How to Build a Million Dollar Rental Portfolio with Little Time OR Money

David Greene:
This is the BiggerPockets Podcast, Show 778.

Niti Shah:
This book is really about our journey and how we built our 10 million dollar portfolio and we’re able to quit our jobs. So we kind of reverse engineered that into saying, “All right, how do we work with the limited capital that we have? How do we work with the limited time that we have, but also, scale our assets really fast in three to five years as opposed to waiting 30 years?” And I think the question shouldn’t be, “Should I invest right now? The question should really be, how should I invest right now?” Because every market has its pros and cons.

David Greene:
What’s going on everyone? This David Green, your host of the BiggerPockets Real Estate podcast? You already know what time it is. The biggest, the best, the baddest real estate podcast on the planet. I’m joined today by my favorite co-host and good friend, also incredibly handsome man today. You guys got to check us out on YouTube. If you’re not seeing what I’m talking about, Rob Abasolo. Rob, good morning to you.

Rob Abasolo:
Top of the morning to you, Dave. Listen, today, I’m feeling good. I didn’t tell you this, but I know you know I’m not a morning person. Today, I woke up at 4:30, I worked out at five. I’m turning my life around and it feels good.

David Greene:
Today’s show is awesome. We are joined by Nitty and Palak Shah. You may have recognized Palak’s name from previous BiggerPockets episode, 368. They are back today because they just wrote a book for BiggerPockets. The book is called Accelerate Your Real Estate, Build a Hands-Off Rental Portfolio With the SCALE Strategy, where they have taken the BRRRR strategy that I wrote about and come up with a blueprint or greenprint as I like to call it, to scale that to growing a very big portfolio, and we get into a lot of very practical information on this topic. Rob, what were some of your favorite part?

Rob Abasolo:
To me, this is a part two to the BRRRR strategy because I mentioned this later in the episode, I really like this because a lot of people do the BRRRR, right? They do single BRRRR or double BRRRR or triple BRRRR and then, they’re like, how do I get to 20 or 30 or 40 or 50? We have a lot of investors that come into the show and say, “Oh, I did a hundred BRRRRs last year.” And then a lot of people are like, “I mean that’s cool, but I can’t even relate.” So this is actually the systemized approach for how to scale your BRRRR business and get into some of those larger number deals every single year. So very digestible and really the dream team duo here, I’d say. They had it down, like everything, the whole thing was just so massively orchestrated, I’d say.

David Greene:
BRRRRilliant analysis there, Rob.

Rob Abasolo:
BRRRRilliant. Thank you. Thank you.

David Greene:
Before we bring in Niti and Palak, today’s quick tip is going to be brought to you by my tasty cinnamon roll of co-host, Rob Abasolo.

Rob Abasolo:
And you’ll get that reference a little later, but today’s quick tip, we call this the Alex Hormozi hack, buy the digital and audiobook so that you retain the information better. You can read the book and listen at the same time. If you’re like me and you have to read a page five times to understand what you just read, this is going to help you get through the book, and I promise you this is a book that you’ll want to purchase. Also be sure to use promo code ARE778 for a tasty little discount on the said book, over at biggerpockets.com/arebook.

David Greene:
Very nicely done. You got that on the first try. You did a good job with it. You are really developing into quite the co-host that I must say.

Rob Abasolo:
Thanks. I appreciate it.

David Greene:
Today we’re joined by Niti and Palak. Palak and Niti, welcome back to the BiggerPockets Podcast. How are you two today?

Niti Shah:
Great. Fantastic.

Palak Shah:
Yeah, thank you for having us.

David Greene:
Well, Palak, we had you on the show back in February of 2020. What a time that was, episode 368. I can’t believe we have done that many episodes in that shorter period of time. That’s awesome. You were just three years into your investing journey then, and you were focusing on the BRRRR Method, which we immediately connected on for obvious reasons. Can you quickly share for people who haven’t listened to that episode, what made you start investing?

Palak Shah:
Yeah, sure. Niti and I were both in corporate and we had great jobs. We had slowly climbed the corporate ladder. I was a mechanical engineer. He worked in strategy and finance, and I had climbed the corporate ladder for 17 years and then, we decided to have kids. We waited until our late 30s because that’s what we were told you’re supposed to do, become financially stable and then have kids. Then, after we had kids, we realized that the higher up you go, the less time you have for your family. To me, it felt like a lie had been sold to me. I felt like society had conned me into this whole lifestyle that simply didn’t work. We were constantly stressed out and my resentment for that lifestyle started building. One day I told Niti, I was like, “We have to change something. This isn’t working. I’d never see the kids.”
And it was just really difficult, and after a lot of back and forth, we decided we were going to become a single income family, and I was going to start making an impact towards building something for our family that I couldn’t have otherwise, having that full-time job.

David Greene:
Well, I appreciate you sharing that because I don’t think that it is an easy conversation for most people. We always talk about it three years after it’s happened, when we’ve been so successful that we’re on a podcast and then, it gives us impressions to everyone listening like, “I just woke up one day and realized there’s got to be more to life than this. That bird chirping on my window is singing the wrong tune.” We just walked into our boss and said, “You know I just got to do this for me.” And we broke up with our old life, and the next thing we know, our next partner walked into our life sparkling and it was wonderful. That is not how this goes. You go from fighting one battle to fighting a completely different battle and getting your butt kicked. Rob, you had a similar experience. Do you remember what that was like for you?

Rob Abasolo:
Yeah, I opened my Zoom. It was during the pandemic, and I remember opening the computer and you had this speech for my bosses. I was like, “Listen here guys, I’m never going to work for a company again.” And then they joined and I just started crying. I was like … and they were like, “Is everything okay?” And I was like, “Yeah, I’m just quitting.” And they were like, “Oh my goodness, thank goodness.” And it was obvious to every person in my life, best friends, wife, coworkers, that it was time for me to quit, but it wasn’t so obvious to me, which is always very funny in retrospect because it just made so much sense and I didn’t see it there. It’s a very scary decision. So a lot of respect to you for making that decision.

