If you know how to use your home equity, you can retire MUCH faster than most Americans. For the majority of homeowners, equity is just something to sit on, not something worth using. But what if you could convert your home equity into rental properties, cash flow, or even more appreciation? Where would you be in a decade if you used your equity to make even more equity in other properties? You could retire early, make more than you’ve ever imagined, and KNOW that your wealth is working FOR you.

It’s Sunday, and David remembered to turn his green light on…you know what that means. We’re back with another episode of Seeing Greene, where real estate investors, rookies, and business owners shoot some of their most pressing questions at David. In this show, a young business owner wants to know how to sell (without sounding salesy). Then David describes how to use your home equity to buy even more properties, the best way to pull “wealth” from your rentals, how to retire in ten years, and why no one talks about the “BEAF” strategy of real estate investing.

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

This is the BiggerPockets Podcast show 822.
If you want to make sure that every property you buy will fund the next property, you have to focus on equity because equity is financial energy kept within a real estate asset and you draw that energy out and then go use it as the down payment on your next one. And this is the way you scale a portfolio.
What’s going on, everyone? It’s David Greene, your host of the biggest, the best, and the baddest real estate podcast in the entire world where we arm you with the information that you need to start building long-term wealth through real estate today. This is where you’re going to find current events, new legislation, new strategies, and what’s happening in today’s market so you can stay equipped and up to speed to crush it with the information that you need to navigate what’s, quite frankly a very tough market. But I don’t need to tell you that. You’re out there feeling it yourself.
Today’s episode is Seeing Greene. And if you haven’t seen one of these, these are shows where we take questions from you, the listener base, and I answer them directly. They can be anything from specifics to generalities. It’s really good stuff. In today’s show, we’re going to focus on strategies that work today, primarily what buying equity and forcing equity means and how you can make money in any market if you understand those two things, what to look for so that you can buy in the right area that accelerates your own wealth building. Yes, the location you choose does matter. How to make money in real estate even when cashflow is hard to come by, and advice for starting a small business and increasing sales. All that and more in today’s Seeing Greene episode. I can’t wait to get into it.
All right. Before we do, today’s quick tip is simple. When making decisions on what to spend money on in your property, there’s the goal of saving money and then there’s also the goal of increasing revenue and you want to balance the two. I tend to lean towards wanting to only replace items that will last for a very long time. I don’t like to put carpet in rentals and I don’t like to put in things that look nice but get beat up really easily. When it comes to short-term rentals, I’m willing to budge a little more if I think that guests are going to choose my rental over other ones. So when you’re making decisions on what to replace, what to upgrade or what to buy in your short-term rental, remember to think about it from the lens of how the pictures will look because that is the primary thing that most people will be looking at when they’re choosing what to book.
All right, that was today’s quick tip. Now let’s get to our first question.

Hi David. My name is Jed Forster. I’m 19 and I live in Green Bay, Wisconsin. My question is more of a business question. I have a small gutter contracting company and I’m looking to grow and scale it. I know what’s holding me back is being inexperienced in sales, so my question is, what is some advice you have for someone looking to become a better salesman and what are some books that have helped you improve as a salesman and a real estate agent? I really appreciate all the advice and the great content that you guys put out. I’ve listened to every single BiggerPockets episode, literally every single one since Josh and Brandon’s first episode. So I really appreciate you taking my question and answering it. Thank you and have a good one.

Well, Jed, first off, kudos for asking what might be my favorite question that I’ve had in quite some time on Seeing Greene. I freaking love this. I love it because you’re asking about self-improvement. I love it because you’re focused on making money the right way. You’re saying, “How can I be better at sales?” I love that you’re a small business owner and you have your own gutter cleaning company, I believe you said at 19 or 20, 21 years old. Very young. You’re doing everything that I would tell someone to do, man. So you should feel really good about yourself. Kudos for that.
And as a side note, I really think in the future on Seeing Greene and maybe in BiggerPockets in general, you’re going to be hearing more advice that’s not just about how to acquire the next property, it’s about a stronger financial position in general. You hate the job you have, you hate your commute, you hate your cubicle. There are lots of options for you other than chasing the cash flow that is very difficult to find. We here at BiggerPockets want you to have a life that you enjoy more that we can help you build, and financial freedom is a part of that. So let’s get into your killer question.
All right, how to be a better salesperson. The first thing that you have to understand is sales does not need to be convincing people to buy something that they don’t want. That is the wrong definition of sales. We all hear it. We go, “Ew, slimy salesperson.” That’s not what you sound like, Jed. It’s not what I want you to be. Sales is more, in my mind, healthy sales, the way that I teach it to my agents, is about understanding how to communicate and articulate why what you have is best for the client, which means a part of sales is listening to said client. It is not showing up and saying, “Here’s why you should buy my vacuum cleaner.” It is finding out what is their problem, determining what your solution for the problem would be, and communicating effectively why it’s in their best interest to take it.
Now, that’s not slimy. My favorite book of every book I’ve read when it comes to doing this is called Pitch Anything by Oren Klaff. It looks like this and I read this book all the time. I teach on this book all the time. I use the concepts that are in this book when I’m teaching people how to retreat, an event I’m having my own sales team. I’ve referenced it constantly. There’s lots of things in the book that will help you, but let me talk about the three main things that I think you should understand.
When a human being is receiving information, perhaps I’m saying, “I’d like to sell your house. I’m a real estate agent,” or “I’d like to buy your house. I’m an investor,” or you’re approaching a tenant that’s already in a property and you’re saying, “Hey, we’re going to have a new property manager” or for you, you’re going up to a potential new client saying, “Hey, I’d like to clean your gutters,” there are three ways that their brain is going to receive the information that you are giving them. You’d think of them like gates. And in order to get to the second and the third gate, you have to get through the gate before. And where most people mess up with communication is they don’t respect the way that other people process the information.
The first gate is what they call in the book the croc brain or crocodile brain. This is also called the amygdala by other people, but basically it’s a part of your brain that functions like a reptile. It thinks, “Everything’s going to kill me.” This is the first way that all information will come into anybody’s mind. So you hear a loud sound, everybody jumps. Ever noticed that? Everybody jumps when there’s a loud sound. Nobody jumps and thinks, “Yay! Santa Claus is coming down the chimney to bring me presence early.” We always think, “Oh God, it’s going to kill me.” Human beings are wired this way. So your first step in communication is making sure people understand, “I am not a threat. I am here to be helpful to you, not to take away from you.”
The second step of the brain that the book talks about, it’s called the mid-brain. Now, the mid-brain’s job is to take the information that’s being given whatever stimulus that is and evaluate it through a social context. What that means is it wants to look at all of the other times it’s seen something like this and say, “Well, where does this fit in?” So this comes up with door-to-door sales. You go knock it on someone’s door, somebody sees you’re there and you look like a solicitor. What do they think? “Every solicitor before that knocked on my door was trying to sell me something, therefore I don’t like this person.” So if you’re going to do door-to-door sales, you got to figure out some way to look different than the other people if you want them to even open the door at all.
Now, the last part of our mind that analyzes information is what we call the prefrontal cortex. This is the part of our brain that analyzes things logically, uses math and uses reason. This is where you can communicate to people the most effective. If you can get into the prefrontal cortex, they’ll really listen to the thing you’re saying. This is where you can make your argument, “Hey, if you don’t clean your gutters because you’re trying to save money, it can cost you more money in the future.” Or, “If you don’t hire me, you’re going to pay more money paying for somebody else.”
Now, I’ll sum it up by saying the mistake most communicators make is they start the conversation at the prefrontal cortex level. They show up and they’re trying to say, “Hey, person I’ve never met before, let me tell you why you should give me your money because if you don’t, you’re going to lose more money later.” The person doesn’t trust you. They think that you sound just like every other salesman they’ve seen. They’re not listening to a word you say because you walk around in your own prefrontal cortex because you know yourself and you know you’re safe, but that doesn’t mean that you’re in theirs.
So remember, when you’re meeting somebody, you start off with the croc brain and you show them you’re not a threat. You move into the midbrain where you have to stand out from other people and the human has to believe that they’ve seen all of their other options and you are the best. And then you move into the prefrontal cortex where you could actually give your pitch, your slide deck, your PowerPoint presentation, whatever it is that you’re using to try to close that sale.
Thank you for the question. I hope that this information helped you. Go check out Pitch Anything and then Google sales advice or YouTube sales advice and listen to everything you can get your hands on. Sales is all about psychology. If you would like to listen to the interview that Rob and I did with the author of Pitch Anything, Oren Klaff, you can check that on the BiggerPockets podcast show number 663. And keep an eye out for BiggerPockets podcast number 827 where we interview Keith Everett as he covers a few of the sales books that he used to grow his sales-based business.
Our next question comes from Tiffany in Ohio. Tiffany says, “My husband and I are using our savings to pay off my mother-in-law’s house. We will double our net worth by doing so. We want to use the equity to purchase an Airbnb in Florida. This is our first time. I’m worried about the ability to get a home equity loan on the house to purchase an investment property. I’m also looking for advice on the next steps. How should I set up my first deal to continue to finance my next? And when do the lenders start to see my W2 income is not funding my future investments, my investments are funding each other? Hope this makes sense. Thank you.”
All right, Tiffany, good question here. First off, this is pretty simple. If you want to make sure that every property you buy will fund the next property, you have to focus on equity. Now, I know this sounds different than what you’re used to hearing because typically, especially when people are new, we teach them how to analyze cashflow, but we just stop there. “Here’s a calculator. Here’s how you determine the cash on cash ROI. Go.” Right? And that works for a deal as long as it’s done well, but it doesn’t work for a portfolio. If you want to build a portfolio, you really have to be focusing on building equity because equity is financial energy kept within a real estate asset and you draw that energy out and then go use it as the down payment on your next one. And this is the way you scale a portfolio.
Now, there’s different ways that you can create equity in the properties you buy. The first is what I call buying equity. This is a framework I have about the 10 ways you make money in real estate. Buying equity just means buying the property for less than what it’s worth. Next is forcing equity, and this is the one you should really focus on. Forcing equity is all about adding value to the property. So buying a big house, an ugly house, adding square footage to it, adding bedrooms or bathrooms. Doing something to make that property worth more will give you more energy to draw out later when you want to continue to scale.
And then there’s also something I call natural equity and market appreciation equity. Natural equity is just what happens when the fed prints more money, makes real estate become worth more. And market appreciation equity is when you’re very wise and you buy in a market that grows faster than the national average. So my advice would be to take a combination of those four different approaches and apply it towards whatever you’re buying. And as long as you do that, the equity will grow. You’ll be able to buy the next house.
Now, I’ll also add a caveat. You probably heard us talk about this five, six years ago when everything was exploding in value very quickly because there was so much natural equity occurring because of the Fed approach of basically quantitative easing and economic stimulus. We’re not seeing as much of that right now. So I would not expect to have the growth happening as quickly as it happened in the past. I mean, it literally used to be you put a house in escrow and before it closes, it’s gained $20,000 in value. It was insane for a period of time there. That’s not the market we’re in now. So if you’re not buying a new property every six months or every 12 months based off equity from your previous one, that doesn’t mean you’re doing something wrong. You’re just working in a different market. So instead, I advise people to focus on forcing equity and buying equity since the natural equity is a little bit harder to come by.
Now, another part of your question here was, “When do the lenders start to see my W2 income is not funding my future investments, but my investments are funding each other?” The first part of my answer to that will be when it reflects on your tax returns. When you show income from the property that you netted cash flow, you can use that as income to help you buy future properties. Unfortunately, there’s no way to track equity on a tax return, so lenders will not even look at it. It doesn’t mean that it’s not valuable, it just means that it’s not going to show up on your tax return when it comes time to helping you get funding. So it usually is a couple years before a property is cash flowing strong enough that that will help you to buy the next one.
But something else to think about would be different loan products like the DSCR loans. This is something that my company does a lot. We find people who are buying property, we help them find properties that are going to cashflow positive. We use that positive cashflow to approve them to buy the property, and now their personal debt to income ratio isn’t slowing them down, especially during that couple year timeframe that I was telling you where your income needs to show up on your taxes. Once it is, we can switch you back to a conventional loan and you can get a slightly better interest rate that way and still have plenty of income coming in to help you get approved.
And if you were wondering what a DSCR loan is, it’s an acronym that stands for debt-service coverage ratio, which is a very fancy way of saying it’s a loan that’s based off of the income that the property makes, not the income that you make. This is the way that we have financed commercial real estate since as long as I’ve been in the game. Commercial lenders don’t really care what you as a person makes. What they care about is what the property is going to make. And there are now products that use that same analysis method with residential real estate, but it’s even better than commercial because we have 30-year fixed rate terms. Whereas with commercial loans, you’re typically going to get a three or four or a five-year period before a balloon payment is due and you have to start all the way over with a new loan at a new rate. And as you’ve seen as rates have gone up, that’s really bad news for a lot of commercial investors like apartment complex owners or triple net investors.
Hope that that helps to answer your question. Very, very happy to see that you asked it. Keep us in touch with what’s going on with you and your husband’s journey. All right, let’s take another video question.

Hi David. It’s Tyrone here from Basel, Switzerland. My question is about your future strategy. You always say that the idea is you build long-term wealth via property, and my question is how do you get access to that wealth? Do you intend to sell your properties in the future? Do you tend to remortgage and pull out that wealth and live off that? Or is the idea that you pay down your mortgages enough that you can then live off the rent? So my question is, how do you actually intend to use and leverage that long-term wealth you’ve built up if maybe you intend to sell or maybe you don’t intend to sell? Thanks a lot and keep up the great work. It’s fantastic listening to. Thanks.

