Do You Actually Need to Renovate Units In Your Rental Properties?

Mike DeHaan: [0:01] Really quick, before today's episode, wanna talk about our new accelerator program. We're gonna be taking 10 investors every quarter and plugging them into our proven marketing systems that we use to operate our business every single day. And we will be applying them to you and your business in your market. At the end of twelve weeks, you will have greatly increased the velocity of which your business has started to take root and hold in your market. So you can spend less time building less time trying to figure stuff out, and instead just focus on closing deals. So this is an intensive program. It is only for people who are extremely serious about wanting to take their business to the next level and ultimately quit their w two job in the next twelve months, which believe it or not is possible. So if you think you are a good fit, please go to collectingkeyspodcast.com/launch and submit your information and see if you're the right candidate. We're all doing again, we're doing 10 people every quarter. So spots are limited. So if you apply, we'll get back to you. We apologize. But it will be first come first serve or I guess like first qualified first serve. So again, collectingkeyspodcast.com/launch. Go there and we'll talk to you soon.

Mike DeHaan: [1:06] But this house in a c or d class neighborhood. But I'm just gonna ignore that and make it somewhere that it's like what I wanna live. But the problem is is the neighborhood is not necessarily gonna draw the kind of tenants that appreciate that. What's going on, everybody? Welcome to today's episode of the collecting keys real estate investing podcast. Today is Wednesday. It is the Mike and Dan show where I, Mike DeHaan, and my cohost here at Dan Austin, talk about real estate investing business and everything else that we feel like. So it has been a month of September. It's been an interesting one. Yeah. We just had so many ups and downs and other things just gone weird. Don't know.

Dan Austin: [1:53] Things that have gone awry.

Mike DeHaan: [1:54] I don't know if it's like something in the water or like what it is. It's just like between a mix of major reduction in sellers answering the phone. I don't know, do like all the sellers have kids and they're like just focusing on kids going back to school? Have no idea, I also typically the stereotypical seller, that's not like a priority for them. So I don't know. Well I'll tell

Dan Austin: [2:17] you what it is, priority here in Spokane is the County Fair.

Mike DeHaan: [2:20] That's what it is.

Dan Austin: [2:21] I went there. I went there, know, my daughter obviously loves going to see like the whatever the rides, all that sort of stuff here in Spokane. We have a pretty good sized one. I'm not saying it's a good one, we have a good sized one and a lot of people show up. And some of them don't even shower. Some of them look a lot like our sellers. Some of

Mike DeHaan: [2:39] them have never showered before. But for

Dan Austin: [2:41] two weeks straight, they're getting pumpkins weighed, they're out there on the, what do they call that, the merry-go-round, they're buying fried food. Yeah. Learned it all. Two weeks in Spokane, bet you didn't close any deals.

Mike DeHaan: [2:53] No. It's funny, that's just something that I don't know, I didn't grow up doing. In Montana, they always had the fair that would come through and it was, you know, in like the nineties, right? So it was even dicier than it is now. And it would just be all of like the hill people that would come from our super rural Montana, they'll go to the fair.

Dan Austin: [3:10] Come in, yeah. Especially Montana because like that's like the one thing you can do is that in in probably September. I will say this, because I'm also equally disgusted by a lot of things at the county fair, but for the kids, they love it. I will say, I noticed this year that the Carneys that show up have been next level, like good.

Mike DeHaan: [3:30] Like, so

Dan Austin: [3:31] they're no, like legit good, like nice.

Mike DeHaan: [3:34] Okay. They're carnies that have like a passion for their craft now.

Dan Austin: [3:38] Yes. I'm not even kidding, like really just sweet people, like actually nice, and it's just a different experience. So it used to be when it was, when I was growing up, was like, I don't know what the term would be called, but like, vagrants maybe? That would just like hop on the train, and they would go to the next carnival and do all that stuff.

Mike DeHaan: [3:54] They were felons with records out to get arrested in different states, and they were on the run.

Dan Austin: [4:01] They were on the run, legit, right? Like that, they had the little stick with the bag on the back, that's how that's what they looked like. Yeah. Yes, is that what it's called? Okay. So they had that. But now, and I don't know if anybody else has experienced this in their local affairs, they're all Hispanics, like exclusively, like there's nobody else that is running it, and they're the nicest people. Yeah. Legit, like they're like customer service, like they're like, oh, my daughter's like trying to play a game and she lost, and the lady's like, oh, you wanna come over here? My son likes pushing buttons, so she let him push like the buzzer button. You know, just like nice things that vagrants didn't let me do when I was

Mike DeHaan: [4:37] a kid. Yeah. Right. Never at all because they didn't wanna be there. I was gonna say that actually sounds like a good experience. I was gonna say, do you think that they're actually nicer or it's just that because we're in a time where everyone's so freaking toxic that it just seems better? Whereas like everyone. There's there's probably some of that, but yeah, they were

Dan Austin: [4:52] I I feel like they were legit, but it's a whole different experience. You have to show up and just pay for a max. You don't pay with dollar bills, you just pay for like access and you can just access and do everything there. So there's no like, I guess, competition for more money from people.

