Is The Buy and Hold Strategy Making You Poor?

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

Mike DeHaan: [0:31] good fit, we would love to have

Mike DeHaan: [0:32] you join the community. So again, collectingkeys.com/scale, go ahead and apply, and see if you're a good fit.

Mike DeHaan: [0:38] That will be the crisis that our generation deals with over the next several decades. What's going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. Today is Wednesday, and it is the off market operator show today with me, Mike DeHaan, and my co host here at Dan Austin and Dylan Cook. And if this is your first time here, this is the show which should make massive income, not just passive income with your real estate investing business. And we are on a journey to help as many of you as possible make real money with real estate, not do like this, I don't know, get rich slow thing that a bunch of, like, old people think is still valid in 2024. I don't know. Fucking boomers. Am I right? And there goes all of our our boomer audience, which is none of you because they haven't learned out figured out how to listen to a podcast yet, so that's fine. What's up, guys? Happy Wednesday. How was your your July finishing out, Dylan? I know Dan and I, we obviously see our businesses, you know, doing together on a regular basis. What's it looking like over there in Ohio?

Dylan Koch: [1:42] Yeah. No. I mean, July was good. We have we bought transaction three deals, like three hotels or three wholesales. Also bought a six unit at the beginning of the month. And then we should have two selling in August. They're under contract. Two more going live next week. That's pretty much everything that's in escrow right now. But I need to catch up on all my leads, man.

Mike DeHaan: [2:02] Yeah. Know. Follow-up, baby. You've been like the lone wolf forever, pretty much as long as I've known you.

Dylan Koch: [2:08] Yep.

Mike DeHaan: [2:08] Let me ask you this. I think this is a good sort of thing for a wide range of listeners. Why do you think you have had so much trouble trying to hire an acquisition manager?

Dylan Koch: [2:17] Well, the first time I did it, I was gung ho about it. And then he backed out like the day before it was just a start.

Mike DeHaan: [2:23] That's right. Is that the one that was supposed to come to sales training and then snow Yeah.

Dylan Koch: [2:27] Yeah. And then I

Dan Austin: [2:28] was like It broke

Mike DeHaan: [2:29] your heart

Dylan Koch: [2:29] so flustered by that point. And then of course, I'm like, no excuses. But I was like, so busy that I just had really haven't tackled it since then. Like I said, you guys beforehand, I did this post a job offering on locally here, but that's even for executive assistant to take care of way the minutiae, then I could go back into that sales role a little bit heavier.

Dan Austin: [2:47] Yeah. Is it partly that you're fearful that you would lose some money by hiring somebody like your revenue would drop?

Dylan Koch: [2:53] So it is like the whole mindset of taking one step back to take three steps forward. And the mental gap of having to take one step back right now when I already feel overwhelmed is probably what's prohibiting that. But the the pay structure I plan on implementing with an AM is pretty much commission based or fee based, I should say. So that's not really a fear of mine, because they're not gonna get paid unless they perform.

Dan Austin: [3:16] Yeah, I guess I bring that up because a lot of people get worried. Hey, if I'm making this much money, and the person I hire for the next three months is like 50 to 60 to 70, and like builds up percentage Mhmm. Efficient, you're going to drop in in revenue in the in the immediate. Right? That that's a fear you have to overcome.

Dylan Koch: [3:34] Yeah, no, it is. And I honestly think, you know, with my experience level now, I could if as long as it's the right person, you could train them up to that. Like, I mean, you guys are a great example of just throwing up, like, starting back up in your own local market and how quickly that was a success. Right? So if I could just get someone to do a similar thing here, even if they're what's the quote? Like 80 as good as you, you should delegate it. Right? So Yeah.

Mike DeHaan: [3:56] Yeah. I mean, and I would also say that I would assume at this point, because you've been doing this for so long, you're probably good enough at the close that that isn't what the part you should delegate first. But, like, I mean, because the sales cycle, there's many phases to it. You know? The intake. There's the lead nurturing. There's the actual closing. Those can all fundamentally be different people. When you're a small operation, you tend to do all of it. But if you're good at a specific portion of that, you can probably outsource the parts that you don't like or that you fall behind on and just hold on to the part that you are good. Like if this perfect example I see a lot is the people that have been doing this for a while are natural salespeople, they're really good at the close, but they just are trying to scale. They have too many leads where they can't nurture the high value opportunities while also, like, evaluating and following up with the maybes that are in your system, which is a lot of them, right, that have been coming in over the months. And so it probably makes sense for you to hold on to the closing piece and outsource that part first. And then once you get to a phase where you have so many closing opportunities that you can no longer, like, keep up with that, that's when you look to bring in a closer.

Dylan Koch: [5:08] Yep.

