How to Structure a Rental Portfolio That Cash Flows

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 we'll see if you're a good fit. With what I expect the market to do over the next five to ten years, it is highly possible that anyone that's holding for quote, unquote appreciation, just the net sum total is gonna cost to maintain the property and have your turnover and throw the new roof on and and do all these things is going to be more than the actual appreciation on a lot of houses. What's going on, guys? Welcome to today's episode of the collecting geese real estate investing podcast. Today is Wednesday. It's the off market operator radio show, and this is the show where we talk about making massive income, not just passive income with your real estate investing business.

Mike DeHaan: [1:17] If this is your first time here, I am Mike DeHaan here with my cohost, Dan Austin Who? And Dylan Cook. And on these Wednesday shows, we like to talk about real estate investing business and whatever else we feel like for the week. And so we are here going into, I guess, this point, halfway into the first month of q four, and we're chatting before the show about our rental portfolios. And we all have the same interesting situation of like, if you look at the top line of our rental portfolios, we're all doing pretty dang well. So, like, Dylan, you said that you have done about $300,000 gross on your rentals. I pulled up Dan and I's numbers. And if you include stuff that Dan and I joint own together and my private ones, about 45,000 a month gross. And yet none of us are actually taking home any money. And, like, why is that? You guys aren't?

Dan Austin: [2:11] You guys aren't making money?

Dylan Koch: [2:12] Dan's been collecting rent at the doorsteps.

Dan Austin: [2:14] Yeah. Yeah. Exactly. Cash cash, baby.

Mike DeHaan: [2:17] It's been embezzling it. But no. It's this it's this phenomenon, though, that I don't wanna say it's, like, unique for, like, right now. I just feel like that a lot of us that have only been in the game for, like, five years, maybe this is our first exposure to it of you have all this money that comes in, But after mortgages, which everyone understands. Right? But the increases in taxes and just maintaining the properties and the actual true expense to repair all the stuff you're supposed to repair, it's actually really freaking hard to, like, make actual money with a rental portfolio. And what's the point, I guess? I don't know. Is there a point? There's a point. Right?

Dan Austin: [2:54] There's a point.

Dylan Koch: [2:55] I think the the main difference I would wanna get across is if I look at my rental portfolio on like a underwriting perspective, like, you know, on paper taking the ghost expenses off, we should make, I don't know, $89,000 a month in net cash flow. Yeah. And then at the end of the year, you're like, okay, you made $10,000 the entire year. So where the hell did the money go? And a lot of that is CapEx and repairs and this shit that pops up during your length of ownership.

Dan Austin: [3:21] Yeah. Do you think you could cull the herd, as they say, and like have like a really tight, strong cash flowing portfolio that would get you like 8,000 a month if you sold off a bunch of shit?

Dylan Koch: [3:31] I think going that route, it'd basically be like selling everything, recapturing the equity, and ten thirty one ing into probably like a triple net or like something like commercial deal that would just be net on net.

Dan Austin: [3:40] So you don't have like the gems, like the stars of your portfolio, and then the dogs that are dragging you down? It's like Mike and I have kind of that. Like, we have a dichotomy in our portfolio.

Dylan Koch: [3:49] There are two properties, my two four units that are right next to each other that I freaking love. Yeah. They kill it. And they there's room to go up on those too by, like, a lot. Like, as far as rent income goes. But so, yeah, I could guess sell off some of the beaters and just reinvest and pay those off.

Dan Austin: [4:04] But

Mike DeHaan: [4:04] Yeah. That's a valid point, though, Dan, because I guess if you only took, like, our handful of really strong properties, it would make money, but they are dragged down by the rest of the ones in the portfolio that do have recurring issues for whatever reason.

Dan Austin: [4:17] Totally right. It's like shit that you can't even freaking guess is gonna happen.

Mike DeHaan: [4:21] Well, the funny thing is too is it's not even like it's neighborhood related or it's like it's always the bad tenants. I because know one of our best portfolio duplex is in the worst part

Dan Austin: [4:30] of town. Yeah. Our first tenant, Mike, I just got a call. You remember at Schmaddam? We've been there? Yeah. They're moving out. Like, this is our this is a good story. This is how Mike and I are great people. So we buy this duplex. It's our first property we bought together. Right? I mean, this is the first property we actually truly bought as an off market deal.

Mike DeHaan: [4:48] That also almost sunk us because we bought it way too early.

Dan Austin: [4:52] This is the iconic property that almost sunk the the Mike and Dan story that never would would have been. And we remodeled this thing, beautiful, after the tenants, the current tenants moved out. And when was that? 2020?

Mike DeHaan: [5:04] That was 2020.

Dan Austin: [5:04] No point to that story, but I just wanted to bring that up.

Mike DeHaan: [5:06] Well, we print money in that property. Right?

Dan Austin: [5:08] We print money on that property. We do.

Mike DeHaan: [5:10] And, you know, a big part of it is we bought it at such a good discount. We added value to it. You know, it's prices have gone up. Right? Rents have gone up and everything else. But then we also own things that are in, like, a class neighborhoods that on paper look like much better assets, and we just lose our ass on them constantly.

Dan Austin: [5:28] Yeah. Right? That's just Murphy's Law too sometimes. We've had that basement on our beautiful a class property in the best part of Spokane that's flooded four times now, all for different reasons. You would think, okay. It flooded four times. Fixed your property. No. It's for all different reasons.