Tyrone, what a great question. And awesome that this is coming from Switzerland. Good to see that the BiggerPockets arm has reached all the way over there. I love your question and it proves to me that you are listening to the stuff I’m saying and you’re really trying to understand the framework or the philosophy that I’m sharing with our listeners about how to look at wealth. Sometimes understanding how to look at it is more important than just having someone say, “Tell me what to do. What’s the step-by-step color by number approach?” Because that doesn’t work for everybody the same. And as market conditions change, the step-by-step approach would change too. So if you’re listening to content from a year ago, it might not even apply if you’re looking at things that way. But if you’re trying to understand the fundamentals of wealth building, well that’s timeless. That’s always going to apply.
Also, keep an eye out in October, October 17th for Pillars of Wealth: How to Make, Save, and Invest Your Money to Achieve Financial Freedom. That is a book I wrote that was the trickiest book I’ve ever had to write. Kicked my buttocks trying to get that thing done. But I did my best to really articulate analogies and visuals of how you can look at building wealth so that if numbers and words and log run-on sentences tend to confuse you, this book will really simplify what the process is like. Now your question was, once you’ve built up all of this wealth, how do you access it? What’s the plan? There’s basically two main roads that you can take and that shouldn’t be surprising because real estate tends to build wealth in two different pathways, the equity pathway and the cashflow pathway. So let’s get into that.
And this isn’t unique to real estate by the way. This is all businesses. Business have a value of what they would sell for to somebody else, which is equity. And then they have cashflow that they put off, which is obviously cashflow or net operating income. So real estate follows the same principles as other businesses. If you’re taking the cashflow method, your best option is what you said to pay them off. So this is buying them, slowly paying down the loan or putting extra money towards the loan to pay it off quicker so that when you get later into life and your income producing ability has decreased, you don’t have as much energy, you’re not interested in being super ambitious and building up a business like you once were, your priorities have shifted to family, to children, to grandchildren, to maybe giving back, and you’re not this young hungry business woman or businessman that you were at one point, that you’re still taking care of financially.
That is probably the easiest, safest, most boring pathway. It doesn’t mean it’ll be the biggest, but it’s probably the one that no one can mess up. So that is a pathway that I’d recommend for a lot of people. Just plan on that. And then if the second one I’m about to describe makes sense, well then pivot and you can look at some of those techniques or strategies. But the just buying real estate and paying it off over time is a really solid way to ensure that you do have cashflow when you retire.
The second pathway is the equity model, which I like because you can scale it faster, and that’s just because I have more control as an investor over the equity that I build in a property and in a portfolio than I do over the cashflow. I don’t control rents. Rents are going to be whatever the market determines. I don’t control when rents go up. I can’t control if they stay the same. I also can’t control what my tenants do to the house, if they decide they don’t want to pay, if they leave after being in there six months and they trashed it and I got to go put in new flooring and new carpet. I can’t control a lot of the variables that are tied with cashflow, which is why it tends to be less reliable than equity.
Now, equity is not completely reliable. There are market fluctuations where the market goes down and your equity evaporates. That can certainly happen. But in general, there’s more things that affect equity than just the market going up or down. You can buy properties below market value. You can pay attention to when the Fed is printing money and you can buy more real estate at those times. You can choose the market you invest in and determine which markets are more likely than others to go up in value. And my favorite, you can force equity by changing the structure of the home and improving its value itself. You can add extra bathrooms, extra bedrooms, extra square footage. You can add ADUs, you can refinish basements, you can refinish attics. You can build new properties on the same lot. [Inaudible 00:18:44] the lot have two different properties. There’s so many options, which gives you more of an influence in creating wealth over equity.
When you’re trying to access the equity that you’ve built or the energy that we call equity when it’s stored in real estate, because that was your question, you’ve got, basically I can think of like two or three main ways. One, you can sell it, that’s inefficient because you’re going to pay taxes on it unless you do a 1031 to defer those taxes. But then again, you’re not actually exceeding the wealth. You’ve got to reinvest it into something else. So while 1031s are great tools, they aren’t a cheat code. There’s still a price that you pay when you do a 1031 exchange and you will not get the energy out of that property.
You’ve also got a cash out refinance. Now that is probably the most efficient way because when you sell, you’re going to owe capital gains taxes, you’re going to owe closing costs, you’re going to owe realtor commissions. There’s going to be some inefficiencies as you take the energy out of the equity in the home and into your bank account.
I like this visual of I have all of this water in a bucket and I call that equity. Well, when I move the water out of my equity bucket into my savings account bucket, a lot of it’s going to spill. That’s just an inefficient way. These are closing costs. These are commissions, these are taxes. So in order to avoid that, instead of just dumping the water from one bucket into the other, which would be selling, you can do a cash-out refinance. That is putting another lien on the property, refinancing it and pulling some money out. You’re only going to spill a little bit of water when you do that because you’re going to have some closing costs that are associated with the cash-out refinance. The money you pull out is tax-free. You don’t pay any taxes on that. It will usually decrease your cashflow. So that’s a downside of if you want to take the energy out that way because you’re not actually creating wealth, you are transferring wealth. I should say you’re not creating energy, you’re transferring energy.
You’re taking energy you’ve already created within this equity bucket and you’re transferring it into your savings account, and so you’re not creating something new. So even though you’re not taxed, there’s a price to pay. It’s not a cheat code. You still got to pay a higher mortgage payment in most cases because you’ve taken out a higher mortgage balance.
Now, the third way that you can get that energy out is what we call a home equity line of credit or a HELOC. For now, these products are around. It would suck if in five years or 10 years people stopped offering these, and now you don’t even have that option. But that’s another way that you can get the energy out. However, you’re going to pay for that too. Whenever you take the energy out that way, there’s still a payment that has to be made on the energy that you took out. So as you can see, if you’re using the equity pathway, there’s going to be inefficiencies. There’s going to be closing costs, there’s going to be capital gains taxes, or there’s going to be reduced cash flow. That’s the downside. The upside would be that you could create more equity in that path and more energy therefore in general.
And on the cashflow side, the downside is it takes a long time to pay off a mortgage and you have a ton of energy that’s in that asset versus the teeny tiny bit that you get out every month in cashflow so it’s less powerful. But the upside is that it is more efficient. You’re not losing as much of that energy because it stays in the asset. Your equity stays in the home as you paid off the mortgage, you’ve actually increased that equity, but the only part you get to live on is small. So as you can see, the upside to real estate investing in general is you can create big energy. This is why we recommend people do it, and you create energy in many ways.
The downside is it’s not the same as energy that you have in your bank account. The upside is that the energy in real estate isn’t taxed as much as your W2 job, which is where most of the energy in your bank account came from. The downside is it’s not as useful when it’s in real estate. So useful way of looking at this would be to understand that there aren’t necessarily better or worse ways. There are trade-offs. And ask yourself the question, what are the trade-offs that you are most comfortable with and how do you design a life around those trade-offs so you can get the most out of the work you do building your portfolio?
By the way, my man, great question, Tyrone. Thank you so much for asking this. Thank you for being a student that’s on the pathway of trying to understand how to build wealth. And feel free in the future to submit another follow-up question, I’d love to hear from you again.
Thanks to everybody who has submitted a question so far. We’re going to get to more of these questions just like you heard in one second. But before we do, I’d like to take a minute to read comments from previous Seeing Greene shows so you can hear what other BiggerPockets listeners are saying about the show. If you’d like to leave me a comment to possibly be read on a future show or just to let us know what you think about this show, please do go to YouTube and leave a comment. Let me know what you think, what you liked, what was funny, what you wanted to see more of, whatever’s on your mind.
All right, here is a listener comment from episode 798 where Rob and I interviewed Alex and Leila Hormozi from BrandonSmith6663. “Love this episode. Each jump at business is really hard. Even if you’re a handyman and you hire another handyman and turn it into a handyman company, it is difficult. I love this insight.”
Such a good point. BrandonSmith6663, if you’re listening to this, this please go to biggerpockets.com/scale and buy my book that I wrote to teach realtors, but really it works for any business person, how to take a job and turn it into a business where you’re hiring other people because like you said, it is very difficult, but it is also very rewarding and is a much better life once you get it right.
All right, here’s a review from another Sunday episode number 810 that we did with Tom Brady’s performance coach Greg Harden. Bishop51807 says, “I rarely leave a comment on this channel, but this has got to be one of the best episodes since I subscribed.”
Well, awesome, Bishop, thank you for that. What nice comments that you guys left me here. Again, if you would like to leave a comment, head over to BiggerPockets’ YouTube channel. Listen to the show there, log in and leave us a comment. We appreciate the feedback and mostly we appreciate the work that all of you are putting in to pursue your goals and your financial freedom. If you would like to leave me a comment to read on a future show, head over to the BiggerPockets’ YouTube channel and leave a comment on today’s show.
All right, let’s get back into it. Here is another video question. This one comes from Cole Peterba.

Hey David, this is Cole from Shanghai, China. Well I’m from mid-Florida, but I’ve lived in Shanghai for about 10 years even through COVID and all of that jazz. We’re selling one of our houses here. We own three properties here. I’m under contract for one place in the States, a multifamily unit in Ohio. Our house here that we’re selling is worth about $350,000. That’s what we should net from it. It’s fully paid off. We’re going to take all that to the states, dump it all in real estate. Let’s say we have a 10-year plan of retiring. How can we leverage $350,000 cash in whatever real estate markets we need to in the states and what would be our game plan to make that play out so that we can retire in 10 years? Thanks for taking my question.

Thank you, Cole. All right, first step is I recommend you read Chad Carson’s book, the Small and Mighty Investor. He’s got some strategies in that book that help detail if you’re not trying to be a super-duper deca millionaire, but you do want to have enough money coming in from real estate to fund your life so you can retire, check out that strategy. It’s going to be basically two pieces because the name of the game is how you build up cashflow. That’s what you’re looking to do.
My advice would be, step one, you build as much equity as you can because in the future you’re going to convert that equity into cashflow. How do you build equity? You buy real estate in markets that are going to be appreciating. You don’t focus on cashflow right now as much as you focus on where you’re going to see the most growth. You pay the lowest price possible for the house. You buy in the best areas and you add value to every single thing you buy. Remember, not only do property values appreciate, but rents tend to appreciate when you buy in the right area.
What’s the right area look like? Pretty simple. You want to find something with constricted supply so you have less competition where wage growth is going up, so jobs that pay more are moving into that area and that population increases are going up as well. What you’re trying to do is own properties in areas where there are less other properties to rent and the people that are renting from you are wealthy themselves and they can afford to pay higher rents and you’re trying to time this so that 10 years from now you maximize the rents. Now, where people make this mistake is they go buy a bunch of cheap property where rents don’t go up because the cashflow looks better right off the bat in year one. Then they find that 10 years later their rents have risen by $11 a unit and they’re in roughly the same position they were in when they bought them and they can’t retire.
So remember the tortoise and the hare. The hare came out the gates fast, they got cashflow really quick, but it was the tortoise over the long term that ends up winning that race. So when you’re buying the real estate you’re buying, I want you to think about the future, looking into the future, delayed gratification. Where are rents and property values going up the most? The other thing that you’re going to do is you’re going to have to pay these properties down. So that’s another thing I want you to think about. As you’re forcing the equity that you’re building right now, you’re going to have to keep working hard. You’re going to have to have a lot of money that’s coming in so that you can pay those mortgages down and you’re going to have to balance, “How many new properties do I buy versus how much do I pay off?”
My advice I’m going to give you as much like everyone else, and I’ve been saying it to everybody that will listen, for some people it makes sense to quit their job and focus on real estate investing, but for the majority of them it doesn’t. Don’t quit your job right now. In fact, work harder. Start a business. Keep a job and start a side hustle. Once your business is taking off and you have revenue coming in, like earlier in the show when we had the young man who started a gutter cleaning business, if he busted his butt for 10 years and built that thing up, maybe four or five years into it, he could quit a W2 and he could focus solely on that business. You could do the same thing, but you’re going to have to do that.
You are going to have to create a massive amount of energy over a 10-year time period that can then be converted into cashflow later, which means you can’t just rest on your laurels and trust that the real estate that you bought previously or that you’re buying now is going to magically turn into what you need it to if you really want to retire in 10 years. So start a business, develop something that could be sold to somebody else. Create systems so that you’re not going to be working incredibly hard forever. But you are going to be working incredibly hard in the beginning. I would also recommend that you check out my book, Scale, to learn how to do that better. Keep us in the loop with how things are going. And remember, if you want to retire in 10 years, you’re going to have to sprint right now, but it’s totally worth it and I’d love to hear how that works out.
All right. Heidi asked our next question. “Hello. I’m currently living in my fourth house. The first three were live-in flips. I bought them, lived there while fixing them up, and sold them for a profit. I bought this house specifically to live in while finding a forever home for my growing family, which will also need TLC since that is my comfort zone. But for the first time I’ll keep this house to be a midterm rental, although for the first year it may be a self-managed short-term rental for the bonus depreciation.” And I love that you were taking notes from Rob Abasolo on this one.
“Since I’m new to rentals, what repairs do you make on renting that you would not make on a flip and vice versa? I’m thinking function is more important than cosmetics on a rental, so fix the toilet that needs to be plunged every 100 flush, but not the brass doorknobs. Do you have anything you always or never update?”
Wow, Heidi, this is a very insightful question. Great job. You’re asking the right questions. And you’re exactly right. On a rental, you’re not making improvements for cosmetics as much as you’re making improvements for functionality unless for some reason improved aesthetics would lead to increased rent. So if your property’s in Beverly Hills, California, updating those brass doorknobs might make you more money. But if it’s in a traditional rental market, you’re exactly right, you probably don’t want to do that.
Here’s the advice that I give people when it comes to what money to put into a rental. Rather than just thinking about what it costs, I want you to think about how durable it would be. When you put in tile somewhere, it’s very unlikely your tenant’s going to ruin that. When you put in carpets, you’re constantly going to be replacing it. Yes, if you have a toilet that needs to be plunged constantly, you’re better off to replace it. But can you replace it with the low flow toilet that uses less water so you can advertise that when you’re renting the property out to tenants that their water bill will be lower? Are the cabinets hideous and need an upgrade? Painting them makes plenty of sense on a rental. You don’t need to take them out and put brand new cabinets in that are also going to wear out.
Most of the time when you have someone show up at your house to fix a water heater or an air conditioner or look at a roof, the professionals tend to tell you the whole thing needs to be replaced because the cost to fix it is going to be more than what it would be to buy a new one. My experience when I push back on that is it’s rarely actually the case. Of course, sometimes you do need to replace it, but that’s not the rule. That’s the exception. I’ve had many people that said, “You need an entire new roof,” and when I pushed back, it ended up being an $1,800 repair, not a $28,000 roof like the roofing company wanted.
Remember with the rental that you need to keep it safe, but that doesn’t mean that you need to replace everything with brand new stuff. The name of the game is to keep the costs low and to find tenants that are not going to continue to push you to put in upgraded things into this rental property, especially because they may end up leaving after you spent the money. So I think you’re doing things the right way.
The only other piece of advice I’d give you if you’re trying to maximize the ROI on the properties is you may have to manage them yourself. Now, this is important but not as important with the traditional rental. I have plenty of those. I pay 8% of property management. That doesn’t break the bank. But on a short-term rental, they often want 25, 30, 35% of your rents, which means your cashflow typically disappears to the property management company.
The new trend I’m seeing is that people are buying short-term rentals, but they’re managing it themselves and they’re getting a new job, which is why I’m telling everyone don’t quit your job. Don’t think that real estate’s going to be passive. It’s too competitive now. It rarely works out that way. So I would love to see if you have the bandwidth for it to buy one of these short-term rentals that you talked about for tax savings and manage it yourself so that you can increase the cashflow, pay attention to what type of amenities allow you to charge more for rent versus traditional rentals where it really doesn’t matter what you put into the home, you’re not going to increase the revenue. Thank you very much for your question, Heidi, and let us know how that goes.

Hi David. My name is Brian and I’m from Morris County, New Jersey, and my question is this. I’ve recently come across the acronym of BEAF, break-even appreciation-focused, and I’m wondering why we’re not talking about this more in this market.
I’ve recently closed on a single family house in Palm Beach County, Florida, three bedroom, two bath where I put down a significant amount of money and the cashflow, as you can imagine, is very limited, just under $100 per month right now. My focus and my strategy is the appreciation play in Palm Beach County. Florida being the fastest growing state in the country and Palm Beach County being the third-fastest growing county in Florida.
My question is this, why are we not talking more about the BEAF method? One of my investor friends simply asked me why am I going to put down a significant amount of money on a deal, $141,000 to be exact, down payment on a $512,000 purchase for something that’s not going to cashflow. And I think the BEAF method clearly articulates what my strategy is, long-term appreciation, and I’m also betting on the interest rates coming down within the next 24 months where I can refinance into a cashflow position. I would love your comments on BEAF and would encourage you guys to speak about it a little bit more, especially in this market conditions. Thanks.

Well, well, well, Brian, what a great question. And you’ve walked right into my trap because I was really hoping that somebody would ask this and you have asked it. All right, let’s talk about, first off, why we don’t talk about it. Short answer is because it’s hard to sell you educational courses on anything that doesn’t evolve cashflow. And most real estate investing educators are trying to sell expensive courses, and so they have to say about cashflow. I’m literally writing a book about this topic right now that focuses on the 10 ways you make money in real estate of which one is what I call natural cashflow, which is the only one that everyone hears about and it’s why they miss out on so many ways they could build wealth in real estate.
Something else that you said that kills me, but I think I have to admit it, you only ask this question because someone made an acronym called BEAF, and this is making Brandon Turner look really smart because he’s constantly telling me that I need to come up with better ways to market my ideas, and I’m always telling him, “No, I don’t think I do. I think that my ideas stand on their merit alone.” However, nobody even asked this question until someone said, “Where’s the BEAF?” And all of a sudden it’s a thing, just like BRRRR became a thing when we called it BRRRR. I think I need to give in and I need to find better ways to market my idea so that more people will digest them. I guess the packaging does matter more than I want to admit. So thank you for asking about BEAF.
The short answer is it is harder to explain ways you make money outside of cashflow. There is less incentive to teach people about other things than cashflow because that’s usually the way you convince someone to sign up for your program, join your community, whatever it is they say, “Hey, do you want to quit your job? I’ve got this shiny cashflow over here that can replace your income.” And then the third is that it shines light on the uncomfortable truth that we don’t have full control over real estate. Everybody likes to feel safe and secure. We like to believe that the world works in a way that we can predict what’s going to happen. This is why we created spreadsheets because the human brain loves to know, “What do I put in my little box?” It’s comforting. But life doesn’t work in a spreadsheet, and this is what’s tricky because when you get into the real world, you realize that things are not stable, they’re not predictable, they are not consistent.
Over a long period of time, yes, that is the case. Imagine you own a casino. Over a long period of time, the house wins. However, individuals that come in can beat the house. You see what I’m getting at here? But I’m committed to telling everyone the truth, which means you got to be okay being uncomfortable because you don’t know what the market’s going to do. You don’t know if the market’s going to go down and you’re going to lose your equity. You don’t know everything, but that applies to cashflow. It just doesn’t get shared with people. You don’t know when your tenant’s going to leave. You don’t know when they’re going to trash the house. You don’t know when the city’s going to come along and say, “You can’t have a short-term rental here after you just bought a property where you had to put $200,000 down on.”
You don’t know a lot and you can’t know a lot, which is why my advice tends to be centered around adding additional streams of income so that when one of those streams gets shut off over something that you don’t know, you don’t panic because you got all these other streams of income. You still run a business. You have several different properties. I call it portfolio architecture, cashflow coming in from different types of assets so that if one of them gets turned off, your income streams are diversified and you’re going to be okay.
But I think that what you’re talking about is for intelligent investors. I don’t think it’s risky to buy in better markets. I think that’s actually the smartest thing you could do, which means you might be breaking even, or God forbid losing a hundred dollars a month. It might be the case when you buy in a really solid market with great fundamentals that other investors want the same investment, which means people are willing to pay more. That’s actually a sign of strength. You’re buying something valuable if other people want it. But that means that it might not cashflow because the price is higher. You see where I’m going with this?
When we chase cashflow, that is not wrong. It’s, “I like cashflow like everybody else does.” But when you get singular focus on just that, you end up chasing assets other people don’t want. You end up making decisions based off what a spreadsheet tells you and not what the reality is going to be. You end up tricking yourself into thinking that your results are predictable when they’re not, because you have the most unpredictable tenant base in the worst locations in the D class areas, in the stuff that people tend to have a lot of their own financial instability so they can’t pay the rent or they choose not to pay their rent. You see where I’m going with this whole thing?
The break-even appreciation focus community, if you want to say so, has figured out that more wealth is created by buying in better areas, but that often comes at the price of immediate cashflow. Now, I’m okay with that, assuming the person is in a position of financial stress. If you make 10 grand a month, but you spend three grand a month and you’re putting seven grand a month away in the bank because you live beneath your means and you’ve made smart financial decisions, if a property is losing a couple hundred dollars a month when you first buy it, but you’re saving seven grand a month and you have 50 grand in the bank, that isn’t actually scary. You see where I’m going here? If you have no money, no job, no savings, no experience with real estate, I wouldn’t tell somebody that they should buy a property where they lose money. They’re not in a position to do that. But the big boys tend to think about the big picture. They tend to look further into the future when making their decisions.
So I think you’re wise to be thinking about this. I also think that if you’re going to sacrifice cashflow in the beginning, you got to make up for it somewhere, which is your job, a business that you’re running increased savings, not spending money on dumb things, even keeping your own mortgage low by house hacking and sacrificing comfort so that you can put more of your chips on the long-term strategies.
And the reason people don’t talk about it as often is because it doesn’t pay to talk about it, but you’re wise. Thank you for bringing this up, for mentioning it. I think it should be talked about more. You just never know how the community is going to receive it. Even me saying this, there are people out there that are screaming around saying, “David Greene is a heretic who is saying cashflow doesn’t matter.” This is always a problem that we have to deal with. Please everyone understand I’m not saying it doesn’t matter. It just doesn’t matter in the way that it’s been explained to you in the past. Thanks for the question, Brian.
All right, that is a wrap, everyone. Thanks again for taking time out of your day to both send me questions and listen to the show. We would not have a Seeing Greene if it wasn’t for you lovely people, and I appreciate you. We’ve had a great response from our audience, and I encourage all of you to ask your questions, which you can do by submitting them at biggerpockets.com/david. I would’ve come up with that URL sooner. I just couldn’t think of a name for it. Just kidding. I look forward to hearing from all of you. Please do submit your questions. I would love to hear from you on a future of Seeing Greene episode. And if you’d like to follow me, you could do so @davidgreene24 on Instagram or any social media or davidgreene24.com to see what I got going on. Would love to hear from all of you. If you’ve got a minute, please do me a favor. Leave us a review on wherever you listen to your podcast, whether that’s Apple Podcasts, Spotify, Stitcher. Those reviews help a lot and I appreciate if you do it.
A couple of our listeners that have left us reviews online have said some pretty cool things. The first one comes from BooJedi and says, “Keep it up. Love listening to the podcast. David and Rob do a great job with the new material, and it’s helped me to get into the game. Currently, I have two long-term rentals and I’m looking to get my first short-term rental.” What an awesome review. Thank you for that, BooJedi.
And then from Lauren1124, she says, “Amazing resource. After semi-casually investing in real estate for almost 10 years, I’m finally taking the time to educate myself. I found this podcast after buying one of the BiggerPockets books, and I’m hooked and I can’t stop listening. Wish I discovered this years ago. Endlessly grateful for this resource.” Well, we are endlessly grateful for you, Lauren, because people like you are literally why we do this and why we provide it for free. So if I could get all of you to just go leave a review like Lauren did and like BooJedi did, I would be eternally grateful. And if you’ve got a little bit more time, please listen to another one of our shows. Remember, if you want to see what I look like, you want to see all the hand movements that I’m making and you want to see the cool green light behind me, check us out on YouTube where you can both listen and look. Thanks everyone. We’ll see you on the next episode.


