Ep 28: 2021 Annual Investment Reveiw (Part 1)

Today could be one of the best episodes all year because today, Robert Grand and I are going to review our 2021 investment predictions. We're gonna talk about predictions that came true, along with some that were off, and big problems that we faced, and how we overcame them.

We're going to talk about our the success and bumps with our own projects, the investing market overall, and problems we faced with construction costs and labor.

This will all lead into the next episode which will cover our predictions for 2022!

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Full Transcript

Today could be one of the best episodes all year, because today, Robert and I are gonna be talking about our 2021 annual investment review. What the heck does that mean? Well, you know, 2020 was a crazy year for investors, for anybody in real estate. So we have predictions, naturally, you're gonna have predictions, naturally, you're gonna think about, man, what's 2021 going to have in store for us? So today, we're gonna talk about predictions we had and what came true, we're going to talk about big problems that we faced, and how we overcame them. And then we're also going to talk about just brain dumping, basically, everything that went down in 2021, from both Robert and my perspective. So let's start off this way, Robert, because I think it this is gonna be in my, in my mind, when I'm watching listening to podcasts. I just love when the guys are just sitting there and they're just, they're going off, you know, and you and I do this off line all the time, where we just like, we get on a topic, and we just go off and it's amazing all the value that comes out of it. So today, I was like, we got to do this because it's coming to the end of the year. How did the year go? And then I think, on their next podcast episode, we're going to do 2022 predictions. So we're going to go look backwards here in the 2021 annual view, and then we're going to go forwards for 2022 predictions in the next podcast episode. So I want to start off with this. Because whenever I go into a year, I start off with the number one thing, what is my goal going to be going into the year? And I would tell you this, in 2022. I mean, it just threw me it was an awesome year actually, as an investor. I was nervous during 2020 20. And then in 2021, I was like, Is this gonna carry over? Because the year was fantastic. So many people got out of investing. And I jumped in investing in 2020 and took some deals that I was nervous about. I remember having a call with you on one of the deals where I'm like, I'm about to pull the trigger on bucks, pull the trigger, man, should I do this? Tell me every reason I shouldn't do this. And you're like, man, based on what you told me like, I would do it. And I was when I pulled it. And it was. I did that a couple times in 2020. And it panned out. It was awesome. I was excited. But then 2021 came and I remember you and I were talking I was just like Granda, what do you think what's going to come down the pipe. And one of my goals was going into 2021 because one of my biggest goals in 2020 was to get into multifamily apartment investing to find my own multifamily deal that I purchased in general. And everything like I was the general partner I was running the show in 2020. I said you know what, you got to do that in 2021? Well, in 2020, I invested as a passive investor in it actually was an early 2020 slash 2019. I invested as a passive investor in 2021, I invested a couple more deals as a passive investor. But I'll tell you, huh, I did not find a multifamily property to purchase on my own, and be the general partner and get that ball rolling. That is one goal that haunted me this year. It was hard. And I'm going to talk a little bit more about that when we talk about two deals that were frustrating for us this year. But that was one of my biggest goals was to number one just get deeper into multifamily investing. Now I did that on a passive side. And what's super exciting is that I was able to hit or not a homerun, but I would call it a solid triple on that. So that was one of my goals. One of my other goals was to obviously find smaller deals like I'm so entrenched the last couple years 2020 2019 so entrenched in these bigger infill development deals, I'm like, I got to reduce my risk a little bit on that. And I got to start to find some smaller deals here in 2021. And I was excited because I was able to pull that off. And I found some smaller deals that give me more flexibility, where when you're pot committed into these big infill development deals, it can get a little nerving on nerving. And it can get a little risky. So I was able to pull that off. And then the other thing was, is that I wanted to just keep exploring the commercial world, because that's really where I'm going is I'm never gonna give up what I have. And I and I know Roberts Never gonna give up what he hasn't residential. But I'm really pushing myself to explore the commercial world and get into that commercial world and now have a two pronged approach. And it's really diversity, for me, diversity, and it's also an ability to take cash and turn it into strong cash flow and have long term, highly liquid assets. So those were some of my goals. I definitely follow the path of all my goals in 2020

anyone.

But Robert, give me a little insight on some of the goals that you had. And what you what you were after 2021 and how it all kind of be out there. Yeah, really, for me in 2021, it was just keep growing the the residential flipping, and we're doing cosmetic flips, mainly, you know, I think, in 2020, is what we're doing. And then 2021, we want to start doing bigger projects and digging a little bit deeper and, and work completely on that path. You know, we're doing really well with that, to the point where I got to the point where I was like, they can add like to not do a studs up remodel, you know, it's like this is starting to get a little bit old. Then coming back to, you know, just recently where we finally got another cosmetic one, and we looked right through it. And it just, that was a good lesson for me to recognize that you know, you, you can't always just focus on the, you know, the studs up remodels, you got to have some in between to kind of keep your cash flow rolling a little bit quicker back and forth, you know, because we sell fund all of our rehabs

with our, you know, our capital, that from our own business, but I think, you know, for me, the other big thing, you know, outside of the investment side of thing was just our brokerage side, we wanted to streamline operations there and make things better get our transactional volume up to 50 units on that side. And I think we fell a little bit short of that this year. But we're putting some good majors in place and kind of working on it. And so just thinking about that one, you know, we're doing that, and we didn't even, we didn't even do marketing for that side of that business. And I thought it was kind of interesting, you know, so, you know, if, if we haven't really done much for it, or that successful with it, you know, how successful Could it really be? And so it made me really take notice and think like we should be focusing and not letting other businesses slip, why we're growing another section of our business. So that was another thing that I thought about, you know, this last year, my big failure over the year that I thought I would be done with is my apartment complex, I thought that thing would be damn near completion by this time, but I'm still working on trying to get the electrical dealing with a nightmare with the cities and I'm shooting for a variance to get my project out of this whole nightmare. How long have you own that now?

