Ashley Kehr:
This is Real Estate Rookie episode 132.

Mike Michalowicz:
If we are better in the competition yet no one finds us, they find the alternative, the clients are getting a disservice and they’re experiencing something that’s inferior because we are superior. And if our clients are experiencing something inferior that’s their problem, it’s our fault but not marketing.

Ashley Kehr:
My name is Ashley Kehr, and I’m here with Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie, where we give you all the information, all the inspirational, all the education you need to get started in your real estate investing journey. And sometimes we talk about the nitty gritty about real estate investing, other times we talk about things that might support your real estate investing career. And that’s what we’re going to do today.

Ashley Kehr:
So, this Saturday is a Rookie Reply as usual, but we are doing it a little bit different. Once in a while we do have a guest on for the Rookie Reply. And today we have Mike the author of Get Different and he is going to talk to us about marketing. And he will actually go into why marketing is important for a real estate investor.

Tony Robinson:
And he’s got so many really good points, just all together. Honestly, I got introduced to Mike Michalowicz through his book Profit First. I’ve mentioned in the podcast before, if you guys haven’t read that, definitely I encourage you guys to go pick it up. But today he started to talk about his book, Get Different, which is about marketing. And I know you might be thinking like, “Tony, Ashley, why are we talking about marketing on a real estate podcast?” But if you think about it, there’s so many activities in your real estate investing business that require you to stand out amongst a crowd of other investors. And that’s what the premise of this conversation is. And he goes over different frameworks that you can follow. He gives you step by step advice on how to make yourself stand out. And really just to how to start framing your own conversations with yourself about marketing, about being different, about standing out that will help you in your real estate business for sure.

Ashley Kehr:
Yeah, we actually really jam pack a lot into this short episode. We go from talking about how not to be a (beep) and don’t be a (beep), to talking about the dad marketing strategy, to talking about me coming out of the closet once again. And also, I rudely interrupt Tony. So, lots of things happen during this short episode on this week’s of Rookie Reply. So, let’s bring Mike onto the show.

Tony Robinson:
Mike Michalowicz, thank you so much for joining us, man. I am super pumped to have you on here. And before we get into it, I got to say that I’m fanboy in a little bit because I’ve read some of your other books and they’ve had a big impact on my life. But Mike, for the listeners that don’t know you, please just give us like an introduction of who you are, what you’re about, and kind of what your mission is in life.

Mike Michalowicz:
Yeah. So it’s Mike Michalowicz here. I was actually looking at the wrong camera. I have two cameras and my main camera broke. So I’m on my backup. And I was like trying to stare you down in the wrong cameras. Now, there you go.

Ashley Kehr:
Oh, there we are.

Mike Michalowicz:
Now, I got it, the backup. So I’m an author guy. I write books about small business, but my journey has been entrepreneurial. I’ve been entrepreneur my entire adult life. Today, I own two companies. I have four licensed companies. So six collectively that I’m helping manage and run. But my real… And I’m passionate about those businesses. I’m a little passionate about the entrepreneurial journey, because I’ve struggled in it and I’ve been very successful in it. And I’ve seen the highs and the lows. And I think there should be a lot more highs for entrepreneurs and a lot less lows. My goal is to eradicate what I call entrepreneurial poverty.
What I mean by that is there’s a vision that Tony, Ashley, we all had when we started our businesses. Then there’s a reality when you started. And it’s usually a pretty big gap. I’m personally free. I can do what I want when I want. I’ll be financially free. I’ll make all the money in the world. And it’s like, “Oh my God, I have no money and my life sucks. All I do is work.” That gap is what I call entrepreneur poverty. And through the work I do as an author, my mission is to eradicate entrepreneurial poverty.

Tony Robinson:
I love that breakdown, Mike and I love the concept of entrepreneurial poverty. And you’ve mentioned it in some of your books. I was initially introduced to you Mike through your book Profit First, which is really big amongst a lot of operators in the vacation rental short term rental space here. You hear a lot of people talking about it. So, today we’re actually talking about a different book, which is called and if you guys are watching this on YouTube, it’s called Get Different, another great book by Mike. But before we get into Get Different, Mike, if you can just give us like the 22nd breakdown of Profit First, for those that aren’t familiar with that process. I love that.

Mike Michalowicz:
Oh, for sure. Yeah, for sure. So, we’ve been told… Ever since the invention of modern accounting, which is about 300 years old now that profit is the bottom line. It’s the word we use. It’s the year end, and the formula sales minus expense equals profit. But what I found is the vast majority of small businesses are never profitable. So, what confused me is hold on, if this is the formula and we start a business to be profitable, that’s like one of the main reasons how come almost no one’s profitable. And I was staring at the formula one day and it hit me. I was like, “Oh my God, this formula is wrong.” I mean, mathematically yeah, it works. But behaviorally it is wrong. When something comes last, it’s human nature to categorize that as insignificant.
Like Tony, if you love your family, I strongly suspect you don’t say, “I love my family so much. I’ve decided to start putting them last.” And actually if you had a health scare, you wouldn’t be like, “Oh my God, I need rally to take care of my health. I’m going to start putting my health last.” We would never do that because last means it doesn’t matter. And in profit we’re calling it the bottom line, the final take, the year end. It doesn’t matter. So, in Profit First I teach a real simple system. We flip the formula. It’s sales minus profit equals expenses.
What happens in executions? Every time revenue new comes into our business, we take a predetermined percentage of that money as profit, allocate it away, hide it from our business, then run the business off the rest. We’re now taking profit first. It’s the pay yourself first principle applied to business. And I’m very proud and happy to report that it has over 600,000 companies now doing profit first. They are all not more, not just, I should say consistently profitable, they’re actually growing faster than their contemporaries because they’re building a healthier business.

Ashley Kehr:
That is so awesome. And congratulations on being able to share that with so many companies and helping them grow and scale that fast. That’s awesome.

Mike Michalowicz:
Yeah, that’s the ultimate, like running at the airport and it doesn’t happen often, quite the opposite, but occasionally someone’s like, “Oh my God, you’re that guy.” And I’m like, “Which guy are you thinking about?” And sometimes it’s a totally different guy. Like, “Oh, I’m not that guy.” But sometimes he’s like, “Oh, I read your book.” Profit First is usually the one, that’s my most popular. And then people share their stories that sometimes it just takes me, I start tearing up and takes me to this emotional state, just joy and happiness for these people for the transformation they’ve made in their own lives.

Ashley Kehr:
That is so cool to be on the other side of that. Like, yes, it’s awesome for those people that have that transformation. But when you realize that you had a small impact on just opening up an idea to them and then they go and implement it-

Mike Michalowicz:
Yeah.

Ashley Kehr:
… Yeah, that’s awesome.

Tony Robinson:
I was just going to say, we might have to get you back on Mike for a second, go around where we can just kind of focus on the Profit First side, because I think there’ll be a lot of value for that as well.

Mike Michalowicz:
Oh sure. Yeah, teach the system. I’d love to.

Tony Robinson:
But today again, we’re here to talk about Get Different, which is actually a book about marketing and why it’s important for small businesses to do that. Now, before we dive in just for like our Rookie listeners, you guys might be thinking marketing, why are we talking about marketing on a real estate podcast? And Mike, you actually have a really good story in here about talking to like one of your realtor friends and how it can be applied to this business. But I want to set the table for the listeners that even though you’re an investor, you still have to market. There is still a marketing aspect to your business.
If you want to find a really good deal, you’re going to have to find a way to market it. If you don’t want to just rely on Zillow. You might not have to do some direct to seller marketing. Say that you want to raise money for a big deal you’re trying to take down, you’re going to have to market for potential money partners. There are so many… So you want to sell a property and maybe it’s in a competitive market and you want to stand out, how can you be creative and how you market that property?
So there are lots of concepts, I think, that we’re going to talk about today that our rookie investors can take away from and implement it to their business. So, Mike, my first question to you is, one of the things you said in this book was that people have a responsibility to market their product, to market their business. I think that was a really unique way to phrase it. So break that down for our listeners what you meant by when you said that there’s an obligation responsibility to market your product.

Mike Michalowicz:
I get a little soap boxy here. So forgive me if I start getting all like jacked up, but it may happen. I was at an event, I started writing this book seven years ago. It takes me a long time to finish a book. I work on many in parallel. And it was about seven years ago, I’m at an event. And I remember asking people, who here in this room is better than the competition. It was like HVAC company or something and all the hands went up. And at first I was like, “Can’t we really? Is that possible?” Like, “We’re all better than each other.” And then it became apparent. Small business is better than most small other businesses and we’re better than each other in different ways. One company responds faster. One is more caring. One has far technical superiority and they don’t all compete in the same market.
So when you look at the markets they’re in, in this market, these businesses in general are better than any alternative. And the fact that they’re the learners, just like the people listening to your show right now, these are the folks who are actually looking to expand and grow, inevitably better. And then I said, “Oh my gosh, if we are better in the competition yet no one finds us, they find the alternative. This is the alternative. This is us, but we’re invisible to them. The clients are getting a disservice or they’re experiencing something that’s inferior because we are superior.
And if our clients or our prospects are experiencing something inferior, that’s their problem, it’s our fault for not marketing. The other thing I heard too, and I’ve been surveying audiences constantly, I ask them, what percentage of your opportunity comes through referrals through your network, stuff like that? And most people brag, myself included about that. Oh, almost a 100%. Actually, I don’t even have to market to your early point. I don’t even need to market because businesses flows to me. I feel like king of the hill. And I’m like, “Oh, that means our clients, our network believe in us so much that they’re carrying the marketing burden on their shoulders. They believe in us. Aren’t they just affirming we’ve responsibility to get out there?”
If the work you do in real estate is superior to the alternatives out there. Damn it, you got to bigger. You got to be discovered. It’s the only way to be of service. That’s what inspired this book. And that’s why I started to research is, what gives the better businesses an opportunity to stand out. And if we’re smaller, we can’t actually compete against these mega corporations out there with hundreds of millions, sometimes billions of dollars backing them, that they’re just throwing into advertising, but we can beat them by being different. And that’s what we need to exploit.

Ashley Kehr:
So let’s Kind of tailor this to our rookie investors here. They’re getting started in real estate investing, what some advice you can give to them to get different as maybe they only have a couple properties, they’re just starting out as a new business.

Mike Michalowicz:
Yeah. So the first thing to understand is exactly who and what are you targeting? When I was writing out the book I talked about what’s called the who, what, and when. We’ve heard of who, what, and when, but the who, what, and when is who are we serving? What are we driving or delivering to that market? And what is the win? In any transaction there’s two sides. So how do both sides come out ahead? Because if you just win for yourself, the compromise will be your reputation. And if they just win, the compromise will be your continuance. So we have to have that balanced win-win.

Tony Robinson:
And Mike, and just to clarify, you’re talking W-I-N not W-H-E-N. You’re talking win as in like scoreboard win.

