David:
This is the BiggerPockets podcast show 772.

Henry:
The people buying now are the people who are buying in 2009, right? Those people were pumped that they bought in 2009. This is what it looks like. This is what it looks like to build wealth. It’s not pretty now, but I think it’ll be beautiful in the long run.

Rob:
We’re always going to be pumped that we bought now 10 years from now.

David:
I say that constantly. Tell me a person you know that bought a house 30 years ago that says, “I wish I never would’ve done it.” What’s going on, everyone? This is David Greene, joined by my fellow avengers, Rob Abasolo and Henry Washington with a special episode for you guys today. We are going to be talking about how to analyze deals in 2023 in the challenging market that we’re in. The reason that we are making the show is we actually received a one-star review on Apple podcast. We wanted to share that with everyone so they can understand where we’re coming from. The review was titled, “It used to be my favorite podcast.”
The reviewer says, “I used to listen to the show religiously, but it feels like it gets more negative with each new episode I listen to, and it makes real estate investing seem unattainable.” Now, that was a bit of a bummer. However, we understand where the person’s coming from, right? The one-star review may not have even been reflective of us. It could have just been frustration with the market, or it might be that we’re shooting straight with everybody. We’re in a position here where we could tell you that everything that glitters is gold, and real estate is easy, and you should quit your job, and spend your whole day listening to us. Replace your active income with passive income.
But for those of you that are living in the real world, you’ve seen how unattainable that can actually feel. The show is a reflection of what we’re seeing in the market, and we value integrity over money. We’re never going to tell you anything that we don’t actually think will work, and it can feel like a bummer. We get it. So in today’s show, we are going to be replying and responding directly to this concept that real estate feels unattainable, and giving you some tips, techniques and tricks that work in today’s market as well as where expectations could be set, and what we are all doing to make deals where other people are missing them.
Before we get to the show, today’s quick tip is brought to you by me, and it is, “Change your expectations when it comes to real estate investing, and stop looking at it only for a cash on cash return.” We are going to talk about the internal rate of return. We’re going to talk about tax savings. We’re going to talk about adding equity, buying equity, converting equity, a lot of more high level stuff when it comes to real estate investing that the savvy investors are using to still get returns on their money outside of just a straight cash on cash return. So, think about real estate a little bit differently, and I think after today’s show, we will have helped you do that. Anything you guys want to add before we get into it?

Rob:
Well, we’ll uncover later that I’m not good at free styling, so listen to the very end to understand this reference, but no.

David:
That is perfect. Let’s get into it. Robuilt, Henry Washington, welcome to the BiggerPockets podcast. First and foremost, how are each of you today?

Rob:
Good. Good. Thanks for having me on, man. It’s always been a dream to be on this show.

David:
I know you actually mean that today because you’re not wearing a black pocket tee. You’re wearing a white shirt.

Rob:
That’s right.

David:
Your camera lighting is brighter than usual. You have a bit of an angelic glow as we’re recording here.

Rob:
New year, new me, baby.

David:
Yes. Wonderful. Henry, back in the purp as always. I see. Still looking cool. How are you today?

Henry:
I am fantastic, bud. Happy to be here talking to my buddy Rob and David.

David:
Yeah, thank you for the also ran mention there. If people don’t understand what I’m talking about, go follow us on YouTube. You will see more than you were just hearing, and all of this will make sense. Now, today’s show is going to be a little different. We are venturing into territory that most podcasts are afraid to, but because I’m hosting this thing, and I fear no evil, we’re going to get right into it, and direct this. We received a review about the show, which I think bears repeating with everybody. So, this came from… It was a review title that was labeled, “Used to be my favorite podcast.”
The reviewer said, “I used to listen to the show religiously, but it feels like it gets more negative each new episode I listened to, and it makes real estate investing seem unattainable.” The three of us put our heads together there, and thought like, “This is probably a common theme a lot of people are feeling,” that they started listening to BiggerPockets podcast. They started listening to real estate investing online, and it was this really shiny, blustery object like, “Hey…” I don’t know. Is blustery good? I’m even thinking luster, and I just added bluster, so opposite of bluster, lustery object, very appealing. You’re hearing all these stories of people that quit their job after six months, or became multi-millionaires on the power of real estate investing.
People charge into this thing super excited about real estate investing, and then they either get their clock cleaned, or they can’t find the deal that people explain that they got, and they get discouraged and think it’s something wrong with them, or they buy bad deals, because they’re trying to figure out, “Well, if you just buy real estate, it’s supposed to work.” Then no one talks about it. No one jumps up and screams, “I lost a lot of money making bad decisions.” They just slink into a hole of shame, and sit there. We want to just have an honest response to this that real estate is harder than I think it’s ever been.
So, let’s start off with you, Rob. What is your overall experience with the market now versus when you first started investing, and when was that?

Rob:
I’m going to answer that, but before I do, I just want everyone at home to know that we read every single review, and we take them all very seriously. When someone leaves us a five-star review, it makes our day. When someone leaves us a one-star review, which is rare, but that’s what happened here, it bums us out. We want to make sure that the show relates to everybody. So, going back to your question, David, what was it?

David:
I was talking about how you never listened to me.

Rob:
Yeah, that’s on me.

David:
What was real estate like when you first started investing, and when was that?

Rob:
I started investing in 2017, so around six years ago. Back then, for me, it was the Wild West. I think true Wild West for short-term rentals in Airbnb was probably like 2010 to 2014, really probably 2010 to 2017. You could have done anything, and made money on Airbnb. But me getting in, that’s when people started to figure it out and figure out that you could actually make big money on it. At the beginning, it was people just renting out a bed in their house, and they were making extra cash on the side. But 2017 is where people were like, oh man, “We could rent an apartment, and then put it on Airbnb, and make $2,000 or $3,000 a month.”
At that time, it was really, really, really hard to fail. I will totally never say that me getting into this, and building what I built was because of any particular genius. It wasn’t because I made the right decisions. It’s just because I happened to get started when I got started, not necessarily from a time standpoint, but I just started and figured it out relative to the market that I was in. So, I could really walk into any deal, and have a large margin of error. The returns from 2017 to 2021 were pretty unreal. 2021 was the most money that anyone really ever made in this industry. Then 2022 and 2023, that’s when we started to see the calibration in things hitting what I think is really back to normal.
So, a lot of people right now are… They’re a little nervous because they’re like, “Oh my gosh, you’re making way less money.” Overall, I would say most hosts are making between 15% to 30% less year over year on their properties, and that’s a big hit. I can totally understand why anybody would be scared at that metric, but I think that that’s a lot closer to what it was before 2020 and 2021. So when you evaluate everything, it does seem scary, but I just think that we’re calibrating to more realistic and normal returns. Does that make sense?

David:
Yeah. 2021 was the era of steroids in baseball. There is an asterisk that year. It was the best you’re ever going to see. Now that more people are getting into this, like you were saying, there’s maybe 15% to 30% less returns per property, but that’s because there’s probably 15% to 30% more people that are getting in this, that that money is getting spread around four, which is how equilibrium works. We have the option to tell you the truth, which is what we at BiggerPockets believe is the right approach, and all three of us that are on this show is integrity is more valuable than money. I was just telling someone that earlier today, or try to put some lipstick on that pig, and sell you on a dream, get you all hyped up, get your advertising dollars, and then watch you get destroyed when you realize, “Oh, it’s a lot harder to hit that baseball when you’re not on steroids.”
I mean, I think that’s one of the reasons 2021 was so good, and a lot of people do use that as their baseline, which would be a mistake. Henry, what about you? How long have you been investing, and what was it like when you started?

Henry:
Man, every time I do a show with Rob where we talk about our history in investing, it’s so aligned. I also started in 2017, so I’ve been doing this for just about six years. When I look at what I was buying back then, we were buying single families, small multi-families, we were buying them at about a 30% to 40% discount. We were either renting, mostly renting them, and then I would do the occasional flip. I was getting at about… At that time, I was getting between 5% and 7% interest, and so when you hear Rob talk about he feels like this is getting back to normal, that is exactly how I feel. I mean, now we’ve gotten a little past normal on the interest rate side now, because we’re up above that 6% and 7% for investors anyway getting loans, but it has felt more like a reset than a crash or what some people are saying.
So, yeah, it’s been a reset. I think there’s a caveat to my strategy versus Rob’s short-term rental strategy. It’s that I’ve always been trained to look off market. So, I’ve been building systems and processes to help me find off market deals before I even knew that that’s what I had to do. That’s just how I learned this business, and so if my deal flow hasn’t changed from then to now, I get the same amount of deals for the same amount of effort, because looking off market, you’re more buying situations than you’re buying houses, and there’s always going to be a situation where people are willing or need to sell at a discount.
That hasn’t changed, but what has changed is the disposition strategy, because the market is going to reward you in some way, shape or form. It’s either going to reward you through appreciation cash flow or equity. So when I first got started, I was holding a lot, because it was fairly easy to cash flow. I could get deep discounts. I have… I’m in a market where I can get fairly decent rents, and I’m in a market where the entry price, the purchase prices aren’t through the roof. I’m not in a California or a Florida, Texas New York realm, and so being in Arkansas, I can get good entry prices. So, almost every deal would make sense from a rental perspective, so we kept a lot.
But then 2021 hit, and I started doing the math on, “Well, yeah, I could rent this, and make a few hundred dollars a month net cash flow, or I could sell it, and make $90,000. I just bought it six months ago.” It was really hard to hold those, and so we were capitalizing on what the market… In sports, David, we say you take what the defense gives you, right? The defense was saying, “I’m going to give you a big bag of cash for this property, and it’s going to take you 15 to 20 years of cash flow to even get close to the amount of money you’re going to make if you sell it.” So, we pivoted by selling a lot in 2021, and I used that as a time to trim the fat in my portfolio. I had properties that were cashed on a little bit that I didn’t love. We would sell them.
If I had properties that were more maintenance intensive than I had hoped, we would sell them, because we could get paid for selling them in that market. So, now, I would say that the defense is telling us, “Well, you’re not going to make a ton if you sell it, and your cash flow is going to be a little difficult.” Now, we have to really pay attention to how we’re analyzing the deals, and then make a call. Mostly, that call right now is, “Am I willing to make a little bit of cash flow, or break even in hopes that when interest rates come down that we get a bump in the market, and appreciation goes up, or do I flip it and make 20,000, 30,000?” So, it’s the same game, but the disposition gets a little different.

David:
That’s a great way of looking at today’s episode. We are talking about in today’s market against today’s defense, what is it giving you, and how do you take advantage of it? There are times when, if we’re going to stick with a basketball analogy here, where you’re playing a scene with a terrible defense, and your goal is to score as much points as you can, and get your starters out of the game. This was the Golden State Warriors for years. Stephen Curry didn’t even play the fourth quarter, and it gave them a better opportunity to have a better longer season, because they could rest their stars. They could score a lot of points. Teams didn’t know how to guard him.
Then there’s times where the market’s going to give you a very difficult defense like now where you feel like sometimes, it almost might feel like it’s impossible to score. Can you run the defense ragged for the whole shot clock, and make them tired so that later in the game, you have an opportunity? Can you get fouled and start to just try to get into the bonus? There’s something that can be done, but if your expectation was, “We’re going to make three passes, and get a wide open three pointer by one of the best shooters in the world,” and if that doesn’t work within basketball isn’t working, you’re not adapting well.
Real estate is cyclical. Economic cycles are by definition cyclical. There are times where it’s hard to buy real estate. There are times where it’s easy. There are times where we are printing a lot of money. There’s times that we’re in a recession or a depression. There’s going to be different defenses that we’re going against. I think your example there is really, really good. So, let’s use that as a jumping off point. Rob, what is your preferred method of investing?

Rob:
In terms of which asset class?

David:
Yes. Yes.

Rob:
Short-term rentals, I don’t think… Not much of a secret there, but it is starting to move a little bit into… I’m doing a lot more stuff this year I think, and this will still feed into short-term rentals for sure, but I’m definitely really heavying up in the Sub2 creative finance space, because for me, that’s the solution to all the problems that we’re seeing right now with interest rates and everything.

David:
All right, so let’s talk about expectations. What were they when you started, and what are your expectations right now that you’re investing in a tougher market?

Rob:
Okay, cool. So, here’s… One other thing that I wanted to say about all this is that… I hate to even say this. Maybe we’ll cut it out, but I feel like the last five years, real estate was a get rich quick scheme like, “Everyone was making money.”

David:
I would say in the short-term rental space specifically, your experience, yes.

Rob:
But legitimately, you could make a lot of money, but most veterans, I think, know and understand that all real estate is not get rich quick. It’s get wealthy over time, and then there will be pockets within the timeline that you can make a lot of money. So, for short-term rentals, that’s what it was, and now, you can still make really good money, personally, I think. I’ll walk you through a deal in a second. I just think it’s not like… I don’t think you’re going to retire off of one property. I’ve personally anecdotally have never paid myself really for my short-term rental properties. So whether my portfolio makes 10K or 7K, it doesn’t affect me too much, because it all just goes back into all the properties that I’m buying.
But all to say these days, here’s the cash on cash that I’m looking for. Traditionally, over the last five years, I was looking for a 30% to 50% cash on cash return, which I don’t even like putting that out there. This is not really something I would ever tell anybody listening to this like, “Go get a 50%.” It’s ridiculous. It’s just how it was.

David:
Well, let me jump in there. That’s what you were getting because when you compared all the deals that you were looking at, the top, top, top deals could provide a 30% to 50% return. Because you had a really good deal funnel, you had a really good analysis system, you were good at what you do. You were only buying the best deals, which provided that. That does not mean the person who’s brand new is going to step in, and, to use the basketball analogy, get the same wide open look that you’re getting.

Rob:
Correct. Yes. Thank you for that. That’s why I’m like, “I don’t even want to put it out there,” but we bought a chalet in the Smoky Mountains. I think all in, we paid 50K for furnishings, down payment, everything. We grossed 83,000 the first year, profited like 58. I don’t know. It was something like that, right? So, that one was a perfect deal, but these days, it is just not like that anymore. I think a lot of people want to achieve that, but nowadays, I’ve really… I’ve tampered it more and more over the last year. At the beginning of last year, I was cool with a 20% to 25%. I was settling for a 20. Right now, a 15% cash on cash return is what I’m looking for when I very conservatively underwrite all my short-term rental deals.
That’s a really big change from when I started. That’s nowhere near the same return profile, but I am also really just padding my underwriting to just allow… I’m trying to make it… Even if it is, let’s say, a 25% or a 30%, I’m purposely adding so much stuff in my underwriting to try to get it to a 15% just so I’m like, “All right, doomsday scenario, can I get a 15%?” If the answer is yes, I’ll move forward with it. If it’s less than that, I won’t do it.

David:
All right, so you are still taking a cash flow heavy perspective where you want a cash on cash return at 15%. That’s still the most important metric that you’re looking at when you’re analyzing deals.

Rob:
Well, there’s more to it than that, David. I mean, look, I think when you’re analyzing a property, it’s not just the cash flow. You have to look at the overall ROI of the property, and that ROI is going to be calculated between cash flow, debt pay down, tax deductions and appreciation. So when you factor all those things in, it usually doubles roughly your cash on cash, I believe. I’d have to look at my calculator. Am I okay with… Me personally, do as I say, not as I do. I’m fine with a 10% really at the end of the day.

David:
If it’s the right property, right location, right value add.

Rob:
Yeah, because the ROI is going to be much higher than that if I ever sold it in five to 10 years. But baseline, if I were just looking at it from a cash-on-cash perspective, which I think nowadays, I’m not, but for someone getting into it, I think a 15% is a pretty good metric with the way interest rates are.

David:
There’s a good point in there. When you first start learning about real estate, we use ROI, return on investment as the metric that we teach people to look at, which is in our world, really, what we’re saying is cash-on-cash return. That’s the technical term for what we’re describing. We say ROI, but the I in ROI is investment, and we’re talking about the return on the cash we put in the deal, not the overall investment, because it makes you money in other ways too. The more accurate way of measuring your ROI is actually called the internal rate of return, IRR. That’s something worth Googling. It’s something to go onto BiggerPockets, and take a look at.
This is a metric that syndicators use, because they’re looking at the return on a property if you own it for five years, seven years, 10 years. They’re including the cash on cash return that we just described, the loan pay down, the equity that you may have created by buying an undermarket value as well as the equity that you may have created by value add to the property. Increasing the rent amounts makes it worth more money when you go to exit. There’s lots of ways real estate makes money, tax advantages. IRR really takes all of those into consideration. So when you hear someone like me say it’s not all about cash flow, that doesn’t mean cash flow doesn’t matter. It means it is a piece of…
It’d be like saying, “Well, it’s not all about how well you can score.” That doesn’t mean scoring doesn’t matter in sports. There’s more to it. That’s obviously a part of it. So when it comes, Rob, to the deals you’re looking at, where are you starting financially? How do you tend to fund most of the deals you’re buying?

