Radical Personal Finance Episode 261-Getting Rich with Real Estate...and Then Getting Richer With Business! Interview with Josh Dorkin, Founder of Bigger PocketsBiggerPockets.com is the largest real estate resource online–perhaps in the world. Today we have Josh Dorkin, the founder of Bigger Pockets, on the show to share the story with us.

The story is a classic case of an entrepreneurial endeavor gone well.

Sit back, pay attention, and learn the lessons and themes of how one person went from struggling real estate investor to become king of a real estate empire.

Enjoy!

Joshua

Check out this episode!

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[0:00:00] JS: “Once upon a time, there was a man named Josh, who is working hard as a high school teacher and on the side was working to build a tiny little real estate empire with the long term goal of getting rich in real estate. But the problem was he was failing and not doing very well. So he little by little started to reach out to other people and try to build a community of people who could help him to succeed better and he wound up building the biggest real estate community on the planet and getting rich on the process?”

[INTRODUCTION]

[0:00:51] JS: Welcome to the Radical Personal Finance Podcast. My name is Joshua Sheats and I’m your host, thank you for being with me today. Yes, indeed that is the story that we cover in today’s show. It’s not my story though my name is Joshua, but it’s my guest’s story. Today, we talk with Josh Dorkin. He is the founder of the massive real estate empire called BiggerPockets and today, he’s going to share the story with us.

I tracked Josh down in the hallways at FinCon 2015 because I admired him and admired his business and what he and his team had put together and I twisted his arm and he agreed to come on the show for an interview. Today, I’m thrilled to bring you that interview and I want you to pay careful attention to today’s show because we’re going to share with you some ideas some around real estate, but a lot around business and I’m not going to tell you what lessons to learn. I just ask you to simply pay attention to the lessons and see what you can learn from Josh’s story.

For those of you who are new listeners to the show, welcome. We’re glad that you’re here. I hope that you enjoy this and I hope you go on to check out other episodes but those of you who are consistent listeners of Radical Personal Finance, listen to the story of Josh Dorkin and BiggerPockets and ask yourself if you do not see the themes that we talk about every day. Every single day because truly, it’s a really, really fun story.

Josh and his community has put together an incredible resource and he’s running an awesome business, having fun, making money, doing really, really well and providing incredible resources for people who are wanting to get started and even continue getting better in the world of real estate. Their podcast is a top, I don’t know? I mean it’s consistently at the very height of the business podcast. Even highly ranked right now across all podcasts. Their podcast is growing, their blog is huge, their website is huge, the community is huge and just take a moment and appreciate how available information is.

I mean Josh and his team are part of the revolution of information that’s happening where today, just think about what it would have been like maybe in the 1970’s to try to be a real estate investor and there, you are limited to reading a few books, subscribing to a few newsletters and going and connecting with some older mentors in your local town or community. Well now, you can have access to people all around the world and you could sort through that. Of course, don’t miss the lesson that information is not wisdom and information has to be applied in order for it to be useful to you but just recognize what an amazing time that we live in.

Before, I play the interview for you, I just want to take care of our sponsors today. Sponsor today number one, both of these sponsors are actually consultants, individual consultants. Sponsor of the day number one is Jay Fleischman. Jay is an awesome guy. He is a student loan expert. He’s a consultant, he’s also a student loan and bankruptcy attorney and he is a podcast host, host of the Student Loan Show. Jay has taught me more about student loans both on the interviews that he’s done on Radical Personal Finance and on the content of this show than anybody else that I had ever met and I give him a wholehearted unqualified endorsement.

If you have student loans, call Jay. Well, don’t call him actually, go to studentloanshow.com/radical and hire Jay as a consultant. Before you do that, you might want to listen to two previous episodes of the show. The first episode that you want to listen to is the very first appearance that he had on Radical Personal Finance, which is episode 214. Go back and listen to episode 214 of the show with Jay Fleischman and see if you don’t agree with me that you’re going to learn a ton about student loans.

Then go and listen to 258, Episode 258, which is the show that we launched his sponsorship on the show. After listening to those shows, well, there’s no question about it. You’re going to agree with me. Jay has a resource for you and you’ll see why I believe wholeheartedly you should hire Jay to review your situation if you have any kind of student loans. See if he can find something for you. See if he can find a loop hole or an idea that will help you dramatically cut the cost and the duration of your student loans. The way to do that is just go to studentloanshow.com/radical.

Jay offers a special $25 discount on an e-mail consultation regarding Federal student loans for listeners of the Radical Personal Finance Podcast. Those details are at studentloanshow.com/radical. Also, make sure you subscribe to his show in iTunes or wherever you listen to podcasts. It’s called the Student Loan Show and you can learn from Jay for free that way and of course, if you have needs for any bankruptcy defence or things like that on the litigation perspective, consider speaking with Jay.

Sponsor today number two is Patrick Snow, The Publishing Doctor. Patrick is my own personal publishing coach. He is working with me to help me work through the process of publishing the Radical Personal Finance book, so we’re working hard on that at the moment. The tentative title is Building a Framework for Wealth, that’s the working title, and he’s been working with me on that and we’re making some progress. So little by little getting some words out of my head and onto the page but Patrick can also work with you and perhaps serve you as your publishing coach.

For information on him and his services, please go to thepublishingdoctor.com. You can read there on the page all about his information. You would enjoy listening to episode 252 of the show, which was an interview with Patrick or also listen to the interview that is on his website at Thepublishingdoctor.com. On the right hand side of the page, there is a red circle that has an audio player and you can listen to that interview with him as well. If you’ve ever had an idea for writing a book, now is the time to at least get started working on it. It’s never been easier to work through process of publishing your own book and Patrick has all the tools and resources that can make it a simple process for you.

Consider connecting with him, if you would like he will offer you a 30 to 60 minute complimentary consultation. His direct phone number is listed on the show notes for today’s show but here it is right now, text him at 206-310-1200. Text him with your name and your time zone and he will connect with you and schedule a time to get together with you — 206-310-1200 and with that, let’s talk about real estate and welcome Mr. Josh Dorkin to the show. This show again was recorded at FinCon 2015 in Charlotte, North Carolina.

