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Real Estate Investing School Podcast
195. Overcoming a $50k+ Mortgage Fraud Loss with Karl Krauskopf
00:47:55
Welcome to the Real Estate Investing School Podcast. Today Joe has a conversation with Karl Krauskopf, a former corporate strategist, transitioned into real estate and has completed 105 deals in six years, managing a portfolio of value-add...
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- [00:00]
A
The first year ended up losing on one of Those deals about $56,000, which was pretty awful. But, you know, didn't. Didn't scare me away. I saw the power from the other deals that I. Where we ended up making quite a bit of money.
- [00:16]
B
Welcome to the Real Estate Investment School podcast. I'm your host, Joe Jensen. Our guest today is Carl Krauskopf. Now, Karl is a corporate strategist turned real estate entrepreneur. He now manages a portfolio of value add multi families in the Pacific Northwest. And it says here you've done 105 deals in the past six years, is that right?
- [00:40]
A
Yeah, it's been, it's been great. So I should probably clarify some of those deals. Right. They are including shacks. No, I'm joking. So a lot of those are single family developments, townhome developments as well.
- [00:52]
B
That's awesome though. I mean, that is a lot of deals. I mean, I'm not great at math, but I don't know if we divided 106, 105 by 6. That's, that's pretty. Yeah, my phone's dead, so I can't even use my calculator. I guess I'm useless now. But that's quite a few deals in such a short amount of time. Why don't you kind of tell us your backstory a little bit? Like how did you go from a corporate strategist and maybe explain what that is and then how do you change into going so aggressively with real estate?
- [01:25]
A
Yeah, sure. So corporate strategist was. I was responsible for the business, business direction. So really setting where our corporate healthcare company was going from a revenue and expense standpoint. And really a lot of that had to do with how many sales we were getting, what we were doing from an initiative standpoint to shore up obviously the revenue generators as well as the expense on the operational side. So, you know, a lot of it was how to help scale that. That company. So a lot of transferable skills in scaling a company. Right. And you know that those transferable skills were moved over to in the real estate space. And you know, how I got into the real estate was really all about income, really focused on, hey, I have this ability to really control the way, how fast I move, how quickly we can. Again, how quickly we can scale a company. And again, that was my focus from the get go. You know, why and how I transferred or transitioned is a totally different story though.
- [02:26]
B
Yeah. And obviously scaling is a big part of your story. I mean, 105 deals in six years. I mean, that's more than one every single month for six years in a row. You know, which, which doesn't happen with one offs. That doesn't happen just like, oh, I'll just go drive for dollars and find a house and close this month and then I'll do that again, you know, a couple months, I'll do two and I'll just do that for six years. I assume that's not the route you guys took. You really learned actually scale and leverage other people's time. Is that correct?
- [02:58]
A
Yeah, absolutely. I think from the get go, what I was always obsessed with was really being able to create a repeatable process. Right. Again, the corporate healthcare background that I came from was in the insurance space and it was claims adjudication of claims, so intake and reviewing claims, approving, denying them. So it was very, very process driven. And you know, really took that, that skill set and applied it into the real estate space or rather any, any company. And you know, where that started was really investing the time up front in creating those sops, the standard operating procedures. So that way again, we could have a repeatable process. Now, um, you know, one in particular deal did not go according to that process, which, you know, was early on, in the early, very, very early on. I think it was in the first year. And you know, that was a, that was a big lesson that I ended up having to learn the hard way.
- [03:55]
B
Okay, I want to dig in a couple pieces. Let's just dive right into that. I, you know, sometimes the mistakes are where we can learn the most and that's usually what holds people back. So the more we can dive into that might be like, oh, I can avoid that mistake. I feel more confident moving forward. So what was, what did happen there? What didn't go according to plan? And it sounds like you might have got burned a little bit.
- [04:15]
A
Yeah. So first year in, and I should mention that the first three years of doing any kind of investments was I was still working the corporate job. Right. I was working at my 9 to 5 or really it was more like, you know, 7 to 6. And I had just had a newborn at the time, so it was a great time to start a new business. Right. Anyway, the first year ended up losing on one of Those deals about $56,000, which was pretty awful. But, you know, didn't scare me away. I saw the power from the other deals that, where we ended up making quite a bit of money. So let me back up now, now that I got that context and say that the big lesson learned from an overarching standpoint is due diligence. Right? It's making sure you know what you're doing on the deal that you're doing. And to give a little bit more Clari. This was a deal. This was a property, a single family home that I was in the middle of buying and come to find out we closed the deal and we were. I was victim. I and the real owner were victims of mortgage fraud via identity theft. So what ended up happening is somebody had purported to be the seller and sold the home to us. And we closed on the home. We had title insurance, all the good stuff. We started renovations. We were about a month and a half through the process. New roof, new siding, windows, etc. And I got served the lawsuit saying you fraudulently purchased the home and you have to return it back to the rightful owner. So, long story. Due diligence. Make sure you know everything you're doing with the deal in the people that you're doing the deal with.