16 months, 16 months, and it was it was occupied up until a few months ago. So now, you know, the big pushes, you know, it's now I'm paying the payment every single month. And so that's when the rubber starts meeting.

That's

like I'm getting it done now. So we're gonna make some good progress before the end of the year on it, I think I'll have the electrical figured out everything working that way. And then the new panels and everything installed, that's the big push for the end of the year to hit 2020 to the ground running for the six month for six months to be getting the the seven units that I have, you know, kind of in various stages of construction, completely back up and running. Because once I get those going, then it'll be cash flowing again, you know, and then I can focus on getting the rest of it all dialed. But that's been kind of the I think probably the biggest failure for me is just not getting that done and not anticipating and taking on a project that big, you know, and not realizing, you know, all the all the possible failure points along the way. But really, how could you realize that you, that's the thing, like, when you go into new territory, and you actually jump out of the plane, you you can't account for every single variable, especially in a project as dynamic as that project number one, that project had a ton of value add that you needed to put into it. Yeah, it was in pretty much, you know, pretty big disarray. You know, you plus you had tenants in there that you probably are going to want to get out because you wanted to have higher paying tenants. I mean, you threw yourself

a curveball that was like, literally moving six different ways and you're trying to hit it. But but that was the beauty of it. And you knew that like you knew going in, that was gonna be the case. But I can only imagine all of the things that this thing has taught you. For the future, when you put a deal together, I feel so much confident, so much more confident looking at a small apartment complex and what it might need and how to anticipate those needs for sure. And I know, you know, the other thing too, like coming out of that was just the strength of our construction team. We recently replaced a couple of members, you know, on our team with two other guys that are just rock stars. And now we're pushing the construction side of it to just the one, you know, to be our construction foreman for our stuff and so, and pushing the projects there, so I'm a little bit more hands off with it, but he completely knows, you know, what's needed to be done on everything. And he has that ability to make those decisions on what we're how we're working, how it gets done. So we don't have to have all the micro decisions in between us because he's he's got really good skills. So So yeah, you know, so that's been kind of for me, you know, what advice what am I what am I done? Great. What have I failed out? You know, it's exactly our rehabs. I mean, we plan to hit 15 This year, and I think we're gonna hit 15 or more. So we're nice. We're doing good. Are you finding good deals? Good for you, man. Good for you. Yeah.

For me, like, I never really set a number of how many projects I want to do. I always am. Because especially like I said, I'm heavier on the infill development. So I think we're gonna have like six big infill development projects. And then I probably I have like three or four, I think for smaller rehab projects that I did, um, and the smaller rehab projects were good. And they it was, it was getting back to fundamentals. And that was what I really wanted to do is I wanted to get back to fundamentals and you nailed it. It's like those, you know, micro flips, which is a topic we're going to talk about coming up here, down the way in the podcast, those micro flip rehabs, man, when you make good money on it, it's probably the best deal you can find. It's like, because there's less stress, it's quick turn on the money, it's the best ROI, blah, blah, blah. So you know, I had to get back to that. And I was like, gosh, I just literally signing the deal on one that I had. And I was like, Man, I gotta find a couple more of those. So that's something that I'm gonna push forward. And I'll talk about next week as far as my, my strategy coming in for the next podcast in 2022. But I totally agree with you that and, and that's the thing. It's like,

you look at these big projects, and I think you and I are the same way. Like, you're like, God, I gotta kind of get out of these studs up. I can't have so many studs up remodels, you know, because they just suck you and they take so much time and energy and, and thought process. And that was the same thing with these these big infill development projects that I have. It's just like, it takes so much time, effort and whatever. Now you make a bigger return at the end. But you have to really think about it like, how much time do I have invested? How much energy do I have invested? How much stress do I have invested? What is it really worth it? And like, how do you balance and diversify all that? I think, granted, that's the beauty of this annual investment review is like, yeah, that's what we're talking about here is like, how do you find that perfect?

Algorithm? You know, it's the Rubik's Cube? How do you put the Rubik's Cube together? And you're like, oh, my gosh, I think I nailed it. And, you know, the other thing I wanted to talk about was the market. So let's talk a little bit about about the market. And I like what you said, because, you know, I wasn't that focus this year on my brokerage either because it wasn't one of my and I don't have a brokerage, I'm an agent, and I work under a broker, Robert actually has his own brokerage, and he's a broker. Um, but I wasn't really focused on that this year, I crushed it last year, I had a lot of deals going on the investment side. And one of my main goals was the commercial. So it's like something had to give this year like I can't do a bunch of because I don't have a team. But I have a good book of business I have, I have a team when it comes to support, like, you know, I have Diana, who's on my team who supports me, but I don't have a bunch of agents on my team that I have to and that's intentional, because I don't want to have to feel like I am obligated to help them grow their business. Right. So my my residential sales, like just straight up, suffered for sure this year. And that's something that I'm gonna focus on next year. And I thought it was really interesting. Did you expect your residential sales to suffer at all this year? Did you think it was gonna be just like 2020, where it was like, I mean, you couldn't do anything wrong.

