Secrets to Sustainable Cash Flow – Real Estate Mastery Unveiled: Dive into the world of real estate wealth with experts Dan and Shane. From single-family gems to high-yield multifamily deals in Memphis, learn strategies for financial growth. Explore financing secrets, leverage bank partnerships, and maximize cash flow. Uncover insights on smart investing, debt service coverage, and refinancing for long-term success. Join these seasoned investors as they share their journey, from the slow road to China to becoming real estate moguls. Don’t miss out on actionable tips for building your path to millionaire status.
Brett
0:00:43 – So today we’re going to cover, we have a good investor of ours and his brother Shane, for the first time I met Shane, heard a lot about him, finally met him face to face. Dan and Shane Tabish from Utah with us. Daniel’s been a good investor of mine since, what, 2020? On our podcast, you hear a lot of different options and ways to carve up investing and different formulas and how people view things differently. In my book, Dan’s got a different, maybe not different approach, but to me, mostly what I deal with with investors, your approach is very different than most. How many properties do you have now that we’ve picked up?
Daniel
0:01:16 – In Memphis, seven.
Brett
0:01:17 – Seven, okay. And they’re all C neighborhoods, C plus neighborhoods, correct?
Daniel
0:01:21 – I think I have one B minus.
Brett
0:01:23 – B minus, where is that one?
Daniel
0:01:24 – Yeah, Carnes.
Brett
0:01:25 – Carnes, yeah, yeah, okay. In all of your purchases, you always, and I didn’t understand this at the very beginning, you’d always be like, so Brett, what is it worth? And I’d tell you what it’s worth, and you’re like, no, I need to know what it’s gonna be worth when I’m done with it, right? Because your approach is you take out a loan, you buy the property for $80,000, you dump $20,000, $25,000 into it, get a tenant in place, and then refinance it for $125,000. And that’s so you can pull out additional cash?
Daniel
0:01:51 – I don’t pull any cash out. In that scenario, I would be at $105,000. And I don’t want the extra cash. I just don’t want my cash trapped in the property if I don’t have to.
Brett
0:02:03 – Gotcha. So you’re basically refining to pull out your rehab cash.
Daniel
0:02:04 – My down payment or my rehab cash, however it worked out because sometimes, depending on the lender I use, they might have me put my down payment and then they just lend me back my down payment for the fix-up. But when it’s all said and done, I would like to be in as close to zero down as possible because now the bank is carrying a 30-year mortgage for me at the lowest possible rate. Now it’s permanent finance, it’s set it and forget it.
Brett
0:02:31 – Okay, well we preach that a lot. Jeff and I talk a lot about young investors cost, I got $50,000, I wanna get into investing in real estate, can you go find me two $25,000 houses?
Daniel
0:02:43 – Yeah. Right?
Brett
0:02:44 – But we preach, no, you take that $50,000 and you parlay it into, take out a loan, buy two properties, get that property up to where you need it to be, and now at this point you get into the Burr Method, right, where you’re rehabbing, renting, and refining. Right. But then you get those properties stable, get them cash flowing, pull out whatever cash you can, roll that into whatever you have left in the bank, and then buy your third and fourth property and continue to roll forward that way.
Daniel
0:03:07 – Exactly. So that’s my formula. I want to take that $50,000 and instead of just getting two properties, I want to get two properties, get my money back, get two more properties, get my money back. And the bank allows me to do that because once I’ve stabilized the property and I have the higher set value, I get to just recirculate that money.
Brett
0:03:29 – How many properties have you accumulated over the years?
Daniel
0:03:32 – I’m probably in the neighborhood of 300 now. But I don’t still own that many.
Brett
0:03:37 – So he’s a small fish, that’s all. Yeah. But I… He wants to be a big baller, but he’s not. 300. You self-manage most of those, don’t you?
Daniel
0:03:48 – Yeah. I’ve bought and sold… Yeah, especially in Utah. I’ve self-managed all of them, always. I never had a property manager in Utah.
Brett
0:03:53 – And you still have all your hair. So you’re doing something right. I didn’t know you had 300. I knew you had a lot. I didn’t know it was 300.
Shane
0:04:18 – I think a good point, though, is on those is, and what him and I did, was we held onto the properties that we thought were the better properties, but you flip the stuff. You need some cash as a real estate investor, so flip some of it. So you’ve got to get your money out, because you can easily get equity rich, cash poor as a real estate investor.
Brett
0:04:19 – Right, right.So a concept could be you buy 10 properties this year, and out of those 10, you’re probably going to hang on to six that are your better cash flows. The other four you flip out, make ten or fifteen grand on them, take that cash and move on to the next batch.
Daniel
0:04:31 – My old formula was buy three, sell two. Keep one.
Jeff
0:04:37 – What do you do with the cash flow? You put it all back in the reserves, pay down the principles if there’s any left over. How do you work that out?
