Buying Real Estate vs. Buying a Business: Which is the Best Investment?

Mike DeHaan: [0:00] Really quick before the show starts, in case you haven't heard, we have a growing community of investors called the scale community, which is full of people learning to make massive income with their real estate businesses, so they can reach financial freedom a little bit faster than building a rental portfolio solely over time. Because honestly, that takes decades and who has time for that. So if you're an investor who is serious about growing and creating a scalable business without needing to be a slave to it twenty four seven, then go to collectingkeys.com/scale and apply. And if you're a good fit, we would love to have you join the community. So again, collectingkeys.com/scale, go ahead and apply and see if you're a good fit.

Dan Austin: [0:38] We have at the same time, the two largest generations in American history buying or not buying houses. Millennials got delayed and they're either buying their first time homes now or they're upgrading. And baby boomers are dying in place now that inventory is not getting loosened up.

Mike DeHaan: [1:02] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. This is the show we teach you to make massive income not just passive income with your real estate investing business. And these Wednesday shows still had a new new name. We used call it the Mike and Dan show. Now it's the Mike, Dan, and Dylan show as I, Mike DeHaan, here with my cohosts, Dan Austin and Dylan Cook, are here to talk about real estate investing business and whatever else we feel like for the week. And I know to start off, Dylan, as Dan put it, as we were discussing before the show, you wanna throw a grenade in the room and then see what happens because you had a great topic that you wanna dive into to get us started today.

Dylan Koch: [1:44] Yeah. No. So that... I'm happy to see what happens here. But, essentially, you know, I don't listen to BiggerPockets much anymore, but they threw out an interesting topic on the podcast recently that was basically buying a business versus buying real estate and what's the best option to do right now. Was this on the main show with like, is it David Yeah, Green's show and they referenced the Cody Sanchez's of the world, you know, kind of promoting that. You have the baby boomers who are still dying. Not only do they need to sell their houses, but they also need to sell their businesses, Right? And the whole glamour to this is you know, you could buy one for what, three times sales and you're boom, you're automatically making a 100,000 a year for $25 or whatever it may be. So would love to know your guys' thoughts around that whole topic in general.

Mike DeHaan: [2:28] Sure. So before Dan goes off, he's already getting a little blue in the face.

Dan Austin: [2:32] If you wanna go Oh, no.

Mike DeHaan: [2:33] I will.

Dan Austin: [2:33] I'll I'll play PC. I'll be PC.

Mike DeHaan: [2:35] The thing that I think is really interesting, though, about this whole conversation in general, it's a recurring thing. If you've been anywhere in, like, the business social media content sphere, you've heard the buying a business conversation come up at this point. If you haven't heard that, then I I guess I don't know to tell you. It's like just everywhere. But it honestly right now, the challenge is it's such an oversimplification of how complex business is. It makes it just seem like it's this easy thing. What it actually feels like to me is if you go back to, like, 2016, 2018, when real estate really started becoming a common sort of thing that everyone was considering or almost trying to get into. And people compared it to buying stocks. Right? And they viewed the growth of real estate as completely passive like you view with, like, you know, buy securities, buy stocks, you know, buy ETFs, things like that. And all the real estate people would be like, well, no, like, there's there's more work that goes into it. You know, you gotta manage the property, you gotta maintain the property, you gotta find tenants, gotta do all this sort of stuff. But you still had all the influencers out there that were like, not if you do it right, it's really easy, blah blah blah. And then now those of us that have bought into that several years later are here to say, it's definitely not as simple as buy stocks. There is a lot more shit that goes into it and maintaining these assets.

Mike DeHaan: [3:49] Right? Now, we have the exact same effect, where you have the assets of businesses that are now competing with real estate as like, the passive thing. And you have these big names, you know, who I'm big fans of to by the way, Alex Tremozi, Cody Sanchez, these sort of people that are talking about business tactics and business growth as like a, you know, may they oversimplify it. And so now you have all these ignorant people that are coming in with these ridiculous statements and goals of saying things like I'm gonna buy a small business that's gonna give me enough passive income with my w two. When those of us that are in business, know that's bullshit. But for some reason, I don't know, the general public just doesn't believe you. Like, they feel like they're gonna be like the exception. They're gonna be like the dream sort of scenario that somehow discovers this, like, golden goose that is like a fully passive high cash flow business they can just buy somehow.

