BiggerPockets Real Estate Podcast - 225: Surviving a Real Estate Crash and Investing Out-of-State with Kathy Fettke

Episode Date: May 4, 2017

A lot of investors love to talk about the good times. But for life-long real estate investors, failure is often inevitable, especially during real estate crashes. That’s why we’re excited to bring you this discussion with Kathy Fettke today on the BiggerPockets Podcast. Kathy started her journey toward financial independence after receiving shocking news from a doctor, but used that motivation to begin investing. Alongside her husband, Kathy built up an impressive portfolio but struggled during the latest real estate crash. Still, she was able to emerge (and thrive) from the lessons learned. Today, Kathy shares how to avoid the mistakes that led to her difficult times! She also shares insight into buying real estate at a distance and handling the problems that can arise from long-distance landlording. In This Episode We Cover: The story behind the radio show How Kathy landed her first deal without money down How she converted single family units to multifamilies A discussion on FHA loans and house hacking Key pieces of Robert Kiyosaki’s advice Tips on buying from a distance and using property managers What you should know about finding the right agents, CPAs, and property managers What happened when Kathy got “too confident” The important lessons she learned after the collapse What metrics to look for in a market What it takes to come up with $3 million in five minutes And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Hard Money Lenders Robert Kiyosaki Real Property Management Books Mentioned in this Show Set for Life by Scott Trench Extreme Success by Rich Fettke Retire Rich with Rentals by Kathy Fettke The Millionaire Next Door by Thomas J. Stanley Priceless by William Poundstone The Da Vinci Code by Dan Brown Wealth Can’t Wait by David Osborn Augmented by Brett King Tweetable Topics: “The hardest times in our lives tend to be the times when we have to dig deep.” (Tweet This!) “Any time you get in front of the path of progress, you’re going to make money.” (Tweet This!) “If you can’t buy this car with cash, you shouldn’t have it.” (Tweet This!) Connect with Kathy Kathy’s Company Kathy’s Podcast Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets Podcast show 225. We're going to be wealthy and everything's going to be fine. And we all toasted, but I said it with such authority. I can't even describe it. But if you've ever been in that situation where you just were like, there's no chance, there's no chance of failure. There's no, I won't allow it. You know, and that conviction was 100% and I never stopped after that.

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 others who have benefited from biggerpockets.com. Your home for real estate investing online. What's up, everyone?

This is Dave Meyer, the occasional guest host of the Bigger Pockets podcast, here with my co-host, Mr. Brandon Turner. What's going on, man? Hey, how much? How are you doing? I'm doing great, man. It's really all as well. Good. Good. I'm all as well here as well. I'm still sitting here in Hawaii. This is like almost done. I've got to go home here pretty soon on Saturday. How long have you been there?

A month. That's pretty great in the same place. Yeah, yeah, we rented an Airbnb. It's been good. But yeah, how's life for you? How's your investing going? I mean, you buying anything new lately? It's good, man. I'm looking at a place this week, actually. I got a line on an off-market deal, a couple of duplexes that I'm interested in, a couple multifamilies, which in this market have been pretty tough to come by. And as everyone listening to the show knows, off-market is often a good way to look. And what about you? Are you, you're probably itching now. You've been in Hawaii. That's like the longest you've ever gone without doing a deal. I know. It's been,

it's been a little weird, but I actually almost got a deal yesterday. It was a single-family house. I've been negotiating with a guy. Actually, so this is a much longer story I won't get into, but this guy, I became good friends with my area because he listens to the Bigger Pockets podcast, approached me and wanted to learn some more. And, you know, like, rather than somebody, and Kathy mentions this in the show later, our guest today. She talks about, like, instead of just going to somebody asking to pick their brain and wanting to get information, you know, provide value, right?

And this guy came to me and he just said, hey, I want to do this. What can I do to bring us value? And so we ended up talking, building a good relationship, a good friendship. And I just would be like, go do this. And he would go out and do it. Anyway, so we get this deal almost under contract. almost falls through. It might have fallen through.

But anyway, it's almost like from over here in Hawaii. I'm still kind of engaged. That's awesome. That's great. That's great. But I'm also, I'm looking. And do you have you, what? I was going to say,

have you had any drama managing the property remotely or how's it going? Not a bit. I mean, we've had some electrical issues in one property. Like the guys' lights keep shutting off. Who knows? All right. I'll knock on wood because now like right when you hang up with me or you get like six calls. Yeah, I know.

And that's the beauty of creating systems, right? Like, I got some of the systems set up that it's, things kind of run themselves. sells over time. You figure that sell out over time. So yeah, I'm not too worried about it. What I am looking for is a mobile home park. I'm looking all over the country for mobile home parks. Oh, nice. Yeah, I just, not that they're like the best investment in the world, but we've had multiple mobile home park guys here on the podcast and they've got me excited about it. So I'm putting my foot down and saying, I'm going to buy a mobile home park this year, 50 units or greater.

Awesome. So what about you? What are you buying right now? What are you looking for? Just so duplexes, anything? Yeah, I mean, mostly duplexes, but this is a good segue actually because Kathy talks about this too. I'm starting to run into a situation where I can't really borrow much more. So I'm trying to figure out if I'm going to sell a property 1031 into a bigger property to increase cash flow. We talk about that too. Yeah, exactly.

Take on some partners or do something else, maybe partner with someone who has more credit than I do. So I'm kind of at this stage where I feel like I've been a baby investor for a while and now it's time to amp it up a little bit and just doing my, my research right now and figuring out the right strategy. Yeah, that's funny because in the show, she mentions this. Kathy tells the story, and you guys will hear in a minute, but tells a story about how like she couldn't borrow anything more and she was telling a mentor of that.

And the guy said, well, congratulations. Now you're an investor. Like now you're in the big boys club, basically. Like you're, you know, now you got to work towards us. It's not just though I can go get, make it easy. So I love that you're going through that too. Yeah, definitely. It's going to make you, I'm going to have to get a little more creative.

It will be interesting. Very cool. Very cool. Well, with that, why don't we actually get? get to the show, but before we actually do the show, why don't we get to today's quick tip? Are you going to take it? Sure. All right.

Today's quick tip is to visit the new and improved hard money lender directory on bigger pockets. So if you are interested in flipping and you are looking for some financing, hard money is an interesting way to go. We have tons of information about it on the site if you don't know what hard money lenders are. And then if you are ready to start looking for a hard money lender, go to bigger pockets. dot com slash HML or hard money lender. They all go to the same site. And we have an awesome little map there where you can check out some of the companies that are lending in your area.

And it could be a great way for you to find funding for your next fix and flip. Well, Dave, how much money does it cost to get this list of hard money lenders? Do you be a pro member for that? Oh, no, you don't. That is a free service. We have bigger pockets provide to all of you out of the kindness of our hearts. No, it's super cool. Completely free.

You can go check it out. There's a ton of things to look at. A lot of good companies on there that are doing deals with a ton of bigger pockets people for sure. So you know that they are legit. And you can definitely go check that out. Again, that's biggerpockets.com slash HML. Most investors spend all their time talking about their high level returns. But that's not the number that actually matters.

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So Kathy Fetke, I hope I'm saying her last name. I think that's right. I asked her ahead of time, but she's a real estate investor. Lives in California, but invests all over the United States. Today, we talk about that. How do you get to that point where you can find agents and, you know, managers and how do you manage that from far away? I talk about that.

We talk about getting started, things that hold people. back and Kathy has a ton of experience in this stuff. She's had quite the story from success and then to massive failure and then massive success again. You guys, I love it. So with that, let's bring in Kathy. All right, Kathy, welcome to this show. Thanks for joining us today. Thanks for having me. Yeah, this is actually version two. We tried to do this a week ago and we had internet technology Skype issues. So we are back. Well, we should have done it live in Hawaii. I think that would have been better. Not a much better. I wonder if Josh would have fronted the cost of life. Yeah, you guys You guys could have flown out here because sat on the beach and talked about it?

