Side Hustles, Syndications, & Escaping a W2 with Real Estate
Want to quit your job for real estate? Not so fast. Trading your steady W2 for rental properties could be a risk that isn’t worth taking in 2023. But why? Isn’t the point of property investing to reach financial freedom and leave your W2 behind? Stick around for the full perspective from expert investor David Greene. His advice could save you money and time when deciding whether or not staying at your job is the right move to make!
Welcome back to another episode of Seeing Greene, where your favorite agent, broker, Batman-voice-impersonator, and podcast host, David Greene, answers your most-asked questions on real estate investing! This time around, we hear from a new investor who wants to know the best real estate side hustles, a mid-career worker who’s undecided on how he should best use his cash to invest, and we even receive a call all the way from New Zealand on how to pick the best real estate market. David also goes deep into why outsourcing is SO challenging (at first), where the BRRRR method WON’T work, and the problem with coaching programs.
Want to ask David a question? If so, submit your question here so David can answer it on the next episode of Seeing Greene. Hop on the BiggerPockets forums and ask other investors their take, or follow David on Instagram to see when he’s going live so you can hop on a live Q&A and get your question answered on the spot!
This is the BiggerPockets Podcast, show 732. I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Green episode. You’ve never been to one of these. They’re pretty cool. We bring in listeners just like you to ask questions, sometimes verbal and sometimes on video about struggles they’re having with real estate, knowledge they want to gain, or what they can do to make more money as a whole, and I’m passionate about helping y’all make some more money. So let’s get into it.
Today’s show is fantastic. We had really, really good questions. We talk about picking a market and the order of operations, like what should you look for when choosing a market. We talk about when it’s better to pursue equity and turn it into cash flow and when it’s better to just start with cash flow. We talk about insecurities, when they show up, why they show up, and how to deal with them for different parts of real estate. And we talk about how to make a BRRRR work in this market or an individual market where it just doesn’t seem like they’re making sense. So we get into some brilliant advice from me if I do say so myself. If you’ve been a BRRRR investor and you’re being frustrated, you might like where we go with this one. Want to thank you guys so much for being here. I know you’re going to like this episode. I’m excited to get into it.
Before we get to our first question, today’s quick tip is BiggerPockets is a website, not just a podcast. And on this website there are many things that you can do, one of which is how the website was started. We call it the forums. You go to the forums and you will find more investors than you could possibly imagine, asking really good questions that you’ve probably thought of yourself. You also can ask questions of your own and you’ll probably be amazed at how many members jump in and answer them. And this is all for free. Highly recommend you getting a membership set up with BiggerPockets and checking out the forums because there’s so much you can do. Calculators, networking, finding real estate agents, learning more about me. You can look up my profile on BiggerPockets and send me a message. All right, hope that happens and let’s get to our first question.
Hey David, thank you for taking my question and appreciate what you do for the BiggerPockets communities with the Seeing Green. My question is what real estate side business should I start based on my background, my strengths and the current market? I just bought my first duplex in the Raleigh Durham area as a house hack living in one side, and I’m currently working as a railway design engineer and I’m also a United States Air Force Reserve as a aircraft mechanic. I was considering doing home inspections as I think I have a skillset that would be work towards attention to detail as well as following standards, but I’m curious about what you would recommend in this market with you having multiple businesses in the real estate industry. Appreciate you.
Hey there, Johnathan. That’s a pretty cool question. I appreciate you asking that. I would probably like to have a little more info on what your skillset is. You mentioned you’re aircraft mechanic, so obviously you have mechanical aptitude. I do think a home inspector would be something you could pick up pretty quick. That’s a cool side hustle. I don’t know what’s super lucrative. So if that’s something you enjoy doing and you’re just looking to make a little extra coin, I do think that’s actually a great idea. It might have been one of the things that I would’ve recommended. You may also, it sounds like you’re a pretty intelligent guy. It may be worth looking into architecture, maybe becoming an architect or some form of engineering within real estate if you were designing plans for homes.
I know one problem that I’m having right now is submitting plans to the city and they’re frequently saying, “You need to have an architect draw this up. You need to have an architect draw this up.” And it’s very hard to find architects. So I think that there is a need for that, especially if you were able to do it remotely. If you could find a person that you could send to the site of different states and have that person go take measurements for you and then bring it back, put that into a software and draw that up. Not sure if that’s something that you have experience with, but that could be a pretty cool side hustle also.