Mike Michalowicz:
That’s correct. The who and I’m talking when [inaudible 00:11:57]. That’s a good point. That’s like your Jersey accent. It’s like, “What is he saying?” So we need to get a win and it’s got to be a bilateral win. Like Tony, you got to come out ahead. Actually, you got to come out ahead and I got to come ahead of any transaction. And honestly, even doing a podcast, this is a form of a transaction. Hopefully, you’re getting content that serves your community. You get more engagement. Hopefully, I’m getting exposure to a community that hasn’t experienced me. That’s my win. And anytime we have a transaction, we got to look for those wins. Once you know the who, the avatar, what, your offer or the opportunity is, and the win, then we start structuring what will attract that audience. It always has to lead off with different, hence the title Get Different in the book.
I had the good fortune of being connected with some people that are really intelligent around how our brain operates. So neuroscientists and people that work in psychology and behavioralists and all this different people, and I interviewed them and I found an interesting pattern of what triggers recognition for something, for us to see or experience something. If you ever walk down the street and you do that double take, like, “What, what.” That is our brain being triggered by something. And it’s different. In fact, our brain only recognizes three things. Everything else gets ignored.
In fact, 99.999% of stimuli that comes into the human senses are ignored. This filtered out by this gatekeeper called the reticular formation. Not trying to get too technical here, but the reticular formation is this gatekeeper that says, “Ignore that pen sitting on your desk right now, because you’re presenting.” We actually have to ignore stimuli to pay attention, but the reticular formation opens up when three things happen.
One, is when a threat presents itself. That’s the number one thing. So if I showed up to your show and I had a gun on me, like, “Hey, we should continue on a little bit longer.” I’m waving around my gun at you. I guarantee I’d have your attention, but the threat response hits the amygdala and the amygdala says, “Fight or flight.” So, the two of you punch me in the face, split in my face wide open I’m dead. It’s a combative situation. So, probably not a good move. The second approach is opportunity. Opportunity opens up the reticular formation hits the prefrontal cortex of our brain. It lights up and says, “What is this?”
So if I put like a lot of money down in front of you and say, “Hey, here’s $500,000. Can we go for a little bit longer?” Chances are I have your attention but the risk is massive on my behalf because you may say, “Thanks for the $500,000.” We’re done with the show anyway. So I put risk out there. And by the way, we’ve seen this in marketing. In direct mail campaigns, you get a letter in the mail and it says open within three days, this is FBI will hunt you down and you open up and it’s like the car salesman. It’s like scumbag, you tear it up. Other times you get into a letter and then there’s like a $5 bill pasted on nicely. It’s like, “That’s a real $5 bill. Give us a call.” You’re like, “My pocket is getting a call to go to Taco Bell. So I’m sorry.” And we take the money.
The only third way, the only way, and the most effective way into the brain when it comes to marketing is different. The reticular formation opens up. It actually illuminates multiple parts of our brain saying, “What is happening? Is this a threat? Is this an opportunity? Is this something I have to qualify as it’s something I can ignore in the future, but I don’t know what it is now.” So, the essence of when you identify that you’re better than the competition and you’ve responsibility to more market, the only way to get prospects attention is doing something different. Don’t do what everyone else is doing. That gets ignored. Is this a blue pen? Do something different.

Ashley Kehr:
That I think is such a… This is going to be so helpful for people who are using direct mail. Because right now there are so many, not even sellers, but homeowners just getting tons of letters and postcards, text messages every single day. And how do you kind of filter yourself out? And that’s the key is you want to be different so that you stand out from all 50 other postcards that they got that week.

Mike Michalowicz:
You’re right. And its wildly simple. And step one is, look at what everyone else is doing. That’s the one thing not to do, particularly in your industry. So if everyone’s marketing the same way. I remember the first time I got a hey friend email and I was like, “Oh my God, I have a friend that I haven’t been in touch with apparently in years who, the only thing they call me is friend. They don’t even call me by my first name. They’re such a great friend.” And I fell for it. I started reading through it. I’m like, “Oh this is smarmy marketing.” I deleted it. And then a day later or a minute later, the next hey friend came through, I deleted it. I’ve put those in the spam box ever since. And perhaps I’ve received hundreds if not thousands. And so have you.
And that process is called habituation. Habituation is when the reticular formation says, “Oh, I’ve seen this stimuli before. It’s ignorable. Don’t even put into the brain, reject it.” And so those mailing pieces are guaranteed to be rejected. But if you do something different, it’ll get noticed. And here’s a technique. You can look at the medium mailing pieces or you look at the method. Method is approach. So you can change the medium. If everyone’s sending out mail, why not set billboards or whatever it says, “Well, I’m looking to buy a house or something.”That would work, but if everyone’s doing billboards that wouldn’t work. Or you can stay with the existing medium, but change the method. So if everyone’s sending postcards, send a picture of your grandmother and say, ?My grandma always wanted me to own property in this area. I’m looking to buy. Would you be interested?” Now, you’ve got to be integral. Don’t freaking lie.

Ashley Kehr:
Right, If you don’t even have a grandma and you pull a picture off the internet, don’t do that.

Mike Michalowicz:
Yeah. So you’re, “Oh, my God.” Please don’t do that. Consumers are very smart. People sniff that stuff out. The second there’s an integrity inconsistency, people raise a red flag. I saw actually happened to me this morning. I was on the Zoom conference for a quick meeting. There was like 15 people on it, but we weren’t live yet. So it was like all this people pictures. And I’m looking at this one picture. I’m like, “Wow, that woman is like really young to be on this call.” I’m actually a little bit surprised. It’s not in the right context. Like it’s a glamor shot or something.
She then activated her camera. And I was like, “Oh my God, you just aged 30 years in one second.” She went from this prepubescent to like a middle aged woman in one second. And I felt lied to. I was like, “Oh, okay. You want to look one way, but you’re really another.” And what we need to do is put out our authentic self. Put out your favorite picture of who you are today. With that grandma postcard, it better be a real story. And I’m not saying don’t lean into the unique idiosyncrasies or elements of it. Play up grandma. Send some pumpkin bread from grandma, do something like that, but do something that’s different and your guaranteed to get attention.

Ashley Kehr:
Mike, can you give us a real life example of, it doesn’t even have to be real estate related, but of where somebody did and marketing different and got great results.

Mike Michalowicz:
Well, I’ll give you a real estate example because I featured it in the book. I can talk about gyms that do some cool stuff, but I have a buddy who’s a real estate agent, more than a real estate agent. He owns a real estate agency in Colorado. They’re pretty sizable. I think they got like 30 or 40 agents. He’s a private shop. That’s pretty sizable. And he was reading the book with before I released it. He’s like, “Ah, this is really interesting.” But he goes, “It’s just ethereal stuff.” He goes that, “It doesn’t apply to me. Our industry’s established.” And here’s a golden lesson. The more established in industry, the more common the marketing approach, the easier it is to stand out. The more boring in industry, the more radical the opportunity to differentiate.
One example, I used to be in the computer or technology industry and I was slugging it out with all my competition. And one day this company called Geek squad comes in. All they did was they wore flood pants, narrow tie, tape on glasses. And these guys became heroes of the computer arena. Subsequently, they’re a $1 billion valuation today after their acquisition from Best Buy. You can do that. In the real estate industry. So this guy, Greg, my buddy is like, “It doesn’t apply to me.” I said, “Well, tell me, how do people market?” He goes, “It’s all the same.” The second I hear all the same. I start salivating like that’s not opportunity to differentiate. He goes, everyone puts up that stupid sandwich sign or if it’s a fancier house, you put up that little post, you buried in there and it hangs there.
You run your listings and your make sure it’s on Zillow listed properly. And you put your charming fixed me up house and all this stuff. And I’m like, “Okay, that’s all the stand protocol. Let’s just start with the most basic thing for the drive by viewers, the people that are looking at the signs. What if we set a different sign?” He’s like, “Well you can’t.” Of course, you can. What we did is we got signs with windmills on it. These are things you put in gardens typically. And all we did was put a sign with the same placard on it, saying house for sale, under contract, all that stuff. But there’s now a windmill on top.
And it started to get noticed, because remember from the consumer, you’re driving down the road, another sign, another sign, they’re all the same, maybe a different color, but they’re basically the same. So we don’t notice. But the second there was a spinning thing, we did the double take. And if you can get the customer to do the double take, it means the reticular formation’s opened up, the brain lightens up. It’s now questioning what it is. Now, different alone gets attention. It doesn’t mean it gets the right attention. So you have to do the other elements of attracting people and directing them to do something. But stage one is due different.

Tony Robinson:
Mike, you’ve kind of alluded this already, but why can’t I just build a better widget? Why isn’t just being good or being the best in your field enough?

Mike Michalowicz:
So, being the best in your field is not necessarily noticeable. Like, say you and I, Tony have competing businesses. And I’m like, “What we’re going to do here is we’re going to enhance the phone in two rings.” Every single time you go to your team and you’re like, “What we’re going to do here is answer our phone in one ring and beat that Michalowicz guy.” You are unequivocally better. Actually, you’re a 100% better. You’re answering the phone faster, but does the client notice? And the answer is probably not, probably not. Better doesn’t necessarily mean noticeable. And we can argue for the entire day of how your business is better than all of your competitors, but we can also go do exact competitors and point out how they’re better.
When I ask people in audiences, are you better? Everyone raises their hand and it’s true, but they’re better at certain elements, but most of it is invisible to the customer. It’s when we do something that is out of the ordinary, that they pay extraordinary attention. Back to Geek Squad, I would actually argue in almost every facet my company was better, more certifications, more technical skills, faster response, we cared more. I the owner was integrated in the business. I was doing some of the work myself and here guys in costume. But to the customer, it was extraordinary. I mean, who doesn’t want to geek fixing their computer? I mean, I do, I do and it was extraordinary.
They made it into a somewhat humorous experience. Once they found that the customers resonating with it, they amplified it. They used to ride bicycles to their clients. They started out Minnesota. They expanded nationally. They went into those Volkswagen bugs that looked at the Keystone cops. So once you find a crevice of different and you see people noticing, amplify that. It doesn’t necessarily mean you are better than the competition in the generic categories. You’re just doing something so unexpected and unique that people just have to pay attention.
One last thing, I’m not saying you have to be outrageous. I’m not saying you have to be a weirdo or the funny guy. Like, you have to be the real estate agent that dresses in a gorilla suit and dances around, that’s different, but it doesn’t mean it’s going to work. Different always gets attention. Gorilla suit real estate person gets attention. Stage two is that it’s got to be attractive. The audience has to say, “Oh, that’s for me.” And the geeks, it was for the people that needed our computers repaired. We had to find, for everyone listening to the show, what’s your different, but is it compelling to the audience? Is that something to say, “Oh, that’s for me.”

Tony Robinson:
So Mike, can we dive into that a little bit? Because I think that’s an important second piece there of making it something that can appeal to the person that you’re reaching out to. We’re in the world of real estate investing and say that I’m a new investor and I have this property that I want to buy, but I don’t have the money to do it, and I need to go out and find, I need to market myself to be able to find someone to help me buy this property. How do I go about getting into the psyche of that potential partner to even understand what kind of marketing strategy might resonate with them?

