What Are Your Options When A Flip Doesn't Sell?

Mike DeHaan: [0:00] Third option, which I think is, the option most people would consider, it's to let the property go and to get foreclosed on. If it's with a hard money lender or, like, a private money lender, like, see, like, a smaller hard money lender that's, like, local, Have a conversation with them about the situation. Yeah. And, actually, you would be surprised if you are a cordial person, you've done things right, and you're just kind of, like, a victim of circumstance, how likely they are to work with you in some capacity. It's highly likely that they'll let you just sign a deed, deed them over the property and just walk away, and they won't even necessarily pursue because they didn't lose anything.

Speaker 2: [0:38] Welcome to the Collecting Keys Real Estate Investing

Mike DeHaan: [0:43] gonna a And be

Dan Austin: [0:52] great

Speaker 2: [0:57] real estate investment job. And wholesaling business.

Mike DeHaan: [1:02] What's going on, guys? Welcome to episode 58 of the collecting keys real estate investing podcast. And, this is another episode of the Mike and Dan show here where we are going to tell you about how we are probably facing I don't wanna say it's, like, the worst week of business that we've had. What did I call

Dan Austin: [1:19] it before we got on air? What did I say? I'm not gonna I'm

Mike DeHaan: [1:21] not gonna I think you said we were getting dick hammered. I think that was your word. But it is we are in full fledged just, you know, just getting it from everywhere right now. And I will say that the vast majority of the problems are being caused due to, like, third parties in the situations. And it's just like, you know, other people that have financial stake in the game, be that, you know, lenders, contractors, like a seller, finance, insurance companies. Everyone's getting weird right now. And us just sort of being the what's the right word? Like, the service person, like like, the people that are, like, I don't know, the recipients of their service. We're the ones that are, you know, taking the taking the blunt of the the trauma from these people.

Dan Austin: [2:06] We're getting the hammer sitting this man.

Mike DeHaan: [2:07] I know. I And we got a lot

Dan Austin: [2:09] of irons in the fire fire too, so we have a lot of things concurrently working. Yeah. And then you throw another you throw a wrench in those gears, and then you throw another one, you throw another one, and you're like, it doesn't matter. Just keep throwing them in there. We're we're already stopped.

Mike DeHaan: [2:21] Yeah. Well, I mean, the problem is, like you said, we do have a lot of irons in the fire, And, you know, we have been sort of working over the past few months now where we we're, like, middle of November. But we've been working to get, like, a lot of our dogs, I guess, off the books. And we've done that successfully for the most part. You know? And several of them, we actually made some decent money on. Like, we were just talking about our tiny habit our tiny cabinets, and I'm so glad we got out of those because if we were to suck on those right now,

Dan Austin: [2:47] that would suck. It would suck.

Mike DeHaan: [2:49] Yes. Sort of where the I think the thing that's so frustrating is we're, like, right on the brink of being done with, like, all of our sketchy stuff. And wouldn't I say they're sketchy. Like, they were good when we bought them. The stuff that was sort of, like, higher risk as the market turned. We're right on the brink of being done with all of them. And then, of course, as we're on, like, the, you know, the 10 yard line, stuff just starts to get weird with everyone that's provided that's providing the services for stuff. So

Dan Austin: [3:11] Right. You know, and it's, like, weird. Like, we were talking yesterday about this. Like, we've got a few $100,000 tied up in properties and deals right dude

Mike DeHaan: [3:20] that we're gonna be sitting on for a while. Sitting on.

Dan Austin: [3:23] Yeah. It's, a $500,000 that we're, like, we're kind of hoping and expecting to have, but then all these things happen. We're not losing any money, which is cool. It would be better than sitting on this podcast talking about how we lost a $500,000, although that would be entertaining. This is maybe gonna be slightly slightly more boring because we actually had different exits on all these things that we're comfortable with and that we're gonna have to execute on. But it's just like little shit. Yeah. So last week, dude, we lost at least one roof. Yep. Yeah. So windstorm. Yes.

Mike DeHaan: [3:51] We had a windstorm last week followed immediately by snow. So from the windstorm, yeah, we lost a roof on one property, which the insurance At least one property. I'm trying to think. No. I mean, we drove around the rest of them. We're all looking good. We lost some I lost a tree on one of mine, is gonna cost me $5,500. But, like, that tree

Dan Austin: [4:08] We lost a tree. We lost a tree on our flip that's for sale right now. That was cool. You know what pisses me off about that? I'm gonna go down this rabbit hole. So this this so we had a massive tree. Like, it's not like a little tree. It's, like, bigger than the one that you're paying $5,500 to roof fell down at one of our flips. I actually drove there to look at the roof. I didn't notice it because I'm an idiot, but like, and I went inside the house. It didn't land on the house. The sprinkler guy was there a couple days ago, and he's like, hey, just so you know, there's a giant tree that fell over in your backyard, and it's, like, laying down towards, like, the neighbor's house. The thing that makes me so mad about this is the neighbor has my phone number because she called me incessantly over the summer yelling and screaming that our yard wasn't maintained. Although she knew we were flipping it, and I told her, like, this is gonna be the nice house. We're taking care of it. She reported us to the city, tried to get us to get fines and shut down our operation. Like, I mean, she was relentless, like twice a week calling me. And then one day I show up and we had a brand new trampoline that came with the house. I don't care about it. Right?

Dan Austin: [5:11] It's in her yard. She stole the trampoline after she complained to the city about our yard being overgrown.

Mike DeHaan: [5:18] Did she steal it, or did it, like, blow in there during the windstorm?

Dan Austin: [5:21] No. It was, like, set up in her yard.

Mike DeHaan: [5:22] Oh my god.

