How We Balance Risk vs Reward with Our Real Estate Investments

Mike DeHaan: [0:00] Guys think real estate's slow out there. We accepted one offer, an all cash offer on one of these places in the first three days. The other one we accepted in a week over Christmas. Canal surprised me. So stuff is moving. You just have to be in the right price points. What's going on, guys? Welcome to today's episode of the Collecting Keys Real Estate Investing Podcast. Today is Wednesday. This is the Mike and Dan show. If this is your first time here. I am Mike DeHaan here with my cohost, Dan Austin. And this is the show where we teach you how to make massive income, not just passive income with your real estate investing business. So if you don't wanna be like all the other investor that you know and like wait until you're 65 or 70 or older to be rich, then you should listen, take some notes, and give us a little follow because that's what we like to do is make money and sort of go against the mold with what everyone else is doing. So anyways guys, on this show, this is Dan and I. We like to talk business, we like to talk investing, we like to talk real estate market economy as a whole, and a little bit of banter here and there because it's our show.

Dan Austin: [1:10] Mean, we we walk. So Exactly. This is awesome. Just to open this up because we're just out of habit, I saw some notifications on Instagram before I went live so I just pushed open. And Matt Yeh from the Millionaire Mindcast. I followed him and I love that he is also rebranding his investor network and asking his followers what would be a better name, one of them is Collective, the other one is Network. Obviously there's a, like Wise Investor is his brand name, so he's trying to kinda dial that in just like we did with the scale community, we took some feedback, we took some polling, and we came out with the scale community rebranded and redid all that stuff. So we're not the only ones in 2024 looking to grow and scale our network.

Mike DeHaan: [1:51] Yeah. Well, it's funny. I've actually been thinking about this is there is the online sort of community just in general of like people that are entertainers, educators, podcasts, whatever. For the last like, I don't know, decade, maybe not quite that long, eight years, there's been a lot of content out there for like newbies because everyone was kind of new. Right? The thing is like at this point, there's so much newbie content out there, that like if you'd make that kind of content, you're just repeating what already exists. And not only that, but the people out there that are going to be interested in real estate, kind of already know all that. So you're seeing this transition and this is why we adopted the new scale community name away from our instant investor program was because it's geared towards people that are trying to scale and grow their businesses and their investing efforts as opposed to take the first step. Like there's a ton of people that have already taken the first step. They understand how to make their first step. Let's see the people talk about doing more BRR transactions or like you know, learning how to network with realtors, things like that, isn't really that interesting anymore? Totally. Because everyone that's going to do that's kind of done it already, or at least understands the principle.

Dan Austin: [3:08] It's also like there's like an educational baseline, like even if you're new into real estate right now, like that's just the baseline education that exists, right? Just as we've evolved, like as a community, as a network, as an, I don't know, as real estate's evolved and just society, these types of alternative from the, when I say alternative, alternative from the stock market and your four zero one k, alternative investments, there's a baseline of knowledge that people just expect you know because you're reading it now because there's so much free content now.

Mike DeHaan: [3:36] Yeah. And also too, as someone that has a platform, there is a slightly selfish endeavor of the way that you can scale your community, your mastermind, whatever you wanna call it, to be people that will bring mutual value as well. Sure. And that's something that I guess we've learned over the past couple of years running what was our instant investor program, now our scale community, is we start to help shape and mold these people that turn into really solid investors. And as a result, because we kind of help them level up, we have a mutual level of respect for each other, We all make more money collectively, right? And if we bring in a ton of newbies, that might happen or it might not

Dan Austin: [4:16] because that could water it

Mike DeHaan: [4:17] down, They're gonna be more likely to you know, lose interest, go chase another endeavor versus if you are just bringing in people that are established, you know, Matty you realize this, Aaron Imojiszteggi is doing the same thing with his inner circle down in Austin, which I'm a part of, is that you surround yourself with people who you know are doing good stuff and as a result you all do good business together and it literally becomes like a collective or a team or a community as opposed to just like an educational. But you'll see more of it, know and I think the new divide that you'll see instead of it being stuff like for newbies and for like more advanced people, new divide there will be things for the action takers versus the groups that just wanna sit around in a circle jerk and not actually take any action. Totally. But you'll see there's already a ton of those out there. The people that, you know, if every single post on that is someone posting about a win that's like not really a win, they just like did the one thing that they were supposed to be doing, it's probably a circle trick group.

Dan Austin: [5:10] Yeah. I guess here's a good example. Just if you join any community and you don't yourself feel like you're getting better or doing anything else, it's probably because that community is not right for you or it's not driving you and it's not giving you the right things you need. You know, you you can just join passive communities all the time, especially free ones and you're likely to get almost nothing out of

Mike DeHaan: [5:31] it Right.

Dan Austin: [5:31] Because it's free, you're not gonna really put much into it if you don't show up to things or you don't read them, read the new posts, nothing's gonna happen. But if you commit something, some dollar amount and it's an alignment with what you wanna do, you'll naturally be actually progressing through the things that you want and that meeting the goals that you have set. Yeah. But you join a group that's not happening, it's probably because either you really don't care and you just like spending money, or the groups just sucks.

Mike DeHaan: [5:57] Yeah. Exactly. You know, and that's the issue it's with a lot of like free groups or just free anything out there is you don't value it as much.

Dan Austin: [6:05] Or sometimes the group, the the leaders of the group are scaling it to a point to where it's really tough to give people value and then the group gets watered down enough that the group, it's just too much noise amongst everybody that you can't really connect with the right people to get that value. Yeah. So you need that good community that's alignment with you and what you're trying to do. Yeah. So

Mike DeHaan: [6:28] And I think a big thing is if you are sort of getting into like that, don't be afraid to shop around either and join multiple, especially when you're starting because you don't necessarily know what's out there if you only, you know, dive into one pool and never check out the others. Cool. But yeah, we've been off to a decent little start to the New Year. This is actually the first episode that we are recording after the New Year. But we had a good start with basically a contract signed right out of the gates first thing this morning, which has been great.

