You’ve heard about the blue pill and the red pill. But have you heard about the blue line and the green line?  

You should. Because they recently crossed. Which could be disastrous for some real estate investors. And no, I’m not talking about an inverted yield curve.

I recently wrote an article about the strange time we are in. There is a predictable disconnect between sellers and buyers, and I warned that it could worsen before it improves. 

When that article was published, BiggerPockets CEO, Scott Trench, made the following insightful comment: 

This was a great insight, and my hat’s off to you, Scott (and I’m certainly not buttering you up as the BiggerPockets boss. Certainly not). 

We Are In The Negative Equity Zone

Green Street is a premier data provider and analyst for the commercial real estate space in the U.S. and Europe. Green Street did a webinar in September called “Navigating the ‘Upside Down’ in Commercial Real Estate.” If you’ve seen Stranger Things, you know this is a strange time indeed. 

In this webinar, they made a lot of comments about the current strange environment. Similar to what I said in my article in August. The following graph jumped out at me: 

First, the graph on the left shows a significant decline in the projected levered returns. Commercial real estate investors should expect lower returns if currently investing in conventional commercial real estate. Popular investments like multifamily are especially at risk. 

I’ve been sounding an alarm bell on this topic for years (even though I wrote a book called The Perfect Investment about multifamily investing in 2016). Multifamily investing is not perfect if you must overpay to get there! It’s just a fact of life. 

When interest rates go up, investors should expect lower ROIs unless purchase cap rates expand accordingly. That’s the situation we are in for syndicators and investors who are paying “full price” for multifamily and many other commercial assets. Be sure you don’t do this, especially right now. Why? 

I recently heard a multifamily syndicator lament that he had been outbid on a $20 million+ apartment deal in the Midwest. He said the winner outbid him by approximately $2 million and acquired this asset at a 3% cap rate! He said there was not that much value-add available. I can’t imagine how that will end up for their investors. It’s hard to imagine how that will end well. 

Look at the second graph. As I warned and Scott Trench clarified a few months ago, we are in a strange time where interest rates have gone up dramatically, but cap rates have yet to follow, at least not much. 

The blue line (interest rate) should never meet or exceed the green line (cap rate). For the most part, the cap rate should always exceed the interest rate by what I will refer to as a “risk premium.” In other words, the risk of investing in commercial real estate, or any real estate, is higher than investing at the risk-free rate (buying U.S. Treasuries). Therefore, it should significantly exceed the blue line (interest rate) here.  

It’s actually a little worse than that in this situation, however, because current commercial loans are priced with an additional premium reflecting the additional risk institutional investors see in the commercial space right now. 

The following graph shows what I mean. Note the spread from 0.93% to 1.67%, an increase of almost 80%. It’s just a fact that credit markets are tightening, and lenders want to get paid more than they did when “everyone was happy, and nothing could go wrong” over the past decade. 

So, interest rates have shot up from 3% to 5%. Cap rates have not followed yet. Why? 

I think part of the reason is that there’s been substantial training, coaching, and excitement in the syndication world over the last decade, especially in multifamily. All kinds of new players have thrown their hats in the ring. And many of them didn’t experience the pain of the last several recessions, while many of the more experienced cohorts remember those quite well.

Many syndicators and their investors are so excited to finally get a chance at a deal! They proceed to pay full asking price or thereabouts for suddenly overpriced commercial real estate assets. Instead of bidding against 60 other well-funded players, as before, perhaps they’re only duking it out with three or four others. After studying and courting investors and longing for a deal for years, they finally have their chance. 

But the question is, who is getting the short end of the stick? It may not even be the syndicator because they often charge hefty acquisition fees, asset management fees, property management fees, and more. 

Their investors could be victims. I’m writing today so that you don’t become one of them. 

These “newrus,” as I call them (new gurus), sometimes tell investors, “it’s different this time.” Unfortunately, they may believe that themselves. 

But trees don’t grow to the sky. And as economist Howard Stein wryly remarked, “If things can’t go on forever, they will eventually stop.” 

As I often say, the tide has risen for everyone over the past decade. But as Warren Buffett often says, “Someday the tide will go out, and we will see who is swimming naked.” 

We might be coming into a time like this.

Negative Leverage

Many commercial real estate deals and their investors have entered an era of “negative leverage.” Negative leverage is when an asset is acquired at a cap rate below the interest rate on the debt used to finance it. Our Wellings Capital Director of Investments, Troy Zsofka, explained this situation to me. 

In this case, leverage is no longer accretive to the return profile and becomes a burden that puts downward pressure on equity returns (hence the term “negative leverage”). Furthermore, increased debt service reduces the LTV at which lender-required Debt Debt Service Coverage Ratios (DSCRs) can be met, thereby requiring additional equity in the capital stack, further diluting investor returns.

One may ask how, then, it could ever make sense to purchase properties using negative leverage.

In my experience, one way these sponsors get the investment to pencil is to assume continued rent growth. This growth will eventually result in a “forward-looking cap rate,” if you will, that is higher than the interest rate on the debt. In other words, they grow their NOI out of the problem.

But this is clearly a risky endeavor when downside potential is governed by market forces outside an operator’s control. 

Another way to justify negative leverage, as Scott Trench said, is with a heavy value-add deal that relies on expeditious execution so that the upside potential mitigates the negative leverage position. 

Relying on execution to go exactly to plan to protect the downside is also a risky endeavor, especially for many less experienced syndicators, and it often doesn’t make sense from a risk-adjusted return perspective.

To the first point, I often see offerings that tout the market’s historical rent growth, highlighting that Phoenix or Austin, for example, have experienced 18%+ rent growth over the past two years. The inference is that this is somehow indicative of the future as if this growth rate will continue. This justifies using 8-10% rent growth in the pro forma underwriting assumptions and calling it conservative!

In my opinion, the fact that a market has experienced outsized rent growth in recent years is, if anything, indicative of the exact opposite—it can be unsustainable. Rent growth typically stagnates to some extent for equilibrium to be reached.

Decreasing housing affordability is a headwind to continuing in-migration to a market, and continued demand growth should, therefore, not be relied upon to sustain outsized rent growth.

How can you fail in this environment? Let me count the ways…

• Acquire a “market rate” (often brokered) deal with “typical” leverage at the current interest rate.  
• Make a bad situation worse by adding an extra layer of preferred equity to compensate for increased rates, lower allowable leverage, and falling return projections. 
• Drag a bunch of unsuspecting passive investors into the mix, promising them a great opportunity to create income and grow their wealth. These are known as victims. 
• Worst of all: be that unsuspecting victim. 

How can you succeed in this environment? 

• Acquire an off-market under-managed, underpriced deal with lots of predictable upside.
• Create that upside through your experienced team and well-honed process. 
• Acquire the above through preferable loan terms (like owner-financed or assumable debt). Or acquire for cash and refinance someday. Or hold in cash. 
• Invest with an experienced syndicator or fund manager who specializes in the above. 

A Final Word About Banks

Banks aren’t stupid. As the largest investors in most commercial real estate deals, banks are obviously wary of making bad deals and losing money. Many of their junior staff weren’t around for past downturns. Some are still eager to make loans, hit their quotas, etc. 

But most banks have some seasoned professionals who have been around the block. Many of them are tightening the commercial lending noose as we speak. So watch for a significant decrease in lenders willing to make commercial loans in the coming days. It has already started.  

Conservative bankers often overreact to cover their risk. So it is possible that many of these bad deals won’t even get to closing, which could protect some of you from a bad investment. 

But please don’t trust bankers to protect you from harm. Instead, do your own due diligence. Learn to be an intelligent investor and partner with others who have successfully weathered these storms in past decades. Pain + Years = Wisdom. At least in some cases. 

Are you tired of overpaying for single and multifamily properties in an overheated market? Investing in self-storage is an overlooked alternative that can accelerate your income and compound your wealth.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

Ashley:
This is Real Estate Rookie episode 234.

Britt:
In order to raise money, in order to do those type of things, people have to like, know, and trust you. So a great way to build that trust and likability and get to know the people is through posting very consistently on Instagram. What that translated to for me was over $10 million in capital raised through my social media platforms for my projects.

Ashley:
My name is Ashley Kehr and I am here with my cohost Tony Robinson.

Tony:
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 we’d like to start these episodes by shouting out folks in our Ricky audience. And today’s review comes from Azari E. And Azari says, “This is a must listen podcast. It’s my go-to for keeping my mind focused on real estate investing. The episodes are filled with digestible bits of information, fantastic guides on how to invest in relatable stories from other real estate investors at all levels. The hosts are authentic and super pleasant to listen to, and I listen to them on my runs making both of them super enjoyable.” Azari, I appreciate that, especially the part about the hosts are super enjoyable to listen to because there’ve been quite a few other reviews that have said quite the opposite. So I appreciate you, brother. But hey, if you guys haven’t yet, leave a five star review on whatever platform it is you’re listening to.

Ashley:
Yeah, thank you guys so much for those of you that have left reviews. We really appreciate it.

Tony:
We should maybe do that during BP CON where we just read all the mean reviews that have come in.

Ashley:
Like Jimmy Fallon Mean Tweets.

Tony:
Yeah, like the Mean Tweets because we got a lot of them. There’s enough for us to get through a few.

Ashley:
We do talk about crying at the end of this episode. It might not make me cry.

Tony:
But we’re here live at BP CON. This is I think our second episode we’ve recorded since we’ve been here. This one was super impromptu. We’re just sitting down here in a little media room and then a very special guest walks in and we’re like, “You haven’t been on the Rookie show yet. We got to change that right now.” So within five minutes we start recording this episode.

Ashley:
This is a real estate superstar that is coming on. She started out doing DIYs at the age of 18, buying properties, fixing them up and then renting them out. And since then, has transitioned to raising money for self storage.

Tony:
So today’s super special guest is the one and only Investor Girl Britt. She’s insta famous. She’s crushed it into real estate. And we brought her on some, to hear her story, but more so to talk about how she focused on building her platform early on, the impact it’s had on her business and what she would do today if she had to start all over in building that platform.

Ashley:
And more specifically, how it actually connects with you guys as rookies, why you should be doing it now, not having any experience, maybe just starting to learn about real estate and how you can actually add value to other people because of that.

Tony:
We also talk about how a case of food poisoning changed her life forever for the better. So make sure to listen for that part.

Ashley:
Before we bring on our special guest today, we do want to address a rookie reply question. So this question comes from JP Bailey and was posted in the Real Estate Rookie Facebook group. Today’s question is, “How do you network and partner with more experienced investors when you feel you have nothing to add value? I’m aware that this might just be me being too hard on myself.” Tony, I think this is actually a great question and very relatable to a lot of people.

Tony:
Totally. Even for me, Ashley, when I think about the investors that are more experienced than me, a lot of times I have to question myself and say, what value can I add? I do remember being a rookie with zero deals and that is a very real feeling. But I think there’s a few things, JP, that you can look at. So even if you have no deals, do you have time? Time is one of the most constrained resources that a lot of other successful investors lack. So if you can just bring an abundance of time to help them do the things that maybe they don’t have the time to do, that’s a tremendous way to provide value. So for example, say that you want to work with someone that’s an experienced flipper and maybe they don’t have the time to run to Home Depot to get supplies, or maybe they don’t have time to cold call people to try and get more leads, or maybe they don’t have time to… There’s so many different things going on in that business that are important, but not necessarily the best use of that investor’s time.
So if you just have time, that’s a great way I think for you to add value. And then another thing is ability. So even if you don’t necessarily have experience flipping homes, do you have experience maybe creating systems and processes? Maybe you can be the person that at the beginning of every job you walk the property with the crew and you create the scope of work in the budget. Or maybe it’s your duties to look at all the comparable properties that have sold recently. And you use that to create the scope of work. There’s so many things that go into creating a successful real estate project where even if you don’t necessarily have experience in real estate, but you have experience with other skills, you can still provide value to someone that’s more experienced than you are.

Ashley:
I think that our guest that we’re bringing on today will relate to this even more. So we’re bringing on, as we mentioned in the intro, Investor Girl Britt, and she actually talks about how she has partnered with AJ Osborne, the king himself of self storage. I mean if you think self storage, you think AJ Osborne. She also had that kind of limited mindset about herself as to wow, he’s this huge investor and I’m just burring these $30,000 houses in nowhere Canada. But she talks about how she did add value and she found a way that something he didn’t have. But as far as the networking piece, and not even trying to partner with someone but to network with them and make that connection. People really like to talk about themselves. So find something that that person is interested in and start talking about it with them, asking them questions about it.
Investors are probably tired of answering the same questions over and over, and they won’t get that light inside, that won’t spark a fire inside of them talking about those same things. But if you can find something that maybe they don’t get to talk about a lot that they really love and really enjoy and make a connection that way and build almost like a friendship before you even get into the real estate side. Tyler Madden, I feel like that is his superpower. An investor out of Denver. He’s really good at that, is finding out what people are interested in becoming friends with them or making that connection before it’s even talking business. How can we each add value to each other? Or things like that. So it’s just really think about just social skills in general.
Like dating. Okay, if you’re going to date someone, you’re going to try and find out what they’re interested in. You’re not going to be right away. “Okay, let’s get married. How many kids do you want? You want 2, 3 kids or whatever?” You’re going to find what interests them and you’re going to do things that interest them so they like you and vice versa. You don’t have to right away know how to add value to someone. It’s more about making that connection. Because think about how many times you hear people saying, “It’s not what you know. It’s who you know.” And if people genuinely like you and they feel that connection, they’re going to feel pulled to want to work with you, to want to do something with you.

Tony:
I’m so glad you brought up the networking side of it because I think a lot of people overlook the role that social media can play in building that network. I think for me, there’s a lot of people that reach out to us on social media and ask questions, but there’s always that one person that comments on almost every single post that I put up as soon as I post it and I’ve met some of those people in person and as soon as I see them I’m like, “Hey, I know you.” It’s like, “I’m the one that always comments on your stuff.” So if there’s someone, JP, that you look up to or that you do want to partner with, maybe just start being super engaged in their Instagram comments and every time they post something and don’t just put a little fire emoji, maybe do something like this more insightful, that’s like a value add comment to the rest of the community. And if you’re the first person to comment on every single thing that they post, eventually that relationship will naturally start to build.

