Scaling Your Real Estate Business Amid Cash Crunches

Mike DeHaan: [0:00] You are a real estate investor, you have probably heard all about subject to real estate. And also if you're a real estate investor, you probably don't really know a lot of the ins and outs of how to do subject to correctly. That is why we created our free subject to course. You can go and grab at collectingkeys.com/subtwo. We will go through all the ins and outs about how to do subject to correctly and legally so that you don't put yourself or the seller in a bad spot by kind of ignoring the small details. So if that's something that you're interested in, go to collectingkeys.com/subtwo, and you'll know exactly where to go from there. We are proposing a transfer tax that is meant to go basically after people that own what they decide to be excessive properties.

Dan Austin: [0:43] Mhmm. Yep. Rich people.

Mike DeHaan: [0:45] I'm sure there will be some kind of workarounds around this.

Dan Austin: [0:49] So Is this at the federal level?

Mike DeHaan: [0:50] Is that a federal level? Yep. Wow. If you own between 16 to 25 single family rentals or single family residential homes, transfer tax of 1% Yep. Of purchase price will be required to be paid. You'll see when every time you buy or sell a property, if you own between 26 and a 100, it'll be 3%. And if you own more than a 100, it'll be 5% purchase price. What is going on, guys? Welcome to today's episode of the collecting keys, a real estate investing podcast. This is your first time to the show. This is the show where we teach you to make a massive income, not just passive income with your real estate investing business. I am Mike DeHaan here with my cohost, Dan Austin.

Dan Austin: [1:39] Hey, you.

Mike DeHaan: [1:39] And on these Wednesday shows, these are called the Mike and Dan shows where we talk about real estate investing, business, and whatever else we feel like for that week. And so we are in full swing going into the start of the busy season for real estate, going into March with currently 23 properties set to close for the month. Damn. Which will be a record. And I will say that it sounds very impressive that the statistic is slightly, what I would say, kinda like padded because we had a bunch of delays in February.

Dan Austin: [2:13] No way, dog. You can't say that.

Mike DeHaan: [2:16] Gotta own it. Right? Just start running ads.

Dan Austin: [2:18] Yeah. You gotta own it, bro. We got 20 contracts every month closing. What about your dropout rate? We don't lose any contracts.

Mike DeHaan: [2:25] We don't lose No shit, right? Yeah. Just start running ads on that. Here's how we do 23 deals every single month. And by every single month, I mean we've done that once. And we just ignore the parts where everything is, you know, all the three week closing are turning into six week closings because Yeah. I don't know what it is, man, but like the just ridiculous delays that are we are experiencing with lenders, with appraisers, with title companies. Oh

Dan Austin: [2:52] my god.

Mike DeHaan: [2:53] It doesn't make any freaking sense, dude. It makes

Dan Austin: [2:55] no sense. It's like Yeah. And the thing is is they're all these are all people that are incentivized by transactions closing.

Mike DeHaan: [3:01] Yeah.

Dan Austin: [3:01] Right? So that like a closing attorney, closing agents, they get paid per transaction. Lenders, guess what? They get paid per transaction and it's like they are making it so hard to do work with them and you think it'd be the opposite during a time when not very many people are doing quantity. Like I mean, I would say we're doing quantity if for most areas, we're probably where we're marketing, we're doing deals, we're probably like repeat clients. I know we're so repeat you think they would take care of you even better, but I swear since like the second half of twenty three, like customer service on the, in these deals have just gone like, weighed out.

Mike DeHaan: [3:37] And it doesn't make any sense either because it's not like for lack of notice. Mean, we've been intentional about having longer closings going from our traditional three week to four or five or even six week closing sometimes.

Dan Austin: [3:50] Yeah. And we've even gotten better on our end of like with our transaction coordinator and she's just, you know, way more trained now. Like, she's been in the role a while, so she's even better. So we're getting better on our end too. It's not like we're making the mistakes.

Mike DeHaan: [4:01] Yeah. This flip that we're closing out down in Louisiana, that thing's been in escrow for seven weeks. Yeah. It was supposed to close last week, and then literally two days before closing, our agent reached out to us and goes, oh, so we have to extend this because the lender has just come forward and says that there are special conditions quote unquote need to be met before we can close this deal.

Dan Austin: [4:23] Additional conditions, but we're not gonna tell you what those are.

Mike DeHaan: [4:26] What does that even mean? No. And why did it take them seven weeks to do that? I don't know.

Dan Austin: [4:32] I don't know.

Mike DeHaan: [4:33] I So can't remember if talked about that one last week or not, that one's still still in progress by the way if we did. Yeah. And then you know, had a bunch of closes that were supposed to be last week of February, which got pushed out for reasons. Don't even know. And we don't even have lenders. We had like some sub twos and some creative financing ones that were getting pushed out just because the title company didn't have their shit together. It's like the problem with it as well, especially if you're like a small real estate business or like a smaller real estate business where you don't have a good sort of just cash surplus yet, is you're already riding that line of like the constant cash crunch in this business. Yep. And it just makes it worse. Always. Because now you can't even expect on getting your revenue in like a four or five week timeline. You just literally don't even know. And so you're having to constantly live on that line.

