Your Desperate Deals are Destroying Your Real Estate Biz

Mike DeHaan: [0:00] I think that where people get caught is that they are trying to have this long term investment mindset when they're broke.

Dan Austin: [0:07] Yeah, dude. And you're gonna be buff.

Mike DeHaan: [0:09] I will say the home jam is one hundred percent one of the best investments I've ever made. It is nice. It saves so much time. Yep. Right? It's so easy. And then, like, I have it outfitted where I could have literally anything in there. Except for, like, some of the weird specialty equipment you see in, like, a big gym. But I have, like, a full cable machine. Yeah. Barbell plates up to 500 pounds.

Dylan Koch: [0:28] Squat rack, kettlebells. Yeah. I got a box.

Mike DeHaan: [0:31] I got an incline thing so I can do, you know, GHDs or back extensions, whatever. Got a treadmill. Got everything. Got tongue in it. And it's the extended bay so I can do like carries and stuff in there too. It's awesome.

Dan Austin: [0:42] The only downside to a home gym because there's a lot of upsides. The only downside that I find is that you miss out a little bit on the social experiment of going to a gym, which in a lot of senses is awesome.

Dylan Koch: [0:53] It's just people watching at my gym.

Dan Austin: [0:54] No. But I mean, in a lot of senses, it's great. But if you have like community style gym where it's, like, more of, like, friends and stuff like that, you kinda miss that. But that's the only downside.

Mike DeHaan: [1:04] You just find it somewhere else. That's why I got into pickleball.

Dan Austin: [1:06] You know? The bar. But, yeah, I I like the Elm gym.

Mike DeHaan: [1:11] What's going on, guys? Welcome to the Collecting Keys Real Estate Podcast. I'm Mike DeHaan here with my cohost, Dan Austin and Dylan Cook. And just to round out that little pre pre show comment, I will say a bad place to socialize and meet people based off of what we've been seeing recently is your local real estate meetups. Mhmm. Because, boy, everyone that's doing deals stopped going to those, like, years ago. And the only people that are left are either the, like, newbies who probably aren't gonna do anything and they can't figure out how to make real connections, or the people that are trying to scam newbies by Yeah. Selling them stupid ass deals like this one Snakes. That we rejected yesterday in our lending company.

Dylan Koch: [1:54] Hold on. I want you to tell your story. But as a quick sidebar, Pace was in Cincinnati like a week ago. And I really wanted to go just to shit and ask like the hard questions, but I can't make the time work. And I'm like, I'm not driving forty minutes to come do this.

Mike DeHaan: [2:06] But Oh, dude. I mean, you'd have to like go and like be in that room with all those smug people.

Dylan Koch: [2:13] I think I already got beaten. Because he like has a huge like some people love him.

Dan Austin: [2:16] Yeah. He's got a cult following, dude. And people do really like him.

Dylan Koch: [2:19] I know. Perch at the stake.

Mike DeHaan: [2:21] Yeah. Oh, dude. You would for sure. That'd be like going to like a like a pink hair rally and like a red hat. You know? You're gonna get beat up.

Dylan Koch: [2:29] It takes 15 of them.

Mike DeHaan: [2:30] It's a limp wrist beat up though. Right? Like, it's not gonna hurt that bad, but you're still gonna be really traumatized by it.

Dylan Koch: [2:37] Right. Go on with go on on with your scamming turnkey provider that I know you're gonna tell

Mike DeHaan: [2:41] us about. Yeah. So so this was this was one in our our lending company rejected yesterday, and I wanted to bring this up on the show because it was so just asinine, like the way this whole thing played out. And so lead comes in, it's in Indianapolis, and the seller is a company based out of Florida. That's fine. Whatever.

Dan Austin: [3:00] Great market experience.

Mike DeHaan: [3:01] Great market experience for sure. The funny thing is the buyer is actually like a local guy. He's in the area, so you think that he So would he's buying this property for 375,000. Cash flow is super high. It's section eight property. And so, basically, they're getting over market rents, whatever. So we go through it, and we get the appraisal back. The appraisal comes in at, like, 240,000, like, significantly below. And the buyer calls. He's really upset at how bad the appraisal was. And then so we started, like, digging into it. I was like, no. I think this appraisal is actually, like, pretty spot on. You're just overpaying for the house. And the guy said that he knows he's overpaying for it, but the seller and, again, this is the new investor. This is his first deal. So the buyer's pissed, and he comes back and basically says, no. The seller said that it's a good deal because the cap rate basically justifies this $375,000 purchase.

Dan Austin: [3:51] The story gets me so mad every time.

Mike DeHaan: [3:53] And we're like, that's not how residential real estate works. It doesn't go off cap rates. It goes off of market appraisals. He's all upset. The seller calls us and is now going after us about how we don't know shit about real estate. And if you look at it from a cap rate perspective with all the section eight tenants they put in there, it's actually a really good deal. And we just don't understand how to determine real estate values. We're wrong

Dan Austin: [4:14] as Or the appraiser. Apparently, the appraiser doesn't understand too.

