BiggerPockets Real Estate Podcast - 368: $3,500 per Month From One BRRRR Deal With Palak Shah

Episode Date: February 6, 2020

On today’s show: accelerated wealth-building through leverage and systems! Palak Shah walks us through how she built a $4M portfolio in just three years by "supercharging" the BRRRR strategy. Palak left a career in corporate America to focus full-time on real estate in the Philadelphia area, and she applied her training as an engineer to create airtight processes that help her business run without her. You’ll love hearing how she finds deals from wholesalers on Facebook, why she’s not afraid to sell off some of her BRRRR properties, and how she creates checklists to determine whether a deal fits her criteria. Also, we discuss how to beat “analysis paralysis” by remembering her acronym “A.B.L.E.” Palak is a relatable, inspiring investor who offers great tips for anyone hoping to transition away from a 9-to-5… so check out this episode today, and share it with a friend or family member! In This Episode We Cover: Leaving her corporate job to take more control over her time Why she’s OK paying capital gains tax rather than using 1031 exchanges Flexing your “risk-taking muscle” Using hard money for BRRRR projects Creating “templates” to make investing easier over time Criticisms of the BRRRR strategy Why she sells off some of her BRRRR properties Using local banks and credit unions Her mantra: “Fortune favors the finance-savvy” How her systems allowed her to buy 2 properties from India Her “A.B.L.E.” method to escape analysis paralysis How she bought 9 units for 40% off the list price How she used a home equity loan to borrow $160K And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Webinar Fear-Setting: The Most Valuable Exercise I Do Every Month How to Make $100,000/Year with Fixer-Upper Rentals (by Buying Only 2 Properties Annually) Microsoft Project Redfin Hustle & Persistence To Build Wealth Through Real Estate | BiggerPockets Podcast 169: Using Hustle and Persistence to Build Wealth Through Real Estate with David Greene BiggerPockets Podcast 362: Big Goals? Here’s How to Get Your Spouse or Partner on Board with Jay and Wendy Papasan Check the full show notes here: http://biggerpockets.com/show368 Learn more about your ad choices. Visit megaphone.fm/adchoices

This is The Bigger Pockets podcast, show 368. I built a $4 million real estate portfolio. This year, our revenue is about a million. And the best part is there's no glass ceiling. Nobody controls my potential because of the way I want to spend my time. So it's been an amazing journey. 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 investors, 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. Hey, what's going on, everyone? This is Brandon Turner, host of the Bigger Pockets podcast here with my co-host, Mr. David Green. David, welcome to the podcast, buddy.

Not much, man. It's been a great day. And we just had a really, really, really good interview with Pollock. I am pumped for the listeners to get to hear what we just heard. Yeah, Paulik was she brought the goods today, really good interview. We talked about everything about how to get started with bur investing, how to work with hard money lenders, how to get wholesalers. She has some great tips on finding deals through wholesalers. You're going to get all that today.

She even talked about how one of her bird deals, like one single like deal, like bird deal makes her $3,500 a month in cash flow. I mean, imagine like what that would do to your life and if you could do it in one deal. And the coolest part of that story is like how little money of her own she ended up using. and choose a couple different creative strategies, including the birth strategy to pull it off. You're going to hear that and more today. But before we get any further, let's get to today's quick tip.

All right, so let's talk about offense and defense real quick. So offense, when it comes to your finances, means earning more money. You're going to go out there and make more money. And we could all probably do that in different ways. That's why people flip houses or work hard of their job or whatever. There's ways to make more money. But if you don't also play defensively,

which means knowing how much you're spending and controlling, you're spending. It doesn't matter how much you make because you're just going to spend it all away anyway. I don't people making a million dollars a year who spend like a million dollars a year and they still have no money. They're broke. So here's what I want to encourage you to do for today's quick tip is to go out there and create what like a financial like spending plan. Like go look at right now what you're spending exactly and put up all the categories in terms of like how much are you spending on like fun stuff? How much is like variable expenses like gas, grocery stuff that goes up and down a little bit? How much is like fixed expenses, meaning you're, you're,

mortgage payment, you know, taxes, utilities, I guess you could maybe even call it like a fix it's regular. And what are you giving away and what are you saving? Just define that stuff because once you define it, you have a better idea of where you're headed. So very simple, quick tip is go out there and figure out like where is your money going so that you can make sure that you're also playing defensively in your goal to build more wealth and financial freedom for your family. That's today's quick tip. Awesome. Great job, Brandon. Thanks, man. I just recorded a video this morning about that. topic. That's why it was on my mind. So if you want to watch the full video I did, go over to the

YouTube, biggerpockets.com slash YouTube or YouTube.com slash bigger pockets. Either the way, we'll get you there. And make sure you listen all the way to the end of today's episode because all three of us give the moment when we knew real estate investing was for us. And it's funny hearing the clarity in all of our voices that we knew exactly when we were first in love. Yeah, that's awesome. And now, before we get to the show, I do want actually to say one more, one quick thing. If you are not attending the weekly Bigger Pockets webinar that is different than the podcast. The webinar is a live thing that either David will host or I will host or we have a few others like J. Scott and Tarrell Yarber that host them. If you're not attending those or Matt Faircloth, too, I would highly encourage you to do so because you're going to learn a whole lot of like how to do stuff.

You can go to those anytime sign up for one at BiggerPockets.com slash webinar. Yeah. Tell your friends. Every once in a while. Yeah. Tell your friends so that other people can get into it like what you're into. That's something I've been thinking about a lot. Whenever I say, I wish I had more people into this thing,

well, why don't I just tell them about it and make it fun and then they'll want to be involved in it? It's a good point. It's a good point. Yeah, it's not sure what to say about you, David. Did you know, your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late night fridge raids.

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With that, let's get to today's episode. All right, Pollock, welcome to the Bigger Pockets podcast. Glad to have you here. Thank you. Glad to be here. Yeah, so let's get into your story a little bit. How did you get into real estate? I know you've been listening to the show for a while, which is awesome.

When did you start getting into real estate? Walk us through that very beginning journey. Yeah, so I am a mechanical engineer and I worked in corporate for 17 years and I was climbing the corporate ladder and I thought I had it all figured out. I was, my job was to travel all over the world and teach CEOs of company, this framework that we had developed to increase their bottom line. And I was like, this is a fabulous lifestyle. I was making six figures. I was married. And then we decided to have kids. And during maternity leave, I just had a complete shift in my mindset about how we were living like these two stressful corporate lives and, you know, like not really understanding what motherhood was going to be until I was in that spot.

And then I was like, there's no space for this baby in this stressful lifestyle that we're living. We're like traveling a lot, working long hours. And I had two kids within a span of two years. and then I went to my boss and I said, I need some flexibility. Like, this is, I've worked, you know, for a long time in this business and in this company. And you know my reputation. Like, I just need a few days working from home or something. Sure.

And that request was not very well received and he rejected it. And I said, you know what? Like, we're pawns. Like when we work in corporate, no matter how high up we go. And also, the higher up we go, the more time it takes. So we waited until our late 30s to have kids and then I had no time for kids because of the lifestyle that I had built. So I spent months in turmoil because I had worked so hard for the career. And then eventually my husband and I decided to become a single income family.

And I decided to build my real estate portfolio. So flash forward three years, I quit my job three years ago. I built a $4 million real estate portfolio. This year, our revenue is about a million. And the best part is, well, two really awesome things is one, my kids are still not in kindergarten. They're in preschool. So I get to take any random day of the week off and take them to the zoo and, you know, spend all the time I want with them. And two is there's no glass ceiling.

I can, nobody controls my potential because of the way I want to spend my time. So it's been an amazing journey. That's awesome. That's awesome. Why, why, like, where did you get the idea of real estate? I mean, why not like, hey, I'm going to go, you know, start this company or that or be a consultant or whatever. I mean, you obviously got the idea. You didn't want to work the corporate slavery, nine to five commute kind of life that majority of Americans live.

But, yeah, how did you come to real estate? Yeah. So after my daughter was born, she's older. So after she was born, we used to spend, so I'll start from before when she was born. Before she was born, what we would do is we were, you know, dinks, double income, no kids couple. We would like take any bonus, any tax return, whatever came. We would take that and we would like buy furniture or go on a trip or whatever. And then after she was born, we said, you know what, let's like try to figure out a way to build some extra income.

