Today the National Association of Realtors reported that the trend of declining existing home sales, which we have seen since mortgage rates rose, is getting worse. But that isn’t the worst part of the data line! The shocking stat (for some, not for me) is that even with the significant decline in sales since January of 2022, the median sales price is up 10.8% year over year. The savagely unhealthy housing market continues — a function of starting the year at all-time lows in inventory.

From NAR: Total existing-home sales slipped 5.9% from June to a seasonally adjusted annual rate of 4.81 million in July.

I was concerned about 2022 home-price growth because by October of 2021, I knew we would start 2022 at all-time lows in inventory, which can create forced bidding action. I am not a fan of forced bidding action under any circumstances, but when it’s due to a raw shortage of homes and not a credit boom, as we saw from 2002-2005, it’s even worse.

NAR: The median existing-home price for all housing types in June was $403,800, up 10.8% from July 2021 ($364,600), as prices increased in all regions. This marks 125 consecutive months of year-over-year increases, the longest-running streak on record.

On the good news, inventory is rising, which is a positive. The parts of the country where inventory levels are at peak-2019 levels or higher are officially off the savagely unhealthy market list because they have plenty of inventory to have a more functional housing market. However, as a nation, we aren’t there yet.

NAR: The inventory of unsold existing homes rose to 1.31 million by the end of July, or the equivalent of 3.3 months at the current monthly sales pace.

My rule of thumb is that I will take the savagely unhealthy housing market theme off once we can touch 2019 peak levels of 1.93 million homes for sale and have at least four months of supply, which would mean a balanced housing market in my book. I am looking for a range of 1.52-1.93 million, something I have talked about for some time post-COVID-19.  Because inventory is very seasonal — it falls in the fall and winter and then rises in the spring and summer — it’s not going to happen in 2022, but hopefully, we can get there next year.

NAR lists total current inventory at 1.31 million. Historically we are between 2-2.5 million. The peak in 2007 was roughly 4 million.

One of the most painful data lines to watch over the last two months has been the median days on the market, which have now broken to all-time lows. In a regular housing market, we are over 30 days, which is why I want the total inventory to get back to 2019 levels to have more balance nationally.

NAR: First-time buyers were responsible for 29% of sales in June; Individual investors purchased 14% of homes; All-cash sales accounted for 24% of transactions; Distressed sales represented approximately 1% of sales; Properties typically remained on the market for 14 days.

To give you some historical perspective here, you can see why I am using the term savagely unhealthy, as the median days on the market have never been lower in history.

Higher days on market mean choices for buyers and sellers. We never focus on the seller aspect because it’s easy to forget that a traditional primary recent home seller is also a buyer. Now that rates are up a lot, some sellers can’t afford to move or have delayed moving.

However, this is a good thing for others that need to move, as it means more inventory and more choices. This is one of the reasons I haven’t been the biggest fan of the housing market in recent years: we lacked options and time for people to have a more traditional home-buying and selling process. Over 30 days is preferable; anything that is a teenager isn’t a good thing at all.

This year, we saw that housing acted poorly when mortgage rates exceeded 6%. Of course, we have seen a 1% move lower and a lot of back-and-forth action on rates daily. If mortgage rates can head toward 4% again, the market should act better. However, until then, the market is still dealing with the affordability shock to demand as rates jumped massively this year. This, on top of the 44% + home-price growth since 2020, is a meaningful hit on affordability.

Purchase application data was down 1% weekly and down 18% year over year. The four-week moving average is down 17.75%. I had anticipated four-week moving average declines of 18%-22% once mortgage rates got above 4%. That didn’t happen, but rates above 5% did the trick.

We will soon enter a time where the year-over-year comps will be more challenging because we will have a higher bar to work from. Last year starting in October, mortgage demand started to pick up noticeably and pushed the existing home sales data toward 6.49 million at the start of this year. Some of the year-over-year data can look weaker than the 18% decline trend we have recently just due to higher comps.

Today’s existing home sales report isn’t the best due to home-price growth still being in the double digits. We should see less price growth in the upcoming months. However, this year, even with the big hit on demand and the housing market recession, we are still seeing unhealthy home price growth. I talked about this recently on CNBC.

We still have home prices growing faster this year than what we saw in the previous decade, and this has to do with the fact that we started the year at all-time lows in inventory, and we are working our way back to normal. Remember, normal inventory levels is a good thing, not a bad thing, because we all want a B&B housing market — boring and balanced — not savagely unhealthy.

We’re covering this important topic at our HousingWire Annual event Oct. 3-5 where Logan is a featured speaker. Register here to join us in Scottsdale, Arizona.

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After a July doldrums during which there were no agency-eligible private-label securitizations (PLS) backed by mortgages on residential investment properties, the ice was broken this month with a new offering sponsored by Blue River Mortgage III LLC.

The prime PLS offering, dubbed GCAT 2022-INV3, is backed by a pool of 1,259 mortgages valued at $423 million. More than 97% of the loans in pool are agency-eligible investment properties, with the balance second homes. 

In addition, a separate non-prime (non-agency) private-label offering backed by mortgages on investment properties hit the market in August as well. That offering, Verus 2022-INV1, is a $389.5 million deal with the underlying collateral consisting of 853 rental-property mortgages.

The major loan originators for the GCAT offering, according to KBRA’s bond-rating presale report, were loanDepot, 35.8%; Homepoint, 28%; and Arc Home, 21.6%. The bulk of the loans by volume in the offering were originated in California, 29.8%; New York, 11.6%; and Texas, 10.4%. Deal sponsor Blue River is a fund managed by Angelo, Gordon & Co. L.P., a global asset-management firm with some $50 billion in assets under management.

The Verus offering is sponsored by VMC Asset Pooler LLC, which along with Verus Mortgage Capital, is an affiliate of Invictus Capital Partners LP — a real estate credit-focused alternative-asset manager. 

“All of the loans in this transaction [were] originated by various lenders, none of which comprises more than 10% of the pool,” a Kroll Bond Rating Agency (KBRA) presale rating report on the Verus deal states. 

The bond-rating presale report does not identify any of the lenders by name. The bulk of the loans by volume in the Verus PLS offering were originated in California, 37.2%; Florida, 18%; and New York, 10.4%. 

The two new investment property-backed deals so far in August are a sign the PLS market is still working as a liquidity channel for some deal sponsors. The pace of deals in July and so far in August, however — a total of three non-prime and only one prime deal — is down considerably from earlier in the year, based on PLS deals and data tracked by KBRA. 

Year to date through mid-August, there have been 28 prime (agency-eligible) private-label securitizations (PLS) backed by loans on investment properties valued at $12.8 billion and nine non-prime deals backed by loan pools valued at $2.6 billion, according KBRA.

In total for the year through mid-August, then, across the prime and non-prime markets, a total of 37 PLS securitizations have come to market secured by $15.4 billion in investment-property collateral — primarily single-family rentals owned by non-institutional landlords.

Over the same period in 2021, there were a total of 15 prime PLS investment-property deals valued at $6.1 billion and five non-prime PLS offerings backed by $1.1 billion in investment-property mortgages. The second half of last year started to heat up on the deal front, however, and for all of 2021, with prime and non-prime deals combined, there were 68 PLS offerings backed by investment-property loan pools valued at some $28.7 billion, KBRA’s data shows.

So, as of mid-August 2022, the PLS market is on track to meet or exceed 2021 performance with respect to investment-property deal count and volume. In fact, through June of this year, an average of more than five PLS investment-property deals per month hit the market across the prime and non-prime sectors.

Then came July, and deal flow in the investment-property residential mortgage-backed securities (RMBS) sector slowed to a crawl, with only two non-prime PLS deals and no prime securitizations, KBRA’s data shows.

A recently released report by Atlanta-based digital-mortgage exchange MAXEX echoes KBRA’s data. The report attributes the PLS deal slowdown in July to risk aversion, as fears of a recession linger, and to shrinking originations in the face of interest rate volatility.

“There were no agency-eligible (prime) investor securitizations in the month of July,” the MAXEX market report states. “A combination of factors, including [loan] supply, widening spreads and low-risk appetite have tempered issuance.”

It remains to be seen how th balance of August will play out on the deal front. MAXEX’s report, however, offers some positive news on the loan-trading front.

The loan aggregator, which serves some 320 bank and nonbank originators and more than 20 major investors, reports that it “saw an increase in investment-property loan locks” through the platform in July. That’s an indicator that the pace of offerings may start to pick up again this fall — given loans are typically seasoned for several months prior to securitization.

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As an investor, finding and closing on a deal is only the beginning, and it sets the tone for how the rest of the deal will go. So what criteria should you have to make finding a profitable deal easier? Once you find a deal that’s promising, how do you do your due diligence before submitting an offer? In today’s episode, Kenneth Donis shares his bulletproof process for finding and underwriting profitable deals.

Kenneth is the Head of Marketing and Acquisitions in the Donis Brothers’ operation. The Donis Brothers have a little more than 1,000 units under their belt and show no signs of slowing down. Kenneth is responsible for finding those deals, underwriting them, and meeting with brokers. With a growing portfolio, Kenneth’s process has become more efficient, and the proof is in their success.

Kenneth breaks down his process into three parts—creating criteria, analyzing the deal before submitting the offer, and submitting a letter of intent. He explains how to create a buy box based on your budget and the importance of ensuring your overhead is covered. Taking to heart just a few of the tips that Kenneth shares today could put you on the fast track to closing on your next big investment property!

Ashley:
This is Real Estate Rookie episode 200 and niner.

Kenneth:
So people are realizing that there’s something going on in the economy. So I think it’s bringing fear to the market. Kind of what we’ve been doing is just trying to educate, because if you keep your money in the bank right now, it’s not making anything, it’s actually losing money, if you want to be, technicalities. Also, if you put it in stocks, I mean that would be very fearful. I would be scared to do that. And then crypto, I mean, that would be another thing that I would say was probably not the best idea. So where is the best place to put the money? I personally would say, and this might be biased, but I think it’s real estate just because it would hold its value, at least to an extent.

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 bring you the inspiration, information and education you need to kickstart your investing journey. Now, usually I kind of start this part of the episode with reading some highlights from recent reviews that we’ve gotten on the podcast, but today I’m going to switch it up just a little bit, and I want to read some comments we got on YouTube for one of our recent episodes we put out on YouTube. And in that episode, Ashley and I talked about how one of the reviews talked about how boring Ashley and I are, and we like to read some of the bad reviews from time to time as well. And we just so much appreciated how the rookie community came to have our back.
So someone said, I love their chemistry, I also love the rookie podcast because every guest provides tangible lessons learned. Someone else said, imaginary. Derek said, I love you guys and you’re genuine chemistry. The show is amazing and extremely helpful. Please invite me to the next pool party. Someone else said, I love Ashley’s laughing. It’s so genuine. Please don’t stop due to negative reviews. You seem so much fun. And the last one, this one is from Paul Garza says, don’t change. I learn from your intro. I like to hear what you guys are personally working on. Makes me think of different situations and angles. So guys, we love that you appreciate the boring banter between me and Ashley. And I love that we now have a new name for the intro of the podcast, the boring banter. So why don’t we get into some for today, Ashley, what’s new with you? Give me some boring updates.

Ashley:
Well, first of all, I want to say, I love you guys so much and thank you. Those really warmed my heart, reading those messages. And even if everybody hated my laugh, I cannot make it go away. I can’t help it. So thank you guys. We really appreciate you guys taking the time to make those comments for us.

Tony:
So what’s new, Ash? Give me some boring banter about Ashley Kehr’s universe these days.

Ashley:
Well, I’m super excited because Tony and I are headed to Denver, where we are going to do a podcast recording together, live in person, and then we are also hosting a meetup in Denver, so that is going to be August 15th. I’m not sure when this episode is airing, before or after, but if you guys were there, it was great to see you. I think this will come out after and then, but yeah, it’s always great to get together with Tony and Sarah. And then after that headed to Tony’s short-term rental conference. And then it will be BPCon, so super excited for it to be in sunny San Diego this year. So if you guys haven’t checked it out, go to biggerpockets.com/events, and hopefully we’ll see you there.

Tony:
Lots of travel, lots of good things happening. I guess the only update that I have on the business side is that we’re, the city that we invest in, actually, I think we did this for Rookie Reply about the permit changes for some of the cities we invest in.

Ashley:
Yeah. In Josh [inaudible 00:03:36].

Tony:
Yeah. So that’s causing us to kind of adjust our game plan, but there’s a lot of folks who are now, and this has always been the case of short-term rentals, people that are afraid to invest in cities where the regulations are a little bit more stringent, but honestly, I’ve never seen that as a bad thing, if anything, it just kind of weeds out some of your competition. So it means there’s less people that are going to be looking to buy, which means, A, you have a little bit more leverage when you’re purchasing properties and then, B, when you’re actually operating, obviously there’s less short-term rentals. That means there’s less supply, which means there’s potentially opportunity for you to charge more and higher prices, so.
Just another day in life of a short-term rental host, but trying to keep things moving. But anyway, we got a good guest today, right? So this is the end of the trilogy. We have Kenneth Donis and we’ve had all three of the Donis brothers on the podcast. So we have them together in episode 175. So Kenneth, Jeffrey, and Kerwin all came onto that episode together. And then we’ve been bringing each brother on separately to kind of talk about their specific parts of the business. So again, they were all together on 175, then Jeffrey was on episode 193, Kerwin was 199, and then we finish off today with Kenneth on 209. Kenneth, welcome back to the podcast, brother, excited to have you on kind of finishing out the trilogy of the Donis brothers. How you been, man? How you doing?

Kenneth:
I’m doing well, man. Thank you guys so much for having me. How are you guys doing?

Ashley:
Good.

Tony:
Man, trying to keep up with you. You and your brothers just travel all over the place. I see you guys posting pictures at this conference and that conference and seems like you guys are out there networking and making connections, man.

Kenneth:
Yeah, absolutely. We definitely try to have fun with it, trying to meet a lot of people. In this business it’s really about who you know, not what you know. Well, I would say it’s about what you know too, but definitely a lot more on who you know, so.

Ashley:
Kenneth, before we get into this episode anymore, can you just give a little bit of information about yourself and what you’re doing in real estate right now? Just in case somebody didn’t listen to your previous episode.

Kenneth:
Yeah, absolutely. Well, like they said, and thank you, Tony, for the introduction, Kenneth Donis here. One of three of the Donis brothers. I’m Head of Marketing for our company, Donis Investment Group. Currently we have a little north of a thousand units in our portfolio right now, looking to acquire some more. So we’re slowly growing, but yeah, thank you guys so much for having me.

Ashley:
And Kenneth, let’s break that down because I don’t want everybody to think that we brought on some expert who’s been doing it for 20 years and has built up a thousand units, and not to say you’re not an expert, but just tell everyone how long you’ve been doing this and how exactly you acquired those thousand units?

Kenneth:
Yeah. So my brothers and I started in real estate wholesaling a few years ago and we’ve been at multi-family for going on two years now. So it’s been a slow burn, but we’ve been able to be co-sponsored on a few deals alongside some of our partners we’re in a bigger mastermind group called Think Multifamily, so we definitely give a big shout out to them. That’s pretty much how we’ve been able to be a part of bigger projects, to be quite honest.

Ashley:
Okay. So let’s break that down a little bit. And confirm or deny this if I’m explaining this correctly. So within that group of people or other people that you’ve partnered with, you have either brought the deal or you’ve provided some kind of value to be a general partner in the deal. So it’s not like you’re going out and you’re just taken down a thousand units, the three of you by yourself, but you are strategizing as to how you can provide value and to get a piece of the pie. Is that correct?