Rob:
Over the last couple of years, we have been doing OPM, other people’s money, and working with individual investors. We have since switched to that, and now we’re doing fundraising with Robuilt Capital. We haven’t really launched it yet, but we’re going to be doing a fund, and working on more value ads, because I think that that’s where the real equity and appreciation will come into play for 2023. It’s taking a dilapidated RV park, making it… sprucing it up, making it a lot nicer, doubling the income, getting a lot of value, and basically forcing appreciation that way. That’s where I’m moving is out of single family acquisitions into much bigger developments and projects.

David:
All right, Henry, moving on to you here. When it comes to your expectations, what is your approach right now to real estate investing in this tougher market?

Henry:
When we first started out back in 2017, I remember I was a big BiggerPockets Brandon Turner guy.

David:
Nice subtle dig there. Let’s hear more about your ex. How is she compares to me?

Henry:
Brandon was the $100 a door after all expenses, right? That’s how I evaluated and determined if the rental property was going to make sense. I wanted a 7% to 10% cash-on-cash return, and I wanted a $100 a door net cash flow.

David:
You’re talking after expenses, after vacancy, after CapEx.

Henry:
All the expenses, guys, not just the mortgage, taxes, insurance. I’m uber conservative on my expenses numbers. I over budget for my expenses, because then when I know I see $100 net cash flow, I’m probably going to make more than that. That’s how we were analyzing deals back then. Now, things are a little different, but not much because back then, I didn’t have the consistent deal flow that I have now. I was building those processes. No, as the processes are well established, and I have great deal flow, I understand my market better, and have some… There’s some predictability with what I see coming in the door.
I’m a little more… Greedy is not the right word, but I want my numbers to be better. I’m a little more picky. So for me, we are looking at, “If I’m going to buy a single, and hold it as a rental, I want my singles to pay me a multi.” So, I want $200 to $300 net cash flow per door on a single. On a multi, I’ll take 100 to 200 net cash flow per door. I would like a 10% cash-on-cash return, but if it’s a multi, it doesn’t have to give me a 10% cash-on-cash return, because the multis are just so much more beneficial both from a cash flow perspective, also from a tax perspective. Then from a value perspective, the value of those goes up faster.

David:
Well, the fronts are are going up by $100 a year, and you’ve got three doors versus one door that exponentially starts to become more valuable over time. Is that what you’re getting at?

Henry:
Absolutely, yes. The analysis as far as how I do it hasn’t changed, but what I’m looking for or what I’m willing to take on a property has changed. I would say that that’s what everything was up until 2023, and the interest rates going the way they are, because those high interest rates are eating up that cash flow. So, it is a whole lot more difficult to find those properties where I’m going to get $200, $300, $400, $500 net cash flow per door, because I’m paying so much more for the money to buy that property. So, the game’s a little different right now. I am willing to take less cash flow if the property is in a neighborhood that I feel like is going to appreciate, especially if that property is a multi-family, again, for those same reasons, because the golden days…
Rob’s golden days, we had ours too before these interest rates, the golden days where you could buy something. As long as you were getting it at a 30% discount, if you stuck a tenant in it, you were going to cash flow, and it just doesn’t work like that anymore. So, we do find ourselves making decisions on, “Do I keep this property, and essentially break even, or do I sell this and make a smaller profit than I would typically like to?” Those are deals I wouldn’t even have considered.

David:
Because the defense didn’t make you back when you started, it was the 15% to 30% cash-on-cash return that Rob’s talking about, the $200 or $300 per door that Henry’s talking about. Those were… If you probably took a super nerdy approach, and you looked at the statistical… What’s the word? The standard deviation, and you looked at every deal, and you compared, these were in the upper echelon of deals, and so that’s what you’d go for. You’re comparing the deal. You can get to the deal you’ve seen before, and you’re looking for the one you’ve seen before. In today’s market, there aren’t those amazing cash flow numbers that we’re seeing, because there’s so much competition for these assets.
Now, it almost becomes, “Is it better to get my 7% return that Henry said or nothing?” Before, it was, “Is it better to get 7%, or wait for a 10% to 12%?” Going back to the basketball analogy here, when you first get the ball, the first thing you look at is, “Can I get all the way to the rim?” There’s nobody in there. I can beat my guy at the dribble. It’s a layup. Of course, that’s a 30% ROI. You’re going to take that every time, but as defenses get better, that’s not an option. They have a seven-foot Rudy Gobert in there who’s waiting for you, and that’s not going to happen anymore. You can’t beat your guy off the dribble.
Now, it starts to, “Okay, can I come off of a screen, and hit a jump shot?” It’s going to be tougher, but it’s better than a shot clock violation and not getting anything off. That’s what we’re describing in these situations. If you take the expectation from five years ago, and you apply it to the market you’re in now, you’re never going to shoot the ball. You’re going to have shot clock violations over and over and over, and you’re going to lose the game by virtue of not taking a shot.

Henry:
Or Rudy Gobert is going to throw it back in your face.

David:
That’s the other thing. That’s the loss, right? You tried to go after that great deal, and you got sucked into buying a $40,000 property in a terrible neighborhood that you never should have bought, because the cash-on-cash return looked great. When it comes to financing, Henry, what’s your financing strategy right now?

Henry:
Absolutely. So back in… I would say from 2017 on until about six months ago, my financing strategy was using commercial loans from small local banks. I built relationships with small local banks, and I could take down deals. If I had to put money in from a down payment perspective, the benefit to the small local banks is I could bring that money from somewhere else. So, I was either taking equity from another property, and using a line of credit to pay those, or sometimes I would borrow the down payments from other investors, and pay them a high interest for doing that. So yeah, I would… Sometimes, I would get the owner to carry back the down payments, and so we’d owner finance at least the down payment portion.
That’s how we were taking deals down, but as interest rates have gone up, and there’s been tightening amongst banks, and lending and the criteria has been a little more strict for them, and it’s harder to make deals cash flow. Part of the reason small local banks want to invest in our loan to real estate investors is because they can buy great deals that have great cash flow. As we stated, that’s not always the case, and so it’s been tougher to get the local banks to loan on deals if the numbers aren’t fantastic. So now, we’ve shifted, and we’re typically taking down deals with private or hard money at a higher interest rate, and then we’ll refinance them with either a small local bank or a non QM product.
Still, that allows me to take down deals without having to put a ton of my capital in them, but it’s a more expensive route to take because the interest is higher. Plus, you’re basically closing the loan twice, but it’s a way we found to be successful because we’re still very, very strict on our underwriting.

David:
Now, with, I don’t know the right word to use here, the decreased expectations on mostly the cash-on-cash return from real estate, are each of you buying less real estate now, or are you buying the same amount or more? I’ll start with you, Henry.

Henry:
I am buying, I would say, the same to more. Actually, I would say more. We’re doing more flips this year than we’ve done in any year. Last year, I bought more doors in one year than I’d ever purchased, so we’re doing more.

David:
Rob.

Rob:
I am doing more. I want to do more. I’m really addicted to creative finance Sub2 right now. People have been sending me deals, and I’m just like, “Yeah, why not?” So, it’s my goal. I mean, I want to take down a lot this year. I want this to be the biggest year that I operate in. The reason that it’s actually been working out relatively well so far is that, I guess, there’s that… I don’t know. Was it Buffet, Buffet? Is that his name, Warren Buffet? No, I’m just kidding. Warren Buffet, he was talking. He said, “When there’s blood in the streets…” Oh gosh, I don’t want to mess this up.

David:
When the tide goes down, you see who’s been swimming naked? Is that it?

Rob:
No. No. I know for sure he said this. He was like, “When people are scared by when people are-

David:
Oh, what you’re describing is when others are fearful, be greedy. When others are greedy, be fearful.

Rob:
Oh, you see. That’s why we pay you the big bucks, David. So, with that one specifically, everyone is so scared to get into real estate right now, so I can actually make offers and get them accepted, and it’s a beautiful thing. The property that I’m buying in Denver right now, it’s a triple-dome home. It was on Zillow Gone Wild. That got 25,000 likes on it. Traditionally, I would’ve had to have offered 200K over that a year ago. Today, I mean, I offered a little bit over just because I knew that there was another offer, and I wanted it. I think I offered 25K over, and I got it. I was like, “Wow, this feels good. It feels good to actually only be competing with one other person versus 20 other people.”
So, for me, I’m like… I’m coming in like, “Oh yeah, everyone’s scared. Give this one to me, baby.” But on top of that with creative finance and Sub2, yeah, man, I’m just going to be picking up as much as I possibly can, because if you can assume someone else’s mortgage and get a 3% interest rate, I mean, literally, almost any deal works. It’s really quite a magical thing.

David:
So, useless fact here, you mentioned blood in the streets. Did you know the high heel shoes were originally created for men to wear that were butchers for walking around in the butcher shop so that they would not get blood all over the bottom of their shoes?

Rob:
Wow. I had no idea. I did not know that. I was wondering why you kept a pair of high heels in your car.

David:
It’s a secret to these calf muscles actually. It’s like I’m always walking down a hill at all times. It’s also why we never let the camera go below my waist when we’re recording. I’m not sure if the audience is ready for that.

Henry:
I just got an image of strong hairy calves in high heels right now.

David:
It’s a great way to describe it. On my Instagram story the other day, I put a little meme that had 25-year-old guy that works his calves out seven days a week in the gym, and they’re skinny, and it’s like 42-year-old dad of three kids, and this guy is like, “Yes-

Henry:
Oh man.

David:
… massive thighs for… It’s so true. I don’t understand. Yes. All right, moving on here. Now Rob, I understand you have a deal in mind that we are going to break down for all the people joining us on this podcast to hear how deals are being analyzed. First off, tell me where is this deal? What is it? Is it your triple dome deal that you just mentioned?

Rob:
It is. It is. It’s in Castle Rock, which is about 15, 20 minutes away south of Denver. It’s in between Denver and Colorado Springs, and it’s beside the Iraqi Mountains and Breckenridge. So, it’s in this little spot that’s really cool.

David:
You should call this the Casterly Rock, right?

Henry:
Yes.

David:
As your Airbnb name, because we always give stupid names to Airbnb properties. Do you know what that is from, Rob?

Rob:
Yes. But for everyone at home-

David:
You don’t know what that is. Henry, would you like to share?

Henry:
That is the goat reference, the Game of Thrones.

David:
Yes. It’s a location in Game of Thrones called Casterly Rock. You would get a lot of… People would recognize that, and book it. I think you should go with that.

Rob:
That’s cool.

David:
Triple Dome has a good ring to it also, but what do you like about that location?

Rob:
Like I said, it’s in between a lot of different areas. So, my buying criteria in general is buying near national parks, state parks, eclectic towns, and vacation destinations. Those are my four buckets. This one is in between all of them, right? So, it’s in between Denver, which is a really big metropolitan area, and the regulations in Denver are pretty strict. So, I already feel like the overall competition is on the lower end, because it’s so hard to get a functional Airbnb in Denver, but it’s also near Breckenridge, and it’s also near the Rocky Mountains, so that’s a state park, sorry, national park, but then there’s also a state park.
It’s called Roxborough State Park. That’s right next to Castle Rock, and then an eclectic town. I mean, I wouldn’t really classify this one as that. The boulders north of Denver, that’s eclectic. That’s near Castle Rock as well. So, it’s in this booming little spot where I have so many target markets of people that are going to be going through Castle Rock just to get to some of these areas that I told you. So from a location standpoint, it checks the boxes. It’s also a very unique stay. If you’re on YouTube, we’re B rolling all of this for you to see. It’s a beautiful home. What’s really special about it is that it’s got 360-degree views of mountains everywhere.
Everyone has gone crazy about this house on the internet. The Zillow Gone Wild comments were really, really crazy, so I just feel like it’s going to be a really, really amazing portfolio piece for my direct booking website, Nick Sleeps. I think it’s going to be a very Instagramable experience, and so this is one of those, “If I build it, they’ll come type of things.” It’s already been built, but I’m going to be building the brand and everything like that. I think this one to me has a lot of potential, but I was a little bit… There are some ways that I underwrote this to make sure that it fit my criteria.

David:
All right. So, how much are you buying this for, and how is the deal structured?

Rob:
It is a conventional loan. It is a 5.99% interest rate actually, which is not bad. I had to pay about $8,000 worth of points to get it down to that rate, so I’m really happy with it. It was a million dollars, and I bid 1,000,025. I would’ve probably gotten it for a million, but someone else made an offer, and we got the intel that it was over asking. So, I just went, I was like, “Man, I don’t know how much over asking was. I’m going to go 1,000,025,” and I beat them. So, I guess I went over 10,000 or something like that. I’m not really sure. I am putting unfortunately 30% down, because I had to do that to get it to not be a jumbo loan so that I could…
Basically, it’s what I could qualify for conventionally. To the banks, I’m a poor man even though I have successful businesses, but I haven’t had successful businesses for two tax years. So, I still have to cobble together finances to get it all approved, but I’ll be putting down 30%. I’m hoping to squeak out a 15% cash-on-cash return on this particular property.

David:
All right, and then was there a subject to element to it?

Rob:
No, not on this one. This was just a straight per… I saw it. I was like, “I want this house. I’m going to buy it,” and I made the offer, and somehow got it.

David:
Now, if you had professional property management, 20%, 25%, would this deal still pencil?

Rob:
Technically yes. This would be much closer to… Oh, actually, no. It would still be an 11%. The way that I’ve underwritten it, I think I’m going to make a 20% cash-on-cash return. With a 20% management fee, it would be an 11.7% cash-on-cash return. Now, if this ends up being middle of the road… So if I get this to a 15% cash-on-cash return like I was thinking in a management company, let’s assume that Blue Gems isn’t doing this free for me. Then it would still be a 7.5% cash-on-cash return. So, it would still work. It would cash flow. I think this deal would still cash flow $2,500 a month.

David:
What were you adjusting on your calculator there to determine if it would work?

Rob:
My management fee. You asked if I had a professional manager in it at 20%, that’s what I’m putting in to see how it changes cash flow, and it would bring me down to a 7%. But if I remove that, then I go up to a 16.2%.

David:
So from 7% to 16% by eliminating the management, so there’s a point there for everyone listening who is running their deals saying, “I don’t want to be… I want passive income. I don’t want to be a short=term rental operator.” That could be why you are seeing your competition moving on deals and buying them, and you’re not because that one number made it from a pretty solid deal to most people are passing on a 7% return. It is a little bit more elbow grease. You’re going to have to put into these deals in many cases, and Rob’s one of the best in the business when it comes to these.
So, the odds of somebody else getting a deal this good, and having the vision to feel confident that it’s going to work are going to be lower than it would be with Rob. So, part of what we’re describing here is that with real estate becoming tougher, the passive element of it is passing away. Maybe there’s a play in words. We could get into that like passive has passed.

Rob:
Ooh, is that our thumbnail title?

David:
Yeah.

Rob:
Passive is dead

David:
Because real estate is cyclical, there probably will come a time where it will go back to what it was like before. We don’t know when that’s going to be, but it was much easier to get these returns, and just hand a property manager to manage it than what it is right now.

Rob:
I want to say that you’re absolutely right on this. Everyone at home, relisten to that part, because a lot of us are getting into real estate. Let’s say short-term rentals because that’s what we’re talking about for me specifically. You’re going to buy 10 properties and then 20 and then 30. Eventually, like me, I have 35 right now. You will no longer be able to self-manage those properties. You’re going to have to give them up. I started my property management company. I went in to Blue Gems, because I was like, “I need a solution for this,” but the everyday operator, you will have to give that over to a management company, and the moment you do that, it will shrink your returns dramatically.
That’s a really good point, David. I mean, that’s something that people don’t think about. If you’re good at this, you’re going to be very successful. You’re going to scale up like that, and then you’re going to have a management problem, meaning you’re going to have to pay someone to manage everything.

David:
My advice, not that anyone asks for it, is if you’re going to get into this asset class, expect to manage it yourself for three to five years. Do a very good job. Rents increase over time. Revenue increases over time. Your reviews increase over time. Your systems get better. Then you can… You’ve earned the right to hand it over to a property manager. Now, they can take over, and it becomes passive. You just can’t have the expectation of starting it for day one. That’s a theme that we’re seeing throughout today’s show, I’m noticing, is you’re just extending your horizon from when you expect that jackpot.
Henry had mentioned several deals like, “Right off the bat, we’re buying them at 70% of what they’re worth. We’re getting this kind of cash flow. I could either get rid of it, make a bunch of money, or keep it and make some money, but I had options.” It’s slowly moving into, “I can still make the same money, but I’m not making it right off the bat. I’m having to extend.” I think that’s a good advice for people to extend their expectations. Now Henry, same question to you. Do you have a deal picked out here?

