The Federal Housing Finance Agency (FHFA) announced on Monday morning that it will treat, in some aspects, loans in COVID-19 forbearance similar to those in natural disaster forbearance.

The change, to be implemented on Oct. 31, means pandemic-related forbearance mortgages will remain eligible to certain rep and warrant relief based on the borrowers’ payment history for three years. 

In practice, the borrower’s time in forbearance will be included when demonstrating a satisfactory payment history in the first 36 months following origination. 

“I am announcing today that we have directed the Enterprises to extend their rep & warrant policies for loans affected by natural disasters to cover mortgages that have successfully exited a COVID-19 forbearance plan,” FHFA director Sandra Thompson said during the MBA Annual 2023, a conference held Oct. 14-17 in Philadelphia.  

“Now, loans that are eligible for repurchase relief after three years will not lose this relief due to a COVID-19 forbearance. Similar to the Enterprises’ natural disaster policies, missed payments during the COVID-19 forbearance will not cause a loan to lose eligibility for the 3-year rep & warrant sunset.” 

The FHFA understands that forbearance was an “invaluable” tool during the COVID-19 pandemic, and the loans serviced “should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic,” according to Thompson. 

In reaction to the announcement, Bob Broeksmit, president and CEO of the Mortgage Bankers Association (MBA), said that “FHFA’s policy change to provide rep and warrant relief for performing seasoned loans that have successfully exited COVID-19 forbearance plans is a longstanding recommendation that we are pleased to see implemented.”

Bi-merge, appraisal udates

Thompson also said the FHFA efforts to implement a bi-merge credit report “are moving full steam ahead.” 

On Monday, the FHFA also published its new Uniform Appraisal Dataset (UAD) appraisal-level public use file. It contains appraisal-level data from a nationally representative 5% sample of appraisals conducted between 2013 and 2021 and associated with mortgages acquired by Fannie Mae and Freddie Mac. 

The dataset can be used to, among other things, study housing valuation, housing market disparities and inequities, and consumer preferences.

“This data will allow stakeholders to continue to shine a light on the issue of appraisal bias and will allow public users to assess that issue as never before, within the framework of our laws that also support a consumer’s right to privacy,” Thompson said.  



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The White House on Monday announced a series of new initiatives designed to boost U.S. homeownership, alongside data detailing housing aid that has been provided since 2021.

New initiatives include allowing homebuyers to leverage income from accessory dwelling units (ADUs), expanding mortgage lending for U.S. Tribes, the launch of a new pilot program at the U.S. Department of Agriculture (USDA) for alternative eligibility criteria and additional home retention assistance programs for U.S. veterans.

New HUD, FHA policies

The U.S. Department of Housing and Urban Development (HUD) announced through the Federal Housing Administration (FHA) the publication of new policy designed to allow homeowners “to use a portion of the actual or prospective rental income from an [ADU] to be added to the borrower’s effective income for purposes of qualifying for an FHA-insured mortgage,” the White House said.

The new policies will allow U.S. homebuyers to “obtain access to affordable mortgage credit when seeking to purchase properties with ADUs, add ADUs to existing structures, or construct new homes with ADUs,” with such flexibilities designed to allow first-time homebuyers, seniors and inter-generational families to establish generational wealth, the announcement said.

HUD will also continue to work on updates for its 203(k) Rehabilitation Mortgage Insurance Program.

“FHA is considering potential policy changes that could increase the funds available to borrowers to make renovations and repairs,” the announcement said. “Other policies under review would permit more time for completion of those improvements.”

USDA, CFPB initiatives

USDA is also awarding $9 million to nine Native American Community Development Institutions (NCDIs) as a part of its efforts to “increase access to homeownership for Native Americans on Tribal Lands through a relending demonstration program,” the White House said.

The agency will also launch a pilot program “to test alternative eligibility criteria related to community representation for Community Land Trust Organizations” through its Section 502 Direct Home Loan Program.

The U.S. Department of Veterans Affairs (VA) will also launch a new home retention program to for veteran borrowers, saying the new “VA Servicing Purchase (VASP) program will help veteran borrowers who are behind on their mortgage loan who do not qualify for traditional home retention options.”

The Consumer Financial Protection Bureau (CFPB) is also currently developing “reforms to existing rules to help homeowners when they have trouble making their mortgage payments,” the announcement said.

“The reforms build on observations during the COVID-19 pandemic about places where the rules could be streamlined and simplified,” the White House explained. “The reforms will ensure homeowners can get the help they need without unnecessary delays or hurdles and are better able to not fall into foreclosure.”

Response from FHA

During a Monday morning session taking place at MBA Annual in Philadelphia, FHA Commissioner Julia Gordon spoke about the new initiatives.

“Just a few minutes ago, our office posted a new policy for single-family homes with [ADUs], and we’re going to allow both existing rental income for ADUs and prospective rental income to be included in the underwriting process to allow more borrowers to purchase properties with ADUs, to rehab existing houses to ADUs and to construct new homes with ADUs,” she said.

The new policies are designed to help more people build wealth that stems from homeownership, and is also designed to help “boost the supply of affordable housing in many of the neighborhoods where it’s most needed,“ she added.

New data

The U.S. Department of the Treasury also released new data measuring housing aid distributed by the Biden administration thus far, pegging the total figure at more than $12 billion in support. This includes the Homeowners Assistance Fund (HAF), a $10 billion fund designed to assist those financially impacted by the COVID-19 pandemic.

The Treasury Department estimated that HAF “has assisted nearly 400,000 homeowners at risk of foreclosure,” the White House said. “Through Q2 2023, the state, territorial, and Tribal recipients of HAF have expended over $5.5 billion to assist homeowners, a 32% increase from Q1 2023.”

HUD also announced that FHA’s first-time homebuyer rate is “the highest since at least 2000,” and that “FHA has supported nearly 1.8 million homeowners with purchase mortgages, and 83.6 percent or 1.5 million of whom are first-time homebuyers” since the start of the administration.

Flávia Furlan Nunes contributed reporting.



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The trough for the mortgage origination market is nearing an end point and 2024 is shaping up to be a better year for the industry, economists of the the Mortgage Bankers Association (MBA) said at the 2023 Annual Convention & Expo in Philadelphia, Pennsylvania.

The MBA doesn’t expect the Federal Reserve to hike interest rates further this year as real rates – which are inflation-adjusted– are 2%. 

“They’re already at a place where if they do nothing, and inflation holds or falls further from here, they’re going to be slowing the rate of growth and the cumulative impact of the rate increases they’ve already made are not fully felt yet,” said Mike Fratantoni, MBA’s chief economist and senior vice president for research and industry technology.

Based on the cautious messages from even the hawkish Fed members, Fratantoni projected that the central bank will “definitely not be going to hike in November, a small chance that they would come back in December if these numbers turn around.”

The MBA’s view is that the Fed will cut interest rates three times in 2024 and inflation may come down a bit faster as a result. 

“I’m pretty confident that if this rate path precedes as we’re expecting, this is the bottom. 2023 is going to be the low-volume (mortgage origination volume) year for this cycle. So after falling 50% from 2021 to 2022, our current estimate has it falling almost 30% from 2022 to 2023. But then a rebound in 2024 — up 19%,” Fratantoni said.

Purchase originations are forecast to increase 11% to $1.47 trillion next year.

In terms of units, the MBA expects about 5.2 million units in the total number of loans originated in 2024, up from this year’s expected 4.4 million.

“It’s still a pretty challenging environment relative to if you look back historically, this is close to where we were in 2014. Maybe just below where we were in 2018 — still a challenging year for the industry,” Joel Kan, vice president and deputy chief economist of MBA, said. 

Mortgage rates will drop, but challenges linger

MBA’s baseline forecast is for mortgage rates to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and as the spread narrows.

The historically high spreads between mortgage rates and the 10-year Treasury yield – which was triggered by the uncertainty about monetary policy and the direction of quantitative tightening  – will resolve in a “favorable direction over the course of the next six to 12 months,” Fratantoni added.

The MBA raised expectations of a mild recession in the first half of 2024 due to the combination of the cumulative impact of the rate hikes, the banking system tightening down on all forms of credit and the slow global environment all leading to a slowdown in the US. 

The unemployment rate is expected to rise to 5% by the end of 2024 from the current rate of 3.8%. Inflation, in return, will gradually decline towards the Fed’s 2% target by the middle of 2024, Fratantoni said.

As mortgage rates come down to the 6%-range in 2024 and the 5% range in 2025, borrowers will see less of a trade-off in moving, Kan projected. 

Kan added: “I think that’s when you’re going to see more inventory free up, that’s when we’re going to see more of these housing transactions able to take place.”

The MBA anticipated first-time homebuyers will account for a large portion of housing demand over the next few years, given the largest age cohort entering its prime homeownership ages. 

“There will still be challenges, as median purchase and interest payments remain high, for-sale inventory is scarce, particularly for entry-level homes, and credit availability is low,” Kan said.

A couple more painful quarters ahead

The mortgage origination market for banks and independent mortgage banks was painful given that they all saw five consecutive quarters of net production losses. 

While production losses were less severe in Q2 2023 from the previous two quarters, lenders are projected to have a few more painful quarters until the end of the spring of 2024 – mainly due to the traditionally slow winter season, Marina Walsh, CMB and vice president of industry analysis, anticipated. 

For lenders, excess capacity continues to be a challenge with low productivity levels and high expenses per loan.

“Lenders have reduced their head counts and gross expenses, but the record-low volume is a primary driver of these escalating per-loan costs,” Walsh said. 

The MBA previously estimated that a 30% decrease in the mortgage industry employment from peak to trough will need to occur, given the decrease in production volume.

The MBA estimated that the industry is roughly two-thirds of the way there from the previously mentioned 30% overcapacity in the industry. 

Mortgage industry employment dropped 20% in 2023 from the peak in 2021 and the number of active MLOs for state-licensed companies dropped 29% from the same period, according to the MBA.



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In August, Zillow‘s 2023 Consumer Housing Trends Report proclaimed that half of all homebuyers are purchasing their first home, the highest share that Zillow has ever recorded.

Up from 45% last year and a notable increase from 37% in 2021, the report also mentioned that this share of first-time homebuyers likely hasn’t been this high since 2010, when there was a first-time homebuyer tax credit.

Zillow research also found that a majority of homeowners with mortgages have locked in a rate below 5%, and are almost half as likely to consider moving.

It’s true that first-time buyers make up a larger piece of a smaller pie, as housing inventory shrinks. However, this rise in first-time buyers helps explain what’s driving demand and keeping upward pressure on prices in a market with mortgage rates currently surpassing 7%.

One of the primary reasons for this surge is the strong presence of millennials in the housing market, particularly those at the peak, around ages 33 and 34. This demographic cohort, known predominantly for its size and influence, is getting married later, having kids later and now embracing homeownership even in the face of higher interest rates. 

But, how do we get them over the finish line when buying a home? Especially when we keep hearing some of these younger first-time buyers lament that they think renting is better overall than buying. (It’s not. It never will be. I’ll explain later.) Not to mention the current mortgage rates at decades-high levels as well as sellers who are locked in with pandemic low rates. 

Here are the following strategies agents can use to guide first-time homebuyers toward achieving this monumental step. 

Get the down-payment conversation straight

We know that one of the biggest hurdles for first-time homebuyers is saving for a down payment. There has long been a misconception that a 20% down payment is required to purchase a home.

But, collectively at the Denver Metro Association of Realtors (DMAR), we all agree that this is really no longer the case and hasn’t been for some time. Instead, we are guiding prospective buyers on more attainable down payment options, such as 5% of the home’s purchase price to get them in sooner.

(Editor’s note: There are conventional mortgage options with down payments as low as 3% and government-insured loans with a low- or no-down-payment requirement.)

For example, if you were to buy a home priced at $500,000 with a 5% down payment, you would need $25,000 upfront. While this may seem daunting, it’s important to remind them that there are many down-payment assistance programs available to help prospective buyers bridge the financial gap.

It’s true that a lower down payment upfront means bigger monthly mortgage payments — but it also means becoming a homeowner sooner and the bigger picture is the appreciation value over time.

Homebuyers using a variety of mortgage loans to finance their home purchase are eligible to use assistance options to help with their down payment and/or closing costs. Check with your local or state housing agency for a list of programs.

Credit repair and management tactics

A healthy credit score secures a favorable mortgage rate. Look at the long-term here and help work with first-time homebuyers to improve their credit scores and establish a solid credit history.

Strategies may include creating a credit repair plan, paying down outstanding debts, and managing credit responsibly.

It’s essential for potential homebuyers to understand that a higher credit score can lead to a lower interest rate, which can significantly impact their monthly mortgage payments over the life of the loan.

Rate buy-downs are another option I recommend in this market. This approach is negotiated in the contract; it’s a seller concession to the buyer for a set amount.

Let’s use $10,000 as an example. The buyer then has the option to use this amount to buy down the interest rate with their lender. Sellers are even using this as a tool to attract buyers. 

This not only reduces the monthly mortgage payment but also makes homeownership more affordable over time. By strategically leveraging rate buydowns, first-time homebuyers can enjoy the dual benefits of a lower monthly payment and a more affordable long-term homeownership experience. 

What budgeting and saving look like right now

It goes without saying that first-time buyers need to prioritize budgeting and saving.

