Hold vs. Flip: Creative Solutions in a Slow Market

Mike DeHaan: [0:00] Real quick before we jump into the show, we created the collecting keys podcast to be a real estate investing podcast that is created by real estate operators for real estate operators. And we want operators everywhere to know what it really takes these days to be successful in this business rather than all the fluff that all the other content creators and podcasters out there make. And so one of the challenges with this is that it's challenging to grow because most operators are too busy out there working. Right? And they aren't always learning or actively seeking new learning material. And so if you could please share this show with any fellow operators you know, you know, you can text it to them, you can post it on your socials, you can leave us a good review that you then share somewhere, that would be amazing. But really, whatever, it really helps us continue to get excited to create content, and it will also help you because everyone that you expose us to will get better as a real estate operator and close more deals. So if you could do that for us, it would really need a ton. And, otherwise, we appreciate you guys, and let's get into this episode.

Dan Austin: [1:04] The question for me is not how deep a recession. The question for me is is, like, where is it affecting me in my business? Welcome back to the episode of collecting keys real estate investing podcast, the podcast by operators for operators. And today, we have the operator, Dylan Cook. Mike is out at a Alex Remozy event. But today, I think we have a pretty full plate of good discussions. Dylan and I were pre showing the all the data, all the economic data, and I'll let you kinda run through it, Dylan, since you're the you're the data guy for the show. And maybe we'll just have some super good conversation about what we both think is happening in the economy and then dovetail that into how that relates to some of the stuff that you're dealing with in your business and what I'm dealing with mine and maybe some opinions around how to operate your business in these uncertain times.

Dylan Koch: [1:52] Yeah. I mean, I think the biggest, most important number that this came out from like an economic perspective is probably that the GDP release for quarter one of twenty twenty five was negative 0.3%. And depending on, you know, the the definition of recession for most people is two consecutive quarters of negative GDP growth.

Dan Austin: [2:14] So everybody calls this now like a so they're using the term technical recession, all the pundits, right? Yep. I guess it depends on what side of the aisle you are from the pundit standpoint, but I feel like everybody wants to get away from that. Because like, a technical recession is too, you know, quarters of negative GDP, but really, you know, that's not that bad.

Dylan Koch: [2:32] Yeah. Right. I mean, I don't know why, I hate that they always change the goalpost anyway.

Dan Austin: [2:37] Right.

Dylan Koch: [2:37] So I'm just gonna keep it at the two consecutive ones because that's what it's been forever. Right. Even though that happened in like 2022 I think and they

Dan Austin: [2:44] never Really? Counted Yeah. Makes sense.

Dylan Koch: [2:47] So, but with this, mean if this is all lagging information, so you gotta kinda think what is gonna be ahead of this, right? Mhmm. And I think, you know, this is just me thinking out loud. Trump the other day said, this is Biden's economy, not his. And they also if they're gonna have all these tariffs in place, that should create probably even less GDP growth or maybe GDP decline. Mhmm. But I almost kinda think that they want a recession, and they kinda want a recession early. Mhmm. For two reasons. One being a recession will get that ten year yield down that we've talked about before. Yep. So people can refinance their houses, get refinance their car loans, get cheaper debt for basically everything. And then two, they want this to happen early in the presidency because the primary is, you know, still a year and a half, almost two years away.

Dan Austin: [3:34] Yep. So if you

Dylan Koch: [3:35] knock this out early and you're on the uptrend Yep. By the primaries come around, then you look a lot better at that point in time.

Dan Austin: [3:42] Totally. I like that theory. That's actually not a bad theory. The thing that I don't understand when it comes to like what's happening economically is the job market and people still have jobs. Yeah. Yeah. I mean

Dylan Koch: [3:54] You're right. You think most recessions would indicate a higher unemployment rate, which Mhmm. The April number that was released just the other day was added a 177,000 jobs, but on a relative basis, the unemployment rate stayed at 4.2%, so it didn't change.

Dan Austin: [4:10] It didn't really move. It shifted around a little bit and it's actually beat expectations. And so I'm like, like totally, you could be in a recession and you're really feel it. It depends on where you're at. A lot of times when we see recession, it feels like, and I think a lot of it is this, is like the construction, because that's a big slowdown during an economic slowdown, so the construction sectors tend to like slough off a lot of jobs. And in construction in our industry within real estate is the most speculative area if people are building and doing new construction and flipping all that stuff, you're speculating the economy is gonna do fine and it's gonna sell at a certain price. And so you kind of see maybe the bloodbath more there. But if you work for the government, I mean, except for right now, I don't know what those are doing, but in the past, in 2,008 for example, I was in the army. I didn't know, my pay didn't change one bit. Right? So if you work for the government or some of these really stable companies, you don't notice it as much financially and so it's like what is going on? And then the market affects, you see your portfolio, your, you know, stock portfolio goes down during a recession.

Dylan Koch: [5:10] Right.

Dan Austin: [5:10] But even right now, it's like, could we technically be in what is going to be defined as a recession? Like you said, it's a look back. So they usually I I heard this recently, was that when you're doing the recession, although a technical recession is two quarters of negative GDP growth, they don't, the economists come together afterwards and basically say, yeah that was a recession.

Dylan Koch: [5:34] Right.

