Are Rental Properties Really Worth It?

Dan Austin: [0:00] I guess the moral of the story might be is, like, don't suck ass for thirty years because you think you should own the property that long. Totally.

Mike DeHaan: [0:13] What's going on, guys? Welcome to this episode of the collecting keys Real Estate Investing Podcast. Today is the Mike and Dan show where I, Mike DeHaan, and my cohost here, Dan Austin, talk about real estate investing business and whatever is on Dan's mind, which always seems to

Dan Austin: [0:30] be something completely random. So random. No, I was trying to say before you so rudely interrupted me at this podcast that I think I was like, I think I wanna become a hack guy. I'm gonna get a hat, like the Sub two hat, but I need a I need a hat.

Mike DeHaan: [0:41] We need like a I mean, if you got like a collecting keys hat, but we both have stuff for that in the background. So we need like different side. We need a we need a Dolby a square peg hat.

Dan Austin: [0:49] That'd be a cool hat, actually. Yeah.

Mike DeHaan: [0:51] I think so, actually. We just have like the little square peg logo.

Dan Austin: [0:54] Yeah.

Mike DeHaan: [0:54] My my wife has that all designed. I just need to like give her the final write off on it, and we can get it up on the store. Yeah. Let's get it out there. But we have we have some other good ones that are showing

Dan Austin: [1:04] up there. So I need to add to my shirt collection.

Mike DeHaan: [1:06] Yeah. No. We need to do the full Collecting Keys line, which you can get at store.collectingkeyspodcast.

Dan Austin: [1:13] I'm wearing a personal shirt right now, Gonzaga Bulldogs shirt, which I don't care about, so I need something a little more spicy.

Mike DeHaan: [1:20] I'm pretty sure every shirt that you wear is something that you got for free from somewhere. But Actually, I probably paid for this. Come on, dog.

Dan Austin: [1:27] Gonzaga doesn't get anything away for free.

Mike DeHaan: [1:28] Nah, dude. Your wife's grandma probably gave it to you.

Dan Austin: [1:31] Was like, oh, you would pay. Yeah. God rest her soul.

Mike DeHaan: [1:34] Anyways, real estate. We have some drama going on in the rental property world. So typically on this show, we talk a lot about our wholesaling business. We talk about, you know, our mastermind community, where other people are doing wholesaling, they're flipping houses, all sort of stuff. And occasionally, we talk about our rental properties, which we have accumulated over the past number of years. But as we have just been trying to scale towards more massive income, which makes passive income just less enticing, I mean why would I care about $500 a month in passive income when I can instead make $50,000 a month from wholesaling properties, I'm being completely honest. Especially because I'm not a bum who wants to go sit on the beach, I actually like to kinda do stuff and make money. You know, it just draws your attention. But we still do have a bunch of rental properties, and I'm very excited because you said that we have some great news, or not great, we have some kind of news to discuss on the show today. So if we can have a meeting.

Dan Austin: [2:28] Yeah, I didn't say drama or anything like that. It's what I would call just another day in the world of being a landlord. I feel like it's funny because we haven't bought a lot of properties recently because of what you just said. Mhmm. But I feel like now, this year, we've had the most amount of just wild ass stories that happened. And you're like, how did that happen? How did we get through buying properties with meth head tenants and evicting them and going through all this sort of stuff, not come across crazy situations like we do this year?

Mike DeHaan: [2:58] I mean, think, because we bought most of our stuff in 2020, I guess, so we bought a bunch of stuff ourselves, 2008, 2019. We joined up 2020, started buying a bunch of things in 2020, 2021. And I think we only bought a couple properties last year because the market kinda turned over. So I think we're probably starting to see the effects of tenant turnover and different things because people don't stay on properties forever.

Dan Austin: [3:22] It's like that five year mark kinda thing.