- [06:00]
B
Okay, now I've got questions. Okay, so title insurance notaries. How could someone who doesn't own the house sell it? And how does that end up being your problem?
- [06:11]
A
Yeah, so it ends up being my problem because there's. There's a void contract. Right. In short, there was no contract because I technically had a contract with somebody who was not legally the owner. And so from a court's perspective, they're going to say I essentially own the home fraudulently.
- [06:29]
B
So did the notary. Did they use a false id? How'd they get past the notary? When they sign documents.
- [06:35]
A
Notary did their job. Everybody did their job, Right? Everybody leading up to the notary, the title team, the notary notarized it and simply what happened is this individual opened a bank account in the seller's name about two months prior to closing.
- [06:52]
B
Okay.
- [06:53]
A
Essentially stole their Social Security number so that way they could open a bank account.
- [06:58]
B
So let's give the false name. I'm going to dive into this. I'm super interested in this. So let's give a false name for the scammer. Or you could use a real name. I don't care.
- [07:07]
A
You don't know what it is.
- [07:08]
B
Yeah. Give us the name of this. Oh, you don't know. Give us the name of the scammer. We'll say Bob. Okay.
- [07:12]
A
Yep.
- [07:13]
B
So Bob Scammer goes and opens a bank account in. Who. Who's the. The actual. The seller that should have been who actually owned it. We can give them a false name or a real name, whatever.
- [07:23]
A
Just call him Charlie.
- [07:24]
B
So Charlie really owns this place Bob goes, opens a bank account in Charlie's name, steals Charlie's social and, and goes and sells you the place. But when Bob shows up to closing with the notary and shows his id, he's not Charlie. So how does the, how does he sign off on the sale?
- [07:45]
A
So that's a good question. And I think that is. That was always the mystery to me is who was the one who actually signed the document? Obviously, it's, it's easy enough to pull up Charlie's photo online and print a. Get a false ID under Charlie's name. Right? That's easy enough.
- [08:02]
B
Right.
- [08:03]
A
But finding an individual who looks close enough to Charlie is the challenge. Right. And so, you know, it's easy enough to, to, for Bob, for, for example, for Bob to go find, you know, poor, you know, old person who looks kind of like Charlie, the, the. The real owner, pay them, you know, 5,000 bucks. Hey, I'm going to give you 5,000 bucks, present this ID, sign a document, and just walk away. Right. Easy enough. That's, that's my guess is what had happened. Because the.
- [08:34]
B
Bob the Bamboozled the notary. However, they tricked them somehow. They tricked the notary because Charlie was never actually involved.
- [08:43]
A
Correct.
- [08:44]
B
Interesting. Okay, so my other question. Maybe you're going to get to it because I know you're explaining. I just like, dived in because this is just super interesting to me. Um, so they, they trick the notary into letting them sign it falsely. Title insurance. I mean, should. Does the title insurance not cover any of this? Isn't that what insurance is for, is for when shit goes south?
- [09:05]
A
Yep. Yeah. So title insurance cover the cost of the property itself, of the value of the property itself. Title insurance does not cover things of origination fees, hard money costs, litigation, renovations. Exactly.
- [09:21]
B
Yeah. Or litigation getting sued. I had a property and it was super cheap. I mean, I got this thing anyway, I won't get into it, but it was like I paid a couple grand, right? And it was worth way, way, way, way, way more. But my title insurance just covered what I paid for it. So when the lawsuit came my way for, you know, 120 grand or whatever they thought it was for, even though I bought it for 3,000, they're like, they just walk. They just gave me my money back and said, never mind, we're not even going to cover this.
- [09:50]
A
Yep.
- [09:50]
B
The title insurance kind of just washed their hands of it, gave me the 3K that the insurance covered, and said, good luck.
- [09:55]
A
Yep.
- [09:56]
B
So anyway, keep that in mind. Any listeners, title insurance Is insurance one, which sounds like you worked in the insurance world. They've got. Their whole goal is to not pay out. Right. And so they don't want to pay out. And so if they can get out of it, they'll wash their hands of it as quick as they can. It's not like a, hey, you've got a superhero on your side. And they're going to take this to the end and make sure that you're safe and protected. Which is like my dream of title insurance. Like, I'm safe and secure. It's like you're mitigated, but you're not, you're not set. So anyway, yeah, so, you know, all the renovations and, and all the closing costs and everything you put into this, that's not going to be covered necessarily.
- [10:37]
A
Right. It was, it was really interesting when we started going through the process. You know, my, my. I was perturbed about this because our hard money lender, God bless them, they're great, they did not pause the hard money expenses for me. So even though we started the litigation, they were not. They. I was still doing, owing, you know, three, four thousand dollars a month on, on that. Even though we couldn't do anything. We were in litigation, et cetera. You know, my first recommendation was go follow the money. Like, where did this money go to? Obviously, somebody had received the funds. Who received the funds, who opened the bank account. So it took them, you know, about two months to actually go and do that.
- [11:18]
B
And then you hired attorneys.
- [11:21]
A
Yes. Well, title attorneys. Yes, title attorneys were involved. Okay, cool.