Dan Austin: [5:20] This is a cash intensive business, and even if you're super wealthy and you're still investing in real estate, real estate costs money and so you're constantly making these transactions. When you have these receivables, I e your wholesale fees or your flip proceeds or whatever proceeds you're expecting to come in and they don't, and you don't know when they're gonna come in or all of a sudden after thirty days of being in contract and you forecast this revenue for the last six months to come in because it's a flip and it falls out of escrow and you have to find a new buyer, and now you're like, don't even if that money's coming in in ninety days or if it's even gonna be that much. Yeah. So it really does screw up your cycle and that's why you have to have flexible, like, we like to use lines of credit, like flexible sources of capital that you can squeeze into your business as needed because as you and I have learned over the years, the cash crunch never goes away.

Mike DeHaan: [6:05] It doesn't, it just changes.

Dan Austin: [6:06] Because the bigger you get, the more assets you buy,

Mike DeHaan: [6:08] right? Mhmm.

Dan Austin: [6:09] It just changes and shifts and you get

Mike DeHaan: [6:10] a little bit better at

Dan Austin: [6:11] cash flow management. Mean, pay now for our business like for a specific software that just shows us like cash forecasting because we're like, otherwise you just don't know. Yeah. You can't plan when you don't know.

Mike DeHaan: [6:22] Yeah. It makes it super hard and like, a lot of the folks that we have in the scale community that have really been growing over the last little bit. This has been a recurring question is like how do you deal with this cash crunch? How do you forecast marketing? Like, you know, people have property tied up in flips or things like that that they thought were going to close and are now two or three weeks out. Mhmm. And they're like, well I wanna put this on a credit card but I'm worried that it's not gonna be paid off in time to pay off my credit card That's a monthly bill. Right? It's just freaking nightmare all around. But you know, like there's not much you can do about it. Right? And I think that's why, like you said, it's so important to have access to like lines of credit or these different sort of like extended versions of liquidity. Right? This extended for like debts that you can use almost like a credit card without needing to use them.

Dan Austin: [7:09] Your dad's bank account, like that would be great if you have a rich dad or or uncle or something.

Mike DeHaan: [7:14] Go get your grandma to take out a HELOC on her home and just use that.

Dan Austin: [7:18] Get a retirement. Yeah. Use that one. That's my favorite.

Mike DeHaan: [7:21] Yeah. It's I mean, that's just the method, the OPM method they teach out. There. Exactly.

Dan Austin: [7:27] You know what this reminds me of this conversation? I don't know why it reminds me of this, so this is this is all shit talk here for a second. It's just kinda like the facade of like businesses and how well they act like they do and they don't really do that well is Chris Krohn. Just like that. No, I saw a video, you know how he's always talking like, like he's talking like about how he's building like this, I don't know, 30,000 square foot house and how he balls out on his gym. Well, they had a video of him and like his wife working out and their janky ass gym in their house that has like carpet in like on the floor and like gross lip carpet. They got like three treadmills in there and like some like weights. I'm like, that's a janky ass gym. Like that's your home gym bro? No. And you're like Chris Groen with your jet? No weight.

Mike DeHaan: [8:08] No, dude. He he filmed that in the Holiday Inn Express that he was actually in. You know, it's kinda I did see that video. That's kinda what

Dan Austin: [8:13] it looks like. Did you see it? Yeah. Do you think that was a

Mike DeHaan: [8:15] Holiday Inn Express? That's trash. Probably a little bit nicer than that but maybe not. I don't know. But I mean he's like the perfect example of the gurus out there that you need to be careful of. Mhmm. Because he's very charismatic like the way that he talks. He says a lot of inflammatory things that make you watch his content. The fact that people do actually give him money is incredibly mind blowing to me. Yeah. But like I don't really know if anyone has ever fact checked the bullshit that he tries to sell people or like the deals that he talks about these guys are the money.

Dan Austin: [8:45] I don't think so because people are like that is such bullshit that like, I don't need to fact check it. Yeah. Like, it's just they know it's bullshit. Yeah. But I also don't think that does he take money? I don't know that he actually does.

Mike DeHaan: [8:56] I mean, I'm sure he does somewhere. I've never gone into his funnel. All I see is like the top of it. It's true. But he's always trying to push away his like webinars and like his free stuff, so I even wanna know what's in there, it's gonna make my brain run.

Dan Austin: [9:09] I know. I just felt like talking shit about him for a little bit, but I was, I really saw that video and I was like, that is weird. And I don't believe it because his neighbor was there too, so you know he was at his house.

Mike DeHaan: [9:18] So he had some dude that said it was his neighbor.

Dan Austin: [9:19] Yeah, the guy's like, oh, is this your like, do you have a morning routine like Chris or how'd you meet Chris? He's like, oh, well we're neighbors and like, and so like we became friends and then like we work out together.

Mike DeHaan: [9:28] Man, anyone can say that. You could go and get somebody right now, like, in Downtown Spokane and have them be your neighbor.

Dan Austin: [9:34] It's true. I used to have a famous neighbor, guy on the rollerblades. Everybody in town knows him. Ross. Yeah. Everybody in town knows him. He makes the news once in a while, like the local, you know, Prairie news up here.

