Wholesaling Ethics, Training Sales Managers, The Rise of SCAMS in Real Estate

Mike DeHaan: [0:00] Indicted by the SEC today for he has a fund, and he has apparently defrauded his listeners as investors of an estimated $11,000,000 that he was using to quote, unquote buy properties that he was building with his community. And instead used it to, you know, buy NBA courtside season tickets and like a bunch of

Dan Austin: [0:23] other bullshit. What an idiot.

Mike DeHaan: [0:31] What is going on, guys? Welcome to today's episode of the collecting keys real estate investing podcast. Today is Wednesday. It is the Mike and Dan show where I, Mike DeHaan, and my cohost here at Dan Austin, talk about real estate investing business and whatever else we're working on that week. So thanks for joining us today guys. And Dan, we have a huge topic to discuss today. What is it? Integrity.

Dan Austin: [0:57] That's why I didn't know what it was. Yeah.

Mike DeHaan: [0:59] You don't have any of that. Right? Yeah. We're wholesalers. Don't know

Dan Austin: [1:02] the fuck Yeah. Wholesalers. I mean, integrity. What?

Mike DeHaan: [1:05] No. It's actually just been a an interesting reoccurring topic, I guess, that's come up both in our instant investor like coaching program and then also with our partnership program about like renegotiating contracts. And, you know, following through with contracts when you negotiate them with sellers in kind of the appropriate way to approach that the do's and don'ts of it. And it's one of those things that's come up enough times. And also we have been in this game for long enough that I don't know we've had to do renegotiations. We've had to adjust stuff. We've had people completely burn us by not following through on their end. So I thought it was something that would be appropriate to start with because apparently, what seems like it should be obvious isn't. Yeah. Like I don't know why. Maybe just people are like more concerned about their self interest than we are, we're just too nice.

Dan Austin: [1:58] Yeah. I think that people tend to forget that they're in the business of helping people and then they really just get into the mindset of helping themselves, and what is the best thing for them. And then one of the worst things that you, when you're in this business, in kind of generally in like a real estate service business, we'll call it that, like the worst mindset you can get into is like, thinking only about the return on investment. How much money am I going to make on this deal, and how does that translate to some arbitrary, or somewhat arbitrary percentages? Because the seller or your end buyer, whoever, it doesn't really friggin' matter what your ROI is, they don't care what ROE is, they don't care that your base split profit's 25 k and doing this transaction this way is gonna only make it 22 k. Like when you start thinking with that mindset, you start making really shitty decisions on behalf of other people that affect massive parts of their lives.

Mike DeHaan: [2:55] Yeah. I mean, a lot of it tends to get forgotten. So I guess just for some context here about the stuff that we're talking about. So, you know, we've had a couple situations recently, where we've had like partners, for example, and so our partnership program works is we basically run the acquisition side for other investors in different markets, We close the deals, they figure out the disposition or they become the end buyer. And we have basically a pre established relationship about what that looks like and how everyone gets compensated. And we've had this very reoccurring issue with people that I would say are like, I assume are high integrity people, just based off of how we know them and different things. Where we are getting to the deadline, not even the due diligence deadline, but like to the couple of days before closing, and all of a sudden they are trying to renegotiate the price, they are trying to walk away from the deal, they are trying to, you know, get a, what is a, like a conventional loan, where she's gonna extend things forty five days all of a sudden? Like all this sort of bullshit that is completely avoidable if you just go by like a traditional real estate process and you, you know, focus on how you can help a person out with the situation. Because some of those things are people just ignorance. Right?

Mike DeHaan: [4:14] But the problem is as well is realize more often than not with these situations, you have people that like they rely on that money coming in for some personal situation. Right? They have like a major debt or liability that you are bailing them out of. That is the reason that you were able to buy these properties for $60.70 cents on the dollar. And then all of a sudden, you start extending things out or you start to back away from things. Like that can cause people super major financial distress. Yes. Right? And there are like sleazy people out there that use this as a sales tactic. I remember being in this group a while back, that this is like years and years ago. And it was like a newer group that I don't even know how I can compete with these people. And literally, they taught like their little flock. They're like, this is how I make an extra $10,000 per deal. It's like, you wait until the day before closing or like the day of closing, and you call them up and you say like, hey, I can't close unless we're down at like 190 instead of 200, sorry. And he's like, then they've already moved out. Like they're heavily motivated to get the deal done. This guy thought that he was like the smoothest dude. I'm like, dude, that's fucked up, Like, you already have a situation where these people are giving up a lot and now you're trying to squeeze them for extra. And it's something, one of those things that it gives the whole industry a super bad name, and like really for what? For like a small amount of financial gain in the big picture?

Mike DeHaan: [5:32] Just doesn't make any sense at all.

Dan Austin: [5:33] And that's why like, you know, we always said that with people that are doing that for B to B, like trying to scrape a few thousand bucks out of a relationship with another business owner, know. We do a lot of things with other wholesalers, other flippers, other investors in town, and the minute that you try to take a little bit more off the top just because you can, that's, you're gonna really ruin that relationship. And you you might not get caught that one time, but you're gonna get caught eventually. And you know, just because you're you're not repeat business with these sellers doesn't mean you don't wanna do good by them. Like, you really need to focus on and doing the right thing because all too often, you're faced with these decisions where you can be in the gray area, or you can just make the right damn decision.

