BiggerPockets Real Estate Podcast - 188: Using 20+ Years of Studying Market Cycles to Buy Low & Sell High David Gudmundsen

Episode Date: August 18, 2016

Is the real estate market about to collapse? Do we have 10 more years? What’s the future hold? While no one can definitively answer these questions, today’s guest has some keen insight into timing the market, allowing you to “buy low and sell high.” Today, we’re excited to introduce you to David Gudmundsen, an investor who’s been in the game more than 20 years and who’s seen numerous peaks and valleys — and who has learned how to ride the wave. With more than 250 deals under his belt, David is an incredible resource for anyone looking to grow their portfolio — or preserve it — during times of uncertainty. Unless you know exactly where the real estate market is headed next, don’t miss this powerful and entertaining episode! In This Episode We Cover: Why David chose real estate and his first property How he got his first property by assuming a loan How he reached a level of buying a property a month without a college education How Monopoly inspired him to invest in real estate How to balance learning and actually making deals What exactly a wrap is Thoughts on contracts for deeds How many deals he has made What you should know about seller carry back What walking the mortgage is Insight into market cycles and crashes How to read the signs of market cycles What we can learn from the boiled frog analogy What “buying right” really means The importance of not always doing the things others are doing Why it’s important to join real estate club meet ups A couple of his worst and greatest deals And SO much more! Links from the Show BiggerPockets Pro ZBuyer BiggerPockets Webinar BiggerPockets Analysis Tools BiggerPockets Forums Books Mentioned in this Show How to Buy and Manage Rental Properties by Irene and Mike Millin Unlimited Power by Tony Robbins Close That Sale! by Brian Tracy Advanced Selling Strategies by Brian Tracy Tweetable Topics: “I can never win at Monopoly unless I roll the dice and I buy houses.” (Tweet This!) “A good borrower can make a bad loan good, and a bad borrower can make a good loan bad.” (Tweet This!) “Forget location, location, location. It’s all about buy low and sell high.” (Tweet This!) “You just look at what exactly the herd is not doing.” (Tweet This!) Connect with David David’s BiggerPockets Profile Email David David’s Company Website Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast. Show 188. How is it? I mean, 180. How many, what's this show, 188? We've never, I've never heard of walking the mortgage. Have you, Brandon? I have not.

Between the show and all the years. It's pretty cool. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of other. who have benefited from biggerpockets.com.

Your home for real estate investing online. What's going on, everybody? This is Josh Dorkin. Host to the Bigger Pockets podcast here with my co-host, Mr. Brandon Turner. What's going on, man? I'm good, but I got to tell you, my brain is hurting a little bit. I learned a lot of stuff today. Oh, like how to walk, like how to spell your name.

How to paint a picture? I know we're starting behind, but like, really? No, we just got done recording the episode with today's guest. And this guy is... That was a great show. This was a great show. This guy is a great show. You guys are going to love this thing.

I mean, seriously, my brain hurts. I learned so much stuff today. And I'm excited for you guys to be able to hear it. It's pretty awesome. So, yeah. It is. It is. Yeah, things that we had never even heard of, like walking the mortgage.

Yeah. I love that concept. Yeah, there's some really, really cool stuff. He's been around. He knows what he's talking about. Yeah, I'm pumped. Well, let's get into it. How you been?

How's life? Things are good. I mean, I don't know, babies growing up, big and strong. She's now three months old almost. And, yeah, things are good. It's fun being a dad. How about you? You've been gone for a while.

Yeah, I was in SoCal for a bit. Got to take the kids swimming, hit the beach, go boogie boarding. We went to Universal, which was... The Harry Potter thing. Harry Potter thing was fun. Yeah, the whole thing was great. Actually, a really funny story. I'm going to call out one of my daughters.

I'm not going to call her out by name because I'll forever destroy her. But we went on the Simpsons ride at, you know, Universal. And so the Simpsons right is you get into this car that you can fit like four, four across the front row, four in the back. And this thing rises you up. And it's like being in an IMAX movie, except you're on a moving vehicle that goes in all these directions. And like as an adult, you're like, oh my God, I'm flying through the air in Simpsonsland. But imagine you're a five-year-old. And you don't really know what's happening except like you went from reality to like Simpsonsland and you're like crashing and all these things are happening. Well, let's just say that my five-year-old. had a fit unlike I've ever seen before, screaming, absolutely mortified by this ride. It was so frightening. And you know, like, you're sitting there. You're like, there's nothing I could do. I'm strapped down.

I cannot help you. I cannot get to you. It was a cool ride as a grown-up, but I could certainly imagine as a little kid, losing your mind. She was good later on in the day. And, yeah, the Harry Potter area was pretty awesome. We had a great time. Good.

You scarred your daughter for life and yeah. Yeah. You know what they have, which is the coolest? They have these donuts. They've got to be like, I don't know, eight, ten inches across these giant Homer Simpsons donuts at the Quakey Mart, which I did not give into temptation and have. You know, I was at a universal like a year and a half ago or two years ago. I also did not give into that temptation.

But that ride was amazing. Yeah, that was great. Anyway. Well, let's get into today's show. All right. Let's do it. So today's show, we are talking a lot about. market cycles, which you guys are going to love.

I mean, if you're worried about your market being too hot right now, you're going to love this. Why don't we get to today's quick tip? All right, guys, today's quick tip, the pro signature. So we've got so many pros on Bigger Pockets who you guys have the opportunity to have your company logo in your forum signature. So when you're out there interacting with folks on the Bigger Pockets forums, you can actually get your brand out there. So let's just say that you were out there and you've done.

I don't know, a few hundred forum posts, every single one of those posts. As a pro, you can have your company's brand, your company's logo right there below every single post. So if you are a pro, this is very advantageous to you in your marketing. So I strongly recommend as a pro to get out there and make sure to upload, to connect to your company account and get that logo up there. And if you're not a pro and you're trying to build your business and you're trying to build your brand in front of the 1.3 million visitors that we get each month to Bigger Pocket, getting a pro account might be a good idea.

And where would they go? Where would they go to get a pro account, Josh? They could do that at BiggerPockets.com slash pro. All right, good deal. Do you ever notice how every passive investment somehow turns into a very active lifestyle, active spreadsheets, active phone calls, active stress? Here's a better question.

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Let's get to the... I think we're ready. I think we are ready. I think you guys are going to love this. Grab out a pen and paper. You're going to take some... notes. If you're driving, pull over or just stop in the middle of the road. It's okay. Yeah, don't do that. Do not listen to Brandon.

Please. Ever, ever. Ever. Ever. Just every time I talk today, just mute it and then come back on. Yeah, pretty much. All right, this is show 188 of the BiggerPockets podcast, and you can check out the show notes at Biggerpockets.com slash 188. And if you would please jump on your iTunes. Hit subscribe if this is your first time listening. If it's not, please leave us a rating and review that would be very valuable. And if you're listening through some other tool, please be sure to do the same. And if you leave a rating review, let us know, shoot us an email or let us know on Twitter that you just left us a review so we can

give you a virtual bear hug. There you go. There you go. All right, today's guest, David Gundamenson. I might have but David Gunmanson. David is a real estate investor. He's been in the game since the mid-90s. And he's done pretty much everything. residential houses, condos, mobile homes, apartment buildings, strip malls, commercial, land, acreage, notes, you name it, this guy, everything but building ground up construction, I believe, he said. So he's pretty much done it all. So listen up. He's got lots of great things to share. And let's bring him in. What's going on? Dave, welcome to the show. It's good to have you here. Hey, it's good to be here. I appreciate you guys having me on. Can I call you Dave, by the way? I go by just about anything. Can I call you? John. Jericho. All right. So Dave or David, or I'll say Dave, I like Dave. So you've been, you've been doing this investing thing for a while now, right? Since I got my license in 94 and I bought my first investment property in January 1995. Okay. So you've been doing this for just a couple years.

Yeah. Okay. So you've seen a little bit, you know, highs and lows and you've kind of seen that, which I love talking to guys. I mean, I love talking to newbies as well because it's fun to hear the first time stories. But I love to talk to the veterans who have been doing this for 10, 20, 30 years, because you get that bigger perspective. And so that's what I'm excited about today. So why don't we start at the very beginning of that? I mean, how did you get you that very first deal? Okay.

Can I even go before that? Oh, go ahead. Fine, whatever. Why real estate? I think we should start with why real estate? All right. You know, and it's a good question. When I first got, when I was going to school, you know, get a good education,

get this, get that, you know, yada, yada, yada. And I just wasn't that guy. I went through school and it just didn't make sense. I've always wanted to work for myself and have my own business. And I'm like, okay, it's not like I'm not going to hire myself because I don't have a college degree. So I got started in real estate where a lot of my dad's friends were pretty wealthy and invested in real estate for a number of years. And so I said, you know, these guys have something. I mean, they kind of goofed off during the day.

