00:00 - 05:00

David:

Today's episode is going to be a good one, and I'm recording now, so this is how we're starting, this is as casual as humanly possible.

So what's up Alex?

Alex:

What’s up buddy? It’s good to see you! I tell you about this quarantine, I feel almost like I've been seeing you too much, but I still like it. We’re working online?

David:

Yeah, man, I’m doing just like you, Zoom chat, live things and all kinds of crap scheduled, it’s a good time.

Alex:

I started real estate school this week, actually.

David:

Oh, how they’d go?
I like how you say real estate school and not like getting your license as an agent, so it sounds like you're taking just like the school to learn real estate, cuz you don't know anything about it, super misleading, but I think it's hilarious.

Alex:

Yeah but not real estate. Broker, school. It’s a necessary evil, but I really don't care that much, I don't wanna be a broker.

David:

I have my license for 2 years now and have not actively sold a house.

Alex:

Yeah, so, but we're just cruising along, we're gonna go out there, do a ton of content and resume like you have, and my buddy Spencer just crossed 10,000 subscribers in his YouTube channel is getting paid like $800 a month.

David:

That’s so good!

Alex:

Yeah, well, look if Spencer can do it then, anybody can do it.

David:

Say about me.

Alex:

Now I don’t even ….

David:

I would, I don't have anything to come back with there, I would, because everything I would normally come back with has already been said probably a million times so...

Alex:

I do like to see that you can do so many YouTube videos and it's all so inspiring.
So I hope to anybody watching this, listen to this, I hope that they may have seen this in my contacts, it’s time to get practice out and people consuming a lot more content and so I'm glad to see you doing it, and kind of spark me to do more so...

David:

It's good, yeah, I tried to plan out some stuff last night like we were talking about but work actually ended up requiring work, so I didn't get as much research done as I wanted, but I have another opportunity in a few days.

Alex:

I reached out, I have anything on Friday night. It's basically better, I call it “Better Drinking Buddies”. I got to find a new name for it like “Alex’ in Zoom Socials”.

David:

I accepted the invite.

Alex:

No, that’s a different one, that's going to be like Zoom Socials, and there’s gonna be 20 people like just a very casual thing. But on Friday nights, I've been doing it with me and two other people, just a deep dive on the accounting. People that I know, not strangers, people that I already know, that I can get along with and have a good conversation with and that'll be dynamic on zoom.. So I've done, I've had Mindi Jensen on and I had Russell Brazil on, in Vegas. This Friday night I got my buddy Jay Mirando, a hotshot realtor in Las Vegas, 40 under 40 in 2018, and Jay Scott.

David:

Oh nice! Yeah I was thinking reaching out to Jay about getting them in the podcast at some
point, I'm reading a recession-proof real estate right now, and the big debt crisis and the Power of Paper and 2-minute, yeah. I don't know, I should probably focus but it's like one book at work, one at my desktop and one book on audio. Yeah, it's fitting and then of course podcast, when I am allowed to finally jog here, which has been really really nice, it's slow but it's something which is great.

By the way is our guest today? Imma let you bring it in.

Alex:

Our guest today, the one and only! Scott Trench the CEO of Bigger Pockets and the author of “Set For Life”!

David:

Yeah, it’s gonna be a good one! It’s gonna be good! We got some, we'll see how
they pan out but we came up with some knot stump the chump but a different question than what he normally gets asked, should be a good show for sure. Hopefully, I don't know, we'll have to find some of these like, how can we word this in such a way that we don't look like we're trying to piss people off but still get a good answer, so should be, should be some good times.

Alex:

Well, you can play nice guy. I’ll say a thing. I was hoping to ask questions that would throw off his game little bit, but I also know that, you know, he's busy, so, if you could invite him on, then throw him under the bus, you kind of ruined the invitation and it’s balance because when you call, and invite these people on the show. If you give them soft balls, they’re more
likely to show up, but you know, what good is that?

David:

I don't know, I was trying to find contact information today, not that I can make it happen, but if I can give you the gift of anything this year, I'm trying to get contact info and reach out to Leb. I know that there's no way he's going to want to jump on a show, but I thought that'd be fun. So I'ma find a way, I might email him.

05:00 - 10:00

Alex:

Get him on Twitter. They’ll never show up on the show.

David:

He’s doing stuff on Bloomberg and we’re doing basically the same thing.

Intro:

You’re listening to the military millionaire podcast, a show about real estate investing for the working class. Stay tuned as we explore ways to help you improve your finances, build wealth through real estate, and become a person that is worth knowing.

Sponsors:

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David:

Hey, what's up everybody? It's Dave from military millionaire and I am here with Alex Felice and Mr. Scott Trench, the CEO of bigger pockets and author of “Set For Life”. And as you can tell by our backdrops if you're watching this on YouTube, all of us are quarantining. And Scott has a mattress for sale. So...

Scott:

That's right.

David:

Scott, welcome to the show buddy!.

Scott:

Six grand, or best offer.
Thanks, guys. Well, I'm happy to be here.

David:

Well, I doubt that anyone on the show doesn't know who you are. But would you give us a quick intro about yourself a little bit about your background?

Scott:

Sure! Yeah.
So I'm the CEO and president of bigger pockets.com, co host the BiggerPockets money podcast and big personal finance nerd, really passionate about helping people build to financial freedom early in life, often through real estate, but really through whatever means necessary. I think that when you achieve financial freedom early in life, it enables you to go on to exploit your potential or maximize your potential in a way that's really positive for society. So I think it's a really good downstream effect that we're all as a community creating there. And then I've authored the book “Set For Life”, which is on a related topic there.

David:

Right on, well, I am excited. So I first met Scott and I don't know why I didn't even bring this Oh, it's because I let Alex introduce you to our little intro. I didn't even mention normally Alex asked where I met people. And I would have said, like, on a random pillbox hike in Hawaii before you wrote a book and I had no idea who you were. And instead, I let Alex introduce you and I don't think that we said anything cool. So, yeah but.

Scott:

You were a fellow rugger.

David:

That was it. That was what clicked was that Scott and I both played rugby at one point in our life. And at the time he was coming off an injury and I'm now broken. So I don't know that any of us play. Well, no one plays rugby right now. But anyway, neither here nor there. It's been fun to get to know you over the last little while. And it's cool that we can all come together in our awesome

Alex:

Boredoms?