Mike DeHaan: [4:17] Or the appraiser. And so Chance had to explain to him like, hey. Look. It's not us. It's Vivien. It's a third party appraiser. That's how lenders work. And the guy's like just beside himself. Doesn't get it. So anyway, where this ultimately ends up going is the buyer decides that, oh, well, I'm just gonna buy it on seller financing instead. And he says that basically, the appraiser has rung the alarm bell. The lender has rung the alarm bell. The whole situation is kinda sketchy. He's a newbie, so he should be skeptical in general. But he's so convinced that this deal is good that he's not trying to buy it, seller financing. And if you look at the trail on this thing, this company, the sellers, they bought this property for $70, like, two years ago.

Dan Austin: [4:55] There's so many red flags.

Dylan Koch: [4:56] Oh my god.

Mike DeHaan: [4:56] And and we were looking at, like, the photos, and this dude's, like, renting closets to section eight people for a $100

Dan Austin: [5:04] a month. Here's what I don't understand on this, and this is where the red flag first got raised when when the idea was was section eight, so a cash flow is like a beast. Section eight is based on market rents, and they have pretty strict rules. So my question is is what is falsified within those leases? Exactly. With section eight, you have to inspect that shit. Like, you can't just get section eight rents. Like, they want an annual inspection. They they run the market analysis. Like, everything's based on, like, pretty strict policies.

Mike DeHaan: [5:30] Well, you can pull stuff over on the city. Right? I mean, we had a whole seven unit property Oh, sure. Where one of the tenants did that, where she pretended to be the landlord and she had six faked leases and she was collecting COVID release money.

Dan Austin: [5:45] They could call it a 12 unit apartment building, but really it's a house. Right? You could totally do that. And just that's where I'm like, that's a red flag immediately. The second red flag you should as a buyer, when the seller's like, don't worry, I will sell or finance it. Because if it was such a great deal, they'd be like, cool. Get bent. I will find somebody else that will buy this because it's such a good deal.

Mike DeHaan: [6:02] But the thing that was that's so crazy to me is you have this new person who met this company, by the way, at a meetup. That's what he told us. I guess these people regularly do this. And the actual name of their company is, like, Easy Cashflow Indianapolis LLC. Right? So it's obviously some, like, turnkey company that just, like, pedals up these shitty section eight properties and then sells them to idiots. And he's so adamant that he's, like, right, and he's found, like, this super creative cool thing to make this property worth it to him. And everyone that's been along the way that's further along the industry is wrong because he thinks that he's discovered some secret sauce. Hell, yeah. If that doesn't define the real estate industry right now, I don't know what does. Everyone seems to think that they have, like, this super secret thing that is only completed at the detriment of somebody else, whether that's the buyer, whether that's the tenants, whether that's the community around your property because you're doing co living, and you're have nine people in a house with nine cars and nine different family dynamics, right, in like a cul de sac surrounded by normal people.

Dan Austin: [7:06] So silly.

Mike DeHaan: [7:07] Which is another one. I was on our local neighborhood page. I sent this to Dan on Monday. Somebody posted that somebody had just bought the house next to them and was converting the garage into three eight foot by eight foot bedrooms.

Dylan Koch: [7:21] Shut up.

Mike DeHaan: [7:22] And they found out that he was gonna be just putting a bunch of people in there.

Dan Austin: [7:26] Refugees, wasn't it? Well, yeah,

Mike DeHaan: [7:27] that's what that's the guy said. I don't know.

Dylan Koch: [7:29] Like

Dan Austin: [7:29] Oh, I thought that was the actual thing.

Mike DeHaan: [7:31] No. That that that might have just been his, his politics coming out there that he thinks that if they're eight foot by eight foot, must be refugees going in there.

Dan Austin: [7:37] Well, yeah, it might be prison camps.

Mike DeHaan: [7:39] It might be. But, you know, and he pointed out, he's like, so that means the entire cul de Sacs can be full of their cars. Like, what is people gonna do? Is there gonna be traffic coming and going? How do we understand who's actually supposed to be at the house if these rental by the rooms are changing all the time? Like, how come my kids any sort of security walking around when there's, like, new people that are swapping in and out of the rooms, like, monthly? Like, every quarter? What is that gonna look like? And there's so many valid questions, and now it is reducing the lifestyle and the value of that neighborhood for this one person to try and squeeze more cash flow out of a house. It's a stupid thing to happen.

Dan Austin: [8:11] So they can make $300 a month instead of 200.

Mike DeHaan: [8:13] Seriously. Right? What are they gonna make on it? A couple grand? Good for them. I don't know, dude. It's just the way things are is so frustrating.

Dylan Koch: [8:20] What's worse is they'll they'll try to end up selling that place on a cap rate basis to somebody else because of the income.

Mike DeHaan: [8:25] Of course, dude.

Dan Austin: [8:26] Oh, yeah. And somebody will listen to that, dude.

Dylan Koch: [8:28] Yeah. I know.

Dan Austin: [8:28] We need to have a new segment. Can we call it, like, bad deal of the week or dummy of the week or something like that? Dummy of I one I think dummy of the week is I'm gonna pull his name up and announce it on the podcast here. We

Mike DeHaan: [8:40] could send you a T shirt. Jim Richardson, Indianapolis.

Dan Austin: [8:43] Yeah. We're gonna send you a T shirt for the collecting keys podcast dummy of the week.

Mike DeHaan: [8:47] Well, what's what's great is we could do that because from the lines, if we have his address, we could just have like, make, like, a dummy of the week shirt. Like, loves like an arrow pointing up to his head. Oh, that's hilarious. He just, like, cold gets it.