Mike DeHaan: [5:09] Right? Yep. And I think that one of the biggest mistakes so many people in this business make is they think that their first person needs to be a sales rep, right, or an acquisition manager. And honestly, a lot of that is is fueled by what people say on social media, but also because people get burned out. And they're like, I feel like if I have this person, I will get a work less. It's like, yeah, but you're right. But you would also make way less money totally if that is the part that you're good at. So, like, the perfect example of that was is Aaron Bihl, who you guys have heard on the show in the past. He's a good friend of ours down in San Antonio. But I remember him going through a phase years ago when we were kinda growing our business and very, very good at closing sellers, but his lead management sucked. His data and marketing sucked. And, ultimately, he brought on a partner that was good at the back end, and then Aaron could just be the closer. And that basically took them to be one of the most successful little duos that I know about that's active these days.

Dylan Koch: [5:58] Yeah. Totally. And if I look at my own business and what I wanna reverse engineer into, it's like, don't need like the huge team. I think I can do very well for myself with like acquisitions person, executive assistant, maybe maybe some other VAs like lead management or taking like the initial intake calls. But a team of four or five really, you can you can do 7 figures here locally, like, with that pretty pretty easily. Yeah. You see? Yeah.

Mike DeHaan: [6:22] Mean, we were talking about that on our scale call today, our coaching call. But Dan and I's most profitable year was in 2021 when it was literally us and one sales rep. And we had a, I guess, kind of dispo slash t c guy, and then we had like a VA, and that was our whole team. And our profit margin was like 80%, and we did well over 7 figures.

Dan Austin: [6:43] Yep. It's like owning a rental property that you might as you either should own one or you need to own 10. Right? There's like when you're running a small business, it's like their profit margin is so great when you're smaller, and then once you start adding resources on the bottom of your p and l, then it starts eating away your profit margin. Now you need to do even more work to get that same exact return on your investment. So it's kind of a pain in the ass in that weird, what do they call, like, adolescence phase of business, that messy middle. It's like you gotta either do that or you gotta get through that messy middle to the scale piece.

Dylan Koch: [7:14] And where a lot of people get fixated, being included is in that messy middle too, right? So Yeah. But it's tough. I mean, and there's the intangible side of that too. Like, you know, shut it down at 06:00, but there's a billion things going on in my mind that God do the next day. Like, you're not as present with everybody else, you know. Right? So there's intangible factors to consider with that too.

Mike DeHaan: [7:34] Yeah. And that's the value that comes with having more scale. Right? It's even if you are less profitable, but you are able to make more money for less time worked. Right? Like, you know, if it comes down to your choices to make $809,100,000 dollars, but you gotta work eighty hours a week or you can make $500, but you work forty hours a week. Right? After a while, that that looks more attractive, you know, after you've after you've made the big money for a little bit.

Dan Austin: [8:00] I would even take it to a different level and be like, you might still have to work eighty hours a week, but that's because you choose to, and you can choose to turn it off. Like, the the phase that you really are trying to get to when you get to that hiring and you're scaling is like, you can physically turn it off and go out of town for a week, and you still make money. Like, that's really the piece. So you might still come home and work eighty hours a week, because you wanna grow your business, but you can shut it off and actually still keep making money, like the machine keeps turning. That's like the ideal situation. I know a lot of people are like, well, only work ten hours a week, and you know, everybody else does everything for me. It's like, yeah, I'll let your business is never gonna grow with that, and then that doesn't necessarily mean you can shut it off. It just means you're working ten hours

Dylan Koch: [8:39] a week every single week. And when, you know, shit hits a fan, you know, you're still gonna be the guy in charge. Right? You still gotta come back for stuff like that. But I don't know. I'm this actually is a kind of a good segue to our next topic. Like, you know, once you make the big money for a while, you get a little bit content, and you're not at this hustle beginning stages of your career that everyone wants to go to. Maybe you have some money stockpiled, right, and you're on this path to financial freedom. Everyone wants that $5,000 a month in passive income thing know what they get to, but you do this long enough. Like, you can see that $5,000 a month in passive income is only just the beginning. And like this whole like rich versus wealthy debate, and I know you guys had some interesting conversations lately with members of GoBundance. So I'd like to hear maybe your guys' take on this or, like, a different point of view than most people have.

Mike DeHaan: [9:23] Sure. Let me preface this by saying that I think that there's a transformation that people go through when they reach what I would call, like, stage two of, like, financial independence or, like, financial I don't know. Like, knowledge. Right? Even where you realize how you can make, like, real money. Right? And you've probably done it to a point where you can either surpass any previous w two job that you've had or you, like, recognize that if you work x amount, like, you can make, like, like, big money with the skill set that you've built. And this is something that occurs after you've gotten past, like, the I wanna make 5 or $10,000 a month passive sort of mindset. Right? And I would say that when people sort of reach that level is when they realize what they actually want. And there's a huge number of people that go like, you know what, I do just want to have my passive income, or make my $300,000 a year, and just like hang out, right? And like, you know, do my lifestyle like that. Like we had Dalen on the on the he's coming out on the Monday show here in a few weeks, he literally said that that's, like, his goal is to to be able to do that. And then you have the other sector people that are like, okay. Now how do I make a million dollars a year?

