How We Make a VIP Buyer’s List for Wholesale Deals

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

Mike DeHaan: [1:13] What's going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. We need a new tagline. What are we doing? This is a fucking real estate show. We talk about real estate, and we help you get rich. And if you don't wanna do that, then go listen to bigger pockets or some shit.

Dan Austin: [1:28] We're a real estate show that's transitioning and identifies as something else now. I don't know.

Dylan Koch: [1:34] Oh. At least we can just decide. You know? That's

Mike DeHaan: [1:37] We'd be like can decide.

Dan Austin: [1:40] That was that was pretty that was pretty low key right there, though. I got it.

Mike DeHaan: [1:44] We decide case by case. So today, we are talking about buying small businesses and how that will help you replace a 6 figure income. But that... What we don't tell you is that you're replacing that by getting another job that's actually significantly harder and significantly more work, but you won't have to work for the man anymore.

Dan Austin: [2:04] Boom. There you go.

Dylan Koch: [2:04] You are the man. And now you have an SBA loan for $3,000,000. It's personally guaranteed. Exactly. Yeah.

Dan Austin: [2:10] Now you're screwed.

Mike DeHaan: [2:10] You are the man. Now everybody works for you, and they're trying to figure out how to drop your bitch ass instead of you going

Dan Austin: [2:15] the other way around. So Exactly.

Mike DeHaan: [2:17] But that's like the worst fad. I I hate it. I hate it so much because it's so ignorant. And I feel like Wait.

Dan Austin: [2:23] Business buying is a fad or

Mike DeHaan: [2:26] preaching these small business buying to people as a means for financial freedom

Dan Austin: [2:31] Yeah.

Mike DeHaan: [2:31] Because it does not make fundamental sense. Right? Because it's always being sold heavily to, like, these, I don't know, like, tech kids who are, like, 26, and they think because they got a job at fucking Google and they went to MIT that they're somehow able to run a plumbing company. Mhmm. Right? And I'm like, no. That's not how it works. And they always have, like, the same sort of, like, bullshit mentality of I'm just gonna go and raise some money or get an SBA loan. I'm gonna buy this and plug in an operator, and it's gonna just operate. And it's gonna replace my $350,000 a year job at Google. That's so the opposite of how it goes over a... I would say not immediately because there's probably scenarios where you get into that and month one is okay than month two. But over the middle term or, like, even, like, short term, couple of years, that is a massive downward trajectory that's gonna happen there.

Dan Austin: [3:20] Yeah.

Mike DeHaan: [3:20] Which people don't understand, like, the volatile nature of business.

Dylan Koch: [3:23] One of my old GoPod members had bought a business, but he didn't have the anticipation that it was gonna... Like, he wasn't going to operate it. Like, he fully, like, was, like, planning on being an operator. Oh, that's He's like the one out of a 100 people when I hear these stories that actually... Like, he's grown it, like, maybe 50% over three years. And he's basically like, I don't think I would fucking do this again.

Dan Austin: [3:43] Totally, dude.

Mike DeHaan: [3:44] Right? It's a lot more

Dan Austin: [3:45] work than people think. And the honest truth of it too is is most of the boomers that are selling their businesses are selling a really shitty business, and they're overpriced. And they actually don't deserve even one times EBITDA because there's no systems. They're the key... They have major key man risks. Like, their name is like Skip, and they own Skip's Awning, which is a business in Spokane. And, like, they're the salesperson. They're everything. And the only reason they have accounts is because there's like

Dylan Koch: [4:09] And their wife's the sec... Like, the bookkeeper that does the books. Totally.

Dan Austin: [4:12] Yeah. Exactly. Yeah. Exactly. Neither of them take a salary. You know?

Mike DeHaan: [4:15] Yeah. I mean... And there's so many different iterations of that, and there's so many ways it can go wrong too. That's the whole thing is... Well, what I will see a lot now is I will see it compared to, like, real estate or other financial freedom avenues. Right? And the thing that people always lean on with businesses is that it can, like, grow exponentially if you know what you're doing. A, it's always gonna take way longer than you expected to, and B, it's gonna be way harder. But also, the other thing with business, the opposite way, is it can also go to zero. Yeah. Right? You can buy... Get a $3,500,000 SBA loan on some company that goes bankrupt. You still have to pay off that fucking SBA loan.

Dan Austin: [4:51] Yeah. And usually, s... SBA is, like, the worst kind of debt. If you're a real estate investor, like, an SBA loan is, like, the most disgusting kind of loan you can get. Totally. And they will put up second position on your primary home if you can't come up with a down payment. So, like, they are scrupulous.

Dylan Koch: [5:04] Oh, they will take everything that you have.

Mike DeHaan: [5:06] Everything. Everything.

Dan Austin: [5:07] Yeah. Your whole life.

Mike DeHaan: [5:08] And not only that, but it's not even forgivable in death. So if you have, like, little kids and you'd go and you make this dumb decision because you're an idiot, like, your kids now have to deal with that forever. Like, what the fuck?

Dylan Koch: [5:21] I get... And, like, when they had the zero interest rate days, so you'd hear about these HVAC or plumbing companies selling for 15 EBITDA. I know. So, like, you... There's, like, the reason some of these guys would go into that, but they were the Excel warriors. They were... Knew nothing about, you know, the actual business they were buying.

Mike DeHaan: [5:36] Yeah. So I don't know. That's that's my current grievance is that seems to be the phase. I'm interested to see what happens to a lot of these people over the next two, three years. What I imagine is it will be similar to a lot of the people that were part of the multifamily craze in 2021 when interest rates were rock bottom and everyone was buying these large multifamily and commercial assets on this projected growth, interest rates kind of staying the same, but that never happened. Right? They were making projections off of things they did not understand. They did not have the ability to run, and they did not have an alternative exit strategy. I think the exact same thing will happen with a lot of these private business investments that they're doing, and it will be catastrophic for a ton of people.

