Episode 71. Common Early Landlord Mistakes with Mel & Dave Depuis | bonniegalam.com

Podcast

Episode 71. Common Early Landlord Mistakes with Mel & Dave Depuis

November 11, 2022

In this episode, you’ll hear: Structuring mistakes that can be expensive to unwind The costs of failing to properly do due diligence How to continuously level up, even as an experienced investor If you’d like a shoutout (and a chance to win a $20 Home Depot gift card), just leave a review on Apple Podcasts […]


In this episode, you’ll hear:

  • Structuring mistakes that can be expensive to unwind
  • The costs of failing to properly do due diligence
  • How to continuously level up, even as an experienced investor

If you’d like a shoutout (and a chance to win a $20 Home Depot gift card), just leave a review on Apple Podcasts and send a screenshot of it to me on Instagram via DMs!


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Listen to the show on your favorite podcast platform and be sure to follow, and leave a review to help introduce the show to more real estate investors like you!


Contact Mel & Dave DePuis


If you’re ready to legally grow and protect your portfolio today, save your seat in my free workshop so you can learn how to take the simple legal steps to protect the portfolio you’ve worked so hard to build. Click here to watch my free workshop so you can get protected right now!


Episode Transcript

Bonnie Galam 0:00
Welcome back to the House of Horrors podcast, I am your host, Bonnie Galam. And I am fresh off of hosting several workshops for investors. These workshops are all about protecting your assets, your income, and your time. And let me tell you, this workshop has been a labor of love. I am retired; maybe it’s like the sixth or seventh iteration at this point. And let me tell you, when I started creating this workshop for the first time, probably about a year and a half ago, I thought it was going to be like, “Set it and forget it.” Rightly, it’s been this gauntlet of like learning how to use like half a dozen different tech tools, how to learn how to be my own copywriter, how to like self edit, and how to be in this like continual feedback loop of improving and creating a more valuable free course for real estate investors. And I’m in the process of re recording my on demand version of the workshop. So if you didn’t catch it live with me last week, stay tuned, because I’ll be announcing that brand new on demand workshop very, very soon, like probably sometime this month. But let me tell you that, like creating this business and getting it to this point, it has been humbling. When I started my law firm, like four years ago, the plan was not to start a course; I was not looking to be running two businesses simultaneously. But I saw this need for my clients, and, like in my heart, it forced me down this path, which, yeah, now I’m loving it. But it’s been a juggling act; there’s been this learning curve. And this sense of like really not knowing what I don’t know, and stumbling and like shaking off the dust and doing it again and again and again. And maybe you’re experiencing that now as an investor, maybe you’ve got a property under your belt. And you’re facing like this big wall of actions of creating systems and processes and you know, choosing whether or not to have a property manager to implement a property management software and like which one because there’s a million of those to pick from. And it can feel a lot like you’re going through, I even think of onboarding a tenant for the first time. There’s like so many different legal compliance steps, you have to get from A to B to go from vacant property to occupied for the first time. And this wall that we’re facing in business is daunting. But let me tell you that when you climb over that wall, there’s just another wall there waiting for you. On the other hand, there’s never this moment that will come where you’re like, “I’ve made it; there’s nothing left for me to do.”