Mike DeHaan: [10:35] Right? And do that consistently and have it not be tied to, like, the economy. And how do I make several million dollars a year and have it be something where I can, like, travel and, like, do my own lifestyle. Right? And do that. And then there's a whole other group of people that say, like, I wanna have x amount of portfolio. I wanna have this kind of net worth. I wanna have, you know, like this sort of, I would say, exit at my retirement. And those all, I would say, like, are different identities that people sort of develop to start to drive them when they Mhmm. I don't know, are kind of like enlightened to the financial potential that exists when you learn to create a business. And so anyway, it came around a couple of GoBundance conversations because the traditional thing with real estate investors, I feel like it's always driven by wealth. Right? And, like, long term wealth and owning assets and all these sort of things. And a lot of people still have that. And they wanna, like, hold these assets and, like, have this long term wealth potential. And for me personally, my view has changed over the last year. Well, honestly, I don't really give a shit about that. And because, like, my view is having a bunch of paper wealth does not allow you to, like, live a sick lifestyle where you can kinda do whatever you want. And I would say that my view on this has changed a lot because as so many people that I know that have a high net worth, they own a lot of assets. They have seen increases in their expenses owning these assets.

Mike DeHaan: [11:54] Their rents are not going up with the rate of inflation or the rate of their tax increases, their insurance increase, everything else. And all of a sudden, I see these people that are worth, like, $5.10, $20,000,000. They're, like, having to live kinda like lean lifestyles again. And I'm like, it's because you haven't learned how to make any fucking money, dude. You bought a bunch of properties in Denver that quadrupled in value in the last ten years. Good for you. But you don't know how to make money, so who cares?

Dylan Koch: [12:20] Or you can't spend equity. Can't spend equity.

Mike DeHaan: [12:23] Yeah. And and they're too afraid to sell their stuff because they are indoctrinated into this field. Like, I need to have this long term wealth. I don't wanna pay taxes. And I'm like, just sell them and pay the taxes. Just sell half of them, you know, and you'll have $7,000,000 post tax. Right? Like, what are you worried about? But, like, people are fighting me tooth and nail on that all the time.

Dan Austin: [12:42] Yeah. I think it's what people maybe they don't know what they actually want. You know, they say that they want because they're trying to replicate a blueprint maybe. Because in real estate, we all kinda had brought up in these, like, benefits of owning real estate, which it's undeniable. Right? That the tax benefits exist. The passive cash flow exists passive, I should say, just the cash flow exists, like, what other thing can you buy that both provides equity net worth growth, as well as like income, as well as tax benefits. You can't usually get three. You can get, like, a dividend stock. Right? That gives you the cash flow from the dividend and then the equity appreciation, but you can't get that tax. So they're undeniable. Right? But the problem is with anything, you can skew it way too far one way or the other because you don't need the test benefit you're not making any freaking money. Right? Like, who gives a shit about this?

Mike DeHaan: [13:34] Like, all your

Dan Austin: [13:35] paper losses. Right? And so the way I think about this conversation is it doesn't matter like, I think you prefaced it well, Mike. It actually doesn't matter how much. Like, there's no number, and I think the term wealth and rich are it's just this their semantics, right, what they mean to because they mean totally different things to different people. The way I've distill it down into is that rich is having the things you want. Wealth is having the peace of mind you want. So that number could be totally different for anybody. So rich, you could have a ton of cash, you could have a ton of cash flow, you could have boats, cars, houses, whatever the fuck that means to you, but you are still having to work and execute in a way that if you stop, that stuff goes away, where wealth is a peace of mind, and that peace of mind could be that you make a $100 a year, you make 0 thousands of dollars a year, that doesn't matter. It's just you have peace of mind that no matter what happens, you are living the life that

Dylan Koch: [14:26] you wanna live. It's your life. It's not

Dan Austin: [14:29] a number. It's not passive income versus I don't have to work anymore. It's just you have peace of mind. There's people out there that are actively working and loving life. They have a peace of mind because they know where they're headed is exactly on the path they wanna be on.

Dylan Koch: [14:40] Totally. There's a plumber out there that's more wealthy than than maybe I am right now, just because they are content with all of their with their direction and their current balance sheet and and their income.

Dan Austin: [14:51] Right. And they're they're wealthy in all sorts of ways. If you wanna measure it as like, well, 10,000,000 is wealth. It's like, but you don't need 10,000,000, and some people want a 100,000, and they're fucking stoked about that.

Mike DeHaan: [15:01] Totally. I mean, you go to any third world country. Right? That's what you'll see. Sure. That's always like the eye opening thing when, you know, white people go to, like, Africa or someplace. Like, everyone here is so happy, and they don't have anything. It's like, yeah, because that is like, quote, unquote, wealthy life. But I'm talking about financial wealth. We all understand, like, the key to happiness. That's like the campy, like, I don't know. Go talk to a life coach kinda answer.

