This is the BiggerPockets Podcast show 723. What I’m basically getting at here is we got to all stop trying to hit a home run with one pitch. Quit falling for that. That’s what gurus are selling. This is what the online media presence influencers are hyping. It is not realistic. I’ve been investing real estate for a long time. I’m not finding those deals. I’m not. I don’t think they’re out there because if they were out there, someone would even buy it before you find it. Okay. Let’s all take our goal of financial freedom. Let’s chop it up into little tiny pieces and let’s just take one piece at a time.
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode for you and it does not disappoint. Today’s episode is fantastic as we get into many of the raw and real struggles of what’s going on in today’s real estate market during this recession. That’s a lot of R words that I just threw at you.
In today’s show, we talk about what to do when you’re trying to house hack in a hot market and you just can’t find anything that cash flows. We talk about the angel decision of should I quit a job that I don’t hate to jump into making more money as a business person, and if so, what is the best way to do it? We get into when you should hire an asset manager and what the difference between an asset manager and a property manager is, as well as if you should take on more leverage or pay down some of the debt you already have and build your reserves. All that and more on today’s show.
Now, if you haven’t heard one of these shows before, I take questions from people like you, our listeners, and I answer them for everybody to be able to hear. So some of these are written questions, most of them are video questions, but either way you get to hear questions that other people in the BP community has and have me answer them in person, like the forums but 3D. Before we get into our first question today’s quick tip is remember during times like this where it’s more difficult to make money and much easier to lose money, that the one thing that nobody can take from you are your skills. Focusing on building up yourself, improving your skills, improving your knowledge is the best investment you can take because you can lose money, you could lose properties, you can lose time, but you cannot lose skills. So continue to build up your skills, continue to build up your value that you bring to the marketplace, and you will always find yourself in a position of financial strength that makes investing in real estate much, much easier. All right. Let’s get to today’s first question.
Hey David. Thanks for answering my question. Any insight that you have for me is great. My name is William. I’m a 31 year old vet and I’m living just outside of the Washington DC area. It’s a tough market. I have a good realtor on board with me. I have a good local lender on board with me. I’ve already been approved for a loan. All that’s good to go. So I’m starting to build somewhat of a team around me the best that I can and trying to learn as much as I can. But in the area that I’m looking in, which is pretty much all outside of Washington DC, I’m trying to stay out of the actual city itself, so the surrounding area. It’s been real tough to find something that’s available. There’s a little to no multi-family, which is something that I originally wanted to get into.
There’s a few single family homes and there’s a lot of condos and a lot of townhouses that are available, but I’ve already been pretty approved for a loan for a decent amount, but I’m not trying to blow all that money on a condo or even a single family home. I’m trying to buy pretty modestly and be smart with this first investment the best that I can. My thought process so far is getting a single family home to try to build a little bit more equity and some appreciation since condos, So so, talent homes are the same way. It’s looking that I might have to go that way, but every number that I run man is like negative cash flow, bad cash on cash returns, the cap rate’s real low. So I’m having an issue here and I’m looking like mid threes, like all under four, and I’m still running into really bad numbers.
So my question to you is, man, if you had to start from ground one in my market area, what would be the best investment property that you’d have to go into and knowing that with the VA loan, I have to live in the property for at least a year, and that was my goal, was live there for a year, come back out, try to reinvest or refinance into another property and keep the ball rolling the next couple years to help build some financial freedom for myself. So thank you for any insight that you have, David. I appreciate the answer. Thank you.
All right. William, thank you very much for your question and for your transparency and the struggle that you’re having. I got some good news and some bad news. I’m just going to give it all to you. Let’s start off with just acknowledging your situation is indicative of the market as a whole. I think this is what everybody in America is struggling with right now. We want to invest in real estate. We know that real estate is probably the most solid asset class as far as long-term returns we could get, but so does everybody else. There’s a lot of competition right now to get these assets, and this has been the case even though rates have increased. I don’t want to get into a long diet tribe of macroeconomic trends in the way that our government is trying to combat the inflation that they created, but it’s not going to work.
So your struggle is the same that I’m having and the same that all of our listeners are having. We’re all on this struggle bus together, so to speak, and maybe I’m driving it right now. So you guys are going to listen to my take on what’s going on. The first thing that I’ve had to do as I’m in your shoes is I’ve had to lower my expectations and I’ve had to widen my time horizon. So what that means is when I first got in real estate investing, almost everything that we were looking at was going to give you a positive cash return, but that’s because no one wanted to buy real estate. So the questions I would ask is, “Well, this one’s going to give me a 8% return. This one’s going to give you a 12, this one’s a 15. Should I go for the 15 or is it going to be too much work? The eight would be the least work. The 15 would be the most work. I’m going to go for the 12. It’s right down there in the middle.”
That was the way that we approach real estate. It wasn’t will it cash flow, everything cash flowed. Fast forward to where we are today, very little cash flows. In fact, if you’re in the same situation as William here and you’re having a hard time finding cash flowing properties, it doesn’t mean you’re a bad investor. Maybe that’s the first thing I should say. You’re not doing something wrong because you can’t find cash flow. The market is freaking competitive and as much as we hear people talk about a recession coming, there is still a lot of money floating around. Now, you may not have all that money. Okay. You’re trying to get into real estate because you want to get some of that money, but it is there, and that money is going after these asset classes that people like us all want. This is even more impactful in appreciating markets. Washington DC is one of those.
Washington DC has seen increasing prices significantly over time as well as rents for a long period of time. It’s one of the hotter markets. South Florida’s one of those hotter markets. Southern California is one of those hotter markets. There’s a lot of different places right now where it is very difficult to find cash and most of them are the healthiest markets. As weird as that sounds like the place you’re going to make the most money is also the hardest to get into and the hardest to cash flow.