Dan Austin: [6:58] First thing this morning.

Mike DeHaan: [6:59] We had a sales guy on our team call me like the Friday before New Year's and just let me know that he's not coming back to work the day after New Year's. Don't ever do that you're because an that makes that your employer hate you forever. Right? Like honestly, I'm gonna I'm gonna hold that grudge just because the way that that whole thing panned out really puts everyone in a bad spot.

Dan Austin: [7:21] Two week notice is more appropriate?

Mike DeHaan: [7:23] I'm just saying that if well, think

Dan Austin: [7:24] we talked about

Mike DeHaan: [7:25] this last week too. If you're gonna leave your job, don't like neglect it for a week and a half and then give your employer a one day notice. Because not not only is that unfair to your employer, it's also unfair to like all the team members and not have to pick up all your shit.

Dan Austin: [7:36] Like seriously, I 100% agree with you, but there are some fundamental things where it's like, meh, if your employer is allowing you to just screw off and do anything and keep paying you, take advantage. There's a boundary for a lot of folks that you don't wanna cross because you don't wanna be known that person as the person that just kinda, even if you were a really high performing person and then you become a turd at the end because you've given up, like, there's like a lot of people who don't want that, because they don't want that brand, that personal brand, because that personal brand, whether you like it or not does follow you, even if you're like, well, I'm never gonna work there again, still follows you.

Mike DeHaan: [8:14] Well, I think it depends on what your relationship is with your previous employer, right? Is I mean, you're out of giant corporate company, you can absolutely do that because no one cares.

Dan Austin: [8:24] That's like most of corporate America.

Mike DeHaan: [8:25] Yeah, exactly. Mean, in fact, if your new employer or new prospect calls the HR department, it's like, how are they performing? They're probably gonna say it was great because they don't even know the you are.

Dan Austin: [8:34] But when you work for a small company Small business, yeah.

Mike DeHaan: [8:38] You know, that's it's much more impactful, right? And you're right, that does stick around especially when it's like an industry like the real estate investment industry, which is a very small community nationwide.

Dan Austin: [8:45] Very small.

Mike DeHaan: [8:46] You know, so But yeah, so we've been dealing with that. But either way, we were So we're aggressively hiring for pack manager, for a dispo manager. Now we got a bunch of new stuff that we are having the pipeline. We already We had a ton of leads. Actually you know, we had 65 leads come in last

Dan Austin: [9:01] week. Damn.

Mike DeHaan: [9:02] Like on the week between between Christmas and New Year's, which is like really wild.

Dan Austin: [9:06] I didn't look at that, but that seems hot.

Mike DeHaan: [9:08] Yeah. It's a lot. You know, for us to get get in like a week, it's not uncommon for us to have a 100 plus leads in like a week. But usually that week between Christmas and New Year's is like dead. And we had a ton come in. Yeah. So you've been working those and just trying to, you know, figure out how

Dan Austin: [9:26] So that's a good point though. Like if you had stopped marketing during the holidays and you'd shut down your follow-up, your January is probably looking pretty slow. Not only did you have a slow four weeks in December, but you might have a slow four weeks in January while you spin everything back And so that's two months out of twelve, twelve rolling months that you're down, so I mean, 10 twelfths all you're when working everybody else is working on 12 twelfths.

Mike DeHaan: [9:50] I mean, it's that's why we always preach that to not slow down during the holidays, right? And just, I think that the shift that happens between like newer investors or business owners and established ones is you graduate from looking at things on a month by month basis, looking on a quarterly basis. Yeah. The problem with new investors is they think like, I don't wanna spend money in December because I'm not gonna close as many deals in December. It's like, you weren't gonna close any deals in December from your December marketing anyway. You're gonna close deals in December from your October and November marketing. Yep. You're gonna close deals in January and February from your December marketing. Mhmm. Right? But people that haven't been in business for a long don't understand that. Yep. That's why corporations work on quarters, cause you need like that ninety day block to actually see like any traction or any feedback, any results.

Dan Austin: [10:36] Results. Once you make a change, yeah, you need ninety days to see the results of that change and that's the same thing and and I wonder if that's I don't know anything about marketing in corporate America or for another type of business, I just know for real estate and that's about the good marketing cycle you need.

Mike DeHaan: [10:49] I mean, So Like fundamentally, I'm sure it's very similar if you're at similar like size of business, like I think when you're getting to a business where you're doing hundreds of millions of dollars, it's probably different. But I would say that I would pontificate that a business is doing 2,000,000 or 20,000,000, it's probably fundamentally similar, there's just more of it, you know?

Dan Austin: [11:08] Yeah. More of that stuff, whatever that is.

Mike DeHaan: [11:11] When you get to that like $100,000,000, $200,000,000 standpoint that you're probably spending millions and millions of dollars on marketing. Right?

Dan Austin: [11:17] I mean, you think about it, look at like Coca Cola, right? They're known as like the kind of like pinnacle of marketing. Right? Their marketing company is like the business case study with them. They're not a soda company, they're a marketing company. Uh-huh. And they're doing banded signs, right? They've got Coca Cola signs everywhere, they're just a little bit, they're not banded signs, you know, they're billboards and they're, you know, signs on the sides of buildings and stuff like that, and they have, like, there's Coke everywhere, like, every stadium you go, there's a Coca Cola or a Pepsi sign, right? They're doing all that sort of stuff, they're doing all their other outreach campaigns, their commercials, same stuff we're doing.

