How to Become a Millionaire Through Real Estate by 26 with Graham Stephan

This is the BiggerPockets Podcast show 316.

What gave me the biggest advantage is just doing it basically 24/7 for three and a half years. And I could really the trends of the markets and see where people are buying. And I figured too if people that’re worth like $10 million are buying in San Bernardino and all these big Beverly Hills investors are talking about it and they’ve been doing this for decades. Chances are this is something I should really start paying attention to myself.

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Brandon: What’s going on everyone? This is Brandon, today’s host of the BiggerPockets Podcast here with my buddy David Greene. What’s up David Greene?

David: Not much man. I’m doing really good. Just did a seminar the other day, it’s really like a Meetup where I taught people how to invest while working a full time job. And I thought it went really good. We had 100 or so people show up and they got a free education. And I got to share what else were these secrets with BiggerPockets members.

Brandon: Nice, you get to grow your ego while other people learn. This is fantastic.

David: Yeah they’re forced to listen to me like they’re locked in a room and I get all the attention. It’s my inner diva that gets to come out. It’s my Arianna Grande side.

Brandon: Very good. Seven rings, isn’t that the new thing? Anyway alright so David here actually this kind of leads into a short quick tip for today, is if you’re not getting out there meeting real life people in your area, I mean if you’ve got some knowledge, go share it somehow. Right go start a local meetup, meet with people one on one become a mentor.

Because it not only helps them it actually helps solidify your thoughts and your views and you become a better investor for doing it. So do what David’s doing, go out there, meet people, or if you’re not at that level yet if you’re not already experienced then go to them and learn and meet and connect and all that. So very powerful stuff. So that is today’s short pre-quick tip. It’s like a pre-quick tip. Is that a new part of the show?

David: So there’s more?

Brandon: There’s more where that comes from. But before we get to that let’s get to today’s show sponsor.

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Brandon: Alright big thanks to our sponsors always. Now let’s get to today’s real quick tip. Alright today’s quick tip is short and simple. BiggerPockets is hiring for two roles, they’re going to be working with me it’s going to be awesome. One of them is called a Digital Membership retention Specialist.

It’s basically somebody who is going to be in charge of making sure our pro members around BiggerPockets all tens of thousands of them are feeling good and getting more and more perks and benefits all the time. So if you love our pro membership or you would love to help people be able to use their pro membership to buy more real estate and find ways to do that.

And this is an in-Denver job. So if you are in Denver or willing to relocate to Denver, go to BiggerPockets.com/Jobs because I would love to talk to you about whether or not you could work with me on a regular basis here at BiggerPockets. So that is today’s quick tip. And I actually have a quick tip, call it quick tip number three for the day.

Do you remember like back like six months ago everybody listened to this-not you David because I know you remember it- where I was talking about my buddy Pete? One of my good friends, his name is Pete he’s awesome. He runs a company called missionmeats.co and they sell like the best beef jerky and meat steaks on the planet.

Anyway so like six months ago I gave him a shout out on our podcast and I said people could go missionmeats.co and search BiggerPockets to get some free jerky when they buy something. Anyway I was talking to Pete the other day and he said, “Yeah go ahead and offer that again.” So I’m just going to throw it out there.

If anybody wants free jerky, buy some mission Meat steaks which are amazing and then you get some of the best bacon jerky ever. Sorry that’s quick tip number three go to missionmeats.co/BiggerPockets and then just get like my favourite snack on the planet. But anyway we are rumbling too long we got to get to today’s show.

David: We have an incredible show today we’re actually interviewing a top producing real estate agent in the LA area who also invests in real estate. So this guy has like a 360 perspective on finding a good agent, techniques for how to like communicate with your agents to find deals to find deals, how he invests himself.

He kind of sees it from every single angle. And this dude became a millionaire at 26 years old through real estate. Like this is some really good stuff. So I hope you guys are excited to learn from somebody who’s already done it and shares exactly how he did.

Brandon: And they’re going to learn about the Fortune Formula.

David: Oh yes.

Brandon: Well I think I called it the Millionaire Formula but anyway I’m formulating a future book right here on this podcast today, listen for that later on.

David: This is what it looked like to see Beethoven creating like his 5^th Symphony. I’m watching it happen in person as Brandon is rapidly coming up with these ideas.

Brandon: There you go. Yeah it’s not often people compare me to Beethoven but I’ll take it today. Alright with that, let’s get to today’s show. Alright Graham, welcome to the BiggerPockets Podcast, really good to have you.

Graham: Thank so I’ve been looking forward to this for a while.

Brandon: Awesome. It’s going to be a lot of fun today. Okay we’re ready to jump in. I know you’ve got a new thing going over on YouTube I watch your stuff over there. You see to know what you’re talking about so first of all, good job on that. It’s awesome I’m actually learning a lot from you.

Graham: Thank you.

Brandon: Yeah it’s awesome.

Graham: No way, thank you man. I’ve been getting some ideas from your channel too. It’s cool to kind of maybe back and forth and I love it.

Brandon: That’s cool, that’s how it should be, right. I think so many people in business always like look at everything so competitive. But really like if we’re helping each other, I think it’s awesome.

Graham: I totally agree with that, very cool.

Brandon: Alright so we want to know more about your not-so-much YouTube abilities which are pretty awesome with your social stuff. But we want to know about your real estate investing and I hear you’re an agent as well. So let’s kind of go through your story maybe start at the beginning. How did you get into real estate and also where are you located? And kind of what’s the beginning of your journey?

Graham: Yeah of course. So I’m here in Los Angeles California. I grew up here. The traffic here… But anyway I grew up here in Los Angeles California and I had really bad grades in high school, I hated school, could not get into it whatsoever. I was working part time doing- I basically do photography for this marine aquarium wholesaler.

And because of that changed my perspective on earning money because I figured like if I can work there instead of go to school I can make like 50 bucks instead of going to school. So for me it was just like a no-brainer well let me just miss school and not do my homework because instead I can go and make money.

So it was because of that I had really bad grades in high school, did not get into college. And that left me kind of thinking like I really got to get myself together. I don’t want to be this bum living in a van on Sunset Boulevard not knowing what he’s doing, and not making any money. And I wasn’t going to get to go to college or anything like that.

So I ended up just randomly getting my real estate license and I figured I would convince my parents let me get one year of work experience here. And then after one year of working as a real estate agent, I can then reapply to college and maybe be like an investment banker something fancy like that. But I ended up starting in real estate and loving it.

Like every day for me didn’t feel like work, it just felt like fun. Like I can get paid to go and see really cool homes to meet really cool people and somehow this was a career. But I was still planning to go to college, and it wasn’t until about eight months into it that I sold my first house. That was just a bit of luck but I was holding open houses every single Sunday.

And one Sunday eight months in a buyer came in and ended up having me represent him on a home in Beverly Hills for like $3.5million. I think it was like $3,640,000 so my first deal. And after that I’m like convinced there’s no way I’m going back to college soon. This is so much fun, I see a career in this and I want to pursue it.

So I continued doing that and having so much fun with it. But I would save every bit of the commission that I made because I saw how unstable it was. I mean I’ve seen other agents that would be like six, seven months without seeing a single deal. And they would have to make that last commission tie them over into the next deal.

And it was this instability that I didn’t know where my next deal was going to come from, I didn’t know how big that deal was going to be and I didn’t know how long it was going to take me. So I saved everything thinking that like this could be my last deal for like a year. So after about three and a half years of doing that, I had all of this commission saved up.

And I saved everything, like I lived on $5 foot long subway sandwiches, wouldn’t spend a dime. The only thing I spent money on was a car. I bought my dream when I was just about to turn 19, it was a Lotus Elise. So I just figured like that’s the one thing I wanted and then everything else I was fine.

Brandon: You did what most agents do. And this is not a bad thing but I know a lot of agents will buy a nice car because it actually improves your image to help you actually close more deals in the future.

Graham: Yeah and it did. Looking back, that was not the intention at the time. But I started going to Car meets and I made my money back of my car probably like seven or eight times what I spent on my car just by business I made from car meets.

Brandon: There’s like 100 people right now that are like, “See honey, they listen. I get that car.” They’re going to buy their car.

Graham: Ferrari sales are just going to go through the roof after this. Everyone has a life for VIP now.

Brandon: There you go.

Graham: Anyway so I saved up like three and a half almost four years’ worth of income working as an agent. And I noticed that 2011 housing prices were so cheap and really where I ended up learning most of my techniques and styles was watching what my clients were doing.

So I started seeing my clients like really wealthy Beverly Hills clients that were buying at the time like South Los Angeles, they were buying in Riverside and they were buying in San Bernardino. And these are people that are worth five to $10 plus million dollars and they’re going and buying these little like $100,000 houses, $200,000 houses.

