Why Buying Real Estate Beats Buying a Business

Mike DeHaan: [0:00] Residential real estate right now is probably one of the best places that you can make, like, decent money. I do like these little pre rolls before the intro, but we do gotta be selective because, man, Dan goes off the rails, especially when he's been fired up. Whoo. He got hour worth of sleep last night because you got kids Mhmm. You know, that are doing crazy stuff. But, hey, we sold a house today, so that's pretty cool. We did. Did we? Did we? No. We gotta refinance.

Dan Austin: [0:23] Close enough. We did refi. Got some money. Making money. That's a good point. We got some money to loan to people now.

Mike DeHaan: [0:29] What's going on, guys? Welcome to the Collecting Keys Real Estate Investing Podcast. I am Mike DeHaan here with my cohost, Dan Austin, and mister Dylan Cook, the kid from Ohio, is out today. He said that he had, like, a corn festival or like actually, no. He said that I think his family was having like a speed dating event. Is that a thing that happens in the Midwest or is that the South? Speed dating?

Dan Austin: [0:53] I don't know, but I think it was gonna be something more like I think they call it like a hoe down, like a dance where they all put their boots on and Oh. Do something like like a hayride too or something like that.

Mike DeHaan: [1:01] All all of these, like, cousins come out and they all just hoe down together. Yeah. Makes sense. And what people do on the other side of Mississippi is

Dan Austin: [1:07] not my business. Who knows? They're weird though. I can tell you that much. They are swing voters,

Mike DeHaan: [1:12] so maybe they're swingers. I mean, we know that that's true. There's always the most sexual depravity that exists in the most conservative areas. Like some of our scale members, they just sold this house today.

Dan Austin: [1:26] Oh, I hope we were gonna talk about this. What a great place.

Mike DeHaan: [1:28] We're gonna open it up right now. Yeah. Our members up in North Idaho, Kyle and Emma. Great people, by the way. Awesome people. What's it? The goat property buyers, is that what it is? No, it's fair. No, sorry, the property goat.

Dan Austin: [1:40] The property goat. Yeah, the property Homebuyers, I know. They're the goat fuckers.

Mike DeHaan: [1:43] The goat fuckers. No. Yeah. So the Property Goat, it's one of my favorite companies and brands that I've seen out there.

Dan Austin: [1:49] It is. I don't have their shirt on. I wore their shirt the other day though. It's a great shirt.

Mike DeHaan: [1:52] I know. I I feel fortunate to have it have come through like our little group. But yeah, they had this house. They called it the Jerk House. And this has been a story that they've been working on forever.

Dan Austin: [2:01] It was jerk off house maybe.

Mike DeHaan: [2:03] Exactly. That's what they're implying, Dan. That's what that means. So when they bought this house, I remember when they bought it a while back, all the initial pictures, basically the inside of it was all just porn, like that was cut out from like magazines that was just like plastered all over the walls. And they ended up getting this thing cleaned out and selling it. And they started posting more pictures as we were talking about today in our Slack channel. And they have like all these different, you know, sex toys that are in there. Said that the guy had like turned power tools into like these different devices.

Dan Austin: [2:34] I saw when I went there, I saw the actual device that held the power tool that you would sit on.

Mike DeHaan: [2:38] Oh, did you used to go and hang out at the cellar? Is that what you were in?

Dan Austin: [2:41] Yeah. He's my boy, dude. Yeah. No. Kyle told me he's like a 60 old year old man,

Mike DeHaan: [2:46] and he had another house and a wife. Oh my god.

Dan Austin: [2:48] So he literally would come to this place.

Mike DeHaan: [2:50] To the jerk shack, bro.

Dan Austin: [2:51] It was a real thing, dude. And I think he was just a closeted gay man that was deprived

Mike DeHaan: [2:56] in North Idaho. And that's kind of my point, right? Is it is literally in, I would argue, one of the most conservative places in The United States you can find, the North Idaho area.

Dan Austin: [3:05] I think it's getting less so. I would call like rural Georgia probably more conservative nowadays, but I agree.

Mike DeHaan: [3:10] You think so? I don't know, dude. I mean, it's pretty conservative.

Dan Austin: [3:13] They've had an influx of open minded Californians there.

Mike DeHaan: [3:16] Because at least like Georgia has diversity. Like up in North Idaho, you

Dan Austin: [3:19] have nothing. No. They have segregation. They have like the people like like Mason.

Mike DeHaan: [3:23] Segregation is diversity with lines in between. In North Idaho, there's nothing. It's literally just Whitesville up there.

Dan Austin: [3:29] That is true. That is very true.

Mike DeHaan: [3:31] We don't get enough sun. But it was like the most, like, depraved property I've ever heard of that was out there from this man that was obviously very frustrated when he could have come, no pun intended, 20 miles to the west.

Dan Austin: [3:45] Thirty minutes over here, we'll let you do anything.

Mike DeHaan: [3:47] Yeah. Washington, we don't care. You do whatever you want.

Dan Austin: [3:49] Yeah. Don't care. Do what you want.

Mike DeHaan: [3:50] You don't even need to hide out. You can do it in your HOA, people are fine with that.

Dan Austin: [3:53] I mean Oh my god. You can fly a flag that lets people know. Totally. Yeah. They support it.