They also worked hard, but they had, they built their assets and the assets produced income. And with that, I mean, they're able to travel around the world and do a lot of things that I've always wanted to do. And that's kind of how I got into it. I bought my first, I read a lot of books, and I believe in being self-taught. So I read, I forget what books in the beginning, but I've just about read everything. And I came across in January 1995, I closed on my first one. Back then, we used to look at newspapers. And before the internet, you know, it was filthy ink rags.

Back then, they used to have FHA no qualifying, assumable. If you were a mammal and you had a animal, and you had a, Pulse, you had $125 and whatever the down payment the seller wanted, you could actually take over these loans and freely assume them. Wow. It was awesome. It was awesome. So I came across this one.

It was a condo and this place in Chandler, outside of suburb of Phoenix. And I think it was they wanted $4,500 down, something like that. And I could assume their loan and the purchase price was, I think, $40,000, something like that. And I bought it and I closed on it. And all you had to do is literally is just send in $125 to do this. title company and you could assume it and get it. I had no credit and, you know, started as a real estate agent, starving, you know, making less than I would have, you know, Mickey D's or something. And I, that's how I got it. And I remember, it was interesting because I didn't have a clue what I was

going to rent it for. I just remembered that I wanted to clear a certain amount of money over the payment. So I was going to ask, I think, 575, I said, you know what? I'm just going to go 645, throw a little three by five card by the pool. I ended up leasing it out in like 24 hours. Nice. I want to ask a few questions on the specifics. I think some of our listeners may be lost in the weeds as to what just happened. So you've got, all right, so I go, I send $125 to the title company.

I now assume the loan. Correct. Yeah. So everything went to title. And you just write it up as a loan assumption. and the title company took care of everything like a normal deal, but you literally, you would assume the loan. So it costs you 125.

You don't have to put any more money down on this property? Well, I gave the seller $4,500. So you give the seller $4,500. Okay. I assume the property was worth about $45,000. And once you assume the loan, now the title changes over to you? Correct, correct. So I get a full deed to the title, warranty deed.

And what was interesting is a lot of these loans, they did it during the 80s, phased out the assumable no qualifying around December 14th, 89, something like that. And VAs used to be assumable too before, I think it was 1988 in March. And what was cool is there's a lot of these loans were already eight, ten years into term. So even though, you know, the payments or the cash hole was, you know, a couple hundred bucks a month, you had some massive principal pay down. So you could have $100, you know, $250 a month go toward principal reduction. Right. Because it was, you know, a loan with 18 years left, not 30. So. Yeah. So can somebody

do this today? No, they got away with it in, they quit doing it in the late 80s. And then the loans were available even during the 90s, but with the refinance boom and all that, as as soon as you refinanced it, it was gone. Yeah. So, and FHA loans are fully simple now. You just have to qualify them and occupy the property. Right, right. So, okay, so you're beginning, you started, I mean, it sounds like you didn't go, you didn't end up doing the college path. You dove, dove knee-deep and you got your agent license started to buy, you bought this first condo, you're renting it out. You're off to the races.

You're your own boss, right? Yeah. Well, and then, you know, I had a couple of dollars to start with, and I was lucky, but I got to a point where I ran out of money. I was actively buying a property a month, right out of the shoot. And I got to an interesting point where I ran out of money, but I learned and understood the process of buying. And that's why I think it's really important to learn. Like, I was playing last night on my iPad, the game of Monopoly. And it's kind of cool.

You can play with the computer, you know, the computer. And what was interesting is I thought about it. I said, you know what? I can never win at Monopoly unless I roll the dice and I buy houses. I mean, it sounds simple, but it's so true. It's just like, you have to roll the dice, man. You have to take a plunge. And you know what?

At first property, I was scared to death. At night, I stayed away, you know, stayed awake, worried about it. Oh, what if I can't rent it? What if I can't do this? I didn't know what the heck I was doing. And, I mean, you just don't have a clue. How do you know you don't know till you know? And I remember, it'll be one of my famous four,

but it's a good book I wrote, and I'll tell it then, but it talked about, it was written by a real estate agent who lived in Arizona, who was an investor. So it was pretty cool, and I was able to pull a lot of helpful tips out of that book, and it really helped me get started. So let me ask you this question real quick. You talked about when you got started, you didn't know what you were doing. You just kind of started doing it. Can you kind of speak to our audience today? There's a lot of people listen to our show who are in the same spot. They have no idea what they're doing, and they're nervous, they're scared to jump in.

Should they also just sit back? I mean, should they just roll the dice and jump in? Should they wait until they learn more and more and more? And there's a point to jump in. Where should they get involved? You know, that's a good question. And I would say you could only learn a certain amount via books, podcasts and stuff like, and I think you guys have an excellent podcast.

It's extremely educational. And I think it's the best out there. And I think it's important to educate yourself. You know, you can't be, you know, you can't be an idiot and learn how to do this. I mean, you have to keep, you know, you have to learn. But you get to a point where you have to do. and, you know, there's people sign up for boot camps and all the educational things and this and that. And heck, I mean, I've seen somebody blow 40 grand on, you know, buying this stuff, buying in that.

And sometimes it's like, you know what, let's just say you bought a house, tried to flip it. And even if you lost money, it's important to learn the process. It's so important to learn the process. And once you understand the process, you just replicate it. And I think real estate investing is kind of like a set of stairs. You get to a point where you learn everything you can about residential rentals. and you know and I kind of got that where I just I bought it, I've sold it, I've leased optioned, and I've owner carried it, you kind of done enough and then you're ready to go to the next phase.

Maybe it's lot splits, maybe it's commercial, maybe it's, you know, land, whatever. But what I did when I first was investing was when I ran out of money, I said the reality is all I need is money because I understand the process. So what I did was I actually cash advance credit cards and used the cash advance to buy properties. And I don't advise that to everybody because it can be scary. But what was interesting is, is I understood the numbers, and I understood how to do the math. And it's like, okay, you know what, if I buy this property and it's going to clear $200 a month, that's $2,400 annually. And if I invest $10,000, my return is 24%.

And I knew as long as I made 24%, that's the highest my credit cards could go up to. And I could still cover the bare interest on these things and not go into trouble. But like I said, I don't advise that to everybody. Pretty risky. That's how I got going. I used credit cards, cash advance, and bought a ton of the stuff in the mid-90s. Nice. Hey, David, so it sounds like the first bunch of deals you did were these assumable,

like just small properties, assumed. How many of those deals did you end up doing? You know, I mean, dozens. Okay. Dozens. And then what was interesting is, is VA, and I think you can still do this today, you can legally wrap VA loans. Interesting.

You can't assume them, but you can wrap them. I think after March 1, 88, they're assumable. with qualifying or they're rapable. And what I remember this one deal I was doing where I search in the MLS and look for things that said VA mortgage. And I'd reach out to the age and say, hey, you know what? I'm interested in this thing. It needs work.

I want to put together a deal. What if we did a rap? And she's like, what's a rap? And what's interesting is just because people in the business doesn't mean they know what they're doing. I mean, they could be 20 years in the business, but they could have the same one-year experience 20 times. So I set a meeting.

I said, listen, let's get together with you. me and the seller and see if we can structure this on a VA rap. And what I told to those, I said, I'm not, it's not my place to, you know, embarrass her in front of the client. I said, let's just work together and try to put this thing together. And we set up a meeting with her, the seller myself, and I went through the on how to do a VA rap, agreement for sale, you know, equitable title, legal title in Arizona. And I went through the whole process, explained it to him, explained it to her, and it made sense and we did that deal. and the importance I think of that is

a lot of times people in the business they don't know but they're afraid to say they don't know because they've been in the business 10 years, 20 years or whatever so a lot of times even the newbies you'll get to a point where you might know more

than the people helping you out and don't assume everybody knows everything that you do because they don't you know can you really quickly explain a wrap to folks who don't know what you're talking about

all the 20, 30 year veterans listening and like, I've heard that but I don't know what he's talking about, and to the news. And mind you, the disclosure is every state's going to be different. But the theory behind a rap is that the loan stays in the seller's name. And I believe in complete transparency.

I tell the seller, listen, you're on the hook for the loan. If this payment doesn't get made, it will negatively affect your credit. And we have it set up where it's title insured for the seller, fire insured, and account service. So the principle behind a wrap is that I will make the payments to the title company, and the title company will get the payments. Let's say the payments are $500. We won't get into principal and interest, just, I mean, taxes and insurance, $500,

and then that payment's going to go to the bank. What I would do if I was a seller would be is do what they call a token carryback. And what that is is receive X amount of dollars per month. Maybe it's a dollar. They know every month that 501 is getting paid to title, 500 is going to the mortgage company, and a dollar is going to go to the seller. If they don't get their dollar, they know the payment's not getting made. So, and that's where sometimes I want to let the sellers know, I'm here to protect them and that, hey, we'll set this token carry back up.

