Why Residential Real Estate Rules In This Market, Focusing on Massive Income not Passive Income

Mike DeHaan: [0:06] What's going on, guys? Welcome to this episode of the collecting keys real estate investing podcast. Today is the Wednesday Mike and Dan show where I, Mike DeHaan, and my cohost here at Dan Austin, talk real estate investing business and everything in between. And tell you what, I'm so glad that we run a virtual business reading about the shit storm that has been going on at some of these companies that have started requiring to come people to come back

Dan Austin: [0:35] to call back to office. Hey, someone's gotta be here while we pay the heating bill kind of situation. Dude, I'm hearing about it all over the place. Right?

Mike DeHaan: [0:43] Like, in on on Reddit, I've seen a pop up in a bunch of different spots, bunch of different subreddits about people that are super up in arms about it. And the thing is is some of these companies, right, like, own the buildings. They're like, a use case for the building that they're owning. Yeah. But some of the crazier stuff is in like the commercial real estate investment space where they had these huge buildings that were being leased up by companies that are, you know, the companies are like, well, we're staying virtual. And there was one I saw his posted that the property was valued at $300,000,000 in San Francisco, $300,000,000 building in 2019. They are going to sell it, and they are expecting offers to come in in the 50 to $60,000,000 range. That's pretty wild. They've lost, like, $250,000,000 in value.

Dan Austin: [1:28] So who's lost the 250,000,000?

Mike DeHaan: [1:30] The owner. So it'd be whatever fund owns the property, right, that was leasing it.

Dan Austin: [1:34] So the the was it do you think it was a 100% of investor money, or do think there's debt behind it that they're not gonna be able pay? Because my guess is is on a $300,000,000, there's probably some sort of capital stack and debt's probably part of it. Yeah. And somebody's not getting paid.

Mike DeHaan: [1:49] Yeah. It's probably a bunch of many a bunch of LPs, bunch of funds, things like that that are losing a huge amount of money there.

Dan Austin: [1:54] Fortunately, a lot of the people that were buying this stuff are from China in the last ten years.

Mike DeHaan: [1:59] So Yeah. That's right. They're probably thinking the same thing, so better than the the way that their currency is going.

Dan Austin: [2:03] Pushed. Yeah. Exactly. They're like, this is all fake money anyways.

Mike DeHaan: [2:07] But no. It's been interesting, though. And then, like, the social side of it too, I've seen so many people that are, like, looking to leave jobs, transfer over to these virtual businesses. So upset, like, stopping their feet they have

Dan Austin: [2:18] to go back to work. And it's like, yeah. That's part of the deal, I think. I know it's been a few years that you've been lucky to to stay at home, but at some point, you sitting at home not doing shit is gonna get called out, and you're gonna have to show

Mike DeHaan: [2:30] Yeah. Back I mean, and and that's a big thing that we've seen with the tech space, right, is they sort of realize that, and they are like, oh, we have all this extra bloat that we don't need. That's why they had the huge layoffs. Yeah. And now a ton of other companies are gonna start doing the same thing, right, once people leave and all sorts of stuff, and they're like, wait, we're still as productive because all those people weren't actually doing anything.

Dan Austin: [2:49] I think it's like maybe it's like by mistake. Right? So they were okay with people doing nothing when they're in the office, because traditionally a lot of people manage by butt and seat time. They're like, long as they're here, they're being productive, Or they in the back of their mind, they think, well, as long as they're here, I can tell them to do something. I have no idea, like, what that perspective is, but I'm kinda making that guess here. But when they were at home doing nothing, they couldn't feel like they didn't feel like they could control it. Yeah. They got upset. So, like, you're gonna come back and do nothing here. And then they're finding out people are quitting, so they're not wanting to come back, and they're like, oh, shit. I guess we didn't

Mike DeHaan: [3:22] even know. Right. It's like

Dan Austin: [3:24] a management mistake that's turning

Mike DeHaan: [3:26] into It is. Or something. I I don't know. But, I mean, the thing people need to realize with all this is, know, if you work for these companies, the c suite can make you do whatever they want.

Dan Austin: [3:34] Yeah. That's why they're there.

Mike DeHaan: [3:35] Yeah. If you don't like that, don't work for those companies. Like, go and Right.

Dan Austin: [3:40] Well, and, like, they get upset like, oh, the company's not is not in alignment with my mission and goals. It's like, absolutely not. They're in alignment with the shareholders' mission and goals. Everything they say about you is just a pedal to you to keep you showing up to work, but really, they're there to make people money, including yourself. So if you don't like it, you're gonna have to go somewhere else and find somebody that happens to be in alignment with you and your whatever life goals.

Mike DeHaan: [4:02] Yeah. And that's one of the biggest farces about people that talk about having like a secure job.

Dan Austin: [4:06] No. No. You It's know,

Mike DeHaan: [4:07] it can be a secure paycheck, but it's not necessarily gonna be secure in lifestyle. You know, they can change at any time. I mean, you saw that with people when they've had to go virtual. Right? And then there was COVID. Alright. So because of COVID and all that sort of stuff, now it's going the opposite. People have gotten accustomed to the virtual environment. Now they're bringing them brought back into the office, and it's Right. Upheaving their whole life again. Their whole lifestyle. Yeah.

Dan Austin: [4:27] So Exactly. Which is like I don't know, man. You need to be a little more nimble than that. Like, if you're setting up your entire life around what's just happened, like a change that could be potentially temporary, you don't. Yeah.