Now, I, you know, I did kind of expect it a little bit, because every other day, more and more agents are added to the market, too, you get a tipping point, no matter what, you know, you can't overcome the fact if a brand new agent hits the market and your past client is now a family member, that other agent, you know, even if they just hit the market there, that's that's an unbridgeable gap, you know, the family gap is a hard one to bridge. So I just feel like, you know, over the last, you know, few years, it's been kind of like, an influx of agents, which is cool.

But it just seems to be it cuts down the market, share the market share the market share of the people, you know, so it was just kind of like, well, you know, am I going to be worried about that? Or am I gonna focus on that? No, you know, cuz I'm not really focused on that side of the business. But with home prices going as high as they are, you know, the one thing is, I noticed, it's like, well, we're leaving a lot of money on the table by not putting the marketing systems in place to bring in business because we have people in place to actually work the business, you know, and our agent that we brought on last year, she made more money this last year, I think with us than she's ever made neural career. So I mean, that's, that's a win. You know, she's relatively new agent. But I mean, can you imagine if you come in work with a company, they just keep dropping deals on your lap. And so you just keep working these deals, even with your split, you're making more money than what you've ever made? I mean, it's good. But to me, I'm like, Well, I want to get to 50 I want to get to 75 and 100 transactions like i There's no reason why our business should not be running at that level, you know, so well, and like,

when it comes to the investment side, let's stick with the market topic like just the market in general. What do we really predicting in 2021?

You know, I really think that you and I with a two pronged approach, which is part of the value to an investor philosophy of, you know,

Have a good brokerage have a good real estate residential sales business where you're helping other people transact. But then focus on your investment side. What do you what do you expect in 2021? From the investment side of the business compared to 2020? The year before? What were your predictions? What were you thinking? When it came to that as far as just the investment side, rehabbing properties, turning properties, all that stuff? Well, you know, I knew numbers were gonna get tighter, you know, over the year, because you could see construction costs going up in 2020. And so I knew they're gonna get tighter, so I knew we were gonna have to be tighter, you know, on our project numbers and how they things were going to look. But my big prediction that I thought I thought we were gonna have a lot more foreclosures, and I thought that dam would have broken loose already, and it didn't. And so I know, you know, they keep you know, I do a lot of reading on it. And they say that, you know, it's not looking as bad as it possibly can be, then, but then you, you hear things like, you know, there's potentially, you know, two to 3 million homes still in forbearance and stuff like that, and two to 3 million homes, you know, in forbearance, if they don't get sold, or they have to come in the market, that's enough to shift the market, you know, big time across the United States. And so I was fully expecting this year to and one of the reasons why I made such a push into the investment side, is I thought that we're going to be able to pick up a lot of more, you know, people in distress situations, and I thought that was really going to break loose this year. But it hasn't. But it's got to at some point, right? I mean, not ever, you know, I'm gonna debate you on that. I don't think like, if you're saying there's 2 million, yeah, potential foreclosures out there, people struggling, I don't think you'll see, I think you might see 25% of those hit the market. So I don't think it's gonna be that impactful. And the reason why I say that, number one, the banks are making more money than ever, right now. Number two, the government is pushing harder than ever, for the people that are struggling. And so what I've read, and what I've heard from multiple people that I've talked to, is that there's a lot of pressure on the banks or the servicers of these loans, to just figure it out. Now, if somebody flat out cannot pay, and will not pay, and you have to realize like, this is stuff that I learned back when I was in the game, that banks will wait years, sometimes I've heard of banks waiting five years, before they ever foreclose on someone that has not paid. And so if you're not paying, yeah, and evitable II, you will get foreclosed on. But I feel like there's so much pressure from government, there's so much pressure for on banks, in general, for the people, there's so much pressure on banks because of like cryptocurrency and like that, they're they're feeling more pressure, they think, as banks than they ever have. And so they have to figure it out to be a good servicer and to get things done. They have to think find a way and that's what I've heard from a lot of people is that they're getting pressure, and that basically everybody all the government and whomever is saying find a way to keep people in their house, we're not going through this again. Okay. And so that's why I'm a big believer that, yeah, 25% of the 2 million will hit the market. And if you can jump on it, you can jump on it. But the thing is, if the market is low inventory, and a bank loan comes on the market, the bank's gonna play games. I mean, I'm watching and I watch bank owned properties every day. And they overprice it, they sit on it for 3060 90 120 180 days, and you're like, What are you doing it just like, whatever they do doesn't make any sense. And so I have thrown in a couple offers. And I know a couple other guys have thrown offers on paying properties. But the other thing is, is like they're not allowing an investor to buy the property until after 3060 90 days, because they want to sell it. So I think your philosophy is going to be even if 2 million properties come to market, the banks are going to try to sell it to individuals or actual owner occupants before investors. I think it's gonna be a hard nut to crack because I don't think enough volume will come to the market where they have to go to the investors and say, Hey, can you help me? The other thing is the other reason why and I like this topic because I think it'll, from my perspective, it'll debunk a potential myth. If they really need to get rid of properties, like let's say they have a package deal on the secondary market because that's how these properties are put together. They package them on the secondary market. Well, Zillow is out of the game, but open door isn't out of the game. BlackRock isn't out of the game. They'll just go Hey, knock, knock. What if I sell this to you at a discount? Would you take these 100 properties? And I'll sell it to you at a discount? Oh, sure. Why not? So you know, so now that's another barrier to entry before it gets to you and me, who's actually going to have an opportunity to