So every month you don't get your dollar or $10, you know that the payments aren't getting made and you're going to have to step up and do it. But it, you know, and that's one pitch that I'll do when I do the creative financing is to say, hey, here's a potential risk, but let's try to, you know, mitigate it. So who does title go in? Does it stay, when you do a wrap, are you, does this title in your name or in their name? They retain legal title and I retain, I get what they call equitable title. So in Arizona, it's an agreement for sale. And so technically when the things finally paid off, then I would get conveyed full ownership. But I can still sell it when I own it then or refinance it and do it.

So I have all the benefits of ownership, but it just makes it easier for them to foreclose. Okay. Yeah. And it's definitely one of those things like you said, state specific. I mean, every state's different. Some states have, what are they called the contract for deed? Yeah, contract for deed. All inclusive deed to trust.

Every state's different. Yeah, exactly. But it's an interesting thing. And some people, you know, we've heard a lot about subject two. Like, you know, like how does this compare to subject two? You know, and I've always wondered that too where you have, and I've done it where here I just do an agreement for sale. Yep. So we do the conveying instrument instead of a deed of trust is an agreement for sale.

And that's recorded and that's kind of how we do it. So I guess subject two is like, is I get legal and equitable title, but the loan stays in their name. I'm just buying a subject too. Yeah, and it could be signing a deed over to you. Okay. By the way, just a quick bit to anyone listening. I mean, if you're sitting listening and wondering what the heck is going on, if you're lost, or if you're interested in like, oh, this sounds awesome, I'm going to go do it.

You know, this is one of those things you definitely want to talk to your real estate attorney. You want to talk to your accountant. You want to make sure that you get solid advice for your area, you know, legal and financial advice before getting into these kinds of deals. So always, always, you know, confer to your counsel. Absolutely, because it's complicated. It's really complicated. The owner carrybacks are a lot more fun and that's a lot simpler. It's a lot cleaner. And those, you know, those are fun. I've done a ton of those. Well, let's talk about that. Well, before, I want to ask you about what that is and how you do it, but before I do that, how many total deals, just so people can have

perspective of what you've done, how many total deals would you estimate you've done in your career? Probably between 250 and 300. Okay. So, you've done a couple. Mind you, a lot of those aren't like flips. I'm in and out. I'm not wholesaling these things in and out in an hour a day or two days. I mean, a lot of these, I've held it through different cycles.

And, you know, I've bought in different times. I bought a lot in the mid-90s. I had, I think, 70 or 80 places at that time units. And then liquidated just about everything in 0405, 06. Yeah, and I got out early. And then I sat out for three years and didn't do anything. I mean, just, it's crazy when you used to buying something once. a month. And then you literally do nothing for three years. I just did brokerage. And then in Phoenix,

we were like the epicenter of the crash. And 09, 10, and 11, I went crazy. I mean, I bought, you know, it was just, it was, it was the time to buy. And I bought a bunch during that time. That's cool. Well, we're definitely. And we're going to go there for sure. Yeah, I want to spend a good chunk of our show on the market assignment. But before we get there, so overall, again, to go back to a big perspective, you've done $250, 300 deals. Are these, I mean, flips, you said you've done, you know, have you done pretty much everything or have you've been focused in on kind of one strategy or two? You know, I, I enjoy kind of doing everything and I even kind of typed up some notes that way and kind of go through. I've done residential like houses,

condos, mobile homes on land, apartment buildings. I own strip malls, auto-related, so commercial buildings, land, raw acreage, infill custom lots. So I've kind of, I've kind of done it, not all, but I've done, I've never done any ground up construction, but I've done pretty much most of it with residential and some with commercial and a little with land. Wow. Okay, so you've done a few things. Hey, Brandon, I thought we were going to get somebody experienced on the show. Where did we get this guy? We'll work on it. All right, so let's go back to sell. You mentioned seller carryback. Is that the same as seller financing and what is it and how does it work? Okay. And that's where it becomes fun. I remember,

you know, I was talking to a buddy of mine and he's like, hey, how do you get these sellers to carry? I'm like, I ask. Because it's so important to ask and connect with the sellers. Everybody, like, let's say you're a seller. Oh, I want to get cash. Okay, great, you get cash. What are you going to do with the cash? They haven't even thought that far.

They're like, well, I guess I'll throw it in the bank. I'm like, okay, great, you're going to make, what, half a percent? I don't know what the bank pays, half percent, one percent? It's under one, right? Yeah. And it's like, hey, you can make five to ten times that amount if you own her finance. Oh, what's that? I said, oh, it's great.

Not only do you get some cash of clothes, but you get monthly income without the tenants and toiletries. So they love it where a lot of these people are retired. They maybe own a sort of rental property. They're just tired and done. And so I'll explain to them and say, oh, it's great. You get some cash of clothes. That way you can pay your bills, do what you want, go on a trip. And then you get a nice monthly income.

And then if we do a balloon payment, you get, you know, money at the end. So, and there was, there was one is really unique. And let me look at my notes. I bought it for, this is, I think, two years ago. She wanted, she was set on her price. Oh, I got to get 165. I got to get 165. I said, okay, you know, it's not worth 165.

I didn't, I plan on using it as a rental. And I need to be into it for 140. And I said, okay, let's do something really cool. I'm going to get you your price of 165, but I'm only going to pay 140. Well, how are you going to do that? I said, okay, I'm going to give you $140,000. I'm going to give you, we negotiated $20,000. she had at 20, but there's some judgments and other issues the way I end up giving her 40.

And I said, I'm going to pay you 5% annually. So 5% on 100,000 is 5,000. If that carryback goes full term, which is five years, that's $25,000 with the interest payments. So I paid her 140, but I also showed her that she can get her price of 165 by putting. And that's what, I mean, it's, it might be, I don't think it's smoking mirrors, but it's just outlining out what's there. And she was happy with the 165. Hey, I got my price. Now she can tell the neighbor or her daughter that they're arguing with about that, hey, I got what I needed to get. Sometimes it's just about saving face. So in this case, she got a 165, which was the lump sum plus all the interest payments. No, 140. I gave her 140. I had to buy this for 140. But I showed her that if the carryback

went five years, that if I paid her $5,000 a year in interest, it would eventually add up. And this is what the crazy part of this deal was. I ended up deciding to fix it up. And it turned out so nice, I just decided to sell it. So I sold it, and I called her up and said, hey, I got to pay you off. She didn't want to get paid off. I said, I got to pay you. I'm selling this thing.

I don't want to get paid off. And I've done this before. It's called Walking the Mortgage. So I took that loan and moved it to another property that I had. And all we did is just go through title and just do a substitution of collateral and change the legal description. I've never heard of this. Tell us about it.

I'm following you. I love this. So go ahead and text. Interesting. Wow. Tell us that again. How is it? I mean, 180.

How many, what's this show, 188? We've never, I've never heard of walking the mortgage. Have you, Brandon? I have not. Between the show and all the years. It's pretty cool. I bought this one property and this is years ago. And I bought it on a private note, private seller carryback.

And let's just say the interest rate was six. I held it for a number of years. And then I turned around and sold it on a wrap. And the cool things was, wraps are, you can increase the interest rate. So I was paying the seller six, and they were paying me eight and a half. So not only do I make an arbitrage on my, I get a return on my equity, I also get a spread off the interest rate. Does that make sense? Yeah. Yeah. Okay. And then this is what was neat was, is it didn't have a due on sales clause. So I sold it on a wrap. Two years later,

the guy called me and said, hey, I'm refinancing this property. I'm going to pay you off. I said, okay, so I called the seller I bought it from who I was making the payments to and I don't want to get paid off. I don't want to get paid off. He didn't even know I sold the property. I didn't have to notify her because there's no due on sales. And she was adamant about not wanting to get paid off. So that's when I did the first walk the mortgage. This is forever ago in the 90s. And we just moved it to another property. I even went from a first to a second. She didn't care. She just knew I paid. So even though she went from a first mortgage to a second, she just knew that, hey, you know, the loans with Dave, he's going to pay me. And, you know, that's when I originally did that the first time.

So they don't care what the collateral is. They just care that they're getting the payment. So you just shift it over. Absolutely. And I heard this once because I used to also loan private money. I used to do hard money loans. And I had somebody told me this where a good borrower could make a bad loan good and a bad. And a bad borrower could make a good loan bad. Where you know, if someone's going to pay, it doesn't matter if they're upside down or not on the house. If they're a good borrower, they're just going to pay. Yeah. Yeah. You know, and you could have all the collateral in the world. but the borrows a bad borrower. They're just going to be late every month. And that's where she just felt comfortable enough with me to know that wanted to walk that over to somewhere else.