David:

It's great that now that we have nothing else to do at all, we can finally find time for each other.

Alex:

Good. I'm going so deep into my Rolodex and the people that I haven't spoken to before. In a long, long time. I'm like, “Oh my god, I'm so glad I get to catch up with so and so”.

Scott:

Your chats have been great with old friends and been wonderful. Yeah.

Alex:

So Scott, you mentioned that you're a finance nerd. And I'm curious how since it's very applicable right now is it is the current economic conditions. How badly is this gonna affect the fire community? I've had a complaint with criticism of the fire community with the dogma of the 4% rule and how that doesn't. That doesn't really count for large variations. Unexpected variations like.

10:00 - 15:00

Scott:

Sequence of return risk.

Alex:

Like would be in this book right here you got a black spot.

David:

To be fair you shared the video yesterday that this is not a black swan event and it was foreseeable so I'm just gonna throw that out there and mess up.

Alex:

It’s not a black swan event but it well. This particular one is a black swan event, but I my complaint with the my criticism of the dogma of the fire community has been the 4% rule as a rule and not as an a lot of they have the same problem that real estate investors have is that many of them have only been successful since the crash and until they have literally the turkey problem. They are Misassessing the amount of risk because they haven't been exposed to it. So I say all that to say is like how do you think this is going to take a disproportionate hit to the fire community?

Scott:

Yes, so I'll back up one second here when I want to retire early, right? I need to amass a certain amount of wealth such that I can draw down in that portfolio indefinitely without running out of money, right? So how much of that wealth can I draw down? Well, a bunch of smart people got together and they said, “Hey, if I have a portfolio of 50% bonds and 50% stocks, what? What is the safe withdrawal rate? How much? How much can I withdraw each year from that portfolio without depleting my entire reserve over a 30 year period?” Right?
And that's where the 4% rule arises from.

It's actually called the Trinity study, prior work from William Dangan, right, I'm probably butchering his name, right? I've only read it. But you know, like these folks to study that and, and when you look at how much you can withdraw, you can't say, hey, my returns. My average return over the next over the last 30 years has been 8%. Therefore, I can withdraw 8% and I'm gonna be fine, right? You have to use a number that's much lower than the average return and delete that to avoid depleting your portfolio. To take into account this phenomenon called sequence of returns risk, right? It's a big fancy word for saying what happens is my portfolio drops immediately after I retire. And I have to begin withdrawing from a smaller base right after that, right? Well, the entire point of the exercise of back testing portfolios over every time period available in modern history, right, is to determine that number. And those are the 4% rules that absolutely take into account precisely the event that we're encountering right now, it takes into account sequence of returns risk. So that's number one.

Number two, you know, the next problem you have with the 4% rule is, hey, after 30 years, the 4% rule is only looking at do I run out of money entirely, right? But if you're in your 30s or 40s, and you're retiring, you don't want to be left you know, starting with a million and left with 100 grand at the end of that 30 year period. Right. So there's two points, sub points that combat that right?. The first of which is the differences in 30 years in financial planning and infinity is not very large, just because the way the math works, right? If you were to take a mortgage, for example, and you extend that pain, you know, go from a 30 year to 1000 year mortgage, your payment doesn't really decrease by that much. It's almost exactly the same, because you're paying almost all interest in the first series of payments. Anyways, it says number one, but yes, infinity is different than 30 years. So you do have a small number of cases where the 4% rule may not work for folks in a longer time period, right. And so from that, you go back and you say, hey, well, the 4% rule assumes that you have no cash reserve, it assumes you have no other assets or income stream, it assumes that you spend like a robot no matter what, that 4% of your portfolio each year, right?

It makes all these absurd assumptions that if you're a practical, reasonable human being, you're going to be able to easily avoid one more second here what was done in my rant, because I hate I love and hate this question because it shows the ignorance of this field. So all of that is the 4% rule is a perfectly appropriate rule of thumb that is not going away and is immensely conservative and designed for exactly the situation that we're in. But even still, nobody I know I have never met, never met in all the people I've interviewed all the people I've talked to all the time I spent in this as part of this movement, I've never met a person who is retired with just their assets at the 4% rule with a 5050 stock bond portfolio, no cash and no other streams of income. Every single person has an ace in the hole, they have that extra set of income, they have a big cash buffer or they're far more conservative than the 4% rule. So how was my answer to that?

15:00 - 20:00

David:

I I can tell that's the first time you've ever gotten any question like that. Just totally off the fly answer. Yeah. I love it. No, that was, man, that was great and.

Alex:

I have harder questions. I've harder questions, hang on.

Scott:

Thank you. Yeah. Give me some real ones now.

Alex:

So I made a few questions that I want to ask of you and I had in mind. Do you remember when we met in Denver? And you called me a fraud, do you remember that?

Scott:

That's right yes!.

Alex:

With that in mind I have some questions for you

Scott:

I don't know what this question is now. Here's the context: by the way, right, I said this is a guy who in the first you know first impression kind of always has...He’s like a viper, you don't wear pink today I don't know what's going on.

David:

But he's wearing my brand, our brand. I don't know what it is anymore. He's stealing it.

Scott:

You go and ask you like you have a Facebook post about my Asian work wife all these inside jokes that seem but the surface very inappropriate. And then you like you talk to you talk to Alex and you're like, this guy's really nice, genuine, awesome, fun individual is a great friend. So that's why I call it a fraud because first glance can be deceiving.

Alex:

Well, well now I'm just gonna sound like a jerk.

Scott:

All right, all right.

Alex:

Actually, these aren't difficult questions, but they are, you know, there's a military member related show and so I wanted to kind of ask you or maybe steer the conversation towards that way. So when are we going to get if we don't already have one? When are we going to get a discount for military members on BP?

Scott:

Ooh, interesting. Um, you know, maybe soon. I’ll certainly…

Alex:

It brings me my next question to you. So that your pockets official liaison for military members and if they don't can David pray running?

Scott:

Wow, these are tough questions. You weren't kidding. Let me get back to you on that one.