Henry:
Yes, I have a deal. We’re moving from the amazing place of Casterly Rock to Sleepy Hollow, my little town of Bentonville. I’m buying a single family home, and it is… I’m buying it for I know that what is a discount, but I am in the position of trying to figure out which exit strategy is going to make the most sense given the current market conditions. So, I think it’s a good deal to talk about. I’m paying $170,000 for it. It’s going to need some work in order for it to either be flipped or be long-term rented or be short-term rented. So, I am literally in the decision process right now trying to figure out which one of those exit strategies we’re going to do.
Now, I’m buying it regardless of… This is a purchase, regardless of exit strategy, but this is that analysis that we’re talking about trying to figure out what’s the best strategy given the market and your current financial situation? I’m in a position where I can put about 40,000 in it, and I can flip it. I can put maybe 50,000, 55,000 in it, and short term rent it, or I can put about 30,000 in it, and make it a rental. If we rent it out, I could probably get 1,800 a month. So, I would be in the neighborhood of breaking even if I did that. Now, the reason I would consider breaking even for this is because Bentonville is just such a strong market with Walmart headquartered there.
Though even it wouldn’t cash flow right now, I’m going to get a big bump in appreciation because Walmart’s building their brand new home office facility. They’ve got to bring people here. It’s still a tourist destination for mountain bikers right now. There’s not a ton of hotels, and so people need places to stay if I wanted to do a short-term rental. I think once interest rates go down, it’s going to force more people into the market, and it’s going to force the values up, right? So, there are situations where I’m ready to… where I’m willing to break even because of what my analysis tells me about what could be coming in the future.
That is not something every new investor is going to be able to do. It’s going to involve you being an expert in your market, and understanding what’s coming, and doing the research to make those kinds of decisions. So, right now, I am leaning towards going ahead and selling it. The reason I’m leaning towards going ahead and selling it is because I have a pipeline of deals. There are more deals coming. I’m not… I don’t have a shortage of deals to buy, and so this one… I don’t love the long-term rental cash flow numbers, and I’m not confident. I’m not super confident in the short-term rental numbers, because of the specific neighborhood that this home is in.
I don’t know that it would produce the returns that my other short-term rentals in Bentonville will, and so I’m not super comfortable with it. I’m doing some research talking to my Airbnb property manager, seeing what’s his confidence level on what he thinks we could rent it for. I think if we did a short-term rental, we’d push that monthly income up to about anywhere between $2,000 and $3,000 a month. So, it could be great. It could not work out well. So, what I am confident in with 100% certainty is that I can put $40,000 into it, and sell it for $210,000, no sweat, and so that is… Sorry, not 210. I said 210. It’s not 210. Sell it for $275,000, no sweat, right?
That is the strategy I am absolutely the most confident in, and in this market, you’re getting punished for making mistakes. So, I’m probably going to lean toward the thing I’m the most confident in.

David:
There’s a couple points I think worth highlighting there as well. Some of this comes from James Dainard. Well, Jimmy made a point on the State of the Market podcast that I thought was really good and worth repeating here. Jimmy had mentioned that the ROI, if you’re looking at cash-on-cash return, is nominal or non-existent in a lot of deals. However, he flips a lot of houses, and the return on his investment when he looks at flipping can be incredible. He could get 20%, 30%, 40%, 50% return on the money that he put in a deal, especially if he’s leveraging other people’s money on a flip. Now, that’s not passive income. That’s active income.
We usually don’t compare these two options, because when you keep real estate, and you get $100 a month, but you bought it with 200,000 inequity, you still made $200,000 at that time. You just didn’t make it in the form of cashflow, which can be misleading. What that had me thinking about is so many people are listening to us. They want our lives, because they don’t like the job they have. Henry, you, at one point, were doing corporate real estate for Walmart. Rob, you were doing professional voice acting and marketing and overall debauchery, but the thing… I was a cop. I was sleeping three hours a night on a good night just looking for…
Every day, I woke up like, “When’s the next time I could sleep?” I was just obsessed with when can I get sleep? We didn’t like the lives we had. Real estate gave us a better life. If you’re in that position, it has been previously spoken to you that the evangelist for real estate would say if you get enough cash flow, you can replace your active income with passive income. You can quit your job. You can move on to something better. That is what is becoming very hard. However, if you quit your job, and got into flipping houses, and you made $75,000 a year flipping two different homes, that could be a job you like more than the one you don’t like, doesn’t involve you sitting in commute traffic.
You can work from home. Your schedule becomes more flexible. Now, there are some downsides to that. You’re taking a little bit more risk. There might be a learning curve in the beginning, but if you’re somebody who’s really good with real estate, you’re a Henry, you’re looking at deals all the time, and you’re like, “This thing just doesn’t add up right now for cash flow, but I could make 45 grand flipping the contract to somebody else, or fixing and flipping and moving into something different.” You do have an opportunity to get the ROI you would need to replace your job doing this. It’s a different way of looking at these opportunities, and it’s forcing yourself to stop looking at only cash-on-cash return.
It’s looking at many ways that real estate can benefit you that will open up these opportunities. Let’s say each of you to this… Well, I’m now just deeming the new approach to looking at real estate investing.

Rob:
I agree. I think we got to get back into the habit of saying, “Hey, real estate is a long game, and sometimes there will be good years. Sometimes there will be more normal years like now.” But at the end of the day, it’s like you’re just pushing the ball forward. I was thinking about this as Henry was saying it earlier, the golden years. “Hey, these were the golden years,” but I genuinely think, not to be too Andy from the office, but I do think that 20, 30 years from now, we’re going to look at now, and be like, “These are the golden years.” This is it, because we’re all good at what we do, and we’re all going to continue to crush it every single year because we love doing this.

Henry:
Absolutely. I couldn’t agree more. I tell my students this all the time. I’m like, “Look, investing is about buying something for less than it’s worth, adding value to it, and then capitalizing on its new value.” Even in the stock market, you want to buy when a stock is down, hold it until it goes up, and then you’ve made a return on your investment. This is when the wealth is built, guys. This is what it looks like. You have opportunity to buy, and though you’re not going to make money immediately, I think for the people who are actively buying right now, five years from now even, the people buying now are the people who are buying in 2009, right?
Those people were pumped that they bought in 2009. So, this is what it looks like. This is what it looks like to build wealth. It’s not pretty now, but I think it’ll be beautiful in the long run.

Rob:
We’re always going to be pumped that we bought now 10 years from now.

David:
I say that constantly. Tell me a person you know that bought a house 30 years ago that says, “I wish I never would’ve done it.”

Rob:
Well, do you remember we had Janice on a month ago, and she was like, “Yeah, I bought my first house in LA for 180,000 or something like that.” We were like, “What? In 2004?” We were so perplexed by this.

David:
Tell me a person who bought a house 30 years ago that remembers what was in the inspection report, and how stressful it was.

Rob:
Right? Right. That’s true.

David:
But also, tell me a person that bought that house 30 years ago that thought that they were getting a great deal, and they were buying it for less than what it’s worth. Most people believe they’re overpaying for real estate at the time they buy it. We always think we could have got the deal better. It’s time that really creates the wealth in real estate, and we sabotage this when we’re like, “I need to get a dunk four seconds into the shot clock before I put some work into breaking down the defense or move the ball around.” Now, Henry, you made a great point. Real estate is about buying something for less than it’s worth, making it worth more, and then capitalizing on that.
So from my framework, I would call that buying equity, forcing equity, and then having an extra strategy. Now, the extra strategy could be holding it as a rental. It could be selling it and turning the equity that you created in that deal into cash, putting that cash back into the next deal. There’s lots of ways we can do it, but on the… From the perspective of how do we make something a good deal if it doesn’t start as a good deal, I’m going to ask each of you, what advice do you have for taking a deal like Rob’s Castle Rock property that other people passed on, and making it a good deal? Then Henry, I’ll ask you the same thing.
You mentioned creative financing. That’s one way, I think right off the bat, that you said, “If you get something at a 3% interest rate, everything works, right?”

Rob:
Yeah. I mean, I think… Hold on, let me think about that for a second. Go to Henry first. No, I’m just kidding.

David:
No, we could do that. I don’t mind. Rob is not a freestyle rapper. I will tell you guys that right now.

Rob:
No. No, I am.

David:
No, you’re not.

Rob:
Well, I was trying to think of… I’m trying to… Yes, listen.

Henry:
You have to open your computer, and pull up an analysis. That is the opposite of freestyle.

David:
He needs 25 takes.

Rob:
Well, you were asking me to take you through the numbers. I would.

David:
Go home. Get to the lab. Grab a pencil. Make it suspenseful, come back and hit us with an earful.

Henry:
Did you just hit us with an eight-mile battle wrap scene?

David:
Yes, because that’s something Rob doesn’t do. Henry on the other hand, he belongs in a cipher, Rob.

Rob:
I feel that that deal was already good, so you’re like, “How do you make it work?” I’m like, “I did.”

David:
But you bought a deal other people didn’t see, so you saw something in it that made that deal work for you. What do you think that was? You mentioned the experience. You mentioned creating a unique way of marketing the property. There are things you’re doing that other people that just said, “Run the numbers on AirDNA, doesn’t work, past it.” Yes,

Rob:
It doesn’t work on AirDNA at all. I think AirDNA has this one at $60,000. I think it’s going to gross between $175,000 and $200,000. So, the way that I made this work for myself is I just did a little bit of prospecting. When you look at the market analysis, there are no unique dome homes. There are no unique homes at all in this area, and so so many people would look at this deal, and pass on it, because it’s scary. There are no numbers to support this. Where I’m coming in, I’m saying, “I’m going to be the pioneer in this space specifically. I will be the comp that people look to copy basically for the rest of time.”

David:
So, AirDNA is comparing this to a track house that looks like all the other houses around it.

Rob:
Exactly, but what I know is that a unique property can basically demand a 300% premium on a typical property. So as a typical property might only get $100 a night, this would get $300 a night on the opposite end of it. Now really, this property will get 700 to $1,000 a night, I think, whereas most people running the numbers think that it would get 250. So, it works for no one else, but it works for me because I know what I have here, but experience is the reason that I know that.

David:
Now, see, Henry, my job is to bring the greatness out of Rob that’s there that he doesn’t know he has, right? Rob, I’m going to lead you back to some more greatness. What about the hotel that you bought that was being used as a traditional hotel that you are turning into a series of short-term rentals? Did you make something there?

Rob:
Same thing. That one was… Basically, that one was approached to me. Someone approached me that, and they’re like, “Hey, do you want to buy my hotel?” He gave us a really good interest rate. I think we got it for 2.75%, 3%, but the entire hotel needed a remodel. I want to say that the owner had already started to remodel, but it just was so much work that he was like, “I’m just going to sell it to someone that can actually finish out the job.” He sold it to us, and so we’re getting to basically capture the opportunity of remodeling an entire hotel. Granted, it’s a lot of work. It’s active just like you said, but the opposite side of it is that this hotel will be worth double or triple what we paid for it.

David:
So, you’re adding value through a rehab. You’re adding value through putting each of those hotels on Airbnb, VRBO, not just a traditional hotel that someone’s going to have to look up in the yellow pages, and you’re adding value in this case through seller financing.

Rob:
Correct.

David:
That is a great example of you made a deal by those things that other people would’ve just looked at it, saw the cash-on-cash return, and said nope, or saw that it needs too much work and passed on it.

Rob:
Yep. Yep. Yep. Wow. Wow. I’m so smart. Thanks.

David:
I told you, there’s greatness in you, Rob. I just got to pull it out of you.

Rob:
I just got to be willing to freestyle a little bit.

David:
Yeah, and you got to go through mom’s spaghetti to get there, but that’s okay. We’re all going to do that together. Henry, to you, what are some ways that you’ve been able to make deals instead of just looking for deals?

Henry:
Yeah, I can totally freestyle. That’s why I wear black, so you can’t see the mom spaghetti on my shirt. Part of the ways that I make deals are through not looking through one exit strategy lens. I have learned the exit strategies of a flicks and flipper. I’ve learned the exit strategies of a buy and hold renter. I’ve learned the exit strategies of a short-term rental, and that allows me to look at a deal from multiple perspectives. So, I’m not just looking like, “Hey, this doesn’t meet my cash-on-cash return or my cash flow numbers as a rental,” and pass on it. It allows me to look at a deal from multiple angles, and see how I can monetize that. So, like with the deal we talked about, I know that I can make money on it at least three ways. There could be a fourth.
I could probably assign that contract to somebody as well if I wanted to. I can make deals just by being educated and versed in multiple exit strategies. The other way that I think somebody who’s new who may not feel that that’s something that they can do is you can make deals by being creative with what you’re looking for. You can do this even on the market, and I still do this. I will look at deals, and I am looking specifically for how can I add value? Well, where can I add the most value with spending the least amount of money? So, when I’m looking for a deal, if I’m looking, and I can’t find a duplex anywhere or a multifamily anywhere, then I’m going to start looking at single families that I can easily turn into a duplex or a multifamily either by converting a garage, or by converting an exterior building that already has.
Some of these houses that you’ll find, they’ve got a shed with plumbing and electrical in it. Well, it’s not that hard to convert that into a living space, because you’ve got the foundation, and you got some of the structure. Garages are an easy way. Sometimes you can split up a house, especially if it’s a split wing house, meaning that the master bedroom’s on one side of the house, and the other bedrooms and the bathroom are on another. It’s fairly easy to turn one side of that into a unit, and another side into a unit. Now, it takes some creativity. It’s going to take some money, some of those things, but you can make a deal, and add max value with doing a little bit of work.
What I’ve typically done in the flip space is find houses that have… We talked about this on a previous episode. It’s find houses that have sunrooms or big rooms that aren’t technically heated and cooled square footage. This works for garages as well. You can take an HVAC return, and pop it into that room, and now that space is heated and cooled. All you’ve got to do is add the flooring, insulate the walls, and now you’ve got an additional room. Rooms are going to add value, and so just because you can look at a deal, and it’s at its current state, and say, “This deal doesn’t pencil, but will it pencil if you add a bedroom?” Will it pencil if you add a bedroom and a bathroom under the same roof, and how inexpensively can you do that?
I just converted a laundry room for a house into a bathroom, which included the laundry in the bathroom. The house was on a crawlspace. It costs me about $5,000 to do that. But now instead of a three bed, one bath house, I have a three bed, two bath house, which allowed me to take the bathroom that was a hall bath, and close off the doorway to that hall bathroom, and then open a doorway from one of the bedrooms into that hall bathroom. Now, I created a primary suite, because I added a bathroom in the laundry room, because the laundry room was oversized.
I was able to sell that property for about $30,000, $35,000 more than I would have without that extra bathroom, because there was more demand for it, and because there were two bathrooms and a primary suite. It’s a much more desirable property, and it costs me $5,000 to do that.

David:
That’s a great, great advice. People should go back and listen to that again. If you’re trying to figure out how to make these things work, you’re hearing it here. The defense is tough, but that doesn’t mean you can’t win. You just got to take a different approach. Last question to each of you, we are what I would call professional investors, professional real estate people. This is what we do full time. We look for deals. Henry, you mentioned that you have a very big funnel that you’ve created that you’re looking at stuff. Rob has an entire network. He’s talking about having Rob Capital that he’s going to be creating.
You each have audiences of people that follow you that can bring you deals. We have this platform that not everyone has. For the person who is not a professional investor that wants to make money through real estate, but they’re not leaving their day job anytime soon, or their skillset would not work in the environment that we operate in, what advice do you have for that person to build wealth through real estate, and what expectations are reasonable for them in this market?

Henry:
Here’s two things. I think you need to be the… Education is vastly important more now than ever so before, and so I talked about educating myself on multiple exit strategies. I think everyone needs to be doing that. You can’t be so laser focused on one strategy, because you’re probably leaving opportunities on the table. Then you have to, for every investor, focus on what’s the lowest common denominator in real estate. It’s always going to be a deal. You’ve got to have a good deal, right? Now, we talked about ways that you can make something that isn’t a good deal at face value, look like a good deal, or become a good deal based on how you can creatively add value to that property, but you’ve got to be able to know what does a good deal look like in your market? Then you’ve got to pick a way to find those good deals.
All three of us, we have a way that we like to find our good deals, and we go all in on whatever that strategy is. So ,I can’t tell every random investor which strategy they should use or what’s the best strategy. It’s really, they all work, but you’ve got to, a, know what a good deal is for you, and then you have to pick a strategy to know how to go find it. I think the better you get at analyzing and underwriting and looking for those deals, the easier it’s going to become to monetize those deals in the future. So, I’m not going to give you the traditional answer of go house hack. That’s a great way to go make money in this market. I think that educate yourself on as many strategies as you can, find a way to find good deals.
I just happen to find my way is looking off market. Rob has his way. David has his way, but you’ve got… The more you do it, the more deals you analyze, the more deals you underwrite, you’re going to be able to start finding those diamonds in the rough, finding those gems, or creating or making the value. So, I just want people to be able to focus on one to two strategies of finding deals, and then you just go all in. I call it relentless consistency in pursuing that strategy until it yields results.

