BiggerPockets Real Estate Podcast - 46: Six Figure Profit Spec Building and Marketing for Incredible Deals with Jon Klaus

Episode Date: November 28, 2013

On today’s special Thanksgiving Day show, we sit down with one of BiggerPockets’ most active members and biggest success stories, Jon Klaus. Jon has flipped homes, built new properties, rented homes, and done a huge variety of other activities in the real estate space. Not only is Jon an incredibly nice guy, he’s also one of the smartest investors you’ll ever hear from. Don’t miss a second of this powerful show, where we cover everything from marketing for killer good dealsoutside of the MLS, arranging financing for your deals, getting started with no money, and even a step by step journey through a six-figure spec build. Read the transcript for episode 46 with Jon Klaus here. In This Show We Cover How Jon got started…using lawn mowing money Mistakes Jon has made involving War Zones The 7,000 sq ft house flip The 2% Rule – what it is, when to use it When to change your strategy The secret for beating other investors with great deals How to market for incredible deals How a single trees can cost you over $200,000 A step by step guide for spec building The four elements needed for a successful spec house Books Mentioned in the Show Rich Dad Poor Dad by Robert Kiyosaki The 4 Hour Workweek by Tim Ferriss The E-Myth Revisited by Michael Gerber The Richest Man Who Ever Lived: King Solomon’s Secrets to Success, Wealth, and Happinessby Steven K. Scott Links from the Show The Rental Property Calculator BP Podcast 022 – Building a Marketing Machine, Spec Houses, Flipping & Wholesaling with Tucker Merrihew Wade Cook – Wikipedia The Definitive Guide to Using Seller Financing to Buy Real Estate How to Hack Your Housing and Get Paid to Live for Free from Brandon Turner Forum Threads on Dodd Frank and Safe Act 1, 2, and 3 BP Podcast 038: Unique Strategies for Buying Real Estate with Travis Daggett J Scott Diary of at Spec Build Rich Weiss – BiggerPockets Profile Jon’s recent project (with Photos) Tweetable Topics With determination, focus, and a little bit of money – you can get started as a real estate investor today. (Tweet This!) The deal flow will always be there; people will always buy and sell real estate. (Tweet This!) Buy the property right – that makes all the difference in the world. (Tweet This!) The key to success is determination and endurance. Winners don’t quit when it gets hard. (Tweet This!) Connect with Jon Jon’s BiggerPockets’ Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 46. 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 going on, everybody? This is Josh Dork and host of the Bigger Pockets podcast. here with my co-host, Brandon Turner.

Hey, Brandon. Hey, how's it going? Good, man. It's a big day, man. It's a big day. It's a big day. That is, if you're listening to this podcast on the day it comes out, it's a big day. If not, you have no idea what we're talking about.

That is true. Well, today is a once-in-a-millen occasion, the combination of Thanksgiving, one of my favorite days of the year, where the eats are plentiful and taste. and Hanukkah, yet another wonderful period in my life as a member of the tribe, as we like to call it. I am not part of that tribe, I'm sorry. Yeah, we're all Jews. You're a Jew at some point. I don't know.

I'm sure. I'm sure. Yeah, but yeah, yeah. Anyway, so now things are good, man. Things are good. And we've got a really cool show ahead. and we'll get into that really quick. But before we do, what don't we do this week's quick tip?

Today is quick tip I'm going to take. And because this has been my baby for the last couple months, we finally came out with the buy and hold calculator that we've been talking about forever. So my quick tip is go check it out because I honestly think it is awesome. And I don't say awesome very much. And this is awesome. Take a shot. It's awesome.

Shot, shot. Yeah, yeah. No, really, it is really great. You can put in your property information. You can put in potential rent income. Kind of figure out the next 5, 10, 20, 30 years of an investment property. So if you ever are considering a buy and hold real estate investment, I definitely, definitely recommend you check this thing out. Run your potential property through the calculations and see what it comes up with.

See what your future looks like. And, yeah, check it out. It's like a crystal ball, isn't it? Not quite. Estimations, you know? We don't guarantee anything. Like crystal balls guarantee everything, right? There you go. Good clarification. Well, you can check it out at biggerpockets.com slash calc along with our other calculators.

So definitely make sure to check that out. Cool. All right. Well, that's it. Let's, you know, jump into the introduction here. We've got a really cool show with a really great guy. John Klaus. John is an investor.

He's an entrepreneur. an investor in the Austin area. He's started lots of businesses previous to his real estate business, but he's done it all. He really has, and we're going to explore a bunch of that. There's tons of great information for anybody and everybody, whether you're a newbie or if you've been investing forever. Definitely pay close attention, bust out a notepad, and be ready because there's lots to cover here.

Really, really quickly before I bring him in, a quick reminder to write down any questions you have and post them in the show notes. Ask them in the show notes after the show at biggerpockets.com slash show 46. And John will be sure to come in and answer your questions. Also really quickly, if you haven't already done so, jump on iTunes and please leave us a rating and review

we'd love to hear your feedback. The more ratings and reviews you guys leave, the better the visibility we're going to get on iTunes and the more people are going to benefit from this show. So please take a couple minutes to do that. We've got a link to that on the show notes as well. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time consuming, and expensive. But imagine if real estate investing was suddenly easy, all the benefits of owning real, tangible assets without the complexity and expense. That's the power of the Fundrise Flagship Fund. Now you can invest in a $1.1 billion portfolio of real estate, starting with as little as $10.

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You can even automate transfers and move money around without paying wire fees. It's just cleaner. Sign up at baselane.com slash BP and get a $100 bonus. Baselane is a financial technology company and not a bank. Banking services provided by Threadbank member FDIC. Cool. So without further ado, let's bring them in. Hey, John, how's it going?

Nice to have you here. It's great to be here, Josh. Awesome. Good, good. We're glad to have you. Let's jump into this thing. What do you do? What kind of investing are you in do?

I do several different types of investing. I'm a buy-and-hold guy. I have a number of single-family rentals. I've got an office building. I've got some land. And the main thing I'm doing now is new spec builds. Okay. Okay.

And I know a couple of those things we haven't talked about a whole lot on the podcast. We haven't really talked about office buildings and we haven't talked about spec building a whole lot. Just that one episode with Tucker Merahue. And I think it was podcast 22. So anyway, let's definitely, definitely touch on that today. And we'll link to that in the notes. We will. The show notes, which you can find at biggerpockets.com slash show 46.

Thank you. All right. Oh, and by the way, John, happy Thanksgiving. Thank you. Same to you guys as well. Thank you. Happy Hanukkah. Oh, thanks for remembering, John.

Nice, nice. All right. It is Thanksgiving. But officially, this is like the one time in a millennia that Hanukkah and Thanksgiving giving fall on the same day. So to all my fellow members of the tribe, enjoy your Laka laden turkey. I don't even know what you just said. Look it up, baby. Look it out. If you don't know, you're missing out, man. I'll believe that. Well, John, how did you get into all this? I mean, how long have you been doing it and when did you get started?

So I finished school and I moved to Texas and I got a job as a limo driver. And the owner of that company was super entrepreneurial. In fact, he was a successful stockbroker. And he needed, this was back in the days when if you had a business that had tax loss, that was good. It could offset your other gains. That changed. But he started this business to lose money. And he made a lot of money.