So the good news for you is, do not be discouraged by this. You’re not doing anything wrong. This is the way the game is played right now, and I know a lot of people don’t want to hear this, but my opinion is this is probably a healthier way for real estate to work. It’s supposed to look more like this than what it’s looked the last eight years. It’s not normal to buy a property. It immediately cash flows. The rents go up a ton every year. You get 20 tenants for every vacancy that you have. It goes up 10 to 20% in value. We’ve had an incredible run that was mostly based off of foolish government stimulus that we created, but then we start to think that’s normal. That’s how real estate’s supposed to work.
We hear about somebody else making a hundred grand in a year and we’re like, “I want to get in on that.” So everyone floods into real estate and when they get here and they see that it, you’re not making a hundred grand in the first year. In fact, maybe you’re barely making any cash flow or you’re losing a little bit of money, immediately we get sour and we say, “I don’t want to do this,” or we say, “There’s something wrong with me. I don’t know how to find their deals so I shouldn’t invest in real estate.”
And I’m giving you this advice because I can hear the discouragement in your voice. You’re a man that has clearly been through hard times before. You’re a veteran. Thank you for your service. I appreciate that you did that. I don’t want you internalizing why real estate is hard for you right now. It’s not your fault. This is what we have. In order to stop ridiculously fast home prices rising from all the money that we made, we’ve had to bump interest rates up to a point that properties don’t cash flow and we’re stuck in a standoff. That’s all this is.
So the second part of my answer has to do with your time horizon. We’ve already talked about adjusting your expectations. Now I’m going to talk about the time horizon effect. You will still make money in real estate. You might have to wait longer than what you hoped. You might have to wait longer than what the gurus that sell courses are telling you to get you to sign up for their course. And when you follow the people on Instagram or YouTube that are like, “I made all this much money on my homes.” It’s what they’re not telling you that changes everything. They’re not telling you that’s because they bought it four years ago or even two years ago. The people that bought their short term rentals in 2019 are crushing it. It’s probably doubled in value since they bought it and the renter significantly higher.
If you bought a property today at half of the price and half of the rate of what you could buy for today, you’d be crushing it too. But those opportunities aren’t here. And when people are selling courses, they’re not explaining that. They’re not telling you, honestly, “Yeah, I have eight properties and I retire.” They’re not telling you they bought them between 2017 and 2020. So you’re just out here expecting that’s how real estate works and getting skunked and feeling like that must mean that something’s wrong with you.
The approach I’ve taken, the approach I’m advising other people to take is not popular. It’s not what people want to hear. I’m going to tell it to you straight though because I know in a couple years when my strategy worked at other, you’re going to come back and listen to this podcast because I was honest with you. I didn’t tell you, you wanted to hear to get 10 grand out of you to sign up for a course. It is taking a long-term position and it is not expecting real estate to be the magic pill. You still got to have a job right now.
There’s always a handful of people that can pull it off as a full-time investor if that’s you, don’t be discouraged. But if you’re the normal person, you still got to be working. You’re going to house sack and you’re not going to cash flow, that’s okay. If your rent would’ve been 2,500 and you’re only paying five or 600 a month, that’s a huge win. It’s a $2,000 a month win for you, plus every year it’s going to get better. Your rent would’ve gone up if you weren’t house sacking and instead your rent does go up because you are, you’re winning on both sides. Over time, this turns into big money, but what I’m preaching is delayed gratification. You cannot walk into this thing expecting that you’re going to just step in and crush it like we could at other periods of time.
Now, I don’t know how things are going to go down, but one very likely scenario that I don’t want to say I’m betting on, but I’m planning for is that the property’s not buying right now. I don’t love them. I don’t love the returns. I’m not super excited. I’m basically buying in the best areas in order to decrease the risk that I’m taken on by buying in a market that might not be at the bottom, but when rates go down at a certain point, I’m going to look like a brilliant genius. I’ll be the guy that could say if I wanted, “My property is making all this money and I don’t have to work anymore,” but I’m not going to be telling people it’s because well, I would be telling.
But I would have the option of not telling you, “Well, I bought it in 2022 when rates were 8%, but now I refinanced it into 3%, so my mortgage is significantly less than what it used to be.” And those people that are trying to buy at the 3% rate are going to be paying way more for the property than I did, and they’re going to be in the same boat as you that doesn’t cash flow. I don’t know, but I predict you’re not going to see cash flow in real estate for a very long time. There’s too much competition for people that want it, and when I say cash flow real estate, I mean strong cash flowing right out the gate.
The people that are going to make money in real estate now are the people that take a longer time horizon. They look three years out, they look five years out, they continue to save money, they continue to earn more at their job. They continue to push themselves and challenge themselves and their ability to earn income and bring value to the marketplace. They’re not the millennials that want to buy a couple houses and retire and run a blog or run a TikTok and say, “This is my life now.” I don’t think those people are going to be the ones that make it through the recession.
So my advice to you if I was starting over, find a property in the best neighborhoods you can with as many bedrooms as you can. Take a little piece of humble pie and buy a four bedroom house that you can add a fifth bedroom too, live in one bedroom, rent out the other bedrooms. Yes, this is not ideal. Yes, it’s going to be a little bit of a pain. Yes, there’s more comfortable ways to live. If you want to make money, that’s what you’re going to do. Okay.
So we got to all stop comparing where the market is now to where it was a couple years ago when it was like you could have missed. That is not where we are right now. The strategies are going to work right now are going to be more difficult, and when I say difficult, they mean less comfortable. That’s honestly what I would do, and I’d live in that property for a year renting out the room. I would learn the fundamentals of managing stuff. I’d rent it out to either other veterans or other people that you like. I’d make sure it has enough parking at a minimum of three bathrooms, and after a year, if the market still look like it does right now, I’d do it again.
