BiggerPockets Real Estate Podcast - 912: Seeing Greene: Paying Off Rentals, Partnerships Splits, & Using Home Equity

Starting point is 00:00:00 This is the Bigger Pockets podcast show. Nine one, two. What's going on, everyone? This is David Green, your host of the Bigger Pockets Real Estate podcast. The show where we arm you with the information that you need to start building long-term wealth through real estate today. Today's episode is a Seeing Green episode that I'm bringing to you from Las Vegas where I'm attending a Keller Williams real estate event. And I brought in some backup.

Starting point is 00:00:23 James Dainer himself joins me to tackle your questions and help you all learn how to build more wealth, get more real estate and put together the life that you've always wanted to live. In today's show, we got some really good stuff. We talk about trapped equity, what to do when you are equity rich but cash flow poor. How to think about equity like a bank account and where you're storing your energy, including the pros and cons of the different ways that you can store energy. And if you want to know how to get a 13% return, James is going to share one of his strategies with you all.

Starting point is 00:00:54 So make sure you listen all the way to the end to get that information. Now, up first, we have a live. caller wanting to double up his portfolio. And we're going to take that call right now. So buckle your seatbelt and get ready. Let's see some green. All right. Up next, we have Matthew Marcelluson in Houston. He was featured on the Bigger Pockets rookie episode 347. And today's seeing green, we're doing our best to bring the bigger pockets community into the podcast. Matthew, what's on your mind? Hey, guys. Good afternoon. Thank you so much for having me. David, first day, I wanted to thank you so much for all of the information that you've doled out over the years.

Starting point is 00:01:29 You guys have been instrumental in my success at helping me become stage one financially free. So super enthused and thank you so much. And James, congrats on the market. I love that podcast. I listen to the episodes as soon as they drop. So today, wanted to ask about partnerships. So I currently have 11 units over four properties. I have all the TRs, STR, MTR, LTR.

Starting point is 00:01:54 My 2024 goals are pretty ambitious. I'd like to double my monthly profit from 5K to 10K. And to do that, I may need partnerships. I've already completed one partnership that went really well in New Bromples, Texas. I gave my buddy a stellar deal. He may not know it. Just kidding. I tell him all the time. So not only did I bring the time and the knowledge, but I also brought 50% of the funds to the closing table. As a Texas real estate broker, I did receive some commission that I put some into the business startup fund. But as I continue on this journey, more friends are noticing my success and they want in. Totally don't blame them. But since they're busy W-tours, they really can only contribute money and not time or knowledge. And we know that equity partners are more expensive than debt partners, but I do want to share this adventure with them.

Starting point is 00:02:53 If you or me, how would you structure future partnerships that give my friends a fair return, but also acknowledge my knowledge in time that I bring as well? All right. I've got some thoughts on that, but James, ladies first. Appreciate it. I absolutely love this question because we all do this when we first start getting investing. When you get going, you're trying to raise the money. You're offering massive service to start growing out.

Starting point is 00:03:18 I did the same thing throughout all of my 20s. partnering people over providing the services. You know, I definitely think I brought a lot more to the table than they did. But at the time, well, no, at the time, they were bringing a lot because they're bringing the cash in. And as you grow, you have to adjust your partnerships and your offering because, A, one, you're a more established operator with better systems, which means a safer investment for them. And your time is money, right? That prevents you from scaling. And so that's one thing I really had to figure out my early 30s.

Starting point is 00:03:51 was like, hey, I love these partnerships, but because I'm doing so much work, I can't keep growing in certain aspects. And so you always want to audit those throughout the years. But typically, you know, a lot of us do that 50-50 split in the beginning. And there's nothing wrong with that, but it's about exploring all the different options and what you need inside your business. You can, you know, there's so many ways you could do it. Actually, we just built a calculator that allows people to play with it all and make offerings out for people. And so they can play with the different fees throughout it because there's different ways you can cut it up. You can still do a 50-50 split, but you're still working throughout the deal.