Dan Austin: [4:48] Let's be honest here. Most people suck at being business owners. Most people suck at owning I rental mean, there's months and years where I've kinda sucked at owning. I I suck at owning some properties right now. Like, I'll be honest. Like, they're not getting my full attention. But also people that run businesses just generally aren't good at it and they're basically creating themselves a job. Know, my wife and I went to an ice cream store out where we grew up and they opened it like maybe a year ago we're like, oh, this is cool, like they did a good job, they had a lot of good stuff going on there, was gonna be great for the community, it's the only ice cream store in the small like literally, we have one grocery store in the community, it's a real small community that we grew up in. And then we went there this year after like our deputy's baseball game, went in there and we're like, wow, this place is run down, in twelve months this person took a business and just ran it into the ground and it's probably gonna close in the next six months, right? So most people, that's that's what most businesses that we're buying from baby boomers are. And also, if you don't know shit about running the business, what makes you think you could buy an hvac business from a dude who's done it for forty years and knows how to actually work on the shit, and has scaled it to $10,000,000 and he gets to sell it? Like, you probably can't actually run that business successfully, and you probably shouldn't, and there's no such thing as a passive income investment when it comes to businesses like that. Like, you're you're gonna have to work it.

Mike DeHaan: [6:05] And that's exactly the thing, is you have these people that are like, you know, middle management at some company, you know, they make like $80,100 $120,000 a year. And they now think they're gonna be able to come in and buy this quote, unquote, boring business that's, you know, it's like a trade or it's a services business or all the things they tell you to look for, And just suddenly be able to like run like a team that has like specializations that are required, they're gonna somehow know how to like manage the HR and the finance and build the customer success. And, you know, like establish a CRM they don't have, that's the opportunity. They don't have tech, you just have to come and put in tech. Have you ever fucking put tech into a business before? Don't It's know what that

Dan Austin: [6:43] hard. We've tried My it so many

Dylan Koch: [6:46] favorite actually that sprung a memory was look for businesses that had, that still use faxing machines. That was their tagline for some of these businesses because that's the ones that are still you know quote unquote outdated even though they're probably making 3 to $400,000 a year.

Dan Austin: [6:59] So that that reminds my wife, the company she worked at, they acquired a distribution... A distributor, right? Like an actual like, they distributed products to coffee shops and stuff like that. And the... Most of the employees were like in their early seventies, and everything was done by pen and paper. So obviously the opportunity in the acquisition was to put in systems and use things like QuickBooks. Guess how that goes over with a bunch of 70 year olds that are used to running the office, it didn't. And they literally still own the company, haven't implemented systems, and they're trying to figure out what to do with these old people that just don't wanna change. Like literally pen and paper type business for a multi million dollar company. Like it's not simple.

Dylan Koch: [7:38] Because they will leave if you say that they're implementing something like Right,

Dan Austin: [7:41] and the problem is is they have all of the institutional knowledge in their head, and they know that, and they're like, yeah, tell me what to do. And I'll I'll take everything you own here and just shoot it down the drain.

Mike DeHaan: [7:50] Totally. I mean, the biggest challenge, right? So going from like, say, stocks to real estate, real estate has a ton more variables than, you know, securities and general investments have. Right? Those things, they're still, like, somewhat predictable, and they're still, like, I mean, a lot of houses, you can kinda, like, put it into a box after a while. When it comes to businesses, it has the, like, completely just unpredictable factor of human beings, right? That all have their own lives with their own complexities. Right? There's always these different... All the industries that you're looking at are completely different. Like, people act like comparing an HVAC business to like a... I don't know what other things do people buy? Like a clothing store or like the same thing.

Dan Austin: [8:33] A restaurant.

Mike DeHaan: [8:34] They're not even remotely a restaurant. Right? And they like completely just ignore that and act like that it's gonna be a non factor and that somehow when you take over this business, these like, I don't know, like the people just come with it, and there's not gonna be any issues. And one of one of the biggest things I see talked about all all the time is like, oh, you don't need to have the knowledge to run that business. You just take the most senior manager, and you put them in charge, and they'll kind of run it for you. And that's why it's passive. What's gonna happen? You're gonna have the guy that's been there for twenty years. He's gonna go, well, this is fucked. I was hoping I was gonna be a top guy. He's gonna leave.

Dan Austin: [9:08] See you.

Mike DeHaan: [9:09] Yep. Like, it it happens all the time.

Dan Austin: [9:11] Totally. Your employees Absolutely.

Dylan Koch: [9:12] Your employees are gonna wanna see some level of competence in the industry from Yeah. Like, of course. It's pretty simple if you ask me.