Not too late. All right, so let's get into your story a little bit and find out a little bit more about you. I mean, I know a little bit, but our audience has no idea who you are. So who are you? And how did you get into real estate investing? Oh, man, so much by accident. I am the CEO of Real Wealth Network, co-CEO. My husband is the other co.

And I'm also the host of the Real Wealth show. I'm actually one of the first podcasters in real estate, which is a pretty good story. I can tell you how that happened by accident. So really what the way it all started was in 2013, my husband was, you know, his career was taking off. I was living my dream, stay-at-home mom, two little kids, dream house, awesome husband, just everything was perfect. And he had just come out with a book called Extreme Success.

So he was traveling all over the country. He was Simon Schuster's top guy, and his books were in airports, and we were at the top of our game. And then he came home one day with tears in his eyes, and he never cries unless he's happy. You know, like, if it's something good, I know, it's weird. But like, anyway, this was like not those kind of tears. And he had just been to the doctor to check out a freckle. He's got a lot of freckles. He's a redhead.

So it was like, how did you know to look at that freckle? but it turned out it was melanoma. They did more testing, and the doctor said it looks like it spread to the liver, which means you've got six months. Wow. So, yeah, yeah, for sure. And so, you know, believing that to be true, I thought, okay, I'm going to take over the money part.

You stay home and do whatever you want for six months. And so I had a little radio show in San Francisco that was really kind of not that great. I would just talk about whatever I felt like talking about. But all of a sudden I thought, okay, I'm turning this. to how do I make money now? And how do I make passive income? Because I don't want to be gone all day. If I've only got six months left, you know, I want to be home with the family, but I want to take over the finances. So I just completely shifted to how do I do this? And I did what you guys do. And I just started interviewing people who do. And I had, you know, all these guests on to say,

how did you go from zero to 100, you know, how do I make this happen? And so that's when I got lucky. You know how it is when you have the access to great people. you have a radio show. So I was able to get Robert Kiyosaki and, you know, big names on my show to tell me what to do. And within, I don't know, about a year we had 14 investment properties and we had kind of learned the business. But the best part of the story is that Rich is fine. The doctor was wrong. He's healthy. Like I said, he's my co-CEO. That was how the business started. Wow. That's amazing. Well, yeah. I'm glad. Yeah. I'm glad he's fine. Yeah. But yes. It was intense.

Yeah. That's crazy. So, you know, but that's one of the messages I tell people is that truly, you know, the hardest times in our lives tend to be the times when we have to dig deep and that transformation happens. I would never, ever be in real estate today had we not had that scare. It was never something I thought about. But it was interviewing these successful people and getting into the mindset of, oh, this is actually possible. And we absolutely had the ability. Our first property we got with no money down.

So if I could do it, literally anyone could do it. And then 13 years later, we run this multimillion dollar business. We own properties all over the world. And we've helped other people do that. And none of that would have happened had we not kind of gone through this challenging time. Sure. That's really an amazing story. Go ahead.

I was going to say, let's talk about that first deal. I'm always intrigued by people who, you know, what people's first deals are. And especially you did it without any money, I'm sure. our audience loves that. I mean, that's a very popular topic. So how did you get that very first deal? And when was that? And how did you do that? Well, you know, not everyone will get this opportunity. But, you know, again, when you learn from other people, all of a sudden, you see opportunity that you never would have seen before. And that's why it's so great to hear the people's stories, right? So in this case, my dad had, he was a dentist. They're notoriously

terrible investors. Sorry if you're a dentist listening, but that's, that's historically been the case because you work on teeth, you know, not necessarily real estate. And so, you know, my dad invested in an apartment with some guys and it ended up being a horrible deal, but he had depreciated it over time. And then he went on vacation and came home and had a letter in the mail where these guys had sold the property, didn't tell him, because he had taken so much depreciation, he now owed hundreds of thousands of dollars in back taxes, but still lost money on the deal. It was just bad. And he was at the time trying to retire. He was literally about to retire. and suddenly wouldn't have been able to.

And so he talked to his guy, his tax guy, and said, okay, well, if you find a replacement property, he's like, well, I'm retiring. I don't want to be a landlord. I don't know how to do that. So, you know, we happen to be there. And I said, well, what's the deal? You just have to find a property, you know, and you have to rent it.

Well, Rich and I had just literally gotten married. And we said, we're renters. How about we rent it? And now you don't have to worry because we're going to take care of everything. And so we did that. He offered the deal to all of my siblings and just to make sure it was fair and nobody wanted to do it. So we found this property. It was my dream house.

But it was so big. Like I went super big because it was a big exchange. We had to spend a lot of money. So I can do that. So I bought like a six-bedroom house right outside of San Francisco. And at the time it was $540,000. I mean, you know, it was 97. So six-bedroom house, I know.

Like that doesn't happen today. But we, you know, when I worked out the numbers, I said, oh, you know, we can turn it into a fourplex sort of unofficially because it had an in-law unit. It had another unit. So we ended up living there for so cheap in this brand new, gorgeous, like, amazing house. But we didn't have to share any space because we literally turned it into separate areas. And then we worked it out and arranged it that we refinanced. It ended up going from $546,000 to a million six in 10 years. Wow.

Yeah. And we refinanced, paid dad back everything, paid the family back, anything in it, and we still made a million bucks. That's fantastic. That's fantastic. That's a great first deal. Yeah, it's a good deal. Very successful. Yeah. So let's go back and talk about the exchange or quick, because, you know, a lot of people don't know, like, what does that mean to do an exchange? Why did he have to go and buy out another property instead of paying taxes? Like, can you explain what a 1031 exchange is and how that works? Yeah, it's a wonderful thing. It's one of the greatest reasons to be an investor is you can exchange property if it's not really working out so well for you. So you can sell one property and exchange it for a like kind, but there's a whole lot of like kinds out there. So in this case, he could sell, you know, he could sell his apartment and buy a single family as long as you meet the rules. And those rules are, you know, we could go on and on. But you basically have 45 days to identify the replacement property. And you have basically six months, 180 days to, to close. And but, you know, there's a lot of rules around debt. You have to have the same amount of debt or more or the same price or more. So you just, you got to get it right. But when you do get it right, then you don't have to pay your capital gain until, you know, until at a later date. But

one of the little loopholes here is that if you die, you never pay it. And then, and so when my father passed, we inherited that house, a million eight. No, that tax was never paid. And it was Except up took a good value. Yeah, it was amazing. So here it saved him. He was able to retire. And it gave us this chance in life to buy a home in San Francisco, which is really hard to do.

And our whole family still benefited because we refied and paid any money that the family trust had put into it. They still got. And so it's just a win-win all the way, whereas it could have been really hard for my dad otherwise. Yeah. I like to look at the 1031. Yeah.

I like to look at the 1031. It's almost like the government is partnering with you. They're like, all right. You know, I know you owe us a million dollars or, you know, $100,000 in taxes. But once you keep our money for a little while, put it in your next deal and then you can pay us after that one. And then like you do the next one, then they do it again. They're like, just keep the money a little longer. Go find a better deal.

And the government's partnering with you because they know that someday they're going to get their money except for if you die. And so in that case, you just keep 1031 exchanging all the way up until you pass away. And then it just goes away and the government's like, I don't worry about it. You know, you've gone through enough heartache. So like. And it could change. It could change. We have a real estate investor in office who you would think would never want to change this amazing thing that's so good for real estate investors.

But there has been some talk that, you know, he's considering maybe just having people pay the capital gain, but a low capital gain. So I don't know. Right now is a good time to take advantage of it while it's there. If you've got high price property that you can, you know, exchange to something that is better and cash flows better, this is a good time to do it. It's really interesting. I never heard anyone doing it where you went from a single family to a single family. family and then converted it into a multifamily. So you were actually generating cash flow.

That's a really interesting strategy that I think people ought to look into. And I will be as well. I tell you what, I mean, I know you guys have a lot of listeners, but one way to get in, if you don't have that kind of miracle that we had, is the FHA loan. You can put three and a half percent down and get a fourplex and rent the three other units and pay nothing for your unit. You know, there is no excuse to not getting in the game.

