Strategic Property Exits, Investing in Disabled Adult Housing, & Optimizing Equity Returns

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. The tenant space in general is just kinda weird to the affordability issues. And so, like, with what we've looked at, it's like the actual return on equity that we have is kind of dropping just because, you know, rents are pretty stagnant, but prices are increasing, especially with taxes dramatically. Mhmm. Because like a lot of these properties, we have 30 or 40% plus equity. Yeah. So if someone was to come in and buy it even with higher rates at 20% down, their return on equity is gonna be probably more aligned with what they would expect versus ours, which just isn't making sense. What is going on, guys? Welcome to today's episode of the collecting keys of real estate investing podcast. It is episode one ninety eight today.

Mike DeHaan: [1:16] We are approaching 200 Wow. Very quickly, which is insane. But if this is your first time here, this is the show where we teach you to make massive income, not just passive income with your real estate investing business. I am your host Mike DeHaan here with my cohost Dan Austin. And on this Wednesday Mike and Dan shows, talk about real estate investing business and whatever else we feel like. It's crazy we're coming up on 200 too because

Dan Austin: [1:41] I know.

Mike DeHaan: [1:41] We've been putting together these real estate animated adventures. Go check out our YouTube channel, you can see our first one that's currently published. In fact, when this episode comes out, the second one should be about to come out. Badass. But they're they're basically like little animated webtoons of like crazy stories that either we have told in the show or the guests told in the show. And our, I guess designer, our cartoonist, who's from Eastern Europe, he was asking me about a story that he'd heard us reference on a more recent episode and I was like, think we talked about that a long time ago. And it was the story about the seller that got abducted from the signings at like

Dan Austin: [2:18] Oh, yeah.

Mike DeHaan: [2:18] One of the mobile out in the valley. Well, we'll record some actual audio for that inmate adventure. But I had to go back and find it, like where we actually talked about it, and it was in episode four.

Dan Austin: [2:28] Really? Yeah. Literally episode four.

Mike DeHaan: [2:32] That's Over two years ago, and I went back to it, and I was like, I wonder if we have like any sound bites in here that we could use to maybe make it

Dan Austin: [2:40] horrible, dude. Just trash audio. Dude, we suck. Yeah, we suck too,

Mike DeHaan: [2:45] yeah. Like this banter that we're currently having, that didn't exist.

Dan Austin: [2:48] It was not, that didn't exist. We had to grow that.

Mike DeHaan: [2:51] It's so bad. And like our setup is bad, those are both wearing like the same sweater and like the lighting's real

Dan Austin: [2:58] Terrible cameras. I think that was probably when my office is upstairs and it was just like a blank wall right behind me, it's just trash.

Mike DeHaan: [3:05] Mine was over by the window and so like the lighting's all funny like angles were both kinda like this with like our chins tucked down because the way the camera is. Yeah. And then like basically, I'm trying to tell the story and you're just like, uh-huh. Uh-huh. Uh-huh. Uh-huh. Yeah. There's no banter. It's terrible.

Dan Austin: [3:23] Yeah. We've gotten significantly better.

Mike DeHaan: [3:25] I mean, it's, you know, hundreds of reps, you'd hope we got a little bit better, at least I think we have.

Dan Austin: [3:29] That is a good, a great analogy of like, you just gotta get better at shit. Like, if you're like, listen to us and we're saying, you just gotta get more reps in on your sales, or whatever it is, It's true. I mean, we're still not the number one podcast in the world, but we're on our way.

Mike DeHaan: [3:43] I mean, and the thing is, like with any skill set, right, if you are committed to getting better at it, and you do it with some sort of intentionality over a long period of time, you don't need to be embarrassed about how much you used to suck. Can look back and That's it's awesome. You know, that's like in, you know, a sport or like a skill or you know, creating content or whatever it is, everyone has that experience looking back and like, man, I used to be terrible. Not good. Yeah. You know?

Dan Austin: [4:09] I had that experience with pickleball.

Mike DeHaan: [4:11] I mean, you you still only played one time. So we'll see. So I still suck. So but anyways, so we are coming up for the end of March here, end of q one already. And we are getting into the, I would say like hot real estate transaction season. Yeah. We're looking at our rental properties, you know, for

Dan Austin: [4:31] a little off of some

Mike DeHaan: [4:32] of those this year, what that's gonna look like. I personally listed one of my own rentals that I own on my own, that was a mailed single family home. And it was a newer house 2017, and listed it and within twenty four hours I had three offers, and ended up accepting one for over ask. This is like a higher price for the year. I listed it for 500, accept an offer for more than that.

Dan Austin: [4:54] That's amazing.

Mike DeHaan: [4:55] I I was legitimately shocked, honestly.

Dan Austin: [4:58] That's amazing. Especially because you're gonna get a fat chunk of cash back tax free.