Dan Austin: [9:20] Especially if it's a trades business. Holy shit. Yeah. Those guys aren't gonna respect you at all if you don't know anything about their job. Yeah. It's kind of a challenge too with like real estate. Over the last several years, everybody's just been trying to find what is that next highest ROI opportunity or they just copy what Brandon Turner was doing, whichever one they're doing, they're doing both, right? But when you're looking at investing in real estate, like you don't market for higher rents, you do have more, in business you have to market to grow your business and to bring in sales. In real estate, you don't like convert like your tenants, you don't do a sales process with your tenants, in business you have to, right? Like you're always marketing and selling people on things, oh and then you have to deliver and there's actually a significant downside to not delivering a good product as in, you give them their money back or they just like sue you or you lose all your customers because you get a shitty review. Like on the flip side with like a rental property, if you don't like get your rent, like, oh well, like that's not gonna completely crush your investment, not gonna completely crush your business. Like, you can fail so much more because it's a slow moving cruise ship as opposed to like a business. It's a Navy SEAL sniper team on a boat going through the ocean somewhere.

Mike DeHaan: [10:26] Yeah. Well, that's I think the asset... The actual hard asset of real estate is, like, say it's worth something. Right. The stuff goes

Dan Austin: [10:31] down. Your business might be worth shit.

Mike DeHaan: [10:33] Your business can literally go for the $1,000,000, whatever you bought it for on seller financing with you smooth talk some older operator or they smooth talk to you because they recognize you're an idiot. That can literally go to zero value in thirty days if you don't lose

Dan Austin: [10:50] it. Everyone

Mike DeHaan: [10:51] can leave, you can lose your customers, you cannot enforce your billables or whatever you need to be able to be bringing revenue in. Like all that stuff can go to zero if you don't know what the hell you're doing in a very very fast period of

Dan Austin: [11:03] time. Totally.

Dylan Koch: [11:04] No, and I think I wanna tie this back to what we're doing. Right? And like when I decided to leave my W2, it was kinda what you guys preached, massive income to go into passive, so that's what building this business is for, and whatever extra money we have is to park it into real estate. I feel like it sounds super simple, a lot harder in practice, if you guys don't mind going here, in our scale call today, there was actually someone who won't say who he was, he's like, I've never been inside of a Home Depot. And like you guys challenged him on that because he's like, hey you might be losing deals because you can't underwrite appropriately. Yeah. Yeah.

Dan Austin: [11:36] Right? You gotta understand your business that you're getting into, because it is more than just like, I'm investing, or I'm, this is a business. You have marketing, you have sales, you have to understand your craft, and the better you are at your craft, the more you're gonna make. Which is honestly also why I think being in business is vastly better than just being a real estate investor.

Mike DeHaan: [11:54] 100%. I mean, well, it has more opportunity and more upside. And, you know, I'm not shitting on, like, owning businesses at all, obviously, or even, like, the opportunity that exists with buying these businesses. I just hate the fact that it has become, like, the newest get rich quick scheme, primarily because it has such huge down... Downside risk for people. Not only for those that take action, but also those that don't, that waste all of their time trying to like, I don't know, pretend like they're gonna do it when realistically, if they just went back to what was like more simple, they would probably achieve their financial goals the next five years versus just like joining these circle jerk groups where they just like sit around and talk about businesses that they're pretending to analyze, but they have no intention or ability to actually purchase or run. Just like everywhere right now, and now bigger pockets is becoming the niche, the new proponents of that, just like they've done with everything else.

Dan Austin: [12:42] This mental masturbation, as they call it, where you're just talking about things that you'll never do. Because it is actually extremely hard to buy a business. It's even harder to start a business. Mhmm. It is. But there's so much fortune and so much value in this, if you can build a business or acquire a business that maybe you have some expertise in, which is where I see people be successful, when they know what the business is.

Mike DeHaan: [13:05] Totally. And what I would say is if you do wanna buy a business, go and start a small business first. To... Like, doesn't have to be that profitable. Just like new where you make like, you're gonna make like a $100 or $200 yourself doing something basic, like mowing lawns, cleaning windows, you know, recruit your kid or your neighbor,

Dan Austin: [13:23] your dog poop brand.

Mike DeHaan: [13:24] Yeah, pick up the hug shit. Probably twice twice, like, there's guy at the Hermosia event that had a dog poop in a business that's $5,000,000 a year in Dallas. That's crazy. Right? Just like go and start one of those yourself, just so you kind of learn all the challenges of like the early phase of business. And then if you can figure that out, then if you do want to like, collect some capital and go and invest into an existing business, you will be a thousand times more successful, Like, right out of the gates, you know, and sure, it's gonna take time, but so does everything else in life. It's something that needs to happen in the next twelve months. Realistically, it's not gonna happen for you. If that's like, your goal is you need to leave your job this year, then you're gonna have to take some big risks. But the thing is most people don't wanna do that.