And he built it into franchises. And I was just inspired, entrepreneurally speaking. So I thought, I got to have my own business. So I found a guy who was selling his life. lawn care business and I worked with him for a summer and I had lawn care business for a few years. And so that wasn't real estate necessarily, but it was entrepreneurial. And when you're out doing landscaping lawns gives you a lot of time to think and I did think a lot about the future. And I also ran into another lawn guy in the East Dallas who told me he had 50 houses. I'm like,

how can you have 50 houses, you're mowing lawns? And, you know, I think many of us know the story. He bought one. He bought another. He bought three. And over time, he had a serious portfolio all in the same area of houses. And I didn't really understand how he did it, but that never left my mind. And it was a couple of years later that I bought my first house. But he was probably the biggest single inspiration. A guy like me, you know, sweating to earn a living, has 50 houses. Yeah, that's, you know, that's the beauty. And I think that's the thing that society as a whole fails to realize because, you know, I think real estate investors are kind of the ugly stepchildren of stockholders and, you know,

the traditional real estate investments as CNBC likes to de them. Oh, let's speak for yourself. Wait, wait, hold on. But, you know, it's exactly what you said. That lawn guy, the guy who's pushing him over on your property had 50 houses. Who on earth would think that? Well, that's exactly what it is. Your neighbors have properties, your friends. I mean, there's a lot of real estate investors that we don't realize at real estate investors. And, you know, I don't know, it's kind of one of my personal peas. I wish we

got a little more respect in the financial press because there's far and more investors in our area and our neighborhoods than I think most people realize. I think that's true. I think that's increasing as, you know, over the last several years, home ownership is decreased. So that means there's more and more landlords out there. Yeah, yeah. Right on. So you, oh, go ahead.

Go ahead, Bernie. Okay. So your first house you said you bought then, can you kind of walk us through that, your first investment property? Yeah, and I'll back up just a second to the first property I bought, period, which was the home I moved into. And I carrying on the lawn care thing, I saved my dollars. I saved up my three and a half percent FHA down payment. And I bought a house with actually with one million money.

So that was my first one. Moved into that, lived in that for several years. Probably a couple of years after that, I bought my first investment property. And I read a book from the library by a guy named Wade Cook, who is currently in federal penitentiary. He was a guru back in the day. But along with his guruism, he had some good stuff. And he taught wraparound mortgages, which are very similar to subject to mortgages today. So I bought over there over a few years a few houses via rap, that is, wrap a mortgage around the existing mortgage.

John, can you just dig in it a little bit more on what that means? Yeah, so this isn't done so much anymore. Laws changed and mortgages change, but again, subject to is similar. And that is you find somebody with a mortgage that you can assume. You assume their mortgage. You buy the house. You take title to the house. And then you resell that house on another mortgage, an owner finance mortgage.

So there are a number of reasons you can't do that today. Similar concepts today might be lease option or subject to. And I don't really want to get into all the new regulations around it, but all that's become a lot more difficult to do now. So we're not doing it. We're not prepared to break down the laws for us. Because we really, you know, we wanted you to be ready for this, John. Okay, so I do get a Dodd-Frank quiz now.

Yeah, I think that's getting broken down fairly well in the forums under a few different threads right now. There's some good stuff being written. There are. And I will link to that in the show notes, too. There's a number of good threads on it right now that if people are wondering, we'll link to it. For sure, for sure. Can I ask on that FHA house really quick? Yeah, sure.

So, you know, you said it's a three and a half percent FHA loan. What does that mean? Can anyone get an FHA loan? How do people go about doing that? So the 3.5% was the down payment. And anybody can get it who is going to be an owner occupant. So if you're going to move into that house and live in that house for at least a year, you can do that and have a very small down payment. But on conventional loans, down payments are coming down now too for owner occupants. So you can buy a conventional loan home for 5% down now, not much more. Well, you know what I love about that. What you just said, John, is that you know, you worked a summer or whatever it was and saved up money from lawn care to buy that verse property. And I think so many people want to like just jump into real estate right now.

And everyone's worried about how can I do it with no money? But I think that's cool. Like you don't have to have no money. You can just save up a little bit of money like you said three and a half, five percent and make it happen. So just take some hard work. Yeah, you really can get going for a few thousand. of dollars. Now, you're not going to start where everybody else is, but it doesn't take much. If you're determined and focused and you have a little money, you can be a real estate investor

today, although I don't recommend doing it today necessarily. Get the knowledge, do your due diligence first, because as a lot of folks will say rightly so, you make your money when you buy, so you have to be pretty educated or truly buy right. So you're not saying, like today, meaning right now isn't necessarily a bad time for for any kind of financial or political reasons. You're just saying for somebody who might be new, wait until you're ready to go. Yeah, I think that's right, yes.

Okay, gotcha, gotcha. All right. And I was going to also say, there's a post I wrote a couple weeks ago that I'll link to in the show notes called How to Hack Your Housing and get paid to live for free. And it's kind of about that same philosophy of how to use a FHA loan to buy a house

or a small multifamily property. So anyway, if anybody's interested in that, It's on the show notes at biggerpockets.com slash show 46. So anyway, let's move on. I guess what happened after that first, you bought your own house, then you bought a rental property, an investment property. What was that like? So, yeah, I learned to be a landlord by doing.

There was no bigger pockets. There wasn't that much written about it that I could find. So I learned by doing, and that means I made a lot of mistakes. probably the biggest single one mistake I made was buying for price and numbers alone. I looked at properties and said they sell for this and they rent for that. Those are great numbers, not considering location enough. So I bought in the wrong areas, including a war zone. And I know there's various definitions thrown around about what a war zone is.

And I just define it by violent crime. If the violent crime is high, you don't want to be there. I know there's a few investors who do, but it's just not worth it to me, no matter what the numbers look like. And they only look like that on paper with your vacancies and your repairs and your vandalism and your break-ins and such. The reality isn't there. So that's an early mistake I made, buying in the wrong areas, but I really only did that one time. Okay, so do you mind if we dig in a little bit more on the war zone thing? because I made the same mistake.

I saw some properties. I saw some prices and said, oh, well, these prices are great. Bought the properties because the rents look great. But I really didn't take into consideration all those other things like the vandalism, the repair costs. So what was your experience? So it was a fairly new property. It was a townhouse, so I thought I'd be safe on the condition of the property. It was just over $30,000, really cheap.

My first rental on it was $6.50, so everything just seems fine. But if I got good tenants in there, they did not stay just because it was too rough living down there. And what I mean too rough is violent crime or the threat of violent crime. And, you know, that's terrible quality of life for anybody to live scared and truly be at risk, including me when I went down there to do anything. So, you know, you talk about not feeling safe at night. Well, if you're not even feeling safe in the day and you're getting the death stare from the gangsters on the corner, you probably should take that message. Yeah, yeah. And I had the same thing.

For me, I definitely underestimated repair costs, turnover. You know, finding high-quality tenants was really, really hard. And, you know, you're more inclined to take lower-quality ones. because, I mean, to get a great tenant is very, very difficult. Sure. And then, you know, the crime is just a headache, everything from dealing with, you know, drug dealers and properties to folks, you know, stealing condensers and having to get cages. I mean, there's a lot of hassle that comes with those properties, though if you have the stomach to deal with it,

I mean, they could potentially make you a lot of money, but it's, It's not easy. I should also say, I held that for like nine years, way too long, and I had zero appreciation. And if I had just bought in some other moderate neighborhood, I would have had at least 50% appreciation over that same time period. So that's something to consider in the hood, too. Yeah, for sure, for sure. Well, cool. Well, hey, you mentioned also, you know, we talked about the ranch with the 7,000 square foot.

Could you mind if we touch on that? Was that a part of your story at this point? Yeah, I've always liked looking at deals on land just because I love the land. So I would look at MLS just constantly and the real estate magazines for just properties around, not necessarily looking to buy them, but possibly for my primary residence, but just because I was really interested in it. And I saw one, I saw a listing. This was a, I saw it on Realtor.com for an REO.

it said 5,500 square foot house on 49 acres, and the price was 350. And I said, that's just way wrong. I got to go check this out. So I did. And the agent was an agent for the bank. It was an REO, had a story. And the story was, well, yeah, the bank is selling this house that was never really completed on one acre.

