How to Create Cash Flow & Cutting Costs On a Home Renovation

David:This is the BiggerPockets Podcast Show 744. I’d rather see you buy a five, two and a half or a five, three and rent the rooms out individually. I’d rather see you buy a small apartment complex of seven to eight units and rent that out than just go buy a three, two, especially if new construction.If you’re in this expensive market in Colorado, you can’t go buy a new construction home, pay market price and try to make that work as a rental. You’re going to lose money. You got to do something more creative.You got to find a property that has square footage that can be added, square footage that can be converted to get three units out of one unit. You got to try a lot harder to make this stuff work and today’s market than before. I think you’re probably seeing that.What’s going on everyone? This is David Greene, your host of the biggest, the baddest, the best real estate investing podcast in the world, BiggerPockets. We are here today with a Seeing Greene episode where I share my insight and knowledge on questions that you, our listeners, ask.One of the only podcasts where you, the listener, gets involved in the show. If you’d like to be on the show or have your question answered, go to biggerpockets.com/david where you can submit your questions there.Today’s show is awesome. We get into is New Construction: The Path for RE in 2023. How should LLCs be structured? Do you need one LLC or several, if you have more than one property? When a contractor’s bid comes into high and the deal doesn’t work, what can be done as well as a very lengthy and detailed answer from me on how to build, develop, and evolve systems in your business to help you?Make sure you stick around all the way to the end because that’s a really good question that is asked, and I put a lot of effort in the answer and I’m excited for you to hear it. Before we get into the show, I’ve got a quick tip for all of you.Vet your team to make sure they know a wide swath of knowledge in their industry and not just one piece of it. So often, people go to a lender at Wells Fargo or Chase Bank or an insurance person they found online and they say, “I need something for my rental property business, for my real estate investing business.”The person goes, “Oh, this is what we do.” They’re like, “What about this? What about that?” “I don’t know. I don’t know that.” Remind of that scene in Meet the Parents where he wants a nice bottle of wine to take to his in-law’s house because he is meeting him for the first time and he says, “What’s your most expensive bottle?”The guy says, “Mums, it’s like a $5 bottle of wine.” He goes, “Well, do you have anything more expensive?” The guy says, “Well, you could buy a lot of Mums.” That’s how you get a lot of comments from a loan officer, a insurance broker, a real estate agent, a construction person, a handyman, they’re everywhere.They don’t study the business that they’re getting into and those are not the people you want to work with. This is why I start companies and educate my employees so that they have a wide range of knowledge for different loans, different scenarios that will work.I don’t want to say loopholes, but different ways that we can get you financing where other lenders say, I don’t know how to do that. I’m just giving up. We don’t look for that. Ask a lot of questions of the person you’re working with. If they can’t answer them, they don’t know how the industry works, that’s not the person you want to talk to.You could also use a BiggerPockets agent finder to find an agent in your area that is a BiggerPockets member. Use the same process with them. Don’t assume just because they’re on BiggerPockets, if they’re a good agent. They might have never sold a house or they might have only sold new construction homes and they’ve got 75 houses sold on their resume, but none of them are a resale.You want to make sure the person you’re working with has a wide degree of knowledge. That was not a very quick, quick tip. That was actually a very long quick tip, but it was very important. I hope that you all heard it and take it seriously.All right. Let’s get into today’s show.

Jordan:How’s it going David Greene? My name is Jordan Ray. I’m actually a local real estate investor in the Memphis, Tennessee market. I own a real estate company that I started earlier this year with the idea, of course, to replace my income and walk away from being a truck driver, which is what I’m in right now. I’m in my truck.I enjoy truck driving, but I also enjoy real estate and I also enjoy my family and I would like to be able to spend more time with my family and also build a generational wealth. Of course, like most people do when they get into real estate.My few questions that I have, just two questions. First question, I want to know when you have multiple properties … I have one right now. It’s a cash cow by the way. But when I get another one, when I’m trying to figure out is if I should put it in my LLC, then I currently have the first property in or should I get another LLC?How you go about doing that, because to me having multiple LLC seems like a lot of work as far as taxes go. Well, I like to do my own taxes. I’m really good at doing my own taxes. I’m really going to due diligence, so I prefer to stick that way until it becomes too much to handle. Right now, one property, maybe two properties, I feel like the taxes are not going to be complicated at all.My second question would be, do you wholesale and if you wholesale or if you know who wholesales what their favorite way or your favorite way to market to get leads is? I currently have been doing a lot of cold calling and postcards and I’m actually about to start trying Facebook ads.Because honestly, the cold calling just isn’t working. Postcards are working. I’m getting calls back. But I haven’t necessarily generated any leads yet. I’ve been on and off trying to wholesale now for about six months, haven’t closed a deal yet.I’ve gotten quite a few of them under contract. At first I was good at getting properties under contract and then it flipped around and then got good in finding cash buyers but not getting one under contract. I’m trying to dial this down to combining it, too, and I feel like I’m getting pretty close. But I just wanted to know your opinion on that.Yeah. I appreciate all your help if you could can answer my questions. I really look forward to seeing my video on your BiggerPockets Podcast. Thank you for your time and have a great one.

