Why You Should Balance Cash Flow and Equity in Real Estate Investing

Mike DeHaan: [0:02] On Air Brands.

Speaker 2: [0:07] Welcome to the collecting keys real estate investing podcast with your host, Mike DeHaan and Dan Austin. From wins, losses, horror stories, and tactics for optimizing your business, Mike and Dan take a real uncensored deep dive into the ins and outs of running a full time real estate investment and wholesaling business.

Mike DeHaan: [0:30] Welcome to episode 26 of the collecting keys real estate investing podcast. 26. Oh. 20 yeah. This this business is, like, always so up and down. I I was chatting with with Judd today, and, you know, we're talking about some stuff. And I was like, is this what you signed up for when you decided you wanna work for a real estate investing company? You know? Because all all everybody ever sees are, you know, the checks, the wins, you know, people doing well when they follow, like, the Instagram bubble or they listen to a lot of these podcasts, like, you know, BiggerPockets or whatever. Like, any guest that's on Bigger Pockets, all they do is talk about the fat stacks that they are making.

Dan Austin: [1:13] Oh, they're so good.

Mike DeHaan: [1:14] The I mean, I'm I'm still waiting for those days, man. When when are we gonna start getting those easy wins?

Dan Austin: [1:20] Gosh. Are they are they lying? Is there, like, a majority of people lying?

Mike DeHaan: [1:24] Well, I I think they're embellishing. I mean, I I'm very guilty of embellishing sometimes myself. But, you know, with some of the things that people talk about, I think you are correct. There are straight up lies. And I was I was actually thinking about this the other day, thinking back to when I used to listen to bigger pockets and, you know, sort of, like, hits podcasts a lot when there's, like, always just these people that were winning. And so many of those people, I wonder where they are now. Like Right. Yeah. Like, there's there's a few that stuck around, you know, then that I've I a lot of them I followed on socials pretty much as soon as they were on that. And out of those, I would say 90% of them have disappeared. So I'm sure of it. Yeah. We're we're

Dan Austin: [2:07] in the long game. Yeah. It's it's hard to stick around in the long in the long term, man.

Mike DeHaan: [2:11] It really

Dan Austin: [2:12] is. Like, holy smokes.

Mike DeHaan: [2:13] Yeah. It's brutal. I've been thinking

Dan Austin: [2:15] about categorize our weekend? Like Well because it kind of felt like a a very friction y. Like, there's a lot of friction.

Mike DeHaan: [2:22] Yeah. I mean, so I went over the weekend going over all of our metrics, and I was like, damn. We're, like, crushing it right now. And then, honestly, yesterday, we just had so much shit that came around and just completely took the steam out of my sails. And I was like, this is the balance right here, you know, for the weekend that I have where I was, like, feeling pretty much on top of the world. So because we had this oil thing still with our Airbnb that's just turned into a freaking nightmare.

Dan Austin: [2:52] Yeah. The insurance claim is man, I was firing off some nasty emails. I was getting nasty. They

Mike DeHaan: [2:58] they were cordial. They were cordial. I have be fair. That that response that lady had was super bitchy.

Dan Austin: [3:03] Like Wait. Which oh, yeah. The yeah. Yeah. Like, the office assistant. Yeah. And then the funny thing is, see, I'm tack I'm tactful here, tactically.

Mike DeHaan: [3:11] Oh, yeah.

Dan Austin: [3:12] What the guy said, their previous response was, nope. Oil smells gone. And then he said, no. I get it. There's still oil there because of this reason. I was like, boom. Gotcha. Yeah. So I I logged that note. You know? It's just like, find details of these insurance companies, man.

Mike DeHaan: [3:27] Yeah. Well, and then little things too. So, you know, that company that we worked with, when I talked to our agent, she was like, oh, yeah. We we have a policy that we never ever refer them because they're just so terrible. So and she was like, you're lucky you didn't get the Valley branch. They're even worse.

Dan Austin: [3:44] That's who we got, I think.

Mike DeHaan: [3:46] I know. Yeah. That's with the value one, maybe it is. Yeah. I don't know.

Dan Austin: [3:51] But I don't know because they tried to get one, and, our our adjuster said that one wasn't available, and so they had to go with the worst option. Oh, god. Which we found out why. I just basically told him. I was like, I'm not paying you until it's done, and then we can talk about it. And so I'll the insurance adjuster, I think, is also going to hopefully, if she actually responds, she's ghosted us. I mean, she's gone. She disappeared Yeah. Which is really weird. That should go to that

Mike DeHaan: [4:16] agent too. It's not just us. Yeah. She she knows she screwed up. And, you know, she's just basically gonna run from her problem now. But either way Well,

Dan Austin: [4:24] the one thing I know about me is I have more time and money when it comes to, what what is the right term? Is it being vindictive or being spiteful? Like, I will I will lose money to be spiteful on some of these things just to make things correct.

