Frank Kava: So I think that's a fucking myth. Like, let's get to the owner's box. Most of those people get pushed out of go out of business. It's bullshit. Like, Warren Buffett just retired, was in the owner's box until he was 95 years old.
He did work. He read. He put deals together. It's a myth. What happens with people who wanna move away from the business and wanna semi retire is you get it elbowed out because you don't have anything truly proprietary.
You don't. This business isn't proprietary. It's how do you buy low and sell slightly slightly higher. If you do wanna truly become someone who doesn't work and becomes an owner, you'd own stuff. And you did, like, a wholesale business isn't really owning.
Owning assets? That's owning. Owning different businesses, owning different things, like, I don't know, IP. Those are real things that you can sit back. But, like, this business, it's anybody who I've ever known and a lot who wanna get away from running it day to day, their efficiencies go down or someone ultimately steals the business, but very hard to detect.
Steve Trang: Welcome, and thank you for joining us for today's episode of disruptors where millionaires are made. Today, we have Frank Kava with Kava Companies and Frank flew in from Richmond, Virginia to talk about how they're doing more deals for more profits with 70% fewer people. Now, guys, I'm gonna make sure you create a 100 millionaires. The information on the show alone is enough to help you become a millionaire in the next five to seven years. If you'll take consistent action, you'll become one.
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That's 33777. Ready?
Frank: Let's do it.
Steve: Man, I'm excited. There's it's been a few years since you were on the show, and you've done so much, in that, span of time. So let's talk about the first thing that that, comes to my mind, which is kind of painful for me. Lessons I learned from you that I wish I learned faster from you was, we talked about for us, June '22 was a very critical time for a lot of wholesalers. Flippers too.
Flippers might got hurt more. But for wholesalers, flippers, it was really, really, really critical time. And I remember you led a call. Right? It was like, okay, guys.
This market is getting really interesting. You're gonna have to start making some wise decisions. You're going to have to make some decisions that are unpopular, but your goal your job is to be in business to feed the people, not to try to keep everyone, which I ignored. So I wanna talk about how you went from there to where you're right now because, like, right now, I'm seeing in stats you're you're you're you're putting up there. We saw these conversations, and you're doing more deals than I most people I know, significantly more, with fewer people.
So let's talk about journey, how you were, like, before 22 and then where you are today.
Frank: Okay. So I come from corporate America. That's how I got into this business. I was, I got a degree in construction management. I went to work for Ryan Homes.
He's a big builder. And then, I started in this business in 2007 and full time in 2009. So the market has moved and shifted over time. Right? You could find plenty of inventory upfront off the MLS.
So I know how to build teams and scale and all that other stuff, but the really big thing is you have to figure out how do you market? How do you find leads? Mhmm. So I think we got pretty good at that between 2000, I don't know, like, 12/13 through, like, twenty twenty ish. But what we did is we did what a lot of people do is we were like, alright.
We're gonna get bigger. We're gonna have more people. We're gonna have more staff. Scale. Right.
Everybody gets all excited about scale.
Steve: Mhmm. And
Frank: then I was like, we we're really good in Richmond. So we'll go to Hampton Roads, Virginia Beach. We'll do Charlottesville. We'll do these other little markets. So what we ended up doing is we had somewhere in the neighborhood of, like, 10 sales reps or acquisition managers who were going on appointments, and then we had a bunch of people working the phones.
We had people, like, all over we had people so the way that we set up our business is pretty straightforward. We have acquisition managers. Those are the people who do belly to belly sales that go into living rooms. We will close over the phone, but only if it's remote. We try and do belly to belly, get in front of people.
We have two major rules. If you go on an appointment, you have the do you have any rules that you when you teach and train people, you're like, you gotta do two like, one or two or three things. What are they?
Steve: Set expectations. K. Dive deep in the pain. K. And for us, it's if you're gonna make an offer, you gotta make sure that they're in a position to do something with that offer.
Frank: So there's chance qualifying. Right? So you have to make sure that you're talking to the right people. So we do that on the phone before we go on a physical appointment. We have two rules on an appointment.
Number one, be invited to sit. Simple rule. And number two is don't leave without leaving a contract. Mhmm. So if I was gonna ask you, you train people, like, why are those two things critical?
Steve: Well, I mean, it's just gonna it's the consistency, the expectation. And if you do the same thing every time, you'll get consistent results.
Frank: So the the being invited to sit is different. Right? So being invited to sit means you built enough rapport where someone actually will think highly of you highly high enough of you to ask you to sit down. Mhmm. There's a thing, right, in a meeting.
Like, if they wanna get you the hell out, they're not gonna ask you to sit. But if you have done a good job of breaking down barriers and making people trust you
Steve: Mhmm. They'll
Frank: ask you to sit. Now some houses, you don't wanna sit, but that's a different conversation. But be invited to sit, and then you don't go you don't leave without leaving a contract.
Steve: So getting invited to sit. This is kinda suggesting saying some things where they'll say, hey. Would you, like, sit? Like, are you demonstrating that you're physically comfortable?
Frank: Yep. Any of those things. Like, whatever it takes to do that. Right? So what I was noticing is we're going on, in our market, somewhere between 60 and a 120 appointments a month.
Not a ton. And because of that, like, people were rushing. They were going through an appointment in twenty or thirty minutes. Like, what the hell are you doing? This should be the most important thing about your day is that appointment.
So the invited to sit came from that. And then don't leave without leaving a contract Mhmm. Came that's another big part of that. So this very what I what I like to do is I like to take complicated things and make them very simple. Yeah.
You get set? Great. Did you leave a contract? Okay. I didn't get invited to set.
Why not? We didn't hit it off. What was wrong? Well, they saw my Trump sticker on my car, and they didn't like me, and they didn't invite me. Great.
We're gonna have someone else who goes and have a Trump sticker on our car. Go back. So, like, you get real specific on what it is. And then once you have kind of very simple rules, I'll get into some others in a minute, then what you can do is analyze what went right, what went wrong, and then you can kind of manage that. So that's pretty simple.
So, like, you can take a very, very complicated process and make it into very, very, very simple things that you can just ask, and that that's what you can track.
Steve: Yeah. So I wanna talk about
Frank: the
Steve: transition, though. Right? Yep. You're 10 Yep. Reps, multiple markets.
Yep. Are you still in all those markets?
Frank: Nope. Back to one.
Steve: Back to one. Yep. No Virginia, BG? Nope. Okay.
Got out of there. Alright. So let's talk about that transition because, again, like, you said, hey. It's time to tighten things up. Yep.
Reduce your overhead. Yep. Make sure you weather the storm because we don't know how long the storm is gonna.
Frank: So when this conversation happened, it was 2022, and it was, like, '3, '22. I remember it. And I showed a video of the United States hockey team beating the Russians. Mhmm. And what I said is you gotta relearn the skills that you have because the game has changed, and you have to utilize new skills.
So interest rates had gone from basically zero to, like, two, two and a half, which is a very small number percentage wise. But incrementally, it is a huge percentage jump. So the market freaked out, and that's where this was all starting. Like, people like, are we going back to 3% interest rates or 2% interest rates? The answer is we aren't.
So you have to understand that the underwriting criteria changes drastically. Mhmm. And what I looked at was I'm really, really good in Richmond. I'm not as good in the beach, and I'm not nearly as good in Charlottesville, and the markets are both slightly different. Charlottesville is real small.
It's kind of a transient market. Virginia Beach is very, very similar to San Diego with two major exceptions. There's a one zero missing in the price, and it isn't nice. But besides that, it's identical. It's filled with a bunch of people from the military.
Right? But it's just a shithole. So, like, I'm like, I I don't see value there. And I have all these people because it's a huge geographic region. So then what I did is just said, okay.
Let's look at this. On the acquisition manager side, I'm gonna go for a team of I think we had 10 at our peak to three. I picked the best three. One of the three that I picked to move into this role was actually in lead gen. You've trained her.
You know her. Her name's Becca. She's great. But I'm like, she's better than these other people. I'm getting rid of them, and I'm gonna move her in.
And I've had no
Steve: So you moved to the acquisition before you knew she was one of the best Yep. At acquisitions.
Frank: Correct.
Steve: You let you let eight go Yep. And moved her
Frank: up. Yep. Because when you build a raft or a life raft and you're looking for survival, it's not who's in the role. It's not like building an all star team. Like, you know, you get you know?
You don't do that. You look at, like, okay. Here's where we're at and what is our mix of people. Right? So the hard part of scaling a small business is you wanna hire a certain person, but you don't know what skills that person's gonna have.
So what I always talk about is it's not not necessarily building a team, you're assembling a puzzle. And if you look at it from this perspective, you have to be real honest about the people on the on the table and what puzzle pieces they are and which puzzle pieces they are not. And this is relevant because the girl who we moved up, pretty far left. Right? She's got if you go to her socials, she's left.
I've got someone who's down the middle, and I've got someone who's incredibly far right. But we try and analyze these things upfront because they matter. And then you model who it is that you send on an appointment. But if we screw up, we send the wrong person. We've got someone who can be moderate.
We have someone who could be right or left if we mixed it up. So the upside is you look at like, okay, the puzzle piece, how am I gonna put the best team together? And it doesn't mean it's just people who've done the job. It's like who's on the bench, and then you have to analyze with precision what you need to make the best team. And that's what we did.
So we went from 10 to three. The other thing we did is we went from remote callers, and we still had people offshore calling. So on the lead gen side, we did a bunch of cold calls and a bunch of texts, and text kinda went away. Cold call kinda followed. But we went from having people all around The United States to we made people come to our office,
Steve: and
Frank: they had to be from Richmond. And then what we've done since then You
Steve: have to be from Richmond?
Frank: In Richmond. You don't have to be born and raised there, but you must live in Richmond, Virginia, or you need you need to come to our office. Got it. And I have one exception. He's been with us for five years.
He's in Florida, but he's really good. But he's the only exception. But anybody new, you have to be local. Yeah. And then, eventually, we phased out the cold callers from overseas.
Mhmm. And one of the things we track on the acquisition on the lead gen side is twelve second calls. Do you guys track that measure?
Steve: Not twelve seconds. No. We we look at thirty seconds.
Frank: Okay. Why thirty?
Steve: Thirty? You make it to thirty, you're gonna have a conversation.
Frank: Yep. So for us, we figured out twelve seconds and under, I'm getting hung up on. Mhmm. Over twelve, I'm not getting hung up on. Yeah.
So thirty is a big thing. In our business, it's two minutes. Mhmm. So we talked about the two rules on an acquisitions appointment. Be invited to sit, and don't leave without leaving a contract.
You use the slamming the car door. This is one of the things you teach. It's big for us. Like, you must leave a contract. And if you're not leaving a contract, there's gotta be a very good reason.
On the other side, on the outbound dial or inbound, the twelve seconds leads to a bunch of other things. But the two big ones for us is twelve seconds, two minutes, and a seventy two hour rule. Mhmm. So this is what's kinda revolutionized the business. It was a flight to quality on the acquisition side.
You have to have people who can connect and who are actually good at closing. Our best closers, almost 50%. Our worst closers at, like, 24%.
Steve: 24 is still really good.
