What to look for in a Property | Real Estate Revolution Podcast | Episode 12

Coming up on this episode of the Real Estate Revolution.

I think just to your point, that that's the reason why it's taken so long, because we don't want to make it's fear driven. That's. That's why we've been apprehensive to do investment, which is why a lot of people miss out an opportunity.

This episode is so full of great questions and great strategies. You are not going to want to miss this. Make sure you listen till the end. Welcome back to the Real Estate Revolution. I'm Steve Valentine. Today I've got awesome guests with me. They're in the beginning stages of the investment journey. I've got Eric and Brianne Bergman on, and Eric is a contractor. Brianne is a real estate agent. So a little bit reverse of Wendy and I, and they're trying to get started and figure out what direction to go. So thank you, Eric and Brianne, for being here. Where do you guys want to start?

We just need a little help on where to start. We're in the beginning and just trying to figure things out and we don't want to run a huge risk.

Okay. All right. Well, so, Brianne, you've been in the business for five years in real estate?

Yes, that's right.

Okay, and have you guys done any flips or own any rental properties at this point?

Not yet. We have been looking for probably two years, but no, not yet.

Okay. Okay. What's been the biggest thing holding you back from finding something?

I think it's a couple things. Just knowing what to look for in a property that's going to bring us the revenue that we're looking for. And, and also, I mean, when, like when I'm running comps. When I'm running comps, it's just sometimes in my head it doesn't make sense. So I'm just not finding the right properties.

Okay, yeah, that makes sense. Because, I mean, when we start, it's always hard to kind of determine the numbers, and that's always the hardest thing. And then the risk of, okay, if I buy this, what I'm going to do with it, I will tell you what I have found is that very few properties that are great deals that have flip potential will come out of your traditional resources of mls. They're just very few and far between because if somebody's put it on mls, you know, they already have an agent guiding them into maybe what this could be. And so they're already going to be to the top of the market as to what is out there. And those are some of the riskier things. Right. People get started, and it's hard to come back from that as far as the value goes, because whenever you look at it on a flip, and I don't know if you know this or not, but when we look at flips and let's just say there's a $20,000 profit, right. It's really about maybe 12 to 15, depending on your tax bracket. And so we have to kind of factor all that stuff into flipping as to what the real purpose is and the goal and how many do we want to do to create X amount of income and how many can we manage financially at one point in time, too? Right. So I don't know if you guys have thought about that as far as financially, how many you think you can manage at one time.

I think more it would be emotionally, how many can we handle?

You know?

But no, I definitely. Financially, I wouldn't want to. At least in the beginning, I wouldn't want to handle more than like two at a time, honestly.

Okay, now is it a. Go ahead, Eric. Got it. Yep, yep, yep. Sure. Let me tell you where the kids always start. In the dumpster. That is where they start. The kids. Right now, they are all they have. We have four houses that are disgusting that they are responsible for cleaning out. That is their job right now. They get to see how bad it is. And it is. It is fun to kind of show them the numbers and talk to them about money and what it takes. Because, you know, the conversations we have with our kids, they see all the things that we're doing and we have, but they didn't see the work it took to get there. And so they're great conversations to have. I mean, I have memories of when the HUD foreclosures happened in the early 90s. I have memories of being like 10, 12 years old and going out and cleaning out nasty, nasty houses with my dad. So it's always good experience for them to kind of see how people live and what it looks like. And sometimes it prompts different things. So I'm glad to hear you guys are getting the kids involved in it, because that's important to have those conversations with them because they're going to get curious, especially. You said Your oldest is 19? Yeah, yeah. So that. That path that they're on is trying to start helping them see what. What the future is through real estate and what you guys do so that they are educated on it to where, you know, we both get referrals. Right. Well, my son's ready to buy a house and they don't have any idea how it works. Right. So it's always good to keep that education going with them.

Right.

Let's, let's talk about the traditional side, Brianne, of the real estate business. When you're out there, are you having conversations, you know, at the listing table about, you know, have you ever been to a house where it's trashed and they want to put it on the market? Have you been to one of those yet?

Honestly, I have not. Like my every listing I have had, I mean, there have been some that obviously they needed to do some work, but I have not been to like a gross house where I was like, oh my gosh, no, I haven't really had that experience yet, but I'm sure I will.

What about little old people that are hoarders and too much stuff in their house?

You've been doing those and it's like pulling teeth to get them to get rid of stuff.