Dan Austin: [6:16] This is a good point. I think small business in America is, like, is under fire, and there's a big threat to it because not only is the VAT, you have these baby boomers retiring with businesses that just kinda suck, and they'll sell them to people that suck too if they can sell them. But then you also have private equity gutting small business because they're coming in and they're doing roll ups. Right? So they're just buying all of the HVAC companies in the town, rolling it up, and then selling it off to some other private equity for a little bit of a multiple on that. Like pretty soon private equity or hedge funds or whoever is going to own most of the small businesses in America. Anything with... I should... I would say with, like, enterprise value or the ability to have enterprise value. It's just gonna be gone, and that, like, small mom and pop ownership's gone.

Mike DeHaan: [6:56] Yeah. That mean that is an interesting conversation. Right? Because I would say it is the more advanced version of what we've seen with the real estate market over the last couple of years, you know, and but you will... What will happen as that's opportunities there is you'll see people that are building business models off of that. So if you go back to, like, 2019 to 2022 timeframe, there was tons of people that were building these big wholesaling and flipping models where literally the strategy was you would go to where Opendoor or, you know, who was one of other iBuyers? Like Zillow was buying. Right? And then you would buy the house, you would get it presold to Opendoor beforehand with their little, like, create me an offer tool online. And then you're basically just going off the fact that the current owner did not know that was an option. And you would close on it, You would sell it to Opendoor, like, a week later, and then Opendoor has freaking fallen off a cliff. They're all, like, a 95% drop in their stocks since 2021. Right? Now we're starting to see that same thing kinda happen with these, like, private equity firms that are buying small companies where you you have people... I mean, even, like, Al Shmozzi would be one of these people.

Mike DeHaan: [7:59] Right? But he's doing it at a very high level where you have people that are like, I'm going to go and try to buy these businesses at a little bit of enterprise value or do, like, a small roll up of, like, five companies and whatever, and then find a slightly bigger schmuck to buy the whole thing. You know? And it essentially is passing it down the line, but eventually someone's gonna get stuck holding the bag.

Dylan Koch: [8:19] Well, private equity is notorious for just leveraging businesses to the tits pretty much.

Mike DeHaan: [8:24] Of course.

Dylan Koch: [8:25] Because you're you're leveraging your your numbers look better the more debt that you bring on. Yeah. And so you can't surface said debt, which is the... Which is usually the problem.

Mike DeHaan: [8:31] Well, and also too, when it comes to big private equity, right, they're willing to take 99 losses for one huge win because that one huge win will be like a 10,000 x return. Mhmm. You know? Like, it's... It goes back to like the tech boom that we saw over the, you know, early two thousands where everyone was trying to do all these startups, everyone was trying to get into these unicorns and different things. And it's be... Like, they were backing all of these shitty startups because all you need is, one Uber where you make, like, billions and billions of dollars to justify the millions of dollars that you flushed away on whatever else. So I don't know. That's... I'm sure you're seeing that same thing with private equity. Right? Like, they're all kinda trying to find different industries that they like, different ways they can scale, different things that are easy to systematize. And I think the ones that are, like, essential services will probably come out a little bit better. You know, like plumbing companies, some of these different things. But, I mean, eventually, you're gonna reach a situation where something's gonna break, whether it's in terms of, like, the pricing doesn't keep up with the debt anymore or they can't find staff or there's just, like, no longer a customer base even it is essential because people just don't have money.

Mike DeHaan: [9:40] Right? Like, I don't know what the endgame is, but I think all the rookies are the ones that get roasted in that at the end of it.

Dylan Koch: [9:46] Totally. And this is the flavor of the year, I guess, or or every couple of years. Right? It'll be something else in a couple months or a couple of years from now, who knows what that... That'll be. But Yeah.

Mike DeHaan: [9:55] We've been

Dylan Koch: [9:55] in this game long enough to real... Like, realize these things just come and go in cycles.

Mike DeHaan: [9:59] Mhmm. Yeah. I mean... And there's always the next thing. But, anyways, bet. I think that's, like, the most important thing you can do with that is, you know, if you are running your own business is keep lean. Right? And don't, like, get stupid with some of the decisions that you make or, you you know, be realistic around, I would say, the investments that you're making versus how much you're actually gonna be able to, like, take out of it over, like, the short and middle term. You know, I think a lot of people who were around in 2021, '22, they're still kind of leading with this optimism that things are going to continue to go up, and they're looking for that to save them from their questionable decisions. When realistically, I think even when you're looking at rental properties or flips or wholesale deals or whatever it is in the real estate world, you need to be kinda looking from a worst case scenario right now more so than ever before.

Dylan Koch: [10:49] I'd probably be guilty of what you just said a little bit. Like, I've been a little bit more aggressive lately. I'm like, I'll figure it out kind of a thing, which I I guess I'm in a different position than I was a couple years ago without Sting. But like

Mike DeHaan: [11:01] Oh, you got dumb money now? Is that what you're saying? No. Me and Dan went to the dumb money phase too. That's when we that's when we started a franchise, did all this bullshit.

Dan Austin: [11:09] Now we have no money.

Mike DeHaan: [11:10] Now we had no money.

Dylan Koch: [11:12] Well, I know we talk about on the podcast a lot about like... And especially now, there's negative economic data everywhere. We're a little bit slower, affordability's problem, all this stuff. And a lot of this though is through the lens of, let's say REITs are supposed to do like three to 4% over the next couple of years. Like big institutional billion dollar funds. None of this ever takes into account the operator that we are referring to in our off market businesses. Yeah. We're still... I'm still selling a $275,000 house hack duplex that's an FHA buyer that would have happened if we were in a recession or not. Like Yeah. Mhmm. So those... Like, I guess to say that, like, if you're listening to this and like, these guys are always so negative or the world's gonna fall. Like, we don't ever take into account the person that's doing the deals on the ground.