Dan Austin: [5:23] Like like, just moved it into their yard. There's a fence between our houses. And so I was telling my wife last night, you know, I was thinking about it. I was like, she did not have any she couldn't have just called us and said, hey, by the way, a tree blew down in your yard last week. No. Nope. She stole her trampoline, she reported us to the city. And I I had I had this moment, like, when we got our house listed, the yard with the yard looks perfect. It's beautiful. Right? New rock, new grass, all that sort of stuff. It looks great. I almost called her and said, hey, I think I'm gonna report you to the city because your house looks like shit. So our house is, like, nice. And hers is now hers is the scourge of the neighborhood, like crappy grass, house needs painted, just not a nice house. Right?

Mike DeHaan: [6:08] But she she has a brand new trampoline though, that looks nice back

Dan Austin: [6:10] then. Well, my wife's like, did you just, like, wanna just, like, call her to make her feel bad? I was like, absolutely, yes. I want to call her and make her feel bad because she is not a nice person. Oh my god. She stole her trampoline. She reported this to the city, and she won't even give me a call that there's a tree in her backyard that fell off.

Mike DeHaan: [6:27] You know, she probably has a lot of issues in her life. We should probably call her and see if she needs

Dan Austin: [6:30] a cash offer in her house. I you know what? I'm expecting a

Mike DeHaan: [6:33] call from the city Yeah. That our tree fell down and she reported it. Yeah. Probably, actually. But, so that's one thing that we're dealing with right now is we have several unexpected expenses because we have the roof that we found that the insurance company may or

Dan Austin: [6:46] may not cover it because the roof was, what, older than twenty years. The HOA mafia is is pressuring us to not use it. She's she's like, oh, it's 23 years old. I'm like, I have no documentation saying it wasn't installed last year. Yeah. What are you talking about?

Mike DeHaan: [7:01] And I'll say this is also on if you guys have been following us for all on the freaking condo that we can't sell because of the HOA insurance issues that we're dealing with. So, you know, so we have that one.

Dan Austin: [7:11] Oh, and the best part about hold on. Best part about this one is this the HOA president. She's a nice lady, but she's, like, pressure she's like the boss. She's, like, pressuring us. She and then she quoted she literally quoted the HOA rules about maintenance and making sure your house is presentable because of, like, the roof is damaged. Right?

Mike DeHaan: [7:28] Oh my god.

Dan Austin: [7:29] I'm like, lady, we bought this, and there was, like, a box truck full of garbage sitting, pouring. It wasn't even, like, in the yard. Was, like, pouring out of the house. And you're gonna tell me, which this house it looks nice now. Because a few shingles are missing, you're gonna quote the HOA laws that we need to make our house present.

Mike DeHaan: [7:46] Like, literally, yeah, when we bought it, there was a blue tarp over the garage, and we're still digging trash out of the grass because there was so much of it.

Speaker 4: [7:52] Yeah. It's so much of it. That's so funny.

Mike DeHaan: [7:54] Yeah. So we have these maintenance issues that we're dealing with due to the windstorm and then the snowstorm. And then now on on top of that, we have a deal that we have sold that there was a seller finance note, and the the the I forgot about lender has decided that they don't want their money back, so they're basically refusing to allow us to sell the note. And as part of our agreement that we had with them, there was,

Dan Austin: [8:22] like and this is a

Mike DeHaan: [8:23] good learning lesson for everyone, but they basically had to approve us paying them off, which when we signed it in the back, we're like, yeah. Of course. Why would they not approve us paying them off? Like, that makes perfect sense. But they decided, no. You can't pay us off, and they're and they're not gonna release the lien on the property. So we're in the process of going through that and, you know, trying to negotiate with them to allow them to transfer for them to allow us to transfer the debt onto another property, second position, which I am optimistic about, but that's just a freaking stressor because that house was supposed to close yesterday. Now we're having to push it off for a week, there's still some gray areas with weird stuff because they don't want their money back.

Dan Austin: [9:01] Well, thing that upsets me about this, like everything that we're dealing with right now, there's just no logic, is that they don't feel comfortable with they don't want their money back, and they don't feel comfortable putting on another property yet. Yet the property that was it was backed by is gutted. It was rotting away and falling it's it's a piece of

Mike DeHaan: [9:21] crap. We sold we sold it as a fixer upper, and there's, like, literally no value to it except for to a flipper.

Dan Austin: [9:26] Yeah.

Mike DeHaan: [9:26] And that's the thing when I was I was talking to the guy on the phone and, you know, we're having to play hardball with him a little bit. And I was like, dude, so I guess, you know, if

Dan Austin: [9:33] you're not gonna let us

Mike DeHaan: [9:33] do this, like, we'll just walk away and you'll take this house back. And he goes, those houses are great asset. We'd love to take them back. And I was like, have you seen the houses, dude? We took it. They're not. They're they're not like the the shitty because when we bought them from them, they they'd owned them for a long time. The sellers had Mhmm.

Dan Austin: [9:48] Thirty years.

Mike DeHaan: [9:49] Thirty years. Yeah. And they'd had the same tenant the whole time who was, like, you know, a heroin addict and would, like, just go in there and, like, do this whole thing. But when we bought it, you know, we did what all investors do. We try to increase the rent, and they said, cool. And they peaced out. And there are thirty years of squalor in this horribly maintained house who are super apparent. And we made the decision of instead of fixing it up, let's just gut it, get it ready for an amateur flipper and list on the market, and that's what we did. Mhmm. But I think they're under the assumption that it's still like a little Living livable? Yeah. Which I would argue it wasn't livable when those other people moved out. No. That place is rough. It was really bad. That place is rough. But so we're dealing with that and trying to negotiate that, and so they're just being a a pain in our ass. And then so after I get chewed out by this guy, literally, like, six minutes later, I get a call from the lender. If you guys are listening to role, you've heard about how we have AR house that has the oil furnace leak that we finally fixed and, you know, are are working on getting a rent.