Kenneth:
Yes, that is correct. So in this business, what we came to learn is in multi-family it’s really a team sport and in team sports you have different people that play different roles in different positions. So in different various of acquisitions that we’ve had we’ve helped out with different things. So yeah, I mean, it’s just a bunch of, pretty much, partners and we all have our own role and we all have our respective areas in which we can help out.

Ashley:
Kenneth that is great. Realizing, so young and so new into real estate, investing is leveraging those partnerships and obviously it’s turned you guys into experienced investors. You’ve built up a large portfolio and you’ve made tons of connections. Today, we want to focus on your piece of your company though, the marketing and the acquisitions, so let’s kind of start there. What’s the first thing you want to go over today, that is part of your job role?

Tony:
Sorry, Kenneth, really quickly before you jump into that. If you can, just for the listeners that aren’t yet familiar with the phrase syndication, just give us a quick rundown of what that is and then lean into to the part that you focus on.

Kenneth:
Yeah, absolutely. So basically the word, syndication, is just gathering money and then going out and buy something. So in this case, apartment syndication, so we’ll go out, gather the equity. Of course, we’re taking debt on these properties. So we’ll go out and gather the equity in order to buy apartment complexes. And then, of course, our investors that invest with us, they get a return on their investment or the money that they put into the deal, so that’s just kind of what it is in a nutshell. What I do is I’m Head of Acquisitions, so I am the one underwriting. Well, first off, meeting with brokers, getting deals, underwriting deals, touring the deals, pretty much all upfront, trying to find a deal, trying to find an opportunity in which we can provide our investors.

Ashley:
So the majority of these deals, are you guys the ones that are finding them and then bringing them to other people that are already general partners on a deal to build a team, and how are you selecting as to who you take your deal to?

Kenneth:
Yeah. So, like I said, in this group, we have been co-sponsors, meaning that we’ve helped out on various other items. So we’ve had other partners that actually found the deal. We’re actually working on our first deal that we’re working on that we found, or I found, in Atlanta. But as far as how we figure out what to take to our investors, well, first off, we go by market, we just want to… We have a buy box, right? So it’s kind of the similar to single family. You can look at every single multi-family apartment, but I mean, there’s so many of them that it would be too broad. So you have to narrow it down to what you’re looking for and what you would be willing to, I guess, put up with, right? So, one, the market, so whether you want to invest in a tertiary market, meaning it’s not as populated, it’s a little bit smaller, maybe not as much activity.
Or a primary market, something like Charlotte or Dallas, or like a larger market, that’s a little bit more competitive, but obviously they have steady rent growth, steady job growth. And then you go into looking into the asset itself. So do you want to invest in a little bit older assets, ’60s, ’50s product, and either, usually with those products, there’s sometimes a lot of problems with like plumbing and electrical, just because everything’s so old, or do you just want to do newer assets? Things that were built in the 2000s or late 1990s. So that’s kind of the buy box. Now, it also depends on how many units you would like to acquire. So if you’re syndicating, you could pretty much syndicate any amount of units, but obviously the more units you have, the larger the purchase price will be. So depending on your capacity or if you’re just buying it yourself, you can buy a few units and, or continue to buy larger, a hundred plus, 200, 300 units. So I think narrowing it down is very important.

Ashley:
Kenneth, how are you creating that criteria? So for example, part of your criteria is it must be at least like a hundred doors or something like that. How did you come up with that number? What’s, if someone out there is looking to go and do multi-family, how can they be like, okay, I know that I can maximize my return if I’m getting over a hundred units or I want to be in a B to A-class market. What are some tips and tricks you can give to people to help them actually define what their criteria is going to be, instead of just saying, oh, I know that I want luxury units? What’s the best way they can actually figure out where they’re going to get the best return?

Kenneth:
Yeah. Great question. And I think, I like to say, honestly, if the numbers make sense, I think any deal is a good deal. So if it’s a good deal, I think, doesn’t really matter about the unit size. Obviously the larger, the better, because you get a little bit economies, the scale, meaning you’re not spending more per unit, so you have a certain threshold as far as expenses, so a certain amount of units cover your expenses, if that makes sense? So after you surpass a certain threshold within the unit sizes, you’re not really increasing the amount of expenses, so you’re just making more profit. But I would say, it really depends on your situation.
If you think you have, if you’re an executive that is in a large corporation or a large company and you have a network of people that are making 100, 200, maybe more, thousand dollars a year, there’s a potential for you to be able to syndicate a lot of money and therefore you can go out and buy a larger asset. But if that’s not your case, if maybe you’re just at your job and maybe you’re not surrounded by people that are a little bit higher-net-worth, you can go out and buy a smaller apartment complex or a quadplex or a duplex. So it really depends on your own situation. That’s what, at least, what I would say, but it’s all down to the numbers, right?

Ashley:
So the first thing you would say to look at is what is your budget, almost. So if you’re going to be doing a syndication, if you’re going to be raising money, how much money can you raise if you’re going to be borrowing private money? How much is that? If you’re getting bank financing. How much do you believe that you’ll be able to get for a property and then kind of look at what the average cost is for that many doors. And this all applies to even single family homes or duplexes too. So you can narrow your criteria, your buy box, to look at properties that are within your budget.

Kenneth:
Exactly.

Ashley:
And then also you mentioned too, how many doors are going to cover your expenses? So look at the overhead. So if you have a property that has 20 units and it’s going to cost you X amount to have the driveway snow-plowed, but you can look at a property that has a hundred units but it’s still going to cost the same because it’s the same size driveway, or something like that, to have it plowed. I think that’s also, that’s great advice right there too, is to look at what is the overhead of the expenses where they’re most likely not going to change as those units increase.

Kenneth:
Yes. That is a hundred percent correct. And to touch on your first point. So it’s not just, I would say not really just your budget. I would also say, like I said, this apartments is really a business in which it’s who you know, because I personally don’t have the net worth or the liquidity in order to sign and qualify for these loans but I have a network of people that can sign on these loans and they have the experience, they have the net worth, they have the liquidity.
So, if you surround yourself or go out and meet people that can KP or basically be a key principle and sign on these loans or they could tell you, hey, I can write a cheque for, I have investors that can write a cheque for 10 million or whatever the amount, 1 million. So it’s also about who you know. So if you can, not necessarily how much money you have or your direct… Not exactly just how much money you have directly, but how much money around the people that you know have, and, or their net worth, pretty much.

Ashley:
Isn’t it funny, at least for me growing up, I was always taught, never co-sign for anyone, never co-sign on an auto loan. And now, as investors, we want to be the person that eventually co-signs for a $10 million to loan for a property. But yeah, it’s just funny how that changes.

Kenneth:
Yeah. I, a hundred percent, agree. And the reason is because, one, this is good debt, right? So this debt, as long as the asset keeps performing, that debt that you’re taking out is making you money, right? So we’ve always been taught, obviously car loans, house, depending on your perspective, those might not be the best kind of debt. And two, you get a slice of the pie for just signing on the loan. And I mean, yes, it’s somewhat of a risk, but these are all a majority non-recourse debt, meaning that as long as you’re not committing fraud and, or just operating the property correctly and you’re not doing anything that would pretty much trigger a bad boy carve-out, they can’t come after you personally. So you’re using your balance sheet and there’s, I would say, I wouldn’t say that there’s no downside or no risk, but there’s very minimal risk, I would say. So that’s why people do it.

Tony:
Yeah. So Kenneth, you’ve done a great job, but I just want to kind of like rephrase it, that way people would see it a little bit more clearly. So what are all the things that should go into someone’s buy box? So you talked about like number of doors, you talked about condition. What are the other few pieces someone should really narrow in on when they’re talking about their buy box?

Kenneth:
Yeah. So area, I’d say median household income, number of doors, which would kind of correlate with purchase price. So I think those kind of go hand in hand. Year built and yeah, those are pretty much, I would say are… And crime, but I think that kind of goes hand in hand with the area and stuff.

Tony:
So, I mean, and obviously you’re looking at price as well, right? You know that, hey, I’m not going to buy a property that’s a $100,000, I’m not going to buy a property that’s $100 million. So how are you determining what price point that you’re going after? Because since this is a syndication, obviously you don’t have the money in the bank today. So it’s like, how do you know what’s a reasonable price point for you to get under contract that you can then go out and raise money for?

Kenneth:
Yeah. Great question. And I think, so we kind of have an understanding as to, in our network, how much money we could put together if we had a deal that checked all the boxes, pretty much so to say. So if it’s in a great area, there’s job growth, population growth, the median household income is good, the asset is not old, doesn’t necessarily need a lot of work, there’s not a lot of crime. So if it checks all the boxes, what can our partners, some of our partners or the people that we know, how much money do we think we could bring to the deal? So that’s kind of what we look at first because, obviously, we’re bringing the equity, you’re raising the equity so that you can get the loan. And that’s kind of how we kind of reverse engineer to see, okay, well, this is our maximum purchase price, or at least this is where we feel comfortable.

Tony:
So there’s always the issues to you, Kenneth, with soft commitments, like soft commitments versus money wired, right? You can have one money for the soft commitments, but it’s going to be a different number when the money actually gets wired in. So what kind of buffer do you typically kind of look for? Right. It’s like, I don’t know, say for example, you’re buying a property and, we’ll just use round numbers, so it’s easier, but say you’re buying a property that’s a million dollars and say that your down payment and what you need comes out to, I don’t know, $400,000, what you need to close and execute your business plan. How much would you want to see in soft commitments before actually getting that property under contract to make sure that you can close on it?

Kenneth:
Yeah. I would say probably close to double. Well, I wouldn’t say double and that’s because… Yeah, I’d probably say maybe like three-fourths more, so let’s say like 600, likely. So we have a little bit extra that’s, I think that, that would be a safe, comfortable number.

Tony:
Okay. And then one last question on the money raising piece, we can keep moving. So given where the market is at today, I think there’s a lot of fear and uncertainty amongst some investors. Some people understand that this is a good time to buy because there’s less competition. Other investors are a little bit more frightened. How is the current market cycle impact, A, your underwriting in general, but then, B, your ability to go out there and raise the funds that you guys need?

Kenneth:
Yeah. So two huge things that just come to mind. A few, I’d say like six to eight months ago, we were getting 75, 80% leverage on, pretty much all day, on any asset that we were looking at, as long as the area was a good area. Nowadays, we’re getting quoted 65% leverage, 65 to 70% leverage, which obviously means that you need to raise more money. And then I would also touch on with everything going on in the pullback that we’ve seen in stock market, crypto and people, it’s an obvious that what, I don’t know if it was obvious, but I would say a lot of people are starting to realize that there’s less loan applications being applied for, I guess, for people in search for homes. And this is because interest rates are going up and that therefore correlates with the amount that you’re going to be paying per month.
So people are realizing that there’s something going on in the economy. So I think it’s bringing fear to the market. So I think kind of what we’ve been doing is just trying to educate, because if you keep your money in the bank right now, it’s not making anything, it’s actually losing money, if you want to be technicalities. Also, if you put it in stocks, I mean that would be very fearful. I would be scared to do that. And then crypto, I mean, that would be another thing that I would say is probably not the best idea. So where is the best place to put the money? I personally would say, and this might be biased, but I think it’s real estate just because it would hold its value, at least to an extent.

Tony:
Yeah. Just one follow up on that.

Kenneth:
Yeah.

Tony:
Can’t remember which hedge fund it was. It was either Blackstone or one of those big hedge funds. And they recently announced that they raised $30 billion for a real estate fund they’re going to be launching here shortly. And I think that was like one of the biggest raises they’ve done when it came to real estate. And one of their big selling points was that real estate is one of the best hedges against inflation. And I think that’s why there was so much interest and why they were able to garner so much investor capitals because real estate is one of the best ways to make sure that your capital, at least paces with, but can oftentimes outpace the rate of inflation.

Kenneth:
A hundred percent. I definitely agree. I mean, there’s a lot of different asset classes or investment vehicles that you can pretty much invest in, but we’ve, especially now, we’re all starting to realize, well, I guess I kind of knew this, but a lot of people are starting to realize that they aren’t as secure as you would think. And so there’s all this money that is now starting to be pulled out of these markets and they’re sophisticated enough to know that they don’t want to just leave their money in the bank. So they’re all chasing after an asset class that has been proven to pretty much beat inflation year by year.

Ashley:
Yeah. The only thing I would add to that is with putting money into the stock market, I think that if you are going to hold your money in the stock market for a long time, now could be a great time because if you look at the 30-year history of the stock market, especially index funds. Pretty much all my stock market money is in Vanguard Index Funds. And I still think that’s a great way to diversify if you don’t need your money within the next maybe several years, I think that you can see some growth there. But still 100%, real estate is still my favorite investment strategy that there is because you have so much more control over it.

Kenneth:
I agree. I mean, you don’t take a loss until you sell, right? So.

Ashley:
Yeah. So Kenneth, now that we’ve kind of talked about what your buy box is, your criteria. What is the next step? You find a property that fits that criteria, what happens next?

Kenneth:
Yeah. So there’s a underwriting process and a lot of people can do this on back of the napkin kind of thing, but we usually use an analyzer. So we go through our analyzer, we analyze the deal. There’s a lot of steps, I guess you could say, that you would want to go through and check out to make sure that these numbers make sense.

Ashley:
Kenneth, so when you mention your analyzer, is this like a software? Is this like a spreadsheet you guys put together? What exactly is that?

Kenneth:
It’s a spreadsheet. And like I said, I’m a part of a group. So the group actually built a spreadsheet. I could be biased when I say this, but I think that I’ve seen several spreadsheets and I think that this is the most in depth spreadsheet out there. And like I said, I’ve seen a few of them. I haven’t seen all of them, so that might be a biased thought. But I would say, obviously we want to look at the comps, see what other comparable properties, similar vintage, similar area, what they’re renting for and what condition their units are in. So obviously if you see this property and it’s ’80s build, let’s say, but it isn’t renovated, let’s say, but you see other properties that are similar in ’80s vintage in the same area that have grander countertops, new flooring, new cabinets, paint, the whole nine, but they’re getting $200 more.
Well, we can obviously tell that this subject property is not achieving those rents because they’re not in the same condition, but we can also conclude that if we went in and did the same renovations, we can likely get that same rent bump, so that’s kind of what we look into. So the rent comps. We also want to make sure that we get quotes. Several, there’s a several, a checklist. So we want to make sure that we get quotes from our insurance company, because you can take a guess as to what insurance will be, but I think most insurance companies provide free soft quotes, which they can, they’re pretty accurate. So it doesn’t take them that long either. So you would want to get an insurance quote to see what you’ll be paying an insurance.
We usually like to either consult a tax consultant because taxes can be very tricky depending on what county and they change in every county. Some counties they freeze, some counties they reassess on sale. It’s different all over the place. So there’s not like one strategy. So a tax consultant is what we usually like to do, but you could call your tax office and just kind of ask them, a historically, how do they appraise and what their millage rates are, which is just kind of what they assess.

Ashley:
So you’re talking about like calling the assessor’s office?

Kenneth:
Yeah, exactly. And they can pretty much provide guidance, but we just like to be pretty accurate with our numbers.

Tony:
Kenneth, one follow up question. I’ve actually never heard of a tax consultant when it comes to identifying property taxes. Usually what we do is we just call the county of the city or whatever. Where do you find this tax consultant? Is there like a website where folks do this? Or is it like just, yeah. How do you find this person?

