From time to time, Ashley and Tony both have questions they need answering. And thankfully, they both host a show with a real estate investor in complementary niches. This week, Ashley is prepping to scale her short-term rental empire, so she wants to know from Tony what his six top tips for vacation rentals would be.

Although Tony has only been hosting for a few years now, he has a sizable portfolio that was built fast and efficiently. He’s able to charge top dollar on his vacation rentals due to his management, rehabs, and pricing strategies. If you want to max out your vacation rental income, Tony is the guy to listen to!

If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).

Ashley Kehr:
This is Real Estate Rookie episode 144. My name is Ashley Kehr, and I’m here with my co-host Tony Robinson, and today is an episode of the Rookie Reply.

Tony Robinson:
And for those of you that are new to the Real Estate Rookie podcast, Ashley and I are here to give you the inspiration, the motivation, the confidence you need to break into the world of real estate investing. Find financial freedom, really just build the life that you want using real estate as the vehicle. So what do we got going on today, Ash?

Ashley Kehr:
So today, Tony, I really want to talk about short-term rentals.

Tony Robinson:
Ooh, I might know a thing or two about that.

Ashley Kehr:
So my partner and I have two cabins under contract that we are going to turn into short-term rentals. So I thought it was timely to go over what are some basics that investors need to know when they’re getting into the short-term rental space. So I have one Airbnb now that I would consider it more of a hobby and I’d like to take my short-term rental business and turn it more into a business. So the one that I have, it’s actually an arbitrage where I rent the apartment, furnished it, and now it is listed as a short-term rental on Airbnb. It’s gone smoothly. It’s gone great. I’ve had it for two years now, and I’m ready to take on some more properties. So Tony, what’s your advice?

Tony Robinson:
Yeah, let’s dive into it. Now, before I get into all the tips, this episode airs January 1st, I think. It’s right around the new year, we have our Short-Term Rental Bootcamp that launches on January 24th. So if you guys want to kind of do a deep dive on the acquisition process of short-term rentals and make sure you guys sign up for that. Do you have the URL, Ashley? It’s biggerpockets.com/bootcamp.

Ashley Kehr:
Bootcamp?

Tony Robinson:
There you go.

Ashley Kehr:
Maybe, plural.

Tony Robinson:
Yeah. I’m sure if you guys Google it, it’ll pop up. Ash, you got a bootcamp coming up to you. Why don’t you give a quick plug for yours?

Ashley Kehr:
Yeah, so I am doing How to Get Your First or Next Deal Bootcamp. So if you are a new investor and you just want everything put into order for you as to the steps you can take, we all know real estate investing information is free on the internet, free on podcasts everywhere. But what this bootcamp does is it makes it concise for you and packages it all together. And you can follow the steps to get your first property, or if you need help getting your second or third, this bootcamp is great for you. This is definitely a beginner camp. If you are an experienced investor, this is not something for you. We did have one person sign up to a previous one that a couple weeks in was severely disappointed. And unfortunately I had to tell them, “I’m so sorry, but this is a beginner bootcamp.” So I just want to makes that as clear as possible, but got him his money back and everything, so it worked out good.

Tony Robinson:
And Now he’s good to go. That was a really good explanation of what the bootcamp is. So listeners just replay what Ashley said, but replace… throw the word short-term rental in her plug and then you get the idea for mine too. All right. So let’s talk short-term rental. So I got six tips for new Airbnb hosts that I’ll run through and they’re split up between a few different categories. So I’ll talk about getting your listing set up, your revenue and pricing strategies. And then last is like your actual guest communication. So as I’m going through, Ash, just stop me when you got a question and we can have some conversation and go back and forth on it. So tip number one of six is to study the competition. If you are a new host, it can seem insurmountably overwhelming to think about all the things you have to do to get a listing live on sites like Airbnb.
Not only do you have to find the property, analyze the property, go through the closing process, maybe furnish the place. You also have to digitally gets your listing set up, which is creating the listing. Getting the photos done, putting all the little pieces of the listing, your check out time, your check in time, your amenities. So there’s a lot that goes into getting a listing up and running. And instead of starting from a blank slate, my recommendation is to always study the competition to see what is popular in your market. What are the best of the best listings already doing? And how can you take the spirit of what they’re doing, and implement it into your own listing? And you can do this both for the physical setup of your short-term rental, and for the digital setup, the digital experience of your short-term rental.
So I’ll give you an example of both. On the digital listing side, one of the things you have to make a decision on is what time your guests check out. Check out times vary by market. I’ve seen them as early as like 9:00 AM for some listings, as late as like 12 or 1:00 PM for other listings, but it’s going to vary by the market by the size of the property. When we took our first listing live in the Smoky Mountains, we had our check out time set to 11:00 AM. Why 11:00 AM? I don’t even know. We just kind of guessed, we thought it was the right thing to do. Our cleaners let us know that it was putting kind of a time strain on them with the 11:00 AM checkout, because if they have multiple turns throughout the day, it was just hard for them to kind of get through all their properties.
So they said, “Hey, can you move it to 10:00 AM?” A lot of our other owners have their check out time to 10:00 AM. So we did some additional digging. We looked at all of the other comparable properties near ours, and low and behold, they all had a checkout time at 10:00 AM. So what did we do? We changed ours to 10:00 AM. And there was no negative financial impact, but we were only able to make that decision by checking the competition. So that’s on the digital side. And you can apply that to so many different things. To your listing titles, to your description, to your amenities that you offer, so many different things.

Ashley Kehr:
So Tony, how do you, when you’re looking on Airbnb or Vrbo, any of the websites that listings are on, how are you telling which are the best of the best? What is the best way to go and look to see if a property is being rented out a lot? I know I’ve seen… sometimes there’s the little notification that comes up. This is a-

Tony Robinson:
A rare find.

Ashley Kehr:
Yeah. Rare find, yeah, I was going to say hot commodity. I was like, that’s not it.

Tony Robinson:
They should change that to say hot commodity instead. That’s way more enticing. But yeah, that’s one way to look at it. As you open up Airbnb, you see which properties are showing up on the first page for your search criteria. You see which ones have a lot of positive reviews. Something above 4.8, 4.9 range means they’re really crushing it. Something that has really strong rates, a property who’s calendar seems pretty much full, and if it has that little emblem on there, this little blue diamond that Airbnb will put on a listing that says, this is a rare find. This place is usually booked. So those are all the indicators you can see on websites like Airbnb to determine whether or not a property is popular or successful.

Ashley Kehr:
So what would be your next advice? Number two.

Tony Robinson:
So tip number two, and actually, one last thing on tip number one. So you can also use that for your physical setup of your space as well. So if you’re trying to decide on what your design aesthetic should look like, you can also use the competition to help you guide those decisions as well. Now, what I don’t want you to do is is to copy verbatim what another listing is doing. Because you want to have some sense of individuality to your own property. And the design is a really personal choice, but use it to see what elements or what themes are consistent across all of the other top performing properties so you can try and blend those into your own listing as well.

Ashley Kehr:
I was actually watching a YouTube video this morning of your friend, Rob. Rob-Bilt on YouTube. And it was of him talking about the treehouses that he’s building in the Smoky Mountains. And just how every listing around them was just the standard kind of outdated cabiny feel.

Tony Robinson:
Bare cabin.

Ashley Kehr:
Yeah. Bare cabin, and how they were going to make it different so they out from the competition. So that’s exactly what I was thinking of when you said that, don’t copy, just because the other things are doing good doesn’t mean you should do exactly what they’re doing. See if you can find a way to stand out to.

Tony Robinson:
Which takes me into my next tip, Ashley, what a great segue. Tip number two is to try and find a differentiator. Once you’ve spent enough time getting with the other listings that are in your market, start using some of that research to say, “Where is there a gap? How can I improve upon what’s already working?” And the example you just gave of my friend Rob is a great example, right? He knows that the Smoky Mountains is a very competitive, very well performing vacation rental market, but he also knows that almost all the cabins look the same. I kid you not, quick side story. I was on a meetup with a bunch of cabin owners in the Smoky Mountains. And one of the guys, I had to do a double take because I thought that he was in my cabin. He was in a cabin and the background behind him. And I’m like, “Are you at my house right now? Like, are you actually at my property?” And he’s like, “No, this is a house that I just bought.”
So that’s how similar a lot of the properties can look out there. It’s like, I literally, this is a house that I bought that I own, that I thought that he was sitting in because it looks so similar. So if you can find a way to say, “Okay, here’s what’s working, here’s what people want, but here’s how I can make it even more unique. Here’s how I can offer maybe an amenity that the other properties aren’t offering.” So we’ve done this a lot in Joshua Tree as that market has started to heat up, but we’ve gone back and kind of started adding some amenities to our properties to stand out in ways that some of the other competition isn’t. So get really familiar, find that gap and then try and capitalize on it.

Ashley Kehr:
Awesome. Thank you, Tony. I do not have any follow-up questions on that advice, but I love that. So one of the areas that we’re investing in for the cabins, it’s a ski resort town, and there are a ton of short-term rentals. So what we’re doing to kind of make it a little different is we bought a property with land, and there’s a little pond, and we’re going to try to make it a more of an outdoor experience than just the interior, but it’s the same kind of thing where a lot of them look exactly the same in the inside. It’s the two skis crossed together on the wall all the ski decorations, wish for snow and things like that.

Tony Robinson:
Yeah, you got to find a way to stand out. And I think that’s even more important Ashley, because the short-term rental space in general is becoming more popular amongst investors for a multitude of reasons. I think more investors are starting to see that there is good returns to be had there. I think Airbnb itself now that it’s a public company has a lot more visibility. They’ve spent a lot of money in the last year trying to recruit new hosts. So there’s all these different factors at play that are driving more investors into the short-term rental space. And as that happens, if you want to remain competitive, you’ve got to find ways to stand out. So that one’s a really important point. So cool. Those are the first two tips. The next category of tips is all about revenue and pricing. So tip number three, and the first tip about revenue and pricing is don’t be afraid to experiment with your pricing strategy. And I’ll break this down a bit.
There are a lot of different things that you can do when it comes to pricing your property that will have an impact on your occupancy and effectively your overall revenue. So for example, you can change your minimum night stay. So how many nights must a guest book to stay at your property? Some people put it to one night. Some people put it to five nights. And depending on what minimum night day you choose, that’s going to have an impact on your revenue strategy. Another thing is the actual prices that you’re charging throughout the year. In most markets there’s a peak season and there’s a slow season. And the hope is that you know what those seasons are and you’re charging appropriately. If the busy season for your ski resort town is, I don’t know, January and February, because that’s when it’s snowing, you should be charging way more in those months than, I don’t know, in July when it’s the summer and no one wants to go to that ski town.
But understand what those different seasons are and play with your prices to make sure that you’re reflecting that. There are other minor things like how much you charge for your cleaning fee, whether or not you charge more on the weekends than you do during the weekdays, there’s so many different levers you can pull to try and see how it impacts your pricing. So I’ll give you two examples. First example, for our bigger properties, we have longer minimum night stays. So typically we’re between three days during the regular season, up to seven days during the busy season. For our smaller properties, we might go a one night day during the week, Sunday through Thursday. And then we’ll do a two night stay on the weekends, Friday, Saturday, Sunday. So we play with these different things to kind of find what’s been most beneficial for us. So you’ve got to be able to do the same for yourself.

Ashley Kehr:
Tony, question on that is, so the first year that we had our Airbnb, I didn’t go in advance and make the price higher for 4th of July weekend. And we had somebody book it for probably half of what they would’ve paid at any of the surrounding ones. So what are some tools that somebody can use to make sure they’re staying on top of the pricing? I know that Airbnb has their pricing software where it kind of fluctuates and you set the minimum and the maximum, but what’s some other features or software that people can take advantage of so you don’t get into that situation and you’re always on top of the pricing?

Tony Robinson:
So yeah, Airbnb does offer what they call their smart pricing kind of feature that’s baked into Airbnb. I mean, a lot of hosts rely on that. They use it and it works for them. What a lot of the more sophisticated hosts do or host a lot of listings, they leverage dynamic pricing tools. It’s a software that’s labeled as a dynamic pricing tool. Some big ones out there, there’s beyond pricing, there’s PriceLabs, which is what we use, AirDNA has recently launched their own kind of pricing software as well. There’s a lot of different platforms you can go to, but the general sense is that you use these dynamic pricing tools to do a really in-depth research into your market, understand your competition, and then they will dynamically and automatically adjust your prices every single day. So you just kind of set the framework of how you want your pricing strategy to work, and then it’ll go through on a daily basis and adjust it.
So like, for example, I can set, and I’ll keep this one brief, because we can get really, really into the weeds on this one. But I have a two night minimum stay for some of my properties in Joshua Tree, but I know that as I get closer to a certain date, the likelihood of someone booking goes down. So if I have an open date over the next 10 days, I’ll automatically adjust that two night minimum to a one night minimum. Because hopefully there are more people searching for a one night stay over the next 10 days than there are people searching for a two night stay over the next 10 days. So a dynamic pricing tool allows you to set rules like that and then it runs on autopilot on a daily basis.

Ashley Kehr:
Awesome. Very cool.

Tony Robinson:
Yeah. Let’s move on to number four, which ties in pretty closely to number three, but a big part of getting your revenue and your pricing strategy right is having good comparable properties. So in the same way that when you are analyzing a long term rental and you’re trying to figure out what you should charge for rent, you’re looking at other comparable properties in the neighborhood and you’re using that to gauge your decision on the pricing for your property, the same holds true for short term rentals. You want to identify a good comp set of properties, a good set of comparable properties. You can consistently grade your property against to see whether or not you’re moving in the right direction, if you’re pacing in the right direction or if you need to make adjustments. So we keep a concept, we have a broad concept to recreate.
Then we have a more kind of narrow concept. So like for example, say I have a two bedroom property. I might look at all the two bedrooms in that market. So I can see what are the different ranges of prices that we’re seeing for those kind of properties. But then I’ll create a very specific subset of properties. Maybe it’s like 10 to 15 properties, where I go through and I hand select and I say, “Okay, this one’s a really good comp to my property. Let me look at this one. This one’s a really good comp to my property. Let me look at this one.” And when I have the kind of broad strokes in that more narrowly defined comp set, that allows me to make some really good decisions on how we should be pricing our property. So creating a good comp set is tip number four.

Ashley Kehr:
Very cool. Thank you. With that is when I look at listings on Airbnb, what’s the best way to show the vacancy rate when you’re pulling those comps. Is it just like not putting in a date into Airbnb and then hitting search? So you see all of them. Okay. I didn’t know if there was a better way.

Tony Robinson:
Yeah. So Airbnb doesn’t make it super easy to do this kind of competitive research. A lot of the other tools out there, the dynamic pricing tools that’ll assist with this in different ways, but if you want to do it the free way on Airbnb, all you have to do is open up the comparable property that you want to see. And then you can literally just open up their calendar and see what dates are booked over the next 30, 60, 90 days. And that’ll give you a sense of how you should be pacing for your own property.

Ashley Kehr:
Okay. Thank you.

Tony Robinson:
All right. So those are the two tips on revenue management. My last two tips are all about guest communication. So if you guys didn’t know, a big part of being a short-term rental host is actually communicating with the people that come and book your property. We’ve learned a lot. We’ve hosted over a thousand people at this point across our different properties. Some have been amazing. Some have been terrible and everything in between. So I I’ll break down just a couple tips on, on what we’ve learned there. Tip number five is understanding that a refund is better than a bad review. Reviews are the life blood of your business as a short-term rental host. One bad review, especially for a new property can really derail your progress and ultimately your revenue. So if we are ever in a situation where we feel a guest has had less than an optimal experience or less than a five star experience, we are very quick to send some kind of refund. Sometimes it’s small, maybe we’ll send 20 bucks, 25 bucks. Sometimes it’s big. We might refund an entire night.
It all depends on the severity of the incident and what happened. And it doesn’t matter whether or not it was our fault. Sometimes things break and there’s no way we could have planned to prevent that, no reasonable way. But regardless, whenever a guest experience is something that’s less than a five star review, it’s on you as the host to make that right. And what we found, and I read this in a study. I used to study marketing when I was in college and brand… I don’t know what the phrase is, what’s it called when you’re a fan of a certain brand, like brand allegiance? I don’t know what it’s called, but your favorability of a brand can increase, if you have a negative with that brand, but that brand then does a lot to make it right. So for example, if we have a guest that checks in and I don’t know, like the hot water heater, all right, let me give you a real example. So we had a guest that checked in to one of our properties last week.
We’re in the winter time right now. So things are really cold in Joshua Tree. Guest checks in, they try and turn on the heater, and the heater is not working. We’ve never had that problem before. We’ve had that property for almost a year. Guests come in and out, never had that problem. This guest checks in, heater’s not working. We can’t get any HVAC company to go out to make it right. So we call up our cleaner. We say, “Hey, can you guys stop by the property?” Actually, we asked our cleaner to drive to the store, buy a space heater, and then drop it off at the property.
The guest didn’t ask for this, but we just went out of our way to do that to make it right for them. So we gave them that space heater. We gave them a partial refund, had someone come out the next day to get the heater fixed. But those are the kind of things you need to do to make sure that you’re making things right for the guest, because a bad review, a bad review will cost you way more in the long run than a partial refund.

Ashley Kehr:
So I just booked one of your properties for a full week. I can’t wait to say that something’s going wrong and ask for a full refund.

Tony Robinson:
Yeah.

Ashley Kehr:
But that is such a great point. That’s just another example of that money can solve so many problems, including with having somebody that’s having a bad experience in your Airbnb and saying, you know what, I would love to. And especially if they don’t ask for it. Doing more than what they ask for saying, if they just want you to come and take care of the problem, or even if they’re just letting you know, if they’re being super nice, like, “Oh, I just want to let you know, the wifi didn’t work while we were there.” And they’re not, not even asking for anything. And then you go and say, “Oh, let me refund some of your money for that”, or things like that. So that’s such a great point. I love that tip. I think so far my favorite.

Tony Robinson:
All right, well, tip number six is to leverage automation within your business. There are, especially if you start to scale your portfolio, there’s a lot of going back and forth with your guests that needs to happen to ensure they have a smooth experience prior to checking in, while they’re at your property, while they’re on their way out of your property. And then even after they leave. So you can manually send all of those messages if you want to. But that would be a nightmare. So we leverage a lot of automation software to help facilitate that process. There are a lot of companies out there, Hospitable, iGMS, Your Porter. There’s a lot of different channel managers that short-term rental hosts use, but the important piece is to pick one, use one, and then load it up with a bunch of different messages that you sent out to your guests.
So we have three distinct phases of a guest experience. They have before they check in, so they’ve just booked your property, but they haven’t checked in yet. They’re actually staying at your property, and now they’ve actually left your property. So before they check in, we send them a confirmation message that goes out immediately. We send them a check-in instruction message that gives them all the details of how to access the property. So they get those before they even check in, they get two messages from us. During their stay, they get one message that’s just checking in with them. “Hey, hope you checked in all right, hope everything’s going well, let us know if you need anything.” Before they leave, they get another message saying, “Hey, hope you had a great stay. Here’s a reminder of the house rules, and what you need to do as you check out.”
And then once they leave, they get another message that says, “Hey, we really hope you enjoyed your stay. We’d really appreciate an honest review of the property”, et cetera, et cetera. So all those are automated. And some guests, they get nothing but automated messages because everything that they ask is handled by those automated messages. And lo and behold, we get so many people, Ashley, they comment about how responsive and communicative we are as hosts, not knowing that the vast majority of that communication was some algorithm running on the background of our channel manager. So it’s really helpful to have those automated messages to give your guests a really good experience without it being a big time suck on your end.

Ashley Kehr:
And I think that’s a big part of setting up those systems and processes on your first property so that you have them all set to just roll into more properties instead of having to, okay, you got 10 properties now, having to go back and implement those for each of the properties.

Tony Robinson:
Yeah. We’re copy and paste at this point. So we set it up one time, we bring on a new property, it’s literally just copy into the next one. So that’s it. Those are my six tips. I hope that that gives some insight for new beginners on how to be better hosts, and maybe takes away some of the anxiety that’s related to getting started in the short-term rental space.

Ashley Kehr:
Yeah. Tony, this is awesome. This is a super easy episode for me to record and I learned a lot.

Tony Robinson:
All right, next one, we’re going to do it all about RV’s and campgrounds, or maybe running a liquor store. That way I can just lob all the questions your way.

Ashley Kehr:
Or injuring your knee snowboarding.

Tony Robinson:
Or injuring your knee while snowboarding.

Ashley Kehr:
Well, thank you guys so much for listening. I’m Ashley @WealthFromRentals. He’s Tony @TonyJRobinson on Instagram. And don’t forget to check out the Real Estate Rookie Bootcamp and the Short-Term Rental Bootcamp. We would love to have you guys be a part of it. It starts January 25th. We’ll see you guys next time, but before we go, let’s find out what’s new on BiggerPockets.com and can provide you guys the most value.

 



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HW+ member spotlight Sarah DeCiantis

This week’s HW+ member spotlight features Sarah DeCiantis, chief marketing officer at United Wholesale Mortgage. As a 2019 Vanguard and Women of Influence, DeCiantis is the catalyst behind United Wholesale Mortgage’s strategic approach to marketing, which has helped the company become the No. 1 wholesale lender.

DeCiantis oversees advertising, public relations, social media, creative and customer relationship management that has established the company as the gold standard of the wholesale mortgage industry. DeCiantis prides herself on truly being in the weeds in all aspects of UWM marketing, as she regularly meets with clients to help assess their goals from a marketing perspective so UWM can help them grow their business, stressing the importance of building a strong social presence and driving business through content.

Below, DeCiantis answers questions about the housing industry:

HousingWire: To start off, what is your current favorite HW+ article?

Sarah DeCiantis: This is tough! I love them all and think HousingWire does a fantastic job keeping readers, like myself, up to speed on industry news and trends. One article that sticks out is “Mortgage industry cheers Sandra Thompson’s nomination,” by Georgia Kromrei. I love that it showcases the support of a strong senior female leader in the industry, and think Georgia did a great job capturing perspectives from a variety of industry leaders and organizations.  

HousingWire:  When do you feel success in your job? 

Sarah DeCiantis: My success is based upon whether or not my team is happy and thriving. As a leader, I will always push and strive to do more, get better, take on new challenges and hit goals, but success comes in the form of making sure those around me are happy, fulfilled and continuously growing.

At the end of the day, you’re only as good as your team, and it’s my job to ensure I’m providing them with what they need to be the best possible versions of themselves, personally and professionally. It’s simple – if they’re not successful, I can’t be successful. Team is everything.

HousingWire: What’s the best piece of advice you’ve ever received?

Sarah DeCiantis: The best piece of advice I’ve ever received is to be kind 100% of the time. It’s nothing new or groundbreaking, and something we learn to do as a child, but many people lose sight of this basic fundamental.  

You never know what someone is going through, so whether it is a colleague, friend or stranger, your kindness has the ability to make a significant and positive impact on those around you.

HousingWire: What are 2-3 trends that you’re closely following?

Sarah DeCiantis:

  1. From a marketing standpoint, the official phasing out of third-party cookies is a reality I, along with every other marketer, have been studying. It’s important we find ways to ensure the continuation of effective digital advertising moving forward as this trend will continue in 2022. 
  1. From an industry standpoint, the shift we’re seeing with retail loan originators transitioning from retail to wholesale is picking up, and we at UWM take a proactive role in ensuring this trend continues on an upward trajectory. We’re already seeing an increase in conversions now, and we expect this to continue in 2022 and beyond, especially as rates continue to tick up and refi’s slow down. 

HousingWire: What do you think will be the big themes for the housing market in 2022? 

Sarah DeCiantis: Without a doubt, we’re going to see the wholesale channel grow exponentially in 2022 and beyond. As rates tick up, and refinances slow down, more and more retail LOs are going to switch over to the wholesale channel. 

With the growth of the independent mortgage broker channel, we will also see an increase in consumers across the country better understanding the benefits of working with an independent mortgage broker. Specifically, they will become increasingly aware of how personalized experiences, local expertise and speed to close can positively impact their monthly payment and closing costs.

To become an HW+ member, click here.

For more information on HW+ benefits, click here.

To view past issues of our HW+ exclusive HousingWire Magazine, go here.

The post HW+ Member Spotlight: Sarah DeCiantis appeared first on HousingWire.



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When you think about your ideal life in 5,10 or even 15 years, what do you see? When you think about your finances, what is it that you want your money to do for you? As today’s guest, Aaron Latal, so elegantly put it, when setting goals it is best to start backwards.

After graduation, Aaron landed a high-paying job as an engineer and genuinely enjoyed the work he was doing, yet he felt like something was missing. Besides his job, he had nothing to fill his free time, so he turned to real estate investing. He began to read, listen to BiggerPockets and do anything he could to educate himself. Once he felt like he had a good understanding, he started his real estate journey by rehabbing the property he lived in and eventually house hacking a duplex he purchased.

Shortly after that, he realized this is what he was meant to be doing. He then quit his job despite enjoying it because he knew that engineering didn’t fit the life he envisioned for himself. From there on he poured everything into real estate and wholesaling. He soon noticed that he had more of an interest in the business and process side of things so that’s what he focused on. As business picked up, he was able to outsource certain aspects of his job and focus on his strengths and what he enjoys. By working backward and understanding what he wants his life to look like in the future, Aaron is not only building his ideal life but living it.

Ashley Kehr:
This is Real Estate Rookie, Episode 143.

Aaron Latal:
That’s I think the big mindset shift is just using the word if. Like in 25 years, if I was at the number one best place I could be financially, what would look like? Could you make it up?

Ashley Kehr:
My name is Ashley Kehr and it is almost the new year 2022. And Tony Robinson is still my wonderful cohost and I could not be happier to go into the new year with you, Tony.

Tony Robinson:
We made it through another year, Ash. 2021, it was crazy, right? Because 2020 was the crazy year for everybody in so many ways. And everyone thought that 2021 was going to be the year that things got back to normal, but it was kind of just more the same. So here’s to hoping that 2022 is the year that we get back to some semblance of regular normalcy, and that everyone that’s listening gets their first real estate deal, then it’s just good news around everybody.

Ashley Kehr:
I know. I know. And reach out to me and Tony on Instagram too you guys at WealthFromRentals and at TonyJRobinson and let us know what your new year’s resolutions are, what your new year goals are to get that first deal or to get that next deal. We would love to, love to hear from you guys about that.

Tony Robinson:
Yeah. So I think we’re actually probably going to do an episode, Ash, coming up here, but where we talk about our goals for 2022. So I won’t spoil that yet, but just what’s new with you? Give me a life update. What’s going on in the world of Ashley Kehr?

Ashley Kehr:
Well, today started out super great. I just had like, we have our little mastermind call me, you, and our friends, I guess. And then I got some random calls just about different opportunities and I was like, “Wow, today’s great.” And then this deal I’m working on, they won’t even counter my second offer. They countered my first offer, but now they’re not even countering my second offer and there’s another offer coming in, so I have some homework and some more tightening of my numbers to do. One thing I will not do is I will not stretch my numbers to make the deal work as much as I want that property. So always remember that guys is don’t overinflate your income and don’t deflate your expenses just to make the deal work. There will always be other deals. And I’m going to replay this to myself repeatedly today as I really, really want to just offer the full amount and get the deal. But I won’t. What about you, Tony?

Tony Robinson:
Yeah, but just commenting on that, it’s such an easy thing to do. When you spend so much time looking at a deal, analyzing it, you’re already what you’re going to do with the property. It’s super easy to start making decisions that are based on emotions, they’re not based on data. Like there’s a small motel here in Southern California in Big Bear Lake that I put an offer in on a few months ago and we couldn’t agree on a number and it’s still listed and I keep thinking should I just go back and ask them what they’re… But it’s like, if it’s still listed, it’s still listed because they’re asking for too much. So yeah, really, really solid pass.

Ashley Kehr:
I even made the property the background on my phone. So when I look at my phone, it’s like, “Is what I’m doing right now really helping me get this property?” So I’m going to be so disappointed if the reason I don’t get it is because they get a higher offer, something where at first there’s been no offers and really not a lot of interest. So it was more of like, can I come up with enough money to make this work? And can I pull off the operations? But now it’s like, oh my gosh, I might not even be able to get it under contract. So we’ll see.

Tony Robinson:
But they say sometimes the best deals are the deals you don’t do. So if this one doesn’t work out, maybe it’s for a good reason.

Ashley Kehr:
Right. Yeah.

Tony Robinson:
But what’s new with me? Let’s see. Still trying to sell my house in Louisiana. Mentioned that in the last podcast. We had it under contract for all of 48 hours before it fell out of contract because of the flood insurance. So if anyone wants a house in Louisiana, it’s still up for grabs. But super excited, our team-

Ashley Kehr:
You could put a link in the show notes.

Tony Robinson:
… Yeah. We’ll put a link in the show notes if you guys want to check it out. Yeah. But I was super excited. Our team at Alpha Geek Capital is growing. We’re actually looking for an acquisitions person. So we just closed that application last night. We had a bunch of people apply, so we’re hoping to get someone onboarded within the next couple of weeks to help us get to our goal of buying not one, not 100, but 1,000 short-term rental units in the next two and a half years or so. So we’re going to need a pretty cool team to make that happen. But that’s what’s going on in my neck of the woods today.

Ashley Kehr:
I feel like over the last couple of weeks, or even the last month, you and I both have had a lot of clarity as to where we want to go, what we want to do. And just from conversations we’ve had, I think at least like the last six months, we’ve been a little lost, both of us. So I love it that we’re so in sync. We’re lost together and we find our way together.

Tony Robinson:
And what better time than right here at the end of the year, where we can go into 2022 with a lot of clarity. But I last thing on that point, I think what helped me gain that clarity was having conversations with other investors, right?

Ashley Kehr:
100%.

Tony Robinson:
And it wasn’t necessarily that they came to me and said, “Tony, this is what you need to do.” Honestly, what someone told me, they were like, “Tony, it doesn’t matter what you decide, just pick something.” Like, “It doesn’t matter what you decide, just decide on something.” And when I got that feedback, I was like, “Man, I guess you’re right.” And when I had that kind of realization, it was really freeing to realize that I could pick whatever I wanted to pick, I just needed to pick something.

Ashley Kehr:
Yeah. I agree. It was those little side conversations that happened at conferences or phone calls with other investors. So that’s why it’s so important to network, not even just the inspiration, motivation, but because you’re going to get those, it’s usually just one liners too that are like aha moments for you. I’m like, “Wow. Okay.” But I have to say, since I have this clarity again, that I feel so much more motivated. I can’t even tell you the last week, how much I’ve just wanted to grind and hustle and work because I know exactly what I’m going for now. And so nice to have clarity. Let’s hope I can keep it.

Tony Robinson:
Yeah, when the podcast comes around in February, we’re both in totally different directions. I’m buying farm houses in New York by you and you’re buying, I don’t know.

Ashley Kehr:
Vacation homes in Mexico. Yeah.

Tony Robinson:
Vacation homes in Mexico. Yeah.

Ashley Kehr:
Well you guys ready for today’s show, the last guest episode of 2021? Today we have Aaron on the show and Aaron is going to talk about systems and processes for wholesaling. And he just started his wholesaling business in the spring of 2021. So he’s already hired virtual assistants and people to outsource his tasks to. Even if you’re not wholesaling, this is a great episode to listen to, to learn how to do these things and start to outsource.

Tony Robinson:
And not only does he go over how he’s building his team, but we also spent a good chunk of the episode just talking about how he set goals for himself. So what a great episode to end the year out with.

Ashley Kehr:
Okay, well make sure you guys check us out on Instagram if you haven’t already at WealthFromRentals and TonyJRobinson, we’re going to be sharing even more content going into the new year. And then check out the Real Estate Rookie YouTube channel. We post the podcast on there and also have weekly videos released that are tailored just for rookies. And let’s bring Aaron onto the show.

Tony Robinson:
Aaron, welcome to the Real Estate Rookie podcast. Super excited to have you on man. Welcome to the show.

Aaron Latal:
Awesome. I’m excited to be here and honored.

Tony Robinson:
Yeah. Awesome man. So we’ll get into the story here. Aaron, why don’t you tell us a little bit about yourself. Tell us how you got started in the world of real estate investor.

