Seller No-Shows & Low Appraisals: Tips to Keep Your Deals Alive

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

Dylan Koch: [0:38] Would you rather have a cost per deal that's 1,500, but you made 20,000 this month? Or a cost per deal that's 5,000, but you made a $100?

Mike DeHaan: [0:45] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. This is Wednesday. This is our off market operator show. And on these Wednesday shows, we dive into real estate investing business and whatever else we feel like. This is your first time here. My name is Mike DeHaan here with my cohost, Dan Austin and Dylan Cook. And our goal with this show is to help as many of you as possible build 7 figure real estate investing businesses. And so if you are, like, kinda trying to figure out real estate or trying to scale something massive, then this is the show for you. Guys, happy Wednesday. How are you guys all doing this fine day? Anything exciting in your world, Dylan, over there in Cincinnati, slinging some deals?

Dylan Koch: [1:30] Yeah. Well, we're supposed to have one closed tomorrow, and I just got the seller, actually about an hour ago called me and said that they weren't gonna show up to closing. So I still gotta fight through

Dan Austin: [1:38] that one. Those are always fun.

Mike DeHaan: [1:39] So so the seller's not showing up to closing. And the you know, this is actually a great discussion because because I feel like this has been happening more and more, like, recently in the scale community. We've had similar situations like this sort of resurging or I guess coming up.

Dan Austin: [1:54] They used to just be relegated to Mike and me. I feel like we're the only ones that it ever happened to it happened to us all the time.

Mike DeHaan: [1:59] Dude, I only think I only think of once.

Dan Austin: [2:01] Crazy sellers being crazy.

Mike DeHaan: [2:03] Crazy sellers being crazy. But dude, I think, I mean, besides that, that one dude that, like, bounced off to Austin that we knew was a freaking sleazebag.

Dan Austin: [2:11] Yeah. Like, straight up just not showing, like, ghosting. We definitely had a bunch of sellers over the years say like, oh, I'm not gonna do this or whatever. They wanna change their mind.

Mike DeHaan: [2:18] People get weird. But usually not like on closing day.

Dylan Koch: [2:21] No. Literally, just I reached out to her because I was like, hey, I'm about to wire the funds. Like, gonna make sure you're gonna be there. And she was like, nope, not showing up. Have a better offer. And like and then she hung up on me. So then I had to go to this podcast. So she will be getting a call afterwards. But like, we already have the contract recorded at the county too. Like, she can't sell out from underneath us, but at the same time, there's a way to to make this work amicably for everybody.

Mike DeHaan: [2:44] Yeah. It always brings up a great, I would say ethical dilemma with this business. Right? And, you know, because obviously, you've already committed doing the deal. You have money in, but this can be a wholesaler or something you were buying?

Dylan Koch: [2:56] No, was gonna be a flip. We were gonna buy it. And then we were trying to give her

Mike DeHaan: [2:59] A flip.

Dylan Koch: [3:00] Three months to find closing afterwards. She's an older lady, and so her income is social security. So she doesn't qualify for the 2.53 times rent anywhere Yeah. So I put in our contract, worst case scenario, we have a rental for you if need

Mike DeHaan: [3:15] be. Interesting.

Dylan Koch: [3:16] So I'm trying to be as accommodating as I can. That's super nice.

Mike DeHaan: [3:19] Yeah. That gives you even more grounds though to pursue something because you're closing out. Where it really gets weird is when you're trying to wholesale

Dan Austin: [3:24] Totally.

Mike DeHaan: [3:24] When this happens. And, you know, it always comes down to, like, what are the legal things you can pursue as well as, like, the ethical things. What should you pursue? And, you know, legally, obviously, you can cloud title. You can take out a basically, a lawsuit against the seller. You can do all sorts of different things. But in a couple situations that Dan and I have had and there's was one in particular where he didn't necessarily not show up to closing, but he closed with somebody else two days before we were supposed to close.

Dan Austin: [3:51] Yeah. Bastard.

Mike DeHaan: [3:52] And and we missed out. Yeah. We missed out on, like, a $20,000 fee. And this is early on, so we were pissed. And we're like, you know, we're gonna sue this guy about calling lawyers and shit. And the lawyers are basically like, so you two, like rich white dudes who are going to make $20,000 on this deal that were knowingly buying it for less than it was worth, are going to sue this guy that fundamentally has nothing. They were like, how do you think that's gonna sit with, like, a judge?

Dan Austin: [4:21] And Mike said,

Mike DeHaan: [4:22] I don't care.

Dan Austin: [4:23] I won't

Dylan Koch: [4:23] owe him money.

Mike DeHaan: [4:24] No. But it's a valid point. Right?

Dan Austin: [4:26] Dylan, you said that you recorded the purchase of sale, though? Like, does that mean? Is that an Ohio thing?

Dylan Koch: [4:32] Basically, it's like the version of Cloudy and Title. Oh. We have a notice of interest. But they literally have like exhibit b, and exhibit b is our contract that's in there.

Dan Austin: [4:39] Okay. Do you generally do that beforehand, or did that happen because you thought she was a flight risk?

Dylan Koch: [4:43] The second part. Okay. Yeah. Okay. Yeah. Mike, it's a good point. Like, because on the outside services, this could be painted in such a bad picture because she's an older woman on social security. She has a foreclosure filed against her, and you know, we're buying it at a great price. Our projected profit's gonna be like 50 ks after a rehab. But that's literally gonna be an almost nine month hold probably because it's a huge flip, and we're giving her three months from the start. So there's market risk, and no one else, she's probably not telling anybody else the intangibles of we will literally give you a place to live for free during this transition. Right? And so it's like the counterbalance is you justify the means to an end Yeah. For the profits. And I think we're actually being reasonable.

