question. Last week I asked you about your favorite movie, but today, I actually have a real serious question.

Josh: Okay, what is it?

Brandon: Alright, so I want to know, you got stranded on a desert island.

Josh: Yes.

Brandon: Your—for the rest of your life and you can only bring with one album and a CD player. You got a little head set. You know, bunch of batteries and one music album to listen to for the rest of your life. What is that album?

Josh: Oh my goodness? I don’t have a clue.

Brandon: You got you—that’s not an answer.

Josh: Oh man, that’s.

Brandon: Top of your head, what do you bring?

Josh: I would do, Exit Stage Left from Rush.

Brandon: Never even listened to that.

Josh: You’ve never heard Rush?

Brandon: Oh, I’ve heard Rush. I’ve never listened to their album.

Josh: It’s one of their live albums. It was like one of my favorite albums that I’ve—it was a cassette tape that I used to have and for those of you listening who don’t know what that is, you can Google it, but yes, I used to have that as a tape and I think I broke it, you know, one time. Got a new one, broke it again from listening to it so many times, but yes, probably that one. How about yourself?

Brandon: Good call. Oh good question. There was an old Ska band called The O.C. Supertones. I’m going to go with Loud and Clear, O.C. Supertones, year 2000.

Josh: Wow, there you have it.

Brandon: That was very instrumental in my teen years.

Josh: Nice, nice, well there you go, there you go.

Brandon: Alright well.

Josh: Alright, moving on. Yes, today we have—we got a cool show. We got a guy who has been around a long time. Won’t quite tell us how long. Yes.

Brandon: You really want to know how old he is.

Josh: Oh man. I was.

Brandon: He’s not that people. People are really going to think he’s like a hundred years old.

Josh: He’s not that old.

Brandon: No he’s just like a middle aged guy, but Josh was like giving him crap on the show so.

Josh: Oh, you know. If I don’t give people crap what fun is it?

Brandon: Yes.

Josh: No, he’s a great guy, David Krulac. Dave has been around BiggerPockets for awhile and you know, he’s a super experienced that’s really great at giving out advice on the site and has a ton of wisdom to share and today we dig into his background a little bit and talk about some interesting topics and strategies so definitely pay attention. Before we get into Dave. Let’s talk about today’s Quick Tip.

Brandon: Alright, today’s Quick Tip. We’ve—may—kind of mentioned this before, but I wanted to rehash it. If you’re not meeting with local people in your area, you’re really missing out because BiggerPockets, obviously is an online thing, but you really should be meeting with local people so my Quick Tip today is find people in your local area. Just go to BiggerPockets.com/Meet and you can search people in your zip code, which ties nicely into our Pro Benefit of the Week.

Josh: Pro Benefit of the Week. Is that a new thing?

Brandon: I don’t know and that is if you are a Pro, you can actually go to slash meet and search any zip code so do that and that means you can search within miles of you, within 25 miles of you, within a hundred miles of you or go search a random zip code in Florida or something if you really cared. Anyway, check those out and last thing before we actually—oh wait, I should probably mention, if you want to upgrade to pro, go to BiggerPockets.com/GetPro, G-E-T P-R-O. Make sure you go there and check out the video that me and Josh made there. I think you’ll enjoy it so check that out, BiggerPockets.com/GetPro.

Josh: I do want to add to your networking locally. People around BP have been setting up local organic meet ups. There’s also real estate clubs around the country. There’s REAs, National REA has all these local real estate clubs and things so you know, there’s tons of different ways to find real estate investment groups and we definitely encourage you check them all out.

Alright, so today we’ve got David Krulac who I mentioned before. He’s an investor and real estate broker from the Mechanicsburg, Pennsylvania area. That is central Pennsylvania area near Harrisburg I believe and David has bought and sold over 800 properties. In 2013, he bought 23 properties and sold 23 properties all within his own personal portfolio. He has personally been involved in several different kinds of real estate transactions and brings lots of wisdom so I certainly encourage you to listen to the show and of course, network with him on BiggerPockets when you’re done listening so let’s get to this. Alright David, welcome to the show man. It’s great to have you.

David: Hey, it’s my pleasure to be here, Josh, Brandon, this is great.

Brandon: Awesome, awesome. We’re glad to have you.

David: Absolutely.

Brandon: David actually was one of our authors on our community book that we wrote. Not “we” because I didn’t write it, but we had what eight or nine or ten different writers write a chapter each in a book we called Real Estate Rewind.

David: Yes.

Brandon: It was like, what would you do different if you were starting over today kind of a getting started book and it’s free for BiggerPockets members in the File Place at BiggerPockets.com/Files and I will actually point to the individual file in the show notes at BiggerPockets.com/Show82, but your chapter was awesome so hopefully people will go check that out because it is free so.

David: It was a fun chapter to write. I was glad to be asked to do it.

Brandon: Oh cool. Cool. Well, today, we want to actually kind of go back and kind of talk on that stuff a little bit, but not so much of what would you do, but what did you do and so we’re going to start you know, square one, way back, I don’t know how long you’ve been in so we’ll get there. What did you do before real estate and how did you get into this game?

David: Believe it or not, I worked the—doing computer design.

Brandon: Really?

David: Which is the believe it or not because I’m not very tech savvy and I’ve been out of it so long that the industry has passed me by.

Josh: You’re talking about actually designing the hardware that is a computer?

David: Software.

Josh: Oh, software design. Okay, got you.

Brandon: Nice.

Josh: Got you. Alright so you’re hot guy in the software design space and so then.

David: In the antiquities.

Josh: In antiquities, maybe ten, 20, I’m not going to age you so I’ll let you do it to your self. At some point, it came to your head, you’re like alright, I’m doing this. I want to go into real estate or what was the genesis?

David: I started when I was still working full time though not in real estate and I thought that I needed to do something as a hedge for retirement so initially I got into it with the idea that it would be a supplement to my retirement and it kind of grew from there and grew to the point where I stopped doing that and I’m doing real estate investing fulltime now.

Josh: I am going to ask about your age because I think it’s pertinent and I think you know, some folks who were listening may find it relevant and so you’re clearly not in your 20s or 30s or 40s. You—I’ll stop there. When you decided to start making a hedge for retirement—were—how—were you really close to retirement?

David: Oh, no this was when I first started working.

Josh: Okay.

David: I was only on the job nine months.

Brandon: Oh wow.

Josh: Oh wow, you started back in the.

David: When I bought my first property.

Josh: Got you.

David: It was a long time ago.

Josh: Got you, got you, got you, got you. You’re planning ahead of time then.

Brandon: Yes, well let’s talk about that first property. I mean, what was the first deal?

David: It was kind of unusual. I looked at a whole bunch of properties. I couldn’t find anything that I liked or could afford, a coworker told me that there was going to be an auction of a house on his street. I went and looked at the house. It was better than anything else I looked at and it was being auctioned by the state highway department.

Brandon: Interesting.

David: They had bought several houses to put in an interchange off of limited access four-lane highway and the people who lived in the subdivision protested because the exit was going to go right into the middle of the subdivision. They redesigned the interchange to skirt the perimeter of the subdivision and they ended up with these extra houses. They rented them for seven years—the state did.

Josh: Wow.

David: At the very below market rents then needed an act of a legislature and a signature of a governor and pass a law in order to sell these properties, which was kind of access state properties. I went to the auction. The terms of the auction were ten percent deposit the day of the sale settle in 30 days. I’d never been to an auction before. I had never bought any or real estate before. I went to this auction. I borrowed money from my parents, $2,500 as my ten percent deposit and I bid up to $25,000. There was a real estate broker that was there. He bid me up. I ended up getting the property at $27,000. I didn’t have enough money for the deposit. I had to borrow more money from somebody else just to make the deposit.