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Terrence Murphy

From the end zone to luxury open houses, Terrence Murphy is proof that an entrepreneurial spirit is the key to success in nearly everything. 

Murphy is not only a legendary football player, he is also a top-producing real estate agent, investor and broker-owner. He leads TM5 Properties, powered by eXp Realty, which has won the Inc. 5000 several times. He even hosts a podcast, despite describing himself as an introvert. 

Despite the tight market, Murphy has amassed more than 75 listings above $1 million. Below, he spoke with HousingWire about his career in real estate and as a professional football player. Throughout it all, Murphy said, “Books, God and my wife are my triangle of success.” 

HousingWire: Before we discuss your current career in real estate, tell us a bit more about your past experience as an athlete. 

Terrence Murphy: I was a quarterback out of East Texas, and I had 20 Division One offers to play quarterback. I had a lot of really good offers because of my GPA scores and my background, so I actually got full-ride academic offers before I ever got a full athletic scholarship. 

I chose to go to Texas A&M and played football as a two-time team captain; a two-time, first-team all-conference; and two All-American records. I also broke several school records. I’m most proud of my three-time, academic all-conference record. It was really important to me, and my mom, to not just go to school to score touchdowns but to do really well in the classroom as well. 

Back then, a lot of freshmen got red-shirted. I actually came in on the first game of the year, and as a true freshman, caught the game-winning touchdown in the fourth quarter with two minutes left. To come from humble beginnings — I wasn’t a big-time recruit — and catch that game-winning touchdown, really set my career on the right path. 

My next step was getting drafted. I was projected to go in the top 15 as a receiver. Aaron Rodgers was the first pick for Green Bay that year and I was the second pick. In that same season, I got injured. Today, everyone knows Damar Hamlin’s name because of his cardiac arrest. A very similar thing happened to me on Monday Night Football. It forced me to retire because I had neck injuries. 

HW: How did you make the transition to real estate? What inspired that move? 

TM: I had to rebuild myself mentally, spiritually and physically. I was in a transition, thinking, “What am I going to do with my life?” 

I ended up doubling down on my financial literacy. When the stock market hit in 2008, I went to my financial advisor and told him to take out all my money. He challenged me and said, “What are you going to do?” So, I went to Barnes and Noble, and I started buying real estate books, investment books and financial books. I read Robert Kiyosaki’s book, “Who Took My Money?” That is what set me on my real estate path. That book changed my life. 

As I fully transitioned into real estate, I started investing with a group called Stillwater Capital in Dallas. They gave me my first taste of real estate investing. After three years of investing with them, I told my wife I wanted to move back to College Station and start doing real estate there. I was still reading books and teaching myself how to become a real estate investor and entrepreneur. So, I started buying houses around campus.

I tried to get mentors, and I would knock on people’s doors, but no one ever had time for me, which was the total opposite of what I expected. I thought, “Man, I was the face of Texas A&M football and an NFL draft pick,” but the world thinks we just had stuff laid out for us and it wasn’t. So, I had to build everything on my own. 

HW: What was the greatest learning curve getting into a new industry? 

TM: I taught myself through trial and error. That is where I cut my teeth. After doing that for a couple of years, people started to ask me to help them learn the business. I ended up getting my license with Keller Williams. In that first year, I did seven transactions for $1 million, and I was frustrated because I knew I could do better than that. I left after only doing seven transactions, and I started my own brokerage. Everyone told me not to do that, but that’s part of being an athlete; you just blaze out there.

I started TM5 with no broker help, no training or anything. Since then, I’ve scaled the business with my team to $1.4 billion in sales in eight years. Now, I have 52 companies under the Terrence Murphy company portfolio. They are either companies that I founded and created or ones that I acquired. But back then, I started winning awards like Inc. 5000, and realized that I knew something about being an entrepreneur. That was when we started scaling and doing everything that we are doing. 

HW: Having more than 50 businesses under your portfolio is impressive. Obviously, partnerships and strong business relationships have played a big role in your ability to scale that way.  How do you think you’ve best-used partnerships to grow your business? 

TM: I didn’t have a specific mentor, so God has truly been my mentor. I just figured most of this out on my own. My wife has played such an interesting role. She’s been my business partner and she is very sharp. She helps me execute my visions and integrate them. She’s my right hand in building these companies. We funded everything on our own and we sacrificed. I remember that I ate sack lunches for a year straight. All the money I could have spent going out for lunch, I spent on books. 

Other than that, it is all about hiring the right people. You need people that can get behind a vision. I can cast a vision and create a picture for people; that is a gift of mine. But having a team that can help me execute is key. 

God, those books and my wife have been the triangle to success. 

HW: What does the market look like in your area? 

TM: Texas is a very unique place with the interest rates being at an all-time high. It is stable but unique. There are four major housing markets: Houston, Austin, Dallas and San Antonio. College Station is right in the center of them all. 

Just last week, I closed another $3 million listing. I’ve done about 75 listings in the range of $1 million to $7 million. High-end homes and luxury ranches are my specialty. Those stats are just me personally, not my brokerage or team. 

It goes to show that no matter what the interest rates are, high-net-worth individuals are buying luxury real estate. And they mostly pay cash for these properties.

I didn’t start there but, obviously, that’s what I’ve worked my way up to as a broker.

HW: What lessons from your football career helped you in the real estate business? 

TM: One of the biggest similarities is the importance of team culture. If you get one bad apple in the bunch who is negative, makes excuses and doesn’t work hard, then they can corrupt the whole team. Now, I get why coaches used to make guys run. I get why coaches used to bench people or cut players because they can really hurt the whole team environment. I recognized that similarity quickly. 

One of the hardest things I’ve realized is that to scale a business, you need people. I can sell a lot of high-end ranches by myself, but I can’t get to everybody. So who on my team can create a similar experience as me? I studied the Starbucks business model and learned a lot about how they run their business. 

Back when I was in high school, I had an underdog story. In my sophomore year, my high school record was 0-10. Junior year it was 1-9.

Going into my senior year, our school hadn’t signed a Division One recruit in 10 years, but I was walking around telling everybody that I was going to be one of them, that I was going to play in the NFL. People thought I was delusional. That is the reason I worked so hard to take the opportunities that were put in front of me. 

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Ginnie Mae President Alanna McCargo delivered a keynote address at the Barclays U.S. Rates and Residential Mortgage-Backed Securities (RMBS) Conference in Tokyo, Japan, addressing Ginnie Mae mortgage-backed securities (MBS) potential value for investors and the company’s recently expanded social impact and sustainability work.

“As I travel around the world, one thing is clear: global investors want more impact investment opportunities,” McCargo said during her speech.

Speaking to an audience comprised primarily of global asset managers and investors on Thursday, McCargo addressed the macroeconomic trends currently playing out in the mortgage market as well as performance information related to the Ginnie Mae MBS program.

She also used the speech to serve as a wider introduction to investors for its recently-announced expansion of its Environmental, Social, and Governance (ESG) labeling to single-family MBS, comprised of a social bond update to its single-family forward MBS program and its social impact and sustainability framework.

“These enhancements highlight the structural aspects of Ginnie Mae’s mission and program, which drive broader access to mortgage financing and affordable homeownership and rental opportunities for historically underserved communities,” the company said in a statement. “President McCargo also discussed Ginnie Mae’s social and green bond disclosures, which provide reliable data for investors looking for impact investing opportunities.”

McCargo explained that the appetite for such investments extends beyond the borders of the U.S. and that the new program updates provide investors with an opportunity they have long sought.

“Since its founding 55 years ago, Ginnie Mae has been a social impact company. Along with our MBS pool-level disclosure data, our new social bond update and impact framework represent powerful tools for investors who want to direct capital in support of broader access to affordable credit and housing for American households in underserved communities,” McCargo said.

The value proposition of the Ginnie Mae MBS program remains a unique differentiator for investors, she said, and now that proposition can be coupled with the desires of some investors to make an additional impact.

“Ginnie Mae’s unique value proposition remains a significant draw for investors, and paired with the power of our explicit guaranty, our impact work can drive additional global investment into the communities and households we serve,” she told the audience at the event.

In an interview last week with HousingWire, McCargo stressed that determinations of social impact will be left to the investors and will not be made by Ginnie Mae itself.

“Something that we’ve always been doing all along in terms of the borrowers that we support through the Ginnie Mae program is now much more clear and transparent so investors understand and know the social impact elements in their bonds,” she said last week. “And I think it’s important to say that we don’t determine if it’s social impact, investors do. But we’re making all the tools and all the data available to them to be able to do that.”

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The Federal Reserve‘s effort to temper inflation has cooled the housing market that remains subdued with mortgage rates north of 7%.

While the central bank left the benchmark rate unchanged in the target range of 5.25%-5.5% this week, Fannie Mae Chief Economist Doug Duncan believes that mortgage rates will stay elevated before the Fed makes further rate cuts.

“We’ve always been in the camp that we believe Fed Chair Jerome Powell when he says higher for longer,” Duncan said in an interview with HousingWire this week. 

With the majority of Fed officials expecting another rate hike by year-end, Duncan predicts a 50/50 chance of that happening, depending on how resilient the economy is against the Fed’s monetary policy.

Elevated mortgage rates will lead to more lenders spilling red ink in the latter half of the year, in contrast to the improved financial performance of independent mortgage banks in Q2. 

However, a silver lining in the subdued housing market is the strength in new-home sales. Builders are providing rate buy-downs for first-time homebuyers, which aligns with their interests, Duncan explained.

Read on to learn more about Duncan’s views on the housing market, loan performance and affordability challenges homebuyers face. 

This interview was condensed and lightly edited for clarity.

Connie Kim: The Federal Reserve decided to keep the benchmark rate unchanged in the target range of 5.25%-5.5%. With the majority of Fed officials expecting another rate hike before the end of 2023, how do you think this decision will affect housing and your forecast for the economy?

Doug Duncan: It’s our forecast that they won’t make another change until they drop rates. I think the forwards suggest that in either November or December, there’s a 50/50 chance to make an increase. I would say the risks are tilted that way, but we don’t have it in our forecast model. 

We don’t have (the Fed) dropping rates until the end of Q2 next year, and we have a mild recession that starts in that quarter.

The reason that forwards are suggesting a 50/50 chance of another increase is that growth has been stronger than anticipated. We actually think that’s going to slow; I think that this is kind of like a final burst of activity.

We don’t know what third-quarter growth was. Our expectation, at an annual rate, is it’s north of 3%. If there’s another quarter like that, and oil prices have pushed to $100, then I think you get another quarter-point move by the Fed, especially if you don’t see a substantive change in employment. 

Kim: Spreads in the mortgage space are wide. What are the reasons for that? 

Duncan: There are several reasons for that. If that business flow for a time period helps them cover the variable costs, then it can be effective.

For one thing, no fixed-income investor thinks that mortgage-backed securities with 7% mortgage rates will be there when the Fed finishes the inflation fight. They’re going to cut rates and that will prepay. So you’re having to encourage investors with wider spreads to accept that. 

It’s also the case that the Fed is running its portfolio off because they don’t talk about it much. But somebody has to replace the Fed, and the Fed is not an economic buyer. That is they weren’t buying for risk-return metrics; they were buying to affect the structure of markets. So they are a policy buyer.

They were withdrawing volatility from the market, and they were lowering rates to benefit consumers. When [the Fed] is replaced, it’s likely to be by a private investor who’s going to have yield expectations. They may require wider spreads than the Fed because the Fed is not an economic buyer.

Kim: A bit of good news for lenders in Q2 was that their production volume went up and origination costs went down. Are you optimistic this trend will continue?

Duncan: If rates stay at the 7.25% level, it’s going to be worse, not better. On the production side, the mortgage business is in recession because the levels of existing-home sales are back where they were at the end of the great financial crisis at around 4 million units. That’s very low historically. 

I don’t see how it can go much lower than that. Even if we have a recession, we don’t see it going just a hair under 4 million. The reason why some of the headlines look good about housing is because house prices were expected to fall when rates ran up. They did for a quarter as households sort of adjusted to the idea that they were going to be running at a new higher level.

But prices are rising again. For existing homeowners, that’s good news because it means equity accumulation. But if you’re a first-time buyer, that’s not good news because it means it’s harder to qualify — especially with interest rates where they are. 

Production is in a recession. The servicing side of the business is doing very well because those loans are simply not going to prepay for a long time. So, the servicing valuation on those loans is strong, because pre-payments are low. It’s a bifurcated market in that sense. We expect production volumes to remain low through 2024 and start to pick up maybe toward the end of 2024.

Kim: The silver lining in the current housing market is an uptick in new construction sales due to a lack of existing-home inventory. To what extent builders will offer rate buy-downs to drive sales remains to be seen. How likely are builders to support rate buy-downs, especially when it’s becoming expensive to do so?

Duncan: The traditional way in which builders gave borrowers choices regarding affordability was to offer them granite countertops. So if sales volume slows, they will throw in granite countertops, finish the basement or finish out the garage.

In doing interest rate buy-downs, they’re focused more on the problem of the first-time buyer. That’s because [the cosmetic] attributes of a house are more for move-up buyers. Builders recognize they’ve got to do something for affordability for the first-time buyer.

The share of new-home sales that are going to first-time buyers is the highest it’s ever been. The share of total sales that are new-home sales is also the highest it’s ever been. This is a highly unusual structure for the market. 

The builders know that those loans are likely to get refinanced, even if they buy down two points. So they go from 7.5% to 5.5%. When the Fed is done with the inflation fight and if economic growth is back to the 2% to 2.5% level, mortgage rates will probably run to 4.5% to 6% over the cycle. These loans are going to refinance, and the consumer will be in good shape, building equity to become a move-up buyer. So there is an alignment of interests for the builders in doing this.

Kim: The housing market was relatively active during the spring and summer homebuying seasons despite lower historical sales than previous years. Looking ahead, do you see another rough Q4 like last year when rates surged? What are some factors that Fannie Mae is monitoring?

Duncan:  If growth surprises to the upside, that will get the Fed to increase interest rates, which will push [mortgage] rates again. That would be the biggest challenge and just seasonality; the fourth and first quarters are the low points for seasonality. 

Kim: Bankruptcies and layoffs are still happening. How far are we into the industry’s consolidation?

Duncan: I was looking at the bankruptcy data. It’s just gotten back to the pace of bankruptcy we saw in 2019. It is true [consumer] bankruptcies have been rising but from extremely low levels. I actually expect that to continue. In part, that’s because some businesses (probably smaller and midsized businesses) were kept going by very low interest rates for a very long time. 

In the mortgage space? Certainly, you’ll continue to see exits from the business. Typically, mortgage companies are not publicly owned. So it happens quietly. It’s people in the industry that know who the players are that are in trouble. The employment data comes out on a lag basis for brokers and loan officers. So that has picked up. I would expect more.

Kim: Executives at Dark Matter Technologies noted that lenders are most interested in bringing down their origination costs and retaining their clients in this rising-rate environment. What other demands do you see from lenders?

Duncan: They have been investing in technology — primarily consumer-facing technologies to get business in the door. Now, that’s not a possibility. Because of the changes in interest rates and a drop-off in demand, they are now focused on tech investments that go into cost savings.

They are turning their attention to what they can do to lower origination costs. Can they convert fixed costs to variable costs? That’s really the question that the industry has to focus on. If they can convert fixed costs to variable costs, then when the cycle changes, they don’t get hit as hard by the drop-off in this business. That’s because the operating structure also drops off.