Mike DeHaan: [5:24] I think the challenge is is how is that going to sit if you do decide to pursue legal action? And what we always think about is if the situation that you're going through, if that was to end up on the front page of the newspaper, how bad do you look? Mhmm. Right? Like, if there are a 100 different ways that you are the bad guy, it's probably kinda tricky. Right? You know, obviously, media can skew things, but, like, if you look fundamentally at it, if, like, a third party was looking from the outside in, if you would look even though flat like a dirtbag, you really got in trouble with caution. Yeah.

Dylan Koch: [6:00] Yeah. No. That's true. But like, okay, what if I just say, okay, if they're in my hands, you know, we're out of the deal. Whatever the bank takes it.

Mike DeHaan: [6:06] Yeah. But the bank already everyone already thinks the bank's an asshole, so that's fine.

Dan Austin: [6:10] Yeah. Do you wanna be the asshole, do want the bank to be the asshole?

Dylan Koch: [6:12] Right. Yeah. And the bank's not gonna give her three months to go for free.

Mike DeHaan: [6:14] Of course not. That's a rational argument. That's not how people work. That's that's it's an emotional thing is what tends to drive a lot of people's decisions with stuff like that.

Dan Austin: [6:22] I guess the root of this is, Dylan, you did exactly what Mike and I would do regardless of the situation. You know what I mean? Like, I guess, here's one thing. It's like, we've never been people that will, like, force you to sell your share house. If you're going into you're you're saying, I've got a better offer, and we've already committed, and you're in the boat that you're in, which you're gonna go to closing gap, you cloud title. Because that's just them breaking, like, the written and unwritten rules of having a contract with a human being, which is I said I will do this, I will perform, and you have money set aside essentially for this transaction. Maybe you already had a loan, and now if you have to drop it, maybe you don't have lose money on it, maybe you do, maybe you had to pay for appraisal, but your, like, brand gets dinged with that private lender or that hard money lender. It's like, dude, we had money ready for you, and now you're just gonna back out. Like, next time, we're probably not gonna fund it if it's between you and somebody else. So there's, like, you know, layers of damage here for you. So it's, like, yes, you're going to do what the right thing to do is for you. Now if it comes to, like, you trying to sue them over that, that's where it's usually not worth it. Totally.

Dylan Koch: [7:21] And the attorney fees would add up anyway. And honestly, my plan now so she doesn't show up is I'm just gonna basically let it sit for two weeks. And I don't know how it is in your guys, but in the state of Ohio you can actually do, there's a thirty day redemption period post a sheriff sale. So even if it goes to a sheriff sale and she gets foreclosed on it, is our chance. We have thirty days to figure this out.

Dan Austin: [7:43] Gotcha.

Dylan Koch: [7:43] Right? And so, it's just gonna have to be a waited out kind of a thing.

Dan Austin: [7:46] And the thing with clouding title too, I guess, to provide some explanation for those that aren't familiar with that process is, what I would tend to favor is you have new cloud title, and essentially, they can't really sell that property because you now have an interest. When we say cloud, like, Dylan, you said earlier, it's like you have a recorded interest in the property, so they can't go anywhere. Like, they can't move it. So however long that recorded interest is there is if they go to sell it in that time frame, they have to call you. So they're kind of in that situation.

Dylan Koch: [8:14] So if Mike and Dan would have done that originally, they could have saved their 20 k or maybe.

Mike DeHaan: [8:18] Totally. Honestly,

Dan Austin: [8:19] totally. But we didn't we didn't even know that at the time.

Mike DeHaan: [8:22] Yeah. We didn't have a a good little mentorship community that, like, had been dealing with shit like this yet.

Dan Austin: [8:27] Oh, yeah. We were finding it on our own. That's why we decided to start the scale community.

Mike DeHaan: [8:32] Yeah. Honestly, because, like, back when we were mean, we were super involved in CCF. I learned that not everyone deals with dipshits all Like, the we were like very unique in that way. I remember going to our first meetup, and I'd be like, wait. So you don't have like crackheads that do like insane stuff? You know, you've never been in a house where a landlord and tenant got into a fist fight? Like, what are your sellers like? Like, oh, you should just like nice older people. I'm like, what the fuck? Like, I'm Right. I'm I'm moving to Nashville. This is horseshit.

Dylan Koch: [8:59] Yeah. Exactly.

Mike DeHaan: [9:00] I'm sorry you're dealing with that, but it sounds like it Yeah. You know, it's par for the course, and you have taken the appropriate stuff forward. I think a good lesson from this though is is not only around being able to weigh the seller and if there are risks and taking appropriate action early

Dan Austin: [9:14] Look at it.

Mike DeHaan: [9:15] Right? And not doing it as a retaliatory

Dylan Koch: [9:17] Totally. Measure. Yeah.