David:
Rob, what about you? Average person not quitting their day job wants to make money through real estate, what approach should they take, and what expectations should they have?

Rob:
I think that for me, I always say this, you got to throw darts at the wall. I think you got to try a few things. I like the idea of going all in. I did pretty early on. I think you got to try a few things before you go all in though. You know what I mean? I think if you… Let’s say that you want to try flipping houses, and you try that, and you’re not very good at it. Maybe you don’t go all in, because that may not be the thing that you should be going all in on. But if you try flipping a house, if you try wholesaling, if you try house hacking, maybe a little bit of short-term rentals, I think it’s at that point you can say, “Man, I didn’t realize this, but I’m really good at wholesaling.”
That’s when you go all in, right? I think you have to be willing to try a few things, and not be so locked into the thing that you think you want, because very rarely is that the thing that actually works out. So, that’s my general approach for getting into this is try a little bit of everything. Some of these things are free. You can… Henry, how much would it cost? If I wanted to get started wholesaling today, how much money would I need to get started?

Henry:
To get started wholesaling, you can get started wholesaling for free. You’re just going to spend a lot of time.

Rob:
Perfect. Low stakes.

David:
So, is that what we’re saying, someone who’s working their day job, they don’t want to be in real estate professionally, should start at wholesaling?

Rob:
Not necessarily. I’m just giving an example here like, try a few things because everyone thinks that real estate is high stakes, not every aspect of real estate. There are ways that you can try your hand at real estate. That’s not like the riskiest investment of your life. That’s what I’m saying. Then in terms of what expectations should they have, I think the expectations that they should have is that they’re probably going to be working 80 hours a week for a while. The network that you’re talking about that I have the network that Henry has, that is a network that we have built because we were working 80, 90-hour weeks for so many years.
I didn’t quit my job, dude, until two years ago, man. You know what I mean? I’ve only had this magical network for two years, and it’s just because I put in the work. But before that, I was working. I was going taking calls in between meetings. I was leaving work to go do a contractor call, whatever. I was doing so much stuff at work, taking calls at nights, missing dinners, doing all that type of stuff. So, I think the expectation is there’s still a lot of work that you have to do. It will never be an easy route to get started, but dang it, is it worth it.

Henry:
I think to add a little bit more color to that, I still believe it. A good deal is the best way to go, and so finding that good deal. But I think part of the reason that people are struggling with figuring out how to be a lucrative investor in this market is more about how much of that work are you willing to put in? Because anybody can do this right now. You can go, and you can get on the MLS in your local market, and you can pull a list of properties that have been listed 30 days longer than the average days in your market, right? You can get a list, and you can go down that list, and say you’ve just only pulled single families. You can go down that list. You can analyze every single one of those properties, and figure out what’s the number that this deal would work for me.
So, if you know you want to buy rentals, you can go analyze each deal, and say, “All right, for me to get my 7% cash-on-cash return, and $100 a door, then I have to be able to buy this property that’s listed for 350,000 for 125,000.” That’s the number that works, and then you know what you do? You submit that offer, right? If you did that for every single property listed for 30 days longer than the average days on market, and every expired listing in your market, and you did that relentlessly consistently for the next 90 days, you’d probably land a deal, but nobody wants to put in that kind of work. People don’t want to go do that work.
That’s a time-consuming endeavor. You got to analyze a ton of deals. You got to make a ton of uncomfortable offers. You got to convince an agent to make those uncomfortable offers for you, and then convince them why it’s a good idea for them to do it. So, you really have to ask yourself, “Am I willing to put in the kind of work it’s going to take for me to be successful in this kind of a market?” Because you can go find a deal. You just got to be willing to get uncomfortable, and that’s what people don’t like doing.

Rob:
Boom, baby, but I will say… I do want to plug that in one of the previous episodes, Henry talked about buying deeper, and so we’re going to do an episode on how to get off market properties. Henry will take us through his strategy, so respond to the poll if you want to hear how we find off-market deals. Leave a comment on YouTube, and we’re going to work on it for you, guys.

David:
All right, Rob, where can people find out more about you?

Rob:
Robuilt on YouTube and Instagram.

David:
Henry.

Henry:
Instagram, I’m @thehenrywashington on Instagram.

David:
I am DavidGreene24 with an E at the end of Greene. Do you guys have your blue checks yet?

Rob:
Oh yeah, baby. You know I do.

David:
Make sure it’s got a blue check, because we have a lot of fake people that are mimicking us trying to take your money through scams of a crypto nature, and we don’t want you to fall for that. I’m DavidGreene24 on YouTube and on pretty much all social media. Send us a DM if you have any questions. If you like this show, if you like the straight shooting, if you like the no BS, no fluff, we’re giving it to you like it is, and we’re giving you examples of what we’re doing to make deals work, would you please go leave us a review on Apple Podcast, and let us know what you think about the show.
All right, I’m going to get you guys out of here. Thanks so much for joining me. We went into overtime today, sticking with the basketball analogy, but we hope we gave you guys a great game. This is David Greene for Henry, Relentless Pursuit, Washington, and Rob, the Papa Doc of Freestyles, Abasolo signing off.

Ashley Kehr:
This is Real Estate Rookie Episode 290.

Tony Robinson:
The cost between a mini-split ductless HVAC system versus the traditional systems are pretty comparable. But the reason we typically go with the mini-splits is because you’re able to, hopefully, this is our logic, is save on your costs a little bit because you’re able to turn it on by the room. So if you only have one unit going, then it’s only just that one part of the house that’s going as opposed to a lot of the central heating and air maybe you only have if it’s a small house. Maybe there’s just like one unit that’s trying to cool the entire house.

Ashley Kehr:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony Robinson:
Welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. We’re back with another rookie reply where we get to answer questions from our rookie audience and give you guys the insights as if you’re sitting in the same room as me and Ashley today.

Ashley Kehr:
Today is a rookie reply. We are actually going to be turned into expert HVAC service text, Tony and I, and also our producer does chime in to correct us. So maybe not that expert, but we are going to talk about different ways to heat and cool your house. I promise this does have something to do with real estate investing. When you are looking at properties, what are the different options you may have and what may be better or worse for you depending on the property, the area you’re in and what kind of investment you are doing? The next thing that I really like we touch on are security deposits. You are inheriting a tenant. What happens with the security deposit? Are you getting a check? Are they having to pay you the security deposit? Do you get it from the seller? Do you have to come up with your own security deposit for the tenant? We’ll talk about all things’ security deposit.

Tony Robinson:
Yeah, we also talk a little bit about the difference between a home equity line of credit and a traditional line of credit because those things, even though they sound somewhat similar, there’s actually a difference between the two. So we want to make sure you understand when to use one and when to use the other. But I also want to give a quick shout out to someone by the username of Brit G. She left to say, five star review on Apple Podcast and she says, “I’m an elementary school teacher in the Los Angeles area. I’ve always been told I picked the wrong career if I want to own property in LA. While real estate rookie is helping me emerge from that lie I’ve ignorantly bought into and providing hope and practical steps to finally move towards real estate ownership. The Pace Morby episode specifically is so motivating. Thank you, Tony and Ashley.”
So Brit, we are super excited for you and I love that you said that you’ve woken up from that lie because becoming a real estate investor works in any market and any cycle. There are always people being successful with these strategies. So yeah, we appreciate that. If you’re a rookie audience member and you haven’t yet left us an honest rating review on Apple Podcast or Spotify or wherever it is you’re listening, please take a few minutes to do that. The more reviews we get, the more folks we can reach. The more folks we can reach, the more folks we can help

Ashley Kehr:
Or kindly ask all of your friends and family to do so on your behalf.

Tony Robinson:
There you go.

Ashley Kehr:
But seriously, thank you guys so much. We love reading your reviews, especially when you tell us how the podcast has helped you, what you realize, how you’ve been inspired and motivated. Also, I love the mention of the Pace Morby podcast episode right there too. That really was a great one. Before this episode started, Tony put me into group text with Pace Morby. I am now texting all my friends. I’m in a group text with Pace Morby, but we might have something super exciting that we may be working on with Pace. So stay tuned to see what that may be in the coming weeks or month. This is going to be very weather dependent as we have learned.
Okay, today’s question, our first one up is from Alex Diehl, “House A and house B are exactly the same except House A has HVAC and house B has window units. How big of a difference will this make in rents? Other things being equal?” First, I think we should explain exactly what an HVAC system is. Actually, what does it even stand for? Heating Ventilation?

Tony Robinson:
Oh, I was going to say, I don’t know what the V stands for. Heating and air conditioning, but yeah, ventilation sounds right.

Ashley Kehr:
So this is a unit in your house, sometimes it can still produce just heat and you don’t have to get the cooling system that goes with it for air conditioning. But typically, there are vents placed around your house. They do duct work throughout the house and commonly, it is a forced air unit that you use to heat your house. They’re saying the House A has this option where it’s like a built-in system throughout your house. House B has window units. So this is where I’m not sure on the exact details as far as window units doesn’t mean air conditioning units because I don’t think I’ve ever seen heating units that are in the window. Have you, Tony? Heating units in the window? I’ve only seen AC window units, so I wonder if this question is just the air conditioning is through the whole house or has AC window units.

Tony Robinson:
Yeah, I’ve actually never purchased a home with just a window unit. Every property that I’ve purchased has either had central heating and air. A swamp cooler is actually a really popular thing out in the desert. Then we do a lot of mini-splits for most of our properties, honestly. So yeah, I’m not sure if window units have the ability to push heat either.

Ashley Kehr:
So as far as the question goes, it’s how big of a difference will this make in rents? Other things being equal? I think the best thing to do is to look at comparables in your area. What do other houses have? If every other house for rent does have HVAC systems and then yours has window units, this may reflect on the price because people expect to have that, that HVAC, that forced air. If you look at rental units and it’s all different kinds of air conditioning and heat throughout the units for different properties for rent, then it may not affect your rent price at all. There’s two 40 unit apartment complexes that we have here, and each one for the AC has wall units, but they’re not like the mini-split units. It actually is half inside the wall, half outside the wall, almost like a window unit, but it’s put into the wall instead. Those are the AC units. The rent is not affected at all compared to other units in the area based on that.

Tony Robinson:
Yeah, I love your advice, Ashley, about looking at your comparables because I think Alex, for you, that’ll be the best source of truth for you. But I guess just for those that are curious, I recently had to install a mini-split system on a few of our rehabs. I’d say, “Installed,” we’re paying about three to 4,000 bucks per unit. We had a three bedroom that we did one on and that was about 15 grand because we put one in each bedroom, the one in the living room kitchen area as well. But I’ve actually never installed central heating and air on a property before. Have you had to install central heating, Ash? What’s the ballpark price on that?

Ashley Kehr:
Yeah, so I just did one in a cabin. The cabin is about a little under a thousand feet square footage, but the bedrooms are open loft, so there’s not a lot of closed off rooms in there. But I think it was around $8,000 to put the forced air unit in it with the AC with it. So heat and AC.

Tony Robinson:
Yeah, and that’s what I’ve come to see is that the cost between a mini-split, a ductless HVAC system versus the traditional systems are pretty comparable. But the reason we typically go with the mini-splits is because you’re able to, hopefully, this is our logic, is save on your costs a little bit because you’re able to turn it on by the room. So if you only have one unit going, then it’s only just that one part of the house that’s going as opposed to a lot of the central heating and air maybe if it’s a small house, maybe there’s just one unit that’s trying to cool the entire house. So that’s been our logic. Have you priced out between the central versus the mini-splits for your properties or do you just always go with the central?

Ashley Kehr:
We did a couple mini-splits probably two or three years ago in properties. Our big four unit we did. Those ended up being $5,000 each installed for them. One big decision for me though, as to whether I’m going to install those or do forced air is based on if I’m tearing out the walls or anything, if I’m doing a full gut rehab, because putting in that duct work, sometimes they have to go through, cut through the floor, go through the walls, especially if you have a second story, they’ll need to run it through something to get it up to the second story. So that’s definitely a big decision maker is if I am going to have the walls open already to run the duct work to do the forced air units. Of course there’s like that industrial look where it’s up in the ceiling and that’s actually what we did in the cabin we had.
There’s this huge pipe that runs from one loft to another into the actual closets, and then from there, it goes down into the little rooms and then it has the vents out into the main space off of the big pipe that goes across. So I think there’s so many different ways to install these things and it’s where getting a good contractor that will price out your different options for you. We originally had two contractors come out and quote this for us, and this property actually had radiant in floor heat, which is another heating option. There was when they did a pressure test on the lines underneath the concrete, because this cabin is just on a concrete slab, it didn’t pass the pressure test, meaning that there was a leak somewhere. So our options were to guess where it was and rip up the concrete floor or just not use the radiant in floor heat at all.
So we decided to just abandon that and that’s where we went and put the forced air unit in. In the other cabin though, it had a basement where you were able to access the lines for the radiant in floor heat underneath the floor. That actually passed the pressure test anyways, so we ended up just putting a new boiler in that system to run the radiant heat and we didn’t put a forced air unit into that at all. So that cabin with the radiant and floor heat, it doesn’t have a AC option. So eventually, we’ll have to go and probably put the mini-split unit in for AC in that property.

Tony Robinson:
Isn’t it crazy how every market has its own solution for heating and cooling? Radiant floor heat? I’m not even sure what you mean when you say that. I don’t think I’ve ever walked a property that has radiant … Just give me a visual of what that even looks like.

Ashley Kehr:
So you live in a warm climate, so you don’t need this, but imagine getting out of the shower and you have some nice tile floor that feels really cold on your feet. Well, you have that radiant floor heat that emits the heat up from the floor and now the tile is nice and warm and cozy and your feet don’t get cold. Actually, my house now, the whole house is radiant in floor heat. So every piece of flooring, the basement, the garage, and then it’s a ranch to the whole first level. It’s all radiant and floor heat and that’s how we heat our house. Then it’s set up into different zones. So there’s thermostats for different bedrooms, main area, things like that. So yeah, there’s so many different options.

Tony Robinson:
Interesting. Do you guys have swamp coolers in buffalo?

Ashley Kehr:
No. The only reason I know about that is because we did talk about this once and you had told me what it was, but I think you should explain it again. But yeah, I had never heard of it.

Tony Robinson:
Yeah. I had never really heard of it either. So we started investing in the desert, but it’s a common cooling option for folks who live in the desert. But basically the swamp cooler, it pulls in, it almost works like the window unit where it’s pulling in air and then it’s pushing it down into the house, but it’s not working off the traditional thing. But usually, they sit on top of the roof. I want to say there’s some kind of moisture element to it as well because now they always have these drip pants and stuff, but the thing is they’re confusing to use.
You have to open your windows a certain way and we just didn’t think the guests and short-term rentals weren’t familiar with swamp coolers could use them in the right way because we didn’t even really fully understand them. So typically, we just take off the swamp coolers and that’s what we end up put in the mini-split systems. But they are a low cost way to keep your house cool. I’ve been told, if you get a good swamp cooler, it can work just as well as central air does, but at a fraction of the cost. So an option for you guys.

Ashley Kehr:
So I think to wrap up this question here is that if it was me personally, if everything else was the same, I’d go with the house with the HVAC system instead of the window units. First of all, I think it’s a nicer look, not having the window units sticking out, especially if you’re using the AC ones, typically in colder months when you don’t need the AC, depending where this property is, you have to take the AC unit out of the window, you close the window back up and then when spring comes again, you have to put it back in.

Tony Robinson:
Stick it back in.

Ashley Kehr:
Yeah. Also, HVAC systems tend to be more energy efficient than these window units at using electric or gas or however your HVAC system is run.

Tony Robinson:
Our producer just corrected me too about the swamp cooler. He said, “Yes, they use evaporate cooling, the air flows over cool water pads and then lowers the temperature.” So there you go. That’s how the swamp coolers work. So shout out to Eric for a coming in clutch with that last little bit of information.

Ashley Kehr:
Then he also wanted to add that the window units could be a safety concern too for falls and break-ins possibly.

Tony Robinson:
That’s actually true. Have you bought any furniture from, I don’t know, anywhere recently? We bought a dresser and when we were putting the dresser together for one of the properties, and this was a couple of years ago, but it had directions that had wanted us to secure the back of the dresser to the wall, it had an anchor to take the back of the dresser into the drywall to stop things from tipping over because I guess there had been instances of these dressers tipping over on a small children. So that’s actually a really good point. Safety concerns about the wall units also.