Mike DeHaan: [5:02] I know. Yeah. Because it's the rule where I lived in it for two of the last five years. Now I've never been renting for just under three years now, so I'll be able to get all those gains tax free.

Dan Austin: [5:12] That rule isn't as apparent until you've sold a property and had to pay depreciation recapture and capital gains on it and you're like No shit. That whole idea of like living into something for a couple years, renting it out for a few, assuming the market's appreciating in that same period of time is so powerful.

Mike DeHaan: [5:28] I mean for me too, I've always kind of like when it comes to home ownership for the average person, I really don't always think that like everyone should absolutely buy a home. Like as a lot of realtors do. But if I look at this house and what I've been able to do with the opportunities that came from owning this home, I mean, it's like completely contradictory to what I normally tell people.

Dan Austin: [5:51] Right.

Mike DeHaan: [5:51] Because I bought this house, it's a split level home. I bought it like with a basement level unfinished in 2017. We paid $205,000 for it.

Dan Austin: [6:01] New. Was new construction.

Mike DeHaan: [6:03] It was new construction. Yep. We bought it and we opted to finish the lower level ourselves because they wanted like $80 to do it. Right. And just from talking to you and other people, they're like, that's outrageous. So me and my wife, school at YouTube, you know, went and finished out this basement and did all this stuff. I mean, no one wasn't anything super technical, it was just like putting up drywall and flooring and different things. But made it a livable space. Doing that, we did a cash out refinance like a year later, and we pulled out $70,000 in basically tax free cash, which honestly kind of seed funded what we do a little bit, along with my old IRA from my engineering job. Did that and then when rates got super low in 2021, I cash out refi ed the thing again, pulled out another $60,000 So now I have 150,000 out of it, and now I'm going to be selling it, when obviously the market is coming back to a resurgence, and by total profit all said and done, I'm not sure, but like the total amount of cash I'm gonna be getting back in now once it closes, assuming everything goes to plan, it'll be about a $165. Wow. Okay? But all the money that I've taken along the way, I have used to buy more investments

Dan Austin: [7:09] Yep.

Mike DeHaan: [7:09] Put into our business, generate literally millions of dollars in revenue and net worth from one purchase that we did, you know, seven years ago.

Dan Austin: [7:17] The thing about that too is is the time value of money because you were able to pull money out two different times. Mhmm. And exponentially grew that money at those times. So if you had waited tap all that equity till now, you would have literally lost out on 7 figures of income.

Mike DeHaan: [7:31] Easily. And the funny thing is too is when we refinanced it the first time, we did the first category finance, I was on the brink of leaving my w two. Uh-huh. And I was actually kinda racing because I wanted to get that cash refinance done before I left my w two because I knew it would be trickier to get the loan after that. And so I got that $70 out. But I remember talking to people and they were like, why would you do that? Like your payment's gonna increase a $150 a month, like you're stupid. Cool. But like the funny thing is is at that point in my financial life, that was a big deal. Mhmm. And I was like, I'm gonna be getting back 70,000 but I'm gonna be increasing a $150 a month. I didn't even necessarily know about opportunity cost for that money yet.

Dan Austin: [8:15] Right.

Mike DeHaan: [8:15] And I knew that I was going to be completely destroying my home income when I left my Yeah. My w two. So I used that I guess, as like, I guess I better figure out how to make a $150 a month and honestly, that extra little amount gave me an extra drive to like, knowledge of savings, because I was like, man, I just completely botched my whole monthly budget. Was expecting about a $150.

Dan Austin: [8:37] No more Starbucks.

Mike DeHaan: [8:38] Yeah. But like, know, when it comes to opportunity cost and like, time value money, those sort of things, a lot of people just don't even understand that. And so I guess the point of all this being, it's important to I guess look at yourself and what your opportunities are and what opportunities you're wanting to try and create Yeah. With like your total equity that you have in your own home, properties, in your stock portfolio, in your four zero one k, whatever that is, and decide that if it really should be parked there to, you know, grow 8% or save a 100 few dollars a month on a monthly payment or whatever. And if it doesn't, if you do think you can make more money with that, then go and figure it out. Right? Like even if you're not entirely sure exactly what it looks like, just pull the trigger anyway because if you have any financial or business sense, you can probably make more money.

Dan Austin: [9:22] Yeah. You'll figure it out. That's the thing is you put pressure on yourself to figure something out, you'll do it.

Mike DeHaan: [9:27] So if you

Dan Austin: [9:28] had a big chunk of money sitting in your bank account right now, you'd probably figure out something to do with unless you just don't wanna do anything and just sit on your ass. Yeah. That's possible I guess for everybody. But reality to your point is like, if you're betting on doing a cash out refinance because you may wanna do something with it, just do it. I mean, I'm not giving you financial advice, but in this scenario, in this context that we're talking, it's like just do it Mhmm. And then look and search for the opportunity for it because you'll have more pressure.