They have teams that are writing dozens of offers every single day, buying anything they can. And I’m talking to these people like why are you buying this, why are you buying this? And they were telling me that just the prices that you’re getting right now for the rents, this is the lowest I’ve ever seen it. It just makes sense.

You could buy a place for like $100,000. And they were getting like $1800 a month for rent. They were going in, doing little minor renovations and getting a ton money. And this just clicked to me like, wait a second so I have all this money saved up right now, that I could be doing the same thing.

And at the very least that would supplement the money that I make as a real estate agent because at least I would have some consistent income coming in that I could rely on, and that way I don’t have to stress. If I don’t do a deal one month, no worries because at least I have this rental income coming in. So I ended up starting to look and I focused on San Bernardino just on the Rancho Cucamonga area just a little bit north east of that.

And what I would do is every single Saturday and Sunday I’d go and I’d start to see all the houses available around. I’d print out a big MLS sheet of like 60 homes and I would just spend the entire day with a friend going to every single property I could that’s on the lockbox and just getting to know the area. It took about a month of doing that. I started writing offers.

I was an agent myself, so I figured I would just start writing all the offers that I possibly could on anything that came up. And all these were short sales so this means that owner had owed more on the property than what it was worth, they weren’t making the payments and they were trying to get out the bank, basically have the bank absorb the loss and approve a new buyer to purchase that property.

So I was finding a lot of these properties that were like $350,000 in 2005, that were selling now for like $90,000. And they were like 2,000sqft homes and I’m like, just to rebuild this home is 200 grand like just to build it. And you’re buying this for like $55 Escrow foots something crazy like that. So I’m like the replacement value of this home alone is worth way more.

So I started writing all these offers. And I would just sit there and anything new that would come on the market, write an offer. And I would just go do the list and write offers at prices that I felt made sense, I’d lowball a lot of them knowing that if I get it accepted, it’s going to go to the bank. They’re going to take six to 12 months to approve or deny it.

And most of them I knew would come back with their own price anyway, so it didn’t really matter what price that I offered, as long as it gets accepted because the bank is going to do their own thing. So I probably wrote like, I don’t know- 80 offers or 90 I mean it was a lot of offers.

Of those, maybe 20 got accepted, 25 got accepted. Then of those banks would come back on like 10 of them and say, “Hey we want this price.” And then of those I ended up buying three of them. The bank came back at the right price with the property that I liked and a decent timeframe.

So I ended up buying three homes. Two were houses and then one was a triplex. And all of them, I went in, I fixed them up, very minimal fixups. And then rented them out. And it was from that that began making about a little bit under $3,000, it was $2,900 a month.

Brandon: That’s awesome.

Graham: And it was after that, that I’m like, I was addicted after doing that, because to me it’s like if I can just take all the money as a real estate agent and then funnel it back into rental property, that’s at least my base. And then over time my base is going to slowly grow and grow. And then that way it takes the pressure off everything else.

So I continued doing that. I continued saving up as a real estate agent for another few years. I bought a house then in Culver City because I noticed Culver City prices I thought were undervalued at the time given everything else that was going on in Venice and Santa Monica. And I thought Culver City was like really undervalued.

So I ended up buying a single family home in Culver City in I think it’s 2015/16 somewhere around there. Right before the values of Culver City really started to like go up dramatically. And I locked in a 30 year loan at 3.375% fixed, for this house in Culver City, fixed up the house.

That house now it’s almost doubled in value since then. But then after that one I went and bought a duplex just a little bit east of Culver City in a city called West Adams. And I felt at that time West Adams was really undervalued given the prices now in Culver City.

Brandon: Sure.

Graham: Fixed up the duplex and then when I fixed that one I realised like I’m just going to move in one of the sides of duplex, just house hack it to save money. And that way I can save even more money to buy more real estate. Then a year later I found another duplex that the owner just misrepresented it.

I mean they called this duplex a one bedroom or one and a half bathroom. It was very clearly to me a two bedroom. So they were basing this off of being a one bedroom and a half bath, they priced it in line of that. And they said it can rent for $2,100 per side as a one bedroom. I ended up buying this and getting an offer for $2,700.

Brandon: That’s awesome.

Graham: For that same unit just by calling it a two bedroom because it was very clearly a two bedroom.

Brandon: Alright. So I want to unpack that a little bit because that’s one of my all-time favourite strategies. I actually want to go back and go a couple of steps back here. But while we’re on this topic and then we’ll go back to the future here. So one of my favourite strategies in all real estate and I tell people this a lot is look for- like in my case I will look for a two bedroom house over 1000 over 1100sqft.

Because a lot of times agents do misrepresent or they don’t think, oh that could actually be another bedroom and legally it’s not a bedroom yet. So I’ll find a two bedroom house with 1,800sqft. And it’s like I know for a fact that’s not a two bedroom house, that’s a four bedroom house or a three bedroom, or a five bedroom house, right.

So you get way higher rents. So it’s one of the strategies I use. And it’s cool that you do the same thing. You looked for what really was like two bedroom but they said it was one. And I’ve seen that with studios to one, I’ve seen from one to two or one to three.

Anyway very cool strategy, that’s awesome. But I want to jump back to the very first couple things there. You said you were doing these short sale offers. Short sales were really popular back then, not so much today. But they will come back I mean they’re a market thing right.

When the market drops really low everyone now a lot of people are under water so they go through short sales. So let’s talk about it for a minute because even though it’s not very popular today to do a short sale, they are still out there and they’re going to come back maybe in the next few years who knows, whenever the market drops.

So you said basically a short sale is when somebody owes more than what the property is worth. And then you said something about you put in and somebody who once called it the short sale offer maybe six or 12 months later they come back, that delay. We had time machine. So you like get a year ago’s price today.

Graham: Yes, very true.

Brandon: Yeah. So but what happens in a case though and this is a common question I get from people, is what if you get more than one of your offers accepted. That’s like when I tell people to make a fair number of offers, if you want to get more deals accepted you got to make more offers. And they’re like, “Well what happens when I get two accepted and then I can’t buy both”? Like that happened to you kind of. So how did you deal with that?

Graham: 100%. Well I would say 99% of times the bank will come back with a higher price. So they’ll go through the entire process, you wait eight months and then they say, “Okay we’re accepting your offer but we want it at this slightly higher price which we feel like is now the current market. And then it’s up to you at that time to say, “I want it or I don’t want it.”

And if I was unsure, I would just say, “I want it.” And then I would do my inspections on the property. And once I did my inspections always these short sales had so many issues. I found mould, I found broken pipes, sometimes tenants would just trash the home.

There’s a lot that’s happened in the eight months or the 12 months whatever it is when someone’s living there and they’re not making their payments. Usually they don’t have any upkeep so there’s always something. I didn’t encounter that, usually the bank would just come back at a higher price and it was up to me to say yes or no eight months down the line.

And usually what I would do, even if they came back at a higher price, they were always coming at a lower price. And usually sometimes a little bit of wiggle room there like a few thousand bucks, whatever. So I was never worried about getting too many offers accepted.

If anything I just was upset I didn’t have more money because there were two deals I got back then that I just couldn’t do. I tried to get money, I tried to get a partner, I just couldn’t get these two houses that I knew were like slam dunk deals. And I look back today I’m like, “if only,” but yeah well.

Brandon: Hey what would you tell your staff today knowing what you know now about real estate investing? Well say somebody else is in the exact same shoes, they got a couple deals that are really good. What would you tell them to do in today’s market if they get a couple of good deals that they just can’t find financing for?

Graham: Well the thing is back then I was buying these deals cash because I didn’t have a credit card. I didn’t have any credit whatsoever. And if I simply had a credit card I could have financed all of them. I could have put even like 30% down 40% down whatever and financed them. But even back then I think I should have made the effort to try to see if I can really flip those contracts.

But at least bring them to somebody else as an agent. I just didn’t make the effort at the time because I was really so focused on getting this for myself that I should have looking back pitched it to some of my own clients, and seen if I can work some sort of even if I bring it to them and ask for a small portion of the equity of the deal. Just to get myself in the door because these were such good deals.

David: You make some really good points Graham and I want to kind of highlight them, and the first one is what you just said. You had a one track mind where you were thinking, does the deal work for me or not. And if yes I’ll pursue it, if no I won’t, right. And we all start off with that and it’s actually a positive thing in the beginning to know what you want and know what you don’t.

So that you’re not kind of scattered all over the place and you can’t make a decision. But as you become a more experienced investor. More experienced business person you start looking at this is a deal, but it might not work for me. I might not be in the position to capitalize on it. But what can I do with it?

So if you’re a buy and hold investor and you come across a flip, in the beginning you just say, “Well I don’t flip houses.” And that’s good. But as you become more experienced you should say, “Could I flip this house? Could I use my rehab crew from my buy and holds to flips the house? If not could I give this to a flipper and wholesale it to that person? Right.