Kenneth:
Yeah, well, I was put in touch, so like I said, that’s the good thing about being in a group, I guess that kind of has already people that they’ve used in the past. But I’m sure you could just Google tax consultant or tax assessor consultant then I’m sure that there’s, there’s tons of companies out there that just specialize, especially in certain areas. You would just want to make sure that, obviously, that person that you’re consulting is familiar with the tax in that county because if they’re not, like I said, it can change in counties and in each state there can be tons of counties, so. Yeah.

Tony:
Ashley, have you ever used a tax consultant or do you typically just reach out to the county assessor’s office too?

Ashley:
Yeah, just the assessor’s office.

Kenneth:
Yeah.

Tony:
Yeah. Interesting. All right. Sorry, Kenneth, didn’t want to get you off track, but I just wanted to [inaudible 00:27:23].

Kenneth:
No worries.

Tony:
So continue.

Kenneth:
And the reason we do that is, well, yes, to get a better accurate representation as to what the property taxes will be. Because if you’re in this, whenever single family, obviously you’re holding for long-term, but in the value on a multi-family property is what it produces an income. So if you’re incorrect about your numbers, that can negatively affect or positively affect your valuation. So we just want to make sure we’re as accurate. And also once you hire one, they can also try to pretty much appeal the assessment. So that’s kind of usually you use a tax consultant to appeal or go to the county and just appeal on your values so that they can lower your taxes. But yeah, so I guess the next thing on the list, we like to consult our local property management company.
So although we are, I would say, experts in the areas that we’re investing in, no one knows that area better than usually our property management companies. So we usually like to build relationships with property management companies that are in those areas that we’re investing in so that when we find an opportunity, we can go to them and they could potentially, they can provide us a budget for expenses, what similar properties of similar vintages and in this similar area are running at. For example, what they’re spending on marketing or payroll, things like that, because they know that market better than most people because they usually manage lots of units in that area. And also what they think based on the comps, what they think rents could be pushed to and what renovations you would need in order to achieve those rents. So I think, and we rely heavily on our property management company.

Tony:
And let me ask just one clarifying question, Kenneth. You’re running through a lot of really, I think, beneficial things to do, but are you doing all of this before or after submitting your initial offer to the seller, to the broker?

Kenneth:
Yeah. So this is all before we submit an offer. And the reason why is because in this business, it’s all about reputation and people, there’s a term called retrading, which basically means you go back and try to ask for a discount. And if you do that without, obviously, if you go in and do due diligence and find that there’s foundation issues and no one knew, or termite damage, for example, no one even knew that there was termite damage, then you need a discount because you need to repair that. But if it’s just because you didn’t do your numbers correctly, you’ll get a negative connotation to your name and it’s not really, it’s very frowned upon in this space.

Tony:
Gotcha.

Kenneth:
So we just want to make sure we have all of our ducks in a row, so that when we submit an offer, we don’t have to go back and try to get a discount for something we should have already kind of looked at.

Ashley:
Kenneth, how long does this initial checklist for underwriting take you? To get an insurance quote, to talk with your property management company. What’s an average timeframe? So if you think of an investor right now, or the past year, not even right now, going after single family or duplex, especially on the MLS, it’s like you have to analyze that deal that day. So what is kind of the timeframe look like for multi-family doing the underwriting?

Kenneth:
Yeah. And this depends, obviously, on various factors. Unfortunately, you have to depend on other people who are also very busy and are probably receiving tons of deals, especially now. But I would say, usually, I mean the initial underwriting, which I do, I guesstimate most of these numbers before I go to insurance, property management or a tax consultant. So I try to find those numbers for myself and just see, usually because I know the area and the market and things like that, usually they’re not too far off.
So if they don’t even pass that first, I don’t even go to that step. But once I do send it out to them, I’d say it takes anywhere from four days to a week for them to get back. Usually the, it depends on how much time we have, but on these deals it’s not like you’re buying, it’s usually pretty hefty of a price, so usually you have a lot of time to submit an offer. So I’d say usually they’re on market for at least a few, I’d say minimum two weeks, most of the time, almost like a month. So you have plenty of time.

Ashley:
So when this property, the underwriting goes through and you’re like, yes, we want to make an offer. Are you putting together a full contract? Are you submitting a letter of intent, an LOI? What’s kind of the next step after that?

Kenneth:
Yeah. So once you figure out like, okay, I like the area, I like the price, this makes sense for us, the returns are great. You then draft up a letter of intent, which just, it’s a non-binding agreement pretty much, just stating that this is the price, these are the terms. So usually not, more so now there’s less pushback, but usually on multi-family you’re putting hard money, day one, how much you’re going to be putting, there’s a certain period for due diligence, which is pretty standard in single family as well. And then how long you’ll take to close. So I think standard 60 days here in multi-family. So you kind of draft up the price, the terms and it’s a non-binding agreement, so it’s just showing your intent, but people pretty much respect that heavily in apartments.

Ashley:
So you guys can Google an LOI, a letter of intent, online and find a million different samples of what it looks like. And it’s very common in the commercial real estate world for a letter of intent to be submitted to a seller before you actually have a full contract drafted. So kind of what are some key elements of your letter of intent that you think everybody should use in theirs?

Kenneth:
Yeah. So like you said, you can find a ton of them. So obviously, the date, who it’s going to, the purchase price, the address, well, at least the name of the property, if you want the address but I just usually put the name, the purchase price, how much earnest money or hard money, if you want to put that, how long you’ll have to close, how long you’ll have for due diligence, and whether or not you’ll have financing contingency. Everything else can pretty much be spelled out in the contract. Which, I mean, the contracts are usually really long, so you don’t necessarily have to go into all of that.

Ashley:
So after you’ve submitted the LOI and put that together, what does the due diligent look like? Are you driving comps? Are you going to the actual property? Are you sending people there? What’s that the due diligence process look like for you?

Kenneth:
Yes. So, and I meant to say it, so before submitting an LOI, usually we tour the property. Now there’s some companies that don’t tour, they don’t even want to spend their time looking at it if they’re not even going to win the deal. And it really just depends on what you want to do. I personally think it’s just best to look at it, that way you’re not wasting your time or the other’s, seller’s or broker’s time.
So usually we like to get on site. We like to tour the property. Usually they’ll show you a renovated unit and then a classic unit, and then you’ll get to walk around. You’ll get to look at the amenities. You’ll get, I mean, you could drive the area. So usually we like to drive the area. We like to take a look at the comps that have sold, so sales comps. We like to take a look at rent comps. If we have the ability, we like to potentially schedule tours and secret shop, pretty much, rent comps to see kind of what their units are with our own eyes. Because you can look at it on the internet, but it looks a lot different, usually, in person. So we like to do all of that before submitting the LOI, and then yes, we submit the LOI.

Ashley:
And, of course, when you ask to see a unit as a potential buyer, they’re going to show you the best unit there is.

Kenneth:
Yes, exactly. Yeah.

Ashley:
So, you do the whole checklist and then once you’re like, okay, we like this deal, then you kind of save the actual visiting of the property last and then you’re going and writing your offer?

Kenneth:
Yes. That is usually the very last thing that we do.

Tony:
One follow up question on that, Kenneth. Where do you live in relation to the markets you’re investing in? Because I can imagine for some folks, say you live in California but you’re looking at the Dallas or the Midwest somewhere, it could get expensive trying to find all those properties before actually submitting your LOI. So how do you guys balance that, not wasting too much money up front if the deal doesn’t go anywhere?

Kenneth:
Yeah. And that’s a great question. So we do have properties that are a little away. So we’re in North Carolina and we own properties in Florida. We try to look for deals that are in North Carolina and Georgia, which are either driving distance or just a quick flight away. I would say or recommend that you look in your backyard, unless you’re in a market that you wouldn’t want to be investing in, which is up to your own preferences, right?
But I think the best would be to start just because if you, whenever you look at a map, usually in a place that you live, you can pretty quickly say, oh, I know where that’s at, that’s near this store or near this area and this area’s good, or I don’t know if I want to be in that area. So you kind of already understand that because I’m sure you’ve been driving to work. You’ve either been taking your dog to the veterinarian. You kind of already know the area. So I think that, that would be the best thing to kind of start off with in your backyard.

Tony:
Cool.

Ashley:
The last little piece here that I don’t think we touched on is when you are going to, you’re underwriting the deal, who are you talking to about financing the deals to get that, to find out how much you’re going to have to leverage the deal for, how much money you think you can raise, who’s going to sign for the loan, things like that? Are there key people you discuss that with before you go into underwriting?

Kenneth:
Yes. So as far as financing, so when we do underwrite, we do send it as well to, we use a mortgage broker that all of our group pretty much uses. But you can, I mean, the amount of debt that’s out there, as long as you qualify obviously, is actually insane. So especially with multi-family, they want to lend on these assets as long as it’s a good asset and you can prove that there is value potential. So I would say, you can pretty much Google any mortgage broker, go on LinkedIn and you can find them there. They’re all over the place. Fortunately for us, we have someone that we use and we also have someone that has the capability to, at least for all the deals we’re doing, they have the capability to sign on the loan as a key principle.
But like I said, it really just depends on your network of people. So if you know someone that’s pretty high network or net worth, I mean, and they’ve already told you that they’re willing to sign on loans, you can kind of keep that in mind. They’ll obvious, the mortgage broker will ask for balance sheets and liquidity state proof, things like that and also schedule real estate owned and things like that. But you can kind of have that in line before you go out and submit an offer, I’d say.

Tony:
Well, Kenneth, you’ve done a great job of walking us through kind of what that checklist looks like. But I just want to recap for the listeners to kind of package it up for them. So first you underwrite the deal, right? Then you’re getting your quotes, your insurance, your mortgage, your property management, your taxes. If all those things check out, then you’re actually trying to get boots on the ground, go walk the property, drive the comps. And then if everything checks out, you move on actually submitting your LOI. Does that sound about right?

Kenneth:
Yes. That’s a hundred percent correct.

Tony:
Okay. Awesome, man. So there’s a few pieces there that I want to spend a little bit more time drilling into because I think this is where most newer investors might find some challenges, but first is actually meeting with and networking with brokers. So early in my investing career, we had aspiration of also going into multi-family syndication. We had a really difficult time getting decent deals from brokers, right? Most brokers, they kind of have their Rolodex of syndicators that they get their deals to first, and if those syndicators don’t want it, then they’ll kind of start sharing it with other people, right? Which usually means you’re getting leftovers.

Kenneth:
Yeah.

Tony:
So how can a new investor, I guess, position themselves when talking to a broker to not get the deals that no one else wanted?

Kenneth:
Yeah, absolutely. So first of all, I mean, I think getting to know someone is the best way, honestly, and in order to do that, you need to see them in person, whether that’s you tell them that you’re going to be in the area, or if you live there, telling them, asking them if they want to go grab dinner or not dinner, usually lunch, I do. So go grab lunch or a coffee or something. That way you can get face to face, or if you’re already on their list and you go, usually you can go to their website, sign up for their email blast and they send you deals. So if they send you a deal and it’s on market, you can usually schedule a tour with them and go out and just tour with them, get to know them. And that way they kind of understand, they see you, they see that you’re serious.
And you just get in front of them because then you get to know them. You talk to them, you kind of learn about their story. They kind of learn about you. They see that you’re real, because most people they’ve never met before. So regardless, although you probably won’t be the number one person they think of, you will very easily differentiate yourself to the thousands of people that they have on their list, just because they have already seen you and they’ve gotten to speak to you, and you can get to know someone pretty easily when you speak with them in person because energy’s everything.

Ashley:
Let me ask you this. What’s a piece of advice you have where someone can get in front of somebody, like a really busy person, where if you ask them to coffee, you ask them to dinner, to buy them dinner, if you want to just stop into their office and talk, that, that’s not going to happen because they’re too busy for that. Even if it is somebody who wants your business, if you’re not somebody they know already has a track record or can definitely close a deal, it’s going to be a lot harder to get in front of someone. So do you have an advice of how you can stick out in their mind at all? Is it sending them a gift every single week or nonstop phone calls, sending letter, love letters.

Kenneth:
Yeah.

Ashley:
I don’t know. What would your advice be on that?

Kenneth:
That’s a great question. So two things, if you’re speaking about brokers, in general, in order to, I guess, get brokers to like you, I would say just really getting in front of them. I mean, like I said, whether or not you can, sometimes they give opportunities. If you constantly go on tours, you constantly underway and then you answer them and tell them, hey, this deal does not work because of X, I don’t like the area or the returns are not there or just kind of explain why the deal doesn’t work for you. They’ll start to kind of understand what you’re looking for and they understand you’re serious, but if they send you something and then you just never answer them, they won’t ever really understand kind of why the deal didn’t work. So you’re not really helping them.
Now, if you’re just talking about, I’d say, I guess, valuable people or people that are high-net-worth or just people that don’t have much time, I’d say the number one way is to start a podcast. We, on our podcast, we’ve been able to bring a ton of people. We’ve been able to ask them good questions, but really sometimes questions that we have ourselves. And most people, if you kind of invite them to your podcast, most of the time, they would love to get on a podcast because it’s more exposure for them. And they’re not going to just ask you, how many downloads do you have or anything like that, anything crazy. And over time, you’ll have great conversations with a lot of people. Usually you’ll get their email, at least. Sometimes you can even get their phone number on their signup sheet. And yeah, you can stay in contact or email them once in a while.

Tony:
That’s a great tip, Kenneth, about starting your own podcast. And I’ve shared the story many times, but when I started my first podcast, that was a big part of my motivation as well. It was just like meet as many people as I could. And I was putting out three episodes a week when I first started my podcast and I was doing the math. I was like three people a week at 52 weeks a year, that’s like over a 150 people I’m going to get to meet and talk with, as I’m doing this podcast. And I love that. But one follow up question. How many deals would you say you have to look at? How many deals will a broker send you before you find one that’s actually worth something? Is it one good deal for every five? Is it one good deal for every 100? Where do you kind of fall in that spectrum?

Kenneth:
Yeah. I would say, so I guess, and I think maybe things have changed now. I think the market is turning into a buyer’s market. So we kind of have more say. But as of recently, usually it’s about every 100 deals, 10 of them will make sense for you or fit your, I guess, criteria or something or get… Yeah, your criteria, I mean. And then out of those 10, you’ll probably submit those 10 offers, and out of those 10 you’ll potentially get one or two accepted. And then out of those one or two, you’ll close on one. So two accepted you’ll close on one. So that’s kind of like the metric, I guess. So we aim to underwrite a 100 deals. I wouldn’t say as fast as possible, but we kind of know once we’re getting closer to a 100, it just seems to work out somehow.

Ashley:
And that shows the importance of keeping track too. So you actually know what that metric is within your business.

Kenneth:
Absolutely. Yeah. Organization is key, for sure.

Ashley:
Yeah. Kenneth, this has been all great advice and I want to keep it going by moving on to our Rookie Request Line. As a listener, you can call in at any time to 1-888-5-ROOKIE, and leave us a voicemail. Tony and I will get it, and we may pick it to be played on our show for a guest. So this week’s question is from Nick Bowers from Colorado Springs. I have a question regarding my first investment. I’m investing out of state. Now I’m torn between cash flow or appreciation. I’m worried that I can’t do a cash-out refi on multi-family and grow my portfolio. Which avenue do you guys suggest? Thank you for your time and I love the show. So what would be your advice there, Kenneth?

Kenneth:
Yeah, so especially in times like now, I would say obviously you want to be in a market in which there’s potential for appreciation, but I would say that the number one thing that you should not compromise is cash flow. As long as the property is cash flowing, it doesn’t matter what the value is. You’re still making money. You can still service the debt. You can still service all of the expenses and you can keep it. The worst thing to happen in real estate is not to be able to make your payments or have negative cash flow because that’s kind of what can hurt you if there is a downturn. Evaluations may fluctuate, but if your property’s just producing income and usually rents stay steady through recessions, which is pretty historical, you will be fine. So I would say cash flow for sure. But obviously, you would like to look into a market that has potential for some upside.