Mike DeHaan: [6:14] Yeah. I think ultimately the biggest thing is you shouldn't be locking up properties unless you like have the intention of closing on it, right? Or if like if it is something that you're going to be, you know, trying to figure out, trying to wholesale, you're not gonna be able to get it done, or like you're gonna, you know, you gotta shoot your shots too, I fully understand that. But let it go during the due diligence period. Don't try to drag it out forever because you can't find a buyer, and you talk to some fucking Keegley dork, which is like a fake ass company, Dispos shop, right? That's like, oh, well we need to do a group walkthrough in two weeks, can you do that? No.

Dan Austin: [6:49] Don't do

Mike DeHaan: [6:49] that, right? Follow your process, keep things in due diligence, and if you have to renegotiate at that point, it's fine because that was pre established early. But if you're dragging stuff out and you're getting these people's hopes up, like that just creates such a huge issue.

Dan Austin: [7:01] Yeah. If you're not sticking to your word, right? So say you you sign a contract with somebody and you say you're going to close in thirty days, but in twenty nine days you decide not to close, or you decide to extend it, like, you gave them your word, and you know the situation generally speaking. So say you knew that they were going to move out because they were going to use these funds to buy an RV or do whatever the hell they did, and so and we've ran into this with sellers before where we know like they are making major life transactions between now and closing because they have to because of whatever situation, or maybe they're just that's how they are and they're gonna make some poor life decisions afterwards, but by you delaying the last minute, fully well knowing what you're trying to do, you're trying to sell the contract and you know within three days of getting this thing under contract, you're not gonna sell it. I mean, really, the rest of it is you just like piss some time away and doing whatever you're doing. And so, good to your word, and be open and honest as often as possible and as early as possible. Right? Yeah. And so, I think people get really caught up in this as they aren't quite honest what they're going to try to do, what they're doing. Like our contract says fully like, we are investors and we're going to make a profit on your house as early as the day we buy it from you.

Dan Austin: [8:11] Mhmm. Right during the contract. Yeah,

Mike DeHaan: [8:13] like literally, yeah. And I don't know. It's I don't know if it's something that like people, they just treat it too much of like a business to business relationship and they don't understand. Yeah. But like especially when it comes to the relationship with the seller, it's just so important to realize that even though you're excited about the deal for a lot of these people, we are the last option. Totally.

Dan Austin: [8:32] And and this, like, I'll I'll I'll add to, like, from a newer perspective, like, investors, like, you will see this quite often. They're so hungry to get a deal, they will go in, and they'll get a deal locked up too high. You you might be negotiating with the seller, they're like, hey, so and so said that they'll give you 50,000 higher, and you're like, well, they're never gonna execute on that. What do you do? You're in that weird situation, you know that's gonna happen, you know they're not gonna execute on it, so I'm bringing that up because it's like, if you're new, need to get skilled up, you need to learn how to do this stuff before you start putting people's livelihood in the palm of your hand and then crushing it, because you just don't have the skills. Because you may very well screw somebody over because you went too high because you have no idea how to calculate ARV, or you're super hungry for your first deal. Or you may very well screw a seller over, because you just don't have the skills to sell it, or to dispo it, or to creatively come up with a good pricing structure that makes sense for that seller. So get skilled up, go find people that are doing this, and learn how to do it the right way from the start, so you don't turn into a shitbag loser.

Mike DeHaan: [9:32] Yeah, at the very end of it. Which has just been, yeah, so reoccurring. And ultimately, I think it comes down to intent, right? Like if you have to, you know, if your full intent the entire time is to close on it, or is to like help the person out, or is to you know, assign it whatever, and you are transparent as things change, as the opportunity changes, and you make that, you know, very apparent to the seller as early as possible, that's fine. Stuff happens, whatever. But it's when you're letting things go on for the entire length of the duration of the contract, and then, you know, you put down 55 in a box of Cracker Jacks as your earnest money, and then you're walking away. Yeah. Right? Like that's a super major issue.

Dan Austin: [10:10] Yeah. Yeah, don't listen to the people that are like, you don't need your own money, use other people's money. And you know what, never sign, you know, never sign a document that personally guarantees any of your stuff, or never do this, never do that, it's like, that's basically just saying, be prepared to screw this person over because you have no skin in the game. Yeah. That's kinda shitty, for sure.

Mike DeHaan: [10:29] So yeah. Anyway, something I wanna bring up. I think I can get I guess good general rule to finish that that up. How we sort of always acted has been, as you go through the process, you have those conversations. If you put like the situation of like it's your grandma who's the seller, how would you feel if it was like a third party, like you're a third party talking to your grandma with the stuff that you're doing with the seller? And if you feel even a little bit iffy about it, don't do it. Right? You know, or like as people get really into the weeds of this, think about if this conversation that you're having, this transaction you're putting together, if this was on the front page of your local paper, would you look good or would you look bad? Yep. Okay. And if it's something that they can put out like a hit article on you, Babb, definitely

Dan Austin: [11:13] Not a good good test. That is a good test, Josh.