- [11:26]
B
The title insurance, they, they were helping out with.
- [11:29]
A
Correct.
- [11:29]
B
Looking at some of this, which is cool because they, they don't have to, but they did, so that's good.
- [11:33]
A
Yep. So they, they followed the money. They found the, they found the individual. But it was, it was funny how quickly they came and offered, hey, we'll just, you know, you were right. You know, this is the person, Bob, the scammer. They stole the money. It was, in fact, identity theft. We'll pay out the title insurance. We just need you sign on the dotted line. It was very, very quick for them to offer and essentially get, try and get out of the deal as quickly as possible.
- [12:00]
B
Did you take that offer?
- [12:02]
A
You know, I did. I did beat for a couple reasons is a. I wanted to get the deal off of my balance sheet. So that way I stopped owing the hard money. I was also inexperienced. Right. This was my first year, I think it was my second or third property that I bought. And I was, you know, scared out of my pants.
- [12:24]
B
It sounds like the title insurance coverage was about $50,000 shy of how much you were actually into it by the time you looked at all of your expenses, hard money costs especially, and things like that.
- [12:36]
A
Yep, exactly.
- [12:37]
B
Gotcha. But if they, I mean, if you hadn't had title insurance, you would have been out. I mean, how much did they pay you for the title insurance coverage?
- [12:45]
A
That's a good question. I think it was about 310,000. So I would have been 360.
- [12:51]
B
Yeah. So get insurance guys get title insurance. Even though it's not, you know, a silver bullet, it's, it mitigate big time. Right. You know that, that's, that's huge. That is wild. And I've heard similar stories about these selling scammers before. I don't know if I've ever dug into them. But that's crazy that, that, that can happen. You know, the funny thing with notaries too, it's not like they are necessarily the most vetted out, high pristine situation, you know?
- [13:26]
A
Right.
- [13:26]
B
Just be a random person. They get a notary thing and they're just signing stuff. But it's like that's pretty important. Documents a lot of times that have a lot of bearing that.
- [13:37]
A
Absolutely. I mean a person sale, super important. Notarizing a condo, a short plat maybe not necessarily as important.
- [13:46]
B
Did anybody talk to the notary? Did you talk to the notary? Be like, hey, what the hell, dude? You just cost me 50 grand. Like check for a false ID, bro.
- [13:55]
A
No, I, I obviously had no ability to, to get that person's identity, however title it.
- [14:01]
B
Well, you should know who the, the, the notary was. How, I mean, it's stamped on the, the stamp.
- [14:07]
A
Sure, sure, good point. Yeah, good point. Yeah. No, I, I, I did not perceive.
- [14:12]
B
There's still time. Let's, let's dig into this Scooby Doo.
- [14:15]
A
Seven years, right? Seven years.
- [14:19]
B
Yeah. I don't know. Maybe because, because that's my real question too, is like maybe the notary was in on it. Right. It's not hard to get an aunt, you know, who's becomes a notary and just signs crap for you falsely, you know, but they could get caught. Is would be my thought of why they wouldn't.
- [14:34]
A
Yeah.
- [14:35]
B
Even if you do give them a five grand or whatever, it's like I don't want to do this falsely. So I wonder if they were in on it or if they got bamboozled.
- [14:41]
A
But yeah, you know, it, it seemed good, Good, good question. Good points. It seemed based on the title Attorneys kind of their interpretation of the conversation is that this individual, they were just simply like they were astonished. They felt completely lied to. And so, yeah, this is the title attorney's impression.
- [15:03]
B
So they looked into that part. Interesting. Well, that's wild that, you know, I mean that is a very unique story. And, and like say title insurance, they pay out. So I'm sure it's so rare that like say as soon as they do have a case, it's okay, just paid out, get out. Let's move on as fast as we can. Stay out of the weeds. They don't want a long going litigation of, you know, years of like, they're just like, we'll just pay this off and move as soon as we can.
- [15:30]
A
Yeah. And it's up to them to go back and find, you know, Bob the scammer and try to recoup the cost from him. So sure, yeah, I'd like to see Bob the scammer.
- [15:41]
B
It's crazy. So. So when you first got into real estate, did you go jump straight into a business? Because you're not, you're not. I don't know, would you consider yourself, Carl, a real estate guy or a business guy or both? I mean, you seem very much business systems oriented.
- [15:58]
A
That's a really good question. I think the way that I like, I like to look at it in the way that I like to look at it myself is I prefer business first and real estate is the vehicle.
- [16:08]
B
Yeah, I feel that from you. And you're fancy, you wear a bow tie, your daughter plays violin. You know, you're, you're a high level, so. But you're a business guy first. When you dived into real estate, was it you or did you already like, were you just like, hey, we're gonna go run a business? And what kind of business was that? Was it flipping, wholesaling long?
- [16:27]
A
Yeah, no, it was just me. It was me bootstrapped. And first it was buying small, small multi rentals, then moved into the single family flipping and spent about two and a half years doing that and moved pretty quickly then into urban infill, so building townhome developments in core areas of, of downtown Seattle.