Dan Austin: [10:50] It's also flooded. The basement's also flooded before that.

Mike DeHaan: [10:52] Yeah. That alterations with it. But our main play with this house was with that that the oil furnace house was there was a separate lot that we could subdivide that we would be able to sell because it's in a higher profitable area. So we have that process almost done. We have the lot ready to sell. We went to the lender to do a reconvenience on the loan.

Dan Austin: [11:08] We have a purchase and sale agreement signed on it.

Mike DeHaan: [11:10] We have a purchase and sale agreement signed on the lot. And the lender, when we originally talked about it, they were like, yeah. That's totally cool. Like, you know, just let us know. I'm like, we'll figure out the details. But now the interest rates are sky high. Right? Money's getting weird, all this stuff. The lender came back yesterday and just saying, just so you know, we're not gonna let you sell that lot unless you fully refinance the loan, which will result in you paying the 5% prepayment penalty, and we'll also require you to basically take your rate that we have at, like, what, 4.75 and bring it up to, like, 8.5 or whatever it is. And so they're like, yeah. Sorry. That's the only thing we're willing to do for you. So, yeah, the company is LendingOne. If you ever wanna use them, just make sure that you screw them. They're a large national company, and it's fucking bullshit, this

Dan Austin: [11:55] whole thing that they've They will be out of business by next year. Totally. It doesn't

Mike DeHaan: [11:58] matter. And and they and they just screwed over our acquisitions manager as well who has a property that he's been trying to cash out refinance. And, literally, he went down the the rabbit hole with, like, doing the get him all the docs, all sort of stuff. Like, I don't know. It was, like, month and a half ago. Appraisal's taking a while, whatever. And they told me they'd give him 80% cash out on this deal. Literally, it was supposed to close two days ago, supposed to sign docs for the refi, and they came out the day before and said, look. So, actually, we're only gonna give you 71% now. And if you wanna get out of the deal, you're gonna have to bring, like, $16,000 to the closing table to

Dan Austin: [12:33] refinance. Nine.

Mike DeHaan: [12:33] Which is as nine. They they changed it literally at the last minute. So don't use them as a lender. Instead, you can hit us up if you need a hard money loan.

Dan Austin: [12:42] Yes. I'd be happy to do that.

Mike DeHaan: [12:44] We we won't we won't we retrade you at the last second like that, but it's just getting weird all around, man. Like, do you have anything else that's going on that's, like, real that we're we're getting raked over the coals?

Dan Austin: [12:57] Yeah. So that they're not being able to sell the lot that we own, which stinks.

Mike DeHaan: [13:00] That's I mean, that's gonna cost us a $160,000 in revenue for the year that we're now gonna have to probably wait five years to get because of the the prepayment penalty that they have.

Dan Austin: [13:11] That we're just not willing to pay, right? And there's a difference, like we're in a financial position to where we aren't willing to take massive losses on shit just to take losses to get our money back. Like there's no point in that. So like that, yeah, that's going on. We've got tons of property maintenance issues, trees falling down, roofs missing, and then just our flip sitting on the market, which is a fun one to talk about.

Mike DeHaan: [13:32] I mean, yeah, we we'll dive into that here in just a minute. But yeah, I mean, and then now even, you know, just like the the whole wholesale market as well, we had a deal that we sent out that was pretty solid that we just haven't even had, like, a sniff on. You know? It's just been, yeah, just been a tough deal all around. And I don't know. It's one of those sort of situations. It's like I guess we've had tough issues, like, periods of time before in the past. I feel like every, like, every six months or so, we go through these phases where things just, like, suck. Yeah. I think the thing that's just challenging right now is because of the momentum of the market being in a sort of a negative light, it feels more drastic than it realistically probably is.

Dan Austin: [14:11] Feels heavier because there's not a there's not an expected timeline of, like, oh, don't worry. It'll rebound. We'll be once we get through this, it'll be fine. We'll you know? So it's just yeah. It's a lot more challenging to to have that vision going forward.

Mike DeHaan: [14:23] It's it's a lot more challenging to be excited about, like know? Because, like, I mean, thinking back to was, like, last spring, twenty twenty one spring, where we had a ton of stuff with, like we were having some I remember we were, like, trying to flip that house that they the people wouldn't move out, or we had tried to, like, cash re keys them, and then we tried to evict them, and they wouldn't do that. That was that was one. We had that combined with, like, a couple other sort of purchases that were getting weird. That was the same time that we had sold that property to the tenant, and we checked that we would pay closing costs on it. Oh, that's awesome.

Dan Austin: [14:56] I forgot

Mike DeHaan: [14:57] about And, like, the thought was like, yeah. We'll pay, like, title cost to make this easy, but he and the lender interpreted as like, oh, we'd pay their loan cost. So the lender was like, sweet. Six loan points that you guys are gonna pay. And we were like, what? Yeah. You know? So we were dealing with all that sort of stuff. But, I mean, I don't know. It always comes around. And I think the biggest thing is when you get into these hard sort of times is to, you know, try not to get super emotional and to, you know, just sort of keep going through and making sure that you're, a, protecting yourself along the way, that you're doing things kind of by the books as you can. And then, I mean, I think the number one defensive strategy that you can do, and this is what we'll talk about in the educational portion here, we'll leave this a little bit, is making sure that you are buying right so that when things do inevitably get weird, you have room to be flexible and stuff and to pivot and to try different things. Because this is where people now that have been losing their ass, which they've been abundant. This has kind of been a joke in our our morning meeting with our staff has been like, oh, another one bites the dust. Like

Dan Austin: [16:01] Another one bites the dust.