Mike DeHaan: [11:55] Well, I think also too the difference of that situation, Dylan, is, you know, I think it's... Is it Warren Buffett that says price is what you pay, value is what you get. The advantage that we get on our... In our very specific niche of niche of real estate, right, wholesale real estate, specifically in residential, it is very easy to create value at the moment that you buy because it's just based off of data and numbers that you can see that are proven. Where people tend to get into trouble, and this is what we saw a lot in '21 with real estate, this is what we're seeing with the small business things, so being that back in, is people are expecting value to be created later. Right? The safest investments are ones where you know the value is created right now. Because you are... And you're looking off empirical data of something that already exists, that has already come to fruition, and not like, I'm going to forecast this growth, which is why everyone that was doing multi families in '21 is getting cooked right now.

Dan Austin: [12:49] Totally. Yeah. They're like, interest rates will stay stay flat or go lower. We'll be fine. Exactly. Yeah. No. I I think the the two ways, like, as you're talking, I'm thinking, like, the two ways that people get it wrong, like at our level, is they underestimate rehab costs or they overestimate the ARV. I mean, you really can't do anything else wrong on the buy side. Like, those are going to influence the offer price you make along with how much money you wanna profit. But over speculation, like if you think, which I don't see this anymore, but if you think the value is gonna go up from when you purchase it beyond what your value add can do, like you're screwed already right out the gate. But I don't see that very much anymore. I just see people wanting to do a deal so bad that they will believe that the number is gonna happen, or they won't even price in a maybe a two or 3% price reduction over the course of ownership.

Dylan Koch: [13:40] You know what never happens anymore, Dan? Is that you're mid rehab in a... In one of your flips. And then let's say you're, like, two weeks out, and then another house in your in your neighborhood goes live on the MLS for 30 k above what you thought your ARV was gonna be.

Mike DeHaan: [13:54] Yeah. And

Dylan Koch: [13:54] you're like, man, I hope that I hope that sells.

Dan Austin: [13:56] Yeah.

Dylan Koch: [13:56] Yeah. Doesn't happen anymore. No.

Mike DeHaan: [13:58] No. Now now they're coming in less. Right? As you're looking down the street, like, fuck.

Dylan Koch: [14:01] Yeah. Exactly. Now you're like, why did they listen for that? Goddamn Yeah.

Dan Austin: [14:04] Wow. They way overrehabbed it. Shit. That's my competition now. Oh, no.

Mike DeHaan: [14:09] But I mean, you know, but being able to create that value on day one is everything. I mean, again, in every type of investment, right, or every opportunity that you find, that is probably the one thing that you should always try to strive to do. Mhmm.

Dylan Koch: [14:22] You know,

Mike DeHaan: [14:22] is it gives you options. Yeah. You know, I think the perfect example, Dylan, like you add in your notes here, talking about this buyer that backed out, but now you have an option to monetize it a different way. So like, what is that full situation?

Dylan Koch: [14:33] So it was a direct mail lead. I actually had wholesale one of his other houses a long time ago. He came back around, and when I walked through it, basically, we offered him... We got here to purchase price of 80,000. This is one of the situations where I knew it was gonna be difficult to get access again, so I brought a couple people with me, including the appraiser that everyone in town uses. And so we walk it. One of the buyers that was there was like, hey, I really want this. Like, don't sell to anybody else. I'll give you it for this price. I'll say, That price works. Whatever. Sign the assignment. And I have a follow-up question to you guys about how much EMD you guys charge your end buyers, but hold that thought. It was closed in in two days, and then we got... I got the HUD's and everything, and they, like, basically texted my AM or was like, okay. I can't do this deal. I'm like, okay. Well, I have this appraisal now that I paid for, and it's... So it was assigned for this guy for 01/2005. This appraisal came back at 01:35 as is. So I'm just gonna buy it, and then I have to, unfortunately, kick the tenant out, but then I'm just gonna list it after that and hopefully make 20 more grand than I was originally going

Dan Austin: [15:33] There you go.

Mike DeHaan: [15:34] But that happens because you created value from the second you signed the contract. Right? You identified that value, you knew it was already there. And so you can go from... I mean, unfortunately, with wholesale real estate, because we don't bring the money at that point. You have EMD on it. That's it. Your downside risk is very, very low, you know, starting out. But you're able to go from basically making nothing to now making $40 because you identified that value from day one. Regarding your EMD question for buyers, was this a new buyer for you?

Dylan Koch: [16:00] It was. I I made him do a thousand. I should have been 5. Yeah.

Dan Austin: [16:03] 5,000. Jeez. Make it hurt.

Mike DeHaan: [16:05] We'll we'll do 2,500 for repeat buyers.

Dan Austin: [16:07] Yeah. We did we did 15,000 recently on one for

Dylan Koch: [16:11] $15?

Dan Austin: [16:11] $15. Yeah. On a deal that is over in, like, Western Washington.

Mike DeHaan: [16:17] Mhmm. Yeah. Because it was a little bit of a dicey one, and it was a deal Completely new buyer. Completely new buyer for us. And there was, like, a lot of interest, and it was gonna be hard to have access again. And so we made sure that if they wanted it, we were... They were locked in tight, and that worked out really

Dylan Koch: [16:32] well. That's smart. That's what I should have done too. I just... I don't know. I just... Oversight there the way he was talking, I trusted that he was gonna do it, and here we are. It's gonna work out. This is gonna like, you know, you play with your cash in this business now. It's not gonna be, you know, if I was projecting to have $20,000 in two days, now I'd be like, okay, I'm not gonna have that. But I'm in forty five days from now or sixty days from now, I'll have forty. You know what it is. Again, you're able

Mike DeHaan: [16:57] to make the decision with that data that you already have. You have the appraisal. Right? You can, like, directly see it. That's a pretty secure risk, I would say. Right?