So we scraped up everything and I love, I'm like the only person who's not an accountant but loves tax season. because I pay it like forces me to save. So I would like take tax returns and scrape up everything and put 25% down and just buy a rent ready property. So we did that twice. And we started like understanding that how important it was to have that cash flow and the concept of passive income. And so when I quit my job, it became like the natural thing that I would go towards because we already experimented with it a little bit. bit. That's cool. Did you, did you read any books and care at the beginning? Like, or was it more like, you know, I saw rental property. I mean, we'll go into your first deal.

Yeah. But I'm like, I was wondering like, how do people, I'm always fascinated by that idea of like, why, why real estate? You know, like what, what, what made it so appealing to you? So, I mean, I approached real estate like a student. So basically, I would listen to your podcast, like, late at night, my husband and I would like put our kids to bed and we would listen to the bigger podcast and read every book and blog we could get our hands on and really tried to figure out if this was for us. So it just approached it like students. Yeah. Yeah, that makes sense. One of my favorite things about your story, Pollack, is that you took the knowledge, the skills that you'd built in the corporate world. And rather than just complaining, the corporate world's

hard. It's not fair. I'm working for someone else. You actually applied them to something that would allow you to have the flexibility that you needed to feel like you were being the mother and the wife that you were made to be. And I love that that's how your story started, that you didn't just, well, I went and I took a seminar and so I started trying to figure it out and I fumbled my way through it. You actually took all of the strength and the skills that you had built in the corporate world and applied it to real estate and you scaled so much faster than most people when they get started. That's very encouraging to me for a lot of people listening that are thinking, well, I have this job, I don't want to leave this job and jump into real estate until I get to a certain point

or I don't want to lose everything. But you didn't waste anything. You just took those skills and you applied them to real estate. Can you share with me a little bit about what that was like? Was there some trepidation or fear to go from something you knew to something you didn't know? Was there something you did to make that transition easier to keep your confidence up? Yeah, one of the big things as a nine to fiveer is you get so used to this cushy lifestyle where there's like a paycheck coming in, you know, you go to work at a certain time, you come back at a certain time,

and then you get a certain amount of money every month, and there's very little unpredictability, although you could get laid off any minute, but you know, you just get used to this lifestyle, and it's really hard to become a risk taker. Being that way for years and years, it kind of conditions you to just be used to like these little vacations. Like I get two weeks at this time,

and I get one week at this time, and it's really hard to do that. But what I learned is, you know, risk is like taking risks. I always assumed, actually, that people are born with these abilities. But that's a skill that can be developed. And I probably read it somewhere. I don't know. But I call it like flexing my risk-taking muscle.

And in the beginning, I had to learn to be comfortable taking risks and assigning numbers to it so that I got more and more comfortable. And then, you know, it's. in the last few years, I have understood that it's something, it's a skill set. You can develop it. So just building a framework around it helped. That's really good. Do you have any advice for the listeners of some things that you did that helped you build that risk-taking muscle?

Because I really do think that, and Brandon, you might agree, probably the majority of people who want to get started in this and don't. It's because of just that fear that encompasses the risk that's involved. Yeah, that's a really good question. And what I would do is I would make a spreadsheet and do like the first column as put all of the risks involved in a deal. And in the beginning, so we do bar deals. That's what I work on. And in the beginning, for example, thinking about my first, very first per deal, there are like so many risks that come to mind.

And as a new investor, what one does is you just club all of these together and put them in a big risk. hot and then just it just seems like a really like a massive daunting task, but they can be broken down. So I would make a spreadsheet and build first column as all of the risks. And for example, for in a board deal, I would say maybe it's what if I go over my construction numbers or what if I, what if the property doesn't appraise for what I wanted to appraise for at the end? What if I don't get the rent that I want? And so list all of them and then assign a dollar, value to it, that would be like the worst case scenario. So for me, for example, in construction to mitigate that risk, we started putting 15% extra towards contingency. So we say, okay,

this is a risk. We can go over construction. So let's start putting 15% and that mitigates that one risk. So moving on to the next one, right? Then you say, okay, what if it doesn't appraise for where I wanted to do it to appraise? And having been in corporate and being a dabbler investor before, I know that a lot of people put 25% down and buy properties. So if I'm left with 5% in the deal, it's still better than putting 25% down and buying a property. If I don't get the rent that I want, okay, do I still want to invest in this property

knowing that the worst-case scenario rent is $100 less than what I'm expecting it to be and assign dollar values to them and then decide if it's still worth pursuing it? And then the worst case scenario, I always think if the worst case scenario happens, am I willing to spend that money to learn what I'm going to learn from this deal? Yeah, that's really good. Yeah, it's, you know, Tim Ferriss in the 4-hour Workweek talks a lot about like, I think he calls it the worst-case scenario analysis. And it's, yeah, it's taking all those risky points, like, oh, this is a risky thing

that a lot of people just internally feel anxious about and weird about and therefore don't take action. Right. But once you define it and say, well, what, what? really is the worst case. And what can I do to mitigate that risk right now? Once you define it, then you put it on paper or on a computer screen,

and now it's no longer as scary as it once was. So I think that's a, I think that's a smart move. Hey, can you real quick define, for those who may have not heard the BR strategy, the BRRR strategy, can you define exactly what that is because we're going to spend a little bit of time

I think talking about that today because it's such a powerful strategy. Yeah, it's amazing. Burr strategy is literally how I built my portfolio. And we kind of supercharged it a little bit to grow fast. So the birth strategy basically stands for it's B, the letter B and then three R's, buy rehab, rent, refinance, and repeat.

So you buy a property that is distressed undermarket value, rehab it, renovated so that you can add value and get a higher after repair value for it, rent it out and stabilize it, refinance it, pulling all of the cash that you originally put into the property out, and then keep repeating that again and again to build a portfolio that is cash flowing, at the same time you're not left with cash in the deal. Did I, did I do justice to it? Very good. Because I learned it from you guys.

Well, good. David actually here, David wrote the book on Burr investing. It's called Buy Rehab Rent Refinance for Pete. Nice. Well, let's put her on the spot. What did you think? about the book after you've actually done the strategy. I have just started reading it.

I am sure that this. Wait, you can do it without reading the book? Impossible. Impossible. I don't think the book was, was the book out when I started? Yeah, I don't think the book was out then.

Well, it should have been David. That's me dragging my feet. Thank you for pointing that out. Very much, Pollack. You made a point I love about why Burr is good because it's funny. People are sending me all these videos of people. hating on the birth strategy right now because I wrote the books. What do you think about this person?

And it's these, they're looking for attention, right? Ten reasons why burr doesn't work. And what I've noticed is they always frame their argument like you can't always get 100% of your money out. And that's their argument for why you shouldn't burr. And you made the counter argument to that, which is the question isn't can you always get 100% of your money? The question should be, can you get more of your money out than if you had bought it traditionally? So even when you leave 5% in the deal, you are so much better than if you had left 25% percent in the deal. It's not even a question. And your ROI will skyrocket. You'll have that capital back to buy the next property, but you still got all the benefit of learning from the deal. And I love that you

mentioned that because I often find that on my deals that don't go well, maybe my rehab gets out of hand or the ARV comes in lower than what I thought. That's not necessarily a failure. It just means it didn't go perfectly. And my consolation prize is a 75% ROI on that deal because I left such little capital in there. Yeah, and I feel like because you renovated it, it's still better than buying something out there because you know what's inside behind the walls. So that that's another perk of doing it yourself. As opposed to just hoping somebody else did a good job. Right, exactly. And we do a few things to supercharge it.

So we leverage the initial funds. So we bring a small person down. We use hard money and then start a project that way. And then this year, we decided that every year we were going to sell two properties. So we invest in the appreciating neighborhoods in Philadelphia. And every few years, we've had good enough appreciation that every couple years. So our goal is now every year we sell a few properties and then invest in more using that money. So that this strategy is so powerful.

