High Interest Rates and Housing Affordability: What's Next?

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

Dan Austin: [0:38] They're doing everything they can to start getting the real estate market going because everything's so much downstream of new builds, existing builds, all that stuff that is driving the economy. And a lot of people, millennials in particular, put in rental properties as their investment strategy. So you have a lot of people who are banking on rent and everything in this industry that really drives a lot of the economy.

Mike DeHaan: [1:07] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. This is the show where you teach to make massive income, not just passive income with your real estate investing business. And we are here on this fine Wednesday for the previously known Mike and Dan show. Now the Mike, Dan, and Dylan show. On these Wednesday episodes, I, Mike DeHaan, hang out with my cohost here, Dan Austin and Dylan Cook, to talk about real estate investing business and whatever else we feel like for the week. And so we are coming into quarter three. I guess I scored fish quarter three now, isn't it? Yeah. We're first week of July. And I don't know. I feel like it sounds super cliche, but I'm always marveled at how fast the years seem to go when you sort of have your head down. And July has traditionally been kind of a slower month for us, but it has been off to a pretty good start so far. We have a ton of fresh leads coming in. We have several deals that are gonna be closing over the next couple of months. I think we have, what, 18 in escrow right now, Dan.

Dan Austin: [2:11] That's about right.

Mike DeHaan: [2:12] We got a lot of stuff moving. Dylan's been crushing it over there in Cincinnati. And I think the real estate market in general is just kinda interesting because we have this ongoing affordability situation that's been going on for years now where people can't seem to afford stuff. And one of the things I guess we're gonna dive into is what the feds are kinda doing to try and make houses more affordable, which is something that I've been thinking about this a lot because I feel like they kinda went through this phase of, like, how do we help people make more money? How do we help people financially stable? How do we sort of, like, fix the housing market with these different things, you know, putting in legislation and stuff? And all of a sudden, they're like, what if we just messed with the system so houses were actually cheaper for people?

Dan Austin: [2:57] Let's just keep fucking with all the stuff. It's kinda like when you're, like, trying to biohack and then you give yourself MRSA because you thought it was cool to, like, I don't know, give you inject yourself with Epsom salt or whatever these nerds out there are doing these days. Right? Like, you kinda screw up the system. Sometimes, like, capitalism just needs to, like, let its own thing go and figure it out. Let the market powers shift things. That's my belief.

Dylan Koch: [3:18] Yeah. I mean, if there's a if there's like a forest fire, right, like, it takes time for that to heal, right, and and regrow. Like, it needs time for things to come back to a homeostasis. Right? Yeah. You can't just go in there

Dan Austin: [3:29] and start planting new trees. Right? Because guess what happens? Another forest fire.

Mike DeHaan: [3:32] Yeah. As as somewhere someone that lives somewhere where forest fires are, I agree. Just let them burn. I can tell you don't have fires in Cincinnati shows.

Dan Austin: [3:40] Let it burn. There's an interesting thing that Grant Cardone said, of your favorites actually, Mike. I know you kinda grew up listening to Grant Cardone. So Yeah. But he has an interesting point of view that I would bring up to this. His point is is that when interest rates go down, prices will go up or prices will go down with them. And why? Exactly. Because you would think the opposite. Right? Like, I have been a believer that, like, hey, if they drop interest rates right now, prices are gonna keep going up. But, like, his point is, right now, there's people still buying houses. And there are, right? Like, it's not like real estate market stop. I mean, Dylan, you're selling your flips. Right? New home buyers, there's people stepping up. The biggest people in real estate are the new home buyers and the people stepping up. Like, mostly people stepping up because they actually have equity to put into this group. But, like, those are the two people. It's not the boomers. Right? The boomers are not usually stepping up. If anything, they're just dying and then their house becomes inventory.

Dylan Koch: [4:32] Yeah. Unless you're buying a second home. Exactly.

Dan Austin: [4:35] Yeah. That's that's true. So his point though is is that historically, actually when interest rates have dropped in the immediate term that prices go down, I was like, that doesn't make sense.

Dylan Koch: [4:44] I think I know why. It's because if you look actually at interest rates, typically they drop them as soon as basically go into recession, because they try to stimulate it, so there's a lag effect. So the recession immediately is like prices go down for the short term, but they're gonna bounce right back up.

Dan Austin: [4:59] So the near term, when interest rates go down, you should buy, and then eventually prices will go back up. Yeah.

Dylan Koch: [5:05] I would follow that logic. I appreciate what you're saying

Dan Austin: [5:07] there, Dylan, because I didn't because it was Grant Cardone, I didn't do any other, like, research on it. So I was like, honestly, not a bad, like, I don't believe it, because I don't just believe anything, but he actually had some decent logic behind it. I just left it at that. So that would make sense that there is a lag effect, and it speaks to any KPIs or metrics you're looking at. If you're looking at it in a narrow bandwidth, you can make say anything.