It’s part of our unspoken job to guide individuals in creating realistic budgets that allow for consistent savings toward their down payment and other homeownership-related expenses.

Prospective buyers are encouraged to explore various savings strategies, such as setting up dedicated savings accounts, cutting unnecessary expenses, and considering additional income sources like part-time work (hello, Uber) or bonuses.

Understanding long-term benefits

This is the crux of strategy for first-time buyers: helping them understand their long-term goals.

Agents must work with first-time buyers to mentally get them past the current rate, which is certainly not going to last forever. We need to help them understand that they have the luxury of time. We’re not competing, and inventory out there is now up for some negotiating on things like pricing, inspection, and rate buydowns. 

Additionally, buying a home offers substantial long-term benefits over renting, even if the initial monthly payment may be higher.

We have to help first-time buyers see the bigger picture by highlighting the advantages of homeownership, such as building equity, tax benefits, and potential appreciation in property value. The win, essentially, is the strategy.

Nicole Rueth, Branch Manager and SVP of national mortgage lending company The Rueth Team, recently demonstrated it best. If a Denver area first-time buyer purchases a home at $550,000, it’s true that with factors like the initial closing costs, etc., the immediate gains are nilch, seemingly making rent look more attractive.

But the point is that if you look at the appreciation gains over the next nine years, it’s a totally different story. The gains over time ultimately pan out in tax benefits, year-over-year appreciation and amortization gain of $303,150.

It’s a no-brainer; it’s helping first-time buyers understand that the initial costs upfront will pay them back in rewards. 

In the Denver metro, for example, the standard appreciation rate has historically been around 6%, outpacing the national average. While it’s not there right now, it still means that homeowners have seen their property values grow consistently over time.

Final thoughts

By emphasizing these benefits, organizations motivate first-time buyers to prioritize homeownership as a wise long-term investment.

By providing guidance on saving for a down payment, repairing credit, budgeting and understanding the advantages of buying over renting, these organizations empower first-time buyers to achieve their homeownership dreams.

Moreover, they educate prospective buyers about the realities of today’s housing market, dispelling myths about down payments and emphasizing the importance of strategic, long-term thinking in real estate investment.

In the end, homeownership remains a sound financial decision and a key avenue for building wealth.



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Should I sell my rental property in 2023?” If you own investment property, you’ve probably asked yourself this numerous times over the past ten months. Prices are high, inventory is low, and your appreciated property’s profits could be turned into even more rental units, making you wealthier over time. So, how do you know if selling and swapping is the best move to make? Or, if you do sell, could you be missing out on even more wild appreciation potential? Let’s find out!

Welcome back to Seeing Greene, where your investor, agent, lender, big guy at the gym who helps you with your form, and mentor, David Greene, is here to answer your real estate investing questions. This time, we hear from a Canadian investor debating selling her pricey Toronto triplex for cash-flowing American real estate. Then, David shows you exactly where to find rental property leases, when pulling out equity may not be a good idea, what to do when you CAN’T get home insurance, and how to calculate depreciation on your next rental.

Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!

David:
This is the BiggerPockets Podcast show, 831. The question would be, are those three triplexes going to appreciate at the same level or better than the one in Toronto? Are you able to add value to those three triplexes? Are you going to be able to buy fixer-uppers, put some elbow grease into them, make them worth more? Are you going to be able to buy them below market value and buy some equity? What you need to do is look at your potential opportunities and say, “All right, if we have $500,000 in the US, where would we put it and how would we grow it?”

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, here today with a Seeing Greene episode. And yes, I remembered to turn the light on green behind me. I love it whenever I remember. If you haven’t heard one of these shows, they’re very cool. We take questions from you, our listener base, and answer them directly for everyone to hear. One of the only real estate shows where the host, me, takes your questions directly, does my best to answer them, lets everybody else hear. Today’s show is pretty cool. We’ve got questions about how to compare properties in an apples-to-apples way. This will eliminate a lot of the confusion people have when it comes to making moves within their portfolio. When to hold them, when to fold them, and when to walk away.

David:
We talk about how to pay off loans that you took out to buy your last property. This is a question that comes up a lot when people are trying to figure out how to scale. Tackling insurance woes. I don’t know if that’s you, but odds are, if you’re a real estate investor, you’re having some issues with ensuring your properties as well. And how to figure out the return on investment when you are adding in depreciation. All that and more on today’s show.

David:
If you listen to today’s show and you love it, which you’re going to, there’s a chance for you to be a part of it. Head over to biggerpockets.com/david, where you can submit your question in video format or if you’re shy, in written format. And hopefully, we feature it on the show. And I’m going to be at the BiggerPockets Conference this weekend. It’ll be great to see you there. If you’re attending, make sure you come say hi. Give me some knuckles. Just like you show up to listen and learn here, you get to go the extra step and meet people just like you. If you’re not going to be there, I hope to see you next year.

David:
All right, before we get to our first question, a quick tip for all of you. In the past, you’ve heard a lot of us influencers, including myself, giving you strategies for how to leverage properties or take out loans to buy the next property. Though while there’s always been a component of risk involved in that strategy, the risk was significantly lower than it is today because rents and values were going up very fast. It was easier to get equity out of properties to pay off the notes that you took to get the next property. It became very common to use a loan to put the down payment on your second, third, fourth, fifth, whatever step you are in your portfolio. And I just want to say be careful with that right now.

David:
I’m not saying don’t do it, but I am saying that the risk is significantly higher in taking out loans to buy properties than it was in the past, and the reason is they’re not appreciating as fast as they were. Though real estate is still a very strong market and probably the best investment vehicle that I’m aware of, it just isn’t as good as it was in the past. So, maybe rethink taking out loans to buy properties and look into the good old-fashioned technique of making more money, working harder, being disciplined and saving up the down payment to put on future properties.

David:
All right, let’s get to our first question.

Karine:
Hi, David. My name is Karin Leung. I’m from Daytona Beach, Florida. And my question to you is how would you recommend that I convince my husband to sell our triplex in Canada and reinvest those funds in real estate in the US? So, I’m originally from Toronto and we bought a triplex, which has appreciated tremendously. I have no regrets about it. It’s done really, really great things for our net worth, but at this point, I’m kind of tired of doing taxes on both sides of the border. And I really want to work on building a real estate portfolio here in the US, especially now that I’ve already quit my W2 job. I’m just having trouble understanding how to do an apples-to-apples comparison of the opportunity cost of keeping the triplex, versus selling it and reinvesting the funds here, especially given the currency conversion with capital gains tax, but also, the strong appreciation in Toronto. So, any advice is appreciated. Thank you.

David:
Thank you, Karin. This is a pretty nuanced question, so let’s see what we can do to help you here. If I’m hearing you right, it sounds like the biggest motivation for wanting to do this is the work that it’s taking to do taxes in both countries, since you live here and you own the property there. I will admit, I don’t know all the nuances between Canadian real estate and taxes and American real estate and taxes. So, forgive me if I miss something that could play into the algorithm of this decision because of that fact. But I am working on a book that’s going to be coming out after Pillars of Wealth that will hopefully shine some light on situations like these. The book highlights the 10 ways that we make money in real estate. And I wrote it because I see so many people that only focus on one way, which is what I call natural cashflow.

David:
They just look at, “Well, what’s a property going to cashflow right when I buy it?” And that’s all they know how to analyze for. That’s the only way they even look at real estate making money. But once you’ve done this for a while, you would start to see that there’s ways it can make you or save you a lot of money in taxes. Like you said, you’ve grown huge equity buying this triplex in Toronto. There’s ways you can add value to properties or add cashflow to properties. There’s a lot of ways that we make money in real estate. And when you understand all 10, it really opens up your perspective on if I sell the triplex in Toronto, in what ways am I losing money? So, one would be you are losing the future equity of that property going up in value.

David:
So, according to the framework of the book, you’re probably going to lose some natural equity, which is what I call it when property values go up along with inflation, and some market appreciation equity, which is the type of equity that we gain when we buy in the right area, that goes up more than other areas around it. Toronto is notorious for having really, really strong equity growth, and cashflow won’t keep up with it. But if you’re adding value to the properties that you buy here, now you have an apples-to-apples comparison. So, let’s say you sell that triplex. I don’t think you mentioned how much equity you actually have, but let’s say you could buy three more triplexes with the equity that you take from the Toronto one. The question would be are those three triplexes going to appreciate at the same level or better than the one in Toronto? If they’re not going to appreciate at all or they’re not going to appreciate as quickly, that leads towards keeping the Toronto property. Or maybe they’re going to go up the same.

David:
Are you able to add value to those three triplexes? That’s forced equity. Are you going to be able to buy fixer-uppers, put some elbow grease into them, make them worth more? Now, there’s some money that you just made. Are you going to be able to increase the cashflow of those properties? Are you going to be able to buy them below market value and buy some equity? Or is it going to be the opposite? Are you have to pay more than the appraised value for those triplexes? What you need to do is look at your potential opportunities that you could take, say, the 500,000 of equity that you have and say, “All right, if we have $500,000 in the US, where would we put it and how would we grow it?” And this framework of the 10 different ways is really a way of our brains to understand what options we have.

David:
Part of it is cashflow. Yes, like, okay, well, I’m getting this much cashflow in Toronto. How much would I get if I bought in America? But another part of it would be, am I buying equity? Can I force equity? Can I buy a place where you live, in Daytona Beach, and buy it a little under market value and then add some square footage to it and add a unit to it? So, now you forced equity and you forced cashflow. You’re making more cashflow, maybe, than if you had kept a place in Toronto, and the area that you live in right now is growing as well. What if that’s growing at the same level as Toronto? You really want to try to turn as many of these decisions into apples-to-apples comparisons as you can because then it becomes clear what you’re doing. And the last piece would be if you sell in Toronto, you’re going to have some inefficiencies. You’re going to have closing costs, you’re going to have realtor commissions.

David:
So, you want to look at, all right, if we sell this property, how much is it going to cost me to sell it and can I make that money back or more of that money back buying into a new market? And the last piece of advice that I’ll give you is try to analyze for 10 or 20 years down the road. If you keep that triplex for another 10 years, are rents going to keep pace or is rent control in that area going to stop you from increasing cashflow? Is equity going to go nuts or is it kind of tapped out? You don’t see that prices could go much higher in that area? And then, compare it to wherever else you might invest. I just like South Florida, I think that’s a solid market right now. A lot of investors are scared of it because the prices are high, but my opinion is that they’re high for a reason. You have a lot of money moving into that area. I think it’s going to keep growing.

David:
So, keep an eye out for that book on the 10 ways that you make money in real estate. It’s a framework that will help you make these decisions, and then do a little bit of research and go back to your husband and say, “Hey, if we keep the property, here’s where we’re likely to be in 10 years. If we sell it and reinvest that money into three or four other properties, here’s where we’re likely to be in 10 years,” and that decision will become a little more clear.

David:
All right, so to recap, you want to make decisions like these apples-to-apples, not apples-to-oranges. Confusion happens when we are mixing up fruit. Look at potential opportunities before you make the decision on if you should sell what you have. You could buy or you can force equity as well as adding cashflow to the units. Look for opportunities like that before you make the decision on should I sell? First be looking at, well, what would I buy? Look at the cost to sell and how you can make back the inefficiencies when you exchange real estate. And then, take a long-term view. In 10 years, where will I be and which is the better path?

David:
All right, our next question comes from Luis. Luis asks, “Hi, David. I love the show and I love that you answer all our questions and your awesome analogies. My question is about midterm rentals. How do you form a contract for your midterm rentals? I don’t have an idea where to start or what I should write on the contract to sound professional to big corporations. Would you just hire a lawyer to form it or find an experienced property management company to handle the paperwork? I hope you get this and wish you the best. Also, can you say hi to Rob’s quaff for me?”

David:
I would love to. In fact, I started telling Rob that he needs to shake his head feather instead of shake his tail feather because that’s exactly what that quaff looks like. So, if you guys are hearing this, make sure you go to @robuilt on Instagram and tell him to shake that head feather. Maybe put a little Nelly song clip in there from YouTube.

David:
All right, this is advice. Good question. I can answer it pretty quickly here. I would use a property management company. I would use their form, since they’ve done this before. And then, they’re going to have you sign those forms and I would just keep them. And then, if you decide, “I don’t want to use property management after the first year,” whatever your agreement is, you’ve got a template that can answer the questions you’re asking me now, is how do I put that together? And you just adjust that template to make it say what you want it to say. I think this is a great business principle in general. You want to do something yourself? Great, that doesn’t mean that you need to be the one to go figure it all out. You want to learn how to snowboard? Great, hire an instructor, spend a little bit of money, learn how to snowboard a lot faster, and then you don’t need an instructor every single time.

David:
This works with buying real estate, using a real estate agent. This works with construction, hire a contractor or a handyman and watch what they’re doing. This works with property management. Use one, see what their system is, get all the forms that they’re using and then decide if you want to do it yourself. It will shorten your learning curve a ton. And if you are a BP Pro member, remember that there are landlord forms available for all 50 states that Pro members get access to for free. Now, they’re not going to be midterm rental specific forms, but they do work for traditional rentals. And if you want more information about how to manage a midterm rental check out BiggerPockets Podcast episode 728, where I interview Jesse Vazquez, who actually manages some of mine, and he shares his system for making connections with big corporations.