Mike Michalowicz:
Yeah. So we first have to identify who they likely are. That’s the avatar. So when the who, what, and when was structured, they’re the who. We want to raise money and what’s the win for them, the win for us. So we have to identify that. Then we target them and we do testing. So get difference about marketing experiments. I’m a little bit against marketing plans in that marketing plans are great, but a plan means commitment. I plan to tour all 50 states. That’s a commitment. But before we go about a marketing plan, we need to know, are we marketing in a way that’s going to be effective? So, we want to start off with experiments and inherent to experiments is a trial and error. Some things will fail. So once we identify who we’re targeting, those investors, let’s try reaching out to them in different ways.
Now, interestingly, I’ve raised money for one of my businesses in the past. And I was looking for angel rounds. These are small investors, maybe a 100,000 to maybe 250 is what the angel investment would be. So it’s not major tranches of money, but for me, that’s a significant amount of money. If you get two or three people, now you got maybe even a million dollar raise. So I reached out and what I did was I identified about five perfect angel investors. Most people reach out, they do a blanket thing. They basically do that postcard mailing, just a little more professional spin because it’s in an envelope that seals, but it’s basically the same.
I looked at what every other entrepreneurs to raise capital. I said, “Okay, that’s what’s not, I’m not going to do.” Now, I used in this case the same medium. I sent out the professional letter, but I did a different method. The opening to my letter said, “I’m looking to raise money, but before I even tell you about the business, I want to tell you about my values.” Rule number one, no (beep) allowed. My exact words. I said no (beep) allowed. And I said, “I will never do business with someone that’s a (beep) and I will never be a (beep) towards someone. I think all humans are equal and we all deserve respect of each other.” The second line said positivity or death. And I put out my four major values.

Ashley Kehr:
And you made those values stand out too.

Mike Michalowicz:
Yeah, yeah and they’re true.

Ashley Kehr:
It wasn’t like, I just wanted someone to work with me that will be respectful and not be respectful to them. You used words to make it stand out.

Mike Michalowicz:
Yeah. And there are words that are true to me. If you meet me, like how you’re seeing me now is the same Mike if we were having a couple beers together. If we had five or six beers, I’m a little more slurry but again when, win-win, but it’s the same me. And I think I don’t want to be the Zoom character that you see me when I’m 15 and then you turn it on and you get this guy and you’re like, “Oh my God, what happened?” So I do this consistently. That’s a major tractor factor. The how you market must be true to who you are. That’s why in another saying you can’t see it behind me fully, but says, “Be you all you always, truthful throughout.” What I got back from the first investor was one day letter.
I got a certified letter back and I opened it. And in red marker, no (beep) allowed was circled like 10 times. And I was like, “Oh my God, what did I just do?” And there was a sticky note attached to, it said, “I don’t like (beep) either.” And below that was a hundred thousand dollars check. His name was Howard Hirsch, best of my company. First guy in, extraordinary investor and extraordinary value alignment. He’s been so much more than money to our organization. He’s been strategic relationships and so forth. It helps us grow extraordinarily.

Tony Robinson:
Can we… We got to pause on that because I think that is like an incredibly important lesson for people to understand. So, first let me recap what you said. You said, “Be authentic to yourself.” Be your authentic self and understand what your values are and who you want to work with. I think for a lot of people who are in our audience, people who are at the beginning of their real estate investing journey, they feel almost this imposter syndrome because they haven’t achieved the same accolades as some of the people that they see on the podcast or people whose books they read and they feel like they have to kind of puff up who they are or what they’ve accomplished-

Mike Michalowicz:
Oh, I hate that.

Tony Robinson:
… but what you did-

Mike Michalowicz:
Again.

Tony Robinson:
… but what you did, Mike was the opposite of that is that you leaned into whatever experience you had. You leaned into your values as a person, and you amplified that and it allowed you to attract people that were more closely aligned with what you really want. And that is the super important lesson, because for the rookies say that you do pretend to be, you’re going to attract the wrong type of people. If you’re not being who you are, the wrong people are going to gravitate towards you. So when you be yourself, you’re able to find the right person.

Mike Michalowicz:
And the reason that I hate that is I get why people do that. And I’ve done that too, this fake until you make it and stuff. But there is this itchiness that was dripping in size like, “Oh, that’s not really who I am.” And to your point, is tracking the wrong people. I thought I had a pound on my chest. And I’ve seen these real estate guys. You got to wear the slick suit and make sure you’re munching a cigar and when you’re going out to lunch, you’re flashing the hundred dollars bills and your shiny cards. And what if you went in the true self and you simply said, “I’m a real estate rookie. I’m the real estate virgin, or something like I have no clue what I’m doing.” That’s the advantage.
With no clue means this deal means everything to me. I am not just a 100% in, my whole life is in, like, I have to make this successful. I will be there every second of the day. That marketing is so much more powerful than another slick campaign because it’s true. Some investors say “No, I don’t want someone never done this before, I’m out.” But some people are going to say, “That’s exactly who I’ve been looking for.” I want someone’s hungry, thirsty, starving for this. This is someone I can coach and help in the process and not just invest in. And you’ll track the right people by being true.

Ashley Kehr:
That’s such a great point. And Tony and I were talking about this earlier today, is that a rookie investor, a new investor is going to be so motivational and inspirational. I think you just tagged on another aspect to it that they may even work harder-

Mike Michalowicz:
True.

Ashley Kehr:
… than any experienced investor too.

Tony Robinson:
So one of the other things you mentioned in the book and this kind of aligns what we’ve been talking about, but it’s the dad framework. Well, I thought it was a humorous kind of way to phrase that. So what exactly does that mean if we can break that down for the listeners?

Mike Michalowicz:
Yeah. So dad is the checklist, if you will, for marketing that works. We already touched on elements. The differentiate is the first D. Any marketing you do if it isn’t different than the standard noise, it’s actually invisible to a consumer. If you don’t differentiate, you don’t get noticed. So you have to check that box off. But here’s the thing, is different lasts for about one 10th of a second. And this is not just a random number. This is actual research identifies that when we notice something different, our reticular formation opens up and it hits parts of our brain. And then within one 10th of a second, we’re placing judgment.
If you ever been outside and you see something kind of squiggle and you jump back, that is the 1/10 of a second reaction of the amygdala saying, “I don’t know what’s going on, something different’s happening.” And it’s lighting up our brain to evaluate, is this a snake? Can someone turn the hose on? What’s going on? So be different. Get 1/10 of a second attention. You immediately need to transition into the attractive factor. Is this messaging for me? It’s got to be so clear that’s for the audience that you’re targeting. So speak in their language, use the elements that they recognize and solve a problem they have, or relieve a pain, or just invoke curiosity or entertain.
But there has to be a justified reason to continue on. And it’s actually usually a blend. If you can educate or whatever it is like where you educate and entertain at the same time, that becomes more powerful. If you can educate and entertain and solve a problem all at once, now it becomes more powerful. So blend those elements together, but the attractor factor, that’s the A in dad only lasts for 1/10 of second increments. And it’s happening right now, as we’re talking for the folks listening in, they’re saying in their head, subconsciously likely, am I getting value? Am I writing this down, taking notes? Is this transformative? Or is it better just to check email? Well, I’ll get more value out checking my email.
So that battle is happening in everyone’s mind, including the listeners right now, determining there’s a reason this podcast isn’t like a 48 hour just onslaught. Like, it doesn’t run for 48 hours straight, because at certain point you can’t retain that attractor factor. So be attractive, but also realize that time is ticking away. Then you must go to the direct. The direct is where you give your prospect a specific and explicit direction to take. With this key caveat, it must be reasonable. Like, say Tony you’re looking for a car and you see a balloon thing out in the parking lot, which if you recognize that… You’ve seen those, right?

Ashley Kehr:
Mm-hmm (affirmative). Yeah.

Tony Robinson:
Yeah.

Mike Michalowicz:
So those things, when they first came out, chances are actually Tony, when you first saw them, you’re like, “Oh my God, that’s so different.” The first time. They are so ubiquitous now because it worked, it’s become more noise. And we don’t actually see, we blow by and go, “Oh, there’s balloon boy again.” And we often associate saying, “Oh cheapo sale thing, used cars or something like that.” So balloon boy has deteriorated. That’s the problem with different. Different works until everyone replicates it. And then we have to find the new different, it expires. But say balloon boy brings in, that was the differentiate. You were attracted. You saw that you wanted to buy a car. And this is an alignment with what you’re looking. So it solves a pain you have, okay and buy a car. I’m the car sales guy.
I’m like, “Hey Tony, I heard your looking for a car. Let’s find your dream card, give a hundred thousand dollars deposit. We’ll find it.” And you’d be like F No pal because it’s too big of an ask. When I direct you to do something, it needs to be reasonable. But the wrong approach to is to have such a low direct, there’s no action required. It’d be like, you come into the lot. And you’re like, “Hey, I’m looking for a car.” I’m like, “Oh great, we have cars. I’ll see you later.” And walk away. You’re like, “What do I do?” “Just wander around and you’ll see us on websites.” I hate going to websites where the call to action is learn more. The whole reason I went to the freaking website was to learn more. Don’t make me do that. The right action is the reasonable action.
So you come into my car a lot. And Tony, I think the right thing would be for me to say, “Hey, you’re looking for your dream car. Would you be willing to give me your cell number? I’ll take pictures of our inventory here at this lot and other lots, I’ll text it to you so we can hone in on your dream car.” That’s a transaction. You give me contact information, your cell, I give you information for your decision. And then my job is to matriculate that to the transaction. And then at the end you have theoretically your dream car. I theoretically have my dream commission. And that’s what we’re trying to achieve together. It has to be reasonable.
The last element or the last thing I want to say about dad, is you have to check off all three. I’ve seen businesses do some really different and attractive, and then it goes to nowhere. There’s no direct. I’ve seen people say bye now, but there’s no compelling reason to do it. I’ve seen so much marketing, most marketing that isn’t different in the first place. It speaks to the audience. It tells them what to do, but no one notices because it’s unnoticeable.

Ashley Kehr:
Mike, I want to pivot here. And we’ve talked about big business, especially balloon boy in front of a business and your friend, the real estate agent, his business and the different marketing. What if you are one person, you work in a closet as per se me and you don’t have a storefront and you don’t have a huge marketing budget and you rely mostly on social media to put yourself out as a brand. So, real estate investors whether raising money or getting on buyers list or selling your flips, things like that. What are some ways that just that one person can market themselves through social media or maybe other avenues that you know?