Mike DeHaan: [11:15] It's a

Dan Austin: [11:16] good test to not

Mike DeHaan: [11:16] That's right. But anyways, yeah, it's just a reoccurring thing and like I said, make sure you're shooting your shots. Because like, you know, don't be so worried about being able to fully execute that you don't take opportunities, but just be transparent about stuff. If you're unsure, if things aren't looking good, if you're gonna need to be dropping it, you know, are you gonna need be doing a price adjustment? Just don't wait until they've like put down money on an apartment, they've moved out, or like they've already committed to buying another property and now they're not gonna get the money. Yeah. Exactly. Like all that does is hurts the seller, it hurts you, and it hurts the industry as a whole.

Dan Austin: [11:46] Yeah. Don't be don't be afraid to have the tough conversation because that's really what it is sometimes.

Mike DeHaan: [11:50] Yeah. Absolutely. Boom. Cool. Outside of that, what else we have going on? Got some closed a couple deals. You finally got that freaking double closed, maybe done.

Dan Austin: [12:01] We'll know tomorrow. No. A start I'm gonna see some money on it. It's only like three weeks past closed the original closed date or something. Two weeks past it.

Mike DeHaan: [12:08] This goes back to what I was talking about.

Dan Austin: [12:10] This goes back to not necessarily having low integrity low integrity, but because of maybe lack of empathy or understanding for people's situations, you're just kinda like, meh, I just, you know, I'll get to when I get to it. Meaning that, you know, like, there's certain things when you buy a property, especially if you're using a hard money lender, knowing the hard money lender you're gonna use, what kind of hard money are you getting, what are they going to require from you, and being on top of that so that you can get through the process. Because hard money lenders can be dicks and they can slow your process down if you're not on top of your shit. I've always been by the book of like, get the people asking you for stuff, whatever they need as soon as you can, like as fast as you can, because you're no longer the one restricting or being the bottleneck for that process.

Mike DeHaan: [12:52] Yeah. Yeah. And it like, and stuff like that always gonna take longer than you think. It's like a title and escrow company. Right? It's like when you have people that are like, oh, can you close in five days? And you think, it's like realistically your title initial company can't handle that.

Dan Austin: [13:04] Right.

Mike DeHaan: [13:05] Right? Most of the time. And then lenders, especially if you're using like the national lenders, this is something that I guess we learned over the years, and newer investors, they kinda go through the same thought process. There's a couple of kind of hard money lenders, right? There's like the local hard money lender that's like a traditional hard money They'll know the market, they'll kinda know their neighborhoods, they'll probably own some properties in the area. Usually, there's like rich dudes with money. Yep. You know, or they have like a small fund and they're like, yeah, we'll give you these loans, it'll be between like 10 and sometimes 14 and a couple points, you know, we'll have to put 10% down, we'll be able to do it just have your credit report and photos and things like that. And a lot of people kind of start there, but then after a while, start doing more projects like damn, that's like really expensive. And we did the same thing. Everyone starts going, well, what about these national hard money lenders? You know, like the KIAVs and like the lending ones and the, you know, easy street capitals are some of the big ones out there. Right? And those would be cheaper on paper. Right?

Mike DeHaan: [14:01] They'll be nine to 11% plus like one or two points instead of three or four. But the problem is, after a while, the hoops they make you jump through are absolutely insane Yep. To get these freaking deals done because they don't know your market. They don't know the whole situation. And I guess half the time when we were using those over the years, they would like try to re trade us like the day of closing. Like how many times did freaking Lending One call us on the day of closing, and it's like, I know we said 10% down, and now actually it's 17 and a half percent down.

Dan Austin: [14:33] Or they'll be like, what is that like random $18,000 fee you put in there?

Mike DeHaan: [14:38] Yeah. Right.

Dan Austin: [14:38] You know, like they, you know, there's definitely some different fees because they might say it's one point, but then there's like other fee structures in

Mike DeHaan: [14:45] there. Mhmm. Or the worst was when freaking Kianvi made us go and we had to like Zoom call with their underwriter because they didn't understand the house. So we're like in this halfway house with these people on like a Zoom call, like going around and like showing them the layout of it so they can like verify the size or something. Like it was such a dumb situation like two days before closing, and the seller's like, oh, thought you were buying cash and now you have to do this with your lender? Like what the hell? It's just such a stupid conversation.

Dan Austin: [15:20] Yeah. Well, technically we are. It's just not our cash.

Mike DeHaan: [15:22] Right? It's a cash like purchase, like it's as is. But you know, it's it's I will say that I think that everyone sort of goes through that arc depending on how much volume they wanna do. When you're new, you need the ease of your money to give you a shot. When you're kinda like small, you're doing a few deals a year, those extra closing costs are a big deal to you. And then when you start doing a lot of volume, just like, I just need ease and simplicity. Because for me to go and do a fricking Zoom walkthrough at a property with a lender is worth, that time is worth more than the point

Dan Austin: [15:54] Yeah, that that's gonna we're be to be you on the phone closing another deal, walking to their property, you know, making sure your contractor is doing the right thing on a flip, know, like that time is way more valuable at that point. Mhmm.