And it's completely landlocked by this other acreage by the guy. they foreclosed on and they're not getting along really well and since the house was never completed there's no water meter and the guy who owns the surrounding land is in no way going to let them have an easement to get a water line across it so the bank is stuck and the guy he doesn't really care that much one way or another about about selling the land but he's not going to let the bank win since the bank foreclosed on on this home and agent explained for the way the way The only way this is going to work is if you're going to buy the acres surrounding the house and the house. I thought, okay, I'll really consider doing that.

And the bank is going to be really motivated because this isn't going to be easy to make it work. So I went out to the city. It was actually in the country, but a city had extraterrestrial jurisdiction of this area. I said, so what can I do with this property? Can I divide this property? Can I develop this property? And I got a good education from them. and I learned that it only had 20 feet of road frontage.

So that wasn't wide enough to put a road back on it. So what I did is I talked to the property owners on either side, a landowner on the north and a landowner on the south. And I tried to buy just a strip to get at least 60 feet wide. And the landowner on the south, she sold me a 40-foot strip off of her property. And it turned out, I didn't know it going into this, turned out that she went to my church. So she was someone I knew.

So I put this offer together to the bank, to the landowner, to the lady who had just this little strip. And actually, that was a little after the fact that piece. And the deal worked. And I got the bank to take a big, a big discount because they just wanted out of the property. So I think I got all for like 280. Wow. Nice. And it turned out the listing said 5,500.

When I measured it, I got 7,000. I said to the agent. what's the deal? He said, he said, yeah, it's probably near 7,000, but no one was going to believe that that was a real deal. And it was unfinished. Unfinished meant it needed, it needed appliances and new countertops and flooring and paint and such. So I think, and it needed some work on the land. I put 60,000 into it to finish it up and then sold it. I didn't have a giant profit, but I didn't have a lot of time into it. And by the way, The back loaned me the money on the whole deal.

They loaned me 80% not just on their house, but on the land too. Was this a traditional bank or was this? It was. It was a traditional regional bank that owned the foreclosure. And I had been doing other business with them. So it was not a conventional loan. It was one they kept in house. And then I just paid it off.

Are you saying the same bank that sold it as the one that carried the financing on it? They did. Yes. Wow. that's nice. I've heard of that happening. Never had it happen for me. I think I had an advantage since I already had done a couple of deals with them. The church I used to go to did a building project, and I got the construction finance through them, and I kind of led that, headed that up. I had the relationship. Nice. Nice. That's awesome. So it sounds like you've got about 340 into it plus

holding costs and so on and so forth. What did you end up turning that for? I sold it at $3.95, so that was, you know, my net net was as about $40,000 on it. Okay, okay. A respectable return. Yeah, I take it. I take it. Yeah, absolutely. No, that's cool. That's a great story. Have you done other flips? I know you said in the beginning you do the single family, the office, the specs, but have you done other flips? Yeah, so in 2008, 2009 timeframe, is when I decided to not just play around with real estate, but seriously get after real estate

investing. The reason I made that decision primarily was just the downturn in the real estate market where I tend to be contrarian in my investing. So I thought, you know, I don't know if we're ever going to see a 20 or 30 percent discount again. It's very rarely happened in the past. And of course, you guys know how severe it got. It got as severe as the Great Depression in terms of housing values. But property values after every single down cycle have gone up. So I thought, I've got to get into this. Now's the time.

And, of course, it was the perfect storm with the banking hitting the wall at the same time that real estate and some other things hit the wall. So I started doing my homework. I decided to read 10 books on real estate investing, except about halfway through. I discovered bigger pockets. And I decided to scrap my goal of 10 books. and just devoured bigger pockets. Nice.

That was in the beginning of 2008, beginning of nine. And I started buying at HUD auctions. And I ended up buying about 20,000 in the HUD auctions at over 2009, 2010. And I kept most of them, but I did rehab flip some of those. And actually, I still have about half of those that I bought back in that time frame. financing was really tough then so it was a combination of my money my partner's money and a couple of private money guys to to buy most of that got it got it and so so those are those are bread and butter rentals those are um properties that are today worth maybe 60,000 and rent for 950 or so on average okay that's not bad at all so so HUD auctions

I know we've covered it, but you know, do you want to give us a quick 30 seconds on what a HUD auction is, how it works? Sure. Yeah. So I did most of my work online identifying and researching the properties. And I would bid on when I was in the buying phase. I'd been on properties every week, sometimes three or four a week, so that over a two-year period, I'd bid on close to 200 properties to get 20. So my ratio of wins was only about one in 10. So I bid pretty conservatively.

And of course, owner occupants get the first shot. So what that meant is I bought mostly uninsurable homes, which meant they needed a lot of work that they weren't ready to loan on. So that meant every single time I had a rehab project. So I got a lot of rehabbing under my belt from two to three thousand cosmetic to seven to eight thousand to sometimes we have to put 20,000. into a property and at that point we'd either rent it or sell it. And what kind of discount were you getting on these properties? You know, okay, so these properties sold new for, say, in 2001, for example, for 100,000, I'd get a property like that for maybe 30 and have to put 10 into it.

So I'd be in for 40 and that would have a tax value of maybe 85 or so. So you could say a 50% or 60% discount what it was, but as far as real market value, probably more like a 30 to 40% discount over real market value. Oh, that's great. That's great. Now, do you have any tips on that? Because I know, Brandon, we talked about this a couple episodes ago, didn't we?

Yeah, we did. What episode was that? I don't remember which. Yeah, we've talked about it a couple times now. But somebody, you know, one of the strategies was literally super, super low ball their offers. and they expected a way, way smaller ratio than you're getting. I'm curious, what's kind of your bidding strategy on these HUD properties? So, and that evolved over time, but it's a number that's going to work for me,

and I wouldn't necessarily try to bid so low to win the lottery, maybe like that other investor is doing. Or there was a guru back in the day on late night TV, Tom Voo. I think that was his main strategy is go out and offer 50% of asking on a whole lot of properties. I wasn't doing that. I was looking at the value, trying to figure out what it's really worth, what it'll take to fix, what we can rent it for, and does it fit with our criteria? And back in that day, there's still talk on bigger pockets about this, but the 2% rule, which, of course, we're in a completely different market today than we were there. And these things vary a lot by geography.

But I thought, well, if I can get 2% rent back for my total capitalized cost, that's pretty good. And sometimes I'd hit 3% or 3.5%. So my target was 3% unless it was a higher quality property, bigger acreage or a better location. And then I would bend that rule a little bit. Hey, John, can you go a little bit more detail on the 2% rule for those who might not be familiar with what that is? So the 2% rule, or it's actually a rule of thumb that you'll read about on bigger pockets sometimes, is for the serious cash flow investor, it says don't pay more than 50 times one month's rent for a property. So that would be 2% of the purchase price or the purchase plus fixed price, which is the capitalized price. And if you do that, you're almost certainly going to cash flow.

However, in the top 25 cities in the U.S., it's really hard to do that in most of those cities. It's hard to do it on the East Coast. It's hard to do it on the West Coast. But it can be done through the Midwest. It can be done in more rural areas. It can be done in the south and mid-south. So I'm not preaching that rule necessarily. I'm just saying that was one of my criteria at that time.

Today, in a different market, I'm willing to buy property that I'm only getting 1% back. on per month, but I want that to be in a great area, a great school district with a really good chance of appreciation. Okay, so your strategy is kind of shifting a little bit, and I think that's important. Yeah, it is. I'll say this, Brandon, that I was all about income because income was just so, it was so rational, and I could defend it. Now I'm not quite as much into income.