And I hope no one’s saying otherwise. But through my experience with basically every investor I’ve known, large and small, it’s just that it’s constantly evolving. And we have to evolve, grow, and continue to make decisions. Sometimes they’re easy, and sometimes they’re hard. But that’s just the name of the game. And you know, it’s my hope that the education that I’m putting out here on the House of Horrors podcast, and through my free workshop, through landlord law school, and now the template shop can help you through these bumpy patches, like, real estate investing and uncovering where those risks are that maybe you don’t know what you don’t know. And I want you to force through, I want you to avoid the big mistakes, but also not sweat the small stuff, I want you to just keep putting one foot in front of the other and just keep dusting yourself off. Getting back up again, let me tell you, if everyone who made an investing mistake or lost money on a deal, or you know had a tenant caused them a headache, if all of those investors threw in the towel, let me tell you there would not be a single real estate investor around. And this week’s guests on the House of Horrors podcast, Mel and Dave, are very experienced investors. They’ve got properties in multiple countries, and they have about 200 doors. They shared with us a due diligence horror story that they experienced and entity structuring mistakes that they made early on in their careers. But let me tell you, it affected many of their properties. This wasn’t like, “Oh, my first property wasn’t inside of an LLC, and I had to pay property tax to move it, and it was way bigger than that.” We’ll get into it on the show. But they’re still here on my podcast. And that’s the point like not one of the horror story guests that have come on the House of Horrors podcast have quit, not a single one of them. But a lot of investors do quit. There are tired landlords, and maybe you even bought a property from one of them. But we don’t want that for you. It’s not, you know, “hashtag generational wealth” if you’re offloading the properties in your 60s or 70s. And so let’s work towards cleaning up shop. Let’s work towards you know, learning from each other’s mistakes, and protecting our time protecting our assets and protecting that income also for the long haul. And so if you’re looking for your first property, you’re in the right place, because in this episode, we’re going to chat a lot about risks that face early stage investors and or early stage investors are at least particularly prone to falling down in these traps. But if you’re more experienced, stick around because our conversation goes into things like how to be constantly leveling up and closing these gaps as we grow our portfolio because, like I said, it’s just wall after wall. And so, as you grow, the difficulties, problems, or choices that you have to make are evolving as well. And so I know you’re going to enjoy this episode, I enjoyed having this conversation with Mel and Dave DePuis. And without further ado, let’s dive in

Welcome to the House of Horrors Podcast, where each week we dissect problems real estate investors have faced, how they navigated them, and, of course, what you can do to avoid ending up in their shoes. I am so excited for you guys to be joining us. Today on House of Horrors, I have Mel and Dave; they’re like Beyonce in that they go by their first names only. And the funny thing is, I follow you guys on Instagram, and they’re like your investors, Mel and Dave. and I love that about you guys. There’s a lot of, I’ll say, stuffiness sometimes in our industry, where people, you know, are fancy and go by their full names and whatnot. But you guys are not only like the real deal. But I love certain things that you mentioned in your bio, guys. If you’re listening to this, you know, the full bio, all of the details are going to be in the show notes. But there were a few things about investors Mell and Dave that I wanted to highlight for you guys. And the first was that they taught investors how to invest with 100% of their own money, meaning they retained 100% of equity. And if you know something about me, if you’ve listened to this podcast for like, maybe three or more episodes, you’ve probably heard me say how much I hate partnerships. As an attorney, there are a few things in the real estate investing world that stress me out as much as partnerships do. And people ask me all the time, and I’m sure Mel and Dave have been approached this way, so they’re like, “You’re an experienced investor; I want to partner with you.” And sometimes it can be really tempting to, like, mooch, or work with other investors. And I talk about different ways. And I’ll link to this previous episode in the show notes about the different ways you can work with investors that do not give up equity. But melody, I’m curious, we’ll just dive right into it. Why you guys value retaining that equity so much,

Mel 7:17
then well, thank you so much for the great introduction to be here. And honestly, it was just that we really wanted that sole ownership. A big why for us is that we have three kids, and we really want to be able to pass on that generational wealth as well. And although everybody told us, “I know you won’t be able to grow, you’re gonna get to 234 or five properties and then get stuck.” And we did get stuck. However, with creative financing, there are different strategies that you can use and continue to solely own. And once we discovered those and put them to work, that’s when, you know, we really decided to go all in with solely owning our properties.

Dave 7:57
And well, I’m kind of in the mindset that the second someone says “You can’t do it. It’s like, alright, well, double downs accepted.” Just from your end, you’re the attorney, right? So you see it when it’s beautiful at the beginning, everyone’s happy honeymoon phase, and then probably when they come back X amount of time later, and it’s like, get me out of this. How exactly do I be the good, the bad, and the ugly, right?

Bonnie Galam 8:19
Yes. And I think that’s why I am so hesitant about it, because it’s like a legal marriage. And it’s very easy to jump into a kind of like, going to Vegas having a shotgun wedding, it’s very easy to form partnerships, it’s very difficult to get out of that, especially once you start owning stuff like real estate investors do, you know, we’re not running a business of like high-fiving people like we’re owning expensive assets. And so it’s very difficult to unwind and the finances also just around being able to unwind it are tricky, like if you’ve got all these little tiny, divvying them up and being able to support the finances as you do that. And so I really love that you guys have kind of put that stake in the ground. which is different than what I think a lot of other life coaches or mentorship programs will teach you, which is not a bad thing. It’s just not the side of the aisle that I fall on. And so I’m always happy to hear from people who validate my own beliefs. But you guys have over 200 doors at this point. It was some, you know, smaller investors. I love hearing the stories about, you know, some of their favorite properties. Y’all got too many. It’s a good problem to have. But I’m, you know, curious, like, what’s the Cliff’s Notes version? How did you guys go from zero to 240? And I will note, guys, that these 240 are in multiple countries, they’re Canadian investors, if you’re not familiar with them, but they’ve got stuff going on in the States. They’ve got things going on in Costa Rica. Did I get that? Correct?

