The Five-Year Reality Check Every Investor Needs

Mike DeHaan: [0:00] That's not a tax credit. That is a reduction in income, which

Dan Austin: [0:03] is very important. Yes.

Mike DeHaan: [0:04] People don't fucking understand that. How most people view their real estate, like, they don't look at, like, the big picture. So they don't look at the non escrow taxes, the non escrow insurance. They don't look at, like, the roof that they have to replace. It's gonna, like, eat up their cash for the last three years or if it's early on for the next five years. Right?

Dan Austin: [0:25] Yep. Yep.

Mike DeHaan: [0:26] But, you know, it's funny. I I was just doing my I just had a meeting with my my bookkeeper just going over my p and l's for my small remaining rental portfolio and looking at, like, the five year picture that I've had with my portfolio. Is pretty good. So over the last five years now and this is a a rental portfolio that back in, I guess, '22, I netted about a $100,000 in actual true cash on it, k, after I did all the refinance, everything. Now if you look at a five year perspective on that entire thing, I am negative about 45,000 in natural cash

Dylan Koch: [1:05] flow. Wow.

Dan Austin: [1:06] That's crazy.

Dylan Koch: [1:06] Is that a lot of how much of that is CapEx?

Mike DeHaan: [1:09] What's going on, guys? Welcome to collecting keys. I'm your host, Mike DeHaan here with my cohost, Dan Austin and Dylan Cook. And we are starting with a little bit of bookkeeping, accounting tax talk today since it's kinda getting to that season. So, Dylan, so to answer your point, how much of that is CapEx, like, that that $45,000 loss? A decent amount. But, like so I like, I've had to do turns on several units after it kinda smoothed out. I've had the, like, HVAC replacements. I had one unit that, like, flooded that I had to do a decent amount of rental on. I haven't had to do anything too per crazy like roofs or anything like that on, like, my little portfolio. So but so it's the combination of those CapEx items plus over the last couple of years, the increase in property taxes and the reduced rental rates and increased vacancy times. That's something else as well right now too is currently in Spokane, it takes about thirty days to get a property leased up. Even if you're at market rents, like, just takes that long for people to kind of like come through and get enough traffic. And that alone can take away your cash flow for half the year. You know?

Dylan Koch: [2:13] Bankruptcy is such a big killer that no one really like they just assume like, oh, I'll get rented. Like, you know?

Mike DeHaan: [2:19] Yeah. Well, not only that, but if you have a property management company, what do most of do when

Dan Austin: [2:22] they finally

Mike DeHaan: [2:23] get leased

Dylan Koch: [2:23] take one year's lease. Yeah. Well, one month.

Mike DeHaan: [2:25] Yeah. They'll take one month or half a month. Right? Unless you're a bachelor like me and I say, hey, it took you guys a long time to rent this. I don't want to pay you for it. And they go, okay. And then they don't charge me. But those sort of things add up, you know? And yeah. So over the course of the last five years, my personal rental portfolio is at 40 a $5,000 loss, which I like and so you guys tell me if I'm I'm ignorant on this. So I went through I sold two properties last year. My tax my total taxes on those two long term capital gains after I take into account all the costs and the different capital items and things that went in there that increased my basis. My total tax burden long term should be about $50. Can I because we basically have operating expenses and it's long term capital gains? Can I basically just make my is my taxes gonna be, like, 5 on, like, $5,000? Like, is that what I'm gonna have to pay instead?

Dylan Koch: [3:22] Still not saying that your long term capital gains minus the $45?

Mike DeHaan: [3:26] Correct. Is that how it works? Like, I I don't think so. No.

Dan Austin: [3:29] You have to pay decree you have to pay depreciation recapture as whatever it is. And then Well, that's

Dylan Koch: [3:34] even what he's that's not even what he's asking.

Mike DeHaan: [3:35] Well, the the depreciation recapture, I haven't really taken much depreciation. The depreciation has been pretty small. So I'll still have to pay that. But I'm talking about the actual, like, gains on the property, my tax my taxes.

Dylan Koch: [3:45] No. Think that means I think the the rental is taxes income. Then the long term capital gains are taxes, capital gains.

Mike DeHaan: [3:51] But isn't that the whole thing about earning real estate professionals? I can reduce those expenses. I can use those expenses to reduce my capital gains.

Dylan Koch: [3:58] Your overall tax benefit.

Dan Austin: [4:00] You can redo the idea of real estate professionals, you can reduce your active income with passive income. Right? So, like, if you have another income, like, make money from sirlens a lot, you can take losses from your real estate portfolio to offset that income.

Mike DeHaan: [4:15] Gotcha. So I will be able to take that $45,000 and reduce it from the k one. Your overall

Dylan Koch: [4:21] From like SirLens a lot. Yeah.

Dan Austin: [4:22] From your overall what is that? AGI? Adjusted gross income?

Mike DeHaan: [4:25] Yeah. Yeah. Yeah. Yeah. But but that's just a reduction off the top line. That's not actually like a 50,000

Dylan Koch: [4:30] savings. Correct.

Mike DeHaan: [4:32] Yeah. Yeah. That is a that's not a tax credit. That is a reduction in income, which is very

Dan Austin: [4:35] important. Yes.

Mike DeHaan: [4:36] People don't fucking understand that.

Dan Austin: [4:37] Yes. They you're right.

Mike DeHaan: [4:38] Because that basically means instead of, like, paying taxes on, say, like, $500,000 income, it would be $4.50. Conversus, like, I'm saving

Dylan Koch: [4:46] But you that's when you need know the brackets. Like, if you're gonna dip between, a 38% bracket to, like, a 30% bracket, you know, that's that's the numbers you need to know.