David:

Okay, so now, I'm gonna ask you a question and this one, this one may fall, same vein. You may have no idea but I'm curious. Do you guys break any data down as far as the military segment of BP? Like, would you have any data? Because I'm curious, I would argue that I think the military is one of if not the best job for investing in real estate, especially in a time like this, where if the market actually does tank, we're one of the most solid jobs out there as far as theoretically, I would say theoretically keeping your job but the reality is that they just said, we're not letting you leave even if you want to. So it's not a complete stop loss, but they're threatening to bring people who got off and got out of the military in the last year back. So I'd say it's pretty secure. But you know, we have a housing allowance and stuff. So if for whatever reason, like I texted my landlord yesterday, I was like, Don't worry, you get my rent forever. Like, I'm not gonna knock it my rent allowance, so you're good.

Which Ford's a lot of opportunities. I have a huge buffer if something goes south. So I'm just curious if bps ever did any math to kind of pull the military segment out. I don't know why they would but it would be cool to see some of that data as far as different occupations for investing.

Scott:

No, I have not pooled the community but I would be surprised if it doesn't reflect basically, the military's involvement as a member of the general population in jet like in general, our demographics really don't follow any like job or demographic trends other than where the population goes right. Our users do tend to skew in the higher end towards that income range like 50 to $200,000 a year in income is pretty typical amongst our community. And we do skew heavily male, which I would bet the military does without knowing anything else.

So I suppose that there probably is a good representation of military members in the community. Yeah. We certainly have a lot of anecdotal stuff on there. We've had a lot of active duty members or former military folks on the podcasts and around stuff and we get continuous pressure to run a book on investing in real estate in the Military.

David:

I may or may not have pitched that, like three or four times.

Scott:

Here's, here's the reason we haven't done that yet. Right? We love the idea. We love serving that audience. We're just not sure how much different the investing in the military is, you know, “Hey, we read a book on real estate investing, which parts of that do not apply to a military?”. So that was really the reason why we were kind of like, hey, it all applies. The advantages you have in the military of course, are steady, very stable income, low down payment, VA financing options, and you're stationed often in some really good cash flow markets. You have the chance to be stationed in a handful of the cash markets that use your service so those are some big advantages, but I wasn't sure how to parlay that into a full feature length book, basically.

20:00 - 25:00

David:

No, yeah, and I agree, I'm still gonna keep you know, different variations of the same idea until you tell me I'm insane but, but no, I agree. In fact, I've actually gone a slightly different direction in the book that I'm working on for myself right now. So more military career and lifestyle focused than just real estate. But with real estate in there as well, just because I think there's, yeah, I guess, similar train of thought. Yeah.

Alex:

I think that it's interesting, when you say like that, it makes really simple sense. And I wonder, actually, for military members, if the advice that in my experience in the military, the best advice that most military members need, especially young ones isn't what to do, as much as it is what not to do. And so military members shoot themselves in the foot with financial decisions far more than like you have this stability and so what ends up doing is they waste it because they're like, I got a paycheck in two weeks. I can literally live 100% of my income as debt or you know, superficial expenses knowing that there's almost no way to get fired from this.

David:

If you run out of money, the Chow halls are still free so you still got food. You still got room.

Scott:

Yeah, well, wait, no, I I actually had the chance to go to the Naval Academy in 2018 and speak to the midshipmen about financial planning and they basically how to how to pursue fire from a standing start in the academy and you know, you know, there's a saying called split spending like a sailor, right? And that's the problem that a lot of military folks come right into is they go on, you know, you, you have this free education, right and or even it's actually good.

You get a stipend, so they get paid while they're in college, basically at the Academy, and then they get a career starter loan, right? Well, what happens is most a lot of not a lot of mess, but some of the students will go the blow all the stuff and then they'll use the career starter loan to purchase a really nice Xbox and gaming lair along with their pickup truck and whatever else it is, right? When they go into duty stations or even get deployed, they'll rack up a ton of pay and spend that all at once when they come back and it's like, well, there's some, you can still have fun, you can still reserve a good portion of that. But as long as you're just pretty reasonable with this plan, there's no reason you can't come out of a 5,6, 7 year military career with a completely free education, and a number of cash flowing assets and stocks real estate.

David:

So the only the main difference between what you said and the commissioned financial mistakes and what we enlisted guys do is that we have, instead of the career starter loan at the three point, whatever percent interest, we tend to think that the higher the interest rate, the faster the Mustang actually drives, so that seems to be kind of a trend. It's like “Oh well, mine's got 23% interest under the hood, Woody”. That's unfortunate, out of a trend. And then we also do this thing called tattoos and terribly planned marriages. And those seem to be much more of an enlisted thing than an officer thing. So those are…

Alex:

Are we really just saying how military members have a higher propensity to do well in investing?

Scott:

Don't confuse the equal opportunity with the equal results. All right.

Alex:

Hey Scott, let me ask a question about waking up early. Recently I think a week ago or so I heard something you saying is this is near and dear to me because I, I'm known to criticize the Miracle Morning, especially coming out of the military right like “Oh, really, wake up early? Who knew?” Except every farmer since the agricultural revolution 12,000 years ago, wake up early, get stuff done. And so I heard that you maybe feel a similar way about this because that is that correct I heard you railing about..

David:

Or may not have told them about their very insightful article I read.

Scott:

I hate getting up early. I can't stand people who say hey, you have to get up early to be successful.

Alex:

Okay, okay, good. No, no, hang on. Okay, good. Good. completely unrelated, completely unrelated topic, who's the keynote speaker for BP con?

Scott:

Oh, Elrod??

David:

For those of you listening, who did not put that together, how Elrod is the author of “The Miracle Morning”.

Scott:

I don't choose the speaker lineup. I love how I wrote. I think he's got some great things to say, right? I think like, here's how I look at it. If you want to be successful, you have to do a number of things, right? You got to spend less than you make, right? You've got to read, you've got to network, you know, you've got to exercise, get up early, whatever it is, right?

It's pick 10 of the 15 things that you got to do. And you could ignore the other five, right? So there's plenty of people out there who are wealthy, successful helping lots of people who are very unhealthy, right, just, you know, fat out of shape, whatever, right? You don't have to exercise or eat healthy, but these things all tend towards success. So I certainly don't disagree that waking up early and getting your whole day knocked up before knocked up, knocked out, is a good way to go is a good way to be successful. But, you know, saying that you have to do it is absurd and you don't have to do it and I don't do it. And that works for me.