Frank: Really good. It beats everyone else's butts. But at the same time, for our perspective, we prequalify over the phone. We make sure we're setting the right appointments. We do all that kind of stuff.
We make sure we're talking to the decision maker, and then we know the numbers. And if the numbers are inside of a range, we have an analyst who wanna talk about that if we can. But that's the stuff we look at. But on the acquisition manager or excuse me, on the lead gen side, we look at twelve seconds. We tell people, don't hang up on me.
I'm a real person. I live in Richmond, Virginia. I tell them to use their neighborhood. I literally will beg, borrow, and steal so you don't hang up on me. Like, hey.
Like, hey. This is Hannah. I'm calling from Kava. We've talked before. I'm really a real person.
I just would like thirty seconds of your time, but can you not hang up? Like, we start there. And then the pre reason for that is then you can very quickly if they don't hang up, they tell you who they are, why they didn't call back. You can actually get into something real. Would you like me to take you off the list?
That type of stuff. So the first one is the twelve second hurdle. Two minutes qualifies in our business as what's called a meaningful conversation. A meaningful conversation can happen in less than two minutes, but a meaningful conversation is two minutes in length or something meaningful happened, and we rank that. Someone died.
Someone was born. Someone moved. I've already sold the house. Something meaningful with that lead. So if that is something that can move me along, I'm no longer interested in selling.
I have refinanced, whatever. That becomes meaningful, and that changes the category of the follow-up. Mhmm. So it's over two minutes or I've changed category. Those are your two big ones.
And then the next one is the seventy two hour rule. So you've made it past twelve seconds. You've made it to two minutes or meaningful. Then seventy two hours is this. We can add value if you'll allow us to come and see you.
We like to do it in the next seventy two hours. Mhmm. Seventy two hours is where cancellation rates go through the roof. So we measure each one of these things, and we went back decades. And we looked at it.
Like, if it's more than seventy two hours out, our cancellation rate was over 50%. It's in the teens, the very low teens, if it's in seventy two hours.
Steve: What happens at forty eight hours?
Frank: Forty eight hours is still okay.
Steve: But is that is that a big difference between forty and seventy two?
Frank: Over seventy two is where it really falls apart. Like, if you could do same day, but most people, like, they're not that desperate. Mhmm. But within twenty four to forty eight hours, that's a reasonable amount of time. Now the hard part is you start getting in the weekends, and you have to really look at what's that seventy two hour rule.
So So we have to get them in on them first thing on a Monday if we met them on a Friday or we have to go over a weekend. So those are the things you have to be very if there's a four day weekend, you you gotta pay attention to that stuff. But seventy two hours is where it really falls off.
Steve: So you cut down size of the staff, which I'm guessing for you, like, most wholesalers, and you're not just a wholesaler because you flip and do development as well. Yep. But for most wholesalers, marketing is our number one budget. Labor is our number two. Is that how you were?
Frank: So So interest is our number one expense because we own a lot of stuff. Number two is, labor or staff, and then number three number three is marketing. Now number three is marketing on that side of the business. Materials is way higher than what you spend in marketing, so we probably bill we bill flip, you know, 100 to 200 houses a year. Yeah.
So that that's higher. But from this perspective, yes. That's So then
Steve: as far as, like, you know, buckling things down, did you also, at that time, dial back marketing? And then is it back to where it was three years ago?
Frank: So we actually spend more now than we did three years ago, but we get better conversions because we're not as buy we're not as spread out. So, like, our TV budget with both market was, like, $50, and we took our TV budget to Richmond to $50.
Steve: Mhmm.
Frank: But we just convert better. So it's it's like, we spend the same amount that we did before. We do it in a much tighter pool.
Steve: Mhmm.
Frank: And because of that, we know what we're working on, and that's allowed us to grow conversion.
Steve: So 50 k in TV. And then I know you're spending more on marketing. Yep. But so then but, yeah, TV alone, already, you're at 17 k per rep. Yeah.
In marketing Yep. Which is pretty high from what what I see generally in the industry. Mhmm. And I I I gotta just say here real quick before we move on. Becca, right, like, had an opportunity to work for over here is, like, sweetheart.
Like, she's the one that on the calls is always like, hey. We need a role play for we need we need this. Always times in. Yeah. Right?
Like
Frank: She's very engaged.
Steve: She wants to win. Yeah. Right? So it was awesome to have, have her on the calls. Amazing individual for your team.
Frank: But but more important with her, she sells from emotion. So because she sells from emotion, she's a very she didn't show you this, but maybe but she shows us that she's very emotional.
Steve: Mhmm.
Frank: But because she's very emotional, she gets people to act inside of emotion and closes on emotion. Yeah. But she's also got our highest cancellation rate because she gets people to act on emotion. Mhmm.
Steve: But
Frank: I've got somebody else who's just steady Eddie right down the middle, and I have someone who's a very aggressive type of closer. So all three of them have different skill sets, and they do things from different ways. And then, you know, if the emotional didn't work, we send in the hard closer or the down the middle. So we we know what their strengths are. They're all they're all very good.
Yeah. But you have to understand, like, who the person is on the other end of the phone and who you're gonna send in.
Steve: Absolutely. So the other thing too that you do is really fascinating. Actually, before you move on to the marketing part Yep. You track your conversion with, like, insane precision. Correct.
Right? Like Mhmm. Is that the one metric you look at more than any other?
Frank: So let's go backwards to come forwards. We have this huge staff. We made our staff smaller. So the other thing I implemented was a twice a day call. Mhmm.
So the first calls that we do our calls at I don't know why, but oh, 08:48. Meeting's supposed to be twelve minutes, supposed to be over at nine. So we do an 08:48 call Monday and Friday with everybody in the company, and then Tuesday, Wednesday, Thursday, sales only. And what we talk about is anything that happened the day before. Now at 04:00, I was sitting with you.
I got the text. 04:00 eastern, I get a text message. I get a I get a phone call. And if I don't answer, I get a text message. And what it says is how many appointments we went on for the day, what our conversion rate is, and then what our conversion rate is for the day, the week, the month, and the year.
Mhmm. I get it every day. Four times a week. I don't usually get it on Monday. Because we're usually in meetings, we don't usually go on a bunch of appointments.
But appointment to conversion, day, week, month, year, every single day. So today is, like, you know, we're recording this on the first. We we're zero zero for three at the day for the moment. We're 0% on the month. But I can track that stuff every single day, and then I build dashboards and look at that.
So what I try and do now granted, I'm pretty detailed oriented. I'm really good at systems and scale, and I'm pretty good at this business overall. But what I've tried to do is I've tried to look at, like, okay. How do I how do I manage the most important metrics? So I went to I was in a mastermind for years with you, and I've left done other things.
And I've gone to masterminds that are outside of real estate, and I learned a skill set. If you take the KPIs or the the the most important measurements from any business and you break them into somewhere between three and six, and you say, these are the things that are gonna drive me. So you have dashboards. So in our business, on this side of the business, what I call direct to seller marketing and advertising, which becomes a wholesale business or fix and flip or whatever, What we look at is what are the key six variables, and I measure every single one of those. And then over time, you tighten those things down.
So that's what we look at daily, weekly, monthly, annually, and then I can go back five to ten years and track the same stuff. But that's what we look at. It's like, what are the six biggest things that drive this particular business? Understand them, measure them, and then get real granular on a couple of them. And if you do that, like, originally, it was like revenue per deal, conversion rate, then it was cancellation rate, then it was meaningful conversation.
Those are the big six in our business. And if you do those first five, your dollars per deal goes up. Right. So it, like, it it's becomes kind of a flywheel.
Steve: But your conversion rates are abnormally high. Yep. And I think there's a couple different things you're doing. Yep. So, a, you're you're you're checking every day, which which is, like, whatever this measure gets improved.
Frank: Correct.
Steve: But the other thing too is you're an owner operator or you're an owner, but you're also an operator. You don't have, from what I can tell, a COO that does all the work. Mhmm. You're in a nitty gritty every day still. Is that accurate?
Frank: Yeah. So back to big staffs. I used to have an entire management team that cost me, like, 1,000,005 annually.
Steve: 1,000,005 out the door. Every day.
Frank: Every okay. As good as me. So, like, everybody's like, we're gonna scale. Now you're gonna have trade off. Right?
Like, the best people that convert, and they're probably not as good as us. But the best people who convert are the people who are owners who still go on appointments. Like, there's competitors in this market, right, who go out every day.
Steve: Doug. Doug Hopkins with that billboard up and down the I-ten.
Frank: But Doug is an owner who goes on appointments. I haven't been on appointment twenty years. Right. I've re I rarely talk to a customer. Yeah.
But what I looked at was, okay. I have all these really expensive people who aren't as good at this as me. Mhmm. And what they wanna do is they wanna have opinions. They wanna have ideas.
Like, okay. We tried that for three years, and it wasn't as successful as this. So what we've done instead is we've gone out and hired very expensive admins who listen. So we were telling talking before we started recording about, like, going to college. Right?
Like, when I went to college, I decided to I went in doing what I thought I needed to do based based on what everybody had told me, and I was be a doctor. I'm not smart enough to be a doctor, and I suck at chemistry. So that wasn't the right thing for me. And on the way out, I graduated in a very small major, and I was the only person that didn't go into commercial construction. So I started off doing what everybody did.
In the end, I did the opposite of what everybody did, and it served me very, very well.
Steve: Mhmm.
Frank: So you have to understand who you are, but then you have to understand models. I'll give you a good story. So when I built my first house, I couldn't afford it. I probably told the story last time, and I won't go through the story again. But what's really interesting about this first house was the mortgage broker who I met.
And this mortgage broker had he was, like, a regional guy, and but he didn't act like a regional. He just was a loan officer. But he didn't have, like, regular processors that worked for him. They were called processors, but he paid them like they were loan officers. So this is the late nineties, early two thousands.
So this guy that ran this team made millions. But if you were a really, really good loan officer back then, you made, like, a 100, $150. Mhmm.
Steve: And
Frank: what he did instead is he paid these loan the these processors like they were really good loan officers. So what we do is we pay people very, very well to be in a role that there's it's probably below their station, but they're overqualified. And because they're overqualified, they report that stuff back up to to me, and then I get to make decision. Now they do a lot of the big stuff, and they just check with me. But because of that, you're empowering them to do really big things inside of a box versus being the ones who's completely in control.
And I spend maybe seventy five minutes a day on sales, tops. It's usually less. It's usually about forty five minutes. Yeah. Because I have really good people who are really strong, who are paid very well, who do all the little things and then bring it back to me, and then we build a lot of systems to make sure we don't miss.
Steve: But do you still like to look at, like, deals at a time? Like, hey. What happened at this point? What happened at that appointment?
Frank: Yep.
Steve: Right? Which is, again, like so the reason why I'm bringing this up is what was really cool for longest time was sitting in the owner's box. Yep. You're not one that's gonna sit in the owner's box.
Frank: So I think that's a fucking myth, and I'm gonna pick the time the times where I'm gonna curse. Like, everybody at CG is like, let's get to the owner's box. Most of those people get pushed out of go out of business. It's bullshit. Like, Warren Buffett just retired, and he wrote this incredible letter, and you probably read his Thanksgiving letter.