Dan Austin: [5:34] With no true definition, right? They pick if it was, was that a recession? So right now technically we could be in a recession. Yep. And so I guess just my thought is like do you feel any recessionary pressure?

Dylan Koch: [5:46] Me, no, but I guess what I'm, as you're saying that I'm thinking not every recession is also created equal. Mhmm. The most recent one that we have as that we lived through would have been like 2008 Yep. Barring the one in 2022 that they didn't count

Dan Austin: [6:01] Right.

Dylan Koch: [6:01] From COVID. So that was real estate heavy, but before that was 2000 as a .com bubble. So like Mhmm. Those set of employers would be different than what was 2008.

Dan Austin: [6:09] Right.

Dylan Koch: [6:10] And before that I think it was like the '87 was around there. So but my point is, the sectors that lose their jobs are different each time.

Dan Austin: [6:18] You're right.

Dylan Koch: [6:19] And I think what's a little bit different now is because there's so much more wealth out there, that wealth effect that we keep talking about. Yep. If there is actually a recession now and people see their net worth goes down a lot, that's when they bring in the reins. Right? They're a little bit more conservative on not only their discretionary income, but on their investments, really everything, just everyday life.

Dan Austin: [6:38] Absolutely. Yeah. And that I think is where now you see the pullback or you will see the pullback and that's why then you see companies earnings go down because people aren't spending as much. I think in this one, we're throwing a little more of a unique wrench in it that I'm not, in my lifetime have ever seen is the tariffs which can like kind of screw up the imports, screw up the costs and reduce demand. It's like a third party factor that nobody can account for, it's almost like a black swan like, which is I think why we're seeing so much uncertainty in the market recently going up and down because really, I don't know what the market's doing today, I think it was like down a percent, so it's kind of a decent amount. But like up until this week, you know, we were seeing quite a bit of volatility and then it was kinda like back to scratch. Right? Like back to what it was twelve months prior, so which isn't a terrible thing for people who are investing. There it's better than being down six or 7%.

Dylan Koch: [7:25] Right. And I think the the biggest thing is like markets don't like uncertainty. And like and even though Trump said, I'm gonna do tariffs, no one expected how he was gonna implement those tariffs.

Dan Austin: [7:37] Yeah.

Dylan Koch: [7:37] And the fact that he's been so they're on China, now they're a 185%. Yeah. Now, we're gonna exclude all of this. I just think the constant changing is what's really throwing a wrench into into everything right now.

Dan Austin: [7:50] Absolutely. Yeah. I would say a lack of communication, what seemingly is a lack of lack of a plan. And I heard a good argument like that Trump believes like chaos elevates issues and elevates the conversation, and to to a certain extent, I agree with that. I don't like the way he goes about things, but then all of a sudden you have now, he's got the the liberal democrats talking about how important the stock market is, Right? And like all these other things that before they weren't talking about, so he elevates an issue and then is going extreme one direction and then now it's kinda back to like people are like maybe a little bit more in the middle on certain issues where he still seems extreme. Right? But as a population, more people are towards the middle. But going about it with the uncertainties, especially when you're messing around with the world's biggest economy, it's like a cruise ship. You you don't just like turn it on a dime and you can't just like throw shit around because it does really affect people.

Dylan Koch: [8:44] Yep. Which is why you saw some of the the data that came out recently like, a lot of employers that source internationally, especially like medical devices was a big one I saw. Oh. They're all like front loading, like buying tons of inventory now in anticipation So of all that's gonna throw off some of these numbers anyway because Right. Yeah, they look great right now because they bought so much stuff, but in a couple quarters or months from now they'll be like, no one bought anything, and not remembering what just happened.

Dan Austin: [9:08] Yeah. Absolutely. Everybody's got a short term, we've all got short term memory too. It's like going, we go based on quarters and apparently that's how you operate a company too.

Dylan Koch: [9:15] Yeah. Yeah. Well, I mean, in the wholesaling business, some people are quarter by quarter. If you're in here for three plus years, you're kind

Dan Austin: [9:22] of an anomaly. This is true. We've seen that even in just the the scale group of the mastermind and the different people we talk to as they, you know, look at different groups that they wanna join, or just seeing people come and go from the groups and like, I would say, I don't know, 50% of the people have left the industry, like trying to grow, not like left the industry, but have changed their course, I would say. They're not necessarily not wholesaling, they're just not trying to wholesale a bunch, or they're like really focused on their portfolio right now.

Dylan Koch: [9:52] Yeah. I mean, see some of the same players in my end market, but I definitely see a lot of people leave, and then you know, not come back, especially when it was the heyday where you could throw something up on the MLS and then sell in a day.

Dan Austin: [10:03] Right. Totally.

Mike DeHaan: [10:04] Hey. So you've heard us mention our scale community before, and I don't have a lot of time, so here are the quick highlights. In scale, you get all of our processes and systems that we use to do about a 150 deals every single year. You also get a community of investors that are verified crushing it in their markets, Otherwise, they wouldn't even be members. And that way, you don't have to waste time with nonstarters like you find in other groups. You also get preferred relationships with marketing companies and even lenders that will give you 100 financing. If you just heard all that and said, nah. I don't really need it. That's not gonna help me. I don't know what to tell you. You're lying to yourself because all those things are guaranteed to help you explode your business and buy more deals next year. So go to collectingkeys.com/scale, and let's see if you qualify.