Kim: I notice a lot of independent mortgage banks roll out down payment assistance (DPA) programs for conventional loans. DPA programs were predominantly for FHA loans. What are the pros and cons of IMBs rolling out DPA programs for conventional loans?

Duncan: For the independent mortgage companies, down payment assistance gets the business through the door, right? If they’re covering their variable costs, they can keep going for a while and, eventually, they have to cover the fixed costs.

The question is, what are the other credit characteristics of the borrower? If they are an IMB, they have to place it with an investor. So the investor will be monitoring. For example, if it’s Fannie Mae or Freddie Mac, we monitor that. We look at making sure there are not layered risks in any consumer’s profile. For example, if they have a spotty employment record, but they’ve always paid their bills on time, and they have savings, they’ve got money to pay 20% down, then it would probably be acceptable to have that spotty employment record. But if there’s a spotty employment record and a spotty repayment record on their credit, that’s not going to make it through the screen.

Kim: DPA programs offered with FHA loans come with higher rates. If the FHA loans layered with a DPA are more costly, how do first-time buyers benefit from these programs? 

Duncan: The question you ask is a really interesting social question. The foreclosure rate for FHA loans is higher than the foreclosure rate for VA loans or Fannie Mae or Freddie Mac loans. Fannie and Freddie are the lowest; VA is a little bit higher. FHA is the highest. There’s not a clear answer on what’s the optimal rate of foreclosure. 

If [that rate] is zero, we can get to zero. But we aren’t going to be making very many loans. So there is some optimal level of risk-taking to help people realize their hope of owning a home. But it’s not a hard and fast number. Different people have different points of view on that.

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Intercontinental Exchange, Inc. (ICE) and investment research firm Delta Terra Capital announced a partnership to offer climate-adjusted credit risk analytics for residential and commercial mortgage-backed securities (MBS). 

The credit risk analytics will combine ICE’s physical climate risk data and DeltaTerra’s climate analytics, financial risk models, and market data to deliver risk impact estimates for investors in the residential and commercial mortgage-backed securities markets. 

By combining key data from both firms, the service offers a climate risk analytics solution that provides insights at the property, loan, deal, and bond levels, which is easily translated into investment analysis, both firms said.

ICE and DeltaTerra’s joint solution aims to translate physical climate risk estimates into financial risk assessments, including asset price depreciation risk and default risk for mortgage-backed securities.

“Our climate risk data can help inform investment decisions of U.S. municipal and MBS market participants by providing transparency into securities climate risk exposure,” said Evan Kodra, head of sustainable finance R&D at ICE. 

ICE’s physical risk climate data applies geospatial climate, economic, and demographic data to specific U.S. municipalities, MBS pools, and related fixed income securities. 

The DeltaTerra Klima suite of climate risk analysis tools provides metrics and reports for securitized credit investors who manage risk in some of the most climate-exposed capital markets, such as RMBS, CMBS, and credit risk transfer securities (CRT). 

“The Klima models and analytics are an important toolkit providing transparency into whether markets are adequately factoring in future insurance costs and other climate-related fundamental drivers when buying and selling property, loans, and related securities,” David Burt, CEO at DeltaTerra, said.

DeltaTerra Capital is an investment research and consulting firm focused on climate risk analysis for institutional investors.

Its DeltaTerra Klima suite of proprietary models bridges climate science and investment science by translating scientific estimates of physical risk into actionable investment insights, according to the firm.

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HousingWire Editor in Chief Sarah Wheeler sat down with Jimmy Kelly, president and CEO of Lone Wolf Technologies, to discuss the company’s development process and his vision for a connected real estate platform. This interview has been edited for length and clarity.

Sarah Wheeler: Let’s talk about the evolution of real estate tech from individual products to connected platforms. How are agents and brokers using tech today: Is it all about the disparate products? Or is it really about that elusive all-in-one?

Jimmy Kelly: I think it depends on who you are, and what your viewpoint is. From our perspective, we are focused on bringing together that truly connected platform experience. In our view, there are too many point solutions in real estate, which can be really good at individual solution solving. But they actually create another problem — which is now you have a disjointed experience because you have to use multiple solutions to do your job.

We did a study with T360 recently, just looking at the agent experience and we came back with about 20 different point solutions that an agent has to use just to perform their duties in representing a buyer or seller of a home. That is a lot of technology and a lot of wasted effort.

At Lone Wolf we’ve been on a journey to try to simplify that real estate experience. We’ve done some acquisitions and we’ve done the traditional integration from a data flow perspective. But what we’re really excited about — and we’re going to unveil it later this year — is a true platform experience that takes all of those best-in-class technology solutions that we’ve acquired, and present a true end-to-end platform experience for agents, brokers and teams that delivers a single login with a single user experience and a single dataset, single navigation. So all of it is going to look and feel the same.

But it even goes beyond that: It’s an experience for the end user for them to even select within this platform which apps they want to use. They can use pieces and parts and connect other solutions to it, whether that’s their own tools or a third-party partner that can connect to an API layer.

SW: What part of the real estate transaction process has been the most resistant to automation?

JK: I don’t know if I would say resistance, probably more hesitancy. Human nature means most people don’t embrace change as much as they probably should. I think the pandemic in many ways changed some of that. You were forced to embrace some change, so even in our industry, technology adoption has grown.

But I think there’s still kind of an old-school mentality: it’s a face-to-face, belly-to-belly style business. There are a lot of agents today that still prefer having their customers sign contracts manually, with physical signature. And there are some states or even some geographies within states that still mandate that. But it’s weird. Because in our view, that’s a thing of the past.

Digital signature in electronic form is more secure, much more expedient, much more efficient. But the truth is, you can probably blend the two, you can leverage technology even in a face-to-face setting. But we still have people who are resistant to that because sharing of data is still a hurdle.

SW: We’re seeing an increased use of AI at a very individual level, where agents are using AI tools for things like marketing and scheduling. How do you as a software executive think about those use cases and how those fit into the overall tech picture for Realtors?

JK: We look at AI as a tool to drive efficiencies but we don’t look at it as something that’s going to replace the human. It’s artificial intelligence plus human intelligence. We have tools where AI is very useful, like our lead generation products and lead nurturing where you detect buying signals and filter through a lot of noise, and then present that to agents.

We look at how we can take away some of the menial tasks and give time back to an agent to do things that are more valuable to them. And, frankly, give them more time in the day to spend with their buyer or seller.

SW: How do you encourage investment in technology in the midst of this low-volume environment when people don’t have a lot of money coming in the door?

JK: The truth is, this is actually the best time to invest in technology. In a booming market you don’t have time to do this. But if you want to advance your efficiencies or your market share, a slower market is the time to do it. Everybody looks really good in a hot market. Those that kind of understand business expenses and controls and where to invest and grow their business in a down market are the ones that are going to end up gaining market share.

Our Boost product, for example, is designed to help agents with lead generation. If you’re investing in that, you’re more efficient and you spend your time on better opportunities. Or our partnership with realtor.com, where top-selling agents invest in this type of solution that marries specific content information with an industry leading CMA tool. That gives them comparative market analysis so they can go sit down at a listing presentation with someone that is thinking about selling their home, and say, look, I’ve got all this demand in your area. And I can prove to you that using me as your agent and listing it at this price point I can sell it to you. That is a very powerful piece of technology that’s going to generate commissions for that agent.

And if you’re a broker, our back-office platform is purpose-built for residential real estate to help you figure out where you’re spending your money and where you might have opportunities to control that expense — which agents are performing and which ones are costing you money. So there are a lot of ways to use technology in a down market to really drive your success.

SW: That makes sense, I can just imagine it’s tough for some people right now.

JK: The truth is, it’s the same for my business. I need to continue to invest in software, in building new capabilities, in investing in infrastructure and security. I need to do that in the down time: if I don’t, competitors are going to pass me by and I’m not going to be ready to take advantage of the market when it turns. And it will turn, so you have to focus on your business and be ready.

SW: What are your guiding principles as you think about the automation versus the human element and how those interact as you’re developing something new?

JK: It’s a great question. First off, I’ll say I’m wildly happy that my technology organization from R&D to product, is fantastic. So they do a lot of this strategic thinking for me, and I just get to ask questions. But as an organization, ultimately, we embrace design thinking, not just in R&D, we actually use it throughout. And it’s a combination of a mentality and approach. So we start with the human experience and try to understand how a person is going to use that piece of technology to solve a problem, and then work our way back into designing that piece of technology for that experience.

We have a really sharp design organization that will do the conceptual elements before we get anywhere near like writing a line of code. We kind of know what things will look like and how things will work from a flow perspective before R&D even sees it. We will also spend time with customers during that cycle. We’re smart, but we don’t know everything and so we’ve got a lot of really good customers that have a great relationship with us. So we will bring them behind the scenes and ask how it’s going to solve the experience issue first and then we kind of work our way backwards.

We even use that in our operations. The mantra of my customer operations group is: human, easy, smart. Meaning, that’s how they want to show up to our customers. We’re all people so there is a human element to everything that we do. We should be easy to do business with and how we approach solutioning should be easy, and then it’s got to be smart.

SW: Looking at your diverse background of experiences — BNY Mellon, Accenture — was design thinking something that Lone Wolf did before you got there? Or is that something that you’ve implemented?

JK: It’s really a combination. I do have the luxury of having a viewpoint from multiple industries, all in technology, and all of it is working with an end user. And at the end of the day, software is designed to solve problems. And the more effective it is, obviously, the easier it is to use, and the more efficient it can become for individuals. Our goal isn’t necessarily just to build something and sell it, right? Our goal is to solve the problem. We want to be a part of this industry — we’re here for a reason. We want to enable brokers, agents, teams, and frankly, associations and MLS, to be more effective at what they do and hopefully to be very successful at what they do using our technology.

SW: What’s the larger mission for you?

JK: Our biggest vision is to simplify real estate. That’s a big broad stroke but where we’re focused right now is that platform experience for an agent. I think the industry itself is going to evolve in the next 10 years. Right now, we’re focused at a point in time in that real estate funnel where an agent is looking for a lead and streamlining that entire process all the way down to a commission check.

But the truth is, there are components outside of our realm today that include mortgage and title and insurance. Our view of the world is that everything that happens in homeownership, post-close, is going to actually all connect one day. It may not be all us — we may have partners — but being able to connect from your mortgage, and then post-homebuying, with shared experience data, visibility, valuations, maintenance, opportunities to sell — that’s what I think the ecosystem is going to look like at some point.

SW: We’ve had other companies try to do that because it just makes sense — as an agent or a loan officer, you’ve forged a relationship with a consumer at one of the most important touch points in their life and then it can just be gone.

JK: I think that’s going to be the evolution. I have my own opinions on who people are going to still interact with and trust, and frankly, I don’t know that it’s going to be one company that builds this — I think it’s going to be an ecosystem. And I think we’re going to be a part of that ecosystem. Consumers will demand it at some point: access to information about their largest financial investment seems pretty logical. It’s just a matter of where did they go to get it?

SW: You are an executive at a very large technology company. What keeps you up at night?

JK: What keeps me up at night is making sure that we are delivering on the commitments to our existing customers. Obviously we’re trying to grow, we’re going to look for more customers, we’re going to try to sell more software and all that stuff. But we have a large number of agents and brokers that rely on our technology every day for them to do their jobs.

And so what keeps me up at night is making sure that our systems are up and running and available and secure. So that they don’t have to worry about that part during the day. They’ve got 100 other things that are on their plate — my technology should be the given. That’s what keeps me up. I think we do a pretty good job — I know we do a better job today than we did yesterday, but it is a constant focus as an organization to make sure that we’re meeting the commitment that we make to our current customer.

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The housing market will remain subdued until the Federal Reserve starts cutting rates next year, according to economists and housing pros following the central bank’s Wednesday announcement to leave the benchmark rate unchanged in the target range of 5.25%-5.5%.

Until interest rates come down, affordability challenges will continue to put first-time buyers on the sidelines, housing industry observers said. Real estate experts reiterated caution against further rate increases. 

While Fed Chair Jerome Powell emphasized incoming data will determine whether the central bank will raise its federal funds rate at its next FOMC meeting in November, the “dot-plot” of rate projections showed policymakers foresee one more hike by the year-end. The bulk of central bank officials expect to have interest rates finishing the year at around 5.6%.

In an elevated rate environment, the lack of inventory continues to be the biggest challenge for many potential buyers, the Mortgage Bankers Association said. 

“While homebuilder sentiment is clearly impacted by the recent surge in mortgage rates, permits for single-family homes provide a positive outlook for the pace of construction in the year ahead. If mortgage rates trend down in 2024 as we anticipate, the combination of more homes for sale and somewhat lower rates should support stronger purchase volume,” Mike Fratantoni, SVP and chief economist at the MBA.

The MBA expects mortgage rates should begin to reflect that the Fed’s moves in 2024 will be cuts – not further increases. MBA’s mortgage finance forecast projected the 30-year fixed mortgage rate to decline to 5.4% in 2024 and 5.1% in 2025.

Powell also noted in a press conference that because people locked in “very low rate mortgages, even if they want to move now, that would be hard because the new mortgage would be so expensive.”

Rates are most likely to stay elevated until 2024, said Danielle Hale, chief economist at Realtor.com, thus putting a damper on the number of home sales transactions.

“Higher mortgage rates have radically altered homebuyer purchasing power and have been a key factor in existing home sales dropping from a more than 6.5 million unit pace in early 2022  to the roughly 4 million unit pace in recent months,” Hale said. 

More importantly, higher mortgage rates continue to keep existing homeowners sidelined, with as many as one in seven buyers out of the market because they don’t want to borrow at today’s much higher rates, Hale noted. 

Short-term mortgage rate movement

In the short-term, mortgage rates are likely to bounce around a bit as the markets digest upcoming economic data, Melissa Cohn, regional vice president of William Raveis Mortgage, said. 

Incoming data of job and CPI reports next month will provide more clarity on how strong the economy is. Reports on jobs and inflation will be released on October 6 and October 12, respectively. 

“If the data reveals that inflation remains elevated and employment is still growing, then mortgage rates are likely to move up and we can look for what we hope to be the last rate hike of this cycle,” Cohn said.

The rapid ascent is mostly behind us but it will be a while before the economy sees any sign of a gradual descent, Marty Green, principal at mortgage law firm Polunsky Beitel Green, added.

“In my view, this means the mortgage interest rate environment will continue to bounce sideways through the next several months,” Green said.

Mortgage rates have been on an upward trend this year with rates in August surging to 7.23%—the highest since 2001.

Fed officials expect interest rates to be at 5.1% in 2024, up from the 4.6% projected in June. Officials expect fewer cuts in 2025 with the median estimate for the benchmark rate to be at 3.9%, up from 3.4%. 

The committee raised its projections for growth, and is looking for a better-than-expected labor market as well, with the jobless rate peaking at 4.1%, rather than 4.5%.

Pushback against further rate increases

With two more scheduled FOMC meetings in November and December, housing experts cautioned against further rate increases.

The Fed must consider the potential economic damage arising from any future rate hikes, Lawrence Yun, chief economist at National Association of Realtors, reiterated his position. 

“Commercial real estate has come under stress from higher interest rates, which will further negatively impact community banks due to their large exposure to the sector. Therefore, the Fed needs to wait and not raise rates. Possible interest rate cuts then need to be considered once inflation is fully under control,” Yun said.

Overall data point to an accelerating slowdown but continues to be mixed because of some lagging indicators, Green noted.

Unemployment rates and the CPI component lags measures of market rents by around a year.

“With rates elevated into restrictive territory, I expect the Fed to be patient and hold off on any additional increases until it becomes clearer that an additional rate hike is warranted,” Green said. 

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Recruiting and keeping the best talent is critical in today’s real estate market. It’s also becoming more challenging as production takes a hit from lower home sales. On a national basis, year-over-year MLS production reports show the average real estate agent’s income is down 28%.

Broker-owners’ operations teams are receiving more and more “non-payment” of MLS dues notices. And because of the inconsistency in agents’ monthly production, this movement is creating confusing information in your market data reports.  

What does this mean, and what do we do about it?

For starters, we have to work harder than ever before to get our business moving in the right direction. We need to be more strategic in how we use technology and what kind of investments we make in our businesses, including our talent attraction and retention game. 

Here are seven steps to consider for your talent attraction efforts.

Step 1: Face reality

We can’t control the housing market, but we can control our business practices and approach to changing market conditions. The facts are you must do more with less and do it better than before. 

Be honest with yourself and your team about how you’re feeling: Don’t deny it or hide from it — acknowledge it!

Step 2: Set a clear vision for the future

In this market, it is vital to keep your ideal agents and hire those who fit your company culture. A clearly defined niche statement, a clear avatar of the ideal agent and a compelling value proposition go a long way. I’m an Army vet, so quotes from General Patton are natural for me: “A good plan that you act on today can be better than waiting on a perfect one tomorrow.”

In today’s market, it’s important to have an edge or niche that makes your business stand out from the crowd. Having an edge is imperative in any business, especially real estate. You want to set yourself apart from other firms by offering something unique that they don’t offer or do as well as you. If you don’t have an edge, how do you expect to get more leads and make more money?

Step 3: Use sales data in your business planning

From time to time, your sales data will reveal a trend. For example, if you have a team of 100 agents, and your top 25 agents account for 50% of sales, it means that half of your business comes from just 25% of your agents. You can use this information to set a clear path for the future. 

It’s easy to say, “We want to increase our sales by 20%,” but it’s not so easy to know how exactly to do it. Analyze your sales data by quartiles. Which agents account for your top 25% of sales? The next 25% up to 50%, and so on. Is there a trend you can see in these sales? What action can you take to support each quartile? One of those actions could be moving your last quartile into a referral-only status. 