Palak Shah:
I think the big thing was … I don’t know, I felt like a lot of women had paved the way for me to get to where I was in corporate and I felt like I was letting them down by quitting my job, but then Niti was pretty big on … he’s like, “You are not quitting your job to let them down. You’re quitting your job to build something else.”

David Greene:
What has happened since the last time we spoke? I believe you were around five million in assets at that time. What’s it been like since 2020?

Palak Shah:
So we’ve doubled our portfolio. So we are 10 million in assets, and I think six months after the podcast aired the episode, Niti quit his job and he was able to retire and join the business full time.

Rob Abasolo:
Did you expect for Niti to … or Niti let me ask you, were you expecting to quit six months after the podcast or did things just move so quickly that it sort of had to happen that way?

Niti Shah:
So we had been planning this for the longest time, and to what David said, it’s such a difficult decision because once you’re in your comfort zone, we’ve been in corporate … I’ve been in corporate for 15 years, and you are in this comfort zone of getting the paycheck, kind of knowing that you have a trajectory in the corporate life, that you work towards all your life. I remember coming home and telling Palak that we need to get out of this comfort zone. I cannot … if I think that I love my job, which I did, I did like what I do, except that when I looked at people who were 10, 15, 20 years ahead of being corporate, they were nowhere close to financial freedom.
I was like, I don’t want to do this for another 20 years and not be able to spend time with my kids and do things that I want to do. So I used to come back and tell her that I’m going to tell myself that I hate my job because you need something to compel you to make that change. Otherwise, it’s status quo, and wealth is not in the status quo. Wealth is beyond that. So you just have to keep motivating yourself that that’s what you need. So it took us … to your question, Rob, like we’d been planning that for three years ever since Palak quit her job. We’d been meaning for me to quit my job, and it happened maybe a year or so sooner than we had thought, which is great.

Rob Abasolo:
So it seems like you guys have made really great progress. You’ve doubled your portfolio, you’ve gone from five million to 10 million in assets. Tell us a little bit about your roles that each of you play in the business and are you guys complimentary to each other? Are you working on the same stuff? Break that down for us really quick.

Palak Shah:
In some ways we are each other’s business clones, and we realized that early on and as we started working together more and more, we started discovering that we were each good at almost everything in the business, but we were really good at certain specific things, and we realized that Niti was really good at strategy and he was the one who first found the BRRRR strategy and he’s really good at deciding which direction the business should go, and I’m really good at systems and processes and ops. So we have really narrowed it down to our genius zones now at this point. Yeah, I feel like once we did that, that’s when we really started thriving in this relationship because working together as a couple is a whole different ballgame. Nobody talks about it.

Niti Shah:
Yeah, and it didn’t happen … It takes time to figure that out, right? We didn’t know day one that that’s what our roles were going to be. Initially, we were like, “Hey, let’s both be involved in everything.” And that backfires pretty quickly because then nothing gets done. So it took a while to get there.

Palak Shah:
Right.

David Greene:
You’re releasing a book called Accelerate Your Real Estate, Build a Hands-Off Rental Portfolio with the SCALE Strategy. What was it that inspired you to write that book? Where did they idea start from and how did it come to fruition?

Niti Shah:
Yeah, this book is really about our journey and how we built our 10 million dollar portfolio and were able to quit our jobs. I think when we first started, there wasn’t really a clear path of how we were going to do this. We knew that we wanted to build wealth and build passive income.

Palak Shah:
And we knew we wanted to do the BRRRR strategy.

Niti Shah:
Right.

Palak Shah:
When we started executing it, we had to figure out what method of execution we wanted to implement, right?

Niti Shah:
That’s right, and I think even before that in corporate we thought that we had this kind of path that was made for us, but as Warren Buffet says, right, it’s not sometimes how hard you roll the boat, but it’s about the boat that you’re in. So we knew that we had to leave the corporate boat and find something else that we wanted to do, and that was the boat of real estate and how we selected buy and hold investing and the BRRRR strategy. Then within that, we said, okay, in a few years we want to own enough assets that we don’t have to do a nine to five job, but ultimately our goal was to be able to spend time with a family and spend time with our friends.
So we kind of reverse engineered that into saying, “All right, how do we work with the limited capital that we have? How do we work with the limited time that we have, but also scale our assets really fast in three to five years as opposed to waiting 30 years?” So that’s what really inspired the book and the strategy and the framework that we came up with.

Palak Shah:
And we found that … a lot of times, we found a lot of information that was available for people who had no money and had a lot of time on how to get into real estate and how to scale a portfolio or how to work towards it, but there wasn’t anything available to us on how we could execute the BRRRR strategy with limited capital, limited time and still not creating another nine to five for ourselves.

Rob Abasolo:
Yeah, that’s really cool. So would you say that this book is it … obviously, it’s going to be centered around the BRRRR strategy, but it’s not necessarily a how to execute the BRRRR strategy, from what I’m understanding, it’s more on the actual scaling of the operations. Is that right?

Niti Shah:
Right, so it’s almost, I think of like the BRRRR strategy as a strategy that can be implemented 100 different ways, but the scale framework that we talk about in the book is a specific blueprint to execute the BRRRR strategy. So thinking through every step in the BRRRR framework, how do you put systems and process and teams that really allow you to scale the business and treat it like a business rather than just a mom and pop investor?

David Greene:
Awesome. I feel like there needs to be a movement started that anytime we refer to a blueprint for BRRRR, we call it a green print

Rob Abasolo:
You heard it here first?

Palak Shah:
Yes. This is a greenprint.

David Greene:
A greenprint, yes, a green print to SCALE. You know what? The book scale that I wrote is green. This is getting even better. It’s a conspiracy. All right. We’re going to dive deep into some of this content from your book, Accelerate Your Real Estate, Build a Hands Off Rental Portfolio with a Scale Strategy but first, can you run us through the SCALE Strategy acronym and how it connects to BRRRR?