Okay, so let's stay there for one second. When there's pulling teeth, there's a pain point. And this is where a lot of our business has come from, is trying to solve the biggest pain point for the seller. And, and it's not always putting it on the market. So it's trying to reverse engineer the conversations to figure out what somebody's pain point is and then start to work off that pain point with the solution. And so the solution a lot of times provides an opportunity for where you want to go with a potential flip or rental property. Because I would say about 50% of the properties that we buy come from listing appointments of people wanting to put their house on the market and realizing either it's going to be way too much work for what actual dollar is going to be received versus oh, you can make this really simple and I don't have to clean anything out. And you will buy the house right here? Yes, that's what that looks like. So it's realizing that every listing appointment or seller can be turned into an opportunity to create a win win strategy for everybody. And that is always my goal. It's never like, yeah, I stole this house from this person. I want that person to. I mean, we just, we just bought a house on seller carry from a referral from our lender and we got done and I got this great, thank you email that we solved his mom's problem by creating some income through seller carry. They didn't have to clean the house out. I've got a rental property that my kids are cleaning out and it creates additional opportunity. So like on that one, what could have been a listing to most people turned into an opportunity to create a solution for the seller. And when the seller got done, he's like, hey, by the way, can you help my kids find a house? Because I really like the way you worked. Right. And that's the ultimate reputation is when you can go in, you can solve a problem, buy something from somebody, and then them turn around and refer you for another transaction. Because again, they felt like they were taken care of. They felt like they were heard and you were able to solve for what their biggest need is. And so it's kind of transitioning, Brianne, especially on your side. Being in this business five years and being on a team, everything's about the transaction count and everything's about the gci. Right now we want to look at. Can we add some other goals to that? You know, the other goals is, you know, how do we increase our net worth every year because you guys have kids, you want to retire, you want passive income, and how do we generate some additional revenue sources that is either doing flips or wholesaling or something of that nature. It's just being very holistic about the business now. Right. Not everybody is a buyer or seller, but everybody has a problem. And Eric, on your side of the business and the construction side, are you getting calls for people that want to bid out renovations? Are you primarily commercial residential? What does your side look like?

He's still there, I think.

I think Eric is one of those dead zones right now. Do you know what his side of the business looks like, Ran? Well, if you didn't know, I've released my first book and published it is available on Amazon. Limitless Real Estate Strategies. I wrote this for anybody in the real estate business. I don't care if you're a real estate agent, lender, wholesaler, investor. This will help you change and break some myths that you think are out there. It will also change change your life, change your legacy, and ultimately help you build wealth while creating win win strategies. So pick it up on Amazon today.

Honestly, I don't like his. His. I know it's commercial. He does commercial.

Okay.

But like he. It's very stressful. He doesn't talk about the business side to me a whole lot because I probably wouldn't understand it.

Well, commercial contracting is totally different than the residential contracting because it's not an emotional business. It's very numbers driven. It's very time driven. It's so the emotions aren't there with how it feels. It's more of a let's get this done remodel because we need to move in and we need to get our company in here, those types of things. So that may be a little different.

Right?

Have you guys set any goals as far as maybe rental properties? Have you started to look at that side of the business?

Honestly, with the rental properties, we've tossed it up a few times.

We.

We don't like. We don't know whether we want to do like a rental or a flip. That's the thing is we're. We're kind of torn. Like, okay, what's going to be our best course of action for our first being being so new at this? What. What should we do?

Okay, that's awesome. I will tell you where Wendy and I started, and this is going to depend on where you guys are financially with things is when we started, we were doing flips to create income so that we had down payments for rental properties. But in that same time frame as we started to flip things, we're like, should we keep this as a rental? And we started kind of thinking about, okay, what is our ideal rental property going to be? Because once you understand what your ideal rental property is, and I call it the buy box, now, everybody's buy box is different, and it depends on what part of the country you're in. But I will tell you in Phenix, what Wendy and I do is our buy box is under 2,000 square feet. No pools, no way is typically a single level, three to four bedrooms. And we're typically inside. So some of you guys won't get this, but typically we're inside the one on one the loop. Right, because we found that those are where the tenants stay the longest. And we've. We've designed that on purpose because we went and got information about it, we watched it, we studied it, we went through our portfolio and said, this is the best absolute design for it. Now, it also has to do with price and what something will rent for now, today, you know, the rental. Like, if you're buying something on the market today as a rental, it's not going to create a cash flow because the rents are lower than what the payments are due to interest rates.

Right.

But. But if you're looking at something that has maybe a potential mass amount of equity in will, it will change the way you look at things. So here's something that some people will chastise me for and some people understand. If I can buy a rental property, and let's say it's in great condition and I can pick up a hundred thousand dollars in equity and it's cash flowing, negative 200amonth. Would you trade a hundred thousand dollars equity for 200 negative cash flow? That's why. Right, that's why I said it depends on where you're at financially. So if it has $100,000 in equity, then maybe you want to go through and go ahead and sell that. Right. Whether it's putting it on the market or flipping it or whatnot. Now we have to kind of determine with that is like what kind of income do we want to make and what are we willing to risk to do this? Eric said it earlier, like, I don't care if we make 10,000 or 50,000. When you start working on margins of $10,000, there's a lot of things that can go wrong for ten grand.