Dylan Koch: [17:05] Yeah. And this is, like, one of the better deals that, you know, that's way above my average Yeah. Price per deal.

Dan Austin: [17:10] So You know?

Mike DeHaan: [17:10] But back in the day, people would have been buying that same house for a 125,000 because they knew that by the time they listed us, was worth a 150.

Dylan Koch: [17:17] Yeah. I've never once have I been like, I expect two or 3% appreciation during my holding period. Never once have I had that thought.

Mike DeHaan: [17:24] Dude, I remember back in the day, like, especially Seattle was like insane. And people like wholesalers, they will be sending out deals, and they would have the appreciation ARV. When you're done with the flip in six months, this is what it's gonna be worth. No, dude. I'm serious. It was crazy. Yeah. Wow. And we would see that shit everywhere.

Dan Austin: [17:41] I love the appreciation ARV. What a stupid thing. Yeah.

Mike DeHaan: [17:44] And people would buy it, dude.

Dylan Koch: [17:46] I'm gonna start doing that, but it's gonna be less than the ARV that I have listed. Yeah. Right. It's a depreciation Airbnb.

Dan Austin: [17:51] Honestly. Realistic.

Mike DeHaan: [17:52] I was working at a hard money company at that point just like selling loans. And we would have people that were like defaulting on their loans, like it becoming due and they wouldn't sell it. And they'd be like, no. The property is going up so much in value every month. I'm just gonna pay the penalty interest.

Dylan Koch: [18:07] Shut up. That is hilarious. Seriously. Wow. And

Dan Austin: [18:12] there for a bit, it was that way.

Mike DeHaan: [18:13] Yeah. For like a year. Yeah.

Dan Austin: [18:16] There for a bit. I mean, you couldn't you couldn't lose.

Mike DeHaan: [18:18] If you can give me about thirty six seconds, I just wanna share our scale community with you. So scale stands for scaling cash flow assets, leverage, and equity. It is our exclusive community for real estate operators looking to take this game seriously. In the community, you'd hang out with myself, Dan, Dylan, and other operators around the country who are all working to be the best in their market. We recently did a survey, and every single member said that the community had directly contributed to major growth experience in the last twelve months. On top of that, you get all of our processes around marketing, sales, building a CRM, and you even get preferred relationships with Lowe's and different financing slash lenders so that you can get your deals 100% paid for without a headache. So if that sounds like something you're interested in, go to collectingkeys.com/scale. Let's see if you're a good fit.

Dylan Koch: [19:01] Related question to that is, I should have had this in my business beforehand, but I'm going through basically making a new quote unquote buyers list. I'm having my assistant do it, but of everybody we've ever sold deals to. But also, like, let's say I... Everything I made an offer on, but I got outbid and eventually sold for $20.30 k more. And I'm... You know, we're basically skip tracing who those buyers are and putting in a new, like, basically, like a VIP buyers list sheet. Do you guys have something like that? Do you still mass market all your deals for brand recognition, get new buyers, that kind of stuff? Because the trade off in my opinion is you work with, you know... And there's 65 people on this list so far. You work with people you know who can close, or you take the time to act... Like, so Dan, I guess you're the dispo guy, to actually take the time to do the dispo, show the houses, find new buyers, vet them. How much time does that take you versus just finding more deals?

Dan Austin: [19:51] Gosh. Dang. That sounds like you're doing a lot of work. Yeah. I would also add to your workload is all your competition's buyers. That's more so what

Mike DeHaan: [19:58] we do is not like our previous buyers, but we pull all of our competition's deals, and we see who they're selling

Dan Austin: [20:05] stuff to.

Dylan Koch: [20:05] So they say if it got marketed, you see it, you just keep tabs on it till it sells?

Dan Austin: [20:09] We follow-up on it. Yep. Yeah.

Mike DeHaan: [20:11] And then we'll go and we have a whole list of everyone, every deal that gets sent out in our market, and we go and we see who ends up buying it, we see what their prices are for, and then we look at those people. The challenge that we have is just like the nature of our market. It's the same people. Like, between who we're already selling stuff to and who's buying all of our competition's deals, there'll be like the random, like, one off new name in there. But besides that, it's fundamentally all the same people.

Dan Austin: [20:35] Yeah. We track it all.

Dylan Koch: [20:36] We have a lot of that here too. But Yeah. You get the onesie twosies here that can... They could probably pay 15 k more because they're doing all their own work or something like that. You

Dan Austin: [20:43] know? Totally. And we do we do get those onesies and twosies. I would say nine out of 10 times when you're working with them, they don't buy anything. Mhmm. But you do get that random onesie twosie person that does buy one or two deals. Like the guy... The deal we just talked about, the $15,000 EMD, granted this is a new market, but that guy's only ever bought two deals ever. He's a W-two guy that just looks for buy and holds like every... And he's only... Yeah. Actually, this was his second deal. So it's like he's barely ever gonna buy. We probably won't see him buying again for a year until that thing's stabilized and he's got enough capital to saved up to up to buy another one. And so, like, we get those, but to all the ones we see and we track our spreadsheet, yeah, we've got the same probably four or five people buying all of them.

Dylan Koch: [21:24] I mean, I have a... I saw shit. I probably like over a thousand names on it. But, like, mass marketing to that is a lot more time intensive than picking one that was like, I know these people have at least bought real estate.