Dan Austin: [15:21] I don't think you could define it as as like, do you think there's a dollar amount?

Mike DeHaan: [15:25] For what? For wealth? In general? Yeah. I mean, it's all it's all relative.

Dan Austin: [15:30] I guess the way I hear what you're saying is that wealth means that you have equity in properties. To me, it doesn't mean anything, because you could have equity in a business that you can't tap either. That's not wealth. Right? Because you don't have peace of mind. You're like, if I stop working today, my business is, you know, worth nothing. If you're trying to sell your business actively, like, maybe, like, you need to get that five x, seven x, nine x, now, you're like,

Dylan Koch: [15:51] oh, I've I've realized the wealth.

Mike DeHaan: [15:53] Totally. Here's what always gets me with real estate people is they will throttle their long term growth. Right? Because they are obsessed with this view of, like, building a portfolio and having, like, quote, unquote, paper wealth and equity when there is literally a much greater return opportunity investing into your business and creating cash, you know, which I would sell calls makes you rich, quote, unquote, because if have a real estate business, you don't have any wealth. Are no enterprise value for 95% of real estate businesses. Right? It gives you cash. You have to pay taxes on that. It goes away instantly. But I would say, like, if you can have a $100,000 and so that we use our our Spokane relaunch as an example. Our current return on ad spend is 5.6 x. What does it take to get 5.6 x in four months on a real estate deal? Right? Especially on one that you're going to hold. It's not possible. Right? Unless it's like something where you're buying it at such an extreme discount or have this huge value add. But like there are people that will not take that, you know, 500% return in their own business because they're too obsessed with owning a duplex.

Dylan Koch: [17:01] I can hear the the bigger pockets comments now that say, hey. I bought this duplex, but I completely burned it. So my return is infinite. But who gives a shit if that infinite is $200 a month?

Mike DeHaan: [17:10] Yeah. Exactly. And what's your return on equity in that? Exactly. $50,000 in equity in that and you're making $300 a month, like, I don't give a shit. You could take the $150,000 in equity, put that into like a debt fund that pays you 7% interest, and you'll make more money. And that's actually like tangible cash, plus you can probably draw it out that debt fund whenever you feel like.

Dylan Koch: [17:31] Real estate is created the most millionaires. Business is created the most billionaires.

Dan Austin: [17:34] Yeah.

Dylan Koch: [17:35] Right?

Mike DeHaan: [17:35] Mhmm.

Dylan Koch: [17:35] And not everyone wants to be a billionaire, then that's fine. But even in my from my own perspective, I have been more on the buy and hold stuff than you guys have. I think we have 47 rentals right now, units. Mhmm. And I basically have this ambition to pay off about 20 of them, and then that will give me about 15 ish thousand dollars a month in net cash flow per month. But then I can do whatever the hell I want. I think that's like the what I'm trying to get to.

Mike DeHaan: [18:00] You can for now, but then what happens when your taxes double on that property? What happens when there's a freaking earthquake? What happens in Cincinnati? You have some kind of natural disaster, I'm sure. And it screws up all your stuff. Right? You have a fire. The great Cincinnati fire of twenty twenty seven happens and burns down. And all the insurance companies are like, well, you didn't have fire insurance, so I guess you're fucked. That stuff happens, dude.

Dylan Koch: [18:24] So I guess I can't argue again, and you just said if that were me, I buy just put a low probability event on something like that happening. Yeah, property taxes have gone up. They just went up this past year. But I've bought a lot of this portfolio in past years that I've underwrote for that. Like, to be fair, since that is a very buy and hold friendly market.

Dan Austin: [18:42] Sure.

Dylan Koch: [18:42] Yeah. So as far as like prices to write ratios, like that kind of stuff. So if anyone else is listening to this, Cincinnati sucks, don't come here. But I don't know that that is my current game plan. And I don't disagree with your math. But I'm also saying like, there is another aspect to this that other people have to make their own personal decision around.

Mike DeHaan: [18:58] And that's the key is I think that it's important to to make your own decision around that. And I guess the reason we're even having this conversation is what I always find very interesting is how defensive people get around the wealth piece, especially in real estate. And I feel like it's generally uninformed. And a lot of it is driven by, I don't know, I would say, like, the desire for I wanna say comfort. Like, the desire to, like, stop working or, like, like, maybe a little bit of laziness a little bit. I don't know. Like, in my mind, if you don't mind working, k, there's really if you don't mind working, you know how to make money. There is really no reason to be distracted by trying to, like, get paper wealth or assets when you can reinvest in your own business and make significantly more money that you can then use. And this is part beyond lifestyle. When you know how to make money, more liquidity is a tool.

Dylan Koch: [19:44] Yeah. Mhmm.