[INTERVIEW]

[0:07:28] JS: Josh, welcome to Radical Personal Finance.

[0:07:30] JD: All right Josh, happy to be here man.

[0:07:32] JS: So this is going to be a unique interview for me. I’ve been looking forward to this and the reason is, I have been a long admirer of your work on two levels. Number one, the advice and work that you guys are providing surrounding real estate but also number two, the business that you’ve built behind it and I’m on the stage in the journey with Radical Personal Finance where I look at what you’re doing, I look at what other people are doing and I study those things to see, “Okay, what am I doing and what do I need to do?”

So I’d love to talk about both aspects of those and just what you’ve learned at this point about business. But kick us off with your story. How did you figure out how to get rich and successful? Where did it start for you?

[0:08:12] JD: Oh man, well I was born that way and yeah.

[0:08:16] JS: You hit that deck flat, huh?

[0:08:18] JD: Oh yeah. No, I mean it’s a long journey. If we’re talking about BiggerPockets, I’ll just start there. So about 11 years ago, I was teaching special ed at high school in Southern California and I’d fallen into that — long story. b=But a brother approached me and said, “Hey Josh, you know I really want you,” — yeah the crowd’s excited. “I think it would be a good idea if you get into real estate.” I was like, “Oh, okay.” You know what? I was an agent, I got my license and sold it.

[0:08:56] JS: While you were a teacher?

[0:08:58] JD: Before that, I did that for five minutes too. I have done a bunch of stuff.

[0:09:02] JS: Yeah, so start early, before we get to to Big Pockets, go back.

[0:09:05] JD: Oh okay, we’ll go all over that. All right, I went to college, I did a bit of web stuff back in school. I went through college in ’94, pretty much at the beginning of the internet as we know it which was kind of scary and the modern graphical pre-Internet and we started building websites.

I thought it was cool when I saw it, I was like, “Oh this is neat, let me teach myself how to do it.” So I started doing that. Post-college, what did I do? Oh my goodness, I was a prop trader. I got in the entertainment business, was involved in that business for a while in New York. That brought me out to LA, I was involved in that in LA.

I realized that I didn’t love that business, I pulled out of that business, got a real estate license, did that, didn’t love being an agent, I got out of that and fell into teaching. So I am teaching special ed as I’d mentioned and started buying property and quickly realized that just because you’re smart doesn’t mean you’re going to be good at buying real estate.

So I bought a bunch of property and realized that it’s not as easy as it sounds to buy a property thousands of miles away and actually have them do well and so, I started looking for help and realized that the resources that were online for helping people in real estate investing had this slightly mucky thing about them.

They were all about this big old upsell and an upsell and an upsell and it was this whole get rich quick mentality from this guys and I wasn’t loving it. So I stopped, looked at the landscape and said, “I really don’t feel comfortable learning from any of these places, what can I do?” So I decided I would build just really for myself a place where I can find all the resources that I thought were valuable.

Then I started to build a forum so that I could interact with people and they could help me stop making mistakes. So that was the genesis, that was the birth and little by little over the course of time, worked on it, worked on it, quit my job a few years later, put a lot of money into building this My Space. I don’t know if you’re listeners know what My Space is, but it was the cool thing before Facebook. It was Facebook before Facebook and yeah, I wanted to build this My Space and I did and it didn’t work because I hired a team out of India that just, I didn’t know what I was doing.

Anyway, fast forward to about 11 years later, we’ve got this unbelievable site that has grown tremendously and really, what I did was I took a hobby site, turned the hobby site into a lifestyle business and I took that lifestyle business and I’ve transformed that into a real company and it’s been very exciting to transition and learn and grow this thing.

[0:12:14] JS: So in the early years of teaching, you were teaching, building the website and finding and buying properties at the same time?

[0:12:25] JD: Not so smart.

[0:12:27] JS: You were busy.

[0:12:28] JD: You know what it is? What I’ve learned since then is to focus on one thing and do it exceptionally well. I was burning the candle from both sides and I think I was taking away from everything.

[0:12:44] JS: What strategies were you pursuing with real estate in the early days and how have those strategies changed overtime?

[0:12:50] JD: So the strategies I was pursuing in the early days were buy and hold.

[0:12:54] JS: Okay, single family houses?

[0:12:57] JD: Multi-families, buy cheap stuff because it was cheap and I didn’t know what I was doing and so cheap was cheap so let’s get cheap and it worked. The numbers on the properties that I bought were good. My analysis was great but at the end of the day, it was the management component that I had issue with and so, I did that for a while and then as my company started to grow, I realized that, as I was saying before, burning the candle on both ends. I personally couldn’t focus on two things and do them well. I had to focus on one thing.

So I ultimately ended up selling my properties and I have been focusing on building the greatest platform for real estate investors since then and today, that’s what we’re doing and it’s funny because we got our own podcast and we go and we interview all these people all the time and they tell us their stories and I’m like, “Oh my God, I got to go do that tomorrow,” and then I stop and I’m like, “Wait a second, you know if I do that tomorrow, it’s going to take away from these other things that I would be doing. So I’m not going to. I’m going to wait until I can get myself out of the business a little bit more before I do that, and go from there.”

[0:14:13] JS: I’m glad that you identified that though and talk about it. I feel that in our society, we don’t talk about that much. Even me, I’m at a stage — so I work for six years as a financial planner and then I left that business to start Radical Personal Finance and along the way, I’ve been investing and buying mutual funds since I was 18 years old and I always had an interest in real estate. I never followed through, which is a story for another day and thankful that I didn’t follow.

[0:14:43] JD: Tell me your story Joshua.

[0:14:45] JS: Oh put it this way, I was about one credit card swipe, thankfully stopped by my dad from signing up for a $30,000 coaching mentorship.

[0:14:53] JD: Good job dad, nice.

[0:14:54] JS: With that, what was the guy’s name? He was the scummy ones from Orlando, Ron…

[0:14:59] JD: I don’t mention any names.