Mike DeHaan: [3:59] In fact, they call it a pride flag. You might've heard about them. People get very upset or they get very excited when they see them.

Dan Austin: [4:04] One's Different going kind of pride

Mike DeHaan: [4:05] in Idaho. Yeah, very much so. But how do we even get on that?

Dan Austin: [4:10] I don't know. Oh, oh yeah. So, yeah, don't know actually. But it was that house was wild, dude. Like this, I will say it's probably one of the craziest situations. Like I've seen grocer houses and like weird stuff, but that was definitely from a sexual deviant standpoint. It was similar to Aaron Beale's suitcase full of homemade sex toys. But this place was more it was worse because it was like built. It was like purpose built. Like if there's something, this would be like like a sex club.

Mike DeHaan: [4:36] Totally. It was like a custom thing that was on this hillside with this beautiful view of the lake. Like, it was an awesome area

Dan Austin: [4:42] Yeah.

Mike DeHaan: [4:42] With just his shack of whatever.

Dan Austin: [4:46] Yeah. With that wildness.

Mike DeHaan: [4:47] But, anyway, so Dylan's probably doing something like that in Ohio. That's what I'm assuming.

Dan Austin: [4:51] Yeah. I think he is on the back of a hay truck On the back. With a bale of hay.

Mike DeHaan: [4:55] True. Because literally all he said was quote, I am not going to be able to make it. So I'm gonna assume whatever I wanna assume.

Dan Austin: [5:00] As a cohost, he should be able to share those things with us, but I feel if he's not comfortable to share that, that's okay.

Mike DeHaan: [5:05] So don't be afraid to hit up Dylan on Instagram at dylan underscore dylan underscore deals and let him know that you guys are available to him if he wants to share.

Dan Austin: [5:12] He also does other things, not just deals.

Mike DeHaan: [5:14] Perfect. You know, we should really stop ripping on him because he's gonna have way more money than all of us pretty soon.

Dan Austin: [5:19] Yeah. Dylan is crushing it.

Mike DeHaan: [5:20] Like, doing his business crushing and his Bitcoin that's just on a freaking tear. You know, he's such a big, like, crypto guy, you know, and he's actually, like, smart. And he's not just, like, doing degenerate, like, throw money at the wall stuff like we do. Yeah. But give it five years. He'll be probably one of, like, the richer dudes that we know about.

Dan Austin: [5:39] Yeah. He's yeah. He's already up there.

Mike DeHaan: [5:41] Yeah. So if you want to figure out his information, go hit him up on Instagram, ask him for his mother's maiden name and the street that he grew up on. That way you can steal his money. But anyways, yeah. So get in the business. We refinanced today, which pretty is good. So on one of our, if you've been listening to us for a while, a number of years ago, we had three properties that had, we had bought subject to that got the loans called due. We had to pay those off in cash and we were able to sell two of them. The third one we were not, we've held onto it basically free and clear for a couple of years. We finally just bit the bullet and did a refinance, pulled out some good dry powder on that. And funnily enough, it actually is going to like cash flow like pretty decent. Like I would have loved to have sold it, but it's not the end of the world.

Dan Austin: [6:22] No. Yeah. It'll work

Mike DeHaan: [6:23] for now. Like the options that we had were, I guess, like taking like larger of a haircut on it, or just being willing to hold on to it for a little bit more, a little bit more time. And that's what we decided to do to just cash flow positive and it's been doing okay. And then sure enough, just because of the type of property that it is, it's rented like almost instantly. Like because we had it emptied out because we were trying to sell it, but then when we put it back to the market to get leased up, they got leased in like a couple of weeks, both units. So it's pretty easy.

Dan Austin: [6:52] Are they both leased now?

Mike DeHaan: [6:53] I think so. She said the property manager, was it last week, said that she has something ready to move into the second one.

Dan Austin: [6:58] Oh, sweet. Unless I missed that. So I mean, you didn't miss it. You either created it or I missed it. I could

Mike DeHaan: [7:04] be fabricating that, but it's podcast. Everything I say on here is true.

Dan Austin: [7:07] Yeah. It's all factual. You can fact check us not. There's no way to fact check us. We can say where the hell we want. Totally. Honestly. Yeah.

Mike DeHaan: [7:14] So a good last thing with that though is, you know, sometimes you gotta, if you get properties, you buy them well. So even though this is a sub two, the whole deal was we did have a decent leverage point on it. So we had the ability to have some flexibility on what we did, which was great. Then also too, sometimes you do have to bite the bullet and do your less than ideal sort of situation or outcome, and that's fine. That's kind of part of business. Yeah. Right? But excited to get that one done. And then we had two of our nightmare deals that you guys have probably heard us talk about on the show over the years finally closed. We had our condo that if you guys remember way, way back, we were unable to sell this condo back in 2021 because the HOA, the insurance policy wasn't enough to cover basically what anyone's loan size is going to be without a sizable down payment. And it took us, us, Dan, I did almost nothing on this, it took Dan three and a half years to work with the HOA to finally get the insurance policy redone.

Dan Austin: [8:17] You know, in hindsight on this one, we should have probably just bit the bull and hired a lawyer upfront and just said like, hey, either file like a lawsuit or I don't know. I don't want what an injunction is, but I kind of want to say it. So like file an injunction

Mike DeHaan: [8:30] Yeah.