25:00 - 30:00

David:

I will tell you as the guy whose alarm went well when I'm not quarantined and working 24 on 48 off when I'm working a normal routine, my alarm, my first alarm goes off at 3: 55 every day. And it's not because I want to be up at four in the morning. It's because if I'm not up, then I don't have a chance to get anything done before I go to my day job. And I look forward to the day when that's not a requirement. And I may still wake up early. I mean, I probably will but it won't be won't be four in the morning. Every day. It'll be you know, I don't know, six, eight, whatever time it takes to get up and get my life moving before I drop kids off somewhere and then go to the gym.

Scott:

Are you gonna really enjoy BB con?

David:

Yeah, well..

Scott:

So we got a speaker for you.

David:

Well, it's a good thing Alex is gonna have to photograph the thing so he'll be really close and personal.

Alex:

I am really excited about BP con and I just like teasing you that's all.

Scott:

I'm very excited as well. I think it's gonna be great. I'm looking forward to seeing how Robert speaks so I love everything about the guy.

David:

I am curious about the BP con and I don't know if this is something we're allowed to ask but are you foreseeing everything still going as planned?

Scott:

You know, we're continuing to plan it out. If you know, if the pecan has to get postponed. I am planning on getting married shortly after BP con and weeks following. So, you know, I'm hoping that the economy and travel and all stuff opens back up and I'm optimistic. Um, so yeah, for now. We're still continuing to proceed as planned.

David:

Good..

Alex:

Yeah, you guys are like that right time zone two or it seems like it's not Cobra. My feeling of the world is that we'll be in some sort of no like if right before the election, so I'm pretty sure things are gonna be back to normal by that.

David:

I don't know. Yeah, about normal but but...

Alex:

Well, the level of better for the world, the conferences aren't going to stop forever.

Scott:

It's not like air travel, basic basic air travel resume. So..

David:

Yeah, yeah, absolutely. So I concur. And I'm glad that you guys are planning accordingly.

Alex:

Scott, every time I talk to you, I have a thing where I feel like it's my responsibility to try to get a scoop, some gossip, some BP, future, something that, you know, maybe not everybody knows, or maybe you saved just for me. So I'm trying that again. If there's something you can tell us about VP that you're excited about, that maybe you haven't released?

Scott:

Do you want me to plug some of our latest and greatest products?
Fine. Fine, you know, give me only only because yes, yeah.

I think the biggest and most exciting thing maybe that we're working on right now is a new sub brand called BP insights. So our VP of growth in analytics, his name is Dave Meyer, an outstanding guy, I've worked with him for five or six years now. He's taking two massive, massive databases, one, with rental data for every property in the country, and then one with property data for every property in the country, right, and merging those together so that we can do, we are hoping to be able to do rents really, really, really well. And the idea was, we even worked on this for months, was to really build a suite of products that would help kind of would be just part of that pro membership that we have and allows you to kind of really estimate and make sure you're managing your property to the correct rents, those types of things.

But what it's allowing us to do is in real time, track national rent averages and rents in various individual markets. And we believe that last week, to our pro members that people can see, hey, what are rents? What are, what's happening and rents market by market and there's some really interesting and at least this week, you know, fairly grim projections going on there. Where you know, hey, rents haven't fallen best because active listings are not changing, but all of the lower priced active listings are coming off the market while the higher priced ones are sitting there. So we're starting to see some really scary lead indicators that would indicate that rents are going to decline in a lot of different markets. Anyways, we think this is really going to be a very useful tool for a lot of people, as you're looking to kind of figure out how to ride the future here. In the short medium term, Coronavirus.

David:

It's actually really cool. So almost like…

Scott:

BP insights.

David:

Like a rentometer, competitor, type thing?

Scott:

There's going to be there certainly be some similarities with with that with rentometer but I think it will be more more holistically merging the merging of these two data sets and understanding how to manage portfolio all the different data that comes with that including rents, vacancies, what what rehabs might do to property values is an ultimate derivative product that we'll have from there. That would be months down the road, those kinds of things.

David:

That's actually really cool.

30:00 - 35:00

Alex:

Yeah, and part of part of the problem that a lot of these companies have had with data. And I, I'm saying it if I know, but I'm just guessing, but you obviously know better than me. But it seems like the big problem that these companies have is it's hard to, it's very easy to generalize and very hard to get specific, especially because real estate is so regional. And so I love the idea you guys have, I mean, so much data on the investment side. So I really like this idea to see if we can kind of conquer some of those difficulties.

Scott:

I think the power of data is in conjunction with the power of opinion, right? So what I think would be really cool if, as we evolve this product is, hey, here's what the data says. And here's what 10 investors in that local market have to say about it, right? So, you know, as we build this thing, some of our data is gonna be wrong, right? It's just, you know, the numbers might be too small and a local area and they won't make any sense because generalizing with the rich area next door with the poor area, you know, and merging into an average doesn't make sense for either right? But our local investors in the forums will comment on that and tell us and that will help us I think really build a really more practically useful and valuable data set over time and help people avoid mistakes where they're not just relying on opinion or just relying on numbers, they will rely on both.

David:

Well, you guys published an email. It might have been yesterday that I got it. I don't know I was on duty, but there was talking about, like, kind of current market stats as far as like, where the economy is and stuff. And I can't remember I feel I felt like I'd answered some of those questions. So it kind of looked like maybe it was the, like, some of the data was pulled from up you guys did. And I was thinking as I was reading it, I was like, Man, this is brilliant because you guys have the single biggest, like, aside from you know, I mean, obviously the census isn't gonna do it, but like there's not really anyone out there who has a bigger audience to poll in regards to real estate from an entry standpoint and I think that that opens you guys up with a lot of really cool opportunities to collect data, opinionated or boots on the ground that that just data itself wouldn't be able to collect.

Scott:

Yeah, one of my favorite examples of this is the LLC LLC question, right, you know, everyone's got an opinion on whether they should use an LLC in the rental property. Right. So what's the right answer? Well, I think the right answer is B poll our community and there's a nice beautiful pie chart right 40% use an LLC 40% do not use an LLC 15% use LLC on some properties and not others. And then 5% give us really wacko answers, right? And so Okay, great. That's the answer. Right? Smart people are using them at all different points and there is no right answer and all those people polled have reasons for doing it one way or the other. So but you know, that's okay type of thing that I think we can do with with this data as well as just get the opinion and the data

Alex:

that assumes that hundred percent None of the people you asked know what they're talking about.