Mike DeHaan: [11:46] Yeah, mean they have their band designs in other places, right? You watch like the college football games and you know, they'll be like on the fricking signs that all the fans have,

Dan Austin: [11:53] and they'll go cold at

Mike DeHaan: [11:54] the bottom. That's their own form of bandit signs, just more socially acceptable.

Dan Austin: [11:57] Yep. It's just basically getting eyes on your product. Yeah. That's what it comes down to.

Mike DeHaan: [12:01] Yeah. But aside of that, we have our our properties that if you look weeks ago, that the subject to note got called, now it's been offers on two of those to be able to sell the market.

Dan Austin: [12:10] Sip. Super sick.

Mike DeHaan: [12:12] So I'm hoping that we'll actually be able to get two of those offloaded before we even have to do the full refinance. I know. It should be great. We'll just save us a ton of money which will turn those into from being potentially a disaster to actually be pretty profitable. Yeah. I mean, it's still kinda early on in the transaction process.

Dan Austin: [12:26] And this is where real estate, the the transaction like literally just begins when you sign a contract. Right? I know. And then the frustrating thing about this one, the one duplex, the first one we signed where half, was it half of it, all the utilities were shut off?

Mike DeHaan: [12:39] Yeah. Actually, it's been empty. And

Dan Austin: [12:41] so interesting down in in Louisiana, the difference between what it is up here, because like in Washington, if somebody requests electricity, you have to turn it on within like twenty four hours. Mhmm. Down there, not so much. Water, not so much and so and then they turn the water on and we have a plumbing leak that has to get fixed. And so we have to do all this so the inspector can inspect the property. Mhmm. And so it's just like this minutiae of like these little teeny steps that you have to jump through the hoops and stay on top of your shit and not wait, know, don't delay like moving things along because every time you are a four, six, eight hour delay in communication, it's back the same exact way, another four, six, eight hours that you could have essentially two business days before anything gets done in a transaction. So man, always stay on top of your stuff and be like overcommunicated, especially like once you get that contract signed until every single contingency check and that closing table has your signature and the checks on the way to your bank account, like nothing's done.

Mike DeHaan: [13:33] Oh yeah, pretty much at this point we always wait for things to fall apart on the last minute. Mean, absolutely. It's like what

Dan Austin: [13:38] is gonna keep this from happening? Because you do this enough time, you just hear the wildest stuff.

Mike DeHaan: [13:42] I mean, we've had deals fall apart like on closing day. We had a flip several years ago that we were expecting to net $85,000 in profit and the morning of closing, the lender says that they can't do the deal because of insurance reasons because it was a condo. And there's a bunch of stuff. But you never know. Right? Spend that money before it comes back like it's always a dangerous game.

Dan Austin: [14:03] Yep.

Mike DeHaan: [14:04] So, but yeah, mean, it's pretty communication that you've been having fun with our lease option deal.

Dan Austin: [14:08] Oh, yeah. The the seller wrap, it turns

Mike DeHaan: [14:12] from a

Dan Austin: [14:12] lease option to seller wrap. Yeah. So we're doing it in a seller wrap now. We kind of found the market was a little soft for lease options where we're at. And yeah, this this is one of those deals where it's like the deal's not done till the deal's done. So working with this guy who is urgently wanting to get into the house. His Christmas, as he stated, is January 7. So he wants to get his family in there by January 7. I don't know if that's a certain holiday.

Mike DeHaan: [14:38] That's his Christmas?

Dan Austin: [14:39] It's his Christmas. I don't know if they're just delaying it by a couple weeks or if that's a Christmas. He's from Russia, which my understanding was most of those people don't aren't Christians, so I don't know. I'm just guessing that maybe he's delaying his Christmas.

Mike DeHaan: [14:56] Now I'm fascinated. It's National Bobblehead Day. Is that what he celebrates?

Dan Austin: [15:00] I hope not. But anyways, so you think a guy that's urgent wanting to get in the property would want to get things moving. He just dropped his EMD off today after what we've been assigned around with him like ten days Yeah. Before Christmas. And so, then like trying to work with him because he wants to do early possession, I'm like hell yeah, you can have early possession, you just gotta put down your entire down payment of $30,000 Yeah. To do that. Then he's negotiating with me on that, I'm like, bro, you gotta pay the money regardless.

Mike DeHaan: [15:26] And, yeah, right.

Dan Austin: [15:27] You know, like, you want my house, like, just put 30 k down in escrow, I'm not saying give it to me, put it in escrow. Yeah. And this is kind of what we're, just to break that down for you all, is like, I want to get this buyer as dedicated to the property as possible, so that he doesn't wanna back out, I wanna go back on the market, I wanna keep in there, we're at the price we want, we've got everything we need, property's ready to go, no inspections, we're good. It's like, get him in there, he can take early possession, it'll probably be like two weeks early just because of how long title's gonna take on this thing. Yeah. And then that $30,000 will sit in escrow until the transaction closes, at which time it'll just transfer to us like it would normally because that's his down payment to us on this seller wrap transaction. And we can dive into what a seller wrap is here in a minute if we need to. But from that point, like, if he doesn't close on the property for some unforeseen reason, and it's not anybody's fault, we'll just give him his money back, but he's got fourteen days to move out of the property, or I'm gonna charge him $5,000 a month for every thirty days after

Mike DeHaan: [16:26] that. Right?

Dan Austin: [16:27] For basically $5,000 a month in rent to get him out of So I'm really incentivizing to close the transaction. On our end, there should be no reason it doesn't close.

Mike DeHaan: [16:35] Yeah. Right? We're good to go.

