Forget Cash Flow — It’s Time to Rethink Your Real Estate Strategy

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

Mike DeHaan: [0:31] good fit, we would love to

Mike DeHaan: [0:32] have you join the community. So again, collectingkeys.com/scale, go ahead and apply, and we'll see if you're a good fit.

Mike DeHaan: [0:38] Expecting to, like, live off of cash flow from real estate is kind of unrealistic. What's going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. We're doing a hot intro today. Dylan, let's hear your story.

Dylan Koch: [0:54] No. I was just telling you guys when I first got started, and it was so long ago, I forgot about it was we had a a duplex that was one on top of each other. And basically that separate water heaters.

Dan Austin: [1:03] Yeah.

Dylan Koch: [1:04] The one on top, the water heater broke essentially. And the upstairs tenant had no idea how to turn off the water. And so it essentially drained and flooded the entire bottom unit. And what's worse is the bottom unit was they didn't speak English. And so us trying to coordinate after the fact of getting them like we had to find somewhere else for them to go, like put them up in a hotel for three days, get remediated. The unit was already trashed before that, like roaches and stuff. And so this was just like the second property I ever owned. So it was a quick introduction to how real estate can be.

Dan Austin: [1:39] Like, I love real estate. This is so much fun. I'm making $200 a month.

Mike DeHaan: [1:43] Yeah, right.

Dylan Koch: [1:44] Yeah. Was $20,000 insurance claims. Was.

Dan Austin: [1:46] Oh, did it? Oh, so you had to collect a full on claim?

Dylan Koch: [1:49] Yeah, we collect the claim and everything. You got it gutted? Yeah. Yeah, we got a whole new bottom unit out of it, which ended up being okay, and and the tenants left. Wow.

Dan Austin: [1:56] That never happens to Mike and I.

Mike DeHaan: [1:58] That never happens to Well,

Dylan Koch: [2:00] think if I made that same claim today, they'd be like, hell no. But this is back in what, 2018? We made one insurance claim and we

Dan Austin: [2:06] had to fight it for a year and then go to basically small claims court and get like, they filed collections against us and all sorts of shit. It was like,

Dylan Koch: [2:13] what the hell? Was wild. I'm filing a claim right now that's been since May of of this past year for a a tree fell on a garage. And the tenants were supposed to pay for parking, like off street parking. And now I can't charge them that because the tree fell on it. Yeah, I just got approval a couple days ago to finally fix it.

Dan Austin: [2:30] Isn't that crazy? Where it's like a clean-cut, like trees on the garage? Yeah. Regardless of what happened, it's right there.

Mike DeHaan: [2:36] Yeah. They'll just they'll just find it.

Dan Austin: [2:38] They're like, oh, I don't know. We gotta test the shingles for asbestos.

Dylan Koch: [2:41] Oh, yeah. And they had to send out their own contractor to make sure it was it was verified. Because this thing should be demoed. They're like, oh, we're gonna see if we can save it. I'm like, it's off the foundation. You're not saving this thing. I don't know what you're trying to do.

Mike DeHaan: [2:53] But Yeah. There's always something. But alright, guys. Well, welcome to today's show. Sort of a hot intro. We were coming up on our time where we needed to start, and we got it we wanted to hear the end of Dylan's story.

Dan Austin: [3:03] Yeah.

Mike DeHaan: [3:03] But welcome to collecting keys, everybody. If this is your first time here, I am Mike DeHaan here with my cohost, Dan Austin and Dylan Cook. And this is the show where we teach you to make massive income, not just passive income with your real estate investing business. And on these Wednesday shows, we talk about what's going on in our businesses, what's going on in real estate news in general, and we talk about whatever else we feel like this week. And so before the show, we always have, like, a little preshow chat, and we all have lots of drama going on. Dylan has his insurance situation that he's dealing with right now. I just got off the phone with my property manager, and they're training one of my rental units. And tell you what, guys, this is why I'm getting out of the the rental game. These people were in the properties in my property for not quite five years, just under five years. How the fuck does somebody do $20,000 worth of damage in five years?

Dan Austin: [3:57] What property was this? Was this a

Mike DeHaan: [3:58] It was my it was my triplex.

Dan Austin: [4:00] That thing has always got a problem.

Mike DeHaan: [4:02] Dude, like, it doesn't make any sense. Like, I redid the unit when they moved in when I bought it. That was, like, the one unit that was empty. It became empty because I took the tent that was in there, moved them into a unit that had already been redone by the previous owner.

Dan Austin: [4:15] I like I remember that.

Mike DeHaan: [4:16] And so this unit, and I remodeled it, put someone in there. I don't even understand how like, the dumb shit. Broken windows, broken flooring, like water issues. I'm like, how?

Dylan Koch: [4:28] I don't get any of

Mike DeHaan: [4:29] I've lived in properties for longer than that. Like, when I moved out of my my old primary and I sold it, I lived there for five years. We didn't do anything. We just left.

Dylan Koch: [4:37] Yeah. Evangel, you probably made it better.

Dan Austin: [4:39] I was just down at one of my student rentals, which you would think could be like, just beat the shit that I re when did I remodel that? Like, 2018 brand new remodel. We just went in there. Was that six years ago? And it's had a lot of young kids go through it. It's in good condition. Like, they've taken good care of like, it's like, there's not anything crazy in there. Like, so I don't understand how some of these people just trash units.

Mike DeHaan: [5:01] And those are college kids. Yeah. I would expect them to trash it. Right?