Mike DeHaan: [4:38] Yeah. Yeah. I mean, fair.

Dan Austin: [4:40] To say? Is that is that bad to say? But, you know, sometimes, like, when you know you were done wrong and, like, we you and I talked about, like, we did everything right. Like, were following the steps, doing everything, doing the process, being super engaged in it, and then it still didn't work. And it's like, yeah, you failed. Just admit it. You failed, and then I would be happy.

Mike DeHaan: [4:58] Yeah. Well and that's the thing too is it's just neglect from an individual, like, not doing their job correctly. You know? And, like, a bunch of individuals, honestly. Yeah. You know? Yeah. I mean and it's not being spiteful. I mean, I'm kind of the same way. It's like so the other you know, one one of the other things we're dealing with right now is we have this property that we bought. I don't know if we already talked about this one with the owner occupant who we rented it back to, who Oh, fully yeah. Capable of paying rent. And they announced at the beginning of March, they were not going to pay rent anymore. They just decided that they don't need to do that. And I was like, okay. Fine. So we posted an eviction notice. We posted a 14 way note notice to pay or vacate as is required in the state. We sent in all of our stuff to the mediation center as required of the state. As soon as she got the notice, texted me. She was like, you don't need to get an eviction lawyer involved. So, like, it's not that bad. And I was like, well, you're gonna pay rent then? And she said no. So I was like, fine. So, you know, I filed everything because I'm moving forward. Yeah. You have to. You have to. Have to.

Mike DeHaan: [5:56] Right?

Dan Austin: [5:57] Caution keys, dot your eyes.

Mike DeHaan: [5:58] Yeah. I mean, she's like, I'm gonna move out in the middle of April. I'm like, I don't care. You still owe me, like, $3 rent for this for these two units at this property. And then sure enough, the day and this is where just people being vindictive. Right? People being malicious with their intents. She literally waited until the last day and then complied with the mediation center and set up this, like, bullshit meeting where you have to go and talk

Dan Austin: [6:21] to her

Mike DeHaan: [6:21] and be like, why didn't you pay rent? And she's gonna be like, oh, well, I'm leaving next week anyway, so screw you. And what that's gonna come down to is I guarantee you, she will move out. It will be easy. And then we're gonna sue her ass for the rent that she didn't pay even though it will cost us more to do so. And I'm gonna do it purely because of the malicious nature of what she's done.

Dan Austin: [6:46] Yeah. She was unethical.

Mike DeHaan: [6:48] Smart, so unethical with so much stuff. You know? And just the malicious nature of it. I'm exactly in the same position as you're talking about with the oil spill. I'm like, I wanna get after it, and I don't care if it cost me $10 to collect, like, you know, $3,500 because she'll have a nice red stamp on her record.

Dan Austin: [7:05] Yeah. And Yes.

Mike DeHaan: [7:06] You know, that'll I'll have that in my back pocket that at least I have some sort of justice for the incredible headache that she's caused.

Dan Austin: [7:13] I would say for our listeners out there, Mike and I are generally nice guys, and that's probably not this is what we're explaining is probably not best business practices. But at some point in time, you just have to stand up for your principles, and you gotta do some things.

Mike DeHaan: [7:27] I wouldn't say they're not necessarily best business practices, maybe not the best, like, financial decisions Yeah. When you're when you're doing this stuff. But, I mean, I don't know. With business, you gotta defend your business. You gotta do what's right by that at some point.

Dan Austin: [7:40] I would say for this one situation, we've, what, given people 10 I don't know, probably 20 or 30 different people. We've been like, we don't care. Just move out. We don't even try to collect rent. Right? Because they're, you know, generally honest with their intentions. If they wanna, like if they're like, hey. I'm gonna screw you, and they're honest about it, like, that's a totally different story.

Mike DeHaan: [8:00] Yeah. Exactly. Well and and there's so many things with this that have just made it not like that. I mean, a, the second that we closed on the property, she submitted a maintenance request to fix the sink.

Dan Austin: [8:12] I know. And we're

Mike DeHaan: [8:12] like, okay. We're not gonna do that. And then immediately after that Well, and that's

Dan Austin: [8:16] when we also thought she was gonna be moving out in, like, two or three weeks because she said she was. Right? Exactly. She just needed a little bit of time to get her stuff out.

Mike DeHaan: [8:23] Yeah. Yeah. So that that was the thing is it was yeah. She requested us to fix the sink, and then she was immediately like, oh, I'm not gonna move out until middle of April now. I'm like, okay. That was not what we agreed on. We bought it in January. And then right after that, she announced that she's not gonna pay rent anymore. And I guess this is after she ghosted our, employee Judd, who has been trying to communicate with him just because she decided that she didn't like him. So we had no idea what was going on for, like, a month. You know? And then she says this super passive aggressive stuff and anyway. Mhmm. People issues. This is this is this whole business is a people business or anything else. And and anyone that thinks that it's not is probably not making moves, or they're not, like, you know, creating opportunity. They're waiting for opportunities to come to them, I guarantee they're not doing that much business. But only people business.