You can truly supercharges by doing so many different things to it. Yeah, I want to talk a little bit more about that, about the super charging things. So the first thing you said there was you utilize hard money, right, to buy these things. Like what's your, like, what's your purchase price typically look like? What price range are you buying in? And then I want to talk about the whole selling them a couple of them a year too. So if I maybe just take a single family home for an example because that's easy,

I would buy them anywhere between 50 and 80,000. And then I put in, in terms of construction, somewhere between 30 to 55,000. And then all in, I try to stay around 100, 110 max. And then they appraised for around 160, usually, 160 to 180. And the rent is anywhere between 1,400 to 1,600 or maybe 1,300 to 1,600, somewhere around there, depending on the numbers. So yeah, so this is like a template that I've used again and again. And that's a beautiful thing about Burr is like once you like you, you, do template to

I'm going to make up a word, template to size. Yeah. Template to size. Once you templatize your plan, like you can, like, I buy in this range, you know, 50 to 80, I do this much rehab. So all in, I'm about this much. And this is what the ARV is going to be. I just know that that is what I'm good at. That's my pattern. I can repeat it over and over and over. And so I think that's smart. No matter what kind of real estate you do. That's right. Some people like jump around from this real estate deal or this kind. They're going to do a multifamily and go back to a single family. I'm not saying that's necessarily the worst idea in the world, but it sure is hard to template to size a investment

strategy when you're just doing all sorts of different things. You never become an expert, like the person at that one thing, which you seem to be with the burr in that neighborhood. Yeah, we do, we do smaller multis also, but it's very hard to build a template around it. You're right. So the single families are awesome because you can, I know exactly what it's going to be. And I can. Yeah, that's cool. I know exactly what the finishes are going to be. I know what the kitchen's going to cause. Just get in and out. Yeah. And you said you use hard money for the purchase, right? Yes. And what does that typically look like in terms of rates and fees? For those people who don't know what even know what hard money is,

maybe we can talk through that too. Yeah. So hard money lenders are short-term money lenders. They will charge a higher interest rate than a long-term loan. The interest rates that we've paid are anywhere between 7 and 12%. And then sometimes they have, they charge points up front, which means a percent of the loan upfront, one or two points. And you hold that loan between six and somewhere between six and 12 months. And during that time, you finish the construction, the construction amount you can withdraw in usually maybe four draws, depending on the size of the project or more if the project is bigger. And then when you're done, so they will lend you acquisition and construction funds and they want to see some skin in the game so they'll ask you to

bring anywhere between 10 and 20 percent depending on how long they've worked with you what your experience is like what kind of other rates you're getting mainly if it's a high interest rate maybe they'll you know bring you ask you to bring less money to the table or vice versa and then you're expected to refinance at the end of the six six nine, 12 month, whatever, however, the deal is structured. Okay. Yeah. Yeah.

So what the other big objection I hear of Burr, probably one of the number one, if not the number one objection people have to it is, okay. So you find this property. Let's see, you pay 50K for it. You spend 50K rehab in it. Now you're into 100. You borrow that 100,000 most of it from hard money, depending on the lender, how much they'll give you, but you borrow most of it.

And now you've got $100,000 that you owe at like 12% interest, let's say, to a hard money lender. That's a scary proposition. And now you go to refinance it. Now the thing's worth, let's say, 150,000. Good for you. You know, you got a $150,000 property worth $100,000. And the bank says you try to go get a new loan so you can pay off the hard-main lender

because it's only six to 12 months. You go and the bank says, no, I won't give you the refi. For whatever reason. Like you don't qualify for this or that or you got too many loans or your debt-de incomes too high or whatever. You have too many mortgages. How do you handle that? How have you been able to scale your burr investing through the difficulty?

Like, how do you overcome that problem of what if the bank doesn't give you a refi? Yeah, this is a really good question. This hasn't happened to us recently, but in the beginning, when I had first quit my job, we went from two W-2s to one W-2. And I'll give you an example. So in the very first board deal that I did after I quit my job, I had no idea what the concept of debt-to-income ratio was. Like, I had no idea.

And I was just like, you know, I have an 800 credit score. Bank of America was willing to give me $50,000 on a personal. credit line, I took that money and I decided to use that money to do deals. And I didn't realize it was going to hit my debt to income ratio because a personal line of credit shows up as revolving debt on your credit. And when we went to refinance it, the banks were like, you have a lot of debt. And what I found is the best banks to work with when you are in a situation where you're finding it hard to refinance is the credit unions, the low. local banks are always more willing to work with you.

They want developers to succeed in the neighborhood. So what the bank did was they said, okay, we can refinance this. If we pay the Bank of America loan off directly. So we know that that debt will be gone when we refinance. So there are ways that banks will work with you. You just have to call. There was a point where I took two weeks and I made a giant spreadsheet calling 90 different banks because I wanted to do a deep dive into refinance and I was like, I'm just

going to figure this out. So I just went intense on it and called 90 banks. And by the end, I understood how it worked as much as a person could. I really want to expand on that because you're bringing me back to my days when I was a police officer and I was trying to find a loan and I had too many properties. And they were in other states. And I remember just going into work, logging in, going to my calls, and making a spreadsheet, like you said, on my phone in between just a list of like 30 or 40 banks every single day that I was trying to find. And you call them and they tell you no. And then you ask why and they say why not.

And that is literally how I learned 80% of what I know about how the loan business works. And I just started a mortgage company a couple months ago. And primarily because I learned so much about how loans work from being an investor that I figured out, here's how we can get our clients cheaper loans. And there's so much value that comes. comes from doing that. But for some reason, people are so loathe to put that work in. They're just like, tell me the answer. What's the one bank? Let me just shortcut the process. I want to call them. Somebody else can tell me. And then if that doesn't work, they quit.

They say, okay, this didn't work. You can't refinance a house. The birth strategy doesn't work. Real estate doesn't work. And they're shortchanging themselves of all the learning that comes from that. And not only the learning of how loans work, but I bet you, you ended up developing a system to quickly find a lender because of all the ways that you wasted time doing it inefficiently. That's what I did. I started to recognize patterns. Okay. Banks are always telling me no, but credit unions and savings and loan institutions, they will

actually have the conversation. So I know they've done them before. Now, the common things that they say they don't like are you live out of state. Maybe like your credit score wasn't where we wanted it to be or whatever the case may be. Now I know, jump to the chase and get these two questions out of the way. Okay, that's all right. Now we can get into the deep dive. And your brain does not figure that stuff out if you don't take the action.

And that's just what I love about what you did because there is a direct correlation between you being willing to do that, Pollock, and building a $4 million portfolio. You scaled to that point because you took those steps where the person who just wants the really quick answer, tell me where the deal is, tell me where the loan is. I just want it to be done and really easy. They never build the foundation that you built to get you where you are. Yeah, I always say fortune favors the finance savvy in real estate. Like that is the biggest thing to learn is, you know, how to leverage your money initially and then how to get it refinanced for a board strategy and putting in the effort, like you said. Yeah, that's awesome.

Okay. So let's go back to you're selling a couple properties a year. What's the purpose of that? And, yeah, what are you doing with that? Yeah, so we, in Philadelphia, we invest in appreciating neighborhoods. So the neighborhoods we invested in a few years ago, they have appreciated to the point where the properties have almost doubled in value. And at that point, the return on investment, the ROI is still good, but the return on equity is terrible because there's all this equity sitting. And then if I get it refinanced to pull the equity out, or if I try to do a loan on top of the existing loan, the property wouldn't cash flow.

And also as the neighborhood start appreciating, the taxes go up. And that kills the cash flow as well. So we said, you know what? Let's supercharge the existing strategy. Let's take a couple properties that have the lowest return on equity and sell those each year. So we can grab that money and then we can reinvest it and buy more properties with it, do more and more deals. Yeah.

Repositioning that equity is so important. And it's funny, actually, you know the birth strategy the very beginning? I don't know if a lot of people know it's the very beginning of where the term came from. I mean, people are doing it forever. But the term came from an article I wrote called How to Make Six Figures with Fixer Upper Rental Properties. I think it was a link to it in the show. And that's where I was like writing that article and I was like explaining this concept that I've done where you buy a property and you fix it up and you rehab it and you refinance it. And then every like five years, like if you did two of those a year, you bought two properties a year.