Mike DeHaan: [9:18] Because that's the other thing too is if you had gone through, you know, as for example, in Dan and I situation, if it had been earlier, it wouldn't have been as dicey, right, if we did need to pursue a lawsuit because we did it on day one. Like, we were not doing anything weird versus, like, he decided to go back on us, and now we're trying to file it. That's a problem. Totally. But also too, it's a great lesson in why you should be over communicative with sellers when you're going through transaction. You should also be moving to close transactions quickly. Because as you get through, especially if there's any sort of personal security around the seller, like where they're going to be moving to, their next situation, all sort of stuff, they're gonna get seller's remorse as they get closer and closer to that, and they realize that they aren't going to be able to be living the same lifestyle that they were, you know, not paying their bills. They're actually gonna have to go and pay bills now somewhere And else to be able to

Dylan Koch: [10:06] they'll rely unless you have a great relationship with your title company, they'll rely on them to be the communication pieces, though they should be. Because they will drop the ball, and then you look like crap because someone else wasn't communicating properly. Even

Mike DeHaan: [10:19] though they should be in every cent. Literally, right before we got on this recording, I got an email to like our admin TC email. And I looked at it, and it just said, we're closing tomorrow. Will the seller be attending closing in person?

Dylan Koch: [10:31] Oh my god. Like, that's your job.

Mike DeHaan: [10:33] Why the fuck

Dylan Koch: [10:33] Ask are you asking me

Mike DeHaan: [10:35] the seller.

Dan Austin: [10:36] That's like 80% of all the deals we get there. Can you schedule the seller? You're like,

Dylan Koch: [10:40] no. No. What? No. You have their number. Like literally just call them.

Dan Austin: [10:44] Call them. So many people.

Dylan Koch: [10:46] Dude, it's terrible. But other than that, close in wholesale tomorrow. I have a wholesale next week and we'll probably be listing, have one active listing, and then two more listings hopefully either the next ten or fourteen days.

Dan Austin: [10:56] Oh, sweet.

Dylan Koch: [10:57] But I wanted like, that kinda segues into a nice little, we've been flipping a little bit more, and I've had some problems with appraisals lately, you know,

Mike DeHaan: [11:06] on our

Dylan Koch: [11:06] own, where they've come down, you know, 10,000, $12,000 below our sale price. Right? So then you have to go back to the seller and be like, hey, you have to come out of this out of pocket, or sorry, the buyer would have to come out of pocket, or we have to reduce our price pretty much to cover that gap. Right? And in our situation, you just kinda look at what's your net, and you just kinda make that decision if it's worth it or not, because you're likely to have that problem again if it just goes back to market. So we've just taken the loss even though I could probably justify some of the reasons why they shouldn't, and we tried to argue for some, but I'm literally like o for six and battling appraisals. Made me do some research, right? And there's this one article that's like the untold truth of home appraisals, and I just wanna read these two stats, and I want you to I think this is the most ironic part. When the appraiser didn't know the contract price, only 45% of appraisals came in at at or above the contract price. K? So they did know 45%. When the appraiser knew the contract price, 93% of appraisals came in at above at or above the contract price. So you're literally talking a 40% difference just because they had some information ahead of them.

Mike DeHaan: [12:13] I mean, the appraisal process, honestly, is like the worst part of real estate. Honestly, it's like they're like the referees of real estate, honestly, because they come in and ultimately, despite everyone agreeing on the rules and the outcome, they can come in and completely screwed up.

Dan Austin: [12:31] So the curmudgeons of real estate. Totally. Right? If they're in a bad mood, they're gonna wreck your deal.

Mike DeHaan: [12:36] Exactly. You know, and regardless of which way they go, one side is probably gonna be upset with them. You know? Unless they're right on the money, which as we've said, unless they know the outcome already, what it's supposed to be, they apparently just aren't.

Dan Austin: [12:50] Do they not know the contract price of the deals that you have that are getting under appraised, Dylan?

Dylan Koch: [12:56] Well, everyone that I have has had. But this did a study and basically blind I think what they did was they gave appraisals like appraisers.

Dan Austin: [13:04] Right.

Dylan Koch: [13:04] Like here, this property, and they're like, do your appraisal on it, and then they actually compare that to what it's sold for.

Dan Austin: [13:09] They should give them, like, wrong values too. Like, hey, the contract price was 10% above what it really is. You know what I mean?

Dylan Koch: [13:15] Like, they

Dan Austin: [13:15] should do that. I would be curious if that study would be too. I think appraisers, they're just like anything else. They're they're open to just having really shitty people. And so generally speaking, if you know the contract price and it's 300,000, you're gonna go there and you're gonna find things that justify that.

Mike DeHaan: [13:31] Yeah. Well, I mean, also too, when it comes to real estate, in general, value is very subjective. You're gonna look at different comps. You're gonna have a different analysis of the neighborhood based on your own

Dan Austin: [13:41] They will like to tell you that it's not subjective though. Like an appraiser's like, this is data driven. It's like, okay, so then why did you pick a comp that was a mile away when there's one that was two blocks away?

Dylan Koch: [13:51] Exactly. That's my biggest thing too.

Dan Austin: [13:53] And that's usually when they get whenever you get a low appraisal, mostly because like you never check when you get the appraisal to be on. But whenever you get a low appraisal, you look at it and you're like, why? Logically, did you do that comp? That's a totally different neighborhood. Oh, just because it had the exact same shingles on the side of the house. I don't know. Like, they their reasoning for picking the houses are they're like, well, that's not a like for like wonder. That one had a fireplace, and this one didn't, so I chose it. Like, that is the least determining factor when it comes to the price of it. It's like location, location, location for a reason.