Dan Austin: [8:57] But then on the back of the shirt, it just said it's the denial letter, like loan denial letter printed out

Mike DeHaan: [9:02] on the back. Like, that's

Dan Austin: [9:03] how we send you the denial letter?

Mike DeHaan: [9:04] Yeah. That's a good idea. Yeah. Your loan's been rejected. That's a great idea, actually.

Dylan Koch: [9:09] Now I'm gonna play devil's advocate for just a minute, and I wanna hear your response now that you guys are lenders in your Patagonia vest. I literally just bought

Mike DeHaan: [9:16] a bunch of them for us.

Dylan Koch: [9:17] Bet he did. He did.

Dan Austin: [9:18] We're so excited. We're so excited

Mike DeHaan: [9:22] bought puffy's. They're Carhartt's though, because they gotta be more, you know, a little bit

Dan Austin: [9:25] We're from the Pacific Northwest.

Mike DeHaan: [9:26] More Spokane.

Dylan Koch: [9:27] You're already too smug. Anyway. Anyway. Yeah. VSCR lenders, at least how it was used to be pitched was no appraisals, no income. I could be a cactus plant and get a loan as long as my DSCR was over 1.25. Did that ever exist? And I know, like, what does it look like now?

Mike DeHaan: [9:44] So I personally have never been around the no appraisals DSCR. Because I even like, when I got my first DSCR loan in 2018, still required an appraisal. So I don't know about that. But the lower doc, no income as long as positive, it definitely used to be easier.

Dan Austin: [9:58] I feel like they definitely have tightened up just like how they review stuff, like the liquidity requirements and things like that that they're requesting. They're requesting a lot of the same information, but they're wanting like factual things to back that up instead of you just saying, oh, it's good. Are you submitting a document? And them saying it's good. They're like, hey, that document looks like you made it on your computer. Can you

Dylan Koch: [10:16] sign it Yeah. At

Mike DeHaan: [10:19] I will say that, I mean, the tightening of it is as a result of all the fraud that's occurred over the years. You know, it's just like anything, if you have a debt product that is too easy to get, people will take advantage of it.

Dan Austin: [10:29] The biggest differences that I see now too is like, there's still no, like, what people like the income, like, there's no income requirements from a personal income standpoint, and there's no disclosures and all the other BS you have to do with, like, Fannie, Freddie loans. So it is still a lot simpler process, but it's like the big difference I tell people is just like, yeah, it's like, you don't have to submit your w twos, and the income is solely based on the property still.

Dylan Koch: [10:52] You're not submitting tax returns. You're not spending w twos. Maybe not bank statements.

Dan Austin: [10:56] It's still the property. They're still asset based. Yeah.

Mike DeHaan: [10:59] Yeah. And you technically can get properties that are negative DSCR as well. I mean, we did one last month.

Dylan Koch: [11:05] I mean, that should exist in my opinion, but, like, I get it.

Dan Austin: [11:07] Yeah. I also think so.

Mike DeHaan: [11:09] We're doing one on Friday. That's it's like a point nine two doing tomorrow.

Dylan Koch: [11:13] What's the lender's justification for that, though? They literally are saying this barely supports or doesn't support your loan payment.

Dan Austin: [11:20] Well, so think about it this way as a lender Mhmm. Like devil advocate, you're devil's advocate here. And so as a lender, say you're doing it at 75% LTV. And say you have 10 properties at all cash flow. This is your eleventh one, but you're getting it with some pretty fat equity. And as a lender, you're protected by the equity.

Dylan Koch: [11:37] Basically, you're saying the equity or the personal balance sheet of of the signer, you're okay with.

Mike DeHaan: [11:41] Correct. They look at that. Yeah. So there there's like a lot more scrutiny on that if you're a newbie. For example, we've done only one negative DSCR. They're not super conscious. People don't want that. Another one coming tomorrow. Both of those people, they have, like, huge balance sheets. Right? They own dozens of properties. They have high incomes in general. They send their bank statement. They have like $900,000 in there. Right? Like, they're not gonna be worried if you're negative cash flow $200. Sure. There is more scrutiny. I would say the one thing that has been coming up, which has been interesting, is they will want a verification of housing. Because one of the biggest pieces of fraud, like the types of fraud that has occurred with DSCR's, is people getting DSCR loans and moving into the property. Right? I mean, very easy to do. You get it, and then no one checks. So you you can move into the house whenever you want. Right? And so now what they will do and they're very, very strict about is they need to know where you're living and know that you have, like, a history there. That didn't used to exist if you go back several years ago, but they've been really, really hard on that right now. I think especially as interest rates have gone up on the Fannie, Freddie side and it's hard for people to qualify, people that are somewhat savvy will be like, oh, I can go and get a DSCR loan to buy this vacation home in Cape Cod or whatever.

Dylan Koch: [12:51] Oh, yeah. Sure.

Mike DeHaan: [12:52] And they're like, yeah. It's gonna be a rental, but really they're gonna move their family in there the second that it closes.

Dylan Koch: [12:57] Yeah. That makes sense.

Mike DeHaan: [12:58] And so they really wanna make sure that you have a primary mortgage either on your credit. If you're a renter, they wanna see, like, a history of your rents being paid on time, once you're leased, all that kind of stuff. But you still could wait, a year and then fucking move in. Yeah. But they're at least, like, checking it now up front. Whereas before, they used to be super, super lenient with that.