After like five years, if you started selling off a couple of those properties every year, you could make like tax free essentially like or at least low tax like 100 grand a year by making 50 grand of property to one because the loan gets paid down. The property goes up in value. You built the forced equity or forced depreciation, all that stuff. Anyway, that's where that whole concept came from was from the idea of how to make like 100 grand a year by selling off your birth strategy. Oh, cool.

That's the analogy came from. So anyway, it's cool that you actually did that and do that. Yeah. Yeah. Because like that return on equity thing is so important. I was talking to a gentleman the other day who we were looking at all his properties in a spreadsheet. And he had the exact, like all his properties listed, how much each one like made in cash flow after all expenses every year, how much it was worth, blah, blah, blah. And then one of his lines was how much profit he would have if he sold the property today.

Like how much after paying realtor fees and all that? How much cash would he have to reinvest into something else? And so we simply, I made a new column in a spreadsheet. We looked at the amount of cash flow per year he's getting actual cash flow divided by how much equity, how much profit he would have if he sold it. And that was our return on equity. And what he figured out was that he was averaging about a 2% return on equity on all his properties. So as much as he felt like he was doing really, really good, which he was.

I mean, he was making six figures in cash flow. He could actually, we figured out he could triple his income simply by moving those assets that were earning 2% return on equity to a like 10%. Like not even going crazy like 15 or whatever. Like we're just talking 10%. He would he would over triple his income, which was pushed him over the line of financial freedom. He could retire like if he just did that. So it's crazy that whole idea of return on equity.

Now granted to do that now you probably got to go and do a 1031 exchange. And that brings with a whole new set of difficulties. Is that what you've been doing is 1031? Have we maintained taxes? So we're, I'm completely fine paying the taxes on it. I'm just like, you know, we made that money. It's okay for me to pay. the taxes so I can stay nimble and I can do whatever I want with that money as opposed to being

tied down to investing it in the in a like kind property in a specific amount of time. So we've been completely comfortable just paying taxes on it and having the flexibility. Thank you for saying that so much. It becomes an issue of contention with me with people that complain that they have to do a 1031. Oh, but if I sell it, I got to do like that is such a cool, amazing privilege that you get. to avoid taxes. And you have to maintain that mindset that, that realistically speaking, I mean, I know people that have made 300 grand over three or four years, buying a deal and just letting the market rise. And they're complaining that they have to pay

taxes on the easiest $400,000 that anyone could have ever made. They bought a property. They had no idea the market was going to do what it did. It shot up and then they have to pay taxes and then it gets a bad attitude. And the problem with the bad attitude is it will stop you from taking action in the future. You'll start thinking, well, why invest in real estate? if I just have to pay taxes. But those taxes are a sign that you did something really, really good, right? You made a ton of money. Yes.

It's okay to pay them. It is also okay to avoid it if you can do it. But don't let that stop you from taking action. I love you, pointed that out. Right, right. Exactly. I'm completely fine paying those taxes because it's on profit. It's okay.

Yeah. Here's the worst part for me. It's not in the taxes. It's the recapture of depreciation. That's the worst part for me because like basically what happens is the government, you, if you, if you own a property, let's it for 10 years. Like I got property I now own for 15 years. And I've been depreciating that property every year for 15 years.

It's been giving me a tax break every year for 15 years. Now if I go sell that property, now I've got to go pay back all of that taxes I've been deducting for the last 15 years. That's a good point. That's where the 1031 comes in. Brandon, do you remember sitting on a beach at us talking about appreciation, recapture and how we were being told by these gurus like, hey, all you have to do is accelerated appreciation.

You can ride off all of your gains. And you can take money off the income. making in other things. And like, but yeah, but you got to pay that back at some point, right? Like, or, or you can't. Yeah, unless you 10.31 for life. Yes, you have to continue to. But that's just a good thing for listeners to understand is that there's always a yin and a

gang. When you get something up front, there's always a price you pay for it later. When you make a lot of money in real estate, there will be capital gains that go along with that. And it's, you have to accept both of them when you move forward. Otherwise, what happens to me is my emotions just get wrecked. I think, oh, I did something wrong. I made a mistake.

Then I don't put action. I don't take action. I don't move forward. And I make less money in the future because I wasn't prepared for that. Yeah. Yeah. My long-term plan is, yeah, like, I'm kind of trapped in that where I have to just keep 1031 in forever on a couple of my projects because, like, the taxes are so high.

And I almost pay more in taxes than what the profit would be if I sold the property. Like, I mean, so I'm like, because of all the accelerated depreciation. So now I'm trapped in that life, which is fine. I recognize that I'm trapped in that cycle now. So my long-term plan now is to just keep doing that. and then eventually just roll the money into like a DST, which is a type of real estate fund or syndication basically where you own like, you know, 0.001% of a billion dollar shopping mall.

And there's ways to do that you can dump your money. And then you're only going to get like, what, a 5% return maybe? But that's fine. I'll just sit on that later on and still not pay taxes until I die. And the beauty is when you die, then your kids get the money at the stepped up basis and your kids don't pay the taxes. It just wipes it clean.

Now granted, all this could be go away anytime, like different political, like people get in power and who knows what's going to happen in the future. So we only can kind of plan for what's today. And right now the 1031's there. It might not be there next year. Who knows? That's all I got with that. Well, the important thing to remember is that when you pay taxes, it means you did something good.

It means that you made money. And I don't know anyone who would say, I'd rather go to work and have to slave my way to 300 grand when your real estate property could have made it for you passively just owning it. It's a better way to make money. It comes with much more. You're going to pay something on all the money that you make. You're not going to get away from it. But it's better to do it the way that Pollock's doing it with all the benefits than in the corporate world where she made that money.

She got taxed just as high on it. Actually, probably even higher. If they're long-term capital gains, they'll be less than what you'd be making in the corporate world. But you're doing it 50, 60 hours a week, locked in a place where somebody else wants you to work. There's a lot of perks to doing it through real estate and paying capital gains taxes. Absolutely. Did you know your house gets bored when you leave? I can't actually prove that, but it probably misses out on the action, the footsteps, the late-night fridge raids.

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All right, so let's go back to your story. So out of your 26 units right now, right? Out of those 26 units, I mean, what does that make up? You said you buy some small multi, some single? Like, what's that kind of portfolio look like? I think it's like half and half right now, half single families and then the other half

comprises of like smaller multis. Okay. Very cool. And do you do the burr for pretty much all of them then. That's just kind of you're the supercharged birth strategy. Yeah, all of them. Okay. That's very cool.

What would you say like is your, is your, I don't call it like, maybe biggest lesson or I don't want to call it a mistake, but in the last few years of you building this portfolio? Like, what are those things that you didn't expect and you got hit? with and now you've learned a very good lesson. That's a good question. We had theft at a property once. So I guess that's probably a good lesson learned is to, so this is what happened. We closed on a property and the realtor made a comment at the closing table and she said,

if I were you, I would change the locks right away because a lot of people have keys to this property. And I was like, okay, we're starting work tomorrow morning. First thing tomorrow morning we start work. I'll tell him first thing to do. do is change the locks. And the next day, my contractor calls me early in the morning and he's like, well, I think you should come over here. And like the one thing that was working in the property was the boiler and that was stolen. And it was so easy for the thieves. They had the key. They opened

the door to the boiler. And I went there and my contractor was like, you're taking this really well. Like, what's going on? I was like, well, number one, contingency. This is why we have contingency. Yep. And second, you know, I mean, this is lesson learned. We're going to change the locks right after closing. Now I have a locksmith on call and I tell him as soon as I close,

I'm going to give you a text and just go and change the locks right away. So this is what we do now. Yeah. Yeah, that's smart. And I feel kind of guilty. Like I don't change locks nearly as much as I should when I'm rehabbing property. Like it'll take me sometimes weeks. Now I'm going to make that more of a priority right now.

This is a beautiful about interviewing people. It's like you'll learn about their lessons. It's now I don't, I mean, hopefully now I will implement that change in my life and then not make the same mistakes. You can learn from other people's mistakes. Oh, trust me. Listen, guys, this is how Brandon learns everything that he knows about real estate, right? We interview a guest and he types in the messages to me.