Mike DeHaan: [9:46] Well, because he creeps people out, because he's a he's a older guy that

Dan Austin: [9:49] He does? On his rollerblades?

Mike DeHaan: [9:51] He had, well, he had a brain injury and so he Yeah. You know, is like always just kinda doing weird stuff and wandering the town in his tilt

Dan Austin: [9:58] or rollerblades. But he is very stylish dresser though, like very stylish.

Mike DeHaan: [10:02] He's harmless though. Seems harmless.

Dan Austin: [10:04] Great. Great guy. Good neighbor.

Mike DeHaan: [10:05] He could add some flavor to the uptight five mile area. Yeah. Yeah. So just been navigating that and trying to forecast it. But I mean, things have been looking very, very strong for the market in general. We did our first roundtable meeting this morning Mhmm. With our all of our partners. So we have this partnership program that we run around The US where we basically bring our marketing and sales team and our expertise to stand up off market operations people around the country. And we had a little round table for all the different partners that we have. And collectively, like things are looking good nationwide. Like I do think that it's gonna be a really really strong year for real estate investments, mostly because there's a lot of people that have gotten tied on funds that are gonna be needing to liquidate their houses that Yeah. Everyone pretty much has equity on at this point. Mhmm. And on the other end of that, you also have a ton of buyers that have been saving money or sitting on the sidelines since the middle of twenty twenty two that are registered getting into the action again. Yeah. And so you have the opportunity to create some pretty decent spread on both sides, both sellers and other buyers side.

Dan Austin: [11:11] Yeah. Yeah. It's interesting because you have to ignore, I guess, the over, like, economic data that people wanna talk about. I'm not even gonna call economic data, guess I'll call it the talking heads that talk about what they call economic data because it scares people or it encourages people the wrong way all the time. And so like what we see though, whether the economy's doing poorly or not, like that's somewhat good for distressed sellers Yeah. Or distressed buyers. Right? We're looking for distressed assets. We're not looking for perfect good economy Yep. Like to find the best deals.

Mike DeHaan: [11:42] Well, mean the thing is you can't just trust headlines in general or like mainstream news. I mean, I saw this on was on Reddit. No. And people were like, this is the current state of mainstream media. And it was two headlines that were one on top of the other on some media article like MSNBC or something. And it just said like, largest wealth transfer ever occurring as you know, baby boomers are leaving x trillion dollars to the millennial children. You know, children to grandchildren. That was the first headline. Directly underneath it, was like the next recommended article was millennials are the brokest generation that has ever existed. Right? And was like had some other thing about how they're all like living with their parents or whatever. I'm like, you're literally saying that there's gonna be the largest wealth transfer and also that they're all broke. Like, so what do you believe? Right. Like it's all just bullshit.

Dan Austin: [12:31] It's all clickbait. Here, I don't I don't subscribe to Apple News, I scrolled over And this is one of the top headlines. That's Jenna Bush Hager says grandpa George h w Bush took her to Disney Cruise.

Mike DeHaan: [12:42] Good. Thank you. Cool. Yeah. That that was top of real estate news for you. That's just so you could target with with your web account?

Dan Austin: [12:51] That's my Apple news on my on my iPhone. I'm like, that that's what people are reading? I don't subscribe to it, if you just go over to news on the phone, it just pops up. It's just like, what the hell?

Mike DeHaan: [12:59] Yeah. I mean, I think that the biggest thing when it comes to people that use news to kind of like dictate their decisions, right, is you probably shouldn't. And you should just be looking to take action on your own business. You know, run your marketing, run your sales, look at sort of what is working for you or is working for people that are in businesses that are similar to yours. And just use that as your metric for the health of things.

Dan Austin: [13:29] Why would, if you were trying to do what other people are doing, like why should you expect different results, right? Shouldn't, As long as you're putting the work and the time, like the process or the industry that they're in, it probably works and it's repeatable. Some people are gonna be better because they have more experience, but I'm the kind of person, if I look at the headlines, I could be like super, like, yeah, the doom and gloom, but I can also pull myself out and be more optimistic, and so I just ignore that sort of stuff and I focus on more of the optimistic outlook and then look at reality.

Mike DeHaan: [13:57] Mhmm. And I

Dan Austin: [13:57] love the one thing like Alex Ramosy says, which is like, when you're first starting something, it is absolutely unreasonable to think you'll be great at it. Totally. Like, you're gonna suck, but you gotta start. But if you see people with one step ahead of you or a little bit more experience actually making the business turn and doing these things, you should expect logically that if you put in enough reps and you put enough effort and you actually believe in enough, it's going to work. So regardless of what MSNBC is talking about of a completely unrelated topic, that's just bullshit anyways, that's not going to relate to your off market real estate business, like, just put the reps in, put the effort in.

Mike DeHaan: [14:31] Yeah. And and if you become a true expert in it, which you should do, you should understand you know, how to find your own deals, how to do different access strategies, how to wholesale, how to flip, how to get money if you need to buy something, you know, all the different parts of it. If you can really do that, the economy doesn't really matter.

Dan Austin: [14:49] Right.