Step 4: Re-recruit your best talent

When change hits, top talent leaves first. Yet your best promise for performing in this market is hanging on to your existing producers. 

Don’t assume they are happy, content and squared away. 

As my friend Steve Murray found in a case study of higher-performing brokers: “If you think you are close to your people, get closer!” Listen to them, respond to their valid suggestions and address the goofy ones straight on with candor. 

Step 5: Show some fire, some passion and a sense of urgency

Show your team how to win in this market. Your associates can be warmed by your flame and passion. 

Be tolerant of mistakes yet intolerant of inaction and inertia. 

Let’s face it, even at a reduced rate of sales, there are still 17,500 homes closed a day, some 35,000 sides. Someone is going to get that business. Is it you and yours?

Step 6: Focus on results, not intangibles

In a shifting market, it’s easy to feel good about something that does not produce a result. Be trustworthy in the way you pursue productivity and profits. Yet success, momentum and results are the cure to a down market. Sales gains, listing taken, higher net promoter scores. My focus would be on new appointments earned each day and each week. 

Step 7: Spend and invest in soft currency

Psychological “paychecks” have an intrinsic value that hard currency can never touch. In a tough financial market, what does it cost you to give a word of encouragement, a thank you for a new listing or recognition on a tough transaction? 

The bottom line? Relationships have never been more important.  

Networking and relationship-building are where the results will be. Truly understanding your ideal agent has never been more critical. Check if your system in these four areas is serving you and, if not, make the adjustments now: 

  • Agent referrals: These are more critical now than ever (they know the deal).
  • Influencer referrals: The secret weapon and traditionally my best “recruiters.” 
  • Co-op agent sales. These consist of warm conversations over existing transactions.
  • Networking and relationship-building activities. 
  • Bottom line

Final thoughts

We are in a market like no other. There is no roadmap, but we do know a proven play: relationships. 

I’d encourage you and your team to: 

  • Create more value. 
  • Invest in your people and prospects.  
  • Quickly seize on opportunities. 

Give them a reason to stay and to join, and then give them even more reasons.

Mark Johnson is an author, speaker and business partner in Recruiting Insights, a real estate recruiting solution.

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Ryan Tseko became a multifamily millionaire by his mid-thirties after giving up his previous career to invest. By the time Ryan was thirty, he already had twenty-one rental units, paid off over six figures in student debt, and used his pilot job to scope out new property markets. Everything was going to plan until a once-in-a-lifetime opportunity presented itself. Ryan left everything and made the jump.

But how did Ryan end up in his multi-millionaire position? How did he go from house hacking “crash pads” for pilots to helping manage one of the largest real estate portfolios in the country? A better question—how did a commercial pilot become Grant Cardone’s right-hand man? Ryan’s story is unbelievable, but it’s true.

In today’s episode, Ryan will share why he gave up his high-paid job to bust his butt working for Cardone Capital, why Grant Cardone told him to sell his ENTIRE real estate portfolio, and the two-minute deal analysis Ryan does that instantly tells him whether a property is worth pursuing. Ryan proves ANYONE can go from nothing to much more than something—and you can, too!

This is the BiggerPockets Podcast Show 821.

Day one, when I joined Grant’s team, he used to underwrite a deal. I used to tell him two minutes, it’s actually like 43 seconds, but I’m like, man, if I could underwrite a deal like Grant, then my whole life would change. What I do is I just take the number of units times the rents in place, not like what the broker’s telling me, in place rents, and then I just use the occupancy of 94 or 95% depending on the marketplace. And then I just use rough numbers, like, okay, my expenses typically in between 40 and 45%. And so I just, okay, this is what my NOI is going to be based on here’s the income minus the expenses, here’s my NOI. And so I can solve on these bigger deals, they all traded a cap rate. And so I literally can underwrite a multifamily deal, 300 units within two minutes.

What’s up, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, and the baddest real estate podcast in the world. Every week, we are bringing you stories, how-tos, and answers that you need to make smart real estate decisions now in this current and ever-changing market. I’m joined today by my co-host Roberto Abasolo, who does a great job today, by the way, Rob.

Oh, thank you. I appreciate that. This was a fun one. You and I walked out of this with brand new shiny nicknames. You are the skyscraper of real estate, and I am the fire hydrant of real estate. And so I think people really going to have to stick around to the very end to find out how we got these self-dubbed nicknames.

That is a great point. Make sure you check those out. This will be something funny. And when you see Rob in person, you’re going to want to call him the fire hydrant. Today’s guest is Ryan Tseko, an airline pilot turned real estate investor who started buying some single family properties, turned that into multifamily, now runs a fund and he’s crushing it. And he gives some great advice for how to do everything I just said, as well as the right way to approach somebody to get into the right situation. I thought this was fantastic. Rob, what did you think about that?

It was really good. It was really good because he put himself out there in a way that showed value to someone else and solved the problem for them. And I think this is probably… I mean, there are so many lessons to take away from today’s podcast, but the way that he approached it and his willingness to just get in the mud, get a little dirty, figure things out and really jump in the ring, really set him apart to really have one of the most amazing career transformations I think I’ve ever heard of on this podcast. So I’m excited for people to hear his career unfold as we get into it for the next hour.

Yes, sir. This is a great episode. You’re going to listen all the way through and take some notes. Before we bring in Ryan, today’s quick tip is simple. Show up with solutions and not just problems. Any human being can show up and say, “Hey, boss, there’s a problem over here.” That doesn’t help. It’s better to come and say, “Hey, here’s a problem and here’s what I’ve already done to try to fix it. What do you think? And what could I do better?” Be the person bringing the solutions in your world, not the problems.

And by the way, and I have another quick tip. Number two, quick tip light. All right, if you ever get intimidated by RE terms, RE means real estate, by the way, real estate terms, you don’t know NOI, cap rate, LOI, go to biggerpockets.com/glossary. If you’ve ever heard us toss around abbreviations or things that really… Like terms, a lot of the times that can be found on the glossary and it could explain it for you. We do our best to always stop and rewind and explain anything that might be a little bit too much of an acronym. We get a little carried away with the eight-letter acronyms every so often. So yeah, go to biggerpockets.com/glossary if you want to brush up. Yeah, I’m excited when he talks about the GQLMIP. I think that’s one of the most standard real estate principles out there, so.

Let’s bring in Ryan. Ryan Tseko, welcome to the BiggerPockets Podcast. A little background for our listeners. Ryan’s been investing for about 15 years. He started in single family and small multifamily early on in the state of Arizona. Has three million invested making 10 to 12 a month fully passive now, and we will find out why that is later. Ryan has a love of flying and leveraged that passion into a new career. The biggest hurdle he overcame was the do-it-yourself mindset, and we are excited to hear all about this. Ryan, welcome to the show.

Thank you so much for having me, Dave and Rob, always great to be here.

Thank you for that. It sounds like a lot of your foundation is built on being a pilot, which is important. Because I’ve learned the older I get, how much the foundation of myself is built on looking at the world through the prism of a basketball player. It was like my first passion I ever had. So when I form a business, I build a team, I take an approach, I always see it analogous to playing basketball. I’m guessing that you’re probably going to have something similar to being a pilot. Is that the case?

For sure. And look, I actually didn’t even know I was going to be a pilot when I was growing up. My uncle, it was something that he always wanted to do. I was 17 years old, he was a builder. I wanted to buy my first house and he looked at me, he said, “Son, you don’t have any money.” And so we were flying one day and I looked at him and I’m like, “I could actually get paid to fly airplanes?” And when he said yes, I was hooked. So it was actually kind a roundabout way for me getting back into real estate. But 1,000%, I mean, aviation and flying like basketball, there’s just a lot of discipline, there’s a lot of training, there’s a lot of checklists. And so that’s helped me tremendously transfer the skillset that I’ve learned in my 20s into buying real estate and managing real estate, so 100%.

Oh yeah, I imagine that’s very much like your pre-flight checklist, buying properties and knowing what needs to be done when they’re bought. You have to have great vision, know and trust your instruments, rely on the information that other people gave you, and trust that you’re getting good info. People are your priority. You value safety of others. You trust your team to get you on and off the ground and support you on this journey. In your opinion, what makes a great pilot?

So I think what makes a really good pilot is somebody who has the ability to learn, but also stay curious. When I was getting into becoming a pilot, there’s two different types of pilot. There’s bold pilots and there’s old pilots, but there’s no such thing as a bold old pilot. And so these are the different sayings that we have in the aviation business because we could all be bold, but at a certain point in time, you have to rely on, okay, what is the safe approach for the flight? And I really think that it’s a constant training event. As a pilot, it’s over and over and over, and so what makes a tremendous pilot is somebody who flies a lot. Same in the real estate game. Who’s the most proficient in real estate is somebody who’s doing deal over deal over deal. I just keep it simple.

Ryan, you mentioned that your uncle introduced you to your love of flying as well as your love of real estate. It sounds like that’s a very influential person in your life. Can you tell me about your relationship with that person and how real estate sort of entered into the conversation?

Yeah. So when I was about 10 years old, my parents split. I moved from Southern California to Scottsdale. And my uncle, he was actually a builder in Scottsdale, Arizona. When I was a young man, he brought me on the job sites because for me, I was just trying to, okay, what’s next? So I wanted a car, and so he started teaching me about real estate. He was a builder. He always wanted to be a commercial airline pilot, but one day he took off, he was flying and he actually scared himself because he couldn’t find the airport, and so he literally gave up on his dream of becoming a commercial airline pilot.
And so when I was 17 years old, I didn’t have any money and we were flying and I asked him, I said, “Hey, look, can I actually get paid to do this?” And he said, “Yeah.” And so really that’s when aviation was introduced into my life from a young man and I really just started grinding. I started flying every single day. I put the real estate on hold, but I always knew that I wanted to come back to it. So that’s really how it was introduced to me from a young age and I had to wait because I didn’t have any money.

That’s awesome. So that’s how you ended up in aviation. But what was life like in the early days of your career?

In aviation or in the real estate?

In aviation.

So I mean, look, in aviation, when you first get started out, you’re traveling a lot. You’re not making a lot of money. My first year as a commercial airline pilot, I think I made $48,000 a year because they had to put so much time and energy and effort into training me. And so I went and got a loan student loan for 140 grand. My first year I made 48 grand. I was a first officer on a $40 million jet, and I was traveling all over the US, Canada, and Mexico. And as I built seniority, life started to become better for me and I started getting more days off. And so you fast track that to 25 years old. This is actually where 2008, 2009, 2010 happened, and it was really great timing for me because I started making money in the airline.
There was great deals in real estate in Arizona, and so that’s actually when I bought my first what I call a crash pad, which is really cool because in aviation it’s kind of like the house hacking. But in aviation, we call it a crash pad where you rent your rooms out to these other pilots. And so I bought my first home and I was able to rent out three of the rooms, collect net profit of 400 bucks. And so that was really my start in real estate. It was a single family home in Phoenix, Arizona, and I was making 400 bucks. I was living in the master bedroom, and that’s when I realized I needed to do something bigger.

So why didn’t you scale and just buy a whole bunch of properties and make them all crash pads?

Because it’s management intensive. The reason I didn’t do that is because you had to manage it. Literally, I went home one night and it’s a common area, you share everything, and I could have scaled it with many homes and it would’ve been a great business, but it’s really management intensive. There’s a lot of people coming in and out of the homes, and it’s just really, really heavy on the time. What I started looking at is, okay, how do I buy these apartments? So my next deal was a fourplex because I didn’t want to live with the renters, I didn’t want to live with the people. And so that’s where my breakthrough happened, where I was like, okay, I could do these single family, but how do I scale?

So how did you have the vision or the foresight to even save and invest in your first property? Do you remember how much you had saved up to even get into this crash pad, house hacking situation?

Yeah, so I bought that as my primary, so I needed 3.5% down, I think I put down 10 grand. I’m very frugal when it comes to money, and so even when I was making 50, 60, 70 grand, I was able to save 10 grand a year. What had happened was on my next deal, I saved up 25 grand because I actually had a car that I had bought and flipped in order to get the 25 grand to put down on the fourplex. And so I’ve always been creative, I’ve always saved my money to invest it, but I just knew that I had to keep buying deals because I wanted the cash flow. I wanted to buy a deal and actually make some passive income.

I always thought commercial airline pilots were pretty high salaried starting right at the top, but it sounds like no matter what, you sort of have this base salary and incrementally over the years, just like any job, it kind of grows. Is there a side to that where it is super juicy, a really lucrative salary that you were sort of looking forward to? And that was kind of what was going to fuel your real estate in the future? Or did you not really have aspirations to go all in in the real estate space early on?

Early on, I literally thought that I’d buy a single family home and buy another one and buy another one, and then have some multifamily. I didn’t really think of it as I’d be a huge multifamily apartment owner or operator. I didn’t have the belief, I didn’t have the vision at that point in time. And I think any of us, we want to start off with our first deal and we want to kind of get our feet wet. I literally, when I bought my first deal, I didn’t even know what they were talking about when they asked me, “Hey, do you want to buy down a point? Do you want conventional? Do you want FHA?” I had no idea what any of that meant because I was never taught that in school. So for me, it was like, okay, once I found out I could do the first deal, it excited me because I was making 400 bucks.
My second deal, I was making $600, but it was a fourplex, and I actually bought that. It was a foreclosure, and I redid everything. And the biggest mistake that I did was I thought I had to do it myself. So I had no idea I’d end up with 21 units at the age of 30. I just knew that once I bought my first deal and I said, “If you could do one, you could do two. If you could do two, I could do four. If I could do five, I could do 10.” And so I literally just started reading a bunch of books. I mean, I really like to just figure things out. I’m very curious. And so once I had my first deal, I was like, okay, what’s next?

That’s pretty cool. Yeah, so 21 by the age of 30 is really quite the accomplishment. You said you wanted to get into this and you’re like, “I’m just going to buy a single family house, single family house, single family house.” A lot of people have different reasons for getting into real estate, but what was yours? Did you have a why or a motivation that… Because it’s very, I don’t want to say rare, but it’s not like a lot of people go into real estate like, oh yeah, I’m going to buy one and on and on. Usually there’s some kind of turning point or some kind of fuel that’s firing them up. What was that reason for you?

So when I would go to work at the airline, what I started to realize is that when I was having these conversations about real estate with my family and with coworkers, a lot of them were saying, “Oh, be careful. Real estate’s risky.” And my turning point for me was I was going to work every single day and I was trading my time for money. And at the time I was getting paid a 100 bucks or 120 per hour, and I was like, how long can I do this for? How long can I travel for the airlines? And so I really had that turning point because I read Rich Dad, Poor Dad, Robert Kiyosaki, like, how long are you going to trade your time for money?
And that was awakening for me, and that’s really what got me on that path to real estate is like, okay, if I can make money here, put it to work in real estate, and then get the cash flow to pay off my student loans. I mean, you guys have to realize I was in debt, 140 grand. I was in debt, 140 grand, and people are like, “Pay it off as soon as you can. Pay it off as soon as you can.” And so what I did is I bought a fourplex with the 25 grand and the extra cashflow that I was getting from the fourplex, I would just pay down an extra $400 on my student loans every month.
And literally by the age of 30 years old, I had $140,000 paid off. I still had the principal, Rob and Dave, I still had the principal working for me and my student loans were paid off. So for me, it was really just that shift at 24 and 25. Although my uncle was very helpful in my early age, he didn’t understand cashflow. He didn’t understand having the assets because remember, he was a builder. He would build to sell for a profit. When I started getting my head right and my mental right, I was like, man, I want to buy it, I want to hold it, I want to cashflow it, and I want to get the benefits that real estate actually provides.

Do you remember, just out of curiosity, because student loan payments, they aren’t very friendly. What was the student loan payment like on $140,000?

It was like 600 bucks for 30 years.

What? That’s nothing.

But I mean, it was back in 2002 where interest rates were lower and you paid 600 or 700 bucks per month. And over 30 years, that’s a long time, right?

It’s over 30 years. Got it. Okay, that makes a lot more sense because I was paying a thousand bucks, but it was amortized over 10 or 10 years or something like that. Okay, so 600 bucks, I mean, not super bad, but obviously if you could replace that with income, that was sort of the goal. You’re like, let’s chop that out and then let’s start figuring out how to use real estate to fuel the overall wealth of your life, right?

Well, yeah, and everybody was telling me I had 25 grand. They’re like, “No, you should pay off your student loan.” And I was like, “No, no, hang on, hang on. Let me go buy a four unit.” The rents were like 500 bucks so I was literally collecting two grand from four units. The mortgage and everything was like $1,200, and after expenses and everything, I had like 600 bucks. So I would literally take the 600 bucks, double it, and I would just start chipping it down so that way when the student loan was paid off, I still had this four unit or I still had that principle working for me.

Yeah, okay. All right. That’s cool. So was there any benefit to being a pilot and getting into the real estate world and as a pilot just flying around into new markets, discovering markets? Yeah, certainly you must’ve been more privy to markets than the typical investor that never actually may get to visit a market before they invest there.

So I was based at Chicago O’Hare, LaGuardia, DC. My last base was actually Denver, and so I was able to go and see these cities and I was always shopping real estate on my overnights. And then also I was getting 13, 14, 15 days off because typically in the aviation space, you get four days on, four days off, four days on, four days off. And so it actually gave me time when I got back home to Scottsdale, I can go and look at real estate. When I bought my first deal, I’d have four or five days to actually renovate the units. And so for sure, I always think the biggest mistake for people is when they’re so…
When you grow up somewhere, you have to go and see other cities, you have to go and see other spots because you see the growth, you see the trends, you see different things that maybe you’re not seeing in your city. You see the path to progress. So I’ve always been a student and I’ve always loved real estate, so I used to take advantage of like, okay, the airline’s paying for my hotel, the airline’s paying for me to overnight, the airline’s paying me to eat. So when I was done doing all my job and all my duties, I would go and shop and drive blocks and shop real estate all over the US.