Right?

Right. A lot. So have you turned, have you heard the term ARV or after repair value?

No.

Okay. This is where we kind of break down. And I'll try to give some simple numbers is when, when you look at something, this is where people kind of go off course with it. And understanding the numbers. Let's say you're looking at a house that right now value, if you put it on the market and you did the comps, was $300,000. Okay. That's what it's worth right now. And now we have to back out the numbers to get what's called the before repair value number, which is what we're willing to buy it for. So when we do these in these price range, like this current market, you're taking 10% off the top, which is cost of sale, by the way. This is where you become multiple personalities. Brian. You're the investor and the realtor because you want to pay yourself going in and coming out. Because we want the real estate business to stay profitable.

Okay.

Because there's other expenses and other things that are, that are tax beneficial to that. So $300,000, you've got $30,000 off the top because most likely in this market, the buyer is going to ask for concessions. So we just want to budget for it. You don't want to go, you don't want to budget to the tight side of things. You want to, you know, over promise, under or sorry, over promise, under promise, over deliver.

Right, Right.

So when you're looking at it, you can determine. So let's say it's, it's $30,000 in cost of sale, and let's say it's a thousand square foot house and it needs a full gut. Now I'm going to tell you our current cost. I don't know what Eric can do it for, but let's say it's $50 a square foot. So it's going to be $50,000 to remodel that house top to bottom. Okay, so we've gone from 300,000 to 270. Cost of sale, another $50,000 in repairs. Okay, now we're at $80,000, which is almost 70% of what the repair is. Now here's what has to factor. We have to factor in for six months of holding costs. So unless you're paying cash for it, we have to have holding costs. So on the average $200,000 loan at 10%, it's about 1700 dollars a month in interest only payments. So let's say it's, let's just take an average of $2,500 a month for holding. And you've got to hold it for six months. By the time you repair it, sell it, put it back on market, you know, they're $15,000. Now you're down to 205. And then you're factoring in your profit, which I wouldn't do anything less than $20,000. So now you're down to 185. That's how we back numbers in. So if you're, if you go out to a house, you're like, the house across the street is a model match. It's sold for 300,000. The house across the street needs to be remodeled. I need to buy this for somewhere between 175 and 185 in order to make a profit. That's where you'll hear a term as you start to look at this. A lot of people will say you need to buy somewhere at 60 to 65 cents on the dollar of after repair value. So that's where you back in. And that's the easiest way I can kind of say it is. If you, if you look at it, those were simple numbers. But it's like if we don't want to risk, we've got to build profit in, we have to build cost of sale in. And you have to build the commissions in, or at least you should. You don't have to do anything. But the way our business operates is, you know, we are, I am one of a couple of people. I'm the acquisition person. So I want to pay the company for acquiring the property and I want to pay the company to sell the property. So my numbers look the same way, if an investor came into my business, says, I want to do this, well, I. Here's all the places that. That people get paid, and this is what your potential profit is. And we don't want to short ourselves on that either, because the real estate business, you've been doing it five years. So when you guys do want to keep rental properties, your finances, your banking, you want to keep those commissions coming in. Because, by the way, when you flip a house, it's considered ordinary income. So if you make 40 grand, it doesn't matter where that 40 grand goes, because it's all taxed the same. That $40,000 profit on a flip is no different than you getting a $40,000 commission. The difference is that $40,000 comes into you in Eric's personal account. Then. Then what happens is it's just you're keeping the expenses or the income into the business that has been in play for the last five years.

Got it. So there's a lot to take into consideration.

Mm. I know. Eric just asked the question kind of in between his road trip here. You can't really. 10:31 Exchange on flips because they weren't considered a rental property. And we. 1031, they're like, kind. Trying to mute Eric's mic because all I'm getting is feedback. Are you hearing that feedback, Randy?

Yes, I'm hearing it.

Yeah.

There we go.