Dylan Koch: [10:46] Right now, I mean, in my own business, we have hold on. I just wrote this down. Nine in escrow, and I'm flipping two. And That's pretty good, dude. Yeah. I know. But the my point in bringing that up is, I feel like all of them are only one of them or two of them are currently assigned. And the sellers are either, like we have it at a decent price, and then there's ends up being like title issues, liens that ruin the deal, like there are sellers remorse that they no longer wanna sell, uncooperative tenants, something that just comes up. Or b, we have a lot of these leads that come in, they're like, let's say it's worth $2.25, I'm like, I'll take 200. Right. And like, I know that happens all the time, it just feels like there's more of that now than there has Yeah. Been in the

Dan Austin: [11:31] I think to I don't know. I don't know if it's because like, I mean nine deals in escrow is a lot, like that's a good amount. What I was gonna say is like, sometimes when there isn't like a ton going on, like you just kinda uncover all of the problems and then you just start working those ones with problems and where before you might just overlook them. I don't think that's the case because we have quite a bit of abundance right now and we're dealing with a lot of that stuff and we have been. Mike and I swear to God, we always have the worst luck with some of that stuff. One of the things that we're dealing with right now are, we've got three sub two deals, and I I don't like sub two deals, like that's like the last resort for me. But we've got three of them that are like okay deals, but not really good enough to do much with, right, unless you're acquiring. And I don't really I'm personally not trying to actively acquire sub two deals right now, but I know other people are and so we'll probably, out of those three, we'll probably wholesale two of them and find a buyer for them, but it's like just the weirdest seller situations. We have one right now that I'm trying to figure out where she has 200 ish thousand in equity, know, we haven't walked the house and it's a newer build like built in like 2005. Three bed, two bath, an old lady who's, she's dying of cancer and she's like, I absolutely don't wanna move but I lose $300 a month living here that I put on a credit card.

Dan Austin: [12:40] Like her total living expenses, she loses $300 a month, but she's like, I'm dying and I don't wanna move. She called to get a reverse mortgage, which seems like it would fit her situation perfectly, but they denied her. I I don't know why. I don't know the whole reverse mortgage industry because she has a lot of equity in it. But like, I'm just looking at it and she's like, I just wanna be able to stay here. How can you allow me to stay here? I need to pay off $15,000 in credit card bills. And then she had like another 10,000 something she needs paid off. And then she's like, and I just wanna live here for cheap because like her income's say like, don't know, like $2,100 a month and she wants to live there for like 900. So she has the rest to spend. Like that's a great deal Mhmm. Honestly for us. And I we haven't negotiated like what she wants to do with her equity and all that sort of stuff, but to me it sounds like right now she just doesn't care. She's like, I just wanna die here. And she's probably got three to five years left, no, I don't know what it is. Like it's not dire like the next six months. But if you know, she wants a $100 in her pocket to go have fun with, that's not a deal.

Dylan Koch: [13:39] Right, exactly.

Dan Austin: [13:41] Like she has like a weird situation that she, and she doesn't wanna move, she's like, just wanna die here, and it's like, financially that might not be the best choice for you, but she doesn't care because she's dying.

Dylan Koch: [13:49] Yeah, she's dying. And you might, you know, the whole family dynamics also come into play with that.

Dan Austin: [13:54] Oh,

Dylan Koch: [13:54] yeah. We have a sub two on that, or it's not really sub two, it's a seller finance one where it's like a rent by the room, but we're getting it at 5% interest for on a thirty year am, with a five year blend. Mhmm. And these are the ones like so I might even take it down and then just manage it for a year and then sell it. Right. Because some of these ones, I knocked down, I'll get your opinion on this, it's like, okay I can make 10 to 15 k on like a wholesale fee maybe, or like you flip it and you can make 25 to 30, but those are kinda thin margins when you're flipping.

Dan Austin: [14:23] Yeah.

Dylan Koch: [14:23] And these fit where I could take it down, fix it up a little bit, probably burn it out and like maybe have 10 to 20 left in the deal, but then sell it a year later. Like Yeah. And then now I have probably close to 75 to a $100,000 in equity.

Dan Austin: [14:38] Yeah.

Dylan Koch: [14:38] And the place is nicer, and I'd only pay I guess long term capital gains 15 ish percent instead of ordinary income tax.

Dan Austin: [14:46] Yep.

Dylan Koch: [14:47] So I don't know, this is like the exit strategies I'm changing because I don't need the immediate liquidity Right. And just holding on to it for a year.

Dan Austin: [14:55] It's not bad, we have a very similar one, sub two deal, where it's like we would basically break even with it. Just the cash flow on it would basically pay for the maintenance that you know you're never gonna have in turnovers, right? It's a unique property, it's got like a shop, so we wanna see if we can get a little extra cash flow out of it for like a contractor that wants to like rent a house plus have like a shop to like store all his materials and equipment in. So could be a potentially awesome deal, we'll break even on it, do we hold it for a few years and then just sell it? Because we're gonna be basically zero out of pocket. We've gotta pay excise tax and some closing costs, and then we have to pay the realtor that brought it to us a fee. Say we're out like $15 total, and we're gonna have 0% return for a few years. But then you're buying it with some equity in it now, kinda like you're talking like 30,000, 40,000 maybe, but then you're selling costs right now, so you're like, it's just kinda tight to do anything with. Yep. So do we hold it for a few years? Just put it with property manager, pre fund an account so that it's just if there's maintenance, we don't think about it, it just takes care of itself, and then in five years, we get a $8,070.80, $90,000 payday. It's like a piggy bank, right? There's risk though in that you have some of these major items break and now you gotta fork over cash, but if it's not a bad property then it might make sense if you don't need the cash right now.