Daniel
0:04:41 – So when I first started I was using the money to live and renovate and you know whatever the property. So I was constantly burning through my positive cash flow. But my strategy here in Memphis for the seven units that I bought, the very first one I bought was Egyptian Cove. So right now, Egyptian Cove gets 100% of my positive cash flow as a principal reduction payment. I’m not taking any money out of Memphis right now. So…
Brett
0:05:11 – Okay. You’re paying down those loans.
Daniel
0:05:12 – Paying down, yeah.
Brett
0:05:13 – So building equity.
Daniel
0:05:14 – Right. So, Egyptian Cove will be paid off in like 14 more months And then now I’ll take that..
Brett
0:05:18 – Oh, wow. Really? What is it renting for?
Daniel
0:05:19 – Egyptian Cove is $1,400.
Brett
0:05:24 – $1,400. So, you’re 14 months from now, you’re going to have a zero expense on the mortgage and interest side and pulling in $1,400.
Jeff
0:05:31 – Okay, hang on. You’re taking every profit from that house only or all seven of your houses?
Daniel
0:05:37 – Yeah, all seven of my houses. So I bought house number one, Egyptian Cove. Then I bought another one on Kerwin. I’ve got all seven. All seven rents go to Egyptian Cove.
Jeff
0:05:48 – Well that’s pretty genius. We never even talked about that.
Brett
0:05:56 – It’s like the old credit card debt payment system. You pay off the first and once you get it paid off, then you roll all that into the number two.
Shane
0:05:58 – You have your least favorable loan. If you’ve got one loan that’s higher rate, get that paid down.
Jeff
0:06:01 – Do you leave enough in the other properties for a reserve for repairs or maintenance?
Daniel
0:06:07 – No. I have other money from Utah rentals. So if I have an expense come up, I’ll just pull it from my Utah money.
Jeff
0:06:13 – That’s pretty genius. We’ve never even really talked about that before.
Brett
0:06:14 – We preach all the time, take the little bit of money you got, parlay it into as many properties as you can get your hands on, do the improvements, let the appraisal values go up, let the rents grow, then refi, get your cash and do it again. But I always say, and Jeff and I talk about this all the time, take your rent, if you’re making $250 a month off that house, after your mortgage taxes, expenses, and you’re putting money in a reserve account for those moments, take that 250, plop it on a principal, pay it down faster because now you’re building your portfolio and you can refi and pull out equity sooner than if you just wait on that 20-year loan to mature.
Daniel
0:06:52 – Right. Yeah, the benefit to me is I have income elsewhere. I don’t need Memphis’s income. So when I’m all said and done, those seven properties will be paid off in about 84 months.
Shane
0:07:03 – But that’s his strategy now. Let’s be clear. If you’re starting out in this game, take the money. You guys, listen, don’t. He’s at that stage now. You know, he’s got other income. His goal is to pay these out. He’s thinking of retirement now. For somebody who’s starting out, I think there’s a couple of guys that were buying the property from now, they got in cash trouble. If you’re starting out, you have to preserve your capital. That’s the only power you have.
Brett
0:07:49 – The guys that the new investors were getting, believe it or not, one of them just flew in last night. I’ve been trying to coordinate. I think Nick’s going to meet with him this afternoon and we’re going to all hook up tomorrow because they’re doing some construction work on some of the properties. Most of these guys have a good job making very good income, so they don’t need the money to live off of. So in that scenario, my attitude is you take every dime you get that you don’t set aside for reserves or expenses and you pay down that loan and create the equity that you eventually get three homes, 50% equity, refi, take that cash out. Now you’ve got $100,000 and you go out and buy five properties. And you continue that cycle. And it is easier to do it when you don’t need the money. But listen, you’re not going to be a real estate investor, at least I’m not going to be your agent, if you’re coming to me and you’re unemployed and want to buy your first investment property. I don’t care how much money you got.
Shane
0:09:15 – And for those that have income and they’re not really needing the rents, but it’s nice to have that cash flow and they want to pay down. Sometimes, even if you bought a property where you’re breaking even, the cash or the tax break from it each year can be, I mean, you’re right, you’re up 100 or something, just on a handful of properties, you can look at it like, hey, I’m cash flowing just by my tax savings, 300 or 400 a month, just owning it as it goes up in value over time. See, it’s not always about the positive cash flow. Now, you need an income that you can write against, write off against, but that’s a big, that’s why I’m doing it again. I’m getting back into this because I have other income where I really need. He’s been on me about it, saying, you need some tax write-offs. There’s crazy amount of taxes you’re paying each year, so I don’t need to cash flow, but it’s nice.
Brett
0:09:16 – Yeah. Well, you know, the young investors that come to us, I love working with the older investors with experience. They’re much easier to deal with. You can do much more of a…
Shane
0:09:18 – We’re older now.
Daniel
0:09:18 – Yeah, we are older now.