I’d go buy another property, try to get five bedrooms, rent out the bedrooms. You’ll probably cash flow a little bit or come close to breaking even, but as long as you’re buying in the best neighborhoods, the best locations, the best literal real estate, over time, you’re going to do really well. And when you’ve got four or five of these things and you feel like this is too much work to manage five properties with five bedrooms each, sell the one that has the most equity, maybe sell the two that have the most equity, take that money, 1031 it into a multi-family building in another area where it actually works. Keep three of them and manage those three plus the two multi-families. Okay.
What I’m basically getting at here is we got to all stop trying to hit a home run with one pitch. Quit falling for that. That’s what gurus are selling. This is what the online media presence influencers are hyping. It is not realistic. I’ve been investing real estate for a long time. I’m not finding those deals. I’m not. I don’t think they’re out there because if they were out there, someone would even buy it before you find it. Okay. Let’s all take our goal of financial freedom. Let’s chop it up into little tiny pieces and let’s just take one piece at a time. Okay. One little goal. Get on base, get a walk, get to second base, get a sacrifice flag. Get to third base. Wait for that loose ball from the pitcher that comes at it.
If it doesn’t happen, maybe someone bunch you in. Okay. It’s not going to be the big glamorous sports center highlights that you guys are seeing, all the influencer posting to take your money. I don’t know anybody making money in real estate right now. I know a lot of people losing money in real estate right now, but they know over the long term they’re going to get it back. So to survive the difficult time we’re at right now, continue working, continue bringing value into the marketplace, continue improving your skills, which is something that all of us have control over and make wise decisions in real estate over a longer period of time. And when the market does turn around, you’re going to look really smart.
All right. Our next question comes from Joseph in Scottsdale. Love that area. Hey David, I really enjoy this show format and I hope you continue to provide this weekly podcast. My question for you is regarding my primary home in Scottsdale, Arizona and starting my investment journey. Purchase my home for 425K in 2017, it’s now worth a million. There’s a great example. This person looks like a genius because in five years they’ve made a million dollars through real estate and most of it could be tax free if they’re married, however they bought it in 2017, we all look like geniuses when we talk about stuff from five years ago.
I know you’re familiar with this market, and my question to you would be, if it’s the right time to sell or rent my home. Long-term, my home would likely rent for 5,000 a month or somewhere around $10,000 a month as a short-term rental. My mortgage is only 2000 a month and that is a very comfortable payment for me. With this type of cashflow, would you recommend keeping the property, or should I get out soon due the potential loss of equity? Either way, you’ll contribute to my long-term real estate investing journey.
All right. This is a good question. Now, again, I don’t have all of your financial background, Joe, so as far as giving you advice, but I will answer it based off what I would do if I was in whatever I imagine you’re in your life right now. I don’t think that the $2,000 a month, which is obviously a very comfortable payment for you is as important as if you could make some more money off this property. I don’t think Scottsdale is going to be one of the areas that gets hammered in value. I don’t think you’re going to lose a ton of equity. The reason being the demographics in Scottsdale are so solid that even when the rest of the country goes into recession, areas like that, weather the storm very, very well.
So I would not be worried about selling because of equity. I probably wouldn’t manage it as a short-term rental myself, unless you have the time to do that. I would probably think if it could make 10 grand a month and you could pay a management company 20% to manage it, you could keep eight grand a month, and that means that with your $2,000 payment, you could be cashing $6,000, which would be more than enough to cover your rent if you went and got a property somewhere else or your house act. So yeah, I would say turn it into a short term rental. If you can have someone else manage it, make five to $6,000 a month, then go buy another property somewhere else and house hack it, like I told to our last guest, William, who came in with their question.
If you’re an experienced investor, find a deal that doesn’t take a lot of work. If you’re you’re inexperienced, just buy another property in Scottsdale and live in the back unit and rent out the house or rent out the bedrooms. I’d find something and I’d put a lower down payment on it so that I kept somebody aside in case the market gets worse. But you’re actually in a position, you have so many options because you made a good decision in 2017. It’s very hard for you to screw this thing up, but you should do something because if you bought it for 425, it’s worth a million and you’ve got over half a million of equity in this thing and it’s not making you any money. The only benefit it brings you is a low mortgage.
The way I would compare this is I’d say, “Well, I could rent a house somewhere else for four grand,” so by only paying two grand, that half a million is really only saving me the difference between two grand I’m paying and four grand I would be paying. So it’s saving you $2,000 a month. That’s more than the cash you could get if you just rented it out normally. You could be making three grand a month if you just rented it out normally and potentially six grand a month if you rented it out as a short term rental and even more if you manage it yourself.
So the options there financially are clearly you’re better off to get out of that thing and turn it into a revenue generating machine and find another place to live. So all things being equal, you’re in a great position to do it. And what I like for everyone else to recognize is any property you buy right now in five years, you’re probably going to be in a similar situation to old Joseph here. And that’s what I’d like to see more people doing is to quit expecting, to have unlimited options when as soon as they buy their property and instead plan for the future. And when it does turn around that your property’s gained a lot of equity or the rents have gone up a lot, then you’re in the position that Joseph is in to make several different moves that could all be good. So thanks for sharing that, Joseph. Our next clip is a video clip from Mike Fernandez in Arabi, Louisiana.