Dylan Koch: [5:26] Yeah. Totally. Yeah. But like, so I guess what, you know, this affordability thing that we're getting at here too is, you know, they look at the overall spectrum and how can we get people in more houses. And the rise a little bit lately has been forty year mortgages.

Dan Austin: [5:42] Mhmm. Mhmm.

Dylan Koch: [5:42] Right? So like Yeah. And I actually had one these pitched to me in 2023 as an investor loan, and it was ten years of interest only. And then at year 10, it just goes into a normal rate and term, but at, like, the purchase price and loan amount that you had locked in ten years ago. Mhmm. Right?

Mike DeHaan: [6:00] Yeah. Yeah. And the I mean, the reason they consider this, though, as well, right, is because if the purchase price is the same, but it's dragged off an additional ten years, then the monthly payment will be lower. You know? And the vast majority of Americans, especially those that can't afford anything right now, they live on basically biweekly, like paycheck to paycheck, or they live on monthly budgets. And so for them, that monthly number is ultimately the limitation towards them being able to buy a house.

Dan Austin: [6:25] Always. Always is.

Mike DeHaan: [6:26] I mean, because also too, like, if you look at buying a house with the bank and you have to go and get approved, they always look at your monthly debt to income ratio. They don't look at it over a six month span or a year's literally span. That's why if you're an entrepreneur or you're like a real estate investor that, like, flips houses and you get these large chunks of money, it kinda sucks to buy a house for yourself because they'll be like, how much money have you made this year? Nothing? Like, yeah. But I'm gonna make $200 next month. Like, yeah. But I don't care because up to this point, you've made nothing this year.

Dan Austin: [6:54] Yeah. Or they're they still don't care where you made $200 every month. They're like, yeah. We just we don't trust that you'll make $200 next month.

Mike DeHaan: [6:59] Next month. Exactly. Because it's not it's not fixed.

Dan Austin: [7:02] It's not fixed.

Mike DeHaan: [7:03] Yep. Yeah. So so that the forty year mortgages though, they're non conforming loans. So are these not Fannie Freddie loans? Or

Dylan Koch: [7:09] So they're not the most of them that I could tell are not Fannie Freddie. And so these are gonna be like people who keep them on their own books. So that's why there could be a wide variety between what they offer. Right? It'd be up to the bank on LTV, interest rate, loan, an ARM if it's fixed. So it's really gonna be lender dependent on who wants to do that.

Mike DeHaan: [7:28] Like, I can't imagine that many lenders would get into this though, because so many banks,

Dylan Koch: [7:33] and

Mike DeHaan: [7:33] I mean, and also The US in general, is kind of propped up by the mortgage industry right now.

Dylan Koch: [7:39] Yeah. But, I mean, lenders, I mean, the way an amortization schedule works is most of interest paid in the front end. That's why they love refinances. Sure. Because that just restarts that cycle over and over again. Yeah.

Dan Austin: [7:49] Yeah. So that's interesting. I'm looking at the notes of one you were offered, Dylan, And I'm like, don't hate that product as an investor, which is ten years interest only and then thirty year normal average position. Right? Thirty years. So amortized at thirty years, which is this exact same loan amount because it was interest only. So if that interest only is same amount or it can be refinanced to I guess it doesn't really matter, but like say it's at five or 7%, that's significantly lower than an amortized loan every month. So you could be cash flow heavy in the first ten years and sell that freaking thing Mhmm. At a higher appreciated value. Totally. Because likely, if you're on Mike and I's plan, it's like, we'll sell anything at the right time. And usually within one to ten years is the right time to sell an asset that you bought because it's getting into that second capitalization cycle.

Dylan Koch: [8:32] Yeah. Yeah. So I I always think these do makes more sense for investors versus homeowners.

Dan Austin: [8:37] Oh, Right? Homeowners now, I'm like, oh, I don't know if I

Dylan Koch: [8:39] would be okay with that. They're not looking at the No. The loan amount that they're paying between those different times. Right?

Dan Austin: [8:44] Right.

Dylan Koch: [8:44] But if they're like, well, could take this thirty year loan and buy a $250,000 house, or I could take this forty year loan and buy a $350,000 house.

Dan Austin: [8:53] Exactly.

Dylan Koch: [8:54] Right? Like Yep. I feel like most of the population's gonna choose that $350,000 house given the option.

Dan Austin: [8:59] I'll make more money in the future, so it doesn't matter if this this cost me more when it amortizes, and they inevitably never do because the household income's still $55. Yeah.

Mike DeHaan: [9:09] Yeah. I mean, in for investors, almost seems like a a no brainer, especially if, like, you're trying to be a cash flow investor. Right? Because, like, those interest only directly into, like, that amortized product. I mean, realistically, most people are not going to be looking to hold stuff forever. A lot of people, I feel like you start off being a real estate investor. Like, I'm gonna hold this property for the very long term. All Then of a sudden, you start having all these CapEx items start to add up. You start to, like, learn about business, about the velocity of money, you look at your equity, you're like, why the fuck am I still owning this thing? Right? So, like, it'll allow you to, like you said, squeeze so much more out of the early phases.