David:All right. Jordan, thank you for your question. I can answer the second part really quick. I don’t wholesale. I don’t do that. I’m not going to say it’s immoral. But in generalized, don’t like the model. It’s skirting lines of legalities. It is rarely beneficial for the seller of the property.Wholesalers will always tell you that they’re working on a deal. It’s win-win. Sometimes I do think that happens. But the majority of the time I think that the seller would make a lot more money if they put their house on the MLS where everybody could see the property and other investors would have access to more inventory versus when they just sell it to a buyer’s list and a guy like me gets instant access to those properties that I buy all of them and your normal investors just don’t get to see them.I’m not really a huge fan of the wholesale model. The people who come to me that want to make money in real estate, I’d rather sell their house for them and get them as much money as I could, then just get them a quick sale and some investors going to make money.Now, the first part of your question I can address here. Do you use an LLC per property or one LLC for all properties? This is a good question because not many people understand the complexities of the LLCs. It’s typically looked like an LLC is safer, so just own your property there. It’s complicated and it’s not always safer. Okay.I have a lot of LLCs. I typically have several properties per LLC, but it becomes a headache to try to keep these all together. I pay 75 grand a year to CPAs to try to straighten it all out. It’s terrible. Me alone and paying someone’s full-time salary, which I guess if I think about it, I’d be better off to hire a CPA who just was my full-time employee than pay that maybe I need to look into it.But what I’m getting at here is CPAs are hard. They’re expensive. They’re hard to manage. You have to file with them every single year. There’s a lot that goes into this. Don’t just think the LLCs are a magic pill is going to solve all of your problem for your properties.What you want to try to do is mitigate how much equity is in any one individual LLC. You don’t want to have four properties completely paid off in cash in one, and then other LLCs where properties are leveraged at 80%. You want to split it out so each LLC has a limited amount of equity.Because if you are sued, they’re going to go after the equity in the LLC, which is why you don’t want it all in one. Hope that helps with your question. Thank you for your service. Keep on keeping on, and I hope that you find a way to get out of the truck driving job and into a job you like more.All right, our next question comes from Kenny McGregor in Las Vegas. I’m an active duty military. When I got to Las Vegas, I bought a small condo with a conventional loan while I built my first home with a VA loan. Now three years later, I’ve gotten my real estate license and decided to sell the condo, which I 1031 Exchange into two more rental properties and recouped my initial investment.Next, I sold my primary. Now I’m living at my friend’s house and need to buy another place. My question is, in this market, how many properties should I go for? I can reuse my zero down VA loan, which is a great benefit, about 120,000 in the bank. But most of the deals I’m running in the local area with zero down and my current interest rates leave no cash flow.So worth doing. Should I buy a fourth property as well or wait for the market to settle a bit more? Thanks.Okay. This is a really good question. First off, I would say, No-brainer. Use your VA loan with zero down to get yourself into a house. Actually you could have your own home. You might spend a little bit of money. You might come out of pocket some.But that’s okay, because owning real estate over the long term is worth. If you have to lose money for a couple years just to have a place to live, it’s still way cheaper than paying rent or owning your property. That’s a no-brainer. You need to buy a house to live it as a primary with your VA loan.Now, the rest of the money that you have, $120,000, I don’t think you should ask the question of “How many houses should I buy?” The right question is, “What’s the best way to deploy $120,000 into real estate?”Now, there is no rush. That’s what’s awesome about this. You don’t have to go put that money into play. For years before prices were going up, rents were going up. You had it to pull your capital because of inflation. There was a lot of pressure on us. That’s been temporarily slowed as rates have gone up.There isn’t as much pressure on you to go invest that money. I would settle in and I would wait. But I wouldn’t wait for the market to tank. I just wait for the right deal to cross your path. If you’re telling me that current interest rates leave no cash flow, you got to look at different properties or different strategies.Maybe you’re looking at two units, you need to look at three units. Maybe you’re looking at single family homes and you need to buy a house that has an ADU or two ADUs. There’s a way to make properties cash flow. Maybe you’re going to have to buy a property and Airbnb the main house and live in the ADU yourself.There’s different creative ways that you can look at this. But my advice to you would be don’t just go cookie-cutter, “Oh, well, what worked before is going to work now.” When you bought that condo, it was a different market. You could get cash flow, you got appreciation. It’s a harder market now.Combine taking your time with looking at deals creatively. When the right one comes along, jump on it, but don’t feel pressure to jump on it before that. I don’t think that anything’s going to turn around anytime soon to where you’re going to miss out if you don’t buy a house tomorrow.All right. From Sayli in Hayward. We’re getting a lot of Hayward people coming in here. I always talk about the red chilies, a restaurant in Hayward on mission that I love. We’re getting a lot of people from there. That’s cool. If you’re in the Bay Area, if you’re in California at all, reach out to us. I’d love to talk with you. I’d love to get to know you better because these are my stomping grounds. All right. Let’s see what Sayli has to say.

Sayli:Hi, David. Thank you for listening to my question. My name is Sayli. I’m from Hayward, California. I have been investing in Michigan for past three and a half years. My question is regarding long distance rehab project.Last month I purchased my seventh single family rental in Michigan. It’s my second BUR project. I got bids from four different general contractors. All of them are very well-known and well-recommended on local FP groups. I have worked with two of them, two GCs on my previous projects. I have some experience with them.This is a typical renovation project, a dated house that needs an uplift, flooring, paint, bathroom, refresh, light fixtures, HVAC, et cetera. I’ve been listening to other investors on podcasts and YouTubes. They do this rehab under 30K, 35K, but I budgeted about 45,000. The bids I got from GCs are 70K and about.My question is how can I cut cost without compromising quality? I take pride in providing quality products to my tenants. But 70K rehab cost is too high to justify the rent. Any word of advice? Thank you for that and thank you for taking my call.