Could I find another investor who wants to get started and just do them a favour and then they’re more likely to bring me a favour back?” So I wanted to highlight that for people that really all you need to do is find a deal and then figure out what to do with that deal. And you’re going to make money in some way with real estate.

And you’re acknowledging that right now, I think that’s a really wise point. And you said a couple other things too. You mentioned that you were writing offers on everything. That you’re a real estate agent and you were doing really good. And you didn’t go invest in Bitcoin. You didn’t go invest in stock options or stuff like that.

Graham: Well back then I should have invested in Bitcoin.

David: Yeah maybe. But you were investing in something you didn’t know, you were investing in something that you were. And I’m a real estate agent as well and it boggles my mind how many people sell real estate for a living. They know when they get a really good deal, they have all the access to run comps and run rents and figure everything out.

And they still don’t invest in real estate. It’s amazing how many real estate agents should be buying deals for themselves and they’re not. But props to you because you actually did make that jump and you moved into the other world. And you had vision to see that investing is where it’s at, right. You can make money as an agent.

That’s great because that money gets taxed a lot higher. I’m telling you guys like it’s a good profession but it’s blood money sometimes. You pay the price to earn that commission bearing your client’s emotional burdens and putting out fires. And if you’re a good agent you’re doing the job of both real estate agents.

People don’t realise that because I’m sure you know Graham that God, you’re always figuring out the other side’s problems because you don’t make any money if it doesn’t close so you’ve got to. And then you didn’t just say, “Oh I want to be an investor instead of an agent.” You knew that you needed to bring investing into it.

But you focused on making and saving capitals through your main job which for you is selling homes and then amplify that capital through investing. And you were telling that story and you gave us a ton of information it was really good. And I kind of picked out that’s what people need to take from this.

Because whether they’re a car mechanic or like an airline pilot whatever their job is, they can do the same thing that you did, use those same principles. I think that doing it as a real estate agent gives you an advantage though because you see the market you know how real estate works.

Graham: 100%. If anything I really feel like that was what gave me the biggest advantage, is just doing it basically 24/7 for three and a half years. And I can really see the trends of the market and see where people are buying.

And I figure too if people that are worth like $10 million are buying in San Bernardino all these big Beverly Hills are talking about it. And they’ve been doing this for decades, chances are this is something I should really start paying attention to myself.

David: Absolutely. And there’s a synergy there because as you’re working with people that have a high net worth and they’re buying these homes, they could invest in your deals. You could hook them up with other people’s deals and you just made that person a lot of money and they’re more likely to bring new business.

I think in general people get this really like, “Hey this is my way out of where I am that I don’t like, I’m going to buy a bunch of rentals. And sometimes it helps to take those blinders off and widen your vision and see there’s opportunity all around you that you’re missing because you’re only looking for one thing.

Graham: Totally agree with that.

Brandon: Cool, alright.

Hey it’s Brandon. I wanted to get a quick break from this podcast interview to invite you to this week’s webinar; Three Steps to Financial Freedom in 10 Years or Less. Like imagine a life where you can work where you want, when you want, with whom you want, right.

For most of the world, that’s nothing but a pipe dream but for real estate investors it actually is possible if you take the right action. So on this webinar I’m going to be unveiling the exact process you need to build a real estate empire to help you achieve that financial independence.

We’re going to be going through three steps for it. So if you can attend that would be awesome. Again Three Steps of Financial Freedom. Go to BiggerPockets.com/Retire Webinar. Again BiggerPockets.com/Retire Webinar to sign up for this webinar. I’ll see you there.

Brandon: Alright so I want to move on and go, so you bought your first property. How old were you when you bought that first rental property?

Graham: 21.

Brandon: Alright so let’s talk about that for a minute because a lot of people listening to the show are younger, like they are in their twenties. I was actually 21 when I bought my first rental as well. David was like 63, so like… He’s giving me that look.

David: Yeah. We didn’t call them rentals back then, we called it home studies.

Brandon: Alright. So you were 21. Do you have any tips for people listening to the show right now who are young, they’re fired up they want to get into real estate. They don’t want the prescribed life plan that our parents and grandparents followed. What do you say to those people about jumping into real estate at a young age?

Graham: I would say it’s probably just getting over the mental hurdle that you can’t do it. And there was a lot of resistance for me too at 21 to buy a house especially to buy a house cash. And I really kind of had this belief that’s just like it’s not right for a 21 year old to own a home. It’s not normal, you can’t do that, you’re too young to do something like that.

And also I won’t lie I mean I’ll say that there’s a little bit of guilt in that too knowing that there are people in their 40s and 50s who’ve been saving up their entire lives who still don’t own a property and they just can’t do it. And there’s some guilt that’s like is this fair for someone who’s 21 to buying this house?

And I think it was a lot of these kind of self-doubts that really got to me a little bit. But I just figured I just got to push through it and just push all of these thoughts aside. So for me I mean that was probably the biggest thing is more like the mental aspect of doing this. And also a bit of the awkwardness of all of my tenants were significantly older than me.

And here I am as this kid and it’s like I’m the landlord and I’m this 21 year old kid. And even at 21 I looked probably like I was 16 so it’s like here’s this little kid who I owe to every single month. That was really intimidating for me. Even to meet these people that were my tenants I was like, “Dude how do I act?

Am I their friend or what do I do?” So it was definitely really scary and it was definitely a learning experience. But I would say you just got to jump in. there’s no other way around it to really prepare yourself besides just getting that first-hand experience.

David: There’s probably a couple things that you’ve already learned to work around that. Like one of them is when you’re a landlord managing your own property you never tell people that you’re the owner, you always tell them you’re the property manager. Then they don’t think like who’s this 21 year old trying to tell me what to do?

I’m obviously a Kid Savant if someone hired me at 21 to manage his property, you’re going to do everything that I say. I’m sure there are some things you picked up along the way, that’s very impressive you did that at such a young age. I mean most 21 year olds now they’re actually avoiding anything that would cause anxiety or growth or risk.

And they’re chasing things that kind of make them feel comfortable. What do you say to the 21 year olds that are out there that say, “Yeah that’s cool and all but I don’t want to save my money I don’t want to work for money. I want to buy experience, not things,” even if things can be assets that can be worth a lot of money and set you up for your future?

Graham: I think it’s worth it, here’s the thing. I mean here’s my own personal belief when it comes to this, is that you have such a massive advantage in your 20s that you’re never going to have for the rest of your life. I really believe that if people take one decade and just really save for their 20s, that what they do in their 20s can set them up for the rest of their lives.

Because they have the power of really just having this compounded interest working for them since the very beginning. That I think if they just make a very short term sacrifice and they can still have the experiences, and they can still have a great time, they could still do everything they want to do but dial it back and make saving a priority, they can go so far.

I never felt like I have missed out and I’m going to be 29 next month. And I’ve never felt like I’ve missed out on something. If all my friends were going out to like a really fancy dinner let’s just say, I will order an appetizer instead of an entrée. I mean it’s something as simple as that that can save-

Brandon: Wait, no avocado toast?

Graham: No avocado toast. You just delay the avocado toast in your 20s. But I’d taken it to an extreme so I’d definitely gone like-this is probably a terrible thing to say. But all my friends went out to a really nice restaurant like a really nice restaurant, to the point where usually you would have to wear a button down shirt and like dress shoes and stuff like this.

I didn’t want to spend the $80 per plate, but I wanted to go with everyone. So I went to Subway and I brought my Subway sandwich to the restaurant and I just asked for a plate. And when everyone else got their food, I had this Subway sandwich like on my chair. I pulled out the Subway sandwich and I had it on my plate just so I wouldn’t have to spend the $80. So I spent like $5 for the sandwich.

Brandon: That’s hilarious.

Graham: No avocado. So I saved that extra dollars.

Brandon: No avocado.

Graham: But my point is this, is that I still had a great time. So bought a Lotus Elise and that was my cool sports car. So instead of buying like the Lamborghini for like 170 grand I bought a Lotus Elise for $30,000. It didn’t lose its value but it was 95% the same thing in terms of the experience for a fraction of the price.

So there’s a lot of these things that you can that don’t really cost a lot of money where you get basically the entire experience. Or you can even now I can travel anywhere in the world for free just with credit card points. And that’s something very civilised.

So you can still all these things it’s just you don’t need to spend money necessarily doing them, or you can really cut down on that. So I really feel like the 20s if you can just do that for 10 years and really build up that nest and just get a few properties under your belt or just get some investments that could set you up for the rest of your life.

So that when you’re 30, 40, 50, you’re never going to have to worry about like oh this rental property or this wholesale deal or this real estate agent deal because you’re already going to have that nest that’s kind of holding you. So that’s been my prospering.