Mike DeHaan: [3:24] Yeah, that three to five year mark where things aren't happening with properties, things start turning over. The parts of real estate that like the, oh I have cash flow and I also do anything, people never tell you about, while they're like taking pictures on the beach and they're just like, oh I have all these properties, don't think about it. Yeah they do, they just lie and say that doesn't actually happen, but

Dan Austin: [3:45] they do all the time. Yeah, yeah, that's actually a good point because you talk about cash flow and what people, most people, if you are working with a seasoned investor, not somebody that's buying thousands of apartments, that's a whole different thing. But somebody that's buying smaller multi families, six, ten, 20 units, and predominantly single families and duplexes, they usually have a number of cash flow net net, and what we mean by net net is legitimately after you've paid for expenses and put enough set asides to round out the year, because you know you might have the fridge in July, so you gotta save up x amount per month. Right? So net net would be after all of that of $1.50 to $2.50 a door. That's probably like the range, $2.50 being on the high side for most investors. Now, we have units that cash flow vastly higher than that, right? Mhmm. Like, if we're gonna go out looking for stuff, that's on the radar of like, okay, $2.50 door's not bad. And then, you throw on what is your cash on cash? Because a two fifty door means your cash on cash is like 6%. Get out of here with that shit. Uh-huh. Your cash on cash at 250 door should probably be like at 250 door, you'd probably be at like 12 to 15% is where you'd wanna be. Ideally.

Dan Austin: [4:56] Yeah. Ideally. If you're getting less than that, you're putting a lot of depending on how much money you're putting out there, again, if that's a $100 that it costs you to get 12 to 15%, like, who gives a shit, right? Like, there's a scale of like what you're risking. So, if you're getting 12 to 15% on 50 k, 100 k, that's a good return, but if you're getting less than that, then go somewhere else, because honestly, you can invest in a business and make vastly more money, or you can just go put in the stock market, or another much, much more passive investment than landlording, because even if you have property managers, landlording is not passive, it's an active business. The more and more we do this, and the more and more we own, just the more and more I I call it active, like, on my goal sheet for GoBundance, I should just switch all of that income to active. Mean, honestly, you Yeah,

Mike DeHaan: [5:44] like your horizontal income to vertical income. Right. I mean, you know, there are other benefits to real estate though, right? Oh, exactly. Not just the cash flow, like you have the appreciation, can use leverage to buy these assets, you get tax benefits, all that sort of stuff. I mean, which is honestly the reason that we've been able to become successful, is because our properties have grown in value so much, but we also hit the boat before stuff. Crazy. Were beneficiaries of that, right? Because we were taking action back before anyone knew that was going to happen. And I'll say, ultimately you just need to look at what your real estate goals are. And if you have a long term time horizon, you can look at those other things besides cash flow. If you wanna be like doing well like right now, you probably need to build on some more active income stuff. And you can't just like expect it to come from passive cash flow because that takes a very long time to build because the capital is needed. Yes. And also too, like the way that the business works, you will always have these unexpected expenses that come up regardless of what people tell you. Regardless of where they say, oh, shit a good property manager, all things, that's all nonsense. Like, We have done this so many times, talked to so many people, and every actual operator that we know that isn't just like an Instagram person will tell you that's all for shit.

Dan Austin: [6:57] A true business, and you have to run it as such so that you can protect your investment. Like, when I guess, to pivot a little bit before we come back full circle on this, like, I like to think about it when I'm playing with house money. So when I first started, like when we came together, most of my money contributed to the company was from rental property cash flow. Flow. So, I was reinvesting that money, and I was basically playing with house money at that point. So, I'm not losing, I mean, if I lost money, I'm losing money, right? But, it's not actually coming out of my savings account, so to speak. And so, when you get into this, a lot of people like to do what we started out doing, which is start an off market business, because you can wholesale and you can flip. And now, if you have a profitable wholesaling and flipping business, if you're doing it correctly, you can use that money, the house money, to invest in your long term rental properties, which eventually, if you do this well enough, you're gonna need that because you're going to want another vehicle for investing that's going to have appreciation and cash flow built in, but also the depreciation is a great thing to be able to offset some of those high profits you get from flipping in wholesaling.

Mike DeHaan: [8:00] Yeah. Well, that's such an important piece too, is that is how you really accelerate that, right? Is having that active income to be able to buy those properties, or learning how to buy the properties at a discount so that you can actually do the BRRRR method and recycle that money.

Dan Austin: [8:14] There you

Mike DeHaan: [8:15] And a lot of people miss that, because they don't wanna do the dirty work. It sounds like too much work. So instead, they go look at these ten, fifteen, twenty year time horizons, which is fine, but it's when you have people that wanna retire from their job, you wanna have financial freedom in like a two year time span, you're not gonna find that without doing that heavy lifting to generate that large income to be able to invest right now. Really the only reason we've been able, put away on like 50 whatever doors between two of us, I mean there's a couple that we own separately. We were able to do that in a couple of years because we had that huge amount of income that was coming in, that we could just dump in our properties over and over And and over because we were buying at a discount, we didn't have to lock up that money. And that's not possible if you are just kind of like going the traditional method of looking on the MLS, saving for your next house, you know, collecting your 15% cash flow.