Mike DeHaan: [9:51] Yeah. Because they, people always, they crave that cash flow, like a higher number because they are trained kind of by the salary

Dan Austin: [10:01] sort

Mike DeHaan: [10:02] of centered system of like

Dan Austin: [10:03] What the income, yep.

Mike DeHaan: [10:04] They like having the monthly income come in which is fine. When I would really say that is an extra $300 a month, is that honestly better than having $7,080,000 dollars in your bank account right now?

Dan Austin: [10:16] No. Not even one bit.

Mike DeHaan: [10:18] Like somebody said like, hey, I will trade you your $300 a month for $80. I would take that instantly. And those are purely hypothetical numbers, but it's like, you know, most people don't think that way.

Dan Austin: [10:29] Well, that's the argument with annuities and pensions for companies to Or offer those, if you go buy annuity, it's like, give up the large sum of money now for a fixed fee. It is surprising how many people rather have that lower fixed fee that even though by the time they die they would have made less money, they still are happy that they knew, hey, I got 5,000 every month. Yeah. Instead of a million dollars right now. Where you

Mike DeHaan: [10:52] know It's so different. Yeah.

Dan Austin: [10:53] Yeah. It's just a different mindset for for a minority of folks that Yeah. They just are so conservative on that front. Yeah. But I will add to like to circle back the conversation on like, maybe not everybody should own properties that cash flow from a cash flow standpoint is the pitch is like, why would you wanna pay your landlord $1,500 when you could take that same amount of money and get a monthly payment for $1,500 in a house? It's like, well, here's a few reasons. One is the $1,515,100, the 1,500 rent can go up, but so will your mortgage because you have your taxes and insurance that will go up over time, which has been proven.

Mike DeHaan: [11:29] Which increased a ton for people this past year.

Dan Austin: [11:31] A lot, then you're gonna take, say you're on the lower end of the spectrum as far as affordability goes, so you're gonna go and do like a 3% down FHA loan on a $300,000 house, so you're gonna lock up 9,000 in down payment, plus maybe 2,000 in closing costs, so $11, like that you're actually taking out of your savings account into this house that you can no longer touch, like you can't touch. Like that $11 is actually gone because if you have to sell that house anytime soon, the sales cost is going to eat through that, right? If you think about realtor fees, it's 6% and the down payment is 3%. Your realtor fees are twice your down payment. Mhmm. So think about locking up that money when you don't have a lot at that point in time and then, by the way, now somebody's gotta mow the lawn, someone's gotta replace the shingles when they fall off, someone's gotta paint the exterior, somebody's gotta unclog the toilet because you know, you're probably buying a shitty old house because you use a 3% down at pitch a loan and that's all you can afford. Nothing wrong with it. I was just saying the facts here oftentimes we see this because we sold plenty of these houses and so opportunity cost is important when it comes to that.

Mike DeHaan: [12:30] Yeah. And people tend to discount that and you know, the sure historically, prop prices have gone up, but there's no guarantee they're gonna do that in the future.

Dan Austin: [12:38] Right.

Mike DeHaan: [12:38] It's like honestly, this is kinda one of my current pet peeves, which I've been seeing a ton is you have all of these, I would say newer investors, like I now would put us in the same boat. People that started buying houses like two thousand nineteen ish, like started in 2019, 2020. And they're now going and saying all these things like, man, I would be so much richer if I hadn't sold everything. Right? They're kinda saying, well like the people that started buying in 2010 or so.

Dan Austin: [13:05] Yeah. Of course. Which is

Mike DeHaan: [13:06] you know, truly thought. But the problem is is their only exposure is like the most insane time in real estate growth we have ever seen. I was like, well yeah. In hindsight, absolutely you should not have sold anything, but you didn't freaking know that. And you went into like the pandemic and all this other stuff. Honestly, if you were being smart, you should have sold everything. Right? Because we were in a time of extreme unknowing and just economic turmoil. Like you were like a little bit silly to hold on, and you got lucky. Right? Because things could have very easily gone the other way. For sure. You know? And people like really leaning on that. It's like same as if someone said, man, I wish I'd bought bitcoin in 2012. I'm like, yeah, me too, but you didn't even know what the frick that was back then.

Dan Austin: [13:45] You wouldn't have bought it then if you

Mike DeHaan: [13:47] knew Yeah, what it And if you heard about it, weren't gonna go and do that whole process, which was super weird.

Dan Austin: [13:53] Dude, they're forecasting Bitcoin to be $250 by the end next year, Doug.

Mike DeHaan: [13:56] I mean, maybe I don't care. I really don't care.

Dan Austin: [13:59] Buy now.

Mike DeHaan: [14:00] It's it's the current thing that's just distracting people from everything else's.