Oh my gosh. I'm not going to sell that house. I'm going to do what this person did instead. That's absolutely. The way you're learning is the same way that we learn. Yeah. What I love about what you just said, Pollack, is that you didn't look at that like, oh, I suck. I shouldn't do it. Woe is me. You just changed your system. You just went to your checklist and you said change locks earlier. And now you make that a part of how you do business. That is literally everything that I do in every business that I have,

whether it's buying rentals, flipping houses, selling houses for people doing loans. I see where a mistake was made. I asked myself, how did we make that mistake? And then I I go to the timeline of all this stuff that has to get done and I move it earlier or I move it later or I add it where it wasn't there before. And then it becomes some person's job to make sure locks are change when we close. And then we have tools like CRMs or something that we use to like automatically remind us, hey, it's been three days, make sure the locks have been changed or whatever. But this is how you build a system. And that's something you've done really, really well is you've incorporated systems into your investing,

which helps you to scale really fast. Do you mind sharing for people that are unfamiliar with them? they haven't worked in the corporate world where you have to understand how important systems are to success to help people understand how they work and why they're so important. Absolutely. For scaling, it is so important to build systems around everything so that you're not reinventing the wheel each time. So since the very beginning, day one I started, I used to take particular notes about

the process. This is what happened. This is what didn't work. This is what I'm going to do next time. And in the beginning, I used to use Microsoft Project, like build a detailed plan around a detailed project plan, because I was winging it the very first time. I had some overall idea,

but all the details completely figuring it out as I was going forward. And then now I have a simple flowchart, a PowerPoint flowchart, and I know the big picture items. And then I know what item can be assigned to which person. So for example, we were in India visiting family earlier this year and we acquired two properties while we were in India. And that's all because we have developed systems and processes around acquisition. And I'm not even that big, right? So what we did was there is a realtor.

I trust her judgment 100%. I went for a property walkthrough with her and we said, okay, this is what I look for on every walkthrough. I want you to take these pictures, these videos, I want you to ask these questions and send me all of that information. So I don't physically have to go there. So basically she knows she needs to go in the basement, open the electrical panel, send me a picture. She knows to look at all the mechanicals and send me a picture of what was the last day they were serviced.

And she knows all of these details and she sends me those. And then one thing I do from my end is any deal that she brings to me, obviously I would go through her and make sure she gets the commission. but her and I have developed this system and it works really well. Once she sends me this information and we go through the numbers and the numbers work, then she will take my contractor and he'll do a walk through. Did you read my long distance investing book by chance? I think my husband read it.

It's because what you're describing is exactly what I teach people. This is how you do it. And I want to tie it into what you're saying. It's the fact you have a system that allows you to delegate some of those steps to your realtor to do for you, which they're happy to do if they're going to get the commission. That's the beauty of why this works is you've made a process of everything that has to get done. And then you can delegate those steps to somebody else like your contractor or your agent or any member of your core for that I have. Then they do it. They send you the video. You can be in

India or wherever you are and working, I say with air quotes, as you look at what you need to have done. And not only does someone else do it for you, but you know it was done the way you wanted to be done because it was your checklist. And this is how simple real estate investing can be when there's a system, when there's not a system, when everything is in your own head and you're trying to make judgments based on your gut and you don't know exactly why you feel like you do, you just do. It can be chaotic because you're the one who thinks I have to look at the electrical panel because I don't even know what I'm looking for. I just know it when I see it. And people don't realize that's where all the stress comes from of doing this job and they think I have to be there. And what if something goes wrong.

But you have taken what you learned in the corporate world because you had to be in charge of other human beings. here's all the things our company has to do to make money. Whose job is it to do what thing? And you naturally understood how delegation works. You applied it to real estate. And I love hearing how well it's going for you. Thank you. I want to ask you about how you're finding deals and then how you're rehabbing deals.

Do you mind sharing with our listeners the way that you're finding the deals that you're doing? Yeah. So I worked in the beginning on building like a good deal pipeline and I have refined it over the course of the last few years. So in the beginning, the most important thing to do is define the type of property that you're going to go after and narrow down the neighborhood as much as you can. So I will tell everyone who I meet is this is the type of deal I'm looking for. I'm looking to acquire such and such number of properties by the end of this time frame. And these are the specs of the property. I want it to be three-bed-one baths, row home in the city, not a quarter,

corner, this is just an example. This is the type of property I'm looking for. These are the streets I wanted to be on or, you know, within, within these boundaries. And then any networking event I go to, any wholesalers I meet, any realtors that I call for a specific deal, I would tell them if you see something else like this, send it over to me. And what happens is people, when you're that specific, people start associating that type of property with you because you're so specific compared to everybody else out there. So I make it super specific and then I tell everybody that's there.

One of the things I've started doing in the past year that I didn't know about before is I started Google, I'm searching on, not Googling, searching on Facebook, things like, so I'm in Philadelphia, so I'll search for things like Philadelphia wholesalers, Philadelphia real estate, Philadelphia investors. and then I find that a lot of people are posting deals on there. So when I find someone who consistently posts deals, I will reach out to them individually, like on Facebook Messenger, and be like, I notice that you're posting a lot of deals.

I would love to be on your mailing list and establish a connection. Could you put me on your list and just get on a phone call, have an introductory conversation, and get on their list. And that's how I've established a lot of new contacts in the past year. That's smart. Yeah, that's a great idea. I mean, the idea of just, you want to find out. Because with the wholesalers, I think we've all known, like, and I think everyone's heard, like, the 80-20 rule totally applies with wholesalers.

Like 20% of the wholesalers out there, even like 1% of the wholesalers out there. One percent of those who think they're a wholesaler probably do 99% of all the wholesale deals out there. Right. Like, there are a few that do it. So you're saying you go on, you find out who the active ones are, the ones that are actually doing a good job of wholesaling. And even if you don't buy that deal, it doesn't matter. Like, now you're just getting on their list. The same thing is true for it.

you could find for brokers. Like if you're commercial, if you're looking for like apartments or mobile home parks, there's probably a few brokers that are handling the majority of the sales. And there's probably a few real estate agents in your market that are dealing with the majority of the purchases or the sales. Like get in that group, like find, seek those people out and you're instantly on a different level than everybody else.

That's such a great tip. And you see that a lot of people are posting the same deal sometimes. And like they hit my mailbox. And within a week, I see multiple people send me the same deal, different price points. And then I, I kind of figure out based on the price point, who originally had the deal. Yeah, yeah, yeah. And then reach out to them. That drives me kind of nuts. Yes. The wholesale chains. Or it's like this guy wholesaling from him and that impression you got

seven guys in between trying to get a higher price. Well, that's what you deal with with a profession like wholesaling that's unregulated. I mean, really like what even is wholesaling. It's very hard to define what it is. There's no licensing board. You're kind of in the wild west. And so that's what can happen is like the same. deal is passed through five people's hands and they've all added their piece onto it and that's what you're paying for. I love the point, Pollock, that you made that you're looking for the top producers. You're not wasting your time with people that are not players, which I'm sure is something you learned in the business world and then Brandon that you seconded it. As a real estate agent, I quickly learned 80% of the business that is done in real estate goes to the top 20% of the agents.

It's a feast or famine world. Either you are one of the top dogs and you're taking a big share of the pie or you're scraping over the leftovers. There's no in between. And I hear people complain all the time that I use this realtor and they didn't do a good job. Well, why did you use them? Because they discounted me their commission. Because they answered my phone call every single time when I called. Well, that's because they don't have clients. They have nothing else to do. But take your phone call. Would you take to your cardo mechanic that does three jobs a year? And for the last four years, they fixed three cars a year. And that's who you're going to go to. And of course, we'd say no. You wouldn't hire a contractor that does two jobs a year. But when it comes to whose health,

helping you build your business, finding you deals. We often end up in that exact same scenario thinking, well, all agents are the same, all wholesalers are the same. And it's really not, people are not the same. If you took Pollock and you took her out of her profession and you put her on my real estate team, she'd become a top producer as an agent selling houses on my team because of what's inside of what she's made of, the skills she has. And I'm saying this because if you want to build a good real estate business, you've got to

look for those kind of people with a proven track record of doing well at what they do, with a high standard that they hold themselves to. And this is what really successful people do. This is why another reason why Pollock did so good when she got into investing, she already knew what to look for. She knew from the world she worked in, who's a player and who's not, who's going to get things done and who's going to make excuses. And she's just applying that into the world of real estate.