There really is. I told my daughter, I'm like, what are you doing? I'm your mother. I am known for real estate investing. How are you not property? She's 24. I hope she's not listening or maybe she should be. I showed her fourplexes last weekend going, look, you just give up a little privacy for a little while. Buy this with an FHA loan, rent the other units out and you live rent free, you know? Yeah. So what do you think that what's the hesitation there? Why is she not jumping at that? I need to find out further because it is shocking. She's grown. up. She worked for us. It's really funny. You know, I would like to know, and I'd like to do a show on it myself, because if she's not alone, I'm sure, it's probably the fear of responsibility, because it's not the money. She'd save money. Yeah, absolutely. I think for a lot of people, becoming a landlord is somewhat daunting. And you jump into it and you realize it's really not that challenging, especially when there's so many resources out there today. But yeah, for any other 24-year-olds who are interested in getting in the game. This is an excellent strategy, FHA loan, rent them out.

We call it house hacking at bigger pockets, but an awesome way for newbies to get entering into the real estate investing market. Definitely. And you don't have to live there forever. That's what I told her. I'm like, okay, you don't want to live in a fourplex? That's fine. There's nothing on the FHA loan that says you have to live there forever.

Yep. You just have to live there for a while. Yep. I think they like a year, but there's, I mean, there's no like, I think they say that you should plan on a year. But again, it's so many good reasons to do the FHA, the house hacking kind of thing where you do that. I know Scott Trench, who's a, he's VP of operations. Is that right at Bigger Pockets?

Yeah. VP of something. Yeah, I think so. Yeah, he's a big deal. So he was on the podcast here just a couple episodes ago. I don't remember number 220 something. And on his episode, we actually launched his book. He wrote a book called Set for Life.

And house hacking this idea of living in one unit renting the other ones out is kind of a major cornerstone of that that that strategy right because if you can live cheap or free in your property when you're when you're young and starting out you can take all that money you're earning that you would have been spending throwing away on rent you can now take that and reinvest it in profits and really truly like set yourself up for life and that's not the only way to save money but it definitely is a very unique way so very very cool yeah the money you save you can you can have for reserves if you're afraid of repairs and the responsibility now you're building a nest egg Yep. Love it, love it.

So how did you, where'd you go from there? I mean, you did this awesome first deal. What was next for you? Then, you know, we found out, it was crazy. It was 2003. So every month we were making money on that house. We made $100,000 the first before we closed. It was like we bought in 97 the bottom and then just went, whoo.

So then when I started the real wealth show and wanted to learn, you know, how to create this passive income, then I found out, oh, I can just refi, take the cash and, you know, buy more. And fortunately, like I said, I had people on the show who were teaching me how to do it, teaching me. My show was so, I don't know how to say this, but it was for me. I wanted to learn. And fortunately, I had an audience who was like, oh, this is cool. I want to listen. I want to learn too.

But everything, all the questions I asked were like, how do I do this? And so with Robert Kiyosaki, he said, okay, well, you're not going to be able to find anything in San Francisco that cash flows. I mean, maybe this home you turn into cash flow, but that's, you're lucky. So he said right now is actually a really good time to look in Dallas because it's got the highest job growth in the country, the highest population growth, and it's 28% undervalued, whereas where I was living was way overvalued and no cash flow. So I took his advice and Rich and I went over and we looked at property and we like I said, we got our first trip. We bought five houses because they were a

$140,000 each brand new in this area of Dallas that is called Rockwall, Texas. And we didn't know what we were doing, but we met with a couple of real estate agents who were just awful. They just saw California money and we're like, how many do you want to buy? And let's start in the $400,000 range. And I was smart enough at least, you know, to go, that's really cheap for California, but I'm pretty sure that's a lot for Texas. So we looked around, found some real estate. agents who understood investing, invested them also. They were investors themselves. That's a key. And they showed us this little town, Rockwall, Texas, that was on a lake, had a hill. There's like no hills in Dallas, but there was this one hill with a lake. And the key, the reason we bought

is that there was a new freeway coming in so that instead of an hour commute around the lake, it would be 20 minutes to town. And any time you get in front of the path of progress, you're going to make money. And so these little $140,000 houses, they're minimum $300,000 today. I mean, you can say that nothing happens in Texas, but if you get in front of the path of progress, a lot happens. And so we got like quadruple the cash flow we would have got in California, plus we still got the equity growth. So it was a good move. Did that freak you out though buying from a far distance away? Like, you know, you live in San Francisco trying to buy 2,000 miles away. Like, how did you get over that fear? I think I was too, nine.

to really know the difference. I didn't, I mean, I was invested locally, but like literally downstairs, you know, or next, like our tenants were in our house. So I didn't really, I just didn't know. And it was a quick three hour flight. I don't know. I just, I wasn't scared. But I can see where if you were, if you had more education than I had and you'd been trained, you know, you have to buy within that 30 minute, you know, or whatever people say, the 45 minutes of your house, if I had that education or if I had anyone warn me or scare me, I would have maybe not done it, but I had Robert Kiyosaki telling me he was doing it. So I'll do that.

And then I learned that, you know, this thing called property management. You know, someone was going to take care of it. That's even better. I'd rather, how could I possibly manage a property? I don't know anything about fixing anything. I don't know the rental laws. It would be dumb for me to try to rent my own property and manage it. So it just made sense to have some.

someone who's actually licensed to do that. Awesome. Well, we should jump into that property manager thing in just a second. But you mentioned something before that is a really common thing I hear from new investors, which is about finding an agent, especially out of town. And you said that you unfortunately had a bad experience. What would you recommend to people, what to look for? How do you screen an agent to make sure that they have you as an investor's best interest at heart?

What I had learned was first and foremost, if you have money and if you're from California in particular because they just, Californians are really naive. We're just, we just don't believe that anything could possibly cost less than $500,000. You know, and so,

you know, when you, it's, we're just easy to take advantage of. And so I think because I had the show and I, I could ask the right questions, I could pretty quickly see that we were getting ripped off. So again, the first, The first thing is most real estate agents are used to selling primary residences. They're used to selling homes to people who are going to live in them.

And they're hopefully good at that. But they're usually good at it only in their little neighborhood. They know their neighborhood. They know the school district. They know the things that matter to you if you're trying to live there. They don't know the things that matter when it comes to renting. And so oftentimes they'll throw out some rental number that they have no clue. They don't know anything about rents.

And they don't know anything about any of the business. So they wouldn't know how to make sure that you're buying in a neighborhood that's attractive for a renter or what the expenses might be. Maybe they're going to take you to a neighborhood where the property taxes are higher. And that matters to you. And maybe to you, being in the best school district isn't so important because maybe it doesn't matter to your tenant as much. So they're just looking at different things.

So the first thing I look for is how many properties do you own? That's first in how many, how long have you been doing it? I want to know the neighborhoods you rent property in because that's probably where I want to be. Yep, I love that. Now, what about competition though? I mean, if you're finding an agent who also invest and already does stuff, aren't you worried that they're just going to go and take all the good deals themselves? You know, most agents don't have unlimited resources.

So, yeah, they can't, you know. And as the same, I mean, people say that about commercial brokers too. they say to me, you know, because now, you know, we do have investment properties all over the country that we help investors buy as turnkey already rented properties. And that's the first thing they say is, are you just giving us the leftovers? Like, you know, I don't know who you think I am, but actually I don't have unlimited resources. You know, I still only get a limit of 10 loans through FHA and, you know, I can't buy everything. So no, I'm not too, I'm not too worried. I think that does happen And sometimes, one thing that does worry me a little, I don't know if it's true, but if you work

with a property manager who owns a lot of their own property, there's a good chance they might put their property before yours. If there's a good tenant, they might place that tenant in their property. I don't know if that's something to worry about, but I'd still rather know that whoever I'm working with has experienced, personal experience. That goes for CPAs, attorneys, any professional I work with, I will never work with a CPA who doesn't own rental property because they'll give you bad advice. Yep, it's so true because like, you think the tax code is like, oh, I mean, any CPA should

be going to figure it out. No, like it's too complicated. Like you have to specialize. You have to. Yeah. Very, very important. So you find agents by finding people who are already investing at least somewhat. What about property managers?