You know, I've got more income than I need, and I'm just putting it back into more properties. I'm thinking in terms of what does this look like 10, 20, and 30 years down the line and buying properties with that in mind. Of course, not the spec flips, but other properties. Because once in a while, you'll hear about properties. Brandon, you and I have talked about real briefly that some of my family came from the Greeley area or Windsor in particular. My grandfather bought a farm in 1930 or his estate.

or his father did, my great, $7,500, and that's worth several million today. So how does that happen? And I want to back up and take a look at that macro trend over 80 years. How can you get a thousand X appreciation? Not that I need to, but if I understand that, that'll affect how I invest in real estate for the future. Nice, nice. And, you know, I think that's also an interesting point about when you're starting out, I feel like, you know, for me, I'm the same way.

The cash flow is always number one. And for you, that's when you're starting out and you don't have a lot of money and you want to quit your job, I do believe cash flow is imperative to it. But as you get the cash flow, that becomes, I think it's okay, like you said, to change over time to maybe make it a little more appreciation focused. I mean, I would never tell somebody to go out and get negative cash flow severely just to try to, you know, bet on the market. But if it becomes a big picture thing, I don't think it's terrible. Yeah, and just to get a little finer on that point, it's not so much betting on appreciation or speculating on appreciation as buying in high-quality areas, we'll say class areas, which have historically appreciated more and faster and longer term than B areas or C areas.

That's just a rule that is generally going to happen. And then the other macro trends, which I want to follow, is population growth. and job growth. I look hard at those things now as to where to buy my properties. Yeah. And like I told you before we recorded today that someday I'd like to just move all my investing to Texas because, I mean, I haven't done all the research, but it just seems like there's a lot more job growth happening there than there is out

here in Washington. Come on, guys. You guys know you want to move all your properties to Detroit. Come on. You know it was coming. Yeah, I know. We did. It was coming.

Yeah, you know, you got to do it. Well, but that's, I mean, that's the reason I pick on Detroit more than anything else. I mean, it's all about trends, right? If people are not, if people are leaving and fleeing your area, you know, it's an area you probably want to unload on. And that's what I had to do with, you know, those tough properties that I had talked about earlier. You know, it was, the area was getting real bad.

It was getting worse than it was. And it wasn't great to start with. And people, you know, the renters, the even decent, hefty, decent renters were taken off. Well, what are your chances of having a cash flow and property? I don't care how cheap it is. If you can't put somebody in there, it's too expensive. One point on that as well is that an area can have a temporary decline and then come back.

In Florida, I think in 2009, Florida had its first year in over 50 years where the population actually decreased. I looked at that and I looked at the rest of the sunbelt and I said that has to be temporary. What's going on in Nevada and Arizona and Florida just has to be temporary and it turns out that that's the case. And I suspect that might be the case with parts of the Midwest too. And hopefully it's true in Detroit that they turn it around. Well, yeah. I mean, the key is to get, you know, to get some, you know, stronger economy going in these areas.

And if they, you know, if they can get politicians who can incentivize business to move it and, into these hard hit areas. Obviously, jobs are going to come and people are going to move. So, you know, it really kind of goes up to the top. And, you know, we are relying. And a lot of these cities are relying upon, you know, having good quality politicians who know how to attract business. Because if you can't do that, there's not going to be people looking to rent.

Sure. Yeah. Deep. You know, that's who I am. I'm a deep dude. You're a deep thinker. That's right. All right.

So let's, you know, let's cover some of these things in a little more detail, some of the stuff. You know, it sounds like you've bounced around a lot, you know, from these SFRs, single families, the office, the spec stuff. You know, you've bought through auctions. It sounds like you've purchased REOs on MLS and things like that. Yep. What I want to focus on is marketing for a little bit here. How are you finding, obviously the auction ones you're finding on the auction sites, right? Yeah, so where marketing comes in is now I'm buying most of my properties through my own marketing,

and that not through auctions or MLS anymore. Occasionally an MLS deal will come along. but I kept reading and hearing about these deals that were above and beyond anything I ever see on MLS. I'm wondering, how in the world do these people get them? And marketing is sometimes the answer. Sometimes the answer is just the right relationships or being extremely knowledgeable and well-connected in a certain area. But I decided to try marketing to buy properties myself, just starting. with Yellow Letter campaigns a couple of years ago.

And I didn't get a lot of traction in the first six months, but since then I've had a lot of traction. And it's not so much that I'm buying a lot of properties, but it's that I'm getting high-quality properties at a deep, deep discount that makes the marketing pay for itself over and over and over again. For example, on our spec builds, and these are not just little high.

houses. I mean, they're pretty high end. But on average, we're making over $100,000 per build. So the key there is what do we buy the lot for? What do we buy the property for in the first place? I'm not the world's greatest builder. In fact, I'm not that experienced yet, but I can beat a lot of the great builders because I can buy better than them because I'm paying less for the property than they're paying for. So I know we've talked in a number of your podcasts, you've gotten into marketing a fair amount and also direct mail campaigns.

Specifically, I've worked with Jerry Puckett. Brandon, you know what? Podcast number Jerry was? Was it 21? What was it? 21, I think. Okay. So Jerry says,

what Jerry says is market like a wholesaler. And what he means by that is all investors who are buying should market like wholesaler. So instead of buying it 10 or 20% off market value, you can consistently buy it 60% off market value because that's what wholesalers have to do. They have to buy it 60% so they can flip that contract for 70% off and keep the difference.

So I've mailed out at this point, tens of thousands of letters, which might sound like a big number, but it's really not a big number. maybe spent 25,000 on yellow letters, but I'm looking at profit margins from those yellow letters and I've got deals that are closed, deals that are under contract and deals that we're still going to build well over a million dollars just from 25, that's profit, just from 25K in marketing. So I'm a huge proponent in investors doing their own marketing to buy their own deals,

not necessarily not to wholesale. No, that's great, John. And one thing I want to touch on a little more there, just to make sure people understood what you said there. Like you said, Jerry says, market like a wholesaler. And that's why I think, you know, sometimes we interview wholesalers here on the podcast.

And I think people that aren't wholesalers sometimes may tend to ignore those episodes or, you know, they don't think it applies to them. But I think this is exactly why it applies to them. It's because if only other, you know, landlords or flippers, if only people approach their business the way that wholesalers do, like you said, it's all about how low you can get the initial buy. It's all about the buy.

So I think that's a huge, huge, huge point that people need to remember is if you can market like a wholesaler, then you don't need to use a wholesaler to buy properties because you can get them for the wholesale price. And that's key. So that's cool. Hey, can I jump in on that? Because I've got a friend who's, he's one of those hedge fund guys. And he and I have talked a lot about wholesalers. And he's fascinated by the whole premise of these folks and what they do because what they do

is they go and they buy MLS and they buy REOs and they buy auctions and they think they're getting all the best price deals out there and maybe I should have shut my mouth but you know but we talked about it and he's like wow that's crazy you know I can't believe that people are you know doing

all this stuff and there's a whole segment that we're not even touching but the The thing is they don't even care to do it. It's too much work for them to do that. They don't want to spend the time and energy to do that. They want to just buy it as fast as possible. But it's fascinating that doing that really does give you an advantage over everybody.

And especially for those people who are freaking out by all the hype that's out there from some of these gurus saying the world is coming to a close for real estate investors. Just keep marketing. Keep doing your thing. And world ain't going to end. Trust me. Sure, sure. And the deal flow will always be there, no matter what's going on in the economy. People will always be buying a selling property, always. Yeah, yeah. So, John, you had mentioned that the yellows didn't work at first.