Hey David. Love your content and it was great meeting you at PB Con in San Diego. My name’s Mike Fernandez. I’m in a small suburb just outside of New Orleans. My question is one you’ve probably gotten a couple times before, but with I guess a little bit different context, I’m wondering should I quit my job? So in addition to my W2 income, I’m a realtor, I’ll probably do around 80 to 85 in GCI this year. We flip one or two houses a year, me and my business partner, and then I also have a few long-term rentals that we get some income from. So the data points to that we have the savings and we have the income to be able to make that jump successful. My concern is with this changing market, I could foresee a scenario where multiple of those income streams could lessen or could run dry.
And for context, my W2 job is with a big accounting firm. I really don’t hate my job and I’ve been able to negotiate down to 20 hours a week. So I have tons of flexibility. I work from home, but at the same time, I feel like I’m strapped for time and I think that, that lack of time is having an impact on the income that I could be making in real estate. So considering jumping full-time, but also a little bit weary of the market. So I would love to get your thoughts, input and any advice that you might have. So thanks again, really appreciate this.
Hey, thank you for that, Mike, and thank you, Eric, our shows producer for picking a kick butt question. This is awesome. I love, love questions like this because they’re real life. We’re often like, “Do I buy the duplex or do I buy the triplex?” And that’s not how real life works out. This is a real life question. Do I quit my job or do I wait and not quit my job? Couple things, I’m probably the only person that I know in the BP community, in the real estate investing community, any community that tells people, don’t quit your job.
Now, that doesn’t mean never quit your job. I quit my job. I’m not being a hypocrite here. I was a cop. A lot of people know that, worked that for a long time. Left it to become an agent. Then I left being an agent to start a team as an agent. Turn that job into a business. Then I started other businesses, but I’m still working. I haven’t completely quit. So the question here is, “Should I quit this steady job that I don’t hate just to have more time to make money as a realtor?” Well, the first obvious metric to look at is if you got back to 40 hours a week you’re spending at your job, would you make more than you’re making at that job as a realtor, and I’ll throw this in there, you need to make considerably more than you would be making.
So I don’t know if you mentioned how much you’re making at your normal job, the accounting, I believe you said. Let’s assume you’re making 80 grand a year and then you’re making another 80 grand a year as a realtor. If you quit the guaranteed income of 80 grand a year from that job to make 80 grand a year as a realtor, you still lost. And the reason is that 80 grand at a realtor is not guaranteed, and there’s a value that we can place on knowing that paycheck’s coming in. So $80,000 guaranteed versus $80,000 not guaranteed, the 80,000 guaranteed has less risk and therefore has more value.
So if you’re going to give up 80 grand, you better be making at least 100, 120 grand with that same time. Does that make sense? It’s not all completely even because when you go take the leap into entrepreneurial ventures, you’re getting rid of the ceiling that stops you from making more, but you’re also losing the floor that protects you from dropping. Now at a time when the economy is just ripping and roaring like it has been, the floor is not as valuable because it’s easier to ascend. But as we’re going into a recession, I now put more value on the floor because it’s harder to get to the point of the ceiling, like the actual economic environment you’re stepping into starts to make a difference here, and it’s likely going to get worse before it gets better, which is not the ideal time to quit your job.
Now, the benefit you get when you get out of the guaranteed money and you get into the entrepreneurial money is that even though you lost some safety and security, you gained skill building and potential upside. So the longer that you struggle in the 1099 world, which is I’ve been calling the entrepreneurial world, for you this is being an agent, the more your upside starts to steamroll or snowball and the higher it can get. So even if you left 80 grand a month and you made 60 grand a month as a realtor, there is some additional benefit in that next year as a realtor you got better skills. So now maybe you make 80 grand, then you make 100, you make 120.
So to sum all this up, the W W2 jobs value is in its security. The 1099 jobs value is in the skills that you can build. Now, I think you’re a smart enough guy just listening. You already know everything I’m getting at here. So here’s what I would say, you’re going to be time crunched. You cannot avoid that. That’s okay. Right now is not the time for any of us to be saying, “I want all my time back. I only want to work four hours a week.”
Man, the people that talk about doing that, they usually have some advantage you don’t have. They are famous. They get tons of ad revenue coming in from YouTube so they can afford to take time off. Like Joe Rogan can say, he only works four hours a week if he wants, but unless you got a podcast like Joe Rogans, that’s not an option for most people. It’s not realistic to think that, especially when the economy is hard, none of us should be working. It just leads to unmet expectations, disappointment, and ultimately people feel bad about themselves because they weren’t able to do what the four hour work week person who’s been bragging about it on their social media was able to do.
I’d like to see you keep that job, continue selling homes and focus on adding more people into your database and getting more clients that you can market to in the future. And if you catch yourself running out of time, now you got to stretch yourself in a way that is more difficult for you, less comfortable, but doesn’t take more time, and that’s leverage. Now you got to make a relationship with someone in your real estate office to show homes for you when you can’t do it or get your listing ready for the market when you can’t do it.
It’s easier for all of us to do things ourselves. This is the reality. It is easier for all of us to say, “I’m just going to go do it.” So we do that, but what we don’t realize is we’re also being lazy when we just do it ourselves. It feels like hard work. It’s really not. We’re avoiding having to train and teach and pour into and mentor anybody else. I’d rather see your skills as a business person grow by keeping your job and being forced to go find somebody else in the office to do some of the work that slows you down as a realtor so you could double your production but not put any more time into it.
Now, that doesn’t come without a cost. The cost is the frustration, the headache, the sweat, the blood, the tears of trading a new person. But I’d rather see you put your effort into that than into doing it yourself and having to quit your job. Because if you end up quitting the job to double down as a realtor and you sell twice as many homes, you may end up in the exact same financial position you were at, but just more stressed with less security. So you can hold onto the security, you can hold onto the money, you can hold onto your ability to continue to get loans to buy more real estate, and you can sell more houses if you can learn how to leverage.