Dan Austin: [14:04] Yeah. Exactly. More speculation.

Mike DeHaan: [14:06] Mhmm. Anyway, with this whole opportunity cost thing, I mean, we've been talking about this with our own rental properties as well. Okay. Because we're in just kind of an interesting spot where we've grown enough that things can kind of absorb some stuff, but we're also big enough that there's just always challenges. Mhmm. Like we have this bedbug situation, which you probably heard us talk about for the last several weeks.

Dan Austin: [14:28] Since like, no, since probably October. No. December is when the guy died and we had to move him out. I think we found out about the bed bugs in like August or September last year. Yeah. In our infinite wisdom here with the property manager, it was like, well we tried to get the people in there, but the guy wouldn't leave, so we're just gonna wait till he moves out. Well, freaking died before he moved out. So that was a bummer.

Mike DeHaan: [14:51] And we've now had Point Pest Control in there three times?

Dan Austin: [14:55] Five

Mike DeHaan: [14:55] times. Five times. And what was a wonderful advice that they gave you today, Dan?

Dan Austin: [14:59] So this

Mike DeHaan: [14:59] is Point Pest Control, a national company. This is their advice. I'm saying this because fuck them, is a horrible thing to do to people. What was their advice to get the bed bugs out of there, Dan?

Dan Austin: [15:09] Yeah. So a little backstory here. So this unit's vacant. Right? We knew there were bed bugs in there, so while we got all this shit out of it, we bombed it, guess, pest control, so they bombed it and then our guys went in there, gutted it, started remodeling it and then, I mean, top to bottom gut, right, although I mean, this thing was gross and then, they're like, yeah, there's still some bedbugs in here, so we're pulling off. So they pulled off, they went back in there, did their thing, okay, did their thing two more times, so I think that was like three times why the unit was vacant and then in construction. And then we had freaking people walking in and they said there's bugs crawling over, so they didn't wanna be there, so we had to send them back out And then this last time, the fifth time, they decided, okay, we think they're in the walls, we're gonna drill holes in the walls and like fog it or whatever, whatever they, I don't know what they do. And then still bedbugs crawling around, so they're in there again, so I guess the sixth time maybe, but they're like, yeah, there's really not a lot we can do because sometimes these bed bugs, they'll lie dormant in the walls. So what you really need to do is we need to get a live host in there. So if you let a tenant move in and if they have a live host, they can feed on that host and then they'll all wake up and come out and we'll be able to get them then.

Dan Austin: [16:19] It's like

Mike DeHaan: [16:20] I cannot believe that this was their advice.

Dan Austin: [16:23] You gotta get a live host in there.

Mike DeHaan: [16:24] Take some unknowing people Yeah. Put them in the property that you know is full of bed bugs, so that way the bed bugs wake up. Yeah. And then they come in and gas them. That is the most insane thing that I have ever heard from like a service company.

Dan Austin: [16:40] It makes no sense, right? It makes no sense. Mind you, we've been dealing with these guys for three or four months and here's the thing, when it first happened I was like, I want my money back, and then of course I'm going through this with the maintenance guy at our property management company like, so I'm not the one talking to him because they schedule, they have their contact, they pay them and all that stuff, it was like, I don't know, 1,200 or $2 or something like that. And the guy basically is like, well we don't do refunds. We just, we will guarantee our service so if there's bed bugs in there that will keep coming back. And I'm like, there's no way that that's a good business. Like just go in there, freaking gut it. Like Yeah. And here's the thing I don't understand of like, they're like well, because it's a multiplex so there's units adjacent to it, they're like no, they've gone in there three times to inspect the unit next door, I'm like how is there so many bed bugs in there, they're somehow not going in to the other unit? Makes no sense. I don't know. So it's just like, maybe we I guess, apparently there's like dog sniffing bed bug, bed bug dog sniffers too, like they can find them, I'm like, get that guy in there. Go and get the dogs, the sniffing dog to find these bed bugs.

Mike DeHaan: [17:41] Yeah. Well, I mean I'm just gonna add, nobody worry, we're not gonna go put a freaking tenant in there because we're not dirt bags. No. Like point pest control. I'm saying it again, the worst company I've ever heard. That that is the equivalent of like a plumber, if your toilet isn't working, it's like just tell your tenants not to take shits. Yeah. It's like it's like it doesn't make any sense.

Dan Austin: [18:00] Don't poop in this bucket and then dump They're it

Mike DeHaan: [18:03] like, oh yeah, your heating's off and it's winter, just tell your tenants there's a lot of fire in the living room, it's fine.

Dan Austin: [18:08] You know what I'm gonna do instead? I'm gonna go and get several like stray dogs and cats, put them in there, so then they can pick up all the bed bugs and then I'm going to walk them over to all the tenants in the nearby the high car competition and give them all service animal letters and make, hey, you want a pet? Here you go. And then all your bedbugs have to get shut down like we are and then our unit, there'll be less units and so it'll drive up rents. Just start a citywide infestation to make another $100 a month.