Dan Austin: [21:35] I mean, if you have a VIP list already at 65, you're already killing it. Because, yeah, we have, like, in Spokane where we said our list is a little over 600 people. And again, most of those people don't respond, you know, like there's just... There's nothing out there that's like going into the And then you'll get onesies and twosies off that list that do respond and pop up because it's time for them to buy or they, hey, I wanna I wanna do my first project or whatever it is. And they'll come out and you'll, like I said, nine out of 10 times waste your time with them. But you kind of have to do that though, and you have to kind of get good at that so you know when you're gonna waste your time because there is that one time, that 10%, maybe 15% where the person actually does buy it, or they don't buy that deal, but they are motivated to buy the next deal. And the the... Like, the salesmanship there is is like, hey, man. I can't get you this one, or hey, I don't like that deal. Well, now what's your buy box? And you and you build that relationship with them, and then you almost like guilt them into buying the next deal because like you're giving them time, right, of you to like show them and and give them opportunity that they wouldn't otherwise have.

Mike DeHaan: [22:35] Yeah. One of the challenges we have in a smaller market... So I've I've spoken at a handful of meetups this year, and, you know, I always spend time kinda chatting to people afterwards, usually newer investors. And there's two common things that I see are are really, obviously, prevalent. Right? One is that our other competitors here, they send out deals that are so bad. Right? Like, that are so high that everyone basically assumes that every deal that comes from a wholesaler is bad.

Dylan Koch: [23:06] Not just in Spokane. I'll tell you that. Yeah.

Mike DeHaan: [23:08] And that's the one that they see the most. Right? And so I've talked to when they said, oh, I don't I don't even like analyze deals from wholesalers anymore because everyone that I was looking at from this other company was always a terrible deal. Right? And the funny thing is is we'll look and their deals almost always sell for less than they send them out for. So they're sending out like a wish price. And then what happens is one of our crafty buyers will go and say like, I'll pay you $15,000 less than that, and they accept it. But what it does is it kind of, like, taints the buyer pool where they no longer respect anyone's in the industry. That thing is really common. The other thing that I see, which is really common, is people will use, like, these free tools or, like, the bigger POC calculator online that are so unbelievably conservative that they are making offers at prices that, a, we will never be able to get. Right? Or that are so... Have such, like, a huge margin that if we were to have a good price, we would just buy it ourselves. Yeah. You know? So they have an unrealistic expectation around the margins that you can create on these deals. You know? Especially, like, in our price point, we're in, like, a funny price point because, like, high exit prices, like, low 4 hundreds. And so there will be people that are, like, realistically trying to make, like, 80 to $100,000 on a flip, because they're going at 75%. So 400 to $300,000 minus $50,000 compared.

Mike DeHaan: [24:25] They're trying to build, like, this huge spread in there. I'm a bro. Like, you can't do that. Doesn't happen. Like, that model works a lot better if you're in, the $200,000 price point. If you go and, like, when the bigger pockets calculator was created in 2016. Right? You look at price points then. Yeah. It makes so much more sense now, but you have to actually do math and understand the fundamentals of a real estate transaction to be able to calculate a real profitable deal.

Dylan Koch: [24:50] Yeah. And that 75% rule. I tell a lot of new investors, don't underwrite yourself out of a deal, like, the opposite way. Like, I understand you wanna be conservative, especially if it's your first one, but you're never gonna buy something if you're trying to do what Mike just explained.

Mike DeHaan: [25:02] Yeah. Absolutely. And you have to, like, just bake in your margin, figure out how much money you wanna make or you should realistically be able to make. Right? Have kind of like your your oh shit gray area in case things go outside of what you're expecting. And then actually, like, hard calculate your your offers. Otherwise, you're never gonna buy anything.

Dylan Koch: [25:19] Literally, I take ARV, which is usually a little conservative, 92% of that, subtract out my Mhmm. Hard money cost, and then subtract out my rehab, and then subtract out my profit I want for that size of rehab or deal.

Dan Austin: [25:32] Makes sense.

Dylan Koch: [25:32] And that's it. That's all the arithmetic you

Mike DeHaan: [25:34] need. It's so easy. Do you

Dan Austin: [25:35] try to do like a one to one on the average rehab versus profit? So like 50 rehab makes... Equals 50 k profit, or do you go a little like 30 k?

Dylan Koch: [25:42] No. We... If I... Would I take those deals all day. I mean,

Mike DeHaan: [25:45] I would Yeah. Of course.

Dylan Koch: [25:46] Rehab would be like... I would be okay, like, 25 to... 25 is like my minimum, and that's for a pretty easy one. So I... 30 or 35 or above.

Mike DeHaan: [25:54] Yeah. And if people don't know what their hard money cost, if you're new and you're listening to this, just do 8% of your purchase price. That is 12% interest for six months plus two points.

Dylan Koch: [26:02] Wow. That's really good. That's not how I've I've done it. So simple. That's easier.

Mike DeHaan: [26:06] That will be high for your hard money costs, right, for the average person, but it will give you tons of room to make mistakes if you need to.

Dan Austin: [26:12] I always think about it as 1% as a month. Right? Because if it's 12% for Yeah. You know, $200,000 loan, you're paying $2 a month.

Mike DeHaan: [26:19] Yeah. And then you just have the two points on top of that.

Dylan Koch: [26:21] I would take ARV, 75%, take that one point, and then times it by seven. Because then you have six months of interest plus one point if that's what the deal is. So I

Mike DeHaan: [26:29] love it. Now we're all throwing calculus out there.

Dylan Koch: [26:31] There you go.

Mike DeHaan: [26:32] Math. Math. No. It's funny, dude. I've been... Like, on this note, we have these three interns in our office right now. And let me tell you, not... Math is not their strong point,

Dylan Koch: [26:42] man. I don't know

Mike DeHaan: [26:42] if it's, like, if it's a generational thing or is it three kids, but, like, they're very smart kids.

Dylan Koch: [26:48] Do they ask to put it into chat GBT?

Mike DeHaan: [26:50] Dude, they might... I don't

Dylan Koch: [26:51] I don't know if they

Mike DeHaan: [26:51] do that.