Ashley:
Go stalk someone is what you’re saying.

Tony:
Yeah. I think that works up to a certain extent where if you’re trying to network with Dwayne Johnson the Rock, I don’t know if that approach will work, but if it’s someone that’s kind of a smaller influence, I think there’s a path forward there.

Ashley:
So let’s get into it with Britt. And I think that you guys are going to be able to relate to a lot of what she says. And even though this is the rookie channel, we love to bring on those rookie investors. Once in a while, we love to grab that expert at something and break it down for you guys how the thing that they’re doing can really propel you if you start doing it now as a rookie. So let’s bring on the famous Instagram Investor Girl Britt. Britt, welcome to the Rookie podcast. We are so happy to have you. Why don’t you start off telling everyone a little bit about yourself and how you got started in real estate?

Britt:
Oh cool. Thanks for having me, you guys. I can’t believe I haven’t been on the show before.

Ashley:
Because you’re too experienced. You’re not a rookie anymore.

Britt:
True. Well, we all have been there. So first house I bought when I was 18 years old and I got that one. It’s a weird story. I never know how to get into this because it’s kind of weird. But I got food poisoning when I was six years old and the restaurant paid insurance money out to all the people who got super sick. So I had this chunk of cash and when I was 18, I bought my first rental property. So I was a $25,000 house and part of that food poisoning money went to pay for that. And then I worked for the rest of it. The rent was 850 bucks a month. So I’m like, I don’t know anything. But I do know that 850 over the year, this house is going to be paid off in a few years. So it’s almost one of those things where nowadays we have so much information, it’s information overload. But me at that time, I’m like, “That makes sense. Very simple math. Let’s do it.” So learned a lot just after that first deal.

Tony:
I mean that’s got to be the best food poisoning experience that I’ve ever heard before.

Britt:
It’s the best. It was amazing.

Tony:
I mean first, kudos to you for being 18 years old and thinking I just got this $25,000 check and I’m not going to go blow it on, I don’t know things that 18 year olds buy, but I’m going to buy real estate. How did you get to that point? Was someone coaching you? Was someone teaching you? What was the trigger that made you say, “Let me buy real estate instead”?

Britt:
Well, my mom had tenants in our house because she needed help paying the mortgage. So there’s a point where she would have tenants. We had basement tenants and all of this stuff. And I saw her not being able to afford the property to being able to afford her mortgage with renters. And I’m like, “Okay, that makes sense if you have rental income coming in every month.” And then the other part of that was she got me and my brother to help her fix up these properties. So she’s like, “All right, here’s a paintbrush. You’re eight years old. Let’s get to work.” So it was great because I learned a lot of hands on stuff early on too.

Tony:
Got it. So it was your mom that kind of planted that seed for you to become Investor Girl Britt that you are today. For our audience that doesn’t know how much of a beast you are in the real estate space today, just give us an overview of what your business looks like today.

Britt:
Yeah. I grew my Instagram following. It was a huge piece to this as well. So now I own 28 doors I guess in residential. So that’s a mix between apartment buildings, some single family, but I’m kind of away from that now. And then self storage as well. So syndicating self storage in the US. So I’m kind of also in US and Canada and this gets really complicated. But that’s kind of been more my direction now, the commercial real estate space and working with amazing operators in the self storage industry. But through Instagram, there’s just capital that can be raised, there’s deals that can be found. It’s been a huge catapult really to get me to where I am today.

Ashley:
We talk a lot on this podcast about staying on the same path. Pick a strategy, pick your criteria and stick with it. So at what point did you decide, you know what? I’m going to pivot from single family, small multi-family to self storage. And what would be your advice to somebody as to when that time is right?

Britt:
Yeah, that’s a great point because I think it is extremely important to pick your path, get really good at it, but know that you can pivot in the future. Because there’s so many ways to make money in real estate. If I went full out into multifamily, I know I would be successful. Full out into self storage. It doesn’t almost matter the path you choose as long as you just choose it and go all in. But the point of pivoting for me, especially from single family, was getting in rooms with people and masterminds where they were doing big commercial deals. And I just thought, okay, if I want to scale and get to where… And I had this feeling, I really want to grow. I was really in my comfort zone with a single family. I’ll be doing DIY single family until I’m dead. I’m never going to stray away.
And then all my friends at this mastermind are like, “Okay, do whatever you want, but if you want to grow faster, it’s probably better if you stop doing everything yourself.” But I was so comfortable in that I didn’t think I wanted to change, even though I kind of knew deep down. Because it was hard. It was hard being in that world of doing completely everything, renovations, property management, Instagram. I handled all of it on my own. But then getting in that space with all these people who are doing the self storage and the large multifamily and all that, I thought okay, I can actually do this. And I just got a lot of confidence through that.

Ashley:
So you basically became a rookie again.

Britt:
Yes.

Ashley:
You became a rookie at a different strategy, a new business model. So kind of touch on that a little bit, what it was like. Here you were very experienced, an expert in long term buy and holds in your markets and now completely pivoting and you’re a rookie again in a whole different strategy. What was that like?

Britt:
I think the mistake people make is they think they have to do it all alone. You can hire people who are amazing at what they do and then you can use your strengths and then kind of start building a team. So that was difficult though because I’ve never hired anyone. And then I was reading the book Who Not How by Dan Sullivan. He’s like, “I just hire people to hire all my people.” So I said, “I’m just going to do that.” So I hired a company who helped me build out my whole team and just get that together because I had no idea. And that’s part of it too because I didn’t understand the business side of it so much. I just knew how to buy single family homes and renovate them. But the business end of it, I just could never really grasp that. But there’s so many amazing people out there and it’s better to all be working together and really just focus on your own strengths.

Tony:
So Britt, obviously the majority of our audience, they’re rookies who are super early, haven’t even really begun their journey yet. Would you have been able to build that team on day one or did you have to grind it out yourself first before you got to that point of being able to add those people around you?

Britt:
That’s a good question because I do think it takes some time to figure out who you are and what your strengths are. But really try pay attention to that and focus on it. Because if I was doing bookkeeping, there’s a lot of things that I should not be doing. I’m not very organized. But it’s very consistent through even in high school or through my serving jobs, all these skills and what I’m really good at, I’m still really good at. And what I’m really bad at, I’m still really bad at that. I think just paying attention to it and maybe people can start paying attention in their own job or life in general and write down all your strengths, all your weaknesses. There’s tests you can do online, like the DISC test and there’s one called Working Genius and then you can really just figure out, “Okay, I’m really good with this.” And then eventually, maybe it’s not right now, but eventually when you start to partner or build a team, you’ll have a good understanding on what that should look like.

Tony:
I think the other thing, and this is what I struggled with early on, was just being able to afford to pay people. It’s like when you’re first building your business out, there’s very little money coming from your business. So you do have to kind of do everything. But the decision you have to make as you start to scale is do I take the additional profits that are coming off and use that to inflate my lifestyle or do nicer things for myself, or do I take that additional money and reinvest it back into the business by hiring the right people around you? And we’ve made the decision to hire more people to build that team out and I feel like that’s unlocked so much more growth because now, like you said, we’re able to really operate in our areas of strength and not our areas of weakness.

Britt:
Absolutely. I very much struggled with it because I couldn’t understand. I’m like, how am I supposed to pay someone 50,000 a year? I’m not making anything. I’m trying so hard. All the money’s going to renovations. But the sooner I hired, it was the best thing ever. Because it just takes stuff off your plate and what gives you energy and what will actually move the business forward instead of doing all these little tasks that just take all your time and then you’ll never be able to… You just get there so much faster. But I think also thinking about it in a way where it’s not I’m paying someone 50,000 or whatever it is for the year. No, it’s a three month contract. Think about it more short term. Can I afford each month? And then go at it that way.

Tony:
So Britt, something that you’ve done phenomenally well is build your presence online. We talk to a lot of rookies in our audience and we tell them that your platform if you want to scale, is one of the most important assets you can build. First, can you share with our listeners how big that platform is for you today? And then second, if you were starting new today as someone who had zero followers on any platform, what steps did you start taking to build that platform out?

Britt:
So I’m at 250,000 on Instagram. That’s my main platform, but I’m trying to get on all of the different ones now too. But it is the best thing I ever did. I went to a real estate conference, my first one back in 2016 I would say. And I met a mentor there who told me, “Britt, you have to start doing something right now to build your credibility as an investor. Start a newsletter, start something.” So I started a blog and I’m like, “This sucks.”

Ashley:
We have to find that blog. We’ll post it in the show notes.

Britt:
You know what it was called? I forgot about this. It was called Little Investments on the Prairie. Because I had all these little $25,000 houses but I’m not a writer and it was just really difficult to keep up with. But then I found Instagram. I didn’t have Instagram previous to that and I didn’t even want it. I didn’t want to be on social media at all. But then just from this mentor, I thought that is a good idea. It took me a year to get to a thousand followers and I thought this is impossible. I don’t know how to grow social media. This is so hard and so much work. But I just kept very consistent at it. I’d post Wednesdays and Sunday. So I’d post consistently all the time. And then I discovered lots of people are interested in the video side of things and the transformation of the space. Because I was doing all fully renovating the house on my own. So people started to be interested in that and I started getting reposts and it really worked for me.
So I think when people are building their page, what stops a lot of people is they think they have to be experts but you don’t. People want someone to relate to. So that’s more important than anything. It’s building your story and showing transformation of yourself as a person too. Things you’re learning, different things you’re doing. So I think posting just about, even if you’re reading a book and then you could say, “Hey I read this book Who Not How and I learned this thing and now I’m growing and expanding my mind.” But you can always find someone in an audience that can connect to different things. You just have to keep trying different ways, and it’s actually been hard for me because I was doing the DIY renovations for so long, but then I pivoted to commercial real estate. I’m like, “I don’t know what to post anymore.”

Ashley:
Your Excel spreadsheets.

Britt:
I know, this is so boring. But it’s part of that pivoting again. And then I tried a whole bunch of different posts. Some of them went completely dead, just didn’t work at all. But then you try something else and then just kind of find what works. So you have to just keep trying.

Ashley:
Who was the first person that you hired to actually help you with the content creation side? Because you did it all yourself for a very long time.

Britt:
True. Yeah, I did all the content creation and the good thing is I have 50,000 photos and videos of all my renovations. So even though I’m not doing my DIY renovations, I have all the videos that I could still use and I just had a viral reel, I got 2 million views, and I did that project five years ago. So it’s pretty crazy. I think just capturing as much content as you can, no matter what it is, even if you think it’s kind of pointless. Just take a video or photo anyway because your future self will thank you.

Ashley:
What are some of the benefits of actually building a brand or getting your name out there? So for Tony and I, if we wouldn’t have had any social media or he wouldn’t have had his podcast, we probably wouldn’t be sitting here today because nobody would know who we were and how to reach out to us or what we were doing. So I mean that definitely is a huge benefit is that you’re provided opportunities because people see what you’re doing. They get to know you through your social media. So what have the benefits been for you as an investor?

Britt:
Well, real estate is a people business and it’s a relationship business. So the best way to build the relationships and a lot of them all at once is through social media, through Instagram. And you could do Instagram stories and people really feel like they’re connecting with you because you can’t tell if you’re looking… Your brain can’t comprehend the difference of if you’re looking at a phone, it’s like I’m talking to Ashley even though she’s on my phone, we’re not in person. She doesn’t know who I am, but I feel like I know her. My brain’s actually building that relationship with her. In order to raise money, in order to do those types of things, people have to like, know and trust you. So a great way to build that trust and likability and get to know the people is through posting very consistently on Instagram.
What that translated to for me was over $10 million in capital raised through my social media platforms for my projects. So it’s been pretty cool to see that and just friendships as well because real estate’s hard and it feels extremely lonely. It’s not easy. We all know that. We’ve all been there, but if you have people in your corner, you could build those relationships online as well. So you get friendships out of it, you get deals, you get capital investors, partnerships, everything.

Tony:
First, congratulations to you. You said that real casually, but that’s a big deal. I’m glad you shared that because it lets our audience know what is possible when you can build that platform. So I want to kind of connect it back to the audience about what they can do to get started. So you talked about posting consistently. You talked about not necessarily needing to be an expert, but just kind sharing your journey. What other things can you share with the rookie audience to say, Hey, if you’re starting from zero, here’s some good things to do to build that platform.”

Britt:
Yeah, I think there’s so many different formats to do it on too. And it doesn’t even have to be Instagram. If you’re an amazing writer, maybe it’s Twitter and LinkedIn and different ways. But kind of understand yourself. I’m very visual, so I liked Instagram for the photos and the videos, but if you hate photos and videos and you love writing, there’s opportunity for that as well. It’s like the picking your lane thing. So you pick your lane and then you could expand later on. Because I kind of expanded now, but for six years I was only doing Instagram and now I’m all over. But it was just, you have to really pick and focus. And then I think a good tip is people think, oh it’s all about me. And they feel weird. It’s kind of like this self-promotion kind of uncomfortable thing, but put it to the audience. You’re trying to help someone. You can change somebody’s life. You guys have changed so many people’s lives through the podcast, through your social medias.
I think that’s a good way to do it is to think about it that way, kind of flip the script on that. And then also I heard a thing from Patrick Bet-David, you know who he is?

Tony:
Yeah.

Britt:
So he was talking about his great-grandchildren and imagine all the things, the knowledge, the wisdom that he’s sharing and he thinks about them watching it later on in their lives. And I really like that. And I thought if my grandparents had videos and they were sharing their wisdom, I would love to go back and watch that. So that’s another way to put it too.

Tony:
Yeah, that’s deep.

Britt:
I know. I was like that’s a cool way to think about it.

Tony:
Yeah, that’s amazing. We talk all the time and Ashley touched on it earlier too, that neither one of us would be sitting in this seat if it wasn’t for the platforms that we built. So Ashley had a pretty decent following on Instagram before joining the podcast. I had my own podcast. And like you said, it’s like you never know where those little things will take you and the opportunities that might come your way. So what’s next for you, Britt? What are you planning to do next with your social platforms and continue to build those things out?