- [16:52]
B
Wow, those seem like some big jumps. I don't. Those don't seem like necessarily natural progressions to me. I mean obviously though can be what, what led you to each of those jumps and what were the, like, I guess the benefits and also like the, the hard times for each jump.
- [17:11]
A
Yeah. So jumping from small multi rentals to flipping was speed of scale. Right. It would Be quite difficult to. Even if you. This was back in 2019, I want to say it was. Even if you were, you know, successfully executing the Burr strategy. Buy, rent, buy rehab, rent, refinance, repeat. Even if you were doing that very successfully, you're still limited in terms of speed and speed of scale.
- [17:36]
B
Right.
- [17:36]
A
And I knew that. I recognized that after my, yeah, my, I think my second, my second purchase of. Hey, you know, it's going to be about a six year payback period unless I do something radically different to this, this particular property. That's just way too long for me. Still working the corporate job at that point.
- [17:53]
B
Right.
- [17:53]
A
Then moved into like, okay, let me go try my hand at flipping. Flipping is process, Dr. And I feel like I can execute that well. Did really well on the first one. Moved in, moved the investment principle and return about 60,000 into three new flips, one of which was the property that we just described. And then the other two performed really well. So flipping was the speed of scale. Right. Being able to have large returns, large capital returns. So that way we could go back and buy. I could go back and buy more on those two.
- [18:31]
B
Not to cut you off. How well did they do? How much do you think you made profit off the other two?
- [18:37]
A
I was, I was, I was positive enough to return on top of the loss.
- [18:43]
B
So, yeah, that's what I was wondering, which is so interesting. Right? It's like, oh, I lost 50k. But if you look at it as like, like, like if you're buying mutual funds, you buy multiple funds. Some go down, some go up. Overall there's a profit. It's like, yeah, you lost, but overall, because you were scaling a bit, you know, you did three at a time.
- [19:03]
A
Yep.
- [19:03]
B
You came out ahead.
- [19:05]
A
I made about 85,000 between those other two. So net positive 35 between those three, but net positive 95 in that first year.
- [19:16]
B
Yeah. Which is just like. Because people hear that and when people, when, even when I hear, oh, I lost 50k, I'm like, well, good thing you had 50k to lose, bro. Like, not everybody does that now. Some people hear that and they're gone out the door like, well, I can never lose 50k. But it's like you didn't have 50k to lose either necessarily. Maybe you did, but. No, but the point is if, if you can play the game and borrow the money here and play the debt game and move it around by the end of the year, it all paid for itself. Whether it was a rehab or a scam loss.
- [19:47]
A
Yep.
- [19:47]
B
All the expenses were Covered and you came out well ahead.
- [19:51]
A
Yep.
- [19:52]
B
It's not like you had to personally lose 50,000 out of your life savings when it was all said and done. Which is cool. Which is, you know, it just goes to show, it's like, yeah, there's big losses. When you can have big wins, it can mitigate.
- [20:03]
A
Yeah, absolutely. You said it, you said it beautifully. Moved into the development, urban infill development shortly thereafter. Primarily again for a speed of scale. Right. You see, you know, flips you can make. You know, at that point we were starting to stop focusing on the 60,000 flips and focusing on the $150,000 flips, you know, six month turnaround at that point. But you know, the allure of townhome development in Seattle, this is back in 2021 now. And you know, we were making, we were expecting anywhere from 125 to $150,000 per townhome and I was building five to six per lot. So, you know, the allure of now 600 to $750,000 deals in, let's call it a 15 month, 15 month period, was far more attractive at that point. So.
- [20:59]
B
And you don't have to deal with all the unknowns of the flip. What's behind the wall, what scammer is selling this house they don't own? Like you're building it like the, all the cards are on the table. It's very transparent.
- [21:10]
A
Your biggest unforeseen is going to be what's under the dirt and then regulatory bodies.
- [21:15]
B
Yeah, I was going to say dealing with the city and the county and logistics like that.
- [21:20]
A
Yeah, so those, those have been the only two downsides of development that we saw is what's under the dirt and what's, what's the, what's the city, what's the municipality going to do to you during the hold period, or rather during the build period.
- [21:35]
B
But it is also a longer build period. So let's talk about like the environment, you know, of the, the market. Right. Like if you can get in and out within six months, you start to see shifting. You can hopefully get out pretty quick if you're not too heavily into the flips. But when you're in a development, there's no, like, dude, things are shifting. We're three months, six months in. Let's bounce. You're, you're in at 15 months, like you said, you know, what do you do when you're leveraging, you know, you've got that much into a project because those are the guys that got burned in 2008, right. It was the flippers and the land developers. You know, the long haul dudes, they're just chilling. You know, they're portfolio look like it went down, but there's still cash flowing. But, but tell me about your, your take and, and the risk and how you approach like taking out that much risk. It's like what if the market conditions shift within that 15 months?