Niti Shah:
Sure. So think of SCALE as one step for every step in the BRRRR framework. So the by step in BRRRR is scalable acquisition and deal analysis. That’s S in the scale framework. So that’s really about not just how you buy a property, a lot of people get stuck in analysis paralysis, but how do you identify the neighborhood? How do you identify the property avatar, how do you build a deal pipeline, so that makes it scalable? Next step in the BRRRR framework is the rehab, which is construction without the DIY, right? And that’s exactly what that means. There’s a lot of people think that, “Oh, they have to do all the work and they have to go out there and do the tiling and do the kitchen,” and that’s not how you need to do it.
If you really want to scale, you want to build a team that allows you to do the rehab no matter where you are, even if you’re investing in a different city or different state, having a team that actually takes care of the rehab for you. Next step in the BRRRR process is the rent, which equates to adding cash flow. This is about how do you rehab the property in a way that attracts great tenants, that allows you to do your cash-out refi, but also maximize the rent that you get. Then, a lot of people talk about managing properties and getting tenant phone calls and having the systems, certain processes and teams to really be able to deal with it, as you scale your properties and as you … even if you’re investing out of state again or out of the … in a city that you don’t live in. Next is the-

Palak Shah:
Refinance.

Niti Shah:
Refinance, thank you. Refinance is leverage and commercial financing, and this is, I think by far, the most critical piece of the SCALE framework, which is understanding commercial finance. A lot of people can scale because they don’t understand how to do the short-term financing. How do the long-term commercial finance and how do you get past the 10 loan limit if you do conventional loans and things like that, which commercial financing allows you to do, it truly allows you to scale. So that’s a very important part of the process. The last is the repeat which is exponential growth. Exponential growth is all about treating this like a business, putting the systems and processes and teams in place in every step of the process that truly allows you to scale fast and focusing on the 20{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the things that give you 80{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the results.

Rob Abasolo:
I love this. I love this and I love that there is a part two to BRRRR, if you will, because we have so many people come onto the show and effectively, a lot of the times they might have already done 50 BRRRRs or 100 BRRRRs, and it’s really hard for a lot of the listeners to relate on how one goes from two to 20 or two to 40. So I think that this process really lays it out for people that want to go to that 10th or that 20th or 30th BRRRRs, so I’m excited to dive into that.

Niti Shah:
Yeah, and to that point Rob, in my mind, it’s as hard to do two rehabs at the same time as it is to do 10 properties at the same time. The difference is the scale, how do you go from two to 10? And that’s what the SCALE framework is about.

Rob Abasolo:
Okay. So on this topic, there are a lot of people out there right now complaining that BRRRR has really gotten harder than ever, but it seems like you’re actively investing this way right now, right? So what would you say some of the benefits are to the current market that we’re in?

Niti Shah:
Yeah, absolutely, and can I start with … take a step back and say this question has been asked by investors since 2015. Since we started investing, we were asking the same question. Everybody’s asking me, is it a good time to invest? Should I be investing right now? I think the question shouldn’t be, “Should I invest right now?” The question should really be, “How should I invest right now?” Because every market has its pros and cons. Back when we started investing, deals were easy to find. The interest rates were low-ish, but it was very difficult to find lenders. Palak had to call 100 lenders to be able to find-

Palak Shah:
Yeah, almost 100 lenders.

Niti Shah:
Lenders. So that was one challenge that you need to solve for as an investor to be able to invest in that market. Then fast-forward to when COVID hit, lumber prices went through the roof. Contractors were really, really hard to find because there’s so much money in the market and deals were really hard to find. There’s 10 cash offers for every deal that you’re trying to get. So that was a challenging market too, but again, as an investor, you figured out how to find the right deal, how to build a deal pipeline to be able to navigate that market.

Palak Shah:
At the same time, lending was easier, right?

Niti Shah:
Yeah.

Palak Shah:
We’d never seen 30 year fixed loans in the commercial world before COVID hit. There were maybe a few lenders offering that, but after COVID, everybody started offering those 30 year fixed commercial loans because it got much easier to borrow money. There was a lot of money in the market.

Niti Shah:
Yeah, and fast-forward to now where the interest rates are at an all time high, but guess what, the positives in this market are that it’s a lot easier to find deals than it was even a couple of years back. There’s less competition in a lot of markets. It’s easier to find contractors as a new investor because there’s lesser money in the market, so there’s lesser construction projects happening. So you’re likely to find a contractor easily, and lumber prices and some other material prices have stabilized. So there’s a lot of positives to this market. You just got to figure out how you’re going to tackle the high interest rate, and that’s it. So every market has its unique challenges that you need to see.

Rob Abasolo:
Yeah, yeah. It almost sounds like you’re saying probably in a lot nicer than what I’m about to say, but people always find a reason to complain about the market that they’re in, right? You’re totally right. When interest rates were low, everyone was like, “Oh, it’s so competitive and oversaturated now interest rates are high, but competition is low because no one wants to do this.” Now, everyone is like, “Oh, the interest rates are high. I don’t want to do it,” but most of the investors that I know in my community, in my network, everyone is still … the experienced people are still investing in real estate because they’re good at it. They just do it consistently, and I think that’s probably the mindset that you have to take.
We’ll have listeners that get really mad at past episodes. They’re like, “You used to tell us to invest and now the economy is this and you’re shifting your viewpoint.” I’m like, “Yeah, we are shifting our viewpoint. That’s exactly what we’re doing because the economy has shifted, so we must shift how we invest and how we look at different things.” This is one of those things as educators in this space, shifting is the most important thing we can do because the conditions change every single day.

Niti Shah:
Absolutely.

Palak Shah:
And as investors, it’s our job to figure out what the challenges are in the market and how to get around them and what the opportunities are in the market and how to take advantage of them. It’s going to be changing constantly and if that’s … that’s a skill that as an investor, we have to develop, that’s a part of growth as an investor, how to work with a changing market.

Rob Abasolo:
Absolutely. I mean, David, I know you, you’ve sort of shifted your strategy. I’m certainly shifting my strategy so many different ways. I mean, primarily I was a short term rental investor. I still am. I just invest completely differently. I don’t buy the same kind of houses anymore. I don’t buy in the same locations. I don’t buy with the same types of loans. I’m doing a lot of creative finance or sub two deals because that’s the best way to get a return for me. So ultimately, I think you have to know how to adapt to whatever market you’re in.