Mike DeHaan: [16:02] I mean, we've had local companies going under left and right. Like, one of the biggest companies here in town is having a huge loss for the year and is now out of business. Dan got an email from one of our other competitors Yeah. Last night that basically was like, hey. We're going out of business. We need to offload all these properties. Do you guys wanna buy them? And then proceeded to have absurd asking prices for all

Dan Austin: [16:21] of them. Of course. So it's just like terrible. It's like, no. No. Thanks. I'm good. I'm good.

Mike DeHaan: [16:25] We should realistically offer him, like, half those because he's a dickhead anyway. You know? But then, like, even the big dogs. Right? Like, Redfin announced that they're closing on their iBuyer program, and that whole they're laying off 18% of their staff, and their stock is down 91% on the year.

Dan Austin: [16:45] Just a mere 91%.

Mike DeHaan: [16:46] Right.

Dan Austin: [16:48] No big deal. Like, almost all of it is gone.

Mike DeHaan: [16:50] Yeah. But, I mean Like, literally. What all those people have in common is they did not buy right at the start. They were not getting actually discounted properties. Because I will say a lot of the people that are in our circles that are doing that, whether they're in, you know, our, you know, instant investor group, doing the other masterminds that we're in, they're doing okay. You know? And even if stuff's getting a little bit tighter, they're not making as much money. I don't think we know anyone that runs the same sort of business practices and the same sort of strategy as us that is completely going sideways.

Dan Austin: [17:20] Yeah. Losing their ass. Yeah. No. No. And it's like to your point, like, I've always said this is like you cannot scale a flipping business to that, like, what you saw with Zillow, Opendoor, Redfin. It just doesn't make any sense because real estate is so local. You have to have local knowledge, and you put a bunch of dorks behind a desk and you incentivize them through commission structures to go and buy houses. And yeah, you're like, oh, it makes sense if we buy a million houses with a thousand dollars of margin, like that's gonna be profitable. It's like, yeah, but then that thousand dollars of margin goes away so quickly. You know, if you're buying things at 97%, you know, ARV, and we saw it with local companies here where it's like, you do one, like, you know, you and I have pressed a little bit, right? Like we've bought one where you're like, oh, it's tight. But then you have to know and check yourself where if all the deals you're buying become tight and the market is getting top heavy like it did last year, like just your intuition should tell you, hey, maybe I should slow down and start peeling these things back. Most people just get don't It's like an addiction they can't. They're like, I just gotta keep buying deals.

Dan Austin: [18:15] Gotta keep buying deals. It's never gonna stop. The gravy train will keep going. And guess what? It doesn't. It

Mike DeHaan: [18:19] doesn't. It doesn't keep going. Yeah. And, you know Balance it out. You know what I mean? Just balance balance your acquisitions out. Yeah. And and, I mean, that's definitely super relevant for, like, the iBuyers because they were literally just going for the volume game. And I don't know if I ever talked about this. I was in a wedding, I guess it was, like, a year and a half ago now, for one of my buddies and one of the other groomsmen. He worked for Zillow's, like, iBuyer program back before they went under. And I remember, like, at the pre wedding

Dan Austin: [18:46] But he doesn't have a job.

Mike DeHaan: [18:47] He doesn't. So, I mean, he got laid off. You made sure to follow-up. I know. I just heard through the grapevine. Sorry. But I got into a big argument with him at, like, the pre wedding dinner because I was like, bro, like, what you you run you know, you work for this program. And he was like a manager. He had, like, 10 sales guys working underneath, and they were doing all stuff in Arizona. And I was like, you realize that what that business that you guys are doing, I know you're backed by Zillow, but that's bullshit. Like, it's not gonna work. Mhmm. And I was like, I do the same business, just at a smaller scale here. Like, I know that it's not gonna work. And he got super defensive and was just, like, arguing with me, arguing with me, to the point that he didn't talk to me, like, for the rest of the weekend. Like, we just, like, weren't friends anymore after that. And then, you know, lo and behold, that whole thing went under. You know, they lost a shit ton of money. He got laid off. Their whole division was gone. I was like Told

Dan Austin: [19:31] you so. And I know you feel good about that.

Mike DeHaan: [19:33] The unfortunate thing is I do. A little bit. I do a little bit. But the thing that's crazy is I remember when I was arguing about it, his argument was they're doing it for market share. They're trying to be, like, the premium buyer, like, only option. They were trying to, like, out buy Redfin and Opendoor and Offerpad and all these other companies. Right? But I'm like, they're all gonna fail. Like, you you there's no point in trying to compete for market share in a market that doesn't exist. And the crazy thing is one of the our main competitors here that knows is no longer really around, I remember them saying the exact same thing when they were buying deals last year. And I would I would talk to them. I'd be like, this is, like, really tight. Like, how are you guys making money on these? And he goes, oh, we're willing to, like, make tiny gains because we're gonna be the premium buyers here in Spokane. In fact, where are they now? They're gone.

Dan Austin: [20:22] You know? And the biggest challenge the biggest challenge with real estate, you and I know this, we just talked about this, we got a 500,000 locked up that we're hoping to get, is, it's so illiquid. And it's not illiquid all the time, like this last summer and the summer before that, houses were flying off the shelf, everybody talked about I had 60 offers in two days. Okay, perfect. But when it starts getting, the ground starts shaking, it's a super illiquid asset. Look at who's trying to sell houses that are sitting on the market for two months, three months, four months, now you can't trade out of it. So now you bought all this market share, but as it's going down, you're going down with it because you cannot trade it out fast enough. Yep. You know, it's like a stock, people lose their ass on those too, but you can still trade that usually pretty quickly. Real estate, not so much. And then while you're holding on it for sixty, ninety days, something else happens, a freaking tree falls down and costs you $5.