Mike DeHaan: [5:43] This is stuff you can't even control, and that's an extreme example. But even my own personal rentals, I have two that are literally in the best neighborhood in North Spokane. And the problem with those ones is because they are in an a class area where I have a higher rental rate and I get higher income earning tenants, the churn is significantly higher. I've owned the properties for six years, and I have had six different tenants in each one. Mhmm. And every time that happens, there's a month of vacancy. There's always shit that needs to be fixed. There's random odds and ends. Plus, those properties have appreciated a ton, so my taxes have increased an ungodly amount. Yep. And all of sudden, I'm not making any money with these things. Right? And honestly, I just got lucky where I have huge gains just because I bought them before the market went stupid.

Dan Austin: [6:25] I will say the caveat to this conversation for me personally is my student rentals are kicking ass right now.

Dylan Koch: [6:30] I bet.

Dan Austin: [6:30] And I think I think I still have room to grow on rents, and I really increased the rents quite a bit on those.

Mike DeHaan: [6:36] But you also bought those a long time ago.

Dylan Koch: [6:38] Yeah.

Mike DeHaan: [6:38] You bought those in 2016 and '20, what, '18?

Dan Austin: [6:41] Yeah. About then. Yeah. Yeah. I did buy a them long time ago.

Dylan Koch: [6:44] Did you refinance them all since then?

Dan Austin: [6:45] I have. I refinanced at a 3% rates Jesus. Was that two years ago into, like, five and a half or 6% rates, which my cash flow kinda dipped a little bit and because then taxes and everything went up too. And I was

Dylan Koch: [6:57] like Yeah. But what you I'm sure you cashed out a decent amount from those.

Dan Austin: [7:00] Yeah. I cashed out like was it like, sort of like rent close to 300,000 or something like that out the two

Mike DeHaan: [7:05] of them.

Dylan Koch: [7:05] See. And that's worth more than the cash flow for how many years. Right?

Dan Austin: [7:08] And that's why I did it because then I was able to make a ton off of that money. But then rents in that market jumped up really quickly, and and that is not typical of the Spokane market. It's like we're almost like a step function. Like, we're always getting a premium as a student rental, but then it kinda flattened out because I think a bunch of people came into the market to be landlords. Mhmm. And then finally realized, oh, this is not making money. So then we stepped up another like $500 a month, which is huge for my cash flow. However, I know enough to know that I don't get to spend that cash flow because there is a looming CapEx, definitely on one of them, at least one or two CapEx items that are gonna kill me, you know, in the next five years at some point.

Dylan Koch: [7:47] So that two things. One is, I mean, 80% of my calls related or water related, should say. So if you're a new investor, update the plumbing. I don't care if

Dan Austin: [7:55] it

Dylan Koch: [7:55] costs more. Always do that. Yeah. Second thing is, I guess the question is, like Mike was getting to this selling his or do you have enough room to cash out refinance, still be cash flow positive? And now that that money that you're bringing in from that, that's tax free. You're even that's that Yeah. Tax free money.

Mike DeHaan: [8:12] Totally.

Dylan Koch: [8:13] Yes.

Mike DeHaan: [8:13] But then the the problem is is like how much cash are you giving up? Because your cash flow is ultimately your insurance on these things. You might actually have to spend that money to fix things up. Because the only reason that our rentals aren't a big loss and are just like a basically a breakeven for the year is because we have that cash flow. Yes. Yep. Right? And so we could do another cash out refinance on some of these and get a higher interest rate and have no cash flow, especially because there are lenders right now that are advertising. They'll do a less than one DSCR DSCR. Loan.

Dylan Koch: [8:44] To me. But

Mike DeHaan: [8:44] Yeah. I mean, this is what they're willing to do, I guess. Then, like, you're gonna literally be losing on that.

Dan Austin: [8:51] Yeah. Which is scary, by the way. And that's not good to do.

Mike DeHaan: [8:54] No. But one of the the things that does make me kinda wonder about the, I would say, the, like, ish term. I won't say long long term, but, like, middlish term value of rental properties is I do really think that just with what I expect the market to do over the next five to ten years, that it is highly possible that anyone that's holding for quote, unquote appreciation, just the net sum total is gonna cost to maintain the property and have your turnover and throw the new roof on in ten years and do all these things is going to be more than the actual appreciation on a lot of houses. Like, think about it. Right? If you have a $300,000 house right now, that's gonna grow 10% over the next five years, it's gonna increase by $30, there's a pretty good chance that you're gonna have to spend $30,000 just to keep that property not shitty over those five years. Right? It's only $6 a year for

Dan Austin: [9:45] each one.

Mike DeHaan: [9:46] And if you have, like, one major item that comes up, which if you live anywhere with weather Florida. You have tenant turnover, that's gonna happen. Right? You know, I have to replace the HVAC, air conditioning, the roof, whatever it is. You know, it throws a new paint on the outside. Each of those items will cost $6,000 or more.

Dan Austin: [10:02] Mhmm. Yeah. Things aren't things aren't cheap.

Dylan Koch: [10:04] Yeah. For the forever investor, I guess they could refinance, take out their fifty year end of refinance, do those CapEx items so they get another five to ten years and just have their money parked in real estate, but that's going back to an opportunity cost like or could you just take that money and reinvest it at a higher return somewhere else?