David:
Our next video comes from Kapono [inaudible 00:11:58].

Kapono:
Hello, David. This is Kapono from Honolulu, Hawaii, and I got a question for you. We used a HELOC loan and a 401(k) loan as a down payment, 25% down on investment property, SDR in Monument, Oregon. The value of the property is about 10K more than last year, so there’s not a lot of equity in the deal. We’d like to refinance, so that we can pull out the 25% down payment and pay off the 401(k) and HELOC loan. That way, it’ll cashflow better. Because right now, the 410(k) loan is about 700 a month and the HELOC loan is about 150 a month. How can we pay off the HELOC and 401(k) loan, get that money out of the deal so we can fund future deals, maybe a business loan, or got any input for us? Take care. Aloha.

David:
All right, thanks, Kapono. Well, congratulations on the midterm rental. I’m assuming that it’s performing well, so good on you there. If I understand your question correctly, you’re saying, “I took out loans as the down payment to buy the property and I want to pay those loans off so that it will cashflow better, but the property itself doesn’t have enough equity to do that because it’s only gone up $10,000 or so.” You probably don’t have options to use equity from the property that doesn’t exist to pay off these loans. And this is one of the reasons that on Seeing Greene, when people say, “Hey, should I take out a HELOC on X property to buy Y?” That I’ve cautioned people against doing that.

David:
And I’m not saying don’t do it, but I’m not recommending it as liberally as I did in the past when values of real estate were going up incredibly fast because of all the money that we were printing. That coupled with low rates and a craze in the market made it so that the risk was much lower to put yourself in debt to buy real estate. It’s not the same anymore. The risk to take on additional debt is much higher. Now, I don’t think you’ve got a quick answer. So, the way that I’m going to advise you is to check out Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom, and look for some ways that you can create additional income and save additional income to pay that debt off.

David:
In the book I refer to different ways of paying off debt. One of them is the snowball method. So, you start by paying off that 401(k) loan. Then you take the money from the 401(k), I believe you said it was $700 a month. You put that towards paying off the HELOC. Once you get that one paid off, now you’re cashflowing more. That’s additional money that you could put towards saving for the next property or paying down debt. This becomes tricky when we want to scale fast and we want to scale fast because we’ve been listening to podcasts for years of people that said, “Just keep leveraging and leveraging and leveraging, and buying more.” That works great when equity growing in properties like fruit on trees, but when that stops, we have to go back into a much more realistic way of trying to build income. That’s why I wrote this book.

David:
There’s a lot of people that look for creative ways to buy real estate rather than blue collar ways that work no matter what. And that involves saving your money, living on a budget and looking for ways to make more. So, Kapono. There is a benefit to this in that you are now going to have an incentive to ask yourself, not just how do I create income and make money investing, but how do I do it in the other two pillars? Are there ways that you can start saving more so you have more money to put towards paying down this 401(k) loan? And are there ways that you can step out of your comfort zone and start making more money? I don’t know what you do for a living. I don’t know what skills you have, but now might be the time to start working on building more of those and becoming more productive and efficient because now you’ve got a carrot to chase, paying down these loans, so that you can make more money on your real estate, so that you can live a safer financial life overall.

David:
So, check out Pillars of Wealth. You can find it at biggerpockets.com/pillars, and then let me know what your thoughts are after reading that and re-analyzing your situation.

David:
All right, at this segment of the show, we’d like to go over comments that were left on YouTube from previous Seeing Greene episodes. So, if you’re listening to this, go check it out on YouTube and leave your comment there, and maybe I’ll read one of your comments on a future show. All right, the first comment comes from MJ9496. “Are there banks that won’t recall the HELOC after you find permanent financing for your real estate investment? When I used a HELOC to buy a property, the bank that put it into permanent financing made me close my HELOC.” Okay, I think I understand what you’re saying here. When you put a HELOC on a property, what you’re actually doing is you’re putting a second-position mortgage on the property. That’s what a HELOC is.

David:
Okay, so let’s say you’ve got a million-dollar property. I know that’s expensive, but the math will be easier for me. And you owe $500,000 on your mortgage. That’s your first position lien. Then, you take out a HELOC for $300,000 on that property. We tend to look at this like it’s just a loan, but it’s a loan against the equity in the property, because as a second position lien, they don’t get paid back until the first position is paid off, which means if there’s not a lot of equity, they won’t get paid back. That’s why they base the loan on the equity in the home, and that’s why we call it a home equity line of credit.

David:
Now, when you refinance that property, you pulled money out of it. So, you owed $500,000 on this million-dollar property, and you refinanced on a new note that was $800,000, which meant you paid off the first loan for 500, you received $800,000 on your new cash-out refi, and you are left with $300,000 yourself. Well, that 300,000 had to go to pay off the HELOC that you had on the property. So, now you’re left with no money theoretically. And I think that’s what you’re asking is, “Well, how could I have kept the HELOC on the property itself, so I didn’t have to pay it back, so I could have that $300,000 of money in the bank?”

David:
The problem is if the bank had let you keep the HELOC, you would’ve received $800,000 on the refi. You would’ve paid off $500,000. So, now there’s a note for $800,000 on the house and there’s a note for $300,000 on the HELOC. That’s a total of $1.1 million of debt on the house, but the property’s only worth a million. No bank’s ever going to let you borrow more than a property is worth, at least no responsible bank would, and that’s why you can’t keep the money. You’ve actually traded the HELOC money in for a new first position note, you got the money then, right? And I know that this may sound complicated as I’m trying to describe it with words. If it was written out on paper, it would make a lot more sense. But no, you can’t keep the HELOC when you go to refinance. You have to pay off the debt that that property is collateral for.

David:
Now, if you don’t refinance all the money, let’s say that you only borrowed 500,000, not the full 800,000 on this million-dollar property, then the new lender might let you keep the HELOC loan. They might say, “Okay, you can keep that 300,000 because you only borrowed 500.” It’s still at 80% total loan-to-value. Hope that helps you make sense. But if you want to get money out of a property, you’re going to have to pay off the notes that are attached to it.

David:
All right. On episode 819, we talked about the state of multifamily insurance where Andrew Cushman and I interviewed Robert Hamilton. And MG.1680 left a very insightful comment. They say, “I’m from California, insurance is so hard to get now. I built ADUs from detached garages. I didn’t expect that ADUs require a totally different policy from the main house.” Yeah, this is something a lot of people wouldn’t have heard until they did it, and it might’ve even been a time where they didn’t require a different policy for all we know. But insurance companies have looked harder at how they’re insuring homes, and they’ve made a lot of adjustments to the way that policies are issued. There is a big insurance problem going on in a lot of states. California is one of them, Florida’s another one. But really, across the country insurance premiums are skyrocketing, and I don’t know why more people aren’t talking about it.

David:
In fact, I hardly ever hear anyone talk about it other than me here on BiggerPockets. But when you are underwriting for your properties, insurance was almost an afterthought. For years, I’d be buying $150,000 property. My insurance was 30 bucks a month. If I could reduce it down to two thirds, it was still 20 bucks a month. I saved $10. It wasn’t really worth diving into the insurance element that much, but now it is. Some premiums are doubling, tripling or more in areas. If any of you know why this is happening, please leave me a comment on YouTube and let me know what your theories are as to why insurance is going so high, but it’s a problem. I started an insurance company, Full Guard Insurance, and we haven’t been able to underwrite policies because carriers are literally fleeing certain states. They will not underwrite insurance there. So, MG.1680, I’m sorry to hear this is going on, but no, you’re not alone. Investors everywhere are experiencing similar problems.

David:
All right, our next comment came from the Late Starters Guide, episode 820, which was a show all about how you can get started investing in real estate, even if you’re getting a late start. From MartinBeha9999. “Great episode. I really like that there is an expiration date on a milk carton, but we are not like that. If you spin that analogy on, we could also be exactly like that as indirectly, it is mentioned right afterwards.” Martin goes on to say that, “There might be an expiration date on the carton itself, but the milk inside is different. Milk may expire, but it turns into yogurt and then it turns into cheese. And boy, don’t we all love the cheese way more than the milk, even though it’s technically already expired twice?”

David:
Great perspective here. The strategies that work when you’re young may expire, but there are strategies that work better and approaches that work better when you are older that could be even more delicious than the young. And from TyJameson7404 says, “Epic panel and investment education,” with a whole bunch of happy emojis. Thanks for that. And our last comment comes from F-I-O-F, Fiof, who said, “You stay in a hotel with a box fan. Well, I guess that’s how you stay rich.” This was because I’ve recorded an episode from my hotel room, and I left the box fan on the counter. I’ll be the first to say I was shocked by the comments about this, how many people notice things like a fan, like that’s a bad thing. But people really didn’t like it that you could see the box fan.

David:
So, here’s my commitment to you, Seeing Greene and BiggerPockets listeners. The next time I record from a hotel, I will put much more effort and energy into the background of the show, which I thought had very little to do with the actual content that’s going to make you wealthy, but apparently means a whole lot more to people than what I thought. Thank you for being a fan. My only fans will be you, not the box fans in the background.

David:
If you would like to have your question read on Seeing Greene, just head over to biggerpockets.com/david where you can submit a video question or a written question, just like the one we’re about to hear. This comes from Shannon Lynch in St. Augustine, Florida.

Shannon:
Hi, David. I have a house hacking insurance liability issue I’m hoping you can help me with. I recently started renting my primary residence on Airbnb and Vrbo on weekends and holidays for extra income. I have not been able to find any umbrella policy, CPL coverage, or any type of rental-related liability coverage to help protect me and my home during the times that the house is being rented. It seems that part of the problem is because I vacate the property when it’s being rented, so I’m not physically present. I actually stay with family while renters are here. That seems to be causing issues with regards to my eligibility for any type of renter liability coverage. I gave much more detail in my email to you, as I’m trying to keep this video under 60 seconds. So, any guidance help you could provide, I would really appreciate it. And I’m in St. Augustine, Florida, insured by Citizens, oldest city in the nation. Thanks, David.

David:
All right. Thank you, Shannon. Now, I called in the insurance experts on this one, and I got a little bit of detailed feedback to share with everybody. So, first off, like I mentioned earlier, insurance is very difficult right now, especially where you live in Florida. In fact, it was referred to as a hellscape for insurance in general. It’s very possible that there is not a carrier that would ensure this risk in Florida, and if that’s the case, your only option is to start setting money aside to cover yourself in case something does go wrong. So, one piece of advice that I was giving is that you get an investment property insurance policy and then add personal property coverage and increase the liability with possibly a rider that you would occupy the home for a period of time in the year. But that will primarily be a renter’s policy.

David:
Once again, it’s a situation that insurance is really not built for and it will require either a combination of coverages or a super specialized insurance policy in a state where 90% of carriers do not offer quotes right now. Shannon, this might be something where you’re going to literally have to go uninsured for a period of time until we find carriers that will work in the state of Florida. We’re having the same thing happen in California within the real estate agent community where we have to serve our clients. It’s becoming a big thing where agents are asking everyone else, “Hey, I need this type of property insured. It’s in a high fire area,” or a high hurricane area where a lot of insurance providers have just thrown up their hands and said, “Hey, we don’t want to deal with this anymore.”

David:
I don’t know exactly why this is happening. Some of my research has revealed that there’s a lot of fraud that goes on in the state of Florida. I’ve heard that there’s a policy that if a homeowner makes a claim about a problem with their roof, that the insurance company has to replace the entire roof, not just fix the problem there was. So, people are frequently making claims just to get all new brand new roofs, which ultimately ends up creating higher premiums and higher costs for everyone. And if the premiums get too high, the carriers just back out completely and say, “I don’t want any part of this.” I wish I could give you a better answer. It turns out that this is a very difficult problem for a reason, so don’t feel bad about yourself because you didn’t have a solution. If I hear anything more, I will make sure to report it in the BiggerPockets Podcast.

David:
All right, our next question comes from Aaron Sardina in Maine. Aaron says, “What is the math behind basic depreciation and how it can be factored into tax savings and return on investment when analyzing a property in your portfolio? You don’t have to pay taxes on 3.6% of the purchase price each year, but maybe you only put 20% down.” Okay, that 3.6% is coming from, if you take 100% of the value of the property and you divide it by 27 and a half years, that’s 3.6% a year. But just to be clear here, you’re not getting 100% of the value of the property. You’re getting 100% of the value of the improvements on the land. The land is not calculated into this, Aaron.

David:
“But maybe you only put 20% down. So, are you getting to avoid taxes on 18% of your down payment, which would be 5 times 3.6? But then if you’re in the 20% tax bracket, you are saving 20% of the 18%, and so is that your annual dollar amount That can be added to your ROI? I feel like there could be a whole show on calculating the benefits of depreciation, and that’s a big piece that I’m struggling to understand when analyzing how our portfolio is performing. I’m wondering now that our portfolio has grown, if it would make sense to start buying some more expensive properties that don’t cashflow very well in order to offset our future tax liabilities. And I’m wondering what the ROI would be on a property that doesn’t cashflow and is only purchased for depreciation purposes. Is that a good use of money?”