Ashley Kehr:
Yeah. That actually happened. My son, when he was younger, he tried to climb up the dresser and luckily, he had pulled out the bottom drawer, so the bottom drawer held it a little bit so it never completely fell. But those sturdy Amish furniture, that sturdy drawer held the whole dresser. Okay, let’s go on to our next question. This one is from Eric Hyman. Once again, you guys, thank you so much for submitting questions to us. If you would like to submit your own question, please leave it on the Real Estate Rookie Facebook page and also coming soon, Tony and I will also have links in our link trees in our profiles on our Instagram accounts at wealth and rentals and at Tony J Robinson. Then your last option, and probably the easiest is just go to bigger pockets.com/reply and leave your question there.
Okay, so Eric’s question is, “I recently purchased a property for a hundred thousand dollars and put down 25,000 and the appraisal came back at 125,000. So I have some nice instant equity there. My question is, how soon after taking ownership can I take out a HELOC out on this property? I’m already looking at another property and I could use the HELOC as the down payment. Would a bank do this or want me to wait? Secondly, how much could I get? Would it be 80% of the 50K inequity, so 40K? Thanks.”

Tony Robinson:
Yeah. Well, lots of good questions here and I feel like we’ve been getting a lot of questions recently about lines of credit and HELOCs. I think the first thing that I’ll say is that most banks only give HELOCs, Home Equity Lines of Credit on your primary residence. You can get a commercial line of credit. I’ve tried, I’ve found it pretty difficult, the kind of local banks I chatted with here in California. Ashley, I think you’ve had some success with lines of credit in your neck of the woods, but I would say most banks aren’t going to give you a HELOC per se on an investment property, but they will give you a HELOC on a primary residence. Have you noticed anything different from that, Ash, or does that jive with what you’ve seen as well?

Ashley Kehr:
Yeah, I’ve been able to do two commercial lines of credit on rental properties that are in LLCs, but they’re not the best of rates and you’re going to get a way better rate if it is your primary residence. But the biggest thing is just going to different banks and asking what they have to offer on the property because you’ll be surprised at what some banks can do, especially small local banks. That’s where I’ve had the best luck, I guess, is using those small local banks. One bank that I’ve used the most frequent only has seven branches I think, and it might even be less than that.

Tony Robinson:
I think one thing to call out though and definitely check with whatever bank you end up getting your HELOC with, but what I’ve seen some people do is if they live in their property and they plan on moving, before they move, they’ll pull a HELOC on that property. Now like I said, make sure you understand the limitations of whatever HELOC you’re using. Do you have to live in it for the duration of the HELOC or you just need to be in at the time that you close in the HELOC? But I have seen some investors do that where they know that they have a decent amount of equity in the home that they have and before they turn that home into a rental property, they then go out and get the line of credit and then use that after the fact.

Ashley Kehr:
This is such a great alternative to selling your house if you want your don’t want to rent it out because you have a hundred thousand dollars in equity sitting into it and you just seem like that would be a waste to let that equity go instead of selling it, just go ahead and take out that HELOC so you can still tap into that money on the property too and use it for your next investment. As far as the second question, would it be 80% of the equity that is left in the property? So the way a HELOC works is you’ll take the appraised value of the property, what your current mortgage is, and then subtract that to get with equity you have and then they will lend up to a certain amount. So in this example, he’s saying, “80%.” So if the property appraised at 125,000, the mortgage is 75,000 and then he would be able to take up that difference, whatever that difference is from the 75,000 to 80% of 125. Tony, what is that math? Have you been calculating as I’ve been trying out?

Tony Robinson:
Yeah, so you do 125 times 80% minus your 75 leaves you with 25K.

Ashley Kehr:
Okay, so 25 K is left in equity. So as far as him saying the 50%, it’s not 80% of the equity that’s left in the property, it’s 80% of the whole appraised value. So I think that’s what we need to make clear for him. I think that’s where the confusion is. It’s not 80% of the equity, it’s 80% of the appraised value minus what you already have your mortgage for. So that would be, he’d be able to get the 25,000 instead of 40,000 on the property.

Tony Robinson:
Then one other question that Eric asked is, is there a time period on the HELOC? So I know for a lot of cash out refinances, there’s a seasoning period where they want to see you hold the property for six months or so is what you typically hear to be able to do a cash-out refinance. But I’m honestly actually not sure if there’s a time period on getting a [inaudible 00:20:50] on your primary residence. Are you aware of any restrictions?

Ashley Kehr:
No, I’m not. I only know of a seasoning period that a bank may require to go ahead and refinance a property, but not for a line of credit. But also it can depend on the bank. So asking different banks as to what their rules are for that. But a seasoning period to refinance can typically be six months to 12 months before they have you go and refinance. As far as a line of credit, I don’t think I’ve ever went and gotten a line of credit right after closing on a property, so I haven’t had any experience in that at all. Another thing I want to mention too, as far as the 80% of the appraised value to get that line of credit is that may vary too. That’s not like a lot of mortgages are standard at the 80% when you’re going to refinance, but as far as a HELOC, sometimes my one business partner, he took out a HELOC and they went up to 95% of the appraised value of his home.
So he actually had it kind of stacked. He had a mortgage that was actually with a private lender who he purchased … No, he didn’t purchase house from them, but they lended him the private money to do that and he’s pays them the mortgage payments. Then stacked on top of that, he went and got a home equity loan. So instead of a line of credit, it’s actually a payment plan split up where he is paying principle and interest on it. Then stacked on top of that, he had a line of credit, so he was very leveraged at 95% of the property. But the difference was, was that all those funds he was using to put in into our deals and our deals were paying him a mortgage payment, which more than covered the payments he was making for that additional home equity loan and that HELOC on the property too.
Okay. Let’s move on to our next question. This question is from Tim Laratour. “What is the advantage to a real estate investment company raising capital through private equity versus a bank? What’s in it for them? From an investor’s standpoint, this looks like a great source for passive income, but I’m weary.” So I think what he’s trying to say here is why would somebody go out and raise private money instead of going to a bank to fund their deal?

Tony Robinson:
Well, just to add some context. So specifically, Tim, he posted this in the Real Estate Rookie Facebook group, but he also linked to a company called RealtyMogul. If you all look up RealtyMogul, they’re essentially like a crowdfunding platform for real estate transactions. Let’s even take a step back, most people who are buying large real estate deals, big apartment complexes, large self storage facilities, big commercial mixed use developments, the majority of people who are purchasing or building those projects are not using all of their own money. They’re raising funds from two different sources. It’s usually a mix of these two sources. The first source and the majority of the cost comes from a bank. So they’ll go to a big bank and they’ll get maybe 70% of the total cost to purchase that property, and then the remaining 30%, they’ll go out and they’ll raise from other individuals who become their passive investors.
So this is called a syndication and you can syndicate anything but syndication in real estate. That’s how it goes. There’s one group of people who find the deal, put the deal together, secure the bank financing, and then they go out and they raise funds from other in individuals to cover the remaining balance. So usually 70, 30%. So Tim, first thing I’ll say is that it’s a very common practice and pretty much any big shopping center that you drive by or big apartment complex you drive by probably leverage some syndication to make that happen. So it is a very normal thing.

Ashley Kehr:
Then he said, “What’s in it for them?” What’s the reasoning for that?

Tony Robinson:
I think mostly it’s just the, say you want to buy a $100 million apartment complex and maybe you’re able to get 70 million from the bank, that’s still $30 million that you need to put up to be able to purchase that property. I’d say the average person probably doesn’t have 30 million bucks lying around, but maybe if they know enough other investors who have a hundred thousand, 250,000, $500,000, they’re able to stack up to get to that 30 million. So that’s a big part of the reason why folks leverage the syndication model is because the numbers are bigger than what they could take down comfortably themselves. Now there are some differences though, because like I said in this post, Tim links to RealtyMogul.
And they focus a little bit more on crowdfunding as opposed to a traditional syndication. So if you work with a traditional syn indicator, usually they’re going to offer you what’s called the 506B, which allows for both accredited and non-accredited investors or 506C, which only allows for accredited investors. Usually there’s some minimum investment. You might see 25K on a smaller deal, maybe 50 to a 100K on a bigger deal, which means at minimum you have to be able to put up maybe a six figure check to participate in that deal. If it’s only open to your accredited investors, you have to check certain boxes around your income or your net worth to be able to qualify to even be able to invest in those deals.
So that’s where the majority of action happens. Then on a crowdfunding platform like RealtyMogul, that one’s a little bit different because you don’t necessarily have to be an accredited investor, you don’t need to write a $50,000 check. A lot of these crowdfunding platforms allow you to get in with a hundred bucks and you’ll obviously own a very small share of that real estate deal, but your ability to get involved in the threshold is significantly lower. So yeah, it’s a win-win, I think for both people, assuming that the operator, the person putting the deal together knows what they’re doing and it could be a really easy way to get a passive return on your investment.

Ashley Kehr:
Then his last question is, from an investor’s standpoint, this looks like a great source for passive income, but he’s not exactly sure if it is. So the best thing you can do is to vet the operator of the syndication deal or the crowdfunding platform. One way to do that is to talk to other people who are investing with them. So I think a great starting point was Tim putting this in the real estate rookie Facebook group, if anybody has invested with them to hear some feedback, do that in all different kinds of Facebook groups, put it out on Instagram and see what feedback you get.
The bigger pockets forums gold for finding out information on people or companies, lots of people will give you their opinion, but also do your own research before you invest in a syndication deal, actually understand what fees you are paying, how the deal is structured, when are you actually going to get your money back, all these different things that it can be extremely confusing. So my recommendation would be to go to YouTube University, learn to understand what a syndication deal is. You shouldn’t be investing in something just by, “Oh, this company on social media looks like they do a good job. This property looks really nice that they’re about to buy, I’m going to invest in it.” That should not be your reasoning for investing with someone. So take the time to actually do some research, vet the company, then also to understand what your investment is actually getting you. Worst case scenario, best case scenario.

Tony Robinson:
I guess just one last thing, Ashley, it might be cool if we bring on someone who’s an active passive investor in syndication’s to talk about how are they vetting these different operators? How are they potentially vetting the deals? What kind of returns are they typically able to achieve? Because honestly, lending money on the private, being a private moneylender or being an LP and other people’s syndication’s are the most passive ways to be a real estate investor. So get a healthy return because you’re going to get a better return than you would typically with a REIT, but it’s definitely not as much work as managing that deal yourself. So maybe we’ll plant that seed for our producers, maybe find some LP, some passive investors and have them give their experience to the rookie audience

Ashley Kehr:
Yeah. You know who I just saw recently that posted on social media. This can be our Instagram shout out of the week. We made some cool noise about that. But one person that I saw was at Honey Money, Rachel. So Rachel, she actually just posted how I think she wants to or has invested in five syndication deals. I know, I think it was at least three that she’s done so far, maybe even this year. She shares a lot about her journey of investing in the syndication’s and she used to be a very active hands-on investor with rental properties, went through a divorce and had to sell up her portfolio and now she’s stacking it back up while also investing in syndication’s. So she might actually be a great person to have on as to how she is choosing the syndication deal she’s investing in.

Tony Robinson:
Yeah, I’m actually in a group chat with Rachel and some other investors, so I got to hit her up and see if she’s down to come hop on because she’d be great.

Ashley Kehr:
Okay, so our next question is from Jared Sutherland. “Do you check rent is being paid during 10 day inspection periods or before? I will be inheriting tenants for four months. How does security deposit work? Is that transferred or does it come out of pocket? I haven’t bought with existing renters before. Thanks.” Okay, so for this one, inheriting Tenants always a controversial issue that we discuss here in the bigger pockets forums, Real Estate Rookie Facebook page.

Tony Robinson:
I’ve never inherited a tenant because I’ve always been too terrified. So you’re the person that they can speak on that.

Ashley Kehr:
I have. I’ve had good case. I’ve had more good cases than bad cases for sure. Inherited tenant.

Tony Robinson:
Yeah, and I feel like that’s how it’s with all parts of real estate investing, I haven’t met anyone that does any strategy where it’s like, this has gone wrong the majority of the time. Every strategy that people talk about that maybe they’re hesitant to go into, it could be people feel that way about short term rentals. People feel that way about Section eight. People feel that way about investing in Detroit. You can think of any asset class and there’s always this hesitation, but I feel like in general, the reason why real estate investing is so popular and so successful is because more often than not, if you do things the right way, it’s going to work out. So I’m sorry, I’m going off on a tangent now, Ashley.

Ashley Kehr:
No, no, I think that was great and definitely relatable and 100% accurate. Okay, so the first question is, do you check rent is being paid during the 10-day inspection period or before? So your 10-day inspection period’s, your due diligence, I would ask at any time. You don’t even have to wait until the 10-day inspection. This is actually something you could even ask for before you even put your offer in or when they sign the offer, if they will give it to you, that’s definitely up to the seller. But as far as if rent has been paid, there will be a rent rider attached to your contract. So if you are purchasing on market deal, the real estate agent will provide this to you where it will tell when was rent last paid. As far as checking the accuracy of that, well, it depends on how the tenant is paying rent and if the seller is actually reporting that rental income as to how much they can actually prove to you that the tenant has paid.
In this scenario, I usually have the seller of the property tell me what the rental payment is, how often they have paid, if they’re all caught up on rent. But then I also send a notice to the tenant called an estoppel agreement where they fill out the information, can I verify what the tenant is saying and what the landlord is saying? You can go as far as asking for bank statements from the landlord, asking them to show proof of the income being deposited each month. I’ve never done this, but it’s definitely one extra step you can take to verify that the rent is being paid and collected. As far as the security deposit, this is usually taken care of at closing where you will receive a credit on the closing statement.
So say the security deposit is $1,000 a month at closing, you’ll be paying a thousand dollars less for the property, for the security deposit, but then you will have to come up with the cash yourself to actually fund that person’s security deposit. So in four months when they’re leaving, if they have the right to their security deposit because there’s no damages, you have to come up with that thousand dollars. So make sure you have that money set aside and reserved for that. You can also negotiate though that it’s not taken off the closing statement and that you are still paying the normal purchase price and that the seller actually writes you a check for the security deposit.
One thing to be very cautious of, which happened to me when I was still very, very young at buying inherited tenants, I bought a couple properties from one investor and there was two tenants that owed him some rent still, they were not caught up on rent, and he actually took that money out of their security deposit and on the closing statement only gave me the remainder of their security deposit. That wasn’t what was supposed to be done, that wasn’t supposed to happen, but I just didn’t understand, I didn’t realize and I didn’t catch it and neither did my attorney. So that’s something I always check for now is make sure I’m getting the full security deposit back. If they owe him rent, they owe him rent, that shouldn’t come out of the security deposit because that is your security deposit now per the lease agreement that is in place.

Tony Robinson:
That’s super smart. I never thought to check for that, especially about if they owe that person, that shouldn’t come out of the money that you’re owed. That’s super smart.

Ashley Kehr:
A lot of leases in our lease that says the security deposit cannot be used for last month’s rent or rent owed because a lot of we had seen that sometimes people would be like, “Oh, just keep my security deposit.” But then we get into the unit, it’s like, “We need to do security deposit to do these other things.” So check because if that’s in the lease agreement, the seller doesn’t even have a right to that security deposit because they haven’t even left the unit. So definitely one thing to check for.

Tony Robinson:
Let me ask you this question. You’ve been investing for a while now. How many different versions of your lease agreement for your own portfolio do you think you’ve gone through? Ballpark.

Ashley Kehr:
When I started working as a property manager, it was a 40 unit apartment complex. It was a one-page lease agreement. Now the lease agreement is 10 pages, I think. Then with all the addendums, the cleaning checklist when you move out like, “Here’s the keys that you’re getting, here’s your pet addendum,” all these things that, it’s actually longer than that. But yeah, so it definitely changed. I’ve had a property management company in place, and actually in a couple of days is when the in-house property manager I’ve hired takes over. So I’ve created a new lease agreement again. So they had their own. But yeah, it definitely over time and has just adapted and changed.
For each property too, I don’t use the same lease agreement for every property because there’s different things like the 40 unit apartment complex I put in there, the entry doors are locked, you get a common area key. These are some of the rules, things like that. Somebody comes in and does the snowplowing and you’re not responsible for snow removal. Well, a single family home, they are responsible for snow removal. If I put things about the shared common areas in there, I’m like, “What do you mean? Who am I sharing this with? This is a single family home.” So making sure that your lease actually applies to the property too. Then I just save all of those templates’ template, lease agreement, and then whatever property it’s for.
A lot of the duplexes and stuff, I can pretty much use the same one where it’s fillable for utilities if they’re different, maybe I’m paying the water on one, but I’m not on the other things like that. So those are pretty much standard, but going through your lease agreement every once in a while, or even just keeping a little notes in your phone. So on Instagram or wherever you see somebody included one little thing into their lease agreement that made a difference, or they had this issue that came up and they’re like, “I never thought that would happen.” Go ahead, write it down. So every quarter or every year, whenever you’re going through your leases, you have that little notepad and you can go in and add those things in.

Tony Robinson:
Yeah. The reason why I ask that question is because I want all of our rookies to understand that your lease honestly should be a living, breathing document. As you said, as tenants move out or you experience different challenges with certain tenants, the way that you problem solve for that or future-proof for that to make sure it doesn’t happen again, is that you update your lease. We don’t have leases for any of our properties because everything’s short term. But what we do have are JV agreements with our different partners that we’ve worked with. I’d say that after almost every single partnership we’ve identified something that we wanted to change or update to that partnership for the next one. So yeah, a lot of your documents that you have in your business, whether for partnerships, whether for tenants, whether for whatever it may be, you always want to make it a habit of going back and updating those to reflect whatever newer information you’re receiving.

