BiggerPockets Real Estate Podcast - 325: From Major Business Failure to Buying 20 Houses a Month With Aaron Amuchastegui

Episode Date: April 11, 2019

Awesome show alert! Today’s guest is so full of information you will be blown away. Aaron Amuchastegui sits down with Brandon and David and explains how he buys 20 deals a month while practicing principles of the four-hour workweek. It’s an incredible story about how he built a big business with foreclosures, how he keeps his pipeline full (including how he buys deals at auctions), how he does due diligence, and how he tracks down owners of vacant properties. You won’t want to miss his advice on owning C- or D-level properties, how he uses flip profits to fund a business that acquires rentals, and—most importantly—how you can lose money in real estate even if you’re buying great deals. This episode is full of more powerful insight than we can begin to mention. Aaron is a big-time real estate investor who has gone from rags to riches, to rags to riches again. Tune in to hear him share everything he learned along the way. Download today! In This Episode We Cover: How he got into real estate investing Buying at an auction The different types of auctions How to approach and talk to cash buyers The moral aspect of real estate How to do title research A big surprise after buying a sight-unseen house Bouncing back from losing everything he built Why he thinks flipping is a job And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar Kiawe Outdoor Instagram Kiawe Outdoor Brandon’s Instagram BiggerPockets Podcast 157: A Simple Morning Ritual to Help You Dominate Every Area of Your Life with Hal Elrod BiggerPockets Podcast 254: Tim Ferriss on Real Estate, Becoming a Top Performer and His Tribe of Mentors Auction.com GoBundance Five Hour School Week Books Mentioned in this Show The Miracle Morning by Hal Elrod The 4-Hour Work Week by Timothy Ferriss Rich Dad, Poor Dad by Robert Kiyosaki Tweetable Topics: “There’s so many problems that you can solve in real estate.” (Tweet This!) “I make money 9/10 houses. I take a loss 1/10.” (Tweet This!) “Flipping is only money when you keep flipping.” (Tweet This!) Connect with Aaron Email Aaron: [e-mail] or [e-mail] Aaron’s Company Website Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 325. But we looked at it on an annualized return basis instead of an individual. And then that also helped us to be less emotional about the winners and the losers. Like, I make money on nine out of ten houses. I take a loss on one out of ten. 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 everybody? It's Brandon Turner, host of the Bigger Pockets podcast here with my co-host, David the Man, Green. What's up, man? How you doing? What's up with you, dude? This is a really good day. We have a really, really good guess.

And I think that this episode's probably one of the most. most like educational knowledge-filled shows we've done in a very long time. Dude, it's good. It's good. So, true story. So our guest today, we're introduced you to Aaron here in a few minutes. But Aaron was actually, so we recorded this interview, but like a few weeks ago. I'm recording this introduction now a few weeks later.

And the reason that's important is because Aaron and I actually just hung out after this interview, but before this interview, it's really confusing. But basically, Aaron and I just had this incredible evening. out here in Hawaii. You guys had to check out this thing. Okay, so go to my Instagram at Beardy Brandon. Check out the video I just posted from Kiowa Outdoors. Check out, they're also on Instagram at Ki-A-A-A-W-E underscore Outdoors. Basically, we did this like fire pit cooking thing with Aaron and Josh Dorkin, you know, founder of BiggerPockets.com. And it was the most incredible night. So anyway, Aaron, you're going to hear about him today. He's like literally like the most

interesting man in the world. But if you want to see some amazing pictures of like our event, that we did, like on the beach or near the beach, like in Maui with like literally like venison and pineapples and smoked grapes hanging over the fire. It was, it was stupid. It was amazing. So check that out. But yeah, that's what I've been up to. And I wish you were here. But yeah, Kiawe Outdoor is the name of the company. If you want to see kind of what they do and you can check out my Instagram for that. But anyway, enough about the past. Let's talk about the future. Today's show. We have an amazingly good show today. Knowledge bombs dropped by someone who you rightfully later in the show, David, you said that Aaron is actually the most interesting

man in the world. And like literally he should have his own beer. Like he's literally probably the best, like one of the best investors I've ever met in my entire life. So we're going to hear how he got started, how he grew his real estate business from nothing to like a bunch of deals to like suddenly having millions of dollars to go invest and then losing a bunch and then getting him back again. It's like this up and down story, amazing lesson. I mean, he was buying like dozens. And he is buying dozens of houses a month. It's remarkable. Uh, yeah, you guys are to love it. A lot of property managers think their job is answering tenant emails and coordinating repairs. That's not the job. The job of a property manager is protecting and growing your operating

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It's just cleaner. Sign up at baselane.com slash BP and get a $100 bonus. Base Lane is a financial technology company and not a bank. Banking services provided by Threadbank, member FDIC. It's time to get on to today's show. But before we get to the interview, I don't want to forget today's quick tip.

All right, today's quick tip is simple. We've got an app, a BiggerPockets app, and it's free. You can download us. So check it out. It's the BiggerPockets mobile app available on iPhone, an Android, and we're steadily adding more features all the time. Like better search functions, a list of local events where you can and talk deals with fellow investors, et cetera.

There's a bunch of cool stuff. Also, if you're an Android user, check out the Bigger Pockets Tools app where you can use the Bigger Pockets Calculators to analyze some deals. Super cool stuff. And with that, I think that's enough of today's quick tip.

I think really we should just jump into the interview because it's a long, good one today. Make sure you stick around all the way to the end because this just becomes a powerful show. Yeah, that's true. It just gets better and better and better. Like throughout the whole show, it's like fine wine.

Not that I really know what fine wine is compared to regular wine, but you know, I'm sure it is. A friendship with you is like a fine wine brand, definitely. That a compliment? Yeah. It's like bitter and nasty in the beginning, and over time it gets sweet. Smells of vinegar and rot. Okay.

With that, let's get to the show with Aaron Amuchastegi. All right, Aaron, welcome to the Bigger Pockets podcast, man. It's really, really good to have you today. Man, I'm pumped and excited to talk with you guys. It's always fun when I get to chat with you, And today we get to maybe dig in and dive in a little deeper. Yeah, yeah. Whenever I talk about you, I actually talk about you a fair amount, which is weird.

But like, whenever I do, I would say, Aaron's like one of my favorite people, just like on the planet. Like, I just really like just you and everything you do. So I, but I don't know your story on how you got to where you are today. I mean, like to tell a real story. So Aaron and I and David were in, what, Austin a few months ago. And they decided to have a celebrity, not a celebrity, but, you know, we'll call it a poker tournament. right and I actually did better than I expected I had a good time playing and you know David did all right but Aaron just walks in like what's poker how do we do this and just like cleans up I mean just

dominated the entire team like ever I mean you got first place you won some cool stuff and uh anyway that's Aaron in a nutshell right there we can end the interview right there that's that that was such a fun night we we were playing poker into the wee hours the morning and I won a trip to Fiji and all sorts of stuff yeah that was but you were the action it was the best every time you went all in and jumped up and everybody like man that was a night to remember i'm like i'm like the the entertainment value the circus clown and you're just like the guy that comes in you're like i don't know edward norton and rounders but anyway all right let's get to real estate or at least your your story because again i i don't know anything about you like i've almost like so for like the last like two

years since i've known you i have purposely not dug into your story because i've been waiting for this day to ask it like that's dedication to the podcast right that is right i have purposely not like listen to a podcast you've done or anything because I want to know firsthand. So, Aaron, let's go into it. How did you get into real estate? Walk us through your story of where you came from and how you got into this real estate business. That is a lot of pressure if today is the big day. Today is the big day.

Like two years now, I know there's tons of bigger pockets listeners that don't want to disappoint, but I do not want to disappoint Brandon Turner right now. My real estate story is funny. I've got a lot of different life stories. I've had a bunch of different crazy life experiences that on their own become pretty fun. But as we focus on real estate, yeah, I think it's a pretty clear story. I grew up in a small town in Southern Oregon, and my dad was a custom home builder. So he grew up kind of around real estate in that sense.

He did some small development stuff, you know, built homes. My first jobs were working on his job sites as laborers, as construction guys, learned how to kind of do that. And, you know, one of the interests, as I grew up, it was kind of the idea that, you know, track housing was bad. Custom homes were the only way to do it. Again, very small town. But I also saw the ups and the downs of this like entrepreneurship. My dad was this entrepreneur. So I knew that I wanted to, to get into, you know, construction and real estate, you know, someday as we tried to figure out what that was. And the had a whole bunch of different life experiences that kind of, you know, I went to college University of Oregon for a little while studying in architecture,

had a few things that kind of set me back a few years. A few years later went down to go to school at Cal Poly San Luis Obispo to go study construction management. And my whole plan at that time was I was going to go get a college degree in a couple years and go back and help my dad run his business. He had just done this proposal for a hospital. He built the last hospital in town and got this proposal denied because he didn't have the right degree for it because he grew up without a degree.

And then I was like, oh, we got to get a degree. I'll go get a degree. I'll come back and run your business. One of the faults in that story, though, was I had never really left Klamath Falls, Oregon, which was a population 17,000 really cold winters. And I got to Southern California, and it was like the land of milk and honey. You know, it was sunny, 70 degrees and sunny all the time. While I was going to school in San Luis Obispo, I saw these people that would like buy these condos,

like $400,000 condos. Their kids would live in them while they went to school there. They'd fix them up and kind of flip them when they left. And that was a dream that I wanted to do. I was like, hey, let's move into a house and try to flip it. But that was at this crazy time in the housing market, 2003, 2004, 2005, like the absolute peak. So I was already priced out of the market. But when I graduated from Cal Poly, it was like the best time ever to graduate with a construction

management degree. Homebuilders were like running the world. I had won a couple national championships in home building. And I was like the only person in the U.S. that had done it twice and all this stuff. So it was really, really cool. I got to talk to all these big home building companies at the time was Pulte and, you know, and Ryan Holmes and ended up getting hired by a smaller privately owned builder to help run their, you know, kind of operations in an area down near Santa Barbara, California.