David:
Well, Aaron, you’re asking a good question, even though it was a little bit confusing how it was worded there. And I can’t tell you what a good use of money is, I can just explain the benefits and the risks. The benefit is that, yes, if you’re a high-income earner, you could buy a property that breaks even, or even God forbid, loses $100 a month, so you lost $1,200 a year, but what if you save $20,000 in taxes? That actually is a good financial position. The risk is that you saved the money when you first did it, but now you’re bleeding money every month going into the future. So, the way that I think you should analyze this is if I saved the $20,000 I would’ve spent in taxes and I set it in a reserve account, how long would that last to offset how much I’d be losing every month if it was negative cashflow?

David:
You don’t want to buy a property that’s going to be negative cashflow forever. The only time I’d advise doing this is if it’s going to be negative cashflow for a period of time, but the rents are going to go up and the property’s going to stabilize to where, in the future, it does make you money. And the reason that we don’t have a calculator to help you analyze this is that not everybody makes the same amount of money. So, if you yourself, Aaron, get $50,000 of depreciation, but you make $500,000 a year, that’s a bigger savings to you than somebody who makes $50,000 a year. It’s tough to be able to put all this together.

David:
It also depends if you’re a full-time real estate professional. So, if you’re sheltering income that you made from real estate related activities or your W2, you get a much bigger tax benefit than if you’re just sheltering the money that you made from the income of the property. In general, what you’re describing here is talking about sheltering the rents from the property itself, and the down payment, the money that you put into it is a piece of your ROI, but there’s a lot more than that. There’s also going to be money that you put into improving the property. There’s going to be closing costs. It sounds like you’re trying to fit everything into a spreadsheet, and that’s where people get mixed up. Not everything in life, not everything in investing will actually fit into the spreadsheet.

David:
A better way to look at it would be to say, “Okay, if the property’s going to cashflow $5,000 a year and 3,000 of that is going to be covered by the depreciation of the property, I’m going to be taxed on $2,000. How much is my tax?” Then, you take that tax and you say, “All right, I only pay this much tax on $5,000,” and you compare that to how much tax you would’ve paid on $5,000 made any other way. Most of the time, real estate comes out on top because of this depreciation. Hope that helps.

David:
All right, that was our last question of the day, and I’m so glad that you joined me for Seeing Greene. I’d like to know what type of shows would you want to see in the future? What type of content would you like to see in the future? What type of questions do you want to see asked, and do you want to be the one asking that question? Head over to biggerpockets.com/david, where you can submit your video question or your written question. And hopefully, you get featured on one of these shows.

David:
Remember, if you like the podcast to go pull it up and leave me a review wherever you listen to your podcast. Those really help out a ton. And if you’re watching on YouTube, make sure you leave some comments for us to read on future shows. I’m David Greene. You can find me at DavidGreene24.com, spartanleague.com, or DavidGreene24 on wherever your favorite social media is. Go give me a follow and send me a DM. Let me know what you thought about today’s show. Thanks, everybody. If you’ve got a minute, check out another BiggerPockets video. And if not, I will see you next week.

 

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Today’s CPI report was good because it shows core inflation, which the Fed cares about, is trending in the right direction. The Fed feels much better today because of all the rate hikes they have done to get the Fed funds rate above the growth rate of inflation.

Last year, CPI core inflation was running at 6.3%, and shelter inflation was still higher even though the data line was set to cool down. I talked about this on CNBC when they asked me to forecast the reality of rent inflation in 2023. Over a year has passed since that day, and core inflation is running at 4.1%, lower than the Fed funds rate. As you can see in the chart below, inflation has made progress in the right direction.

So, while the bond market doesn’t like this report, the Fed members must be pleased with the progress made. Yes, today’s jobless claims data came in good again as the four-week moving average of jobless claims is near 200,000 — not close to my Fed pivot level of 323,000. However, regarding the growth rate of core CPI, the slow trend lower is something the Fed likes to see.

From BLS: The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis, after increasing 0.6 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.7 percent before seasonal adjustment. 

Part of the reason the Fed has not hiked as much recently is that they know the growth rate of inflation is falling, but they still want to attack the labor supply because of some fear that wages might spiral out of control again. This explains the Fed’s hawkish tone after the last Fed meeting when they didn’t hike rates, giving the bond market the green light to push the 10-year yield higher.

Now, over the pat 10 days, seven Fed presidents have tried to talk the bond market down. After this report, I expect them to stick to that game plan.

Also, shelter inflation has a lot of room to move lower, and since shelter inflation is 44.4% of CPI, we have enough data to scream at the Fed: “Land the Plane, Jay! You’re done.” Once you exclude housing, the Core CPI was 0.1% monthly. This has been a trend over the past few months, which the Fed well knows.

While I don’t believe that we will see the builders finish all the rental supply under construction because construction loan rates are too high, we will still get more supply to the rental marketplace over time. That will help with the shelter inflation data, which peaked a while ago.

So, even though the headline inflation print was a tad hotter than forecast, the core inflation trend is moving along in the right direction, and that is what the Fed cares about the most. The Fed wants to keep the Fed Funds rate higher for longer. They want to ensure that core inflation returns toward 2% so they keep talking hawkish. However, the recent 10-year yield spike has forced them to try to talk the market down. Even today, the 10-year yield spiked after the report and kept heading higher, currently at 4.71%

Now that core inflation is lower than last year, the Fed doesn’t need to be talking about rate hikes anymore. Even talking hawkish with where inflation and rates are at doesn’t make sense.

Regarding the bond market, mortgage rates, and the Fed, I talked about this on the HousingWire Daily podcast this week trying to make sense of why so many Fed presidents are trying to jawbone the bond market from getting out of hand. Hopefully, with all the data about inflation and rates, it’s a good reason for the Fed to just chill, enjoy Halloween, Thanksgiving and Christmas, and let’s not play the Scrooge role now.



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CEDAR CREEK, Texas — Real estate investment trust Rithm Capital Corp.’s $720 million acquisition of Computershare Mortgage Services Inc. allows the company to improve its fee-based income as the deal includes the purchase of Specialized Loan Servicing LLC (SLS). 

“The SLS platform for us is very much the focus as to how we think about fee-based income and third-party business,” Baron Silverstein, president at NewRez, a subsidiary of Rithm, said on Wednesday afternoon during the HousingWire Annual conference, held Oct. 10-12 at the Hyatt Lost Pines.

The deal will add a mortgage servicing rights (MSR) portfolio of about $136 billion in unpaid principal balance to Rithm. It includes $85 billion in third-party servicing and the SLS MSR portfolio. 

Following the transaction’s closing, which is expected to happen in the first quarter of 2024, SLS will operate under NewRez, the eighth-largest U.S. mortgage lender in the first half of 2023, with a production of $17 billion in loans, per Inside Mortgage Finance data. 

“When we think about the market that we’re today, then to the extent that we can diversify versus utilizing our capital to continue to grow our platform; doing fee-based business on a sub-servicing perspective; helping customers stay in their homes; and helping MSR owners or MSR investors service the asset that they own. That’s our core strategy from a growth perspective,” Silverstein added.  

According to Silverstein, Rithm has focused on building its servicing portfolio and adding origination capabilities through acquisitions over the last few years. 

For example, the Caliber Home Loans $1.675 billion deal in April 2021 brought in a large servicing portfolio, expanding the company’s direct-to-consumer and wholesale businesses and the distributed retail platform.

Silverstein said the integration of Caliber is “completely done,” with the company recently rebranding the distributed retail division into NewRez. 

He also noted that acquisitions can be complicated. That’s why acquirers should make integrations as simple and quick as possible. The market can shift, and it could be challenging to add new products or create efficiencies amid legacy structures, he said. 

In July, Rithm struck a deal to acquire Sculptor Capital Management Inc. for $639 million, leading to a dispute among the shareholders at the asset management firm



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Sarah Wheeler: In the past you said that technology isn’t a differentiator, it’s just an equalizer. Do you still think that?

Rich Weidel: Yes, and even more now that we’re seeing in this down cycle which technologies provide value and which are just an expense.

It wasn’t that long ago that technology was going to change everything. If you go and look at headlines from 2013-2014 — everything was revolution and transformation and technology was going to lower costs. You would get phone calls constantly from tech vendors during that period, and they’d talk about 30%, 40% ROI and how much tech would decrease turn times. And I think we saw an advantage among some of the first movers — these companies came out of the crisis and were able to take advantage of technology, that’s when they really started to grow.

Today, though, there’s almost zero differentiation. Within mortgage companies, even those that have huge scale versus small scale, they’re offering really the same borrower experience and the same loan officer experience. Obviously, they’ve got some different systems to handle hundreds of loans a month versus thousands or tens of thousands. But if you go and look at the financials, there’s no differentiation in terms of cost per loan or speed to close with any correlation that I’ve been able to see on technology spend.

So essentially, the two biggest promises of technology, that it would lower costs and increase speed, have not materialized in any way.

SW: How does that impact you as a mortgage lender CEO?

RW: A lot of vendor contracts are just killing mortgage companies right now, because they’re stuck in these multiyear contracts with minimum standards. That model just doesn’t work. You’re signing a contract in 2020-2021 when the industry is doing $3.5 trillion, and you have to commit to a multiyear contract with x number of seats or minimum units per month. At Princeton, we’ve always been very risk-averse, and that comes from my experience in commercial real estate and debt and leasing.

The second problem is that in a tightening margin environment, you could have per-unit vendor costs that are more than the revenue that you’re getting in. That means no matter how many loans you do, you can’t make money. So the technology that’s supposed to save you can also be the thing that drives the mortgage company into bankruptcy.

SW: How do you fix that?

RW: For 95% of mortgage companies, the answer is buy and integrate and optimize.

SW: How do you feel about your tech stack?

RW: We really like our tech stack. I don’t think there’s a huge amount of differentiation between vendors, and the shiny toy of today is typically not the shiny toy of tomorrow. That hot tech thing you had to have in 2018? Nobody’s talking about that anymore. And some of the vendors that were the darlings of 2021, raising all the money, they’ve now got all that venture capital and all that carried interest and all that expense load that they just can’t price. While some of your smaller vendors who were bootstrapped don’t have that cost structure and they can be more flexible in their pricing to meet the moment.

But you have to make sure of your counterparty risk with that vendor, because you don’t want to build your system around a technology partner that’s not going to be there in a year or two.

SW: We’re seeing a lot more repurchase requests, and some of those seem to be on minor loan defects. How should technology be helping there?

RW: Sometimes you have problems on loans that are due to technology — so a disclosure doesn’t fire right, or you’re not calculating the ARM interest correctly. Those can be catastrophic if it goes on for a long period of time. But typically, if the technology is causing an issue, if you’re doing your QC prefund correctly, you catch it on one or two loans and then you can correct the technology issue and it works.

The thing that the mortgage industry cannot correct for is human error, and there always is human error. And then on top of that, our industry is under attack from fraud from all sides. Because of that, I think we at Princeton do way more than is required by the agencies from a QC perspective on our prefund. We overinvest on the QC part.

SW: What part does tech play in attracting great LOs?

RW: You have to figure out your differentiated value proposition. There are a lot of good companies with a lot of good products with good rates with good fulfillment. If you’re going to grow in this business, you have to have that. Well, then what? If you study salespeople, in mortgage or any industry, the biggest things that hold salespeople back once they have good fulfillment rates and the basic stuff is an under investment in prospecting activities. Well, my experience is that where you can get the biggest lift with salespeople is actually in the technology and the automation around prospecting. So we built our sales machine around that.

We use technology, marketing and support systems to do some of that prospecting on behalf of loan originators and we’ve been slamming at that for like six or seven years now. And we keep in touch in a very dynamic, personalized way with referral partners and customers and we have a competitive advantage on that.

In Q3 our loan originators added on average 2.88 new referral partners. And that means the average loan originator at Princeton closed a loan in Q3 with 2.88 Realtors they’ve never worked with before. If you think about the lifetime value of the customer, well, you get a loan a quarter from each Realtor, three Realtors in a quarter, and they’re each good for four loans a year, that’s 12 loans. Average commission is $3,000. That’s $36,000 a year from just those three Realtors, plus the ones you add in other quarters. Now we’re talking about a $100,000 opportunity. Wow. If we were to invest in that differently, what would that look like?

In 2018, which was a difficult year, every phone call with a loan officer felt like they were talking about leads: leads, leads, leads. Nobody talks about leads anymore. Now it’s all rates.

SW: As the CEO of a lender in this environment, what keeps you up at night?

RW: I often think that my job is to try to make the best decisions that I can based on the facts that we have. What’s really difficult about this industry is we don’t know what volume or margins are going to be three, six, 12 months from now. It’s really hard to be prepared for what’s coming next so I think the question is: are you willing to react as the facts change to meet the moment? And that’s what we ask ourselves as a leadership team.

We used to do that monthly, but it was too short of a cycle, because you wind up overreacting on 30 days of data so we do it on a quarterly basis. We put a game plan together for three months and at the three-month review we ask: What were our predictions? Where did we land? What do we wish we would have done differently? And how do we want to adjust for the next three months or three quarters?

We make money on the up swings and lose money on the down swings, and when it’s stable, we just make average profits. Even if volume stays at the $1 trillion or $1.5 trillion level, the industry will be sized for it and it won’t be great, but it’ll be okay. We’re just still in the problem of there’s too much capacity. Everything needs to size back to the steady state.

SW: What’s the biggest lesson you’ve learned on technology?