Scott:

But you know what the crowd can definitely be completely wrong, which is why you need the crowd's opinion and the polling there and the numbers.

Alex:

Yeah, I love that question too, because it's such people who ask it that way, like, what's the correct answer? And you know, well, the whole world is like this, right? It's like all gray. There's very few absolutes in the world. And so people go, what's the right answer? I always say I'm like, Well, what exactly specifically are you doing? And what do you have? And what do you know, what are you trying to accomplish? And so it's very difficult. I like that question too, though. Should you get an LLC?

Scott:

Well, it's just remarkable how many people when they're just getting started can't answer the question, What do you want? Right? And if you don't know what you want, you can't answer any of those downstream questions.

David:

Yeah, my favorites. When you see a post, it's just like, Hey, this is who I am. Where should I start?

Scott:

If you're listening. Do not come on to the Bigger Pockets forums and tell everyone that you have $200,000 in cash and no plan, right? That is not a good strategy.

David:

I got a great investment out where you guarantee like 3% interest only six points down with my name on it.

Scott:

And you're probably offering a better one than the guy who's offering the complete scam.

David:

Yeah, yeah true. Yeah.

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Alex:

All right, Scott, another hard question.

Scott:

All right.

35:00 - 40:00

Alex:

Is actually a question I worry about. Do you think how bad is this us gonna be on BP, you know, no rents for 30, 60 days, do you think there's any long term ramifications that, my worry is that the rental market will not go back to normal for a very long time, you're starting to see an increase in tenant versus landlord ideology show up on the internet, these rent strikes and all these other things. And then for the last few months, there's been a lot of talk in the political debate about nationalized or statewide rent controls. And so I'm starting to worry that rentals will not be as lucrative going forward.

As in the past. Do you have any of those sharing those worries? Do you think that part of the user base of BP and I'm sure that's, I mean, it's probably obvious right part of your basis from BP was because well, the economy's been so hot for the last 10 years and so the economy every economies have every industry is up right so are you are you look I can already tell you have your answer ready for you sir.

Scott:

I have a lot of questions. I get this question a lot. So…

Alex:

I'm sure you do. I'm sorry.

Scott:

Last couple of days so I know I like it.

David:

By hard question we meant, do you like peanut butter or jelly?

Scott:

That's right, I’d...

David:

Overrated anyway...

Alex:

Okay, you guys are both not my friends.

Scott:

So the question is basically is what's gonna happen to real estate investors, my mom and pop little little guys over the long term, right?

Alex:

Well BP is primarily made up of beginners?

Scott:

Yeah, I would say, we were about 50, 55% newbies and 45% folks, 40, 45% that own property of some type, maybe 40% and 5% vendors like agents and lenders who are looking to serve that audience. So but yeah, okay, let's take a step back here. This is because the economy is shutting down. So I don't know how specifically the Coronavirus situation will play out right. But in a recession in general, right people lose jobs. Asset prices go down.

And it's not about it becoming a relative game right? Who wins in a recession as an investor? Well, the long term buy and hold investor who plays the game for the very long term and experiences long term appreciation of their stock or real estate or whatever other investments right or the guy who put everything in the cache and then buys low, right, which is, you know, been timing again discussed as a completely impossible endeavor. Nobody was predicting the Coronavirus was about to happen and selling off their assets. Maybe a few people but you know, I haven't heard very many yet right? So you look at that and you say “Okay, great in intercession, all asset prices decline, what is real estate going to get hit harder or less hard, then stocks or alternative investments that people are purchasing?” Right? You know, what are you gonna do if you invest in bonds? Well, bonds are at historic rates all time, low rates, and they just went lower. So it was a good investment to invest in bonds recently, right, but who would have predicted that the stock market dropped 30%. between, you know, middle and end of March.

Real estate prices haven't moved much. Right. And that's I think, in a lot of markets, and that's largely because it's been such a hot seller's market. And there's been so much competition for those properties that hasn't caught up yet. So maybe you're starting to see the equivalent of prices dropping in the sense that people there instead of having 10 offers on a property, you're getting one or two, right? That's not going to move the needle for prices, things might sit a little bit longer. You're also entering buying season, when there's going to be more inventory inventory, changing hands anyways. So it's kind of hard to tell. But I think one thing that is certain is that real estate prices and rent reductions will lag behind stocks.

But for the most part real estate tends to not be as volatile as the stock market, not increasing as rapidly, not decreasing rapidly. So you wonder if there's a long term haven there for folks who are looking to diversify and have multiple investments in multiple things. So that's one of the topics of tenants not paying rent. in general. This, I think, is really overblown right now. Right? Yes. A lot of in order for a tenant to run out of money, right, the typical person here, first you have a job.

Most people are still employed. Oh, 6 million people have filed for unemployment last couple weeks. That's right. That's still only like 10% of the workforce. Right. So most of the workforce is still employed. Right? Second, most people when they get laid off, receive a separate either some sort of support or severance or a paid out their PTO, right or other types of benefits at that point. Third, the government is expanding unemployment benefits. So everyone, all these people are eligible for unemployment. After that, everyone's getting a bailout check from there landlords have a security deposit. Right? Yep.

So if you want to rent if you're going to strike, right as a tenant, you have to be kind of crazy in order to want to play that game of chicken with your landlord, your landlord is likely better capitalized than you. If you are considering a red strike, right, they probably have more. Most landlords have some form of reserves, at least ones on Bigger Pockets.

David:

We hope so, yeah,

Alex:

More than one month?

40:00 - 45:00

Scott:

Over 75%. So they have over at least three months right? Over 60% save at least six months. So, you know, your landlord is probably better capitalized than you, right? Second, you have to have the red straight go on for more than a month. Because if you don't have a go on for more than a month, the landlord's gonna kick you out and take your security deposit. So you're not gonna even get a cash advantage from your rent strike in that situation, right? And then third of the penalty for rent striking, right in the in the end, if you lose, the landlord will accrue late fees and back rent, evict sue and bankrupt you, which will make it very difficult for you to pay rent, or to find a place going forward and get a lot of options in life.