Mike DeHaan: [5:07] Yeah. That's true, guess. Within the different rides and people.

Dan Austin: [5:10] Because I'm assuming back in the day Mhmm. Everything was cash, a lot of

Mike DeHaan: [5:13] that went into their pockets. Oh, probably. Yeah. Know. I mean, if I was a vagrant Yeah. Vagrant carny. The funny thing is is, I don't know how Fare works. There's probably some like company that's come out and like that's been like their private equity investment is they've bought like the Fares.

Dan Austin: [5:27] Probably, right? Well, there is a big name brand there, that there's the name of the fair there, like that, and I'm sure that they just pay for the location. Yeah. Honestly, to come for two weeks.

Mike DeHaan: [5:38] Probably. Yeah. There's there's somebody out there that's like the Alex Hermosia of like county fairs.

Dan Austin: [5:43] Crushing it.

Mike DeHaan: [5:43] Or like the Cody Sanchez, they're gonna do a roll up of like all the Northwest county fairs, and sell it off. We're gonna hear it

Dan Austin: [5:50] on Bigger Pockets or some other podcast in like two years, like, I was going around buying up all these places, and yeah, I sold them for $3,000,000,000 when that was all done.

Mike DeHaan: [5:59] Yeah, that's gonna be the next book. It's like, this is how you buy land, and you turn it into a county fair, and then they're gonna have like the whole thing about like, this is what county fairs pay weekly, and then you have to like work with these groups, and like this is how much you can make. Oh my god. And they're gonna have like

Dan Austin: [6:15] You're gonna have ferris wheels, short term rental ferris wheels out in the market. You can start renting by the evening from people. They're like, yeah, I invest in I carnival

Mike DeHaan: [6:24] mean, at this point, you never know. People are finding their niches all over the But place, now it's been interesting just on the business side and just how the operations stuff have worked because, you know, you're talking about these different opportunities and like people trying to be opportunists. That's just kind of how it feels in the real estate space as a whole right now. Sure. And one of the biggest things that's been so challenging working with like the people in our partnership program and then working with people that I've been talking to about our new accelerator program that we're launching here on October 1, the people that are just like our main 7 figure investor mastermind as well, is teaching them how to, like how important it is to look beyond just like the cash purchase and like the original purchase price of a property or going traditional way, and making sure that you are looking at those different opportunities, you know, and like trying to find potential revenue, whatever it is, you like you find it like a piece of land, maybe the play is to get a Ferris wheel thrown on there. Know, honestly, because it's just so challenging to figure out exit strategies and to figure out what you're gonna do because investors have kind of slowed down with what they're doing. Retail buyers, even though the rates, rate hikes were officially stopped, they're still kinda hesitant. You know, money is super expensive. And it's just like hard to know the correct direction to go, especially if you're kinda like new to understanding things like subject to or seller financing or innovations or lease options or whatever. And And as like a new investor, I would say it is probably one of the hardest times right now to get into real estate that at least in the five years that I've been doing it, for sure.

Dan Austin: [8:06] I would also add though that it's probably one of the best times Sure. And I have a few reasons for this. One, all the guys and gals that like built up their nest egg, they're sitting on the sidelines because they can afford to. Right, they're like, bro, I made $810,000,000 in equity the last five years, I ran it up, I busted my ass through, you know, maybe it was through 2008, whatever it was, when they really committed time when they were building up their nest egg, and now they're able to comfortably sit on the sideline and do less, so okay, so you have less sophisticated competition. And then on the flip side of that, as a new investor coming in or somebody continuing to operate, you're learning how to operate in a very tough environment, and you're adapting skills that other people haven't been willing to adapt. I was just posting on Instagram earlier today, like, the whole like, why the BRRRR strategy is not actually dead, it's just that the strategy people used a couple years ago is dead, and you have to adapt those strategies into this market. And there's a lot of people, honestly, they're like, well, interest rates are too high, I can't BRRRR anymore, they're just gonna step out. So there's vastly less competition. Now, I will admit that deals are much harder to come by and they have to be really good deals to acquire, but this is the time as somebody new with fresh blood is, it's a perfect time to start.

Mike DeHaan: [9:18] Yeah, it really is and it's hard to understand that yourself, especially an investor, but it's even harder if you have an established business and you're trying to like train a team, right, to understand all these things. I mean, is one of our biggest struggles is, you know, we have all of our sales reps that work all

Dan Austin: [9:32] of our

Mike DeHaan: [9:32] different partnerships and getting them to be able to identify this might be a good seller finance opportunity, this might be a good sub two opportunity. Even earlier today, had one of our guys reach out and wanted to know about like a wholesale deal. It's like, well, with just the way the market works, this wholesale is definitely not gonna be an option. Sure. Right? But they're especially if they have been just taking like that sales role and they're not necessarily doing like hard research on real estate, it's a hard thing for people to understand.

Dan Austin: [9:59] Mhmm. Yep.