And so when I first graduated, you know, in 2005, it was like this really unfair expectation of what life was going to be like. Yeah. Because we were building houses as fast as we could. They were selling as fast as we could put them. We were golfing like two or three days a week, like making six figures, like fresh out of college. This was totally unrealistic, right? And then the market crash happened. And, you know, in 07, it started to slow down. Oh, eight, it really slowed down. And the home builder I was

working for, you know, laid off like 70 people. And there was five of us left and we got moved up to the Sacramento office. I didn't even really quite know that the crash was going on because down in Santa Barbara, it didn't feel like it. Everything was still nice and humming along. But got up to Sacramento, saw like this wave of foreclosures. We went from golfing all the time to like doing, doing, this manual labor to try to fix our houses, do these bank workouts. And along there, we kept trying to start a bunch of different businesses. We were trying to buy like REOs as flips on the MLS because we saw there's just a ton of foreclosures. You'd drive down a street and there'd be a dozen houses with weeds six feet tall. But we could not get in and figure out the REO market. We would write

offers. And every time we wrote them, we got beat by a thousand bucks or we were a day late. And it was just, we didn't know the people that we were supposed to. It was almost impossible to into because they knew, it's like they knew who they were going to sell to and that. As we tried these different businesses, one of the guys that I worked for at the time had this idea of, you know, let's go try the courthouse steps. And he sent me this sheet and says, here's this opening bid. Let's go see what might happen on the courthouse steps. We didn't know anything about that. We didn't know how it would work. There wasn't like classes to take. There wasn't lessons to do. So I went and started researching. And I spent the next day down at the

at the courthouse, like reviewing these court records, like these loan documents going, like, well, what would it be like if we bought this house? We ended up going to auction like a week later. I was like, I think I know how it works from reading the loan documents. I think we'll be ready. We showed up with like $125,000 in checks. There were three guys there at auction. And, you know, he does the bid.

He says opening bids like $120 something. And the three guys that were there to bid didn't say anything. And one of the guys I was with that I worked for said, excuse me, we want to bid and the auctioneer goes, okay, a penny over? Yeah, penny over. So we bought that house and we're like, whoa, we bought our first house. This is crazy. But the other three guys that were there bidding right away went, like, oh, my, we were

already so afraid that we could buy the wrong house that there's more stories because they don't tell you addresses. And when the guys that were doing it started laughing at us and didn't buy it, we were like, oh, my God, what do we do you wrong? And then we start filled out the receipt with this guy. And he'd become a friend of mine at the time. It was a laptop on a trash can. And he gives you this yellow piece of paper receipt.

And he writes in there the sale and how much checks you give him. And I'm saying, well, are you going to put the address of the house on there? Those guys could be at a service. He goes, well, you didn't buy a house. I can't put an address on there. You bought a loan document. Right? Like that depends on what the legal and everything else is.

So then we were like, oh my gosh, did we actually buy the house? Like, well, how's this work next? Are we going to get the deed? It was a very scary thing. Our long story short was a couple weeks later, the deed got sent to us. We recorded it. We ended up owning the house free and clear. We got the lady to move out pretty quickly.

We got multiple offers on that house right away because it was this crazy housing market. And our first like foreclosure courthouse steps flip was off to the races. And we were like, wow, that was easy. Then we went back in like the next month we went to auction like every day. And none of the houses that we tried to bid on even showed up for auction. We would drive houses, comp houses, show up at all. auction, wouldn't get a single house. And so if we hadn't bought that first house, we never would have actually found this as a business. We would have given up a week or two in. But we got super,

super, super lucky the first time, which was this crazy beginner's luck. We just, and we did that then for the next five or six months. And we had started to flip a couple houses. And I figured out a system and I figured out a way to track it all because there's a lot of different steps to it. September of 2009 was my big kind of aha moment. My daughter, Charlotte, was born six weeks early. Right. And so the, which for us was, first daughter was born on her due date. Charlotte was born six weeks early. She was in the incubator. I was sitting there staring at her while she had all these monitors and stuff on her and I was just terrified. Now, at the time, my wife was a waitress at the local casino. So she would work, she was a waitress at night and I was, and I would work during the day. So I'd go work. I'd get

home. She'd hand me the baby. She'd go to work at night while she was pregnant. And so I really felt like, wow, this is my fault. If I would have been providing better for my family. If I'd have been working harder than my daughter would not be in this incubator right now. And I said, you know what, it's time. It's time for me to finally quit my job with these guys and try to go start a business. And so I put in my notice to quit my job to go because we were going to go start our own business. And my dad was ready to be my, you know, my first investor on it. And I had six weeks of savings. The next six weeks, I drove houses every day. I would go bid. I would comp at night. I was working around the clock and I didn't get a single house. And it was like right before January 1st,

2010, I told Kalina like, we're out of money. So if I actually don't get a house this week, I'm going to have to go ask for my old job back or go do something else. And like it was this crazy feeling. And you know, and just thank God. Like we got totally blessed in the next week, the foreclosure moratorium that had happened was lifted. We bought two houses that week. And then we were off to the races. We ended up being pretty good at it. And a month or later, my dad had sent an email to a buddy and said, hey, check out what my son did for me. He got a house for me. We got this good return on it. And then a guy called me who became one of my partners later. And he goes, hey, I run a private equity stock fund up in Lake Tahoe. We'd like to talk to you

about the business that you're doing. And I went up there to go talk to them. And at the time, nobody was doing foreclosures. It wasn't a big business. There was literally three people at auction doing it. Well, maybe by this time there was five or six, but there's still not very many people trying to buy 100 houses. And I went and presented to these guys during the day. And they kept asking me all these questions. And I was just young kids trying to get a loan of like $200,000. And at the end, they said, they start kind of looking at each other and nodding. And he goes, I'm, I'm in. And they go, if you want 200,000, we're not the team. But if you want to try to like build this quickly and do something, one of the guys goes, I'm in for a million. Another guy goes, I'm in

for a million. And all of a sudden I had this equity fund like three months after I invented my business. And then the life just took off from then of kind of who I am now, of lots of different and ups and downs, but that's how I got into foreclosures and flipping and building it. I love that. A lot of stuff I want to pull out of there. First of all, I think that's funny that the first deal, you just kind of got lucky. Do you have any idea why that very first one? Why didn't the other guys bid? Why, like, why did that land in your lap? Do you know today? Yeah, so the, so back then there were so many deals and so few people doing it. Okay. It was like a 20% return, but they were only going to do 25% returns. It was like,

Yeah. It just for them, for us, it was like a great deal. And for them, it was too thin because they knew they were still going to buy four or five houses that day. And they were going to be much better or maybe because it was occupied. Sure. So, okay. So today we're talking a lot about, I mean, obviously your story revolves and from what I know of you revolves around a lot of like the foreclosure auctions, the sheriff sales, the things like that or at least like the courthouse steps, all that stuff. Anyway, can you spend a couple minutes explaining to those who just have no idea with even the what is foreclosure process look like? I know with different every state a little bit, but like generally from a high level, how does that work? Just as we go forward in today's interview, we'll have a lot more clarity for everybody. I'm like, what are we talking about? What do these terms mean? Yeah. So I like to say courthouse steps because it puts this visual in that's very different.

But for us, what that means, you know, if somebody stops paying their mortgage, they start to get these notices. And every state is different. You know, in states like Texas, it's 30 days. Hey, you're behind 30 days. If you don't pay it, we're going to sell it. In California, it's 90. There's all these different things.

So someone stops paying their mortgage and they get sent a notice that says, hey, you have this many days to pay it or you're going to get foreclosed on. What a lot of people see is REOs, like bank-owned houses on the market, those become bank-owned if nobody bid on it at foreclosure sale, right? So what will happen is then it goes to foreclosure sale. And the lender at that time has the option, if you owed $100,000 on your house, the lender could start the bidding at $100,000 if they want. And you guys could start bidding from there. or the lender could at any time decide to just say, you know, we're going to write it off and they could open the bid at $25,000 or $50,000. And so they open the bidding. If nobody bids on it, then they say it went back to the bank.

That's when it becomes an REO. They hire a real estate agent to list it and it's listed on the MLS. If someone does bid on it and does decide to buy it, you pay them cashier's checks right then. And you sign those cashier checks over to them. So if you're bidding $100,000, you're giving them $100,000 in cashier's checks right then. You tell them who you're going to write that receipt to. They send you a deed in a couple weeks. Before that, you know, you had to research title.

It's all these things. It's supposed to be side unseen. You know, you're not supposed to go see the house ahead of time. You have to do your own title research to make sure you're buying the right thing. And what I mean by that is in, you know, in places like California, people get two loans on a house. They might get a $300,000 first and a $200,000 second because they couldn't get a $500,000 loan. One bank is the first. One bank is the second.

Okay. If you buy that first loan at foreclosure sale, you own the house free and clear. If you buy that second loan at foreclosure sale, you still have to pay off the first. And so that becomes a really big difference. Yeah. Okay. So somebody gets foreclosed on or, you know, they stop paying their mortgage. And then it goes to the courthouse steps in like some places, was it literally on a courthouse steps in your area?

Yes. Okay, mine too. Yeah, literally on the courthouse steps. Yep. Yeah, mine too. Literally they would stand on the courthouse steps. And I've only bought one deal ever. But I bought mine because the guy stopped paying his mortgage and then showed up to the auction.

And the auction, one of the lady that works at the county is a friend of mine. She just said, hey, just want you let you know, there's a property being listed that I think you would like. You should come check it out. So I went there. Nobody bid. Same thing. Nobody bid at all.

And so because of that, the opening bid was what was owed. It was like $15,100 something dollars. So I bid a dollar over and I got the thing. So we have similar stories. But that was the only deal I ever did at the courthouse because it's always freaked me out. You mentioned you can't really see inside the property. There's not supposed to see inside the property before you buy it. So how do you know if you're going to buy this property at auction?

And I guess you're really buying what, a deed of trust that then you can, that now you own the property, right? Is that how that works like the legally? As long as, as long as they kind of use that as a legal term of going like, hey, there's no warranties or restrictions. But if you buy the first, what they send you is a deed that then you own the house. Okay. So you buy this house, but you can't see inside of it.

How do you, how do you overcome them? that if you're trying to buy at an auction. There's lots of different things that you kind of do for research. You know, auction is a big numbers game. What we learned was if 10 houses are scheduled for auction today, one of them might go to sale. And so that was one of the tough things we learned. We used to go looking for one, and that was one that didn't go to sale.

And we'd be so confused. And so it became that you really had to look at everything. So the, you know, if it was, hey, you only want to buy houses that were built in the last 10 years, well, you've got to look at every house that was built in the last 10 years. Well, you've got to look at every house that was built in the last 10 years. years and be ready to buy any one of them. You can't really cherry pick. It's not very easy.

Your story you did. My first story I did very seldom. It was ever successful at cherry picking other than that. And so it's one of those things that's a high risk, high reward business. There's barriers to entry in it. And then you try to mitigate the risks as best you can. At a minimum, you drive to the house and go see it from the outside. Sometimes there's signs that it's vacant.

Even though you're not supposed to go knock on the door, you'll see other people that are driving at auction too. They're walking up and they're looking in the windows. you can ask neighbors. You can knock on the door and ask the neighbor like, hey, does somebody live there? I knocked on the door. They didn't answer. Have they moved out?