And I've actually done that a couple of times. So how complex is that process? I mean, who besides the seller and you, like who else needs to be? Just title did it all. So you just treat it like you're just doing a loan on a property. And that's the important thing about having good contacts. and it was kind of interesting when I was talking to Hillary the other day, and I had some technical difficulty on my end trying to figure Skype out,

where I think it's important to, one thing I've learned is I've never been the smartest guy in the room, far from it. And I think it's important to know that you just know you're not going to be the smartest guy, but I think it's important to be able to pick up the phone and dial and have any of the smartest people you know on speed dial. And within five minutes, you know, I had a computer guy on the phone, were able to fix the problem, and it was done. And that's why I think it's important where you have to take the time to develop relationships with people, you know, investors, attorneys, accountants, title people where you just know that you know the concept of what you want to accomplish, but let them figure out the technical details about it. And they just did. I said, listen, I want to secure note A to property B.

What do we do? And they just type up whatever and it's done. I love us. That sounds cool. Sounds really cool. Well, I mean, we can keep digging. I'm sure we'll learn some other stuff that we've never heard of as well. But I know Brandon and I were really excited to dig in on market cycles.

I think it's something that you like to nerd out about a little bit. We haven't really done a great show. Hey, I resemble that remark. You should. You should. So, you know, I think you use them to make buy, sell decisions. Clearly, you were one of the few people who got out before the crash, probably because you realized that market cycles were kind of funny at the time. So let's let's dig in. What exactly

is a market cycle? Okay. I mean, it's just like, you know, you have peaks and valleys. What's the oldest, forget location, location, location. It's all about buy low and sell high. That's it. That's as simple as it gets, but it's extremely complex if you think about it. So I remember, and I read a lot of books. I remember in the 90s, I was reading a book about timing market cycles. And I said, okay, cool. This is, I want to try this out. So this is in 97.

And I remember looking around and, okay, I want to find what markets are absolutely in the toilet. Okay. And at that time, I believe it was the northeastern states and California. And northeastern too far, too cold. I looked at California. San Francisco, too expensive, too far. San Diego too expensive. L.A., either you're, you know, it's really expensive or there's some pretty tough areas. So I came across San Bernardino, California. And this is, I think, in 97. And I said,

okay, the market was really bad then. I think there was some bases that closed. And I said, I went into that market and say, why is this area going to turn around? Why is it going to thrive? And I drove around and I just said, you know what? There's lots of buildable land. I think it's going to turn. And I bought two apartment complexes then. I bought a, I think it was a 15 unit and an 8 unit. And what was funny at the time was I was in my late 20s, been married a couple of years, and I'd owned, I think, 15 homes, and I just bought two apartment complex. And what was funny is I still didn't have enough money to actually own my own home then.

Isn't that funny? I actually lived at a family member's house and we, you know, house hacked where we rented out the four or five, the four bedrooms upstairs and used that to kind of help pay for bills and stuff. But, you know, that's another story. But I think it was important just to sacrifice where I'm like, you know what, I want to sacrifice now because I know if I go all in, it's just going to get better down the road. So in the, in Arizona and in California, in the middle, it was at the bottom of the cycle. Arizona hit the bottom in the early 90s. He had the savings and loan scandals of the 80s and just, you know, just all kinds of things went wrong.

And so I bought a bunch of properties in 95, 96, bought in California, 97, 98. The one thing I learned about buying out of state is that no matter what, no one's going to run your property like you're going to run. We went through three different management companies. The 15 unit was a disaster. I had partners on that. I ended up selling it. We sold it for more, but by the time you figured time and commissions, it was a break-even and it was a total loss as far as time. But the other building I hung on to and it hung on to it for a while and sold it.

I sold it too early. I don't remember what year is somewhere in the 2000s, but I sold it. you know, got a pretty good check off of that one. And it was great. And what, the interesting thing I've learned about market cycles is, is that Arizona, we boom and we bust. In the mid-80s, we boomed. And then they took away the tax laws and then the market busted. And then the early 90s through the old 90s, we boom. And then 05 and 06, we had this hyper crazy boom. And what I found was, is then I sold out in 040, 05, and I sold out some, I think one or two and 07. So not a the peak, but not before the 08 crash. And what I learned is, is that, let me give you an example.

I have one property is a textbook example of a market cycle property, is this property is in Mesa, and I bought it for 75 in 1999, and it rented for $800. And I held it for a number of years, and then I sold it in 07 for 188. And at that time, the peak in that neighborhood is maybe 200. But this is what's interesting is the rent stayed the same for 10 years. It just was flat as $800. And I think the trick to understanding market cycles is my golden nugget on the thing would be is look at return on equity. What's the cap rate on that house? When I bought it in 99, the cap rate is just a return based on it being free and clear. What return would I make If the house is a $100,000 house, and if I net 10 grand a year, it's a 10% return.

So that house was probably about a 10% return. At the peak of the market, that home is valued at $200,000. It's still rented for $8,000 or $850. The return on that investment would only be 4%. And I sold that in 88. I'm sorry, I sold it for 188 in 2007. That same house went back as a short sale, and I had an opportunity to buy it for 49. And I knew the guy. And I'm like, you know, this guy's going to be ticked.

So I actually passed on it. And it actually went back to the bank for 50. I think it sold for 54. I actually bought a house around the corner in that same neighborhood for 40 grand. Wow. Okay. And that home rents for 850. Still rents for 850. It's the same. And now the rents are finally going up here. But that's what I say is if you can figure out your return on equity. My return on equity on that thing was, okay, so 800, if I'm netting out.

You know, I mean, it's probably, if I'm netting out 600, you know, annually is, what, 72, so it's probably 15% return. You know, I had to put about 10 into it, so I'm into it for 50. Okay. So if I'm making 15% return unleveraged, that's a great return. Let the market go to zero. I don't care. And that's what I did during 09, 10, and 11. You could buy homes in Phoenix, three to four bedroom homes, West Phoenix, certain areas of Mesa,

three bed, four bed, two bath, then rent for eight. $800, you can buy them all day for $30, $40,000. That's crazy. How do you go wrong? Oh, go ahead. Sorry. No, no, no, no. You're dead on with what you're saying.

Like, how could you go wrong? I'm actually going to ask the question because I want to know how and why did you know to sell. And to your point just now, how did you know it was safe to buy? A lot of people look at the housing market. They said, well, you know, it crashed. It's down. It's crazy. Calling a catching a dropping knife.

Yeah. Yeah. Yeah. I mean, you know, is that. this is this a smart time to be jumping in or should you wait till things stabilize a little bit? So like those are the questions that I have and that I'm sure other people are going to have is, you know, you're talking about timing this thing. It makes sense what you're talking about when you start to look at.

Logically, but you're not, because you factor in the motions and everybody goes crazy. I like how you talk about the rents, right? The rents didn't really rise, right? So, you know, to buy that property today, which was 06, 07, whatever it was, you know, you're still only making $800, you're getting a 4% return. It's starting to look a little skewed, right? So that seems like a signal to me. What other signals were out there for you that told you it was time to sell?

And what other signals do you look at on the sale side? And then we'll look at the buy side. Excellent. Excellent question. A couple of things, this is what was really interesting. I was running into a time where in 2004 and part of 05, I was getting people with terrible credit that were applying for my houses. And I'm like, this sucks.

I mean, they're horrible credit. It was terrible. And I heard that I would decline them, but then I heard they went and bought a home. What the, you know, I mean, are you kidding? And it was crazy. And I remember even doing brokerage. During that time, I did a lot of brokers. I sold apartment complex, a small apartment, you know, fourplexes, that kind of thing.

And the joke could be as, hey, man, you know, the ML, we, We imploded this thing in the MLOS like 30 minutes ago, you know, where's the offers? Then all of a sudden, you know, the things are kicking out the fax machines and, and you sell these fourplexes that they, what's a fax machine? Yeah, the old fax machines, you know, and we would sell these fourplexes that rent for four to five hundred bucks a unit for 350,000. And the only upside play was appreciation, no cash flow. Who cares about tax writeoffs, man? If you're losing your shirt, I mean, you know, who needs a tax right off?

right off. And what I found was that they were only playing the upside game. The problem with that is as soon as you have the upside game taken away, it's like musical chairs. 20 people, 20 chairs, music's on. All of a sudden the music goes on, you know, everyone's dancing, lights go off, everyone's partying. They don't realize quietly chairs are being taken. And I've always kind of been in early and been out early. So I, you know, I got out early, sat down, took a chair, put my legs up, relaxed. But then when the lights go on, you're not the other 19 people fighting for four chairs that are left.

And it was brutal. I mean, it was tough. It was really, really tough here. People just had friends that just lost their shirts. So maybe this is a good time to ask this question. You were talking about back in the day you noticed that, you know, you list something on the MLS and offers start flying in. This is the story everybody's talking about today.

That today you list a house and you get 15 offers before the weekend's over. Especially in my market. Yeah, especially like when you look at Denver and things like that. I mean, should we be, in your opinion, should you be worried? Should we be getting out? Well, I can't tell anyone what to do. I can tell you what I've done. Sure.

I'm gone from 60 to 30 homes that I'm selling. Okay. I'm starting to sell. And you know what? You're never going to hit the exact top and you're never going to hit the exact bottom. And it's like, you know what? The home that I bought for 40, I got an MLS for 170. You know, we got it out there.