Mike DeHaan: [21:06] You know, exactly. Or like a a tenant, you know, causes damage, like, you have a leak. You know, you have to be spending money just to maintain it in general. But the thing is too, that's the norm. It's really only in 2020 and 2021 that people forgot that, and that's why it was just like the Frapped quickly. Yeah. That everyone was leaving their jobs, going, getting to investing in real estate. But, you know, and you can still make money. I mean And we're making money still. Still can. We're we're making money. We know other people that are making good money. You just have to be realistic about the expectations. So, anyway, I think that was a good transition, to what we wanted to talk about for educational portion this week, which is what exactly are your options when you have a flip or a property you're trying to sell that doesn't sell, and how do you analyze those different options? Think it's super relevant topic for right now. There's a lot of people that have forgotten themselves situation, you know, including Dan and I. We have a flip right now that we I mean, I would have maybe amazed if we sold it at this point because you've had just so little interest on it. But, yeah, so we'll go through kind of stuff that we look at, what options you can explore. But really quick, a few words about our instant investor program. The instant investor program is our twelve week group coaching program, which includes a self driven course and access to our private investor community.

Mike DeHaan: [22:16] We will take you through the full process of how we find our leads, how we market, how we do our sales and follow-up, and how we determine the best strategy for every opportunity that comes our way. On top of that, you will also join a community of other like minded investors nationwide that are all marching towards the same goals, and you'll have direct access to Dan and myself so you can continue learning and growing with us as we continue to adapt and grow our business. Whether you're a new investor or already established, our systems can help take you to the next level. So if you think you might be a good fit, go to the instantinvestorprogram.com and schedule a call, and we can have you talking to motivated leads in as little as two weeks. Alright. So when you have a property that you are trying to sell, you're trying to get out of, but it's just not going for some reason, you know, and you're probably on that. You know, obviously, if you have, a big spread, you can drop the price. You can do all that sort of stuff. But what happens when you reach the position of you're gonna lose money? There's just not a lot of buyers. How do you sort of look at your different options? What exactly are they? And, you know, how do you sort of analyze which option is right for you? And I think emphasis on that last part is that that's gonna be different for everybody. So, you know, option number one, obviously, is you can keep dropping the price until, you know, you're gonna lose money, but you just sort of accept that.

Mike DeHaan: [23:30] Right? And depending on where you are in your journey, that can be I mean, that's a very personal choice if you decide to do that. And depending on where you are with your business and your investing journey, it's sort of, like, affects what is the correct option for you. So, I mean, one thing I'll say is I sold a house and accepted a $30,000 loss in the middle of twenty twenty. Actually, when Dan and I were building our business, we just started working together. And I made that decision strategically because, a, the house was vacant because of I was using it as a Airbnb at the time, and COVID had basically cleared all of our books. So I had a huge liability that I could not afford to pay. And they I had a ton of capital that was locked up in there just because of how out of out of hand the renovation had got that I realistically needed to for Dan and I to continue to grow our wholesaling business and to be able to buy more properties together. So big picture, I said, I'm gonna sell this house. I'm gonna make a take a $30,000 loss, but I am also going to get, like, a $128,000 back in my pocket. Right? So that was, like, a philosophy of money. And then same thing. We had a deal earlier this year that, like, right as the market started to turn, was that, like, June time frame?

Dan Austin: [24:44] I think we got it on the market, yeah, like, in June or July. Right. Yeah. So it Or locked it's closed in July.

Mike DeHaan: [24:50] So it was right as stuff started to get weird. And when we originally bought it, we it was a tight deal, and we knew that we had, like, a pretty small spread. It was, like, 18,000 ish. And then as we went through the reno, there was extra thing to be fixed. We went over budget, and then we had it under contract, and we were set to make, like, 4,000.

Dan Austin: [25:08] Yeah. It was, like, close it was close to breakeven for us. We were just like Yeah. It was

Mike DeHaan: [25:12] close to breakeven, but then during the inspection, they flagged the furnace, and we had to do a furnace replacement, which basically pushed us under. So we lost, like, $4. Right? And, you know, we made that decision to do that because we're gonna be getting a $100,000 worth of capital back.

Dan Austin: [25:26] Yep. Which we needed for our next project or we wanted. We didn't wanna tie it up in that asset at that time.

Mike DeHaan: [25:31] Exactly. Yeah. So all that point being that if you are in a position where, a, you really need that capital and losing the money is worthwhile to get that capital back, you have things to do with that money. Right? Whether you're, like, an active investor, you have other investment opportunities, your opportunity cost for that money is, you know, is is better if you go and apply some other things, then that should definitely something you can you consider, honestly. And, like, and it's not gonna be catastrophic to your financial well-being. But I will say if the loss is gonna be catastrophic to financial well-being, you probably shouldn't have done that investment in the first place. So those are those are reasons to consider it. But, like, I will say if you're a casual investor, you know, you're doing, like, one flip every two years. It's like a rental property that's not your favorite. You're looking to sell, and you're gonna be put into a loss, but you, like, you don't, like, need the money. You know, you are looking over a long term time horizon. You maybe are looking at building a rental portfolio, and that is your ultimate goal. If you have the ability to refinance it, you know, and you're like, that's an option for the type of property that you have, like, the only thing that wouldn't be if it was, like, some sort of weird rental that you some weird property you can't rent for some reason, I would lean on that.