Mike DeHaan: [18:36] What a nightmare. Yeah. Do you think it would work if you like hung a chicken in the kitchen like a tetherball or something and they're all like coming out and they're like, they all like gather around at the bottom and like circle around like ants or something, I don't know.

Dan Austin: [18:47] I don't know. This is new to me like, but I'm becoming an expert in the last six months. If you know anyone who had bedbugs hit me up on Instagram, like I wanna know like, how to get rid these bastards.

Mike DeHaan: [18:56] Yeah. And that's up. Investor man Dan. Yeah. 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 man 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 listening to the 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 in human grow our audience. We really, really appreciate it. Anyways, enjoy the rest of the show you guys. We appreciate you all. So we're dealing with that nonsense. Then we have a couple vacant properties that oh I mean unless we've kept, we've chosen to keep them vacant because they're planning on selling them and reposition the equity. It's because they have a couple capital items that I wouldn't say are like immediate but we see like the next few years being challenges and it's like looking at just our opportunity cost in our our lending company other stuff and it's like should we reposition it? Mhmm. Especially because property taxes have increased so much everywhere.

Dan Austin: [20:10] Mhmm. Yeah. My belief on that too is is like you should run your properties up to the point of like major capex and then if you're not married to the properties for some reason, that's the time to exit. Not that you're trying to exit at a shitty property, it's just easier for an investor as a new buyer to come into the asset, capitalize that asset with new things and then start off from there. But once you've already owned the asset and the more money you put into it, the return on equity, return on investment goes way down. So as a new investor

Mike DeHaan: [20:39] Just keeps dropping.

Dan Austin: [20:39] It's actually not as bad if you actually just go run the math, like it's better for that new investor to do it that way as opposed to you doing it and then sucking down your ROI, ROE.

Mike DeHaan: [20:48] Yeah, well they're just, yeah exactly, they're starting from scratch, right? Their basis is going to be whatever they decide it to be.

Dan Austin: [20:54] And the reason why I say it is like you can't necessarily just go cash out refi $35,000 worth of capital items because it doesn't necessarily add value to the property. For a new investor can come in, buy that property for a percent of the property for the down payment. Mhmm. And also there's negotiating techniques for that as well of getting like some some money back or whatever for like roof replacements and stuff like that. There's just some other, it's just easier and better that way.

Mike DeHaan: [21:17] Yeah. Totally. Yeah. Mean, then all those things and then like the tenant space in general is just kinda weird because of affordability issues. And so like with what we've looked at, it's like the actual return on equity that we have is kind of dropping just because, you know, rents are pretty stagnant, but prices are increasing, especially with taxes dramatically. So for Got us because like a lot of these properties, we have 30 or 40% plus equity. So if someone was to come in and buy it even with higher rates at 20% down, their return on equity is gonna be probably more aligned with what they would expect versus ours, which just isn't making sense.

Dan Austin: [21:51] Right.

Mike DeHaan: [21:51] I mean I guess we have these up with the state. I don't know, do we have the ability to push those to like a higher rent or, I mean you're the one who usually talks to them.

Dan Austin: [22:00] Yeah, I mean we have some margin in those, like I think those ones are actually, so we have a couple single family homes that we rent to, well one of them we used to rent to the state but now we rent to a state agency that's like subcontracts to the agency. I don't know who they put in there. Don't know? Don't care?

Mike DeHaan: [22:16] That's the one we had like the random Russian guy that was there that one time.

Dan Austin: [22:19] Yeah. I think he was like Czechoslovakian, I don't know. Yeah. I have no idea who you maybe Russian.

Mike DeHaan: [22:24] Witness protection or sex offender?

Dan Austin: [22:26] Witness protection, sex offender. I I have Anyways, no idea but the other one is is rented directly to the state for a specific program for developing disabled adults. And so the rents are higher at a premium, but we also don't have any maintenance costs associated with those two properties because they actually do a 100% maintenance as part of the lease, so that's what they're used to doing because they tend to have like more like ding and dents because of the type of tenants they have, which is fine. Actually the one, the state literally put like plywood on all the walls on the interior so it's like, they can't damage shit.

Mike DeHaan: [22:55] Nice. Yeah. Nice. Yeah.

Dan Austin: [22:57] It's nice. So. Actually that, it's a funny story so I stopped by that one today. Sorry, I'm gonna laugh at myself here a minute and don't think of me as a terrible person for telling this story but

Mike DeHaan: [23:07] People list already know you're a terrible person this way.