Mike DeHaan: [14:22] Well, the problem is is they look at, like, the hard features of a house more so than the neighborhood. It's a

Dan Austin: [14:28] check box form. Right?

Mike DeHaan: [14:29] Right. Check box. Check box. That's the thing is a lot of them use these softwares now that just spits out the number. And it doesn't take into account, like, you know, the fact that you can literally go across the street, especially in places like Spokane. I don't know if Cincinnati is. We have areas here where there are houses that are a million and $0.5 that are literally a street away from, like, meth houses. Right? And so Yeah. And, technically, if

Dan Austin: [14:53] you're selling

Mike DeHaan: [14:53] one of those million dollar houses, those meth houses are gonna be comps, but their values are gonna be completely different.

Dylan Koch: [14:59] Totally. Totally.

Mike DeHaan: [15:00] Like, if they were the same sort of fundamental house, they were similar age or similar square footage, they would be used as comps. It doesn't make any sense.

Dylan Koch: [15:07] Totally. There's a zip code. If anyone's from Cincinnati listening, it's 45215. And it's literally like four or five different small townships, I guess. And one of them is very affluent. It's Wyoming. But then around it, like you said, it's rough.

Mike DeHaan: [15:21] It's rough.

Dylan Koch: [15:22] But the school systems are different, the taxes are different, one's gonna be 50,000, one's gonna be 500. Wow. It's literally that big of a difference across a railroad track. And I don't know. The whole thing with the appraisal is, like you said, value is subjective. And I know my biggest gripe I think is who the appraisers work for. They work for the lender. So the lenders are trying to make sure that their bottom line is covered. But at the same time, if you're buying a residential place, they're underwriting you as a person. You are personally guaranteeing that loan anyway. So your job and income should be the one that's gonna able to pay that, not necessarily the value of the house. It's like, what does that pay? Agreed. Agreed.

Mike DeHaan: [16:00] Yeah. I mean, that is what should matter, but I dunno. Anyway, but do they technically work for the lender though? They're supposed to like be a third party.

Dan Austin: [16:06] Yes. But they're like on behalf of the like, the lender doesn't want people over appraising things.

Dylan Koch: [16:11] But like, we need to use this guy or whatever. You're not allowed, like, the audience, you're not allowed to steer like the appraisal. Like you're not, I don't know, you're not allowed to talk to him directly or some shit, but you are allowed to like provide comps and like show like, this is how I arrived at my listing price or whatever and just kinda leave it

Mike DeHaan: [16:25] at that. Yeah. I always remember one of the the refis that Dan and I did where I was kinda worried about it because it was like this duplex in the area where there aren't a ton of duplexes, but there are some. And it was really, really big compared to other properties in the area. I was like, fuck. We needed to be a price for a huge amount of money into this. And I showed up to to walk the appraiser through. And the guy goes, oh, perfect. So I own two duplexes down the street. I was like, fuck. Yeah. You're like, got them. Gonna be awesome. This is probably the problem. And sure enough, the appraisal came back sky high because that dude's pumping up his numbers like everyone else. So I don't know. It's it's a racket. And so what's your, I guess, your action steps to help people get the best appraisals when they're going through this process, Dylan? Well, I mean, I guess you wouldn't know that you're getting bossed, but Dan.

Dylan Koch: [17:12] Yeah. Well, and then I kinda got lazy, I mean for a while, how long, twenty twenty till now, how long should they come back low? Not often, But I think the best way is obviously provide the comps that you use to list the place. Think that's gonna be number one. And then number two is just literally list all the improvements that you put into your house. Right? Like a read an upgrade list is what I've been doing. That's usually helped too. Yeah. And I don't

Dan Austin: [17:33] know how you're doing it, Dylan, but like times in the past, like so we work with pretty much of the same bank here in town. And it's that's who all callback. Okay, so I totally get it. And and I guess I'll step back. Here's the process. So the appraiser sends it to the bank, who then the bank has their own underwriting department that basically kind of fact checks the appraiser and the whole process. They underwrite it to make sure the loan's good, and then it goes to whoever. And in between, it sometimes have a smaller bank. They might have, like, a financing board to make sure that they're gonna finance you. So you've got the asset, and then you've got you as a person. And when I've done this, it's like, okay. So here's the comps that they use. These are the ones we would use, and then the underwriter will take it, and then they may agree or disagree, and then they may say, yeah, we're, you know what, we're good. They they've got the appraiser that they need a document for their board, but then they'll throw in those comps and say, oh, okay, yeah, we will go with this higher one. This assuming it's a lender that it's your lender. Right? Yeah. Which when you're doing like a BRRR, it is your lender.

Dylan Koch: [18:27] Well, so refi ones, I think, typically come in a little bit less than a contract price would.

Mike DeHaan: [18:32] I've always found that.

Dan Austin: [18:34] Yeah. Well, you're trying to maximize it regardless, right? And so, like, you want it to be as far above as you can, and so you're trying to provide comps to justify it. On the sale, if you're working with a lender you know, which you can, right? Yeah. Because if you are well networked or you refer a lender, then you can still have that conversation to make sure that you're in the best interest. But other than that, it's like, well, hopefully the buyer and the buyer's agent are willing to work with you and they want the house bad enough and you say, hey, let's try to do this. Plan a is like, let's resubmit some comps and work with your appraiser and your bank to make sure that we're all on the same page. And then worst case scenario, you know, split the difference or something like that.