- [22:26]
A
Yeah, yeah, I, I absolutely loathe unmitigated risk. And you know, one thing I'll back up and say with the flips is yes, six months. You know, you can expect something to be done in six months. From renovated to sold. At every juncture I like to reevaluate the potential to sell. Meaning when I go do a studs at remodel, when I would go do a studs at remodel, I look at what's my profitability if I just clean this up. If I get it to just the studs, can I sell it at just the studs and not have to put in all of the renovation capital of the Roughens. And so at every, at the big milestones, reevaluating your exit and seeing if you can't get you know, 60, 80 of your projected profit with while also, you know, substantially mitigating your risk. So that's something I love about flips really like you said, you really can't do that on the new construction. Nobody's, no builder is going to, I shouldn't say no builder. Very few builders would pick up a half built, you know, foundation. You're really, your only exit points at a development are going to be entitlements and sold right pre sells. So on the in between you're, you're, you're stuck at the whim of the market. So you know, we happen to have one deal in particular that did land in that, that, that, that bad period. I would say of what was it 2022 when rates started skyrocketing and we, we had a five unit development in downtown Seattle and all townhomes was slotted to be delivered in June of 2022 when things started getting a little shaky when people had enough rate locks to close on good deals. But we ended up going to market in late August, early September when everybody's rate locks expired. We had three months of the feds increasing by 75 bips and there was not a single buyer in the market. Yeah, what'd you do? We ended up refinancing and holding, still holding the property. Cool.
- [24:45]
B
Which is awesome though. That's the Thing about real estate too, it's like you own that asset and it's gone up a lot, I would imagine, from when you finished it. Has the equity increased from when you finished to now?
- [24:57]
A
Absolutely, absolutely.
- [24:59]
B
Probably enough to cover your holding costs if you were to look at just the overall.
- [25:02]
A
Yeah, right. We place tenants. We place tenants. And so it's been covering costs there. So there's not been any holding costs per se. We'll actually be taking it to market this spring.
- [25:16]
B
Real estate's so cool. Like there's so many options. When things go south, the market, you know, craps on you. It's like, oh my gosh, you know, you know, never could have foreseen that fast of a hike of interest rates. You found a way to hold the asset, you didn't lose it, you've held it, it's covered its own cost, you've gained great equity. You're going to sell it for a profit now. You know, it's just like, it's just so cool how many options there are with, with these things, which is super cool.
- [25:44]
A
Yep, absolutely, man.
- [25:46]
B
So at what point did you start adding team members? So you said you started out as just you bootstrapping. Where did you start bringing in a team and creating SOPs and really building the business side which is what you're passionate about and what was like your first hires.
- [26:02]
A
Yeah, so I think I tried it in a way that I would not recommend to other people. I stumbled and stubbed my toe quite a bit. I started with partners, right, business partners, where, you know, it's the allure of, hey, I don't have a lot of money to spend on employees right now. But I've got, you know, somebody that I know that has maybe we have the same ambitions, the same, you know, goals and hey, you know, we can just go leverage each other and we can build a business together. And so, you know, tried that for about a year and a half following the me leaving my job. So this has now been, I've been in my full time role here running Gold multifamily for about three and a half years. So for the first year and a half was partnered up with some other folks and it was good. It was all right. You know, we didn't, we bought some good, good properties but there was a lack of scale, a lack of focus on hiring and you know, that really came to a head on one particular property that we bought and closed and you know, the, that was the catalyst to saying, hey, like I want to go back to the business. Model that I wanted to do at the very beginning, which was leverage other people. Right. Starting to hire, really focused on, really focused on hiring. So I, I, I, I left that, that partnership year and a half ago back in 2020, late 2022 I think it was, and rather early 2023. Sorry. And what we did, what I've done now is hired a full time person back in 23. And we've scaled up to still small, but we're at full four full time people right now with two other, I would say most time if you will, you know, let's call them 75.75 FTE. And you know, from there it's continuing to hire. We've got two additional job wrecks out right now to hire two additional folks and it's all about, I'm sure you're familiar with the flywheel of really putting the emphasis behind capital flow, deal flow, and the ability to operate and the ability to service those assets.
- [28:21]
B
So you've got four people, you said, what are their roles? What do they do?
- [28:25]
A
Yeah, so. Good question. So we've got an investor relation, a marketing specialist, we've got a operations analyst and a sales acquisition or acquisitions analyst, I should say.
- [28:39]
B
Okay, so you got people to find the deals, you got people to manage the deals, you got people to sell the deals and move it on.
- [28:46]
A
You can keep doing, to find, to fund and to operate the deals.
- [28:52]
B
That's awesome. And that's what allows you to scale so that you can actually. And then what do you spend most of your time focusing on and putting your effort into?
- [29:00]
A
Yeah, good question. So now, now it's where is there a break in the flywheel and where can I put addition my, my personal expertise, my leverage into, into a part of the flywheel that needs a little bit more, more oomph, if you will, and push us into kind of the next phase of, of hiring the next, the next person. So right now we're looking at an additional acquisitions analyst. So that way we can really focus on this next buying season, buying cycle. I should say really focused on finding these deals both locally, on market, off market, and then start regionally as well.