Mike Michalowicz:
Yeah. So what we look for first is what’s called congregation points. The congregation point is where are your ideal customers, that avatar we talked about congregating? So if they’re congregating on social media, we got to refine down. Like, is there a Facebook group they’re on? Or is it more of a LinkedIn consumer? Where are they? And maybe they’re physically assembling. So maybe you got to get out of that closet and drive down to the local club or something like that. So find the congregation point. And the best way and the easiest way to find that is look at your existing best customers and say, “Hey, where do you go to meet people like you?”
I’m like, “Oh, everyone goes on Facebook or everyone listens to this podcast. Or there’s this club everyone hangs out at.” That’s your congregation point. Then we simply need to appear. And appearing simply means just being present but in a noticeable way. I’ll give you an example of this. My first company was doing computers. I was struggling. Geek Squad came in, kicked my ass. I was like, “Oh my God, I’m done.” But then I noticed my best customer was a hedge fund. I knew nothing about hedge funds, but they were my best customer. I went out and met with them and I said, “Hey, you’re my best customer honestly, I love serving you. I want to serve you better. What am I doing right?” And this is a key question when it comes to marketing and this is a Jedi mind trick, like this is level two stuff.
When I said, “What am I doing right?” He said, “The response time is really good. The last computer company didn’t respond as quickly. You respond quickly.” Whatever you’re doing right is not what you’re doing right. It’s what the customer judges you on. And that’s the thing you actually have to do better and market on. When he says you respond quickly. I said, “Oh, okay. I better start responding faster because if I’m ever slow, he’s going to be pissed because he’s telling me.” If I respond faster, I know he’ll notice. We do thousands of things. The customer can only see about 0.1% of the stuff we do.
Find out, ask them what it is by saying what you’re doing right. I didn’t start marketing fastest response times. I wore a lightning bolt on my jacket and I went to the congregation point, which was hedge funds have a conference out in long beach, California. I flew out there. I threw my little lightning bolt on and started walking around. And to me I would say, “Oh, who are you? Do you own a hedge fund?” I’m like, “No, I’m a computer guy. And they’re like, “Oh, you’re the only computer guy here.” Which is different alone. Just being the guy there when no one else is appearing.
Now, everyone wants to be your buddy. Like, “Oh you’re the computer guy, that’s amazing.” They go, “What’s the lightning bolt?” Oh I said, “Oh, we pride ourselves on response times.” Like, “You’re fast responders.” I’m like, “Yeah.” I’ll say Appaloosa, that was the company. I asked Appaloosa about response time. And we picked up 75 hedge funds over a two year period by going to the congregation points. That company was then purchased by a private equity. It lives on today and actually has being resold again. So the lesson is, even if you’re in a closet, there’s still congregation points. And maybe it’s on social media, you’re wearing your lightning bolt or maybe going out to a physical meeting, but first ask your best customer what you’re doing, right, where they’re congregating and go there and then demonstrate that right thing through your marketing.

Tony Robinson:
One follow up question to that-

Mike Michalowicz:
Was that gold?

Tony Robinson:
… No, that was great [crosstalk 00:38:11]. That was great. And like so many-

Mike Michalowicz:
That was awesome.

Tony Robinson:
… so many good questions that come out of that but I think you were able to get that insight about the response times being super important. And you’re able to kind of dive first and just run with that, but say that I’m like a solopreneur. I’m this one man or one woman show, how do I-

Ashley Kehr:
Tony, I have to interrupt you. And I’m so sorry to do this.

Tony Robinson:
First time ever on this show, an interruption.

Ashley Kehr:
I have to say something to Mike real quick before we move on about that is that as you were just talking about that as like getting out of the closet and going and finding like automatically, I started thinking about where are people that hate their jobs and want to get started in real estate investing? What conference am I going to go to and talk to those people and get them listening to the show and get them started in real estate investing.

Tony Robinson:
I love it. Did you figure out the conference?

Ashley Kehr:
Yeah, I thought that was really great. My friend that’s in construction, that’s going to be partnering with me, he hates his job [inaudible 00:39:07] construction and that they can be project managers and do rehabs. But that was my first thought.

Mike Michalowicz:
Actually, just to build on that. That technique works. I met with the, I can’t remember his name now, but the founder of Boston Chicken, which became Boston Market, ultimately. I don’t know if this still exists, but pretty big franchise. When he started his first entrepreneur endeavor as a teenager, he was selling back then they called then they called ambulators, but push baby carts or what do they call know? Carriage, baby carriage. He sold ambulators-

Ashley Kehr:
A stroller.

Mike Michalowicz:
… Sure, stroller. My kids are so old. I can’t remember that.

Ashley Kehr:
You just aged yourself right there.

Mike Michalowicz:
I Totally aged myself. I’m like what, what do we call them?

Tony Robinson:
Yeah, I was Googling ambulator. What is ambulator?

Mike Michalowicz:
All these things called cars? What do cars do? We used to horse and bulky. So, he worked in New York City and he said what he’d do is most of his competition was going door by door knocking saying, “Hey, do you have a child you’ll be having in the next nine months? We sell strollers. What he did is he went to the backside, because this is back when diapers were clothed and you’ll dry them on the lines outside and he’d count doors up or floors up and doors to the side and he’d go right to the doors.
He’s able to navigate a building in like 1/5 or 1/10 at the time and he’s hitting the prospects. I love what you were saying. Actually you’re like, where are the people who want to become real estate investors? Don’t go into the real estate investor business. That may be too late for that conference. What conference comes prior to that? Where people are getting disenchanted with what they’re doing, that could be the right spot to go. So I was just jacked about your strategy. You gave me gold. You gave me the win-win.

Tony Robinson:
Yeah, it’s a win-win. There you go.

Ashley Kehr:
[crosstalk 00:40:49] that transaction.

Tony Robinson:
Mike, I want to give you some credits because I’ve read other marketing books. You think of Purple Cow up by Seth Godin, which kind of has a similar premise. But I remember I walked away reading that book feeling like, “Okay, that’s a really good idea.” But the application wasn’t there. He didn’t really give you the steps you need to implement this in real life. So, you’re left kind of wondering what to do next. Whereas your book, not only do you give a really solid, thorough explanation of the idea, but there are tactical step by step things to do at the end of almost every chapter to work this into your business. So, with that in mind, Mike, and I guess we can kind of wrap up after this, but where do you see the most entrepreneurs fail trying to implement the action steps for strategies that you have inside of this book?

Mike Michalowicz:
That’s a great question. And thanks for pointing it out the importance of taking action. And Tony that’s where most people fail. They say, “Oh, this is great, but I’m really comfortable just sitting on social media. And even though social media is not working for me, I’m just going to stay there because everyone else is running Facebook ads maybe I’ll put some money in that. And when it doesn’t work, I get really frustrated and get angry, but I’m going to go back to doing Facebook ads anyway.” It’s a human tendency is that we are very comfortable doing what we’ve done before, even if it doesn’t work.
So, the failure point is that, is that people maybe think something different and then they talk to themselves out and they say, “Well, that’s not going to work.” How I envision is there’s a devil on our shoulder and there’s an angel. And the Angel’s saying, “You’re better in the competition, that people need you, get out there and get noticed.” The devil is like, “It’s embarrassing if you market ineffectively. You’ll be shunned from the community. Don’t do it. Just do what you’ve always done even though it’s sucks, because you suck.” And so like this devil-angel going on and they’re fighting. We have to defeat that devil.
And to overcome it, we simply have to realize a, what you do is more important to get notice than to be invisible. The world is starving for you. Secondly, start off really, really small. Buy that lightning bolt lapel and put on your pin on your shoulder. I felt so weird wearing that thing and walking around and some people noticed it and I was like, I’m already going to do like make fun of me and think I’m a pretending to be a superhero. Like, “Oh my God.” And they’re like, “Oh that’s interesting. What is that?” And one person’s like, oh, that’s kind of weird. Never seen that before.” But it invoked conversation.
And that started building my confidence. So with an experiment today. Send out the grandma postcard today. If you’re not going to do that, just start wearing something on the lapel of your jacket or outfit that is always noticed or commit to a color and just go neon green on everything you do going forward. I’m not saying that’s going to work and get results, but it’s going to start working on our mind and realize that people will start noticing and speaking about it. And the people that don’t care won’t notice. They’ll just be, “Ah, whatever.” They’ll disqualifies. I’ve never seen someone do different marketing and the consequences been like someone killed them or something. What we fear’s going to happen never happens. And if we don’t do it, our grace fear will happen in our business will just be stagnant.

Ashley Kehr:
Mike, thank you so much for all of this great information. I feel like you’ve jampacked so much value into such a short amount of time and some great takeaways. And also you’re really funny too, I think.

Mike Michalowicz:
I hope you have 3D glasses on, because look at that. Look at that. Wow, that’s pretty wild. Thanks. I had a lot of fun with you Ashley and Tony-

Ashley Kehr:
Yes.

Mike Michalowicz:
… this has been a blast. Thanks for having me.

Ashley Kehr:
Yeah. Can you tell everyone where they can find out some more information about you and reach out to you?

Mike Michalowicz:
Yeah. So let’s do it. The place to go, I’ll give you two. I don’t know why I’m waving my [crosstalk 00:44:28]. It’s my letter opener.

Ashley Kehr:
Wait, we started out the show with you talking about holding us at gunpoint and now there’s a knifepoint.

Mike Michalowicz:
This is threat technique. Now, here’s what you can do. You can go to mikemichalowicz.com, but here’s why I wouldn’t go there because you won’t be able to spell that last name. There’s an alternative. It’s Mike Motorbike. So, that’s my nickname from high school. Not because I’ve ever driven to motorcycle, just because it rhymed Mike Motorbike. If you go to mikemotorbike.com, you’ll get access to all my books. You can get free chapter downloads. The chapters that will actually help you. So you don’t even have to buy the books. I hope you do, but you’ll have to. And there’s other resources. I used to write for the Wall Street Journal, that’s there too. And there’s a couple things that will just hopefully entertain you. I like to joke around. So I think you have some fun visiting mikemotorbike.com.

Ashley Kehr:
Well, thank you so much, Mike, for joining us. This has been really great. I’m Ashley @welcomerentals and he’s Tony @tonyjrobinson on Instagram and we will see you guys next time.

Ashley:
This is Real Estate Rookie episode 131.

Rachel:
How bad do you want it? I wanted it so bad. Every time I would lay in bed, I’d think, “Should I go into work today?”, but then I’ll think, “I just need to bear it out for a little bit more.” To think that it’s building my retirement, I will look back on these years and not regret it.

Ashley:
My name is Ashley Kehr. I am here with my co-host, Tony Robinson. Tony, what’s going on? What do you want to banter about today before the episode?

Tony:
I like the little life updates we’ve been doing. That’s been a fun little addition. So, I’m trying to think what’s going on in my personal life or something that’s cool. My son came… So, he’s in eighth grade. He came home the other day and told us that not one, but two girls had written love letters to him confessing their adoration of our son. So, we’re at that phase of the parents and life now.

Ashley:
Oh, my gosh. He shared that with you, guys?

Tony:
Yeah, yeah, he let us know.