Dylan Koch: [5:05] Yeah. You better knock on wood, Dan, because No shit. I think the college houses that I was in, I don't know if we left it from better shape.

Dan Austin: [5:10] Well, you you went to probably the poor state school. This is a private school for elite elite Americans. Yeah. Totally. Oh,

Dylan Koch: [5:17] over the Americans then.

Mike DeHaan: [5:19] The little tiny religious school. Yeah. The little tiny religious school that's not even accredited anymore. Yeah.

Dylan Koch: [5:24] There's like Oh,

Dan Austin: [5:25] that's 2,000 students that go there, but their parents are rich. Yeah. Pay Oh,

Dylan Koch: [5:29] we had it.

Dan Austin: [5:29] They pay good rent.

Dylan Koch: [5:30] My biggest thing with, like, tenants and stuff is, I think I put this on my Instagram the other day. The guy's like, oh, I've had a leak in my vanity. I'm like, okay, fine. You know, how long has it been going on? I'll we'll come fix it, take a look at it. Oh, like, six months. I'm like, bro, I can't I can't fix it if I don't know what's happening. Yeah. Like, so it was like flag mold behind its vanity because it's been going on for a like, was a small drip, but still, six months of a continuous drip is a lot.

Dan Austin: [5:54] Yeah. That's crazy. Lot. Yeah. You gotta put in your leases that if they don't immediately tell you about water damage that they have to pay for it. That's a real zinger.

Dylan Koch: [6:03] Yeah. I think I even have something like that in there, but just fixed it. And then it's never worth

Dan Austin: [6:06] it because it's like a $350 vanity and, like, $200 for a guy to come in. So you just do it, but it's, like, so annoying.

Mike DeHaan: [6:12] Yeah. But I mean, but it's, like, it's nonstop too. Like, I can think of I don't count on one or two hands the number of tenant turns where I I haven't, like, walked in afterwards or, like, you know, heard from my property management. Like, what happened? Yeah. Like, I don't understand. It's happened in a class properties, in c class properties. Honestly, I think the only times where it's been kind of, like, I would say safer or, like, the best bet is if it's, a b or c class property with, like, an older tenant because, like, just their slower movement patterns, they just don't do as much outrageous shit, I guess.

Dan Austin: [6:46] What about these landlords we buy shit from that have, like, they're like, wow. We had this tenant for fifteen years.

Mike DeHaan: [6:51] It's in perfect condition. There's the nicest people. I'm like, yeah, you don't know that they're breeding freaking rabbits in the extra room.

Dan Austin: [6:58] Yeah, but I'm just saying, they don't have 20,000 turnovers. They don't ever put $20,000 into their own properties. Maybe, maybe they've got something there. Maybe they have the system figured out.

Mike DeHaan: [7:08] And they're always like, I haven't increased rent in that entire time. Yeah. Yeah. So what but then what you say that, Dan, they never had a few thousand dollar turnover. Instead, they sell the property to us for 60¢ and a dollar. And that's all of those turnovers that they should have done paid in full.

Dan Austin: [7:24] They bought that triplex for $14 in 1964. They don't care. They're like, yeah. I'm winning.

Mike DeHaan: [7:29] I I mean, I guess. They could have sold that for 400, and so they sell it to us for $1.75.

Dan Austin: [7:33] Yeah. Will say

Dylan Koch: [7:35] a lot of like, you know, millennial generation and then whoever old Dan is. Wow.

Dan Austin: [7:41] Wow. By the way, we got Dylan and Mike, the Gen Zs over here.

Dylan Koch: [7:45] The millennial.

Mike DeHaan: [7:46] Dan fought for our freedom. Thank you for your service, Dan the

Dylan Koch: [7:50] veteran. Bet Anyway, the the lot of baby boomers I talked to, like, as millennials get a bad rep for being lazy or whatever. They're the biggest slumlords. So the baby boomers I talked to, they don't want to put 2¢.

Dan Austin: [8:01] Oh, I thought you say millennials. Yeah.

Mike DeHaan: [8:03] Yeah.

Dylan Koch: [8:03] No. They don't put 2¢ in their properties, they don't give a shit about the people that live there anyway.

Mike DeHaan: [8:07] It's because those tenants, if they

Mike DeHaan: [8:08] would just pull their bootstraps up

Mike DeHaan: [8:10] and get to work, they would not just be tenants like freaking freeloaders.

Dan Austin: [8:13] Guys are looking at it the wrong way. You guys are looking at wrong way. They grew up with parents that lived in the depression, so they're just thrifty. They're just being thrifty. Yeah.

Dylan Koch: [8:20] Yeah. Right.

Mike DeHaan: [8:21] But it is like it's a constant thing though. Right? Like, it's funny because if you listen back at the old bigger pocket sort of era real estate people, they always have, like, these numbers for how they calculate CapEx, maintenance, all these different things. A, I'm pretty sure that their numbers that they came up with are just were inaccurate back then, and they're definitely inaccurate now, especially with how cost of materials, cost of labor, and have

Dan Austin: [8:45] everything increased. It's a weird period.

Mike DeHaan: [8:47] You know? And it's hard to, like, know what the actual, like, net net return is going to be on your real estate going into the future. Right? And so, like, it kinda comes down to, like, what is truly the best sort of long term investing strategy that you can have, like, you're looking towards retirement? Because, like, you know, you guys heard about, like, the 4% rule. You know, that's like the old, like, financial independence thing where they say if you can save up, like, a million bucks, you can live off, like, 4% of that and basically get $40 $40 a year, and the market is supposed to grow enough that basically that's always replenishing. Right?