Dan Austin: [14:03] I love that though. Like, that's a great point of view. And even if it's a side hustle, like to your w two or whatever, like start a business, and I... My advice to people is like, it doesn't really matter what it is. Do you have to be passionate about it? It might help you No. But you you you know what? Usually people don't make money with their passion. So who gives a shit, right? Like, being good at business is like a passion of mine, like growing and scaling and making income and all that's a passion, and so you can really get behind it, but it literally doesn't have to be anything. Look for an opportunity, exploit it, start it as a little side hustle, figure out all like the weird headaches you're gonna run into, all like the weird intricacies within that industry, the supply chain to that, and how you deliver your product, and the systems you need to do for billing, and work on that and see if that's something that really interests you and that you are good at and want to continue to solve problems, because as the owner of a business, whether you start it or buy it, 90% of your time is just solving problems.

Mike DeHaan: [14:50] Exactly. And having hard conversations. There's the other thing too is once you buy a business and you now have an entire team of staff that are responsible... That you're responsible for, your stupid decisions aren't just screwing with your livelihood. They're screwing with all theirs.

Dan Austin: [15:02] Everybody's.

Mike DeHaan: [15:03] And so it's completely irresponsible to go in and not what you're doing and just like jump in head first.

Dan Austin: [15:07] Oh, shit.

Mike DeHaan: [15:08] Anyways.

Dylan Koch: [15:09] Yeah. No. That was good, guys. So grenade handles pretty well, I think.

Mike DeHaan: [15:12] I was much more cordial than how immediate Dan went off on Yeah. The Yeah.

Dylan Koch: [15:19] That was fun though.

Mike DeHaan: [15:20] I hope you guys are enjoying this episode. We are seriously trying to grow this podcast so that the voice of what it really takes to grow a real estate business becomes kind of the norm versus the guru get rich quick b s that everyone is fed on a daily basis. With so many podcasts out there, it is hard for us to get discovered on our own. So a quick ask, please share this episode on your social media accounts. Be that a real story, whatever. And if you tag me at Mike underscore invest, then I will give you a follow. And I will also send you a DM so that we can have a little chat about your business and any ways I could potentially help you grow. So again, please share it on your socials. Tag me at Mike underscore invests, that's with an s at the end, and I'll follow you and we can have a little DM and convo about your business. And maybe I can help you grow a little bit, or you could just say what's up to you. That'd be awesome. But appreciate everyone. And thanks so much for helping us grow.

Dylan Koch: [16:12] So I guess we'll go into some normal scheduled programming. There's one article that I caught our attention that I like that I hope we can talk about. It's from a wealth of common sense is like what he goes by, like social media and stuff, his name's Ben Carlson. And he's a certified financial analyst with Ritz Holtz Wealth Management. But he wrote a a piece called The US Real Estate Market and Charts back on 06/30/2024. And some of this is kind of chart related, but I'll do the best to explain the best we can, like, to the audience. But the first one that kinda starts out here, which just kinda goes into inventory and the way things are moving as a momentum perspective, is the existing home month's supply. And what this means is it measures the number of months it would take to sell all of the houses on the market at the current pace of sales. Right? So you can kinda see post the great financial crisis, it was mostly on a downtrend down.

Mike DeHaan: [17:06] I think we can share this for YouTube. Let's do this. Yeah, sure.

Dan Austin: [17:08] Let's put this up for YouTube.

Mike DeHaan: [17:09] Okay, go go check out our YouTube and we'll we'll do a little screen sharing, guys can see it.

Dan Austin: [17:12] Cleft Keys Podcast on YouTube.

Dylan Koch: [17:15] Yeah. No. So the way this has kind of been trending since 2011, 2012, it's basically just been a downward trend. And we had a little hiccup during COVID obviously, but really it was that 2022 timeframe that we hit the low of 1.6. Meaning it took like one point six months to sell all the houses that were currently listed on the market at that time. And now we're up to 3.7, so slightly over doubled. And so I guess this is telling you houses are taking longer to sell than they were previously. And I don't think that's a surprise to anybody, but what do you guys think is probably the one or top two reasons for that?

Mike DeHaan: [17:50] I mean, there's a lot of several reasons. I mean, the affordability reasons, the the biggest thing. Right? But like looking at the chart that we have here, you can see on YouTube is, I mean, it looks like it's just getting back to sort of like pre pandemic levels. So it's definitely not like it was even in like 2019 or '18. Yep. But I mean, the the affordability thing is always what I think of right away. Because I also see we have this one down lower. We're looking at interest rates. Yep. The interest rates right now

Dan Austin: [18:16] Super high.

Mike DeHaan: [18:17] Are up. It it looks like back to 2001, right, to get interest rates like we're at right now. So they were... Had been down lower for the last twenty years.

Dylan Koch: [18:27] But prices really haven't come down even though rates have come I think that's the biggest perplexion that a lot of these people have out there is like, why haven't this happened? And a lot of it goes into this supply and demand for inventory.