Dylan Koch: [19:12] It's always easier to do this on the front end though. Because if you get a low one and then you go back to the appraiser and be like, hey, think you're Please look at this data. Oh, it could almost be like an ego thing. Like, no, I'm right. Like, I'm not changing this.

Dan Austin: [19:23] And honestly, in your situation, Dylan, when you're selling your properties, do you show up there with the appraiser?

Dylan Koch: [19:29] I used to, I haven't done it in forever.

Dan Austin: [19:30] Yeah, I mean that's what every agent out there, that's their trick in their book and it just depends on the appraiser you have. But for you, if you're selling your flip, oh sure, when's the appraiser gonna go out there? Cool, awesome, yeah, that works perfectly, and you just show up there and like, hey, I'm the seller.

Dylan Koch: [19:43] Yep, Yeah. And all the duns all appreciate it, it really depends on who you get, which for being a data driven business, that's like kinda like the It's problematic.

Mike DeHaan: [19:52] Yeah. And it's important to understand how appraisers think too, which a lot of them, you know, will think off of square footage more so than anything else. That's what they look at as a total price per square footage, and they use that to calculate your own property. Because understanding how appraisers think, if you're gonna close in anything, is going to determine what your actual ARV is. Doesn't matter what you think it is. An appraiser can come in and completely botch your flip or botch your your for your your cash out refi if they decide that it's worth less. And there's really not a lot you can do about it at that point. So

Dylan Koch: [20:21] The condo, we were gonna make 20 k, and we made eight. Oh, yeah. Yeah. I mean, but there's what do I do? Take it off and try to relisten? And I had the same problem again and Exactly. Wait another three months?

Mike DeHaan: [20:30] Yeah. Yeah. I know. So what I've what I've heard about people doing back in the day when the market was, pretty hot is basically what they would do is, you know, they would wanna keep that higher purchase price, and so they would sell. The buyer would basically agree to come up the extra down payment needed for that appraisal gap. And then what they would do is they would carry a second position with that buyer for whatever amount that was. And they would have, like, favorable terms, but it would lead to net more money over a twelve month span. And it would usually be kind of like an aggressive pay down if they're able to pay it. But something that I've heard of people doing, I've never done it myself, but it can be a workaround if it's something reasonable. If you're off like a $100, it's not reasonable. But if you're off like 12 or 15 or 20, it could definitely be something you could probably Yeah. Totally.

Dylan Koch: [21:17] Then that might work more for income producing properties, maybe like a two to four unit versus over a single family. But

Mike DeHaan: [21:22] Versus an FHA borrower who, like, you needed to pay off their $15 credit card in order to get them to close. Yeah. You should definitely not do that with one of those people. Right.

Dylan Koch: [21:32] Yeah. Totally. Cool. Totally. Sorry to end

Mike DeHaan: [21:35] with that, Dylan, but that is what it is.

Dylan Koch: [21:37] No, I mean, it is what it is. I mean, I guess going forward, maybe we'll be a little bit more conservative on our ARVs, but that's, you just, you gotta think what the market gives you Totally. And just adapt Like, I don't wanna sound like I'm bitching on here too, but at the same time, I could very well justify the reasons that we had those prices. I I guess

Dan Austin: [21:52] I'll just add too to close it out is like that is also why working and and talking to active operators is more important than some dude who he's like, man, I use I did a 100 flips in 2015. Cool. Who cares? That's not what's working in the market right now. Like, whatever that guy's saying doesn't matter that you're talking to people that are actually in the market buying and selling things every single day. They're the ones that are gonna have the best advice for you.

Mike DeHaan: [22:14] I know I know we had another topic we're gonna go into. I don't know if you have enough time for it, but, like, what you're going through on there, Dan, is is is interesting. I'm actually thinking about this a lot. Is I feel like we had this wave of people that were, like, successful seven, eight years ago that were really pushing education, whatever. You know, obviously, have our our own education app, but we're also active operators. Are they, like, all gone now? I feel like that entire wave has, like, died out

Dan Austin: [22:40] I think so.

Mike DeHaan: [22:41] Of, like, of, like, the people that are, like, the, you know, 20 '15 to pre COVID success stories. Like, where did they go? I feel like I don't hear about from any of those people anymore. You know, if you look at kinda like a lot of, like, the wholesaling inc people God. Or like, you know, a lot of the people that were, like, on bigger pockets Really? Back to them, they had, like, the kind of some of the recurring names that would come up. I can't even think of them right now specifically because I just

Dan Austin: [23:07] Yes. Because real estate got hard, man. And they pivoted. They I don't know. Actually, I don't know what they did. I think some of them probably lost their ass. All these Probably. All these

Dylan Koch: [23:16] They lost their ass. Some of them were probably full of shit the entire time

Dan Austin: [23:18] There's no doubt. Hiding. Right. And then talking about what

Mike DeHaan: [23:20] they did.

Dylan Koch: [23:21] There might be some who were like, I'm done. Like, I made my, I don't know, $5,000,000. I'm like, I'm I'm out of here.

Dan Austin: [23:27] That's maybe like 3% of them. I think there's so many people, like the the one that gets me actually, I don't even know his name because I don't really listen to podcasts, but the Airbnb guys, you know how like BiggerPockets went through a bunch of Airbnb guys, like that was their thing. I can't imagine they have anything valuable to talk about right now. Like, I own 12 air b

Dylan Koch: [23:45] n b's and I grossed $350,000 in rents. My expenses are 450,000.