Dan Austin: [9:19] Keep up with the rest of it goes basically to inflation, assuming a 3% accretion roll average return of 7%. Is that what we is that the rule based on the 7%?

Dylan Koch: [9:27] It's pretty much like the guideline that they're following up. But they looked off, you know, the 4% rules based off a study they did from 1926 to 1976, and it came out in the nineties. But they basically said, no matter the peaks, the troughs.

Dan Austin: [9:40] The average.

Dylan Koch: [9:41] Yeah. Take your averages, but take your expenses. So like, you know, if you live off 50 k a year, you're gonna need four x that to retire on. So $2,000,000.

Mike DeHaan: [9:49] Well, and obviously, like, that's not that much money anymore these days because we've had things that have accelerated inflation and all these different things. So one of, like, the knocks that people typically have against stocks and bonds is that real estate allows you to use leverage. It has appreciation. It has all these other things.

Dan Austin: [10:04] Mhmm.

Mike DeHaan: [10:05] But if you're starting to look at the massive increase in renovation costs, right, and just like the cost, like, maintaining the properties and, like, the fact that such a recurring thing or so it seems Yeah. Is real estate actually that much better than just putting it into the market or, like, you know, trying to rely on, like, the 4% rule? I don't know. I know we all like, all of us on the show have experienced very good wealth generation from appreciating properties. But it's also because we were doing it over the past couple years where properties were appreciating a shit ton.

Dan Austin: [10:35] Yeah.

Mike DeHaan: [10:35] And we can't necessarily rely on that again in the future.

Dylan Koch: [10:38] Equities also raise a shit ton during that same time period.

Mike DeHaan: [10:41] Exactly. Yeah.

Dan Austin: [10:42] Well, they always so we know that any asset, really, in my opinion, is inflation protected. Right? Because it goes up with value. And so real estate in particular, because it's such a slow moving asset, is a really good, you know, inflation hedge.

Mike DeHaan: [10:55] Right? Mhmm.

Dan Austin: [10:56] If you look I I pulled this up while we were talking. If you look at it to answer your question, Mike, the S and P 500 over the last thirty years, which is a I think a very statistically relevant time frame. It's not going back a 100, but the last 30 returned an average of 10.52% a year. That's pretty freaking awesome. That's solid. And you didn't do remind you, you didn't do anything. You just let it

Dylan Koch: [11:18] start kept compounding. Yep.

Dan Austin: [11:20] You didn't need to know how to invest. You didn't need to do any toilet replacements or whatever the hell you guys do in real estate. You get 10 and a half percent. So that's pretty solid, but I think over that same time period, if I had to guess, real estate would have given you, as a landlord, like owning it physically yourself, would have given you a better return if you calculate all the benefits of real estate. However, you would have had to work for it.

Mike DeHaan: [11:46] Well, it's also gonna be dependent on if you're in the Bay Area versus you're in bum fuck Kansas.

Dan Austin: [11:51] Maybe. True. Right? But I think the the tax benefit well, yes. But can you buy a house in San Francisco right now, run it out in cash flow? No. So you have the counter to that. You can go to butt fuck Arkansas or wherever you just said Kansas. Is that the state?

Mike DeHaan: [12:04] One of those one of those like middle ones that

Mike DeHaan: [12:06] One of the square

Mike DeHaan: [12:06] ones. Yeah.

Dan Austin: [12:08] But you could have that whole period of time. I mean, remember when we were first working together, Mike, like, guys were getting like 34% rule deals in those markets off the MLS. So Mhmm. The cash flow inversely is better in that market, and you needed less capital upfront to get into it. So I guess every market has its own different benefits. Like, I personally would rather own something in San Francisco for the last thirty years than I would in Arkansas.

Mike DeHaan: [12:32] Yeah. Because it's it's like tripled in value, but then it still goes back to the point of maintaining the property. Right? So you're getting a property that cash flows $800 a month in one of those markets. K? You know, you every two years, you have to spend 20 not quite. I say $1,520,000 dollars to renovate that property. That's gonna be close to all the cash they collected.

Dylan Koch: [12:55] Yeah. But also, hold on. You can't can't buy a $100 worth of stock for $20 like you do in real estate. You also can't burn a stock where you can force appreciate and re basically refinance the stock, right? There's like two things going for you. But the biggest thing I think even with the rentals nowadays, like the BRRRR strategy, the biggest thing is velocity of money. Yes. Everyone understands that. The second biggest thing is the fact that you don't have CapEx items for ten to fifteen years. That's the other biggest problem or biggest solution in my opinion.

Mike DeHaan: [13:20] Yeah. I really have bought into this mantra that you see some of the people putting out there now that expecting to, like, live off of cash flow from real estate is kind of unrealistic. Like, cash flow is, like, ultimately defensive metric to

Dan Austin: [13:33] Mhmm.

Mike DeHaan: [13:33] Maintain your asset that you are hoping is going to increase in value and that you're leveraging debt to pay down.

Dan Austin: [13:39] So here they ask you that. Like, let's talk about that because this is interesting because I know people that make a shit ton of money on cash flow on properties right in the moment. So does that play out over the long term where over thirty years of ownership, you have to own it that long, or is that actually con is that a consequence? Because I kinda strongly believe that if you properly burn a profit, like, you buy it, then you renovate it and make it nice and somewhat sturdy, so it's not gonna be a piece of shit, you know, in two years when you do a turnover. But you renovate it, make it nice, cash all your money out, and then you're able to avoid CapEx and operating expenses for, like, five to seven years. You can kinda strip everything out of that property, but you need to sell it before you have to do that new cycle of replacements. But then you

Dylan Koch: [14:21] just do the same thing with the next property.