Mike DeHaan: [10:20] You could. And I would say for the forever investor, all they're doing is they are taking their future problems, and they're ignoring them. So they can do whatever they wanna do right now.

Dan Austin: [10:28] Or the caveat being to that, I guess, would be is like you wanna diversify your capital. Right?

Mike DeHaan: [10:34] Mhmm.

Dan Austin: [10:35] So if you're just chasing ROI, you're never going to really truly diversify unless you're actually, like, diversifying your ROI. Right? Because, like, if I should've been invested in Bitcoin, like, Dilpill over here, you know, like

Dylan Koch: [10:47] Yeah. But how many are like, even GoBundance guys, how many of, like most of the people who are in that group, 80% plus are probably in there because of real estate. And they're one trick ponies, though.

Dan Austin: [10:56] Yeah. Well, then they've got their wealth because of real estate. Yeah. They are one

Dylan Koch: [10:58] trick Not many of them have any kind of traditional, you know, stock portfolios, crypto portfolios. No. Whatever it may be. They're just like, I'm real estate, that's it.

Dan Austin: [11:07] Yeah. Yeah. Which I don't think is a great idea at all.

Mike DeHaan: [11:09] No. I don't think so either.

Dan Austin: [11:11] You always look back and be like, well, I'm glad I own this asset, but you might have been more glad to own a different asset when you're talking to your buddy who bought something else at that same over that same time period that had a much higher ROI.

Mike DeHaan: [11:22] Totally. So if I'm looking at, like, residential real estate, I think that the way if you're, like, a serious investor slash real estate entrepreneur or you're someone that, like, wants to figure out the max value for your money, what the play really should be is you buy it at a heavy discount on day one, and you create some value. You know? So you can, like, burr refinance out as much of your money as you can. You keep it as a rental property for the lifetime of the renovation that you did, right, which will probably be relatively short since you probably did a cheaper renovation like most landlords do. And then once you get to, like, that four to seven year standpoint, you look to sell them and pass it on to the next guy because that is then it can become their problem. It can become their value add opportunity. Right? Yeah. And then you can realize your gains, cash out on that equity that you forged when you bought at that discount, and move it on to something else where you get a better return.

Dylan Koch: [12:14] Are you in that theoretical situation? Are you ten thirty one ing those proceeds into something else, or are you just paying the taxes and trying to redeploy that capital somewhere else?

Mike DeHaan: [12:22] I think that depends. This is something from my accountant when I tried to ten thirty one last year, and I was about to buy a deal that was super mediocre, and I'm really glad that I didn't in hindsight.

Dan Austin: [12:31] Yep.

Mike DeHaan: [12:31] And my accountant was like, hey, dude. I was like, I honestly recommend instead of buying that deal, just pay the taxes. He's like, I can't tell you how many investors I've worked with that have bought a shitty deal with doing ten thirty one trying not to pay taxes and end up losing more money.

Dylan Koch: [12:45] Yeah. Then they would have saved you just from paying the freaking taxes.

Mike DeHaan: [12:48] Yeah. Totally.

Dylan Koch: [12:49] And what people don't realize too, like, if you ten thirty one a small property and you keep keep doing that, that final property, I don't care how much equity you have. You you have so much tax, like, buildup there that you're and you're gonna be upside down.

Dan Austin: [13:01] You basically have to die so your kids don't pay the tax. Yes. I mean, that's the play at that point in time. Like, you don't personally necessarily get any benefit off of that. That's the whole ten thirty one till you die kind of concept, I guess.

Mike DeHaan: [13:11] Totally. Well, also too, I think something that people tend to ignore when they do ten thirty ones is what the actual cost is to transact real estate on both sides.

Dan Austin: [13:19] The transactional cost?

Mike DeHaan: [13:20] So, like, when I went and I was gonna do my ten thirty one, once I got into all the costs to sell the property that I sell the properties that I sold and buy the properties I was gonna buy with the loan costs and all the other just, like, bullshit that was involved in it, it ultimately came around to the point that I was going to be, like, only saving, like, $12. Right?

Dan Austin: [13:42] Yeah.

Mike DeHaan: [13:43] Versus if I just paid the taxes, it was

Dan Austin: [13:45] like a 60 Go wholesale deal.

Mike DeHaan: [13:46] Yeah. It was like $60,000 in taxes I was trying to avoid. And instead, I was going to be not really saving that much at all. And so I was like, why might as well just take the money?

Dan Austin: [13:56] Which, I mean, $60 taxes sounds terrible, but when you get down to it, it's not that bad once you have all the sales costs, all the buying costs, the risk of buying a shitty deal, all the $10.31 costs because it's not free to do a ten thirty one exchange. You know what I mean? And the headache of doing it. Sometimes just paying the taxes.

Dylan Koch: [14:12] That's what I'm trying to figure. I did ten thirty one, one of my single families, into my 13 unit. I'm trying to look up real quick what it cost to do it. I don't know. There's a couple grand, I think.

Mike DeHaan: [14:21] The actual $10.31 itself isn't that bad. It's been getting, like, the loan cost and everything else, especially the DSCR loan and then doing the inspection.

Dylan Koch: [14:27] And Oh, yeah. Yeah. I see what you're saying. They charge two points just origination fees just to do the freaking loan.