Starting point is 00:04:30 You know, in my opinion, 50-50, they would bring the cash in. And then you can also fee it throughout each transaction, right? Like when they purchase it for the leasing. If there is a turn and you have to lease it up for a month, you can charge a fee there. The reason you want to charge your fees isn't to be greedy. It's so you provide your company the capital to grow and scale. And the more capital you have coming in for the fees, the better your business can run, which is going to take better care of your investors.

Starting point is 00:04:59 A lot of our fees, when we're doing partnerships, they're not really profit centers for us. But what they are are engines for quality. Our company runs a lot more efficient now by having these fees because we're not constrained on capital. It's not affecting our return. But, you know, so as you become a good operator, it's about, A, I don't think you should be bringing your own money in the deal. and if you are bringing your own money in the deal,

Starting point is 00:05:23 they should get a much smaller equity piece or they need to bring all the capital, but then make sure you're charging for your time because you're going to get your time back by having those extra fees because you can hire out and scale. You don't want to get trapped in that partnership's mud where you're doing all the work,

Starting point is 00:05:38 and there's nothing wrong with it, but it's just going to, it's not going to get you to financial freedom 2.0. Yeah, no, that makes perfect sense and that's exactly what I was looking to hear, so I appreciate it. Okay, before I weigh in, what are your thoughts on James Zeezer?

Starting point is 00:05:50 answer, Matthew? I love it just because I'm naturally a doer. So like, for example, we had a big freeze in Texas and some of our pool equipment froze. So I got my car, drove here and fixed it and did some other things around the house. So I need to get out, you know, of that. And charging those fees, being able to hire people to do that will allow me to scale. All right, Matt, I'm going to weigh in with my thoughts on this right after a quick break. So stick around for some more seeing green truth. Running your real estate business doesn't have to feel like juggling five different tools, and the tools are blades or flaming torches. With ReSimple, you can pull motivated seller lists, skip trace them instantly, for free,

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Starting point is 00:08:44 helping thousands invest smarter. If you want to do the same, visit biggerpockets.com slash retirement to learn more. And welcome back. Matt here is trying to figure out how to double his portfolio with partnerships

Starting point is 00:08:56 and then how to structure the splits. All right, I'll weigh in on this whole idea of partnerships and I'm going to go a little bit deeper, which might not be what people want to hear. Oftentimes what someone's looking for is just a quick answer. It should be 50-50.

Starting point is 00:09:08 It should be 60-40. They just want a shortcut. But life doesn't always work that way. Most things in life operate with a lot more gray than the quick answer we're looking for. So when I'm in a situation like you, Matthew, where I'm trying to figure out how do I split a partnership? There's a few negotiation principles that I'd put into play. The first thing is who controls the deal. That person has more negotiation leverage than the other one.

Starting point is 00:09:33 So if your partner is finding the property and putting it under contract and they are in control of how things go, they're relinquishing a portion of their power to you, which means that they have more negotiation leverage than you do. Now, if they are a poor manager of that leverage, they will give you a bigger split than what you maybe deserve. 50-50 tends to come out because everyone feels good about it, but you only feel good about it until you see who's doing the work and who's taking the risk. And then you don't feel good about 50-50 anymore. It's not as safe of a place to start as what people assume. Because like James was just saying, if he's the one managing the risk, managing the clients taking on all the stress and his partner is just putting money in the deal, he's not going to feel

Starting point is 00:10:12 good about 50-50. It actually isn't fair like what it said. In fact, the whole idea of fair is actually like a social construct we've created. There's no way of ever measuring what's actually fair. So ask yourself who is controlling the leverage and then how much of your chunk do you want to give away, right? And ideally, Matthew, you want to be the one controlling the deal. You would rather be in the position that you're contacting the realtor or you're contacting the

Starting point is 00:10:38 seller, you've run the numbers, and you know what you want to leverage out. I don't want to manage the rehab. I don't want to do the design. I don't want to figure out the money. You want clarity on what you actually need. It's not an even 50-50 thing. It's Matthew has a hundred of it. He is willing to give away 37% of whatever those things are that you don't want. Now it comes to what are you going to pay to get that? I would look at it and say, for your partner, if we're assuming that they're money, don't say what is a fair percentage of this deal. say what is a fair compensation to them based on what the market is paying with the risk involved in this. Okay.