Dylan Koch: [16:11] We sold the last partnership I had, we sold seller finance on a year term that'll come up in November. And it's almost like I forgot about it. Collect like $900 a month.

Dan Austin: [16:21] Oh nice.

Dylan Koch: [16:22] But like come November, I get a check for $80. That's badass. Yeah. And so like, then I'm like thinking Yeah. I count this as my marketing spend? Like, now my KPIs are all changing, because I got $80,000 coming in like

Dan Austin: [16:33] Yeah, dude.

Dylan Koch: [16:33] But it's gonna be like a nice little like, I don't know.

Dan Austin: [16:36] Little bump, dude. It's like finding $20 in your ski coat the next year. Yeah. It's the best kind of money.

Dylan Koch: [16:41] It's lot more than that,

Dan Austin: [16:42] but yes. Yeah. I kind of think of it as like land banking, but you're kind of house banking instead, there's a lot of guys out there that they have cash and they just park it in a vacant piece of land, because there's no like, there's really no downside risk to the land other than values. But if the land is in a really good area and it's gonna go up in value over five to ten years, and you just needed to put cash somewhere, it's the same thing, it's better than the savings account.

Dylan Koch: [17:03] Yeah, you don't get the You can't really depreciate a whole lot, and property taxes are low,

Dan Austin: [17:08] Yeah. No, you can't depreciate anything, but you can you can park your money there and and bank it, and if it goes up three, four, 6% a year, you're making money, and it's a good place to put it, and

Dylan Koch: [17:19] Some of that, I brought that up too because, as the audience probably knows, like my AM is, I don't know, we're probably three months in now, close to that. And, you know, my days used to be spent basically sourcing revenue, most of time, marketing and sourcing revenue. Mhmm. And now that I'm still taking care of the marketing, he's doing a lot of the the calling and the task follow-up and appointments and all this kind of stuff. My job is turned into keep feeding the machine, but then dis following some of these. And so there has been a little bit of disconnect, even though I'm the one making the final offers. Yeah. I haven't necessarily seen these places in person. Mhmm. Yeah. And so the diso side has been a little bit more challenging than I thought, and you know, hopefully we close on all these, I have the I I can if I need to, I don't want to. Right.

Dan Austin: [18:00] So do you do you find that he walks and takes photos, you do your underwriting, and then maybe you're you're doing a walk through the dispo and you're like, oh, this place is a little grosser than it looked like in the pictures, or what do you see?

Dylan Koch: [18:10] Yeah. Honestly that, like the one, the most recent one we had was I was like, my MAO man is 90,000 and even below that, like I would Yeah. I would wanna be a little bit below that. And we've had three offers so far, and all of them are basically between 85 and $90. Yeah. That sucks.

Dan Austin: [18:26] That sucks.

Dylan Koch: [18:27] Yeah. So like, we might go back and re trade, and you know, and try to do that. I don't want to, but I'm gonna stop trying to dispel it. So like, it's just stuff like that and so it's just it's my fault, I gotta get it at a steeper of a discount but

Dan Austin: [18:37] Totally. I mean, it's growing pains too with having an AM and then they learn when they have to go make that phone call. Yeah. You know what I mean? I mean, it sucks.

Dylan Koch: [18:44] I wish I could play this for the audience because it was basically like, hey man, MAO is 90, and I was like, but start out at like $817.50. Because he told us he wanted like a 100 to one ten. So I like, don't wanna start too low because he just shut us out. Yeah. And then so, you know, my ab gets on the phone and he's like, hey man, you know, with everything, you know, all cash, closing no costs, we'll close on your timeline, it'll be like $817.50. And the seller's on the other line, he goes, well, do you you can come up to 90? And immediately, I was like, yep, we can do 90. I said, bro, he coulda got it for probably 85.

Dan Austin: [19:16] Oh my god, dude.

Dylan Koch: [19:18] But he knew what his, you know, he knew what that So that was a coaching opportunity.

Dan Austin: [19:21] Oh my god, here. Damn AMs. Yeah. It's an MO of a reason.

Dylan Koch: [19:27] Yeah. I know. But you know, that that is an example of the growing pains that you go through that you don't kinda anticipate when you hire somebody on.

Dan Austin: [19:33] Absolutely. Yes. And the cool thing is though is, as long as you're able to feed the machine, you're able to give him learning opportunities, Because it sucks when you're so thirsty that you're really mad and now you create like a wedge between you and your AM, then you just end up firing because you can't work with him because like in the back of your head, you're like, I hate doing this because it's bullshit.

Dylan Koch: [19:50] Whatever every deal he gets under contract we don't close on, like that's not gonna be a good he's gonna hate that. Right.