Dan Austin: [14:23] Yes. Absolutely. But you can do that to that next property, refinance it again and keep burning and selling it. And also you get tired of a property after a while, don't you? Mean, you're just bored of it, so you wanna sell it after five, seven years. But the idea being in reality and being facetious, but reality is, like, you ideally are upgrading to something bigger, to a bigger asset as you're going. If you're selling these properties, you eventually kind of upgrade into a different asset, and it's bigger, bigger dollar amount, and then eventually, maybe to something that's even more passive.

Mike DeHaan: [14:50] Yeah. But, I mean, I still think though, you say they they make bigger cash flow in the moment. I mean, I I think that that ultimately gets taken away though once you're having to do those repairs and everything else. Like, like, it'll end up being in a one year time horizon, it might be a net huge positive. Right? This is what, like, a lot of the Airbnb people were super into this. Now all those Airbnb people that were printing money over the past two years are losing their ass because they're selling their properties at losses.

Dan Austin: [15:15] Yeah. Holding the bag.

Dylan Koch: [15:15] Yeah. But Airbnb is a one extra, like, not the traditional, like, when people talk about real estate as passive investments, that's not the avenue or their vehicle that they're using. And I'm just fighting back because I'm gonna defend in my own strategy. You know, I own about four to three units now. And I have the intentions of someday paying these things off. If each unit, let's say I'm up to 50 units that I don't really grow that much. Each one rents are now or $1,000 a month. That's 50 ks a month with no mortgage. So I got taxes, insurance, utilities, and then set asides. Right? So I have a hard time believing that I couldn't have a very good lifestyle based on that setup.

Mike DeHaan: [15:52] I think you definitely could, but it's all about, like, is that the best strategy? What's your best Sure. Velocity of money? Do you care? Right? Because that's the other thing too. Some people like stocks. Like, Dan's father-in-law fucking loves the stock market. Right? He that's like his game that he plays.

Dan Austin: [16:07] He never did real estate, just stock.

Mike DeHaan: [16:09] There's landlords or, you know, people that just love real estate, and that's like their thing. But if you're trying to figure out what the best way is, you know, what is it? You know? And so, Dan, go ahead. Do the math.

Dan Austin: [16:18] Let's do gonna say, so if you were gonna make 50 k a month, what do you think the gross value of all those paid off properties would be in your market?

Dylan Koch: [16:24] Probably around 5.5 to 6,000,000. Okay.

Mike DeHaan: [16:27] So you're making less than a 10% return.

Dan Austin: [16:30] 5.5 to 6,000,000, and I would guess your net on that's probably 50% margin, so if like if you make 50 k I would

Dylan Koch: [16:36] say it's probably a little bit north more north if you do have any mortgages. Yeah. 60 percent probably, right.

Dan Austin: [16:41] Yes. 60%. Yeah. So 60 times five, that's 30,000. So $360. Yeah. I think you could make more money in the stock market. You can make $500,000 a year if you just put in the s s and p 500. If that's your total strategy, you're not getting tax benefit with that, but you're also not getting the benefit of leverage because you said they're paid off.

Mike DeHaan: [16:57] You're also not having the risk of storm blown over one of your properties and you're having to fix it. Right?

Dan Austin: [17:03] You also don't have the risk of some bullshit election that's gonna sink your your portfolio in the mean term. So now, the one thing I don't like about the 4% rule, say you're say you're making a $100,000 a year off of the 4% rule, that's assuming it's 4% of your portfolio. Well, if it's a bad year and that you depress your portfolio from, say, 4,000,000 or 3,000,000 down to 1,000,000, like, now your 4% is of 1,000,000 instead of 3,000,000 like you had planned or projected. So you really have to kind of actually reduce that diversity of your stocks to bonds, right, to more fixed income. Yeah.

Dylan Koch: [17:39] Yeah. And as you get older, like, and things change, like, you're gonna probably be more bond heavy the older you are. But Yeah. Yeah, I mean, there's certainly dynamics to this.

Dan Austin: [17:48] The more fixed income. Yeah. So then maybe, so then 10 and a half percent is inside. I'm just kind of going back on what I said. So maybe your actual growth is, like, 7% because you have to go more bonds so that your 4% doesn't reduce to Yeah. You know, $40.

Mike DeHaan: [18:02] Yeah. I mean, we're just creating this massive, like, calculus problem. Everyone's completely lost. We'll have to, like, turn this into an infographic. I

Dan Austin: [18:09] honestly think here here's my opinion on this kind of conversation, though, is if you are, like, dotting your t's and whatever the hell it is, crossing your

Dylan Koch: [18:18] i's You did go to public school, didn't

Mike DeHaan: [18:19] you? Yeah. Rural public school too, for Dan.

Dan Austin: [18:23] But, you know what I mean? Like, if you're really fine, like, doing this with like a fine tooth comb, and you're like, I think I can make it, just make a shit ton more money. Don't worry about it. To where it's like, if you wanna be diversified amongst real estate, dealing real estate's not your only asset, right? You got crypto. Yeah. You know? So you're you're well diversified. And so, like, if that for you is a strategy, just make more money. Like, if you're, like, literally, like, really penny pinching to get down to, like, okay. I think I can make enough to retire. Like, you're gonna have so many more risks to that portfolio. Like, it's not weatherproof at all, my opinion.