And then if you’re also good at being a handyman, I think that there’s money to be made in being a handyman. Every investor I know is always looking for someone that can show up and fix things. The people that manage properties are always looking for someone that can show up and fix things. Most of the time we don’t want to pay a licensed contractor to go and tighten a pipe or fix a door that’s hanging wrong or repair some dry rot or even put down flooring. So if that’s something that you’re skilled at and you very well likely could be from the job that you have right now, I think that that is another opportunity you could get into.
But yeah, you mentioned you’re a roadway engineer. I think that if you could look into real estate engineering, that would end up much more lucrative for you than just becoming a home inspector. Although being a home inspector might still have some value if you really like real estate, I think it’s a cool thing to pursue. But I think if you’re looking for a new career, becoming an engineer within real estate would probably be more fulfilling and you’d make more money.
Thank you for this question, Johnathan. Be sure you follow up and let us know what you ended up deciding. This is cool stuff.
All right. Our next question comes from Alan in Indianapolis. Alan says, “I understand that most people get into real estate investing as a way to build wealth and get out of the rat race. I have a lot of liquidity available and I want to find a better place to invest it. I don’t qualify as an accredited investor, but I’m fast approaching those qualifications. My high-earning W-2 will make it difficult at this point in time to replace it with REI. So I want to get some direction on what is a good place to get started. I have over $400,000 in a 401(k) that can be rolled into an SDIRA. I also have about 30K in cash and expecting another 40 to 50K in performance bonus coming. If I can grow efficiently, I would entertain the idea of leaving the W-2 in the future. Where should a mid-career high-earning W-2 person with liquidity get started in real estate?”
All right, this is cool. We got a little puzzle to put together here. Thank you very much, Alan.
First off, with the way the economy’s looking, I would not be in a huge rush to get out of your W-2 job. We don’t know what the economy’s going to do, but it very well could get worse before it gets better. And so, one of the things I learned when I was a police officer working overtime in the last recession, not only was I able to stay employed during a recession, but I was able to make more money than other people. So making more money than other people is always going to be great, but it’s extra great in a recession when everybody else is making less because you have access to opportunities and deals that other people don’t. So I really like the idea of keeping a high-earning W-2 when we’re going into a bad economy. I’m more open to the idea of leaving it and starting a business or quitting and getting full-time into real estate, whatever that might be when the economy is doing amazing because you catch some of those tailwinds that are going to kind of propel you forward.
As far as what are some ways that someone with good money could get into real estate investing if you wanted to quit your job, it would depend on what your skillset is. I’m very big in not saying real estate itself will sustain you, but what do you do within real estate? Are you incredibly analytically sound? Are you someone that could start a fund and you could start looking for commercial or multifamily property to buy? Do you have a really strong construction background? Could you literally start a business in construction doing rehabs of properties?
I really think you and other people need to look at what is your skillset, what are you good at? And then ask, how would that work within real estate, as opposed to saying, “I want to quit my job and I want to replace it with real estate.” If you have a lot of money, you could consider private lending, but you probably wouldn’t have to quit your job just to do that. You could do that while working the job, but again, you don’t want to get into it if you’re not good at analysis, if you’re not good at underwriting, if you can’t look at the risk associated with private lending and make sure it’s something that you want to take on.
The other obvious answer could be home flipping or wholesaling. So if you’re good at sales and that’s why you’re making so much money, which is a possibility because you mentioned a performance bonus that’s often associated with sales, you could start a business of sending out letters, making phone calls, getting the word out, getting motivated sellers putting properties in contract and either flipping them, holding them, or assigning the contract to other people as a wholesaler.
So congratulations on the position you’re in a financial strength, that’s awesome. I think you got some opportunities that should be coming in the future. If you can, write us back again or send us a video and let us know what your skills are and I will dive deeper into the advice I give you on what different positions you could take to get out of your W-2 job.
Oh, one last thing I’ll say. Not everybody gets into real estate investing as a way to get out of the rat race. I got out of a rat race, but I’m in a different race right now. I’m not working as a law enforcement officer. Now I’m working as a business owner, but I’m still working. And I don’t know that real estate investing is intended to get you to never work, especially because you often need to get approved for loans based off income that you have and because things go wrong. You have problems, things break that you weren’t expecting, you get vacancies that you weren’t expecting. Unexpected expenses pop up all the time. It actually works better when you’re still making income. I look at real estate investing more as a way to grow wealth that you’ve already created and to prepare for retirement not to immediately replace income that you’re currently making. Like some people do; I’m just saying my perspective is a little bit different, and today we are Seeing Green, so I’m going to give you the green perspective.