Dan Austin: [26:52] You might get it wrong.

Mike DeHaan: [26:53] Yeah. Like, they're very smart, like, with, like, certain things, but I'm coming to realize, I don't know if it's a generational thing or it's me. I don't... I am very strong with math in general. So I I don't know if I wouldn't talk to, a random person on the street if they would have the same challenges. But some of the stuff we've been going through as I've been doing, like, these little lunch and learns with them on Friday, I'm like, goddamn. Like, come on, guys. What is 6% of a 100,000? They're like,

Dylan Koch: [27:17] fuck. I don't know.

Mike DeHaan: [27:20] Yeah. Me pull up my

Dylan Koch: [27:23] calculator a

Mike DeHaan: [27:23] lot. I know. Know. I It's it's funny, dude. I don't know what that is or if that's just like a common thing now. Everyone can cheat that easily in school, so you literally didn't learn anything. Like, I learned a little bit by cheating a lot. They cheated a 100%.

Dylan Koch: [27:38] I guess coming from your... You guys were both engineers. I was a pharmacist. Like, I guess some level of higher education. And when you get into real estate, I was almost frozen because I was like, I don't have all the answers. This was not Mike. Know this wasn't Mike. This was not me at all. But... Yeah. But, I was like, I need to know this and, like, get down... A lot of people I feel like get into this come from more my aspect. And then... But they never do a deal because they're like, it was 11.8% cash on cash. I needed a 12. Right? Like, just buy the goddamn deal. Like, it's... Kids gonna figure it out.

Mike DeHaan: [28:05] Yeah. Well, I feel like that's really common. So, like, a lot of the engineers and, like, that kind of mindset that come in joint scale, they tend to lead that way. Versus then we have, like, the hard sales folks who, the... Don't I even know what the... Like, what is the house worth? All I know is I talked to the seller. He'll give it to me for $1.20. And then I talked to this guy that I met at the brewery randomly on Saturday. He'll give me $1.40. Right? I don't even know what the house is worth.

Dylan Koch: [28:29] Yeah. See, like, that's crazy to me, but, like, I know that exists.

Dan Austin: [28:32] That's wholesaling right there.

Mike DeHaan: [28:33] Yeah. But that... That's... So that's Cody who works with us. Right? Like, that is literally him. You know? And then we've we've had members in the group that are the same way though that have come through and are like that. But the thing is is those people, they always really struggle building a long term sustainable business because they don't follow a process. Everything with like the wheeler and dealer type is around making like a quick buck, and they're really good at that. Their growth trajectory early is always very high, but they plateau super early. The people that can actually like learn to run numbers and be calculated in their risks, those ones build a much more sustainable long term business and make a lot more money over, like

Dan Austin: [29:08] More consistent. Like, two, three, four,

Mike DeHaan: [29:10] five years.

Dan Austin: [29:10] Yep. You can hustle your way to a $100.

Dylan Koch: [29:12] That makes a lot of sense. I guess my point was, like, the bar to competence is a lot less than I think someone who doesn't do real estate probably thinks or someone who's, like, new to real estate.

Dan Austin: [29:20] Yeah. That's why most real estate agents are kind of on the spectrum.

Dylan Koch: [29:25] There's your there's your tagline.

Dan Austin: [29:27] And not the autism one. They're just kind of stupid.

Dylan Koch: [29:29] Like Oh, that's what I thought you meant.

Dan Austin: [29:31] Yeah. No. No. No. Well... Yeah. But I give autism like a

Dylan Koch: [29:34] lot more credit. Yeah. I mean, you

Dan Austin: [29:35] deal with a lot of real estate people, especially on the real estate agent side of things, you realize like, oh my gosh, this person is not that smart. Yeah. You know I mean? They don't have any creativity ability on the contract side of things. They don't even sometimes even know how to use the contracts. There's the 1% and everything that are awesome, but a lot of times you don't have to be that awesome. It's a low barrier to entry. Anything with a low

Mike DeHaan: [29:54] barrier to entry. But you see way less investors that are like that. Right? Investors have to be a lot smarter.

Dan Austin: [29:59] Investors are a lot more savvy.

Mike DeHaan: [30:01] Yeah. Oh, totally. Know, like the ones that are actually successful. You have the the big names out there, the people that realize that they suck in investing and, you know, try to go into something else. But

Dan Austin: [30:11] Yeah. Well, there's also, I mean, if you just go and do a a walk through, you'll also notice that there's a lot of people that fancy themselves as investors or household person. You're like, you are not good at anything.

Dylan Koch: [30:24] I have a lot less patience, like, for stuff like this. And the example is, like, I had someone that was hounding me for deals, and I brought him to, like, a walkthrough. Oh, no. And I was just like... After he's like, I was asking, I think, 95. He's like, I'll give you $70. I'm like, don't even waste my time anyway.

Dan Austin: [30:39] Go home.

Dylan Koch: [30:40] Like, I have two offers at 90. Like, why... How did you get to 70? And they're like, oh, this is gonna cost this. I was like, no. It's not. Like, I know it's not. You need better pricing then. Like, I don't know.

Mike DeHaan: [30:48] We have one of those guys in our market. He actually walked one, like, recently with one of our guys, like, last week, and that's lit... That was literally the situation. Like, I'm so into it. I really wanna deal. You gotta bring more. Was like, I'm... I have money related to closing, like, two days. And then he goes and walks it, and he's like, no. Don't want it. No. It's not my it's

Dan Austin: [31:05] not my kind of house. I don't I don't like the street.

Mike DeHaan: [31:07] Didn't even make an offer. He's just like, yeah. I'm like, what the fuck, dude? You, like, hit us up every day looking for stuff. You know? But I guess eventually they'll get one.

Dylan Koch: [31:16] So Yeah. Yeah. I guess that's true. Do you guys wanna dive into this data stuff at all? You wanna move on to something else?

