Hard Lessons We All Face On Our Path to Becoming Real Estate Millionaires

Dan Austin: [0:00] Hey there. Welcome back to another episode of the collecting keys real estate investing podcast. The podcast where we teach you how to make massive income, not just passive income because Mike and I strongly believe that you should be focused on business and growing a massive income source so that you can then invest in real estate and get that passive income. We're investing honestly whatever the hell you want. We like real estate. That's why we're here. Today is a Friday Focus episode. I'm gonna do a deep dive into a topic. I'll be your host today, Dan Austin, and I'm going to chat about something that we don't chat about. Well, we chat about often, but we haven't had an episode dedicated to that. And that is the harder lessons that we've learned here in off market real estate, in owning properties, in running a business, in hiring employees, all that stuff. There's a ton of hard lessons to learn here. Mike and I, honestly, we do pride ourselves on teaching you and talking about the highs and lows of real estate. When we first started out, we saw these gurus and all these people talking about how easy it is to become a millionaire in real estate, and it's not. It kind of is, but it's not, and there's a lot of struggles, and nobody was addressing that when we started the podcast, and when we started our scale community, that was a pillar.

Dan Austin: [1:14] Like, we wanted to talk about these things and teach these things, so others could learn from our mistakes, and go make their own flavor of their mistakes so they can learn from that too, but do it in a way that's always moving them forward and and progressing, which is why we have a hard lessons channel in our Slack community. We have a... Our paid community, which is called the scale community, where we help people starting out or experience scale their business get to the next level. That's kinda where Mike and I focus all of our efforts in the community and helping people out, and we have the hard lessons channel in there, where people including us can post about hard lessons. Hard lessons don't necessarily have to be a loss, like a net dollar loss, which is what we usually associate these things with, but they can be a lesson that was hard to learn. And, these lessons get less painful as you as you make them and as you grow, and I can attest as somebody who's been in the game a while and made plenty of mistakes, they do cut a little less deep over time. And as you grow and you get resilient, they keep you up less at night and you just kinda move on past them. Because let me tell you, I get it. Like, especially if you're starting out and you're making mistakes, they cut deep and you're getting sleepless nights. You just spent money on your first batch of marketing or you're in a flip that's not going well and it's keeping you up at night.

Dan Austin: [2:29] Don't worry. You're not alone. There's a whole bunch of people out there that are dealing with the same issue. It's what you do to pick yourself up and to keep moving forward is what keeps... Increase that success. But I'll get off my soapbox there and I want to talk about hard lessons and in particular, talk about the most common hard lessons I see and mistakes that we have personally made, but then also what a lot of our scale community members are posting about when they learn a hard lesson. Like, there's all these kind of like themes. Now, I'll start by saying, there's some hard lessons where it's just like, whoops, I screwed up my marketing. I got... I was messing with it, and I got all of my addresses off by one cell, and sent all the wrong people to... All the wrong mail to the wrong people, and I never got a single lead. Whoops. That happens and we see that, know. It sucks. So try to avoid doing that if you can because that's just a lesson that, yes, can learn from it, but it's also something that could have been a 100% avoided. I wrote down four quick categories, but I'm just gonna go down the list and I'll I'll just keep blabbering as things come to mind and and I talk about them. But the first hard lesson that I hear from people and that we've done is you're doing a deal to fill in your calendar because you don't have a deal. You wanna flip a property, You you you gotta keep your crew busy. Right? So maybe you have an in house crew or you have a subcontractor or a GC that you just love and you don't want her to go work for somebody else.