Now, I’ve written books that talk about this. I talk about it in my book Skill in the top producing series that I published with BiggerPockets, and I have a new book coming out very soon called Scale. So if you go to biggerpockets.com/scale, I talk about how you take your job of being an agent and you turn it into a business of running a team or a company just like what I did.
So the whole Top Producer series is designed to say, “Here’s how you learn how to make money as an agent selling homes. Here’s how you crush it as an agent being a top producer, and now here is how you take the business that you created, crushing it, and you turn it into a business that you basically run somewhat passively.” I’d rather see you on that path.
Now, I could also tell because I did some snooping in your video that you got some Keller Waves books behind you, which makes me think you’re a Gary K.W guy. So you’re probably hearing Gary Keller give very similar advice to you that I am right now. I learned a lot of this from Gary and I think you could do it, so I’d love to see that. I’d love for you to buy the books. Let me know what you think of them and overall, if you got a job that you don’t hate and it pays good, I don’t think right now is the time to let it go. Just work twice as hard as what you’re doing before and make sure you’re building your skills twice as much.
Okay. This is the section of our show where I read the YouTube comments. These are going to come from episode 702, the last time that we did as Seeing Greene. I love this part of the show because I get to share what our audience thinks of what we’re doing. I actually got this from Nate Bargatze’s podcast. He’s a comedian that I think is funny, and I was listening to him and he reads comments from his shows and I said, “Hey, we should start doing the same.” Now, you guys can help me make this part of the show better by leaving more funny comments than what you always do. So go on there, leave some funny insight, say if you like my haircut, say if my eyebrows look good today, say something that you enjoyed that I said, or something that you notice I say all the time that I might not even know that I’m doing anything that lets us know you’re paying attention to the show. I’d love to hear it and increase our engagement.
Our first comment comes from the Hillbilly Millionaire. Excellent episode, David. I love all the answers this week. It’s a good time to get creative on renting and buying or selling. Thank you for that Hillbilly. Next comes from Homes With Me Glad. As a fellow agent, I love the question about the seller covering the buyer’s lease after the sale. What a great idea for clients stuck in a lease. I wouldn’t have previously thought to do that, and I’m glad to hear this. Thank you for that.
When I give advice like that, it’s very unique. Most people don’t think that way, and it’s not that I’m smarter than everyone else, it’s that I see more angles of real estate. So if you took this microphone right here, there’s clearly an angle that I can see it here, but there’s another angle that the camera’s going to see looking at it here. Another one that my TV on the wall is going to see, and another one that the figurine of Brandon and I that’s on this side is going to see.
I have an angle as an agent, as a mortgage company owner and a loan officer, as a podcast host, as a real estate investor, as a short-term real estate investor, as a triple net investor, as a person that meets a bunch of other people that are in this space. As an author, as a business owner of other real estate agents, I have so many different angles of the same stuff you guys hear that… Insight comes to me that wouldn’t come to someone else because all they do is one thing. They only do creative finance. They only flip houses. They only have their specialty. So my commitment is to continue to push myself in ways that frankly would make me want to pull my hair out sometimes if I hadn’t already lost it, in order to gain that perspective so I can share it with you because it’s that important to me that you guys all build wealth through real estate and that I stay the top educator when it comes to teaching other people how to make money through real estate.
So I often come up with ways to structure contracts, make offers, psychological hacks that you can use to give yourself an edge when you’re negotiating. And I love it when you guys ask me questions where I get to share that stuff because I’ve spent years helping clients buy and sell homes, and I’m just going to tell you guys the secret, it is not the easiest part of real estate is trying to work as an agent, but I learned so much. So if you guys have a house you’d like to help sell or you want us to help represent buying a house, reach out to me and then make sure you ask questions about that stuff so I can share some of the advice I’ve given to the clients I’ve represented that my team represents that we’ve used to get them a better deal.
All right. Our last comment comes from Florian Wu from the investing in 2023 webinar that we did. So timely, this is one of my 2023 goals to become an active real estate investor. 2022 is my year of passive real estate investing. Thank you so much, Florian. Yeah, I wish you good luck on becoming an active investor. I’m going to be putting together a retreat where we’re going to be working as a group to set goals, and that’s going to be in Scottsdale at the property that I bought with Rob out there. So if you guys would like, go to davidgreene24.com/retreat and you can see, and maybe it’s retreats, try both. Try a retreat and then if that doesn’t work, add the S on the end, you could get signed up for that goal setting retreat with me and you guys can see how I set goals and I can work on helping you set goals to make 2023 your best year ever.
No matter what you do, I promise listening to this podcast needs to be on your list of things to do for 2023. So do me a favor, if you’re enjoyed the show, please go leave us a five star review wherever you listen to podcasts. That could be Apple Podcast, Spotify, Stitcher, whatever your flavor is. Go there and let everyone know how much you liked the show and I hope I get to see you at the retreat. All right. That was our Clement section. Again, guys, go on there and leave something extra funny or extra insightful. I’d love to read your comment on the next show. Getting back to our questions. The next is a video question from Darek Drake in Old Jacksonville.
Hey, David. I wanted to send you a question regarding the episode with Rob Deer Dick. He was talking about how he had a trainer friend that made millions and then lost it all because he over leveraged. I’m just starting into my real estate empire business. Little quick background. I have a three bedroom, two bathroom in Tampa, Florida that I bought as my primary residence. I recently moved to Jacksonville and now I’m turned that home into a midterm rental.