Like, Warren Buffett was in the owner's box until he was 95 years old, but he did work. He read. He put deals together. It's a myth. What happens with people who wanna move away from the business and who wanna semi retire and be in the owner's box is you get it elbowed out because you don't have anything truly proprietary.
You don't. This business isn't proprietary. It's how do you buy low and sell slightly higher. Like, there's nothing special. And they're like, oh, it's it's a myth.
The one thing you can do, and one of the reasons we didn't talk about that we have such a high conversion rate, is we can buy a wholesale, an ovation, a fix and flip, a rental, a rental where we can add an ADU. We have five or six different methods that we can always buy. Now ADUs weren't a thing ten, fifteen years ago, but we had other like, there's whole tail. So there's always a way to give yourself multiple bites at an apple. And if you do that, it opens up your aperture.
And by opening up your aperture, you have more chances. Yeah. Now if you do wanna truly become someone who doesn't work and becomes an owner, you'd own stuff. And you like a wholesale business isn't really owning. Owning assets, that's owning.
Owning different businesses, owning different things, like, I don't know, IP. Those are real things
Steve: Yeah.
Frank: That you can sit back. But, like, this business, it's anybody who I've ever known, and I've done a lot who wanna get away from running it day to day, their efficiencies go down or someone ultimately steals the business because it's very hard to protect it.
Steve: Who's up you say elbow they get elbowed out. Who's elbowing them out?
Frank: Their employees because they're doing all the work, and they realize this guy's making all the money. Mhmm. Like, think about the best people you know who are not like Hopkins. Hopkins never gonna get elbowed out because he does the appointments. Yeah.
He's aware. Yes. Exactly. And his partner, Damon, is the same way. But think of people who we know, and I won't mention the name, but, like, in San Diego, hyper competitive market.
People are smart in San Diego. It's a beautiful place to live. There's always somebody who comes through the ranks that tries to steal what they're doing and do it themselves because they're like, look how much money this person is making. And if you're an absent and that guy in San Diego is not. But if you're an absentee landlord inside of your business, you're gonna get that load out because you're not paying attention to the Or
Steve: someone like him who's gonna come for your spot.
Frank: Exactly.
Steve: Now you said you surround yourself with admins who listen. Yep. How do you make sure you're not surrounding yourself with yes men?
Frank: I don't care if I am. Like like, what are we trying to build here?
Steve: I guess, are are you so like, so for me Yep. My greatest risk
Frank: Yep.
Steve: Is that I am I've got these ideas that I think are, like, the best ideas. Yeah. And they're gonna be wildly successful. Yeah. And I have a leadership team who's like, no, Steve.
You didn't consider this. You didn't consider this. Hey. What happens to this happens? Like, oh, I didn't think about those things.
Frank: So I think it depends on what you're trying to do from a growth perspective. Right? Like, if you're looking at your real estate business, I think you can be the smartest person in the room. But if you're looking at a social media business, I don't know if that's smart. Inside of Richmond real estate, I don't necessarily need a group of people to tell me what to do.
I had that for a while, and they weren't as good at it. So there comes an arrogance in, like, you have to pick and choose when you're willing to listen to opinions and when you're not. So there's a book called multipliers.
Steve: Mhmm.
Frank: There's a multiplier and there's diminisher. Mhmm. Most of the time you're a parent, you're a multiplier. If your kid's drowning, you're a diminisher because your job is to just get them the hell out of the water. We'll talk about how you got there and everything else later.
Right? So you have to look at where you are in the cycle, what's going on, what you're trying to do, and be real specific with it. There are people inside of our business who have very, very, very strict lanes, and there are people who have tons of autonomy. But what I've learned on the sales side is if you give people a ton of autonomy outside of, like, what like, you can be as autonomous as you wanna be on, like, how to get a deal. But if I think the price is here and the seller has a number that's there, you're gonna lock it up.
And if you don't, someone else is gonna do that. So you have to have some rigidity inside of your business or you don't get certain results. But in other businesses, you have to just show up and let people do things, and you have to know when to do which.
Steve: Yeah. And then so going the next part here is the marketing.
Frank: Yep.
Steve: And, you are very vocal in publishing. Like, here's what we're doing in marketing. Yep. So there's two different things I see that's always fascinating. You've got a lot of marketing channels.
Correct. And then you measure, I think, leads per lead source, appointments from lead source, contracts from lead source.
Frank: Correct. And revenue.
Steve: And revenue. And you publish it.
Frank: Yep. Why?
Steve: Why not? I don't
Frank: know. Should I
Steve: should I not? It's the part about, like, there are a lot of people that kinda, don't want everyone to know their secrets Yeah. And so on. So I don't know. Just curious as what the
Frank: So there's some part of me that wants to teach and train people, and people do reach out all the time about it. Like, how do you do it? And I do very I'm very selective with who I work with, but I do private coaching for people, and it's usually that stuff that brings them in. They're like, how do you do that? Mhmm.
I don't do it as a taunt. I never really thought of it. I'm blunt. I'm not smart to smart enough not to be. And I never really thought about, like, maybe I'm the only one who posts that stuff, but it I don't know.
I I think it would be helpful.
Steve: Oh, it's very helpful. One of
Frank: the things I hate about the Internet is you can be a bullshit artist, and it's very hard if you, like, try and follow anybody on the Internet. Like, I grew up with a TV guide, and I would grow up like you would go watch a program, and it would come in steps. What I hate about the Internet is, like, it just it just comes at you in a multitude of ways. Unstop. There's very few people who organize it.
Steve: Mhmm.
Frank: Right? It's not like, okay. This is season two episode one through 15, and you watch it in order. Try and learn from Pace Morbby on how to actually do a sub two without paying him. It's impossible.
It's confusing. So, like, I and I'm not saying there's anything wrong with what he does because there's a lot of people who follow that model. But, like, look at it from the perspective of, like, if you want to actually see somebody that you can model, like, follow the steps. And usually, there's a paywall where the steps are. But, like, I put that out through, like, this is what we do.
This is how we do it. This is what we pay attention to. I think there's people who look to us through, like and me, especially, like, you know, how do you do it? I'll show you. And if you like, come do it.
I I've been doing it for, like, five years, and nobody in Richmond is even close. Yeah. So
Steve: Jason Lewis, is a is a friend, and, I were talking to him about this because he's got, like, 14 different lead sources.
Frank: Mhmm.
Steve: And, what was fascinating to me was he says, yeah. I have these 14 different lead sources, but and they're all provide a positive ROI. Mhmm. So I can't really just cancel one or two of them because what always ends up happening is, like, one month, these three lead sources are slow, and then these two are good. And then this month, these five are bad, but these three are good.
And it's unpredictable, but on average, they all work out well. Do you find the same thing?
Frank: Not specifically. Like, that feels to me like the hot hand fallacy, which is it's a basketball reference. Someone's hot, you just feed them the ball.
Steve: Mhmm. And then
Frank: you feed them ball till they're ice cold.
Steve: I had
Frank: a coach who played in the NBA when we were little kids. I was in, like, sixth grade. And he talked about that. And it's like, we never won because the fallacy doesn't really work. What we utilize is we put money behind the really good ones, and we really measure what is and isn't working, and we do different things.
We split test, which mean we try different things. Mhmm. And then we pay attention to what's going on with the leads. Again, this is not an overly complicated business. We're not splitting the atom or, like, building an AI bot.
Like, we're we're just buying and selling real estate. So it's it's it's it's pretty simple. Now what it we're all agree with him is we want to have multiple lines in the water. And what you wanna do with advertising is if you're gonna put money towards something, it needs to give you a return. But it doesn't mean you shouldn't be open for business in other places.
You just set your contracts up differently. So, like, we use Bing, but we don't put a minimum on Bing. We are in Bing, and if Bing gets hit, we pay. But we don't have it set up where we're gonna spend x on Bing. Google is not gonna be that way.
If you're gonna spend money on Google, you're gonna spend money on Google. That's all there is to it. But Bing and Google are different things. Yeah. They're a similar lead source, but they're different in how they operate because one's Google and one you never heard of.
So like DuckDuckGo, we advertise there too, but it's the same way. We get it's paid to play over there, where on the other side, you forward the money. But if someone's looking for us there, we're willing to capture that, but we just set the dollars and finances up differently than we are with a television lead.
Steve: Yeah. Very strategic. Yeah. I could play each of the channels.
Frank: But you don't wanna shut yourself off from it. Right? So let's just say you're a smaller marketer than me. Like, I spend a $150 a month on marketing and advertising. I'd spend more, but that's the number where I can get about a 4% a four to one return.
Four to one's the magic. Right? So our PPC in our market sucks. Our PPC, it's actually more competitive in Richmond, Virginia than it is in San Diego to run PPC. And I know the guy who runs it in San Diego, we've studied the markets.
But the reason is is there's just not a lot of people in San Diego who do it, and it got a lot harder to do cold call and to do text. So in our market, it's cheap enough that you just flood PPC. So we're not we don't have an advantage over anybody else. I can spend $50 a month there, but my metrics are gonna suck. But what you wanna do is you need to spend enough there where you can get those leads and capture them, but it's a loss leader.
But if you're gonna run TV, you have to have PPC because that's the only way to capture the leads is either through a phone call or web form. So if they do decide to go web form, you must be there because if they forget something, they need to find you. Yeah. So what you do is you just downplay your spend there and you put the spend in the other places. And what I'm saying is not rocket science, but it does require attention and an ability to track.
And if you do those things well, you can very, very carefully balance out what you spend and where.
Steve: Where did you learn the skill set? Because the things you the the way you're speaking is not ordinary wholesaling. Yeah. Was this from school? Is this just wired?
Frank: Like, where did I learn this specifically?
Steve: Or optimize this for example, who thinks about Google versus Bing versus DuckDuckGo. Right? Saying, alright. Four to one, that's where we're gonna cap it at. Right?
We go past four to one. We're gonna cut back the marketing in that particular medium.
Frank: If you go over four to one, lean in. Under four to ones, we have to lean. Out. But but but just in case people are listening to you and not me, that's the you got it backwards. Yeah.
Steve: If you're doing worse than four to one.
Frank: Yes. You gotta be real you gotta pay attention because you're not making money.
Steve: Yeah. So where did you learn this particular skill set, or were you just born with it?
Frank: Fuck. I wasn't born with anything.
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Frank: I was talking to my dad about this a couple days ago. My dad was it was Thanksgiving. So he was talking to me about the things he's not good at. And I don't really pay attention to what I'm not good at. There's a ton of things I'm not good at.
If you don't believe me, ask my wife. But what's really important is what are you good at, and where are you going to become an expert? I think I am an expert, and I think I'm probably the foremost expert in the very following thing. Affordable single family homes in Richmond, Virginia. It is a very, very, very, very small thing, but I'm really good at it.
And where it comes from is this. I'm very honest about what I'm good and what I'm not good at, And I'm okay with what I'm not good at, but I hold myself accountable in places where I should be good. So I'm very fortunate. I grew up with some great friends, and I was in, Beijing, China at the Paralympics in 2008. And I was with my best friend, godfather to his kids, and one of our buddies from high school.
And, we were in the hot tub just talking as we're going in and out of events. If you're in the Olympics, you don't go all day. There's usually it's like kind of appointment viewing. And especially if you go to the Paralympics, you're usually there for a friend. Right?