Dan Austin: [8:30] Or something legal against this damn HOA and force them to do it. Because eventually that's what happened was I said, hey, if we don't get this thing sold because it's under contract now, just said, I'm going to have to engage my attorney and they're going to run with it from here. And then all of a sudden the HOA, is which like six people, got an attorney Yeah. Looked at it, made the change, and you're here ninety days later.

Mike DeHaan: [8:51] Lessons. There you go. But the funny thing is is back then, right, like the thought of having to front the money, we weren't as confident in those kind of conversations. We didn't really have lawyer connections. You know? I think we actually met with a lawyer. I remember going to someone's office and trying to figure it out. And they're like, I don't know. You're gonna have to do. It's gonna be real expensive.

Dan Austin: [9:08] Yeah. Oh, yeah. That's right. He was like, well, you're gonna have to replat everything. And I was like, what? Like $5 per pop? But like, oh my god, this could be nobody here can afford it. They can't even afford many things. Yeah. So like, how are they going to afford that? And then we're kind of stuck with it. So

Mike DeHaan: [9:23] Yeah. Either way, we ended up pulling a bunch of money out of that, which was good. And then we had we are ended up paying the price for this deal that we were the smartest guys in the neighborhood for back in, was it $20.20 or '20 might have been end of twenty one, a number of years ago, where we got this property on 0% interest seller finance, which which was great.

Dan Austin: [9:45] It was a

Mike DeHaan: [9:46] great loan. Here's something you guys should know about seller finance deals. When you go to sell a property, okay, the title company is going to go to the lender and say, I need a payoff statement. And they go, that's cool. Let's go to like a bank, they'll provide that to you. If it's a seller finance deal, they can tell the title company to fuck off. There's not really a life you can do about it until you go and you get a lawyer involved.

Dan Austin: [10:11] And the title company is not going to move forward. They're like, Well, we can't get a payoff guys. Totally. We can't legally clear this.

Mike DeHaan: [10:16] Yeah. And so we had this whole deal with these people that did not want us to pay off their loan, you know? And like a big part of it was we had in our documents with them that basically that we weren't going to like pay It was phrased in some weird way because of a janky lawyer that did it initially.

Dan Austin: [10:36] It was basically just say the line, and it was kind of contradictory. Like if we took it to court, like if they really refused, like we would have won. And I talked to our lawyer about this and he was like, Oh yeah, you guys could go after these dudes, whatever. But they had one line in there that basically says, We cannot pay the loan off unless we get approval from the lender.

Mike DeHaan: [10:54] That's right. Correct. So like we have to get approval from them to pay it off. And you would think that any normal lender would be fine with you paying off the loan. There was no prepayment penalty. They didn't want any of that. They just wanted to keep collecting the money.

Dan Austin: [11:07] There was also a due on sale clause, so.

Mike DeHaan: [11:09] Due on sale clause, yeah. But then we went to sell this thing, we had it sold, and the title company reached out for a payoff statement. They were like, No, I'm not letting you pay off

Dan Austin: [11:18] the debt. And the tough thing was we used a third party escrow company who's notorious for bad communication. And so then you got to go through them to the borrower back and forth, back and forth. And then that takes a couple of weeks. And then you're like, finally, okay, we got to call these dudes. So I called our attorney said, hey, call these guys. They don't like me already. And he did. And then they said, yes, we'll let you pay it off. And they went back on their word. It was just this whole back and forth thing that took, I don't know, three extra weeks to get a fricking payoff. And then ultimately I just basically said, hey, we'll put the proceeds that we still owe you in a trust account. I don't even know what a trust account is. Honestly, I've heard it. Like I don't know how to get one. But I said, I'll put it in a trust account at our bank and just we'll figure it out. And then we'll pay you the $600 we owe you every month. And then in January, which is a matter of months away, loan is due anyways, we will pay you.

Mike DeHaan: [12:07] See, that was the most insane thing to me was they were throwing such a stink when literally we have to pay a loan off in four months. So stupid. Like we we were going through this to try and get ahead of that. And that was four months up and they're like, no. And there's not like they're missing out on interest. No. It's 0%. Like there's no reason to not get the money back.

Dan Austin: [12:24] It's so silly. I mean, we still did okay. Like what did we net on the other one we sold? Because we got two houses from them.

Mike DeHaan: [12:31] Yes. That's the other thing is we kind of went through this the first time when we had a partial payoff. And so we knew they were going to be a pain in the ass again, but we figured because it was so close to the final payoff that would be easier. But all in all between both houses, think we netted about 80.

Dan Austin: [12:43] Yeah. So we did okay. Yeah. You know, over a period of time, because we had to do like 20,000 down payment to get into these properties. And then we had the $600 a month interest only, which was paid by, because there was two sets of tenants, right? And so they were just, they were paying us and then the one moved out. And so we're like, well, should we renovate this house? Got in the renovation and we're like, oh, this thing takes a lot of money. We're not gonna be able to refinance it. So we sold that. And then the next one, same thing, the tenants moved out after three years and they're just like, do we renovate this or sell it? Sell it. Just sell it.

Mike DeHaan: [13:15] Yep. Totally. But again, like a good example of this is we bought everything at a good price. We kind of like squeezed the life out that we could, and then we sold them at discounted prices again, and came out highly profitable because we bought them at such good prices upfront.