Dylan Koch: [13:16] I remember I was flipping a house in a good part of town, and my wife and I talked about moving into it, I already had, like, the hard money loan. And I remember, well, this is gonna be a problem if I go to refine it. This is not an arm linked transaction.

Dan Austin: [13:27] Mhmm.

Dylan Koch: [13:27] You know, from my own LLC to our primary residence. And so we ended up not doing it. Not for that reason. Just it was different at the time.

Dan Austin: [13:35] But, Could be hard to get the loan at the size that you need it to be. Right? Because, yeah, it's not an arm's arm length.

Dylan Koch: [13:39] Right. Right. Yeah. Because what if I wanted a 95 loan, you know, LTV on a primary? Right? It'd be just different. Speaking of another newbie, though, like, talked to a guy this morning. And if you're listening and you're kinda new, don't do this. But his first renovation is a $200,000 renovation.

Mike DeHaan: [13:54] Just crazy. Yeah. Dude, like, what is you might as well rebuild the entire house.

Dan Austin: [13:59] They're doing anything above

Dylan Koch: [14:00] a 100 is crazy. Just over 2,000 square feet, plus they redid the garage. So there's, you know, kinda two structures. But it was everything. Was framing, plumbing, you know, the whole nine yards.

Dan Austin: [14:09] You could build a house for that much.

Dylan Koch: [14:11] Yeah.

Dan Austin: [14:11] You literally could. I mean, think about what they paid for the house, which you could just chunk that

Mike DeHaan: [14:15] up to the to

Dan Austin: [14:16] the cost of the lot, which I'm sure lots are cheaper in Ohio Yes. Than $1.90, plus 200 k. You could literally build a brand new house. It wouldn't have character, of course, or illegal wiring, but, you know

Dylan Koch: [14:28] I'll do it. It doesn't have illegal wiring anymore. I guess my point being is, like, if you are newer I've never envisioned if I was new to take on renovation that big.

Dan Austin: [14:38] No. No. Oh my gosh. No. It's a bad deal. It's a bad deal. Don't do that.

Dylan Koch: [14:42] I don't know where the rose colored glasses are. I don't know where that's coming from. Like, yeah, it'll be you know, make this amount of money. Like, where the verification steps are before you pull a trigger on something like that.

Dan Austin: [14:52] So they bought this from a local wholesaler? Yes.

Dylan Koch: [14:55] Yeah. One of my biggest competitors.

Dan Austin: [14:56] That probably told him it was a good deal?

Dylan Koch: [14:57] Well, yeah. I mean,

Dan Austin: [14:58] of course, did. Really? And they told him it was a great deal, and he made $40 on it?

Dylan Koch: [15:02] He made I think he only made 20 only, but 20.

Mike DeHaan: [15:05] But still on a $140,000 purchase, that's pretty good. I think that where people kinda get sucked into that is there's a lot of people that get into flipping houses because they have, like, this vision about how they wanna, like, take something that's terrible and make it really nice again. That's also why you see this symptom of people that are buying, like, lipstick sort of flips and then, like, really overdoing them

Dylan Koch: [15:25] Yeah.

Mike DeHaan: [15:25] Sure. And then losing money. It's because, like, that's what they feel like housewiping is, which I think is a good purpose. Right? Like, a good, like, selfless motivator if you're somebody that feels like you wanna lose money and make the town prettier. But at the same time, it's not a valid way to go form go around actually building a business with it. And especially in somewhere like Cincinnati where there's a a decent number of houses relatively affordable, so people have options. Like, I think that where people tend to be able to do that a little bit better is if they're in, a very high price point market.

Dan Austin: [15:59] Yeah.

Mike DeHaan: [15:59] Right? And there actually is, a demand for that older style of house that's done at, like, a very, very high level, but you also have the profit margins to do it. So like there's James Daynard. You know? He he does this in Seattle, in Scottsdale. You know? We're like, yeah, they they take the house that is kinda 2,000 square feet and they put $300 into it, now the thing's worth 1 0.2. Totally.

Dylan Koch: [16:19] Yeah.

Mike DeHaan: [16:20] Like, absolutely. That makes sense. There's huge margins. Yep. And like your little details in that design matter. No offense to Cincy, but I'm pretty sure this the Cincy vibe's a little different in Scottsdale. Right? Never been. I'm just assuming.

Dylan Koch: [16:32] No. I've been to Scottsdale, so no no, like, rebuttal here.

Mike DeHaan: [16:37] I think this goes

Dan Austin: [16:37] on to the same like, along the lines of with, like especially if you're a newbie, but just in general, like, this this goes for everybody. This if a deal's complicated, know, we reviewed one this morning in in our team meeting going over some loans and stuff like that. And you just get some of these guys that come in with these, like, complicated plans. And in my opinion, if you can't show the ROI with, like, three lines in the back of a napkin, you shouldn't do the deal Because they wanna do all these weird things. I mean, this goes along the lines of like all the subject to stuff that we've always talked about. But you get these deals where guys are like, I'm gonna do this, then I'm gonna build a house on it, and I'm gonna do this. Like, no, you're not. Because you don't understand like how hard that is and how hard it is to get the funding to do that, and do all these like land splits and do all these like really complicated things when they don't even just zoom out for a second and look at the most simple things. Like, oh, you have acreage in the middle of everybody else having acreage and all your neighbors are white trash trailer junked out houses. Right? Like, so who's gonna wanna buy a brand new house in that? Probably nobody that you have to drive through your other driveway to get through. There's so many other options out there. Like, so don't overcomplicate a deal. Like, that's not a deal.