So I really do see that as a likely reality and you know, here, we are on April 2 recording this. You know, we'll see how smart or dumb I look in the coming weeks. But we're not seeing the horror stories yet from an, in a widespread sense we're getting a couple of sensational ones here and there. But I think it's like, even if the tenants win, right? Even if they all band together like there's a Reddit Reddit horror story of a 32 unit apartment building, where all the tenants are not paying the landlord. Great, maybe they'll win in the sense that they'll ruin this landlord. That landlord or his successor is going to then sue each and every one of them bankrupt each and every one of them. Right if that's there, and they're all going to go down together. So it's not really a victory in the end either. So I think for those reasons, it's going to be unlikely you're going to see widespread rent strikes without at least government involvement.

David:

And that was.

Alex:

Yet like you said, like if they rent, right and again, I'm just going to ask these questions to poke more than I don't. I'm not actually that worried. But yeah, I mean, if I, tenants all struck, and they didn't, they didn't pay May. Like, I'll pay my rent, my mortgages and keep moving on, but by June they got jobs again most likely. So I'm not too worried about it in the grand scheme, but I was just curious if you had a BP? Have you felt it in terms of pro memberships? But by chance?

Scott:

I mean, can I ask that so our business seems to be doing pretty good right now. We're not seeing really much of a decline in like sales for any of our like books or pro memberships or anything like that at all. So we're just kind of chugging along exactly as we've been..

Alex:

Recession proof real estate must be up.

Scott:

Recession proof real estate is seeing a little bit of a spike, yes..

David:

I'm reading it or listening to it right now.

Scott:

Yeah, it's pretty good read.

David:

So I wanted to hit something real quick because you mentioned the market and you know, it's kind of strange. So your first thought from the very beginning on this was that the only way this affects the real estate market is if it goes on long enough because like it's more of a time issue than anything else was my first thought. But I've seen some really strange things this week that have kind of confused my thoughts and it's not like a bad thing. What it is, is I'm seeing panic selling in the market.

So I have seen like, last night, I'm cruising through, you know, MLS listings, nothing crazy. I mean, there was definitely some stuff on Craigslist, but MLS listings. And for prime example, the first property I ever bought was a 219 hundred square foot duplex for 81,000 in Missouri, the street next door, the street right across from it right now, there's a duplex that just came on the market for 92, for a two one that has garages for each unit, and is 200 square feet larger for each side, which should my duplex just appraised for like 115, 120 and they listed it at 92. And I call them up and they're like I would try to get rid of it. And I'm like, Huh, all right. Well, that's kind of interesting. Like, to list you know, 10, 20,000$ under an easy appraisal in good condition and a decent side of the town, like, Alright, whatever, like, okay, maybe it's a fluke, I've seen apartments coming back on the market at 2% cap rates or two, you know, two caps higher than they were a month ago.

I'm seeing a lot of people from what I'm noticing, it seems like either landlords are really worried about what's going to happen, or people who were planning on getting out from under a property soon and are realizing like, “If I don't get this thing offloaded right now, then I'm gonna have to hold it through a recession.” And I wasn't planning on that, whether that's because they were retiring soon, or they were just that kind of their game was like a five year exit. And I'm kind of curious, like, as I'm trying to think this through now is like, I was thinking the game was going to be dependent on how long this lasts. But the reality is that people might kind of start driving prices down just by trying to offload properties and shorter days on market. And it's kind of strange, like, I didn't foresee that coming but I mean, there's probably 10 or 15 listings that popped up in the last 48 hours in my market that are well under value and pretty solid property. So I'm like, “Hmm, do I jump on that?” Because I know it's a deal or do I, you know, I'm like, do I 65% offer on that because I know they're hurting. And that's what so it's kind of a strange guy threw me for a loop last night.

45:00 - 50:00

Scott:

I'll say that you're the first person I've talked to that's kind of said that they're noticing that kind of stuff. So maybe I just haven't been paying quite enough attention to the real estate prices of the assets themselves recently, in a lot of markets. So I have not personally noticed that but I'm certainly going to leave this podcast and go check that out for myself.

David:

Let it be known that I could just be an idiot, so...

Scott:

I don't know.

Alex:

Yeah, I think there's gonna be different. There's definitely gonna be a lot more market specific changes, I think so some art is gonna be affected differently than others. Like if you own a place in New York City right now, it's probably in a lot different condition or selling situation then if you own one, where, you know, there's been no news at all like, nobody, I haven't noticed anything. Here where I live. But we're so far removed. So I think probably if you're in New York and LA, it's much different. I don't know about where you are right now. Are you in Missouri?

David:

Well, Missouri, yeah. But so the difference between the Missouri market and your market is that they're very similar in a lot of ways, but I'm not next to a military installation. So I think that might be helping you out because they know a lot of people know their tenants are still going to pay rent.

Alex:

That's my point.

Scott:

Yeah, I mean, I have no military tenants, and it appears that all of them have at least begun processing their payments. You know, it's an online payment CD with a three DH there. But uh, we'll see if they often...

Alex:

Go through the hottest markets, the United States. And so to your original point about the seller's market, I just don't think you're 100% right. Like that's not going to stop people. The demand is not, don't believe in a change and so interest rates are going to stay low for mortgages. So people's buying power hasn't changed that much unless you lost your job. How many people who work at a restaurant can afford 450,000 our house in Denver anyways, you know so actually that makes me curious if we're going to see a further dis separation and inequality from like, what's the average home price in Denver? It's obscene?

Scott:

It's pie in the forest. Yeah.

Alex:

Yes. So pretty happy. Yeah. Yeah, you need to have a decent income to do that. So I wonder if now you're going to see in the market where lower priced homes low price areas where you live where you work on like a service based economy.

You know, you see the effects there more than the people who kept their job, they have a high paying job, they're buying expensive houses.

Scott:

But that's the thing is because of the stimulus package and unemployment you know, that that time game you're not gonna even see that playing out for a couple of months it seems right because, you know, all these folks, hey, I lost my job. And I'm in the services industry, Well, with the stimulus package, a lot of these folks are going to be making a very similar amount of money going forward. Right? And, you know, like people are all ragging on each other in this right? We just came out of the recession 10 years ago right, one of the worst economic periods in this country's history, right? It wasn't it wasn't the great depression, but it was pretty bad right?