Then they're not the games aren't all day. So we go to lunch or we sit in the hot tub, and we would just talk. And I remember being inadequately prepared to have a conversation with these guys because they were both in high finance, and this is when the financial crisis was happening in China. It was a very unique thing to live through. And what I remember is I wasn't smart enough to have a conversation with them.
And what it dawned on me is I didn't wanna not be smart enough to have a conversation with them. So I held myself accountable, and I went home. I subscribed to The Wall Street Journal and read it every day for, like, like, an hour. And I started to pay attention. And now people like, you're so smart.
No. I'm well read, and I was I cared to be good at it. Mhmm. It's the same thing with this. If I ever I'm in a situation where I think there's something I need to know or somebody else knows something, and I think it's giving them an edge.
Pay attention to that. Then I figure out what is it about this person that's giving them this edge, and how do I unpack it? Then how do I go become good at it? So I pay attention to these things because I figured they are important to pay attention to. And I think the only way that you're gonna make money in this particular business is how do you convert on your leads.
So I I I've learned that and I've just paid attention to it and it's because I have a curiosity of this particular thing. And I don't wanna be I don't wanna be beaten this particular thing. There's other like, you're gonna be better at stocks and bonds and other things than me. That's okay. I'm, oh, I'm okay not being as good there, but I gotta be really good at this.
This is the only way that I'm gonna have an edge and I'm gonna be able to win. Does that make sense?
Steve: Makes total sense. And I think that brings me back to another thought because we got the chance to go hang out with, Bruce Norris' event.
Frank: Yeah.
Steve: And I think there's one thing about you is that you seem to be aware, you know, the Wayne Gretzky quote. Right? It's like, you don't go to where the puck is. You go to where the puck's Right. Going.
It seems like you're really good at knowing where interest rates are going Yep. Going with housing. So is this kinda like the same things? Like, you recognize, like, hey. This is the paramount to my business.
Yeah. I have to know where where this is going.
Frank: So you asked me a question earlier, and you said is the most expensive thing in your business your staff. It isn't. The most expensive thing in my business is my interest, because I own hundreds and hundreds of units. And it's it I I spend, like, $3,000,000 a year in interest.
Steve: It's a lot.
Frank: A lot of money. It's a lot of money. Right? So if you look at what my interest spend is, like, that actually matters more than a lot of other things. Now most people don't think of it that way.
Like, I was at an event with you, and they're like, taxes is your number one expense. Like, not my line of work. Like, if you know what you're doing, you don't really pay taxes because you're utilizing all the depreciation, the things that they give you. So you've gotta be honest about what is it that you do. Like, I am in wholesaling, but I'm not in whole I'm not a wholesaler.
I'm a real estate investor. And what does that mean? I wanna own assets. So, like, I went into this knowing full on I wanna own assets. If you want me to explain why, I can.
But what I paid attention to is, okay, in asset owning, what do you need to be really good at? Well, number one, you need to collect your rents. Number two, you gotta keep your expenses down. That means, you know, what you spend on CapEx, what you spend on maintenance, and then you've gotta be really, really mindful of, like, what's the underlying debt behind that. And that really, really matters.
So when I figured all those things out, I got I got I was really, really stupid with interest rates and debt. I didn't get it. So I made myself understand it because, like, if you own $10,000,000 worth of property, you know, two points in interest is worth over thirty years with a loan? More than $2,000,000. It's significant amounts of money.
So it's like, okay. How do you like, what's going on in the market? When do I wanna be able to refinance this stuff? And I pay a lot of attention to
Steve: that. So, you may notice there's a different podcast set up. Yeah. Right? First time.
Frank: Yeah. Very very exciting.
Steve: Yeah. And this is different for us because we actually own this asset. Right? Right? This is the first time we're actually owning a building.
We've I've been working for myself since o seven. Today is the first day where we actually use this office as an asset that I actually own. Feels nice. Yeah. Right.
Actually, especially the biggest thing is that in any commercial building is, like, AC is never right. Nope. Thanks for everyone for the for the fixed lights. Yep. It's nice to have that not be a problem.
Frank: It's just yours. What's that? It's yours. You can put
Steve: you on. But you were talking about the importance of owning assets. What I mean, this might be just a silly question, but you're saying, you know, like, you wanna talk about owning assets. You may wanna talk about it. Like,
Frank: what's important about it? So if you are just I I never understood this. So if you're a real estate wholesaler or you do direct to seller marketing and advertising, the number one way that most Americans actually make money
Steve: is
Frank: through ownership of a home. Mhmm. So everybody that I knew that was rich when I was a kid weren't doctors and lawyers. They own real estate. So when I got into this, I was like, I wanna learn how to own a house.
Like, I wanna own my own house. And when I was broke 22 year old kid graduating from college, that to me meant wealth. So I don't know if it's the right answer or the wrong answer. Over time, I think it is the right answer. And the way that our tax code is written, it is certainly the right answer to own assets.
And the reason that you wanna own assets is because they appreciate over time. Your mortgage is fixed. You can buy at a leverage point. So if you wanna go buy Google stock or whatever they call them now, alphabet, or you wanna buy Meta, or you wanna buy Tesla. If you wanna buy a $100,000 worth of shares, you have to have a $100,000.
But with a $100,000, you can buy a $400,000 house. You can leverage your money. Mhmm. But your depreciation isn't leveraged. So what I love about this business is that there is an underlying asset.
It's a real thing. And it where I come back is it's a shelter is a human need, and we provide shelter. We don't provide gorgeous homes. They're very, very nice for what they are, but they're not discretionary homes. The they're shelter.
They're mostly rented through means of section eight, which I have a whole theory around that. If you want me to get into it, I will. But the reason assets matter and where I think people are silly in a lot of instances who, you know, have the Lamborghinis and wholesale everything is because you're buying something in a discount that has an ability to cause you to pay less taxes, to appreciate over time. And I don't wanna run out of money. I would like to live to about 100 because my kids are really young, but I don't wanna run out of money.
But if I have an asset that pays me and that goes up with kind of inflation
Steve: Mhmm.
Frank: It's a hedge. You can live to a 150 and never run out of money. If you want enough assets, well, they could just pay you. So those are the things that I think make a lot of sense to me. And then we're into this process.
We're buying things at a discount. So if you can just hold on to one a year or five a year or 10 a year, figure out how to live on just a little bit less or figure out how to get money out of the properties that you actually don't have to live on anything less, but you don't earn it, you just borrow it Mhmm. Well, it it it gives you an enormous leg up.
Steve: Yeah. And I think it might sound obvious, you know, comments as people are listening right now, but there are a lot of people that still need to be reminded of this message. One of the cool things that, I don't think people see as much of with you is that you got the assets, you've got your team, but people don't know that you also get to play in bigger deals. Yeah. Right?
So, like, we've been in masterminds forever. It's actually funny. You and I were in a different mastermind. You kinda talk about, here's all the big deals I'm doing. I, like, no one seemed to be paying attention to it.
Didn't seem to really, catch their eye or or or perk their ear. For me, this is, like, I think it's impressive the deals you do, but also impressive you do these big deals while you're still running a team. So let's talk about some of the things you do. Like, it's not your side hustle. These but these are your project plays.
Frank: Yeah. So do you know what a hub and spoke is? Yeah. Okay. What is it?
How would you explain?
Steve: I mean, it's basically you got one central thing, and then you just add, additional not off ramps, but other ways to connect to build a larger ecosystem.
Frank: Yeah. So my hub is direct to seller marketing and advertising, and that's really a real estate hub. And then what do you do with those hubs? You can wholesale. You can flip.
You can determine rentals. You can do all that stuff. So I've got the hub and the spokes. And then that's a bumpy ass ride if it doesn't have a wheel. So what I put is, like, the things that buffer those.
Right? And so that's, like, property management, consulting, commercial building, like, just different things. Right? So I've I don't do anything different than what I'm really, really, really good at, so it still stays around the core. But it's all things that are around that core that I think I can make money off of that can add value to others that we're already doing.
So in a lot of instances, what you're paying attention to is, like, alright. I need to go hire people. Well, I have a department that hires people. Not Not only for me, I can do it for others. Like, why not charge for it?
We're pretty good at it. Like, if you have a business that's just like ours, I need to understand what's different and similar about your business than mine, what's your pay structure. Can I find someone in in your market in Denver who could do this? Turns out, yeah. It's the same damn ad.
So it's like little things along those lines. It's like, how do you figure out how to actually add value for someone who needs it? Pay yourself and maybe pay for that person inside of your own business. So that's a lot of how this stuff goes, and that's how we kinda build things over time. I'm really into bigger buildings.
I'm not as good at it as I am with houses, but my house makes so much that I can forgive some sins.
Steve: Mhmm.
Frank: But I wanna own those because I think there's, like, development plays and just generational things that can come from it, and I find it interesting. And it again, it's construction. It's real estate. It's not it's not, you know, I don't know, a salad maker, like a car. It's it's it's something that's very related to what I do every day.
Steve: Well, there's some deals you look at that other people will see that deal. Like, they can't imagine the way they structure the deal Mhmm. To turn into profit. But you look at it as, like, that's $3,000,000
Frank: Yeah.
Steve: Waiting for Frank.
Frank: Yeah. Tax free
Steve: in a
Frank: lot of instances. Yeah. So that's the other reason I don't have a huge staff anymore is I think I see things incredibly well and with clarity. So I remember I had someone working for me. This is a long time ago, ten or fifteen years ago.
And one of the contractors that we work with talked to me and goes, hey. I brought this deal to the guy that runs your deal for, and the house was $7,000 but he turned it down and said, we don't want it. And I was like, why the hell would he say that? And he's like, oh, he thought it was a bad deal. Like, the house was 7 like, this is not made up.
The house was $7,000 The tap fee Richmond. Yeah. The tap fee to get water to the house cost $7,200. If there was nothing there but just a sewer, it was worth more than $7,000, and he said no to it. So what I have built inside of the business, I don't want those things to happen.
Like, I I don't want it to be missed, because and then what I have learned is this. If I was gonna ask you, like, how to put together, like, a like, like, how to have a big thought. Have you ever thought about, like, how to break down, like, how to have a big thought or be able to, like, do things at at scale?
Steve: I'm not sure.
Frank: Alright. So this is how I do it, and I I think this is actually meaningful. So what I encourage everybody who works with us is to talk to me about the good things you're seeing, the negative things you're seeing, roadblocks, hurdles, impediments, where is it that you're actually getting wins, and just feed it back. And I've got a pretty good memory, and I want you to be honest with me. Like, hey, Frank.
This sucks for these reasons, or this doesn't work, or this subcontractor, or like, hey. This was really great. Just talk to me, and I encourage that. And you're asking earlier, like, am I afraid to have a bunch of yes spend? Like, I don't know.
I don't really understand that. But I what I really want you to do is just be honest about what you're seeing and feeling Mhmm. And just talk to me about it. And the reason that's important is this. What I find is that if you have a good conversation with somebody, you can collect dots.
And I don't know where the hell those dots are gonna go. But every now and again, if you get enough dots and especially if you have enough people across different platforms talking to you about similar things, those dots all go on a board. Then every you now and again, you can just stop and connect some of them. And that's what I think I do pretty well is I, like, distill information. I remember it or I note it.