David Greene:
It’s always been that way like we were just saying. It’s hard to believe, but in 2010, which everyone refers to as the golden era, “Man, if I could go back to 20 twin, I would’ve bought every house that there was. I’m just waiting for the next time that happens.” The funny thing is, at that time, everyone thought you were fool if you bought real estate, you were being criticized, you were being mocked. There was contractors that were dying for work, that would take jobs at cautious to keep their guys fed it. It wasn’t, “Is there a cashflow deal?” It was, “Of all the cashflow deals, which one is going to get me the most for the least amount of work?” So we’re like, “All right, I can get a 25{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} cash on cash return with this one, and all I got to do is paint it.”
That one, I got to do some drywall and paint. That’s too much work, but there was no money. You couldn’t raise money to buy houses. We hadn’t increased our money supply by 80{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} at that time.

Rob Abasolo:
Yeah. Tell me this, because I was not investing in 2010. I’m sure you guys all were. I have to imagine that in retrospect, it seems like, “Oh my gosh, I wish I could go back to 2010 when the times were good,” but was real estate that obvious of a good place to be in 2010? I got to imagine it was still scary coming right off of 2008, just like you said, right? Most investors were probably terrified to get into real estate except for the people that have probably been investing their whole life.

Niti Shah:
Yeah, and this is a piece of advice we got from a mentor that we had when we first started investing, and he had been through multiple cycles, including the 2008 crash, and the first piece of advice that he gave us was don’t invest for appreciation, invest for cashflow, right? And that’s how he’d survived the 2008 crash because he was not investing just for … in markets where it was going up and he was able to survive the crash because he was cash flowing on all the properties. That’s the best part about long-term buy and hold rental real estate is that the cash flow allows you to survive periods of downturn, periods of recession,

David Greene:
Niti, I’m so glad you said that. You don’t know how much heat I’ve been taking from the real estate investing community for making that statement. I mean, I’m hated in certain circles that consider me a heretic because I’ve shared my opinion. Cashflow is not intended to make you wealthy. Residential real estate was never built for the purpose of creating cashflow. It does eventually do that, and at certain market cycles when the market is really low, you can get into cashflow earlier in the economic cycle of owning it than at other times. So for instance, any property that you buy in a decent area is going to cashflow in 15 years, maybe even in 10 years, it’s not normal that it does the first year you buy it.
That was an unusual phenomenon we experienced for so long, like you said, Rob in 2010 because prices were so low, but as investors, we’ve gotten addicted to this, like all that we think is I have to get cashflow so I can quit my job so I can get a girlfriend so my dog will like me so that my mom will finally respect me. All the things in life we want, we think cashflow is going to fix that problem, but those that have owned real estate for a while understand the perspective I have, which is that it is a defensive metric. It is designed to stop foreclosure just to keep the property alive. And over time, the appreciation that comes from inflation and the loan pay down and the value that you add to the real estate do create massive wealth that will dwarf what most people would make at a W-2.
It’s just so hard to get that through to the people who show up saying, I want cashflow for immediate gratification and they want to fix things. Is that a similar experience to what you’ve had?

Niti Shah:
That’s so true, David, which is what we talk about is, you need to stack assets like pancakes. In your initial years of investing, first two, three, four years of investing, you are just buying assets and yes, you need to positively cash flow so that you can see through periods of downturn and that it’s not burning a hole in your pocket. You need to positively cash flow, but don’t think that I’m just going to get to 10 houses and I just need that cash flow and I can retire in two years. That’s not the way to think about it.

Palak Shah:
It actually puts a lot of investors in that scarcity mindset I’ve noticed, because then you are worried about your $50 a month changes my cash flow if I just do this one thing, and I tell them there are four advantages to owning long-term buy and hold rentals. Cashflow is just one of them. There’s appreciation, debt, pay down and what was the first one?

Niti Shah:
Tax benefits.

Palak Shah:
And tax benefits, thank you. Then, with the BRRRR strategy, now we have forced appreciation, right? Cashflow is just a very small part of it, and when you start focusing so much on cashflow, now I see investors get into this hyper scarcity mindset where they’re trying to focus on that additional $20 a month instead of thinking that if I just own this property for 10 years, I’m going to make a hundred grand. Why am I worried so much about that additional $20 a month? I was reading the book, the Psychology of Money, and he talks about how Warren Buffet, he was always focused on longevity. He wasn’t focused on making that short term gain. He always talks about how. People who are able to withstand ups and downs in the market … yeah, there you go.
One of my favorite books, and he talks about how like … if you are able to hold on to your assets during ups and downs, whatever you need to do to make that happen, longevity is what’s going to win.

David Greene:
Yeah. Thank you for sharing that. This is gold everybody. Listen to this again. It’s different than what you’ve been told, but my opinion of why that is, is most of us hear about real estate investing for the first time from a guru, selling a course. And the fastest way to get someone to pay $100,000 to learn how to do something is to convince them that if they give you that $100,000, you will solve a problem for them no one else can, like getting cashflow to quit your job. So because of that … actually, I was up until 1:00 last night working on my next book for BiggerPockets, which is about the 10 ways real estate makes money, and basically they fall into those exact four categories that you two just mentioned, and how we’ve all been sold the bill of goods on how cashflow is the only thing to look for, and so many people miss opportunities.
So I am very glad to hear that we have this in common as well as our love for BRRRR. This is really good. From here, we’re going to go through each of the individual steps in the Scale Strategy, and for each one, we’re going to ask you about two things. The first is what myths hold investors back at each stage? And the second will be the tactics that you’ve learned that will help investors take action. So let’s start with number one, the scalable acquisitions and deal analysis by what is the myth here?

Niti Shah:
Yeah, so one of the challenges that I often see people get caught up when thinking about buy is they say they’re getting caught up in analysis paralysis, right? That’s the term you hear a lot, and a lot of times they say that they’re not finding deals because they’re so focused on deals. They’re just start looking at deals … every deal that comes to them, whether it’s a single family or a duplex or a quadplex or a flip or a BRRRR, sometimes people make that mistake. What they really should be doing … so that’s kind of the wrong way to do it. What they really should be doing is figuring out where they should be investing first.
What city, what market, and why. What neighborhood you’re going to be investing in. So pick the neighborhood first. Pick the ideal property avatar, which is really what your property should look like first before you start looking at deals. That we can eliminate 80{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the deals that don’t even apply to you, right? You’re like, “All right, this deal may be good for somebody else, but it’s not good for me.” So knowing that property avatar, knowing which property you’re going to buy, helps you hone in on properties that are the right fit for you and helps you move faster and get those properties under contract.