[0:15:00] JS: Yeah, sorry. So one of the scams…

[0:15:01] JD: I don’t get involved in the drama.

[0:15:03] JS: …at that time and man, I went to the seminar and I was all hyped up and the whole thing worked and if my dad hadn’t stepped in and said, “Joshua trust me,” I would’ve — I’m thankful. I’m thankful.

[0:15:17] JD: There you go. Yeah and you know the sad thing is, listen, don’t get me wrong. People do that and some people get value out of it. I’m not going to take that away, but the vast majority do not and they spend a whole lot of money and they find themselves in a lot of trouble and angry and resentful and it kind of stops them. Like, “Oh okay, you know what? I go taken advantage of, I made this big mistake doing this and I’m done, I’m out,” and it’s a shame.

[0:15:50] JS: So as I’ve left the financial planning business for various reasons I have actually sold all of my stocks at this point and all the accounts just sitting in cash and the question that I always had is, “Okay, what should I be doing with the cash?” and I think I could learn to be a skillful real estate investor.

But although I think I could learn it, it’s not my number one thing of, “Man I just really want to do this,” because the opportunity that I had with Radical Personal Finance, I see as night and day just many, many, many times bigger.

And so I’m trying to learn the lesson the easy way not the hard way and stay laser focused on the number one opportunity that has the highest potential return. Then overtime, once that return starts to generate then I’ll figure out how to diversify out of it as time goes by.

[0:16:41] JD: Right, yeah I mean do what you love. Do what you love, build it, crush it, go with it and then when the opportunity presents itself, as I mentioned before, I went from this life style business, we’re building a company now. So it was a lifestyle business where we didn’t have a lifestyle for a while, which is why I learned to turn it into a company.

Now, I’m working more regular hours, less crazy, I’m starting to find time. Fortunately, I’ve got family and kids now. So my time is going to them but as they get older and I have that time come back to me, I think that’s when I’ll have the opportunity to start focusing on other things as well like real estate again.

[0:17:27] JS: Right, do you ever worry about your brand if you’re not a real estate investor but here you are talking about it? Do you ever get concerned about that?

[0:17:34] JD: No. I don’t know, I mean there’s — academically, I am probably one of the sharpest real estate folks in the planet. I have been studying it for countless years. I talked to the experts. I mean I know more about real estate than most people. So why would that affect my brand whatsoever?

Mark Cuban, is the owner of the Mavericks and yet he never coached the NBA nor did he play NBA basketball so how could he own a company where basketball players shoot balls through a hoop? It’s the same thing. I mean I’m building a technology company focused on real estate investors, a publishing company focused on real estate investors and what I do with my own personal money is nobody’s business.

[0:18:23] JS: So let’s talk about…

[0:18:24] JD: That’s not to say, “Joshua damn you for asking that question,” but I mean I have no issue with it at all.

[0:18:30] JS: Well, I think it’s an important question to ask because often times, this has hurt me and hindered me. We often feel because I haven’t done something or I am not doing something or even can’t do something that I don’t have something to offer. It’s a cliché but Tiger Woods’ golf coach can’t golf as well as Tiger Woods. That doesn’t mean he’s not a world class golf coach and coaching and teaching and coordinating and creating a technology company, providing a platform that is in it of itself a unique skill set. That doesn’t mean you’ve got to be the world’s greatest investor.

[0:19:03] JD: Right and the beauty — listen, when I started BiggerPockets, my intent was not to say, “Hey, I am this great real estate investor that people should learn from”. I actually said, “Hey, I’m this real estate investor who couldn’t get it right at first and I want to bring together this community of amazing real estate investors who, as a collective, can help make people more successful,” and that’s what we’ve done.

We’ve democratize the space where it’s not just one self-entitled guru who says they’re the expert. It’s the collective is the expert and that’s the beauty of BiggerPockets. That’s why BiggerPockets is amazing and that’s why we’re thriving.

[0:19:47] JS: And you guys have crushed all the experts or many of the experts which is awesome. So I want you to put your coaching hat on and let’s do a little case study.

[0:19:55] JD: Okay.

[0:19:56] JS: So we’ll use me as the example. Pretend I don’t have — so pretend Radical Personal Finance fails and it goes bankrupt. So I am 30 years old, very interested in financial independence, pretend I’ve got $100,000 cash saved and I am starting out and my number one focus is to build financial independence with real estate but I haven’t gotten any more specific than that. Where and how would you coach me to start formulating my plan?

[0:20:26] JD: So I don’t coach, let’s just start there. I don’t, I will never, I am not a coach, I would never want to be a coach. That’s not my thing. I would tell you, you want to look at all the niches that are around in real estate.

[0:20:39] JS: What are the examples of niches?

[0:20:40] JD: You want to look at things like multifamily — well niches and strategies are what you’ve got. You’ve got multifamily, single family, duplexes, you’ve got commercial real estate, you’ve got to note things like that and then you’ve got strategies which would be buy and hold, flipping, whole selling, things like that.

So you want to look at what’s out there, look at the niches, look at the strategies, look at your own personal real estate knowledge and interest and long term goals. You want to study these things and basically say, “Hey, what’s interesting to me?” Start with one thing and then basically map out your plan.

“Hey, where am I going to start? What’s going to work?” I would say start in your area, where do you live? Are you in San Francisco where it’s pretty much impossible to find real good deals. Although that said, any metro area there is good deals within an hour or two drive. People in New York City or I’m in LA or San Francisco hinder them from doing stuff.

We always say that’s crazy because there’s deals everywhere but look at the landscape, look where you are and make a few decisions and then start to map a plan like “How am I going to proceed? How am I going to go forward?” What we like to tell young folks typically and usually a married couple with kids is less likely to do this thing than somebody who’s single and 20’s, 30’s, young 30’s, is what we call house hacking.

So it’s buy a duplex, a triplex, a fourplex, live in one of the units and then rent out the other units. It does a few things for you. One, it gives you the opportunity to learn how to be a landlord. Two, it gives you the benefit of having an investment property but you can actually buy with a traditional loan. Or you could even get FHA financing which is pretty good rates and it gives you that experience.