Starting point is 00:11:16 So if they can go get 6% money in a CD or 10% money in the stock market with very little risk, maybe you give them a 20% return on their money because there's some risk involved in this. They could actually lose it, right? Maybe it's a home run deal with a ton of equity and there's almost no risk. You offer them a 14% return, right? but the idea here is to set a baseline of what they could make somewhere else and make it better with you. When you're controlling the deal, you are responsible for making sure that it makes sense for the other partner also. But don't just default to 50-50 is what I'm getting at because that makes everybody feel good.

Starting point is 00:11:52 You want to weigh in on that, James? Yeah, no, I completely agree. And I think when you're looking at partnerships, don't rush in because everyone gets excited about the deal. And they're like, I got this deal. I got to go get it done and they get deal goggles and they forget about what actually they have and what they should be offering. And it's really important for you to walk through the numbers and play with the percentages. What is a great return for that investor and what are you happy with?

Starting point is 00:12:21 And at the end of the day, it has to be both. And so when we talk about doing partnerships, we don't ever ask what people want. We provide them with the opportunity. We know what their return is going to be. And we say, hey, look, do you want to invest in this deal and make an 8% preff with a 20% equity position, your return should equal out to 25 to 30% over the next three to four years? And when you come with a plan saying, hey, if we look at this on a one year, two year, three year basis, here's your return.

Starting point is 00:12:55 And if it's beating where they can get, like David said, it's a good investment for them, especially if they want to get interested. And the problem being, for them, is there are W-2 employed. don't have the time and you have the time. And so they need you. And so don't undervalue those services and just make sure it's worth, you know, if you're giving someone a 20% return, like David said, that's a huge return. You might be able to keep 90% of the equity. And then as they participate more, maybe they're signing on the debt instead of you. Maybe I give them more because they're taking on risk, right? And so just looking at each one, play with. And then I would suggest

Starting point is 00:13:32 come up with two formats. You know, I have an equity. with a fee split that I do with people, and then I have a straight equity. And they're weighted differently, depending on who the investor is and how they want to participate. And when you model it out, when people talk about me investing with me, I have three things that I offer. That's it. I don't make different types of side deals because different types of side deals also require different types of paperwork. And, you know, it's really important as you're working with new investors in the real estate space, that everything's documented with a lawyer set up correctly, whether it's a lender agreement, an LLC, a joint venture agreement, and an understanding

Starting point is 00:14:10 so they know exactly what's going on, because I have had a lot of partnerships in life. Some have been amazing that have lasted almost 20 years, almost no issues, and some have been short-lived and non-stop issues, but what saves those partnerships at the end of the day is it all put down on paper so people really know what they're getting into because people rush into deals and then like, hey, how is this working? And, you know, explain the risk, put it on paper, have professionals prepare that paperwork after you've kind of allocated all your fees and then get your partnership gone. Yeah, and that will help you psychologically too, Matthew.

Starting point is 00:14:47 James is advising on a practical purpose, which is really good. But most people will go into whatever partnership they think is fair. And if no one proposes what is fair, then they're going to say 50-50. We always default to that, right? But if you're bringing them something that's already been written up because you're controlling the deal. And you're saying, well, this is what I've offered to other people. And then maybe you sweeten it a little bit better just for them. You've now set a baseline of what is fair, because that's what the market is offering according to you. And you've made it even better so that,

Starting point is 00:15:15 of course, they're going to be happy doing it. When you don't do that, their mind is like, well, I don't want to get less than I deserve, but I also don't want to get more. And there's nothing, there's no baseline with which people can operate. We talk about that on the David Green team all the time, the importance of setting a baseline, right? If I'm trying to get you to buy a house, Matthew, and you don't want to go over asking price, it's because you've set a subconscious idea in your head that the asking price is what the house is worth, and that's where your baseline is. But if I can convince you that that house is worth more than the asking price, now you might be paying more than the asking price, but less than what it's worth, I move the