Mike DeHaan: [4:54] Yeah. But, I mean, that's pretty negligible though because it's not like you're you're paying that on the entire thing. It's just on the amount above that that bracket change.

Dan Austin: [5:02] Right. So so this is where, Max, if you could queue in David from Upshits Creek saying it's a write off.

Mike DeHaan: [5:08] Yeah. Right. Yeah. It's a write off. Oh, who writes them? I don't know. They're write off people. They're write off people. Yeah. So

Dan Austin: [5:16] yeah. Well, that's that's fun selling properties, but at least you got a bunch of cash back for equity.

Mike DeHaan: [5:20] Yeah. I mean, I got a ton back. I mean, like, between the two properties I mean, I already did a cash out on these things once in '21 where I pulled out like a $100,000 out of each one. And then when I sold them, I got about a $100,000 more back. And so, yeah, the the good thing is I have had, like, a handful of major items that I had to repair that do increase the basis. And I added, like, a fence, and I did new flooring. I did all the shit that you actually get them sellable. And all that just goes to our to my To

Dan Austin: [5:49] your capital.

Mike DeHaan: [5:49] Basis at the start, which is great. So, you know, it's still money spent, but it reduces the the tax I gotta be on shit.

Dan Austin: [5:56] One thing you could think about is when you're not happy with the amount of loss you have on your books, just find a new bookkeeper. You can find a new bookkeeper, and you can find a new accountant until they tell you what you wanna hear, and then go with that person.

Mike DeHaan: [6:09] I mean, that that's why I only use people off social media. And that's also too why, you know, I put everything into a nonfungible trust system that's based out of Aruba. Shut up. And everything goes through as different LLCs that are series through six different states. And You know what's funny about are in my name, but I put them in my children's I put them in my I put some in my wife's name, some in my children's name, some in my wife's sister's name. Because they're not gonna know the difference when they audit me. And then I just don't pay any taxes because fuck the man.

Dylan Koch: [6:39] What's hilarious about all this is, like, I relistened to last week's podcast and we touched on this. And not only does it, like, show you guys from a lending standpoint, but let's say a fire erupted at the place. That insurance could be like, nah. We're not covering this. I know.

Dan Austin: [6:50] Right. The ownership of it is

Dylan Koch: [6:52] just ridiculous, dude. Yeah. Yeah. They'll they'll find some way to be like, I'm denying this claim because of all this bullshit.

Mike DeHaan: [6:57] Of course. Why wouldn't they? You know? Like, the insurance company's job is to not have to give you money. Yeah. Like, think that's opposite. Profit. Yeah. They yeah. Technically, it should

Dan Austin: [7:07] be the

Mike DeHaan: [7:08] the opposite.

Dan Austin: [7:08] And think about this. Like, the the dumbass insurance broker you work with doesn't know how their company works. They're just like, sure. I could put I could put, like, letters on a piece of paper, and then they send you a quote and you pay them $1,500. My original the ones that are gonna be figuring out what they owe you.

Dylan Koch: [7:24] My original mortgage or not more insurance broker, I was going through my policies, and I'm like, this isn't even in the right LLC. I'm like, what the fuck? And so, like, I had like, I overhauled the whole thing, but, like, it could have been bad. Like, I was like, what the hell are doing?

Dan Austin: [7:38] We're we're dealing with a borrower right now that just found out based off us working with his insurance agent, that his insurance agent just did not actually enact a policy. So he his property was uninsured for the last year. Jesus. His insurance agent just didn't do it. All the other properties were just not that

Mike DeHaan: [7:54] Did he

Dylan Koch: [7:54] think he was getting charged for it? Or was he just didn't know?

Mike DeHaan: [7:56] Yeah. You know, you

Dan Austin: [7:57] thought he paid for it upfront and all that stuff. Then we found out and then the insurance agent's just like, yeah, it's the other mortgage company. They messed it up. Then it's like, it's a free and clear property.

Mike DeHaan: [8:07] It's it's crazy how often like that happens. Well, the the problem is when it comes to like insurance in general, is the insurance reps that you're talking to, their incentive is not aligned with giving you a good service. But they basically, they get paid off these riders and they get paid every single time that you re up. And so what they'll do is they just tell you what you wanna hear. You know? And they always have room to, like, move on pricing. They always have room to do different stuff even though they tell you that they don't. They do. And what they are incentivized to do is just keep you as a customer. You know? And and then what happens with all insurance is you get a bunch of policies, and you kind of just have them forever, and they change. They adapt. They're slowly, like, adjusting shit on their ends. They get paid more money. You don't even think about it.

Dan Austin: [8:46] Yeah. You just sign it, dude.

Mike DeHaan: [8:48] You sign it. I'm insured.

Dylan Koch: [8:49] I'm insured. In the in the renewal stuff, it's like what you get was what you said. It's like, they'll just try to slip something in here and there. And if you're not on it, like, you kinda can get screwed. Like Yeah. Totally.

Mike DeHaan: [8:59] I mean

Dylan Koch: [8:59] This is what people that you know, like, whether that be insurance, your lender, your HVAC guy, whatever, every once in a while, ask somebody else for a quote on something. Because I I think you'd be surprised that you probably are paying too much in some aspect.