And you can do that, own the property for a little bit, sit on it and then when the time comes to move out, you find another tenant to come in. They’ve taken over and then maybe you do it again. You go find another property a duplex, triplex, fourplex and move in. Rent out the other units, obviously the key and the beauty of that is, hopefully if you’ve paid appropriately for that property, you are living close to rent free and so it’s a really good strategy. We know a lot of folks who are doing it. We definitely encourage people to consider.

But the key with anything in real estate investing is always going to be understanding fundamental analysis. That’s where most people get it wrong. Most people will just jump in there and say, “Hell, this sounds like a good deal because mortgage and insurance and taxes, if I subtract that from my rent, I’m positive.” Well, that’s great but there’s other expenses that come in. There’s holding cost, there’s vacancies, there’s capital expenditures. There’s all sorts of other things that come in that unfortunately most untrained agents don’t know and unfortunately, most newbie investors don’t realize.

So a lot of people get in thinking that that’s the case. That’s how you do an evaluation and suddenly, they come back and they’re like, “Oh, I’m bleeding, uh-oh,” you know? “I forgot to factor in 10% for property manager. I forgot to factor in one to two months a year that that property ends up vacant unfortunately. I forgot to factor in that I got to replace the roof and the boiler and I’ve got to mow the lawn and deal with all these other issues and I didn’t factor any of that stuff in and now, I’m upside down losing money every month.”

They very quickly decide to get out of the business and give the deal to somebody else who buys it from them and hopefully, the cycle doesn’t continue.

[0:24:41] JS: Is there a way to be really confident in advance? So for example, when I’ve studied educational resources about real estate and they give, “Okay, here is the rule,” but I could see myself as I’ve gone out and shopped some in the market place and I think, “Okay, I’m going to try to estimate this,” but as a total novice, when you’re sitting there and looking at it, it’s hard to know and feel confident.

“Okay, this AC is X number of years old but I don’t know how long an AC lasts?” Is real estate the kind of thing where you need to expect to make some mistakes even though you are working hard not to, or is it possible to learn it in an academic environment and crush it on your first deal?

[0:25:17] JD: You’re going to make mistakes, period. And you may crush it on your first deal but you’re going to make mistakes. I don’t care if you’ve been doing it for one month or 25 years, you’re gonna still make mistakes. It happens. We’ve interviewed well over a 100 people for our podcast. I’ve got hundreds of thousands of people on our community talking about this stuff and everybody makes mistakes. It’s absolutely going to happen.

To the other point about ways to do the evaluation, I don’t know if I’m allowed to plug but we built analysis tools on BiggerPockets. We built a calculator for evaluating rental properties, we built a calculator for evaluating flip properties, built a calculator for evaluating whole sale properties so you can jump on the site at BiggerPockets.com/calc and access those tools. The beauty is, they actually show you that, “Hey, there’s all these things that I didn’t even think about are expenses.”

It shows you what everything looks like and gives you this feedback where you have to go and start thinking about it. “Oh okay, maybe I should figure out what this is.” And of course then, if you’ve got a question like, “How long is the AC going to last?” You jump on our site. We got our forums and then we got the democratized information from the community. Those guys are helping answer your questions.

[0:26:44] JS: So what value does the real estate investor add because if you can build a calculator like that, you can obviously take the data from the MLS and you can arrange a way where that could be piped right into the calculator, why is it that you can’t just have a computer program that spits it out and says, “Here’s the deal,” and you sit there and create a piece of software that sends out offers to everybody on the MLS at a specific number without any involvement by the investor?

[0:27:09] JD: There are people who are trying to do such things. I think at the end of the day, anybody can go and build the technology to do that I suppose. I mean we’ve got a few things up our sleeves which I am not going to announce on your show today but yeah, maybe down the line. But people who are savvy do this kind of thing and they go through and they evaluate stuff and they tend to pick up good deals. Like sophisticated investors end up buying good deals because they know how to find them. They know how to insure that they’re not overpaying and therefore, they therefore are successful.

So could you make something where the un-savvy investor just jumps in and randomly does it? I suppose you could. What happens is there’s a whole hell of a lot of competition and so, ultimately at the end of the day, there’s really good deals disappear. So I think what starts to happen is the folks who have — a lot of capacity to build those tools may not want to because they don’t want that competition vying for the same deals.

[0:28:31] JS: When you look at various investment strategies some of these are really marketed as really sexy strategies and I’m just thinking maybe tax liens, buying tax liens. What would you say is the sexiest strategy that’s being marketed out there right now? Let’s start with that.

[0:28:51] JD: I think it’s all crap. I think it’s all crap. It’s literary putting lipstick on a pig or putting lipstick on a strategy that already exist. There’s every strategy that exists, has existed, there’s no new strategies. There’s no new way to do these things. It’s just packaging. So what’s the sexiest strategy? Its buy and hold.

You buy a piece of property, you use leverage. You put some money down and you use leverage and hold onto that property over the course of time. Over the course of time, you’re paying down your note, your tenants are paying for your mortgage. Hopefully, you’re making profits on top of it, reinvesting it either into the property or through additional properties.

After 20, 30 years you’ve got all that extra money and you’re building wealth. I mean there’s nothing simpler. Flipping houses, all over TV, “Oh yeah, let’s flip houses.” It’s great. It’s a really good way to make money, but it’s a job. You can, don’t get me wrong, but to be a successful flipper, you really need to work. It’s like working a job.

[0:30:03] JS: Right, you’re the contractor, you’re the dealer, you are like everything rolled in and you’ve got to make sure the job is going forward.

[0:30:10] JD: Yeah and wholesaling, the same thing. Again, it really depends on who you are, what is your strategy. You’re a 50 year old guy who’s got half a million bucks in the bank. You don’t want deal with tenants and toilets, what’s a good strategy for you? Maybe you want to be a private money lender.