Mel 9:44
That’s Costa Rica, Dominican and Mexico as well. Oh, my goodness. Some of those properties, of course, kind of the monopoly throughout the years where we buy and sometimes we flipped sometimes we hold

Dave 9:53
Yesterday’s dollars are for tomorrow’s projects, right? Sometimes.

Mel 9:59
Yes, yes. Yes. heard using the “creative financing” or “other people’s money” (OPM) strategy. So that’s the year that we bought, we already had a couple of properties. And we hit that common roadblock where financial institutions, a typical big bank, are no more. And if you’re listening, or perhaps you’ve had that roadblock as well, there are definitely ways around it. And with creative financing that year, we bought 12 properties in 12 months, which was 56 apartments, and it was with none of our own money solely owning them as well. So that was the first sort of our, our big growth and one once like anything else, once you know how to do it, and no have your systems and your strategies in place, then the growth, the growth just continued from there. And what’s very interesting is that the strategies that we’ve used in Canada to start off with are definitely applicable. In the US, we have a lot of students from the US, we’re buying in the US; we’re buying, like we said, in different countries as investors.

Dave 11:03
And I know Bonnie, you said which one was your like, it’s not favorite. I think he kind of said something to that, or which one is the most. And I always like telling people that Mel and I quit our full time jobs in our 30s on duplexes and triplexes right, people think I gotta buy these 20 plexes, these 50 plexus these massive, like…

Mel 11:22
Well, there’s nothing wrong.

Bonnie Galam 11:24
There’s nothing wrong with that. But I agree, like, there’s something real, I mean, I’m the same boat, like we’ve got 120 doors, I think the biggest we own is an eightplex. And you know, we’re both working optionally; we’ll put it that way. We are working because we’re enjoying it for the time being. But I totally get that. And there’s something I don’t want to say like entry level, it’s approachable. Those things are really approachable, like, whether it’s due diligence, or explaining and obtaining financing, like those things are not monstrosity. It’s like when people go from doing duplexes, and they’re like, “Well, now I’m going to go buy this, you know, 500, bed assisted living facility.” I’m going to go buy this 200 unit apartment club, because I’m like, that’s great, but it’s not kind of plug and play either.

Dave 12:07
Yeah, so just to kind of inspire people—you know, your audience that you don’t have to go for these massive buildings Right, the duplexes, the triplex is the Forte like, like you said, eightplexes. They’re beautiful buildings. And they’re honestly, in my opinion, I shouldn’t say easier to manage. But tenants are, in our experience have been easier in the duplexes and triplexes, where there’s less common area, they might have the odor, their own exterior entrances, there’s less, a little bit less of this right with the tenant interaction. So they might actually be a little bit easier to manage, probably because they cheated.

Mel 12:40
Maybe more like their long term home.

Bonnie Galam 12:43
Yeah, it’s not like a stepping stone somewhere else

Mel 12:47
Who buys the big ones and who buys the smaller ones when you buy 50 blocks and a fourplex all in the same year. And people say, “Well, what’s your strategy behind that?” And

Dave 12:54
I said, cash.

Mel 12:55
They both made financial sense, we let the numbers speak.

Bonnie Galam 12:59
Now, when you guys use OPM, in my head as a lawyer, I’m like, “There are 50 different ways you can use OPM, so like, what is the OPM strategy?” Are you using, you know, private equity and hard money type lenders? Are you being more creative? Like seller financing or lease options and things like that? Like, what, or is it all the above? Like, tell me, guys, what is the OPM that you use?

Mel 13:25
Primarily, we do a lot of owner financing, seller financing, or vendor take backs and building, to use the same words, for those who are fairly new to real estate. So we do a lot of owner finance deals, whether it’s them being in first place, then being in second place, or even homestead financing through owners as well, then some of those as well. Secured funds. So for those in the US would be 401K, in Canada would be RRSPs, or tip essays, in some promissory notes as well.