How do you vet a good property manager to determine that they're going to be okay? You know, you can vet them all day long. That doesn't mean they're going to be good. That's probably the best advice I can give is that, just because you've done your due diligence doesn't mean you can just forget about it. Because property management is still sort of mom and pop. It's getting better and it's getting more professional because of the hedge funds really have actually tried to make it a legitimate profession just in the last few years.

But there's still a lot of mom and pops that if anything goes wrong with mom or pop, you know, there could be cancer, divorce. There could be stuff that happens that changes what originally might have been good. So always you've got to stay on top of the property manager. And if you have any sense that something's not right, then check it out right away and make sure they're doing their job. We even audit them because I've seen so many property managers spend the deposit money because they don't know how to grow. They grow too quickly. They hire too much.

But then all of a sudden they realize they don't have the income and they start to tap into the deposit money. So, you know, one of the things we require is you need to show us on a regular basis that you haven't touched that money. I love that. I love that. That's smart because I mean, a lot of property managers, especially like I've heard of like when they start getting trouble financially, like in their own business, they start taking from security deposits or from whatever. And then they're just robbing Peter to pay Paul. And that's the beginning to the end. I mean, I've, yeah, I've heard some real horror stories about companies that have just stolen their money, like investors money and just like disappear. It's happened to me. It's happened to me several times. I'm embarrassed to say. But just like I said, any time that you go through different. times, it makes you better. So now what has happened to me personally, I know how to help protect other people from that happening. And that's why we do the audits because I've literally had investors come to me and say, I haven't had a rental payment from this company I've been working with for six months. Like, why should let it go six months? You know, like, you should have been on it. If they were three days late, you find out why, because it's what you said, they don't

know how to grow. They're not necessarily good business people. So then all of a sudden, they've got too many expenses, so they start to dip into the reserves and they think no one will notice. And then that's tapped. So then they start using the rental income to cover. And then you just can't let it go. If there's a sign of something wrong, there's probably something wrong. And you need to check into it, which again is why we created a group effort where if we've got a thousand investors with one property management company, you better believe when we call them and say we want to know what's going on, they'll tell us and they'll fix it if they can or else we're going to pull everybody and they will be in real trouble then. And also you have sort of the ability for a group lawsuit, which they don't

want. So there's some interesting. There is. Power in and also in like finding the companies that act like a business. You know, you said something like really powerful there, right? There's mom and pop property managers and then there's people who operate as a business and that's their business. And I found that you're like the companies I've hired to do a little bit of property management. The ones that are the small money pops, yeah, they could be good, but I want the ones that are that they know how to run a business. And that's, I mean, can you get that in every, in every industry? Like, people who are good at, like, a certain thing, like property management or baking

cakes are not always the best at managing tenants or running a bakery, like, you know, or running a property management business. So, yeah, I think that's important is find someone who's good at business. Do the reports look good? Do they, are they on top of things? Do they understand what, you know, like, what, what, what, what, what, good businesses. I mean, how do they answer their phone? Things like that tell me a lot. I mean, how many property managers I've called that they answer the phone, yeah, what do you want?

You know, like really like angry almost like, why are you bothering me? Like, I'm busy watching my stories. Leave me alone. No, it's well, fortunately, like I said, we're starting to see some improvement. There's franchises now, like real property management is one. And so a mom and pop can still run the company, but now they're plugged into a company, you know, a franchise that has, they have actually just do higher level software and training and attorneys and things that maybe they just couldn't afford on their own, but they're plugged into a bigger system. So I would, when we look at property managers, we do like to see franchisee owners or people that are part of a larger thing than just a little local deal. Perfect. Yeah. So what came next? I mean, after Texas. So, I mean,

do you want to hear about my disasters or do you want to hear about the good stuff? Let's hear some disasters. All right. So what came next was I got too confident. And then this was this was like 2006 when it was just a frenzy. You know, you couldn't. It was like today. And this is why I want to let people know that today I recognize very well because it's when I went a little psycho. And I'm seeing people get so confident and so greedy and it's going, wow, you know, look at so-and-so made all this money in this market. I'm going to go do that. But you probably, missed it because if somebody already made money in a market, then it's done. You're, you know, it's over and you're, you're buying at the peak. So that's something I didn't really quite understand. So we, we had, I was giving people advice, but not taking my own advice, but we bought three brand new properties in Boise, Idaho. And I don't know why I went with that. It was like a thing and it was one of those, you know, new hot markets that you'd see on realtor.com or whatever, you know, here's the newest, hottest market. Well, Boise

Idaho is, it has like two employers, right? You know, like 300,000 people. It was not Texas. I don't know how I got confused that Boise was in Dallas. But so we bought three new construction homes that did not cash flow anywhere even close. I don't know what we were thinking. My poor husband wasn't, he just trusted me. He would never have bought these. I was like, oh, these would be great. And so then I tried to manage them myself bad. I had a guy who brought three big dogs in and just destroyed this brand new property. And then during the recession, one of the two employers left. So it was like one employer. And it was rough. So we had a short sale those. We lost all the money. It was a bummer. So we did really well in Texas, not so good in Boise. And then I made the mistake

of that wonderful house I told you about the fourplex, the first one. We ended up renting the whole thing out and buying a better school district for the kids. So that was the good thing. We got I'm in really good school districts, which they'll probably never appreciate that we went through that for them. But we kept the fourplex rental. And even though I was telling everybody, sell, this is the time to sell California property and get into Texas. We kept that property because it was my first property and because it was from my dad and I had emotional ties to it, raised my kids there. And so we kept it. We didn't sell it when it was $1.8 million. So guess how much it was worth a couple years later. Half that. Hopefully not that bad. Oh, man, really. Yeah. Wow. Wow. Yeah. Yeah.

So that little story about how I made all that money, well, you only make the money. You only make the money once it's in your pocket. Yeah. It was paper money. Yeah. So did you. Bouse back for that? Yeah. I was going to say what happened next. Well, we ended up because we'd already destroyed our credit and we, it was naked, that house was, I'm telling you my horrible stuff. This is why I know what I know. when everything tanked and all of a sudden the people we rented it to couldn't afford to live there, that house was $10,000 a month negative cash flow. So we had to short sell it. And somebody came in and bought it for $800,000 and got a steal. So we took a massive loss on that. We took a massive loss in Boise. And it was embarrassing because by then I was fairly famous and had helped lots of

my listeners make a ton of money. And I was sitting there licking my wounds feeling really stupid. embarrassed and if so apologetic to my husband, who, by the way, I think this is really important, really important. When it comes down to it, what really matters most, here let me get that off the screen. What matters most is our family, right? So there was never one moment where my husband made me feel like an idiot, not one. We lost a million bucks or more, destroyed our credit, started over had to try to like not let the world know how bad an investor I was because here I was like fairly famous at this way and and he he just loved me through the whole thing and was like it's only money but you got to remember that this is a guy who told it was told he had six months to

live so every day was a day he didn't think he'd have and money was not what drives him so it just it's so you know and then what happened another hardship was here's our here's our here's our horrible hardship. And we're like, we need a new start. So I look up online. I went on a hike and I got this, you know, I go on hikes and I center myself and I got this vision of, haven't you always wanted to live in Malibu? You know, maybe this is time for a new start. So I get home and I look up on my phone. I'm like, what is, what are the rents in Malibu? Well, because the whole country was in this major recession, nobody can live in Malibu. So the rents were slashed. And it turned out we could live waterfront at our favorite surf place for less than where we were living in the Bay Area.