Our next video clip comes from Ryan Spearman in New Zealand.
Hey David, thanks for taking my question. Thanks for all the education over the years. It’s been amazing. I live and invest in New Zealand on the other side of the world from you guys. I’ve got a portfolio of small multifamily properties which I’m looking to expand upon. I want to try and increase my cash flow, so I’m looking to invest in the states. I’m in a unique position of not being tied anywhere so I can invest anywhere, which takes me to my question.
You have always sold the idea of starting first by finding the market that suits you, working your way down, finding a team, and then finding the property. What I want to know is how do I find the market? How do I do that research? I’d love a systematic approach to look at all the markets and figure out which one suits me best before I drill down and find myself a team and then find myself a deal to get some more larger multi-families and exchange some of the equity I’ve built up for slightly more cash flow. Any information or advice, I’d love to hear it. I listen to it all and like I say, it really helped me and my family and our journey towards financial freedom. Thanks. See you.
All right, Ryan, another great question. You guys are crushing it today, asking really good questions. So looks like I see my book, Long Distance Real Estate Investing, I think it’s right there behind your left ear. You have some other books on your shelf that I have too. Extreme Ownership, The Millionaire Real Estate Investor, some Cal Newport works there. So good that I can’t ignore. He’s one of my favorites. So well done.
All right, let’s talk about choosing a market because that’s what your question is here. The first thing that I advise everyone to do that I do myself is I look into the strengths of different markets. So if someone said, “Should I invest in Miami or Dallas or the Bay Area, California?” Each of those markets has a strategy that will work good in that market. The thing that I want you to start with is just asking, “What am I looking for?”
Now, you mentioned something else that’s worth highlighting that you’ve built up equity. Now you’re looking to exchange that for cash flow. My opinion that is generally a superior approach to building cash flow than just focusing on cash flow right away. And I’m actually writing a book right now and I’m giving an example about this. It’ll be called Pillars I believe, and in that book I talk about how there’s one example of a person that chased after a Midwest turnkey property and they make $600 a month, so that turns into $7,200 a year. It’s a 12% return and they’re really excited. The other person goes and buys a property in South Florida and he sees above average growth and he does a value add on the property and he gets it below market value and he uses a lot of different strategies, builds up about $350,000 worth of equity, exchanges that for only a 6% return, even if he can’t get the 12% return and still makes three times as much as the person that chase cash flow in the beginning.
The goal is definitely cash flow, but the order of operations can be different. And you have more control over building equity than you do over actually building cash flow because cash flow only increases when rents go up and we don’t control that. So good on you for getting to this point where you’ve got that equity and you’re looking to invest it.
You’re probably going to be looking for either a cash flow heavy market with a lot of opportunities for cash flow, or maybe you’re looking for another equity run. You’re going to invest that money into a market that gets more cash flow than you have now, but still has a lot of growth. And what I’m getting at here is every market has their own strengths. If you’re going to go invest in South Florida right now, you’re probably going to see continued growth over time and continued rent growth, but you might not be crushing it in year one on the cash flow. Conversely, if you want to go invest into the Midwest, there’s probably a lot of places where you can still get cash flow, but you’re probably not going to see nearly as much growth. That’s one thing to look at. Is this market more likely to experience very solid cash flow in the beginning or above average growth over the long term? And if the answer is neither one, probably not a market to invest in.
Another thing that you want to look at is how much competition is in this market? So you want to go buy properties in Malibu, California. They’re probably guaranteed to do well over a period of time, but you’re going to be fighting with a lot of other people to get those properties. It’s very difficult. On the other side, you can go invest into Indiana where there’s tons of properties everywhere and it’s super easy to get them and they’re not very expensive, but they don’t have as much upside potential. So you want to be looking at competition within a market. Am I okay with a lot of competition if the upside is better, or do I want to avoid competition and just have an easier way to enter into that market?
What you’re telling me is you’re pretty experienced at investing. So I would be looking for markets that were a hybrid market. Dave Meyer and I talked about this on an episode we recently released on our State of the Market Podcast. Dave defines hybrid markets as markets that will cash flow but are also likely to have higher growth than normal. Denver, Colorado was one example of that. When you’re looking to pick a market, the first question that I think you should be asking is where are people moving to? Where are the populations going and where are they leaving? Okay, so San Francisco was red-hot. There was a point in my career a couple years ago, you couldn’t get somebody a property in San Francisco. It was impossible. Couldn’t happen.