I just like I just have a lot of trouble believing that all these individuals are so poorly capitalized across the board maybe that's just me being you know, particularly optimistic here but I really feel like you know, like people are not sitting there with no cash leverage to help knowing that that's exactly what what crushed everyone last time I can certainly believe there's a lot of people who have no no savings whatsoever who are losing their jobs. But they're gonna get the ones...That's what the unemployment net, the safety net is there. I tell those folks make rent payments so that you are no fun to speculate with..

Alex:

You know, yeah.

Scott:

Why? Because I'm not playing gloom, gloom and doom yet?

David:

So far, the worst that's happened to me in all of this. And to be fair, I haven't. My property manager hasn't texted me yet with the final tally for who paid rent, but we're looking good so far, where she would have called me today and gone “Oh my god, you're screwed.”

But so far, the worst thing that's happened to me through all of this is that I was, you know, two weeks away from an eviction that we'd been going through, and they put the moratorium on evictions on so I got this guy, Alex has heard me say this. So he's in my 10 unit, and I can't evict him until at least April 30.

Probably it'll probably get moved but as of right now, April 30. And we were you know, he hasn't paid in January then by February. Like there's a reason he was getting evicted. So now I got this guy who hasn't paid rent in three months. It'll go four months, maybe five and he's living amongst the tenants. So far my worst problem is just that I can't get rid of someone who wasn't paying before this happened.

So it's not like oh, yeah, man. He had a rough existence with the Coronavirus is like, “Oh no, you were a schmuck, and you lucked out.” So my biggest fear at this point is Just that he talks to all my tenants and I have some kind of bad, like, you know, “oh, well, Jimmy's not paying rent and he's...I can't get rid of him.”

50:00 - 55:00

Scott:

I got a behavior issue that I cannot deal with until this is over. So yeah..

Alex:

It's fun to absolutely do moon questions. I thought you'd be a little more playful with me about him. But to be fair, the last two weeks I was sort of doom and gloom and then I thought about my contrarian nature, right?

Like everybody has kind of gone from I won't be that bad to now they all seem like at the end of the world, and I'm like, looking around. I'm like, it's not really that bad. I'm actually feeling more optimistic than ever. In fact, just before this, I recorded a little video, like the world's not gonna end kind of thing. But I'm with you, I agree with you that we just came out in 2008. Everybody has their little, I call it PTSD of 2008 where they're like what happened last time people were over leveraged and undercapitalized like let's make sure we don't make that mistake again.

Now, we certainly couldn't agree on pretty everything, we didn't predict a virus epidemic, but we did predict, like, hey, look, don't be over leveraged and undercapitalized and you know, and was under equity. And so I tend to agree that the, my hope is and what it looks like what's most likely is that there'll be a little blip in, hey, you're gonna miss some rent, hey, you're gonna have some problem tenants, but for the most part, it was 60 days of inconvenience.

David:

Yeah, who cares? The game has been holding it for 30-40, 50 years.

Scott:

Nobody, nobody is risking their credit and long term ability to get access to housing, except for truly desperate people in the context of a red strike, right. And then the other broad thing is, you know, I'm sorry, I'm not being playful enough here, Alex, but you know, the other thing is when people can't pay, like, hey, someone did lose their job and had a big stroke of bad luck all at once in conjunction with Coronavirus. They reach out to the landlord.

The landlord is of course going to work with that person because we're all human beings in this right? It's not like no matter what it's done, it's usually if they, if that's the response that a landlord is giving, in my experience, that's because that tenant has a long history of trying to take little edges and advantages here and there over time. Now, of course, a couple of those nasty landlords are gonna make everybody else look bad. And then make some headlines in this, but I don't see common sense prevailing here.

David:

I just recommended to someone on BP on a forum, like, if I was you, I wouldn't want to be the guy. I won't go into that situation. But I was like, If I was you, I wouldn't want to be the guy with that headline in the newspaper as a lady.
Yeah. So...

Alex:

Yeah, it's definitely time to be careful with how you, you know, just you don't want to become like I said, you'll be on a HuffPost. But with that said, Scott, and I tend to agree with you even though I'm trying to bait you into being doom and gloom, I tend to agree that that the world will be fine especially in real estate. So is now the best time of any for people who are looking at the market going, hey, look, I've been screwing around. But now that I feel this like now's the time to either capitalize on opportunity, or be like, maybe like get started on what? How can I capitalize on the chaos?. So it's now the best time as any to start learning real estate?

Scott:

Well, if you're seeing what David was seeing with prices fluctuating all over the place in your market that are crazy and don't make any sense, given your deep understanding the market may be so because I had not been seeing that or really was aware of that prior to this call. I've been thinking that pretty much most newbies are going to chill out for a couple of months and watch and wait to analyze a lot of deals and kind of learn what's going on there.

Not because, you know, I think well capitalized investors who have done this for a while are gonna pounce on the great deals as they materialize because right for 2030 years, and you're gonna go after that, so there will still be some activity. I just imagine that in reality, a new person is going to have a little trouble making a very, very large and the largest financial transaction of their life in this period when there's a lot of volatility and uncertainty. That's just The reality I kind of think will, will transpire there.

David:

I think fear will probably play a role for him.

Alex:

We lowball and we need a new office building me and my team. There were six of us running out of 108 square foot somehow. And so we're like, we need a new office building and we've been thinking about who's gonna rent one item apart versus buy something? So last month, we've been looking to buy something..

Scott:

And that it's smaller than this room?.

Alex:

It's awful.

David:

And it's with Alex too.

Scott:

Do you have AC?

Alex:

I haven't worked on the summer yet. I don't know. Yeah, I'm sure they do. Oh, so...

David:

It stays warm with the body heat during the winter though.

Scott:

Yeah, good lord..

Alex:

Yeah but there’s a heater. But then we go find this building and it's like 300 grand and office buildings, no big deal. And so we lowball him because I didn't want to pay what they weren't wanted. And like yeah, we're never gonna take that and then they want to contract the next day and then Coronavirus hits and a week of that. They called us up and they said, we'll take your other offer because the first buyers bailed. Now, I don't know if the circumstances could be completely normal.