Buying at the right price, I just think, yeah, in my opinion, I wouldn't bank on it. Because I just don't think it's going to happen unless something major happens, where a huge influx like back in 2016 2000, or 2008, were a huge influx comes and people can absorb it. So that's my two cents on it. But I was thinking the same thing. I thought through that whole process, and I research that process. And that was kind of the conclusion I came to I don't know, do you think it has merit? No, yeah, I know, I can. I can see it both sides, you know, but I can, you know, in our area of Oregon, I mean, they haven't even really let a foreclosure go through even if there was something pending. And normally, there's normal levels of foreclosures, right, like that. Properties they're just gonna transition through that they haven't even let transition through is probably the lowest number of foreclosures in the last few years, probably on record in history. I mean, under many still, that's right, right. Those things are still there. I mean, they're gonna go eventually to foreclosure is, and I'm not worried about it, you know, shifting the regular real estate market, I just want to be able to get in that avenue and be able to go by three or four or five. All right, yeah, I like it to add to my inventory, you know, to be able to is another avenue to be like, hey, there's great deal going on down at the courthouse today. And so that you can be jumping in on so but yeah, you know, that's kind of like my thought I just thought that they would have lifted that ban, you know, for the ability to do that by now to be able to allow those to go through. And, you know, I've read it, I've heard it a few different ways, you know, there's people that that truly believe there's going to be a financial crisis, from foreclosures, you know, out there, people that are in forbearance. And, and I've lost, I've watched a lot of videos on it either way, but I'm kind of with you, like I'm on the more neutral side of it. Like, I don't think it'll fully shift our market, you know, like, into a completely different market, I do think that there will be enough to come on that will will cause a lot of people to get some good homes, and I'm with you on the fact that they're going to want to sell them to, you know, single family, homeowners versus investors all day long, if they can, and that's what the government will force their want them to do. Yeah, probably make it work for him. So all right, well, I want to go to another topic on market cuz I think we're both gonna get passionate about this topic. What was your prediction on construction costs, and labor coming into 2021?

Well, I knew it was going to go up, I didn't know it was going to go up to the crazy levels that it did. You know, like, I knew that, with things slowing down, and production slowing down, that was just assignment. Everything was shut down in China, things are shut down, factories shut down across the board, there's that's gonna cause a disruption. I didn't think it would last as long as it lasted. And I did not see lumber prices, you know, being squeezed to the point where they went to like all time highs. But what I saw, I think, was more greed than anything, like people that basically saw an opportunity to go in and short squeeze markets to drive up costs, that they haven't been able to drive up for years. And so they took that opportunity to probably make billions of dollars. And now, you know, right after that, when you see lumber prices go through the roof, and then, you know, at a tipping point fall off a cliff. I mean, that's probably a pretty good sign that somebody's pushing a market, you know, it's just not going to happen like that. Because there's plenty of lumber, like the Pacific Northwest is loaded with lumber, like mills and stuff were backed up with wood everywhere, like there's no, there's no way that it was like a supply issue when you can put stuff on freight trains. That's how they move lumber around all over the United States. They're not flying lumber, you know, they're on barges going out to China, and they're in the Pacific Northwest being trained in truck. So did you think that then from 2020, someone took advantage of a market and then in 2021, it was gonna go up, and then it was gonna eventually come down? We didn't know how steep it was gonna come down. But you you were like, You know what, this is gonna come down? Yeah. But

oh, go ahead. Okay. Now it's saying all those things they drive, you drive a market up like that, you know, with inflation and everything else like that drives things up. And that the old high that seemed high before becomes the new normal. Right. So that is kind of a distressing thing about that, in which drives costs up across the board to the point where it's, you know, $250 a square foot to build a house, you know, it's just kind of crazy. So, yeah, so, like, a mother, like, lumber, I think was a definite, hot button. I agree with you. 100% on your philosophy there, but coming in and 2021 What product did you think wasn't going to go up? Or was gonna stay more steady, that all sudden did go up? Or from a labor perspective? You know, what, what was maybe staying pretty consistent for you on labor costs in 2020? And you thought you Oh, my gosh, what happened to me here in 2021? What were your thoughts around some other things that kind of caught you off guard? Because I know I have one. I wanted to get yours first. Well, you know, labor costs for us, like I think have remained constant because we have been able to, you know, hire people. That was probably one of the best things I think I've done to make sure that we had a really good year, but for us in the Pacific Northwest, it was mainly because you just couldn't get construction companies to work.