Bonnie Galam 13:52
Very cool. I love that you guys, I guess, come into each property with the flexibility to take it a few different ways.

Mel 14:00 The reality is that some deals won’t make sense, or the owner may not think so. I mean, our favorite is definitely owner finance. Some owners may not want to, of course, but if we find an amazing deal, and the owners are willing to hold financing, we’re not going to stop there, we’re going to go find other ways to fund the deal if it makes financial sense.

Dave 14:18
And that’s the fun part—putting that together—because it shouldn’t be fun when you’re doing it like it should be boring. And it should be fun all at the same time, which I know is an oxymoron.

Bonnie Galam 14:27
But it sounds like the law in general. I’m very familiar with like, it’s fun, but it’s also the most boring thing you’ve ever dealt with.

Dave 14:34
Like it should, yeah, it should be fun and boring at the same time. But where I was going with that, when I was getting the seller financing. What I mean is putting the creative back into creative financing. So if they say no, okay, you know, how are we going to put this puzzle together? Now that the seller doesn’t want to partake, And the cool thing is, we’re practicing what we preach now as well as starting to liquidate some buildings to do different projects. We’re also utilizing creative finance by just holding mortgages for other people for the exact same reasons they did it for us, right? Capital gains, tax exemptions, and things like that are tax exemptions, but, you know, spreading that capital gain and succession planning and all that So it’s kind of cool. We’re seeing the other side of the coin now as well. So it’s fun.

Bonnie Galam 15:17
Yeah, I love that. And whenever I hear that, you know, a seller has like, no mortgage left on a property, I’m sure like, you guys have experienced this, like the heavens have opened and like, whether the pieces come together on that or not it just like, I feel like it lights up, be like fire under your like this. There’s like, there’s a deal to be made here, guys, this person, I mean, even because, like at the end of the day, they they’re trying to sell they want the cash out of this property. And so how do we get that to them? Getting the property to us?

Mel 15:46
Exactly. And how can we create a win win with them where they’re even if they’re not familiar with it, a lot of owner finance deals that we’ve heard they were like, you want to do what mouth? Okay, just hear me out. This is how it benefits you. That’s how I’m gonna pay you back. Right, showing them how you’re planning on paying them back, of course. And truly making it a win win. And at first we did battle wrong as well. We were trying to win and make the most amount of money only for us. And, and yeah, but but then we ended up missing out on some deals instead of really concentrating on making it a win win. Yes, I want to make a lot of money I want to win. But it’s okay if they win as well.

Bonnie Galam 16:22
Yeah, I love that attitude. And I, I’ve seen that growing a lot more in the real estate investing industry, which I think is really great, whether it’s like landlord, like and tenant versus landlord versus tenant, if it’s belt buyer and seller kind of working together for this common goal and like what, what are the terms we just need to get there, as opposed to it being this like very one sided, perceived at least as like a very money hungry type of industry. Like, I don’t think anyone landlords or real estate investors included should be demonized for wanting to make money. But I also think that being able to do that with integrity, and being able to say like, you know what, this feels good. All around, it makes it makes it a lot more enjoyable.

Dave 17:08
I agreed. And with the sellers, what we’ve noticed is two things kind of like you had mentioned, when they say hey, I’ve had for the last 2030 years, and I haven’t paid off in the heavens opening up or they kind of like, once I once I explained to them, and once we explained to them sorry, is basically there’s the Canadian in me. But once we explain to them that, go talk to your accountant, what if you receive 100% of the proceeds of this sale, ask your accountant what’s going to happen or ask your CPA, right? It’s gonna go on your personal income tax, you’re gonna pay through the through the roof, and then ask them what if you did hold a mortgage for X amount of years, you spread that over five years? What would your tax situation look like? Plus we’ll pay you interest on it. Like, how did you have the conversation with your CPA, and then they kind of go, okay. And the other thing too, with the Win Win scenarios, I really noticed was, oftentimes, people have more than one asset more than one building, right? Where they might not have 20, or a bunch of them, but they’ll probably have two or three or a handful. So if you can make that win win on the first one, and you gain that trust that respect, they see the fact that you’re actually looking out for them, and then you’re also making a good deal. They’ll more than likely open up and say hey, by the way, this happens all the time. Hey, by the way, I’ve got another one that I’m looking at liquidating and you become their first call. So it just it snowballs on itself.