Ashley Kehr:
Yeah, it’s so funny. I was looking back through an old folder of when I first started property management and just looking at my checklist of when a new tenant moves in, here’s my checklist. I knew nothing about property management. I was thrown into this job. I had no one to mentor me or show me what to do. I was literally just Googling stuff and I was looking at it. I was like, “Geez, I actually should start using this again. This is actually pretty good.” Yeah.

Tony Robinson:
Yeah, it wasn’t too bad.

Ashley Kehr:
But yeah, so it’s just interesting to see all the things that evolved, but also how simplistic it was. But it worked for me so well, now I’d probably take the same thing and add 50 little line items underneath each thing to expand on it. But just going back, it’s just something, some little process, some little system, some lease agreement that you can just continuously build off.

Tony Robinson:
I guess just last comment on that, because you made such a good point there, Ashley, is that when you’re a brand new investor, and obviously this isn’t even just for investing, this is for anything that you’re trying to accomplish in life. But I’ll use investing because that’s what this podcast is about. When you’re looking at someone like Ashley or Tony from the Real Estate Rookie Podcast, or you’re looking at James Dainard and Kathy Fettke and Henry Washington from On the Market, or you’re looking at Rob and David from the Real Estate Podcast, it’s easy to hear about how their businesses are running or how they’ve set things up or how things are optimized and feel like you’re way behind because you haven’t established all of those things yet. But what you have to understand is that we’re all multiple steps into this journey, and we’ve already gone through those mistakes and those rough patches to identify where we need to make improvements.
That’s what I love about James Dainard. He, he’s always so open that the only reason he knows so much and he’s able to be so articulate about running his real estate business is because he’s made a ton of mistakes along the way. Every tip that he’s giving you when it comes to flipping houses, managing rehabs, wholesaling, whatever, is because he made a mistake to teach him that lesson. So for all of our rookies that are listening, don’t get demotivated by hearing how Ashley has a 10-page lease. Instead, take what she said at the beginning that she started with the one-page lease and it was over the course of her investing career that she was able to make those changes and adjustments to get to where she is today.

Ashley Kehr:
You can also go to biggerpockets.com/pro and become a pro member and get state specific lease agreements for free that were created by an attorney. That’s a great starting point for you to start looking at those. Then you can just download them and then you can tailor them and change them as much as you want to. Then of course, when you’re done, I would have an attorney approve them if you do make a lot of changes to that lease agreement. But that’s a great starting point right there is using those documents. Also, everyone listening, please do not tell James Dainard how much we talk about him on this podcast because he’ll never ever let me live it down. So this stays between us. This is a little rookie secret. Okay? Thank you guys so much for listening to this week’s rookie reply. I’m Ashley at Wealth From Rentals and he’s Tony at Tony J Robinson, and we will be back on Wednesday with a guest.

Ashley Kehr:
This is real estate rookie episode 289er.

Garrett Brown:
I like unique things and I’m really good with hospitality. And as I started running numbers and crunching everything over like a month or two, it was a pretty obvious choice for me personally and my own situation. It does take a lot to run the glamping site and to build it up, so it took way more time of my own time than I thought, but I was prepared for that. I saw that the cash flow and the other benefits of it, of what I could do, building some equity and building unique cash flow places was going to just blow just a traditional investment out the water for me. That’s when I pivoted to go to that route and it all made sense and has worked out great.

Ashley Kehr:
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And you know what? I love being able to host a podcast like this because we get to hear so many amazing stories, but every once in a while there’s a guest that comes on that just like selfishly, I’m so excited to talk to you because they’re working on something that I’m also working on and I get to pick their brain. And that was today’s episode for me.

Ashley Kehr:
And I’m actually upset that I ended the recording because Tony went on to ask a ton more questions that we should have had some kind of bonus content. Maybe that’s just going to be our rule until the guest actually completely leaves the show, we just keep rolling and recording for some bonus content.

Tony Robinson:
Today we’ve got Garrett Brown, and Garrett, he’s actually a music producer based out of Houston, Texas, and he’s worked with big name artists like Jhené Aiko, 2 Chainz. He named some other really big name artists that he’s done work with, but he’s also got this passion for real estate investing. And so everybody gets to dive into Garrett’s story and how he’s using his music business to fuel his real estate business.

Ashley Kehr:
And before I mention all the great things about Garrett, I just want to tell you guys that Tony was also in the music industry at one point. And there is a YouTube video, so I challenge you to go ahead, take a deep dive.

Tony Robinson:
And if you find it, just DM it to me on Instagram. When I was working my first W2 job out of college, I was a manager at a warehouse and had a team of, I don’t know, 80 people. And I share with them that I had this YouTube video also, and I was like, “If anyone finds it, I’ll get on the line and I’ll work with you guys for a shift.” And someone found it the very next day.

Ashley Kehr:
Oh, really?

Tony Robinson:
I don’t know how they found it. But anyway, I ended up working half a day online with my team members that day.

Ashley Kehr:
And what the worst part of it is, it’s actually not that bad. I thought it’s very bad and it wasn’t that bad.

Tony Robinson:
Hey, I think 20 year old Tony was doing some pretty cool stuff.

Ashley Kehr:
We have Garrett on today and we’re very excited about the different strategies that he touches based on, because he has tried a handful of them. He started out flipping. Had a couple fouled deals that didn’t make their way through, and then a very nice successful flip. Then he started doing condos where he purchased a handful of condos and turned them into short-term rental, and then two that were long-term rentals. And then from there decided to transition his strategy again into something that aligned more with his degree, which was hospitality management. I’ll let you guys take a guess as to what strategy that was.

Tony Robinson:
And Garrett, he shares a really, really cool strategy, one that I’ve never heard anyone share before about how as a brand new investor, he was able to estimate his rehab costs. And it was probably one of the most genius, simplest ways I’ve ever heard anyone share about estimating rehab costs. Then he also goes on to talk about why he spent almost an entire year looking for the right city to purchase his Airbnb. And he talks about his conversations with different cities and different counties and his process of eliminating the locations that didn’t support his business goals. Just throughout this entire conversation, Garrett dropped a lot of really good nuggets throughout.

Ashley Kehr:
Well, Garrett, do you want to start off just telling us a little bit about yourself and how you got started in real estate?

Garrett Brown:
Sure. My name’s Garrett Brown. I’m from Houston, Texas. I own a music studio and I’m a music producer by trade, but I have been in real estate now. I’ve been a realtor for about six years now. And I’ve been a real estate investor now for about three years. Started doing a typical realtor route, learning the ropes of that. And then once I started meeting a few different pe… I’ve heard about or… I didn’t even really see what all could be done through real estate investing at the time. All I knew was, get a client, sell a house, buy a house, and then I would go from there. But once I had somebody reach out to me about real estate investing, I found bigger pockets and went from there. And it was definitely a life changing moment for me.

Tony Robinson:
You kind of answered my question, Garrett, but I was going to say, did you become a realtor with the expectation of that being a stepping stone towards becoming an investor or was becoming a realtor just a way to generate some extra cash?

Garrett Brown:
It was just a way to generate some extra cash. I was looking for something that was real flexible within my music schedule because I record pretty much 07:00 PM to midnight, 01:00, 02:00 AM every night. And during the day I didn’t have much, but I also traveled some. I was looking for something that was a little more flexible that I knew would be able to build up some cash over time to really get me where I wanted to go. I do have a hospitality management degree. That’s what I went to University of Houston for. I wanted to eventually maybe own a bar or a music venue or something along those lines. I just wanted to get my feet wet with it. But I never planned on becoming… Really going down the path of where real estate investing is the thing that I found as the tool that is very vital for me going forward.
And so once I got into it and going, it just played itself out. And I started meeting people when I was working with investors and I was seeing what they were doing on deals and how much they were making and all these other things. And I was like, “All right, I think I need to take a step back and figure out some things because I think they’re doing it a little better than me.” Because I’m not a real salesy guy either. Realtors, I have a big tremendous respect for them, especially the ones that are really good. But it’s a very salesy thing, especially when you’re calling for sale by owners, calling expireds. I was doing all that and it definitely was just not exactly up my lane. I wanted to be a little more, use my hospitality degree and be a little more unique with where I was going and really try to build some financial freedom and long-term wealth for me and my family going forward.

Ashley Kehr:
Before we go any more into the episode, what does your portfolio look like today and how many deals have you done?

Garrett Brown:
I’ve probably done, I’ve done… I’ve failed at two flips, finally had one successful flip. I’ve had a buy-in, live-in flip basically that I did. And then I had three condos that I was short-term renting and long-term renting for quite a while. But then at this very second I’ve sold most of that. And then I have a pretty major glamp site that we just launched and we’re trying to expand going forward from about an hour away from Houston near one of the major lakes called Lake Livingston. I have a 426 square foot geo-dome, like a fully luxury on grid, commercially permanent geo-dome. I have a ranch house on there that’s worth about 500,000 that we’re going to rent out very shortly. And then we have a couple other sites we’re adding onto the glamp site, adding a really special one in August. And then we’re trying to expand from there and add a wedding venue and some other things as we go forward with it.

Ashley Kehr:
I can’t wait to get into all of this, but let’s talk about these different strategies. What made you start with flipping?

Garrett Brown:
Just really because… One thing I love about real estate and once I got further into it, I realized how diverse there was and I was having a little analysis paralysis because it was like do I want to find a storage unit? Do I want to flip a house? Do I want to do Airbnb and do more of the hospitality side? Do I want to do just buy and holds? And I really got more into flipping first just because a lot of the investors I was working with were doing flips. And so I really was able to learn a lot from that process. I would go walk the properties with them. I would go to random… There would be investor list and wholesaler list that would send out, “Hey, we’re having an open house 01:00 to 03:00 this day, all you investors come to this house.” And I would go to the house, really not the intent of purchasing it, but I would go to just walk the property, work on trying to get my rehab costs. I’d have my own little spreadsheet that I was working off of.
I got lucky a couple of times and had a contractor actually walk some places with me that they would give me their idea of what it thought it would take. And I would just go to some of these open houses and just listen to what other people were saying too. Because a lot of these were some of the bigger investors in Houston and they would be walking around pointing out things and I would just listen and I would hear what they would say, “Oh this is going to cost 1500 to do this toilet thing,” or whatever like that. And I was just mentally taking notes. And I went to 20, 30 of these in the first few months with no intention really of buying. I didn’t have the financial means to buy anything, but I was just getting all this information to really learn rehab costs and what was really going to make me comfortable going to that next level of actually putting in an offer and putting up my hard-earned money that I’ve been working for so long that I was so nervous of deploying.
But once I actually started putting out offers, all that stress went away because I saw the ability of what it would actually generate if something went through with a well deal and just trying things.

Tony Robinson:
Garrett, we’ve interviewed… You’re episode 289, so we’ve had 288 conversations up until this point. And I don’t think a single person has ever said that they’ve gone to open houses just to hear what other potential investors are saying the house might need when it comes to rehab. What a simple yet super effective way to estimate your rehab costs. Because I feel like for a lot of new investors, that’s one of the things that really gets them stuck is that if you’ve never done this before, it’s hard for you to ballpark what amount of money you might spend to buy and renovate a home. Obviously, once you’ve done it a few times and if you’re buying with inside your buy box, you know exactly what it’s going to cost. Like Ash, I’m sure exactly what it costs to renovate a duplex in Buffalo. I know exactly what it costs to renovate a three bed, two bath in Joshua Tree.
But if it’s your first time doing it, there’s a lot of question marks there. You also mentioned about getting the GC to walk with you, but just one other follow up question on this listening. First, how long were you at these open houses? Were you just there the entire time and just letting people come through and then were you actually having conversations with the other investors or were you just a fly on the wall and taking notes? Just walk us through the tactical side of how you actually got information out of that open house.

Garrett Brown:
Sure. It really started when I was going with other investors or going with investors as an agent, trying to find different places and they would point out things. But once I started to get on some of these wholesale lists, there’s a couple and people in Houston that they get there… There’s some of the biggest wholesalers out here, they host tons of open houses where it’s, “Hey, first investors to show up, whoever makes the best deal that day, you’ll get the property-vibe,” like cash only, all those things like that. I would go there. At first I was a little more nervous. I wasn’t trying to be obvious that I didn’t know what I was doing and things, even though looking back, that’s so naive to think that way. But I would go maybe 30 minutes, 45 minutes and I would just walk around and act like I knew what I was doing. I wouldn’t really talk to many people. Every once in a while I may get into it, but a lot of these people were looking at whoever was in the house as their competition and things like that. But it blew my mind.
And I noticed this from doing residential retail sales, that people go into houses and they just talk out loud and they don’t realize that I may be listening or buyers are walking in saying all these things. And the opposite side is you got to be real care… And I tell my buyers, when we walk into houses, you need to be real careful what you say out loud. It was similar on the investor’s side. People were just like… They would be walking in a bathroom, they would look up and be like, “Oh man, you see that? Oh, there’s a leak right there. Oh, that’s going to be a good $5,000.” And I was just taking this all into account. And after I got a little more comfortable with different investors and the terminology and all my own research through bigger pockets and just trying different spreadsheets people put online. There’s a tunnel online, especially in Texas, there’s different contractors or people that do rehabs that will put out a free spreadsheet of what they estimate this cost for a new window here.
And that may not be the exact answer, but it gave me a good guideline to where I was going to go when I started walking properties on my own that I was actually considering buying. And then I had at least a ballpark to know, “Hey, doing this toilet and having to fix the tile, to go to LVP, it might be in this cost.” Because I heard somebody talking about, that they thought this 1200 square foot house was going to cost, I don’t know, $6,000 to put new flooring in or something. And I was just taking these little bits of information and I would go put it into my spreadsheet or I would update the person’s spreadsheet that was… Maybe it was a national spreadsheet. I would maybe try to, “Okay, they thought that windows… And this person, he did his in Georgia, but he thought his windows were going to be this amount. But I’ve gotten other information from some of my own bids from other contractors or seeing people talk about it that the windows are actually probably going to be closer to this.” And so I may go change it.
And I would always add that extra cushion on top, knowing that everything is always more. And I saw this from helping investors, that everything always goes more expensive than you… Very rarely does a flip or anything go under budget.

Tony Robinson:
No way.

Garrett Brown:
Once I realized that, I was like, “Oh, I probably need to add a 20% buffer on top of this too, while I’m doing it.” It was just really getting bits of information. And I had analysis paralysis probably for the first year or two because I was just so nervous like, “Oh these guys, they’ve been doing it, they got cash funds to do it. Even if they fail they’ll be fine. And if I fail, my cash funds are gone.” But once I do it and I saw regular Joes and Jills doing the same things I wanted to do, I knew that there was a way I could make it happen. And I really just needed to put my feet in the fire and probably start making offers and have a few failed deals, which is what happened to learn, “Okay, this isn’t going to work, but I learned a lot from it.” Nothing like that is a failure. You can’t fail until you quit. You can only take these as lessons from all your losses or all your tribulations that the next one, eventually… You’re not going to make that mistake again.
When you start making consecutive mistakes, that’s when there’s an issue and that needed to be corrected. If you make one mistake and you can nix that in the bud from the beginning, then that is how your journey should be going. From what I’ve seen from the outside.

Tony Robinson:
Garrett, you had a lot of really great information there. And I definitely want to keep the conversation moving because I feel like we could talk about this for a while, but just to clarify for all of our rookie listeners. You weren’t going to traditional open houses for properties that were listed on market. You were going after open houses for wholesalers. And the reason you were able to get so much more information is because typically wholesalers are not selling to retail buyers, they’re selling to other investors. If you get a household of investor, that’s how you’re able to be this fly on the wall and really get insights from all these other investors. But dude, one last thing you said. I wasn’t even planning on bringing this up, but you said it enough, I got to make a comment on it. You talked about the mistake piece and it’s so funny, Garrett, because I have a son, he’s 15 and just being a teenager, you tend to do dumb things.
Just your brain chemically is not where it’s supposed to be yet. And even though you look like you’re 21 years old inside, you’re like eight. And I tell my son all the time, I was like, “Dude, it’s okay if you make a mistake. Life is all about making mistakes.” Because I want to give him the confidence that making mistakes is okay. But just like you said, it’s like when you make the mistake, you get the lesson, but you don’t apply that lesson to your life, that’s when you start getting in trouble. So many good things. Ash I feel like I can go on a tangent, but I know you’ve got some really cool ways, Ashley too, about analyzing or estimating rehab costs. You tell people to put stuff into their card on Home Depot and all that stuff. Can you just talk about that? Because I think that’s another really helpful way for folks that aren’t maybe able to get into open houses with wholesalers.