work for you, you know, so we kind of were forced into that position. So we're able to control our labor across across the board, as long as people were working at an efficient rate, which is something that we didn't have to deal with, you know, kind of efficiency with some of the people. But I think probably on top of that, like, it wasn't really like labor costs going through the roof, because people already get paid really well here. But to me, it was just all the materials across the board, you know, like I'm still we have two projects is still just waiting for H fac ducting, you know, I'm calling the guy, how long, how long you been waiting for something like that for like, like over a month right now, like, if you knew about the projects months ago, and he's been trying to get it all. But you know, I'm sure ducting gets in, and then he has 10 Other projects, he needs to get it, he's like, Okay, I'm gonna have it by this time, I'm gonna have by this time, and now we're stuck waiting, kind of like everybody else. And it's like, you can't close up your house until you have, you know, each fact ducting. And the other crazy thing is just like,

you know, like pvc piping and stuff like that the plumber is telling me like, piping, PVC pipe, you know, ABS pipe, I guess I should say, went up like five times, or 10 times some crazy astronomical number that he never thought Hot Water Heaters he goes, I would never thought you'd be paying like, you know, $1,500 to install a hot water heater with his labor cost and everything included, you know, but the bigger portion of that is the materials. And typically, it was always labor cost and material costs were almost 5050. Right? Like it was kind of now it's more like labor costs are are here and material costs are up here. You know? Yeah, it's funny, you bring up plumbing, because we literally had a couple of different projects, where our plumber couldn't get a 90 degree elbow to save his life, because they were gone. And there was no inventory of them anywhere in any major supplier. And Chris, my main GC or partner, he was just like, I had to call everywhere online, he goes I everywhere he goes, literally a 90 degree elbow for plumbing is what's holding me up on this job. And like, it's, it's those things that have just drove us nuts, I mean, to the point where we had to buy a,

an oven and arrange for a client that was significantly less. So like if the client wanted a level nine range we're delivering them with because of a debate, like we didn't want to buy a level nine and be like, yeah, here, you can have this and we have to take it back. But it had to be like a level six, like they have a standard. And they're not like I'm not going to live with this piece of junk in my house. So we had there were several times where we had to buy things that were lesser grade to put it in the house until the actual product came in because of the supply chain. But I didn't expect that. Like I knew that there would be stuff I knew there'd be delays. I knew that but I didn't expect that we couldn't finish houses are people that have to move in, and we're all sudden piecemealing all these different things. And then on top of that, like you have to deal with people when it comes to that, because this is an emotional thing, right? Same thing, you know, and so that was the one thing like 2021 I definitely knew there's gonna be supply chain issues. I definitely knew, you know, let's say a garage door normally takes eight weeks to get or four weeks to get, you know, it might take eight weeks, it might take 10 weeks. Oh no, a garage door like a custom garage door takes like half a year to get Yeah, like what? I didn't expect stuff like that. Yeah, Windows. That's another great example windows, bare bones windows. You know, we have one company we order our windows from and we ordered for a project I think in like June and finally got him into the house. Like for the one that we're having the biggest issues with finally just got him into the house like a few weeks ago. It's like just delay after delay after delay. Exactly, exactly. And then the big one I want to talk about was that totally caught me off guard is that we have this awesome tile guy. And he's been doing our tile for 10 years. And we have two crews like this guy and another guy. They've been doing our tile for 10 years. Well, Carlos has his name. And Carlos came in on this last project that we're just about to finish up. And because Carlos has been working with us for so long, we're able to really predict kind of where he's going to be on on what he's doing per square foot. Well, our buddy Carlos comes in, and instead of something costing somewhere around $7,500 for his labor on tile,

he literally doubled his cost. So instead of 7500 it's now $16,000 For him to do the tile work in this house. That should be somewhere around 7500 I like what I said Chris, you you you gotta have this has to be a mistake. Like what how did you how did we screw this up? Tim? It's a mistake. Carlos doubled his prices. And he basically said to us, he said Hey guys, I love you. I actually am giving you a better price than I normally would give other people because I want to keep working with you and I want to take care of you guys. But he goes I'm not gonna take this huge cut and have my end in charge 25% of what I can get out in the market. I got I have to charge you in

least 50 to 65% of what I can get to the market. Wow. So, you know, I'm sorry, it's not that anything against you guys, but I have to make a living too. And I said, you know, Carlos,

you're right. I mean, if you can get it, that's free market capitalism right there. Like if you can get it, you got to take advantage of it. The Lumberyard could get it, they had to take advantage of it. I said, Just Just remember this. So Carlos, this won't last forever.

I will be around forever. I was around the downturn. I helped a lot of guys like you make money when they couldn't find anybody else to make money with. I said, So just remember that? Because I'm going to remember this. But otherwise, you know what? Good for you, man. But that? Yeah, I was like, Man, that's $7,000 off the bottom line. But on

the tile guy?

Yeah, I guess there is that right. So people see those squeezes and markets and they decided they're going to increase their rates to like, why not? If people are gonna pay it to him and everybody's in this frenzy, and especially, you know, probably like that average homeowner. They're, they're reading the news, this and that. And so when they say costs are up, all CST is walking. He goes, Yeah, costs are really high. Right now. They're like, Oh, we already knew that. But we really need this bathroom. Yeah, bathroom is gonna cost you $15,000 He was sitting there thinking four years ago, or even a year ago, I can only charge 7500 For this bathroom. So like, because I have to work, I have to now work with half the amount of customers to make the same amount of money. Like, that's, but you're right, though, if the market changes the people that are dependable, like us, though, those are the ones that they should be always saying, These are the bread and butter clients that I stick with. And then I go out and I do that, and they should focus otherwise on expanding their business. And I'll tell you that our guys, I mean, Chris has worked with some of these guys for 2030 years, they have been good to us. And we understand and it's been amicable. And Carlos, still lovely guy, you know, um, and I understand what he's got to do. But that's just what we have to deal with. And, you know, in 2022 predictions in the next podcast episode, I got something big to tell you, because I think I learned something from you when it came to the construction side. But I'm gonna save that for the next podcast episode. Let's jump into deals. Let's jump into deals. I want to ask two questions here. Because again, I want to keep this under 45 minutes this episode, two questions. Number one,

which deal this year worked for you the way you want it to work or even was better than the way you thought it was gonna go down? And like, what did you learn from it? And let's just talk about something like that, like a pub, a big positive, where you're like, I'm going to this project. Man, this worked out great. This worked out great. And I actually did better than I thought. Let's go into that number one. And then number two, what we're going to talk about is the one that didn't work out quite the way you wanted it to.