Tony:
Yeah. Kenneth, that’s a great point. And honestly, this question about cash flow versus appreciation comes up a lot and, honestly, I think it comes down to the unique person situation. If you’re trying to replace your W-2 income as fast as you possibly can, appreciation isn’t going to help you a whole heck of a lot, right? You need cash flow. But if you’re just trying to invest as a way to help supplement your retirement, then yeah, maybe cash flow isn’t as important today and you’re more concerned about appreciation. So whenever someone asks this question about appreciation versus cash flow, I think it’s a deeply personal question that’s really more aligned with what that person’s goals are when it comes to real estate investing. For me, cash flow is always more important because I knew I needed the money coming in to replace my W-2 income. So I think hopefully that helps point you in the right direction.

Kenneth:
Yeah. Correct.

Tony:
Kenneth, we want to take you onto our rookie exam. So I know you answered this back when you were on with your brothers, but maybe we can tailor your answers today to be a little bit more about the acquisition side of the business you’re focused on. So if you’re ready, we’ll take you to the rookie exam.

Kenneth:
Awesome. Let’s do it.

Tony:
All right. So question number one. What’s one actionable thing people should do after listening to this episode?

Kenneth:
Yes. So I mean, whether you learn how to underwrite, and underwriting can be pretty, it can get complex, but I would say it can be very simple as well. Just learn how to underwrite on the back of the napkin. And or if you have, if you can find an analyzer that you want to use or a model that you want to use, just underwrite deals, whether or not you’re going to go out and look at them or you don’t have to go through all the way, but just understanding why the numbers are the way they are and what makes them that way. I think just looking at deals and learning how to underwrite deals is just the most important thing.

Ashley:
And if you need something to use to analyze a deal, you can go to biggerpockets.com and use the calculators on there to analyze a deal.

Kenneth:
Exactly.

Ashley:
You get five times free and then, but if you’re a pro member it’s unlimited, so.

Kenneth:
There you go.

Ashley:
A really great, easy way to get started because there’s a little link next to every expense, every income input, every input has a little blue link and you click on that and it tells you what it is and where to get that information from. So really great for beginners and experienced investors too. Hey, Kenneth, one question real quick. When you are talking to a mortgage broker, you’re talking to investors, you have some kind of report or you’re showing your calculator, your spreadsheet to these people, that’s super beneficial, right? To have something to kind of put in front of them, instead of just saying, hey, this deal is going to cash flow X amount without showing the proof. Yeah.

Kenneth:
Yeah, exactly. So you obviously build a pro forma, which is just looking into the future, what you think you’ll be spending on each item like payroll, what taxes will be, what marketing is going to be. Just going through those line items and what you think you’ll spend, and then also where you think income will be based on where you think you can push rents. So kind of showing them that spreadsheet and those numbers kind of helps them put together an image or the vision as what you’re seeing.

Ashley:
Yeah, and the Bigger Pockets calculator reports have, once you analyze it, you can just print off a report, little pretty chart, all your numbers on it to show to people. So mortgage brokers or investors on the deal.

Kenneth:
Awesome. Yeah.

Ashley:
Okay. So our next question for you, Kenneth, is as far as your role in marketing acquisitions, what’s one tool, software app, or system in your business that you use?

Kenneth:
I would say CoStar, but that might be a little pricey. Really, I mean, honestly, you can use apartments.com. I sometimes go to apartments.com. I mean, maybe it’s not really like software, but apartments.com, I mean, that’s literally, I’d say, a majority of the time that’s where most apartments market their rent and they put pictures there. They try to make their property look as beautiful as possible and try to market. Because whenever you search up, if you’re moving to a new place and you search up apartments for wherever, apartments.com does their own marketing, so likely their ad or their website is going to be the first link up in the top. So most apartments and us included, we use apartments.com and we market on apartments.com. So I use that to look up rent comp. So I find the subject property and then I’ll look at other properties in the area and kind of see what their finishes are, what their renovations look like, and then what they’re renting their units out for.

Tony:
Awesome brother. So last question for you, where do you plan on being in five years?

Kenneth:
Five years. Oh, wow. That’s a long time from now. So we have, I’d say, some pretty audacious goals. We’ve come across people that have grown their companies pretty quickly. So I’d say one year, five years, I’d say half a billion of assets under management and on the acquisition side, so not as a co-sponsor, pretty much as acquisitions, at least. So yeah, I’d say that, that’s our goal. So whether, and I would say units, but wherever, depending on the market, it could be a 100,000 per unit or a 130,000 per unit. So I think that kind of varies. So yeah, I’d say, closer to a half a billion in management.

Tony:
I love that Kenneth. So our goal in our business is to get to 1 billion in 10 years. So half a billion in five years is almost the same thing, man. So I love that.

Kenneth:
That’s our tenure, so that I just had to do, yeah.

Tony:
You did cut it in half, right?

Kenneth:
Yeah.

Tony:
I love it, man. All right, cool. So let me highlight this week’s rookie rockstar. This is Jason V from Wilmington, North Carolina. I’ve actually never been there, but we’re actually looking at some properties in the North Carolina area. So I might have to pick your brain Kenneth. But Jason says that he’s been investing for two years now and wants hear his most recent success story, but he closed in an eightplex last week. And as part of this deal, he was able to complete a 1031 exchange and got his first commercial property, first commercial loan.
So he believes that the fair market value with the current rent is around $700,000. He plans to do a cash-out refi in six to 12 months and hopefully pull out $200,000. And he’s believing that the value at that time of the property would be about a million bucks, which is amazing, right? To increase the value in such a short period of time. So Jason, congratulations to you, excited to see you get that first commercial deal done. And hopefully we’ll get you on the show soon, once this deal wraps up. So you can tell us all about it.

Kenneth:
Yeah. Jason, congrats. Wilmington is like two and a half, I’m in Durham, North Carolina, so that’s a two and a half hour drive from us. My brother actually studied at UNC Wilmington before dropping out and pursuing real estate full-time. But congrats, that’s awesome. Hit us up, so we can link.

Ashley:
Yeah. Great job, Jason. Excited to see what you do with the deal. Well, Kenneth, thank you so much for joining us again, back on the podcast. Can you tell everyone where they can reach out to you and find out some more information about you?

Kenneth:
Yes, absolutely. So you guys can find us on pretty much at @donisbrothers and that’s Donis, D-O-N as in Nancy, I-S and then brothers on YouTube, Instagram, Twitter, where else? Oh, TikTok. Pretty much every platform.

Tony:
Everywhere.

Kenneth:
Yeah, pretty much everywhere. And then our website is www.donisinvestmentgroup.com, if you guys want to learn more about investing in multi-family and why that might be beneficial for you guys. Yeah, you guys should check us out.

Ashley:
Hey, well, thank you so much. We really enjoyed having you back. So make sure you guys go back and take a listen to the Donis brothers episode. So we had the first episode with all three of them, number 175. Jeffrey was on 193 and Kerwin was on 199. So yeah, thank you so much for joining us. I’m Ashley, @wealthfromrentals and he’s Tony, @tonyjrobinson. And we will be back with another episode.

 

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



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Nearly 70 mortgage lenders and brokers made it on the list of Inc. Magazine‘s 5,000 fastest-growing companies in the U.S. for 2022.

The companies are U.S.-based, privately held and independent as of Dec. 31, 2018. Additionally, all these businesses had a minimum revenue of $100,000 in 2018 and $2 million last year.

All the top five mortgage lenders debuted on the Inc. 5000 list for the first time. theLender, which offers government and conventional mortgages as well as non-QM products, saw a 20,489% three-year growth rate.  

MortgageOne (no. 284) came in second place for top mortgage lenders, growing 1,952% in the past three years. Zap Mortgage (no.335), Trius Lending Partners (no. 372) and ASTAR Home Capital (no. 390) trailed with a four digit three-year average growth. 

Trius Lending, a local direct and hard-money lender specializing in residential investment, attributed its rapid success to customizing to investors’ needs.

“The edge that we have as a local lender focusing on Maryland and the Mid-Atlantic is to meet with investors in person and closing loans more quickly than national lenders,” said Joshua Shein, partner at Trius Lending. 

According to the firm, the core business at Trius Lending is residential rentals or properties for fix-and-flip. With about 35% of its customers being first-time real estate investors, Trius is hopeful to get repeat customers as it keeps its losses to a minimum, Shein added.

“We raise funds from outside investors and that’s how we fund these loans. Those investors and also ourselves (the partners) we want to be looking out for our loans and we believe that approach helps us to keep the losses to a minimum,” he said. According to the firm, Trius has more than 350 loans it holds and services. 

Several of the top 10 HMDA lenders by volume were on the Inc. list. Freedom Mortgage, the seventh-largest HMDA lender, was ranked No. 4158, with average three-year growth of 112% Guaranteed Rate, the 10th-largest HMDA lender, ranked No. 1673, with growth of 372%.

Mortgage brokerages on the list included The Everest Equity Company (No. 2522) and Right Key Mortgage .

As with many lenders, technology was one of the main factors that propelled growth for these lenders, including LoanFlight Lending, a Florida lender that saw 420% growth. 

The firm started building a cloud-based model for loan originations in 2017 as a back-up plan for when tornadoes hit, but when the pandemic hit, “having that “contingency plan paid off in a different way,” said Paul Blaylock, CEO at LoanFlight. LoanFlight funds loans with warehouse lines and bids the loans out to about 15 different bidders, including traditional banks, and nonbanks every day. 

“We didn’t have branches all over the country, we had a consumer to direct-model in place before others,” said Blaylock. “Everything can be done except for closing. A lot of what we save, we pass to the customers.”

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Canadian real estate tech firm Voxtur Analytics Corp. has agreed to buy mortgage servicing rights trading platform Blue Water Financial Technologies for a cool $101 million.

Voxtur, which has been on a buying binge over the last few years, plans to combine Blue Water’s capital markets SaaS platform with its own constellation of real estate solutions.

“The integration of Blue Water into the Voxtur product suite strengthens our technology foothold and places us squarely in the capital markets arena,” said Voxtur CEO Jim Albertelli in a statement. “The collective expertise of the Blue Water technologists, data scientists, and asset managers who seamlessly integrate technology and trading expertise creates a unique opportunity for Voxtur in the secondary mortgage market. This acquisition will accelerate the evolution of Voxtur’s investments in technology and proprietary industry data into a resilient and dynamic growth platform.ʺ

Blue Water provides asset valuation, MSR distribution, MSR hedging and digital solutions to MSR investors and mortgage lenders. The company, led by Alan Qureshi, says its self-service technology is “able to replicate any investor pricing and modeling construct in real time to provide a unique solution tailored to its clients, including private equity investors and investment banks.”

Blue Water is controlled by Rice Park Capital Management, a private equity firm headquartered in Minneapolis. Qureshi will continue to lead Blue Water following the acquisition, Voxtur said.

By picking up Blue Water, Voxtur said it would expand its influence in the secondary mortgage market and accelerate its transition to a “pure-play technology provider in the North American mortgage market.”

Voxtur acquired appraisal management company Anow last year for $30.5 million, and also has leading products in property valuation/appraisal, analytics and settlement services. Voxtur in July announced the rollout of two new desktop appraisal review products that comply with Fannie Mae and Freddie Mac guidelines.

With the spike in mortgage rates over the last nine months, the MSR market has been on the rise. The volume of MSRs available for sale has been at historic levels over the first half of the year, though the market has pulled back on pricing in recent months, experts told HousingWire earlier this month.

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Blend Labs executives say they are being conservative in managing the company after recording a massive financial loss in the second quarter of 2022. 

The California-based mortgage tech company plans to reduce costs, including cutting 25% of its workforce, and will focus on products with a higher return on investment amid an extreme market downturn.

“We’re operating the company prudently as if the mortgage industry origination volumes will remain at or near historic low levels through 2025,” Nima Ghamsari, Blend’s co-founder, said in an earnings call on Monday. 

Blend Labs reported a $478.4 million loss in the second quarter, following a $73.5 million loss in the first quarter. The result reflects a $392 million impairment of intangible assets and goodwill related to an update in the fair value of Title365, a company acquired in 2021.   

“This business was purchased during a much more robust economic and mortgage refinance environment. In light of the current market challenges, we perform an assessment of goodwill and intangible assets within the Title365 reporting unit and recognize an impairment charge,” Ghamsari said. “Title365 has strategic value to Blend and remains a leader in its business.” 

Blend revenue declined to $65.5 million from April to June, from $71.5 million in the previous quarter. But it was up 105% year over year, mainly driven by Title365 revenues. 

Title365 brought in $31.9 million in revenue in the second quarter, down from $38.7 million in the previous quarter, reflecting declines in refis, partially offset by home equity and default products. 

Regarding each business line, Blend Platform came in with $33.6 million in revenue, up 5% year over year. Mortgage banking revenues, however, declined 6% to $23.9 million. Meanwhile, consumer banking was up 53% to $8.5 million. Professional Services revenue was relatively flat at $1.2 million. 

Due to the challenging environment for mortgage businesses, Blend eliminated over 400 job positions across two layoff rounds, cutting around 200 employees in April and 220 in August, representing 25% of its workforce. 

With the layoffs, the executives expect to save $60 million annually, with the full impact in 2023, they said in the call. 

The company is also reviewing its cost structure related to contracts with vendors, intending to save $6 million quarterly, and planning further efficiency gains through offshoring – Blend has operations in India. 

On the revenue side, the company is prioritizing product lines that will deliver a return on investment in a relatively short time horizon. It’s also raising prices per transaction as it continues to add value to the platform. 

“Blend plans to reduce its non-GAAP net operating loss by 50% from current levels by the end of 2023,” Ghamsari said. 

The company expects the full year of 2022 to bring in $230 million to $250 million in revenues. The forecast includes U.S. mortgage market origination volumes declining around 41% from the $4 trillion level in 2021, according to the Mortgage Bankers Associations (MBA).  

Blend’s stock closed at $2.76 on Monday, down 0.28% compared to the previous closing. Aftermarket, it was up 14%, following the second-quarter earnings report. 

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Servicers’ forbearance portfolio volume descended in July since mortgage forbearance rate dropped below 1% in April.

The total number of loans decreased one basis point to 0.34%, according to Mortgage Bankers Association (MBA). The mortgage forbearance rate on a declining trend is positive news after the economic impacts of the pandemic hit borrowers hard.

The largest decline in July came from portfolio loans and private-label securities (PLS), which dropped 34 bps to 1.34% of the servicers’ total portfolio volume. 

Fannie Mae and Freddie Mac loans in forbearance fell by one bps to 0.34%. Ginnie Mae loans remained the same to the previous month at 1.26% from June. 

“There has been very little change in the forbearance rate for Fannie Mae, Freddie Mac, and Ginnie Mae loans during the past three months, perhaps indicating that we have reached a floor, with loans entering forbearance about equal to loans exiting forbearance for these loan types,” said Marina Walsh, vice president of industry analysis at the trade group. 

As of July 31, 370,000 homeowners are in forbearance plans, down from 405,000 at the end of June.

Exits represented 0.14% of servicing portfolio volume in July and new forbearance requests represented 0.11%. The survey showed 30.46% of total loans were in the initial plan stage last month and 56.1% were in a forbearance extension. The remaining 13.43% represented re-entries. 