Dan Austin: [9:04] Yep. You can't do much scale. Scale's the name of the game in real estate. Yeah, absolutely. It really is.

Mike DeHaan: [9:09] So, yeah. So what's going on with our stuff? I have no idea, because you handle that kind of our business, so I'm honestly out of touch.

Dan Austin: [9:16] I was on my way to record this, and whatever the guys at our property manager company called me on our sixth unit in East Spokane here.

Mike DeHaan: [9:23] Nice. In the hood to be fair. It's pretty I

Dan Austin: [9:26] actually like that very short strip. It's not bad.

Mike DeHaan: [9:30] And it is like a nice property for the area. It's way better than the seven unit that we flipped three blocks down that was a hellhole.

Dan Austin: [9:37] That's a different part of East Spokane. It is. Anyways, so yeah, we we go in there or he calls me, he's like, yeah, so we we got a bed bug problem, which I've never had to deal with bed bugs. I do know it's an extreme situation, and it's like, it's not easy to deal with. And so we have a tenant there, one of the units, crusty old guy, he smokes in the unit. Like, he's an inherited tenant that we've had. He's been on month to month lease since basically we took it or we we we bought it, took it over. Anyway, so yeah, the party manager calls and he's like, yeah, so just wanted to let you know we have bedbugs in so and so's unit, and we looked at the other units, it hasn't spread, so we know it's him, like he's the cause. And I was like, okay, cool. And so it's $1,100 to get rid of the bed bugs. This is the pest control company's been out there. I'm assuming that's like $1,100 to treat it. Doesn't necessarily mean it's gonna go away. And we can bill that to the tenant because it's, I guess, dirty tenants cause bed bugs. I don't know how you get bed bugs, like, I've never had them, but apparently, by being dirty, somehow you breed them, or maybe you bring them. Maybe it's like fleas, like, bring an animal in, and a lot of fleas, you get them. I have no idea. Don't know anything about bed bugs. We're not like a very buggy part of the world Yeah. Washington.

Dan Austin: [10:51] Like, not a lot of bugs around here. Mhmm. So anyways, we got the and the the funniest part about this was is he was kinda like hemming and hawing. He's like, yeah. So I don't know what you wanna do. Like, maybe evict him. I was like, yeah. Get rid of him. I was like, I don't want him in there anymore. He's dirty. He's brought bed bugs to the building. He's been smoking in the unit, which he wasn't supposed to be doing anyway, so the unit's dirty. I was like, we're already turning another unit, so we're gonna be on-site with blueprint of how to turn that unit. So I was like, get rid of this guy. And he's like, okay, good. I was like, yeah man, I'm down the cloud, I'm like, let's go.

Mike DeHaan: [11:25] Yeah. It's such a funny thing, right, because the property managers are like that because most landlords, they are small time and they are kinda like the scenario we were talking about before where they don't have any sort of large form of income. They are typical income earners who have invested in properties over the years. So for them to put in the investment to turn a unit is a really big deal.

Dan Austin: [11:50] Yeah. You know? And not the easy decision to make, in the long term, when you think about it, bad tenant bringing bedbugs is gonna disrupt the other tenants. He's probably not great for the property. We're already turning another unit, so I'm hoping to get a nicer, higher end rent for that, and a nicer, cleaner tenant. If we can do two at the same time, and next thing you know, you start turning it, and then you change the whole dynamic of the building, and that is the long term play you want.

Mike DeHaan: [12:15] And that's being a professional investor versus you know kinda like a mom and pop, right? Is having that long term vision, understanding that. And to be fair, a lot of the people that go the other way, I mean a lot of people that are in the other position, they wouldn't update it, they'd like, oh he's paying rent, like he's section eight, it's fine, leave it alone, I don't wanna stir it up. Yeah, we just raised the rent too,

Dan Austin: [12:34] which is funny, I know he's gonna pay, so he wasn't paying rent.

Mike DeHaan: [12:36] Yeah, so I mean like there's the whole thing there, and most people would just leave it, and then sure enough they go two, three, four, five years down the track, start to have problems, they decide they wanna exit, no one will buy the property because it's terrible, and they call us, and then we buy it for 60¢ on the dollar. Is honestly how we bought this property too.