Mike DeHaan: [19:45] Like, I think right now, if Dan and I had $5,000,000 in cash, what we could do with all the, you know, the different stuff that we're sort of like planning over the next six months would be completely different than what we're trying to do right now with 10% of that.

Dan Austin: [19:58] Yeah. The caveat to your argument is that most people that you're talking about don't have the ability to invest in businesses to have a fucking business.

Mike DeHaan: [20:05] That's true.

Dan Austin: [20:05] They have you know what I mean? Like, they learn how to invest in real estate at the right time. And they're so stuck in that, like, wealth building. I guess, when we say wealth, like equity building, because that's the long term value of which can turn into cash flow at some point, because you

Dylan Koch: [20:20] can start selling these assets off. Right? So you buy 30 assets and then sell one asset every year for thirty years, that's cash flow. Right? That's kind

Dan Austin: [20:27] of like a business, but they don't have businesses. And so there is immediate possibility of downside in investing in your business, especially if you're just starting one and you don't have one, and that's where I think people get like scared. And then I, well, I know at minimum. It's like a four zero one k. I know at minimum, if I do this because everybody does this, I'll get this much. So I think that there's a little bit of like fear, and then also just not having literally a business to invest in.

Dylan Koch: [20:53] There is something to be said for the skill sets that you have to learn and develop to do this business, knowing that if we had to move for whatever reason, I feel confident in my ability that I could go to a different market and make money. Right? And like, I had no formal education, training and real estate whatsoever. It was all self taught. And like, same for you guys, too, like the people who are probably listening to this, but there's just a peace of mind that comes with having the skill set to make money anywhere really in The United States.

Mike DeHaan: [21:22] Yeah, totally. Yeah. And you know, the the right answer for that, it doesn't. I mean, it's different for everybody. Like, don't think it exists, like the correct way to go about it.

Dan Austin: [21:30] No, I guess I'll add some flavor to this conversation too, because we we are real estate podcast. We started out as real estate investors. Right? Mike and I, I mean, a big part of our wealth was because we bought properties.

Mike DeHaan: [21:40] Totally. And honestly, you, even bigger part of that is because we were bought properties before 2020.

Dan Austin: [21:45] Yeah. We were buying properties right and at the right time.

Mike DeHaan: [21:48] Like, $1,500,000 of my net worth is exclusively from the properties that I bought before 2020.

Dan Austin: [21:54] So let me ask you this before I go into my segue here is that if you knew, which you know, that next year or the year after that, interest rates would be at 3% again, would not now be the best time to buy?

Mike DeHaan: [22:06] Technically, yeah, it would.

Dan Austin: [22:08] Theoretically, right? Because you don't know. Right? So there's potential for that cycle to exist again, and we might be getting ready to get into it. We don't know. So there's always opportunities, but if you're not in a game, you're never gonna get to exploit those opportunities. But I'll segue into what I was gonna I was gonna talk about is, I was at a GoBundance event just last week out in Madison, Wisconsin, And there's three guys, they did what would call what's called the Deca Millionaire Panel, people that have reached beyond 10,000,000 in their wealth or net worth, however you want to define it. Yeah. All three of those guys invest in real estate. However, all three of those guys are business owners that sold and exited a business. One guy did franchises. One guy did financial planning. And one guy did his own business in the telecommunications industry. All three started from scratch from zero. And then built their businesses up, invested all their time, all their efforts, all their money in their businesses, and then two of them exited into private equity. One exited to an employee, seller financed it to

Dylan Koch: [23:10] Those people are probably buying real estate for tax reason, not to get the best bird deal. Here's my theory though.

Dan Austin: [23:16] On some of these guys, they're buying real estate because they know how hard it is to build a business. Right? If you spent twenty five years, forty years maybe even building your business, and that business made you a deca millionaire, you totally get that starting a business from scratch is flipping hard, right? But you're a hard charger, you wanna keep going. And so real estate are like these little mini businesses, and so they want something to keep them busy. They do need some tax benefits, and they're investors now. They just sold their business. Say you're worth $25,000,000. Well, you gotta put it somewhere, and you're probably not gonna put it on the stock market because you're so used to reinvesting in your business and yourself. Like, the stock market's not as exciting. Right? So you probably put some over there, some over here, some in this, some in that, and then real estate ends up becoming part of that investment strategy. And if you're young enough, like these guys in their forties and fifties, I still have energy to start

Dylan Koch: [24:07] a business, so I'm gonna invest in real estate. That's my theory is they kinda just want some they're like the the housewife that wants to buy at Airbnb. They just want something to do that's kind

Dan Austin: [24:15] of that kinda itches their business, scratches their business itch.

Mike DeHaan: [24:19] Well, they're already, like, ultra rich, though. Right? That's different. What I'm talking about primarily is the people that are worth, like, less than $5,000,000 Mhmm. That are clutching onto every single single family home or duplex or they are overextending their business to hold on to a property because it has, quote, unquote, long term potential.