Mike DeHaan: [16:05] Yeah. But I know it's just always the little sort of details people need to figure out as they get into it. And one of the challenging things I think for that whole piece too is you can talk to like all these different lenders on the phone and understand you guys, like when you work with private money like this, they're salespeople.

Dan Austin: [16:21] Oh,

Mike DeHaan: [16:21] yeah. They're gonna tell you exactly what you wanna hear.

Dan Austin: [16:24] Yeah. They get paid by loan, the loan amount.

Mike DeHaan: [16:26] Yeah. And then as soon as that gets past the salesperson to like the underwriter, that's when the real process And you're not gonna know what that's look, what that looks like until you're kinda down that path.

Dan Austin: [16:34] And from my experience, the sales guy said a bunch of shit that's not true. Absolutely. And the underwriter's like, why why is this form that you're supposed to fill out not filled out? Why is none of this stuff done now the underwriter has to do it all? And that's what's really taking your loan so long, is the sales guy just got you to say yes, and now they're trying to figure it out.

Mike DeHaan: [16:51] Yeah. Well, it's just like, you know, getting a conventional Fannie Freddie home loan too is the same thing. Right. You know, there's less hoops than that usually, but you know, it's There's just place where

Dan Austin: [17:00] you said there's a place to time and a place in the your arc of your business when that stuff works out and it's good. Like, we still refer people to like, Yahvie and stuff like that. Like, they have they fit. They have a need or they have a solution for your needs.

Mike DeHaan: [17:13] Yeah. And it it just goes just going back to the integrity piece with that though. If you're gonna have those hiccups, just let your freaking lender know ahead of time. Yeah.

Dan Austin: [17:20] Be honest.

Mike DeHaan: [17:22] Sorry. You're you're a seller, so you're not showing up there again trying to do a Zoom call and they're trying to figure out the hell is going on.

Dan Austin: [17:27] Yeah. And that also goes back to talking to your lender often and early too, and keeping that conversation going. Because if you don't talk to them, they'll probably be like the day before closing, which is what they tend to do. Oh, we're not gonna make closing. They're like, well, that would have been nice to know a week ago. And they they did know a week ago because they didn't even start working on your file until two, you know, till two days ago. So

Mike DeHaan: [17:47] Yeah. And that's exactly why this freaking double close is taken so long. It's because they just didn't do anything until the last minute. Anyway, getting that one figured out and then I know you have a couple of rentals doing we talked about the bedbugs last week, we talked about the seller finance that we're working on. Oh, yes. Sorry, the lease to own that we're working on. And all in all, we're rocking pretty good. Our new sales guys off to a good start. His first contract in two weeks. First contract last week. Yeah. And he's got a couple more that he was like, he's pursuing pretty good that she'll be getting signed around. It's always a good feeling to get like, I think for a sales guy to get an early win like that is just always are such an important proof of concept. Right.

Dan Austin: [18:26] It is kinda nice to get that early win that's the little low hanging fruit to grab it in and get to test and then retest. And then they go into their death of despair for a while, which everybody goes through every once in while, you know what I mean?

Mike DeHaan: [18:38] Yeah, so actually, I mean it's such a cyclical thing, this is something that's always so hard for people, this is, there's always this cash flow problem, which we talked about before, because you know, you're spending money on marketing, or buying property, or whatever, and you have to wait for it all to come back. But for some reason, the way that the moon aligns with the earth or something, I don't know what it is with sellers where for years the same pattern has reoccurred. You are like not getting responses, people don't wanna move forward, don't wanna do anything, all of a sudden over the course of like a week like six people were ready to sign. Yeah. And it's the same that's happened over and over and over and over again. So you've been doing this now for the last four years.

Dan Austin: [19:13] It all averages out, you just have to be playing the game to actually reap the rewards of the average. You can't quit after a down month.

Mike DeHaan: [19:20] Yeah, exactly. And for sales guys it can be tough. So, but yeah, it's funny. With the sales guys, another reoccurring question we've been getting recently is what we do to train them, which I always think is really funny. And I'll say first off, like our our training for our sales guys, it isn't like awesome. We definitely live on like a trial by fire sort of basis. You know, we give them the basis of what they need to know for our business, and then we put them in and make them get to work. But here's the thing, guys. If you're worried about how to train people about, like, what a wholesale business looks like, or, you know, what a general negotiation can look like and those sort of things, realize that there has been a whole movement of content with people that wanna be authority experts.

Dan Austin: [20:03] Know, we're

Mike DeHaan: [20:03] kind of the same with this as well. But there are people that wanna be the sales experts.

Dan Austin: [20:08] Right.

Mike DeHaan: [20:08] And if you just go on YouTube, you can find all sorts of videos Mhmm. From like random people that have like all the general sales stuff that you're gonna tell your person anyway. Just have them watch those videos. Just like who not how but do it via content as opposed to trying to build these super elaborate sales trainings for your internal staff all the time.