Dan Austin: [12:54] Exactly how we bought it.

Mike DeHaan: [12:55] You know, was an old guy who had these tenants that he had neglected for twenty years, the place had a bunch of random things, he was a really weird old kinda crusty dude and was very uncomfortable with the type of people that were in the property, and so we bought it from an amount of screaming deal. I think we bought it for like what 600? It appraised as we closed for $7.75, and once we get things at market rent, this thing should be worth a million bucks.

Dan Austin: [13:19] Yeah. It will be conservatively in this market, especially where we're gonna go with the prices, so it's gonna be pretty sweet. And yeah, it's one of those situations where we took this thing over and we've had tenants in there. We haven't actually had any units turned. And because a lot of them were section eight, we were waiting to raise the rents because you can only raise rents once a year with section eight housing, at least with our Spokane Housing Authority. I don't know that nationwide is a fact, but anyways, the whole situation, like, with our old property manager who we bought it and put it under property management really delayed this because they screwed up the process of rent increases, and what do you call it, actually signing new leases because they're all on month to month. Well, here's the challenge for all of our Washington state listeners. If you're month to month, you have to give people one hundred and twenty day notice to move out.

Mike DeHaan: [14:06] That's crazy.

Dan Austin: [14:07] So, we got Bedbug Boy for another one hundred and twenty days. His rent's going up in September 1, and then so we have to wait, basically, so what is it, October 8, so one hundred and twenty days does not end, one hundred and twenty days from today ends from September 1, right? Because the way they make it line up is it's gotta be before the first of the month that you have to issue it. So that is a tough thing for Washington State landlords to deal That with was a change, was it last year that went into effect? And the whole month to month, which now is why most landlords here in the state, if you're tactical, you do not let your leases go month to month. You actually just make it so that they're, I can't remember what you call it, tenant in sufferance or tenant in whatever. Yeah. Where they basically have to leave after twelve months if you don't sign a new lease.

Mike DeHaan: [14:51] See, this goes exactly to what we were talking about before, about how we can never be truly passive, because we literally bought it. We had a property management company who was owned by one of the big dick investors in town. Good. Has a very good reputation. His property management company is absolute garbage. Try. Like the worst company in town because it's like one lady who's inept, but they sure talk a big game, they have like a whole about how they're gonna do it. And then, so they had this situation, right, where we bought this house part like a year ago, and now we're finally dealing with it because they failed to do what they needed to do right out the gates. And that's not even talking about the other shit that she sucked out. Like I had some

Dan Austin: [15:31] Oh, yeah.

Mike DeHaan: [15:32] Single family homes that I was in the process of turning that I had tenants with out. She was supposed to lease up, and it took her two months to lease them up. Oh, it actually took her two months and they weren't leased up. Then finally I was frustrated, so I just went and posted pictures myself on Facebook and had them lease up in two days.

Dan Austin: [15:48] I don't know what

Mike DeHaan: [15:49] the fuck she was doing. The thing is you can't even necessarily verify that, because this is a company that is literally owned by one of the top companies, like top groups in town, and has apparently a lot of units that they do that they manage. So I'm like what is this situation? And that's where the work comes in if you're trying to make it passive is you now have to manage the manager.

Dan Austin: [16:10] That's your job.

Mike DeHaan: [16:11] That's your job, right? And even with what you're doing right now, there's a situation, the management still needs to talk to you about it, and help you strategize what exactly you want that to look like.

Dan Austin: [16:19] Right. And you're playing telephone, right? Now you're getting filtered information from the property manager, which you're hoping that they're doing a good job, but if you're having to manage a situation like this, you have to assume that the property manager's conveying the accurate information to you, or the most accurate information, and that they're saying the same thing to the tenants that you want them to. And rarely does that happen. It seems like when the situations are a little complicated or complex, it takes vastly longer than you would hope because of that third person that's in the middle of you and the tenant. The conversations just kinda get out of hand.

Mike DeHaan: [16:50] They do all the time. And just for weird things, because they're humans that are involved at every part. Many years ago I had a different property manager, who was managing my units, and it's like an older female. She was actually pretty organized, no care what she did. But the problem was there was this certain arch type of tenant, which are basically women that were the same age, and they would always just frickin' butt heads, to the point that it would cause problems. Because I had tenants that would sort of fit that MO, and the property manager wouldn't talk to them, and they wouldn't talk to the property manager. And they would always talk shit on each other. And I was like, You wanna know what's really trashy? When a property manager calls you to talk shit on the tenant that you have in your property. Who does that?