Dan Austin: [17:42] And then you get they don't do they'll look at the numbers. They'll do all the math, and they'll say, if it all lines up, this is how much I'll make, and this is a great deal. And you're like, cool. Now put in the risk factor, weight it for risk. And actually, when you do that the right way, you're probably losing money every single scenario you run it on.

Mike DeHaan: [17:58] For sure. And I think that's a big thing, Dan, is people don't measure that downside accurately. Because ultimately, to get rich in anything, it should be about having asymmetrical reward for the risk that you're taking.

Dan Austin: [18:10] Totally.

Mike DeHaan: [18:11] Right? Like, reason people pursue tech businesses as an example is they, sure, they're expensive to build out, but the overhead's, like, relatively low once it's going. But the multiples and the lifetime value you can get of your clients is extremely high. And so it's worth it for somebody to spend $15,000,000 to build a startup because it could ultimately be worth $304,100,000,000. Right? When it comes to real estate, it's a slightly different scale. And you gotta come down to like, well, if you can do a simple deal and make $40, but your downside risk is maybe the down payment, you know, say, like a $100,000, right, major. Or you're gonna go and you're gonna bet $300 where you're hopefully gonna make a 100,000.

Dan Austin: [18:51] Doesn't make sense.

Mike DeHaan: [18:52] Right? You're gonna make, like, maybe two and a half times more, but there's so much more downside risk. There's so much more complexity. It just doesn't make sense to people. This is one of the things that it's funny. I felt like this kinda went away for, like, a little while. But I remember back in the day down where there's all these guys that would be like, I don't even do a deal if I don't make $25,000.

Dan Austin: [19:11] Right.

Mike DeHaan: [19:12] Yeah. And then it kinda went away, like, we sort of snuck by by just hitting base hits all the time. And then the nine deals that they would pass on waiting for their 25,000 or their $40,000 flip, right, we'd make $90,100,000 dollars in a little deals up to them. It's okay to take those easy wins. But for some reason, people don't want to. I think they they think the success has to be in overconfident pain. That's true.

Dan Austin: [19:34] Well, they're desperate to do a deal too. I think there's desperation. And especially in a market like this where deals are hard to come by, and they see dudes like Dylan over here make doing deals, the guys that are well established.

Mike DeHaan: [19:45] Yeah. And they're, I

Dan Austin: [19:45] just wanna do a deal. And then there's those snakes that go to these meetups that also wanna do a deal, and they wanna find the guy that's more desperate than them to do the deal so they can make money on them. For sure. And you get these weird math equations that aren't ever like I said, they're never weighted for risk. And then you need to wait it for your financial position now. Because ultimately, flipping a house, I would still consider it although it's an active income, I would still consider it real estate investing because you are buying an asset that may or may not need to be held for a period of time, which at minimum four months probably, you know, may- Maybe six months, eight months, maybe a year, maybe longer, depending on what happens on the backside. So you are still investing. And so would you take a 100% of your net worth and put it in Bitcoin? Maybe not. Most people wouldn't. You know what I mean? But if you're doing that, you know you're going risk on. Same thing with flipping a house.

Dylan Koch: [20:34] I think as I, you know, go down the wealth building journey and the people that are, you know, way richer than me, they always value cash more than a lot of, like, newbie people do. Having all their eggs in one basket and being like in a

Dan Austin: [20:47] Such a good

Dylan Koch: [20:48] illiquid thing like real estate. Like, if all of it's in a flip and something goes wrong, you're kinda you're kinda screwed. Right? But, like, a lot of the wealthy people I know, I mean, they're up to 30% in cash. And if you have Yeah. $10,000,000, that's a lot of money.

Dan Austin: [20:59] You could do things with it.

Mike DeHaan: [21:00] Because cash gives you the ability to capture opportunity.

Dylan Koch: [21:02] Exactly.

Mike DeHaan: [21:03] And I think that if you don't consider having a good cash position, like, you don't try to do that. It's a very immature way to look at wealth Totally. Generation, right, or being an investor. We actually had a good conversation with Drew yesterday on our or Tuesday on our scale call about this because he's such a big buy and hold guy. Drew Wyatt, you guys have heard him on the show a couple times. Friend of the show? Yeah. He's he's a really big, like, buy and hold equity guy. And we just did a big cash out refinance with him, and he pulled out, you know, recapture a lot of equity. And it was something that was so interesting to me as he said, yeah. He's like, but the way I see that is that I just, like, cashed in that equity. I squandered it. And was like, no. You gave yourself an opportunity to make more of it with that money now. Yeah. You know? But they're just completely different mindsets. I'm not saying at all that Drew's an immature person. He's that he's pretty much wiser than I am. But there's also these different mindsets that people have around being an active investor versus being somebody that is truly investing for, like, the long term. I think that where people get caught is that they are trying to have this long term investing mindset when they're broke. Right? Or they don't have a high income.