Dan Austin: [19:56] Yeah. He's gonna hate that too. Yeah. And then you both are just like, okay, this is bullshit so Yeah. Whatever.

Dylan Koch: [20:01] The other thing like go to on with me personally is like, you know, the rental side of things, as we talk about adding more, I've had to put two new roofs on, an AC condenser, and I forgot So something else on a new I've had close to $30 just in like expenses, CapEx stuff that doesn't increase the property value, doesn't increase NOI, just some cost in doting these places.

Dan Austin: [20:21] When you underwrite properties, like you're gonna bring a new property online that you're buying, what is your monthly capex, opex, just set asides total for those? What do you factor in?

Dylan Koch: [20:32] Yeah. So it's something that I'm not gonna put a whole lot of like actually burn it where we're not going to do like the put new mechanicals in it on the front end

Dan Austin: [20:39] Yeah.

Dylan Koch: [20:40] Then I'll do anything from 15 to 20% with the top line in total. Really? Okay. So like but that's vacancy, maintenance, CapEx, property management,

Dan Austin: [20:48] that's everything. Oh, okay. Okay. That's everything. Okay.

Dylan Koch: [20:50] But if it's something that we're burrow, we're taking it down, we're replacing everything, I'm good. I won't do five to 10% off the top line, because all the stuff is new. Should last me ten to fifteen years.

Dan Austin: [20:59] And do you try to do that when you if you're gonna burrow a property and you like it, you're like, I wanna keep this thing, Even if the furnace is working, but it's old, like an old oil furnace or something, are you trying to just upgrade that shit then?

Dylan Koch: [21:10] So the ideally, you do it on the front end, and then Yeah. Like you can kinda wrap it into into your financing costs a little bit. Yeah. But I haven't lately. Yeah. And then I haven't bought anything to keep in 2025 so far, I need to change that. There's one under contract right now that I'm thinking we're gonna keep, but

Dan Austin: [21:24] Yeah. Asked because the way I I got into real estate, a good friend of mine, he's like, man, I don't know, I buy these houses and I just make them bulletproof when I buy them and I only have to do it once. Mhmm. And I I started out, that's kinda how I did it. Mike came, when him and I partnered, came from a little bit different point of view, which is like, how do we maximize the ROI? But what I have found, him and I have found is like, in some of these situations, it freaking screws you over because year four, after burning it, you've got a roof, a furnace and you know, some other hot water tank or something like that, and you can't really get that money out of it, especially right now with where your rates are, and so you're like, well I guess I'm just stuck putting 15 k and you don't have the cash flow, like the reserves built up by then, so now it's an owner contribution to your property to do it, and so it's like Yep. It's like this fine balance, really gotta check that stuff because you know, you could probably get away with having a little bit more dings on the wall or like a little bit rougher carpet and stretch your carpet out a year, you can't get away with not having a furnace. So the carpet the furnace fails, you have to replace it. Right? The carpet you're like, I'll stretch it out.

Dan Austin: [22:27] You know what I mean? Furnace, roof,

Dylan Koch: [22:30] and I'll even throw like gutters in there because water is like the Got for Jesus. All properties. Yeah. Right? Like the Yep. Or the grading around like the side of your house, so it'll just constantly flow into your foundation.

Dan Austin: [22:40] Totally. I agree. Water is the worst thing ever. And that's gutters I found early on were like the cheapest way to make sure your properties don't suck. Before that, I would have never even known houses had gutters on them. Like I I knew they existed, but I never was like, dude, are nice gutters. Like you know I Yeah. Know they're nice. Solid gutters.

Dylan Koch: [22:55] They were seamless. This is where like, what we're talking about though is like the onesie twosies landlords, like this is kind of where some of them get in trouble, is that you know

Dan Austin: [23:04] Oh yeah.

Dylan Koch: [23:05] They don't have the money for the unit turns, now they're renting out at below market value, but you get the tenants that aren't gonna take care of it. It's just a cycle until eventually the property's almost Totally. Destroyed. Absolutely.

Dan Austin: [23:15] We have one right now that we're selling. This is this is actually a funny story I should tell us since we're talking about portfolios. So Mike and I actually have right now, we have one, two, three of our portfolio properties that we're currently we're actively selling right now, we're not selling any of them. But one of them was that exact situation, he was like, if he bought the property, we bought two houses from him, he's like in his eighties, principal only financing, good deal, there are two little houses, two one and one is a one one right next door to each other. And the one we ended up selling and turns out it wasn't that nice, like I mean the whole freaking sub floor was just rotted out like Mhmm. We got into renovating it, we're like, ah, let's just sell this for a profit, we made a little bit of money and so now we have this house next door and the seller financing note on it's like $82,000 left. And every month we write them a check for $600, we were renting it for like 900. But we weren't really doing any maintenance on this thing, it was just kinda running along because we had the full disclosure, we had two developmentally disabled adults in it. And like their siblings were the ones that were like their, I don't know, like, I don't know what you call them, like their guardians. And so they would just pay us each like $450 a month, and these disabled adults lived there.

