Replacing His Income with $70K/Year Cash Flow

David:
This is the BiggerPockets Podcast, show 773.

Pasha:
For a long time I just used the, I was trying to steal other people’s why, to be honest with you. I was just trying to copy other people’s why, which was, I want to get to financial freedom so I don’t work anymore. If you see something is going on and you’re not motivated for whatever reason, but more importantly look into no BS why that is definitely linked to your core values in life.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host H Wash. Henry, what’s going on today?

Henry:
What’s going on buddy? Glad to be here with you.

David:
Yeah, and I’m curious, how many people have called you H Wash over your life? I said that like it’s unique. I’m pretty sure I’m not the first person to say that.

Henry:
Several people have called me H Wash, but most people call me J Wash because I actually used to go by JR as my name, and so J Wash was my moniker for quite a while.

David:
So you became so famous and well known, you didn’t have to have a cool first name anymore, Henry would do?

Henry:
Fair enough.

David:
Total Flex. Like I’m so famous, I can have a very boring name like Henry or David and we could get away with it. I don’t have to change it, but yeah, from J Wash to H Wash, the Henry Washington story. Make sure you follow him online at, what? The Henry Washington?

Henry:
The Henry Washington.

David:
You want to see more. We also have a fantastic guest today. This was a true pleasure to interview our guest with Henry, Pasha Maleknia. He has, what I call, the full package. This guy has an incredible story that might even make you cry. He has the heart of a lion. He has the brain of a crazy mad scientist. He has tight systems. He has a great approach to real estate. He has a humble attitude. If you could design a real estate investor in a lab, it might be Pasha. And everyone is going to learn something from listening to this person, as well be inspired. Henry, what were some of your favorite parts of today’s show?

Henry:
Yeah, Pasha is just a phenomenal human being, but what I love about his story is it really truly highlights the fact that this business requires a little bit of education and a lot of action, and he took massive action after what he’ll tell his story and that massive action he took, he didn’t have every step of his path laid out before he did it, but he took the action and he learned along the way and he had successes and he had failures. But I really want people to see that you’ve got to take the action, learn from your mistakes so that you don’t repeat them, but don’t be afraid to move forward without knowing every single step that’s going to be laid out ahead of you.

David:
Yeah, Pasha tells some stories of mistakes he made. Henry tells some stories about mistakes he made. We didn’t have enough time for me to talk about all my mistakes because these podcasts are only about an hour. But none of the mistakes were debilitating towards Pashas career, they actually just helped propel him along further. I thought that was a great point. And Pasha’s honest about his nerdiness and how sometimes being a nerd wanting to be perfect, not make mistakes, can get in the way of success and how he overcame that. So I’m telling you, this is an episode that has something for everybody, whether you’re a new investor or an experienced one.
Before we bring in Pasha. Today’s quick dip is learn what a good deal looks like, then learn how to make a good deal. Pasha talks about that in this interview. He describes exactly the books he read and what he did to figure out what a deal should look like, and then he went out there and found a property and turned it into the deal that he wasn’t able to find without using some creativity. Listen to the episode right before this one, number 772, where we cover how to analyze deals in 2023 if you want to know what a good deal looks like. All right, let’s get to Pasha. Pasha Maleknia, welcome to the BiggerPockets Podcast. How are you today, where are you living, and where are you investing?

Pasha:
Thank you so much for having me today. I live in Northwest Arkansas and I do invest in Northwest Arkansas, but recently we are also looking into South California, as crazy as it sounds.

David:
Well, I can help you in South California and Henry is a Arkansas boy. Is that how we got you here, Henry? Was this one of your connections?

Henry:
Yeah, man, Pasha, we’ve been obviously in the same network here and met probably about a year or two ago, just through some local connections here. And Pasha’s a rock star in his own right, man.

David:
You guys are like a lion pride over there. And in a previous episode I said if Henry was an animal, he would be a lion with his mane. And we just found out that Pasha’s name means alpha lion, which is probably the coolest name any man could ever have. So we’re off to a great start. I’m in good company right now. I’m liking this. I’ll play the Rafiki to your guys’ Lion Kings name. All right, so to bring our audience up to speed with your portfolio right now, Pasha, you’re sitting on about 20 units with a mix of short-term rental, medium-term rental, and long-term rentals. You’re cashing almost $70,000 a year, maybe a little bit more as of this morning. I understand you just closed on a dealer you’re close to. You started investing three years ago, that’s crazy, and you cannot pick a favorite board game. First question I got to ask why can you not pick a favorite board game?

Pasha:
That’s a very good question, because there are so many of them and they’re all amazing. So at some point people were like, oh, you invest in real estate, you’ve got to love Monopoly. And I was like, that’s okay, but there’s so many better games. So right now, I’m okay be just sitting back and just enjoy whatever games we play every time.

David:
So are you a connoisseur of board games? Do you play them and rate them on a scale of one to a hundred? And maybe this could be a website you could start where you…

Henry:
Do you have a YouTube channel where you just rate board games experiences?

Pasha:
Maybe man, may be our full retirement we’ll do that. But yeah, we actually get together a lot with a lot of, I mean there are some of my friends that have rooms full of board games, so we’re never going to run out of it.

Henry:
Real quick, a follow-up question. You’re looking at some places in South California, remind us, what encouraged you to start looking there?