Bonnie Galam 18:23
Yeah, I I really have seen that happen for a lot of my clients as well. And I always take the CPA approach as well because that it doesn’t sound like you the investor like preaching and telling them how it is because they’re especially in the beginning they’re gonna have their guard up, especially in like the first deal that they’re doing with you. But if you can have a third party, especially like a trusted third party to come in and be like, Oh, but they’re telling you is legit. Then man like the the know, like and trust factor. I feel like just goes way way up. Oh, I agree. Now, most investors have had I’ll say like a little bit of a bumpy ride. And this is the House of Horrors show. So we always love talking about investors, mistakes, missteps, investors, mishaps, or even just things that happen and they’re like, oh, gosh, like I don’t someone has to hear the story. It’s just too crazy. And I know that you guys back had a due diligence issue that happened earlier in your investing years and I would love to hear more about what happened there.

Dave 19:23
That would have been years mill that was your first property,

Mel 19:24
Oh, my first property and oh boy, yes, it’s been a bumpy road throughout it and if you’re a new investor know that it’s definitely normal that I think what’s what’s really important is just not giving up and learning and moving forward. But we’ve had many, many different situations. My first property actually was I didn’t know what I didn’t know and I trusted my agent that I thought she was gonna do all her due diligence and tell me everything I needed to know. And that was, I guess my that was that was pre Dave, as well.

Dave 19:55
I knew anything back then.

Mel 19:59
But But, and I was, I thought I did my due diligence I purchase property. Fast forward a couple years, I put it downstairs, sweet, I spent a significant amount of money and I didn’t have a lot of money back then. So types were really, really, or funds were very, very tight. Fast forward. And I received a letter from the city saying that I cannot have a suite downstairs, it’s an illegal duplex, and I have to shut it down and sell it. He says, Here’s what I ended up having to do, because I could not have attended downstairs. So Oh, yeah, it was just starting off. And it was just like, oh, after all that time and that effort. And of course, even without without property, I had a I had a bad tenant that in between ended up kind of destroying what do we have done downstairs, I had to redo that all over again, double whammy, double whammy. However, now of course, I always do my due diligence. I never take anybody else’s words for it. It’s an important verification that we make sure to do before we buy any kind of property to make sure that it’s legally zoned and all those things, but it was definitely a lesson that I don’t know what I don’t know not because I’m not smart, but because I just don’t know what I don’t know. You don’t know. So go for it. Right.


Dave 21:11

We literally thought back then. But if it’s listed on the MLS or Zillow, LoopNet realtor.ca, realtor.com. And we just literally thought that, oh, well, they must have done their due diligence, they must have have certain compliance that they had to go through before like, but that’s a little, ya know…

Bonnie Galam 21:27
I mean, I see it all the time. I mean, I will get those calls post closing from buyers being like, how did this just happened? Yeah, I actually know of a property right now. I was talking with an agent at a closing last week. And he’s like, there’s this property I know of it’s listed as a triplex. I know for a fact it’s not a triplex. I called the township, they confirmed to me it’s not a triplex, I called the broker let them know, and it’s still up there as a triplex. And I’m like, someone has some schmo is going to buy this, and they’re going to get burned, they are going to it’s it’s a shame and also like the township made it very clear, like there’s no variance to be had here like that this is going to be a single family home, don’t don’t waste your money trying to appeal this in the zoning board in front of us. But it’s really, really true. And I’m glad you brought that up. Because one thing I’ve seen is that there is this over dependence, particularly on new investors, you know, there’s this whole, like, build your team, so that you can rely on that. But at the end of the day, it no one’s gonna have your best interest more than you yourself as the investor. And so I talk a lot about becoming your own best advocate. But a lot of that goes to being able to understand your own due diligence. And so I’m glad you brought that up. And so what, what did you do differently from there? I mean, obviously, now you’re checking zoning and stuff before, but like, did you change like your relationship with realtors or that particular realtor?

Mel 22:54
Yeah, absolutely. I mean, it’s even as you mentioned, building your team and realizing that, number one, I didn’t know what I didn’t know. And I take ownership in that. I do my own due diligence, it comes back to me, but it’s really finding those key people as well that understand investments. And just because somebody has one or two properties, they may not fully know everything as well. So really working with investor focused agents, investor focused attorneys, investor focus accountants, right. So so those key people who understand the other side of it, as opposed to, you know, there’s just the one side and that’s the only, that’s part of our team. Now, our members who are really investor focus, I think it’s really, really important. So not only am I able to make sure that I’m doing my own due diligence as the owner of the property, but I also have a strong team with the tools, knowledge and resources behind them as well, to help me make sure that I’m doing my due diligence properly.