I pay attention to it, and then I get it synthesized in a way that means something to me that I think we can do something with it. Mhmm. The reason I travel around the country and go to masterminds is I just like to talk to different people about what it is they're doing. What are they seeing? What's working?
What's not working? A lot of this stuff is meaningless. But every once in a while, you stop and you go, oh, I can put those things together. Mhmm. And if you look at it from that perspective, like, every single day you're in the trenches, but if you pull back a little bit and you looked at it, it's like, okay.
How can I take these a bunch of little paper cuts and turn into something massive? And and I enjoy that.
Steve: Yeah. Steve Jobs talks about, one one of his famous graduation speeches is, like, being able to see the dots Yeah. Yeah. Looking backwards. Yeah.
But you have to connect them. You have to collect the dots first.
Frank: Correct. And you have to have a place where people can tell you the good, the bad, and the ugly
Steve: Mhmm.
Frank: Because you never know. Right? Like, really random shit can be connected. Like like, staffing. Like, you don't think, like, these things can work together, but it's like the more you know about different things, like, oh, we've dealt with that or this has come up before that, like like, the you you just don't know.
So you have to be kind of a receptor to these things, and you have to listen to them.
Steve: But then going back, though, like, big deals. Yeah. So then is it as part of your direct sell marketing that these bigger opportunities come onto your plate?
Frank: So big deals come from a few different places. Right? Big deals can show up as big deals, but the reason I went into that dot story with you is because big deals can also be constructed by you with a lot of little deals. And, like, I'm in the process of putting a deal together now where I'm gonna sell a 20 interest stake into a group of houses. I'm gonna make a bunch of money off of it.
Everybody knows that. And then I'm gonna own it and operate it, and I'm gonna be able to use in the backyard. And then I'm gonna sell these or refinance these, and then I'm gonna give the investors your money back. We're gonna just sit and collect, like, a 10% coupon on no money invested because it becomes so profitable. Like, well, how did I come up with that?
It's a lot of little deals that it is decided, like, hey. This is the right way to put this thing together because it's where we are in the economic cycle. It's what's needed, and there's that. So it's like I look at all the things. I synthesize it.
I see if I can put something together. I stress test it by taking it to a couple people who I trust, who are smart. I ask them what they think, and it's like, oh, there's something there. And then I might put that together. But, usually, it just comes from kind of, like, the way that I'm gonna put this deal together is just a bunch of little deals that I turned into one big deal.
Steve: Yeah. But, like, you did something, if I remember correctly, unique in the building you're missing out of. Yeah. Right? Was that was that one of, was that a unique deal?
The building
Frank: I'm I I that you
Steve: use right now. Yeah.
Frank: Sure. But it was like I don't know what you think is unique about it. I don't know.
Steve: I think there was some sort of, like, tax play on that one. I can't remember what it was. It was a while ago.
Frank: So what I did with that building is I bought it, and then I turned three different suites, essentially. Mhmm.
Steve: I
Frank: wanted to figure out how I can get somebody else to pay my rent. So what we did is, we took 6,000 feet. It's an eight 18,000 foot building is three stories of six. And I basically turned the basement. The the main floor is just the main floor is just regular.
And then the basement, we do we work suites. Mhmm.
Steve: And
Frank: then we charge, like, $45 a square foot. The market that justifies, like, at the time, like, $17 a foot, but they're really, really, really small. We did 11 of them. But that rent basically doubled the rent for that. It's literally a basement.
And because of that, I was able to, basically pay my own rent.
Steve: So
Frank: that's the stuff I like.
Steve: And then there was a an interesting election in New York. Yeah. Donnie Yep. Won, and he won the majority. He didn't win, like he got most of the votes where because, like, I think it was three or four or how many person race.
He got outright 51% majority of the votes.
Frank: More than yeah.
Steve: Yeah. So, what does that tell us about what's going on?
Frank: So we were talking about, like, how do we talk about this. Right? Like and what what Steve's talking about is we just he's not a communist. He's a socialist. But we've just been one of our biggest cities, one of our most important cities, they've elected a socialist.
Steve: Financial capital of the world.
Frank: Correct. They've elected a socialist. So what I think is more important like, I don't know if you think I'm smart or stupid or what, but the point that I think I'm really good at is understanding where we are. And I have a whole presentation I built on how how Mondami got elected and what it means for real estate. So what I'll ask people a lot of times is now a good time I'll ask you this question.
2025. Is now a good time historically to buy real estate at a discount?
Steve: To buy at a discount, I mean, it was a good enough discount. I just bought this property. But generally speaking generally speaking, single family houses buy for rental. There has to be an extraordinary reason to buy it. Otherwise, I'm passing on a buy and hold.
Frank: You're one of the very few people who gets that right. Like, oh, it's a great time to buy the discount. Like, no. It isn't. Like, a building that I can now buy at a discount at 200, I used to be able to buy at 18.
Right? Like, you can't buy it for $18,000 anymore. It doesn't exist. Like, it's just not there. Will it come back?
It might. There's a guy in your local market. Do you know John Burley? Yeah. Alright.
Do you friendly with him? Mhmm. I like that guy. He's like, we bought houses for this price in Phoenix, and they tripled. And then we bought them again at this price, and then it went up by five times, and they came back to this number.
It's like always there's a regret a regression to me. Where we are right now in the cycle is not a time for discounts. It just isn't. So I published I I write on Facebook, like, every day. I've been encouraged by someone to do a post a day, so I do a post a day.
And I posted something a few weeks ago about how now is the absolute wrong time if you're a first time home buyer to buy. And the reasons are this. They are lowering standards at Freddie and Fannie, who's from Freddie Mac Freddie May and Fannie Mac, and they're lowering credit standards. And they're also gonna take mortgages from thirty years to fifty years. These are this
Steve: movie before, by the way.
Frank: Correct. And this is the absolute ass backwards time to do it. You're incentivizing the people who can't physically qualify
Steve: for fail.
Frank: You're giving them an ability to get in at the peak. It's the wrong time to do it. And the government is effed up, and it's screwing up, and it's allowing this to happen to the poorest people. Well, the reason they're doing it in the first place is people are complaining because it's very hard for people to get in. So it's hard to do this without charts, and maybe we could put a couple of these up.
But right now, in 1993, 32% of discretionary spend was by the top 10%. Today, 50% of nonessential spend is by the top 10%. Price of the food has gone up. Mortgage of prices
Steve: Hang on. Before we go there. So just for context, that means that before, 70% the other 90% were spending 70% of discretionary. Now it's 50%. Purchasing power
Frank: It's going down.
Steve: For the 90% is going down significantly.
Frank: Yeah. And now what it used to cost to go to college, and I'll put all these we can put all these slides in. What it used to cost to go to college has gone up. So if you think of it from this perspective, I wanna house my family, but it's more expensive to do so. Mhmm.
I want to send my children to college, but it's significantly more expensive to do so. Now I have to send them with debt. I wanna feed my family. It's very, very hard to do so. So for most people who are not in the 10%, do you know what the top 10% of earners is in The US?
Steve: Top 10%?
Frank: Top 10% family earners, like like a family household. $2.50 plus?
Steve: It's a
Frank: little under $2.50. It's right around $200,000. Yeah. Do you know what the top 20% is? 100?
120. Then it this is a few weeks old, so I think I'm pretty close. But if you look at it from that person and that's household. So that's two people making $60, and that's the top 20. If you're making a $120 in 2025, you're not exactly living high on the hog.
Like, that's not a lot of money, and that's the top 20% of earners. So you have to think the bottom 80% of earners are under a 120 per household. That is not a lot. Have two kids and make a $120, and they put you in the top 20% like you're getting smashed in taxes. So why does this happen?
So what happened at the time to get into real estate investing and buy assets low was between, like, 2,009 and 2,000, like, 14. Yes. You can still buy one offs. But now things have gotten to a point where it's going to the system's about to break. And it's about to break because it's not working for most people.
So that's why you will like the socialist in New York. But what does that mean for us? And, like, what do we need to do? What it means is that prices must come down. They must.
Or if they don't come down, they there has to be more accessibility, and there has to be more ability for people to get in. So how do you do that? Well, you do it a few ways. You drive prices down, which is very hard to do. So you have to increase supply.
In order to increase supply, things are happening around the country now. Now everybody's talking about this.
Steve: Do you
Frank: know what an ADU is? Mhmm. What is it?
Steve: Affordable I can't remember what the d is, but it's basically you're building a second home in your backyard.
Frank: Yep. It's either an affordable dwelling unit. It's an accessible, auxiliary, or affordable dwelling unit or dom all the letters can move, but what it basically means is you're allowed by right to put another house behind your house.
Steve: Yeah.
Frank: So where would you think are the most starved places in America for affordable housing?
Steve: I mean, metropolitan markets.
Frank: Coastal cities. Right? Like, especially, like, same High population, high
Steve: density. Yeah.
Frank: Exactly. But New York the especially New York proper, it's gonna be very hard because everything is vertical. But if you get the boroughs but this legislation passed in California do you know when ADU started in California when it became legal? I don't know.
Steve: I remember Phil talking about it five years ago.
Frank: Yep. In the eighties. But there was not adoption. There was no adoption till about five or six years ago, and now there's adoption. Mhmm.
This legislation passed in Richmond, Virginia or in Virginia, the state of Virginia, about two years ago. Do you know when it actually became a a a model that would work from a paper perspective?
Steve: This year.
Frank: Do you know specifically? You're right. Do you know when? No. After Liberation Day.
So the market tanked. After Liberation Day, people's psyche got screwed up in in home building because most of these are just regular people buying homes, and the consumer confidence plummeted. And when the market came back about 10%, like, all of a sudden, holy crap. These houses pay for his rentals. Not only they pay for his rentals, they pay for his rentals within an affordable unit in the backyard.
The market has changed. So how do you put a summary around all of that? We have elected a socialist in our one of our most critical cities because people can't participate. And because of that, there's going to be policies that are going to become utilized and popular, and people will talk about them that allow more people to participate. The ADU is one of those things.
So, like, as a real estate investor, like, the BRRRR method, buy I don't even know what it stands for. Buy, renovate, refinance, redo it, something like that. Right? I did hundreds or a thousand of those before there was a cute acronym. But, basically, you buy it, you stabilize it, you get it rented, and then you do it again.
If you can figure out a pocket where you can do that and add an ADU, now you got something that's magic.
Steve: Mhmm.
Frank: And what's gonna be rewarded so the people who made all the money last time bought really low. Invitation homes was in this market first, buying houses at the steps, and they were buying them at 60¢ in the dollar. And they were just people are overpaying. Well, no. They weren't.
And they had a plan, and they bought 300,000 of them. But if you wanna buy low, you're not gonna be able to do that in mass. Well, could you buy marginally low and force value with another unit? It doesn't have to be an ADU. Could you build a duplex or a triplex?
Like, how do you get more density inside of what's currently there? That's gonna be the magic ball going forward.
Steve: It's interesting because they're not doing ADU ADU legislation passed, I believe, last year in Phoenix. I don't really hear anyone doing it. I think there's plenty of supply.
Frank: There's You don't have a supply problem?
Steve: Yeah. You
Frank: don't? So It's market by market.
Steve: Yeah.