Josh: The guy next to you at the auction.

David: It was a friend of mine who came to the auction with me just out of curiosity. He didn’t know it was going to cost money so I signed the contract to buy this house, settle in 30 days, I talked to my landlord where I was renting an apartment and got out of my lease in 45 days. Well, what happened though was we never settled in 30 days. I went over to the attorney general’s office to this—meet with this deputy attorney general who’s handling the sale and I said, “I’m going to be homeless. They’ve already re-rented my apartment. We haven’t settled on this house in 30 days like I was anticipating. Is there any possibility that I could move into this house before settlement?” He said, “Oh no, we can’t do that. We don’t have any insurance on the property.” I said, “Well, that’s not a problem. I already got an insurance policy because I was expecting to settle within 30 days. He said if I gave him documentation of that they’d give me the keys so I gave him the binder from the insurance policy. They gave me the keys and I moved in.

Josh: Nice.

David: Throughout that whole discussion, we never discussed rent. He never brought it up. I never brought it up. You know, I kind of thought that we we’re going to be settling within a few days. I didn’t think rent was going to be an issue and in addition to that, they were paying for the sewer and the trash and it was during the summer. They were also paying for lawn service so I moved in to this house. I wasn’t paying any rent. I wasn’t paying any mortgage payment. Plus I got a roommate to move in and pay me rent and we ended up—we didn’t settle for six months.

Josh: Oh geez.

Brandon: Wow.

David: I lived there for free for six months plus I collected rent and had to pay some of the utilities, but not all the utilities. It was right then I decided this real estate is good stuff.

Josh: That’s great. That’s great so that was your—became your primary home and you’re kind of acting somewhat like Brandon’s favorite strategy, which is you know, move into a duplex, rent out the other side. In this case, you’re subsidizing your own primary residence, a single family with a roommate, same practice.

David: Yes, I had several roommates over the years. I lived there for a few years and then I kept that property as a rental property and owned it for a very long time.

Josh: Yes, got you, got you so you got the bug and what happened from there?

David: The next property I got was also word of mouth. It was a coworker of my wife. Their grandmother had passed away and owned a multi unit and it wasn’t advertised. It wasn’t listed. There was no sign on the property. I ended up buying that property and I still own that property today.

Josh: Wow.

David: I just kept buying more and more properties over the years. Looking back on your experience when you first got started, do you have any good advice for people who might be just getting started that listening to this podcast right now. Like, is there anything you did right or you did wrong when you were getting first involved in this?

David: For me, financing was the big fee. I really didn’t have any money. You know, I just started this job. It was an entry-level job and I didn’t have any savings so financing was the key. If I hadn’t been able to get financing I wouldn’t have been able to buy any of those properties or any of these subsequent properties either so financing was a big key.

One of the things is I joined a credit union early on and they had a $10,000 signature loan with no collateral and I borrowed that multiple times. I’ve used that for down payments and rehab money and I’ve paid it back and borrowed it again. It was a good source of money for me and it was really easy once it was set up. All I had to do was go to the teller. It was like making a withdrawal from your own account.

Josh: Nice so is that what you used on the initial properties. I mean you borrowed the ten percent on that first one from your folks. How did you get the first couple deals financed?

David: The first property was 90% bank financing.

Josh: Okay.

David: Ten percent from my parents. The second property was a little bit more than 90% bank financing. It ended up being from another bank.

Josh: Okay.

David: On that property, there was something that kind of quirky in the whole thing too. I went to the first bank to get the mortgage for the second property and they turned me down because the property was old. It’s like a hundred years old and it needed some work. You know, there was some deferred maintenance so the executor of the state recommended that I go to his bank, which was his mother’s bank.

The—who was the late owner and so I went there on his recommendation and talked to his contact there at the bank and I wasn’t able to get the mortgage approved until after the 30 days that the contract required for mortgage approval so I was planning on walking away from the deal. They had changed the terms. They wanted more down. They wanted a higher interest rate. We ended up negotiating the price lower after I had a mortgage commitment and I figured that since the bank guy was his friend that he was going to inform his friend of what we had done. We went to settlement the bank guy came to the settlement and he didn’t know what the purchase price was.

Josh: Oh no.

David: At settlement, the executor of the estates there, I’m there, the attorney’s there, and this bank guy’s there and he’s going well what is the price of the property and we both told him and he said, “Well, you’ve changed the terms of the contract. We don’t have to give you this mortgage.” Well, if he didn’t give the mortgage then I couldn’t buy the property and you know, kind of, you know piss off his friend and his client. He did give her the mortgage, well it really made a big impression on this bank guy. I saw him like ten years later at the mall and he said hi to me and he said, “You know, we didn’t have to give you that mortgage.”

Josh: Nice.

David: Like ten years later. I mean.

Brandon: He’ll hold that over you for the rest of your life.

David: I thought about this for the last ten years.

Josh: Geez, man, geez. Alright so that second property, you bought it from this family and it was a multi unit. Was it eight units did you say? I’m sorry I.

David: It was three units.

Josh: Okay.

David: I ended up buying the building next door, which was two units so I have five units there that are like right together.

Josh: Now you’re starting to stack things up and you know, you’re not just renting out to your buddies who are living in the next room. You are renting out to actual tenants. How does that go for you? You know and how do you start learning the process of dealing with all that and writing contracts and getting it all together. I’m guessing you probably learned a little bit of trial by fire.

David: Sure.

Josh: You know, share a little bit of that with us and you know, give us maybe some of your—your best tips for other folks who might do the same.

David: Well, one of the things that happened on the multi was we ended up—we were settling it January, you know, which is cold around these parts of the country.

Josh: Yes.

David: The one unit was vacant because the owner was the deceased, but the other units were rented to the adult children or the former owner and I was told that they were going to stay on as tenants. Well, the day of settlement, I went for the—pre-settlement walk through and they were all gone. The whole building was empty and it was in January and had oil heat and there was like a drop of oil left in the oil tank. I needed to call the oil company. You know and have an emergency deliver of oil just to keep the building heated and you know I made a mistake because I didn’t have it in writing that the tenants were going to be staying. You know, I just had this verb law—the tenants are going to stay.

Josh: Right.

David: Well then when it came to settlement, they weren’t there. They didn’t stay.

Josh: Yes.

David: I got the building. It was totally vacant, which you know hindsight, I liked picking my own tenants rather than getting inherited tenants, but in that particular case, in that particular time in my investing career, it would have been nice to have some paying tenants in January when it’s you know, zero degrees.

Josh: Yes, yes, so you know, obviously to any new investors, filling vacancies in the middle of winter is not as easy as it is in the summer. Summer is certainly a better time to find folks. What did you end up having to do to fill it and as now, somebody who’s been experienced, who’s been in the game for awhile, do you have any feedback or advice for folks who do need to look for folks in the middle of the winter?

David: What I ended up doing on that property was—I took the opportunity of them being vacant to update them and improve them before I rented them so I didn’t rent them immediately. We ended up separating the heat so each of the tenant paid for their own heat. We put in some new furnaces. We separated the electric so the tenants would pay their own electric. We did extensive plumbing, updates to the building so we didn’t rent it immediately. In subsequent where I bought multi units with tenants existing, I’ve always asked for the leases and know other documentation and information that I didn’t ask for on that first property.

Josh: Got you. Got you so you’re talking about when you’re purchasing a property from somebody else, you want to make sure and go through and check out the tenants. Make sure everything is on the up and up with the folks that you might be acquiring.

David: I’d like to see, you know, not only leases, but if they have credit checks for the tenants or any other documentation and maybe even talk to the tenants.