Dan Austin: [23:09] So this is this is all fun and games. So I swing by this one house for two reasons, One, it's it was on my way home, we have a detached garage that we retain for storage for materials and stuff like that. And so, we have a mutual friend that needed some things out of there, so I said, hey, I'll I'll swing by and see if they're in there, if they're in there, I'll just put it outside, you can swing by and grab them, it's on my way home, it's not hard. Then also we had a rent collection issue with one of the tenants because their mom pays rent for them, because like I said, are developmentally So disabled high functioning adults, but they're not able to like live on their own because they have special needs issues, you know, usually these ones in this case is like, I don't know, mental handicaps and stuff like that. And so, she's like, hey, I'm just gonna leave a cashier's check at the house. I was like, fine, I'll swing by, I have to go by there anyways, I'll just come and grab it. So, I roll up, I knock on the door, and this dude answers the door. And you know, you've heard my stories, sometimes like you answer the door, you don't know what to expect. I've been like straight bear hugged and squeezed almost to death by like a six foot five, four hundred pound You know what I mean? That's dumped three gallons of clone on him and is wearing a Winnie the Pooh costume.

Dan Austin: [24:15] Like, I don't know what to expect. So I knock on the door and I can hear people talking, I got the windows open, and this dude answers and he's wearing like a wolf shirt with like the wolf like howling at the moon type shirt.

Mike DeHaan: [24:26] For they get like a national park like gift store? Something like that or

Dan Austin: [24:29] like, oh yeah, Walmart. He's got like a scruffy beard and I'm like, I think this is one of the attendants. I'm like, hey, like, hey, how's it going? And the the guy's like, what's your name? And I'm like, oh, I'm Dan. And I'm like doing this like whatever impersonation of some idiot that would talk to somebody like this.

Mike DeHaan: [24:47] Just talking to a child?

Dan Austin: [24:49] And I was like, yeah, so I'm here to pick up the check for Jeremiah. And the guy's like, can you give me your ID? And I was like, what do you need to see my ID for? Like, you know, was like, what is this kid playing like a game with me now? Turns out, that was the caretaker I was talking for three minutes this whole thing where I was just totally acting like an asshole in front of this guy. I was like,

Mike DeHaan: [25:09] god, dude. Yeah, were you were being an asshole.

Dan Austin: [25:12] This is like, I didn't know, I mean, I didn't know what to expect, like it really caught me off guard and I had no idea that he was the caretaker.

Mike DeHaan: [25:19] I mean, you can Dude, my my brother is disabled, you can just talk to them like normal people.

Dan Austin: [25:23] It's okay. Your brother obviously though, he's he's easier to talk to like some of the guys like I've seen.

Mike DeHaan: [25:28] He's cognitively an eight year old dude. Like I he is. Yeah. He's very social but he's he's you know, you still talk to him like an adult. You'll figure it out.

Dan Austin: [25:35] It is yeah. I totally get it. I just felt like such an asshole. Like, what am I what am I doing? Like, what am I doing here? Like, this is ridiculous, dude.

Mike DeHaan: [25:44] Yeah. That's funny.

Dan Austin: [25:45] Anyways, the guy just like rolled his eyes and I pulled out my ID, gave him my ID and got my money and left us.

Mike DeHaan: [25:51] God, that's so funny. Man, maybe that guy goes and looks in the mirror and is like, how can I not have that happen to get any bike? Do Do I walk to the grocery store and people assume this?

Dan Austin: [25:59] Maybe just speaks to the labor force right now. I don't know, dude. It was not somebody that I would have expected to be the caretaker for these

Mike DeHaan: [26:05] Yeah. Adults. Yeah. That's funny. But, yeah, I mean, that's like one of our good properties though. Like, that's a very easy one. Because like that one, you know, like we have a really solid return on equity and like both the state properties are the easiest. We should really just lean into that model, honestly.

Dan Austin: [26:20] Right.

Mike DeHaan: [26:20] I know we tried to do that at one point. There has to be another

Dan Austin: [26:23] I think they've come back around, so like on that house in particular, this is a single family home Yeah. That we paid $1.50 for, we cash flow net net a thousand dollars a month.

Mike DeHaan: [26:33] That's awesome.

Dan Austin: [26:33] So it's a really good one, the other one is close to that. Mhmm. And we have zero cash on that one because we got a second position loan on that one. That one's sick an investor that wanted to do that, that was when we first started out, we're probably somewhere after even paying that debt service for like $800 a month cash flow. Yeah. So really solid and we don't have to do anything. Mhmm. But for a while the state decided that they were going to play hardball with us and start dictating terms because the terms were a lot better before and now they're coming back around and being a lot more like, okay, I guess we'll ask for it but if you say no we won't do anything. Yeah. Like they asked me to like repair the sidewalk. I was like, bro, you work for the government, you know I can't repair the sidewalk?

Mike DeHaan: [27:14] That's not how it works. Like, you don't own the sidewalk.