So I'm selling it. Yep. So, and you're never, and I look from a logistical standpoint, if you have, let's just you have 36 homes, and if you can only liquidate two a month because of renovation and turning over the tenants, it's going to take a year and a half to get out. Yeah. Yeah. And the market cycles, in my opinion, is it's kind of like having a cruise ship do a U-turn. It's not going to happen all that. It's just, you know. So, and I think you have some of these, and I'm kind of looking at my notes where I'm just starting to liquidate out the

homes. And you get to a point where if the home, you're in it for 40, it's selling for 170. It's quadrupled. I mean, if I get out now, it's going to go, maybe it goes up 25, 50,000, but it's not going to quadruple again. It's not going to double. I have to look at all these where you buy them for 3040. They're selling for 150, 160. I mean, they've quadrupled. You get to a point where it's important to, you know, take some chips off the table. Yeah. Yeah. And so. So, I mean, there's not necessarily one or two things that you're looking for. You're kind of looking at the big picture view of all the multitude of things that are happening. I mean, for me, I remember, you know, when I got out, you know, started to get nervous about the market was in 2004.

It was a 403. When I was living in L.A., the famous story of that, to me, my famous story. of, there was, you know, a police officer who had just bought this million dollar house. And, you know, I wish our police officers could buy a million dollar houses, but, you know, it doesn't really work out that well with, you know, salaries. And when I heard that, I, you know, I was an agent, I was like, this, this is not good. This is a really bad sign, you know, when people, this guy is, you know, the, the notes going to balloon on him and he's going to be, you know, in a lot of trouble.

He's going to lose his house. And so is everybody else. Well, let me start to unload. This is kind of a dangerous time. People are in trouble. That was one sign. I don't know. People who say, you know, I kind of think that people who say that they didn't see it coming

probably weren't looking or they were kind of too caught up in the mix of what was happening because I think there were some very, very obvious signs like those. But like take less obvious signs. You know, take a market like Denver. for example, right now. Denver, hot as hell, you know, houses are selling in, you know, a couple days at most, but we've got a mass population influx. You know, we're getting 10,000 people a month moving into Denver. There's jobs. All the economic signals are good, but prices are going to the moon. You know, how do we know, you know, when do things turn? You know, these are the things

that I know lots of people are trying to figure out. I know, I'm just curious about your feedback on something like that. It's tough. I mean, you're never going to pick the exact, I mean, you're never going to pick the day at pits top and of course. Time it hits bottom. But you ever heard the boiled frog analogy? Yeah. I can imagine it. You know, you put a, you throw a frog in a hot boiling thing of water, it'll jump out immediately. You throw it in a cold thing and you turn it up. He doesn't realize it's hot enough that he

needs to get out and he'll eventually boil the death. Wow, that's pleasant. You're a great pleasant man, dude. But the point is that it's somewhere between the top and the bottom. And, you know, you kind of just were near the top. What's the top? You know, the day, the time. I don't have a clue.

I just know that when you get to a point where there's time to – I feel I have more to lose by hanging to the very end than the amount I would gain. And what I'm doing right now is I'm selling and getting into land. Yeah. And selling and buying land and, you know, some commercial. And I think, too, I think it's important to have a short, middle, and long-term goals. Like right now, my short-term, I'm doing flips. Anything residential, I'm in, I'm out.

Get in, get out under six months. That's my short-term box. Mid-range might be if someone's going to do value-add like build spec or add a bedroom bathroom. Here in Phoenix, everybody's punching out in the historical areas or nicer areas or dropping in. excuse me, a master suite. They're adding on five, six hundred square feet. They can do it for 80 bucks a foot and they sell it for 180. They're making a good spread on that.

And then I think you have your long-term box of investments that might be a year and a half to five years. I think it's tough to look past five years. And that's what I do is like my rentals have always been. I knew an 0-9, 10, and 11, I was buying all these rentals. And during that time, it was tough. I mean, I was starving. I mean, imagine buying these homes in each home.

you buy, you need to drop 10 grand into and then buy 15 of these dang things a year at least. I mean, I don't know where the money's coming from. I was borrowing from this and that, credit cards, wherever I can get the money. And that's, I think, the important thing to look at two with market cycles is look at money flow. You couldn't, you could get smoking deals in 09 and 10, 11, who had cash. But if you had cash, cash was king. Now, money's really loose.

We have ton. You can get hard money so easy. Hard money is super loose. FHA financing is financing just about everything here under 300, and it's money's loose money's loose, you know, deals are hot, markets are selling fast. I mean, who knows if it's the top top, but it's not a bad time to cash out on some. So for somebody who is listening to this show right now, and they're looking to buy their first deal or maybe second or third, you know, they're new in their career, do you have any recommendations for them? Like,

would you, I mean, would you say flat out, maybe you should just sit down and just take a chair and wait for the, you know, the license to come back on and the music to stop? Or do you advise them just to look for the best deal anyway? Or what's your opinion? It depends, you know, because every, you have to understand, like, Phoenix was the crash happened, Phoenix, Vegas, California, Florida, but you go to other places, I don't know, other markets, say Texas. You get some of these markets where it's pretty even keeled where they just don't have the

huge runups and rundowns. And my point with the market timing is, if you, you'd get some of the market. time it right in the real volatile markets, you can make a ton of money, but if you time it wrong, you'll get crushed. And that's where you have to figure is, is just, as a newbie, if you buy right and you're going in it for the long haul and you're in it right and you just know you're going to be okay. And, you know, I just, it was tough here because the same homes that I bought for $30,000 and $40,000 in West Phoenix topped out at $2.00. Yeah. And what is buying, What is buying right?

Because I think a lot of people, a lot of newbies get excited by the thrill of appreciation. And some of these old hats, we were like, well, be smart, make sure there's cash flow. Don't just buy on spec, basically. So what does buy right mean to you? I mean, a couple things. One, I'll break it into two different things. One, I'll break it into rentals. And then I'll break it into flips.

And I was going to tell newbies, if you want to figure out, out how to source deals and analyze deals, I think it's important to understand the numbers. And like, give an example, I use like Z buyer, okay? And Z buyer email you 5, 10 leads a day, and it costs a couple hundred dollars depending on the market, submarket. But the cool thing I think would be, if I was a newbie, I'd get on Craigslist or Z buyer, one of those, you get the deal and you immediately go through the numbers, say, okay, you know what, even if you don't have access to MLS, pull up Zillow. I would say, okay, the deal's worth $100,000 based on four or five homes that have sold between 95 and 105. I know it's going to cost me 10% cost of sale,

so that brings it down to 90. And you look at it and you figure, okay, it's a medium renovation. Maybe it'll cost you, you know, 20. So from 90, you go to 70. And then if you want to make 20 profit, you go from 70 to 50. So you know, hey, if I want to flip that deal, I buy it 50, I sell it at 100. Those are the numbers. And I think it's important to go through those and learn those in your head, I'll do that five, ten, twenty times a day on leads, and you just get to a point you just do it in your head. And you have to look at the data, but you do the numbers in your head. If I was looking at an investment, it depends on your return. You could have, you might have different return on investment criteria than I would. But I think if you look at,

hey, I'm going to make, I mean, if you're making single digit returns, I mean, that's pretty thin. And you have to look at back in the boom, if I'm going to buy this house and make 4%, there's better, safer investments that I can do than put my money in a house. Because it's not, even though it's classified as passive, there's nothing passive about rentals. Yeah. I mean, you know, so I think you just have to figure out your own criteria and stick to it. But I think it's important to constantly develop and add to your criteria and, you know, change it a little bit based on the market and the scenario you're in. So. I agree. And since we're kind of talking about the whole analyzing deals thing, I do want to give you a

two quick shoutouts. First of all, if you guys aren't using, you know, the BiggerPockets property calculator, flip calculators, with rental property calculator, flip calculator, wholesale calculator, or Burr calculator, you guys should check them out, biggerpockets.com slash analysis. And also, this coming week, we're going to be doing a live webinar here on Bigger Pockets. And so it's on Wednesday night. Hope you guys can make it. It's called five things to know before buying a rental property. Seriously, these five things are vital. And in there, we're going to talk about a lot of this stuff that we're talking about here today with Dave. So hopefully you guys can join me. Come, biggerpockets.com, slash webinar. You can

sign up and I'll hopefully see you there. So with that, I want to go back, you said Z buyer. I'd never heard of Z buyer before. Yeah, it's interesting where they rank on Google and they just, it's interesting. I think if somebody wants, what I'm finding in this market is, there's two different type of real estate people. There's the marketers that they're just, they know how to market. They know how to get on the front page of Google. They know how to, you know, get the phone to ring with, you know, yellow letters, whatever. And then you have the real estate, you know, guys and gals that understand the mechanics of real estate. And I think both are important. But with with the leads and Z buyer, I mean, it's a good way to just source deals and review them and check

them out. And they somehow appear on Google and they get leads. And they're not in the buying business. They're in the lead selling business. So it's kind of an interesting niche. And, you know, yeah, check that up. People love to call real estate passive income, which is interesting because most of the investors I know are very busy. Busy finding deals, busy managing teams busy worrying they picked the wrong market. Rent to retirement flips that model. They help investors buy turnkey new construction homes, often 10% below market value in top rental markets across the country. Their local teams handle the build, the property management, and the details, so you don't have to. In some cases, investors even receive 50 to 75% of their down payment back at closing, and there

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to get your jobs more visibility at Indeed.com slash rookie. Just go to Indeed.com. slash rookie right now and support our show by saying you heard about Indeed on this podcast. That's Indeed.com slash rookie. Terms and conditions apply. Hiring Indeed is all you need. Hey, I want to return back to one question that I asked. I don't think we got to the answer. And then I want to get back into the cycle thing, the buy side. So I remember 0708, 09 very, very well. I remember the markets were tanking across the country. I remember, you know, Vegas. in Arizona, pretty much the entire state, and all of Florida were, you know, hitting the skids.