Well, COVID came, everything shut down in San Francisco. People started leaving San Francisco and all of the demand that was in SF moved into the East Bay. At that point. It was very easy to get anything you wanted in San Francisco, but it became almost impossible to get any of these bigger single family homes in the East Bay where everybody wanted to move to. Same is true of New York. New York had red-hot real estate for a very long time. It’s been struggling since COVID. Political decisions, the weather and then the overall value that that location offers have decreased because there’s not as many people that want to live there. There’s not as many thriving businesses and a lot of the Wall Street opportunities that drove people to New York in the first place have moved where? South Florida. That’s why that market’s exploding and it’s becoming harder and harder to buy real estate.
So if you wanted to get ahead and buy in these markets that were going to go up before they went up, you got to look at where people are moving and then you got to look into why. So it’s not so much as doing research and just trying to find the website that’s going to predict where things are going to go. It’s more looking at the news overall.
Did you know that Hollywood has been slowly moving into Atlanta, Georgia for the last eight, nine years? You’re seeing a ton of movie production that moves there. I believe that the Entourage was filmed in Atlanta. All that stuff used to be done in Hollywood, not the case anymore. If you knew that, you would not have been surprised that Atlanta real estate prices soared. And if you’re paying attention in the last five to six years, they soared. Atlanta became every investor’s dream. Everybody was putting money into there, and many cities have had their runs. Memphis, Tennessee had a run for a long time that everybody was buying there. Birmingham, Alabama was the flavor of month for a little bit. Also, what happened with Austin, Seattle, San Francisco? They had huge runs. Now they’re cooling off. Phoenix and Las Vegas have their ups and downs too.
So what I want you to do is to start pay attention to where are people moving in the states? What states are they leaving? What states are they going to? Once you identify where people are headed, ask yourself, what is the strength of that market? How do you make money there? Is this a long-term buy and hold for rent increases? Is this a long-term buy and hold for the value of the asset increasing? Is this an area that has a lot of homes that I can add value to? Is there a big discrepancy in the sale prices? Do an ugly home sell for 600,000, but a gorgeous home sells for a million where you can go in there, do some construction and add a lot of value to the property? Or is every house somewhere between 120 and $140,000? That would be much harder to add value to, but it might be easier to find more cash flow.
Last, ask yourself what type of people are moving here? Just because humans are moving there doesn’t mean it’s automatically good. You’re hoping that humans are moving there to experience higher wages. If industry is moving into an area that pays more than other areas around it, you can be sure that rents will eventually increase. So if you’re looking for cash flow right away, you’re going to look for a different market than if you’re looking for cash flow over the next five years.
In general, my strategy is always to delay gratification. If I have an opportunity between a place that will pay pretty good right now or a place that will pay really good in the future, I always push it down the road and I take that gain in the future and I’ve never regretted. I’ve made much more money in my real estate that I made less money on the first couple years, but did way better on later than the people that took the opposite approach, which was like the tortoise and the hare, where they got cash flow right out the gate year one, but then they stayed there forever and eventually that tortoise passed them up. So hopefully this advice helps you to pick some different markets. I’d love to see you continue to delay gratification as well. Buy into areas with the population moving into, buy into areas with rising wage growth, and start looking at real estate from a deeper overall level as opposed to just an individual property that you’re running through a calculator a hundred times in a row hoping that you end up striking gold. It usually doesn’t work like that.
Thank you very much for your question, Ryan. Loved it.
At this part of the show, I would like to go over some comments from previous shows we pull off YouTube. Now, if you do me a favor, pull us up on YouTube yourself and like, comment, and subscribe to this show so other people can find out more about it. I want your comments because I want to read one on a future show. So if you could do me a favor and pull us up on YouTube, you’ll find BiggerPockets has a lot more to offer than just the podcast. There’s lots of other podcasts and there’s lots of videos that we air on BiggerPockets YouTube, many of them from yours truly that you won’t hear on the podcast.