Dan Austin: [9:15] And we still have another people problem on our flip that we're trying to sell. I saw you your post today on Instagram I know, man. About don't what it I don't even know what you said, but, basically, don't count your chickens until the eggs have hatched. And we always say that. We know that. But, man, this one was, like, done deal. Sealed. And now we're stepping back and hopefully gonna work through it, but we'll see.

Mike DeHaan: [9:36] Yeah. Well, I mean, this whole situation, this was really took out yesterday because, you know, we knew that there was a kind of a potential issue here. It seemed like it was fine.

Dan Austin: [9:45] Engine's just and condo insurance issue. We're flipping a condo. Right? Yeah. And the condo has to have insurance for the building because there's attached units.

Mike DeHaan: [9:54] Mhmm.

Dan Austin: [9:55] But the condo association doesn't have sufficient insurance to get lenders. So people can't sell their condo, or they said there was somebody that tried to refinance last year, they're like, oh, sorry. You can't. Mhmm. Because the insurance wasn't sufficient.

Mike DeHaan: [10:08] Yeah. And so, basically, what happens is everyone that owns a property in here, which is now us included, is stuck with these properties because no new buyer's lender will ever put a loan on it if they can't get sufficient insurance. Yep. So, basically We have

Dan Austin: [10:23] to play the people game. Right? Now have to get the HOA president, the HOA. Yeah.

Mike DeHaan: [10:28] Mhmm. You have to play the people game, and and it's gonna go two ways. Basically, the HOA president is going to comply and work with us, get it changed. But if she doesn't, man, we're gonna pull a straight mutiny on this thing. We're gonna have to get the rest of the community involved and, like, overthrow the whole thing, honestly.

Dan Austin: [10:46] Heck yeah. Let's select get a torch too.

Mike DeHaan: [10:48] Yeah. Torch. Seriously.

Dan Austin: [10:50] That's It's like an HOA. The thing is it's like an HOA of, like, what? I don't know. Ten, twelve people. Ten, twelve homeowners. So, like, it won't be too hard to rally the troops.

Mike DeHaan: [10:58] Yeah. Yeah. I know. Exactly. Yeah. I was I was, yeah, I was telling my, my parents about this one actually, and I was like, yeah, we're gonna, like, have a have a mutiny on this. My mom's like, isn't that what pirates do? And I'm like, yeah. I'm a freaking pirate. Like

Dan Austin: [11:10] Well, she knew what this condo looked like before. It was, yeah, it was kind of like a pirate ship, dude. It was rough.

Mike DeHaan: [11:15] Pretty much. Yeah. Oh, yeah. You know, it's just nonstop. That that just sucks because we're making business decisions, you expecting, like, a $100,000 come back between our profit and then just, like, our cost into this thing. And now it's like, well, that's a bunch of deals that we are gonna probably have to pass on because we're not gonna have the liquidity to do it. You know? Well, I mean,

Dan Austin: [11:38] we won't pass on deals. Right? I mean Yeah. Potentially, it could put us in a bind.

Mike DeHaan: [11:43] But I mean, it's gonna influence our decision, though, when all of a sudden we don't have that that much cash. Because, like because because realistically, what it's gonna take for us to keep you know, to buy other stuff mean, I you know, we we have our bases still. We have the opportunity to buy things. But something big comes along, you're gonna either have to raise the money, which is fine, or we're gonna have to make another capital injection to the business Right. Which we don't necessarily wanna do. Right? If we don't need to, it just throws off the the equity basis and creates

Dan Austin: [12:09] a fun situation for you. Off the we've been we haven't needed to do equity injections for a while, so we're like, the business is self sustaining, but then you kinda run into these roadblocks where we have deployed a lot of capital, not just on this one project, but we have quite a quite a few. Right? And we just Mhmm. Close it on one Thursday. And so to your point, like, if we as opportunities come in, we don't ever like to give up on them because we don't have the money, which means we gotta inject cash or, like you said, raise money Mhmm. Because we will deplete all of our business funds to do this that we should be recycling and coming in if it's all on a timely manner. But that's also the thing about flipping when you're running a flipping business as you're trying to scale, which is why scaling a flipping business is so hard is because it is capital intensive. Yeah. You know, I don't know about the no money down stuff people always talk about because you and I have never found that true deal where you didn't need capital at all. Right? I mean, unless you have, like, a private lender, which we've done where we've done those deals, but there's still some costs associated with it. But when you're trying to flip multiple properties at the same time, you've got down payments, you've got closing costs, you've got carry costs, You have rehab costs. It just adds up. And if you wanna do two, three, four, five, and you have seventy, eighty, a 100,000 deployed to five properties is a $500,000.

Dan Austin: [13:19] Mhmm. Right? How many people have a $500,000 starting out as a as a flipper? Not a whole lot.