Dan Austin: [13:28] That's how you do a deal. You make your money on the buy side, definitely not on the sell side. Because even right now, I wouldn't say this is a great market to sell those in, but we found a good buyer that wanted them. And these were like 400 square foot houses on weird, but not great lots either.

Mike DeHaan: [13:42] They were tiny.

Dan Austin: [13:43] From a cash flow and just like a pay down, like a bunch of the, you know, theoretic cash flow is coming from is interest pay down. Because it's not like we overpaid for them or did anything like that to get seller financing. Like we bought them at a cheap price, but you're getting $600 a month towards the principal pay down. And then we were still cash flowing with those things at under market rent because they weren't super nice on the inside. We just kept the tenants in place. So I think it was like a 2,000. I think gross, we were at like $2,000 for both of those when they were rented to the original tenants on a $600 payment. That's not bad.

Mike DeHaan: [14:15] Yeah. Not bad. I mean and then the pay down was so aggressive over the years that we owned it. So you owned it for almost five years. So we had like $30 paid down just straight across the board with that by other people. So, you I mean, turned out to be fine, but still a pain in the ass when you're trying to get them all closed out.

Dan Austin: [14:31] It was definitely a pain in the ass and not at the right time because we had the condo thing going on at the same time. We have our other houses listed at the same time and like going through offers and declined offers and dropped offers, and then all of our other flips and stuff that we're continuously doing. It was like a nightmare for six weeks probably.

Mike DeHaan: [14:48] You know, we get through it though.

Dan Austin: [14:49] We got through it. We made money. There's always a light at the end of the tunnel.

Mike DeHaan: [14:52] If you are a real estate wholesaler and flipper, and you want to be around other people that are looking to grow and expand your businesses in this ever changing economy, then you need to check out our scale community. Go to collectingkeys.com/scale, and you can get all the details there. But long story short, we are a small tight knit little group of serious real estate entrepreneurs that are looking to really make massive income and not just passive income to this ever changing economy. So if real estate wholesaling flipping is kinda your thing, go to collectingkeys.com/scale. You can book a call with me in there if you want, and I'd love to see if you'd be a good fit. The thing that I like about real estate, the residential side of real estate, is it's so liquid compared to, like, a lot of different kinds of real estate. Right? And especially if you buy right, you can kinda make a lot of mistakes and still make money because there's always gonna be, like, some buyer for it as long as you buy the property right. When you're getting into like the larger stuff or commercial or multifamily, people are gonna be so much more nitpicky when you're getting in because you're dealing with like smart money, right, that's gonna have expectations. And then also too, like your mistakes are gonna be significantly more expensive.

Mike DeHaan: [15:55] Yep. If you have something that like goes awry with it. And you're also kind of influenced by whatever the cap rates are doing.

Dan Austin: [16:00] Right. That's why like you need to buy at freaking like doing off market real estate, buying at a discount is so key. Like the whole like sub to no money down or overpay because you're gonna get seller financing, all that stuff sucks because you literally have no exit. Your only exit is to ride that thing out.

Mike DeHaan: [16:15] Dude, I got this guy that hit me up on Facebook the other day. Let me find his deal. So he saw me on one of the local Facebook groups. And he was he's trying to offload the sub two deal that he bought in Spokane. And as soon as somebody says that, I'm like, okay. Deal definitely sucks because anyone that's advertised something like that bought a shitty deal. Right. And so let me read this to you. And so I said, yeah, I own a lot in town, but I need to be buying with equity, especially in this market. I was like, what's the deal look like? And he said, I'm pretty much trying to wash my hands a bit at this point. The mortgage is at 354 k at 4.5% interest, and I owe the original seller an additional $56,000. Okay? You guys got it like a wrap. You got a a second position from the seller. Yep. So 410 k is owed total. I would happily sell it now for 450 k. I'd be happy with that. It has a new roof, but needs some cosmetic updates, mainly flooring. And so I had him send over the fixtures. This property's maybe worth like $454.70 ish, like maybe. Right? And so then I was like sitting on it and he said that the loan terms are paying off the original thirty year mortgage. He says no acceleration, whatever the fuck that means.

Mike DeHaan: [17:30] Okay? So there's no acceleration on the thirty year Fannie free mortgage. That's good. The 56 k in equity has to be paid back in three months.

Dan Austin: [17:38] Dude, what a bad deal.

Mike DeHaan: [17:39] But you have the ability to extend for three months. So we bought it on like a seller finance with like a second position that is due in like six months from when he bought it. And the most ideal situation, blah blah blah. And I said, so let me get this straight. You need a 56 k paid down and you want an extra 40 k on top of that. So you're realistically hoping to make $96,000 plus fees on a deal that you probably shouldn't have bought in the first place. And he said, yes. I bought it for the location and the interest rate. What? Well, apparently, it sucks, dude. I don't know what to tell you, man.

Dan Austin: [18:15] Hey, dude. What were realtors saying for a while? It was like, date the rate, marry the house. Yeah. Apparently, the rate cheated

Mike DeHaan: [18:21] on you. The rate cheated on him. Right? The the rate lied to him the whole time. But the point is now he has no options. Because even if he was a listless thing on the market with that segment position, because he bought it like a dummy, he's going to lose his ass. There's no way around that.

Dan Austin: [18:34] Yeah. You screwed up.