Dan Austin: [16:36] So we're good to go, everything's good. But if there is a foreseen reason, I'm just gonna give it back to them and say, hey, you've got, you know, fourteen days moving out of the property, We're all good. Yeah. But he's he's fine with that. He's just negotiating the dollar amount. I'm like, oh, like, yeah, just pay it like you a week later, two weeks later, you have to write the check again, just write one check, dude, and let's do it. And he's just a slow ass communicator. And so this is one of those things where I was talking about just earlier. Like, every time you have a delay in communication, account for their delay, next thing you know three days have gone by and you still don't have an addendum signed for early possession, he wants to be in there here and yeah, like I said, seventh, or his Christmas on the seventh, so he wants to be in there this week.

Mike DeHaan: [17:12] Yeah. Well, mean that hopefully I was like, that would be cool to find that thing moved. Yeah. But, yeah. So just swinging back to the Christmas thing. It is Christmas for Russian Orthodox.

Dan Austin: [17:22] I wasn't gonna be presumptuous, but I was going to assume he's Russian Orthodox.

Mike DeHaan: [17:26] Yeah. It's Eastern Orthodox Christmas is January 7 because they actually had a different calendar than Western people which have a Gregorian calendar. They have a Julian calendar. So Well, yeah. Anyway, you learned something today. I've never heard that. Absolutely. But yeah, so I mean like on this deal though, this is always like the stuff that people don't talk to you about when you hear these gurus and things talk about doing these like, let's do a lease option, it's like super easy. Here's the thing, like it's just like being a wholesaler, you're dealing with weird fricking sellers. When you are doing the opposite end of it, you are doing a lease option, you are doing a seller wrap, you are doing something that the buyer is a non traditional buyer, they are going to have baggage, right?

Dan Austin: [18:12] There's a reason why they're non traditional buyers. Correct.

Mike DeHaan: [18:14] Right, and sometimes it's because they're an immigrant family, doesn't have credit, sometimes it's because like this guy is a contractor and doesn't pay his taxes, whatever he does, so he has no tax returns, can't get a bank loan. Right. You know, those things are all fine and dandy, but there will be instances where you have these people that have baggage and that is why they're not a normal buyer.

Dan Austin: [18:36] Absolutely, don't get nervous about it, this this is the business we're working in, know, a lot of times people would get nervous, we're like, oh, it's not exactly how it's supposed to be, they don't have the perfect lending scores, and they don't have this, they're not doing this, it's like, that's why, A, probably getting a higher return on investment, and b, why you're gonna have to do a little bit of work for that higher return on investment, is because it's just non traditional and if you're gonna get scared off by that, then doing these types of deals is probably not for you, and that's totally fine. There's lots of money to be made doing other transactions out there, but for us, we're able to expand the number of transactions we do, because we're able to step into these different types of scenarios, and kinda lean into the uncomfortable areas. And are there's a risk? Absolutely. But that's why you need a higher return on investment.

Mike DeHaan: [19:19] Yeah. I mean it's interesting too, right? Because if you look at it like, say real estate versus securities and stocks, securities you'll have kinda like the main players, Apple, you know, Microsoft. You know, they're good companies, they have good fundamentals, they make a lot of money. If you buy those over long term, you're probably gonna do good. Right? Yeah. Same with like, you know, and with those it can be generally, you know, off the monitor, mean, plug and play it just goes. That's like your traditional long term rental. Know, can go, can get a normal tenant, you can have high crediting property manager, your returns gonna be lower versus if you're buying the penny stocks and you're like playing some games and doing some weird stuff. But you know that it will go up over a long period of time. In the real estate world, if you wanna squeeze out extra return, extra money like you said, you wanna do the short term rentals, you want to do the rent by the room, you wanna do the lease options, you wanna do the sober living communities, right, whatever people are doing, they are all going to come with extra work. That is why they are more profitable. If they weren't more work, they would be so incredibly oversaturated, and they would not be as profitable. Totally.

Mike DeHaan: [20:26] Because everyone would be doing them. That is that is why they are that way. And anyone that tells you they have a system that does not require any work, it is because they are either lying to you or they have spent an incredible amount of time and done an incredible amount of work getting to the point.

Dan Austin: [20:40] Right. They've earned it and they probably understand

Mike DeHaan: [20:42] They've earned it.

Dan Austin: [20:42] People doing some of the work for them.

Mike DeHaan: [20:44] Yeah. But a lot of people don't like to believe that. They're like, I just get Airbnb and I just plug in my short term property manager. They only take 30% of the gross of the freaking top line. It's like, I know you're not making anything. Dude. But people do it all the time. So anyways, yeah, so hopefully we get that one sorted out. We can start getting some, you know, money back in the bank because our like rental reserves are looking a little low, man.

Dan Austin: [21:10] Yeah, we've had some big turnovers.

Mike DeHaan: [21:12] It currently look like my high school bank account.

Dan Austin: [21:14] Man, you had a lot of money in high school, bro.

Mike DeHaan: [21:16] I worked at a restaurant, okay, I made $6 an hour, so, and

Dan Austin: [21:20] I had zero expenses. Damn, that's good for Montana. Yeah, we've had a lot of turnovers and plus this house that we're selling that we did some renovations on and we have a down payment locked up into that house and so we're trying to hopefully, Q1 will be bring back some cash or at least restabilize some properties in our like 2024 will be somewhat profitable on the on the portfolio standpoint. It was, who was it that we had Shelby?

Mike DeHaan: [21:44] Mhmm. Yeah.

Dan Austin: [21:45] Shelby from Pints and Properties on our, what did you call her, Drew? You called her something else, I'm just laughing at her.

Mike DeHaan: [21:51] I can't remember, but it's like the five pillars group.

Dan Austin: [21:54] No. Yeah. You called her pints of no. Maybe it was a different person. Don't know. Doesn't matter.

Mike DeHaan: [21:57] That was Grace. That was Grace. I kept calling her group invest her, but it was the wire community.

Dan Austin: [22:02] That's it. That's it. Yeah. I was

Mike DeHaan: [22:03] like, I'm the world's worst host or just like, I don't know, remembering stuff like that.