Brandon: It’s such a good time to build that foundation I mean I’m sure we’ve all see the financial advisors who’d be like, “If you save starting at the age 21 versus age 31, it’s like millions of dollars of difference. Like that actual decade it’s unbelievable. So speaking of being in your 20s, I want to cover a topic real quick that normally I wouldn’t bring up to somebody like on a podcast.

But because you already opened the door by having your third most popular video on your YouTube channel with this, How I Became A Millionaire in Real Estate By 26. Could we talk about that for a minute?

Graham: Yeah of course.

Brandon: So a lot of people have that goal, I want to be a millionaire by 30, I want to be a millionaire whatever. Obviously they can go look up the video just go to your YouTube channel or just type into YouTube How I Became A Millionaire in Real Estate at 26. But either way, can you walk us there? How do you become a millionaire in real estate? Was that all investing and agent investing combined or other things? What does that look like?

Graham: I would say it’s very much agent and investing combined. I had two things really help me out a lot because when I was 18 I think I made sixty-something thousand that first year, $70,000 that first year at 18. But most of that was that one deal in Beverly Hills, three and a half. Then my income really kind of went to about 100.

Stayed between 100 and 120 the next few years. Took me a while to break through that then I think it was like 180, and then like 220 after that. So I had a really good income. I didn’t spend a lot of money I really kept, like just doing the $5 Subway sandwich. I was making more than all of my friends and they were the ones that were spending $80 on a meal and I was spending $5 on Subway.

So I saved a lot of that money, invested it all. So I had two things really working in my favour. One is investing in 2011/2012. So those properties right then more than doubled, if anything I think they must have tripled in value. So that was a significant portion. But it was also having a relatively high income working as a real estate agent in conjunction with that.

Where I got a million dollar net worth by 26 between those two. Now if my income was not as high as a real estate agent, I wouldn’t have been there. If I didn’t invest in 2011/12 I would not have been there. It would have taken me several more years because I saw like all these equities just start growing, rent started coming in a little bit higher, and then my income started growing as well in the process.

David: So let me ask you about that. You mentioned how you saved money in your 20s the Subway foot long instead of the dinner, that’s really good stuff, the money you saved on your car, that’s also a really good idea. Because what you’re showing is you don’t have to deprive yourself to be successful.

You just have to be smart about the things you chase, right. But you didn’t just save money during your 20s, you actually built up a lot of income during that time. And I know a lot people’s gut response is going to be well that must be nice to be a really successful real estate agent, you could save that money.

Graham: I agree.

David: But tell us about the foundation you built in your 20s that led to you being able to generate a lot of money. What did you do during that time when everybody was going to Bernie Man and kind of screwing around, and not purposely working on skills that would help them build wealth that put you in the position you’re in now?

Graham: Yeah. I would say two things. First of all was not going to college. And by not going to college first of all I had no student debt that was holding me back. And I didn’t come from a wealthy family or anything like that so college would be on me. And I was going to have to take up loans or do something to pay for that school.

So I didn’t, I don’t want to say waste four years going to college. I wouldn’t say college is always going to be a waste. But in my situation I didn’t spend four years going to college on something that wasn’t going to be helping me. And I didn’t spend money to do so. So going to college for me would have set me back probably at least a decade in terms of net worth at least minimum probably a decade.

So it was that. Secondly I really loved what I did to the point where it never really felt like work. And I would look forward to a Monday because it meant that I can go and kind of get clients and show houses and stuff like that. Even Sundays I would do open houses but I was excited for the Monday to really go and work.

And I just enjoyed it so much that I didn’t have a desire to go to like The Burning Man, I didn’t have a desire to go to Coachella. I just loved what I did so much that that was my idea of fun. And like I didn’t need to go on vacation to try to escape something because for me my work was like my vacation.

It was just every day to me was like I get to hang out with these clients that I consider friends and see really cool homes and like this is my job. And the people that I met in the beginning or even still to this day, I would randomly meet celebrities holding open houses in Hollywood. And they would just walk in and no joke like write down their email address.

And then I could follow up with them later or they would call me on a listing. And I would rent them a home like I’ve had several A-list actors and actresses that I’ve represented that have literally called me on one of my listings. And I’ve showed it to them and they were unrepresented and I continued showing all the homes until I sold them a place.

Brandon: That’s cool.

Graham: And that to me, that’s so cool. These are experiences that I feel like people would pay for just the opportunity to do something like that. So for me it was fun.

Brandon: Yeah and I think that is key. I’m kind of jotting down notes here as you’ve been talking and this is something I’ve been thinking a lot about lately. And your story perfectly symbolizes it. When we talk about becoming a millionaire, the way I formulate things in my head is like I’m going to write a book on it.

So I’d write a book and call it The Millionaire Formula, right. And here’s what it is and you could probably steal this if you want or make a YouTube video out of it. Alright so it’s basically what you did, right. You made a ton of money working hard on stuff you love.

Almost everybody I know who is really successful I mean I hang out with a fair number of like successful people, and they all generally made a ton of money working hard in something that they love. I think in order to make a ton of money you have to work hard at something you love generally speaking.

I mean obviously I could hate being a lawyer and still be a lawyer but I mean like David worked super hard at being a cop, he loved being a cop. So he worked super hard and made a ton of money doing it and then that moves on to step two, you spend as little money as possible or live responsibly. And we talked about how to do that, right.

That leaves you with a good amount of extra money. And then invest that in assets you understand that grow, right. That’s like this millionaire formula that I’m putting together in my head here. Yeah making a ton of money working hard on stuff you love, spend only a little of that money by living responsibly and invest the rest in assets you understand that will grow.

And if you follow those three things and like you said earlier you were like, “Well yeah I was a real estate agent, it might not have happened if I wasn’t.” but my guess is you’re the type of guy that maybe you could have started a plumbing business right. And you would have worked if you loved plumbing you may be able to have started a plumbing business, worked super hard at it.

Hired a bunch of plumbers grew that business, made a bunch of money, lived cheap and invested the rest in maybe your asset that you understood was mutual funds. You’d probably still be a millionaire before you’re 30 had you done that within a decade.

That formula kind of works no matter how you do it. So as much as yeah you did it, and people are like, “Well yeah you got lucky you bought in 2011.” Okay well what’s 2011 today? Like what is today’s 2011? Right, so anyway I like that kind of thinking.

Graham: That’s so true because I believe every year there’s a new opportunity out there, like every single year. It’s like well you got lucky then, well you can still get lucky now. There are other opportunities that you can get very lucky. The same thing like that, there are many people that use that as an excuse for not even doing it.

Brandon: Yeah I love that.

David: I think about it so much because I remember when I first started buying rentals, everybody was saying don’t do it. It was constant, every time you turned on the news, real estate’s in a plunge, America is headed to the next depression, lock the gate, batch the hutch it’s going to go terrible. Don’t buy anything.

When a lot of people told me that I was stupid for doing this, right. and right now I think people are going to look back in 20 or 30 years and say, “Can you believe how easy it was to get money?” you just stuck your hand out and people were like, “Please take my money and invest it for me.” Right, or how easy it was to find tenants because there’s a lot of people that didn’t want to own a home at this point.

There are things happening right now that make investing in real estate such an amazing opportunity. And we’re focused on oh prices are high, we’re at the top of the market, all these things that are negative. Well when that changes, there will be a whole bunch of new negative things that everybody focuses on.

And I think Graham makes a really good point that there is always an opportunity in something somewhere. Even if you believe that this is the wrong time to buy, that’s fine. Why not go become a real estate agent and sell real estate to people who don’t want to be investors? Or why don’t you go get your mortgage license and do loans for them?

There’s something in real estate if you really love it that you can do to earn money. I think Brandon’s point that successful people are wealthy people needed was that they did something they loved. And if you’re listening to this podcast and hearing my voice right now you love real estate, that’s why you’re listening to it unless you just love beards and you’re hear for Brandon’s beard. But for the majority of people… Yeah maybe so.

Brandon: I don’t think all of them I think it’s like half. 50/50 here just for the beard.

David: So for the other half of you that love real estate, find something to do with it. This is what I always say, during the Gold Rush everybody came to California to make their millions, right. Those to me are the people who’re going to the gurus and saying, “Here’s $25,000, teach me how to become a millionaire in real estate.

And very few people actually made millions during the Gold Rush just like people that go to gurus. You know who really made money during that time? It was the merchants that went out there and they sold the shovels, and sold the picks and they sold the pieces of paper for $100 each so that people could write home to their families, right.

They were around the thing they loved but they weren’t the fool that was chasing after the get rich quick scheme. And there are so many opportunities like that in real estate and the more you know the more chances you’ll have to take advantage of that.

Graham: Yeah like one of the opportunities that I see right now as a real estate agent for anyone who wants to get in, because right now they think it’s so competitive and like there’s nothing they can really do and the market is frustrated. And they think no one’s buying right now because the prices are high.