Dylan Koch: [9:45] Well, a value add a value add product with interest only, like like, that's actually not uncommon for commercial loans. Like, a two year IO period or something is kind of common. Yeah. I think it's just the length of duration of ten years being interest only. You're just banking really out of appreciation or any kind of forced appreciation that you can do to the to the property.

Mike DeHaan: [10:03] Yeah. I guess I just can't see like, so all these banks, if they're, you know, suddenly carrying all this money on their books, it becomes like a much more affordable or desirable product for homebuyers. Like, I don't know. What does that mean long term for three year, like, federally backed mortgages?

Dan Austin: [10:19] Somewhat valuable for the mortgage industry, in my opinion, because it decentralizes a little bit. Yeah. You know, who cares if the hedge funds and the bankers don't have as many mortgage backed securities? I'm sure they will find a way to wrap these up and and do bank acquisitions at that time. Who knows? Right? But I think from a security and safety standpoint, having it more decentralized isn't a bad thing as long as it's concentrated not like we found out, like Silicon Valley Bank, all these other places where they had concentrated debt in places that were volatile at that time.

Mike DeHaan: [10:45] So private equity, which is what got them. But, yeah, I mean, that's a valid point, Dan. It's like, they'll probably just have to reformat how they exit their loans. You know? And if it becomes a large enough thing, the federal government will come back, well, I guess we have to buy these now.

Dylan Koch: [10:58] I don't know the exact, like, definition here, but those banks work on a level of deposits. Mhmm. And then, like, they can lend out to a certain multiple of those deposits. If So you're getting a bunch of these mortgages in there, don't know how that affects their other ability to lend if they are lending out a 90% LTV on interest only product, right? Yeah. And I would

Dan Austin: [11:19] guess that a lot of the banks that we use, like the regional banks or credit unions, they prefer these, like, seven and ten year loans as opposed to a forty year loan that could potentially sit on their books for forty years. Right? Because at that seven to ten year, like, commercial loan that we're getting with our commercial product Mike and I get for our properties is, they can see those things cycle and roll over so much quicker than a a fixed forty year loan.

Dylan Koch: [11:41] Yeah. Totally.

Mike DeHaan: [11:42] Yeah. So yeah. Mean, I was looking at them to the lenders that are listed on this article. I mean, they're not lenders that I've ever really seen. Carrington Mortgage, M Bank, NewFi lending, and the NewRes. I've only seen NewRes because they service one of my loans, and they have the worst fucking online platform.

Dan Austin: [11:58] They are terrible, aren't they?

Mike DeHaan: [12:00] Yeah. Yeah.

Dan Austin: [12:01] So But bad.

Mike DeHaan: [12:02] But, I mean, you're not seeing this from, Wells Fargo, right, or, like, Chase.

Dylan Koch: [12:06] But it's like is that just the fact that they don't need to? They're already printing Yeah. Like Yeah. Maybe.

Mike DeHaan: [12:11] Yeah. So, anyway, it'll be interesting to see how how this pans out because, ultimately, like, the feds, they are strongly incentivized to have as much homeownership as possible because, statistically, that leads to the best financial security of people in later life, which is a huge liability that the US government currently carries with Social Security and everything else. Like, ideally, what the government would love is to have zero Social Security. Everyone owns a home. And then when they're old and decrepit, they're forced to sell their home and just, like, pay for the rest of their shit. Right? But they kind of have, like, have a mix of that right now.

Dylan Koch: [12:44] Think how downstream real estate is to everything else. Yeah. Contractors, the Home Depots, the suppliers, oil, even, like, the gas that has to go back to and from. A lot of stuff relies on the real estate market.

Dan Austin: [12:55] Absolutely. Mean, all the roads that are getting built and the major infrastructures to lead you to houses. Right? And more more houses, newer houses.

Dylan Koch: [13:01] Which is more government jobs that are getting. So that's another reason why they love it. Exactly.

Dan Austin: [13:05] It's huge. More hospitals, more schools.

Mike DeHaan: [13:07] Or even how most places collect taxes. You know? The property taxes pay for a huge amount of everything. And you know how much I mean, renters only pay property taxes proxy through the home, like, landlords. Right? But if you have a bunch of homeowners who feel secure and they're not gonna leave, that is basically fixed recurring income they can get. As opposed to if they increase something like sales tax, people spending habits will change. But if you increase property taxes, most people aren't gonna move because that must something that's absolutely ridiculous.

Dan Austin: [13:34] So One thing I was gonna mention on this topic too, because I think it leads into a couple different directions here. Basically, the Biden administration put into law or put into effect what the fuck that means. I don't know. But that you can refinance your existing mortgage at the exact same rate that you had it at before. Meaning, you could refinance, cash out some of your money in, like, I have a 2.25% interest rate on my house. I could pull out a couple two three hundred out of my house at 2.25 and then go and But you're

Dylan Koch: [14:01] still resetting the loan amount. You're

Dan Austin: [14:03] still resetting. It's a normal refinance, but it guarantees you the government is guaranteeing

Dylan Koch: [14:08] you the previous rate. Honestly, I would do that in my house right now.