Brett
0:09:19 – I’m not calling you old. Sorry to hear that now. But when you own 300 properties, you’ve been around the block a couple of times, right? You’ve made every mistake that these young guys are going to make. It’s much easier to work with a seasoned investor because you can talk straight shop with them and honest stuff about it and they get it. Younger guys typically come in with their own philosophy of what they think they should do and it’s hard to get them geared the right way, but at the end of the day, we want investors that want to build asset wealth and aren’t trying to become the next Donald Trump by buying 10 properties and quitting their day job.
Shane
0:09:42 – Well, you just said something important there. You get caught up in just trying to own property, you can’t do that. There’s a lot of people, when we’d sell them the property, they just wanted to own something to show their friends. You got to be patient. You got to buy the right one. Just buy one good… I have two sons, and it’s taken them a year. They keep bringing me stuff and I say, no. You’ll know when it’s a deal because they’re just staring you in the face. I kind of like, I think this one, you see it that way, this 20 unit. It’s just staring him in the face. He knows this market and so I’m trusting him. You’re saying there’s no way we can not close is kind of the attitude. When you find those deals, then that’s when you move forward. But if you’re just buying a property to own it, you can get in real trouble real fast.
Daniel
0:10:22 – Yeah, if you’re trying to buy a property because you want to tell your friends you have a property,
Shane
0:10:26 – There’s a lot of guys like us that’ll sell them.
Brett
0:10:31 – There’s a lot of agents that’ll sell it to you, too.
Shane
0:10:35 – So really, one, know your market. Take a lot of time knowing your market. It’ll save you a lot of headache. Don’t get in a hurry. And then two, having the ability to see past the dust. To be able to, just like today, things are hanging trash everywhere, but being able to see how he’s done it enough times, he knows. What it’s going to look like when it’s finished, what is that ultimate value when it’s finished, that’s very important. And that’s the only way to do it. You have to be able to buy right. You know, the term just, you make your money when you buy. And that is just, these are fundamental strategies that have, you got to start with that or else you’re already on the wrong track.
Brett
0:11:02 – I think as a new investor, you got to start out with the premise that you’re going to do asset wealth building and not cash flow building. Right? I think once you get to the level that you’re at, Dan, obviously, at 300 properties, then you can kind of kick back and say, all right, I’m going to be a full-time real estate investor. I got plenty of money coming in. I can survive the storms. I can take care of replacing the air conditioner if I’ve got to, put a roof on. You’re not stressed about that oh, s*** moment. As starting out, I mean, originally you said you were burning through your cash trying to pay bills. We try to tell young investors that if you’re going to buy real estate, you’ve got to be able to buy it and not need the money. You got to be able to throw that money back on that mortgage, throw it back on the property and all of a sudden 10 years from now you pay the mortgage off early and you’ve got a house worth 150 grand that’s paid for. Well, if you do that 10 times, that’s worth a million and a half dollars. You just built your retirement account and had tenants paying all your expenses.
Daniel
0:11:53 – Exactly. Yeah, and you got the tax write-off if you were making an income. If you’re working a day job and you’re accumulating real estate, your tax write-off. I mean, there were so many times that I’d get to the end of the year and the CPA would go through the numbers and they’re like, yeah, you don’t own a penny. And I’m like, wow.
Shane
0:12:11 – That’s a cash flow in itself.
Daniel
0:12:12 – I think, wow. How did I? I made $150.
Brett
0:12:15 – Apparently, I made up my game a bit.
Shane
0:12:16 – I really, yeah, I really wish I’d held on to a lot of, I was a flipper guy.
Brett
0:12:21 – I’d be a bottle of champagne when I make my payment, and I’m like, thank you.
Shane
0:12:23 – But he did a good thing by hanging on to them and he had to go through a struggling period. That’s what I’m saying.
Daniel
0:12:26 – It wasn’t easy.
Shane
0:12:27 – It wasn’t just putting cash on the principal. You got to term the cash on cash return. Yeah.
Brett
0:12:29 – Long-term investing in real estate is like any other long-term investing. You’re building for the future and if you go into real estate toward the future and not, oh my God, I need to make $1,000 to pay my house note or pay my truck note or buy my wife whatever she wants. If you get away from that model and the cash flow model and just look at it as an asset. You put money in the stock market, you play the stock market, you play it well from what I understand.
Shane
0:12:58 – I take companies public, yeah.
Brett
0:12:59 – Yeah, so there are a lot of guys that invest, they don’t play it, they just invest for long-term retirement. And that’s how I look at real estate is that you should just be putting, buy your asset, let it grow just like a stock would, and don’t take the dividends, just let it keep reinvesting on itself and keep your day job. And when you’re old and gray like you two are, then you can kick back and be like, look at me, I’m a real estate mogul, right? I can retire. By the way, they’re both younger than I am, so let’s throw that out there.