Dan Austin: [14:32] Yeah. Exactly. Just

Mike DeHaan: [14:34] dumb stuff. So, anyways, I don't know. It's just I think that the big lesson I I did a whole episode on my YouTube in a previous Friday folks around this around, like, how I'm planning to sell my rentals. I think, you know, there's no right or wrong answer. Just make sure that you actually know what your returns are. You know? And and other people are talking about this too. Like, it's funny. I was saying to Dylan before he hopped on, Brandon Turner did a post on his Instagram, it's like yesterday, talking about how you never really get real cash flow on rental on residential rental properties because, you if know, you're doing $3 a month, there's eventually gonna be a $3,000 thing you're gonna have to pay for. Yeah.

Dan Austin: [15:09] Yeah.

Mike DeHaan: [15:10] And the thing that was so funny to me was his post is 100% accurate. He was getting shredded by people in the comments that are like, well, then why did you spend a decade telling people to buy properties then? It's like, well, because 2024 is very different than 2014 when he started making real estate content.

Dan Austin: [15:26] And total and when he when he only needed $3,000 a month in cash flow to survive, that was probably fine.

Mike DeHaan: [15:31] Right? Exactly.

Dan Austin: [15:32] When your mindset changes too. It's just the reality of the situation. Like, buying real estate for long term rental properties is always an option, but you really have to know why you're doing it. Mhmm. Like, is your ultimate goal? Because if you're listening listening to the people, make sure you know who you're listening to that are saying go buy rental properties. Like, why are they saying that? And does that actually apply to you? And what are they actually getting? Because, I mean I mean, we all started here buying rental properties, we Dylan, you're still buying rental properties. Don't think Mike and I have bought have we bought a buy and hold recently, like, year or I don't think we have. We sold more than we've purchased for sure. And I think it just you have to understand what you're shooting for, what you're going for. And if you want diversified place to put some money, I think real estate is still a great place. You do get the tax benefits or some other great things, some leverage and all that stuff. But, like, if you're thinking cash flow is your play or it's gonna take over some shit, that's not at all the right thing to do.

Dylan Koch: [16:23] And the last thing I I probably wanna say on this is there's gurus out there and people who I guess we know probably a little bit personally that who are trying to sell you a turnkey deal or trying to sell you a deal. Mhmm. They'll include like that depreciation and the principal pay down in their ROI metrics. And just know that's not how you should calculate that. Your ROI is gonna be much lower with those two pieces of information in the input side

Dan Austin: [16:47] of that equation. Exactly.

Mike DeHaan: [16:49] Well, and I think the reason people get into rental properties though is typically because they're, you know, some kind of white collar employee that feels like if they buy all these assets, they're not gonna have to work as hard. But a lot of us know as you get into this game, I mean, it's significantly more work than you ever expected when you got into it. The problem is you see all these, you know, dorks on Instagram or whatever who talk about how they used their rental properties to, like, retire and move to Dubai, which I'm don't know why it's always fucking Dubai.

Dan Austin: [17:18] Sounds incredibly hard to do. I don't know that you can do that. Dubai has, like, one of the highest, like, annual incomes of any country in the world.

Mike DeHaan: [17:25] So there's this whole thing right now that I am certain we're going in a whole different direction I was expecting to go with this.

Dan Austin: [17:30] Sorry to distract this. I knew where you would wanna go.

Mike DeHaan: [17:32] With the Dubai thing, I am convinced that the leaders, fuck, kings, whatever, of Dubai

Dan Austin: [17:39] are currently United Arab Emirates. There's several there's several Emirates. Did you know that?

Mike DeHaan: [17:44] But Dubai specifically, whichever ones whichever whichever ones lead there.

Dan Austin: [17:48] No. I know. I know. I get what you're saying.

Mike DeHaan: [17:49] I'm pretty sure that they have hired influencers to talk about, like, their new lives that they're making in Dubai to try and get people to move there.

Dan Austin: [17:57] Yeah.

Mike DeHaan: [17:57] Because there's so many, like, random, like, c and d list fucking influencers

Dan Austin: [18:02] Yeah.

Mike DeHaan: [18:02] That are, like, all of a sudden, like, moving there and are just posting about it constantly. And I'm like, okay, guys. Really? Just like one day, you were like, man, what if I could have slaves and hit women and not go to jail? Let's move here. Like,

Dylan Koch: [18:14] dude, it

Mike DeHaan: [18:14] doesn't make any sense. Or you're just

Dylan Koch: [18:17] a really attractive woman wearing, like, 10% clothing. That's the only other piece that's over there.

Dan Austin: [18:21] Well, what's the beauty

Mike DeHaan: [18:22] of it? They're they're bought, dude, to be there. Like, they're there to hang out with the Yeah. Princes.

Dan Austin: [18:26] Well, it's like all this stuff that The Middle East is paying for. Right? Like, Saudi Arabia's in this game. Right? They're, you buying live golf, all this sort of stuff, all the sports. Like, they're really trying to pump it up, dude.

Mike DeHaan: [18:35] And now they're buying the, like, real estate influencers to go and and move there.

Dan Austin: [18:39] Yeah.

Mike DeHaan: [18:40] You know what? Who I saw recently, which is so random, was

Dan Austin: [18:43] Oh. Oh, Nick Sennett. Yeah.

Mike DeHaan: [18:45] The one that the one that Steve brought out to the meetup that we did.