Dan Austin: [14:11] I think My guess is you're not allowed to because you're probably you probably exceed the wealth requirements for that. I I would guess. There's probably some sort of income level that I did not catch.

Dylan Koch: [14:21] Well, but based on income, I mean, know how tax depreciation works with real estate.

Dan Austin: [14:25] It's true. You could okay, Dylan. Okay. Now we're going down this path. Yeah. You're right. So but you could get these forty year mortgages. You they're doing everything they can to start getting the real estate market going because to your point, is it's everything so much downstream of new builds, existing builds, all that stuff that is driving the economy. And a lot of people, millennials in particular, put in rental properties as their investment strategy, right, or as an investment strategy. Right? So you have a lot of people who are banking on rent and everything in this industry that really drives a lot of the economy, a lot of the GDP.

Mike DeHaan: [14:58] I hope you guys are enjoying this episode. We are seriously trying to grow this podcast so that the voice of what it really takes to grow a real estate business becomes kind of the norm versus the guru get rich quick b s that everyone is fed on a daily basis. With so many podcasts out there, it is hard for us to get discovered on our own. So a quick ask, please share this episode on your social media accounts. Be that a real story, whatever. And if you tag me at Mike underscore invest, then I will give you a follow and I will also send you a DM so that we can have a little chat about your business and anyways I could potentially help you grow. So again, please share it on your socials. Tag me at Mike underscore invests, that's with an s at the end, and I'll follow you and we can have a little DM and convo about your business. And maybe I can help you grow a little bit. Or you could just say what's up to you. That'd be awesome. But appreciate everyone, and thanks so much for helping us grow.

Dylan Koch: [15:51] This is that was on the topic today, but I remember seeing a demographic article that basically said like, you know, boomers basically like stocks and bonds, right? And then like the Gen Xers before that were basically sold stocks and bonds, maybe a little bit estate. But as you get younger in that demographic, more and more people are like, real estate's gonna Yeah. Be part of my retirement

Dan Austin: [16:07] Right? And gen z's don't wanna own shit. That's the that's what, you know what I mean? What's fascinating, if you think about it, because the boomers, I believe that when the boomers start dying off, which is not too long from now, there's probably going to be a flood of real estate on the market, and they're gonna have to know what to do because they're dying in place. Meaning, they are not selling their homes and moving into old folks homes like their parents generation did. The bulk of them are dying in home. Right? So they're keeping their house until they die. And so if they start rolling off millennials, we're already balling out. Right? Like, got our houses, we got our vacation homes or our Airbnb's, whatever. Like, we own our rental properties that we can bounce around to or make income on. And then on the flip side, Gen Z, who's a smaller generation, doesn't wanna own anything. So what's gonna happen to all those houses?

Mike DeHaan: [16:51] Yeah. Well, I mean, it's the interesting thing is, Dan, is right. There's a huge subject of millennials are doing well. There's also what, like, 50% of millennials that are still living with their parents. It's not it's not the current statistic.

Dylan Koch: [17:01] I think you just have wealthy friends, Dan. I think Maybe.

Mike DeHaan: [17:04] Yeah. I I think true. I guess, this is something when people rip on us on on Instagram for different things. And I'm always like, I don't know what to tell you. Like, for you say that everyone you know is having hard times, mister random Instagram person. A lot of my friends are in Europe for three months right now.

Dylan Koch: [17:21] Yeah. I

Mike DeHaan: [17:21] know. Just different social circles, I guess. I don't know. Silver spoon, whatever you wanna say. Either way, I've been really fucking busy for the last four years, and I'm in a pretty good spot. And so I don't know what to tell you.

Dylan Koch: [17:33] Yeah. I don't know. There's always this dichotomy with me that's like, sure, if you just wanna go be a plumber, you should also have to be a stock investor or investing guru to get by. You just gotta be a plumber and

Mike DeHaan: [17:44] Totally.

Dylan Koch: [17:45] Be able to live a middle class life. But also, there's nothing wrong with applying yourself, living with intention, and making a fuck ton of money. Like, you shouldn't be mad at someone else for doing that.

Dan Austin: [17:54] Yeah. Just better at playing the game.

Mike DeHaan: [17:56] What everyone goes back to is like, man, when my grandpa was growing up, he had a stay at home mom with three kids, and he was a mailman. He could afford to buy, like, a six bedroom house. It's like, yeah. That was great.

Dan Austin: [18:07] That's the other thing too is a lot of now we're going down this path, but a lot of people complain about that. But a lot of people do, they're like, well, it would like the difference is is how much money they made versus what cost to buy a house, and like the American dream was cheaper

Mike DeHaan: [18:17] Yeah. Back

Dan Austin: [18:17] Totally. I I believe those numbers, but guess what? There's fucking AI out there that does your job. And when you go to work, you twiddle your thumbs for like thirty hours a week, and then you get paid for the the work you do for forty. Right? And so it's like Yeah. Life is infinitely easier. You have cell phones, you have all this sort of stuff that makes it so you could make vastly more money if you choose to.