Frank: But, like, if you said, like, Frank, how do you get so good at this? I'm honest about what's happening. I look at what's going on in the market, what affects us, and what's really, really needed. And if you pay attention to those things, you can see the trends. Your market, I don't think that's the right market.
But I think on the coast, it's big. In my market, it's not San Diego. We have a mutual friend in San Diego. We're putting 15 houses behind the house. In my market, you can put one.
It's a different market. But if I put 15, we'd have saturation. It'll be the wrong problem.
Steve: Yeah. I mean, it's funny talking to Phil in San Diego. It's like, you're basically building apartments. This is just crazy.
Frank: Correct. I was there. I walked them with them.
Steve: Okay. So then do you see so then we talked about, you know, electing socialist, and I get, like, all the reasons for it. Like, I completely I'm completely opposed to it, but I understand all the reasons why this is happening. Sure. Right?
Where does this lead us two years from now? Three years from now. Because, like, again, you like to, go where the puck's going, that way the puck is at. Where do you see our market in 2025, 2028?
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Frank: Okay. So this is not the question you asked, but I'm gonna answer it like this. Influential books that you've read, Did any come to mind to talk about like, we can talk books in general, but did you have any books that talk about patterns or, like, where things are going or, like
Steve: No. I know I should be. I mean, I know Ray Dalio wrote one Yep. On this principle, but I have not picked up yet.
Frank: Okay. Well, he has I think he has two or three on the subject, and I've listened to a lot of his podcasts. I've not read his. So there's a few things. Right?
So there's a book that's called This Time is Different, the one the Pulitzer Prize. And when it talks about, they go back eight hundred years, and they go back so far that they don't have, like, dollars to trade or monetary units. They use rice in some parts of the world that like but what they talk about is there's cycles and patterns. There's another book that's called The Fourth Turning. The Fourth Turning talks about a seculum, and a seculum is between sixty and a hundred and twenty years.
Most of them are eighty years. Eighty it's somewhere between eighty and eighty four. Why if there's four termings is eighty to eighty four years the number? What would you guess?
Steve: I couldn't even guess.
Frank: Generations. Okay. So you have four generations in about eighty, eighty four years going back over time. So there's that. Then there's a book called This Time is Different.
Alright. So This Time is Different. Same as Ever. And there's another one called The Calm Before the Storm. So there's multiple things happening, and I'll synthesize this in a way that people can actually follow along.
Those books, if you're in real estate, you need to read all of them, because they're incredible about showing what's gonna happen in markets over time. And it's not exactly the same, but history rhymes. So right now, we are in there's eighty and fifty year cycles inside of monetary policy and social policy. So if you look at it from this perspective, America turns how old next year?
Steve: February.
Frank: 02/1950. And we're at the end of the fifth term of the fifty year cycle. So do you know who the first president was in this particular cycle?
Steve: This particular cycle? Yep.
Frank: Reagan. Okay. So 1981 and 2031 is fifty years to a t. So the last president in this cycle is Trump. Like them, dislike them.
It's just timing. But what Trump is doing is very similar to many, many presidents who've been the last president of a cycle. And he is got a lot of processes that are very, very similar to Reagan's. The problem is is what Trump is doing is identical to what Reagan did, but Reagan was fifty years earlier. So the system needed deregulation.
Uh-huh. It need more cash. Not what the system needs right this minute because we're cutting taxes and deregulating. It's gonna break the system. And if you look, there's five of these cycles that stack.
This is my opinion. So and it's researched by a lot of people smarter than me. But if you look at it, like, every one of these cycles, like Jimmy Carter did the exact same things they had done forty five years before him, and the system broke and Reagan came in. So what I think will happen is this. There's going to be some kind of fiscal reckoning.
I don't know if it's debt reset. I don't know what it is. And I think there is going to be something that changes. I think Madami is one of the things that's I don't know if he becomes the entire the the trend or if he just becomes a movement towards it, But I think there's going to be some kind of thing with socialism.
Steve: Mhmm.
Frank: I think it's gonna become a lot more popular. So what does that mean? There's going to have to be a way for people to house themselves, feed themselves, and educate themselves. Because if we don't have education, people lose hope. And if people lose hope, who the hell knows what we're gonna do, what we're gonna have going for us?
So that's what I think. So, like, on balance, I think now is a good time to be in cash, or have assets that can appreciate, that will pay you. But I think there will be discounts coming around the corner. I don't think those are here yet, but I think that's where it's coming.
Steve: Significant discounts?
Frank: So people will argue about this. So you answered this question in a very ambiguous way earlier, and I'll answer it back to you the same way. It depends. And it depends on, like, what do you consider a significant discount and how good are you finding them. I think we can find houses that are currently at 50¢ on a dollar or less.
Like, your students can't. So I don't know if that becomes mass, but I think there's going to be those types of opportunities for sure. And we haven't even gotten into the big disruptor AI. Like, is it gonna be something
Steve: Well, that was one of the next thing I was gonna talk about. But before we talk about that, like, you're talking about, you know, like, Trump and Modi. Like, we have more attention Mhmm. Ever before.
Frank: Yep.
Steve: Right? And you're either, like, all the over here or all the way over
Frank: there. Yep.
Steve: Or at least it appears that we're voting all the way over here, all the way over there. So who knows what is
Frank: gonna happen? Argument to you is this. Most people's memories is short and our lifespans are shorter. Right? So is it really marked tumultuous than it was in the late sixties and the early seventies, or do we just not remember it?
Steve: I would argue that it is. And the reason why I would make make that argument is because we have way more echo chambers now than before.
Frank: So the method the methods have you read the book 1929 by Andrew Ross Sorkin, The Great Crash? Mhmm.
Steve: Do you
Frank: know what the cutting edge technology was in 1929?
Steve: Telephone?
Frank: Radio.
Steve: Okay.
Frank: Right? So, like, people could they're all connected. So it's the same shit. Mhmm. And the reason that we're having a lot of problems and we're just we're all the gears are mucked up is we're doing the wrong stuff that we need for the system.
So the system's gonna either break
Steve: or
Frank: it's gonna fix itself. And what I will tell you is I'm a big believer in America. I think it's gonna fix itself. But it's going through this thing now where the gears are just grinding to a halt, and we're gonna have to unstuck it some way or another to get through this. And I and I think, ultimately, we will.
But I argue in the statistics that I read will tell you that it's about as tumultuous as it was in the sixties. Yeah. Like, I mean, Charlie Kirk got shot, which is appalling, but think about all the people that got shot in the sixties. Like, it was a really, really, really tumultuous time.
Steve: Yeah.
Frank: So it it I don't know.
Steve: But moving on to the big disruptor, AI. Yeah. So, again, we we keep, you know, Phil Phil Green right here in San Diego. If you guys haven't seen, he was, on the show about four years ago. He and I have some very dark conversations about the future Yes.
Especially with AI involved. What do you see happening?
Frank: Is he the smartest guy you know in this space?
Steve: He's the smartest? Oh, he's the smartest, but he's very knowledgeable. He's very smart. He talks to a lot of people
Frank: He does.
Steve: By AI.
Frank: And he's very smart. He's very smart. He sent me a text. I can read it a few days ago, and he literally goes, dude, your investment in the in the section eight is brilliant. He goes, twenty five percent of the population is gonna be unemployed in five years.
I think that's a bit high, but I do think there's something that could come up.
Steve: I don't think that's high.
Frank: You think it's you really?
Steve: I think it's reasonable. Yeah.
Frank: Really? Why do you think so?
Steve: Because the people's ability to adapt just cannot keep up with what AI is doing. Mhmm. I think, anything that's repetitive, anything that it seems like these days, like, lawyers are the the value of a lawyer, I think, has gone down dramatically. Mhmm. Value of doctors, I think, have gone down dramatically.
Any front desk receptionists, lot of administrative, truckers. Mhmm. I mean, we're building robots that can pick fruit, that can I mean, the the the I think the hardest thing for a robot to do is gonna be able to, like, reroute wires? That's gonna be the hardest thing for a robot to do.
Frank: I think there's
Steve: just a lot of things that can be replaced by robots or AI. So I
Frank: saw a fascinating interview a couple of days ago with this rapper. Maybe on that he's from Atlanta. He's big black eyes like Magic Mike or something Mike. Mhmm. You know who he is?
I can look him up.
Steve: Yeah. I mean, is it magic? I don't think it's Magic Mike.
Frank: It's not Magic Mike. That's the dancer from that movie.
Steve: Yeah. Yeah.
Frank: But I know
Steve: he was, like, with, oh, the whole world. I can't remember the name of the song exactly. But, yeah, I know I know who you're talking about.
Frank: I'll look up his name in a second. Yeah. Yeah. But point of the matter is this. He came out the other day and he said about, like, how inner city Atlanta has gotten away from this is a fascinating interview.
But how inner city Atlanta has gotten away from all the things that made it special. And in, you know, the last fifty years, it was an incredible place to be because they had vibrant communities and they had these these these incredible places from a schooling standpoint. Like, you say, like, what's gonna change or, like, what's gonna break or how's it gonna all come out? I think how we educate kids is gonna change. Mhmm.
So my dad went to a technical high school. My dad's an electrician. He's done very well for himself. But he does have a college degree, and he pulls wires. And he's 72, and he still goes to work and sweats and pulls wires, but he's done incredibly well for himself.
But the argument is we have to go back and take take schools and change them from centers where we just test for for reading, writing, and arithmetic, and we have to really look at how do we make people stronger and better, and we have to figure that piece out. So I think that's a big part of what's gonna come out of all of this stuff is because we're gonna it's gonna break ultimately. You said about, trucks. So I told you I've had gone to a bunch of different masterminds. I met a guy.
He looked like that guy Powder. Like, he was that no hair. You remember that movie in the nineties? I think it is it called is it alopecia when you have done on your skin? So it was just an interesting dude going up.
And I was like, I gotta talk to this guy. It's interesting. So I started talking to him, and he basically trains truckers on how to drive.
Steve: Mhmm. And I
Frank: said to him, like, are you worried about your job because of AI? And he goes, computer's been flying on an airplane for forty years. You still got two people sitting up there. Mhmm.
Steve: I was
Frank: like, fascinating. Right? So, like, I don't know where it's gonna go. Did you ever read the book, Sapiens? No.
Alright. You gotta read, Steve. He's Man,
Steve: you're making me look real bad here in this podcast.
Frank: So Sapiens, I think, is fascinating. And what he talks about at the very end is this. He goes, if you remember, like, Oppenheimer came out after that. Right? The book was written prior to the movie Oppenheimer coming out.
But he goes, during the nuclear era, everybody was completely just freaked out by the fact that we are gonna have this all these nuclear winners, and it never came to pass. My thinking with AI is it's going to be a disruptor, but I don't think it's gonna be a disruptor the way we think it's gonna be a disruptor because we're terrible predicting the future. We always are. So what are you teaching and what are you doing about AI? I'm curious.
Steve: I generally am We're building out appointment setting bots.
Frank: Yep.
Steve: We're training salespeople using role play. Mhmm. And then we're doing automatic call reviews Okay. All with AI. And then our intention is that by the middle of next year, we should be able to sell over the phone using AI.