Dan Austin: [18:49] Don't say anything bad about him, Mike.

Mike DeHaan: [18:51] Hey. He was a super nice guy. Right?

Dan Austin: [18:54] He has

Mike DeHaan: [18:54] little thing. If you guys can go look him up. But he, like, recently moved there, and he has, like, this whole thing. And he's just constantly posting about his new life that he found there.

Dan Austin: [19:01] I guarantee he's getting paid to do that.

Mike DeHaan: [19:03] Absolutely. He's 100% the guy that would get bought Yeah. To go and do that because all of a sudden his speeches are less impactful because he no longer works with Tony Robbins.

Dan Austin: [19:11] I mean, let's be honest. Like, Dubai's got some cool shit, but it's not It's not America. No. No. It's got some, like, cool buildings and stuff.

Dylan Koch: [19:18] Yeah. Didn't they control the weather or some shit?

Dan Austin: [19:20] They try to because they have to because it's too hot there. Like, nobody's willingly moving from America that that has, a good established life in America to Dubai full time.

Mike DeHaan: [19:30] Based on Instagram, you're wrong, Dan. I gotta shut up, dude. Like, whatever. Yeah. So but, anyway, like, I don't know. The going back to the rental property thing, though, I think people get into that because they have this illusion that if they get into real estate, they're not gonna have to work as hard. They're gonna be able to spend more time with their kids and all sort of stuff, which can absolutely be true. But that's after you get rich. That's not during, like, the grind phase when you get your $5,000 a month cash flow, which is what everyone says their goal is when they come and they join scale. And then all of a sudden they get to that, and they're like, oh, shit. I'm actually still poor because it's not as much money as I thought it was gonna be.

Dylan Koch: [20:06] Yeah. That's not as not enough money. And if you don't have reserves, like, you're screwed if anything we just talked about in the past thirty minutes comes Yeah.

Mike DeHaan: [20:12] I know. So yeah. It's it's a weird thing. I mean, I think that now more than ever, it's important that if you want any level of success is you have to approach your finances like a business owner, right, and from like a mature level. Well Just like the level of financial intelligence out there is so much higher, and you're competing with all those people.

Dylan Koch: [20:32] Mhmm. Yes.

Dan Austin: [20:33] Say going back to the point though we were making earlier is like, and realize it's gonna be a lot of hard work. Like, there's a lot of people that started their own brick and mortar businesses, and they'll tell you, you know, then maybe they're 67 years old now, and all the hard work and the sleepless nights that they had, it's not really that any different just because a Instagram influencer got you to sign up for for, you know, wholesaling and off market real estate. Like, it's freaking hard work, and I don't I think people underestimate the amount of hard work it takes.

Dylan Koch: [20:57] There are things in life that for example, pharmacy school is a good example of this. If halfway through, if I would have known how hard it was, I don't know if I would have signed up at the beginning. Honestly, starting this wholesale, like, business is, like, similar to that. If you because you don't know how much energy and time it is actually needed to start this thing. Once you're established, it's a little bit better. You're like, man, I'm proud of myself. I'm glad I did that. But it's freaking hard.

Mike DeHaan: [21:19] Oh, yeah. I mean, it's funny. Especially a couple years ago when we were first starting to make the podcast and stuff, people would always ask, like, how we grew so quickly. And the honest truth, which sounds like such a baby boomer answer, is we worked for twelve to fourteen hours a day pretty much every single day for, like, three years. Yeah. And then it finally came together. Like, I can't tell you how many conversations Dan and I have had via Slack at, like, 09:30PM on a fucking Saturday.

Dan Austin: [21:47] Yeah. Yep.

Mike DeHaan: [21:48] Right? Like, that's just part of the game. Yep. Yep.

Dan Austin: [21:51] And if you yeah. If you gotta like the game a little bit. Right? You can't just, like, think you wanna show up and you want like, lifestyle business where you can sit at a computer and just make money. That's not how it works. You know?

Mike DeHaan: [22:01] Yeah. You know, if you want that, go and find the next MLM and try to be at the top, and you can build your downline, and then you could just con a bunch of people into paying your bills.

Dan Austin: [22:08] Right.

Dylan Koch: [22:09] Did I ever tell you guys, one of the very first meetups I went to, this would've been, 2017, 2018. I was talking to an older guy there, simply because I like, oh, he's old. He probably owns a bunch of properties. And he's like, oh, I've been coming to this thing for, like, twenty years. Like, how many you know, how much do you own? He's like, oh, I'm still waiting for the first one.

Mike DeHaan: [22:23] Oh.

Dylan Koch: [22:23] And I'm just like and I was like, okay.

Mike DeHaan: [22:26] That was all I'm god.

Dan Austin: [22:27] That's pretty intense.

Dylan Koch: [22:29] And, yeah, I don't know if he blamed his wife or something. I'm like, oh my god. Like, how much information do you think you actually need before you actually just pull the freaking trigger?

Dan Austin: [22:35] No shit. If he would've just saved a dollar a day.

Dylan Koch: [22:37] Anything he would've bought twenty years ago would've been quadruple the amount.

Dan Austin: [22:41] Yes. Oh my gosh.