Dan Austin: [27:17] I don't own it. I don't own the sidewalk. It literally says the city of Spokane on it.

Mike DeHaan: [27:21] Yeah. That's funny. I mean that whole industry is just so tricky. I know there's people that kinda try to like lean into that model. I mean even like the, you said the agency that we work with on some of those. Are those actually government agencies now? Because I remember at one point they were like private they basically wanted to like arbitrage our house and they had their own back end whatever.

Dan Austin: [27:40] Yeah. So we've actually worked with a few different ones. I mean, is a great model for those listening. Like, go and look on your state like programs and look for basically you're looking for like placement companies that are there like, and you'll go to their website and they'll look like they're there to like help the people. Like we're here for you, you know what I mean?

Mike DeHaan: [27:57] Well they are there to help the people.

Dan Austin: [27:59] They are there but they're there for profits cause a lot of the people that run these companies, there's a lot of small ones out there, we've worked with like a decent sized one. There's a lot of small ones out there that they're like, I'm literally just going to say that we did all this stuff and then take the money. Because most of them, they get a combination of the tenant, of the person that's getting placed, their social security income, they're usually on social security income, depending on their situation, and then they get paid from the state because they'll basically say, well it costs this much to house a person, so they can only afford this much, so you guys have to pick it up. And the state in Washington tried to have it's own program where like, we're gonna cut out the middleman, and they realized like well, the landlords will still need to get paid, right? And so there actually is some unfunded gap that needs to be covered even though some of these agencies were doing it for more profit than they should have.

Mike DeHaan: [28:49] Well there definitely is now because like the Skillskin company or whatever those, that went out of business.

Dan Austin: [28:54] Yeah, exactly. And that's who you just like pay on behalf of all these people, right? Mhmm. So I don't know how that worked, I'm I'm just guessing they would collect money from all these people and then pay out as a percentage of what they were asked to pay out. I don't know how that worked. Yeah. Because like they would pay on behalf of the tenant, right?

Mike DeHaan: [29:11] Mhmm.

Dan Austin: [29:11] To us, to you and I. Yeah. But they weren't actually providing the housing or any of the services.

Mike DeHaan: [29:16] No. They just had like pain in the ass staff membership to deal with that would make everything super, super difficult. And they would be like, can you prove that the human shaped hole in the drywall wasn't there when we moved in?

Dan Austin: [29:27] Right. Oh my god. The same exact size as our tenant.

Mike DeHaan: [29:31] Yeah. Right. So we have the recorded incident of when this happened. Let's Right. How do we know that it wasn't already there? Right. That's a real story by the way.

Dan Austin: [29:39] It is true. Back to the point here though on why it is a valuable situation is so, the one we rent to the private agency, it's a good company, they own like, they lease like 30 homes across our state Yeah. Different people. I literally don't know who these people are that they rent to, but I do know that they're great because they signed a lease for them and then one day I emailed them, I said your rent's going up a $100 and then they never responded but they started paying us a $100 more. Yeah. It works out great. They went in, they're like, don't really like the floors in here, is there anything you can do here? And I was like, no, honestly, like, if you guys are gonna live here, I'm just gonna leave it as is, like if you guys move out, that's why I'm gonna do a full renovation, so like, it is what it is and so they paid like $5 to do LDP throughout the whole house.

Mike DeHaan: [30:20] They rip out that jinky tile and everything?

Dan Austin: [30:23] Nope. They went right on top of it.

Mike DeHaan: [30:26] So that's future Us problem, I So

Dan Austin: [30:28] future Us problem. Right? But no, they they painted the walls and all that sort of stuff. They like they wanted to do certain things to show like the clients like, hey, we're providing you a service. Which is better I think in some states than some of the stuff the state does, because the state doesn't care, like they're all budget and dollar driven. Mhmm. But these private companies are client driven, and so if you can connect with them, you can really usually set up, you would need to figure out what they're looking for, so like the tip is like, if you're going to do anything with like the disabled services, you need to typically have like rancher style homes or limited steps, I mean ideally, because a lot of times they'll wanna place wheelchair people, or they have, you know, disabled adults that are on social security, whether that's mental or physical disabilities, so any steps or anything like that aren't great. Like the house we rent to the development of disabled adults, it has a basement, they're fine, they're capable. These guys are okay with that, but we've had it to where they turned down properties for us. So typically you want something like that, and a lot of times they actually want them in like a neighborhood that they can be out and about in because it's good for, you know, the health, the well-being of these tenants, so they wanna be part of the community and all that sort of stuff.

Dan Austin: [31:38] And other than that, they don't really care, I mean they're not gonna wanna do it in like a multi, like a large multi family. Mhmm. We've had it where they would wanna rent a duplex, they would want both sides at the same time. Right. But even then, and this is literally just like, like if you're doing the developmentally disabled adults, a lot of times they're like, yeah, we don't want like eight eight of them running around the neighborhood because it causes problems. Yeah. Like, and you've seen that before,

Mike DeHaan: [32:02] Yeah.