Frank: So I think all that is incredibly valuable, and I think there's a an important part of the market that you need to utilize technology. Right? I think there are things that will 100% be radically changed with AI. But I also think that can you tell me the last time you had good customer service?
Steve: The last time I got customer service? I can't think of
Frank: you in there.
Steve: I mean, I've had excellent customer service in the last couple of weeks. Can't think of anything extraordinary extraordinary off the top
Frank: of my head. Okay. Where do you go, like, in the things that you do every day? Like, where do you think you actually get good customer service? Like, does anything come up, like, I mean, in the last couple of months?
Steve: Beyond restaurants, I mean, I think mostly in the service industry.
Frank: Okay. But not but nothing jumps out?
Steve: Not right now.
Frank: Is it fair to say you're rich, you're in the 10%?
Steve: Oh, yes.
Frank: We both are. Right? So I have every conceivable advantage. I was born white in America. Like, according to Warren Buffett, that's like hitting the lottery.
I get dog shit for customer service wherever I go. There's two places where I feel like I don't get bad customer service. One is American Express, which I love, and the other one is Chick fil A, which I don't eat that often, but the service is always amazing.
Steve: Yeah.
Frank: And what I'm saying is you and I are in in most of the people listening to your podcast. If you're not in the top 10%, you're definitely in the 20% or you esteemed to be. We are not marginalized. We're not forgotten. We are lucky and incredibly fortunate, and we have no customer service in our lives.
So what I ask is the people who are selling to us at a discount or the people who are renting from us in Section 8, where do they get customer service? They don't. Like, they don't at all. So what I think the market is going is that hand to hand combat and the one on one service that you can actually offer people. I think it stands out today if AI becomes what we think AI is gonna become.
I think the way you can distinguish yourself is actually have good customer service for people who aren't accustomed to getting it and stand out. And it looks very different. But in our market, we're building brand new ADUs. We offer like, we have 90% retention with our renters. Mhmm.
Like, we offer great service. Now do we take their shit? No. We treat them fairly. We make them act responsibly.
If they don't treat our property right, we don't keep them. We follow the rules and the lease. But do we respect them? Do we give them a good product? Do we fix it if it's broken?
We do all those things. So what I'm saying is I think it's gonna be a lot of the boots on the ground stuff. You said pulling wires. That's your way of saying. I think there's it's gonna be hard for
Steve: a
Frank: bot to do that. Mhmm. I think it's gonna be hard for a bot to have empathy. I think it's gonna be hard for a bot to do the things that we can really do if we just stop, pay attention to other humans, and add huge value. And if you do that, I think that's gonna separate you going forward.
Steve: I think they're gonna be good at doing empathy.
Frank: You might be right.
Steve: I think they're gonna struggle with with sympathy perhaps. Maybe. But, yeah, I think the the the part about connection so one of the, interesting podcasts was Chris Voss and Andrew Huberman. Okay.
Frank: I know the people. I've been listening to them talk.
Steve: But in that interview, Chris Voss gave, like, the most coldest sanitized definition of empathy. And it was the ability to, transmit information.
Frank: Okay.
Steve: Can I hear what Frank just said and articulate it back to him where he feels hurt? That's empathy. Sure. I think a robot can do
Frank: that. Maybe.
Steve: I think a robot can fake the emotions, convey the emotions. The the thought experiment I have with somebody because he's like, oh, no. Robots are not gonna be taken over. And they just asked him, like, well, Frank, you know, if you go to Starbucks, you know, or maybe some other service oriented place, like, you go there because there's humans there. Right?
Like, the, robot can never replace them. My question to him was, if that person was connected to Neuralink, would that ruin the experience for you? His answer was no. So that wouldn't ruin the experience. And how far are we from a human connected neural link to a robot that appears human?
Frank: The good thing about what we're talking about, though, is it's really, really hard to build something that goes to each individual house and does these individual things. So until the maybe it comes into some dystopian world where it's like, you know, Arnold Schwarzenegger comes out of the sky. It could get there. Who knows? That's scary as hell for all of us.
But what I think is going to stand out is some way of taking care of people in a way that makes you stand out. Like, in the very beginning of this entire conversation, we talked about how do you convert. I convert by making people that we're on appointments with feel heard. I make them feel important. I make them understand that we're here to see if there's a way that we can help solve a problem.
If AI does that in mass, well, then we're gonna have other things to focus on as a civilization, and maybe we go in a completely different direction. That's the people who are building it or trying to sell us on. But I think we all think that there's something that could fall apart in between.
Steve: I heard something interesting. I was listening to the Moonshots podcast. Okay. And one of the guys was talking about, I was like, you know, what what does Thanksgiving look like in 2035? And first answer was, 2035, you're about to take a bite of that turkey in a machine or robot or something to say, don't eat that turkey.
That's not good for you. Right? Like, based off your blood type, based off your digestive history, this turkey is not gonna sit right now. Don't put that turkey in your mouth. It's like it's this omnipresent thing.
You know, these people right now with their Facebook, Oculus glasses? Yeah. Right? But, like, where is that gonna be in twelve years? Who knows?
But, anyway, I think the it's gonna be interesting what happens with employment because I do have serious concerns. The I hope that I'm wrong. I'm just afraid if I'm right.
Frank: I don't know.
Steve: Yeah. But So section eight, though.
Frank: Who who okay. Keep going.
Steve: But section eight here, owning a bunch of assets that you can't section eight is the right hedge, whether you're right or I'm right.
Frank: Right. It's not the right hedge. The US government goes tits up, and we have no government.
Steve: Right? Well, then we have way bigger problems.
Frank: Well, completely. But it's like that's the other side of this is, like, how many of these things do you actually worry about, and how many of them do you like, do you just kinda have to overlook and just be like, you got that?
Steve: Oh, I worry about these things, but I can only handle what I can handle today. Exactly. And I I don't make decisions based off of what's gonna happen in five years. Make decisions based off what's gonna happen.
Frank: Right. And yeah. I mean, do you guys do you spend a lot you do podcasts a lot. Do you talk about this a lot? Like like
Steve: No. Only a few only a few guests are talking about this.
Frank: Okay.
Steve: Yeah. So Alan brought it up because you're, again, you're always looking in the future.
Frank: If we go to some dystopian dystopian world, I don't think any of us is ready for that. We just have to think through, like, how do you navigate that? I I don't know how much prep you can do. I I'm gonna reference another book. I'm sure you haven't read.
Have you read Black Swan?
Steve: I don't wanna answer that question.
Frank: Parts of it? So what they say
Steve: I read I read Antifragile. That was a good book by the way.
Frank: Sure. Talib. But Yeah. So in Black Swan, maybe it was Antifragile. I think it was Black Swan.
But what he talks about is when there is a Black Swan event, the people who are the worst prepared are the people who think they're the most prepared.
Steve: Oh, yeah.
Frank: It's usually the ones who are the richest through that. Right? So I was at a conference a couple of weeks ago in Austin, Texas, and there was this person who came in, and they were talking about, like, Section 8.
Steve: Mhmm.
Frank: And what I found fascinating is this. The guy who runs this event is really, really rich, like, super rich, hundreds of millions of dollars rich. And he thinks Section 8 is gonna go away. But his daughter was in the room, and his daughter lives in a house that's 1,100 square feet. It's like a they call it a b unit in Austin.
Because Austin's an expensive place to be. And he joked that your house is about the size of my bathroom. He's not gonna see it coming. He's not the one who's gonna predict the future. He's on an ivory tower.
He's not in the he's not there. So I I don't know where it goes. I have to have some faith in the fact that what we're doing every day is gonna matter. Who knows? Mhmm.
But, like, I don't know. But I do feel pretty well hedged with section eight.
Steve: Yeah. And then I guess one thing, is that I've had the honor of, learning from you, working with you, and able to chat and compare notes periodically. And so one of the things that, you know, I'm always appreciative is, like, I've got a chance to work with your team on sales, training, you know, working with, Hannah and Joseph. So, you know, just wanna say thank you Of course. For that opportunity.
The what is something that we haven't talked about here? Because I know we've we've gone all over the place, but, like, this is just a fun conversation. Because, like, you're so well rounded in the real estate world that you get to do all sorts of different cool cool things. Anything we haven't talked about here yet?
Frank: We've hinted at Section 8, and I can tell you what I really like about it.
Steve: Tell me what you really like about it.
Frank: Alright. So do do you know what Section 8 is?
Steve: Yeah. I've we've done it here in Phoenix.
Frank: Okay. You you personally, like, you have units? Or
Steve: I mean, I helped my dad write out his unit to Section 8. We went through the whole process of applying through the city Yep. Getting approved, having them walk through the property, verify, yes, this is a five bedroom. Yes. This qualifies for $2,600 a month.
Yep. That whole deal.
Frank: All that. So I'll go backwards, and I'll get granular on what Section 8 is and why it came about. So Section 8 started as as a part of the department of HUD, housing and urban development in 1978. And if you think about 1978, Matthew dissimilar from now, that was Jimmy Carter's era. And the we couldn't house our populace.
So the way Section 8 started is it was supposed to be kind of a bridge. Nowadays, it's piss poorly run and managed, so it becomes like a if you get a voucher, it becomes like a lifelong lifelong appointment. But what's supposed to be
Steve: Still lifelong?
Frank: In my market, it's very, very badly run. So if you have a if you have a voucher so what section eight is, they give you what's called a voucher, and the vouchers you have to qualify for. And, again, it's supposed to be something that's temporary.
Steve: Mhmm.
Frank: But right now, it's I I know people who drive Mercedes, rent from us with a section a factor, and the section a factor pays for all of their rent. But the way that it's supposed to work is it's supposed to be the gap between what it is that you actually are able to afford and what rent is. Yeah. And so if rent's $2,000 and you have a decent job and you can afford a thousand dollars a month, they give you a thousand dollars. But what happened during COVID, and I'm new to this.
I've only been doing this for about ten years. What happened during COVID is if you lost your job, we would we may we had a lawyer write this up, and it ultimately was legal, but we were ahead of it. We would call for you to the municipality that offered your voucher. And if you lost your job, they don't take your voucher down. They take it up.
So what it is is it's kind of it it's a hedge against mass unemployment, because what it has going for it is it helps people who need a place to live to live. And as a real estate owner, it guarantees your rent. Now the downsides of this program is they do not treat your houses all that well. So you have to build the house up for what it's going into. But if you do it from that perspective, it's guaranteed rents.
And if the market gets worse, the government pays more of the rents, not less. The reason I went back to 1978 and I started that story is it started in a time when interest rates were really, really high, affordability was really screwed up, and people had a very hard time getting into housing. I think there will be kind of a a movement towards it, and I think it becomes more popular. They've been really aggressive in section eight with rents over the last several years because of during COVID and interest rates going down, people were going in flooding the market. There was less supply.
In order for them to compete, they had to get their rents up to almost retail levels. So there's been a lot of, like, huge increases in the rents, and I just think that that's something that we are gonna see more of going forward.
Steve: Definitely done differently in Virginia than Arizona. Oh, yeah. Yeah. Because, like, here, I'm where she qualified. She had to go through the whole application process.
But then once she was done, every year, she had to reapply for section a. And there was a point where she no longer qualified for it. Yep. And then she was like, hey. Can we get the rent down?