Mike DeHaan: [14:50] Right? Like we've had people on this show that have made incredible amounts of money through the two thousand eight recession. We've had people that you know, doing it even before that, that were able to figure it out. And you know, they faced some challenges, but they figured out how to stay alive and keep sort of battling and growing through that. And that's why those are the wealthiest people now. Mhmm. But like if you're in a different kind of business, and it's something that literally can just get racked by like a downturn in the economy, you should probably go do a different business. Like honestly.

Dan Austin: [15:20] Right. If you're dependent on the economy that bad, yeah. Yeah.

Mike DeHaan: [15:23] You know, and you need to be able to pivot. Whether I mean, whether it's like a restaurant or it's like a goods and services company. If it's like something that is completely like a luxury or a novelty, you're probably not gonna get that rich off of it. And if you're okay with that, you're doing for the passion, that's fine. But if you wanna be a lifelong entrepreneur, there are going to be waves in the economy that occur. You need to find businesses that can make money regardless of what's Right? Going Totally. Yep. You know, it's like, so is it But they say like health, wealth and happiness, those are typically the big things that people will always spend money on.

Dan Austin: [15:55] Health, wealth, and so you could go like to your fitness center or health products

Mike DeHaan: [15:59] Mhmm.

Dan Austin: [16:00] Money and like vape stores for the happiness Exactly.

Mike DeHaan: [16:03] Like novelty things like that, like liquor stores.

Dan Austin: [16:06] Addictive things.

Mike DeHaan: [16:07] Like seriously though.

Dan Austin: [16:08] Or that people use it as an escape because in an up or down people like to drink and vape.

Mike DeHaan: [16:12] Right? Mean, like how did those sort of businesses do during COVID?

Dan Austin: [16:17] Awesome. Awesome. Here's the other thing that people talk about like, oh, I don't wanna be in the coffee industry because when that's the first thing people cut out, I'm like, no, no, no. That's the first thing like, I guess, upper middle class or upper class people might think about cutting out, but they don't have to. But if it's an addictive substance, people like don't stop drinking coffee no matter what's going on.

Mike DeHaan: [16:36] I don't know why upper middle class people will cut out coffee if like nobody cuts that out.

Dan Austin: [16:39] Like, no I'm just saying like they're the ones that would maybe think about it but like lower income people don't tend to cut anything out because they just kinda ride whether the economy's doing great or not, like they're kinda, they're the same. They're not really actually changing their income drastically or not.

Mike DeHaan: [16:52] Totally.

Dan Austin: [16:53] The people that stand to lose income are going to be middle class or upper middle class and generally speaking, they're probably not going to anyways because they still don't have to. Mhmm. Because they can still afford the $5 cup of coffee.

Mike DeHaan: [17:02] Yeah. Yeah. I mean, you're in any of those sort of tiers, you can probably get through any sort of challenge. Right? You know, and then on that same zone, if you're providing housing, that's something else. If you're providing like good housing through rental properties or by flipping houses. Right? If you're doing it in the zone that is actually, I would say like affordable and desirable by most people, you're probably gonna be able to get by in any economy. You know, like where it gets kind of funky is if you are at the very high end where things are not affordable for anybody, or you're providing like a really shitty product like if you're a slumlord. It's like, yeah, you are gonna lose and the economy gets poor because you're on like the outside of the median. Right? If you're just in the same median zone that everyone else is, you're probably gonna be able to make money in some capacity. Right. So, yeah. What else we have going on though besides those things? We got some new team members. We are working on it. Yep. If you heard from our guy Gabriel, he's one of our new team members on the collecting keys side who has been doing some outreach to people that have gotten our subject two course and some other things which get at collectingkeys.com/subtwo. It's a free course about how exactly you subject to transactions.

Mike DeHaan: [18:17] We've actually gotten some good, I guess like reviews on that too, which I'm pretty stoked,

Dan Austin: [18:21] which I discovered. Yeah. People are happy with the honesty and the openness of that which is what we try to preach on all of our stuff. Yeah. Especially sub two because you already know that's our favorite topic. Mhmm. And that's why we put the course out because we wanted to make sure other people had for free the opportunity to understand the real ins and outs of subject two and like the risks associated with it.

Mike DeHaan: [18:40] You know what though, like going through this exercise of having this, you know, sub to freebie, which is a great lead generator. I appreciate you all that have grabbed that so far. Yeah. Like tons and tons of people get it. We get like between eight to 15 submissions a day right now, which is insane. Because we don't I'm not putting a lot of money behind it.

Dan Austin: [19:00] And we've been running it for a month or more. For six six weeks Yeah. At this

Mike DeHaan: [19:04] Yeah. It's just like a Facebook ad. But like the type of people that come into that is so indicative of how much of just the plague, the whole like sub two creative financing movement is. Because we've been having calls with people like for for scale at our different communities and stuff, ISR community and some of the different stuff that we have. And no knowledge around real estate. Mhmm. No financial maturity. No like ambitions to like do anything like good. But they're just like people that are just like, I saw some dude that was talking real smart on there and had like a get rich quick scheme and they wanna do that. Yeah. And that's my last calls right now.