Shane
0:13:25 – Yeah. And so try not to tie up a lot of cash, the cash on cash return. And that was the first question I asked him is, you know, on this deal, how much cash are we going to have to leave into this? You know, because that matters. If we’re leaving that whole chunk in there, that changes the investment. But if we’re able to find ways to get a lot of that back in a year or leave nothing in it, when you’re using the bank’s money, now that’s a home run. You got to own it. I mean, even if you’re just at a break even, you own it if it’s on the bank’s money. But if we can have a positive cash flow and we’ve left very little cash and we can look at that cash, what’s our return on whatever’s left in, 200 grand or whatever it may be. Now you start looking at the, okay, we’re doubling our money on that cash that’s left in and we have the equity appreciation, we have the tax, the write-off.
Brett
0:14:11 – Well, let’s shift gears because you’re upping the game. We’re now moving from single family and duplexes into multifamily. We just are about to close on a 20-unit building. Listeners won’t know this area, but it’s called the Medical District between Midtown and Downtown. Super hot area, high-end rents, considerably high-end rents for one bedroom one bath for Memphis where we’re going to do a beautiful elevation, we’re going to do gated parking, every unit’s going to have granite, stainless steel, you know, modern lighting, modern bathrooms, and we’re hoping to be renting those for a $1,050 to $1,200 per unit for a one-bedroom, one-bath that is barely 500 square feet. So when I first sent this project to you, can you maybe kind of run down like what you were doing in your head as far as figuring out how and why this is such a good deal?
Daniel
0:14:59 – So the first part of it was it can cash flow with the existing low rents. So right away it was like, well, okay, well, I mean, even if we just rent to the existing group of tenants, there’s a positive cash flow.
Brett
0:15:19 – Okay.
Shane
0:15:20 – But based on the financing he was lining up though, that’s financing is probably number one.
Brett
0:15:24 – So you think the financing had a lot to do with it making that work at its current numbers?
Shane
0:15:27 – Number one, sure.
Daniel
0:15:28 – It’s number one. Well, because the bank doesn’t want to do it if it’s not going to have a good debt service coverage ratio. Right. In this particular bank, they need to be a 1.3.
Brett
0:15:37 – Okay. For our listeners that are just learning, explain your 1.3.
Daniel
0:15:41 – Okay, so debt service coverage ratio is the amount of rent has to be 1.3 times the payment. Okay, gotcha. So that’s pretty standard bank underwriting. If it’s a 1.3, they’re gonna do the loan. If it’s 1.4, 1.5, like you can get some really good numbers. But on this particular one, when we’re all said and done, if we don’t refinance and we just take the money that the bank’s giving us plus the construction budget that they’re giving us, we’re gonna be at 2.2 debt service coverage ratio. So, but we’re most likely, because we don’t wanna leave money trapped in the deal, when it’s all said and done and stabilized at that $1,200 rent, we’re going to refinance, pull that cash back out so we now have the cash for the next deal.
Brett
0:16:31 – Okay. Well, and in that particular instance, then obviously there’ll be a new appraisal done. I’m convinced you’re going to be closer to the three mark versus that, where they have it at 1.8?
Daniel
0:16:41 – 1.8, so-
Brett
0:16:42 – You’re going to be at 2.5.
Daniel
0:16:43 – Yeah, I think 2.4 is a real conservative number for that.
Brett
0:16:48 – And they’re also giving current, a finished appraisal based on current cash flow. When you’re producing $1,000, $1,200 a unit and the cash flow is that much higher, that’s going to be a big factor in that appraisal number.
Daniel
0:16:59 – The as-completed value right now with the conservative numbers is 1.8 and we’re buying it for 1.15. So we’re already walking into this with a really good equity position and that’s because the appraiser doesn’t believe that we’re going to get $1,200 a month.
Brett
0:17:16 – They’re doing it next door. They’re doing it on both sides of you. Why wouldn’t you?
Daniel
0:17:20 – Right. But when you actually have the numbers and you’re sitting at 97% occupancy at $1,200 a month, the appraiser doesn’t have a choice. They’re going to appraise it at 2.4.
Brett
0:17:28 – Even if you said, fine, I’m not going to do the Ironworks at $1,200. I’m going to do $1,100. I’m going to steal some of their tenants. I’m going to do $1,050. Then you’re at, what, $1.8? Yeah. You’re still in excellent position.
Daniel
0:17:39 – Yeah, your debt service coverage ratio. On this particular deal, that’s why it’s just like it’s a no-brainer because we can literally be, when we’re all said and done, 100% financed with all the bank’s money. Our money’s back in our pockets and we are going to have probably not worse than a 1.8 debt service.
Shane
0:17:56 – Let me ask you this, Dan. Would we do this deal if we had to buy it with the chunk we’re putting down? I don’t know what percentage it is, but let’s say it’s 500 I think.
Daniel
0:18:04 – Yeah.
Shane
0:18:04 – And then we had to come out of pocket with the potential of another 400, let’s 3,400. Would we do this deal?
Daniel
0:18:10 – No, because we could get a better loan somewhere else.