Mike DeHaan: [4:39] Well, I mean, the reason people get so worked up about it though is because I mean, most people are getting worked up. It's because they aren't hireable, honestly. Like, people being just completely they're like,

Dan Austin: [4:50] I don't want my circumstances change. I'm so comfortable here, and I don't think I can do anything else.

Mike DeHaan: [4:54] Completely lucky to be wherever it is, whatever company they move with themselves into. And if they did have to go find something else, they're not gonna be able to. Yeah. I don't know. But, like, either way, I think it's just so valuable to have this virtual gig, like this virtual business. That's something that's come up a lot of times. There's a lot of in DMs. I've been exchanging people the last little bit. It's been like, you know, how do you build a work culture? How do you do all these sort of things? And it is more challenging with a virtual business, but honestly, having like the podcast makes it easier. Right. Because a lot of the people that work for us now, you know, they looked up our business when they started job listings. They went and listened to the podcast. They know kinda what we're about. That is the basis of the culture. Yep. And they can have a sense of connection to the people that are operating the business because they can listen to us on this thing three times a week.

Dan Austin: [5:41] You know? Right. And some like, you get some level of transparency that Yeah. An engagement relationship with a person. Like, anybody that's listening to a podcast now, like, there's people that listen to this that you and I have never met or even engaged with that have some feel like they have a relationship just like you and I do with other podcasts. So it's and so it's just another way to help build that culture, that employee experience, or just have that relationship with somebody in your company that otherwise, you're not gonna go and give them three hours of your time a week, because there's just not another three hours of time in your week to give somebody one on one attention, and talk about something that's important to you, or that, I don't know, whatever.

Mike DeHaan: [6:15] Yeah. Yeah. And I mean, along with that too, everyone's always worried about hiring, which I think is really funny when it comes to stuff like this. And when you have all these people that are trying to flee these companies that are making them go back to the office, Do you have like a legitimately decent job with good income potential and, you know, the flexibility of being remote? It is shockingly crazy how many applicants you got for jobs. Yep. Like, we had a lot of our recent stuff. We're getting, like, hundreds of applicants over the first couple of days.

Dan Austin: [6:43] I know.

Mike DeHaan: [6:44] You know, to the point that it's so many. I'm just like, just turn it off. Like, I I can't even Yeah. Look at these. Yeah. And the funny thing is too is I I see this also on on Reddit where I get most of my news and stuff from. You see all these stuff of like, I filled out 200 applications, and I didn't get a callback from anybody. If you're that person, I promise, 95% of the employers are not being dicks. You just got mixed in with the hundreds of other people. Timing was terrible. Sorry. And we didn't even see it. And not only did we not see it, it's not even our fault. I would have liked to review it. All the typical employment platforms like Indeed and LinkedIn, their system is so shitty that it's impossible to screen them with any sort of efficiency. Like, it's terrible. And it's unbelievably expensive. If you're an employee looking for work, and you're like, I, you I didn't get a good shot at the job. Just know that when you apply to a job at Indeed, they give me seventy two hours to yay or nay your application, or they're gonna charge me like $70 for your application. And you're mixed in with a 150 people. Know I'm gonna do is I'm gonna go through, like, the top 10 in the list. Right? Because that's all I have time for, which it takes me twenty to thirty minutes to do each one.

Dan Austin: [7:58] Yeah. To do a proper review.

Mike DeHaan: [8:00] And then the rest of them, I'm gonna cancel, so don't charge me $500 for no reason.

Dan Austin: [8:05] $3 for applicants you don't

Mike DeHaan: [8:07] even like. Yeah. Exactly. So

Dan Austin: [8:08] Yeah. No. It's kind of a screwed up system when you're doing it that way, and that's why you have to maybe pursue a little bit and do a little bit of research and reach out on multiple platforms instead of saying, oh, this is the company. I mean, fortunately for us, we have a little bit of a brand name going through the podcast, but like, if you're gonna apply for collection keys, go do some research, go find who the owners are, and find the different platforms they're on, and reach out, and give it's just like that little extra might get your resume to the stack. It you know, seen in the stack. You might still get thrown out, but at least you know you got seen.

Mike DeHaan: [8:35] Oh, yeah. In fact, every single person that we've hired so far this year, they applied to a job application, then they found me on Instagram or my email through our website, and they reached out to me and said like, hey, look. And I had a ton of people that did that that I did not engage with because they did fit our criteria. But those people

Dan Austin: [8:51] Right.

Mike DeHaan: [8:51] That we employed, they did that, and that is why I looked at their resume. Yep. There you go. It's that simple. So you gotta do the extra step. It's not quite as simple as just going on Indeed or LinkedIn or whatever and just, like, clicking down a bunch of stuff because we don't see them as employers.

Dan Austin: [9:03] So back to kind of an earlier point you made on this because I've been hearing a lot of this lately, and the the media fodder is the commercial real estate problem or issue. I don't know. What do you feel there? I mean, is there a for people out there looking for a new asset class, is it time to pivot and look at something in the commercial space?

Mike DeHaan: [9:20] It is so hard for me to get interested in commercial and, like, large multifamily real estate right now because I do not understand how people are still buying these properties with such an, like, not visible exit strategy. Like with residential, you can at least, like, throw it on the markets or things. When you're buying like a $10,000,000 asset, it's so different than that. You can throw it on the market, but that thing can take years to sell. And in that period of time, you know, interest rates shift more. It affects your purchase price, all this sort of stuff. And, you know, over the past several years, kind of that business model was, you know, you syndicate, and this is what all, like, the other people's money out there. Like, I retired buying apartment complex. You go and you syndicate. You buy a large asset. You do a value add project. Increase the value of it, you know, by increasing rents, adding amenities, doing all sorts of stuff. So based off the cap rates of the property, the value goes up when you increase the the net income. Right? So that's kinda how it went. But now as the cap rates got smaller and smaller and smaller, basically, what you would do over the past five or six years is you would try to sell to the next indicator that was gonna do the next value add that would try and get an even tighter cap rate. But now with interest rates and everything else that's going on in the economy, it has gotten so compressed. And I don't know how you still do these value ads unless you're buying stuff at, like, massive discounts. But the problem is the stuff you're trying to buy at massive discounts is stuff that everyone is terrified of losing their ass, so they're just gonna sit there.