Dan Austin: [19:51] Yeah, you're right. That is problematic.

Mike DeHaan: [19:54] That's a big reason we brought in Gabriel as well. He's a virtual out of Columbia to some field some of these because it was getting out of hand. And people can have ambitions, that's great. But just like, I don't know, has it always been like that for real estate? Was that what it was like for wholesaling like six years ago?

Dan Austin: [20:13] I think there's some people that are misguided, right? And they're being misguided by different personalities on the internet that are misguiding them. Because if you don't know anything about real estate, and you pick up this like, you're following like, oh, this guy's saying I can get into real estate with no money down, and this is how I do it, and it actually makes sense, you're like, oh, you just take over the loan of these people, and if you don't have money for EMD, you can just borrow that. We have a group people that'll loan you EMD for your earnest money deposits for these, and like, they've built a little ecosystem, and then they've said, oh, well if that's a problem for you, we've got a little hack here, like, which I think the recent one we talked about was like the point 0001% ownership of an LLC, if your HOA doesn't allow you to rent out these sub twos that you've now acquired. And yes, that is technically a loophole, there's so many problems with that, and as a new newbie, you don't know that.

Mike DeHaan: [21:02] Right.

Dan Austin: [21:02] Right? You haven't gone through and earned your stripes in the business and worked with people that are gonna teach you the full picture. It's like, yes, you can do that, but here's the risk and here's the problems it creates.

Mike DeHaan: [21:12] Yeah, totally. And I mean, think the big thing with this is, if you don't have a good work ethic, you don't have money of some capacity, you don't have some basic understanding of real estate, you should not be going into the creative financing realm. Mhmm. Right? And realistically, you're not gonna be successful in real estate, period, until you get all of those things. Right? It is a lot of work, it is expensive, and you do need to have a good knowledge about how transactions work in order to do off market real estate. If you don't know those things, there's tons of resources out there. Yes. Listen to more of our show. You can go

Dan Austin: [21:47] look at bigger pockets. You can

Mike DeHaan: [21:48] go watch YouTube videos. You can go read books, whatever you wanna do. But you have to have that foundation or else you're just wasting your time. Like, isn't some magic bullet. Right. So

Dan Austin: [21:58] Yeah. Awesome. I wish there was.

Mike DeHaan: [22:00] I'm glad there isn't because it'd be even more crowded than it already is.

Dan Austin: [22:03] Right. Yeah. Right. I wish I owned the magic bullet with the magic gun too.

Mike DeHaan: [22:07] You just gotta tell people that you do. They don't actually have to own it.

Dan Austin: [22:09] It's true.

Mike DeHaan: [22:10] Oh, that's a good point.

Dan Austin: [22:11] Yeah. Yeah. I think that there's a lot to be said too about the working part of it and just putting the effort and the more experience you do gain just like with anything, the easier things become.

Mike DeHaan: [22:21] Mhmm.

Dan Austin: [22:22] The other people's money is something we talk a lot about like OPM and like how everybody's like, oh just if the deal's there money shows up. No, it doesn't. Yeah. Because first of all,

Mike DeHaan: [22:30] if you're new, you have

Dan Austin: [22:31] no idea if it's a good deal.

Mike DeHaan: [22:32] Definitely.

Dan Austin: [22:33] Right? Like how do you know, right? You have to learn and educate yourself and then when you are taking on other people's money, if they are educated enough, they should be underwriting you just as much as they underwrite the asset. And it's easy to say, well like, hey, it was their choice to invest something, you're like, absolutely. But your grandmother loves you and she thinks you're special and that you would never do anything wrong, but when you lose all of her IRA money and now she's only got social security to live off of, that's on you bro. Yeah. I mean, totally. That just kinda speaks to that, the experience versus non experience and what what's out there for content that people are kinda pitching to bring you into their sphere, and you know, that's where with our scale community, why we you know, vet people out and bring them in, you know, with experience, because we want people to be very successful and we want them to know and understand like, there is a cost associated with this and it's it's not just money but it's work and

Mike DeHaan: [23:23] effort. Uh-huh.

Dan Austin: [23:24] And skill learning and being willing to educate yourself and work through tough problems, which is the day to day of business. And if I could teach like, maybe one thing to people or I guess just impart one thing to people that I've learned, it's that things should be on a longer time horizon and I feel like businesses that tend to fail are because the time horizon for success was maybe too short. Mhmm. So for folks that get into real estate, maybe they spend a year or two in the business and they're like, well I haven't made it even halfway to my goal yet, I think I'm just gonna quit. When in reality, between year two and three, they might have just exploded because they gained and put the effort in for the first two years. And then it starts kind of escalating and it's that like asymmetrical growth as you get more experience and timing honestly is a big part of this business and being, having the available capital at the right time and the right deals in front of you. But if I could, again, to reiterate, like if I could share one thing, it's like, whatever your time horizon is, it's probably gonna be longer than that, that's okay. Yeah. That's just in business in general, not just real estate, that's business in general.

Mike DeHaan: [24:29] Yeah, it's that old saying that, you know, that overnight success was ten years in the making.

Dan Austin: [24:33] Right.