Mike DeHaan: [18:35] You know? But the thing is that sucks is like, because of who this person is and how this deal is structured. Actually, I don't know who they are. They could be sitting on money. I have no idea. I'm assuming they're not because they did this deal. Who's gonna lose is the freaking seller

Dan Austin: [18:47] Yeah.

Mike DeHaan: [18:47] Who thinks that

Dan Austin: [18:48] because they're still on the hook for the first position.

Mike DeHaan: [18:50] They're still on the hook for the first position. So this guy's gonna put on the market. He's gonna have it at like a loss. Right? The HUD's gonna show up. He's gonna need to bring $35,000 to closing. He's gonna buy peace. He's gonna dip out. Right? And the seller who has a second position is gonna have to figure it out at that point and either take a loss on their second or, I don't know, figure out a different situation or sell the house again themselves.

Dan Austin: [19:11] Yeah, they're be backed into a corner. So I mean, if I was the seller and I was in the know, I'd be like, cool, see you, take a hike. If I hopefully you've collected some money from the guy. Yeah. It's gonna be cheaper and easier to do that.

Mike DeHaan: [19:21] I know. Yeah, I have no idea. But I'm so glad that whole thing's kinda behind us, you know. But residential real estate, dude, like the only people that I know that are still super happy with their real estate businesses are either in residential or in, like, lending stuff. Like, we're in both right now, which is working good. Yeah. I got into a beef with guy on Facebook yesterday. Beef, that's a strong word. I You was debating I know, it happened The great thing is about boomers is you can say minor stuff on Facebook and they get fired up.

Dan Austin: [19:50] Yeah. But you're like the boomer millennial version. Like Yeah. You're like, oh, I'm gonna go get in a Facebook argument right now.

Mike DeHaan: [19:56] Dude, have you met me? They're like, 100%. That's what happens. My dad was 45 years old when I was born.

Dan Austin: [20:02] Yeah. So you just have it in your blood, dude.

Mike DeHaan: [20:04] I was born with, like, old parents, you know, kinda like doing stuff.

Dan Austin: [20:07] Facebook is where I socialize.

Mike DeHaan: [20:09] No. No. It's not it's not like that. Like, I prefer to have conversations with mature people. Absolutely. Happens to be on Facebook is my bridge for that.

Dan Austin: [20:19] Which is where all of them are.

Mike DeHaan: [20:20] So Yeah. But this guy, he posted a meme, and it was like the the meme of like the guy that's like looking at the girl walking by in the world.

Dan Austin: [20:28] Oh, yeah.

Mike DeHaan: [20:28] Looking up and is like jealous. So the the jealous girl so I guess it said real estate investors was like the dude. And the jealous girl said flipping houses for 12% ROI. And then the girl walking by said buying a $2,500,000 plumbing business with $800,000 EBITDA. And I commented, was like, bro, who the hell is flipping houses for a 12% ROI? It's like, we get 300% ROI or 600% on wholesales all day. And all these people jumped on were like, bullshit. Not a single house flipper does that. And I was like, who are you talking to?

Dan Austin: [21:01] Not a single person buys a $2,500,000 plumbing company for $800,000 EBITDA. Tell me who does that. That's not true.

Mike DeHaan: [21:07] I know. Totally. Well, that's another thing. But there's like this weird view around real estate. I think it's because the operators, like the population of people that actually know how to make money in this business Mhmm. Is so unbelievably small that basically they heard some like side comment that Brandon Turner said on BiggerPockets seven years ago, and they think that that's how the entire industry works now. Yeah. And so I had this whole thing and I was like, like literally our typical return on ad spend with our wholesales is six and a half X, right? And then with, you know, you have to use leverage, obviously the flips. You're buying cash is completely different, but that's a whole totally different business. You're also probably getting an SBA loan to buy that plumbing company. Absolutely. And so, you know, if you go off like a house flip, the actual money that we have in these deals versus what we make. On average, I was looking at our recent ones, it's typically 300 to 400% return.

Dan Austin: [21:55] Yeah. You know? Three to four x? Easy. Yeah. On money out of pocket.

Mike DeHaan: [21:58] Because it's a business activity.

Dan Austin: [22:00] Yep.

Mike DeHaan: [22:00] You know? And there's this whole weird stigma around residential real estate. And I think it's just because people don't know how to actually run a business or make any money.

Dan Austin: [22:09] They don't know how to do it. I mean, and historically yeah. I will. Historically, a lot of people that even got into flipping before, like, you have, like, the the recent, I would say the last ten years, is people would find shitty houses on the MLS, fix them up, and sell them for more. And that's like how it worked. It's like that barely worked. You know what I mean? And so then you have what people do now, which is like the professional home buying business, which is what we do. You're buying them at such a massive discount. Not just because they're shitty, but because there's other stress or other reason, doesn't have to be stressed, that somebody would want to sell for a discount. And then the lending and the the capability of getting leverage is so much more sophisticated.

Mike DeHaan: [22:46] Mhmm.