In my personal finances, I’m already highly leveraged. I’m not quite living paycheck to paycheck, but I do have a massive amount of student loan debt. I have a mortgage on my home, and the question I have for you is, I’m thinking about putting in a HELOC and using that money to go buy my next property, but given what Rob Judeck was talking about, it did highlight a point that is a concern. I don’t want to get in a situation where I’m over leveraged and then be upside down or have to sell off my assets and be back to zero. So was wondering if you had any markers or flags that I should look out for when taking this approach. I appreciate your time and I hope you have a great day.
All right. Derek, this is a really good question and is something that’s near and dear to my heart. I’m actually starting a group called Spartan League where we are going to be teaching the members to function like Spartan warriors in protecting their wealth. This is something very, very important, especially as we’re coming into what is likely a recession, and even if it’s not, is a tough real estate market to be in. I think you’re asking the right questions. I think you’re thinking the right way. Now is not the time to extend yourself. This may sound contradictory to people that have been listening to me for the last five to six years where I’ve been like, go, go, go. There are times to go, go, go, and the last five to six years was artificially skewed towards go, go, go, because I was watching how much money the government was printing.
Now that I’m watching how much the government is trying to slow the economy down by pushing rates up, I’m not saying don’t buy it real estate, but I’m saying don’t buy it. There’s not as much urgency to buy it right now. There’s more opportunity to get better deals. There’s more opportunity. Homes have been sitting on the market for longer. I don’t like you getting in the position of being super leveraged. I’d rather see you keep that HELOC as a potential reserves to make payments if something goes wrong with your real estate. Now, I don’t know what the actual debt is on your student debt. If it’s 2%, I’m not going to tell you that you should be paying that off. If it’s 10%, it might be a position where you want to start paying down some of that debt and giving yourself some breathing room before you go buy more real estate.
Now, I recognize this is a real estate podcast. People might be surprised to hear me say this. I’ve always been more conservative. I got into the less conservative approach because I was watching how much money was being created, and that’s the only way you’re going to win. You fall behind as inflation eats up your capital when we’re creating inflation, but it’s been slowed down some. I think in the future it’s absolutely going to be coming back. We’re not getting rid of this thing. But right now, the risk versus reward does not benefit you to try to go buy more real estate when the prices and values are not going up as quickly as they were, and it’s harder to get rid of if something goes down, if you’re already saddled with a lot of debt. I’d rather see you take the energy that you would’ve put into finding the next deal, putting it under contract, getting it ready, managing it, learning. That’s a lot of energy.
I’d rather see you put that energy right now into improving at your job, into making more money at that job into growing in skills, into growing an influence into impressing your boss or getting a better job. That does not mean I’m saying don’t buy real estate. Everybody always goes way too far and jumps to conclusions. You should still be investing in real estate. Just don’t put 100% of your energy into it like maybe before. Put 40% of your energy into it. Put 60% of your energy into other things you could do to prove your financial picture.
If there’s one thing I’ve learned being an investor for a long period of time, it’s that while the majority of my wealth came from investing in real estate, the majority of the safety that I had to invest in real estate came from making money in other areas, and you can’t forget defense. You cannot forget safety. We haven’t been focused on it as much because it’s been so easy to score. Well, now the rules have shifted a little bit, it’s harder to score, and defense is becoming more important.
So don’t feel urgency. Don’t feel like, “Everybody else has buy real estate. I have to go be able to buy some too. I just heard somebody else bought a deal. I haven’t bought a deal.” That isn’t the case right now. You can really pick and choose your spots. I like house hacking because you could put three and a half percent down, you could put 5% down. You can keep a lot of your capital reserves to cover those payments. I’d rather see you sleep well at night than have this sense of urgency that you don’t need to have right now to go buy real estate. That doesn’t make a lot of sense.
So if you have a little voice inside that’s saying, “Hey, maybe you need to get your house in order, listen to it.” That’s a very healthy voice. Don’t get caught up in the hype of people telling you that you have to go by because you see other people buying. There’s a lot of people that have pulled back right now and in the markets that we’re the hottest, we’re seeing prices continue to come down. There’s a couple cabins I was looking at in Tennessee that were brand new build construction. I wrote less than asking price. The builder said, “No,” they didn’t want it. They’re coming down less than what I offered.
Now, of course, I wrote those offers when rates were a lot better, so it would still be more money even though I got them at a lower price if I bought them today, but I’m seeing stuff is sitting there for a lot longer that used to be flying off the shelves. I don’t think that there’s any like, “I got to buy right now.” If you’re not in a strong financial position, hang tight, improve that. Make more money, pay off some debt. Keep some money in reserves, and when you’ve got a healthy amount of money in reserves that you know will help you to sleep well at night, then you can consider buying the next property. Thank you for the question.
All right. Our next question comes from Blake Z in Minnetonka, Minnesota. Hey, David. I love this show. I’ve been listening for about six months now and just recently finished How to Invest in Real Estate by Brandon Turner. The more I read or listen on the subject, the more excited I get and the more I’m thinking of what opportunities are available, whether that be now or in the near future. One opportunity that I cannot get off my mind is our family Cabin in Hayward, Wisconsin.
Side note, guys, am I the only one that is just now realizing how many different states share the names of cities? I think I’ve told the story before where there was a wholesaler that sold me a cabin in Nashville, and I was super excited about it, and I put it under contract, and after I put it under contract, I realized that it was in Nashville, Indiana, that it was not in Nashville, Tennessee, and it just looked exactly like it, and the numbers actually still worked on it, so I was still going to go forward to buying it until the appraisal came in way lower than the appraisal they originally had, so I had to back out. But there’s a Hayward in California that I go to all the time. There’s an awesome restaurant there called the Red Chili that I love, and now there’s a Hayward in Wisconsin. Is Hayward that popular of a name that every state out there wants their version of it?