Our first comment comes from Veronica O., right out of episode 714. “Hi David. You are so good at explaining complicated things. It would be nice to have a full episode on micro and macroeconomics explaining the correlation between the prime rate, stocks and bonds, unemployment, recession, inflation, and its effect on the real estate market.” That would be fun. I will take a note there that maybe we should put another episode together that talks about those kinds of things and how they affect the market as a whole. Because Veronica, you’re pretty smart. Everyone looks for the individual property they think is going to make them rich. It’s much more about understanding the bigger factors that determine whether real estate goes up or down as a sound financial strategy.
Kimberly Smith says, “David is my favorite. I’m buying my first duplex next month reading his BRRRR book on the daily.” Thank you for that, Kim, and I’m glad I’m your favorite. It’s pretty cool. Congrats on that duplex. I will keep an eye out for you to see how it went.
From episode 690, TJ says, “I always look forward to Seeing Green episodes. I like the format of having different personalities answering questions. This is a great episode. I learned a lot. Thanks.” Well, thank you TJ for that comment.
Derek and Melinda Decken say, “The bar has been raised in this video. I want to hear more commentary from special guest star Batman.” That’s kind of funny. All right, you guys got to go check out episode 690 to see what Derek and Melinda are talking about there. You will not regret it.
And our last comment comes from episode 690. “Respect to you, David, for still going strong on the podcast. I’ve been listening for four years now.” Well, I didn’t realize it had been four years, but I did just have a birthday yesterday and I am getting older. That is for sure. So thank you very much for acknowledging that and for the respect that you’re showing me. I’m thrilled to be a part of BiggerPockets ever since Brandon Turner first brought me on and I vowed to never ever, ever let him regret that decision. I’ve done my best and I’m glad to hear that you guys like it, so thank you for that.
We love and we appreciate the engagement all of you give on our YouTube comment, so please go in there and leave another comment. Tell us what you like. Tell us what you don’t like. Say something funny. I thought that Batman reference was really good, and tell us what you want to see more of on the shows and we will make those shows for you. Our next video clip going back to our questions comes from Wade Kulesa in South Dakota.
Hey, David, Wade Kulesa here from Sioux Falls, South Dakota. I am a contractor here in my local market. I own a few properties and looking to expand this next year. My biggest question is as a contractor, I love doing the work. I like getting my hands dirty. I love seeing new projects being accomplished and that kind of thing, but I know that in order to scale that I kind of have to get past that mindset and handle those things off to other people. Do you have any advice for me as to how do I change my mindset or get past that feeling of giving up control more or less to other people to do some of those lighter construction tasks in order to scale and grow my business? Again, construction is my passion. I love the accomplishment and the feeling I get from flipping in a different property and making it better for people to rent, but need to get over that home. I just need some advice. I appreciate all you do. Thanks
Wade, thank you for your transparency there. My goodness. I can tell you I struggle with the same thing. All right, we’re going to pull back the sleeves. We’re going to get to brass tacks. I’m about to get real everybody, so buckle your seatbelt. This problem you’re experiencing, Wade, is never going to go away. If I understand you correctly, you are a person who’s passionate about doing things the right way and we need that in contractors. Like you see the different ways a contractor can solve something. There’s always corners that can be cut, easy roads that can be taken, things that can be skipped that maybe for the first couple years won’t show up but will absolutely cause problems later for the person whose home that is. And you have a passion against seeing that happen.
You probably had a really good mentor that trained you in the right way and you get that feeling of a job well done, which becomes addicting. It’s literally releasing dopamine in your brain. Now, in the role of home contractor, this is a blessing. This is why you’re good at what you do. I already know you have a thriving business. You’re buying rental properties. People know you do good work because you’ve got this value system in place that makes sure you do good work. You’re now experiencing the problem where your value system is getting in your way as crazy as that is.
I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go. You raised a little baby, it’s finally great and it’s time for it to go off to school, and you don’t want to let go. This is normal, but it’s something you’re going to have to deal with.
I can see your problem. Clearly, you’re in a small bubble of excellence within construction and you’ve got a bigger bubble over here of excellence within real estate investing and you know need to leverage off some of the work that you are doing so you can spend more time in this other bubble. The problem is you know the people you’re going to let do the work are not going to do it as good as you and your conscience is screaming at you that that can’t happen. The only ways that I know to overcome that have to do with stepping back and seeing a big picture. If you’re giving people lesser jobs to do, and I wish I knew more about construction to give you better examples with this.