Dan Austin: [10:50] Yeah. Right? Yeah. It's an interesting situation, though, and just for our listeners too to understand, like where Mike's saying, you sell the asset, somebody else comes in and buys it and tries to squeeze more juice. Part of the reason why these folks sell the assets, and not all syndicators do this, but a majority of the ones that you hear, is because their IRR calculation forces them to sell it at the peak, or where they think their peak profit will be, their peak internal rate of return, which is a time based calculation, and also their investors want their goddamn money back.

Mike DeHaan: [11:20] They're forced to because it was part of their agreement, is they have to exit at a certain point.

Dan Austin: [11:24] Yes. Well, it is, and the reason why I guess I'm saying that is because they look at their IRR, again, time based.

Mike DeHaan: [11:30] So the longer they stay

Dan Austin: [11:31] in the investment, at some point, the the actual return looks like it's going down from a rate of return standpoint. And so then that's our upfront. They say, we're gonna by year five, we're gonna get you an 18% IRR, which most guys probably never actually hit, but that's what they say they're gonna get you, which might correlate to a totally different ROI. And so they're forced to do that, and then the next guy comes along and buys and tries to squeeze juice, and what we've seen so far, at least in my experience, what I've observed in the half dozen years I've been knowing what syndicators are, is money's been super cheap, interest rates have kind of gone down, down, down. Cap rates have compressed, compressed, compressed because people were willing to pay more and more for those because money was so cheap. Where do you go from the floor on interest rates? Where do you go from the floor on cap rates when things are trading at like 23% caps? Like, you can't go anywhere else. And so your point is, I don't see an exit, and people are still trying to buy. Now they're not buying at those completely compressed cap rates, but you're saying that they you're you just don't see another syndicator coming along right now to buy that piece of crap property.

Mike DeHaan: [12:35] Yeah. Let's see. Because that's the whole thing is in order to have an exit, you have to have a buyer.

Dan Austin: [12:39] Yes.

Mike DeHaan: [12:39] Right? And I just don't know who those future buyers are.

Dan Austin: [12:42] Yep. Well, it's interesting too. So I guess the idea being is what a lot of the talking heads are out there saying, and some of these talking heads I really respect and value their opinions, is that, for example, I think the number I heard is 60% of commercial real estate loans are held by small regional banks. Uh-huh. So the spark of this conversation was all SVB, Silicon Valley Bank, collapsed, that whole issue, blah blah, and all these other regional banks now that you have all these people not going back to the office, all these basically office owners and commercial space owners that have their debt with their regional banks. I actually think that's kind of a good thing because it's diversified. There's four major banks, big like, the big Bank of America's, JPMorgan Chase. If all of the commercial real estate was underneath them, you could see a pretty large collapse coming if one was going to happen because one bank, say, owns 50,000,000,000 in real estate that's just gone. Right? Instead, these regional banks who own a bulk of this are a little bit more nimble. They can change around their balance sheet as needed and make decisions at a quicker level, but also it's diversified, so not one of these banks has all of this, and it's regionally diversified as well. So maybe the point I'm making here is that maybe there's not this major gold rush coming in commercial real estate like everybody thinks, because maybe these banks are willing to restructure their loans so they don't have to write them down on their balance sheet.

Mike DeHaan: [14:06] I think it's not only maybe will they. Think they're gonna be forced to ultimately, right? With like, if some of these banks are super over leveraged

Dan Austin: [14:14] Right.

Mike DeHaan: [14:14] Especially there's a lot of banks, and there's one in every market that focuses exclusively on those kind of assets.

Dan Austin: [14:20] Mhmm.

Mike DeHaan: [14:21] And if all of a sudden they're in a market, like, they're not in a major market where a ton of people are coming to buy Yeah. But maybe people did when the market was hot, people were looking for opportunities, but no one's going there in 2023, 2024, Well, they're just gonna let everyone default.

Dan Austin: [14:34] Right.

Mike DeHaan: [14:35] Like, that's not how it works. Like, that goes back to was it is it I think it's Trump that said when few was it if you owe the bank a million dollars, the bank owes you. If you owe the bank a billion dollars, you own the bank.

Dan Austin: [14:46] You own the bank.

Mike DeHaan: [14:46] Yeah. Yeah. I mean, like that's true though. Right? Honestly.

Dan Austin: [14:50] It's very good wisdom there, actually. You're absolutely right. And the whole other piece to that is like, in our market, like we're I don't know how many 500, 600,000 people would ever live here. I would go to the extent of saying the buyer for one of our large office buildings, probably not here Absolutely. So for a bank, if it actually owned a regional bank owned it, restructuring the debt is going to be likely because you made the point earlier, who's your end buyer? Yeah. It's probably not gonna be locally here, so you're gonna be shopping

Mike DeHaan: [15:18] for Yeah. A It really is. Yeah. I mean, it's such an interesting space. I mean, there's probably a lot of experts out there that will say, like, we're wrong. And if you are listening to this, you guys you guys are absolute idiots, please, for the love of God, hit me up on Instagram and come on the show and talk to us about why we're wrong. Let's talk to us about it. Love it Because I have yet to talk to somebody who can actually convince me that that

Dan Austin: [15:41] Well, and remember, a lot of this conversation has started because of, again, Silicon Valley Bank, and everybody's like, god. All those offices in Silicon Valley, they're empty because all those tech people don't go to work anymore.