Dan Austin: [3:51] You wanna keep him on projects with you so that the next time you have a good deal, he's there for it. Huge mistake and a huge lesson to be learned here. And I'm not saying that you shouldn't just do a deal. I'm saying you shouldn't do a bad deal or make a deal look good to fill in your career. Like, yeah, normally, I don't do a deal unless I make a minimum 30, but I feel really confident in this making 20. And I'll take 20 because the next deal I buy, I'll have my contractor ready to go because he'll be already working for me. Well, let me tell you what. I have heard so many people talk about doing a deal that they would not have otherwise done because they wanted to fill in their calendar, or they're getting worried that they didn't have a flip and they're always... They always have at least one flip or maybe their number's five flips and they just need to fill up that calendar. Or maybe this one is the one I love the most is, my goal is to do 50 flips this year or 50 deals this year. And if I don't get one more deal this month, I'm off track for my goal. And so you go do a deal that's a bad deal and that deal loses you $7 or God forbid, a $100, or $10.20 grand, or whatever number is actually really painful for you. That is honestly a hard lesson that is such a recurring theme. So do deals. Just don't compromise on your boundaries just because you need to do a deal or you feel the itch to do a deal.

Dan Austin: [5:10] The second category or the second theme, whatever you wanna call these, I see is doing a deal. This one sucks actually. I've done so many of these. Doing a deal because the seller is willing to sell to you. These ones are super scary, especially if you're first starting out or you're in a... You've been in a dry patch for a while and you have a seller that is... Wants to have a conversation with you. They wanna sell you the house, and you're like, oh my god. I got this. You feel like superman. You're like, I've got somebody that the Rapport Building's working. They love me. I'm going to their house. They're meeting me. They're super nice, and they're motivated, and they wanna sell you at a discount. But the caveat here to these is the discount is just small enough that it's almost too scary to take down. Right? They're like, you know, instead of it being 75% ARV minus repairs, it's like 84%. Or whatever a percentage of ARV on a price point for you and your market is like, dang it, I have meat. Like, you're like, you're staring down the pipeline of $75,000 of equity in our property, but you've gotta do $30,000 worth of repairs, and you got sales costs and repair costs. And at the end of all of that, you're like, oof, I can maybe make 10 or $15 if it all goes right. Those suck. Let me tell you. But just like... I think her name is Alana Maher Meyer, the the rugby the rugby superstar from the Olympics on the US women's rugby team.

Dan Austin: [6:40] Somebody sent me an Instagram reel of her, and she's talking about how somebody in line at the Olympics talked to her. A boy talked to her. She says, oh my god. He talked to me. He said, could you move along so I can get some salad myself too? And she's like, I think our wedding colors are gonna be forest green. And it starts going down of how they're gonna get married off of this silly interaction. And of course, it's a joke. But that's how some at times we get. They're like, oh, the seller's talking to me. They love me. There's a deal here. I'm gonna do a deal. I'm gonna make money. And in reality, you're getting... You're building up this optimistic excitement, and the deal just is not really there. And a good way to figure this out is even if you think you're gonna buy it, try to go wholesale that deal. Mike and I have done this before, where we go out to wholesale a deal like, oh, we can make a quick 10 k bump on this, and you get crickets. You get crickets from your buyers list. So you say, well, you know what? It is kinda tight. The seller's not gonna move off their price, I know that, but it is kinda tight. So instead of trying to make 10 k on a wholesale fee, I'm just gonna flip this. There's just not enough room. And you start talking yourself into your buyers don't know what they're looking at or there's just not enough room for wholesale fee, but if there was 10 more grand off the price point, you could've sold it.

Dan Austin: [7:47] I've lost money. Lost like $8 on a deal doing that, of that, among other things that went wrong on that project, but it was a deal where we tried to wholesale it and we just couldn't. And our buyers were stupid and we just needed to make a little little bit more money on the deal, and we just weren't gonna get that from the seller, so we just do it ourselves. And the deal ended up being too tight. And so if everything went well, we would have made, like, $15, and we were hoping for, obviously, more than that, But everything didn't go well the day we were supposed to close on it. The freaking furnace went out, and so we had to get a whole new furnace and air conditioning. That was, like, $8 or something like that. And then we just had a bunch of other little things that just bit us in the ass. So there was no room for air, And it's because we were so excited that the seller was willing to sell to us, we just got kinda mesmerized by the situation. And I see that a lot in our scale community where people are like, man, how do I make this deal work? And you're looking at the numbers and you're like, you don't. You go get it for cheaper. And one thing I will say on this... To this end is when you have a situation like that and you feel confident you have a good buyers list, go out, ask your buyers, hey, man, you didn't give me an offer, why not? Like, oh, it's...