Starting point is 00:15:50 baseline to whatever the appraise value is or the market value. Humans need that in order to navigate these relationships with a lot of fear of being taken advantage of and greed of wanting to get more of what they want. So James's advice is awesome, right? You be the guy to do the work to draft up those documents and then say, hey, here is the way that I do things. Tell me if you want to do this. And they're going to look at it and say, well, is this better than what I could get in the stock market? And if so, you're going to have yourself a partnership where you're controlling it. Love it. Love both of the responses, both five stars. Thank you, David. Thanks, Matthew. Appreciate you, man. And thanks so much for being here with us today at this segment

Starting point is 00:16:26 of the show, I like to review some of the comments that y'all have left on YouTube, as well as some of the reviews that our loyal followers have left for us on the podcast app itself. And then sometimes we get into some forum questions from Bigger Pocket. So let's see. These YouTube comments come from episode 897, where we interviewed my homie Felicia Rexford. And if you haven't seen that episode, I highly recommend you check it out after this one. All right, our first comment comes from Amelis Mendoza. trust made me feel at ease that my kids will not be homeless when my husband and I are not around anymore. Different generations have different struggles in life, but I want to make sure that my kids have strong foundations to deal with it. Oh, don't, Mother's love is something else, isn't it, James?

Starting point is 00:17:07 It is. Nothing, nothing trumps that. Now, B. Uluwahi says, my husband sent me this episode and he loves learning from your podcast. Thank you for continuing to show us how to diversify our incomes and the steps that you provide for us to get there. And Florian Iwu says, Excellent Content just placed my home and real estate investments into a revocable living trust. Brains develop around the age of 26. So think about legacy planning. I appreciate the honesty and pivots and these ideas in turbulent times.

Starting point is 00:17:38 And last but not least, we have a comment from the Apple podcast app that says, Excellent Resource. I stumbled into the real estate game after buying a duplex without realizing how much it would change my financial future. Ain't that the truth? I remember I bought my first house, James. I had no idea what that was going to do for me. I found BP and dove into all the content they produce

Starting point is 00:17:55 and have since used the equity in the duplex to buy a new primary, and I'm working on my first off-market seller finance deal. I don't claim to be an expert, but I'm amazed how confident I am working through this new deal because of my familiarity with real estate, which is in large part due to the education I received through BP. Thank you for all the hard work from redeemed ski bum via the Apple podcast. Such nice things.

Starting point is 00:18:19 And we appreciate all the feedback. I know for us as host, we love getting the feedback so we can actually start other types of conversations too. That's right. If you would like to be on Seeing Green, simply head over to biggerpox.com slash David and leave us your question because one, we can't make the show without you. And two, we just want to get to know you. So let us know what struggles you're having, what questions you have, what you've always wanted to know if you bumped into David Green or James Dainerd in a bar at a conference, at an event. What would you say? What would you ask? Ask it here because we're here for you. All right, let's get into our next question. Good stuff so far. This question comes from Jamie DeSouza in Boston, Massachusetts. Hi, David. My name is Jamie DeSuza from Boston, Mass. And my question for you relates to loan paydown. I have a property that I will finally be able to pay off next year. I owe about $170,000 on the mortgage. I have a 4% interest rate, and I've been into this loan for about eight years now. The property rents for 1850.