Dan Austin: [24:27] They had jobs and stuff, but they were, you know, they weren't capable of really truly living on their own. And so because of that, we just never they never said anything. So they move out, and not only did they move out, they're just like, by the way, we're not paying you rent, we're just moving. We're just leaving. And I was like, I don't know about that. And then they just sent me a bunch of pictures of the house and I'm like, well, like we told the previous owner of all these issues. We bought this house like two or three years ago. So they've just been renting from us where they're we told them about all these like electrical issues and this, that. And I was like, first of all, I'm not the previous owner, but also I can't really do anything. Like, what am I gonna do? Like, enforce the lease and be like, you owe me one more month's rent because they're on month to month. Yep. We had leased them originally for like twelve months and then put them on month to month. And anyways, they just freaking moved out. So now we got this house. To get market value out of it, we probably need to put like $25 into it. Right? Maybe more. And that would say get us to 200,000. The notes at 80. So do we really put $25 into it to get 200 or do we try to just sell it as is for like $1.20? You know, that's kinda where we're at because it's like, it's worth the risk to put the money into it? Probably not, let's just try to sell it as is to another investor. So we called the neighbors next door who bought the first house from us to see if they wanna buy this little house from us to see if we could sell because it's a a 400 square foot house like

Dylan Koch: [25:44] Yeah.

Dan Austin: [25:45] Right. There's almost no comps for something that small. Right? It's just kinda tough. And so like, how do we salvage this and make a little bit of money on it? Because it's a great seller financing note, but it's just kind of a funny situation and something you deal with when you buy shitty properties. This is the also thing I contend with on seller financing is like, if your property is a shit ton of CapEx, the seller financing might not be as lucrative because how are you gonna get that out? And this guy did he wanted no prepayment. Like, did not want his money. He's he's in his eighties, he's like, I just need cash and I don't want it all at once. He's like, I want it monthly for whatever reason, taxes and all that stuff. And so you have to be kinda careful, we're paying the price on this one, and we knew that getting into it, but we're we're definitely paying the price on

Dylan Koch: [26:23] Well, and I love your point about like the the creative finance ones. One, if they want equity and stuff, but two, if there's if there's 50 k of work, then you're still coming out of pocket that 50 k no matter what.

Dan Austin: [26:35] No shit. Yeah.

Dylan Koch: [26:36] Unless you're agreeing them to do a second position and taking it first for the re like you can try to get financed with it, but the probability of those going through is slim to none. Absolutely. Yeah. And, okay, so now you do your your your CapEx, like your money in, your cash on cash on that, and I'm assuming it's not worth the 5 percent rate or whatever it is that you're getting.

Dan Austin: [26:54] 0% rate on this one.

Dylan Koch: [26:56] Whatever. Take your cash flow over, you know, that CapEx budget, it's the same thing.

Dan Austin: [26:59] Yeah, totally. You're absolutely right. You're absolutely right. No, point made. Well, outside of that, as we kinda wind down and wrap up, talk about the economic news, how is that going to affect all of your operations here based on, what are you doing differently, if anything, as an operator given the q one data, given the fact that you just spent $30,000 on your rentals?

Dylan Koch: [27:22] Yeah. So one thing is I I try to be data driven in most of stuff that we do. So I'll go back and look at what marketing has worked, what hasn't worked. And historically, you know, it's the same list, you know, high equity, absentee is still are like almost 50% of our deal flow. Direct mail is still most of the deal sourcing. So I'll continue to do more of the same. My biggest like hesitation, I guess, is it comes from some of my go to buyers being less aggressive.

Dan Austin: [27:50] Yeah.

Dylan Koch: [27:51] So am I willing to take the properties down, or at least source new buyers to take on some of these deals? And I'm looking at the stuff that I have like under escrow right now, and this is pretty true for most of the stuff I market to, is if I need to, I can turn them into rentals and at least break even or lose a couple $100 a month almost every month. Right. And I'm okay with that. So to answer your question, I'll keep doing more of the same on the marketing and lead gen side, but I might be more taking some of these down either whole tailing or flipping versus assigning.

Dan Austin: [28:25] Do you see there being any option for you, because I like what you're saying and I definitely understand why you're saying it. Is there any reason why maybe you would bring on some investor cash to help facilitate that like acquisition of a bunch of great properties at a

Dylan Koch: [28:40] great time in the market? Do you mean like a private lender?

Dan Austin: [28:44] Like for long term financing. Like, hey Mhmm. I can buy 10 properties this year, I'm gonna go raise a million dollars for that, and then I'm going to own, you know, half of them. Half, you know, 50% ownership, but you're bringing no money, you're just bringing the deal.

Dylan Koch: [28:56] Oh, I see what you're saying. Yeah. I hadn't thought about that, but that's that's an option. Yeah. Especially if liquidity was low or something, like I would see that as a creative solution.

Dan Austin: [29:07] Right, yeah. And I bring that up because it's like, if you're a deal sourcer, you're almost in a conundrum if you have a hard time with the exit. We've obviously, we're going through our own dispo, like growing pains and like different things, where you're like, why aren't they buying this deal, and then you know, so you're dropping some, and you're renegotiating some, and for the most part, we're still moving things pretty well, but come a time where you know it's a good deal, but you eventually run out of cash, or you wanna keep your cash reserves for operating your deal gen, but you don't wanna give all these deals. Like Mike and I, you know, we've had handful of guys over the years, you know, like pretty, I would say wealthy wealthy people with deeper pockets to be like, why are you even passing on a single deal? Why do you even sell any of Just buy them all. And it's like, well, obviously, I would love to buy them all. But a, the cash it takes to buy them all and keep them, and and the cash reserves it takes to mitigate any risk of $30,000 bills, is larger than most of us can handle as we're growing a portfolio, as we're scaling up our wholesaling and flipping operations, there's just so much only so much money.