Ashley:
That’s so sweet! I hope my boys tell me too, show me their little love notes they get.

Tony:
So, we’re just trying to brace ourselves that we’re now at that phase of parenting. So, yeah, it was so funny. Sarah and I, my wife, we were separate on Friday. I was at home, she was out running errands. We both separately bought books on raising teenagers. I bought two books on my Kindle. She just happened to stop by Barnes and Noble to pick up a book on it too. So, the joy of raising children.

Ashley:
Oh, my gosh. That’s so funny. Yeah. Well, I can’t wait to have you learn everything and then just tell me what to do when my boys are teenagers. This is actually really nice. I do like it when we give a little life update, because whenever me and you actually do talk and we do talk a lot, it’s always like, “What should I do in my business? Where are you taking your business?” All business and real estate talk usually. Yeah, so I just took my boys to Fort Lauderdale. Actually, we just got back the other day. We did a little mini weekend vacation I was speaking at, one of Steve Rosenberg’s events.

Ashley:
My mom came with me, and it was great. It was awesome. My mom got to meet the Steve Rosenberg, who has been my mentor for a long time. That was probably the worst dinner I’ve ever had in my life and it was like my worst nightmare coming true, because the conversation went like this. So, Steve said to my mom, “So start from the beginning, what was Ashley like?” My mom goes, “Well, she started talking around two and she wouldn’t stop talking.” He’s like, “That sounds about right. Keep going.” From there, they went through my dating history, everything.

Tony:
The whole backstory of Ashley. Just making fun along the way.

Ashley:
We have three other people joined our table who are coming to attend and see the event. I’m like, “Yeah. So, this is my mom and this is me. Join the story.” Yeah, it was fun.

Tony:
But that’s where real friendships are forged, over the dinner table and hearing the embarrassing stories of what it was like growing up.

Ashley:
Yeah. Well, today, we have somebody who is not very grown up today on the show, 20 years old. You guys will not believe her story.

Tony:
Yeah, just really phenomenal. So, we have Rachel on the show today. People make so many excuses as to why they can’t get started. I think Rachel’s proof along with so many of our other guests as to why your age isn’t a restriction. Your background isn’t a restriction, your occupation. There’s nothing that’s holding you back from becoming a real estate investor. I think Rachel is just such a great example of that again today.

Ashley:
Before we bring Rachel on to the show, make sure you guys check us out on the Real Estate Rookie YouTube and you can check me out on Instagram. Slide into my DMs, @wealthfromrentals. The same with Tony, @tonyjrobinson. Share your stories with us. Towards the end of the show, you’ll catch the rookie rockstar and we would love to feature you guys. So, send us a DM, slide in there, and tell us about your win, your success for that week. We’d love to hear it.

Ashley:
Rachel, welcome to the show. Thank you so much for joining us. Can we start off with you telling us a little bit about yourself and how you got started in real estate?

Rachel:
Oh, my gosh. Where to start? So, I have been homeschooled from K to 12. I just grew up in the country. My mom, she’s a Korean mom. She’s a stereotypical tiger mom, always just very honest about getting good grades. You got to get a safe job, a high paying job, and to study hard every single day, which is what we did. As homeschooled kids, you got to learn to be self-motivated. That’s when I decided, I was like, “I’m going to be a doctor. I love health. I love holistic healing. I’m going to get a degree, go to med school, and get a nice well-paying job that is also very fulfilling.” And then I went to college at 16 after taking the ACT.

Ashley:
Wow, that’s awesome.

Tony:
Yeah, congratulations.

Rachel:
Thank you. Everyone says, “You must be super smart.” Well, I think that the public school does a huge disservice to their students. As a homeschool kid, I was able to see how working on yourself and working at your own pace can really help you get ahead. Yeah, I went to college and I told everyone, “Hey, anyone could do it.”

Tony:
That is amazing. Ashley, what were you doing at 16?

Ashley:
Doing nothing. I just sat in my Pontiac Bonneville at age 16.

Tony:
Sorry, Rachel. So, you go to college at 16. What happens from there?

Rachel:
Yeah, so I ran track in college. I had a lot of fun, so much fun at college. I love those years. Room and board, you lived in the dorm, you went to the cafeteria, you went to practice. It was just such a simple life. I was a bio major obviously because medicine, you got to be science. And then I got into an accelerated program with KCU, which is an osteopathic school here in Kansas City. I was on a three-year course. At my third year, I was getting ready to attend med school. I’ve always thought about real estate. It’s been at the back of my mind.

Rachel:
And then when I was working to save up for med school, I worked at a warehouse job where it’s such a mindless job. So, you could listen to podcasts and ebooks, YouTube videos. So, I just thought, “Okay, I might as well capitalize all this free time, where I was actually making money and just listen to real estate podcasts.” So, I started off listening to The Real Estate Radio Guys and then to BiggerPockets Rookie. That was such a ray of hope in my life, just hearing these regular people becoming financially free through real estate. And then once I started getting that idea that I could do it, I started actually thinking about not going to med school.

Rachel:
Also, there’s a whole another reason why, because I believe that the medical system in America is very corrupt. If you are to be your own boss and actually care for your clients in the way that you want to, you have to open a private practice. Otherwise, you’ll be bossed around by the big hospitals and whatnot, but anyways. I decided to just get into real estate full time. After a lot of prayer and self-reflection, I thought, “Okay, this is something I really want to do. What if later down the road, I look back and realize that this is something that I really wanted to do but I never took the plunge?”

Rachel:
So, I decided to get my license and become an investor basically. Yeah, that’s where I started. I’ve always thought about real estate in the back of my mind, especially since I listened to Graham Stephan. He’s a realtor/YouTuber, but yeah, that’s where I got my idea, from you guys basically. BiggerPockets is such a treasure chest of information. Yeah.

Ashley:
We love BiggerPockets just as much too.

Rachel:
Yeah, I love BiggerPockets.

Ashley:
Okay, so did you stop going to school then?

Rachel:
Yes, yes.

Ashley:
Okay. So, let’s talk about that right there. You were on this path to go to med school for a very long time since how old? Was it even 16 or even before that? You knew you wanted to go to med school.

Rachel:
Listen, it was way before. I’ve always been a fan of natural health, natural cures. There was this huge, thick book. It’s called like natural cures or something. I would read that every single day. You know how you bring your phone to the bath and when you take your dump? I brought that huge book because we didn’t have phones. I got my first phone when I was 16. So, I would just read health books 24/7. I was obsessed with health. I still love health. I think that natural cures are the way to health, but I’ve moved on from that and I’m absolutely obsessed with real estate. Yeah, I have an obsessive personality.

Tony:
Sorry, really quick. Can we just also set the table? Rachel, how old are you as of today or in today’s recording?

Rachel:
I’m 20.

Tony:
That’s amazing.

Ashley:
Yeah.

Rachel:
Listen, I’m blessed.

Tony:
Yeah, I think you might be the youngest person that we’ve interviewed. I remember, we interviewed a couple of college students, but I think they were older than 21. I don’t think anyone that we’ve had on the show has been younger than… I don’t know. Ashley, am I wrong?

Ashley:
Yeah, I don’t know. It might have been someone that was 20, but yeah.

Rachel:
That’s really cool. Yeah.

Tony:
Definitely right up there. So, kudos to you.

Ashley:
Producer, can you fact check this? Can we fill this in?

Rachel:
I can’t even buy margarita yet.

Ashley:
But you can buy a property.

Rachel:
Oh, yeah.

Ashley:
That’s what’s important.

Rachel:
That’s what matters.

Ashley:
Who cares about a margarita when you could buy a property?

Rachel:
Exactly.

Ashley:
Okay, so what about that mindset shift? You’ve spent almost a large majority of your life focused on this track. What was that like for you to be able to make that shift? You’ve spent so much money already on college. You did all this stuff to reach this one goal. Now, you’ve made a complete pivot. Not to say that that was all a waste, but it’s not exactly necessary for you to need to become a real estate investor. How did you become okay with that? Because I went to school for accounting. I mean, I used that, I guess, in real estate. So, it has been beneficial, but I don’t know how you would be using health, I guess, and medicine in real estate investing.

Rachel:
Well, so the mindset shift, I would say definitely, was a huge shift. The year of 2020 was the best year of my life in terms of, I feel like I’ve changed so much. I feel like I’ve come closer to God. Faith is a huge part of my life. Also, I gained the knowledge and the understanding that money comes easily. You don’t have to work your tail off. You don’t have to spend thousands of dollars on a college education to make money. We live in a capitalist society right now. You gain money proportionally to how much you contribute to the lives of others.

Rachel:
Obviously, doctors contributes so much. They’ve gone through college. They’ve gone through med school. They save lives, but so do real estate investors. If you’re an investor, you’re providing housing. You’re providing something valuable to people. I just realized that entrepreneurialism is not about clocking in and out and trading your time for money. It’s about just building bigger value for people around you.

Rachel:
That just really was just such a mind blowing thing for me, because I’m sure this is common in the Asian culture more than in the Western culture, but we think that you got to take the safe road towards wealth. Get a job, get a good education, be smart, be book smart, and do your work well, instead of finding new ways to build wealth. That’s the mindset shift that I went through after listening to all these successful people on your podcast, all these other podcasts, and ebooks that I’ve listened to.

Ashley:
Rachel, the thing that I thought of and what stood out to me is when you were talking just about your story and what you were passionate about, and that was natural health. And then you decided to shift to real estate. I think real estate is going to be a better vehicle and a better tool for you to actually make an impact fulfilling your passion.

Ashley:
If you decided to go the medical route, yes, you’d be making money and you’d be in the profession to try and make an impact, but I think that you are building this foundation through real estate that you’re going to free up a lot more of your time. You’re going to have a lot of resources, and you’re going to have a lot of money to actually make a bigger impact than if you would have went to medical school. I’m already so excited. You’re only 20 and I can’t wait to have you back on the show in even just 5 years-

Rachel:
Oh, my gosh. Yes, I would love to be back.

Ashley:
… to see what’s happening, what’s going on. We’ll probably see you on the news first or something, giving a lecture.

Rachel:
Well, listen, this is such a blessing. It’s come as a surprise. I just put that post out there and Mindy commented on the post. She was like, “Eric, did you see this?” I was like, “Did you see what?” Yeah, I’m just so happy to be here.

Tony:
It’s because you’re taking action. I think that’s a really strong underlying message for everyone that’s listening that it doesn’t matter your age. It doesn’t matter your background. It doesn’t matter where you’re coming from. It doesn’t matter what you’ve been through. As long as you consistently take the right action towards your goal, you’re going to make progress. I also want to highlight something that you said, Rachel, because I thought it was really, really insightful, but you said, “Entrepreneurship is about building bigger value for the people around you.”

Tony:
I thought that was such a smart way of defining what it means to be an entrepreneur, where your value as an entrepreneur isn’t about how much time you put in, but it’s about the amount of value that you give to other people. When you frame it that way, I think it makes the jump of becoming an entrepreneur a little less scary if you’re confident in your ability to provide that value to other people. So, dropping bombs seven, eight minutes into the conversation, but I want to make sure that we highlighted that. But it makes me think of one other question. So, hopefully, you can answer this for us.