Mike DeHaan: [9:13] Well, with pretty much every kind of professional service, you know, even like when you're getting into, like, serious stuff, like accountants, attorneys, things like that, understand at the end of the day, they are their own person with their own goals and their own life, and they really don't give a shit about you. You know? And especially if you're working for with, like, like, larger companies where you're dealing with, like, the the desk jockeys, you know, or the button pushers, that person just wants to go home and get drunk like everybody else. They don't wanna fucking deal with you. Like, they don't care if you, like, have all these issues. They might be like, man, I feel bad about that, but also not really because I'm going to happy hour with the boys tonight. Like like like, there's nobody is gonna care more about your money or your situation than you are. Know? And I think that that's where a lot of people get themselves into trouble. And it's the argument I would have against, like, the whole, like, who not how movement, which I think is very, very relevant. But you kinda have to know what that person that you're hiring is doing well enough to be

Dan Austin: [10:14] able to call

Mike DeHaan: [10:15] out bullshit when you see it. Like, you can't, like, hire out, especially if it's a third party. Like, it's a it's an employee. It's one thing if it's, a whole third party. You have to know enough about their service that they're providing to call out the BS when it ultimately doesn't do what you're expecting it to do. Agreed. You know? Yeah. And like even if you have like a really good accountant, you have to be able to go and look at your your tax returns they send you when they send it to you to approve before they send it to IRS, you have to go and they, like, say, here, just DocuSign this. Don't just fucking click sign. Like, go and, like, make sure that they actually tracked all your stuff. You know what? A perfect example of this, I found out this year that back in 2023, our accountant never added my Srolensolite income to it. I discovered this and I had to amend it. And I had to pay $23,000 in surprise taxes in like May this year for fun. That's awesome.

Dylan Koch: [11:06] And what's what's worse if you do something like that and they they don't think it was an accident, they'll charge you, like, late penalties for not clearing it.

Mike DeHaan: [11:13] Well, so so here here's actually what happened with that is I had to pay those of the taxes, of the actual penalties. The actual penalties was like $7 because it had been several years and it was a non filing and all this sort of stuff. And then they came back with additional penalties for it now being like also late from when it was like, told to them versus when I actually paid it and this whole sort of thing. And, fortunately, the CPA covered that amount of money, which wasn't a lot. It was, like, a thousand bucks. But, like, of the total amount that I had to pay, a third of it was avoidable. If I had to stay on time two years ago, but it wasn't on my taxes correctly because I didn't know enough to verify what he was doing was gonna be correct.

Dylan Koch: [11:51] What annoys me is like, okay. So I'm doing this actually right now as we speak. My half year taxes on this one property is $6,737. And if I it has, like, the breakdown on here. The school district is 60.5% of that, of just this bill, and the schools suck. That's why, like, that's what I get pissed off about.

Dan Austin: [12:12] Hey.

Mike DeHaan: [12:13] You know what? Like, private security and metal detectors are expensive, Dylan. You know? We've gotta come out for the safety of the kids.

Dylan Koch: [12:22] But I you know, I'm not I you know, I'm all pro education. I have a I have a higher degree. But, like, it's just the people who are allocating those funds, I feel like, do not do a good job. And, again, it goes back to incentives.

Mike DeHaan: [12:35] Yeah. Exactly. What, like, what are the incentives with it? And it's you know, look at that and everything when you're hiring across the entire world of business, hiring contractors. When you're when you get a quote from a contractor, whether that's like a contractor working on a house, contractor doing marketing, is contracting whatever, look at how they are quoting you in their pricing structure and what their incentive is. You know? If it is something where they're going to charge you monthly, their incentive is to keep you as a client for a very long time, which does not necessarily mean provide good service. Right? Especially just to keep you going. If it is something where they're to be charging you hourly, their incentive is to work for you as many hours as possible, not to get the job done. If they give you a block quote of, say, 20,000 to do the project, their incentive is to get it done as quickly as possible, not to do it the best possible way. You know? And there's, like, really no perfect way to do it. There's always kinda like a trade off. You just have to understand what that is and make sure that it makes sense what you're hiring the person for. Yep. You know?

Dylan Koch: [13:30] This comes out on Tuesday. Right?

Mike DeHaan: [13:32] Yeah. We can talk about

Dylan Koch: [13:33] this if you want. We're gonna skip it. But I'm gonna I'm firing my first acquisitions guy and hiring a new one.

Mike DeHaan: [13:39] Oh, does does he know this? I might release this today just because He he

Dylan Koch: [13:42] doesn't know. Right now. Yeah. He doesn't know. Yeah.

Mike DeHaan: [13:45] We're going live. We wanna fire him right now.

Dan Austin: [13:48] Call him Dylan. We'll call him.

Mike DeHaan: [13:50] We'll call him. We should do that. That would actually be funny. We maybe that's what we should do to mix the show up. We just start doing, like, live shit. We just,

Dylan Koch: [13:55] like, do that. We've talked about this, but then we just call in and people could be like, hey. What do do in this situation? And we'd probably we have to be nice about it.

Mike DeHaan: [14:02] Well, so so here's the problem, Dylan. I don't know if my ego can take doing that, we have, like, three people on there. Like, you ever you know? Yeah. Like, like, you know, when we we have friends, you know, people that follow that will do, like, Instagram lives. People like, yeah. Put yourself out there. I've gone on those before. I'm like, first off, no one walk like, wants to watch this. Even if they're, like, one of my favorite people. I'm not gonna I'm at the middle of the fucking workday.

Dan Austin: [14:22] Yeah. Yeah.

Mike DeHaan: [14:22] Like, I'm not gonna sit on our

Dylan Koch: [14:23] I don't watch other people, so why should I expect them to watch mine? Exactly.

Mike DeHaan: [14:26] And then I go on, and there's, like, two people on there. And I'm like, man, like, you're just talking to nobody. Like, this is brutal right now.

Dylan Koch: [14:33] It could be like the Ramsey style, though, where they call in, they ask a question, and then you record it, and then you play it out to the audience. But, like

Mike DeHaan: [14:39] Yeah. But, I mean, like, you have to have participants for that.