Let’s assume that maybe the siding on a home is not as important as the framing of a home. I hope I’m not wrong. And every contractor out there screaming it’s the other way around, please just give me some grace here. For the purpose of this assumption, you want to make sure your best guys are doing the framing and your new guys are doing the sighting. If mistakes are going to be made, you want it to be on the stuff that’s not as important. And as those mistakes get made, your job as the business owner is to increase the standard that you expect from every person so that they do not continue to make mistakes. Like it’s going to happen; you just don’t want to see the same mistakes continue to happen. So there are strategic things you can do like putting your new people on the less important jobs with the goal not being a job as good as you would do it, the goal being a job better than they did it before. That’s what you’re trying to do.
When you become a business owner, this is a position I’m at, you stop doing the work and you start putting the same energy towards creating the standard. You have to hold them all to the standard and you got to know they’re not going to hit it. They’re going to fail Just like at one point you failed, they’re going to fail maybe more than you did because they don’t have your level of drive, ambition or talent, but you still have to keep pushing that standard higher and making them rise to it. Now as you see that maybe they don’t do it as good as you, but they did it better than they did before, you will notice progress and that will help break the chains of your enslavement to doing the job yourself. When you see their progress, it will help a lot. That’s half of it.
The other half is getting over into this other bubble that we talked about that has to do with getting excellent at real estate investing. And in that bubble, you will start to realize excellence within construction is not really relevant. I don’t do any construction and I still built up a really big portfolio of stuff myself. When you get deeper into investing in real estate, the dopamine connection, the emotional relationship you have with the work you’re doing in construction hands on yourself will be weakened, as you replace it with dopamine that comes from doing a good job within being an investor. Negotiating deals, closing on deals, finding the better deals, coming up with the plan for the property, improving upon the results you thought outperforming what you thought was going to happen will start to feel good and it will make it much easier to let go of the bad feelings of seeing the work not getting done.
If you wait for other people to do the job as good as you, it’s never going to happen. You’re never going to get out of that bubble of being a contractor. I think that you recognize that. So don’t make them do it as good as you make them do it better than they were before. And at the same time it will be easier to relate to those people screwing up when you step over into this other bubble because guess what? You’re screwing up. You don’t know how that bubble goes.
I talk about the three dimensions of leadership. The first one is learn. You’ve learned how to be a good contractor and now you have to step aside because you went from zero to a hundred. You’re at a hundred, you have to step out of that. The new guy’s starting closer to zero, he’s not as good as you, and that’s where the struggle is because you have to let go of doing the job yourself. Now you’re in leverage, you’re in the second dimension. You’re going up instead of left to right. And in the leverage, you’re starting off close to zero also, you suck at that. Or maybe you’re stepping out of learning into learning a new category, which is actually real estate investing and it will help a lot how humbled you get when you make mistakes. You will have more patience and show more grace to the other people that are showing mistakes. It will make you connect with them better and it will make this journey much easier to do than you’re imagining right now.
Your problem is you’re trying to step from a hundred percent skill level into a new area of 0% skill level at the same time that you are trusting your work to people that also have low skill levels. When you are doing something new with a low-skill level and you’re supervising people with low-skill levels, it will be much less frustrating than when you’re operating as a black belt trying to work with a bunch of white belts.
Thank you for the question. Keep us apprised of how this goes and my thoughts are with you and your success in this endeavor.
All right, our next question comes from Cali in Missouri. “How can I make the BRRRR method work in my area? My husband and I have been looking to use the money from our first flip to purchase one or two more homes that we want to BRRRR. The problem is that within our area, red values are too low for us to cash flow after we refi. Most of the homes we analyze seem to negative cash flow. How can we make this work? Do we need to look to different areas?”
Great question, and I haven’t talked about BRRRR in a while, so I’m glad that you asked it. All right. Your problem as weird as this sounds is not a BRRRR problem, it’s an area problem. I think that your subconscious had diagnosed this for you.
One of the first things you should look at when doing a BRRRR is acknowledging it’s going to be a buy and hold cash flowing property, which means before you look at how much of my capital can I get back out, how do I add value to it? You have to look at do the rent support the price at the end?
Now, if you’re operating in a market that doesn’t support the cash flow, it doesn’t work to look for a BRRRR because you wouldn’t be looking for a long-term traditional buy and hold rental there. If it’s nowhere near the 1% rule and you know that that area doesn’t cash flow for that type of asset class, it’s even harder to make it cash flow on a BRRRR. So right off the bat, if you’re operating in an area that’s not good cash flow, but known for equity growth, the BRRRR method is not the best place to work there. I don’t do it very often in the high-growth areas. In fact, I only do it in high-growth areas if I’m doing something unique. I’m adding a lot of units to the property. I’m transitioning the property out of a long-term rental into a mid or a short-term rental that’s going to make more income. You got to do something creative here. That’s the first thing I would say.