Yeah, no doubt. Cool. The big one. For me, it was the one that we did recently that my brother locked up and got a really good price on that cosmetic update, it brought me back around to reiterating and really making sure that we have projects on the short term, the mid term and the long term. And that's how I kind of broke it down like short term projects, you gotta have a few of those going midterms kind of the studs up remodels in the long term. So the ground up constructions, you know, that's kind of what caused me to go back and go, and that would just worked out so quickly, you know, cuz it went, you know, it hit the market so fast now, it's actually closing, I think, tomorrow, or within the next day or so. So it should be closing here pretty quick. And it's like, we're gonna make a huge grip of cash on that, you know, it's such a good way to turn that in, like, less than 60 days. Yeah, well, yeah, we probably had it on the market inside of less than 45. So yeah, it's a, it was a quick turnaround, we just put all of our people on it, because we knew, and that's where I was like, This is really great, because like our midterm or long term projects always have pause points, right. So if you have those shorts rolling in there, it's like, you can just go in there and just get everybody get a whole crew of people on them. They can crush a house fast, you know, when it's cosmetic, and that was just like, was such a great thing to have happen. At the end of the year, it was a good reminder that those are the things and we just got stuck into some of these longer project because it was a deals that we could find, you know, and then but when that came back around, it just really reinforced that point for me. So 100% 100% Yeah. And you know, it's funny that you said that, because that's exactly the same kind of project, this one that I just inked the other day. It I hadn't done a quick cosmetic micro flip in a long time years. And I was just like, You got to get back to that man, you got to get back to the fundamentals. You got to get back to more diversification. Because, you know, in 2020, it was all about like, whoa, high risk, high risk, because everything was going so peachy before 2020 It was like you couldn't really do anything wrong in the infill development, you know, space for me, and then all sudden 2020 hit and I'm like, okay, buddy, like this is a shot across the bow, you know, and like, let's get back to some fundamentals, let's diversify a little bit. And that this project I had was, was that it was a two story. I mean, it was a, you know, somewhat more expensive I mean

For a micro flip it was I got it for 330,000. And I put 30 $30,000 in, which is like, I don't know, the last project, I only put $3,000 in. So that was actually really nice. And I could just, you know, it was cash outlay out of my pocket instead of having to get bank financing all that. And then, um, I had the I had the rehab done in 30 days a little bit over, I think it might have been 45 days because we were waiting on a couple different things.

I don't even know the last time I ever had a property turning 45 days either. And I was like, Pan, this is awesome. And then now I put the house on the market. And we talked about this last last podcast, I was so stoked about where everything was going and like what my potential profit margin was, I got greedy, and I overpriced it. And then I finally brought the price down because Diana, my team was like, Hey, I'm just want to let you know that you're kind of like every other seller that we talked to, like you overpriced it and you got emotional. I'm like, God, you're so right. And anyway, so then I dropped the price down to the right price, and boom, I got an offer. But I spent, you know, 45 days on the market. Not no not 45 days, I spent almost 30 days on the market before I got that offer. And I had to make a $10,000 price reduction. Um, but what's so funny about this is I still know the market solid, because I'm sitting on the market for almost 30 days. And then I dropped the price. And I'll send all these showings start to pick up because like, when I dropped the price, I only had about five showings, I was like what's going on here? Then I'll send I dropped the price to nk I met 15 showings after about two weeks. I'm like, Okay, here we go. Now we're in the sweet spot, and then all sudden, boom, on the same day, I get multiple offers, what how

humans saying I'm going to write an offer after this property has been on the market for 28 days. On the same day, it couldn't have worked out any better for me. So I was able to leverage a multiple offer situation to drive the price up. Now I didn't get exactly my full price. But I was able to still leverage those, which is a sweet negotiation strategy that I had to to get the price up within $5,000 In my asking price, and I crushed it on that deal. I mean, I was like, I gotta do more of these.