Shane
0:18:14 – Right. So my point is, it comes down to financing. So he just said no, right? So we’re doing this deal because this is favorable financing because they’re also giving us a credit line, the money we’re putting down, almost all of it will be used towards the remodel. That’s what makes the deal work.
Daniel
0:18:28 – Yeah, to put that in perspective, the bank’s making us come in with $500,000 of a down payment. They’re giving us a $516,000. So our credit line is actually in excess of our down payment. So when it’s all said and done, just with the remodel. So we’ve remodeled it. We’ve remodeled it and we used all of our…
Brett
0:18:52 – The bank’s money.
Daniel
0:18:53 – All the bank’s money essentially, although we brought $500,000 in, so we still don’t want to leave that $500,000 in the deal.
Shane
0:19:02 – So once it’s finished, the property’s finished with the higher, must have a much higher appraisal value that even on just a 70% loan, we still can get at least half that money back leaving only in, maybe it’s too, let’s just say worst case, we think we can get it all back. Now we’re in 250, our cash on cash return is a different number. And then ultimately, that’ll probably come back at some point because we’re going to utilize it later. But that’s what, if we trapped 250 in this case, and now, there was times we would never do that. We would want it all back because we just need that money. But in this case, we could probably leave mone in.
Daniel
0:19:34 – We could leave 250 in there because at that point in time-
Shane
0:19:37 – Because we know we have equity.
Daniel
0:19:39 – Well, we have equity, but at that point in time, we’re getting in north of $10,000 a month.
Shane
0:19:45 – So if you can put… So that’s 50% return right there.
Daniel
0:19:47 – If you can get $10,000 a month on $250,000 investment, you’re going to do it all day long.
Brett
0:19:53 – Which brings me to our one conversation we had. Remember the guy at Israel, that old school portfolio manager, argued with me on the phone one day. We were talking about ROIs and investing and all that, and I just, you know, I started talking about ROIs and he goes, wait a minute, let me ask you a question, Brad. He goes, if you put a 20% down payment on that house and that’s all you’ve invested, and then you’re picking up $300 a month positive cash flow after expenses because you did a mortgage, he goes, what’s your real rate of return? When you narrow it down, it’s not much difference, but he twisted my brain because it kind of caught me off guard. I’m like, well, yeah, that makes sense. So what you’re saying now is the same thing. You’re getting that kind of a return on $250,000 investment. You’re the numbers guy. What kind of return on investment?
Shane
0:21:48 – Well, that’s a – I mean, just 10,000 a month, that’s 120. That’s almost a 50% return, right? Right. I mean, somewhere – and that’s a food trap.
Brett
0:22:12 – Can you do that in a stock market when you take people down? No, that’s a – and it’s a very safe investment. That’s the whole, that’s why this is so popular. No, if you’re getting even 15% and you know that’s not going, it’s actually going to appreciate and there’s a tax break, it’d be incredible in the stock market. Stock market, you have the ability to leverage and do different things to increase those returns but there’s always risk with that. No, real estate’s just solid, it’s just slow. It’s a slow road to China, kind of we used to say. I like the up and downs of the stock market. He took the slow road to China, and it worked out really well.
Daniel
0:21:17 – It worked great, and I’ve said this tons of times to tons of people wanting to get into real estate. And Shane said it just a minute ago, you make your money on the front end. You buy it right, you’ve already made your money. But it’s a slow process, you gotta be patient, you gotta set your parameters. And if you set your parameters and don’t bend them, then you’re going to make money in real estate. Yeah. But in the very end, it’s not rocket science.
Brett
0:21:45 – No, it’s not rocket science. By the way, I didn’t say it, but our tagline for our podcast is, we’re not experts, we actually know what we’re talking about. Every expert in the world out there has told us all this crap that was going to happen that never happened.
Shane
0:21:57 – Yeah, master financing, the real estate part’s easy, and be willing to walk away. Just do not get emotionally attached to property. Be the guy that buys the worst property on the block. I mean, the first thing I noticed when we walked, oh, it’s the worst property on the block, you should have checked box number one. You can see where it’s going to go because it’s next door, right? So you just start checking your little boxes and then…
Brett
0:22:18 – I got a lot. I got emotionally excited when I sent this to Daniel. He goes, wow, I think I might want to look at that. I’m like, oh my God, that’s great, because I love that building, I love that area.
Shane
0:22:27 – So you saw it too.
Brett
0:22:28 – Well, I saw it last year. When they first put it on the market, I didn’t have anybody looking to buy it. I think I may have sent it to you, but you weren’t ready for that level yet.
Shane
0:22:36 – I wasn’t ready, yeah.
Brett
0:22:37 – And then when you said you wanted to make an offer, I was like, not because of any reason, I just love. I love that area, I love that concept, I love the medical district, and I’ve watched so many of these buildings get rehabbed and get high-end rents and it’s hard to find an investor that’s willing to take that risk. So the kid that bought this unit or these buildings, I think, bit off more than he could chew to get pockets to take it to that level and just kind of got stuck with it where it’s at and that’s cash flowing. But he was hoping, I think, to be the next Ironworks stepbrother.