And so what did you change, or was it just that it took time to kick in? That's it. You just have to do the repetition. And once I had a prospect, and I had a number of prospects going, but sometimes it takes them a few months to actually get to the place where, they're really ready to do their deal, ready to move. They have their next place lined up that they're going to move to. So it was just giving it enough time and then tweaking the message and also tweaking my approach as I went along. Early on, I was afraid to make offers because I wasn't just going to flip the deal.

I had to close on the deals. That was my plan. But I got more and more comfortable with the neighborhoods I was working in. I was working in neighborhoods virtually. That is, I was there with Google Street View. I was there with the tax appraisal site. I was looking at the Zillos and I was looking at MLS, the comps. So I got to the point where I really could make a decision about an offer number within 15 minutes or so.

And once I could do that, I could engage the potential seller pretty quickly with a lot of confidence or at least give them a range. And also, just buying a couple gave us confidence to keep going and do more. And I've always had in my back pocket. Well, if I'm not going to close on it, if I don't need to close on it, I know enough people now where they'll close on this deal. So that may be not afraid to put properties under contract. Go ahead. Sorry. Well, I've been attracting enough capital, getting more and more bankable that I'm able to buy at a higher rate, a higher level than before.

So my marketing's working better, but so far we're able to close on everything we put under contract. That's awesome. That's awesome. Well, so, and darn it, I was going to go somewhere, but you said something that just grabbed me. You're becoming more bankable. You're becoming more attractive. Sure. And I think we talk about, yeah, look at you.

Yeah. Is that just a matter of having a history of success? That's part of it. But honestly, a bigger part of it is. is banking is loosening up. I mean, just in the last five years, five years ago, you could do nothing. And now, especially the last couple of years, banks are loosening up. But also, my balance sheet is growing.

My income is growing. You know, send it to the bank and they're good. Or get in partnerships with others where they're looking at you in an aggregate. And if you've got three or four strong partners in a deal, the banks just love that. And if it's not a bank, it's an equity deal with another investment. investor or it's a debt deal with a private money person. And we're doing all of those. But bank is probably best just because that's cheap money and they'll lend a lot.

I mean, we just got to prove for a $405,000 loan a couple of weeks ago. And one of the next ones I'm looking at is a 600, and that's construction loan. So we pay it off in a year. So there was no way I was even close to that 18 months ago. So it's both banks plus success. Gotcha. No, that's awesome. For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been sort of complex, time-consuming, and expensive.

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So let's circle really quickly back to marketing. So you're currently marketing primarily for land, correct, for these spec builds? Yeah, although most of the time there is a home on the land. It's just an old small frame home that we scrape off. I was going to wondering that same thing. That's what Tucker does that he talked about. Cool. Now, there's a, I'm working a lot in Austin.

And the exception there is if you've got a, trees in place, you can't build new close to those trees, especially if they're big trees. And the city has designated what they call heritage trees. And these are really big deal. I don't want to spend a lot of time on this. But a big tree in the wrong place, believe it or not, can make a lot worth $200,000 less because you can't build on that lot or build anywhere close to that tree. So sometimes we'll buy a lot with a bad old house on it, but we'll keep that bad old house because we've got to protect the trees. And then we're grandfathered

building, you know, completely rebuilding that house and adding a second story onto it. Ah, so you're not going to scrape it. You're just going to take the old house and keep the frame. Right. And you're good to go.

Very smart. And that's something that's specific to Austin. Presumably there's other areas that have similar roles. I would say any larger progressive city is doing that. And I would call Austin the only really progressive city in Texas, you know, compared by like California standards. Oh, yeah, Austin.

You might as well be in California. Yeah. Nice. And so I, you know, I just realize that you're working a job as well, right? You've got a company outside of your real estate, don't you? I do, but I spend very little time on it because that's a mature company now with a mature staff. And I get involved for troubleshooting and such. But I probably only spend 10 to 15% of my time in that company at this point, which is really what we want out of a real estate business, is right, to be active initially, get it mature so that it's passive and it can still grow.

Well, that's actually the case with my IT services company, which, which, you know, was a little garage startup with no money, but now it's, now it throws off a good W2 income to myself and my partner, which helps us borrow as well. Gotcha. So you're living the dream across both fronts. Yeah, I'm not quite living the four-hour work week tree. But surely that's going to be your favorite book as we get into that question, isn't it? If I want to torment you, maybe. Nice, nice. Well, you know, I want to move on to spec building. You mentioned that, you know, on some of these specs you can do over 100K per build and profit. that's awesome. But I think a lot of people are intimidated by the premise of building a house

from the ground up. So let's first talk about why you got into spec building. And then I'd like, if you didn't mind, if you could walk us through the process of a spec build. Okay. First, I'll say, if you're intimidated, I was intimidated too. I thought, well, there's a thousand different things you have to know to build a house. I'm going to miss something and I'm going to mess up big time. However, I'm not building it myself. I'm working with a contractor who knows what they're doing. I'm working with an architect who knows what they're doing. I get consulting where I need it, especially early on or work with an experienced investor the first time or two around. So that's how I started. My first time out, I went with a guy and I put in half the

money and he had done seven in this neighborhood and he was get i could tell he was getting better at it and i just watched really closely everything he did and he still he still made mistakes and what i realized i suspected this to start but i realized that a new build is just like a rehab but with more steps especially before you start steps and you've got to learn those pre-development steps before you break ground but after that i mean i've heard j scott say this too. The building of the house is pretty easy for an experienced rehabber

because you've done almost everything before. It's just adding just a few new elements to the actual building of it. Gotcha. Gotcha. All right. So let's talk about this pre-steps and the post-steps. Let's start at zero. I mean, all right, I found a lot.

Cool. I'm going to tear this house down and build a spec on it. So obviously, presumably you're going to have to get some permits to knock it down and clean up. You've done that. You've got the land is pretty much a clean slate at this point. Now what? Okay. I'll start there, but I will say that you've brushed through probably the most important part, and that's selecting the lot and making sure you can build on it. But we can get back to that. Well, let's cover that.

I don't want to brush through that. So the question is, whenever I'm evaluating a lot, evaluating a lot is what can get built on this lot. And generally speaking, the developer says, I want the highest density that I can get in here. So that might be multifamily. Not that I do multifamily, but if I'm going to build a single family on a lot that you can build aid on, that's not the highest and best use.

So maybe I should flip that lot to somebody else who's going to build more on it. So for us, the answer to the question is usually, because we're buying small lots, single family home or a duplex or a condo regime with two homes on it on one lot so it was one home before but we're going back with two homes and that's what I'm looking for I want a lot that's an SFR lot but it's zoned so that I can build two homes on it so that's a certain size and there's certain other criteria and you have to learn the specific criteria of the city that you're going to work in and I would recommend going down and talking to planning

and zoning in that city to start understanding what you can and can't build. They want you to bring them a specific lot or specific questions. That's great if you can. If you if you can't, they'll still answer some of your questions. So what can I build? I want to build the most square footage and the highest density that they'll allow me. And usually they're going to be smart about their growth and they're not going to let us do something stupid that hurts hurts the neighborhood. So I will, if it looks like it's green lighted to build a duplex, I'll hire an architect and let the architect do a lot of the dealings with the city and really get go all the way from designing the home to getting the permit. And that typically, for what we're doing, take some time because we're changing the use of the

land. So the shortest it's ever taken us is three months and the longest it's ever taking us as 11 months, although if you're just building a single family home, you can sometimes get permits in the city I work in in two weeks. And I've heard of even faster in some other cities. Hey, John, what does it cost to hire an architect to design and, you know, take care of permits and all that stuff? We're paying, we're paying now $2 or $2.5 a square foot, which is a little on the high side just for design, but for them to take the ball. and get over the end of the end zone, it's worth it to us. And by that, I mean permit.