Mike DeHaan: [18:35] Yeah. Exactly. So, anyway, there's there's your breakdown today's pull your bootstraps up, fucking baby boomers. Oh, well,

Dylan Koch: [18:42] I just love I just love the the split on that token is like, I'll talk to really like a stun lord. Like, I had 18% interest rate on the slum, yeah but you bought it for $10. Yeah exactly. Exactly. Exactly.

Dan Austin: [18:56] Totally. Alright,

Dylan Koch: [18:57] moving on, one other thing I wanted to kinda talk about, because I've had some struggles with contractors myself lately, and like, the ones I used at the beginning are not the ones I use now, both from a skill level, but also just reliability. It just kinda disappears sometimes. So I just wanted to get you guys' general take on, we can go into some contractor best practices, but what are your guys' thoughts on half life of a contractor? What do you look for when you're hiring a new one, maybe? Let's start there.

Mike DeHaan: [19:24] Oh man,

Dan Austin: [19:25] half life on a contractor.

Mike DeHaan: [19:27] Yeah,

Dan Austin: [19:27] right. Depends, we've had two weeks before. I would say, interesting about contractors in our space. So there are very wealthy contractors that have done very well for themselves in this world. Right? They're doing better than we are. Right? They're not the kind of person we're looking. Mhmm. We're not looking for really custom high quality work. We're looking for somebody that can do the work for cheap, and they're at varying degrees in their career, whether they're an alcoholic or have an issue with getting a job, or they're starting out, and they just don't have any skills. So you're paying for like low skill. You're paying for like high skill that's honestly probably less available than you like because they have problems. So that's why they're working in our industry. And so I think that you can have a great contractor, great setup, and maybe you're gonna get a year out of

Dylan Koch: [20:15] them.

Dan Austin: [20:16] Mhmm. That's Maybe. Like, if you have like a really good like, Mike and I had a guy that worked for us. He ran a couple guys for us and he'd I mean, he would still be working for us, but we just stopped flipping because we started losing money and he started making money. Right? And so it was like, good for you. And he's a very talented. He is on the high end of the spectrum. However, he also is working in our industry for a reason. Right? And a lot of it's because guys don't wanna have a boss, which also means that they don't wanna work when they don't wanna work. And so he, again, would still be working for us, but like, we didn't have the work in front of him, which is another problem in this business, which is where I see people make bad decisions as they start buying flips or projects to keep their crew or their contractor busy because they don't want to lose them, and then you buy one or two bad deals and it wipes off half of your profits.

Mike DeHaan: [21:01] Yeah. I mean, it's it's a tough place. Right? Because, basically, the thing that you probably shouldn't do is go and look up, like, general contracts in your market on Thumbtack and, like, hire whoever is smart enough to have a Thumbtack account. Right? Because those are gonna be people

Dan Austin: [21:16] Right now, the guy you want.

Mike DeHaan: [21:18] Yeah. I would say if you go back, like, five years ago, like, honestly, when I started flipping houses back in 2018, 2019, you could do that because everyone's prices were kinda similar. Now just with such a scarcity of labor, you know, and it being so hard to find work is, like, those people are gonna charge you a lot of money, way more than you should probably be paying because the alternative is they just wait for somebody that wants a new kitchen, that's doing that for, you know that's their only remodel they're gonna do in their house for the next twenty years. And they are happy to pay $45,000 for a kitchen because for them, it's an investment. When you were trying to do it and trying to make money, those aren't the people that that you want. And so when it comes to full on contractors, like, kinda like Dan said, if you get lucky enough to find a good one, use them as much as you can because sooner or later, they're gonna find out that if they are good, they can make a lot more money somewhere else.

Dan Austin: [22:09] Mhmm. Right? And they always inflate their prices as you go. It's like last time it was $5, now it's $6 because they they're testing it. So they should. Right?

Dylan Koch: [22:16] Yeah. A 100%. I was just gonna bring that up, Dan. Good point.

Mike DeHaan: [22:19] Yeah. And I was gonna say, it's it's just like when you're hiring staff for your business, you kind of always need to be looking for them if you're going to be doing something that requires you to be that that you're going to be renovating on a regular basis. Like, every time that, you know, someone posts on the local Facebook page that they're foolish enough to share somebody that just did some work for them, you should probably be building that relationship very quickly and trying to be, you know, trying to to get some work out of that person before they get oversaturated with everyone else that needs that work.

Dan Austin: [22:45] Totally. It's almost like you have an abusive relationship, but you gotta tell them they suck all the time and make them feel bad and, like, don't let anybody talk to them and, like, don't talk to that guy over there.