Bonnie Galam 23:50
Yeah, I like looking at a team as more of a second set of eyes and a sounding board, someone to be able to push you to ask the right questions, or get the right documents or push for the right you know, contract terms, even in a given situation, as opposed to but the end of the day, like the investor has to be the one driving the ship. Because whether it’s an attorney or an agent, or an SCP like you had mentioned, there’s a million ways to what do they call it to fly a cat or whatever something that was awfully graphic but you get the metaphor of was just to skin a cat because 1000 ways to skin a cat something like that. But the the decision of how to do that has to come down to someone because sometimes there’s just no best way to do it. I mean, you brought that up earlier with the just financing in general there. There’s a lot of different ways to do just about every part of the deal.

Dave 24:48
And at the end of the day, like you’re the one holding the bag, so if you feel comfortable taking other people’s words for it and not double checking in I’m not saying to micromanage, but show me the email from the zoning department show me the email from the city from Tony showed me like it. But if you just kind of take someone’s word for it, the end of the day, it’s just you pointing the finger in the mirror, right? And you’re the one holding the bag.

Mel 25:07
Well, sometimes there’s owners, that’s exactly it, you don’t want to be micromanaging, but you still have to do your own checklist. Somebody else can be in the supportive role, overseeing certain things and helping you with things that goes for every single aspect of your portfolio, even even property management, right, it’s as hands off as we are now because we contract everything out. At the end, we still have to make sure that certain reports are, are provided to us and that they’re doing their due diligence, so we’re protected as owners and those kinds of things as well.

Bonnie Galam 25:37
So how did you guys close the gap in terms of your education, because there is this like, entry moment into real estate investing, where it’s like, you don’t know what you don’t know, when you don’t know anything, frankly, which is not a bad thing. Like, that’s just how we all start. So don’t feel shame, if like you’re in that position, or in that village, we were all there. To this point where it’s like, you don’t know everything, but you’ve got like a really good intuition of at least where the red flags are, or what questions or documents you need to be asking, or you’ve just got systems and processes set up at this point to kind of help push you down the road. And so I’m curious how like, what did that look like for you guys education wise to get from, like, that investor who had this early mistake, which happens to say, you know, to this position, where not only are you like mentoring people at this point, but you’re able to do this as like a wash, rinse repeat in? What was it five countries at this point?

Dave 26:34
The point, I guess, when we knew we needed coaching was in when we kind of wanted to level up. And I think everyone should do that at some point, right? Because you can yet we said a bunch of times, you don’t know what you don’t know. I still remember the one time we had been 18 or weeks, or we had 18 properties in our personal name. And we had we had five more than that we had six prior and we talked to an accountant, we just called up a local accountant and said, Hey, and it’s nothing against them. They didn’t know our scenario. We just said, Hey, we have property, should we open up Corporation? I said, don’t worry about that. Don’t worry about buying properties and entities. It’s it just complicate things, and you don’t need it. Okay. So we bought 12 properties in that 12 months, right? And they go dim, it’s like, okay, well, the the attorneys and the lawyers, they want you to the liability operator to get the the word but you know what I mean? They want you to have entities all the way in the accounts. They’re just thinking of tax returns anyway. And so we bought the 12 properties and 12 months, and then we went back to that same account, and they went, Oh, my gosh, what did you do? And we’re like you told us to, like, level up.

Bonnie Galam 27:36
We’re having like one part time vacation.

Dave 27:39
Yeah, so anyway, so that’s when we decided, like, again, we had 18 properties and our own name. So we had to put all those in entities land transfer twice, legal twice, accounting twice, breaking mortgages. Bonnie Galam 27:52
So it’s just there’s another horror story right there. That was the most cost.

Dave 27:57
So it’s just when things like that start to happen, you’re like, I could have saved so much money, if I just went to other people who are where I want to be, we’re doing exactly what we want to do, and have a track record. So it was it was a lot of those aha moments, unfortunately, the hard way that that really pushed us in and that’s why we’re so we advocate all the time, it’s like, educate yourself. This is almost like an I don’t want to call it an insurance policy.