Like, no. Like, this is the market run.
Frank: Right.
Steve: Right? So we had to, replace it with a different tenant.
Frank: I I honestly believe that's better for the system if it was actually better better regulated Yeah. And managed, but I don't find it to be all that like, we follow the rules to a t. But at the same time, it's like I'm guessing there's a lot of municipalities that run similar to ours. But but what I hope happens is it spreads out. Like, if you can if your rent's $2,000 and you can afford 800 or a thousand or 1,200, well, you get exactly what it is that you need because then you can spread out how many more people you can help, and the system actually becomes a lot better for more people.
Steve: Yeah. More sustainable. Yep. Oh, shoot. I was gonna ask you.
Hang on. It's in my tongue. Lost it. So, Yeah. I guess that was, I I I had that last follow-up question.
Lost it. So I guess that's, for you right now, where are you focused on? Because, like, this is the end of the year. Yep. Right.
When this podcast is released, we're halfway through December. Yep. What are you focused on for 2026?
Frank: So in our business, it's very hard to build a a plan or a model. Right? So when I worked at Rhine Homes, which I was there for twelve years, we have what was called a lot flowchart. So the lot flowchart would go five years into the future. So if you had a community and you had a 130 lots in there, or you're gonna sell 30 a year, okay, that's gonna take us four years and 10 in the fifth year, we'll have it for this period of time.
But you could plan, and you could look ahead, and you could say, okay. We have a hole in 2028. We need to go buy some lots because we're gonna do this. And our businesses should change just constantly, like, constantly. What I look at is how do you bolt on parts of the business that allow you to have a little bit more sustainability or a little bit more in the way of not regularity, but, like, more consistency.
So our business I don't know if this happened in your market, but it did for us. Liberation day was a big day for us. Like, if you start looking at comps, if it's before April 5, that was Liberation Day, the values are higher. So you have to look at, like, what's gonna change? And the answer is I think a lot could.
So what won't change? It was an amazing question that someone asked Jeff Bezos. So, like, what's gonna be different in the next ten years? And he goes, I really wanna focus on what's gonna be the same in the next ten years, and I wanna focus on those things. So what I focus on is affordability, shelter, human needs, and providing great customer service.
That's it. It works if you're buying. It works if you're leasing. It doesn't matter. And, like, where where is the market gonna be?
So you probably don't know this about us. We do a lot of affordable, but we also build very, very, very high end stuff. You'd be like, how do you do that? It's the same process. You just use slightly different subs and higher finishes.
You don't use GE's base model. You use, you know, Thermador. But we're building a couple of 1 and a half to 2 and a half million dollar houses in the right parts of town because I think that market I just told you earlier, 50% of our discretionary spend is by the 10%.
Steve: Yeah.
Frank: They have the money. They're gonna continue to have the money. So that's the stuff that we focus on is, like, how do we continue to be viable, and how do we keep employing all the people that we employ, and then we house over, you know, roughly 500 people or 500 families. Like, how do we continue to do that? I think those are good things.
Steve: Well, I think that goes it kinda circles back to what you were saying earlier about you just do what you do best.
Frank: Stay there.
Steve: Stay there. Mhmm. I remember what the question was. I remember you gave a talk about building houses that are nearly indestructible Yep. So that you can not have to worry about going back to fix the same house over and over again.
Frank: Yes. Let me go through some of those principles. Yeah. Alright. So when you build a Section 8 house or you build something that's for workforce affordable, What I think you have to pay attention to is the the houses are gonna be ridden hard.
So what you do is you pay attention to what does the house need. So if I went to Steve Trang's house and I walked around, I'm guessing he lives in a beautiful place under my house. It's a gorgeous house. But we're not building Section 8 for us. We're not, and we're not the customer or the client.
What you have to understand is where are they coming from and what to them is really, really nice and what do they need, and what will break or not break or have sustainability. So what we pay attention to is section eight sets out a lot of rules. And with section eight, there you don't need ceiling fans, and they break a lot. So light fixtures, They don't need a disposal, and they don't need a microwave because they're not required. So we don't put those things into the house because if you put them into the house and it turns over with the lease and it breaks, you have to fix it.
But what you can do is you can offer them a microwave that they can set on their countertop, but it's not part of the inspection. So whenever the US government gets involved, it gets very, very complicated, and you're gonna get your ass kicked if you don't understand the rules. So this is the same thing like if you ever get into an IRS audit. Like, it feels very intimidating, and that's what they use as one of their big strengths is intimidation. We're the IRS or we're the government.
But if you understand the nuances and then you can play inside of the rules of the nuances, you can make the product better, and you can ultimately, as a business owner, make it a simpler process for you and still provide an incredible product for the people who are renting.
Steve: Yeah. And then the last question I'll ask you is you've been in, pretty spot on with where interest rates are going. Yep. What is your Alright.
Frank: I'm gonna give you a couple charts, but keep going.
Steve: Well, I was gonna say, like, where do you see interest rates going in the short term future, long term future?
Frank: Alright. So if you look at the chart, and if you if you follow me on Facebook, I put stuff there on LinkedIn. And if you go I don't put it on our but if literally, just look me up and follow me on Facebook. I put this stuff everywhere. You can see charts and graphs.
Again, I mentioned this earlier. I had someone who challenged me to post every single day for a year, so I'm doing it. And I put it takes me a while to write it. But if you look at so do you know how the the central banks work, The United States central banks, like, how they work?
Steve: I mean, I've listened I listened to Alastair explain how it goes. Basically, it just followed, like, the ten year treasury.
Frank: Okay. So there's 12 central banks. Yeah. So what they did is they wanted to break it up, the power when they built the central banks, and this was, you know, about a 100 years ago. And, like, they didn't want everything to come through New York.
So there's a central bank in Virginia. It's in Richmond, actually. There's one in New York. There's one in Atlanta. There's one in Saint Louis.
The Saint Louis one is called Fred is what they f r e d, the name. And everything comes out of Fred. So this has to do with housing, but they all have a specialty, one of the 12. There's one in San Francisco. I think there's one in Texas.
But the point of the matter is is if you look at these the the Minnesota Fed under Fred. They give you all kind of stats. So if you go back and trace and if you follow me again, and this is posted, if you look at interest rates, interest rates during the end of, Carter and into the beginning of Reagan peaked. So interest rates peaked in about 1982, and they were in the twenties, something really absurd, high teens. And if you follow it from about 1982 to 2022, there's a forty year pattern of way of rates coming down.
So interest rates, I called it in 2016, and I said, I think interest rates are going to be low until 2021. I nailed it. The interest rates started to creep up at the end. It was 2021. And into 2022, they broke the pattern.
It was no longer a down pattern. It went up. But if you trace these things, it's gonna be very hard to explain, but I'll there there'll be some graphs. But if you trace it coming down, when it breaks up in '22, it went up so hard and so fast, not by a actual point. So it's only gone up about three or four points or interest rates points, but it's gone up percentage wise more than it's ever gone up.
Do you know what an Elliott wave pattern is?
Steve: No. I don't.
Frank: Alright. In stocks, bonds, anything that has a graph or a chart, there's what's called an Elliott wave. So their wave goes like this. There's three ups and two downs. So there's a wave up, then there's a wave back down.
Then there's a wave up, and there's a wave down, and there's one more up. And when it hits that up, then it takes the opposite course coming back, and that's what you call correction territory. In interest rates, they were in what I think is called correction territory. So there's the two year, the five year, and the ten year treasury that all kinda set interest rates. And then if you look at it from a mortgage rate, it's different than interest rates.
There's usually what's called a credit spread. You know what that is?
Steve: Mhmm.
Frank: Okay. What can you explain it?
Steve: My my understanding of credit spread is that's what they get paid on is the the delta.
Frank: Okay. So it's what they get paid on, but it's also the margin of safety that there is in the market.
Steve: Got it.
Frank: So if you're a credit risk, you have shitty credit, your credit spread goes higher. Right? You might have a 500 credit spread. Where if you're Steve Trang, you have 900 credit, and it goes to eight fifty. You if you're him, you have a lower credit spread, but the market is gonna dictate this.
So if you're in a tumultuous market, it's only so much. Usually, it's around a 150 basis points or 1.5 points. So what this means in English? Macro interest rates are going up. Micro interest rates are gonna come down.
Will they ever be 2% again? I don't think so. Not in our lifetime. Will they be in the 3%? Probably not.
I think they land somewhere in the very, very high threes for people buying houses into the low fours, but it depends very much on credit spread. And I have a chart. You can put up, but it shows you where they're gonna go. So what I think will happen is we have a period of time in the next six to eighteen months that if you pay attention, what can happen is if you have $10,000,000 worth of rentals and your interest rates are really high, you need to refinance inside of that window because that's the window of time where it's gonna really matter. Does that make sense?
Steve: Mhmm. Do you
Frank: know what the yen I don't even wanna get into the yen carry trade. Do you know what that is?
Steve: Don't pay attention to that
Frank: one, though. So the biggest buyer of our bonds is Japan, and their interest rate internally has been pushed down for a very long time. So what they would do is they borrow money from Japan and buy our bonds. If they stop buying our bonds, it's called the yen carry trade. If they stop buying our bonds, our bond prices are gonna go
Steve: Be a problem.
Frank: Up significantly. And if that happens, we're in trouble.
Steve: Yeah. And so that's not quite a black swan, but not a lot of people are talking about it. No. Yeah.
Frank: But I pay but you you asked a lot about this. Like, I think there's ways to be successful in this business. I'll tell you a story, and we'll end it. Who do you think is the most who's the most successful comedian in the last fifty years?
Steve: Most successful?
Frank: We're one of them. Who comes to mind?
Steve: Seinfeld, Chappell.
Frank: Start with Seinfeld. Yes. He's in the business of writing jokes, but he takes it seriously. He's very serious. If you ever listen to him, he talks about the craft.
And the the do you do you ever listen to, like, an a long form interview with him? What does he do every day?
Steve: Writes a
Frank: joke. Writes. He sits down and writes. He treats a thing that most people think is folly or it's a its entire goal is to make you laugh, but he treats it seriously. And he treats it incredibly seriously to a point where he's probably worth a billion dollars, which is a big number for someone who writes jokes.
And if you look at some of the others, Jay Leno, Chappelle, David Letterman comes to mind, All of those guys take it very, very, very seriously, and it they take they pay attention to their craft. Kevin Hart's another one, pays attention. If you wanna be good at this or anything, you gotta lean into it. You gotta just take it seriously. And I think that's maybe the thing that really kinda separates me is, like, I'm all in on this one thing.
And I really wanna understand all the nuances and angles, and I think over time, it really kind of I don't know. It gives you an ability to kinda distinguish yourself.
Steve: Yeah. No. I think it's awesome. If someone wanna get ahold
Frank: of you Yep.
Steve: What would be the best way to connect with you?
Frank: Again, Facebook, go to our website. I'm pretty easy to find. And if you reference mister Trang, I'll get back to you as soon as I can. If you go to our website and you fill out a form, they're like I'll get back to you.
Steve: Alright. Perfect. Absolute pleasure as always.
Frank: Always good to see you.
Steve: Yeah. Thank you guys for watching.
Frank: See you guys next time. Steve train. Jump on the Steve train. Disrupt us.