Josh: Yes, yes so have you found yourself because I—and I can’t remember which show we talked about this, but we have covered this a little bit in the past on the podcast. You know if you inherit a really bad tenant. You can find yourself, you know, in some trouble so clearly you want to make sure that you don’t end up taking on a bad tenant at the onset right? What do you do as somebody who finds a property that’s fantastic? The numbers are great and you’re going through the paperwork and it turns out that you know, the other landlords kind of getting pushed around by a troubled tenant which is probably why their dumping it and you end up in a situation where you really want the property, but there’s some real crap tenants in there before you know, well currently I guess.

David: It seems to me that—in my experience that a lot of the places where you have some bad tenants. They also don’t have leases. A lot of them are working, you know, on verbal agreements or month to month or something like that.

Josh: Got you.

David: Here, somebody is on month to month or they’re on verbal, which is an implied month to month. You can get them out on 30 days notice without even eviction.

Josh: Yes.

David: You know, that kind of works out that usually, in that’s kind of situation, the people aren’t locked in to long-term leases.

Josh: Unless of course you’re dealing with somebody who’s a professional tenant that may not be locked in, but might cause you a lot of problems regardless.

David: Oh yes, I’ve gone through evictions. I haven’t had any evictions this year, but I had two last year.

Josh: Yes.

David: The situation gets bad enough, you have to do what you have to do.

Josh: Of course, of course.

Brandon: I tend to—I actually do all of my—all of my rentals right now are month to month. I think I’ve said that before on the podcast, but everything I have is month to month and the reason why, I read a book or a blog post back when I was getting started that mentioned you know, a year lease only binds—at least with his low income tenants, a year lease only binds the landlord because the tenant will leave no matter what because they don’t care. That was the kind of the philosophy I had. I might be changing now as I get a little bit nicer rental properties. You know, I’m tired of people moving out after four or five months.

I think they might anyway, but the benefit of course is you can ask people to leave. In Washington State, we got to give them a 20-day notice I think it is. Maybe 30, but you give them a month notice to leave and they leave and so 75% of our bad tenants, we just ask to leave. We just ask them—crazy lady last month to leave and she left and didn’t have to do an eviction on her, which I knew was inevitable. You can kind of tell when people are going down that path and so I don’t know, I mean that might help some people I don’t know, but do you find it something more or less.

David: For a lot of people, for a lot of people, you know, one bump on the road can cause a big problem. You know, the transmission goes out in their car and that just upsets their total, you know financial situation.

Brandon: Yes.

David: You know that don’t have any savings to have a major expenditure. Most of my tenants are on year leases. I seldom do month to month and I just rented a place where I signed a new tenant for three years.

Josh: Nice.

David: At a discount of 25% of the market rent.

Brandon: Interesting that’s a.

Josh: Why did we take such a big cut for that three years?

David: It’s a distance from where I live so the idea was that this is kind of like a tenant self management program.

Josh: Yes.

David: They take care of all the maintenance. This is a single-family house. They take care of all the maintenance. They take—you know, cutting the grass, shoveling the snow, minor maintenance. They take care of all the utilities and I just bought the property. I got it at a really low price and so the rent is still a great return for me even though it’s a discount off of what the market rent is.

Brandon: Nice.

David: I didn’t clean or paint it or anything.

Josh: Nice.

David: The tenant took it as is and the tenant cleaned and painted and did you know some minor repairs.

Brandon: In your mind then you’re thinking that it’ll you know, the discount for having the stability for three years and not having to do anything—any work into it is is worth your time. It makes sense. I’ve never done—I’ve never quite done that before and I know some people have problems with having tenants do work, but you know, it depends on how much it is and you know, if they’re sitting there working on electrical panel. I’m sure that’s not kosher, but you know, if they’re painting a bedroom. I don’t think it’s.

Josh: Did you just drop kosher?

Brandon: Of course, I dropped kosher.

Josh: Alright, I’ve got a good influence. There you go. There you go.

Brandon: Alright, so going back to—I guess we never even touched on this question. We probably should ask this, what is your bread and butter now? What exact—you obviously are a landlord, we’ve talked about that. Is that all you do?

David: Oh no.

Brandon: Okay, so what are you doing? Maybe give us a $30,000 foot overview of David Krulac.

David: I’m doing buy and hold and I have a bunch of tenants, but I also buy property, fix and flip. I do land subdivision. I do tax sales. I do sheriff sales. I do HUDS, you know other REOs and I’m also a real estate broker. I own my own company and do I work for clients who are buyers or sellers also.

Brandon: Okay and I know you probably want to touch on that a little bit later. I got it in my notes to ask you more about that, but maybe first is do you have an estimate on how many like, in your career now, how many deals have you done? I’m assuming, you’re fulltime, I’m sure like you’re right like you’re a real estate?

David: Yes.

Brandon: How many deals have you done in your life do you think?

David: A bunch so over 800 properties.

Brandon: Whoa.

Josh: Got you.

Brandon: That is experienced.

Josh: You’re pretty new at this.

David: Yes, yes, I just started. Last year, I bought 23 and sold 23, but not the same 23.

Josh: Got you.

Brandon: Nice, so you—I’m going to ask this question what makes you buy a property versus sell a property. I mean like why did you choose to sell those 23?

Josh: I was going to go there on the sales thing, yes, good.

David: Couple of the properties that I sold last year were condos that were restrictive on renting and both of those condo developments, they only allowed ten percent rentals and they already were at the ten percent level. Both of those I bought were REOs, one needed hardly any work, I cleaned and painted. We didn’t even change out any of the floor coverings. I have a really good carpet cleaner guy. He came in and cleaned the carpets so it was red stain in the living room that I figured was red wine. He was able to get it totally removed and sold both of those to owner occupants so the condo restrictions weren’t conducive to renting and properties were in good condition and they’re relatively easy to sell. That’s two of the ones that I sold. Another one that I sold that I bought as an REO last year—it wasn’t in a bad neighborhood, but it looked like some of the badness was heading in that direction.

Josh: Yes.

David: That one also didn’t need very much work. We cleaned the carpets and painted it and put it back on the market and resold it. We sold it to an investor who was going to rent it out, but it was not a property that I really wanted to rent out.

Josh: Got you. Got you. Yes, so Brandon asked why you sold and you know, you’ve talked about three of them, but I think it’s one of the fundamental questions that most investors face and find themselves—I think, unless they’re in trouble, that’s probably the hardest decision that you can make as an investor unless you go in deciding that you’re going to flip it or go in deciding you’re going to wholesale. You know, you’re a buy and hold guy. When do I get rid of this thing? When do I dump it? When do I turn it? Take a guy like Brandon, he’s got, I don’t know, 50 something units, you know, is it time for Brandon to start selling those 50 units those SFRs and the small multis and go and start putting his energy into—figure multiplex is you know, those are the questions that I think a lot of new and experienced investors face and so I’m curious just on your philosophy above and beyond these particular examples because you know, you just got a great deal and you couldn’t rent it so you sold it or there was another circumstance, but you know, when you sell your long term properties, what’s a trigger for that?

David: Well, let me go back to the previous question too. Since I’m in land development, I’m doing subdivision work all of those properties are properties for resale. You know, I’m doing a subdivision. I’m not going to build 36 houses for myself on the subdivision.

Josh: Oh you know, that might be fun, but you know.

David: Those are all properties that from the get go were geared to be properties that are going to be resold, now I wasn’t going to build any houses there. As far my rental inventory, I like to evaluate the inventory at the end of the year like when I’m preparing for taxes and the properties that are under performing, give me a rationale to liquidate. Every year, I want to go through that thinning the herd process where I get rid of the worst performers and keep the best performer and I want to do that every year. I’m always buying property, but I’m also getting rid of the ones that don’t measure up.