Dan Austin: [22:08] At least you own it, right? Anyways, she was talking about when you buy a property and you're like, oh yeah, that roof's about five years old, or it's gonna, got about five years left in it, well guess what, five years comes really fast and you gotta replace a fricking roof.

Mike DeHaan: [22:19] Yeah. And when you have

Dan Austin: [22:19] to replace the roof and you're like, oh, I don't really wanna refinance right now, you're looking at an 8 to $12,000 expense that just sits there in the property. It's a capital asset of course, so you can depreciate it over time, which kinda stinks because you can't expense it all in one year. But anyhow, like we have had some of those in our portfolio and that happens when you have a really big growth period and buying properties, and then you kind of accumulate some reserves and some cash, and then those turnover after you've done it. The one, two big ones we were turning over that really expensive turnovers were property, were on units on the property where we bought it as a good performing asset, but we knew the interior of the units were gonna need work if they turned over, and for that reason we didn't raise rents right away, we slowly got them to where they're at now. Well, one guy's dying and another lady could not, she was the only one not on Section 8, so she couldn't afford the rent increases, and she had to move out. And so those two units need some work. Yeah. And the one is super gross.

Mike DeHaan: [23:14] I mean, and that's exactly, that's why that little quote from Shelby, you guys should go listen to that episode about what number is it? I'll put it in the show notes. But that little clip that she had of I was episode one sixty one. Yeah. Exactly like, you you knew it was gonna be a $12,000 roof three years ago and now now that $12,000 that that check is due. That was 100% Us. I know you know they were talking about, we're like, oh yeah, we have to turn those units, it'll be like 20 k to just turn each one.

Dan Austin: [23:38] Yeah, we'll be fine, that's future Us problems.

Mike DeHaan: [23:40] Yeah, it's future Us problems. Now we got two of those in like a Yeah. Eight week span, you know. That check is due now. It's not due in the future, is due right now.

Dan Austin: [23:49] Yeah. Plus, you know, other typical property management expenses that you do account for, right? It just adds up, you Yeah. We always talk about the woes because I think we want it to be very well known that it's work and it costs money to own these properties long term, but it's still a great asset. I was actually just telling somebody about this property, was like, honestly, if I didn't have a 500,000 in equity in this thing that I didn't really have to work for, I would not want to do this. Mhmm. Totally. And working for that equity that's sitting in there, because we bought it at such a great price for a reason, again, you have to put in work to actually earn your value. We bought it at such a good price, and then we were able to raise rents, so we did, we were following the business plan, right, which on a multi family property above four units is, the business plan is buy it, reduce expenses, increase rents. Mhmm. Because then it's based on the cap rate, or whatever the market cap rate is, from the, you know, net operating income of that property, and so, by reducing expenses and increasing rents, you're essentially increasing your net operating income. If your cap rates keep going down and get smaller and smaller and smaller, which they're not right now, but like as they get smaller and smaller, the value of that property just keeps going up. And so on this one, that's why we're sitting here even talking about it because we do have good equity.

Mike DeHaan: [24:55] Oh, yeah. I mean, this is why it's so important to buy good deals as well. I mean, we bought this one for just just over a $100,000 a unit, it's a little six unit.

Dan Austin: [25:03] Mhmm.

Mike DeHaan: [25:04] And depending on how decent the property is, they can trade for between $1.60 to $170,000 a unit. And for like a c class and a class in Spokane, she'll sell for like 300 k a unit. Right. But you know, in this class, like we have basically a 50% upside.

Dan Austin: [25:19] Well, here's the deal is we bought it with no money out of pocket because we used an investor's money for the down, like it was like a 150,000 down or whatever it was, and then we paid that investor off. Mhmm. And we did not refinance this property to do that.

Mike DeHaan: [25:30] Yeah. Yeah, not yet. But if we do wanna refinance it, when rates go a bit better, we'll be able to do it. And you know, they'll be

Dan Austin: [25:35] able to recover it or I'll be able

Mike DeHaan: [25:36] to sell it to somebody when when rates go down and cap rates go up and just like make a lot of money, sell it to somebody else who wants to deal with it and make it roll into something a little bit nicer. That's that's a game. And I think that talking about those woes, it's funny we do that a lot. But I think it's because you don't have business and those kind of become the interesting stories. Right? Like talking about your wins is cool, but then just kinda like, I don't know, dick measuring contest after a while.

Dan Austin: [26:00] Yeah. Mean, we do win. Yeah. You know what I mean? We do win. The win on this one that we're specifically talking about is for a dollar postcard and no, essentially no money out of pocket. We bought a, you know, multi, know, well, a million dollar asset Uh-huh. That we now own without an investor against it, we use other profits to pay him off, and we basically didn't have to have any of that stuff, a $1 postcard, and the knowledge and know how of the system to buy at a discount, yeah, we're sitting here pretty happy with a decent problem.

Mike DeHaan: [26:28] Well, it's funny, we say a $1 postcard. It's a $1 postcard with tens of hours of phone calls with this freaking guy. Yeah. I think it was sixteen months of follow-up from when he first came. Negotiating over

Dan Austin: [26:40] a freaking snowblower at the end of it.

Mike DeHaan: [26:42] Dude, insane. Right? Like literally the guy's literally about to walk away with like 600 or something k in cash and he's gonna argue over a $150 snowblower.

Dan Austin: [26:51] Right. It was something like, how about I lead the snowblower and don't give you the deposits back? And we're like, what are we talking about?

Mike DeHaan: [26:59] Not your money. Yeah,

Dan Austin: [27:00] like, Jesus.