Dylan Koch: [14:42] Well, we could stage that. We could

Mike DeHaan: [14:44] stage it. Yeah. Right. Yeah. Yeah. The people who listen to this show, like, is that Greg? Is he He's become, hey, fellas. Yeah. He's like, just go to go to right afters. You know? He's preparing to be a miscellaneous car. It's like, you're not fooling anybody. Yeah. It's not not the worst idea. I don't know.

Dan Austin: [15:01] It's just So so what's okay. What what's the story of a fire in this dude?

Dylan Koch: [15:04] Well, we've had, you know, like, the CRM that gives you dashboards of how many calls they make, you know, each day and the task and all this kind of stuff. And there's been like times where it's like, hey, man, like, you know, you can't, expectation is this many calls or why don't you call this person this same, this is your task. And he's calling 20 to 30 people a day. It needs to be 80. Totally. And so it's just gotten to the point where it's definitely hurting the business performance. And now I have someone that as a replacement that I think is going to kill it.

Mike DeHaan: [15:40] This is a story as old as time, man. Does it start

Dylan Koch: [15:43] out great? Right?

Mike DeHaan: [15:44] They start out yeah.

Dylan Koch: [15:45] They start out great. And then get some money in their pocket, and it's like, yeah. I'm good.

Dan Austin: [15:49] They just they just whittle away. Even even if sometimes their business partners are that way when you have a business partner. That's supposed to do sales.

Mike DeHaan: [15:56] Oh my god. I'm gonna my mouth shut. But, yeah, the whether it's they get money in their pocket or it's the fact that doing acquisitions is just, like, such a brutal thing. Like, because there there's a reason that that is the first role that anyone that tries to do a direct to seller home buying company wants to outsource, even if they're good at it.

Dylan Koch: [16:18] Yeah.

Mike DeHaan: [16:18] The first thing wanna do is bring an acquisition manager because it sucks. It's hard. It is a grind. You know? Like, there's so many no's that get yeses. And the problem is when you do get the yes, it comes with a whole bunch of baggage that you got to deal with. Mhmm. It's a very, very hard business to get excited about. And then also too, if you think about the perspective of that person, you're what? A three person company. You have him and, like, an admin and yourself?

Dylan Koch: [16:43] And a VA.

Mike DeHaan: [16:43] So And a VA. So four people. So that is, like, he works for Dylan. He doesn't work

Dylan Koch: [16:48] for Right.

Mike DeHaan: [16:48] Pillbox homebuyers, whoever your company is. Like, he were he works for you. And so he's, like, going, what the fuck am I making this guy all this money when I'm doing all the shitty work? Yeah. You know? Which is hard. Like, I would say that that became less of a problem when we had a large sales team because it felt like a company. Right? Yeah. And so as you kinda like build it out, they're kinda going off each other. And then also too, you can say like, I know you say you're working hard. Here's why Dave is closing all these deals and you're not because Dave is doing three times the output that you are. Yep. Right? Well, I think And you can show that. Sharing just one guy is hard.

Dylan Koch: [17:22] Well, I think sharing this office space is actually will help with that because the person I'm sharing it with does the same business, but, like, they full disclosure, are a larger company than I am. Yeah. You know, they have two act guys, the dispo guy. And I think that this environment will be better and be like, well, man, they didn't the phones, like, I can do that. And I'm not afraid to hit the phones with them either. That's the other thing. It's like, I will go in the trenches with you.

Mike DeHaan: [17:43] So Yeah. See, and that's sometimes what you gotta do. Right? Is you need to be peer to peer, but then you'd like, yeah. We're homies, but I also make 95% of the money.

Dylan Koch: [17:51] I'm taking all the risk.

Mike DeHaan: [17:54] I'm taking

Dylan Koch: [17:54] all the risk.

Mike DeHaan: [17:55] But it takes a special person to understand that, which is really, really hard for employees. Yeah.

Dylan Koch: [17:59] I don't know about your guys' thing, but I know you had one sales guy that was like kind of old that stuck with you guys for a long time.

Mike DeHaan: [18:05] I was Dave. That's why I said that Yeah.

Dylan Koch: [18:07] Know. But I think anybody I've done now is like anywhere from 20 to 26 years old. I don't know.

Dan Austin: [18:12] That's gonna be generally the kind of person you get because to be honest, like the people you get for the acquisition manager aren't the kind of people that are going to be awesome. Mhmm. Like very like when are you where are you I've never personally met an acquisition manager that makes $200 a year, $2.50 a year. Even though there's people out there that say that's where they try to get their sales guys, I'm like, I've never that person. No. I've just I've just met dudes who are barely lucky to make $60, they're happy, and then they kinda don't wanna work for two months.

Mike DeHaan: [18:37] Yeah.

Dylan Koch: [18:37] Yeah. Yeah. My guy made pretty close to 6 figures, and he only worked ten months of the year. So Yeah. Right.

Dan Austin: [18:43] There you go. Exactly.

Mike DeHaan: [18:44] That that's such a valid point, Dan, because you're right. Like, I feel like so many of the I think we're I I mean, as far as might not be in my algorithm anymore. Are we out of the the fad of, like, the business coaches that are trying to coach wholesalers now where they're, like, doing, like, the, like, the sales coaches, like, the beat your chest. I don't

Dan Austin: [19:03] see it as often as much. Yeah.

Mike DeHaan: [19:05] I feel like they've now shifted on that the roofers. Roofers. Yeah. Yeah. Yeah. Exactly. And the and the other other kind of shady sales businesses instead.

Dylan Koch: [19:12] Solar.