Pasha:
So BPCON was in San Diego and my wife and I were there and I was like, wait a minute, why are, and it was around October, November and it was pretty cold here and it was like, wait a minute, why are we giving up half of our time? It was sitting cozy in our home, but you can just come out and you can enjoy the view and it’s like 70 degrees. I mean, let’s actually make this a goal and try to move here by the end of the year. So next year, which is going to be this year. So that’s the plan.

David:
Henry, what did you think when you got to experience some of that San Diego weather?

Henry:
Oh, man. I was born and raised in California, so I’m very familiar with San Diego weather. And every time we go, so I’ve always said if I was going to move anywhere out of Arkansas and stay somewhere else long term it would be San Diego. It’s just so expensive. But here’s the catch, the allergies are so bad here. My youngest daughter gets terrible ear infections and it’s, my wife’s just a wreck during allergy season. And the second we get off a plane in San Diego, it’s like magic medicine, it just all clears up. And so now I’m like, I just feel like this bad father for not getting, husband, for not getting my family to someplace where the allergies aren’t killing them.

David:
Logically speaking, you’d be a terrible person to not move to San Diego, now that we’ve…

Henry:
It’s about how I feel.

David:
So both of you and anyone listening when you guys want to move to Southern California, let me know. I’ll get you connected with our team and we’ll help you buy there. When I was there for BPCON, I remember thinking, this is why I can’t come here because it’s like the Bermuda Triangle. You do not want to leave, once you get around there. It’d be a complete productivity killer. You just want to enjoy your life all the time because it’s so nice there and nothing would ever get done. And the next thing you know you’re like, oh, I don’t have any money to, I can’t live here anymore because I haven’t worked for the last four years because it’s so nice. So I guess, passive income will allow you to live in San Diego, otherwise you got to be very focused man, because that place is the Hotel California. You can check out any time you like, but you can never leave.

Pasha:
Just wanted to say, we’ve been monitoring the prices of home, and obviously nobody can predict the market, but the prices of Southern California homes are dropping so fast that we’re like, we can house act, we can just go there and we can run an Airbnb or something. We don’t mind doing it. And we’re like, this seems doable. So definitely going to connect with you after the show.

David:
That’s what we specialize in because it is expensive to live there. That’s what it’s like. The best locations with the best weather, the best amenities, the best everything are going to have more demand. More people are going to want to live there. There’s only so much supply, can’t build into the ocean in San Diego. So it’s going to have higher prices. So the question needs to be how can I afford to not live here instead of can I afford to live here? Because it’s always going to seem unaffordable before you look at it creatively. But that’s what we do as investors. We look at the world that way. Speaking of investors, especially if you’re someone that’s only been doing this for three years, Pasha, your investing journey started at a very specific moment three years ago in the middle of the night. Can you take us back to that moment?