Mike DeHaan: [18:55] And there's always gonna be risk in everything regardless. Right? I think it's important to understand that. And also too, if your goal is absolute maximum gains, then one thing that's gonna do that is yourself and your own business. Mhmm.

Mike DeHaan: [19:07] Yo. If you don't follow me on Instagram, which is at Mike underscore invests, by the way, then you might not know that we officially have a new mission as a brand, and that is to help 2,000 real estate investors build million dollar businesses. Obviously, to do that, we need to get in front of as many people as possible. So quick little ask to help us reach that goal. First, shoot me a follow on Instagram at Mike underscore invests. Second, follow collecting keys podcast on Instagram. That's at collecting keys podcast are written out. And third, every time the algorithm is kind enough to show you a post from either of us, share it on your story or in your post and tag us. If you do that, I'll DM you and we can have a little DM conversation about what is preventing you from having that million dollar business that everyone is seeking. And we can see if we can come up with a plan to help you make that massive income, not just passive income. So again, if you see any of our posts, just go ahead, reshare them, tag us and let everyone know that you enjoy the content we produce. It will help us a ton. And then I'll be happy to help you as well. Just to backped a little bit,

Dylan Koch: [20:13] I was actually having this discussion on my go pod called it today. You know, one of the guys is like, I'm actually a little bit worried about having all of my real estate concentrated in one market. You know, whatever that one market goes upside down, you know? So I like to have

Dan Austin: [20:26] Yeah.

Dylan Koch: [20:26] Political things that happen that Yeah. Ruin the investment. So he's like talking about putting,

Dan Austin: [20:31] you know, dollars somewhere else. Interesting is I feel like you can argue against anything, because I would argue that you're better off concentrating in a market assuming it's not a small market that has one major employer. Like Cincinnati, I feel like you would be safe in Cincinnati if all your stuff was there. Cincinnati is not going away.

Dylan Koch: [20:46] Yeah. I feel safe here, but I just hadn't even considered that as a thought, but it a good discussion that we had today. We have some of the S and P 500.

Dan Austin: [20:53] I think you can niche down in a market and gain a lot of efficiencies by having all your properties in one location where you can have one asset or one property manager running it all for you. You have the same construction people. You have the same cost. Everything's the same. I just feel like you're going to be way better off than sprinkling across 10 different markets because you want diversity. That's where I think people just like shoot themselves in the foot by trying to like follow some mythical metrics of diversity that they went to, you know, an estate planning convention, and some told them that they need $400,000,000 in infinite banking life insurance and this and that. They're like, okay.

Mike DeHaan: [21:29] Yeah. There's an economy of scale that happens with everything. Right? You get compound interest not only on the growth, but also on the systems and leverage that you can get.

Dan Austin: [21:37] Yep. Knowledge too.

Mike DeHaan: [21:39] The knowledge. Exactly. You know? And if somebody owns a little bit of stocks, little bit of real estate, like I a little bit of insurance, they're gonna be sure diversified. Like, they will face less downside risk if one of them goes sideways, but you're gonna have much less compound growth as things tend to get better.

Dan Austin: [21:54] We kinda touched on it a minute ago, but I think the the real benefit of this like, you're talking about selling your entire portfolio, Mike. Like, you're not saying you don't like real estate. You know, you're saying that you're able to make more income with that investment, that that equity at this point in time elsewhere, and also why we are huge on the whole massive income concept and, like, learning to wholesale and learning to flip and learning to use real estate in different ways to produce active income because it's so much easier to make a $100,000 in wholesale. Mean, we had what did Carl say? What are his net wholesale fees in the last six weeks?

Mike DeHaan: [22:28] Six weeks, almost $300.

Dan Austin: [22:31] That's freaking nuts, dude.

Dylan Koch: [22:32] Yeah. That

Dan Austin: [22:33] is nuts. In like six weeks, right? So can you do that with you? Can you pivot your portfolio right now and make 3 or more thousand? No.

Mike DeHaan: [22:40] Absolutely

Dan Austin: [22:40] not. You can take some of those wholesale fees, and if you choose to invest it in real estate, go ahead. But the active income portion, like, the things that you can do during the day, why your portfolio is doing whatever the hell it is, is the flipping, is the wholesaling, and why you wanna stay interested in real estate because then you also become an expert. So when you see that really good deal you can't say no to, you can buy it. You can still take it down.

Mike DeHaan: [23:00] Absolutely.

Dylan Koch: [23:01] The biggest reason why I have even a little bit of wealth right now is because I've made a $100,000 plus since I've been twenty four years Mhmm. Like Yeah. And I've lived underneath my means. Both my rentals are from 2021 or later. 2022 or Mhmm.

Dan Austin: [23:14] Yeah. So recent.

Mike DeHaan: [23:16] Yeah. It's all super recent.

Dan Austin: [23:17] But it's because you've been actively working, whether that was in your your pharmacy gig or as a wholesaler flipper, like, working your tail off. It hasn't been easy. Like, you work a lot. You get your shit done, and you're kinda

Dylan Koch: [23:27] I'm just saying seven years of a of a larger income when living obviously, living below our means is what's been the biggest propellant. Which is the key.

Mike DeHaan: [23:36] Well, and that and that's a, you know, super underrated comment too. Right? Like, mean, for me as well, you know, I left my career in engineering in 2018. The reason I was able to do that was because I had had an engineering salary for five years. My wife had been working for five years, and we had been living significantly below our means

Dan Austin: [23:54] our means.

Mike DeHaan: [23:55] Very intentionally, not because I wanted to leave my job, but because I from, like, my personality, I was like, I don't understand how people spend all of this money. Like, they're not setting anything up. So I already had

Dan Austin: [24:05] You're like, I'm rich.