So you try to find out everything you can. If it's a vacant house that's in great condition, it's obviously way less risk than if it's an occupied house with like pit bulls, you know, barking at the door when you knock on it. So first you try to assess occupancy and quality of the house. From the street, you can also see how does the roof look, how does a yard look, different things that give you a clue. If the lawn looks really, really good, then you can probably expect that the kitchen looks really, really good. If there's toys and stuff all over the yard and it hasn't been mowed in a while,

then you can assume they're not taking care of the inside either. So there's different things that you do. So we drive all that, we drive all the houses and we assess a risk based on that. We figure out as much as we can from, from neighbors, from seeing what we can. We do title research on all the houses. And we're really looking for a reason to say no. If we start with a big list, we're looking for it. So if we drive by and sometimes there's those houses, there's giant dogs trying to jump over the fence from next door. Okay, that's a no matter what. At no price, do I want to have to deal with that? title is the same way. You start looking through it and go,

this looks pretty good. This looks pretty good. Oh, this one might have a federal tax lien on it, which means I won't be able to sell it for four months. So I'm just going to take it off my list. So we're looking for reasons to know because you're starting with a big list and then it whittles down. And then you look for the resale value of each of the properties and you say,

okay, what are each of them worth? What would they sell for? That's by doing comparable sales, just like all of your, you guys do when you're going to flip a house, you're going to figure out how much does it cost to fix it? How much is it, how much am I going to be able to sell it for? and then we kind of back into it. So we come up with what is what's our max bid. So if I say, hey, it's a low risk deal.

I've seen this. I know I can sell that house because I've sold three of that plan in that neighborhood. Here's going to be my max bid. And then the goal is obviously that you get it for less. You know, I've never done good at like doing like blind bidding where people say, hey, just email us your best offer. Because all my bids are based on the fact that I know, you know, one out of five. I'm going to get for way less than that.

And it's going to offset how aggressive I am on others. All right, Aaron, let me ask you a couple questions and then see if I can unpack and get a good understanding of what you're telling us. So first question is, how many houses on average are you buying a month right now? Right now, I'm buying about 20 a month. Okay. Yep. And over what states are you buying those? I'm mostly buying in Texas right now.

And I used to buy a lot in California. And when I started in California, there were three of us bidding and there was like 100 houses going to sale. Now in a lot of, now in my neighborhoods, there's 100 people bidding and only three houses going to sale. most of the market has been corrected here where foreclosures, there's still an opportunity, but not the same one. In Texas, auctions are one day a month. So there's a lot of them. You can do a lot of prep, see it all in the same day, spread out and buy it.

So about 20 a month in Texas. And so most of them are on courthouse step auctions. Some of them are online auctions. Okay. So it's clearly working. And that's what you mean when you say this is a high risk, high reward. So we want to try to dig into A, what is the difference between buying a foreclosure versus buying a house off the MLS.

which is how most people buy houses or maybe from a wholesaler. And then B, what are you doing to protect yourself from the high risk portion of it so that you can capitalize on the high reward? The first thing I want to make sure we understand is like when you're buying a foreclosure, how that's different than buying something on the MLS. So most of the time when you buy a house, you've got a real estate agent who's walking you through a process that you'll probably never even know what they're doing. They're checking the title of the house to make sure that there's no additional liens

that you're taking on when you buy the house. they're making sure that the person you're buying it from actually does own it. You have an opportunity to get inspections on a property to know what kind of condition it's in. There's going to probably be an appraisal involved if you're using a loan to protect you against paying too much for a house. But when you're buying a foreclosure, you don't get any of that. This is kind of like a buy-at-your-own-risk type situation. So my understanding of what you're telling us is that you're going to go by basically the title to a home, the right to take that house. So somebody borrowed money from a bank to live in a house.

they stop making the payment, the bank or the lender, whoever it is, is in the process of taking that title back and that's what we call foreclosure. In the middle of that, the bank can either say, I'm taking the title completely, and then I will go sell the house on the MLS through real estate agent, or they can say, I don't want to go through that whole process. While I'm doing this, I will sell the right to have this note, which would give you the home to the new person to the highest bidder, which is where you would go to the auction courthouse steps we're talking about, and you would actually buy the right to take that house over. Now, if it's occupied by a person, you're buying that problem. You have to now evict them from the house that you then bought. Is that accurate?

That's accurate. Yeah. Okay. And the problem with doing this is that it happens very quickly, and the banks are not going to give you like a contract that a group of realtors put together that protects you as a buyer. It's kind of like you can buy the right to own this house. You can buy the note and then evict the person once you have it. You got to figure everything else out on your own. So what are the some of the steps that you can tell us about how you do due diligence to make sure the title insurance is good? How do you get an ARV? How do you know what the house is actually going to be worth without an agent telling you? How do you get a rehab bid to know what it's going to cost to fix up, stuff like that?

Yeah. It really is all of the same exact steps you do when you're buying it on MLS. They're just, they're just shrunk down. Your amount of time you have to do each step is really shrunk down. But if you're going to go to auction and try to buy, you know, a house, you're better be ready to, you better have a list of 30 or 40. And so, whereas if you're seeing one on MLS, you can kind of do your quick search ahead of time and go, hey, as long as X, Y and Z is true, we can buy it. Same with auction, but it's, but because you're trying to do so many in a short

amount of time, it's just quicker and with less information. Another big distinction that you have there is on the courthouse steps, you have to show up with cash. And if you buy it on MLS, you can actually get a loan to do it. Right. And so you can, so yes, it's a much, it's a much riskier, quicker process than on MLS. There's obviously pros and cons to that. So, you know, we're looking at just the pictures or just what the neighbor tells us and the age of the house and said, okay, this one was built in the last 10 years. The outside looks okay.

You know, the neighbors didn't see anything. I'm going to assume that I need new appliances, new flooring, and new painting. So that's going to be $8,000. Like, that's as scientific as your construction guess gets. If you also see from the outside there's dry rot, you go, okay, maybe there's going to be some dry rot, somebody to an extra couple thousand. If it's vacant and you know, you might see that there's no HVAC system out there. And so it's all you can do is what you can see and get from a neighbor and come up with your

guests. If the neighbor's like, you know what? They did a like a garage sale a couple weeks ago and people were actually leaving with appliances or they were leaving with cabinets. That show, you know, that's a big clue. And we've had plenty of houses like that we've gone into that were gutted to the studs. You know, copper's taken even for, you know, just the recycling. value in the metal. So you're going to take what you know and do a guess and you know that,

you know, 75% of the time you're right, sometimes you're going to open that door, walk in the house and there's nothing to be done. The last tenant left, they swept it, they cleaned it, they got their deposit back and now you can put it on the market today. And sometimes it's a rep. So whereas if you buy it on MLS, you could get an home inspection, you could actually, I would if you're buying it on MLS, I would recommend you send a general contractor in for your home inspection. Get a full quote. What's this thing going to cost? Have him say he's going to do it. But that takes, that's where the risk goes down with MLS. You know, when I comp houses, I comp it the same way an agent would.

When we first started doing this, I had agents comp the houses for me. Right. So they would send me over CMAs. And the kind of the deal was if they helped me buy the house, I would have them list the house. You know, the later my wife became my listing agent. So she had, you know, agents that worked for her and they would do the comping. But it's that same process. You're just trying to find what that house would sell for.

Two of my little things that I always do, I try to focus on houses that were built in like the last 10 to 15 years. The biggest reason for that is that's a new home building neighborhood that there's usually a model match. And I try to just put the best value on the model matches. I mean, there's all sorts of different kind of skills and CMAs, but I'm really trying to see, here's a house that was the same exact floor plan that sold for $200,000. It has a really nice kitchen, though. So I'm going to need a really nice kitchen to sell for $200,000. Or it has a pool, though, and mine doesn't have a pool.

So I need to deduct some money. At all possible, do same plan comps because you also see some plans that just sell for more than others because they're a great design. And then title reviews, the best way to do it is you go to the courthouse and you start looking up the name and the address and to see what's recorded against that name. It's a long process when you first start doing it. There's lots of probably classes out there and ways to do it. But we go to the courthouse, we look up records. We look up, you know, do they owe taxes on it, that sort of stuff. Okay.

So let's say you buy a property at auction. And I want to go back to your story here at a minute. But like, let's say you buy this property at the courthouse steps and it's got a tenant in there because that happens sometimes. First of all, will you do that? Would you buy a house with a tenant in there? And then what do you do when you get, or not even a tenant, right? It's the homeowner, right? Because the homeowner sometimes still lives there. And I can't imagine they're always happy about losing their home, right? Yeah, there are so many scenarios that happen. You know, the first hundred houses I did, I only did vacant houses. And I only did vacant houses that I thought were in good condition. One is I didn't want to have to deal with the moral dilemma that happens with occupied houses. It is a frustration.

Like, it is much easier to see an abandoned house that somebody already left and by that because there's no stigma. I mean, maybe there's a stigma. But in my brain, it was, I'm not the one doing this. It was empty. Yep. When an occupant gets in there, man, there are some moral and emotional dilemmas that happen. And the best thing that I could do is go, listen to people, try to figure out the story,

and try to find the best outcome. There's times when, you know, when it was real common, you know, people would be saying, hey, you got to get me cash for keys to leave or it's going to take you 90 days to evict me and I'm going to take my appliances and this. And so there's these harsh negotiation. Sometimes you hear somebody and they would say, you know, I'm a tenant. I didn't know. I need, you know, I just, I just moved in.

I just moved in three days ago. and those would be cases where we would put money in the budget whenever we buy an occupied house. So if a vacant house, if I'm saying, hey, this is going to cost $10,000, you're going to add at least a few thousand dollars for occupied with the idea that maybe you're going to have to help them move to a new place. Maybe you're going to have to deal with a lawsuit. Maybe you have to deal with that. So we always try to start with talking to them and seeing like what their plan is, did they

know, what do they need to get to the next place? Some people don't need any help. Some people need money. Some people ask for a ton of money. Some people were like, no, I can't move. and we put like moving vans out there and movers to help them move. Like I have a place, but I, but I'm old and I can't get there. The first, we started, we started buying and keeping rentals a couple of years ago.

So now when it's occupied, we have this new offer that becomes really exciting for us to owners or tenants. We can say, look, if you want, you can stay in the home and rent from us. For owners, we can tell them now like the, we bought your house, but now you get a rich reprieve. Instead of being like $15,000 behind and your payment, you get to start fresh. Now you're going to make a rental payment to us. You can stay in your house forever if you want. And then tenants who just signed a lease, it's really easy to say, okay, we're going to give you credit for the deposit you gave your last landlord.

We're going to give you credit for your last rent. And now you're going to rent from us because that became way less expensive than spending $10,000 to go rehab it, move them out to be able to keep them in there. Now, my worry with that. And like my thought is like if a tenant, if the person who lived there wasn't paying their mortgage for whatever reason, what makes you believe that they're going to now suddenly be able to pay their rent. You know, like, doesn't that seem like they're just like, oh, it's going to be trouble?