Pasha:
Oh yeah, absolutely. So I used to be the typical employee, clocking in at 8:00 AM and clocking out on 5:00 PM, super risk-averse. So I remember when we wanted to buy our primary residence, we were like, okay, the worst-case scenario is going to happen is going to be like I got to get laid off, I mean if I get laid off and we better have five, six month of expensive reserve. So that was our big deposit of money and that was betting against the worst-case scenario. And that was it, that was basically my life for years, and it actually changed all in one night. And I can give you a little bit of a more context because I think there needs to be a little bit more context. The country that I was born and raised, you are required as an adult male to do a military service.
When you hit a certain age, you have to go and you need to spend two years and it’s usually something stupid, like you need to go the post or something like that, but it’s going to take two years of your time. So we didn’t want to do that. So before I was reaching to that age, I actually got out and because of this, I never made it back to my country for, I think, nine years by then. And basically I was just living here, again an employee. I was working for Walmart, I was helping them with the data science and coding and stuff like this. And they actually came up with a new regulation back home, which was like, hey, you can actually come back and you can visit your families and everything for a couple of months and you don’t have to do any service, you can actually leave again.
And we were like, cool, that’s awesome. But there was a fine print underneath of it, which was reading like as long as it is during peacetime. If it’s war, you’ll be drafted. I was like, yeah, sure, cool. So I actually flew in, I think it was end of, really close to end of December back in 2018. And a couple of days after I arrived, there was a drone attack that killed a top general in military. I don’t know if you remember this or not, but that was a big deal back then. It was just a couple of months before COVID. So after that it just washed all of that away, but it was such a huge deal. The whole country was raffled. And my wife was here in US, so she calls me and she’s like, “Get the hell out of there. There’s going to be war. You don’t want to be in the middle of that.”
I was like, “No, I just got back here after nine years. I want to see my friends, I want to see my families. We’re good. Neither side wants to start a war and it’s going to be all right.” And back then actually Trump was saying if you guys do any type of anything in line of retaliation, there’s going to be a full-on war. And we are like all in. So the stakes were high, but I was like, there’s no way, neither side wants to start a war. There’s no way that anything’s going to happen. And I remember I was sleeping and it was at midnight and I see my phone is ringing and ringing and ringing and someone is not giving up. So I pick up the phone and it’s my wife and she tells me that, “Pasha, they actually launched a missile attack to an American base and there’s going to be war announced in the next couple of hours, so you have a couple of hours to get out of the country.”
And I was like, “Oh, crap.” So I looked it up and it was true. And whenever something like this happens, usually they shut down all the commercial airports because they don’t want to get caught in the middle of this. So I checked it out, almost all of the airports were shut. There was one airport that was working and there were few flights going out of that and it was like, okay, I’m going to take my chances. So I took one pair of underpants, I clearly remember that. I think guys can relate to that. Couple of credit cards, my passport. I didn’t even say goodbye to my parents, I just took a cab and it was more than a couple of hours to the airport. So I actually took a cab to the airport. I got to the airport, I got flight to a neighbor country and I was like, okay, cool.
I think I made it. So I was all sweat and everything, just a backpack, and I just get into a plane. I turn on my phone and I just check to make sure that everything’s good, talk to my wife. And I read the news that shocks me to the core, same airport and the previous flight, unfortunately the flight that left was shot down by two missiles and 176 people died right on spot, which is horrible. This is still one of the biggest catastrophe of our recent history. And I didn’t know what to make out of it. I was just shocked. And on top of that, I was in the same airport and I was going through the same direction that that flight was going. And there wasn’t a lot of information back then, but I was thinking there is a very good chance that I wouldn’t make out of it.
And I clearly remember I had 8% battery charge or something. I didn’t have a lot. And I was like, this could be my last 15 minutes and if that’s the case, what am I going to do with it? So I was like, okay, I need to get myself together. What am I going to do with this? So I was like, okay, because I was the one who was handling all of our financial in our home, I was like, okay, I’m going to schedule an email to my wife for two weeks because I didn’t want to just send her an email with all of our financial information and everything because I knew she will freak out. So I was like, I’m going to schedule it for two weeks, so if I can’t make it through it’s going to be two weeks, it’s probably enough if something happens, she’ll be pretty upset that after two weeks you’ll probably go back and check your emails to check for the bills and stuff like that, and then she’ll receive this.
Obviously I told her how much I love her and then I was like, okay, here’s our credentials to the bank, here’s our credentials to the stock, and here’s our things like that, to make sure that she has access to it. I want her to have access to everything I had, basically everything we had. And then I scheduled the email and I remember just literally a couple of minutes later the phone actually was out, drained. And then I thought to myself and I was like, wait a minute, after 30 something years of life, I’m just leaving behind a just couple of months of expense and that was it. There was nothing else. And right there I realized I needed something else other than me, because I always assumed that I have infinite amounts of time available to me that I can trade in my employments with money to pay for my expenses.
But then I realized I was like, I actually needed to have a box, another entity, like a box that can generate wealth that doesn’t depend on me being around because that’s probably the most stupid thing to assume that I’m going to be alive for the rest of the eternity. So I needed to have, I remember I just imagined it as a box that just generates money regardless of whether I’m there or not. And I remember clearly that I was like, oh my God, the true cost of employment, specifically for corporates, is that you will use your prime time, you will use your peak performance for someone’s else and you will basically make someone’s else box bigger and you do not use that and the opportunity because it’s huge, and you will not use that time to build your own box. And it’s all because of the comfortness and the ease of just that paycheck coming in that you don’t want to go out there in the rough and just build your own business, which is definitely going to be hard, but ultimately that’s what you need.
And I hated myself so much because deep down I knew that I had the potential to build it, but I never did it. Does that make sense? So I was like, I wanted to build my box, I knew I could and I never did because I was just too comfortable with these paychecks that were coming to me, and I was just building and making someone’s else box bigger. So I was like, I’m going to get through this flight, I’m going to build that box, whatever it is, I had no idea what that should look like, but whatever it is, I’m going to bring something to life that’s going to just generate wealth for my family that even if I’m not around, they’re going to just continue enjoying it and then it’s just going to be passed around. Well, obviously, I made it through and the rest is history.

David:
So there was something about that being shocked out of your comfort zone, I may die, war may be happening. This predictable nature of life, wake up, go to work, clock in at eight, go home at five, pay my bills, do a good job at work, keep Bob the supervisor happy, that was shaken by this reality that you’re now staring at in the face. And something about that brought out this desire that you knew you had inside, this potential that was there that had just been kind of living dormant this whole time?

Pasha:
Absolutely. After that, now I had a blazing why I need to do something like this. Before that I came across the concept of fire a couple of times, I was completely not attuned to it. It wasn’t resonating with me because I was just under the wrong foot. I was just so blindsided to the fact that life, everybody has a very fragile body and you could easily die and nobody has promised you your next minute, but you need to have, are you comfortable with not leaving the box for your family or the ones that you love? And I was not, and it killed me that I never saw that it was all in front of me.

Henry:
A lot of people don’t get, they don’t get time after their wake-up call. And what I mean by that is you might get a bad diagnosis or you might get some bad news and typically a lot of times it doesn’t come with a lot of time afterwards. You were fortunate enough to have your wake-up call when you potentially had some time and you immediately started acting on it. And I want to commend you for that because, again, a lot of people go through these things and they think, oh, if I can only get through this, I’ll be the best version I can ever be. So what did action, after you had that epiphany, look like?

Pasha:
Oh, boy. I remember, Henry, when I got off that plane. It might sound a little bit cheesy, but that’s true. When I got off that plane, I was a different person. I was like, I’m going to take this and I’m going to run with it. So I started looking around, I didn’t even know what it was called and then I realized it’s called passive income. And I was so far away from this world. I’m a coder in core, I’m a nerd, I’m a geek, whatever you want to call it. It was such a distant world to me. But when I started looking it up, but I was working in real estate department, so I was kind of in that world, but not really. So when I started looking it up, different venues and everything, I actually came across a good friend of mine, his name is also Brandon, and not Barry to Brandon, but Brandon’s also a great friend of mine and he actually introduced me to BRRRR and I was like, “What is B-R-R-R-R?”
And he was like, “No, you say it BRRRR, you don’t just read it like that.” Oh, okay. So he added me to a Facebook group, it was called BiggerPockets Fans. And I was like, are these, first I thought it was a closing company or something. And then I was like, okay, what is BiggerPockets that has BiggerPockets Fans? And I looked it up and I was like, oh my God, this is so amazing. So I ordered, I don’t know, you can see half of them here. I ordered I think 20 books from BiggerPockets store and I was like, I’m going to read through every single one of these. And I probably picked the worst first book to read, by the way. Which book do you guys think is the worst first book to start with? I just want to know your opinion before I tell you what that was.