Mike DeHaan: [19:14] Yeah. Because for a while, you were seeing that with wholesalers. And you're right. They would always say, like, my my sales guys make $250 a year. And, like, in hindsight, I bet you that they had one month that they made, like, 20. And they're like, this is gonna be $2.50 this year. He made nothing for the next three months. Yes. But that one year, you know

Dan Austin: [19:30] It's gotta be, dude. It's gotta be. We've we've all ran this business long enough and been around enough people. I've I've personally just never met that person. And if I did, they would just be running their own company.

Mike DeHaan: [19:38] Yeah. Well, it's like it's like when you meet all these people that are, like, new to the business or they're, like, selling some kind of, you know, thing that they've never actually done before. You see this you're seeing this a lot right now with the people that are selling, like, the business acquisitions sort of like groups and masterminds when they've never done that themselves. As they'll be like, here's how I grew this into a 7 figure business. I'm like, you've only been doing this for six months. Yeah. You haven't fucking made seven. Like like like Well,

Dylan Koch: [20:03] they sold six houses and the top line was $1,100,000,000.

Mike DeHaan: [20:07] Oh, yeah. Right. On the real estate side for sure. But when it comes to, like, the revenue side, they'll have, one month where they made, you know, 85,000, and they're doing their math. Like, if I did this every month, I'd make a million bucks. That's

Dan Austin: [20:18] how business works.

Mike DeHaan: [20:19] They don't explain that that's the previous three months and the next month all crammed into that month. So real estate, they're gonna make, like, $3.50 because they haven't done it over a twelve month basis.

Dan Austin: [20:27] 100%.

Dylan Koch: [20:28] Well, think Hormozi said this well. It's like, businesses, matter what stage you're at, they have their own struggles and problems. Whether that be like, you're shrinking, obviously that's a problem. If you're plateauing, plateauing businesses have problems, and growing businesses have problems. So they, like, they never go away. It's just like, what problems are you facing at that specific point in time? And then where do you wanna be, you know, the next couple quarters from there?

Mike DeHaan: [20:52] Yeah. Third year. Yeah. And the the problems don't even get necessarily get bigger. You just have, like, more resources to solve them. They get more complex to solve. You know? Because, like, when you're a small business, a lot of those problems, can realistically solve in, a month. But when you, like, are even like a slightly larger business. Like right now with SirLensAllot, we have nine employees. And if we need to implement like a new processing process or something like that, we realistically are looking on like a two to three month timeline to do that. Yeah. You know, by that time we put out job applications, we interview people, we hire someone, we get that person in, we onboard them. We now get their pipeline full enough so they can actually be a part of the system and the process. It realistically does take a couple of months. Totally. Versus like when you're a small company, you're a wholesale operator with a one person show. You can bring in acquisition manager. They can be doing things tomorrow. Right. You know? Yeah. Gotta be

Dan Austin: [21:43] you gotta be holding it at the end of the whole way. The nice thing about the last processor we hired, the first processor trained her. Yeah. Exactly. Like, I mean, obviously, I did some, like, basic, like, kind of coaching and training and stuff like that. But then once you have the resources, then it's, like, less burdensome on you, and it's more about implementing a system and a process, which, yeah, might take two or three months to do it all. But you have, to your point, Mike, more resources to solve those problems.

Mike DeHaan: [22:05] Yeah. Same with on the sales side. So we have Chance on our team who's like a freaking rock star. Like a loan officer. He's awesome. And so, you know, we gave him a little bit of ownership in the business. And so now he's incentivized by the large picture of the business. And now all the new sales reps that come in, he runs them. He's the leader. He trains them. He does everything. Yeah. And it just makes it so much easier for us to focus on the other parts of the business that are the new constraints, finding capital, know, setting up these relationships with the hedge funds, different things, or just, like, figuring out all the legalities of stuff that Yeah. But, apparently, when you start doing volume in a lending business, actually matters. Right? Like, you

Dan Austin: [22:41] you don't Oh, man. You know what I hear? I'm actually I'm glad you brought that up. I was just in my, closet over here. Oh, Dan came out

Mike DeHaan: [22:49] of the closet. Coming out of the closet finally? Yeah. I just came out

Dan Austin: [22:52] of my closet. Got it. My lending closet, where I store all of our secure documents.

Mike DeHaan: [22:59] Oh, yeah.

Dan Austin: [22:59] But no. I was in and I was thinking because I was looking for something. And

Dylan Koch: [23:03] was What's your address?

Dan Austin: [23:04] Yeah. I was thinking, how we when Mike and I first started doing loans back in, what, 2221? I can't remember. '21. Like, they would, like, they would, like, send, like, recorded deed of trust. I'm like, I don't

Mike DeHaan: [23:15] know it's too much trash.

Dan Austin: [23:16] I just throw it away. I get the final title policy. Why do they keep sending me documents? And now I have found. Those are, like, literally the most important things you could do. And, like, all these things that when we first started, we totally took massive imperfect perfect action. It just I I was like, hey, they signed a promissory note. I got them locked up. We're good to go. They signed the documents. I don't know where the documents are at this point in time, but they signed them at some point. And, you know, we lucked out. We've we've had our bumps and bruises, but when you when you start a business and in lending in particular, you don't know what you don't know. You just gotta go. Like, if you if you don't, like, you'll you'll you'll just be a nonstarter. Like, you have to just try it. And if you innocently break the law on accident or put yourself at risk, so be it.

Dylan Koch: [23:57] Can you explain to the audience what a usury is?

Dan Austin: [24:01] What do you mean by that? Like, the usury laws? Or

Dylan Koch: [24:03] Yeah. Like, when lending, if you were the lender. Because I got accused of this the other day.

Mike DeHaan: [24:09] About violating it in Ohio?

Dylan Koch: [24:12] Kind of.

Mike DeHaan: [24:12] Yeah. Okay.