Aaron Latal:
All right. So I graduated from college in 2017 and I got a job. I studied engineering, so I got a decent paying job. And then I was like, “What?” Because I had never really been paid before and then getting a W2 income, like every two weeks they were paying me more than I ever made really. I worked jobs throughout school, but never really made any money. And then I was like, “What am I going to do with all this? Geez a wheeze.” And I ended up having way more time as well, because after I got home from work, I didn’t really have anything to do and I was super involved in college.
So I was really bored when I got home from work. And I was like, “Well, I don’t know, I like working on things. So I’ll just start working on this place that I’m living in now and see if I like that, I might buy a property to fix up and flip or something.” Because I was looking to try to figure out something to do with my money. And I looked at investing in a stock market. And that wasn’t really, for me. I don’t know, tangible guy. So I bought a duplex after looking for a while and getting super involved in reading tons of books and being a Bigger Pockets junkie, listening to those podcasts to and from work for six months or something.
So I bought this duplex, rehabbed one unit, rented it out and then rehabbed the other unit and then moved out of it with… I was living in it with a friend. So like house hacking the unit and the whole duplex. And then me and that friend that I was living with, moved into his duplex, which was a block and a half away. So I grabbed my stuff and we threw it into his car and drove. There wasn’t enough room in the car for me to sit there, so I just a handful of stuff and I walked over to the duplex quicker than he drove over there. So we moved out of that place and then I guess buying that first duplex was how I got started.

Tony Robinson:
Yeah. So it sounds like you house hacked to begin with, is that the first strategy?

Aaron Latal:
Yeah, definitely.

Tony Robinson:
Awesome, man. So just give us an overview of where your portfolio is today.

Aaron Latal:
Okay. I still actually just have that one duplex that I bought a few years ago. And then since then I did one flip/hotel, because it was a bad wholesale deal, really. I couldn’t sell it to anybody else.-

Ashley Kehr:
Can you just explain what a hotel is for somebody that doesn’t know? Real quick please.

Aaron Latal:
Yeah, definitely. It’s a property that really could be listed or it’s really close to being able to be listed. So I bought the property and then listed it in two weeks. So basically I just repainted some stuff and then fixed a couple cabinet doors and closet doors that weren’t closing properly.

Ashley Kehr:
Awesome. So is that your one flip and then anything else after that?

Aaron Latal:
Yeah, after that I did one wholesale deal, and that one, I JV’d with somebody. And then as I got the call from the title company… Or the day that I got the call from the title company like, “Hey, your checks here, come pick it up.” That was the day after I had quit my W2 job. So I was like, “Ooh, that could be, I don’t know. I believe in signs and everything, but that seems like it could be one of them.” So I had quit my job. And then since then went on a little vacation and came back and started wholesaling. And now I’ve done three more wholesale deals since I started doing that. I’ve got a few under contract right now and then one of them I bought and I actually am seller financing it to somebody else.

Ashley Kehr:
Awesome. Okay. So lots of different stuff going on there. First, I want to know what was the motivation to quit your job. Is it because you hated it or was it because you were making money in real estate or you wanted to have more time to pursue real estate really?

Aaron Latal:
Good questions. It was kind of weird to quit my job because I didn’t hate it. I liked it. I liked the job and I liked the people and yeah, pretty much everything about it I liked. I was just like, I don’t love it and it’s not really what I see… I guess I knew what my ideal life looked like and then I knew, or I could see what path I was on and the path I was on was going to end over here to like… And then my ideal life is over here. So it didn’t feel perfect, and it’s a good time.

Ashley Kehr:
Let’s break that down a little bit. So it’s the end of the year, everybody’s getting ready to put together their New Year’s resolutions. What’s going to be their goals for this coming here. How do you set that vision for yourself? For me, it is really hard for me to see into the future and be like, “This is what I want my life to be like in five years.” Do you have any tips or tricks for me and any of our listeners as to how you set that vision for yourself and really pushed yourself to meet that goal?

Aaron Latal:
Absolutely. I will also start off with, I guess, it’s really hard for me to set a long term goal. I’m definitely a goal setter and I love personal self-help books. Basically love those. And so I set goals and normally my goals are like, “Well, this year I want to run a half marathon or do something like that.” That was how I was approaching my goals. But in 2020 I went to the ONE Thing Goal Setting Retreat and they gave me a really good framework for how to set longer term goals. And then they, instead of, I don’t know, I’ve always built my… Or I’ve thought that you could build a three month goal and then off of that, you can make your one year goal and then you can make your five year goal from there. And they were like, “No, do it backwards.”
So think about what you want your life to be like in 25 years. And that’s really, really hard to… I’m barely 25 years old. So in 25 years I’m going to be twice as old as I was, or as I am now, it’s just insane to think about. So they’re just like, “If it was”… That’s I think the big mindset shift is just using the word if. Like in 25 years, if I was at the number one best place I could be financially, what would that look like? And it’s kind of, at that point, you can kind of play around with it and be fun and be like, “Okay. So if I was totally satisfied with my job, what would that look like? And just make it up.

Tony Robinson:
Let me add one comment onto that, because I love the conversation about goal setting because is I feel like it’s such a… I think everyone understands the value in setting big goals for yourself, but people don’t often take the time to really clearly identify what those goals are. And funny enough, Ash and I were just on another call this morning, we were sharing our goals with another group of investors. And it’s just such a motivating feeling when you can set a super specific and clear goal for yourself, because it’s like all of the other noise just starts to go away when you’ve got this really clear vision of what your future looks like and clarity around what you should be doing on a day to day, week to week, month to month basis.
That clarity just really comes in when you’ve got a really crystal clear vision of your future. So not to put you on the spot too much, Aaron, but I guess in the way that you’ve set your goals, what is your advice for someone if they want to mimic what you did and maybe set that big 25 year picture or 10 year picture, one year goal for themselves.

Aaron Latal:
Okay. So basically you got to break it down, because you can’t just be like, “In 25 years, my whole perfect life between my family, my relationships with friends, my fitness, my finances, my job. So I’m talking about all these things. Break those down into categories. So start off and just say, “I think it’s best. If you can try to get some time alone, like make a big time on your calendar and you can go out somewhere. I think that’s what I’m going to do. I think making it more special can make it a little bit exciting.
So do that and then break it down into my perfect finances would look like this. And so I have X amount of dollars saved up and I’m going to be spending X amount of dollars per month. And so that’ll last me the whole time, or I’m going to have this many rentals that are paying me and so that’s going to last me for whatever. And then my relationships I’m going to just have a core group of five to 10 friends. And we see each other a couple times a year and we go on these types of vacations. And so you make all of that up. And like, that’s kind of, I think the fun part. But definitely be writing it down and try to get as specific as you can.
And then, so you have your life broken down into those categories. The basically five that I can think of would be finances, your job, family, friends, and health. You can break it down into more or less, but I think having that is a good place to start. So then identify your 25 year goals in those five areas. And then from there comes the part where you’re going to break it down and figure out basically your most important next steps or your action plan. So break your 25 year goal down, and do a five year goal, and then you can break that down into a one year. And then from there, you kind of know what you need to be working on this quarter or this month or this week.

Ashley Kehr:
That’s awesome. Thank you so much for sharing that, Aaron. Bigger Pockets also has the intention journal that works in the same way, where it has you break down your mins, your most important next step. And it really helps you develop those action items to reach your goal or to get there. But Aaron, enough about goal setting and the future and the vision, I want to hear about what you’re doing right now in your business. So you mentioned you’ve been primarily doing wholesaling. What does that business look like? Do you have partners? Do you have employees? What kind of systems do you have? I want to hear all about it.

Aaron Latal:
Okay. I started wholesaling in May this year and I had been wholesaling, it was basically, I was like, “Ah, I need to make a little bit of money and it would be a good way to find my next property. So maybe I’ll find my property off market. And if I find something that’s not a good fit, I’ll just try to sell it to somebody else.” And so that’s what I had been doing for about six months of the end of 2020, I guess. And so that’s when I found that whole tail deal. And then I found that other deal that I JV’d. But then since May, I was like, “This is what I want to do full time.” And so I’m actually, it turns out, pretty interested in the business side of things and the process side of things. So what I’ve been doing since may is trying to systematize and make a process around things so that I can eventually hire myself out of the business.
So, so far I’ve been able to outsource. I had outsourced some cold calling and text message prospecting to a friend of mine that wanted to learn more about real estate. And he’s since moved on and I’ve found a virtual assistant in South America that’s doing some cold calling for me right now and I’m interviewing a person to help me with dispositions right now. So they’re going to be sending out emails and creating the emails to send out to my buyers list and then doing all that communication between the interested buyers and us and the title company and just making sure that runs smoothly so that I can focus more on spending more time going out and looking at properties and analyzing properties. Because that’s a fun part for me.

Ashley Kehr:
I saw Ashley Wilson, she’s at BadAshInvestor on Instagram, she does multifamily syndication. She had done this post this morning or yesterday and it was that when she goes through her email or when she does anything, it’s either that task is going to be automated, delegated, or eliminated. And I thought that was so awesome and that’s what like keeps her from having to do tasks and to be that high level person where she can take something and categorize it into one of those dumps I guess, and dump it into there. But Aaron, are you using any kind of software to manage these contractors that are working for you or to do your project management workflow?

Aaron Latal:
Yeah, absolutely. I was using Podio when I started just because it was free, and it was working pretty well for me to manage like following up with people, but it wasn’t working as well as I thought it could be. And now I’m using Forefront, which is a CRM that Danny Johnson made. And I found him actually on another Bigger Pockets podcast, and I was using him for a website before that and he invited me to a webinar where he was rolling out the CRM and he was like, “We’re giving everybody a great deal.” And I was like, “I don’t know if I need it, but I think it’s going to be helpful.” And so kind of took a leap of faith and it’s awesome. I love it so much.

Tony Robinson:
Aaron, one thing I want to point out, because I feel like a lot of times on podcasts, you hear the guests and you hear the host talk about like team building and getting this VA and hiring this person for their team and doing these things. And when I think about myself, when I first started in my real estate business, I didn’t have the money in my business to go out and hire somebody. And I think that’s just an important distinction to make because it’s like when you’re first starting, sometimes you do have to wear all of the hats just to get the whole machine to get to start turning. Like if you maybe go out and try and hire everything right away, you might not have the resources, whether that’s money, whether that’s the knowledge and ability to train those people or even just the desire.
So I just want to make sure that we’re framing the conversation in that, yes, it’s cool to hear Aaron and Tony and Ashley and Brandon and Dave and all these other people talk about how their teams are being built. But when you’re first starting out, sometimes you do have to do everything yourself. So I guess my question to you, Aaron is when you first started wholesaling, was your team what it is today or was it just you as a one man show?

Aaron Latal:
My team was me for sure when I first started wholesaling. And so I was making calls to people and then following up with them, and then signing contracts with people at the properties, and then talking to the title company, and then making sure everything closed. And then when it didn’t just tearing my hair out and run around like a chicken with my head cut off, and then go into a different appointment where I’m trying to put my head back on so the person that wants to sell me their house thinks I have it together. And honestly, still, I feel like I’m just, I’m faking it till I make it. I feel like.

Tony Robinson:
I mean, we’ve all read the E Myth, right? Have you guys read The E Myth by Michael Gerber? So in that book, it always talks about working on your business and not always working in your business, but I listened to an interview with Michael Gerber where he made a very important distinction about they’re working on versus working in. And what he said is that, that is a gradual change. Like the book, you read the book and it’s a six hour, seven hour read. But the actual process to go from consistently working in your business to consistently working on your business, that’s a gradual change that takes time. And he said, most people when they first start this should be working in their business. So I appreciate you being transparent and open Aaron about how you’ve started off that way, but you’re trying to transition into working more so on your business.

Ashley Kehr:
Aaron, do you have any book recommendations or even YouTube videos or people that you’ve followed that have really helped you with this mindset shift and to help you implement some of your processes to get to this point where you want to be working outside of the business instead of in it?

Aaron Latal:
Yeah. So like I mentioned, I love self-help books. So I could go on a big list, but I think the most helpful for working on my business, I mean, I’ve read The E Myth and I listened to the audio book of Traction or whatever, and I think I need to read that one because it didn’t like… I was like, “Eh, that book’s okay,” but everybody’s going crazy about it. But the book that really did help me a lot for working on my business or how to think about it is this book called The Road Less Stupid by, I think it’s Keith something, but I haven’t heard of it a lot of places. And I think it’s really underrated, because it gives you these different chapters and then like here’s things that I’ve seen.
He’s I guess a VC, so a venture capitalist. He’s seen a bunch of businesses grow and everything, and he’s like, “Here’s this one specific topic. Here’s how you should think about it.” And then at the very end of the chapter, he gives you a list of 15 or 20 questions and he spends the first quarter of the book just outlining how you should think about your business. And so he coined this term for me at least called thinking time. And he is like, “You should do a thinking time probably two times a week, if possible.” And when I first started my business, it was actually easy to set aside time for the thinking times. And so I got in a good habit of Tuesday, Thursday mornings. First thing I’d do is I’d just make some coffee and get myself really situated. I got a sweet ritual around it where I light a candle and I put on a special hat and sit down at a table where there’s no distraction, it’s just me and a legal pad and write down a question and answers to it. And so that book has been really helpful.
But then, like I mentioned, I don’t feel like I really know what I’m doing when I’m hiring people, because I worked for a huge company, and I never had anybody you reporting to me. And so now I’m hiring a VA, the second VA. I feel like I have no idea what I’m doing, but I heard, basically I heard somebody on a podcast. It’s this guy named Dan Bro. It’s Dan Brault. He was on one of the Bigger Pockets podcasts and he is doing cool things with wholesaling. And so I followed him on some social media and then I saw him post like, “Yeah, I got a mastermind coaching call group thing.” And I was like, “Yeah, sure. I could learn something from you for sure.” And so I signed up for that and he’s been providing a lot of helpful information for wholesaling in particular.

Ashley Kehr:
Yeah. Thank you for sharing that. That’s super cool. And Tony, I saw you typing in to order that book. So please send me a copy too while you’re at it, while you’re shopping. But Aaron, so you’ve been doing your wholesaling business since this spring really of 2021. And you already have started building your team. What is your advice for a rookie investor as to when they start building their team? When they start reaching out to outsource some of their task and how do you find these people?

Aaron Latal:
That’s a good question. I think for me, I knew that when I started wholesaling, I was like, “I don’t want to be a one man operation.” Although, I think there are a lot of people that are just like, “I’m just a one man wholesaling operation. I make good money for myself. I don’t spend that much time doing it.” But when I was going into it, I was like, “I want this to be”… Basically I want to build it up to a certain level and then get myself out of it as fast as possible so I can focus on other stuff, whether it’s flipping houses or burying a whatever I decide to spend my time on.
So I was like, “I want to hire people as fast as possible without rushing into it.” So basically I just came up with a couple criteria in a thinking time where I was like, “I want to have three months of somebody’s salary saved up and I want to have a little bit of other runway.” I think Scott Trench mentioned it, or he had that term where you have like a financial runway. So I want to have my financial runway and then a financial runway for them. And so that’s when I decided I was ready to hire somebody.
And then how I chose the specific person to hire, I used this table of four different categories, I think. It was in EOS or Traction or that book where it was like, “What are the things that you’re good at and you like doing? What are the things that you’re bad at and don’t like doing? And then bad at, but you do like it?” And then so basically it was just start on the things that you’re bad at and you don’t like doing and then outsource those. And for me, I was lucky that those were the repetitive and the tasks that would be easy to train a virtual assistant for. And so I’ve been making videos on Loom. So I’m just recording myself and my screen whenever I’m doing stuff like getting an email ready to send out to the buyer’s list or when I’m sending texts to people how I do that, make a video with Loom.

Tony Robinson:
Yeah. Aaron, so much good advice there. And I think a lot of people, they have fears around building out a team because sometimes it does seem like it’s more work to train somebody up than it is to just do it yourself. But your process of just recording yourself while you’re doing it, because you’re going to do it anyway and then sharing that with them as a training material, I think is super insightful. I think one follow up question for me, because you, you mentioned this briefly, but you said the VA that you hired to help with cold calling is in South America. It’s a totally different country. A couple of questions around that hire. First, is that if you have this person that you’ve hired for cold calling, were they already trained in how to cold call for wholesaling or was that a process that you had to train them up in? And then second, was the language barrier at all, a concern for you in hiring from someone overseas.

Aaron Latal:
So it’s a service that I’m using, and I found them through another Facebook group of wholesalers. They were like, “Yeah,” one person on there was like, “Yeah, we just started or we’ve been cold calling and this person has really helped us out. You should check it out.” And then like a few weeks later, somebody else was like, “Yeah, I just started with that same guy.” And like, “I’m loving it. He’s super helpful.” And so I was like, “Well, this is something that I do want to hire out and I need more leads coming in. I’m ready to handle them. And so it just makes sense. I’m going to test it out.” And the language barrier is, it’s not too bad, so they are just giving me the warm leads. So I guess they don’t have to talk on the phone a ton. And then there’re some words that the script that they’re using, just they don’t say very well. So I’ve been training them a little bit that way.

Tony Robinson:
So two follow up questions for me on that, and this is about the quality control and then the workflow, I guess, I’ll talk about the quality can control portion first. Do you have an ability to listen in on their conversations, to be able to give them feedback or are you just blindly trusting that they’re knocking it out the park for you?

Aaron Latal:
I can listen into their conversations, so that’s a good question. I’m using, what’s now called ReadyMode. It used to be Xendialer. Or that’s what they’re using, I guess, and that records the conversations. And I’ve been recording all the other conversations that I’ve been having, because I’ve been using CallRail. So I’ll call somebody up, when I was cold calling, and actually when my friends and I were cold calling, we would have sessions on Fridays where we would roast each other in our cold call. So it was basically just put on a 10 minute call of you talking to somebody and then let my colleague just tell me what went well and what went poorly. And I really liked those and I’m still doing some feedback sessions with other wholesalers now.

Ashley Kehr:
Tony, maybe we should do those Friday night roasts between me and you. Like, “Geez, Tony, I can’t believe you said that on this podcast.”

Tony Robinson:
Yeah. You know what Ash and I have been talking about doing is just going on social media and just reading all the mean reviews of us on the podcast. So maybe that’s what we can do for our roast session is just read the bad review.

Ashley Kehr:
Yeah. It’s like on the late show they had their mean tweet segment where they’d have celebrities read the mean tweets out. I don’t think anybody’s ever said anything mean about Tony. So I’ll just have to create some.

Tony Robinson:
I don’t know if that would be as productive as Aaron’s roast session, but close enough. So Aaron, one more follow up question for me on the workflow with your VAs. So in terms of how the leads are moved through the pipeline, I guess just give us an overview of what that looks like. Are you giving them the leads? Are they pulling their own list or is it your list? Are they just trying to, I guess gauge for interest in selling, or are they actually setting appointments. And then how do the leads actually get to you? So just give us an overview of that entire process.

Aaron Latal:
It’s actually, the process is still in development. So in ReadyMode, my VA started setting an appointment for me. And since then I was like, right, when she first started, I had no idea. I was like, “Why haven’t I gotten any leads? This is ridiculous. It’s been half a week and I haven’t seen anything come through.” Because I thought they were going to be pushed to my CRM. And then there was just an integration error. And so there was five appointments that I just had not gone to. But since then, she’s now setting follow up call appointments for me to understand what the seller’s motivation is. And then basically get motivation timeline and a price range from them just to see if we’ll be a good fit.
And then from there, I will go out on an appointment to the actual property and take some photos and try to sign a contract if it makes sense for both of us. But the lists I’m pulling and then I send to them. And yeah, I would like to probably at some point automate list pulling and managing of… Because I’m using a couple, I was cold calling for a little. Or sorry, cold calling, texting and sending direct mail. And I was rotating through the lists. And I honestly am not managing that as well as I should be.

Ashley Kehr:
Aaron, I want to take us to our rookie deal review and break down one of these wholesale deals that you have done. I’m going to ask you a couple, just fire on questions here, just so we can get an idea of what the deal looks like. And then if you want to go ahead into the story after that. But so do you have a deal in mind? Do you want to share with us?

Aaron Latal:
I do. Yeah.

Ashley Kehr:
Okay. What kind of property is it? A single family?

Aaron Latal:
Yeah.

Ashley Kehr:
And what market is it in?

Aaron Latal:
St. Louis, Missouri.

Ashley Kehr:
And how did you find the deal?

Aaron Latal:
So I found the deal by driving for dollars, actually, when I would still had my W2 job. Driving for dollars, sent them a bunch of direct mail. They never replied. And then I recycled that list and was cold calling it when I first started and they answered a call and then I went out and meet them.

Ashley Kehr:
That’s so funny that you tried the two different ways and the one worked and the other didn’t. Okay. And then what was your contract price on this?

Aaron Latal:
Got it under contract for $140,000.

Ashley Kehr:
And what did you assign it for?

Aaron Latal:
145.

Ashley Kehr:
Nice. Okay. Do you want to go into tell us how you negotiated that and how you found your buyer?

Aaron Latal:
Yeah, absolutely. So I want to be clear, the assignment fee was $5,000, so-

Ashley Kehr:
Right. Yeah.

Aaron Latal:
… Yeah. That would be a wild deal.

Ashley Kehr:
Don’t worry. I would’ve had a lot more excitement if it was 145,000. Your excitement too.

Tony Robinson:
145, yeah.

Aaron Latal:
So yeah, I’ll let you know a little bit more about it. The reason I guess, that they did not answer or reply to any of the direct mail probably was because it was just not the right time for them. They had a tenant in the property for seven years, and then when I called them, they were finishing up the process of kicking that tenant out, because they had to stopped paying water and utilities and rent for months. And so I just got a hold of him at the right time and I was like, “Hey yeah, have you ever considered selling that property?” And she was like, “Well actually we just had a real estate agent walk through it and I’m going to go and get some quotes from somebody this Friday, would you be able to”… And I was like, “Oh, I could come by and have a look at it and just let you know what I think I could offer.”
And so when I was negotiating it, I really wanted to obviously get it for a little bit less than 140. I was hoping really I could be, I was like 135 would be a good number for me. And then I could assign it for, I was hoping 150. And then I always tried to target a $15,000 spread, although I’ve yet to hit it, that’s what I’m aiming for. So I started a little bit lower with my numbers and she was like, “Yeah, I really want… We want to get 150. I know it’s probably worth 210 after it’s fixed up.” And I was like, “Yeah, but it doesn’t need a lot of work since that tenant was in there for seven years.” And they were kind of like, they had a lot of dogs and they were DIYing some updates to the house that were questionable.
And so she actually had moved out of state after she had the property. So for their, her and her husband’s job, they moved into Indianapolis. They were five or six hour was away. And so I was like, “So what’s your plan with the property?” And she’s like, “Yeah, we’re just going to fix it up, come down on the weekends and stuff and fix it up and then probably just sell it. It’s a good market.” And I was like, “Yeah, it is. If you didn’t want to drive down here.” And she had two little kids with her and I was like, “If you don’t want to come down here with your family all the time, I could just buy it and fix it up. It’ll be easier for me.” And so that’s how that negotiation went.

Ashley Kehr:
So you were listening to things that she said, like she had kids with her and she lived far away and you used that as a tool to offer her something that was appealing so that you could get that lower purchase price. That’s awesome. So how long did this deal take place? How much time did you put into making that $5,000?

Aaron Latal:
Probably more than I would’ve liked to really. Somebody was under contract to buy it for a while. I guess, I think I set the close date to be 45 days after we signed the contract. And this guy went and saw it and he was like, “Yeah, this looks great. I’m just going to move some money out of my 401k. And then we’ll be able to buy this property and fix it and flip it up, or fix it and flip it.” And then it was his deal for a while. And then for whatever reason, he couldn’t get the finances to buy it in closing time. And that was two or three weeks before I was supposed to close. And so I was scrambling for a week or two, just like, “I need somebody to buy this property in two weeks for $140,000 at least.” And then I ended up finding a local investor that wanted to get it, but I was all over the place.

Tony Robinson:
I think that’s a really critical piece. So I want to make sure we don’t gloss over that. You had two weeks to find a buyer and you said you ended up connecting with a local investor. Walk us through how you found that person in the 11th hour. Was it through like a meetup? Was it just a friend? Where’d you guys connect?

Aaron Latal:
So I was like, I was posting it in the different Facebook groups and sending out texts to people that had bought properties, cash in the area before. And I called like the, We Buy Ugly Houses people. And this guy just out of the blue reached out to me and was like, “Hey, I’m looking for this place.” And he was one of the people that I had texted, I think. And then I was like, “Yeah, come through and have a look.” And he was like, “Yeah, it looks pretty good. We buy a lot of houses in this area.” And we signed the assignment contract, I don’t even think it was a week before the close. I think we agreed on it with a handshake a week before we needed to close. And then all the documents were signed on Monday or Tuesday, and then closing was on Thursday and I was whoo.

Ashley Kehr:
Sweating on that one.

Tony Robinson:
Yeah. But kudos to you for figuring it out. I think a lot of people that get into that situation, they kind of panic. But you kept your cool for the most part and found a way to make the deal work. One last question, before we move on from this rookie deal review, what would’ve happened Aaron, had you not been able to find a buyer? What would your next steps have been?

Aaron Latal:
That’s a good question. The contract that I have is, I would’ve just lost the earnest money that I had put down on that property. I had a few other people that were interested in buying the property. And I was talking to another wholesaler that was like, “Yeah, we’ve got somebody that’s super interested, but they only are going to pay 135 for it. That’s what their numbers are coming out at.” And so I actually reached out to the buyer, and I was like, “Would you… I know I said I was going to close on it.” And it was just the worst feeling that I had going into the conversation. And then the conversation was awful and the seller of the property was not happy with me. And she was like, “No, I can’t close for less. People have already talked to us.” And then I finally found somebody that would close for a little bit more than what I wanted to, or a little bit more than, and she got what she needed.

Tony Robinson:
And I asked that question because different whole sellers will approach that situation in different ways. Some will say, “Hey, we never not close on a deal.” I know some that say like, “Okay, if we have to buy it ourselves, we’ll buy it ourselves. And we’ll figure it out from there.” Some, like you said, they’re okay walking away and just leaving the seller with their assignment fee. So there’s a bunch of different exit strategies, I guess, on a wholesale deal. So that’s the point that I was really trying to make. So thank you for sharing that experience with this man. It sounds like you did pretty good clearing 5k on a relatively easy deal, man.

Aaron Latal:
And actually, I would’ve probably ended up closing on it if I had the funds, but for that one, I just couldn’t do it. But the first wholesale that I did where it was a hotel, that was the reason, because I had it under contract for too much and couldn’t sell it. So I was like, “It makes sense for me to flip it.”

Tony Robinson:
Let me do it myself.

Aaron Latal:
Yeah. And barely made anything on it and learned a lot.

Tony Robinson:
But you learned and that’s the beauty of real estate man, is that there’s so many different ways to make a deal work brother. So glad this one worked out for you. So Aaron, want to move on to our mindset segment next. I want to get into the psyche of Aaron and learn a little bit more about what makes you tick, man. So if we go back to Aaron, maybe when he first graduated from college or before he started consuming all those Bigger Pockets podcasts and books and whatnot. You had some maybe assumptions you had about what it means to be a real estate investor. You had some, maybe made up beliefs about what you thought it was going to be like. If you think about all those thoughts, all those ideas that you had, which of those turned out to not be true? Which of those turned out to be misconceptions about what it means to be a real estate investor?

Aaron Latal:
I think it’s kind of funny. I’m probably unique in that I really thought, I was like, “Oh, it’s really easy. You just buy a house and then rent it out to people and then they just pay your mortgage.” Be silly not to do that. So I just jumped in and I was like, “Oh, it’s a little tricky.”

Tony Robinson:
But I think that cuts both ways, right? Because you see some people that overestimate the amount of complexity that goes into real estate investing. And then the flip side, you see some people that underestimated, and I’ve shared this in the podcast a lot. You hear other investors say it as well, but real estate investing is not super complicated. It’s a fairly simple process to get started in the world of real estate investing. But it is definitely not easy to become a real state investor. It takes an extreme amount of effort to get there. So it is hard. It’s not complicated, but it is hard.
I think there’s so many proven paths that you can follow to become a real estate investor, that’s why the complexity’s not there. But it is hard, especially if you’re working in W2. Especially if you have busy family commitments. Especially if you have other things going on to dedicate the time, to underwrite the deals, to make those relationships, to do all of the leg work that’s required to get the first deal done, I think that’s where the hard part comes from. So you’re definitely not alone, man in getting that guess wrong, but we appreciate the transparency around it.

Ashley Kehr:
Yeah. Me and Tony still, even today will text each other and just be like, “Do you feel overwhelmed right now?”

Tony Robinson:
Yeah.

Ashley Kehr:
Yes? Me too. All the things you [crosstalk 00:44:19].

Tony Robinson:
Absolutely.

Ashley Kehr:
Okay. So I’m going to take us to our rookie request line. You guys can give us a call at any time, 1-888-5ROOKIE, and leave us a voicemail. We may just play your question on the show and have a guest answer it.

Ashton Maxima:
Hey there, Ashley and Tony, my name is Ashton Maxima. I’m here in San Diego. I have a question. It’s right now I’m a full-time worker detailing and I’m wanting to get into real estate and I’ve come to a place in my life where I can take off a few months of work and really just focus on it. My main goal is trying to get into wholesaling and doing that, but really just wondering if you guys think that’s a good idea or any other thoughts you guys might have. Thank you.

Aaron Latal:
I would say, start working on getting into wholesaling before you quit your job. Because at the beginning you’re not going to have just a pipeline full of leads that you can follow up with and go and visit. And it takes a long time to close a deal. And like I mentioned, this person that I, like in the deep dive deal, I found them nine months before the deal closed, before you even sign a contract. And then it was another two months after that. So do a little bit of maybe driving for dollars and then get a good… You have a good unique list that way. And then reach out to them however is best for you. If you don’t have a lot of money, but you have a lot of time and energy, cold calling could work. If you are on the opposite end of the spectrum, you could send out some direct mail or something like that. And yeah, just talk to other people also that are in your market that are wholesaling and see what their take is as well.

Ashley Kehr:
Yeah. I bet there’s an opportunity out there where you can even work for a wholesaler doing driving for dollars for them and send them leads and learn their processes and systems. And maybe you just do it one or two nights a week or Sundays or something. But I think giving out your time for that experience is definitely very valuable. And then who knows, they will probably pay you a fee or part of the assignment fee if you bring the deal or something like that. So look out for those opportunities too with other investors, Tony, who is our rookie rockstar of the week?

Tony Robinson:
Today’s rookie rockstar is Dalton from PA, and for all of our rookies that are out there listening, if you would like a shout out on the Real Estate Rookie podcast, be sure to get active in the Real Estate Rookie Facebook group. Be sure to get active on the Bigger Pockets forums. That’s where we’re pulling all these folks from. Or give Ashley and I a shout out on Instagram. She’s at WealthFromRentals, I’m at TonyJRobinson. If we find some good stories we’ll be sure to share it on the podcast as well.
But anyway, Dalton from PA, this one’s really cool. Just got the appraisal back on my first mini BRRRR and the purchase price was 62,500. Rehab was 3,000. So they’re all in for just a little over $65,000. The appraisal came in at $107,000 on this property. So they were able to cash out refi at $80,250, which means they pulled out $17,750 more than what they put into it. So, awesome, awesome. First BRRRR, Dalton, and excited to see what comes next for you guys.

Ashley Kehr:
So great. Aaron, thank you so much for joining us today. Can you let everyone know where they can reach out to you and find out some more information?

Aaron Latal:
Yeah, you can catch me on Bigger Pockets for sure, or Instagram or TikTok. Instagram is ToppDoggEnterprises, T-O double P, D-O double G Enterprises. And TikTok is T-O double P, D-O double G R-E-I, Real Estate Investing.

Tony Robinson:
Dude, you’re giving the Snoop Dogg run for his money right now, man. The TO double P, D-O double G. I love it.

Aaron Latal:
I started an LLC to get my first rental property and I was like, “I don’t know what to make it.” And I was a DJ in college and I was Topp Dogg, so it just made sense.

Tony Robinson:
There you go, man.

Ashley Kehr:
On your TikTok, are we going to see some DJ videos down there?

Aaron Latal:
It’s a mix right now of videos of me being really goofy, maybe too goofy. Really pushing the line and then also real estate stuff, walking through houses, trying to give tips on looking at houses.

Ashley Kehr:
Oh cool, we’ll have to check that out. Well, thank you so much, Aaron. Everybody, thank you for listening to this week’s Real Estate Rookie podcast, and I hope everybody has a great new year’s. This is our last guest episode of the year. And Tony, I think that going into the new year, I’m going to change out the outro, because we always say, this is Ashley at Wealth From Rentals. And this is Tony at TonyJRobinson on Instagram, but I feel like we need something new and fresh. So start thinking about it. Maybe an inspirational quote or a movie quote at the end of each episode.

Tony Robinson:
It’s all Tommy Boy. All Tommy Boy one liners is the end of each episode.