Mike DeHaan: [27:02] Anyways Some crusty bastard. Yeah, you know, that's how the game works. Now it'll be interesting man, I'm curious to see how the real estate market goes. Do think fundamentally things are looking really good for this year. You know, think our business is primed to do well, I'm excited about that, but I think that all real estate investors that have established systems that are playing the game going into this next year will have the opportunity to do very very well.

Dan Austin: [27:25] Mhmm.

Mike DeHaan: [27:26] You know, if you're just starting out, get to work because I think it's gonna start to pick up very quickly as we get into the kind of buying season in the spring. Totally. And You if you're someone that's sort of been on the side, or you're you're trying to figure out when exactly you wanna start leveling up and scaling, now's the time to start doing it. I mean we're seeing people in our scale community. I mean we had one of our guys, he just had his first month and he's like about to buy 32 units off of his first month of marketing f Well it's a Insane.

Dan Austin: [27:53] It's a 38 unit portfolio and he's working on the first 19. So he said he's gonna take down half of those out on his first batch of mail, like super sick.

Mike DeHaan: [28:01] He's never bought real estate before,

Dan Austin: [28:04] at all. Ever. And he's calculating at a 47% cash on cash return if he can get this thing basically done.

Mike DeHaan: [28:10] Yeah. You know, and it's funny you you start to hear that verse and you're like, that seems like a little bit too good to be true. But the funny thing is is I did like a little one on one coaching call with them. We looked at the numbers, we looked at the valuations, he's pretty dang spot on. Like I think that there's probably some, because they're older properties, some extra renovation costs that he's probably not taking into account. But like he has so much room on the deals, doesn't matter. Just Doesn't do it, right? He sourced them, he's negotiating deal, he's having good rapport with the seller, and all of a sudden he's gonna go from never having done a deal to owning a larger portfolio than most people will ever own Yeah. In a very quick period of time. I love it. Yeah. So anyways, it's just time to be that guy. Time to start leveling up and start pushing for it.

Dan Austin: [28:57] There's gonna be a lot

Mike DeHaan: [28:58] of opportunities.

Dan Austin: [28:58] And that, you know what's funny, like, let's just pull through it on him a little bit, Kyle is our guy we're talking about, he joined the program late last year. You're feminist? He went to KeyesCon, and like, before we even started KeyesCon, him just being around the group, he already, and I showed up the next morning and he's like, alright, I've already figured out, here's my path to quitting my job and all these sorts of things, holy crap. And now he's executing on all that sort of stuff that he actually talked about doing at Keyz Con and when he kind of masterminded there and so it's super super cool.

Mike DeHaan: [29:29] Yeah. Well, I think it's the value of putting yourself in a room and you know, finding that education and seeking that knowledge and seeking those connections. Because you're right. He's been yeah. Think he's been with us since like August.

Dan Austin: [29:39] Yeah.

Mike DeHaan: [29:39] He just maybe even July, but he just started going in December, started his business. Cause he was completely green to real estate. He's like, you guys are really good at what you do, I wanna be around you guys. You know, there's a lot of people, they look at these groups and say, well I wanna like try and figure out myself first. You know, I wanna like get a little bit further along before I jump in. He just jumped in with no experience and just started learning from a fire hose. Lo and behold, now he's about to now that he's officially pressed the launch button, like he's gonna be on the moon here in the next six weeks.

Dan Austin: [30:12] Heck yeah, dude.

Mike DeHaan: [30:13] So yeah, it's just, it is the time to stop pushing. But yeah, well outside of that, what are investments stuff, are you feeling like long term stuff this year? I know we didn't buy a ton of long term stuff last year, I know you have some ambitions to buy some more long term things this year.

Dan Austin: [30:28] Yeah. I'm all playing on cash flow right now, that's kinda one of my goals this year is to continue to buy cash flow and I say that but I mean I'm a deal guy, like if it has a lot of if it has a lot of equity upside and a little bit of cash flow, I'll still buy it, you know what I mean? But I am getting kinda a little bit more interested. You and I talked about after recording with with a guy, I don't know when Sam's episode launches, but I'll be

Mike DeHaan: [30:51] here about a month.

Dan Austin: [30:52] But, yeah. He essentially does some pad split stuff essentially, but he doesn't I don't think he leverages pads, but I think he has his own stuff that he his own marketing stuff, so he doesn't have to use them. But, you and I have joked around about the pad split kind of people that the wholesalers are like, oh, if you put this thing on a on pad split, you'll make a shit ton of money. And maybe you will, maybe you won't, but you shouldn't buy it at that price because you can only cash flow with pad split. Yes. That's the idea. That's the joke that Mike and I have made. But, and I'm not saying I'm looking at pad split, but I'm looking at that, those types of different opportunities where you can essentially go buy a property for a good price. Prices that we can entertain all day long as we can.

Mike DeHaan: [31:27] Yeah. Right?

Dan Austin: [31:28] Easy, good, solid off market deals, but probably more of a flip if we're not gonna get a lot of cash flow or if we have to tie up some cash. Right? Because you and I don't love to tie up cash to properties that we don't have to. Mhmm. So are those properties though where your cash on cash does go through the roof because you're able to do something creative.

Mike DeHaan: [31:44] Mhmm.

Dan Austin: [31:45] So renting by the room is something we can market test. I do think that there's probably some potential in assisted living, I don't know what that looks like right now, what frack, what does that look like? Maybe just owning the real estate asset and connecting with those people that do the assisted living rent by the room, I give you a look at, I think it was Medicaid I was reading a study on, like I think they pay a maximum of $4,500 per person for assisted living. So you think about that, $4,500 per month per person in a, you know, eight, nine, 10 bedroom property. Yeah. You can start seeing there's probably a scale there and and we you and I both sell people in that industry. So just that's my that's my curiosity phase right now. I'm like looking at long term real estate investment specifically to see what kind of cash flow you can squeeze out of some of these properties and be a little bit more creative.