Dan Austin: [26:40] Yeah. Some wild, some out of the ordinary, but and, like, I don't know, like going back to the like talking about selling for loss and what you do, you know, I think a good example that I've in a few people, I know a few people that do this, that this this they're a 100% flippers. That's all they do. Just a single person show. Like they do all the work themselves. They buy a house. They sometimes pay cash for the house. They have enough money built up. They can pay for the renovations, but the only income comes from when they shave a little profit out for them to live on. So what do you do if you've got say $400,000 of your wealth, that's maybe your maybe close to all of your net worth locked up in a deal and you can't sell it. But like if you rent it out and you have to refinance it, like it's maybe breakeven, it's not great. Like what do you do? If it was me, I would like, instead of selling it at a major loss like, and when I'm saying, like, selling it at a loss, I'm saying, like, maybe you got $400,000 locked up in it, and you're gonna lose, like, $507,500,000. Yeah. That's a lot of money for that person.

Mike DeHaan: [27:37] It is. Yeah. It's exactly. And so it's been on your financial position. Exactly. You know,

Dan Austin: [27:40] and so but what do you do then? Do you go and find a job? Because you've worked for yourself. I would seriously consider that. If that's what I if I needed that money for living expenses, I would personally try and find a way to, like, go and get other living expenses, because I'm the person who my main job and the main way I do things is just flipping houses. I do two a year, I make a $100 a year in profit, I just keep rolling and rolling and rolling, like, that's probably a good strategy for you instead of losing your money, my opinion there. That's what I would do, because it's not like you're going to take that money and go and re trade it some some other way, where, you and I might take that money because we're not just flippers. We have diversity in our income streams, and we could reinvest it in other places. And we are, at the end of day, buy and hold investors. Exactly.

Mike DeHaan: [28:28] Yep. So yeah. So that's, like, the number one sort of thing you can look at. And like you said too, it depends on your goals. And, I mean, that's one of the reasons that a lot of the businesses that we know here in town have or not just town in general, have been losing a lot of money because that is their strategy is their flippers. You know, they're they're not buying things that are properties that really make sense as rentals, whereas we typically always do that as our second exit strategy. So that's the first option as you go and you sell it, you know, for a loss. Right? And and whether that makes sense for you, you have to look at the big picture and if that makes sense for you personally and for your business. Second option is you turn it into a rental. You refinance the property. You lock up a ton of cash, and you have, you know, just, like, sort of a poor cash and cash return or, like, a less than optimal cash and cash return until, you know, sometime in the future where you're able to get out of that asset. Right?

Dan Austin: [29:17] And there's a couple of things that might force you to have to refi. Like, you might think, look, well, why would I even refi if I've got a good rate or whatever? Well, if you have a hard money loan, typically Sure. You're gonna have twelve months.

Mike DeHaan: [29:27] Yeah. So I guess I guess I will say by saying that refinance, that is under the assumption that you bought it with cash or you bought it with hard money to do as a flip, which, obviously, if you bought it with a conventional loan, that's very, very different.

Dan Austin: [29:39] Yeah. Yeah. There's mean, there's a lot of ways. Right? So maybe you did buy as a conventional loan, which would be weird if you were trying to flip it. Yeah. Right? But so it's hard money to where you got a twelve month balloon, you're gonna have to pay it off. You have if it's a private money, private investor, they may wanna get paid off in twelve months. They might be okay with you keeping their money and staying in an interest only position. Like, we actually have a guy like that, except for he wanted to move it out of the property into our hard money lending fund, just because he wanted to be a little bit more liquid. And so we're cool with that.

Mike DeHaan: [30:06] Right? We're like, yeah, we'll figure it out.

Dan Austin: [30:07] We'll get you your money back and we'll put it in our, in our fund. But he was like, yeah, I, you know, I kind of wanted my money back by now, but like I'm getting paid interest payments. I'm not gonna get that profit in the stock market, keep my money and keep paying me. It's still a performing asset. So you might be in that position too, where you don't actually have to refinance or they might say, yeah, I do want my money back because they're getting nervous. So now you have to now you do have to go refinance. And the other thing is is maybe it's all your own cash. Mhmm. What do you do? And you might need that for living expense, or you might need that to go and reinvest somewhere else, which would obviously force you to refinance.

Mike DeHaan: [30:39] Yeah. If you need that to go and live on, but I will say that if you do have all of your cash in there and you don't necessarily need that money, but you can instead get it rented and just collect, like, fat cash flow, that might be better for you.

Dan Austin: [30:52] At least in the short term.

Mike DeHaan: [30:53] Yeah. If you don't have other plans for that money, like and with interest rates the way they are, I mean, that could be a good play. So, like, let's say, you know, your options are you have $300,000 of your money tied in this house. You can rent for $2,000. You know, after taxes set aside, you collect $1,500 a month in cash flow. Or you go and you, like, have to refinance out at, a 8% rate. You know, let's say even you do, like, a, like, a half refinance. You hold, like, a $150, but you lose all that cash flow. Mean, I you kinda have to analyze what makes more sense for you and what you're looking to do with your with your life and your finances.

Dan Austin: [31:25] Yeah. And I think the point there too is what you're saying is, like, it doesn't have to be one or the other. It's not binary. Like, there could be a blend in what you do that makes sense for you, but don't think because it was a flip, your only exit is to sell it.

Mike DeHaan: [31:36] Yeah. I mean, that that goes back to, you know, you need to buy the properties right as well and, like, have

Dan Austin: [31:41] those So huge. Strategies. I mean, you and I have preached that for a long time, and sometimes it sucks.

Mike DeHaan: [31:45] Oh yeah. When you're, when

Dan Austin: [31:47] you're buying projects and you're like, well, my criteria is that the worst case scenario is I can rent this thing out at breakeven. And when we say breakeven, I always like to remind people, I mean, breakeven after PITI principal, interest, taxes, insurance, and all my utilities and set a size for OpEx and CapEx and vacancy. Breakeven or a $100 a door. Yeah. Like, that's, like, worst case scenario.