David:
Of the BiggerPockets books?

Pasha:
Yes.

David:
BRRRR would be a little confusing if you didn’t know anything about real estate investing at all. Long-Distance Real Estate Investing, but basically both the books I wrote I can see not super great for beginners. What do you think, Henry?

Henry:
Oh, would you, Raising Private Capital?

Pasha:
That’s a very good guess. I started with Advanced Tax Strategies. And then I started reading how to estimate rehab costs by J Scott. And I remember I was reading it and it was like, okay, there are three, five different type of roofs. I have no idea how to use that, but that’s okay. I’m just going to fight, I just want to go through this. I want to make sure that I know everything. And when I actually, David, it’s funny that you mentioned this because when I actually read your book then I was like, oh, now it makes sense to me, now I realize what needs to be done, now I realize how I can use these things that I read somehow.

David:
You had a framework to put the information that was floating around in your head in, right?

Pasha:
Absolutely. But just to give you an idea how much something like this can change, and I really want people to this, I really want people to use this if they can so they don’t have to be in the same situation that I was. But I actually read Rich Dad Poor Dad before all of this fiasco, and I remember it was such a boring book to me. I was like, who cares you were a kid and you were in retail. So just get me to the point. I was in a completely different type of mindset. And then after this happened I was like, oh, I think there was a book that was talking about this too. And I just listened to this over and over and overly, I think I’ve listened to it three times. And I think it all goes back to the why and why you need to do this.

David:
Well, your mind was being transformed basically. When I hear your story, I get this image of a scientist looking at a microscope. You’re going into work every day. You’re coding, you are super zoomed in on very tiny details that become your entire world and you spend your entire eight-hour day in the microscope, you forget that there’s stuff happening around you. You forget that there’s someone eating a sandwich next to you and you can smell it. You just don’t notice any of that. And that experience that you had, that life or death type of an experience pulls you out of the microscope and you’re like, there’s a whole world around me and I haven’t even been thinking about it because it’s just so comfortable to look down my scope here. And I really think a lot of people either can relate to that or are waiting to have that moment in their own life.
It could be an unexpected pregnancy that you’re, oh my goodness, life just got serious. Or you fall in love and you decide you want to get married, or a family member gets sick. It could be you just lose your job. You thought you had a great job. We’ve had guests on before who were perfectly content with where they were until they lost it and it shook them up and it forced them to look at things differently and they all come back and say, I’m so glad I did it. This is such a better way to make a living. I wanted to ask you, so basically going back to where you were, you make it into the US safely, you are all-in on using real estate investing to generate wealth. You get pulled into our world, you understand the BRRRR method, and the fashion brand, BiggerPockets, becomes your preferred type of clothing and you’re listening to these podcasts, you’re sucked into the world that Henry and I live in. Walk us through your first deal. How did you find it and what was it?

Pasha:
Absolutely. So first of all, it was really hard to do it because everybody around me were telling me that don’t do it. I had friends actually stopping by at 10:00 PM and they’re like, “I couldn’t stop thinking about saving you, don’t do it.” And I told them, “I don’t care. I just need to build a box. Even if it’s the worst time to build a box, I want to build a box and I think you should do it too.” But then I think there was a duplex coming up, Henry’s familiar with that neighborhood, it’s actually near Downtown Bentonville, an area that actually got a lot of attention. And it was a duplex coming up and it was severely under a market value based on the square foot price. It came at 11:00 PM and we put an offer on it at 7:30 AM and we put it on a contract for $3,000 more without looking at it.
And my agent was like the only thing that the seller agent says she needs is that they just want to sell it as is. And I was like, I think it’s good. I’m not sure yet. Based on theory, I think that that sounds like a good deal. So yes, let’s do it. So we bought it for $248,000 and I haven’t even seen inside the house, so it was a big moment for us. And when there was inspection, there was a five days inspection period or something, and then we walked with the inspector inside the house. It looked okay, people were living in there. It was generating like $800 one part and another part was the owner. So even if we were renting it with that rate, it wouldn’t be even close to the 1% rule. But again, I wanted to build the box. So we looked at everything, definitely needed some work. And I remember one of the bathrooms didn’t have a toilet and I was freaking out.
I called one of my friends that had a real estate and was like, “Dude, it doesn’t have a toilet.” And it was like, “It’s 110 bucks from Lowe’s, don’t worry, you’re going to survive that.” I was like, “Oh, okay, good to know that.” So we were really going, but what I want to say is we were going forward, there was no coming back and it was like just how can I make sense of it as we go forward? And then we looked at everything, dude, it was like 2800 square foot, so it was roughly about $90 a square foot, which is pretty good price for that area, then it was like $130. And then there was a pantry door shape that I opened and I saw the best thing ever, which is stairs going down. And we went down and it was a full finished basement with additional bathroom that was not even included in the listing.
It wasn’t even included in the counter website. Now all of a sudden we’re looking at a 3800 square foot home in Downtown Bentonville for $248,000. And I was like, if somebody wants to send me a sign, I think this is it. If it was just all over the place, we were like, I loved, and the seller was like, “If you want, can we stay here for a couple of days more?” I was like, “Whatever you want to do, I just need to close on it.” And actually they actually moved out. My wife and I were like, okay, we’re going to renovate it ourselves as the first thing. And we watched so many videos, we definitely geeked the hell out of it. We watched five videos about how to wash your paintbrush, something like that. And then we started painting the walls. We did the flooring ourselves, which I think was the biggest achievement of that renovation was that our marriage survived. I think that was the biggest thing.