So we moved. And again, a very difficult time ended up being a change that has been wonderful because we still live in Malibu and we got to raise our daughter where she could be an actress and pursue her goals. And so a good thing came of that. And of course, since we've recovered, because when you take big losses, you learn, hopefully, and you jump in and do it again with the new lessons you have. Yeah, that was my next question is,

did you learn? Like, what are the most important lessons you learned during the, you know, so to speak, like collapse of your empire that helps you then rebuild it? What are the important lessons? Oh, like I said, you've got to keep your family unit solid. You know, I had this woman come to me or this, yeah, this person said her husband had bought a duplex and didn't go well and she kind of let him run the whole thing and they end up losing $60,000. And she said, it almost cost them their marriage. And I was like, wow, your marriage is only worth $60,000. That's too bad for you, man. Maybe you should divorce. And so, you know, like, really? You know, that is not a good reason for divorce. So, you know, for us, it was like just

all that matters, we literally sold everything, everything that we owned, we put in our Prius, surfboards, bikes, clothes, sold everything else. And moved to Malibu. And we're happier than ever, You know, so you don't need stuff. And a lot of times I actually think that Rich and I and our kids would be happier as happy as we are today if we lived in a car or if we can't. You know, there's nothing monetary that would make us unhappy. So then it's not so hard to just pick up and start over again, you know. That makes sense. It makes a lot of sense.

Yeah, I think, you know, a lot of people tend to accumulate stuff thinking that it's going to make us happy. but at the end of the day, like, none of it really matters. In fact, most of it just ends up weighing us down. You know, for example, if I go out and buy, if I go out and buy a brand new car, right, and I now have a $500 a month payment on that car, or I go buy a really nice house, I now got a $4,000 a month mortgage payment on that house.

What that does is everything you buy like that holds you to your current income, holds your current status like forever, right, until you get out of that. So let's say I want to quit my job and I hate my job, but I wouldn't buy a new car with a $400 a month payment. That means that's $400 a month more. have to go out and earn through passive like real estate. And like, I mean, yes, real estate is fairly simple, but it's not just easy to go and buy $400 worth of cash flow and properties tomorrow that's secure.

Like, I mean, that's a lot, it's a whole lot easier not to buy that car. And then when you can afford it, when you have the financial freedom, then you can get that car if you want to. And it's not wrecking your lifestyle or trapping you into anything. Yeah, a rich guy that rich was, my husband was, by the way, I think it's funny. I said, you know, I'd like to marry a rich guy. you know, and I very excited much. So you've got to be really specific.

There you go. I'm kidding. I literally knew when I met rich that there was, that would be happy no matter what. That if we were broke, we'd be happy. And if we were rich, we'd be even happier. So, yeah. But anyway, I forget what I was saying. Well, we were just talking about, yeah.

Well, yeah, we were talking about like the happiness. Like, where does that come from? And you said he talked to a rich guy who. Yeah. Oh, yeah, that was it. And so he was painting back when he was in college. He was painting this guy's house. And he looks at the garage.

He's like, whoa, you know, what a nice car. My dream is to have a Porsche. And the guy looks at him and Rich goes, how much is the payment? And he looks at him and goes, if you have to make payments, you shouldn't have this car. Yeah. You can't buy this car with cash. You shouldn't have it. So it's good advice.

Yeah. So that's why we drove Priuses for a really long time. I still do. There you go. The California way, yeah. It's time for it's time for it's time for the random five. All right. And now it is time for our random five random five.

So these are five random questions we ask you just to get to know you a little bit better. Kathy, you ready for this? I'm ready. All right. So let's see. Number one, what's a good one here? Here's a good one. What are you currently reading right now?

Oh, I'm reading a book called Augmented. and it's by my partner on the high-tech thing, and it's all about the future. I'm telling you, you've got to read this because the future is really intense. Like the things that are coming, you need to know because in the next two years, it's not going to be a world we recognize.

I'm not kidding. This is the year of robots, and you could laugh at me if you want, but wait until you go order your food or wait until your job is replaced. Or your spouse has now married a robot. No, just kidding. But it's really weird.

But augmented is a great book about what we can expect in the next few years. All right. Cool. All right. What's the most expensive thing you have bought online? Ooh. I haven't bought a house online. I have not.

Oh, wow. The most expensive thing, probably the Airbnb's that we've stayed at. Nice. That's a good one. Yeah, definitely. Yeah. That's actually what I'm doing. I'm out on an Airbnb right now.

Nice. Unfortunately, we would be the ones that rent it, you know, huge ones and then have all our friends come. But then, you know, it's like,

hey, you guys are going to pay? You know, you're going to say, the whole collecting thing. But I think Airbnb just changed it where everybody can pay their own. Oh,

that's cool. Yeah, it is cool. That's how you do. Yeah. Number three, what was the most memorable musical performance

you've ever attended? Ooh. Oh, most memorable musical performance. I'm going to have to probably say Rolling Stones when I was 18 and two. Oh, man, I did myself, but I was traveling with my friend after graduation. And we were traveling through Europe and we saw these Rolling Stones, the Tong one, you know, and we're like, wait, Rolling Stones are here. And it was like 20 bucks because apparently Italians weren't into Rolling Stones.

And so we went and they were sitting, they were like all the Italians were like sitting on the lawn. And we were like, so we were in the front of the stage. I was like, I could touch McJagger. You know, it was amazing. So yeah, Blankstones in Italy. Very cool. Wow. Yeah.

I mean, that's pretty much as good in answers you can get on that question. All right. Well, what was your best New Year's Eve? My best New Year's Eve was, I remember this very clearly. We were sitting by the fireplace with all of our friends, and we decided to have a, everybody speak what they wanted to attract that year, where they wanted to create a little bit different than just saying your New Year's resolutions. It was like really your vision. And I remember in that moment, it was right when we had found out about riches melanoma. And I had such conviction. I had all my friends there and we toasted and I said, we're going to be wealthy and everything's going to be fine. and we all toasted, but I said it with such authority. I can't even describe it. But if you've ever been in that situation where you just were like,

there's no chance, there's no chance of failure. There's no, I won't allow it. And that conviction was 100% and I never stopped after that. Very cool. Nice. All right. Last question of the random five. What is your favorite card game?

My favorite card game, I would say spoons. Have you guys ever played that? Oh, yeah, of course. Yeah, where everybody's like jabbing each other with spoons because I love that game. Good stuff. It's been a while. I always win. I'm good at spoons.

Very cool. All right. Well, thank you for participating in our random five. Here's the truth about passive investing. If the strategy isn't right on day one, the returns won't save it. Multi-family real estate offers strong. structural advantages. Many investors are overlooking, including depreciation

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Terms and conditions apply. Hiring, indeed, is all you need. So if you didn't have to get back into real estate investing after this difficult downturn, what brought you back? Oh, because once you get the real estate addiction, I'm not sure if it ever. Yeah. I don't know. What happened is that I think that's when I became a real investor.

So what that means is I remember a mentor saying, you know, I think I had used my equity line and we were kind of out of money and wanted to buy more property. And he goes, perfect. You are now a real investor because you're eventually going to tap out. You've got to learn how to buy, you know, either using other people's money or however that works. And so there was that combined with the fact that everything was on sale. Everything was on sale. So coming back to the radio show and the podcast, I had that radio show, the Real Wells

Show and Rich heard about this thing called podcasting because he was all excited about his new iPod. pod. Remember how exciting that was? And so he's like, oh man, we can take your radio show and put it on iTunes. And no one was listening because no one knew what a podcast was. But somebody was listening. And this was right about when we had lost everything and we just moved to Malibu. And I think it was actually right when we moved to Malibu. And somebody in Australia heard the podcast that Rich just flippantly put on iTunes and said, hey, can we fly you out to Australia to tell us about U.S. property. And I was like, as long as you pay for it. So they, of course, they flew me out. There was thousands of people, Australians, who wanted to buy U.S. real estate. And I, by now,

based on all that I knew, I knew a lot. And so I was able to tell them all about the deals and where to buy them and the best markets and the best dates and how they could do it. There was no financing. But at the time, Americans like me had lost our shirts. You know, we were, we were licking our But in Australia, their dollar had doubled. So it went from like 60 to the American dollar to $1.20. And U.S. real estate in some places was a quarter of what it had been. So they were able to buy stuff here for like 10 cents on the dollar. It was insane.