Dan Austin: [17:37] Right. Yeah. That's

Mike DeHaan: [17:38] You know? It was just like a nonstop thing. And I was like, what is this fired her to? But it's part part of the game.

Dan Austin: [17:44] Part of the game.

Mike DeHaan: [17:46] So we're getting that one leased up at Christmas

Dan Austin: [17:49] with the I know.

Mike DeHaan: [17:50] With an entire rent.

Dan Austin: [17:52] Wow.

Mike DeHaan: [17:52] What else we have going on?

Dan Austin: [17:54] That's actually like the only terrible thing. We still have units that we're trying to lease that have been for lease for a month and a half, but like Yeah. You know, that that also speaks to So we had two units come available about the same time, and one is actually leased. They're gonna move in mid month, so that's good. The other one I'm actually waiting to hear back. And this actually is a good point to discuss because, and I was reading some news articles about this as well, like rents have peaked. We're kind of at the top, and I think last year in Spokane, probably this time is when we hit the peak. Probably, yeah. And we were fortunate because we locked in rents like really high rates on some of our buildings that we even, were like, Jesus, I can't believe we got that. Okay, sweet. And now, trying to get the same rent a year later is just not happening. It is, kind of, but the people are less qualified. It's just, it's actually tougher out there to get tenants in some of these buildings at the same or slightly below rent. So I think for many markets, we're gonna start seeing some backsliding on rents. So don't think that because you have a duplex in that same neighborhood that rented last year for 1,500 a side that you're gonna $15.50 or even 1,500 a side this year.

Dan Austin: [19:04] Yeah. That's a really valid comment. Or be open to being vacant for a month while you wait. Yeah. And is that worth $50?

Mike DeHaan: [19:12] Exactly. I mean, and that's a big thing is a lot of people don't account for those numbers, especially if they started in real estate between 2020 and now, because they're used to being able to rent stuff out very, very quickly. But back when we started, 2018, 2019, that was kind of the golden rule was you expected to have at least one month of vacancy every single year, like a minimum. Right? So you included that into your numbers. Well, there's no way you

Dan Austin: [19:36] can turn a unit any faster because if you think about it think about it this way. When you're because a lot of times it's easy habit to just come up with a percentage number of like, okay, percentage of rent. Well, percentage of your rent is two weeks that you're accounting for vacancy, like, likely, you're not I mean, you I don't know that you could turn a unit in two weeks. If the market's super hot, you can. Like, there were some times last year where we could. But if you think about getting the tenant out of there, making any needed repairs, getting the thing cleaned, getting it listed for lease, If you're trying to do all that stuff before they actually move out, you can get ahead of the game, you can do that, but then you're also looking for people that can move mid month, which is most people's leases are up. And the challenge with tenants becomes they seem to be more mobile. They seem to be more active in trying to move up in life, or move lateral, or do stuff because it seems like nowadays, the last few years anyways, a lot of our tenants have been twelve to twenty four months. Very few, unless we inherited them, are like, yeah, I'm gonna be here forever. Like, we have one dude out one in of our duplexes, like, I don't know that that guy will ever leave.

Dan Austin: [20:36] Like, we've raised his rent, and we've never never had to rehab his unit. He's like the perfect inherited tenant.

Mike DeHaan: [20:41] Yeah. I mean, and he even said, he's like, I'll pay whatever you want, just don't make me move.

Dan Austin: [20:45] Yeah. Okay. Alright. Cool. Yeah.

Mike DeHaan: [20:49] So now it interesting. After a while it starts to get to this point where it's like, especially since our stuff is appreciated so much, there's a few things you track as rental properties. Obviously you have your cash and cash return, which is huge. But you also have the return on equity, which starts to become a thing to consider, especially if you own properties that are appreciated in value a significant amount. Because you can have a good cash and cash return, but eventually that return on equity starts to get lower and lower and lower. And I look at some of these properties that I own that I make $400 a month on, but then my actual equity that's in there, if I sold it I could walk away with like $180. So it gets to a point where it's like, is it really worth keeping? Especially with where we're at in the market, where I don't see the market going ham again anytime soon. What I personally think is that the market's going to be relatively flat for a very long time. Might have little fluctuations here and there, but I think that what interest rates are, the way that the affordability situation in The United States is looking, that properties are not going to increase in value a large amount.