Okay, Perfect. Okay, so the. The 1031 doesn't work in flips. It works in rentals. But let me show you the same numbers. What happens in the rental side of things. And again, you'll have to determine your financials and where you guys are at. So if we take the same cost of sale, 30 grand, and we take the profit, and we take some of the holding costs, and we take the taxes. And remember, you know, the money that we split up, we're going to have to pay 25, 30% in taxes on. Right. If you add all that together, it's typically enough money that you didn't give away that creates equity in the property. So let me. Let me walk you through that real quick. Let's say you guys did pay 1, 185 for it, and you put 50,000. Eric, welcome. I'm home. Good job. So if we're walking it backwards, you paid 185. You put $50,000 into it. That means we're into it for 235. And it would sell for 300. Or the value is 300. Okay. Which is about 65, $70,000. In equity, you need to put 20% down on investment property. Right. In order to do non owner occupied financing. What if I told you that now that you've done the repairs and it's sitting there, you can go in and refinance the property based on a certain system that I've kind of created and shared with people where you can get all your repair money back. You've created equity in the property enough to be considered your down payment and you have zero money into the rental property and you have no tax liability from it.

But that would be fantastic.

Sounds amazing.

Does that sound more of what you guys want to do versus doing the flips? And the reason I ask is that some people get into the flips because they want to generate income to make down payments. And I kind of reverse it and say, what if you could do flips and create the down payment in the flip to not sell the property. Here's the other great thing, Eric. Because you're in the business, in the construction business and because my wife's a contractor, I don't want to buy somebody else's flip as a rental because I don't know what they've done to it. It's not my guys warrantying it, all those other things. So if I'm going to go through and put a new roof on and a new AC, new windows so that I can make 10 grand for somebody else to enjoy that for the next 20 years. Why not do it for yourself and create a portfolio by, hey, we added value to this. We know it's not going to have any problems for the next 20 years because we did all of this in the construction side and we got value for it and we created the equity that we needed for down payment and now we can go do it again and we have nothing into this property.

That would be fantastic. Absolutely.

That's.

I think that sounds like what we would want to do. Yeah.

Okay. And that's great. And now it's, you know, realizing that, you know, I asked you the question, you shook your head no before Brianne. Is that okay, we left. Let's say we did that scenario right now what's going to happen is when you go to refinance it, the rate's not going to be great right now, but the condition of the property is going to be what carries you forward. Because we've taken out all the long term liabilities, you know, the cash for a broken AC units and this, that and the other. We've also increased the potential for higher rents. Majority of our Properties that have been remodeled, they get a higher rent than market because they are nice. The other benefit is, which, again, you don't always see these things up front. Our average tenant in a remodel property stays five to seven years, which means we don't have the turnover, we don't have leasing fees, we don't have all these things, which is an added cost in most properties. It's less of an expense for us because the properties are in good condition and the tenants want to stay because they go out to look at other stuff. They're like, well, I live in the Taj Mahal, I'm not moving. So it's having a mindset. And I. Right. So it's having that mindset of how do we want to create this. So back to that thing that I asked earlier. Would you trade $100,000 in equity in a property for $200 a month? Because some of these right now, they're not going to cash flow. No, but, but here's the deal. If you're building the portfolio and you're building the equity, and you didn't have to put 60,000 down, but it cost you $200 a month to hold the house after you've collected rent and your expenses, does that make a profitable long term? Because again, it's like spreading out a $60,000 down payment over $200 a month for how long? Yeah, so it gives you.

I guess my question is that does the numbers pencil right now with the current market? You know, I know construction cost is up even with even buying at discounted rates and trying to find, you know, a property that's, that's worth doing that. How do you, how do you find those properties?

So the finding the properties is being more prepared for opportunity and understanding the numbers and practicing it a little bit. Everybody, everybody becomes a conversation. One of the questions I'd asked earlier, Eric, when you were in dead zone was are you primarily commercial or residential?

All commercial.

Okay.

Yeah.

So the residential is a little bit different from your side as far as that goes. So finding properties is really about creating a reputation that you are somebody that's willing to invest or you are a problem solver. And this is something, you know, Brianne is going to learn more about. Cause the more we can connect the dots and even if you're not doing it. So, like, I would give Brianne the advice. Hey, I know you may not like this, especially because it's summer, it's gross. But you look at the MLS houses that say, you know, fix up, need repair and you and her go look at it, but you're. You're documenting it on social media. Like, we're looking for investment properties. We're going through this property right now. Now people know that's what you're looking for. And then people start to text or call and go, hey, you know, my parents just passed away and I've got this house. It's a hoarder house. I don't know what to do with it. Those are where the opportunities. But if somebody doesn't know you're looking for something, they're never going to bring it to you.

Correct.

So it's kind of. And I don't know how. Brianne, how much social are you doing around your real estate business right now?

Like a few posts a week. Not every day. I'm working up to every day.

Okay, how about your stories?

I try to do that every day.

Okay.

And it's not stories related.

Sure. No, I. You don't want it to be. People need to get to know you. Right?

Yeah.

So. Because if Eric saw me and I was just posting about real estate, I would be super boring.