Dan Austin: [8:53] There's no way I could pay $1.70. What would you pay for this? If they say $1.50, okay, now you know you need to go get it for less than $1.50. And if your seller is not gonna sell to you for less than that, don't go take this thing down, you know. Go try to renegotiate with your seller, and if you can't, walk away from that equity because you're a 100% right. The equity is there, it's just not for you to get right now because you gotta be able to access that equity. If you can't access that equity, it's not actually there because equity is just funny money anyways until you actualize it when you sell the property, flip the property, do whatever you're gonna do with the property. Here's one that's a favorite of mine and this is... I feel so bad because this happened to me so many times and I see it happen to investors a lot too in the scale community. You're working with a contractor that basically screws you over And it's like a slow screw you over, right? Like they slowly serenade you and slowly pull money out of pocket, slowly finish your project and then slowly just screw you over and next thing you know, you're making no money on this deal and your contractor smoked ciggies all day and made $30 off of you. This one is... It's it's an unfortunate situation, especially if you don't have experience with a contractor or for newer investors trying to get into it. And I'll be honest with you, when you're first doing this, you don't know if a contractor's good unless you have like a contractor background and you know how to interview these guys, but you you really don't. And the shame of it is is you get a deal, and you don't know you get a deal until you have a deal.

Dan Austin: [10:16] Now you've got about thirty days, if you know what you're gonna do with it, thirty days to figure that out and to go find a contractor, find a contractor that's ready to go. And so by the time you connect with that contractor, maybe you got two weeks left to build out the plan with him and to get him started. And honestly, if a contractor's available the very next week or week after that, they're probably not that good because their calendar will be full up and they'd have referrals out the yin gang. Right? And on top of that, as investors and flippers and whatever you wanna call us, we tend to need to work with the cheaper breed of contractors, which means they tend to be on a ticking time clock, which means if they started out good, there's a good chance over the next twelve months that they will go to jail, have a drinking problem, quit, go back to work for whoever they used to work for, whatever it is. They'll have family issues. That is not always, but it tends to happen a lot in this industry because we're working with people that are willing to work for less than what the market rate is. But anyways, you get all excited. You get this property in a contract. You find a contractor.

Dan Austin: [11:13] Now you're doing this project, And funny things start happening. They ask for too much money upfront. You give it to them, and then they ask you for more money the next week, or you show up and they're not there. You're like, what the heck? It's a Wednesday at, you know, 01:00 in the afternoon. Why are they not here? And they... The work is starting to get kinda shoddy maybe. Maybe they're not doing that good of a job. You're like, oh, that kinda looks ugly. I don't think it's supposed to look like that. Whatever the red flag is, that starts popping up, and then guess what? They don't hold up their end of the bargain. You know, Mike and I, one of our first projects amongst many of the other things that him and I were doing wrong as project managers and as flippers and all that sort of stuff, we had a contractor. This is my favorite thing. Good contractor, actually. Guess what? They get a job, they demo your project, they start getting stuff, they start... Materials start showing up, they're making good progress, and in the middle of that, they find another client that also wants to hire them and they need them to start right away, two weeks because they're a flipper too. And so, homeboy goes over there, starts renovating their house, gets their house torn apart, comes back to your house for two days, and they start squeaking at them, why aren't you on my property?

Dan Austin: [12:17] Right now, this guy's going back and forth between your house and their house, and it takes them to do twice as long to do both projects, because they suck at scheduling, and they can't say no, or they they have this, like, fear that they'll never get another project again. So they're just like us. Right? We take down too many deals because we're like, oh, I don't know when the next one's gonna come. They do the same thing with projects, and now you're getting screwed on your timeline, your schedule, and and and what I will say here, the best thing to do in that situation is buyer them. And the way you do that is you set the expectation ahead of time. When you go and hire the contractor, you walk the property with him, you say, here's exactly what I wanna do. What is it gonna cost me? How much time is it gonna take And you both agree verbally, visually, look each other in the eye and say, okay, we are agreeing to this. Now, can go to the link, you can get a contract, you can do all that stuff too, but really talk it out. This is what I tell my guys. I don't expect you to have to work on my project every single day of the week. What I do expect is you say you're going to be working on my project, and you're going to show up on these days and these times that you do that, and if you don't do that, I'll give you basically one warning. You get like one and a half times to screw me over on this deal, and this is because I've gotten bit in the ass so many times from contractors not showing up and taking a four week project and turning into an eight, ten, twelve week project. Literally, that guys do this to me is because I didn't properly set expectations, they kept dragging out, I kept fighting with them, trying to pull them back in, trying to make them better, trying to get them back on track.