Mike DeHaan: [22:00] So I'm like, should I keep rolling with it or should I look to sell out at this point?

Dan Austin: [22:05] Well, so I did the math for you. If you took a $180,000 net and you put it in the hard money business making 12%, you would make five times as much money, no, four times, sorry, a little over four times as much money in extra passive income. True. And then you could roll two thirds of that back into it, so it continues to appreciate and still get the cash.

Mike DeHaan: [22:26] There you go. And see, and that's the thing is I can compound that too, With our hard money business, or with funds, with different things And like with no real downside risk. It's not like I don't have to worry about a roof causing an issue, or a refrigerator going out and things like that.

Dan Austin: [22:45] The interesting thing about this actually, this popped in my head. When you run an off market real estate business, like we do, like many of our listeners do or want to do, when you have the ability to market to and buy discounted properties, selling a property and repositioning that money is less of a risk to you long term than if you had to wait to buy that deal till a wholesaler brought it to you, until you could afford a house hack it, or however, the MLS deals that are, right, if you're just popping them off, slim pickings, kinda like we were before we started this business, where like, man, selling a property that you got a good deal on, that would suck, because you're like, I don't know when the next time I'm getting a good deal. But you could take this $180, drop into an LP investment, which can be and is pretty dang passive, right, other than managing and making sure you're getting your money and your return. Mhmm. Like, you can drop that in there. Heck, another one pops up that's at 65¢ on the dollar. Buy that one. Run that one up with equity the same exact way as you did this one three or four years later, sell that one too and put it in LP. And ultimately, you can have a bunch more passive income, but still have all the shots at goal to keep buying properties anyways.

Mike DeHaan: [23:48] Yeah. I mean, I think that that's what real passive income wealth looks like from a financial standpoint. In my mind, I think that the old sort of bigger pockets adage of accumulate this big rental portfolio, work to pay them down, do all sorts of stuff, you can make a ton of money. That's probably, I I think that that's a good long term way to kinda do it if you wanna go the traditional route of trying to buy off the MLS or buying from wholesalers, those sort of things. If you wanna have it immediately, buying these discounted properties, getting involved in them, holding them for like a short period of time, that value, and that's a big thing that we've done with a lot of our portfolios. We've been finishing basements, increasing rents, increasing square footage, doing major updates. Doing those things, holding them for like one or two years, and then selling for very large gains, and enrolling those into truly passive investments, such as like debt funds, syndications, or those sort of things.

Dan Austin: [24:46] I am good.

Mike DeHaan: [24:47] That's how you make like true real estate passive wealth. Mean you can do the hard work to accumulate a single family portfolio that way over a couple of years. I mean we've only been doing this for, I guess coming up on four years now, but I could sell all of our properties, if we sold all of them and sold all my own stuff, I'd have like $2,500,000 in cash. I could go and I could put that into a debt fund that pays me 9%, I have a pretty reasonable lifestyle, I would not have to worry again. Yeah. Like at all. You know? And I don't have to ever worry about a roof or some other bullshit. Just like is gonna always make more than I spend because unless I have some sort of crazy big increase in life expense, I don't expect to do that because already do everything that I wanna do.

Dan Austin: [25:30] Yeah. That's and that's the power of real estate right there.

Mike DeHaan: [25:33] Exactly. Yeah. But don't

Dan Austin: [25:34] like I guess the moral of the story might be is like, don't suck ass for thirty years because you think you should own the property that long. Totally. You know what I mean? Yeah. Like, get in and get out as needed as it makes sense when you're looking at your KPIs around return on investment, return on equity, cash on cash, whatever you wanna call them. Once you feel comfortable with that, be okay with selling that property, trading up, and being okay actively searching for more. Like, if you keep buying properties at a discount, you're always going to have upside on them, right? Unless you buy it at a discount, and then it burns down, you don't have insurance on it, whatever, you know? As long as you hold the property for a reasonable amount of time, there's always going to be upside. So if you could buy a property at 65¢ on the dollar, appreciate it to where you need to, get it stabilized, and then sell it when it makes sense, which is probably three, five, or seven years, I would say somewhere in that realm. Roll that into something else that's more passive, so you can keep working on your active things. You wanna pop off a flip, make $30.40 grand, boom, there you go. Add $30.40 grand to your income. Yeah. Pop off a couple wholesales a month, boom, you made another $30.40 grand.