Ashley Kehr:
For a whole year. Thank you guys so much for listening. Have a great new year and we will see you in 2022.

 



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A bullish housing market

What a year 2021 has been. We started the year with many pundits saying that the U.S. economic recovery was a false story and that we were about to embark on a second housing bubble crash due to forbearance. However, not only did the U.S. economy continue to recover from the lows of April of 2020, but the 2021 economic data shows it has been one of the hottest years in many decades. 

Retail sales have been off the charts, job openings are at 11 million, GDP growth picked up big time and jobless claims hit a level last seen in 1969. The housing market didn’t crash at all, in fact, more Americans bought homes with mortgages in 2021 than in 2020.

The housing crash addicts in America have now been wrong for a decade. After failing from 2012-2019, they went all in during 2020 due to COVID-19, only to move the goalpost to 2021 due to forbearance. That didn’t end well for them. Now that we are just a few days away from 2022, it’s time to take a look at the positive and the negative housing stories of 2021.

The good

Keeping it simple, mother demographics is the most powerful economic force in the world. I’ve been writing for many years that years 2020-2024 would have the best housing demographics ever recorded in history. During this timeframe we have a historic one-time bump in ages 28-34 — the peak age for home buying. In fact, the reason the housing bears have such terrible track records is because they look at housing as an investment first, not the cost of shelter to a person’s capacity to own the debt. First and foremost, Americans are buying a place to live, not an investment.

With only one existing home sales report left this year, it is imperative to focus on the fact that more Americans bought homes in 2021 than 2020. These households got sub-3.5% mortgage rates, so on the mortgage rate side of the equation, it’s never been better. Also, post-2010, the loans in American are very vanilla on the debt structure side of the equation.

Housing demand itself is slightly outperforming what I would have expected in 2021 as existing home sales have had a few prints over 6.2 million toward the end of the year. Today, NAR‘s pending home sales report came out showing a slight decline, but the trend here is also better than what I thought it would be toward the end of the year.

Housing permits are growing and this is a good thing for the economy and construction jobs. While I have never been a housing construction boom guy because mature economies typically don’t have a construction boom, the fact that permits are keeping their uptrend is a big positive for the United States of America.

We do have some very positive stories about the housing market in 2021, but not all is perfect, of course.

The bad

My economic models over the years showing that housing demographics would be better in the years 2020-2024 have also led me to be mindful of home-price growth taking off. Currently, home-price growth is too hot, which is why I label this the unhealthiest housing market post-2010. According to the parameters I set for this period, as long as nominal home-price growth was only 23% or less during this unique five years, then it would be manageable considering the demographic backdrop and low mortgage rates. Well, it looks like my five-year growth model has been taken out in two years.

Not the best of news as we start year three of that time period with a solid possibility of new all-time lows in inventory this spring.

While I do believe the rate of home-price growth is cooling off — since data from the S&P CoreLogic Case Shiller Home Price Index lags — the market is still seeing home-price growth above my five-year price model, so wishing for less price growth in 2022 is a must for me. Simply put, the days on market are still too low, which creates unhealthy price growth, too much bidding action for homes, and a lot of stress in the home-buying process. 

Another aspect that doesn’t get enough attention because it’s a hard look in the mirror: We all get greedy when we have pricing power — it’s the nature of the beast. Home sellers strive to get the highest price from the best offers and homebuilders have the pricing power over consumers. Since housing is a shelter cost — everyone needs a home to live in — it’s much different than buying a stock. As we can see below, the builders are maximizing their pricing power. Even with all the labor and material costs they have had to deal with since the pandemic started, they had a stellar year with their profit margins.

Yes, the housing market has done well during 2020 and 2021, but it has come at a price and with rental inflation kicking into another gear, the cost of shelter rising is a theme for 2022.

The excellent

Wait, isn’t it “The Good, the Bad and the Ugly?” Not in my western 2021 world! We write history on our own terms and we do have some excellent news.

Going into 2021, the big question mark was what would happen with forbearance. Now, for me, it wasn’t such a big question mark. I was so confident that forbearance wasn’t going to be the doomsday event that many American and housing bears were rooting for during this pandemic that I coined the term forbearance crash bros in the summer of 2020. This was in honor of all the trolling, non-economic people on the internet calling for housing to crash when clearly none of these people had any clue about the housing market or the credit debt structures of homeowners post-2010. I documented my work with many articles, which can be found here.

Forbearance went from near 5 million at the start of the crisis to under 882,000 today, with many more Americans getting off this program. What an excellent data line to have in 2021: the housing data that collapsed wasn’t housing demand or prices but forbearance itself!

The Freddie Mac and Fannie Mae forbearance delinquency percentage is about to break under 0.50%, yes 0.50%. It was truly one of the more successful government programs because all these homeowners were legit and they had the capacity to own the debt before COVID-19 and after. Beyond the success of just the forbearance program is the state of the American homeowner today. A big part of my work is based on the principle that homeowners now have a fixed low long-term debt cost as their wages rise every year. What this means is that their cash flow gets better each year.

On top of all of that, many Americans refinanced their homes, which made them look even better on paper. Mortgage debt service payments as a percent of disposable personal income are near all-time lows.

Since mortgage debt is the biggest consumer debt we have in America, household debt payments look just as good.

This has led to much better cash flow, so FICO scores have exploded higher and the best part of this all is that we have no exotic loan debt structures in the system. This means all homeowners are legit and those who are cashing out on their homes are all good as well.

On top of all that, the nested equity position of American homeowners has never looked better.

Two of my favorite charts from Freddie Mac Chief Economist Len Kiefer also show the public how home-price growth in the U.S. has not been as hot as in other countries, but the nested equity position is so much better now than the peak of the housing bubble years. This is a critical fact to remember: when adjusting to inflation, mortgage debt expansion is still negative compared to the peak of the housing bubble years. Since housing tenure is now over 11 years, the built-in equity position is much higher today without a massive credit boom like what we saw from 2002-2005. In short, we made American mortgage debt great again!

Credit and debt profiles are so critical to our economy and it was great to see how it all paid off during this crisis and how it can shape the future as well.

All in all, 2021 was a good year for the housing market. Nothing can be perfect, of course, but we would rather be working from pre-cycle highs in demand, falling forbearance data, and an expanding economy versus what we saw from 2005-2011 where home sales were falling, prices were falling, people had negative equity, and bankruptcies and foreclosures were rising.

In fact, our issues today are first-world problems compared to the past. Sometimes we need to take a long look at where we came from to where we are today and appreciate that the United States of America and its people just had the greatest economic recovery ever, which very few saw coming. Now it’s time to move on to 2022 and what’s in store for the year ahead. Read my 2022 housing and economic forecast here and rest assured: we will get through 2022 one data line at a time.

The post The 2021 housing market recap by Logan Mohtashami appeared first on HousingWire.



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HW+ 2022 forecast magazine

This article is part of our HousingWire 2022 forecast series. After the series wraps early next year, join us on February 8 for the HW+ Virtual 2022 Forecast Event. Bringing together some of the top economists and researchers in housing, the event will provide an in-depth look at the predictions for next year, along with a roundtable discussion on how these insights apply to your business. The event is exclusively for HW+ members, and you can go here to register.

Steve Berneman is the rare startup founder who wants his industry to shrink, not grow.

“One of our big goals at Blueprint Title is to shrink the title insurance business from an $18 billion business to a $10 billion business,” Berneman, the company co-founder and CEO. “We believe that title insurance premiums are significantly too high and that if underwriters and agents were more efficient and took a different approach to the market, they wouldn’t have to charge as much.”

To that end, Berneman’s Nashville-headquartered company recently launched a portal that allows real estate professionals and their clients to keep track of the title process. And Blueprint acquired an underwriter as it attempts to gain market share in an industry known for extreme barriers to entry.

Blueprint may ooze ambition, but it is just one among dozens of tech-forward startups in the title industry, all of whom are competing for a slice of the 10.5% share of the market controlled by small, independent title insurance companies.

For this reason, John Campbell, a title insurance industry analyst at investment bank Stephens Inc., doesn’t feel that the “Big Four,” namely Fidelity National Title, First American Financial, Old Republic Title and Stewart Title, who as of the second quarter of 2021 controlled 80.3% of the market, should be too concerned about the rise of the little guy. But they won’t be resting on their laurels, either.

“A lot of the major firms are increasingly becoming more tech savvy and they are using that tech to become a bit more integrated within the broader real estate transaction ecosystem,” Campbell said.

Whether big or small, title companies are deploying technology to improve the flow and ease of the entire closing process. Two of the biggest developments have been the phenomenal growth of remote online notarization (RON) and document management platforms. Stewart has worked to expand its online signing and closing capabilities, which it plans on beefing up in the new year, said company president Tara Smith.

And First American has launched its own suite of digital interfaces and platforms: IgniteRE allows real estate professionals to manage all components of the transaction in one place; and Docutech, which was acquired in 2020, enables lenders to deliver a more seamless eClosing experience.

Many of the larger firms are also increasing their level of automation in order to take on more volume and maintain their lead over the plucky startups.

“All of the firms have become a lot more automated,” Campbell said. “I don’t think there is any way you can deliver orders with the type of growth they have all seen relative to their head count, so due to this you are seeing a lot more automation.”

First American is among the “Big Four” that has really embraced the use of automation, especially to tackle refinance transactions, which have boomed over the past year due to low interest rates.

“Today, 96% of our refinance transactions run through our automated title decision engine,” Chris Leavell, the COO of First American, said. “Based on our own risk profile, we’ve achieved a fully automated underwriting decision on 50% of those orders, and we are semi-automated on an additional 40%.”

Looking ahead, Leavell says that First American hopes to introduce some level of automation to purchase transactions. Although automation is helping keep up with a huge increase in title insurance premium volume, the industry is still reckoning with a talent crunch. Back in 2014 the average age of a title agent or broker, according to industry statistics, was 60. That hasn’t changed over the past seven years.

Smith feels that this talent shortage is one of Stewart’s biggest challenges. “We are all competing for the same talent, so we have decided to focus on the opportunity to bring new talent into the industry,” Smith said. “We have an annual intern program in which we focus on bringing people into the organization and helping them learn the industry from the ground up.”

Despite what seems like an impenetrable industry faced with numerous challenges, DOMA, formerly known as States Title, has found some success in leveraging its technology to increase market share. In its ongoing effort to consolidate and speed up the closing pro-cess, DOMA has its sights on becoming a one-stop-shop for closing a purchase.

“We would like within the next five-to-10 years for somebody to be able to sign a purchase contract for a home on a Friday evening and move in on a Monday morning,” Max Simkoff, the CEO of DOMA, said in an interview. In order to achieve this goal, Simkoff is working to grow DOMA’s current technological offerings and is looking to expand into the lending and appraisal space.

While this does seem like a far-off dream, Campbell believes DOMA is not alone in wanting to become a one-stop shop. Compass, the nation’s second-largest real estate brokerage, and Rocket Mortgage, easily the biggest lender, are among the massive real estate companies with growing title segments. Others are sure to follow.

“Everyone is looking at that value chain in the home buying process that once looked very distinct as much as 10 years ago, but now the lines are just blurring on all sides and I think we will continue to see that,” Campbell said.

This article was first featured in the Dec/Jan HousingWire Magazine issue. To read the full issue, go here.

The post The “Big Four” take on the upstarts appeared first on HousingWire.



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Maria Friström is an investor, designer, mother, and business owner from Finland, and she’s one of the only few people that can match Brandon Turner in height. Maria was working in Silicon Valley before she voluntarily left her position to build an empire of her own. She took her down payment savings for a primary residence and on a whim bought a rental property in Fort Collins, Colorado.

She and her husband then decided to move to Finland to raise their children. Through some challenging life events, Maria was left heartbroken and grief-stricken, with a business that became a full-time job for her. She wanted to express her creativity via design, so they decided to move back to America to flip their first rental property in Colorado.

Maria’s inspiring story is a testament to how real estate investing can pull you out of financial, emotional, and mental depths. She has built a real estate empire worth well over two million dollars and has the financial freedom to spend time where she wants, with who she wants, doing what she wants.

Brandon:
This is the BiggerPockets Podcast, show 549.

Maria:
It was a dark time for me. My husband’s like, “What do you dream of? What would you want to do?” And I had lost myself again, like completely, and I still don’t know who I’ll be after losing her, I’m still working on that. And I’m like, “You know what? That house that we bought six years ago in Fort Collins, I’ve always dreamt about designing that.”

Brandon:
What’s going on, everyone? It’s Brandon Turner, host of the BiggerPockets Podcast, here once again in Las Vegas, Nevada for a live podcast recording, but David Greene is not in Nevada, sadly. He is in California. What’s up, David?

David:
Not much, brother. I’m a little jealous, you’re in a 7500-square-foot suite.

Brandon:
I’m still here. People who listened to the show a week ago would be like, “Wow, Brandon’s been there for a week?” No, we are recording both these episodes in one day, which means I still don’t have a voice today, because I lost it yelling in a Nashville bar last couple days ago. So, anyway, today’s show, speaking of… I don’t know how to connect that to Nashville bar, but speaking of great shows, we’ve had a lot of them lately, and today is just another phenomenal one in a great line of shows here on the BiggerPockets Podcast, the show where we teach people how to invest in real estate so they can obtain the ideal life, or at least a more ideal life than what they maybe have right now. So, in other words, we’re going to teach you financial freedom, we’re going to teach you literacy, how to set goals, all that stuff.

Brandon:
And specifically on today’s show, we’re talking with a good friend of mine, Maria [Fristrom 00:01:37], who’s actually here in Vegas, and we’re sitting down, chatting with her about how she got into real estate, her ability to do it from a very long distance. You’ll hear more about that, because she is not actually from America originally. You’re going to hear about a really heartbreaking and also inspirational story. I think it was the first time in 549 episodes that we’ve had that I’ve cried and a guest has cried, so that’s a new thing today. And you’re going to hear a lot about financing and more, so all that and more to come. But first, let’s get to today’s [crosstalk 00:02:18] quick tip.

David:
Quick tip.

Brandon:
Yeah, my voice. I can’t do the highs. That’s like when I lose my voice, which happens every time I go to a conference, I lose the highs. But today’s quick tip is brought to you by David Greene. Throwing it on you David, again, one last time.

David:
Today’s quick tip is try to find any way that you spend energy, time, money, anything, in a way that will get you a return. So, Brandon, you are in Las Vegas right now, spending a decent chunk of change to rent out an awesome suite. Now, to most people, that is a frivolous expense, it’s lost revenue, it’s money you don’t have it anymore. But you’re doing it in a way that’s going to bring enough value to investors and yourself that it should pay for the suite and then some. This is actually an investment for you. So you don’t have to deny yourself of everything you love, you don’t have to spend every single day avoiding that cup of coffee you want to try to save up enough money that in 12 years you can finally get the car payment. There’s actually a way to get the things you want in life and make sure that they earn you a return, so try to train your brain to look for, “If I spend this money on something, how can I make sure that I get a return back on that?”

Brandon:
All right, that was a good quick tip. That kind of reminds me, when I moved up to Hawaii, a friend told me… I was like, “Well, it’s really expensive there and taxes are high.” He’s like, “Listen, when you’re in that environment, in the good weather, and you’re happy, and there’s people coming all the time, and there’s awesome people visiting. Do you think you could earn more than what you’re paid in taxes to live in that state?” And I’m like, “Oh yeah, probably.” And it’s totally been true, so that’s a good example there.

David:
Great example.

Brandon:
Thank you. Now I think it’s time to get into the interview with my good friend Maria Fristrom.

Brandon:
Maria, welcome to the BiggerPockets Podcast. How you doing?

Maria:
Thank you. Thanks for inviting me.

Brandon:
Yeah.

Maria:
Especially after I totally insulted you the first time we met.

Brandon:
Did you?

Maria:
Yeah.

Brandon:
I don’t remember this at all.

Maria:
I knew you wouldn’t remember. So, it was two years ago in Nashville, [inaudible 00:04:04] con, first one around. And I end up at a dinner with you, at the same table, and at this dinner, you quite vulnerably… Is that word?

Brandon:
Yes, yes, yes.

Maria:
In a vulnerable way, share something about you, and that is that you hate your voice.

Brandon:
Okay.

Maria:
Okay.

Brandon:
This is true.

Maria:
So, yeah.

Brandon:
This is true. [crosstalk 00:04:22] Especially when [inaudible 00:04:22].

Maria:
Fast forward, the day after you have your keynote, and after you come up to me, and you’re like, “All right, so what do you think? How did it go?” And I’m like, “Well, it was great. If only your voice wasn’t so terrible.” And, I mean, what the hell? [crosstalk 00:04:40]

Brandon:
You’re a horrible person. Horrible.

Maria:
But you laughed, because I knew you would laugh.

Brandon:
And you know what that led to? Me leaving the BiggerPockets podcast. It all started then, that was when the journey started. It wasn’t David. I told you that day, I said, “Today, I’m going to give my two years’ notice on the podcast,” and that’s how it all end. It was your fault that I’m leaving. So if anybody’s wondering why my episodes are coming to an end soon, now we know.

Maria:
Sorry guys.

Brandon:
It’s okay. [crosstalk 00:05:02]

David:
You know what, Maria? That was karma coming Brandon’s way, and I appreciate you being the delivery system for that, because the first time that Brandon and I hung out, we were actually in Canada, and we sat down, and he said, “There’s a lot of things you got going for you, David, but you really need to learn some weight and learn how to dress.” That was the-

Brandon:
I did not say that.

Maria:
No way.

David:
He denies it to this day, but…

Brandon:
I did not say it that way. I simply said, “If you didn’t wear pajamas to a millionaire club, you might build some better relationships.” It was something like that, and…

Maria:
But you like to hear it up straight. You don’t like to have yes men around you, David. [crosstalk 00:05:35]

David:
Yeah, that’s why we became friends. I like this guy, but he did call me fat and slovenly dressed, so I do like that you gave Brandon a taste of his own medicine for me. And ever since then, he’s probably developed a little bit of class when he’s delivering his insults.

Brandon:
Yeah, maybe a little bit. Well, anyway, thank you for coming today. I do feel a little weird, because I was watching the YouTube version of this. It is very rare that I am looking shorter than the person next to me, and even more rare when that person is non-male. [crosstalk 00:06:03]

Maria:
Non-male, I’m going to start using that. That’s good.

Brandon:
Non-male. You are tall. You’re not actually tall as me, but you sit way more upright than I do.

Maria:
It’s my ballet background.

Brandon:
There you go. All right, so let’s get into your background, but not your ballet background. How did you get into real estate investing?

Maria:
I’m kind of a monkey. I’ve been all over. I’ve lived in four countries and worked in four countries over three continents. I changed my career.

David:
Do monkeys travel a lot? Is that- [crosstalk 00:06:31]

Maria:
The monkey gym, you know? It’s like the kids’ kind of career nowadays. They go from one job to another. [crosstalk 00:06:37]

David:
Like swinging from gig to gig. Okay, okay, I got it. I got you.

Maria:
Yeah. So, I’ve changed my career majorly three times before I got into real estate investing full time.

David:
What else did you do?

Maria:
So, I’ve done physical therapy in Finland, I’ve been a golf coach in Hong Kong. I do not play golf, that’s a story for another time. And I’ve worked at a brand experience agency in Stockholm, Sweden, and the last job that I had was I worked five years at a comms agency, that’s a creative communications agency in Silicon Valley, in California. And I mean, it was a job I got to work with such amazing people, super smart, some of the world’s biggest brands, thought leaders, creatives, and I loved it, but then one day, in 2015, I found myself in the massage room of that company, and I’m stuck to this machine that’s just sucking the beauty and the glory out of me. [crosstalk 00:07:38] And it was a breast pump. So, I’m sitting there, and I have a tube top on that’s like a hands-free type of thing. I don’t know if you’ve seen it anywhere, but…

David:
Sure, I’ve seen them.

Maria:
Right?

David:
Yep.

Maria:
So I’m able to type at the same time, because I couldn’t take 15 minutes off just to do nothing. So, I’m sitting there.

David:
You got to be productive.

Maria:
Ah, yeah. So milk splaying everywhere, it’s on the computer.

Brandon:
Geez.

Maria:
And I’m like… At the same time, my five-month-old baby, he’s at some sort of $2000-a-month baby kennel, and I’m like, “What am I doing this jungle?” Right? So at that moment, I had bought my first property at that point, but that was-

David:
In the US? Or…

Maria:
In the US.

David:
Okay.

Maria:
And so that was the defining moment where I’m like, “Okay, I need to do something about my freedom, and real estate is the way that I’m going to go about doing that.”

David:
Yeah, okay.

Brandon:
What’d you buy? Was that just a house you lived in, then?

Maria:
Well, no. That would be too easy.

David:
That would be too easy.

Maria:
So, to give you a little bit of background, my husband and I, we both come from very regular families. He’s number five out of 10 kids, and I come from a big family, we’re four kids. And at one point, my mom, she’s physically disabled, so we had a hard time at moments. At one point, we couldn’t afford milk, so we had to make milk out of powder. So, just to give you a little bit of background there. So [inaudible 00:09:03] my husband and I, for like 10 to 15 years, we’d been saving up, working away, renting ourselves, and saving up our money to buy our own home, and at this point we’re like 34. And so one day, I’m like, “Hey, honey. Instead of buying our own home, I’m going to buy this house, sight unseen, in this place called Fort Collins, Colorado,” and we live in California. “And we’re going to put all of our savings into it, is that cool?”

Brandon:
Why Fort Collins? Why’d you pick that?

Maria:
So, it all start with… I had a financial advisor that I got through work, who’s amazing, thank you, Josh. He advised me that, “You’re getting killed on taxes, you need to do something about that.” And he had some properties in Fort Collins, and so I looked into Fort Collins. So I did a few things. I did my due diligence. I’m like, “Is this a place that people like to live in?” And it hit all kinds of top 10 lists, best place to retire, happiest people.

Brandon:
Yeah, it’s constantly rated there. Yeah.

Maria:
Yeah. And definitely had… What do you call it? Positive, people are moving in more than moving out, so it’s a growing place. There’s a university, and…

Brandon:
Do you know that’s where I met Heather, was in Fort Collins?

Maria:
That’s right, I think you’ve told me. [crosstalk 00:10:14]

Brandon:
Yeah. We met and we went on a date, our first date was to Big City Burrito, I think it was, in Fort Collins. It’s downtown by the… Yeah.

Maria:
I haven’t been.

Brandon:
It was cute. Anyway, keep going. Fort Collins, good place.

Maria:
So, magical place. [crosstalk 00:10:25]

Brandon:
Magical things happen in Fort Collins.

Maria:
So, basically, since I lived in California, I had gone there just randomly for business, went to Denver. I extended that trip, went to Fort Collins, and I met with the realtor, and he helped me look at some property. So it sounds really easy when I’m like, “Oh, and then I just bought this property and bought it,” but it took, I think, a couple years before I actually put something on the contract. This was… Was it six years ago? The market was hot. I bought it from a investor who was exiting because he thought it was too hot, but I wasn’t even on the train. So I’m like, “This is a deal for me.” It cash flowed a little, like 100 bucks a month, but I saw the potential, and for me, number one was tax reasons. So I bought it, sight unseen.

Brandon:
Bought it.

Maria:
But that was like the number five property that I put offers on, so it was a hot market back then, too.

David:
What was the hubby thinking at this point?

Maria:
Well, you know what? At this point, I think he was too busy with his work and his career that he’s just like, “You know what? I think I trust you and I’m a little afraid, but okay, let’s do it.” Yeah.

Brandon:
Can you share a little bit about, you said you bought it for tax purposes, how that worked out?

Maria:
Yeah, so we made pretty good money in California, and David, as you know, the taxes are pretty high there. Ouch. So, we had zero things that we could write off, because we didn’t have kids at that point and we didn’t own anything, so now that we owned property, we were able to write that part off.

Brandon:
Yeah, yeah. There’s a lot of benefits. I mean, I know people who deliberately just buy real estate just to offset their taxes. I was talking to a guy the other day who makes a ton of money online, and he’s also a real estate guy. And he said he just works backwards every year to buy the amount of real estate needed to make sure his tax bill is zero. [crosstalk 00:12:23]

Maria:
Yeah, I do that, too.

Brandon:
It’s the whole depreciation. Do you? Yeah. [crosstalk 00:12:25]

Maria:
Yeah, so I focus… Yep.

Brandon:
That’s funny.

Maria:
I do spend a lot of time on tax optimization and being smart about that, so I actually got taxes at refund this year, yeah.

Brandon:
Wow, look at you.

Maria:
Yeah. [crosstalk 00:12:36] It’s weird.

Brandon:
I know. When I was not buying a lot of real estate, this is like four or five years ago, I was just making money from BiggerPockets, book sales and whatever else, and then there was a year I didn’t buy hardly anything. Yeah, I had like a $100,000 tax bill or some crazy amount like that. I was like, “This is nuts.” And then now, ever since I started really heavily, three years ago, buying a lot of real estate, now I pay zero taxes and make a lot more. Which again, that’s the thing David and I… David, you’ve been stressing, is we don’t want to tell the world that, we want to keep it a secret. But this is like an investor club.

Maria:
Whoops.

Brandon:
Yeah, you don’t get the rest of the world to listen to this podcast, it’s okay. This clip will not go on social media. We do not want the world to know how good this is.

David:
It’s more so that I don’t like it being portrayed like we’re gloating that we don’t have to pay taxes, that you’re actually acknowledging that there’s work and risk that’s going into this, and the trade-off is you can avoid tax if you do it right. [crosstalk 00:13:22]

Brandon:
Correct.

Maria:
Yeah, and can I add to that, David? I believe it might’ve been Ryan Holiday who talked about that. He’s trying to change his mind about taxes that he actually enjoys paying them, and that’s one thing that I worked on. So even though I try to optimize them, I still try to find joy in paying it, especially in Finland where you see where it goes, where you actually get free education healthcare and especially as in the past couple years I’ve used the ambulance a couple times, and just giving birth is just something that makes you appreciate that.

Brandon:
That makes sense, yeah. So what happened after that? You bought that first property, where’d you go next?

Maria:
Yeah, so after my lactation epiphany there in Silicon Valley…

Brandon:
Maybe that’s the title. That’s the title of the episode, “The Lactation Epiphany.” That could be your book.

Maria:
Yeah.

Brandon:
You could write a book and call it that.

Maria:
Can you? Do you want to write a book with me?

Brandon:
We’re going to write a book called “Lactation Epiphany.”

Maria:
Yeah, let’s do it.

David:
What about “Lactation Imagination”? “How my mind was opened during this event.”

Brandon:
Yeah.

Maria:
That sounds like a band.

Brandon:
Yeah, it kind of does, actually. It’s like Imagine Dragons but… Yeah, you’re right.

Maria:
Yeah.

Brandon:
Keep going, all right.

Maria:
That’s my son’s favorite band.

Brandon:
Is it really?

Maria:
Yeah. So, after lactation epiphany, we moved back to Finland.

Brandon:
Okay.

Maria:
And that meant that I had to quit my job that I loved and made good money from, and all of a sudden I find myself in the burbs of Helsinki. I’m… No, I don’t want to say jobless, because being a mom is hard work, so I was income-less, and I have an eight-month-old and I was pregnant again. So that was lonely, I felt so lonely, and I kind of lost myself, lost my identity, because I had that tied up in the identity.

David:
Diapers? Yeah.

Maria:
Yes, yeah. But it was tied to my identity of being the account manager at this [inaudible 00:15:14] and driving my fancy car and eating out and [inaudible 00:15:17]. So, I’m like, “Ugh.” So I had to make up for it, so quickly I’m like, “I need, all right, real estate investing. All right. That was my plan. I’m going to do it.” So I started doing it from the money sample, and I’m like, “I’m going to make as much passively through real estate that I did through my job,” to make up the salary. So I started hustling, and in a couple years, I built a two… Multimillion sounds so much better. But it was- [crosstalk 00:15:53]

Brandon:
Multimillion dollar, okay.

Maria:
Yeah, a two million dollar portfolio at the same time as I had our second and third baby, and I started a real estate investing company during that time, as well. And have you ever seen a hamster wheel?

Brandon:
Sure.

Maria:
But the hamster’s dead? The wheel’s turning, but the hamster’s dead? [crosstalk 00:16:19]

Brandon:
[inaudible 00:16:18]

Maria:
Yeah, so I was like, “Wham, doosh, wham, doosh, wham, doosh.” Just going the motions, and the kids were in daycare from like 8:00 to 5:00, my husband was traveling 150 days, and I’m like, “Dude.” I got some level of freedom, because I had a pretty nice portfolio and we did well, but I had completely lost it, because I’d built the job for myself, so I was kind of miserable again.

David:
Yeah.

Brandon:
Alright, so before we go in the next phase then, of how you maybe solved that, or you didn’t, we’ll find out, stay tuned. But first, a word from our… I’m kidding, no. So, what was this portfolio like? I mean, where was it at, what were you buying, what types were you buying, what made up that $2 million?

Maria:
Yeah, I started buying in Finland.

David:
Okay.

Maria:
Right? So that was a brand new market for me. I hadn’t lived in Finland, so I was born in Finland, but I only lived there five years and then my family moved to Sweden, so I knew nothing. I had no network. I hadn’t lived there for ten years at that point, and so I started looking into… I read a ton of books and did what they told me to do. So, one of the things they said was, “Buy apartments in good places that are small and rentable,” and I bought my first one in a satellite city to Helsinki, like a downtown.

Brandon:
Okay, yup.

Maria:
Yeah. And I was income-less, or a stay at home mom at this point, so going to the bank was interesting, because awesome candidate for getting a loan, not.

Brandon:
Yeah. How did that go? I mean, what are loans like to buy in Finland? I know that doesn’t benefit most of our audience, but I’m just curious. Like, what is it like to get a mortgage? What kind of loans do they give? What’s it like?

Maria:
Yeah, so it’s kind of the same as here. So even though it’s a very different market in many ways, the principles are the same. And even when it comes to banking, the one thing that will piss people off that I do have to mention, though, is two thinks. Closing can be done in like two days in Finland.

Brandon:
Really?

Maria:
Yes. We don’t have all that paperwork. The other thing is I pay like 0.7.

Brandon:
Like interest?

Maria:
Interest rate.

Brandon:
0.7?

Maria:
Yeah, for a 20- to 25-year-old.

Brandon:
Yeah. Year, yeah. That’s incredibly low. I’ve heard of negative interest rates in… Denmark went negative, right? But I thought, I got a 2.9 another day on an apartment complex, but 0.7. That’s- [crosstalk 00:18:49]

Maria:
Yeah, so basically it is negative, but what you pay for is the margin, the part that the bank makes money off, right?

Brandon:
Yeah, okay. Yeah.

Maria:
Yeah.

Brandon:
Crazy. Is that just because they’re trying to get more people to buy? Is this just an incentive to get… So that keeps it really, really low? [crosstalk 00:19:03]

Maria:
Yeah, and it’s not just a Finland thing, it’s a Europe thing, because the Finnish banking system is driven by the European Central Bank.

Brandon:
Okay. Yeah, so you buy these properties, so what’d you end up? Did you save it through the down payment for them or did you get a little more creative?

Maria:
Yeah, I had to get creative, right? Because I didn’t have my job anymore. And so I started consulting, that was one. So I got a little bit of income from that, started a consultancy. And then I pitched it to partners, so I’ve gotten money in three different ways that I can go through a little later if you want to.

Brandon:
Sure.

Maria:
But this was number one, so I knew that I needed… Was it 20? Or maybe in dollars, it was $30,000. So, I pitched it to my brother and to my husband. But my brother sees me as this surfer girl who calls him from Bali 20 years ago going like, “Hey, dude, I’m all out of money. Can you send me some?” That’s how he remembers me, so I’m like, “How can I change that belief?” So I spend a while to think about, “Okay, who is he? Who’s my husband? Both of them are, they’ve got good jobs, but they’re engineers.” So I’m like, “I’m going to talk to them in their love language, which is Excel.”

Brandon:
Yes.

Maria:
So here’s what I did. I created an Excel, and it was massive. On one side, my brother also invests in the stock market.

Brandon:
Okay, yep.

Maria:
So on one side, I put his return. I took, “All right, so if you invest in the stock market here, the average return over a few years is this,” or even just a name index-level return. And I pulled that over five, 10, 15, up to 30 years. On the right hand side of that, I showed what he would be making if he instead invested that money in me and my real estate investing, so calculated, used some metrics like appreciation and obviously the use of leverage, how that impacts the cash flow and inflation and that sort of things. So I had a few things that I added in. So instead of saying, “Hey, dude, can you lend your sis 20K?” I was like…

Brandon:
Yeah. Which is how most people treat it. Like, yes.