Henry:
I was just going to say, if you guys didn’t think Pasha was brave for having an epiphany and then acting on it, diving into this unknown world of real estate, diving into it so much so that he didn’t even realize that not having a toilet was only a couple of hundred dollars fix. That is the epitome of bravery. Some might call it stupidity, but I’m going to call it bravery. If you didn’t think that was brave enough, he then decided to test his marriage by doing a DIY renovation on the first one.

David:
You were expecting that HGTV experience where your wife’s so happy and she’s like, oh my God, look, I did the paint. And you’re like, oh my gosh, that’s so good babe. And the two of you are bonding with this cute pizza box in the background as-

Henry:
You’re wiping paint on each other’s face by egg.

Pasha:
Oh, absolutely. Pasha, where did you put the brush? That was a $20 brush. I was like, oh, sorry, mate.

David:
You’re not using the right form. The video showed elbow at first. You’re getting your Mr. Miyagi on trying to tell him how to paint the fence. Yeah, that’s exac, real estate has probably caused more unsolved murders than anything else when it just comes to these how high stress levels can get in. Yeah, that’s a great example. So was there a point there that you realized we’re not doing this anymore or did it get better?

Pasha:
Right after that. We just renovated one side of the duplex. We’re like, okay, good lesson learn. We are not going to do it anymore. We’re going to hire somebody to do it. This is stupid. We can’t just do it ourselves.

Henry:
I had a very similar story when we decided to paint our kitchen cabinets together for the first time because I didn’t want to spend the two grand or whatever it was to paint the cabinets. It took us three weekends, we were fighting about it. I finally called the painter, the painter had them done in two hours with the spray gun and I was like, never again will I do anything. I’ve had the same moment. I love it.

David:
That is, I mean, it’s so true. I hear people say all the time, why pay someone if you can do it? And they just, they’re revealing that they do not understand how learning curves work. That is a two-hour job for a painter with experience and skill and tools and resources. That is a three-week job for the person. Now here’s the good news. After you get done doing it the first time, the next time it won’t be three weeks and maybe it’ll be one week, but then it’s going to be a long time before you get to where you can do it in two hours. And meanwhile you haven’t made any money buying deals or doing the thing that you’re good at. So I agree a hundred percent. Sometimes you have to get in there and track your own way. Here’s your jiu-jitsu analogy for the day. Everybody always shows up at jiu-jitsu class and they hear the instructor showing them the technical way to do it and it’s just a pain in the butt, to be frank. It’s puts you in a position where you’re a little bit uncomfortable.
You’re having to hold a pose, for lack of a better word, that your body doesn’t like. You’re like, nah, I can just do this. This’ll work just fine. And then a lot of people just have to keep trying and trying and trying until they finally, they’re tired of getting beat up by a guy that’s 110 pounds and they go, what do I have to do? And at that point, now the instruction you’ve been giving clicks and it makes sense. Sometimes we got to go through that in life where you have to just get in there and suck at it, be very frustrated, feel a lot of pain, and you’re like, all right, now I will listen to the advice that the experienced people were telling you from the very beginning. So thank you Pasha for sharing that story because we all have our own little stubborn cabinet painter inside, and sometimes we just got to let that guy have his moment.

Pasha:
I would say though, when you do something yourself, you do real, you gain a little bit of a knowledge to be dangerous enough so that you can call out if somebody is not doing a job right. I mean that part of it, because again, I was complete coming from a different world to this, but for example, now that I have my flooring guy like, oh, you get the door jabs, right? Using those words just show you know a little bit about where are the hardest spot to look at? And they’re just, they’re like, oh, okay, this guy probably knows his stuff, so we can’t just like [inaudible 00:32:30].

David:
All right, Pasha, so you learned from sweat equity, you put some time in there, your marriage survived this. Congratulations on that, man, hats off to you. We don’t need any more divorces in this country. You’re now sitting on a property that has been rehabbed and has an ARV of $600,000. Is that correct?

Pasha:
Correct. So we actually rented it and then we reno, we refinanced it, the first time it came back at 420. It was right after we added those things, and then we refinanced it again when the prices went up and it was about $600,000. So we were able to lock it down for 2.75, I think, for 30 years fixed, which is…

Henry:
What kind of loan did you use to buy it originally? What was the-

Pasha:
Conventional loan. So my very first purchase was using a conventional loan to buy it and using a conventional loan to refinance it. And we just literally just put 20% down to remember the six months cost of living expense. We were going all-in. Now you’re like, there’s definitely some vi of craziness to it. I totally agree with you. But we actually used that money to put down, and then I used the method that I call negative interest rates for the renovation. So the $60,000 that we spent on the renovation was primarily coming out of our, basically playing with the credit card world. So utilizing credit cards, and again, just a disclaimer, this is one of those things that you really want to be good at, and if you are not disciplined, it’s going to come back and it’s going to hit you 10 times fold. But we basically just open credit cards with 0% interest rate with sign-up bonuses and we were just using that.
We were racking the points, and at the same time we were not basically using any money of ours. And when we were done and when we refinanced it, we got the money back to pay off the credit, which we did, and we actually put it into a saving account and on 11th months we paid all of those one months before it was going on. But just long story short, I looked into how much money I had and I knew that I wanted it to work. So we looked into all different options that we could use, different loans that were available to us and then we just use those.