Mike DeHaan: [15:51] Isn't that right?

Dan Austin: [15:51] And it's like, a, that's all I don't even know if that's just hearsay. You don't know if you're not actually there. And b, that's one And nobody really cares that much if San Francisco bites the dust in commercial

Mike DeHaan: [16:06] real No one cares at all. No one even wants to go there and have a bad reputation as a place right now.

Dan Austin: [16:11] Exactly. And eventually, because minus what's been going on locally, because of supply and demand, the way this works, because it is a badass place to live, if the economics change even a little bit, people will go back there. Yeah. Maybe. Honestly. And so I truly believe that. Right? It's like a lot of places that are badass to live if you know, obviously, San Francisco right now is not a badass place to live. But if the economics change enough, the politics will change, and then money will come back. Because people people don't mind living in nice areas. Yeah. I don't know. As far as they don't get stabbed.

Mike DeHaan: [16:43] Yeah. Which there is a big question. So, yeah, I mean, I don't know. Like, commercial is like that. But even multifamily is I'm I'm thinking the same thing when I look at what some of these people are buying stuff for.

Dan Austin: [16:53] Yeah. I don't even think about multifamily. I'm talking about commercial real estate right now. Like, that's not even in my purview. I'm just like, ugh. I'm turned off by it.

Mike DeHaan: [17:00] I'm just like so much. And, you know, we we just threw GoBundance and other things. We were around so many multifamily guys. And I've been looking at these different syndications and things like that from people. I'm just like, I just can't get excited about this. I just don't understand who you're gonna sell this property to at the end of it. Yeah.

Dan Austin: [17:17] You gotta be careful because theoretically, spreadsheet stuff looks great.

Mike DeHaan: [17:21] Oh, dude. Like, when they

Dan Austin: [17:22] give you the really shiny, the glossy the glossy binder with all the cool stuff in it that they're gonna do, like, that looks good. And it's I love a deal, but you're making a a great point that somebody still has

Mike DeHaan: [17:33] to buy it. Yeah. I mean, the and the thing with spreadsheet stuff, though, is especially across, like, across, like, larger assets, all you gotta do is just, like, roll up your numbers into even tens across the 25 different things, and all of a sudden, it changes your valuation to $500,000 on the exit.

Dan Austin: [17:48] Yes. Minor roundup here and there. I mean,

Mike DeHaan: [17:51] people do that, right, all the time. I mean, I like the residential space because it has a clear exit. Like, that's really what I come when I look for with investment opportunities for myself is I want there to be a clear exit strategy. Like, I don't care if it's something that can happen now or something in, five years. I need to know how the initial money is gonna get back. You know, even like, honestly, like, small business, you can have a more clear exit strategy than you can with a multifamily asset right now because you can control it. You can at least, like, adjust the cash flow more than like, okay, we're gonna increase rents 5% every year, which may or may not happen. Right? Yeah. But like the main stuff that I'm interested in from investment standpoint besides registered real estate, obviously, is like development stuff. Because I feel like if someone can figure out how to control the cost for development, there's a huge demand for new housing and for new assets as opposed to re repositioning the 1987 apartment complex that's already been repositioned six times in its existence.

Dan Austin: [18:49] Yeah. It's still a

Mike DeHaan: [18:50] c class Still a c class apartment, but you know, but they

Dan Austin: [18:52] But it has three Airbnb units. Yeah.

Mike DeHaan: [18:54] But you know, threw some wood paneling on the side of it now and updated the windows. And now like, okay, cool. Now we can charge 2,700 a unit. It's like, that's not how it freaking works, man. But yeah. I don't I don't know. Like, he's on a couple development investments. And I I look at those, and I think those have a lot more potential because there is a huge demand for just, like, new residential construction throughout. And that is where most people wanna go in The United States. Like, are not an apartment multifamily culture. We are a yard and white picket fence culture, so that is what people will always try to shift to when given the opportunity. And so why not invest in that?

Dan Austin: [19:31] So when you say new development, you're talking like housing development as in like bunch of three two ranchers. Well,

Mike DeHaan: [19:37] exactly. Or like the townhome stuff. Like, we invested we invested with Brian Greenaunt, he was on our show a couple weeks ago. Yeah. Both of us invested in that deal. It's townhomes. You know, it is yards, picket fences. People will wanna buy that. It's in a nice area of town, but, like, I wanna say, like, affluent starter home price point. Yep. Those people will always exist. You know? So, like, that action strategy there is very clear as long as it's done correctly, which I believe the operator will do it correctly in that play in that space. So I sure hope

Dan Austin: [20:05] so. That's why. That's why we're

Mike DeHaan: [20:07] gonna see him.

Dan Austin: [20:09] Because we believe in him more than anything.

Mike DeHaan: [20:10] But it's just so interesting just looking at what everyone's getting into. And the one thing I will say though is that I am as the markets turned, and we do know a lot of the newbies indicators that got wrecked in 2022, I am so happy to not see so many whiteboard bros on Instagram ads anymore trying to talk about how they use other people's money to buy apartments and it's so easy and everyone should

Dan Austin: [20:32] do OPM, baby. OPM. That was like

Mike DeHaan: [20:34] the bane of real estate education for so long was all these people.