Mike DeHaan: [10:00] Like I said, I think it's a great opportunity for people that are willing to come in and work. But it's not something that you can just come in and be like a one trick pony. No. And I also think too that with that, I've noticed we're starting to see a really big rise. I think it's kind of fueled by some of these like hard sales guys that are becoming prominent in the real estate space. Or you're starting to see, you know, like the Josh and Tiffany Hyde sort of like hard sales, like this is how you build a massive sales team. A huge increase in these companies that like they're like wholesale companies, but they're trying to do extremely high volume deals for like really small margins. You know, and a lot of this goes back to like the whole Keeglee thing, right, of just trying to like daisy chain and try to like squeeze a tiny bit off of all these deals. Right. People are doing that right now with like the direct to seller game or like they're just going on the MLS and they're trying to wholesale these MLS deals for like $1,500 or like $2,000. Mhmm. I joined Josh Tiffany Hyde's, you know, it's just the result driven group, has become kinda popular over the years. They're like free Facebook group. And there's so many guys in there that are like, oh, yeah, you know, we have 20 deals for the month and our expected revenue is like 100 and something thousand for it. Okay?

Mike DeHaan: [11:13] I'm doing the math, I'm like, that's like $5,000 a deal.

Dan Austin: [11:16] Yeah. Yeah. What is your cost per deal? Because you know, I mean they might be just doing massive amounts of cold calling, so their cost per deal is maybe a little bit low, but just the churn rate on that, oh my gosh.

Mike DeHaan: [11:27] Yeah. And it's like truly is becoming like day trading of real estate. Like the problem with that you know from the market perspective, is they can you know, they do whatever they want in the business. They wanna run the business that way, that's fine. But now as like if you're a traditional wholesaler, right, or traditional off market investors trying to get stuff at 70% minus repairs, you know, minus wholesale fee. If all of a sudden they are like now gonna be $15,000 higher than you all the time because they're willing to make a 20 or $100 profit on a deal, it makes it that much harder for those of us who, you know, usually have like a minimum or an average of 15 to 20,000 to continue to make money.

Dan Austin: [12:08] Yeah. Your your business model's built differently, right? So Okay. And we've dealt with this before, a lot of times you have newer or less experienced wholesalers that come into your town, and you know, they're clowns, right? And they screw everybody up because they go in and offer too high prices because they don't know how to run comps, they and don't actually have an exit strategy, and now they've killed a lead because they told them they could pay them x amount when they really Yeah. They never could've, and then they just canceled the contract, and now that seller has that number in their head, so you they call you. Yeah. Like, that doesn't even make any sense. And so, now you're, like, you're saying these people are actually trying to shift that market by doing that, and if they do have a negative strategy, that's good for them, but they're really kind of hurting the local economy from a wholesaler standpoint, at least in the near term while they're still operating, because you can't, I don't think you can operate on those thinner margins for a very long period of time.

Mike DeHaan: [12:55] You just can't, right? Because if the market shifts at all, like when you're over the course of that process, like, that can just make all your deals null and void very very quickly.

Dan Austin: [13:04] Totally. And you still have the marketing expense to get them. Mhmm. You still have all the operations expense to get 20 deals a month. It's in like you and I know more than anybody probably right now about what the margins are in a business at scale

Mike DeHaan: [13:15] Yeah.

Dan Austin: [13:16] Like that.

Mike DeHaan: [13:16] It's just interesting. Yeah. I'm curious to see what that does to the industry as a whole, and how people have to pivot.

Dan Austin: [13:22] I don't think it'll last, I think it'll burn out to be honest, because I see, I mean you see people like pop up like that all the time, like they have their next best thing, and if it's not a real good quality thing, it just disappears, it fades away. Yeah.

Mike DeHaan: [13:33] Well, I think the problem with that is

Dan Austin: [13:35] They go up and they go down.

Mike DeHaan: [13:36] Exactly. Well there's a lot of moving parts, you know, if you're doing 20 deals, if you're making $3,000 a deal, you're making $20,000 a deal, there's still like equal stress, like managing all those transactions.

Dan Austin: [13:48] It's still a process. It still takes the same amount of people to manage a transaction. That doesn't change.

Mike DeHaan: [13:53] All of sudden you have way less upside, but you're, you know, you have way less opportunity to pay people, you have way less opportunity to pay commissions. You know, it's kinda like the whole $100,000,000 leads and $100,000,000 offers thing where he's like, it is your responsibility to make as much money as possible so that you can provide a better service for people. Right? Mhmm. They're doing like the opposite. Like they are doing the race to the bottom in the wholesale industry. Yeah. You know? Yeah. Exactly.

Dan Austin: [14:19] And that never like a yeah,

Mike DeHaan: [14:20] that never works out for anybody. No. So yeah. Something that I've been observing has been challenging to try and overcome just like with with the team and like just looking at competition and stuff everywhere. I mean, whole market was already getting stupid with all these Pace Morby dorks trying to do their freaking rap deals that never makes any sense. Yeah.

Dan Austin: [14:37] Yeah. They're triple rap upside down slam dunk deals.

Mike DeHaan: [14:40] Yeah. And now we're coming in with like the the Wolf of Wall Street being like, oh, we're gonna make our $3,000 minimums. Oh, god. You know, we got our giant sales team of like 18 people that were just trying to like crank through all these deals.