Dan Austin: [24:37] Yes. I'm agreeing with you and given a different reasoning for other people that have chosen to invest in their businesses and now are investing in real estate.

Dylan Koch: [24:46] Yeah. Mike, do you have plans that so basically, you're saying, ROE return equity is less than ROI. If you put that into math equation for like some of your rental properties. Do you have plans to sell your personal rentals?

Mike DeHaan: [24:59] Yeah. Like, honestly, I probably will sell all of my stuff in the next twelve months. Just because like, I would pull out like, well over a million dollars in cash. And I look at all the other opportunities that I have right now. And even after taxes and everything else, that money is currently just sitting there. And not only that, but my portfolio is not only, like, not really making money because I've had major increase in property taxes. I've increased it in insurance. Rental rates in our market here have not really gone up. They've stayed pretty flat, but my expenses have gone up. And additionally, right, all it takes is like one tenant to move out that's been in there for three years. And I gotta do the paint. I gotta do the carpet. I gotta swap out all the stuff. There goes 7,500, $8,000 because materials and labor have gone up so much. And now not only am I not getting, like, a cash on cash return, I am coming out of pocket to pay for the assets. Right? And these are properties that have that were awesome cash flowing things two years ago. But things out of my control have diminished my cash and cash return, but my equity is enormous. Right? So why would I not liquidate that?

Mike DeHaan: [26:02] I hope you guys are enjoying this episode. We are seriously trying to grow this podcast so that the voice of what it really takes to grow a real estate business becomes kind of the norm versus the guru get rich quick b s that everyone is fed on a daily basis. With so many podcasts out there, it is hard for us to get discovered on our own. So a quick ask, please share this episode on your social media accounts. Be that a real story, whatever. And if you tag me at Mike underscore Invest, then I will give you a follow, and I will also send you a DM so that we can have a little chat about your business and anyways I could potentially help you grow. So again, please share it on your socials. Tag me at Mike underscore invests, that's with an s at the end, and I'll follow you and we can have a little DM a convo about your business, and maybe I can help you grow a little bit, or you could just say what's up to That'd be awesome. But appreciate everyone, and thanks so much for helping us grow.

Dan Austin: [26:54] What would change that, I guess, in lieu of selling it, like, would change that, I guess, in your opinion, to turn them into cash flow gases? Because they were cash flowing at one point. What needs to change?

Mike DeHaan: [27:04] I guess, I don't know. I could put it on fucking pad split. That's what all the dorks say on social media. No. That's not that's not that's not real. Like but the thing is it's outside my control.

Dan Austin: [27:13] To some extent. Right? But I'm just thinking like, is it a market cycle? Is this a short term thing? Like, is in two years, is it would those

Dylan Koch: [27:21] Like, would markets go up in two years? Is that you're saying? Like, where Yeah. Cash flow's a little bit more?

Dan Austin: [27:25] We're making an assumption, right? Like, I've invested since 2016. And honestly, everything kind

Dylan Koch: [27:30] of went like this. We had like a little

Dan Austin: [27:31] bit of dip, but everything just kind of

Dylan Koch: [27:32] has always done this. And I don't think we've done this. I think cash flows for sure done this. Mike and

Dan Austin: [27:37] I definitely feel this. I get what he's saying. But will as rates go down, because we're arguably in a consumer recession right now. Right? They would say like, we were in a business recession before, and that's why the stock was going everything was doing so well. It's because like, the consumers were still consuming, and now we're kind of in that consumer recession. So then does that mean maybe in a year or two as as rates go down or whatever happens that the values will keep going up, and then rents will go back up, and and then taxes and insurance will be chasing it, and your expenses will be chasing that increase? Maybe. You have to make a decision for today that will take you further in the future, but it's just kinda like, I guess the argument is is like, is this a short term cycle that that would ideally fix itself if you're a long term guy? Because some people are long term hold. They're gonna keep it no matter what.

Mike DeHaan: [28:21] Yeah. I'm sure it's a basically, for it to go back to making sense, the insurance companies would have to make decisions in my favor. Not gonna happen. The city would have to make tax decisions in my favor. Not gonna happen. Yeah. And the income potential of the renter population would have to go up. And we already know that's not gonna happen.

Dylan Koch: [28:40] Yeah. There's already an affordability problem.

Mike DeHaan: [28:42] So There is. Like, that will be the crisis that our generation deals with over the next several decades. We're gonna have this huge wealth gap, and that's not gonna go anywhere. Right? And, you know, I would honestly say that, like, for when it comes to long term rental properties, it's going to become harder and harder to hold them because the property prices are gonna keep going up. You have a bunch of us that are wealthier, higher income, that are basically playing inside baseball, trading assets with each other. Sure. At the I'll say almost at the expense, honestly, of the people that can't afford to buy anything. Really? And, you know, pull your boot shops up, figure it out, whatever. They're not gonna do that.

Dan Austin: [29:21] Right.