Tony:
Early on, you talked a little bit about the family pressures of following that traditional path. There are societal pressures of following that traditional path of getting a W-2 job and getting a higher earning W-2 job. Sometimes there’s internal pressures to do that as well. You just feel like you need to do that. How did you overcome those feelings of pressure, those sensations of trying to follow along that path to break out on your own? Because, again, you’re 20 years old, which I think is really, really brave of you at that age to have that realization, but there are many people who are in their mid-20s or late 20s or 30s or 40s or 50s that are listening, that haven’t been able to escape from that pressure. So, I want to know how you did it at your age.

Rachel:
Well, okay. So, have you ever worked at a job where there was just an old way of doing things? When you’d ask, “Why are we doing things this way?”, they’d be like, “Well, it’s just the way we’ve always done it.” That would be the most frustrating thing I would ever hear. If you just put in a little bit of creativity and your own work, your own sweat and work into finding a better way to do something, your results are magnified. You can see an exponential increase in productivity when you actually put in the work and put in creativity to fulfilling a goal.

Rachel:
So, I thought about going down the old path of completing all my education and getting a safe job that literally everyone else could do. And then I thought about, “What if I applied myself to my business and then I could literally start building value for people right now, instead of going down the old path?” That’s why I had the confidence to be able to get started, because I’ve seen so many times in my past where people will do things the old, inefficient way that just everyone does and then say, “Oh, I’m on the path to something safe, into something very promising.”

Rachel:
But I want to do something where I could start providing value now. Yeah, I’m an impatient person. I like to get things done now and when they need to be gotten done. I think that procrastination and not sticking to your gut in terms of what you think you’re passionate about, it can fester. It leaves you in a state of regret. Later on, down the road, when I’m on my deathbed, I want to look back and say, “Wow, I’m so glad I tried that,” instead of, “Dang it. I should have tried that.”

Ashley:
Rachel, we’re only 10 minutes in. I feel like you have said so much and provided everybody with so much value already. Let’s talk about your deals though. What does your portfolio look like right now?

Rachel:
I have four units right now. So, that four-plex was my first investment. Yeah, I’m just so excited to get into my next investment, which I’m planning on house hacking my next investment and then purchasing single family homes and doing the burst strategy on those. So, that’s my plan for my next couple of investments.

Ashley:
Awesome. Let’s go through this. Did you buy this four-unit after you decided to quit school or was this before?

Rachel:
No, no. I’ve been going back and forth about whether or not to quit school. I was like, “Okay, God, just take it all. It’s all you. Give me clarity.” That same day, I had the clarity to tell the staff at KCU that “Hey, I’m not coming, just so you know. Take me off the list and bring in the next person that you have on the list.” So, after I gained that clarity, I was like, “Okay, Rachel, you literally told them medicine is not in your future. You have to buy a house now.”

Rachel:
So, I was like, “Okay, three and a half down, FHA, what could go wrong? If I just buy a house, even if it burns down, say I put down 10 grand on a house, what could go wrong? I tried it out.” So, I started going MLS eye shopping. So, I would go on Zillow, and I would just look through all these multi-families every single darn day. I had a notebook full of analysis where I put down the cash-on-cash return, down payment.

Ashley:
Okay, let’s stop and talk about that right there because that is so important. You were practicing?

Rachel:
Yes.

Ashley:
How do you get super good at analyzing deals? You practice, practice, practice.

Rachel:
Yes, analyze a deal.

Ashley:
Yeah. So, talk about this notebook more.

Rachel:
Oh, my gosh. So, like I told you, I came from a background of homeschooling. So, I knew the power of writing something down every single day, because we would go through textbooks, so much material, and we’d have to memorize a lot. So, we write down a lot. And then Brandon always says, “The reason why people say they can’t find a deal is because they’re not analyzing the deals.” So, I thought, “Okay, Brandon is right. I have to start analyzing deals every single day.” So that’s what I did. Even it’s a multifamily, I analyze mostly multi-families, because house hacking is something I want to do. I wasn’t really a fan of renting out three bedrooms. So, I thought, “Okay, a duplex or triplex comes on the market, I will analyze it that night.”

Rachel:
So, I wrote down the cost to get rent ready. If it was ugly, I just assumed. I’m not a contractor. So, I just came up with a number. I put down the down payment, which would be 3.5%. I put down the interest rate at the time. I put down taxes and estimated insurance. I just wrote down my estimated cash flow, estimated cash-on-cash return, an estimated ROI. So, I’ll look at all these different deals and get a feel of which zip codes and which cities had better returns. And then I noticed that the worst neighborhoods had a lot better returns on paper, but I wasn’t sold. I knew about how appreciation was very important and how buying in a good neighborhood for your first investment, especially if you’re going to live in it, is also important.

Ashley:
Rachel, how did you get pre-approved? Were you working at this time in your warehouse job?

Rachel:
Yes. Okay, that’s a whole another story in and of itself. So, I started talking to lenders. It started off as just me eye shopping and then I would see these multi-families coming on the market. I would wonder, “I really want this property. I don’t know how to get it, but there has to be a way.” So, I realized that you have to get a pre-approval letter to submit an offer on a house. So, I talked to so many different lenders and got different quotes on closing costs, interest rates. And then I finally got a pre-approval letter, but yeah, I was working a W-2 job at the time. I was working, like I said, at a warehouse at Amazon. So, many times I’ve wanted to quit that job because it is Amazon. I’m not sure if you’ve heard the rumors, but yeah, you’re literally a machine. So, I worked as a machine.

Ashley:
I’ve seen the memes.

Rachel:
Oh, my gosh. Yeah. So, I knew that conventional lenders don’t like to lend on people who recently quit their job. So, I just stuck with that job for the longest time. I chatted with a lender and I told them my goals. I told them the price point that I wanted to buy at, which is around $400,000, because I wanted a four-plex in a nice area. They’re like, “Well, your income doesn’t cut it. You earn $15 an hour. You can’t buy this house.”

Rachel:
And then I told her, “Well, hey, I work a lot of overtime. What can I do?” They said, “Well, if you have one year of overtime income, we can include that.” So, I worked 60 hours a week for one whole year, didn’t take a break. And then I came back to my lender. I was like, “Hey, I’m here, 60 hours a week.” I gave him the records and everything. He’s like, “Okay, you’re pre-approved.”

Ashley:
So, you waited a whole year.

Tony:
We got to pause on that, right? Yeah, that’s an insane amount of dedication from you, Rachel. I think that’s the part that when people hear, “She’s 20 years old, she bought a four-plex.” They hear the shiny thing at the end, but they don’t see all the hard work that happened in the middle. How many people are willing to raise their hand and say, “I’m going to work 60 hours a week at a very labor intensive job to help me get to my goal of buying my first real estate investment property?”

Tony:
Ashley, it almost reminds me of Heather Blankenship, right? We had her back on the podcast. I can’t remember which episode but she was sleeping in the shop or a RV park the first couple of months just trying to get it all set up. Right now, she’s super successful, multi-millionaire, but it’s the hustle in between that gets overlooked so often. So, whenever I hear that, we got to stop, we got to pause. We got to give you some praise, Rachel, for being the person to be willing to grind it out like that.

Rachel:
Oh, my gosh. Yeah, it was a lot of work, but looking back, I was very happy. I was very happy knowing that I was building something. I think that’s what differentiates successful people from people who don’t end up succeeding is just, “How bad do you want it?” I wanted it so bad. Every time I would lay in bed, I’d think, “Should I go into work today? Should I not?” Because you don’t really have to sign up for overtime to just come in and work, but then I’ll think, “Oh, my gosh. I just need to bear it out for a little bit more.” To think that it’s building my retirement, I will look back on these years and not regret it.

Rachel:
So, I thought, “Oh, I have to get out of bed and work.” It’s a no brainer. If later on, this will pay for my future, for my family, and it’ll build generational wealth, it’s such a no brainer to just get your butt out of bed. Once you start driving to work, listening to good music, you’re living the life. Every day is such a blessing that you get to work. I think that during the pandemic, a lot of us weren’t able to work and I thought, “Okay, Rachel, you have a car. You’re blessed to be able to go to work. So, just go to work and appreciate it.” That’s what got me through those grueling months.

Ashley:
That gratitude, showing gratitude, I think, is so important and just waking up every morning. Even just naming off one or two things that you are grateful for can really help you start your day. I think a lot of people tied to success do express their gratitude all the time and I think there’s a big correlation. So, you guys, put a little journal next to your bed and write in there every morning three things you’re grateful for as you wake up, or a lot of people even do it at night too, where they write it before bed and just having that positive energy before you go to sleep.

Rachel:
Man, it makes you such a different person. I love that, what you just said. Gratitude, it really makes you a different person.

Ashley:
Okay, so what happens next, finding this deal? You’ve gotten pre-approved. Did you hook up with a real estate agent? What happens next?

Rachel:
Oh, yes. So, I was honestly just calling the listing agents of all these properties. I didn’t think about getting an agent because I didn’t really know how that worked. So, I called the listing agents. The funny thing is, when I saw a really good deal, it would get off the market instantly. So, I talked to these agents. I was like, “Hey, if you find a multifamily that hasn’t hit the market yet, call me up. You won’t have to deal with listing it. You won’t have to deal with talking to other agents. I will be your go-to buyer.” They’re like, “Oh, yeah, okay.” So yeah, I knew that I had to offer them something to show that I’m a qualified buyer and that they will benefit from coming to me.

Rachel:
So, I said, “Hey, if you get a 6% in your listing agreement, who knows? You might be able to keep that whole thing,” because sometimes they’ll end up cutting it to save the seller money. But I said, “If you found the buyer, you might end up with 6%.” So, they’re like, “Okay, okay, okay.” And then none of that really got back to me, except this one guy. He is a multifamily expert. When he heard what I was trying to do, by then, I was also licensed, which you might have some questions about. I just got licensed. And then I was also looking for homes, but being licensed doesn’t mean you know exactly what you’re doing. So, I was just licensed, going eye shopping.

Rachel:
And then I told him, “Hey, I’m a realtor and an investor. If you find me an off-market deal, you can make it all. I’m not going to ask for any commission.” He was like, “Wait, what are you trying to do? Are you an investor?” I said, “Yeah, a little bit of both.” And then he said, “Oh, come to my office sometime and I’ll teach you the game.” So, Steven, this is the guy who I called, he is literally the most personable realtor that I’ve ever met. He doesn’t even call himself a realtor, because he deals with people. He thinks that he is there in the service industry, which we as realtors are, but sometimes it can become such a cutthroat game where they’re just like, “Do you have a pre-approval letter? Call me when you do.”