Dan Austin: [22:47] You know, you go and you buy a business, for example, to use that as a as a reference, you're gonna probably get an SBA loan because you can't just go get a $2,400,000 loan. First of all, that's a fictitious thing. Like, that doesn't exist. Like, I've never seen a business or heard of somebody buying $800,000 of cash flow on 2,400,000. And if it did happen, most of that 800,000 EBITDA is actually going to your debt servicing because you're going to have to get the seller to carry some of it. You're gonna get an SBA loan, and the SBA loan is basically going to put a second position on your house. They're gonna do all sorts of shit so that you could buy this business and make a $150 a year. And you're gonna be so like so risky and so leveraged where you can go get a $50,000 line of credit from a bank, dollars 49,900, 900, whatever they'll give you for next to nothing. And that could be your funds to operate your flipping business. And then you can go get a hard money loan with construction funds, say for a 10% down payment, which an average, say your average loan is $250, that's $25, you've a $50,000 line of credit, there's your down payment plus closing costs, plus the first set of rehab before you do your first draw.

Dan Austin: [23:51] Like that's easy. Like you can do that. And that is not like selling your firstborn child to buy a sinking business.

Mike DeHaan: [23:57] Totally. And even if they make you sign a personal guarantee of a hard money loan, which they all will, they're not going to pursue that personal guarantee as long as the house still covers the value of the loan. Right. Right? That's what they want to do. They'll just take the house from you and they'll sell it, they'll recover the loan. You'll have bad record on your credit, but they're not going go and pursue more versus that plumbing business that you go and you get the big loan on. You can make that thing worth zero by mismanaging it. Yes. And losing all of your revenue. Yes. Right? It's not like a house that like is still gonna be worth something if you fuck up the renovation. With the with the plumbing business, if you piss off all the staff and the, you know, the partner that was there that was involved, he leaves, you know, and then your all of your trucks that you have in your plumbing business have maintenance issues that are adding liabilities to your books. That happens. Now your $2,400,000 business that you bought is only worth $1,000,000 if you're lucky, and cash flow is nothing, but you still are on the hook for that huge SBA loan.

Dan Austin: [24:53] The SBA wants their money. Yeah. And it's a ten year note, amortized, and it's got like nine to 10% interest and your payments gonna be fat. Yeah, I know. They're gonna take your house right away.

Mike DeHaan: [25:03] It's gonna be so fascinating to see how this like Cody Sanchez, like business buying group of people pan out over the next like five years. Because like compared to the other kind of fads that we've seen, right? If you look at like the multifamily stuff, we've already seen how that's going, right? We called that years and years ago. All those people are losing their ass. Even the biggest names out there, they're all like going on these little, if they haven't just ghosted all their investors, they're going on Zoom calls and basically saying, hey, sorry, you're fucked. All those people are gone. Right? We've had the sub two people, which we're starting to see kind of crashing down with like the guy that hit me up on Facebook. And that's slightly less, I would say, like high profile and maybe a little bit more forgiving. But this SBA stuff, dude, like imagine that. You're like some young couple who bought into the Cody Sanchez thing, and you convince like, I don't know, what's a weird business someone buys, like a vent cleaning company, and some 75 year old boomer could like fudges his numbers and gets you to buy this shitty business that has made no money for thirty years so that he can retire now with this SBA loan, you know, the money that he's gonna be getting. He'll be scot free. And now you're gonna go through and you have this ten year amortized loan that's gonna require you to be making $15,000 a month payments. Mhmm.

Mike DeHaan: [26:28] Right? And then the business turns out to be trash. I don't know how you recover from that without filing bankruptcy.

Dan Austin: [26:34] Yeah. Or you realize that that business owner had spent a lot of

Mike DeHaan: [26:37] time, thirty, forty years building that. Those relationships and everything, and now they're all gone? They all went with Daryl, who's like no longer there.

Dan Austin: [26:44] Ed. Yeah. Ed took him with him.

Mike DeHaan: [26:46] Yeah. What's a another boomer name, Walter.

Dan Austin: [26:48] Yeah. I feel like there's vastly less people that actually accomplished that and more people that were behind the movement of trying to do it because it's very unrealistic to be able to buy a business. I guess it's really challenging. And I know some people that have done it and successful, they were successful at it. But like the challenge, I've talked to some of these like baby boomer business owners that are retiring and they're like, well, if I don't get 3,000,000 for this business, why would I sell it to you? Because I'm gonna make, like I'm gonna make $500,000 a year sitting here doing nothing, and I'll just keep it for however many years. And then I'll have paid that off, and then I'll just sell it for less. And you're that's good logic. Yeah, you're absolutely right. If you can't get what you think you want, then just keep it because they've got their business set up and they have no debt against it because they've owned it for thirty or forty years, or they've built it from the ground up. They suffered for twenty years until they started making money. So they don't want to sell it for nothing. Like that idea is like, why don't I just keep it then? Because I'm, you know, at their age of seven years old or whatever, they're probably barely in it anyways. They have some general manager running it for them, Right?

Dan Austin: [27:50] And so they're just like, yeah, I'll just keep collecting a check. So I just don't think there's that many businesses available. Even though there's a lot of small businesses, most of them aren't worth owning anyways. And then the ones that are, they're not going to let it go for nothing.

Mike DeHaan: [28:02] Yeah, no way. And I think that the biggest challenge, because I do think you can do these acquisitions and make money and do well, but not if you don't know what you're doing, you know? And that's kind of the problem is there's this whole movement around how it's been so overly simplified, you know, and they think that, Oh, yeah, I worked at Google, I'm pretty smart, I'm going to buy these blue collar businesses and add value quote unquote by adding in like automation, you know, and like doing all these things. Was like, You know what to know what the actual people that are doing the work don't want? It's your fucking, like engineer ass to come in there and be like, yeah, this is the system that we use now. And they're like, no, we use yellow sticky notes. And that's how we keep track of the phone calls. We've been here for twenty years, and you're just the smart kid who just decided to figure out how to get a loan. We're not gonna listen to you. Yeah. You know? And the the human element of these things is always completely ignored for some reason. I don't know why.