RW: The lesson of technology, for us, has been that so much of the difference in technology is about the way that the people utilize it. So we talk not just about tech, but technology, people and process. Those three things added together will equal the result: It’s really a systems engineering question. And so much is it of it is the human capital of how you’re integrating those types of things.

I’m in some owners working groups, and somebody will bring up a tech and either they’re having great success and we’re struggling with it, or we’re having great success and they’re struggling with it. And you see that the same technology deployed in different cultures and with different processes sometimes works and sometimes doesn’t work. So you have to ask: Are we utilizing the technology to its fullest capacity? And is it a tech problem, a people problem, a process problem, or some combination of those three?

SW: Looking to the future, are you optimistic?

RW: I’m super optimistic about housing in America. We are in an industry that isn’t going anywhere. We’re also in an industry that’s relatively commoditized, so you can’t hate the game, you just have to know the game that you’re in.

Princeton is a company that’s been around for a long time, but we haven’t peaked. And so these market resets, while they’re terribly painful, are like forest fires — they have to happen to clear out all the overgrowth so there can be flourishing on the other side. Unfortunately, there’s a lot of pain during that process.



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Real estate investment trust Rithm Capital Corp. has increased its offer to acquire Sculptor Capital Management Inc. by 7.62% to $676 million amid competition from a group of investors and a dispute among the shareholders at the asset management firm. 

On July 24, Rithm said it struck a deal to acquire the New York-based company for $639 million, or $11.15 per Class A share. The transaction brings to Rithm Sculptor’s $34 billion of assets under management, including real estate, credit and multi-strategy investing spectrum. 

The July deal led to a dispute among the shareholders at the asset management firm as Sculptor also received a $12.76 per-share bid from a consortium of investors, including Boaz Weinstein, Bill Ackman, Marc Lasry and Jeff Yass.  

Sculptor said it still prefers the deal with Rithm due to the closing certainty. However, it put pressure on Rithm to increase its bid. 

The new offer announced Thursday brings the price per share to $12. The boards of directors of both companies have unanimously approved it, the parties said.  

In a statement, Marcy Engel, chairperson of Sculptor’s board of directors, said they are focused on “consummating a transaction that maximizes value and certainty of closing for Sculptor stockholders.”

Michael Nierenberg, chairman, CEO and president of Rithm, said the deal creates a “superior asset management business.”

All regulatory approvals necessary to close the deal have been received. A share of 85% of the fund investors consented to the agreement, but this is subject to change at closing. Sculptor’s board recommended that stockholders vote for the deal at a special meeting on Nov. 16.

Sculptor anticipates that the transaction will close in the fourth quarter of 2023.

Citi acted as the exclusive financial advisor to Rithm. PJT Partners was the financial advisor to Sculptor’s special committee. Sculptor’s financial advisor was JP Morgan Securities LLC.  



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Off-market real estate deals can make you a millionaire in just a few YEARS. Instead of buying the nicest-looking rental property in the best area through a brutal bidding war, David Lecko went the opposite route, purchasing the properties nobody else wanted, finding deals simply by driving for dollars or paying someone else to do so. He went from a burnt-out nine-to-five worker to financial freedom in just two years by following this strategy, and you can do it, too!

David was working all day and all night, making a meager salary with almost zero time freedom. His boss, who worked far less than he did, outsourced his business and had rental properties on the side. David knew that to be in the same position, he’d have to mimic his boss’ path to wealth. So, after work, David would drive around his local area, looking for the tallest grass, the biggest roof repairs, and the worst paint jobs. He finally found his first deal, which cost less than a used car, but ended up springboarding David to make millions.

In today’s episode, David will walk through EXACTLY how to find off-market real estate deals the RIGHT way, how to get around the lazy lists that most off-market investors use, and how to turn a few properties into millions of dollars of wealth and close to six figures a year in passive income. And in today’s tough housing market, finding deals like these is even MORE crucial. So, what are you waiting for? Financial freedom is only a couple of years away!

David:
This is the BiggerPockets Podcast show, 830.

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties, and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” That’s what motivated me to go looking for some of these real estate deals. There weren’t any, nothing was going to cash flow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position.

David:
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, and the baddest real estate podcast in the world. Every week we bring you stories, how-tos and the answers that you need to make smart real estate decisions now in this current market that is ever-changing. We have a great story for you today. Joining me is my overly eccentric co-host, Rob Abasolo, who is either being a mime or doing ASL for those who are watching on YouTube. Rob, how are you today?

Rob:
Oh, my gosh. Dude, I got home at 4:00 AM last night. Now, I feel like I’m on vacation. Now, I feel like I’m on vacation, because being on a plane with a two and a three-year-old for 12 hours? Hmm.

David:
Today we’re about to speak with David Lecko. He’s going to be describing the strategy that he’s used to build a $2 million portfolio with $72,000 a year in cashflow that he started with only $4,000.

Rob:
It’s crazy, man. On top of that little fun fact, he’s also the founder of DealMachine, which we didn’t really talk about in the podcast today. He’s got a really cool story and really breaks down, I mean, really everything from the beginning, I think it’s going to be encouraging for a lot of people to hear his story.

David:
Absolutely. Today’s quick tip is going to be brought to you by Rob, who actually has some advice to share that came out of today’s show.

Rob:
Hey, when you see an opportunity, take action. You’re going to hear why today at the very end of the podcast. We talk about a deal that I just did because the moment I saw the opportunity, I made the phone call and got stuff done.

David:
There you go. Strike when the iron is hot because it doesn’t stay hot forever. As we know, decisions are made based on emotions and emotions change. When you’ve got the right opportunity, don’t waste your shot. Much like Eminem said, you may never get it again. All right, let’s bring in David. David Lecko, welcome to the BiggerPockets podcast. How are you today?

David Lecko:
I’m great, thank you so much.

David:
Nice, man. Can you give our listeners a quick rundown of who you are, where you invest, and how long you’ve been investing for?

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” We know Warren Buffet says the rule is don’t lose money, never lose money. That’s what motivated me to go looking for some of these real estate deals, but there weren’t any, nothing was going to cashflow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position and about $95,000 in net cashflow expected this year. Last year was 72, but I did a couple of acquisitions this year. Those properties were acquired over about a two-and-a-half-year period from 2017 to ’19. Then I chilled out for quite a while. I had a lot of appreciation. I’m now re-motivated to go acquire some more rental properties.

David:
All right, I want to ask you, Rob, a quick question. How long do you think we’ll still hear stories about people who heard about real estate from a human? Because now with YouTube and social media, it’s bombarded by real estate. I just realized, that’s how people used to say it. Like, I met a guy in a restaurant one day, mysterious man smelled of rich mahogany and leather-bound books. He told me he had rental properties, and I was so fascinated. Versus what it’s like now. I’m just curious, Rob, what your perspective. Do you think that anyone will ever hear about real estate from a human from this point forward?

Rob:
That’s very funny. I was legitimately just thinking about this because everyone that I follow on Instagram, they are all real estate people. It’s all like, “Here’s five rental strategies you need to perfect in 2022. Here’s how to make $10,000 cashflow.” That’s all my Instagram is. I’m like, man, the entire Instagram landscape has really changed for the real estate industry, but that is really a big part of how people even find out about real estate. I don’t know. I think the days of the coffee shop, meeting with an older real estate vet and they teach you everything and take you under their wing, I feel like those, yeah, it’s getting a little bit more rare these days.

David:
That’s true. Also, I feel like when you talk to someone before they tell you what they actually had versus when you hear something online, now it might be someone with a house they live in and one investment property, but they’re talking about it as if they have 50 rentals. That’s a little different too. It’s easier to find out about it, but you got to dig a little bit deeper to figure out what’s really going on, and that’s what we’re going to do today. David, we’re going to hear all about your expertise in a second here, but give me an idea on what strategy or tactic is working for you right now.

David Lecko:
I’m doing two things right now. I’m paying a driver to look for rundown properties. I’m sending marketing and I’m getting calls back answered by a call center, and then I follow up and do a virtual appointment. The other thing I’m doing now that’s new for this year that I’ve had a couple successes with so far, is actually making offers on properties in the MLS in my market that are over 45 days old and I’m sending 70% offers to those properties. I’ve sent about 500 of those offers and done about three deals, in the last three months I would say.

David:
You’re taking steps just to get the ball rolling. You’re trying to get the conversation going, just get that first date and then see where things go.

David Lecko:
Actually, the on-market listings that I’m giving it 70% off, they’re actually just receiving offers. 70% off as is, and you never know what they’ll accept unless they have a low offer in their hand. That’s actually, I mean they’re signing it and I’m like, “Oh, wow. I have a property on your contract.”

Rob:
I have a question about that. You’re making these offers, presumably if they’ve been on the market for 45 days. We’re getting towards the point where that listing is going to expire. That agent is probably going to lose the contract, is my guess. When you make an offer, how are you actually doing that? Do you have a realtor representing you making that offer, or are you just making that offer to the listing agent and asking them to represent both of you?

David Lecko:
It’s through an agent and I use a software that connects to her email and uses her contract and fills in the DocuSign details. I have a slider that says what percentage do I want to send out all my offers. I usually do 35 per week because she’ll get an influx of emails and texts and she does respond to those. Some of those end up being a counter. That’s how I get the ball rolling. It doesn’t take her time, but we have a process and a tool that we use that allows me to send those offers like that.

Rob:
Hold on. That sounds like the most system and process-oriented way of doing this. I just thought you were calling, “Hey, make this offer.” You actually have this, I don’t want to say automated, but really efficiently laid out to where if you’re going to make 35 offers, are you actually examining all of those properties running the numbers on them, or you’re just like, all right, hey, if it’s 70% and they accept, I’ll then run my numbers?

David Lecko:
The second thing. I’m doing a little bit of filtering, I just want a three-bedroom, two-bath house with a certain square footage. I’m not doing these offers on commercial buildings or I’m not doing it on a two-bedroom, one-bathroom house because I just do want it to actually be a property that I’d probably buy.

David:
We’re going to get into those details a little bit later. Before we move on to the show, just remind me, which area are you buying these in?

David Lecko:
Indianapolis, Indiana.

David:
We’re going to talk about the Indianapolis market as well. We’ll ask you some tough questions, so get yourself prepared for that. Hopefully, it gives you an opportunity to shine. Let’s start with a story. Tell me about a moment before you found real estate, when you knew things had to change?

David Lecko:
Man, my life was actually horrible. I’m working for this company for two years on a product that I actually built before I ever worked there, and I sold it for $10,000 now as a recruitment tool in another industry. The reason why I bought it is because there’s advice from Gary Vaynerchuk, for example, that says, you shouldn’t take the most expensive, the highest-paying job, you should actually go work for somebody that you want to emulate. That’s exactly what I did. I sold this tool I built and it was a low cost, and I was getting paid $55,000. On the first day, the CEO says, “Hey, David. Please don’t share what you make with anyone else on this team because nobody else makes that much.” I was like, “Man, I don’t even feel like that’s that much.”
I took a $20,000 pay cut to get here, and I did though really working a ton and I’m working a ton. I’m the software developer, I’m the tech support, I’m the trainer. When there’s a problem, I’m not actually having anyone else be able to do those things, so there’s no backup. I’m actually the most knowledgeable person that they have. This culminated over two years. I’m learning a lot. There was always these times where I take my computer to the bar with me if I was going to go out with friends, because something’s going to come up, I want to be able to fix it instead of have to drive home and come back. Finally, I’m at my best friend’s wedding and I’m actually in the wedding party. I leave the reception because I got the call, something is wrong and I’m out in my Honda Accord, 10-year-old Honda Accord with my hotspot and I’m fixing this tool.
I was like, man, he was upset, his wife was upset. I felt terrible because I’m missing the reception. I knew that something had to change. I knew that the owner of this company of mine had these rental properties, and so I knew I needed to start taking action towards making a change, towards finding an off-market deal. At the time he said, well, he bought these properties in 2009, which was a great buying opportunity, and I was a little bit discouraged by that. It wasn’t his intention, but I looked at the market and I couldn’t find anything that would cashflow. Thankfully, I went to a meetup and found people that were doing deals all the time. That’s when I realized you can’t just time the market. You’ve got to find deals in whatever market condition exists. You’ve got to figure out how to find good deals in all those conditions.

Rob:
You went to a meetup and you said people are doing deals. As someone that didn’t know anything about real estate or not all that much, you go to a real estate meetup and you find out that people are doing all these things. What kind of deals were they doing and then were they all doing so many types of real estate that it was overwhelming? What was that first experience even like?

David Lecko:
Well, it was pretty awesome, because they actually had a prize that was a random drawing for all the attendees, and I won the prize. It was an iPad, and I thought, “This has got to be a sign.” I’m not super spiritual, but this definitely doesn’t feel bad. This is great. I won this iPad and I immediately sold it for 500 bucks and I used that to start sending postcards to distress properties. I remember, there were people doing a lot of stuff, but the prevailing theme was wholesaling.

David:
I love this. What you’re saying is if somebody’s having a hard time getting started, they need to go to events, win prizes, and then pawn off the prize to get the capital C to get started. Correct?

David Lecko:
Yeah, exactly.

Rob:
I love it. I love it because instead of just having an iPad where you could log into Netflix and hang out and do nothing, you’re like, all right, look, I could have this iPad or I mean, it’s basically a free $500 that I can use to experiment and just do random things with in the real estate world and see what sticks. Somehow you land into the postcard world. How did you even learn about that?