Mike DeHaan: [13:27] Yeah. And and even if you do find, you know, the one your rich friend or your uncle or whatever that's gonna give you that money, you know, realize you're still indebted to that person. Like, honestly, I I don't always like being in the situations where we have those loans out from friends, things like that, because I worry about that money. Yeah. You know, especially with the the the market getting kind of frothy like it is. Mhmm.

Dan Austin: [13:49] You know,

Mike DeHaan: [13:49] it could get a little funny here, like, pretty quickly. You know, I I've heard stories about people back in 2008, and they're like, yeah. You bought a property at, like, the first of the month, and all of a sudden, the end the month, those were 30% less than what you bought it for. You

Dan Austin: [14:01] know? Yeah. I think twice about deploying my capital, but I think three, four, five, six times when I'm deploying other people's capital.

Mike DeHaan: [14:09] Always. Yeah. Absolutely. You know? And I think that that's where using other people's money gets kind of unethical and a little bit little bit questionable because, you know, a lot of people don't seem to think that way. You know, they think and and especially in, the syndication side of it, you see a lot of people being like, oh, well, you know, they know the risk that they're taking and all that sort of stuff. It's like, but do they, though? Do they really? Know, You are you just telling you that that that make yourself feel better when things do get shitty?

Dan Austin: [14:37] Yeah. Yeah. They do know the risks, but depending on how you're syndicating money, they'll still sue your ass. And if it's friends and family, they're really your relationship's gonna be potentially fractured. Mhmm. Unless you have a benefactor that's like, ah, yeah. If you lose it, that's okay. I don't know anybody like that, though.

Mike DeHaan: [14:53] I don't either.

Dan Austin: [14:54] Yeah. No way. You know? And Typically, a lot of that, when you're raising private money in real estate, especially a lot of the syndications you and I have looked at, like, the returns aren't good enough. It's not like you're investing in in, like, an early round, like, startup. Right? Where you're like, dude, I could a 100 x this money. It's like, you know, you're looking at a 20%, you know, a you know, IRR or something like that. Like, that's not, like, worth risking part of your life savings for. Mhmm. And nobody's really lost the last, I don't know, four or five years, so it seems easy.

Mike DeHaan: [15:29] Yeah. Yeah. It it for sure. And I think that's where people get, it gets questionable as to where we're in that zone where I mean, honestly, if you've been doing business for the past couple years, unless you've really, really screwed up, you can't lose. You know? Yep. I mean, it it's getting a little bit tighter now on stuff, but for the most part, nobody has been losing these past few years. But and, also, too, one of the biggest things with, people using all these private money, and this is what really starts to get me with a lot of these people with the vanity metrics of, you know, I own a thousand doors or whatever like that Yeah. Is, you know, use private money. You buy these thousand doors at near retail value. And, sure, you're an owner on paper, but you're not actually worth anything because Yeah. All of the equity belong to those people. And that's gonna be my transition into what I wanna talk about the second part of the show, which is gonna be cash flow versus equity and Oh. Kind of the the positives and negatives of each one and sort of, like, how and when you should prioritize each one. Yeah. We'll talk about that in just a second, but really quick, wanted to say some stuff about our instant investor program.

Speaker 4: [16:37] Hey, guys. I wanted to take a second to talk to

Mike DeHaan: [16:39] you about our

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Mike DeHaan: [17:41] I have been able to do.

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Mike DeHaan: [18:02] Alright, Dan. Cash flow versus equity. This is one of the things that I feel like is super contentious for

Dan Austin: [18:11] It's an argument as old as the ages.

Mike DeHaan: [18:14] Pretty much. I am in the real estate investing space, and I think that the biggest divide in this comes between people that, I would say, have some semblance of financial freedom and those that don't. Because how much you value each of these different metrics in real estate really sort of varies depending on your current, you know, income position and your current goals. Mhmm. You know? Because, typically, people that are getting started, trying to escape their nine to five, like their only income's coming from their w two, cash flow is like the sexiest thing you can think of. Right? Yeah. I mean, I remember back when I started, I was like, man, what would I do if I made an extra $500 a month for a rental property? Like, that's so much money. You know? And after a while, your cash flow starts to build. It's still obviously important, but, you know, you start to realize very quickly if you have a lot of you know, the the real gains come from the equity buildup that can come from, a, purchasing the property at a discount Mhmm. And then, b, the appreciation that happens over time. And once you get that that equity built up, you're able to refinance and use that, that gain that you have on paper by doing, like, you know, doing a cash out or something like that.

Mike DeHaan: [19:37] That's where real wealth and value comes from. And all of a sudden

Dan Austin: [19:41] Yep.

Mike DeHaan: [19:42] You can pull out a 100,000, 200,000, $500,000 from properties that you've accumulated over the years in exchange for a few thousand dollars worth of cash flow, that becomes a no brainer.