Shane
0:23:09 – Sure. And I would love to know the financing, you guys. Sounds like his financing is probably not favorable and so that’s probably maybe on a hard money loan. Who knows what his situation is, right? And he’s just, it starts there.
Daniel
0:23:21 – I mean, you have to, on a big project, make the bank your partner.
Brett
0:23:26 – Yeah, I agree.
Shane
0:23:27 – Yeah.
Jeff
0:23:28 – Daniel, Shane, I wanted to know if there were any recognizable advantages to investing in single-family rental properties here in Memphis, Tennessee, as opposed to some of the other areas in the country you’ve purchased in?
Daniel
0:23:39 – Yeah, they’re recognizable and they’re targeted specifically because they matched another scenario that we started with. Shane and I started investing in Ogden, Utah nearly 30 years ago. And it’s a vast area. Yeah, it was low income.
Shane
0:23:57 – It wasn’t like it is now.
Daniel
0:23:58 – Yeah, low income, some tough crime, things like that. But the thing that’s similar is you could buy on the 1% rule. And to explain that, if you’re buying a house for $60,000, you gotta rent it for $600 a month. Well, here in Memphis right now, it’s that 1% rule. You buy a house for around $100,000, you can get around $1,000 a month. So, we specifically targeted Memphis a couple years ago because of that exact scenario. And when you have the 1% rule, the debt roll system that I use works perfectly. So you take house number one, put all the excess rent onto the principal reduction. You buy house number two, you do it again. You just keep rolling it all to house number one until it’s paid for. Then move to house number two, pay that one off. And it’s just math. I just plugged it into my financial calculator and went, okay, look, we’ll have all these houses debt rolled in 9.2 years. Boom, we’re done.
Shane
0:24:55 – Yeah. But we think the market’s moving this way just like it did in Ogden. We never thought, I mean, for 20 years, our area just, the benches and there was nice areas, the ski areas in Apple. But the lower income or the properties that we could acquire, it never really had a run-up and then it had a big run-up in the last 10 years. It’s just been incredible watching properties triple. You know, we think it’s, they’re moving out of the blue states and they’re moving into Tennessee and places like this. So this, I think it’s over time going to go up. It’ll probably trend up and down, but it’ll go up. And I think that’s where you want to be. So it’s real similar. We’re not buying an Ogden right now. It’s just already too overpriced. Way overpriced.
Brett
0:25:33 – Well, believe it or not, a lot of investors do still buy in Nashville. And I’m like, why would you buy a $300,000 3-1, 1,200 square foot house in Nashville that rents for $1,500 a month when you can buy four of those here?
Shane
0:25:44 – To look cool. I mean, really, look, I own that. They want to drive me with their friends. Well, it would be cash flows.
Daniel
0:25:48 – It doesn’t cash flow though.
Brett
0:25:51 – Not in Nashville, it doesn’t.
Daniel
0:25:53 – It does not cash flow in Nashville. Unless they’re getting a negative percent interest rate, they cannot get it to cash flow.
Shane
0:25:59 – Or they’re just super long-term hold, you know, just looking for the tax break and hoping that…
Brett
0:26:03 – Well, there is that old theory that it doesn’t matter what you buy, it’s always going to go up in value over time and cash flow is always going to increase. Sure. So the longer you hold it, the better asset it becomes. But if you start in the negative…
Daniel
0:26:14 – It’s harder to succeed.
Brett
0:26:15 – …that far, then you’re still in the negative for five, six, seven years. Then by the time you’re in the positive, you’ve got to hold it for another 15 to even get caught up and be considered even.
Shane
0:26:23 – They’re generally lower maintenance though, so there’s some advantages, but we’ve never done it…
Brett
0:26:26 – If you want straight tax write-offs, buy in A&B neighborhoods and don’t worry about the cash flow.
Shane
0:26:30 – Yeah, we’ll have a million equity on this in no time. Yeah. And it’s just a lot more of a comfortable position, so we’re, you know. And it’s a nice property, really.
Shane
0:26:37 – It really is.
Brett
0:26:38 – I can’t wait until it’s done. I mean, I’m actually going to take some pictures.
Shane
0:26:41 – It’s kind of sexy.
Brett
0:26:42 – And post it and like, check this out.
Shane
0:26:46 – Yeah, and that’s not usually what we’re looking for. That’s the stuff we avoid.
Jeff
0:26:47 – What do you guys think about these new builds that Brett showed you?
Daniel
0:26:51 – I’ve bought two of them already.
Jeff
0:26:52 – Okay, so you’re on board with the new build?
Daniel
0:26:55 – If it checks out. You know, I wasn’t initially, just so you know.
Brett
0:26:57 – Yeah. It took me a while to drag him kicking and screaming over the finish line.