Dan Austin: [20:28] Yeah. And there's very I don't know. There's not very I mean, there's not very much variation between what people are one person's gonna say on YouTube versus the other. So it's like you're gonna go way wrong unless you like get the really shitty dude who's talking about like price dropping people the day before closing. Like you wanna you wanna avoid that guy. Yeah. Right. But in general, like you can you can also pay and you're probably not gonna go too wrong. I think the the main key is is getting enough reps in, and actually doing reviews of your work. And looking at like, what why did happened to this? Even to the ones you get, right? Like, if it's a contract you got or didn't get, like, what went good and bad on both sides of the spectrum. Because sometimes, just just because you got a seller to sign a contract, that doesn't mean what you did was actually the best thing. Like you could've still failed, but succeeded, if you know what I mean. Like it could've just been one of those weird situations where in another situation where you say the exact same thing, the seller's like, no, I'm not And biting on that one so it's, you gotta listen to all your successes and failures, and see really what's working, keep sharpening your tool over and over again, because it's a perishable skill.

Mike DeHaan: [21:30] For sure. And I think that's the thing that most people, especially when they're small operators, tend to overlook, is they think like, okay, so I have initial training that I do, and now I just kinda like let people roam free. But you're completely right. It's an axe that needs to be regularly sharpened. I know for us, where we've seen some of the most value in terms of like our sales guys growth has been, you know, twice a week, we've been doing these call reviews, where we'll have, know, one of the sales guys volunteers, they send a call. We typically try to have it be like an offer call, a renegotiation call, or an intake call. Usually one that they felt didn't go great. We listen to it on our kickoff meeting, and then we review it all collectively. And you can learn an incredible amount by just like listening to other people have the same conversations that you're gonna have, or that the other team members are gonna have. Right? And there's just like, you know, there's obviously the hard sales tactics that you can learn. But also, you'd be surprised at how many things pick up about you. Like, why did I say that? Like, that's not how our business operates. It just kind of like came out in like the spur of the moment, right?

Mike DeHaan: [22:32] Or like, why didn't you sort of like, recognize this opportunity of like a seller finance, you know, and like, see if they paid off the loan, like, how much do they owe on it? Like, all these different things. And you do that enough times, enough reps and people's, I guess, like knowledge and their situational awareness begins to grow. You know, it's kinda like how like a professional sports team watches like a game tape. Right? You start to see different patterns and different things that, will allow you to not make the same mistakes in the past. And it's one of the things I will say is the hardest to do when you're a small operator, because it feels extremely personal. Like I remember when we had our first sales manager, and it was like just us, or it was like just me and her, and we were doing like a call review. And it was hard not to do it without sounding like a dick. Right? Like the whole time. Because you're just sitting there listening to only her

Dan Austin: [23:22] I get that.

Mike DeHaan: [23:23] On the recording, and then you're trying to provide feedback, but everything sounds pointed. Mhmm. You know? Versus like when you're in a group of people, you can be like, oh, yeah. There's like a collective learning thing that we're doing, and it's easier to get away with that. But it's super, super necessary.

Dan Austin: [23:36] Yeah. It is absolutely necessary. And I think what you said there that's super key that I pull from this is the people that are better at this than others is mostly about opportunity recognition. Uh-huh. Of course, you can't be an idiot and you can't stumble and not be able to talk to people. You gotta be able to talk to people, and have a conversation, and build rapport. But you have to be able to recognize opportunity in the moment, because now, like what we talk about, now you can solve the problem in the moment, as opposed to what you see with a lot of new folks, is they're like, I can close fast, I have cash. It's like, that is not the offer. That is like one of the things, that's one of your tools, that's the most common tool we use, but that's like not the solution, right? Like your solution is helping them get out of their situation, but sometimes their situation is not fixed by a fast close, So, being able to recognize that opportunity and say, you know what, this person that's 75 years old, he's a really good landlord, he knows what he's doing, and he wants mailbox money, well, we just need to pivot this right away, and recognize that because of his circumstances, his experience, and what he's saying, and then shift the conversation to, what about you being the bank?

Dan Austin: [24:39] Mhmm. Now you've recognized opportunity, now you've pivoted away from a dead deal right away, because you couldn't offer the cash you want, but now you can switch it to something that actually perks his interest and will work for you. And now you can tater down that path of the sales conversation with him.

Mike DeHaan: [24:53] Yeah. Definitely. And that's how you know your professional status is when you have the ability to do that with this. You know, and like all the big guys out there that you see, you know, that are out being influencers or or whatever the hell is going on, know, the ones that are actually doing deals that are actually successful, even if they're selling a course on like sub two or seller finance or like novations or whatever, understand that is just a tool in their toolbox. And even though they found that as like their niche or something that they specialize in, the ones that are really getting things done, they are good at recognizing the opportunities and becoming an opportunist when it's there. I mean, that's a big reason that most of the time in our our 7 figure investor calls, and with our group, that's what we talk about. The vast majority of the time is like, hey, what's kinda like the play with like this deal? It's like, okay, well, cash purchase were off by like $50, you know, like like, what are the other sort of opportunities you can do? And I will say the solution to that is not to open up an LLC and, you know, with the seller and like sell it back to them with them in like a second position or something just wacky. It doesn't make any sense.