Maybe you want to be somebody who goes and offers loans out to successful investors and helps them finance deals because they’re tapped out, because they’ve got 17 deals happening at once. They are offering you preferred returns and it’s a great way to make more money than you would make sitting in a bank.

There’s no “sexy strategy”. It’s just what strategy works for you and as you can probably tell, I get a little bit passionate about this stuff because it aggravates me to no end that these guys who are the reason why I built the site are out there marketing, “Hey, here’s the sexy strategy. Go out there and make money and tax liens because we found a new system!”

Well, you haven’t found a new anything. It’s just marketing which is great, good for you but nothing’s changed.

[0:31:18] JS: Right. Talk about no money down because it’s past a little bit now but that’s probably the most seductive approach and especially, the real estate seminars by people who go out and do it, that’s in many ways the ticket in. Well, you don’t even need any money to start with. You don’t even need any capital. All you’ve got to do is just start.

What have you learned at looking at how to buy properties for no money down and how feasible that is for beginning investors?

[0:31:52] JD: Absolutely. It’s a 100% feasible. I know you didn’t expect that but we actually wrote a book. Brandon Turner who works for me at BiggerPockets, he’s my co-host on the podcast, he wrote The Book On Investing In Real Estate With No (and Low) Money Down and I always get the title wrong, but he has himself built a portfolio of dozens of properties, dozens of units using no money techniques and that’s how he’s built his portfolio.

There’s lots of ways to go, his preferred path and it’s the path that I truly think is the way to go is partnering. So ultimately, at the end of the day, say your guy has got no money or you don’t want to put money down and you want to kick things off, you can’t just do deals with no money without finding real deals. You have to learn how to find deals.

So I go, I find this amazing deal and it doesn’t matter if I have money or if I don’t have money. It’s irrelevant. I don’t want to put any of my money down. I find a great deal, I come to you and I say, “Hey, I got this fantastic deal,” and I show you the numbers. You’re like, “Yeah, that’s an amazing deal, why don’t we partner?” You put up the cash and I manage the property. I put nothing down, you put the money down, I scout it out, you would never had had this deal without me, I would never have the deal without you, let’s assume I had no money and so it’s a win-win.

So partnering is really, I think, one of the best ways. So listen, “no money down” just means none of your own money or a little bit of your own money to start with. You still need money so the key and the strategy is really finding the money so where do you find the money? From hard money lenders, from private money lenders, it’s how you find the cash. It’s not, “Hey, I could buy a property for zero dollars,” suddenly, you could own this $300,000 house and then I own a 100% of it and I’m rich. No, it doesn’t work that way.

Our big issue with the “no money down” is not that it’s not feasible. It’s that a lot of the guys that are out there teaching, “You’re going to be rich tomorrow,” you know? “Hey, let’s get rich quickly and in three weeks you’re going to be a billionaire. Quit your job and then yeah blah, blah.”

[0:34:21] JS: You’ve seen a few of these pitches?

[0:34:23] JD: Oh, just one or two.

[0:34:25] JS: So I’ve got some friends who’ve done that, who’ve built very large real estate businesses and primarily with the strategy of partnership, you’ve got the money, I’ve got the deals and I’ve build the pipeline for the deals which has allowed them to build very profitable real estate businesses.

I’m interested to know, because one of the things that they’re investors are often looking for is they’re looking to make a return on their money and they’re often looking to get out of stocks, whether through fear of changing economic circumstances or whatever. When you look at the real estate market place and you start to think about expected rates of return.

In stocks, we have formulas and all kinds of data and we say, “Okay, will this portfolio” and as an adviser, you print out the portfolio and say, “This is the expected rate of return in my portfolio.” How do you approach expected rates of return in real estate?

[0:35:15] JD: I think it depends on who you are and what you’re trying to do. At the end of the day, a deal is worth what’s the deal is worth. So if you’re a hard for cash and you go to the bank, the bank doesn’t want to give you cash and you go to a hard money lender and they want to lend you out at 12% plus five points and you’re like, “Oh, I don’t want to do that.”

You go to a private money lender and then another private money lenders and I could talk about what that is and how to find those guys but you go to those guys and they wanna give you, you know, one guy says 17%, one guy says 15%, one guy says 13%. Well, you’re going to probably find a guy who’s going to give you the best deal. So you’re going to shop it.

Is there an expected rate of return? I think the answer is no. Generally it really just depends on the type of loan, who you are, how long have you been doing things. It’s just something that comes overtime. There’s not like, “Here the industry’s standard is,” but it doesn’t work that way.

[0:36:12] JS: The reason I asked is because if you look at the impact and obviously it will vary deal to deal. Some deal you might lose money, another deal you might do an incredible flip and all of a sudden, you did a fast flip, you got a great deal and boom, boom, boom just huge rate of return. But it doesn’t mean you can find the next deal next month and repeat it but I had John Schaub on the show and I asked him if he tracked his returns and he said he had and I forgot the exact number but it was an excess of 20% annualized over…

[0:36:41] JD: That’s pretty good.

[0:36:41] JS: …his course of his career or recently and he said the number and when somebody who’s experienced and I think he’s one of the good ones as far as he’s fair and straight forward with his information and education and he says, “Yeah, I got an excess of 20%.” When you start plugging that into a financial calculator and you got 20% in real estate and you’ve got 10% in my index funds.

[0:37:05] JD: Why are you going to invest in index funds?

[0:37:07] JS: Right. So the question is, how long did it take Schaub to be able to do that? How much did he have to learn? That’s the question that we face and so if I could get average over a long period of time with that, that’s a dramatic compelling case for me to put in the time and work and sweat to learn the skills.

[0:37:25] JD: You should learn the skills that’s why I do what I do. The folks that I know who are the most successful in real estate investing and they are guys who started as a policeman, guys who started as a carpenter, I mean you name it. They’re definitely doing well over 10% like at 14, 16, 18%, is definitely not atypical to hear for folks over the long term.