Brett
0:27:02 – Brian bought the first one, right? And I think you were kind of like, I’m going to let Brian do it and let’s see how it works out for him. And I guess it worked out okay.
Daniel
0:27:09 – It was okay. The reason I didn’t want to do it is I was trapping my down payment.
Brett
0:27:14 – Right, right.
Daniel
0:27:15 – And there was no way around it because of you.
Brett
0:27:17 – So you didn’t have any equity to move on.
Daniel
0:27:18 – I didn’t have a way to refinance and get my down payment back. So what I had to do was just say, okay, I’m going in this deal. I know I’m putting 25% down and that’s going in. That money is now trapped in there. And that is against what I normally do buying a rental property because I want my money back out so I can roll it into the next one. But because they were new built, maintenance is not going to be happening. Because of how they were built, the cement floor, the painted cement floor, you know, looks great. All that stuff I’m like, well, you know what, I’m probably going to have maintenance for five years at least. I might as well trap that money in because I’m going to grow that positive cash flow. And I already have and I knew we could get those higher rents. I pushed the envelope. What did you get for it? $1,500. But at the time when you were telling me, you were saying $1,300. And I was like, no, I’m going to get $1,500 and here’s how. And I just used it.
Brett
0:28:11 – Well, market was $1,300 to $1,400.
Daniel
0:28:13 – But Memphis Housing Authority was higher. And so I knew that little piece of the equation and I was like, I’m going to leverage Memphis Housing Authority.
Brett
0:28:21 – Now both of those on Sunnybrook are now MHA.
Daniel
0:28:24 – No, I still have one that’s not.
Brett
0:28:27 – Which one?
Daniel
0:28:28 – The one that just moved in. She’s not MHA.
Brett
0:28:30 – I thought she was. Okay. But you’re getting $1,500 still though, right?
Daniel
0:28:43 – Yeah, $1,500 for both.
Shane
0:28:43 – I just wanted to say one more thing that we come from a blue collar family. Our dad was a carpet layer. Anybody can do this.
Brett
0:28:44 – When I was in high school, that meant something different than actually laying carpets.
Daniel
0:28:49 – Carpet installer?
Shane
0:28:51 – We knew early on we didn’t want to do this anymore. I worked when I was nine years old with him every summer. A lot of work laying carpet. It tears your knees up. And flipping just little houses and just anything we could kind of flip early on. And it allowed me to actually learn financing, learn investment, and then I transitioned into taking companies public. But it all started with just flipping a house, just a $50,000 house into 70, trying to just make something. I used to take five grand if I could, just because I had no money. Yeah, it was just double-closing stuff, and then transitioned into being able to have enough money to make it work.
Brett
0:29:29 – The young guys that make it, like y’all did, into these bigger numbers and these bigger portfolios are the guys that take your strategy, smart. Take your money and pay down principle. Buy into the asset. Don’t tie up your cash. Don’t leave all your cash tied up. But I believe, unfortunately, these seminars are pitching this pie in the sky. Buy it, rehab it, put 20, 30 grand in it, refinance it at 140, put all the cash in your pocket and go buy a second one. But if you do that and you’re 100% maxed out and you’re leaving some of your cash on the property, eventually, unless you’ve got a million dollars coming every year, you’re going to run out of cash to continue growing. So I don’t always agree with that philosophy because they’re pitching the prosperity side of it and not the long asset wealth building side of it.
Daniel
0:30:10 – That’s why they should buy three, sell two, take that extra cash from those two sales to buy three more and keep rolling it forward.
Brett
0:30:19 – Eventually you hit a level where you can then kind of sit back, all right, I’m going to take a thousand dollars a month out of my cash flow and buy my wife a new car.
Shane
0:30:40 – Yeah, I knew somebody though that would buy a property on occasion, but by being more aggressive, you get better at finding property, buying the right deal. So if you’re buying three rather than just one here and one there and flipping a couple, you learn the market more. You have to learn how to sell the property.
Brett
0:30:41 – Well, people also learn about you. I get a lot of referrals simply because people find out about me from my time in the business. That’s right. You’re a big buyer and you buy. Like I know all the big buyers in Memphis. I don’t represent them, but I know of them because they’ve made a name here. They’ve bought this, they’ve bought that. That’s the flip side of it. If you can get your feet wet and end up with 10 properties, the agents and the people in that market are going to start paying attention to knowing who you are and then deals will kind of fall into your lap. People start calling and say, hey, I’m going to put this house on the market. Do you want it before I do?
Daniel
0:31:08 – Well, that happened all the time back then in Ogden.
Shane
0:31:11 – And you meet a lot of people when you’re selling the property. Don’t be afraid to sell them. You got to learn how to sell them. I mean, because if you can’t make money flipping it, you’re probably not going to make money owning them.
Brett
0:31:21 – No. I mean, let’s face it. You don’t make a lot of cash owning rental real estate. You make a little bit, but if you do it right, my philosophy is 10 years from now, you literally can become a guy who works at FedEx and in 10 years be a millionaire.