Dan Austin: [18:40] Mhmm.

Dylan Koch: [18:40] And I think the lack of inventory is what is causing most of this in my opinion. And some of these home builders now are even, like I don't know if you guys go around your area, but we have new subdivisions kind of popping up all over the place, and the home builders are able to offer things like, hey, you can buy a new home, we're gonna buy down your rate of 4.5, 5%. Do you have

Dan Austin: [19:01] mostly national home builders doing this, or do have local home builders? What what is your guys'

Dylan Koch: [19:05] I can tell you names and you tell me if they're national or not. D R Horton's a big one around here. National. Ryan Homes. Yep. Fisher Homes. Natural. Yep. Those are probably our biggest three.

Mike DeHaan: [19:13] How do those companies provide the financing? Do you guys know? Because I literally have no idea. I see their ads.

Dan Austin: [19:17] How they provide the financing?

Mike DeHaan: [19:18] So when they say that they're gonna give you like a four and a half percent mortgage if you buy one of their houses, do they have like their own fund or something that they're like lending? Because obviously they're not selling it to Fannie Freddie at those rates.

Dan Austin: [19:31] I don't know, I definitely know that they, some of them do partner with lenders, don't know and I know a lot of it too is not, that's actually a variable rate still and it actually ladders up.

Mike DeHaan: [19:40] Oh really?

Dylan Koch: [19:40] Oh I didn't know that.

Dan Austin: [19:41] Yeah. Mhmm. So what they'll do is like, we'll get you into four and a half percent now, we'll give you the buy down to get you into four and a half percent, and then next year it goes to five and a half, next year after that it goes into six and a half, thinking that at some point in time, you'll be able to refinance when rates kinda go, where that crossover is with rates. And like I know like D. R. Horton here in town, just there's a development down the road from us that they're running, that's what they were advertising. They have so many So the difference, like these national homebuilders is they're legit, like sold on like on... I don't know where they're at, like on Wall Street basically. I don't know what exchange. But they're billion dollar gigantic home builders that have the supply chain similar to something like a Walmart, where they're importing goods on trains and bringing them into your town. They're buying land on the... They can just buy the land bank basically and wait for the right opportunity to strike and build. And then when they do get caught now, like, they're so much smarter than they were. So when they can get caught in a recession or a slowdown period like we see now, like, they can adjust their prices so much and their lending so much, that it makes it to where a single guy who's just gonna go out and build one or two houses can't even compete with. Yeah.

Dan Austin: [20:52] They can go from a $435,000 house to overnight dropping it to $3.35 with like lending credits. Now are they gonna lose some money? Maybe on some of the houses, but not all of them. Then you gotta look at D. R. Horton, they're building, because real estate's hyper local, they can time everything. Right? So they can say, let's offload this inventory and loosen up our cash. Meanwhile in Austin, Texas, we're still slinging things for three times what we're building them for, right? So they're this huge fund where a single small home builder, local home builder just can't even keep up with it.

Dylan Koch: [21:20] Yeah. That proves that economies of scale is something that can have that too, have that different markets.

Dan Austin: [21:26] Yeah and I think also it makes me think of what's the oil group called OPEC. Right, so they can throttle and dump oil into the economy and actually shift the prices of oil that affect the economy. Right? So these national homebuilders can do the same thing. So they can throttle building to keep a constraint up. Right? It's like the idea of like diamonds. Right? And like there's tons of diamonds in the world, but they only sell so many so the demand stays high. And the same thing I think goes with the housing market when you have these... I mean, when you come into Spokane, we've never really had national home builders. We have like three or four of the biggest national home builders here in town popping up developments left and right, but it's not like they're just flooding the market with these houses. They're very specific and they own a

Dylan Koch: [22:11] lot of land. Yeah. Because they'd be shooting themselves in the foot if they overdid it. Yeah. That makes sense. Exactly.

Mike DeHaan: [22:16] Yeah. Which is exactly what they did in 2008. Right? As they were overbuilding all these homes and then we ended up with all these empty like Yep. Brand new homes for years.

Dan Austin: [22:24] That's where I think that they're, yeah, they've gotten very smart and they're very savvy. Especially I think post 2008, like REITs and you know, hedge funds buying real estate and all that stuff have gained so much popularity. I think so much money kinda came into the industry that they've just gotten smarter. They've just gotten better people that work in the industry too.

Dylan Koch: [22:43] Yeah. Well 2008, that's correct Mike, but not only were they building, but they had what they called ninja loans, which was what, no income,

Dan Austin: [22:50] no job, no assets. Yeah. And anybody could get a loan, right? On the 8025 and like you do like an eighty fifteen five where basically you get all of your down payment loaned to you basically over three different loans. Mhmm. Yeah, did some weird stuff. Wild.