So yeah, I mean I believe in real estate investing because you can see those kinds of returns, absolutely. Are you going to see it immediately? No, and you talked about flipping and where’s the next deal? I mean real estate investing is a business. It really is something that requires you to put the time and you have to build a business plan in order to really become a sustainable successful person, you’ve got to know what you’re doing and I’m not going to jump and create a laundry mat without putting the time into understanding the laundry mat business the same thing you’re not going to do that in real — well the problem is…

[0:38:33] JS: People think they can.

[0:38:34] JD: …way too many people go and do that and they end up finding themselves in trouble and like it or not, the sophisticated investors are profiting off of those guys because those guys are bleeding, they’re upside down and they’re like, “I want to get the hell out for any price just buy my property today so I am done bleeding.” And the savvy investor is like, “All right, I will take if off your hands,” and they go in there and they do okay with it.

So experience definitely makes a difference and knowledge definitely makes a difference and it’s not something you learn overnight but that’s why we built what we built. Our goal, our job, what we try to do is build this place that has, I mean it’s the Wikipedia of real estate investing. In this endless encyclopedia of anything and everything you’d ever want to know about real estate investing.

Again, we’ve got hundreds of thousands of people on the platform many of which are very successful who were there and willing and able to help you with anything you want to know and so, there are resources like ours where people can get the help they need to get closer and closer to those preferred returns that you’re talking about.

[0:39:58] JS: With regards to the business of BiggerPockets, you started it as, “Okay, this is my little hobby because I have a need for this.” What have been the phases in I guess figuring out the model, figuring out what you were actually going to do and what the value was? Did you see it from the beginning or did it just change and grow naturally?

[0:40:19] JD: It definitely was organic. In the very beginning it was, “Hey, here is a hobby. I am building this thing, I am enjoying hanging out with people.” I was teaching, I was doing this night in the weekends, I became a little obsessed with it, I really got caught up in the community and spent the next few years doing that.

I was trying to figure out how do I build the best community on the planet for real estate, period? And I think we learned that. I think just studying, understanding how people interact, understanding what they’re looking for, I was able to solve that and so, first phase was pretty much, build community. “Build community, they will come.”

[0:41:08] JS: How did you do that?

[0:41:09] JD: It took me years. It was a very slow slug. This was pre “Internet marketing”. The industry of Internet marketing didn’t exist. We were trying to figure it out. There were a few forums for web masters back in the day, Web Pro World in some other communities but it was just trial and error, experimentation and really we’ve done that all along.

Everything that we’ve ever done, everything that we’ve ever learned, we’ve thrown ourselves on the fire and tried to figure out how to put it out or how to grow. That first stage was community, build the community, as I mentioned earlier, we tried to do this My Space thing. That failed and thought about quitting and really, it was demoralizing having made that.

I’m not going to call it a mistake. I just didn’t know how to hire coders. I didn’t know how to hire and manage a team of coders in India. I couldn’t hire or afford people in the States so I did that. I ended up with this code that was worthless and I had to figure out what next? And so decided that I would now build out this social profiles on top of the forums that were there.

At first, it was a forum so it was like, “Houseflipper7300, was talking with Coolguy23” and I was like, “Well, that’s cool but there’s no credibility here. I don’t know who Houseflipper2300 is. I don’t know who these guys are and I don’t know if I can trust them myself.”

[0:43:06] JS: Right or trust their advice.

[0:43:07] JD: Right, so we decided that was where the social networking component really was important because we wanted people to reveal who they were and so, I think when that happened, that started to open things up. People start to get excited. This is a time intensive process that was a lot of Josh reaching out to people in a one by one basis, trying to convince them to come and join us.

And I mean it took a long time to get there. Eventually, we started to build the social platform out and it got better and people were starting to get excited and there’s these tipping points where people started to invite people and the community starts to grow. There’s also simultaneously, we’re building a blog.

So I’ve got a blog now and I’m writing about real estate and that’s attracting people and I’m one of the early real estate bloggers, so again, the search engines were enjoying that. We were bringing people in who were then joining the community and that was all kind of self-perpetuating. Eventually, it started to bring in another writers so I am not the only writer because I knew I wasn’t the expert in everything.

I knew enough about enough things to broadly and generally be able to write but I wanted to bring on people who were actively doing all these other stuff, who were successful, who were on it and so as we started to do that, that really started to attract new folks and then again, the community grew as that grew and we kept going.

We started to build out more tools and then, as I talked about this lifestyle business was becoming very overwhelming. All of a sudden, I’m at 90, 80, 90, 100 hours a week. That’s not a lifestyle business man, where the hell is my life? It’s crazy so I find myself drowning in this business, absolutely drowning and thinking, “How do I get out from under water? I am getting tired of it, it’s not working for me.”

So I ended up hiring a consultant. We looked at the business, we talked through what everything was and what I was doing and decided that it was time to really start hiring. I would hire and the hiring’s going to help me start to pull myself out and that’s what I did.

[0:45:44] JS: Did you have the revenue where you felt comfortable with that decision?

[0:45:47] JD: No — I had the revenue, I did not feel comfortable. A big distinction there.

[0:45:53] JS: Right, right.

[0:45:54] JD: Yeah, so I could definitely afford to bring somebody on but I was scared to death because at this time, I wasn’t working on the job. At this time, my wife had quit her job. We had at least one kid and the business was sustaining us and so what if I screwed up? What if this guy doesn’t work out? What if I can’t make my payroll?

I mean it’s frightening, really, really scary but I took that leap of faith and I was methodical about hiring and really worked hard at it and it worked out. That led to the next hire and the next hire and the next hire and suddenly, I’m stepping out of the grind and I am not doing every little mundane thing and I’ve now got a staff who’s doing things that the staff should be doing.

I can now focus, instead of focusing on all the little details, I could focus on the vision, I could focus on the direction of the company. I could start to plan and map out the growth and the path to where we’re going to go and how we’re going to dominate an industry and how are we going to continue to become the greatest platform for real estate investors online.

[0:47:10] JS: Were there resources, books, coaches, people, approaches that were helpful to you in making that transition from overworked worker to business owner?