Ashley Kehr:
There is two ways that I learned construction cost and how to even do a rehab. And one of those ways was going onto Lowe’s and or Home Depot and basically going room by room, “Okay, I’m going to remodel a bathroom, I’m going to need a vanity.” Look it up on Home Depot, how much does a vanity cost, a basic vanity? Then I would take that and I would link it into a spreadsheet where I would have, what it was, how many I would need with the link to the actual website if I wanted to go back to it. And then how much it cost. And then I would be able to have a total at the end of least my materials. And of course, as I was starting out, there was things I did not know, okay, “How much grout do I need for this many square feet of a bathroom to put the tile in or whatever? What’s the finished grout? How much will I need?” Things like that.
But at least it’s got me started with somewhat of an estimate, going room by room and laying out every material that I would need. And YouTube was a big help with that too. And the second thing that I would do is, I hired a partner, someone who knew rehab and construction. I gave him some equity in the property in exchange for him to do some of the labor and to let me basically follow him around and try to be of assistance. To this day he will say that I was not very helpful, but I can do some things now. Those were the two ways that I learned about estimating rehab, is from taking on a partner who had experience and then also just finding out the materials. And then the labor part was a lot harder for me because I feel like it really does fluctuate a lot as to what it actually can be. Now we’re very diligent at keeping track of, “Okay, what are current rates for getting flooring installed? How much are we looking at a price per square foot?”
And we try to use the same vendors. Every once in a while most bid it out just to make sure that our vendors are staying honest, things like that. But it definitely helps when you can get your preferred vendors where our painters… We know every two bedroom, one bathroom unit, that doesn’t have horrible wall damage, it’s going to cost us X amount or around that each time. And that makes it so helpful to be able to go and estimate. Even for apartment turnovers, doing rehabs on those, what those costs are going to be.

Tony Robinson:
Before we go on, because you sparked something inside of me, because the thing that I always… I Loved your approach, the thing I always thought about, “I got to figure out what material I need to do whatever job that is.” And you could watch a YouTube video, but I thought, “With technology today, there’s probably an easier way to do this.” I opened up ChatGPT, I said, “Give me a step-by-step action plan for removing an old toilet and installing a new one. This is my first time doing this, so please assume I know nothing about plumbing.” ChatGPT said, “Sure, here’s a step-by-step action plan to remove an old toilet and install a new one. Tools and materials you’ll need.” And then it goes on to list eight or I think there’s 10 items on here that I’ll need. And now I have a list of things that I can go shop for on Amazon to try and understand what that cost is. There’s no excuse now for anyone-

Garrett Brown:
It is a good idea. Very good.

Ashley Kehr:
And then the next thing you put it in, “Can you build out a rehab template for me with everything on it?”

Tony Robinson:
Exactly.

Ashley Kehr:
Garrett, with your spreadsheet though that you had, did you develop it over time instead of just taking the one you found online and sticking to that. Are there things that you noticed that maybe on some of these templates you found online that weren’t included that you think everybody should have?

Garrett Brown:
That’s exactly what I did. I would take the template that I liked. I tried four or five different ones, seeing what was on there and things. And I took the one that I liked the most and over time would definitely adapt it to the things I learned, especially case specific to the areas I’m in. In Houston, Texas, we have a lot of foundation problems because we’re so close to the ocean and just have a very wet soil for lack of better words there. One thing that I think in my area that I noticed was that a lot of foundation costs, it was a more prevalent thing and it was something that I needed to account for more going into houses. Because once we would find out, especially working with a lot of investors, I saw this that they would work on the foundation portion and then the foundation would mess up all the framing for something or the foundation would crack some plumbing that needed to be there and then it would add onto all these costs.
But it really just came from… And I did similar things to you too with the Home Depot and Lowe’s. Because Home Depot and Lowe’s, they’ll come out and give you a quote for things, especially certain sub things or new tile. And it’s most likely going to be a little more expensive than more of a local sub. But you can take some of these numbers and I was getting loc… I would call flooring companies that were more local and say, “Hey, what is your rate for in installing LVP in a X, Y, Z style house? What do you do for labor?” And some of these people, these subcontractors especially will give you what their estimate is on… Painting’s a good one too, “Oh, usually we charge around this per square foot.” And they’ll be able to give you an idea that does have some variation.
But once you start calling some of these different people… I would pretty much would try to call three or four subcontractors on, especially all my early flips that I was trying, even though they failed. I would have three or four subs come out sometimes. I’d stack them up and I’d try to not let them see each other coming at the same time. Even though a competition level, might have been good. I’m not sure on that. That’s more of a psychology thing there maybe. But I would get multiple bids from different subs for a foundation or a roof or plumbing or something like that. Because subs, you’re more likely electrical. Subs are more likely to be able to get a quote out of them at least to learn from it and see. And I would give… Even if it was a new sub, I would go on Facebook groups.
I’m really big into Facebook groups in Houston and how I met a lot of people and I’ve had different deals. There’s a couple really big ones in Houston and some of these may be newer subs or newer people trying to start their construction business. And they may not have the rapport with a lot of these investors, so they may be willing to come out and give you a free estimate. Will you want them to do the work? That’s up to you to do due diligence and trust your gut and have multiple bids and maybe try to talk to whoever you can. But try to talk to some of these newer subs and newer contractors out there because they’ll probably gladly come walk the property and give their opinion because they’re looking for new business. Don’t be in the business of wasting people’s time, I would say, because that reputation will travel very quickly with you. But there’s a fine line between really giving somebody a legitimate shot to give a bid or wasting somebody’s time. And I think I did a good job of it.
I did have one contractor, I had him walk a place with me twice and by the second one it fell through. He got a little irate with me because he walked it and wasn’t as happy because then he’s, “I’m wasting your time.” And it was like, “No, I definitely didn’t waste your time on purpose. It’s just the deal fell through. My hard money lender pulled on the second one. I appreciate you a lot and that’s fine.” And we haven’t crossed paths since and we don’t do any work. But that is something that has happened out of it. But most of the time, 95% of the time, the subs or whoever has been great. And I have able to take some of these quotes and really understand what I was going through going forward. And even when I was building my glamp site, I knew what probably the LVP was going to cost putting in the geo dome.
I knew what tiling a bathroom, I had a general idea of what it would cost. My budget was pretty spot on. I did go a little over budget of course, but it was pretty spot on for building something unique because I had toured all these places and talked to so many people and I did have that analysis paralysis. But there was a good side of it too, because I got so much information. And when I was ready to dive in… I could have dove in a little earlier, but I had way more confidence in everything I was doing, so it was a lot easier.

Ashley Kehr:
When was that point that you decided to dive in and actually purchase that first flip? How did you feel confident enough? And you mentioned that on the one deal it fell through because of a hard money lender. Is that how you were able to get the first deal is you found a hard money lender?

Garrett Brown:
Yes. I had two flips fall through and a lot of it came because I started telling people I was going with these investors. I was the realtor on them. I knew what they were making. I had a very clear idea of, okay, being a realtor’s good, but there’s a lot of time for trade. I was driving everywhere calling expireds. Once I saw what the investors were making on some of these HUD close and all these HUD forms and things like that, I decided to start trying to find my own deal. I started telling people actively within music. I never really crossed the two between music and real estate. Most people that I knew, I did music, didn’t know I did real estate because I was worried about, “Oh, this guy’s failed at music. It doesn’t matter what he did in his past. He has platinum records and stuff. It obviously didn’t work because now he’s trying real estate, he’s wants to be a realtor like everybody else.”
I was nervous thinking that, “Oh man, people are going to think I failed at music.” And like I said, looking back, that was a very naive take because once I started telling people, “Hey, I’m doing real estate now. I’m trying to find some investments and if you know anybody that has a house let me know.” Sure enough, a few weeks later I had a friend within music call me, a friend of a friend was wanting to sell a house. They didn’t want to be there anymore. It had flooded a while back, but they were able to fix it up some through flood insurance, but they still wanted it to… They had a great deal on it. I went and saw the property, gave them an offer. I gave them exactly what they wanted because it fit all the numbers I was running.
And then we were all the way through, I was so excited it was going to be minimal. I’d probably have to put 15,000 into it. We got very close to the end and then out of nowhere my title company calls me who I’d used multiple times for a lot of deals. And they say, “Hey, there’s an estranged brother that’s claiming title onto this house as well too.” And they didn’t find it on the first search and some other things like that, but they’re like, “The deal’s not going to be able to go through because he’s not signing off on it.” And it was just this whole mess of, I was going to have to do all types of attorney things and the profit wasn’t going to be worth it, so I backed out of that deal. I lost my earnest money deposit.
I could have fought it and done some other things, but it wasn’t that much of a earnest money deposit in the end. I think it was about a thousand bucks or something. The house was only… It was a hundred thousand dollars house, so it was about a thousand bucks. I lost it. But I learned, okay, there needs to be way more checks going into this, but I need to ask the friends like, “Hey, there’s not a chance that somebody else owns this property or anything like that.” I never even asked that. I thought, “Oh, this is a friend. She seems like she owns everything. She didn’t bring up that there may be a brother that may have a claim to it.” I lost that deal. Then we went on to another one, found another one. Same contractor, I brought him, I had a couple other contractors walk that property. And when we went to walk it, everything was working out. I landed the deal, this was February 2020. I had a hard money lender lined up, COVID hit hard money lender backed out. They were so nervous about everything.
I think I had to put maybe 80% down or something of the cost with the rehab and everything. But then they backed out during March and said, “Oh actually you’re going to have to put up 60% or something now if you want to get it.” And this is also when I got real nervous too. I’m like, “Oh, COVID is here.” Everybody, especially in the real estate industry, we have no idea what’s about to happen on the realtor side too, so we backed out of that deal. Hindsight, I wish we would’ve found a way to get that money because obviously the market shot up and it was in a great location. Lost that deal. Hard money pulled out. Eventually I was still working with some client of mine.

Tony Robinson:
Garrett, let me just ask really quickly, because you have these two attempts and both are quote, unquote “failures” right? You’re not able to get them to the finish line. At any point between that first deal or that second deal that didn’t go through. Are you saying to yourself at any point, I don’t know if this real estate investing thing is for me?

Garrett Brown:
Oh, yeah. Absolutely. It goes back to that lesson of… I was down for a little while. I come from the music industry where it’s a very no based industry. 99% of the time I’m hearing no. It got me down for a little bit, but once I thought about it, I was like, “I’m not going to allow that to happen again. It was not my fault.” I did everything right on the deal. The deal, it was going to be a great deal. I was going to profit on it. It was going to be the first one. Just because I dropped or… Just because the ball was dropped on some random relative being there through title or however it slipped through the cracks. Eventually, once I got out of my day of like, “Oh man, that sucks. I lost the deal.” I realized, I was like, “Well, there’s nothing that I personally did. I need to just keep trying.”
Then I went to the next one and then same thing again. I was real upset about it for about a day or two. And then I sat there and I’m like, “It was nothing that I did.” And then in the month or two later, once the… The market was still skyrocketing, I looked at it and I was like, “I actually called a great deal.” And that gave me even more confidence to go. And then, so maybe three or four months later, I was walking a client with a property. She was about to buy it in an area that I knew well that I grew up in. I saw a for sale by owner a sign. And I got a lot of my realtor deals calling for sale by owners to begin with, so I was very comfortable with it. Gave them a call. They said, “Hey, we just want to get rid of the house. We want 115 for it. You can come walk it tomorrow. It’s not in great shape, but it’s not in bad shape.”
I walked the deal, I walked the place. I knew what those houses would go for because I had a client that was working in that exact neighborhood. And we’d done tons of research in different houses in there, so I knew where profit could stand. I knew I could sell it for about 225, we could probably put 40 to 50,000 in it. And we ended up doing all that. I had a hard money lender helping me out, we had to put down 80 or we had to put… They funded 80% of the cost of the place. They funded 100% of the rehab. We were able to pay them back. I’m a realtor so I’m able to save on commissions luckily. But I still ended up making about 40,000 profit. Bought it about 115, about 50 into it. And then we sold it at about 225.
And then once that happened, that really started… It told me two things. It told me, one, I didn’t really want to flip houses. Liked how it went, but I also knew that I started… I wanted to take this money and go into short-term rentals or long-term rentals more because there was a lot of stress going in with the flip, but it turned out well. I got a lot of learning lessons and some upfront capital to really spark everything going forward. But it did teach me that maybe flipping wasn’t my favorite thing because even dealing with the sellers was… They were real cool overall, but there was just some different nuances that I didn’t really like working with sellers and that.
And then they would come back and, “Oh, you said you were going to do this on this day.” And “Oh, your hard money lender is… Can we close tomorrow?” And just different things that got on my nerves for a lot of different reasons. And so I was like, “Actually I want to be more in charge of what’s going on and really build the long-term wealth,” as opposed to a quick buck that I get taxed majorly on and have to go in and find a new place. And now I need to call more for sale by owners and all that, which I’m not a fan of, but it does work well. That’s what I ended up with there.

Ashley Kehr:
Garrett, you talked about that you have the degree in hospitality. Is that what made you shift into the short-term rental with your geo-dome or did it just happen at chance? Can you talk about that transition?

Garrett Brown:
Sure. I always knew I wanted to do something in the hospitality industry. I’ve been a waiter forever. My first job was… I was 16, I was busing tables and things like that. And so I always wanted to maybe have a restaurant and I’m into music, so I was maybe a music venue. But as time went on, after I flipped that house, I decided that I was like, “Okay, I want to try something a little different.” I bought my own smaller condo in Houston, Texas. I got it for around I think 115 or 120. I was going to live in it. It was going to be my owner occupied and I wanted to… It wasn’t in bad shape, but I knew there could be some remodeling to it that would bring it up. I got that condo. But then at that time I was like, “Okay.” I was working with a landlord not far from that condo. He had three smaller condos. It wasn’t in a great part of town, but it wasn’t in a bad part. And I was helping him rent the places out every year and do some other things.
He got towards the end and he would be calling me, he said, “Hey, I think I actually want to sell the condos. Can we put them up for sale instead now?” And I started doing a little research into it and I knew what he was able to rent it out. And I knew a lot of that information already. He wanted to list them for 70, he had three condos, he wanted to list them for 70,000 a piece. I was able to talk him, say, “Hey, let me buy them, I’ll buy them for…” We end up settling at 59 per condo and I got a small blanket mortgage to cover that. I put about 25% down on it, which is in the $40,000 range. And those places each… I had two of them on long term that were renting for 900 a piece. And then I had one that was doing short term that was making… It varied each night, but it was making about a thousand or 2000 per month. Once all the big money from BlackRock and all these people came in, this was like 2019, 2020 when this was going on.
Once all the big money came into Houston and it already was starting to ramp up all those condos, just a basic condo, the prices all shot down because they were coming in and they were having 30, $40 condos that were just as nice as mine in a better part of town. And I couldn’t really keep up. And so I knew that there was was a way that I could use my hospitality degree to my advantage because I think one thing that a lot of short-term rental host misinterpret is the amount of guest experience and hospitality that actually goes into running a short-term rental. Especially a very successful one with all these different rentals out there now. It’s not just a, “Hey, put some furniture in it and after that it’s hands off and everything’s going to go great.” I knew that that was an advantage I could take. I started running numbers. I was like, “Do I want to sell these places and buy a small townhouse closer to town with maybe I could get ADU in the backyard or a garage apartment.”
Or do I want to try… I was watching Rob’s channel, I was watching Kai Andrew’s channel, a few different people like that. And I was like, “Maybe I could do something with this glamping idea. I like unique things and I’m really good with hospitality.” And as I started running numbers and crunching everything over like a month or two, it was a pretty obvious choice for me personally and my own situation. It does take a lot to run the glamping site and to build it up. It took way more of my own time than I thought, but I was prepared for that. I saw that the cash flow and the other benefits of it, of what I could do, building some equity and building unique cash flow places was going to just blow just a traditional investment out the water for me. That’s when I pivoted to go to that route and it all made sense and it has worked out great.

Tony Robinson:
Garrett, and your dome is beautiful. We got a photo of it here and maybe we can drop it into the show notes for people to check out. You did a fantastic job with it. But something you mentioned that really stood out to me is that a lot of new investors don’t realize the level of hospitality that goes into being an effective short-term rental host. Can you maybe give some examples of where you’ve seen maybe other Airbnb hosts drop the ball and how your background, your degree in hospitality management has maybe allowed you to separate yourself from the competition?