From June 2020 to July 2022, MBA data found that 29.5% of exits resulted in a loan deferral or partial claim, while 18.5% of borrowers continued to pay during the forbearance period. However, about 17.2% were borrowers who did not make their monthly payments and did not have a loss mitigation plan.

The survey also shows loans serviced, not delinquent or in foreclosure, dropped to 95.59% in July, from 95.71% in June at a time of high inflation and volatility in mortgage rates. 

Idaho had the highest share of loans that were current as a percent of servicing portfolio, followed by Washington, Colorado, Utah and Oregon. 

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A combination of fast-rising home values and the fact that nearly two-thirds of borrowers with at least some home equity have mortgage rates below 4% — and would not benefit from refinancing — is helping to propel a resurgent market for home-equity lines of credit (HELOCs).

HELOCs allow homeowners to tap the equity in their home without incurring a much higher first-lien mortgage via a cash-out refinancing. The interest rate for a 30-year, fixed-rate mortgage averaged 5.22% as of August 11, according to Freddie Mac’s most recent weekly Primary Mortgage Market Survey.

The Federal Reserve Bank of New York’s second-quarter 2022 Household Debt and Credit Report shows that limits on HELOCs jumped by $18 billion in the second quarter of this year, “the first substantial increase in HELOC limits since 2011,” and an indicator of an increase in new originations. HELOC balances stood at $319 billion for the second quarter, according to the Federal Reserve report.

“Balances on home-equity lines of credit (HELOCs) increased by $2 billion [in Q2], a modest increase but one that follows many years of declining balances,” the report continued.

Another report by TransUnion shows the number of HELOC originations nationwide, based on the credit bureau’s analysis, jumped from 207,422 for second-quarter 2021 to 291,736 for the second quarter of this year — a 41% increase. TransUnion reports that as of first-quarter 2022, the most recent comparable data it had available, overall mortgage originations were down year over year as of first-quarter 2022 by nearly 45%, cash-out refinancings were down by 23% while HELOC origination volumes were up by 29% over the period.

“Mortgage lenders are now considering adding home-equity lending to their portfolios as they look for growth in a declining refinance market and seek opportunities to cross-sell to their existing customer base by tapping into historic amounts of home equity,” said Joe Mellman, senior vice president and mortgage business leader at TransUnion. “Consumers are increasingly interested in HELOC and home-equity loan lending — leveraging rising home values to access affordable capital.”

One of the largest lenders in the country, Bank of America, also reported a big jump in overall home-equity loan originations over the first six months of 2022 — from about $1.7 billion in 2021 to $4.6 billion this year based on the principal amount of the total line of credit, according to the bank’s second-quarter 2022 earnings report. HELOCs were not broken out separately in that report.

HELOCs are revolving debt that, in the case of a 30-year HELOC, for example, involve a draw period of 10 years and a repayment period of 20 years. Unlike fixed-rate, lump-sum second-lien home-equity loans — HELOCs normally carry variable interest rates. HELOCs also are popular because the interest on the loans is tax deductible if the funds are used for approved home renovations.

“HELOCs seem to be like the only thing people are talking about these days,” said John Toohig, a managing director at Raymond James, a board member and president of Raymond James Mortgage Company and head of the firm’s Whole Loan Group. “We have already doubled our best year in trading HELOCs seven months into the year.

“We’ll probably trade a little over $1.2 billion by the end of the year if we keep this pace. So, a product that was relatively esoteric, something you didn’t regularly see, is now raging back.”

Toohig added that HELOC loan buyers include banks, credit unions, money managers and more, adding that the loans are typically kept on balance sheets — although there have been a few private-label securitizations involving HELOCs this year. Toohig’s take is that there are a lot of homeowners out there with “really low coupons” on their first mortgage, and they don’t want to refinance into a much higher-rate mortgage, even to get cash out, so HELOCs are gaining steam. 

“I haven’t seen them [HELOCs] trade at this kind of pace in at least a decade,” he said. “It feels like every nonbank in the country has called me in the last two months wanting to stand up a HELOC program.”

Among the nonbanks that either have or plan to introduce HELOC loan products are Rocket Mortgage, Guaranteed Rate, loanDepot and New Residential Investment Corp. (recently rebranded as Rithm Capital).

Black Knight reports in its Mortgage Monitor Report for the second quarter that the amount of tappable home equity nationally hit $11.5 trillion in the second quarter — after accounting for homeowners retaining at least 20% equity. That figure is up by around $500 billion from the first quarter and $2.3 trillion year over year.

“At the end of Q2, the average U.S. homeowner had $216,900 in tappable equity, up $9.7K (5%) in the quarter and $43.4K (25%) from the same time last year,” Andy Walden, vice president of enterprise research and strategy at mortgage tech giant Black Knight, wrote in a recent report on the home-equity market.

In yet another report demonstrating the potential for the HELOC market, real estate data-solutions provider ATTOM found that nationally as of second-quarter 2022, the percentage of mortgaged homes considered to be equity rich stood at 48.1%, up from 34.4% a year earlier. In addition, ATTOM’s report states that at least half of all those paying a mortgage in 18 states were equity rich in the second quarter, compared with only three states as of first-quarter 2021 — and, year over year, equity-rich levels rose in all 50 states.

Equity rich, as defined by ATTOM, means that all debt balances secured by the property represent no more than 50% of the property’s estimated market value.

“After 124 consecutive months of home price increases, it’s no surprise that the percentage of equity rich homes is the highest we’ve ever seen, and that the percentage of seriously underwater loans is the lowest,” said Rick Sharga, executive vice president of market intelligence at ATTOM. “While home price appreciation appears to be slowing down due to higher interest rates on mortgage loans, it seems likely that homeowners will continue to build on the record amount of equity they have for the rest of 2022.”

Black Knight’s Walden added that some 73% of equity is now held by homeowners locked into first-lien mortgage rates below 4%, with half having rates below 3.5%.

“Borrowers [at these low rates] may be reticent to access their equity via refinancing,” he wrote in his report. “As a result, we expect to see more homeowners turning toward second-lien home-equity products [such as HELOCs].”

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Fannie Mae has appointed Cissy Yang as senior vice president and chief audit executive, taking over for J. Douglas Watt, who will retire in November.

Yan’s appointment is effective as of September 12. As chief audit executive, Yang will be responsible for leading the company’s audit strategy, including internal controls, operational processes and risk assessments.

Yang cames to Fannie Mae Yang from Credit Suisse, where she served as head of audit for investment banking fixed income and U.S. legal entities as well as compliance in the Americas. She’s also worked at PriceWaterhouseCoopers and Arthur Andersen.

“We’re pleased to welcome an executive with Cissy’s impressive background and breadth of experience to Fannie Mae’s leadership team,” said Dave Benson, Fannie’s president and interim CEO. “Her contributions will be essential to maintaining Fannie Mae’s strong culture of corporate governance and rigorous internal controls. I also want to thank Doug for his leadership and contributions to ensure we have a high-performing Internal Audit function that executes on Fannie Mae’s mission with a focus on safety and soundness.”

Numerous executives have left the government sponsored enterprise over the last few years. Sources at Fannie Mae cited a stifling work environment, reduced chances of leaving conservatorship and better pay in the private sector as factors that led to the departures.

More recently, Sheila Bair, who chaired the board, and former CEO Hugh Frater, both resigned on May 1. And Kimberly Johnson, its COO, departed in April.

The government sponsored entity has seen a number of top agency officials retire or leave for the private sector over the last few years.

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Quitting your job is a big decision and it doesn’t always lead to the perfect outcome—at least not immediately. Most people think that you have to be miserable or make very little money to want to quit a job, but even high earners still find themselves struggling to attend their nine-to-fives. Pat Hiban is the perfect example. He quit during his prime even as he was making a high income and after owning his own company. Regardless of all the respect, responsibility, and ability to make phenomenal income, it just wasn’t enough for Pat.

You may be feeling the same. Maybe you’re daydreaming about multifamily investing as you sit at work, or picturing the perfect vacation rental property on your commute. Whatever your reason, quitting might be the best move for you to make, but only if it’s the right time. Don’t worry if you’re struggling with decision fatigue, Pat and fellow quitter Tim Rhode just came out with their newest book, The Quitter’s Manifesto: Quit a Job You Hate for the Work You Love.

In it, Pat and Tim give stories and tools that will help you on your path to building wealth while leaving a job that you hate. The resources you’ll find in this book are exactly what our very own David Greene used when deciding to quit his highly lucrative, but mentally draining job as a police officer. If you’ve been sitting on the fence, not knowing the next step to take in your career, this book may be exactly what you need.

David:
This is the BiggerPockets Podcast, Show 648.

Pat:
But the difference is most people think that when they jump off a cliff, they’re just going to fall straight to the ground if they don’t prepare an airplane on the way down. You’ve heard that ad. It’s entrepreneurs jump off a cliff, and then they build an airplane on the way down. Well, most people think I’m not going to be able to build an airplane. So I’m not going to jump off the cliff. And what we’re saying is, look, it is scary to jump off the cliff and we’re not telling you to jump off the cliff. We’re telling you to jump off the cliff, but we have a bunch of trapeze swings that you could grab onto.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host and good friend, Rob Abasolo, interviewing two mentors of mine. In today’s show, we bring back Tim Rhode and Pat Hiban, both OGs and juggernauts in the real estate space in their respective rights, who are incredibly successful agents at the top of the world in their prime and walked away from that job, quit it to find a better life for themselves that centered more around giving back to other people, working in nonprofits, pouring into others’ lives and making a whole bunch of money investing in real estate passively.
In today’s show, we dive deep and they share their story of the obstacles that they faced when trying to overcome their fear of quitting, as well as the audit that they did on their lives, that they call the soul-sucking audit to determine how happy they really were and what could be different. It is a fantastic episode. I think this is going to resonate with 99% of the people that are listening, who are here because they have their own soul-sucking issues in their life. And they don’t know how to get rid of those leeches that are dragging them down. Rob, any thoughts about the show before we get into the quick tip?

Rob:
Yeah, two thoughts. First one, this was really fun because we get to hear the David Greene origin story about how you started off as a gold miner for Tim Rhodes, with some clarification there later. And then two, this was really fun for me as someone who just quit my job about 16 months ago or so, because a lot of the systems and the tools that they talk about and the terminology is all a very official way to put everything in perspective for me when I was doing this, when I was getting into this, I mean, it was just crazy scattered brain thoughts in the ether. I wish I had talked to them so that I could at least have placed some sort of system in my mind to how to approach this because everything they said, I was like, oh, I did think of that. Oh, I didn’t think that. It was not nearly as organized or as cool as you just said it. I had to sort of figure that stuff out by myself.
So I think for anyone in their journey right now, who’s thinking about quitting and becoming a full-time, whatever it is they want to be, self-employed person, this will be a really good episode for you to really put things into, I don’t know, into tangible steps, I guess would be the best way to describe it.

David:
Moving on to today’s quick tip, consider BiggerPockets’ newest book written by Tim Rhode and Pat Hiban, The Quitter’s Manifesto. They’ve actually written a book that spells out tactical steps to quit where you’re at and get to where you want to be. This is not a feel good self-help, get y’all jazzed up and then say, go float your way into the ether and figure this out. No, this is actual step-by-step things that you can do, how to take an audit of your life, to decide if you’re happy, how to make changes so that you will be happy and get from where you are to where you want to go just like they’ve done and have helped countless other people, including myself to do the same. You can get that at biggerpockets.com/quittersmanifesto, or if you don’t like spelling, just go to biggerpockets.com/store and you can find it there.
All right. Let’s bring in Pat and Tim. Tim Rhode and Pat Hiban, welcome to the BiggerPockets Podcast. Welcome back to the BiggerPockets Podcast. We’ve got some return guest action going on.

Pat:
Yeah, man. Good to be here. Wow. Been a while. I was trying to figure out when I was on last.

David:
Yeah. So we had you on episode, I believe it was 188 and Tim, you were a little more recent on 353. Both of those were very highly downloaded episodes. So BiggerPockets saw it fit to have you two, write a book. And we’re going to talk about that a little bit later in the episode. But before we get into it, why don’t we start with how we know each other and what your backgrounds are in real estate? You want to start off there, Tim?

Tim:
Sure. My background is in real estate, started selling real estate, my goodness, in 1986. I sold actively till about 2000. And this is when I met David Greene, right around that time when he was actually working at Isadore’s Restaurant and then came to work for me as a prospector. So, that’ll be a funny story within all of this. But yeah, and then I went, gosh, I’ve been a quitter for some time now, quit many different careers. And now I’ve kind of quit my way to the top, if you will. So it’s been a long, fun ride all the way.

David:
And Tim, can you tell us briefly about your real estate holdings at this time?

Tim:
So my real estate holdings at this time, I probably have about 50 different income streams, anything from my gut, I think I’ve got like 15 apartment complexes with our gap acquisitions, and then a bunch of businesses, bunch of investments in other people’s assets, because I don’t believe in working myself and haven’t for about the last 20 years. So I have about 50 different income streams at this time.

David:
Pat Hiban, former podcast host of Real Estate Rockstars. I believe you were also the former number one real estate agent in Keller Williams at one time. Tim, I’m sure you’d be able to say the same about PMZ Real Estate, where you dominated the market. But Pat, tell us a little bit about your history and your background in real estate.

Pat:
Yeah. So real estate’s my life really or has been, I should say. It’s like in one form or the other. I graduated college with a degree in sociology. I got a 2.3 GPA and no one would hire me. So I went into real estate sales because there was no barrier to entry. I spent 25 years selling, slinging and I was at probably five different companies over 25 years, RE/MAX, KW, Long & Foster, everything you think of. I had my own company, I had my own mortgage company, title company. Just real estate sales, until I quit. I quit, I bailed, I collected the money off of the craps table and I went back to the room and I hid it under the bed. And that’s really what happened.
So after that I started investing and I invested in a bunch of single families. Then with Tim, we started investing in multi families. I think we’re up to over 2000 units now, multi-family wise that were on a GP level on. We had a shopping center that we just sold. We’re kind of on, not a lot, but a little bit of a selling spree. We’re selling some things. Then, of course, I had that podcast, which I sold to Aaron Amuchastegui, the only person in the world to ever be able to monetize and sell a podcast thus far, that I know of. What else? Started GoBundance with Tim and David and Mike McCarthy. And so, yeah, that’s where I’m at. I’ve got about 67 lines of horizontal income, which is income that’s coming in sideways, all different types of stuff. I’d say 55% of it today is real estate. 45% of it is random other stuff.

David:
Just to be clear, that was David Osborne you started GoBundance with, not me. [inaudible 00:08:30].

Rob:
Yeah, I was like, wait a minute. David, you’ve been holding this from me for so long.

David:
No, I’m not one of the godfathers. I’m like second generation there. That’s funny. But we do have two godfathers of real estate here with us. And I will say this, you two have both been a little modest there. Tim was a legend at selling real estate in Manteca where I grew up and that’s where the Isadore’s Restaurant he mentioned worked. If you guys want to hear more about my story there, you can look it up on the BiggerPockets Money, episode number 12. I get kind of deep into actually what I learned in that restaurant. And then Tim reached out to me from what he had heard about my work ethic and offered me a job. And that is why I am here today in real estate et al.
And then Pat was also one of the top real estate agents in the country. Like he was sitting at the top of the leader board for the biggest brokerages ever. And it’s a little odd that each of you sort of like Barry Sanders in his prime, just decided I don’t want to do this anymore. It’s not uncommon to see people quit when they suck. They just can’t get it going. They’re struggling. They’re not very good at it, but you two had empires that were built and you walked away. So why don’t we start by asking with you, Tim, what was the motivation to quit? And what were some of the fears that you had when you were thinking about it? How did you get to that point?