The permit, building permit is the first big hurdle you have to get over with the city. And the second way is when you get to the end of the build, it's the certificate of occupancy. I mean, those are the two things, that the start of the build and the finish of the build. And inside of that, it's, if you're working with a good general contractor, they're managing pretty much all of that. with not that many choices from you along the way if the architect's given a good plan. But in some cases, you might be more hands-on. You might be the GC yourself. And if you're the GC yourself, that's probably a little too much to get into on this podcast,

other than to say that you are managing every piece of that construction and every sub, and it's all got to work together to get the right product, the CEO at the end of the time. So you're managing. for you're managing for satisfy the city, you're managing for cost, you're managing for quality, and you're managing for time. So you have to bring those four elements together. And if you can, if you can come in on time, on budget, good quality, and get your city requirements done, you're in good shape. And every, every experience builder knows that. But I think here's the thing that every experience builder doesn't know. And this is kind of moving back.

to the beginning, buy the lot right, and that makes all the difference in the world. I see a lot of good builders out there who are just, maybe they're not overpaying for the lot, but they're not buying in a neighborhood that's going to support spec construction to the degree that they're going to make enough money. So I would say if there are 2,000 square foot homes in that neighborhood, new one selling for $200,000, that's not going to work very well. However, if in a different neighborhood, 2,000 square foot homes are selling for $400,000, $200,000 a square foot, you've really got some potential there. And if you can buy your lots in that neighborhood for $50,000 to $100,000, you're going to potentially have six-figure margin on those deals.

So it's going to have to be higher-end neighborhoods. And where I work is infill neighborhoods. That is close to downtown where there are tear downs in newly developing. areas, it's a lot harder. It's a lot more competitive. So I like to find the one-off lot, which back to marketing in yellow letters is a good fit for that. Yeah.

Nice. Yeah. So, wow, that's, you know, it's fascinating. And it seems like if you bring on the right architect and GC, it, yeah, I mean, it's simplifying you, but it kind of builds itself. The, where do you come into play? You know, how does, how does, as a flipper, you're going to go in. you're going to take pictures, look at the property, see what needs to be fixed.

But when you're building this up front, how much of that is decided by the architect, how much of the detail is decided by you? Do they basically say, hey, John, this is kind of generally what we've got. Now we want you to kind of pick the finishes, or is that kind of in a big open conversation up front? Well, I've got a team, and I trust my team members in the areas of their strength. you know I'm outsourcing a lot of my marketing I don't I don't take a lot of those calls in the first place but in terms of identifying and negotiating the lot I'm going to buy I'm very involved in that

and I'm very involved in the financing and finding the financing so I have a business partner who lives in Austin and he does a lot of stuff on the ground for me he's not the actual GC we also have a dedicated GC under contract to just to us who I worked with in Dallas before I worked with in Austin and add to that the architect and that's the team. So it's my main business partner. It's the builder. It's the architect. It's my marketing team.

And outside of that, there's other players, but those are the main ones. And I don't personally, I have opinions about design, but I don't get too far into that because that's what the architect's good at. And our particular architect lives in Austin, knows the neighborhoods really well, knows what's selling well. her husband is an agent in Austin, so they're good at that. So you defer most of that. I mean, you literally say, here's a plot of land, you know, run with this thing.

I trust you to basically come up with all the specs and design. And, you know, it's hands off for you in terms of that. It is. It is. Now, I have G-C'd my own homes before, so I can get involved if I need to, but I don't need to since I've got the better help. And I'm also a big believer of the concept of highest and best use of not just real estate, but each person's talents and time.

So I try to be disciplined not to get into stuff. I'm not that great at and keep my team in their strengths and out of their weaknesses. Gotcha. How long does it take to build this back? You had talked about timelines, permits could be potentially three to 11 months. How about the build time? Yeah. So for us, if things go well, it's four months.

If things go poorly, it's five and a half months. The actual build time. Again, there's more knowns than that and more unknowns with the city. So we generally look at projects as about one year start to finish. That is, from the time, buy the lot until we sell it. Gotcha. And you said earlier that these houses are a little bit higher end. I'm wondering what you can kind of tell us about.

like what's the typical size look like and the quality when you're all finished i mean how a high end are you talking about okay so so i'll give you a link to some pictures i don't i don't have that right now but we'll have that in the notes okay um and where can we find the show notes guys biggerbockets dot com slash show forty six there you go so so it's a custom design it's it's a unique one one one of a kind design um where we're working modern and content temporary architecture is most desirable. So it'll be kind of a funky design. And it'll have just a number of modern features. Like floor materials might be stained concrete or they might be wood. But it's fairly high end wood. And then, you know, we might go, you know, we think of granite stainless in the kitchens. We might go with quartz or something else on the countertops. Lots of light, lots of windows. And very, fairly green. You know, we want a fairly efficient house, but we're not going towards net zero energy, but, you know, at least addressing that. So that our build costs have varied from $90 a square

foot to $130 a square foot. And I don't, you know, I don't want to be paying $130. That's a little bit too high, but some locations can justify that. And where I work and I have a great location, we'll spend more on construction and we might get an exit price approaching $300 a square foot. So maybe it's $600,000 on a 2,000 foot house. And how long do these houses take to sell? So far, they're selling immediately. That's good. And in some cases, we've got contracts even before we put them on the market.

In some cases, we have multiple offers the first weekend. and we want to price them so that happens. If I don't have an offer in two weeks, I priced it too high and I'm cutting the price. I want to move them quick. How are you marketing them for sale? So obviously price is going to be essential, but what are you doing beyond that? Yeah, you know, far and away is just listing on MLS. Yes, we want great photography.

and we will do some great photography. We have not been staging. Some of my partners have staged, but they go so quick that we haven't felt like a real need to do that. So that's pretty much it. Get some good pictures, get it up on MLS, and you get a lot of traffic because we're building in such a hot area. That's a great idea.

That's fantastic. It's great. Well, listen, I mean, it's something that I know I'm personally enthralled with and would love to get into at some point in time, and I'm sure lots of other people would also be interested. And so thank you so much for digging into the spec stuff. You know, there is a thread on the site that you had mentioned Jay Scott earlier that Jay has put together.

I started it, I believe, about the spec build that he's been going through. And I don't know, what's at four or five hundred posts now, Brennan? yeah something like that it's it's huge it's a monster post it's literally like every single thing that he's done he's kind of put notes on every step along the way and uh if you're interest we'll for those people listening we'll put that link to that thread in the in the show notes as well yeah i've i've read every every post in that thread and it is gold i mean there are so much that you know he tells us but other builders have come in and given their experience in there I mean, that is probably better than any, that thread, better than any book I've seen on the nuts and bolts of how to build in 2013.

That's awesome. Yeah, there you go. That is the benefit of a forum. It's like a 3D book that's constantly changing with the modern, like the way you do things. So, yeah, if people aren't active on a forum like ours, I think it's a mistake because there's some really good value there. So anyway, why don't we move on, John, a little bit away from the spec building, talk about a couple of things before we close us up. And one of those is, I know that you meet with other bigger pockets people often, like, you know, BP meetup or whatever you want to call it. I guess can you kind of talk about the benefits of doing that and why you get together with other investors?

Yeah, so pretty early on, you know, I started seeing posts from the same people who knew what they were talking about. So I started reaching out to them, especially if they were knowledgeable in an area I was interested in. And I've learned a lot. And that would be in the forums or private messaging or pick up the phone or email. And in some cases, if they're local, get with them. And, of course, I've actually seen Bigger Pockets members, just not locally, but in other parts of the country too. So learning from others is probably the best way I learned, having an hour conversation with somebody who knows what they're doing, which is one way. One reason the podcast has been so great, I've been learning from so many of your guests and you guys.