Garrett Brown:
Sure. There’s a few examples that immediately stood out to me before I even got further into it. Because I’ve traveled a lot for music and we’ve stayed in a lot of Airbnbs. I’ve gone to California for a few extended months and just booked a long term Airbnb. And I’ve also had shorter stays too. And I noticed that the ones that… Me and my girlfriend were traveling, the ones that we always really, really loved and would bring up later on would be little touches to hospitality. Whether it was a simple note with a small snack basket, just how receptive they were to us or how responsive they were. Anytime we had questions verse when I stayed at other places where it was obvious like, “Okay, this guy or this gal got a place and they just threw a bed in it.” I stayed in one Airbnb that the pictures, it wasn’t even the same furniture when I walked in, it was completely different. And it was a good price and some other things like that, so I didn’t raise a stink about it or anything.
I just rolled with it and stayed there for what it was. But I just remember thinking this is a sign that… And I’ve stayed in a lot of places like that, whereas it was obvious that the person just thought that they could throw some furniture in it, and that was pretty much the end of it. But the places that I knew, and from my hospitality background, because I’ve worked in event management, I’ve worked in hotel management, other things, the guest experience is so critical for a successful STR, especially in today’s market where there’s just so many choices and people can stay wherever they want. There’s short term rentals, there’s hotels, there’s other glamping and camping sites. There has to be something that really brings the guests back to you and really makes them feel like they were more than a guest, that they were your family or something staying there. And I really wanted to provide that to people when I was going forward with it.
And I would work on making systems to make sure that there would be special things there. I always ask them, “Hey is there a special occasion you’re celebrating?” Anything like that. Just so I can find out whatever extra information I can get from them to help make their stay even more memorable. Because the word of mouth and people putting out social content over your stay and people really talking about other things and leaving all these reviews is going to skyrocket your STR business. Because otherwise that word of mouth and that feel that they get from it is just not going to be there. And they’re going to have no reason to be a return customer or to tell their friends who are very likely to do similar things as them. Because people love social currency in the United States. To be able to tell somebody that, “Hey, I got this really cool place that I stayed that not many people have heard about or not many people have stayed at. And it was awesome. It was one of the best vacations we had.”
You’re not going to get that if you just throw a bed into place, say, “Hey, here’s your code to get in the door, have a good stay. Let me know when you leave.” I wanted to just make sure I separated myself as much as I could in that aspect.

Tony Robinson:
Garrett, a few again, really insightful things that you called out here. I think that the first thing I want to talk about is the fact that you said your glamp site is in, you said Lake Livingston, not too far from Houston. I have personally never heard of Lake Livingston. And Ashley, have you ever heard of Lake Livingston in Texas?

Ashley Kehr:
I know Houston pretty well and I’ve never heard of that.

Tony Robinson:
And the reason I ask that question is because people always come to me and say, “Hey Tony, what city or what market should I buy my next Airbnb in?” And there’s always these big national known locations. You’ve got Disney, you’ve got Joshua Tree, you’ve got Zion, you’ve got Smokey Mountains. But what I’ve been telling folks is that every single state has some local regional draw that’s going to bring people in. And I think you’ve done a great job. I want to talk a little bit more about the glamp site, Garrett, to give folks a better understanding of what it is. First, I think if you can define what the dome is and how it differs from a traditional tent. And then also just talk about the build out process. How long did it take for you to build it out? Did you have to get this permitted? Are you on septic? Are you off grid? Are people showering with a bucket of water? Give us the insights and then if you can at the end just share what the numbers look like from a revenue or profit perspective.

Garrett Brown:
Sure. Glamping, I still struggle with this, I think it’s glamorous camping. Could be glorious camping, luxury camping basically. When we were going into it, I looked for a place for about a year or so before even finding the right place, because I really wasn’t sure. I knew it needed some special attraction there. I knew I wanted it to be near Lake Livingston. And there’s also Sam Houston National Forest right by, which is one of four national forests in Texas. I wanted to be really particular where I was going because I wanted to be very close to these destinations. Because I knew I couldn’t get exactly on the lake because there’s so many HOAs there that building a dome was going to be pretty much impossible to find an area on the lake that was going to allow me to build it.
But most of them have deed restrictions that you can’t build a home under 700 square feet or different things like that. We were trying to decide between if we wanted to… I visited different glamping sites. I went to off-grid geo domes. I went to on-grid places and I knew pretty instantly that I wanted to do on-grid. One, because I didn’t want to mess with the compost toilet and some other things like that. And I also knew that I would rather have less sites on the… I have 10 acres, I’d rather have less sites on the place and be able to charge a more premium. Because I went to some places that had 40 domes on two or three acres or something insane. And I knew instantly that’s not something I wanted to do. I was looking for different places. I didn’t have a mortgage at the time or anything. And I was hoping I could find a place that I could owner occupy a nice house, get the land with a 5% down conventional loan and then build out on the site while I lived there for that year.
You have to occupy the house for a year. I knew I would live there and it was fine because I was traveling at the same time, touring and other things. I was able to finally find a place that was… After about eight months, putting in different offers. Some things didn’t work out, they wanted 600 for this place. I was able to get them down to 550. We put about 5% down. The house we’re turning into an STR in the next few weeks. We’re working on it right now. We’ve put about 50,000 in renovations into it. But we wanted to make sure that the geo-dome, which we built out… The geo-dome built out was about $150,000. But that also included, we put a septic tank in, we put a water well in. We ran our electric poles back there. And this is also these, the septic, the well… And well the electric, we have to add one more pole, but those are all going to tie into our next site that we’re building at the back of the property.
We pretty much put the dome in the middle of the property. And then our next big one that’s going to be… We consider our real, real big project, it will be easier to get those utilities out there because we’ve already went halfway into the land and started that process. And now we just tie in the septic system and trench out the plumbing and we tie in the plumbing over there. The build-out for the geo-dome was a little more expensive than we wanted it to be, especially with road infrastructure too. But this is also going to make our next build, which we’re trying to complete by August, much cheaper going into it. And right now, if we list the geo-dome, my mortgage is about $3,000. We just changed our insurance from just regular home insurance, we changed this to proper insurance.
It almost doubled, but they’re insuring the dome, they’re adding commercial liability insurance on top of this. They insured the house. And so now my mortgage is probably going to go up to probably closer to 3,500, 4,000 in there, especially with some tax increases. But just running the geo-dome, we plan to… We already just launched… About a couple of weeks ago and we’ve already had 12 different bookings come in. And so we’re already pretty much have hit our mortgage for that. Once we rent the house out in the next week or two, we expect that to add on another three or 4,000, so we’re looking at it between probably five to 6,000 profit between these two sites. But once we triple down and add our next site, which is a really spectacular build, it’s probably going to shoot up to probably into the 11 to 12,000 range per month because that site is going to be very, very free and clear from a lot of the typical expenses that I’m already having to do by having the house and things like that, so we’re pretty excited for it.
And it took a while to find the right piece of land. I didn’t do a 1031 out of the condos or anything like that because I knew it was going to take time to find the right piece of property. I didn’t want to just rush and buy something. And it did, it took me quite a while to find the right piece and find the right county. The touch on the permitting process, I did have to get a commercial permit using my realtor knowledge and just calling. I would call local contractors and I called the permitting departments for all the counties around. There was about three counties that I was looking in between. And I would call contractors and say, “Hey, what’s it like permitting in this county?” And some people would give me an answer. I’d call another contractor. I’m like, “Hey, have you built anything in this one? What’s it permitting in this area?” And then I would call the permitting departments as well to tell them, say, “Hey, this is what I want to do. I want to build a geo-dome. Is this possible?”
And they’re not going to be able to give you a yes or no answer because there’s so many nuances to it. But if they’re immediately like, “Nope. No, we’ll never.” Like, “No, no.” then it’s probably not the right county. And there was one county nearby that was like that. Once I found the county that I’m actually in, I could tell that they were more… Lake Livingston, I used to go there growing up. My dad’s boss used to have a lake house out there, so we would do retreats out there and other things. I always knew that that was a place, it’s the second-largest lake in Texas actually. It’s a man-made lake. Most of the ones in Texas are manmade. And so I knew that they had a history of short term rentals where people would go up there and they weren’t going to outlaw it anytime soon. I was able to get with San Jacinto County, which is the county that I’m in, I told them my idea and they just like, “Hmm, that’s interesting. Just let us know whenever you get to it and we’ll take a look.”
And talking to contractors, they also told me that, “Hey Sanchez, this county is going to be way easier to work with in some other counties.” And I was able to, with my geo-dome. I use specific domes who they actually provide for… I think I paid $2,500 and they give you stamped architecture plans to that geo-dome. And this made everything so much easier getting it permitted. Because even the county even said like, “Hey, we usually don’t even get this much detail in our plans that we get from people. This is impressive.” And I’ve had some different things come up, even just adding more sites. There’s been some ADA compliance issues that have come up. I had a local architect that has helped me with site design plan to push through these next phases of what I’m trying to commercially permit all the way. But just having my architecture plans, having the design and being able to… I’ve worked with the county commissioner and other things.
I always make sure to tell them, “Hey, I’m going to be using local contractors, local cleaners. We’re going to pay our hot taxes, the hotel occupancy taxes we’re going to be providing… People are going to be coming into restaurants.” All these other things like that. We’re trying to make this a mutually beneficial relationship and bring more people to this beautiful area that you have and really try to… I don’t want to say sell them, but you need to tell them what good things you’re bringing to the county as well so they can see like, “Hey, okay, this is actually a good idea for us too to get into this business.” And it’s been a experience for them because I’m the first… There’s other unique sites, but I’m the first geo-dome anywhere near Houston and I’m the first glamp site really near any of these lakes or anything. There’s other more rural RV parks and campgrounds. But trying to do what I’m doing, they’ve learned a lot in the process with me. But just doing this due diligence before really helped me make sure that I was in the right area.

Tony Robinson:
Again, Garrett, so many great nuggets here and I love your process of just picking up the phone and calling the county to understand their policies because I think that’s something a lot of people miss. But something you just mentioned that made me think of something, when you said that you’re the first dome to really be in this area. How do you underwrite a unique structure like that when there’s no other comparable properties in that market? What strategy did you use to try and ballpark how much revenue and potential profits you’d be making?

Garrett Brown:
That was definitely one of the more difficult things and that’s one of the reasons… If we’re speaking in just equity and appraisal value and things like that. And then how I was able to determine that it was going to be profitable to put it there. That’s one reason why I wanted a very solid house structure on the property that I knew I could… I bought, it needed some work, but it wasn’t a ton of… It was a lot of cosmetic work and I knew that I’d be able to bring this house up higher in the market so I’d be able to maintain some more equity. Because building the geo-dome, there’s probably not much equity that I’m putting into the dome because all the infrastructure that I’m putting in will come back for me. But appraisers are going to look at this and have no idea where to put it at as far as that term, if I get ready to sell this down the line or anything.
But I knew that between… I used AirDNA and other areas that I could see… AirDNA’s data is pretty good, but it’s been skewed in the last couple of years. And it’s also, like you were saying, this is a unique build, so it’s hard to get data on this type of structure being the only one there. But there are a couple of smaller unique builds, maybe 45 minutes away that I would go on Airbnb and Vrbo and just look at what their occupancy was for the next month and see what they were charging and see how many reviews they had the past month. And I can’t remember what the exact percentage is, I don’t know if it’s 20 or 30% of people leave reviews on places or maybe just a little less. But I would go in and see, “Hey, they only had one review over the past three months.”
This area might not be good because you can tell they’re not getting a ton of bookings here because you’d see more reviews on these different places. But once I was able to find some areas that I’m like, “Okay, this pocket that I’m actually in, it’s a little closer to the Houston side, they still get a ton of…” I’m seeing all these different unique stays. There’s like a Treehouse maybe 30 minutes away. I would see what their occupancy rates were. There’s a yurt that’s maybe 45 minutes away. I would see what their occupancy rates were and then I would just look in the general area that I was in to see. And during the COVID boom, everybody was booked out even further. But once the next year passed, I would take it more with a grain of salt. Like, “Okay, they don’t have any bookings coming up in a couple of months, but what does their month look like right now?”
And it’s all taken with a grain of salt, because none of these are definitive answers and tell you like, “Oh, this is a great market.” Or, “Oh, hey, they didn’t have many reviews. That’s a terrible market.” I also knew that buying within two pretty decent regional attractions between Lake Livingston and the Sam Houston National Forest, that if I can provide some type of really unique thing that hasn’t been there, people visit these places all the time. I just have to capture that market and figure out how I can get them in. Even if there is no real great examples of what I’m trying to do. I just used all that and put my brain together crunching numbers, and it’s been very close to what actually has came about with my occupancy rates and things.

Ashley Kehr:
I think Tony and I are going to have an evening of Googling geo-domes.

Tony Robinson:
I’m one step ahead of you. I got Lake Levinson up right now. I see Lake Conroe on the other side.

Garrett Brown:
Lake Conroe is another one that I looked into. There’s different reasons why I chose against that. It’s a little more expensive and few other reasons. But there’s a lot near Houston, just being from here, that I knew of growing up that people like to travel to.

Ashley Kehr:
Well, Garrett, thank you so much for sharing all of your information. My business partner, Daryl, has wanted to do a dome for so long. And so he’s going to love this episode and maybe you’ll give him the motivation and inspiration to actually take action on that idea. Okay. I’m going to take you to our rookie exam. What is one action thing rookies should do after listening to this episode?

Garrett Brown:
I’d say join different Facebook groups in your local area and go to some of these meetups and go try to find some… And just talk to more people. Talk to more wholesalers, talk to whoever you can and see what’s really out there. How I even got further in this is when I finally started interacting with more people and learning what areas I can go to and find out about these open houses that are out there. I got on mailing list. And don’t be afraid to just put yourself out there and try to connect with people and put your information out there for people to send you stuff and go to some of it. Don’t just look at it and go, “Oh, okay, that’s cool.” Actively try to make it a part of networking and learning different things and really put yourself in the fire.

Tony Robinson:
All right. Question number two, what’s one tool, software app or system that you use in your business?

Garrett Brown:
I use Lodgify right now for my property management and it’s really, really cool. Has a lot of really cool features and I do definitely think very highly about that. And then honestly, I use the BiggerPockets calculator a ton when I was really learning how to rehab stuff. I don’t want to be sounding cliche. What BiggerPockets really did once… I didn’t know anything about investing. And once I found the site, it was like, “This is wild.” And the calculator, it really does help you really analyze some things going forward. And though you may mess up on some numbers, but it is a better calculator than 99% of the things I’ve ran into. And even if you don’t have the pro membership and things like that, I’d have a couple a month that I was just trying and once I got the pro membership, I was doing 10, 12, 13 calculations every single day, just running up as many numbers as I could to really understand the market and it taught me a lot

Ashley Kehr:
And it’s very user-friendly. Every single spot where there is to put it in a number, it tells you what this number is, where to find it, what does it mean, why it’s important for your analysis too. I definitely love the BiggerPockets calculator reports. Okay. The last question, Garrett, is where do you plan on being in five years?

Garrett Brown:
Five years, I’m hoping to take my glamping operation and everything I’ve learned from building geo-domes and my next unique build and take it to a few other places around Texas or around the country. And then also I’m planning to build a wedding venue not too far in the far future and really hoping to maximize that and probably add some different unique stays near the wedding venue. And I’m hoping to just really build the luxury camping industry near Texas in particular. Maybe a few other areas from there and really extrapolate it to what I’m hoping it will be.

Tony Robinson:
Well, you’re well on your way, Garrett, your question with this one so far.

Garrett Brown:
Appreciate it.

Tony Robinson:
All right, before we wrap up, I want to give a shout-out to this week’s Rookie Rockstar? Today’s Rookie Rockstar is Eric Tuberville. And Eric says, “I’m super excited. This is my second investment property. I just went under contract on it and it’s 13 acres plus a cabin. It’s going to be a short term rental, then going to put some glamping sites on it, a couple of tiny homes and possibly some more spots for campers and RVs.” Eric, congratulations and obviously you’ve got Garrett now as a role model in terms of how to make that thing kill it when you take it live. Congrats again, Eric. Super happy for you.

Ashley Kehr:
Okay. Well Garrett, thank you so much for taking the time to come on here with us today. Can you tell everyone where they can reach out to you and find out some more information?

Garrett Brown:
Sure. I appreciate y’all having me. It’s definitely a honor and a bucket list thing to be talking to y’all. My real estate channel that I do all types of glamping knowledge and things is Nice Flipping Choice. You can find me on all different platforms like that. And then my glamping operation is Cameron Ranch Glamping, it’s named after my brother that passed away about 14 years ago. Feel free to shoot me a message. And I love interacting with people. I don’t have many people that like talking glamping and things, so I’m always open to talk shop with anybody because most of my friends are not interested in it.

Ashley Kehr:
You mean none of your friends want to go glamping?

Garrett Brown:
They want to go glamping, but they don’t want to talk about the, putting in a sewer and things like that.

Ashley Kehr:
They just want to show up and it’s ready here.

Garrett Brown:
100%. But I appreciate it. Thank you.

Ashley Kehr:
Thank you everyone for listening to this week’s episode. I’m Ashley @wealthformrentals and he’s Tony at @tonyjrobinson. Make sure you are a part of the Real Estate Rookie Facebook group and join the other like-minded investors to talk about glamping or whatever strategy you are interested in. We’ll see you guys on Saturday with a rookie reply.