Dan Austin: [20:39] It was a rough one there for a while. We all went through it. We we saw it. We lived it. We felt it. I'm glad it's over.

Mike DeHaan: [20:45] But anyways, so yeah. I don't know. It's one of view on that. But the residential side, man, I still like it as long as you're doing fine stuff. But honestly, right now, my interest is just on business revenue with right now is the asset valuations kind of get a little bit weird. Cash flow is hard to find amongst properties. Why focus on trying to squeeze cash flow instead you can just focus on generating more business revenue, and that's gonna get you a much larger return anyway.

Dan Austin: [21:10] Yeah, that's a good one, because, so passive income in general, it's hard to turn up and down. Just by its nature, if it's passive, it's not going to be as great typically as active, and it's not going to have as many levers you can pull as an active income, like a business income. You can't market to more buyer or to more tenants in your real estate to get a higher demand, but you sure can market to more clients in your active income business and bring in more revenue. Yeah. Exactly. A house still only rents. Even if you rent it by the room, if it has three bedrooms, you're only gonna rent it three bedrooms to three different people. You can get as creative and house agony as you want, but that passive income and I I would add to this, the more creative you get on your passive real estate investment income, the more active As it we find out with medium term and short term rentals and rent by the room, there just becomes more work and effort. And that's why you get paid more. But there's really kind of this diminishing returns on what you can do to that building or that structure. Where on your business, if you have a good solid business plan, business model, the more money you invest in things like marketing and operational efficiencies, the more money you put in your pocket.

Mike DeHaan: [22:19] Yeah. And, I mean, I would argue that people constantly trying to squeeze out that extra, quote, unquote, passive cash flow, they're still longer passive. That's actually what keeps people stuck in their current situations. I had an Instagram post that

Dan Austin: [22:34] I did not see this. Explain to me.

Mike DeHaan: [22:36] Got quite a lot of traction over the weekend. Okay. And I didn't see it. So I had I had two. I'll talk about the first one first. It's on topic with this. But I had two back to back that are the same. Right? Like, unless you have a super high paying job and a super low, you know, monthly nut, you're never gonna have a capital

Dan Austin: [22:55] Dude, I love that actually. Let me stop you for a second. I love that because that is a point that I've thought about so many times where you hear about people, they're like, yeah,

Mike DeHaan: [23:03] I just That's not how it works.

Dan Austin: [23:04] I just bought a rental property, and then the cash flow from that paid for my next one. I'm like, that's what I thought I was gonna do when I started, and that did not work. Granted, I had extra money from cash flow, but it wasn't enough to buy my next property. The active income I actually produced, which through a job, was what allowed me to buy that next one. And so if you're really just focused on passive income and what the guru says, then your passive income buys more passive income, magnify that way, that quickly anyways.

Mike DeHaan: [23:33] Yeah, it does. And the thing is is that whole philosophy that kinda comes from Brandon Turner back when they talked about the stack, you know, like 2010, 2011. He's like, that's back when you could buy in a lot of markets a $100,000 property that would rent for a thousand dollars a month. You'd have these 1% rule. But a lot of that comes from that whole concept of the stack. Right? I was talking about where you can get super high cash flow immediately by stuff. That is gone. That doesn't exist anymore. Right? When you could just, like, have a traditional passive long term tenant in these properties, and, you know, it just churns out money. Because if you did that, right, and, like, realistically, if you could save up $40 to buy $200,000 properties in each cash flow Yeah. 800 to $1,000 a month. Yeah. You really can use that to buy more properties. Right? I mean, you save $24 a year, so you can use that to buy I

Dan Austin: [24:28] mean, the math still doesn't work out, but whatever. You only make $24 a year off of those two, and you said you needed

Mike DeHaan: [24:34] See, I'm already making it idealistic, and you're shooting it down. So that's how bullshit it is.

Dan Austin: [24:38] But we both also know it doesn't case Yeah. 2020% down is just what the bank wants. It doesn't include your closing costs and all the other costs to do this. Because I've thought about this before, and that's why I can appreciate your post, although I did not see it, like it, or follow it, apparently. It's just because I've thought about that, and I'm like, it actually doesn't work that way.

Mike DeHaan: [24:55] Yeah. And and what people need to do is focus on so this is a I I probably stole this from someone without realizing it. But you focus on making massive income rather than passive income. Yeah.

Dan Austin: [25:05] You totally had to steal that for some that sounds way too good.

Mike DeHaan: [25:07] I have no idea where I stole from it. When I was filming the reel, it just rolled off the tongue. Yeah. But then you can You

Dan Austin: [25:14] can take credit for it though.

Mike DeHaan: [25:15] You can take credit for it. That that might that should be a shirt right there too. Yeah. But you you can you can make you can escape a w two much faster doing that. Right?

Dan Austin: [25:23] Yeah. We'll go listen to it. Massive income,

Mike DeHaan: [25:25] not passive because also too, only does it prison, and not only go allow you to buy more assets and make more cash flow, but like literally, if you can learn how to just like make

Dan Austin: [25:35] You could escape a lot of

Mike DeHaan: [25:36] things $100,000, who who gives a shit about your $80,000 a year job at that point? Yeah. So much easier

Dan Austin: [25:43] to And honestly, I think that the more we get into this, I think the equation to making $500,000 is a lot easier than making it like 150,000 passively. It's significantly easier. I think the equation to how to crack that code. It may not seem that way because people naturally would think, well, if you have to apply effort, and dollars are paid by effort, it would make sense that that would be harder because it's more dollars, but I think it's easier. Mhmm. And let's put it in an analogy of flipping a house. You can go buy a house, you can flip it and make, say, $30,000 inside of twelve weeks. That would be really hard to do on buying that same house, turning it around, and renting it. It'd be pretty challenging to make $30 in twelve weeks.