Tim:
I think mentioning Barry Sanders is really interesting, because he was at the top of his game when he decided to just tap out. I think he wasn’t even 30 years old yet. So from 26 to 35, I loved selling real estate. It was so amazing. I never thought I’d be in a place where I’m making a lot of money and doing the things I wanted to do. And then it started to oxidate. It was kind of like the rust had gone on and I just didn’t feel like doing it anymore candidly. And I looked up, I was in Belize and I was 40 years old and I was a millionaire and I was kind of like, whoa, dude, for once in your life, I’m proud of you. How did you get here?
And I went for a minute of kind of looking back through my career. And it was like, well, what do you want to do next? And it was like, I never want to sell another home. And it was like a just boom. It was like a punch in the face. And it was like, well, what are you going to do? And it’s like, well, you just flipped a home and you made a lot of money doing that. Why don’t we have a new game? I’m never going to list another home. I’m only going to invest. And I’ll only be my best client. I won’t have to worry about sellers. I can do this my way.
And I went back and I did that and it hadn’t happened overnight. It took a while from like 35 to 40 to get the courage to quit. But once I decided to do that, I never looked back and I did never sell another home after that. I invested for one more like from 2000 to 2007, and then I played another new game. What if I tap out and sell everything into the craze and never have to invest again? And then from 2008, till today, I’ve never personally invested in a property. I only water ski in other people’s lakes. So I’ve had a lot of fun kind of being the original quitter and then keeping, figuring out how can I use those tools to develop the next incarnation for whatever’s next in my life.

Rob:
Yeah. So Tim, let me ask you something because a lot of people, we’re all going for that big M goal, right, becoming a millionaire and you quit right at the cusp of realizing this. So when you did this, were you at a point where you said, yeah, I’m going to quit and I can sort of coast on this or was there a financial motivation to keep pushing on? Or was it more of just a personal self-fulfillment? Was money a big factor in making more money? Or was it just, hey, I want to go out and do this as a self-employed person and just keep crushing it?

Tim:
I’ll be honest. All the things we talk about in the book, which is very practical, very tactiful… tact… We’ll redo that.

Pat:
Tact, not strategic, tactical.

Rob:
There you go. Okay.

Tim:
Thank you.

Rob:
Teamwork makes the dream work.

Tim:
But all the things that we talk about in the book, I did not do. I tapped out when I didn’t have a lot of money behind me and I just kind of depended on me moving forward that I’ll figure stuff out, I’ll find ways to make money, but it wasn’t what it was about. Candidly, I went from working full time to skiing 100 days a year, to spend a lot of time up on the coast, abalone diving and just what I called getting the goods in the woods. And I’ve always played that game from then on just trying to figure out how can I make money, but that’s certainly wasn’t what it was all about for me.

Rob:
Yeah. That’s really great. Thank you so much for that. Pat, what about you? What was your motivation here? Was it similar? Was it different? Walk us through that journey.

Pat:
Yeah. Rob, that’s a good question. And I think mine’s a little different than Tim’s. So I was in real estate sales. I was on a listing appointment and I fell asleep. I was talking to this lady and it was like, I had a big fat lunch and it was hot. And literally, I just fell asleep. And she goes, “You just fell asleep.” And I said, “Oh! Oh! Oh!” And you know it. And then I went into the bathroom, I threw some water on my face. Then I came back and next thing you know, I like… You know how kind of fall off a cliff, like you put on the brake in a car, but you’re sleeping or whatever. So I put on the brake and I like kicked her chair. And I was like, oh god, I’m not getting this listing. So I rolled out of there and I’m driving back to the office and I’m like, man, I fell asleep twice on this lady. I was like, that is it. I’m out. I got to get out of this business.
As Tim said, I’m oxidated. That was terrible. I just wasn’t happy. The problem is that like, I went from such a manic state where everything I touched turned to gold. You know what I mean? We were doing television commercials and we would just do commercials. And immediately we put the commercials on the people would just start calling and say, “Come list my house.” It was so easy. And it was so fun to like everything stopped, and then all that happened was I was dealing with agents that were complaining about, why I wasn’t getting any leads for them and sellers complaining, why don’t I do an open house and all this stuff because the house is not selling at the price they wanted it to. And I was just like, you know what? I’ll just quit. I’m getting out of this. And so it was more of a visceral thing for me than it was for Tim, I think.

Rob:
I can already imagine the lady there was like, cutting to her and she’s like, “And this is the home that I saw my kids grow up in. Are you asleep?”

Tim:
That’s where my daughter took her first step, right there.

Pat:
I’m telling you, man-

Rob:
No, no, I was just resting my eyes.

Pat:
Yeah. I blamed it on the pizza I had for lunch and the heat and the house, because she wouldn’t turn on the AC. But anyway, so at the end of the day, I could still see that lady’s face. I could describe her. Like if you hypnotize me, I could draw a picture of her.

Rob:
And so was this something that you were, I know you said it was visceral, but had you already considered this for years? Were you one day kind of wiping everything off your desk and like, I’m done. And you’re like, no, not really. I’m going to give it a little bit of time or was it truly like a flip switch and, hey, I’m out of here?

Pat:
Well, I think it helped. So what happened was, like 2008, all the units were down, right? Which is something that is a whole nother subject, a number of units, because that’s what people don’t talk about enough, number of units. But that’s what happened in the last crash, right? The number of units just stopped, like the number of pendings and settlements. And I still had a lot of rent and I still had a lot of overhead and I had a lot of things that I was paying for because we were crushing it. I had a $5,000 lease payment on copiers that made postcards and stuff. That was like eight years long. I had a longterm lease on an 8,000 square foot office. I had all kinds of stuff. I had to wait like two years for all that stuff to expire and me to get out of it and out from under it, because I’d signed personally from it.
So then finally when I was done that and I was liberated from the pressure of all that, that’s when I wrote my book 6 Steps to 7 Figures. And then what that required back then was a book tour. We didn’t have podcasts. So I had to go city to city and talk to real estate agents. And I did a seven-month book tour, 53 cities in seven months. And basically I came back and my top agent, Mike Sloan at the time had been running everything while I was gone. And I was like, “Dude, you just take this. You know what I mean? This works without me. I don’t like it anyways. I’ve been free for seven months. I don’t want to come back in.” So, it was good for me. After the seven-month book tour, I was like, I’m not coming back in.

Rob:
And so, David, if I’m not mistaken, I believe that these guys were responsible for you, quitting your job as well, right? I mean, I know that you started with Tim and you were mining for gold for him as a prospector, AKA cold calling. But what was it really? I mean, what was your turning point here? Because I know you had a similar experience as well.

David:
Yeah. As they were talking, I started thinking about this that when we explained why we did what we did and we’re sharing the story, there’s this tendency after you’re on the other side of it to express all the logical reasons why you did it. Well, I wasn’t that happy and I wasn’t making that money and the industry had shifted and I knew that I wanted something to happen. And sometimes you do have a moment like Pat described where you fall asleep and you’re like, okay, this is not for me. But I feel like the more accurate way, at least in my life that it’s happened is for years we’re knowing, I don’t like this. I’m on a treadmill. I’m selling a lot of houses. I’m making a lot of money, but this is sucking my soul and you don’t really know how to get out of it. But you’re just kind of running this marathon that you’re like, when is it going to end? When am I going to get to the end of this thing? And there really isn’t an end in sight.
And emotionally, your heart’s not there. It’s different when you first get into it. I look at it like that’s God in my life. When I’m super excited about something, I’m passionate about it, I have these very strong emotions that I can’t describe so often because I feel like he’s putting me in that position. He wants me to be learning it. Then when that goes away, I perceive it like he’s telling me it’s time to move on. There’s a new challenge. There’s something new to learn. He has a different plan for where I should be. The problem is I get scared. I get greedy. I don’t want to move on from the thing I’m comfortable with, from it’s better than what I used to have, right? I’m more worried about getting sucked back into being broke, not moving on from being a cop. I’m getting a lot of my needs met, like Tony Robbins six human needs. They’re all being met in the law enforcement world. And to think about leaving that is actually scary.
And so you get this weird tension of, I hate going to work every day. What it was like for me is I would get a call for service, that there was a person with a tummy ache. And all I have to do is drive there, get their name and date of birth and wait for the ambulance to come pick them up. And I’m done. The easiest call you could ever get. And I’m so mad that I have to go do this dumb thing that I’m just cussing out the world the whole way there. I should have been grateful like, oh, I got a easy one, but there’s this feeling like if I have to fill out one more listing agreement, which at one point was I’m on top of the world that I got a list, that’s the best feeling ever in real estate sales. You’re like, oh, another client wants to buy a house and give me money. Gosh, darn it. I didn’t want to do it.
So you have that feeling going on, but then there’s the fear of making the jump and it just grows and it grows and it grows. And I think a lot of people listening are like, that’s how I feel every day, going to work in my cubicle at this job I don’t like, but I got to make a car payment. I got kids to feed. I got a mortgage. I have to stay here. Well, the role that Tim and Pat played was they actually were involved in a intervention of sorts where we were… Tim was there for this. Pat came in a little bit later, but we were at our buddy Daniel Del Real’s cabin and he, and a bunch of other GoBundance guys were like, “David, you’re too smart to be a cop. You’re doing too good in real estate. You’re leaving this job. Like it’s happening. You’re not healthy. It’s not going well.” And I was like, but, but, but, and I had all these reasons and they basically were like, pick a date.
What the deal was, was that I was not allowed to work overtime for one year. That wasn’t mandatory. I could not. Because I was addicted to overtime, that was like the drug. That was how I was making good money. You’re not allowed to do it. You’re going to get your real estate license. You’re going to give it a try. After a year, if you can sell homes, you’re leaving completely in law enforcement. And I had to be held accountable to those guys. Now I hated every second of that because I was just internally afraid, but I needed that to get over that hump of making the jump. And so I ended up getting my license. My first year selling houses, I was the top agent in the Keller Williams office that I worked at. And then from there I just grew and grew and grew it. And then I built the David Greene team.
That’s how I got here, but I guess what I’m saying is that it’s not always a super logical thing. It’s a lot of emotions that you’re feeling, that the world is telling you it’s time to move on. And on the other side I was not strong enough to make that jump myself. I needed a support group, especially of people like Pat and Tim, men that I looked up to and respected, that were mentors in a sense that were telling me you have what it takes and you’re better than this. Quit acting like a little coward. It’s time to make the jump.

Pat:
That’s an awesome story. I forgot that story. That’s great.

Tim:
And David, I don’t remember it quite like that.

David:
How do you remember it, Tim?

Tim:
Yeah. I remember it more like, yeah, it was Aaron West, I believe, saying, “David, are you quitting Monday? Or could we give you till Wednesday when you turn in your resignation?” And I thought it was like, boom, next week we’re going to hear from you that you’re done with the force.

David:
He started it that way. I just didn’t agree. So Daniel Ramsey stepped in and said, “Fine, we’ll give you one year and you’re going to have to work both jobs, but you can’t work any overtime.” And that was sort of the compromise that I took on to give myself some runway, because I doubted that I had what it takes to sell houses.

Tim:
Yeah. I think it’s such a great story though. Because people know how successful you’ve been, but didn’t know how scared you were before that and how much you hated your job. We have a thing called the soul-sucking meter and it’s a thing of one to 10, how much do you love what you do and what would you say on this soul-sucking meter, if we had you on there, if it looks at number one to 10, how much are you making versus one to 10, how much do you love what you do, would you say you were a six and above or below six at that point?

David:
Oh, I was at like a two, man. I was-

Tim:
I’m asking you, David.

David:
Yeah. I was sleeping two and a half hours a night, working seven days a week, eating fast food nonstop. I was at like below a six. Every day was just dragging myself, how do I get to the next one?

Pat:
We look at five things. Number one, your compensation, which is all people usually think about. You’re probably making so much overtime and all that stuff that your compensation was holding you back. But we look at your respect, your respect of yourself and the respect that your boss gives you, right? Your fit, right? Whether you’re fit for your team or fit for your organization, the police force, whatever, your prospects for growth, how quick are you going to become the fricking police chief or whatever it’s called, and do you even want to be the police chief? And how do you feel in the morning every day? And we have you rate them on a scale of one to 10 and based on your results it really comes to fruition really fast, how bad you want to quit, how important it is for you to quit.

Rob:
Now, is there an actual numerical value that you’re looking for? Like if you were to rank 4, 5, 6, 8, 9, 10 on all these different bullet points, is there a number that’s like a failure score or is it really just more for self-reflection?

Pat:
7, 8, 9, and 10 is what you want. So anything below that… 7, 8, 9, 10, well, [inaudible 00:26:22]. If you can’t clear a six on average, then your job sucks and you need to quit. So if you can’t clear a six, you need to quit. If that makes sense. And so what Tim and I did with this book, just so you guys know is we found that a lot of people were at that stage where they were afraid, they were facing the truth like David was that day and we know that it’s scary and it’s like a jump off of a cliff. But the difference is most people think that when they jump off of a cliff, they’re just going to fall straight to the ground if they don’t prepare an airplane on the way down. You’ve heard that whole ad. It’s entrepreneurs jump off a cliff, and then they build an airplane on the way down.
Well, most people think I’m not going to be able to build an airplane. So I’m not going to jump off the cliff. And what we’re saying is, look, it is scary to jump off the cliff and we’re not telling you to jump off the cliff. We’re telling you to jump off the cliff, but we have a bunch of trapeze swings that you could grab onto. And throughout the book, we’re like, this is a trapeze swing. Here’s another trapeze swing. And if you complete and grab on eight of these trapeze swings, you’re going to successfully have quit and you’re going to be happier in your life and have a better job or have a better circumstance than you had before. Does that make sense?

Rob:
Yeah, it sure does. I think this is really interesting because a lot of people, quitting your full-time job, it’s a very emotional thing. And so there is no hot or cold… Or sorry, there is no lukewarm. It’s just hot or cold, your feelings on it. And I remember for me, when I quit my job so much was at stake for me, I hadn’t… Well, really the one thing that I was so scared of losing was health insurance, because I was like, it was going to cost me $2,000 a month. And I was like, I just can’t lose… I make so much more money with all my different side hustles and my Airbnb business, my real estate business, but I just could not get off of the $2,000 a month.
But I think, looking at the scale you talked about or the different bullet points, certainly being a fit in the organization was what I was really starting to realize at a very alarming rate. Because for me, I was a creative copywriter and I was good at it, but I was never going to be great. And I was always really nervous about that truth when I was in my job, because I knew that I just wasn’t going to be the can award-winning creative copywriter that’s producing the best commercials in the world. And I kind of saw this train heading for me that was years out where I eventually would get kicked out of the industry.
But luckily for me, I felt at that time that I had already started the real estate stuff and content creation and stuff. And I was like, I think I can be great at this. And that’s sort of where it started coming to life for me was this industry and this career, it’s a fine fit, but it doesn’t fit like a glove, right? It’s not me. It’s not who I am. And then eventually when I did quit, it was a very emotional day. I cried to both of my bosses and they were like, “Are you okay?” And I’m like, “Yeah, I’m just quitting. That’s all.” And they’re like, “Oh whew, thank God.” And I was like, “I know.” I felt so good. I was like, oh, whew. All right. That was it. Because I could really go full force into something that I was a fit for.