Dan Austin: [14:54] You do it. I just think that the scene the scene that whether they're out there, lot of how many times do you jerk off a deal? That's exactly what they're teaching in some of these things, man.

Mike DeHaan: [15:01] Seriously, you know how you get through the wholesale game? Not enough. Hookers and cocaine, man. Exactly. If you had a

Dan Austin: [15:08] great movie, like movie. Yeah. I do like that. It's on Netflix now, think. It was Before, it wasn't on Netflix.

Mike DeHaan: [15:14] It was kinda recently because I watched it not too long ago.

Dan Austin: [15:16] Yeah. Like, it finally popped up on Netflix, which before you you couldn't get it. You had to, like, pay for it on, I don't know, Amazon or I was like,

Mike DeHaan: [15:23] come on, man. A good film. The funny thing is legit good sales tactics are discussed in that. Right? Yeah. That whole scene where Leonardo DiCaprio's like on the phone, he's like Alec the penny stock company and he's talking to the you know, the customer or whatever and they're all like sitting around and watching. The way that he uses like Oh yeah,

Dan Austin: [15:42] that is such a good scene, yeah.

Mike DeHaan: [15:44] You know, like the different sales tactics, how he uses scarcity, like some of the pauses and stuff that he does, how he gets confirmation.

Dan Austin: [15:50] Pauses, yeah.

Mike DeHaan: [15:50] That's like very legitimate good sales skills that you can learn a lot.

Dan Austin: [15:53] Yeah. Yeah. No, you're absolutely right.

Mike DeHaan: [15:55] That's what we've been doing on the wholesale side, and then on the rental side, have we talked about our bed bug nightmare yet? Don't know if you've talked about that on here.

Dan Austin: [16:02] Yeah. I think we talked about it when it happened, but that's a few episodes ago now. But yeah, we have in one of our multi units some dude. So actually, I didn't have all the details, so I chose I was down there, I don't know, like a week ago talking to our property manager and got more of the lowdown on it, and so like, yeah, there's some dirty dude that lives in this unit. We actually just increased his rent and he wanted to stay, and they're like, well, do you wanna do? He has bedbugs. I was like, well, I wanna get rid of the bedbugs and I want him out just because I don't want it to be a problem. So turns out that the people across the alley, this is not this is like a c class area, but the property across the alley is actually pretty nice, but they have really crappy tenants. He's gotten, he went over there, or they came over to our place, and the bedbugs transferred across the alley, and I was like, oh yeah, that makes sense. There's like just generally just like three or four crackheads hanging out over there. I'm sure there's bed bugs with like homeless And people and so anyways, we had bed bug people come out, and they're like, alright, hey man, so they knock on the door, he's like, yeah, he expected them, we told the whole process, like, yeah, we're gonna need you to leave for like three or four hours, because apparently with bed bugs, they go in there and they heat it up really hot, and they do some stuff to it, so it kills the bed bugs. I don't know. Anyways, he's like, alright, cool. And so he left the door open, so they could come in, so they started setting their stuff up. Well, when they went in the back room to set stuff up, he just went in the bedroom and fell asleep in the middle of the day.

Dan Austin: [17:23] They're like, oh, okay. So they had to leave and they couldn't kill the bed bugs. I was like, what the hell man? And so we're on a hundred and twenty day vacate because that's what the Washington State rule, when you're on a month to month lease, you have to give a reason why you want them to leave, then or it's a hundred and twenty day move out notice. And if you don't have a valid reason, like I'm selling it, I'm moving into it, which is then only a ninety day move out. So, yeah, so he's living in his bedbugs, he's like, well, are you guys gonna get rid the bedbugs? And our property manager was like, no, because you can't, you're not leaving the property, and so he was kinda upset about that, but I was also like, I don't want them to spread, and apparently it's a low likelihood because none of the other tenants like him, so it likely won't spread to the reunits. In Washington State, you can charge the tenants for bedbugs, so we're good there.

Mike DeHaan: [18:12] Oh, really? Oh, that's good.

Dan Austin: [18:13] Yeah. So it's like a thousand bucks to get them cleared out. So yeah, we've got that debacle going on still.

Mike DeHaan: [18:18] Who's gonna pay that though, because this guy doesn't have any money, he's already sexually admitted.

Dan Austin: [18:22] I mean, he has to, so I don't that's a good point, who knows, that's, I've just crossed my mind of like how we're gonna work that out, I'll let the property manager figure that piece out. Yeah, it's also one of those properties where you have to make these decisions, especially in this environment where doing a cash out refinances are not the easiest, so I walked down there, and I used to like the property a lot more, which I still like it, but just walking around it.