And I'm sitting and I'm like, you know, half these apartment condo buildings in Florida were, you know, foreclosing. The condos were being foreclosed upon. And you can scoop up condos for nothing. And I'm sitting there like, you know, I don't know. I'm a little concerned. Is the market going to keep dropping? But I knew the deals were deals. But I didn't have the guts to pull the trigger because I was more concerned that there was a lot more room to go.

And so, you know, in retrospect, I probably should have looked a little deeper at the numbers and said, you know, listen, people need a place to live. Somebody's going to end up owning this thing. But what would your take be on that buy side? Like when is it time when a market is tanking as cycles are turning negative? You know, when would somebody know, you know, now is maybe an okay time to start getting. in there. You know, that's a great question. I think it's just, it's all return-based. I just look at this and in mind you, we're not talking about, you know, really, really, really rough neighborhoods. We can go buy, you know, house for $1,000 and it's going to run for $800. And I know it's your favorite

place in Detroit. And I actually grew up in Detroit outside of suburban Detroit. Don't hold that against me. So I don't know. Why do people think I have an issue with Detroit? But, you know, I think it's all return-based. I mean, if I can buy a property, unleveraged and and buy it for 30 grand it rents for $800. I mean, you get to a point where

what's the dirt worth? I mean, the lot underneath or in some of these, what I did was is I did when I was doing a lot of owner finance deals. I was doing a five year amortization straight.

No balloon. I mean, it was pay off in five. And I would get these deals. I'm like, you know what? If I can buy this property and get a tenant, you know, hey, tenant, tell you what,

I'm going to let you live in my property for five years. but the deal is you're going to pay it off for me. And they were lining up around the corner to do that. And it was crazy. It was just like, hey, if I can put somebody in there and have this thing paid off, you know, quite frankly, I got in early on some things. I got it. You're just not going to hit the bottom. Sure. And they went down. And we had an interesting down because they put out that tax credit and $7,500. Remember that tax credit? So everybody thought we had this kind of a false run-up. But the reality is, is it was, you know, it was artificial run-up where if that tax

sweater wasn't there, it wouldn't have. It stimulated market. As soon as they took it away, the market dropped back down. And there is locally, I think it's important too. Like here, we have somebody that through the, you know, he lives in, he grew up in England and he, I think he went to Oxford. He's a mathematician. He's basically a genius.

And he tracks the market here. And he has seminars every couple times a year. He goes and puts the charts out. If you saw these charts, I'll have to send you guys some of his charts and his forms and everything. But this guy breaks it down per foot. And you can see at the top it was going for 180 something bucks a foot. And at the bottom it was going for $80 a foot or whatever. And this is average off, you know, nicer, not so nice and everything in between.

But there's local experts that track this data. And if you look at these charts and you look at the highs and lows, I mean, you can kind of tell when it's starting to turn. I remember even in 06 June, all of a sudden it got quiet here. And it didn't. It's like that cruise ship doing a U-turn. It didn't drop on a dime, but it started, that wasn't going to start to turn. And then 08 was just a drop. But the answer to your question is I think you just look at returns.

If you're making 15, 18, 20 percent return on your money on leverage, I mean, were you going to go wrong? Yeah, yeah. All right. My next question, I know Brandon wants to jump in with some stuff. can you can you time the market for real i mean we're talking about it but like is this legit or i mean is is timing the market like gambling uh you know a lot of people might think that you know i i don't think it is i just look you just look when you do exactly what the herd

is not doing yeah if everybody's you know in oh remember in oh 5 oh 6 you'd go get to your haircut and your your barber your stylist is telling you how they just bought two places in florida or something like that, you know, two condos or two, you know, and that's what everybody was doing it. Yeah. And they got away from the funnels where if you're buying a house for $200,000 and it rents for $800, you're negative. I don't care. If you finance that, you're in the hole every month.

So how do you, and that's what I think is you look at the herd and you do exactly what the herd was doing. You know, if you do what the herd's doing, you're going to, you know, that's what happens. You do, if you do exactly the opposite, everyone was running out and scared and short sailing an REO or if you had any rentals and you made it through the, you know, you bought them in 0506 and then you're still hanging on in 0809. Less thing you want to do is buy more of those things because you'd been bitten, you know. So I don't know if it's, you just, I think you play the numbers and you understand.

And if you have a good understanding of buy low, sell high and you find an area where you get good statistics, I think it's absolutely possible. Absolutely. And you mentioned a minute ago too. I mean, I don't know, 10 minutes ago, we talked about how, you know, you said something like, I can't remember exactly, but basically if the market, even the market dropped and tanked, you're still getting that amazing return on your investment because of the cash flow, right? So that's one thing I recommend people all the time.

I mean, even if you're in a hot market today, I mean, this is my main piece of advice I give on webinars all the time. If you're in a crazy hot market, still look for an amazing deal that makes sense today. With cash flow. With cash flow, correct, with cash flow. Worst case scenario, the market drops. Hopefully you're still done okay cash flow-wise. And even if you can't find that amazing deal, when the market does drop, you'll have

just spent the last two or three years analyzing deals, you'll be so hot and ready to go above everybody else because now the market's great. So even if you are afraid to buy right now, don't let that stop you from analyzing deals every single day. Absolutely. And like I say, I'm not saying, oh, you know, hawk everything, head, you know, bunker up in the cabin up in north. And, you know, but I think. Get your shotgun out. But for, for, I think you have to find your own philosophy. And right now, I think it's a good time to de-leverage. Instead of 50 or 60 homes leverage to your eyeballs, it wouldn't be bad to have 20 or 30 just paid off. I don't know too many people that have lost properties being free and clear unless you're not smart enough to pay the taxes,

you know, but you know what I mean? Where it's a good time to de-leverage. And then if you had 20 or 30 homes free and clear, if all cash breaks loose and the market even goes down again, I mean, the free and clear, who cares? They're going to cash flow. The rental market's phenomenal, at least in this town. So I think it's just having an overall philosophy and sticking, you know, sticking to it. And that's what I've tried to do. It's right, wrong, or indifferent. But it just, you know, you kind of just figure out where you want to go, have your short, mid and long term goals and just follow. And occasionally you tweak them along the way. Perfect.

So. Cool. All right. Last question about the market cycle. I'm just curious. How can people that are listening to this? How can they get a better grasp on their market cycle? Because markets are different everywhere, right? Your Arizona is different than Washington, different than Denver. How does somebody know their own market? I mean, a couple things. You can look at historical data. And like we have here in Phoenix, we have publications that will go back 10 years and published a price per foot.

And it'll show the graph of up and down where the market has been. I think realtors are a great choice. I mean, you could ask somebody to say, listen, I'm not telling you, you know, ask an agent, I'm not telling you if I'm a buyer or seller, what's the market doing? Oh, it's a great time to sell, you know, because that, da, da, you know. And if four or five or six of the people are telling you the same thing, it's probably more than likely true. Not always, but there's just a general mood of the market. And if you can get your finger on that pulse, and I think Rias are great to go to, going to the local Rias.

Our Ria here puts on a slideshow presentation of market statistics every month. It's insane. That's cool. And I think it's important to go to, you know, with your guys' site, it's a gallery of information where you can people think about it. Anyone can post anything they want, and you have all the people willing to take their time and their talents to help people out that need it. I think it's great. Yeah. Reyes can be a great resource for sure.

You know, I'm going to counter one thing you just said, though, just because, you know, I think it's an important point. What I remember was in 06, 05, 07, even, there was a certain organization that was exuding the values of now being a great time to buy. And there were lots of agents out there who were all hawking, now's a great time to buy, now's a great time to buy. Yeah, that was at the very, very, very, very top. So, you know, I would say, you know, maybe, I don't know, you know, you've got to do your own homework. You cannot rely necessarily. You know, listen, I wish more agents were well informed as to markets.