Starting point is 00:19:18 The mortgage payment is $1,400. So when you consider repairs, it doesn't cash flow very much. The property itself is worth about $450K as is. So I feel my return on equity is very low. If I paid off the mortgage, this would clear up about $12,000 a year. If you would not consider doing this, what would you think about doing instead? I don't have access to wholesale deals and I feel the MLS is quite overpriced. finally the 1850 i charge should be likely closer to 2,500 what are your thoughts on raising rents i've never done so

Starting point is 00:19:53 on current tenants thanks all right jamie i'll give you some practical advice here first off check out bigger pockets podcast episodes 448 and the rookie episode 369 where we interviewed my buddy dion mcneely and he has some advice there that just might help you especially when it comes to raising rents. Second off, I'm in the same struggle. James is in the same struggle that all of you are in. Cash flow is very hard to find. And the methods that we've utilized to try to find cash flow often end up with you getting a less than desirable property, a less than desirable location, or trading in your W-2 for a full-time job trying to find cash in real estate. And so you didn't really get a net positive there. How I've adapted is I've started buying in properties that I believe

Starting point is 00:20:36 will appreciate more than the national average. I call this market appreciation. equity. So I look for a literal market, cities, neighborhoods, areas where I think, look, if I'm not going to get cash flow, this needs to make up for it by getting more appreciation than I would get somewhere else, as well as adding value to properties. I have a new book coming out in August. I'm probably going to be calling it better than cash flow that details some of these strategies. So think about that. If you can't get the cash on cash return you want, how can you add value to real estate in other ways by buying it under market value, by adding value to it, by buying in better locations at where you look back or five or 10 years and say, wow, this thing has performed so

Starting point is 00:21:13 well. I don't even care about the cash flow. All right. Our next question comes from Melissa Alejandro in California. David, I'm stuck in limbo. I have two properties. One I live in and one I just got in a trust that belongs to my mom. My goal is to buy a ranch at house hack my home and maybe sell the house in the trust. The only problem is that my son, his family and my brother all live in the home that is in the trust. I need to buy a ranch first to put them in, then figure out what to do with the trust house. Both houses have equity, and I'm not sure I want to use it. I'm thinking a hard money loan for a down payment on the ranch. I need help. After I get situated, I want to invest. I appreciate your time. All right. So we've got some good real estate dilemmas coupled with

Starting point is 00:21:53 some mom guilt, giving us a nice little cocktail, James. What are you thinking so far? But you know, the family guilt's a real thing. You know, I got a, you know, my mom lives in one of my duplex units and I bring in $0 a month in rent. So it's a great return. But it's well worth it. And that's the, you know, the one beautiful thing about real estate is it can give you financial freedom to where you can help your family out. And that is the power of real estate. But we all go through these different transition periods as investors. We have assets. We don't might, we might not want to touch them, especially with low debt on them right now. we don't intend on selling them because maybe they're not traders like I am.

Starting point is 00:22:35 They want to keep them in their portfolio or they have a reason to keep in them. But they've created enough equity that they want to go and acquire more property, but they're low on liquidity. And so it's that bridge financing that you're looking for. And there's two great options for that. One is hard money. You want to find a cross-collateralized lender. That's a hard money lender that is going to take your equity position,

Starting point is 00:22:55 which will be in second position, and that's a harder loan to get. you know, hard money lenders will give you cross-collaterals if you own a piece of property free and clear. That's a really easy thing for them to put a loan on as you're buying that next property. When it's in second position, you have to really clearly state what the equity position is, what the cash flow is, and you want to make them feel comfortable. But you can find a hard money lender that will take your equity position and they'll look at that and they'll consider that as your down payment for your farm property. In addition to, as you're a real estate investor, I'm a firm believer working with local banks.

Starting point is 00:23:32 Local banks look at you as like an asset rather than just a person that fits in a square box like many of the big banks. If you move your deposits and banking over to these smaller banks that are local to where your real estate is or where you're buying and you move deposits over, they will work with you and help you put your plan together. So they will also look at giving you a bridge loan based on your deposits and your properties that you have with equity in them. And they will bridge it with a construction loan or a bridge loan at that point. So really, you want to talk to these local lenders that are more creative because when you're dealing with those bridge loans, you have to have them be able to see the big picture, not just what's on your W2 or your tax return. Yeah, and I think that Melissa here has the right idea. get another property, move my family into that one, then figure out what to do with the equity. I love these issues that we're trying to struggle.