Mike DeHaan: [26:26] I mean, and holding on to the assets is what gives you long term wealth. But if your goal is to escape your w two, like, that's really your goal, honestly, you should not care about long term wealth right away. You should care about capital generation and learning how to get the skills that allow you to generate that capital. So the other thing too is whether that's in real estate, you know, if that's in real estate, you can take those same skills, and you can go and put into other stuff too. Like learning how to make money. Once you learn, like, basic business skills and, like, kind of, you know, how to market, how to create a product, how to do those sort of things, you can translate that into literally anything that you want. Right.

Dan Austin: [27:00] It's a lot more to chat translated, you're absolutely right.

Mike DeHaan: [27:03] You know? But that's a skill set on its own. And also to you, one time something that I've found personally is when you're kind of in control of your own destiny like that, I'm not as concerned about passive income because I don't freaking hate every day. Like, I'm in control of my own destiny, so it's fine.

Dan Austin: [27:20] Yeah. No. That's that's worth a lot of money right there being in control of your own destiny, what you're saying there.

Mike DeHaan: [27:26] But So that that was that was one of my Instagrams. I'm pretty vague, which I think is just a super big thing anybody consider. But but my my second one, and this one was really funny. People got super inflammatory.

Dan Austin: [27:37] I learned something there. Yeah.

Mike DeHaan: [27:39] So what I said in the on my my other real now Mike underscore Invest, by the way, if you all follow me.

Dan Austin: [27:45] I will follow you. Thank you.

Mike DeHaan: [27:47] Hey. Plug it. But I said that someone that has opportunities with your money, okay, like your real estate investor, you shouldn't buy a car, like a new car. You should lease it because then you have a super low monthly payment. And I basically said like, why would you buy a car for like $30 when you can instead go and buy like a property for a $30,000 down payment and get enough cash flow to cover your lease payment. Right? Mhmm. Oh, dude. Leasing cars is something that people will die on that hill. Oh, dude. And that piss people off? No. But people will die on that hill so hard. I was getting DMs on people that are like, you're a fucking idiot.

Dan Austin: [28:25] And I was like, why? It's such a one percent thing too. It does not matter. It doesn't matter. Because it works out to cost more money when you leave. It's like, yeah, it does. Absolutely. You're But not talking about opportunity cost.

Mike DeHaan: [28:37] No. They're not talking about opportunity cost. Everyone's like, well, why don't you just go and buy like a o four, you know, Honda Civic? That's what I drive. I'm like, because I don't fucking wanna drive an o four Honda Civic. I want a car that has Bluetooth.

Dan Austin: [28:50] Because I don't want to. I can't I dude, I'm resonating. I don't always necessarily agree with you a 100% on this, but I do a 100% agree. I when I bought my truck, I leased that thing. And my logic was a 100%, and I did the math. I was like, oh, this will cost me more long term, but you know what? When I leased it, I didn't have to do. I have to come out of money, pocket out a bunch of money, which was, I think, right at the time I was renovating our property. I had bought and renovated a property, or I was going I just was planning to buy another. I think that's what happened, because I think I bought my other state rental after that. And so the cash in my pocket was more important to me. But I also looked at it from a standpoint of, oh, I get a new vehicle. I don't gonna worry about any of the maintenance. I don't have to worry about tires. I don't have to worry about anything. And for me, like, not even having to think about it, sure, it costs more money because it's a lot easier on me. And so I expect to pay more money. I don't care.

Mike DeHaan: [29:40] So what they'll all say to you, this is what they all said to me, is they're like, well, my maintenance on my car costs a $150 a year. My dad does right now until something breaks on it, and then you gotta go get it fixed, and it will always happen when you're on a freaking road trip.

Dan Austin: [29:52] Yeah. But even then, I'd rather have the peace of mind. Like, I don't really care. Like, if I'm going to have to drive a vehicle, why should it be a vehicle that's easy to worry about? And you and I have admitted, we're like not car guys. Like, I don't wanna have to go work on my car, take my car to the shop, have to worry. I literally do not even like having to go. Like, the idea of buying tires. Like, are people gonna like, oh, you're such an idiot. It's like, no. Like, I've done it before. I know how to maintain vehicles. I grew up working on a car. Like, I get it. I know it, and I don't wanna do it. And my mind and my brain power is applied elsewhere at a lot higher dollar per hour.

Mike DeHaan: [30:26] Exactly. It it is, you know, an insurance and a privilege, I guess, to not have to care about spending an extra few thousand dollars on a car. But I would also tell people that the amount of time that you spend worrying about that, you should just go and get skills to not have to worry about the extra $2,000, $3,000 a year on your car.

Dan Austin: [30:44] Yeah. One, it doesn't actually No. Like, to lease a car, it's not that much money. Like, if you get, like, a reasonable car Yeah. I guess, like, you're talking, like, a few $100 a month. You know what I mean? Like, it's not, like, that bad.

Mike DeHaan: [30:56] Yeah. My brand new Subaru Crosstrek is $300 a month lease payment. Yeah. It's it is a great it's a great

Dan Austin: [31:04] So car, $3.50. So you're saying, yeah. And $3.50 a month with probably a little bit of money to do the down on the lease or maybe zero. I don't know what you did. Like, that's not that much. So if you're talking the difference between

Mike DeHaan: [31:15] It was $2,000 down for

Dan Austin: [31:17] the So $3.50. I don't know that you could get any lower than $3.50.