Mike DeHaan: [18:45] You're just more affluent now, you just don't appreciate

Dan Austin: [18:47] the That's exactly it, I'm like, ugh, this is so gross. But you know, it was one of those units or buildings where it's like a C Class neighborhood, but there's just tons of upside on it, rents have gone up, it's a great cash flow machine, but as we're having tenants move out, because there's a couple of them that, or one of them specifically that wasn't section eight, as we raised rents, they were like, I can't afford anymore, which is an unfortunate situation, but we have to do a turn, needs new flooring, and new this, new that, it's like a $20,000 turn. So you're thinking like, well, I'm raising the rents $400 a month, which is $4,800 a year, I mean that's a five year payback on just that one unit if we have to turn it. And then there's other delayed capex, and then there's the other question of what the neighborhood demands. So I would love to go in there and do our standard turn, would be LVP flooring throughout, new trim, new paint, new outlet switches, new white shaker with stone tops, new appliances, new fixtures, new vanity, toilet, all that gets to be new and it's a really, actually a quite simple turn, but there's no point in spending the extra 6 or $7,000 making the kitchen nice because the kitchen is functional because the neighbor is not demanding it.

Dan Austin: [19:59] It's tempting to do it because then we don't have to worry about it, and it will be the premium of that market, but it's like the payback on it, especially right now where we have to really be walking a fine line if we actually wanna do a cash out refinance, you know, it just doesn't make sense, especially because we've already, as we raise the rents, we've already driven the value, so in a multiplex, this is a six unit, so it's more of a commercial product, we have already driven the value by going below market rents at 800 a unit to 1,200, which is the market rent. We could maybe get $12.50 if they're really nice units, but it doesn't matter, we're already getting that, and there's units with brand new kitchens getting 1,200 as well, so there's no point in making this thing nice because we've already driven the value, now it's just time to wait for the cap rates to maybe go a little bit lower so we can sell it.

Mike DeHaan: [20:45] I mean that's such an interesting point. And this whole shift of understanding what the neighborhood actually demands is like the professional evolution that real estate investors need to go through. Right? Everyone when they buy a property, when they first start, they kinda do the same thing. Right? Is like I want I wanna make this house look like somewhere that I would wanna live. But because I wanted to get a good deal, I bought this house in a c or d class neighborhood. But I'm just gonna ignore that and make it somewhere that it's like what I wanna live. But the problem is is the neighborhood is not necessarily gonna draw the kind of tenants that appreciate that. Uh-uh. Okay, so you're not gonna get like the much higher rents to pay off the cost of doing it. And not only that, but if you make the unit extra nice, when you do get the kind of tenants that will live in that neighborhood, they're gonna do more damage to it just because that's who they are as human beings. Yep. And so it's gonna be more expensive to fix down the line. And and it's funny because this is like where like slumlords kind of like start. Yeah. Is honestly, they have like kind of a shitty property, but then they recognize that it probably does not make sense for them to put a huge amount of money into the property.

Dan Austin: [21:55] Right.

Mike DeHaan: [21:55] You know, like obviously there's slumlords that like don't have working plumbing or they have like water leaks, that's different. But when you walk these kind of dirty properties that are owned by a older landlord and you're like, man, they like didn't take care of this place at all. It's like, because it didn't make sense for them to do it, you're still gonna pay them way too much money for the freaking house. Yeah. Like honestly.

Dan Austin: [22:13] Right? No shit. Yeah. Well, the thing I think about when you're talking about like renovating the unit and this sort of stuff is like, the first time you do that to a nice place and then your tenant lets their dog shit all over your brand new carpet, you'll realize they don't appreciate it as much as you do. Yeah. And that's okay, so just make sure that you're putting the right kind of finishes in the building to match the neighborhood which is gonna match your tenants. I always go back to the 6th Ave one we did. We did it nice and it needed top to bottom. We did it. This is our first duplex we bought together and we did a super nice rehab and we advertised it and people from out of town, from Portland, got ahold of it. We rented to them, they're a great couple to rent to. But when they showed up, it was not what they thought because they saw the house that they were gonna live in pictures, but it didn't match the neighborhood and you could see it all over their face.

Mike DeHaan: [23:03] I do feel bad about that. I remember when they showed up. Yeah. It's like we catfished them. Hey, it was a nice unit. There just happens to also be meth heads that live in the area.

Dan Austin: [23:12] Right. I mean they're a young couple, professionals.

Mike DeHaan: [23:14] And they were from Portland. It's still a huge step up from that in terms of safety at this point.

Dan Austin: [23:20] This is true. And then the worst part about it is is then the spouse got pregnant and so then they didn't feel like they could move because she was pregnant so they had to stay for another year.

Mike DeHaan: [23:29] I think there's did they ever leave? Are they still there?

Dan Austin: [23:31] I don't know. They might still be there. So we should ask Scott.

Mike DeHaan: [23:34] I don't Yeah. So we sold it on a lease to own to one of the other tenants that had a better unit that's been there for like twenty years. And so he could basically rent out the unit that we fixed up, and then he basically discharged him double rent, and he has the path to homeownership coming his way.

Dan Austin: [23:47] Yep. It's been a badass move for us, because we're cash flowing about a thousand bucks a month, which is what we were cash flowing on this duplex before, after set asides and all that, and now, like, we're net net a thousand bucks a month, and we have zero headaches, zero management, nothing. We just pay the we do pay the property taxes on it. Mhmm. And I think we do pay water, sewer, garbage, because those are leanable, and we just told them we would, so we're still, like I said, netting a thousand bucks doing nothing.