Dylan Koch: [22:53] Yeah. But I mean, like the boat with anything, like, I started doing a couple flips, used the same guys, I'm like, this is great, like, I love these guys. And on on my side, was paying them quickly on time, and I was paying for the materials, like, trying to be the best person I could be for them. But three or four houses down, I'm like, the quality of work just when I got by, so I don't know if they had a different sub coming in or what, but you almost have to, like you said, keep them on rain a little bit, or they're just gonna take a, you give them an inch, they're gonna take a mile.

Dan Austin: [23:22] Yeah. I remember our, the first contractor that Mike and I used as a partnership, Rob. He was actually a good contractor, right?

Mike DeHaan: [23:28] He'd done great on several projects for me.

Dan Austin: [23:30] Yeah, like he was like a good work, I really liked him as a person. Then And all of a sudden, the project he's working on for us, it starts like taking longer and longer and longer, and then he's like, not showing up. Well, the dude had picked up a job from some other lady like three doors down, and so his trailer would be over And there all the it was a bunch, they was like stripping siding off, doing all the stuff, and I'm like, this son of a bitch, dude. Like, he's like splitting time between projects, and not and that's what happens, because he was good, and somebody saw him, why? Because he was on a busy road, and they're like, hey, would you flip our house three doors down? And he was like, sure. Why not? And that's gonna pay more than what you're doing.

Mike DeHaan: [24:03] Well, the real problem with that one too, Dan, if you remember, was it wasn't that our house getting completely neglected. He had some freaking meth heads Yeah. That were doing terrible work

Dan Austin: [24:15] Yeah.

Mike DeHaan: [24:15] That he was down at working at our house, but he was still charging as if he was working on it.

Dan Austin: [24:19] Yeah. Exactly.

Mike DeHaan: [24:21] Right? So he was he was charging his, like, $70 an hour rate for some guys that, like, didn't even know which way to hold around hold a hammer while they were swinging it. You know?

Dan Austin: [24:29] Oh, yeah. They're trying to yeah. Oh my god. I remember walking up to some of those guys, you're like, Jesus Christ. But

Mike DeHaan: [24:34] You remember when they were doing the the drywall and they didn't cover the HVAC vents? So they're pumping all, like, the Oh, yeah. The drywall shit, like, into the vents?

Dan Austin: [24:42] Yeah. Oh, yeah. They had that our cool air intake on a brand new furnace too was like completely filled with like construction material. I mean, like, I walked in there for the inspection. Was like, what the hell is this dude? I'm like, glad we got a brand new furnace in there.

Mike DeHaan: [24:54] Yeah.

Dan Austin: [24:55] Yeah. They they were they were pretty bad. It was rough.

Dylan Koch: [24:57] A buddy of mine, he runs like a construction company, and just to get somebody to show up, he basically has to start from like $35.40 dollars an hour. Yeah. What do think they're getting charging you, right, if you bring those same people?

Dan Austin: [25:07] Yeah, they've gotta have a profit, right? Because if you're paying somebody, I get it, if you're gonna have to pay a guy 35 to $40 an hour, can throw on 15% for payroll tax and all that sort of stuff, and then you have to have profit on top of that, and then you're gonna have like the fact that when you have a company like that, you're really only getting 80% capacity. Right? Because they gotta show up to work. They gotta do all this. So there's, like, 20% of dead hours, which has to go somewhere. Right? Mhmm. And so it costs a lot to run a construction company. And those aren't the kind of guys we want. We want to be honest, what we want is the guys that are cheap. They're probably going to last for, like hopefully, stay sober long enough, and then you're gonna make a pile of money and have to find somebody else.

Mike DeHaan: [25:41] Yeah. Or I'm gonna say one thing here, so it might sound politically incorrect. Most places will have some ethnic group that does cheap labor, will have undocumented family members. Are methods considered ethnic group now? No. I I was up here. It's the Russians.

Dan Austin: [25:59] Yeah. It is Russians. Right.

Mike DeHaan: [26:00] Honestly, it's Eastern Europeans. We have a ton of them out here, and they they their work's fine. Like, it is some like, sometimes they do, like, weird stuff, and the houses are, like, they're unreliable. Or one time I had one that was installing a hot water heater, and the guy tried to sell me a gun that he had. Yep. Yeah. So there's stuff like that. But you have to the problem is is you kinda have to have an in with these people because a lot of them as well will be opportunistic. And so we we have

Dan Austin: [26:24] Well, it's the Russian culture is also a corrupt, like, criminal type culture. Right? Like, how do I take advantage of situation? Right?

Mike DeHaan: [26:30] They try to haggle stuff. Totally.

Dan Austin: [26:32] So it's not like like, well, here's the and I say that because like in the in the Sunbelt areas, you have like a Latino or Hispanic cultures, which is not that's not they don't have a corrupt culture. So you don't have to worry about that. But up here where our ethnic group is like, that's part of their culture. You have to realize that and understand it.

Mike DeHaan: [26:45] Oh, dude. They'll still they'll still haggle too. We got our the guy did a landscaping at my house, Orlando. He's from Guatemala. Dude, you can't even read. Like, literally. He, like, he has he brings his daughter with him. He's, like, nine.