Yeah.

Right.

Because stories. Stories are where people get to know you. But it's like, again, if you and Eric are out videotaping a house that even if you're not gonna buy it, it at least shows somebody you're looking for it. And so it's kind of making the comment like, hey, we're looking at this. If you know of something or you have something, please send it to me. I'd like to look at it. That kind of helps validate what you're doing and what you're looking for. Because then people will know. And it's. You'd be amazed at what people have sent me in posts or called me because I was looking at a house that was trash. They're like, dude, I got one down the street. Do you want to look at it?

That's a great idea.

And again, it's. My dad used to say it. Right. Fake it till you make it. But you guys aren't. It's not a faking thing. It's a practice thing of, hey, we're going to go look at houses and go, eric, how much is it going to cost us to remodel this? Because Eric's going to have to get good on his numbers because we're now under the residential side. Right? Correct. Which is. Which is different. Right. And I don't. I don't know if your subs are going to work the same. Those types of Things, I mean, obviously you can manage the project, but those are some of the things that we need to talk about. And then it's also, it's something fun to do. Right? You look at it, you go, nope, this isn't going to work. Or yes, our numbers are right on. It is going to work. And you also, one thing that's really important in this is that if you're going to buy something and you know it's going to be a rental, your renovation is going to be different than if it's going to be a flip. Because we renovate things differently on the rental side because we want to make it tenant proof and we want to make it durable. So I'll give you one example that we use all the time is that when we flip a house, we do the pretty showers with the tile. Those are terrible for tenants because they don't maintain grout very well.

Right.

So we go in and we save $5,000 by just doing marble slabs for the showers. Right. Because now we're just dealing with caulking.

Right.

So we save money there. But it's not just saving money. It's also longevity of that bathroom of going, we just have marble slabs in there. They're not damaging it. We can still get the marble slab. It's easy to replace those types of things. And then you're looking at, you know, can we paint the cabinets versus put new cabinets in? What's the longevity? If we're going to keep it long term, do we just want to replace the cabinets and be done with it? So it's kind of like leading through that. And if it sounds like you guys are more like, hey, I think we want to build a rental portfolio. The other piece is going to be start getting familiar with the price ranges that work.

That was my next question.

Yeah. So, Eric, you talked about being on the east side. Well, I know. Are you guys in Scottsdale?

No, South Chandler.

Oh, okay. So now, so you're in South Chandler. So let's talk about just location wise. Now you're looking at what's close, what's easy to manage, and what makes the most sense for rent. Right. So you maybe you start looking in Mesa or you start looking at Queen Creek and you start looking at things are demographically closer to where you're at, that's going to make sense. So it's kind of like picking a neighborhood. I like older homes. Personally, I don't like newer homes because hoas and those types of things. And older homes typically need more work, which I don't care if it's little old lady clean or it's trashed. It's all the same amount of money to redo it except for the trash out. Yeah. And the worse they are, the more work the kids have.

Payback.

Which teaches them. Right.

What's actually what's funny is we taught the kids like, hey, I know we told you to trash this out and we're going to pay you for this, but if you would look at the opportunity of having a garage sale and let people buy everything for a dollar, you can make more money and you don't have to do as much work. And so one of the kids came to me yesterday and they did it over the weekend and I think they made $1,000 on Saturday from just selling somebody else's random junk.

Was that old lady's house that you had posted on?

Yes. And so one of the kids came to one of the adopt kids. He's like, so we were there X amount of hours and this, that and the other. I'm like, yes. So do you know how much you made an hour being doing garage sale? He's like $50 an hour. I'm like, how much did you make working at Blackrock Yesterday? He's like $14 an hour. Okay, I want to do more of that. He's like, where do I find more opportunity like that? So it's kind of fun to educate him on what that looks like. Yeah, you can go work somewhere for $14 an hour or you can go do this hard manual labor and make $50 an hour. Which one do you want to do?

Right.

So it is kind of fun.

So should we like I know you said you guys have a buy box so and you did some research to find out tenants and like, should we put something together like that?

Yeah, you want to start researching, you know. Okay, a couple of different questions. One, are you going to use a management company or do you want to manage it yourself? I highly recommend the first one. I just believe management services just the best liability wise and everything else just to keep out of it. And so if you're going to go management, it's, it's having a conversation with a couple of management companies, you know, out there in that area and going, okay, who's going to best serve me? And then picking their brain like, hey, where do you guys see the best rentals? What are the, the longest tenants staying? So now you can kind of ask those questions and then they'll kind of give you the buy box which works best. And sometimes it's different depending on what you're looking at.

Okay.

And here's.