That’s cool. So the thing that is always going to be like… I’d love your insight on how you can do this because you’re probably going to be a big help to a lot of the audience today, which is a lot of people get really nervous about investing long distance, and they’re like, “Man, what happens if I get called in the middle of the night,” and this and that. You were on an airplane, and it’s not like you could just take a phone call on an airplane because they make you put it in airplane mode, but mostly because you don’t have reception. So if you don’t have reception and you can’t physically answer a phone call, how can you even run a real estate business that way?

Well, it’s difficult and honestly, when I bought my fourplex, I was managing it myself. I’d have my girlfriend help me. When we’re all getting started out, you literally have to get creative. So my girlfriend would help me if I was traveling. But typically if they left a voicemail, I’d get back with them within four or five… My typical flights were between two and four hours so that wasn’t a huge issue. But yeah, no, it’s a big deal when you buy deals in other cities and states, you want to make sure you have boots on the ground because you have to have somebody who’s managing it very close.
And that’s actually one of my biggest fears. That’s why when I started investing in real estate, I started investing in my backyard because I was actually terrified. I was so scared to go to San Antonio in Austin because Texas was a really big market back in 2012, 2013. There was a lot of that growth between Austin and San Antonio, but I was always so terrified because I didn’t have any boots on the ground. I didn’t know any management companies, I didn’t know anybody who managed real estate. And the smaller the deal is, the harder it is to find a management company to actually manage it.

Were you pretty good at that point? You said that you’re working with your girlfriend and she’s picking up the slack for you a little bit. Were you pretty good at turning off the real estate button while you were flying or did it take a while for you to… Because for me, when I go into the movie theaters, this is my big thing when I’m going into a movie theater, I’m like, I’m not going to get to enjoy this movie because I’m definitely going to get a text message or a phone call in the middle of this movie. And of course, it always does happen. Did that ever happen? Did you ever go through that when you were up in the air or were you able to shut that off pretty easily?

You can’t shut it off. I’m the same as you. I’m always looking at my phone. I was actually, I used to not go on vacations because I was like, well, what if the toilet gets backed up? What if they call me? What if they do this? What if I’m international and they can’t get ahold of me? I was the typical scared young investor in real estate and I wanted to do it and manage it all myself.

So we haven’t covered who you actually started working for as a pilot yet. How did you go from commercial to private as a pilot?

So this is a crazy story. When I had 21 units, I was 30 years old and I said, “Okay, what’s next?” And I knew that I always, by this time, I knew that I wanted to own and operate and control multifamily units. I just didn’t have anybody where I was from that was doing what Grant was doing. So at 30 years old, I said, “What’s next?” And on YouTube, and actually BiggerPockets, I found Grant Cardone, and on BiggerPockets Podcasts, this is just crazy, he’s like, “Look, I’ve got 3,000 units I’m looking to grow. I’m looking to scale. If there’s anybody out there who’s listening who wants to come and join my team, call me.” And I picked up the phone and I called him, and I literally didn’t even get an interview with Grant, I got an interview with his team.
And they’re like, “Well, we don’t really have a job in the real estate yet,” because they knew I was a pilot. They’re like, “We don’t even have an airplane yet. It’s coming in two weeks, but we got a sales job,” like a sales world job. And I said, “Perfect, I’ll take it.” And so literally two weeks later, I packed all my stuff in Scottsdale in Arizona, and I moved out to Miami and I started working for Grant Cardone. And I knew the way he was talking about real estate when I heard him on BiggerPockets, when I heard him on YouTube, I just knew that he wanted to grow and scale his portfolio. And I was like, man, instead of me doing this by myself, how cool would that be to do it with somebody who has already has a huge headstart from where I was? And so that’s what I did.

Yeah, that’s crazy. So how long ago was that?

That was nine years ago.

So Grant Cardone, was he established at this point? Now, obviously he’s got a huge name, huge platform, huge portfolio. What did it look like back then? Was he super established? Because it seems like you just took a giant risk to go work for him. What did you see in kind of where he was at that moment?

Yeah, so I saw the opportunity in the real estate market, but I saw Grant was very passionate and he understood real estate. He had about 3,000 units at the time, so we kind of operated kind of a single family, like a family office. So he would buy the deal, invest it in himself. So he would buy a deal, he would take his money, he would invest the money, and he would hold it for long-term. We didn’t have the Cardone Capital and the crowdfunding, and the 12,000 units. We had none of that. It was literally Grant Cardone was a business and a consultant, and he had real estate on the side, and that’s it.

Man, that’s nuts. Did you become a private pilot for him or did you join his sales team?

So I joined his sales team, and so two weeks later, he bought a Gulfstream G200. And Elena, I met Elena day one. I was like, “Look, I love flying airplanes.” I had almost 10,000 hours at that time. I was literally flying every single day building up my time. And so I had almost 10,000 hours. I said, “I love flying. I love real estate, and I love helping people.” And she’s like, “Does Grant know this?” I says, “No.” And she’s like, “Well, we’re buying an airplane.”
And so Grant was looking to hire these other pilots. And he called me in his office one day and he’s like, “Look, if I hire you to be my pilot, will you also work with me in my companies and in my businesses on the downtime?” And I said, “Where do I sign?” And so I literally signed a three-year contract with Grant to be his pilot, but then also work with them in whatever business, whether it’s the sales, whether it’s the real estate, whatever it was. I just knew that he was the right guy.

Cool. Wow. What a crazy story, man. Well, first of all, I think the craziest thing is that you were like, yeah, you said to call him. So I picked up the phone and I called him. I feel like a different time.

Rob, I was terrified. I was on the line because it’s Grant Cardone, right? I was like, when you call anybody, if I wanted to go work for David and I’m 30 years old, it’s like, man, David’s this and you’re this. You’re like, you don’t know what you’re calling. So I was calling Grant’s office and I was like, “I want to come work for Grant.” And it was a little bit nerve-wracking because I was taking a huge risk because I was giving up my career, I was giving up the airlines, I was giving up the 401Ks. I was giving up the 18 days off. I had built an awesome career for myself, but I just knew there was something bigger.

I want to ask you when you made the call, because here’s why I’m asking if I’m being transparent, this gets spoken about a lot. We just spoke with [inaudible 00:25:01] and he’s like, “You got to try. You got to reach out.” And so this gets spoken about often from influencers, and what that translates into is me getting 40 DMs a day from 23-year-old guys that are like, “I’ll do this. I’ll run your social media. I’ll build a course for you. I’ll automate something and make money off of you.” And meanwhile, this kid has 300 followers and he’s telling me he’s going to grow my brand.
And it’s exhausting having people reach out and say, “I want to work for you.” And you’re like, “What can you do?” And they’re like, “Yeah, I don’t know. Just tell me what you want me to do.” We get in this stalemate, right? So I’m sure if you spoke to Grant, you came in with a plan, you proposed something, and you thought about it. Can you share with our audience the effort you put in before you made the call? So we don’t give the impression simply making the call leads to life-changing things, and you end up on the BiggerPockets Podcast and you have this huge story.

Well, look, I think that I started building my resume and I started building my skillset because to your point, you have to have a skillset that adds massive value to the team. Otherwise, you just don’t add massive value. If I call up Grant, said, “Hey, I want to run your social media, I want to do this,” I don’t have any experience doing it. What I did is I said, “Hey, look,” I wanted to be super easy by the way, but I said, “Look, I’ve got a career in aviation. If you’re going to buy an airplane, I will run the entire flight department for you and I’ll do it for free.” The one thing that people don’t realize, I would’ve done this for free because when you get really close to somebody like Grant, like David, like Rob like me now, it’s so valuable because you just learn a whole new skillset.
And so my pitch was three things. I know how to fly airplanes, and Grant actually made a crack at me one day. He’s like, “Do you really know how to fly?” I’m like, “Look, in four weeks I can get type rate on your airplane and I’ll be the lead captain and I will be there every single day. I haven’t called in sick in 10 years at my current airline, and I also have 21 units in real estate that I know they’re kind of junk, but I want to grow and scale, but give me the shot at flying first and then I’ll work into the real estate piece.” And so really, I think that that was the big value add piece because number one, I was willing to come and make phone calls. I was terrible at it, by the way. I was making sales calls, but I was willing to do it.
And that showed Grant really like I’m willing to do any… Honestly, guys, I’ll sweep the floors. I’ll make the phone calls. I could be at the top, I could be at the middle, I could be at the bottom. I’m willing to do what other people are not willing to do. And he saw that from day one. And also it helped that I met Elena on day two, because Elena has been a huge part of my success, meaning that when I got in here, she’s like, “Hey, Ryan likes real estate. Hey, Ryan can fly airplanes. Hey, Ryan…” Because that’s really what led into me transitioning from being the pilot into real estate.

A few things that we should highlight from that. One, you didn’t come with vagueness or ambiguity. You said, “I can help you in this way and here is why you can trust me.” When we get someone that reaches out and they’re like, “Just tell me something that doesn’t work.” You showed clear value. Two, you said, “I’ll do it for free.” Oftentimes when people reach out, they’re hoping that they get paid in some way or it’s some kind of a partnership and you don’t know who they are, so you’re not comfortable with that. So you took the smart road and said, “Let me just build trust with the person. I’ll work for free.” And three, you offered to work in a capacity where you said making phone calls in a system he already had established. Grant did not have to take you and say, “Follow me around, kid, and I’ll teach you the ropes on the first day.”
He could plug you into a team he already had and they could evaluate your character, your skills. They could see what you were good at. That would be the equivalent of someone saying, “Hey, David, I want to come be a real estate agent on your team.” I could say yes to that. I could stick them with another agent and they could tell me how they’re doing, versus I have to be the way to evaluate, which means I’m probably going to say no until I know the person better. So that, right there, is incredibly valuable.

That’s great. I think you nailed down pain point, and you’re like a pain point is if you’re buying a plane, someone’s got to fly the plane, right? 1,000% of the time when I work with someone that reaches out, it’s because they’ve heard me say something on the podcast, they’ve heard me say something on my YouTube channel, on Instagram. That’s like, “Oh, I’m really struggling with this. I cannot figure this thing out.” Or does anyone have a recommendation when someone’s like, “Oh, hey, I’ve got the solution to that very specific problem you have.” Boom, door open immediately, right? It’s 100% what you said, David. I think you framed that up pretty correctly. Find the value, solve the pain.

And Rob, I didn’t negotiate too, when he said, “Here’s the deal,” I just said, “Hey, where do you want to sign?” He’s like, “I want to do a three-year deal with you.” I was like, “I’ll do a 10,” because I just knew. I hope that if people could take one thing away, if you can get around the movers and shakers, if you can get around the people who are actually doing [inaudible 00:29:43], that’s my advice to all the young guys out there. It’s like to my 21-year-old self, if you could add value to a team, if you can get around a team who’s already doing what you want, that is the fast track.

Yeah, just take note there. It’s not about reaching out to someone with a terrible pitch or saying, “I just want to work with you.” You have to be clear about what you’re looking for if you want to get a clear response back from the person. But it can work out really well when they do it the way that we’re describing here. Now, we understand there was a pivotal moment when you went from flying high to being grounded. Can you share what happened in Alabama?

Yeah. So Elena was a huge part of my career in bringing me into what I call the circle. I literally, in Christmas, it was eight years ago, we landed the airplane in Fairhope, Alabama, which is a super cool runway. It’s like really, really small. We landed the G200 there. It’s kind of a private airstrip. And I went to the hotel and this is over Christmas, and Elena calls me, she’s like, “Hey, look, you guys are our crew.” Because the one thing about Grant and Elena is that they actually, the people who work with them and work for them, they’re really like an extended family. And so she’s like, “Hey, do you want to come over for Christmas dinner?” It’s at her parents’ house.
And I’m like, I looked at the other pilot, and Rob and David, I you not, he said, I’m like, “Hey, they just invited us to come over for dinner.” And the other pilot’s like, “No, I’ll pass. I’m going to go down the street and eat at this pub or whatever.” And I’m like, “Really? You don’t want to go in and have dinner with the boss?” And so I went over to the house and I noticed when I got there, Grant was a little bit aggravated. And I started asking him questions. I was like, “Well, what’s going on?” And he’s like, “Well, I have a property that’s 10 minutes north of here. And when I went there, the pool was dirty, the blinds were down, it was closed. There was nobody there.” And he’s like, “I pulled up a report and I had 40 units. I have 40 units that are not leased.”
And I was like, “Wow.” I was like, “That’s BS, number one.” But I was like, “Two, how can I help you?” And he’s like, “Well, what do you mean?” I’m like, “Well, how do I help you? I want to lease those units.” And he’s like, “You would do that?” And I was like, “Yeah.” I was like, “Heck, yeah. Tell me more about it.” And so he started going on and telling me about the property and everything else. And I looked at him, I said, “Well, what if I parked the airplane in Miami when we landed in three days, and I came back up here and I rented those 40 units for you? Would that be of service? Would that help you?” And he’s like, “Wow.” He’s like, “You would do that.” And I said, “Absolutely. I’m going to get a plane ticket right now and I’m going to come up here.”
And guys, you got to keep in mind, I’ve never ran a 344 unit complex before. I have 21 units, and I took a huge risk and I was like, you know what? I’m willing to do it because I knew I could lease. I knew I could call. I knew if I just got in this building, I can lease 40 units in 40 days. So I told him, “I’ll lease 40 units in 40 days. Will you give me a shot?” And he’s like, “Come up here, let’s do it.” Yes, that’s the transition. That was my transition where Grant actually gave me a shot working in the real estate and I was up there the next week.

Okay, so a couple of things. You’ve kind of mentioned you were working with Elena was pivotal in this relationship with you and Grant. Who is that, for reference?

So Elena Cardone is Grant’s wife.

Got it. Okay, cool, cool, cool. And so you’re flying for them. I guess you’re doing phone sales a little bit at the beginning of it. And then he’s like, “I got to lease all these units.” And you’re like, “I’m going to do it.” He’s like, “Wow, you would do this for me?” And like, great, and you go and you do it. How did you actually lease 40 units and how long?

So the task and the goal was 40 units in 40 days over New Year’s and over Christmas holiday.

Okay, all right. So how the heck did you do that?

So here’s the cool thing. So I went up there the next week and he’s like, “Look, I want you to get an air mattress and I want you to live on site.”

The high life right there.

Yeah. “And I want you to stay in a one bedroom apartment.” And I’m like, “Okay.” I was just willing to do whatever it took. And so I flew up there, got an air mattress, got a one bedroom, put the air mattress up. And I was literally the first day that I walked into the leasing office, I realized really quick that there was nobody leasing, there was no leadership. The manager was posting on Facebook, there was three likes. I’m like, well, clearly that’s not a lead gen. And so I called Grant, I said, “What would Grant do?” And he says, “This is what I would do, Ryan.” He’s like, “I’d go back in the last 90 days, pull out the list and print it off of all the people who came in and didn’t rent.” And I’m like, “Perfect. Done.”
He’s like, “I’d call them, I’d paint a picture, and I’d get them back in there and I’d lease them a unit.” And he’s like, “I’d just start with that.” And so without doing anything else, I pulled the list. I started calling people, cold calling them, right? “Hey, you came to this apartment complex 30 days ago, 45 days ago. Have you found a place yet?” “Nope, I haven’t.” “Perfect. I found the perfect unit for you. We actually have a discount, we have a special right now. Come back in tomorrow. I’ve already picked out your unit.” And so I started getting all these people coming in. I literally started getting all these people coming in. I said, “What else would you do, Grant?”
He’s like, “Well, I’d go put your phone number on the front side of the building, on the street I’d go and put your cell number.” I’m like, “Perfect. I’ll go get a sign made.” And so I went and got a sign made, got some new balloons, got new flowers, started cold calling people on the 90-day list, and I started going knocking on doors of all the businesses in the five-mile radius. And within 15 days I had 15 leases, each lease every single day. And by the 15th day, he called me back, he says, “Ryan, get your back here. You are now part of the real estate team.”

Man, dude, rock and roll. I honestly am really impressed because I feel like I would be already pessimistic about that advice of call everyone who has come in the last 45 days and see if they are interested. I would’ve assumed everyone found a place and that wasn’t the case.

That’s what we call follow up.

As a side note, that is the number one biggest area where people need improvement in almost every business. I call it lead bleed in the real estate books. I wrote the top producer series, so much of the time it’s lead bleeds what’s hurting you. You write an offer on a house, they say no, you forget to go back and check a couple weeks later. You just assume someone else bought it. The thing’s still sit in there. The sellers are singing a different tune, right? Maybe someone else tried to put it in escrow and they accepted.
And then it fell out of escrow and they’re heartbroken. And if you show up at that exact time, they’ll take an offer for 75 grand less, but you’re looking for the next deal that you can just write the offer on and try to get. We frequently give advice, you got to write a lot of offers, but we never remind people go back and write offers on houses that you were already rejected for. It’s that same principle, and yeah, he’s smart. He knows that.

That’s crazy. That’s good. All right, so you get the 15 done, 15 days. What about the other 25 units? Was Grant no longer worried about that because you sort of figured out those systems for the rest of the team or what?