Mike DeHaan: [32:08] Yeah. Yeah. I mean and and what sometimes it sucks too is you you I think this is what bit a lot of people last year is they were faced with the, you know, situations of like, oh, I could keep this as a rental, make 200 to $500 a month or whatever in cash flow, or I could flip it right now because the market's so crazy and make, like, $50. And the thing is that becomes addicting for people. And sure, that's great, like, while the market's good, but once the market starts to shift, you're gonna look back and be like, dang. Should have kept some of those properties because now I have nothing. That's the one thing I will say that we did very well that I'm proud of us for doing is we had the delayed gratification of those paychecks, and we built a pretty substantial real estate portfolio over the last couple of years while other people were out buying Ferraris and all that sort of stuff. It's like, that's cool, but a lot of those people are now in big trouble.

Dan Austin: [32:53] Yeah. And their Ferrari also became illiquid because you I I watched so many videos where guys are like, it's an investment to be in an exotic car. Yes. When you But sometimes it's not.

Mike DeHaan: [33:02] It is when the economy is really strong and people are spending

Dan Austin: [33:05] money on change constrained and all that sort of stuff. Yeah. Yeah. So be be smart about

Mike DeHaan: [33:09] it. Yeah.

Dan Austin: [33:10] Yeah.

Speaker 4: [33:10] So so that's the second option is to turn it into

Mike DeHaan: [33:13] a rental, whether that means you have to refinance it or you just put a tenant in there and you sit on it for a longer term until the market conditions change.

Dan Austin: [33:19] Before you transition, I do wanna mention, because I did say breakeven cash flow. You and I just looked at an option of going negative cash flow on something recently as an option. We didn't pull the trigger on that as an option because of the value of an asset that you might be willing to take negative cash flow for twelve to twenty four months. Then just calculate that into your into your profit or your loss.

Mike DeHaan: [33:38] Yeah. For sure. Well, that specific number we were looking at, it was gonna be what? A negative $20,000 over four years, but it's gonna give us access to, like, a 125,000 or something. Exactly. Which for us is a no brainer because that just means we need to make $5 a year off the $120, which we have the ability to do so very easily with the way our business is set up. So, you know but, like, again, that all depends on your situation. If you're working a w two and this rental is like a side hustle for you, that might not be the case. Right? Sure. So so, anyway, renting it out and refinancing it to pay the cover and the capital. The third option, which I think is the option most people would consider, and you can add in if you think there's another option besides this as well, Dan, but it's to let the property go and to get foreclosed on, which comes with a lot of consequences, right, in terms of your credit, in terms of, you know, potential lawsuits from the lender depending on the situations that go that come up and all that sort of stuff. You know, this is never an option that we've had to explore, fortunately, but this has been something that a lot of people have had to explore recently. But if you're in a situation where you're completely underwater on the property, let's say that, you know, you've done the reno, you're unable to sell it, you're underneath, and now, like, a tree fell on the property, you can't afford to get it fixed, You can't accept a cash offer from an investor because you have no equity in it. You have to bring one to the table.

Mike DeHaan: [34:56] This is a legitimate option for people. And, you know, there are consequences with it, but, like, at the end of the day, like, if that's what you need to do to get it off of your books and, like, be able to move on with your life, that is something that, you know, people do explore. And the thing that's kind of interesting about foreclosures and defaulting on debt and things like that is when you're, like, a small business or you're, an individual, it's, like, an extremely big deal or at least it feels like it does. But if you, like, look at that same principle going up to corporate levels, there's, like like, corporate companies will default on debt and get foreclosed on things like that as, like, a business strategy on, like, a regular basis. You know? Sure.

Dan Austin: [35:35] Like like The problem with the the the challenge is that they can still go and buy a house when their company goes out of business. You can't.

Mike DeHaan: [35:41] Exactly. Yeah. So that's the big difference is they have that separation there. But, you know, like, if you are in a position where you're actually stuck

Dan Austin: [35:48] It's an option. It's, like, probably worst case option, maybe.

Mike DeHaan: [35:51] Yeah. It's a worst case option for sure. But, like, I said one thing that if you are gonna go this route, especially if it's with, you know, like, a hard money lender or, like, a private money lender, like, I say, a smaller hard money lender that's, like, local, have a conversation with them about the situation. And, actually, you would be surprised if you are a cordial person, you've done things right, and you're just kind of, like, a victim of circumstance, how likely they are to work with you in some capacity. So, you know, like, there will probably be lawsuits or things like that, especially if they've lost substantial money. But let's say you're the one that's kind of losing the money and you just need to walk away from the property. It's highly likely, and I, you I used work for a hard money lender that would explore this, that they'll let you just sign, like, a deed, deed them over the property and just walk away, and they won't even necessarily pursue because they didn't lose anything. Right? Especially if Now they have an asset. They have an asset, especially if there was no malicious intent. You know, where people get into trouble is they start doing weird. They ghost the lender. They stop paying their loan. They ignore the letters for a year or longer, and now the person's coming after them because you're costing them money. Right.

Mike DeHaan: [36:53] If you go if you call them up and you say, like, hey. I got in a bad spot. Like, I need to just get away from this. You'd be surprised at how willing, especially private and, I would say, like, smaller institutional investors are are willing to work with you.

Dan Austin: [37:06] Oh, I couldn't emphasize that enough. And that's where always being engaged with your private lender or your hard money lender at that point in time because, like like you said, let's put the example. Say you have a house that's, like, completely renovated. Like, you obviously bought it at below market. You put your money into it to renovate it. Like, what what are they gonna get a nice house in return? That's not a bad deal for them all always, or just negotiate with them, like roll it in. I mean, there's so many options there with that before you get to the point of just giving it back to them. You should at least ask and explore and be open to to different options.