Maria:
Right? But I’m like, “This is a business acquisition.” So I pitched him not as the sister, or my husband as the wife, but as the business owner.

Brandon:
Yeah, business investment.

Maria:
Yeah. So I showed him, “Here’s how much more you’ll be making with me, as opposed to…”

Brandon:
What I want to applaud here is just this important idea of love languages, right? Or certain people… There’s a book called the, what? “Five Love Languages,” right?

Maria:
Yeah.

Brandon:
And some people respond different ways. Like, there’s physical touch, and some people like gift-giving or receiving gifts, and there’s different love languages when it comes to relationships. The same is true for when you pitch an investor.

Maria:
Yeah, any meeting, really.

Brandon:
Yeah, any meeting. Like, there is a way that people want to receive information and a way people want to deliver information. And so, knowing your investor, knowing your audience… Like, you said they were an engineer. They like Excel, they like that data. And so that’s a great way to pitch it. And then if you were talking to somebody that was not that side, which I would guess that, I don’t know, 80% of people are probably not that way, I would guess, right? If you’re not an engineer or a math nerd, you’re probably more of a, “Show me some pretty charts and colors and graphs.”

Maria:
Yep.

Brandon:
It makes people feel really good, which is why one reason on the BiggerPockets calculators we do both, right? We have the bottom, we have all the details, but the top, it’s like, “Here’s pretty colors.” And it sounds stupid, but either way, when you appeal to somebody in their love language or their investing language, I don’t know if there’s a name for that, their cash flow language, then yeah, your chance of getting a deal accepted or a partner brought in is just so much greater. And it’s like how you do anything is how you do everything.

Maria:
Yep.

Brandon:
And so you put the effort in to even learn how they react, but also it’s actually, “Know your numbers,” and then they’re more likely. So I’m guessing the end of the story is your brother brought some cash.

Maria:
Yeah.

Brandon:
Okay.

Maria:
I got both of them on, and later on, when I started the LLC or the investing company, they both came on.

Brandon:
That’s cool.

Maria:
As partners in that as well.

Brandon:
Okay. Yeah, and this applies to, I mean, any partnership [inaudible 00:23:16]. It doesn’t have to be family, it can be, but I think it’s even more important for family, though, to treat it that way.

Maria:
Yeah, I was just going to say. So if you’re listening to this and thinking, “Well, I don’t have a husband or a brother that has good jobs or money or whatever,” well, you don’t have to. It’s actually harder to ask family and friends to be a part of that.

Brandon:
It is super hard.

Maria:
Yeah.

Brandon:
Yeah, I would much rather pitch a random stranger, which is probably why I’ve raised, what? A hundred million dollars and I have never once pitched my family. Well, I did. My dad was on my first two deals, and it was the hardest conversation to have, like, “Dad, I’m trying to refinance a house and I can’t. Can I put you on the mortgage and then we refinance it?” He was cool with it, and now he’s got his retirement padded because of it, so it’s good for him, but that’s an awkward conversation with family.

Maria:
Yup.

Brandon:
It’s a lot easier with friends. One thing that I do, a tip I’ve shared a number of times that has always served me well is instead of directly asking people, because I’m a high I, I don’t like being rejected.

Maria:
Mm-hmm (affirmative), same.

Brandon:
I kind of do the passive aggressive way, right? For the passive way, I’m like, “Hey, do you know anybody who would be interested in learning about this?” And it gives people that opportunity to be like, “Actually, I might be interested.” But if they don’t, they’ll be like, “No, I’ll keep an ear out.” And then you know that they are saying no, but you don’t have to have the confrontation. So that’s a non-confrontational to raise money that I’ve used.

Maria:
I like that tip.

Brandon:
Yeah.

Maria:
Yeah.

David:
All the high Is out there just had little light bulbs pop over their head.

Brandon:
Yup. “That could work.” Well, that’s also why I would always tell my tenants I was a property manager. It’s a true statement, I was managing the property, I was the property manager. I also owned it, though. Well, technically it was owned by an LLC, right? And then my wife and I were the owners of the LLC. So I would say things either like, “I’m just a property manager, I’ll check with the owner.” Like, “Can I have a dog?” “I’ll check with the owner,” which meant my wife. Or, “Sorry, yeah, talked to the owner and they’re kind of a jerk. They said you couldn’t have the dog, but I’m still fighting for you, but I’ll let you know if that changes,” right? High I Brandon doesn’t have to deal with being like, “I’m the bad guy.” But David on the other hand, he’ll walk in there and be like, “Yeah, I’m the owner, and no, you can’t have your dog, and I’m taking your TV,” and then he walks out. That’s David.

Maria:
Well, okay. So let me put in a third example, because I’m even different from both of you. So, what I started doing in Finland was I noticed landlords have kind of a bad rep in Finland, right? So we’re seen as these vultures that take people’s money and all that. Like, maybe even slumlord type of situation. So, I saw an opportunity there, and then, the other opportunity that I saw, I’m like, “The apartments that are up for rent are terrible. They look like they were designed by no one.” So my business idea was like, “I want to…” And this is going to sound mushy, especially to David. He’s going to roll his eyes.

Brandon:
[inaudible 00:26:00]

Maria:
I wanted to create homes with heart and do landlording with love.

Brandon:
I like it, see?

Maria:
It has a ring to it.

Brandon:
It does, it’s good.

Maria:
So what that means is I’m actually really open and tell about who owns this apartment and who we are and tell a little bit about us and our family and-

Brandon:
That’s cool.

Maria:
…kids and all that, so yeah.

Brandon:
That’s cool.

Maria:
But it comes with the hard parts.

Brandon:
Yes. It does, it does come with… That’s when you just, “My husband said I can’t,” or “My wife says I can’t.”

David:
Yeah.

Maria:
Yeah.

Brandon:
All right, so- [crosstalk 00:26:35]

David:
Let me interject.

Brandon:
Go ahead. Please, please.

David:
Before we move on, if no one knows what we’re talking about when we say “high I,” look up, on BiggerPockets, “DISC profile,” D-I-S-C, I wrote an article for BiggerPockets that described, It’s a personality assessment that talks about the dominant traits in someone’s personality. [crosstalk 00:26:51]

Brandon:
Do you want to run through it? Just the quick, “What does each one mean?” Just so people are aware.

David:
Yeah, so they all relate to a component of a personality. We all have them, but in different people, they’re in different amounts. So, your D score is your decisiveness or your dominance, that’s how quickly you make a decision in an environment you’ve never been. These are the people that… My D score is very high, that are comfortable being in environments that we haven’t been before and making decisions, but we often act like bulls in a china store. Like, I can hurt people’s feelings without even knowing that I did it, so that’s what D traits are known for. I scores is your interactive score, this is how much you like being around people. They very much want to be liked. They’re typically our social butterflies, they’re the ones that everyone loves, they like to have fun, they make everything nice, but they can be a little more sensitive towards rejection, and they’re often not as analytical-

Maria:
Just a tad. [crosstalk 00:27:38]

David:
…by nature, right? So Is are the china that my D tends to break when I get around. Like, those are people that I can clash with if I’m not careful. Your S score is your stability score. That’s the pace that you like to experience life at and the consistency. So high S-es do not like change, they don’t like things getting thrown at them that they didn’t expect. You’ll often hear high S-es say, “Well, no one told me,” or, “I thought the plan was,” fill in the blank. That’s another one that Ds will often clash with, because I can change my mind four times in the 30 minutes about what we’re going to do. And that can be very difficult to S-es, who are getting used to what the plan’s going to be. They tend to be the most loyal people that you’ll ever work with. They don’t like conflict, they tend to smooth everything out, and they don’t speak up for themselves as often, so S-es will take abuse and take abuse and take abuse, and then finally they just snap, and you’re like, “Whoa, where did that come from?” But they’re like, “It’s been three years.”

Maria:
That’s [inaudible 00:28:34].

Brandon:
Yeah, I’m a high IS.

David:
Yeah.

Brandon:
I’m high I, high S.

David:
So Brandon isn’t going to tell me if I’m doing something that irritates him. He’s not going to want to upset us, right? So knowing that, I have to proactively dig with Brandon and say, “Hey, have I pissed you off lately?” Or “What am I doing that’s irritating you?” And he’ll be like, “Yeah, it’s not anything that…” Okay, there’s something there, I got to go a little bit more…

Maria:
Well, I gotcha, David. I’m ID, so I’m like…

Brandon:
Oh, there you go.

Maria:
Yeah.

David:
DIs and IDs tend to be the best salespeople.

Maria:
Yes.

David:
In almost ever industry, the top real estate agents or loan officers-

Brandon:
You’re right, yeah.

David:
…they’re always the greatest salespeople, because they take massive action, that’s what Ds are known for, and they love to be around people. Like, I am a good business owner but not a great salesperson, because interactions with humans wears me out. That’s probably going to come up later in this podcast, as we talk about how that shows up. And then your high C score, we have a friend Andrew Kushman, and his nickname is “High C,” because he’s super analytical. This is your conscientiousness score.

Maria:
I need him in my life.

David:
These are your analytical people. These are the ones that we all like, “Oh, thank god we have one of them.” They love spreadsheets, they love formulas, they love analyzing things. These are engineers, architects, doctors, lawyers, mechanics, people who love to kind of take the chaos of the world and create order out of it. They put a lot of attention to detail, the job they do is incredibly important to them, bookkeepers, CPAs, right? They know all these rules, but they can be a little tone deaf. Their I score is often lower, so they don’t get along with people as well. Like, this is the awkward genius that can sit in the cubicle in the back and write code that we could never understand, but they show up with pizza stains on their shirt every day and can’t understand why they don’t have a girlfriend. That’s your C score. So, you want to know more about that, I wrote an article on this for BiggerPockets. You can go check it out [inaudible 00:30:16].

Brandon:
Yeah, I’ll put a link in the show notes. I don’t know what show number this is, but whatever it is, we’ll put a link in the show notes. Biggerpockets.com/show and then the number, but I’ll look it up in a minute. All right, let’s move on. So you said here you built this portfolio, but now you’re still working a ton to manage all these properties. What came next in your story?

Maria:
Yeah, so I had lost the freedom, right? I was working away, and it was because I was afraid of giving up control, right? And…

Brandon:
Been there.

Maria:
Yeah, your story jives with me. So, then 2020 happened, and 2020 was hard for all of us, and especially for our family. And I’m going to start crying, but I love talking about this, so I hope you’re okay with me.

Brandon:
Yeah, you’ll make me cry. I know it’s coming.

Maria:
So, I got pregnant again, with our third baby, Millie, and pretty early on, we found out that it was a high risk pregnancy. So, I couldn’t be building stuff anymore, because I used to DIY. I was going to say shiz. So I used to do everything myself. So, for the first time, I had to… I had two massive projects going on at this time, my biggest flip and another project, so I had to hire it out. So my friend Jenny, who’s a GC, she took both projects on fully, and I needed to spend time with Millie, so early on, they thought that she might have something called Trisomy 13, but then in the middle of the pregnancy… I didn’t want to do the test to find out, but in the middle of the pregnancy, we found out, it was confirmed that she did in fact have Trisomy 13.

Maria:
And for you guys that don’t know what that means, they don’t live long. Yeah. So, they told us that she would probably make it for a few weeks, so we were expecting her to come, so I spent a lot of time just focusing inwards and pausing, and in October, she was born, and it was a beautiful day, but also the hardest day of my life, because her heart wasn’t beating anymore, so Millie was stillborn. And she was supposed to be our rainbow baby, and for you guys who don’t know what that means, it means the baby that comes after loss, because prior to Millie, we had lost three babies at earlier stages, and one of them was an ectopic pregnancy that almost took my life. So, it had been a couple rough years, and for the first time, I needed to be brave for Millie, to give her a chance, and she made us-

Maria:
(silence)

Maria:
What’s that called? Like, not an empty nest syndrome, but empty arms syndrome. So, my arms ached, so I needed to do something, so art helped me. So, I’m like, “Fort Collins, Colorado.” And that was a big thing for us. Our lives were in Finland at this point, and my husband’s work was there, so we started thinking about that. And in July of this year, we took the leap. We moved to Fort Collins for an epic family adventure, and just enjoying the plateau, if you will. Like, enjoying the freedom that we had already gained but kind of forgot in the pace of moving forward, chasing our dreams. We’re like, “Well, actually, we kind of made it. Can we take a moment?” So, in the end, Millie ended up being our rainbow baby, just in a different way. She just helps us, reminds us to see the rainbow, and to pause. Yeah, so that’s where we’re at now. We’re back in Fort Collins, kind of the circle is completed, and the kids are with us all day every day. And it’s awesome and it’s intense and it’s hard, because at the same time, we’re living, flipping this house, right? So it’s 23,000-square-foot single-family home that we’re now renovating.

Brandon:
Wait, how big? 23,000 or 2300? [crosstalk 00:35:34]

Maria:
No, did I say that?

Brandon:
Yeah. 2300? Okay.

Maria:
Yeah.

Brandon:
I was like, “23,000, that’s a…”

David:
It sounds like royalty in Finland.

Maria:
Yeah.

Brandon:
Oh, she didn’t mention she was the Finnish Queen. [crosstalk 00:35:49]

David:
Yes, exactly.

Brandon:
Is there a queen in Finland? I don’t know, is that a thing?

Maria:
No, we have a President, but a female. [crosstalk 00:35:52] No, I’m sorry. Not a female President, I’m going to take that back. Yeah, the Prime Minister is female.

Brandon:
A non-female.

Maria:
A non-female President but a non-male Prime Minister, yeah.

Brandon:
Okay, man.

Maria:
Oof, that was a lot.

Brandon:
Heavy, heavy, yeah.

Maria:
But also a lot of light.

Brandon:
Yeah.

Maria:
Yeah. [crosstalk 00:36:12] So there’s a lot of love in that story for me.

Brandon:
Well, I remember you posting about it after it happened on social, and man, I just feel for you. My wife and I were just like… I mean, we did cry for you, and…

Maria:
Thank you.

Brandon:
It’s a terrible thing.

Maria:
And you know, because of Rosie and what happened. The end result was different for you, but you know the feeling, like when you’re at the doctor’s and you’re like…

Brandon:
Yeah, something I wouldn’t want to wish on worst enemy. But yeah.

Maria:
Yeah, thank you. [crosstalk 00:36:43]

Brandon:
Come here, come here. Hug me. I need a hug. We can’t just not hug that one out.

Maria:
Can I just share?

Brandon:
Yeah, sure.

Maria:
I don’t know, I told Heather this. So, when I was in Maui just recently, your son came up to me, and he kind of just went straight for me and just hugged me, and I kind of think that he maybe thought that I was Heather, because he just saw legs, but also, there’s a part of me like, “Babies have a connection. Like, he was up there not too long ago.”

Brandon:
Yeah, yeah.

Maria:
So, yeah. So, thank you to him for that.

Brandon:
That’s cool.

Maria:
Yeah.

Brandon:
That’s cool. All right, well, let’s…

Maria:
Oof.

Brandon:
Oof. Okay, let’s talk. I want to get to some advice from you, for the audience, for those people listening. We’ll start with some real estate stuff. People who are in your shoes and they’re saying, “I don’t have a lot of money right now. The market’s crazy. I got to start doing this thing,” what’s the first thing they should do? I mean, what would you advise for somebody who’s just getting started right now?

Maria:
I had the pleasure of working with J.J. Abrams in Silicon Valley, and…

Brandon:
He’s legit. [crosstalk 00:37:56]

Maria:
Legit.

Brandon:
Yeah, that guy is the guy.

Maria:
Yeah. So he’s legit because he’s very good at what he does, but this story’s about why I think he’s successful. And it happened, he was about to go onstage, and my team was backstage to help all the presenters, and it’s a few minutes before, and his presentation keeps crashing, because obviously he has a lot of video in there, right?

Brandon:
Yeah.

Maria:
So, our art director, Kevin, steps up, and it’s obviously high, high… What’s that called? Like the stress.

Brandon:
Stress, yeah. Right.

Maria:
He saves the moment. So, he fixes the presentation and instead of J.J. just jumping up, he was a couple minutes late for his presentation, his keynote. There were like 5000 people in the audience. He pauses, and he goes around the entire room, he hugs Kevin, and then he goes through everybody in the room, we were maybe like 10 in there, and shakes everybody’s hand, looks us in the eyes, and he goes, “Thank you.”

Brandon:
That’s great.

Maria:
And I think that just taught me, “Be an effing pleasure to work with,” right? So you need to know yourself, that’s basic. Like, you need to approach people with some kind of value, in terms of, like you always say, you need to have time, you need to have hustle, you need to have some sort of knowledge, or you need to have money, but if you don’t have money, then always make sure that you’re really cool to be around. Yes, I think that’s my number one.

Brandon:
All right, that’s good. All right, so some more questions. We talked a bit about heartbreak on this episode, and I want to talk about another heartbreak, and that was David’s heartbreak. Who wants to tell that story?

Maria:
Well, I can tell it, but it was the other way around. [crosstalk 00:39:50]

Brandon:
Oh, was it? Okay. Oh, okay.

Maria:
Yeah.

Brandon:
Okay. I thought…

Maria:
I’m the heartbroken one.

Brandon:
See, I thought I heard David was heartbroken. Okay. Let’s hear the story.

Maria:
Well, maybe. Maybe. If he was, I don’t know.

Brandon:
Okay, let’s hear this.

Maria:
Oh, man. Another story of Nashville.

Brandon:
Okay.

Maria:
A lot of things happen in Nashville, man.

David:
What happens in Nashville gets told on a podcast.

Maria:
Yeah.

David:
Unlike what happens here in Vegas. All right.

Maria:
All right, so I’m in Nashville, I meet David for the first time, I shake his hand, tell my name, and afterwards, I reach back out to him. And he does not remember ever meeting me, so…

Brandon:
David.

Maria:
Yeah. So that’s like, “Ugh,” a little bit. Okay, but it continues.

Brandon:
Okay.

Maria:
So, David, you gave a keynote that day. I think you had flown all night, remember that? Something happened with your flight?

David:
Yeah, my flight was delayed and I had to stay at a hotel and got like an hour of sleep, and then showed up right before I had to speak.

Maria:
Yup. So me, the kind person as I am, reached out to you, and I’m like, “So, okay. It was great meeting you, David. I used to work at the world’s leading presentation agency in Silicon Valley. Would you want some pointers and some feedback on your keynote presentation?” And you, as a person that loves to grow, you’re like, “Yeah, I’d love to.” So I’m like, “David responded, oh my god. So he doesn’t remember, that’s fine, but he responded.” So I type up this essay to you of all the things, like, “This was great, here’s something that you can work on,” and blah de blah. Crickets. And my husband’s like, “Dude, what did you do? You just ruined your career? Like, you’re blacklisted from everything from now on.” And I’m like, “Oh god.”

Maria:
And here’s a part that you don’t know, David, and nobody knows, really. So, I don’t hear in a few days about this. I’m at my friend’s [inaudible 00:41:53] in Stockholm, Sweden, and the day you actually write me back is the day I had found out that the pregnancy, the baby that I was expecting then, in week 10, the heart wasn’t beating. So I’m crushed, and you respond this day. And you say, “Maria,” do you remember what you wrote me? It’s okay if you say no.

David:
Yeah, I don’t remember the details of it. [crosstalk 00:42:19]

Maria:
Here’s what you said. Yeah, so you wrote, “Maria, this is probably the best thing I have ever read in my life.” So, just that kindness, I’m going to cry again. No, it was a hard day for me, obviously, so just a piece of kindness can do so much, so thank you for that.

David:
Yeah, well, that’s really good. I think that’s probably a situation Brandon and I find ourselves in more times than we would like to with all the things that we have going on, and that’s why I’m saying I feel like a bull in a china shop a lot of the time, because I did remember meeting you, Maria. In fact, I remember in Nashville, you were with Investor Girl Brit and a few other ladies on your way out and-

Brandon:
Non-males.

David:
Yeah, a few other non-males. And you guys were heading out to dinner and I was going somewhere else and it was like the high pitched-

Brandon:
We’re getting canceled over this show.

David:
…”David!” And I turned around, and Brittany was there, and a bunch of the rest of you were there, and I do remember seeing you, but I couldn’t remember your name, which is also a common thing, where you see someone’s face, and you’re like, “Oh yeah, they’re all over bigger pockets, but I don’t remember where I know them from.” So, I did remember you, I just didn’t want to get sucked into a conversation where it was going to be obvious and I’m like, “Hey, you.” Right? One of those things. And then, when you gave me the feedback on the speech, it was very long. [crosstalk 00:43:39]

Maria:
It was long?

David:
It was probably like three bubbles long of information, so it’s hard for me to be able to read through all that, still think of a thoughtful response, and so I probably just read it, wasn’t able to get back to it right away.

Brandon:
Do you remember what you told David? What’d he suck at?

Maria:
Do you want me to go through some? I do remember.

Brandon:
Okay, what did David need to improve on? Because okay, public speaking is a thing that you have to do when you’re a real estate investor. You don’t have to, but a lot of us do, whether it’s at a conference or just pitching with your friend, or whatever. So help us improve.

Maria:
Well, I can give you one thing that I told David, and it was-

Brandon:
Notice I didn’t ask you to say anything about me because I’m a high I.

Maria:
Yeah. So I told you that… [crosstalk 00:44:15]

David:
Let’s dissect David on the show [inaudible 00:44:16].

Brandon:
Let’s look at David instead, he can handle it, he’s a D. He’s good.

Maria:
I told David that I can tell that he’s so passionate about this, but that level of passion can come across as aggression when he’s onstage, that he’s so intense on there. So I told him to slow down a little bit and soften it up. And this is important for everybody, and especially maybe Americans, to bring-

Brandon:
No.

Maria:
Bring contrast. So, sometimes be a little quiet and slow down, and then you can come back and be like, “Rah! Da, da, da.” And that contrast is key in keeping the audience attention. First you need to grab it, and then you need to hold it, and the holding is a difficult part, and that’s where the contrast comes in. And the other part was I think I told you to stand still a little more and pick one person and look in their eyes for three seconds, because that gives a sense of empathy to the audience. So if you look at one person, it makes everybody feel like you’re talking to them. It’s weird.

Brandon:
Yeah.

Maria:
But it’s true, so… And three seconds feels like a long ass time for the speaker, but it’s not for the audience.

Brandon:
Trying to do it right now. Okay, that’s good. And I was going to say, notice how she didn’t correct my speech, but then I realized that’s how we started this interview, with you telling me how horrible I sounded, so we don’t need to go there. We’re not going to rehash that anymore. I want to go back into real estate a little bit, some topics here. Specifically, I want to talk, let’s talk about finding money today. Like, raising money or finding money, getting mortgage, getting loans. What have you found works with that? What have you had success with?

Maria:
You want to get into my sweet, sweet four steps of getting a loan the Maria way?

David:
Do you have a little trademark on that? I hope you do. You have a jingle and a trademark on it.

Maria:
I can work on the jingle if you work on the… What’s that called? The abbreviation?

Brandon:
Yeah, I can do the acronyms.

Maria:
Yeah, acronym.

Brandon:
Yeah, I’m pretty good at acronyms. Dave will give you an analogy.

Maria:
Yeah.

Brandon:
It’ll be perfect. [crosstalk 00:46:18]

Maria:
Perfect.

Brandon:
All right, so you got the jingle, I got the acronym. Okay, what is the four?

Maria:
All right, so this is how I secured a 550,000 bank loan for a newly started LLC with no income and as a stay-at-home mom.

Brandon:
Okay.

Maria:
Boom.

Brandon:
All right.

Maria:
And something that everybody can do. Number one, I’m going into the bank, bring your baby who’s 10 month old and then forget that you bring that baby. So I’m pitching, I’m so into the pitching, my baby Stella’s under the table, and when I’m done pitching, I look under, and she has ran havoc in my purse, like all of my stuff. There’s food everywhere, even… What do you call it? A feminine pad?

Brandon:
Yeah. [crosstalk 00:47:05]

Maria:
Yeah, so she’s ripped out a feminine pad, it’s stuck to the banker’s shoe, and he’s like, “Is this yours?” So, start with that.

Brandon:
Step one, I can do that.

Maria:
Number two, here’s where we get into the real stuff.

Brandon:
All right. Number one was bring your 10-month-old baby and forget them.

Maria:
Yeah.

Brandon:
Okay. What’s the second one?

Maria:
Number two, and you touched on this, it’s you have got to get to know your audience. Like, what’s his name? Magnum PI.

David:
That’s an old reference.

Maria:
Put those pants on.

Brandon:
I don’t know. I’m not that old.

Maria:
Right, okay. So, what are they like, the person you’re talking to? So for me, what’s a banker like? I asked around, people who had worked with him before. I stalked his Facebook, I saw that he had kids, I saw pictures of them. Like, I knew that he would be okay with me bringing a baby in there, he’d have empathy there. So, what keeps them up at night? Well, when it comes to a bank, it’s always risk. How can I mitigate that? So I came in with a 20 page business plan, and a huge part of that was a risk mitigation plan, “All right, what’s my exit strategy? How do I get around a market crash while I buy under market price?” And so I had a few key things. And how can you solve their problems? Is a big one, and how can you make them shine? And I love the way you talk about this, David, in your “BRRRR” book. You go into specific details when it comes to a bank. Is it a small bank? Do they need more liquidity to be able to give out more loans? Do you have a friend with money that can start saving there? Can you start saving there?

Maria:
So I opened up an account with them even though I didn’t need it, I started putting money in there every month, and also, I’m like, “What’s a KPI that he gets measured on? Probably selling a lot of other crap.” So I bought everything. So he’s like, “Here’s this thing.” I’m like, “I’ll get it. Yes, give me.” So I spend $100 or $1000 on just buying all the extra stuff, just to make him look good, and also introduce him to a bunch of other investors.

David:
Oh, that’s a good idea. Yeah.

Maria:
So that he got more business. And what do you want them to do, right? So I went in, I’m like, “I want the money, but I don’t want just that. I want a partner, right? I want a bank that can grow with me.” So think about that when you go in then, and also think about how will they resist? And how can you best reach them? So this is the same thing, right? What’s their choice of medium? Do I bring an Excel? Yes, to a bank, always bring an Excel. Bring a lot of hockey sticks, right? And then with the hockey stick, I mean, exactly, the graph that goes up and, “Here’s the plan for how I’m going to make the business grow and how you’re going to be making a lot of money off of me.”

Brandon:
Yeah, I like that idea of thinking about that their biggest concern is risk, right? And that’s going to be always… Like, a bank’s job, they make money by lending out money. Because this is such a thing I didn’t understand earlier in my career, is banks are not guarding money like it’s the “Harry Potter” vault. They’re not-

Maria:
Eh, kind of.

Brandon:
Yeah, well, some of them act that way, but the only way a bank survives is by lending out money. That is what they do. And the more they do it, the more money they make, and the more they make in bonuses in their job. Like, they make money by lending money. So, they want to do, they’re on your side, if you can convince them. And that’s like you said, it’s the how you present it, what media you do, what your risk mitigation plan is, all that. All right, so that’s good. You’ll know your audience. [crosstalk 00:50:38]

Maria:
Yeah, can I give one last example on that that’s very specific? So, in Finland, we use a lot of ARM loans, so Adjustable Rate Mortgages as opposed to… We don’t have a 30 year fixed as an option. So, I showed up with a plan for what will happen if the rates go up to 1%, 3%, 6%, and a plan for each. So I think that’s one thing if you do use ARMs, or any other type of risk scenario that you’re in in your market, come with a plan for each of them.

Brandon:
Very cool. All right. What do you got next?

David:
That sort of ties back to the DISC model, we should highlight that.

Maria:
Yeah.

Brandon:
Yeah, it does. Yeah.

David:
You want to present information to other people in the way that they value. So, an Excel spreadsheet that shows risk mitigation is very powerful to a high C, who’s looking at that, and that’s probably our decision maker. Bringing their favorite kind of Bundt cake isn’t going to be as big of a deal to a high C as to the high I, who may be the sales rep that gets you the meeting with the high C. So tailoring your approach to the values of the person you’re talking to will always get you further than just doing for someone else what you would want done for yourself, assuming everyone’s like you.

Brandon:
Yeah.

Maria:
Yeah. And also, maybe to challenge that a little bit, David, or add to it, is even though a person is driven by data, all decisions are made through an emotional connection, because that’s the part of the brain that drives us. So even though you don’t think that, and that brings us to number three. Define how you’re going to transform the audience, and that includes how they feel about you, right? So everybody, when you come into a room, and you’re about to pitch or have a meeting or whatever, they think something and they feel something about who you are. And figure that out, think about that. What do they think about you when you walk in and what do you want them to think when you head out?

Maria:
All right, so to give you an example of what I did, I was pretty sure they were going to look at me and go like, “All right, oh gosh, this is a brand new LLC.” And instead, I wanted them to think, “She’s an experienced investor,” because at this point, I had already point a to the million dollar portfolio, right? So then I thought, “How can I make them see that?” Well, I brought in a massive Excel, where I showed all my deals with 20 metrics for each. And he’s like, “Whoa. Not even engineers come in with this.” So, I moved him over. Number two, they’re going to see a risk of default. We had $2500 at the LLC’s account, and I wanted them to see, “All right, these owners and this entrepreneur, she’s financially savvy.” And the way I could show that I came up with, I brought an Excel again for the net worth of my family as well as my brother’s family, because it was three of us, me, my husband, and my brother. And I showed over a period of like three to five years how our net worth had progressed. And yeah. [crosstalk 00:53:50] I’m pretty proud of that. Like, I heard myself pause a little bit.

Maria:
And the last one, and these are just examples. I had like 10 of these. They’re going to think about the market risk, okay? So, I want them to instead see, “Hey, this investment is worth taking the risk for us.” And the way I did that is, like I mentioned, I had the risk mitigation plan in the business plan to kind of… All the questions they would’ve asked, I’m like, “Well, that’s page five.” And it doesn’t really matter what you say there, it’s just the fact that you’ve thought of that, right?

Brandon:
Yeah, that’s what I was going to say, is at some level now, when that banker or that person or that lender, that private lender, that hard money lender, that partner, whatever, when they see that you’ve done that level of work, whether it’s consciously or subconsciously, they instantly think, “If that’s what they do to prepare to do this, what are they going to actually do in the actual work?”

Maria:
Yeah.

Brandon:
So, it’s that same thing we say over and over and over, how you do anything is how you do everything. And you’ve just proven that. Like you said, it doesn’t even matter that much what you say, it’s more important that you say it and a lot of it in a way that they understand and respect. [crosstalk 00:55:03]

Maria:
Yup, exactly. All right, moving on. You ready?

Brandon:
So that was number three, right?

Maria:
That was three.

Brandon:
Okay.

Maria:
Here comes number four. Find common ground, right? So choose a banker that is an investor themselves, or choose a banker that understands real estate investing. So, I knew that, so I started by asking about his, and we had shared experiences and we bonded over that. And also, after that, you can see if you have common goals, right? “We want to grow together, I want to help your bank,” and then you can get into the qualifications of why you’re uniquely qualified to do that with them. Last one…

Brandon:
Last one? [crosstalk 00:55:44] I thought it was only four steps.

Maria:
No, it’s five.

Brandon:
Okay. [crosstalk 00:55:47]

Maria:
Well, because this is the bonus, or maybe I wrote the wrong number when I pitched it to you.

David:
Well, maybe the first one doesn’t count. All right, what’s the last one?

Maria:
Maybe the first one was a bonus, all right. Stick out like a dog’s balls. [crosstalk 00:55:59]

Brandon:
[inaudible 00:55:59] say that?

Maria:
Yes. So at the agency that I worked at, for every presentation, you should have a STAR moment. And that stands for, you’ll love this, “Something To Always Remember.”

Brandon:
Oh.

Maria:
Right?

Brandon:
“Something They’ll Always Remember.” STAR, I like it. Look at that.

Maria:
Yeah. So, don’t be afraid of being you. Like, you do you, boo. Right? I came in as the whirlwind I am, and I was me and I forgot about the baby, but he saw the passion that I came with. I came in with a point of view, with a vision that I had for the company and the motto, and that was something that he wanted to get behind, so I think that’s an important part. We don’t have to be all so buttoned up. That’s not what makes you professional.

David:
Agreed. Yeah, there is something magical about standing out.

Maria:
Mr. Flip-flops.

David:
Yeah, exactly. I mean, I grew the beard as a way to stand out, and I don’t mean that in a bad way, maybe it’s a bad way, but there’s so much vanilla in the world, right?

Maria:
Yeah.

David:
There’s something that people need to grab onto. It’s why things like house hacking and “BRRRR” took off. It’s why our podcast took off. It’s why people invest with open door capital, like with my company, is there’s things we do to stand out on individual bases and on wide, and it’s not just me, it’s all the best investors that I know, have that like, “We’re not like everyone else. We’re not just vanilla.” It doesn’t mean you’re immature, it just means you’re showcasing who you really are.