Mike DeHaan: [32:30] Yeah. Well, I think asking the right property, the thing that all the wholesalers trying to sell stuff like that gets wrong is they're trying to sell you this ghetto ass beater house. You you can rent on paths, but that's not how it works. Right? No one's going to rent that sauce. It's like a really colorful person that you do not want there. Right? That's like that's what people are like, they're making a meth community in your house. You know, you definitely Right. But Yep. The right kind of house and when Sam dives into that episode, I'm really excited about him to come out, is he buys like these basically nicer, larger, branch style homes and he modifies to be a co living community and not basically you just bought a nineteen seventy split level, that's kind of an awkward three bed, two bath and you're having people, you're kicking them in there and going, here you go, have fun.

Dan Austin: [33:16] Yep. Yeah, but having people like stay in closets basically to like make more extra money and it's in the shitty part of town and so, yeah, think, so Sam does his investing in Charlotte, North Carolina, which I think is a really good city for that and so, you know, I don't know if Spokane is, I don't know, I don't know any of these things, I'm just speculating on potentially how do you increase cash flow out of some of these properties. That you underwrite as a long term rental, maybe they break even, but then you can go and get $23,000 a month of cash flow off of these Or just look at other markets where cash flow is more common. Yeah. Right? There's markets out there where you can go get cash flow all day long.

Mike DeHaan: [33:53] Yeah, absolutely. I mean, they're, it's just, they're just finding them, right? Mhmm. But it's always gonna be different. I mean, like with interest rates, things like that, that's going to be the risk and it just comes down to how do you make things work? Or one of the big things we've been talking about in our group as well is having your long term investment market along with your cash generating market. So this is a big thing. We had old Red Johnson on last Monday's episode. And he talked about how he has his wholesaling market, makes all this money, and he's just in doing all of his investments in San Diego. He had basically a zero cash flow margin, but he generates a ton of cash from his business and he's like, San Diego is not going anywhere. Right? Like people will continue moving here, you can't really develop around the city a whole lot because there's like the base and there's like a desert and all these different things. So you're super bullish on the long term. If you want to treat real estate like an investment, which I think is the new way to view real estate, I think that the old school bigger pockets ways of, you know, you just talk to a realtor and you buy a house for 70¢ and a dollar, and then you bury your money out and you collect your cash flow and you do all those things. I don't think that's gonna come back in that traditional simplicity, right?

Mike DeHaan: [35:07] You're going to have to learn how to make massive income, invest it into your passive income or into your long term assets, and that's what wealth is gonna be. People that are willing to do that are just never going to be able to have real estate any sort of scale, as if they're honest with their numbers.

Dan Austin: [35:23] Totally.

Mike DeHaan: [35:23] If they lie, and they they ignore the $13,000 roof that is eventually going to come through it, they can get away with it for like a couple of years.

Dan Austin: [35:31] Well, mean the the BRRRR process is in itself inherently slow too. Absolutely. So maybe you can go and find some BRRRRs, but it is a slow process especially if you're capital limited, capital constrained, what you happen to be, which is why I think you and I have found kind of our niche in doing off market real estate as a massive income generation with our wholesaling and flipping, that generates income, not only that you can like reinvest but you can live off of, right? But then it gives you the opportunity to do more deals, instead of one BRRRR a year, or two BRRRRs a year, or whatever you can sustain with your capital, because real estate's stinking expensive. It just is. Yeah. Unless you're buying $3,040,000 dollar houses, and you're making, you know, over 6 figures a year and you can easily put down small down payments and they're cash flowing, well that is, probably exists out there, it's just less common for most people. Yeah. Where most people live.

Mike DeHaan: [36:20] Yeah. It's only getting more expensive and, people you are making less money on an average basis so Yep. That's place where

Dan Austin: [36:26] It's interesting if you actually do like, if you look at where people live in The United States, where most people live like, I think it's like two thirds of the population lives East Of The Mississippi River.

Mike DeHaan: [36:38] Yeah. Really?

Dan Austin: [36:39] And so, when you talk about like for most, when I, or at least when I talk about for most people, like think about where you live, there's a big swath, like the West, where Mike and I live, is actually not that populated, even though we live in some dense populated areas and there are the I 5 Corridor from Seattle down to, you know, San Diego, essentially, there's a lot of population, there's a lot of nothing in between that too. But until you get like, over into East Of The Mississippi, you don't really have a ton of density, and so, when you say like real estate's only gonna get more expensive, it's because we're all kind of like coalescing into the same areas, cities and these areas, and so less and less land is valuable, and it gets more and, as it gets more and more expensive to develop, it's harder for people to push out.

Mike DeHaan: [37:19] Yeah. You know what I mean?

Dan Austin: [37:20] And continue to build because it gets more and more expensive the further you're away from resources and all that sort of stuff.

Mike DeHaan: [37:24] Yeah. Yeah. I mean, yeah. It'll be it'll be interesting. I don't know. There's just like a lot of older content that I think isn't fully applicable, but it's hard to know where to start. Right? I think the the most important thing is to get around people that are actually figuring it out right now.

Dan Austin: [37:41] If you were to break it down, think you're absolutely right. Like, you gotta get around people that are doing what you wanna do. Is the BRRR dead? I don't think the BRRR was ever not a thing, because the BRRR existed for decades and decades before Yeah. Brandt Herro coined the term, and it still exists, and that is, that is the business model for real estate, is you buy it, you increase the value, and then you refinance, and then you refinance again, you refinance again, you keep pulling out cash free money Mhmm. Until you die. You upgrade the properties using ten thirty one, like that's the traditional real estate model. You don't have to do it until you die. Like you and I have sold properties and paid the taxes on it. I think that's perfectly okay too. But from an efficient standpoint, that still exists, but it's gonna be harder to do this like low and no money down real estate in the traditional sense that was taught for many, many years, because there's more competition. Historically, hedge funds were not buying real estate like they are now. Weren't, know, there's people buying, like, there's REITs out there that were doing a lot of new construction as well, but there's like REITs and hedge funds out there buying used properties. Yeah. Like existing homes, which is uncommon.