Henry:
Totally. You talk about the credit cards. I’m glad you made the caveat because absolutely, if you don’t have the discipline that you can end up taking what is 0% interest and turning it into 24% interest very fast. But I did a very similar thing. I used my 0% interest credit cards to pay for my first marketing campaign to get my first deal. So I went all-in there as well. So you mentioned you bought it with the conventional, you refied it with the conventional, but then it sounds like you learned more about different strategies. So what other strategies are you using or have you used to continue building your portfolio?

Pasha:
Yeah, absolutely. So right after we were done with the renovation of this duplex, and it’s just a side note, one of the things that we do whenever we want to start a project right now as part of our step-by-step system is that we introduce ourselves to all the neighbors around the home. We give them our phone number, our contact and we tell them, hey, we are going through a renovation for this property if the noises are high or something, you have our phone number, you can reach out to us directly. Which, by the way, is great because you’ve got a lot of set of eyes on your property. So there was a lady that was our neighbor that came to us and she was like, “Well, we want to sell this property that we have. Do you want to take a look at it and maybe buy it?” And by then I actually had finished, how to raise capital book and all of that. I was like, “Yeah, I do.” And we talked to her about seller financing.
Unfortunately, it wasn’t the case for her, but then I knew that I could use that. And then I used construction loans, which is basically when banks come over, take a look at the property and they loan you the money based on ARV, not based on your purchase price. So we basically put together the plan that we had. It was a beautiful three bedroom, one bathroom that needed a lot of work. And our plan was to turn that into a five bedroom, two bathrooms, and we were actually adding a square footage to the home, so the ARV was higher. The bank looked at it and they were like, “You seem like you know what you’re doing, so we’re going to go with it.” They lend us the money, they lend us the construction money. And same thing when we were done, we basically refinanced it again, get the cash back, and we actually turned that into an Airbnb. So I think it’s like BRARR than BRRRR, but it’s been, that property is also working absolutely amazing. Thank God.

David:
I really like with the BRRRR method, when people add square footage to the home, especially if it’s a small home. If it’s a 3000 square foot house, adding more square footage has diminishing returns. But this doesn’t get talked about enough because for a long time when we first started teaching BRRRR, it was just buy an ugly house, make it prettier, pull your money out. It was simple. And then as more people learned about it, more people got into real estate investing, competition increased, became harder and harder to find those deals that just needed a facelift or just needed the cabinets to be painted where you could spend $2,000 on a painter and increase the value by $25,000. You had to get a little more tricky. And now we’re at the point where it’s much better to go find a 1200 square foot house in a neighborhood full of 2200 square foot homes, literally make it bigger, makes it very difficult for the appraiser to give you the bad appraisal.
You just have to have a little bit more construction knowledge. You have to have a little more creativity. You have to have a little bit more understanding of how the permit process works with cities. It’s definitely not as fun, but is very profitable. So I love hearing that. And when you talked about your surprise basement, that just gets me going, man, I don’t love anything more. It’s better than reaching into your coat pocket and finding a hundred dollars bill that you forgot about. When you see that there’s, oh, there’s space that nobody used. It’s waiting. It’s like just this awesome present that the universe has handed you. I look for that more than, it’s so much that I’ll give everyone here a quick tip, when you’re looking at pictures on Zillow or Redfin or wherever you look, I don’t click on the right arrow that takes me from the beginning of the house in the front of the house, then the front door and then the entryway, and then the kitchen.
I click on the left arrow, I want to see the backyard and I want to see all the ugly pictures the realtor wants the normal person to see last. That’s where I see, oh, look, they have framing but no drywall, it’s not finished. Oh my gosh. They have electrical outlets already run. They have plumbing and drainage that’s already run and all, that’s where those pictures are going to be. And I almost don’t even look at the house unless I see that. Do either of you guys have a similar experience when you’re analyzing properties, you look for the same thing?

Pasha:
Oh, absolutely. You said it right 100%.

Henry:
I love looking for, and so right along with this, when I’m browsing properties, the first thing I’m looking for, I love seeing houses that have sunrooms, that have formal dining rooms or formal living rooms. And so what I’m looking for, especially sunrooms that aren’t heated and cooled, you can see them but they’re not included in the heated and cooled square footage, because then I can take, and if it’s already under roof and over the foundation but it’s just not heated and cooled, I just have to figure out a way to get a run from the HVAC in there, and then I can put flooring and insulation in the walls and boom, I’ve added heated and cooled square footage without having to knock down exterior walls and build additions. And so you can find value.
I like the formal living and dinings because you can take, most people don’t use them anymore, and you can take those and easily convert them into bedrooms or bedrooms and bathrooms, and it doesn’t cost a ton. Again, you’re not adding square footage, but you’re adding value by adding bedrooms and potentially bathrooms. So what you can look for is, when you’re browsing, look for homes that have larger square footage footprints than the bedroom and bathroom count would indicate. If you see a 3, 2, 1500 square feet, that’s about normal. But if you see a three bed, two bath with 2200 square feet, 3000 square feet, now you know there’s some extra space in there that you can add value to under roof.