And this is why Brandon and I, when people say, like, well, how do you invest in real estate? We're not trying to give you a four-step formula. You go here to find a deal. You go here to find a lender. It's actually skills that you have to build up. It's business principles that you have to learn and then apply to your business. And I believe this is why we see the people that are successful. One thing typically are successful at most other things they do is they have that skill set that applies really well.

You have anything you want to add, Pollack, with your experience as far as why you think that you did so well compared to most investors who a couple years in are still kind of floundering around trying to get some traction. One of the other things is I built a framework around being in analysis paralysis because I found myself fumbling. around that for so long. I was like, I got to build something around this because each time we improve the strategy or each time we pivot a little bit, like I said, we supercharged the birth strategy. And each time we do that,

I hit a spot where I feel paralyzed because of all of the information overload that's out there. So I built a framework around it, and I gave it an acronym ABLE. It was meant for me to, you know, just for my head to remember how to get through it. And I said, okay, A is going to be define the property avatar. If we're going to change the type of properties we're going to go after,

let's define what kind of property it is. And then I see Brandon smiling. And then, yeah, and then, you know, just if you're a brand new investor, I would say to define your property avatar, keep it small, simple, and scalable. Don't go after a large deal from the get-go. I mean, everybody wants to become a real estate mogul when they get started, but the first deal has to be something small that you can handle, that's low risk that you can make mistakes and learn from.

Keep it simple. If you've never been around construction before, don't buy a fire-damaged property that has a missing wall in the back. And scalable, pick up property that you can find again and again, not like a needle in the haystack. type of a deal. And so, so defining that and then putting your blunders on. So this is, this was really hard for me in the beginning because I was listening to a lot of podcasts and reading a lot of books and everything sounds so interesting and every strategy, strategy sounds so shiny and fun. And,

you know, it's just hard to just ignore all that and be like, I'm going to put my blinders on. It's time to just go after what I've decided I'm going to do. And then the third letter L, stands for a leap of faith. And I would say real estate investing, there is some inherent risk involved, no matter what we say. So you really have to, at some point, pull the trigger and move forward.

And then the last one is E, I say managing expectations. So I have to remind myself, okay, even though we took this first step doesn't mean things are going to go right. We're going to fail at something. We're going to make mistakes, manage expectations. Your first offer,

will probably never get accepted. Your, you know, your first construction project will probably have surprises. Your, anytime you pivot and change your strategy, you're probably going to have a failure somewhere in there. So just managing expectations. So this was a framework I built for myself and it, I have used it again and again throughout the past few years. Can you summarize that again, A-B-L-E?

What is that? A-B-L-E. defining the property avatar or whatever you want to call it the specs of the property. So A stands for avatar, putting your blinders on, B. Okay. L stands for leap of faith, taking the leap of faith at some point you're going to have to take action. And then E is managing expectations. Perfect.

I just want to make sure I got that down because that's really, really good. Really good points. Yeah. All those things are new investors tend to want to do everything. and they want to, they want to just jump in and do real estate because it's fun and they heard this podcast and this one. So I think just that focus,

the blinders and then just taking action is so important. And then finally, yeah, expectation like, man, like, I mean, David and I, David, you and I talk about this all the time about just managing expectations

and every aspect of your business. And like most unhappiness comes from not managing expectations. It's almost like 90% of what goes wrong. You can trace it back to, I didn't give clear expectations. I didn't have. reasonable expectations.

They didn't know what my expectations were. We didn't have that talk. I mean, I'm sure, Paul, like, you can see from some of the stuff you've learned in the corporate world, how that's like the leader's job. And when you're owning a business, you're the leader of it, is constantly clarifying and setting expectations. And Brandon, I bet you have some stuff to add about this with Open Door Capital. And it's basically a startup that you're trying to get off the ground. And that's when most of the mistakes are getting made. Would you agree that a lot of it is just expectations were communicated clearly?

Yeah, definitely. Especially when like hiring people, that's always like, like this is what the role is. Is this what you need to do? And this is what the, you know, this is what we're looking for. This is what we're not. This is how we handle phone calls.

We don't handle them. All those expectations. Yeah. It's been the biggest drama. Yeah. Biggest drama of had in the last year building this has been managing expectations. I'm glad you brought that up, Pollack. All right.

Let's shift our focus here. I want to move to the next segment of the show and dive into one of your deals. So it is time for the deal deep dive. All right, the deal deep dive is a part of the show where we dive into one of your properties. I won't say deals. I'll try to keep the deeds out of it. We'll submerge into one of your properties to find out more about it. So do you have a property in mind that we can pick apart?

Yeah. All right. First question then. What is it? And where's it at? So it is a triple triplex deal we did last year in the German town section. of Philadelphia. A triple triplex?

That means like three triplexes? There were three chaplexes side by side. Wow. That's cool. All right. Okay. How'd you find this deal? Triple triplex.

So I wasn't really looking for like three traplexes, but as I was scrolling on, I love Redfin. That's my favorite app to find deals. So I was in Redfin and zooming in and out of German town trying to find, you know, what was on the market and what was new. And I found that there were like three properties. next to each other listed for the same price. And I'm like, this is weird.

Like, why are they exactly same? Is this a mistake? And then I went in and checked the description. And all three of them were triplexes. They had the same description and it was the same listing agent. So I knew that from that, that it was probably the same person trying to sell these three triplexes. All right.

Well, how much was the properties? Yeah. So they were two. How much were the properties? I don't speak. English good. They were 207 each. So 621.

Okay. 621. Okay. How'd you negotiate that price? So we, that was the list price. And we purchased them at 125 each. So 375,000. Whoa.

Yeah. So we, so initially when I first saw them on the market, we went out to see them. We found that there were a lot of issues that there was no heat in a few of the apartments. The roof was about to cave in. The rents were like half the market rents, the tenants. Some of the tenants had like changed locks on their own and we couldn't get in. And so we had to build the numbers accordingly. So we offered 125 each.

And I mean, it's a little insulting to offer such low price, but they were overpriced to begin with. So I told the realtor that, look, this is the offer that I can give you. I completely get it that they just came on the market. You're probably not going to want to just accept my offer tomorrow. But just keep this in mind. This is what I can pay for it because it has to work for my model. And then I just kept in touch with her for, I think it was like four months. And during these four months, they had individual buyers put an offers on one or two of them.

And then none of the offers worked out because they were. some of them were like FH FHA loans with owner occupants and they kind of, one of them had like cold feed, one of them just the loan didn't go through and whatnot. And I had told her that the only way I'm going to do this deal is if I do all three of them. Because I don't want to buy like one triplets and then have somebody else own something in the middle and then buy the next one if I can have all three. So two things in negotiating that I always do is like if I see the same, owner selling a few properties side by side, I want to make an offer on all three.

Because as a seller, that would be awesome for me. I would just want somebody to just get it over with, just take it off my hands. I'll give you a break on the price. So that's one thing. And the second thing is the only thing I want to negotiate on is the price. So this owner was the seller who was selling the properties. He was 90 years old, wanted to get out of the business. heat wasn't working and we I think we started talking again in like November time frame and he really

wanted out of it before the temperatures really dropped. So we said, okay, we don't want you to deliver it vacant because the tenants are not easy to deal with. We don't want you to worry about fixing anything. All we want is to negotiate on the price because if the price works for us, then we can deal with the rest of it. So that's what I told the owner and it worked. So it was like a win-win where, you know, they didn't have to deal with any of the issues. They didn't have to go into winter knowing that the heat is not working.

And we dealt with all of that and got it for $3.75. That's awesome. Awesome. Very cool. How did you fund that deal then? So I went to my local hard money lender. It's a grassroots organization in German town. It's called Jumpstar Germantown.