- [29:39]
B
Now when you went from like the flipping to multifamily to the new developments, did you leave behind the old or do you now do all of it or do you just focus on new developments now?
- [29:51]
A
Good question. So now we pivoted. So in there, right, we missed that step. I pivoted back over to the multifamily value add stuff. So we're all focused Right now on value add multifamily again. And that pivot came back in late 2022, right as, or is it late 2021, right as fed Powell and Janet Yellen came out saying inflation is no longer transitory or transient. We have to do something about it. And so that's when I stopped buying for sale product or product to build and then sell or product to flip and sell. I went back, I got hyper educated, I got really focused on self educating myself on apartments, apartment complexes. And you know, you mentioned early on the folks in 2008, the folks that got burned were the flippers and the land developers, the guys that had the long term hold, they had a bright horizon because they had a long horizon. And that's where I wanted to be. So that's where I spent six months self educating myself on how to, you know, essentially find, fund and operate those large, those larger apartments.
- [31:08]
B
So no, no new land development deals right now?
- [31:11]
A
No, none, none that, none that are substantive or, or substantial, I should say, you know, I'm doing some, some single family opportunistically, sure.
- [31:19]
B
Find a lot, do something, but yeah, exactly.
- [31:23]
A
Cool. Nothing at scale. On the develop. On the land development side, it's interesting.
- [31:27]
B
To see the meandering of which way you focus and I feel like that's the way that goes with things. But one other thing I want to emphasize for the listeners is it's so cool how, you know, you went and took six months of deep education to really be able to tackle the next phase. And this was, you were already a success, successful real estate investor at this time. I mean, you had done tons of deals, you had made great money, you had guys working for you like you were already in it. And it's, I just think it's so important for listeners like, dude, you only know what you know, which I think is interesting. You know, it's like, oh, you're successful now, you know everything. No, no, you just know what you know, but you don't know what you don't know. And you're like, okay, for me to do the next phase, even though I'm already successful over here, I, I need to go totally from scratch and learn like a pro over here as well. And I just think that's, I think it's, it's cool. It just shows like a lack of ego and hubris. It's just like, okay, I just need to go learn what I need to learn and, and that continuing education to move into the next phase as opposed to, ah, I'm already Good at this. I know this. I'll just stick with this. You know, you took the hard route so you could be where you actually want it to be.
- [32:39]
A
Cool. Yeah, absolutely. I think the, I think what's so important is that people read the tea leaves are up to date on not only, you know, national events, but more importantly hyperlocal events. What's happening in your city council, what's happening at state level legislature and how that's going to impact your existing business. You know, for instance, if you're a, you know, long term holder and all of a sudden you're, let's call it in some, you know, Midwest state and all of a sudden out of nowhere the state comes in and imposes a extremely aggressive rent control measure. Are you going to stay in buying more long term holds or does it make sense to either look regionally outside of that state or does it, does it make sense to change your business model within the same state that you're operating? So I think it's just important that people focus on self education, both at this, the hyperlocal as well as the national level.
- [33:40]
B
Well, that's such a lesson in business in general. Right. Is that concept of be willing to put yourself out of business. You know what I mean? Don't become blockbuster, like move with Netflix if you need to change, even if it means undoing everything you've done virtually. It's like, what's the alternative? You know what I mean? So you got to read the writing on the wall and make the changes necessary, even if they're painful. Yeah. That's so cool. That's so interesting. What's exciting you the most right now of what you're looking at?
- [34:12]
A
Yeah, I think what's exciting the most is now that we're seeing and hearing the potential rate reductions coming up at the end of this month.
- [34:21]
B
We're in September reporting this, what, September 17th. And yeah, everybody's talking about the rates going down, which is exciting times.
- [34:27]
A
So what's exciting to me is that we're starting to see seller more and more sellers come out with product for sale. Now they're coming out to with product for sale at reasonable prices, still at reasonable cap rates. Right. They're not, it's not like they're necessarily coming out and saying, oh, we want to go back to a 4 cap where things were selling back in 2019. No, it's like we're still in Seattle. We're still talking about, you know, mid 5 cap on actuals, which is pretty good. Right. And where does that you know, where does that turn out in terms of perform a cap? It's a different story. You know, seven, seven and a half is what we're looking for. And, you know, that allows us to get into a really good deal over the next, let's call it six months.
- [35:15]
B
Cool. That's exciting, man. That's sweet. I want to go through a couple questions that we go through with each of our guests, have some time to kind of just dive into them if we want. If you had to start your real estate journey over knowing what you know now, what would be your first, second, or maybe third move?
- [35:32]
A
Yeah, good question. So certainly my first move again would be to start up on hiring. Right. Hiring is, I would say, as best as possible, not going lowest barrel, dollar rate or cheapest labor, but rather something that I could put in place. A very straightforward process where essentially a virtual assistant or some kind of global resource could. Could leverage the process. Right. So that's going to be somebody that's helping me in marketing. That's going to be somebody that's helping on the acquisition and deal finding side, so building relationships both with potential investors and then with brokers themselves as well.