Mike DeHaan: [22:43] Yep. That's funny. 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 any ways that 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. That'd be awesome. But appreciate everyone, and thanks so much for helping us grow. I remember the first meetup I ever went to here was run by a guy named Chris McIntosh. Oh, remember old Chris? Oh, yeah, dude. Literal criminal. You can go and give him a Google. But, basically, his entire thing was him pitching newbies into giving him money to do deals, and then he would just not actually do the deal and just steal their money.

Dan Austin: [23:55] Yeah. And that was like you like, even back then though, like, there was still some of that, like, creepy guru shit going on in, meetups. I think BiggerPockets actually did a good job of turning the tide on that by, like, having people start their own BiggerPockets type meetups. It just changed that. But, yeah, before it was like, well, let me go pay this guru, give him my credit card, and he'll figure it out. And, like, he that dude was doing, like, one on one coaching, like, in his house, like, in the evenings. He was like, this is getting real weird.

Dylan Koch: [24:19] He's a he's a guy. Cleveland, who I guess would do the same thing, but he had like 19 deeds to one property or something. He tried to secure 19 mortgages against one Yeah.

Mike DeHaan: [24:29] I remember reading about it. This was like somewhat recent, like in the past couple years.

Dylan Koch: [24:33] Yeah. It was. But then he has Instagram at courtside seats to, like, NBA games. Oh. I I forget his name. I'll have to look it up.

Mike DeHaan: [24:39] But I remember that. I did, like, a whole, like, little Instagram series on, like

Dan Austin: [24:43] It was just stealing people's money.

Mike DeHaan: [24:45] Yeah. Back in '22 when the things first started to get weird, I was, like, obsessed a lot of these scams that people were doing because they, like, were all coming out of the woodwork. This is the same as when

Dan Austin: [24:54] Mike's like, how do I do this?

Mike DeHaan: [24:56] No. No.

Dan Austin: [24:58] I like Google how to get 19 deeds on robberies.

Mike DeHaan: [25:01] No. The thing that it was always fascinating to me about a lot of these was, a, there would be there's always the ones that you're like, oh, shit. I didn't know that guy was a crook. Like, especially in GoBundance, there was a few guys that came out that had been robbing people for, like, a decade. But then also too, there were so many other ones that I was like, I can't believe people believed this person. Right? You're like Right?

Dylan Koch: [25:22] It was

Mike DeHaan: [25:22] it was like my reality TV, dude. It was like my, you know, real estate Kardashians where I'd be like, someone gave this person $70,000. Gross. But yeah. I mean, I don't know. Those are of them were getting out of hand crazy. Like, ultimately, it just came down to the old sort of adage, right, that if something feels too good to be true, it probably is.

Dan Austin: [25:43] Definitely is.

Mike DeHaan: [25:43] And everyone's heard that. Everyone knows that. But for

Dan Austin: [25:46] some reason You get sucked in, man.

Mike DeHaan: [25:48] People get sucked in. Yeah. I don't know what it is. Well Yeah. Did you find him doing?

Dylan Koch: [25:52] I tried. No. Steven Dedelbeck is the guy listed on this one, but this is from 2011, so this can't

Mike DeHaan: [25:59] be right. Well, so the guy he was like a DJ or something, and that's why it, like, blew up was because he was using these different influencers and, like, the local radio and stuff to to bring in all these investors.

Dylan Koch: [26:11] You know, it's funny. It's like we talk about Hormozi on this podcast, and I connecting the dots. I've heard Hormozi talk about him investing money with a guy from, like, a Cleveland house, and I wonder if it's the same dude. And he had he said he lost, like, $50.

Dan Austin: [26:25] It might be. Probably. Yeah. Well, Alex Hormozi is dumb for believing in him.

Mike DeHaan: [26:28] Right. Well, yeah. He's the first person to say that though too. He's like, I didn't know what I was doing.

Dan Austin: [26:33] Yeah. Got out of got over skis on a different asset.

Dylan Koch: [26:35] Yeah. And that would turn into this whole pitch, like, I'm only gonna invest what I know Yeah. You know, what I know

Dan Austin: [26:40] Yeah.

Dylan Koch: [26:40] Which is private equity business. Yeah.

Mike DeHaan: [26:42] There's that one episode he talks about that specifically, and he has this line which I really resonate with, and I feel like it's lost in the real estate world. He's like, and then I found out after I'd owned it for a month that apparently the tenants didn't have electricity or running water. And so I I spent $30,000 to add that because, of course, they fucking should have running water. Yeah. Yeah.

Dan Austin: [27:01] I'm like, seriously. I mean, it's optional.

Dylan Koch: [27:04] Well, cool. Well, I mean, we just talked about rentals for a while. I have a deal under contract that has, like, basically, like three different extra strategies. One, could keep them and or I could probably assign it double close it make like $20.25 or take it down for like $20.25 into it, I would probably make around 75 k. So with that as like the top line, I don't know, scenario, what would you guys do with that?

Mike DeHaan: [27:28] I would take that one down.

Dan Austin: [27:30] I'd flip it.

Mike DeHaan: [27:30] I mean, with those with those numbers. So this is like our new criteria, I guess, that we've put into our stuff. And since we've been working with Cody here in in Spokane and starting to ramp up local, has been that if we can make three times what we can on a wholesale fee and it'll cost, like, less than 40,000 to renovate it, then we'll do it.

Dan Austin: [27:49] Yep. Given certain numbers and credit

Dylan Koch: [27:51] Interesting with the 40,000.