Dan Austin: [13:35] So, I basically say, hey, man. Just let me know if you can't make it. Like, hey, you're gonna come Monday through Friday, eight to 4PM. Perfect. I'll know that if I wanna stop by and chat with you, I'll come in those times. I'll try to hit you up around lunchtime or whatever, so your crew could take lunch and you and I could chat. I try to be super cordial about it. But then if they... If I show up and they're not there, I'm calling them and it's like, hey, what's going on? Oh, man. Sorry. My daughter was sick or hey, whatever. Had to run over and finish up this job for somebody. Okay. That's fine. Just next time next time this happens, you... We're you... We're done. Right? You're not gonna be working for me. And there's been many times I've had to pack contractors shit up, lock it in the garage, take it home, do whatever, and just say, hey, man. You can come grab your stuff here at this date, this time, but you're not working for me anymore. Yeah. Do they get mad? Absolutely. But I set the stage upfront for what my expectation is, and and yes, I'm a hard ass about that because it pisses me off, and I try and make sure that we all agree to the same thing. I don't set it unrealistically, but it's like, hey, if we both agree to this, then this is what we're going to work towards, and this is all I know until you tell me something different. And they usually won't. Right? Because they don't want to let you know that they're overextended because they're trying to make as much money in a short period of time as they can.

Dan Austin: [14:42] I don't blame them for that. They're just not going to make more money while I lose more money. We had an employee one time, and I told her not to do this, but she hired a guy, and he never ended up doing any of the work. She gave him a bunch of money and all. And we... I was walking, she's like, well, let me see what you think about the work he's done so far, which was not very much. I was walking in, all you just see is like a five gallon bucket flipped upside down on the subfloor, a freaking pile of cigarettes, and a pile of scratch off tickets. And the dude had moved into the damn house, and that's like a red flag to me. Your contractor says they're gonna move in or you catch them sleeping there, get rid of them. Fire them. And I'm gonna tell you this right now, if your carry costs are 2 or $3,000 a month, whatever, fire the person, move on, spend another 2 to $3,000, wait a month to find that next contractor and interview people that's going to work out for you, because that will, I guarantee you, save you more money the longer. Don't let these contractors limp you along and screw you. Fire them right away. Literally, even if you're scared, you're like, I don't know who I'm going to come in here to finish your job. You will find somebody, I promise you.

Dan Austin: [15:48] And you might have to pay a little bit more and you're gonna pay and carry costs, but it's not gonna be as much as that person's gonna drag you on and screw you over because it will happen. It's happened to me before so many times. K. I'll close that one out, and I'll talk about the kind of the last category, which I I put this one last because it's actually not necessarily something I see too often, but I think it's what people immediately chalk things up until they really think critically about the hard lesson, and that's being too optimistic or being overly optimistic. Now, we're entrepreneurs, we're investors, hell yeah, we're optimistic, and that's what gets us into the situations where we can scale and grow. Because if we were pessimistic, we would never do anything, right? And, there's a good balance there, but you have to have optimism about things, otherwise, you'd just be too scared to do these deals, because you are taking on some risk when you're flipping houses, when you're burying properties, when you're sending out marketing so you can wholesale, right? You're taking some risk. But people get a little too optimistic and it goes back to that like argument of like, oh, the seller wants to sell to me, I can make this work, or I need a deal to fill in my calendar, or I think this is a really good deal. It doesn't matter that it's like super quirky on a busy road, and maybe I'm estimating my ARV a little bit high, and sure, I'm kinda shaving the repair costs down a little bit low, but I think I can make this deal work.