So suddenly, at the lowest part of my life, I was all of a sudden thrown into the highest. Like we had thousands of Australians who wanted us to help them. We had buses full of Australians and just driving down neighborhoods. And they're like, they would be like, can we just give you, I would do it in Australian voice, but I won't. Give you a million dollars and you go spend it. And I'd be like, no, but I will help you buy real estate. So it just everything turned around and we were busy.

And from those profits, we were able to kind of get back in the game and start buying ourselves. That's awesome. With cash. We couldn't get loans. Oh, yep, yep, and that's not always a bad thing, you know? Like, you know, I think that's cool. And I think it's interesting how you used, essentially used business by utilizing your skills and your business to be able to then make the capital needed to go and

reinvest in your, like your own business. Like some people are, I don't know, I feel like we think of real estate investing, and this is a show about real estate investing, and that's important. But at the same time, like, it is really nice to have profits coming in from something, whether it's a really well-paying job or you start a business of some kind. And that's the way I like flip. houses in a way like flipping houses generates profit that I can then go and put into other properties. And now my cash flow kind of I can save that up and put that in new properties

or I write a book and that money goes into new properties. You know, like it's you do things in business that then go into buying more real estate. You're turning short term non, not necessarily passive, like short term just money into something that's long term and passive. So I love that. So I want to kind of move over that way a little bit and kind of ask you some questions about this. I'm assuming you continued to buy out of state or did you go back to California start buying there? You know, I actually do regret not buying in California because it was on sale. But I was, I really had the cash flow bug at that point. So we were, and we still did great.

Like we took investors to Atlanta and, you know, Indianapolis, Kansas City, kind of some of the not so exciting markets. But, see, Texas, we were still, well, we were really active in Dallas still in Houston. And I took a bunch of people, huge buses, buses of 50 plus people to Sacramento. And we were buying houses there for like $70,000. But the problem was we were having such a hard time getting the inventory because all the sudden people figured out what was happening. So I tried to sell as much California property as I could. And then we were also helping people buy in Oakland because it was, oh my gosh, it was so cheap.

But it was, you know, we were competing against hedge funds and investors. from all over. So it was just harder. It was harder for me to help these thousands of Australians who just they wanted it now and they didn't want bidding wars and they were losing out. So, you know, I was able to kind of go to the markets that other people weren't quite in yet. So we could kind of name our price in Atlanta and Dallas and Houston and they still made money. They made more cash flow. But, you know, had I known that prices would quadruple, you know, in some of these areas in California, I probably would have pushed hard. harder to try to get more inventory. But it was, man, it was a frenzy.

And that's where, you know, hindsight's 50, 50, obviously. Mm-hmm. But it's still good. I mean, you know, again, the properties we helped people buy and those other areas have easily doubled. I mean, even Cleveland, we were, we went to Cleveland and we were buying houses for $30,000 and they're selling for $100. So yeah, definitely the equity growth was there. So let's talk about markets real quick. For, you know, our listeners that are listening today and they live in expensive areas and they want to invest out of the area. like how does somebody know like what a good market is if somebody is just out there doing their research what kind of metrics do they look for in a market yeah yeah unfortunately for so many Californians they they think everything is cheap so they are selling you know bay area oh my gosh san francisco and san jose have absolutely peaked and if anybody thinks that prices are going to continue to rise you need to think again because it's starting to soften so people who sell a million dollar two-bedroom condo that they bought for 400,000, you know, they might go buy something in Portland or Seattle

and do better because they could buy two or three condos and increase their cash flow. So it's still not a bad deal. It's just not the best deal because those areas have peaked as well. And, you know, the same for these different places Californians are going. So what I teach people is to look, just like I said before, you look where the people are going, look at migration trends, look at job growth. So job growth, population growth. And then the third piece that is often overlooked is the affordability.

So if you can get those three, then you're going to do really well. If you can get job growth, population growth, and affordability, you've got the winning combination. So, for example, one of the hot markets we're looking at, I hate to say on your show, because no, it's going to be even hotter. But of course, Florida, everybody knows that, that now there's still parts of Florida where you can buy properties for half of what they used to. to be. And it's a super hot market, but it just has taken longer to recover. So we love that.

We love still parts of Ohio. We're starting to go back into some neighborhoods that peaked, but are now softening. So parts of Atlanta, where we really couldn't find cash flow for a while, but some new inventories coming online. Banks are starting to release some of their final foreclosures, and we're still finding deals. A new city that we're super excited about now, never until now, but now is Detroit. Because billions, yeah, it. I know, you wouldn't know, but three billionaires have decided to take that city on. And they have each invested two billion each. And it has transformed.

And it's become a millennial hub of a kind of a cool place to be. And when the cash flow is incredible, but you have to be very careful about where you go and what you buy. But we see that as an opportunity now because, like I said, if you can get in front of the path of progress, you can make some money. Yeah. Yeah. I was going to say Josh, the original host who's not here today, he makes fun of Detroit all the time. From the beginning of the show, four years ago would make fun of it. But he's since turned around a little bit and he's at least, you know, said, you know what?

There is big money being made in Detroit right now. Yeah. And because, you know, that city was at the very bottom. The problem was at the beginning. People were like, look at all these houses you can buy for a thousand bucks. Go buy them and just put a tenant and then you're fine. And then pretty soon you just learn that you can't collect rent from those tenants. And, you know, you might get shot if you're over in the wrong area.

Like, it was dangerous stuff going on. No, I wouldn't, I wouldn't have touched it until now. But once I saw that, I knew it would turn because anytime something gets that cheap, somebody smart is going to come in and take advantage. And so now as a syndicator, and this is kind of how I got my start as a syndicator was with these Australians because they just had so much money and they didn't have opportunity in Australia. So I sent out one email. We found this subdivision in Portland. that was condo's waterfront that had the bank had failed and went to the FDIC and it was probably a $20 million, at least maybe more deal. And we were able to buy the whole thing for $3 million.

So one of my listeners came to me and said, can you raise $3 million? And I was like, I don't know. So I sent out an email and I had $3 million in about five minutes. That's awesome. And so, yeah, I was like, oh, I didn't know I could do that. And but when a deal is good, you know, people want it. So we were able to, and by the way, those waterfront townhomes were 70% complete. All we had to do is the interior.

It was amazing. So we were able to do that. And then that led to more such deals where we have gotten really good at raising money and have had to some amazing syndications. But one of them, I think, that we might be considering is Detroit. Like I said, because millennials are looking for something different. And that's part of the high tech thing. I hope to be able to talk about sometime soon. It's going to be focused on millennials and the different housing needs they have.

They want to live together. They would rather live in a large, you know, space where they each have their own room and bathroom, but they have communal living. And so I think Detroit and Cleveland are good places to do that because they tend to be attracting creative millennials who want affordable housing. Yeah, that's true. Well, so let's, what is syndication? Can you explain what you mean real quick by syndication?

And I actually love to touch in on that deal. you just talked about the town home one. Like I love to know a little bit more about that. So can you touch on those things? Yeah, sure. Yeah, so a syndication simply means more than one, right? It's a group. And so it's the ability for somebody.

You cannot take this lightly because you're a steward of someone else's money. But basically, as a syndicator, you take other people's money and you invest it. And so there's a lot of laws and rules. It falls under SEC. This is so important. I didn't know any of these rules back then. And I sent an email out. I didn't know what I was doing.