Mike DeHaan: [23:04] Yeah. That's interesting. Didn't actually think about them sort of controlling the supply like that, but it makes sense especially because if you look at the voluntary supply of existing homes, it is relatively low because most people can't afford to go anywhere.

Dylan Koch: [23:17] Do you think they have politicians tapping on their shoulders every once in a while?

Dan Austin: [23:21] Like I would believe anything at this point in time.

Mike DeHaan: [23:24] Yeah. Yeah. Honestly.

Dylan Koch: [23:25] Like, one of my favorite charts from from this guy's article was actually so US housing prices during a recession, Mike if you wanna bring it up, feel free. So it basically lists like nine different times that we had a recession since 1960. Surprisingly, and this is what was most surprising to me, is like seven of those nine still had a positive like price appreciation year even though we were in technically in a recession. It just everyone remembers 2007, 2009. One because it was the most like egregious, it was the biggest one. But two it's probably in most people's recent memory.

Mike DeHaan: [23:58] Especially for the main homebuyers right now, which are millennials, right? Like, exactly, we all know that most of us 2001, we were too young, right? 09/11 was the big thing. And then nineties, a lot of us were super young or not born yet.

Dan Austin: [24:12] It goes back to supply and demand, right? It is very intuitive when you see that. We all get scared though and emotionally be like, oh my god, prices are going down. But at a macro level, they really stay up because supply drops, right? Because everybody gets scared, they lay off workers, people buy, people start buying less, all of sudden they start building less and then people stop moving. I think that's the big part about it. So all of that used inventory just kinda stays there and the only new inventory coming online is like builders that... Builders gotta build, flippers gotta flip, right? And so that's kind of really those people that are actually building the supply but it's restricted so we see that price go up. And and we all, and it's also something that's very well known but not intuitive is that the stock market and real estate market are decoupled. They don't go together, even though we see a lot of times it feels like they do. Yeah.

Dylan Koch: [25:03] Well, what's the the Fed's like number one defense during recession is usually to lower rates. And where lower rates, that chart was up there earlier between like rates and prices. They are the... It's a very clear correlation between the two.

Dan Austin: [25:14] Absolutely. Yeah. And then when you're talking on the big on a big level with the big boys, so money gets cheap, guess what the big boys like the D R Horton's and stuff can do? They can go and get more, they can issue more bonds and get more debt at a lower rate. And for like a long time, most companies were, I mean, like they were able to get so much debt. You saw even like the big dogs like Microsoft and all that stuff issuing a shit ton of debt, because it was like free money basically. Why give away shares to your company when the fed basically set up to where you can get free money? Point 7%, 2%, 3%. Anytime you can arbitrage or make any spread on on interest rates, companies are gonna do it, because it makes more sense to do that.

Dylan Koch: [25:49] I think one thing I learned as I kind of, I don't know, got acquainted to the wealthy people, is that they can go and take a loan against like their brokerage account for stupid cheap money too. Like 2% of like their stock portfolio. And that's just a way that they have to buy

Dan Austin: [26:04] more stuff that the average Joe doesn't. Totally. Yeah. Yeah. My father-in-law, he he did that to buy a boat, a very expensive boat. You know I mean? He's just like, why would I not? He's like, just put it over here into this cash account, and then I can get a boat.

Mike DeHaan: [26:16] I mean, and one of the things too with a lot of this is, honestly, there's a large number of people right now that are fucking crushing it. Like, just to be honest, like they have successful businesses, they have a huge amount of asset value from their homes, from their stocks, from their crypto, from whatever else that they own is a boom during the recession... Not during recession, during COVID. Right? So I just looked up really quick on Wikipedia, which they said in school, I'm not supposed to use, but fuck you, Bozeman High School.

Dan Austin: [26:44] Yeah. It's a decent it's a decent school.

Mike DeHaan: [26:46] And so the statistic they have on here is that of homes in The United States, 67.4% of them are occupied by the unit's owner. That means there's almost 70% of people that owned an asset that freaking boomed over the past couple years. So they have a ton of buying power. Right? Even if they don't have an incredible amount of income, they have the ability to move places where it's a lower cost of living. That's why you saw so many people leaving places like Seattle and California and Austin to go to these like lower cost living areas because they were very literally selling their home in California for a million dollars and moving into a $400,000 home in Spokane, Washington, and banking the other $600,000 that they can now do whatever they want with. Totally.

Dylan Koch: [27:32] Right? Capital gains free and everything.

Mike DeHaan: [27:34] Yep. Exactly.