Maria:
Yeah.

David:
Because people can see when you’re hiding who you are and they can’t see who you really are and they know they can’t see who you really are, they’re going to fear who you really are. They’re like, “Oh, they must be a weirdo.”

Maria:
You’ve taught me a lot about that, about the branding aspect of… If you just… You talk about yourself, and now we’re kind of getting into social media a little bit as well, but if you talk about yourself just as an investor, “Well, there’s thousands of us out there,” but if you talk about yourself… So, for me, maybe it’s like, “All right, I’m an investor, but I’m also a [inaudible 00:58:05] experience.” Like, maybe have two things come together, and I’m butchering. You tell it so much better.

Brandon:
That’s good, that’s good. It’s the intersection of two interests. [crosstalk 00:58:13]

Maria:
The intersection.

Brandon:
There you go. Yeah, if you’re there, then people like that. So, yeah. I like it.

Maria:
Yeah.

Brandon:
Cool. All right.

Maria:
Cool.

Brandon:
Was that the last one? Dog’s balls?

Maria:
Stick out like a dog’s ball, dude.

Brandon:
Okay, that’s going to be your next book. That’s going to be your book. It’s going to be called “The Dog Ball Theory,” and it’s about how to stand out in a world of vanilla. Yes.

Maria:
So it’s “Shoe Dog” and me.

Brandon:
Yes, exactly.

Maria:
Yeah, I like that.

Brandon:
You’ll blow “Shoe Dog” out of the water, it’ll be great. All right, we got to start moving towards the end. David, I don’t want to rob any more questions you might have lined up. If not, I will ask the broad question of is there anything that I didn’t ask you today, Maria, that you wish I would’ve, or anything that you thought, “I can help people with this thing”?

Maria:
Hm. Maybe one thing. So, everything that you do comes with… I want to say shiz, but I’m going to use poo instead, so everything comes with a poo sandwich. Right? So, you’ve talked about this. It’s like if you want to be a rock star, the poo sandwich is you have to play guitar five hours a day.

Brandon:
Yeah. I don’t think I’ve ever said the words “poo sandwich” in my life, but- [crosstalk 00:59:29]

Maria:
And I didn’t come up with that, it’s Elizabeth Gilbert, wrote that in a book, “Big Magic,” it’s amazing. Anyways…

Brandon:
She’s the “Eat Pray Love” lady, right? Is that right?

Maria:
Yeah, yeah, yeah. She’s really, really good.

Brandon:
Not read anything yet, but…

Maria:
Ah, do.

Brandon:
Okay, all right. Do it right now.

Maria:
So, even just- [crosstalk 00:59:46]

Brandon:
Not right now, keep going.

Maria:
So, if you’re nervous, or if you’re nervous about going onstage or public speaking, which is very common, or me coming on this pod, right? Haven’t been able to eat for a week. But I’m like, “Am I willing to eat that poo sandwich?” Because I love performing, I love teaching people, I love being on pods and entertaining and making people laugh, right? So I’m like, “Yeah, I’m going to eat that sandwich. Give me yours. All right, I’ll eat all of the sandwiches as long as I get to do this.” So I think, “Are you willing to eat the poo sandwich that comes with what you want to do, really?”

Brandon:
That’s really good. It reminds me a bit of what? I think Mark Manson, right?

Maria:
Yeah.

Brandon:
In “The Subtle Art of Not Giving a…” fudge, we’ll say.

Maria:
Yeah, giving a poo.

Brandon:
Yeah, giving a poo. Yeah. He says rather than setting a goal for what you want, ask yourself, “What am I willing to suffer for or die for?” Whatever- [crosstalk 01:00:50]

Maria:
“Who you are is defined by what you’re willing to suffer for.”

Brandon:
Yeah, yeah. It’s what that line says. So good.

Maria:
Yeah.

Brandon:
And that’s what, at BPCON this year, the speech I gave was on a lot about alignment, and I talked about passion, the word “passion.” The root word of “passion” actually means “to suffer.” That’s why we say “The Passion of the Christ,” that’s why the movie and the term “passion of the Christ,” it’s the suffering. So, I’m passionate about real estate. Well, are you willing to suffer for that? I’m passionate to run a marathon. Well, are you or are you infatuated with it or are you just lusting after that thing or are you truly passionate? That’s the true sign of passion, is suffering. [crosstalk 01:01:26]

Maria:
There’s one more awesome resource for that, the “Atomic Habits.”

Brandon:
Yeah, yeah. [inaudible 01:01:34]

Maria:
That’s one my favorite episodes that you did.

Brandon:
When he wrote that book I was so mad at him, because everything there, I was like, “I wanted to write this book.” He just did a way better job than I could ever do, so it’s amazing.

Maria:
So, for you guys who haven’t read it, can I share something?

Brandon:
Sure.

Maria:
So, for all of you who don’t even know what that thing for you is, like if you don’t even know what you love or what your passion is, here are a few questions that he asks in that book that really jived with me. So, “When are you enjoying yourself when others are complaining? The work that hurts you less than others is the work that you’re meant to do. What makes you lose track of time? Where do you get greater returns than the average person, and what comes naturally to you, really? Like, when have you felt alive, like the real you?” Oh, makes me want to cry.

Brandon:
You’re going to like tomorrow. I’m going to ask [inaudible 01:02:30] questions now.

Maria:
Oh, god.

Brandon:
Yeah, tomorrow, a goal-setting day. We’re going to hit those questions and more. You’re going to love it.

Maria:
Okay, perfect.

Brandon:
Yeah, it’s going to be great. Because I love… What’s the quote from Tim Ferriss? He always says, “The quality of your life is determined by the quality of questions.”

Maria:
Yeah, “Ask better questions.”

Brandon:
Yeah, “Ask better questions, get better answers.” And yeah, I really love good questions. I think in the goal-setting, whenever I do any kind of goal-setting, I’ll ask myself like 100 questions first. Yeah, those type of questions, because when you start thinking differently, that’s when your life starts to change.

Maria:
Yeah.

Brandon:
Good stuff.

Maria:
Oof.

Brandon:
Good stuff. [crosstalk 01:03:08] Moving on. It’s time for the… [crosstalk 01:03:10] (singing). Time to get to the famous four.

Maria:
All right.

Brandon:
The same four questions we ask every guest every week, and we’re going to ask you now. Do you have a current or all-time favorite real estate-related book? Besides, all of mine, obviously. Obviously.

Maria:
Obvi.

Brandon:
Obviously, okay. Favorite real estate book?

Maria:
Yeah. One that impacted the move that we did this year, of kind of taking a… What do you call it? Like a [sabbat 01:03:36], here?

Brandon:
Yeah, sabbatical.

Maria:
Sabbatical here.

Brandon:
Like I’m doing right in a few weeks, yes.

Maria:
Yeah. “Retire Early Through Real Estate,” Chad Carson.

Brandon:
Chad Carson.

Maria:
Yeah.

Brandon:
That guy is legit.

Maria:
Yeah, Chad made a huge impression on me in Nashville, as well, so really thankful for… In that book, he talks about enjoying the plateaus, and it’s hard to me to slow down, as you know. High D, high I and high D, to slow down and enjoy and not just keep moving. And so…

Brandon:
True story. So after BPCON this year, I went to Disney World with Rosie and Wilder and Heather, and it was late one night and the kids were cranky. We were at EPCOT Center. And we were just like, “We need to go find a place to sit down and relax for a little bit.” And so we find this grassy area, has a bunch of picnic tables on it. And there’s one picnic table that’s empty, so I go sit down there, and we’re eating some food that we had, and this other family comes up and sits down at the table too, because it’s the only one left. And we’re sitting there eating, and I look up. It’s Chad Carson.

Maria:
No way.

Brandon:
Yeah, at the same… And he didn’t realize I was sitting there, I didn’t realize. And we’re just both sitting there at this table, we look up, we just catch eyes with each other. I’m like, “Chad!” And he’s like, “Brandon!” So anyway, Chad Carson, Disney World, 2021. It was great.

Maria:
That’s awesome.

Brandon:
We ended up talking for like an hour and a half and the kids played together. He is the real deal. His whole book, “Retire Early with Real Estate,” he is the guy that’s not… Like, I’m super ambitious and I want to have billions of dollars, but he’s just like, “Yeah, I just want a good life.” And that book is all about that.

Maria:
It was a good reminder. Like, have you guys seen “Soul,” the movie?

Brandon:
Yeah.

Maria:
Yeah. So I’ve been the little fish for a long time, who’s like, “Hey, I’m looking for the ocean.” And the older dude is like, “Well, you’re in it.” And I’m like, “No, no, no, no. This is just water. I’m looking for the ocean.”

Brandon:
Yup.

Maria:
Right? I’m like, “Stop looking and see,” right? So, he helped me with that.

Brandon:
That’s cool.

Maria:
So, Coach Carson, right? On Instagram?

Brandon:
Coachcarson.com is Chad’s website.

Maria:
Yeah.

Brandon:
Cool. All right, David.

David:
Next question, what is your favorite business book?

Maria:
One of my favorites is called “Resonate” by Nancy Duarte, have you read it?

Brandon:
Never. [crosstalk 01:05:45] I love new book reviews.

Maria:
Yeah, yeah. So she’s the CEO and the founder of the agency that I worked for [inaudible 01:05:55]. And this book just shifted my take on how to talk to people, how to present, and everything that we’ve talked today about, really, about how to make that connection with your audience and how to keep it.

Brandon:
So, “Resonate”?

Maria:
Yeah, “Resonate.”

Brandon:
Good.

Maria:
It’s a really good one. Also, I’m just really thankful for them taking a huge risk with me, hiring some rando Finnish girl with a physical therapy Bachelor Degree, working at a marketing agency or a comms agency.

Brandon:
That’s cool.

Maria:
Yeah, shout out.

Brandon:
All right. Any other books you want to recommend? Is that good?

Maria:
Oh, dude. I have a list of 50.

Brandon:
If you have more, you can add more.

Maria:
Yeah.

Brandon:
I know we say favorite book, but you could list more. [crosstalk 01:06:39]

Maria:
Just anything about…

Brandon:
Oh, you do have a list. Holy cow, wow.

Maria:
I do, I do. I told you I come prepared to these things. Everything by Brene Brown, just about being vulnerable and about daring and how to do things despite it being scary. So, none of this fearless crap. Like, I’m scared all the time. I just do things anyways. Like, that’s what I want to teach my kids. That’s what being brave is about. Like, you can feel two feelings at the same time.

David:
Yeah. I heard a quote when I was really young that always stuck with me, that “You literally cannot have courage without fear.”

Maria:
Yeah.

David:
And then, I remember there was a Marcus Aurelius quote. I’m going to butcher it, but it was something along the lines of, “The most important virtue to have is courage, because without it, you can’t have any of the other virtues.” So that always stuck with me, that when you’re feeling fear, that is not a sign you’re doing something wrong. You’re not supposed to wait for fear to go away before you do something. It’s like you said, have another feeling at the same time, have courage spring up and be stronger than the fear and take action in spite of it.

Maria:
I also love, and we could do a whole nother episode on just fear, but I love the sense of the idea of taking fear and being like, “All right, we’re going on a road trip. You can join, thanks for being here. I know you’re trying to hold an eye out for me. You can sit in the back. You can’t sit in the front. You can definitely not tell me where we’re going, and you cannot touch the music.” So, that’s what I try to tell myself. I’m like, “All right, hey, buddy. Come on. Join the ride.” Same thing with… What’s that called? Self criticism. I know that it’s going to be there. I always have it. After this, I’m going to go sit in a corner for five minutes and I’m going to let it come. I’m like, “Hey, great that you’re here. Let’s bash this out,” do it for five minutes, and then I’m going to come out of my corner and be like, “That’s it. I’m not allowed to think about this anymore.”

Brandon:
I love it. I love it.

David:
Got to have that. Otherwise you can’t be friends with Brandon, because you never know the next time he’s going to call you fat or criticize your clothes. Fears will always be present.

Brandon:
I just said don’t wear pajamas, because you asked me something. Anyway…

David:
[crosstalk 01:08:47] No, there was more. And that’s why I didn’t get invited to Vegas, because you’re like, “David, I would love for you to be here, but these people, they look like me and Maria, and I don’t know that this is your…”

Brandon:
That is the opposite of what happened. I think I invited you 400 times, and he’s like, “Oh, I got responsibilities in life. I have to make money and stuff.” Lame, David. You could be sitting here right now in the room with Maria and me.

David:
In that 7000-square-foot place. That private-

Brandon:
7500-square-foot private penthouse suite.

David:
We could be running around playing Marco Polo right now.

Brandon:
We could totally be playing Marco Polo in here.

Maria:
But true story, they didn’t even let me in when I rang the doorbell, because this place is so big, they couldn’t hear me. [crosstalk 01:09:22]

Brandon:
Really? Oh, yeah. That’s true. They didn’t hear the doorbell, because it was- [crosstalk 01:09:24]

David:
Because it was too far away? Oh, that’s funny.

Brandon:
Yeah, there was a couple others here that I was giving a tour to the 7500-square-foot suite.

David:
It comes with a golf cart that you can use to drive around your entire suite.

Brandon:
Yeah. Actually, I was giving a tour to Noah and Jeff, who were guests on the podcast back a month or two ago, so they’re here as well, and a bunch of others. There’s actually a lot of podcast guests here, it’s great. All right, well, we got to start moving on. David, next question.

David:
Next question, what are some of your hobbies?

Maria:
Hobbies. I used to do competitive-level running, so…

Brandon:
Want to run right now, around the suite?

Maria:
Dude, I’m going to take you down so fast.

Brandon:
I will totally win. I will totally win. I have long legs.

Maria:
Well, it’s long enough. 400 meters was my jam. So, what I do now is I can’t really call that running, because it’s more like too slow to be called running, but I do love to be out in nature and forest bathing.

Brandon:
What does that mean?

Maria:
So, it’s when you immerse yourself in stillness in the forest. It’s a Japanese thing. And Ryan Holiday talks about that, I think, in “Stillness Is the Key.” Awesome book.

Brandon:
Great book.

Maria:
So, I started doing that when I was pregnant with Millie, and that was the place where I connected with her the most, so I keep doing that. So, nature. And then…

Brandon:
There’s something amazing about getting in nature, yeah.

Maria:
Yeah. Dude, I mean, there are literal things that happen to your brain when you’re immersed in the forest for five minutes. Like, I’m not making this up.

Brandon:
No, I believe it. I thought you were going to say bathing in the forest. Like, it’s too cold to actually bathe.

Maria:
No, yeah.

Brandon:
Pretty cool in the forest.

Maria:
Yeah.

Brandon:
But it is winter right now, so… Anyway, keep going.

Maria:
Yep. And then I have this passion for thrifting, and I guess it’s… I love seeing potential in things, so glamming up old furniture and designing furniture, I love doing that.

Brandon:
I went through a phase in ’17, ’18, ’19 where all my clothes came from thrift shops.

Maria:
Yeah.

Brandon:
And it was just like I would not wear clothes that were not thrift shop clothes. And they’re some of the best clothes I ever owned, were thrift shop clothes. I’ve had one that said “Math rules,” and there’s numbers all over it, and it was my favorite shirt for a long time, “Math rules.”

Maria:
Cool.

Brandon:
Yeah, I had another one that said… It was not AV club… Some other club I was part of. There were some good… I’ll go back into that. [crosstalk 01:11:37]

Maria:
You’re such a nerd. That’s awesome.

Brandon:
Yeah, I know. I was such a nerd. I was president of the AV club. It was great. Moving on.

Maria:
Can I add one thing?

Brandon:
You may.

Maria:
I recently started writing again.

Brandon:
Writing?

Maria:
Yeah.

Brandon:
Okay.

Maria:
That I haven’t done in a couple years. It’s just been too painful, I think.

Brandon:
Want to write a book?

Maria:
Yeah, we already decided on it, dude.

Brandon:
Oh, that’s true, “Dog Balls.”

Maria:
Duh.

Brandon:
Yeah, okay.

Maria:
Yeah. But it’s been really helpful in finding my focus and healing process and grief, so highly recommend it.

Brandon:
I highly recommend it, too.

Maria:
Like Hal Elrod, what’s his acronym again? SMART? SAVERS?

Brandon:
SAVERS.

Maria:
SAVERS, yeah. Scribing.

Brandon:
Scribing.

Maria:
That’s my choice of poison.

Brandon:
All right. I’m right there with you. I love it. All right, next question is mine, I guess. What separates successful real estate investors from all those who give up, fail, or never get started?

Maria:
The big one.

Brandon:
The big one.

Maria:
Have you heard of Finnish [Sisu 01:12:38]?

Brandon:
Sisu?

Maria:
Sisu, sisu.

Brandon:
Isn’t that the name of the dragon on that one Disney movie?

Maria:
Yeah.

Brandon:
Dragon movie?

Maria:
Yeah, I don’t know. I don’t think it’s spelled the same way.

Brandon:
I don’t think it’s- [crosstalk 01:12:46]

Maria:
It’s S-I-S-U. And it’s this… You can’t really translate it to English because it has so much in it, but it’s…

Brandon:
Like [fika 01:12:57]?

Maria:
Like fika. Yeah, yeah.

Brandon:
Okay. [inaudible 01:13:00]

Maria:
Yup. So, sisu is this inner courage and grit, and it’s not just momentary courage, but sustained courage over time. And Finland was in war against Russia in the Second World War, and just a couple days ago was Finland’s Independence Day, and next week, I’m actually going home to my Grandma’s funeral, and she was one of the last veterans that were alive from that war. She was just a teenager when she volunteered in that. So, to answer your question, I think it takes different things at different times, right? So I think you need to be curious, I think you need to be open to letting go of control, I think you need to be creative. But none of that matters if you don’t have sisu or some level of grit and sticking with it.

Brandon:
That’s so good. So good. So good. I can’t say that much longer, David. He always makes fun of me for being so good. All right, before we move on, fika. Can you explain that one?

Maria:
Fika.

Brandon:
Is that [inaudible 01:14:13]?

Maria:
Yeah.

Brandon:
We bonded over fika in Nashville, this idea.

Maria:
Yeah. It was awesome. I think I redeemed myself with that.

Brandon:
You may have.

Maria:
Yeah, because Brandon’s like, “Have you guys heard about this thing called fika?” And I’m like, “Dude…”

Brandon:
Yeah, because I bought a book called “Fika,” and it’s all about…

Maria:
Yeah. And I’m like, “I grew up in Stockholm, Sweden. I know all about Fika.” So Fika is this coffee break that you take, but it’s so much more than just sitting down and having coffee. It’s bonding over the coffee, and it’s a cultural thing, right? So that’s the way you meet friends. “Hey, let’s go have a fika,” and all the workplaces do it once or twice a day, so it’s just having pause. [crosstalk 01:14:55]

Brandon:
It’s like the greatest concept. Yeah.

Maria:
I think.

Brandon:
Pause in your week, yeah. [crosstalk 01:14:57]

Maria:
Yeah.

Brandon:
I’m like, “Why don’t everybody do that? I don’t know.”

David:
What if you rebranded your coffee to be beardy bonding brew?

Brandon:
Beardy bondy brew. I like this idea. This has been great, phenomenal. Thank you so much for being here today. And we’re going to go get some food in Vegas, so let’s go do that. David, why don’t you ask your final question? Then we’ll get out of here.

David:
Last question, where can people find out more about you?

Maria:
Well, I’m the most active on Instagram, @marialovesrealestate is my handle.

Brandon:
Maria loves real estate.

Maria:
Yeah, I love it.

Brandon:
I did suggest that she change her name to… What was it? It’s the “The Sound of Music” [inaudible 01:15:35] line, right? “How do you solve a problem like Maria?” That’s what I thought your Instagram should’ve been. But it doesn’t really fit with anything.

Maria:
Do you remember the one word you told me that when you think about me comes to mind?

Brandon:
No.

Maria:
Feisty.

Brandon:
Feisty, yeah. Feisty, there you go. Maria the feisty. All right, so Instagram. We’ll put links to that, of course, in the show notes at biggerpockets.com/show whatever number this is. I don’t even know still, to this day. But yeah, that’s all we got. Thank you.

Maria:
Thank you for having me.

Brandon:
Thanks for being vulnerable and for sharing your wisdom and just for being awesome and feisty.

Maria:
You guys rock, thank you.

Brandon:
You rock. David? You rock, too.

David:
Thank you. Appreciate it, man. All right, this is David Greene for Brandon beardy brew coffee Turner, signing off.

 

 

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Your real estate partnership may be closer than you think. Maybe it’s that seller you’re talking to on craigslist, maybe it’s your home appraiser, or maybe it’s someone you meet at a sketchy real estate investing company. Mike Nuss and Tyler Combs never planned on becoming partners when they linked up to discuss a potential sale of a property. But, when fate put the two together again in the same company, they decided to split off and use their complementary skill sets to build a real estate empire.

Mike brought the acquisitions and property management side to their business, while Tyler focused on managing and selling flips. Together they brought the rocket fuel of profit and cash flow to their growing business. Now, they’ve acquired more than eighty units and aren’t planning on stopping any time soon.

Mike and Tyler built their business on the back of strong investor relationships, truthful and honest work, and the ability to find seller finance deals. With the combo of creative financing, marketing, and hard work, they’ve become real estate leaders in their area with an expanding portfolio, team, and strategy.

David:
Hey, everybody. It is David Greene here. As you all know, Brandon’s stepping away from the show at the end of the month. Now, we have some great co-hosts lined up in the New Year, and we also want to take this chance to get to know anyone else out there who’s interested in contributing their talent to the BiggerPockets Podcast Network. If you think that’s you, you can make a submission to our system at biggerpockets.com/talent. That’s biggerpockets.com/talent. You’ll see a few questions and a place to submit a video reel of yourself. Again, that’s biggerpockets.com/talent if you’d like to lend your voice to the growing BiggerPockets Podcast Network.

Brandon:
This is the BiggerPockets Podcast show 548.

Tyler:
Just shrugging off the disasters, the failures, the times you were screwed by other people, and just focusing, very clearly focusing on how to get back on top, how to get back in the game. That has been our key to success is that just dedication of saying, “What is it going to take?” And being willing to do whatever that is to get back, instead of looking in your rearview mirror and being bitter at whatever just happened.

Brandon:
What’s going, everyone? It’s Brandon Turner host of the BiggerPockets Podcast, the show where we teach people that real estate investing can change your life forever. And you’re going to hear a lot about how real estate changed two awesome buddies of mine, their life forever on today’s show and we’re going to get into a bunch of cool stuff.

Brandon:
But first let me bring in my friend, my bestie, and the future full host of the BiggerPockets Podcast in the New Year, David Greene. David Greene, man, it is good once again to be joining you for of our last together shows for a while.

David:
It’s good to be joining anyone that says what you just said about me. I mean, you could do that all that you want. How do I hire a person like you to just go before me and announce me in that same way that you just did?

Brandon:
Well, let me just add to your ego a little bit. So as we jump on this call to talk a little bit ago, me and David to record this introduction, he was wearing a tank top because he was getting his official shirt on that he was wearing for this episode, the one you’re seeing right now. I made some joke about muscles and he flexed his arms. And I’m not kidding. I did not know you were that ripped, David Greene. I’m not even kidding, you guys, I wish I could have recorded it. The guy looks like the Incredible Hulk, in a good way, it was not so green. But man, your working out has made an impact, so good job, man.

David:
I appreciate it. I think I do a better job of hiding anything attractive about me than anybody else that’s out there. It is the best-kept secret in media, I promise you.

Brandon:
Mm-hmm (affirmative). Mm-hmm (affirmative). There you go. Well, if you want to see what I’m talking about, you have to watch the YouTube video this show. But anyway, we got to get on with this episode, we got a lot to cover today.

Brandon:
Like I said, today’s good buddies of mine, we got Mike and Tyler. They’re two awesome dudes that come out of the Portland area. Portland, Oregon, not Portland, Maine. Portland, Oregon area. When I talk to anybody who’s within 100 miles or 200 miles of Portland, they know these guys. They are a major player in that market, they do a lot of different types of real estate. We’re going to talk today about combining flips and rentals to maximize your growth. We’re going to talk about doing some seller financing, then something called land banking. We’re talking about how to vet somebody. In fact, they went through a really crazy, crazy experience of meeting each other in this crisis, being taken advantage of in this Ponzi scheme, and all that. Crazy story, all that, and more coming up.

Brandon:
But first, let’s get to today’s quick tip. All right, today’s quick tip is brought to you by David Greene because I didn’t think of one.

David:
Today’s quick tip is find your perfect partner. As Brandon just complimented my physique, which was very nice of him, he complements me in other ways, and we talk about that on the podcast all the time. Today’s guests complement each other and they talk about how they bring various skillsets into a partnership. So when you’re looking for a partner, a common mistake is that you find someone just like you that has all the same skills as you. And now you have two people who are fighting over the same jobs and avoiding the same jobs. You’re actually looking for the opposite. So to sum that up, look for someone that’s going in the same direction as you with the same values as you, but who has complementary skills than you.

Brandon:
Wow, man, that’s really good, that was good on the fly. Well, all right, well, let’s get on with this episode, and today is, if you’re watching this when it comes out, we’re Christmas Eve eve, right? So we are coming up on the Christmas holiday season. So merry Christmas, happy holidays. And as this greeting card that I bought online says, meowy Christmas. And yes, this is a picture of a cat in a sweater. So, David actually-

David:
It looks lot like the sweater that you bought when we went shopping.

Brandon:
It looks exactly-

David:
Doesn’t it?

Brandon:
Yeah, that’s funny. So I am actually going to… I have this card in my hand here, David. Funny enough, I was writing this card to you when we started when I realized, oh shoot, I’m supposed to be on a call with David. So this greeting card goes to you. So, man- [crosstalk 00:05:01]-

David:
That’s very sweet of you, however… And you told me about this card already, so you don’t think that I’m going to fall for it.

Brandon:
You’re going to fall for it to be great. It’s the greatest Christmas card in the history of mankind. I’m just going to say that one. So I’ll tell people what it is, so I probably won’t send it to each one of you. I found this on an Instagram ad and when you open it up, it plays this.

Brandon:
(Singing).

Brandon:
Can you hear that?

David:
Yes, we can.

David:
(Singing).

Brandon:
And then it doesn’t stop until the battery dies three hours later. You cannot shut off the sound of the meows. So, David, I’m looking forward to you-

David:
I think that’s hilarious.

Brandon:
Yeah, I want you to open that. Or I want you to give it to one of your assistants back here, “I got these cards in the mail for Christmas. Will you just open them all and put them in your office for a while?” Something like that.

David:
Exactly what I’m going to do.

Brandon:
Something like that. Yes, yes. It’s going to be great. Once you open it there’s no going back, it’s hours of meowing.

Brandon:
All right, man, let’s get on with today’s show. And now before we bring in Mike Nuss and Tyler Combs, two good friends of mine that are killing it, anything you want to say, David?

David:
Yeah. Just like your Christmas card, this podcast just won’t stop.

Brandon:
I thought you were going to say it’s like meowy good or something, I don’t know. All right, meow, let’s get to the episode.

Brandon:
Mike and… I forget your name. Tyler? Tyler, welcome to the… I’m just kidding, guys. Welcome to the show. How you guys doing?

Tyler:
We’re doing great.

Brandon:
Man, it is so good to have you. It’s been a year since we’ve been friends and we’ve talked 1,000 times about making this day a reality and it has finally come true, so I’m very excited to introduce you to the world. Everybody of the world of Tyler and Mike, and should be a good time today, so. And in fact, I don’t even know your guys’ story of how you met so I’m going to dig into that today. But first, let’s get your individual stories. Why don’t we start with, eenie meenie miney mo, we’ll go with Mike. Mike, tell us about yourself. What do you do, and what were you doing before partnering with this other guy?

Mike:
Yeah. I was a real estate appraiser so that’s how I got into the world of real estate. I was actually in high school when I started. So, I was an athlete, hated school, wasn’t good enough to get a scholarship or make anything of that. And I got a job opportunity to become a real estate appraiser. Job shadowed spring break of my senior year and then started full-time after that.

Mike:
So, I did that for about five years before I bought my first piece of real estate. I’m a slow learner, not really the most aware person. I’ve since learned that awareness is a superpower, it took me about 20 years to understand that. So that was back in 1997 so I’ve spent more than half my life in real estate now. Bought a handful of properties prior to the big crash, learned some lessons, 2009 wasted 26 grand on a rich dad, poor dad real estate package, which got me into the investing world. I met Tyler in 2010 on Craigslist of all places.

Brandon:
No way.

Tyler:
The personal section.

Brandon:
Yeah. I was going to say-

David:
How many relationships have started there?

Brandon:
Yes. All right, so let’s go to Tyler real quick. Tyler, what were you doing before meeting Mike?

Tyler:
Oh man, I was a youth pastor, a missionary, and then I finally… What was I doing when I met Mike? I was working in some tech job, working from home and I had a lot of free time and so I started flipping houses on a whim right after the market crashed 2009. Everyone seemed to be running away so I jumped in and started buying up REOs. And I found all of my contractors, everything off of Craigslist, which at first I was really proud of, and then I discovered they were all stealing from me, so I had to learn some hard lessons.

Brandon:
The only contractor who has ever directly stole from me, I gave him $5,000 for windows, he pocketed it and never showed up again, came from Craigslist. So it’s a-

Tyler:
There you go.

Brandon:
… it’s a pattern. So then you decided to meet your partner on Craigslist as well. So tell us how did that happen? How’d that go down?

Tyler:
Yeah. I bought an REO that ended up being a… I think it was a three-year legal battle with the city over a flood plain issue and some other stuff. So, I eventually did what every good flipper would do and tried to pawn it off on someone else. So I put it up on Craigslist as a flip opportunity, put all the keywords, motivated seller, willing to owner carry, just everything. So I actually got to know a lot of the scrappy flippers in the area that were combing through Craigslist, and Mike was one of them that called on it. And we had a brief conversation, he asked me all the best questions, and then he wisely passed on the opportunity.

Brandon:
That makes sense. Mike, why’d you pass on the opportunity?

Mike:
Well, I had a business partner at the time and I don’t know that I can say on this podcast the words that came out of my mouth when I hung up the phone. But I felt for him, I had a little appreciation for the struggle he was going through. And yeah, eventually we actually ended up getting out of that project together [crosstalk 00:10:21]-

Brandon:
Oh, I was going to ask what was the end of that one?

Tyler:
Ended up having to sell it at a loss. I ended up having… I resolved it with the city and was able to finish the remodel and sell to somebody. But after all the holding costs, and I had some pretty interesting squatter issues while I owned it over the years, so at the end of the day, it was a pretty significant loss. But we were moving and shaking and with all the other stuff we had going on by that time, so it was a loss we could stomach.

Brandon:
That makes sense. All right, so you found each other and let’s get to… so you find each other, what happened next? How did you end up coming together to decide to work together?

Mike:
Yeah, that gets into [inaudible 00:11:09]. We had met-

Tyler:
Thanks for bringing up that PTSD, Brandon.

Brandon:
Yeah, yeah, no problem.

David:
It’s what we do here.

Mike:
Yeah. So when I bought that real estate package, I cashed out a 401(k) to do that, and like I said I had learned some lessons in the great crash, so I had no money, no credit. What do people that want to do real estate full time do with no money, no credit? They try to become wholesalers. So in 2010, wholesaling was easy to find deals, tough to wholesale. Ended up finding two guys that I was able to wholesale a couple deals to. They saw value in me and said, “Hey, we’re putting together this Ponzi scheme,” for lack of a better term, “We want you to bring all your deals to us.” And they had this little event they’re putting together, I show up at this event, there’s this AV guy named Tyler. And I’m like, “Tyler Combs? Tyler Combs? I recognize that name. Oh, you’re the guy I talked to on Craigslist,” and met him in person at that point.

Mike:
They had conned him into doing the other end of that Ponzi scheme. So I was finding, negotiating, evaluating, and getting all the deals, bringing them to the Ponzi scheme. And then Tyler was going and raising capital to fund the Ponzi scheme. And then these two guys had nice suits, nice cars, boat, nice house. They just essentially made sure there was never any profit to share. And so after dealing with that for about a year, we split off to then form our own partnership and started that partnership with a lot of losses stacked together that we had to build [crosstalk 00:12:43]-

Brandon:
Individual losses that you just brought to the partnership?

Tyler:
Not only that but investor losses that we wanted to make right on. So people that had lent us money that these other guys had stolen from. Took us several years to dig out of the hole and make everyone whole again.