Palak Shah:
We learned this from experience. It took us one whole year to get our first BRRRR deal under contract because we were looking in the wrong neighborhood and we were trying to make it work. What we say now is figure out what neighborhood this strategy works in first before you deep dive into finding the right deal. Niti looks at hundreds of deals every week for our community, and what we find is first, if we help them narrow down the neighborhood before we even get them to look at a deal that accelerates the success rate, because you are not looking at deals all over the country, you’re not looking at all different kinds of deals. Now you’ve narrowed it down to the point where you are so focused that it’s very easy to spot a good deal when it comes.

David Greene:
Absolutely. I call that in long distance real estate investing, a target rich environment, you’re kind of starting with the end in mind. If you’re looking for cash flowing real estate, it’s going to need to be somewhere close to the 1{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} rule. Looking at luxury real estate isn’t going to make any sense because then you’ll complain that the BRRRR method doesn’t work as opposed to, I’m looking in the wrong area. Before Rob moves this onto the next phase, which is construction of Scale, I just want to ask you too briefly, there is a lot of criticism right now that people say BRRRR doesn’t work, but when I ask them why, they always say, “After you pull your money out, it doesn’t cashflow.”
My thought is, well then it wouldn’t cash flow if you just bought it traditionally either. The problem is that you’re looking at properties that don’t hit price to rent ratios that you need. Is that a similar experience for you too, on why you see people struggling with the BRRRR method right now?

Niti Shah:
Yeah, and I think of it is also, they don’t understand because a lot of people don’t understand commercial financing well, there’s so many things that you can do, so many different terms that you can get for long-term commercial financing that allows you to maybe … for example instead of a 30-year fixed you could get a seven-year-

Palak Shah:
ARM.

Niti Shah:
ARM.

Palak Shah:
Yeah.

Niti Shah:
Right, and that gives you a slightly lower interest rate. Instead of doing a 25-year amortization, and see if you can find a 30-year amortization. So there’s all these tactics that you can do to increase your cashflow, short term if that’s what your goal is, but here’s what I tell people. Don’t worry about the short term cashflow because guess what, your rent is always going to go up every year. You can increase your rents every year and in the next two or three years when the industries come back down again, because inflation will be down, that’s the idea and then, you can go and refinance and lower your monthly payment, and that drastically increases your cashflow again,

Palak Shah:
And you’re going to feel like I’m reading your mind, whoever is saying that their property doesn’t cash flow at the end and bar doesn’t work, it’s because you are looking in a neighborhood where you should be flipping properties, not boring. If you can cash out but not cashflow, that’s a great neighborhood to flip. That’s not a good neighborhood to BRRRR because that’s not a good rental market. You need to figure out what’s a good market where you can cash out and you can cashflow at the same time.

Rob Abasolo:
Yeah, it’s an excellent tip. Okay, so take us through construction that Scales rehab in the BRRRR acronym. What are the myths here and what are the tactics?

Niti Shah:
So the biggest myth for rehab, from all the investors that we talk to is people think that they need to do a lot of the work themselves or be the job site or go to Home Depot and pick all the materials and hire their own subcontractors. That’s a big issue that we see.

Palak Shah:
The real way to scale a portfolio is figure out how you’re going to scale this and how you’re going to scale your construction part without being at the job site every single day because you cannot be at 10, 20 different properties on a daily basis.

Niti Shah:
The key is to find a good general contractor. If you have a good general contractor who has their team and all you are doing is overseeing them, another mistake that we see a lot of investors make when it comes to rehab is that they’ll let … when they hire a general contractor, they’ll just let the general contractor run the entire project, decide what rehab needs to be done, and almost telling the investor what is going to happen in the rehab. It should be the other way around. As an investor, you should be in complete control of what needs to get rehabbed and why, and we talk about the Goldilocks on, which is what kind of rehab are you going to do to get the maximum amount of ARV without going overboard and over-rehabbing?
As an investor, it’s your job to tell your contractor how to do that and what that’s going to look like.

Palak Shah:
And contractors are creatives, right? They’re creatives. They’re going to find creative solutions for whatever dollar amount you give them, but don’t expect them to watch your dollar amounts. Don’t expect them to keep everything on track when it comes to the numbers, you are in charge of that. So, we find that a lot of investors get into this adversarial mindset when it comes to their relationships with their contractor. It’s not about that. It’s about developing the skill of how you’re going to learn to work with that contractor. That’s a whole different skillset that you need to develop as a new investor.

David Greene:
It’s such a good point. One of the hard lessons I had to learn when I was first dealing with contractors was … and this isn’t a bad thing, but the goggles that they look at a situation from are wildly different than the goggles that I look at it from, which you want … if you think about it, you want the contractor to see it differently. They look at the work that needs to be done, whether it’s framing something or repairing plumbing and their goggles, if they’re good, are what’s the right way to do it? I don’t want to cut corners. I don’t want to go the easy route. I don’t want to do what’s easier for me. I want to do it the right way, so this is going to last for 25 years.
Well, often the right way is seven times more expensive than the cheaper way. So when you compound that by the 11 different things you have them doing, they go in there and spend a lot of your money, but they’re not doing it to rip you off it. Their integrity feels like this is the way it should be done. I do things the right way, which is why you have to pay a lot of attention to the numbers that they’re giving you and what they’re saying to do, because frequently, they will explain why it’s so expensive. I will understand their perspective and say, “Well, do we really have to run the plumbing from here all the way to there? Can’t we just take out this one little section and yeah, I guess we could do that. That’d be fine, because the rest of it is okay.” It literally went from a $12,000 job to a $2,500 job because I just asked the right question.
I think so many people are afraid to do that because they assume the contractor is trying to rip them off. The contractor is trying to get them to spend more money. They don’t understand that. The contractor is afraid to propose the cheapest option because it makes them look like they’re the unlicensed person that’s shady and doing it on the side that they all can’t stand. Has that been a similar experience for you two?