Dan Austin: [17:01] And that's honestly where people lose money or lose opportunity cost. Maybe they don't make any money, They break even, but they could have taken that money and deployed it and something that made them $30.40 grand. Right? Being a little bit too optimistic, you need to check yourself because just like you can be overly conservative, which kills deals too. Right? Now you have a low ARV. If you're overly conservative, you could have a low ARV, high repair cost, high sales cost. You know, you just go too high on everything, and the next thing you know, you're like, why am I way below my competitors on everything? It's because you're too scared to do a deal. Right? You need to have some contingency in every project and deal you do, but don't go over the top. Just like the converse or inverse of that, don't go overly optimistic. And that's where a lot of people get bit in the ass because they want to do a deal so bad that they make that ARV look just like that other property that's not on the busy street. That doesn't have the quirky weird stairwell to get to the 2nd Floor where you have to walk outside the house or something weird. Like, trust me, we've all seen it, we've all done it. Making sure that those repair costs are good and dialed in and not overly optimistic, You know? Like, if you see some shit you you need to fix, you gotta fix it. You're trying to make it look like kind of your comparable properties. And if you can't do that, you need to increase your budget or you need to reduce your ARB. So just be careful on the optimism.

Dan Austin: [18:13] There's a fine balance between optimism and realism. You just need to kinda walk that line. And let's be honest here. In real estate, we're in the business of risk and risk management. And that's why a lot of people don't actually ever invest in real estate because they see it as too much of a risk, when really all you have to do is be really good at managing the risk. And we do that by managing the risk of all the knowns. You know what we can do? We can figure out what the budget on that flip cost. We may need to spend a little bit more time to figure it out, but we can dial that thing in. We can get help from other agents. We can spend more time managing the risk of the ARB. Like, hey, what do I think this ARB is? Like, let's get some eyes on this. Let's let's really dive in. Like, there's data usually associated with that, and you can manage that risk by saying, you know, this is on a busy road, or this is kinda quirky. I'm gonna bump off 2% of the sales price because of that, so I can come in a little bit lower. And you really start logicking through your risk, and you start managing the risks. Because there are unforeseen risks that you just don't know exist, and they always pop up whether they're small or whether you get lucky and you don't see them or nobody sees them, they're there. And so just keep this in mind as I close this episode out is we are in the business of managing risk, and we need to manage all of the known risks as best as we can so we can be prepared to manage the unknown risks. That in itself is what helps you sleep at night.

Dan Austin: [19:37] When you're up at night, it's because you are not able to manage the unknowns, and you haven't properly managed the knowns. So they technically... They're still unknowns. Right? So now you have unknowns and knowns that are actually unknowns. So that becomes a little bit more scary, keeps you up at night. So break these things down. It is simple. No matter what part of the business you're operating in, you're sending out your first badges of marketing, manage all those risks appropriately and work through them so that you know that you did everything you could do. So that if something happens at the end of it, you can now start focusing on those unknown risks that pop up and become unknown challenges, and then you just overcome those challenges. You can still make money. Just because a challenge pops up, I've said this before, which is like every deal is an ordeal, right? And that's the truth. And and so how you handle those challenges is what keeps the deal on track and how you make money in this business, and that's why we are able to make money in this business and offer solutions to people. So we're in the business of managing risks. Manage as many of them as you can so you can sleep at night. With that, I will stop. If you have anything you want us to chat about on these Friday focuses or any topics, we love to hear from listeners. Hit me up on Instagram at investor man dan or any social media platform. You can hit me up on Facebook at dan austin, all that stuff.

Dan Austin: [20:56] So let me know if there's something you wanna hear or you have questions about some of this stuff. I have examples for all these to really bring at home, but I... I'm blabbering on and I wanna keep this episode short. I'm already a little bit over on time here. So, yeah. I hope you have a great weekend. I hope this was helpful. You know, if you have your own hard lessons, let us know. I wanna hear that too and maybe we can talk about it on the on the show here and how maybe I would overcome or how I would have dealt with those hard lessons. See you.