Brandon:
What exactly was the ruse, or the scam, or the scheme? What were they doing? Just taking investor money and then just living on it, was that essentially-

Tyler:
I mean, it was a mixture of mismanagement and then just overspending, taking funds that were meant for projects, and buying boats and cars. And then their books were a mess, but when we dug into them, found out they were just mismanaging a lot of money and then just… It wasn’t all stolen, a lot of it was just poorly managed construction projects.

Brandon:
Yeah, so for those-

David:
Let me jump in real fast.

Brandon:
Go ahead, go ahead.

David:
I’m going to ask you if someone is listening and they’re trying to vet someone who’s raising money because there’s a ton of that out there-

Brandon:
Yeah, that’s exactly where I was going.

David:
… right now, what are some things that they should look for that might indicate this would be a bad person to invest with?

Tyler:
That’s a great question. I’d say that, one, you have to get references from people that have done, actually finished deals. I think that all the references that we got from these guys were from people that were mid-project. So, no completed deals, no one had actually gotten their money back. So I think knowing how old these references are and weighting the references that have been working for say years with the person, those are so much more valuable than someone who just started working with that person.

David:
That’s a great point. So you just want references you can contact who has been paid and they can testify to the experience they had?

Tyler:
Yeah. And then you can audit their books. You can ask for P&Ls of the last several projects, you can ask for balance sheets. A lot of people can be really good at hiding their sins in QuickBooks, but a lot of people are surprisingly dumb at the accounting, and if you have any accounting background, you can sniff out that stuff. If I knew what I knew now, I’d be able to take one look at their books and call a spade a spade.

Brandon:
By the way, maybe we should establish right now. Where were you guys at when all this happened? What city?

Tyler:
Portland, Oregon.

Brandon:
Portland, Oregon. Portland, Oregon, the weirdest city in America, I think. But you got good donuts there.

Tyler:
We’ll take it.

Brandon:
You have a good bookstore and you got good donuts, you have a few good things going for you. I actually love Portland. But today, you guys have quite the empire. I mean, a lot of people, even just earlier, I was talking to my buddy, Gene who’s out here who’s from the Salem area, but he is staying out here in Hawaii with me right now. And I mentioned something about I’m doing an interview today, and I think I mentioned, Mike, your name. And he’s like, “Oh, yeah. Yeah, I just talked to him on the phone a while ago.” He’s the guy you talk to when you have a problem or something like that. You just have this reputation, you guys have a name and a reputation around.

Brandon:
So, I want to get through… Here you are starting, rocky, coming together, trying to form this partnership, to now you’re a player in the Portland space. So walk us through what’s your portfolio, or what’s your business like today? And then we’ll go back and fill in all the gaps.

Mike:
Yeah. So we have a development company that does short-term projects. We have various LLCs that holds a bunch of rentals. We have a property management company, and we have the brokerage. And so we started as investors, and just by taking incremental steps consistently over a long period of time and the compound effect through that, we slowly built a rental portfolio which allowed us to then take control of our own management. By having enough properties there we could afford our own manager. We sold enough real estate, Tyler had a broker’s license, it made sense for us to start our own brokerage. And so then it just snowballs from there, right? And we have a big enough name, enough marketing out there that we get a lot of real estate opportunities. And then we just fit those opportunities into the various buckets that we have based on how we set everything [crosstalk 00:17:04]-

David:
Okay. And what’s the portfolio like? Is it units, or multifamily, single-family, lot of houses, what’s the makeup of it today?

Tyler:
All right. So I’d say our rule of thumb has been to flip the single-family and hold the multifamily. So, almost all of our rental portfolio is small multifamily or a few single families that are tied to other multifamily acquisitions.

Brandon:
All right. So total then how many units does that makeup between you guys now?

Mike:
Yeah, somewhere in the 80 to 85 range. Most of that’s small apartments, we do have some commercial projects, and then a couple single families for land banking purposes.

Brandon:
Land banking purposes. All right, we got to cover that. What is land banking purposes?

Mike:
Yeah. It’s something with zoning that allows a future higher and better use with a building on it that creates an income stream to pay for itself now, right? So it doesn’t have a lot of value right now, doesn’t provide a lot of cash flow, but sometime in the future when either zoning’s going to change or when neighborhood’s going to be ready to be developed, then we can put it to a higher and better use.

Brandon:
That’s smart. So you guys are looking down the road saying, “Hey, 10 years from now this might be a really good spot to put up a parking lot,” or I don’t know, “Sell storage or apartment complex, but right now it’s only single-family houses. We’re going to keep it, hang onto it for the big picture.” Is that right?

Mike:
Exactly.

Brandon:
Ah, that’s very cool.

Tyler:
Yeah, an example of that is our office building is on a zoning where we could build a high-rise structure on it. So we just put as little amount of money as we can into the office, we bought up several things around that were adjacent to it. And later down the road when it makes sense for us, we can build whatever we want there.

Brandon:
Now, what would be the plan? How high is a highrise you want to build?

Mike:
We can go 105 feet, so 9 to 10 stories.

Brandon:
All right. Have you ever built that big yet in the development side?

Tyler:
Not yet.

Mike:
No.

Brandon:
Well, let’s go back and fill in the blanks a little bit. Here you are at the beginning, struggling, not sure where you’re headed… debt, I guess is the best way to say it. And then today you’re this force in Portland. So how did you get there? Walk us through some of your journey.

Mike:
Yeah. I think first off is it’s easier to move forward than it is to clean issues up, right? So we knew we had debts to pay off, we knew we had investors to pay off. So immediately, what do you do? You go find some short-term flips, right? So we got some flip projects so that way we could create some lump sums of cash, pay for our livelihoods, pay some investors back and then start stacking those wins.

Mike:
The way we started building our rental portfolios is through seller financing. So we learned some really, really good seller financing techniques that help us start building a portfolio that then created a chessboard. So I think if you look at real estate, the idea of getting a chessboard, you have some small projects that are your pawns, you have some rooks, some knights, some bishops, some kings and queens, and you build out, get pieces on the board, so you can move them around to fit your ultimate goals. We worked ourselves out of it, it’s probably two years of solid just flipping to work ourselves out of the hole.

Brandon:
Yeah. All right, that makes sense. So then let’s talk about your individual roles in the partnership. What do you focus on, Mike? What do you focus on, Tyler?

Tyler:
Well, so Mike does the acquisitions side of things. So he stirs up the chaos, finds the deals, helps negotiate it with our team, and then he hands off the project. We’re working out our project management systems, but we recently switched where he hands off that project and I manage our team that is going to be doing the actual flip or the construction. And then I handle the dispensation, the selling of the flip, and then he handles the… if we turn it into a rental, he oversees our property management company.

Brandon:
Okay. All right. And how are you finding deals today?

Mike:
Yeah, we have various sources. Deal flow is a… the best analogy I’ve heard is it’s like a bicycle wheel, right? You got lots of different spokes. So we do direct to seller, we do Facebook ads, we do cold calling, we do a lot of referrals, pocket listings. Repeat sellers is always a great example, bird dogs, wholesalers. And so you have to have lots of different spokes on the wheel to create a good enough volume. Because at the end of the day, if you have a good enough volume, it’s really easy to say no. And the ability to say no to a lot of deals ensures that what you’re doing is ultimately going to stay profitable. And so that’s our ethos on how to do deal acquisition.

Brandon:
All right. What’s your favorite?

Mike:
I like direct [crosstalk 00:22:08]-

Tyler:
Favorite type of acquisition?

Brandon:
Yeah. Acquisition process. Is it the Facebook, the direct… I know you’re doing a lot of it, but there’s one that you’re like, “Now, this thing we’re really, really good at.” Or is it all pretty whatever comes in, comes in.

Tyler:
I think we’ve gotten really good at sniffing out the seller finance deals in a way that isn’t… that when we can smell a deal that it’s beneficial to the seller, there’s a lot of motivation for them to do a seller finance deal, and it works for our goals. We can smell that pretty fast, we know how to market to that ideal seller that has a lot of options. And then when they start the conversation and they have a lot of experience in real estate and they’re pretty savvy, then it’s just a really fun transaction all the way through, everyone wins, and there’s not a ton of education or expectations that have to be realigned. I think that’s probably my favorite where you get the residual… the exchange where everyone is winning, and then you’re getting the long-term benefits and the partnership that extends. So your energy’s spent upfront, extends years into the future because of the seller finance.

Brandon:
Yeah. Seller financing, that’s something I really want to dig in with you guys a little bit on because that’s something that not… we don’t talk a lot about on the show but can be a really powerful tool. So maybe, Mike, I’ll start with you, what is seller financing? And then how does somebody start using it?

Mike:
Yeah, well, in the IRS code, it’s an installment sale, right? So you’re making a down payment and then you’re structuring installments, whether that’s monthly for a long period of time, whether it’s monthly for a short period of time, and a balloon payment at the end, but it’s just in installments to control real estate. And the key to seller financing is what makes sense from a seller perspective. I think a lot of times people say, “Well, I need this property, I need a seller financing.” And, well, doesn’t make sense for the seller.

Mike:
So it starts with the seller, if it aligns with them, then you find out what installments are going to make their life flow in the way that is going to meet their goals, and what can the property afford to make it successful as well. So simple as that, down payment, interest rate, monthly payments. Monthly payments can be interest only, they can be all principal, they can be negative amortization. They can be whatever you want it to be. So that’s the beauty of seller financing is it does not fit in a box. You can do exactly what you want to do based on what needs to happen.

David:
I think that’s a great point to highlight. I hear a lot of people will say, “How do I get the seller to sell it to me in seller finance?” And the answer is you don’t, if they’re not motivated to and that doesn’t work for them, that’s not the right strategy, but it often gets portrayed to people who don’t have money. I mean, if you think about when someone’s targeting an investor to sell a course to them or a class or something, they’re looking for a person who has some form of vulnerability. Bad credit, no money, that’s why everyone gets into wholesaling, right? Like you were saying earlier and seller financing is this magical pill that will work if nothing is right.

David:
The problem is you have to dig to find usually an off-market deal because realtors aren’t going to be listing a house if it’s going to be selling with seller financing very often. That person is selling their house with a realtor because they want a convenient transaction where they’re going to go use the money for something else. So a great piece of advice you just gave is that you got to have a motivated seller and you got to work to find a motivated seller. So can you guys share any maybe… I don’t want to say red flags, but something that pops up that makes you go, “Ooh, that person might be someone who’s interested in seller financing,” that people can look for when they propose that solution?

Tyler:
Yeah. We call them green lights.

David:
Better than a red flag, there we go.

Tyler:
Yeah, we call them green lights and they are… It’s the opposite of what you just said is the audience for the predatory real estate seminar. The seminar attendee is someone without options, right? They have poor credit. The real estate seller that we’re looking for if we’re going to do seller finance, is someone with options. They have the option to sell with a realtor if they want to, they have the option to keep renting it, they have the option to 1031 exchange if they want to. But they have all these options, a lot of times they’re overwhelmed by those options, and we have found our niche in the ability to go in and say, “All right, let’s lay all your options out on the table and let’s analyze them.” We’ll give them the numbers for every scenario, and a lot of times being able to defer their tax gains over time through an installment sale is the one that meets their needs the best.

David:
So can you cover that a little bit? What does that look like when somebody defers their tax gains by selling with seller financing?

Tyler:
The simplest way to put it is that they don’t have to pay taxes until they take the money. So if you delay the time that they have to take their money, then they’re only paying on what they get. And so a lot of times, if they’re really concerned about their tax hit, they want a very small down payment because then if they receive that money, they have to pay taxes on it. So they want a small down payment and they want a small installment sale payment. So a lot of times those payments are interest only. They’re not even amortized because they want to keep that payment as small as possible, and so those balloons at the backend are very large when due in paying the note, but it allows us the cash flow in the meantime pretty easily.

David:
It sounds like the way that you’re describing this, if I understand it right, is if I sell my house and you pay me all the money upfront, usually, traditionally you get a loan, you use the money from the loan plus or down payment to pay me, I pay capital gains on the full gain. But if I sell it to you with seller financing and I don’t get all that money upfront, I actually just collect a payment from you over time, I only pay taxes on the money that you are paying me. Is that correct?

Tyler:
Exactly.

Brandon:
So what type of person is doing something like that? Is this an experienced real estate investor or is this a new real estate investor or is just a regular homeowner?

Tyler:
I’ll let Mike speak to that.

Mike:
It’s the experienced real estate owner. What we’ve found in our life of doing a lot of it is they’ve owned real estate for a long period of time, they have significant capital gains, they don’t need the cash, they like the income stream, they have below-market rents, they have deferred maintenance, they don’t want to deal with realtors. So they have a mindset of costs and expenses they want to avoid, and a lot of times they want to pass on a legacy. They see themselves in you.

Mike:
And so then you just put all that together. Well, you have low market rents, you can increase the income stream, right? So you can match their net operating income that they’re currently getting, increase the income stream and now you have cash flow. The fact that they don’t need money, they don’t need a large down payment, they’re used to cash flow, they don’t like management. So you solve a lot of problems by just saying, “Hey, here’s a little bit of money we’re going to take into control of your property. We’re going to improve that property and improve the income stream, and we’ll all benefit from that elbow grease, so to speak.”

Brandon:
Yeah, I like this concept of seller financing in that, again, it’s not taking advantage of people, it’s not saying, “Hey, I’m going to trick you into it.” I know a number of investors, in fact, my mentor all growing up or getting into real estate, growing up as a real estate investor, Kyle that was always his plan. He would always tell me that, he’s like, “Yeah, my plan is just acquire a bunch and then pay them off and then sell them off on seller financing when I get older, and that just provides me enough income to get through life.” And I always thought that was cool, and he’s actually doing it right now. In fact, my in-laws bought a property from him on seller finance, and then he had it paid off and he’s just going with it.

Brandon:
Now, do you guys ever do anything with people who don’t want to pay them off? Do you ever do any subject to or lease option stuff? Or how do you get around the due-on-sale clause if they have a loan?

Mike:
Yeah, subject to for us, we’ve done and we typically just do that on short-term projects so we don’t take on the risk of the due-on-sale clause. But yeah, lease option’s a great way to get around that. Or you have the ability to pay the loan off if it’s called, right? So we’ve done that where it is set up as seller financing, there is a loan on it, it is disclosed, and then we just have a clause in our promissory note that should the loan get called we will pay that loan off. So you just plan ahead and accordingly for that, and don’t put yourself in a position where if that loan gets called, you’re going to have to take a loss or you’re going to have to struggle in order to get that loan paid on.

David:
Yeah, that makes sense.

Tyler:
But the vast majority of the seller financing we do is definitely free and clear. So there’s no loan on the property to begin with and that makes it real simple. Or if there is a small loan balance, a lot of times we’ll just make that the down payment. So if they owe a certain percentage of the property and say it’s 20 or 30%, we’ll just pay them that.

David:
Well, let me ask you this then. If your ideal seller finance-type person is an experienced investor, how does that change your marketing? I’m assuming you’re not writing a…, I mean, maybe you are, but I’m assuming it’s not a yellow letter with misspelled words like “I buy house, your house for cash money”, it’s probably not something like that. So what are you doing to attract people who would be willing to do seller financing for you?

Tyler:
We went back and forth on this as to how personal do we want to make it versus professional, and as we got more experience and had a legit company with acquisitions guys and realtors, we decided to go the professional route. And especially because we started targeting larger multifamily projects. So we have our logo and our branding on there, and we talk about being local guys that are building a portfolio in Portland, and we talk about the experience of how we’ve helped people like that owner. That we’ve helped people in their position save money, or whatever the goal is, whatever the specific marketing campaign is, we talk about how we have helped people like them accomplish their goals.

David:
Yeah, that’s cool.

Brandon:
That’s cool, yeah. I feel like this is where having… In the book, The Multifamily Millionaire which we just released at BiggerPockets, I talked a lot about this thing called the crystal clear criteria, which is this is the property type, this is the location, this is the strategy, this is what I’m doing, it’s very particular what I’m doing. And when an investor knows that, one of the reasons that that’s so important is it gives you the ability to then cater your marketing toward that. Look, let’s say you’re an investor and you’re like, “I’m going to do seller financing. That’s going to be a big piece of what I do.” Not that it’s all you do, but let’s just say it was a big piece of what you want to do.

Brandon:
Well, great, then you know that your ideal seller is somebody who has owned a property for maybe over 10 years or 20 years. And okay, great, now you can target your marketing just to those people. You can go send direct mail to that type of person. And the letter will look like something that’ll appeal to that type of person. Versus if you have no strategy or no plan, you’re just like, “I’ll buy anything, I just want a good deal,” then you’re just sending a general message to everyone and it doesn’t appeal to anybody. And so instead, I just like that concept of somebody can pull that out of this episode, pull something from this episode, be it that. Know what you’re going after, and then you can specifically target that thing.

Brandon:
And then you can broaden what you go after, go after numerous things, but then have a plan for each of those things. Because the thing that’s going to attract a 65-year-old seller, a real estate investor who’s been in the game for 40 years, is very different than what’s going to motivate the 25-year-old kid who got in over his head in buying his first property and now wants to move to Vegas and be a showgirl, or something, I don’t know. It’s a different type of marketing.

Brandon:
All right, so that’s cool. So, the seller financing is cool. What other stuff are you guys doing for financing-wise? Let’s say you can’t go seller financing, are you doing… I mean, do you just save up money for down payments? Are you doing any kind of syndication stuff, or raising money, or what’s that look like?

Tyler:
Yeah, we do a lot of private financing. We haven’t done anything, syndication is for like a pooling money standpoint. We do have some capital partnerships where we’re bringing all the real estate expertise, our partners are bringing capital, and we form an LLC and we have our rules in that. But it’s your traditional sources. Private capital, hard money for our short-term projects. We will get bank loans for BRRRRs on the backend. We also like to move our seller financing around. So, one thing that we learned early on is financing and real estate are two separate things. And a lot of times the financing may be a long-term agreement or long-term commitment, but the real estate is not a long-term hold. And so you can sell real estate and keep the financing and use it to buy other real estate. Or you can refinance real estate, keep that financing and buy other real estate. So we’ve used seller financing as a perpetual machine to help us build out our portfolio as well.

David:
Are you referring to cross-collateralizing, the financing you’re doing?

Tyler:
No. Re-collateralizing, substitution of collateral. I actually heard this… Full disclosure, I haven’t heard a lot of your podcasting [crosstalk 00:35:32]-

Brandon:
What?

Tyler:
But you interviewed some guys… I know, I know, blasphemy. You interviewed a guy, I think out of Colorado, he called it walking the mortgage.

Brandon:
Yeah. I remember that, but I don’t remember who that was.

Tyler:
And it’s just that. Yep. Yeah, neither do I. But so again, you created a relationship. What does a seller financer want? At first, they’re intimate with the real estate, they know of the real estate, that real estate makes them comfortable. But on a higher level, what they want is they want trust, they want loyalty, they want a rate of return, they want customer service and they ultimately want collateral. The collateral doesn’t necessarily need to be the real estate that you buy. And so if you’re doing a real estate transaction, whether it’s a sale or a refinance, you have cash coming into escrow, but you already have [inaudible 00:36:22] that doesn’t need to be paid off. So then you can take that note that doesn’t get paid off and the cash that would’ve paid off that note to then buy another piece of real estate, refinance another piece of real estate just by re-collateralizing the note and keeping the cash. Or giving the cash to the seller or giving it to a lender.

Brandon:
Yeah. Because this is such a powerful concept maybe can you wrap it into a story, whether it’s a real one or example of House A, House B, how would that work?

Tyler:
Yeah, yeah. So this is a really good story for you. So I got a call from Bob, Bob is amazing, but I remember Saturday, I was washing the dishes and the phone call. I know it’s piece of marketing when the phone comes in, so I’m all prepared for it. And his first words were, “Do you need to pay all cash?” That’s the magic phone call everyone wants. And Bob knew he didn’t want cash, he wanted $5,000 down. The problem was, was the piece of real estate he owned was a piece of garbage. It was in a part of town that had a high tax ratio, it needed a lot of renovation, it wouldn’t have provided any cash flow at the end of the day, but we needed to put $100,000 into it just to make it habitable.

Tyler:
And so what we did is we set up seller financing on that project, and he knew all along that we were going to sell the property, that we were going to collateralize him on that property to begin with, and then six months later, we were going to give him different collateral. Now, when we bought the property, we didn’t know what that collateral was going to be. We just knew that we always have opportunities, we would find that piece of real estate at the end of the day.

Tyler:
And so we bought the property five grand down, put like a hundred into it. We sold it, and when we were in escrow to sell it, we were then in escrow to buy something else, right? So we had a cash-out, a cash transaction on the buy side, and we had a sale on the front side. So as that sale came in, we owed Bob $220,000, we needed to buy a property for $220,000. So instead of paying Bob off when we sold the property, we just took Bob’s $220,000 and gave it to the other seller on the buy-side of the acquisition. And so we just used Bob’s financing and liquidated that other piece of real estate.

Brandon:
All right. All right, that makes a lot of sense. And it makes sense too because Bob trusts you, he likes you, he likes the payment, he likes all that. Basically, he just becomes just a private lender, long-term for that stuff so, that’s very cool.

Tyler:
A good chunk of our private lending pool started out as sellers.

Brandon:
Yeah. Shifting gears here a little bit, but what’s the hardest part, and what’s the best part of flipping houses? I know you guys do a lot of flips, what do you struggle with? And what do you find you just like “oh yeah, we getting flow, this is easy, we’re awesome at it”?

Tyler:
Man, I mean, the best part is when you underestimate every anything, right? You underestimate how much that neighborhood’s going to appreciate, you underestimate how hot the market’s going to be, and you underestimate how long it’s going to take you to the remodel. Now, most of us that have done any flipping know that it’s not super common for you to underestimate all that stuff, so it could really suck when you don’t. The thing that sucks the worst for us has been when the construction budget just… something gets discovered or you completely miss stuff that just blows the construction budget out of the water. That’s probably the most painful. We’re really good at knowing our numbers when we go into a project but those surprises can sting.

Brandon:
Mm-hmm (affirmative). Yeah, that makes sense. All right, what about what makes you guys each feel alive in your business? What’s your “I like this, this is my piece of the business, it’s what I love to do”? We’ll start with you, Mike.

Mike:
At this point in the career, what I really like is I like seeing other people win, and new investors get traction in their careers. One example is, the majority of our staff have all bought a piece of real estate. One staff member, in particular, has now bought three pieces of real estate over the past 18 months, every one has been a successful BRRRR. One of them was seller financing that they rolled into another acquisition. They have no money out of pocket, in fact, money in their pocket after successfully completing all those projects. So I get more appreciation seeing someone get their first deal than I do from us getting our next deal.

Brandon:
Mm-hmm (affirmative). How about you, Tyler?

Tyler:
I’m a sucker for creativity, and that’s been something that’s been a key to our success is how crazy creative can we get on the deal structure. But it’s also been our kryptonite because sometimes we over-complicate things. Because we have all these tools over that we’ve mastered over the years, tools of how to do deals in different ways, different ways to finance it, different ways to structure the terms, that sometimes we can kind of get overly complicated. So I’d say that’s both probably my favorite thing, as well as the thing that gets me into trouble the most is getting too creative because I didn’t used to think that was a thing, but it’s definitely a thing.

David:
Well, we see that with house flippers. The boring ones tend to do the best, they just use the same materials. They don’t have surprises. It’s when you start trying to get creative, that mistakes tend to happen. So I definitely think there’s a part of that in business. Gary Keller had a quote that was really good for real estate agents where it was something along the lines of “we get bored of doing what works so we start doing what doesn’t work and trying to make it work”. And that’s definitely like a… There’s a fatigue in business that when you hit a rhythm and you just keep doing the same thing, it gets boring and you want to try new stuff, but that’s often the death blow for your business. So with you two each specifically, tell me what is in your future? Where are you two headed?

Tyler:
Where am I headed next? We just did some restructuring where we got rid of a lot of distractions in our business. It was painful, we had to cut some overhead and cut some departments completely that… Just really focus. And so I’m really excited about diving in and becoming masters of the investing that we do, and trying to take a break from the shiny object syndrome that we’ve had for so long as entrepreneurs. And Brandon has hit it home many a time about going a mile deep instead of a mile wide, and last time we had drinks with Brandon, he asked us some pointed questions about that as well and so we finally pulled the trigger and cut out a bunch of extra things in our business. And so now I’m really excited about the amount of mastery that we can achieve with the extra focus.

Brandon:
Well, you probably shouldn’t have… I was pretty drunk that night, so I don’t know what I said. “No, we based our whole strategy off it. I fired 40 people.”

David:
How much money does it cost to get drunk at [Monkeypod 00:43:41]? Is that a $900 night with those [crosstalk 00:43:44]-

Brandon:
One drink does it. One Mai Tai, that’s all it takes.

Tyler:
It depends on how much of a lightweight you are, and I think Brandon is pretty light.

Brandon:
I’m pretty light. Yeah, I’m all 112 pounds of me. Mike, where are you headed in the future? Where do you see the business headed?

Mike:
Yeah, I’m real excited from an affordability standpoint, right? So affordability is an issue. Any large MSA, especially in Portland, we have affordability concerns. So we have a couple things in the works. We’ve taken an advantage of a new zoning program in Portland, which allows you to build more than one unit on a single-family lot. So we can have a house with two ADUs, we can have a duplex with an ADU. We can have three-plexes or fourplexes, or we can do cottage clusters and get up to eight units. On city lots, right? So we permit density at the city level and then we can condo-convert at the state level to then set up… to divide up ownership and sell. And so what this allows us to do is lower our land cost basis to then bring new construction at a price point that’s just almost nearly impossible to get in really high demand portions of Portland.

Mike:
And then on top of that, we bought a piece of property that we can eventually build a 60 unit affordable housing apartment [inaudible 00:45:03] as well. So I’m excited to start adding, changing the value we add to our community here locally.

Brandon:
Yeah, I love that. I love the idea when you’re in a city, yeah, where there’s major problems like Portland with affordability when you can become a solution for that. I just think there’s a lot of power there. So, right on, man.

Brandon:
Well, with that said, we’re going to move on toward the end of the show, I think we’re 40 minutes into this thing so gets us closer to the end here. The next is our thing (singing).

Brandon:
All right, this is the famous four. It’s the same four questions we ask every guest every week, so let’s throw them at you guys each. So why don’t we start, we’ll start with Tyler each time and then move to Mike. So Tyler, first question for you. Favorite all-time or current favorite real estate-related book.

Tyler:
My favorite and I will call this a real estate-related book, Crucial Conversations, just because it’s so applicable in both the way we run our business and the conversations we have with sellers, with other agents, with everyone involved in the transaction. I read it again recently, it’s really helped me revisit the way I structure the conversations I’ve been having.

Brandon:
All right. What about you, Mike?

Mike:
I’m going to go with my favorite two authors, and I’m not just kissing ass, but Brian Murray and Brandon Turner are amazing authors when it comes to their level of experience and the ability to put it on paper that allows people to implement and take action in their lives. When I read books, I rate them based on the ease to implementation, and I think Multifamily Millionaire hits that in spades.

Brandon:
Oh, thanks, man. You might be the first Multifamily Millionaire mentioner on the show, I’m not sure. Well, thank you.

Mike:
It’s a new book, give it time.

Brandon:
Mm-hmm (affirmative). Yeah, we’ll give it time. All right, number two, David?

David:
What are your favorite business books?

Tyler:
I’ll let Mike go.

Mike:
I really like Compound Effect, I think that’s a great one. I’m sure a lot of people mention that too, but I’m a big fan of Benjamin Hardy. Personality Isn’t Permanent, Gap Versus Gain is the latest one, Gap and The Gain. To me, who you are as a person is going to speak volumes to who you are as a businessman or a business leader. And so your personality or how you look at things, how you take on challenges in life are extremely important, so I look more on that of who am I? Because at the end of the day, that relates too much to business.

Brandon:
All right. Yeah, The Gap and The Gain. I’m just about finished with that, I got a few minutes left in the audiobook, but that is a phenomenal book. I really, really enjoy that a lot. All right, Tyler, anything you want to add to that? Business books that you’re loving?

Tyler:
My friend, Ashley just recommended a book recently called Thinking in Bets that has been super… brought some new energy into the way I process my business decisions. Because in our relationship with our partnership, I would definitely be the over-thinker, the one wants to slow down and have a plan and would be the one that would suffer from analysis paralysis. So have a book like Thinking in Bets that teaches you how to make decisions faster with less information, it was really helpful for me.

Brandon:
Yeah, we had Annie Duke, right? She was on our podcast a long time… I wasn’t on that episode. But yeah, Josh interviewed her with, I think, Scott back years ago.

David:
It was Scott and I.

Brandon:
Oh, was it you and Scott? Okay.

David:
All right. Next question, what are some of your hobbies?

Mike:
Yeah, I like to golf. I learned how to wake surf this past summer. I do a lot of hiking, a lot of trail running. So typically for me, it’s getting outside.

David:
And Tyler?

Tyler:
For me it’s, I have two little girls that love the outdoors, or at least they don’t have any other choice, they’re going to learn to love them. I love the snowboard, mountain bike, paddleboard, and we’ve just been doing a ton of camping and road-tripping this summer, and going to go into fall doing some backcountry stuff. So just getting outdoors and playing will be a lot of fun.

Brandon:
Awesome man. All right, well, last question from me and we’ll ask each of you this. What separates successful real estate investors from those who give up, fail, or never get started? Tyler, you want to start?

Tyler:
Sure. I mean, if I look back at all of our critical moments, it’s definitely that idea of just shrugging off the disasters, the failures, the times you were screwed by other people, and just focusing, very clearly focusing on how to get back on top, how to get back in the game. That has been our key to success is that just dedication of saying, “What is it going to take?” And being willing to do whatever that is to get back, instead of looking in your rearview mirror and being bitter at whatever just happened.

Brandon:
Mm-hmm (affirmative). Yeah, man. What about you?

Mike:
Yeah, I’d say for me, short-term memory, forgiveness, strong ego, not having to win. A great book actually is Infinite Leadership by Simon Sinek. Just having that mindset that keeping in motion… you don’t have to win the game, you just have to keep playing game. And that mindset really has done wonders for us.

Brandon:
Yeah, that’s awesome. That’s awesome. I’ve not read that one, but I started it. I read the first chapter then somehow set it down, I never picked it up again. But I need to because I take your recommendations seriously. So that’s said, guys, thank you very much, appreciate you guys. And yeah, it’s been a blast. So I’ll let David ask the final question.

David:
Where can people find out more about you?

Tyler:
Well, for our combined YouTube page, that would be Rarebird Real Estate. Just search that on YouTube and that’s where we have a lot of our content that we’ve put out over the years. And then for socials, my social is iamtylercombs, Combs with a C. And, Mike, think you just had to get a new social, what’s your Instagram handle?

Mike:
Yeah, rarebird_mike. And I highly recommend setting up dual authentication because I had my account hacked so I’m kicked off Facebook. I can’t get back on Facebook and I had to redo Instagram, and so [crosstalk 00:51:47]-

Brandon:
Dang, man. Sorry. That sucks. Well, I’ll put a post on my Instagram later and tell people to go follow you, build you back up a little bit. Guys-

Mike:
[inaudible 00:51:59] gratitude to you.

Brandon:
All right. Well, thank you, guys. Appreciate you a ton and thanks for being part of my community, my tribe, my people. It’s been awesome getting to know you guys the last few years.

Mike:
You as well, man. Appreciate you.

Brandon:
All right. Well, that was our interview with Mike Nuss and Tyler Combs. These guys are incredibly smart and talented so make sure you guys connect with them over on social. And follow BiggerPockets for more episodes just like this. Of course, this is one of my last episodes going to be airing. I think my last episode is going to be on the 30th of December and then David takes over as host, as I sail off to go do some more surfing and family time for a while, taking a little sabbatical. I’ll be back again, of course, and I’ll be here on the show many times in the next year, but going to take a few months at least to just relax. So, David, it’s on you, man.

David:
For people at miss you, Brandon, what can people do to help you in this next phase of your life? What are you looking for?

Brandon:
You can send me teddy bears, preferably cat teddy bears with sweaters, that would be probably a good thing. Or you can follow me on Instagram, I’ll still be active there, beardie Brandon, so hang out with me there. I don’t know how active I’ll be.

David:
Anything we can expect from Open Door Capital? Is there any reveals that you can drop in this podcast?

Brandon:
Oh, man, we just got done with our annual goal planning thing, we are going to the moon and we’re actually changing our name from Open Door Capital, just shorten it to ODC because of the confusion with Open Door, the other companies, so ODC is… Yeah, but we’re going to buy some massive apartments this year, so if anybody has any $100 million-plus apartment complexes, let me know.