Josh: Got you. Got you.

David: For one reason or another.

Josh: That makes sense. Is there a percentage or is there a line that you set, for example, that says, you know, hey I want each of these properties to meet, you know, x percent ROI or cash flow number and if it dips below that number, that percentage then you consider unloading it?

David: The financials are a consideration, but there’s also other considerations in thinning the herd. One could be the location.

Josh: Okay.

David: I had two properties that were in one town and that was the only properties I had in that one town. I decided I didn’t want to be in that town anymore. Nothing against that town, it was just—its distance from where I was.

Josh: Got you.

David: I wanted stuff that was closer. The other thing that I also consider is age of the property. We have a lot of old properties around here. I had a multi unit that was built in 1890. I sold that and I did a 1031 and I bought units that were built in 1996 and 1994 so I traded up a century.

Josh: Yes, yes, that’s a great—it’s a great consideration, definitely.

Brandon: For those people who don’t know, what are the 1031 exchange? I don’t know if we’ve ever really covered that in depth on the podcasts.

David: I’ve been doing 1031 exchanges for quite a long time.

Brandon: Yes, what does that even mean?

David: It’s—section 1031 is a provision of the IRS code that allows you to trade like kind properties and defer the gains to some later date by meeting all these rules. You have to identify the property in 45 days. You have to settle in a 180 days and you can’t touch the proceeds. The proceeds have to go from the relinquished property to the acquired property.

Brandon: What does that mean like you said, “Exchange like kind.” Does that mean like a single family for single family and are you trading?

David: No.

Brandon: Or are you buying and selling.

David: It’s buying and selling. I’ve never done a direct trade where I got property B from one person and they got property A from me.

Brandon: Yes.

David: There’s always—it’s always been a three legged exchange where I sold a property and then bought another property and the like kind is any investment real estate so it would apply virtually to any real estate except your personal residence or a personal vacation home. You could trade a vacant lot for an apartment building or you could trade a single family for an apartment building or your could trade a gas station for a store front or you know whatever as long as it’s an investment. It’s good to do.

Josh: David, just to clarify so if somebody has a property that they sell for a $100,000 can they 1031 into a $150,000 property and add cash to it and the second is can they 1031 into a cheaper property?

David: Yes, they can do both. You can add to it and you can buy multiple properties too. It’s not one for one.

Josh: Yes.

David: If you had a small property, you could be trading up to a larger property or if you had a large property and you were winding down, you could trade into smaller properties. If you end up getting cash, the IRS calls that boot then that portion of cash that you get is taxable.

Josh: Right.

David: That would be like a partial exchange where part of it would be deferred and the other part would be paying taxes on.

Josh: Yes.

Brandon: Well, let me ask you this then, let’s say I have a property that worth you know, let’s say $500,000 and I sell it for a million and I make $500,000 why should I 1031 exchange and buy something else versus just pay the taxes and go. Obviously you’re deferring the taxes, but you still have to pay them eventually, right? How does that all work?

Josh: Really quick, before you answer that, you know David is not a CPA.

David: That’s correct.

Josh: We are asking him questions that are probably best asked to a CPA so anyone listening, you know, just keep that in consideration and if you have higher level questions and are actually looking at jumping in and doing a 1031, you definitely want to talk to your CPA.

Brandon: Yes, you don’t want to break the rules one these.

Josh: Yes, yes so back to David. This is for entertainment purposes. I don’t know.

Brandon: Yes.

Josh: You know it’s valuable that will at least kind of help people better understand it.

David: If you have a gain of $500,000 like Brandon was referencing, the capital gains tax even long term is going to be like 20% so 20% of $500,000 would be—you’d be writing a check to the IRS for $100,000. If you defer that, that’s just additional money that you get to keep into the deal and possibly buy a bigger property so you deferred it and you can—you can do repeated 1031s exchange. You can keep on deferring it and there’s another provision in the IRS code called Stepped Up Basis that when you die, all that accumulated stepped up bases essentially goes to zero and you don’t have to pay any taxes at all. Once you die, I know Brandon, you’re not thinking about dying but if you do serial 1031 exchanges and then pass away.

Brandon: Your kids don’t pay for all.

David: Your kids don’t have to pay that capital gain stacks that you’ve been deferring all that year. It gets wiped out.

Brandon: That’s fascinating.

Josh: There you go. There you go.

Brandon: I always wondered that a little bit because I—you know, I’ve always believe that 1031 Exchanges are obviously powerful things, but I thought, well someday, when I—either I get 60 years old, 70 years old, I want to retire or when I die, I don’t want my kids to all the sudden be, “Oh by the way you have a three million dollar bill.”

Josh: Well, yes.

Brandon: To the IRS.

Josh: That’s exactly it.

Brandon: You know, happy birthday. You know, like that’s not—you know so okay that makes sense that and again like you—you know that’s something to talk about a CPA about the details with, but I don’t know I think that’s fascinating. I always looked at it as, I always called it like, the IRS is like, “Hey, this guy is successful. We want to partner with him.” It’s kind of like the IRS’s way of partnering like, “Hey, you can keep hundred thousand dollars that you owe us and you know, roll in into your next property and some day we’ll make more money that we would originally.” Is that kind of their game David? Like is that why they do it? It’s cause they want to make more money in the long run?

David: Why the IRS does that?

Brandon: Yes, why would the IRS do that?

David: I think it was a provision written into law to encourage investment. You know, if the taxes are collected every time you have a sale, it’s going to reduce the money that’s going back into the economy and back into investments so I think that it’s an economy stimulation.

Josh: Yes so you know I looked into 1031 years ago and I tried to execute on a 1031 and was never successful because.

David: It’s not easy. It’s not easy.

Josh: Finding a property that’s suitable in the time frame that’s allotted depending upon the circumstances could certainly be a challenge can it?

David: It’s an extreme challenge and you don’t know how fast 45 days goes for the identification period until you’re actually in one of these and you’re looking for a really good deal. Well, sometimes, maybe in 45 days you can’t find a really good deal.

Josh: Right.

David: What I’ve seen in other examples that have people doing 1031s is they 1031’d out of a really good investment and then buy a so so replacement.

Josh: Yes.

David: Because the time frame was there and they had to do something within that time frame.

Josh: Right, right so ultimately you’re left with the choice of you know I’m going to eat the gains on this sucker and you know, end up paying the bill or maybe you’re lucky and you’ve got, you know the losses from the market crash or housing crash or something else and you know, it’s a wash so you don’t care and you just kind of move on right?

David: Right and it’s complicated to do and know, like you said, you should be doing it with advice of your CPA, an attorney and.

Josh: Yes.

David: Have them tell you all the details to that and you can even get it more complicated if you combine it with the $500,000 exemption for capital gains on your personal residence. That you buy a property, rent it out for a period of years and then turn it into your personal residence, you can get the benefit of both the 1031 exchange and the $500,000 tax-free on personal residence.

Josh: Don’t go crazy David. I mean this is.

David: I’m sorry I’m getting real crazy here.

Brandon: That’s a cool status. Here I’m just kind of thinking out loud here, but this is what my thought is so in human history of real estate investors, all thousands of years of people doing this game I tend to think BiggerPockets, right now is probably in a position that nobody else has ever been in and that organizing investors so here’s what I want to know a lot. Maybe there’s a fancy you know, attorney out there, but how do we get the IRS to change the stupid 45-day rule to a six-month rule or a year rule? Right, because it’s the same thing to them. Why do they push us to buy a bad investment. It’s probably because the people who wrote it and that continue to write, you know, these rules and stuff. I mean they’re like, well I bought my house in 45 days, why can’t they buy an apartment building in that? Like why can’t they identify an apartment deal in that time? I don’t know, I wonder out loud like how do we as an industry change that rule which seems a little silly to.