And I wish more were well informed as to, you know, how to invest or doing any of that. But at the end of the day, there's a lot who don't know what they're talking about. Absolutely. Absolutely. Just be careful is what I'm telling people. Well, I think, too, and the piggyback off what you said is you can never get 100% unbiased opinion if somebody has a vested interest in the outcome of your decision. What? What?

What, that means is you don't go ask your insurance person, do you need more insurance? Correct. What is you going to say no? Oh, sure, death, disability, life, dismemberment. And you have to understand that this. Oh, it's some new boiling frogs, dismemberment. What does this show about? But, you know, you have, if people, everyone has their own agenda.

Yeah. You know, and agents, they're there to sell. During that time, I did 95% listings. All I did was sell the stuff, get them out. I had some buyers that were hot to trot and want to buy. I said, listen, it's a negative cash flow. It's at the top of the market. If you want to buy, I'm warning you right now, we're near the top.

I tell them three times after that, hey, sign here. you know, whatever. So, and I, but yeah, I mean, in transactional, you get rewarded on doing the transactions, but some people just don't have a clue. Exactly. They just say, they just go with the money's at. So just be careful is all I'm saying. And, you know, I think that's why a resource like ours is so valuable.

You know, ask on bigger pockets. You know, we've got local forums, local areas, ways to speak to local people. Ask your questions, you know, get a vibe from lots of different people who are actually knee deep in the market and who may not necessarily be just the transactional guys who are going to make money if you're buying or selling. I do well if you buy or sell. Well, great. So you may not give me the best advice. Yeah, absolutely. There we go. All right. Well, I want to move, I want to shift gears a little bit too. Maybe we might even make this an official segment of the show coming up here. You know, get a little sound effect music, whatever. But I'm really curious.

I want to know about your best, like one of your best deals you've ever done and one of your worst, story. So why don't we start with the, I mean, what's a great deal that you can give us a quick story? And I know you gave us a few already, but anything that stands out of the really amazing. Okay. And a couple of, and I really like auto box stuff. So everybody is doing houses trying to flip houses. It's tough to get deals. So I always do different things. But a couple of things, just looking over the years, you know, and what was interesting was they're both note deals, which is interesting. I bought bad notes, like seller financing thing when the person quits paying, the seller doesn't know what to do. I had one where it was on land and she actually

lived across the street from the people and she didn't want to foreclose because she was their neighbor. And so I bought, it was a $100,000 note, bought it for 60 and tried to work out a friendly foreclosure with the guy, call the agent and say, hey, let's try to work out something. She's like, this foreclose, man. The guy's a deadbeat. So I ended up foreclosing on it and took it back and sold it for 160 with owner financing, took two big down payments. They paid for a number of years, and they came back, said, listen, we can't pay anymore. We want to give it back. So I did a friendly deed and Lou, took it back, resold it again. And that was a really good one. And that was a good one. In another one, and I think it's important to put deadlines on goals, I always wanted to own

a commercial building by mid-June. I put a specific date. June 15th by X year, I'm going to own first commercial building. And I came across the deal. And, you know, I think when you put positive things out there, things come back. And I think obviously you get blessed and, you know, et cetera. But I had a title company give my number out to a nonprofit organization and let them know that I bought notes. And it was on a shopping center. And I ended up working out a friendly foreclosure with this guy. I went there, sat down with them. And he was in banking. He was a commercial banker. So I just said, listen, if you want it, we'll work it out. But if you don't, if you sign a dean and lou we'll take it back we'll release you from any liability no recourse he

was happy he understood that and we took that one you know took it back and and that one's worked out real well and it was two out of the nine suites released i went through renovated the outside of it least you know seven of the nine or leased out already and that one's that one's been a pretty dang good one so that's awesome that's awesome definitely something i want to get into someday i think that'd be fun but uh all right let's go about the opposite end of that spectrum the horror stories can you You got it. All right. Pick the worst of the worst.

Okay. And it's a two-fold. It's a two-fold deal. And it's a no deal. Nice. Okay. So the problem is when you have sometimes more money than brains, you don't know what to do with your money. So instead of just, you know, and that's what.

For president. Exactly. Exactly. So during the time where I was selling all my stuff, I'm like, all right, you get so used to high returns. that you want to invest it at something. So I did some hard money loans. Okay. And the thing with hard money loans are is that I went too far.

I went five years out. And the problem with that is you're caught in a market cycle where you know it's time to sell, but you're trying to convince the borrower it's time to sell. And so I had one where I lent on a property, two loans, one borrower. And long story short, I end up taking back both the properties, right? And then I ended up with one of them at the bottom of the cycle. I think I had 140, 150 into it. I just fire sale this sucker.

It was a weird kind of a quasi adult care thing, but it didn't have any, it had common bathrooms. And it was a C-minus D-plus apartment complex. It was just a dog. Sounds like a winner. Oh, yeah. It was a dog. And so I ended up selling it. I think I got like 30.

I lost over 100 on that sucker. Wow. And the day I got 30. Oh, I was so happy. I ran that sucker to the bank and cashed it because, you know, I mean, it was a dog. But, you know, as interesting, though, is a lot of times you try to make bad things into good. And I took that 30, bought a great house at the bottom of the cycle, and I'm right back to where I'm at where I'm at, you know, it's worth $130, 140. Yes.

But it was a terrible deal. Yeah, I guess hard money loans, I got creamed on a couple of them. So there's something gratifying about unloading something that's killing you. Oh, yeah. A lot of people will sit on those things and they're like, you know, they're bleeding to death. Like it's a slow drip, right? You know, since you started this real visceral visual episode here, you know, bloodletting. But like, you know, and like, hey, what should I do?

What should I do? I'm bleeding. You know, there's always other opportunities. Like if you're, you know, bleeding to death, then stop the bleeding. I already lost. The money was lost. It's already lost. It's whether or not you choose to realize it.

I'm like, you know what? I'm the type where, you know, when I talk to friends, I'm like, listen, tell me the good, bad, and the ugly about whatever, to be totally blunt. And because the truth is the truth. And if it's a dog deal, it's a piece of junk. It is what it is. As soon as you realize it, you cut it loose, you get that cancer out of your life. And by the way, it may not be, you know, let's clarify that because it may be a cancer for you, right?

Somebody else comes in and that's a great opportunity. You know, it's, hey, this is something that at this phase in my life or with the resources that I have or kind of, you know, I just had a kid or whatever it is. You know, we all have our own personal situations that affect our decisions. So like, you know, to you what just, it's not worth it anymore, maybe a screaming opportunity for somebody else who's like, yeah, I love dealing with these kinds of tenants. I love dealing with these issues. So, like, you know, we're here talking about this stuff and to the listener, you know, don't think that just because we say, you know, it's time to like go means that something's necessarily a bad deal. It just means that it's not working out necessarily. Well, and that goes to tell you too.

I mean, I'm supposed to know what the heck I'm doing. And sometimes you don't. And sometimes, you know, the guy that looks for motivated sellers is a motivated seller. Yeah. And the guy that took the property did great with it. I mean, he's renovated it and stuff. It was just out of my scope. And it's just sometimes you just don't have the mental cash.

to spend to do that where it's just, you know what, I could focus my efforts better on something I'm more efficient at and just let him go and do the build out on that thing and mess with it. I didn't want to fool with it. Nice. Awesome. I think it's time, Brandon. I think it's time for the world famous. It's time for the fire round. These are questions that come direct out of the BiggerPockets forums, and we're going to fire

them right at you. Which you could get to at BiggerPockets.com slash forums. Guys like David are sometimes active on said forums even. Yeah, there you go. We'll be in the future. All right, number one, that's actually ties in well with our conversation today. What are a few key points that you would tell to somebody who just does not understand market cycles? You know, just learn the numbers.

I think if you can understand how to figure out what your returns are, that'll kind of show you where you're at in the market cycle. I mean, if you're getting to the point where the returns are terrible, I mean, it's important to have knowledge and understand it. And don't rely on anybody else. I think when everything's said and done, the bucks should stop with you where you're ultimately responsible for your own financial well-being. Right on. Cool. what was the worst market in the country and trying to figure out, sometimes they're bad for a reason and they're never going to come back. But you find some that says, okay, why would this come back?

Okay, it's proximity to L.A. or I don't know California that well, but it's a commuter's market. And they had tons of buildable land back then and it was just prime for, you know, development. True, durable, for example, may not be the best market. Exactly. Exactly. Right. All right. Number three, should someone who is looking to buy their first, should someone who is looking to buy their first investment property, look at land over an established home? It depends. If you can pay cash for land, the only holding, I mean, it's an alligator. You'll feed it every month if you're just, but I think it's a good way where you can get in cheap. And I mean, there's some parcels we can buy for a couple of thousand

dollars. And I bought, you know, some stuff up north. For $7,500, I bought, you know, six parcels. One of even had a billboard on it, on the freeway where I got income off the billboard and had five acre parcels kind of around and for a low amount of money. And, you know, what you can do is buy it cash and then turn around and sell it on terms and just, you know, double or triple the price. Wow. That's cool. You should talk about that on another show. So last question on the fire round. When looking for an out of area property, what do you specifically look for? Does it need to be in certain shape to feel comfortable not being there?