But I've got a group of mentors. I wouldn't say that any single one is a mentor, but I'll just throw out maybe a couple of names. Rich Weiss, who's been very active in the past, not quite so active now, has done a ton of stuff in real estate over the last 40 years and written a book. And, you know, he's spent time with me, and I've learned a lot of stuff from him. And as far as meetups go, yeah, I've done a few, you know, called up or set up a few of these over the last few years in Dallas. And I always meet somebody new or meet the same folks again where I develop a relationship with and pretty soon we're doing some kind of business with them. And I've done business with, I'd say, a lot of business with several different people on bigger pockets. So it's not just meeting and learning from them, but lucrative relationships with them.

And that is partnering on deals, borrowing money, selling properties to members, working with them on marketing, just strategizing on new development deals. All has come out of the bigger pocket relationships. That's awesome. And that's just a testament to why people need to be networking. I mean, networking, whether it's on Bigger Pockets Forum or wherever it is, networking is just key. And I love to hear that story.

And that's another thing. We mentioned that last week in the last podcast about the new local search on Bigger Pockets and that you can go on there and sort by zip code or how far they are, 5, 10, 20, 50 miles or whatever. And you can see where people actually on Bigger Pockets are living near you. I mean, you're not seeing their house or anything. But, you know, those kind of tools, I think, are invaluable for reaching out to local investors and different people to do deals with. So for those of you who want to check that out, just go to BiggerPockets.com slash meet, M-E-E-E-E-T.

not like eating beef or dinner. And anyway, so why don't we move on to the last question before my favorite section. But I just want to know what your future plans are. I mean, now you've done so much stuff, John. Where do you see yourself going in the future? Just continuing what you're doing? It is an evolution. And I do believe in trade up and build on what you've done in the past.

So I do have changes planned. I'm planning to sell some or most of my single family rentals in the near future and move that money really to two places. First, into more spec builds and more development. And longer term, I want to get into bigger commercial properties. And this isn't something I want to do at the moment, but down the line that are easy to manage or management free. And those would be properties that I plan to hold for the rest of my life and leave to my errors. So more spec building and long-term commercial properties that take less hands-on management. Gotcha.

Are those properties currently for sale, or is that just something you're planning on doing? Yeah, I want to sell most of my SFRs in the next couple of quarters. Oh, cool. Any time between now and next summer. Do you have those like up in your website? or something. I've got, you can check my profile.

I've got info on, maybe on the profile. Oh, cool. Right on. We'll link to that, obviously, at the bottom of the show notes to your profile. Yeah, yeah.

So, hey, we're running out of time and want to hit the fire around, but before we do, there's a couple things. You had mentioned a couple things, and there's some stuff I just wanted to housekeep with. You just talked about management-free commercial properties, and commercial was something

I really, really wanted to get into. And unfortunately, we're definitely running a little bit long, but maybe we could just briefly touch upon this stuff. How does one get a management-free property? What is a management-free property? So there's actually no such thing as a management-free property, but it's who's doing the management. So let's look at an apartment complex.

If you've got an apartment complex with more than 100 doors, you can have quality on-site management there where pretty much they're dealing 100% with tenant and make ready issues. And maybe you do some of the financial and oversee the property management. Or if it's a single tenant commercial property, like it's retail or an office or something like that or restaurant, then you get into the double net and the triple net properties where the tenant is responsible for managing the property and managing themselves. And that can be extremely hands-off where triple net means they are responsible for not only maintaining the building, but all expenses related to the building, including the property tax.

And that can be highly management for you. Those are the triple-nets, right? The triple-nets. You have to be very careful about how you buy them, but you can get a great broker-consultant to help you buy those. Yeah, we're going to have a show in the coming weeks. I don't know the exact date, but we definitely have a triple net episode planned. So for folks listening, just kind of stay tuned.

And we'll dig into that a little bit. That's about as close to management for you as you can get unless it's just like a land lease where that's even a step beyond, but pretty unusual. Okay. And so you're doing office properties as well, correct? I've got one office building. And the reason I have this office building is my ITs, services company had rented for quite a few years and we paid rent to the same landlord for 10

years and I really, really wanted to stop doing that and start paying myself. So I bought an office building for our company and we have plenty of space to spare. And the beauty there is if you have a business and you can do that, you can be considered an owner occupant in the commercial lending world. So my financing on this building is awesome. It's fixed rate at 2.99%. Wow. And you hardly ever hear that in commercial. And the reason you can do that is because it is owner-occupied, meaning my business is in there. Ah, that's great.

Wow, that's really great. So what's the difference? I mean, you know, I want to say bigger pockets, we want to go and open up a new headquarters somewhere and buy a commercial office property. What, you know, what's any different than buying a multifamily? Is it pretty much the same thing? Dealing with tenants is way, way different. I mean, you know, you'll have just yourself or maybe one or two other or just a few other tenants.

And it's pretty much a nine to five thing. You don't get the calls. Like last night I got the calls on electricity out at 10 p.m. That's just, it's not going to happen in an office situation. So that's one difference. And to be considered an owner-occupant year business would just have to occupy 51% or more of the building. Gotcha. Gotcha.

Okay. But otherwise, I mean, you know, obviously, you know, obviously you're, going to have other issues, you know, business leases and things like that that are probably a little bit different than a traditional residential. Right. There's going to be, because of that, you might get into some more legal and consulting fees. Sure. Because those leases can get thick.

Yeah, for sure. Well, that's fascinating. I think it's a good option for a lot of folks. You know, when do you think is a good time for an investor? I mean, do you think as somebody who's done, you've done a lot? I mean, you've done everything in the residential side. It sounds like almost. And now you're in commercial.

What's a good time for somebody to potentially transition from residential to commercial? Or, you know, do you think that a new investor could start in commercial? I would say a new investor probably should only look at starting in commercial if they have a fair amount of capital. to work with. So I don't recommend starting there. I do know there's small commercial properties that cost no more than houses, but they're going to be one-off type properties and maybe problematic to keep good tenants in. So I'd say there's a transition time that comes, and I don't know exactly where it's going to be, but I'd say for me, it's when my income from all the other rental properties was covering more than my living expenses, that meant I could raise my head and

start looking at some more sophisticated type things. Gotcha. That's great. Fantastic. Cool. Well, you know, we kind of glazed over it, but I'm sure we're going to cover more commercial in later episodes. So for folks listening, just stay tuned. With that said, this is show 46 of the BiggerPockets podcast. You can check out our show notes at biggerpockets.com slash show 46.

And ladies and gentlemen, it's time. It's time for the five. Fire round. Nice time. Nice. I'm feeling warm. Time for the fire round. Wow.

That's impressive. All right. Fire round. These are all questions that come from the Bigger Pockets forums. These are real-life questions that real-life investors are asking. So, John, number one, what do you believe is the best way to find a mentor? I think a best way to find a mentor is to, first figure out what you are most interested in and then find somebody who is an expert at that,

very experienced at that, and then approach them with something to offer, not just asking for them. So at least offer to buy them lunch if they're local. And also don't scare them away by saying, hey, I want you to be my mentor. That kind of sounds like, hey, I want to get married. I know we just met. That's not. That's really good advice. Yeah, but how do you do it?

I mean, okay, John Klaus, I want you to be my mentor. Great. So I've decided that. I say, John, you know, I'm an upcoming investor in your area. I would love to take you out for lunch. Let's go get some stakes. We go, we get stakes. You know, talk about what you're doing.