Dan Austin: [32:02] Because it is too much chaos and they're trying to find housing for these folks and there's a reason why sometimes it's a struggle not just from a financial standpoint but also because of sometimes their mental illness creates chaos within the neighborhood and then Mhmm. Their landlords kick them out because they drive run through the walls and scare the neighbors and do weird stuff too. Like Yeah. It is what it is.

Mike DeHaan: [32:22] That is a lesson that we learned with this. The first time, I guess, I went down this realm, so I was the first one of us to to do this. I ended up with a Dennis was very, very aligned in their program. I ended up with a tenant that they did not fully disclose the level of disability that this person had. That's right. And he was doing stuff like throwing rocks into like the Like yard next door with the kids in there. And he would like get out of the house and like run around and scream and do like weird stuff. And you know, I understand that there, those people need a home too, but like this guy honestly needed to be in an institution.

Dan Austin: [32:56] You know, it's the funny because I think that's the guy that they moved into one of our properties because like they were looking for desperately for this guy and he had to live by And so he moved in that to Cozza by himself. And this is the guy that when he moved out, fortunately they paid for it, he moved out because he got forced out, he broke out every single window, and I'm talking this house has like some big, like Mhmm. It was a nice house where it was built as far as some guy custom built it, has like eight by 10 foot windows in the back, like huge windows, this dude broke every single window and then he punched holes in almost every single wall and he broke through the front door and the side door. So I asked finally because they were trying to cover it up like, oh no, we don't know what happened. I walked the property, was bro, everything is broken here. Yeah. They're like, yeah, the staff just had to go outside and just let him kinda have have his time because they because he's a big dude and they couldn't stop him. Mhmm. That's where sometimes like, so he, that guy went to the hospital, I don't think he's come out Yeah. Just based on the talks I've had with with our state sponsors, but those are the kind of situations you can run into where it's it's not the individual's fault, they have an illness and like, can't have a bunch of them in in one location for that reason.

Dan Austin: [34:05] So having these smaller footprints of these houses, you'll get much more rent than you would like for that, for one of our houses in Spokane, we rent for 2,400, it'd probably rent for 1,800 and we'd have Yeah. To cover

Mike DeHaan: [34:16] They're willing to pay you a premium because of the associated risk and also too because they don't want you to, they they like don't want you to be increasing rent. Like they're like thought as if they make it a premium that they'll be able to just have the same budget for a couple of years. And if you wanted to work them on it, they're generally pretty good. But like a lot of this conversation though, when you hear people talk about these different things, they pretend like they're super easy and they have all these different niches. They all come with hurdles, you guys. Yeah. There's none of these things that are like the extra cash flow sort of plays that people do that are just turnkey. I hear people talking about like these sober living facilities or these like rent by the room situations or you know section eight or like whatever else people do whether it's like short term rentals, trying to squeeze out more money. Everything that isn't just a traditional long term lease is going to come

Dan Austin: [35:05] Comes with something, you gotta work for your money.

Mike DeHaan: [35:07] Some kind of baggage. Yeah, you gotta work for it. Because if it was honestly that easy, everyone would do it and that's just not how

Dan Austin: [35:14] Yeah. Well and then don't, like, I'll just close the loop on this, and like, you can't always just accept what's happening to you. So I just explained that story where the tenant just thrashed everything, and then the state was like, yeah, we're gonna move out. So they wanted to move out because they had no reason to own that house anymore because that guy had trashed it, he was going into the hospital, he could no longer So live with this was a house that we bought specifically for the state, like they were like we'll working with keep it for ten years, right? Well a year into the lease they wanted to back out. So not only was I not gonna accept the situation, what they did, I was like, you guys are gonna make this right. First of all, you're going to pay to fix all of this and you're going to pay because you're gonna, it's gonna take so long to fix, you're gonna pay some additional rent and by the way, do you know anybody else that needs this property? Because I had been working with them for a year now, like looking at expanding this stuff and then they connected me with a new state funded private contractor that now rents it from us, right? It was like being very proactive and not just accepting things, but it was a lot of work still, right? More money you make, less passive it becomes.

Mike DeHaan: [36:11] Yeah. Yeah. I mean, and regardless of what anyone says, that's the rule. Like the rule here. Yep. Awesome, guys. We'll wrap it up there. We appreciate you guys all listening. You should share this with anyone who's interested in real estate or trying to figure out what the best velocity for their money is or time return on their equity or different things we talked about today. And anyone who has some get rich quick scheme where they are talking about running to the state for people that need additional care. Have them listen to this one so they can know the true reality of what can happen when things get a little bit weird. So appreciate you guys listening and we'll talk to you next week. See y'all.