Dylan Koch: [30:04] Yeah. So much money and so much time. I mean, holding stuff is a different business. And yes, you can have a property manager, but you still have to like know what their job is, so that you can do it. And if you're just starting, I would I would recommend you you manage your own, at least for a couple, you know, a year or two just so another ropes.

Dan Austin: [30:20] It helps a ton,

Dylan Koch: [30:22] for sure. So that's an idea. I'm assuming with some of the connections that we could do, out of pocket, $0, own 50%. And then you structure those as JV's or separate LLC's, guess that's the other question for another day. Heads But turning now I guess, brains turning.

Mike DeHaan: [30:36] Yeah.

Dan Austin: [30:37] Right. Yeah. If you're out there and you're thinking like, hey, I can source deals, I just I know I'm gonna run out of cash.

Dylan Koch: [30:42] Isn't that what like Cam Cathcart doesn't need to

Dan Austin: [30:43] do something similar to that? He raised a fund from he, Mike and I were talking to him, I don't know when this was, but he had kinda talked about having a handful of people in a fund that he was able to raise, and I can't remember how much, it was multiple sub figures, and that was kind of the idea of for him, because he's not really big into wholesaling, he's just kind of flips or keeps everything, he does wholesale though

Dylan Koch: [31:03] Yeah.

Dan Austin: [31:03] But he's just not, that's not his go to strategy and so, he just saw an opportunity in the market of like, I've got all these guys that really need to place money, but don't wanna do it on the single family residential like deal sourcing side, he's like, but I'm good at that. So he sourced a bunch of properties and then basically the fund bought them and then he threw them, he also has a property management company, so like just threw them under that, know, if you have the systems in place and you know how to find deals, you could do a lot here, you could buy a lot of properties. Even ones like, think about this, like, you're at that 80% of value, right? You're like, god, but if I have to get hard money and I have to burn this, and then I'm basically, I'm not getting my money out. Well, when that factor is gone, and you're basically, you can go and buy Apple stock for a 20% discount, why wouldn't you go and get every loan you can that anybody will ever give you, you know what I mean? Like, absolutely.

Dylan Koch: [31:54] Yeah. I mean, a $250,000, let's say, rehab project, acquisition in rehab at Yeah. 12 standard hard money rates for six months, that's $20. Like Yeah.

Dan Austin: [32:05] Exactly.

Dylan Koch: [32:05] You know, so, no that's a good point. And then you're, let's say you buy a $250,000 house for 200,000 or 50,000 in equity with no money out, you just keep adding those, it's not a

Dan Austin: [32:16] bad gig. Well, here's also, it's kind of top of mind for me, I was just on a call, I was meeting with a GoBundance guy today, he runs a private money business, which Mike and I have been scaling our private money business, and now he has quite a bit more experience. And he was just talking about, and this is something that I guess we've been seeing at least Mike and I have observed anyways from our purview, is there's a lot of money going into the buy and hold side right now. When I say money, mean institutional dollars coming there to support that industry. And so the flipping, the the residential fix and flip, they'll love to loan on it because that's great margins, but there's just not as many people right now buying deals from guys like Dylan and I. Right? And so they're not able to do as many loans there. But on the DSCR side of things, the rates is getting there's as more and more money come in, the rates are getting more and more competitive. Sure. And so you're seeing lower enroll rates on the DSCR side, even with like shorter prepayment penalties, like two years and stuff like that, you're starting to see compared to I feel like when Mike and I were first doing this, we'd go and get commercial loans from our bank all the time, but they're like five seven year arms, all that And so it's like, they're great rates, they're local, they're easy to get.

Dan Austin: [33:29] But then as we got into the DSCR side, was just like, goddamn, they rake you over the coals on all your fees, on all the prepayment penalties, all that stuff. For now, like you're not seeing hardly any of it, the fees are not that, they're nowhere near what they used to be, and and it's because it's getting more and more competitive with the institutional dollars who are competing for those of you listening to this podcast that have a portfolio, because they not only see you as, like, a person with experience, they see you as a person with assets usually. Yeah. Like, Dylan has this many properties versus FHA buyer who has one property. Do I wanna buy a mortgage backed security off of an FHA bundle, or do I wanna buy these? And these are becoming so much more

Dylan Koch: [34:07] Yeah. More competitive. Yep. Who has 50% equity position, you know, and stuff like that.

Dan Austin: [34:13] Exactly.

Dylan Koch: [34:13] I actually just sent Mike a guy today that is in GoBundance that is considering like he owns, I bet it's about 5,000,000 worth of real estate that's paid off. And he wants to maybe take out like a 50% LTV, so he can redeploy that money, because his r he has his cash on cash and his return on It's equity nothing.

Dan Austin: [34:31] Right. Exactly.

Dylan Koch: [34:32] Pull out enough to break even. Right, so he's not losing any money every month, but then he's gonna redeploy 250 k in whatever or 2,500,000 in whatever he wants.