David Lecko:
There was definitely a blog post on BiggerPockets that I saw on driving for dollars. The unique aspect of it was this person was putting the photo of the house on the envelope. That was something that they said gave them a better chance, a better response rate. From this day forward, every piece of mail that I’ve sent has the photo of the house on the property. Not the Google photo, like an actual photo that he took. People called back, still to this day, they’re like, “I got a few pieces of mail, but I called yours because it looked like you put a lot of time in it.” Or, “I could tell you’re really here. I could tell you were local.”

Rob:
That’s cool. You went to BiggerPockets, you figured out the idea of driving for dollars. You’ve unlocked a really great entry point into your real estate career and it seems like it’s working. How did that feel emotionally for you for it to start clicking really, I mean it seems like it’s relatively soon into your career?

David Lecko:
Well, there was a period of time where I was just looking for the rundown properties and I wasn’t sending out the mail yet. I was prepared for it. I had the money set aside for it. What I was focused on was finding the properties. It was so much fun driving up and down and just picturing myself buying this property. It felt really awesome. Two months into that, I had a nice list on a tablet of paper, but my stomach sank to the floor when I saw one of these properties had started construction. I went home, looked up. Sure enough, this property actually recently sold and I looked up the price. I wasn’t an expert on numbers, but I felt like it was way lower than what I would’ve even felt comfortable offering. I knew that could have worked for me. I had this terrible feeling that I didn’t even reach out yet, spent so much time just thinking about these homes that I wasn’t following up.
I realized humans have a lot of follow-up issues in general, and I needed to start nipping that in the bud and doing something. I went to go put those letters together with the photos, and that’s when I realized putting letters takes a long time, and at the time, you couldn’t send out mail one at a time. You had to buy a minimum of 200 with some mail house. That’s what left me doing them myself in my basement, which took quite a bit of time. That was the next struggle for me. I’m glad I did it because I didn’t have a ton of money and I heard over and over the driving for dollars is the best list.

Rob:
Well, there’s something ironic about the fact that you were making this list on a tablet of paper instead of an iPad, an electronic tablet. That’s pretty funny. You find this house, you find out it’s the one that got away, but not really, because you never even tried to get it to begin with. Then you get into this time suck. At this point in your journey, was time something that was very important to you or was that the beginning of your journey where time is all you had? Tell us about the emotions of that time in your real estate career.

David Lecko:
Well, as you know, I was working a job that was time-consuming. I don’t know the exact hours. It had some flexibility during the day, but it required lots of stuff at night and random times when people were using the software and I would need to go and fix it. I was feeling quite burnt out. I did enjoy driving around, but when it came time and I realized how time-consuming this was, it just didn’t feel like I had time. Working 9:00 to 5:00, couple of random things for work in the evenings. Now, I have to not only go out and look for properties, but I got to put them together and there’s not enough time left to go hang out with friends, to go eat dinner or anything else like that that I needed to. I was definitely feeling like the candle was burning at both ends.

Rob:
For sure. I think a lot of people feel that way, especially at the beginning of the real estate career. If you’re working a 9:00 to 5:00 or if you’re working any kind of job, and then when it’s over, you still have to do the real estate stuff to get that going as well. At this point in your career, did you have a very clear why defined, like your mission statement? Did you know what you wanted? I know that you missed some important moments in the best friend’s wedding and everything like that. Had you already defined what your why was?

David Lecko:
I had missed some important moments. I also noticed the owner of the company I was working for and learning so much about, didn’t put in the hours that I was. Now, I got the sense he did at the beginning, but I wanted that. I didn’t want to have to work so much for a small salary that I couldn’t even talk about. I wanted something more. It was definitely, I wanted time freedom, but it probably even goes back to high school where I saw some kids had these really cool cars and I wanted that. I wanted more than what I had growing up. I was driven by those two things.

David:
David, when you look at why you were driven for time freedom, can you trace it down to a specific event that happened in your life, an experience you went through, something you witnessed? I think a lot of us would like to have time freedom. We would rather not have to work for somebody else. If you’re lacking the motivation to get out there and make it happen, because it comes at a price. As you well know, you give up a lot of security, you maybe work more hours in the beginning when you’re trying to build that. What do you think about your story specifically led to you having that fire that you were able to use to get over the hump?

David Lecko:
My dad worked at a telecom company. He had a friend that was a contractor. I didn’t really know what that meant. They were buddies. That friend was not only a contractor himself, but he owned a contracting business. He would place people in different companies like this telecom company, and he would make a portion of their earnings as well. I met him at a breakfast with my dad. He gave me a book called The 4-Hour Workweek. That book taught me that you could build a business so you can earn income that’s not limited by how much time you put into it as long as you’re the one who’s actually setting up the business in the right way. That has to be my moment where I knew there was a better path than what I had been exposed to in the just W2 world.

David:
What about that quest for time freedom led you into our world of real estate?

David Lecko:
Well, it seemed like rental properties were pretty stable. If they were never going to lose money, if they were always going to appreciate as long as you manage well, it seemed like the more rental properties I get, the more secure salary I can have, where a business might have fluctuations, that was intimidating to me. A rental properties is physically, you could touch it, you could see it, you can rent it out for a certain price. Then when I went to the Federal Reserve graph on rent rates, I saw that it never went down. Even in 2008, it stayed constant for a year and it kept climbing up. That’s what seemed like it would give me the security the most secure way.

David:
It wasn’t that you heard someone else talking about it or you heard it on a podcast or a YouTube channel. Was there a certain influencer that caught your attention or did you just sit down and logically think through real estate makes the most sense?

David Lecko:
The time when I figured out real estate would make the most sense was the boss that I had at the final job that I had, had five rental properties. I asked him, I said, “I put my money in a 401k, why do you invest in real estate?” He told me it’s because you’ll never lose money as long as you buy them right and you manage them well. I had seen my 401k go up and down and felt like I had no control, and the feeling of control is just such a good thing. I knew that, that was something I wanted to go after at that point.

Rob:
Yeah, man. Let’s fast-forward a little bit. You go to this meetup, you sell the iPad, you get your postcards out. One of your dream deal gets away and you realize I got to take action. Where did that actually culminate into your first deal? Tell us about how that first deal actually took place.

David Lecko:
I got a phone call and he says, “Hey, I’d like to get an offer on my property.” I just knew after putting in 300 properties over the course of six months that it must be this small house, I remember with a blue tarp over the entire roof. I just knew that was probably it. When I looked it up, sure enough, it was. I didn’t know what to actually say next because I had never done this before, Rob. I just said, “Well, how about I meet you at 6:00?” I got off the phone as soon as possible, and once again, when I met him at 6:00, I didn’t know what to say. I didn’t know what to ask. I said, “Well, let me just take some pictures and I’ll just ask you about things that I see while you’re walking me through the house.”
Then it wasn’t a very big house, it was 600 square feet. I took the photos and then he said, “How much will you offer?” Again, I didn’t know, so I was like, “I’m going to get back to you 24 hours. I’ll have an offer in front of you.” I went home and I was going to offer $10,000 for this house. Now, it was in rough shape. I found out later that he thought I was just going to demolish it, but I ended up repairing it. I’ll tell you that I actually remembered this episode on the BiggerPockets Podcast where they said, “If you don’t feel like you’re uncomfortable making this offer, if you don’t feel like you might be offending them, you’re not offering lower enough. Because there’s going to be problems you’re going to encounter, and if you don’t leave yourself the profit margin, you’re going to find yourself in a bad place where you own this deal that you’re upside-down in.”
Instead of offering $10,000, I remembered that and I offered $4,782. Now, it was specific because I felt like that would help him see I approached this in an analytical way. I actually looked at some of the comparable sales by square foot, and then I subtracted the cost of everything that I knew I needed to do in that house, which was pretty much everything. Then I did subtract $10,000 for my profit, or in case something unexpected came up. I showed him that transparently. I said, “This is how I got to your offer price. I can make you this cash.” Because I actually had $4,000 and he waited a day. I got nervous, but he just said, ultimately, in a super calm voice, “I’ll accept it. Let’s go forward with it.” That’s how we ended up doing my first deal.

Rob:
I just want to make sure I got these numbers right. You offered $4,750 for an entire house?

David Lecko:
It’s 600 square feet. It was the smallest house in the neighborhood. There wasn’t even really a true exact comp because all the other houses were 1200 square feet. That’s right. 4,000 bucks.

Rob:
That’s great. You ended up renovating it yourself or is that what happened next?

David Lecko:
Good thing to know here is in the Midwest, Rob, as you know, there’s these neighborhoods that a house in perfect condition may only be worth 50 grand. You can get in trouble investing in these neighborhoods because you buy a house for 4,000 and you put 45 into it. It’s like, you don’t have a deal. That’s just a house. A lot of times it takes more than 45 grand to repair one of these crazy things. I thought this one could be worth a hundred grand. My plan was get four no interest credit cards. I applied it all on the same day because I was like, let me do it all at the same time. Maybe I could trick the credit bureau so they don’t know I have all these other cards. I did $65,000 renovation and then I rented it out for 99. It’s rented for 1200 now, but that’s how I ended up doing it. I still own the property to this day.

Rob:
Cool. When you took out the credit cards, I mean it’s not like you can just swipe your card to pay for vendors and stuff. Were you doing a cash advance? Did they send you a check that you could deposit into your account or what?

David Lecko:
I think those are really good. I didn’t know about those. The contractor that I found would actually let me swipe a credit card, yes, on his square account that he could use to receive payments. Now, he did charge me the extra 3% fee, but that was the only option I had.

Rob:
Well, you’d probably pay that regardless, even on a cash advance anyways. You buy this property, you rehab it, and that’s it. You were financially free, right?

David Lecko:
No, I didn’t know how to pay off those credit cards.

Rob:
Tell us about some of the lessons from that deal.

David Lecko:
I thought I could get a mortgage because on my account it appreciated for $100,000. Even though it was rented out for a 1% rural property, about 900 or a thousand bucks a month, the mortgage companies didn’t value the property like I did because there was no other house with that small of a square footage, and so I couldn’t get it to appraise, so I was stuck. It’s a good thing that my job actually picked up, my business for my primary income picked up. I ended up using that to pay down the credit cards. If I hadn’t done that, I would’ve been stuck. I would’ve had to go to a private lender or to sell the house or to get some type of bridge funding. That’s ultimately how I got unstuck, was I was able to ultimately pay those off. Another lesson that I learned was working with a contractor. A great way to find a contractor, the way I found him was I asked another real estate investor that I knew from one of those meetups who I should use, so he gave me his name.
Now, he didn’t have a crew ready, but he put one together. AKA, a group of people he hadn’t worked with before. Ultimately, after a month in, I was like, “Yo, what’s going on?” He’s like, “Well, they’re just doing this or that. They’ll start back in a week.” I got that about four or five times. I had a hard conversation with him. I was like, “Look, we’ve got to cut ties. Obviously, this isn’t going to work out.” I had paid him too much. I had paid him 50% of the project’s value. He had not done 50% of the work. I needed a refund if we were to part ways. We met in person. I think if you’re going to have a hard conversation with somebody, having it in person goes such a long way. It shows that you care and you can really read each other’s body language that way. That’s what we did. He ended up giving me a refund on one of those credit cards, and I started searching around for somebody else that could solve the problem.
The lesson there was actually don’t give huge chunks of payments, but do smaller increments. The other lesson was let him pick a due date himself at the beginning, then maybe add on a couple extra weeks and say, “All right, if you want this project, commit to this date. I’ll give you a couple extra weeks of padding. If it’s late, $50 per day from you that it is late.” Those are how I operate now with renovation projects. Two lessons there. Then the third one was I had to ask around for somebody who could bail me out of this project that was halfway complete that had a budget that wasn’t going to work anymore. Sometimes real estate investors have a special guy that can bail you out. When you need help, start talking with other people instead of just trying to figure it out yourself. Those are three lessons from that first deal.

Rob:
Going back to that second one about the timing. David, you have a trick of the trade here. I don’t know if you still do this, but didn’t you used to bonus your contractors based on if they hit their deadline? You would say, if you hit this deadline and you actually get done in time, I’m going to give you 1% more or something like that, or did you fall out of that strategy?

David:
How could you possibly know that since you never read any of my books? This is impressive.

Rob:
Well, I read the one book. I read Burr and I am in the first chapter of Pillars, which is not out yet, but it will be.

David:
Right on, man. Yeah, that’s exactly what I would do.

Rob:
David, I like that way more.

David:
You like what way more?

Rob:
I like the bonus for completing it on time, and I think people would be really motivated by that.