Mike DeHaan: [31:22] Give me the too long, didn't read because you sent over, like, two paragraphs, and I'll be long... I'll be honest, it's too long I didn't

Dan Austin: [31:27] read Market bad.

Dylan Koch: [31:29] I already read it too. No. I guess the crux of this is existing home sales in The US declined point 5% month over month. So from March to ape... Or sorry. March to April. Yes. It's the lowest in seven months. And I think the biggest thing in here I wanna say was total housing inventory was 1,450,000 units, up 9% from March. And you would think that... So we have inventory rising in a period where you think inventory would be decreasing because of the seasonality of real estate selling more in like the summer spring kind of a timeframe.

Mike DeHaan: [32:03] Sure. Yeah. I mean, that would be something I agree with. I think the thing that stood out to me here mostly is that you said, even with the 7,000,000 jobs added to the economy, pent up housing demand continues to grow, though not realized. See, and this is one of the things I think is really interesting to me is I would say that this is the perfect demonstration of the haves versus the have nots right now that exists so heavily in The United States is we have generally a low unemployment, and there's this huge, huge demand for employees. Right? But, like, we don't really have people to fill that. That's really shows, like, how well a lot of, like, businesses or, like, remodel successful people are doing compared to everyone else right now is because we talk about this affordability crisis. We have massive consumer debt. We have all these different things. Then we also have all these businesses that could be taking larger distributions. Right? Or it could be kind just chilling, but instead they're trying to aggressively hire more people. I mean, you wouldn't be doing that if the economy for those businesses was struggling. The first thing that you get rid of when the economy is hard in small business is employees.

Mike DeHaan: [33:02] Yeah. Right?

Dylan Koch: [33:02] These are the highest percentage of your total expenses.

Mike DeHaan: [33:05] It's your highest cost. Totally. So what does that mean over, like, the middle long term? I have no idea. But when it comes to a housing perspective, like, regardless of all the numbers everywhere, the main thing is still that in many places around the country, people cannot afford to buy houses. Right? Interest rates the way that they are, they cannot get qualified with their income versus what the cost is going to be to buy that house, the traditional mortgage, and that there are significantly more people right now that are trying to sell houses than to buy, especially in some of the boom bust markets.

Dan Austin: [33:33] You know what the problem is? They all wanna live in cool places, like California, Oregon, Washington, New York, the coastal towns. They need to move somewhere where they deserve to live like where Dylan's at in Cincinnati.

Dylan Koch: [33:44] I'm gonna be I'm be, like, one of the poorest

Dan Austin: [33:46] In the middle of in the middle of the other, like, 42 states. If if

Mike DeHaan: [33:50] you guys... I don't know if you ever listen to Daniel Tosh and stand up, but he's like, you know, that's the thing about the Midwest. It's for people who give up on their dreams.

Dan Austin: [33:57] Dude, you went to Hollywood. You couldn't make it. Go back to Cincy.

Dylan Koch: [34:01] I was born here. I was

Mike DeHaan: [34:02] So you never even had a dream to begin with, Dylan.

Dylan Koch: [34:05] No. That's... I mean, it is what it's it's funny, though, because on the second bullet point, talking about, like, permits being down, like, nationally, they had this broken down into decline in the Midwest, 7.2%, decline in the South, 8.6%, but increased in the Northeast 14.3%, and the West 3.4%. So it's a little bit different than I would anticipate. Do you know why? Mhmm.

Mike DeHaan: [34:31] Because you know what's in the Northeast and the West? No. Nice weather? People that have money. Yeah. 100%. Dude, you go to the Northeast, like, houses are still selling for a million bucks up there. You go out West, people that still have money out here. You know? And so what are they doing? They're like, well, I can't buy a new house anymore because I got priced out at the interest rates, but I could spend $40,000 in redoing my entire fucking kitchen. It'll be like a new house. There

Dylan Koch: [34:53] you go.

Dan Austin: [34:54] Fair enough.

Dylan Koch: [34:54] I can't deny anything you just said.

Dan Austin: [34:56] Yeah. I mean, I don't argue it because I know people wanna live in those areas. And so anytime there's people that wanna live in areas... I mean, you're you're talking price or permits, like, for new builds or just permits in general?

Dylan Koch: [35:07] So they had both on there, but the permits that are outlined is for new construction.

Mike DeHaan: [35:12] New construction. Okay. Think remodels.

Dan Austin: [35:14] But Yeah. So I mean, there's probably... Yeah. There's definitely still growth growth in lots of areas in the... On the coastal markets. I mean, it is surprising there'd be that much growth. Yeah. It's because it's cool. It's a place

Mike DeHaan: [35:24] to live. It's a cool place to live. You know?

Dan Austin: [35:26] It goes back to being regional and local with real estate. I mean, who cares what's going on in Florida if you live in Washington.

Mike DeHaan: [35:32] Yeah. Honestly. I would also say that we are reaching a period of time where a lot of people that have been consumers and travelers, like younger people, millennials, they've kind of gotten a lot of the traveling stuff out of their system, and they are looking to settle down. They're starting to have kids. I saw this really interesting statistic the other day. I should be able to find... If I can find it. But if you look at the number of millennials, like, percentage wise that are having kids, we are actually about to be equal to the baby boomers. Really?

Dylan Koch: [35:59] That does surprise me. It's a lot later in life, though. It's a

Mike DeHaan: [36:03] lot later in life. So the percentage of millennials that are having children over the next, like, year to year and a half is gonna be equal to the number of baby boomers that had children.

Dan Austin: [36:10] Which is interesting because, like, the millennial generation has, you know, far surpassed the baby boomers in population number. Totally.

Mike DeHaan: [36:19] But it's been significantly later in life. And so for a long time, there was this whole thing of like millennials aren't having kids like we are. We're just waiting till we're 35.