[0:47:21] JD: I bet you there were. Remember, I was working a 100 hours a week so I didn’t have time to find them. I mean like everything else it was, get my hands dirty, figure it out. Now that I’ve got a little more time on my hands, I’ve started to find some resources and things and yeah, it’s been great but when I was in the thick of it, it was I just had to just stop and put on pencil and paper and say, “How do I do this? And what’s next and how do I plan? How do I get my goals and how do I not screw up this hire and what do I need to do here?”

And use a little bit of logic and looking back, I think I did a pretty good job. Oh man, I wish, I really wish I’d known about some of the tools and resources and mentors. I wish I had folks to walk me through it. I just fought. I just scrapped and struggled and hustled and cried and I was lonely and figured it out. But the beauty of it was, as I put that trust in that first, I had developers working for me for a few years but they were just coding. Up until then, the business was me. I did everything else, right? And so once I hired that first non-technical guy, and that was Brandon Turner, who’s actually behind me.

[0:48:55] JS: He just walked out right when you were about to talk about him.

[0:48:58] JD: “Yeah, Brandon Turner, all right!” You know we then started to forge his brain trust where we started strategizing, thinking strategically about the business and how to do things and so, having that other person that I can parlay off of, that I can kind of strategize with was really helpful.

[0:49:17] JS: How did you find him?

[0:49:19] JD: He was the guy who wrote the book on No (and Low) Money Down.

[0:49:23] JS: And he had done that independently before?

[0:49:25] JD: No, that came afterwards. He was a BiggerPockets success. So he is one of the countless real estate investors who built a business as a result of BiggerPockets. So this guy had found our site, I think it was eight years ago now, seven, eight, nine years ago and he started learning no money, started learning real estate.

Built up a portfolio to the point where he didn’t need a job. And so he’s got this portfolio, he’s doing really well. He’s writing for us, he was one of our writers and we just started talking. He is absolutely passionate about BiggerPockets and it helped him become financially independent and he wanted to be a part of it.

We interviewed for a few weeks. I mean it was just hanging out on the phone, jumping on Skype, talking to each other, becoming friends, knowing that I can trust him and knowing that he believed in what we were doing and wanted something more for it and so, I saw it in him. I saw the spark and I said, “Okay, well you know this is the guy. Let’s do this.”

Again, I took a leap of faith and definitely one of the better decisions I’ve made in the many years that I’ve been doing this.

[0:50:47] JS: He was financially independent, how did you get him to actually come and work for you?

[0:50:53] JD: Because he was passionate about what we were doing. We helped him become financially independent. So it wasn’t a hard pitch. It was, “Hey man, I know you’re financially independent but you know,” you know? “Well, I love you guys, I will do anything.” And so we figured it out. We talked it over and the beauty is, the people who are exceptionally wealthy and I’m not saying he was exceptionally wealthy, but the people who are exceptionally wealthy worked.

And a lot of exceptionally wealthy people will work for free. A lot of the exceptionally wealthy people will work for very little because they believe in something and I think finding people’s passion and that’s one of the things that I’ve really learned to focus on is I want to hire people who are passionate.

I want to hire people who are excited about what we’re doing every day, they’re excited about what they’re doing within the company every day and that’s going to bring me an employee, a part of my team who’s exceptional and so we’ve focused on that and that’s hard because that takes a traditional hire, you are looking for skills, you are looking for a few other things.

Okay, that’s not easy but relatively regular to do. Finding that one in a thousand of those people who is just passionate about what you’re doing is a challenge but when you find that person, grab on tight.

[0:52:25] JS: Did you make him — was he just strictly employee or did he become a business partner with ownership interest?

[0:52:30] JD: I don’t talk about people’s deals with us.

[0:52:34] JS: Okay, the reason I ask, so it’s just interesting to hear because I’m at that phase with my business where it’s like I’m overwhelmed and it’s challenging to figure out, well what do you? And as a founder, you come to the perspective and you think, “Well what do I do? How do I balance these things?” It’s such a challenge.

[0:52:54] JD: It’s hard. It’s really hard and again, I think the key and people are going to get tired of hearing this but the key is finding that passion. It’s finding those people who are passionate for you as the business owner, the unsolicited advice I’m going to give you is this: write down everything that you do, every single task, everything that you do, to the minutia.

“Hey, we’re recording a podcast. Well I got to get my recorder, I’ve got to remember to put the tape in the recorder. I’ve got to remember to set up the mikes, I’ve got to remember to do this, I’ve got to remember to record it then I take and then I do this. Write every little thing down that you do on a daily basis, seven days a week because I’m assuming you’re an entrepreneur.

So you’d better be working seven days a week because there is no weekend for an entrepreneur. Then you want to take that and start organizing. What are the things that are most important things that I do that help drive our business forward? How do we move forward? What am I going to be doing? Where do I fit into this?

Today, tomorrow and the next week, and then you start to break up all the other little stuff into roles. “Hey, maybe I can combine this and this,” because your first hires are probably not going to be like strictly one job. They’re going to be doing lots of things presumably and so, sorting that out, figuring that out, putting pen to paper again and mapping that.

You’re going to be able to — when you do this and when I do this, I get excited. It’s like, “Oh yeah, I get to pull more stuff off. It’s awesome, cool.” Now I know exactly who I need to hire. Now, I just have to go out and invite a job description and do it and it’s that simple. Well, it’s not that simple because now you have to go through all the people but that’s just time.

[0:54:45] JS: The last question is this, you guys run a massive website. You have a tremendously popular podcast which is a tremendous resource. If listeners haven’t listened to BiggerPockets and you’re interested in real estate, just start at BiggerPockets and if you’re interested in real estate, start at BiggerPockets.

[0:55:02] JD: All right, yeah.

[0:55:04] JS: But when you look forward from a place of leadership, in many ways you are a leader in this industry — I’m not sure what this industry is. I just think in like an online industry but even today, online is no different than anything else. It’s an industry. You are a leader in the real estate industry, we’ll put it that way, when you look forward, do you see, “Wow, I’ve got so much room to grow and I see all these opportunities,” or do you look forward and say, “Well, I could see we could tweak a few things.” What’s your perspective on the future?