David:All right. Sayli, this is a really good question. When you’re in a situation like this where you have to cut costs but you don’t want to cut quality, you’re going to have to give in somewhere.Now for you that would be managing the project yourself. When you work through a general contractor, you’re paying the contractor to basically manage the project and find the subs. They’re not always doing the work themselves. You pay them a certain amount of money to do the plumbing.They go find a plumber that does the work for less than they got paid and they keep the difference. In a sense, they’re a project manager who has the pieces that are needed. If you want to cut them out of the deal and the GCs are all giving you bids of 70,000, but you think it can be done for 45,000, you’re going to have to go find the subcontractors yourself.You’re going to have to go find the plumbers, the painters, a handyman that can do the renovation stuff like the bathroom light fixtures, the HVAC. If you find those people yourselves, you can do this. I just want to caution you, it’s trickier than you think. This is why most people use a general contractor.If you go out there and try to find these people yourselves, they might lie to you. They might take your money and not finish the job. This is the problem that you’re going to get stuck in. One way that I mitigate that risk is I pay them after the job is done or maybe I pay them a third of the money that they’re asking for and then I pay them the rest after I verify the work’s complete.But again, they might tell you the work’s complete. You’re going to have to send an independent person there to make sure that HVAC worked to make sure the paint was done to make sure things are done to your liking, especially if these are out of state, that could get tricky.Your only other option I could think of is if you could find a person who lives in a area where wages are lower and fly them into that area to do the work. Now the problem is Detroit, Michigan’s not really like Malibu here. Okay. This isn’t Beverly Hills. The people there already aren’t making a ton of money on the wages. That $70,000 quote might be just the going rate for what this work is going to be.The only other thing I can think to say is when I get in these situations, I look for ways to cut costs in the areas that are least likely to affect the deal. You probably don’t want to cut the paint because you get a lot of bang for your buck on that.You probably don’t want to cut the light fixtures because those are relatively cheap. But some of the other stuff that you’re talking about, maybe the flooring, maybe you leave the flooring in there. You put a cheaper flooring though what you were thinking, because that’s expensive, both the materials and in labor.The bathroom refresh, maybe you don’t upgrade the bathroom, you just upgrade the light fixtures. Maybe you just make what you already have nicer and so you do less work to make up some of the work in the budget there. That might end up being your best option. Thank you for the video. Keep representing Hayward and let me know how it goes.All right. At this stage of the show, I want to make sure that you guys all like, comment, and subscribe to our YouTube channel. Especially comment, I want to know, what do you think about the show so far? Do you like the Seeing Greene episodes?We’re going to take a minute to read some comments from previous episodes that you, our listeners, have left. You can see what other people think.From Shaka Boom 01. “David, I love your show. But words I hear too much on your show are one duplex and two duplex. Something I never hear you talk about is buying land and building. I would love to hear your thoughts on investing in land and building the ideal single family home with ADU, which I’m going to do. I know it’ll be a lot of work/learning, but I think the outcome could be great.”Well, Shaka Boom, the reason I don’t talk about that a lot is I’ve never done it and I try to avoid things that I don’t understand. It’s incredibly complicated compared to just buying a house that already exists.We just heard our previous question about how to manage a contractor, and we saw how that can get out of hand where the bids get too high. It gets even worse when you’re building it from the ground up. Tons of things go wrong you weren’t expecting.You’re borrowing money from banks where they’re expecting work to be done. You’re working through permits. There’s so many moving pieces here. It could be very easy for this to take way too long and lose a lot of money.Now, I’m not going to discourage you from doing it because if you’ve already decided you’re going to do it, I’m assuming you’ve got some training, some expertise, some background in this area that makes you think that you can do this better.But for people that are getting started investing in real estate or have a small portfolio and want to grow it, the average listener that we have on this show, the avatar person that’s listening, this could absolutely bankrupt them financially.I know a lot of people that tried to build spec houses and lost a lot of money, including some family members of mine. That’s why I don’t talk about it as often. But if you know what you’re doing, you can make money in real estate in every way.All right. Our next comment comes from Rubai Khan. “Where would David Greene live if he ever left California?” Ooh, this is really good. I’ve enjoyed my time in Florida. I’ve been visiting South Florida to look at some of the projects I have going on down there. I don’t think I could live in southern California because I just cannot stand traffic and things moving slow and it’s everywhere.I enjoyed visiting the Smoky Mountains. Oh, I know, probably be Scottsdale. I really like when I visit Scottsdale. I like the heat, especially the dry heat. Heat doesn’t bother me. I go running when it’s 100 degrees, hiking when it’s over 100 degrees all the time. I love it.I can’t do cold. I have cold air-induced asthma that happens when I exercise. My windpipe freezes up. It’s really hard to breathe. I can’t stand it and just being cold sucks. I would definitely live somewhere where there was sun and I’d probably vacation to Hawaii a lot.All right. Our next comment comes from Haggy 2013. “Thanks for outlining videos. They’re easy to navigate, and for that I’ll give 10 likes.” Yeah. Shout out to Nate Weintraub and our production team who help you know what topics we cover by adding in the little breaks on the YouTube timeline there. They got to sit there and do a lot of work. Thank you guys for doing that.Our last comment comes from Unio Brainwave Music App who says, “Today is a very lonely day for some reason. To counter that, I’m saying hello to as many people that read this post. Hello. I hope you all have a better day than how it started, even if it started really well.”Well, if you guys are also feeling lonely, it might be that you need some community in your life. At BiggerPockets, we’re here to provide that. Check out our website, biggerpockets.com where we have a forum where lots of people answer questions and ask their questions as well as meetups in your area that post on the website. Go meet some other investors and get involved in a community.All right. We love and we appreciate all your engagement, so please continue that. Leave me some comments on today’s show to let me know what you think about how we’re doing here. Remember, if you want to be featured on the show, you can go to biggerpockets.com/david and submit your question to be put on the show.All right. Our next question is a video from Liam Quintana.