Britt:
Well, it’s a good question because I never even know what’s next. It’s just who would’ve thought? I’d never in a million years would’ve thought I’d be on a podcast, be speaking on stage. And that’s the thing. You’re just creating these opportunities for yourself when you really work hard and put yourself out there. So what’s next for me? I’m still on the lane for self storage, raising capital for that. And then just bought a multifamily in Canada as well that just kind of came across my plate through Instagram. So it was just these deals that you don’t even expect but then later on down the line, they just pop up.

Ashley:
Yeah, I think the biggest benefit is that things are brought to you that you don’t even know you need in your life. It’s like you could post about something and someone say, “Oh actually, here, use this or buy this thing or whatever.” And it’s like, oh my gosh, this one little post I did, I didn’t even know I needed that thing. I never thought that I would be a podcast host. But I love it so much. So I think that’s a huge opportunity and a huge advantage of sharing your story, providing quality content. I’m going to post a picture of me in a cute outfit probably in front of the sign later on and post it with some stupid caption. But you know what? The other stuff, I try to actually put some kind of content behind it as to something that you can learn from it too. And I think that makes a big difference too. I mean you go through and you show how to do concrete countertops or something like that. You actually tell people how to do it. And I think the quality-

Tony:
That was cool, by the way.

Ashley:
I actually used your videos to do the concrete countertops in my liquor store. We would go through and look back, “Okay, what products did she say we needed?”

Britt:
That’s so cool. I forgot about that. That’s so good.

Ashley:
It turned out great. So thank you. Along the lines of content creation and your social media posting, everything like that, the mindset side of it, do you ever get cringy or, “I don’t know what people think about this.” I doubt you probably get a lot of bad comments, but if you do, how do you deal with that side of things? When I first started my Instagram, I didn’t tell anyone I was doing it because I just didn’t want to be judged I guess. So it was a full year before anyone I knew even found it. But how do you kind of handle that?

Britt:
It is difficult because naturally we focus on the negative. So you can get a hundred amazing comments and one negative one and that’s the one that bothers you the most. But I think just understanding that’s part of it. You have to take the good with the bad. If you want these opportunities, if you want all this stuff, you have to kind of understand not everyone’s going to like you. It’s just part of how it is. You wouldn’t expect that. So I think going into it, understanding it’s going to happen. There’s no way that you can be online posting consistently and not get some negativities and the cringe worthy ones where you’re like, “Oh I don’t know.” Because it can be weird.
And I just started speaking on camera because I was doing my DIY renovations just working and posting the videos of me working. I never actually did face to camera on my feed. I do it in stories but not actually telling a 30 second story on a reel and it is really difficult and I watch the video and it’s just so embarrassing and it’ll take me 15 minutes to get a 30 second clip because I can’t even remember one sentence. This is really hard. So I think just that practice and consistency and then even if you feel really weird about it, it could help someone else. So I think just posting it and then trying to get better all the time.

Tony:
I appreciate you sharing that because I think someone looks at you who has almost 300,000 followers. I think that you’ve got it figured out. So the fact that you even still struggle to get that content in a way that you like it, that you feel comfortable sharing, I think hopefully it makes it easier for the folks that are listening to the podcast as well.

Britt:
Oh absolutely.

Tony:
So one other question for you, Britt. So do you ever feel that you have to take a break from social? And here’s why I ask that question. For someone that’s just starting out, obviously there’s a certain sense of motivation that comes from seeing other investors kind of crushing in their space. But I think oftentimes you also feel that there’s like this, not imposter syndrome, but you feel like, “Man, they’re doing so much better than me. Can I ever get there?” And obviously your business has grown a lot, but even for me, I still see people like, “Man, that guy’s crushing it, that girl’s crushing it.” It kind of makes you second guess yourself as an investor, right? Do you ever feel like you have to take a break from social media just for your own mental sanity or how do you navigate that?

Britt:
Well, that’s a great point because comparison is a terrible thing and the only thing we can do is try to recognize that and then say you have to compare yourself only to your past self and see that progress there. Because there’s no point if you… Because I felt that all the time, this feeling I’m so behind. I’m like, why can’t I get this? This is so frustrating. And I’ve been there so many times. But I think just understanding that and then as soon as you think that, just catch it and then say no. If I think back to 10 years, how much have I grown? I haven’t had to really take much of a break in that way, but I’ve definitely had those feelings and all you can do is know that you are here right now and you’re working really hard and you will get there.
There’s no way you can fail if you keep going. Even if you have bumps along the way, you lose money on a deal, that’s okay too, because you’re going to learn so many lessons from that. And the only way you’re going to fail is if you quit.

Ashley:
I think you and I kind of went through a time period around the same time of not knowing where we wanted to go next. Where was our pivot going to be? I remember being at AJ Osborne’s office together and you very much felt overwhelmed with things and you were trying to figure out what was the next thing for you. And I think that’s kind of where it blossomed with self storage, everything like that. And I went through the same thing and that’s where, okay, I want to do cabins and land and campgrounds, things like that. So you have I think those two things. It’s not knowing what to do next, what to do better, what to do greater, to keep up with everyone it seems like. And then also that imposter syndrome. Am I really doing everything that I could be? Do I even know what I’m doing?
Even on the plane ride here, usually I travel with my life auxiliary, my security blanket and I was alone on the plane and I’m texting him with tears strung down my eyes. I feel like I’m such an imposter. Do I even know anything about real estate? I have to talk on stage. The poor lady having to sit next to me probably looking over at me, but also having that accountability, that business partner, that friend or whatever who just helps you build back that confidence and reinforces it for you. So yeah, Daryl’s actually behind the camera rolling his eyes at me. But I think it’s important to be honest about those things. Those things happen. And just making your mindset stronger and stronger as you go along with the journey and not worrying about outside factors because social media definitely has changed the world on that for sure.

Britt:
It has. And we put people on these pedestals and then we think, “Oh, they have everything figured out, they just have no problems.” And it’s not that way at all. Everybody, no matter what level you’re at, they all have imposter syndrome in different rooms and it just depends what it is. But I think just knowing that we all feel the same is comfort in itself.

Tony:
You mentioned Who Not How by Dan Sullivan. Have you read The Gap in the Game?

Britt:
Yeah.

Tony:
That was a really eye opening book for me because I think most people that are entrepreneurial, they’re so driven to focus on what’s next and what am I working towards and here’s the goal, how do I get there? But we struggled so much at looking back and saying, what have I already done? When I read that book, it kind of gave me this epiphany moment where it’s like I’m really, really good at looking forward and being aggressive in that way, but I am terrible at looking backwards and being appreciative of what I’ve done. So I’m not even saying that you need to do this, but just for me, I’m talking to you guys and this is something that I’ve struggled with a lot and if you have that imposter syndrome, I think reading that book, it gave me a whole fresh perspective. So I highly, highly recommend it.

Britt:
Absolutely.

Ashley:
Well Britt, thank you so much for joining us for this and thank you for going deep with us there. I know our listeners probably appreciate all the honesty. Can you let everyone know where they can reach out to you and find out some more information about you?

Britt:
Yeah, Investor Girl Britt on all of it. Thank you guys. This was really fun.

Ashley:
Yeah, thank you for coming on. Literally Britt came into the room and we said, “Hey, you want to do a podcast?” Within five minutes, we were sitting down. So great job being put on the spot here.

Britt:
I love it. Well, thank you guys so much.

Ashley:
I’m Ashley at Wealth From Rentals and he’s Tony at Tony J. Robinson. Thank you guys so much for listening and we will be back on Wednesday with another guest.

Ashley:
This is the Real Estate Rookie, episode 233.

Logan:
Yeah, I think it was just, I think I saw the opportunity. I kind of looked at the sales price history of that property and the surrounding properties in that area, and I saw that they were on an upward trend, and of course, we probably couldn’t have foreseen the appreciation that would’ve come in the year following, but I think I just kind of saw the trend and I saw it was on the up and up, and I just thought… Believe it or not, it’s actually only about 30, 40 minutes from The Hamptons. So, it’s a very black and white scenario where you have such a bad area and a very good area very close to it. So, I took the chance. It was definitely a risk.

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

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we give you the inspiration, motivation, and stories you need to hear to kickstart your investing journey, and I want to start today’s episode by shouting out a very special listener who left us a five-star review on Apple Podcast. This week’s review comes from Jess Haas, and Jess says, “Start here,” with like five exclamation marks. “This is hands down the best place to start your real estate journey. From the minisodes on Saturdays to the guests, everything is pure gold.” Jess, we appreciate you. And for all of you listening, if you haven’t yet left us an honest rating review on Apple Podcast, please do. The more reviews we get, the more folks we can help, and that is our first and always biggest goal here at the Real Estate Rookie. So, Ashley Kehr, what’s up? How you doing today?

Ashley:
Not much. Super excited, today I submitted my final edits on my manuscript, so haven’t really told a lot of people because I didn’t know if I’d ever finish it. But yeah, so coming out January 2023 is going to be a new book that I wrote.

Tony:
There you go. Congratulations. Ashley, podcast host, published author, and professional hula hooper, all coming together.

Ashley:
And bull rider, don’t forget that too.

Tony:
And bull rider. But now, seriously, I’m super happy for you, Ashley.

Ashley:
Thank you very much.

Tony:
I’m excited to get my hands on the book, and the world’s going to love it, I’m sure.

Ashley:
Yeah, thank you very much. What about you, Tony? What’s new? You got your vacation coming up, very well deserved. And what else?

Tony:
We got vacation, but it’s always weird before vacation because you’re scrambling to get everything done. So, Ash and I were talking before we started recording how we both pulled all-nighters last night. It’s like we’re in college or something, again, trying to study for a final. But yeah, we’re just moving along. We onboarded a new assistant, so she kind of started last month, but this week was her first full week working with us. When you first hire a new team member, it almost, there’s more work initially just getting them trained up and eventually they’ll kind of be off and running. So, we’ve just been a little all over the place this week.

Ashley:
Well, we have a great episode for you guys today. The first thing is Tony once again finds a reason to talk about his Streetfort, Treefort, whatever, I still don’t even know what the actual name of the city is in Louisiana, and we actually kind of go into a rabbit hole about insurance in this episode. But I think it’s definitely worth listening, especially after we are hearing the impact of what has happened from Hurricane Ian down in Florida and just how your insurance can change and things you guys should be aware of and know as an investor for your properties, things to be aware of. But we have Logan on the show today. So, he is only 21 years old, and he is so cool. I mean, just listening to all the things he’s done already at the age of 21, I think it’s really remarkable.

Tony:
Yeah, Logan’s going to teach you how to not just do this anywhere, but how to do this in an expensive market. He’s going to show you how you can buy properties with no W2 job, no tax returns, and no car. And so, this kid’s incredible, man, and I think regardless of what age you are, you will really get inspired and motivated by hearing his story.

Ashley:
Yeah. So, before we bring Logan onto the show, we would love for you guys to join the Real Estate Rookie Facebook group. We have over 50,000 members in the group right now, and it’s a great place to get your questions asked, to share your wins, but also to help other people and answer some questions too. So, make sure you join the Facebook group if you guys haven’t already, and of course, subscribe to our YouTube channel so that you guys can watch the Real Estate Rookie Podcast and also see-

Tony:
See these beautiful faces.

Ashley:
Yeah, I think the tiredness of the all-nighters. I mean, that’s the second joke that you pulled today, Tony. But you guys could also get to watch our awesome contributors on the real estate rookie YouTube channel too.

Tony:
Logan, welcome to the Real Estate Rookie Podcast, brother. We’re excited to have you, man. Before we get into the nitty-gritty, why don’t you tell us a little bit about who you are and how you got started in real estate investment?

Logan:
Yeah. So, I think I was bit by the money entrepreneur bug pretty early on, I would say, probably before I even reached the age of 10, 11, 12. As far as the real estate, that was something that I didn’t think was going to happen this soon and early in my life. I really thought that was going to come much later down the road, maybe five, 10 years from now. It was really the pandemic that was kind of the impetus, the motivation to jump right into real estate. I had been studying it for a few years, reading books, watching BiggerPockets, courses, videos, but I took a big hit with my income mainly due to the pandemic, and that definitely put a dent in me, and I saw that interest rates were at an all-time low. I thought now was an opportune time, and I just decided to jump right in, and now I’m here with $1.1 million worth of real estate and growing and growing even more.

Ashley:
And how old are you?

Logan:
I’ll be turning 22 next month.

Ashley:
Oh my gosh. Congratulations, Logan.

Logan:
That’s amazing, man.

Ashley:
That is so cool. So, when you decided, you’re looking at, okay, interest rates are low, everything like that, was it like, “I’m just going to buy a house to live in,” or did you already know like, “I want to do an investment property”?

Logan:
It was definitely going to be an investment property, but I had no idea where to start. There were so many looming fears and the unknown. Maybe I thought I would start with commercial, like a storefront. Maybe I would buy something a couple blocks away from me and just put all the money I had into it. I really didn’t know where I was going to start. But mainly for me, I live on long island in Nassau county and obviously Long Island is one of the most expensive markets in the nation, and so, I saw there was an opportunity in the county next to mine about an hour, hour and a half away, and I saw that prices were much lower there, mainly because it’s not the best area, it has a bad reputation, and so, that’s where I started. I started in that specific city, and that was my first single family residence as my first property.

Ashley:
Logan, before we go any further, what does your portfolio kind of look like right now?

Logan:
So, it consists of a duplex that’s local near me, just 10 minutes away, and then the two single families are in that area about an hour and a half away from me. So, four units total, three properties.

Ashley:
Okay. Let’s just, let’s go back to the beginning a little bit. So, you were an entrepreneur. Tell us a little bit about your first business before you even got into real estate. Then we can go into as to what skills actually transferred over for you?

Logan:
Yeah. So, for me-

Ashley:
And when did you start a business? If you’re 21, when did you start your first business?

Tony:
Yeah, can we talk a little bit? Ash, what were you doing at 21?