Dan Austin: [36:25] We're practicing. We wanna make sure we're good at Totally.

Mike DeHaan: [36:28] But, like, we also wanna do shit. But, like, point being is as a lot of us get into our

Dan Austin: [36:33] Well, financial crisis also, like, really push people out five to six years on the scale.

Mike DeHaan: [36:38] Dan, you're not

Dylan Koch: [36:38] allowed to have an opinion, aren't you, Gen X? No. At

Dan Austin: [36:42] least I'm not Gen Z, you nerds.

Mike DeHaan: [36:45] I think we're we're definitely safe from Gen Z. We're very friendly millennials.

Dan Austin: [36:49] I don't know. You guys kinda act like it, though. You kinda look like it too.

Mike DeHaan: [36:54] Yeah. That's his classic Jack's right there. He's like he's like I'm gonna start making funny

Dan Austin: [36:59] Don't forget about little old me like everyone else did. You pink hair freaks.

Mike DeHaan: [37:04] But but point being though, so people have kinda gotten out of their system. And I will say as you look at a period of uncertainty, people are going to be prioritizing what their at home life looks like a little bit more. And I think a lot of that's gonna be higher quality place to live, higher quality home, you know, more... I would say, like, more fun environment. Right? If they're not gonna be looking to do as much stuff over the next five years.

Dan Austin: [37:26] Well, they started doing that in COVID. Right? That was like the big push in COVID was people moving out of the city to the suburbs because they're like, well, fuck it. I don't have to commute. And then you're saying that as millennials mature, they're like, man, having a Traeger is pretty cool. I need a packed patio. Like, I'm gonna a meat guy now.

Mike DeHaan: [37:41] I mean, what's talking about COVID? That was five years ago. A lot of people got all their cool shit out of their system.

Dylan Koch: [37:46] All of my, like, my friends are on the same age. Bought houses in the past three years. Mhmm.

Mike DeHaan: [37:50] And a

Dylan Koch: [37:50] lot of us are having kids now too. So, like, it kinda fits the normal millennial dynamic.

Mike DeHaan: [37:55] Yeah. Starting to see it.

Dylan Koch: [37:56] What's cool in Gen Z now? Let's get ahead of this now. Like, what do Gen Z kids like to do, or where do they like to go?

Mike DeHaan: [38:01] They like to have trauma.

Dan Austin: [38:03] Yeah. This is called trauma bonding.

Dylan Koch: [38:05] Okay. So we're gonna look for triple net psych wards?

Mike DeHaan: [38:09] No. No. No. No. They don't they don't want that. One of the new things they really like, they really like to be autistic. Everything... Every quirk that they have is some kind of autism. Yeah.

Dan Austin: [38:17] I think also if you could sell any, like, semi legal drug that will help your mental health, you can really make a killing in that one too.

Mike DeHaan: [38:24] Ketamine therapy, big, big time. But alcohol is bad for you. Remember that.

Dylan Koch: [38:29] Don't do alcohol.

Dan Austin: [38:30] Hard drugs

Mike DeHaan: [38:31] are fine.

Dan Austin: [38:32] Microdosing, dude. It's not addiction. It's

Dylan Koch: [38:34] not addiction. Shrooms, ketamine. We'll find some other stuff.

Mike DeHaan: [38:38] That's why I started microdosing fentanyl. Really makes me feel good.

Dan Austin: [38:41] I I really... You know what? Next to my tanning and butthole bleaching salon for, like, the med spa theory, which I do think is a lot of money in there, my next one, it'll be like you come into the strip mall and you go and have, like, a psychedelic, like, trip, like, at 02:00 in the afternoon.

Mike DeHaan: [38:57] Now here's what... Yeah. That... That's a good idea, honestly. So that'll help with the mental. But what about the physical? As the gents, he starts to get older and start having, like, bad hips and back, what you do is you bring them into the fentanyl clinic, You get them into the fentanyl slump, and then you help them stretch. It's really gonna elongate that spine.

Dan Austin: [39:12] Yeah. Get rid of the scoliosis.

Dylan Koch: [39:14] And then in all... In your mall, Dan, we're gonna have 20 vending machines of all these microdose drugs. Oh, absolutely, dude. Lease the vending machines to somebody else. Yeah.

Dan Austin: [39:23] Hell, yeah. That's a business you could sell, Dylan.

Mike DeHaan: [39:25] Yeah. Totally. Let's start a franchise. What what do we like? What what do we

Dan Austin: [39:29] call that? I don't even know.

Dylan Koch: [39:31] You gotta develop the culture index first.

Mike DeHaan: [39:32] Yeah. Well, goddamn. Well, anyways, when it comes to real estate, start buying up places that you can put Dan's mushroom vending machines. That'll be the... Like, outside of your trauma centers. When you when you get sick of trying to pretend that having a 10 bedroom hacked up house for x meth heads is Mhmm. Gonna be okay. Instead, you can turn those into trauma centers where people can go and take psychedelics and figure out their problems.

Dylan Koch: [39:58] To replay this in five years, and we're like, man, we should have done this.

Mike DeHaan: [40:01] We should

Dylan Koch: [40:01] have done this. Seriously. It's gonna...

Dan Austin: [40:03] Yeah. That's all we're gonna call the trauma centers. It's gonna be a strip mall for all your trauma needs. Alright, guys.

Mike DeHaan: [40:08] Well, thanks for listening, everybody. Hopefully, you enjoyed the show, and you guys are continuing to get deals done out there. You guys have a great rest of your week. Talk to you guys next time.

Dan Austin: [40:16] See you.

Dylan Koch: [40:16] See you, guys.

Mike DeHaan: [40:18] Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at Investor Man. Dan and Dylan is at Dylan underscore Does underscore Deals. Choose to follow and send us a DM to let us know what you think of the show.