David:
That’s a great point. That’s what we mean when we say don’t find a great deal, make a great deal, because if it could be found someone who has already found it, I promise you. But if it could be made only the specific people listening to podcasts like this that have the competitive advantage will see those angles. You can learn all of those strategies that Henry just said and more in the BRRRR book that Pasha mentioned there via bill, but biggerpodcasts.com/brrrr. All right, so Pasha, you have just come in and taken the world by storm here. You’re doing great. You’re making mistakes, but they’re good mistakes. You’re adding a lot of value. I mean, usually people screw up on their first couple deals, but you are able to avoid that. Let’s hear about what your units are cash flowing for, start in 2020 and then add every single year to where you’re at now?

Pasha:
The first year we were like minus $1,200, if you will. Then the next, when we eased into the next year, that’s where we started running this Airbnb, and that’s where we actually started doing, getting renters for our units. So now we were going back about now positive 2000, $1,500-ish per month. And then we basically just went to the next level, which was now we wanted to buy our next properties, which was a triplex. And you’re absolutely right, they were all on market deals. Couple of deals that we bought after that, it was just there. We looked into it and we realized, okay, there is a good potential to add value here.
We converted a lot of garages and then, again, we added cash flow to it as we were going forward. So we were making about 24%. And then after that, we went basically from two units first year to four units next year. And then we went to 11 units after that, additional units. So by then we were about 17, 18 units, and then we added another four units to the portfolio. So we just kept adding a cash flow to what we’ve been making. And now we are roughly about 55, $5,600 pure cash flow that is coming to the.

David:
And that was at the end of 2022?

Pasha:
By end of 2022, I think we were close to I think 6,800, $7,000 if I’m not mistaken. But the other units that I’m actually having right now in 2023, because they’re vacant and they’re basically consuming my cash flow, it actually went down to 5,800. We believe after they’re done, we are probably going to go back to probably 75, $8,000 a month. That’s the number that we’re projecting.

Henry:
And does that include the one you closed on, or did you close on one today?

Pasha:
Man, I wish I was able to tell you I close on it today. Stupid title company didn’t get the payoff amount, so it was actually pushed back.

David:
Stupid title companies, man.

Pasha:
I’m so done with them. But it’s a huge spread, we are not, so I don’t know if it’s answer to your question or not, the quick answer is no. Those deals that we are closing right down, especially because of the interest rate, we are kind of changing our strategy a little bit, and we are basically going after homes that are cash flowing to hold. And those homes that are not cash flowing but we can sell, we capture the equity. And then for the other homes that we like to hold, but they’re just right at the edge of cash flow positive, negative, we use that money to lower down the loan amounts that we are getting to make them cash flow positive.
And then basically we open a line of credit so that we have access to that cash, but we basically park it inside those homes to make the cash flow work sort of, if that makes sense. Because we immediately realized we were giving up on a lot of deals just because they were not cash flow positive. Because the deal flow was working, we were seeing a lot of deals, but then we were like, wait a minute, we can wholesale these deals, or we can actually sell these deals, we can flip them.

Henry:
Awesome, thank you. What I know about Pasha is so when he said he was a nerd, I already knew that because Pasha, every time I would meet up with Pasha, he would talk to me about some new bot or program that he was running in the background of something that was scraping somebody’s data and bringing him all this super magic information and helping him to buy deals or manage things. And a lot of it, even me being a data and a techie guy, would go over my head, but Pashas just super-duper smart like that. But now you’ve actually taken this technology passion you have and you’ve married it to real estate. And so talk to us a little bit about how you’ve created systems and automation through your nerdy background?

Pasha:
So yeah, as you mentioned, in nature you can lock me in a room and you can just put food at the door and I will give you code. I just love doing it. So we were like, okay, what are the things that we’re doing? Step back and see if we can automate it and if we can systematize it and, better than that, if we can use a software to do that. So when it comes to property management and asset management, for us, we first hired property managers and it didn’t work very well for us because we looked into P&L, they were getting a huge chunk of our basically gross revenue. And at the same time we didn’t feel like we were getting the result that we wanted, but we learned a lesson from the first flip, so we didn’t want to manage the properties ourselves either.
And then I was like, okay, what if I build a system around property management so that I kind of control the input process and output and see if that works before going all-in and just writing a check and giving it to the property managers. Not nothing against them, I just didn’t feel like that’s the way I wanted it. So we used softwares to collect money, to process the maintenance tickets, and I was like, well, I don’t have to be involved in any part of this, I can just basically hire a virtual assistant that will look into that and they will just connect the problem to the vendor. And then after we did all of this, it was like, well, why don’t I just automate the rest of it? So we added different gadgets of like, leak detectors is one of them that really helped us a lot.
So right now, all of my rentals actually have these, you can buy them for eight bucks, that whenever there is water it actually beeps like a smoke detector. So we placed it all over and so far it has saved us from three floods. Works really well, and it’s basically just that as a system. And then we realized we can also use software to automate that piece as well. So basically whenever we have a flips or something like this, we put, because the flips are a little bit different than rentals because rentals, you have people in there, they will see it, they will fix it, flips you are not there, so if something bad happens, if there is a flood damage, it can cost you eight, $9,000. It can easily eat through all the profits that you are looking into making, the good portion of it. So I think I haven’t seen the solution out there, but I’m pretty sure somebody can listen to this and build it or I can just try to share the code or make it a little bit more friendly.
But basically there are leak detectors that connect to the wifi and whenever there is water, there’s a API handle that they will just push to the server. So you’d be able to basically have an app that connects to it and you know whenever there is water in, let’s say, unit one. And then there are devices that can shut off and open water valves that you can just put right into the water that’s coming to your house. And basically it’s just going to be simple as whenever there is water detected, if it is in an hour that nobody’s working there, then just shut off the main valve, send me an email so I know what’s going on. I can send the contractor the next day. So it doesn’t really damage the property that you’ve been working on because that happens a lot.