- [36:14]
B
And you would do that earlier on in the process than you you did originally?
- [36:19]
A
Yes, absolutely. Absolutely. And the reason being is that way I could help. I could essentially get to a point where I'm able to fund things quicker, assuming, you know, assuming I've got some enough capital to hire, let's say, you know, $100,000 worth of salary in the first year. Right. Assuming I've got that, that's where I'd start.
- [36:38]
B
That's awesome. What's a book or podcast recommendation recommendation you'd have for the listeners?
- [36:45]
A
Yeah, my. My favorite book. And I would say the book that kind of. That started all of this is not what you would expect or maybe not even one you've heard. It is a book by a gentleman by the name of Peter Diamandis and Steven Kotler. The book is called Bold how to Go Big, Make a Difference, Create wealth and Impact the World. Something to that effect. I think I got the subtitles wrong, but the idea is you can be highly innovative. You can come up with incredible solutions that impact a ton of people and make a lot of money at the same time.
- [37:21]
B
Yeah, that's, yeah. Bold. How to Go Big, make bank and Better the World.
- [37:26]
A
There you go.
- [37:27]
B
Is what it says on audible, but then on the title it actually says, how to Go Big, Create wealth and Impact the World.
- [37:32]
A
So, yeah, I've seen the subtitle about different ways.
- [37:35]
B
Yeah, they've written a couple different ways. That's interesting. Yeah, Steven Kotler, he's actually, he's read a, read a couple, wrote a couple books I've listened to that are pretty interesting. I like his stuff. I'm adding that to my wish list right now.
- [37:49]
A
Peter D. Mendes. You know, I'm not as familiar with Steven Cutler, but Peter D. Mendes is, you know, he is a self proclaimed futurist, is a huge into longevity which I am also a big fan of.
- [38:01]
B
Yeah.
- [38:02]
A
And how to leverage technology in all aspects of. Of life, including real estate.
- [38:10]
B
Yeah, yeah. Cutler's really into the, the life health span longevity stuff as well. I started listening to him, he got into like big mountain skiing, like backcountry skiing in his like 60s or something like that, maybe late 50s. And he wrote a whole book on that called like NAR country about being gnarly and. Yeah, pretty interesting stuff. Yeah, I went and when I was reading the book I went and got a mountain board which is like these like long boards with giant wheels you can ride on the dirt and started learning to mountain board while I was listening to that book. Yeah, I can do things even as I'm aging, so it's fun stuff. But yeah, I'll have to check that book out. That one's cool. I not heard that recommendation yet.
- [38:49]
A
It's, it's. It's part of a sequel if you don't mind. Obviously no association with them, but it's part of a three part series. I think it's Go Go Abundance is his essentially the abundance 360. Anyway, abundance is the first book, bold is the second book and then the third is the future is faster than you think. That one would probably be my second recommendation. The future is faster than you think. And it talks about exponential technologies converging and we're seeing it now. This was. The book was written pre, you know, chatgpt and it talks about how, you know, once we start seeing a lot of these future technologies, artificial intelligence, cloud computing, a lot of these things start intersecting is when their growth rate is going to become exponential. Right. So artificial intelligence has kind of just petered along. Cloud computing petered along. Some of these other ones have just, you know, done okay in terms of their growth rate. But once they start converging, you know, once AI met. What would an example be? Once AI has met health tech. Right. Like EHR technology, electronic health record technology, the ability to diagnose or pre diagnose certain chronic diseases or, or have predictions towards Chronic diseases exponentially got more, became more accurate. And so you were able to get in front of particular patients and help course correct them. So that way they did not actually, you know, diabetes would be one of the examples. So that way they did not actually go into a full diabetic state. And so again, the idea with that third book is how converging exponential technology is going to radically, radically change our futures.
- [40:43]
B
That's wild. That's exciting. I'll have to check those out. Okay, question, you might have already answered this one, so you can give us another example or you can say we already covered it, but what's one of the most expensive or interesting mistakes that you've made in real estate investing?
- [40:57]
A
Yeah, I'd definitely say that first lesson in terms of due diligence, right. Due diligence on the mortgage fraud was certainly the most expensive and probably the most interesting.
- [41:11]
B
Let's push on that just a tiny bit more. What going back now, what due diligence could you have done to prevent that?
- [41:18]
A
Yeah, good question. So it would have been hard. But you know, the, the first, the first and foremost is knowing your seller. Who is your seller? Who are you talking to? Why are they selling? Making sure that things pass the sniff test.
- [41:31]
B
But to look at the seller, uk, you get on county records, you see who owns it. It's, it's Charlie. Right. But Bob's pretending to be Charlie. You talk to Bob and he says he's Charlie. His ID says Charlie, the notary says he's Charlie. What due diligence could you do to know he's not Charlie?
- [41:46]
A
Good question. So in this case, the real Bob ended up being a, you know, young twenties person living in Texas. So in this case, the entire transaction was done digitally. There was never an interaction, an in person interaction between. I should have mentioned that there was a, this was a wholesale off market deal. Sure. And so I, I was, you know, one step removed from the. Bob. Yeah, Bob or Charlie. I'm getting all my names confused now.