Mike DeHaan: [26:34] Yeah. And I think that kind of the counterpoint to that, where people will say is because it's an investment. So I guess in my situation if sold $2,500,000, that's what I would have. If I held onto it for a long period of time, as of right now it's worth, I don't know, 10,500,000 about, right? Like the full portfolio altogether. So it's like saying you're giving up that $105,000,000 in the future for $2,000,000 now. And I guess if you have a really long time horizon people would say that was foolish. But at the same time I think that's still something for people that don't have a lot of upside with themselves, or their businesses, or those other sort of things. Because from my viewpoint, it allows me to not have to worry about any money right now, and I can instead just go full on into our business and making that as large as possible without having to take pay check or things like that from it, that seems like a no brainer to me because I imagine that my total payout in thirty years, at least my hope is that over the next thirty years, I will make significantly more than $10,000,000, or the $8,000,000 difference, whatever that is. Right?

Dan Austin: [27:44] But here's the I guess here's the one caveat that I was actually thinking about this the other day is that, so that 10,000,000 that total debt or whatever, so say it's 7,500,000, that debt pay down because some people actually calculate debt pay down as part of their return, which you should. It is it is a benefit. Right? We talk about leverage being awesome. Yeah. But that 7,500,000 pay down can actually shrink down to four to five to three to whatever, depending on where the market's at, whether you wanna de lever yourself. That's true. You know what I mean? And so, on a long time horizon, which many of our notes are, you're if not getting commercial loans, like if you're getting the thirty year notes, on a long time horizon, that doesn't matter, right, because it's always But going to go it's not maybe gonna go up at the exact straight line that you think it is. It just depends on where you're at in the market when you sell it, and you delever what that looks like. Yeah. Something to think about. I know we're talking like anti real estate on some of this stuff, but I think it's just the mantra that we have, which is like look at upgrading your real estate portfolio when the time's right.

Mike DeHaan: [28:41] Well, don't think it's an anti real estate. It's a pro opportunity cost.

Dan Austin: [28:44] Boom, there you go.

Mike DeHaan: [28:45] Right? Which is if you wanna be a business owner and you wanna make like real money, understanding opportunity cost is extremely important. Yeah. And it's so important not to have like a some cost bias in these properties that you're attached to because you work so hard to get them. You know, you've have this cheap debt. You know, it's an A class property, A class area. If you have better uses for that money, or you have ambitious aggregate uses for that money, you just need to make sure that you do a internal look at yourself and a deep dive into your finances and your goals and see if it actually does align with that or not.

Dan Austin: [29:18] Right. So here's a data point for you. If you took your $2,500,000, duck it in a 9% fund like you said, like a debt fund, and just let it roll over and compound, in ten years you'd have 6,000,000.

Mike DeHaan: [29:30] There you go, that's more than the properties are worth, right? It's almost at that point, yeah.

Dan Austin: [29:34] That's more than they'd probably appreciate if you think about it in a ten year period. Because if you think about three to 4% compound appreciation probably on a in like a good ten year period, like if you started this year, the first few years probably aren't gonna look so good, and you know, the latter, you know, six or seven, it might look more realistic to that three to 4%, but here, you're gonna get likely with a debt fund, a guaranteed 9% return compounded over ten years. 2,500,000 to six, that's pretty good.

Mike DeHaan: [30:00] Yeah. And that's pretty passive. I mean, it's very passive, right?

Dan Austin: [30:03] And even split As passive as it gets.

Mike DeHaan: [30:05] Even split that across some other things, or like say you take 50 a year and you put it in syndications or other things that have like a two x multiplier, they can go even faster than that. That's the way that people with big money that are professional investors look at things. So, Right. Cool. Anyway, not to it's not anti real estate, it is just like

Dan Austin: [30:25] Pro opportunity, like you said.

Mike DeHaan: [30:27] Yeah. Pro opportunity. You really make sure that you aren't just buying into the same stuff that everyone else says, and you do understand kind of the big picture and what it is after you wanna do.