And, and so you It's funny how you and I both looked at that. And I think it's a it's a risk reward balance that we both came to the conclusion of like, wow, that was a pretty sweet deal. So let's go to the next one. Like, and I'm pretty sure I know which deal you're gonna bring. Actually the one you think I'm not gonna talk about that anymore. Okay, I got I got a better I gotta diversify. Yeah, yeah, so we. So I think last year, at some point, we picked a place off of just it was it was a probate deal that my brother picked up great price we picked up for like, 136, right? So then we're like, you know, we're gonna like, Okay, we're gonna partition this property, or we're not going to partition this property, or we're going to partition it with so we get in, during the construction phase. And it was probably one of the first projects we started doing last year, that we were studs up on, had to do, you know, some major rework to the inside, and gotten a little, like, done and in the end, like, overspent on it, right? Because construction costs and stuff are going up, that the couple of dudes that were using were taking a little bit longer than what they should have, you know, on the project, you know, kind of look back and realize, yeah, now, but in the end, like, you know, we ended up, you know, going to the market,

and then saying, but you've got to work with us on completing this partition, because we decided in the last phase, we're going to partition so, you know, then so like, that wasn't super attractive. And those are just factors that people don't understand. Right? So then I go and pay like an extra $5,000 Sit with the city to get this whole Partition Plan and they start telling me Yeah, we need you to put the power to the house underground. It's like, well, it's got an overhead drop. Why would you need to do that? Like, it's fine. Like, well, and they're talking about the the existing house, I'm like, oh, let's can we just talk about the partition? They're like, Yeah, but you're gonna have to put the existing house underground, I'm like, Why, then they're like, well, you're gonna have to pay the existing house, like, a bigger section of this driveway area. And I'm like, why, you know, it's the existing house, we're talking about a partition, and they're like, well, we need to replace the streetlight in front of it, um, like, it's, at the end to the end of the meeting, I basically am like, you know, you guys are just like, I'm gonna have to spend now another $30,000 still hold this property, because we've kind of decided we're gonna end up holding this property, pulled it off the market. So we could finish this partition, because nobody wants to work with us to do this. Right. So we totally did that, you know, pull it off the market. And we're trying to figure out this partition to the in the end be like, This is ridiculous. The city is ridiculous to work with. We thought they were going to be easier. So then we go and put it back on the market. I think we had an offer on the property. Did you just bail on that whole thing? We bailed on it. So we had to bail on it. So I threw extra money at that another five to $7,000. And then, you know, we actually had an offer at the time, but it didn't come in at the appraised value. So that's when we decided like we'll just

pull it off the market, you know, and we ended up then putting it back on the market with the extra piece of the land with it, you know, so it's all together now. And we ended up still taking less than what our regular original offer was. No. So we walked away, I think with like 55 or $60,000 on this property, I don't feel too bad for you, then. We made money, but like we could have probably made almost 100 If we had done it, right. But we also probably could have just taken that exact same house and put it back in MLS with no work at all. And just hold held it and just probably made more money than what we made after holding it for basically a year. I was just like, so what would you say you learn? Like, what did you learn from that, that you would do differently? Or that would change up your decision making? If something like that came up again?

Yeah, the big learn is like, not getting so caught up into, like, always thinking you want to do these major remodels, maybe you get a good buy. Maybe making 75,000 on that is better than making 100. You know, maybe it's better than making 125. Because you have to do nothing else to the property right, you could just put it back in there. The second thing I learned from that is planning and understanding, what are you going to do with the property before you press the go button? So when you have that locked down, you're like, are we because we were wishy washy on the partition, we knew it was going to the reason that was was going to take six to nine months. But then if we started that, in the very beginning, we might have been able to absorb those costs along the way and do those things. And we could have figured out well, we got to put the power underground, you know, we already had replaced the drop line. So it was reversing work to to we'd have to be reversing work to put in, you know, work that already been just done. So it was kind of like if we had just planned, taken like, you know, a week or so and really plan this thing out and said, Are we going to do this, let's investigate. That would have been very helpful. And we could have probably had a better outcome with it. But lesson learned, you know, looking back, yeah, no, I hear you made money, though. So it's funny because the city is always going to be your biggest pain in the ass. And my story is the same way. It's a project that we did that we had a customer for 4306 Oakdale Avenue South and Edina, I've had this property forever rented out for years, it's just been a pain in my ass this property. But if everything went well, you know, it was sold, it was close. But what happened was is that I, the city of Edina comes up with this new Watershed District. And this be these new watershed rules, which basically if you don't understand what watershed is, it's when you're building on smaller lots on infill development. So you're taking these smaller lots and you're building these big houses on them, you're only allowed to cover so much surface area. And that surface area has to be either permeable or impermeable, and you need to have so much permeable surface area so that the water can drain properly and it doesn't pull up and people want to floods and, and have water in their basement and all these different things. And I get it and and that makes sense. But what doesn't make sense is that some of these people that work at the city are just, I mean, we have this one lady, she works at the city sheet so every time we do any kind of property, we have to go to her and she calculates the watershed and and permeable and impermeable both surface. Well on this Oakdale property. I mean, we definitely maxed out the lot. I mean, we have this big old house on there, and the client wanted to do this and that which were like, you know, you do know that this is gonna affect your, your blah, blah, blah. And they're like, yeah, just just let's get it done. Okay, but they're gonna come out and blah, blah, blah, okay, well, so what happens is,

I have we have $10,000 in escrow on multiple properties just for this problem. So you have to have like you, you get the occupancy permit, they move in, then you get this lady to come out whenever it's whenever she's, it's convenient for her, which is usually 3060 90 days. And then she finally comes out. And then she does the math. And she says, Oh, yeah, you know, you do have a little like, it's a it's basically a debit. So like, you have your lawn right like this. But you have to create a, like a divot, like a catching pool. And it's all grass, but it's just it's like a concave so that the water can sit there and slow down, and then it can

permeate into the yard. Well, because we created so much, we took up so much surface area, this hole just became like, what, like, I'm not gonna have a hole in my backyard. Yeah, like, This is crazy. Kids like it's like a trap you just built in my backyard. And she goes, Well, I'm sorry. But you guys should have known. This is like, this is part of the calculation, blah, blah, blah, blah, blah. It's all year, literally 12 months of dealing with this lady to get this thing figured out of how deep do we have to go with this whole? So here's my biggest thing. Like, here's my biggest lesson where

the client is now going. I don't care what the city has to say. At the end of the day, I have young kids, I'm not going to have a hole my yard whose problem is this. Like this shouldn't be our problem and the