Mike DeHaan: [29:21] Right? And those subsidies are only gonna go so far. Right? You know? And and if you're in a red state, there's gonna be no subsidies at all. So you're completely fucked. Sure. Your profit tax might be lower, but no one's gonna be able to afford anything. Right. And I like I just feel like especially if you were in the run up for the last couple of years, it almost feels like the good time now to cash out because there's still a bunch of people that are into, like, the wealth mindset. And if you're able to, like, take that and turn it into an income opportunity Right. Let the dipshits you still think the market's gonna go up, deal with that. Like, realize your gains and go and apply it to something that you know is gonna have future potential.

Dylan Koch: [29:56] I see some of the the buildings selling my market for investment purposes, and I literally shake my head. I'm like, how the hell are you making any money on this? Totally.

Mike DeHaan: [30:03] It's insane, dude. Yeah. Like, honestly.

Dylan Koch: [30:06] And I got one last thing because it's piqued my interest. I just this is a quick Google search to keep that in mind. But basically, what percentage of small businesses reach a million dollars a year in revenue? Do have any guesses on what that might be?

Mike DeHaan: [30:18] 5%.

Dylan Koch: [30:19] That would be a lot very low, I bet.

Mike DeHaan: [30:21] I say 5%.

Dylan Koch: [30:22] So two sources range from five to 9%.

Dan Austin: [30:25] Yep.

Dylan Koch: [30:26] So I just say that because we're all, you know, running our off market operations probably have surpassed at some point. Is it just the nature of our business? Why do we know so many successful people in this real estate market that can do that? But maybe it's not true for, I don't know, a hair salon or whatever it may or a tax professional. I don't know.

Mike DeHaan: [30:43] Yeah. I mean, I think that the real estate businesses are you're able to it's it's it's it's very easy business to build as a million dollar business because it's a high leverage business. Right? And it is honestly a high risk, high reward business because it also has downside risk, where I would say like a hair salon probably doesn't unless you'll take like a SBA loan and you over extend yourself that way.

Dan Austin: [31:02] Yeah. That could screw you. Screw you hard.

Mike DeHaan: [31:04] But, like, when you're, you know, doing real estate, you are taking a high cost item and selling it for a higher price. Right? And so there's the ability for there to be large spreads on it.

Dylan Koch: [31:17] I think that's the biggest thing. We're not selling $510, $20 widgets, several $100,000 in each transaction. A lot of money moving.

Mike DeHaan: [31:24] Totally. You know, how many pairs of eyelashes can you do at a, you know, salon in a day? But you're gonna be capped. You're gonna need to have more chairs, more staff, more capital, then eventually, that'll be maxed out. You're gonna need more locations.

Dan Austin: [31:37] I think that's a bad example because I think they make a lot of money.

Mike DeHaan: [31:39] They can make insane arrive,

Dylan Koch: [31:41] Yeah. So high. Yeah. Yeah. No. That I mean,

Mike DeHaan: [31:44] they can absolutely make insane money. In fact, when I was at the acquisition.com thing in Las Vegas last month, there was a lady there that had a chain of, like, some kind of, like, specialty facial thing.

Dylan Koch: [31:55] I don't know. I don't

Mike DeHaan: [31:56] know what lady things do. Yeah. But

Dan Austin: [31:58] Your wife said the

Mike DeHaan: [31:59] same thing? Yeah. But she made like $8,000,000 a year, like a top line.

Dan Austin: [32:07] Oh my god. That's crazy.

Mike DeHaan: [32:09] But she had like 11 locations, whatever her place was. And and she had a huge staff and huge infrastructure around it. But that is the 1% of the 1% of that industry.

Dan Austin: [32:19] Totally. Yeah. Yeah. Yeah. They're most of it's mom and pop, one shop, like that eight unit we bought. She used to do eyelashes outside of her apartment.

Mike DeHaan: [32:26] Yeah. Right? Yeah.

Dan Austin: [32:27] God. Cash only, baby.

Mike DeHaan: [32:29] Yeah. She well, she was making fat money. She was embezzling it from the city. That's all. All of our rents.

Dan Austin: [32:34] She's smart. But, yeah, you your point your point is right for a lot of these small business owners, they never can grow outside of their single location or their single staff, because then they they don't have an investment strategy either outside of their business. And so as they're growing, they hit tough times, they're trying to milk off money to pay themselves, and then they live off of that. And then they're like, why can't reinvest my business? And I think to round this conversation out, Mike and I have all we learned this the hard way, but we've always been preaching this to the scale community is like, don't sink your business by buying rental properties, because that's siphoning off money that you could be getting a five or six x return on Totally. You're marketing. So when you have excess excess that you don't even need to pay yourself, go ahead and invest that in real estate. When you're getting that screaming deal on a six unit, a eight unit, a 10 unit, a duplex or whatever, go and take that down after you have put a surplus in your business, after you've learned how to invest in your business.