Mike DeHaan: [23:50] They're all talking about how they bought some, you know, Motel six that's an hour That's outing route thing Palm Springs, they're turning into a boutique hotel.

Dan Austin: [23:59] Yeah.

Mike DeHaan: [23:59] Just because you put like a nicer comforter in this shitty motel doesn't make it a boutique motel.

Dan Austin: [24:04] Hookers are still gonna wanna rent it

Dylan Koch: [24:05] by the hour. Right.

Mike DeHaan: [24:08] Hey. It's it's boutique for somebody. Yeah. Nice. Nice. I Nice. 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 and convo about your business. And maybe I can help you grow a little bit, or you could just say what's up to you. That'd be awesome. But appreciate everyone. And thanks so much for helping us grow. Point point I was going with that is, as you're looking at people, right, that are out there, whether it's in social media or in person, how do you actually tell if somebody's legit or not? What are, like, the red flags of, like, things that they say, how they present themselves? What are the things that, like, immediately make you go, like, okay. That person, like, actually kinda knows what they're talking about. Do you have any stuff that are off the bat?

Mike DeHaan: [25:28] So I I guess for me, just as an example, the biggest red flags that I'll hear for, as soon as anybody brings up these things, I know that they're they're they're not worth my time. If they immediately talk about their assets under management, their AUM, their door count

Dan Austin: [25:42] Mhmm.

Mike DeHaan: [25:42] Or their like cash flow. Right? Because you know and especially if it's like a really round number, you know, they're full of shit. Because like, that's just gonna be so fabricated. So easy. Like, you can easily have a $50,000 LP investment you made, and like, yeah, I own 500 doors. Like, no, you don't. You own two.

Dylan Koch: [25:58] Yeah. Right? The big checks, I think would be a big one for me.

Mike DeHaan: [26:01] Big checks.

Dylan Koch: [26:01] Like, picture in front of the, like, a $100,000 check that's probably just a rehab draw.

Mike DeHaan: [26:05] Yeah. That that is a huge one. I know. Like, I I actually have I I share this picture every so often. It's of me with a big check. It's like a $108,000 something. And what I like to do is share that and then follow-up with the fact that I actually lost $25,000 on that house.

Dan Austin: [26:20] Totally.

Mike DeHaan: [26:20] Right? Because it's it's completely full of shit. That's a good one.

Dan Austin: [26:23] I think another thing that, like, they say, and this one's, you know, straight at pace, like, I do thousands of deals a year. It's like, I Yeah. I'm actually in a room with dudes that are legit this week, you know, at a Go Bunnings event. I guarantee not a single one of them can say that they've done thousands of deals.

Dylan Koch: [26:40] Pace always talks about like, his community. Right? So they're really big on, oh, join my community. We have this mastermind that's usually a rant flag too. With the caveat, there are some like, even you guys, there's one, there's actually a guy in Columbus here that runs one that's legit, but it's hard to really tell the difference unless they're posting legit content. For example, the other guy posted their day, he's like, hey, we were gonna buy this house on 123 Main Street, but the reason why we didn't is because the house two doors down looks like trash. Right? And that's not a lot something other people would see, or even notice. Your neighbor's house is gonna affect the value of your subject. Right. Right? As one one off example.

Mike DeHaan: [27:17] It's important to have some sort of context about what a successful business actually looks like, especially regarding basic KPIs, like their cost per deal, or what a reasonable number of deals per month is. Because, I mean, Josh and Tiffany, hi. A lot of people are into their stuff. They always say shit like, oh, we have one AM that does 27 deals a month. Liar.

Dan Austin: [27:36] It's impossible. It's impossible.

Mike DeHaan: [27:38] Like, it's literally impossible. It doesn't make any sense.

Dan Austin: [27:40] Doesn't make any sense.

Mike DeHaan: [27:41] Right? Yeah. Or or like they were talking about how like their cost per deal was down to like or cost per counter is down to like $1,100. And I'm like Nope. Nobody else is like that. Yeah. You're not the fucking LeBron James of real estate. Like, what are you talking about?

Dan Austin: [27:54] No. They are liars.

Dylan Koch: [27:55] You just reminded me of, put him on blast, Steve Schrager.

Mike DeHaan: [27:58] Oh, yeah.

Dylan Koch: [27:59] He like did like a coaching I'm like, bro, I listened to you talk, there's no way you're gonna sell it. No. I love sound like the your pitches on Instagram. Like, right?

Dan Austin: [28:08] Yeah. If it seems like it's amazing, like, something out of this world, it's a lie. It's a lie. Because think about it, like, if these people are really doing that much work, they would love to show you the actual shit they're doing. They would love to do it, but instead they're gonna talk about how much they've done. They they would show it to you. Right? Because I mean, any every influencer is thirsty for Instagram content.

Dylan Koch: [28:28] That and some of it's ego thing, but, I mean, you guys can't even speak to this. Education, I would assume, is a better business model than wholesaling.

Mike DeHaan: [28:36] It is if you're a liar. Like like so, honestly, like like, we have our our skill group. I put a lot of time into trying to create content and stuff that is actually actionable. You know, I have these cringey fucking Instagram reels. You know, we do this podcast, all these different things. It is fascinating to me how many people will, like, hit me up and be like, hey. I love this video about hiring VAs. Tell me about that. You know, tell me how you did the sub two. Tell me how you those things. Give them all that. And then, like, three weeks later, they're like, hey, I signed up for Josh and Tiffany's course. Yeah. I'm not really getting what I need from them. So can you tell me what your direct mail looks like? I'm like, no.