Go ahead. Sorry, Steve. When you're looking, you know, when I was kind of running numbers, probably like six months to a year ago, I was using like air DNA to find some comparable rental rates. Is there another resource or tool that you utilize other than just kind of. I mean, how do you find the rental rates that's. That are reasonable in that market or where in that location?

MLS is an easy place to look, but it's not always the dictator. And that's why, you know, my mom owns the management company. We've always worked together on things. And so whenever. That's why the, the having the relationship with a management company is really good for what you guys are about to do, because it's looking at a property and being able to shoot the property management or manager manager address and going, hey, what would this rent for? And how long would it take to rent? And then you get a quick response because sometimes the management companies will see things differently and go, oh, I think you get $2200 out of this versus, like MLS might show 1900.

Yeah.

So that, that's why it's kind of important to have that management connection.

Okay. And then next question. You know, you talked about, you know, I agree with you on the flipping. You know, I, I like to stand behind my products. So I see some of these houses, people flip and I'm like, oh, my good heavens, like, what did they do there?

So I would do lean more towards.

The maintenance free kind of that you alluded to. What would you say that when you do a house that you're keeping as an asset, what would you say that your typical renovation cost would run per square foot? I understand there's a ton of variables, but, but I mean, would you. Do you really assess the roof condition, the H Vac? Do you really assess everything? Or would you say that there's a good dollar amount to run with as a budget number? As an average, yes. And I know that's a loaded question.

So right now. No, it's not a loaded question. You know, we document everything pretty well. If you're gutting the full interior of a house, you're doing kitchens, baths, flooring, and you're. We're not talking about budgeting for any of the major mechanicals. You're probably somewhere around $50 a square foot right now.

Okay. And that would be cabinets, countertops as well.

Yep, yep.

Because I don't agree painting is not the way for, for renters that their renters don't, don't really care about the.

The asset, the condition of the house.

Right. But believe it or not, when you do make something nice, the renters tend to feel that it's more home and they do tend to take care of it better. And that's what we found. I mean, you can almost look at it, Right. And there's been so much research about it is that, you know, if you take a tenant and you put them into a home that's never been touched and it was built in 1970, they're not going to have a lot of respect for it because it's worn out, it's old, things creak, this, that and the other. You take that same person, you put them in a home that's light and bright and it's been renovated, they will feel more at home and they will feel better about where they live, which means they take care of things a little bit better. That's not all people, but that's just something that we have found in our homes that, you know, we, the tenants stay longer, they're more appreciative and they like the house better and they're willing to stay longer. You know, even if we do small, in small rent increases over time.

That makes sense.

Yeah. We've actually know some people who have rented a house to get out of situations and then end up purchasing the house after renting it for seven to eight years. Yeah, yep. So. And they, they ended up doing a renovation after they, they, they, you know, kind of did their, their own little abuse.

Yeah, sure, sure.

Is there a template that you have that you use to, to work back into some of these numbers or that you can share or provide?

Absolutely. Actually, you're, you're going to get that in, in the limitless circle that you guys signed up for. So you're going to get that template of working it backwards. That's going to be one of the things that we go through is how to work the numbers. We actually have a sheet that we utilize when we buy a property to take it from. Do we want to sell it as is, do we want to renovate it or do we want to keep it? And you can kind of fill in all the numbers and go, here's what it looks like. Like, this is a disaster if we flip it, or it's really good idea if we keep it as a rental. And you're going to start to know some of this a little bit just by looking at something going, this is a really good house that we should keep. And Sometimes it's like, you know, you go into the houses where it's got a new roof, it's got a new AC, and it needs light cosmetics, but you're still getting a really good value on it. You're like, this makes more sense to keep as a rental. Right. Versus a flip. And so we, we always encourage people that when you're investing and you guys are in this space, you're not buying something just to buy something. There's, there's a particular reason we're buying it, especially for the long term holds either that you can add value to it or something of that nature. So there's, there's a number of different reasons for it which we're really going to, you know, drive home in that group as to all the different opportunities. And the other part of that group too, which Brian, you'll see is like, you know, people will post properties in there that might make decent flips or rental opportunities that are going to be exclusive in there.

Okay, so you're at an area on the west side that has, you know, kind of, there's some older communities with, you know, 55 and older. You know, our location, we're real close to Sun Lakes where there's quite a few old, older folks, you know, 55 and older communities. Would you see that as a, as a pro, as a tenant? Because, you know, they, they would not abuse the property. There's not necessarily a pool that's going to be there. You know, they, they may, I don't know, I think that they'd be good tenants and they're willing to pay a little extra for something. That's nice.

I'm, I'm laughing because I want you to think about. This is like, yeah, they're not going to abuse anything, but they're gonna leave, they're gonna leave in an ambulance or.