David: I’d even go bigger than that, Brandon. In February, we went to Turks in Caicos and they have no capital gains tax there and no income tax and no inheritance and no real estate taxes.

Brandon: Wow.

Josh: Wow.

David: If you think about capital gains tax, particularly if you’ve owned the property for a long time, that first property that I bought from the highway department, I owned for 24 years before I sold it. The capital gains tax, a lot of that is just inflation. The longer you own the property, the more that taxes on inflation and I would like to see the capital gains tax index for inflation so that all of that build up on inflation, you don’t have to pay any tax on. You only would pay tax on the real gain after inflation.

Brandon: Yes.

Josh: I got to tell you that might be one of the more brilliant things we’ve had.

Brandon: Yes.

Josh: Has been proposed or mentioned on the show. I mean I think it makes perfect sense.

Brandon: Yes.

Josh: Exactly what you’re saying and.

David: You’re paying a tax on inflation and I bet you, 99% of the people don’t realize that.

Josh: Yes.

Brandon: Yes. I’ve never even thought about that before, but you’re a 100% right.

Josh: How to change that Brandon? Good luck dude because that’s all about fighting the entrenched interest in Washington.

Brandon: Oh I know.

Josh: That’s about fighting the Democrats and the Republicans and everybody in between and dealing with the chaos and I mean.

Brandon: Maybe somebody listened to the podcast wants to take that as their mission. I mean, imagine we got 30 you know, 40,000 people listening to a podcast each week here.

Josh: Yes.

Brandon: Like imagine getting 30,000 letters to the IRS of this what we want to change. All we want is 45 days to six months. Like it doesn’t affect your bottom line. You’ll make more money in the long run because you know bla bla bla, like I don’t know. I wonder out loud so hopefully somebody can step up and lead that charge.

Josh: Do it, Brandon.

Brandon: I am not doing it.

Josh: It’s all good.

Brandon: Dave is going to run that one so, alright so 1031 exchange is very cool and obviously, you know, we don’t have time to get real deep into them, but what I wanted to go back on is the topic of subdivisions. We’ve never actually had somebody who’s done subdivision on the podcast. I know J Scott mentioned he wants to get into that, back on I don’t know I’m not sure what episode it was.

David: I thought there was somebody.

Josh: You know what, we’ve had spec building, but I don’t think.

Brandon: We’ve had spec, but I don’t know about like subdivisions right?

Josh: Yes, subdivisions.

Brandon: Like I mean.

Josh: I think somebody did a little bit, but we didn’t get through it too much.

David: Yes, I think somebody did too. I recall.

Brandon: Okay, yes, maybe, I mean maybe I’m just forgetting, but yes, maybe we can—know we can talk on that like what exactly is that, like what are you doing with subdivisions. Like what does that look like?

Josh: Well let’s start with what is a subdivision?

Brandon: Sure.

Josh: How about that.

Brandon: Good.

David: Subdivision is where you take a piece of land that’s taxed as one parcel and you subdivide it into two or more parcels and you sell each one of them individually, presumably for more money.

Josh: You can either sell the parcels or you can also do other things like develop each of these parcels correct?

David: Right, what I’ve been doing is I don’t build houses in these subdivisions, but I go through the process of getting all of the government approvals and the permits and all of that and get it approved so that they’re all into individual lots. I’ve done subdivisions as big as a hundred acres and I’ve done other subdivisions where we just divided one parcel into two properties and I did one subdivision where I got approval to build 17 houses in my backyard.

Josh: Nice.

Brandon: Wow.

Josh: Nice so you’ve done both the just subdividing and sell each plot and the development side? You done both of these correct?

David: Well, I guess I’m using the term development different that you are.

Josh: I’m using it to you actually went and physically built the houses.

David: No.

Josh: With a crew.

David: I did not.

Josh: Okay.

David: I never built—well no, I did build a house, but in general, I’m not building houses. I’m selling the lots to either builders or to end-users.

Josh: Okay.

David: We have protective covenants that say what style of houses there’s going to be. How big they’re going to be.

Josh: Got you.

David: We did a subdivision that the minimum requirement was 3,000 square foot houses with three car-attached garages.

Josh: Yes, well you know, that’s small.

David: Little houses.

Josh: Okay, so that’s what we’re talking about here. We’re talking about taking a plot of vacant land I’m guessing, ultimately and we’re cutting it up and getting the government to give us the green light to do things with—you’re not building streets, you’re not, you know, you’re not setting up electrical, sewage and plumbing lines to these subdivisions. You’re literally just going and carving up this land into x number of different lots and getting approval to do all the rest. Is that right?

David: In general, yes. Most of the land that I’ve done subdivision on has been land where there’s not public water and public sewer.

Josh: Okay.

David: I’ve had to do testing for septics and we’ve just carved out land using an existing road frontage. We’ve had some that the one that we did a hundred acres on, there was about a mile of road frontage.

Josh: Okay.

David: On the property. It was one two sides of two roads and one side of another road.

Josh: Got you. Alright, so I want an example because I’m fascinated by this whole thing. It’s something that I’ve always thought about doing and I have no clue where to even to begin so say I buy an acre plot of land. There’s a road frontage. You know, say there’s even hook ups. You know, at least within distance so I buy this one-acre and I want to cut up into two half-acre lots. What do I do?

David: The first thing you need to do is check the zoning for that area to see if half-acre lots are permitted.

Josh: Oh.

David: In some zonings, one acre is the minimum lot size and if you already have an acre, you can’t subdivide it any further.

Josh: Okay.

David: Checking the zoning ordinance and most of the municipalities have that online.

Josh: Got you.

David: That you can check or you can go to the municipal building and get a hard copy of what they’re. You should—in this area, it’s two publications. It’s the zoning ordinance and it’s the subdivision ordinance and those are generally two separate documents.

Josh: Got you so I get the green light. I look and I find out that half acre’s perfect, we’re good to go. Now, what do I do?

David: You’re probably going to need to employ a surveyor and an engineer to survey the property and put together a plan of what it would look like after it’s approved. You submit that to the municipality, they review it. They have their engineer review it, make sure that it meets all the ordinance requirements and they either give you a yes or a no and get it approved. Once they approve it, then the approved plan is recorded at the courthouse and you’re able to sell those lots individually.

Josh: Got you so let’s take a small example and you know, I know you’re not going to be able to give me exact numbers cause it’s going to cost different in different places, but take this hypothetical that we’re talking about here with the acre land, forget how much I paid for the land, but what might all the engineering and surveying on something like that cost me? A range—I don’t even have a clue.

David: Assuming that you have public water and public sewer availability, just the engineering and the survey is going to be a thousands of dollars on a one acre plot that you’re subdividing into two parcels, five $8,000 something like that maybe.

Josh: Okay. That’s great. That’s not terrible. My follow up question is you’ve talked about doing this a few times. I wonder if you’d be willing to share with us and you can say no of course, what perhaps if you bought a plot of land for what kind of your cost were and what you ended up selling and profiting on.

David: It runs the gamut and sometimes, the subdivision approval takes.

Josh: I was going to ask the length of time.

David: A lot of time.

Josh: As well, yes.

David: I usually figure, you know, if we’re going something more than just one or two lots. We figure into the equation, maybe a year to get the subdivision approval.

Josh: Okay, so you got a lot of holding costs.

David: There’s holding costs involved and you can’t do anything during that period of time. You know, you can’t sell any of the lots.

Josh: You’re tied up, yes.

David: Because they’re not created yet and so you’re going to have to pay taxes and you know you’re going to have other holding costs and plus you’re going to have the engineering and surveying costs and there is the possibility that when you go for your subdivision approval that you don’t get approved.