Daniel
0:31:35 – Yep. Oh, for sure.
Brett
0:31:36 – If you do the real estate investing right.
Brett
0:31:38 – You can become a millionaire just like that.
Shane
0:31:40 – If you make a mistake on your first one, you’re out of the game right now. So just don’t do that. Take your time.
Brett
0:31:44 – And you know, once you hit your first million in value, it’s easy then to do it at two and three and four and five and then you’re on your way to being Donald Trump Jr. if that’s what your aspiration of life is.
Richard
0:31:55 – You mentioned self-managing in Ogden, Utah, but what have you done here in the Memphis market as far as property management is concerned and what has been your experience?
Daniel
0:32:05 – So I’m not going to name names, but I’ve had two property management companies since I started them and I had to fire both and I just self-manage in Memphis as well. It’s not that hard. With technology.
Brett
0:32:18 – As long as you have a good agent.
Daniel
0:32:20 – Yeah. Yeah. If you get an agent that’s willing to go on a Thursday afternoon for two hours and show your unit, then you’re in pretty good shape.
Brett
0:32:28 – It’s not me, so don’t call me and ask me to take and show your property for a listening.
Shane
0:32:31 – Again, if you’re buying and selling property, it helps because he gets paid on that too.
Brett
0:32:35 – No, all kidding aside, we do do that and a high-end agent here, investment guy I compete with a lot, and we know each other, asked me that question, why the hell are you doing this? You don’t make money to do that. I’m like, because he’s going to buy property number five from me, then six, then seven, and eventually a 20-unit apartment complex, I’m investing in the future of our team. A lot of agents don’t look at that. They’re kind of a one and done, give me my check, let me go, nice to meet you. And I think that’s a horrible way to run a business.
Shane
0:33:02 – That and Dan’s usually bold enough to ask people to do things that he probably shouldn’t, but it’s fine.
Brett
0:33:04 – Well, I appreciate that. A lot of my clients won’t do it. Like I had a guy call me Monday, and he was like, man, I hate to call you, but I’m having this issue. And I’m like, dude, why didn’t you call me last week? I went over and took care of it in 10 minutes for him. Because the management company, one of them we’re talking about, was giving him the screw around and he was getting aggravated and I think he’s actually fixing to bounce. But I just went over and took 10 minutes with a wrench and I fixed the problem. It was done.
Daniel
0:33:30 – Management companies are good. You’re just not going to make very much money if you have a management company.
Brett
0:33:36 – If you’re a management company and you’re listening to this, don’t take this personally, but there’s no such thing as a great management company. There’s no such thing as excellent.
Shane
0:33:42 – Well, they don’t make a lot of money, and so they have to find ways to gouge you, and this sucks. Yeah. And you got to learn to manage your property initially, which you know what it’s all about. You got to get to know your tenants, and the tenants will appreciate that. There are times when you can’t be like-
Brett
0:33:47 – There are a lot of good management companies, but don’t go into this expecting to have the greatest management company on the planet, because every management company has got its positives and its negatives, and I think we’ve learned that over the years. If you want low maintenance, just buy houses. Get a lot of houses like he did.
Shane
0:34:08 – They usually manage themselves in a way.
Daniel
0:34:10 – Sure, they really do.
Brett
0:34:11 – You line up a local maintenance guy, have a good realtor in town and pretty much you can deal with any issue that pops up. Yeah, yeah. But if you’ve got 20 unit apartment building, you probably need a management company.
Daniel
0:34:19 – Yeah. Single family homes, that tenant stays on average five years.
Shane
0:34:23 – Yeah. That’s a solid rental.
Daniel
0:34:24 – So you rent it, you work hard for a month to get it rented, and then you don’t have any work there for five years other than regular maintenance, and you just call your guy and say, hey, go fix this, or I’ve been just forwarding text messages.
Shane
0:34:38 – You have five-year numbers going up.
Daniel
0:34:40 – Yeah, I probably, well, I mean, I have-
Brett
0:34:42 – MHA should be a longer-
Daniel
0:34:43 – Well, people can’t buy a house. I have tenants in Ogden that are 15, 20-year tenants.
Shane
0:34:48 – Yeah, once they’re comfortable with you, they’ll stay.
Brett
0:34:50 – All right, guys. Well, look, I appreciate it. Dan, Shane, I had fun. Thank you. Thanks for being here. Thanks for sharing your insight. I’m pretty excited about 2024. Things are really kicking off. Jeff, you’ve got a lot of activity on that package today?
Jeff
0:35:02 – Yeah, we’re working with several agents. Two of them are owner occ, looking for owner occ. That’s good.
Brett
0:35:09 – Reach out to us, 901-692-7401, or go to our website, mymemphisinvestmentproperties.com. Make sure to subscribe to our podcast so every time we release a podcast, you’ll get a notification and you can listen to whatever crazy crap we’ve come up with today. So thanks for listening, have a great day.