Liam:How’s it going? All right. My name is Liam from New Orleans. All right. I own a construction company. My question for you is I want to BUR new construction. I’m able to build houses, duplexes, single families for a lot cheaper than what they sell for on the market even though the market [inaudible 00:19:34].But I want to build a duplex, run it out, do a cash-out refi, take the money out and build another one. This method allows me to never run out of money. If I take the liquid that I have now and just put down payments on a bunch of rentals, I would eventually lose money. What do you think about BURing new construction?

David:All right. Well, Liam, that is how the BUR method works. The only thing that’s different is you’re talking about building instead of buying and rehabbing. This would be build, rehab, rent, refinance, repeat, which is kind of funny. It’s a little bit different there.I’m not going to discourage you. I’m just going to say you got to understand how the building process works. If it is true that you can build a new property for significantly less than what people are willing to sell them for, this might be a new wave with real estate investing.If sellers are just not willing to drop their price and enough new properties are built and sell for less than what the existing inventory is, that would force comps to come down and it would help the market correct. The problem is I just don’t see enough investors learning how to build and becoming proficient at doing that in the period of time that we would need to push prices to come down.But if you’ve got some background, if you’ve got it in with a home builder, I think this could be cool. Just make sure you know what you’re getting into. Okay. There’s a time that I looked into doing the same thing. I was going to build a bunch of properties in Jacksonville, Florida that were fourplexes.I had the land picked out. I had the builder. I had a lot of conversations. I realized, thank God before we got into the project, that the zoning would only allow us to build one door per like square mile. I was looking at buying 10 square miles of land. I could only put 10 houses, but I had planned on building 50.I was going to do what you’re doing. I was going to build two or three, fourplexes, refinance them out once they were appraised, put that same money into the next four and just build my own subdivision of fourplexes and have my own rental community kind of like apartment complexes.Then I found out at the last minute zoning was not going to allow me to do that. That’s what scares me. There’s a lot of little things that can pop up like that you don’t realize when you don’t build often and you can run out of money very easily.I would definitely recommend talking with a home builder who has done this many times before that can guide you through the process before you commit to doing this new home construction.All right. Our next question comes from Paul in Utah. Paul says, I invest in Kansas and I currently have seven doors from a triplex and a four single family homes. I am a long-term buy and hold investor and I plan to get 10 to 12 doors total.When I was getting insurance set up on my most recent rental property, the person I was on the phone with mentioned that I’m getting to the point where it could be a better option to get a commercial insurance policy for all my properties than individual properties on each one.I haven’t really heard this before and I was hoping to get the David Greene and BiggerPockets thoughts on this. What pros and cons should I be aware of? Any companies that I should reach out to or avoid? I called one local insurance broker and they seem pretty confused when I was asking about this.It’s so funny you say this because I’m in the process of launching an insurance company right now. I believe we’re going to call it full guard insurance and it’s going to be providing insurance to landlords.Now, I’ve run into a couple issues where I have had pipes break. When I was in the middle of construction, issues with short-term rentals. I bought property and it turns out the quote I was given from the insurance company ended up being way lower than what they quoted me once the property was purchased and it ticks me off, and that’s when I go start businesses.In a couple months, I will probably have a lot more information to give you about this once I’ve dove into that business. Now, it doesn’t get talked about a lot, so I can’t give you a ton of information about this.What I can say is that this is not a bad idea. If you can get one policy that will cover everything, I think that’s good. As far as the local insurance broker … You just called the wrong one. If you call and you ask about it and they say, “I don’t know what you’re talking about,” call someone else. Keep calling until you find a person that either knows or they say, “Oh, yeah. We don’t do that. But here’s why.” They can educate you on the process.Guys, in general, when you’re trying to find an insurance broker, a mortgage broker, a real estate agent and construction person, whatever it is, if you ask them questions and they don’t know, that usually means it doesn’t fall within their specific wheelhouse and they just do the same things all the time and no one’s good at something that they don’t do a lot.You don’t go ask a professional skateboarder about snowboarding because they don’t do that. They skateboard. They’re going to have to learn the hard way how to be good at snowboarding. You want to hire them to be a coach just because they can skateboard.You need to take people the same way. If you’re reaching out to someone on my team, if you’re reaching out to someone on BiggerPockets, if you’re reaching out to someone that a friend referred you to, ask a lot of questions and make sure that they are confident and competent in the way that they answer those questions.They should have a wide range of knowledge or at least the broker they work for should have that. It’s a huge red flag if you ask your lender about a DSCR loan, a bridge loan, a HELOC, any of these other loan products, and all that they can say to you is “We just do conventional. I don’t know.”Get away from that person. That’s not the person that you want to be overseeing, managing, directing, guiding you in your journey. You need a person that is familiar with those products and can tell you which one works best for you, which is how I try to train my staff and what I look for in different agents that I might be working with.Our next question comes from Kayla, Kayla Wright in Nashville. Hi David. Thank you for reading my question. I’m a freelance marketer who recently started working directly with the real estate investor who has acquired 76 doors in the Nashville area since 2020.In exchange from my marketing services, I received a 5% payout of total profits on the flip property aspect of the business, which is a new venture on top of the multifamily rental, which is 76 doors. This has been a great opportunity for me to learn the real estate landscape, set goals for myself for my own real estate journey, and build a strong relationship with the investor.My