Palak Shah:
Yeah, if you think about a consultant, you go to a consultant and ask for their services, they’re going to show you all the services they offer. They’re going to give you the breadth of the projects that they can do for you. That doesn’t mean you have to hire them for all of those things. It’s the same thing with a contractor. He’s going to show you all of the things he can do for you for your project. That doesn’t mean you have to do all of them. You have to decide which, and we talk about how … if you think of your rental as a product, think of the two customers that you’re producing that product for. One is your tenant, of course, that’s your end customer. Make sure it’s a space that’s comfortable that’s appealing to your tenants.
They can pay you the rent that you want, but also, the appraiser, you want to make sure that in the BRRRR strategy, at the end of the day, the amount that the property appraises for is going to determine the cash-out amount that you’re going to get. So you’re also rehabbing it for the appraiser. Now, if you are rehabbing it to the point where you get a super high appraisal, but then you’re not going to cashflow, it’s not going to help your project because now, you don’t have an asset, now you have a liability.

Niti Shah:
I think that’s … to what David, you said earlier, which is anytime somebody goes over a project like you’re early on in the rehab project and your contractor comes and tells you, “Hey, this is … we just found this surprise, this came up,” and surprises always happened on rehab projects. This surprise came up and now, it’s going to cost you 5,000 more dollars to fix that thing. Your immediate reaction shouldn’t be, “Oh, okay, that’s fine.” It should be, “Okay, but our budget is still our budget. Where can we find the $5,000 where we can cut down on other things so we can spend it on this?” And those are the kind of conversations that you need to have with your contractor because they’re there to help you.
They’re a part of your team. If you treat them as a part of your team and pick their brains, they can get creative and help you. If you tell them, that’s our end goal, they’ll help you get there.

Rob Abasolo:
Yeah. That makes a lot of sense. So earlier you mentioned thinking about the tenants you’re running to. How does that play into the question you asked at the adding cashflow stage? The adding cashflow stage is the A in the SCALE acronym?

Niti Shah:
Yeah. So for adding cashflow, it’s really … to Palak’s point kind of think back of what the property needs to look like, what’s going to get you the best rent. So this is where you do your comp analysis to say what other properties are renting for in your area. This is … and you pick a range of, say it’s 15 to 1700 or whatever, it’s renting for per month, properties that are similar to your properties and say, “Okay, if I do this, this, and this, I can rent it for 1700 because that’s what this other property is renting for.” If I don’t put for instance Central Air, maybe I’ll rent it for 1500. That becomes, again, a question that you need to ask your GC and put it on your numbers to see if your budget can support that.
If not, then don’t, and 1500 may still cashflow, right? So what you’re going to to do is make sure you get enough cashflow, but also that your cash-out doesn’t get impacted negatively.

Palak Shah:
One of the other myths I think that people have when it comes to that adding cashflow piece is they think that if you become a landlord, you are automatically going to answer those late night tenant phone calls. Almost everyone we talk to says that they’re afraid of getting a plumbing phone call in the middle of the night. Guess what? You can put the right systems and processes in place and build the right team to not have to answer that call and still keep your tenants happy and still get them the service that you want to provide them. So, it’s all about building it like a business and figuring out how you can provide the same level of service without being a part of that process on a day-to-day basis.

Rob Abasolo:
Could you give an example of a system or a process you could put into place for a plumbing issue that happens at night?

Palak Shah:
One of the things that we’ve done is we’ve assigned categories to the kind of problems that can occur. It’s green, yellow, red, right? You know that if something is green, it doesn’t have to be addressed immediately. If you know that if it’s yellow, let’s get back to them within 24 hours. You know that if it’s red, then it does need something that needs to be addressed immediately. See, first of all, it’s all about understanding what is an immediate issue versus what’s not because to a tenant, it may seem like it’s all immediate, but it may not be. Then, when it is in fact an immediate issue, you can hire an answering service and you can give them a list of vendors to contact when a specific issue occurs and then, build your … that’s all about building your team.
How do you build your team so that the right vendor can be contacted in case of an emergency? There are services that will provide emergency contacts. You just have to find them. You have to interview them within your neighborhood and find them.

Niti Shah:
To add to that, the best part of all of this, is that you don’t need to have any full-time employees. We have zero full-time employees and that’s … you can just outsource all of this. There’s services for everything these days. You can hire a contractor, you can hire an agency. There’s just so many options for you as an investor.

Palak Shah:
I highly … if you haven’t already, I highly recommend looking into virtual assistants. They’re amazing addition to your team.

David Greene:
That’s a great point. I heard someone else talking about that the other day, that they have a ton of property and no employees because they contract out all of the work. The argument against that is usually what you pay a little bit more than if you were just to hire a person. Their case was I save so much time, not training, not dealing with the human being’s drama, not, “I need a day offer today or I can’t work,” or they’re in a bad mood because their team lost in the playoffs, so they give bad service. You sort of avoid a lot of the headaches that come from managing people. I frequently said, if Notorious B.I.G. was still alive, he would’ve written the song, More People, More Problems.
Because as bad as this is to say, it often does come down to people can be the best, but they can also be the worst part of running a business. Whereas we know that we can count on ourselves, and that’s frequently what stops people from scaling, like you said, is they don’t want to have to take on new human beings that they can’t control. Well, if you’re contracting out to some other company that’s already got that problem solved, you can avoid that. So I think that’s really wise counsel. Moving on to the L, leverage and commercial financing. Let’s get straight to the tactics on this phase. What steps should investors take to optimize their financing?

Palak Shah:
Number one, we love hard money lending. We think it’s a really good option for new investors to leverage their money upfront. Number one, you can start with 25K and they can lend you the rest of the acquisition construction money. Also, a hard money lender can be like their big brother slash big sister looking over your project because they are putting their money into your project. They’re not going to lend to you unless the numbers actually work. They also don’t give you the funds for construction unless they sent an inspector out who’s going to take a look at the work that’s been done, and then they’re going to give you the funds as you progress through your project.
So now you have another set of eyes and ears looking over your project. So we highly recommend new investors consider hard money for short term. Do you want to get into the long term?