Mike DeHaan: [24:06] Yeah. So I had a $100,000 in a four zero one k. I had a $100,000 in a savings account. Right? I had a taxable investment account that had, like, $60 in it. I was able to take that leap because I had saved up a shit ton of money in five years, and I've been investing that.

Dan Austin: [24:20] Especially when you're young when you're young like that and you're single, like, well, single without kids or whatever, married, whatever, dual income, like, there's so much power with that. Like, you can just dig in. Like, what are you gonna what else are you gonna do?

Mike DeHaan: [24:32] Mhmm. You say that, Dan, but, like, some of the other younger engineers that I would work with, they would like they didn't understand how I spent so little money, and I didn't understand how they'd spent so much. Because it wasn't like I was, like, living off of rice and beans. But Yeah. You know, I I cooked a lot of my own food. When we did activities, I don't know. Our case was to do, like, free activities. So, like, we would go hiking. We would do outdoor stuff. You know, we would go if we went to, like, a concert or something, like, I don't know, I'm not a Taylor Swift guy. I wasn't dropping $2 to go to a fucking concert. I'm a punk rock guy. Right? So that's, like, where I went where tickets were $15. Yeah. Yeah. You know? And even, like, we had, like, rent. We rented an apartment that was significantly less than we could have probably gotten, but we didn't need more. I don't know. It's just a it's a mindset. Right?

Dylan Koch: [25:16] You also didn't drive, like, a new Bent or something. You didn't buy a new car. You didn't, like, buy the $3,400,000 house.

Mike DeHaan: [25:21] I did buy the new car when I got my job at Boeing. That was stupid. I brought a bent brand new BMW. That was dumb.

Dylan Koch: [25:26] I didn't know that. Are they dumbass? Yeah. He's still

Mike DeHaan: [25:28] paying for it.

Dan Austin: [25:29] He's still paying for it with his Subaru Crosstrek.

Mike DeHaan: [25:32] That was my one big financial plight. But I got, like, a signing bonus, and I got a huge pay increase, so I could afford it without affecting my savings rate.

Dylan Koch: [25:39] Yeah. Yeah.

Mike DeHaan: [25:39] Right? And then even like when I was at Boeing, like, the first year, I had, like and because of the union stuff, I got I got $15,000 bonus. I didn't spend any of that. I just put it all into stocks.

Dan Austin: [25:48] Yep.

Mike DeHaan: [25:48] Right? And and that's what sort of, like, sets you up to be able to, you know, take, like, the bigger risk. Mhmm. My my whole point, when it comes to business, one of the challenging parts of being a business owner, and Dylan, know you'll sympathize with this, is learning how to pay yourself. Right? Or, like, what reasonably makes sense. Mhmm. I am in business ventures where I have partners. We all have, like, different sort of financial situations, different goals on our income. And ultimately, like, I have long term financial security with my rentals. Like, I know that if I held on to them in x amount of years, near my time or whatever. My current thesis with it is if I was to sell all my properties, I'll have a few million dollars in cash. I can put that either into my hard money lending company or into different debt funds where I will get literal guaranteed cash returns that I will then be able to use to pay all of my bills, and I no longer have to feel like I am stressing my companies by wanting to pay myself the salary that I wanna be paid. K? And I'll be happy taking a super menial salary and then just get paid out in quarterly distributions like Dan and I have done without needing to have this psychological, well, my bank accounts are going down because we are you know, Dan and I pay ourselves $5 a month or whatever out of our business.

Mike DeHaan: [27:01] So our

Dan Austin: [27:02] salaries, we're balling.

Mike DeHaan: [27:03] Yeah. And so I'll be able to reinvest more, which ultimately lead to longer growth and, like, bigger growth in the business, and then, you know, also larger chunks that we'll be able to pay out because I'm not needing to take more money from the business to pay my own bills.

Dan Austin: [27:16] You're just taking your equity and you're shifting it so it's in a more of a cash flow safe position.

Mike DeHaan: [27:20] Exactly.

Dan Austin: [27:21] So that you can essentially invest that money Totally. Into yourself and your business.

Dylan Koch: [27:26] Yeah. The opportunity to be more, like, not risky, but, like, take those chances. Just like you were at the beginning because you had a pile of cash. It's the same thing just about later on.

Dan Austin: [27:33] Yeah. Exactly. Right? Different pile of cash.

Mike DeHaan: [27:35] It is different pile of cash, and I'm giving up future millions in my rentals to bet on myself. Right? And there's the the saying I seem to get, like, reshared on Instagram a couple times. To become a millionaire, have to be willing to bet thousands. To become like a decamillionaire, you have to be willing to bet millions. Right? And I'm in that phase. I'm like, that's fine. Like, I'll do that. Yep. I will give up my sort of, like, guaranteed future millions of my rentals to have more financial security now so I can bet more on myself and my business. You know, worst case scenario, I still have my principal. Yeah. And, you know, also too, if I'm still paying myself out of the business like we've been doing, I live off of that for the most part, then I can just compound that cash flow that I pull out of these debt funds and things back into those if I want to. Yep. And it's but it's like a fixed number. Right? I'm not having to worry about the variation. I'm not having to worry about, like, suddenly having to do $20,000, putting $20,000 to fix up this freaking rental unit.

Dan Austin: [28:27] Yeah. Right? That does suck.

Mike DeHaan: [28:29] It just seems dumb.