And the rates are pretty great. They're around like 7%, because they're trying to develop Germantan. And they said this deal was too big because 375 would be acquisition. The construction was going to be around 250. And they were like, this is too big of a deal for us to fund. And then they put me in touch with another lender. So that's something that I always do when somebody cannot do business with me for whatever reason. I'll ask them for a recommendation because they probably know somebody else in the

business who can. That's so smart. Who can do it. Yeah. And then they put me in touch with another bank who had a cool product, which was construction to permanent loan. So they funded hard money upfront and also the permanent loan. Both of those we closed on the day we bought the property.

And they did a before and after appraisal. So going into it, we already knew we were going to be able to cash out and burn the deal. Yeah, that's cool. Yeah, that's neat. there are an increasing number of those loan programs out there I'm noticing. They're almost like bur loans, like for lack of a better term, right? They're perfectly designed for people trying to rehab a property and then refinance and the bank just takes care of all of it.

So just a matter of picking up the phone, calling a bunch of them. So very cool. So I'm assuming this was a bird deal. What was the outcome in the end? So the outcome was they, the after repair value, they appraised at almost a million. And all in, we were three. 75 acquisition, 250, construction, and we paid about 50,000 in holding costs and interest and all that stuff. And it sounds really high, but for a deal this big, if I'm able to build that in and still cash out, it doesn't matter.

So we brought $160,000 to the table ourselves. We got that money from a home equity loan for our primary residence, which had thankfully gone up in value. And then we were able to- Was that home equity loan or line of credit? Loan on our house. Okay. Yeah. We did a home equity loan on our house and we got 160,000.

We brought that to the table, closed on the deal and then we're able to cash out at the end. And then the cash flow rents are around 12,000 and the cash flow is around, I think, $3,500 after principal interest, taxes and insurance, 20% for capex and OPEX and 5% for vacants. Then I remove all that. I think the cash flow is around $3,500. That's awesome. Congratulations.

That's very cool. When you refinanced it, I guess, did you leave that $160k then that's still in there? No, we cashed out already. Okay, you cash out. Okay. So you got it all back. Yeah, the cash out was also built in from the get-go. Yep.

That's so cool. What lessons did you learn from this deal? So the biggest thing for me was this $3,500 would have been, if I really wanted to compare this to my salary that I was making as a nine to fiveer, this would should be really compared to my take home because I am probably not going to pay taxes on that 3,500 cash flow because of depreciation that we were just talking about. I'd have to deal with it when I sell it like you just said, but for now, 3,500 compared that to the salary I would have made that was take home. And if I really look at it, that, just that one deal covered a huge chunk of my 9 to 5 salary that I was making.

And it's insane to think that I would have worked 50, 60 hours a week for years and years to keep making that. And this property, if I just keep managing this property, that's like less than six hours a week just to do that. And it's just insane to just compare that and realize what a fog I was living in before before doing this. And if you include the appreciation and the low paydown and the fact rents are going to go up every single year, probably faster than what your raise would have been every year at your job and that you have depreciation to shelter the money that you're making, that 3500 is actually more if you try to convert it into what you'd have to make at your job. And you're hitting such a good point that I realized very strongly about a week ago.

It's like Epiphany hit me that the reason you work at a job to make three grand, four month, five grand a month versus doing it through commissions or as an entrepreneur is. because there's security and safety in it. You're getting that two-week check, regardless of if you really earned it, unless you get yourself fired, you're getting that money just for existing and doing the bare minimum, whereas entrepreneurs have to give their best. They have to try really hard. They have to not know they're getting the money. And if you're willing to give up the security, you lose the glass ceiling, like what you said.

And really, to try to get a lot of money and have security, you're just weighing yourself down so much. It is so hard. and then you get taxed so badly on that money that you make. And it just became very clear to me like what you just said, like you were living in a fog, right? You did not need that much security. You're doing so much better in the way you're making money right now. And you came up with this risk mitigation strategy of writing down what your risks are

and covering them all so that you could feel that security that you had before. And boom, it worked out perfectly. And this is such an awesome story. Yeah. Very cool. Very cool. Well, where do you see yourself hadn't in the future, Pollock? Like, what's your next five, 10 years look like?

So in the next couple of years, my goal is to figure out how to also retire my husband and bring him into the business. So I was fortunate that he was willing to bear the burden of being the sole provider for until I figured the strategy out. And we love strategizing real estate together. And I am operations. So I'm out there doing my thing, acquiring properties and whatnot. But it would be fun to just have both of us in the business together. So that's my goal. The next couple of years,

try to also replicate his income so we can do that. Yeah, that's awesome. Very cool. Well, before we get out of here, let's get over to the next segment of the show, the world famous. Fire Round. It's time for the Fire Round.

The Fire Round is a part of the show where we ask questions that we get from the Bigger Pockets Forum. So real life, real estate investors, asking questions, and Pollack, we want to see what you got to say to them. So number one, from Chris Mandel.

What has your biggest challenge? What has been your biggest challenge when using the burr method? Oh, well, that's a really good question. I would say my biggest challenge has been figuring out how to scale it. So in the beginning, when I first started, I was, for the first year, I think I was scratching my head. I was like, $2, $300, $500 a month. How am I going to ever replicate my income? and really understanding that the Burr method isn't short-term.

If you look at a year or two, you won't see really the impact of it, but you really have to do it long enough to really understand that when you scale it and when you hold on to these properties for a while, it's something else. Yeah. Beautiful. Next question. Do you think newer investors should avoid buying a property from a wholesaler?

My first two properties were just right off of the MLS because I was buying them as somebody who dabbled in real estate on the side. I believe if you were going to dabble into real estate, it's probably not a good idea to go with a wholesaler because you won't know if they're legit or not. But as a new investor, if you're willing to put in the effort to understand the process and understand what a legitimate wholesaler is, is and how they work and make sure that you're working with someone who is reputable, even in the wholesale industry. I think as a full-time investor who has the time to research that, I think that's okay. All right. All right.

Good stuff. Now, last question from me of the fire round. My tenants are wonderful people. And I want to give them a little something to say, thank you for being such great tenants. What do you think? What should I get them? I don't know either. Yeah, I haven't gotten my tenants anything to make them feel appreciated.

I don't know where I read this in a forum somewhere and somebody was saying that, and I agreed with this, so I kind of just followed this philosophy. Somebody was saying that does your mortgage company send you a gift for paying mortgage on time and not destroying your house? Why are you getting your tenants a gift? But there are other ways of making tenants feel appreciated. I probably wouldn't go by doing like a gift or something like that. I don't know.

Is that what you were asking? Like, should I get that something? That's what they're asking. It sounds like. I instead, I would, what I recommend is I treat my rental property management like a hospitality business. And I generally make my tenants feel comfortable and make sure that I care about their experience at the property. I think that's a better gift than getting them a thing.

Yeah. Yeah, smart. I was going to say even like a letter, like a card just says, hey, we just want to say thank you guys for being such great tenants. Really appreciate you. You're a pleasure to work with. Would make somebody's day and it would be the cost of a stamp. That's true.

And then it's not like an expectation, but you give them a $50 gift card. All of a sudden now there's an expectation. Hey, how come last year you gave me a $50 gift card? And this year you didn't. And then it becomes a little bit weird. One of the biggest things I had to learn as a business owner is that not everybody values money the same way I do, that I'll have employees that I can be like, I'll give you a $5,000 bonus if you just do this one thing and they won't do it. It's just that you're not motivated by that.

But the card saying, I love you and you're awesome, will make them run through a brick wall for me. And it's weird, but that's just how people are. And so assuming that your tenants care about a $50 gift card could be a mistake, because that might be worth $5 to them. But like you said, Brandon, a card saying this might be the biggest thing in the world to them, maybe just swiftly having their phone calls returned or whatever matters more. I think even just like you give them anything that's monetary and value. And this applies for employees in a way as well. You give people monetary value things and they instantly are going to think, well,

I just paid the guy $800 in rent and he gave me $50 back. I'm still in the hole for $750. Right? And so like or, you know, I pay an employee $4,000 a month. I gave him a $50. Wow, that's $50 out of $4,000. Like what, you know, it's. It's a monetary thing.