Dylan Koch: [22:03] That was good. Yeah. That should be the headline in this one. Yeah. That was good.

Dan Austin: [22:06] Like, get some cash first,

Mike DeHaan: [22:08] man. Totally, dude. And and, I mean, even right now, we have this borrower that we work

Dan Austin: [22:11] with.

Mike DeHaan: [22:12] He's a super nice guy, but he's trying to buy all these rentals, and he literally has no money. I'm like, dude, go, like, make your money first and then come back and focus on that, or it doesn't make any sense.

Dylan Koch: [22:21] Or sell one or two two of the rentals, then get your money,

Mike DeHaan: [22:24] then go down. You know? 100%. So people approach things a different way. And then, you know, in terms of your guy with the 200,000 renovations, the opportunity cost there too. So he's put all that money in there. If choose a newbie. What if he'd taken that $200,000 and invested it into marketing, invested into learning to find his own deals? Right? He could have gone incredibly far. He could have gotten paid for the most expensive wholesaling one on one mastermind coach out there that probably would have stolen his money. But even if they didn't, you know, he might he might have learned how to make a hell of a lot more than even that one flip could have ever made him.

Dylan Koch: [22:58] Even from the lending side. Even from the lending side. They cashed out and they killed it. Like Yeah. Totally. See I what my hard money lenders make sometimes and, like, they make more than I do and some of the flips. I'm just like, you didn't do jack shit besides Yeah. Collect the address.

Mike DeHaan: [23:12] We sent out a payoff this morning that I think we're making, like, 35 on it, and the guy's making, $6.

Dylan Koch: [23:17] It's cool. Right. It happens. I mean, it happens though. Yeah. Like, it happens a lot. So November is actually, like, transparently, was, like, my worst month in business pretty much since I started. Oh, that's fun. Yeah. I mean, it is what it is. But we sold a flip that I lost about $40 on and the lender made like almost 30.

Mike DeHaan: [23:34] Nice. That's a great that's a great deal for the lender.

Dan Austin: [23:36] Yeah. And you because you're a great borrower.

Dylan Koch: [23:38] Yeah. Yeah. Right.

Mike DeHaan: [23:39] He had

Dylan Koch: [23:39] no risk of default.

Mike DeHaan: [23:40] Is that your your biggest loss to date? By far. By far. Oh, yeah. Monster. That's pretty good. I mean, to have gotten this far and finally getting like that what really kind of hurts loss, that's pretty good.

Dan Austin: [23:51] That's what Dylan and I were talking about pre show before he got on, Mike, was like, it's you're gonna lose in any game you play. If you play, it's law of averages. But for Dylan to lose now is way better than losing in the beginning. I think this is actually a good full circle argument here for these newbies trying to do these complicated deals. It's like, you don't wanna lose early on when you're broke because you actually do have further to fall. It hurts more because you could go into bankruptcy. So when you're doing a high leverage deal, you're not actually, like, tying up all your cash. You're actually going negative net worth. Right? So if you have a zero net worth and you go get a hard money loan and you go get a second position for the down payment, and then you have to get the construction costs and all that, you're actually going negative net worth. Or Dylan is obviously well established. So for him to take this loss, it hurts. It sucks. Nobody wants that. But if it's inevitable, you definitely want it to be once you're established. And so you have to do those base hits. You have to put all the time and effort into doing the right deals that are risk weighted so that when you do take the loss, it's not gonna kick your ass and put you out of business. Totally.

Mike DeHaan: [24:49] Yeah. So I guess on that note, Dylan, so looking at this deal, let's say if you were from like a newbie perspective. Right? Is this a deal that you would have done as a newbie? Is this something that you like tried to get cute with? Is it bad market timing? Like, what's the actual full situation?

Dylan Koch: [25:04] Yeah. I mean, it was it was a combination of three things. Guess, one, the market did turn a little bit. We owned it for, like, eight months. And so I tried a new contractor. Didn't work out. We redo a lot of his stuff, which was extra cost. So we thought we're gonna spend, like, $3.15, and we ended up, like, $2.85. So that was a big part. And then the buyer ended up doing a sewer inspection, and the sewer line was all fucked. And I was to the point where I was a motivated seller. I was like, I'll just fix it.

Mike DeHaan: [25:27] Just sell

Dylan Koch: [25:28] it and get on. So that was another, like, $10 of replacing the sewer line. So it was just a combination of things. I never actually looked at the property either when the first deal was my acquisition guy walked, and I kinda trust him that that would be right. And I was like, I've done enough of these. I know the area. Like, it'll be fine. So I don't know if that answers your question. There's a multitude of factors, but they all kinda added up.

Mike DeHaan: [25:46] Yeah. For sure. So a little bit of bad luck, a little bit of poor due diligence, a little bit of, like, stretch time, which happens as a business owner. And this is something that I don't think people realize as well is so one of the questions I get asked a lot or have been asked a lot over the years is around having your acquisition managers make their own offers. People will say, like, I need them to be good at real estate so they can make offers. I don't wanna have to review deals. We learned this lesson a long time ago, but, you know, when we were running our wholesaling business, we would always make sure that we were the ones that were approving the final offer. Just because at the end of the day, your nuts are on the line. Right? You're the one that actually had to go and take that loss for their decision. Because people don't understand that the downside loss you can have from an employee that is underperforming or that is making a bad decision is significantly more than the upside potential of that employee. Yeah. Especially in a levered business like real estate. Right? And so going back to when Dan and I, we had our biggest loss on a house foot. This is back in is that '22, Dan? Nineteenth deal?