Dan Austin: [28:55] And that is the biggest challenge of it all.

Mike DeHaan: [28:57] That's the entire thing, right? Like you can make money doing literally anything if you have a good team, right? You don't even need to have a good product. If you have a good team and you have like a good sales pipeline, you you have an offer, as Alex Mameli puts it, you don't have to have anything else. You have the worst product ever, or you can oversell, like overprice the same product as everybody else. And if you have a good sales team, you'll make money, right? You know how to manage people. Look at every solar company. Look at companies like freaking like Andersen Windows. They sell you the same windows you can get at Lowe's for eight times the price. Seriously? But because they have brand recognition and they have a dedicated sales team, they crush it

Dan Austin: [29:33] with that. Yeah. That's actually a pretty interesting business model. The idea and not just Andersen Windows, but the idea of using third party contractors to do the install so then you don't have any employees, and you'll pay those guys next to nothing because they don't understand the overheads of running a business. And then you use a 100% commission only salespeople. It's described every roofing company that exists. Yes. Yeah. But it goes back to what you're saying. It's like having really good marketing in a sales system. And in lieu of having one really good salesperson, have like a 100 kind of okay salespeople that in a year they'll burn out and they won't make any money. But the ones that do stick around, they're gonna be the ones that make all your money.

Mike DeHaan: [30:09] Yeah. And that's why you find like the, you know, random eager kid from like Wisconsin to come over and like knock doors for you or do whatever. Right? Just just to go ahead and fly him out.

Dan Austin: [30:19] Sounds close to home.

Mike DeHaan: [30:21] No. No. I'm not definitely I'm making realistic examples. But yeah, don't know, man. Like the, the thing that I do like though about residential real estate is if you want to start like making legitimate money, like very realistically, right? Wholesaling houses, it has a skill set, it has like, you know, marketing might have to go into it, sure. But the ROI that you can get as like a one or two person operation with arguably very, very little risk and a relatively small knowledge base is insane. Like honestly. And you can do it fast, And I feel like that's kind of fallen out of graces with people, and I don't entirely know why.

Dan Austin: [30:59] Yeah, you're right. Absolutely. It's like all these other things have gotten people's attention that were like the quick, easy money, no money down kind of schemes or whatever they were, even the buying the business thing. It's like, I think people have that shiny object syndrome. And the idea of building a wholesaling and flipping business that is really good is like not not the most favorable way to do it in in social media? Yeah.

Mike DeHaan: [31:19] I think it's because it's kinda hard. Right? And there's like so little innovation that's kinda left with wholesaling Yeah. That it's not sexy. Right? It's not interesting. Because a lot of people that would have traditionally been like wholesale real estate people, they're now going towards these, you know, private equity or like business acquisitions. And they always have like the same pitch as like, well, why would I do that when I can make way more money with this thing that already has like an established operator? They always see I have like their pitch, they've been sold. They walk through. And if you're even like a moderate entrepreneur, you can call bullshit right away, but you can see that these young eyes to financial freedom are like sucked in and bought into it. Because I think if you go back five years with wholesale real estate, the big marketing thing was like, you know, people with $30.40, $50,000 checks. And that was huge. And at some point along the way, we decided that those checks aren't cool enough when instead I can get $3,000,000 a year in passive income as long as I can somehow con a bank into giving me a freaking $5,000,000 SBA loan that has an established operator, and then I'm just going to plug in Salesforce to this plumbing business, and boom, I just made a million dollars. Right?

Mike DeHaan: [32:33] That's literally how they think about these things, I'm pretty sure.

Dan Austin: [32:36] It is. Yeah. I do think so. And it's like the most idealistic situation. It's like, well, you should probably pull back a little bit. If the sales pitch is the best scenario, what's the worst case scenario?

Mike DeHaan: [32:45] And everyone always ignores that. You know? People always think that they can't fail. I'm sure there's like a psychological thing with this where you feel like other people can fail, but it'll never happen to you. Yeah. Right? Which isn't true. And I will say talking to our banker, you know, when you do when you're in business for long enough, you'll eventually get a banker, like a personal banker that kind of like knows you by name and takes you to lunch and goes by golf and stuff. He does a lot of personal loans, like SOS, SBA loans. And dude, he just handsets some of the issues that they're facing on that end, and they are constant.

Dan Austin: [33:18] Trying to restructure people's loans, trying to keep them alive, people failing.

Mike DeHaan: [33:22] And it's always like, oh yeah, so and so tried to buy like whatever kind of business. And he's talked about pretty much every business you can think of under the sun, right? And they're all failing because the operators don't know how they're doing.

Dan Austin: [33:33] Yeah. They don't. Or it's just small business is hard, dude. Yeah. It's so hard. Like there's that element where no matter what, even if you're good at what you're doing, like the actual physical product you're selling, it's still hard. You still have to be able to get that product or service in front of the right people that need it when they need it, whatever that is. Like if you're selling donuts, like you gotta like, it's hard work to go sell donuts to people, especially if you're a mobile donut truck. Right? Like you got to go to where people buy donuts. That's hard work. Well, that's

Mike DeHaan: [34:00] why I don't do food based industries, Dan. Only do blue collar business, trade style businesses that do between $2 to $7,000,000 a year and are in the Sunbelt because those are recession proofs.