But one of the biggest opportunities right now that many people are not taking advantage of is becoming a real estate agent and representing tenants. All the people who say that the market is too high, all the people who say, “I’m going to hold off a few years and see what’s going to happen,” all of those people are renting instead.

I have seen several people sell their homes and decide to rent for a few years to see what happens. But the thing is as a real estate agent, no one is going after those tenants because they see why would I want to earn a few thousand dollars representing a tenant when I can earn $100,000 selling them a home?

Well guess what, all these people go unrepresented and that’s your chance to get your foot in the door. Represent them in the short term on a lease and make a few thousand or break even. And five years from now, all of those people come back to you and they buy. And that’s how I built my entire business.

David: You’re 100% right.

Graham: Is by influence. I want to say probably half of those people ended up using me to buy in the next few years. So that little commission was worth $150,000 a few years later.

David: And that’s what the smart business people do, right like that’s why I educate people on real estate and I do seminars and I don’t charge for it and I give free education. Because it gives people an opportunity to see oh this guy actually cares about me, he doesn’t just want the commission. He wants to make me money.

So then when they do want to sell their house they’re going to go to the person that they trust they already have their relationship with. Having that long vision is what’s going to help you build wealth and building wealth is what’s going to help you invest in real estate. Then you’re going to get on the BiggerPockets podcast and talk about avocado toast and Lotus Elise.

Or make a video that goes completely viral because you became a millionaire at 26. And I think that’s what Brandon and I are so passionate about is how we help the people who are listening to this understand what the really successful people that we know do and what they think because there’s a pattern that shows up all the time.

They say things like what Graham just said, quit looking for the quick score. Help that person by getting him an apartment, represent them well save them money. Five years later then they’re going to let you sell their house you’re going to make $20,000 on that commission. And if you help 10 people you just made yourself $200,000, five years from now.

If you did that five times you became a millionaire just by doing something small that you could do now. And that principle works for anything, right. Building relationships with wholesalers, setting up a buyers list to wholesale properties to. Building relationships with people to partner on deals or finding off market deals.

If you take that long game and you do the right thing, that stuff will come back to you absolutely.

Graham: I agree.

Brandon: Yeah that’s great. Alright so listen before we head onto like the deal deep dive and the fire round and famous four and all that good stuff, what about now? After beginning your business back in 11/12 it was great, we could find deals. So are you just rested on your lorals right now and relaxing? Are you still looking for deals? Are you still buying stuff? What’s your business like?

Graham: I would say it’s a little bit of both. So right now I’ve kind of enjoyed I just bought my last deal about three and a half months ago and that was a duplex where they misrepresented. And right now is the point where that covers all my expenses and I’m finally at the point now where I’ve just been like pretty satisfied right now.

And I think I’m in a really fortunate position where it’s just like I don’t need to do anymore. I’m still looking at deals because I see interest rates still I think very low on a fixed 30 year mortgage. So I’m kind of tempted well should I buy something else. Where I think it leads for me in the short term, where the next opportunity is I think is more so in development.

I have one unit where I can renovate it, get the tenant out, maybe make them an offer something like that to leave. To renovate the unit with about $60,000 I should be able to make an extra $1,100 a month on that. So that to me is really I mean that’s like a 20% return on my money right there that you can’t get anywhere else.

There’s another unit where I want to build a guesthouse on the property, an ADU about $200,000. But with that I should be able to rent that out for $1,600. So right there $260,000 investment right there should give me about $2,700 a month just between that. I have another property, another duplex actually where I was think it’s zoned for four units and it’s two units.

If I can save up another seven, eight years, save up something to be able to tear that down and build a brand new four unit on that. That to me works out to be almost about 9% return on my money.

Brandon: I love the way you’re thinking because again in different parts of the market work for different things right. So you’re thinking hey what was working in 2011 and 12 is not today, but what about this? What if I remodelled this? What if I did this? That’s why David and I talk a lot about the Brrr strategy.

Like buying a nasty property, fixing it up right, rehabbing, renting, refinancing, repeat. Right because that works in this market a little better than it did in maybe 2011 and 12. And again you’re talking about the ADU thing. So you mentioned the ADU which is Auxiliary Dwelling Unit or Accessory Dwelling Unit?

Graham: Accessory Dwelling Unit.

Brandon: Right so having a separate unit and that’s huge I hear in Hawaii where I live in Maui now right, like almost everybody has an ADU because it just makes sense. You build one for a couple hundred grand and I mean I hear they can rent for like three grand a month for like a $200,000 investment. That like it’s a no-brainer right.

So the people who are- I mean there’s other things like another example I know it doesn’t apply to everybody but out here there’s a special law that says if you have over 5000sqft, you can basically subdivide your lot and split it into two. That’s like a thing out here. Now every area has got different unique thing but the people who are like okay well that’s a tactic I’m going to figure it out.

I’m going to make it work, I’m going to buy one property split it in half, build some over here, and now I got two. And there’s ways to make money in real estate in any market, good bad, normal there’s ways to make money. And I love that you’re looking at as how do I do this, how do I build this? How do I continue to drive forward versus, well it doesn’t work anymore because it’s not 2011.

Graham: Yeah I just got to think what’s going to give me the safest long term return compared to everything else out there. And where do I feel my money is best utilized? And right now from what I see is that and it very well could be in the next year I find another amazing deal. If I find something else that gives me a better return then I’m going for that. Otherwise I think this is a pretty safe, conservative approach.

Brandon: Another thing on that note that’s really building steam right but still so small is the opportunity zones. I mean we haven’t even done a show on opportunity zones yet but we will. But like there’s this new part of the tax code that is really fascinating but it’s just complicated, it’s hard. Right so most of us like I have not even spent the time I need to dive in to learn how that works.

But the little I know, it’s a very powerful strategy for somebody who is willing to invest the time to work and figure out how to make it work. So again there’s a million ways to do it but anyway I’m going to see you on thinking that way. Alright so we got to moving on in the show. Again I love your story all this. So I want to dive a little bit deeper into one particular deal. So without further ado let’s head into the Deal Deep Dive.

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Brandon: Alright let’s get to the Deal Deep Dive. So these questions are about one particular deal that we’re going to go real deep on here with Graham. So let me just start by asking you, first of all you got a property in mind?

Graham: Let’s do the first one because that was the one I made all the mistakes on.

Brandon: Okay, perfect. What kind of property is it like single-family, multifamily?

Graham: Single family.

Brandon: Okay and where was that at?

Graham: San Bernardino.

Brandon: Okay perfect. Number two.

David: How did you find this deal?

Graham: This was on the MLS and I saw it, it was listed like 1200sqft. But when I went to see it I realized that wait a second, this house is not 1200sqft. They added onto it significantly and never reported it to public records because they didn’t want to pay extra tax on that. But it was all done to code perfectly. And it was actually a four bedroom 1700sqft not a three bedroom 1200sqft.

Brandon: That’s cool.

David: This folks, this is why you want a good real estate agent helping you. Can you take a second Graham and explain to somebody how it would have been entered into the MLS without that square footage and why somebody might not- like what you just mentioned. Can you go into a little bit more depth for people so they can find a deal like this too?

Graham: Yes. So this was a short sale and the agent had never seen the property before. He was hired by the bank and all he did is he went to the front of the property took a picture with his cellphone, there’s only one picture. And then copied all the information of the property from the public record.

And of course the public record said it’s 1200sqft three bedrooms, two bathroom. Had he seen it, he would have figured out wait a second this is four bedroomed there’s all this extra square footage. A huge bonus room. We’re talking like 500sqft here that’s accounted for. Messed it up.

David: He probably got paid 1% for the bank so he didn’t care and that’s what it’s like when you pay 1% to a listing agent to sell your house.

Graham: And they also do volume. I mean he’s probably doing like a few properties a day by this bank that’s listing. There’s a whole team to handle it, they don’t have time to go and do this unfortunately. So it’s up to the buyer then to do their own due diligence.

Brandon: Yeah it’s an opportunity. Alright how much was it? What was it listed at and what did you get for it?

Graham: So this was originally I think $255,000 in 2005. It was listed at I think it was $62,000, I offered 60 got it accepted at $60,000. And then during inspections I negotiated an extra $500 for repair to close. So I bought this house for $59,500 that was like two hundred and fifty-something thousand two year prior. Yeah.

David: Alright. Tell us a little bit about how you negotiated that reduction in price for the inspections. What was your process like?

Graham: I did a general inspection on the property and basically determined that the lady who lived there was a hoarder. And I mean it was just disgusting. She had things piled up as tall as I am, there must have been a few dead animals in there it smelled terribly. Some of the roof needed some fixing. There was a concern of maybe some potential water damage it kind of smelled a little bit.