Mike DeHaan: [24:33] Same thing goes with with real estate.

Dan Austin: [24:36] And it's honestly hard when you're opportunistic, you and me, like, oh, hey, we're making money in this business. Like, you and I, pick a business, we could go and start making money in a month ahead, but that doesn't doesn't mean you can do it at scale, and just because you're making money doesn't doesn't mean you have a lot of profits, or that you're doing well, or you're doing it at a point to where you can like step away, and that income can kinda reoccur every month. Mhmm. That's the hard part. Yeah. Going out and making a few few bucks selling a widget is not actually that hard. Yeah. I mean, can just go watch YouTube videos on figuring that out. You could go and do whatever. I don't know. Sell widgets.

Mike DeHaan: [25:09] Anyone can make a few bucks but if you aren't like bringing people value, you're not it's not gonna be sustainable at all. And that's all I think a lot of people when they first understand the money making potential of like a business or having like an offer, they get kind of blindsided by that. I'm sure they'll make $50 in a month, but then they make nothing for the next three or four months. And it's like, well, also had expenses. So it was a chat wasted time. Yeah. Yeah. Exactly. Yep. Hey. We really appreciate being a listener of the collecting keys podcast. Did you know that we also are on social media and on YouTube? You should go and shoot us a follow on those as well. You can find both Dan and I on Instagram. I am at Mike underscore invests. Dan is at investor main Dan. You can also find short clips from the show at collecting keys podcast on Instagram. And if you wanna see our faces talking while you're listening to this show or you wanna check out some of our crazy animated adventures, we've been putting together into some funny little web cartoons that sort of show the crazy stories that guests tell on the show, then you should go over to YouTube and check out the collecting keys channel. Shoot us a subscribe over there. It really helps continue to grow our audience.

Mike DeHaan: [26:14] We really, really appreciate it. Well, anyways, enjoy the rest of the show you guys. We appreciate you all. I was looking at my phone to pull this up. You heard about this new affordable housing and homeownership protection act that they just sort of announced yesterday.

Dan Austin: [26:30] I don't watch the news, so no.

Mike DeHaan: [26:31] I only found this because someone sent it to me. But basically they are proposing a transfer tax that is meant to go basically after people that own what they decide to be excessive properties.

Dan Austin: [26:44] Mhmm. Yeah. Rich people.

Mike DeHaan: [26:45] I'm sure there will be some kind of workarounds around this. So basically, they're going to say that

Dan Austin: [26:51] This is at the federal level?

Mike DeHaan: [26:52] This is the federal level. Yep. Wow. If you own between 16 to 25 single family rentals or single family residential homes, transfer tax of 1% of purchase price will be required to be paid. Yep. They see when every time you buy or sell a property, if you own between 26 and a 100, it'll be 3%. If you own more than a 100, it'll be 5% purchase price.

Dan Austin: [27:17] So that right there, that law can't even sustain Yeah. Because that just hills margins Yeah. For people. When you talk about 1% of sale price, this so Washington state, have a one it's like 1.8, 1.85% transfer tax on gross proceeds. Yeah. So if you sell a house for 500,000, basically just around that 2%, that's $10,000. So as a flipper, if your margin on it is ten percent $50 on a 500,000 sale, like you just took $10,000 and wiped that off, so now you're at 40, then add a federal one, which is another 1%.

Mike DeHaan: [27:56] The fee.

Dan Austin: [27:56] That just kills margins for people and makes it unsustainable for real estate to change hands.

Mike DeHaan: [28:02] I mean, funny thing is, right, is what'll happen is if kinda go out, less people will sell properties in general, Actually, they won't pay the taxes or they'll ask for higher prices. And if everyone's asking for higher prices, people will eventually pay those higher prices.

Dan Austin: [28:16] Wait. Wait. So you're saying the affordable housing policy makes it less affordable?

Mike DeHaan: [28:20] To make how homes less affordable.

Dan Austin: [28:22] Yeah. Kinda like the whole rent control thing people argue, like the argument is that actually makes it more expensive for people to do business.

Mike DeHaan: [28:29] Mhmm. It it totally does because it makes it, you know, higher barrier of entry for rentals and they are gonna be a higher rental rate at the start because you're gonna limit how much they can increase rent every single year.

Dan Austin: [28:39] Totally. And what they find is people, like landlords, it's And it's typically like the the mom and pop type landlords that maybe have 10 or 15 units, they flee those cities and restrict the number of rental units available, and so then it's even harder to find rent, which drives rent up. Exactly. And a good example of like, this is sort of similar to rent control, but like with section eight housing, they get so much money in your local area, probably from the federal government and the local government to help provide housing. Well, if the market's super hot, guess what they have to do? If they want to be able to have people getting housing, they have to increase what they're willing to pay, right? So like we have some section eight tenants that were willing to pay 800, we went in and now they're willing to pay 1,200 over like a, you know, two year period because the market grew that much. Mhmm. And so what that means is that the funding around that doesn't grow, then less people can have section eight housing, which is actually a problem. Right? There's just not enough funding for it. Yeah. And so you think about that when you're talking about like rent control and anything else, it restricts the availability of funds some way or the other, whether that's in units or funding from the government.