Mike DeHaan: [31:21] So I I could have gotten lower. So I got, like, the limited one that has, like, the nicer interior and all that sort stuff. I could've gotten another one that would've been like $2.85.

Dan Austin: [31:28] But I mean, you could not buy a car and have a lower No.

Mike DeHaan: [31:31] Prepayment. Literally couldn't.

Dan Austin: [31:32] It would be like double that. Probably double that.

Mike DeHaan: [31:34] And not only that, but then I would if it was a new car, you know, I would have debt that is a liability. Yeah. And not only that, but because they want my car back, because they can now sell these used cars to all these idiots who want these used cars, I say idiots. I mean, it is my responsibility thing to buy a used car. They are willing to waive the rest of my lease to give me a brand new one for the same payment.

Dan Austin: [31:53] Right. Yeah. Because they So There's a high demand for it. You're absolutely right. Yes. And financially, like, you and I, we've said this a 100 times now, like, it's a better decision.

Mike DeHaan: [32:02] Yeah. When you

Dan Austin: [32:03] have other opportunity costs, it's like, who cares?

Mike DeHaan: [32:06] Yeah, you're right. It is a better decision financially if especially if you your w two, your income's fixed, you have all that other sort of stuff. But yeah, if you have other opportunities, definitely leasing makes more sense. And the funny thing is the other thing that everyone always said is, they're like, yeah, as long as you don't, like, exceed your miles that you have in your lease agreement. Yeah. Which is true. And I was like, what do we even pay if I go over? I went and I looked it up. It's like 15¢ a mile for going over.

Dan Austin: [32:32] Over your lease.

Mike DeHaan: [32:33] See, after the over, like, my mileage allowance for my lease. Yeah. But that's such a that's such an

Dan Austin: [32:37] excuse because people have told me that before.

Mike DeHaan: [32:39] It's nothing, dude. It's a $150 for every thousand miles.

Dan Austin: [32:43] No. I know. But it's like an an excuse. Right? But like

Mike DeHaan: [32:45] Yeah.

Dan Austin: [32:46] My lease agreement was 12,000 miles a year.

Mike DeHaan: [32:49] Yeah, that's a lot.

Dan Austin: [32:49] I drive 6,000 miles a year, personally.

Mike DeHaan: [32:52] Yeah, I

Dan Austin: [32:53] don't even get close. I guess if you had a commute for your job, or you did Uber or something like that, maybe you'd be concerned about it.

Mike DeHaan: [32:59] Yeah. You're driving from Spokane to Coeur D'Alene twice a day.

Dan Austin: [33:02] Like I said, it's a 1% thing. Honestly, in the grand scheme of financial freedom stuff, you should do what's easier for you to grow and grow your wealth. Yeah. And money in my pocket's always been way more important to me. Absolutely. Like, cash cash now. Because I can invest that cash now as opposed to paying cash for anything that I could get leverage on of some sort. And the cool thing about cars is you don't have to get leverage because you can lease it.

Mike DeHaan: [33:27] Mhmm. Yeah. I mean, you still get all the same functionality and customize it. You can do everything you want with it. You just gotta keep it in decent enough shape that when you trade it back in, that they can resell it. But anyway, so I got a lot of people that were fired up about that.

Dan Austin: [33:39] Yeah. You got me fired up.

Mike DeHaan: [33:42] Yeah. That was probably one of my my best, like, responses of people like, posts I've ever had on Instagram or something where people were just, like, angry. Like, I have I've never had one like that before.

Dan Austin: [33:54] That's good. We should just write down a list of life choices that have very opposing viewpoints, and you'll probably have a huge engagement boost.

Mike DeHaan: [34:06] Yeah. Then do what Fox News says. Just find the most inflammatory thing and make it even more inflammatory and just post it. Exactly. And like that's and then you profit.

Dan Austin: [34:15] Right? That's that's it. It's called being a media mogul, Mike. Have you not seen what all these people are doing?

Mike DeHaan: [34:21] God, it's the worst. Don't get me started. Anyways, so, yeah, real estate wise, and we're gonna wrap up time here whilst we're almost there, Isn't feeling good. I had several of our closings get weird with some closing issues with one of our partners. You know, it's always just funny to me when you get going with some of these situations of like, stuff that you think should be obvious, just like isn't. Yeah. You know? About like, oh, we'd normally talk to the escrow company? Well, we need to correct that internal process a little bit.

Dan Austin: [34:47] So many things in real estate and in business could be solved with a conversation and are very communication based. Uh-huh. Closing the transaction on a property, because you're involving so many parties, is all about communication. And if I could give you a tip to any investor out there to try to avoid as many of these whoopsies as you can, Pick up the phone and call your title company, call your title agent, and just let them know, hey, you have a contract inbound from me. This is the situation. This is how it's going to work out. And then talk to your end buyer, talk to your seller, whoever that is, and just say, just so you know, this is how the process works, because you'll be surprised, just that little step. Most people don't get it or understand it, but also when you're sending these things to people, you're asking them to do work, and although you are paying them, like Title and Esk, you are paying them, so they should wanna do their job, that soft touch right there is enough to be like, oh, I'll go the extra step because Dan picked up the phone and called me. He didn't just send me an email telling me to do something. That's just how humans work.