Yeah, you know, you definitely want to talk to them. You definitely want to understand their story. And we're going to have times when we're wrong, right? We're going to have times when I say, you know, this person, they told me this, it was that. And now, now they're going to be okay. You know, a lot of what we hear most of the time is I had three months where I didn't have a job. I'm working now, but I'm $10,000 behind on my mortgage. I have enough to pay my payment, but I don't have.

enough to pay the three months I missed. And so getting that just reprieve, that fresh start, you know, for owners. And maybe I say it's successful three out of four times and one out of four times they aren't able to stay. But then by then you actually have a lease, though. It's a tenant landlord relationship. There's not the same sort of, it's almost like it's easier if they end up having to get moved out later if they're a tenant than if they're an owner. Because if they're a past owner and they create damage, then people say, hey, this is a civil concern. But if they're a tenant, they create damage, you have grounds to do more. That makes a ton of sense. Yeah. And another thing, I've heard a lot of people that use that as a reason not to do what you're doing is, well, I don't

want to have to evict somebody. And it is a pain to a victim. But if you're getting enough equity in that deal, if you're getting enough meat on the bone, that's a small price to pay to make $50,000 to $100,000, right? Like, if you're getting that place for $2.50 and it's worth $350 and all you have to do is evict somebody, I mean, that's a really, really nice deal. And that's what I always try to encourage people to think about is doing this is harder. It's a little riskier or maybe a lot riskier. It's going to be more labor intensive. But that's what you do as a real estate investor to make a lot of money is you take on somebody

else's problem and you solve it and you get paid for that. Yeah. And you know, and you just have to, you want to build in like, hey, this is occupied. It's going to take me more work, more effort. So I need to make sure that I buy it for less than if it was vacant. And then it also depends on how much money you have to buy, right? If you have enough money to buy one. house at auction and your plan is to flip two houses a year. You're going to go buy a house at

auction. You're going to flip it over the next six months. You're going to buy another one. Then you shouldn't buy occupied houses because there is a chance with those occupied houses that it takes a year or two because there is some sort of a major issue that can't get worked out. It happens sometimes. So if you only have enough to buy one, stick with vacant ones. That's one less thing to worry about. The idea when we're going to auction, though, we're hoping that if we buy 10, that one or two of them are occupied and seven or eight of them aren't. And if we didn't have the ability to rent it, then I might not be as aggressive in buying occupied houses now.

Because even when, you know, years ago, when we started occupied houses and every time it was, hey, you can't stay no matter what. We just need to figure out how to how to get you to your next stage and start fresh. That was, that was a lot tougher. Like now with a clear heart, I can go, I've got this other opportunity for you. Yeah. A fresh start. If someone else bought it, you wouldn't have this opportunity.

Yeah, that's cool. You know, one of the questions I get asked all the time is about, and I quite often, because I mean, I'm fairly outspoken and David as well, but like us being Christians. And I know you are the same way. So like I get hit up by a lot of other, you know, whether any Christian or just spiritual in general, saying, how can you be a landlord? Like, how can I be a real estate investor and be religious? How can I, you know, serve God and get into real estate?

So it's interesting like the whole moral, like the issue. Can you evict somebody and, you know, be a religious person? Can you, you know, foreclose on somebody and be a religious? Like, what are your, what are your thoughts on that? I know you are as well. And we've had these conversations before, but like, what are your thoughts on that? Yeah, it's there's, there are moral dilemmas with real estate. Yeah.

There's, there's ways that we can offset it. And there's ways that we can actually, you know, I also believe that we can do the right thing every time. And sometimes the right thing is saying, hey, you haven't, you know, you aren't paying your rent. This is not the right house for you. You know, you need a fresh start. Like, hey, instead of having me evict you, just move out.

Like, I'll get you a mover. We'll do this. I won't go after you for the. There's all sorts of things. I mean, before somebody gets evicted, believe me, there are dozens of conversations that happen first that say, how can I help you because this isn't the right fit? The other side of that, though, is, so we had a house that we bought two weeks ago. Front, the garage, there was a, the garage door was busted out.

So there's plywood all over the front door. It says, keep out stamped on it. Inside's wrecked. It's been vacant for like two years. Teenagers have been partying in there. Cops getting called. Neighbors on both sides, hate that house. We bought it.

And within a week and a half, we had it. renovated and we had a tenant move in last Thursday. So two weeks after we bought it, a tenant moves into the house. And now the two neighbors on either side are like, wow, you've saved our neighborhood. We're so grateful for this because this was this eyesore. And now a family is living there. They needed a place to live. They found your place. Now we have neighbors. And so there are so many problems that you can solve in real estate. I've got a set of houses in a small town in Texas that I bought for like $10,000 a piece, right? I thought I was going to make a great deal. Now, I actually don't make any money on those. They cost me way too much to do it for the amount of rent

that's there. But it's almost like the service to the community because the people across the street used to complain about how there's the vacant houses, people were breaking in there. It was a drug haven. And now people live there. So even though it's like a break even real estate investment for me, which I don't recommend to go start and do, but it's almost like this other moral give back thing that we do. We're like, well, it's good for the community. we're just going to keep that one and keep doing what we're doing. That's cool. David, I'm curious of your thoughts as well.

I mean, like, how do you view real estate from a, I don't know, I'll call it even religious, just a moral standpoint we could even say because it applies to everybody. Like, can you be, I mean, how can you be a real estate investor and be moral? Any thoughts on that? Well, I think the dilemma comes from when we're saying to ourselves, like, am I allowed to do what's in my own best interest at the expense of somebody else? And when we look at it from that perspective, you can feel guilty to evict a family, right? If you flip it around and you look at this family and say, why aren't they asking

themselves, why am I staying in a house that I'm not paying for? Or what about a family that really needs a house to live in? And they can't because this other person is staying in there thinking that they shouldn't have to pay. They weren't paying their mortgage. Now they're not paying the landlord. I don't really feel all that bad about evicting somebody because like Aaron said, they forced me to do it. I tried option A. I tried option B. I tried option C. In my mind, they chose option D, which is obviously very difficult and it's easy for them to blame the greedy investor. But I'm looking at it like, you forced me this hand. Like Aaron said, I don't want to evict you. I never wanted to evict you. I wanted you to do the right thing and leave. I offered to pay you money to leave. I effort to pay for your

moving. I effort to help you find something else. You said no, no, no. At this point, you forced me to be in the position where I'm the one who has to be the consequences for your actions. And honestly, for a lot of people, that's the best thing that can happen to them. Maybe they're in that position because they haven't had to pay consequences for their actions. So even though it can feel bad, to be in that role. Sometimes it's like the vegetables that the little kid needs to eat. They don't like how it tastes, but that's what they needed. Yeah. I think that dilemma is the same with lots of different parts of real estate, though. Like a wholesaler that gets a contract to buy a house from somebody for $100,000 and then sells it to somebody else for $120,000. Like people are like,

well, what about the guy that you, the person you first bought it from? Like, you know, the idea is trying to create these win, win, wins where everybody wins, right? The guy, the first guy was happy to sell it for $100. The wholesaler found a value because he found something. someone else willing to pay more. Like, there's all sorts of steps in real estate where you're finding value by solving a problem. And I believe there are ways to do it where everybody feels like they won and they don't feel like they got screwed.

Yeah, I've had that conversation numerous times with people about wholesalers, especially and flippers, but wholesalers seem to get the worst rap for it is like you're stealing from that person. And I would like, kind of my argument, you know, that I go is like, well, are you mad that the pair of jeans that you just bought for $30 that, you know, from Sears? Are you mad that Sierra, well, Sarah's not even hardly around anymore, but you know, you, you went to Pax Sun and you bought these jeans for $30. Are you mad that they bought them for $20 from the distributor?

Because the distributor just made $10 on that, you know, or whatever, you know, or the distributor paid $10 for it. And you go down the line far enough. Like, everything gets added, added amount, like, there's profit for providing value at every step of every transaction in an economy. That's what, that's what we're in. So then the question becomes how much, right? Is, is $5,000 appropriate?

If you got $100,000 fee, is this? that taking advantage of somebody, $200,000, $1,000? Like, where's the line? I have no idea. But I don't think there is a line, you know, but I, I don't know. What do you, what do you think? I think the people that are, I think the people that are really anti, you know, real estate guys are probably the same people that are anti the gene company making a profit on these genes. Yeah. Or they're the same people that are the anti that this big business is successful. And in business, there's risk, you know, like the, yeah, plenty of companies.

have gone bankrupt this year that are never coming back because they were taking risk. They were making profits before and they're no longer profitable. So sometimes in business, you have these really, really good highs and you're making money on deals. The same level, I have the neighborhood I don't make money on. At the same time, I bought houses intending to flip them and lost a ton of money. I had years where I went broke because I, you know, so there's, there's ups and downs of all of it and the, and I think that the moral argument goes both ways.

You know, you get paid for the risk and the problem you're solving. And when you stop solving problems, you don't get paid to solve them anymore. Yeah, that's great. That's great. All right, well, anyway, I'm glad we covered that because I don't think we've ever actually really had that conversation about the moral aspects of real estate on the show in the last 320-some episodes. Yeah, I want to dive back into your story a little bit. When you were telling us about getting started, a few months in, all of a sudden, you got all this money that people wanted to give you to start a fund or whatever you said, right? Like, can you walk from that point on over the, you know, up to where you are today? Yeah. So I had its really unique experience that helped set me up to, it was like the perfect. storm, right? I was in the right place at the right time for so much of it. When I was working as a home builder, we managed these big teams. And we would, you know, we work on land acquisition.

What's it going to cost to build to buy the land? What's it going to cost to develop it? What's it going to cost to build the house? We then had these sales teams that would sell it. We had these customer service teams that would make sure that the buyers were happy. And, you know, it's this big sequence. And most of the people that I was competing as when I first started, they were trying to fine houses that they made a 20% pure return on. Annualized return wasn't even talked about. Nobody cared about making a 10, a 15, a 20% annualized return. They just wanted this pure thing. So I said, hey, I've got this business experience with real estate development. I'm going to take that and apply it to house flipping, which meant instead of buying land, we're buying a house,

instead of figuring out how much the house is going to cost to build, we're figuring out how much it's going to cost to fix up the house. We did have sales teams. We actually also had customer service team. So we were one of the only flippers and sellers that we provided them with a warranty. They could call our customer service teams. If there were things like outlets not working and stuff like that and they bought a house a year ago, sometimes I had somebody in the neighborhood and we'd go fix it. So we offered all sorts of different warranty. So we ran it as a home builder. And the other side of that too is instead of trying to make 20% a deal, we ran it on an annualized return basis, which that was the ability for us to be able to buy a lot more houses.

Now, when I say fund, it started as several people, several accredited investors, invest into an LLC, right? And there's all sorts of different structures for that, all sorts of different entities they can use. But in ours, it was they invested into an LLC. That LLC would then invest into houses. And, you know, somebody might own 5% of the fund. Somebody might own 20% of the fund. And every house we bought, they would kind of own that percentage. But then we would recycle the money.

And so everybody would commit and they would commit for at least a year. they would put their money in for a year and then it would recycle and every month more people would pull their money in. After a year, people would have their, you know, some months we had people, you know, pulling their money out. We had some people that always left it in there. But we looked at it on an annualized return basis instead of an individual. And then that also helped us to be less emotional about the winners and the losers.