Dan Austin: [30:37] I would say, I would add to that, a lot of us and a lot of the listeners probably grew up in what I would call Bigger Pockets University. I think I started listening to Bigger Pockets back in 2014, probably. Yeah. And learned, and it was awesome. It still is a great product for a lot of people, but if you started listening to it anytime in the last four or five years, you're probably graduated beyond that. A lot of the stuff they taught back then, those people have graduated from, that's why those hosts are no longer there, right? And so the host, and many people that worked at the company have graduated from that kind of BRRR model, where it's just strictly build build build, and hold this thing for a lifetime, And now everybody is realizing, okay, that is awesome. Build, build, build, sell, build, build, build, build, sell, and just you keep building and compounding, but it has to get more and more passive, otherwise you're just, I don't know, you're gonna turn into the landlord where we buy houses from.

Mike DeHaan: [31:27] Mhmm. Yeah. That's exactly right. You know? And that's ultimately, if you don't prospect the downside risk possibility, that is absolutely what will happen. Yep. So cool. Alright. Anything else, dude?

Dan Austin: [31:40] No. That's it. That's that's pretty good. If you guys know anything about bed bugs, hit us up because I would love to know what's the success rate of how do

Mike DeHaan: [31:49] you even get them? We should talk to our friends down in the Southern States. I feel like we have people in Texas, and we have some of our instant investor members who are in Atlanta and St. Louis and these places, they seem to see that all the time. Or fleas. Fleas and termites? Fleas there. Yeah, we don't have any of that here. Yeah, know. We have like wasps, you know? Yeah. That's but they're outside the house. I don't really care about that.

Dan Austin: [32:10] Yeah. And that's funny. They don't ever try to get inside the house now that think about it.

Mike DeHaan: [32:14] Imagine that's like the worst case scenario. Imagine you buy a unit that has an internal wasp infestation.

Dan Austin: [32:21] Oh, that would be pretty shitty.

Mike DeHaan: [32:22] Nightmare.

Dan Austin: [32:23] Wear like a bee suit. Oh.

Mike DeHaan: [32:24] Yeah. Yikes. Oh, thank you. So anyways guys, that's our views on real estate as a whole. And just one last thought, every time you see someone on Instagram, especially if it's like some like young couple that's like 27 that talks about how they just live off their rental income and all shit, they're fucking lying to you. They either don't actually have that, they have daddy's credit card, or they're not telling you the whole truth.

Dan Austin: [32:46] Right.

Mike DeHaan: [32:46] That's the reality.

Dan Austin: [32:47] Or they're hurting hair in the middle.

Mike DeHaan: [32:49] Yeah, or they make all their money selling you like digital products or courses or whatever.

Dan Austin: [32:54] Yeah. Journals.

Mike DeHaan: [32:56] Yeah, journals. Big freaking red flag. Because it's you know, every A class operator we know does not subscribe to that.

Dan Austin: [33:05] We're gonna start selling the Instant Investor, or no, the Collecting Keys Affirmation Journal here soon.

Mike DeHaan: [33:10] I just hate that shit. And it's gonna have You know

Dan Austin: [33:13] what it's gonna just be? It's just gonna be quotes from Mike on how he hates this stuff. Like, here's your affirmation date, write this 10,000 times.

Mike DeHaan: [33:21] Yeah. Right. Yeah. It's gonna have you say, Hays Morby is full of shit. You just have to write that 10,000 times till you finally get it in

Dan Austin: [33:27] your head. Those are your affirmations?

Mike DeHaan: [33:29] Yeah. Right.

Dan Austin: [33:30] Oh, man.

Mike DeHaan: [33:30] Jameel is a crook. Oh, You just have to write that. It looks like you're in school, and you had to like write lines on the whiteboard. Oh my god. Anyways, guys, let us know your thoughts on this. I would love to hear any contrarian opinions. You can hit me up on Instagram at Mike underscore invest, or you can hit Dan at investor man. Dan, Seriously, this is the kind of stuff that I love to have conversations people about because I know we are typically outside the norm from what the general population thinks. So if you think we're stupid, you should go and shoot me a DM. Absolutely. Or if you agree to, you should also send me a DM because I love to chat with you. So anyways, guys, hit us up there. Besides that, you can go to collectingkeyspodcast.com/free, get your free five step guide to start buying these discounted properties. So then in a couple years, you can also be having situation of should I keep getting cash flow? Or should I collect my $2,500,000? Great place to be. You know, I highly recommend you start taking some actions to get there. And so how's that everybody? Appreciate y'all listening, and we'll talk to y'all next week.

Dan Austin: [34:25] See y'all.