Dan Austin: [19:53] Well, and I think the big thing that gets missed in the in the argument is to, like, that's tax free income. Like, so when I'm looking at my income this year, I did a decent sized cash out refinance on some of my properties. That's tax free income. Right? I'm adding that to my income stream this year. I know a of people are like, well, why would you do that? You're taking on debt. It's like, yeah. But I just got all that money this year, and in five years, I might do it again. Mhmm. You know? Which is a shift. A mind mindset shift from when I started was, well, if I pay down if I buy a property every year for ten years, I pay them down, you know, that argument and then the snowball, And then you, you know, just have your taxes and insurance and maintenance and all that sort of stuff, but your the majority of that cash flow is not going to you. That is, like, where I started, but then you realize, like, how inefficient that can be. Mhmm. You know? And if you're just looking to replace income, then, yeah, you're always hunting for cash flow, but you probably haven't been able to find a lot of it lately. So it becomes super challenging. So what do you do with all that equity you have?

Mike DeHaan: [20:51] Yeah. Exactly. And I I think that the question as well comes down to what are your, you know, not only immediate, but long term goals. Right? Because, you know, even if you are you're happy with your w two, you know, you you are not really interested in doing real estate for more than just, like, a passive business, you still need a fine mix of both because tell you what, like, a lot of people talk about these, you know, properties in the Midwest, which I assume you can still buy. I don't know the way everything's going. I don't know if you can. They're like, oh, it's, like, $40,000 for this property, and, you know, it rents for $1,200 a month. The cash flow is just insane. You can go buy a bunch of those. You're making so much cash every single month. It's like, yeah. You're true. But when that property grows 10% or 20%, that's, like, 4,000 or $8,000. When my $500,000 property over here, you know, that cash flow is $300 a month, grows 20%, that's $200. You

Dan Austin: [21:46] know? That's fat. That's fat stats. Right? Yeah. You you would argue you Right. And I would argue too, like, that you mentioned if you have your w two, you need a balance. Like, if you have a w two, I'd almost go a little more aggressive, especially if you're, like, it's a really good secure w two and you're happy with that income. Like, who gives a shit about the cash flow?

Mike DeHaan: [22:05] Mhmm.

Dan Austin: [22:06] Right? As long as you're buying good quality properties that have appreciation Mhmm. Like, that's awesome because, yeah, you pick up 10 properties in ten years and they all, you know, break even or have some security buffer, right, after set asides and all that. Man, in ten years, that wealth you built is way more significant than worrying about, well, I need cash flow because I'm trying to replace my w two income.

Mike DeHaan: [22:26] Yeah. Well, and I I think that brings up such a valuable point that, you know, regardless of what your goals are, you have to be looking at real estate, you know, as an investment for the long term. You know, if you're looking to flip a property, you're looking to wholesale that stay firm, that's not an investment. That's a business. So when you're looking to do this as an investment, you have to be thinking, you know, seven, ten, thirty year horizon on these. Mhmm. And, like, trust me. If you're buying a cheap property that's not gonna have that long term value, you know, it needs a lot of work. It's in a terrible area. Just so you can make, you know, like, a thousand dollars a month instead of 300 on that a class property or, you know, even 100 off that a class property, I guarantee you your net gains will be terrible in comparison on that cheap property versus that good property. I'm sure the immediate checks coming in, so you make $12,000 a year off of it, but the a class property, you know, grows, I don't know, let's say, $100,000 over the next twenty years. Like, it might come out to be quite the same. Right? Think 12,000 times 20, you know, would be about $200,000. The appreciation of other one will be the same.

Mike DeHaan: [23:30] But the CapEx, I guarantee you on that a class property are going to be a lot less. You're gonna have a

Dan Austin: [23:36] lot less today.

Mike DeHaan: [23:38] Less. You know? And and once you're done with it, you'll probably have a better chance of getting rid of it too.

Dan Austin: [23:42] Yep. You know? Agreed. Yeah. I mean, you might have to buy some lower class properties when you're starting out because that's, like, in your zone of confidence. But, like, getting into those nicer areas and, like, you and I have always kind of gone along the lines of, like, hey. If it's a nice property today and people want it today, they're gonna want it when the market shifts and it goes down. You know? They're gonna continue to want it. We're still gonna be in demand, and those properties typically weather storms and come out at the other side way better as opposed to a dilapidated neighborhood where you might have, like, a nice house that you renovated, but the neighborhood itself doesn't have the income socially from the community or from the county, the city, or whoever is running that. And it's they're letting it dilapidate, including infrastructure so that neighborhood's not going to continue to be maintained like an a class where it's gonna grow and come out of recession even stronger. Yeah.