Mike DeHaan: [27:52] That's like what we would consider Lyco.

Dylan Koch: [27:54] Because that's not a lot, I feel like, where you're at. That's like a cause very cosmetic.

Mike DeHaan: [27:57] It's very cosmetic.

Dan Austin: [27:58] It's like a good cosmetic, like a good solid cosmetic. Maybe you have to replace cabinets. You know? Like, nothing crazy.

Mike DeHaan: [28:06] Yeah. I would say it's like a cosmetic with, like, one large CapEx item.

Dan Austin: [28:10] Yeah. Yeah. And that's because, like, you don't wanna get tied up in these properties. And I think the whole idea though is, like, is this does it stress you to do that? And I know you, Dylan. I know, like, your situation, like, you can handle this. And so, yeah, like, I would do that all day long because that's a huge spread for the, like, the little bit of money. I'm guessing maybe out of pocket with acquisition costs would you be, like, $4,050,000 tops?

Dylan Koch: [28:31] Product 40 ish grand.

Dan Austin: [28:33] Yeah. So 40 out of pocket to make 75 in say under six months. Like, yeah, let's go all day long.

Dylan Koch: [28:39] Yeah. And what's going I mean, tying this back to the previous conversation, I first looked at these as rentals because they're not in a bad part of town, And the cash on cash, you know, on paper is 35% with conservative numbers. But taking that and, you know, can you redeploy that money while my return on ad spend's like 800%. Mhmm. So

Dan Austin: [28:59] That's pretty good.

Dylan Koch: [28:59] Weighing those two options, one requires more work than the other, but that's a big enough delta in my opinion to go for the get three x

Dan Austin: [29:06] to pay off. Yeah. Exactly.

Mike DeHaan: [29:08] I would think so. I mean, now if your option was you could wholesale it for 40 or make 75, I would just wholesale it.

Dylan Koch: [29:14] Yeah. True. True. And and I'm not really marketing it very hard either, so I probably could maybe do that first. Try to get in there. Do that. So, yeah, what

Dan Austin: [29:24] are our flippers in your market? Willing to do things for $30? $35 profit? Yeah. Oh, yeah. Yeah. You got a buyer out there somewhere. Yeah. Yeah. You just gotta find them. Yeah. The other I guess the maybe a different line of questioning too given you're not Dylan and you're not a stud and you haven't been super experienced in this game. Say you're, like, lucky to wholesale one deal a month. Like, you're like, hell yeah. I got a good wholesale deal this month. I'm hoping for my one next month. You've been doing that for a year. You're not super, like, capital heavy. Like, you don't got a ton of cash, but, you know, you're you're able to to survive. Do you do a 25 k wholesale fee on this one, or do you do 75 k?

Dylan Koch: [30:01] My answer there is definitely yes. I feel like if you're doing one a month, your immediate next thing should try to get the 2 to three and ignore pretty much everything else.

Mike DeHaan: [30:08] Yeah. I agree. And you're gonna get be able to do that with a quicker cash than trying to get, like, the larger cash.

Dan Austin: [30:13] I feel like that's, like, advice that's highly overlooked because when you are that guy that's doing one deal a month and you're, like, hoping that you get one deal every month, but it's been consistent. You just don't believe in yourself, and you see 75 k looking at you, it's hard to say no to that.

Dylan Koch: [30:27] Yeah. Totally. It's hard

Dan Austin: [30:28] to say no. But that 75 k, you gotta remember, it could be 60 k with some bumps. You know what I mean? And it could be six months. It could be seven months. You're hoping it's four. Like and so there's so many variables associated with that. When you're not doing volume, it's really hard for me to say to take down a flip.

Dylan Koch: [30:44] Well, yeah, when you're not doing volume especially, unless it's like super clean. Right. One thing let me look up bring up Ari simply. This has been in the CRM since August 2023. And we are under contract to buy these. And out of all the objections, this one was he couldn't get his wife to sign because Ohio is a dower state. Even if it's like, then it's in his personal name, so like she has to sign away her dower. She's also signing it. And that blew up the deal for a while. And so we actually put in a first ride refusal on these. Like, if he was agreeable to that, and it's we're finally turning back around a year later.

Dan Austin: [31:19] Did you have to pay for that first right of refusal, or did you just get him to sign it?

Dylan Koch: [31:23] I paid the attorney to file it,

Dan Austin: [31:25] but that was it. Oh, you didn't? Okay. Oh, because you were probably under were you under contract then? You were

Dylan Koch: [31:29] I was under contract Okay.

Dan Austin: [31:31] So you kinda had some leverage there.

Dylan Koch: [31:32] Exactly.

Dan Austin: [31:33] Yeah.

Dylan Koch: [31:33] And the guy that sells was actually really cool about it. He's like, dude, I didn't this is like the last thing I anticipated to hold up this deal. Yeah. And so we that was our solution at the time. I just I almost had written it off, and then he called me the other day. I'm like, cool.

Dan Austin: [31:44] That's so awesome, dude.

Dylan Koch: [31:45] Yeah. Because the prices have appreciated, you know, since then, since we've done it.

Dan Austin: [31:50] Yeah. Oh, yeah. Then the deal makes sense.

Mike DeHaan: [31:51] Yeah. We had one of those a while back too where when the guy first called us, he wanted $300. It was like $20.20, and we're like, no way in hell we could do that.