That was the big lesson I learned was, you're right, it shouldn't be your problem, you're right, we should be able to solve these problems, even though it's kind of an unknown to us, because this was kind of just thrown at us, we should be the one that looks out for your best interest. So we had to eat crow. And we put in a rain garden, on our dime in the back to make sure that they were happy with property. Now, those are tough choices, because it costs 1000s of dollars. But at the end of the day, I think Robert can attest to it, do the right thing. Because you have a reputation. Always uphold your reputation, even if it costs you money in the in the end, because you can never get your reputation back. You can never fix it, and 7000 $5,000, whatever it cost to build, build a rain garden, they're still disappointed with the experience because of these things that we couldn't control. But they are saying, You know what, at the end of the day, you did take care of us, you did what we had to do to do the right thing. And that was a huge lesson for me. Because this is an obstacle we're going to hit over and over and over. But yet, now you're more prepared for it. But you're always gonna have obstacles that you can't prepare for. And it's how do you handle that adversity?

Do you handle it in protection of your reputation? Or do you handle it and protection of dollars?

Well said, Man, that's 100% on par, I was gonna Oh, that was my big pain. This year, I learned a big lesson from it, it was expensive. But again, as long as you're always doing things, and Grando, and I look at it this way all the time, like whenever we're talking about problems is, as long as you always look at problems and say, Well, my number one, my reputation is the most important thing to me, you cannot there's no price for it. And number two is, you know what, it's only money. I'll make more. Then number three is okay, what is fair? And because there's plenty of people out there that are going to try to take advantage of fair, what if you can hit fair, and you manage your reputation? And you don't lose the bank? Like everything you have? Then you know what, that's how you I believe you solve that those big problems.

But man, I don't know Grando Is there anything you want to add to the 2021 annual investment review podcast for 2021 that we missed, or that you want to throw in? Now, I think is a probably a pretty good learning year for everybody, you know, figuring things out, see where the markets are gonna go? Are we gonna keep climbing? How much? How much more do we go? Or is this the new normal? You know, that's the other thing that I thought maybe our housing prices are the new normal, and maybe we're not going to have this massive, you know, drop off, like everybody thinks they're going to happen, I don't think we'll have a massive drop off. But I think there will be kind of a neutral market at some point. But there's a lot of factors that go into that, you know, so, you know, I I've kind of it's just been a learning year for me. I'm excited because, you know, Zillow got their ass kicked, which, in fact, doesn't put a smile on your face. I don't know. Yeah, I feel like these guys are geniuses, and all sudden, they got into the game that they didn't even know how to play. And it backfired. You know what, but I give them a ton of credit for taking their losses and stepping up and saying, Hey, we tried something. And even we fail every once in a while, except they just failed in billions of dollars instead of you know, 100 billion bucks like you

guys, me as my brother. So

I think that's definitely want to talk about and like go into this next episode on 2022 predictions, because I think that was a big indicator going into 2022. I want to talk about labor. What were your thoughts are on labor going into 2022? I want to tell you my my secret, which is a big move for me that you were a big influence on going into 2022. What do you want to talk about? Like, just to set the table for this next podcast episode going into 2022? That's like, on top of your mind? Yeah, 2022, on top of my mind is kind of what I hit on just a little bit before, you know, well, actually, so the big thing is planning, you know, is probably the big thing for us. We're planning our business and our systems and all that stuff. And the right people, you know, in the right seats in our company, that's that's probably the big thing for us this year. And then just having instead of saying I want to do 15 rehabs, what we did was so general, now I want to focus, you know, the concept of, you know, short term midterm and long term projects and what those kind of mean, does, I think those are kind of the big things because I think they have a lot of people can get money crunches, you know, along the way. And I think focusing on I need this many in this category, this many in this bucket, you know, here here, I think it's just a really good strategy that we're my brother and I were talking about, we're like, Yeah, we should be looking at it like that. And I think that'll be our focus. You know, next year is we're planning at our business. I think it'd be a great topic to talk about. Awesome, man. Well, you know what, that's a great podcast episode. I do truly believe this is gonna be one of the

as podcasts episodes in 2021, and we are looking forward to talking with you on the next episode of the value driven investor podcast, again, you know what we would love your support on iTunes, Stitcher, if you guys could please go on there and make comments, ask questions, give us a review. We want to get this out to the world, come to our Facebook page, don't have an investor Facebook page, we got an Instagram page, we're out there, all you have to do is type value to an investor in Google or someplace and you're gonna find us visit our blog, we're doing blogs, we're adding more content. We're scaling this thing as much as we can. Obviously we're in the very, very beginning 2526 episodes in, but there's momentum. There's a lot of momentum and we're having great conversations with people. And we want to have more conversations with you guys. So please, you know, give us some feedback. Ask us questions, give us a review, and we will see you on the next podcast episode.