Dan Austin: [26:55] He also only answers his phone, like, once a year when he's ready for work.

Mike DeHaan: [26:58] Yeah. Because he's too busy balling out.

Dan Austin: [27:00] So busy. He's so busy.

Mike DeHaan: [27:01] He makes so much money. And so he, like, did all of our landscaping in our house, like sprinkler, lawn, everything for, like, $7. Like It's like a

Dan Austin: [27:10] $25,000 job.

Mike DeHaan: [27:12] Yeah. He's like, yeah, I can do it on Wednesday. His whole team showed up. They did it and everything else. And I was talking to him about it. I was like, that was, like, pretty cheap job. He's like, well, he's like, I come to your house. Like, you have a beautiful home. I look at you. I look at your cars. I talk to you about your business. I know that, you know, you probably want a good deal. Right? He's like, if I go over to this lady, I see brand new BMW. Right? She tells me that somebody else quoted her $22,000. Right? She does she's like, so for her, it's the same job,

Dylan Koch: [27:40] but, you know $20.

Mike DeHaan: [27:41] Times as much. Yeah.

Dylan Koch: [27:43] And she still thinks she's got a great deal.

Mike DeHaan: [27:45] She still thinks she's got a great deal. Right? But, like, you have to sort of nurture those relationships. And so, like, going back to, like, the Russians that are up here, if you aren't part of, like, the cool kids club, you're gonna pay whatever they think they can get out of you. That's just kinda human nature. Right? But once you start to have those connections, that's where you can start to do stuff at volume without needing to, like, hire crew because, you know, we've also had guys like who's the roofer that we've worked with Dan that, like, will have his brothers come out. They'll just come and do stuff. So roofer that we had, we had one guy for a while that was Hispanic that would just come out and just, do stuff for so cheap, and it was always pretty solid.

Dylan Koch: [28:21] We have a we already got a pretty heavy Hispanic, like, mix up here too.

Dan Austin: [28:25] But Yeah.

Dylan Koch: [28:26] I mean, I showed up after they completed drywall work with like a six pack Modelo, and like, do they love that shit? Like, if you just like do the little like things like that too.

Dan Austin: [28:34] Yeah. Absolutely. You gotta take care of them just like anybody else, but I think to Mike's point is, you have to kinda find that immigrant labor force, and that's how America's always been built. Mhmm. The downside for them is is, which is also the upside is, there's no l and I. They're not like they're not part of the system, the American government system. And so there's none of that fat that they have to throw in there. Right? They they just show up to work work their ass off, you pay them for what they're doing. And that's why that system works so well. And that's why honestly, America has been built really on immigrant labor. Right, wrong, or different, you know, it's just what it is.

Mike DeHaan: [29:06] Yeah. Well, the funny thing is too, it's not even just like the blue collar stuff. It's currently the same with office labor too. Like, if you if you go and you get some killer VAs, this is how we built out our entire cold calling company right now is we got some that were really good. And we said, do you have some friends? And they said, yeah. And they brought some good friends. And now we're in with that. And now if you wanna keep hiring and keep scaling that, it's very easy to do. Yep.

Dan Austin: [29:27] Leverage that relationship.

Mike DeHaan: [29:28] And not only do you have to, like, find those, but have to nurture those relationships. Kinda like Dylan said, you have to do the extra little things. You have to keep them busy. You have to put on time, and you need to always be, I would say, like, looking for the replacement for when ultimately they do disappear.

Dylan Koch: [29:42] You need two or three down your Rolex list for sure. Because one of them is not gonna show up. You're gonna be the timeline. And them not showing up is gonna throw off the rest of the downtrek timeline. Yeah. So for sure. So, like, there was this someone, a contractor painting at one of my buildings, and he cut his hand pretty bad. Like, it went like down to the tendon, and he like, the EMS showed up and everything. And I'm like

Dan Austin: [30:03] Oh, Jesus.

Dylan Koch: [30:04] I didn't really get any paperwork signed, like reliability release or anything like that. So I wanna ask you guys, you do anything like that or is that something you've thought about for previous projects? We absolutely make

Dan Austin: [30:14] sure that we do everything above board and that we have we pay for insurance, like l and I insurance and we do all that. All of our stuff is registered. We have general contractors license and we pull all permits. But I do know people that don't do any of that, and I get why they wouldn't do any of that, right? Because you don't know you're even supposed to do it. Honestly, we get into real estate investing as flippers, or buy and hold guys, and you're like, yeah, you just do some work here, and the contractors we're working with generally don't wanna pull permits, because they don't even have a license. Exactly. Mhmm. So then there's there's that issue. Do you so a lot of guys, to be above board, they go and get a general contractor license, which is not a bad idea to do if you really wanna reduce liability because if that does happen on your job site, and they wanna file an l and I claim, which they totally can

Mike DeHaan: [30:57] Mhmm.

Dan Austin: [30:58] Just as a regular construction person, then the state l and I is gonna come after you, and they're gonna say, what are you doing here? And then then you can definitely you're going to technically have to pay for it.