Mel 28:23 But this is insulation, as you as an investor, like, well, you’re gonna be spending, you’re gonna be buying hundreds of thousands probably millions, if you use the people’s money because you become limitless. So millions in real estate, but you’re not willing to invest a small portion of that into your own learning and where mistakes can happen. And, and I think it’s your responsibility, especially if you’re going to be using other people’s money to make sure that you know how to do it properly, you have your structure properly set, you have your exit strategy, you run your ratios very well, because otherwise you’re gonna get stuck anyways, and you won’t be able to grow and and that’s why we still have three three coaches now that we know the value of of Elsa also know that I still don’t know what I don’t know. And there’s always something to be learned. So we still invest in in coaches, we’re part of masterminds where we can connect with with with high level investors as well across North America. Because that’s what’s gonna continue to not only expand our own private network, but is that our knowledge as well. And of course, we can pass that on to our students.

Bonnie Galam 29:18 Yeah, I think there’s this Pennywise kind of pound sheep mentality among early investors and I get it, I mean, part of it is just, they’re entering this like financial independence space, and like their head is just not where like, it is going to be a few years or even a few months down the road. But then you also have this hesitation where like, there’s probably like a finite amount of income they have coming in until they kind of get over that hump and being able to say, like, I could put this money towards a property or I could put this money towards myself with being able to kind of balance that and figure out where, where the ROI is going to come from. But I actually have a few of my clients who are students of yours. And something you had mentioned I’ll give you a lot of credit for is that you do push them to work with professionals. And it like niche professionals, like you said, and I get the calls and will say, like, Oh, I’m in a coaching program, they said, I need to connect with a lawyer to review my Docs or to get my ducks created or create my LLC, or whatever the case may be is. And that is not a given in this industry. And I don’t say that because you know, I’m a real estate attorney, I’ve got skin in this bag. But I think there’s a lot of investors, kind of coaches who say the opposite, who will say that these kinds of professionals, at least also don’t like the lawyer side, we get it a lot remember deal killers, they don’t understand we’re gonna do this, that the other and there’s definitely some of us who do I mean, I’ve experienced that I’ve lost deals for myself and for clients over attorneys, but being able to find someone in your niche, who is you know, from insurance, to taxes to legal to financing, if you’re, you know, using some sort of bank financing, who understands who you are and where you’re going, is so, so crucial. So first of all, I want to thank you guys for putting out good content like that and teaching your students to not cut those corners.

Dave 31:30
Yeah, and I agree with you, Barney. And that’s, that’s always kind of been our mindset, like, you can’t be everything to everyone at all times. So we know what we’re good at. We know where we lack. I’m not an attorney. I’m not a lawyer. I’m not a CPA, you know, we’re not mortgage brokers. We’re not like it’s, why would we even pretend? And why wouldn’t you go and talk to the professionals that this is what they do all day, every day, they have the accreditations for like it. That’s what I don’t get away. Yeah, I agree with you. I don’t want to go on a tangent here, either. But, but I agree.

Mel 32:03
It’s like why not cover your you know what, by talking, you’re spending a lot of money or investing a lot of money, you’re looking at your growth, you want to make sure that you’re well protected as well, right? Whether it comes to a lawyer or an accountant or CPA, you want to make sure that everything falls into place. And again, this kind of work comes back to where investor focused rice and people who understand real estate who can have that side of it is just not going to say no, this can be done. Right. Yeah, we’re sorry that we had the same thing. We Oh, they can have $1 deposits. So you can we’ve done it many, many times. Yes. Right. And everyone’s deal makes sense. Those types of things? Of course, there’s ways around it. Right. But it’s just working with the right. Team members, essentially.

Bonnie Galam 32:43
Yeah. I’m curious. What questions do you ask of potential team members, be it insurance tax agents, lawyers, to kind of that their investing experience? Or know how or approach to legal? I mean, I have my thoughts of some good questions investors have asked me, but I’m curious from your standpoint, like, how, how do you suggest vetting those types of team members?

Dave 33:12
Yeah, I love it. And I’ll just go, I’ll talk about attorneys. Because that’s, that’s obviously what you are, is some of the things when I have these conversations with attorneys when I’m vetting them is, okay, if I put a condition in my deal to have my attorney review it, what exactly will you be reviewing? Like, because that’s something that I put in every single in every country, I have my lawyer, my attorney, my notary, my legal representative reviewed the deal to dot the i’s cross the teeth. So if I brought this deal to you, and that and I had this condition in it, what exactly would you be doing? So I kind of gauge to see what they would go through? I’ll talk to them about how do you feel because some of them will be very blatant or so how do you feel about creative financing like seller hold back?