Ashley:
I had just transferred colleges. Yeah, I mean, I definitely wasn’t running a business. I was interning as an accountant, I guess, while I was going to college.

Tony:
Yeah. Yeah, I think my 21st year, I think that’s when I almost flunked out of college. I changed my majors halfway through that year, and I still had aspiring dreams of being a hip hop artist. So, definitely not doing all the cool stuff you’re doing, Logan.

Logan:
It’s [inaudible 00:07:45].

Tony:
Yeah, maybe one day. Yeah.

Logan:
Well, for me, I actually didn’t go to college, but as far as the first money I ever made, I’m actually a magician. So, that’s really where I would say my money journey started was doing magic actually. As early as 9, 10 years old, I would do magic on the street and make a few dollars. I remember a $20 tip being the world at the time, and I would do gigs. I started approaching restaurants, and that was sort of my first introduction to money, but obviously not having the literacy or knowing to do with that money or budgeting it or managing it, that came a little bit later. But then I started getting into online business. I saw it was possible just naturally through the internet. So, I started doing drop shipping, affiliate marketing, email marketing, and other various forms, just selling items I had around the household. As far as trying to invest my money and actually grow it, I would say it really started with gambling. I tried gambling with horse racing, yeah.

Ashley:
You don’t hear that very often.

Logan:
No, I know. That’s where it started really for me. I tried to get rich quick too many times, but long-term investing came probably when I was like 17, 18 years old. I decided to start investing in stocks and have that long-term mindset.

Tony:
Logan, do you have family or a mentor or someone that kind of guided you towards real estate? Where do you think this initial interest came from?

Logan:
As far as real estate itself, no one in my family has ever done real estate, not even anyone distant. It’s never been in the family. The closest that I’ve ever gotten to money and managing and actually trying to do something with money was probably my father. Unfortunately, he passed away last year, but he tried many things online just like myself, and I don’t think he quite got anything to necessarily work in his lifetime, but I think that bug definitely bit me and probably was passed on to me through him.

Tony:
Yeah. Well, I’m sorry to hear about your father, but I guess we can tick solace to knowing that some of those lessons that he passed onto you are bearing fruit, man, so there’s always a silver lining there. So, you talked about the magician work earlier in your life and you’re still doing that today, the kind of digital marketing experience that you had. To Ashley’s question earlier, have any of those skills from those earlier businesses translated into the world of real estate investing?

Logan:
I would say that I’ve definitely made mistakes in both areas, real estate and online business in itself. I would probably say that having that long-term mindset, when I first started to build my business, I probably tried too many ways to build it too quickly or tried to throw money in areas that probably weren’t necessarily worthwhile. I think that sort of does translate into real estate, having that long-term mindset and looking many years down the road, and also potentially moving and managing your money in certain areas that are definitely more necessary and more of a positive return on investment than other ways to put your money into a property.

Tony:
Can we touch a little bit, Logan, on how you’ve been able to afford over a million dollars worth of real estate? At any age, it’s an achievement, but I think especially at 21, almost 22 years old. What did that process look like? Was this your life savings? Were you working with other investors? Just kind of walk us through how someone is able to purchase four units in such a short period of time.

Logan:
So, yeah, the units, that was purchased in under one year. So, the actual purchasing was definitely pretty expedited. But as far as the actual building of the money itself, that came mostly from just stacking away my money and hoarding that money. Every single year, I really tried to be as frugal as possible. A little expenditures here and there, little splurges, but I really was quite disciplined with investing my money and putting it all into stocks. I just put every nickel I had, try to throw it away, and really keep as little cash as possible. That was really going to be the plan before real estate was just going to be putting my money in stocks or in next funds, and maybe by the time I reach 40, 50 years old, I will have seven, eight figures worth saved up, and real estate probably wouldn’t have come for a very long time down the road.
But yeah, it was all through just being disciplined with investing and paying yourself first and keeping low credit card debt, open that first credit card soon after I turned 18. So, that definitely helped. But it was all just mainly through online business and life savings.

Ashley:
Logan, as a teenager earning this money, how were you disciplined to not go and spend it? So, when I was a teenager, I worked as a waitress and a hostess, and I remember I’d go home with my wad of cash from my tips and I’d count out my money and I’d put it in my save. Then when I went to college, I literally blew through all that money probably in the first semester. How were you able to stay disciplined to not just go out and spend that money?

Logan:
Yeah. No, I definitely have a few friends that same story as you, but I would probably say that I think I screwed up so many times early on, and I realized that I wanted to make that change and actually reach financial freedom, and I knew what it was going to take. And so, I think I had that mindset pretty early on and I think I sort of had that epiphany that in order to make this work and in order to create the lifestyle that I truly wanted, it wasn’t going to happen through spending and wasting your money and having little leftover after every month. So, I think the dream and having that goal definitely helped in that, and I learned that very early on. I don’t think it was luck. I think it was just probably maybe just my influence and who was around me and probably just what I learned, just learning so much at such a young age. I’ve been reading books and watching so many courses and et cetera for a very long time.

Ashley:
At the BiggerPockets conference this year, I felt like I heard so many people say the same thing, that if you want to really excel at life, if you want to take it to the next level, if you want to be successful, you need to change the people who are in the same room as you. You don’t want to be hanging out with people who are going out partying instead of wanting to plan a business or things like that. You want to keep your friends around you that are doing the same thing as you or even higher and higher than you, and I think that’s kind of what you’re touching on there is that you surrounded yourself with the right people to get your mindset right and to push you and to achieve you because being around people is contagious. You’re going to get caught into what they’re doing, You’re going to lose focus on what you really want just because you’re interacting with other people that don’t have that same determination, that same focus to reach and get to the next level.
We had Pace Morby on an episode and that should be coming out soon, and he talks about this too as to how he actually had to clean house on his circle of friends, and he’s like, “Yeah, that’s a hard thing to do, but I was really being held back.” So, I think that’s really awesome that at an early age you surrounded yourself with people who were a good influence on you and who actually helped push you to kind of get to where you are today.

Tony:
Can I add to that, Ash, before we move on? I’m so glad you brought that up because I think at any point in your life, your social circle is so important, especially if you’re a newer investor because even outside of just the support, the motivation, one of the things you get from your social circle is a new belief system, and I think that’s a part that a lot of people overlook.
If you’ve never made a hundred thousand dollars in a single year before, when you start hanging around people who have made six figures, you somehow believe that it’s possible. If you’ve never become a millionaire before, you start hanging around with other millionaires, now you suddenly believe that’s possible. If you have friends that have yachts, right, or private jets, you start hanging around with them, now you think that that’s possible. So, it’s like even outside of the support and the social aspect of it, I think when you surround yourself with people who are on the same path as you or have achieved the things you want to achieve, one of the biggest benefits you get from that is just the belief system that you can actually follow in those footsteps.

Ashley:
Logan, so with this pile of cash that you have shoved under your mattress at a young age, did you use this for a down payment? How did you purchase that first property? Was it all cash? How did you work that deal?

Logan:
Yeah, so that was all just accumulated in brokerage accounts, just sitting there growing on a monthly annual basis. As far as the real estate, that first deal, I wasn’t necessarily exposed to different types of financing specifically like a hard money or DSCR type of loan, or even if I was exposed to it, I probably wouldn’t have done it. I probably would’ve been too fearful to do it. So, I just started with a basic conventional loan, Fannie Mae, Freddie Mac, but the thing was is that I was still being claimed as a dependent on my parents’ tax returns so I didn’t necessarily have any tax returns. So, I actually had to go out and file two years worth of tax returns, which as you know, New York State, some of the highest income tax in the country, in order to qualify and show sufficient income on paper to qualify for that conventional loan. So, it was also the accumulation of tons of fees and penalties for paying late and everything like that.

Ashley:
So, you went back actually and took your… So, your parents, did they amend their tax return to no longer have you as a dependent and then you went and filed for two years prior?

Logan:
They didn’t necessarily amend theirs. It was just my own Schedule C self-employed income, and that was a hefty hit, probably like 40, $50,000 worth of taxes. But in hindsight, maybe I would’ve shown a little bit less income and just did a DSCR loan, maybe I wouldn’t have shown that much income on paper. So, yeah, that was first deal, a conventional loan, 20% down for that single family house.

Ashley:
Cool. That’s interesting. I never thought about being at an young age, not having that income. So, what income did you show on there? Your income as being a magician? Did you pull money out of the stock market that hadn’t been reported that you’re reporting now?

Logan:
So, I would probably say it was magic income, it was also online business income, affiliate marketing, all that, and I don’t think necessarily capital gain showed on that tax return just yet because the money was pulled out after. But yeah, so that was all the income that was shown on there. It was a big hit, but I think in hindsight it definitely was a good decision because I got two conventional mortgages and I might get another conventional mortgage out of it.

Ashley:
Awesome. So, you did the 20% down. What did your terms look like in that? You had said you noticed interest rates were low, so did you get in at a good time?

Logan:
Yep, that was a good way. I’d do anything to get that rate back. It’s only three and a quarter, believe it or not, on that first loan. That was last year and I closed on that property June of 2021. I locked in that rate probably a few months before, and so, do anything to get that rate back. And also, as far as the property itself, the price of that property was only 213,000 which at the time I thought it was overpaying for it.And especially in that area which doesn’t necessarily have the best reputation. It’s considered the armpit of Long Island. At the time I thought I was overpaying for it, and if you asked other investors in the area, they probably wouldn’t have even touched that area.

Ashley:
Go ahead. Name names. What’s the name of it? What’s the [inaudible 00:18:58]?

Logan:
So, it’s Mastic-Shirley area, Mastic Beach. It’s considered the dump of Long Island, but it definitely is growing and appreciating at a high rate right now.

Ashley:
How did you kind of work up the courage to invest in an area that has a bad reputation? I feel like most investors want to go to a good area where there’s appreciation and tenants.

Logan:
Yeah, I think it was just, I think saw the opportunity. I kind of looked at the sales price history of that property and the surrounding properties in that area, and I saw that they were on an upward trend, and of course, we probably couldn’t have foreseen the appreciation that would’ve come in the year following, but I think I just kind of saw the trend and I saw it was on the up and up, and I just thought… Believe it or not, it’s actually only about 30, 40 minutes from The Hamptons. So, it’s a very black and white scenario where you have such a bad area and a very good area very close to it. So, I took the chance. It was definitely a risk.
As far as, by the way, on the income, I’ve dispelled a couple notions so far, number one that if you’re my age, you can’t invest in real estate. And then also if you didn’t go to college, you can’t invest in real estate. If you’re living on Long Island, you can’t invest in real estate. If you don’t have any W2 income, you can’t invest in real estate. So, I’ve kind of broken all those barriers.

Tony:
Logan, I want to ask a question because you have these four units right now, are you living in any of your investments or are you still living at home with the folks? What’s the living situation look like right now?

Logan:
Yeah, still living in the same apartment with my mother. We rent, we don’t own. I own everything else though.

Tony:
That’s such a unique thing. I’m glad I asked this question because you obviously have the financial ability to go out and purchase property, but instead of doing it for your primary residence, you’re doing it to build a portfolio. And I’m seeing this theme throughout the conversation, Logan, where you’re able to exercise patience and discipline to move towards your goals, and I think that’s something that a lot of people struggle with, and people have the maybe financial ability, they have the mental capacity, they have the technical know-how to become real estate investors, but what they lack is the patience and the discipline to stick with it and execute and do the things they need to do.
You’re staying at home with your mom while you’re still building this real estate portfolio. You are super frugal with all this money you’re making at a very young age which most people can’t do. There are just all these things that you’re doing that show how disciplined and committed you are to your goals. So, if there’s something for our rookie audience to take away, it’s that if you want to be successful, there has to be a certain level of sacrifice. You have to give up something if you want that bigger reward down the road, and I think you’ve just done a great job, Logan, of exemplifying that.

Logan:
I appreciate that. Especially kids my age and my generation, I think I’m kind of going against the grain as far as what I’m investing in because I would imagine that most of my generation is obviously playing around with cryptocurrency and the next hot thing, and so, I could have easily done that. Obviously I disclose that I do own a little bit of cryptocurrency, but is definitely not the majority of my portfolio.

Ashley:
Logan, when you say your generation, you mean our generation.

Logan:
Gen Z, Gen Z. Yeah, yeah, of course.

Ashley:
So, Logan, what do your expenses and your bills look like for yourself? So, you’re living at home. Do you help your mom? Do you pay a portion of the rent? Do you have a car payment? Are you paying insurance? What kind of monthly expenses do you have, and what have you decided to cut out of your life to live so frugally to be able to invest more?

Logan:
Not too much besides the rent. So, I actually don’t even drive either. So, that’s another notion dispelled there that if you don’t have a car, you can’t access real estate. So, I usually just get a ride from my agent or via an Uber or whatever. But yeah, so I actually pay 100% of the rent here and obviously very expensive market on Long Island which is tough, but I make it work. Unfortunately, my mom, completely different situation, different scenario. She did not necessarily follow the same path or the footsteps as I’m doing right now, and so, I’m actually paying 100% of the rent. She helps out a little bit with utilities, but other than that, no car payment, no student loans, no debt like that.

Ashley:
Logan, how awesome is that that you get to do that for your mom?

Logan:
Appreciate that.

Ashley:
I think that is, and really proud of you that you want to do that too for her. I mean, not many people at your age or even at any age can help their parents out in that sense. So, I think that’s really amazing that you’re doing that and that’s how you’re choosing to spend the money. Really, that’s your only expense that you have. So, yeah, that’s really awesome and that’s a huge thing. So, congratulations on being able to do that. That’s definitely a huge accomplishment.

Tony:
If I can ask one follow up question, Logan, you mentioned that when you go visit some of these properties you either catch an Uber or you have your agent pick you up. It made me think like okay, yeah, you’re working with an agent and as a younger investor, how did you kind of build that relationship with your agents so that they took you seriously? I think a lot of new investors, regardless of age, struggle with this imposter syndrome around like, “Oh man, will this agent really take me seriously or will this contractor take me seriously, or this property management company?” So, what was your approach to building a good relationship and getting that person, as a 21, 20 years old maybe at the time, actually them take the time to show you around and pick you up and do all these things?