Dylan Koch: [31:08] It's not even hard to get it here. Like a GC license, could probably do it in an afternoon. Honestly, like here.

Dan Austin: [31:13] Yeah. Same thing in Washington. There's there's no actual requirement for you to take a test or anything. It's literally just a paper process. Right? But with that being said, is there's a hell of a lot more liability. It's kinda like becoming a real estate broker. Right? Now you are following underneath the real estate commission in your city or your or your states rather. And so if something happens, like, they're going to hammer you even harder. So you have to be careful with the general contractor license. Because then if you don't do everything the right way, and you get hammered, like, you get really hammered. Because now you're basically raising your hand saying, like, I could potentially do some messed up shit, so that now they know who you are. Right? They see you, and so you gotta be super careful there. But that is the definitely the right thing to do if you have contractors working for you that don't have general contractor license and l and I insurance. Because ultimately, technically, you have to pay for that.

Mike DeHaan: [32:00] The correct thing is, honestly, what you should do is get umbrella insurance. If you wanna make things like extra sort of sound, because umbrella insurance is not expensive and it'll protect you from getting sued for pretty much anything.

Dan Austin: [32:12] But also if you do that, you're gonna have to make sure you're doing everything legally because umbrella is not gonna pay out if you're doing janky shit.

Mike DeHaan: [32:17] Mhmm.

Dylan Koch: [32:17] There's a Totally. Hard money lender that I ran into lately, that they make you, like, have a GC on file, like, their application, and they have to be registered with the county, the BVB, like, for them to land on the product.

Mike DeHaan: [32:29] Man, bet they have a really hard time selling, giving out fricking loans. Yeah.

Dan Austin: [32:34] Yeah. All the other good investors are going to that. Yeah.

Mike DeHaan: [32:36] Yeah. Right?

Dylan Koch: [32:37] One thing I personally love about running g like, contracts and like or sorry, running projects through my credit cards, is I travel for free all the time now.

Dan Austin: [32:45] Oh, yeah.

Dylan Koch: [32:45] You're running all those. And like, all of it's on someone else's, like, private or hard money. Yeah. You're just paying it through your credit card, then reimbursing yourself. So nice added benefit. Yeah. There's a

Dan Austin: [32:54] lot of people out there that use, like, the Capital One Spark, which I think is like 2% cash back on everything. We personally have always done the the Amex because there is there's no limit on what you can spend. And then we have the Amex Platinum, which is it's expensive. It's like $700 a year to have that, but all the benefits you get with it. Like, I'm not as well traveled with Mike, so I'm not a Delta Diamond members. But with the AMX Platinum, you get free lounge access at Delta. So it's pretty sick, actually. There's lot of perks travel perks with that alone. Plus, Mike and I, we've got millions of points on that thing.

Mike DeHaan: [33:25] Yeah. So if you go to americanexpress.com/keys, you can get your fucking American Express. That's where just

Dan Austin: [33:33] Yeah. We should get an Amex for a good referral. I always say, like, I love it from a business owner because of there is no limit. Right? Yeah. Right. But I

Dylan Koch: [33:40] have an Amex too.

Dan Austin: [33:41] They do call you though, like, definitely every time I and I have gotten like a new Amex for a new business, they're like, they always call me like the twenty eighth of the month. They're like, yeah, so we just wanna make sure you're good. Like, you know you still need to pay this off. Right? You know, like, we're like 75 k on a card, they're they get super nervous. They're like, yeah, we got you. We got you.

Dylan Koch: [33:57] Yeah. They don't call me.

Mike DeHaan: [33:58] Yeah. You're not spending enough yet. Well Yeah. They'll they start they do start to get a little bit funny. What's our biggest Amex bill I think we've done, Dan? Like, 140?

Dan Austin: [34:07] Probably Yeah. At least $1.40, $1.50 a month. Yeah. That's kind of like our sweet spot.

Mike DeHaan: [34:13] Yeah. When we when we pile up all the marketing, and then

Dan Austin: [34:15] we have, like, all

Mike DeHaan: [34:16] these other, like, once a year expenses, and both of our GoBundance memberships go on there.

Dan Austin: [34:20] Yeah. Yeah. Exactly.

Mike DeHaan: [34:22] So next week, we're gonna do a dive into some KPIs and some marketing stuff. So if that's of interest to you, make sure that you subscribe and share this with your fellow investor friends so that they can go and learn the numbers behind a real real estate business. Look at that. Promoting the next episode. We've never done that before because we've never had that much that much planning.

Dylan Koch: [34:40] Yeah. You're welcome.

Mike DeHaan: [34:42] Yeah. So on this one, you just gotta listen to us talking a bunch of freaking baby boomers telling all the crybabies to pull your bootstraps up.

Dan Austin: [34:48] Pull your bootstraps up.

Mike DeHaan: [34:50] So anyways, guys, we appreciate you guys listening, and we'll catch you guys next week.

Dylan Koch: [34:54] See you. See you.