Like, I make money on nine out of ten houses. I take a loss on one out of ten. Really? Yeah. And because of how aggressive we are and because of how our system is, if I see like, okay, this one isn't a winner, let's liquidate it now. Like there's no reason to hold off and go, hey, this one house, I need to make sure I break even or make a profit because it's that annual return that you're thinking about.

So if I'm making on, because what also happens when you buy 10, one of them you end up making way more than you thought. Yep. Right. You know, you get the multiple offers on it right away. I had one that I bought. And the day I bought it, an agent called me and says, hey, we were an escrow to buy that as a short sale.

Can we buy it and we sold with them 10 days later? You know, there's lots of different sides of how that works. I think that that is such an important point to just emphasize right now. Because Brandon and I, in the position we're in, we hear a lot of, I tried real estate investing in the house appraised for 10,000 less than I thought, and the rehab was 5,000 more than I thought, and the rent was $100 a month less. This whole thing sucks. And we always focus on that.

And we just forget conveniently about the time it appraised for $30,000 more than I thought. And I got more rent than I thought. And my rehab actually went a lot smoother than I was afraid of, right? Like those things happen just as much or more, but you focus on the beats. It's just like poker where we're talking about earlier. Everybody remembers the hand they lost that they should have won. Like when Brandon was telling that story, how he moved on. He did it on my money because he caught a card on the freaking river.

And like Brandon just plays wildly unpredictable poker. And like it ended up working out, right? It's called skill, David. It's called skill. Yeah, exactly. I'm like a ninja. You never know what I'm going to do. Ninjas are unpredictable, right?

They're not focused. Yeah, poker ninja. I don't remember every hand I won, right? Or the times where, like, Brandon Pry didn't even remember, that's how he won. But when you lose, you remember it. And your brain has a tendency to do that. And I think, Aaron, your philosophy is very wise because you've just accepted psychologically and emotionally. I'm going to lose money sometimes.

It's okay because it's a business. Not every player in NFL team drafts works out. Not every employee that a business hire works out. Not every plan somebody had to sell a product works out. Like, you could just do this for everything. There's Ford Pintoes that are existing. in the world, and that was a very bad idea. It shouldn't happen. But Ford is still making a lot of money, right? They shouldn't stop or not make cards because they had a loss. And real estate investing is the

same way. Yeah. It's totally the same way. You know, you get those, if you were only going to judge it on like one house, then the story changes so much. It was either, you know, really good or really bad. You've got to, you've got to be able to judge it on the whole cycle of it. You know, one of the things I learned through there that helped take a lot of the emotion out of it, that sometimes I need to remind myself is most of the time the first person I got an offer from was my best buyer. There were plenty of times when it was like the first offer came in 20,000 under what I wanted. And I'm like, no, I'm going to hold out and wait for my for my full price offer. And then six months later, I'm selling it for, you know, $10,000 less than that first one.

So for me, it was always about quick turns, annualized return. That first offer I came in, try to negotiate that person to the best deal I could for myself and try to sell them the house. because prices very seldom become worth more later. And sometimes a couple months later, you do get the full price and that. But for us, it was a cycle, move it quickly and make money when we can. And when we know we're going to lose money, like lose money now.

Sell it now. So you can at least, you can also recycle that money. If you're going to lose $10,000 in 30 days or in six months, it's better to lose it in 30 days. So you can make $10,000, you know, the next month. That's such a good point. All right. So you started buying these properties,

started ramping up then. I'm assuming most of them you were just flipping, right? You were just selling them, fix and flip mostly. Yep. Okay. Go ahead. First couple years was just flipping. Investors made giant returns, like 30, 35% annualized returns.

It was crazy. My wife built the big brokerage. We built these giant, giant teams. All right. And when was this? The 2009 was when my daughter was born and I started. Okay. 2012 was probably our biggest heavy year.

And then 2013 is when everything kind of changed and we lost it all. Well, okay. So explain that. How did you lose it all? Yeah. So I had these awesome teams, right? I was running my flipping company like a home builder. So I had tons of, tons of employees, tons of company cars, tons of employees with medical insurance.

And every morning we would meet at the office and everybody would get a million dollars in cashier checks and they'd drive out to all these different auctions and they would bid. So the 2013 was the time when all of these, during 2009 to 2012, we were the people that were figuring out how to do this business. We were the trailblazers. 2013, you had these giant companies that decided to come into the single family rental market. Yeah. At Invitation Homes, you know, from Blackstone, you had American Homes for rent. You had all these companies come in. And the, you know, and I had a chance to work with these companies.

When they first came out, I talked to them a few months before they actually started buying in my town. You know, and they were saying, hey, we're going to end up putting you out of business. business. At that time, we were making like $40,000 a month on just the real estate commissions, you know, not even including profits. And I was like, man, there's no way. But what I didn't understand was the buying power and the strategy of these giant companies. And they came in and they bought every house at auction. They bought a lot of them for what they were worth retail, like what we were going to resell them for. They bought every house on MLS. And what happened, especially in the Northern California market is, you know, they were right. They made a good play.

when they buy, they bought tens of thousands of houses. When you buy every house that's on the market for whatever, all of a sudden, prices went up 30 to 40 percent. So they had built in this equity because they bought every, they knew that the home prices were kind of undervalued. They made a big bet on it. Well, for the next six months, I was still going to auction every day. And we didn't buy any houses.

And we had all that overhead. And it was like burning $100,000 a month or more in overhead. And by the end of 2013, the, I started looking at the bank account. And I was like, oh, my gosh. like we can't do it anymore. We had to close up. I told my wife, I'm like, we're out of money. And it was so crazy because we had gone from like millions of dollars of liquid capital

to be in like a few hundred thousand dollars in debt and at 2013. And it wasn't because we did bad houses. It was because we improperly managed our business and our business cash flows. So what can you tell us, looking back on that experience? First of all, how many were you buying at the peak? Like, how many houses were you buying when you were just fully cranking? Yeah. And then option was every day.

And our biggest month was probably like 50. 50, wow. But those were also average price of like, you know, three or 400,000. So now we're doing a high volume in Texas, but it's an average price of $100,000 a house, much, much smaller team. At that time in the peak, we were, you know, it could be 10, 15 million bucks in a month. Okay. So going from that, having these hedge funds come in.

And I mean, it's funny because, like, you know, we had just started the podcast back when that was really taking off. And we've, over the last six, seven years, we've been hearing of the hedge funds coming in and then kind of went out. Like it was a thing for a while and then it wasn't a thing as much. I guess I'm wondering what lessons did you learn from that

that you could apply? Like the bit, you said you didn't buy bad houses. So what was the problem? And can you talk about that? Yeah, you know, I learned a lot. I learned a lot that the, that the only downside with flipping is it's only money if you keep flipping, right? Yeah.

It's like having a job. At that time, I didn't buy any rentals. I didn't buy any long-term assets. I didn't have any protection. And I remember going, man, if I would have just figured out a way to keep and refinance 100 of those thousand houses I flipped, we'd be fine forever. But I didn't. So what I learned is if I ever got another chance again, I was going to focus way more on

long-term knowing that flipping money is still vertical income. If I stopped flipping tomorrow, I'm not going to make the money next month. So that was one big lesson. Another was really be aware of your business cash flow. I think I had big dreams of owning and running this big company. And like, were the, you know, the employees, we would do these big employee events and it was this fun camaraderie. That was something I really wanted in my life. And it wasn't really practical or needed for the business.

I could have done the business I was doing much better. I could have done it much safer. That was when one of those moral dilemmas was like, no, I'm not going to lay anybody off. I'm not going to lay anybody off. And then by the end of it, all of a sudden, I was out of money. I'm like, oh, they probably would have been better off if I would have laid them off six months ago. And, you know, the, so I learned to always follow the cash flow in my business. We look at profit loss reports now with all of our entities like every couple weeks.

And we're really dialing in, are we making money this month or not? You know, how are we doing? And then also knowing that like money can be temporary. So when you're doing really good, do safe things, do smart things with the money. At the time, we weren't ready to be that wealthy. We got really wealthy, really quick. And so we didn't spend it on good things. We spent it on stupid stuff.

We weren't focused on God. We were focused on ourselves. And we think that's part of why it all ended up falling, right? Because instead of like, you know, being grateful for the opportunity, It was almost getting cocky. It was getting cocky. We were overly cocky of, hey, when they said, hey, we're going to put you out of business, I didn't even think to actually listen to their plan and contemplate it.

It was like, I'm the best of this. I'm not worried. Wow. Yeah. Fascinating. And again, it's another one of those segments. I know I say this on the show a lot, but like rewind that last like two or three minutes and listen to that again because that applies to all of us all the time.

I mean, it's really easy to get cocky in a good market, right? What's that famous phrase like, you know, rising tide lifts all ships? Yeah. Everyone feels really good right now in real estate especially, right? Right. Like this, I'm seeing the same things today that we saw back in 2007 where everyone's a genius who buys real estate. Like in 2008, 9, 10, 11, and 12, 13, 14, 15. Like, we all look so good, right? But like, are we going to, are we just getting cocky? Or are we looking at the actual fundamentals of what we're doing? Right. Like, and I, I am very aware that I have been very lucky to invest in the up, you know, chart. But I hope, like, as the things were going up, but I hope that. I have the, I don't know what you call it even fortitude. Like I hope I'm continually asking myself like, am I still buying on fundamentals?

Am I still doing the right thing because it's the right thing or because I'm resting on my laurels that, oh, I've got this? So I'm glad you brought that up. One of the best piece of advice I ever got in real estate when I very, very first got started, like very first deal, an old investor. I don't remember who it was, but I remember he was really old, like 80s or 90s. And he said, if I could give you one piece of advice, it was you can go broke buying good deals. and I didn't understand what he meant when he said that. It didn't really make sense to me, but he said, you can go broke buying good deals.

And today I understand a lot more what he means about that. And it's basically what you're saying. You didn't buy the wrong deal, but you still lost everything. Absolutely lost everything. And yeah, and it was from the other sides of coming that. The deal is the most important part, especially when you're small. If you start to scale up and everybody talks scale and big businesses,

you've got to be careful. You got to be smart with that. If you don't know how to do that, You got to get a coach to do it. You got to be careful. There's lots of different strategies and things that we used later, but it became a, we learned a lot about what not to do the first time.

Yeah. So, Aaron, from somebody who had huge success, lost at all, huger success again, you've been through a couple ups and downs. You've kind of got, even though you've got a baby face,

you've got some sage wisdom in there. What advice do you have for newbies who are looking at this journey like, who this sounds kind of scary. Should I do it? Yeah, I think the newbies, that are considering it, it also sounds a little bit of fun and exciting.