Mike DeHaan: [35:49] Well, it's just going back, I mean, all the way back to the beginning, we were talking about the employment thing. The people that reach out, they instantly stand out. Yeah. Right? So if you send in your title documents, you know, you send in your purchase and sale needing to get title and escrow opened, If you give them that little call, you'll immediately be like, oh, yeah. We know these people. We know the situation. They are going to prioritize. Mhmm. It is a natural human instinct because they now have an extra connection outside of just an email that randomly popped into their inbox one day. Yep. It takes less than five minutes, and it makes such a huge difference. Yep. But real estate, especially, I don't know why people are so bad at that. When it's literally whole job is communication, but people just don't communicate. And it's just so frustrating. I don't know why.

Dan Austin: [36:33] And and recognize, like, you can't here's another thing people and and this is as we're learning as we work with partners and stuff that may not have the same experience. You can't just, like, say, oh, the closing date is this day, and then expect to show up that day and close, especially if you're getting a loan or hard money, or any type of financing that's not going to be written from your bank. If you're not going to get a cashier's check, they're going to have to organize and have all those documents ready for you to sign. That's the whole point of having a notarized title agent or escrow agent as well, is most of those documents need that notary, and they need to organize that. They need to understand those documents before, because all of these people give a random different docs, and they have to understand what those look like and what they mean, so that they can actually get you to sign in the right spot and then close on time. Mhmm. Because, again, all these documents look different from whoever the hell are bringing them. And so, actually, sharing what you're planning to do as soon as possible with them, they can get organized, and they can jump on and help you out. Unless they're just a shitty title company, which that does happen sometimes.

Mike DeHaan: [37:36] Yeah. Have you ever been to a closing where it's very obvious that the person did not look at all the documents beforehand? Oh, dude. Yeah. It's the most uncomfortable thing because they get all frazzled, and then you're sitting there sweating, and you're like, well, shit. Am I doing this right?

Dan Austin: [37:49] Right. You're like, Yeah. I have no Exactly. Totally. Yeah. I've been there. And I've been there with like, where the title agent that I respect, they're like, honestly, don't look at these, so I hope you know where to sign. It's like, yeah, we're good. Like, when it's like a private lender type doc, you know what I mean? Which usually we help our private lenders prep those docs anyways, so we know what's going on. But, yeah, it's it's just like that little thing you gotta remember. I mean, their job is to get everything in order and get you to sign in to close on a certain time and record on a certain time because all the contracts say that. Uh-huh. But if you aren't doing your job by participating within that through communication, they don't know, and you can't expect them to know or take action for you at the last minute. Yeah. It takes work.

Mike DeHaan: [38:27] It's effort. And it's especially if you're, like, selling documents and things like that, selling properties, which always, like, extra documents that vary a lot. So, like Yeah. When I sold all my my Minnesota properties, I booked a notary down at our local bank here to go and sign all the documents that he's notarized. So booked it, sent everything to him. Three days later, went down there to get everything signed. And the guy's like, yep. So here you go. And basically just like handed me the documents. And I was like, okay. Where do I go with this? What do I do? Yeah. And I was like, okay. So I just started training through it, and I was like, what is this form? I actually don't know what I'm supposed

Dan Austin: [39:01] to fill out on this. And he's like, I've never seen one like this before. Mind you, this guy is doing this for free, of charge, and Mike expected him to review They're a 100 page

Mike DeHaan: [39:11] not free. They're holding literally hundreds of thousands of They're

Dan Austin: [39:14] making some money. Right. They make a lot

Mike DeHaan: [39:16] of money off us every single month from our deposits as well as our debt.

Dan Austin: [39:20] Oh, man. Know how that happens because I have to go down there quite often to do documents for our business, get notarized, and so I know what to expect when I go there because I just show up because everybody there is a notary, and I'm like, hey. Can you sign this? Like, where do you they're like, okay. I think you signed here. I'm like, yeah. I think so too.

Mike DeHaan: [39:34] So that's normally what I do, but this was a substantial set of documents. Yeah. So I went through the proper process. I booked it. I sent them all the stuff. I did what they were supposed to do and didn't make a difference. They were still just like So, yeah, I didn't read this shit. Yeah. I I have no idea. So, anyways but, yeah, that's been our that's been our big lesson of the week is over communicate. Yeah. If you're worried about being that pain in the ass communicator

Dan Austin: [39:57] Just do it.

Mike DeHaan: [39:57] That means that you're doing it enough because when all of a sudden you have a bunch of stuff that goes sideways and gets delayed, that sucks. And it's never very fun for anybody. It's true. Cool. Alright. Well, that's our time. Cool, guys. Well, thanks for listening. If you want to prove me wrong on commercial and multifamily real estate, please shoot me a DM because like that is something I'm itching to understand better, and I just don't get it. I don't know what people are planning, what people are trying to do. I still think people are lying to themselves and pretend like it's 2021, 2001. I don't even know what the hell was happening back then. 2021. So shoot me a a DM at Mike underscore Invest. And if you can prove me wrong, bring on the show and you can tell all of the listeners on the air why Mike and Dan are idiots and you really should look at those assets. But I'll still just screw it probably. Anyways, go check that out. And you should go to collectinghuespodcast.com/free. Get a free five step guide, start generating off market leads. So you can start getting your own opportunities to make real money and make massive income and not passive income and lean into that. I I definitely define where I stole that from.

Dan Austin: [41:00] A quick Google search will probably. Yeah probably chat JBT. What I'm gonna

Mike DeHaan: [41:04] do is I'm just gonna I'm gonna quote that and just attribute it to like Abraham Lincoln or somebody else. You know, that's that's what people do in these days. But anyways, guys, thanks for listening. I'll talk to y'all next week. See you