Josh: Right.

David: That happens.

Josh: Yes. Yes.

Brandon: What do you do at that point? I mean do you just sell the property as a big chunk and break even with it hopefully?

David: We try to accommodate the municipalities. You know, you need their approval to do this and by the way one of my other roles is I’m on the planning commission in my town.

Josh: Oh.

David: I sit on the other side of the table for everybody submitting subdivision and land development plans in my town and I’m one of the commissioners that has to approve that and recommend the changes or recommend that it be approved as it’s submitted.

Josh: Got you. Got you so you get some insight into the though process, which is fascinating and I know we don’t have a ton of time on it, but I’d love if you’d be up for it to kind of maybe have one of us talk to you and do a kind of interview on that—just maybe for an article or even if you’d be willing to write something yourself on kind of and you know, insight into that whole process because I do think it’s fascinating.

David: The one that I did in my backyard, I bought this house and it had about 150 feet road frontage and the house was like scooted over to one side and the first time I saw it, I figured something could be done with the big side yard. I figured you could put another house in there. Well, it turns out, there was another piece of land that somebody else owned that was behind it that was unbuildable that I ended up acquiring that and I put the two properties together and did a subdivision plan and got it approved for 17 new town houses.

Josh: Wow.

David: I knew going in something could be done. I thought maybe you could build one house, ended up 17 townhouses.

Josh: No kidding. Wow.

Brandon: Wow.

Josh: Wow. Wow. Wow.

Brandon: That’s cool.

David: I figured that I essentially got that land for free.

Josh: Yes, so ultimately and I ask that time, which you half answered it which is fine. I’m not going to press you on it, but ultimately, it can certainly be profitable to turn over these properties or these new plots of land, else it wouldn’t be worth the time, energy, and effort to go through the rigmarole of getting engineers and waiting for politicians and commissioners and dealing with all the headaches that come with it. Correct?

David: Right.

Josh: Okay.

David: One of the things that happened in our area like through the 2000s is there were a lot of new plots created so there’s a lot of inventory out there of lots that are already created that people haven’t been able to sell because of the economy.

Josh: Got you.

David: There’s a lot of inventory.

Josh: There’s certainly a high risk that would come with it in an area that may not be—that may be a little more stagnant than otherwise. Right?

David: Yes and the economy, you know, everybody knows how it’s affected housing.

Josh: Yes.

David: The effect on vacant lots is even more drastic than it has been on housing.

Josh: Yes.

David: There’s less buyers for house—for lots than there are for houses.

Brandon: Would you probably recommend that a new investor not get started with this kind of subdivision thing?

David: It’s difficult to do. I wouldn’t say don’t do it, but I’d say start on a small scale. Maybe do a subdivision for one or two lots. I wouldn’t tackle a hundred acres to start as my first subdivision.

Brandon: Yes, that makes sense. Well, what would be your favorite—I’m just—in general, maybe shifting gears a little bit here. What is your favorite real estate niche like of all the things that you do, you seem to do a lot, what’s your favorite?

David: I like tax sales.

Brandon: Really, so like tax—is that the same as tax liens that we talked with like Ankhit about back a few episodes ago, awhile ago, but.

Josh: Long time ago.

Brandon: Yes, it was awhile ago, but.

David: About half the states are tax liens states and about half the states are tax deed states and I’ve been going to tax deed sales and when you go to the auction, you’re actually getting the deed to the property. When you go to a tax lien sales, you’re getting a lien against the property like a mortgage or a judgment would be.

Brandon: Okay.

David: It’s also difficult to do. There’s a lot of little peculiarities, the laws are different in every state. It’s difficult to do and so since it’s difficult to do, there’s not a lot of competition.

Brandon: Yes, that makes sense. Would you say that’s how you’re getting most of your deals are through things like tax sales or are you getting them, are you doing direct mail or anything like that the stuff you’re working on?

David: I haven’t done any direct mail in a long time. I did do some direct mail and I did get good responses. I target out of state and out of county owners, none owner occupied and I got some good responses on that. I’m looking at tax sales, I’m looking at sheriff sales, I’m looking at REOs, only about 25% of my purchases come out of the model list so 75% don’t come out of the model list.

Brandon: Okay, interesting so I guess, I want to—there’s so many things I got like a 50 more questions here that I want to ask you and we’re running out of time.

Josh: We’re running out of time which is bad, but.

Brandon: I’m trying to figure out where I want to go next. We talked about finding leads. I guess do you have any other good, why don’t we stay on that a little bit longer. Do you have any other good techniques for finding deals. I mean I know you’re a broker, do you have any other good marketing techniques or advice for people listening that they can apply to get more deals?

David: Like in the first two purchases I ever made, those were word of mouth. I think you know, if you’re serious as a real estate investor, you should be telling everybody that you’re interested in buying property.

Josh: Yes.

Brandon: Yes.

David: You should have business cards and they should be quality business, not something you printed on your home printer.

Brandon: Yes.

Josh: Right.

David: My business cards are a thicker stock and they’re glossy. They’re almost like playing cards in their consistency and I always have something on the back. Most people’s business card, the back is blank. Why have a blank space there? I put my experience and what I’m looking for on the back of my card so I’m filling up both the front and back of my cards and I’ll give my cards to everybody.

Josh: That’s actually a great idea.

Brandon: Yes.

Josh: We do something in the back of our BiggerPockets cards where we create spaces where people can actually take notes on us and you make it matte where the front’s glossy so that you know, pencil, pen, anything will work and people tend to love that, but I really like your idea. I admittedly like to watch the shows—I forget what the show is where the two guys drive around and they’re junkers and they pick up stuff from people and sell it.

David: Pickers.

Josh: The Pickers. Yes, yes, American Pickers and these guys show up with a list. They say, “Hey, this is what we’re looking for. I don’t know if you got anything.” I think that’s awesome to put something like that on your card. This is what we buy. This is—it’s not just “we buy houses,” the vague “we buy houses,” but maybe put in some more detail exactly what you’re looking for so that you can have an army of people helping you out.

David: I say that the back of my business card is like my resume and it says on there that I buy houses and buy apartments and buy land and it tells a little bit more of a story about me rather than the front which just has, you know, my contact information and that sort of thing.

Josh: Yes, not that’s a.

David: I think business cards are valuable. I think telling everybody that you’re in the business to buy property. I bought two houses from a coworker who was being transferred across country. The properties weren’t listed for sale. There was no competition. I got, you know, really good deals on them.

Josh: Nice. That’s awesome.

Brandon: Yes, yes, very cool. Last question from me before we head to the Fire Round, I’m just curious. Do you have any, just kind of for people listening to this show, who want to be like you, you know, in a few years, they want to have to have 800 deals, but they’re just starting out, how do they get there? I mean what should they do? Do you have any final advice?

Josh: Wait a second, before you we ask that, David, let’s ask this. You’ve done 800 deals. It has not been in two years, three years, five years, 10 years, I mean this has been over a period time, correct?

David: This has been a burning question of yours since we started.

Josh: I don’t care how old you are, I’m just you know, it’s—I ask because you know, ultimately we’re not trying to preach people get rich here in you know, overnight. This is long-term. This has been a long-term thing for you. You’ve been at this a little while and you know anyone listening can’t expect to just jump in and do 800 deals by tomorrow.

David: That’s right.

Josh: That’s why I say it.

David: You know, I already told you I did 46 deals last year. One year while I was working at my fulltime non-real estate job. I did 74 deals in one year.

Josh: A deal to you would be—a buy would be a deal and a sell would be another deal. Right, okay.

David: A sell would be a deal. Yes.