Mike DeHaan: [29:44] Well and the problem is with all this too is they try to you know bring in all these things, but then they do other things at like the local level that kinda just fuck it all up and make it challenging, right? So the big thing here in Spokane is they're talking about bringing rent control to Washington State. Okay. We're trying to limit how much rents can increase. But then the freaking city comes in and increases everyone's property taxes by $6,000 a year. Massively. Right? $500 a month.

Dan Austin: [30:12] And then increases connection fees if you wanna do a new development.

Mike DeHaan: [30:15] Correct. There's increasing connection fees. Now they're also making us all get licensed

Dan Austin: [30:19] Licenses, yep.

Mike DeHaan: [30:20] For these different properties. So they're increasing costs Yeah. Yeah. But they're also wanting to reduce what we can ask. And it's like, that's not how it works. I know. If you want us to ask for less money for the properties, you need to bring down the expenses to operate the properties. Yeah. And so like, and then that's fully inflicted by the same people. Yeah. You know, it doesn't make sense at all. Like it'd be one thing if it was like something from the lenders or like a third party, but it's like the same entity that's the government that is doing both sides. Make any sense?

Dan Austin: [30:49] Dude, it's wild because it's at like every level. So another thing, we live in Washington State, which most states have a regulated utility system, meaning like the electric and gas utilities as well as like any city, you know, stuff like that. They have like water, garbage, whatever. There's some regulations around that. In Washington state in particular, we have electric and gas. Well, they have a subsidy program in Washington for you don't have to report your income, but you could basically say, I don't make enough money. Can I have my electricity and gas for free? And they have the utilities have to give them to that for free. So then what that does is it increases the cost, right? It's like socializing the cost, right, across the rate payers that pay, like us landlords, because we have multi family units where we pay, maybe the bill is $250 for a utility, now that's gonna go way up and it's gonna be like $3.50. So you're talking taxes, you're talking the utilities, anything that's regulated by the government, when they institute these things that are to become affordable, it actually does the opposite because at some point as a landlord, I can't operate my business because the costs have increased so much while the rents have to stay flat because tenants aren't getting any additional income. And so what that means is I have to do something and that unit either goes away or we have to increase prices so we're not losing money. Yeah. That's just that's economics.

Mike DeHaan: [32:05] Yeah. Supply and demand. Yeah. Supply and demand. Right? That's the core of of everything. If there's one thing in economics you should really understand, it's just basically supply and demand. Yeah. If you understand supply and demand and then the concept of like a perfectly competitive market, so many things with how the world works will suddenly just like make sense. Like honestly. I know. I know. Yeah. So anyway, that was interesting. And also to just to put this on the fire for you. So someone sent this to me and it was a screenshot of a post. So it was they was basically outlining this. And it says, if you haven't done so yet, make sure that you're following Pace Morby because he has a new business structure that will allow you to get around all these new rules and regulations that he's gonna be selling people.

Dan Austin: [32:47] I'm pumped for that. I'm excited.

Mike DeHaan: [32:49] So let's see if just out there teaching more people how to commit tax fraud. Good for him.

Dan Austin: [32:54] Yes. Please do that. And then put it out publicly. Mean, the dude's been to jail before. He doesn't care what's he gotta lose.

Mike DeHaan: [33:00] Has he really? I didn't know that. I mean, I wouldn't be surprised.

Dan Austin: [33:02] I think he's been arrested. Right? Yeah. Well, a lawsuit I say. I should say a lawsuit for for stealing money from investors.

Mike DeHaan: [33:09] Oh, lots of people haven't seen it. It's just part of the business. Of course. So, yeah. I mean, really one quick thing to wrap up here, just thinking about people getting sued. Real estate darling Brandon Turner, have you heard about all this drama with his deal?

Dan Austin: [33:22] I have not, but I don't know if I should hear this. Is it gonna tarnish my beliefs?

Mike DeHaan: [33:28] No. I I don't think so. Actually, don't even know if this is public or rather talk about this, but I'm assuming so because I heard it from people that are invested in one of his deals.

Dan Austin: [33:36] Well, now public because you just said it.

Mike DeHaan: [33:38] Totally. That's true. I mean, it has been distributed to investors.

Dan Austin: [33:41] Don't tell Mike a secret. Don't tell me secrets. He'll say it out loud on a podcast.

Mike DeHaan: [33:46] So I so they had this

Dan Austin: [33:48] Give me the deets.

Mike DeHaan: [33:49] Turnkey multifamily property they bought in Austin, Texas a little while ago with was it Disrupt Capital or whatever? I remember that.

Dan Austin: [33:56] It's a few 100 units. Right?

Mike DeHaan: [33:57] Yeah. Was Disrupt Capital. Is that who they work with? What is it?

Dan Austin: [33:59] I think it's yeah. Something like that. Disrupt Capital or something weird like that.

Mike DeHaan: [34:02] Yeah. But anyway, I guess they are losing their ass on that deal. Oof. And they just went back to their entire list and are trying to do a capital call of over $3,000,000

Dan Austin: [34:13] Dang it.

Mike DeHaan: [34:14] To dig out just enough money to cover the financing list.