Logan:
So, luckily, I haven’t run into anyone that’s necessarily disowned me or anything like that. So, luckily pretty good relationships all around. I haven’t had anyone doubt me, and the agent lives local, so that’s not necessarily something that took too much convincing, they were happy to do it. But I’ve definitely gotten some eyeballs and some surprised looks and faces when I show up to that closing table and they see who’s closing on that property, or the insurance agent, maybe they see my birthdate or something and they definitely make a comment on my age. So, I’ve definitely gotten those.

Tony:
What about your tenants, Logan? Are you self-managing? Do you have a relationship with them and what does that dynamic look like?

Logan:
Yeah, so all self-managed right now. I don’t know, maybe when I hit 10 units I’ll probably move to a property manager. I can’t quite make the decision yet. I will see how much I can handle. But a few different stories as far as the tenants because on the first property I technically inherited that tenant, so that has a story there, and then the second property I did inherit a tenant for that duplex, so we definitely get into that as well.

Tony:
Let’s hear the stories, man.

Ashley:
Yeah.

Logan:
The first property actually I would say I got pretty lucky. Interesting story, believe it or not, the owner that sold it to me actually wanted to stay and live at that property. I think they had some sort of living arrangement set up that they were going to be moving out in six months or a year, and they just wanted to rent the property from me actually until they move out. Still, they have not moved out and it’s been a year and a half, and we’re actually going to renew that lease next month, but I will have to raise the rent, and so, we’ll see what happens there if they choose to renew or not. But yeah, so I did get pretty lucky there. That was pretty turnkey with the tenant set up, and I didn’t get to screen them, but luckily they’re just closing that property, and so, they did have a boatload of funds from selling it to me. So, I guess that was kind of a pre-screen. So, that’s the first one.
The second one, the duplex, one of the units was occupied, the other one vacant. So, I did inherit a tenant there, and that was definitely a risky tenant because I don’t even think they’re technically documented, so I don’t even think they were able to provide a social security number so I didn’t get to screen them. So, I’ve taken a lot of risk all around between the tenants not being screened, and then also all these properties are in flood zones, so that’s definitely a risk as well. So, I’ve definitely taken on some risky situations.

Ashley:
Logan, how did you show the vacant unit? Did you set up one showing so you only had to get a ride there once? I figure without a car it would be somewhat difficult to go there all the time to do showing. So, how if you set up your leasing process so that you don’t have to actually be at the property all the time?

Logan:
I just went through my broker so that they show the property, but on that duplex actually, specifically, that one is just 10 minutes away from me so it probably wouldn’t have been a big deal anyways to show it. The train goes right there. But on the third one, that I bought vacant, that third house, so that was an hour and a half away from me because it’s in that same Mastic area. And again, my broker just showed that one and now it’s occupied. We got it occupied within a couple weeks.

Ashley:
What was the fee that you paid your broker to do that? Because I had that before and I think it was one month’s rent that we actually paid the agent once they got a tenant in there.

Logan:
Yeah, it was just the one month’s rent that the tenant pays. I will say for New York they have some pretty strict laws in regards to how much you could charge as far as one month’s rent upfront security. So, in New York, it’s definitely a tough market with the laws and regulations.

Ashley:
No I meant to the broker, the real estate agent. Did you pay them once they got a tenant in place? Did you pay them?

Logan:
Didn’t come out of my pocket. It was from the tenant. Yeah, they paid the broker one month upfront the one month brokerage fee.

Ashley:
Oh, the tenant paid. Okay.

Logan:
Yeah, nothing out of my pocket.

Ashley:
Oh, interesting, oh.

Tony:
Oh, that’s cool.

Ashley:
Yeah, I’ve only seen on the other side where the actual landlord pays the broker but to have the tenant pay.

Tony:
Breaking more rules, Logan, I love it, man.

Logan:
Okay. I didn’t know that actually.

Ashley:
But yes, what you said too is very true in New York State where you can only charge one month’s rent for security deposit or less. You can’t charge more than that and you also can charge last month’s rent. And I actually had somebody text me the other day asking me this because their daughter was trying to get a unit and the landlord told them like, “You’re going to have to put a higher security deposit down,” and they were thinking, “I don’t think you’re true.” So, of course, I get on, I get all the government documents, I send it to them, like, “They can’t do that to you.”

Logan:
And also in regards to Section 8, there’s also regulations with that. I don’t know if it’s the same in all states, but in New York, it’s technically illegal to take over the voucher amount. So, that’s also legal, and I had some Section 8 people try to apply for that third property.

Ashley:
So, how are you finding out all of this information? What are some great resources that somebody who’s getting into property management can go and find everything that you’ve learned?

Logan:
Facebook groups are great. I learn a lot of information from the Real Estate Rookie group and the bigger, the BRRRR Invest group, lots of groups in regards to real estate on Facebook, and then naturally there’s also local meetups which I’m sure are great for people as well. There’s a few on Long Island and then also just naturally YouTube University, right, this Google University, endless research. But the big thing is that you can gain all this knowledge, do all of your analysis, and have all this information, but it’s until you actually do it and execute that some of these unknowns and fears won’t go away.

Tony:
BiggerPockets, BiggerPockets, BiggerPockets.

Ashley:
Tony, did you just crack a joke?

Tony:
I’m joking but I’m also serious, right? I think for so many new investors, the forums on BiggerPockets, it’s like an encyclopedia of… It’s a PhD of real estate investing. Almost any question that you can think about asking has probably already been asked and someone has answered it in very high details somewhere on the forums, and honestly I think that’s how I initially found BiggerPockets. It’s like I googled some super obscure real estate something and then I landed on one of the pages in the forums and then that kind of sent me down the rabbit hole. So, I love all the resources you talked about. Look, but obviously just wanted to plug the forums cause I think it’s a great resource for new investors.

Logan:
Absolutely.

Ashley:
So, Logan, do you have a deal that you kind of want to go through the numbers with us?

Logan:
Sure thing. I think we could start with that first one because it’s definitely the largest as far as cash flow and the return on investment, so I think we could definitely dig in with that. My first deal, that was 20% down, single family unit, quite a small two bedroom house. I think it’s less than a thousand square feet, but again, 213,000, at the time I thought I was overpaying for it. That was after-

Ashley:
What was that? Is that the asking price?

Logan:
It was 224 or 5, we got it down to 215, then a $2,000 credit, 213 was the final price, and that 20% down, so all in, I think it was like 65, 70 grand all in with closing costs. It was pretty turnkey. I replaced a water heater and some minor TLC but nothing too big. I can’t necessarily speak for everyone, but I would say especially for someone like myself who’s not necessarily majorly astute with handy work and contracting, I would probably start with turnkey properties. I probably wouldn’t begin with a major rehab project. That’s just my opinion, but everyone’s different. So, turnkey property, and like I said with that situation, the tenant, that was pretty much built into it, the owner, and I got it rented right away. It was occupied day one at closing and now it has appreciated like 30, 40% just in the last year, year and a half because of what’s going on in the market there.

Ashley:
Wow. And what does the tenant pay for rent in that property?

Logan:
Right now, 2,200, but that’s way below market value actually.

Ashley:
And that’s the one where it’s the owners living in there?

Logan:
Correct.

Tony:
Sorry, $2,200 per month on a $213,000 house?

Logan:
That’s right. But that’s way below market value, yeah.

Tony:
Wow, that’s amazing.

Ashley:
So, you put about $75,000.

Logan:
Yeah, about 70 grand all in with closing costs and the down payment.

Ashley:
Tony, what’s the cash on cash return on that?

Tony:
Yeah, what are you netting on that 22?

Logan:
Yeah, insurance went up because the flood insurance is so high, especially in that area because it’s such a risky flood zone. That’s the only caveat, but it’s about 600 bucks in cash flow a month. So, that’s a great deal. I would do anything to get that deal again and again. I would do it every day of the week but the market has gone up so much and obviously interest rates on top of that, just not feasible anymore. But the percentage return is about 12, 13% actually, the percentage.

Tony:
Yeah, that’s awesome, man. That’s a great first deal. I’m super impressed that you’re able to get such a high monthly rent amount on comparatively speaking low purchase price. That’s great, man.

Ashley:
But you have to think about too that the properties in New York State where the property taxes are a lot higher. So, it’s very easy to hit the 1% rule where the rent is 1% of the purchase price or even higher than the 1% rule, but it’s very hard to meet the 50% rule where your expenses are 50% of the monthly rental income. So, that’s a big thing to think too is those property taxes kill you.

Tony:
The flood insurance is a big risk too. So, I don’t know if you’ve heard my story, Logan, but I also bought my second investment property was in a flood zone, and the first year we owned the property, the flood insurance premium was super reasonable. The second year we owned the property, the flood insurance premium quadrupled, so it was like a thousand bucks a year and it went up to 4,000 bucks a year, and we shopped it around to multiple different insurance brokers, they all came back with very similar quotes. I don’t know what happened. I don’t know if there… Mercury must have been in retrograde or something because there was some weird stuff happening across the insurance industry, but that killed us on that deal. We ended up selling it at a loss actually. So, there is some risk with that. I’m not trying to scare you.

Logan:
No, on my second property that actually just happened where a few months ago I got the renewal notice, and it was double what I was paying just months before, and so, I had to shop it around and got a little bit better of a rate. But yeah, it’s definitely gone up.

Tony:
I learned a lot about flood insurance as we were going through that. There’s a way to challenge the flood insurance or I guess the flood zone designation. It’s a really lengthy process, and we just didn’t feel like going through it, but if you talk to your insurance agent, there is a way to challenge that flood zone designation if you can prove there hasn’t been any major floods or something like that, or there’s like a map you have to pull from the FEMA website. But there is a process. It’s just, it is pretty lengthy and the chances of success are really slim. So something to look into if you’ve got the time.

Ashley:
Yeah, I just got one of my bills yesterday actually that there’s one property that’s in a flood zone. I actually have it under contract to sell it right now, but it went up $400 for the year. It went from 1,400 to 1,800.

Logan:
Especially Long Island got hit very badly by Hurricane Sandy in 2012. Everything was absolutely devastated. So, we’re definitely in a bad risky flood area.

Ashley:
Yeah, I did two of my bootcamp calls this week, and in both of them the conversation came up as to how Hurricane Ian is changing Florida for insurance and how the premiums are just going to increase even more and just there is a cap on how much it can actually increase. But it was really interesting listening to a couple investors who invest in Florida talk about how that is going to impact them and then also people who are homeowners too, and it’s not just investment property. So, insurance is definitely a…

Tony:
Tricky.

Ashley:
Yeah.

Tony:
Yeah.

Ashley:
I have my insurance license and I hate it so much. I don’t understand half of it anymore because I’m just like don’t stay on top of it. It’s kind of like a CPA, if they don’t stay up to date on the tax laws and regulations [inaudible 00:36:23].

Logan:
But I would say definitely shop around, shop around different agents and brokers and play around with the coverage and I think you’ll get a better rate. That would just be my advice, especially to people in flood areas to shop around and I think you’ll get a better rate than you originally got.

Ashley:
I think that’s great advice too, especially play around with the coverage as to look at what you actually have on your policy. Is there something in there that you don’t think you would ever, ever use or ever come up even costing you a hundred bucks extra a year for the premium? So, I think that’s interesting, and then especially with it being an investment property, look at what your coverage is to replace the property, and I usually try to get it as low because I actually might, if a duplex or something was to burn down, I don’t even actually know if I would rebuild it or if I would just sell the lot or something like that too. So, where if was my primary residence, yes I’d have to rebuild.

Tony:
That’s so funny you mentioned that, Ashley, because Omi, my partner and I and Sara were literally just having this conversation about insurance yesterday and we said the opposite. It’s like our properties have appreciated so much since we purchased them that if one of them did burn down we’re undercover right now. So Omi’s going to do the work to increase that replacement cover so if they do burn down, we’re not caught holding the bag. A buddy of ours, he was building a cabin in the Smokey Mountains. He was like two weeks away from it being completed. Once the property was going to be done, he was going to have like $300,000 in equity just because of his build cost versus where the properties were appraising at. One of the workers flicked a cigarette butt that ended up catching some debris on fire, burned down the entire cabin, and his cover, he was undercovered, so now instead of having $300,000 in equity, he had to write a $50,000 check to cover that construction debt. So, when we heard that story we’re like, “Oh my god.” We got way too many properties to not be accurately covered.

Ashley:
And Tony, I think you have to compare properties too where my $50,000 duplexes are not appreciating $300,000 in four years.

Tony:
That’s true, that’s true, that’s true.

Ashley:
My $3,000 appreciation can handle that.

Tony:
You could probably write that check. You could probably Write that check.

Ashley:
But also for me to have to write a check, it’s like I always make sure I at least have coverage for more than what the mortgage is, and that’s like the priority to me is if it did burn down that I could pay off the mortgage on the property easily.

Tony:
A good conversation about insurance. Let’s go to the rookie request line, Logan. So, for all our rookies, if you’re listening, you guys can leave us a voicemail at any time, just give us a call at 8885-ROOKIE to leave a voicemail. We love getting the voicemails, guys. We love the Facebook questions and we love the Instagram DMs but the rookie voicemails are cool because we actually get to hear you guys. So, if you want your voice featured on the Real Estate Rookie Podcast, give us a call, 8885-ROOKIE. So. Logan, are you ready for today’s question?

Logan:
I think so.

Reid:
Hey guys, this is Reid from Brandon, Mississippi. When my wife and I moved out of our previous home, we kept it as a rental and are currently looking to purchase our next rental unit. The first house was already in our names and we left it that way. Moving forward, at what point do we want to start putting homes under a LLC, or should we at all? Does the protection offered offset whatever pain there may be to purchasing a home under a LLC? So, just curious if and when we should move to a LLC. Loving the content. Keep up the good work.