Dylan Koch: [29:10] Fuck off.

Mike DeHaan: [29:11] You did it. Like, you know that I had my You chose to go to theirs because they swindled you with their, like, better ads and more aggressive sales team.

Dan Austin: [29:18] With their lies. Yeah. I would say education can be, to your point, you don't, it can be, but for Mike and I, like, we're much better operators than we are, I guess, liars, I don't know. Like, we just wanna do the right thing.

Dylan Koch: [29:31] I just know from like the, if you look at a business, like fundamentally, you have recurring revenue as long as your members Whereas you don't have those up and downs as you do with wholesaling So just from a, maybe from a projection standpoint or Well, and once

Dan Austin: [29:43] you get to like scale, like to a certain membership level, if you can continue to provide absolute value to those folks, that is a great yeah. It's like you're right. The membership revenue can kinda stay flat and not that you don't have the up and downs, but

Dylan Koch: [29:57] And your input, you might have to put as much input, but if your membership grows exponentially, it's an outsized return, right, from that money that's getting it.

Mike DeHaan: [30:04] It is. You know, if you go down to, like, traditional business, you know, the Alex Shimosi, you you could actually calculate your customer acquisition costs, and you can actually influence your LTV, your lifetime value by doing various things. Right? And so that makes it easier to scale because also to your lifetime value can recur for many, many years. You know? So, honestly, if you if you bring in if you are building a community and you bring in someone that has, you know, an annual recurring membership, it's not that different from having a rental property. Yeah. Right? Because every single year, you get that check that comes in again. And, you know, if you don't nurture it, it can obviously go away. But if you do provide value, there's a lot of upside. But, I mean, yeah, like, depending on how you look at it, like, it it can definitely be a a better business model. But I would also say that it has the potential to explode a lot more than, like, an established wholesaling business.

Dan Austin: [30:55] For sure.

Mike DeHaan: [30:56] You know? And it it can go away a lot faster than a real estate business can.

Dylan Koch: [31:00] Yep. Yeah. Your brand gets tarnished or ruined. Like, one's gonna help, like, come to your thing. So there there goes your business.

Dan Austin: [31:06] And if you're not providing value, right, like, a lot of these guys aren't providing true value so they can't get off the hamster wheel, right? And then all of sudden, they're, like, just trying to grow their audience, they start talking about, religion and, like, laying in bed with their wife and talk about Or politics. This like the graphs. Yeah. Whatever.

Mike DeHaan: [31:20] They're trying

Dan Austin: [31:20] to get views because in their mind, that's how they'll convert more people and it's just the answer wheel.

Mike DeHaan: [31:24] Yeah. That's the other good red flag, Dan, talking about Chris Krohn there with the cringey videos of

Dan Austin: [31:29] him in his Laying in bed with your wife.

Mike DeHaan: [31:30] In bed with his wife. She's like eating spaghetti or some shit. Like, it's fucking wild.

Dan Austin: [31:34] So weird.

Mike DeHaan: [31:35] But like, when people start posting like super outlandish statements about things, or they start going like or they're

Dan Austin: [31:41] That's the spiral right there.

Mike DeHaan: [31:42] That is the spiral. As soon as you have a real estate person, you know, influencer, coach, guru, whatever, that starts talking about politics, or religion, or like family values, or getting like just completely off the plot of why they started, that is a signal that that person is at the end of their lifespan.

Dylan Koch: [32:01] What about if they start dying their hair certain colors?

Mike DeHaan: [32:03] I mean, people can do that if you still bring real estate value. But thing is, he did that first. Brian Payne, that was his first grasp. And now he's just saying things like, I don't know, whatever political thing he can do to cause outrage, he just jumps on that right away. I'm like, oh my god.

Dylan Koch: [32:18] Clickbait, baby. Yeah. Or post it with his Rivian, or whenever car he's buying it. That's another one. So Yeah.

Mike DeHaan: [32:24] I don't know. It it is interesting. I mean, I like, fundamentally, if you are going to follow people, like, obviously, you guys listen to this show, you follow us. Verify that they are actual operators.

Dylan Koch: [32:34] Totally.

Mike DeHaan: [32:35] Listen to, like, the business stuff they talk about, you know, is it actually, like, make sense, not only logically, but kinda like in your gut? And if you have, like, a red flag, it's probably because they're full of shit, like, honestly. And see if there's, like, people that can actually vouch for what this person's doing in the real estate space. Because here's the other thing too is, if they were successful years ago, absolutely, they could still have some good fundamental knowledge for you

Dan Austin: [33:00] Absolutely.

Mike DeHaan: [33:00] Around real estate. Like, if listen to stuff that Brandon Turner talks about from when he plays Regent Pro Bowl years ago, He keeps it so basic Uh-huh. That like, sure. There's like a lot like, newbies can learn a lot from him. But the thing is the people that are trying to be like operator coaches, they're trying to help you build like a business that haven't done it for six years. Honestly, they're completely out of touch with what it takes to be successful now.

Dylan Koch: [33:22] What's like the Dunning Kruger effect where someone's done three deals and they're like, I know everything. I'm gonna be a coach now. I'm gonna teach everybody. Then as you go along with time, you realize there's a lot of stuff I don't know. Yeah. Then you got on the other side of that bell curve, right? But it works for everything.