I did it all wrong. Fortunately, that project went really well and no one sued me. But I since learned that that's not how you do it. You need to follow the SEC guidelines, which means you have to register it with the SEC. And if it's a syndication, a private placement, then you can only tell people you know that you have a prior existing relationship with. You can't advertise it or talk about it or you get, it's very serious. you can go to jail for doing it wrong. You can't ever use any of the money for personal use,

of course. But a syndication is a way for a group to come together and invest a little bit in something big. So I've become really kind of known for finding these great projects between like three and $20 million because hedge funds don't want them. It's too small for them, too big for the individual. So it's an incredible opportunity for us. So I like to see our investors only put about $50,000 in each one, but do a bunch of them so that their money is diversified. And for really busy people, people that just don't have the time to deal with, even a turnkey rental property is too much. You know, directors or some of these Silicon Valley people that come to our events,

they work 70 hours a week. You know, how can they possibly, you know, they can't manage a property, even turnkey. And so these are ways to invest with someone else. But don't ever invest with someone else in a syndication or a crowdfunding deal or anything like that until you know who you're dealing with. The most important thing to look for if investing in a syndication is the management. Who is this person? What is their experience?

What's their track record in doing exactly what they say they're going to do on this? They have to have a track record. And yeah, so that's what it is. Very cool. I was just curious how you find those deals. You've obviously carved out a pretty interesting niche. Where are you finding this? I would like to say that it was so brilliant of me.

but most of what I've done has been, so by accident, like the Australian thing, it didn't look for them, they found me. Same thing. A developer came to me who said, you know, I found this deal in Portland, you know, and I didn't know anything about, you know, converting or, you know,

buying subdivisions. That wasn't my thing. I didn't know anything about it. But after meeting with him and seeing that he had 40 years experience, building all kinds of things. And I was able to get that list and look up the background and visit his gorgeous home in Carmel and see his yacht. Like this guy wasn't a small time player. He was somebody who every single time there's a down market, the banks would call him and release assets.

So he would just get stuff because the banks don't know what to do with it. They need experienced developers to take it. And they'll give it away. So once we saw his background and his experience and his track record, then we were willing to do it. And so since then, we've worked with him and, again, just kind of lucky a lot of his friends. So once we raised $3 million in a minute, he told all his friends, she could do this for you because there was no money. You could not walk in.

All these guys, these big time developers could have walked into a bank or into an institutional lender and get money like that. But all of a sudden, in 2010, there was no money anywhere and they needed me. And so all of a sudden, I had this group of developers. who wanted our money. Since I didn't know anything about the business, I just used common sense. And I was like, you can't give these people 8%. They're putting up all the money. You know, this isn't fair. And so I just threw out some numbers and said, this is, this is how it is. The investors are going to make as much as you make. You're not going to take all of it.

And he was like, okay, he had no other options. And so we ended up just probably giving too much away because now investors expect that. And it's just not really probably possible today. But, you know, what changed for our model is for me to be able to say to the developers, look, you're not honoring the fact that these investors have made this possible and they're putting up the most risk. You need to pay them a nice chunk. Yeah.

And I think that applies to even small deals, right? Like if you are getting a partner, if you have no money, you have nothing to put into a deal, you know, and somebody comes in and partners with you or somebody comes in and lends you the money. like they should make a good amount of money. Like people get so greedy, especially in their early deals. Like, I want it all. Yeah, no, no.

You've got to understand who's really at risk there. Yeah. So since then, oh my gosh, I just have to tell you one because this was so amazing. And I can't take credit for it because it was this experienced developer. He found this commercial building in Dublin, California, right outside of San Francisco. And he knew that the city of Dublin, was totally revitalizing itself and putting in a new BART station so you could get to San Francisco on a train and really quickly and not deal with traffic. So all these things were coming,

but like I said, if you can get in front of the path of progress, most locals don't know what's happening. They don't go down to City Hall and find out. And so this commercial office building owner had no idea how Dublin was about to transform. So our developer was able to go in, tie up the property for $1.2 million in a lease option. It's like a two-year option, and we optioned it for $10 million. In that time frame, we re-entitled it to residential. We knew that's what the city wanted. And then once that was done, we tore down the commercial building, finished out the lots for a builder. And the Pulte came in and bought it for $20 million. Wow.

We had to put up $1.2. In two years' time, we re-entitled, and the investors made it a lot of money. It was really a good deal. That's amazing. It's just thinking outside the box, too, like you said, like, you know, looking for the highest and best use of the property and that guy didn't know what was going on, but you guys did. That's fantastic. Congratulations. That's great.

Thanks. Well, what comes next for you now at this point? Like going forward in your own personal real estate investing, like, where do you see yourself ahead in the next five, ten years? Oh, my gosh. You know, I think I'm going to continue helping people see what's coming and prepare for it. It seems to be my favorite thing is not reading the future, but reading the signs. And right now, I think a lot of investors are making super stupid decisions like they did 10 years ago,

settling for really low cap rates, thinking that the market's never going to turn. And it is. So I'm going to continue as much as I can warning people that markets change and market cycle and to understand fundamental. So education for sure, continuing that. We have an academy. me, we have an online educational program and we give 100% of the fee, but it adds up to charities. So 100%, not profit, but all of it. And so that's our goal is to give away a million dollars to the charities we love.

And that's really, we're really active with that. We're also going to be doing more of the syndications. We think that we're quite certain that there's going to be opportunity in commercial in about six months because $90 billion worth of commercial loans are coming due, and only about half of them will be able to refinance. So there's going to be a need to help either those existing owners help them with their debt and restructure the debt, or there's going to be all this, a bunch of foreclosures and a huge opportunity in commercial. So we're gearing up for that. Very cool. Very cool. Awesome. All right. Well, hey, let's shift gears a little bit.

and head over to the world famous fire round. It's time for the fire round. All right, these are the fire round questions, and they come direct out of the BiggerPockets forums, which, of course, our users can get to by going to biggerpockets.com slash forums, and we're going to fire them at you right now, Kathy. So number one, this is kind of actually related to what we just talked about.

Number one, when, when do you think the market is going to crash, if it will, and what's it going to look like? Oh, let me just tap in. I just I just let it download. Like I said, the commercial market is just going to be challenged in general because of so many changes happening with high tech. I mean, obviously you know that retail and shopping centers are getting hammered as more of us buy stuff online. So huge opportunity in shopping centers and converting those into something better.

The commercial sector, I think, is going to crash in six to 12 months. I believe residential is twofold. So you've got the high-priced markets that are so ridiculously bubbled up. New York City, San Francisco, parts of L.A., Seattle, Portland, Denver, a little. Not you guys will be okay because you've got weed. too. But otherwise, there's a lot, Miami, you know, these are, these are markets that are just, you know, people have gone a little crazy and it's time, it's going to adjust. But it's not, the reason that it would crash would be because of an outside circumstance beyond affordability. So everything will sort of just hold unless we have a stock market crash. So, you know, you have to ask yourself,

what would cause that? One thing that could cause the market to crash would be Janet Yellen continuing to raise rates. A lot of people think that her plan, the Fed's plan to raise rates is a good thing and that, wow, it means our economy is so robust. Well, what it means when the Fed raises rates, it slows down economic growth. And since we don't actually have that very good growth, I think the GDP and Q1 was like half a percent. So we're like this close to a recession. And yet raising rates means we're going to slow it further. So if they continue, I don't think they will. You can see stock market reacts to that for sure. There's, you know, that would be the main thing. It just, it has to reset. Now, what Trump might do is do what Obama did, which he would hate that

I said that, but we could just keep covering up the problem with more QE, more throwing money, which means that it would put off the crash for another couple of years. So, if there isn't a QE and a lowering of rates, then I think the crash will come in the coming year. If they try to bandate it a little further, like has happened for the past 10 years, then it'll be like about two years. I hope that helps.

Yeah, I like that. Good insight. And it may not be like a massive crash, but it could be. And that's why I think everybody just needs to be defensive. Be really defensive in your strategy. And every decision you make, make it as if the crash.

cash is coming in six months. If it's not, you're fine. But if it is, then you're ready and prepared. I love it. All right. Number two, this is a fun question. Any tips on firing contractors when they aren't doing a good job? Yeah.