Right. Like, I kind of knew I always, I was always intrigued by house slippers. Even when my dad was a home builder, I was really intrigued by that idea. I was intrigued by real estate. I went all in. So people will say, like, sometimes people will say like, hey, Aaron, I'm ready to quit my job, but I don't know what I'm going to do next. And like the advice, and they'll be like you did.

Right. And I'll tell them, well, when I quit my job, I knew exactly what I was going to do on Monday. I knew exactly the work I was going to be doing. I knew the route I was going to be driving houses. I knew the auctions I was going to be going to. They're like, I want to be an entrepreneur. So I'm just going to quit my job and then figure it out. And so I remind them a lot, be ready to know what you're going to do next.

If you don't know what you're going to do next to it. And I think it's also okay for people to get their feet wet while they're doing other businesses. You know, while they have a normal job, you know, David's one of the best stories of having a job and doing real estate on the side and being able to become a real estate mobile. Right? Like there's, I think that there's, there's safe ways or not. And even though my story could have been very different had another couple weeks gone by at the very beginning. And that I just, you know, give credit to God on the way that things worked out. My story was supposed to be this crazier story.

But, you know, I still, it was a strategy. I had savings. I had a plan. I knew what I was going to be doing. And I knew I was ready to kind of jump all in. And when I jumped all in, I had it there. But if people are ready to jump all in, jump a little bit in. Go educate yourself, see deals.

look at you can go attend auctions every day without ever buying a house and learn so much about the process. That's such good advice. I mean, like, yeah, if you're brand new getting started, go to an auction. Like, go to open houses. Like, get out there, get your feet wide. It doesn't mean you have to invest. I always tell people all the time on these, like, I do webinars every week at bigger pockets. And I always say, like, you, like, you can start analyzing deals right now. You can start, even if you're not anywhere close to being ready to buy. You can get good at analyzing deals without ever having to commit a single dollar anywhere. Like, it's, it's.

Build your skill. You can go to auction and see what house is sold for. You can go drive by them afterward and see if they were occupied or vacant. You could see what they would have cost. You could follow along on Zillow and two months later see what they sold for and be able to kind of guess, like, was it a profitable thing or not? Should I have bought that one? I mean, you can play this game without putting any money in if you're really

deal too much. Yeah, that's fantastic. All right. So let's go to the rest of your story. So you lost everything. this is like, what, 12, 13, 2012, 2013, somewhere in there, right? How did you recover? And what did you build in its place?

And then lead that to, I guess, where you're at today and kind of what you're doing today. Yeah, the, you know, 2014 was a rough year, right? Like, my family was in shambles. Because we were also feeling the after effects of what happens when you're super, super cocky and you're not focused on family and you're not focused on spirituality and you're focused on, like, money and growth. And then all of a sudden that gets taken away and you're like, oh, my gosh. So family was in shambles in 2014.

Business was in shambles trying to find different things. I remember applying for a job to go be a building inspector at the city of Napa. And it was like, I can drive down there for an hour and a half, you know, an hour and a half down and back every day because that's what I'm going to need to do. Right. And the, it was I was going to go back to a normal, normal job. And two things that helped me during that time, two books. So one was Hal Elrod's Miracle Morning. Yeah.

He's been on the show a couple times and a lot of big fans. And Tim Ferriss is four hour work. week. And the miracle morning helped me get my spirituality back, like to help root for myself and to get up earlier. And the four hour work week helped me to take the office work and make it a lot more efficient and start to come up with systems. So I started, I had like a few houses left. And so I'd get up at four in the morning. My first three hours, I would do my office work doing the four hour work week type stuff. And then I would go to the houses myself and do the manual labor to like do the construction services and the request repairs and all that stuff. That took about a year doing that. I had one good

apartment deal that we'll talk about later that was a way that I was able to get some income during that time. And then 2015, I had a, you know, I bought this apartment complex a couple, a couple of years prior. We're going to talk about it in the deep dive. But there was a guy sent me a thing that said, hey, there's another apartment going to sale. Would you like to buy this agent out there? I saw that it was going, that it was scheduled for foreclosure. And I was like, oh, that's interesting on the title report, scheduled for foreclosure. I had the rent rolls, the tax thing, everything like that. And I was like, you know what? I'm going to fly out to auction. I'm going to, maybe I'll go buy his apartment at auction. And I went out and I flew out to a small town in Texas

and the, went to the auction and the apartment came up for sale. And it actually came up for enough money that I had there. But I got, but I got cold feet. I was, I was looking and I'm like, I'm here. I'm supposed to be here. I meant for this. And I got cold feet. And I, but I hadn't successfully bought an auction for like a year or now. Right. I was like double. I was second guessing myself in there. So I was. So then I just tell you, you know, never mind I don't want to buy it. And the auctioneer is like, okay. It reminds me of like, I'm going to use an analogy like David does all the time, right?

Like, it reminds me of like when you fall off a bike. Like, you've ever like get like fall off a bike before, right? When you get back on, like you're just so like your body is shaky. Like I just, I don't want to do it. I don't want to fall again. Like it's absolutely. I had success in a couple years. Yeah.

I hadn't had success in a couple years. And the, and I was not, I was not my best self anymore. Right? So I was like, this is, you know, being able to get back on your feet and be common it because auction is supposed to be this fun, exhilarating thing. The cool thing that happened during that auction is then I kind of sat second guessing myself telling myself I was a loser for flying all the way out there and not doing it. This other auctioneer shows up and he starts selling houses and nobody's there.

And he starts reading off an address and a price and it goes back to, I'm seeing houses sell for 30, 40, 50,000 bucks. And I'm like, this is crazy. No one's here. no one's here in this small town and this guy just sold dozens and dozens of houses. And so then I flew home and I called clean out. I'm like, the craziest thing happened. I did not get the apartment.

I, you know, I chickened out. I didn't do it. And at that time, we needed it. Right. Like, even the flight out there was like it was a big deal to pay the money to fly out there. I had a line of credit that it was enough to get the house that the, you know, and so I get back home and I go, but you know what? I think there's a chance to redo auctions out there. So the next month for auction, I flew out there.

three days prior. I drove houses. I drove hundreds of houses. I did title. I comped. I didn't have a team anymore. I had one girl that worked in accounting for me. And I got ready and I went to auction and I bought three or four houses that first auction day. And where was that at? That was a small town in Texas. Okay. Okay. Right. And the and and when that happened, all of a sudden, I was like, oh my gosh, I have this chance again. So after like a couple years of prayer and going, if I ever had a chance to do this again, next time I would do X, Y, Z, all of a sudden the floodgates opened up and it was like it was 2009. No one was at auction again. There was all this opportunity. Now there's a lot of people at auction again in

Texas. But when I first got down there in 2015, there wasn't and it was this kind of free start. That's how I got back into it. The big changes this time is I use the, you know, the four-hour work week mentality instead. So I use, you know, very few employees, a lot of systems, a lot of great software we built stuff to like really make it to where a few people can do a lot of work. You know, and now for every 10 we buy, we'll flip two or three and we'll keep seven or eight as rentals. We'll use the profit from the flips to run the overhead to be the equity for the rentals and then we'll refinance the rentals because it's that one thing I learned when it was all over. If I ever did this again, one, I'll be better with my money. We're way more giving now.

We're way more experiences over things. We homeschool and travel with our kids. Like the way that we spend our money is so much different than it used to be. And then what we do with those assets now is it's trying to make sure that we have long-term income to where we never have that happen again. And I believe that, you know, rental real estate is a way to set those things up to be okay for life regardless of what happens. Yeah, that's amazing. I feel like this show could easily become a Joe Rogan-style nine-hour, you know, interview because we can just spend forever on this. But, man, we will save that for when we're sitting on my line eye here in a few weeks. and we'll chat.

Actually, I got kind of a fun plan when you're coming out to Maui. But we'll talk more about that when you're out in Maui. All right, so it's time to shift onto the next segment of our show. The deal deep dive. When I bought my first rental,

I thought collecting rent would be the hard part. Nope. The admin crushed me. Every night was receipts, tax forms, and checking who was late on rent. I kept thinking, if this is one unit, how do people run 10? Base lane changed that.

It's Bigger Pockets official banking platform that handles expense tracking, financial reporting, rent collection, and even tenant screening, all in one place. It's the system I wish I had from day one. Sign up today at baselane.com slash bigger pockets and get $100 bonus. Baseline is a financial technology company and is not an FDIC insured bank. Banking services provided by Threadbank, member FDIC. All right, let's get to the deal deep dive.

This is the part of the show where we dive deep into one particular deal that you've done, Aaron. And I know you mentioned earlier that you've got one. So why don't we just start at the beginning? I'll ask you a series of questions about this. first of all, what is this property we're going to be talking about today? Yeah, so it was originally 66 apartment units, two different locations. So with one package deal, about a 46 unit and a 20 unit from a seller. Okay.

Okay, awesome. How did you find it? So it was really funny. I actually bought it back during that time in kind of 2013 when we couldn't buy houses on the courthouse steps very much anymore. A guy that was involved with one of our investors. said, hey, I've got this, I've got this set of apartments for sale out in Texas. I want to be able to sell them.

When I first looked at it, cash flow looked good, who's asking price looked pretty good. And I had lots of cashier's checks from these lines of credit. And I was like, you know what? I could go put some of it over there right now. So yeah, so that was how I found it. All right. How much was the property? So the, maybe that's the best part of this.

I ended up getting a great deal for it. So first, it was going to be listed. it was listed for like $700,000. And for the cash flow that it had, you know, it was like bringing in $8,000 a month in rent. It seemed like it was a pretty good deal. So I flew out there to go make the offer on it. And the property manager that walked me through the apartment,

the first one she takes me to, there's a giant hole in the roof and like a dead possum on the ground. And I was like, this is disgusting, right? And there's like bars on window. Like it was absolute like trashed. And so she showed me like, she kept showing me like worse and worse. worse and this is where the meth lab was and all sorts of stuff. And I was like, whoa. So I got back

in the car. I'm like, I'm never going back to that town. That was like disgusting. I need to go shower. And I call the seller and I said, hey, man, I'm really sorry. I'm sure you're going to get a lot of money for it, but I would not be able to offer anywhere close to it. Like my offer would be so bad. It would be insulting. So I appreciate looking at. I flew out here. I was serious, but it's just not going to happen. And he goes, well, what would you pay for? And I go, well, the most I could pay was like $325,000. He had bought it for $1.2 million two years prior. Wow. And I did not want to buy it for $325 either. I was only trying to offer. And he said, could you close in three days? And I was like, oh. Okay. So the, so yeah, so I paid $325 for it. Eventually, it was worth a lot more, but it had, but it had a long ways to go to do that.

Okay. So I think you covered how to negotiate it. Before I ask you how you funded it, I want to ask you, how did you know the possum was actually dead and not just playing possum? You know what? I don't. It's just the assumption that it would play possum somewhere else because this was not the place to be hanging out. Okay, that's a good point. Like, this isn't where you'd want to play boss. No.