Dan Austin: [26:47] Yeah. It's probably ended January 23 is when it finally came to a close.

Mike DeHaan: [26:51] Yeah. So, basically, on that deal, everything from how the acquisition manager priced it out to how the project management kinda went on the getting the tenants out and all that sort of stuff. We had somebody that was our dispo manager that was basically helping with that. And he botched a bunch of things with the paperwork. He also rubbed the tenant the wrong way, so they became resistant to working with us. So that added, like, six months to it. To then, you know, we got away from that person. We realized that a lot of the little details that we were expecting around the renovation weren't actually correct because the notes that we had gotten from the team members that we trusted to do the walk throughs and everything were not accurate. Right? And that ended up costing us over a $100,000.

Dan Austin: [27:34] Yeah.

Dylan Koch: [27:34] That's a nice Yeah.

Mike DeHaan: [27:35] Over these couple of decisions that our team members that were under our guidance. Right? They were just inexperienced, ignorant, negligent, whatever you wanna call it. But we were so busy trying to do all these other deals that we were just like, oh, we already got that one. Yeah. Just we'll figure it out. And then the market turned and turned into a whole mess.

Dan Austin: [27:52] Yep. Lot of those mistakes don't happen, but then when there's the market or you don't feel them. But if there is a market shift, those mistakes actually get really painful and the cuts are just deeper.

Dylan Koch: [28:00] They get amplified too.

Dan Austin: [28:01] They get amplified.

Dylan Koch: [28:02] Yep.

Mike DeHaan: [28:03] Yeah. At that point, it was really dangerous as well because we had just come out of the market cycle where you were saved on every deal by market conditions. And so that was kind of our our bring back to reality.

Dylan Koch: [28:12] It was. The one thing that happened that you know, it's happened before, but it's not spoken about a lot tactically, is a lot of the comps we used when I bought it. Well, this slip took eight months. So a lot the comps I used were no longer

Mike DeHaan: [28:22] No longer

Dylan Koch: [28:23] really applicable to anything. And the new ones were much lower. I'm like, fuck. So even if I refi this, I'm not I'm not doing great. So

Dan Austin: [28:29] And your deal might be the new comp too. Right? So like an appraiser might use a few of the comps from six months ago, not eight months ago, but maybe six months ago. But the reality is the market is eight months fast forward. And so you may be the guy who's bringing the market down 10% with your new comp. Yeah. Just happens. Right? In the in this market. You know what I mean? Yeah.

Mike DeHaan: [28:47] Yeah. I mean, and right now, more than ever, if your stuff isn't selling, it's because it's not priced low enough. You price it low enough, it'll sell.

Dan Austin: [28:54] It's a 100% what it is. Yeah. It just sucks.

Mike DeHaan: [28:57] On our last flip that should be closing, next week, it's out on the market for months at, like, $3.50. Then we were at $3.40.

Dan Austin: [29:04] I think we started out at $3.65 is actually where we thought we were gonna hit.

Mike DeHaan: [29:08] Yeah. Right? I don't think we were that high. I think it was like did we start

Dylan Koch: [29:11] at that high with that one?

Mike DeHaan: [29:12] Oh,

Dan Austin: [29:12] damn. Maybe $3.59 as we ultimately did, and then we did some price drops down to $3.50 and sat there for a month.

Mike DeHaan: [29:18] Forever. And our other partner was like, no way, man. This thing's totally worth $3.70. Like, I don't think it is, dude. No one's buying it. So we finally dropped it to 3, what, $3.35? Sold literally the next day. Right away.

Dylan Koch: [29:30] Yeah. Yeah. That's the thing, man. Things are so price sensitive right now. And a lot of sellers, I wouldn't say flippers, but, like, retail people are refusing to price drop. So I'll take it off the market.

Mike DeHaan: [29:40] I know.

Dan Austin: [29:40] I know. Yeah. It sucks. It sucks because that fake equity, you can't eat equity as they say because it's not real. Like, that fake equity still sticks with people in their minds, and they want that number.

Mike DeHaan: [29:49] But you can refinance it out, and you should do that before the appraisals drop down too far to reduce your value. You want to refinance while they're still using the appraisers appraisals from six months ago that aren't down to

Dan Austin: [30:03] slacapital.com/apply.

Mike DeHaan: [30:06] There you go. I got a referral code. Right to it. Yeah. You do.

Dan Austin: [30:09] Use Dylan's referral code. Hit up Dylan. He gets paid out.

Mike DeHaan: [30:12] If you go through through the ycapital.com/apply and you specifically tell our loan officer that you're calling us because Dylan said to on the show, I'll give you Dylan's discount.

Dylan Koch: [30:22] There you go. There you Dylan's discount. Yeah. Yeah. Yeah.

Dan Austin: [30:26] It's gonna be Dylan does Cincinnati as the discount code.

Dylan Koch: [30:29] It's the promo code. As I like

Mike DeHaan: [30:31] the gay version of Debbie Does Dallas?