investor partner has also agreed to offer an extra 5%, so 10% total, of profits on flips if I find the properties myself and bring them to him. For added context, I work full-time in another job and I’m hoping this opportunity will help start my journey as an entrepreneur.My question for you as an investor is what can I be working on aside from education that will be beneficial to my investor partner as one of the first employees? In what ways can I truly help him ramp up his flip business and stand out? I’m currently working on the website, but he is expressed interest in my helping with other investor relations and other sides of the business as well.The podcast has helped me immensely. Thanks again. What an awesome question. I love this, Kayla. All right. I was thinking when I first started hearing this that I was going to give you some warnings about what to avoid. But I don’t know that that’s necessary.You’re asking a really good question. What can I do to help this person with more? Guys, this is honestly how you’re going to learn about real estate investing. It’s not by finding a mentor who’s just going to teach you stuff. It’s about finding a person that you can bring value to and help them, and you learn from the experience of doing it for them.Okay. That’s what you’re really looking for. Not how does someone teach me how to sell houses. You go find an agent that already knows how to sell houses and you do all the work for them that they don’t want to do, and you learn from doing the work. That is the best way to learn anything is from actually doing it.Working on the website, that’s a great idea. My guess is they look at you like a marketer. They’re thinking of marketing stuff that you could do. But what if you have more skills than just marketing? Okay. Do you have bookkeeping skills? Do you have project management skills?Can you learn what their workflow is and help them by calling the different people that are supposed to be doing stuff and making sure those people did what they were supposed to do, as well as asking those people, what do you need to help do your job better and finding ways to solve that?Many times people like me that are managing a lot of stuff, give an order or an edict, I want you to go do X. Then X somehow falls by the wayside, and I don’t even think to go check in on that till two months later when I needed it done and I say, “Where’s X?” They’re like, “Oh, it’s halfway done.” This happens all the time. I don’t have a lot of people in my companies that take responsibility for making sure the stuff gets done.If you could be that person, you could do anything. If you could just learn to be organized, if you could learn to do follow up, if you could create a to-do list of everything that person has, make yourself their personal assistant and then follow up to make sure everyone’s doing things and ask that person a lot of questions, you will learn a ton.I have this model that I teach the new people where imagine water falling into a bucket. Okay. The water that falls into the bucket is the stuff that needs to be done on the job, and the bucket is the person. As that bucket fills up with water, they have tasks that they need to complete.Their job is to get the task done, which is draining the bucket before the bucket overflows, which is they ran out of time and they fell behind on stuff. Okay. One way that we help is we put a hole in the bottom of the bucket where water drains. A person underneath them, which could be you, which is another bucket that catches all the stuff that comes down.The benefit of that is the person who’s doing the initial work where all the water’s coming down, they’re getting all the learning. But if you can put yourself underneath them, if you can take over some of the responsibilities and do the work, you benefit from the same learning that they don’t need anymore.Something they already know how to do comes in. They pass it down to you. You do it for them. They didn’t need to learn. They already know. But they still get the benefit of it getting done. You get the benefit of the learning and it becomes a mutually beneficial relationship.My best advice when anyone is in your position is to quit running away from responsibility. Quit looking at real estate as a thing you can do so you don’t have to be responsible. You don’t have to grow. You don’t have to learn new skills. Welcome responsibility. Run two responsibility.Jump in and say, “I want to do as many things as I can for this person as possible,” and only commit to the stuff that you are willing to be responsible for the outcome for. If you do a good job with little, you will be given more and this is how you’re going to learn. Great question.

Marc:Hey David. I got a question for you. My name is Marc Irvison. I’m an agent/investor here in Northern Colorado. Moved here about a year and a half ago. Bought a new construction home. Ever since then I’ve been ringing out on VRBO three to four nights a month.After two years of doing this, I’ll be able to offset most of the mortgage come next year during tax time. My DTI is going to improve probably about 1,000 a month, and so I’ll be looking to buy again. I started really late in 2021. That’s why the DTI isn’t going to go up as much as if I had rented it out. You know what I mean? Two years full-time. But it is what it is. I’ll get 1,000 bucks extra on my DTI next year. I’ll be looking to move again.The next one, since my first lung was on a VA, next one I guess will be FHA. But my question is, if I’m eventually trying to get out of the rat race and get out of the W2 job, how do I make that happen in this Colorado market the way it is with average prices being a 450 to 500, unless we see some kind of real estate crash or something like that, which even then I doubt prices are going to go down here that much.The only idea I’ve had is that to go ahead and start buying in Greeley, Colorado. The issue there is that I work at Broomfield. That’s probably about an hour commute. Do I just bite the bullet and drive an hour or two from work so I can buy duplex in Greeley for say 475, 500?Or do I continue purchasing single family homes where you can get a new construction three, two, no basement for, say, 425 down, close to Brighton or near Firestone, something like that? Do I focus on duplexes up in Greeley or do I focus on single family home closer to Broomfield? Probably where there’s, I’d say, more demand.Like I said, I’m eventually trying to get out of the rat race to get out of a W2 job. I’m just trying to figure that out. Like I said, this market’s way different. I come from Hamilton, Ohio where my first house was 9,000 bucks and I put 25 into it, had 30 all in. I eventually paid it all off, had my house free and clear.Out here 30,000 bucks. That wouldn’t even get you a shed. I mean, it might get you like a 50-year-old rundown trailer, but that’s it. Nothing that’s even close to even me inhabitable. This is different out here in this market. I’m trying to adapt and do what I can.Just help me out, man. Appreciate your service as a cop and I’ll look forward to what you have to say. All right. Thanks, man. Bye.