Mel 33:51
Subject or strict? Like, right away? They’re like, yeah, represent you? Okay, well, they can they will be working with us.

Bonnie Galam 34:01
I mean, it’s right now. I mean, I had those hard lines back at my firm as well. And so like, I get that there’s different lawyers who will have their own I’ll say professional risk tolerances. That’s how I prefer to always present it. I’m like, It’s not that you can’t do it. It’s just more malpractice with risk than I’m willing to take on.

Dave 34:18
Yeah, so things like that. I’ll talk to them. Have they done transactions like that? Have they represented clients or deals closed deals with that? Some people want to know if they have some buildings or not. I asked that. But whether they have a real estate portfolio or not, some people will say, well, they shouldn’t Shouldn’t they be able to walk through? I agree, yes. But sometimes, like I’ve had some great lawyers that understand the ins and outs and business lawyers and real estate transactional lawyers, and they haven’t necessarily pulled the trigger on a lot of real estate but they’ve been amazing to deal with so I used to be they have to have a portfolio. Now I’m a little bit more lenient on that, I would say but if they do have a portfolio their investors themselves obviously that’s a pro but those are the kinds of things I would be having a conversation with. And just kind of seeing, I would ask the business structure, where do they recommend, right? Just to kind of see what the what the overall do, but that would be the conversation initially. Anyway.

Bonnie Galam 35:13
Guys, I want to ask you one final question as we wrap up this really fun conversation, which is where do you think the biggest risk lies for real estate investors, be them new or experienced?

Mel 35:26
Well, because we’re all about creative financing, I’ll go first on this one, um, the, I would say, not having a clear exit strategy. Talk about that, constantly inside our action family, you know, with our students living side by side, and you gotta enter, if you’re gonna be using other people’s money. And that’s so crucial. I mean, that’s a foundation. And I know it sounds exciting when you hear about OPM and creative financing. But the reality is not every deal is going to make sense. We bought 12 properties in 12 months, we had like so many deals, but we picked strategically these ones where we knew we were going to be able to pay back the lenders. So that would be my biggest thing is that you have to really make sure that you’re running your numbers properly. It’s not just about cash flow, we have a lot of deals where we cash flow that comes on our desk all the time, but we don’t buy them why, because I don’t have my exit strategy. So that would be my biggest advice and things to be careful for all compound on yours.

Dave 36:23
Because a lot of investors that that don’t really have the experience, they’re always and this is a perfect time with with what the market is doing to show that you can’t do it, they’re always relying on interest rates staying low in the market continue to go up. And right now is a perfect example that that is not an exit strategy that a lot of people are gonna get stung and hurt in this market. So I would just say if you’re looking at deals, you cannot rely on those two things continuing.

Bonnie Galam 36:47
I totally agree. I’m glad you brought up that interest rate point, because I’m thinking a lot of people right now. They probably got five year balloons, what’s it gonna look like? Are you going to cash flow? Are you even going to be able to refi on that balloon, and five years from now? And so that’s, I think, a big question mark. That’s going to be out there. And I love that you brought that up. Guys, I want to thank you so much investor Mellon, Dave, for joining me for this conversation. If you want to learn more about investor Mellon, Dave, you can check out my show notes, I’ll have all of their links and contact info there. They also have a free workshop that they get for investors, it is at this really cool domain that I wish I owned. I’ve got a whole collection of them. But it’s I am ready to invest.com forward slash now. And so you can check out their free training there. And of course, I’ll have that linked in the show notes for you as well. Thank you again for coming, guys.

Mel 37:35
You are awesome. Thank you so much for having us. Yeah, appreciate it. Bonnie.

Bonnie Galam 37:39 Thanks so much for listening to the House of Horrors podcast. Make sure to follow us on Apple podcasts, Spotify, or wherever you like to listen to podcasts. You can also check out all of our podcasts episodes, show notes, links and more at Bonnie galam.com forward slash podcast. You can learn more about legally protecting your portfolio and take my free legal workshop the three legal myths preventing you from securing and scaling your portfolio and of course what to do instead at bonnie@bonniegalam.com. And to stay connected and follow along follow me on Instagram @bonniegalamesq and send me a DM to say hi.

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