BiggerPockets: Zillow’s Flips that Flopped

Release date: November 10, 2021
Duration: 57min
Guest(s): Brandon Turner and David Greene
Brandon Turner and David Greene
"A house is not an asset, savers are losers, and the rich don’t work for money.”--Robert Kiyosaki

Brandon Turner and David Greene, hosts for the popular podcast BiggerPockets Real Estate, join the show to discuss macroeconomics and real estate. Davis says, the first is that in real estate, the stakes are higher, from an investment standpoint. You can make more, and you can lose more with real estate. Compared to stocks and CDs, where they are ‘super liquid’ and you can get in and out pretty easily. David likens the investment into real estate compared to other investments like stocks as a jet ski. With stocks, you’re on a jet ski and you can ‘zip in and around’ and get out of the way when you see ‘the enemy’ coming at you. But, he says, “you’re not winning wars on jet skis. You win wars in battleships. Real estate is a battleship.” It’s more difficult to maneuver, harder to get in and out of, but if it’s set up the right way, it is crushing anything you put in front of it.

It’s important, he says, to educate yourself on this asset class; to get it right. You educated yourself and understand it and you’ll get a better return than learning how to trade in crypto, stock market or bonds.

“I put my money in real estate, lever it up. I borrow $4 million from banks to create a $5 million asset which should appreciate, and that’s the game.”--Robert Kiyosaki

David says he got started in real estate because he needed a back up plan. He was a police officer, watching the changes coming down the pipeline, and realizing that it was only going to get worse. He started buying real estate. “This is where it’s at, man. I’m borrowing something from this guy at a low interest rate, and then this other person is paying me money to pay that person back, and meanwhile, my asset is going up (in value) and my rents are going up but my costs are staying the same.” David kept using his overtime earnings to buy rental properties and then eventually got out of law enforcement, started a real estate team, loan brokerage, and now uses that income to buy real estate.

“I just wait for the crash. If Neiman Marcus says they’re going to raise their prices, I don’t go, but if they say they are having a sale, I’ll go shopping. It’s not that hard. Buy low, never sell, finance, don’t pay taxes.”--Robert Kiyosaki

David says, “There's another layer of complication, though where the Fed keeps printing money every time we should get a crash. So that makes it a little bit trickier to time the market like we used to because you have a time where our economy should be tanking based on bad financial decisions that we made. But then whoever is sitting in office just says, "Oh, we'll just print money and create stimulus and convince everybody the economy is doing better than it is." And so prices go up even though the value of the asset might not be keeping up with that.”

Brandon Turner says he discovered rental real estate by crashing in 2008. He used to flip homes, but because of the crash, he wasn’t able to do that.

"Oh, this is way better,", he says, “but I don't know if the crash is this year, if it's next year, if it's 10 years from now. Is that you just keep printing money forever, it never goes away? That's why we emphasize so much on the podcast, everywhere, it's just like, the thing they can't take away from you is being in the top 1%, meaning mentally. They can't take that away from you. Whether the market goes down, whether it goes up, if you're smarter than 99% of the population which is not that difficult to be, right? If you read an adult book, the top 5%, right? So if you've read a book as an adult, not an adult book, have you read a book as an adult, you're already in the top 5%. They can't take that away from you. So we're going to be fine no matter what, but I don't know where the market is going.”

“They should’ve let the banks fail, but they didn’t. And so today, we’re sitting on a bubble. I have never seen this so big. It’s going to make 2008 look like a drop in the bucket.”--Robert Kiyosaki

On BiggerPockets Real Estate, Brandon and David offer a beginner path. A free eBook, ‘The Ultimate Beginner’s Guide’, is a great start, along with other books that are available for purchase. Brandon says they send ‘beginners’ to their podcasts and to these educational books they offer in their online store. He says, “it doesn’t even have to be our show, honestly. Just listen to 20 real estate podcasts that are good, and you will instantly start changing your identity.”

“How has COVID affected your investment strategies?”

For David, he says, while he doesn’t want to gloat when so many struggled through this time, it was financially, the best year for him. His business exploded, tripled. Investments also did very well.

“I want to zig when everyone else zags. Like Warren Buffet said, ‘Be greedy when others are fearful and fearful when others are greedy.’”

David says he believed the government would do just what they did; spend their way out of it. “Smart people will buy real estate,” he says. “One of the things I learned is that you don’t want to get your information based on what other people say, who don’t understand what is happening. You want to learn from experts, people that have done it, and following the herd may make you feel safe, but it’s oftentimes the most dangerous thing to do.”

Brandon says that he and David had a conversation throughout COVID regarding what would logically happen, and the fear goes away. He says real estate is strong, still, and it’s going to make it through. “We might have a rough year but if they can hold on, they’ll be okay.

“What if the tenants don’t pay their rent?”

David says that they shut down the ability to evict renters who couldn’t pay, and for him, the properties he probably shouldn’t have bought in the first place, in less ideal areas and had less than ideal tenants, were the ones affected. The properties he purchased wisely had no problems. What came out of this, he says, was that he realized that sometimes you can get by with blurring the lines of a good investment or not as the tide is rising, but when it goes down, it’s those ones that you shouldn’t have been holding that get exposed. “I’d rather have less properties in really good areas than more properties in the questionable ones.”

Robert adds, “ I won't touch property right now because I think we're at the top, and then this morning, Zillow falters on 7,000 units. To me, this is deja vu all over again, this is 2008, the subprime mortgage crisis, which was a repo market crisis, but this one is going to be longer and deeper in my opinion because they didn't fix the problem in 2008. They made the problem bigger by letting those criminal banks stay open when they should have folded them. So that's why I'm really thrilled with what you guys are doing because it's not just about buy, hold and pray, which most people think they can get rich.”

So, where are we going in real estate?

David Greene says, “I tend to look at it like when you kick the can down the road, eventually the bill comes due. And so there should be a point where we have a recession. Recession would be healthy frankly in a lot of ways that would allow us to, like a forest fire, get rid of all the inefficiency. The problem is the rules change based on who is in office. And so real estate investors have to study two things. They have to understand the asset itself and they have to understand macroeconomics like you talk about on this show that affects how to operate.”
“My hopes are, and my prayers would be, we don't get to that point where we actually let the economy take the crash it needs rather than ruin our currency, but my fear is we don't have the recession. The dollar itself loses credibility because we just spent it into oblivion, and at that time, owning an asset like real estate is the best thing I could have because it doesn't matter what the dollar is doing. It doesn't matter if we have a new unit of currency. It doesn't matter if crypto is being used.”
“You definitely want to see the big picture. And that's something Brandon's done very well in the last year. His Open Door Capital does a really good job of looking at where people are going to be fleeing into, specifically people ... When a crash is coming, Brandon is getting ahead of the curve and he's saying, "I'm buying mobile home parks because that's where the people with money are going to end up when they lose their property, when we have foreclosures, when rent gets too high for people to afford. So he's buying mobile home parks in really good areas. So the cheapest real estate in the best area and their returns have been incredible and that's the thinking people need to do. It's not an index fund where you just buy a house and all these houses are the same, and no matter what you buy, you'll be okay.”

You can listen to Brandon Turner and David Greene on BiggerPockets Real Estate podcasts.