Rachel:
He really cared about me. He said, “I will find you an investment, just come to my office. Let’s chat about this.” So, I went to his office. That became the start of a long friendship, which I’m still friends with him to this day. I visit his office often. He mostly sells apartments, but he’s very well-connected in the area. He got me hooked up with an off-market deal, which is how I got this property.

Tony:
So, a couple of things to point out with your story here, Rachel. First is that we often talk about the importance of relationships in the world of real estate investing and your relationship lead to experience, right? Because this person passed some experience on to you. They put you up on game from what they said, right? The second thing is you found a deal through this relationship and you found friendship. We talk so often that real estate investing is all about your ability to create and maintain meaningful relationships with other people. So, I think you lived that saying out so well.

Tony:
But the second point and this is a question for you too, but I know one of the things that comes to Ash and I pretty often is, “How do I get a mentor? I want someone to take me under their wing and show me the steps that needs to be done.” It’s hard, right? People that are typically successful are successful, because they don’t have a lot of time to share with a bunch of random people. But you were able to break through that and find someone who was willing to, again, take you under their wing and walk you through. What do you feel that you did or what some maybe advice you can give to rookies that are listening to put themselves in a similar situation to align themselves with the mentor?

Rachel:
So, I hear that a lot. Everyone’s like, “I really want to find a mentor.” Honestly, I don’t like the word mentor, because it sounds like someone is pouring information into your life and you’re just taking it in. But I never really wanted to get a mentor because I wanted to. I always want to be value wherever I step. So, I didn’t want to be someone’s burden. And then when I talked to people, I realized that if I really want to find a mentor or a friend who’s going to help me, I’ve got to approach every single situation with something first. I told this guy, “Hey, you’re going to make both sides of the commission. I will work with you on future deals. Let’s create a partnership.”

Rachel:
So, I didn’t really ask him, “Hey, will you teach me the game or will you teach me this? Will you teach me that? Will you bring me deals to solely me?” I just said, “Hey, I would love to work with you sometime.” And then that really opens up people to the idea of working with you. He’s just a very generous hearted person. So, he invited me to his office. He taught me all he knew. Not everyone’s going to do that, but if you approach every single situation with a service first mentality, you’re going to find someone who would love to work with you or love to teach you.

Rachel:
Because at that point in your life, where you get to the point where you’ve had so much success, you want to pour into others, but that’s also the point where you can smell people who are just trying to get something from you. If you just come into every situation with, “I want to serve. I want to help,” the successful people will see that and they’ll be like, “Okay, this is someone I want to invest in,” because people are created to build legacies. Everyone wants to help. Old people are so generous, they love helping, but they also don’t want to help the selfish Gen Z who just wants to take something from you.

Ashley:
Okay. Well, Rachel, my next question was actually going to be, “Do you think that more people are interested in you and interested in helping you because you are so young trying to do this, or do you think that they take you less serious because you are younger?”

Rachel:
Well, that’s a good question. Well, I would say that they’re intrigued and they just assume that I’m a little bit older. Their first reaction is like, “Oh, are you buying the house?”, but then they’re like, “Oh, she must be older. She just has a young face.” So, I don’t really tell people my age until they ask, which I’m like, “Yeah, I’m 20.” Obviously, they probably think that I’m a super-rich person, but then I say, “Oh, yeah, I work in a warehouse.” They’re like, “Oh…” It’s confusing for some people.

Rachel:
But then I think once they see that I’m really ready to hustle, that helps them take me more seriously, because with my background, you wouldn’t really expect a warehouse worker to start investing in real estate, but it gives you a level of credibility to show that you started from really nothing to get where you are and people can take you seriously.

Ashley:
Yeah, I think you have an opportunity, an advantage that you’re starting so young and you are young and you are serious that like you said, that people are intrigued by you. I think that you will be able to receive a lot more help and guidance from people or even be able to get more mentors, because you are younger and you are starting.

Rachel:
I think it’s a real blessing. I don’t think it’s a problem at all.

Ashley:
That’s great. One thing I want to point out to everyone listening is that if you do feel like people aren’t taking you serious, that’s probably more in your own mind than it actually is. Rachel, I’ve loved your mindset, this whole thing. You are so wise.

Rachel:
Oh, my gosh. Thank you.

Ashley:
I know that you do not have that problem. Yeah. Okay, so what happens next with the mindset or not in the mindset?

Tony:
What’s your mindset here?

Ashley:
The property. Where does your mind go?

Rachel:
Yeah, my mind. Yeah, the property is a really nice property. It is very turnkey, but I still bought it under market value. It needs some work, which I’m fine with. It’s cool if it needs some work. I just put in some repairs in two of the units. Actually, do you have the details of the property or would you like me to give you the details?

Tony:
Yeah, let’s hear the details.

Rachel:
Okay, it’s a four-plex in Lee’s Summit, Missouri. So, Lee’s Summit is the Overland Park of Missouri. So, Overland Park, Kansas is a very upscale neighborhood. Lee’s Summit is considered the Overland Park in Missouri. The good thing about it, the reason why I love this market is because the property values haven’t appreciated to extreme levels yet. So, it’s still appreciating and the property values are not overblown. That is such a plus. Two of the units have three bed, one and a half on opposite sides. Two of the units in the middle have two bed one and a half bath. They all have garages, which is great, no basement, stone slab, concrete foundation. They all have great tenants.

Rachel:
I know them personally, which made it harder to raise the rent, so I didn’t raise the rents as much, but I love them. They’re just so awesome. I know some people will say that’s not a great way to start a business. You got to be a business minded person. You got to raise the rents as much as you can. But once their leases ran up, I told them, “Hey, I’m going to be raising rents, because market rents are way above what you guys are at.”

Rachel:
I told them, “I won’t raise it that much,” which I didn’t, because they had been living here for a while. I get why some investors would want to raise into market rents, but you got to understand that these people… Their income is suited for that level of rental expenses. If you raise it to a certain amount that they can’t handle, they had to move all their stuff out. So, I mean, that’s just not something that I want to be a part of. So, I just said, “Just raise it just by 50 bucks.”

Ashley:
There’s that trade-off too as to, “Do you raise the rent and risk having a turnover and having to fill that vacancy, or do you just raise it a little bit and keep those long-term tenants in there, too?” So, when you did your analysis, though, are you cash flowing? Is the property making money for you at what you are charging?

Rachel:
It would actually break even with me living in it, but when once I move out… Actually, once I raised rents, the cash flow’s a little bit. So, once I move out, I’ll probably rent this unit for 1,300 bucks. So, I’ll be cash flowing, if I did my math correctly, about 300 bucks or so, 300 minimum per door.

Ashley:
So how much are you paying towards everything for you to live there?

Rachel:
Okay, let’s talk numbers. So, I’m paying $2,800 for the mortgage payment and insurance all in, $2,800. One of the units rents right now for $1,050. The other unit rents for $1,050. Those are the two three-beds. The two-bed rents for $915. That covers my mortgage and more. So, by the time I move out, I’ll rent this one out. Of course, I’ll need to do some updates on it, which the kitchen is very outdated.

Rachel:
So, I just got some contractors to give me a quote today. They’ll send in the quote by the end of the week, and we’ll get that updated and ready to go. Yeah, I think it’s a good return for an appreciating market, because some people buy properties here that literally don’t cash flow, because the lease on it is that good. The lease is hot. The school districts are 8 to 10. Yeah, it’s just really a nice area. So, I think I thought a great deal.

Tony:
It sounds like you got a killer deal, Rachel. I mean, look, you’re living rent free, right? You’re living totally no money out of pocket to cover your own living expenses, which for anyone at any age is an impressive feat. So, you’re building equity in your property by allowing your tenants to pay down your rent. You’re living for free and would you say is a really nice area of the state that you live in.

Tony:
It’s a win-win-win across the board. You’ve done your tenants a favor by allowing them to stay in this nice part of town without pricing them out. Now, one of the questions that jumps out to me, Rachel, is a lot of people, I think, hesitate becoming a landlord because of having to deal with tenants. So, are you self-managing this property? If so, how has that experience been for you? Can you maybe share any advice on how to effectively house hack and manage that property at the same time?

Rachel:
Oh, my gosh. That’s such a good question, because that was my biggest question when I was first getting into house hacking. I was like, “I will be living next to my tenant. I don’t know.” Yeah, that’s definitely scary. That’s the biggest thing that the people I talked to about house hacking, they’re like, “Well, what do you do with your tenant?” You collect rent. That’s just the simple answer, but yeah, I was very afraid. And then I was like, “Should I just contact a property management company and have them deal with my tenants?” But I realized, “Okay, it’s not scary. People aren’t scary. If you were in their shoes, what would you want?”

Rachel:
If I was in their shoes, I wouldn’t care if a new owner came in and just collected rent in the place of the property manager. Tenants don’t care. Unless it’s a super dramatic person, they really don’t care. As long as you’re very upfront and honest with what you’re doing, it’s actually the start of a great relationship. I run into them. I have conversations with them. They’re great people. Yeah, I mean, they’re just mature adults. It’s not that deep. Obviously, managing the maintenance can be a headache, which I’m just now getting into the flow of, because finding good contractors is not the easiest job. But once you do find them, you have them in your back pocket, you can call them up whenever.

Rachel:
So, self-managing is not too big of an issue, especially since I have automatic payments in apartments.com. They just enroll for automatic payments. I told them, “Hey, property’s going under new management. I’m managing the property.” At first, they’re a little bit confused. They’re like, “Oh, are you the property manager?” I said, “Well, yes, I am, but I’m also the owner.”

Rachel:
So, I decided to come forward with a relationship, completely straightforward and honest. So, that gave me confidence, because I’m hiding nothing from them. They’re very honest with me. I’m very honest with them, and we have a great relationship going on. So, it’s nothing to be scared about. For all those people out there, potential house hackers, do not be scared of managing your own units. It is not scary. Yeah, it’s just dealing with people.

Ashley:
We had somebody on the show not too long ago, or actually, I think it was actually a long time ago, maybe even a year ago. But they had said how when they had bought their first property, they got that first maintenance call. It was just like stress and this weight on their shoulders. They’re like, “Oh, my gosh. There’s a problem.” They called somebody to get a fix. And then afterwards, they realized, “Wait, that was 10 minutes of my life and I made 500 bucks this month from this tenant, cash flow that much.” $500 for 10 minutes of my time-

Rachel:
That’s a good cash flow.

Ashley:
This isn’t actually that big of a deal. I always remember that, because that even made an impact on me is that sometimes you think something can be so overwhelming and so stressful, but really, you’re getting paid for that time and it took 10 minutes to resolve that situation. Yes, especially the first couple times, taking those calls from tenants or maintenance requests, you might feel flustered. Oh, my gosh. I want my tenants to be happy. I want the property to be doing well. Oh, my gosh. What do I do? And then it finally becomes common. Complaints [inaudible 00:43:11].