Logan:
So, as far as my knowledge, an LLC doesn’t necessarily prevent you from getting sued, right? There’s still liability to be had there, but certainly, I think a general rule of thumb, just from my analysis and what I’ve learned, I think once you reach that number of 10, I think you should start considering an LLC, may be 20 units, but I think for me especially, and I don’t know what the property value is on his property are and what kind of issues he’s dealing with, if it’s maybe it’s a high crime area, every circumstance would be different. Not an attorney, but I think probably magic number of 10, 10 units.

Ashley:
Yeah. I think what you said there about the equity in the property too because an LLC is to protect your assets so that if you are sued, they can’t go after your personal assets. So, really looking at the net worth that you’re putting and the equity that you’re putting in each LLC. So, if I have two properties in an LLC but they’re both mortgaged to the hill and there’s only $10,000 in equity, somebody sues me, yeah, my insurance can pay out, but there’s only 10% of the equity in there and say that’s only $10,000, whatever.
But if I have half a million dollars of equity of properties in there, and maybe that’s only one property where I have half a million dollars in equity, I’m probably only going to put that one property in an LLC. But if I have a bunch of little properties, those 10 and they don’t have a ton of equity in each of them, then yeah, I’ll throw those into one LLC. So, I think looking that, just like what you said, but adding in that component of how much do you want to risk putting into one LLC together. Okay, so, Logan, we are going to move on to our rookie exam.

Logan:
Alrighty.

Ashley:
First question is, what is one actionable thing rookies should do after listening to this episode?

Logan:
So, the easiest thing I would definitely say is to start analyzing deals online and start really getting a concrete understanding of your market. You don’t necessarily have to look out of state. At first, I probably consider doing something in New Jersey or Connecticut or Pennsylvania because maybe I can get a much better deal there. But just start analyzing your local market and seeing how close you can get, and certainly start playing around those numbers, see what the cash on cash return looks like, see what you can get for rents, and just kind of do a market analysis, a market sweep of the area. I think that’s something anyone could do right now.

Tony:
Great answer, Logan. Next question, what’s one tool, app, software system that you use in your business today?

Logan:
I’m actually not much of a spreadsheet techy guy. It’s mostly just everything’s just on paper or in the mind. I actually don’t use too many apps or softwares. But as far as knowledge and learning, like you mentioned, BiggerPockets forum is definitely something everywhere everyone can use.

Tony:
I love that, man. See, I’m so the opposite. My brain, I need, I need lots of structure and things documented and regimented, whereas my wife, she’s the opposite where everything just kind of swirling around in her brain, but that gives me anxiety. So, we’re yin and yang like that.

Ashley:
Logan, where do you plan on being in five years?

Logan:
So, I think I definitely want to experiment with larger complexes and 1031 exchanging into longer, larger apartment buildings, hopefully getting into commercial real estate, so five-plus units. That’s certainly going to be tough in this area, but I think I can make it happen, and just basically doing everything I’m doing right now at scale. Whether it’s in business, whether it’s my YouTube channel and doing content branding and real estate, just everything hopefully at a larger scale and exactly what I’m doing right now though.

Tony:
Awesome. Well great job, Logan, man, and I’m excited to see that journey take off, man, and the way you’re crushing it, I’m sure you’ll reach all those goals you’ve got. So, before we close out today, I just want to give a quick shout out to our Rookie Rockstar, and if you’d like to get shout out to Rookie Rockstar, get active in the Real Estate Rookie Facebook group on the Real Estate Rookie forum section on BiggerPockets, or you can slide into my DMs or Ashley’s DMs. But today’s Rookie Rockstar is Isaiah Foster, and Isaiah says that his first business partner and he closed on their first house flip last week. They purchased it for $100,000. They were all in for about 160 and they sold it for $265,000, and what’s crazy, this is what Isaiah says is we have literally used none of our own money from this flip. They use two lines of credit and then a hard money loan to cover the entire purchase and the rehab. So, congratulations to Isaiah for crushing it with that first house flip.

Ashley:
Well, Logan, thank you so much for joining us today. I have to be honest and tell you I slept two hours last night. I’ve been working on this project, I just wanted to get it done, and that’s why I was even a couple minutes late because I was hitting something on it to get it done, and I was like, “Man, I’m exhausted.” But I have to tell you, listening to your story and talking with you, I am all pumped up again. I can pull another all-nighter. So, just thank you so much for coming on and sharing your story. You are super cool, and I’m sure all of our listeners are going to appreciate hearing your story, getting tons of motivation like me. So, can you tell everyone where they can reach out to you and find out some more information about you?

Logan:
Sure thing. Mainly active on Instagram and YouTube. So, Instagram is @logankohn, sounds like ice cream cone, but spelled K-O-H-N. And then YouTube is the same name, Logan Kohn, that that is where I am mostly putting content and mostly active.

Ashley:
Well, thank you so much for joining us, Logan. We really appreciate it. I’m Ashley @wealthfromrentals and he’s Tony, @tonyjrobinson on Instagram, and we will be back on Saturday with a Rookie Reply.(singing)

David:
This is the BiggerPockets Podcast show 684.

Parker:
The goal is to eventually use our business and then any other source of income that we can to invest in real estate. I’d like to get one to two properties each year for the next five years. Then, long-term goal is eventually to have a portfolio that pays for our lifestyle that we can go full time into.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode. If you haven’t seen one of these before or heard them, this is a show where we take questions from listeners just like you that want to know what they can do to be a better investor, improve their wealth, overcome obstacles, fears, concerns, questions, ignorance, whatever it may be. They bring the question, I bring the answers. You get to listen and you get to learn. We call it Seeing Greene because in these episodes, I’m explaining what I think they should do based on my perspective, and my last name is Greene and we’ve got this green light behind us. You know that’s what you’re getting into. Today’s show is a lot of fun. We talk about overcoming interest rate ego. If you’ve ever had that tendency to want to brag about the rate you got, that might be costing you more money than you realize, and we talk about that with one of our callers.
We deal with how to deal with the fear of good debt. Fear is real. It is a part of all of our investing journey. Debt can be scary and I tackle how to overcome that as well as different ways that you can look at debt to change your interaction with it and a different way to look at money. Our relationship with money will have a big impact on the success that we have with it or the lack of success that we have with it. Money is not just a thing, it is a concept, and your relationship with that concept is very important. Several times throughout today’s episode, I challenge conventional thinking and ask you guys to wake up, get out of the matrix and see money for what it really is. We also have a great conversation with a guest who has huge goals and we talk about what can be done to help them achieve it.
All that and more on today’s Seeing Greene episode. Before we start the show, today’s quick tip is we’re approaching the end of the year and I want to help everyone get clarity, focus, and attention. I ask, “What can you do to set yourself up for the new year? Do you have goals? Are you planning them? Do you have actionable steps you can take that are the keys to success as they build on each other?” We will commit to helping you in these areas to see the results you want and change your life trajectory if you commit to doing the work and taking the action to get there. Don’t wait until next year before you start planning for it. Start planning right now. Tell me what you want that year to look like in the comments below and what you’re going to do to make sure that happens. All right. We’re going to start today’s episode with a live call with someone who has questions and I’m going to dig into their scenario and see what I can do to help them. Let’s get into it. Mr. Parker?

Parker:
Yes, sir.

David:
Welcome to Seeing Greene. My man, how are you today?

Parker:
I am doing great, man. I’m excited to be here.

David:
We got a lot of green going on. I’m David Greene. I got a green shirt. We got a green light and we are going to dig into what we can do to making you more green. Tell me what’s your first question here?

Parker:
My wife and I got into real estate the beginning of 2022. We wanted to kind of change our lives and change our situation. We set a goal to get involved in real estate beginning of 2022, and then we found our first property and closed on that in May. That’s what we’re living in right now. We’re house hacking that. It’s actually a single family. We’re living in one bedroom and we’re renting out the other two bedrooms. It’s a play on house hack. It’s not a duplex, but…

David:
No. That’s a house hack. Just a variation.

Parker:
Yeah. Yeah. It’s working out. We’ve enjoyed the process. I guess my question is we’re looking at property number two, but we recently became self-employed after we got our first property.

David:
I’m hearing discouragement in your voice. Are you feeling discouraged?

Parker:
Yes.

David:
Okay. All right. Continue.

Parker:
Yes. I’ll get to that. I really underestimated the difficulty of financing compared from a W2 to being self-employed. I’d like to try Airbnb. I’m actually right now working on going under contract on one that I found. I have found private financing, I think. Private lending for the property. The 20% down payment though is where I get stuck and I’m wondering what strategies people have used or what tips people have used to be able to maybe possibly finance the down payment as well because it’s 20% from what I’m hearing pretty much around the board.

David:
All right. Let’s start with a few things here. Then, I’m going to throw it back to you with some more questions. First off, if you’re going to buy an investment property, it’s almost always going to be minimum of 20%. Now, the one brokerage did have some options of 15% down and those do come back sometimes depending on the appetite for lenders. In general, when there’s a lot of confidence in the economy, we get lenders to give us more favorable loan terms because they want to put their money out into play. They’ll give us 15% down. They’ll give you better interest rates. You’ll get fixed rates instead of adjustable. When there’s nervousness about the economy, lenders pull back and then the lending programs that we offer are worse. You should always assume 20%. A lot of it is 25% and sometimes even 30% because obviously, there’s fear about the economy.
Now, that is good for buying homes. There’s going to be less competition, but the terms you’re going to get are bad. The first lesson I want you to learn here is that you never get at all. There’s a give and a take. Okay? When the defense is giving you an opportunity to run, it’s very hard to pass. You’re not going to get both. You got to take what the market is giving you. The next piece I’m going to say has to do with your concerns with financing because you’re not working a W2 job. You’re self-employed. Right?

Parker:
Yeah.

David:
You probably weren’t anticipating how hard it would be to get financing when you’re self-employed. The reason is the lenders say, “Well, if you don’t have a W2 job, we’re not very confident that you’re going to continue to get paid. We’re not confident you’re going to continue to make your payment to us.” That’s where you’re running into that problem. What motivated you to leave the W2 and to get into the self-employed space?

Parker:
Really, really, really long story short, this same year that we decided to get into real estate investing, I also wanted to become a realtor, so I became a full-time realtor. The company that we were working for, my wife and I actually had the opportunity to work together for the same company. When I stepped away, another really, really important individual stepped away as well and the company actually closed up shop. They actually laid my wife off when that happened, and so we decided to then just open up a business doing the same thing we were doing. It’s dog training, so we’re dog trainers. When I left to become full-time into real estate, we were predicting that she would stay, have our W2 and we could get financed that way. When they laid her off, we opened up our own.

David:
Okay. You had the initial plan correct. One of us keep a W2, one of us venture out. You got one foot in security. You got one foot in adventure. That’s ideal. Then, the security foot fell out so your wife jumped in with you and now you guys are doing this thing together. Okay. First question before we get into real estate, we’re going to talk business. Does your wife’s presence in the company at least double the productivity of said company?

Parker:
100, yes.

David:
Okay. If you took either of you out of it, would there be less than a 50% reduction?

Parker:
No.

David:
Okay. Each of you are so valuable to this company that you both need to be in that position?

Parker:
Mm-hmm.

David:
That’s objectively speaking. There isn’t a level of comfort or fun that you like working together and that’s making your business decision here?

Parker:
Objectively speaking, I could leave. She would be swamped.

David:
Now, if you left and she became swamped and you hired an admin or a virtual assistant or somebody to help, could that business still run?

Parker:
Yes, I think so.

David:
Okay. Is this stuff she’d be swamped by revenue producing activity that she’d be losing leads of people that say, “I want you to train my dog?” Or would it be administrative stuff like making sure dog food is ordered and making sure the kennels are cleaned and… I don’t understand your business, so I’m just saying the stuff that could be leveraged out.

Parker:
She’s very much income producing activities. Yeah. That’s what…

David:
Okay. Who’s handling the majority of the operational stuff, like making sure that you can run the business but not necessarily generating revenue?

Parker:
I guess that’s what I’m doing. I’ll help train and then I’ll also help a lot at the accounting and the numbers and the administrative part of it backend.

David:
Can you do that and have another job?

Parker:
Oh, I think so.

David:
My guess would be you’re a smart dude. You got your license in real estate. You’ve taken action to buy a house. You had a W2 job. You jumped into starting this business. You recognize your wife is better at training and sales and you are better at operations. Those type of people are good at being efficient, meaning you get stuff done faster than the average person who’s doing your same type of work would and I’m that way. I’m very efficient. You give me a job to do. I find a way to get it done better and faster than other people because I just enjoy that. Right? You take your average W2 worker and you give them a job and they’re like, “Okay. How do I stretch this into my eight-hour day?” You give it to me and I’m like, “How do I get the whole thing done in two hours, so I have six hours to help other people at their work or do something else?”
If you’re that way, which it sounds like you are, there’s nothing that would say you can’t do both. Now, you might have to be picky about the type of W2 job you get. Okay? You can’t be driving a truck and doing accounting at the same time, but you could be working at a place where you’re not getting a ton of exposure to customers where your job is to keep the books for somebody else. I’m just making something up, so don’t take any of this direct, but something that you like doing that you could do quickly that will give you time to then also work on this stuff in the business. A lot of the stuff in the dog business can probably be done at night. Right? You don’t want to work 20 hours a day, but there’s certain tasks that have to be done the minute they come in.
There’s other tasks like bookkeeping’s a great one that can be done anytime, right? In my business, if I got to talk to a client, if I got to interview somebody, that has to be done at a certain time of the day. But if I’m writing a book, that’s flexible. I can work that around anything I’m doing. I use that to fill in the gaps. I bet you could approach your situation the same way because somebody needs to be the hero in the situation, Parker. I think it’s you. You need to be able to step up and get that W2 job, which will not only allow you to get loans again, you’re going to make more money. I don’t think your revenue’s going to drop from your business of training dogs and you’re going to start bringing in more revenue from a W2. I always look for the synergy. Okay? What one action can I take that gives me benefits in several ways?
That’s how I came up with this solution. It gets you into buying real estate again, which will make you money. It gets you into making more money for the household, which will make you money. It gives you the opportunity to get the down payments saved up quicker. Right? Everything that you’re trying to accomplish… This is a principle, The ONE Thing. If you’ve ever read that book, what one action could I take that would make everything else easier or unnecessary? If you find the right W2 job, I think that there’s a pretty big opportunity for you there. It’s got to be the right one. You don’t want to just jump into the first opportunity you get. You want to have it being paying well in an industry that has flexibility with you being left alone in a cubicle or something where you’re not being micromanaged and uses your skill set. I think that that’s a big win for you. Now, do you have any questions there before we move on to the actual real estate part of your question?