[0:55:33] JD: I’ve got big visions. I’m an ambitious person. Yeah. In the early days it was, “Hey, let’s build this website that can help me,” and then it was, “Let’s build a website that can help lots of people,” and then I get all these e-mails and people are telling me how I’m changing their life. That’s pretty gratifying. That has been what’s driven me all along.

That’s what’s kept me from quitting because I’ve almost quit many, many, many, many times especially those years where I was in a “lifestyle business”. It is very hard and when you’re doing it by yourself, it’s very lonely and very scary. But as we’ve grown and as I’ve seen the possibilities that come as I’ve started to build a team, as I’ve started to put together amazing brilliant people who are passionate, suddenly, the world is your oyster.

And so, what do I want to do? I want a radio show. We’ve got a podcast, we’ve got the top real estate podcast, why aren’t we syndicated on every radio station, AM station? Why aren’t we syndicated on Sirius — “cough, Sirius.” Why aren’t we out there helping transform even more lives? Why aren’t we, you know, TV? When are we going to have our TV platform?

Then we’ve got our community. Listen, we’re doing 1.2 million monthly unique visitors. We have 360,000 members. “There’s 28 million real estate investors in the United States”. We did a survey with ORC and found that data out but that’s actually not completely true. The truth is, how many adults are there in the United States, 200 million?

Well, there’s 200 million potential real estate investors in the United States, but that’s just the United States. There’s other countries. There are places like England and Bangladesh and Japan. There’s real estate investors all over the planet. So what is the adult population of the planet?

I want to build a platform that transforms people’s lives. I want to change people’s lives. We do it all the time and I want to keep doing it. I want to keep educating people. I want to keep bringing people together. I want to build tools to help them grow their businesses. There’s no stopping where we’re going and so yeah, I’ve got big visions.

[0:58:00] JS: What’s so exciting about that answer and I love you sharing it is just simply an articulation of something I feel we don’t articulate enough in society. So many people seem to be stuck doing something that they are not excited to get better at it. And when you get into something that’s a good fit for you whatever that is and it has real meaning to you, you want to do it more and you want to do it bigger.

The most rewarding things is usually not the pay checks although I’ll cash the checks that I get and you will too but I feel that way about Radical Personal Finance when I get the e-mails and by the way, that’s the most encouraging thing when you get the e-mails and the stories, it’s transformative and it expands your vision. You say, “Wow, how awesome was that?”

[0:58:48] JD: I do get e-mails that say, “Josh, you’re a real jerk”, those are always fun but at the end of the day, yeah it’s exciting and we’re excited about it as you can probably tell and yeah, as you’re excited about things, if you go all for it and again, we’re trying to build, we are building, we have built a world-class site, a world-class community, a world-class platform. We’ve got a publishing business too. I mean we want to be everywhere where our users are our users are everywhere and so, here we go.

[0:59:25] JS: Dude, it’s been awesome.

[0:59:27] JD: Yeah man.

[0:59:28] JS: Josh, thanks so much for coming on. I really appreciate it.

[0:59:29] JD: Thanks Josh.

[END OF INTERVIEW]

[0:59:31] JS: I hope that you listened and heard the themes of that show and I’ll just simply point out one. Notice how Josh got his start. He took his human capital, the skills, the energy, the time that he had and he used it to take a job. Then he took some more of his human capital on the side and was building a side project of investing in real estate.

He had a need, he saw a need, he started to build a little business or a little enterprise around it, without necessarily knowing whether it worked or not. He just started trying to meet the need. The market spoke and he was able to see how important what he had found was and so overtime, he transitioned over to working on that and overtime, it has grown extremely well.

You can follow that principle in your own life. It may or may not be real estate. It might be something completely unrelated to real estate. The principle is the same and you can make those little steps, little by little in a very safe and careful way that will allow you to be confident of your future and allow you to work your way through the process with a minimal amount of risk.

Learn from the principles, don’t try to go out and compete, don’t try to go out BiggerPockets BiggerPockets, they’ve got too much of a head start. But go and build your brand. Go and build something that you see that is necessary and needful in the market place and you also might be able to pursue a similar path.

[FINAL WORD]

[1:01:01] JS: I appreciate each and every one of you who listens to the show. Thank you so much. If you are not a member of the BiggerPockets community, I would think a joy being a part of their community over there. Check out the BiggerPockets Podcast. They do a tremendous job at the BiggerPockets Podcast.

If you’re interested in real estate, you probably are already listening to it but BiggerPockets is all real estate all the time. We do a little bit of real estate here and there at the Radical Personal Finance but there, it’s all real estate all the time and the great thing about what they’re doing is they’ve in many ways help to fix the guru problem in the real estate industry.

Years ago when I became interested in real estate, it seemed like it was all gurus all the time. People were selling $30,000 coaching packages and courses and now with BiggerPockets, you can have access to a lot of the information so you can make better choices. There might still be a need for coaching of some kind.

There might still be a need for mentorship but at least more of the information is transparent and I love that Josh and his team have been able to bring some of that transparency to the real estate advice market place and I hope that many of you are bringing transparency to your industries in exactly the same way.

We’re living in a much better world than 10 years ago and it’s a really, really exiting at the times that we live in. So thank you all so much for listening to today’s show. I appreciate each and every one of you who is a listener and I appreciate especially each and every one of you who supports the show on our Patreon page.

Radical Personal Finance earns its income in two ways. Number one is we do have sponsors, but the primary way that I focus to build the show is with the Patreon page and the way that works is individual people, just like you who sign up to support the show with the financial contribution and support every single month.

At the moment, there are 237 of you who are contributing a total of $2,508.35 per month and that is tremendously important to me. It allows me to have a stable foundation under the show and it also allows me to have my interest aligned with you. A buck a month would make a huge different. A $100 buck a month is even better. So if you are not yet supporting the show, please go to radicalpersonalfinance.com/patreon, and sign up to support the show there. Thank you each and every one of you who listened and I’ll be back with you soon.

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