So I took pictures of that and then I sent everything to the bank. And I said, “Listen, this is going to take me several thousand dollars more than I expected just to clean it up. But where you’ll close right now, cash I’ll close in a few days if you just give me a $500 credit. That’s all I want, just 500 bucks.” And I think for them it was a small enough number when they figured yeah let’s just get it off our books. 500 bucks let’s just get it out.

Brandon: Alright what of funding, how did you fund it?

Graham: That was bought cash, again because I didn’t have a credit card. I had no credit, I tried to get a loan from the bank. They said absolutely not. I tried to get one of my parents to co-sign they had really bad credit so the bank was like no. so I was forced to buy this one cash.

David: I love this, because you were 21 years old, right.

Graham: Yeah I was told my entire life credit cards are a mistake. Broke people need credit cards, if you can’t buy it cash you can’t afford it. So I grew up with that mentality that it was a big mistake. And I was so adamant like I’m better than everyone else because I pay with cash. I pay with a debit card. I just did not understand it.

David: Yeah I mean you’d only had your drivers’ license for a handful of years when you were negotiating this deal. Like that’s just so cool. For the people who’re out there saying, “I don’t know, this is scary. I don’t want to do it.” Don’t get punked out by a 21 year old who didn’t even have a credit card and went out and bought his first house.

Graham: Exactly. I was 22 when I got my first credit card. It’s like right after this whole mistake.

David: You had a house before you had a credit card, how cool is that.

Graham: Yes I did.

David: Okay. Next question. What did you do with it once you bought it?

Graham: I bought it, I spent $12,000 fixing it up. Back then contractors, fixing up crews were so hungry for business because their business just got annihilated. They weren’t doing anymore flips and I was able to get these people- I mean they were so eager to work for anything. And I was able to get a very good deal and give these people work that were normally not doing anything into this property.

So I spent $12,000 fixing it up with basically just basic stuff, cleaned it up, did minor landscaping, laminate floors, new paints. I bought preowned appliances to save on money on that. What else did I- minor bathroom remodel, minor kitchen remodel. I’m just talking like countertops, paint, tile flooring. Really just basic stuff. And total that was about $12,000 to fix it up with it. And then I ended up renting it out.

Brandon: What did it rent for and kind of what was the outcome? And you mentioned mistakes or problems like what did it rent for and yeah?

Graham: So at that time I basically used all of my money that I had, every single penny buying that house, another house I got and the triplex. I mean everything because they all happened at the same time. And of course every project goes over budget and I basically got down to the point where I was out of money.

I had nothing left over and I owed a contractor $2,000. I had literally nothing. And I had some deals lined up as a real estate agent but those were coming through I couldn’t just not pay a contractor. I ended up going to my grandma and begging her $2,000 just to pay the contractor. And I told her like when my next real estate deal closes she’ll get all of her money back.

And I paid her back like about a month later, two months later whatever it was. But anyway so I had to borrow money from my grandma but at this time I was so just like this property wasn’t being rented out, it was empty. I’m like what am I going to do? I owe money now and I’ve never owed money in my entire life like this.

I was so desperate to rent it out that I picked the first tenant that came through. And I think at the time I was asking $1200 a month. And I put it up and the same night I got a phone call from someone saying, “We’ll take it, I’ll move in tomorrow. Just let me know how to meet and done deal.” And I thought this was like my saving grace.

David: Yeah that always goes over really fast.

Graham: I thought like oh my God the timing couldn’t have been better. I’m going to rent it out, I’m not going to have to worry about this anymore. I meet with a guy, comes in really clean cut, like a nice button down shirt and khakis and dress shoes and his girlfriend same way. It looks like they came from a nice accounting job or like it.

But his credit was short, it was like in the five hundreds, had a few things in collections that he said was from an auto accident he got into and they told him not to pay something. And he’s suing them and he’s going to win because it’s like the tracking company and when he wins he’s going to prepay all the rent for like the next year.

They had a cash business where they basically said that because they owed money they couldn’t put money like in certain accounts so he has to do everything in his girlfriend’s name. On their tax return they didn’t claim a lot of this money because they said like they were, “We just don’t want to claim it for taxes.”

It was a lot of red flags there and he wanted to move in immediately. So I asked, “Why do you want to move in immediately?” “Well the landlord wants to sell the home that they’re in now so we got to get out.” Long story short, they lied to me on everything. It turns out that he was growing weed and that’s what his business was, growing weed.

I didn’t find this out until he started paying his rent late, later, later then he was a month behind. I wanted to refinance the property at the time because by then after about a year I had like a decent enough credit. So I could at least refinance it. Turned out he turned the garage into a huge grow house. I mean I don’t know what’s really huge but basically the whole garage was a grow house.

And that’s how he made his money was doing that. And not only that but like I found him on Facebook. And I couldn’t find him on Facebook before but I found him on Facebook. And it was just pictures of him with like guns on the table, and he would have a few thousand dollars on the table. I’m like, “Posting this picture and he says he’s late on rent. But meanwhile he has a few- this is my rent money with a gun on the table.”

David: Oh wow you were a part of a rap song.

Graham: Yeah. And I love dogs but he had a whole bunch of pit bulls with him as well that he didn’t tell me.

Brandon: Of course.

David: What are the odds? Right. That’s funny. I like that he was bragging on Facebook that he was late on rent wow.

Brandon: As soon as he felt like posting.

David: Okay so there’s a couple quick tips here for our listeners. One, if you’re worried about this happening to you which you probably should be, go back after this episode and listen to the one that Brandon and I just did with Robert Greene where he talks about how to read people. How to know if you’re being lied to and how to not be taken advantage of.

And two, when you’re going to buy a house, spend a lot of time looking at the garage. We always skip over that. The garage is just a garage, right? That is where you’re going to find out what that house was used for because that’s where the majority of the bad stuff happens.

So when I was working as a cop and we would go do raids on these kinds of things it always ended up in the garage. You’ll see like extra electrical wires and outlets put in the garage, things hanging from the ceilings like extra lights. You’ll see all the little things that marijuana grow houses need to happen, they all happen in the garage.

So that’s something you definitely don’t want to skip over as I’m sure Graham is now looking it like yeah some of the warning signs were there. But he was 21 years old he didn’t know. And even making all these mistakes you still went on to be a really successful real estate investor and agent. So what excuse do we all have, right?

Graham: Exactly. That was honestly I think the best learning experience ever. I ended up evicting the tenant, he got very violent basically trashed the house. I lost a years’ worth of income on that house between the eviction and fixing it up. Insurance didn’t want to cover that, I didn’t want to fight insurance on that.

But it was the best lesson looking back. I mean I think I lost like 12 grand or something like $13000 but looking back I’m so happy. I paid $50,000 from that lesson because that could be a drop in the bucket now for the wrong tenant. So I’m glad I got that out of the way. That’s the best college education I ever got.

Brandon: Yeah this is also just like a good lesson that land lording is a skill. I said that a lot, land lording is not something that any of one are just born innately knowing how to do. And there’s 100 tips and tricks that will help you improve your land lording. So take it seriously. If you’re going to manage yourself, take it seriously.

I mean I made the exact same mistakes that you did. I mean every one of those things you said, I’m like smiling and nodding. So I’m like yeah every one of them I made. And a lot of us do so if you want to avoid that, read some books on being a landlord, talk to other local landlords. Or if you’re not willing to invest the work needed to become a good landlord, hire that out and spend your time finding the best property manager.

David: I agree. Very wise Brandon.

Brandon: That’s why they call me the wise old owl.

David: Yeah and listen to a lot of rap songs to see if your tenant or your property shows up in the video. That should be a part of tenants’ agreement.

Graham: It was so funny to see my house in the background of all of his pictures. Like he would take pictures of him holding a gun to the camera and I’m like, “Oh that’s my living room in the background.”

David: That’s the stove that I bought that was used to save a little bit money on it. At least it’s still in good shape.

Graham: Yeah. He broke that though.

Brandon: Of course.

Graham: Yeah he smashed I think before he left.

Brandon: One of our tenants actually who’s moved out of our property, she’d been there for a couple of years now. Her dog chewed through a door, a big wood solid door. A dog chewed through it like I’ve never seem that happen before.

I’m always shocked and I shouldn’t be shocked at the level of destruction a person can have in a house especially with dogs but I just don’t get it. But it’s absurd. But anyway anything else did you learn on the lesson I mean you want to kind of summarize that deal up or also move on?

Graham: I think we can move on. I think it is really just the tenant selection on that deal that was really a big one for me.

Brandon: Yeah well cool. Well hey if anybody is interested in learning how I manage my properties my wife and I wrote a book on that a while ago called The Book on Managing Rental Properties. It’s yellow you can find it at Barnes Noble or Amazon whatever but I think it’s kind of cool. With that let’s move over to the world famous Fire Round.