Mike DeHaan: [24:12] Yeah. It's like awesome. Well, even after we burned out most of our money, remember, we charged them a $30,000 lease option basically as a down payment. So we got literally all of our cash out. So it's just infinite profit. Totally.

Dan Austin: [24:23] You've been a great deal. I really love that model.

Mike DeHaan: [24:25] Yeah. I mean, that's really what

Dan Austin: [24:27] And we're still on title, so we are collecting the tax benefits for now. The interesting thing is, is that lease option's going to come due soon, like in the next year or so, and interest rates will be pretty high.

Mike DeHaan: [24:40] Is it? I thought it was five years.

Dan Austin: [24:42] Well, would that be 2025?

Mike DeHaan: [24:44] No, because we sold to a lease option to him in 2021, so we should have a couple years left still. Three years.

Dan Austin: [24:49] Okay. I couldn't remember if it was three or five, but what I was going to say in this situation is he's self employed and one of his biggest challenges was being able get the financing, and he makes good money, but also with interest rates going high, his payment might increase and he might be like, I can't afford that. So in that case, we could either take it back or just continue to extend the lease option with some additional benefits for us.

Mike DeHaan: [25:11] Yeah. And there's a lot of different options there. So it's a good spot to be in. I mean, I think you just gotta get creative with some of these deals too. It's been a huge figure out. But yeah, the repairing though for the neighborhood is such a key thing that I think you kinda need to learn the hard way to fully understand. And honestly, of the perfect examples you're talking about the one that we're trying to turn over that has the bed bugs. Perfect example of why you don't over repair is there's a triplex down the street from this property, the other De Smet property that we flipped several years ago that had like just the all the terrible tenants that was like awful awful So we bought this one during COVID. It was a seven unit. It was basically a three unit on its own parcel across from a four unit on its own parcel, but they kinda shared this courtyard. So basically, was a seven unit. And we bought it as a seven unit. We basically spent the next nine months just cleaning up the absolute humanitarian nightmare that was the property.

Dan Austin: [26:09] Like we

Mike DeHaan: [26:10] had, you know, a child abuse situation that we had to figure out. We had a lady who like, I think legitimately killed her roommates that kept dying. Mhmm. We had a homeless guy that was like selling meth out of a van that was there. We had a meth head that kept bringing over hookers and doing stuff in the like main living area. We had one person that was embezzling money from the state. Like the whole thing was a nightmare.

Dan Austin: [26:34] There's everything.

Mike DeHaan: [26:35] And every single one. And so we literally like cashed for keys and got out all the tenants went through the full process. This is all during COVID. It was a nightmare. And then just listed them both for sale as is separately. And one of the ones that we sold, and these places were major fixtures up there too as you'd imagine, one of the ones that we sold, they completely renovated this property. Like everything down to the studs. It looks so good. It looks And they have been trying to sell that thing for like six months forever. No one will touch it.

Dan Austin: [27:06] Yeah, always look for it.

Mike DeHaan: [27:07] Yeah. Because it's like And it's the nicest property in the worst neighborhood.

Dan Austin: [27:12] Yeah. Never want that. Don't have the biggest house in the neighborhood, man.

Mike DeHaan: [27:15] Exactly, right. And they would have been better off, honestly, just like getting it livable and putting in some good tenants, and then trying to sell it for a $100,000 less than trying to sell it right now, they would have made way more money.

Dan Austin: [27:27] Right, yeah. And they fixed all of like the CapEx problems, which landlord one zero one, you gotta leave some deferred maintenance because they re sited it. Uh-huh. They re roofed it, did all of the windows, which, come on now, tenants don't care about that, so what you should've done is made the units nice enough for tenants to move in, then you could have increased the value because you have now cash flow of proven, you know, proven renters, and then you could have sold it and let the next landlord done the do the, you know, siding and all the other stuff that doesn't actually add value.

Mike DeHaan: [27:56] Totally. Especially if you're not gonna hold it. If you're planning to hold it for twenty years, it's completely different. Yep. You know, fix it up, make it nice.

Dan Austin: [28:01] Totally. Yeah. That's stuff you need to know.

Mike DeHaan: [28:03] Yeah. But these people obviously weren't. They just bought it in 2021 and now they're trying to sell it two years later.

Dan Austin: [28:08] Yeah. So glad we're not holding the bag on that anymore. We were so burned out after that, that's also why I don't think there's a single tenant issue that scares me. No. Because what we went through early on in our landlording careers with that building, there was so much. And now I'm also a lot more, I guess, just I don't know what the right word is, stoic about that sort of stuff because it's just like, nah, you're probably lying to me. Totally. I don't care about your sob story.

Mike DeHaan: [28:37] Yeah, I personally learned a ton from going through that because with that whole period of time, we were doing that during COVID, which was the hardest time to deal with tenant issues, especially in Washington State. Yep. Because they had all these rules about how you couldn't evict them and these different things. But I also had a triplex that I still currently own where I had a tenant that stopped paying the second COVID started, and basically just took advantage of me.