Mike DeHaan: [33:37] I know. Yeah. Just like, yeah. I mean, like, every space, not just real estate.

Dylan Koch: [33:41] I would like to see and I know we're going off like these tangents. I would like, customer acquisition costs, like like we talked about, can be like a measurable thing. Very hard to do in wholesaling.

Dan Austin: [33:50] It is.

Dylan Koch: [33:50] Because your lifetime customer is like one person.

Dan Austin: [33:52] Yeah, don't usually have a big LTV. We've had a couple repeats, haven't we? Or maybe referrals.

Mike DeHaan: [33:57] We've had referrals. But, yeah, the the LTVs are low, but the customer access cost be like a cost per deal.

Dylan Koch: [34:02] Right. Yeah.

Mike DeHaan: [34:02] And and that's that's always Dan and I's litmus test when we've had guests on the show is, you know, we always try to push on people and, like, ask them what their market Mhmm. Marketing system looks like, what their cost per deal is. And the thing that's so fascinating, and we've harped on this every time it happens on the show, is all the verified operators that we know are good, we all have the same numbers. Yeah. The cost per deal is typically between 3,500 to $4,500. The number of leads that it takes to get a deal are typically about the same. The profit of those deals will vary depending on market, but will always be kind of in like the same ballpark. And anyone that's like way off of that, I mean, obviously, if they're really high compared to that, good for them, for being honest while coming on the show. Yeah. Right. They're way below that, then it's an immediate red flag that I'm I don't know if I believe anything.

Dylan Koch: [34:49] With the cap because we had some scale members that said their cost per deal is around 1,500, but they're very, like, okay, shouldn't say they're small, but like there's, they do one to two, maybe three deals a month right now, right? When you're just starting out too, yeah, like it's easy, you're hustling, you're hustling hard. So it makes sense. Yeah, yeah, it's just they're putting in so much time. Like mine's around like 3,500 right now, But I

Dan Austin: [35:09] don't have an overhead as you guys. As you scale up to like, the more marketing you do, like you have to do more to do more deals, right? But there's inefficiencies that come with scale, so naturally your cost per deal is gonna go up. When you're hustling, and you're sending out small batches of direct mail, you're like nurturing every single lead that comes in, and then you get like a referral from a dude at a meetup, like, it all averages out to get to that 2,000. Or you're in like a really low, low cost market, and you're not to scale yet, like, scale will always add those inefficiencies in it, you will kind of average to that 35 to 4,500.

Dylan Koch: [35:41] Yeah, totally. I just wanted to put that nuisance behind But for people who are listening, would you rather have a cost per deal that's 1,500, but you made 20,000 this month? Or a cost per deal that's 5,000, but you made a $100? Exactly.

Dan Austin: [35:51] Exactly. Oh, that's Just the

Mike DeHaan: [35:52] return on ad spend is is ultimately what But cool. Alright, guys. Well, appreciate the candor on that. Was something I thought about that, you know, I've been, I would say, pondering since I've connected with more and more people. I'm just like, I don't know. I get worn down by the the BS. Mhmm.

Dylan Koch: [36:09] You should do your DMs per sign up ratio to see what that comes out.

Dan Austin: [36:15] Yeah. Right. Oh

Dylan Koch: [36:16] shit. For like the scale community or whatever, like whoever swipes up on your reels or stories, whatever it may be.

Mike DeHaan: [36:21] It's tough. I mean, like, that is a legitimate KPI I probably should track. Because I would say, like, when people inquire with me about scale, like, seriously, most of the time they sign up because I've engaged with them for a while and have brought value. The thing that always gets me is when there's, like, the one off conversations, and I feel like I provide value, and then they go and sign up with somebody else. Because I'm like, I guess I didn't bring them enough value. Then I talk to us a lot. Like, if you really wanted to make scale or, like, this, like, a huge thing, the path is very direct. It's just like how ethically do you wanna be when you do it, and how much truth do you wanna be to people. You know, me, you even talk to marketing companies. They're like, yeah. But like, you need to like talk more about like your wins. You need to like make it sound simpler for people. I'm like, I don't wanna do that because I don't think it's realistic.

Dan Austin: [37:06] Exactly.

Mike DeHaan: [37:06] You know? And I'm not willing to give up my integrity. I will die on that hill rather than make a shit ton of money for why. It doesn't make any sense.

Dylan Koch: [37:15] Yeah. Totally. And once you get to a certain member count, and no one knows what that is, but it's like the law of diminishing returns. It eventually goes down at a certain and who knows what that number is? Every community's gonna be different, but it just happens.

Mike DeHaan: [37:30] Exactly. And that's part of the game. That's totally fine. Yeah. Anyways, I Dylan, what's your new Instagram handle?

Dylan Koch: [37:36] Yeah. Just changed it. So right now, it's dylan underscore does underscore deals. Dylan with a y.

Mike DeHaan: [37:42] There you go. Much better. Yeah. Dylan with a y. Little alliteration there. So go shoot Dylan a follow if, you like his candor on the show. He's gonna be diving into some more content stuff as well. So excited if you start doing TikTok dances on there.

Dylan Koch: [37:54] Let's go. We're gonna have TikTok.

Mike DeHaan: [37:57] Me neither. Me neither. But, yeah, follow me at Mike underscore Invest and follow Dan at Investor Man Dan. Alright, guys. Thanks for listening, and we'll talk to guys next week.

Dylan Koch: [38:06] See you.