Dan Austin: [25:56] No. No. Please don't.

Mike DeHaan: [25:58] There's usually a lot more legit legal ways that you can do it that aren't gonna make you borderline commit mortgage fraud. Right. But it's just learning about how to ask the right questions, how to structure different deals, the different forms and stuff they need in place, and how to explain it to people that are not real estate educated, aka all of our sellers. And once you can overcome that, like that's when the world kinda becomes your oyster, honestly. Yep.

Dan Austin: [26:23] Recognizing that and being able to have the conversation. I think you also said like asking the right questions is really critical because you can, well, we do a lot of call reviews, you know, you do enough of them, you can kinda see where the conversation's gonna go, and like how it's going to maybe drag on, or where the direction's starting to head based on what you're hearing the seller's like tone change, and so it's like, how do you keep asking the right questions to uncover what their motivations are, that you can apply a solution to that, and also in the meantime, like, keeping that in a positive, the conversation in a positive direction, as opposed to like, where you know it's gonna be a dead end and you just give them a shitty cash offer and they're like pissed off at you. Or you know, you're just trying to be super nice and you're afraid to give them an offer and the conversation just keeps going on. Because on the other the other end of the line, they just wanna know what you're gonna pay them They wanna know what solution you can provide, that's why they're talking to you.

Mike DeHaan: [27:11] Yeah. It's solutions business for a reason. Right? That's why we say that. Yep. Anyways, we've gone into that a lot. Have you ever heard of this this other podcast called the cash flow king? I have not

Dan Austin: [27:23] heard of that.

Mike DeHaan: [27:23] But I guess he's has like a pretty big real estate show. But anyway, he got indicted by the SEC today for he has a fund. And he has apparently defrauded his listeners as investors of an estimated $11,000,000 Nice. That he was using to quote unquote buy properties that he was building with his community. And instead used it to, you know, buy NBA course side season tickets and like a bunch of other bullshit. What an idiot. Really? Yeah. And what's interesting, you know, I don't know who this guy is. I don't know anything about his show or like his audience or whatever. But when the market starts to soften and fall out, all these sort of people start to come out of the woodwork, you know, and all their stuff starts to you know, that when the Ponzi scheme fails, they can no longer raise enough money to keep paying their investors is when all this stuff collapses. Yep. Right? And we've seen this, you know, obviously with this guy who apparently had a decent sized show. But we've seen it like in GoBundance and like other stuff too, where there's people that have like been long standing members of that, that all of a sudden is like, Oh, that startup that you've been building for the last like six years that you've raised tons of dues money on isn't a real thing.

Mike DeHaan: [28:34] And you basically just been raising more money to like pay off your your other investors. Be very, very cautious out there, everybody, if you're doing any sort of passive investments, you're partnering with people because, you know, there have been more of these that I've heard of in the last six months, I think the past like six years combined. And I really think it's one of the beginning of it, especially when all these loans and stuff start getting called or start adjusting, it's gonna get real ugly real fast.

Dan Austin: [28:58] Yeah, because there are a couple points here. It is a slippery slope, right? Because there is the there's the opportunity, so say you have an investment, and it's not going as good as you want, but you know you just gotta make it six more months, and you told those first investors that you'd give them quarterly distributions, right? So you have to go raise a little bit more capital, pay those quarterly distributions, bingo, right there. You've just pretty much so created a Ponzi scheme where you're taking other people's money to pay back others, your other investors, but it's a slippery slope, because I can see how, you know, you just need a little bridge alone, you need a little gap fill to get you through the end of this project, but then that project goes sideways, now you're in big trouble, now you have two people that you have to pay, and they don't, they're none the wiser, and that's why, more important than anything, when you're talking about investing with people, the investment is just like, that's like one thing, the operator, the person you're actually investing with is who you should be really underwriting. Uh-huh. And I feel like as humans, not all the time, sometimes we're wrong, but our gut instinct tells us yes or no right away, and if you get that gut feeling, like, you know what, it's a great deal, they seem alright, but there's something I don't like about it, just go with your gut. Because there's a thousand other options for where you could invest your money. There's millions of options where you could invest your money. It's not worth investing in a shitty operator that takes your money and buys courtside tickets with it.

Mike DeHaan: [30:16] I'll say, you know, following your gut is one thing, but also checking the proper, like, just hard paper due diligence on stuff. I actually just pulled up this guy's case and thought, well, that's a given. Yeah. Yeah. Well, but it's it's an easy thing to not do though, like, honestly. Especially when you're involved, something that involves like a title process. And so I just pulled up this guy's whole case, and what he was doing is he was taking investors money on first lien position real estate, okay? So they said they would hold the first mortgage, he'd pay them a pref, okay, which is you know, nine, ten percent super standard. So instead of being a fund, it was actually tied to it. He would have them sign a promissory note and sign all the official documents and which never record it. And he so he just took the money. So like as far as the person knew, like if you were if you were a third party, you could just go and you know, who knows, maybe he even had like an assistant with a fake title company that was acting at you know, Washington State title or whatever, that is like, yeah, just wire the money here and we'll record it. And then it was never getting recorded. And there was one property in particular, he had 20 promissory notes of 47,000 to different investors, none of which were ever recorded. Oh my gosh.