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Brandon: Alright let’s get to the Fire Round. These are the questions that come direct out of the BiggerPockets forums so there are live BiggerPockets members asking these questions. And we’re going to fire them quickly at you, Graham to see what you got to say.

So number one, Matt from East Grand Folks Minnesota says: I recently purchased my first rental property with no money down and I’m pretty cash broke. However I usually actually contribute a large amount to my 401K account every pay cheque. Now I’m considering stopping all my contributions of my 401Ks so I can focus on real estate so I can get cash flow. What would you do?

Graham: I would probably do the same thing. I go very light on my 401K because I just don’t know how much money I’m going to be making when I’m 60 years old and I don’t know what the tax code is going to be like in the future. I put minimal in there just so I can say I have say that I have something in there.

But overall I’m a little bit worried I prefer Roth over that just because I’m probably going to make a lot more money and I expect that anyone starting this young is going to make way more money in the future as you build this up. I would therefore personally that would be me I’d still put a little bit in there but I would maybe shift the focus to real estate. I’m all for that.

Brandon: Me too yeah.

David: Especially if you know what to do with real estate, right. That’s different than the person who has no clue how to invest that money.

Graham: Very true.

Brandon: I was going to say and if your company offers you like 100% match I mean that’s extreme money you might as well go out to the match, right. Like if you could make 100% return immediately on your 401K.

Graham: Always take the match. Always contribute to take the match 100%.

David: Yeah and then take it out of there and find somewhere to go buy real estate with the money that’s in the 401K after it’s been matched. Now you’re thinking like Dave and Brandon. Okay next question. I own a rental in southern California that has been rented by the same tenant for the past five years.

The tenant pays on time every month, they keep the place in excellent condition and they’re super low maintenance. I looked at comps and it looks like I can get about $400 per month. Should I raise the rent just because I can?

Brandon: That’s a good question, good.

Graham: I love that question. My immediate answer is no. I think we’re all different. I’ve only raised the rent on one tenant and now going on almost seven years. I still have tenants that have been with me for seven years now that I have not raised the rent once. And usually what I’ll do is I keep the rent the exact same, when they move out if they move out the I re-rent it at current market rates.

I hate raising the rent because when you have a good tenant, hold onto them. These are tenants that treat the house like it’s their own, they pay on time, there’s no hustle. There’s no damage and just the cost of turnover if you raise the rent 100 bucks a month, and that gives that much more incentive to leave.

It’s going to cost you way more to have the house vacant a month, a month and half to kind of repaint, get it prepped up, to even get a tenant at a higher price. I love keeping the tenants that I have and I consider them almost like family. I mean it’s just like I’ve got this great community of tenants that are just so low maintenance and that’s rare to find. And you can spend a lot of time finding those tenants.

David: What if you find someone that will pay you $1000 a month more because they want to sublet out your garage as a marijuana grow house?

Graham: Well as long as you take a cut of the marijuana.

David: There you go. Take some equity in that deal, it’s not just debt you don’t just want more money. You need the upside.

Graham: You need 30% of the profit.

Brandon: Well I like what you’re saying, not the marijuana grow house. But like everyone’s got a different priority right yeah if your goal in life Graham was to make as much money and to eke out every bit of profit possible, then yeah you probably should raise your rent all the time. But it’s a trade-off right, by doing that now you have more turnover. You have more hustle, you have more rehab to do when they do turnover.

So like there’s a balancing act that we all have to kind of make that decision for ourselves. Again if you desperately need to get out of a job right now and maybe you are somebody who should be maximizing every penny from your property so that you can get out. But if you don’t need to absolutely do that right now then maybe the relaxing, taking a little easier not having turnover is much better so.

Graham: I agree with that.

Brandon: Yeah where you’re at in your career and cool. Alright next one. I’ve been looking into Airbnb. I heard the cash flow can be much higher. What are some of the things I should know before I jump in and buy some short term rentals? By the way do you have any short term rentals? And then you can answer that.

Graham: I don’t and I’ll tell you why. So one of the things that I see with Airbnb I see a ton of opportunity with Airbnb especially Airbnb Albatross I have a feeling that’s going to be the next social media marketing trend. It’s going to be you’re going to see a lot of these like 18 year old experts now coming up on YouTube about Airbnb Albatross.

David: What do you mean Airbnb Albatross?

Graham: So I’m talking about being able to sublease a house like that. So you spend $2,000 a month and then you make $6,000 a month on Airbnb and you pocket the difference. I think that is going to be a big trend. The problem that I see with that is that a lot of people go into it signing one year leases, first of all thinking that this is going to continue.

And the golden era of Airbnb is going to be forever. But what I see happening is that there’s so much regulation going on with Airbnb that oftentimes you run into very quick issues like I’ve seen people sign yearlong leases and then a month in all of a sudden the Hollywood Hills clamps down on Airbnb rentals. And then now you have to apply for a permit.

And you’re not allowed to rent the home for X amount of days, unless you live there as a primary resident. And right there your business is done. I’m talking within like 30 days, your entire business is completely run down. And that’s the biggest problem that I see or I see people who will then buy a house, and then think well it doesn’t make sense to buy this house as a long term rental, it will not cash flow.

But I put it up on Airbnb I can make a killing. What are the chances that Airbnb regulation is going to be the exact same for the nest 30 years for you to pay off this property? And I’ve seen people, they buy these houses and it works really good for a year and then something happens. And then all of a sudden well crap. Can’t rent it out on Airbnb anymore, it doesn’t cash flow, I’m stuck with it.

Now I got to sell it for a loss. And in Los Angeles the big one that just happened is that you can’t use a rent controlled property, any rent controlled property for Airbnb. So I’ve seen all these people get these like 1920s rent controlled properties and get around that by renting all of the units short term on Airbnb and making like three to four times what they would normally make.

But the problem is that in Los Angeles inventory is so short to begin with that all of the available units are being taken up for Airbnb. And I am all for free business by the way. But at the same time I think we do have a bit of a moral duty to our city, for the greater good of everyone and kind of take everything into consideration. But Airbnb cracked down on that and realized that too many people are abusing it.

Brandon: Same thing in Hawaii out here in San Francisco, here in New York City do the same thing like there’s a trend and it’s not a happy trend for landlords that are doing it. It seems to be moving in the up and again who knows what it’s going to look like? And I mean it’s going to shake out somehow, I don’t think Airbnb is going to disappear, right.

Graham: I almost think we’re going to go from one extreme which is basically anyone can rent anything on Airbnb and make a killing. To now we’re shifting towards the other extreme where they’re super strict or we’re going in the direction of being super strict.

I think eventually we go to the super strict a little bit, people will kind of figure out what’s wrong with that and then have a happy medium. But I think this process could take five, six years to really shake out. All I say is this, is that if people look at a property and it cash flows with a normal renter, but they can make twice the amount with Airbnb, I’m all for it.

David: Absolutely. So for the ones that don’t, I’ll give you guys another little quick tip here to stay safe. In almost everywhere I’ve seen with this, these rules apply to investment properties but if you own the house yourself, it’s a completely different game plan.

They don’t have all the restrictions if it’s your home that you live in. So you don’t own it, it’s your primary residence so you live in it. So what I do in the Bay Area is we help a lot of house hackers and we Airbnb the units that they’re hacking as opposed to just doing a regular like monthly lease.

So if you’re looking to house hack or buy a home, Airbnb is a great way to maximize that income. But like Graham said, you don’t want to be dependent on it. If you’re assuming that’s your income stream you could catch yourself in some big trouble if they take away that opportunity.

Brandon: Yeah for sure. Alright, cool last question of the fire round.

David: Alright. I’m looking for my first deal and found an agent with decades of experience. We agreed to work together two weeks ago and today I just found the elusive one in a hundred property with awesome numbers. I left a message this morning and haven’t heard back yet as of 8PM. How responsive should my agent be? I don’t want to burn any bridges but should I look for a backup agent?

Brandon: That’s a good question.

Graham: Wow. That’s a really good question. I would move on with another agent, I hate to say it. But like here’s the thing is that when I run that business as a real estate agent, I am available 24/7, there should be no reason why you can’t reach me for more than an hour. The only time you would ever be unable to reach me is if I’m in a meeting my phone is on silent because I need to focus on the meeting or I don’t have cellphone service.

David: What if your grandma is in the hospital?

Graham: Okay in the event of that I always have a backup. Like if there’s really something like that that happens I always will be able to text something and say, “So and so happened I have my colleague who’s going to be taking care of you right now.” Or something like that.

I think if you find a hot property and you can’t write an offer on it, you need to look out for your best interest at some point. If 24 hours goes by and you don’t know where your agent is and you can’t write an offer on a property that you can lose, I think it makes sense to find another agent to write the offer.           

David: Do you think he’s likely to find his next agent that will also respond within an hour like you do?