Josh: Transactions I would call that.

David: Right. I was working fulltime in my job and I was scheduled that I was working four ten-hour days so I had Friday, Saturday, and Sunday to work on real estate. I bought a lot of real estate. I’ve bought about a property a month for the last 20 years.

Josh: Wow.

Brandon: That’s great.

Josh: That’s great. Yes, that’s consistent. Let’s just put it that way. Fantastic. Well, so I and I’ve got one last question before the Fire Round and that is, what’s the biggest mistake you’ve ever made and what can listeners do different to avoid said mistake or similar mistakes.

David: I wrote in the BiggerPockets Real Estate Rewind book that you know, I bought some deals where I lost some money and some of it was considerable money.

Josh: Yes.

David: Obviously, I wouldn’t want to do those deals again and there were other deals where I made money where it wasn’t worth the time or it wasn’t worth the risk. If I had to do it all over again, I wouldn’t do 800 deals.

Josh: Yes, yes.

David: I’d do a lot less.

Josh: Well, I know said it was my last question, but this is how this show goes and we just dig in on things that interest us so you talk about risk, maybe you could give an example of a deal that was a high risk deal just as an example for folks listening.

David: I bought a house at tax sale for $50 and that wiped all the liens. There was no mortgages or other liens.

Josh: Was it in Detroit.

David: This wasn’t in Detroit.

Josh: Oh, man.

David: I haven’t bought anything in Detroit yet.

Josh: Alright, let us know when you do.

David: I have looked, but I haven’t bought anything there either. It had a new roof on it. It had new electrical service and it was brick, but it needed like everything else. It was boarded up and the former owner had tore all the plaster and lathe off the walls and got rid—deposed of all that and the roof had leaked before that so there was a lot of damage to the floors, all the way through the house and they had cut out the rotted sections of the floors. Went into the living room, there was a hole in the floor that was like eight feet by eight feet. This was a huge hole.

Josh: Yes.

David: All the windows had been busted up so all of the windows were boarded over and of course the electric wasn’t turned on so it was pitch black there even in the middle of the day. I had it advertised for sale and I would tell people do not go in that house. Well, people would take the boards off and go inside the house anyway. I had this great fear that somebody would fall through one of these holes and like break a leg or something.

Josh: Right, right.

David: It was totally not worth the risk. The upside was minimal. I sold it for a thousand dollars.

Josh: Yay.

David: I bought it for $50 and sold it for a thousand—oh I made money.

Josh: Yes.

David: It was a deal I would never do again.

Josh: Right.

David: The risk was too great.

Josh: Well, but to that point, doesn’t insurance kind of cover your backside on that kind of thing. I mean you buy a policy and your risk at least in terms of somebody falling or breaking their leg drops.

David: Well, I didn’t have any insurance. I was self-insured—this was an early purchase.

Josh: Got you.

David: It’s easy to get liability like on vacant lots, but a property like this with so much hazard, it would probably cost a couple thousand dollars to get insurance on it.

Josh: Okay so there you go.

David: It was so hazardous.

Josh: Okay, okay so that’s ultimately, you know, a property where if you, you know, you’re rolling the dice. You know, it’s going to cost you more than your probably going to make to insure the thing and you know, if you choose not to, you’re taking a lot of chances that somebody doesn’t hurt themselves so makes a lot of sense.

David: Absolutely. Somebody once said to me well, isn’t everything you buy a risk and to a degree it is a risk.

Josh: Sure.

David: It’s a calculated risk.

Josh: Yes.

David: In the case of this $50 house, the calculations didn’t add up. It was the wrong property to buy.

Josh: Yes, yes, I understand that.

Brandon: I think it kind of goes to like you got that whole theory. It kind of goes to like the 80-20 Pareto’s Principle of—don’t know. Most likely in a person’s—I wonder if this applies, but most likely at least in my life, 80% of my prop—like 20% of my deals have given me 80% of my income so had I just focused on that 20% of deals that were awesome and skipped the 80% that didn’t and focused on increasing the number of those good deals versus the—anything. I think you’re just far better off so I mean that’s my four-hour work-week mentality shining through my real estate, but.

David: I have two deals, Brandon where I sold the property for more than a million dollars more than I paid for them.

Brandon: Wow.

Josh: Wow.

David: I have two of those.

Brandon: Okay.

Josh: Okay.

David: If I had just done those two deals.

Brandon: Yes, you’d be fine.

David: I’d be fine.

Brandon: You could go on vacation the rest of the time so. Cool.

Josh: Nice.

Brandon: That’s awesome. Alright, well that’s great. Awesome interview. Let’s go over to the Fire Round because yes, we’re going to fire a bunch of questions at you so let’s bring in—cue the music.

Announcer: It’s time for the Fire Round.

Brandon: I guess that wasn’t really music as much as it was a siren going off, but same thing. Alright, Fire Round, these questions like I said come straight from the forums so we’re going to throw them at you. Number one, what is the number one thing to consider when comping land deals? Somebody asked that question. In other words, determining value on land.

David: It’s very difficult because there’s so many variables in land. One of the big variables I see is a perced or not perced. You know, whether it’s suitable for septic or not and whether it’s buildable or not. There’s all kinds of environmental issues like wet lands and flood plains and all those kind of things that need to be considered in your valuation so you need to make sure that you’re comparing apples and apples and not comparing it to something that’s different in some way.

Brandon: Great.

Josh: Makes sense. Makes sense.

Brandon: Cool.

Josh: Alright.

David: If you’re doing a lot in the subdivision, obviously, the comps should be other lots in that same subdivision.

Brandon: Yes.

Josh: Sure, sure. Makes sense. Makes sense. Alright, number two, when buying at auction, what is the biggest thing to look out for?

David: Auction fever where you bid higher than you intended to bid. If you go to an auction. I go to lots of auctions. I go to sheriff’s sales, tax sales. I go to farm sales, I go to a lot of auctions. There’s this auction fever where you get excited and people are bidding and there’s a murmur in the crowd and you know, there’s an excitement there at the auction. You need to set a limit before you go to the auction and don’t go any higher in the auction even if you don’t get the property.

Josh: Great advice.

Brandon: Yes. It’s awesome. Alright, do you think it’s better to have in house contractors or independent contractors doing like repair work on rental properties?

David: I don’t have any employees in my rental business or in my brokerage business. I don’t have any employees period. I don’t like to have employees. The people that I use like for rental repairs are companies. You know I have a plumbing company I call or electric company I call or HVAC or I have a company I call to clean the gutters. I mean I don’t even clean the gutters. I had a bunch of extension ladders. I had a ladder that was like 40 foot long. I sold all of my ladders this year because I’m not climbing on any roofs.

Brandon: Yes.

Josh: Yes. Yes.

David: You know, if there needs to be a roof repair or if gutters need to be cleaned out. I’m calling somebody.

Brandon: I’ve been selling all of my tools. Like I have a whole garage of tools I’ve been selling them all just because I’m like if I have them, I tend to do the work and if I.

David: That’s right.

Brandon: If I don’t have the tools then I won’t do the work so.

Josh: Hey, I’ve got a follow up on that question, David so you’re completely outsourcing everything and I get that from a “I don’t have to deal with payroll, I have less headache perspective,” but from a cost perspective, I’m guessing you probably would be able to get everything that you get done, done cheaper if you had an in house or is that just not the case?

David: I think you’d probably able to get some things done cheaper, but the contractors that I’ve been using typically I’ve been using them for a long time. They give me really great service. I was just telling somebody recently we had three cases over the winter where people—tenants had no heat on the weekend and in one case, I had the furnace technician there within an hour of the tenant calling me and telling me that they didn’t have heat and it was on a Saturday night.