Mike DeHaan: [24:29] Yeah. For sure. I I guess my metric for for looking at that is, a baseline if we're trying to figure out what the different neighborhoods are. You know? Mean, I everyone knows, like, the good neighborhoods and the bad neighborhoods, but sometimes you're in kind of the gray ones, and you're like, oh, I didn't know this part of my town existed. You know? Like, was this a good area? I don't know. Especially when you're Yeah. First starting out and you're just learning everywhere. My my metric has always been, would I have lived here in college? You know? As like as like a 19, 20 year old college kid, you know, you don't really need much. Like, would I have been willing to live here? And if the answer is yes, then I figure there's probably a lot of other people that would too. Absolutely. Because back then, I did not need a lot to be happy. And, you know, I have but I was also you know, I grew up in a small town. I went to a private university. I was pretty, you know Sheltered. Yeah. Sheltered. Right? I wasn't I wasn't gonna be comfortable anywhere where there was even the slightest chance I was gonna get stabbed. So for me, that was always my metric, and, you know, that sort of something that I've I've stood by.

Mike DeHaan: [25:31] It served me well so far.

Dan Austin: [25:33] Yeah. But absolutely.

Mike DeHaan: [25:34] Yeah. So and I I also think though with those you know, that that long term vision like that, it's it's one of the reasons people tend to get stuck on one way or the other is well, I saw people sort of tend to get themselves into troubles, they focus on one or the other, and they completely just miss out on both sides of it. So we also know a lot of people who are I mean, we've met people like this who are strictly equity people to the point that they'll only buy extreme a class properties where they're now cash flow negative because they're going for the long term. And that's where you're starting to get a little bit dangerous on the other end of the spectrum.

Dan Austin: [26:10] Yeah. I would say to do that, and and we've kinda ran into a few different people, but the folks that I would have confidence in that are doing that typically have a different income stream. Right? So this isn't gonna kill them. Right? They're they're taking they're taking some risks. They could go into other assets, and they probably are invested in other assets that are either lower or higher risk, and they're going to deploy their capital because they need to do it in a smart way. And and for you, it's like you have a high income, a high another revenue coming in from a business that you own. Like, you wanna park some money, and you want it to be in a nicer area that's going to appreciate because it's gonna be less of a headache for you. You know? Like, you and I know, like, landlording on a large scale is pretty taxing. It's a lot to do. And it's like, at some point, you graduate from then. You're like, no. I don't do that anymore.

Mike DeHaan: [26:54] Mhmm.

Dan Austin: [26:55] And the risk of the appreciation gain, because you have the ability to deploy your capital, like, is reduced. Right? So if you can deploy your capital for five and ten years and that's your game, that's your horizon, you're always gonna win in real estate.

Mike DeHaan: [27:06] Mhmm. Yeah. Yeah. That's very true. I mean and and at the end of the day, though, the most important thing that matters is you make your money when you buy regardless of cash equity. If you if you're buying poorly, you're buying too high, you're throwing away so much of potential in that deal right away. Right. And that's the biggest thing that you're concerned about with everyone that's, know, buying things now. And, I mean, I was saying the last thing last summer, and the properties have still gone up 20% since then. But, you know Mhmm. As things start to get outrageous and it points you know, approaches that frenzy mode, you know, what they've always said is once your hairdresser and cab drivers start talking about something, it's probably nearing the bubble level. Tell you what, hairdresser hairdressers and taxi drivers have been quitting their job to go and be realtors for, like, the last, like, three years. It's getting real hairy. Know, You I I know so many people that have given up, you know, full on careers that they've had for ten years to go and be a realtor now.

Dan Austin: [28:01] You know? It's a hard it's a hard game to be a realtor right now. Sorry. Yeah. Who for all you people that quit your jobs to be realtors. It's tough out there.

Mike DeHaan: [28:09] Yeah. And, I mean, just point being with that, just be cautious and make sure that, you know, whether you're buying for for cash flow and for equity, make sure you're buying for something that you can see now and not something that you hope happens

Dan Austin: [28:22] in the future. Absolutely. I don't speculate. I don't like that. You don't speculate. And I would say, like, you you know, maybe just speak specifically about our portfolio. Like, we've been able to buy solid cash flow and also appreciation. We're we're kind of a secondary market in a coastal market, so that's good. I never used to think that. Like, oh, I always used to think, these coastal markets, they're just crazy. You know, San Francisco, all these sorts of things. Guys are getting things for, you know, zero cash flow, but then they make $500,000 over two years. But we're kind of we're slightly into that category as a coastal market compared to some of the other markets we're actually investing in now. And so, looking at what we've done, you know, I think last time I checked, our average per door was pretty solid, more cash flow than we would have thought or that we were actually shooting for. But then we also got a ton of equity on all these plays. Mhmm. And so that's huge. And I think that goes back to what you said is, like, buying right. And and you talk about all these, you know, gurus and talking figures, whoever it is. Like, if you're talking to someone that's in real estate, they're gonna keep telling you to buy, and then you're gonna have all these other opposing arguments of, like, why should you not buy right now?

Mike DeHaan: [29:31] Mhmm.