- [42:16]
B
Bob the scammer.
- [42:17]
A
Yeah, yeah. So I was one step removed from it. And so, you know, to me it's like again, whoever I'm working with, whether it's a listing broker, an off market agent, or direct to seller, it's who is your seller? Why are they selling? Does the story match up? Does it make sense? Have we, has somebody met this person in person? Are they who they say they are? And again, does, does the story make sense? And I think that was something that I, you know, I didn't ask, I never thought to ask.
- [42:45]
B
You're just happy to have a good deal?
- [42:47]
A
Yeah, I was just happy to have.
- [42:48]
B
A good deal, you know, and especially when, now that you mentioned there was wholesalers involved, right now, there's some awesome wholesalers out there who run reputable companies, are above par. There's also some pretty skeezy ones. There's also lazy ones, ignorant ones. Even if they mean well. They're just unknowingly, you know, disruptive. You know, wholesaling can be kind of interesting, but they're definitely not incentivized to, to dig deep and do their homework. Right. They're just moving paper, you know, they're okay, yeah. This guy says you want to sell it, you say you want to buy it. Cool. They're not doing due diligence. They don't care. That's not their job. That's the buyer's job. And so, but, but they kind of come in between, which is interesting. And, and I don't know if this is true, but I just had an agent tell me that legally, once you sign over a, a contract, right, like once they give you, you know, you sign the wholesale agreement, say, hey, now they've assigned the deal to you, even if it's not completed yet, you actually legally can go and talk to the seller and do everything you want with the seller and kind of, you don't have to go through the wholesaler anymore once they've assigned the contract to you. And I don't know if that's true, but I know with real estate agents it's hard, right? You go to your agent, then they talk to their agent, and they talk to the seller, and you can't really pierce that veil. And it's annoying, right? But from my understanding, legally, as soon as they've assigned that contract to you, you can actually go to the seller and vet some of this stuff out. And you don't have to take the wholesaler's word for it once you've been assigned the agreement. I don't know if that's true everywhere or what that actually means, but I'm like, I love being able to talk to the seller directly, whether I'm using agents or not or wholesalers or not. I feel like so much is gained in, in just talking to the seller directly.
- [44:32]
A
It's so powerful, 100%. I do it on market, off market. And you know, I'm, I'm a big believer of just be forthcoming in what your, what your intentions are. And you know, that goes with the on market stuff. It's like, you know, if most of the stuff that we've been buying over the last couple of years, we, I represent our group and so, you know, there's no buying broker per se, as that's me. And so, you know, I'm always a big, like you said, I'm a big advocate of just talking, having a conversation with the seller. I'm okay if the listing broker wants to be there just to be, you know, a fly on the wall. It doesn't matter. I'm not going to ask them anything that, you know, is, you know, that I shouldn't be asking them anyway. And so it's, it's no harm.
- [45:21]
B
I love that. I think that's great. All right, all right, well, last question, Carl, then we'll let you get back to your life. What is one word or short phrase to encapsulate why you love real estate investing?
- [45:36]
A
Oh, that's a good question. Why I love real estate investing. I think don't have a phrase. I think the motto or rather phrase that I would go by is I love the idea of real estate investing because it can really allow you to get the future or achieve the future that you're trying to do. You can ramp up as quickly as possible, as quickly as you'd like, like, or you can taper back and have your season of life slower. Right. So for me, for instance, I've got, you know, a small kid and, you know, I've got the flexibility to, you know, during the school day or at any point during the year, I can really ramp up my work, my work, my workload, and then during breaks, you know, start tapering back. And I think there's not a whole lot of, you know, entrepreneurial roles that would allow you to do something like that. And I think the reason being is because the nature of the cash flow right, from, from rentals really allows you to have that safety net, if you will, or just back burner income that allows you to just again, taper back and have a slower season of life.
- [46:48]
B
I love that. I love. That was one of my favorite things about too, is it's so customizable, you know what I mean? And like, say if you're doing a, you know, a tech startup or this or that, you know, once you get that ball rolling, you get in the trenches and you take seed money like, there's no hold on my kids. 3. I'm going to take a year to slow down. No, no, you're in it. You got to go all the way, you know. But the real estate, you can back off for a year or two and then go dive in harder after that. Like, you can do whatever you want, you know, for month to month to year to year. Definitely can kind of adjust it to fit your lifestyle, which what's the point if we can't, right?
- [47:21]
A
Yep.
- [47:22]
B
Love it, man. Well, this is great. I appreciate it. If people want to follow you or keep in touch or if you have any final thoughts, please feel free to share it.
- [47:30]
A
Yeah, love it. If anybody's looking for it, LinkedIn. Love to connect with folks on LinkedIn. Otherwise, our webpage, gold-mf.com is where to find us.
- [47:40]
B
Awesome. Appreciate your time, Carl. This is Joe Jensen signing off for the Real Estate Investor in School podcast, reminding you to keep scaling in mind from the start.