So yes, you look for a different area. You start with an area that I call in the BRRRR book, a target rich environment. You want an area that has a lot of homes that are close to the 1% rule. That does not mean they have to be the 1% rule. Please, everybody calm down. I know that nothing’s hitting that right now. What about 0.7 or 0.8? That’s close enough that you can actually look at the deals. When you find the area that does have them work or you find the asset within the area, maybe triplexes work, maybe short-term rentals work, but not long-term rentals, whatever it is. You find the pattern of what properties will cash flow in that area, then you only look at those properties as potential BRRRRs. You don’t even bother looking at stuff that’s like right out the gate ready to go. And you don’t bother looking at fixed upper properties if you know they’re not going to cash flow in that area after you buy them.
So before you worry about the rehab and the value add of a BRRRR, you worry about the end result. You start with the end in mind. So yes, you start with the area, you find the area, you find the asset class within the area. Then you start individually analyzing the individual properties to see which ones could work as a BRRRR. You’re asking the right questions there, Cali. Congrats on that and good luck in finding your next deal.
Our next question comes from Casey Christensen in Utah. Casey says, “Hi David. Thank you for the awesome content you put out each week. It’s motivational and uplifting. I currently own three duplexes. I had four and I just sold one that I closed on last week. Currently have the funds held at a qualified intermediary with the intent of doing a 1031 exchange. However, I’ve recently been thinking about not doing a 1031 and instead using the money to get into a syndication or coaching mentorship program. My tax bill would be about 10 grand if I didn’t do the exchange. I started buying about two years ago and I’ve realized that building a portfolio this way will get me to the point where I can leave my W-2, is going to be a long and arduous road.”
Side note, this is not coming from Casey. That’s what a lot of people realize and it’s what I talk about all the time. You’re probably only going to hear that here. “I’ve always wanted to get into the syndication route, but I felt I had to go smaller first. Do you feel it’d be a mistake to take the tax hit and invest in a mentorship program? I’ve also hesitated to go to the coaching route because of an insecurity that I will fail in the program and find myself worse off for having thrown 20 to 40,000 at a program that got me nowhere. Do you also have suggestions on how to deal with such insecurity? Thank you again for all you do.” Wow, Casey, this is really good.
All right, let’s break it up into little pieces. First piece, I don’t think paying $10,000 in taxes is the end of the world. I might not do a 1031 to save 10 grand just because they can be stressful. So if you’re worried about the 10 grand, I don’t know that I would say you have to do a 1031 to save 10,000 in taxes. You might put the money into a bad deal that you lose more than 10 grand, so it doesn’t actually help you. 1031s are not foolproof.
Now about the coaching program, I don’t know that that’s the best use of your money either; and about your insecurity, that’s a third issue that we’ll talk about next. So here’s the thing with coaching programs. They can be good, but I think people look at them the wrong way. How do I want to say this? I’m trying to be sensitive because I know a lot of people that run coaching programs, some of them are good, some of them are not, but even good ones, I don’t know if it matters. Let’s say that I have a personal training program. You’ve been watching me. You’re like, “Oh, David’s starting to look a little better. He’s hitting the weights. I wonder what he’s doing.” And I’m like, “Hey, I’ll show you what I’m doing. I’ll show you what I’m eating. I’ll show you what my workout is. I will even check out with you once a week to see how it’s going.”
People sign up for programs because they want the result. They want the body or they want the weight loss or they want the improved gains in whatever they’re trying to lift, but the program is not a guarantee of the result. This is where it gets tricky. It’s a guarantee that they will give you the information, and I guess it’s not a guarantee because they might be bad, but if it’s a good coaching program, all that it can guarantee is the information. I can tell you what I’m lifting. I can tell you what I’m eating. I can check in with you every week, but I can’t make you go to the gym. And when you go to the gym, I can’t make you lift hard. And if you think you’re lifting hard, I can’t convince you that you actually could be lifting harder. I’m going to stick with this weightlifting analogy because I think it’s working out here.