Dan Austin: [29:32] You know, I I play along the lines just like I do in the in the equity stock market, like, just consistently buying. I'm just consistently in the game because, like, I don't try to buy dips. I don't try to buy you know, sell out the spikes. I don't I'm not smart enough. I don't have enough time to do that. But I know if I can consistently buy. And if it's a good deal today, it's still gonna be a good deal tomorrow just based on the way we look at our deals. And there is a balance for us personally. It does need to cash flow something for us to make it worth a debt for us to manage it and for us to bring it into our portfolio, But that is not, like, the end all be all. We aren't like, oh, man. If it doesn't cash flow, like, a thousand dollars a month, we're just not gonna touch it. Like, that's not how we are. You know, we we definitely look at deals. If we can burr all of our money out of it and it's still cash flows a couple $100 a month, that's pretty cool. Like, that's Mhmm. An ideal spot for us to be in, and that's how we that's what we shoot for. Unfortunately, so far, we've overshot all of those metrics.

Mike DeHaan: [30:25] Mhmm. Yeah. And, you know, that that goes back to having that long term time horizon as well. Right? I mean, at the end of the day Yep. If you're consistently buying over a long period of time, you will be successful in this, you know, unless you really, really buy some dogs or you buy super high, you know, you overbuy. Because that because that's that's kinda goes back to is, you know, buying at a discount. You know? So by doing so, we're a I mean, a, we're able to control our payment. You know, if we did wanna refinance out less than the maximum out, we could do that if we were trying to get smart cash flow. We haven't needed to do that because, generally, we've been able to cash out all of our money plus more and still get the cash flow that we needed. And even if it's couple $100 a month, who cares? Because we're not playing with house money, but we financed all of our money. You know? And then the ones that we do have to leave some money in, like, did a refinance today I think we ended up having to make $9,000 in, but we're gonna make, like, 5 to $600 a month on it. So I was like, cool. We're gonna have that money completely recovered in just over a year.

Dan Austin: [31:22] Yeah. So it doesn't matter. Probably a little bit of a mind shift from when we started out, which we were pretty cash for. Like, we were cash is king type mentality. But now that we have a large enough portfolio that if we do have properties that underperform, like one that has an oil leak and doesn't generate any revenue, for months, like, we're okay with that because we're looking at that portfolio as an asset and what it's gonna look like in five, seven, ten years as opposed to how much income can that bring. And that's because we've looked at other ways to create income that are actually quite, you know, quite a bit more income potential than you can from cash flow from properties unless you're going, you know, thousands of doors. But looking at it that way, you're I always say, like, there's a sweet spot where you've derisked yourself by having enough properties that they can they can kind of consume any any damages or any risks that are coming at you depending market dependent or tenant dependent or whatever. Mhmm.

Mike DeHaan: [32:17] And that for sure. And that that's the benefit of scale, you know, when you reach that point. And and where it does get hairy is when you're starting out and you don't have that yet. I mean, going back to the you know, when I was a solo show and I was flipping properties myself, I mean, I got in big trouble on one of my properties because there were issues with it, and I did not have the I mean, I had cash reserves, so I was able to survive, but I did not have the income to cover the costs that I was dealing with

Dan Austin: [32:44] on that. I remember that. That was pretty tight.

Mike DeHaan: [32:45] That was not Not not

Dan Austin: [32:46] good tight. Not good tight, like bad tight.

Mike DeHaan: [32:48] Yeah. It was yeah. It was it was really bad. Skinny times. Yeah. And and and that's I mean, that's kind of the race you gotta take there. Right? But once you overcome that hump and you can get to kind of that long term horizon is really when you can start to, you know, see the benefits of what you're doing. And and, honestly, in a relatively safe way too. I mean, right now, it would take something pretty catastrophic for us to have major issues with our portfolio. You know? I mean, right now, we have, you know, tenants not paying in some of the stuff that we're we're dealing with, you know, some of recent things we bought. We have these these ones that aren't generating revenue at all. I mean, but overall, everything else just sort of carries that. So it's kinda like, it is what it is. You don't even necessarily see it.

Dan Austin: [33:28] Well, and again, it goes back to that long term appreciation play that we look at too. And that's why we're like that as opposed to, man, we need this cash flow to grow our business. We have other revenue generating activities with our wholesaling business and flipping that we actually can get some pretty significant income from. And, you know, like, I think that even if you get to, like, three or four properties that are all cash flowing at $200 a door, like, you're pretty secure. Like, you can absorb quite a bit. If you're trying to live off that cash flow, you're probably living in a van doing the whole thing. But, like Hey. You you're you should be able to survive that. Like, if if one tenant doesn't pay for a year, like, you should be okay.

Mike DeHaan: [34:05] Yeah. Hey. Don't knock on those vans, man. That's like the dream for millennials these days, dude. They they they got, like, LVP flooring. They got, like, tiled showers in those things.

Dan Austin: [34:14] Yeah. They're

Mike DeHaan: [34:14] nicer than most of the properties.