Dan Austin: [38:44] There's investment banks out there building turnkey to rent and basically controlling that part of the market, and then there's mom and pop people like you and I who are out there buying. So there's just more competition buying the same houses. Mhmm. Yeah? So it's harder to get it at a major discount because those sellers have options.

Mike DeHaan: [39:00] Yeah. Yeah, I mean, exactly, the sellers have options, and I also think too that a big thing you're going to see is, especially with what happened in 2021, you're going to have a ton of people that will never sell their house because they have a projected, what their 2.7% interest rate that they got, how much interest that's going to save them over the course of their life, and they have now decided that they will live in the house forever.

Dan Austin: [39:24] This is something, maybe I'm way off base here, but when people tell you like, how much money you'll save on interest from this interest rate to that interest rate, it makes no difference to me if I'm gonna pay a billion dollars in interest or $10 in interest on my property, because I'm fundamentally, I'm picking the property that I can afford to pay, whatever the amortization is, it's $5,000 a month or $1,000 a month, that's the property I'm going to buy. I'm paying that payment regardless for thirty years.

Mike DeHaan: [39:52] Yeah. If it's your primary, right?

Dan Austin: [39:54] Who cares what the interest is? You're still paying it off.

Mike DeHaan: [39:56] It doesn't make a difference to you because you're an adaptable person that has, I would say like upward momentum in your life. If you are the average person, average couple, whatever, average family, mom has a career, maybe dad has a career, One, there's at least one working parent. That person is doing that job. Their plan to make more money is to maybe change jobs and get a higher salary to invest in their four zero one ks, to invest in some stocks on the side, do whatever, put some money away for Timmy to go to college. For them, it's a very easy sale to be like, if you have this lower interest rate, you're gonna have this much equity in your home that you can potentially use to send Timmy to college for eighteen years, fifteen years, fourteen years, whatever it is. Right? To those people, that makes sense. For a real estate investor, for a business inclined person, it does not make sense. That is kind of a silly way to look at it because you will

Dan Austin: [40:58] It totally is.

Mike DeHaan: [40:59] You will quickly reach a point where you have so much equity where it probably is better spent going and doing something else with that property than just paying down that debt.

Dan Austin: [41:06] Absolutely. So that's point one I was gonna make. Yeah. And the point two I was gonna make though is that interest rates go down, prices go up, Mhmm. Interest rates go up, prices go down. Yes. So essentially, it's a moving scale, so it doesn't matter.

Mike DeHaan: [41:18] Yeah. Right? So if you're like,

Dan Austin: [41:19] I got a 2.75% interest, I'm like, yeah, but you can't sell your house for what you could in 7% interest rate environment, so it doesn't matter, you just lost ten, twelve percent of your equity, so who cares?

Mike DeHaan: [41:29] Yeah, but you do a whole episode just like diving in on on what the correct way to approach that is, especially as an investor. But but the funny thing is is we know people that are successful, like I know GoBundance guys that are worth like millions of dollars that are like, I got a 2.7 rate on that house, I will never sell it. Right. I'm like, why?

Dan Austin: [41:46] I mean, I know exactly why. I have literally a 2.25% rate on Yeah. My And only reason I have that is because when I bought it, it was, the rates were 2.75, and then literally, like a year after I bought it, this dude from the bank called me and he's like, hey, we would love to refinance your loan to a 2.25% interest rate. And I was like, yeah, what's it gonna cost me? He's like, nothing. And I looked at it, and now he's like, with the credits we have, it's gonna cost you nothing, and because I used a VA loan to buy my primary, I have this like, whatever VA interest rate reduction loan thing. I don't know how it works, it cost me no money out of pocket, and didn't add really anything, So I changed what they actually end up having to do, so this is kinda hokey, was they had to cash out my escrow accounts.

Mike DeHaan: [42:28] Okay.

Dan Austin: [42:29] And then instead of me having to repay that cash, we'll just throw that back on the back end of the loan, which is fine. Was like $5 or something like that. Yeah. But they gave me $5 cash for my escrow accounts after closing, and it was like a silly thing, right? And so

Mike DeHaan: [42:42] like Yeah.

Dan Austin: [42:43] I have 2.25% interest rate on my primary, but it really does not matter. Maybe, maybe it matters because I can do like a sub two and I sell a wrap to sell my house to get, because maybe I

Mike DeHaan: [42:55] can use it as a marketing thing. But you should never do that for your primary home. That doesn't make sense. Just sell it because it's tax free income. No, I'm just saying.

Dan Austin: [43:01] I don't know. Like, trying to come up with a way that it For

Mike DeHaan: [43:05] a rental property, sure. You can sell a rental property that way. It's a great way to get more money for a rental if someone's trying to do a ten thirty one. But do that, people talk about trying to sell their primaries on subject to, just sell a fricking house and take the money. Only need to worry about taxes or anything else. Doesn't make But any yeah, we could go into a

Dan Austin: [43:23] whole conversation. Kinda running this one long.

Mike DeHaan: [43:25] We are, yeah. Anyways guys, we're gonna kinda stare to us, we're gonna get even more into the weeds. Thanks for listening everybody. You should share this with other people who enjoy real estate investing or just two guys talking about whatever we feel like. It's a great way to help grow. We appreciate it. You should also shoot us a follow on Instagram. I'm at mike underscore invest. Dan is at investor man Dan, and we're pretty sure we'll talk to guys next week.

Dan Austin: [43:47] See you.