So yeah, I like the idea of a card, maybe you're a, or, you know, hey, I upgraded your stove. I know your stove has been kind of acting kind of funky lately. Or maybe to say, this is why we did it. We know the stove was old. We appreciate you paying your rent on time. We wanted to do something for you. So we put a new stove in there. That's so much smarter.

Yeah. Really like that. That is, yeah, that is something that tenants always appreciate when you're preemptive about upgrading any of the things that they own. That's much appreciated. Yeah. Okay, cool. Last question from Scott Raley out in my hood, San Jose.

California. What was your aha moment when you realized the power of real estate investing? That's a good question. So when we purchased the first property while I still had my job, and we had no idea what we were doing, we were like, oh, this is an appreciating neighbor. Let's just go out and buy a property. I had no idea that just tenant relationships was actually going to give me fulfillment. That was like a big thing. That's why I decided to grow the portfolio because that would have really been something

that would have deterred me from moving forward. But I would take my, I would wear my daughter and go show the property. And I loved meeting people and tenants. And I was like, oh, this is kind of fun. I could do this. And that was just understanding that, you know, this was completely different than what I was doing before,

but I could do it. Yeah. That's awesome. That's awesome. I think there are like there's these little moments you can look back in your life. I'm actually curious, David, what's yours? When did you realize? Like, what was the illustration or moment where you're like?

Yeah, I know when it was. I bought my first three houses just kind of on accident. It was just, oh, yeah, it's right there. I might as well buy it. I have nothing else to spend my money on it. I wasn't really passionate about it at all. I bought the first one you can hear about an episode 169 of this podcast. My second one came for sale down the street from my mom.

And I thought, maybe I'll just buy that house because it's down the street from her. my third one, my grandma passed away, so I bought her house. The fourth one was a fourplex, and it was the first time I actually ran numbers to calculate the ROI. And I realized that I was making a 35% return on my money. And I remember just sitting at my uncle's house in Washington and Bellingham just blown away. Oh, my God. Like, all I would need in three years, I'll have my money back. Like, where is this ever happening?

I'm buying every single one of these that I could ever find. And that came right before the market turned around in 2013 in California and you couldn't buy houses anymore. I just crushed in my soul like, what was I doing with my life? Right? Why didn't I do this earlier? Which eventually opened the door to long distance investing and it was really cool that that was the way that I had. But it's funny how you remember that exact moment when you knew when you knew you were in love. I remember my tenants bring me rent.

I live in cash. I don't do that anymore. But the very first time I bought that duplex, I lived in one. and rent to the other unit out. And I remember the immediate, like, I walked halfway between the two houses that were on the same lot. And I met the guy and he handed me the envelope of like $650. And I remember holding that envelope, but just thinking, my mortgage is only $620.

Like, this is $650. I don't have to pay any mortgage anymore. Like, this is like, I'm mortgage free. And I'm like, this is incredible. I could do this with more properties and gave him more money. I remember that. Yeah. Cool moments.

All right. Last fire on question. I'm going to throw one more at you. This is for my guy named Bray. Brandon in Maui, Hawaii. And Brandon wants to know, if you have a con, let's say you hire a couple handymen to work at a rental house of yours that you're fixing up or you bought a rental house.

And in the middle of a podcast, you get a text message blowing up your phone from multiple contractors with drama. In that, one of the contractors decided to tell the other contractor how much he was making and the amounts are different. And so now like, now the other guy is ticked that the other guy making more and trying to pull me into the argument. And now everybody wants more money.

What do you deal? How do you deal with that? Hypothetically speaking, of course. Hypothetically for this poor Sam Brandon and Maui. Because I don't know any Brandon's in Maui. No, I don't either. What do you do in that? Like, I'm like totally dread.

Like, I'm doing my phone's just blowing up. Like, I don't even know. I'm like, I don't even know. I mean, technically I'm not in charge of it. I have a guy running that project, but they're all texting me, including the guy. like all of them are like what do we do about this one guy's starting to walk off the job if I don't raise its rates and I'm like I know what I can jump in and say what I would do is I'd say hey because

you told the other guy what I'm paying you I'm now dropping your rates down to what you what his are so he doesn't leave thank you for being dumb that's how I'd handle it yeah yeah I think that's probably the way to go anyway or maybe maybe split it right you just pay the higher rate I would raise the rate yeah you'd pay the higher rate yeah you I don't know. I don't think it's a good idea to put two guys on the same job and pay them different. Although people did that with us all the time in corporate, but I'm just saying it's if they're going to talk all day.

The problem is one guy is a tile guy and one guy is a demo guy. So they shouldn't be making the same amount of money. Tile is an expensive job, right? However, it's the, the ironically, yeah, I don't know. Yeah. So like they should earn different rates because they're different, they're different skills. But that's different then. They're also like, yeah.

Well, maybe maybe tell them if you'd come, tile for me, I'll pay you the same rate as the tile. Yeah, but the problem is the tile guy started doing other work that wasn't just tile. So he was like, well, I got to demo this. So now he's doing, they're kind of doing similar work and that's where that problem's coming from. Anyway, I'm dealing with it, but it just shows that it's, you know, if you don't have a good system and process in place and the right people in place, then your phone gets blown up from contractors in the middle of a podcast. So this is real life, guys. All right, let's get on to the world famous. Famous for. All right. This is a famous

four, the same four questions we ask every guest every week. Number one, favorite real estate related book. Go. Oh, the one thing by Gary Keller. Ooh, great book. And we just had, you know, Jay Papazon on the show just recently. I think he came out right around the new year. So if he was one of the co-authors of that book alongside Gary Keller, awesome interview. By the way, that was epicode episode 362 with Jay and Wendy. F. FYI. Anyway. Next question. What is your favorite business book?

The million dollar one person business by Elaine Pelfeld. So the one thing really showed me that, you know, focusing on one thing would help me grow in, what did he say, 12 inches in one direction as opposed to one inch in 12 directions? And I've really taken that to heart and figured out why I'm doing it and just went with the spineholds and birth strategy. And then the million-dollar one-person business emphasizes the importance of processes and systems

and how a solopreneur can have a million-dollar revenue business. And one of the best examples in that book I love is she uses examples of different business owners, but one of them is a person who owns 200 rentals and he says, I see myself as an orchestra conductor. And he says, all I have to do is make sure everybody plays their instrument correctly. I shouldn't go out and start playing the instrument. And that's a good mindset for somebody who is a single person, like a one person business to remember to start working,

you know, not start working in your business and stay working on your business. Beautiful. Smart. Very cool. When you're not scaling a huge portfolio and balancing being a wife and a mom and a real estate investor, what are some of your hobbies?

So I love to write. So I've been writing since I was a kid and I recently started really, you know, taking it seriously and writing real estate blogs to add value to new investors. And yeah. Yeah, I like writing it. It formulates my thoughts as well, like about what I'm doing. It makes it more like systematized about what I do because I'm writing it to explain it to somebody else. Yeah.

I'm right there with you. For me, it's very also very therapeutic. it kind of helps me. Like you said, formulate my thoughts or clear my head. Cool. I agreed. All right. Then my last question today,

what do you believe sets apart successful real estate investors from those who give up, fail, or never get started? So I think the biggest thing is to have a strategy. And any strategy is better than no strategy at all. So I always say like if if you're going to go into real estate, you're going to find a lot of different ways to make money. And it's important to decide a strategy and stick to it. And instead of like fumbling around,

trying to try out multiple different ways. So I think that the real estate investors that are successful decide something and go with it. And then over time they may change it, but they decide this is what I'm going to do and do it. Beautiful. Yeah, it's awesome. For those who are fascinated by your story as much as we are, where can they find out more about you?

They can follow me on Instagram at OpenSpaceswomen or go to my website, openspaceswomen.com. That's where I post things about real estate, tips, tricks, maybe pictures of my kids. Perfect. Perfect. All right, Pollack. Thank you so much. I'm going to go follow you on Instagram right now. and we're going to get out of here. I think we're going to try to like, you know, just we used to do like a long outro where David and I would talk, but we might just, you know, end it right here. So David. Absolutely.

You did a great job. Thank you very much, Pollack. I think that this is going to be one of our better episodes we've done. People are going to love it. So thank you very much for sharing. Thank you. This is David Green for Brandon contractor drama queen Turner. Signing off.

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