Dan Austin: [24:13] So well, so actually, I I can speak to what what usury laws are. I don't know exactly what you mean by the term usury as far as, the note or something like that. But within each state they have their own usury laws and you can only charge certain amounts of interest. And it also, as I found, depends on if you're licensed in certain states. Like in California, you can't charge more than 10% interest if you're not licensed. If you're licensed, you can charge up to whatever. In a lot of states, you can like you can charge like 24% interest. But then there's a bunch of laws around when default interest starts and when late penalties are charged. So there's all these actual, like, legal laws around lending. And just by doing a simple loan to somebody, like, you could be breaking those laws. Mhmm.

Dylan Koch: [24:53] Yeah. That was kind the point. The the land contract that I sold and the guy lasted one payment. He told me he was gonna hire an attorney for, like, these usual allegations because his interest was like around 10%. But he was on a thirty year amortization with a ten year balloon. You had plenty of time to fix Yes. Whatever credit problems that you had or like, you know, get yourself in the right ship. And it was just I was like, this is ridiculous.

Mike DeHaan: [25:19] But yeah.

Dan Austin: [25:20] But people could I mean, they could file a complaint with your with the local government or the, know, the state governments and stuff like that.

Dylan Koch: [25:26] Well, I learned going through this. Like, there are significant penalties, even if you're a small fish. Like

Mike DeHaan: [25:30] Oh, yeah. Yeah. Well, and the thing that's important to realize about that too is that also applies if you have loans that don't have, like, interest per se. So you'll see this a lot with people that are doing, like, lease options and things like that where they're like, yeah. You're gonna pay me $400 a month in just, a lease option fee. Right? Then Fee. Not yeah. Yeah. Yeah. Yeah. It's it's a fee. It's not percent interest. Just a fee. And then you're gonna put like this much towards principal or whatever. If that amount exceeds the Ursary Laws, if you look at it from like an interest standpoint, that is technically an illegal loan. Right? And the thing that's interesting as well, and I'm I'm bringing this up because I saw Pace Morby spouting off about this to some lady the other day. There's also a minimum interest that you're technically required to pay a lender. Lenders are required to charge.

Dylan Koch: [26:16] I didn't know this. Right?

Mike DeHaan: [26:17] Yes. Yeah. And so, yeah, there's a IRS applicable federal rate. And so the whole point is to prevent tax evasion through interest free gifting. And so if you negotiate with a buyer sorry, a seller to sell you a house on seller financing and you do 0% interest, that is technically illegal. And that the IRS can go after that lender for basically imposing wait. What does say? I have it pulled up here. Imposing imputed interest tax on lenders if rates are too low. So basically, can go and charge them a penalty on their taxes for not charging you interest on them.

Dan Austin: [26:56] Does it

Dylan Koch: [26:56] say what the minimum is? So it varies. Right?

Mike DeHaan: [26:59] Every year it changes. Yeah. So every year, the Apple Federal rate changes. And it depends on whatever the rate was for that year. Then I think you have to adjust it every five years. But so when you see the people Pace had this video talking about this lady. She she, like, buys all these properties, and she just negotiates 0% interest because she way overpays for them. Like, the property would be worth, like, 700. She wants principal pay down. But she wants principal pay down on this thing. Yeah. That is technically illegal to do in the eyes of the IRS. And if the IRS went and audited those sellers, they would get slapped.

Dan Austin: [27:33] Interesting.

Mike DeHaan: [27:33] And I bet I bet you that she would get into pretty big trouble as well.

Dylan Koch: [27:37] You think the seller would get in trouble or the buyer would?

Mike DeHaan: [27:39] Yes. That's where the seller gets in trouble because they're the lender that is basically giving you this green loan. Yeah. Yeah. You know? But as with everything in subject to, like, in that whole subject movement, fuck the sellers Yeah. Because let's put them at maximum risk for your personal gain and we're gonna

Dan Austin: [27:52] be able make the everybody.

Mike DeHaan: [27:53] Because you have no risk because you don't have anything on your credit.

Dan Austin: [27:56] Yeah. That's crazy.

Mike DeHaan: [27:58] But yeah. So, like, there's a there's

Dan Austin: [27:59] a lot of

Mike DeHaan: [27:59] these random rules and stuff that you don't really even

Dylan Koch: [28:01] think I'm sure it came out 2008 with Dodd Frank and all these, like, lending rules. Probably. Just think it's kind of ironic, and I know this is kind of in the news lately, but credit card companies can charge 28% interest to someone with a 550 credit score, but we can't set up something that's backed by collateral at a 10% interest rate without looking like a felon. Like, this doesn't make sense to me.

Mike DeHaan: [28:22] I wonder what that is. Like, just how the debt structure like, I don't know. It just doesn't make a lot of sense. But like, when it comes to the credit card debt, their whole culture around that is just with the different products that have always been around to screw people that are like the worst financially sound. Just like how you have all these bank accounts that charge a fee to have the bank account if you have, like, below the minimum amount in it, which is, like, really low. You know, like, blow them, like, $2. They charge, like, $20 a month for the freaking bank account.

Dylan Koch: [28:49] It's like a fucking PMI, private mortgage loan. Like, why Exactly. Why why charge people who can hardly afford the loan more money? Like, doesn't make any sense.

Dan Austin: [28:59] Makes no sense at all.

Mike DeHaan: [29:00] And it's like a lot too. Like, I just remember Yeah. We've we've we've talked to some of these people, like, when we were selling properties when there's a of FHA buyers back in '21. And some of them, like, the PMI would be, like, a third of their payment.

Dylan Koch: [29:13] I remember when I did mine, this has been in 2018, but it was point 85% of the loan amount was the PMI. Yeah. So if you had a $200,000 loan, it could have changed by then.