Graham: It’s tough because a lot of agents suck. And that’s the thing in the business is that people think it’s so competitive as a real estate agent. But they don’t realize that 80% of the agents out there have no clue what they’re doing and just don’t pick up the phone. Just if you pick up your phone, you’re ahead of 80% of the agents out there. You’re in the top 20^th percentile just by picking up your phone.

David: I think that the majority of people when they meet your agent and you have a good vibe and you sign up to work with them right, like all of our clients sign by a representation agreements to work with us. But what we do is we communicate ahead of time. Here is how it works right like when I’m recording this podcast I’m not taking your call.

However I have three people that will respond to your email, take your call that you can talk to because I know I work with clients I’m on appointments I’m doing things I can’t answer every single phone call, but there is someone that will. You should sit down with your agent and have a plan, if I come across a hot property and you’re not answering your phone, what do I do?

I think that would have solved this all from the very beginning because like Graham there’s a reason you’re a top listing agent you’re super good. Most people will get frustrated because they can’t find a Graham, right. So do something with your agents and come up with a game plan for if I get a hot deal I expect you to answer your phone immediately.

Are you going to? And if he says no, family time for me I’m with my daughter I’m not going to answer my call during these hours. That’s okay, they just need someone that you can talk to they can write an offer for you and answer your questions.

Graham: I completely agree with that.

Brandon: Yeah, cool.

David: Awesome.

Brandon: Alright. Well let’s shift gears one last time and head over to the world famous, Famous Four. Alright let’s get to the Famous Four, question number one; what is your favourite real estate specifically real estate related book?

Graham: I would have to say Buy It, Rent It, Profit! was one of the books that I has read a while ago. It got me thinking about real estate and rental properties. And it was that book that really it was so practical for me. That was the-

Brandon: I remember that in the library. Yeah at the library earlier on in my business it was good.

David: That’s a really good name like I wish I had thought about that name. It could be a terrible book and people will still buy it. Alright what is your favourite business book?

Graham: I like the 4-Hour Workweek. I think some people might say that’s a little outdated but that got me thinking about building some sort of scalable business that you can remove yourself from that still ends up making you money. And for me that was the book I think I read that when I was 18, that just got me thinking in such a different way.

David: It’s clearly had an impact on you. Our producer Kevin when you were talking earlier was saying, “This guy sounds like he’s a 4-Hour Workweek person.” Like you could tell that that’s influenced you and it’s helped you quite a bit.

Graham: 100%.

David: Okay so for the 36 hours of your work week that you’re not working because you have a four hour work week, what are the hobbies that you enjoy?

Graham: I would honestly say YouTube videos. Like for me making YouTube videos has become a hobby of mine that I spend way too much time doing. It’s just the fun of just like planning out a topic, the fun of like is this something trending to be able to give your own opinion of it?

The fun of just having the creativity of 100% expression that I can say reasonably whatever I kind of want to the camera and get my opinion out there. And to me had been so much fun to be able to make the videos.

David: I just started one as well and I like your videos they were really good and Brandon’s really good too. Like I watch Brandon on YouTube and I’m like, “I already know everything you’re saying but I can’t stop paying attention.” He’s such a good communicator.

Graham: Yeah and it’s a fun balance between giving information but also it’s entertaining. And there are some channels I know everything already but they’re just entertaining. Even if you know it all, but it’s fun to watch.

David: It’s like watching a movie that you’ve already seen but you just keep watching it anyway because it’s so good.

Graham: Exactly.

David: There you go.

Brandon: Yeah and Graham you’re a fantastic YouTuber so keep it up.

Graham: Thank you, thanks so much.

Brandon: Number four. What do you believe sets apart successful real estate investors from those who give up, fail or never get started?

Graham: I think it’s just having a long term outlook. One of the biggest things that I see especially from people on YouTube and when you do YouTube videos you see such a broad audience. Because sometimes you just see the other people that are really successful and you kind of like form your little bubble on it.

But I think so many people look for something that’s quick and they just jump like I see too many people jump from like thing to thing to thing and if they don’t get this immediate result they just move on. And real estate is one of those things that you don’t often see the results immediately. It’s something that you’ll see the results you’ll see the payoff years from now.

Like you could invest in something and just break even for the first year or you can spend eight months of your life fixing up a property to get to a point where you’re even making money on it. And most people don’t have a long term outlook. They just want to know, what’s going to make me the most amount of money right now?

And I see a lot of people too that just say, “Well why would I invest in real estate to make 10% when I can invest in Tesla and make 30% in a month? And they just don’t see it, they don’t have the long term outlook and they don’t understand how safe it is. Like when you do this correctly I really feel like it’s almost a guaranteed return.

If you buy them correctly, if you buy them conservatively, if you know what you’re doing, you’re not going to see that insane volatility. It’s not like your rent one month is going to be up 30% and the next month it’s going to be down. It’s relatively stable even in recession for the most part. You’re going to see rents for the most part holding pretty steady.

So I think it’s really just having a long term outlook and everyone that I know who’s investing in real estate just thinks about it what’s going to happen 10, 20 years from now? They’re not thinking what’s going to happen six months from now, what’s going to happen a year from now? It’s 20 years from now is this going to be a good investment?

David: It was those people who wanted to make $30,000 a month who lost their shirts in ‘05/06 because they were looking for the quick score, they didn’t understand the fundamentals they were getting into, they didn’t look at the long term thing. So I think that’s great advice. If you take the long term outlook it’s very hard to lose money in real estate. But if you take a short term outlook, it’s very hard to make money in real estate.

You’re going to lose. I have a YouTube idea for you as well. I think you should film yourself going to Subway and buying a foot long. Like ordering it, picking out all the stuff you want like telling people why you chose this mustard over mayonnaise, And then taking it to like the most expensive restaurant in LA that you can possibly find. And sitting down.

Graham: I love it.

David: Yeah exactly while all your friends are getting these like $200 plates that are made by some like French chef who learned his trade from four ancestor line of people, right. And just like eating your sandwich and blowing everyone one away with your business knowledge while they’re all munching on their asparagus and pomegranate seed fillet mignon. That would be a hilarious video.

Brandon: That’s viral.

David: Okay. Graham this has been awesome I really appreciate the stuff you’ve been sharing with us. Can you tell us where people can find out more about you?

Graham: Yeah YouTube, just YouTube my name Graham Stephan. Make sure to of course like and subscribe but I post three times a week. Monday, Wednesday, Friday. I’ve been doing that for over two years now on YouTube and I post everything I know there. So that’s the best place to find me.

Brandon: Alright, will do this has been awesome thank you so much. We’ll see you around the community and around YouTube so take care,]

Graham: Sounds good. Thank you. Thanks.

Brandon: And that was our show with Graham Stephan. Awesome stuff, I love getting these young dudes on the show that are like, “I’m not even 30 yet and I’m just crushing it and I did all this cool stuff and here’s how I explain how I did it.” And he did exactly that he totally delivered. Super cool guy.

David: He bought a house before he had a credit card, right what excuse do we have?

Brandon: Pretty awesome and I love just that mind-set he had right of like I mean you definitely see that he doesn’t take like of I can’t get it done. He’s like how do I get it done and he figures it out. And then the market changes, okay how do I make money now. Maybe I try to develop it, maybe I try this, maybe I try that.

And he just figured it out as he goes. And I think that’s awesome plus just his whole like obviously he’s a good agent for a reason. We didn’t really talk a lot about that today and I mean we can probably do a whole show just on how he’s a good real estate agent. But I mean clearly he’s good at what he does.

So if you’re listening to us right now and you feel like you’re not making enough money, ask yourself, how can be the Graham Stephan of your industry? Whatever it is you’re doing right now. Like how do you just crush it so you can make a ton of money doing something you love and then put that into live cheap and then invest the rest in real estate? How can you do that?

David: That’s really good because they say success leaves clues right. So you look at what successful people do and you copy it. If you specifically want to do that with being a real estate agent and you’re in my area I actually do a free super-secret squirrel mastermind for those who want to become an agent.

Once a month everybody gets together in my office and I basically explain this is what it takes to do it this is what you’re getting into, to kind of give them an idea. And then I see like who wants it and who doesn’t. So if that’s the case, reach out and I can let you know when the next meetup that we’re going to be having is to talk about that.

Because I think if you love real estate but you’re not ready to invest yet, you don’t have the capital you want to learn more, then representing other people buying and selling is a great way to learn really fast.

Brandon: There you go, I definitely agree. Alright y’all thank you so much for being a part of our podcast. Remember if you are loving these shows make sure you leave us ratings reviews in iTunes that helps us reach new heights on the charts which helps us reach more people which changes more lives. It’s all like this nice little circle.

So thank you so much and David, thank you for being awesome.

David: I appreciate that man. Alright this is David Greene for Brandon the opportunity zone Turner signing off.

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

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