Niti Shah:
Yeah, and same thing for the backend, the long term financing, using commercial financing for that as well. This is where that question comes up these days of, “Well, on the conventional side, there’s a 12-month seasoning period.” Well, there is no seasoning period on the commercial side. Maybe some banks will let you do it within six months seasoning. And there’s some banks, you pay a little bit for premium, but they’ll let you refinance even before the six months are up. So there’s so many advantages to using commercial financing both for the front end, short term and for the back end long term. One other additional piece that I would say is that we always tell people always, always buy your investment properties under an LLC and not in your personal name for multiple reasons.
One, it gives you access to commercial financing, which you typically wouldn’t if you bought in your personal name. Two, from a liability perspective. In case lawsuits happen, all your assets are not at stake here. Now, I’m not saying don’t buy a second home in your personal name, that’s fine, but don’t scale with it. Don’t think that I can buy five or six. We did that. That’s how we started off. We bought a few in our personal name and we’re like, “No, well, let’s refinance it into LLCs.”

Palak Shah:
Yeah.

Rob Abasolo:
It’s funny, I’m laughing because you sort of just answered the number one question in real estate. I mean, we talk about YouTube comments, Instagram, “Do I need an LLC?” And people get so hung up on the LLC question and I feel like the answer is usually pretty easy. If it’s a commercial property, you need to buy it under an LLC or if like an investment loan, it’s usually going to go under your LLC and then, if it’s a personal or conventional, that’s typically going to go personal name and then a lot of people just will transfer it over to their LLC. Yeah, I agree. I mean I think … I’m glad you put a little bit of clarification there because I do think that hangs a lot of people up from both starting and scaling.

Palak Shah:
If you’re building a business, why would you do anything in your personal name? This is a business we’re working on, right? You’re building a scalable business, go get your LLC. That’s a simple way to answer, to LLC or not to LLC. That is the problem question, to quote Shakespeare.

David Greene:
Yeah. You also mentioned something that gets passed over, which is that you’re using commercial lending to buy residential properties. This comes up when people don’t understand that as an option because they say exactly what you said, “Well, there’s a seasoning period. I got to wait six months to get my money out. Now I got to wait 12 months to get my money out. BRRRR doesn’t work, or what do you do once you get to 10 properties?” Now, you can’t get into it, right? And the answer is pretty obvious, is you’re going to get commercial financing at some point when you’re doing this.
What were some of the hurdles that you two had to go through to get comfortable with the fact that you may not get super low rate 30 year fixed rate terms on every single property light people get used to in residential real estate?

Niti Shah:
It’s funny. When we first started investing, when we did the first few BRRRRs we got a really high interest rate because at that time it was hard to obtain financing, especially under LLCs. There weren’t enough lenders. So we got interest rates as high as six or 7{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56}.

Rob Abasolo:
Hey, those are dreamy interest rates at this moment, by the way, right?

Palak Shah:
It seemed high at that time. Yeah.

Niti Shah:
Yeah, and it still seemed high at the time. Now, that the interest rates are a little bit on the high side, it can be a bit of a sticker shock for people.

Palak Shah:
Yeah.

Niti Shah:
Again, it goes back to there is so many things you can do to bring the interest rates a bit lower, right? Things like getting a higher amortization, maybe even getting a lower LTV, so instead of getting a 75{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} LTV, if you’re very concerned about cashflow do a 70{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} LTV, so that you’re going to cashflow a bit higher. There’s so so many things you can do if you understand commercial financing, which is why I’ll say education is important when it comes to financing.

Palak Shah:
You always use the word levers, right? Whenever we are doing deal analysis, Niti always talks about, “Hey, what are the levers I can pull to make this deal work?” Say we know what the interest rates are right now, and that’s the constraint we already have. Now, what are the other levers that we have the flexibility to pull? For example, can I negotiate harder on that property? Can I do the construction in a smaller amount? So, what you realize is whatever your constraints are, those are your constraints. Where do you have the flexibility? Pull those levers and if the deal works, it works, if it doesn’t, it doesn’t.

Rob Abasolo:
Well, man, I got so many questions, but that’s okay. We’re onto our last one here. It’s called exponential growth, and this is, as it relates to the repeat, you’ve already kind of started to talk us through this concept, but what would you say is the biggest myth with exponential growth, the final letter in the SCALE acronym?

Niti Shah:
I think repeat and the exponential growth comes from building systems and processes and teams throughout every step in the BRRRR process. So picking the right neighborhood where you can scale building a deal pipeline that allows deals to come to you that are the right fit for you, having a team in the rehab phase that does all the work for you, that you just oversee, even if you’re investing out of state, maybe hiring a property management company for when you’re renting out properties, or even if you’re renting it yourself, follow the systems and processes and teams. Same thing with when it comes to refinance, having a bank of lenders, having these relationships with the lenders at any time you want to refinance a property, they’re willing to do it for you.
Guess what, the more loans you do with banks, the better terms you get. There was a time when we first started out when we had to bring 25, $30,000 to the table to close on a single family deal, right? Now we bring $12,000 to the table because we have more experience. So, everything scales and all the efficiencies that you get as you scale, exponential growth happens as a result of that. And you want to treat it like a business throughout. There’s different steps that you can take as you’re building your portfolio to focus on the 20{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the things that really give you 80{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} of the results.
For example, when I’m analyzing a deal and if I find a good deal, guess what? That just made me 10,000 more dollars because I was able to buy it for cheaper. So that’s a $10,000 an hour job for me, as opposed to going to the job site and putting tiles in the bathroom myself, which I could easily outsource.

Palak Shah:
We had to learn how to do all of this, and we followed the framework. Can you automate? Can you eliminate? Can you-

Niti Shah:
Delegate.

Palak Shah:
Can you delegate? Then, if none of that is possible, then you do it and you have to learn what your method of outsourcing is we had to learn it … I’m an engineer, my method of outsourcing is I have to do it all once for myself to understand it. Then, I build a step-by-step process and then, I outsource it. Niti came into the business and he’s like, “Why would you ever learn to do something that you’re going to outsource anyway?” I had a light bulb moment and now, we’ve changed the way we outsource things. If we’re going to outsource it, just outsource it. And that saves so much time that we can focus now consistently on the business itself as opposed to trying to learn all these things that we were going to outsource to begin with.