Mike DeHaan: [31:30] So how do you even check that?

Dan Austin: [31:32] Well, you can't check it after the fact because he's already got your money. Right? You need to be using a third party to do this for you. I would not give somebody money that says they're going to if If it's being secured by a real estate asset, like Truly is being secured, like, in the in that, so the way that I'm hearing that is this is a deed of trust or a mortgage that will be securing this property, a one to one situation, or at least even a second position or something, So you should be going through a lawyer or a title company that's going to be able to do the recording for you. Granted, yes, you could walk down to the county court office and do it yourself, but I would say as a third party investor, you'd probably want a third party handling that. Maybe I'm wrong, maybe there's a better way to do it, but I think that's the right way to do it. Now if you're going to be an LP in an investment, that's different, now you need to be reviewing all the operator's documents and doing your due diligence to make sure that those documents are in your interest to protect you

Mike DeHaan: [32:26] Mhmm.

Dan Austin: [32:26] As well as in in the operator's interest to make sure that they're being held accountable to performance, or whatever that performance should be, you have all those documents that that you should be looking at. And then on that side of things, again, as an LP investor, underwriting that operator as an individual. Facebook's stalking them, checking everything you can. If you're gonna give them money, I mean, why not? Take a little extra time to figure out what's going on.

Mike DeHaan: [32:48] Yeah, absolutely. And I think as like a general rule, if you have people that are asking for money from you that build their claim to fame by being someone that goes to courtside NBA games and drives Ferraris and stuff, don't give them your money. Like, that should be a red flag.

Dan Austin: [33:08] I would only invest with somebody that drives white Subarus. That's just such a That's a trustworthy car.

Mike DeHaan: [33:13] Because we have white Subarus. But, yeah, look at this guy. He's got some, like, bigger pockets and everything. Matthew Motil. I will put I'll him on blast. Just point of

Dan Austin: [33:21] clarification, we I do not have white Subarus.

Mike DeHaan: [33:23] Yeah, that's true. Me and my wife do. But I mean you can know you can do all sorts of due diligence on this guy's twenty one years of experience posting on bigger pockets. He's talking about all sorts of different stuff.

Dan Austin: [33:33] I'll be honest, my initial instinct, granted I'm a little bit biased, my initial instinct to that picture with him in the reddish pink shirt is, I would not invest with him. Could see it in his eyes, it's just you can't trust him.

Mike DeHaan: [33:43] See but now you have like a hindsight bias because you already know this, right?

Dan Austin: [33:47] I have a bias, I will admit that, but I'm like a dog, know, like I can sniff your butt and know right away if you're a good person or

Mike DeHaan: [33:52] not. And if you guys wanna see, this is great audio con. You best wanna see this, you go check us out on YouTube, we're looking at his photos. Look at him, he's at the Cleveland Cavs game with his daughter. Sorry. You know, he's got a book.

Dan Austin: [34:03] His smiles does soften him a little bit in that picture, because I will say that okay. I'll give him that.

Mike DeHaan: [34:07] I mean, know, he's he's got tattoos, he looks like a youth pastor at a cool church, man. Like a kid's church. You're like, he he works out.

Dan Austin: [34:17] You definitely get to trust those guys.

Mike DeHaan: [34:19] Alpha Legends Gym and Fitness Center. I don't know, man. This guy's going to prison for embezzling and stuff. But then Yeah. Yeah. Looking at it, it's all like secured and basically what he would do is he would just raise more money to pay off the other people.

Dan Austin: [34:32] You know, that sucks that he's gonna go to prison and he only did it for $11,000,000. Like that is not a lot of money to be going to For prison

Mike DeHaan: [34:39] sure. Yeah, honestly if you look at these other ones like Matt Onofrio, you guys haven't got caught in that. If you guys were in the real estate space at all, like, I don't know what, a year ago, you heard about this dude Matt Onofrio everywhere. He went from 0 to $150,000,000 in net worth in like three years. And he was on like BiggerPockets, like he was like on Ryan Pineda, he was on every single platform. And all of a sudden, none of you guys even noticed he weren't like sort of in this community, but he just disappeared off the face of the earth. And it's because he got indicted for over $100,000,000 in bank fraud for all the shit that he was doing. This is like in November of last year. And now he finally actually just got proven, I guess, like charged with it. And his initial charge is like seven seven years in prison, and like $30,000,000 paid back in penalties. And then they do like pursuing more charges that are like up of like, I think it's like 60 or 70,000,000, and then potentially thirty years in prison, which is crazy. But if he avoids that, okay, he avoids the, you know, thirty years in prison and the 70,000,000, and all he gets is seven, seven years and 30,000,000 in fines, the dude's gonna get out and still have freaking $100,000,000. And he looks like he's like 32 right now, so he'll be under 40. So yes.