David:All right. Thank you, Marc, for your question. This is some good stuff here. First off, I think you’re probably realizing the reality is getting out of the rat race is going to be harder than what it was eight to 10 years ago when prices were a lot lower, demand was a lot lower and competition was also a lot less, too.It’s just the reality is it’s harder to get out of the rat race with real estate than it ever was before. I’ve come to look at real estate investing as a supplement to my wealth building, not as necessarily the foundation upon which I will rely on my income to come in.I think most people, there’s a handful of people that don’t fit that avatar, but most people probably would be better off if they looked at it the same way. Then if we have another big economic crash and you got a bunch of money saved up, that’s when you can buy a lot of properties that will function to replace your income at some point.But we don’t have control over when that happens. It seems like every time we hit a recession, we just print a bunch of money so that never comes about. That’s caused a lot of inflation, which has made the cost of living go higher, which has ironically made these assets even more expensive and harder to get.Let’s talk about what you can do. I don’t like the thought of going to an area with less demand. I also don’t like the thought of getting a new construction three, two. Three, twos are not rental properties. In 2010, 2011, I could buy a three, two as a rental property.If you get a screaming good deal on a property like from a super motivated seller, you can make it a rental property. But even then, if you look at the return on equity on the price, you’d have to pay to make that deal cash flow, you’d be better off to buy it, sell it, move that equity to something that’s like a six, three, two, three twos with that money as opposed to one.Those are not meant to be rental properties. Those are meant to be houses people live in that can be made into cash flowing properties, but they’re not designed for that. I’d rather see you buy a five, two and a half or a five, three and rent the rooms out individually.I’d rather see you buy a small apartment complex of seven to eight units and rent that out than just go buy a three, two, especially new construction. If you’re in this expensive market in Colorado, you can’t go buy a new construction home, pay market price and try to make that work as a rental. You’re going to lose money.You got to do something more creative. You got to find a property that has square footage that can be added, square footage that can be converted to get three units out of one unit. You got to try a lot harder to make this stuff work in today’s market than before. I think you’re probably seeing that.I’d advise you on the duplex route over the new construction. But can you get something in the middle? Can you find something in the area that you like that could have more units in it than what you’re seeing? Could you get a new construction duplex or even better a new construction fourplex?Can you talk to the builder and say, “Could you build me a four-unit property? Is the zoning going to allow for that?” That’d be pretty cool. I bet if you get four units, you could actually probably make it work. Maybe you got to have several conversations like that with different builders or different renovators to ask like, “What could be done for the price that I’ve got to get more than one unit?’That’s why most properties are not cash flowing. Because you’re analyzing a house with one unit and a couple bedrooms. You’re not analyzing an apartment complex or several units, which is what you need if you’re going to get cash flow.Good luck on that, Marc. I know you’re in a tough market out there. Your last option could just be invest out of state. If you know the Ohio market, like you mentioned, maybe you go back out there and you buy some other properties and you keep putting your money there until we have a crash and you can actually find something in Colorado that works for you.All right. On our last question comes from John McKee out of Fairfax, Virginia. David, you talk about putting systems in place to help grow your business. What does that look like and how did it evolve? Can you give me some examples of these types of systems and how they made you more efficient?Oh, my gosh. First off, great question. Second off, concisely worded. Third, you acid it in a great way. Not only what do they look like, but how did they evolve? Because that’s the only way to answer this question is you got to talk about what your first system looked like and how it grew, because none of you are just going to go plop down a system and say, “It’s done.”But that’s what everyone explains it. You listen to Alex Hormoze or you listen to some of the other online gurus like, “You need a system. You want a business, not a job.” You’re like, “Okay. Okay. Let’s do it.” Then they explain how it works and you think you’re just going to go wave a magic wand and you have a system. You don’t.What you have is a first step out of 700 steps that will become a system. Ask you how it evolved is a great way to phrase this. Let’s talk. I remember being in John’s position here. I had a talk with Kyle Renke, who’s now the Chief Operating Officer of The David Greene team. Helps me put a lot of the events together that I do, the retreats that I run.He helps run the YouTube channel. He does a lot of different things. I remember saying, I keep hearing people tell me that I need a system and I don’t freaking know what that means. I get the concept of a system, but how am I supposed to execute it? Is there software I’m supposed to buy?Am I supposed to write it down on a notepad? Paint a picture for me of what this looks like. I was so frustrated because I knew what I needed, but I didn’t know how to get it. Kyle came back to me and he is like, “Okay. What all you need to do is open Google Drive and start open a folder about whatever you want to make and then make subfolders inside the folder with the other pieces and then use Google documents to type out the instructions.”That little piece of information unlocked what my brain was looking for. Okay. I’m like Forrest Gump. I’m not a smart man, but I know what love is. I needed someone to just paint me a picture that I could get, like, “Okay. That’s what I needed. I can run with that.” I just went nuts.I became a systems guy because I had that little spark that started me. Hopefully me answering this question can be that spark for a lot of you. Let me give you an example of information that I teach real estate agents and how to build systems. Because I did a very good job of systemizing the job of a real estate agent.Then I did a very good job of systemizing the role of a loan officer. Once I had that, I could hire people for the one brokerage, for The David Greene Team, for whatever else I’m doing. They knew what role they were going to play. But before I could do that, I had to build the entire thing out.I’m going to give you guys an example of that and then I’m going to show you a screenshot from my phone that shows you how one of the systems works when I’m combining both agents and loan officers together in one system.All