And I’m seeing this like all the time. There’s all these different cities that different states have that you would assume is the main one that we’ve all heard of, and then you find out, “No, Wisconsin has their own version of this city.” Okay. Back to the question off of my rant. It’s been in the family for about 30 years now. While it could use a little work and as one of the best views on the lake, it has never been rented this day and my dad is nearing retirement. He has about 230,000 left on the mortgage and the cabinet’s worth roughly 650,000 in its current state. With talk of retirement, eliminating a monthly expense of $2,400, it’s becoming very enticing to him. Nothing would hurt me more than seeing that place that is most important to me go, but it is a real possibility the next few years if we don’t come up with a plan. My dream for the property be to take down the short-term rental route through Airbnb or Vrbo.
I put together an Excel sheet outlining all the costs, showing the comps in the area, and outline the annual yield that he could have at various occupancy rates. My end goal in this would be to set it up so that rather than selling it, I could help manage and work on this so that I can earn equity and hopefully purchase it from him myself. Do you think this is a realistic scenario and a good idea for something that could help me build my portfolio in the future? Thank you in advance.
All right, Blake Z. Here’s what I’m thinking. Let’s assume you can manage this thing. I would like to see you go that route. Now, your dad may want to sell it, but the first question is what does he need the money for? He’s got roughly 400,000 in equity in this thing. Does he need that cash? Maybe not. Let’s assume he doesn’t need the cash. He also doesn’t want that $2,400 a month of expenses just sitting there as he goes into retirement and his own income is going to drop.
So here’s a potential strategy that could work for all of you. You tell your dad, “I want a lease option to buy this house at whatever price you think if you think.” It’s worth 650, maybe you get a lease option to buy at 550. Maybe he hooks you up a little bit because you’re his son. Now that means you have the option to buy the house for this price in a certain period of time, but it doesn’t solve your dad’s problem of that $2,400 a month mortgage that he doesn’t want to have. While you have the option to buy that house, you’re actually going to gain control over it, meaning you can use it for purposes that you want to use it for. That doesn’t mean you have to live in it. Least options usually work with someone living in the house and paying rent.
But what you could do is take over the property, pay the $2,400 a month for your dad, so that solves the first problem he has of not wanting that money. And then you rent it out like you’re saying. And if you can manage this thing profitably, he gets $2,400 a month so he doesn’t have a payment anymore, you get some cash flow for managing the property and maybe you kick your dad some extra money because you’re managing it for him. So now he’s not in any hurry to get rid of that property. You also have a lease option to buy it for less than what you think it’s worth, but you’re not obligated to buy it, so you’re not in any distress, so you don’t take on any risk because if you don’t want to buy it for the 550, you don’t.
Your dad’s not taking on any risk because he’s getting that mortgage paid and some extra money coming his way from you. You’re also building up the skills of managing a property and your dad gets to feel good that he’s hooking you up, not giving it away to some stranger. I think that this would work for all parties involved. The keys you want to make sure you’re good at is you can manage this thing. If you don’t know how to manage a short-term rental, then this plan is going to fall apart and your dad doesn’t need the 400 grand for something else. If he needs that money for something else, the strategy is probably not a good idea.
But I like how you’re thinking. You’re approaching this the right way. I think this is something you could do and something needs to be done because if this cabin is just sitting there earning zero income for all of these years, and your dad’s just bleeding 2,400 a month for the right to have a vacation home that your family would go use. You could still use it, just don’t let it sit there and be useless in the meantime. Make that sucker generate some revenue, and if your family wants to use it, just don’t book it for those times. Nothing will change from your dad’s perspective other than he gets the right to use the cabin and doesn’t have to pay the 2,400 a month and you get to be the good son that makes money for yourself and money for him. All right. Our last question comes from Nick Anthony in Santa Monica.
Hey David. My name is Nick Anthony coming to you live from beautiful Santa Monica, California. And my question for you is regarding asset management. I started a new gig, overseeing a portfolio of about 30 multi-family properties ranging from like six to 20 units here in Los Angeles. And I come from a long history of property management and leasing of these apartment spaces. So my question for you is pretty broad, but basic what your day-to-day roles were for your asset manager.
I assume you know, have properties throughout the country, but does she or they just focus on one area? What are the day-to-day things that they do for you and the things that you have your management team do for you? What are the differences between your property managers and your asset managers? And I don’t want to step on any toes with the management teams, but at the same time, I want to help out the principal as much as I can. Thank you so much for your time, and I hope this question makes sense. Thanks a lot.
All right, Nick, this is a really good question. I like you asking it now. The person that was running my properties is my asset manager. Had another job. They were supposed to leave that job and come work for me. They got a raise at that job. They decided they didn’t want to do it, so they’re actually not managing my properties in that sense. I don’t have an asset manager. My personal assistant Krista is taking over that role of communicating with property managers. But I will still answer the question for you about how you want them to be working and then give you some advice of how this can go wrong.
First thing, say, when you advertise that you want an asset manager, a lot of people will say, “I want the job. I want the job,” because they love the title of asset manager. They love the fact that they get to say they do this, but there also is this understanding that it’s going to be less work because there’s already property managers in place. You have to be very careful with this because it can become a job where somebody makes a good income but doesn’t have to do a lot of work. And if you’re not careful, not only will they not do a lot of work, but they will not actively work to save you money. They will actively work to make their job as easy as possible. This is a frequent problem whenever you start to delegate stuff like this.