Dan Austin: [35:59] Well, Ian, okay, your logic isn't terrible here.

Mike DeHaan: [36:02] You got good logic here.

Dan Austin: [36:03] I am wondering though, what is how are his assets performing now No. That he is it really worth that much, or is it not?

Mike DeHaan: [36:10] So his his whole thing was he was wholesaling these triple net properties, remember by like faking these leases and like putting in like fake Like dental he was like buying all the stuff to like put into the office, make like a dentist office, and then was wholesaling that to people. Yeah. Like, you know, unsuspecting rich people that wanted to own triple net commercial. And he was making insane assignment fees. Right? And what he ended up getting popped for, is what he would do is he would be like, okay, cool. So the assignment fee is gonna be $4,000,000 The down payment is $3,000,000 You don't have $3,000,000 What you're gonna do is we're gonna close it. I was gonna say, I'm gonna lend you the $3,000,000 to close it, then I'm gonna collect the $4,000,000 for an assignment fee. And then I'm basically going to carry a second position for that 3,000,000 that I loaned you, right, and get additional cash flow that way. So he's off the books. He just holds paper. Right? But you can't do that unless the lender approves of it. Yeah. And then obviously, putting into the fake debtors offices and stuff is like super illegal. But ultimately, if he's just been accumulating cash, and he has to pay 30,000,000 and goes to jail for seven years and he gets out, he's 38 years old and he's Right. Kind of a weirdo anyway, so he doesn't have kids or a wife that he cares about. Yeah.

Dan Austin: [37:28] He'll be alright.

Mike DeHaan: [37:29] He's gonna come out and go and speak on stages. He's gonna be Jordan Belfort out there pounding his chest.

Dan Austin: [37:34] My guess is he'll get a shit ton of civil lawsuits against him after that and he'll be found liable. I think that's what they call that in a civil lawsuit, liable. Is that where you they basically it's like like when you murder somebody and the jury's like, oh, they're innocent, but the family's like, no, you murdered them. And then they go after you with a personal lawsuit and then they sue you for that, then you go, you know, get sued or something for money. Don't know. So I probably have a bunch of those too.

Mike DeHaan: [37:56] Yeah, maybe. I don't know. But no, it's just super interesting.

Dan Austin: [37:58] Somebody killed themselves over this situation. I'm pretty sure he'll get in trouble.

Mike DeHaan: [38:02] You think so? Yeah. I don't know what the full details of that were. But anyways, speaking of integrity, this is the integrity episode. Loser. No. It's just just moral of episode today, guys, is just be careful out there with anybody, you know. Be careful with us.

Dan Austin: [38:17] Right.

Mike DeHaan: [38:17] Like, if we if you ever get a DM from me just cold asking you for money, it's not me. General rule. It's not me.

Dan Austin: [38:25] Yeah. Not gonna cash up you for some money.

Mike DeHaan: [38:28] Yeah. Mike underscore invest underscore if ever approached you with a great opportunity to invest in cryptocurrency at a 24% return. It's not me. Anyways, but yeah, it's it's getting that time. When the market gets weird, people start to get weird. So be careful out there. People get weird. Cool. Right on. Anything to finish up, Dan?

Dan Austin: [38:45] No, man. This was a good episode. I'm I'm glad I got my dose of integrity. I'm back on track. I know what to do next. Sure.

Mike DeHaan: [38:51] You know what not to do. Don't be like this dude, Matt Motil and Yep. As the cash flow king. Also, a douchey name. Come on. Cash flow king? I don't like it.

Dan Austin: [39:01] What was that?

Mike DeHaan: [39:02] So should have some some way cooler like collecting keys. That's way better. But is it? I don't know. That's a much less egotistical name. It's like much like a branded name. Like it's something that sounds like it should be for like a bigger company than we are. Totally. I like it maybe. I don't know. I feel like it.

Dan Austin: [39:20] Just don't call us collective keys.

Mike DeHaan: [39:22] Collective keys. What's that? That's what people call

Dan Austin: [39:24] us sometimes. I'm like, no. That's wrong.

Mike DeHaan: [39:26] Yeah. Maybe it's because maybe it's because I always talk and I have a weird mumble, so people don't know what the fuck I'm saying. Good thing I've chosen audio as my content of choice I like to make because I can't talk correctly. Maybe. But anyways, guys, thanks for listening to the ramble of today's show. And go out there and act with integrity and make sure that you double check everyone that asks you for money. And they're actually gonna do what they tell you they're gonna do. But besides that, please go and share the show with anyone who's interested in real estate investing or making money, or just wants to know about the risks of investing with third party operators out there. So if you got like older people or friends or family that have like moving all their mind to self directed IRAs, give them to their neighbor's kid that has a fund. Definitely help them investigate that to make sure that they aren't doing something stupid because that is that is where the opportunities at if you want to embezzle some money right now, let me tell you. But thanks for listening everybody, and we'll talk to you all next week.