Yeah. So how did you fund this deal? Yeah. So I had cashier's checks that were from a line of credit from when I was flipping houses. Was that like a bank line of credit? You mean just like a? Well, it was part of kind of that fund relationship that I had. And so it was like private equity line of credit.

I paid 12% interest for it. Okay. Which was a lot of, which was a high interest rate for it. But it was kind of like a no questions asked type line of credit. Okay. What did you do with the property then? So the first thing I did was I kind of realized and learned that the property manager had been ripping the guy off.

Right. So the reason she showed me the worst house is that she did not want him to sell it. Yeah. And he kind of told me that. He gave me that advice. He said, hey, I still think you should make me this off. for 325 and I think you should fire because I think what's happening is she's just screwing me and so she didn't she didn't want you to buy it. And so he gave me that. He's like, but I'm still done.

And I'm talking about win-win. He thanks me for the next couple years. He thanked me all the time. Thank you for buying that deal to get it to get it off my hands. Right. He was, this is the world's best seller that you have to come across. Oh, yeah. He was, he told me what was going on. He sold it for nothing. Still said, thank you. You know, you saved my life by getting that off my hands. So I hired another property manager and there was two different complexes, a 20 unit complex and a 46 unit complex. I soon realized that it was going to take a lot more work than I thought. And that property manager started going to work, though. And he got three people to move into the 20 unit apartment complex was totally vacant.

Nobody had lived there in years. So it was, we didn't know if power was on. They didn't have meters. And so first he went to work over there. And he got like three or four tenants to move in to that one. And then he started to clean up the other one. And we fixed the gate and we fixed the security. and we just started, you know, kind of getting rid of the trash and the stuff that happens when a place gets kind of abandoned.

And then near the end of that first year, like six months later, I was short on cash to finish fixing up the 46 unit. Now the rest of the marketed crash. I didn't have any line of credit money left. But I was able to sell the 20 unit apartment complex. It was worth, essentially it was worth zero when I bought it. It was like the extra one he threw in. So I bought the 46 unit for 325. He gave me this 20 unit.

But I sold the 20 unit. unit for 200 grand just after getting three or four tenants in it. So I sold it for 200 grand, was unable to use that money to go rehab the 46 unit. We put in all new roofs, major rehabs for all of it, got it up to a 90% occupancy. If this story doesn't describe Aaron A perfectly, like, I can't even keep up with all the different real estate strategies you're using in this. And we haven't even dug into your like guard possum strategy for keeping out there criminal element surrounding it. Okay, I think you discovered the outcome. So tell us what lessons did you learn from this insane deal? Yeah. So at its peak, so once I got to 90% occupied, it appraised for like 900,000.

At that time, I refinanced it. I was able to refinance it for more than I had in it. So then I was able to essentially get paid a couple hundred grand tax-free income. Right? So if I paid off what I paid plus the extra money, that was something I hadn't learned before in real estate. So if you find the right value ad deals, I think it happens more. more in commercial because in single family, it's tough to get those loans. And commercial, it's much easier. You can get this opportunity where you can refinance for more than you put in it. And that's tax-free income, right?

You'll still have to pay it back if you sell it, but you don't have to pay taxes on the income now. Talk to your CPA, make sure you're doing it the right way. Don't want to get trouble. So, and then, so that was at its peak. A couple months, you know, maybe a year later, so I thought I was going to run on that cash flow forever, but maybe a year later, occupancy started going way down. It started to get to like 70% occupied, 60% occupied.

I ended up selling the deal for like 625. So I still made money on it, but not as much as I would have at the peak. So my bigger lesson with that, this is like a C or C minus or D level apartment complex. If you're getting into apartments and you're adventurous, it's a fun way to get into the business because there's not a lot of competition. But I learned that these apartments of like the C or D lifestyle, especially these really old ones, they kind of have a life cycle. And that life cycle is they get fixed up, they get a lot of attention. It's the new place on the block. It gets a lot of tenants.

It gets up to that 90% occupied and it hits that highest level. And that's like what it was when the guy that sold it to me bought it. And then the cycle happens where people start getting used to living there. It's no longer the shiny new thing. And the value starts to go down. And then that value goes down. And then all of a sudden it's like in disrepair and people have better assets to work on. And so and it had done this.

When I look back historically, this apartment had done that for like over two. 25 years, right? It was worth a lot, then we're not worth a lot and worth a lot. So if you're going to be into C and D minus, the goal for me should have been to buy it low, fix it. And once I got it to that 90% occupied, instead of trying to focus on horizontal income, sell it. Because at its life cycle, it was going to hit that. I ended up selling it to a guy that's, he's a real estate developer. Now he's fixing it up. He's getting it back up. But, you know, he's, maybe it's worth 800 now to him. But the, but I have a tough time seeing those C and D minus level properties. actually stay worth a lot.

Yeah, I think I see that as well. And I think it's because these properties, like if you don't like have a constant pulse on these lower end properties, like the C minus property, because I've had them as well. I have a 24 unit in Ohio right now. Same way. Like if I take my eye off that ball for like a month,

all of a sudden like there's more vacancies and there's all, like the car parked on fire in the parking lot. It's just like, oh, I got to go focus on that. And as soon as I focus on it, boom, shoots right back up again. But it's like a fire. I'm going to use another analogy is right.

It's like a fire. you have to constantly stoke with like air or it'll go out. And so they're great. I mean, go ahead, David, you got one. It's like a substitute teacher trying to take over a class of like,

of not so great kids. And like if you just never take your eye off them at all, they'll sit in their chairs. But like the minute you go outside to buy a soda or something, you come back in, they're swinging from the ceiling and like they've got pencil shoved up their nose. And it's just a complete chaos. And I like Aaron's point about like it is a cycle, right?

Like you want to, it's like Brandon's surf. man, you want to ride that wave and right at the point where you're like, I'm losing some momentum and you just fall off on your own so that you don't have a horrific crash and, you know, get cut up by coral or anything. Yeah, it's for me, they're just, they're not horizontal income, right? C, C, minus and D level apartments. It's not horizontal income that you make while you sleep.

It's you have to work hard at it. And then the downside. You're buying a job. You're buying a job. And if the rent's only 450 bucks a month and you have to kick out a tenant, it costs you four grand to turn that apartment over. You lose 10 months of rent. You're charging 3,000 a month rent at a apartment complex. It's the same turnover cost. And you have to evict it costs you four grand. And so those lower rents that are a really high cap rate, turnover costs are what end up killing you. Yeah, I always assume like

if somebody own, you know, I own mine, you know, from I live in Hawaii, right? And I own this property in Ohio. If somebody was in Ohio, like in that area, they could probably manage my apartment way better than I'm doing it. They could probably make way more income because they're local and it would be a job for them. And so like when I got started, I bought a small local C class apartment building in my area. And that got me out of my job. Like, I loved that property. But then like later on, as I got more and, you know, got more and more properties, I didn't need that job anymore. And so I sold that property and ended up by another. I mean, just lessons learned. Like, if you're just getting started with real estate and you're looking to get into apartments, there are probably opportunities if you're willing to be that person who

wants to do the work, right? Like, if you want to be that person that can be boots on the ground and have that job for a while because it's probably better than your day job. Right. So like, it's doesn't mean you shouldn't do it. It's just different phases. Yeah, there are those value-ad jobs if you're willing to do it as a job. Definitely not a, it definitely wasn't to make money while you sleep like a, like the newer hire and rentals are. Well, if anybody's in Ohio and wants to talk about buying my property, I'm not opposed to selling it. You know, I'm at a different phase now. We'll see. All right, moving on. The next segment of our show is the Fire Round. It's time for the Fire Round. All right, time for the World Famous Fire Round. Of course, these questions,

come direct out of the Bigger Pockets forums, which you can visit at biggerpockets.com slash forums. And hey, we're having a sale on the forums. It used to be free and it still is. What a sale. All right, number one. Keith from Philadelphia said,

I have started researching the online auctions arena, kind of like auction.com, and I wanted to know if anyone can share some pros or cons. Is this a good opportunity? And what should I watch out for? That's awesome. Yeah, I buy a lot of houses on the online auctions too. One thing you need to know with auction.

is there's also someone on the auction.com team bidding against you. And so you won't necessarily be bidding against just other bidders, whereas the live auction, sometimes the justification is, well, I'm not the only one bidding on this. There's five people bidding on this. So it kind of makes you feel better when you've seen a bunch of people want the property. So online auctions could do the same thing where it looks like other people are bidding against you. And so you kind of go, oh, well, I could pay more because other people want it. So I would say if you do online auctions, before that auction starts,

know what your max you're going to pay is and stick with it because they because there is a hype and excitement with auction like eBay like, oh, you won. So the just knowing the people bidding against you, they might be trying to get a reserve amount, that sort of thing. The other thing I find is depending on the cities, there's plenty of auction. There's plenty of those auctions that nobody's bidding on. I still sometimes get to buy a house and the I sold it to someone else right after and in a town I don't even live in because I'm the only one looking at that auction. So I think there's a lot of opportunity to online auction. Just know your bid price before you start. All right.

Good advice. Number two, I'm going to serve as a general contractor on one of my own upcoming rehabs, and it will be my first time. I have some background in construction, but I realize this is a new skill set. What are the most important lessons you've learned about managing a crew? Yeah, I think if you're going to be your own general contractor, it really depends on the scope. There are, for our quick little turnarounds, if it's hiring a painter,

hiring a flooring company, having somebody install appliances, that sorts of, those are easy trades to manage and there's very little liability. If you're a general contractor where you're removing walls, doing structural things, you know, you just want to, first want to make sure you have great insurance because if you're a general contractor on a house that you flipped and you flip enough, you will get sued. We've been sued. We've been named in lawsuits. It will happen. And so, and then just do really, really good disclosures. And then the, you know, remodeling a vacant house is way easy. If they were a general contractor that was working for like, you know, personal people before,

it's way easier to remodel a vacant house because you don't have, you know, your client looking at what you're doing and staying there. So you might have some, you'll have a lot of cost savings. The other side, though, too, when I first started, I had a flipping company and I was a general contractor, but my general contractor company didn't make money. And I was like, I would kind of do that for free in order to do the profit split. That was not the right way to do it. And the reason it wasn't the right way is because the general contractor actually

ended up losing a lot of money because of insurance, because of other expenses. So for example, you could have the general contractor losing a couple grand a job, but your profit split is over here. It still isn't pure. So if you're going to do multiple businesses, multiple entities, a real estate company, a general contractor, make sure they're each profitable on their own. You know, charge the rates that you would. You'll still be more trustworthy than if you hired somebody else.

If you're hiring your own company, it's more trustworthy than hiring somebody you don't know. but you should make sure all the businesses are profitable. Great. That's a great answer. Next one. This comes from a Brandon Turner in Maui, Hawaii. I'm wondering if you can explain to the audience here. I was going to throw this in the show and it didn't fit.