Dylan Koch: [33:28] And you'll only get those opportunities up because you invested in marketing in the place. Exactly. You're never gonna find that on MLS.

Mike DeHaan: [33:34] 100%. Exactly. Yeah. Yeah. And save, like, the really long term buy and hold stuff when you get to a point where you have enough coming in that you can kinda look around and go, I don't really know what else I wanna do with this money. Right. Right? And then at that point, you're gonna decide if you want fuck you money or you wanna go and just invest in some long term stuff.

Dylan Koch: [33:50] Totally. You're a w two person. I don't know. They can between 50 100 a year, and you had this cycle of just burning properties the past couple years. But you don't have, I don't know, 50 plus grand in reserves, and something goes bad, like, can find yourself in a world of hurt pretty quickly.

Dan Austin: [34:04] Absolutely.

Dylan Koch: [34:05] I've seen some of that, I think, here locally. Like, you have I'll to put it this way. There have been times where I'm like, I'm thanking the Lord I had this $30,000 assignment fee coming in right now. Right. Yeah.

Dan Austin: [34:17] I was just reviewing financials with a guy. This sorry. This is total side topic. And my feedback was to him, like, dude, you're worth $3,000,000? You literally only have $50,000 to your name. To speak about the wealth versus rich, I was like, I was like, I'm scared for you. Like, you are one disaster away from, like, going bankrupt, and all of your equity is gonna get discounted when you have to sell it so that you can feed

Dylan Koch: [34:37] your bank. Or just being a forced seller, you know, to pay off

Mike DeHaan: [34:39] to some

Dylan Koch: [34:39] of those bills. Yeah.

Mike DeHaan: [34:40] Exactly. That's what I'm talking about, though. Right? And that's, like, the really dangerous cycle that so many real estate guys get into. In GoBundance, that's usually my most exposure to, like, the people that want the legacy wealth for their kids. I was like, your kids ain't gonna get shit if you can't pay your bills for the rest of the year, dude.

Dylan Koch: [34:55] Right.

Mike DeHaan: [34:56] Like, I don't care that you own $25,000,000 worth of real estate and you're worth $8,000,000 on paper. Yep. Because, you know, that's all multifamily properties that are gonna take six to twelve months to sell if you're lucky. And with current rates, you're probably gonna be taking a haircut. Yeah. Like, honestly.

Dylan Koch: [35:11] Yep. And how many I mean, I'm guilty of this too, but when you do a net worth calculation, you take ARV minus your debt, you gotta take at least 6% off the top of your ARV just from selling costs.

Mike DeHaan: [35:20] Yeah. Exactly. Easily. Yeah. Dude.

Dylan Koch: [35:22] Yeah. Yeah. So like, take 6% off of $5,000,000. That's still a big difference.

Dan Austin: [35:26] It is. It's huge.

Mike DeHaan: [35:28] Anyways, but I guess, final actionable piece from that, just so we so grounded off, so I can go, what can I get information? Dan, you touched on it perfectly. Don't throttle your business to be thinking that you need to hold this stuff long term if you can't actually afford it. And be realistic about your opportunity cost for that money. And opportunity cost does exist with where you're placing it. Right? If you have the ability to make six x on that money in the next six months or buy a duplex gonna cash flow $300 a month, you should probably put it in the business unless you have so much money already coming in that you're like, you know what? I'm actually okay with that, a little bit of return there. There, need the tax shelter, which is something else. And, you know, they one more. Just go back to the acquisition.com thing. That's something that I've thinking about a lot is they said the best business owners there was, like, some big study that was by one of those study companies. I don't know. One of the

Dan Austin: [36:20] I want to run one

Mike DeHaan: [36:21] that was dropped these names of these like funds and different things like I'm supposed to know who the hell they are. I'm like, just some rich white dudes on the East Coast. Don't know.

Dylan Koch: [36:27] And how seriously? McKinsey? That's only one I know.

Mike DeHaan: [36:30] McKinsey? Yeah, McKinsey? But basically, they did a study of all these CEOs, and the best CEOs that had, you know, ran, like, billion dollar companies, what made them the best wasn't anything about grit or intelligence level or experience or even network. It was literally how they chose to allocate resources, and the resources were time, money, and energy. Right? And so they look at their team, and they look at their available cash, and they allocate things appropriately. And money is the one that people, I would say, tend to allocate probably the worst, especially in the real estate business because we have this paper equity. We have, like, this future potential that may or may not happen that gets so enticing to people. And so it's important just to realize the full value of, and the full opportunity of all your resources. Totally. Right on, guys. Well, if you found that interesting, please share this with other friends who are also business and real estate dorks like we are. If you don't have any of those, you need get into a better room because I guarantee you that you're probably poorer than you would be if you had richer friends. So, get out there, share share the show, and, appreciate you guys listening. So thanks for listening, and we'll talk to you guys next week.

Mike DeHaan: [37:38] See you. See you.