Dan Austin: [34:41] Absolutely. Yeah. That's smart idea and when you have and that that's just for the audience, just from for knowledge too. When you have that great of an LTV, you get really good rates. They really really favor experience and they really really favor LTV. Like credit by experience also, it's like kind of throwing credit score in there. Like if you have a higher higher credit score like above, you know, 680 or 700, that helps along with your experience. But the LTV is what's going to swing your rates. You'll get rates in the sixes right now with like a 50% LTV, it's pretty awesome. Which is which is unheard of.

Dylan Koch: [35:09] Here's a on that experience, this experience statement made me think of this and this is just a tidbit for the audience. My insurance broker told me that if your property is professionally managed, you get a slightly better rate on your premiums, on your insurance premiums.

Dan Austin: [35:23] No shit.

Dylan Koch: [35:24] Like even though I self manage, I should create a property management LLC Yeah. That that way I can say it is professionally managed and then get better insurance

Dan Austin: [35:32] rates. Absolutely.

Dylan Koch: [35:33] Just just something that's a little I never had thought about until about a week ago.

Dan Austin: [35:38] I didn't even know that was yeah. Didn't know that was a thing. That's good to know. Because especially if you have a large enough amount of properties, I mean, if that comes into like a 5% reduction in your premium every single month across all your property, that's huge cash flow. Real money. That's money. That's cash money gold dude. I wish I had a sound effect for that.

Dylan Koch: [35:53] But do you have anything else, Dan? I didn't have much else to report on today.

Dan Austin: [35:57] No. No. I think I really just wanted to talk about all of like the the GDP, the jobs, and kind of like, I don't think it's as bad as it looks. You know what I mean? And so it's kinda interesting. It's like a slower it's like a slower landing, and I think you and I probably would agree on this. I think that we're probably heading into a recession. The question for me is not how deep a recession. The question for me is is like, where is it affecting me in my business? And I'm wondering if it's gonna not affect me as much. The only place that's probably affecting me right now personally is my new construction project that I've delayed. Not because I didn't wanna start this spring, because I'm I'm in a permitting delay and it's freaking it's I'm in like the goddamn matrix right now with it. So I'm pushing it to the fall to start that. But I'm hearing, you know, okay, the the builder sentiment's going down because of the the worries about tariffs and imports and all that sort of stuff.

Dylan Koch: [36:45] Yeah. And that just is probably a material thing, right?

Dan Austin: [36:47] I think so. I think so. And I think people get uncomfortable because they perceive that if the market goes down, that people will less likely go buy new construction. But at the same time, on that side of things, like if you're if you're going into new construction, right, you're competing against existing product. The new construction will always trade at a higher cost, but if anything, it'll trade at the same cost as the other stuff. And so as long as you have profits built in, they're just not as big. And if if you're

Dylan Koch: [37:13] a one off builder like what you're doing Dan, that's not nearly gonna affect you as someone who's a national homebuilder. Right.

Dan Austin: [37:20] And the thing that national homebuilders have now that they've freaking figured out is they'll just restrict it. They'll just stop building, and then sell off what they have at the current prices, and they have all the hedge fund money backing them to say, we're gonna offer everybody a $30,000 incentive to buy this house, so they can clear their inventory. They'll clear it at breakeven, or maybe they'll clear it at three or 4% loss, so that but they know they can now reset, and then build the next 50 to a 100 homes in that project at a different pricing structure. And so, it's a they've I really strongly believe they figured out, I don't think that we're going to see anytime soon, these national homebuilders go belly up. I think they truly have enough money behind them now and I feel like they've figured that out to where they can just restrict supply, they can do whatever the hell they want.

Dylan Koch: [38:03] Yep, makes sense. It it is crazy how much like pull they get with like local jurisdictions, like we wanna

Dan Austin: [38:08] Oh, yeah.

Dylan Koch: [38:08] Like if you went to somewhere like you're in this permitting hell, I feel like if one of their reps went in be like, we wanna build a subdivision over here, they'd be like, we'll have you ready by next week.

Dan Austin: [38:16] Exactly. Dude, well they have, they'll come, like, Horton will come in, they'll put a, they'll have a big giant office with all their people, they have one person that just works permits, and the interesting thing is is, the reason why it's tricky in Washington, this audience, you're probably bored at this point, you're gonna sign out, but in Washington, we have a bunch of energy codes that have recently changed and continue to change, and it's really boggling the designers here in Spokane, like where I'm at, they don't really know how to handle it yet because it's all fresh, and then the city itself is changing their minds on things, and so like, we have to build these houses super highly energy efficient, you might, sometimes that means you have to put solar panels on them just to meet code. And the problem is is you have these national homebuilders here will go literally put up a cardboard box, but somehow pass all their inspections, and that's the highest highest energy efficiency thing. And I'm just trying to build a house that passes freaking inspection.

Dylan Koch: [39:04] Yep. Tale as old as time.

Dan Austin: [39:05] Tale as old as time. Alright, everybody. Have a great rest of your week. See y'all. See you.

Mike DeHaan: [39:13] Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at Investor Man. Dan and Dylan is at Dylan underscore Does underscore Deals. Choose to follow and send us a DM to let us know what you think of the show.