Dylan Koch: [28:30] I just put $10 on a new roof too. Like, so, I mean, the shit pops up. I mean Yeah.

Dan Austin: [28:33] It does.

Mike DeHaan: [28:34] Like, all the time, and you can't control that. And so, like, my view of security is, like, what if I just didn't have that, and I can just, you know, compound in as I want to or live off it.

Dylan Koch: [28:43] So this is good. I mean, the other thing I just thought of is the debt funds or what you're doing makes sense. But to get, like, cash flow from, like, a stock portfolio, like, something that pays, like, dividends, you have to have, like

Dan Austin: [28:51] Gotta have a lot of money.

Dylan Koch: [28:52] This is based on a dividend deal, but you need, like, $8,000,000 to get like what the equivalent of this debt fund would be. Like for like $2,000,000. Right? Like it's it's a big difference in the amount of money needed for that cash flow.

Mike DeHaan: [29:02] It is. Yeah. And and you know, the debt funds and things like that are technically slight like, more risky, slightly more work. You also have to be an accredited investor to invest in a lot of them. So if you are somebody that, you know, does not have the net worth or income requirement for that, you don't get the same opportunities.

Dan Austin: [29:17] Yep. I would say the others the other flip side of that is the debt fund, your principal isn't growing where even if it's if it's a dividend fund, your principal's still gonna grow at, like, five, six, 7%.

Mike DeHaan: [29:26] Mhmm. And that's a trade off. But yeah. So that's kinda my whole whole thought around it. You know? And over, like, the long term too, I mean, when it comes to, like, retirement and everything else, I don't know. Like, maybe it's my generation, my risk profile. I'll I'll say as, like, an entrepreneur, I don't have this, like, belief that I will get to 65 and be like, well, I guess I'm gonna be done working now.

Dan Austin: [29:50] Right.

Mike DeHaan: [29:50] Yeah. And it's because, like,

Dan Austin: [29:51] I don't know. It doesn't Be doing deals.

Mike DeHaan: [29:53] Yeah. That doesn't run-in my family. Like, my my my parents are, quote, unquote, retired, but, like, you know, my dad's about he's turning 80 this next year. He's still doing deals, like, all the time. Like, that's his thing. That's how he, like, keeps young. He just does deals while he's traveling. Yeah. You know?

Dan Austin: [30:09] It's a different position. He's not sitting there plunging toilets, or he's not starting out doing deals as a new landlord, which that's a young person's game. He's now transitioned his wealth to where he's doing deals, he's he's using other people to allocate his money so that he doesn't have to physically go and swing a hammer or something crazy.

Mike DeHaan: [30:24] Exactly. You know? And I I guess I didn't I came from an entrepreneurial family, and so I I never was around like the, oh, yeah. Well, my parents, they just moved to a condo in Saint George, and they play pickleball five days a week.

Dylan Koch: [30:36] Golf. Then they yeah.

Mike DeHaan: [30:37] They golf. Bingo. I just have have that same desire.

Dylan Koch: [30:41] Well, like, I know this has been said in other podcasts, but it's true. It's like, basically, anyone who can achieve financial independence at a relatively young age, thirties, forties, whatever, is not gonna be the same person that just sips pina coladas on the beach for thirty

Mike DeHaan: [30:54] years. No way. This is

Dylan Koch: [30:55] not in your blood. No.

Mike DeHaan: [30:56] Like, I can't even help it. It's it's the point now that pretty much everything I do, I'm always thinking about business at

Dylan Koch: [31:02] It's some funny, Mike. You said, you know, paying yourself, and I went back to I had like this, you know, breakeven thing for my business, and I just started paying myself more than you guys, $6,000 a month.

Dan Austin: [31:14] Ball That's in a nice number.

Dylan Koch: [31:17] With the executive assistant, I just hired and everything, so it's about just under 15 k a month.

Dan Austin: [31:22] That's your nut you gotta cover.

Dylan Koch: [31:24] Yeah, just to, you know, break even on a monthly basis. And so that's, you know, if it's a small wholesale fee, that's one to two deals a month just to break even, you know. Then, but anything on top of that, with scale, you can make a lot of money.

Dan Austin: [31:35] There's so much value in what you said there too, because Mike and I, we didn't really figure this whole pay yourself out for a bit, But now we look at our just like you said, your nuts 15, ours is a little bit different. But, like, that's just built in, and it's an auto draft once a month, goes out of the business account into our personal accounts. And it's not even a thought. It's just like that's an operating cost. But before you do that, you're not thinking that way. You're just like, oh, why monthly nuts, for in your case 9,000? Mhmm. Well, just make it 15 and pay yourself and stop struggling to to do it, you know what I mean? Even if it's $3,000.

Dylan Koch: [32:08] It's so hard to do, especially at the beginning. If you have any improvement to yourself that you can do this and make deals consistently month over month, it's very difficult to do.

Mike DeHaan: [32:16] So hard. It is. Mhmm.

Dylan Koch: [32:18] Absolutely. And I just got here, and I've been doing this for almost

Dan Austin: [32:20] three years. Well, and we we started out, I thought it was three, maybe it was two, and then we bumped to three. I can't remember what we did. Mike and I was like, okay, we we got to the point to where, like, dude, we're making a lot of money, and we're not, like, paying ourselves directly, because we would just reinvest it. We'd buy another property, we'd do this, we'd do that. And so, once you get to the point to where you're consistently making money, give yourself, even if it's $2,000, just do it, and then that literally becomes your norm.