Dan Austin: [29:28] $16.50 or

Dylan Koch: [29:29] $1,708.05 is 1,700 more a year divided by 12. It's an extra $142 a month.

Dan Austin: [29:35] Totally. Yeah. On a $200,000 loan, which is kinda crazy.

Mike DeHaan: [29:38] That's a lot. And the

Dan Austin: [29:39] and the and the borrower gets no benefit out of that. Zero benefit.

Dylan Koch: [29:43] No benefit. Not once.

Mike DeHaan: [29:45] Not a little. What does that even go towards? Like like, actual question. Like, I don't I don't even know. I understand.

Dylan Koch: [29:51] I don't I actually don't. I'm assuming the mortgage company.

Dan Austin: [29:53] But Yeah. Nobody actually knows what private mortgage insurance is. It's just a myth that mortgage companies probably put on there.

Mike DeHaan: [30:00] So according to Gemini, which is always right, PMI goes towards protecting your lender from losses if you default an eventual mortgage with less than 20% down payment. It covers a portion of the lender's potential losses, allowing you to get a loan sooner, blah blah blah. So bay so basically, what they're doing is they are taking that as, like, extra profit

Dan Austin: [30:19] for to back. Collect a fee.

Dylan Koch: [30:21] It's like the fee bullshit. Yeah. Yeah. Just in case.

Dan Austin: [30:24] That's stupid, dude.

Mike DeHaan: [30:26] Well Maybe we should start doing PMI on my car. We should start doing is that a thing?

Dan Austin: [30:31] Of CR loans are the PMI now.

Mike DeHaan: [30:33] This is actually such a great idea for, like, the hard money. Like, when we get the hard money, people with, low credit. So they say, yeah. So it's it's 10 and a half and one and a half. But what you do have to do is you have to buy our high risk insurance, and that's an extra $500 a month. And so it actually is 13 and a half percent.

Dylan Koch: [30:50] Just wrap it into the loan,

Mike DeHaan: [30:51] though. You wrap it into the loan, and so we can sell them. And so they feel like they're getting the low interest rate experience. And really, we're just stealing all their money.

Dan Austin: [30:58] It's all the best ideas to start right there.

Mike DeHaan: [30:59] Yeah. Shout out Yeah. Go.

Dylan Koch: [31:01] Shout out to you guys because right literally right before this started, Kjabi called me. Oh, really? Yeah. And they're trying to get some of my business. And I asked about their DSCR product. And I don't know if the guy's just blowing smoke and didn't tell me his best stuff, but you guys the latest refi that I got, your term sheet beat Kavi on the DSCR for a year. So yeah.

Mike DeHaan: [31:20] Yeah. Nice. That's awesome. Yeah. Which is

Dan Austin: [31:22] surprising because they advertise a totally different number. Because I've seen their advertisements that are, like, ridiculously low with, like, no fees and all this stuff. I'm like, that's not true.

Dylan Koch: [31:29] Yeah. But can't they do that if you buy, like, five points down or some

Mike DeHaan: [31:32] bullshit? Well, yeah.

Dan Austin: [31:33] There's they you're never gonna get that, and they're gonna jerk you around up until day 45, and then you're like, yeah. Sorry. We can't do this.

Dylan Koch: [31:39] Yeah.

Mike DeHaan: [31:39] Yeah. Well, also on your current loan too, there are typically better rates for higher loan amounts. And typically, that threshold is between $202.50 depending on the investor. And so, like, in your market, our market's the same. A lot of your loan amounts that you kinda play in are that sub 200, and so you never get the best rates. But, like, in some of these places, if you're doing, like, 800, $900,000 loans in DSCR, you're not gonna cash flow worth shit. But you might be able to get, like, a, you know, 5.8 or even like, you know, six flat on your DSCR. Yeah. Yeah. That like, that's the benefit of doing portfolios in your kind of market is if you do everything together, you can typically get like a more premium rate. But then you have all the other issues that come in the portfolio.

Dylan Koch: [32:21] Yeah. Like selling them off individually, all that kind

Mike DeHaan: [32:23] of stuff.

Dylan Koch: [32:24] That's the big that's the biggest one. Yeah. Yeah. And you gotta make sure if

Dan Austin: [32:26] you they have a part yeah. Partial reconveyance options or sometimes they don't. So you're kinda

Dylan Koch: [32:30] Yeah. Mhmm. Right.

Mike DeHaan: [32:31] Yeah. I mean, that's a huge thing too with the partial reconveyance. Lot of people don't even realize that if you're going through some of these commercial lenders, they'll actually make it so you can't do a partial refinance. You're gonna have to refinance or sell the entire thing.

Dylan Koch: [32:41] Yeah. Or have a significant prepayment so that way they can Mhmm. Re reindicure the interest upfront.

Dan Austin: [32:47] Yeah. Sometimes you can put in there like a percentage of what they can pay off. So say you did sell a property, like you can actually allow like the lender can, hey, I'll allow them up to say 20% of loan payoff a year before a prepayment triggers, assuming the loan stays in place. So say you had a nine unit portfolio and you sold one of them and it was like 10% of the total loan amount, they wouldn't charge you a prepayment penalty. Not all lenders do that, but lenders have the option to

Mike DeHaan: [33:11] do that.

Dylan Koch: [33:11] But up to a percentage of the loan.

Dan Austin: [33:13] Up to it. Yeah. They could and they could build that into your loan documents. Like we could build easily build that into our loan documents if we're doing like a DSCR and have that if if it was happened to be an option for the person.