Dan Austin: [31:58] Oh, yeah.

Mike DeHaan: [31:59] And then our lead manager followed up in, like, 2022. And he's like, yeah. I remember you guys. Like, you know my number. It's 300,000. We were like, I think we could do that now. The mark we I think we made, like, 40 on it.

Dan Austin: [32:09] Yeah. Yeah. It was a good fee. The market had taken off, and then, of course, we were more seasoned different buyers.

Dylan Koch: [32:14] Right. So I guess if you are, you know, a newbie and you have those in your warm leads or whatever section, they're a couple years old, and they're you know, maybe re redo the comps in some of your places because

Dan Austin: [32:25] Yes.

Dylan Koch: [32:25] You know, these might be deals now that the seller just doesn't realize.

Dan Austin: [32:29] Huge hugely important thing to do.

Mike DeHaan: [32:31] Yeah. I mean, it's it's also why I'm a big proponent of not pushing leads to debt in your system unless you have, like, a really legitimate reason to do so, especially if you're doing targeted marketing. Like, you're hitting up to people that have bankruptcies and liens and things like that. Really, unless they the property sells or they are just so unbelievably hostile that you can't have a conversation, you should follow-up with them at least, like, quarterly or every six months because you just never know.

Dan Austin: [32:57] You put them as a lead for a reason. At some point in time, whether you had a good conversation with them, whether they called you, I mean, they were a lead at some point in time, and you probably paid $50, $100, $2,300 for that lead, so don't throw it away.

Dylan Koch: [33:08] And a a common scenario is, let's say, you someone's on a distress list somewhere, they're getting contacted by other wholesalers and investors the whole time, and they're like, I want 200,000. And every offer they get in is somewhere between like $1.20 and $1.50. And after a while, they're like, shit, maybe this is actually worth, you know, $1.50. And if you're just at the right place at the right time, you're gonna get that

Dan Austin: [33:27] Absolutely. Yep. Yeah.

Mike DeHaan: [33:29] I mean, that's literally the whole business. Right? The whole industry is having these people that you bet are gonna need to sell at a discount at some point, and you just happen to be one that is directly in front of them when they decide to make that decision. Because it's like a hard sales kind of business where you can, like, convince someone to buy your widget. They have to go through that decision themselves. It's probably the largest decision slash transaction they're gonna do in their entire life. And you just have to be on this there when they decide that it finally makes sense for them

Dylan Koch: [33:56] to do this. And top of mind. So that way

Dan Austin: [33:58] And top of mind.

Dylan Koch: [33:59] Do the follow ups. Send the the mail consistently. There's not much to it. I like speaking freely.

Mike DeHaan: [34:05] Dude, like, honestly, one of the most challenging things that I really have with this industry right now and especially with, like, our scale community and different stuff is I talk to people. And there's so much money to be made if you're willing to lie and convince people that there's, like, some super big secret or it's, a really complex thing that only you know the answer to.

Dylan Koch: [34:24] Oh, yeah. Proprietary wholesaling software. That's that's a good one.

Mike DeHaan: [34:27] Exactly. Some bullshit. When in reality, when I'm just like, hey. Look. This business is actually really simple. We just kinda, you know, go over how we do stuff correctly and how we do it in a way that's super easy to scale because it just means doing more and adding in a couple more team members. People are like, nah. This guy's full of shit. There's no way. It's that fucking easy. Liar.

Dan Austin: [34:47] That can't work. It can't work that way.

Dylan Koch: [34:49] Like, come

Dan Austin: [34:50] on, guys. It's super simple. It's so easy. I mean,

Mike DeHaan: [34:53] we literally have, like, three softwares and a small team and some VAs, and that's it. We have a CRM, a data software, and an esign software, and that's our entire business.

Dan Austin: [35:03] I bet you we could call it, like, a new Logan. Like, it's so easy. Even a caveman could do it.

Mike DeHaan: [35:07] Oh, there you go. Yeah. Then then we could call it

Dylan Koch: [35:10] like still trademarked there.

Mike DeHaan: [35:12] Yeah. Yeah. Yeah. There's that. And then we could call it like house vestors or something.

Dylan Koch: [35:19] Yeah.

Mike DeHaan: [35:20] Yeah. We can have maybe show you my we buy ugly properties. How about that? Let's do. Good idea.

Dan Austin: [35:26] I like this business plan. Let's go.

Mike DeHaan: [35:28] I think so. Yeah. We got we got we got legs on it for sure. Cool. Alright, guys. Anything else to wrap up?

Dylan Koch: [35:33] No. I think that's it for me for this week. Cool.

Mike DeHaan: [35:36] Right on, guys. Well, thanks for listening, everybody. Share shares with your friends who are into real estate business or trying to figure out what to do with their money because we all have those rich friends who, for some reason, have way more money than you, and they make stupid investment decisions.

Dan Austin: [35:49] Mhmm.

Mike DeHaan: [35:50] Tell them they're not poor into stupid rental properties where they're not gonna make any things because they don't wanna work because that's a bad strategy. So hopefully, you can share this with them and convince them to not throw their money away. But, anyways, guys, thanks for listening, and we'll talk to you guys

Dan Austin: [36:02] next week.

Dylan Koch: [36:03] See

Dan Austin: [36:03] you. See you.