So I'm going to throw it here in the fire round with my own question. What is the five-hour school week? The five-hour school week. So my wife and I, you know, a couple of years ago when we started redeveloping our lifestyle and saying, hey, if we ever did okay again, we weren't going to spend money on stupid things. We were going to focus on experiences over things. And so we pulled our kids out of school. We started traveling with them and, you know, to do those life experiences to say,

hey, we're doing well right now. Let's do that. We, you know, using the, what I learned from Tim Ferriss's four-hour work, we could totally change my business life. I was on stage one day and a lady said, and I think David was at that event. A lady said, what do you do for homeschool or what do you do for your kids? If you're telling us to not work too much, what do you do for your kids in education. And I was like, huh, I wonder. And that was one of the first plans of what we

started. So the five hours going in a nutshell is, you know, we believe that you can school in one hour a day of focus. You'll get the same equivalent of if your kid was an eight hour school day. And that leaves the rest of the day for life experiences, adventures, local museums, traveling around. We released a book back in November on it. Kind of because people just kept asking us questions on Facebook. Like, what are you doing? What are you doing? How do you do this? I kept telling my wife, like, we just need to put it on paper that way you can send it that way. way. And so that's been super fun. So we've got a community. We help other people in the same thing. We've got a great book. And it's been a fun experience. But it's really like the four-hour work

week mixed with homeschooling, right? And how we do that and how we think others could do the same if that's what they want to do. I love following you guys on social because you're always traveling somewhere and you've got the kids around. And like the stories I've heard you tell about just like, I don't like checking into a hotel and having your kids learn like that process. Like it's all education. You're just taking education from sit in a row in a desk where, you know, one teacher's telling 40 people and you're saying, let's make education about the real world and let's learn this stuff. And I think it's fantastic and I'm definitely following in your shoes there someday. Awesome. So, yeah, cool stuff. All right, David, you want to do the last one?

Last question. This is from David in Palmdale. So I went out driving for dollars and now I have about 10 properties that look abandoned. What are the next steps I should take to track down the owners? Yeah, the great tech, you know, there's lots of technology out there for stuff like this, but the simple way that doesn't cost you any money is first you go and look up your county property records. Most of them are going to be online in Palmdale. I'm sure they're online. So I go to whatever you're, if it was in Sacramento, I'd say Sacramento, Sacramento County tax bill. I'd plug in the address. It would tell me the names of the owners. Go to Google. Some of those phone numbers, emails, things like that, you can see for free without doing anything. They'll usually

pitch, you know, there would be three or four, phone numbers available. Some of them are wrong. Just try those phone calls. There's lots of different websites out there too when you just search that name and say phone number for this, that they'll say, hey, we'll sell you this data. I think there's lots of there's lots of stuff for that. And one of our services in Texas, we've got a company that does that. But start with property taxes, Google online, look for name and phone number and find it. Letters are also pretty effective too. So if they've moved, the property tax record usually says here's where that other address is. So letters, but nothing works as well as like a phone call to find to track them down and be able to talk to him.

Can you can you tell us real quick? I mean, I'm totally giving you the full ability to hear to plug. Like, what is the company you own there? Because I've looked at your software and it's amazing and people should be using it. Can you talk about that for a minute? Well, that's awesome. So we've got a couple different companies out in Texas. So now when I first went to Texas, I was buying the list from another company.

So Roddy's foreclosure listing service. When George Roddy passed away a couple years ago, his family reached out to me to ask if I would want to kind of to take over that company. So at FLS Online, we sell foreclosure leads more than anybody else all through the state of Texas. We also have a product called padhawk.com. And if you go to padhawk.com, you can type in any address and it will tell you who owns it, how much they owe on it, what their address is, you know, what their mailing address is, when they bought it, how much they bought it for, pretty much get this blueprint. So you can type in those 10 houses that you're driving for dollars, put in the address and know

everything about them. They owe 50 on it. It's worth 100. They bought it 10 years ago. They live over here. You can click a couple buttons too and order a phone number and an email. So you can get a phone number, email, call them that way. If you want to do a bigger, broader thing, you could say, hey, I want all the vacant houses in Palmdale.

Click a button. It'll say, hey, there's 4,000. You can order phone numbers and emails for those and send them all a blast email, blast text message. Technology is super cool. That's the product we have. There's tons of products like that out there now that help you do that on a grander scale. I do think the driving for dollars is more accurate, though. so when you, it's just more tedious.

So if we say here's a thousand vacant houses, 900 of them will be vacant. 100 will be errors that the post office gave us. If you're driving for dollars, you know they're vacant, you know that they're vacant, and then you can use the software to track people down.

That's fantastic. Yeah, you were a sponsor of one of our shows recently, and I think I said in there, like, we were at this Go Abundance event and like, we sat down and I was like blown away by this thing. So anyway, nice work on that. I want to continue working with that. And I got some plans to use that in my,

near future here in Maui, so we'll talk more. All right. Well, that was fantastic. And now it's time to head to the last segment of the show, our Famous Four. Let's hear from your Famous Four. Number one, by the way, for those who are not used to the show here, we ask these same four questions every single week to every guest I think we've ever had on the show.

I think we actually started in episode like five. But anyway, let's go through it right now. Number one, what is your favorite real estate related book? Well, I would have, if I was going to just be on, I'd have to plug all the bigger pockets ones. You know, I've got two authors on here. We got plenty of bigger pockets, guys. Before I ever knew about bigger pockets, though, rich dad, poor dad was the, was the big one that really helped me try to look at money different. You probably hear that one a lot on here, but it is still the epic one. I've read hundreds of real estate books and there's, that applies more to my business than anything else.

Perfect. I've never heard of that book before. Robert Kiss on. Okay, cool. What's your favorite business book? Favorite business book is the four-hour work week by Tim Ferriss. And that was the, and I think that I went from that strategy working the 60, 80 hours a week. The book helped me see that perspective that, hey, maybe life isn't just about that. Maybe there's ways you can accomplish the same thing and then some.

Yeah. Okay. I love that book. David. I'm almost afraid. Go ahead, Brandon. Have you read that? Or our work week?

Yeah. I read the first half of it. Got to finish that one. Anyway. That's Brandon's way of telling me. me that I worked. That is exactly what that was. We're good enough friends and I can know what he said.

David literally works. For years. He was working 80 hour weeks and drill estate. Yes. Yeah. David is a machine in a good way. But I just, it's hard to hear advice about working a four hour week from a person

who makes a four hour podcast. That's all. But I know, I know I need to read it. Okay. I'm almost afraid to ask this next question because I don't know how long Aaron can talk for about this because he is the most interesting man in the What are some of your favorite hobbies?

On the video, we got to talk about my crossbow in the back. I'll just talk about, so I, a few years ago when my dad passed away, he was a beekeeper. So then for a little while, becoming a beekeeper was my hobby. And I would go, like, capture wild hives and go and go do that. I've got the crossbow where I shoot like deer targets in my backyard. I love golfing, though. I mean, that's a boring one. And my current hobby that's taking up most of my time, though, is Iron Man training.

and exercise stuff got introduced to that a couple years ago through GoBundance. There's some guys there. And the cool thing about that is that at least makes me like four months out of my year. I'm eating very healthy. I'm exercising a lot. I'm like really focused on that. And when you're getting up early and exercising and eating healthy, the rest of your life kind of gets on, gets awesome. So that's my least interesting hobby that has been doing more and more.

I don't do too much beekeeping anymore. But if somebody, but if you were nearby and you needed me to go rescue a hive, like I would totally go do it. Do you have any plans to combine your passions for triathlon training and beekeeping? You can work out in a beehive suit or maybe getting chased by bees would be a little bit. That's how you improve your scores in an Iron Man. Yeah, you can be like, I'm going to go grab the bees and run into another part of the property without my suit on. Like, you'll do that as fast as you can't. That's funny.

That's funny. Why is that so funny to me to picturing you like rapidly trying to transition onto your bike from swimming with like bees chasing you? Yeah, as you jump to one. Really. Have you guys seen the GIF or GIF, as people say, of Oprah releasing the bees on people? It's the funniest thing I've ever seen. Just type it to Google later, like Oprah Bees and you'll find this gift. That's the funniest thing I've ever seen.

I laugh every time I see it hysterically. All right. Yeah, it's so good. Yeah, by the way, Aaron, I just got my bike yesterday. Like, I just ordered a bike. So I'm also training now for my first triathlon. So we're going to have a coach on the beach with us. We're going to do open water training.

10 mile runs every day when we're there next week. That's awesome. I did not know that. I will totally do that. All right. I did not know that. That's going to be so much fun. All right.

Well, that's all I got. So last question from me. What do you think separates successful real estate investors from those who give up, fail, or never get started? We talked about a little bit earlier. You have to actually think this is fun and interesting and exciting. Right? Like, you actually, and another part of it, too, is for me,

have to fall in love with the problem. So instead of being frustrated like, man, every house I'm bidding on gets postponed. I'm not able to bid on it. Or if I only go to five house, they don't go, you have to fall in love with the fact that because there's a problem, there's money to be made and a problem to solve. Or if you get out bid on something, you have to fall in love with that. Or if there's, you know, if a house, I've had a house that got burnt down before I bought it. Wow, if this was easy, everyone would do it and I wouldn't have it's there. So falling in love with a problem in real estate. And also, you can't use one story and choose it. I've had a couple stories that are so fantastic, it would make everyone quit their job and become a real estate agent.

And I have a couple stories that would make everyone in real estate totally quit. Right? So you got to focus on the whole. You got to like it. You got to fall in love with a problem. And you can't just look at one deal and make your decision. Yeah. Fantastic.

That's awesome. All right. AA. Tell us where people can find out more about you. Well, that was such a fun day, guys. You know, if people want to learn about Pat Hawk, how to buy foreclosures, you know, data, stuff like that, email me at Aaron at FLSOnline.com. So it's A-A-A-R-O-N at F-L-S-online.com.

If they want to learn about the five-hour school week, homeschooling, traveling, you know, you can email me, Aaron at five-hour schoolweek.com or really find us on social. Like, friend me, ask me questions. We love, I love telling people how to buy foreclosures. I love answering questions on there about that. If you look at our Instagram, you'll see pictures of us, travel with our kids, doing crazy stuff, buying houses and having them in the houses with us. So the, but yeah, five hour schoolweek.com, find me on social, those two email addresses.

I'd love to hear from any one of you to ask whatever questions you think I might be able to help you with. Perfect. All right, dude. Well, thank you so much for being a part of our show today. This has been fantastic and you did not disappoint. I knew this was going to be an amazing show and it was. So thank you, Aaron. Thanks, guys. So much fun. All right. And with that, we're going to take off and get out of here. Thank you. And I'm going to go hang out with Aaron here in Maui next week. So y'all have a good day. And David Green, you want to take us out?

Absolutely. This is David for my friends, Aaron Muchistegi, and Brandon, the Poker Ninja Turner, 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 platform. Our new episodes come out Monday, Wednesday, and Friday.

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