right. If I was going to take a listing, which is one of the easiest things to systemize because buyers are crazy and they’re very emotional and you got to do a lot of different things, it’s harder to systemize that. It’s like it’s herding cats. It can be done. But poof, it’s worked.Listings are much easier. What I started was I made a list of everything I had to do in a listing. The goal of the original list is just to not forget. Your system starts off whereby eliminating errors of omission, you’re just trying to make sure you don’t forget to turn the insurance on in your rental property.You don’t forget to have automatic withdrawals set up for the mortgage payment. All of these, the utilities turned on. It’s easy, man. I bought lots of houses and then realized, “Oh, my God. No one turned on the air conditioning. We don’t have utilities.”The property managers showing it to a tenant the house is 105 degrees. This happens sometimes when you don’t have these systems. It’s just a checklist. Okay. Here’s all the things that have to happen when I first buy a rental. Here’s all the things that have to happen when I first list a home.I have spreadsheets now where my employees, every time I buy a house has a column of all the stuff they got to do, they get the utilities turned on, get the auto-pay set up. Here’s a link in the spreadsheet that will go to the Google Drive folder where we will keep the insurance, where we will keep the mortgage statement, where we will keep the information if we ever need this on a later date, because you always do.For listings, it was order assigned to put in the yard, have the photographer go take pictures, have a lockbox put on the property, get a spare key from the client, make sure the listing agreement is filled out. This stone’s obvious, but you just start by writing down all the obvious things you need to do. Okay.I probably had a list of 15 things. When Krista was hired, my first assistant, that’s what she worked on. Now what would happen is we would realize, “Oh, we forgot to” … What’s a thing you might forget on a listing to do? You got to put it in the MLS. Maybe we would forget to get a certain form filled out that we needed to put it in the MLS.I would look at where in this series of 15 things that step should go, and I would just go into my Google Doc. I would step 12, I would hit Enter and that makes 13, and I’d put that new thing. Every single time we made a mistake, somebody came to us and said, “This needs to get done and it wasn’t on the list.” It added to the list. It added to the list, added to the list. It went from 15 things to 50 things.That’s how much stuff is actually being done. Some of those 50 had subpoints. Get the listing agreement signed would then turn into, give a copy of it to the broker, give a copy of it to the escrow company. All of these things would start to apply. You did have those subpoints, but you still just have a checklist on a Google Doc, under a Google folder with the property’s name, which is in a folder that says “Listings.” Okay. It’s that simple.Now, at a certain point I realize there’s these things can be clumped into stages. I broke my list of 50 things or 75 things into 4 different stages. The first was pre-listing. Okay. This was all the stuff I needed if I was going to go to your house to sell your home. I would have a comparative market analysis run by my staff and they look at every active, pending and sold home that was on the market.I showed them by sitting with them, here’s how you call every single person, every agent that has an active and a pending sale. You ask them, “How many offers are you getting? Where are the offers coming in? Do you think you’re priced too high?” Then I would teach them how to build rapport. There’s no agent just wants to tell you that.Before I went to a listing, this is the work I would do. I don’t show up to sell your house and just be like, “Here’s what we should sell it for.” I’ve done some research. I know these houses are listed at 700, but they’re selling for 780, so we don’t have to list that low. We could come in at 765 or something.Or these houses were listed at 850 and they’re just sitting there. They’re not selling. The agent says they’re about to do a price reduction at 775, so we don’t want to copy that person. I had all this information and I had notes. Their house looks like this. Your house looks like this. These are the best cops. I would have them do that.Then we had these David Greene Team folders made and we had these pens. I don’t think I have one around. But they look kind of like this, but they were red and black with our logo and the name. Krista would put, get the folder, put the pen. We had a marketing pamphlet. We still do, called the Blueprint that explains to sellers all the steps that go into selling a house as well as buyers, all the steps that go into it.She’d put the comparative market analysis. She’d put a copy of the listing agreement. We have a pop socket that goes on the back of a phone. One of those things that you could hold it with that was branded. We had all these goodies that we would bring and all that would go in a folder.Then I would have an iPad that I would bring with me is that’s what I would give the presentation on. Okay. I know this is a bit of a long answer. But I’m showing you guys a level of detail that goes into the system.Then all of the steps that were needed for me to be able to sell … to get the listing signed were in this document up to the point where there’s even a reminder for Krista to put the address in the calendar of my phone through the computer that was linked to it so that I would just get a 3:00 listing appointment.You got to go to this address, and there’d be a reminder 30 minutes before that would say, “Put the thing in your car,” because as you guys noticed, I forget to turn the light green. I would forget to grab the folder at, get to the listing appointment. It was bad.Then Krista knew that she needed to be on call when I was at a listing appointment. If I was there and you were like, “Well, David, I mean I know you have a team, but I really want to work with you. How do I know that I’m going to get good service?” I’d say, “Let’s try this. Let’s call Krista right now and see what happens.”I would call, she’d be like, “Hi.” I’m like, “Hey, Krista, can you do me a favor? Pull up this house on the MLS or pull up this house on Zillow and can you tell me what the house is around her selling for?” She’ll be like, “No problem.” She’d pull it up like, “Oh, there’s three other homes that are all pending for sale and no other active homes.” I’m like, “There you go.”Now we can see exactly. Do you want me to call one of the agents and ask them a question? They’re like, “Wow. You’ve got this dispatcher that’s just ready to jump in.” After that, I had a list of stuff that we would do after the listing presentation was signed, but before we went active.This would be getting the picture scheduled, getting the lockbox, put on the door, getting the sign in the yard, having cleaners go to clean up the house, double checking to make sure that homes didn’t come on the market. There were competition that we didn’t know about. They would check that every single day. I’d have staff that were