Dan Austin: [34:16] They drive, like, 35 on the freeway.

Mike DeHaan: [34:18] No. They don't they don't they don't drive at all. It just sits in their mom and dad's backyard, but it looks dope. Yeah.

Dan Austin: [34:24] Oh, man. So yeah.

Mike DeHaan: [34:25] Cool. Alright. Any any last bits on that, Dan?

Dan Austin: [34:29] No. That's good. I think I I will just share my quick little tidbit is I used to always be cash flow heavy. Like, I need cash flow. I need cash flow. But now I'm more, like, long term mindset of, yeah, that cash flow is great, and I'm going to take it anytime I can. And I'm not gonna put myself in a risky position by having negative cash flow, but, like, that appreciation is just so much more powerful in the long term than cash flow. So you gotta look at both. Yep. Is that the answer? You gotta Yeah. You gotta look at both? I don't know.

Mike DeHaan: [34:59] Yeah. The appreciation and and equity position down the line is gonna more than likely, especially if the market's, you know, the way the market's been going too. That's what I think. It's easy for us to say that because market's gone so silly. But, like, overall, those gains are are probably gonna be more than just, the cash flow every single month that you get. So, you know, point being, they're both important, but don't discount the equity and the appreciation position just for that cash flow which a lot people tend to do. So cool. Alright. Well, that's it, guys. Thanks for listening. You can follow me on Instagram at Mike underscore Invests. You can follow Dan at Investor Man Dan. Go ahead and shoot us some DMs on there. You can follow the show at collecting keys podcast on Instagram. We try to do some pretty cool highlight stuff on there. That's actually getting some pretty decent views, like the reels. We're getting, like, three to 4,000 views on those postings.

Dan Austin: [35:52] We're we're influencers, basically.

Mike DeHaan: [35:54] We're influencers. And we're

Dan Austin: [35:55] not even showing our butts or our

Mike DeHaan: [35:58] yeah. I mean, maybe maybe we should, though. We we we we would grow way faster.

Dan Austin: [36:02] Yeah. Some topless videos of us working out. Yeah.

Mike DeHaan: [36:07] Better be careful. Might might start popping up here pretty soon if we if we decide we wanna go too quickly.

Dan Austin: [36:12] But, yeah,

Mike DeHaan: [36:13] if you enjoy the show, go ahead and download our episode. Go and download every single one. Just delete them off your phone. We're told by our producers that that will get the most gain in our in the algorithms for the podcast. Algorithms. Yeah. This thing. Yeah. Download. Download. Download. Download everything. Delete them all.

Dan Austin: [36:30] Download them again. Downloading your podcasts? Do you download them?

Mike DeHaan: [36:33] I do. I do help our metrics. Yeah. Exactly. So and then go and subscribe. That's the other thing that's really, really important. So download, subscribe. And besides that, anything else, Dan?

Dan Austin: [36:45] I will sign us off as a I know when this airs, it probably won't be as relevant, but it's very relevant in my heart right now. But Gonzaga didn't make it past suite 16, and they lost to Arkansas, those stinking hillbillies. Yeah. We have a good team. We just didn't make it. It's kind of the story for Gonzaga, our alma mater. So I have it I hold it tight. So I'll sign off as a loser this time, but next year, we'll be their final four.

Mike DeHaan: [37:09] Let let's put something really that's gonna be not relevant when this comes out next week. Did you see Will Smith slap Chris Rock yesterday?

Dan Austin: [37:16] I did. I think Chris Rock paid Will Smith to do it because he's becoming irrelevant in the in the comedic realm, and he needs a boost.

Mike DeHaan: [37:25] I think

Dan Austin: [37:25] there's something going on there.

Mike DeHaan: [37:27] I 100% agree. I think the whole thing would have set up for people

Dan Austin: [37:30] to just generate buzz. Happened.

Mike DeHaan: [37:31] That would

Dan Austin: [37:32] Or it was either that was this the what was this? Like, MTV Music Awards Oscar or what? MAS or something like that?

Mike DeHaan: [37:37] No one can nobody cares about it. It's 100% cares about it.

Dan Austin: [37:40] So I think it's a media buzz. So now people are gonna watch cause they don't know it could be a brawl out there. I mean, this is, like, the most Yeah. The group of the most liberal, like, you know, loving type, you know, actors and music artists, like, they're, like, you know, no war, love, peace, all that, and they go up and get into physical altercation. I call bullshit.

Mike DeHaan: [37:57] Yeah. No way. Yeah. I I agree. So, anyway, if you're if you're a meme warrior out there, I've seen some pretty funny ass memes, so keep those up. Alright, guys. Thanks so much. Talk to you guys next week. See

Speaker 2: [38:13] review on iTunes or wherever you get your podcasts, and check us out at collectingkeyspodcast.com for tips and guides on starting your own real estate investment and wholesaling business.