We fired a contractor because he was stealing. And we didn't follow the contract. And we were supposed to give him two weeks notice. We fired him that day. And guess what he did? He sued us and he won. Oh, man. And he got money.

So be careful about honoring contracts. All the contract. That's really good advice. Yeah, it is. It hurts a lot to get sued and pay when someone's been stealing from you. Yeah. Man, that sucks. I'm sorry.

All right. Number three. I've got $45,000 to invest, including in a small line of credit that I can tap into. What do I do? What would you recommend? Yeah, great question. Hey, wow. I would say be sure that you know exactly what you're doing. If you're new to investing,

then I would probably partner with a mentor who's done it a thousand times because you don't want to lose that money. So I know that sounds kind of fearful, but because there's so many different ways, the things you could do with that money, there's not enough time to explain it. So I would just say, make sure that you're not guessing and that you're not trusting someone who says they can help you. If that person, like I said, I would find someone who can partner with you on your first deal and just use a little bit of it initially to understand and learn and make sure you're fully educated and make the right decision. I'm not somebody who likes to see people to sit on their money, but nothing hurts more than to see someone lose their hard-earned money. You don't want to do that. All right. Last question in the fire round.

How do I know if a state or an area is landlord friendly or not? Yeah, that is a great question. We usually talk to our teams on the ground to find out. So, you know, there's some states that you just know right off the bat are not good. Like California is terrible. It is tenant friendly 100%. So one of the things we look for for sure are the states that are like Texas where the sheriff will come with his gun. Take you out, man.

They will literally go into the house, take all your furniture, put it on the street, and anyone can take it. It's free for all. So, you know, we like Texas. But, you know, you would just need to talk to local professionals to understand the state laws. Local investors are going to know. I'm sure there's a better way to do it, but to me, that's the easiest. Talk to a local RIA, and they'll tell you. There you go.

All right. Cool. Well, let's head over to the last segment of the show, which we lovingly refer to as our Famous for the famous four. These are the same four questions we ask every guest every week and we want to throw them at you. So number one, what is your favorite real estate related book? Ooh, huh, retire rich with rentals. That's mine.

Just kidding. Besides your own. You know, one of my favorite books is The Millionaire Next Door. And I know that's not really real estate related. But it's kind of a boring and sad book because it really has you think about saving. But it kind of comes back to what we talked about earlier of making the right decisions. Spend money when you have it and spend it correctly when you're building it. And so, yeah, that's a good book.

Millionaire next door. Yep. All right. Number two. All right. Well, you just gave us one that was half real estate, but do you have a favorite business book in general? I do. I really love, well, it's just going to sound like a plug, and I don't mean to do it.

but extreme success is my husband's book. And what I love about it is he talks about living your life. So making sure that you have at least one day where you do something you love to do and that fuels you to be able to really intensely work the next few days. So to just regroup and do something awesome one day where you're not thinking about work at all and really refuel yourself. So I love that book. Great tip.

All right. Next one. Number three, Dave. Do you have any hobbies? What do you do outside of real estate? I surf and I love to hike and I love to do yoga and I live in Malibu. So there's this lady who teaches Brittany Spears how to dance and I take her dance classes because it's crazy. That's awesome. If you can get us Britney Spears on the show, that would be helpful. You pull some strings. Yes. All right. Number four, last question of the day for me. What do you believe sets apart successful real estate investors from those who give up,

they fail, or they just never get started? I think it kind of comes down to that fear of loss. And what I found is that so many successful people have lost. And so you've got to just kind of get over that. And know that losing is part of winning. And so, you know, so many people are afraid to take that first move. Of course, I don't want to see anyone lose at all. And there's, there's a lot of people who just make the right decisions and maybe never

lose money. But don't let it paralyze you because the truth is, seriously, once you understand that you actually don't need money, that you need knowledge and experience. And so that's what's going to make you wealthy. So, you know, mentor with people intern, but never say to somebody, can I pick your brain? wants to have their brain picked and nobody wants a free lunch. If you're successful, you don't need a free lunch. So instead, if you want to learn, tell someone you're willing to work for free and I'll tell you, you'll get their attention and then you'll learn and that that's worth

a lot. That's a great tip. I love that advice. Yeah. Cool. And where can people find more about you? Oh, I'm easy to find. Real Wealth Network is our company and it is free to join. You get access to weekly webinars where we profile different parts of the country that we think are booming, that are great places to buy. Like I said, we have a $10 a month Academy where you can get really high-end cutting-edge investor information and all of that goes to profit, charity. That's awesome. And then the Real Wealth Show is my podcast.

And Real Estate News, that's my daily podcast that I started last year. Real Estate News. Perfect. All right. All right. Well, Kathy, this has been awesome. Thank you so much for coming on the show and telling us all about yourself. in your journey. This has been very cool. And yeah, I guess thanks. This is awesome. Yes, it's been a lot of fun.

Thank you guys. All right. It's fun. Hawaii next time. Next time. Yeah, we'll see you there. Okay. I see you there. Bye. Bye. All right. And that was our interview with Kathy. Big thanks, of course, to Kathy and her story. What did you think, Dave? I loved it. I mean, it's a real traditional investor story. A lot of ups, a lot of downs, a lot of perseverance, which, as we all know, key to, you know, investing in real estate. And she really exemplified that. And I thought it covered a lot of topics. I mean, we talked about 1031 exchanges. We were talking about syndication. So any newbie investors get a lot, exposure to a lot of different strategies out there. Yeah. And I love that she wasn't afraid to talk about her failures. You know, like a lot of people are afraid. They just want

to pretend that they're doing great all the time. But, you know, the fact is we all go through crappy times, especially in real estate, like ups and down. Oh, yeah. So very cool. Yeah, and she definitely, she kept it all in perspective, which is always nice to hear. You're obviously a big family man, and she obviously puts that first as well. And it's always nice to see that people have balance and perspective and are trying to, you know, make money and do well for themselves financially, but also are able to maintain a great family life as well. Yeah, yeah, it's so important, so important. So very cool. Well, you know, that's pretty much all we got today.

So I hope you guys enjoyed today's show. Dave, what are you reading these days? What's on your right stand? I'm mostly reading books about statistics because I'm finishing up my master's degree, which is terrible. But I actually just read this book called Priceless by William Poundstone. It's fascinating. I think the subtitle is like the myth of fair market value.

So it's all about pricing and how a lot of companies are manipulating you, how you go into the supermarket and the way that they price things and they make packaging smaller but increase the prices. And it's all these different ways. but it's a little depressing at times, but it's also really interesting and teach you a little bit about how to defend yourself

against some of this predatory pricing out there. Very cool. Yeah, it's probably a little more nerdy than the average listener wants to hear about. Do you have anything good? What am I reading right now? So I'm listening to the Da Vinci Code, which I never read before.

So I thought people seem like it. Yeah, people like it. Yes, I like it. It's good. I saw the movie. I just never read the book. Of course, I'm like, I'm rereading. I kind of read it like when the pre-relierele

came out for Scott Trench's book set for life. So I'm rereading that one in more like on my Kindle, like in very slow methodic. Oh, yeah. Trying to like pick up as much as I can. So I like reading books a second time through too, which is really nice. And then I'm also reading a book, Wealth Can't Wait, which I believe next week, if I got my numbers running the podcast, next week we're interviewing David Osborne who wrote Wealth Can't Wait.

Oh, cool. I think it's episode 226. So a fantastic book about building wealth. Is it about real estate specifically? It involves real estate, but it's more. about the mindset behind growing wealthy. And I love, like David, David has a very unique look at what wealth is. And it's not what we all think of just being rich. It's about living a very wealthy life. It's a well-rounded life and using real estate to do that. It's fantastic. So anyway,

awesome. Awesome. Yeah. Pay attention for that next show next. And anyway, what's that? Awesome, man. Enjoy the rest of your trip. I think you. I'm going to, I'm going to find some sunshine. So I'll see you later. Awesome. I take care of us. I'll see around. There, bye. Later. 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 platform, our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico 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.biggerpockets.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

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