given tasks to do this.You see how detail-oriented that we’re getting into this thing, making sure that the information of the home was uploaded into the MLS even though we didn’t go live. We wanted it there ready so that for one, if some reason we wanted to go live earlier, we could just click a button.We were at the last minute taking two and a half hours to get the information ready and the client’s like, “Why is the house listed? I want it live.” Then we had stuff once it was listed, but before it was in contract that was on that list. That’d be the next step that comes up, checking in with the client every week, checking in with all the agents to get feedback of what they said.Krista would call every single buyer’s agent that showed one of my listings and asked for feedback what they thought and what their clients thought. We would get that information to share with our clients who were letting us sell their house.Then once it went in contract, a whole new stuff, the title company needs the contract. The lender needs the contract. We need to start a timeline of making sure that the buyer’s lenders doing their job. What would happen is properties would fall out of contract because the buyer couldn’t secure lending. I practiced extreme ownership.Instead of saying, “Oh, well, nothing we could do.” I’d say, “You know what? We should have called their lender to make sure that everything was good.” Instead of relying on the buyer’s agent who lies. It became a part of that thing for Krista to call once a week and check with the lenders of the buyers who are buying our listings.This is not my job. This is the other agent’s job. But I would do their job because I needed that deal to close. If they were like, “Yeah. The person’s not giving me their statements. The person’s not getting back to me. They won’t let me pull their credit.” I knew something was going on.When the agent was like, “Oh, yeah. Everything’s fine. It’s going along pleasantly. But I know that they’re not submitting the information that they needed to their lenders. Maybe they’re looking at other houses. Maybe they’re thinking about backing out. I would go to our clients and I’d say, “I think we need to pull the plug on this buyer and put it back on the market and get another one.”Well, what if we lose them? We’ve already lost them. They just haven’t said that. This is what no other agents are doing because they don’t have these systems. Then once the house sold, there was a whole another stuff. Making sure that the stuff got taken out of our client’s name and put it into the buyer’s name.Making sure all the furniture got moved out of the house. Making sure that we marked it in the MLS that is now sold instead of pending. Making sure all the paperwork needed to be getting to the broker went to the right broker. Making sure we got the client a gift. Making sure we put a testimonial up on social media.All of this stuff you cannot rely on your brain to tell you. You have to do all of it. It’s the same way when I buy a rental property. It’s the same way when I hire a person’s work in the teams. You’ve got to systemize everything. Now everything I just told you, okay, that’s not enough. That’s just the checklist.What we then took was we took the checklist and we moved it into our CRM called Brevity, and we created auto plan. What would happen is that chunk of the list, get this stuff ready for David before he goes to the listing presentation was put in the CRM and saved as an auto plan.Krista would check a box that would say like 123 Main Street pre-listing presentation or whatever, and it would automatically populate a series of reminders to tell her this needs to be done, this needs to be done, and then we could assign it to another employee.If we had a listing coordinator, Krista would put the information into Brevity, check the box. The listing coordinator would get a reminder of the 12 things that had to be done to get me ready to go. Okay. Then after the stuff was signed, we would come back and she would check the next box that would say, listing pre-active, or whatever we called it.Then all those reminders that were in the Google Doc automatically go to the right person on the team, and now they know with all that they need to do all those steps. Krista or me could look and see, are they doing their job? Are they checking things off? Is it going where it needs to go? It was beautiful.It took all the memory out of it, which is how we got to the point that we could sell 50 homes with a handful of admin staff at a time. I had 53 houses in escrow at the peak with me and three other admin as well as just the agents, and it was running beautifully. Okay.This is how systems need to work. Now, obviously none of that happens right away. We still refine these systems because occasionally something goes wrong that we never anticipated and we go add something to the system to say, “Okay. Now we have to add this in here, or we need to take something out.” That doesn’t happen anymore.That’s how it involved in one area of my life, just a real estate agent. I put a lot of the stuff in the books I wrote for BiggerPockets Sold Skill and Scale, which you guys can buy at the BiggerPockets bookstore if you’re agents.If you’re investors, this is stuff I teach to other people with the spreadsheets I have, like offers written, offers accepted, closed, closed under rehab, closed needing furniture, like all the different stages of when I’m buying properties so that Krista and I and whatever admin we have can keep up with it.This is why I tell you guys real estate is work. It’s not like, “Oh, I bought a house and I’m done.” You still got to do a lot of stuff and these systems are what’s so powerful. Thank you John for letting me go on a 15-minute explanation of how systems are born and evolved.I could do an entire podcast about this, maybe an entire series of podcasts because they’re so important. As you’re listening, I just want to remind you, don’t expect to get it right on the first try. Systems are evolved, just like John said, they are developed. They aren’t just something that boom, you snap your fingers and say, “Hey. Can I have your spreadsheet of all your systems?” and think you’re going to be done. It’s not like that.All right, everybody. That was our show for today. Thank you so much for joining us on today’s Seeing Greene episode. I love doing these and I love even more that you guys are submitting your video questions as well as your written questions for me to answer.Please remember to take a minute to leave a comment on the YouTube channel as well as like, share and subscribe and let me know what did you think about today’s show. You could follow more of me at DavidGreene24. I’m on social media everywhere as well as YouTube.If you want to meet in person and you’re too shy to submit a video, go to davidgreene24.com/retreats where you can check out ways that you can meet with me. We can talk about real estate. I can help you in your journey. We can get to know each other and we can form that community that is so necessary for people to get lonely.Thanks a lot guys. BiggerPockets has lots of content out there. Check out another one of our videos if you have some time. If not, I will see you next week.