Dan Austin: [29:02] Oh, yeah. I forgot about that. Yeah.

Mike DeHaan: [29:04] And she would always be crying. She'd always have these soft When I first bought that property, I was kinda new to real estate. I like, okay. And I was like, we'll try to help her out and shit. Totally a sucker. She's taking advantage of me 100%. But then after dealing with that 70 and a flip, it was so easy for me to just be like, that's too bad.

Dan Austin: [29:21] Sorry. Sorry.

Mike DeHaan: [29:22] Oh, your plumbing no longer works? Like, well, I'm required to fix that, but I will make it a bare minimum functionality so that you eventually leave because Yeah. I know that you're making $4,000 a month from the state. I've come over to look at the damage you're talking about and I saw your brand new TV and all this other stuff that

Dan Austin: [29:40] you have going on. Yeah. But you can't pay me rent.

Mike DeHaan: [29:42] You can't pay me the rent, which was like $600 because I never had the opportunity to raise it. It was obscenely low. But yeah, it's just see, you get jaded very quickly with humanity when you deal with stuff like that.

Dan Austin: [29:54] Yeah. Yeah. A little bit. Yeah. You still have to have some like level of like balance on your decision making, but at the same time, like, you see it getting people just getting taken advantage of, because that's one thing, it's like, commission will take a mile, so you just have to have processes and systems in place, and if you suck at managing tenants and properties, then you probably shouldn't do it. Like, you should let somebody else do it for you.

Mike DeHaan: [30:14] Yeah. I mean, that's a whole other ballgame, because we've also had our own property management woes, But Yeah.

Dan Austin: [30:19] Yeah. We definitely have plenty of those. Everybody's heard about those a few times.

Mike DeHaan: [30:22] Yeah, know. They never well, least at ones right now are pretty good. They get it.

Dan Austin: [30:25] Yeah. We're we're rock solid. We're doing good. Yeah. We're a good place.

Mike DeHaan: [30:28] But anyways, so we got that. And then I guess our our lease to own one that we talked about was it last week. That's finally coming together I think.

Dan Austin: [30:36] Yeah. Yeah. We're getting some folks out there to take a look. I'm it's funny. Still dealing with like some contractors that just don't know how to run a business yet. So having some of that just because it's such a light rehab trying to bring in different subs myself and handle it. Main guy has actually been doing all summer, he's had a good gig, been remodeling lake houses on a lake north of here Nice. When we shut down, when we spun down our flips, And so he hasn't had any reason to wanna come down here back to the city. So he's been doing that, so we're just trying to sub things out, and it's been going well. Like, we're getting things lined up. Hopefully, we'll have some progress, and it'll be quick, wham, bam, they come in and done, and we'll be able to advertise that on a lease contract. Cool.

Mike DeHaan: [31:17] I like it. That'll be good. First little door there. And then we got another little Yeah. Duplex we're trying to buy to, which would be good another seller finance deal. That's just where it's at right now. Anytime you can get anything with seller finance. Yeah.

Dan Austin: [31:30] Yeah. It seems to make the most sense because you can structure the seller finance deals so it makes sense for the landlord, for the owner, and then it makes sense for you from whatever standpoint that is, like whether that's great debt, whether that's great cash flow, or great equity upside. And as long as you can carry that property very safely and securely for a few years, there's some serious upside for you wherever that's at. Like in one of those three categories.

Mike DeHaan: [31:54] Yeah. You wanna know something that I've come to find, which I find really interesting about people's understanding of seller finance. So I've been talking to people in like GoBundance and other groups about some of these seller finance deals that we've done, and they're like looking at different deals. It's like a public service announcement for everybody, okay? When you do seller finance deals, the terms do not have to look like what a conventional American bank offers you, like at all.

Dan Austin: [32:19] Thank you. You mean it doesn't have to be thirty year, and the amortization doesn't have to actually match the loan term?

Mike DeHaan: [32:25] People literally do not understand that. Like when I tell people that we've done stuff on like a ninety year amortization, or like a fifty seven year amortization, it like blows their freaking mind. Because they're like, I need it to be $1,800 a month payment, but they want 5%, I don't know how can do it. I was what if you just made the amortization like super long so that it gets it? But then they're like Right. Well, like why would they do it? They don't wanna, you know, they're not gonna wait ninety years to get paid off. It's like, well then you make a ten year balloon, which is what they want. And what that means as the buyer, means your principal pay down's gonna be shit, you're gonna pay a hell of a lot of interest, but as long as you're cash flow positive and you have room on the equity, who cares?

Dan Austin: [33:04] Exactly, you're acquiring an asset and that's like the mindset you should be in, is acquiring a good solid asset with some upside, even if it's not today. And also think about it from the upside of like, it doesn't have to be cash flow that you're upside right now. Yeah. As long as you're getting major upside, and like investing from a position of like, what's my massive upside, as opposed to like, well, can make a $100 a month for twenty years on this one. Think about it from a totally different lens, and I think you'll be able to acquire a lot more deals on seller finance. People get, for some reason, confused, and scared, and just don't believe the system, but we've done quite a few seller finance deals, they're quite honestly my favorite kind of deal. Even if we did a seller finance deal that matched normal lending, if we had to bury it, like I'd rather do seller financing.