Rachel:
Oh, my gosh. I remember my first maintenance call was the garage door was rattling a lot. I had a heart attack. When I heard that, I was like, “My house. Oh, no.” I was so scared. But then once I got that fixed, it was just like, “This is nothing.” Well, obviously, for anyone’s first, it’s going to be scary. But once you get over that hump, it’s just like, “Ah, this isn’t bad.” Especially if you have in your mind the fact that you’re providing housing for someone, it’s a blessing to provide housing. It’s nothing to be scared about.

Tony:
It’s a win-win-win for everybody involved. I think your first house hack, Rachel, hopefully inspires a lot of people. Just to recap the numbers, right? You’ve got total rents coming in of $3,015. Your principal interest tax and insurance is $2,800. So, you’re already cash flowing right now. And then like you said, once you move out and move on to that next house hack, those numbers go up even more. So, kudos to you. Congratulations to you for crushing on this very first deal.

Rachel:
Yeah, I didn’t think my first deal would be great. I thought it would just be an okay deal.

Tony:
But you proved yourself wrong.

Rachel:
Yeah. I feel so blessed every single day, but I just want people out there who’s listening to this, you don’t have to have an amazing home run first deal. You could be the dumbest person in the world and just buy real estate and win in the end, because property values always go up. That said, don’t buy a $16,000 house in a terrible dumpy neighborhood. Don’t do that. As long as you don’t do that and buy real estate, you’ll be good. Well, of course, there are some ifs to that statement, but real estate is not scary.

Ashley:
One if is the property that Tony has for sale in Louisiana, if anybody would like to buy now.

Tony:
Yeah, at Shreveport, Louisiana.

Ashley:
Maybe if you just hold onto it for 20 years.

Tony:
Yeah, I’ll hold it for 20 years. I would just do mortgage payment on it. Jesus. So, that deal has been haunting my mind for months now, but let’s talk about better mindset things. I want to get into your psyche, Rachel. I want to see what makes Rachel tick. So, let’s move on to our mindset segment. So, we’ve talked a lot about mindset already, but I’m curious, Rachel, you seems like you’ve learned a lot in your journey with this first four-unit deal that you’ve house hacked. If you go back to Rachel before you close in that first deal, what were some of the misconceptions you had about becoming a real estate investor, some things you thought were necessaries and things you thought were true that turned out to be false?

Rachel:
Yeah, so one of the biggest misconceptions I had was property management, it’s going to be so hard. I have to have a huge software or something. I have to have a whole team to be able to manage my properties. Well, if you have a huge portfolio, that is necessary. But starting out, I’d always recommend newbies to self-manage their properties for at least a couple months, just get a feel of it. It’s not scary at all.

Rachel:
That’s one of my biggest misconceptions is that talking to the tenants would be scary. I thought it would be so intimidating, because I thought they’d ask me for favors, for so many different questions, but no, people aren’t like that. They’re not going to be bothering you all the time. They just want to live a good life and have quality housing, which hopefully you’re providing. As long as you approach each interaction with, “Okay, how can I serve this person to help them get the best experience of my property?’, there’s nothing to be scared about.

Ashley:
Yeah, providing that great customer service and also keeping in communication too. So, even for maintenance, one of the biggest things I’ve learned over the years is even if you can’t solve the issue or the problem right away, keep in communication with your tenants as to what’s the update, what’s happening. I think that really does make a big difference that you stay. Keep up that communication.

Rachel:
Yeah, I just want to highlight one more misconception. I think this is very important. I thought that when you buy a house, I thought it was a huge, huge risk. It’s not like buying a stock. It’s not like putting money into a stock that could literally disappear the next day. When you put a down payment on a house, you can earn that back in whatever job you’re doing. It’s sitting in your house. That’s literally equity in your house. So, it’s not like making an investment is where you’re burning that cash. You can recoup that investment if you sell the house. So, to anyone out there who’s just so scared about buying real estate, it is not scary, because you can always sell. It’s not like it’s gone.

Tony:
Coming to you live from Rachel, who was only 20 years old and bought a house. So, if she can get over that fear, that obstacle, so can you guys. So, Rachel, I want to take us to the Rookie Request Line. You guys can give us a call at 1-888-5-ROOKIE and leave us a voicemail. Tony and I actually get these voicemails emailed right to us. So, if you send it at 3:00 in the morning, I will probably be away working on high clarity, my future, my business. No, I’m just kidding. I will listen to your voicemail, but we may pick it to be played on the show. So, here is today’s question.

Zach:
Hello, fellow investors. This is Zach. I’m from Connecticut. Right now, I’m looking at house hacking a smaller multifamily. Now, my big thing is, is I would like to get this done within this first year. I want to jump in and get my feet wet, but I don’t necessarily have the funds. Now, looking at partnerships, I do have people with money in my life, but I’m not sure how to negotiate with them and give them the deal.

Zach:
I know I would be benefiting by house hacking, AKA living rent free, and maybe having a little bit of cash flow. I guess my question is more or less, how could you negotiate? Is there any tips on making sure my partner is happy in this deal? Because I would be living there so I’m benefiting by living in a place rent free and he’s the one who’s maybe giving me 50% of the down payment. I am just looking for advice on ways to better it for both sides. Thank you.

Ashley:
Rachel, what would be your advice for Zach?

Rachel:
Okay. So, just right off the bat, hearing him say down payment, I’m assuming he’s getting a loan on it, which is great. If he’s qualified for a loan, that means he has a W-2 job. If he has people in his life, who can lend him that money, great. But I would always recommend save up and then invest that 3.5% FHA loan. If you just decide to buckle down and say, “Okay, these next three months, I’m going to save up as much as I can for a down payment and use that along with my already saved up funds,” you could probably get a down payment for a decent house.

Rachel:
But if that’s still not possible, yeah, go to your closest family member and tell them what you’re trying to do. Maybe send them some of the Rookie podcasts. You can’t explain everything in one conversation. So, send them podcast to listen to on their free time and say, “Hey, this is what I want to do.” Don’t just tell them right off the bat, “Hey, I’m going to buy a house, lend me some money.” No, you got to explain to them what you want to do. And then once they see your vision, they see that you’re absolutely driven, and you will absolutely pay them back, they’ll be much more likely to lend you the money. Like I said, if it’s an FHA loan, 3.5% shouldn’t be too much.

Ashley:
Yeah, I actually did something similar to what you’re asking, Zach, with my sister. When she graduated college, we actually purchased a house together where she needed money for the down payment. What we did was she went and got the FHA mortgage, and I gifted her. We wrote a gift letter that I was gifting her the money for the down payment and the closing cost for the property. In this gift, the letter, it states that she does not have to pay me back for this money and the loan will accept that. So, what we did was she got the mortgage in her name and then we became 50/50 owners of the property. So, we are 50/50 on the deed. The mortgage is only in her name, so it doesn’t affect my debt to income at all. I gave her the funds for the down payment, closing costs.

Ashley:
So, the benefit to me is I got into an expensive property for a low amount of money, because if I went to go buy an investment property and wanted to use as little of my own cash, I would have to put 20% down or pay cash for it. So, that was an advantage to me. It’s in an appreciating area. So, this is a long term benefit for me. My sister is living in one unit. She’s renting out the other. The benefit to her is that she’s only paying $45 a month to live there. That’s what her costs are.

Ashley:
Yeah, so great benefit to her, great long term benefit to me. If she eventually moves out, we split the cash flow from that when the other unit is rented. And then if we end up selling the property, I get 50% of the equity that’s left in the property after selling it. So, that is definitely one way you can structure it. When you are trying to approach somebody to be your partner, make sure that you’re approaching it as it’s an opportunity for them, not just that you need them and you need the money. Make it an opportunity for them. So, yeah.

Tony:
Yeah. Can I add one thing to that too, Ash? This question comes up a lot about, “What’s the best way to structure a partnership, or how do we make sure that it’s fair?” The honest answer is that there’s no one size fits all for partnerships. What’s a good partnership deal to me may be different than what’s a good partnership deal to Rachel or to Ashley. All that matters at the end of the day is that all parties involved are happy with what the agreement is. If it means that, Zach, you go out and you buy this property and maybe you don’t put up any of the capital and then any cash flow that is left over goes to the partner, then so be it.

Tony:
If you put up maybe a little bit of the capital, they put up the other half, but you’re responsible for all the repairs and the maintenance, then there’s a difference. You can set it up in any way, shape, or form that you want. So, there is no right or wrong answer on partnership structures as long as at the end of the day, you’re happy with what you’re signing up for. So, I just wanted to clarify that because I know that question comes up a lot.

Rachel:
Exactly. Yeah. Another thing to highlight about that, you mentioned that you gifted her the money. I’m pretty sure most down payment programs require you to give the money with no evidence of having to pay it back. If you want to provide value while you’re requesting assistance, I guess you could say, “I owe you a royalty of what rents come in,” instead of like, “Okay, I have to pay this back,” because some people don’t want to be part way partnerships and deals. So, that works for Ashley because she’s a real estate investor. But for other people, just come up with a deal that works for them. Yeah, I just think what you did with your sister is so smart. That’s so awesome.

Tony:
Yeah, it’s a win-win for everybody, right? Love those ways in real estate investing. All right. So, I want to highlight our rookie rockstar before we get out of here today. So, for all the rookies that are listening, be sure to get active in the Real Estate Rookie Facebook group, get active on the BiggerPockets forums, shout out to Ashley and I, give us a shout out on Instagram, let us know what you’re doing. She’s @wealthfromrentals. I’m @tonyjrobinson. As we find a lot of those good stories, we’ll be sure to share them here on the podcast.

Tony:
But today’s rookie rockstar is Kade. Kade and his wife just finished their first live-in flip and get this. They bought the property for $140,000 with 0% down. The rehab was $42,000 and they sold it for $292,000. So, Kade, major congratulations to you and your wife. If you haven’t already, submit an application to get you on the Rookie show, because I’m sure everybody’s heads are spinning, saying, “Kade, how did you get a 0% down loan on a property?” So, congratulations to you both. Excited to see you guys win some more going into the new year here.

Ashley:
Well, Rachel, thank you so much for joining us today. Can you tell everyone where they can find out some more information about you and possibly reach out to you?

Rachel:
Oh, my gosh, yes. Thank you for asking. I love people who have questions, because I just love being able to tell about my experiences. Yeah, Rachel Morrow. I’m on Facebook, Rachel Morrow, like tomorrow but no T-O, Rachel Morrow. EXP Realty because that’s the brokerage I work with. It’s easiest to find me on Facebook and Instagram. On Instagram, I’m @rachdoesrealestate. So, R-A-C-H, doesrealestate, because I do real estate. Yeah, that’s where you can find out more about me. Ask any questions you have about house hacking. I love to answer them all, or even about investing in general. I’m also a realtor here in the Kansas City area. I occasionally come across off-market deals. So, if you’re looking to buy a house, hit me up. Yeah, I’m excited to hear from our listeners.

Ashley:
Well, Rachel, thank you so much. We love talking with you and appreciated all of the value that you provided to us and our listeners today. We will be back on Saturday with a rookie reply. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson. Have a great week, guys.