David:
Here’s what I would do. I realized there was a bit of a power struggle going on, and when I say that, I don’t mean in an unhealthy way, just human beings have different incentives. When we are an investor, our incentive is to get the work done as fast as possible, as cheap as possible, and as well done as needs to be done. The contractor’s job is to get as much money as they can, take on as many other jobs at the same time as they can and be held the least amount of accountable. They’re going to take on all these different jobs, they’re going to spread their crews thin. What you get is this clashing of, you said you were going to be done by X and them not wanting to tell you, well, I didn’t bid this right or I didn’t know the details, or the guy that was supposed to be working on it didn’t show up to work, or he ended up sucking. Or I had to put them on another job because we didn’t do that one right so yours fell behind. You never get the truth.
What I figured was I just want to fight my way to the top of the funnel of priorities in their head. When we were discussing the scope of work, I would say, look, this is going to be a contract, which you should be familiar with because you are a contractor. As a contractor, how long will it take you to do this job? They would give me a timeframe, say eight weeks. I’d say, okay, what if I give you nine? Oh, yeah. That should be no problem at all. Well, yeah, it definitely shouldn’t be because you told me eight. Here’s the deal. If you get this done in nine weeks, I will pay you what we agreed upon and I gave you an extra week of some grace. If you get it done less than that for every day that it’s early, I’ll give you a bonus of this much money. If it’s late, this is how much is going to come off the last draw. If they’re like, whoa, whoa, whoa, I can’t guarantee it’s going to be eight weeks.
Well, now you know the truth. You just do a little bit of digging and the truth will come out. If they go, yeah, no problem at all. Now, they’re incentivized to keep your job as the priority because they want to make all the money they were supposed to get and they hopefully want to make more money, which makes you a more important customer than the person who’s complaining that they left some paint on the cabinets or one of the tiles wasn’t laid correctly and they got to send someone back. They’re going to make that person wait five weeks. They’re not going to make me wait five weeks, and if somebody with paint on their cabinets has to wait five weeks, I’m okay with that. I’m not okay with it when it’s me when I got a 12% hard money loan and the market is shifting all the time, and if they don’t fix this thing, then the next thing can’t get done. We all know how the domino effect works.

David Lecko:
I think that’s really smart. Now I’m going to have to read that book to figure out the percentage that you pay as a bonus because I want to start doing that.

Rob:
Yeah, man. It sounds like you guys had similar strategies except David does actually do a percentage of money or whatever. You do this deal and it seems like it’s going pretty well. You’re obviously starting to move into your real estate business here and you talked about driving for dollars. Now, a lot of people can be a little wary about driving for dollars as extremely time-consuming and sometimes not worth the time. What would you say to that? Because I know you’ve built your business effectively on this model.

David Lecko:
Definitely. The advice I was hearing from everyone at that meetup was to go Drive for Dollars. At my time, there wasn’t really another option because just the group that I was with, they were saying that, that’s what I need to do. Then I totally get though that it can be time-consuming. If you’re a doctor, this may not be the strategy for you. It’s great if you have more time than you have money. Because the list is so good, these big real estate investors don’t typically do it because they’re buying these lists that are easy to get and they’re just spending more mail, spending more money on more marketing to those bigger lists, which is required because they’re competitive and they’re bigger lists and they’re less niche.
The driving for dollars list is a list that nobody else has. You’re the one who drove around and found those rundown properties. Plus, if a tree fell on a house that was vacant, that’s not going to show up on any list. You can’t buy that list. It’s hard to get. If you put in the time to do it, you can actually get a deal for smaller amount of money, because there’s less properties you have to market to, and there’s less people that are marketing to that homeowner. Therefore, you’re not going to have as much competitiveness in terms of them trying to shop around and get the best price. That’s why I like driving for dollars and why it’s been a really great business

Rob:
Actually, can you just run us through what is driving for dollars? I want to make sure that everyone at home is on the same page as us because we’re going to be talking about this a little bit more.

David Lecko:
Driving for dollars is a strategy to find a real estate investment by looking around for a rundown property. Then you look up who owns it and send the owner a letter asking if they want a cash offer on their house, and if they do, they call you back. That’s what driving for dollars is. The reason why it works is because that house is run down. They probably can’t sell it on the market. If something happens in their life, they might not have the cash to deal with a medical expense or deal with something that would cause them to have to move. They need to unload that property. Like a pawn shop. When you take somebody to the pawn shop, you’re not getting the top dollar, but you do want to take it there because it’s the easiest thing to do, it’s the quickest way to get cash and move on to the next thing in your life. People do that with their house. People need that service with their house and driving for dollars is a great way to identify those types of properties.

David:
Can I tell you why I like that strategy? Because it’s very difficult to do, which means nobody else wants to do it. There is a trend in our country, in our culture of how do I automate, delegate, systemize? I wanted to do a thing that makes me a bunch of money on its own and I just show up to the money tree and I pull the dollar bill out of the business, but I don’t want to have to pull the weeds, water the tree, shelter the tree, check the pH balance of the soil. I don’t want to do the work of a farmer. I just want it to grow and give me money. There’s become an obsession with that and there’s little tiny ways this will work for a short period of time. We saw it with crypto, we saw it with NFTs. Drop shipping at one point was like, it was like you struck oil and there was all this gold, and then everyone rushes into it, it dries up. It’s not a sustainable thing. You just might get lucky.
The popular way that most people are running businesses like you, David, is they’re trying to automate a system that sends letters that look like they’re handwritten, that hires somebody else in another country to oversee the job, that leverages out the answering of the phone and tries to qualify the leads and then sends somebody else to the house to go negotiate with the person. When it becomes easy like that, it just means everyone else can do it and someone with more money, more experience, more resources than you will just do it better. You end up chasing the same deals that everybody else is chasing, asking how come these strategies that I heard people talk about on the podcast don’t work? Driving for dollars cannot be leveraged. You can’t pay somebody to go out there and just drive around and look for the right homes, at least not effectively.
You have to go do it. When you do that, you find the property that’s not getting bombarded by other people. You find the lead that you actually have a chance to nail down and you get to make the connection with that person. You get to go talk with them, build rapport, use all the skills that you’ve built. Not some employee that is like, I only want to do the bare minimum and I only want to get under contract if it’s easy. They can hit the layups, but they miss the tough shots. That’s what I love about what you’re saying. This is the strategy and I see you smiling because it sounds like this is landing with what you’ve recognized in your business that our listeners can go apply because it’s real and it’s honest and it works. It’s not looking for a cheat code that everybody else has already found. What do you think about that perspective?

David Lecko:
I think it’s absolutely true. I think that’s why it works so well, is because the easy way to do it is to go buy a list of absentee owners or go buy a list of high equity. It’s just the easiest thing to do. People do that. Seeing the property, laying eyes on the property is something that is harder to do, and I think that’s why it’s such a better list.

Rob:
I think there’s always going to be growing pains with really any model if you want to achieve automation or anything at the largest scale, I mean you do. I think that’s always really tough to do. I’m curious, David, obviously you were the one driving around doing a lot of your own deals when you were doing this. How did you actually scale out of that? Because I know you said that time was so important to you, and this sounds like, I know you said it doesn’t necessarily have to be a time-consuming strategy, but when you were starting out, I’m sure you hadn’t figured that out. How did you actually scale in a way that was effective when it came to driving for dollars”

David Lecko:
I just kept doing it and I kept doing deals. As soon as I had done maybe $200,000 of, I did a couple of bird deals where I got the cash out and I could recycle that money. That’s when I realized, all right, maybe my job is worth what you can actually hire somebody to do this for, which might be $20 an hour looking at Amazon driver salaries. We can get into that, but that’s whenever I figured out maybe I shouldn’t be the one driving anymore. That was a couple of years into it after I had done several deals and after I learned a lot of the neighborhoods that I wanted to buy in, knew those by heart already.

Rob:
We’ve actually heard a couple of interesting strategies on BiggerPockets of how people, I don’t want to say automate, but increase their deal flow. We had someone on the podcast said that they give flyers to pizza delivery people and they say, “Hey, anytime you see a distressed property or if you’re delivering to a distressed property, leave this on the pizza box or leave it on the door or whatever.” I’ve also heard of people doing that with UPS drivers and all that type of stuff. It seems like you can get creative with ways of increasing your deal flow. Did you ever go down that route or did you just go straight to hiring somebody?

David Lecko:
I never did the pizza delivery thing. There’s basically three ways that you could hire a driver, and most of them are tricky if you don’t know exactly what you’re doing, which is still what makes driving for dollars great because it’s difficult to scale. Here’s the three payment strategies that people use. They either do per hour or they do per deal added or they do, you get a bonus when I close a deal, like to the pizza guys. People have made it work. I have not. One thing I’ve observed is that if you’re going to give a bonus when you close a deal, that could take three months. These houses have been distressed for a long time, so they’re not going to sell right whenever they get a postcard from you. You need to keep sending postcards. Every basic marketing advice says it takes 10 to 13 touchpoints before somebody responds to your marketing.
You’ve got to catch them at the right time. By the time that happens, the person you trained what properties to look for, they probably have moved on because they have bills to pay, they need to live their lives. Unless it’s like your mom, your spouse, somebody that loves and caress about you and can stick with you for three months without payment, I don’t know that I’d spend time training anyone for this model where you pay a fee just when you close a deal. The other one is per property added. Some people might pay 25 cents to $2 for each property that looks distress that they add. You could do that. It has worked. All three of these have worked, but I don’t like that one because people like security of knowing how much they’re going to make, and we think about jobs in terms of hourly payment.
That’s why the hourly payment is actually the best when you’re going to recruit somebody reliable and you want them reliable. If you’re going to spend time training them, you don’t want to train them and have them go away. I posted a job on Indeed for hourly, and I got a bunch of people responding. I set up five interviews on a Saturday and every person actually did not come to the interview. I texted them, I was like, “What happened?” One person even said, “I moved to Florida.” It’s like, I felt so disrespected, it was a huge waste of time. I knew I needed to change something. I incorporated a test project. Now, I posted the job again. When they applied, I said, “Please send me a two-minute video. Download this app that I use to look for rundown properties. It’s free, no cost. Just add three properties. Text me when you do that. I’ll Venmo you 10 bucks.”
That really weeded out people. If they did that, I knew they were tech-savvy. I knew that they had read my instructions instead of blindly apply. I knew they were serious. Then I pretty much had a 100% show up rate when I scheduled an interview. Finding them, I would incorporate a test project like that. Then $5 more than what Amazon drivers make is fair because the driver that works for you is they’re going to actually be using their own car and paying for their own gas. They will want to work for you because they love seeing that money that’s a little bit more than what they could make at Amazon. It’s a good deal for you as well because they’re paying for the car and the gas. If I were to say a couple of more pitfalls, have a weekly meeting with this person to review the properties they added and make sure that they feel like they’re a part of the team as well. That’ll keep them going week after week and stick with you for a long time.

David:
We’ve covered the bottom of the funnel, the hiring and the delegation of how you’re going to spread out some of the workload. What about the top of the funnel? How are you going to build this list of potential opportunities to pursue?

David Lecko:
I actually was given the advice that if you find a hundred rundown properties, that’s about what it takes to get a deal. Now, as time goes on, I’ve had the fortune of working with a lot of people who scale their Driving for Dollars teams, and I noticed that it depends on your market. If you’re in a lower-cost market, I’d recommend four to 500 rundown properties marketed six times each. If you actually are in the more expensive markets like Seattle, Los Angeles, somewhere in New York State, you may need to add as many as 1500 to 2000 rundown properties before you get a deal. Now, if you’re wholesaling, typically you’re going to get 15% of that value of the property as an assignment fee. You’ll notice that even though you spend more time and money to get a deal in a high price market, you’re going to make a bigger profit. It’s easier to get started in a Midwest market that’s lower cost. You’ll make a smaller profit, but it’s easier to get started.

David:
Why is that? Is that because most people are attracted to the higher profit market, so you’re just competing with a lot more people?

David Lecko:
Wish I had the answer, I just know what I observed.

David:
This is a principle that runs throughout business, that’s pretty good for us to talk about it. I talk to my team about this constantly. This will apply to many things in life, but definitely to business. What I say is, it’s easy in, hard out, hard in, easy out. When you buy an online lead for a real estate team, like the David Greene team, and we go to Zillow and we say, “Hey, we want to buy a Zillow lead.” They’re very easy to get what we call leads. People will say, “Hey, I want to know about this house on Main Street.” They’ll ask a question, but they’re not reaching out to you because they want you to be their agent. They just wanted to know about a house and they were forced to go through these hoops they had to jump through. They’re very hard to close. You got to get a lot of them and put a lot of work in to close anything, but they were easy to get.
When you go to an open house and you meet a person organically and they’re motivated to look for a home and they’re out on their weekend trying to find one and they haven’t found a good agent, you build a stronger relationship with them, way easier to put those people into contract. This happens with a lot of things. The toughest markets to get your foot in the door in will make you the most money over the long term. The easiest markets to get into are easy for a reason. There’s not as much competition, there’s not as much demand or there’s a whole lot of supply. You will make less money later. It’s just this idea of delayed gratification. It’s not that one way is better than the other, it’s just know what you’re getting into. What’s your experience like David, with running the business when it comes to the things that are easier to get the phone to ring? Do they tend to have the smaller amount of margin in them?

David Lecko:
Yeah. I would say definitely the things that are easier to get the phone to ring have a smaller amount of margin in them. The easiest thing that I’ve ever done is pull a list of high equity properties to have 35% or more equity. Then also, they actually expired on the MLS. You can pull that list straight out of a tool and you could start sending postcards or calling them. Of course, they want to sell their house. They listed it and it failed. Everyone else is calling those people. The fact that you’re going to try to approach them, how do you make your deal sound sweeter than the rest? You compete on price and then the margin shrinks. Exactly what you’re saying.