Well, the other side is. There's also wheelchairs too. I started as I was saying that.

So I will, I will tell you, in my experience, being on the west side, we have Sun City, is that the only time I will flip a house in Sun City is if I can buy it for less than 50 cents on the dollar. Because the market is so weird. There's so many transfer fees involved. And for some reason, older people would rather have older style homes than renovated homes. That's what we've experienced. Like when Wendy goes in and does it her way, for some odd reason, they just don't sell well. And I don't think, I mean, probably out of the dozen that we flipped In Sun City. Have we ever done really well on any Gotcha. Most of the time we've probably lost money on it. We had one Sun City property that the buyer bailed the day of closing, which was like a month before COVID And we're like, oh great, now what do we do? Right? Everything shut down and we ended up having a really sweet family that had a daughter that had cancer and they rented it for all the way through Covid, which, you know, what happened during the prices during COVID So it worked out really well for us to rent to those people. But that was kind of a fluke, right?

Yeah, yeah, yeah.

The other, the other cool thing about this that I want to share with you guys is going down this road, you guys probably, I'm going to guess, make decent income. There's not a need. I mean, there's not that there's not a need. There's always a want to create more income through flipping, but there's not a need to go through and go, if we do this and we lose 20 grand, this isn't going to feel good, right? Because flip it. Flipping, if you're really doing it, comes in law of average. We know that some are going to do well, some of are not. You know, it comes down to law of average. If you're going down the road of going, hey, you know what? We need to start doing these to build the legacy and then figuring out like, hey, we're buying these, we're keeping them as rentals and now we have this legacy that we can pass on to our children from an income standpoint, from a trust standpoint. And you know, then you start getting your kids involved in what you're really building. And it's not, it's not a gift. Our kids are very in tune with what we own and what's in our trust and what's expected of them. If we were to both pass, there's a financial team in place and it wasn't to go sell and make you a multimillionaire overnight. It's about creating a long standing income inside the trust for, you know, our kids. Kids. And that's the way we designed it was to build that up. And then when you look forward 10 years and you've bought 10 rental properties and you made them nice and then you start looking at like, hey, we want to do something different, we can sell those, we can sell some of them 1031, exchange them into something else. There's so many more things on the backside of what is possible. As long as you capture those assets, because there's also the possibility of pulling money out of it tax free. There's possibilities of 1031 exchanging it. All those pieces that create that opportunity by owning that real estate.

Correct. With the current economy the way it is right now, and if we're to purchase now, if everything the economy does go, we go into complete recession. What have you seen in the past with rental rates and decreasing in value?

They have. So right now they've gone flat. They probably will not decrease much. And it's kind of the same with real estate. The nicer rentals will stay rented, the reasonable landlords will keep the rents stable. Right. They're not going to try to jack up rents and kick people out. The time that we had, the worst rental market was due to the foreclosure crisis and the amount of investors that purchased. Right. Because you would see 10 Fannie Mae properties go on the market on one block and 10 investors would buy those properties. And now you have 10 properties up for rent. So the lowest one wins. We still in the Phoenix market, we still have a supply and demand issue. You're going to have some competition with a lot of these new apartments being built and those types of things. But so far we've just seen everything be pretty stable. And you do want to plan for the worst case scenario. Like, okay, some years they're going to be rented higher, some lower, depending on the market, and it comes out to a law of average. So sometimes your cash flow is good, sometimes it's negative. But we also have to realize the tax advantages of even something that's break even because you're getting depreciation on it because Brianna's in real estate and you're in construction. You also have the advantage of being active participant in real estate, which actually provides more tax benefit. So there's a lot of positives inside, even if there is a little bit of negative cash flow. And a lot of people, not a lot of people, half and half disagree with that. It depends on where you're at financially. And here's kind of how I put it to people. If you're willing to go put it $200 a month in a 401k, that just saves you a little tax money. But you're not willing to pay $200 to control a $400,000 asset a month that you have equity in that you didn't put a down payment on, then maybe the real estate investing isn't for you because the numbers are different. Right. And sometimes that $200 a month. Right. A 401k doesn't cash flow. An IRA doesn't cash flow. They don't give you any tax depreciation on your taxes each year either. And so understanding how some of the game is played when you do have negative. But you've got equity in the asset that's. And you're going to get it back on your taxes. Right. You're going to pay less taxes that year, which probably equals out to what your negative was anyway. Yep. But it's getting into that mindset of if, if I can buy a property back to our original scenario. If I can buy a property, renovate it and have no money into it when it's refinanced. And right now, because of rates being higher, I can stomach being $200 a month negative. Keep in mind you didn't put two $60,000 down on the property.

Correct.