Starting point is 00:24:25 Yeah, and David, I like what you said about equity, right? Like, as we build this equity, equity is really a bank account. And people kind of hoard it. And they're like, oh, this is my special thing. I have all this equity. I have all this net worth. But it's really just a number on the paper. And if you don't use it, you can't really revenues it.

Starting point is 00:24:42 And the purpose of building equity is like building a bank account. Like if I want to go make cash flow, that usually requires money, right? Like if you go buy a standard rental property, you're putting 20% down to make a 6% to 7% return or maybe even 10 if you're buying a good deal. Equity is the same thing. You're just utilized, instead of transfer around your bank account, you're transferred from property to property. And as long as you're increasing your position, that is a smart move. And so I think a lot of people need to treat your properties like an ATM. Don't go buy boats, but go buy, you know, pull the cash out when you need.

Starting point is 00:25:16 need it and then go reallocate and go buy some more investments and that's how you scale and grow. Good deal. They're in pillars of wealth. I talk about how equity is a form of energy, financial energy that you have wrapped up in a property. Cash in the bank is a form of financial energy that you have stored at a bank account. Your 401k is a form of financial energy that you have stored. Now, different forms of energy have different pluses and minuses. Money in the bank is very liquid. You can use it in a pinch. Energy in a 401k is going to be efficient because it's not being taxed, but you can't use it as easily. So understanding the pluses and minuses, the pros and cons of all the places where you can store energy will sort of give you an

Starting point is 00:25:55 advantage when you're playing this investing game. But to your point, James, yeah, if you're an active investor who's trying to find deals, who's trying to put them under contract, you need a bigger proportion of that energy where you can get to it via money in the bank, via a helac on a property where you can quickly take the energy out of a house. So, Melissa, thank you very much for your question here. I think you just need to get a little bit more clarity on what the next deal is going to look like. Then you've got lots of options. You can throw a helock on the property that you have right now and use that for the down payment. You could do a cash out refinance if you wanted. I know you don't want to take out debt, but you're going to need to get the money for the next house from somewhere. And we've got more in store for you. So stay tuned right after this quick break.

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Starting point is 00:28:51 Again, that's biggerpockets.com slash dominion. Welcome back to the Bigger Pockets Real Estate podcast. Let's jump back in. All right. And our last question of the day comes from Sardhas Muhammad. David, in your episode 897. James Dainard mentioned about a hard cash investment that returns 13% per year. Can I please get more information on that investment?

Starting point is 00:29:16 Thank you. Well, Sardaz, you asked so politely that I brought James in himself just to answer your question, bigger pockets with the white glove treatment. So James, what is this 13% annual return that you speak of and how might one partake? You know, when I started preparing for my kids, you know, once you have your kids, you start thinking about your whole mindset changes, right? You got to worry about 10, 20 years down the road, not just for yourself, but for them. And as I saw education and college just skyrocketing the last 10 years since they were born, I wanted to be proactive and kind of stay up with those costs, right? Because

Starting point is 00:29:52 the point of investing is to hedge against inflation, hedge against rising costs, and to keep you in the game. And, you know, I started looking at the 529 plan where, you know, it's a great plan. You can invest It goes into the stock market, gets you steady growth. It protects the money. But the issue for me is I'm a high return person. I don't like to do it traditional. And that has not worked well for me over 18 years. The way I do it seems to work for me, which is high risk investments with high returns.

Starting point is 00:30:22 And so then I start exploring, well, what can I do better that maybe isn't a shelter, but I can get a higher return. And that's where I looked into a hard money lending fund. And you have to be very careful about who you're investing. with, but I basically deposited $20,000 for each kid and those compound at 10% annually. And over 10 years, that $20,000 is going to turn into almost $275,000. And that's how you keep in the game and you keep up with those rising costs. But you want to make sure you're doing it the right way and with the right company.