Pat:
Yeah. In the book, we have people give the worst case scenario, kind of like you did Rob, which is like, what is the worst case scenario? Like the worst case scenario is you’re living in your car and you’re going to die from starvation because you can’t buy any food or whatever. And we all know when you analyze it like that and you dumb it down and you reduce it to the ridiculous, you basically realize, well, truth be told, if I fail, I could probably go back to my boss and he’d probably hire me back in a heartbeat. Or truth be told, I can get another job. It’s not going to be the worst case scenario like I think it is. But the process of taking yourself through this failure path and saying, this is what it looks like if I do fail, and then asking yourself a really important question and that is, am I failing now?

David:
You mentioned a little bit earlier this idea of the trapeze, moving from one thing to the next. Do you mind sharing some stories either from your life or other people that you’ve seen pull this off and what that looked like?

Tim:
I think a good analogy is you, David. If you look at the trapeze for yourself, the first one was making your own real estate team and then keeping up your investments, and then getting with BiggerPockets here. And then you’ve just taken it from one trapeze to the next, to the next. And then the piece that goes with that is the net below. And that’s just to make sure you don’t fall and that you have something to catch you if you do fall. And that’s a great piece of our book is that net below. But the trapeze is what gets you from one step to the next. And the tough part is you have to have trust to know you’re going to let go of the trapeze and land on the next set of rungs. And that’s the scary part.

Pat:
Yeah, one thing leads to another.

David:
So Pat, how did you see that working out with your career? What were some of the steps that you made and what was the net you had in place?

Pat:
During my career? You mean like from the beginning?

David:
Well, I know you didn’t become a top producing realtor just on accident. There’s probably several steps that you had to take to get there. But then I would imagine the biggest release was after you went on that book tour and you got all this like, I’ve made it to the pinnacle of selling homes and I don’t want to be here. I need to climb another mountain. I believe that’s when you started Real Estate Rockstars and you got more into GoBundance and you started doing more investing. Would you say that was your biggest release on the trapeze?

Pat:
Yeah, that was a big one, but here’s the thing contrary to how you think the story might go. I had a lot of little things that I did that didn’t work out like right at that time. I had been doing real estate for 25 years and then I got out and I’m like, okay, what am I going to do now? And one of the things that I wanted to do is coach. I thought that I wanted to coach and start a coaching company of other real estate agents. And I started doing that. And then I realized that I hated it. Real estate agents, they take your advice and they write it down, but then they don’t do anything in between calls. And I was like, this is exactly what I was doing as a broker when I was dealing with other agents.
So I quit that. And then I did this… David Osborne was friends with Ricky Williams and he wanted me to be Ricky Williams’s whatever you want to call it, agent. And I flew him around the country trying to put him with marijuana companies so he could be an endorsement to the marijuana companies. I really thought that that was going to be my identity. And after like eight months, I was like, this is just not working out. The juice is not worth the squeeze. And I quit that. And then I probably did three or four goofy things, like started writing a book about how to be a boss and all this stuff and it didn’t work.
So finally, I did Real Estate Rockstars, and I said, I could do this. And the trapeze was my mentor, Howard Brinton had kind of done podcasting before it was podcasting and interviewing agents. So I kind of felt like I was taking the reigns from him and it made a lot of sense. And then I did Rebus University, which is where I was training agents in video courses. But what happened with that, too, David is, number one, it grew to a grind for me. And number two, I wasn’t making any money at it. And a lot of people might disagree with this, but I own… Part of what gives me joy in my work is making a lot of money when I work. And if I’m not making money and I’m working, I can’t stop thinking in my head I’m wasting time. I’m trading time for not even money, for like… I just can’t go. I just can’t do it.
Those companies were losing money for me every month and I wasn’t having fun doing them. So it just didn’t make sense. And it just made it even more smart for me to quit it. And then with the apartment buildings, that made sense, and we were making money and I was getting paid. With the rental properties, it made money. I was getting paid. With GoBundance, in the beginning we didn’t make any money, but then eventually we started getting paid and getting money. So it just made it for me 10 times more exciting that I was getting money and I liked doing what I did.

Rob:
Yeah. So you mentioned earlier, you had about 47 streams of income in the present day today. And I’m wondering, did you have any of those, were any of those present when you did quit your job? I know you said you had a couple of companies that were losing money, but outside of those, had you already been sort of forging the way for your financial future?

Pat:
I had single-family homes. That’s all I had, single-family homes that I rented. So they did pay me, but it wasn’t bombastic. You know how single-family homes are, especially if they’re older, you think you make 10 grand a year, but then once you do your taxes, you’re negative three grand.

Rob:
Yeah. Yeah, we do know.

David:
I’m laughing because there’s so many people that think that the way they’re going to get out of the job they don’t like, or the life they don’t like is cash flow from real estate. And there’s always a guru that’s going to come along and say, cash flow, cash flow, cash flow is going to change everything and you can bake on cash flow. And then all the guys like you, Pat, that own a lot of real estate, I know we’ve all been there that we realize it’s very unreliable. You could have a great year or you could have one thing break and it crushes your whole year. So, that’s a very good point.
And I think that just goes to strengthen the argument that investing can grow wealth, but it shouldn’t really be your foundation that you’re living on. There’s got to be other things that you’re doing and quitting your way out of the ones that don’t work and getting into the ones that do is probably what’s going to bring more joy into someone’s life. So where did you settle? Where did you realize, okay, this is what makes me happy, this is what I like doing?

Pat:
I’ll tell you what, where I learned a lot, David and Rob, is COVID. I was very unhappy at points during COVID and I came to a realization of really what I like and what I need are people. I had no idea. Like I’ve always been a party guy, right? I’ve always been gregarious and liked to go to parties and liked to talk to people. My wife will invite one couple and then I’ll go and text like three more and tell her, “Hey, I invited these guys too.” And she’s like, “What the hell did you do that for?” I’m like, “It’s just natural. I can’t help it. I want a whole bunch of people around me.”
And so during COVID I realized that’s what I miss. I just wanted to go to the coffee shop and talk to randoms. And I couldn’t. And so now I realize that at GoBundance, I just got back from Detroit, there was like 75 GoBundance guys there. I talked the whole time. I was energized the whole time. I just loved that. But I don’t think I actually was conscious of that until I actually had an opportunity to have it taken away from me.

David:
Yeah. What I like about that is you often, it’s not going to be like a clear, like the trapeze transition, right? Sometimes life works it out to where your next, whatever the bars are called that they swing on in the trapeze world, comes right up to you, you let go of one, you grab the other one. There’s a brief period of like, oh, I hope that I catch it. Otherwise, I need that net. Other times, you’re just letting go and flying through the air and hoping that something shows up or hoping that you like the trapeze you grabbed. And then you realize I don’t like this one either. And you’re swinging to another one. It’s not 100% success.
When we tell the story with hindsight, we’re like, oh yeah, I was here and I jumped over and now look where I am. It’s amazing. But there might have been 10 to 15 different attempts before you found the right one to be swinging on. And I like that you’re sharing it’s okay that it’s messy. It’s okay that it’s ugly. You work these jobs that didn’t make money or there’s opportunities that didn’t fulfill you. And so you kept swinging and then you realized what your thing is, is people. That’s probably why you did so great at real estate sales. It wasn’t the real estate. It was the people. And when it wasn’t fun and you realized I’m letting people down, I’m falling asleep in the middle of a listing appointment is when you knew it’s time to move on. And now you’re finding another way to connect with people, just it isn’t selling houses.

Pat:
Yeah, absolutely. Absolutely. And like I said, people and money, like it works, right? I did a lot of little things after I got out of real estate that didn’t work. And I think we all do that, but nobody hears about them. And then we buy an apartment complex and after three years we sell it and then you make a couple hundred grand and you’re like, hey, this is good. I’m going to stick with this. I’d be stupid not to. You know what I mean? Or whatever. And so, yeah, people, and then obviously the benefits that come with that. Because you could always find people, you could find people anywhere, but I guess it’s, here’s the answer, like-minded people.

David:
I would say, Rob, would you agree that getting around like-minded people, people that are on your frequency is a huge component to being happy in life?

Rob:
Oh my goodness. Yeah. I mean, that’s how… Well, like-minded, but preferably significantly smarter than you. So like-minded to who you want to be kind of thing. Because I think for me, I’m thinking through the trapezes, right? And it’s very easy to say, yeah, like side income, side hustles. All those different income streams to me seems to be the only trapeze you need, because if you make enough money, you’re going to be fine if you quit your job. But in reality, I think the people and the personal and the social component is really as equally important, because those people can help you establish a lot of those different side incomes and businesses and everything that you want to go with.
So for me, when I was quitting, I had those people that I basically talked to like four or five different CEOs and quote, unquote, quitters, if you will. And I would Zoom with them and they were all founders of relatively successful companies. And they would say, “Wait, you’re taking a call right now during your… I didn’t know you had a job. Why are you still working?” And I was like, “Oh, I don’t know, because of health insurance.” And legitimately every single one of them, they told me, they said, “I watch your YouTube channel. I know how much money you make because you talk about it and you make good money. So I think it’s time to quit, pal.” And I would go and I’d report back to my wife all the time. And I would say, “Hey, this person said I should quit.” And she’s like, “Yeah, they’re right. You should quit.” And I was like, “No, no, no, don’t be silly.”
And I was hoping that my wife would be the one that was telling me no, that I couldn’t quit. But everyone in my sphere of influence, they were encouraging me to go full force at the thing that I love the most. And so getting to know them really, after I quit has shaped who I am. We were kind of talking about the messiness, right? Well, a lot of people see me and they’re like, “Oh, you got it down. Your success is going well. I’m really happy for you.” But what they don’t necessarily always realize is that it’s still really hard. And the only reason I have any level of success today is because of all the catastrophic failures I’ve had over the last year. Finding the people in my influence that could relate with that, that’s how I grow because we can all fail together and be honest with each other and help each other grow.

Pat:
Hey, Rob, I got a question. How minuscule does that seem now that you were worried about health insurance?

Rob:
Honestly, it was instant because my bosses, because like I said, I was a little crybaby on the Zoom call and my bosses were like, “Well, are you going to be okay, like financially?” I kind of looked up and I was like, “Yeah, I make way more money doing this other stuff.” And they’re like, “Then why are you crying?” And I was like, “I don’t know.” And so I really instantaneously mathed it out and it is very funny and you know what, I still pay that $2,000 a month because I carried that over for my company. It’s a funny thing to have gotten hung up on because it really wasn’t the $2,000 payment, it was just that little… I think it was symbolic of the safety and the stability in my life, knowing that I had health insurance. And so if I ever got super sick or anything that would cover me and I felt by losing that, I now had no safety net. Obviously in retrospect, yeah, it’s funny. Yeah. It’s funny that that’s what held me back for about four or five, six months.

David:
Pat, you mentioned some tools to evaluate where somebody’s at. I think a lot of the emotions that Rob was just describing the stuff, I felt you get used to it. This is just life and you don’t think about it. You’re like the frog in the water that slowly gets hotter and you’re not aware of it. And then you and Tim are talking about how people can kind of audit their life and figure out where they’re at and maybe find if they’re happy or not. So can you share what some of those tools that you’re using to evaluate are?

Pat:
Well, there’s the soul-sucking audit, which is basically the one that we talked about where you got to get a six or more. And what we’re encouraging people to do is to kind of stop not quitting, right? Every day you don’t do something that’s not different is essentially a commitment to not changing. And so what people are doing is they’re just not quitting. Every day that Rob wasn’t there, he was not quitting. So the tool would be to sit down and journal and look at your life now and say, what am I not quitting? Right? And just stop, not quitting. Look at the worst case scenario and the worst case scenario for him as ridiculous as it sounds was he wouldn’t have health insurance. He seems like a young guy, so I don’t know how big of a deal that was. Me, I imagine he didn’t have six kids at the time or something he had to worry about health insurance. You know what I mean? It just comes out to be absolutely ridiculous.
One thing that we talk about, David, is creating a quitting team and we actually have a chart that we have everybody fill out in the book that is a square and with four blocks and in there are stakeholders, partners, mentors, and coaches. And what a stakeholder is, is like your wife, like your loved ones, your spouses, your family. So, that would be one. So you want to fill up that box with loved ones who say, David, I got your back. Rob, I got your back. I’m with you. I think you should quit. I think you’re going to do great. I believe in you, that sort of thing.
Then the other is partners. These are going to be actual partners like investors, suppliers, maybe general partners of your business, whatever you’re going to do. These are actual people’s names that you’re going to go into partnership with. Then you fill in five or six mentors. And a mentor is not like this Rip Van Winkle type guy that sits under a tree, that’s like a long beard and a mustache. The mentor is like, whatever business you’re going to go into, this is someone who’s actually been there, cut their teeth, got their head kicked in, and has tactical things that they could teach you of how to do it. The American way is to go to work for somebody else and then copy them and start your own company. That’s essentially what a mentor is, someone you’re going to learn exactly how to do your specific business, who’s going to teach you how they did it.
And then the last box that you fill names in with is coaches, and these are actually people that you pay money to, right? We’re starting a coaching company to coach people how to quit. BiggerPockets is a coaching company, right? You pay your dues to BiggerPockets and you can go in there and be coached by a million different people that are already doing it. And so once you have those boxes, once you have that team built, your chance of success is so much higher. It’s incredible.

Rob:
Yeah. You can’t do it alone. You really can’t. I mean, that’s what I’m saying. The financial aspect of it, that was solved for me. But in retrospect now I realize that it’s exactly what you’re saying, all those people along the way that are on your team, that’s, what’s changed my life, not the financial stuff.

David:
Well, I could second that. I would say I knew I wasn’t happy and I knew, I knew real estate, but I was not going to let go of that one trapeze bar. I had a white-knuckle grip on that thing, unless I had Tim and Pat and these other guys prying my fingers off of it. It was like, we’re going to break your fingers or you can let go on your own. I think there’s some personalities that probably need that. That’s probably the same reason I’m good at the stuff I do is because I commit really hard, but that makes it hard to let go. And there’s other people that have an easy time bouncing from job to job, but they have a hard time committing to the job that they’re at. Pat, what would you say is the right person to read a book like this? If they’re listening to this show, what thoughts would they be thinking? What feelings would they be feeling?

Pat:
Somebody who knows deep down that they’re unhappy, who doesn’t like going to work. I saw this graffiti. I couldn’t believe it. I just saw this yesterday, it was on Instagram. It said, “It’s not Mondays that suck. It’s your job that sucks.” It was on a bus stop. Yeah, it’s someone who just hates Mondays and you hate Mondays because you hate your job, right? If you have a job you love, then Mondays is like sweet. And someone who just can’t get over the fear, right? We put a quote in the book, we put, “There’s no risk-free plan that will get you what you want.” So someone who really knows what they want. They want to teach art to kids, but instead they’re an accountant, right? They know what they want. They know what they would love, but they just can’t get there.
And so this book takes you, again, like Tim said, it’s not a strategic book. You’re not going to look in this book and it’s going to be a bunch of cliches where we’re requoting other people and giving you inspiration. It’s not that book. Specifically, it’s a tactical book. It is a one step, two step, three step, four step, all trapeze swings. And you could just like fill them out right there on the pages. And you could just write it all out. So when you finish the book, you’ll be ready to jump off the cliff because the plane’s already built for you. You didn’t have to build it on the way down. The trapezes are there and not only are they there, but they’re locked in with handcuffs so you really can’t fall off the trapeze because you’ve written it all out and you built it all out. So, that’s the person.

David:
Oh, that’s so good. Yeah. I love what you’re saying. There is no risk-free path from where you are to where you want to go. And you got to accept that, especially if you’re listening to this podcast because you want to invest in real estate and it works the same way. There is no risk-free way to invest in real estate. There is no risk-free way to do anything that is of any kind of substance in this world. And so reexamining that relationship with risk, making peace with it, rather than just running from it is big, not just to build wealth, but to live the life that you really want to live because you only get one of them. Thanks for sharing that, Pat.