Dan Austin: [27:35] That's why one of my strongest beliefs, like, I don't know if this is great sound or sound financial advice, this is what I've done, this is I believe, is you should always, for your primary residence, live in the most expensive most expensive home that you can comfortably afford. Because think about this, if you go and buy a house, like in an average interest rate, not right now, but four or 5% interest rate time and you buy a house that's a $100,000 more than like you currently live in, maybe that affects your mortgage like $3.04, $500 a month, so $6 a year but the percentage gain of that over a long period of time as it compounds is so much more than you saving a few $100 because you're worried about the scratch today. But if you can comfortably afford it, it makes so much sense to own a home in Southern California so that when you do wanna downsize and sell that $4,000,000 home and move up to Spokane like we see all the time or Idaho, you see this all the time, people move up there buy a million dollar 8,000 square foot home in the mountains and they can totally afford it and now they're set up with a huge chunk of that. Home ownership is still a way to make wealth.

Mike DeHaan: [28:33] You see that in an even more extreme level when you get into, like, the super upper classes. Right. Right? Like, you have these celebrities that had their $20,000,000 homes that they bought in 2017, and they're now selling for $70,000,000.

Dylan Koch: [28:46] Yeah.

Mike DeHaan: [28:46] Right? Like, that's crazy. But I I think it was Mark Wahlberg just had one that he did literally that. Like, they built it for, like, 23,000,000. This sold for, 70 something million or something crazy.

Dan Austin: [28:55] He's building a house in Coeur D'Alene.

Mike DeHaan: [28:57] I bet he is because

Dan Austin: [28:57] he got parked for up to $50,000,000 somewhere But they in told them they're like, bro, you can't build that. It was up in Gaza Ranch here. They're like, yeah, can't build that here. It's too much. Like, that's too much. Yeah. Yeah. I get it.

Mike DeHaan: [29:07] Ani will be jealous too.

Dan Austin: [29:08] Yeah. Exactly. You can't do that. Too much. One last comment I guess I would make on this, when it comes to supply and demand and just prices and why why I personally think this is it, is that we have at the same time due to circumstances, the two largest generations in American history buying or not buying houses. Millennials got delayed and they're either buying their first time homes now or they're upgrading and baby boomers are dying in place. Their parents all moved into, you know, old folks homes because it was all reasonable, their pension and social security covered it, they all traveled the world for ten years, went to their old folks home and then just retired in a very comfortable setting. Now that inventory is not getting loosened up, right? So there's a ton of huge baby boomer generation dying in place and then you have these millennials who are trying to buy or stepping up, and those are huge, I mean, huge generations of people.

Mike DeHaan: [30:00] So sort of like to wrap up this this conversation, since this is a real estate investing business show, how do you take all this knowledge and apply it towards your guys' business, your business decisions?

Dylan Koch: [30:09] Well me personally, I kinda like the area, go back to appreciation versus cash flow, we were kinda just getting at. You know, you buy the nicest house, but the appreciation's gonna make more than whatever. Mhmm. I find areas now that yes, still want it cash flow positive, but if it's like on that path of progress, or a gentrifying area, right, like those to me, like you get a good bird deal or flip out of there, you're still gonna make like hundreds of thousands of dollars over the next five to ten years. Yep. And that's kinda like my biggest like recent takeaway from a lot of this stuff.

Mike DeHaan: [30:36] Yeah. Totally. I think it's it's that change in mindset from, like, buying for cash flow or mailbox money and really going to, you know, what David Green, who I don't like to quote necessarily because he's kind of a weirdo, but he's always... He has this famous saying that cash flow is defensive metric. Mhmm. Right? And, you know, you should be using that cash flow basically to maintain the properties while the appreciation builds wealth. I think now more than ever, that is such a true sentiment that I would say, you know, Dan and I have definitely taken with with our holdings. But all of the smartest people that we've met that are, like, legit operators, they're taking that same view, and they are pretty much only keeping assets so they can either force appreciation do some kind of value add that is very simple, right? And very clear. It's not like, well, I'm hoping that I can increase the rents this much. It's like I am adding square footage, I am adding like additional living space, you know, I'm increasing cash flow in some way. Or they are buying, like you said, in a class areas like path of progress, where you know the value is not going to be going anywhere. When we had Cora Johnson on the show, he was saying that he started only doing buy and holds in San Diego. He's like, you want to know what's not going to be a less desirable place to live freaking San Diego where it's 85 degrees every single year, all year round, right?

Mike DeHaan: [31:53] You literally can't build in any direction because you have a desert on the East Side, you have the ocean on the West Side, you have the air force base up north. And so he says buying all these properties down there that are basically zero cash flow, he knows they're gonna be worth more in the future. Just because like, why wouldn't it?