Starting point is 00:31:00 The first thing is many times when you're investing these types of hard money, funds, they're going to pay your return 8 to 10% roughly, or depending on what they're lending it at. But you have to be accredited. Now, my kids are not accredited investors. So I did put the money in accounts under my name for them. And so in this hard money fund, I have my own investment, and then I have two separate accounts that are for my children that are compounding regularly. You need to vet these operators. There is all sorts of syndicators out there. There's all sorts of hard money shops that have popped up and they're newer to the market. And when you're working with an operator that is not used to market condition changes, that's where it can be a lot higher risk.

Starting point is 00:31:44 And so things you want to do is how long has the company been in business for? What is the operator's experience? What do they lend on? Is it a high risk investment? The fund that my kids are in with me, it's a first position deed of trust with interest funding. And so they only lend on properties with first position deeds of trust in a specific area I know well. And And the average loan to values at 65%. And so it's a safe fund for me to stick my college, my kids' future in because I know what they're lending on. So you want to find out who the operators are, how long they've been operating for, what they lend on. And then what is the requirements for them to lend?

Starting point is 00:32:21 Because you don't want to give your money to, whether it's your kids' money or money to hard money lenders that are just trying to push money at the door nonstop. Because that's how they get into riskier loans. But there's so many different things that you can do with your kids. you can buy a house in their name. You could buy a piece of raw land for $5,000 and put it in their name and let it grow over 20 years. That's also going to get you a high return if you buy in the right area. And so just don't look at just the traditional ways all the time. If you want higher growth, look at what you can execute on.

Starting point is 00:32:51 I mean, you can go buy land for $5,000. Take that money, let it grow, and then let them sell it to fund their college. I think when people hear the ROI, in this case 13%, there's an assumption that it's passive, especially because traditionally, most investment options anybody got involved in were all passive. Do I buy stocks? Do I buy bonds? Do I put my money in a CD? Do I give a personal loan? So we created this idea of ROI to compare investment options apples to apples. Well, if I give them my money, how much of it will I get back every year? But real estate investing is not passive. A business is not passive. We've now kind of created a spectrum of passivity.

Starting point is 00:33:28 and the higher returns tend to come with either more risk or more work. So if you don't want the risk, you can get a better return by taking on more work. If you don't want the work, you can get a better return by taking on the risk. And if you don't want either one, you're going to get a lower return, which means you need more capital to be able to invest. So this podcast, we typically teach people about how to invest their money and there's going to be some form of effectiveness. You're going to be managing a flip, managing contractors, managing a team of people that's helping you, managing a short-term rental. but there's always going to be a form of management, which is not passive income.

Starting point is 00:34:01 So what I'm getting at here is don't get tricked into just comparing the ROI on a deal. This one gives a 5% return. This one gives a 15% return. This one gives a 25% return. I'm going to go with the 25. That might be a flip that has a lot of risk and a lot of work associated with it. And the 5% return could have been the opposite of that. All right.

Starting point is 00:34:20 Thank you, everybody, Sardaz. I hope you're happy. We got James himself in to answer your question. And all the rest of you remember, I need you to go to biggerpox.com slash David and submit your question to be featured on a future episode of seeing green. Also, if you'd be so kind, leave us some comments on YouTube. Let us know what you thought about today's show and what you'd like to see more of. And if you've got a minute, please go leave us a review wherever you listen to your podcast. Those help a ton. James, anything you

Starting point is 00:34:46 want to say before we get out of here? No, I think these are great. I think, you know, keep sending in the questions. I love coming on here with you. This is my favorite thing, breaking down the mechanics of real estate. What is? that next step and you know and you don't know until you ask the question and and uh you know send in the questions we we will happily discuss them if you want to know more about where you can find james or i just go to the show notes you've got our contact info on there so if you're too embarrassed to ask something on seeing green you can send us a direct message on your favorite social media and if you've got a minute check out another bigger pockets video this is david green for james

Starting point is 00:35:19 the great danard signing on thank you all for listening to the bigger pockets real estate podcast Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast platform. Our new episodes come out Monday, Wednesday, and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com.

Starting point is 00:36:09 The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future results. BiggerPockets LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 912: Seeing Greene: Paying Off Rentals, Partnerships Splits, & Using Home Equity

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