Rob Abasolo:
That’s a great tip right there. I think that’s an understated tip because I’ll tell you, I am the … my worst enemy on delegation because I like to master something before I pass it off. Recently, I’ve kind of come to terms with the fact that it’s such a relief to delegate things out. I just delegated out something yesterday that was a billing and invoicing thing. I’m always behind on billing and I just delegated it out to my payroll person. It took me an hour to create the loom and to write out the process and sending it to them, and then I was like, “Oh my gosh, I will never have to deal with this again.” And it’s such a relief, so I think you’re 100{ecd1c82889c5dde6baa4cae2f6d3d4c330bac74c2b880dafaca78809ece33a56} right. Delegate away, if it’s something that you have no intention on ever doing ever again, just give it away. There’s nothing wrong with that.

David Greene:
Just wasted time, right? Write that down. If it’s something you’re going to eventually delegate, don’t bother learning how to do it.

Palak Shah:
Yeah.

David Greene:
Learn how to delegate.

Palak Shah:
And it’s so hard to take your spouse’s advice on the way you’ve been running your business.

Rob Abasolo:
It’s the greatest tip of all.

Niti Shah:
It’s easy for me to take advice. I just do what she tells me.

David Greene:
That is a great … well, it worked with your suit today. You’re looking fresh, my man.

Rob Abasolo:
You are looking fresh, man.

David Greene:
That’s actually such a powerful statement. It’s so hard to take advice from your spouse or because I’m not married, but I remember what it was like with my parents, where they would tell you to do something and you don’t know anything. Then, my dad’s friend would tell me the exact same thing. I’m like, “That guy is really smart. I’m going to listen to exactly what he just said.” So now when I have to talk to one of my employees, I stop talking to them. I go to another employee and I say, “Will you tell so-and-so that he would do really well if he would do this instead?” And I just sneak it in there like a piece of broccoli inside the macaroni and cheese to a three-year-old, so they don’t know what I’m feeding him.

Rob Abasolo:
This is kind of like whenever you say a joke, but I say it louder and then everyone laughs and then-

David Greene:
And they laugh, because they think Rob is funny and they think that I’m scary. That’s exactly right. They’re like, when David says it, he’s a cop and it scares me, but Rob is fun and handsome looking like a reverse cinnamon roll over there. I love everything that he says. Yes, that’s exactly right. Rob has become my microphone.

Palak Shah:
We actually had to learn how to listen to each other from a business coach. We were talking to a business coach and then, I said something like … I said, we have a rule now, that I have this shiny object thing, I want to run after a lot of different projects, but we have a rule now if Niti doesn’t approve, I’m not allowed to take on any projects because I get myself in trouble. The business coach could see things way more clearly than either of us and he said, “Well, yeah, he’s strategy in the business.” And I was like, “Oh, I guess you are right. I should give my spouse credit for what they’re amazing at.”

David Greene:
We call that veto power. It’s good to have someone in your life that has veto power. That gives you the freedom to have crazy, amazing creative ideas without restricting yourself, and you don’t have to worry about if it’s a good idea or not. You just run with it. This is how Brandon Turner and I often operate it. He would just have the craziest stuff and he had complete freedom to think that way, but then, I had veto power. I go like, “Dude, that’s insane. We’re not doing it or oh, there might be something onto that. Let’s go deeper and see where you go.” When you try to measure yourself and be creative, your brain fights. It goes start, stop, start, stop, and you start to get nuts.
So I love that idea of somebody is the idea person, the innovator, somebody else who is the strategy person or the executor that brings some balance to the force, especially when it’s in a relationship. I love seeing a couple like you two working together through the challenges of a relationship and business, but making it work as a single entity with different strengths. I mean, that’s amazing. There’s so many takeaways from today’s show. I love what you’ve done with the BRRRR method where you’ve actually systemized how it can be scaled. I love some of the advice that you gave when it comes to contractors and using them as consultants. I love the idea of cash out or cash flow.
It could go either way. So when you’re buying your properties, make sure it works for each. Rob, what were some of your favorite parts?

Rob Abasolo:
You know what I’m like really starting to close a loop on this delegation thing, but I think just like you said, hearing someone else who’s done it much better than me, if I clicked and that’s it, I’m delegating everything. So moving on from this episode, you might see someone else behind the mic, but just know that behind the scenes, I’m feeding him all of the crispy knowledge nuggets that you’re going to be hearing.

Palak Shah:
It’s the AI version of Rob.

Niti Shah:
Looks like we created a monster here.

David Greene:
That’s exactly right. We don’t even know if this is Rob that we’re talking to. Maybe that’s why his tan looks so good. It’s actually a filter.

Rob Abasolo:
AI. I am ChatGPT.

David Greene:
All right. Well, thank you very much Niti and Palak. It was wonderful having you back on the show and hearing how your business has doubled since 2020. So if you want your business to double, go check out their book, where can people find it?

Palak Shah:
So, it’s biggerpockets.com/arebook.

David Greene:
All right. You heard that folks, head over to www.biggerpockets.com/are, for Accelerate Your real estate book, ARE book. Since you’re a loyal listener of the podcast and we love you, which is why you should go give us a five star review anywhere that you listen to your podcast, we are going to give you a coupon to get a discount for free. The show coupon for being a listener is ARE778 because this is episode 778. So go get your coupon and buy your book at the same time and learn how you can double your portfolio just like this couple did. It was so great to see you two again, where can people find out more about you?

Palak Shah:
You can find me on Instagram @openspaceswomen.

Niti Shah:
And you can find me on Instagram @rewealthblueprint.

David Greene:
Maybe you’re going to be greenprint at some point. Rob, how about you?

Rob Abasolo:
You can find me at Robuilt on YouTube and on Instagram. What about you?

David Greene:
You can find me @davidgreene24 on Instagram, Facebook, Twitter, all of it or davidgreene24.com, if you’re old-fashioned and like websites. All right. I’m going to let you guys get out of here because I’m sure you’ve got more deals to put together and rehabs to oversee. This is David Greene for Rob “The Reverse Cinnamon Roll” Abasolo, signing off.