You, you know, I'm all giddy about how good you are and how cool you are. But like, how do you take that next step and actually transition to say, I mean, do you just say, hey, listen, I want you to be my mentor or what? Yeah, it's got to be a fit for both sides. So it's okay to ask, but know that that person might not be able to make a big time commitment. But if it looks like you're hitting it off and you have a good rapport going, say, would it be okay if I occasionally contacted you with questions? I mean, that's kind of like, oh, okay, we're going to date, not just get married. And maybe later on it turns into something.

maybe later on we're going to do a deal together. But walk before you run in that relationship. That's awesome feedback. That's awesome feedback. Yeah, yeah, absolutely. Because it's funny, I get people in the web world who are like, oh, Josh, you know, I want you to, you know, advise me and all this stuff. And I'm like, whoa, slow it down, buddy. You know, like, shoot me an email, like hit me up with whatever questions.

I don't have a ton of time to hop on an hour-long phone call with you. but shoot me an occasional email and if we're getting along, then we can transition. So that's fabulous, fabulous advice. I know we get this question constantly many times a day on the site. And so hopefully there's a lot of newbies listening and heating your feedback. And my mentor, my mentor with a capital M was bigger pockets, you know, an army of mentors, all with expertise in different areas. I think you should look at it and treat it that way and you'll gain a whole lot more.

That's what we like to tell people. All right. So that first fire around question went a little bit long, a little bit long. All right, John. So is it better to buy one house with all cash or use that cash as a down payment on a bigger property? Take like a hundred grand by a hundred thousand dollar house with that hundred grand or take that hundred grand and use it on a down payment on a half a million dollar house?

So for me, the answer is use the leverage because real estate can give you so much more because you can leverage it in ways you can't leverage other investments. However, it's a two-edged sword. Risk comes with that. You need to have other exit options and understand what you're going to do if things go wrong when you do leverage. Gotcha. Very cool. Very cool. All right.

Next question. You're falling asleep there, Brandon? I mean, I'm muted. I don't want to have my mute button. Anyway, next question. What software do you use to keep track of your books? I don't keep track of my own books. I have an accountant, a CPA who does it, and he's a QuickBooks guy.

Okay, cool. Gotcha, gotcha. In your marketing, do you use Google AdWords? Why or why not? I do not use Google AdWords. I do a little web. I do have a website, and I'm doing mostly organic search. and the reason is my direct mail works so well that I don't really spend a time on other marketing.

Perfect. Perfect. Perfect. Where do you get your direct mail leads list from? I buy them from my marketing company who uses various sources. Again, we mentioned Jerry Puckett. I'm using Jerry. He sources the lists for me. Okay, cool.

Right on, right on. All right on. All right. Last question is what does it cost to tear down a house? We had mentioned that earlier, but it's a perfect fire-round question. Yeah, so the interesting thing about that is filling those dumpsters and hauling off those dumpsters is actually more expensive than tearing them down. We did a tear down.

I think we had 840-yarders at about 500 per. So call it 7,000, to clean up that lot, usually. Okay, right on. Cool. Well, let's move on to the last bit here of the show, our famous four. Famous Four. First question. I don't even have to ask. So what's the next question, Brandon? Okay, I'll ask the first question. First question. What's your favorite real estate book? Okay. Is this a softball coming at me versus a hard ball? I don't know. I don't know with you guys anymore.

I'm going to say, I've read a lot of books, and I'm going to say one, I don't, I've heard it mentioned, but I don't know if it's a favorite. How I turned $1,000 into $5 million in real estate in my spare time by William Nickerson. It is my favorite book in real estate. That is a good book. I saw actually a video you made on that on YouTube one time, kind of ran across a video. So I'll try to link to that also that kind of review you left there. Okay. Yeah, good book.

All right, what is your favorite business book, non-real estate? I also read a lot of those. and I'm not going to say the e-min. So, it's pretty easy. There's a book I read a few years ago called The Richest Man Who Ever lived, which was a book about Solomon. And Solomon wrote like four books in the Old Testament, and this is based primarily on one, Proverbs,

and it applied a whole lot of proverbs to business and to finance and just a smart living. And I thought it was really, really practical, and tied in well with my faith. Okay. Cool. I haven't read that one. I have not either.

Check it out. The richest man who ever lived. Right on. Right on. All right. Next question. Hobbies. What do you do for fun, John?

Okay. So, I've got seven kids. They are... Wait, wait, wait. Hold on. Can we rewind that? I think something's wrong with my ear. You said you have seven kids.

Is that right? Or was there like a glitch in the matrix here? It was seven. Wow. Their ages 1 through 21. We've got our oldest three are biological. Our next three are adopted and we're working on adopting that number seven, part of a sibling group. So when you talk about hobbies.

You don't have time for hobbies. Actually, before I came into work this morning, I went hunting, bow hunting with my 8-year-old this morning. We didn't see anything. But, you know, I do some ranching since I have a lot. ranch. We have animals. We have wildlife. So we really have an outdoors lifestyle here, especially in the fall and the spring where it's kind of reasonable weather in Texas. Gotcha. Wow. That's awesome. Well, I've got three kids and I know how hard it is to balance three. I can't even, can't even fathom seven. Yep. Well, the older ones help with the younger ones. Yeah. Yeah. Yeah. I figured

as much. Well, that's awesome. And it's great that you're bringing some other kids into the family as well through adoption. I think that's really great. All right. The final question of the famous four, what do you believe sets apart the investors who succeed in this world from those who fail and they give up and run away?

Crying. I'm crying. I'm fascinated by the first part of the question. Maybe not the last part. I've listened really hard to the other podcast to what people are saying. And I think it's

really important. I know we don't spend a whole lot of time on it. And what I'm going to say is kind of a version of what I've heard a lot of times before. And that's diligence. And I'm going to define it as working smart or perseverance with focus. That is, you know where you're going. You're going to get there by working hard and working smart. You know, spend a bunch of time thinking about what you're doing and then do it with determination and endurance. You know, don't quit when it it's hard. That's great. That's good. Another tweetable topic. That is a tweetable topic. You'll see that on my Twitter feed later. Yeah, yeah. Before we close up here, last question I have for you, John. Where can people find more about you at? First place is my Bigger Pockets profile. And I've got a few websites.

I think we could probably link in the show notes. I won't give them right now, but profile is probably best place. Okay. We'll put them there and we'll put the links in the show notes. Fabios. Awesome, man. Well, John, thank you so, so much. I think anyone listening is probably going to have to go and listen again because there was a ton of stuff in here. And I know I was taking notes and Brandon was yelling at me as I was throughout the show. So, nice work. Thanks for being here. And, you know, thanks again for being a part of Bigger Pockets. We definitely appreciate you. I know you provide a ton of really, really insightful commentary to folks, and that means a lot.

Well, it's been awesome. You guys have a great Thanksgiving, and thanks, Conica. Yeah, Conica, I love it. Catch you next time. Thanks, John. All right, guys, I was Show 46 with John Klaus. We want to thank John again for being here. A ton of, really good information.

Tons. Tons. And hopefully you guys got it all down. And if not, go back and check it out again. Also, like we said up front, if you've got questions, definitely ask John. Those questions in the show notes at biggerpockets.com slash show 46. We really appreciate you guys listening. We really do. And again, hopefully if you have not yet taken the time to join us, us in our community. You're going to meet people like John who spend a fair amount of time giving back. John answers pretty much any question he can get his hand on.

So jump in. Join the site, BiggerPockets.com, and hopefully we'll get to hang out with you there. Otherwise, jump in. We'll catch you on Facebook. We'll catch you on Twitter, LinkedIn, all over the place. Check out our YouTube channel. There's lots of great stuff on there.

And keep listening. Keep learning, keep listening, keep doing, and keep telling us about those success stories. We'll see you around. Thanks for listening. I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place.

Be sure to join the millions of others who have benefited from business. BiggerPockets.com. Your home for real estate investing online. Hey, you. Yeah, you. Come here. I just wanted to say thank you for listening to our show. You rock.

Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. The content of this podcast is for informational purposes only.

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