Dan Austin: [32:08] Yeah, no matter what people say, look out for, it's still a nice place to live.

Mike DeHaan: [32:10] Yeah, it's like when Brandon Turner moved to Hawaii, and he was worried about that. And you know, his thought was like, well, no one's ever gonna not wanna live in Hawaii. Yeah. I think that's pretty dang true.

Dan Austin: [32:21] Exactly. Would sum it up in like, the way I look at it is, from a very tactical business standpoint is, I'm wholesaling and I'm flipping to make cash, so that I can take big swings and invest in good real estate because as you guys have both said, good real estate appreciates and also the freaking tax benefits when you're flipping and you're wholesaling and you're making $23.04, $500,000 a year as a solo operator doing this, like get some of that fricking tax benefit. Put some of

Dylan Koch: [32:47] that money in there to get that benefit. This is my realization, is I'll make more in taxes for 2023 than I made as my old w two. Yeah. Yeah. Then, but I didn't buy enough real estate last year, that's the problem. Mhmm.

Dan Austin: [32:58] Like Yeah. Mike knows my tax situation. I'm basically paying probably twice my annual salary as an engineer in taxes, which is not a good thing. It's not good. No, it's I'm not really feeling good about it. Not proud

Dylan Koch: [33:11] of it. For the audience though, can get super granular with okay, what's path of progress? So one, ask people in the area, they're gonna know if good people in that market. But two, a lot of the people will be like, you can find how many permits are pulled in the zip code.

Dan Austin: [33:24] You can

Dylan Koch: [33:26] go into this and get really, really data driven if that's the type of personality that you have.

Mike DeHaan: [33:30] If you wanna know where the path of progress is, go find where the cutest farmer's market is and you go there and you're afraid you might get stabbed while you're there. Yeah. So you're buying organic carrots, but you're also afraid of for your life at the same time.

Dan Austin: [33:43] That's the same place. That is the that is the

Mike DeHaan: [33:45] progress. Path Yeah.

Dylan Koch: [33:46] You get a cup of like hipster coffee while you're there.

Dan Austin: [33:48] Totally. Exactly. Exactly. And you step over a needle. Good spot to go. Yeah. That also reminds me to like, not needles, but where is your government forcing you to invest? Like, where are they giving tax benefits for real estate investors to benefit? We have that in Spokane. You have like federal opportunity zones. You also have like growth boundaries. You have just different things where the city planners and the the county planners want growth to happen, and they'll literally make it, like, create opportunity for people. And you'll see the developers go there, which creates that path of progress. Mhmm.

Mike DeHaan: [34:22] I mean, the the government provides those incentives for a reason. It's not purely just to, you know, make it so that Elon can give you more middle fingers. Right? The tax incentives they provide people, it is to incentivize them to actually do things that they believe will stimulate the economy and stimulate the greater growth of I mean, everything.

Dan Austin: [34:40] Texas, so let's be honest, there's probably a caveat there. I don't know. No government. Build whatever you want, wherever you want. They're on this This is we

Mike DeHaan: [34:47] talked about during the scale call today. In Texas, it's all about whose daddy is as as what seat on the city commission,

Dan Austin: [34:52] and that's that's really all that's Alright, for good boy.

Dylan Koch: [34:54] Cool, guys. That's all I had for today. And you guys got anything else you wanna report?

Dan Austin: [34:59] No, I think that's a good place to start. No, I'm so good.

Mike DeHaan: [35:01] So cool. Well, thanks for digging that up. Awesome, guys. Well, thanks for listening to today's show. Should shoot us a follow on Instagram. Really helps out a ton, and you can see more content that we throw out there. So I'm at mike underscore invest. Don't list your Insta.

Dylan Koch: [35:16] You're gonna get it eventually. This is eleven d cook.

Mike DeHaan: [35:19] I like to make you say it though.

Dan Austin: [35:21] You have to spell it, dude. It's k o c h. You gotta spell it. That does not appear to be cook.

Mike DeHaan: [35:27] Yeah. Did

Dan Austin: [35:29] So a thanks. Yeah.

Mike DeHaan: [35:30] And then Dan is at investor man Dan. And just a follow-up. Send us a DM. Let us know what you think. You should really do me a favor and go and DM Dylan and let him know what you think about him being on the show. And you should ask him if we're legit or we're completely blown smoke because he'll probably give you a different answer than Dan and I

Dan Austin: [35:48] would give you an honest answer.

Mike DeHaan: [35:49] Give you an honest answer. So go shoot Dan a DM on Instagram. Let him know what he thinks. And, you guys listening. Talk to guys next week.

Dan Austin: [35:56] See you. See you all.