Mike DeHaan: [33:46] Totally. I mean, I guess it's just an easier conversation, I don't have to pay fees, I don't have to like go and do all the bullshit.

Dan Austin: [33:51] Good hope.

Mike DeHaan: [33:52] And it's funny, one of the biggest like nonsense objections that I have heard of people and say is like, I got to explain that to the seller. Like, you're right. You do. And it's the easiest conversation where they say, why would I do a forty seven year amortization? Just let's know it's well, you're gonna receive more interest over it. So you're going to make that much more money over the, you know, five to ten years that we hold this pref pay off the balloon. Totally. And it should be very, very simple. And you can, like, find calculators online that build these amortization tables. You can show them how much more money they're going to make Mhmm. By being willing to carry the hundred and thirty five year note. Right? It doesn't matter. Right. It doesn't matter.

Dan Austin: [34:31] Yeah. Well, and this is like the best time to pitch it because before, with how the market was when rates were in two to 3% range, like, the major pitch you could have for like a seller was like tax benefits Uh-huh. Or if they had a unique situation, could make a pitch. But now, you can make a pitch of like, yeah, you can sell your property to me for what and you not have to deal with anything. Yeah. And people are like,

Mike DeHaan: [34:53] okay, I mean,

Dan Austin: [34:54] I don't have to let it sit on the market for ninety to a hundred and twenty days, do price drops, have people walk through it, disturb my tenants, oh, and then pay capital gains right away, like, oh, I can, there's a better way, it's like such a much easier pitch from our standpoint.

Mike DeHaan: [35:06] Yeah, absolutely, and especially because you're seeing so many people that are reaching their retirement age as well now, where they're wanting to get out of the real estate game, they're not wanting to sell for 30% less negative a couple years ago, you can now help them bridge that gap by continuing to make them monthly income, and they'll be able to net higher at the end of the whole thing because of the interest. And, you know, if you're still buying with a little bit of room or like excess cash flow or whatever you're able to negotiate with them, you can make it a very strong beneficial deal all around. Totally. But, yeah, it's been fascinating to me as I've been having those conversations. Because like, guys that I I'm like, you are a smart person who is very good at real estate and has more experience than me and I cannot believe that you've never thought outside the box on this one time.

Dan Austin: [35:48] Right, yep. That people just get so locked into whatever the institutions tell them it needs to be and they don't Yeah. They just don't know.

Mike DeHaan: [35:55] It's fascinating. But I mean, that goes back to what talked about at beginning of the show. It's all about learning to be an opportunist. Mhmm. And learning how to recognize like the different ways that you can make money. And that's why that's one big reason why I've been focused so much on that with our group coaching calls for the instant investor stuff. It just seems to be like Absolutely. Every conversation is you know, identifying the different stuff there.

Dan Austin: [36:16] Recognizing the opportunity, it's like if you could maybe putting in this example, somebody came to you and said, I wanna sell you my house. You could do whatever you want to buy this house, just get creative and buy it, like that's your opportunity, but usually the opportunity doesn't slap you in the face like that, right? Like, you have to recognize it, because sometimes the sellers don't see the opportunity, they just know they wanna sell their house to someone. So, once you can recognize the opportunity, which is usually just solving their problems, then you can get creative and find a way to actually match your solution to their problem. Exactly. Yeah. And that's why you

Mike DeHaan: [36:46] get paid. You get paid proportionally, what is it? What you get paid is directly proportional to the complexity of the problems that you solve. Right. Absolutely. If you're able to take those and solve a little more complex problem, you're gonna make more, or in this case, you're gonna get more deals.

Dan Austin: [36:59] So Yep. Cool. Yep. And like we said earlier today, you just have to have more adaptations or more of your strategy or new strategies put into your toolkit so you can keep operating. Perfect.

Mike DeHaan: [37:09] Awesome. That's a good place to wrap up there. Do you have anything

Dan Austin: [37:11] else you wanna add? Nope.

Mike DeHaan: [37:12] Right on guys. Well, hopefully you enjoyed that show. You should probably go back and I feel like we dropped a couple good nuggets in there, some different things.

Dan Austin: [37:20] Probably. Maybe Ramon will make some good reels out of this episode.

Mike DeHaan: [37:24] Yeah, maybe. Yeah. If you don't follow us on on Instagram or Collecting Keys podcast, we always post some good highlights from the show. Yep. And if you wanna hear stuff that Dan and I have to say or think about things, you should follow both of us on Instagram too. I'm at Mike underscore invest, it's at investor man Dan. And we are starting to put a lot more effort even Dan is into putting some content out there. So you should know. I'm getting content to you. Again, content to you. I don't say that too fast. It'll sound a little weird. Alright, guys, but go ahead, shoot us follow. We appreciate it. And besides that, please share this with everybody that you know, it's the easiest way to continue to help the show grow. So awesome. Thanks for listening, everybody. And we'll talk to y'all next week. Right on. See y'all.