Parker:
No, but I had not thought about that at all. There’s a lot of thinking I have to do on that because when we moved… Yeah, I could elaborate but for the sake of time, no. No more questions on that.

David:
I irritate people with this type of thinking. If you’re my partner, like my partner Christian and the one brokerage has to deal with this, Kyle Rankie with the David Greene team, I am frequently frustrating them because most humans look at a perspective of like this or that. It’s a binary. I can have a W2 or I can be a full-time investor or I can be a full-time entrepreneur. We hire the person for this reason or that and I will frequently look at it and say, “There is not 40 hours of work for this person to do this thing, but we still need it done.” Right? If we hire them to do this thing, they also have to be able to fill their time in doing other things. Do we have stuff for them to do? You see their brain just go on the fritz like, “Poof. What?” But that’s not their job.
We got to think differently. Their job is to work for the company and help the team win. If that means that you’re our offensive lineman, but you’re also on special teams or you also mentor the younger players, we got to get some value out of these people, so we can pay them what we want. I want to encourage everyone to think that way because this is how entrepreneurs think. This is how problem solvers think. You’re a freaking problem solver, Parker. I could tell right off the bat and I would bet you when we get into your real estate question that that binary kind of thinking, that screwed you up and discouraged you and I’m going to give you some solutions here to break out of that. You’re going to feel better. All right?

Parker:
Okay.

David:
The first thing I wrote down is you bought a house hack with three bedrooms. All right? Before I’ve asked you any other question, do you know what the first thing that went through my mind was when I heard that? It’s okay if you don’t. I’m just curious.

Parker:
No. No. I could guess, but I’ll say no.

David:
Yes. No. Take your guess.

Parker:
Well, why only three bedrooms?

David:
Yes, you’re right. You got it. That’s right off the bat. If you’re going to do rent by the room, then the value is in the rooms.

Parker:
Yeah.

David:
Okay? If you didn’t do it in rent by the room, either you didn’t know or weren’t smart enough to tell that’s the right way to go, which I don’t think is true because you’re intelligent, which means you made the decision based on emotion, meaning maybe your wife or you like this house or like this area or it had the yard that would work for the dog training or something about it that you liked other than the specific business purpose of making money. Am I right so far?

Parker:
Yeah. Yeah.

David:
Okay. I know this is true because when I asked you earlier, is there a way that one of you could leave the company? You’re like, “Absolutely not.” Then, I asked, “Was that objectively true or is that emotional?” You’re like, “No.” Okay. I suppose that I could leave. Right? Emotions factor into your decisions and that does not mean you’re weak. That does not mean you’re bad. It just means you’re being honest. That’s why I asked the question. I’m not shaming you for saying you made an emotional decision, but you are doomed to end up in that state of discouragement where you started if you can’t recognize an emotions weighed into my decision. Like I told you, I frustrate the people that work with me, Kyle, Christian, other people. It’s because I am frequently asking them to do things that are in the best interest of the company that push against emotional comfort.
I’m asking them to become uncomfortable, to look at things a different way, to make a sacrifice they don’t want to make and they don’t like that and our brain will fight us and they’re like, “Nope, I see where he’s going. I don’t want to give up this comfort thing.” Then, we start lying to ourselves and it’s not my bad if you start lying to yourself, it’s your bad if you’re doing that. Right? I just want it to get out of the open, so you realize it’s happening. Because the minute you’re honest about that, solutions will start to make themselves known. Sorry for my coughing, I got sick after BPCON from shaking 2,000 hands or whatever it was when we were there. Now, let’s move into your state of discouragement. That is very expensive. That’s a trait that we have as human beings that will hurt if you get discouraged. If you’d have bought a five-bedroom house instead of a three-bedroom house and you were making more money, you’d probably be a lot more excited about house hacking. Is that fair?

Parker:
Yeah. That’s fair.

David:
Outside of how many bedrooms you got, is there anything else about that deal that you think you screwed up on?

Parker:
It’s a little old. It was built in 1990. Depending on who you ask, it is a little older. There’s some pretty big CapEx expenditures that I’m anticipating in the next, however, so many years like the roof and the HVAC.

David:
That’s normal. Every house you buy is going to have that. Don’t beat yourself up about that either. Here’s what probably happened. After you bought this thing, you’re looking back and seeing what you could have done better. Is that fair?

Parker:
Yeah.

David:
Okay. Have you ever taken a DISC profile assessment?

Parker:
I have. Yes.

David:
Are you a high C?

Parker:
No, I’m actually… I think it’s a D.

David:
D. What was your second trait?

Parker:
Oh, I don’t remember what my second one was.

David:
All right. Ds, I’m also a very high D. We tend to value and evaluate ourself based on where we are in the scoreboard. If you’re looking and saying, “I’m not making enough money on this deal, other people did better. I can’t get a loan.” You start feeling like you’re a failure, right?

Parker:
Yeah.

David:
You’re not a failure. On the first deal, you’re supposed to fail. The first time you try to ride a bike, you fall over. The first time you go snowboarding, it’s miserable. Your first anything, you suck. Okay? That’s the first piece I need you to recognize is you did not screw up. You did everything right. You had way too high of expectations for your first deal, which is why we house hack because you could pay three and a half percent down, which is like putting elbow pads on when you’re riding that bike. It cushions the fall because you’re going to fall. Going into your next deal, what are some things you do different if you bought a house next year?

Parker:
I was going to do the same thing if I was going to rent by the room.

David:
You’re going to house hack?

Parker:
Oh, I’m going to house hack.

David:
Well, would you rent by the room?

Parker:
No, probably not. I think I would try to actually find a multi-unit like a real duplex or triplex.

David:
You find a multi-unit, your numbers are probably going to work out better. You’re probably going to have more comfort. It’s probably not going to be as much stress having strangers in your house. Right off the bat, that’s a better investment than the first one you made. Fair?

Parker:
Yeah.

David:
Okay. If you were going to rent by the room, you’d probably look for something with five bedrooms plus a dining room that could be converted, so you get six bedrooms. You’d probably try to find one that has one bedroom separated from all the other ones, so you guys can be there. Maybe you even add a kitchenette into that part of the house, so you and your wife don’t have to share space. There’s things you could do to improve and that should be encouraging to you. You could only get better. You did not screw up. You just didn’t know as much when you got started. We’ve got a couple things you could take away from this. You need to house hack again.
The worst thing you could ever do is just stick with this one house that you’re not super happy with. The next one’s going to be better than the first one, so you got nowhere to go but up. You have an opportunity to go get a W2 job to make this happen. You don’t need 20% down, 25% down. You could do it again with 5% down or three and a half percent down depending which type of loan you use. If you used FHA in your first house, you could refinance an FHA again or my guess is you got a good rate, so keep that rate. Just put 5% down on the next house and get the W2 job. Okay?
Contact us. We could talk about what it would take to get you approved for this thing and the W2 job is also going to provide more money, which could be the difference in one year of work of the 5% you need to put down. All right? Now, you’ve got another house. Maybe you do this for another couple years, just building the dog business and work in the W2. You get more efficient and your systems get better in time. The next thing you know, you got four or five houses. You’ve got a solid foundation. Then, maybe you have enough income coming in. You can quit the W2. You could go back to work for the dog thing and that business now, training dogs has established enough revenue that you can claim that on your taxes to go get a house. You just have to have at least two years of that income. Is that what you’ve been being told?

Parker:
Yeah.

David:
All right. There is a path here to get out of your problem. All you have to do is take what you were hoping would happen in one shot, quit my job, go start this business and just stretch it out over a couple years, stretch it out over a couple properties. Don’t put so much pressure on you to do it all in one move and all of a sudden, you’re going to be in a good spot.

Parker:
Okay. Man, that is very good advice. I have a lot to think about. Thank you so much. Holy cow.

David:
You do and you should be walking out of here very encouraged, dude. There’s nothing about your situation that I think is discouraging at all. This is why I wanted to bring you back on to talk more.

Parker:
Yeah. No. Thank you for saying that. I needed to hear that. Thank you so much.

David:
All right. If you haven’t already done so, please do me a favor and take a minute to like, share and subscribe this video. If you would be so kind, please head over to your favorite podcast listening app and leave us a review there as well. Those help us out a ton and I really appreciate it. Our first YouTube comment comes from Matthew Van Horn. “David, more analogies than Jim Carrey has faces green. Thank you so much for answering my question about better goal setting. I have listened to your response three times and I am so inspired. It’s exactly what I needed to hear and I will put it into action by becoming the quality of person that can handle the reward of pursuing excellence. I love your mindset and appreciate when you zoom out and have these bigger picture sorts of conversations. In my opinion, these conversations are more valuable than any deal deep dive that you might do because I suspect that you are more successful due to your mindset than because of your raw deal finding talent, though you’re amazing at that too. No doubt. I don’t actually know Dave Van Horn, but I should reach out to him because I’ve never actually met a Van Horn that I’m not related to. Plus, he just sounds like an awesome guy. I look forward to reading your future book that you referenced about goal setting.”
Thank you very much, Matthew. That’s some very kind words that you shared there. Dave Van Horn is an amazing guy and I think you’ll love him. In my opinion, I think you’re right. I think mindset has more to do with the success I’ve had than actual raw talent at any one thing. I tend to look at the world from a different lens than other people do. As a result, I’ve been rewarded from that, so I like to share it with you guys here on these Seeing Greene episodes and hope that you can see some of the same success that I’ve been blessed enough to enjoy.
Our next comment comes from Giselle Morales. “David, I’ve been watching your videos for over a year now. I’ve been investing in real estate for the past 15 years, and almost two years ago, I was able to leave my 9:00 to 5:00 and live off my investments while learning more with people like you who share all their experience. Not only have I found you super knowledgeable in real estate, but now I can see your growth as a person wanting and encouraging others to become better human beings. I loved this episode. We are investors looking for wealth and if we add the ingredients to become better people every single day, then we are successful already as we are now. Thanks for all you do. Really appreciate. I’m 100% with you.”
Wow. I appreciate that as well, Giselle. This is a better response than I was expecting to get from that episode. Thank you for that. I really appreciate the support. Next comment comes from Sylvia Barthel, “Excellent show. Would love to see more of these areas David is in, why you pick them, what drove you to these specific properties, et cetera. Thank you for the fantastic show and education.” Well, I am glad to hear that. It sounds like what you’re saying is you’d like to hear more about what I’m seeing when I look at stuff or how I analyze it, and I will make sure that as we go through the rest of today’s show and future shows, that I continue to make sure I share the why behind the what that I’m teaching.”
Our last comment comes from Charles Holder. “I’ve listened to you guys for years at 1.5 to 2x speed. Your last bit of advice was the single greatest thing I’ve heard. Be the greatest person you can be. I’ve ever played it twice on normal speed.” Well, hey, something tells me if we can get Charles to go from 2x speed to normal speed, we’re doing something right. Maybe that needs to become one of the goals that I have in my life in general is how can I get people to go from two time speed to regular speed without just talking too fast to understand it at 2x speed. Thank you for that, Charles. I hope that this helps you with the goals that you’re trying to set and I hope that everybody listening understands wealth and success is not a result of just following a blueprint. It is a result of pursuing excellence.
It’s being the best person you can be, being the best investor you can be, trying to do your best at everything you do. I talk about this a lot because the people that I see struggle with real estate investing have often taken the wrong approach. They don’t like their job. They don’t like their life. They don’t like the results they’re getting in certain areas of their life and so they look at real estate investing like it’s going to be the magic pill that will fix that like, “Well, if I quit working for someone else and I work for myself, everything’s going to get better.” But that’s not necessarily true because if you’re doing poor work for somebody else, you’re going to do poor work for yourself. That is even worse, because you were at least guaranteed a paycheck when you did poor work for someone else. You’re not guaranteed a paycheck when you do poor work for yourself.
Rather than getting frustrated, let the results you get be a form of a mirror that helps you look deeper into yourself and see things about yourself that maybe you weren’t seeing. When we show up to a W2 job and we don’t give our best, we phone it in, we just go through the motions. We’re not trying. It’s easy to be separated from the results of poor effort because your boss is the one paying the price, not you. But when you start working for yourself and you’re not getting results, you end up being the one that pays the price. Remember, you cannot escape the need to pursue excellence, to work hard to give your best, but it’s a whole lot more fun and rewarding to give your best in real estate investing and for yourself than it is for somebody else where you may not have a clear path to a better life.
Thank you guys for those comments. We love and appreciate this engagement. Please continue to like, comment and subscribe to our YouTube channel as well as leave comments on this episode. Did you like the live coaching call that we had with our first caller? Do you like the additional questions that I’m answering? What did you not like? What do you wish I’d gone into more or what do you want to hear more of? Let us know and we’ll do our best to incorporate that into future shows. All right. Our next question comes from Angela Haddorn in Pittsburgh, Pennsylvania.

Angela:
Hey, David. This is Angela from Pittsburgh, Pennsylvania and my question is how to get over the fear of taking on more good debt. I currently have three properties. I have two long-term rentals and one short-term rental in Utah, Tennessee and Texas. That’s right. I do not own a property in Pennsylvania because I’m currently living with my parents trying to get out of that situation. Anyway, I have a lot of equity in all these houses. The minimum amount I have, I think is probably about $40,000 and although I started investing in 2019, I just wish I was further along in my real estate career at this point. I know I have the equity. I’m just a little bit afraid to use it for the fear of potentially putting myself into more debt if I were to refinance or something like that. Any tips or advice would be greatly appreciated.