So in my experience, the people that I’ve hired to do roles like an asset manager, they were not often always an asset manager, could have been a chief operating officer for a company. Anybody that manages other humans can easily say, “Hey, this happened boss, this happened boss, this happened boss, what do you want to do?” And you say, “I want to do this.” And then they go, “Okay.” And then they tell people what you said and then they come back and say, “This happened.” And that’s not a job. This is just a person getting paid to be a notification system that an email could have served. You want a person that is actively working to save you or make you money in that business and that the salary you pay them is less than the money that they make or save you with their presence. That is the key.
So to define terms here, a property manager is the person that deals with the property directly and the problems that occur in it. So this would be a person managing a short-term rental, a medium-term rental, a long-term rental. I have a property management company for a lot of my regular rental properties that find the tenants that collect the rent, that tell me when something goes wrong and go find a person to go out there to fix it. That let me know when there’s a vacancy and if there’s an issue like an eviction or late rent, they handle it and tell me what happened. They’re actually doing work, and so they get a cut of the rent for that. All right.
An asset manager is a person that manages those people. So rather than your property manager coming to you and say, “Hey, here’s what happened.” They go to the asset manager and the asset manager makes the decisions. In addition to managing the property managers, your asset managers should be looking for ways to help you acquire more properties and run those properties more profitably. So let’s say you have a lot of short-term rentals, your asset manager should be looking at things like, “If we reinvested this much money in the backyard, we can increase our return by this much money and our investment would be paid back over a two year period of time.” Or if we sold this property and we reinvested the money into a property over here, we could increase our revenue by 50% because the return on equity would be much higher.
That is how an asset manager should be thinking. They should be looking at like, let’s say I have a triple net property that is a commercial deal, and so we have to review leases for that property when the tenant leaves or when we have a new person that wants to rent the space. You don’t want an asset manager that says, “Hey Nick. What do you want to do? This is what they’re offering.” You want an asset manager that goes and negotiates for you to get the rent as high as you can get it, or does the due diligence on the tenant to say, “Let’s skip this one, or Let’s go with this one.” They need to be actively looking for ways to save you money. That’s the key that I want to highlight to everybody here.
It is so easy when you hire an employee for that employee to get all of… I get a name tag on my desk. I get to say I’m the chief operating officer. I am the asset manager of so-and-so. I’m a big deal. But when you actually look at what they do all day, they’re not saving you money. They’re not actively looking to make you money. They’re actually just trying to collect the paycheck you give them and do as little work as possible. That’s what you want to avoid. The right asset manager will save you or make you more money than what their salary is.
So on the other side of this coin, if you’re listening to this and you’re thinking, “Well, I’d like to be an asset manager for somebody,” that’s your challenge. Can you figure out a way to know enough about real estate to know enough strategy to be savvy and smart enough to save somebody else more money than what it costs to hire you? Now, everyone will go out there and say, “Well, I can save you time. Hire me, and you won’t have to check your email inbox.” Well, that’s true, but how much is that really worth? Is that worth 100 grand a year to have someone that can monitor my emails and come say, “Hey David. This thing went wrong. What do you want to do?” No, I can have a personal assistant do that. And right now that is what’s happening is Krista comes to me and says… In fact, we just got out of our meeting right before we started recording this.
“Here’s all the things going wrong. There’s been a lot of storms in California. Here’s all the trees that fell over on the properties. What do you want to do?” And I say, “Go get quotes from these tree companies to get it cleared.” And she goes and makes notes and puts it in her CRM and she does that. “Hey David. We got the bid back for the home theater that you want to put in this cabinet. It’s going to be $6,600. Okay. Give me an itemized bid from the contractor that says what I’m going to be getting for the $6,600. Okay. I’m on it boss, and she comes back.” I don’t need an asset manager for that. I just need the person to keep it organized. You might not need an asset manager, you might just need a personal assistant and you might not even need them for 40 hours a week. It might be someone you could pay 10 or 15 hours a week to just keep you in the loop of what’s going on and you make the decisions.
When you hire the asset manager, you are paying them for their decision-making ability and the fact that they know more about real estate than you do. It typically doesn’t happen until you’re managing like big apartment complexes and you want to go hire someone that understands the balloon payment structure of financing and how to increase the NOI so that when you have to renew the mortgage, you’re going to get approved to do another deal. You want to have someone that understands value add and dealing with contractors and can save you money and increase rents, not someone that just says, “Tell me what you want me to do.”
So again, you want to increase your income, you want to climb the ladder, and you want to get to the position of asset manager. Don’t worry about saving people time, worry about saving people money. Thank you, Nick for that question. I hope it answered what you were looking for, and I also hope I help you avoid some red flags or bad hires in the future because they’re very easy to make even when you have the best of intentions.
All right, guys. That wraps up another Seeing Greene episode, and that one was pretty fun. We got to talk a lot of real life stuff. Asset managers, having a hard time finding properties in a hot market, when a job should be quit, when time should be put towards entrepreneurial ventures versus the W2 world. All that and more. I want to thank you guys for being here. If you’d like to learn more about me, you could find me @DavidGreene24 all over social media. There’s a E at the end of Greene. You could also go to davidgreene24.com, which is a website I’m having made at probably around this time this airs, it should be up and running, talk about more of what I could do to help you.
I also have a library of books that I’ve written with BiggerPockets publishing. You could check those out at biggerpockets.com/store. And most importantly, please make sure you leave us a comment on this YouTube channel. If you’re listening or leave us a five star review wherever you listen to podcasts. I’d love you guys for that because I working very hard to keep this the top real estate investing podcast in the world.
Thank you very much for being here. I know that you could give your time and your attention to anybody, so it means a lot that you’re here with me. I hope I help you make some money and save some of that money that you’ve already made, and I hope you get one step closer to the financial freedom that we all desire. Thank you guys. If you have a minute, watch another video, and if not, I will see you next week.
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