Dylan Koch: [33:22] There'll be a time when my because I did a seller finance 12 unit in 2022 that, you know, is probably now at like a 60% LTV. By the time the ten years are up, it'd be like 40% probably. But

Mike DeHaan: [33:33] I would

Dylan Koch: [33:33] like to probably sell two of them and keep the other two buildings. So I don't it'll be a time where the original seller will probably not want to do it. So who do I go to for that? But they're right next to each other. If you guys are still doing loans in eight years, let me know. Yeah. Other part was I

Mike DeHaan: [33:50] would say like there's a like, if I'm looking at all the other business owners, there probably is a decent chance this business is actually really fun.

Dylan Koch: [33:56] Yeah. Yeah. There's a a 13 unit that we own that had a five four three two one prepayment penalties. But I just went to the guy. I like, hey, man. We've increased NOI by x amount over the past two years, and I want to refi this. Can you just waive the prepayment if I just stick with you as a lender? And he verbally agreed. So let's we'll see if we actually get to the closing table, they

Mike DeHaan: [34:16] say. Yeah.

Dan Austin: [34:17] That'd be cool. Let me know.

Mike DeHaan: [34:18] Yeah. It's always tricky. It will depend on Is it a

Dan Austin: [34:22] DSCR loan with some like, or is it

Dylan Koch: [34:24] a pro No. It's like a it's a commercial.

Mike DeHaan: [34:26] They'll probably I bet I bet they will. Because if it's a DSCR where it gets tricky is the reason that they have prepayment penalties is because when they securitize them and sell them to the REITs or, like, the bigger companies, There's an there's, like, a cost associated with that. And if you get paid off like, if if those loans get paid off early, basically, the funds can lose money or have their profitability heavily reduced. And so they have that prepayment penalty basically just to lock in that profit over.

Dylan Koch: [34:54] Yeah. That that makes sense. Yeah. Does your I'm assuming yours the software sends, like, the ten ninety eights out to people automatically?

Mike DeHaan: [35:01] Yeah. I hope so.

Dan Austin: [35:02] Well, I mean, kind of kind of automatically. But so, like, we don't a lot of that stuff, our servicers will do that. So if you if you do a loan with us most of the time well, now because we have a new servicing relationship, everything we do, it goes through servicers, they'll handle it. But previously, yes, we yeah. Send out to you.

Dylan Koch: [35:17] Yeah. I just got some of $10.90 eights from my hard money lenders, and

Mike DeHaan: [35:20] I was

Dylan Koch: [35:20] like, fuck. I paid a lot of interest.

Mike DeHaan: [35:22] Mhmm. I know. Yeah. No. And and anything that doesn't come from them will come from dana austin dot a I as she's exactly the one. Yep. Basically. Awesome. Alright, guys. Anything else to wrap up?

Dylan Koch: [35:33] I'm good. I think I'm good.

Mike DeHaan: [35:34] High low Buffalo for the the month of January. Any any big any big wins? Anything anything good that's like like surprised you so far for the beginning of the year that you guys like?

Dylan Koch: [35:45] I got paid out for my first notice notice of interest finally. Mhmm. Like the one that I filed like three years ago. So I tried to sell it.

Mike DeHaan: [35:51] Yeah. Nice.

Dylan Koch: [35:53] Yeah. So it's like an extra $9 that I wasn't anticipating. Hey.

Dan Austin: [35:56] That's crazy.

Dylan Koch: [35:57] Yeah. So I guess that was a high. Low is just like fucking cost per deal and volume is just down. It's just down Yeah.

Mike DeHaan: [36:04] Oh, yeah.

Dylan Koch: [36:04] Across the board. And and so it's just a grind. You guys can go. I'll think of the buffalo.

Dan Austin: [36:13] I don't have a buffalo.

Mike DeHaan: [36:15] Yeah. Don't I don't really have a buffalo right now.

Dan Austin: [36:17] Your is doing exactly what I thought it would do, which is like, if you put your blinders on, like, things just go forward.

Mike DeHaan: [36:22] Yeah. I mean, that You know,

Dan Austin: [36:24] real our business has been doing fine. We've hired a lot a lot of our new staff started or not a lot. A couple of our new staff started January 5, which has been nice. It's I think it's taken off a big load off my back. I know that much. So that's been cool. That's that's probably my high.

Mike DeHaan: [36:38] Yeah. Now that Dan's out of the closet, he's really worried about those notes on his back.

Dan Austin: [36:44] Like, I'm just on

Dylan Koch: [36:46] fire today. You're on something.

Dan Austin: [36:52] Dang it. I'm gonna just shut up now.

Mike DeHaan: [36:54] Yeah. Well, gonna say I I think my high was, getting the and have that joke for Dan. I don't really have any lows. So I think. Awesome. Alright, guys. Well, thanks for listening. You guys have a great weekend. We'll talk to you guys next week. See you.

Dylan Koch: [37:09] See you, everybody.

Mike DeHaan: [37:10] This episode is sponsored by Sir Lenzelot LLC, also known as SLA Capital, which if you didn't know, is Dan and I's private lending company. So, yes, we are sponsoring our own show, but what you're do about it? It is our private lending company that offers hard money and DSCR loans to real estate investors of all types. So you can be a new investor, an experienced investor. You can be buying flips. You can be buying rentals, whatever. We can do everything. And not only that, but the rates that we offer are just as competitive, if not cheaper, than pretty much every other company out there. So whatever big company you've been working with, bring us their term sheets, I guarantee that we can probably beat it. We have the same connections they do. We just don't have all the overhead and middlemen. So if you wanna come and check us out, go to slacapital.com/keys, and I will know that you came from the show. And by seeing that you came from here, when you get the closing, you will save $500 on your first loan with us. So slacapital.com/keys, we would love to fund your next deal. Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at investor man. Dan and Dylan is at Dylan underscore does underscore deals. Choose to follow and send us a DM to let us know what you think of the show.