Dylan Koch: [32:43] It just does. I'll confess to something for a second. So I had it set up to auto withdraw, but it just went to another business account. So, like, it didn't even matter. It's in the same Brooklyn area. But now I actually make it go to my personal account, There you go.

Dan Austin: [32:56] Of course you did. Like, it just goes to my business savings account.

Dylan Koch: [32:59] Yeah. It did. Was supposed to be the first model where you had, know, do you have an income account, a profit account, whatever. Ultimately,

Mike DeHaan: [33:08] I think that if you want, like, true financial freedom, right, like, the point where your bills are being paid on autopilot, There's different ways you can approach it. And I I would say to you, there's probably a little bit of trade off that you can make, you know, because the way that's probably gonna pay you the most, like, cash out is not gonna necessarily be the way that contributes to, like, the most growth, you know, and, like, vice versa. You just have to figure out what that looks like for you and what kinda makes sense. And for some people, it's all in real estate. For some people, it's all in on dividend stocks. For some people, it's all in on crypto. For some people, that's, like, zero investment and it's all in on business. You know? And there's no right or wrong answer. You just kinda have to figure out what's your ideal situation looks like. You know what? I this has come up a couple of go bunions events a few times, and I've told people that, like, my because I we always talk about our horizontal income goals. Mhmm. And what I typically tell people is my goal is to have $2,000,000 that are in a pref that is paying me, you know, 10 to 11% per year, and I will be able to live off that money extremely comfortably because I don't really have a desire to elevate my lifestyle in different ways. And that would have me making, you know, just south of $20 a month.

Mike DeHaan: [34:18] And that's also something that I could very reasonably do, like, relatively quickly. Right? And then my horizontal income goals are met. And then all the extra money that I make, I can either throw it into that machine to make more guaranteed horizontal income because I'm getting a pref out of something, or I can go and invest it into my business because it makes sense to do that. I'm hoping to, you know, increase that money exponentially. Totally. Because I especially, like, with the wholesale business, I was going through our our numbers the other day, Dan. And our current return on ad spend for our wholesale business in Spokane is eight x.

Dan Austin: [34:51] It's pretty

Dylan Koch: [34:51] good. That's really good.

Mike DeHaan: [34:53] There's no passive investment vehicle that's gonna give you an eight x return.

Dan Austin: [34:58] Yeah. On your money. 800% for people that

Mike DeHaan: [35:00] are Yeah.

Dan Austin: [35:01] Percentage. Yeah. It's it's it's

Mike DeHaan: [35:02] like 8.3 times every money you put into marketing goes out. We know we have a partnership with that, so that sort of splits it out. But either way, like, that's a pretty dang good return that we can rely on. Totally. You know? So

Dan Austin: [35:16] Yeah. And I would just implore, like, people listening too is, like, what you said is you gotta figure out what you want. Don't just listen to what other people are doing and make that your, like, goal. Just use it to educate yourself and then figure out truly what do you want. Where are you at in life? How old are you? Where are you at in your investment cycle, like, your investment career, your real estate career? Like, what do you wanna do? If it's truly just to have passive income and go golfing every day, then figure out ways that you could do that that are within your means in this moment in time. Like, what skills do you have that you can do that? If it's gonna be just wholesaling and making $20.25, $30 a month debt, do that. If you don't have $2,000,000 to plug away into a debt fund, don't try to make $2,000,000 just to do that because that's not necessarily the right thing for you at this point in time. It's the right thing for Mike.

Dylan Koch: [36:00] Don't you guys know a couple that, like, they, like, fill two houses a year and they're, like, happy? That's, like, their whole business model.

Mike DeHaan: [36:07] We have had buyers like that before.

Dylan Koch: [36:09] Yep. Oh, yeah.

Dan Austin: [36:09] Mhmm. Two, three houses.

Mike DeHaan: [36:11] Yeah. One buyer in particular that we sold, guess, a deal to twice. But it's like a dad and a son, and that's their whole thing is they go and they flip, like, two houses, maybe three, and then they just spend the entire rest of the time, like, at the lake.

Dylan Koch: [36:25] And that's what works for them. That's what we're

Dan Austin: [36:27] hillbilly stuff, probably.

Mike DeHaan: [36:29] Yeah. Probably. Whatever their ancestral family's doing up in North Idaho. Totally. Anyways, I'm so sorry. We're gonna finish on that comment. Yeah. We gotta we gotta figure something out.

Dylan Koch: [36:39] You said it. I

Dan Austin: [36:40] don't have much else past that.

Dylan Koch: [36:42] Okay. So Yeah. No. I'm good.

Dan Austin: [36:45] Well Sorry. Sorry, North Idaho folks.

Mike DeHaan: [36:47] Yeah. Yeah. Sorry, North Idaho folks. But, you know, there's a reason that we call you sister fucker country. That's dad's dad's words before the show you took your ears.

Dylan Koch: [36:55] I never heard that.

Dan Austin: [36:57] I was I was born in Idaho. I'm one of those sister fuckers.

Mike DeHaan: [37:00] Hey. We'll finish on that one instead. That's much better. Yeah. You heard it here first. Alright, guys. Well, thanks for listening to today's show. I would love to hear guys' thoughts on asset allocation, though, because I think it is a very interesting thing that isn't necessarily, like, I don't know, discussed in an educated way. And it wasn't discussed educated here either. So come and, teach us your thoughts on it. Maybe you got a better view on

Dan Austin: [37:22] try to make money.

Mike DeHaan: [37:23] So, anyways, guys, thanks for listening, and we'll talk to you guys next week.

Dylan Koch: [37:26] See you. See you.