Rob:
I have a question. I guess I don’t really understand how this part works. You said that you’re looking for something that has higher equity, so that means that the owner has a lot of equity in the house? Meaning, in your mind, if they’re a distressed seller, theoretically, there’s more wiggle room for them to come down? How do you even figure out how much equity someone has in their property? It seems like that’s private info now.

David Lecko:
I use DealMachine to go look for these rundown properties. It has public info. It also estimates the equity they have on there. Just to be clear, when I’m driving for dollars, I don’t even look if it’s absentee owner, owner occupied. I don’t look at anything. I just look if it’s distress, I send the letter. When David was talking about do easy things have smaller margin? I was using that as an example, because separate from driving for dollars, I’ve pulled a list of just properties that expired on the MLS with decent equity, and it turns out a lot of other people pull that list too so that the margins are smaller there.

Rob:
Sure. Okay, cool. If you’re driving for dollars, I know that at this point you have a whole system for getting everything out automated offers made, but do you have a target profit or assignment fee or ROI that you’re looking for on a specific property?

David Lecko:
I’m looking for something in the range of perfect condition, $200,000. I want to either do a Burr deal where I put in 75% and that way I can refinance out and have no money in it at all. The Burr strategy, read David’s book, or I actually just want to analyze the rental. Say, well, could this cashflow at least 500 bucks at that price point? Meaning, the difference between what my mortgage payment will be and what I can rent it for would be 500 bucks. Those are two analysis that I look at to see if I want to actually do a deal.

David:
Question for each of you. If you had an opportunity to be all in for zero money on a Burr and you’re still having 25% equity, so houses were 200 grand, you’re all in for 150, $50,000 of equity, but none of your own cash is left, you got it all out. However, it loses $150 a month in negative cash flow in the first year. Is this a bad deal or a good deal and why? Let’s start with you, David.

Rob:
It loses how much? You said $250?

David:
150 a month.

David Lecko:
I’ll say this, I wouldn’t keep it. If it was worth 200 and I’m 150 in, got all my money back out, I would sell it. I would never keep a property that loses money for myself.

David:
Great point. You would just basically take that 50,000 of equity and you’d sell it. Same for you, Rob?

Rob:
I don’t want to keep it. I was just negotiating a seller finance deal last week or two weeks ago, and I laid out the numbers. I said, “Hey, man. Look, this is going to lose on a long-term rental, 200 bucks a month.” He’s like, “Well, the thing about rental properties is other people are paying your mortgage, and so sometimes you got to take a small loss. At the end of the day, the appreciation and the location is all that matters.” I was like, “Look, I understand what you’re saying. I don’t go into any deal where I lose money.” We renegotiated the terms, at least break even.

David Lecko:
Some people will do that deal. I know I could be able to sell it because if you own a rental property in San Francisco, a $3 million house may be only rented for $5,000. That doesn’t even cover the mortgage payment. Could barely even cover the taxes, but people buy them, just not me.

David:
Same question, but now the house is in a prime market in the country, it’s worth 800,000. You’re all in for whatever, 75% of that is, very nice location, but it’s still losing $150 a month in cashflow. However, when you look at the principal pay down, you’re paying off much more than the 150 a month. The appreciation is all but guaranteed and you know that rents are going to be going up pretty significantly in the future because it’s such a gray area with less supply. What’s your answer now on that same scenario, David?

David Lecko:
I still wouldn’t do it because I don’t want to have to babysit a property. I don’t want to have to calculate how much of my active income I have to suck away to actually keep that property afloat. I want to scale properties and the only way to do that is to make sure they all positive cashflow. I think I learned this from the cashflow game that goes along with the Rich Dad Poor Dad book is you can’t get out of the rat race if you have negative cash flowing properties. Now, sometimes randomly you could get the appreciation and sell it, but you’re still not out of the rat race yet until you actually buy cash flowing rental properties that are positive. Again, I would sell that deal, use the cash to buy some cash flowing properties.

Rob:
I really don’t like to lose money on a monthly basis just because I’ve worked so hard to get my cashflow where it is. With that said, I feel like you want me to say I would buy it, so I’m going to say yes. No, I’m just kidding.

David:
I see that there’s a lot more hesitation in each of your answers though. There was like, hmm. It moves the needle a little bit, right?

Rob:
Of course. I guess the caveat to that is like, I would take a deal that loses money if there’s a clear path to not lose money. Let’s say that I’m inheriting a tenant that’s under market like you said, and as soon as they move out, I can increase rents to not lose the money, and that’s going to happen within a year, no problem. I can do that. If it’s like I’m inheriting a three-year lease where I’m losing 500 bucks a month, no, I would never do that. If it’s going to turn pretty quickly, then yeah, sure.

David:
What if this property that we just mentioned at $800,000 can have a cost stake study done and the bonus depreciation is going to save you 50 grand that year?

Rob:
Yes. You see? Now you’re asking a good question.

David:
I guess here’s what I’m getting at, are you losing money if you’re only looking at the monthly income versus expenses or are there other factors at play in the overall investment of real estate?

David Lecko:
Yes, 100%. That’s a very fair point because yes, I think if you knew that you were going to, like you’re talking about Burr, flip it, get out of it in the next three years and you’ve got a ton of equity in there and you’re only going to lose, let’s say 10 or $15,000 in rents, but you’re going to make $200,000 from that flip or something. Totally, I think at that point, it would make sense.

David:
What about you, David?

David Lecko:
I would flip it. I would make the quick cash. Unless it’s making me money $500 per month, I’m not going to keep it myself. I still might do the deal if I was going to go ahead and sell it.

David:
What I hear you saying is that you would create energy through capital gains of a flip and then read or invests that energy into the cash flowing real estate that you know can find somewhere else, right?

David Lecko:
That’s right.

David:
I like it. Great stuff.

Rob:
Is this a preview? Is this the Blinkist of Pillars of Wealth?

David:
Wow. Dude, you’re getting good. This is scary good. I think I picked the right co-host. Look at this, man. That was really, really good. The book that’s going to follow it is just an understanding that most people were taught how to buy real estate using a training wheels model, which was just cash in cash out every month. That cashflow was the only thing that we were trained to look at. Once you get into real estate investing, Rob, like you were just mentioning, you own quite a few properties now, you start to see that it’s not quite that simple. That there’s energy that’s flowing in and out of these assets in many different ways. It could come in through equity that you bought at below market value. Equity where you forced equity. The cashflow doesn’t stay the same every year.
Rents go up in some areas or you can add units to properties to make them worth more. Certain areas tend to appreciate more than others. There’s tax benefits owning real estate. Then I think things also change if let’s say that David’s business that he’s running is bringing in 50 grand a month in profit, well now that $150 a month he might be losing isn’t as significant as when it’s like, dude, I’m on a tight budget. I got to get out of the rat race. For the people listening, we’re not all in the same position and the part you start at is not going to be the part you end up with. It’s okay if your model and your blueprint doesn’t look exactly like everybody else’s. David, for the person who’s starting off here, the real estate investor, who’s the ideal avatar that should consider driving for dollars?

David Lecko:
I think somebody who’s not got a lot of extra cash that they’re willing to invest in marketing. I think that if you haven’t done a deal before, it’s a great way to learn your neighborhood. The combination of those two things would be what I would recommend who should drive for dollars.

David:
What do you think, Rob?

Rob:
I think this is going to make the most sense for the newbie. I think obviously, anybody can enter this, but a lot of the times, people who are already relatively established already have their deal flow established. They’ve already got their deal flow going from people that are driving for dollars. It does seem a little bit more of an entry point for most people. With all that said, I just locked down a seller finance property, driving for dollars as well, like a week ago. Accidentally driving for dollars, I was driving in my neighborhood and there’s a for sale sign with the flag on top of it that said seller finance, and I was like, well, hey, I’m driving and I’m going to make the call and I made the offer.

David:
What a smart marketing strategy for that seller. That’s a smart agent or whoever put that together. That’s a great idea.

Rob:
Dude, it was a dream. It was a dream. 3% interest, 10% down. I mean, 30-year maturity. He just doesn’t want to pay the capital gains. Here’s the best part, everybody, he has 150 units in Houston multifamily, and he is like, “I’m wanting to get rid of them all over the next couple of years.” Guess who’s going to be first in line? This guy right here.

David:
I mean, you never know when you’re doing the right actions and you’re taking the right steps, what that’s going to turn into. I think that’s awesome. Now, David, these days you’re cash-flowing about 72 grand a year and you’ve got more coming. You’re helping other people find and close deals all over the country. Do you have the time freedom now that you were looking for in the beginning?

David Lecko:
100%. I could live off 72 grand if I wanted to. Now, I do spend a little bit more from other active income, but I’ve got the time freedom. What I love doing is getting up at 4:00 and going wake surfing three times a week. That’s something that’s not super cheap, but I’ve got the time freedom and the disposable income to be able to do that. That’s one way I love spending my time freedom.

David:
What kind of a sentence starts off with what I love doing is waking up at 4:00?

David Lecko:
It’s 4:00 PM. I get up. No, I don’t wake up at 4:00 AM, I get up from my desk at 4:00 PM.

David:
Okay, all right. That might make a little bit more sense to me than I love waking up at 4:00 in the morning. Rob’s been spending the last three months dragging himself through broken glass, trying to get to the gym, waking up early and letting us all know the whole time how terrible it is. Then David walks in and says, “My favorite thing to do is wake up at 4:00 in the morning. That’s what I use my time freedom for.” You’ve been able to experience a life you wouldn’t have been without real estate. You’re doing the things you love. They keep you charged up. You’re getting your wake surfing done, you’re experimenting with different barbers. You found the perfect wave to your hair, which I don’t think should be lost on our audience since you do love wake surfing. I wonder what Rob’s equivalent would be. Maybe mountain climbing. The quaff kind of looks like a bit of a, have you tried that yet before, Rob? Since his hair looks like a wave and he likes to wake surf?

Rob:
I feel like mine does also kind of look like in this particular moment, it’s got this bottom cloth and then there’s another cloth on top of it. I woke up like this. I got in at 4:00 AM last night.

David Lecko:
That’s when I was waking up.

David:
That’s funny, David, when it comes to landing these deals that you find the opportunity, you go talk to the seller. What we didn’t talk about are some of the psychological tools, scripts, whatever. What advice do you have for the person who thinks that they found an opportunity, they want to go open a conversation with the seller? Obviously, with your experience, you can write a person off who’s not serious, not motivated. You can also navigate the conversation when it’s a little more complex, but just for the person who’s like, man, I want to go talk to him, but I don’t know what I’m supposed to say. Are there books? Are there podcasts? Are there influencers? Who do you recommend that people listen to, to get better at having those uncomfortable conversations?

David Lecko:
I think Brent Daniels’ Talk to People would be a great person to follow and check out his Cold Calling Scripts on how to talk to people and have those conversations. Because ultimately, there’s only two things that give you money in this business, it’s finding distressed properties and communicating with the owners.

Rob:
I actually did a podcast with Brent not too long ago. Very nice guy. Love the philosophy. Seems very successful. Talking to people, what a novel concept, right?

David:
Right. I think for people that are good at talking to people, the assumption is why is this so hard? For people that are bad at talking to people, it’s like up there with public speaking. What I don’t want is for the people that are nervous about it, they don’t have a natural skill with other human beings conversating, but maybe they’re great at analysis or they have a great work ethic. I don’t want them to be afraid to go initiate contact. It is a skill that can be improved. I think when I read Pitch Anything by Oren Klaff, we had him on the show to talk about him. That was one of the takeaways I had is, there’s an actual science to communication. If you could get this down, people will listen to what you have to say and they will see your perspective and it will greatly increase somebody’s confidence with communication, which is what I teach to the people in my company.

David Lecko:
Communication is the foundation of life. I just started taking a storytelling class for the very same reason. It doesn’t matter if you’re trying to sell something, if you’re trying to entertain friends. The ability to communicate in a way that inspires people to listen and stay with you all the way to the end is the foundation of every relationship or every transaction. It’s just so important to life and I believe that.

David:
Awesome, man. That’s a great, great story and you did a great job of communicating today, so thank you for that. For people that want to communicate with you more, where can they find out more about you?

David Lecko:
You guys can follow me, dlecko on Instagram or if you want to check out DealMachine, get a seven-day free trial. We help people find distressed off market properties and make sure they’re communicating with those owners, which is so important. One of our top customers, and I host the DealMachine Real Estate Investing podcast where we interview people who’ve done their first wholesale deals.

Rob:
Love it. What about you, David?

David:
You can find me at davidgreene24 or davidgreene24.com to see what I got going on and how I can help people build their wealth. Rob, how about you?

Rob:
You can find me on YouTube over at robuilt where I talk about real estate, short-term rentals and life, liberty and the pursuit of happiness, and on Instagram too. All of it. If you want the goofy videos, go to Instagram.

David:
If you’ve got something off this episode and you want to keep learning more, check out BiggerPockets Podcast, episode number 781, where we have a round table discussion with Rob, Henry and I on the beginner’s guide to finding undervalued off-market deals in any market. Episode 731 with Brent Daniels or the Rookie Podcast, episode 241, where Sahleem Lee was interviewed, who went from being a line cook to a long-term investor with 32 wholesale deals. David, thanks for being here, man. Really appreciate you sharing your story as well as the details that you did. We will have to have you on again and follow up with how things are going. This is David Greene for Rob reading his second book Abasolo, signing off.

 

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