Rob:
Pat, as someone who is obviously very pro quitting, are there any things that you believe you shouldn’t quit in life?

Pat:
Yeah. Rob, that’s a great question. And that’s kind of hard too. There’s cliches that I could say, like relationships and things like that, but there’s always exceptions to the rule. I think that what comes to mind is hobbies. I think that hobbies make a lot of people happy and I think that everybody has a different hobby. Like some people just love gardening. Some people love music. And other people love sports. And I don’t think that any of those three are right or wrong. They’re all right, because everybody’s an individual. And the reason that they chose those hobbies probably wasn’t because their mother put them in gardening classes when they were two years old, like piano and told them that they had to learn it. Right? They chose them hobbies naturally. Just kind of their soul gravitated one day to picking a weed and planting a flower. And they’re like, I love this. I’m going to do another one. So I would say to them, do not quit a hobby unless you replace it with another one that’s just as joyful, if not more joyful.

Rob:
So Pat, with all that in mind, what are things you wish you would’ve quit or left behind a little earlier in your life?

Pat:
From a financial standpoint, I wish I had not spent as much money on non real estate investments and just stuck with real estate. I think that all through the ’90s, like I got licensed in 1987 and I bought like three houses between 1987 and 1990. And then from 1990 to 2000, I didn’t buy a single house. And I often look back on how flat that time was. Like the market didn’t go up. It didn’t go down. It was just flat. Nobody really bought rental properties. Very few people did. And it was easy to do, right? You put 20% down and you just bought it. And the 1% rule worked all day long. It was easy to do, but no one did it.
I wish that I had not quit buying like I did when I first got my license. I wish I had bought at least a house every six months or a house a year, one little single-family a year I could have easily done rather than investing the money in the stock market or something. And I didn’t. And I look back on that as a mistake. I really wish I had just dollar-cost averages houses and just had them because I’d be killing it now. Those things would be worth so much more and the rents would’ve just gone up so much more. It would’ve just been nice and I regret not doing that. I wish I hadn’t quit. I quit too soon. Now, granted in 2000s, I started buying again, but there was that whole decade I didn’t buy.

Rob:
Okay. So a follow-up to that question, what are some of those things for you, Pat? Like what are your actual hobbies?

Pat:
That’s great. I set myself up for that. My hobbies are working out. I got three hobbies: working out, which I do regularly. I have a house in Maryland and a house in South Carolina and I have a trainer in Maryland and a trainer in South Carolina. I just pay them both two grand a year in January, and I could just text them and show up to them sometime that day or the next day. I’m also a hiker. I just love hiking. I just clear my head. I just feel so much at peace with nature. And I like to hike. I just get out there and explore. I’m always on an adventure.
And then the third hobby, and a lot of people might not find this a hobby, but I find it a hobby because so many people don’t do it, so it has to be a hobby and that’s counting my money. It sounds like a joke, right? And you can cut this out if you want, but I’ve always been a counter, like mathematically something in my left brain is always counting. So I’m always counting my net worth, counting the rental income, counting things. And I get a lot of dopamine from that. And I just enjoy it. Like, I’m constantly looking at my bank accounts. It’s just something that I enjoy doing. I don’t know what else to call it, but a hobby. So I would say those three things.

Rob:
I like it because it is honest. And a lot of people try to pretend like they don’t do that. Not even from the financial aspect of it, but it’s just a way to feel proud of what you’ve accomplished. So thank you for that.

David:
Yeah. I would say [inaudible 00:57:27].

Pat:
You’re welcome.

David:
Definitely it keeps you motivated to keep going. Sometimes I’ll go look at my portfolio and I’ll just look at all the properties that I have in it, and I’ll see what’s performing and what’s not, and I’ll see the equity that I’ve created and I’ll see what’s cash flowing and it’s not necessarily so I can twirl my mustache and say, look at the… It’s more of, man, that feels good. And then I want to go buy more houses.

Pat:
Twirl your mustache. Is that what you do?

David:
I’ll actually… Little known fact, that’s why… Yes. Just like that. Brandon does that with his beard. That’s the only reason he grew it is so that he has something to twirl when he counts all his money like Scrooge McDuck.

Pat:
Oh my goodness.

David:
All right. Well, we have lost Tim to technical difficulties, but we still have you here, Pat. This has been fantastic. I really appreciate you guys bearing your soul and sharing what your experience has been like, as well as your heart to help other people to quit the life that they don’t like to start one that would be a much better fit for them. Any last words about who should get this book and who you had in mind when you wrote it, that we can leave our listeners with?

Pat:
I feel for the people who are at that bus stop or are at the Monday morning checking in or waking up on a Monday and just being like, I hate this. You know what’s funny, my kids are 26 and 28 years old, and I talk to them about their parents. I guess I have this comparison thing going on, it may be good or bad, but they’re like, such and such and he hates his job or she hates her job. And I think to myself, man, that is so foreign to me. Having somebody that hates their job or being a kid, knowing that your parent hates their job, it’s so foreign to me, right? Because I’ve always been lucky enough to pretty much love what I do or at least find something within it that I love that I could just go to.
And so this book is for anybody who has ever had a Monday morning that they woke up and just dreaded that it was the start of the work week, that’s who this book is for. Again, so we’re going to map out how you can do it. Whether you do it or not is up to you, but if you know how to do it, maybe you’ll think twice, and maybe you’ll feel stronger about quitting, should push come to shove and you decide to quit.

David:
You can find the book at biggerpockets.com/quittersmanifesto. That’s Q-U-I-T-T-E-R-S-M-A-N-I-F-E-S-T-O. And if that’s too much to remember, just go to biggerpockets.com/store, and you can find the book there. And that was our show with Tim Rhode and Pat Hiban. Rob, you got to meet my friends. What do you think?

Rob:
I think I got a really beautiful glimpse into the early years of David Greene. It’s really nice to hear the origin story. We see the origin stories on superhero movies all the time. And I feel like I got to finally see the origin story of my real estate superhero, David Greene himself.

David:
What an answer. I’ve never heard anyone describe it as an origin story, but I’m not mad about that.

Rob:
You should have asked me that. You know how you always ask me at the end of the podcast like, “Any last words?” And I’m like, “No.” I guess this was it for me. I did it. I gave you a profound answer.

David:
You did. And see, the only key was I had to ask you after the show ended in an outro, not right before the outro.

Rob:
Right.

David:
I’m learning where you like to get the ball so you can score. I wanted to ask you, because we kind of briefly touched during the interview about the emotions that go behind when you know it’s time to quit. And I wanted to see if you could dive a little bit deeper into… You explained the emotions when you actually quit the job, when you had to show up on Zoom and you admitted it was so emotional that you actually cried, because it was such a big thing. But what emotions were you feeling up to that point that you knew was a signal that it’s time for you to leave and go full time into your content creation project?

Rob:
Well, if you just break down my actual schedule every day, I just had my daughter, well, my wife had my daughter. I was just there for support, but I was a new dad, right? So that was really tough because I was working a full-time job and this was during the pandemic. So it’s like work from home and you’re sort of figuring out how to do that with kids and then the dogs and everything. And I would basically get off of work at 5:00. And I had just started my consultation business back when that was going that no longer exists now, but I was booked out basically, at first, from 5:00 to midnight every night. And I would take like a 30-minute break at one point so I could go put my daughter down, give her a kiss and read a book, all that kind of stuff. And I remember that it was wearing on me every single day. And then I was like, you know what? I can’t stay up until 1:00 in the morning, consulting people anymore. This isn’t going to work.
And so I cut that in half and I thought, okay, if I cut that in half, it’s still really good money. I’ll raise my rates and I’ll be okay. But just day in, day out, it was the same thing. I would wake up early because newborn and then I would get ready for work. I would go to work and then I would take consultations during my lunch break and then I would go to work again. And then I would take consultations all night. And just after doing that for several months, I was just physically getting drained and I said, something has to change. And that’s when I sort of mathed out, if I went full force at my consultation business, I was actually making a lot more than I was at my other job, but I wasn’t working nearly as much.
And I think I just was so, so tired. I was so tired and I was so anxious and I had been putting off quitting for so long, until finally, like I said, a bunch of those CEO and founders of the companies that I was talking about, they just sort of kicked my butt a little bit and they said, “You need to quit.” And then I was like, “Okay.” I was very anxious, very, very anxious when my bosses answered the phone. It was really awkward because one jumped on the Zoom first and they’re like, “What’s up? How you doing?” And I was like, “Oh, you know, good.” And it was clear I was trying to stall. It was clear probably where the conversation was going to go. And then the other boss joined and then that’s when I started crying. So it was really weird, really weird, but really fun in retrospect to psychoanalyze myself.

David:
It sounds like you had mentors, too, that were saying, hey, it’s time for you to move along.

Rob:
I did and that made it a lot easier. What about you, man? I know that you were sort of, it sounds like you were forced into quitting.

David:
Yeah. And that’s what I needed, to be fair. I have that personality that I really think long and hard before I jump into something. But when I jump in, I have just like a vice grip on whatever I’m doing. I want to be the best if I’m going to do it. If I’m going to sell houses, I want to sell them as good as I can. If I’m going to invest in real estate, I want do it as tight and as good as I can. The One Brokerage, I want us to be the biggest loan company in the country at some point. And so I have to be careful about what I commit to, because I don’t let go very easily.
And I had committed to law enforcement with everything I had. I was trying to be super cop. I was wanting to take every single course that I could, learn every single thing, get certified in all of it, trying to lead the department in the different stats that we used to measure our performance, but my soul was dying. It was more than just practically speaking, oh, I could use my time for something else. It was more, the relationship with the community had deteriorated so badly, that’s not a surprise to anyone who’s listening to this that watches the news, and you weren’t really able to do the good that I thought I was going to be doing when I got there. And the people that I worked with were so negative and so cynical and it wasn’t getting better. The writing was on the wall that every year was going to be worse than the year before.
It was like buying an investment property that your cash flow shrinks every year. It’s the opposite of what we’re looking for. Like, you still got to manage it. You still got to do all the work, but the return is smaller every year doing it. And I knew I don’t want to be here, but I was just terrified of what it would look like if I left. Would I still be able to buy rental properties? I was making very good money. I think my best year I worked, I took like two days off for the whole year. I worked 363 days. And most of those days were between 15 and 20-hour shifts, but I made $300,000 and that was like 2015 era. So it was very good money to be working in law enforcement.

Rob:
Wow. That is. Yeah.

David:
Could I do that anywhere else?

Rob:
Wait. That was as a police officer?

David:
Yeah. And that was in 2015. So that was like seven years ago or eight years ago before inflation. So that’s probably more like 400, 450,000, I’d say by today’s dollars. But that was when I was sleeping in my car. All I did, like I only took time off to go wash my uniform and just be… I was like a firefighter. Just lived at the police station. I would buy properties from work. I would sign the documents on my lunch break. I’d have a notary come to the station and I would just sign the paperwork. It was 100% all in.
And when these guys saw the Tim Rhodes, the Pat Hibans, the Daniel Del Reals, Aaron West, Daniel Ramsey was, if you put that same effort into this, it’s going to be so much better for you. And I’m glad I listened. I don’t listen to everyone, but I’m glad I listened to them because that put me in this position of BiggerPockets where now I want to have the best podcasts in the world. And when I write books, I’m trying to write the best book that I can possibly write. And real estate pays you back for what you put into it more than anything else. Outside of God, real estate’s the only thing I’ve seen that pays me more than I could ever put into it.
I remember what those emotions were like. And you know, this is funny. Last night, I actually had a dream and I get these all the time where I’m back working in law enforcement or I’m back working in restaurants. And I’m getting all of the former anxiety that I used to have. It’s like, oh, this sucks. Like in my dream, I have to go back to work as a cop. And I’m like, I was so close to getting out of this. I’m getting sucked back in and I wake up and like, oh wow, wait, that’s done. My life isn’t like that. I’m never going to have to go back to it.
And I think sometimes that happens just as a reminder like, key, don’t forget where you came from. And those risks you took were worth it. So that now where I am, I will continue to make those jumps, right? There’s some new jumps that I have to make in my career, getting out of my comfort zone, starting new companies, getting out of the weeds and letting other people do stuff and letting people fail that I think I’m the same David. I’m scared of what would happen if I make the jump, but I need to quit it. I need to move on.

Rob:
Wow. Well, I hope you don’t ask me for a final word after that, because that was a truly profound statement from you.

David:
Yeah. We just don’t talk about this very much, right? We’re usually focused on tactical stuff.

Rob:
Yeah. Yeah. I think that’s the tough part is sometimes we just want that. We do try to be metaphorical and symbolic and like, hey, the bigger picture. But I think the small nuts and bolts really, at the end of the day, that’s a lot of the stuff that we legitimately need to put into practice before we quit outside of the actual mindset of it. So this was really fun.

David:
Yeah. And the messiness of it, right? We’re not perfect. We make mistakes. There’s people that don’t get the service they want from someone in one of my companies. There’s times where I record a podcast and think, oh, I didn’t do a very good job with that, or I didn’t explain that well. We are making mistakes and feeling pain or knowing that we could be doing better in areas of life and holding back just like everybody who’s listening. We’re actually all on the same journey. We just may be on a different part of the mountain than where they are, but we’re on the same mountain and we’re dealing with the same stuff.
So if you’re listening to these shows and you’re thinking, oh, I wish I could have Dave and Rob’s life. Like we, at one point were thinking the same thing about the Tim Rhodes and the Pat Hibans and the David Osborn’s and the people whose lives that we saw that we wanted. And there’s still people that we look up to and think, oh, I wish I could have that person’s life. So don’t be discouraged. It’s okay that it’s messy. It’s okay that it’s hard. Sometimes you got to quit. And sometimes letting go of that trapeze bar that you’re hanging onto is scary and you’re not doing it wrong if it feels scary. Rob had so much apprehension about letting go of that job that it expressed itself through tears. And I remember I’ve been in situations that was just like that. Having to tell my boss I was quitting was the hardest thing ever, because so much of my heart and soul was wrapped up in that. But I’ve never looked back and said, that was a mistake.

Rob:
Oh, man, I really don’t know a lot of people who have done this, who have quit to pursue their passion and went back to their nine to five.

David:
Yeah. That’s a good point.

Rob:
Usually it works out because people find out how to make it work. Because I think once you break out of the nine to five, it’s sort of a… Like when it’s your choice, I think it’s just one of those things where you’re like, wow, this is hard, but it is really gratifying. You would never want to click into someone else’s life. You don’t want to look at someone else’s life and say, oh, I wish I could just push a button and be there because you wouldn’t enjoy it. You didn’t earn it. For me, I can look back at all the hardships I’ve had over the past two years and I’m really proud of where I am because of how difficult it was and how many things I had to overcome along the way. So that’s what makes it more gratifying, not the actual number in the bank account. But as Pat said, once you’ve done it and you can go count your money and you can be happy and you can be proud that way too. But I think that’s also symbolic of just the hard work you put in.

David:
Well, I’m proud of you too my man, because I get to record podcasts with you and you get to be a part of my life and that never would’ve happened if you wouldn’t have made that jump on your own trapeze. So thank you for doing that.

Rob:
Thank you.

David:
And to everybody listening, keep listening, keep fighting the good fight, keep inching forward and then taking the leaps when you can. You will never regret what you pour into real estate. This is David Greene for Rob “still paying his own medical insurance” Abasolo, signing off.

 

 

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