David:
When it comes to building a system. Do you have a system to build systems? Is there a process that you follow if you have to build, can you tell us a little bit about that?

Pasha:
Yeah, absolutely. So man, I could talk hours, for little bit is, about systems, but basically systems are, in my opinion, input-process-output. And they’re like little piece of Legos that you can just put together, the output from the first system can feed into the input to the second system and it can go on, and you can actually build this together to kind of customize it to the need that you want. However, one of the things that I noticed a lot of people forget to do is that they just think that’s it. Like input-process-output is going to be your system and then they just build it, it works, and then they just back up and then they think that it’s going to work for ever happily ever after. That system’s going to be amazing for the rest of the time.

David:
Can you give us an example of an input-process-output specifically with real estate?

Pasha:
For example, one of the things that we’ve been doing is making sure that we are renting our properties correctly. You want to rent it at the right price range, and you want to make sure that your vacancy is low, so basically your revenue is higher. So as I mentioned, we don’t use property managers and we have a rule that I shouldn’t do anything other than building a system for my system to manage the properties. So one of the things that we had was like, what if I have a system that walks a person through how to set up a listing, put it on the market, do the advertisement, do the application process, and be done with it basically. So we built that learning material, it’s called Knowledge Base. I don’t get into much detail of it. But basically that system is, we have a property, I just tell my VA this is the listing, just go set it up.
And if everything works fine, we already have the pictures. The process is basically putting it on the market, on Zillow, Facebook, different places. And output is having that place rented by a decent renter. Now the KPI, and it’s been working great so far, I’m so proud of it so far. Knock on wood. The non-flip ones on average is like five days vacancy, but the KPI here will be, if the vacancy of the property went higher, what is this system going to do again? And so for example, in this case is if our vacancy goes after 10 days, what did we do wrong? So it needs to go back to the process. Maybe it’s pricing, maybe it’s not advertised correctly, maybe it’s the time difference, but whatever it is, me as a business owner need to design a system, feedback system that can come back and update the process so that this doesn’t happen again. Hopefully I answer your question. Didn’t make you-

David:
Pasha, this has been awesome, man. This, I think, is one of the better shows that we’ve done. You have an amazing story. You have a great approach to real estate. You have a voracious appetite to learn. You have the heart of an alpha lion and getting out there and getting things done, and you can build systems. You are the complete package. We are talking about the LeBron James, the Tracy McGrady, the Paul George, you’ve got it all. And you are doing great with only three years into your investing career. So we are definitely going to have you back on again, particularly to hear more about systems and how other investors that love real estate, but probably don’t love the chaos, the mistakes, the time consumption, the stress that comes from not having systems and trying to operate without a tight clean approach, can really benefit from what you’re doing. So thank you very much. Any last words before we get you out of here?

Pasha:
The only thing that I’m going to say is if you, it’s just like a piece of advice I would say that if someone is listening to this and they are still thinking that I don’t want to start, I don’t want to do it, that’s absolutely fine. I would just say go back and visit your why, because for a long time I just used the, I was trying to steal other people’s why, to be honest with you. I was just trying to copy other people’s why, which was I want to get to financial freedom, so I don’t work anymore. I love my job. I still work for Walmart because I love it. I love coding, I love building system, I love automating stuff. It was just not resonating with me. So it wasn’t like hot enough to keep me standing, keep me up during the night to think about how I can do this better.
It was just not my why. And what I would recommend is if you see something is going on and you’re not motivated for whatever reason, one, look into psychological problems. I mean, maybe you have ADHD or something like that, but more importantly look into no BS why that is definitely linked to your core values in your life. And if you can get that part right, you need to fight yourself. It’s not an easy thing to come up with a very good why and, at least it wasn’t for me, and you need to do that. And when you have your why right, everything else falls into place because you want to do it and you will find a way because you know why you’re doing it. So you will just keep going. You will just find the ways, you just create new ways. Nothing can really stop you if you know why you are moving.

David:
That is awesome. Don’t copy someone else’s why, you got to find your own why. You can copy their systems. You can copy their approach. You can copy the knowledge that are in their books. You can copy everything, but the why. Henry, how about you? Anything you want to add before we go?

Henry:
Absolutely. And what I want to say is you absolutely can copy their systems because I am a user of some of Pasha’s systems on managing properties. And so when we have Pasha back, guys, you’re going to want to tune in. He literally set a goal this year to never have to go to one of his rental properties for anything. And I was like, well, that sounds interesting. And so we’ve been implementing that as well. So he’s very good at building systems and they work.

Pasha:
Thank you. Appreciate it.

David:
Pasha, thank you very much. We will have you back. If people want to find out more about you, where can they go?

Pasha:
I’m actually on Instagram right now @techierealestate, T-E-C-H-I-E real estate, all one word. And thank you guys so much for having me on the show.

David:
Tell me you’re a nerd without saying the word nerd, techie real estate. I love it, man. That’s perfect. Good thing that you’re an alpha lion to balance out that nerdiness, man. Great job. It was great meeting you, Pasha.

Pasha:
Thank you so much, sir. Really appreciate it. Thank you, Henry.

Henry:
Thank you buddy.

David:
This is David Greene for Henry, the Lion King, Washington, signing off.