David:
There you have it. All right. Sounds good. Anything we should say before we get out of here?

Brandon:
I don’t know, man. I just appreciate you a lot. Thanks for being a good friend.

David:
Thank you, Brandon. That’s incredibly sweet of you, and for the guidance that you give me over the years. I’ve told everyone that you’ll be steering me from behind the scenes like the good friend that you are. So your spirit will live on forever as well as it will be looking at us from above, from our bobblehead.

Brandon:
Yes. Our bobblehead partnership, it’s great. Awesome. Get us out of here, man.

David:
All right. This is David Greene for Brandon ODC Turner signing off.

 

 

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HW+ homes ohio

The National Association of Realtors reported that existing home sales for November came in hot at 6.46 million. This number is above my sales trend peak of 6.2 million, which means we have now had three straight months of sales of over 6.2 million.

Early in the year, I wrote that if existing home sales stay in a range between 5.84 million and 6.2 million, that would mean it’s a good year for housing demand. We ended 2020 with 5.64 million, so every single existing home sales print in 2021 has been higher than what we closed in 2020 — which was higher than any single year from 2008 to 2019.

Regarding the sales range for 2021, I had anticipated a few prints under 5.84 million and we only had one print under that number. Now, sale trends are growing into 2022 with a more positive tone. The housing crash addicts in America had a terrible 2020 and 2021: I have always stressed that these people are professional grifters, not housing analysts.

However, before we go into this report, I have to explain why so many people missed this surge in demand in the second half of 2021. It’s the same reason I have given for many years: the American bears who are typically housing crash addicts can’t read data correctly, and the mortgage purchase application data just proved my point once again.

Early in the year, I talked about how the purchase application data would be negative year over year in the second half of 2021 due to the make-up demand in 2020 creating abnormal high comps. Typically, volumes always fall after May, but of course 2020 was an abnormal year.

Knowing that the housing crash addicts on YouTube, Twitter, Facebook, and Clubhouse would incorrectly push the negative year-over-year data spin, I wanted to get ahead of that narrative. Then everyone went crazy on investors and iBuyers, suggesting that these people were holding up the entire housing market. I understand that grifters have to keep the grift going, but not even the Joker would say that the housing market lives off investors and not mortgage buyers.

What has happened is that purchase application data made a noticeable push higher in the year-over-year data starting 16 weeks ago. So for four months, this data line was getting better and better, and so many people ignored it because they didn’t know where to look. Since September, we have had a double-digit year-over-year growth trend, which is a big deal in this data line while the data was still showing negative growth year over year.

This would have been easy to spot if you had made COVID-19 adjustments to the data and recognized that the year-over-year declines were getting much less. Now, we can see why existing home sales, pending home sales, builders confidence, housing starts, and housing permits look better toward the end of the year: we are back to that 300 level in the MBA index that I have often talked about.

As you can see below, we don’t have a booming credit housing market as we saw from 2002-2005; we have steady replacement buyer demand. In 2020-2024, we just have that kick from the most prominent housing demographic patch ever recorded in history, as ages 28-34 are the biggest in America and need somewhere to live. You don’t need to make it any more complicated than that.

All this information was available for people to read in the Census data — it wasn’t hidden. I can understand if this was the 1500s and you needed to dispatch horses to get information that might come to you many months or years later. However, it’s 2021. We have the internet, access to census data is open to the public, and reading is a good thing.

This is why I stress my two rules always when talking about economics:

  • Economics done right, should be boring
  • You always want to be the detective, not the troll.

Anyone who has been predicting a housing crash every year from 2012-2019, then went all-in during 2020, only to double down in 2021 and push for a second-half crash in 2021 — you have all lost your privileges to talk about housing ever again.

Now on to the report and some of the details from NAR.

Home sales

From NAR: Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums, and co-ops, grew 1.9% from October to a seasonally adjusted annual rate of 6.46 million in November.

As discussed, sales trends are now above my 6.2 million level for three straight months, aligning with the better mortgage demand growth that we saw for four months. Typically, purchase application data looks out 30-90 days, and we know that we will be dealing with COVID-19 comps to mid-February. One last item with existing home sales, our best sales prints the previous year, this year, and even in the previous expansion have all come in the winter and fall, not the spring or summer. This is a fact that not many people consider.

Home prices and days on market

From NAR: In November, the median existing-home price for all housing types was $353,900, up 13.9% from November 2020 ($310,800), as prices increased in each region, with the highest pace of appreciation in the South region.

For every positive, we do have a negative, and as we can see, the housing world is just different in the years 2020-2021 than what we saw from 2008-2019 regarding home prices. While the growth rate or pricing is slowing because we don’t have a credit boom in housing, the increase in prices in the first two years of my 2020-2024 time period has reached my comfort zone of cumulative price growth of 23%. Higher mortgage rates would create more days on the market, but this would mean the 10-year yield getting above 1.94% with duration in 2021, which wasn’t part of my forecast in 2021 and 2022.

A positive outcome for me in 2022 would be to see days on the market grow above the teenager age. More choices are better for homebuyers and sellers who need to buy a home typically as well.

From NAR: First-time buyers were responsible for 26% of sales in November; Individual investors purchased 15% of homes; All-cash sales accounted for 24% of transactions; Distressed sales represented less than 1% of sales; Properties typically remained on the market for 18 days.

Now for the real bad news, which is still a first-world problem, but the big concern for me during 2020-2024: inventory.

Seasonality has kicked in with inventory already, which is expected every year. However, I had hoped that we wouldn’t start spring 2022 with all-time lows in inventory. Unfortunately, that can’t be ruled out anymore and we might have a shot at a fresh new all-time low going into the spring of 2022 with mortgage rates under 4% still. Yikes!

The target level for me to stop talking about the unhealthiness of this housing market is to see inventory levels between 1.52 – 1.93 million. While this is still meager inventory historically, it will bring more balance into the market, and I can call it a B&B market: boring and balanced. Until then, it’s still the hunger games for housing.

As we end the year on a positive note and we still have one more existing report month left, we can clearly see that housing is driven by demographics and mortgage rates and those who pushed terrible Forbearance Crash narratives didn’t even get coal for Christmas.

If you want to read about my 2022 Housing and Economic Forecast you can find that here, or if you would rather listen than read, I provided an overview of the forecast on this episode of the HousingWire Daily podcast.

The post Existing home sales data continues to outperform appeared first on HousingWire.





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As 2021 draws to a close, it’s clear that the private-label residential mortgage-backed securities (RMBS) market has notched a year for the record books.

For the full year, the RMBS 2.0 market — defined as all post-financial-crisis prime, non-prime and credit-risk transfer (CRT) transactions — is projected to exceed $115 billion in issuance. That’s more than twice the volume recorded in 2020 and nearly double 2019’s $60 billion mark as well, according to a recent forecast from the Kroll Bond Rating Agency (KBRA).

“Low mortgage rates, stable collateral performance and comparatively favorable spreads for much of the year showed a strong level of investor demand in RMBS paper, making 2021 the record post-global-financial-crisis issuance year,” the KBRA forecast states.

The major driver of private-label issuance this year has been the jumbo-loan market. RMBS offerings backed by jumbo loans are projected to reach the $60 billion level for 2021, according to estimates by Redwood Trust, a sponsor of multiple private-label offerings through its Sequoia securitization program.

The value of transactions backed by investment properties, including second homes, stood at nearly $23 billion as of the end of November, according to data from KBRA and digital-mortgage exchange MAXEX.

Securitizations in the non-QM market are projected to reach $25 billion in 2021, according to estimates from Dane Smith, president of Verus Mortgage Capital, and Tom Hutchens, executive vice president of production at Angel Oak Mortgage Solutions.

Non-QM mortgages include loans that cannot command a government, or “agency,” stamp through Fannie Mae or Freddie Mac. Non-QM loans typically make use of alternative-income documentation because borrowers cannot rely on conventional payroll records or otherwise fall outside agency credit guidelines. The pool of non-QM borrowers includes real estate investors, property flippers, foreign nationals, business owners and the self-employed, as well as a smaller group of homebuyers facing credit challenges, such as past bankruptcies. 

On the CRT front, government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac recorded a combined issuance through mid-December of nearly $18 billion, according to GSE transaction records. Through a CRT transaction, private investors participate with Fannie and Freddie in sharing a portion of the mortgage credit risk in the reference loan pools retained by the GSEs. 

Despite the outsized performance of the private-label market in 2021, compared to the prior post-crisis years, the so-called non-agency sector remains well below the level of market dominance it commanded in 2005 and 2006 — just prior to the housing-industry crash. At that time, it represented nearly 60% of RMBS issuance across agency and non-agency lines. 

“The non-agency share of mortgage securitizations increased gradually over the post-crisis years, from 1.83% in 2012 to 5% in 2019,” a recent Urban Institute report states. “In 2020, the non-agency share dropped to 2.44%, and as of September 2021, it stood at 3.79%.”

The Urban Institute report, produced by its Housing Finance Policy Center, notes that the steep decline in private-label activity in 2020 — as a share of the entire securitization market — was due, in part, to expanded agency refinancing activity as well as “less non-agency production due to dislocations caused by COVID-19.”

“The [private-label] market is recovering in 2021, although the share remains lower than 2019,” the report notes. “While the share is lower, as [GSE] securitization volume is high due to refi activity, this is the largest year of non-agency securitization since 2008.”

The 800-pound gorilla in the private-label space in 2021, as reported previously by HousingWire, is J.P. Morgan, the investment bank side of New York-based banking holding company JPMorgan Chase & Co.  

J.P. Morgan, via its private label conduit, J.P. Morgan Mortgage Trust, through mid-December had sponsored 15 offerings backed by jumbo loans with a total value of $16.4 billion and eight investment-property/second home-backed securitization deals valued at $3.9 billion, according to bond-rating agency reports. The combined value of those private-label transactions, $20.3 billion, represents nearly 18% of KBRA’s projected $115 billion in deal volume for the entire private-label market this year.

For J.P. Morgan’s jumbo-loan securitizations, bond-rating agency reports show that nearly 50% of the mortgages involved in those deals were originated in California.

“California has by far the highest prices in the country, with the median price of a home today in the state over $800,000,” said Rick Sharga, executive vice president of marketing for real-estate research firm RealtyTrac. “And, so that prices most borrowers out of getting a conventional loan, even with the higher [GSE loan-limit] allowance. 

“So, you’re going to have a higher percentage of jumbo loans in California … and California also has a high percentage of overall sales relative to other states.”

Adds Tom Piercy, managing director of Denver-based Incenter Mortgage Advisors: “The jumbo market has expanded as we’ve seen property values increase nationwide. … The appetite for jumbo loans has increased significantly.”

Rising interest rates, coupled with increased agency loan limits and the Federal Housing Finance Agency’s decision to suspend the cap on the purchase of mortgages backed by investment properties, however, are expected to slow the growth of the private-label market in the year ahead. 

The Federal Reserve is increasing the pace of its bond tapering in the months ahead, including reducing its purchases of mortgage-backed securities. It also is planning up to three bumps in the benchmark interest rate in the year ahead. That upward pressure on rates is expected to bend the arc upward on 30-year fixed rates as well, depressing the housing-refinance market.

“It is still expected that [jumbo] RMBS issuance will start to slow in the coming months as rates rise and supply wanes,” states MAXEX’s December market report. “…We continue to think that issuance [of RMBS backed by investment properties also] will subside in 2022 as originators sell many of these loans back to the agencies.” 

Still, the non-agency market is expected to continue to expand in the year ahead, even if it’s at a slower pace than in 2021, according to KBRA.

“Our fiscal year 2022 forecast is $132 billion across the prime, non-prime, and CRT segments, which, if realized, would make it a new record year for RMBS issuance post-GFC [global financial crisis] and an approximately 15% year-over-year increase from 2021,” KBRA’s market-projection report states.

Rising rates, rising GSE loan limits, the suspension of GSE caps on the purchase of investment property mortgages, as well as a housing market that is shifting toward purchase loans, are in combination, then, expected to act as a governor on the growth of securitization volume in the year ahead. At least that may be the case for the jumbo and agency-eligible investment-property segments of the private label market.

But that rising-rate environment is expected to be a boon for the non-QM sector. Verus’ Smith projects that non-QM private-label issuance will swell to over $40 billion in 2022, approaching a doubling of this year’s already robust transaction volume.

“We believe the conditions are ripe for considerable growth of the expanded non-agency market,” Smith said. “Considerable unmet demand for mortgage financing exists from self-employed borrowers and real estate investors. 

“… We are also seeing considerable renewed interest from mortgage lenders who are looking to diversify their product mix away from conventional refinances.” 

The post Private-label RMBS market has cause to celebrate appeared first on HousingWire.



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If you need pension funds explained, there’s no better person to talk to than the internet’s leading voice on all things pensions and retirement, Grumpus Maximus. After spending twenty or so years in the military, Grumpus began to put his health, happiness, and passions first. Now, retired with plenty of money coming in (thanks to pensions and retirement accounts), Grumpus spends his time blogging and helping others ask the meaningful question, “is my pension worth it?”

Guest co-host Joe Saul-Sehy from the Stacking Benjamins podcast is here to help Mindy tee up some pension-related questions for Grumpus. Whether or not you have a job offering a pension or you’re debating accepting a job with a pension, the research-based questions asked today will help you evaluate whether or not a pension is truly worth it.

You’ll hear about the safety of pensions, healthcare-impacted pensions, annuities, and Cost-of-Living Adjustments (COLA) so you can make the best possible decision regarding your (early) retirement plans!

Mindy:
Hey there. As the BiggerPockets Podcast network grows, we’re always on the lookout for talented people who think they have what it takes to co-host a show. Is that you? Do you want to be just like me? Well, you can make a submission to our system at biggerpockets.com/talent so we can get to know you. That’s biggerpockets.com/talent. You’ll see a few questions and a place to submit a video reel. Again, that’s biggerpockets.com/talent if you’d like to lend your voice to the growing BiggerPockets Podcast network. Welcome to the BiggerPockets Money Podcast show number 259, where we interview Grumpus Maximus and talk about the oh so exciting topic of pensions.

Grumpus:
But the fact of the matter is there are still pension systems today that are not very well run and they don’t have enough money to meet all future obligations as the actuarial scientists have determined what those future obligations are.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and joining me today at guest host is Joe Saul-Sehy, author of Stacked: Your Super-Serious Guide to Modern Money Management, and creator and co-host of the Stacking Benjamins podcast. Joe, thank you for having nothing better to do today.

Joe:
You kidding me? Hang out with you, Mindy, an opportunity like that? I threw everything aside. I of course have lots to do, but when you take Mindy Jensen plus pensions equals true love, I’m in.

Mindy:
Awesome. I’m so glad. Joe and I are here to make financial independence less scary, less just for somebody else to introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Joe:
And whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, or start your own business, or figure out your pension, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards that dream.

Mindy:
Joe, I have been wanting to get Grumpus Maximus on the show for a long time to talk about pensions because as is very evident in the next five minutes or so, I don’t really know anything about them, but I know that they exist. I know that people have to kind navigate them as they’re considering their financial independence and their retirement in general. And Grumpus Maximus is I’m going to go with the leading authority on all things pensions.

Joe:
He certainly had written the book on it, right? Not even so to speak, he literally has written the book on it. But also even though pensions, Mindy, are this thing that some of us consider archaic stuff, the average person stays in a job for not that long anymore. I think the labor department said something like 4.5 years. So there’s a chance that you’re going to stumble upon in your job search a job that has a pension and pensions, well here have lots of math involved. There’s lots of things around vesting and about how much you get, depending on how long you’re there. So clearly knowing how a pension works whether you have one today or not is going to be something that’ll be great to have in your wheelhouse.

Mindy:
I agree, Joe. I think that right now, I don’t have a pension, but I could potentially get a job with a pension. Maybe BiggerPockets is going to listen to this show and say, “We should have a pension.” They’re not going to. But it’s nice to understand this and I would like to say if you are listening to this show and you’re like, “Oh, I don’t have a pension, maybe I don’t need to listen.” First of all, you do need to listen because Joe Saul-Sehy is here. Grumpus Maximus is here. But if this is not something that pertains to you, but you know somebody who could benefit from this information, please share this episode with them because Grumpus comes in and shares just an absolute boatload of information in fairly easy to understand terms with regards to how a pension works and things to consider when you are considering separating from your job that has a pension.

Joe:
I’ve known Grumpus online for a long time so I’m excited to meet him finally. And I know that when Grumpus talks, people listen so I can’t wait to listen.

Mindy:
He’s like [Iya Platon 00:04:19]. Grumpus Maximus, welcome to the BiggerPockets Money Podcast. I’m so excited to talk to you today, because I don’t know anything about pensions.

Grumpus:
Thank you, Mindy. I’m excited too. I got my excited face on.

Joe:
I was wondering how that was different than your normal face, Grumpus.

Grumpus:
Yep. It’s the same. I have a coffee mug that has all my different emotions and it’s all the same picture that my wife gave me.

Joe:
Which is good by the way when you’re evaluating pensions, you got to have that same face on because, I mean, I’m sure you’re going to talk about it, but don’t fall in love with it, right?

Grumpus:
Don’t fall in love with it and don’t fall asleep by trying to analyze it either so it’s good to be able to mask the fact that I fell asleep.

Mindy:
Yeah. Too late because sometimes reading all that paperwork is boring. You know what? I said sometimes it’s actually kind of most of the time reading all that paperwork is boring, but not reading all that paperwork can cost you a lot in terms of money, in terms of lifestyle, in terms of time. So something you said to me when I first reached out to you, you said not every defined benefit pension is worth it or worth staying for. Isn’t the pension the best thing ever?

Grumpus:
It can be. It depends on the person. So a defined benefit pension is the pension you get paid after you’ve worked at a place an employer for so long. So that might be government work these days or it might be one of the few private industry jobs that still have a defined benefit pension. In the US, there’s only about 8% of them that still offer one. But on the public side, at state local government level, it’s still fairly common. So you work at a place for so long, you earn a certain amount of money. And then what happens at the end of that career is that they run that through typically some kind of calculation to determine how much you’re going to get paid in retirement. So that’s what a defined benefit pension is.
And every pension is different, every pension system is different, almost by design that way because they’re designed to keep people at jobs to create worker retention. So depending om who’s offering the pension and what issues they’re trying to overcome to keep people out of job, depends on how generous the pension and that’s where really where you get into the is it worth it? The generosity of a pension and also the pension safety helps determine whether or not staying for a pension is worth it because not everybody wants to stay the 20, 30, 40 years that it takes to qualify for a defined benefit pension.

Mindy:
Okay. So I have a question from an I don’t have a pension position, if I am working for a job and they have a pension option, is that always a mandatory contribution?

Grumpus:
Employer by employer.

Mindy:
Okay.

Grumpus:
So this is one of those things where again, every pension is a little bit different from each other. So some employers have it mandatory like many teaching jobs because they’re state or local government jobs, it’s mandatory. So you would contribute a certain percentage of your pension. I’m sorry, a certain percentage of your paycheck each month into that pension system. Others is optional. Others don’t require any contribution at all. So for me, for instance, I’m retired US military, we don’t set aside any money out of our paycheck. The government just does that automatically. So it’s part of the reduced pay you get compared to the private sector.

Mindy:
Okay. And if it is mandatory, how do I get that money if I haven’t worked there for 20 years?

Grumpus:
So again, pension by pension, but many pensions let you cash out if you want to leave the job. So they’ll at least cash out what you provided or put in as contributions, depending on how long you’ve been there. Some may actually allow you to cash out the full value. Some pensions don’t run a cash value though. So that again, pension by pension, the newer ones actually run a cash value. The older ones do not run cash value. So they may let you take it when you leave and they may not.

Joe:
That’s a question that I have because as you know, a big decision for a lot of people when they take their pension, if they will let them have it as a lump sum is whether I take it as a lump sum or I take it in monthly payments that last my guaranteed in lifetime and maybe sometimes the lifetime of people around me, a spouse or somebody. You mentioned the word safety, right? And obviously whether I take that guaranteed lifetime income or not, I would imagine has a lot to do with safety. How do I determine whether my pension is safe and why wouldn’t my pension be safe? Is a pension, I’m assuming based on what you said about safety, my pension might not be guaranteed?

Grumpus:
Correct. In an ideal world, they are supposed to be super safe, but we don’t live in an ideal world. Many pension systems are not well managed or well run, both on the government side and the private sector side. And there are plenty of horror stories, especially from the 1960s and ’70s of companies going bankrupt and their pension fund either being raided or going bankrupt as well, and therefore not being able to pay out. Now that has subsided because the US government put certain rules and laws into action to counteract that. But the fact of the matter is there are still pension systems today that are not very well run and they don’t have enough money to meet all future obligations as the actuarial scientists have determined what those future obligations are. So there are states like Illinois, it is awful well-known.
Kentucky’s another one, well-known for their public state run pensions or an awful fiscal shape. They have around 30% of the funds they need to meet all future obligations. So when you come to determine a pension safety, you have to look at how well it’s funded and that’s the big thing. The society of actuarialists actually recommend you look at the trend. So is it on a upward trend of having more and more funds each year? Or is it on a downward trend or has it gone across and just kind of maintained its funding percentage over the years?

Joe:
Does this have to be public record? I mean, am I allowed to get the information?

Grumpus:
Yes, correct. And if nothing else, most of that information’s online these days. But if nothing else, if you are a member of a pension system, you should be getting an annual mailing about the health of your pension system. And from there, you can start to determine how well it’s funded. Most of the state and local government-run pension systems exist within a database that Boston College runs. It’s called the Public Pension Database, the PPD. So if you’re in a public pension system in the US, there’s a good chance it’s all that information is stored on that database. But if you’re in a private pension system, then you’re going to have to do some extra legwork and research then.

Mindy:
Okay. So what can I do as let’s say a teacher in Illinois where you just said that my pension isn’t fully funded? And this is actually kind of a personal question because my sister is a teacher in Illinois, how does she protect herself? She has 20 years in but she’s still working as well. Can she cash out before she ends work?

Grumpus:
Probably not unless she wanted to leave. And again, I don’t know which exact Illinois pension system she is in, each one has kind of different rules. But some do allow you to take a lump sum if you want to leave and go elsewhere. And that’s really one of the only ways you can get the money that you feel you are owed. Now that’s going to be highly reduced, because it’s going to be a present day value for what would’ve been a pension in the future. So therefore they’re going to assume, “Hey, if you cash out, you’re going to take that money, you’re going to invest it and earn up, grow it to the amount you need to pay yourself in the future the same level that you would get for working 10 years, 20 years, whatever it is when you decide to leave and or retire.”
That’s the other thing. Many pension systems just allow you to take it as lump sum when you retire. And some people prefer to do that because maybe they either don’t trust the system to be there or the pension plan to be there. Or they want to leave a legacy beyond just their immediate family, which all pension systems in the US have to at least provide that option. You can leave it to a spouse or underage children if you have children under the age of 18. So the lump sum is the best way to get the money out if you don’t believe the pension system is safe, the pension plan is safe.
It’s not necessarily offered at every time and every level you go along the way. So sometimes there isn’t a way to get it out unfortunately. Now, even in a state like Illinois with badly managed pensions, they have state worker laws and state contract laws that protect the pensions. In fact, it’s written into the state constitution of Illinois that the pension state system is protected. So really in reality, the question that becomes well, how much does your sister need to worry if ultimately the Illinois’s taxpayers are on the hook? Maybe that’s more of a taxpayer issue and a political issue than it is a pension safety issue. But that’s just one more complexity to add to this process you have to go to determine if staying for your pension at a job is worth it.

Joe:
It’s interesting. I want to get a little nerdy on Mindy’s question, which at the next level that I’m thinking, Grumpus, that, I mean, if you don’t think that your pension’s safe, what I hear you basically saying is who cares about the calculation? You probably want to take the lump sum just to make sure that you get something out of it, right? Forget about the monthly payments.

Grumpus:
Yeah. Yeah, in my book, that’s the very first step of analyzing your pension I teach people is analyzing pension safety because if you don’t think your pension is safe, then either you’re going to leave if you’re a caught on this mid career crisis where you don’t know if you want to stay or you want to leave. You leave because you don’t believe the pension’s going to be there or at the end of your career, if you don’t believe the pension plan is going to last, then you take that lump sum if it’s on offer. [crosstalk 00:15:22] Now that’s not a requirement.

Joe:
Yeah. I think we just made the math easy for some people like, okay, if I get a lump sum, I will take it. But for the other people, when you’re calculating, because you talked about, if you take the lump sum, you’re going to get a present value number of what those payments would equal over what actuarily I’m sure is your lifetime. But I’m thinking there’s got to be some multiplier on that. Right? There’s got to be some assumption of what that money they think is that money would earn if it were invested.

Grumpus:
Correct.

Joe:
Versus today. Is that a set number for everybody? Or is that just a number that varies from pension to pension that I’ll have to ask about?

Grumpus:
So, again, it varies. There are federal rules about how high of an assumed return you can use, but they are very generous towards the employer offering the lump sum, meaning it makes the lump sum smaller and smaller.

Joe:
I was going to say that for everybody listening, what that means by generous, what Grumpus I think means is they can’t say 15% you were going to get on your money so they offer you only $4 instead of $400,000, right?

Grumpus:
Right. Right. But from my research and my understanding, they get to use a very generous rate of return when assuming those lump sum values. And I don’t know if you follow the reports, there’s annual reports that come out on how well just the individual investor does over time and they’re nowhere near those assumptions.

Joe:
Yeah.

Mindy:
Of course, they’re not. Okay. So let’s say I’m listening to this episode because I’m excited because I know I have a pension and this is going to be the best thing ever. And I just heard you tell me that maybe this isn’t going to be so great and I don’t have a public job. I have one of those private employers, one of those 8% that still offers a pension. And I never read any of the stuff that they sent me in the mail because I have a pension and everything’s great because that’s what they sold me. Where do I go to find out about this information? Is this an HR question? I guess I would have to go to HR and ask them, bobspension.com. What’s the name of the pension company and then go research that? Do you just type it in Google?

Joe:
And by the way, before you answer that, Grumpus, if the name of your pension company is bobspension.com, you probably want out.

Mindy:
Yeah.

Grumpus:
That might be an indicator. I will put that in the next version of my book as an indicator to look for poorly run pension system.

Joe:
V2, right?

Grumpus:
So Mindy, yes. You go to HR, especially if you’re in a private firm that offers them. Now the good news is you’re still in a private firm that still offers them. That means the firm’s probably been offering it for some time and they know what they’re doing because all the other ones have gotten out of the business of providing them. But a pension is a human resource tool. It is a tool that employers use for retention. So therefore it is run through the benefits portion of employment which typically runs through HR. Right?
So a visit to HR is always a good first step if you have more questions about a pension. There will maybe also pension reps within the employer. So those would be workers who have volunteered to sit though the pension meetings and try and ensure that the pension system is being well run and the employee’s best interests are being looked after. So those might be other people you might want to approach if you have questions about your pension, but ultimately it is probably going to come down to the individual employee needs to do their own research. Hopefully they’ve been pointed the way towards where those resources are so they can start going through those resources.

Joe:
You mentioned the word generous earlier about whether a pension’s worth it or not, it depends on how generous companies are. What are some of the metrics that help me know whether a company’s being generous with a pension or if they’re being stingy?

Grumpus:
So that’s a great question because up to this point, we made it sound like pensions are all bad and they’re not. There are some great things about pensions and the guaranteed income in retirement is one of them. But some pensions also have other benefits out of loan, they have a cost of living adjustment. So in a year like this year where you have 5% annual inflation, then your pension next year is going to adjust upwards based off inflation. So like my military pension, we found out just recently, I think we’re getting 4.9 or 5.0 increase in our pensions next year because of inflation. Right? So a COLA is one extremely generous benefit that would mark a pension that’s more worth it than others. Healthcare is another one. Now not all healthcare is provided through the pension system, but some are, and then many are also packaged into the greater defined benefits packaged that you get at the end of your career.

Joe:
But just as an aside, Grumpus, to stop right there for just a second, because I think this is key. If you take it as a lump sum that also for some of these companies might mean you forfeit that health insurance that you’re talking about.

Grumpus:
Yes, correct. Correct. Or if you leave early, that’s the other one. Right? So, determining if you’re a midway through a career and you don’t know if you have the stamina, the ability or even the heart to want to do this for the next 10, 20, 15 years, whatever it is, leaving that healthcare on the table, it is potentially costly. And in fact, I just in April finished my master’s thesis for which I ran a pension survey. Yeah. Yeah. I’m a total nerd now. Right? Total pension nerd now. But in my survey, so my survey asked, “Hey, for those who went through a stay or go decision somewhere in their pensionable career, what were the added features within your pension system that made you think the most about staying?”
Healthcare was the number one added feature and it was number one by more than 10 percentage points over number two and three. So healthcare is always on the top of the list for American US based pensioners or pensionable workers where it may not be so much in other countries like Canada that has a nationalized healthcare system. But definitely if you’re in a US pension and healthcare is tied to your us pension, that is a more generous pension than ones that don’t have healthcare tied to it.

Mindy:
Yeah. For sure. That’s one of the number one questions that I get. Usually, the show is focused on the journey of an early retiree and that’s one of the number one questions is what do I do for healthcare in the US once I’m retired because your healthcare is tied to your job, which is so stupid.

Grumpus:
Yeah, absolutely.

Mindy:
What are some other things? You said healthcare is number one, 10% over numbers two and three. What else? What other options are there?

Grumpus:
There’s the immediate payout. So many pension systems will not pay you until you reach a certain age. Some pension systems will pay you upon reaching a certain tenure or reaching a combination of tenure and age, often known as the 80 rule of four for the pension systems that use that. So it’s a combination of tenure plus your age, if they add up to over 80, or 80 or over, then you can take your pension right away. But for instance, again, US military, or even the federal government, sometimes if you… Like I hit 20 years and retired, my pension started the next month. So that’s an immediate pay and it pays me for the rest of my life. So therefore that is far more valuable of a pension than a pension where I would have to wait till 65 to start collecting the money because A, I’m just going to get more payments over time.
And B, that just provides me a greater flexibility within retirement instead of having to rely on my investments or other things to get me through to the point where the pension starts paying. So immediate payout was the number two pension feature that made people consider staying the most from my analysis. I’ve already mentioned COLA, again, a very costly but generous feature to provide for employers. It’s costly for them because they keep having to pay more and more money each year because inflation typically, always goes up. Let me think of some other ones. I’m trying to remember number three. I’m blanking now, this is great. The pension expert.
Oh, so a generous multiplier would be another one. So I mentioned the formula earlier. So typically, it’s the number of years you worked multiplied by a calculation of your final salary. That final salary may have been your last three years averaged, your last five years averaged, your last 10 years averaged. And then all of that is then again multiplied by what they call a multiplier, which is a percentage. So in my case, the multiplier was 2.5. So for every year you got 2.5% and then that add when you retire all that’s calculated out and your pension, what you get paid is that value. So for instance, I did 20 years, you multiply that by 2.5, you get 50%, right? So I got 50% of my final three years of salary average together.

Joe:
And obviously for most people this last three year is way better than five or seven or whatever it might be.

Grumpus:
Correct. So that’s called backloading, right? So when the pension is tied to final salary, again, another way to incentivize people to stay in a job longer is the promise of more money in retirement by having a higher salary when you retire. Well, not all multipliers are as high as 2.5, some are much lower. So therefore you have to work much longer in order to earn a decent percentage for payment in retirement.

Joe:
I’m wondering if most of those more backloaded pensions also have a healthier vesting schedule, meaning they make it harder to get money in the early years because I think the more they backload it, the harder it would be for the people managing the pension fund money to make enough to make sure that it continues well.

Grumpus:
True. So I think on the public side, most pensions have to vest within five years. You can either partial vest up to 10, I think as well. But after vesting, that means you’re going to get some money in retirement. You won’t necessarily to get a lot because you only worked five years, you vested and then you quit and went to another job. A, you shouldn’t expect a large pay out of that. And B, inflation’s going to be working against you until you actually reach the age where you can take that pension. Right? So, backloading has works in multiple ways in order to entice people to stay longer and longer and longer at the pension. It’s not only the salary issue, it’s how close you get to the payout year when you can actually start drawing your pension.

Joe:
But on a private side, can that be whatever the hell they want it to be?

Grumpus:
Yeah. It can be. As long as they meet the very few federal requirements again, like offering survivorship, there isn’t much governing how little or how much those percentage multipliers can be.

Mindy:
Okay. You just said survivorship and that leads to my next question before you said this pays me for the rest of my life. So what happens when you pass but your spouse is still living or you pass and you still have living children? Is that what you mean by survivorship? And do they continue? And is there a point where let’s say you pass, God forbid, very soon and your spouse lives to be 150 years old. Is there a point where the money runs out or the payout runs out?