Yeah, so what happened was I identified who the real leadership was coming from in the community, which was the assistant manager. And so what happened was we promoted the assistant into the management role, and then also on the maintenance standpoint. Because that’s also a big thing in multifamily and apartments is you have to turn the units and make them ready because everybody, when you show an apartment, just like when you show a house, David, you know this better than anybody, you want to show the end result. You want to show the finished product. So I think 20 days, I was there for about 15 to 20 days, and that was plenty of time to identify who the players were, give them enough momentum and energy.
Because look, when a guy like myself or you or David go into somewhere, that’s great energy and you could really start building that momentum. So we got that place leased. It was like 95% within 30 days, and then the proper team members were in there. So now I could start going and focusing on, because at the time I think you had 3,000 units to 300, so you had about 10 deals. I was able to go and start working on other deals because that’s really where I started cutting my teeth in this business, is I wanted to make sure that Grant’s portfolio was running 10X. And so he started putting me on all these other deals saying, “Hey, you get in touch with this management company. You get in touch with this property manager. You go and just make sure that you’re going through all these deals.” And so I leased 15 units, I came back here, there was a team of two, it was called Grant Cardone and Ryan Tseko. That’s what we built off of. It’s crazy.

What you’ve just showed is not only were you willing to roll up your sleeves, get your hands dirty, but you actually succeeded. That’s the thing is anyone might be willing to go out there and try it, but you actually did it. Were you already a natural leader? Was this something that you were good at? Are you particularly a charismatic salesperson or was it sort of like a fake it until you make it type of thing?

I think I’ve always had the ability to learn. I think back what David asked me earlier is how did the leadership and the pilot skills transfer into what you’re doing now? I was a captain for nine years of a 70-passenger jet, $40 million airplane. Leadership is highly trained in the airlines. And I think that from a piloting standpoint is I’m very systematic, I am very logical, and I am a people person. I think people are the most important part of the business. I know a lot of people are like, “Oh, it’s this, and it’s this, it’s this.” It’s the people. If a deal’s doing bad, it’s the people. If a deal’s doing good, it’s the people. Because you could have a great deal and crappy people, the deal’s not going to do great. You could have a okay deal and have great people, the deal’s actually going to do really well.
So I think that the people are super important and I think that for me, I’ve had a lot of great mentors where I’m just willing to do stuff that people aren’t. And I also had a great mentor, Grant. Grant had the ability, I was calling him every day. This is what built my relationship with Grant is I was calling him, “What would you do? What would you do? What would you do?” And also to one of David’s points too, Grant was not in the mood, Grant’s not going to teach me anything. Grant’s going to put me in the positions to learn. That’s what people are making the mistakes. They’re calling people saying…

Just adjusting the expectations on that, Ryan. Grant can’t teach you anything. Even if he could, it’d be like drinking from a fire hose. You don’t have the capacity to sponge up what Grant would be able to teach you. I’ll give you an analogy. When you’re learning from a black belt and you’re first learning the martial art, they probably don’t remember what you need to learn because they were five years old when they learned that. It doesn’t make sense. They were not a grown person trying to understand these concepts. They were a kid whose brain soaked it up quickly. But we all think I want to be trained by the best person ever. That’s not the right coach for you. You want a person a step, maybe two steps ahead.
Grant has an ecosystem that he can put you in with people that are somewhat vetted, that have a standard that he upholds, that have a system that he had a hand in creating that puts you in a position to succeed. So that black belt built a school, he picked out instructors. Those people can teach you the martial art you’re trying to learn so much better. I love your saying that because there’s this idea where our ego says, “I want to learn from Grant Cardone. I want the best.”
And now you’re useless to him because you can’t keep up with the level of stuff he does. However, if you get plugged into his world, you learn something there. You prove yourself valuable. You become one of those captains at some point that he’s put in place. You’re training the new people. Now, as you gain the experience of living there, you do get to a level that you can start to rub elbows with Grant and what he needs is helpful. Would you like to add anything into just that story of how you climb the ranks?

Well, just to hit on that point too, Grant was never the type where he was, “Sit down and let me teach you how to do a deal or how to do multifamily.” I’ll just add this. When I got heavy in the properties, I got on these calls and I was learning from all the property managers and the regional managers and the really, really smart people in the real estate. When it comes to lending, Grant put me around a bunch of bankers and a bunch of brokers. And so I had to learn the lingo. So everything, David, that you were mentioning, like in real estate, there’s different buckets, right? You got to find a deal and you have to get with the brokers who are selling the deals. Grant put me into the cage and I learned the lingo and I learned the relationships.
You’re so right, you can’t build these relationships by yourself. You have to get around people who already have the relationships. And then you actually, by association, you become very powerful because you now have the relationships because you get spooled up quicker. Same thing with debt, same thing with property management company, same thing with all of this stuff in real estate. So I just think that for me, I understood that I wasn’t going to go back to Grant and say, “Hey, Grant, what can you teach me?” I would always go back to Grant David and say, “What’s next? What do you want me to help you? Can I take off your plate? What’s next?” And he loved that.
I’m always a guy who likes and wants more responsibility. I just kept going back because my bandwidth is there. I have bandwidth, right? We’re at 12,000 units, we have office, we have multifamily. I’m like, what’s next? I think a lot of us get bogged down and like, oh, well, this is a problem. Well, this is a problem. Leaders have solutions. Non-leaders have problems. And for me, I always wanted to come back to Grant with a solution.

Well, we’ve kind of highlighted a lot of the skills that you said transferred over, but one thing that we haven’t really mentioned is that you are now the EVP of Cardone Capital nowadays. And so we’ve heard from your early days and what it was like, but what is your role nowadays in the business? Because obviously things have really exploded since your time at the beginning of this.

Well, now I run Cardone Capital with Grant. So I run Cardone Capital, and Grant is a phenomenal partner in what has happened. I mean, a lot changed in nine years. I think if people look back at what we’ve done, and this goes back to crowdfunding as well, because now Cardone Capital, we’re a crowdfunding platform where we go and find deals. We have our own platform, so we don’t use a lot of these third parties. And we’ve been really successful just going straight to investors who are looking to invest in multifamily real estate. And we’ve really built out a done for you platform where we got great, beautiful, awesome deals and we offer them to retail investors.
We’ve raised one point, almost $2 billion in capital, and our portfolio is $4.3 billion. And look, a lot of our deals are great assets, great locations. And so my day-to-day has changed a lot as we continue to grow the portfolio. But I’m always still very curious and I’m always still learning. And now the team’s different, the deals are different. They’re bigger deals, but it’s really the same thing. And I always go back to this, the people that we have on our team are phenomenal. The thing that I’ll tell people, if you’re just getting started in real estate, you don’t have to have a big team. You have to have really, really good third parties, meaning third party attorneys, third party property managers, third party bankers. You just have to have good people around you.

So it sounds like you’re buying a lot of multifamily. Can you tell us, I mean, obviously your experience as a pilot, how does the pilot’s checklist apply to buying large multifamily as you sort of go down this route?

Well, the due diligence checklist on multifamily is a lot bigger than my checklist as a pilot.

Yeah, I believe that.

And the checklist goes for the debt, it goes for the deal, it goes for the investors, but it’s all transferable. And this is what I always say too, it doesn’t matter if you’re in a corporate job or if you’re a pilot, because really being a pilot is really a corporate job. Everybody who has a skillset of either being a leader or managing a team, you can become a great real estate professional by transferring those skills. So yeah, look, I look at a lot of deals, and I look at a lot of markets. And so again, all of this stuff that I was telling you about earlier is I’ve been to a lot of markets. I’ve looked at a lot of deals. I’ve looked at a lot of deals with Grant. I’ve learned from the best.
I was literally with Grant, and this is what maybe if people didn’t pick up on this. I’ve literally been with Grant for nine years, but for the first six years, David and Rob, I was with him every day. I was with him every day because I was flying. When we were not flying, we were looking at deals. When we were not looking at deals, we were flying. When we weren’t flying, we were looking at deals. Everywhere we would land, we’d look at deals. And when we were overnighting somewhere, typically I would stay with him.

By osmosis, you’re observing the framework that Grant sees the world through, the problems he’s anticipating before they come, and there’s a lot you’re learning in your subconscious. I didn’t think that was a problem. Or he sees opportunity where someone else wouldn’t, or he sees an order to take this deal down. It’s different than the last one in that here’s where the challenge is going to be, not there. Which now gives you the empowered ability to go out there, say, “Let me fix that,” which makes you even more crucial to him. And that’s the secret. If you want someone to become a partner with you, whether it’s romantic, whether it’s business, whether it’s friendship, whether it’s anything, make yourself such a crucial part of their life that they can’t live without you. I mean, that’s really how you take leverage in a relationship.

Yep. It really is, David. And then also you layer that with the rules that are changing because before 2014 and 2015, you actually couldn’t do general solicitation, which is the way you raise money. And so as we’re building this foundation in the real estate, 2015 and 2016 happened. And now the SEC, they started allowing us to go and do general solicitation. And so all of the business owners, all of his friends, all of his power base were reaching out and saying, “Hey, I see you guys are doing deals. I want to invest with you.”
Like Cardone Capital actually started because we did one deal that was $20 million. The debt was 14, the equity was six, we raised $6 million in seven days. And Grant looked at me and said, “Hey, can we do this again?” The next deal was 40 million. So all of these things, you can’t just look at Grant and Ryan and Cardone Capital, like, “Oh, these guys are overnight successes.” We literally built this thing in gradients, and I highly encourage people that are listening, you can do it, too.

But you brought a skillset to the opportunity. That’s just why I really want to plant my flag here. You didn’t bring nothing and say, “Turn me into a superstar,” and then get frustrated when it didn’t happen. You had already done some things in life, and you brought those to the opportunity, and the opportunity to help you flourish.

And I was investing in the deals too, David. So I was at lunch one day with Grant in Chicago, and I started showing him my 21 units. And he looked at them, he’s like, “Man, these are junk.” And I was kind of offended at first. I was like, “Well, what do you mean?” I was like, “This is a A-plex. This is a single family home.” I was like, “This is good to me.” And he’s like, “Ryan,” he’s like, “look at what I’m buying.” And I’m like, “Well, what would you recommend?” And he’s like, “I would sell them all.” And I was like, “You would sell them all?” I went home the next day and I sold them all. I called Eddie, the real estate agent. I called David, I was like, “Sell them all.” And within 30 days…
I mean, Scottsdale was a great market. Within 30 days I ended up with 500 grand. I couldn’t 10-31 because Grant had already bought the deal. He buys the deal and you could roll your money in. So I paid the tax of 100 grand, but I literally took 400 grand, David. And this is really what you said, “I’m putting my flag in.” I took my 400 grand, I invested it with Grant in 826 units in Nashville, Tennessee. And I said, “I am committed to doing this. Not only am I going to time, energy, and effort, here’s my money.” And within three-and-a-half years, that 400 grand turned into 1.1. And Grant, I tell this all the time, grant actually made me a millionaire. And I’m the first millionaire from my family and I’m really proud to say that. And it’s been life-changing working for somebody. It’s been life-changing, working for Grant.

I’ll bet you what Grant saw when he looked at that was the return on equity was very poor, where you were probably looking at the return on in your initial investment. They had appreciated to the point that the cash was not keeping up with how much equity you had. So he saw the inefficiency of your capital, you put it into a new deal with a value add component and stronger cashflow. And so you turn that equity into something that would give you a higher return.

And I didn’t have to work in the day-to-day, too. It’s like I went from 21 units being the manager. Because we all start there, right? And I actually encourage people start, do it, get a fourplex, get an eightplex, get 12 plus, get 32 units. Do it because the worst thing in the world is not doing anything. And then now you have no assets. All you have is liabilities.

And sometimes it takes time. Today’s market, you’re not going to go out there and crush it. Add six figures to your net worth buying a fixer upper that nobody wanted that you found on Zillow. You may have to wait a significant period of time to build that equity up to go do what you did, but still, it’s better than not doing it right. It doesn’t make sense to cry about how easy the market used to be. So you’re not going to invest, well, this is what the market offers today. So how do you build a strategy around that?

Yeah, because as you buy these assets, they will over time, I truly believe, and this is my strategy, is 5, 7, 10 years even longer, you buy the best real estate, you buy great real estate that you want to hold for a long time. You don’t just buy the real estate that’s on a discount because my first deal was on a discount. I made the least amount of money on it because of the location, because of the market. The third deal that I bought, I actually paid the most, but I made 100 grand within 12 months because of the location. It was so good. So it’s interesting, as I did my first deal, second deal, third deal, fourth deal, I started learning. I started picking up on these different pieces where I was like, man, I want to go and invest in that market because the appreciation and the cashflow is better. I don’t want to just go here because it’s a discount.

I’m working on a book like that right now.

Let me and Rob be the co-author on that book, okay?

That’s right. I’ll write the foreword.

Rob did write a foreword once and it was rejected. Nobody wanted it.

It will be a four-word foreword.

A four-word foreword. Ryan, you’ve mentioned that you’ve seen a lot of deals, you’ve underwritten a lot of them, and I understand you now have a two-minute process to underwrite a deal. Can you tell us what that’s like?

Yeah. I mean, so look, day one, when I joined Grant’s team, he used to underwrite a deal. I used to tell him two minutes, it’s actually like 43 seconds. But I’m like, man, if I could underwrite a deal like Grant, then my whole life would change. And so literally what I do, and as you get spooled up, you start learning these markets. And in multifamily, what I do is I just take the number of units times the rents in place, not like what the broker’s telling me, in place rents, and then I just use the occupancy of 94 or 95% depending on the marketplace. And then I just use rough numbers like, okay, my expenses typically in Florida on the East Coast are between 40 and 45%. On the West coast are 30, and so I just, okay, this is what my NOI is going to be based on here’s the income minus the expenses, here’s my NOI.
And so I can solve for on these bigger deals, they all traded a cap rate. And so I literally can underwrite a multifamily deal 300 units within two minutes. And it gives me so much power because now I’m communicating to the broker that I’ve got number one, speed. Number two, I know if it’s a good deal or a bad deal, so I don’t waste a bunch of time on bad deals. But I’ve learned that from Grant and I highly encourage people, if you’re listening, learn how to underwrite really quick. Identify bad deals, move them away from you as fast as possible so that way you could focus on really good deals.

I got to give you some props, man. I’ve been asking every single multifamily operator that I know for something like that for years, and none of them will, because if they leave their spreadsheet, they get separation anxiety, they can’t handle it. We have that with single family houses. It’s called the 1% rule. Basically you throw out everything that isn’t… It doesn’t have to be exactly that, it has to be close to it. And then as interest rates are low, you can get further away from a full 1%, but as they go up, you got to get closer. And then I also learned that the higher price the asset is, the less dependent it is on the 1% rule. So a 50,000 house better rent for $500 a door, but a $900,000 house doesn’t have to bring in $9,000 a month just to cash a positive.
We’re not saying it’s a good investment, but that’s because I’ve seen enough of them that those patterns jump out. And you’re basically saying I’ve seen enough of these houses that I know expenses are X over here and Y over here. And it all goes in the algorithm of your brain and you could spit out an NOI that lets you say, “All right, if we’re trading at a six cap based on this NOI, hey, this is the ballpark we’re going to be in. Can we play ball?” And if they go, “No, no, no, it needs to be something.” All right, we’re done. We’re moving on. Not running it through a three-hour process of putting it into a spreadsheet.

You’re so spot on, David. And also the 1% rule, I still use it in today’s market. I looked at a deal today, it was 140 units. It was like 240 grand and rents it was like 1,900 bucks. And so I’m always looking at that 1% rule because I always know that if I could meet the 1% rule, I’m going to buy every deal. If a unit’s 100 grand and I can get a thousand bucks, I’m buying it, put it under contract, write an NOI, let’s move on. I’ll figure out the expenses, all that stuff later. And also, the bigger the deal gets, the less you have to be to the 1% rule.

Same thing as you have a little bit more slack when it gets bigger.

Because you get economies at scale.

Can you just define the 1% rule for anyone at home that doesn’t know exactly what that is?

Yeah. So if I buy a house for 100 grand, I need to get a thousand bucks per month in rent.

Gross, not profit.



Well, it’s encouraging to hear that that applies at the unit level of the apartment complex. So for clarity’s sake, we’re not saying if you buy it for 100 million, it doesn’t mean it has to bring in a million every single month. What we’re saying is the door count here, if it’s bought for $100,000 a door, if each average rent of these units is a thousand bucks, it’s worth putting through your analysis. I’m looking into deeper, that’s where you’re saying write the letter of intent, get that thing under contract. Let the guys then start to… The beam counters, kind of identify all the exact measurements, make sure that it’s a property you want. But if it doesn’t, you’re throwing that thing out right away. That right there is very, very useful.

If it is 100 million, I’m just trying to understand why the 1% rule wouldn’t be proportional. Wouldn’t it still be if it’s a $100 million building, you would want it to bring in a $1 million gross?

I feel like in multifamily there’s more expenses to take into account than there are with single family, and there’s more income sources, right? So with multifamily, you can have income coming in from laundry, from parking, from storage. It’s not just the rent versus with residential real estate, your only income sources.

That’s true, though. That makes sense.

When we’re spit balling how something feels to us, it makes sense in our head, but if you have to articulate how you got there, you almost got to pull apart the algorithm of your own brain to be like, “Why did I think that was a bad idea?” And hopefully there’s actually logic behind what you said. But a lot of what you’re doing, Ryan, when you’ve looked at so many deals is it will stand out like, oh, that just feels like that’s probably good. You don’t know why, you couldn’t explain it, but when you dive in deeper, you’ll be like, “Oh, that’s why. There’s inefficiency here.” They could bump rents much more than what they realize, or insurance is much higher than what they thought, so they’re not going to get this much money. Sometimes you don’t know exactly why it feels right, but you know that it does.