Mike DeHaan: [37:49] Yeah. I mean and just like with any other sort of creditor, it's expensive for them to pursue you. Right? And, like, they realistically know they're not gonna get everything that they're entitled to anyway. So if you're willing to make stuff easy for them, like, they'll throw you a bone, you know, more often than not. Because, like, when people start suing each other and people are, like, trying to seize back properties, things like that, it's just like a lose lose for everybody. And that's one of the things that I think is kind of silly. See some of these larger operators, especially some places in Idaho where stuff has gotten stuff got so out of hand last year, where, like, somebody even our instant investor group, they they work for a company that has a ton of properties that are that they're foreclosing on right now, and they're all from the same company.

Dan Austin: [38:29] Oh, really?

Mike DeHaan: [38:30] Right? Because the person literally just stopped paying the notes and just, like, disappeared off the face of the earth. So now they're, like, suing them, and they're doing all this sort of stuff. And it's like, if they had literally just said, like, hey. We're a professional business. We were trying to do this, and now we're just in, a bad spot. Can we, you know, figure something out here? I guarantee you it would end better for every single person involved.

Dan Austin: [38:49] Totally.

Mike DeHaan: [38:49] Absolutely. Have the conversation. As opposed to them having to seize these properties back and sue this this business. Yeah. So tough.

Dan Austin: [38:56] But

Mike DeHaan: [38:56] yeah. So I don't know. Those are those are the three options I have. I don't know. Do you have a fourth option, Dan?

Dan Austin: [39:01] I wouldn't say there's like a a option B to all of these, like, to B, like, a refinance option would be is to not just look at a straight up rental, but maybe try to do, like, a lease to own because there's a lot of people right now with high interest rates that may not qualify for with what are ridiculous qualifications right now. Because lenders are not trying to lend on, on anything that you could potentially collect more in revenue. So one thing that you could explore is saying like, Hey, I know the market rent for this thing puts me at like negative $200. But what if I tacked on another 200 that goes directly to a principal pay down and I collect a ten, five, 10% down payment and give them a reasonable interest rate or reasonable pay down. You don't even have to have an interest rate. You could just say $200 a month goes port towards principal to knock down equity. You can get that sales price you want today, if not a little bit more, and then do it on a three year, four year, five year balloon to where basically if they don't execute it on that point in time, you get to collect everything and keep the house or best case scenario, they execute on it. And three years from now, the rates are in a good spot. They are in a good spot financially to go and cash you out. And now you get all that money out.

Dan Austin: [40:09] Yeah, absolutely. And you didn't go negative cash flow for three years. You actually broke even or got $200 a month in cash flow. Whatever that number looks like, I'm just saying is like, whatever that market rent is, you can typically tack on a little bit more for a lease to own option or, you know, figure something else out there. And the nice thing about that is that and that person should, if they're good people, as long as you underwrite them properly, are taking care the house and not you. Yeah, exactly. Maintenance wise.

Mike DeHaan: [40:32] Yeah. We've done a couple of lease to owns. And I guess, you know, that's a good point too for if you're going through rental option. There are other ways to get more cash flow and get some capital back, like the lease to own or, you know, doing Airbnb or like the midterm rentals, the corporate rentals, things like that, you can charge them over premium rate. They do come with more work, but if you do need to squeeze more cash flow out of them and the property does make sense for that, there's other options. So

Dan Austin: [40:53] Cool. It's not binary.

Mike DeHaan: [40:54] Yep. Yep. So so awesome. So if you're, you know, if you're in this reality right now for which for a lot of people that you have a property that you're trying to get out of, you just can't, you said the three different options, you know, sell at a loss. If I were to say in our preferred order and the way that we're pitching things is, first, is to refinance and keep us rentals because we are a long term investor. That is our goal. The exception being if we did have, like, a huge amount of capital tied up that we were able to get out of with, like, a small loss, we would pursue that. But for us, refinance and keep us a rental. Second for us would be to sell at a loss if we needed to. And then, obviously, our last option would be to lose the house. But I will also say just on that one last note, these situations are why I think if you're gonna get into real estate, you should realistically look at building a substantial portfolio as opposed to staying really small and just being really casual investor. Because, honestly, right now, even if we have stuff that kind of gets weird or we have to carry properties that are empty, the rest of our portfolio supports it. So it's not like it's coming out of our pockets. It's being paid for by the other assets, which is really, really viable. Whereas if you have one or two properties and you just have a liability, which is, you know, where I was when I sold that property for a $30,000 loss a few years ago, that's a big deal.

Mike DeHaan: [42:08] Like, know, to be sitting there having to pay a $2,700 mortgage check every single month out of your own bank account is very challenging.

Dan Austin: [42:15] Absolutely. In a time where there's record layoffs going on across the country. And so it's like, how are you gonna get that additional income? And I I just add in there for flavor too is like, never mind. Never mind. You lost it. You lost it.

Mike DeHaan: [42:27] Alright. Well, if you want if if it comes back from Dan, maybe he'll make an Instagram story or something. Anyways, guys, thanks so much for listening. Please go and subscribe to this podcast, wherever you listen to podcast. If you wanna follow us on Instagram, I'm at Mike underscore Invest. Dan is at Investor Man. Dan. And if we didn't scare you off or actually, how about this? If you wanna buy real estate, but you don't wanna be in a situation where you're gonna lose your ass, so you're gonna be doing the buy right part like we just talked about, you should come and learn how we do it. So go check out the instantinvestorprogram.com. We will teach you how to not go out of business like all of the other people around us and how we're still making money because we buy properties correctly. And, yeah, instantinvestorprogram.com, book call us if you'd be a good fit. So thanks so much, guys, and talk to you guys next week.

Dan Austin: [43:10] See you.

Speaker 2: [43:11] Thanks for listening. Please leave us a review on iTunes or wherever you get your podcasts, and check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.