I know earlier you had talked about, you know, it's hard investing at a distance. So, you know, what would get you to do it? You know, and I kind of flip stuff throughout the state now, and I just, the trick is, is looking to make sure everything that's wrong with, it's curable and easy to fix where if you're going out of area, two, three, four hour drive, you're not going to want to have to deal with, you know, stuff that you have to rewire, replum, mainly do cosmetic stuff because you know you go in there, you're just going to estimate what you think it's going to cost and just make it simple where, in the deals that I've done out of area, I'm

I've just tried to make it a goal where I just want to go there once to buy and maybe once to meet a contractor there in the beginning and wants to see how it ended up. And that was it. I just did one about an hour and a half away. And I only went there three times total and just sold it last week. And it turned out great. Nice. Yeah, right on. Cool.

All right. Well, hey, let's move over to the final section of the show, which we lovingly call our- Famous Four. All right. These are the four questions that we ask every guest every week. They're the exact same question. So number one, I'm sure you know what's coming, but number one, what is your favorite real estate related book? This is one I read two in the beginning.

One was by the Millons, they're the real estate agents here that are agents, investors, and it was Arizona-specific. It's how to buy and manage rental properties. I mean, I'm sure it's out there, but this was 20 years ago. I read another one, How to Buy Properties at a 20% or more discount. That was really good because you just didn't, 20 years ago, you just didn't have the podcast and all the information out there that people have now. So those were the books, and they were pretty good back in the day. Right on.

Cool. What about favorite business book today? You know, I really like two. I like anything with Tony Robbins, you know, positive mental, you know, associating more pleasure than pain and that kind of thing as well as, you know, thinking positive. And then Brian Tracy with sales techniques. Right on. Anything with those two guys are excellent.

So I've read a lot of their stuff. Cool. Cool. So what do you do for fun? I know you've got some kids. Three kids. You know, um,

kids club, yeah. You know, believe it, I'm a short guy and I'm in my mid 40s, but I play basketball every day for two hours. So money through Thursday. Oh,

wow. And, uh, yeah, it's half the time. It doesn't end well. I mean, I broke my nose four or five months ago playing.

I had to wear, you know, a brace on my, you know, one of those face mask. Nice. And, uh,

broke my hand playing, broke my thumb. And, but it's fun. I mean, I enjoy, enjoy, it so it's real fun.

I gave up on basketball because I realized when I hit 30, like every time I played, I would hurt myself. I was like, I'm done. Yeah, these guys are twice my size and half my age, but it's nice. That's cool. All right, my last question of the day. Dave, what do you believe sets apart successful investors from those who give up or fail or never get started?

You know what? There's a quote by Calvin Coolidge, and I'm going to, That's okay. Calvin Kulis. Is that like one of our presidents or something? Yep, yep. Nothing in the world takes a place of persistence. Talents will not.

Nothing is more common than unsuccessful men with talent. Genius will not. Unrewarded genius is almost a proverb. Education will not. The world is full of educated derelicts. Persistence and determination are omnipotent. So that's it. I mean, you don't have to be the smartest guy in the room or girl.

You don't have to be the best. You just have to be determined and persistent. You can't, all the time I have people, oh, hey, I want to get in the real estate, this and that. But unless you have the fire in your belly, it's tough to succeed because I always say the highs are high and the lows are low. And it's emotional roller coaster. I mean, you do great deals and then you get creamed and then, you know, just up and down. But persistence, it's determination, extremely important. And Calvin Coolidge is my new favorite president.

Yep. It's a great quote. Yeah. My dad gave it to me years ago, you know, when I was on, I was on a mission 20 years ago, and he sent me this little quote, and I used to read it all the time when I get down to myself. So it was really good. Were you with Dan Aykroyd and Belushi on that mission? Yeah.

All right. My last question is, how can people find you? Where can they connect with you if they want to besides the show notes, which you can find at biggerpockets.com slash show 180. email is AZbroker at iCloud.com. Web page is AZ Property Store.com. So if you have anything, just reach out to me via email. And especially if you have a question or you're trying to get started or whatever and be more unhappy to help. So real estate's a fun biz.

I mean, but you have to have that passion. I always tell people you will either love it or you'll curse the day you got into it. I mean, it's one extreme or another. And I absolutely love it. It's a great business. Love to hear that, man. I'd like to hear that. Well, David, thank you so much for coming on the show.

It's been a pleasure. Likewise. Thank you. Really enjoyed it. And we'll see you around bigger pockets and lots of luck to you going forward. Thank you. We didn't actually, you know what? I'm not going to end.

What's the future holding for you, David? We usually ask that. We didn't ask that question. Yeah, what do you got? You know, I'm just, you know, I've been doing this 20 plus years. And what I've kind of doing now is just kind of consolidating. And my goal is next summer to kind of take a. extended vacation sabbatical. And right now I think there's a great opportunity for the next year to

get in and get out real quick on certain things, at least here. And I'd really like to, you know, spend a lot of time next summer with the family vacationing and just enjoy life because that's what it's all about. I mean, you know, money comes, money goes. But the important things of life, you know, it's, you know, it'll magnify what you are. And if you do well and magnify that you're a great person. And if you do well and you're not a great person, it'll magnify that as well. But I think it's important to, you know, give back and help other people because we've, we've all been there. And, you know, I've had mentors along the way that have really helped me out and, and spend tireless hours explaining things on how they work. And I think it's important to give back.

So I want to spend more time, give back, and just enjoy life a little bit more. I love it. I love it. Well, let's, let's end it there. David, thank you so much, man. Hey, thanks, guys. I really appreciate it. Hey, thank you. I'll see your end. Thanks. Bye. Bye. And big thanks to David. That was great. I love talking about the cycles.

I think it's fascinating. Yeah, me too. And you know what? One thing he said during the show, like, hit me harder than I think, I mean, it really, really impacted me a lot. Somebody used to hit you. No, so here's what he said. He said when he was using the analogy of the musical chairs and he said, you know, I don't

have to be, you know, whatever, the last one in the chair. He's like, I just, when I, when everyone's up dancing, the lights are off and the music's going, I just grab a chair and sit down and put my feet up. And like I always feel like I have to time the market. And I got to figure out, are we almost there? Are we almost at the peak yet? But like I love his attitude of you know what, even if we're not at the peak, even if it's going to go up another couple of years, I would rather be out early than out late.

Oh, yeah. And I love that kind of thinking, that analogy, really kind of help solidify a few decisions of my mind of whether or not I'm going to sell or one of my couple of my big properties. I think I might just end up selling them. Yeah. Yeah. You know, I had that philosophy after when I was a stock trader. that was one of the things that we always were taught is you know you want to sell on the way up so you know let's say you buy a thousand chairs and this thing starts to tick up so you know unload a hundred shares every you know a couple points unload another hundred chairs and lighten the load a little bit you can't really do that with with a single property but if you have a portfolio and you think things are going to potentially turn lock in those gains as you go up I think it's just you know it's a potentially a smart strategy I fully agree I fully agree and you know what I

at the end of the day, like, it's not a race, right? So, like, you're not competing against everyone else. You're competing against yourself. So, you know, if you've gotten some gains, lock them in, lock them in, get out. Like, would you rather have that or would you rather have, you know, have the opposite where everybody's suddenly selling, you can't keep up and the price keeps dropping, dropping, dropping, dropping. I've experienced it.

It's a horrible feeling. Selling on the way down is not fun. So I'd rather unload on the way up every single time. Cool. Yeah, man. Agreed. Everything else good? everything else is

pretty good yeah you know my my little smart ass remark earlier about the president we've got lots of rich candidates running here and and what's we we've actually reached out

I don't know here's you know we've reached out to some of the campaigns I think all of them by now I got one more to hit up so yeah we're trying to get them on the show guys we would like to see if we can get

the candidates to speak about housing policy here on the Bigger Pockets podcast. Yeah. So if you have a connection to any of the presidential candidates right now and you can hook us up with their media people or whatever and put in a good word for us, we'd love to get the big presidential candidates on this show talking about, yeah, real estate, business,

life, all that good stuff. So hook us up. Real estate. Yeah, real estate. Yeah, life. Whatever. Tell me your deepest thoughts. Yeah.

All right. All right, man. Let's get out of here. It's been fun. You guys, thank you so much. And make sure to get out there. make sure, as Brandon talked about, make sure you're evaluating deals, make sure you're researching, even if you're a newbie. You got to learn. You got to work. You know, you can't just sit on your

behind and this business is going to work for you. So, you know, evaluate deals, network, connect, ask questions, jump on the bigger pocket site, the forums, the blogs, go to your local meetups, go to local events in your area, connect with other investors, and make it happen. And with that, I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast. podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and an executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calicoke content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.w.w.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included involves risk. So use your best judgment and

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