Right. That's where the trade off is. Right. So those are, those are some of the things to consider when you're going through this is like, it's a very holistic approach to what we're doing and why we're. It's not just where some people get shortsighted of. I want to buy a rental property that cash flows. And right now, rental property that cash flows probably means a lot of money down and less leverage because of where interest rates are. But if you get through it and you can stomach a little bit of negative right now, when the rates do change, then you refinance and it brings it back into a positive cash flow and your value is still there.

Okay. And one more scenario that I think I'm done asking.

Yep.

With, you know, things changing with, again with the economy and potential for houses going into foreclosure. I know, I know quite a few people that have sold their assets and they're just sitting on their cash. You know, Robert Kiyosaki talks about in a recession is the best time to buy property. So, you know, we're buying. I guess I can answer my own question. I was going to say if we buy it at this rate and then all these other investors come in when, you know, prices drop on real estate, but they're buying and they're paying cash and we're still at that, that scenario that you were talking about, we have zero money down.

There's, there's an opportunity in every market, whether it's down or up. It's. It's putting yourself in a position to capture that opportunity. Because if all the investors took advantage of great things during 2008, 2012. I wished I would have. Right. I was trying to unbury myself from 2008 financial crash. But my goal was in 2015 is that I had to start somewhere. And while I bought my first house and I'm like, man, we sold this house, this same house down the street for Fannie Mae for 50 grand and now I have to pay 110 for it. Well, we kept that. We bought it in 15. Had I not started in 15. Right. That house went up to $400,000 during COVID It's probably down a little bit. But had it not just started and tried to time the market perfect? Because what's going to happen, you get into it like, okay, we bought one in 2023. It went down a little bit in value. Well, if it went down a little bit in value, guess what? There's probably more opportunities to be had now. So now we want to capture those. We can't keep being fear based of, well, the prices are coming down because you're never going to time that drop perfect. Just like nobody timed, nobody timed 2022 perfect. The people that thought they were going to hold out for another six months, they didn't make as much money. The people that sold right at the beginning of 22, they crushed it right at the beginning. That's just luck. Right. There's no way to time that. But if you look at law of average over time, I'm doing this once a year. You know, we bought homes for $100,000. In 15 we bought homes for 400,022. If I look at the average price point of my portfolio, it's $250,000 across the board. And that's, that's what you want to focus more on.

Yeah. I think just to your point that that's the reason why it's taken so long because we don't want to make. It's fear driven. That's, that's why we've been apprehensive to do investment.

Sure, sure.

Which is why a lot of people miss out an opportunity.

But it's also one of the things that, that has given you financial security of not jumping into something that you're a little bit queasy on. Like, I don't want to risk flipping. Doesn't sound like fun. And the only time flipping sounds like fun is that if you're getting a really good deal. But still mentally it's being prepared. Eric, if you go to work after we have this conversation and one of your subs is like my mom Died. She left me this house, a piece of crap. I don't know what to do with it. Your first conversation now isn't going to go, my wife's a real estate agent. You should reach out to her. You're going to be like, well, I'd like to buy that. Yeah, yeah, that's it does it changes the conversation 100%. Yeah, right. Because now you're like, oh, can I help this guy by buying the house from him? And you know, that's just, that's just how it works now for me is like, oh, you know, because real estate agents, no friends. Brian is. It's like, oh, your mom passed away. You're worth 2 to 3% commission. How do I help do this? Right?

That, that she would be sitting there saying, how can I help you? She's a, she's a. Sure. A lover for sure.

She's, she's in there packing up their boxes and doing all those things. Right? So those are, those are the conversations we end up having. Or you see something on Facebook and you reach out. The goal is that we want to be as helpful as possible and create a win, win situation for everybody to where everybody gets what they want out of it. Everybody gets to make a little bit of money and everybody's okay with that.

Okay.

Sounds amazing.

So cool.

When are the limitless meetings?

So we are just getting those scheduled. The other thing too that I wanted to tell you is I've got a bonus thing that I haven't sent to you yet. My, My new book called Limitless Real Estate Strategies is finally complete that I've been working on for two years. And we're having a huge book launch party that's exclusive, so you guys get a free copy of the book and tickets to the book launch party on June 13th, which you guys will get those invites for.

Awesome, awesome, awesome.

So I'm very, very excited about that. That was a two year to your process. I hope you enjoyed that episode of the Real Estate Revolution. I hope you'll join me in the revolution through stevedvalentine.com this is where the podcast the Limitless Circle, private mentoring, coaching and all the real estate that we do, plus there's a few exciting courses in there as well that might interest you. Looking forward to connecting you soon. And I hope that you will share and subscribe this podcast if it had value to you.