But I do know that we got that basically 10% under what they wanted in a quick Hurry, because I think there is some sentiment that like, hey, look, the people who like you said, we're on the fence, maybe if they're new, or maybe Whatever the case, they're on the fence and they say, Well, look, maybe just now I don't need to do it right now. Maybe I'll just wait 90 days and see what happens. And then the sellers have the exact opposite thing where like, somebody just bailed out, let me sell this thing to somebody, they'll take a 10% they'll take 90% of what they wanted to sell to me in case you know, God forbid it gets worse.

So I think there is some of that going on there and I capitalized. I mean, not the same idea as you know, it's not life changing but as an office we needed and we got cheaper because of worry.

55:00 - 60:00

David:

Yeah..

Scott:

I think you're you're you're speaking to a lot of things that that begin I maybe I should be paying closer attention because it sounds like these things are happening and it may be in multiple markets around the country, where lots of deals starts to materialize. So maybe I'll start paying much closer attention to my local market looking for these, these types of similar situations because I would love to get property for 1015 20% discount right now.

David:

That's another thing that I'm not that it has worked out yet, but I'm starting to launch, like 65 70% asking price offers for anything that's been on the market for two or three times what it should have been, because I'm like, Okay, if people are starting to get fearful, and this thing's been sitting here for, you know, 100 days, like, hey, you wanted 100? I'll give you 65. And, I mean, I don't know, I see there's, there's opportunities come in. It's just a matter of how and when, but now I'm kind of like questioning myself. Like, that's a good deal. No, that's a good deal.

But if I wait two weeks, it might be so I'm like, Ah, so I'm like, I'm almost scared off.Because I'm like, I don't know if I'm gonna be buying on the way down. It's still a good deal. But anyway, so I say all that but I did email the Commercial broker on both apartment complexes and the realtor for two or three other properties. So it hasn't stopped me yet. But all right. So we've been at this for about an hour, I got to ask you, if an 1819 year olds walked up to you asking you for advice for real estate life, you know, I mean, you've got a really good finance and just life book, what would you tell them?

Scott:

Wake up early?

David:

No, sounds like a lie.

Scott:

I would say I always say work goes all out completely all out and in every way earns as much as you can spend as little as you can until you have one year of financial runway. So in liquidity, right? So that means if you spend $50,000 you need $50,000 in the bank, if you spend 25,000 that means you have 25,000 in the bank or at least some other similarly liquid form, right? You can even put it in stocks as long as you're willing to spend it. If you're if you're that, you know, ballsy I guess to go to put it there.

But whatever it is, if you have a year of financial runway that you have access to, and by the way, the less you spend, the less cash you need in order to accumulate that runway. But that sets you up for really big opportunities downstream. That's how you can buy rental property or a house and easily have the down payment. That's how you would have to have confidence to leave your job and go join a startup or start that business or whatever it is, right that one first year finisher, one way will make all the next little bits the rest the journey towards wealth that much easier.

David:

That's Yeah, that's good. So before the next question I always ask is a resource but before we get into it, I would like to tell you that one of my big wins this past year is that I had knee surgery in October. So the week before I had knee surgery, I gave one of my Marines Rich Dad, Poor Dad because he was just, they work. We work 24 hour shifts. So he worked the three of the afternoon, the midnight shift, and he was just saying like, oh man, I'm so bored all the time. I was like you read this book, and I came back from I'm being gone for 30 days for surgery or whatever and like the entire purple library and bigger pockets library was just sitting on this kid's desk.

And so and all of a sudden like three or four different people in my office have read a very large majority of the BP books, the Rich Dad, Poor Dad books, one of which actually just closed a very large triplex in San Diego, the cash flows, which is a crazy, really cool deal. So I just wanted to say that I am a huge fan of your book. And it was super cool to see them reading your book and watch other BiggerPockets books and then I mean legitimately putting it all into action here and it's just powerful.

Scott:

Thank you..

David:

Seems like a rockstar because today or yesterday, I was walking by and one of them was reading your book and I was like “Oh hey, I'm gonna interview him on the podcast tomorrow”, and it was. So thanks for letting me name drop you, to make my marine think I was a cool kid.

Scott:

But you are a rock star right.

David:

Ah, no, but it was just cool. So anyway, I just wanted to say like, it's just great. Cuz I love your book, just because it's different from most personal finance books, which are pretty boring. But it just wanted to let you know, like, pretty cool to see that it's I mean, people who generally aren't readers are going through you and all the rest of Bigger Pockets stuff is changing lives. So..

Scott:

I'm glad they like it. Thank you.

David:

Yeah. Now, that being said, without shamelessly plugging your book that, you know, I'm going to mention a million times, what is a resource book course website, whatever that you would recommend anyone about finance or real estate or business or, you know?

1:00:00 - 1:02:00

Scott:

Sure. So I, you know, I'll go back to the original here and say, mister money mustache, right? This is the guy who kind of got all this stuff going. You know, I kind of discovered it around 2012, 2013 right after I graduated college, his stuff is just as relevant as ever. And when you go back and read it, you know, I've been going back and reading a little bit of it now. It's just so relevant and so perfectly preparing us for exactly this type of economic environment or potentially a big recession if that's what we are diving into..

David:

That's good, yeah, I like his stuff. And last but not least, where can people get a hold of you?

Scott:

You can find me at Bigger Pocket. You can just search in the bar for my name and reach out, send me a pm there and you can email me at Scott@biggerpockets.com. You can follow me on Instagram @scott_trench or you can check out the bigger pockets money podcast. Anyway, podcasts are played.

David:

Yeah, at this point, you just type Scott trench into Google. Ah that's cool. So right on. Well, hey, Scott, thanks for giving us some time and your huge office to talk real estate today.

Scott:

Yeah, the second bedroom and I still do have that mattress for sale at the end of the episode, so..

David:

Be sure to mark it.

Alex:

Just like that. Like here's a mattress for sale has been slept on by Scott trench. Yeah..

David:

Like some weights in the shape of a body so it looks like you just, you know, like one of those commercials like the phone commercials where you'd like oh it leaves an indent..

Alex:

Trenches, imprint on it still.

Scott:

There you go. Yeah. The steel trench is what we call it.

David:

Oh man. All right guys have a great one. Stop this recording.

David:

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