Dan Austin: [34:18] Really?

Mike DeHaan: [34:18] Yeah. And point being, I don't think there's anything against Brandon Turner. I think that No. It is the perfect example about how very well intentioned people can get completely screwed by the current situations occurring in commercial real estate.

Dan Austin: [34:34] If you surround yourself by what you believe to be smart people Mhmm. I mean even smart people make bad decisions Totally. Or those smart people aren't actually that smart. And so, I mean, and when you're doing things on scale, it's hard to be like in detail. Like, so you say it's not Brandon Turner's fault, like, he's part of the team. Mhmm. Right? He happens to be a good capital raiser because of his network, but he's not the asset manager. Yeah. Right? He's not the property manager. He's probably not even lying at the finance. It's not even his job to do. Mhmm. Right? So he his job is to bring in capital for the deal that's with stated information that's legally binding and all that sort of stuff.

Mike DeHaan: [35:06] For

Dan Austin: [35:06] sure. So, yeah, that's bummer. And then the market conditions just throw throw a wrench in

Mike DeHaan: [35:11] it. Totally. And and I will say though that something that's been very interesting, just being in circles of people that know him personally, know a lot about this business, are very invested in this, is he has been crushing it for a very, very, very long time. He's had one deal that goes sideways. How immediately people are like, nope. Never doing business with him again. Fuck him. Seriously dude. It's crazy. Some of like the just anger and tenacity that has come out of some of these. And I mean, feel like it's pretty unwarranted, but I mean, saw one guy, this is in a group I'm in, and he said quote, he's like, I feel like if I'm ever gonna invest somebody, money with somebody, it's going to be somebody that actually knows what they're doing, and doesn't talk on social media about how they go surfing every single day. Wow.

Dan Austin: [36:00] Yeah. And I was like, that's Damn.

Mike DeHaan: [36:02] Pretty aggressive for something that's honestly kind of out of his control.

Dan Austin: [36:05] That's brutal. And here's the best part about it is, is a lot of the people that are gonna be saying that stuff probably have never even invested with him.

Mike DeHaan: [36:11] I agree, that is brutal.

Dan Austin: [36:13] Yeah. But here's the thing is, he's not the only one too that we've heard of big names out there that are, I think, less worthy of the support that are failing, but they're still out there talking about how badass they're doing and all the other stuff that they're raising capital for, even though over here they have a deal sinking.

Mike DeHaan: [36:31] I mean, and that's that's kinda part of the game. Like if you are completely open about your losses, and I also think there's a huge ego portion of that, Right? Of like Right. People that have just won one one one over and over and over again in all their losses or in the past for them to bring that to the front of kind of like their view, especially when they own hundreds of millions of dollars worth of real estate at this point. Right. It's a it's a challenging thing. But that was some good gossip that is going to be interesting to see how it transpires because, I mean, I don't know. Are they gonna get foreclosed on on this like 100 something million dollar multi family that they bought in Austin? Possibly. If they can't get the money.

Dan Austin: [37:09] Yeah. I don't know. And you know what? I don't know, but like I do remember when, you know, Brandon and all those guys were buying and this was my my thing about that situation was, man, they're buying like really nice assets. I can't imagine their returns are very good.

Mike DeHaan: [37:22] Totally.

Dan Austin: [37:22] And for me, was like, that's not the type of deal I wanna invest in, not against the deal like that it's it was gonna be a bad deal or that Brandon's a bad guy. Because I think I think they crushed it on some of their early raises, especially the mobile home park fund.

Mike DeHaan: [37:35] Mhmm.

Dan Austin: [37:35] Like they're like doubling what they told investors, it was already really good returns. So like I said, crushing it. But then when I saw them buying some of that stuff up up in Texas and and this kind of the Sunbelt fund I think he had, I was like, yeah, it's just not for me. Like, there's not enough distress. I'm a value add guy. I like to get things cheap so that I could build them up. I'm not at a point in my investing career where a six to 8% return is okay.

Mike DeHaan: [37:57] Mhmm. So you're not. I mean, but there's some people that are.

Dan Austin: [38:00] For some people that's where they are. Yeah. It's fine.

Mike DeHaan: [38:02] So, yeah. So we'll see. I'll let you guys know as I hear more about that and see if I get to see some desist or something from them, I don't know. Because ecstatically I'm not even on the list and someone shouldn't have told me. Yeah. So

Dan Austin: [38:12] Yeah. Well, that's it. If Grant Cardone starts starts talking about losing then we're gonna be in real big trouble.

Mike DeHaan: [38:18] I know right, yeah, because he will grift his way to a positive return any way that he can.

Dan Austin: [38:24] Right? Well he's talking about buying right, like he want, maybe he'll buy Brandon's deal, we'll see. Yeah.

Mike DeHaan: [38:29] Cool. Awesome guys. So we got you for you today. We appreciate you listening to the show. Please share this with anybody who is interested in real estate business or just listening to two guys talk about our weird philosophies on things for thirty five minutes or so. But thanks for listening. Shoot us a follow on Instagram. I'm at Mike underscore invest. Dan's at investor man Dan. And talk to you guys next week.

Dan Austin: [38:51] See you.