I’m a little bit older now, so working out is harder, but I still recognize there’s a difference between going to the gym and getting through my workout and going to the gym and giving it everything I have. I finally got to the point where I can start lifting heavy again, and what I’ve noticed is that it’s freaking hard. Like to get through my set of six or eight or whatever I’m trying to do, I’m focusing, I’m really focused. Sometimes I’m praying, “God, help me get through this because it is so hard I don’t know that I can.” That is the only way that I’ve guaranteed that I will get stronger. It’s that level of effort. Now, it’s not complicated. You grab a weight and you move it from here to here, only moving these muscles, but just because it’s not complicated doesn’t mean it’s easy. It’s still difficult. Coaching programs are the same way.
Paying 20 or $40,000 for a coaching program could do amazing if you’re going to go in the gym and work out incredibly difficult or maybe you already have a baseline and work it out, you’re just trying to get back into it. Maybe you already have a pretty good understanding of real estate and you just need a little bit of information to get you over the hump that then you might earn a lot more money than that coaching program is going to cost. However, if you join the program thinking that you’re going to get information that’s going to make you wealthy, it’s like signing up for a fitness program thinking that information is going to make you fit. It’s not. The information is a guideline. Your effort is going to make you fit and then other genetic factors and other things you have going on.
Now, you might start a fitness program and be in terrible shape. You’ll eventually get fit, but it will take you longer. Same as you have a coaching program. It might take you a lot longer to figure out the stuff that some of the other students learn quicker. That is how life works. But I want to caution anybody against starting a coaching program because they’re wanting a result. You’re not buying a result. You’re buying the information and the result will be determined on what you do with that information.
Now, the last piece of it has to do with your insecurity, and I’m hoping that my answer to the second piece also answered your questions about the third. Insecurity is an interesting thing, isn’t it? We all don’t like it, but it definitely serves a purpose. When we’re feeling insecure, it’s our subconscious telling us something. You might have the feeling inside that you’re not ready to take action that they’re going to tell you to do, and so the insecurity is just your subconscious saying, “Don’t sign up for this because you’re not going to do it.”
If you know hate lifting weights and you know don’t like sweating and you’re not really, really hungry to get in better shape, it’s dumb to sign up for a personal trainer that’s going to teach you to lift weights. If what you really love is running, but you’re trying to get bigger and put on bulk, so you sign up for a personal trainer but you’re not going to listen to them, you’re going to feel insecure about that. It’s not going to sound like a good idea. Don’t do it. If you know that the only thing you’re going to do is run, then run and just let go of the expectation that you need to get bulkier. And if you know that you don’t like working out but you’re still committed doing it, okay, that would be a reason that you should sign up for the personal trainer.
I want you to be honest with yourself about why you’re insecure about this. You could easily throw 20 to $40,000 at a program and it will get you nowhere. If you’re not good at the stuff they’re teaching you, you don’t pick up the skills, you don’t have the opportunities, you don’t have the money, you’re not driven, it’s not going to help. So that’s my advice. You had three questions there. Gave you all three of those. I want you to really do some deep thinking. And for everyone else who’s listening to this who’s in a similar position, please remember that information does not get you a result. Actions get you results.
All right, everybody, that little motivational line from me will wrap up our show. I don’t really get to answer questions like that very often. That was pretty cool. You guys have some great questions. I got to say, from when I started Seeing Green to now, the questions are consistently getting better and you deserve all the credit from that in the BiggerPockets community. If you would like to be featured on the show, I’d love for you to be, please go to biggerpockets.com/david and ask your question. Now if you’re someone that I know, even cooler. Fricking show up in this thing when I’m recording the episode, I’d love to see that. So if we’ve met at a conference or you’re a friend of mine, I’d love to have you go to biggerpockets.com/david and submit your question. And even if not, if you’ve ever been driving in your car and thinking, “Why don’t they ever ask about this, or why does no one ever talk about that?” This is your chance to get it talked about.
Thank you so much for paying attention. If you would, please give us a five-star review on Apple Podcasts, Spotify, Stitcher, wherever it is that you listen to your podcast. Means a lot and it helps us out a ton. I would really appreciate that. And if you’d like to follow me, you could do so on Social Media @DavidGreene24. I do live YouTubes every Friday night where you can come and ask questions. Those are youtube.com/@DavidGreene24.
That’s our show for today. Please send us more questions. We’d love to do another one. If you have a minute, listen to another BiggerPockets video. And if not, I’ll see you on the next one. Don’t forget, in the meantime, you can go to biggerpockets.com and check out the forums where people are asking questions all the time, where you get to learn for free. See you guys.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.