Yeah, exactly right. And to your point, David, the income in the rent is one thing, but then you also have utility reimbursements, you’ve got other income, and those are really big numbers on multifamily. That’s why it doesn’t have to meet and match the 1% rule on the door count. But what I was going with that too, David, is also knowing the numbers quick, it allows you to be the captain. It allows you to be the guy. Now, in these bigger deals where you have confidence where you could actually start using crew resource management, which is team resource management, which is actually the broker, “Hey, what numbers did you come up with? Hey, what are you showing for the going in yield? Hey, what are you showing debt guide.”
I think people overcomplicate multifamily. And really what I want to instill is saying, “Hey, look, know the numbers really quick so that way you can communicate with the brokers with confidence. That way you can communicate with the debt with confidence.” Because the bigger the deal you get, the more partners you have. And this is actually a safeguard in these bigger deals because the debt’s going to thoroughly look at the deal. My competition right now is these big institutions, whether it’s Blackstone or Starwood, you can go down the whole list. These guys are very, very professional and everything has to check a box. So the sooner you guys can get to these bigger deals, the less risk or the less chance of missing something actually occurs, which is crazy to think about.

Man, that is kind of nuts. At what point, just out of curiosity, at what point will you be a big institution? I mean you guys are growing at such a fast pace.

Well, look, we slowed down our buying over the last eight, 10 months because of the shift. We think that there’s going to be a huge opportunity in the next 12 to 24 months, especially as debt and maturities and where interest rates are to buy assets at a great basis. What I mean by that is if you can buy a deal for 225 a unit and it costs 300 with inflation, everything else to build, we think that long-term over 10 years, those are great buys. But look, we’re competing with them now. It really is just a function of how do you grow and scale the correct way? We’re not in a hurry, but we know we’ll get there. So we’re just really patient. We are very conservative.
I know a lot of people look at Grant Cardinal Capital, Instagram is one thing, but when he goes and invest in money, Grant has a lot of money invested in these deals. He literally takes his money and invests in these deals. For me personally, all my net worth is invested in these deals so we know what will come. It’s just a matter of time. And the cool thing about it’s we’re doing it with retail investors, we’re doing it with partners. Like when I say retail investors, this is just everyday folks. This is just like me and my family and David and Rob and there’s no middleman. So it may take a little bit longer, but when we do get there, it’s going to be together, which is super awesome for us.

It’s amazing, man. What a journey. What a journey. I’m excited. I want to connect with you after the podcast for sure, but we got one more segment for you if you’re willing to indulge us. We call it flight, fight, or fright. And we have three questions for you that we want you to answer that’s each one of those words. Is that cool?

What is it? It’s fight, flight, or fright?

Close. It’s flight, fight, or fright. Okay, we’re going to send you some rapid fire questions here, all right? So first one, fright. What are the fears you had to overcome to get where you are?

I had to overcome the fear of failure. When I first started working with Grant on that 15 units are the 40 units in 40 days, I was actually terrified because I was like, what if I fail? I won’t have the opportunity, but I did it anyway.

All right. Flight. When do you know to walk away from a deal, a job, or an opportunity?

When the numbers don’t make sense and there’s no more growth.

Okay, last one, fight. What were the hardest lessons you had to learn in real estate?

The hardest lesson I had to learn was not doing it myself. So the hardest lesson that I had to learn was in my mind, my dad always taught me that I want to control 100% of everything. The hardest thing for me to undo was that partnerships are really, really good, and they actually accelerate what you could achieve if you partner with the right people.

Awesome. I like that, David. That’s kind of a mental or a mindset deal deep dive almost. It’s like the mindset version of it.

And Ryan, you gave awesome answers. It’s almost like you’ve been training for this.

Nobody even prepped me for that. That was kind of like random.

Well, thanks, Ryan. This has been an excellent show. We covered how to get started with the advice that you have. It doesn’t have to be perfect. So your uncle gave you some advice for how to get you going in real estate. You built a portfolio that eventually Grant Cardone told you was crap, but it doesn’t matter because that crap got you to a point where you could even be called crap and you could put it into something better. We talked about the right way to reach out to somebody and we gave a framework for everybody that’s trying to get an opportunity. I hate the spaghetti against the wall method. Just send a bunch of DMs and hope that something sticks.
Actually come with something feasible that you’re proposing, and be humble, like you said, just “I’ll work for free. Let me prove my way.” But if you get in the right environment, that will get you to the top. You’re now running Cardone Capital. If that’s not a great example for everyone to follow, I don’t know what is. We talked about underwriting deals quickly, right? Not getting too caught up in the mess. That does not mean that you’re going to buy a property based off of a 43-second underwriting system, but it does mean that you’re going to get your foot in the door and that you can move with the power players. Those brokers are trying to figure out who’s legit and who’s kicking tires. And you kind of put yourself as a front runner in that situation and then take some time to analyze the deals.
And we talked about buying properties, thinking about the future, not just right now. What do you expect rents to do in that area? What do you expect jobs to do in that area? Is there going to be more supply coming in or is supply somewhat constricted? When we had Grant on the show the first time, he actually talked about how he likes to buy in liberal areas because they are less likely to issue new building permits, and it’s a way of eliminating competition. It’s a different way of thinking that your typical investor that just runs it through a calculator and says yay or nay. Is it taking into consideration? Rob, anything you want to add there?

No, no. You covered every single thing. And just going back to your thing about people reaching out at everything. You mentioned getting your foot in the door. There was this old adage back in the day or this old kind of urban legend of this guy that really wanted to work at a very prestigious ad agency. And so what he did is he sent a shoe to the creative director with a note that said, I just wanted to get my foot in the door. So I just wanted to know would that work on you, David? Do you think that would be a way to get through your DMs if everyone just sent you a shoe?

No, that’s the opposite of what I was just saying, people, come with a plan. Don’t try to be cute. “I’m so clever. I sent David a shoe.” And I get the shoe and I’m like, “Well, now what do I do with you?” It always sounds good when you hear the story and it just turns into a Cinderella tale. But no, that isn’t. Unless inside the shoe you have a business plan and you tell me what your skills are and say, “Give me a shot. I’ll do this thing for you,” and then you can see how it looks. All right. Well, thank you, Ryan. Man, this has been fantastic. I really enjoyed getting to know you and thank you for sharing things. Where can people find out more about you?

Very easy. Social media, Ryan Tesko. YouTube, Instagram, cardonecapital.com. I mean, I’m very out there. I’m very open. I typically give people my cell number, but I’ll leave it via social media and also the website.

And Tseko is spelled T-S-E-K-O. So that’s RYAN T-S-E-K-O. Go give Ryan a follow. Rob, how about you? Where can people follow you?

Oh, you can find me over on Instagram or Threads or YouTube at Robuilt, R-O-B-U-I-L-T. I teach people how to do real estate, Airbnb, short-term rentals, investing, life, liberty, the pursuit of happiness, and everything in between. What about you, David?

Find me at DavidGreene24 all over social media including Threads and Instagram and everything else. Or at DavidGreene24 on YouTube. My website’s davidgreene24.com so thank you for saying that. My social media used to be pretty boring, I will admit, but it’s been stepped up quite a bit, so.

It’s fired now, my friend. You have done it.

Absolute fired. If my social media had a glow up, it would be Ryan going from a pilot to Grant Cardone’s pilot, and now running Cardone Capital. So just like you don’t want to miss out Ryan’s story, you don’t want to miss out on my social media. How was that, Ryan?

So basically David’s social media is the Ryan Tseko of social media.

That’s what I’m saying. Yes, thank you for clarifying that. This is David Greene for Rob, the Fire Hydrant, Abasolo, signing off.


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Trading volume in the mortgage servicing rights (MSR) market this year is still on track to reach or slightly exceed 2022’s $1 trillion mark, with trading volume in the fourth quarter of this year projected to be robust as market players race to finish deals prior to year’s end.

Still, there are challenges facing the MSR market related to the staying power of the huge volume of mortgage servicing rights now being traded that are pegged to legacy loans at low interest rates — in the 3% to 4% range. 

That challenge is compounded by the low level of new-loan production now being booked at much higher coupons in the 6% to 7% range. MSRs linked to those higher-rate loans tend to have lower values compared with legacy MSRs due to the higher risk of prepayment when rates start to decline.

The tailwinds, however, also are strong, with a high level of investor interest in acquiring MSRs, which are seen as solid, relatively safe investments. That demand means now is an opportune time for smaller, struggling independent mortgage banks (IMBs) to sell MSRs to manage cash flow and their balance sheets as pricing is likely at a high point in the market.

“I would say a $1 trillion-plus year [for MSR trading volume in 2023] is not a bad estimate,” said Mike Carnes, managing director of the MSR valuation group at Mortgage Industry Advisory Corp (MIAC). “The prime time for getting a deal in the market would probably be this month or next month. 

“People are trying to get their deals done before the end of the year, so what a lot of them will do is they’ll get their deals out now with the intention of closing the deal by November.”  

For bulk public auctions alone, MIAC since the start of the second quarter this year has brought to market a total of seven MSR agency offerings valued at nearly $11 billion based on loan-portfolio balances, with three of those deals going to bid this month, according to Carnes. He said MIAC has overseen another $40 billion in MSR offerings via private deals.

Tom Piercy, managing director of Incenter Mortgage Advisors, agrees that MSR trading volume by year’s end should be in the $1 trillion range. He said there was a “tremendous amount of volume” in the first half of the year, adding that there was a bit of a slowdown in MSR trading volume in the third quarter of this year.

Incenter has overseen 10 bulk agency MSR public offerings since the start of the second quarter of this year valued at nearly $76 billion based on loan-portfolio balances.

“I would say 50% to 70% of our deals are done now on a negotiated nonauction basis,” Piercy said. “In a span of about six weeks [earlier this year], we did multiple trades that totaled in excess of $100 billion.”

The bulk of MSR trades to date have involved legacy loans with “a sub-4% WAC” [weighted average coupon], Piercy said. Carnes noted that most of the outstanding mortgages nationwide “now have an interest rate of 4% or less.”

“My concern is ultimately these low WAC deals … how much of it is really left [to trade]?” Piercy added. “We’re at [roughly] 30%, of where we were two years ago in the number of [new mortgage] units being originated, so that’s going to dry up [the legacy MSR trades] and then you’ve got this low [new-loan origination] volume. 

“I’m very concerned with where the volumes will be 12 months out that will satisfy some of these objectives for these MSR investors. And that’s a headwind for the market.”

Nick Smith, founder, managing partner and CEO of Minneapolis-based private-equity firm Rice Park Capital Management, an active MSR buyer, agrees that many of the MSRs tied to low-rate legacy loans are going to be purchased by new owners who are willing to own them for a long time. That means they will not be traded again any time soon.

“Right now, a lot of them [MSRs for legacy loans] are controlled by transitional owners, which are the IMBs that originated them in 2020 and 2021, and now they’re looking to unload them,” Smith said. 

Unlike Piercy, however, Smith is far more bullish on the staying power of the legacy loan MSRs. He points out that the total supply of legacy loan MSRs is in the range of $6 trillion — a byproduct of the great refinancing boom in 2020 and 2021.

“There’s trillions of it left [to trade],” he stressed. “I mean, 74% of the market refinanced in two years, and there’s maybe only $2 trillion to $3 trillion that’s traded in the last few years. 

“That means there’s still roughly half of it that’s left to go, and that’s in addition to just the normal production that’s being produced now.”


Azad Rafat is senior director of MSR services at Mortgage Capital Trading (MCT), which provides advisory and brokerage services primarily for smaller MSR deals — typically less than a $1 billion. He said the smaller MSR deals involve sellers that are generally the group most impacted by the higher interest rates that have devastated origination volumes since early last year, and many are selling MSRs to make ends meet.

Since the start of the second quarter, a total of at least 10 bulk agency MSR public offerings valued at $5.3 billion have been brokered by MCT and/or its partner Prestwick Mortgage Group. Rafat said MCT tends to serve smaller IMBs.

“Most of the companies during this year and toward the end of last year, they started releasing more MSRs than they retain,” Rafat said. “Typically, we see for the industry average about 30% [MSR] retention and 70% released [or sold]. 

“However, some IMBs are literally releasing 90% to 100% of their [MSR] production.”

Rafat said for these lenders, the value of the remaining MSRs held in portfolio starts to be impacted negatively — if not replenished — due to natural runoff from prepayments and also from the impact of amortization.

“Literally, every other week we have different clients come to us and say, ‘What has happened in my portfolio [because it’s losing value]?’” Rafat explained. “They’re not adding enough [MSRs] to replenish the paydown from principal payments along with regular prepayments [due to death, divorce and relocations, etc.] 

“Every single principal payment that comes in increases month over month [while the share going to interest decreases], so you have a passive, natural principal amortization just by the borrower making regular payments. So, it’s not benefiting the overall MSR portfolio that they have on their books.”

Rafat added that he is seeing smaller IMBs trying to manage their MSR portfolios, “and some of them are thinking about exiting [the market] completely.”

“Definitely a lot of them are facing financial stress,” he added, “and we are also getting inquiries from IMBs looking for other IMBs to acquire.”

MSR investors

Rice Park Capital’s Smith said the MSR buyers in the market now include private investor groups that simply own MSRs and are seeking to expand their portfolios. They include Smith’s firm and other major investors like Annaly Capital ManagementGrandeur Peak Global AdvisorsSeneca Mortgage Investments and Marlin Mortgage, among many others. 

In addition, another class of MSR buyers are what Smith describes as “hybrid investors,” which “both create mortgages, and they invest in mortgages,” including MSRs. They include players such as Lakeview Loan Servicing (a member of the Bayview Companies), PennymacMr. CooperRithm Capital and Two Harbors Investment Corp.

A third group of MSR buyers (and sellers) are traditional IMBs, “which are in the business of making loans and selling them off to the market,” Smith said. They include large mortgage lenders like United Wholesale Mortgage (UWM), CrossCountry MortgageloanDepot and Movement Mortgage as well as a host of smaller IMBs with a few billion dollars of origination annually or less — many of them just hanging on for survival until the market improves.

“And I think that group is in a little bit of a limbo because they aren’t making money off originations generally, and as an industry they’re [IMBs] losing money,” Smith said. “They’re net sellers of MSRs to the market. 

“So, they’re just on a treadmill in which they make loans, … and they sell them off [including MSRs] into the market, and until the market turns, they’re going to have a hard time making money.”

The banks

Smith added another major group in the MSR market is the banks, which as a group, he said, have “flat or shrinking” MSR portfolios, “with the exception of maybe Chase [JP Morgan].”

Bank agency MSR holdings totaled $2.78 trillion in 2018, according to data provided by mortgage-data analytics firm Recursion. As of September 2023, bank agency MSR holdings stood at $2.75 trillion — essentially flat. For IMBs over the same period, according to Recursion, MSRs holdings increased from a total of $3 trillion to $5.8 trillion, up some 92%.

An example of a major bank that has been shrinking its MSR portfolio this year is Wells Fargo, which went from being the top holder of all-agency MSRs as of June of this year to No. 4 as of September, according to Recursion. Ranking ahead of Wells now are Lakeview Loan Servicing, Pennymac and JPMorgan.

Wells Fargo’s MSR third-party servicing portfolio shrunk from $666.8 billion as of March 31 to $609.1 billion as of June 30 in the wake of a selling a $50 billion block of MSRs, U.S. Securities and Exchange Commission filings show. The buyer, according to industry sources, was Mr. Cooper.

“During the first quarter, we successfully marketed mortgage servicing rights for approximately $50 billion of loans serviced for others that we expect to close later this year,” Wells Fargo Chief Financial Officer Mike Santomassimo said during the bank’s Q1 earnings call. “We will continue to look for additional opportunities to simplify and reduce the size of our servicing business.”

Smith said based on the public comments that Wells Fargo has made about looking to curtail their servicing portfolio, “I think it’s reasonable to expect they’re going to keep doing that until they trim their portfolio to the size that makes sense for them.” 

“They didn’t say how much they would sell,” he added, “but I think by deduction the number that they have to sell is much larger than what has been sold so far.”

Piercy stressed, however, that banks remain opportunistic MSR buyers, focused on conventional Fannie Mae and Freddie Mac MSRs, while IMBs continue to dominate in the Ginnie Mae sector — which involves higher-risk loans.

“The MSR asset itself for a bank is really attractive because what does it do?” Piercy explains. “It gives them access to customers via recapture capabilities, but as importantly it’s a source of low-cost deposits.

“Those escrow balances are worth something now, which they hadn’t been for years. You’ve got escrow balances [for taxes and insurance] now that earn upward of 5%, if not more, So there’s a tremendous amount of value of the MSR asset to a depository.”

Recursion’s most recent MSR market report, current as of September 2023, provides the following information on lender MSR rankings for both banks and nonbanks.

All-agency MSR ranking based on holdings and market share: 

1. Lakeview (7%); 2. Pennymac (6.6%); 3. JP Morgan (6.2%); 4. Wells Fargo (6.2%); 5. Mr. Cooper (5.8%)

Freddie Mac MSRs: 

1. JP Morgan [10.4%]; 2. Wells Fargo (6.8%); 3. Mr. Cooper (5.8%); 4. Pennymac (5.2%); 5. Rocket Mortgage(4.4%). 

Fannie Mae MSRs: 

1. Wells Fargo [6.9%]; 2. JP Morgan, (6.5%); 3. Rocket Mortgage (6.4%); 4. Mr. Cooper (5.8%); 5. Lakeview Loan Servicing (5.4%).

Ginnie Mae MSRs: 

1. Lakeview Loan Servicing (13.5%); 2. Freedom Mortgage (12.4%), 3. Pennymac (11.6%); 4. Mr. Cooper (5.7%); and NewRez/Rithm Capital (5.6%).

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