Dan Austin: [34:12] And then I can place a software and an operator in place, and I will be the sole board member that just collects checks. You know what, I will say this and then I'll, we can get off this topic because we are running long and ranting, but we have a great friend in the scale community who bought a large business, manufacturing business, and is probably one of the smartest guys I know. And I truly believe like we'll be successful no matter what in this situation. But even in the business he bought, then they merged with another large business to become one of the biggest in their city. They're in massive lawsuits because the guy they merged with is trying to basically steal the business, you know? And I'm summing up a more complex situation, but basically like, no, I don't want this. I'm going just take over the business and kick you guys out. It's like, wow, that's crazy. And that's coming from a dude who did it the right way.

Mike DeHaan: [34:58] And I would say is one of the most calculated people that I've ever met. Absolutely.

Dan Austin: [35:03] 100 Always seems to make a pretty damn good decision regardless of the bad situation he's in or good situation. And so it's like even that is like a good example of doing it the right way and things get complicated. Because business is complicated because it does involve people, and you can't always know what people's reactions or actions are going to be at the next stage of their operation or life.

Mike DeHaan: [35:24] Yeah. And the human element always gets ignored in business. I don't know why. Right? That's one of the things that I would say you don't fully understand until you're in it. Yeah. You know, you can try to prepare for it. You can read about it. You can learn about it. You can listen to podcasts. But until you're actually having to like manage people and their lives and their dramas, you know, and like inspire people that are not fully bought into your dream and your vision because they just wanna make money and go home and Yeah. Play with their kids or watch Netflix or do whatever, you don't understand the challenge of doing that over a long period of time, which I would say is the hardest thing to do in any business period. A 100%. I mean, as

Dan Austin: [36:07] business owners, I think you and I, I would say 99% of our conversations like off, like privately are about people, about people.

Mike DeHaan: [36:14] Always. You know? Because none of the rest of it matters.

Dan Austin: [36:17] We're never like, let's break down this system and talk about it.

Mike DeHaan: [36:20] You know? No. Because once your business is making money, you have the system. Like you already know, like what you need is you need people to fill those seats. And another thing too, with a lot of business people they don't understand is when you're buying those businesses, the seat that you're taking away that needs to be filled by somebody, and that probably needs to be you.

Dan Austin: [36:36] Yep.

Mike DeHaan: [36:37] Right? And not only that, but that person that you bought the business from, more like the Nigel's a small business, if any of the key people in that business left, they were able to fill that seat, you need to be able to do the same thing.

Dan Austin: [36:47] A 100%.

Mike DeHaan: [36:48] Right? You know, and if you don't have that ability, you probably shouldn't be doing it. Anyways, we got on a tangent on that, but I don't know. Something I'm thinking about. Because I feel like residential real estate right now is probably one of the best places that you can make like decent money because you can buy discounted assets, right? There's currently an abundance of sellers, right? There is a, not an abundance of buyers, but that actually tells me there's an opportunity there if you're willing to either be a buyer or you can make those connections with the good buyers, because it's a very, very small club. And if you can join it, you'll be successful. And there's an abundance of opportunity because there's literally hundreds of millions of houses in

Dan Austin: [37:26] The United States. Lots of them. And a lot of them are really shitty.

Mike DeHaan: [37:29] Yeah. The return on ad spend you can make with a system that you can literally just like hire someone to do for you, whether it's hiring a cold calling company or a direct mail company, and all you have to do is get comfortable talking to people. You can make a industry wide, seems to be kind of between a five and 8X return on ad spend. That's pretty cool. Like why would you like, you don't have to develop anything. You don't have to like invent a product. You don't have to do a bunch of social media and build a following. You can do it as nobody. It's so easy.

Dan Austin: [37:59] No better time, I think, to be in this business because it is like a struggle bus for a lot of the lazy people and a lot of the people that shouldn't be here. But from a business fundamental standpoint, a lot of the systems are matured that you can just buy off the shelf. And there's a lot of established operators that have shared the real business model, not the sales pitchy, like, come join my group and you'll make a billion dollars. Like, no, like the real people out there operating, like, it's very established and you can just literally plug and play now. Totally. I mean, it's so much easier and quick. Like, you can turn the system on like a car overnight. Like, boop, just buy all the things you need and go to town.

Mike DeHaan: [38:34] Yeah. And people will say like, I don't have money. I don't wanna spend money. Well, you're gonna spend money regardless of what you do. And if you go and get an SBA loan and you spend the bank's money, right, that's still money you're spending. It's just money you're spending in the future because you're paying them to get that money right now. So just don't do that. Anyways, alright, guys. We'll go and, hit up Dylan. Let him know that you missed him and that you're looking forward to listening to him next week. So thanks, everybody. Have a good one, and we'll talk to you guys next time.

Dan Austin: [39:01] See you.

Mike DeHaan: [39:03] Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at Investor Man. Dan and Dylan is at Dylan underscore Does underscore Deals. Choose to follow and send us a DM to let us know what you think of the show.