Grumpus:
Yes, there could be. So again, every pension system’s a little bit different, but a lot of the especially state or local public pension funds have the slew of options for payouts, right? Anywhere from total lump sum and cashing it all out to partial lump sum and then continuing for 20 years on up and up. And then when you start throwing survivorship on top of it, they also offer different options. But kind of generically, if, for instance, in the US federal system, you elect survivorship and then that survivorship takes over, you elect at a certain percentage. So for us military, the highest percentage we can elect to pass on to our spouses is 55% of our pension payments. So, the thing is when you elect survivorship, that means you are electing a smaller amount while you are still alive because they’re skimming some off the top as an insurance payment, right? Because essentially what you’re signing up for is insurance to be able to transfer that value over to your spouse or your underage children.

Joe:
Which brings up a good question, which is let’s say that you lose 10% of your pension to have survivorship. I’m just making these numbers up, Grumpus, so just stick with me, even if they… Let’s say we give up 10% of my full payout so that my spouse can also have some coverage, but then she dies first. I know on some pensions it pops up, but let’s say that it doesn’t, meaning that I could go back to my full amount but on the vast majority, they don’t.
Instead of giving that up for the insurance, does it make sense to actually look at my own insurance policy? Where maybe I have that for X amount of time, and then let’s say I get to the age that I got enough money and I don’t even need it anymore, I just dump the insurance. And of course, because we’re talking long term, this has to be a permanent policy. I can’t imagine trying to do this with a term policy. So if we do this with a permanent policy, I take it out, I take whatever cash value there is, and we just live on the whole thing.

Grumpus:
Yeah. So that is always the option is that you could go… For survivorship specifically, you could go and seek a private insurance policy to cover the difference. Now it gets a little bit complicated if your pension has a COLA and that COLA is transferred in the survivorship. So therefore, it’s inflation protected because it’s not a lot of life insurance policies are inflation protected and you’re going to pay more for an inflation protected life insurance policy.

Joe:
And [crosstalk 00:30:42] I also just thought of the health insurance by the way as well.

Grumpus:
Yeah, yeah. True. Right. So there’s the other thing now. Now healthcare, if it’s provided to the family and the pensioner dies, often is the family is allowed to continue for a certain length of time in the healthcare and for the spouse that may be for the rest of their life as long as they continue to pay whatever insurance premiums are required. But that’s not written in law anywhere. So again, that could be pension system the pension system. That’s something you need to ask and research. But going back to kind of the larger question, could I just take a lump sum and buy an insurance annuity instead of relying on the pension annuity? Certainly you could. There isn’t a lot of research on it, but there has been some, and I can’t remember which branch of the federal government tried to figure it out about 10 years ago. And it turned out that the insurance annuity was 1.5 times more costly than what it was to just stick within your pension system if you wanted to take the pension annuity.

Joe:
Wait, I wasn’t even talking about taking the whole thing as a lump sum. I was just talking about taking that difference between the survivorship number. Let’s say it’s a thousand dollars and it’s $900 if I take the survivorship. I take that a hundred dollars instead I take that a hundred dollars and which I would’ve lost anyway, and I buy my own life insurance with it. Right? Which will then cover it.

Grumpus:
Yeah. You could do that. You could do that. Again, you’re going to have to run the calculations on whether or not that’s cost effective.

Joe:
And I think to your point, the healthcare kills it immediately for me, I don’t know that… I mean, how do I justify getting rid of healthcare for my spouse?

Grumpus:
Yeah. That’s if it’s tied to transferring the pension over through survivorship. If it’s not, so for instance, again, the military system, just because I did 20 years, my spouse is now eligible as a spouse of retiree for life as long as we don’t get divorced or she knocks me off and she would get it. I don’t have Grumpus Maximus as a moniker for no reason at all. Right? It is kind of tough to live with me from time to time.

Mindy:
Do pensions typically have an end date? Let’s say that in this situation I shared where your wife lives to be 150, let’s say you live to be 150. You said they pay you for the rest of your life. Are they just assuming that the end of your life is 80 whatever the average is or will they continue on and on and on?

Grumpus:
Generically speaking, they’re going to continue on and on and on. So that is not true of every pension system. Again, going back to the types of pensions that offer a menu of different payout options, some of those options are timed. So, they’ll pay you for 20 years or they’ll pay you for 30 years. The advantage is you’re going to get more each payment than you would otherwise, right? So if you just let it run till the end of your life, they’re just going to use the actuarial assumptions of you being a white female, certain age, on average you’re going to live this length of time. And then obviously some people are going to live longer and some people are going to live shorter and just like insurance works, you kind of average out the group and that’s how you continue to have money in the pot to be able to pay out because some people die early, some people die late, right? But again, it goes back to the individual pension system and what they offer is payout options over time.

Mindy:
Okay. So what I keep hearing you say, and I’m not trying to say… You just keep saying it depends, it depends, but it really does depend and it’s all specific to the pension that you’re part of. So what I’m hearing you suggest to all of our listeners who have pensions is this is a research opportunity. And if you have a pension and you want to be able to take any part of that pension as a payout, as a lump sum, whatever, you need to do your research, you need to dive into your pension specifics and talk to HR, talk to your pension reps and get all the information that you need about your specific plan. But the health insurance thing is that’s huge [crosstalk 00:35:15].

Joe:
Well, and also Mindy to add on to what you’re saying, what I’m hearing too from Grumpus is that, I mean, these are irrevocable decisions. It’s not like whether I’m choosing 6% or 8% to go into my 401(k) and I can go back and change it tomorrow. When you say need to do your research, this is a you got one shot. So this isn’t something you pick up the day before or 15 minutes before and just casually check a box. There’s some decent math here.

Grumpus:
There is. And I don’t want people to be put off or intimidated by it. I’ve tried to make it simple on my website because I’m not the smartest cookie, but other people are smarter than me so I’ve provided a bunch of different ways to try and help people do all that research and figure out all their various options, especially if they’re considered leaving the career, the pensionable career behind for greener pastures, but also as they prepare for retirement as well because you’re right, Joe, there is no undoing a survivorship election and the risk of getting survivorship wrong is that you die early and then your dependents don’t have enough money in what would’ve been retirement. And maybe a spouse has to return to work or a teenage offspring son or daughter to go and get a job just to help support the family or something like that.
That would be the worst situation you could leave behind. And again, you’re right. It’s you make this decision once and you live with the consequences. So again and Mindy, I am saying you have to do the research. Some pension systems are a lot easier to research than others, like the federal government. The FERS system is fairly well known. I mean, there are a lot of people in that system and you don’t have to worry about pension safety with FERS, unless you really think the US federal government is just going to stop paying people at some point in the future. If that happens, I think the world is going to have larger economic problems than your pension get being paid or not. But for the other person, for the non-federal employee in the US who earns a pension, there is going to be some research involved and some educational guesswork as to what you think the future entails, which could be anything from the inflation rates when you retire, what age you think you’re going to die or how likely it is that your pension system will pay out the amount that’s promised.
Now Mindy, I want to circle back. So healthcare is huge for people who are trying to FIRE. So people who are trying to reach financial independence and retire early, healthcare is huge in the US because oftentimes they don’t have another way to pay for it for those intervening years. So you assume the standard retirement age is 65. Well, Medicare kicks in right around that time, right? So if you have a pension and even if it doesn’t have healthcare, but you plan to retire at 65, healthcare is going to be used… You’re going to have the healthcare through Medicare. But if you’re retiring at 55 or 45 and the healthcare doesn’t kick in until the pension payments start at 60, 62 or 65, healthcare is huge because your other option is you go and fund it yourself probably.
This is a conundrum I see a lot of FERS. So again, back to the US federal government pension system, there are very few loopholes to earn your medical insurance early. So it is very much tied up into reaching a certain age in a certain amount of time that you work for the US federal government. And so if you try and retire at 45 or 55, and FERS healthcare doesn’t kick in until much later down the line, then trying to figure out what your other options are huge. And I’m sure you’ve talked about it on your podcast before just trying to plan for healthcare and retirement, if you don’t know what the costs are going to be from year to year, is extremely hard.

Mindy:
Yeah. You don’t even know what the costs are going to be from year to year now. How can you possibly plan for potential inflation? Potential inflation, like there’s not going to be a bunch of inflation coming our way.

Grumpus:
Right.

Mindy:
All the money that we’ve been [riving 00:39:45]. Potential inflation and potential increases. I’d really love to see the healthcare system overhauled, but I’ve wanted to see the healthcare system overhauled since 1986 when that HMO made it so hard to go and see the doctor and it hasn’t gotten any better. I can’t imagine trying to plan for that right now. I just keep working because then I can-

Grumpus:
Yeah. And so having pension subsidized healthcare helps you know what the costs are going to be or helps you kind of plan for a range of costs well into the future because depending on again, how generous the pension system is, they may be covering a large amount of those costs as far as deductibles and stuff like that go too. So, not to brag, not to make people jealous, but again, the US military, you get access to Tricare for the rest of your life. Well, the premiums I pay right now as a retiree for a family of four are a small percentage of what most people who are using the open market for health insurance pay for a family of four. It’s a little bit more than what I paid for when I was active duty, but not much. I mean, it’s very, very easy to plan for those costs.

Joe:
If somebody’s hung out with us this far Grumpus and-

Grumpus:
And not asleep.

Joe:
No. Well, no.

Grumpus:
They’re not drooling on their keyboard at this point.

Joe:
Actually. Maybe it’s that I’m a nerd about this stuff, but I’ve loved every minute of this. But if they followed us so far and they don’t have a pension, right? Yu say things and people that don’t have a pension might be drooling over this lifetime guaranteed income. That’s a pretty kick-ass notion for people. Is it worth it for somebody without a pension to go chase this idea themself to figure out a way to get it on their own?

Grumpus:
Another great question, Joe. And I have academic research that can back up this question. So it turns out that a large percentage of people who work in pensionable jobs were attracted by the long term guarantees of both employment and retirement income.

Joe:
I can imagine. Yeah.

Grumpus:
Academic researchers have termed a coin for those people. They’re called stayers because they’re going to find that long term employment and they’re going to stay. And the ideal lifetime income on the backside in the form of a pension is just yet another reason that would make them stay. Now, that’s not everybody who works in a pensionable job, but it is a large percentage. So what that tells you is there’s a certain type of worker or employee out there that is attracted to this type of incentive. And therefore they would seek out those jobs because it’s going to help them…
The job itself probably is going to help them achieve some standard of living that they want to live, typically that’s middle class. And therefore the standard in retirement is going to stay fairly consistent as well. Now that doesn’t necessarily match the bulk of the American workforce today. And there are the trade offs for taking a job that has a pension. You almost guaranteed are electing a job that is going to pay you less in your employment years in order to get that incentive, that pension on the backside in your retirement years. So, you have to be willing to make that trade off as an employee and not everybody is willing. And then a lot of people just aren’t willing to let other people manage their financial future. So again, it kind of goes back to what your personality is, but certainly there are people who will be salivating over the idea of a pension and all the safety and security that that provides in retirement.

Joe:
Boy, it seems like those people you’re talking about those stayers, Grumpus, are the more conservative investors, right? They kind of, I would imagine, have a conservative lifestyle. I feel better if I can have the same job, it gives me lifetime income, gives me all these things, which leads me to ask that thing because whenever we talk about lifetime guaranteed income and we say pension, people go, “Oh, that’s great.” But then you say the other word, the nasty A word, you say annuity, people are like, “Nope, forget it. Not going to do it.” Is there such a thing as a good annuity? Is there such a thing?

Grumpus:
Well, I think within the modern day pension plans, they have started providing more flexibility for people like that. Right? So there are these hybrid pensions that allow you kind of to direct… You have to contribute, but then you can direct your contributions to how they’re invested, kind of more 401(k) style. Right?

Joe:
Oh, wow. Okay.

Grumpus:
Now that isn’t widespread.

Joe:
Yeah.

Grumpus:
Those are newer within from roughly 2000 onwards being offered a little bit more and more each year within the US because A, they’re cheaper for employers to provide and B, they’re more flexible and certain employees like them more. But going back to your question about, is there a good annuity? Well, I certainly think there is a great reason, or I would rate the annuity I receive every month from the US Department of Defense as a good annuity.
I mean, even though I struggled towards the end of my career with staying and having health issues and stuff like that, I certainly now that I’m two years into retirement and I get that steady paycheck month after month, no matter what happens, despite COVID, despite the stock market spiking and crashing, that money just keeps coming in no matter what, there’s a lot of goodness to that. I mean, that makes life planning a lot easier, even in a FIRE lifestyle than many others who are just relying on their investments would have. So yes, there is some goodness to an annuity. You, as the individuals, just have to determine if you know the amount of life you give up in order to work in a pensionable career is worth that guaranteed annuity on the back end.

Joe:
Which by the way, Grumpus, is specifically my soapbox, Mindy, which is the annuity company is effing this up. There are people that want to buy them, but the way that annuities get sold, the way that they’re loaded with all these unnecessary fees so people… So the annuity company rolls in. It doesn’t have to be like that. It doesn’t have to be like that. There are plenty of people, like Grumpus is talking about, that would buy the thing if the annuity companies would just do the right thing. Not enough annuity companies out there that make this not a minefield and I don’t know. If anybody in the financial industry listening or can change something, please God do it.

Grumpus:
Again, did some academic research from a masters and I came across what economists call the annuity puzzle. And the puzzle is why more people don’t buy immediate annuities because from an economic standpoint, assuming the annuity is safe, which economists make a lot of us assumptions. But assuming the annuity is with a company that is a reputable company and everything like that, the odds are, it’s a much better for you to buy an annuity than try and invest your own money. But the puzzle is more people don’t take it up. So, I mean, they we’re talking like Nobel award winning economists have tried to study this over time.

Joe:
I went to a symposium that was a bunch of industry experts and a few of us from the media at MIT. And MIT’s been working on to your point, Grumpus, this exact issue. And the reason that most of us came up with that annuities are sold and not purchased to your point is because the annuity industry has done it to themself. They have totally done it. And by all the stuff like everybody was sitting in a circle and they were talking just based on what some of these company officials were talking about, they don’t freaking get it. They don’t get how distrusted they are by the average person. I feel like if they built it on a more trustful platform, all the math works out to your point. They should be purchased. They should be.

Mindy:
Okay. So this is shocking to me that Joe Saul-Sehy, former financial planner, would say an annuity is not an automatic no way why would you ever. I consider myself [crosstalk 00:48:18].

Joe:
Oh, they’re horrible.

Mindy:
So I consider myself to be fairly well versed in money, and I’m not a CFP level well-versed, but I talk about it on the podcast. So clearly you can’t put it on the internet if it’s not all true, but I have never heard anybody say anything other than an annuity is an absolute garbage thing, except for people who have gone to the presentations and they’re like, “Oh yeah, totally. That’s great.” I’ve never had a good experience with annuity and I don’t have any personal experience, but relatives have had them and it’s just garbage. So this is very interesting that you don’t hate it off the bat, Joe. And Grumpus, he’s got a master’s in being smart so he is not hating on it either.

Grumpus:
[crosstalk 00:49:07] My master’s in pensions.

Mindy:
A master’s in pensions, a master’s in being well verse and money.

Joe:
Well, don’t get me wrong-

Mindy:
How do you start…

Joe:
Don’t give me wrong, Mindy. Annuities are beatable, but I love what Grumpus is saying, which is for a really conservative investor, somebody will give up that upside potential, right? The more conservative people among us will give up that upside potential with being able to sleep at night. There are those people out there, so it’s not ever going to be for everybody. And there’s a few companies that are doing it that are doing a good job, but they’re so hard for the average person to find that it’s easier to just say, “Forget it. I’m not going there.” Sorry. I just turned this into the annuity discussion.

Grumpus:
Yeah. Well, let me steer it a little bit back towards pension.

Joe:
Thank you.

Grumpus:
So yes, the companies may be screwing it up, but the take up rate on lump sums from pensions also indicates that there’s some human behavior element as well. So there have been studies that have shown as high as 50% of people who have the potential to take a lump sum, instead of a pension annuity will take the lump sum. And the number one reason for that is trust. And the second reason for that is because they want to control their own money. So there is some human behavior to this.
And again, so a pension is not for everybody and those people may not realize it until later in life that, hey, I do better with managing my own money. So, even though I’m in this pensionable job, I only got 10 more years, I’m going to stay. But at the end, I’m going to take that lump sum and I’m going to do what I want with that money. Or maybe they’re married to somebody with a pension so their spouse is going to take the annuity and they’re going to take the lump sum.

Joe:
A lot of planning.

Grumpus:
Yeah.

Mindy:
Well, I can understand why somebody wouldn’t want to continue with the minimum payments and go with the lump sum like you said, the trust issue. I keep reading all these stories about, oh, the California teachers union invested in this and lost money, or the Illinois… Let’s just kick Illinois while they’re down. The Illinois teacher’s union invested in this and lost a ton of money. If I’m in a teacher’s union, I’m going to want to know what I’m investing in. It’s the same thing that they just invested in, lost a lot of money. I’m taking my money and running. I can see that that being a huge issue. I wonder what percentage of people who are taking the lump sum because of lack of trust are in these pensions that are being talked about in the news about how they don’t have any funding for… They can’t meet their future obligations for past three years or whatever it was you said earlier versus a regular company. And they’re like, “Oh, I don’t know if they’re going to be around.”

Grumpus:
Yeah. I don’t have any statistics off the top of my heads, but practically speaking or logically speaking, I would say that assuming the employees paying attention to what’s going on with the pension fund, they only typically start to do that later in their career. If they see that the pension fund is struggling, they’re probably going to take the lump sum. The take up rates on lump sums are just too high for me to believe otherwise that people aren’t going to try and cash out of a system that they think is in financial peril. Now, again, not every pension system offers a lump sum. It’s not a requirement. So again, it depends on what pension plan you’re in and what the rules are as to whether or not you would even be offered a lump sum. Now, a lot of companies and pension systems like to offer lump sum because it gets that obligation off their books, right?
That’s a future financial obligation, they don’t necessarily know what’s going to happen in the future. They have these generous discount rates that allow them to calculate these lump sums at a smaller value than what you might otherwise think the person is owed over time. So it’s just easy for them to write a check, and this is actually what it’s called in economics, it’s called pension risk transfer. They transfer the risk to the retiree or to the person taking the lump sum. That risk is running out of money in retirement. So, a pension system, they assume that risk if you take the annuity because they got to continue paying you. The employer or the retiree taking the lump assumes that risk otherwise.

Mindy:
Is there any correlation between pensions that offer the lump sum and employers that have mandatory pension contributions?

Grumpus:
None that I’ve seen. There might be, but yeah, none that I see. Why?

Mindy:
I’m just wondering, let’s say I’m a teacher in Illinois and I am required. I don’t have the option to not contribute to my pension, but then I retire and the pension’s like, “Oh, haha just kidding. We don’t have any money.” What do I do? At that time, I’m 65. I’m planning on my pension carrying me to my sunset and all of a sudden, not only did I have to contribute, it’s not even there anymore.

Grumpus:
Yeah. So again, if you’re in a public system, that’s going to come down to what state and contract laws in your state. So again, if you’re in Illinois where the state constitution says the taxpayers are going to come up with the money somehow, maybe you’re not so poor off. If you’re in a state maybe like Texas that doesn’t have a law like that, then maybe you need to be worried. Then you hopefully have started looking at that as you approach closer and closer to retirement. Now on my website and in my book, I try to teach people different ways you can discount the amount that you technically would be owed based off the pension safety issue. A really simple way is you look at the funding percentage of your pension.
If it’s 40% funded against future obligations and you can go onto your pension calculator, hopefully it’s on a website somewhere and you punch in, “Hey, I’m going to work this long. By the time I’m retired, I’ll be earning this much salary so here’s my estimated pension.” And then you just discount it by 60%. That’s one rough way of trying to reduce the reliance upon your pension within your retirement plan because you definitely, if you are in a pensionable job and you’re not going to quit, you’re not going to go and work elsewhere. You’re going to stay and you know that pension’s in potential safety trouble, then you need to make other plans. You need to start saving money and investing through what other options. Now, hey, the great news is there that a lot of these, especially public pensionable jobs offer other ways to invest like a 403(b) or a 457, right?
So there are other ways. The conundrum is typically you’re getting paid less as a state employee so maybe you don’t have the extra cash, the disposable cash to actually utilize those vehicles. And as the millionaire educator has pointed out a lot of these 403(b)s and 457s, they’re not particularly well stocked with great investment options either. So then maybe you look to some other kind of alternate form of income in retirement, like property from rental income, or you just try and go out in the stock market ad just grow your money on your own through an IRA, or even just through a normal taxable investment account.
So, I listened to the episode you guys had with the teacher. I think it was a couple months ago from New Jersey in which she was trying to decide whether she should stay at a pensionable teaching job within New Jersey, where she wasn’t making much, but she was actually saving and utilizing the other vehicles offered to her or go out into the corporate world and knew somewhere else in the US kind of where it would be more advantageous for her to start the rental income empire that she wanted to start.
That is what I term perfect golden albatross moment. And the golden albatross moment is that point in a pensionable career where someone starts questioning whether or not staying for the long term is really worth it, it’s really within their best interests. And people hit that point at different stages of their life. When I ran my pension survey for my master’s thesis, 50% of the people never even questioned whether or not staying was worth it, but the other 50% did. Right? So, some point in their career, they came to this point where they just started questioning whether or not staying for it in the long term was worth it economically compared to the other things that they had going on in their life.

Joe:
I think sadly to your point, Grumpus, what we discount is that we got one shot, right? I mean, unless reincarnation is the thing, then maybe we do have multiple shots, but if not-

Grumpus:
I’m totally coming back as a fly if that happens.

Joe:
You’re not going to live long then though, that’s the problem.

Grumpus:
Yeah. I’ll reincarnate again.

Joe:
One quick question. When pensions have gone under in the past, General Motors and other ones, the Pension Benefit Guaranty Corporation, PBGC steps in, are all pensions required to have that coverage?

Grumpus:
Private pensions. So the PBGC, so that’s Pension Benefit Guaranty Corporation. If it sounds like an insurance to you, it is. It’s just a US federal government run insurance. So private pension system, so companies as opposed to state local federal pension systems, they don’t have to, but most do pay into the PBGC. Within the PBGC, there are two different insurance schemes, there’s ones for the single employers. So GM, GE, companies that only… A rough way to equate this is they’re not paying unionized members. So if you work for a company, that company’s going to be paying you a pension. And then there’s the multiple employer pension system as well. So that is, let’s say you’re an auto worker and you bounced around from Ford to Chevrolet to different companies.
Well, they’re all paying into the same pension system for the United Auto Workers union or something like that. Right?

Joe:
Yeah.

Grumpus:
The bad news is the single employer payment system is pretty well funded. The multi-employer payment system is awfully funded. In fact, they’re going to run out of money in less than 10 years. So that means even if they step in and your union pension goes bankrupt and they step in, you are still going to get a major, major haircut on your pension. Whereas if you work for a single employer company and your pension is through them, the likelihood is that all the money’s going to be there. Now, the federal government will only guarantee up to a certain amount. So if you are an executive or you’re top management at that company, you probably won’t get your entire pension, but you will at least get a high proportion of it.

Joe:
Which means going back to that 403(b) or 457, and your point about those… I’ll save my rant. I did my annuity rant today. We’ll save our rant about 457s and 403(b)s to next time. But I guess a good point is, is that if you take the lump sum off the pension, and I don’t think we ever made this clear for a lot of people, although it’s considered a taxable event, there’s no tax due if you do it correctly because you are allowed to do a direct rollover from that pension money into an IRA. So there will be zero tax due. You have to show the IRS you did it, but no tax due. So if you’re going to take it as a lump sum, people remember to check that box.

Grumpus:
Yeah. And definitely ensure that that’s the case.

Joe:
Yeah.

Grumpus:
Because again, most pension systems will allow you to do it, but it’s not a guarantee that they will. So check before you make the lump sum decision and yeah, definitely avoid the taxable event and roll it over into an IRA or something like that. It’s interesting, even some international pensions offer that option too for US citizens. So again, check your pension system and find out what their rules are. Another great thing we didn’t talk about for the lump sum and I don’t want to make this a lump sum episode, but if you’re a teacher and you want to move states, those pension systems don’t talk to each other. Right? So what happens is you have a decision, you either leave that money that you invested in the old pension system in your previous state behind.
And then, whenever you reach pension age, it will just pay you out a small pension. You can potentially take out the lump sum depending on the rules. And then when you get to your new state, you can take that lump sum potentially and put it back into the pension system or you can use it to buy back years in your new pension system. So meaning I’ve only worked 10 years, but I buy 10 years, then the pension system treats me like I’ve actually worked for 20, and therefore my pension is going to reflect an increased amount when I retire.
So the lump sum often is the only way for state workers that want to go from one state to another to transfer any kind of remote value from the previous pension system. So yet another calculation they have to make on whether or not that’s worth doing.

Joe:
It’s so fascinating though.

Grumpus:
It is. So in that specific situation, I would advise find an accountant that knows what the hell they’re doing between those two states and their pension and tax laws.

Joe:
Mindy, I wish you’d written a book about this. Do you think maybe we could ask him if he’s written a book about this?

Mindy:
Grumpus, you should write a book about this.

Grumpus:
Well, that’s what ChooseFI thought too. And so they actually took pity on me and published the book that I wrote.

Joe:
[crosstalk 01:03:51] So wait a minute, you’ve written a book about this?

Grumpus:
I have actually. Not only a master’s thesis, but a book as well.

Mindy:
What a great segue, Joe. Totally smooth. So Grumpus, what is the of your book and where can people find it?

Grumpus:
So the name of the book is The Golden Albatross: How to Determine If Your Pension is Worth it, and you can find it at local bookstores and online bookstores in your great place where you live. So it’s available on Amazon, or you can go to the ChooseFI website or my website, grumpusmaximus.com and find links there. So yeah, ChooseFI would be happy if you bought that book.

Mindy:
Well, I hope you would be happy if we bought that book too. Yeah, we love ChooseFI. We’re great friends with Jonathan and Brad. I almost called him Joe because I’m looking at Joe.

Grumpus:
Yeah.

Joe:
Wrong brand, different brand.

Mindy:
Okay. Grumpus Maximus, where can people find out more about you?

Grumpus:
So as I mentioned, I got a website, grumpusmaximus.com. That’s where I blog, everything on there is for free. I don’t even do advertising. So that would be my first stop if you have more pension questions. I also run a Facebook group for pensioners or pensionable employees. So if you’re in a job with a pension or you have a spouse, we allow a spouses in because often it’s a spouse that does the money in the family and the worker just concentrates on working. So you can go to the Facebook group, it’s called Golden Albatross / Golden Handcuffs. Or you can find me on Twitter at MaximusGrumpus or Instagram on grumpusmaximustoo, that’s T-O-O.

Mindy:
Okay. We will league through all of these in our show notes which can be found biggerpockets.com/moneyshow259. Grumpus, thank you so much for your time today. Pensions are kind of a bowl of spaghetti, but I think that just like a bowl of spaghetti, you can pick one strand out and figure it out. You don’t have to worry about all the other ones, just get the one you want, just get the one that pertains to you. And I’m really excited for people who have a pension. We haven’t talked about pensions. I don’t know that much, everybody listening’s like, “Yeah, no kidding.” But I’m glad that you were able to come and share some advice with us and shed a little bit of light on this very confusing topic. I really appreciate you.

Grumpus:
Yeah. You’re welcome and thank you for having me. And this has been a great opportunity. I finally got to meet both of you at least virtually. So it’s been a fun time and hopefully the listeners out there are still awake. If nothing else, maybe your sister can listen to this episode and learn a little something.

Mindy:
I hope so. Okay, Grumpus, we’ll talk to you soon. Okay. That was Grumpus Maximus from grumpusmaximus.com, author of Golden Albatross. And Joe, I really got a lot out of that episode clearly because obviously I didn’t know anything before we started talking to Grumpus. What did you think of the show?

Joe:
I thought it was fantastic. I thought it was comprehensive. I thought that at the very least, if you went away from this not realizing that you got one shot at this, so you should really dig in. If you have a pension, you definitely need to dig in to get it right. Because the fact that it’s an irrevocable decision, that decision you make and it’s going to be so important. Also, the ideas around healthcare, I thought healthcare was this recurring theme that came up. Vesting, how long does it take to vest? This idea of generosity. Right? How many years? And is the pension backloaded? Some of those ideas he was able to make so entertaining, but also valuable at the same time and give us lots and lots of tips that I feel like, man, if you run across a pension at the very least, I feel like you’ve got a little bedrock to work from.

Mindy:
I agree. I think that he had a lot of answers that were variations of it depends on the actual rules of the pension, but what I heard him say is it boils down to you need to read your documents. If you have a pension, you need to know what your benefits are, when you get them, how much you can get and is it even worth staying? And in some cases like he’s got a military pension, oh my goodness. He said the last couple of years, it was kind of tough to stay. You know what? At a military pension and I’m 18 years in, I’m going two more years.

Joe:
Two more years, yeah.

Mindy:
Two more years with 50% of his pay for the rest of his life, even if he lives to be 150, that seems like a no brainer to give two more years to the company. On the other hand, if he’s got to give six more years to get 1% of his salary for 12 months after he retires, that’s a no brainer to not stay.

Joe:
Forget about it, as they said. Absolutely forget about it.

Mindy:
So I thought…

Joe:
No, because you need to finish up that thought because I’ve got a whole nother thought.

Mindy:
Wow, what a surprise. No, I thought it was very, very helpful to hear him explain the different options, but the bottom line is get out your documents, read through them, when they send the annual report read through that, start educating yourself so you know what’s there.

Joe:
Yeah. And then start that math early. When you’re looking at the 20 years like he was looking at, have that math done over and over and over and over and over and over and over and run different scenarios. If I’m married especially with all those spousal options, there’s so many different options. If it’s Cheryl and I, if Cheryl dies first, if I die first, if both of us live for a long time, if neither one of us live for a long time. We talked about maybe using an insurance policy instead, can I do that? Yu could look at some of these more creative things if you start early. But to broaden this out, it’s really interesting and fascinating to me that when I was 20 and 22 years old and I thought about the world of investing, I thought about how complicated it was and then how there were five bajillion different things to think about.
But one thing we made clear today is that a pension is really just another form of annuity, right? So we just took two things and put those two together. And now we kind of know how both of them work, because frankly it is the same stuff just offered to your company versus buying it yourself. But it’s a lot like a mutual fund, an exchange traded fund. We think of those as two big time different things really pretty close to the same thing. So it’s funny how the more you learn, the more you realize you can kind of lump a lot of these investment ideas together and it makes this world that seems so confusing so much less confusing and so much easier a show like today.

Mindy:
Absolutely, Joe. And I want to point out, I want to give you kudos for making what could be possibly the most important point of the entire episode is that when you choose your benefits, do I take it as a lump sum or do I let it write out over time? That’s irrevocable. That was not even something that I knew. I mean, of course it makes sense, but I didn’t know about that before you said that. So I really appreciate you cementing that in people’s minds. If you have a pension, you need to read the documents and you need to make sure that what you are choosing is what you really want.

Joe:
Well, the most thank you for that. And actually the most important thing that I didn’t say is that, of course, you take the lump sum and you put it in [shibooboo 01:11:14] coin. No?

Mindy:
So don’t follow Joe first investment advice in [shibooboo 01:11:23] coin. [crosstalk 01:11:25] Joe, where can people find more about you?

Joe:
Yes. You can find me three days a week at The Stacking Benjamins show. We call it the greatest money show on earth because this Mindy Jensen who’s been on it a lot knows. It’s a circus over there, Mindy. We tend to have a lot of fun and I love being able to hang out with people like Mindy and Paula Pant and Len Penzo. And we have my co-host OG, my neighbor, Doug, we have a good time.

Mindy:
All in mom’s basement.

Joe:
All in the basement.

Mindy:
And your book, when does it come out?

Joe:
December 28th, Stacked: Your Super-Serious Guide to Modern Money Management. It’s a fusion of The Hardy Boys Detective manual and the Cub Scout Wolf guide. Those are fused together in a financial book for adults. So that’s the idea.

Mindy:
That’s going to be a lot of fun. I have a sneak peek and let me tell you, I had an enormous amount of fun reading it.

Joe:
Thank you.

Mindy:
Okay, Joe, should we bounce?

Joe:
Well, already?

Mindy:
Already.

Joe:
Okay. Fine.

Mindy:
Okay. From episode 259 of the BiggerPockets Money Podcast, he is Joe Saul-Sehy and I am Mindy Jensen saying, got to bark, aardvark.

 

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