Dan Austin: [30:33] Yeah. Well, isn't it you handle like Dylan Does Deals? So now it's just Dylan Does Cincinnati. And next is gonna be Dylan Does Loans because he's gonna be richer than all of us and just start lending out all of his money.

Dylan Koch: [30:43] I see what you guys are doing. I'd like to start doing loans too.

Dan Austin: [30:45] You

Dylan Koch: [30:45] should. What's funny is I have, you know, a portfolio, and I've done the math. Was like, I could leverage my portfolio and borrow at like 7%. And Now I can lend it out at twelve and two to people I know in my market. Like, that's not bad money.

Dan Austin: [31:00] It's good money.

Mike DeHaan: [31:00] This is the arc that all real estate people go through. Right? As you get kinda sick of buying properties, start to build this equity, and you're like, man, I'm buying another fucking duplex with toilet problems and shit. Or I could just take the money I already have and leverage it and increase my cash flow that way. That sounds way better. It's like, oh, and it's actually passive income once it's in there?

Dan Austin: [31:18] It's the real estate wealth arc, man.

Mike DeHaan: [31:20] Totally. Pretty much everyone that I've met that's, like, a smaller lender like, the really big lenders are all finance guys. Like, a lot of the guys that we sell our stuff to, like, they've never touched a house. They're gonna get their little prissy fingernails dirty if they do that.

Dan Austin: [31:33] They don't even work on their own houses. Yeah.

Mike DeHaan: [31:35] No way, dude. They they never have.

Dan Austin: [31:37] They do have Patagonia vests, though. They do. Sick. Vest.

Dylan Koch: [31:41] You guys are gonna be like there's gonna be a picture of you in '20, like, '17, 2016, and then pictures of you guys in 2027. Just the difference of these two people. So different.

Mike DeHaan: [31:49] It's it's gonna be our Christmas card, man. We're gonna have, like, this super, like, sharp beards. Like, I'm I'm damn. We should we should both get those surgeries that make our cheeks bones real high. High high cheek bones,

Dan Austin: [32:01] sharp chiseled jawlines. Yeah. Exactly.

Mike DeHaan: [32:03] Like, total and we're we're changing our name to Jabroni Capital.

Dylan Koch: [32:07] There you go.

Dan Austin: [32:07] I've actually stopped lifting weights because I don't want to have calluses on my hands anymore.

Mike DeHaan: [32:11] Yeah. Yeah. I stopped lifting weights because I wanna be, like, razor thin so I can be really good at cycling and ironmans. Yes.

Dan Austin: [32:21] High rocks. We're doing high rocks now.

Mike DeHaan: [32:23] I'm doing Highrox. Totally. No way, man. There's there's too much weightlifting in that for me. I think there's I don't think there's any at all. Running.

Dylan Koch: [32:29] Take the Christmas card picture with an IPA, and then they'll be complete.

Mike DeHaan: [32:32] Nah. They don't they don't drink anymore. Instead, what they drink is they'll have, like, some kind of, like, seltzer water that has THC in it. Yeah. Right?

Dan Austin: [32:39] Yeah. Seltzer water, plain plain water because they're healthy, but then they do cocaine all night.

Mike DeHaan: [32:44] Yeah. They have maybe. I think it's one of the cool ones. I think most of them, they're going, they're doing, like, Ayahuasca in Utah somewhere. Not even going to, like, Peru and doing it the cool way.

Dan Austin: [32:52] Yeah. No. They're going to San Diego and getting some, psilocybin.

Mike DeHaan: [32:57] Psilocybin. Out in the out in the San Diego Desert. Sounds like fun. But, anyways, well, we went all over the place. Anything else to wrap up here, guys? No. I

Dan Austin: [33:06] can see from Dylan's watch, it's cloudy in Cincinnati, though.

Dylan Koch: [33:09] Yeah. It is.

Mike DeHaan: [33:10] There we go.

Dan Austin: [33:11] And you got a few text messages that came in.

Dylan Koch: [33:13] I got a 25 right now.

Mike DeHaan: [33:14] So Got 25. Alright. We're gonna let Dylan go and do his deals then. Alright, guys. Thanks for listening. We'll talk to you guys next week.

Dan Austin: [33:20] See y'all.

Dylan Koch: [33:21] See you.

Mike DeHaan: [33:22] This episode is sponsored by Sir Lenzelot LLC, also known as SLA Capital, which, if you didn't know, is Dan and I's private lending company. So, yes, we are sponsoring our own show, but what you're do about it? It is our private lending company that offers hard money and DSCR loans to real estate investors of all types. So you can be a new investor, an experienced investor. You can be buying flips. You can be buying rentals, whatever. We can do everything. And not only that, but the rates that we offer are just as competitive, if not cheaper, than pretty much every other company out there. So whatever big company you've been working with, bring us their term sheets, I guarantee that we can probably beat it. We have the same connections they do. We just don't have all the overhead and middle men. So if you wanna come and check us out, go to slacapital.com/keys, and I will know that you came from the show. And by seeing that you came from here, when you get the closing, you will save $500 on your first loan with us. So slacapital.com/keys, we would love to fund your next deal. Thanks for listening, everyone. If you want more from us, you can shoot us a follow on Instagram. I am at Mike underscore Invest. Dan is at investor man. Dan and Dylan is at Dylan underscore does underscore deals. Choose to follow and send us a DM to let us know what you think of the show.