Josh: Yes, that’s great.

David: Tenant was very very grateful and surprised that I was able to get a technician there that quickly and have them—have heat so quickly.

Josh: Nice, nice, that’s awesome. My tenants skip town in the middle of the night. What’s the first step in handling the situation?

David: Sometimes it’s hard to know where they actually skip town or went on vacation.

Josh: Well, you know.

David: If I’m like positive they skipped town, I might file for eviction, you know, they left a bunch of stuff including like food in the refrigerator. It’s hard to tell whether people really left or not. I’ve filed eviction sometimes on people that have already left and I suspected weren’t coming back, but I couldn’t prove it and I couldn’t get on touch with them. You know, their cell phone didn’t work anymore and I didn’t have an address and all that kind of stuff so if they left like next to nothing, I’m probably cleaning it out. If they left a whole bunch of stuff including furniture and food in the refrigerator, I’m probably having to file eviction.

Brandon: Okay.

Josh: Go it.

Brandon: Alright, good answer. My final question for the Fire Round, what are the top three things you look for when vetting a potential tenant. I’m guessing you don’t personally vet every tenant or do you? Maybe you do or do you have like a property?

David: Yes, I do.

Brandon: Oh okay, so what do you look for?

David: I do almost all my property management myself.

Brandon: Okay.

David: I do have some properties that are like an hour away that I do have a property manager there. I’m looking for a sufficient income. You know, that their income should be like three times what the rent is. I’m looking for longevity on the job. You know, they just didn’t start their job last week and I’m looking for some stability that they live some place more than a couple weeks or they don’t have five addresses for the last five years or something like that. I’m looking for people that are going to stay. I’ve had really long tenants. I have a current tenant that’s been with me for 30 years.

Josh: Wow.

Brandon: Wow.

Josh: Unbelievable.

David: I also have a 20 year, a 16 year, a 14 year, a 12 year, and two ten year tenants.

Brandon: That’s awesome.

Josh: Unbelievable. That’s great man. That’s really—that’s great.

David: Vacancy is a killer.

Brandon: It is.

Josh: Yes, fantastic. Well, wonderful, great stuff, great stuff. Why don’t we move to the final segment of the show and get this wrapped up for everybody. This is the.

Announcer: Famous Four.

Brandon: Alright, Famous Four, these questions we ask everyone and I know you’ve listened to our show so you know what’s coming. Number one, what is your favorite real estate book?

David: I’ve read about 300 real estate books.

Brandon: Nice.

David: It’s hard for me to limit it to one. I like William Nickerson’s How I Turned a Thousand Dollars Into Five Million.

Josh: Yes.

David: I also like Landlording by Leigh Robinson and Buy and Hold by David Schumacher.

Brandon: Cool.

Josh: Awesome, that’s great, that’s great. What about business books? What’s your favorite business book?

David: I like a lot of those too, but my favorite is Millionaire Next Door.

Josh: Okay, just as a inspirational piece more than anything, yes?

David: I think it kind of opened my eyes in a way that the millionaires aren’t necessarily all the guys that driving around in Bentleys.

Brandon: Yes.

Josh: Yes. Yes.

Brandon: Yes.

Josh: Absolutely.

Brandon: Cool, I haven’t actually read that one yet, but I’ve like skimmed it in the book store a couple times, but never actually read it so someday.

Josh: Nice, nice, nice, it was a good book. I read it a couple of years ago so. Good stuff, good.

Brandon: You can read?

Josh: You know what man? Seriously? I—gosh. Just because I’m not sitting around reading books all day doesn’t mean I don’t read.

Brandon: Yes, yes, yes.

Josh: Alright, David, what do you do for fun? What kind of hobbies do you have? I see stacks of books behind you so clearly I’m guessing reading is part of your fun, but what else do you do?

David: I do a lot of reading. Like when we went away to Turks in Caicos, I take a book a day.

Brandon: Nice.

David: To read.

Josh: Wow, voracious.

David: I do a lot of reading. Family is very important, spending time with the family, going on vacations. I like the beach a lot, just relaxing, kicking back, that’s basically what I’m doing for fun.

Josh: There you go, nice.

Brandon: That sounds nice. Alright, my final question of the Famous Four. What do you believe sets apart successful real estate investors from those who either give up, fail, or never get started?

David: I think perseverance, a desire to stick it out. You know, not quitting, most of the people that started at the same time I did have quit the business for one reason or another. There’s very few people that stick with it over the long term. People get into it, get tired, drop out. I belong to four different REA groups in four different towns that I go to every month. You’ll see a bunch of people come, particularly when there’s been a guru caravan through town and they’ll come for a couple of months then you never see them again.

Brandon: Yes.

Josh: Yes. Right on, great stuff, great stuff. Well David, listen, really fascinating. I know that I’m sitting here kind of aggravated, I’m a little let down, not because you let us down, but because we don’t have time and I literally have like 50 more questions that I want to ask you on all sorts of different subjects, but I know that I’ve got BiggerPockets to turn to and I know you’re on there and you’re offering great advice so I’ll defer over to BP, but to anybody who’s listening, this is show 82 of the BiggerPockets podcast and you can check out the show notes at BiggerPockets.com/Show82 and of course, if you have questions for David, you can ask him questions there in the show notes or on BiggerPockets. Before I let you go, David, tell me where can people find out more information about you. Do you have a website or anything else that you want to share.

David: I do have a website. It’s CentralPennLots.com. It’s my business website for the real estate brokerage company. I’m working on a new website for my book How I Started With Nothing an Made 12 Million Dollars in Real Estate. The book’s available on Amazon and Ebay and several other places around the internet.

Josh: Nice.

David: Several people on BiggerPockets have bought my book and have written some really nice review on Amazon.

Josh: Aw that’s great. That’s great.

Brandon: Yes, it’s been on my list to read. I haven’t read it yet, but it’s been on my list so this is encouraging me. I’ll pick it up and check it out.

David: Well send me your address, both of you and I’ll send you a copy.

Josh: Alright, perks of the job. That’s what I’m talking about.

Brandon: Yes.

Josh: That’s what I’m talking about. Well, listen David, thank you, thank you so much I really do mean it and we really do appreciate it and of course, we’ll see you around BiggerPockets.

David: It’s been my pleasure and honor to be with both of you. Thank you.

Brandon: Thank you.

Josh: Thank you. Alright everybody, that was David Krulac once again. Thank you to David for coming on board, that was great I certainly learned a lot of stuff.

Brandon: I wanted to say if people want to check out. I mentioned earlier, but make sure you check out his chapter on the whole book that Real Estate Rewind that BiggerPockets put out last year. It is awesome so just go to BiggerPockets.com/Rewind and that short code will get you right to the book so BiggerPockets.com/Rewind. You can download the free book and learn more from David that way and a bunch of other writers so good stuff there.

Josh: Yes and you have to be a free member of BiggerPockets to actually download the book.

Brandon: You do, so, yes, if you’re not a member, sign up it’s free and then download the book.

Josh: Yes, there you go, cool. Alright guys, well thanks again for listening. Show 82, the show notes can be found at BiggerPockets.com/Show82. Yes, if you’re not a member of the site, well, you now have another reason to join up for free and get that free book and otherwise, follow us on Facebook, Twitter, G+, everywhere else on the social web. We’re out there. We’re making things happen and we’re sharing cool content and stuff like that through various other channels so hopefully you’ll follow us there. Beyond that, we’ll see you on BiggerPockets. Thanks for listening and if you have not yet checked out the previous 81 shows, I strongly encourage you to do so we’ve got tons of amazing guests and hopefully you will take the opportunity to listen to all that we have to offer. Thanks so much and that’s it. I’m Josh Dorkin, signing off.

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