David:
Hey, Angela. Thank you. We really appreciate your vulnerability in sharing exactly what you’re worried about and it’s super relevant because many people listening have the exact same concerns, fears, struggles holding them back. You stepped up and you shared that. Not many people are going to benefit. First off, pat yourself on the back because we all benefit from you doing the hard thing. Nobody likes to admit what they’re scared of or what’s holding them back. Second off, the amount of equity you have when you just start investing in 2019 is very impressive. You should feel really good about yourself with what you’re doing. You seem to be a good investor, which means you should be doing more of it. Now, let’s get into the practical advice here. What I hear you saying is that taking on more debt is scary to you, but when you say scary, what I think you’re saying is, “I don’t want to lose everything I have because I got too greedy. I don’t want to refinance these properties, get rid of my equity and then invest into something else and lose the whole thing because I took a bite too big to chew.”
I’ll tell you how I overcome that and it’s because I look at debt differently than what you may be thinking. The first piece that I want to say is equity and capital are essentially the same thing. This is something I only recently started teaching about because it clicked in my head maybe like three months ago at a retreat that I put on in Scottsdale, Arizona. When we have energy in a property, we call it equity. When we have energy in a bank account, we call it capital, but it’s really the same thing. We just have a different name for it depending on where it’s being stored. Is it stored in a property? Is it stored in a bank account? Is it stored in money under my mattress? Money is a storage of energy and energy itself is what we’re talking about. Okay?
My personal philosophy is I would rather keep that energy in my bank account where I can access it and it has more flexibility. I can use money in my bank account for many things, then keep it in a property where it is more difficult to access and I can only use it for certain things. If you want to access the equity in your property, the energy in your property, that is called equity, you’ve got two options. The first is a HELOC, which is sort of like a door into that store of energy where you can go in and then take it out. Once you’ve taken it out, it can go in your bank account and then you pay interest on that money.
The other option is a cash out refinance where you go in and it’s not a door that lets you go back in and out. It’s one trip in where you grab it, you pull it out of the property, you then put it in your bank account and the amount of money that you pay per month to be able to get access to it goes up because your mortgage on your houses went up. Now, I know this might sound like I’m painting a very simplistic picture, but it makes it a lot easier to understand how money works if you can see it like this. The second part of how I’d like you to look at debt a little bit differently is to try and not think about it like a fixed number like I have 200,000 in debt. I have 300,000 in debt. That really isn’t important from the perspective of safety.
If what we’re talking about is wanting to keep your properties, the amount of debt you have, it’s insignificant. Now, it becomes significant for a different purpose if you’re tracking your net worth. If you’re trying to see how much energy do I have access to, the amount of debt you have versus the value of your properties, that is very significant. But right now, we’re only discussing how to make sure you don’t lose them. The amount of debt you have isn’t relevant. What’s relevant in this perspective is the monthly payment of that debt. Okay. When I’m going to borrow money… Now, we’re also assuming this is a fixed rate. For instance, a 30-year fixed rate form of debt is different than a three one arm or something. But if we’re talking about a fixed rate for a long period of time, you need to look at, “I have to pay this much to my lender every single month.”
Okay? It’s $2,000. It’s $3,000. “If I were to refi and access my equity, would it go from 3,000 to 3,500? Would it go to 3,700?” Right? Try to look at it in terms of what your payment’s going to be every month. Now, that is useful because you can’t control the equity of your property. It does what it does, but you can, in some form, control the revenue that it generates because you already know that. You know what your rents are. You know approximately how much you can get on these short term rentals. If you have a fixed number that you have a pretty solid understanding that that property’s going to generate for you every month and you can turn the debt into a fixed number of the same type, meaning they’re both monthly amounts, now you can make a decision if refinancing is risky or not. For instance, if your properties are bringing in $10,000 a month and you have a total of $5,000 a month of debt and you’re going to bump that up to $5,500 a month or $6,500 a month, it’s easy to see that’s not a super risky play.
But if you don’t know how much money you’re making every month, it doesn’t benefit you to convert the debt into a monthly amount. That’s one of the ways that I move forward by taking on larger amounts of debt is I don’t look at it like I just borrowed a million dollars. I look at it like, “I am now on the hook for the next 30 years to pay this much per month. Can the properties support that? Can my lifestyle support that? Can my other business endeavor support that? If for some reason the properties can’t pay that, can I get a job? Can my book royalties cover me there?” What can you do to make money in other ways to keep them afloat? My guess would be if you can turn the daunting idea of, “I am $500,000 in debt,” that sounds terrible into, “I owe four grand every single month,” or whatever the number would be, it won’t feel as scary and you can make an educated, confident decision based on empirical data like numbers that will help you understand if this is a good move or a bad move and only make good moves.
Hope that helps you, Angela. I know that I gave you a long winded response because it had to do with changing the way that you’re looking at something, which takes more words to describe. Let me know what you think about that. Send us another video and let us know what you’ve decided. All right. Our next question comes from Steve Doteri in Fresno, California. “Hi, David. I have five single family homes and a commercial medical office building. My question is how do I determine how much I should have in reserves for repairs and capital expenses such as flooring, HVAC, roofs, et cetera? Is there a formula or a range I can use to gauge where I’m at? I want to ensure that I have enough reserves so I don’t get into a pinch, but not too much that I have excess cash not working for me.”
Steve, that is a very good question to be asking. As investors, we are always balancing this. We don’t want idle cash sitting around, but at the same time, we don’t want to overextend ourselves, so we don’t have cash if we need it. I don’t have a way that I budget this specifically because I just make sure I’m always working so there’s always new money flowing in case I do have something go wrong. But it sounds like that’s not the case with you, right? What I would do if I was in your situation is I would look at my commercial medical office building, for example, which is more than likely a triple net. In that case, you’re probably collecting money from the tenants every single month to repair a roof that needs to be done or an HVAC or if something goes out, maybe you go out and you do a cash call and you say, “Hey, everybody asks to pony up.” Look at your lease or talk to your property manager and have them review your lease to see if you are on the hook for repairs for that specific property or if you’re not, you’re probably not.
Now, these five single family homes. Just to simplify this, if I was in your position, I would look at all of them and I would look and see how long before the air conditioner goes out? How long before the roof goes out? Now, you’re in Fresno, California. Okay? If we’re just being honest with ourselves, it doesn’t rain a whole lot there. You’re probably not going to have to put completely new roofs on most of these houses if you don’t want to. Patches, repair work, you could probably get by with the roof you have for a very long time. Unless you had a situation with a roof that was significantly problematic, I wouldn’t worry too much about that. I would just keep a decent amount of money set aside, so that you could make repairs if were needed.
Another thing you could do is you could get a home warranty on these homes. It might cost you somewhere between four or $500 a year, but if the HVAC goes out, make sure it’s covered by the home warranty and boom, they will be replacing that instead of you. It’s another way that you can have less money set aside for capital expenditures. The last piece I’ll say is you need access to money. You don’t necessarily have to keep in your bank account. Like we just had with our last caller, Angela, you got to learn to look at money as a store of energy. If it’s stored in the property, it’s equity. If it’s stored in your bank account, we call it capital. You don’t have to store it in your bank account. You can put a HELOC on one of these properties, so that in a worst case scenario, if something goes terrible, you can pull money out of the HELOC to make the repair and then slowly pay it back down.
That HELOC is like a portal into the energy that’s stored in one of your properties that if you need, you can go walk that portal. Now, of course, it’s going to come with an interest rate. There’s a cost of travel in this instance or this picture that I’m painting here, but that’s okay. It’s better to do that than to keep the money sitting in your bank account not working for you whatsoever. That’s one thing to keep in mind. The other thing to keep in mind is that if you’re buying properties that you’re adding value to, you’re not being a lazy investor. You’re going after something that you can make worth more, that’s going to appreciate more over time. You’re always in a position where worst case scenario comes. You could sell something and have a lot of capital now that was converted from equity that you can use to cover for your portfolio.
I do expect that the market’s going to get tighter and tighter and tighter every month while we continue to increase interest rates, so it’s going to be harder to sell properties in the near future unless you bought them 10 years ago or 12 years ago or something where you’ve got a ton of equity, but I don’t think it’s going to stay that way forever. I think rates are going to come back down. The market’s going to take off again, and we’re going to look back and talk about this time as one of the great opportunities to buy real estate that we had and wish we’d taken advantage of buying more. Thank you very much for your question there, Steve, and good luck to you. All right. Our next question comes from Greg Seavert in Hawaii. Greg started short-term rental house hacking his primary residence with great success, then took out a HELOC down payment for a second vacation rental in Florida where he’s originally from. Now trying to figure out how to keep buying.
Greg says, “I have a successful vacation rental in Florida with $100,000 in equity and a good fixed rate at less than 3%. As interest rates rise, should I cash out, refi a down payment for the next property at the expense of a higher rate? That would hurt my pride, but do I need to shift my mindset to make the next investment?” All right. I love this. First off, Greg, kudos to you for admitting that it’s about your pride because interest rates always are. It’s like I make a joke that interest rates are the thing that everybody at the cocktail party when they’re sitting around swirling their drink is like, “Oh, what rate did you get? 3.2? That’s not bad, but I got a 2.95,” and it’s how they feel good about themselves, but no wealthy person that I know ever talks about the cost of their debt.
It’s just not a metric that they look at. They don’t sit there and say, “I’ve got this many properties, but this is my interest rate on everyone.” Right? We measure cash flow. We measure equity because that has to do with net worth, but no one talks about rate, so I gave that up a long time ago. When you’re going to get the interest rate, you get the best one you can get, but you don’t let it actually factor into whether it’s a good idea to buy. I’ve told this story before. I will tell it again. I had properties in California, I believe four of them that all had rates below 4%. Right? It ranged between three and a half and 3.75 for these four different properties. I refinanced out of them until like a 5.65. This was several months ago, and it did not feel good.
I did not enjoy it, not one bit. I felt the same thing as everybody else. It felt stupid to go out of a lower rate and into a higher rate. Well, what I did was I pulled over seven figures out of those four properties, and then I reinvested that money. Now, here’s the kicker. I went from say a average of a 3.65 to a 5.65, just to simplify this, about 2%. If I can make more than 2% interest on these houses that I bought, I’ve already improved my cash flow. Furthermore, if those properties go up in value or go up in the return I’m getting, so if I just get a 2% and next year it becomes a three, I win even more. If the houses themselves become worth more, I win even more.
As I pay down this new debt that I took out with my tenant’s money, I continue to win. As I build new resources in new markets, new agents, new contractors, new people that will help me with future deals, I continue to win. If I bought these new properties at less than market value, I continue to win. What’s funny is that I went through a 1031 where I sold properties and I bought new ones, and I added over a million dollars in equity just from the difference in value from what I paid versus what they appraised for on that. Now, I didn’t buy those with the money that came from my refinance, but let’s say that I did. In that scenario, I went to a worse rate, got a million bucks, and then added over a million dollars in equity to my portfolio. I pulled the energy out of the four California houses. I had to pay the price of a higher interest rate.
I put that energy into new properties and doubled it in just right off the bat. Okay? That’s not exactly how it worked out in practical terms, but it does highlight the point of why it’s okay to refinance out of a 2.95. It doesn’t matter. It does not matter. In fact, the higher rates that we’re seeing now are what is leading to the better price of the homes. The cool thing with the interest rates is they function like a ratchet. They only go one direction if you have a fixed rate. If you get a 30-year fixed rate and you have to go out of your 2.95 and you have to get into a 7% or something like that, 7% is the worst case scenario of what you will pay until it’s paid off. There is a high likelihood that over the next 30 years, rates are going to go less than that 7%.
What if they got all the way back down to 3.2 or 3.3 or even 2.95 again? Well, now you took out all the equity. You bought a bunch more real estate. You paid the 7% for a couple years, and then it dropped back down and you refinanced into something close to what you had, but you’ve got five times as much real estate. I think that’s the better way to look at it. Now, don’t go buy dumb stuff. Don’t go buy stuff that costs you money. Make sure you’re buying good solid cashing assets in good areas, getting it at the best price you can, and then let the market dictate what you do. If the market has rates drop, refinance. If rates continue to go up, buy more real estate at better prices. If it hovers, buy better real estate. You’ve got so many options and ways you can build wealth if you can get access to that energy that is currently stored as equity at this 2.95 number.
Don’t let your ego get in the way. Make sure you’re making wise, good long term decisions, and don’t worry about your rate, because at a certain point, they come back down and you can get it back again. All right. Thank you as always to those who submitted questions for us all to learn from. We really appreciate it. We couldn’t do a show like this without you, and I genuinely appreciate you sharing your fears, your questions, and your concerns as well as those of you that are listening, I understand attention is expensive and you could be giving yours to other people in other places, and you’re bringing it here, and I really appreciate that. Please continue to do so. If you’d like to follow me, see more about my mindset, more of what I got going on. I’m online on social media, @davidgreene24. I’m on YouTube at David Greene Real Estate, and I have a free text letter that you can sign up for called Behind the Shine shining on my head, which you can go to davidgreene24.com/textletter and sign up there and check out my website. Let me know what you think of it.
I just had it made and now I’m having another one made, so let me know what you guys think should be in that new one. The last thing I want to leave you with is I strongly urge you to reconsider the way you look at money. Okay? Your relationship with money will have so big of an impact on the decisions you make for things surrounding it. You’re going to work every day. You’re probably working a minimum of eight hours, plus a commute. Money already takes up a huge part of your life and you can’t avoid it. We don’t want to become a slave to money. We don’t want to worship money, but we also don’t want to ignore the impact that it has in the quality of our lives. If you’re spending this much time at work, understand what you’re working for and how to make it work for you because if you can improve the situation of your money life, you can improve the situation of the quality of your life.
I’m going to be talking more about how money is a store of energy and how looking at it differently will change the way that we interact with it. Please consider some of the stuff I said on this show and let me know in the comments what you think, or if it doesn’t make sense to you, tell me what questions you have regarding this concept that money is a store of energy and I will do a good job, as good as I can to explain it in more depth. Thanks a lot, everybody. Check out biggerpockets.com. Forums, books, blogs, everything that you need, we’ve got it to help you build your wealth. I’ll see you on the next one.